Securities Act File No. 33-34080
Investment Company Act File No. 811-6076
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ____ / /
Post-Effective Amendment No. 46 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 46 /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)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i)
X on May 1, 1999 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>
CORRESPONDENT CASH RESERVES
PROSPECTUS
MAY 1, 1999
MONEY MARKET PORTFOLIO
TAX FREE MONEY MARKET PORTFOLIO
MANAGED BY MITCHELL HUTCHINS ASSET MANAGEMENT INC.
QUESTIONS?
CALL 1-800-442-3809
OR YOUR INVESTMENT
REPRESENTATIVE.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED THE SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
CAREFULLY REVIEW THIS DESCRIPTION OF THE PORTFOLIOS - OBJECTIVE,
IMPORTANT SECTION TO RISK/RETURN AND EXPENSES
LEARN ABOUT EACH
PORTFOLIO'S GOAL, MAIN 3 OVERVIEW
INVESTMENT STRATEGIES AND 4-6 MONEY MARKET PORTFOLIO
RISKS, PAST PERFORMANCE, 7-9 TAX FREE MONEY MARKET PORTFOLIO
AND FEES.
REVIEW THIS SECTION FOR INVESTMENT STRATEGIES AND RISKS.
ADDITIONAL INFORMATION ON
ADDITIONAL INVESTMENT 10 GENERAL
STRATEGIES AND RISKS 10 MONEY MARKET PORTFOLIO
11 TAX FREE MONEY MARKET PORTFOLIO
11-12 GENERAL RISKS APPLICABLE TO EACH
PORTFOLIO
REVIEW THIS SECTION FOR PORTFOLIO MANAGEMENT
DETAILS ON THE
ORGANIZATIONS THAT 12 THE INVESTMENT ADVISER
OVERSEE THE PORTFOLIOS. 12 THE ADMINISTRATOR AND DISTRIBUTOR
REVIEW THIS SECTION FOR SHAREHOLDER INFORMATION
DETAILS ON HOW SHARES ARE
VALUED, HOW TO PURCHASE 13 PRICING OF PORTFOLIO SHARES
AND SELL SHARES, RELATED 13 PURCHASING AND ADDING TO YOUR SHARES
CHARGES AND PAYMENTS OF 15 SELLING YOUR SHARES
DIVIDENDS AND 16 DISTRIBUTION AND SERVICE (12B-1) FEES
DISTRIBUTIONS. 16 SPECIAL MANAGEMENT SERVICES FEES
17 DIVIDENDS, DISTRIBUTIONS AND TAXES
REVIEW THIS SECTION FOR FINANCIAL HIGHLIGHTS
RECENT FINANCIAL
INFORMATION. 18 MONEY MARKET PORTFOLIO
19 TAX FREE MONEY MARKET PORTFOLIO
WHERE TO LEARN MORE ABOUT BACK COVER
THE PORTFOLIOS.
<PAGE>
DESCRIPTION OF THE PORTFOLIOS - OBJECTIVE, RISK/RETURN AND EXPENSES
OVERVIEW
Each Portfolio is a money market mutual fund. As a money market fund, each
Portfolio is subject to maturity, quality and diversification requirements
designed to help it maintain a stable price of $1.00 per share.
You should be aware that:
o An investment in the Portfolios is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
o Although each Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in a Portfolio.
o There is no guarantee that each Portfolio will achieve its goals.
MORE INFORMATION ON EACH PORTFOLIO CAN BE FOUND IN THE PORTFOLIOS' CURRENT
ANNUAL/SEMI-ANNUAL REPORT (SEE BACK COVER).
WHO MAY WANT TO INVEST?
Consider investing in a Portfolio if you are:
o seeking preservation of capital
o investing short-term reserves
o willing to accept lower potential returns in exchange for a
higher degree of safety
The Portfolios may not be appropriate if you are:
o seeking high total returns
o pursuing a long-term goal or investing for retirement
In addition, the Tax Free Portfolio may not be appropriate if you are investing
through a tax exempt retirement plan because such plans do not benefit from tax
exempt income.2
<PAGE>
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
TICKER SYMBOL: ICCXX
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT The Portfolio invests in a diversified portfolio
STRATEGIES of high-quality, short-term U.S.
denominated debt securities, including the
following:
o obligations issued or guaranteed by the U.S.
Government or its agencies or
instrumentalities
o certificates of deposit, time deposits,
bankers' acceptances and other short-term
securities issued by domestic or foreign
banks or their subsidiaries or branches
o domestic and foreign commercial paper and
other short-term corporate debt obligations,
including those with floating or variable
rates of interest
o obligations issued or guaranteed by one or
more foreign governments or their agencies or
instrumentalities, including obligations of
supranational entities
o asset-backed securities
o repurchase agreements collateralized by the
types of securities listed above
The Portfolio buys and sells securities based on
considerations of safety of principal and
liquidity, which means that the Portfolio may not
necessarily invest in securities paying the
highest available yield at a particular time. The
Portfolio may attempt to increase its yield by
trading to take advantage of short-term market
variations. The Adviser evaluates Portfolio
investments based on credit analysis and the
interest rate outlook.
The Portfolio normally will invest at least 25% of
its total assets in domestic and/or foreign bank
obligations.
PRINCIPAL INVESTMENT The principal risks of investing in the
RISKS Portfolio are:
o INTEREST RATE RISK This is the risk that
changes in interest rates will affect the
yield or value of the Portfolio's investments
in debt securities.
o CREDIT RISK This is the risk that the issuer
or guarantor of a debt security will be
unable or unwilling to make timely interest
or principal payments, or to otherwise honor
its obligations. Credit risk includes the
possibility that any of the Portfolio's
investments will have its credit rating
downgraded or will default.
<PAGE>
MONEY MARKET PORTFOLIO
PERFORMANCE BAR Year-by-Year Total Returns as of 12/31
CHART AND TABLE
The bar chart on this page 3.11% 2.48% 3.45% 5.24% 4.72% 4.77% 4.75%
shows the Money Market ----------------------------------------------
Portfolio's annual returns 1992 1993 1994 1995 1996 1997 1998
and how its performance has
varied from year-to-year.
The table below shows the Best quarter: Q3 1991 +1.31%
Portfolio's average yearly Worst quarter: Q2 1993 +0.59%
performance over certain
periods. Of course, past
performance does not
indicate how the Portfolio
will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
PAST YEAR PAST 5 YEARS SINCE INCEPTION
(MAY 20, 1991)
- - ---------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 4.75% 4.59% 4.16%
Both the bar chart and table assume reinvestment of dividends and distributions.
As of December 31, 1998, the 7-day yield was 4.35%. Without fee waivers and
expense reimbursements, the Portfolio's yield would have been 4.24% for this
time period. For current yield information on the Portfolio, call 1-
800-442-3809.
<PAGE>
MONEY MARKET PORTFOLIO
FEES AND EXPENSES
As an investor in the Annual Portfolio Operating Expenses
Money Market (exenses that are deducted
Portfolio, you may pay from Portfolio assets)
certain fees and
expenses, which are
described in the
tables. Annual
Portfolio operating
expenses are paid out
of Portfolio assets,
and are reflected in
the Portfolio's yield.
Management Fees 0.10%
Distribution/Service 0.60%
(12b-1) Fees
Other Expenses (including 0.34%
administration, special
management services
and custody fees)
Total Annual Portfolio 1.04%
Operating Expenses
A portion of the fees and expenses noted above were waived or reimbursed during
the last fiscal year, which reduced Total Annual Portfolio Operating Expenses to
0.93%. This fee waiver and expense reimbursement arrangement is voluntary and
may be terminated at any time.
EXPENSE EXAMPLE
Use the example below to help you compare the cost of investing in the Portfolio
with the cost of investing in other mutual funds. It illustrates the amount of
fees and expenses you would pay, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Portfolio's operating expenses
Because the Portfolio's actual return and operating expenses will be different,
this example is for comparison only.
1 3 5 10
MONEY MARKET PORTFOLIO Year Years Years Years
$106 $331 $574 $1,271
- - -------------------------------------------------------------------------------
<PAGE>
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
TICKER SYMBOL: CTFXX
Investment Objective The 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.
PRINCIPAL INVESTMENT
STRATEGIES The Portfolio normally invests
substantially all of its assets in high-quality,
short-term municipal obligations, the interest
from which is exempt from Federal income tax.
Municipal obligations are debt obligations issued
by states, territories and possessions of the
United States and their political subdivisions,
agencies and instrumentalities, and certain other
entities. They typically are divided into two
types:
o GENERAL OBLIGATION BONDS, which are
secured by the full faith and credit of
the issuer and its taxing power
o REVENUE BONDS, which are payable from the
revenues derived from a specific revenue
source, such as charges for water and
sewer service or highway tolls
The Portfolio invests in municipal
obligations based on considerations of safety of
principal and liquidity, which means that the
Portfolio may not necessarily invest in municipal
obligations paying the highest available yield at
a particular time. The Portfolio may attempt to
increase its yield by trading to take advantage of
short-term market variations. The Adviser
evaluates municipal obligations based on credit
quality and interest rate sensitivity, and seeks
to diversify the Portfolio's investments across
several different states, sectors and issuers.
Although the Portfolio's goal is to
generate income exempt from Federal income tax,
interest from some of its holdings may be subject
to the alternative minimum tax. In addition, when
the Adviser believes that acceptable municipal
obligations are unavailable for investment, the
Portfolio may invest temporarily in high-quality,
taxable money market instruments.
PRINCIPAL INVESTMENT
RISKS The principal risks of investing in the
Portfolio are:
o INTEREST RATE RISK This is the risk that
changes in interest rates will affect
the yield or value of the Portfolio's
investments in municipal obligations.
o CREDIT RISK This is the risk that the issuer
or guarantor of a debt security will be
unable or unwilling to make timely
interest or principal payments, or to
otherwise honor its obligations. Credit
risk includes the possibility that any
of the Portfolio's investments will have
its credit rating downgraded or will default.
<PAGE>
TAX FREE MONEY MARKET PORTFOLIO
PERFORMANCE BAR
CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
The bar chart on this page
shows the Tax Free Money Market 2.90% 2.83%
Portfolio's annual returns and how its ----------------------
performance has varied from 1997 1998
year-to-year. The table below shows the
Portfolio's average yearly performance
over certain periods. Of course, past
performance does not indicate how the
Portfolio will perform in the future.
Best quarter: Q2 1998 +0.75%
Worst quarter: Q4 1998 +0.66%
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Past Year Since Inception
(October 7, 1996)
TAX FREE
MONEY MARKET PORTFOLIO 2.83% 2.86%
Both the bar chart and table assume reinvestment of dividends and distributions.
As of December 31, 1998, the 7-day yield and the 7-day tax equivalent yield
(based on a 39.67% federal income tax rate) were 2.81% and 4.65%, respectively.
Without fee waivers and expense reimbursements, the Portfolio's yield and tax
equivalent yield would have been 2.50% and 4.14%, respectively, for this time
period. For current yield information on the Portfolio, call 1-800-442-3809.
<PAGE>
TAX FREE MONEY MARKET PORTFOLIO
FEES AND EXPENSES
As an investor in the Annual Portfolio Operating Expenses
Tax Free Money (expenses that are deducted
Market Portfolio, you from Portfolio assets)
may pay certain fees
and expenses, which
are described in the
tables. Annual
Portfolio operating
expenses are paid
out of Portfolio
assets, and are
reflected in the
Portfolio's yield.
Management Fees 0.10%
Distribution/Service Fees (12b-1) 0.60%
Other Expenses (including
administration, special 0.32%
management services and
custody fees)
Total Annual Portfolio 1.02%
Operating Expenses
A portion of the fees and expenses noted above were waived or reimbursed during
the last fiscal year, which reduced Total Annual Portfolio Operating Expenses to
0.71%. This fee waiver and expense reimbursement arrangement is voluntary and
may be terminated at any time.
EXPENSE EXAMPLE
Use the example below to help you compare the cost of investing in the Portfolio
with the cost of investing in other mutual funds. It illustrates the amount of
fees and expenses you would pay, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Portfolio's operating expenses
Because the Portfolio's actual return and operating expenses will be different,
this example is for comparison only.
1 3 5 10
TAX FREE MONEY MARKET Year Years Years Years
PORTFOLIO $104 $325 $563 $1,248
- - -------------------------------------------------------------------------------
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
GENERAL
Generally, each Portfolio is required to invest at least 95% of its assets in
the securities of issuers with the highest credit rating or the unrated
equivalent as determined by the Adviser. The remainder may be invested in
securities with the second highest credit rating. In addition, each Portfolio
must do the following:
o maintain an average dollar-weighted portfolio
maturity of 90 days or less
o buy individual securities that have or are deemed
to have remaining maturities of 397 days or less
buy only high quality U.S. dollar-denominated
obligations MONEY MARKET PORTFOLIO
The Money Market Portfolio usually invests at least 25% of its assets in
domestic and/or foreign 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 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
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.
Since the Money Market Portfolio may invest in U.S. dollar-denominated
securities issued by foreign issuers, such as foreign governments, foreign banks
and foreign subsidiaries or branches of domestic banks, it may be subject to
additional investment risk with respect to those securities which are different
in some respects from those incurred by a fund that invests only in debt
obligations of U.S. domestic issuers. Foreign issuers usually are not subject to
the same degree of regulation as U.S. issuers. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases significantly,
from U.S. standards. Foreign risk includes nationalization, expropriation or
confiscatory taxation, political changes or diplomatic developments that could
adversely affect such investments.
The Money Market Portfolio may enter into reverse repurchase agreements with
banks, brokers or dealers. In these transactions, the Portfolio sells a
portfolio security to another party in return for cash and agrees to repurchase
the security generally at a particular price and time.
The Money Market Portfolio also may lend securities from its portfolio to
brokers, dealers and other financial institutions.
<PAGE>
TAX FREE MONEY MARKET PORTFOLIO
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, while exempt from Federal income tax, is a preference item for
the purpose of the alternative minimum tax. If the Portfolio receives such
interest, a proportionate share of any exempt-interest dividend paid by the
Portfolio may be treated as such a preference item to shareholders. The
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. For
temporary defensive purposes because of market, economic, political or other
conditions, the Portfolio may invest more than 20% of its net assets in taxable
money market securities. Dividends paid by the Portfolio from income earned from
these securities will be taxable to shareholders.
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 of such
investments, the Portfolio's yield may be more affected by factors pertaining to
the economy of the relevant governmental issuer and other factors specifically
affecting the ability of issuers of such securities to meet their obligations.
GENERAL RISKS APPLICABLE TO EACH PORTFOLIO
Each Portfolio's yield will vary as the short-term securities it holds mature
and the proceeds are reinvested in securities with different interest rates. A
Portfolio's performance also will depend on the effectiveness of the Adviser's
credit analysis and interest rate outlook.
The Portfolios expect to maintain a net asset value of $1.00 per share, but
there is no assurance that the Portfolios will be able to do so on a continuous
basis. The Portfolios' performance per share will change daily based on many
factors, including fluctuation in interest rates, the quality of the instruments
in each Portfolio's investment portfolio, national and international economic
conditions and general market conditions, as well as the timing and size of
purchases and redemptions of Portfolio shares.
Like other funds and business organizations around the world, the Portfolios
could be adversely affected if the computer systems used by the Adviser and the
Portfolios' other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. In addition, Year 2000
issues may adversely affect the companies or other issuers in which the
Portfolios invest where, for example, such entities incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately or
timely do so.
The Adviser and the Portfolios' other service providers (i.e., Administrator,
Transfer Agent, Fund Accounting Agent, Custodian and Distributor) have assured
the Portfolios that they have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the
Portfolios' operations associated with Year 2000 issues. The Adviser and the
other service providers are likewise seeking assurances from many of their
respective vendors and suppliers that such entities are addressing Year 2000
issues.
While the ultimate costs or consequences of incomplete or untimely resolution of
Year 2000 issues by the Adviser or the Portfolios' other service providers
cannot be accurately assessed at this time, the Portfolios currently have no
reason to believe that the Year 2000 plans of the Adviser and the Portfolios'
other service providers will not be completed by December 31, 1999, or that the
anticipated costs associated with full implementation of their plans will have a
material adverse impact on either their business operations or financial
condition or those of the Portfolios. If any systems upon which the Portfolios
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur.
PORTFOLIO MANAGEMENT
THE INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. (the "Adviser"), 1285 Avenue of the
Americas, New York, NY 10019, is each Portfolio's investment adviser. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated, which in turn
is wholly-owned by Paine Webber Group, Inc., a publicly-owned financial services
holding company. As of December 31, 1998, the Adviser served as investment
adviser or sub-adviser to 33 investment companies with 75 separate portfolios
and aggregate assets of approximately $44.3 billion. The Adviser makes the
day-to-day investment decisions for the Portfolios.
For the year ended December 31, 1998, the Portfolios paid the Adviser an
advisory fee at the following indicated annual rate:
- - ---------------------------------------------------------------------------
PERCENTAGE OF
AVERAGE NET ASSETS
- - ---------------------------------------------------------------------------
Money Market Portfolio 0.10%
- - ---------------------------------------------------------------------------
Tax Free Money Market Portfolio 0.10%
- - ---------------------------------------------------------------------------
THE ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Ohio, Inc. (the "Administrator"), 3435 Stelzer Road,
Columbus, OH 43219-3035, serves as the Portfolios' administrator. The
administrative services of the Administrator include providing office space,
equipment and clerical personnel to the Portfolios and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing services.
BISYS Fund Services Limited Partnership (the "Distributor"), serves as the
distributor of the Portfolios' shares. The Distributor may provide securities
dealers that sell Portfolio shares financial assistance in connection with
pre-approved seminars, conferences and advertising to the extent permitted by
applicable state or self-regulatory agencies, such as the National Association
of Securities Dealers.
SHAREHOLDER INFORMATION
PRICING OF PORTFOLIO SHARES
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Portfolio's investments
and other assets, subtracting its liabilities and then dividing that figure by
the number of outstanding shares of the Portfolio:
NAV =
TOTAL ASSETS - LIABILITIES Your order for the purchase
Number of Shares or sale of shares is priced at
Outstanding the next NAV calculated after your
order is accepted by the Portfolio.
Each Portfolio's net asset value or NAV is expected to be constant at $1.00 per
share, although this value is not guaranteed. The NAV is determined at 12:00
noon, Eastern time, on days the New York Stock Exchange and the Portfolio's
custodian are open. The Portfolios value their securities at their amortized
cost. This method involves valuing an instrument at its cost and thereafter
applying a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the investment.
PURCHASING AND ADDING TO YOUR SHARES
The Portfolios' shares are offered only to clients of certain securities
("Financial Institutions") dealers that have entered into securities clearing
arrangements with Correspondent Services Corporation [csc]. These clients
include qualified retirement plans, including pension and profit-sharing plans,
which are established by corporations, partnerships, or self-employed
individuals, and individual retirement accounts.
The Financial Institution may charge additional fees and may require different
minimum investments or impose other limitations on buying and selling shares.
The Financial Institution is responsible for transmitting orders in a timely
manner and may have an earlier cut-off time for purchase and sale requests.
Consult your Financial Institution for specific
ACCOUNT TYPE Minimum Initial Minimum Subsequent
Investment
Regular $1,000 $1
(non-retirement)
Retirement $25 $1
(IRA)*
*The Tax Free Money Market Portfolio is not recommended as an investment for
retirement plans.
Your purchase of shares will be on the same business day if the Portfolio's
transfer agent receives your order by 12:00 noon, Eastern time, and receives
payment by Federal Funds by 4:00 p.m., Eastern time. If your order is received
after 12:00 noon or Federal Funds payment is received after 4:00 p.m., Eastern
time, your purchase will be effective on the next business day.
A Portfolio may reject a purchase order if it considers it in the best interest
of the Portfolio and its shareholders.
Avoid 31% Tax Withholding
The Portfolio is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Portfolio with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
THROUGH A FINANCIAL INSTITUTION
All orders must be made through your Financial Institution. The Financial
Institution will transmit your payment and other required account information to
the Portfolios.
<PAGE>
SELLING YOUR SHARES
You may "redeem" or sell your shares at any time. Your sales price will be the
next NAV after the Portfolio's transfer agent receives your sell order.
Normally, you will receive your proceeds within a week after your request is
received.
WITHDRAWING MONEY FROM YOUR
PORTFOLIO INVESTMENT
As a shareholder, you are technically selling shares when you request a
withdrawal in cash. This is also known as redeeming shares or a redemption of
shares.
INSTRUCTIONS FOR SELLING SHARES
You may request redemption of your shares at any time through your Financial
Institution. The Portfolio will not accept requests to sell shares by wire or
telephone from you or your Financial Institution.
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly, or
semi-annual basis if you have a $1,000 minimum account. For information on the
Automatic Withdrawal Plan, consult your Financial Institution. The minimum
withdrawal is $50. Redemption proceeds will be on deposit in your designated
account at an Automated Clearing House member bank ordinarily within two
business days following redemption or, at your request, paid by check sent to
you or a designated third party. Your participation in the Automatic Withdrawal
Plan may be ended at any time by you, your Financial Institution, the Portfolio,
or the Transfer Agent. Retirement plan participants may be eligible for the
Automatic Withdrawal Plan under certain circumstances. Contact your Financial
Institution for further information on participation in the Automatic Withdrawal
Plan.
AUTOMATIC REDEMPTION
Correspondent Services Corporation [csc] carries securities accounts and
performs clearing services for the Financial Institutions 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 the
purchase of securities or other transactions in your securities account. Under
this procedure, unless you notify your Financial Institution 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 Financial Institution. Redemptions will be effected on the
business day preceding the date you are obligated to make such payment, and your
Financial Institution will receive the redemption proceeds on the day following
the redemption date.
REDEMPTION BY CHECK
You may write checks in amounts of $100 or more on your account in a Portfolio.
To obtain checks contact your Financial Institution and request an Optional
Services Application form. Complete the appropriate section of the Optional
Services Application and return it to your Financial Institution. Dividends and
distributions will continue to be paid up to the day the check is presented for
payment. The check writing feature may be modified or terminated upon 30-days
written notice. You must maintain the minimum required account balance of $1,000
and you may not close your Portfolio account by writing a check.
REPURCHASE THROUGH FINANCIAL INSTITUTIONS
The Portfolios will repurchase shares through Financial Institutions. The
Portfolios ordinarily will accept orders to repurchase shares from Financial
Institutions for their customers at the NAV next computed after receipt of the
order from the Financial Institution, provided that such request for repurchase
is received from the Financial Institution prior to 12:00 noon, Eastern time, on
any business day. It is your Financial Institution'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 Portfolio; however, Financial Institutions may charge
their clients for transmitting the notice of repurchase to the Portfolio. The
Portfolios reserve the right to reject any order for repurchase through a
Financial Institution, but it may not reject other properly submitted requests
for redemption as described herein. The Portfolio promptly will notify the
Financial Institution of any rejection of a repurchase. For shareholders selling
shares through their Financial Institution, payments will be made by the
Transfer Agent to the Financial Institution.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Portfolio may ask you to increase your
balance. If it is still below $500 after 45 days, the Portfolio may close your
account and send you the proceeds. Certain Financial Institutions may impose,
with respect to their clients' investments in a Portfolio, a minimum account
balance which is higher than that specified above.
DISTRIBUTION AND SERVICE (12B-1) FEES
The Portfolios have adopted a plan under SEC Rule 12b-1. The plan allows the
Portfolios to pay fees for services and expenses relating to the sale and
distribution of the Portfolios' shares and/or for providing shareholder
services. The amount of the fee is 0.60% of the average daily net assets of the
Portfolios. Because these fees are paid from the Portfolios' assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
SPECIAL MANAGEMENT SERVICES FEE
Each Portfolio has agreed to pay the Adviser and the Administrator each a
monthly fee for certain special management 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 Financial Institutions.
DIVIDENDS, DISTRIBUTIONS AND TAXES
All dividends and distributions will be automatically reinvested unless you
request otherwise.
Any income a Portfolio receives in the form of interest is paid out, less
expenses, to its shareholders as dividends. Each Portfolio declares dividends
from net investment income on each day the Portfolio is open for business.
Dividends are paid monthly, usually on or about the fifteenth day of the month.
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. Capital gains, if any, for the Portfolios are distributed at
least annually.
Dividends and distributions are treated in the same manner for Federal income
tax purposes whether you receive them in cash or in additional shares.
The Portfolios expect that their dividends will primarily consist of net income
or, if any, short-term capital gains as opposed to long-term capital gains.
Dividends paid by the Money Market Portfolio and by the Tax Free Money Market
Portfolio that are derived from taxable investments are taxable as
ordinary income.
During normal market conditions, the Tax Free Money Market Portfolio expects
that substantially all of its dividends will be excluded from gross income for
Federal income tax purposes. The Portfolio may invest in certain securities with
interest that may be a preference item for the purposes of the alternative
minimum tax or a factor in determining whether Social Security benefits are
taxable. In such event, a portion of the Portfolio's dividends would not be
exempt from Federal income taxes.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year.
You will be notified in January each year about the Federal tax status of
distributions made by the Portfolios. Depending on your residence for tax
purposes, distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the Federal, state and local tax consequences in
your particular circumstances.
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below describe the Portfolios' performance for the fiscal periods
indicated. "Total return" shows how much your investment in the Portfolio would
have increased (or decreased) during each period, assuming you had reinvested
all dividends and distributions. The information in the financial highlights has
been audited by ____________________, the Portfolios' independent auditors,
whose report, along with the Portfolios' financial statements, are included in
the annual report.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- - --------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Period.................. $ 0.9992 $0.9991 $0.9986 $0.9975 $0.9999
======== ======= ======= ======== ========
- - --------------------------------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income.... 0.0465 0.0467 0.0462 0.0512 0.0340
Net realized gains (losses) on
securities transactions... 0.0002 0.0001 0.0005 0.0011 (0.0024)
------ ------ ------ ------ --------
- - --------------------------------------------------------------------------------------------------------------------
Total income from investment
operations 0.0467 0.0468 0.0467 0.0523 0.0316
------ ------ ------ ------ -------
- - --------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income...................... (0.0465) (0.0467) (0.0462) (0.0512) (0.0340)
-------- -------- -------- -------- ---------
- - --------------------------------------------------------------------------------------------------------------------
Net change in net asset value
Period...................... 0.0002 0.0001 0.0005 0.0011 (0.0024)
-------- ------- ------- ------- --------
- - --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period.................... $0.9994 $0.9992 $0.9991 $0.9986 $0.9975
-------- -------- -------- -------- --------
- - --------------------------------------------------------------------------------------------------------------------
Total Return.................. 4.75% 4.77% 4.72% 5.24% 3.45%
- - --------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of
period (000's).............. $1,387,903 $1,151,012 $1,007,265 $779,011 $458,092
Ratio of expenses to average net
assets (after fee waivers).. 0.93% 0.95% 0.88% 0.85% 0.94%
Ratio of net investment income to
average net assets
(after fee waivers).......... 4.64% 4.68% 4.65% 5.14% 3.47%
Ratio of expenses to average net
assets**..................... 1.04% 1.06% 1.01% 1.03% 1.12%
Ratio of net investment income to
average net assets**.......... 4.53% 4.57% 4.53% 4.96% 3.29%
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
- - ------------------------------
* 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.
** During the period, certain fees and expenses were voluntarily waived
and/or reimbursed. If such voluntary waivers and/or reimbursements had
not occurred, the ratios would have been as indicated.
<PAGE>
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,1996*
---------------------- ------------------
1998 1997
---- ----
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 1.0000 $ 1.0000 $ 1.0000
-------- --------- ---------
- - -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income................... 0.0279 0.0286 0.0100
-------- ---------- ---------
- - -------------------------------------------------------------------------------------------------------------------------------
Net income from investment
operations............................ 0.0279 0.0286 0.0100
------ ---------- ---------
- - -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income......... (0.0279) (0.0286) (0.0100)
-------- ---------- ----------
- - -------------------------------------------------------------------------------------------------------------------------------
Net change in net asset value................ - - -
-------- ---------- ----------
- - -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period............... $ 1.0000 $ 1.0000 $ 1.0000
-------- ---------- ----------
- - -------------------------------------------------------------------------------------------------------------------------------
Total Return................................. 2.83% 2.90% 0.66%(a)
-------- ---------- ----------
- - -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's)......... $102,821 $103,399 $ 80,409
Ratio of expenses to average net
assets (after fee waivers)............. 0.71% 0.78% 0.74%(b)
Ratio of net investment income to
average net assets
(after fee waivers).................... 2.79% 2.86% 2.80%(b)
Ratio of expenses to average net
assets**............................... 1.02% 1.18% 1.20%(b)
Ratio of net investment income to
average net assets**................... 2.48% 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 waivers and/or reimbursements had
not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
</TABLE>
<PAGE>
For more information about the Portfolios, the following documents are available
free upon request:
ANNUAL/SEMIANNUAL REPORTS (REPORTS):
The Portfolios' annual and semi-annual reports to shareholders contain detailed
information on the Portfolios' investments. In the annual report, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Portfolios' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Portfolios, including their
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
- - ------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE PORTFOLIOS BY CONTACTING A BROKER OR BANK THAT
SELLS THE PORTFOLIOS. OR CONTACT THE PORTFOLIOS AT:
CORRESPONDENT CASH RESERVES
PO BOX 163879
COLUMBUS, OH 43216-3879
TELEPHONE: 1-800-442-3809
- - -------------------------------------------------------------------------------
You can review the Portfolios' Reports and SAIs at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009, or calling
1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-6076)
- - -------------------------------------------------------------------------------
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
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, 1999, 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.
The most recent Annual Report and Semi-Annual Report to Shareholders
for each Portfolio are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are incorporated
by reference into this Statement of Additional Information.
TABLE OF CONTENTS
PAGE
Description of the Fund and the Portfolios.......................... B-2
Management of the Fund................................................B-21
Management Arrangements...............................................B-24
Purchase and Redemption of Shares.....................................B-30
Determination of Net Asset Value......................................B-31
Yield Information.....................................................B-32
Portfolio Transactions................................................B-33
Information About the Fund and the Portfolios.........................B-33
Counsel and Independent Auditors......................................B-34
Financial Statements..................................................B-35
Appendix .............................................................B-36
<PAGE>
DESCRIPTION OF THE FUND AND THE PORTFOLIOS
GENERAL
The Fund is a Maryland corporation organized on March 6, 1990. Each
Portfolio is a separate portfolio of the Fund, an open-end management investment
company, known as a mutual fund. Each Portfolio is a diversified investment
company, which means that, with respect to 75% of its total assets, the
Portfolio will not invest more than 5% of its assets in the securities of any
single issuer.
Mitchell Hutchins Asset Management Inc. (the "Adviser") serves as each
Portfolio's investment adviser.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as each
Portfolio's administrator.
BISYS Fund Services Limited Partnership (the "Distributor"), an
affiliate of the Administrator, serves as each Portfolio's distributor.
PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Portfolios' Prospectus.
BANK OBLIGATIONS. The Money Market Portfolio and, to a limited extent,
Tax Free Money Market Portfolio may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions.
Certificates of deposit ("CDs") are negotiable certificates evidencing
the obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits ("TDs") are non-negotiable deposits maintained in a
banking institution for a specified period of time (in no event longer than
seven days) 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 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.
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 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.
However, not all of such laws and regulations apply to the foreign branches of
domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks, such as CDs and 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.
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.
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS. The Money Market Portfolio
and, to a limited extent, the Tax Free Portfolio may purchase 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 the 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, including banks.
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, plus accrued interest. 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.
ASSET-BACKED SECURITIES. Each Portfolio may purchase asset- backed
securities, which are securities issued by special purpose entities whose
primary assets consist of, in the case of those purchased by the Money Market
Portfolio, a pool of mortgages, loans, receivables or other assets, or, in the
case of those purchased by the Tax Free Money Market Portfolio, a pool of
Municipal Obligations. 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 these 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
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.
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 instrument is unrated, or has been given a rating below that which
is permissible for purchase by the Portfolio, 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 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, 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 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 instrument. The guarantor of a
participation interest will be treated as a separate issuer. For certain
participation interests, the Portfolio will have the unconditional right to
demand payment, on not more than seven days' notice, for all or any part of the
Portfolio's interest in the security, plus accrued interest. As to these
instruments, 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.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements. In a repurchase agreement, the Portfolio buys, and the seller agrees
to repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield during
the purchaser's holding period, while the seller's obligation to repurchase is
secured by the value of the underlying security. The Fund's custodian or
sub-custodian employed in connection with third-party repurchase transactions
will have custody of, and will hold in a segregated account, securities acquired
by a Portfolio under a repurchase agreement. In connection with its third-party
repurchase transactions, the 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. 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. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, the 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 with banks,
brokers or dealers. In these transactions, the Portfolio sells a portfolio
security to another party in return for cash and agrees to repurchase the
security generally at a particular price and time. The Portfolio will use the
cash to make investments which either mature or have a demand feature to resell
to the issuer at a date simultaneous with or prior to the time the Portfolio
must repurchase the security. Reverse repurchase agreements may be preferable to
a regular sale and later repurchase of the securities because it avoids certain
market risks and transaction costs. Such transaction, however, may increase the
risk of potential fluctuations in the market value of the Portfolio's assets. In
addition, interest costs on the cash received may exceed the return on the
securities purchased. The Company'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 Portfolio's investment objective and
management policies. 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.
U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, which include U.S. Treasury securities that differ in their
interest rates, maturities and times of issuance. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities are supported by
the full faith and credit of the U.S. Treasury; others by the right of the
issuer to borrow from the Treasury; others by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others 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 currently 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.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
(MONEY MARKET PORTFOLIO ONLY) 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 Adviser 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.
MUNICIPAL OBLIGATIONS. (TAX FREE MONEY MARKET PORTFOLIO ONLY) The Tax
Free Money Market Portfolio will invest 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 multistate
agencies of authorities, the interest from which, in the opinion of bond counsel
to the issuer, is exempt from Federal income tax. 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. Tax exempt industrial development bonds, in most cases,
are revenue bonds that 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. The
Portfolio also may purchase short-term structured securities backed by Municipal
Obligations (a form of asset-backed security) provided such securities meet the
requirements of Rule 2a-7 under the 1940 Act. 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.
Floating and variable rate demand obligations are tax exempt
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. 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.
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 Portfolio, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal Obligation, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligation and for other reasons.
The Portfolio will not purchase tender option bonds unless (a) the
demand feature applicable thereto is exercisable by the Portfolio within 397
days of the date of such purchase upon no more than 30 days' notice and
thereafter is exercisable by the Portfolio no less frequently than annually upon
no more than 30 days' notice and (b) at the time of such purchase, the Adviser
reasonably expects (i) based upon its assessment of current and historical
interest rate trends, that prevailing short-term tax exempt rates will not
exceed the stated interest rate on the underlying Municipal Obligations at the
time of the next tender fee adjustment and (ii) that the circumstances which
might entitle the grantor of a tender option to terminate the tender option
would not occur prior to the time of the next tender opportunity. At the time of
each tender opportunity, the Portfolio will exercise the tender option with
respect to any tender option bonds unless the Adviser reasonably expects, (x)
based upon its assessment of current and historical interest rate trends, that
prevailing short-term tax exempt rates will not exceed the stated interest rate
on the underlying Municipal Obligations at the time of the next tender fee
adjustment, and (y) that the circumstances which might entitle the grantor of a
tender option to terminate the tender option would not occur prior to the time
of the next tender opportunity. The Portfolio will exercise the tender feature
with respect to tender option bonds, or otherwise dispose of its tender option
bonds, prior to the time the tender option is scheduled to expire pursuant to
the terms of the agreement under which the tender option is granted. The
Portfolio otherwise will comply with the provisions of Rule 2a-7 in connection
with the purchase of tender option bonds, including, without limitation, the
requisite determination by the Fund's Board that the tender option bonds in
question meet the quality standards described in Rule 2a-7, which, in the case
of a tender option bond subject to a conditional demand feature, would include a
determination that the security has received both the required short-term and
long-term quality rating or is determined to be of comparable quality. In the
event of a default of the Municipal Obligation underlying a tender option bond,
or the termination of the tender option agreement, the Portfolio would look to
the maturity date of the underlying security for purposes of compliance with
Rule 2a-7 and, if its remaining maturity was greater than 13 months, the
Portfolio would sell the security as soon as would be practicable. The Portfolio
will purchase tender option bonds only when it is satisfied that the custodial
and tender option arrangements, including the fee payment arrangements, will not
adversely affect the tax exempt status of the underlying Municipal Obligations
and that payment of any tender fees will not have the effect of creating taxable
income for the Portfolio. Based on the tender option bond agreement, the
Portfolio expects to be able to value the tender option bond at par; however,
the value of the instrument will be monitored to assure that it is valued at
fair value.
STAND-BY COMMITMENTS. (TAX FREE MONEY MARKET PORTFOLIO ONLY) 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
Portfolio obligates a broker, dealer or bank to repurchase, at the Portfolio'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 Portfolio will acquire stand-by commitments solely to facilitate
its portfolio liquidity and does not intend to exercise its rights thereunder
for trading purposes. The 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. Gains realized in connection with stand-by commitments will be
taxable.
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. 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. 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.
INVESTMENT PRACTICES
The following information supplements and should be read in
conjunction with the Portfolios' Prospectus.
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 Portfolio 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.
FORWARD COMMITMENTS. Each Portfolio may purchase securities on a
forward commitment or when-issued basis, which means that delivery and payment
take place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment or
when- issued security are fixed when the Portfolio enters into the commitment,
but the Portfolio does not make payment until it receives delivery from the
counterparty. The 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. The
Portfolio will set aside in a segregated account permissible liquid assets at
least equal at all times to the amount of the purchase commitment.
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
its investment objective and 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.
13. Invest less than 25% of its total assets in securities issued by
banks or invest more than 25% of its assets in the securities of issuers in any
other industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Notwithstanding the foregoing, for temporary defensive
purposes the Money Market Portfolio may invest more than 25% of its assets in
bank obligations.
For purposes of Investment Restriction No. 13, asset-backed
securities are grouped in industries based on their underlying assets and are
not treated as constituting a single, separate industry.
* * *
TAX FREE MONEY MARKET PORTFOLIO ONLY. The Tax Free Money Market
Portfolio has adopted its investment objective and 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.
MANAGEMENT OF THE FUND
The Fund's Board of Directors is responsible for the management and
supervision of each Portfolio. The Board approves all significant agreements
with those companies that furnish services to the Portfolios. These companies
are as follows:
Mitchell Hutchins Asset Management Inc........ Investment Adviser
BISYS Fund Services Limited Partnership....... Distributor
BISYS Fund Services Ohio, Inc................. Administrator and Transfer Agent
The Bank of New York.......................... Custodian
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 the Administrator or its affiliates. He 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 the Administrator 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 the
Administrator or its affiliates. He is 38 years old and his address is
3435 Stelzer Road, Columbus, Ohio 43219.
GARY R. TENKMAN, TREASURER. An employee of BISYS Fund Services, Inc. since
April 1998, and an officer of other investment companies administered
by the Administrator or its affiliates. For more than five years prior
thereto, he was an audit manager with Ernst & Young LLP. 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 the Administrator 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 the
Administrator 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 February 25, 1999.
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, 1998 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 $_____ for all Directors as a group.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. 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
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 18, 1998. 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 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 the value of each
Portfolio's average daily net assets. For the fiscal years ended December 31,
1996, 1997 and 1998, the advisory fees paid to the Adviser by the Money Market
Portfolio amounted to $950,074, $1,088,088 and $________, 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 years ended December 31,
1997 and 1988, the advisory fees payable to the Adviser by the Tax Free Money
Market Portfolio amounted to $19,900, $93,494 and $__________, respectively,
which amounts were reduced by $9,950 in 1996 and $14,024 in 1997, 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.
ADMINISTRATOR. BISYS Fund Services Ohio, Inc., a wholly-owned
subsidiary of The BISYS Group, Inc., provides certain administrative services
pursuant to the Administration Agreement (the "Administration Agreement") dated
April 25, 1996, with the Fund. Under the Administration Agreement, the
Administrator generally assists in all aspects of the Portfolios' operations,
other than providing investment advice, subject to the overall authority of the
Fund's Board of Directors in accordance with Maryland law. In connection
therewith, the Administrator provides the Portfolios 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
Portfolios' custodian. As to each Portfolio, the Administration Agreement will
continue until December 31, 1999 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
Administrator, 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 November 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 the Administrator. 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 the Administrator a monthly fee at the annual rate of .10% of the
value of the Portfolio's average daily net assets. For the fiscal years ended
December 31, 1996, 1997 and 1998, the Money Market Portfolio paid the
Administrator $950,074, $1,088,088 and $__________, 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 years ended December 31,
1997 and 1998, the administration fees payable to the Administrator by the Tax
Free Money Market Portfolio amounted to $19,900, $93,494 and
$__________________, respectively, which amounts were reduced by $19,900 in 1996
and $67,007 in 1997, resulting in no administration fee being paid for the
period ended December 31, 1996 and $26,487 in administration fees paid to the
Administrator for the fiscal year ended December 31, 1997 pursuant to
undertakings.
DISTRIBUTOR. BISYS Fund Services Limited Partnership, a wholly-owned
subsidiary of The BISYS Group, Inc., 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 the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. No
compensation is payable by a Portfolio to the Distributor 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 Financial Institutions (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 18, 1998. 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, 1998, the amount payable
pursuant to the Plan by the Money Market Portfolio amounted to $_____________;
however, pursuant to an undertaking, the amount was reduced by $______,
resulting in a net amount paid by the Money Market Portfolio of $_________
pursuant to the Plan. For the fiscal year ended December 31, 1998, the amount
payable pursuant to the Plan by the Tax Free Money Market Portfolio amounted to
$_________; however, pursuant to an undertaking, the amount was reduced by
$________, resulting in a net amount paid by the Tax Free Money Market Portfolio
of $_______ pursuant to the Plan.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. BISYS Fund
Services Ohio, Inc. (the "Transfer Agent"), a wholly- owned subsidiary of The
BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is
the Fund's transfer and dividend disbursing agent. Under a transfer agency
agreement with the Fund, the Transfer Agent arranges for the maintenance of
shareholder account records for each Portfolio, the handling of certain
communications between shareholders and the Portfolio and the payment of
dividends and distributions payable by the Portfolio. For these services, the
Transfer Agent receives a monthly fee computed 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.
The Bank of New York, 90 Washington Street, New York, New York 10286,
acts as custodian of the investments of each Portfolio. Under a custody
agreement with the Fund, The Bank of New York provides for the holding of each
Portfolio's securities and the retention of all necessary accounts and records.
SPECIAL MANAGEMENT SERVICES AGREEMENT. Pursuant to the terms of a
Special Management Services Agreement among the Fund, the Adviser and the
Administrator, each Portfolio has agreed to pay the Adviser and the
Administrator 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, 1996, 1997 and 1998 amounted to $461,556, $544,044 and $___________,
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 years ended December 31, 1997 and 1998,
amounted to $9,950, $46,747 and $____________, respectively, which amounts were
waived in their entirety pursuant to an undertaking.
The fees payable to the Administrator by the Money Market Portfolio
pursuant to the terms of the Special Management Services Agreement for the
fiscal years ended December 31, 1996, 1997 and 1998 amounted to $461,555,
$544,044 and $_________, respectively; however, pursuant to an undertaking, the
Administrator waived the fee in its entirety for each such fiscal year. The fees
payable to the Administrator 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 years ended December 31,
1997 and 1998, amounted to $9,950, $46,747 and $________, respectively, which
amounts were waived in their entirety pursuant to an undertaking.
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: 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 the
Administrator 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 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
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 the Administrator 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 the Administrator under the Administration Agreement, or
the Adviser and/or the Administrator 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
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
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
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.
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 FUND AND THE PORTFOLIOS
The Fund is authorized to issue 28 billion 500 million shares of
Common Stock (with 3 billion shares allocated to each Portfolio), par value
$.001 per share. 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.
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 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.
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.
To date, 28 portfolios have been authorized. All consideration
received by the Fund for shares of one of the portfolios, and all assets in
which such consideration is invested, belong to that portfolio (subject only to
the rights of creditors of the Fund) and will be subject to the liabilities
related thereto. The income attributable to, and expenses of, one portfolio are
treated separately from those of the other portfolios.
Each Portfolio will send annual and semi-annual financial statements
to all its shareholders.
COUNSEL AND INDEPENDENT AUDITORS
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.
_____________, independent auditors, has been selected as the Fund's
auditors for the year ending December 31, 1999.
FINANCIAL STATEMENTS
The Portfolios' Annual Report to Shareholders for the fiscal year
ended December 31, 1998 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 23.
(a) (1) Articles of Incorporation are incorporated by
reference to Exhibit (1) of the Registration
Statement on Form N-1A, filed on March 29, 1990.
(2) 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.
(3) 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.
(4) 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.
(b) 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.
(d) (1) 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.
(2) Investment Advisory Agreement between
Registrant and First American National Bank.*
(3) Sub-Investment Advisory Agreement between
First American National Bank and Lazard Asset
Management is incorporated by reference to
Exhibit (5)(b)(i) of Post-Effective Amendment
No. 40 to the Registration Statement on Form
N-1A, filed September 23, 1998.
(4) Sub-Investment Advisory Agreement between First
American National Bank and Womack Asset
Management, Inc.*
(5) Administration Agreement between Registrant and
BISYS Fund Services Ohio, Inc.*
(e) (1) Distribution Agreement between Registrant
and BISYS Fund Services Limited Partnership.*
(2) 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.
(3) Distribution Plan Agreement, with respect to
Registrant's ISG and Stewardship Funds.*
(g) (1) 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.
(2) 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.
(h) (1) 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.
(2) Form of Shareholder Services Agreement, with
respect to Registrant's ISG/Stewardship Funds.*
(3) Shareholder Services Plan, with respect to
Registrant's ISG/Stewardship Funds.*
(i) Opinion and consent of Registrant's counsel is
incorporated by reference to Pre-Effective
Amendment No. 3 to the Registration Statement on
Form N-1A, filed June 22, 1990.
(j) Consent of Independent Auditors.*
(m) (1) 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.
(2) Distribution Plan pursuant to Rule 12b-1,
with respect to Registrant's ISG/Stewardship
Funds.*
(n) Financial Data Schedules are incorporated
by reference to Registrant's Annual Report on
Form N-SAR filed on or about February 27, 1998
and Semi-Annual Report on Form N-SAR filed on or
about August 28, 1998.
(o) (1) 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.
(2) Rule 18f-3 Plan for Registrant's Non-Money
Market Portfolios.*
(3) Rule 18f-3 Plan for Registrant's ISG Money
Market Portfolios.*
Other Exhibit: (1) 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.
(2) 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.
- - -----------------------
* To be filed by Amendment.
Item 24. Persons Controlled By or Under Common Control
with Registrant
Not applicable.
Item 25. 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 to be filed as
Exhibit (e)(1) hereto.
Item 26(a). Business and Other Connections of Investment Adviser
(i) Registrant is fulfilling the requirement of this Item 26(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 ISG and Stewardship Funds, 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>
Dennis C. Bottorff Chairman and Chairman and Chief Executive
Chief Executive Officer of First American
Officer Corporation
Earnest W. Deavenport, Jr. Director Chairman and Chief Executive
Officer of Eastman Chemical
Company
Reginald D. Dickson Director President Emeritus of
INROADS, Inc.
James A. Haslam, II Director Chairman of the Board of
Pilot Corporation
Warren A. Hood, Jr. Director Chairman of Hood Industries, Inc.
Martha R. Ingram Director Chairman of the Board of
Ingram Industries, Inc.
Walter G. Knestrick Director Chairman of the Board of
Walter Knestrick
Contractor, Inc.
Gene C. Koonce Director Vice Chairman of United
Cities Gas Company
James R. Martin Director Chairman and Chief Executive
Officer of Plasti-Line, Inc.
Robert A. McCabe, Jr. Director Vice Chairman of First
American Corporation and
President of First American
Enterprises
Howard L. McMillan, Jr. Director Chairman of Deposit Guaranty
System
John N. Palmer Director Chairman and Chief Executive
Officer of SkyTel
Communications, Inc.
Dale W. Polley Director President and Principal
Financial Officer of First
American Corporation
E.B. Robinson, Jr. Director Vice Chairman and Chief
Operating Officer of First
American Corporation and
President of First American
National Bank
Roscoe R. Robinson Director Former Vice Chancellor for
Health Affairs of
Vanderbilt University
Medical Center
James F. Smith Director Former Chairman of the Board
of First American Corporation
Cal Turner, Jr. Director Chairman and Chief Executive
Officer of Dollar General
Corporation
Celia A. Wallace Director Chairman and Chief Executive
Officer of Southern Medical
Health Systems, Inc.
Ted H. Welch Director Real Estate Developer,
President and Chief
Executive Officer of Eagle
Communications
J. Kelley Williams, Sr. Director Chairman and Chief Executive
Officer of ChemFirst, Inc.
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 Former Chairman of the Board
of Genesco, Inc.
</TABLE>
<PAGE>
(iii) Registrant is fulfilling the requirement of this Item 26(a) to
provide a list of the officers and directors of Lazard Asset Management, the
investment adviser of the Registrant's ISG International Equity Fund,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by Lazard Asset Management 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 Lazard Asset Management
(SEC File No. 801-50349).
(iv) Registrant is fulfilling the requirement of this Item 26(a) to
provide a list of the officers and directors of Womack Asset Management, Inc.,
the investment adviser of the Registrant's ISG Small Cap Opportunity Fund and
Stewardship Small-Cap Equity Fund, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by Womack 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 Womack Asset Management, Inc. (SEC File No. 801-54327).
(v) Registrant is fulfilling the requirement of this Item 26(a) to
provide a list of the officers and directors of Bennett Lawrence Management LLC,
the investment adviser of the Registrant's ISG Mid Cap Fund, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by Bennett Lawrence Management, LLC 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 Bennett Lawrence Management, LLC
(SEC File No. 801-49805).
Item 27. 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 27(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 28. 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 29. Management Services
Not Applicable.
Item 30. Undertakings
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 26th day
of February, 1999.
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/Gary R. Tenkman* Treasurer (Chief
GARY R. TENKMAN Financial and
Accounting Officer)
/s/Richard H. Francis* Director
RICHARD H. FRANCIS
/s/Norma A. Coldwell* Director
NORMA A. COLDWELL
/s/William W. McInnes* Director
WILLIAM W. McINNES
/s/Robert A. Robinson* Director
ROBERT A. ROBINSON
*By:/s/Robert L. Tuch February 26, 1999
Robert L. Tuch
Attorney-in-fact
