ISG MONEY MARKET FUNDS
PROSPECTUS
INSTITUTIONAL SHARES
The ISG Money Market Funds (the "Funds") are three separate series of The
Infinity Mutual Funds, Inc. (the "Company"), an open-end, management investment
company. These Funds will invest primarily in short-term securities and will
seek to maintain a stable net asset value of $1.00 per share. Each Fund has a
different investment policy.
o The PRIME MONEY MARKET FUND 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. This Fund will invest in
short-term money market instruments.
o The TREASURY MONEY MARKET FUND 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. This Fund will invest only in
U.S. Treasury securities and in other securities guaranteed as to
principal and interest by the U.S. Government, and repurchase
agreements in respect thereof.
o The TAX-EXEMPT MONEY MARKET FUND 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. This Fund will invest in short-term Municipal Obligations.
First American National Bank (the "Adviser") is each Fund's investment adviser.
BISYS Fund Services Limited Partnership ("BISYS") serves as each Fund's
administrator and distributor.
By this Prospectus, each Fund is offering Institutional Shares. Each Fund offers
other classes of shares pursuant to separate prospectuses, and such shares are
not offered hereby. The Funds' share classes are identical, except as to the
services offered to, and expenses borne by, each class which may affect
performance. Investors desiring to obtain information about the other classes of
Fund shares should ask their sales representative or call the number set forth
below.
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AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY,
THE ADVISER OR ANY OTHER BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. FUND SHARES INVOLVE CERTAIN RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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This Prospectus sets forth concisely information about the Company and the Funds
that an investor should know before investing. It should be read and retained
for future reference.
The Statement of Additional Information, dated October 16, 1998 with respect to
the Tax-Exempt Money Market Fund, and April 24, 1998 with respect to each other
Fund, 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. Each 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 each Statement of
Additional Information, material incorporated by reference, and other
information regarding the Funds. For a free copy of the Statement of Additional
Information for any Fund, write to the Fund at 3435 Stelzer Road, Columbus, Ohio
43219-3035, or call 1-800-852-0045.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NOVEMBER 9, 1998
AS REVISED, MARCH 22, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Fee Table.............................................................. 1
Description of the Funds............................................... 2
Management of the Funds................................................ 5
How to Buy Shares...................................................... 7
How to Redeem Shares................................................... 9
Exchange Privilege..................................................... 10
Dividends, Distributions and Taxes..................................... 10
Financial Highlights................................................... 13
Performance Information................................................ 14
General Information.................................................... 15
Appendix............................................................... A-1
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DISTRIBUTED BY: INVESTMENT ADVISER:
BISYS Fund Services Limited Partnership First American National Bank
3435 Stelzer Road 315 Deaderick Street
Columbus, Ohio 43219-3035 Nashville, Tennessee 37237
o For information about opening an account and other Fund services call:
(800) 824-3741. For voice recorded price and yield information call:
(800) 852-0045.
o To execute purchases, redemptions and exchanges and for information about
the status of your account call: (800) 852-0045.
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<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
PRIME MONEY TREASURY MONEY TAX-EXEMPT
MARKET FUND MARKET FUND MONEY MARKET FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)................................................. None None None
Maximum Deferred Sales Load (as a percentage of the
amount subject to charge)...................................... None None None
ANNUAL OPERATING EXPENSES (as a percentage of average daily net assets)
Management Fees................................................. .25% .25% .35%
12b-1 Fees...................................................... None None None
Other Expenses.................................................. .48% .43% .47%
Total Fund Operating Expenses................................... .73% .68% .82%
EXAMPLE:
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual
return and (2) redemption at the end
of each time period:
1 Year.......................................................... $ 7 $ 7 $ 8
3 Years......................................................... $ 23 $ 22 $ 28
5 Years......................................................... $ 41 $ 38 $ 46
10 Years........................................................ $ 91 $ 85 $101
</TABLE>
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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 FUND'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 investors in understanding the
costs and expenses borne by the Funds, the payment of which will reduce
investors' annual return. The expenses noted above do not reflect any fee waiver
or expense reimbursement arrangements that may be in effect. Total fund
operating expenses for the Prime Money Market and Treasury Money Market Funds
have been restated to reflect amounts chargeable pursuant to the Funds'
Shareholder Services Plan. Other expenses for the Tax-Exempt Money Market Fund
are estimated based on amounts for the current fiscal year. Certain Service
Organizations (as defined below) and other institutions also may charge their
clients direct fees for effecting transactions in Fund shares and the Adviser,
its affiliates and certain other institutions may charge customary account and
account transaction fees, which are not Fund related, with respect to accounts
through which or for which Fund shares are purchased or redeemed; such fees are
not reflected in the foregoing table. For a further description of the various
costs and expenses incurred in a Fund's operation, as well as expense
reimbursement or waiver arrangements, see "Management of the Funds."
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES
Each Fund's investment objective is set forth on the cover page of this
Prospectus. The differences in objectives and policies among the Funds determine
the types of securities in which each Fund invests and can be expected to affect
the degree of risk to which each Fund is subject and each Fund's yield or
return. Each Fund'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 Fund's outstanding voting shares. There can be
no assurance that each Fund's investment objective will be achieved.
MANAGEMENT POLICIES
Each Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, each Fund uses the amortized cost method of
valuing its 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 Fund 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 Company's Board of Directors to present minimal credit risks
and, with respect to the Prime Money Market Fund and Tax-Exempt Money Market
Fund, which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations ("NRSROs") (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 Company's Board of Directors. The
NRSROs currently rating instruments of the type the Prime Money Market Fund and
Tax-Exempt Money Market Fund may purchase are Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P"), Duff & Phelps Credit
Rating Co. ("Duff"), Fitch IBCA Inc. ("Fitch") 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
relevant Fund's Statement of Additional Information. There can be no assurance
that each Fund will be able to maintain a stable net asset value of $1.00 per
share.
PRIME MONEY MARKET FUND-The Prime Money Market Fund will invest 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 and bankers'
acceptances issued by domestic banks, foreign branches of domestic banks,
foreign subsidiaries of domestic banks, and domestic and foreign branches of
foreign banks, loan participation agreements, guaranteed investment contracts,
municipal obligations, 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 Fund will invest 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. The Fund will not invest more than 35% of
the value of its total assets in foreign securities. Securities in which the
Prime Money Market Fund will invest 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. See
"Appendix--Portfolio Securities." The Fund also may lend its portfolio
securities, enter into reverse repurchase agreements and purchase restricted
securities pursuant to Rule 144A under the Securities Act of 1933, as amended.
See "Appendix--Investment Techniques." During normal market conditions, at least
25% of the Prime Money Market Fund's total assets will be invested in domestic
and/or foreign bank obligations. See "Investment Considerations and Risk
Factors--Bank Securities Risk" below.
TREASURY MONEY MARKET FUND-The Treasury Money Market Fund will invest, as a
fundamental policy, at least 65% of the value of its total assets in U.S.
Treasury securities and repurchase agreements in respect thereof. The remainder
of its assets may be invested in other securities guaranteed as to principal and
interest by the U.S. Government and repurchase agreements in respect thereof.
See "Appendix--Portfolio Securities." The Fund also may lend its portfolio
securities, enter into reverse repurchase agreements and purchase restricted
securities pursuant to Rule 144A under the Securities Act of 1933, as amended.
See "Appendix--Investment Techniques."
Instruments which are issued or guaranteed as to principal and interest by
the U.S. Government constitute direct obligations of the United States. The
Treasury Money Market Fund will not invest in securities issued or guaranteed by
U.S. Government agencies, instrumentalities or government-sponsored enterprises
that are not backed by the full faith and credit of the United States. Dividends
and distributions paid by the Treasury Money Market Fund that are attributable
to interest from direct obligations of the United States currently are not
subject to personal income tax in most states. However, dividends and
distributions attributable to interest from repurchase agreements may be subject
to state tax.
TAX-EXEMPT MONEY MARKET FUND-The Tax-Exempt Money Market Fund will invest,
as a fundamental policy, at least 80% of the value of its net assets (except
when maintaining a temporary defensive position) in short-term debt securities
the interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal income tax ("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 multistate agencies
or authorities. 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 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 Obligations and purchased and sold
separately. See "Investment Considerations and Risk Factors--Risk of Investing
in Municipal Obligations" below, and "APPENDIX--Portfolio Securities--Municipal
Obligations."
The Tax-Exempt Money Market Fund may invest 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-Exempt Money Market
Fund 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.
The Tax-Exempt Money Market Fund may purchase tender option bonds and
similar securities. A tender option bond is a Municipal Obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate, that has been coupled with the agreement of a
third party which grants the security holder the option, at periodic intervals,
to tender the Municipal Obligation to the third party and receive the face value
thereof. See "Appendix--Portfolio Securities--Tender Option Bonds."
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the value of the Fund's net assets) or for
temporary defensive purposes, the Tax-Exempt Money Market Fund may invest in
taxable money market instruments of the type in which the Prime Money Market
Fund may invest. Dividends paid by the Fund that are attributable to income
earned by it from these securities will be taxable to investors. See "Dividends,
Distributions and Taxes." If the Tax-Exempt Money Market Fund 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 Adviser anticipates
that not more than 5% of the value of the Fund's total assets will be invested
in any one category of these securities.
The Fund also may lend its portfolio securities as described under
"Appendix--Investment Techniques--Lending Portfolio Securities," which may give
rise to taxable income.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
GENERAL RISK-Each Fund attempts 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 Funds because the
Funds usually do not pay brokerage commissions on purchases of short-term debt
obligations. The value of the portfolio securities held by the Fund 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 purchase cost. Similarly, if interest rates
have declined from the time a security was purchased, such security, of sold,
might be sold at a price greater than its purchase cost. In either instances, if
the security was purchased at face value and held to maturity, no gain or loss
would be realized. A security backed by the U.S. Treasury or the full faith and
credit of the United States is guaranteed only as to timely payment of interest
and principal when held to maturity. The current market prices for such
securities are not guaranteed and will fluctuate.
FOREIGN SECURITIES RISK-(Prime Money Market Fund only) Because the Prime
Money Market Fund's portfolio may contain U.S. dollar denominated securities
issued by certain foreign issuers, the Fund may be subject to additional
investment risks with respect to such 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
adoption of governmental restrictions which might adversely affect or restrict
the payment of principal and interest on such securities to investors located
outside the country of the issuer.
BANK SECURITIES RISK-(Prime Money Market Fund only) The Prime Money Market
Fund usually invests at least 25% of its assets in bank obligations. Thus, 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 a
bank's 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 Fund'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 Prime Money Market Fund, however, will seek to minimize its
exposure to such risks by investing only in debt securities which are determined
to be of high quality.
RISK OF INVESTING IN MUNICIPAL OBLIGATIONS-(Tax-Exempt Money Market Fund
only) The Tax-Exempt Money Market Fund 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 Fund
may be subject to greater risk as compared to a fund that does not follow this
practice.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Tax-Exempt Money
Market Fund and thus reduce its available yield. 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-Exempt Money
Market Fund so as to adversely affect its shareholders, the Company would
reevaluate the Fund's investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Municipal Obligation as
taxable, the Tax-Exempt Money Market Fund would treat such security as a
permissible taxable investment within the applicable limits set forth herein.
SIMULTANEOUS INVESTMENTS-Investment decisions for each Fund are made
independently from those of the other investment companies, investment advisory
accounts, custodial accounts, individual trust accounts and commingled funds
that may be advised by the Adviser. However, if such other investment companies
or managed accounts desire to invest in, or dispose of, the same securities as
the Fund, 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 Fund or the price paid
or received by a Fund.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS
The business affairs of the Company are managed under the general
supervision of its Board of Directors. Each Statement of Additional Information
contains the name and general business experience of each Director.
INVESTMENT ADVISER
First American National Bank, located at First American Center, 315
Deaderick Street, Nashville, Tennessee 37237, serves as each Fund's investment
adviser. The Adviser is a wholly-owned subsidiary of First American
Corporation, a registered bank holding company. First American National Bank and
its affiliates provide personal trust, estate, employee benefit trust, corporate
trust and custody services to over 7,000 accounts, as well as investment
advisory services. The Adviser, and its affiliates, as of December 31, 1998, had
approximately $10 billion under trust and approximately $6 billion under
management.
The Adviser and its affiliates deal, trade and invest, for their own
accounts and for the accounts of clients which they manage, in the types of
securities in which the Funds may invest and may have deposit, loan and
commercial banking relationships with the issuers of securities purchased by a
Fund. The Adviser has informed the Company that in making its investment
decisions it does not obtain or use material inside information in its or its
affiliates' possession. The Adviser also provides research services for the
Funds through a professional staff of portfolio managers and securities
analysts. All activities of the Adviser are conducted by persons who are also
officers of one or more of the Adviser's affiliates.
The Adviser supervises and assists in the overall management of each Fund's
affairs under an Investment Advisory Agreement between the Adviser and the
Company, subject to the authority of the Company's Board of Directors in
accordance with Maryland law.
Under the terms of the Investment Advisory Agreement, the Company has
agreed to pay the Adviser a monthly fee at the annual rate set forth below as a
percentage of the relevant Fund's average daily net assets.
ANNUAL RATE OF
INVESTMENT
NAME OF FUND ADVISORY FEE PAYABLE
Prime Money Market Fund .25%*
Treasury Money Market Fund .25%
Tax-Exempt Money Market Fund .35%
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* For the fiscal year ended December 31, 1997, the Fund paid the Prime
Money Market Fund's former sub-adviser .15% and the Adviser .10% of the
value of the Fund's average daily net assets.
From time to time, the Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering the overall expense ratio of that Fund and increasing yield to its
investors. The Fund will not pay the Adviser at a later time for any amounts it
may waive, nor will the Fund reimburse the Adviser for any amounts it may
assume.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership, located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as each Fund's administrator and distributor.
BISYS currently provides administrative services 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 Company, BISYS generally
assists in all aspects of the Funds' operations, other than providing investment
advice, subject to the overall authority of the Company's Board of Directors in
accordance with Maryland law. In connection therewith, BISYS provides the Funds
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 Funds' Custodian.
Under the terms of the Administration Agreement, the Company has agreed to
pay BISYS a monthly fee at the annual rate of .10% of the value of each Fund's
average daily net assets.
BISYS, as distributor, makes a continuous offering of each Fund's shares
and bears the costs and expenses of printing and distributing to prospective
investors copies of any prospectuses, statements of additional information and
annual and interim reports of each Fund (after such items have been prepared and
set in type by the Fund) which are used in connection with the offering of
shares, and the costs and expenses of preparing, printing and distributing any
other literature used by BISYS in connection with the offering of such Fund's
shares for sale to the public.
SHAREHOLDER SERVICES PLAN
Under a shareholder services plan adopted by the Company's Board of
Directors (the "Shareholder Services Plan"), each Fund pays BISYS for the
provision of certain services at an annual rate of .15% of the value of the
average daily net assets represented by Institutional Shares. The services
provided may include personal services relating to shareholder accounts, such as
answering shareholder inquiries regarding a Fund and providing reports and other
information, and services related to the maintenance of such shareholder
accounts. The fee payable for such services is intended to be a "service fee" as
defined in the NASD Conduct Rules. Under the Shareholder Services Plan, BISYS
may make payments to certain financial institutions, securities dealers and
other industry professionals that have entered into agreements with BISYS
("Service Organizations") in respect of these services. BISYS determines the
amounts to be paid to Service Organizations. Service Organizations receive such
fees in respect of the average daily value of the Institutional Shares owned by
their clients. From time to time, BISYS may defer or waive receipt of fees under
the Shareholder Services Plan while retaining the ability to be paid by the Fund
under the Shareholder Services Plan thereafter. The fees payable to BISYS under
the Shareholder Services Plan are payable without regard to actual expenses
incurred.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Funds' Custodian. BISYS Fund Services Ohio, Inc., an affiliate of BISYS,
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is the Funds' Transfer
and Dividend Disbursing Agent (the "Transfer Agent").
EXPENSES
All expenses incurred in the operation of the Company are borne by the
Company, except to the extent specifically assumed by others. The expenses borne
by the Company include: taxes, interest, brokerage fees and commissions, if any,
fees of Directors who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of the Adviser, BISYS, any
sub-investment adviser, or any of their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory and administration
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, auditing and legal
expenses, costs of maintaining corporate existence, costs of independent pricing
services, costs of calculating the net asset value of each Fund's shares, costs
of shareholders' reports and corporate meetings, costs of preparing and printing
certain prospectuses and statements of additional information, and any
extraordinary expenses. Expenses attributable to a particular Fund are charged
against the assets of that Fund; other expenses of the Company are allocated
among its separate 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 PURCHASE INFORMATION
Institutional Shares are sold at net asset value with no sales charge.
Institutional Shares are sold exclusively to clients of the Adviser for their
qualified trust, custody and/or agency accounts and to clients of the Adviser's
affiliated and correspondent banks and certain other affiliated and
non-affiliated institutions or Service Organizations (collectively,
"Institutions") for their similar accounts maintained at such Institutions.
These accounts are referred to herein as "Fiduciary Accounts."
Orders for purchases of Institutional Shares may be placed only for
Fiduciary Accounts maintained at Institutions. When purchasing Fund shares, the
Institution must specify the Fund and that Institutional Shares are being
purchased. Stock certificates will not be issued. It is not recommended that the
Tax-Exempt Money Market Fund be used as a vehicle for Keogh, IRA and other
qualified plans, because such plans are otherwise entitled to tax deferred
benefits. The Company reserves the right to reject any purchase order in whole
or in part, including purchases made with foreign checks and third party checks
not originally made payable to the order of the investor.
The minimum initial investment for Institutional Shares of each Fund is
$100,000, with no subsequent minimum investment. The Institution through which
Institutional Shares are purchased may impose initial or subsequent investment
minimums which are higher or lower than those specified above and may impose
different minimums for different types of accounts or purchase arrangements.
Investors may purchase Institutional Shares through procedures established
by their Institution and an investor should contact such entity directly for
appropriate instructions, as well as for information about conditions pertaining
to the account and any related fees. The investor's Institution will transmit an
investor's payment to the Fund and will supply the Fund with the required
information. It is the Institution's responsibility to transmit the order
properly on a timely basis.
Management understands that the Adviser, its affiliates and some
Institutions may impose certain conditions on their clients which are different
from those described in this Prospectus, and, to the extent permitted by
applicable regulatory authority, may charge their clients a direct fee for
effecting transactions in Fund shares. Institutions may receive different levels
of compensation for selling different classes of Fund shares. Investors should
consult the Adviser, its affiliates or their Institution in this regard.
The Company determines net asset value per share for each Fund as of 2:00
p.m., Eastern time, on each business day (which, as used herein, shall include
each day the New York Stock Exchange is open for business, except Columbus Day
and Veterans' Day), except on days where there are not sufficient changes in the
value of a Fund's investment securities to materially affect the Fund's net
asset value and no purchase orders or redemption requests have been received.
The New York Stock Exchange currently is closed on the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per share of each class is computed by dividing the value of the Fund's
net assets attributable to such class (i.e., the value of its assets less
liabilities) by the total number of Fund shares of such class outstanding. Each
Fund uses the amortized cost method of valuing its investments. For further
information regarding the method employed in valuing the Funds' investments, see
"Determination of Net Asset Value" in the Funds' Statement of Additional
Information.
Federal regulations require that an investor provide a certified Tax
Identification Number ("TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes" and the Funds' Account Application for
further information concerning this requirement. Failure to furnish a certified
TIN to the Company could subject the investor to a $50 penalty imposed by the
Internal Revenue Service ("IRS").
TERMS OF PURCHASE
Fund 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. If an investor does
not remit Federal Funds, the investor's payment must be converted into Federal
Funds. This usually occurs within one business day of receipt of a bank wire or
within two business days of receipt of a check drawn on a member bank of the
Federal Reserve System. Checks drawn on banks which are not members of the
Federal Reserve System may take considerably longer to convert into Federal
Funds. Prior to receipt of Federal Funds, the investor's money will not be
invested.
Purchase order for shares of a Fund received by the Transfer Agent by 2:00
p.m., Eastern time, on a business day, will be effective as of 2:00 p.m.,
Eastern time, on such business day if payment is received in, or is converted
into, Federal Funds by 4:00 p.m., Eastern time, by the Transfer Agent on that
day. If the purchase order is received after 2:00 p.m., Eastern time, or if
payment in Federal Funds is not received by 4:00 p.m., Eastern time, the
purchase order will be effective as of 2:00 p.m., Eastern time, on the business
day on which Federal Funds are available. It is the Institution's responsibility
to transmit orders so that they will be received by the Transfer Agent in time
to receive the next determined net asset value as described above.
HOW TO REDEEM SHARES
An investor who has purchased Institutional Shares through a Fiduciary
Account must redeem shares by following instructions pertaining to such account.
It is the responsibility of the investor's Institution to transmit the
redemption order to the Transfer Agent and credit the investor's account with
the redemption proceeds on a timely basis.
When a request is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund, the Fund will redeem
the shares at the next determined net asset value.
If a request for redemption is received in proper form by the Transfer
Agent prior to 2:00 p.m., Eastern time, on a business day, the proceeds of the
redemption, if transfer by wire is requested, ordinarily will be made in Federal
Funds wired to the investor's account at his or her Institution on the same day.
To allow the Adviser to most effectively manage each Fund, investors are urged
to initiate redemptions of shares as early in the day as possible and to notify
the Transfer Agent at least one day in advance of redemptions in excess of $1
million. The Company reserves the right to wire redemption proceeds up to seven
days after receiving the redemption order if an earlier payment could adversely
affect the Fund. In making redemption requests the names of the registered
shareholders and their account numbers must be supplied.
The Company imposes no charges when shares are redeemed. The Adviser, its
affiliates and Institutions may charge their clients a fee for effecting
redemptions of Fund shares. The value of Fund shares redeemed may be more or
less than their original cost, depending upon the Fund's then-current net asset
value.
The Company reserves the right to redeem an investor's account at its
option upon not less than 45 days' written notice if the net asset value of the
investor's account is $500 or less, for reasons other than market conditions,
and remains so during the notice period.
Investors may redeem or exchange Fund shares by telephone if they check the
appropriate box on the Funds' Account Application. By selecting a telephone
redemption or exchange privilege, an investor authorizes the Transfer Agent to
act on telephone instructions from any person representing himself or herself to
be a representative of the investor's Institution and reasonably believed by the
Transfer Agent to be genuine. The Company will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Company or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Company nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, investors may
experience difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Fund shares. In such cases, investors should consider
using the other redemption procedures described herein. Use of these other
redemption procedures may result in the investor's redemption request being
processed at a later time than it would have been if telephone redemption had
been used.
EXCHANGE PRIVILEGE
The Exchange Privilege enables investors to purchase, in exchange for
shares of a Fund, shares of the same class of another Fund in the ISG Family of
Funds, to the extent such shares are offered for sale in the investor's state of
residence. An investor who wants to use this Privilege should consult the
Adviser, its affiliate, the investor's Institution or BISYS to determine if it
is available and whether any conditions are imposed on its use.
To use the Exchange Privilege, exchange instructions must be given to the
Transfer Agent in writing or by telephone, or in accordance with the
instructions pertaining to the investor's Fiduciary Account. The shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have a
value of at least the minimum initial investment required for the Fund into
which the exchange is being made.
Institutional Shares will be exchanged at the next determined net asset
value. No fees currently are charged shareholders directly in connection with
exchanges although the Company reserves the right, upon not less than 60 days'
written notice, to charge shareholders a nominal administrative fee in
accordance with rules promulgated by the Securities and Exchange Commission. The
Company reserves the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one Fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income on each business
day. Dividends usually are paid on the last calendar day of each month. Each
Fund's earnings for Saturdays, Sundays and holidays are declared as dividends on
the preceding business day. Shares begin accruing income dividends on the day
the purchase order is effective.
Each Fund will make distributions from net realized securities gains, if
any, once a year, but may make distributions on a more frequent basis to comply
with the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the 1940 Act. No Fund will make distributions
from net realized securities gains unless capital loss carryovers, if any, have
been utilized or have expired. Dividends are automatically reinvested in
additional Fund shares of the same class from which they were paid at net asset
value, unless payment in cash is requested. If all shares in an account are
redeemed at any time, all dividends to which the shareholder is entitled will be
paid along with the proceeds of the redemption. Dividends paid by each class of
shares of a Fund will be calculated at the same time and in the same manner and
will be of the same amount, except that the expenses attributable solely to a
class will be borne exclusively by such class.
If an investor elects to receive distributions in cash and the investor's
distribution checks (1) are returned to the Fund marked "undeliverable" or (2)
remain uncashed for six months, the investor's cash election will be changed
automatically and future dividend and capital gains distributions will be
reinvested in Fund 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 Fund shares at the net asset value determined as of the date of
cancellation.
Dividends and distributions of the Tax-Exempt Money Market Fund derived
from taxable investments and from income or gain derived from securities
transactions and from the use of the investment techniques described under
"Appendix--Investment Techniques" will be subject to Federal income tax.
Dividends paid by each other Fund derived from interest, together with
distributions from any net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, generally are taxable to U.S. investors as ordinary
income for Federal income tax purposes, whether received in cash or reinvested
in additional Fund shares. Distributions from net realized long-term securities
gains, if any, generally are taxable to U.S. investors as long-term capital
gains for Federal income tax purposes, regardless of how long shareholders have
held their shares and whether such distributions are received in cash or
reinvested in additional Fund shares. The Code provides that an individual
generally will be taxed on his or her net capital gain at a maximum rate of 20%
with respect to capital gains from securities held for more than 12 months.
Dividends and distributions may be subject to state and local taxes.
Dividends and distributions attributable to interest from direct
obligations of the United States and paid by a Fund to individuals currently are
not subject to tax in most states. Dividends and distributions attributable to
interest from other securities in which the Funds may invest may be subject to
state tax. The Company will provide shareholders with a statement which sets
forth the percentage of dividends and distributions paid by the Tax-Exempt Money
Market Fund that is attributable to interest income from direct obligations of
the United States.
Although all or a substantial portion of the dividends paid by the
Tax-Exempt Money Market Fund may be excluded by shareholders of the Fund from
their gross income for Federal income tax purposes, the Tax-Exempt Money Market
Fund may purchase specified private activity bonds, the interest from which may
be (i) a preference item for purposes of the alternative minimum tax, or (ii) a
factor in determining the extent to which a shareholder's Social Security
benefits are taxable. If the Tax-Exempt Money Market Fund purchases such
securities, the portion of dividends related thereto will not necessarily be tax
exempt to an investor who is subject to the alternative minimum tax and/or tax
on Social Security benefits and may cause an investor in the Fund to be subject
to such taxes.
Dividends derived from net investment income, together with distributions
from net realized short-term securities gains and all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds,
paid by a Fund to a foreign investor generally are subject to U.S. nonresident
withholding taxes at the rate of 30%, unless the foreign investor claims the
benefits of a lower rate specified in a tax treaty. Distributions from net
realized long-term securities gains paid by a Fund to a foreign investor 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.
Notice as to the tax status of the Funds' dividends and distributions will
be mailed to investors annually. Investors also will receive periodic summaries
of their accounts which will include information as to dividends and
distributions from securities gains, if any, paid during the year.
Federal regulations generally require the Company to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and distributions
from net realized securities gains paid to a shareholder if such shareholder
fails to certify either that the TIN furnished in connection with opening an
account is correct or that such shareholder has not received notice from the IRS
of being subject to backup withholding as a result of a failure to properly
report taxable dividend or interest income on a Federal income tax return.
Furthermore, the IRS may notify the Company to institute backup withholding if
the IRS determines a shareholder's TIN is incorrect or if a shareholder has
failed to properly report taxable dividend and interest income on a Federal
income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner of
the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and may
be claimed as a credit on the record owner's Federal income tax return.
The Adviser believes that each of the Prime Money Market Fund and Treasury
Money Market Fund has qualified for the fiscal year ended December 31, 1997 as a
"regulated investment company" under the Code. See "Financial Highlights." Each
of these Funds intends to continue to so qualify if such qualification is in the
best interests of its shareholders. The Adviser expects that the Tax-Exempt
Money Market Fund will qualify as a "regulated investment company" under the
Code so long as such qualification is in the best interests of its shareholders.
Qualification as a regulated investment company relieves the Fund of any
liability for Federal income tax to the extent its earnings are distributed in
accordance with applicable provisions of the Code. Each Fund is subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of taxable investment income and capital gains.
Investors should consult their tax advisers regarding specific questions as
to Federal, state or local taxes.
FINANCIAL HIGHLIGHTS
Contained below for each Fund, other than the Tax-Exempt Money Market Fund,
is per share operating performance data for an Institutional 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 (except where noted) by KPMG Peat Marwick
LLP, the Funds' independent auditors. Further financial data, related notes and
reports of independent auditors accompany the Fund's Statement of Additional
Information, which is available upon request. No financial information is
available for the Tax-Exempt Money Market Fund which had not been offered as of
the date of the financials.
<PAGE>
ISG PRIME MONEY MARKET FUND
INSTITUTIONAL SHARES
-------------------------------------------
SIX YEAR PERIOD
MONTHS ENDED ENDED
ENDED DECEMBER DECEMBER
JUNE 30, 31, 31,
1998 1997 1996*
(Unaudited)
Net Asset Value, Beginning of
Period......................... $1.000 $1.000 $1.000
------- ------- ------
Income from investment operations:
Net investment income............ 0.025 0.051 0.024
----- ----- -----
Less distributions:
Net investment income............ (0.025) (0.051) (0.024)
------- ------- -------
Net Asset Value, End of Period... $1.000 $1.000 $1.000
====== ====== ======
Total Return..................... 2.54%(a) 5.17% 2.46%(a)
Ratios/Supplemental Data:
Net assets, end of period
(000's)........................ $55,716 $26,389 $48,101
Ratio of expenses to average
net assets..................... 0.59%(b) 0.62% 0.65%(b)
Ratio of net investment income
to average net assets.......... 5.06%(b) 5.05% 4.86%(b)
- - ------------------------
* For the period from July 1, 1996 (commencement of initial offering) through
December 31, 1996.
(a) Not annualized.
(b) Annualized.
<PAGE>
ISG TREASURY MONEY MARKET FUND
INSTITUTIONAL SHARES
-----------------------------------------
SIX
MONTHS YEAR PERIOD
ENDED ENDED ENDED
JUNE DECEMBER DECEMBER
30, 31, 31,
1998 1997 1996*
(Unaudited)
Net Asset Value, Beginning
of Period...................... $1.000 $1.000 $1.000
------ ------ ------
Income from investment
operations:
Net investment income............ 0.025 0.049 0.024
----- ------ -----
Less distributions:
Net investment income............ (0.025) (0.049) (0.024)
-------- -------- -------
Net Asset Value, End of Period... $1.000 $1.000 $1.000
======= ======= ======
Total Return..................... 2.48%(a) 5.05% 2.43%(a)
Ratios/Supplemental Data:
Net assets, end of period
(000's)........................ $85,625 $114,175 $109,698
Ratio of expenses to average
net assets..................... 0.54%(b) 0.50% 0.52%(b)
Ratio of net investment income
to average net assets........... 4.95%(b) 4.94% 4.78%(b)
- - -------------------------------
* For the period from July 1, 1996 (commencement of initial offerings) through
December 31, 1996.
(a) Not annualized.
(b) Annualized.
PERFORMANCE INFORMATION
From time to time, each Fund 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 the Fund refers to the income generated by an
investment in such Fund 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 Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The Tax-Exempt Money Market Fund may advertise tax equivalent yield, which
is calculated by determining the pre-tax yield which, after being taxed at a
certain rate, would be equivalent to a stated current yield calculated as
described above.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing each Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar, Inc., Bank Rate MonitorTM, IBC Money
Fund Averages ReportTM, and other industry publications.
GENERAL INFORMATION
The Company was incorporated under Maryland law on March 6, 1990, and
commenced operations on August 28, 1990.
The Company is authorized to issue 25 billion shares of Common Stock, par
value $.001 per share. Each Fund's shares are classified into Class A Shares
(500 million), Class B Shares (250 million, except for Treasury Money Market
Fund which does not offer Class B Shares) and Institutional Shares (500
million). Each share has one vote and shareholders will vote in the aggregate
and not by class except as otherwise required by law.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Company 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 Company 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
Company'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 Company 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 shareholders vote together as a group; as to others they vote separately
by portfolio. From time to time, other portfolios may be established and sold
pursuant to other offering documents.
To date, 25 portfolios have been authorized. The other portfolios are not
being offered by this Prospectus. All consideration received by the Company 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 Company) and will be subject to the liabilities related thereto. The income
attributable to, and expenses of, one portfolio are treated separately from
those of the other portfolios.
The Transfer Agent maintains a record of each investor's ownership and
sends confirmations and statements of account.
Shareholder inquiries may be made by writing to the Company at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
<PAGE>
APPENDIX
PORTFOLIO SECURITIES
To the extent set forth in this Prospectus, each Fund may invest in the
securities described below.
MONEY MARKET INSTRUMENTS
U.S. TREASURY SECURITIES-Each Fund may invest in U.S. Treasury securities
which include Treasury Bills, Treasury Notes and Treasury Bonds that differ in
their interest rates, maturities and times of issuance. Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
greater than ten years.
U.S. GOVERNMENT SECURITIES-In addition to U.S. Treasury securities, each
Fund may invest in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Some obligations issued or guaranteed by U.S.
Government agencies and instrumentalities, for example, Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Principal
and interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, since it is not so obligated by law. Each
Fund will invest in such securities only when it is satisfied that the credit
risk with respect to the issuer is minimal.
BANK OBLIGATIONS-Each Fund, except the Treasury Money Market Fund, may
invest in bank obligations (other than those issued by the Adviser or its
affiliates), including certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations of domestic banks, foreign
subsidiaries or foreign branches of domestic banks, and domestic branches of
foreign banks, domestic savings and loan associations and other banking
institutions. With respect to such securities issued by foreign subsidiaries or
foreign branches of domestic banks, and domestic branches of foreign banks, a
Fund may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities, the
possible seizure or nationalization of foreign deposits and the possible
subordination of deposits in foreign branches to receivership expenses and U.S.
office deposits in the event of insolvency. See "Description of the
Funds--Investment Considerations and Risk Factors--Foreign Securities Risk."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS-Each Fund,
except the Treasury Money Market Fund, may invest in commercial paper, which
consists of short-term, unsecured promissory notes issued to finance short-term
credit needs. The commercial paper purchased by the Funds will consist only of
direct obligations which, at the time of their purchase, are (a) rated not lower
than Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, or (b)
issued by companies having an outstanding unsecured debt issue currently rated
not lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated,
determined by the Adviser to be of comparable quality to those rated obligations
which may be purchased by such Fund.
REPURCHASE AGREEMENTS-Each Fund may enter into repurchase agreements, which
involve the acquisition by a Fund of an underlying debt instrument, subject to
an obligation of the seller to repurchase, and such Fund to resell, the
instrument at a fixed price usually not more than one week after its purchase.
Certain costs may be incurred by a Fund in connection with the sale of the
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by a Fund
may be delayed or limited. Each Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
ZERO COUPON AND STRIPPED SECURITIES-Each Fund may invest in zero coupon
U.S. Treasury securities, which are Treasury Notes and Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
amount of the discount fluctuates with the market price of the security. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES-Each
Fund, except the Treasury Money Market Fund, may invest in obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the Adviser
to be of comparable quality to the other obligations in which such Fund may
invest. Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of a
Fund's assets invested in securities issued by foreign governments will vary
depending on the relative yields of such securities, the economic and financial
markets of the countries in which the investments are made and the interest rate
climate of such countries.
FLOATING AND VARIABLE RATE OBLIGATIONS-Each Fund, except the Treasury Money
Market Fund, 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. Variable rate demand notes include master demand notes
which are obligations that permit the Fund to invest fluctuating amounts, at
varying rates of interest, pursuant to direct arrangements between the Fund, as
lender, and the borrower. These obligations permit daily changes in the amount
borrowed. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and a Fund may invest in obligations
which are not so rated only if the Adviser determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which the Fund may invest. The Adviser, on behalf of each Fund, will consider on
an ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations purchased by such Fund.
NOTES-Each Fund, except the Treasury Money Market Fund, may purchase
unsecured promissory notes ("Notes") which are not readily marketable and have
not been registered under the Securities Act of 1933, as amended, provided such
investments are consistent with its investment objective. No Fund will invest
more than 10% of its net assets in such Notes and in other securities that are
illiquid.
PARTICIPATION INTERESTS AND TRUST RECEIPTS-Each Fund, except the Treasury
Money Market Fund, may purchase from financial institutions and trusts created
by such institutions participation interests and trust receipts in securities in
which it may invest and may enter into loan participation agreements. A
participation interest or receipt gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest or receipt
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 instrument is unrated, or has been given a rating below
that which is permissible for purchase by the Fund, the instrument will be
backed by an irrevocable 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 unrated instruments, the Adviser, acting upon delegated authority from the
Company's Board of Directors, must have determined that the instrument is of
comparable quality to those instruments in which the Fund may invest.
Participation interests or trust receipts 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, determines
after an analysis of, among other factors, the creditworthiness of the guarantor
that such instrument 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 or trust receipt is reduced
subsequent to its purchase by the Fund, the Adviser will consider, in accordance
with procedures established by the Board of Directors, all circumstances deemed
relevant in determining whether the Fund should continue to hold the instrument.
The guarantor of a participation interest or trust receipt will be treated as a
separate issuer. For certain participation interests and trust receipts, the
Fund will have the unconditional right to demand payment, on not more than seven
days' notice, for all or any part of the Fund's interest in the security, plus
accrued interest. As to these instruments, the Fund 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.
GUARANTEED INVESTMENT CONTRACTS-Each Fund, except the Treasury Money Market
Fund, may make limited investments in guaranteed investment contracts ("GICs")
issued by highly rated U.S. insurance companies. Pursuant to such a contract,
the Fund would make cash contributions to a deposit fund of the insurance
company's general account. The insurance company would then credit to the Fund
on a monthly basis interest which is based on an index (in most cases the
Salomon Smith Barney CD Index), but is guaranteed not to be less than a certain
minimum rate. The Prime Money Market Fund currently does not expect to invest
more than 5% of its net assets in GICs.
ILLIQUID SECURITIES-Each Fund may invest up to 10% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, floating and variable rate demand obligations as to which the Fund
cannot exercise the related demand feature described above on not more than
seven days' notice and as to which there is no secondary market and repurchase
agreements providing for settlement in more than seven days after notice. As to
these securities, the Fund is subject to a risk that should the Fund desire to
sell them when a ready buyer is not available at a price the Fund deems
representative of their value, the value of the Fund's net assets could be
adversely affected.
ASSET-BACKED SECURITIES-(Prime Money Market Fund only) The Prime Money Market
Fund may purchase asset-backed 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.
MUNICIPAL OBLIGATIONS-(Tax-Exempt Money Market Fund and, to a limited extent,
Prime Money Market Fund) 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. Dividends received by
shareholders of the Prime Money Market Fund which are attributable to interest
income received by such Fund from Municipal Obligations generally will be
subject to Federal income tax. The Prime Money Market Fund currently intends to
invest no more than 5% of its assets in Municipal Obligations. However, this
percentage may be varied from time to time without shareholder approval.
TENDER OPTION BONDS-(Tax-Exempt Money Market Fund only) 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.
INVESTMENT TECHNIQUES
LENDING PORTFOLIO SECURITIES-(All Funds) From time to time, each Fund may lend
securities from its investment portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed 33 1/3% of the value of the relevant Fund's total assets.
In connection with such loans, each Fund will receive collateral consisting of
cash or U.S. Government securities which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. Each Fund can increase its income through the investment of such
collateral. Each Fund continues to be entitled to payments in amounts equal to
the dividends, interest and other distributions payable on the loaned security
and receives interest on the amount of the loan. Such loans will be terminable
at any time upon specified notice. A Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with such Fund.
FORWARD COMMITMENTS-(All Funds) Each Fund may purchase securities on a
when-issued or forward commitment basis, which means that the price is fixed at
the time of commitment, but delivery and payment ordinarily take place a number
of days after the date of the commitment to purchase. Each Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
BORROWING MONEY-(All Funds) As a fundamental policy, each Fund is permitted to
borrow money in an amount up to 33 1/3% of the value of its total assets.
However, each Fund currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to 33 1/3% of the value of
its total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of a Fund's total assets, such
Fund will not make any investments. In addition, the Prime Money Market Fund and
Treasury Money Market Fund may borrow for investment purposes on a secured basis
through entering into reverse repurchase agreements as described below.
REVERSE REPURCHASE AGREEMENTS-(Prime Money Market and Treasury Money Market
Funds only) The Prime Money Market Fund and Treasury Money Market Fund may enter
into reverse repurchase agreements with banks, brokers or dealers. Reverse
repurchase agreements involve the transfer by the Fund of an underlying debt
instrument in return for cash proceeds based on a percentage of the value of the
security. The Fund retains the right to receive interest and principal payments
on the security. The Fund 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 Fund
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 Fund may be exposed to greater potential
fluctuations in the value of its assets and its net asset value per share.
Interest costs on the money borrowed may exceed the return received on the
securities purchased. The Company's Directors have considered the risks to each
of the Prime Money Market Fund and Treasury Money Market Fund 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 such
Fund's investment objective and management policies.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
COMPANY'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS'
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. 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.
