Securities Act File No. 33-34080
Investment Company Act File No. 811-6076
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 38 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 38 /x/
(Check appropriate box or boxes)
THE INFINITY MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (614) 470-8000
Robert L. Tuch, Esq.
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
It is proposed that this filing will become effective (check
appropriate box)
__ immediately upon filing pursuant to paragraph (b)
X on May 1, 1998 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(i)
____ on (date) pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(ii)
____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Correspondent Cash Reserves Money Market Portfolio
Correspondent Cash Reserves Tax Free Money Market Portfolio
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
Form N-1A Caption
Page
1 Cover Page Cover
2 Synopsis 2
3 Condensed Financial Information 3
4 General Description of Registrant 5, 16
5 Management of the Fund 9
5(a) Management's Discussion of Fund Performance *
6 Capital Stock and Other Securities 16
7 Purchase of Securities Being Offered 11
8 Redemption or Repurchase 13
9 Pending Legal Proceedings *
Items in
Part B of
Form N-1A
10 Cover Page B-1
11 Table of Contents B-1
12 General Information and History *
13 Investment Objectives and Policies B-2
14 Management of the Fund B-15
15 Control Persons and Principal Holders
of Securities B-18, B-27
16 Investment Advisory and Other Services B-18
17 Brokerage Allocation B-25
18 Capital Stock and Other Securities B-26
19 Purchase, Redemption and Pricing of
Securities Being Offered B-23
20 Tax Status *
21 Underwriters *
22 Calculations of Performance Data B-24
23 Financial Statements B-35
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*Omitted since answer is negative or inapplicable.
<PAGE>
Items in
Part A of
Form N-1A Caption
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under Common
Control with Registrant C-5
26 Number of Holders of Securities C-5
27 Indemnification C-5
28 Business and Other Connections of C-6
Investment Adviser
29 Principal Underwriters C-10
30 Location of Accounts and Records C-10
31 Management Services C-11
32 Undertakings C-11
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*Omitted since answer is negative or inapplicable.
<PAGE>
PROSPECTUS
May 1, 1998
[LOGO]
THE INFINITY MUTUAL FUNDS, INC.
Correspondent Cash Reserves Money Market Portfolio
Correspondent Cash Reserves Tax Free Money Market Portfolio
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The Infinity Mutual Funds, Inc. (the "Fund") is an open-end, management
investment company, known as a series fund. By this Prospectus, the Fund is
offering shares of two diversified money market portfolios (the "Portfolios"),
each with a different investment objective:
- - The CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO (the "Money Market
Portfolio") seeks to provide investors with as high a level of current income
as is consistent with the preservation of capital and the maintenance of
liquidity. The Money Market Portfolio invests in a diversified portfolio of
short-term money market obligations.
- - The CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO (the "Tax
Free Money Market Portfolio") seeks to provide investors with as high a level
of current income exempt from Federal income tax as is consistent with the
preservation of capital and the maintenance of liquidity. The Tax Free Money
Market Portfolio invests in a diversified portfolio of short-term Municipal
Obligations (as defined herein).
Shares are offered only to clients of certain securities dealers that have
entered into clearing arrangements with Correspondent Services Corporation
[CSC], a wholly-owned subsidiary of PaineWebber Incorporated ("PaineWebber").
You can invest, reinvest or redeem shares at any time without charge or penalty
imposed by the Fund.
Mitchell Hutchins Asset Management Inc. (the "Adviser"), a wholly-owned
subsidiary of PaineWebber, is each Portfolio's investment adviser.
BISYS Fund Services Limited Partnership ("BISYS") serves as each
Portfolio's administrator and distributor.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT EACH PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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This Prospectus sets forth concisely information about the Fund and the
Portfolios that an investor should know before investing. It should be read and
retained for future reference.
The Statement of Additional Information, dated May 1, 1998, which may be
revised from time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund and
Portfolios. For a free copy of the Statement of Additional Information, write to
the Fund at 3435 Stelzer Road, Columbus, Ohio 43219-8020, contact your sales
representative or call 1-800-442-3809.
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PORTFOLIO SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. PORTFOLIO SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
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TABLE OF CONTENTS
PAGE
------
Expense Summary............................................. 2
Financial Highlights........................................ 3
Yield Information........................................... 5
Description of the Portfolios............................... 5
Management of the Portfolios................................ 9
How to Buy Shares........................................... 11
How to Redeem Shares........................................ 13
Dividends, Distributions and Taxes.......................... 14
General Information......................................... 16
Appendix.................................................... A-1
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
EXPENSE SUMMARY
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
TAX FREE MONEY
MONEY MARKET MARKET
PORTFOLIO PORTFOLIO
-------------- --------------
Management Fees.............................. .10% .10%
12b-1 Fees................................... .60% .43%*
Other Expenses............................... .25%* .25%*
Total Operating Expenses (net of fee waivers) .95%* .78%*
EXAMPLE:
You would pay the following expenses on 1 Year $ 10 $ 8
a $1,000 investment, assuming (1) 5% 3 Years $ 30 $ 25
annual return and (2) redemption at 5 Years $ 53 $ 43
the end of each time period: 10 Years $ 117 $ 97
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, EACH PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding the
costs and expenses borne by a Portfolio, the payment of which will reduce
investors' annual return. The expenses noted above, without fee waivers and
expense reimbursements, would have been: Other Expenses -- .36% and Total
Operating Expenses -- 1.06% for the Money Market Portfolio; and 12b-1 Fees --
.60%, Other Expenses -- .48% and Total Operating Expenses -- 1.18% for the Tax
Free Money Market Portfolio. The information in the foregoing table does not
reflect any other fee waivers or expense reimbursement arrangements that were in
effect for the Portfolios during the last fiscal year or may be in effect for
either Portfolio during the current fiscal year. Certain Securities Firms (as
defined below) may charge their clients direct fees for effecting transactions
in Portfolio shares. See "How to Buy Shares." Long-term investors could pay more
in aggregate 12b-1 fees than the economic equivalent of the maximum sales charge
permitted by the National Association of Securities Dealers, Inc. For a further
description of the various costs and expenses incurred in a Portfolio's
operation, see "Management of the Portfolios."
FINANCIAL HIGHLIGHTS
Contained below for each Portfolio is per share operating performance data
for a share of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated. The
information in the financial highlights has been audited by KPMG Peat Marwick
LLP, the Portfolios' independent auditors. Additional financial data, related
notes and report of independent auditors accompany the Statement of Additional
Information, which is available upon request.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991**
------------ -------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 0.9991 $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
------------ ----------- -------- -------- -------- -------- -------------
Income from investment operations:
Net investment income................. 0.0467 0.0462 0.0512 0.0340 0.0245 0.0306 0.0310
Net realized gains (losses) on
securities tranactions.............. 0.0001 0.0005 0.0011 (0.0024) (0.0001) -- --
------------ ----------- -------- -------- -------- -------- -------------
Net income from investment
operations.......................... 0.0468 0.0467 0.0523 0.0316 0.0244 0.0306 0.0310
------------ ----------- -------- -------- -------- -------- -------------
Dividends from net investment income.... (0.0467) (0.0462) (0.0512) (0.0340) (0.0245) (0.0306) (0.0310)
------------ ----------- -------- -------- -------- -------- -------------
Net change in net asset value........... - 0.0005 0.0011 (0.0024) (0.0001) -- --
------------ ----------- -------- -------- -------- -------- -------------
Net Asset Value, End of Period.......... $ 0.9992 $ 0.9991 $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000 $ 1.0000
============ =========== ========= ========= ======== ======== =============
Total Return............................ 4.77% 4.72% 5.24% 3.45% 2.48% 3.11% 5.07%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's)..... $ 1,151,012 $ 1,007,265 $779,011 $458,092 $331,210 $267,895 $192,992
Ratio of expenses to average net
assets.............................. 0.95% 0.88% 0.85% 0.94% 1.02% 1.12% 0.83%(b)
Ratio of net investment income to
average net assets.................. 4.68% 4.65% 5.14% 3.47% 2.44% 3.01% 4.99%(b)
Ratio of expenses to average net
assets***........................... 1.06% 1.01% 1.03% 1.12% 1.20% 1.35% 1.16%(b)
Ratio of net investment income to
average net assets***............... 4.57% 4.53% 4.96% 3.29% 2.26% 2.78% 4.66%(b)
- ------------------------------
* Prior to December 31, 1996, the Money Market Portfolio offered two classes
of shares--Retail Shares and Institutional Shares. The information in the
table is for the Portfolio's Retail Shares.
** For the period May 20, 1991 (commencement of operations) through December
31, 1991.
*** During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
(a) Total return is not annualized, as it may not be representative of the total
return for the year.
(b) Annualized.
</TABLE>
<PAGE>
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996*
<S> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00
-------------- --------------
Income from investment operations:
Net investment income........................... 0.0286 0.0100
-------------- --------------
Net income from investment operations........... 0.0286 0.0100
-------------- --------------
Dividends from net investment income.............. (0.0286) (0.0100)
-------------- --------------
Net change in net asset value..................... - -
-------------- --------------
Net Asset Value, End of Period.................... $ 1.00 $ 1.00
============== ==============
Total Return...................................... 2.90% 0.66%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's)............... $103,399 $ 80,409
Ratio of expenses to average net assets......... 0.78% 0.74%(b)
Ratio of net investment income to average net
assets........................................ 2.86% 2.80%(b)
Ratio of expenses to average net assets**....... 1.18% 1.20%(b)
Ratio of net investment income to average net
assets**...................................... 2.46% 2.34%(b)
- ------------------------------
* For the period from October 7, 1996 (commencement of operations) through
December 31, 1996.
** During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
</TABLE>
YIELD INFORMATION
From time to time, each Portfolio will advertise its yield and effective
yield. Both yield figures are based on historical earnings and are not intended
to indicate future performance. It can be expected that these yields will
fluctuate substantially. The yield of a Portfolio refers to the income generated
by an investment in the Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then annualized. That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be reinvested.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. A Portfolio's yield and
effective yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect.
With respect to the Tax Free Money Market Portfolio, tax equivalent yield
is calculated by determining the pre-tax yield which, after being taxed at a
stated rate, would be equivalent to a stated yield or effective yield calculated
as described above.
Yield information is useful in reviewing a Portfolio's performance, but
because yields will fluctuate, under certain conditions such information may not
provide a basis for comparison with domestic bank deposits, other investments
which pay a fixed yield for a stated period of time, or other investment
companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in
advertising or marketing each Portfolio's shares, including data from Lipper
Analytical Services, Inc., Bank Rate Monitor-TM-, IBC's Money Fund Report-TM-,
Morningstar, Inc., other industry publications and national financial
publications, including MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE
NEW YORK TIMES, or local or regional publications.
DESCRIPTION OF THE PORTFOLIOS
INVESTMENT OBJECTIVE
Each Portfolio seeks to provide investors with as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity and, in the case of the Tax Free Money Market Portfolio, exempt from
Federal income tax. Each Portfolio's investment objective cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of such Portfolio's
outstanding voting shares. There can be no assurance that each Portfolio's
investment objective will be achieved. Securities in which each Portfolio
invests may not earn as high a level of current income as long-term or lower
quality securities which generally have less liquidity, greater market risk and
more fluctuation in market value.
MANAGEMENT POLICIES
Each Portfolio seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing each Portfolio's securities pursuant to Rule 2a-7 under the 1940 Act,
which includes various maturity, quality and diversification requirements,
certain of which are summarized below.
In accordance with Rule 2a-7, each Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Board of Directors to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations ("NRSRO") (or
one NRSRO if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Directors. The Board of Directors has delegated to
the Adviser the day-to-day operations of each Portfolio; however, the Board of
Directors retains ultimate responsibility for compliance with Rule 2a-7 under
the 1940 Act. The NRSROs currently rating instruments of the type each Portfolio
may purchase are Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, Duff & Phelps Credit Rating Co., Fitch IBCA, Inc. and Thomson BankWatch,
Inc., and their rating criteria are described in the "Appendix" to the Statement
of Additional Information. For further information regarding the amortized cost
method of valuing securities, see "Determination of Net Asset Value" in the
Statement of Additional Information. There can be no assurance that each
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
- The MONEY MARKET PORTFOLIO invests in U.S. dollar denominated short-term
money market obligations, including securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, repurchase
agreements, asset-backed securities, and high quality domestic and foreign
commercial paper and other high quality short-term corporate obligations, such
as floating or variable rate U.S. dollar denominated demand notes and bonds. The
Money Market Portfolio invests in U.S. dollar denominated obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities, including obligations of
supranational entities. See "Appendix -- Portfolio Securities." The Money Market
Portfolio also may lend securities from its portfolio and enter into reverse
repurchase agreements. See "Appendix -- Investment Practices." During normal
market conditions, at least 25% of the Money Market Portfolio's total assets
will be invested in domestic and/or foreign bank obligations. See "Investment
Considerations and Risk Factors" below.
- The TAX FREE MONEY MARKET PORTFOLIO invests at least 80% of the value of
its net assets (except when maintaining a temporary defensive position) in
Municipal Obligations. Municipal Obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest from which is, in the opinion
of bond counsel to the issuer, exempt from Federal income tax. See "Appendix --
Portfolio Securities."
From time to time, the Tax Free Money Market Portfolio may invest more than
25% of the value of its total assets in industrial development bonds which,
although issued by industrial development authorities, may be backed only by the
assets and revenues of the non-governmental users. Interest on Municipal
Obligations (including certain industrial development bonds) which are specified
private activity bonds, as defined in the Internal Revenue Code of 1986, as
amended (the "Code"), issued after August 7, 1986, while exempt from Federal
income tax, is a preference item for the purpose of the alternative minimum tax.
Where a regulated investment company receives such interest, a proportionate
share of any exempt-interest dividend paid by the investment company may be
treated as such a preference item to shareholders. The Tax Free Money Market
Portfolio will invest no more than 20% of the value of its net assets in
Municipal Obligations the interest from which gives rise to a preference item
for the purpose of the alternative minimum tax and, except for temporary
defensive purposes, in other investments subject to Federal income tax.
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the value of the Tax Free Money Market
Portfolio's net assets) or for temporary defensive purposes, the Tax Free Money
Market Portfolio may invest in taxable money market instruments of the type in
which the Money Market Portfolio may invest. Dividends paid by the Tax Free
Money Market Portfolio that are attributable to income earned by it from these
securities will be taxable to investors. See "Dividends, Distributions and
Taxes." If the Tax Free Money Market Portfolio purchases taxable money market
instruments the Fund will value them using the amortized cost method and comply
with the provisions of Rule 2a-7 relating to purchases of taxable instruments.
Under normal market conditions, the Fund anticipates that not more than 5% of
the value of the Tax Free Money Market Portfolio's total assets will be invested
in any one category of these securities. See "Appendix -- Portfolio Securities."
INVESTMENT CONSIDERATIONS AND RISK FACTORS
GENERAL. Each Portfolio will attempt to increase yields by trading to take
advantage of short-term market variations. This policy is expected to result in
high portfolio turnover but should not adversely affect the Portfolios since
usually neither Portfolio will pay brokerage commissions on purchases of
short-term debt obligations. The value of the securities held by each Portfolio
will vary inversely to changes in prevailing interest rates. Thus, if interest
rates have increased from the time a security was purchased, such security, if
sold, might be sold at a price less than its cost. Similarly, if interest rates
have declined from the time a security was purchased, such security, if sold,
might be sold at a price greater than its purchase cost. In either instance, if
the security was purchased at face value and held to maturity, no gain or loss
will be realized.
BANK SECURITIES. (Money Market Portfolio only) To the extent the Money
Market Portfolio's investments are concentrated in the banking industry, it will
have correspondingly greater exposure to the risk factors which are
characteristic of such investments. Sustained increases in interest rates can
adversely affect the availability or liquidity and cost of capital funds for
lending activities, and a deterioration in general economic conditions could
increase the exposure to credit losses. In addition, the value of and the
investment return on the Money Market Portfolio's shares will be affected by
economic or regulatory developments in or related to the banking industry, and
competition within the banking industry as well as with other types of financial
institutions. The Money Market Portfolio, however, will seek to minimize its
exposure to such risks by investing only in debt securities which are determined
to be of high quality.
FOREIGN SECURITIES. (Money Market Portfolio only) Since the Money Market
Portfolio may invest in securities issued by foreign governments and any of
their political subdivisions, agencies or instrumentalities, and by foreign
branches of domestic banks, foreign subsidiaries of domestic banks, domestic and
foreign branches of foreign banks, and commercial paper issued by foreign
issuers, it may be subject to additional investment risks with respect to those
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers. Such risks
include possible adverse political and economic developments, seizure or
nationalization of foreign deposits, or the adoption of governmental
restrictions which might adversely affect or restrict the payment of principal
and interest on these securities to investors located outside the country of the
issuer.
INVESTING IN MUNICIPAL OBLIGATIONS. (Tax Free Money Market Portfolio only)
The Tax Free Money Market Portfolio may invest more than 25% of the value of its
total assets in Municipal Obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar types of projects, or
securities whose issuers are located in the same state. As a result, the Tax
Free Money Market Portfolio may be subject to greater risk as compared to a fund
that does not follow this practice.
Certain municipal lease/purchase obligations in which the Tax Free Money
Market Portfolio may invest may contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease payments in future
years unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Adviser will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Portfolio and
thus reduce available yield. Shareholders should consult their tax advisers
concerning the effect of these provisions on an investment in the Tax Free Money
Market Portfolio. Proposals that may restrict or eliminate the income tax
exemption for interest on Municipal Obligations may be introduced in the future.
If any such proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Tax Free Money Market Portfolio so
as to adversely affect Portfolio shareholders, the Portfolio would reevaluate
its investment objective and policies and submit possible changes in the
Portfolio's structure to shareholders for their consideration. If legislation
were enacted that would treat a type of Municipal Obligation as taxable, the Tax
Free Money Market Portfolio would treat such security as a permissible taxable
investment within the applicable limits set forth herein.
SIMULTANEOUS INVESTMENTS. Investment decisions for each Portfolio are made
independently from those of the Fund's other portfolios and other investment
companies or accounts managed by the Adviser. However, if such other entities
desire to invest in, or dispose of, the same securities as a Portfolio,
available investments or opportunities for sales will be allocated equitably to
each of them. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by a Portfolio or the price paid or
received by the Portfolio.
MANAGEMENT OF THE PORTFOLIOS
BOARD OF DIRECTORS
The business affairs of the Fund are managed under the general supervision
of its Board of Directors. The Portfolios' Statement of Additional Information
contains the name and general business experience of each Director.
INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc., located at 1285 Avenue of the
Americas, New York, New York 10019, serves as each Portfolio's investment
adviser. The Adviser is a wholly-owned subsidiary of PaineWebber organized in
May 1977. The Adviser is registered as a broker-dealer under the Securities
Exchange Act of 1934 and as an investment adviser under the Investment Advisers
Act of 1940. As of December 31, 1997, the Adviser served as adviser or
sub-adviser to -- investment companies with -- investment portfolios having
aggregate assets in excess of $ ---- billion.
The Adviser supervises and assists in the overall management of each
Portfolio's affairs under an Investment Advisory Agreement between the Adviser
and the Fund, subject to the authority of the Fund's Board of Directors in
accordance with Maryland law.
For the fiscal year ended December 31, 1997, the Money Market Portfolio
paid the Adviser a monthly advisory fee at the annual rate of .10 of 1% of the
value of the Money Market Portfolio's average daily net assets. Under the terms
of the Investment Advisory Agreement, the Tax Free Money Market Portfolio also
agreed to pay the Adviser a monthly fee at the annual rate of .10 of 1% of the
value of the Portfolio's average daily net assets. For the fiscal year ended
December 31, 1997, the Tax Free Money Market Portfolio paid the Adviser a
monthly advisory fee at the effective annual rate of .09 of 1% of the value of
the Tax Free Money Market Portfolio's average daily net assets, pursuant to an
undertaking by the Adviser.
In addition, under the terms of a Special Management Services Agreement
among the Fund, the Adviser and BISYS, each Portfolio has agreed to pay the
Adviser and BISYS each a monthly fee at the annual rate of .05 of 1% of the
value of the Portfolio's average daily net assets for certain services, other
than those provided pursuant to the Portfolios' Distribution Plan. These
services include developing and monitoring customized investor programs
including individual retirement accounts and other ERISA options, automatic
deposit and withdrawal programs and other programs requested by Securities Firms
(as defined below). For the fiscal year ended December 31, 1997, neither
Portfolio paid the Adviser or BISYS a fee pursuant to the Special Management
Services Agreement.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership, located at 3435 Stelzer Road,
Columbus, Ohio 43219-8001, serves as each Portfolio's administrator and
distributor. BISYS currently provides administrative or sub-administrative
services to, and distributes the shares of, other investment companies with over
$200 billion in assets. BISYS is a wholly-owned subsidiary of The BISYS Group,
Inc.
Under its Administration Agreement with the Fund, BISYS generally assists
in all aspects of the Fund's operations, other than providing investment advice,
subject to the authority of the Fund's Board of Directors in accordance with
Maryland law. In connection therewith, BISYS provides the Fund with office
facilities, personnel, and certain clerical and bookkeeping services (e.g.,
preparation of reports to shareholders and the Securities and Exchange
Commission and filing of Federal, state and local income tax returns) that are
not being furnished by The Bank of New York, the Fund's Custodian.
For the fiscal year ended December 31, 1997, the Money Market Portfolio
paid the Administrator a monthly administration fee at the annual rate of .10 of
1% of the value of the Money Market Portfolio's average daily net assets. Under
the terms of the Administration Agreement, the Tax Free Money Market Portfolio
also agreed to pay BISYS a monthly fee at the annual rate of .10 of 1% of the
value of the Portfolio's average daily net assets. For the fiscal year ended
December 31, 1997, the Tax Free Money Market Portfolio paid BISYS a monthly
administration fee at the effective annual rate of .03 of 1% of the value of
the Tax Free Money Market Portfolio's average daily net assets, pursuant to an
undertaking by BISYS.
As described above, under the terms of the Special Management Services
Agreement, each Portfolio also has agreed to pay BISYS a monthly fee at the
annual rate of .05 of 1% of the value of the Portfolio's average daily net
assets.
As distributor, BISYS makes a continuous offering of each Portfolio's
shares and bears the costs and expenses of printing and distributing to
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Portfolios (after such items
have been prepared and set in type by the Fund) which are used in connection
with the offering of shares, and the costs and expenses of preparing, printing
and distributing any other literature used by BISYS in connection with the
offering of the Portfolios' shares for sale to the public.
DISTRIBUTION PLAN
Under a distribution plan adopted by the Fund's Board of Directors pursuant
to Rule 12b-1 under the 1940 Act (the "Distribution Plan"), each Portfolio is
authorized to pay Correspondent Services Corporation [CSC] and correspondent
firms a monthly fee at the annual rate of up to .60 of 1% of the Portfolio's
average daily net assets represented by shares held in accounts serviced by
Correspondent Services Corporation [CSC] and such firms. Such fees are paid
pursuant to an agreement between the Fund and Correspondent Services Corporation
[CSC]. Such fees will be paid in respect of certain services provided by such
firms, including answering client inquiries regarding a Portfolio; assisting
clients in changing dividend options, account designations and addresses;
performing subaccounting; establishing and maintaining shareholder accounts and
records; processing purchase and redemption transactions; investing client cash
account balances automatically in Portfolio shares; providing periodic
statements showing a client's account balance and integrating such statements
with those of other transactions and balances in the client's other accounts
serviced by such firm; arranging for bank wires; and such other services as the
clients may request.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Fund's Custodian (the "Custodian"). BISYS Fund Services Ohio, Inc., an
affiliate of BISYS, located at 3435 Stelzer Road, Columbus, Ohio 43219-8001, is
the Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent").
EXPENSES
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by others. The expenses borne by the
Fund include: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or BISYS, or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory and administration fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, auditing and legal expenses,
costs of maintaining corporate existence, costs of independent pricing services,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of calculating the net asset value of
each Portfolio's shares, costs of shareholders' reports and corporate meetings,
costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses. Expenses attributable to a
Portfolio are charged against the assets of the Portfolio; other expenses of the
Fund are allocated among the Fund's portfolios on the basis determined by the
Board of Directors, including, but not limited to, proportionately in relation
to the net assets of each portfolio.
HOW TO BUY SHARES
GENERAL
Shares may be purchased only by clients of certain securities dealers that
have entered into securities clearing arrangements with Correspondent Services
Corporation [CSC] (the "Securities Firms"). Such clients may include qualified
retirement plans, including pension and profit-sharing plans, whether
established by corporations, partnerships or self-employed individuals, and
individual retirement accounts ("Retirement Plans"). It is not recommended that
the Tax Free Money Market Portfolio be used as a vehicle for Keogh Plans, IRAs
or other qualified retirement plans, because such plans are otherwise entitled
to tax deferred benefits. Certificates representing shares of a Portfolio will
not be issued. The Fund reserves the right to reject any purchase order.
The minimum initial investment for Retirement Plans is $25. The Fund
requires no minimum initial or subsequent investment amounts for other
investors. Certain Securities Firms may impose minimum investment amounts for
purchases of Portfolio shares by their clients. You should consult your
Securities Firm in this regard.
Shares are sold on a continuous basis at the net asset value per share next
determined after an order in proper form and Federal Funds (monies of member
banks within the Federal Reserve System which are held on deposit at a Federal
Reserve Bank) are received by the Transfer Agent. See "Terms of Purchase" below.
PAYMENTS THROUGH SECURITIES FIRMS
ALL ORDERS MUST BE MADE THROUGH YOUR SECURITIES FIRM. The Securities Firm
will transmit your payment to the Fund and will supply the Fund with the
required information. It is your Securities Firm's responsibility to transmit
your order properly on a timely basis.
WIRE ORDERS
If you have opened a Portfolio account, you may make subsequent
purchases by wire. Information on remitting funds in this manner may be obtained
from your Securities Firm. You should consult your Securities Firm, for
information on any fees that may be charged directly for wires.
TERMS OF PURCHASE
If your purchase order is received by the Transfer Agent by 12:00 noon,
Eastern time, on a business day (which, as used herein, shall include each day
that the New York Stock Exchange and the Fund's Custodian are open for
business), and Federal Funds are received by the Transfer Agent by 4:00 p.m.,
Eastern time, on that day, shares will be purchased as of 12:00 noon, Eastern
time, on such business day. If your purchase order is received after 12:00 noon,
Eastern time, on a given day, or Federal Funds are received after 4:00 p.m.,
Eastern time, on such day, shares will be purchased as of 12:00 noon, Eastern
time, on the next business day.
Each Portfolio's net asset value per share is determined as of 12:00 noon,
Eastern time, on each business day. Net asset value per share is computed by
dividing the value of the Portfolio's net assets (i.e., the value of its assets
less liabilities) by the total number of its shares outstanding. See
"Determination of Net Asset Value" in the Statement of Additional Information.
Federal regulations require that you provide a certified Taxpayer
Identification Number upon opening or reopening an account. See "Dividends,
Distributions and Taxes" for further information concerning this requirement.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time through your
Securities Firm. Retirement Plan should consult their tax advisers regarding
possible adverse tax consequences in connection with the redemption of shares.
Redemption requests may be made as described below. When a request is received
in proper form, the Fund will redeem the shares at the next determined net asset
value.
The Fund ordinarily will make payment for all shares redeemed within seven
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
The Fund understands that, if you cease to be a client of a Securities
Firm, or if your Securities Firm's clearing arrangement with Correspondent
Services Corporation [CSC] is discontinued, the Securities Firm will cancel your
Fund account and request the Transfer Agent to remit the proceeds of your
redeemed shares, together with all accrued and unpaid dividends to which you are
entitled. You should consult your Securities Firm in this regard.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is $500
or less, for reasons other than market conditions, and remains so during the
notice period. Certain Securities Firms may impose, with respect to their
clients' investments in a Portfolio, a minimum account balance which is higher
than that specified above.
PROCEDURES
REDEMPTION BY CHECK. If you desire to use check redemption, you should
consult your Securities Firm to determine its availability. At your Securities
Firm's request, the Transfer Agent will provide you with redemption checks if
you have a $1,000 minimum account. These checks may be made payable to the order
of any person in an amount not less than $100. The payee of the check may cash
or deposit the check. When a check is presented to the Transfer Agent for
payment, the Transfer Agent will present the check to the Fund as authority to
redeem a sufficient number of full and fractional shares in your account to
cover the amount of the check. You continue earning daily dividends until the
check is cleared. There currently is no charge for the use of checks; however,
the Transfer Agent may impose a charge for stopping payment of a check upon your
request, or if the check cannot be honored due to insufficient funds or other
valid reason. The Fund or the Transfer Agent may modify or terminate the check
redemption privilege at any time upon notice to shareholders.
Retirement Plans should contact their Securities Firms for information on
check redemption services.
REPURCHASE THROUGH SECURITIES FIRMS. The Fund will repurchase shares
through Securities Firms. The Fund ordinarily will accept orders to repurchase
shares by wire or telephone from Securities Firms for their customers at the net
asset value next computed after receipt of the order from the Securities Firm,
provided that such request for repurchase is received from the Securities Firm
prior to 12:00 noon, Eastern time, on any business day. It is your Securities
Firm's responsibility to transmit your repurchase order properly on a timely
basis.
These repurchase arrangements are for the convenience of shareholders and
do not involve a charge by the Fund; however, Securities Firms may impose a
charge on the shareholder for transmitting the notice of repurchase to the Fund.
The Fund reserves the right to reject any order for repurchases through a
Securities Firm, but it may not reject other properly submitted requests for
redemption as described herein. The Fund promptly will notify the Securities
Firm of any rejection of a repurchase. For shareholders repurchasing through
their Securities Firm, payments will be made by the Transfer Agent to the
Securities Firm.
AUTOMATIC WITHDRAWAL PLAN. If you desire to participate in the Automatic
Withdrawal Plan, you should consult your Securities Firm to determine its
availability and any conditions which may be imposed on its use. The Automatic
Withdrawal Plan permits you to request withdrawal of a specified dollar amount
(minimum of $50) on either a monthly, quarterly or semi-annual basis if you have
a $1,000 minimum account. Redemption proceeds will be on deposit in your
designated account at an Automated Clearing House member bank ordinarily within
two days following redemption or, at your request, paid by check issued to you
or a designated third party. To participate in the Automatic Withdrawal Plan,
you must supply your Securities Firm with the necessary information. Your
participation in the Automatic Withdrawal Plan may be ended at any time by you,
your Securities Firm, the Fund or the Transfer Agent.
Retirement Plan participants who are eligible for distributions from their
Retirement Plan may participate in the Automatic Withdrawal Plan. The Automatic
Withdrawal Plan, however, is not available to Retirement Plan participants who
have elected to have income taxes withheld from their Retirement Plan
distributions. Retirement Plan participants should consult the administrator,
trustee or custodian of their Retirement Plan concerning eligibility to
participate in the Automatic Withdrawal Plan and the timing and consequences of
distributions from a Retirement Plan. Retirement Plans should contact their
Securities Firms for further information on the Automatic Withdrawal Plan.
AUTOMATIC REDEMPTION. Correspondent Services Corporation [CSC] carries
securities accounts and performs clearing services for the Securities Firms and
has instituted an automatic redemption procedure applicable to Portfolio
shareholders. This procedure may be used to satisfy amounts due from you as a
result of purchases of securities or other transactions in your securities
account. Under this procedure, unless you notify your Securities Firm to the
contrary, your securities account will be scanned each business day prior to
12:00 noon, Eastern time, and after application of any cash balances in the
account, a sufficient number of Portfolio shares may be redeemed at the 12:00
noon, Eastern time, pricing that day to satisfy any amounts for which you are
obligated to make payment to your Securities Firm. Redemptions will be effected
on the business day preceding the date you are obligated to make such payment,
and your Securities Firm will receive the redemption proceeds on the day
following the redemption date.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio declares dividends from net investment income on each day
the Portfolio is open for business. Dividends usually are paid on or about the
fifteenth day of each month, and are automatically reinvested in additional
shares at net asset value or, at your option, paid in cash. Each Portfolio's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. Shares begin accruing dividends on the day the purchase
order is received in proper form by the Transfer Agent, if received by 12:00
noon, Eastern time, on such day, and continue to earn dividends through the day
before a redemption order for such shares is processed by the Transfer Agent. If
you redeem all shares in your account at any time during the month, all
dividends to which you are entitled will be paid to you along with the proceeds
of the redemption.
Distributions from net realized securities gains, if any, are declared and
paid once a year, but a Portfolio may make distributions on a more frequent
basis to comply with the distribution requirements of the Code, in all events in
a manner consistent with the provisions of the 1940 Act. Dividends and
distributions ordinarily are reinvested in additional shares of the Portfolio
from which they were paid at net asset value. You may elect to receive dividends
and distributions in cash by contacting your Securities Firm. Dividends and
distributions paid in cash to Retirement Plans which are distributed to such
Plans' participants, however, may be subject to additional tax. Retirement Plans
should consult their tax advisers concerning possible tax consequences of
contributions to or distributions from Retirement Plans. All expenses are
accrued daily and deducted before declaration of dividends to investors.
If you elect to receive distributions in cash and your distribution checks
(1) are returned to the Fund marked "undeliverable" or (2) remain uncashed for
six months, your cash election will be changed automatically and your future
dividend and capital gains distributions will be reinvested in Portfolio shares
at the net asset value determined as of the date of payment of the distribution.
In addition, any such undeliverable checks or checks that remain uncashed for
six months will be canceled and will be reinvested in shares of the Portfolio
from which they were paid at the net asset value determined as of the date of
cancellation.
Dividends paid by the Money Market Portfolio derived from interest and
dividends paid by the Tax Free Money Market Portfolio derived from taxable
investments, together with distributions from any net realized short-term
securities gains, generally are taxable to investors as ordinary income, whether
received in cash or reinvested in additional Portfolio shares. Distributions
from net realized long-term securities gains, if any, generally are taxable as
long-term capital gains regardless of how long shareholders have held their
shares and whether such distributions are received in cash or reinvested in
additional Portfolio shares. The Code provides that an individual generally will
be taxed on his or her net capital gain at a maximum rate of 28% with respect to
capital gain from securities held for more than one year but not more than 18
months and at a maximum rate of 20% with respect to capital gain from securities
held for more than 18 months. Dividends and distributions may be subject to
certain state and local taxes. No dividend will qualify for the dividends-
received deduction allowable to certain corporations.
Except for dividends from taxable investments, the Fund anticipates that
substantially all dividends paid by the Tax Free Money Market Portfolio will not
be subject to Federal income tax. Although all or a substantial portion of the
dividends paid by the Tax Free Money Market Portfolio may be excluded by
shareholders of the Portfolio from their gross income for Federal income tax
purposes, the Portfolio may purchase specified private activity bonds, the
interest from which may be (i) a preference item for purposes of the alternative
minimum tax, or (ii) a factor in determining the extent to which the Social
Security benefits of a beneficial holder of the Portfolio's shares are taxable.
If the Tax Free Money Market Portfolio purchases such securities, the portion of
its dividends related thereto will not necessarily be tax exempt to a beneficial
holder of the Portfolio's shares who is subject to the alternative minimum tax
and/or tax on Social Security benefits and may cause such investor to be subject
to such taxes.
Taxable dividends derived from net investment income and distributions from
net realized short-term securities gains paid by a Portfolio to a foreign
investor generally are subject to U.S. nonresident withholding taxes at the rate
of 30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains paid
by a Portfolio to a foreign investor generally will not be subject to U.S.
nonresident withholding tax. However, such distributions may be subject to
backup withholding, as described below, unless the foreign investor certifies
his non-U.S. residency status.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and distributions
from net realized securities gains of a Portfolio paid to a shareholder if such
shareholder fails to certify either that the Taxpayer Identification Number
furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the Internal Revenue Service of being
subject to backup withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return. Furthermore,
the Internal Revenue Service may notify the Fund to institute backup withholding
if the Internal Revenue Service determines a shareholder's Taxpayer
Identification Number is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A Taxpayer Identification Number is either the Social Security Number,
Employer Identification Number or IRS individual taxpayer identification number
of the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a credit on the record owner's Federal income
tax return.
Notice as to the tax status of your dividends and distributions is mailed
to you annually from your Securities Firm. You also will be sent periodic
summaries of your account which will include information as to dividends and
distributions from securities gains, if any, paid during the year. For the Tax
Free Money Market Portfolio, these statements will set forth the dollar amount
of income exempt from Federal tax and the dollar amount, if any, subject to
Federal tax. These dollar amounts will vary depending on the size and length of
time of the investor's investment in the Tax Free Money Market Portfolio. If the
Tax Free Money Market Portfolio pays dividends derived from taxable income, it
intends to designate as taxable the same percentage of the day's dividend as the
actual taxable income earned on that day bears to total income earned on that
day. Thus, the percentage of the dividend designated as taxable, if any, may
vary from day to day.
The Adviser believes that each Portfolio has qualified for the fiscal year
ended December 31, 1997 as a "regulated investment company" under the Code. Each
Portfolio intends to continue to so qualify so long as such qualification is in
the best interests of its shareholders. Qualification relieves the Portfolio of
any liability for Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. The Code subjects
regulated investment companies, such as the Portfolios, to a non-deductible 4%
excise tax to the extent that such investment companies do not distribute a very
substantial portion of their taxable investment income and capital gains,
generally determined on a calendar year basis.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 6, 1990, and
commenced operations on August 28, 1990. The Fund is authorized to issue 14
billion 500 million shares of Common Stock (with 3 billion allocated to each
Portfolio), par value $.001 per share. Each share has one vote.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Directors or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Director from office. Shareholders
may remove a Director by the affirmative vote of a majority of the Fund's
outstanding voting shares. In addition, the Board of Directors will call a
meeting of shareholders for the purpose of electing Directors if, at any time,
less than a majority of the Directors then holding office have been elected by
shareholders.
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios, each of which is treated as a separate entity for certain matters
under the 1940 Act and for other purposes. A shareholder of one portfolio is not
deemed to be a shareholder of any other portfolio. For certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, shares of the Money Market Portfolio and Tax Free
Money Market Portfolio are being offered. From time to time, other portfolios
may be established and sold pursuant to other offering documents.
To date, 11 portfolios of shares have been authorized. The other portfolios
are not being offered by this Prospectus. All consideration received by the Fund
for shares of one of the portfolios and all assets in which such consideration
is invested, belong to that portfolio (subject only to the rights of creditors
of the Fund) and will be subject to the liabilities related thereto. The income
and expenses attributable to one portfolio are treated separately from those of
the other portfolios.
The Transfer Agent maintains a record of your ownership. Your Securities
Firm, will send you confirmations and statements of account.
Shareholder inquiries may be made by writing to The Infinity Mutual Funds,
Inc., CCR Funds, P.O. Box 163879, Columbus, Ohio 43216-3879.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUND'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
APPENDIX
PORTFOLIO SECURITIES
To the extent set forth above and except as noted below, each Portfolio may
invest in the following securities:
U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may invest in securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Such
securities include U.S. Treasury securities, such as bills, notes, bonds and
certificates of indebtedness, which differ in their interest rates, maturities
and times of issuance, and issues of U.S. Government agencies and
instrumentalities established under the authority of an act of Congress. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. These
securities bear fixed, floating or variable rates of interest. Interest may
fluctuate based on generally recognized reference rates or the relationship of
rates. While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Portfolio
will invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. The
Money Market Portfolio may invest in obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Board of Directors to be of
comparable quality to the other obligations in which the Portfolio may invest.
Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of the
Portfolio's assets invested in securities issued by foreign governments will
vary depending on the relative yields of such securities, the economic and
financial markets of the countries in which the investments are made and the
interest rate climate of such countries. See "Description of the Portfolios --
Investment Considerations and Risk Factors."
CERTIFICATES OF DEPOSIT, TIME DEPOSITS AND BANKERS' ACCEPTANCES. The Money
Market Portfolio will, and, to a limited extent, the Tax Free Money Market
Portfolio may, invest in certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by domestic banks, foreign
branches of domestic banks, foreign subsidiaries of domestic banks, and domestic
and foreign branches of foreign banks. See "Description of the Portfolios --
Investment Considerations and Risk Factors." Certificates of deposit are
certificates representing the obligation of a bank to repay funds deposited with
it for a specified period of time. Time deposits are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable rates of
interest.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements.
Repurchase agreements involve the acquisition by the Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Portfolio may be delayed or limited.
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS. The Money Market Portfolio and,
to a limited extent, the Tax Free Money Market Portfolio may, invest in
commercial paper and other corporate obligations. Commercial paper consists of
short-term, unsecured promissory notes issued to finance short-term credit
needs. The commercial paper purchased by a Portfolio will consist only of direct
obligations issued by domestic and foreign entities. The other corporate
obligations in which each Portfolio may invest consist of high quality, U.S.
dollar denominated short-term bonds and notes (including variable amount master
demand notes) issued by domestic and foreign corporations.
MUNICIPAL OBLIGATIONS. The Tax Free Money Market Portfolio will invest in
Municipal Obligations. Municipal Obligations generally include debt obligations
issued to obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities. Municipal
Obligations are classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Industrial
development bonds, in most cases, are revenue bonds and generally do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Municipal Obligations bear
fixed, floating or variable rates of interest. Certain Municipal Obligations are
subject to redemption at a date earlier than their stated maturity pursuant to
call options, which may be separated from the related Municipal Obligation and
purchased and sold separately.
TENDER OPTION BONDS. The Tax Free Money Market Portfolio may purchase
tender option bonds. A tender option bond is a Municipal Obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. The Adviser, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Obligations and for other reasons. The Tax Free Money
Market Portfolio will not invest more than 10% of the value of its net assets in
securities that are illiquid, which would include tender option bonds as to
which it cannot exercise the tender feature on not more than seven days' notice
if there is no secondary market available for these obligations.
STAND-BY COMMITMENTS. The Tax Free Money Market Portfolio may acquire
"stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, the Tax Free Money Market Portfolio
obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by commitment
therefore is subject to the ability of the seller to make payment on demand. The
Tax Free Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Tax Free Money Market Portfolio may pay for
stand-by commitments if such action is deemed necessary, thus increasing to a
degree the cost of the underlying Municipal Obligation and similarly decreasing
such security's yield to investors.
FLOATING AND VARIABLE RATE OBLIGATIONS. Each Portfolio may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 397 days, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 397 days, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes which are obligations that permit
the Portfolio to invest fluctuating amounts, at varying rates of interest,
pursuant to direct arrangements between the Portfolio, as lender, and the
borrower. These obligations permit daily changes in the amounts borrowed.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. These obligations include highly rated
certificates of participation in trusts secured by accounts receivable,
including trade receivables, and other assets. Such obligations frequently are
not rated by credit rating agencies and, if not so rated, the Portfolio may
invest in them only if the Adviser, acting upon delegated authority from, and
subject to ratification by, the Fund's Board of Directors, determines that at
the time of investment the obligations are of comparable quality to the other
obligations in which the Portfolio may invest. The Adviser, on behalf of the
Portfolio, will consider on an ongoing basis the creditworthiness of the issuers
of the floating and variable rate demand obligations held by the Portfolio. The
Portfolio will not invest more than 10% of the value of its net assets in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice if the Adviser determines,
acting upon delegated authority from, and procedures established by, the Fund's
Board of Directors, that there is no secondary market available for these
obligations, and in other securities that are illiquid.
NOTES. The Money Market Portfolio may purchase unsecured promissory notes
("Notes") which are not readily marketable and have not been registered under
the Securities Act of 1933, provided such investments are consistent with its
investment objective. The Money Market Portfolio will invest no more than 10% of
its net assets in such Notes and in other securities that are illiquid.
ASSET-BACKED SECURITIES. The Money Market Portfolio may purchase
asset-backed securities, which are securities issued by special purpose entities
whose primary assets consist of a pool of mortgages, loans, receivables or other
assets. Payment of principal and interest may depend largely on the cash flows
generated by the assets backing the securities and, in certain cases, supported
by letters of credit, surety bonds or other forms of credit or liquidity
enhancements. The value of asset-backed securities also may be affected by the
creditworthiness of the servicing agent for the pool of assets, the originator
of the loans or receivables or the financial institution providing the credit
support.
PARTICIPATION INTERESTS. The Money Market Portfolio may invest in
short-term corporate obligations that are originated, negotiated and structured
by a syndicate of lenders ("Co-Lenders") consisting of commercial banks, thrift
institutions, insurance companies, finance companies or other financial
institutions one or more of which administers the security on behalf of the
syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third
parties called "Participants." The Money Market Portfolio may invest in such
securities either by participating as a Co-Lender at origination or by acquiring
an interest in the security from a Co-Lender or a Participant (collectively,
"participation interests"). Co-Lenders and Participants interposed between the
Money Market Portfolio and the corporate borrower (the "Borrower"), together
with Agent Banks, are referred to herein as "Intermediate Participants." The
Money Market Portfolio also may purchase a participation interest in a portion
of the rights of an Intermediate Participant. The Money Market Portfolio will
not act as an Agent Bank, guarantor, sole negotiator or sole structuror with
respect to securities that are the subject of a participation interest.
The Tax Free Money Market Portfolio may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/ purchase agreements).
A participation interest gives the Portfolio an undivided interest in the
security in the proportion that the Portfolio's participation interest bears to
the total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest with remaining maturities of 397 days or
less. If the participation interest is unrated, or has been given a rating below
that which is permissible for purchase by the Portfolio, the participation
interest will be backed by an irrevocable or unconditional letter of credit or
guarantee of a bank or other entity the debt securities of which are rated high
quality, or the payment obligation otherwise will be collateralized by U.S.
Government securities, or, in the case of an unrated participation interest, the
Adviser, acting upon delegated authority from the Fund's Board of Directors,
must have determined that the instrument is of comparable quality to those
instruments in which the Portfolio may invest. Participation interests with a
rating below high quality that are backed by an irrevocable letter of credit or
guarantee as described above will be purchased only if the Adviser, acting as
described above and subject to ratification by the Fund's Board of Directors,
determines after an analysis of, among other factors, the creditworthiness of
the guarantor that such participation interest is high quality, and if the
rating agency did not include the letter of credit or guarantee in its
determination of the instrument's rating. If the rating of a participation
interest is reduced subsequent to its purchase by the Portfolio, the Adviser
will consider, in accordance with procedures established by the Board of
Directors, all circumstances deemed relevant in determining whether the
Portfolio should continue to hold the participation interest. For certain
participation interests, the Portfolio will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, although subject to unconditional demand for payment, the Portfolio
intends to exercise its right to demand payment only upon a default under the
terms of the security, as needed to provide liquidity to meet redemptions, or to
maintain or improve the quality of its investment portfolio. Not more than 10%
of the value of a Portfolio's net assets will be invested in participation
interests that do not have this demand feature, and in other securities that are
illiquid.
INVESTMENT PRACTICES
PORTFOLIO LENDING. From time to time, the Money Market Portfolio may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed 33-1/3% of the Money Market Portfolio's total assets. In
connection with such loans, the Money Market Portfolio will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of credit
issued by third party financial institutions. Such collateral will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. The Money Market Portfolio can increase its income
through the investment of such collateral. The Money Market Portfolio continues
to be entitled to the interest or other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. The Money Market Portfolio might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Money Market
Portfolio.
REVERSE REPURCHASE AGREEMENTS. The Money Market Portfolio may enter into
reverse repurchase agreements with banks, brokers or dealers. Reverse repurchase
agreements involve the transfer by the Money Market Portfolio of an underlying
debt instrument in return for cash proceeds based on a percentage of the value
of the security. The Money Market Portfolio retains the right to receive
interest and principal payments on the security. The Money Market Portfolio will
use the proceeds of reverse repurchase agreements only to make investments which
generally either mature or have a demand feature to resell to the issuer at a
date simultaneous with or prior to the expiration of the reverse repurchase
agreement. At an agreed upon future date, the Money Market Portfolio repurchases
the security at principal plus accrued interest. In certain types of agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based on the prevailing overnight repurchase rate. As a result of
these transactions, the Money Market Portfolio may be exposed to greater
potential fluctuations in the value of its assets. Interest costs on the money
borrowed may exceed the return received on the securities purchased. The Fund's
Directors have considered the risks to the Money Market Portfolio and its
shareholders which may result from the entry into reverse repurchase agreements
and have determined that the entry into such agreements is consistent with the
Money Market Portfolio's investment objective and management policies.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase money market securities
on a when-issued or forward commitment basis, which means that delivery and
payment for such securities ordinarily take place after the date of the
commitment to purchase. The payment obligation and the interest rate receivable
on the securities are fixed when the Portfolio enters into the commitment. A
Portfolio will commit to purchase such securities only with the intention of
actually acquiring the securities, but the Portfolio may sell these securities
before the settlement date if it is deemed advisable. A Portfolio will not
accrue income in respect of a security purchased on a forward commitment basis
prior to its stated delivery date. No additional forward commitments will be
made if more than 20% of the Portfolio's net assets would be so committed.
ILLIQUID SECURITIES. Neither Portfolio will invest more than 10% of the
value of its net assets in illiquid securities. The term "illiquid securities"
for this purpose means securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which the
Portfolio has valued the securities and includes, among other instruments,
certain restricted securities. As to these securities, the Portfolio is subject
to a risk that should the Portfolio desire to sell them when a ready buyer is
not available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected.
BORROWING MONEY. As a fundamental policy, each Portfolio may borrow money
from banks for temporary or emergency (not leveraging) purposes, in an amount up
to 15% of the value of the Portfolio's total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made (borrowings
repaid within 60 days and not renewed or extended are presumed to be for
temporary purposes). While such borrowings exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any additional
investments. In addition, the Money Market Portfolio may borrow money in
connection with the entry into reverse repurchase agreements (at no time may
total borrowings exceed 33-1/3% of the value of the Money Market Portfolio's
total assets).
CORRESPONDENT CASH
RESERVES
- ---------------------------------------------
THE INFINITY MUTUAL FUNDS, INC.
3435 Stelzer Road
Columbus, Ohio 43219-8020
- ---------------------------------------------
INVESTMENT ADVISER
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue of the Americas
New York, New York 10019
- ---------------------------------------------
ADMINISTRATOR AND DISTRIBUTOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
3435 Stelzer Road
Columbus, Ohio 43219-8001
- ---------------------------------------------
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street
New York, New York 10286
[LOGO]BIS-0039
CORRESPONDENT CASH
RESERVES
[L O G O]
PROSPECTUS
May 1, 1998
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
May 1, 1998
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Correspondent Cash Reserves Money Market Portfolio (the "Money Market
Portfolio") and Correspondent Cash Reserves Tax Free Money Market Portfolio (the
"Tax Free Money Market Portfolio"), dated May 1, 1998, of The Infinity Mutual
Funds, Inc. (the "Fund"), as it may be revised from time to time. To obtain a
copy of the Portfolios' Prospectus, please write to the Fund at 3435 Stelzer
Road, Columbus, Ohio 43219-8020, contact your sales representative or call
1-800-442-3809. This Statement of Additional Information relates only to the
Portfolios and not to any of the Fund's other portfolios.
Mitchell Hutchins Asset Management Inc. (the "Adviser") serves as each
Portfolio's investment adviser.
BISYS Fund Services Limited Partnership ("BISYS") serves as each
Portfolio's administrator and distributor.
TABLE OF CONTENTS
PAGE
Investment Objective and Management Policies......................... B-2
Management of the Fund............................................... B-15
Management Arrangements.............................................. B-18
Purchase and Redemption of Shares.................................... B-23
Determination of Net Asset Value..................................... B-23
Yield Information.................................................... B-24
Portfolio Transactions............................................... B-25
Information About the Portfolios..................................... B-26
Custodian, Transfer and Dividend Disbursing
Agent, Counsel and Independent Auditors............................ B-27
Financial Statements and Report of
Independent Auditors............................................... B-28
Appendix............................................................. B-29
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "DESCRIPTION OF THE
PORTFOLIOS."
PORTFOLIO SECURITIES
BANK OBLIGATIONS. (Money Market Portfolio and, to a limited extent, Tax
Free Money Market Portfolio) Domestic commercial banks organized under Federal
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to have their deposits
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Domestic
banks organized under state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System only if they elect to
join. In addition, state banks whose certificates of deposit ("CDs") may be
purchased by the Portfolio are insured by the Bank Insurance Fund administered
by the FDIC (although such insurance may not be of material benefit to the
Portfolio, depending upon the principal amount of the CDs of each bank held by
the Portfolio) and are subject to Federal examination and to a substantial body
of Federal law and regulation. As a result of Federal and state laws and
regulations, domestic branches of domestic banks, among other things, are
generally required to maintain specified levels of reserves, and are subject to
other supervision and regulation designed to promote financial soundness.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation or governmental regulation. Such obligations are subject to different
risks than are those of domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank. The Portfolio's investment in obligations of foreign
subsidiaries of domestic banks are subject, to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), to the limitations
on investing in the securities of other investment companies.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from time
to time by the appropriate regulatory authority; and (2) maintain assets within
the state in an amount equal to a specified percentage of the aggregate amount
of liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State Branches generally
must be insured by the FDIC if such branches take deposits of less than
$100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Adviser carefully evaluates such investments on a
case-by-case basis pursuant to procedures established by the Board of Directors.
The Money Market Portfolio may invest in short-term corporate obligations
that are originated, negotiated and structured by a syndicate of lenders
("Co-Lenders") consisting of commercial banks, thrift institutions, insurance
companies, finance companies or other financial institutions one or more of
which administers the security on behalf of the syndicate (the "Agent Bank").
Co-Lenders may sell such securities to third parties called "Participants." The
Money Market Portfolio may invest in such securities either by participating as
a Co-Lender at origination or by acquiring an interest in the security from a
Co-Lender or a Participant (collectively, "participation interests"). Co-Lenders
and Participants interposed between the Fund and the corporate borrower (the
"Borrower"), together with Agent Banks, are referred to herein as "Intermediate
Participants." The Money Market Portfolio also may purchase a participation
interest in a portion of the rights of an Intermediate Participant, which would
not establish any direct relationship between the Portfolio and the Borrower. In
such cases, the Money Market Portfolio would be required to rely on the
Intermediate Participant that sold the participation interest not only for the
enforcement of the Portfolio's rights against the Borrower but also for the
receipt and processing of payments due to the Portfolio under the security.
Because it may be necessary to assert through an Intermediate Participant such
rights as may exist against the Borrower, in the event the Borrower fails to pay
principal and interest when due, the Money Market Portfolio may be subject to
delays, expenses and risks that are greater than those that would be involved if
the Portfolio could enforce its rights directly against the Borrower. Moreover,
under the terms of a participation interest, the Money Market Portfolio may be
regarded as a creditor of the Intermediate Participant (rather than of the
Borrower), so that the Portfolio also may be subject to the risk that the
Intermediate Participant may become insolvent. Similar risks may arise with
respect to the Agent Bank if, for example, assets held by the Agent Bank for the
benefit of the Money Market Portfolio were determined by the appropriate
regulatory authority or court to be subject to the claims of the Agent Bank's
creditors. In such cases, the Money Market Portfolio might incur certain costs
and delays in realizing payment in connection with the participation interest or
suffer a loss of principal and/or interest. Further, in the event of the
bankruptcy or insolvency of the Borrower, the obligation of the Borrower to
repay the loan may be subject to certain defenses that can be asserted by such
Borrower as a result of improper conduct by the Agent Bank or Intermediate
Participant. In addition, insurance companies are affected by economic and
financial conditions and are subject to extensive government regulation,
including rate regulation. The property and casualty industry is cyclical, being
subject to dramatic swings in profitability which can be affected by natural
catastrophes and other disasters. Individual companies may be exposed to
material risks, including reserve inadequacy, latent health exposure and
inability to collect from their reinsurance carriers.
Under normal circumstances, and as a matter of fundamental policy, the
Money Market Portfolio will "concentrate" at least 25% of its assets in debt
instruments issued by domestic and foreign companies engaged in the banking
industry, including bank holding companies. Such investments may include CDs,
TDs, bankers' acceptances and obligations issued by bank holding companies, as
well as repurchase agreements entered into with banks (as distinct from non-bank
dealers) in accordance with the policies set forth in "Repurchase Agreements"
below. During periods when the Adviser determines that the Money Market
Portfolio should be in a temporary defensive position, the Portfolio may invest
less than 25% of its total assets in the banking industry; during such times the
Money Market Portfolio's assets will be invested in accordance with its other
investment policies. The Adviser may determine that the adoption of a temporary
defensive position with respect to issuers in the banking industry is
appropriate on the basis of such factors as political, economic, market or
regulatory developments adversely affecting that industry as compared to the
industries of other issuers of securities available for investment by the Money
Market Portfolio.
REPURCHASE AGREEMENTS. (Both Portfolios) Each Portfolio may enter into
repurchase agreements. The Fund's custodian or sub-custodian employed in
connection with third-party repurchase transactions will have custody of, and
will hold in a segregated account, securities acquired by a Portfolio under a
repurchase agreement. In connection with its third-party repurchase
transactions, a Portfolio will employ only eligible sub-custodians which meet
the requirements set forth in Section 17(f) of the 1940 Act and the rules
thereunder. Repurchase agreements are considered by the staff of the Securities
and Exchange Commission to be loans by the Portfolio. In an attempt to reduce
the risk of incurring a loss on a repurchase agreement, a Portfolio will enter
into repurchase agreements only with domestic banks (including foreign branches
and subsidiaries of domestic banks) with total assets in excess of $1 billion or
primary government securities dealers reporting to the Federal Reserve Bank of
New York, with respect to securities in which the Portfolio may invest or
government securities regardless of their remaining maturities, and will require
that additional securities be deposited with it if the value of the securities
purchased should decrease below resale price.
REVERSE REPURCHASE AGREEMENTS. (Money Market Portfolio only) The Money
Market Portfolio may enter into reverse repurchase agreements. The Portfolio
will maintain in a segregated custodial account permissible liquid assets equal
to the aggregate amount of its reverse repurchase obligations, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission. The Securities and Exchange Commission views
reverse repurchase agreement transactions as collateralized borrowings, and,
pursuant to the 1940 Act, the Portfolio must maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the Portfolio may
be required to sell some of its portfolio holdings within three days to reduce
the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
MUNICIPAL OBLIGATIONS. (Tax Free Money Market Portfolio only) The term
"Municipal Obligations" generally includes debt obligations issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal; the interest paid on such obligations may be
exempt from Federal income tax, although current tax laws place substantial
limitations on the size of such issues. Such obligations are considered to be
Municipal Obligations if the interest paid thereon qualifies as exempt from
Federal income tax in the opinion of bond counsel to the issuer. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
Floating and variable rate demand obligations are tax exempt obligations
ordinarily having stated maturities in excess of 13 months, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. The issuer
of such obligations ordinarily has a corresponding right, after a given period,
to prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders
thereof. The interest rate on a floating rate demand obligation is based on a
known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals.
For the purpose of diversification under the 1940 Act, the identification
of the issuer of Municipal Obligations depends on the terms and conditions of
the security. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of the
government creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would be deemed to be
the sole issuer. Similarly, in the case of an industrial development bond, if
that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer.
If, however, in either case, the creating government or some other entity
guarantees a security, such a guaranty would be considered a separate security
and will be treated as an issue of such government or other entity.
The yields of Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation and rating of the issue. The imposition of the
Portfolio's management fee, as well as other operating expenses, will have the
effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. The Tax Free Money Market Portfolio will seek to minimize
these risks by investing only in those lease obligations that (1) are rated in
one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the lease obligation was rated only by one such organization) or
(2) if unrated, are purchased principally from the issuer or domestic banks or
other responsible third parties, in each case only if the seller shall have
entered into an agreement with the Portfolio providing that the seller or other
responsible third party will either remarket or repurchase the lease obligation
within a short period after demand by the Portfolio. The staff of the Securities
and Exchange Commission currently considers certain lease obligations to be
illiquid. Accordingly, not more than 10% of the value of the Tax Free Money
Market Portfolio's net assets will be invested in lease obligations that are
illiquid and in other illiquid securities.
RATINGS OF MUNICIPAL OBLIGATIONS. (Tax Free Money Market Portfolio only)
If, subsequent to its purchase by the Tax Free Money Market Portfolio, (a) an
issue of rated Municipal Obligations ceases to be rated in the highest rating
category by at least two rating organizations (or one rating organization if the
instrument was rated by only one such organization) or the Fund's Board
determines that it is no longer of comparable quality or (b) the Adviser becomes
aware that any portfolio security not so highly rated or any unrated security
has been given a rating by any rating organization below the rating
organization's second highest rating category, the Fund's Board will reassess
promptly whether such security presents minimal credit risk and will cause the
Portfolio to take such action as it determines is in the best interest of the
Portfolio and its shareholders; provided that the reassessment required by
clause (b) is not required if the portfolio security is disposed of or matures
within five business days of the Adviser becoming aware of the new rating and
the Board of Directors is subsequently notified of the Adviser's actions.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch IBCA, Inc.
("Fitch") for Municipal Obligations may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for its investments in accordance with its
stated investment policies contained in the Portfolio's Prospectus and this
Statement of Additional Information. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the Municipal Obligations which
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings may be an initial criterion for selection of portfolio
investments, the Adviser also will evaluate these securities and the
creditworthiness of the issuers of such securities based upon financial and
other available information.
ILLIQUID SECURITIES. (Both Portfolios) Neither Portfolio will invest more
than 10% of the value of its net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Portfolio has valued the securities and includes, among
other things, restricted securities other than those the Adviser has determined
to be liquid pursuant to guidelines established by the Fund's Board and
repurchase agreements maturing in more than seven days. Commercial paper issues
in which the Money Market Portfolio may invest include securities issued by
major corporations without registration under the Securities Act of 1933, as
amended ("1933 Act"), in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof and commercial paper and medium term notes
issued in reliance on the so-called "private placement" exemption from
registration which is afforded by Section 4(2) of the 1933 Act ("Section 4(2)
paper"). Section 4(2) paper is restricted as to disposition under the Federal
securities laws in that any resale must similarly be made in an exempt
transaction. Section 4(2) paper ordinarily is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) paper, thus providing liquidity.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
To facilitate the increased size and liquidity of the institutional markets
for unregistered securities, the Securities and Exchange Commission adopted Rule
144A under the 1933 Act. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Section 4(2) paper that is issued by a company
that files reports under the Securities Exchange Act of 1934, as amended,
generally is eligible to be sold in reliance on the safe harbor of Rule 144A.
Pursuant to Rule 144A, the institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. An insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held by the Portfolio,
however, could affect adversely the marketability of such portfolio securities
and the Portfolio might be unable to dispose of such securities promptly or at
reasonable prices. It is anticipated that the market for certain restricted
securities will expand further as a result of Rule 144A and the development of
automated systems for the trading, clearance and settlement of unregistered
securities, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
The Board of Directors has the ultimate responsibility for determining
whether specific securities are liquid or illiquid, other than those the
Securities and Exchange Commission deems to be illiquid. The Board of Directors
has delegated the function of making day-to-day determinations of liquidity to
the Adviser, pursuant to guidelines approved by the Board. The Adviser takes
into account a number of factors in reaching liquidity decisions, including (1)
the frequency of trades for the security, (2) the number of dealers that make
quotes for the security, (3) the number of dealers that have undertaken to make
a market in the security, (4) the number of other potential purchasers and (5)
the nature of the security and how trading is effected (e.g., the time needed to
sell the security, how offers are solicited and the mechanics of transfer). The
Adviser will monitor the liquidity of restricted securities held by the
Portfolio and report periodically on such decisions to the Board of Directors.
MANAGEMENT POLICIES
LENDING PORTFOLIO SECURITIES. (Money Market Portfolio only) To a limited
extent, the Money Market may lend its portfolio securities to brokers, dealers
and other financial institutions, provided it receives cash collateral which at
all times is maintained in an amount equal to at least 100% of the current
market value of the securities loaned. By lending its portfolio securities, the
Portfolio can increase its income through the investment of the cash collateral.
For the purposes of this policy, the Fund considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by banks
whose securities meet the standards for investment by the Portfolio to be the
equivalent of cash. Such loans may not exceed 33-1/3% of the Money Market
Portfolio's total assets. From time to time, the Portfolio may pay a part of the
interest earned from the investment of collateral received for securities loaned
to the borrower or a third party which is unaffiliated with the Fund, and which
is acting as a "placing broker," in an amount determined by the Board of
Directors to be reasonable and based solely on services rendered.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Portfolio must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any interest or other distributions
payable on the loaned securities, and any increase in market value; and (5) the
Portfolio may pay only reasonable custodian fees in connection with the loan.
FORWARD COMMITMENTS. (Both Portfolios) Securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Securities purchased on a forward commitment or when-issued
basis may expose the Portfolio to risks because they may experience such
fluctuations prior to their actual delivery. Purchasing securities on a
when-issued basis can involve the additional risk that the yield available in
the market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Portfolio is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Portfolio's net assets and its net asset value per share.
INVESTMENT RESTRICTIONS
MONEY MARKET PORTFOLIO ONLY. The Money Market Portfolio has adopted the
following investment restrictions as fundamental policies, which cannot be
changed without approval by the holders of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting shares. The Money Market Portfolio
may not:
1. Purchase common stocks, preferred stocks, warrants or other equity
securities.
2. Borrow money, except (i) from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Portfolio's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made (while such borrowings exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any additional
investments) and (ii) in connection with the entry into reverse repurchase
agreements. At no time may total borrowings exceed 33-1/3% of the value of the
Portfolio's total assets.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(i) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements.
4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), other than in connection with the entry into certain reverse
repurchase agreements.
5. Sell securities short or purchase securities on margin.
6. Write or purchase put or call options or combinations thereof.
7. Act as underwriter of securities of other issuers. The Portfolio may not
enter into repurchase agreements providing for settlement in more than seven
days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 10% of its net assets would be so invested.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests.
9. Make loans to others, except through the purchase of debt obligations
and through repurchase agreements referred to in the Portfolio's Prospectus, and
except that the Portfolio may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the Securities
and Exchange Commission and the Fund's Board.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
12. Invest more than 5% of its assets in the obligations of any one issuer,
except that up to 25% of the value of the Portfolio's total assets may be
invested without regard to any such limitation (subject to provisions of Rule
2a-7), provided that not more than 10% of its assets may be invested in
securities issued or guaranteed by any single guarantor of obligations held by
the Portfolio. Notwithstanding the foregoing, to the extent required by the
rules of the Securities and Exchange Commission, the Portfolio will not invest
more than 5% of its assets in the obligations of any one bank.
* * *
TAX FREE MONEY MARKET PORTFOLIO ONLY. The Tax Free Money Market Portfolio
has adopted the following investment restrictions as fundamental policies, which
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Portfolio's outstanding voting shares. The Tax Free Money
Market Portfolio may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Portfolio's Prospectus.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Portfolio's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made (while borrowings exceed 5% of the value of the Portfolio's
total assets, the Portfolio will not make any additional investments).
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure borrowings for temporary or emergency purposes.
4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act).
5. Sell securities short or purchase securities on margin.
6. Write or purchase put or call options or combinations thereof.
7. The Portfolio may not enter into repurchase agreements providing for
settlement in more than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more than 10% of its net assets would be so
invested.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, but this shall not prevent the Portfolio
from investing in Municipal Obligations secured by real estate or interests
therein.
9. Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements referred to above and in the
Portfolio's Prospectus.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
12. Underwrite the securities of other issuers, except that the Portfolio
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage of
the lower purchase price available.
13. Invest more than 25% of its assets in the securities of issuers in any
single industry, provided that there shall be no limitation on the purchase of
tax exempt securities issued by state or municipal governments or their
political subdivisions and, for temporary defensive purposes, securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
For purposes of Investment Restriction No. 13, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
* * *
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
The Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of Portfolio shares in certain states. Should the
Fund determine that a commitment is no longer in the best interests of a
Portfolio and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Portfolio shares in the state involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Director who is an "interested person" of the Fund, as defined in
the 1940 Act, is indicated by an asterisk.
DIRECTORS OF THE FUND
*WILLIAM B. BLUNDIN, PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS. An
employee of BISYS Fund Services, Inc., BISYS' general partner.
Mr. Blundin also is an officer of other investment companies
administered by BISYS or its affiliates. He is is 60 years old
and his address is 125 West 55th Street, New York, New York
10019.
NORMA A. COLDWELL, DIRECTOR. International Economist and Consultant;
Executive Vice President of Coldwell Financial Consultants;
Trustee and Treasurer of Meridian House International
(International Education and Cultural Group); Member of the
Board of Advisors of Meridian International Center and Emerging
Capital Markets, S.A. (Montevideo, Uruguay); formerly Chief
International Economist of Riggs National Bank, Washington, D.C.
She is 72 years old and her address is 3330 Southwestern
Boulevard, Dallas, Texas 75225.
RICHARD H. FRANCIS, DIRECTOR. Former Executive Vice President and Chief
Financial Officer of Pan American World Airways, Inc.
(currently, debtor-in-possession under the U.S. Bankruptcy
Code), March 1988 to October 1991; Senior Vice President and
Chief Financial Officer of American Standard Inc., 1960 to March
1988. Mr. Francis is a director of Allendale Mutual Insurance
and The Indonesia Fund, Inc. He is 66 years old and his address
is 40 Grosvenor Road, Short Hills, New Jersey 07078.
WILLIAM W. McINNES, DIRECTOR. Private investor. From July 1978 to February
1993, he was Vice President--Finance and Treasurer of Hospital
Corp. of America. He is also a director of Gulf South Medical
Supply and Diversified Trust Co. He is 48 years old and his
address is 116 30th Avenue South, Nashville, Tennessee 37212.
ROBERT A. ROBINSON, DIRECTOR. Private investor. Since 1991, President
Emeritus, and from 1968 to 1991, President of The Church Pension
Group, NYC. From 1956 to 1966, Senior Vice President of Colonial
Bank & Trust Co. He is also a director of Mariner Institutional
Funds, Inc., Mariner Tax-Free Institutional Funds, Inc., UST
Master Funds, UST Master Tax Exempt Funds, H.B. and F.H. Bugher
Foundation, Morehouse-Barlow Co. Publishers, The Canterbury
Cathedral Trust in America, The Living Church Foundation and
Hoosac School. He is 71 years old and his address is 2 Hathaway
Common, New Canaan, Connecticut 06840.
OFFICERS OF THE FUND
JEFFREY C. CUSICK, VICE PRESIDENT AND ASSISTANT SECRETARY. An employee of BISYS
Fund Services, Inc. since July 1995, and an officer of other
investment companies administered by BISYS or its affiliates.
From September 1993 to July 1995, he was Assistant Vice
President and, from 1989 to September 1993, he was
Manager--Client Services, of Federated Administrative Services.
He is 38 years old and his address is 3435 Stelzer Road,
Columbus, Ohio 43219.
WILLIAM TOMKO, VICE PRESIDENT. An employee of BISYS Fund Services, Inc. and an
officer of other investment companies administered by BISYS or
its affiliates. He is 38 years old and his address is 3435
Stelzer Road, Columbus, Ohio 43219.
NIMISH BHATT, TREASURER. An employee of BISYS Fund Services, Inc. since July
1996, and an officer of other investment companies administered
by BISYS or its affiliates. Prior thereto, he was an Assistant
Vice President with Evergreen Asset Management Corp./First Union
Bank, from January 1995 to July 1996, and, from September 1990
to January 1995, he was an accountant with Price Waterhouse. He
is 34 years old and his address is 3435 Stelzer Road, Columbus,
Ohio 43219.
ROBERT L. TUCH, ASSISTANT SECRETARY. An employee of BISYS Fund Services, Inc.
since June 1991, and an officer of other investment companies
administered by BISYS or its affiliates. He is 45 years old and
his address is 3435 Stelzer Road, Columbus, Ohio 43219.
ALAINA METZ, ASSISTANT SECRETARY. An employee of BISYS Fund Services, Inc. and
an officer of other investment companies administered by BISYS
or its affiliates. She is 29 years old and her address is 3435
Stelzer Road, Columbus, Ohio 43219.
For so long as the Fund's plan described in the section captioned
"Management Arrangements--Distribution Plan" remains in effect, the Directors of
the Fund who are not "interested persons" of the Fund, as defined in the 1940
Act, will be selected and nominated by the Directors who are not "interested
persons" of the Fund.
Directors and officers of the Fund, as a group, owned less than 1% of each
Portfolio's shares outstanding on April 11, 1997.
The Fund does not pay any remuneration to its officers and Directors other
than fees and expenses to those Directors who are not directors, officers or
employees of the Adviser or BISYS or any of their affiliates. The aggregate
amount of compensation paid to each such Director by the Fund for the year ended
December 31, 1997 was as follows:
Total Compensation
Aggregate From Fund and
Name of Board Compensation Fund Complex Paid
Member from Fund* to Board Member*
- --------------------- -------------------- ---------------------
Norma A. Coldwell $18,000 $18,000
Richard H. Francis $18,000 $18,000
William W. McInnis $18,000 $18,000
Robert A. Robinson $18,000 $18,000
- ---------------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $13,422 for all Directors as a group.
<PAGE>
MANAGEMENT ARRANGEMENTS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "MANAGEMENT OF THE
PORTFOLIOS."
INVESTMENT ADVISORY AGREEMENT. The Adviser provides investment advisory
services pursuant to the Investment Advisory Agreement (the "Agreement") dated
October 30, 1990, with the Fund. As to each Portfolio, the Agreement is subject
to annual approval by (i) the Fund's Board of Directors or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Portfolio, provided that in either event the continuance also is approved by
a majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of the Fund or the Adviser, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Board, including a majority of
the Directors who are not "interested persons" of any party to the Agreement,
last approved the Agreement at a meeting held on November 11, 1997. Shareholders
of the Money Market Portfolio approved the Agreement on December 20, 1991. As to
each Portfolio, the Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board or by vote of the holders of a majority of the Portfolio's
shares, or, on not less than 90 days' notice, by the Adviser. The Agreement will
terminate automatically, as to the relevant Portfolio, in the event of its
assignment (as defined in the 1940 Act).
The Adviser is a wholly-owned subsidiary of PaineWebber Incorporated
("PaineWebber"), which in turn is a wholly-owned subsidiary of Paine Webber
Group Inc. ("PW Group"), a publicly owned financial services holding company.
The Adviser provides investment advisory services in accordance with the
stated policies of the Portfolios, subject to the approval of the Fund's Board
of Directors. The Adviser provides each Portfolio with Investment Officers who
are authorized by the Board of Directors to execute purchases and sales of
securities. The Money Market Portfolio's Chief Investment Officers are Susan P.
Ryan and Dennis L. McCauley. The Tax Free Money Market Portfolio's Chief
Investment Officers are Elbridge T. Gerry III, Debbie Vermann and Kevin
McIntyre. The Adviser also maintains a research department with a professional
staff of portfolio managers and securities analysts who provide research
services for each Portfolio and for other funds advised by the Adviser. All
purchases and sales are reported for the Board's review at the meeting
subsequent to such transactions.
As compensation for its services, the Fund has agreed to pay the Adviser a
monthly fee at the annual rate of .10 of 1% of the value of each Portfolio's
average daily net assets. For the fiscal years ended December 31, 1995, 1996 and
1997, the advisory fees paid to the Adviser by the Money Market Portfolio
amounted to $644,228, $950,074 and $1,088,088, respectively. For the period
October 7, 1996 (commencement of operations of the Tax Free Money Market
Portfolio) through December 31, 1996 and for the fiscal year ended December 31,
1997, the advisory fees payable to the Adviser by the Tax Free Money Market
Portfolio amounted to $19,900 and $93,494, respectively, which amounts were
reduced by $9,950 and $14,024, respectively, pursuant to undertakings by the
Adviser, resulting in net advisory fees paid to the Adviser by the Tax Free
Money Market Portfolio of $9,950 for the period ended December 31, 1996 and
$79,470 for the fiscal year ended December 31, 1997.
In addition, pursuant to the terms of a Special Management Services
Agreement among the Fund, the Adviser and BISYS, each Portfolio has agreed to
pay the Adviser and BISYS each a monthly fee at the annual rate of .05 of 1% of
the value of the Portfolio's average daily net assets. The fees payable to the
Adviser by the Money Market Portfolio under the agreement for the fiscal years
ended December 31, 1995, 1996 and 1997 amounted to $306,186, $461,556 and
$544,044, respectively; however, pursuant to an undertaking, the Adviser waived
the fee in its entirety for each such fiscal year. The fees payable to the
Adviser by the Tax Free Money Market Portfolio under the agreement for the
period October 7, 1996 (commencement of operations of the Tax Free Money Market
Portfolio) through December 31, 1996 and for the fiscal year ended December 31,
1997, amounted to $9,950 and $46,747, respectively, which amounts were waived in
their entirety pursuant to an undertaking.
ADMINISTRATION AGREEMENT. BISYS provides certain administrative services
pursuant to the Administration Agreement (the "Administration Agreement") dated
April 25, 1996, with the Fund. As to each Portfolio, the Administration
Agreement will continue until December 31, 1997 and thereafter is subject to
annual approval by (i) the Fund's Board or (ii) vote of a majority (as defined
in the 1940 Act) of the outstanding voting securities of the Portfolio, provided
that in either event the continuance also is approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Fund or the BISYS, by vote cast in person at a meeting called for the purpose of
voting such approval. The Administration Agreement was last approved by the
Fund's Board of Directors, including a majority of the Directors who are not
"interested persons" of any party to the Administration Agreement, at a meeting
held on February 11, 1997. As to each Portfolio, the Administration Agreement is
terminable without penalty, at any time if for cause, by the Fund's Board or by
vote of the holders of a majority of the Portfolio's outstanding voting
securities, or, on not less than 90 days' notice, by BISYS. The Administration
Agreement will terminate automatically, as to the relevant Portfolio, in the
event of its assignment (as defined in the 1940 Act).
As compensation for its administrative services, each Portfolio has agreed
to pay BISYS a monthly fee at the annual rate of .10 of 1% of the value of the
Portfolio's average daily net assets. For the fiscal years ended December 31,
1995, 1996 and 1997, the Money Market Portfolio paid BISYS, or the Portfolios'
predecessor administrator, an affiliate of BISYS, $644,228, $950,074 and
$1,088,088, respectively. For the period October 7, 1996 (commencement of
operations of the Tax Free Money Market Portfolio) through December 31, 1996 and
for the fiscal year ended December 31, 1997, the administration fees payable to
BISYS by the Tax Free Money Market Portfolio amounted to $19,900 and $93,494,
respectively, which amounts were reduced by $19,900 and $67,007, respectively,
resulting in no administration fee being paid for the period ended December 31,
1996 and $26,487 in administration fees paid to BISYS for the fiscal year ended
December 31, 1997 pursuant to undertakings.
In addition, pursuant to the terms of the Special Management Services
Agreement described above, the fees payable to BISYS, or the Portfolios'
predecessor administrator, by the Money Market Portfolio under the agreement for
the fiscal years ended December 31, 1995, 1996 and 1997 amounted to $306,186,
$461,555 and $544,044, respectively; however, pursuant to an undertaking, BISYS,
or the Portfolios' predecessor administrator, waived the fee in its entirety for
each such fiscal year. The fees payable to BISYS by the Tax Free Money Market
Portfolio for the period October 7, 1996 (commencement of operations of the Tax
Free Money Market Portfolio) through December 31, 1996 and for the fiscal year
ended December 31, 1997, amounted to $9,950 and $46,747, respectively, which
amounts were waived in their entirety pursuant to an undertaking.
DISTRIBUTION AGREEMENT. BISYS acts as the exclusive distributor of each
Portfolio's shares on a best efforts basis pursuant to a Distribution Agreement
(the "Distribution Agreement") dated February 11, 1997, with the Fund. Shares
are sold on a continuous basis by BISYS as agent, although BISYS is not obliged
to sell any particular amount of shares. No compensation is payable by a
Portfolio to BISYS for its distribution services.
DISTRIBUTION PLAN. Rule 12b-1 (the "Rule") adopted by the Securities and
Exchange Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant to
a plan adopted in accordance with the Rule. Because some or all of the fees paid
to Securities Firms (as defined in the Prospectus) for services provided to
Portfolio shareholders could be deemed to be payment of distribution expenses,
the Fund's Board of Directors has adopted such a plan (the "Plan"). The Fund's
Board of Directors believes that there is a reasonable likelihood that the Plan
will benefit each Portfolio and its shareholders. In some states, certain
financial institutions effecting transactions in Portfolio shares may be
required to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Plan, and the purposes
for which such expenditures were incurred, must be made to the Board of
Directors for its review. In addition, as to each Portfolio, the Plan provides
that it may not be amended to increase materially the costs which shareholders
may bear for distribution pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the Board of
Directors, and by the Directors who are neither "interested persons" (as defined
in the 1940 Act) of the Fund nor have any direct or indirect financial interest
in the operation of the Plan or in the related Plan Agreement between the Fund
and Correspondent Services Corporation [CSC], an affiliate of the Adviser, by
vote cast in person at a meeting called for the purpose of considering such
amendments. The Plan and the Plan Agreement are subject to annual approval by
such vote cast in person at a meeting called for the purpose of voting on the
Plan. The Plan and Plan Agreement were so approved on November 11, 1997. The
Money Market Portfolio's shareholders approved the Plan on December 20, 1991. As
to each Portfolio, the Plan is terminable at any time by vote of a majority of
the Directors who are not "interested persons" and who have no direct or
indirect financial interest in the operation of the Plan or in the Plan
Agreement or by vote of the holders of a majority of the Portfolio's shares. As
to each Portfolio, the Plan Agreement is terminable without penalty, at any
time, by such vote of the Directors, upon not more than 60 days' written notice
to Correspondent Services Corporation [CSC] or by vote of the holders of a
majority of the Portfolio's shares. The Plan Agreement will terminate
automatically, as to the relevant Portfolio, in the event of its assignment (as
defined in the 1940 Act).
For the fiscal year ended December 31, 1997, the amount payable pursuant to
the Plan by the Money Market Portfolio amounted to $6,528,555; however, pursuant
to an undertaking, the amount was reduced by $97,887, resulting in a net amount
paid by the Money Market Portfolio of $6,430,668 pursuant to the Plan. For the
fiscal year ended December 31, 1997, the amount payable pursuant to the Plan by
the Tax Free Money Market Portfolio amounted to $560,968; however, pursuant to
an undertaking, the amount was reduced by $200,244, resulting in a net amount
paid by the Tax Free Money Market Portfolio of $360,724 pursuant to the Plan.
EXPENSES. All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by others. The expenses
borne by the Fund include: organizational costs, taxes, interest, brokerage fees
and commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or BISYS or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory fees, administration fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, auditing and legal expenses,
costs of maintaining corporate existence, costs of independent pricing services,
costs attribut able to investor services (including, without limitation, tele
phone and personnel expenses), costs of calculating the net asset value of each
Portfolio's shares, costs of shareholders' reports and corporate meetings, costs
of preparing and printing prospectuses and statements of additional information
for regula tory purposes and for distribution to existing shareholders, and any
extraordinary expenses. Expenses attributable to a particular Portfolio are
charged against the assets of that Portfolio; other expenses of the Fund are
allocated among the Portfolios on the basis determined by the Board, including,
but not limited to, proportionately in relation to the net assets of each
Portfolio.
As to each Portfolio, the Adviser and BISYS have agreed that if in any
fiscal year the aggregate expenses of the Portfolio, exclusive of taxes,
brokerage, interest on borrowings and (with the prior written consent of the
necessary state securities commissions) extraordinary expenses, but including
the advisory and administration fees, exceed the expense limitation of any state
having jurisdiction over the Portfolio, the Fund may deduct from the payment to
be made to BISYS under the Administration Agreement, or the Adviser and/or BISYS
will bear, such excess expense to the extent required by state law. Such
deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
PURCHASE AND REDEMPTION OF SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTIONS IN THE PORTFOLIOS' PROSPECTUS ENTITLED "HOW TO BUY SHARES" AND
"HOW TO REDEEM SHARES."
TERMS OF PURCHASE. The Fund reserves the right to reject any purchase order
and to change the amount of the minimum investment and subsequent purchases in
the Portfolios.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock Exchange
is closed (other than customary weekend and holiday closing), (b) when trading
in the markets a Portfolio ordinarily utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Portfolio's investments or determination of its net asset value
is not reasonably practicable, or (c) for such other periods as the Securities
and Exchange Commission by order may permit to protect the Portfolio's
shareholders.
DETERMINATION OF NET ASSET VALUE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "HOW TO BUY SHARES."
AMORTIZED COST PRICING. The valuation of each Portfolio's investment
securities is based upon their amortized cost, which does not take into account
unrealized capital gains or losses. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument.
The Board of Directors has established, as a particular responsibility
within the overall duty of care owed to each Portfolio's investors, procedures
reasonably designed to stabilize the Portfolio's price per share as computed for
the purpose of purchases and redemptions at $1.00. Such procedures include
review of the Portfolio's investment holdings by the Board of Directors, at such
intervals as it deems appropriate, to determine whether the Portfolio's net
asset value calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost. In such
review, investments for which market quotations are readily available will be
valued at the most recent bid price or yield equivalent for such securities or
for securities of comparable maturity, quality and type, as obtained from one or
more of the major market makers for the securities to be valued. Other
investments and assets will be valued at fair value as determined in good faith
by the Board of Directors.
The extent of any deviation between a Portfolio's net asset value based
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost will be examined by the Board. If such deviation exceeds 1/2
of 1%, the Board promptly will consider what action, if any, will be initiated.
In the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
it has agreed to take such corrective action as it regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations or market equivalents.
NEW YORK STOCK EXCHANGE AND CUSTODIAN CLOSINGS. The holidays (as observed)
on which the New York Stock Exchange and the Custodian are closed currently are:
New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving and Christmas.
YIELD INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "YIELD INFORMATION."
For the seven-day period ended December 31, 1997, the yield and effective
yield of the Money Market Portfolio, net of absorbed expenses, was 4.87% and
4.98%, respectively. The yield and effective yield of the Money Market Portfolio
without the absorption of certain expenses would have been 4.59% and 4.69%,
respectively, for the same period. For the seven-day period ended December 31,
1997, the yield and effective yield of the Tax Free Money Market Portfolio, net
of absorbed expenses, was 3.16% and 3.21%, respectively. The yield and effective
yield of the Tax Free Money Market Portfolio without the absorption of certain
expenses would have been 2.74% and 2.77%, respectively, for the same period.
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Portfolio
account having a balance of one share at the beginning of a seven calendar day
period for which yield is to be quoted, dividing the net change by the value of
the account at the beginning of the period to obtain the base period return, and
analyzing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such additional
shares and fees that may be charged to shareholder accounts, in proportion to
the length of the base period and the Portfolio's average account size, but does
not include realized gains and losses or unrealized appreciation and
depreciation. Effective annualized yield is computed by adding 1 to the base
period return (calculated as described above), raising that sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
Based upon a 1997 Federal income tax rate of 39.60%, the Tax Free Money
Market Portfolio's tax equivalent yield for the seven-day period ended December
31, 1997, net of absorbed expenses, was 5.23%; without absorbed expenses, tax
equivalent yield for such period would have been 4.54%. Tax equivalent yield is
computed by dividing that portion of the yield or effective yield (calculated as
described above) which is tax exempt by 1 minus a stated tax rate and adding the
quotient to that portion, if any, of the yield of the Portfolio that is not tax
exempt. Each investor should consult with its tax adviser, and consider its own
factual circumstances and applicable tax laws, in order to ascertain the
relevant tax equivalent yield.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held, their maturity and operating expenses. An
investor's principal in a Portfolio is not guaranteed. See "Determination of Net
Asset Value" for a discussion of the manner in which each Portfolio's price per
share is determined.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased directly from the issuer or
an underwriter or a market maker for the securities. Usually no brokerage
commissions are paid for such purchases. Purchases from underwriters of
portfolio securities include a concession paid by the issuer to the underwriter
and the purchase price paid to market makers for the securities may include the
spread between the bid and asked price. No brokerage commissions have been paid
by either Portfolio to date.
Transactions are allocated to various dealers by the Portfolio's investment
personnel in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected to act on an agency basis for
research, statistical or other services to enable the Adviser to supplement its
own research and analysis with the views and information of other securities
firms.
Research services furnished by brokers through which the Portfolios effect
securities transactions may be used by the Adviser in advising other funds or
accounts it advises and, conversely, research services furnished to the Adviser
by brokers in connection with other funds or accounts the Adviser advises may be
used by the Adviser in advising each Portfolio. Although it is not possible to
place a dollar value on these services, it is the opinion of the Adviser that
the receipt and study of such services should not reduce the overall expenses of
its research department.
INFORMATION ABOUT THE PORTFOLIOS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "GENERAL INFORMATION."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise, to the holders of the outstanding voting securities of an investment
company, such as the Fund, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by such matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of such portfolio. However, the Rule exempts the
election of directors from the separate voting requirements of the Rule.
Each Portfolio will send annual and semi-annual financial statements to all
its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286, acts
as custodian of each Portfolio's investments. BISYS Fund Services Ohio, Inc., an
affiliate of BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, acts as the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"). Under the
transfer agency agreement with the Fund, the Transfer Agent maintains
shareholder account records for each Portfolio, handles certain communications
between shareholders and the Portfolio and pays dividends and distributions
payable by the Portfolio. For these services, the Transfer Agent receives a
monthly fee compiled on the basis of the number of shareholder accounts it
maintains for each Portfolio during the month, and is reimbursed for certain
out-of-pocket expenses. Neither The Bank of New York nor the Transfer Agent has
any part in determining the investment policies of a Portfolio or which
securities are to be purchased or sold by the Portfolio.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to the Prospectus.
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
independent auditors, has been selected as the Fund's auditors for the year
ending December 31, 1998.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
The Portfolios' Annual Report to Shareholders for the fiscal year ended
December 31, 1997 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing therein are incorporated by reference
in this Statement of Additional Information.
<PAGE>
APPENDIX
Description of the two highest commercial paper, bond, municipal bond and
other short- and long-term rating categories assigned by S&P, Moody's, Fitch,
Duff & Phelps Credit Rating Co. ("Duff"), and Thomson BankWatch, Inc.
("BankWatch"):
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions pin well established industries, high rates of return of funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.
The rating TBW-1 is the highest short-term rating assigned by BankWatch;
the rating indicates that the degree of safety regarding timely repayment of
principal and interest is very strong. The rating TBW-2 is the second highest
short-term rating assigned by BankWatch; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest, and in the majority of instances, differ only in small
degrees from issues rated AAA.
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Bonds rated Aa by Moody's are judged by Moody's to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than U.S. Treasury
debt. Bonds rated AA are considered to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
INTERNATIONAL AND U.S. BANK RATINGS
A Fitch bank rating represents Fitch's current assessment of the strength
of the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, Fitch uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, Fitch assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
Fitch to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent Fitch's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
Description of certain S&P, Moody's and Fitch ratings of Municipal
Obligations:
S&P
MUNICIPAL BOND RATINGS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The AA
rating may be modified by the addition of a plus or a minus sign, which is used
to show relative standing within the category.
MUNICIPAL NOTE RATINGS
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
Moody's
MUNICIPAL BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Bonds in the
Aa category which Moody's believes possess the strongest investment attributes
are designated by the symbol Aa1.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as MIG 1
or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's assigns a
MIG or VMIG rating, all categories define an investment grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Fitch
MUNICIPAL BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the rating symbol AA to
indicate the relative position of a credit within the rating category.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights.
Included in Part B of the Registration Statement:
Schedules of Portfolio Investments for each of the
periods indicated in the Annual Report.*
Statements of Assets and Liabilities for each of
the periods indicated in the Annual Report.*
Statements of Operations for each of the periods
indicated in the Annual Report.*
Statements of Changes in Net Assets for each of
the periods indicated in the Annual Report.*
Notes to Financial Statements.*
Report of KPMG Peat Marwick LLP, Independent
Auditors.*
- -------------------------
* Incorporated by reference to the Registrant's Annual
Report to Shareholders.
(b) Exhibits:
(1) (a) Articles of Incorporation are incorporated by
reference to Exhibit (1) of the Registration
Statement on Form N-1A, filed on March 29,
1990.
(b) Articles of Amendment are incorporated by
reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on June 22,
1990.
(c) Articles Supplementary dated October 16,
1990 are incorporated by reference to
Exhibit(1)(c) of Post-Effective Amendment
No. 3 to the Registration Statement on Form
N-1A, filed on October 25, 1990.
(d) Articles Supplementary dated January 9, 1992
are incorporated by reference to Exhibit
(1)(d) of Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A,
filed on January 17, 1992.
(e) Articles Supplementary dated February 15,
1994 are incorporated by reference to Exhibit
(1)(e) of Post-Effective Amendment No. 22 to
the Registration Statement on Form N-1A,
filed on February 10, 1994.
(f) Articles of Amendment are incorporated by
reference to Exhibit (1)(f) of Post-
Effective Amendment No. 26 to the
Registration Statement on Form N-1A,
filed on April 30, 1996.
(g) Articles Supplementary dated February 24,
1997 are incorporated by reference to
Exhibit (1)(g) of Post-Effective Amendment
No. 31 to the Registration Statement on
Form N-1A, filed on February 27, 1997.
(h) Articles of Amendment are incorporated by
reference to Post-Effective Amendment No.
36 to the Registration Statement on Form
N-1A, filed March 31, 1998.
(i) Articles Supplementary are incorporated by
reference to Post-Effective Amendment No.
36 to the Registration Statement on Form
N-1A, filed March 31, 1998.
(2) By-Laws are incorporated by reference to Exhibit
(2) of Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on June
22, 1990.
(4) Specimen copies of stock certificates are
incorporated by reference to Exhibit (4) of Post-
Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on June 7, 1991.
(5) (a)(i) Investment Advisory Agreement between
the Registrant and Mitchell Hutchins
Asset Management Inc. is incorporated by
reference to Exhibit (5)(b)(iii) of
Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(a)(ii) Investment Advisory Agreement
between Registrant and First
American National Bank is incorporated
by reference to Post-Effective Amendment
No. 31 to the Registration Statement on
Form N-1A, filed on February 27, 1997.
(b)(i) Sub-Investment Advisory Agreement among
Registrant, First American National Bank
and Barnett Banks and Trust Company,
N.A. is incorporated by reference to
Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A,
filed on February 10, 1994.
(c) Administration Agreement between
Registrant and BISYS Fund Services
Limited Partnership dated April 25,
1996, as revised February 11, 1997,
is incorporated by reference to
Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A, filed
on February 27, 1997.
(6)(a) Distribution Agreement between
Registrant and BISYS Fund Services
Limited Partnership dated February 11,
1997 is incorporated by reference to
Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A, filed
on February 27, 1997.
(b)(i) Form of Plan Agreement, with respect to
Registrant's Correspondent Cash Reserves
Money Market Portfolio and Correspondent
Cash Reserves Tax Free Money Market
Portfolio, is incorporated by
reference to Exhibit (6)(b) of Post-
Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(b)(ii) Distribution Plan Agreement, with
respect to Registrant's AmeriStar
Portfolios, is incorporated by reference
to Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A, filed
on February 27, 1997.
(8)(a) Custody and Fund Accounting Agreement
with The Bank of New York is
incorporated by reference to
Exhibit (8)(a) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on June
22, 1990.
(b) Form of Foreign Sub-Custodian
Agreement is incorporated by
reference to Post-Effective
Amendment No. 22 to the Registration
Statement on Form N-1A, filed on
February 10, 1994.
(9)(a) Special Management Services Agreement
among the Registrant, Mitchell Hutchins
Asset Management Inc. and Concord
Holding Corporation is incorporated by
reference to Exhibit (9) of Post-
Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(b) Form of Shareholder Services Agreement
is incorporated by reference to
Exhibit (5)(e) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on
June 22, 1990.
(c) Shareholder Services Plan, with respect
to Registrant's AmeriStar Portfolios, is
incorporated by reference to Exhibit(9)
(c) of Post-Effective Amendment No. 35
to the Registration Statement on Form
N-1A, filed on January 30, 1998.
(11) Consent of Independent Auditors.
(15)(a) Plan of Distribution pursuant to Rule
12b-1, with respect to Registrant's
Correspondent Cash Reserves Money Market
Portfolio and Correspondent Cash
Reserves Tax Free Money Market Portfolio,
is incorporated by reference to Exhibit
(15) of Post-Effective Amendment No. 6
to the Registration Statement on Form
N-1A, filed on June 7, 1991.
(b) Distribution Plan pursuant to Rule
12b-1, with respect to Registrant's
AmeriStar Portfolios, is incorporated by
reference to Exhibit (15)(b) of Post-
Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed
on January 30, 1998.
(16) Computations of Performance Information
are incorporated by reference to Post-
Effective Amendment No. 25 to the
Registration Statement on Form N-1A,
filed on May 1, 1995.
(17) Financial Data Schedules are
incorporated by reference to
Registrant's Annual Report on Form N-SAR
filed on or about February 27, 1998.
(18)(a) Rule 18f-3 Plan for Registrant's
CCR Portfolios is incorporated by
reference to Post-Effective Amendment
No. 25 to the Registration Statement on
Form N-1A, filed on May 1, 1995.
(b) Rule 18f-3 Plan for Registrant's
AmeriStar Non-Money Market Portfolios is
incorporated by reference to Post-Effective
Amendment No. 34 to the Registration
Statement on Form N-1A, filed on November
18, 1997.
(c) Rule 18f-3 Plan for Registrant's
AmeriStar Money Market Portfolios, is
incorporated by reference to Exhibit (18)
(c) of Post-Effective Amendment No. 35 to
the Registration Statement on Form N-1A,
filed on January 30, 1998.
Other Exhibit: (i) Certificate of Corporate Secretary is
incorporated by reference to Other
Exhibit of Pre-Effective Amendment
No. 3 to the Registration Statement
on Form N-1A, filed on June 22,
1990.
(ii) Powers of Attorney are incorporated by
reference to Pre-Effective Amendment No.
1 and Post-Effective Amendment No. 8 to
the Registration Statement on Form
N-1A, filed on May 23, 1990 and November
15, 1991, respectively.
Item 25. Persons Controlled By or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class March 2, 1998
Common Stock, par value
$.001 per share
Correspondent Cash Reserves
Money Market Portfolio 50,148
Correspondent Cash Reserves Tax
Free Money Market Portfolio 1,826
AmeriStar Prime Money Market Portfolio
--Trust Shares 2
--Class A Shares 18
--Class B Shares 0
AmeriStar Capital Growth Portfolio
--Trust Shares 7
--Class A Shares 6
--Class B Shares -
AmeriStar Core Income
Portfolio
--Trust Shares 4
--Class A Shares 3
--Class B Shares -
AmeriStar Limited
Duration Income Portfolio
--Trust Shares 4
--Class A Shares 13
--Class B Shares --
AmeriStar Tennessee Tax Exempt
Bond Portfolio
--Trust Shares 4
--Class A Shares 24
--Class B Shares --
AmeriStar U.S. Treasury Money
Market Portfolio
--Trust Shares 2
--Class A Shares 11
AmeriStar Dividend Growth Portfolio
--Trust Shares 4
--Class A Shares 29
--Class B Shares --
AmeriStar Limited Duration U.S.
Government Portfolio
--Trust Shares 0
--Class A Shares 4
--Class B Shares --
AmeriStar Limited Duration Tennessee
Tax Free Portfolio
--Trust Shares 0
--Class A Shares 4
--Class B Shares --
Item 27. Indemnification
Reference is made to Article SEVENTH of the Registrant's Articles
of Incorporation filed as Exhibit 1 to the Registration Statement, filed on
March 29, 1990, and to Section 2-418 of the Maryland General Corporation Law.
The application of these provisions is limited by Article VIII of the
Registrant's By-Laws filed as Exhibit 2 to Pre-Effective Amendment No. 3 to the
Registration Statement, filed on June 22, 1990, and by the following undertaking
set forth in the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Reference also is made to the Distribution Agreement filed as
Exhibit 6(a) hereto.
Item 28(a). Business and Other Connections of Investment Adviser
(i) Registrant is fulfilling the requirement of this Item 28(a)
to provide a list of the officers and directors of Mitchell Hutchins Asset
Management Inc., the investment adviser of the Registrant's Correspondent Cash
Reserves Money Market Portfolio, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by Mitchell Hutchins Asset Management Inc. or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by the Mitchell Hutchins Asset Management Inc.
(SEC File No. 801-13219).
(ii) First American National Bank, the investment adviser of the
Registrant's AmeriStar Portfolios, is a wholly-owned subsidiary of First
American Corporation, a registered bank holding company. To the knowledge of the
Registrant, none of the directors or executive officers of First American
National Bank, except those described below, are or have been, at any time
during the past two years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain directors and
executive officers of First American National Bank also hold or have held
various positions with bank and non-bank affiliates of First American National
Bank, including First American Corporation.
<TABLE>
<CAPTION>
Principal Occupation or
Other Employment of a
Position with Substantial
Name Adviser Nature
<S> <C> <C>
Samuel E. Beale, III Director President and Chief
Executive Officer of
Morrison Restaurants,
Inc.
Dennis C. Bottorff Director and President and Chief
Chief Executive Executive Officer of
Officer First American
Corporation
Earnest W. Deavenport, Jr. Director Group Vice President of
Eastman Kodak Company
Reginald D. Dickson Director President Emeritus of
INROADS, Inc.
T. Scott Fillebrown Director Private Investor
James A. Haslam, II Director President and Chief
Executive Officer of
Pilot Corporation
Martha R. Ingram Director Director of Public
Affairs of Ingram
Industries, Inc.
Walter D. Knestrick Director Chairman of the Board
of Walter Knestrick
Contractor, Inc.
Gene C. Koonce Director President and Chief
Executive Officer of
United Cities Gas
Company
James R. Martin Director Chairman and Chief
Executive Officer of
PlastiLine, Inc.
William O. McCoy Director Vice Chairman of the
Board of BellSouth
Corporation
Dale W. Polley Director, Vice Vice Chairman and Chief
Chairman and Administrative Officer
Chief of First American
Administrative Corporation
Officer
Toy F. Reid Director Retired Executive Vice
President of Eastman
Kodak Company
Roscoe R. Robinson Director Vice Chancellor for
Health Affairs of
Vanderbilt University
Medical Center
James F. Smith Director Chairman of the Board
of First American
Corporation
Cal Turner, Jr. Director Chairman and Chief
Executive Officer of
Dollar General
Corporation
David K. Wilson Director Chairman of the Board
of Cherokee Equity
Corporation
Toby S. Wilt Director President of TSW
Investment Company
William S. Wire, II Director Chairman of the Board
of Genesco, Inc.
James C. Armistead, Jr. Executive Vice None
President
John W. Boyle, Jr. President, None
Corporate Bank
R. Booth Chapman Executive Vice None
President
Emery F. Hill Executive Vice None
President
Dennis J. Hooks Executive Vice None
President
Rufus B. King Executive Vice None
President
John W. Logan Executive Vice None
President
Robert A. McCabe, Jr. President, None
General Bank
Robert E. McNeilly, Jr. President and None
Chief Executive
Officer, First
American Trust
Company, N.A.
Martin E. Simmons Executive Vice None
President,
General Counsel
and Corporate
Secretary
Terry S. Spencer Executive Vice None
President
Jonn W. Smithwick Executive Vice None
President
M. Terry Turner Executive Vice None
President
Alexander P. Waddell, IV Senior Vice None
President and
Treasurer
</TABLE>
Item 29. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
American Performance Funds
AmSouth Mutual Funds
The ARCH Fund, Inc.
The BB&T Mutual Funds Group
The Coventry Group
The Empire Builder Tax Free Bond Fund
ESC Strategic Funds, Inc.
The Eureka Funds
Fountain Square Funds
Hirtle Callaghan Trust
HSBC Family of Funds
The Infinity Mutual Funds, Inc.
INTRUST Funds Trust
The Kent Funds
Magna Funds
Meyers Investment Trust
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
Parkstone Group of Funds
The Parkstone Advantage Fund
Pegasus Funds
The Republic Funds Trust
The Republic Advisors Funds Trust
The Riverfront Funds, Inc.
SBSF Funds, Inc. dba Key Mutual Funds
Sefton Funds
The Sessions Group
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Funds
Vintage Mutual Funds, Inc.
(b) The information required by this Item 29(b) regarding each director or
officer of BISYS Fund Services Limited Partnership is incorporated by reference
to Schedule A of Form BD filed pursuant to the Securities Exchange Act of 1934
(SEC File No. 8-32480).
Item 30. Location of Accounts and Records
1. BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
2. The Bank of New York
90 Washington Street
New York, New York 10015
3. First American National Bank
315 Deaderick Street
Nashville, Tennessee 37238
4. Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(b) Registrant hereby undertakes
(1) to call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors when requested in
writing to do so by the holders of at least 10% of the Registrant's outstanding
Common Stock and in connection with such meeting to comply with the provisions
of Section 16(c) of the Investment Company Act of 1940 relating to shareholders
communications;
(2) to furnish each person to whom a prospectus is delivered with
a copy of its most current annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 30th day of April, 1998.
THE INFINITY MUTUAL FUNDS, INC.
(Registrant)
By: /s/ William B. Blundin*
WILLIAM B. BLUNDIN President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/William B. Blundin* President (Principal
WILLIAM B. BLUNDIN Executive Officer) and
Chairman of the
Board of Directors
/s/Nimish S. Bhatt* Treasurer (Chief
NIMISH S. BHATT Financial and
Accounting Officer)
/s/Richard H. Francis* Director
RICHARD H. FRANCIS
/s/Norma A. Coldwell* Director
NORMA A. COLDWELL
/s/William W. McInnes* Director
WILLIAM W. McINNES
/s/Robert A. Robinson* Director
ROBERT A. ROBINSON
*By:/s/Robert L. Tuch April 30, 1998
Robert L. Tuch
Attorney-in-fact
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Post-Effective Amendment No. 38 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
Page
(11) Consent of Independent Auditors
EXHIBIT (11)
Independent Auditors' Consent
The Board of Directors
The Infinity Mutual Funds, Inc. -- Correspondent Cash Reserves Portfolios
We consent to the use of our report dated February 20, 1998, and
incorporated by reference herein, for financial statements and financial
highlights of The Infinity Mutual Funds, Inc. - the Correspondent Cash Reserves
Portfolios - as of December 31, 1997 and for the periods indicated therein, and
to the references to our firm under the headings "Financial Highlights" in the
Prospectus and "Custodian, Transfer and Dividend Disbursing Agent, Counsel and
Independent Auditors" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 30, 1998
