GREAT HALL INVESTMENT FUNDS, INC.
PRIME MONEY MARKET FUND
-------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
-------------------------------------
TAX-FREE MONEY MARKET FUND
-------------------------------------
60 South Sixth Street
Minneapolis, Minnesota 55402
(800) 934-6674
-----------------------------------
STATEMENT OF ADDITIONAL INFORMATION
dated December 1, 1998
-----------------------------------
Great Hall Prime Money Market Fund ("Prime Fund"), Great Hall U.S.
Government Money Market Fund ("Government Fund") and Great Hall Tax-Free Money
Market Fund ("Tax-Free Fund") (collectively, the "Funds") are diversified
series of Great Hall Investment Funds, Inc. ("Great Hall"), an open-end
management investment company (commonly known as a mutual fund) which currently
offers its shares of common stock in five series. This Statement of Additional
Information relates only to the Funds and does not relate to any other series
of Great Hall.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Funds, dated December 1,
1998, which has been filed with the Securities and Exchange Commission (the
"SEC"). To obtain a copy of the Prospectus, please call Great Hall or your
investment executive.
TABLE OF CONTENTS
-----------------
Page
----
Investment Policies........................................ B-2
Investment Restrictions.................................... B-8
Taxes...................................................... B-10
Portfolio Transactions..................................... B-11
Management and Distribution Agreements..................... B-12
Determination of Net Asset Value........................... B-13
Calculation of Performance Data............................ B-14
Directors and Officers..................................... B-15
General Information........................................ B-17
Counsel and Auditors....................................... B-18
Financial and Other Information............................ B-18
Appendix--Ratings of Investments........................... A-1
Financial Statements....................................... F-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated December 1, 1998, and, if given or made,
such information or representations may not be relied upon as having been
authorized by Great Hall or the Distributor (as defined herein). This
Statement of Additional Information does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state or jurisdiction in
which such offering or solicitation may not lawfully be made. The delivery of
this Statement of Additional Information at any time shall not imply that there
has been no change in the affairs of any of the Funds since the date hereof.
<PAGE>
INVESTMENT POLICIES
The following information supplements that set forth under "Investment
Objectives and Policies" and "Certain Investment Strategies" in the Prospectus
and does not, standing alone, present a complete explanation of the matters
disclosed. You must also refer to the Prospectus to obtain information on the
matters disclosed below.
All Funds
Government Securities. Each Fund may invest without limitation in
obligations of the United States Government or agencies or instrumentalities of
the United States Government ("Government Obligations"). Government Obligations
are backed in a variety of ways by the U.S. Government or its agencies or
instrumentalities. Some Government Obligations, such as U.S. Treasury bills,
notes and bonds and securities issued by the Government National Mortgage
Association ("GNMA"), are backed by the full faith and credit of the United
States Treasury. Others, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the U.S. Treasury. Still
other Government Obligations, such as those issued by the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the Student Loan Marketing Association, are backed only by the
credit of the agency or instrumentality issuing the obligations and, in certain
instances, by the discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality. In none of these cases,
however, does the United States Government guarantee the value or yield of the
Government Obligations themselves or the net asset value of any Fund's shares.
Repurchase Agreements. Each Fund may enter into repurchase agreements
with respect to any of the securities in which the Fund may invest directly.
A repurchase agreement is an agreement under which a Fund will purchase a
security subject to resale to a bank or dealer at an agreed-upon price and
date. The transaction requires the collateralization of the seller's
obligation by the transfer to the Fund's custodian of eligible securities with
an initial market value, including accrued interest, equal to at least the
dollar amount invested by the Fund in each agreement, and with the value of
the underlying securities marked to market daily to maintain at least 100%
collateralization of the repurchase price (including accrued interest). A
default by the seller might cause the Fund to experience a loss or delay in
the liquidation of the collateral securing the repurchase obligation and might
also cause the Fund to incur disposition costs in liquidating the collateral.
However, each Fund intends to enter into repurchase agreements only with
primary dealers that report to the Federal Reserve Bank of New York or with
the 100 largest U.S. commercial banks (as measured by domestic deposits).
Additionally, each Fund intends to follow the collateral custody, protection
and perfection guidelines recommended by the Comptroller of the Currency for
the use of national banks in their direct repurchase agreement activities. As
a non-fundamental policy, no Fund will invest more than 10% of its net assets
in repurchase agreements maturing in more than seven days and other illiquid
investments.
Illiquid Investments; Liquidity Guidelines. Each Fund is permitted to
invest up to 10% of its assets in all forms of "illiquid" investments and may
invest without limitation in "restricted" securities which Insight Investment
Management, Inc., each Fund's investment adviser ("Insight"), pursuant to
liquidity standards established by Great Hall's Board of Directors, has
determined are liquid. An investment is generally deemed to be "illiquid" if
it cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold
in private placements and which have not been registered under the Securities
Act of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the SEC, since such securities may be resold only
subject to statutory restrictions and delays or if registered under the 1933
Act. However, the SEC has acknowledged that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, Insight believes that a similar market exists for
commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act. Each Fund may invest without limitation in these forms
of restricted securities if such securities are deemed by Insight to be liquid
in accordance with liquidity guidelines established by Great Hall's Board of
Directors. Under these guidelines, Insight must consider (a) the frequency of
trades and quotes for the security, (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers, (c)
dealer undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics
of transfer). Investing in restricted securities could have the effect of
increasing the level of each Fund's illiquidity to the extent that qualified
purchasers of the securities become, for a time, uninterested in purchasing
these securities.
B-2
<PAGE>
Great Hall Prime Money Market Fund
Prime Fund invests in high quality, domestic money market instruments,
including but not limited to marketable obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities (described below under
"Great Hall U.S. Government Money Market Fund"); corporate debt obligations
that are rated AA or better by Standard & Poor's Corporation ("S&P"), or Aa or
better by Moody's Investors Service, Inc. ("Moody's"); obligations of banks and
savings and loans that are members of the Federal Deposit Insurance Corporation
(the "FDIC"), which obligations may include, but are not limited to,
certificates of deposit, bankers' acceptances and documented discount notes and
letters of credit; high-grade commercial paper guaranteed or issued by domestic
corporations; and instruments (including repurchase agreements) secured by such
obligations. All securities mature within 397 days from the date of purchase
as required by Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act").
Investments in obligations of banks and savings and loans are limited
to: (a) certificates of deposit issued by banks with assets in excess of
$500,000,000 or branches of such banks; (b) certificates of deposit or other
deposit obligations of savings and loans with assets in excess of
$500,000,000; and (c) bankers' acceptances, letters of credit or other
obligations guaranteed by banks meeting the above criteria. Bankers'
acceptances are short-term credit instruments used to finance the import,
export, transfer or storage of goods. They are termed "accepted" when a bank
guarantees their payment at maturity. Obligations issued or guaranteed by
FDIC member institutions are not necessarily guaranteed by the FDIC. Deposit
obligations of domestic banks and savings and loans are only insured by the
FDIC up to a maximum of $100,000, which limitation applies to all funds that
Prime Fund may have on deposit at any one bank or savings and loan. Bankers'
acceptances and letters of credit are not so insured. Deposit obligations of
foreign banks or foreign branches of domestic banks also are not covered by
FDIC insurance; in addition, such investments may involve other risks
different from risks associated with investments in deposit obligations of
domestic banks, such as future political and economic developments and the
possible imposition of governmental restrictions.
Permissible commercial paper investments generally consist of
obligations rated Prime-1 or A-1, or their subsequent equivalents, by Moody's
or S&P, or unrated commercial paper issued by companies with an unsecured debt
issue outstanding that is rated Aa or better by Moody's or AA or better by
S&P. Commercial paper constitutes unsecured indebtedness of business or
banking firms issued to finance their short-term financial needs. Prime Fund
may also purchase corporate debt obligations maturing within 397 days from the
date of acquisition with a minimum rating of Aa or AA.
Great Hall Tax-Free Money Market Fund
Tax-Free Fund invests in debt obligations issued by or on behalf of any
state, territory or possession of the United States or the District of
Columbia or their political subdivisions, agencies or instrumentalities, and
participation interests therein, the interest on which is, in the opinion of
counsel for the issuer, wholly exempt from federal income taxation.
The types of obligations that Tax-Free Fund may purchase include bond
anticipation notes, construction loan notes, revenue anticipation notes and
tax anticipation notes that are Eligible Securities. Tax-Free Fund may also
invest in municipal bonds and participation interests therein, including
industrial development revenue bonds and pollution control revenue bonds, and
other types of tax-exempt municipal obligations, such as short-term discount
notes, all of which must be Eligible Securities.
Securities purchased by Tax-Free Fund mature within 397 days from the
date of purchase or carry variable or floating rates that are adjusted at
least every 397 days and have demand features and quality characteristics that
under applicable law and interpretations of such law permit the securities to
be treated as if they mature in 397 days or less from the date of purchase.
Bond anticipation notes are issued in anticipation of a later issuance
of bonds and are usually payable from the proceeds of the sale of the bonds
anticipated or of renewal notes. Construction loan notes, issued to provide
construction financing for specific projects, are often redeemed after the
projects are completed and accepted with funds obtained from the Federal
Housing Administration under "Fannie Mae" (Federal National Mortgage
Association) or "Ginnie Mae" (Government National Mortgage Association).
Revenue anticipation notes are issued by governmental entities in anticipation
of revenues to be received later in the then current fiscal year. Tax
B-3
<PAGE>
anticipation notes are issued by state and local governments in anticipation
of collection of taxes to finance the current operations of such governments.
These notes are generally repayable only from tax collections and often only
from the proceeds of the specific tax levy whose collection they anticipate.
Municipal bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They
are generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of 397 days at the time of issuance,
although a number of such issues now have variable or floating interest rates
and demand features that may permit Tax-Free Fund to treat them as having
maturities of less than 397 days. There are many variations in the terms of,
and the underlying security for, the various types of municipal bonds. General
obligation bonds are issued by states, counties, regional districts, cities,
towns and school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer system
construction, repair or improvement. Payment of these bonds is secured by a
pledge of the issuer's full faith and credit and taxing (usually property tax)
power.
Revenue bonds are payable solely from the revenues generated from the
operations of the facility or facilities being financed or from other non-tax
sources. These bonds are often secured by debt service revenue funds, rent
subsidies and/or mortgage collateral to finance the construction of housing,
highways, bridges, tunnels, hospitals, university and college buildings, port
and airport facilities, and electric, water, gas and sewer systems.
Industrial development revenue bonds and pollution control revenue bonds are
usually issued by local government bodies or their authorities to provide
funding for commercial or industrial facilities, privately operated housing,
sports facilities, health care facilities, convention and trade show
facilities, port facilities and facilities for controlling or eliminating air
and water pollution. Payment of principal and interest on such bonds is not
secured by the taxing power of the governmental body. Rather, payment is
dependent solely upon the ability of the users of the facilities financed by
the bonds to meet their financial obligations and the pledge, if any, of real
and personal property financed as security for payment.
Although Tax-Free Fund may invest more than 25% of its net assets in:
(a) municipal obligations whose issuers are in the same state; (b) municipal
obligations the interest upon which is paid solely from revenues of similar
projects; and (c) industrial development and pollution control revenue bonds
that are not variable or floating rate demand municipal obligations, it does
not presently intend to do so on a regular basis. The identification of the
issuer of a tax-exempt security for purposes of the 1940 Act 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 by the assets and revenues
of the non-governmental user, then such non-governmental user would be deemed
to be the sole issuer. Generally, the District of Columbia, each state, each
of its political subdivisions, agencies, instrumentalities and authorities,
and each multi-state agency of which a state is a member, is a separate
"issuer" as that term is used in the Prospectus and this Statement of
Additional Information with respect to Tax-Free Fund, and the non-governmental
user of facilities financed by industrial development or pollution control
revenue bonds is also considered to be an issuer.
Legislation to restrict or eliminate the federal income tax exemption
for interest on certain municipal obligations that may be purchased by Tax-
Free Fund has been introduced in Congress; other such legislation also may be
introduced in the future by Congress or by state legislatures. If enacted,
any such legislation could adversely affect the availability of municipal
obligations for Tax-Free Fund's portfolio. Upon the effectiveness of any such
legislation that materially affects the Tax-Free Fund's ability to achieve its
investment objective, the Board of Directors of Great Hall will reevaluate the
Fund's investment objective and submit to its shareholders for approval
necessary changes in its objectives and policies.
Variable and Floating Rate Demand Municipal Obligations. Variable and
floating rate demand municipal obligations are tax-exempt obligations that
provide for a periodic adjustment in the interest rate paid on the obligations
and permit the holder to demand payment of the unpaid principal balance plus
accrued interest upon a specified number of days' notice either from the
issuer or by drawing on a bank letter of credit or comparable guarantee issued
with respect to such obligations. The issuer of such an obligation may have a
corresponding right to prepay in its discretion the outstanding principal of
the obligation plus accrued interest upon notice comparable to that required
for the holder to demand payment.
B-4
<PAGE>
The variable or floating rate demand municipal obligations in which Tax-
Free Fund may invest are payable on demand at any time on no more than 30
days' notice or at specified intervals not exceeding 397 days and upon no more
than 30 days' notice. The terms of such obligations must provide that
interest rates are adjustable at intervals ranging from weekly up to annually.
The adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective obligations.
Such obligations are subject to the quality characteristics for municipal
obligations set forth above and described in the Prospectus. Tax-Free Fund
may invest, without limitation, in such obligations.
The principal and accrued interest payable to Tax-Free Fund on demand
will be supported by an irrevocable letter of credit or comparable guarantee
of a financial institution (generally a commercial bank) whose short-term
taxable debt meets the quality criteria for investment by Tax-Free Fund in
municipal obligations, except in cases where the security itself meets the
credit criteria of the Fund without such letter of credit or comparable
guarantee. Thus, although the underlying variable or floating rate demand
obligation may be unrated, Tax-Free Fund in such cases will have at all times
an alternate credit source to draw upon for payment with respect to such
security.
Tax-Free Fund may also purchase participation interests in variable or
floating rate obligations. Such participation interests will have, as part of
the participation agreement between the Fund and the selling financial
institution, a demand feature that permits Tax-Free Fund to demand payment
from the seller of the principal amount of the Fund's participation plus
accrued interest thereon. This demand feature always will be supported by a
letter of credit or comparable guarantee provided by the selling financial
institution. Such financial institution will retain a service fee, a letter
of credit fee and a fee for issuing commitments to purchase on demand in an
amount equal to the excess of the interest paid on the variable or floating
rate obligation in which Tax-Free Fund has a participation interest over the
negotiated yield at which the participation interest was purchased.
Accordingly, Tax-Free Fund will purchase such participation interests only
when the yield to the Fund, net of such fees, is equal to or greater than the
yield then available on other variable rate demand securities or short-term,
fixed rate, tax-exempt securities of comparable quality and where the fees are
reasonable in relation to the services provided by the financial institution
and the security and liquidity provided by the letter of credit or guarantee.
While variable and floating rate demand municipal obligations are
expected to have maturities in excess of 397 days, Great Hall currently
expects that Tax-Free Fund will exercise its right to demand payment of
principal and accrued interest on such an obligation if it no longer meets the
Fund's quality standards, unless, of course, the obligation can be sold for a
greater amount in the market.
Stand-By Commitments. Consistent with the requirement of Rule 2a-7,
Tax-Free Fund may also acquire "stand-by commitments" with respect to
obligations held in its portfolio. Under a "stand-by commitment," a dealer
agrees to purchase, at Tax-Free Fund's option, specified obligations at a
specified price. "Stand-by commitments" are the equivalent of a "put" option
acquired by Tax-Free Fund with respect to particular obligations held in its
portfolio.
The amount payable to Tax-Free Fund upon its exercise of a "stand-by
commitment" will normally be: (a) Tax-Free Fund's acquisition cost of the
obligation (excluding any accrued interest that Tax-Free Fund paid on its
acquisition), less any amortized market premium or plus any amortized market
or original issue discount during the period Tax-Free Fund owned the
obligation; plus (b) all interest accrued on the obligations since the last
interest payment date during the period such obligation is owned by Tax-Free
Fund. "Stand-by commitments" may be acquired when the remaining maturity of
the underlying obligation is greater than 60 days, but will be exercisable by
Tax-Free Fund only during the 60 day period before the maturity of such
obligation. Absent unusual circumstances, Tax-Free Fund will value the
underlying obligation on an amortized cost basis. Accordingly, the amount
payable by a dealer during the time a "stand-by commitment" is exercisable is
substantially the same as the value of the underlying obligation. Tax-Free
Fund's right to exercise "stand-by commitments" must be unconditional and
unqualified. A "stand-by commitment" is not transferable by Tax-Free Fund,
although it may sell the underlying obligation to a third party at any time.
Tax-Free Fund expects that "stand-by commitments" will generally be
available without the payment of any direct or indirect consideration.
However, if necessary and advisable, it may pay for "stand-by commitments"
either separately in cash or by paying a higher price for obligations that are
acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding "stand-by commitments" held in Tax-Free Fund's
portfolio may not exceed 1/2 of 1% of the value of Tax-Free Fund's total
assets calculated immediately after each "stand-by commitment" is acquired.
B-5
<PAGE>
Tax-Free Fund intends to enter into "stand-by commitments" only with
dealers, banks and broker-dealers that, in the opinion of Insight, present
minimum credit risks. Tax-Free Fund's reliance upon the credit of these
dealers, banks and broker-dealers is secured by the value of the underlying
obligations that are subject to the commitment. However, the failure of a
party to honor a "stand-by commitment" could have an adverse impact on the
liquidity of Tax-Free Fund during periods of rising interest rates.
Tax-Free Fund intends to acquire "stand-by commitments" solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a "stand-by commitment"
will not affect the valuation or maturity of the underlying obligation, which
will continue to be valued in accordance with the amortized cost method.
"Stand-by commitments" will be valued at zero in determining net asset value.
Where Tax-Free Fund pays directly or indirectly for a "stand-by commitment,"
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held. "Stand-by commitments" will not affect the
average weighted maturity of Tax-Free Fund's portfolio.
"When-Issued" Obligations. Tax-Free Fund may make commitments to
purchase municipal obligations on a "when-issued" basis, i.e., delivery and
payment for the obligations normally takes place at a date after the
commitment to purchase although the payment obligation and the coupon rate
have been established before the time the Fund enters into the commitment.
The settlement date usually occurs within one week of the purchase of notes
and within one month of the purchase of bonds. Great Hall intends that Tax-
Free Fund will make commitments to purchase obligations with the intention of
actually acquiring them, but may sell the obligations before settlement date
if such action is advisable or necessary as a matter of investment strategy.
At the time the Fund makes a commitment to purchase an obligation, it will
record the transaction and reflect the value of the obligation in determining
its net asset value. The Custodian will maintain on a daily basis a separate
account for the Fund consisting of cash or liquid debt securities with a value
at least equal to the amount of the Fund's commitments to purchase "when-
issued" obligations.
Obligations purchased on a "when-issued" basis or held in Tax-Free
Fund's portfolio are subject to changes in market value based not only upon
the public's perception of the creditworthiness of the issuer but also upon
changes in the level of interest rates. In the absence of a change in credit
characteristics, which, of course, will cause changes in value, the value of
portfolio investments can be expected to decline in periods of rising interest
rates and to increase in periods of declining interest rates. Therefore, if
to achieve higher interest income Tax-Free Fund remains substantially fully
invested at the same time that it has purchased obligations on a "when-issued"
basis, there will be a greater possibility that the market value of Tax-Free
Fund's assets will vary from $1.00 per share. See "Net Asset Value." However,
Tax-Free Fund does not believe that under normal circumstances its net asset
value or income will be affected by its purchase of obligations on a "when-
issued" basis.
When payment is made for "when-issued" securities, Tax-Free Fund will
meet its obligations from its then available cash flow, sale of securities
held in the separate account, sale of other securities or, although it would
normally not expect to do so, from sale of the "when-issued" securities
themselves (which may have a market value greater or less than the Fund's
obligation). Sale of securities to meet such obligations would involve a
greater potential for the realization of capital gains, which could cause Tax-
Free Fund to realize income not exempt from federal income taxation.
State and Municipal Lease Obligations. Tax-Free Fund is permitted to
invest in state and municipal lease obligations ("municipal leases").
Traditionally, municipal leases have been viewed by the SEC staff as illiquid
investments. However, subject to Board standards similar to the standards
applicable to restricted securities (as discussed in the Prospectus), Insight
may treat certain municipal leases as liquid investments and not subject to
the policy limiting investments in illiquid investments.
Municipal leases are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Municipal
leases may take the form of a lease, an installment purchase or conditional
sale contract or a participation certificate in such a lease or contract.
Municipal leases frequently have the special risks described below which are
not associated with general obligation or revenue bonds issued by public
bodies. In determining municipal leases in which the Fund will invest,
Insight will evaluate the credit rating of the lessee and the terms of the
lease. Additionally, Insight may require that certain municipal leases be
secured by a letter of credit or put arrangement with an independent financial
institution.
B-6
<PAGE>
The constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits, interest
rate limits and public sale requirements. Municipal leases have evolved as a
means for public bodies to acquire property and equipment without needing to
comply with all of the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations may be inapplicable for one
or more of the following reasons: (a) the inclusion in many municipal leases
of a "nonappropriation clause" that provides that the public body has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis; (b) the exclusion of a municipal lease from the
definition of indebtedness under relevant state law; or (c) the provision in
the municipal lease for termination at the option of the public body at the end
of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If a municipal lease is terminated by the public body for
nonappropriation or other reason not constituting a default under the lease,
the rights of the lessor or holder of a participation interest therein are
limited to repossession of the leased property without any recourse to the
general credit of the public body. The disposition of the leased property by
the lessor in the event of termination of the lease might, in many cases,
prove difficult or result in a loss.
Municipal leases represent a relatively new type of financing that has
not yet developed the depth of marketability associated with more conventional
municipal obligations. Therefore, as mentioned above, municipal leases held
by Tax-Free Fund will be treated as illiquid unless they are determined to be
liquid pursuant to the aforementioned liquidity guidelines. Additionally, the
lack of an established trading market for municipal leases may make the
determination of fair market value more difficult.
B-7
<PAGE>
INVESTMENT RESTRICTIONS
In addition to the investment objectives and those policies identified
as fundamental in the Prospectus, each of the Funds has adopted the following
investment restrictions and limitations, which may not be changed without
approval of shareholders owning a majority of the outstanding shares of each
such Fund, which as used in the Prospectus and this Statement of Additional
Information means the lesser of: (a) 67% or more of the shares present at a
shareholders' meeting if more than 50% of such Fund's shares are represented
at the meeting in person or by proxy; or (b) more than 50% of the outstanding
shares of such Fund.
None of the Funds may:
(1) purchase common stocks, preferred stocks, warrants or other equity
securities;
(2) purchase securities, if immediately after such purchase more than
5% of its total assets would be invested in the securities of any one issuer
(excluding securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities), except that, subject to applicable SEC rules
(see the discussion of Rule 2a-7 below), up to 25% of its total assets may be
invested without regard to this 5% limitation;
(3) invest more than 25% of its total assets in any one industry,
except that (i) with respect to Tax-Free Fund, this restriction shall not
apply to municipal obligations; (ii) with respect to Prime Fund and Tax-Free
Fund this restriction shall not apply to securities issued or guaranteed by
United States banks or United States branches of foreign banks that are
subject to the same regulation as United States banks; and (iii) this
restriction shall not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(4) invest more than 5% of its assets in securities of issuers which,
with their predecessors, have a record of less than three years continuous
operation. (Securities of such issuers will not be deemed to fall within this
limitation if they are guaranteed by an entity in continuous operation, with
its predecessor, for more than three years);
(5) borrow money, except for temporary or emergency non-investment
purposes such as to accommodate abnormally heavy redemption requests, and then
only in an amount not exceeding 5% of the value of its total assets at the
time of borrowing;
(6) pledge, mortgage or hypothecate its assets, except that to secure
borrowings permitted by (5) above, it may pledge securities having a market
value at the time of such pledge not exceeding 15% of its total assets;
(7) sell securities short or purchase any securities on margin, except
for such short-term credits as are necessary for clearance of portfolio
transactions;
(8) write, purchase or sell put or call options, straddles, spreads or
any combination thereof except that Tax-Free Fund may acquire rights to resell
obligations as set forth herein under "Great Hall Tax-Free Money Market Fund -
Variable and Floating Rate Demand Municipal Obligations" and "Stand-By
Commitments";
(9) underwrite any securities issued by others;
(10) purchase or sell real estate or real estate mortgage loans
(although the Funds may invest in obligations secured by interests in real
estate), commodities, commodity contracts (including futures contracts), real
estate partnership interests and oil, gas and mineral leases;
(11) make loans, other than by entering into repurchase agreements and
through the purchase of other permitted investments in accordance with its
investment objective and policies; provided, however, that it may not enter
into a repurchase agreement if, as a result thereof, more than 10% of its
total assets would be subject to repurchase agreements maturing in more than
seven days;
(12) invest in companies for the purpose of exercising control or
management of another company; or
B-8
<PAGE>
(13) invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
If the issuer of a security is within a given industry and the security
is guaranteed by an entity within a different industry, the industry of the
guarantor rather than that of the issuer shall be deemed to be the industry
for purposes of applying the test in investment restriction (3) above.
With respect to the application of the 5% limitation contained in
investment restriction (2) above to Tax-Free Fund, the non-governmental user
of facilities financed by industrial development or pollution control revenue
bonds and a financial institution issuing a letter of credit or comparable
guarantee supporting a variable rate demand municipal obligation are
considered to be issuers. In addition to the above restrictions and
limitations, Tax-Free Fund may not purchase securities that are not municipal
obligations and the income from which is subject to federal income tax, if
such purchase would cause more than 20% of its total assets to be invested in
such securities, except that Tax-Free Fund may invest more than 20% of its
total assets in such securities during other than normal market conditions.
Bonds subject to the alternative minimum tax are considered taxable for this
test.
Each Fund is managed in accordance with Rule 2a-7 under the 1940 Act,
which imposes strict portfolio quality, maturity and diversification standards
on money market funds. Immediately after the purchase of any investment by a
Fund (other than a U.S. Government security or a security that is subject to a
"guarantee"), the Fund may not have invested more than 5% of its total assets
in securities issued by such issuer, except for certain temporary investments.
Securities subject to guarantees are not subject to this test. However,
immediately after a Fund acquires a security subject to a guarantee, then with
respect to 75% of the Fund's total assets, not more than 10% of the Fund's
total assets may be invested in securities either issued or guaranteed by such
guarantor.
With respect to investment restriction (13) above, "investment
companies" refers only to companies registered as investment companies under
the 1940 Act.
In addition to the fundamental limitations set forth above, as a non-
fundamental policy, each Fund may not invest more than 10% of its net assets
in all forms of illiquid investments, as set forth in the Prospectus under
"Illiquid Investments."
With respect to each of the Funds, if a percentage restriction or
limitation is adhered to at the time of investment, a later increase or
decrease in such percentage resulting from a change in values or net assets
will not be considered a violation thereof.
B-9
<PAGE>
TAXES
Taxation of the Funds-In General
Each of the Funds has qualified as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and intends to continue to do so. To so qualify, a Fund must, among
other things; (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing in such
stock, securities or currencies (the "90% test"); and (b) satisfy certain
diversification requirements at the close of each quarter of such Fund's
taxable year. Furthermore, in order to be entitled to pay exempt-interest
dividends to shareholders, Tax-Free Fund must satisfy the requirement that, at
the close of each quarter of its taxable year, at least 50% of the value of
its total assets consists of obligations the interest on which is exempt from
federal income tax ("tax-exempt obligations").
As a regulated investment company, a Fund will not be liable for federal
income taxes on the part of its taxable net investment income and net capital
gains, if any, that it distributes to shareholders if at least 90% of its net
investment income (including tax-exempt income net of any disallowed
deductions relating thereto) and net short-term capital gain for the taxable
year is distributed. However, if for any taxable year a Fund does not satisfy
the requirements of Subchapter M of the Code, all of its taxable income will
be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of such Fund's current or
accumulated earnings and profits.
Each Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year a Fund
must distribute: (a) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year; (b) at least 98%
of its capital gain net income for the twelve-month period ending on
October 31 (or December 31, if such Fund so elects); and (c) any portion (not
taxed to such Fund) of the respective balances from the prior year. Each Fund
intends to make sufficient distributions to avoid this 4% excise tax.
If Tax-Free Fund disposes of a tax-exempt obligation that it acquired
after April 30, 1993 at a market discount, it must recognize any gain it
realizes on the disposition as ordinary income (and not as capital gain) to
the extent of the accrued market discount.
If a shareholder receives an exempt-interest dividend with respect to
any share and sells or exchanges such share after holding it for six months or
less, any loss on the sale or exchange of such share will be disallowed to the
extent of the amount of such exempt-interest dividend. In certain limited
instances, the portion of Social Security benefits received by shareholders
that are subject to federal income tax may be affected by the amount of tax-
exempt interest income, including exempt-interest dividends, received by
shareholders of the Fund.
Distributions of exempt-interest dividends by Tax-Free Fund may be
subject to state and local taxes even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations that, if
realized by the shareholder directly, would be exempt from such taxes. Tax-
Free Fund will report to its shareholders annually after the close of its
taxable year the percentage and source, on a state-by-state basis, of interest
income earned on tax-exempt obligations held by such Fund during the preceding
year. Shareholders of Tax-Free Fund are advised to consult their tax advisers
concerning the application of state and local taxes.
Under the Code, investors will not be allowed to deduct interest on
indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends to the extent such
interest expenses relate to exempt-interest dividends received by the
shareholder. State laws may also restrict the deductibility of interest on
indebtedness incurred or continued to purchase or carry shares of a Fund.
Indebtedness may be allocated to shares of a Fund even though not directly
traceable to the purchase of such shares.
Tax-Free Fund may acquire variable and floating rate demand municipal
obligations and "stand-by commitments" or "puts" from banks and municipal
securities dealers. See "Great Hall Tax-Free Money Market Fund - Variable and
Floating Rate Demand Municipal Obligations" and "Stand-By Commitments" in this
Statement of Additional Information. With respect to each such acquisition,
an opinion of issuer's counsel will be issued that Tax-Free Fund will be
treated for federal income tax purposes as the owner of the municipal
obligations acquired subject to such demand features or to such stand-by
commitments; the interest on such municipal obligations will be
B-10
<PAGE>
tax-exempt to Tax-Free Fund; and the purchase prices of municipal obligations
subject to stand-by commitments must be allocated between such securities and
stand-by commitments based upon their relative fair market values.
A Fund, or a shareholder's broker with respect to a Fund, is required to
withhold federal income tax at a rate of 31% of the dividends, capital gains
distributions and proceeds of redemptions if a shareholder fails to furnish
such Fund with a correct taxpayer identification number ("TIN") or to certify
that the shareholder is exempt from such withholding or if the Internal
Revenue Service notifies such Fund or broker that the shareholder has provided
such Fund with an incorrect TIN or failed to properly report dividend or
interest income for federal income tax purposes. Any such withheld amount
will be fully creditable on each shareholder's individual federal income tax
return. An individual's TIN is his or her social security number.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Funds and their shareholders. No
attempt is made to present a detailed explanation of the federal or state
income tax treatment of the Funds or their shareholders, and this discussion
is not intended as a substitute for careful tax planning.
Each investor is advised to consult his or her tax adviser regarding
specific questions as to federal, state, local and foreign taxation.
PORTFOLIO TRANSACTIONS
As provided in the investment advisory agreement in effect between
Insight and the Funds, Insight makes investment decisions and decisions as to
the execution of portfolio transactions for the Funds, subject to the general
supervision of the Board of Directors of Great Hall. At times, investment
decisions may be made to purchase or sell the same investment security for
more than one Fund, in which case the transactions will be allocated as to
amount and price in a manner considered equitable to each Fund. In some cases
this procedure may possibly have a detrimental effect on the price or volume
of the security as far as one or more Funds are concerned. On the other hand,
the ability of the Funds to participate in volume transactions may produce
better executions for the Funds in some cases. It is the opinion of the Board
of Directors that the benefits available because of Insight's organization
outweigh any disadvantages that may arise from exposure to simultaneous
transactions.
Under the 1940 Act, persons affiliated with Great Hall are prohibited
from dealing with Great Hall as a principal in the purchase and sale of
investments. Since over-the-counter transactions are usually principal
transactions, affiliated persons of Great Hall may not serve as a dealer in
connection with such transfers or commitments. The 1940 Act also prohibits
Great Hall from purchasing a security being publicly underwritten from a
syndicate in which any affiliated person is a principal underwriter except in
accordance with certain limitations. Furthermore, Great Hall may not use any
affiliated person as a broker or dealer in executing portfolio transactions
without complying with the limitations imposed by the rules of the SEC, which
rules require the commissions, fees or other remuneration received by such
affiliated broker or dealer be: (a) reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or dealers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time;
and (b) at least as favorable as commissions contemporaneously charged by such
affiliated broker or dealer on comparable transactions for its most favored
comparable unaffiliated customers.
Most purchase and sale transactions with respect to a Fund are with the
issuer or an underwriter or with major dealers of securities acting as
principals. Such transactions are normally on a net basis and generally do
not involve payment of brokerage commissions. However, the cost of securities
purchased from an underwriter normally includes a commission paid by the
issuer to the underwriter. Purchases or sales from or to dealers will
normally reflect the spread between bid and ask prices.
Insight, in effecting purchases and sales of portfolio securities for
the accounts of the Funds, will place orders in such manner as in its opinion
will offer the best price and market for the execution of each transaction.
Given the best price and market obtainable, it is the practice of the Funds
when purchasing through dealers to select them primarily on the basis of the
furnishing by such dealers, in addition to satisfactory execution of the
transaction, of research information and statistical and other services to
Insight. It is not always possible to place a dollar value on information and
services received from dealers. Since it is only supplementary to Insight's
own research efforts, the receipt of research information is not expected to
reduce significantly Insight's expenses. Such Funds may also
B-11
<PAGE>
consider, subject to the requirement of best execution, dealers' sales of the
Funds' shares when selecting dealers to execute portfolio transactions. While
Insight will be primarily responsible for the placement of such Funds'
business, the policies and practices of the Funds in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Board of Directors of Great Hall.
Because brokerage commissions as such are not usually paid in connection
with the purchase or sale of the securities in which the Funds invest and
because transactional costs are small, portfolio turnover is not expected to
materially affect net asset value or yields. None of the Funds paid any
brokerage commissions during the year ended July 31, 1998. Securities with
maturities of less than one year are excluded from required portfolio turnover
rate calculations, and therefore, each Fund's turnover rate for reporting
purposes will be zero.
MANAGEMENT AND DISTRIBUTION AGREEMENTS
Investment Adviser; Investment Advisory Agreement
Insight serves as each Fund's investment adviser. Insight is a wholly-
owned subsidiary of Dain Rauscher Corporation ("DRC").
Pursuant to an investment advisory agreement (the "Advisory Agreement"),
Insight performs and bears the internal cost of research, statistical analysis
and continuous supervision of the investment portfolio of each Fund and
furnishes office facilities and certain clerical and administrative services
to the Funds. In addition, Insight bears all promotional expenses, including
the cost of printing and distributing prospectuses utilized for promotional
purposes. Other expenses are borne by whichever Fund incurs the expense and
such expenses include, but are not limited to, taxes, interest, brokerage fees
and commissions, and costs and expenses associated with the following matters
and services: registration and qualification of Great Hall, the Funds and
their shares with the SEC and the various states; services of custodians,
transfer agent, dividend disbursing agent, accounting services agents,
shareholder services agents, independent auditors and outside legal counsel;
maintenance of corporate existence; preparation, printing and distribution of
prospectuses to existing Fund shareholders; services of Great Hall directors
who are not employees of Insight or of the Distributor or any of their
affiliates; directors' and shareholders' meetings, including the printing and
mailing of proxy materials; insurance premiums for fidelity and other
coverage; issuance and sale of Fund shares (to the extent not borne by the
Distributor under its agreement with Great Hall); redemption of Fund shares;
printing and mailing of stock certificates representing shares of the Funds;
association membership dues; preparation, printing and mailing of shareholder
reports; and portfolio pricing services, if any. Expenses borne by Great Hall
and attributable to only one Fund will be allocated to that Fund; expenses
that are not specifically allocable will be allocated to each Fund in a manner
and on a basis determined in good faith by the Board of Directors of Great
Hall, including a majority of the Directors who are not "interested" persons
of Great Hall or Insight, to be fair and equitable.
Under the Advisory Agreement, Insight receives a monthly advisory fee
based upon the average value of each Fund's daily net assets. The Tax-Free
Fund pays Insight a fee at an annual rate of .50% of its average daily net
assets. The Prime Fund and the Government Fund each pay an advisory fee that
is scaled downward as net assets increase. The fee for the Prime Fund is paid
at an annual rate of .55% on average daily net assets up to $700 million, .50%
on average daily net assets of over $700 million up to $1.2 billion, .45% on
average daily net assets of over $1.2 billion up to $2 billion, and .40% on
average daily net assets of over $2 billion. The fee for the Government Fund
is paid at an annual rate of .50% on average daily net assets up to $100
million, .40% on average daily net assets of over $100 million up to $300
million, and .35% on average daily net assets over $300 million. During the
year ended July 31, 1998 Prime Fund, Government Fund and Tax-Free Fund paid
advisory fees of $17,513,185, $963,402 and $2,371,641, respectively. During
the year ended July 31, 1997, Prime Fund, Government Fund and Tax-Free Fund
paid advisory fees of $13,295,885, $796,320 and $2,007,198, respectively.
During the year ended July 31, 1996, Prime Fund, Government Fund and Tax-Free
Fund paid advisory fees of $9,571,808, $636,499 and $1,925,659, respectively.
The Advisory Agreement continues in effect from year to year, if
specifically approved at least annually by a vote cast in person at a meeting
called for such purpose by a majority of the Directors of Great Hall, and a
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of Great Hall or Insight ("Independent Directors"). The Advisory
Agreement may be terminated by either party thereto, by the Independent
Directors or by a vote of the holders of a majority of the outstanding
securities of Great Hall, at any time, without penalty, upon 60
B-12
<PAGE>
days' written notice, and automatically terminates in the event of an
assignment. Termination will not affect the right of Insight to receive
payment of any unpaid balance of the compensation earned prior to termination.
The Distributor
The Funds are distributed by Dain Rauscher Incorporated (the
"Distributor"), a member firm of the New York Stock Exchange (the "NYSE"), the
National Association of Securities Dealers, Inc. and a wholly owned subsidiary
of DRC. The Funds have agreed to indemnify the Distributor and its
affiliates, to the extent permitted by applicable law, against certain
liabilities under the Securities Act of 1933.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is calculated separately for
each Fund. The assets and liabilities of each Fund are determined in
accordance with generally accepted accounting principles and the applicable
rules and regulations of the SEC. Assets and liabilities attributable to a
specific Fund are allocated to that Fund. Assets and liabilities not readily
identifiable to a Fund will be allocated among the Funds in a manner and on a
basis determined in good faith pursuant to procedures established by the Board
of Directors, including a majority of the Directors who are not "interested
persons" of Great Hall or Insight, to be fair and equitable.
The Funds value their portfolio securities using the amortized cost
method. This method involves valuing a security at its cost and thereafter
accruing any discount or premium at a constant rate to maturity. By declaring
these accruals to a Fund's shareholders in the daily dividend, the value of
such Fund's assets and, thus, its net asset value per share, will generally
remain constant. Although this method provides certainty in valuation, it may
result in periods during which the value of a Fund's securities, as determined
by amortized cost, is higher or lower than the price such Fund would receive
if it sold the securities. During such periods, the yields on shares of such
Fund may differ somewhat from that obtained in similar funds with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of their portfolio securities. For
example, if the use of amortized cost by any Fund resulted in lower aggregate
portfolio value on a particular day, prospective investors in such Fund would
be able to obtain a somewhat higher yield than would result from investments
in a similar fund utilizing solely market values. The converse would apply
during a period of rising interest rates.
In connection with the use of the amortized cost method, the Funds
maintain a dollar-weighted average portfolio maturity of 90 days or less and
purchase only portfolio securities having remaining maturities of 397 days or
less, except for the Government Fund, which voluntarily maintains a dollar-
weighted average portfolio maturity of 60 days or less. With respect to Tax-
Free Fund, and as described under "Great Hall Tax-Free Money Market
Fund -- Variable and Floating Rate Demand Municipal Obligations" in this
Statement of Additional Information, securities having a stated maturity of
more than 397 days may be purchased by Tax-Free Fund if they have demand and
variable or floating rate features, together with appropriate quality
characteristics, that permit determination that such securities may be deemed
to have a maturity of less than 397 days. The Board of Directors of Great Hall
has also established procedures designed to stabilize, to the extent reasonably
possible, each Fund's net asset value per share, as computed for purposes of
sales and redemptions, at $1.00. Such procedures include review of each
Fund's portfolio holdings by the Board of Directors of Great Hall at such
intervals as it may deem appropriate to determine whether each Fund's net
asset value calculated by using available market quotations deviates from
$1.00 per share and, if so, whether such deviation may result in material
dilution or may be otherwise unfair to existing shareholders. With respect to
Tax-Free Fund, these procedures also include a review by Insight, in
accordance with policies established by the Board of Directors of Great Hall
and not less frequently than monthly, of the quality of certain municipal
obligations having variable or floating interest rates and demand features
that permit Tax-Free Fund to calculate the maturity of such obligations to a
point in time prior to their stated maturity. In the event that the Board of
Directors of Great Hall determines that a material deviation from net asset
value exists, the Board will take such corrective action as it deems necessary
and appropriate, which action might include selling portfolio securities prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, or establishing net asset values per share by
using available market quotations.
The portfolio securities in which each Fund invests fluctuate in value,
and hence the net asset value per share (and therefore, the public offering
price) of each Fund may also fluctuate. On July 31, 1998, the net asset
value and the maximum public offering price per share for the Funds were
calculated as follows:
B-13
<PAGE>
Prime Fund
Net Assets ($4,844,351,715) = Net Asset Value Per Share ($1.00)
-------------------------------------
Shares Outstanding (4,844,351,715)
Government Fund
Net Assets ($228,929,484) = Net Asset Value Per Share ($1.00)
-------------------------------------
Shares Outstanding (228,929,484)
Tax-Free Fund
Net Assets ($545,848,666) = Net Asset Value Per Share ($1.00)
-------------------------------------
Shares Outstanding (545,848,666)
CALCULATION OF PERFORMANCE DATA
Yield
As stated in the Prospectus, each Fund from time to time may advertise
its yield.
The current yield of the Funds is computed by determining the change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of a seven-day period,
and dividing the change by the value of the account at the beginning of the
base period to obtain the base period return, and then multiplying the base
period return by (365/7), with the resulting yield figure carried to at least
the nearest hundredth of one percent.
For the seven-day period ended July 31, 1998, the current yields of
Prime Fund, Government Fund and Tax-Free Fund were 5.06%, 4.98% and 3.03%,
respectively.
The effective or compounded yield for the Funds is computed by
determining the change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the
beginning of a seven-day period, and dividing the change by the value of the
account at the beginning of the base period to obtain the base period return,
and then compounding the base period return by adding 1, raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result, according
to the following formula:
Effective yield = [(Base period return + 1) 365/7] - 1
For the seven-day period ended July 31, 1998, the effective yields of
Prime Fund, Government Fund and Tax-Free Fund were 5.19%, 5.10% and 3.08%,
respectively.
The taxable equivalent yield of Tax-Free Fund is calculated by applying
the stated income tax rate only to that portion of the Tax-Free Fund's seven-
day yield or effective yield that is exempt from taxation. The stated income
tax rate is subtracted from the number 1 (e.g., 1 minus 36% equals 64%), and
the tax-exempt portion of the yield is divided by the difference. The result
is then added to that portion of Tax-Free Fund's yield, if any, that is not
tax-exempt.
Assuming federal marginal tax rates of 28%, 31%, 36% and 39.6%, the
taxable equivalent current yields of Tax-Free Fund for the seven-day period
ended July 31, 1998 were 4.21%, 4.39%, 4.73% and 5.02%, respectively.
Assuming the same federal marginal tax rates, the taxable equivalent effective
yields of Tax-Free Fund for the seven-day period ended July 31, 1998 were
4.27%, 4.46%, 4.81% and 5.10%, respectively.
B-14
<PAGE>
DIRECTORS AND OFFICERS
Directors and officers of Great Hall, together with information as to
their principal occupations during the past five years, are set forth below.
Except as otherwise set forth below, the address of each officer and director
is the same as that of Great Hall - 60 South Sixth Street, Minneapolis,
Minnesota 55402.
Principal Occupations During the
Name and Address Position Past Five Years and Other Affiliations
- ---------------- -------- --------------------------------------
T. Geron ("Jerry") Bell Director President of the Minnesota Twins
34 Puckett Place Baseball Club
Minneapolis, MN 55415 Incorporated since 1987.
Sandra J. Hale Director President of Enterprise Management,
2308 West Lake of the Int'l. since 1991; Minnesota
Isles Pkwy. Commissioner of Administration from
Minneapolis, MN 55405 1982 to 1990.
Ron James Director Formerly President and Chief Executive
300 Sycamore Lane Officer of Ceridian Corporation-Human
Plymouth, MN 55441 Resources Group (January 1996-January
1998); Vice-President - Minnesota of
U.S. West Communications from 1990 to
December 1995; Vice President and
General Manager-Large Business Markets
of U.S. West Communications from 1987
to 1990.
Jay H. Wein Director Independent consultant since April
5305 Elm Ridge Circle 1995; Director of Information
Excelsior, MN 55331 Advantage, Inc. since 1992 and
Chairman from 1992 to April 1995;
Retired in August 1989 after 15 years
as Office Managing Partner of the
Minneapolis/St. Paul Office of Arthur
Andersen & Co.
J. Scott Spiker Chief Executive Senior Executive Vice President of the
Officer Distributor; Chief Executive Officer
and Director of Insight; Senior Vice
President and Business Manager,
Employee Benefit Services, of Norwest
Corporation from 1990 through January
1994; Product Manager, Institutional
Collective Funds, of Norwest
Corporation from 1989 through January
1994.
Raye C. Kanzenbach Chief Investment Managing Director and Chief Investment
Officer Officer of Insight; prior to 1991,
Director, Senior Vice President and
Secretary of Insight Bond Management,
Inc. since 1983.
Julie K. Getchell Chief Financial President and Chief Operating Officer
Officer of Insight and Senior Vice President
of the Distributor.
B-15
<PAGE>
Principal Occupations During the
Name and Address Position Past Five Years and Other Affiliations
- ---------------- -------- --------------------------------------
Matthew L. Thompson Secretary Partner of Faegre & Benson LLP, Great
2200 Norwest Center Hall's general counsel, since May
90 South Seventh Street 1995; Vice President, Assistant
Minneapolis, MN 55402 Secretary and Corporate/Fund Counsel
of DRC from January 1994 to May 1995;
prior thereto, Partner of Dorsey &
Whitney since 1993 and Associate of
Dorsey & Whitney from 1985 through
1992.
Thomas D. Vogel Compliance Vice President and Controller of
Office Insight and the Distributor's Business
Services Group; Assistant Controller
of Insight from 1993 to 1995.
The annual compensation of each Director is $6,000 plus $1,000 for each
meeting attended. No compensation is paid by Great Hall to its officers. The
following table sets forth for such period the aggregate compensation
(excluding expenses) paid by Great Hall to its directors during the fiscal
year ended July 31, 1998:
Pensions or Retirement
Aggregate Benefits Accrued
Compensation as part of
Name of Director from Great Hall Great Hall Expenses
---------------- --------------- -------------------
T. Geron (Jerry) Bell $10,000 None
Sandra J. Hale $10,000 None
Ron James $10,000 None
Jay H. Wein $10,000 None
Additional directors of Insight are as follows:
Name Other Positions
- ----------------------- -------------------------------------
Irving Weiser Chairman, Chief Executive Officer and
President of the Distributor
John C. Appel Vice Chairman and Chief Financial
Officer of the Distributor
Ronald A. Tschetter Senior Executive Vice President of
the Distributor (Private Client Group)
Nelson D. Civello Senior Executive Vice President of
the Distributor (Fixed Income Capital
Markets Group)
Kenneth J. Wessels Senior Executive Vice President of the
Distributor (Equity Capital Markets
Group)
B-16
<PAGE>
GENERAL INFORMATION
Under the terms of the Custodian Agreement, Norwest Bank Minnesota, N.A.
(the "Custodian") holds and safekeeps all of the assets of each Fund. For its
services, the Custodian receives from each Fund a monthly fee based upon the
average market value of such Fund's securities held in custody plus securities
transaction charges; it is also reimbursed for certain out-of-pocket expenses.
Under the terms of an Investment Account Agreement, Investors Fiduciary
Trust Company (the "Fund Accounting Agent") performs necessary investment
accounting and recordkeeping services for the Fund. For its services, the
Fund Accounting Agent is paid a monthly fee and is reimbursed for certain out-
of-pocket expenses.
Under the terms of the Transfer Agency Agreement, PFPC, Inc. (the
"Transfer Agent") maintains the shareholder account records for each Fund,
handles certain communications between shareholders and each Fund, distributes
dividends and distributions payable by each Fund and produces statements with
respect to account activity for each Fund and its shareholders. For these
services, the Transfer Agent receives a flat monthly fee and is also
reimbursed for certain out-of-pocket expenses.
The Distributor also performs certain shareholder account services for
the Funds pursuant to a Shareholder Account Service Agreement. Under the
terms of the Shareholder Account Service Agreement, the Distributor disburses
or credits all proceeds of redemptions, dividends and other distributions to
shareholders, handles certain communications between shareholders and each
Fund, prepares shareholder records, maintains a master account with the
Transfer Agent on behalf of shareholders and performs other related services.
For its services, the Distributor receives a monthly fee computed on the basis
of the number of shareholder accounts that are maintained for each Fund during
the month and also is reimbursed for certain out-of-pocket expenses.
Great Hall maintains accounting records that specifically allocate
assets and liabilities on a series by series basis. The shares of each series
represent an undivided interest in the assets and liabilities specifically
allocated to that series. Creditors and other persons contracting with Great
Hall with respect to a series may look solely to the assets of that series to
satisfy claims against Great Hall.
All Fund shares are the same class and are freely transferable. Each
share has equal dividend rights and is entitled to one vote at all shareholder
meetings. Separate votes are taken by each series of Great Hall except to the
extent that the 1940 Act requires shares of all series to be voted in the
aggregate. Shares have non-cumulative voting rights, so that the holders of
more than 50% of the shares can, if they choose to do so, elect all the
directors of Great Hall, in which event the holders of the remaining shares
will be unable to elect any person as a director. Whenever the approval of a
majority of the outstanding shares of a series of Great Hall is required in
connection with shareholder approval of an investment advisory agreement,
changes in the investment objectives, policies or limitations of that series,
or changes in the distribution expense plan, a "majority" shall mean the vote
of the lesser of: (a) 67% or more of the shares of such series present at a
meeting, if the holders of more than 50% of the outstanding shares of such
series are present in person or by proxy; or (b) more than 50% of the
outstanding shares of such series. Dain Rauscher Incorporated is the record
owner of all the shares of each Fund. As of November 5, 1998, Paul G. Allen,
110 110th Ave. N.E., Bellevue, Washington 98004, was the beneficial owner of
22.5% of Prime Fund's shares, William B. King, Private Business Incorporated,
P.O. Box 1603, Brentwood, Tennessee 37024, was the beneficial owner of 5.1% of
Government Fund's shares, and William L. Grewcock, 2123 Mullen Road, Omaha,
Nebraska 68124, was the beneficial owner of 11.5% of Tax-Free Fund's shares.
Depending on prevailing economic and market conditions, the presence of one or
more large beneficial owners in a Fund could pose certain risks to the Fund
and its other shareholders. For example, the presence of such a shareholder
could raise liquidity concerns which could require the Fund to invest in a
manner that may not optimize investment returns. As of the date of this
Statement of Additional Information, Insight does not believe that the
presence of any of the aforementioned beneficial owners poses such a risk.
Great Hall is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders, and does not intend
to hold such meetings. The Board of Directors may convene shareholder
meetings when it deems appropriate. In addition, if a regular meeting of
shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding three percent or more of the voting shares
of Great Hall may demand a regular meeting of shareholders by written notice
of demand given to the chief executive officer or the chief
B-17
<PAGE>
financial officer of Great Hall. Within 90 days after receipt of the demand,
a regular meeting of shareholders must be held at the expense of Great Hall.
Irrespective of whether a regular meeting of shareholders has been held during
the immediately preceding 15 months, in accordance with Section 16(c) of the
1940 Act, the Board of Directors of Great Hall shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the record holders of not less
than 10% of the outstanding shares, and Great Hall will assist in
communications with other shareholders as required by the 1940 Act.
Under Minnesota law, the Board of Directors has overall responsibility
for managing Great Hall in good faith, in a manner reasonably believed to be
in the best interests of Great Hall, and with the care an ordinarily prudent
person in a like position would exercise in similar circumstances.
Under Minnesota law, directors owe Great Hall and its shareholders
certain fiduciary duties, including a duty of "loyalty" (to act in good faith
and in the best interests of Great Hall) and a duty of "care" (to act with the
care that a reasonably prudent person would exercise under similar
circumstances). Minnesota law authorizes corporations to eliminate the
personal monetary liability of directors to the corporation or its
shareholders for breach of the duty of "care." Directors of corporations
adopting such a limitation provision still owe the corporation this duty of
"care," but under most circumstances cannot be sued for monetary damages for
breaches of such duty. The Articles of Incorporation of Great Hall limit the
liability of directors to the fullest extent permitted by law.
The directors of Great Hall remain fully liable (including possibly for
monetary damages) for breaches of their duty of "loyalty," for self-dealing,
for bad faith and intentional misconduct, and for violations of the 1933 Act,
the Securities Exchange Act of 1934, and certain provisions of Minnesota
corporation law. Additionally, the 1940 Act prohibits limiting a director's
liability for willful misfeasance, bad faith, gross negligence, or reckless
disregard of the director's duties in the conduct of the director's office,
and it is uncertain whether and to what extent directors remain liable for
monetary damages for violations of the 1940 Act. The SEC staff has taken the
position that investment company directors remain liable for monetary damages
under certain circumstances.
Upon issuance and sale in accordance with the terms of the Funds'
Prospectus and Statement of Additional Information, each share of a Fund will
be fully paid and non-assessable. Shares have no preemptive, subscription or
conversion rights and are redeemable as set forth under "How To Redeem Shares"
in the Prospectus. In the event of the dissolution or liquidation of Great
Hall, the holders of the shares of any Fund are entitled to receive, as a
class, the underlying assets of such Fund available for distribution to
shareholders.
COUNSEL AND AUDITORS
Faegre & Benson LLP, 2200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, serves as Great Hall's general counsel.
Lindquist & Vennum PLLP, 4200 IDS Center, 80 South Eighth Street, Minneapolis,
Minnesota 55402, serves as counsel to Great Hall's disinterested directors.
KPMG Peat Marwick LLP, 90 South Seventh Street, 4200 Norwest Tower,
Minneapolis, Minnesota 55402, has been selected as the independent auditors of
Great Hall for its fiscal year ending July 31, 1999.
FINANCIAL AND OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not
contain all the information included in Great Hall's Registration Statement
filed with the SEC under the 1933 Act and the 1940 Act (the "Registration
Statement") with respect to the securities offered by the Prospectus and this
Statement of Additional Information. Certain portions of the Registration
Statement have been omitted from the Prospectus and this Statement of
Additional Information pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits thereto may be examined at the
office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Statement of
Additional Information as to any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
B-18
<PAGE>
APPENDIX
RATINGS OF INVESTMENTS
The following is a description of Standard & Poor's Corporation ("S&P")
and Moody's Investors Service, Inc. ("Moody's") commercial paper, loan, note
and bond ratings. To the extent that ratings accorded by S&P or Moody's may
change as a result of changes in such organizations, the Funds will attempt to
use comparable rating standards for their permissible investments.
Description of Moody's Commercial Paper, Loan and Note Ratings.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Repayment capacity will normally be evidenced by the following
characteristics:
bullet Leading market positions in well established industries.
bullet High rates of return on funds employed.
bullet Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
bullet Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
bullet Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally 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 alternative
liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Loans bearing the designation MIG-1 by Moody's are of the best quality,
enjoying strong protection from established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
Loans bearing the designation of MIG-2 are of high quality, with margins
of protection ample although not so large as the preceding group.
Loans bearing the designation of MIG-3 are of favorable quality. All
security elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
Description of S&P's Commercial Paper and Municipal Note Ratings
The rating A is the highest commercial paper rating assigned by S&P.
Issues in this category have the greatest capacity for timely payment and are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
<PAGE>
The designation A-1 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.
The designation A-2 indicates that the capacity for timely payment is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
The designation A-3 indicates a satisfactory capacity for timely
payment. However, issues with this designation are somewhat more vulnerable
to the adverse effects of changes in circumstances than issues carrying the
higher designations.
Municipal notes rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issuers determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
Municipal notes rated SP-2 have a satisfactory capacity to pay principal
and interest.
Municipal notes rated SP-3 have a speculative capacity to pay principal
and interest.
Description of S&P's Bond Ratings
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in a small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Although they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher-rated
categories.
BB, B, CCC, CC, C-Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Moody's Bond Ratings
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt-edged." 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.
A-2
<PAGE>
Aa-Bonds which are rated Aa are judged 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 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
with respect to Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Within each rating classification from Aa through B, Moody's has
assigned the numerical modifiers 1, 2 and 3. The modifier 1 indicates that a
security ranks in the high end of that rating category, 2 in the mid-range of
a category and 3 nearer the low end of a category.
A-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Great Hall Investment Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Prime Money Market
Fund, U.S. Government Money Market Fund, Tax-Free Money Market Fund and
Institutional Prime Money Market Fund (funds within Great Hall Investment
Funds, Inc.) as of July 31, 1998 and the related statements of operations for
the year then ended and for the period from August 11, 1997 (commencement of
operations) to July 31, 1998 for Institutional Prime Money Market Fund and the
statements of changes in net assets for each of the years in the two-year
period ended July 31, 1998 and for the period from August 11, 1997
(commencement of operations) to July 31, 1998 for the Institutional Prime Money
Market Fund and the financial highlights for each of the years in the five-year
period ended July 31, 1998 and for the period from August 11, 1997
(commencement of operations) to July 31, 1998 for the Institutional Prime Money
Market Fund. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Investment securities held in custody are confirmed
to us by the custodian. As to securities purchased but not received, we
request confirmations from brokers, and where replies are not received, we
carry out other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Prime Money Market Fund, U.S. Government Money Market Fund, Tax-Free Money
Market Fund and Institutional Prime Money Market Fund at July 31, 1998, and the
results of their operations, changes in their net assets and the financial
highlights for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 4, 1998
F-1
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
Institutional
Prime U.S. Government Tax-Free Prime
Money Money Money Money
Market Fund Market Fund Market Fund Market Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities
at market value (note 2),
including repurchase agreements of
$0; $56,950,000; $0 and $0, respectively
(identified cost $4,831,104,788;
$227,945,524; $544,295,708 and
$212,896,115, respectively........ $4,831,104,788 $227,945,524 $544,295,708 $212,896,115
Cash in bank on demand deposit...... 163,128 64,742 40,054 23,372
Accrued interest receivable......... 16,549,950 1,106,749 3,119,785 1,022,933
Organization costs (note 2)......... -- -- -- 6,782
- --------------------------------------------------------------------------------------------------------
Total assets........................ 4,847,817,866 229,117,015 547,455,547 213,949,202
- --------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment
securities purchased.............. -- -- 1,266,974 --
Accrued investment advisory fee..... 1,955,598 85,488 231,234 44,143
Other accrued expenses.............. 1,510,553 102,043 108,673 119,849
- --------------------------------------------------------------------------------------------------------
Total liabilities................... 3,466,151 187,531 1,606,881 163,992
- --------------------------------------------------------------------------------------------------------
Net assets applicable to
outstanding capital stock......... $4,844,351,715 $228,929,484 $545,848,666 $213,785,210
- --------------------------------------------------------------------------------------------------------
Represented by:
Capital stock - authorized 100
billion shares of $.01 par value
for each Fund, outstanding
4,844,351,715; 228,929,484;
545,848,666 and 213,785,210
shares, respectively.............. $48,443,517 $2,289,295 $5,458,487 $2,137,852
Additional paid-in capital.......... 4,795,908,198 226,640,189 540,390,179 211,647,358
- --------------------------------------------------------------------------------------------------------
Total - representing net assets
applicable to outstanding
capital stock................... $4,844,351,715 $228,929,484 $545,848,666 $213,785,210
- --------------------------------------------------------------------------------------------------------
Net asset value per share
of outstanding capital stock...... $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-2
<PAGE>
STATEMENTS OF OPERATIONS
Year ended ended July 31, 1998
<TABLE>
Institutional
Prime U.S. Government Tax-Free Prime
Money Money Money Money
Market Fund Market Fund Market Fund Market Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Interest...................... $220,561,512 $12,055,911 $17,214,394 $6,009,892
- -----------------------------------------------------------------------------------------------
Expenses (note 4):
Investment advisory fee....... 17,513,185 963,402 2,371,641 265,908
Custodian, accounting and
transfer agent fees......... 263,500 61,450 63,800 52,447
Sub-accounting fees........... 3,495,000 91,200 100,300 2,920
Reports to shareholders....... 1,491,064 38,000 36,189 5,700
Amortization of
organization costs.......... -- -- -- 1,635
Directors' fees............... 12,000 12,000 12,000 10,000
Audit and legal fees.......... 29,500 22,500 18,300 13,800
Registration fees............. 1,415,317 41,900 138,000 71,650
Administrative................ 52,500 5,400 4,100 7,050
Other expenses................ 168,893 33,681 6,783 10,979
- -----------------------------------------------------------------------------------------------
Total expenses.................. 24,440,959 1,269,533 2,751,113 442,089
Less expenses voluntarily
waived or absorbed
by Advisor.................... -- -- -- (28,050)
- -----------------------------------------------------------------------------------------------
Total net expenses.............. 24,440,959 1,269,533 2,751,113 414,039
- -----------------------------------------------------------------------------------------------
Investment income - net......... 196,120,553 10,786,378 14,463,281 5,595,853
- -----------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations..... $196,120,553 $10,786,378 $14,463,281 $5,595,853
- -----------------------------------------------------------------------------------------------
* Period from August 11, 1997 (commencement of operations) to July 31, 1998.
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Prime
Money Market Fund
- -------------------------------------------------------------------------------
Year Year
Ended Ended
July 31, 1998 July 31, 1997
- -------------------------------------------------------------------------------
Operations:
Investment income, net........ $196,120,553 $139,170,560
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from operations..... 196,120,553 139,170,560
- -------------------------------------------------------------------------------
Distributions to
shareholders from:
Investment income - net..... (196,120,553) (139,170,560)
- -------------------------------------------------------------------------------
Total distributions
to shareholders............. (196,120,553) (139,170,560)
- -------------------------------------------------------------------------------
Capital share transactions at net
asset value of $1.00 per share:
Proceeds from sales......... 5,231,760,076 1,741,550,277
Shares issued for
reinvestment of
distributions............. 196,120,553 139,170,560
Payment for
shares redeemed........... (3,713,382,899) (1,156,322,769)
- -------------------------------------------------------------------------------
Increase in net assets
from capital share
transactions................ 1,714,497,730 724,398,068
- -------------------------------------------------------------------------------
Total increase in net assets.... 1,714,497,730 724,398,068
- -------------------------------------------------------------------------------
Net assets at
beginning of year............. 3,129,853,985 2,405,455,917
- -------------------------------------------------------------------------------
Net assets at end of year....... $4,844,351,715 $3,129,853,985
- -------------------------------------------------------------------------------
* Commencement of operations.
See accompanying notes to financial statements.
F-4
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
Year Year Year Year Period from
Ended Ended Ended Ended Ended 8/11/97* to
7/31/98 7/31/97 7/31/98 7/31/97 7/31/98
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Investment income, net........ $10,786,378 $8,454,406 $14,463,281 $12,139,464 $5,595,853
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations..... 10,786,378 8,454,406 14,463,281 12,139,464 5,595,853
- ---------------------------------------------------------------------------------------------------------------
Distributions to
shareholders from:
Investment income - net..... (10,786,378) (8,454,406) (14,463,281) (12,139,464) (5,595,853)
- ---------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders............. (10,786,378) (8,454,406) (14,463,281) (12,139,464) (5,595,853)
- ---------------------------------------------------------------------------------------------------------------
Capital share transactions at net
asset value of $1.00 per share:
Proceeds from sales......... 295,197,283 220,284,955 599,371,172 541,367,559 439,240,574
Shares issued for
reinvestment of
distributions............. 10,786,378 8,454,406 14,463,281 12,139,464 5,595,853
Payment for
shares redeemed........... (259,209,672) (193,269,020) (490,726,196) (489,919,846) (231,051,217)
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
from capital share
transactions................ 46,773,989 35,470,341 123,108,257 63,587,177 213,785,210
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets.... 46,773,989 35,470,341 123,108,257 63,587,177 213,785,210
- ---------------------------------------------------------------------------------------------------------------
Net assets at
beginning of year............. 182,155,495 146,685,154 422,740,409 359,153,232 --
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of year....... $228,929,484 $182,155,495 $545,848,666 $422,740,409 $213,785,210
- ---------------------------------------------------------------------------------------------------------------
* Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization
Great Hall Investment Funds, Inc. (the Company) was incorporated on June
24, 1991 and is registered under the Investment Company Act of 1940 (as
amended) as an open-end management investment company and presently
includes four funds; Prime, U.S. Government, Tax-Free and the Institutional
Prime Money Market Funds (the funds). The Company's articles of
incorporation permit the board of directors to create additional funds in
the future.
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the funds are as follows:
Investments in Securities
Pursuant to Rule 2a-7 of the Investment Company Act of 1940 (as amended),
securities are valued at amortized cost, which approximates market value,
in order to maintain a constant net asset value of $1 per share.
Security transactions are accounted for on the date the securities are
purchased or sold. Interest income, including amortization of discount and
premium, is accrued daily.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Federal Taxes
The funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to shareholders. Therefore, no income tax
provision is required. Each fund is treated as a separate entity for
federal income tax purposes. In addition, on a calendar-year basis, each
fund intends to distribute substantially all of its net investment income
and realized gains, if any, to avoid the payment of any federal excise
taxes.
Distribution to Shareholders
Distribution to shareholders from net investment income are declared daily
and paid monthly through reinvestment in additional shares of the funds at
net asset value or payable in cash.
Organization Costs
Organization expenses were incurred in connection with the start-up and
initial registration of the Institutional Prime Money Market Fund. These
costs are being amortized over 60 months on a straight-line basis.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Repurchase Agreements
Securities pledged as collateral for repurchase agreements are held by the
funds' custodian bank until maturity of the repurchase agreement.
Procedures for all agreements ensure that the daily market value of the
collateral is in excess of the repurchase agreement in the event of
default.
3. Investment Security Transactions
Cost of purchases and proceeds from sales of securities from August 1, 1997
to July 31, 1998 (August 11, 1997 to July 31, 1998 for Institutional Prime)
were as follows:
Purchases Sales Proceeds
---------------------------------------------------------------------------
Prime Money Market Fund................. $65,747,186,541 $64,033,595,442
U.S. Government Money Market Fund....... 8,296,832,289 8,250,121,601
Tax-Free Money Market Fund.............. 1,181,988,627 1,058,635,556
Institutional Prime Money Market Fund... 1,810,239,933 1,597,343,818
4. Fees and Expenses
The Company has entered into an investment advisory and management
agreement with Insight Investment Management, Inc. (IIM), under which IIM
manages each fund's assets and furnishes related office facilities,
equipment, research and personnel. The agreement requires each fund to pay
IIM a monthly fee based upon average daily net assets. The fee for the
Prime Money Market Fund is equal to an annual rate of 0.55% of the first
$700 million in net assets and then decreasing in reduced percentages to
0.40% of net assets in excess of $2 billion. The fee for the U.S.
Government Money Market Fund is equal to an annual rate of 0.50% of the
first $100 million in net assets and then decreasing in reduced percentages
to 0.35% of net assets in excess of $300 million. The fee for the Tax-Free
Money Market Fund is equal to an annual rate of 0.50% of net assets. The
fee for the Institutional Prime Money Market Fund is equal to an annual
rate of 0.25% of net assets. IIM voluntarily waived a portion of the
advisory fees for the Institutional Prime Money Market Fund for the current
period.
Each of the four funds has also entered into sub-accounting agreement with
affiliate Dain Rauscher Incorporated (DRI) where DRI performs various
transfer and dividend disbursing agent services. The fee, which is paid
monthly to DRI for providing such service, is equal to an annual rate of
$12 per shareholder account plus certain out-of-pocket expenses.
In addition to the investment advisory and management fee and the
shareholder account servicing fee, each fund is responsible for paying most
other operating expenses including outside directors' fees and expenses,
custodian fees, registration fees, printing and shareholder reports,
transfer agent fees and expenses, legal, auditing and accounting services,
organizational costs, insurance, interest and other miscellaneous expenses.
Legal fees and expenses of $30,017 for the year ended July 31, 1998 were
paid to a law firm of which the secretary of the funds is a partner.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Financial Highlights
Per share data for a share of capital stock outstanding throughout each
period and selected information for the period are as follows:
<TABLE>
Prime Money Market Fund
--------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
7/31/98 7/31/97 7/31/96 7/31/95 7/31/94
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------------------------------------
Income from
investment operations............. 0.05 0.05 0.05 0.05 0.03
Distributions to shareholders
from investment income............ (0.05) (0.05) (0.05) (0.05) (0.03)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period..... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------------------------------------
Total return....................... 5.0% 4.9% 5.0% 4.9% 2.8%
Net assets at end
of period (000s omitted).......... $4,844,352 $3,129,854 $2,405,456 $1,598,925 $1,029,775
Ratio of expenses to
average daily net assets*......... 0.63% 0.64% 0.70% 0.77% 0.80%
Ratio of net investment
income to average
daily net assets*................. 5.04% 4.90% 4.93% 4.93% 2.81%
--------------------------------------------------------------------------------------------------------------
</TABLE>
* Various fund fees and expenses were voluntarily waived or absorbed by
IIM for the Prime Money Market Fund during the year ended July 31, 1994.
Had the Fund paid all expenses, the ratio of expenses and net investment
income to average daily net assets would have been 0.81%/2.80%.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Financial Highlights (continued)
<TABLE>
U. S. Government Money Market Fund
--------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
7/31/98 7/31/97 7/31/96 7/31/95 7/31/94
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------------------------------------
Income from
investment operations............. 0.05 0.05 0.05 0.05 0.03
Distributions to shareholders
from investment income............ (0.05) (0.05) (0.05) (0.05) (0.03)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period..... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------------------------------------
Total return....................... 5.0% 4.8% 4.9% 4.8% 2.7%
Net assets at end
of period (000s omitted).......... $228,929 $182,155 $146,685 $122,249 $56,815
Ratio of expenses to
average daily net assets.......... 0.59% 0.60% 0.65% 0.73% 0.78%
Ratio of net investment
income to average
daily net assets.................. 4.98% 4.85% 4.87% 4.94% 2.73%
--------------------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Financial Highlights (continued)
<TABLE>
Tax-Free Money Market Fund
--------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
7/31/98 7/31/97 7/31/96 7/31/95 7/31/94
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------------------------------------
Income from
investment operations............. 0.03 0.03 0.03 0.03 0.02
Distributions to shareholders
from investment income............ (0.03) (0.03) (0.03) (0.03) (0.02)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period..... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------------------------------------
Total return....................... 3.1% 3.0% 3.0% 3.1% 2.0%
Net assets at end
of period (000s omitted).......... $545,849 $422,740 $359,153 $363,273 $275,278
Ratio of expenses to
average daily net assets.......... 0.58% 0.58% 0.59% 0.60% 0.65%
Ratio of net investment
income to average
daily net assets.................. 3.05% 3.02% 3.03% 3.14% 1.98%
--------------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Financial Highlights (continued)
Institutional Prime Money Market Fund
---------------------------------------------------------------------------
Period from
8/11/97* to
7/31/98
---------------------------------------------------------------------------
Net asset value, beginning of period............................ $1.00
---------------------------------------------------------------------------
Income from investment operations............................... 0.05
Distributions to shareholders from investment income............ (0.05)
---------------------------------------------------------------------------
Net asset value, end of period.................................. $1.00
---------------------------------------------------------------------------
Total return.................................................... 5.2%
Net assets at end of period (000s omitted)...................... $213,785
Ratio of expenses to average daily net assets**................. 0.39%
Ratio of net investment income to average daily net assets**.... 5.27%
---------------------------------------------------------------------------
* Commencement of operations.
** Adjusted to an annual basis. Various fund fees and expenses were
voluntarily waived or absorbed by IIM for the Institutional Prime Money
Market Fund during the period ended July 31, 1998. Had the Fund paid
all expenses, the ratio of expenses and net investment income to average
daily net assets would have been 0.42%/5.24% for the period ended July
31, 1998.
F-11
<PAGE>
PRIME MONEY MARKET FUND
Investments in Securities
July 31, 1998
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Percentages of each investment category relate to total net assets.)
Commercial Paper & Other Corporate Obligations (97.73%):
- -------------------------------------------------------------------------------
Agricultural Products (1.72%)
Archer Daniels Midland Company,
5.49%-5.50%, 8/3/98-9/9/98 $83,550,000 $83,366,503
------------
Banks - Domestic (10.34%)
Allegheny University Hospital, 5.51%, 8/10/98,
LOC Pittsburgh National Bank 25,000,000 24,965,563
Bank of America, 6.00%, 10/22/98 20,000,000 19,997,853
Bankers Trust Company,
5.69%-6.00%, 8/12/98-4/30/99 44,000,000 43,995,600
Bankers Trust New York Corporation,
6.00%, 8/7/98 15,000,000 14,999,785
Chase Manhattan Bank, 5.51%, 8/25/98 17,510,768 17,446,445
Comerica Bank of Detroit,
5.59%-6.00%, 10/21/98-10/27/98 31,000,000 (d) 30,997,184
First National Bank of Chicago,
5.56%-5.72%, 9/21/98-4/1/99 67,500,000 67,494,641
First Union National Bank Charlotte,
5.56%-5.57%, 9/22/98-10/21/98 62,000,000 62,000,000
Formosa Plastics USA,
5.51%, 9/8/98-10/16/98, LOC Bank of America 45,000,000 44,659,451
Key Bank N.A., Cleveland, 5.57%, 10/9/98 25,000,000 25,010,421
Nations Bank, 5.57%-5.60%, 9/2/98-10/22/98 85,800,000 85,800,000
Wachovia Bank N.A., 5.54%-5.56%, 9/16/98-10/6/98 63,400,000 63,400,000
------------
500,766,943
------------
Banks - Other (20.10%)
ABN - AMRO, 5.63%, 3/12/99 3,250,000 3,246,331
Abbey National Treasury Services, 5.54%, 7/20/99 30,000,000 (d) 29,976,567
Banco Bradesco S.A.,
5.52%, 10/15/98, LOC Barclays Bank 15,000,000 14,827,500
Banco Real S.A., 5.51%, 8/14/98-10/16/98,
LOC Barclays Bank 33,500,000 33,240,494
Bank of Nova Scotia,
5.50%-5.93%, 8/10/98-3/23/99 83,000,000 82,889,721
Banque National de Paris,
5.54%-5.64%, 8/25/98-3/19/99 86,000,000 85,999,686
Barclays Bank, 5.65%-5.87%, 8/25/98-3/2/99 28,000,000 27,995,940
Canadian Imperial Bank of Commerce,
5.54%-5.57%, 8/27/98-10/15/98 50,200,000 50,200,207
Cemex S.A., 5.52%-5.53%,
8/13/98-11/10/98, LOC Credit Suisse 24,000,000 23,764,394
Commed Fuel Company, Inc.,
5.51%, 8/6/98, LOC CIBC 25,000,000 24,980,868
Deutsche Bank, 5.49%-5.98%, 8/11/98-5/3/99 84,500,000 84,420,306
Formosa Plastics Corporation USA, 5.52%-5.53%,
8/13/98-10/15/98, LOC ABN - AMRO Bank 70,000,000 69,531,858
JMG Funding Inc.,
5.52%, 8/12/98, LOC Societe Generale 19,002,000 18,969,950
National Westminster Bank,
5.56%-5.70%, 9/21/98-3/30/99 45,000,000 44,992,069
Pemex Capital, Inc.,
5.50%-5.54%, 8/18/98-10/6/98, LOC Swiss Bank 56,280,000 55,834,076
See accompanying notes to investments in securities.
F-12
<PAGE>
PRIME MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Commercial Paper & Other Corporate Obligations (continued):
- -------------------------------------------------------------------------------
Banks - Other (continued)
Petroleo Brasileiro S.A.-Petrobras, 5.50%-5.51%,
8/28/98-9/2/98, LOC Barclays Bank $25,550,000 $25,430,800
Presbyterian Healthcare Services,
5.52%, 9/16/98, LOC Toronto-Dominion Bank 20,000,000 19,858,933
Rabobank Nederland,
5.56%-5.57%, 9/10/98-10/30/98 85,000,000 85,004,071
Royal Bank of Canada, 5.65%, 7/30/99 27,250,000 27,241,402
Sinochem American, Inc.,
5.54%, 8/3/98-9/23/98, LOC Credit Suisse 39,165,000 39,081,016
Societe Generale, 5.69%-5.76%, 1/7/99-4/16/99 29,100,000 29,091,736
Sunkyong American Inc., 5.53%-5.59%,
9/3/98-9/10/98, LOC Credit Suisse 23,000,000 22,865,820
Swiss Bank Corporation,
5.63%-5.72%, 3/24/99-4/5/99 34,500,000 34,483,018
Toronto-Dominion Bank,
5.55%-5.57%, 8/10/98-9/3/98 40,000,000 39,972,588
------------
973,899,351
------------
Business Machines (2.06%)
Xerox Corporation, 5.51%-5.66%, 8/3/98-9/2/98 100,000,000 99,808,139
------------
Chemicals (3.28%)
Air Products and Chemicals, Inc.,
5.49%, 9/24/98-9/30/98 35,300,000 34,995,305
Dupont (E.I.) deNemours & Co.,
5.49%-5.50%, 8/26/98-9/9/98 53,640,000 53,381,852
Henkel Corporation, 5.50%, 8/3/98-9/22/98 71,000,000 (c) 70,541,667
------------
158,918,824
------------
Conglomerates (1.71%)
Diageo Capital PLC, 5.47%-5.50%, 8/6/98-9/14/98 83,000,000 (c) 82,642,499
------------
Drugs and Cosmetics (2.94%)
American Home Products Corporation,
5.48%-5.51%, 8/13/98-10/9/98 83,175,000 (c) 82,698,731
Becton Dickinson and Company,
5.50%, 9/14/98-9/18/98 60,000,000 59,578,333
------------
142,277,064
------------
Financial - Auto (4.91%)
Ford Motor Credit Corporation,
5.52%-5.65%, 8/3/98-8/5/98 100,000,000 99,955,136
General Motors Acceptance Corporation,
5.49%-5.76%, 8/7/98-7/6/99 80,000,000 (d) 79,862,412
Toyota Motor Credit Corporation,
5.50%-5.52%, 8/31/98-9/25/98 58,395,000 58,068,567
------------
237,886,115
------------
Financial - Aviation (1.12%)
International Lease Finance Corporation,
5.49%-5.50%, 10/14/98-10/15/98 55,000,000 54,374,236
------------
See accompanying notes to investments in securities.
F-13
<PAGE>
PRIME MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Commercial Paper & Other Corporate Obligations (continued):
- -------------------------------------------------------------------------------
Financial - Diversified Business (16.62%)
American General Finance Corporation,
5.48%-5.50%, 8/5/98-10/5/98 $98,590,000 $98,043,303
Associates Corporation of North America,
5.66%-5.87%, 8/3/98-11/15/98 88,650,000 88,620,551
CIT Group Holdings, 5.64%, 8/3/98 100,000,000 99,968,667
Commercial Credit Corporation,
5.50%-5.53%, 8/4/98-10/23/98 92,500,000 91,961,873
Dean Witter Discover,
5.70%-5.84%, 8/17/98-2/5/99 18,000,000 (d) 18,010,125
General Electric Capital Corporation,
5.49%, 8/6/98 40,000,000 39,969,500
Goldman Sachs, 5.50%, 9/11/98 25,000,000 24,843,403
Household Finance Company,
5.50%-5.69%, 9/4/98-5/4/99 23,250,000 (d) 23,278,747
Merrill Lynch & Co., 5.49%-5.68%, 8/3/98-3/2/99 93,500,000 (d) 93,239,815
Morgan (J.P.) and Company,
5.50%-5.59%, 8/18/98-4/5/99 33,000,000 (d) 32,933,481
Morgan Stanley Dean Witter Discover,
5.49%-5.64%, 8/12/98-1/15/99 70,000,000 (d) 69,345,878
Norwest Corporation,
5.51%-5.54%, 8/12/98-9/29/98 60,000,000 59,647,386
Norwest Financial, Inc., 5.51%, 8/12/98 15,400,000 15,374,072
U.S. Bancorp, 5.50%-5.52%, 8/17/98-9/9/98 50,000,000 49,807,067
------------
805,043,868
------------
Financial - Diversified Business, Asset-Backed (17.75%)
Asset Securitization Coop. Corporation,
5.51%-5.54%, 8/3/98-9/28/98 55,000,000 (c) 54,767,678
Barton Capital Corporation,
5.51%-5.54%, 8/14/98-10/20/98 96,850,000 (c) 96,241,475
Delaware Funding Corporation,
5.51%-5.52%, 9/2/98-10/21/98 62,969,000 (c) 62,403,490
Edison Asset Securitization,
5.51%-5.54%, 8/27/98-10/13/98 104,856,000 (c) 104,023,221
Falcon Asset Securitization,
5.52%-5.53%, 8/17/98-9/21/98 90,090,000 (c) 89,577,019
Fleet Funding Corporation,
5.53%-5.54%, 8/4/98-9/8/98 32,167,000 (c) 32,066,680
Monte Rosa Capital Corporation,
5.52%-5.57%, 8/14/98-9/21/98 100,000,000 (c) 99,694,550
Preferred Receivables Funding Corporation,
5.51%-5.52%, 9/1/98-10/22/98 45,065,000 (c) 44,752,096
Receivables Capital Corporation,
5.51%-5.53%, 8/14/98-10/14/98 94,165,000 (c) 93,727,777
Triple A One Funding,
5.53%-5.55%, 8/4/98-9/11/98 79,207,000 (c) 78,883,217
Windmill Funding Corporation,
5.52%-5.58%, 8/5/98-10/19/98 104,584,000 (c) 103,918,660
------------
860,055,863
------------
Food and Beverage (1.14%)
Coca Cola Company, 5.50%, 8/6/98 50,000,000 (c) 49,961,806
General Mills, Inc., 5.90%, 12/15/98 5,000,000 5,046,210
------------
55,008,016
------------
See accompanying notes to investments in securities.
F-14
<PAGE>
PRIME MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Commercial Paper & Other Corporate Obligations (continued):
- -------------------------------------------------------------------------------
Household Products (2.14%)
Clorox Company, 5.50%-5.52%, 8/10/89-9/11/98 $40,890,000 $40,735,543
Colgate-Palmolive Company, 5.49%, 8/3/98 10,100,000 10,096,920
Proctor and Gamble Company,
5.48%-5.50%, 8/21/98-9/3/98 53,135,000 52,889,274
------------
103,721,737
------------
Metals and Mining (1.34%)
Aluminium Company of America, 5.51%, 8/12/98 65,000,000 64,890,565
------------
Municipals (1.95%)
Bedford County Virginia Industrial
Development Authority, 5.70%, 12/1/25,
LOC Canadian Imperial Bank of Commerce 12,000,000 (e) 12,000,000
5.70%, 12/1/25, LOC Societe Generale 10,000,000 (e) 10,000,000
MetroCrest Hospital Authority,
5.57%, 8/4/98, LOC Bank of New York 15,300,000 15,292,899
New York City G.O.,
5.62%-5.64%, 8/1/18-8/1/22, FGIC Insured 27,755,000 (e) 27,755,000
State of Connecticut G.O., 5.65%, 8/1/99 4,400,000 4,394,092
Parish of West Baton
Rouge Industrial District #3, 5.63%,
11/1/25, Guaranty: Dow Chemical Co. 25,000,000 (e) 25,000,000
------------
94,441,991
------------
Oil Services (2.23%)
Petrofina S.A., 5.50%-5.51%, 10/6/98-10/20/98,
Guaranty: Petrofina S.A. 42,980,000 (c) 42,491,285
Texaco Inc., 5.50%-5.52%, 8/21/98-9/17/98 65,915,000 65,534,500
------------
108,025,785
------------
Printing and Publishing (0.56%)
Pearson Inc., 5.52%, 8/11/98 27,250,000 27,208,217
------------
Retail Stores (1.13%)
J.C. Penney Funding Inc.,
5.50%-5.52%, 8/7/98-10/21/98 55,000,000 (c) 54,776,625
------------
Telecommunications (0.88%)
Motorola Credit Corporation, 5.51%, 8/7/98 42,500,000 42,461,006
------------
Utilities - Electric (1.95%)
Baltimore Gas & Electric Company, 5.62%, 9/1/98 34,000,000 (d) 34,000,000
See accompanying notes to investments in securities.
F-15
<PAGE>
PRIME MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Commercial Paper & Other Corporate Obligations (continued):
- -------------------------------------------------------------------------------
Utilities - Electric (continued)
Carolina Power & Light, 5.50%, 8/14/98-9/14/98 $35,910,000 $35,722,125
Southern California Edison, 5.50%, 9/9/98 25,000,000 24,851,042
------------
94,573,167
------------
Utilities - Financial (1.66%)
National Rural Utilities
Cooperative Finance Corporation,
5.50%-5.51%, 8/7/98-10/28/98 81,000,000 80,380,619
------------
Utilities - Telephone (0.21%)
Bell Atlantic Financial Services, 5.91%, 9/1/98 10,000,000 9,994,810
- -------------------------------------------------------------------------------
Total Commercial Paper &
Other Corporate Obligations (cost: $4,734,521,943) $4,734,521,943
- -------------------------------------------------------------------------------
Government & Agencies Securities (1.99%):
- -------------------------------------------------------------------------------
Federal Home Loan Bank,
5.40%-5.55%, 11/6/98-2/26/99 35,000,000 (d) 34,994,388
Private Export Funding Corp.,
5.47%-5.52%, 8/5/98-10/19/98 61,850,000 61,588,457
- -------------------------------------------------------------------------------
Total Government &
Agencies Securities (cost: $96,582,845) $96,582,845
- -------------------------------------------------------------------------------
Total Investment in Securities
(cost: $4,831,104,788) (b) $4,831,104,788
- -------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Also represents cost for federal income tax purposes.
(c) All or a portion consists of commercial paper sold within terms of a
private placement memorandum, exempt from registration under section 4(2)
of the Securities Act of 1933, as amended, and may be sold only to dealers
in that program or other "accredited investors." These securities have
been determined to be liquid under guidelines established by the Board of
Directors.
(d) All or a portion consists of short-term securities with interest rates
that reset at set intervals at rates that are based on specific market
indices. Rate shown is the effective rate on July 31, 1998.
(e) Interest rate varies to reflect current market conditions; rate shown is
the effective rate on July 31, 1998. The maturity date shown represents
final maturity. However, for purposes of Rule 2a-7, maturity is the next
interest rate reset date at which time the security can be put back to the
issuer.
F-16
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
Investments in Securities
July 31, 1998
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets.)
Government & Agencies Securities (74.69%):
- -------------------------------------------------------------------------------
Federal National Mortgage Association (29.96%)
5.40%-5.85%, 8/3/98-4/2/99 $68,850,000 (c) $68,584,809
Federal Home Loan Mortgage Corporation (19.04%)
5.42%-5.60%, 8/4/98-4/21/99 43,733,000 43,589,145
Federal Home Loan Bank (22.64%)
5.51%-5.65%, 8/20/98-4/7/99 51,855,000 (c) 51,826,904
Federal Farm Credit Bank (2.18%)
5.45%, 6/1/99 5,000,000 (c) 4,996,544
Student Loan Marketing Association (0.87%)
5.42%, 2/22/99 2,000,000 (c) 1,998,122
- -------------------------------------------------------------------------------
Total Government & Agencies Securities
(cost: $170,995,524) $170,995,524
- -------------------------------------------------------------------------------
Repurchase Agreement (24.88%)
- -------------------------------------------------------------------------------
First Chicago, 5.61%, acquired 7/31/98 and
due 8/3/98 with accrued interest of $8,815
(collateralized by $58,111,738 U.S. Treasury
Note, 6.25%, 4/30/01) (cost: $56,950,000) 56,950,000 56,950,000
- -------------------------------------------------------------------------------
Total Investment in Securities
(cost: $227,945,524) (b) $227,945,524
- -------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Also represents cost for federal income tax purposes.
(c) All or a portion of the balance consists of securities with interest rates
that reset at set intervals at rates that are based on specific market
indices. Rate shown is the effective rate on July 31, 1998.
F-17
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities
July 31, 1998
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
Alaska (0.53%)
North Slope Borough,
3.75%, 6/30/99, MBIA Insured $3,000,000 $2,900,155
------------
Arizona (0.38%)
Maricopa County PCR (El Paso Elect),
3.50%, 12/1/14, LOC Barclays Bank 2,100,000 (b) 2,100,000
------------
California (0.90%)
Los Angeles Regional Airports
Improvement Corp. Lease Revenue,
3.75%, 12/1/24, LOC Wachovia Bank of Georgia 1,900,000 (b) 1,900,000
3.75%, 12/1/25, LOC Societe Generale 1,000,000 (b) 1,000,000
School Cash Reserve Program Authority Series A,
3.74%, 7/2/99, AMBAC Insured 2,000,000 2,013,437
------------
4,913,437
------------
Colorado (3.82%)
Arapahoe County (Dove Valley Metropolitan District)
Series 1996B, 4.05%, 11/1/98,
LOC Banque National de Paris 4,950,000 4,950,000
Adams County Family Housing Revenue
(Hunters Cove Project)
Series 1985, 3.70%, 1/15/14, LOC GECC 7,500,000 (b) 7,500,000
Boulder, Larimer & Weld Counties
(St. Vrain Valley School District),
3.95%, 12/15/98, FGIC Insured 857,962 845,695
Denver City & County MFHR (Parliament Apts.),
3.65%, 6/1/06, LOC GECC 2,200,000 (b) 2,200,000
Health Facilities Authority Revenue
(Visiting Nurses),
3.70%, 7/1/22, LOC Norwest Bank 2,090,000 (b) 2,090,000
Interstate South Metro District,
4.05%, 11/1/98, LOC Banque National de Paris 3,275,000 3,275,000
------------
20,860,695
------------
Florida (1.21%)
Jacksonville Electric Authority System,
3.55%, 8/4/98 3,000,000 3,000,000
West Orange Memorial Hospital,
3.70%, 8/13/98, LOC Rabobank Nederland 3,600,000 3,600,000
------------
6,600,000
------------
Georgia (3.63%)
Clayton County MFHR Series 1990
(Kings Arena Apartment),
3.50%, 1/1/21, FSA / Capital Guaranty Insured 2,215,000 (b) 2,215,000
Dougherty County School District Sales
Tax Bonds Series 1998, 3.65%, 3/1/99 1,500,000 1,500,000
Fulton County Residential Home Care,
3.70%, 1/1/18, LOC Rabobank Nederland 12,500,000 (b) 12,500,000
Hapeville Development Authority,
3.70%, 11/1/15, LOC Deutsche Bank 2,600,000 (b) 2,600,000
State of Georgia G.O.,
3.85%, 4/1/99, Escrowed in Governments 955,000 994,607
------------
19,809,607
------------
See accompanying notes to investments in securities.
F-18
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Hawaii (0.88%)
Honolulu City & County,
3.70%, 8/12/98, LOC CIBC $2,300,000 $2,300,000
3.70%, 10/1/98, Prerefunded and
Escrowed in Governments 1,000,000 1,020,117
State of Hawaii G.O., 3.65%, 10/1/98,
Prerefunded and Escrowed in Governments 1,500,000 1,504,540
------------
4,824,657
------------
Idaho (0.92%)
State Health Facilities Authority Revenue
(St. Luke's Regional Medical Center),
3.70%, 5/1/22, LOC Credit Suisse 5,000,000 (b) 5,000,000
------------
Illinois (12.46%)
Chicago G.O., 3.55%, 2/4/99, LOC Morgan Guaranty 3,000,000 2,998,308
Chicago O'Hare International Airport,
3.50%, 1/1/15, LOC Societe Generale 3,300,000 (b) 3,300,000
City of Springfield Community Improvement Revenue
Bonds Series 1985, (Realing Restoration Project),
3.75%, 12/1/15, over-collateralized in Govt's 3,200,000 (b) 3,200,000
City of Springfield MFHR (OT Center Limited
Project), 3.75%, 12/1/15, collateralized
by a portfolio of U.S. Treasuries 7,700,000 (b) 7,700,000
Cook County G.O., 3.85%, 11/15/98, FGIC Insured 1,000,000 1,003,222
Development Finance Authority,
(A.E. Staley Manufacturing), 3.40%, 12/1/05,
LOC Union Bank of Switzerland 1,600,000 (b) 1,600,000
(Latin School of Chicago), 3.50%, 6/1/30,
LOC Bank of America 13,500,000 (b) 13,500,000
Education Facilities Authority
(Augustana College), 3.75%, 10/1/98, LOC AMBAC 715,000 715,992
Health Facilities Authority Demand Revenue Bonds
Series 1985B (Children's Memorial Hosp.
Project), 3.50%, 11/1/15,
LOC First Nat'l Bank of Chicago 10,600,000 (b) 10,600,000
Health Facilities Authority Revenue,
3.70%, 11/1/20, LOC Rabobank Nederland 6,160,000 (b) 6,160,000
(Lutheran Health System),
3.75%, 4/1/99, Prerefunded 1,750,000 1,825,136
Joliet Regional Port Dist. IDR Bonds,
3.70%, 7/15/03, Guaranty: Dow Chemical 11,295,000 (b) 11,295,000
Metropolitan Pier & Exposition Authority,
3.70%, 12/15/98, AMBAC Insured 2,945,000 2,905,350
Northwest Suburban Municipal Joint Action
Water Agency (Water Supply System Revenue),
3.82%, 5/1/99, MBIA Insured 1,200,000 1,213,773
------------
68,016,781
------------
Indiana (5.07%)
Hospital Equipment Finance Authority,
3.55%, 12/1/15, MBIA Insured 11,865,000 (b) 11,865,000
Hospital Facilities Financing Authority
(Capital Access Designated Pool Program),
3.55%, 12/1/02-4/1/13, LOC Comerica Bank 13,500,000 (b) 13,500,000
See accompanying notes to investments in securities.
F-19
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Indiana (continued)
Health Facilities Financing Authority
(St. Anthony Medical Center),
3.50%, 12/1/14-12/1/17, LOC Rabobank Nederland $300,000 (b) $300,000
Health Facilities Financing Authority Hospital
Revenue Bonds Series 1990, 3.50%, 11/1/20,
LOC National Bank of Detroit 2,000,000 (b) 2,000,000
------------
27,665,000
------------
Iowa (5.12%)
Cash Anticipation Program,
3.55%, 1/28/99, FSA Insured 2,000,000 2,006,667
Financial Authority Revenue
(Burlington Medical Center),
3.60%, 6/1/27, FSA Insured 14,900,000 (b) 14,900,000
Higher Education Loan Authority Revenue
(Palmer Chiropractic), 3.80%, 4/1/27,
LOC Firstar Bank, N.A. 3,595,000 (b) 3,595,000
Mount Vernon Private College Project
(Cornell) Series 1985, 3.80%, 10/1/15,
LOC First Bank Minneapolis, N.A. 3,100,000 (b) 3,100,000
Polk County Hospital Equipment and
Improvement Revenue, 3.50%, 12/1/05,
MBIA Insured 4,340,000 (b) 4,340,000
------------
27,941,667
------------
Kansas (4.14%)
City of Burlington PCR,
3.50%-3.65%, 8/6/98-8/13/98,
LOC Societe Generale 7,600,000 7,600,000
3.45%-3.60%, 8/7/98-8/11/98,
LOC Toronto-Dominion Bank 8,000,000 8,000,000
Kansas City IDR,
3.70%, 8/1/15, LOC Credit Suisse 2,000,000 (b) 2,000,000
State Development Finance Authority Health
Facilities Revenue (Stormont Vail Healthcare),
3.75%, 11/15/23, LOC Credit Local de France 5,000,000 (b) 5,000,000
------------
22,600,000
------------
Louisiana (1.69%)
Lake Charles Port Harbor and Terminal,
3.85%, 12/1/98, LOC ABN - AMRO 1,500,000 1,500,698
Parish of East Baton Rouge,
3.70%, 11/1/19, Guaranty: Exxon Corporation 3,950,000 (b) 3,950,000
Plaquemines Port Harbor and Terminal,
3.60%, 3/15/99, LOC Morgan Guaranty 2,500,000 2,496,917
St. Tammany School District No. 12,
3.68%, 3/1/99, FSA Insured 1,235,000 (e) 1,254,007
------------
9,201,622
------------
Maryland (3.33%)
Anne Arundel County Port Facilities Revenue,
3.70%, 9/8/98-10/14/98, Guaranty:
Baltimore Gas and Electric 6,200,000 6,200,000
Montgomery County Housing Opportunity,
3.70%, 11/1/07, LOC GECC 12,000,000 (b) 12,000,000
------------
18,200,000
------------
See accompanying notes to investments in securities.
F-20
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Massachusetts (0.33%)
City of Grafton G.O.,
3.70%, 2/15/99, MBIA Insured $765,000 $774,281
State of Massachusetts G.O.,
3.73%, 4/1/99, Prerefunded 1,000,000 1,043,258
------------
1,817,539
------------
Michigan (0.67%)
Delta County Economic Development
Authority (Mead Paper Project),
3.70%, 12/1/23, LOC Bank of Nova Scotia 2,800,000 (b) 2,800,000
Grand Blanc Community Schools G.O., 3.75%, 5/1/99 840,000 850,662
------------
3,650,662
------------
Minnesota (4.43%)
City of Cohasset (MN Power & Light Project),
3.70%, 6/1/13-6/1/20, LOC ABN - AMRO 8,930,000 (b) 8,930,000
Minneapolis/St. Paul State Housing &
Redevelopment Authority,
3.75%, 8/15/25, FSA Insured 4,345,000 (b) 4,345,000
St. Paul Housing and Redevelopment Authority
(Science Museum of MN Project), 3.45%-3.50%,
5/1/27, LOC First Bank Minneapolis, N.A. 4,965,000 (b) 4,965,000
State Tax & Aid Anticipation Borrowing Programs
(School Districts), 3.80%, 8/13/98-9/3/98 2,140,000 2,140,000
State Various Purpose Refunding Bonds,
3.74%, 8/1/98, Prerefunded 3,790,000 3,790,000
------------
24,170,000
------------
Mississippi (0.73%)
Claiborne County PCR,
3.55%, 9/9/98, Guaranty: Nat'l Rural
Utilities Cooperative Finance Corp. 1,400,000 1,400,000
(South Mississippi Electrical Power),
3.65%, 9/10/98 2,600,000 2,600,000
------------
4,000,000
------------
Missouri (3.19%)
Independence IDA (Groves & Graceland),
3.70%, 11/1/27, LOC Credit Local de France 9,000,000 (b) 9,000,000
State Environmental Improvement &
Energy Resource Authority PCR,
3.60%, 10/5/98, LOC Union Bank of Switzerland 3,600,000 3,600,000
(Monsanto Corporation), 3.20%, 2/1/09 1,800,000 (b) 1,800,000
State Health and Education Facilities Authority
Revenue (St. Francis Medical Center),
3.70%, 6/1/26, LOC Credit Local de France 3,000,000 (b) 3,000,000
------------
17,400,000
------------
Montana (1.67%)
State Health Facilities Authority Revenue Bonds
Series A, 3.45%, 12/1/15, FGIC Insured 9,105,000 (b) 9,105,000
------------
See accompanying notes to investments in securities.
F-21
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Nebraska (0.75%)
Investment Finance Authority
Hospital Revenue Bonds,
3.50%, 12/1/15, FGIC Insured $4,100,000 (b) $4,100,000
------------
Nevada (2.39%)
Clark County Airport System
Refunding Revenue Bonds,
3.40%, 7/1/12, MBIA Insured 6,500,000 (b) 6,500,000
3.40%, 7/1/25, LOC Toronto-Dominion Bank 6,532,000 (b) 6,532,000
------------
13,032,000
------------
New Jersey (0.22%)
EDA (Volvo American Corp.),
3.96%, 12/1/04, LOC Credit Suisse 1,200,000 (b) 1,200,000
------------
New Mexico (0.18%)
City of Albuquerque Revenue Bonds,
3.55%, 7/1/14, AMBAC Insured 1,000,000 (b) 1,000,000
------------
New York (3.35%)
Campbell-Savona Central School District,
3.80%, 6/15/99, MBIA Insured 845,000 850,003
New York City G.O.,
3.70%, 8/15/23, MBIA Insured 900,000 (b) 900,000
3.70%, 8/1/17-8/1/18, LOC Morgan Guaranty 4,285,000 (b) 4,285,000
3.85%, 10/1/20-10/1/22, FGIC Insured 3,500,000 (b) 3,500,000
New York City Municipal Water Finance Authority,
3.70%-3.90%, 6/15/23-6/15/25, FGIC Insured 3,250,000 (b) 3,250,000
State Dorm Authority Revenue,
3.80%, 2/15/99, AMBAC Insured 1,000,000 1,004,957
State Energy Research & Development Authority,
3.35%, 8/15/15, AMBAC Insured 4,500,000 (b) 4,500,000
------------
18,289,960
------------
North Carolina (1.48%)
City of New Hanover, 3.85%, 12/1/98 740,000 739,875
State Medical Center Commission Revenues
(Carol Woods Project), 3.70%, 4/1/21,
LOC Nationsbank N.A. (Carolinas) 6,500,000 (b) 6,500,000
Wake County Hospital System,
3.90%, 10/1/98, MBIA Insured 820,000 820,130
------------
8,060,005
------------
North Dakota (0.74%)
State Housing Finance Agency, 3.75%, 1/1/99 4,020,000 4,020,000
------------
Ohio (1.40%)
Air Quality Development Authority PCR,
3.55%, 10/7/98, FGIC Insured 2,500,000 2,500,000
See accompanying notes to investments in securities.
F-22
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Ohio (continued)
Miami County Hospital Facilities
Refunding and Improvement
(Upper Valley Medical Center),
3.80%, 5/15/99, MBIA Insured $1,125,000 $1,135,307
Sandusky Bond Anticipation Notes,
3.68%, 7/29/99 4,000,000 4,017,019
------------
7,652,326
------------
Oklahoma (0.18%)
Garfield County Industrial Authority
PCR, 3.55%, 1/1/25, Guaranty:
Oklahoma Gas & Electric 1,000,000 (b) 1,000,000
------------
Pennsylvania (9.29%)
Allegheny County IDA,
3.65%, 9/8/98-10/1/98, LOC Dresdner Bank 5,200,000 5,200,000
(Longwood at Oakmont Inc. Project),
3.70%, 7/1/27, LOC Dresdner Bank 8,600,000 (b) 8,600,000
Beaver County IDA Pollution Control Revenue Bonds,
3.70%, 9/4/98, LOC Swiss Bank 7,600,000 7,600,000
(Duquesne Light Co. Project),
3.70%, 10/22/98, LOC Swiss Bank 6,000,000 6,000,000
Delaware County PCR, 3.50%, 8/5/98, FGIC Insured 2,000,000 2,000,000
Delaware Valley Regional Finance Authority,
3.45%, 8/1/16, LOC Credit Suisse 2,000,000 (b) 2,000,000
Lehigh County IDA
(Allegheny Electric Coop.) Series 1985,
3.65%, 12/1/15, LOC Rabobank Nederland 2,900,000 (b) 2,900,000
Quakertown Hospital Authority, 3.55%, 7/1/05,
LOC Pittsburgh National Bank 16,400,000 (b) 16,400,000
------------
50,700,000
------------
South Carolina (4.47%)
Berkeley County PCR Revenue,
3.50%, 12/1/08, LOC Royal Bank of Canada 10,725,000 (b) 10,725,000
York County PCR, 3.60%-3.75%,
8/11/98-10/8/98, Guaranty: Duke Power Co. 13,650,000 13,650,000
------------
24,375,000
------------
South Dakota (0.40%)
Housing Development Authority
(Homeownership Mortgage), 3.75%, 11/1/98 2,195,000 2,195,000
------------
Tennessee (0.34%)
Shelby County Public Improvement
Series 1989A, 3.87%, 8/1/98, Prerefunded 3,910,000 1,864,679
------------
Texas (6.98%)
Amarillo Independent School District,
3.75%, 2/1/99, Texas PSF guaranteed 1,555,000 1,526,437
City of Austin,
3.45%, 8/3/98, LOC Morgan Guaranty 1,000,000 1,000,000
City of Carrollton,
3.82%, 8/15/98, Prerefunded 2,000,000 2,001,959
See accompanying notes to investments in securities.
F-23
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Texas (continued)
Clint Independent School District,
3.65%, 3/1/99, Texas PSF guaranteed $825,000 $825,000
Cypress-Fairbanks Independent School District,
3.70%, 2/1/99, Texas PSF guaranteed 1,075,000 1,055,254
Goose Creek Consolidated Independent
School District Capital Appreciation Bonds,
3.68%, 2/15/99, Texas PSF guaranteed 1,200,000 1,176,815
Harris County Health Facilities Development
Corp. Hospital Revenue, 3.40%, 6/1/24,
LOC Societe Generale 4,800,000 (b) 4,800,000
Lone Star Airport Improvement, 3.75%,
12/1/14-8/15/25, LOC Royal Bank of Canada 2,700,000 (b) 2,700,000
Nueces River Authority PCR
(Reynolds Metals Co. Project),
3.70%, 12/01/99, LOC Bank of Nova Scotia 8,300,000 (b) 8,300,000
Pharr San Juan - Alamo
Independent School District G.O.,
3.75%, 2/1/99, PSF guaranteed 1,545,000 1,546,822
San Antonio Electric and Gas Revenue Refunding
Improvement, 3.75%, 2/1/99, Prerefunded 2,100,000 2,159,017
State Tax Anticipation Notes G.O.
Series 1996, 3.84%, 8/31/98 7,000,000 7,005,017
Tarrent County Housing Finance Corporation,
Multi-Family Housing - Single Family Apartments
Project, 3.50%, 11/1/17, LOC Suntrust Bank 4,025,000 (b) 4,025,000
------------
38,121,321
------------
Utah (3.70%)
Intermountain Power Agency,
3.50%, 9/9/98, LOC Bank of America 3,500,000 3,500,000
3.65%, 8/10/98, AMBAC Insured 3,500,000 3,500,000
State Board of Regents Student Loan Revenue Bonds
Series B, 3.50%, 11/1/00, AMBAC Insured 13,200,000 (b) 13,200,000
------------
20,200,000
------------
Washington (2.31%)
City of Federal Way G.O.,
3.82%, 6/1/99, AMBAC Insured 1,200,000 1,211,401
King County School District,
3.95%, 12/1/98, AMBAC Insured 1,435,000 1,436,623
State Health Care Facilities Authority
(Fred Hutchinson Cancer Center),
3.70%, 1/1/18, LOC Morgan Guaranty 3,310,000 (b) 3,310,000
State Housing Finance Commission,
3.70%, 7/1/11-1/1/21, LOC U.S. Bancorp 5,900,000 (b) 5,900,000
State of Washington G.O.
(Motor Vehicle Fuel Tax), 3.80%, 3/1/99,
Escrowed in Governments 750,000 764,665
------------
12,622,689
------------
West Virginia (0.16%)
State Hospital Finance Authority,
3.85%, 8/1/98, FSA Insured 875,000 875,000
------------
See accompanying notes to investments in securities.
F-24
<PAGE>
TAX-FREE MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Wisconsin (2.99%)
City of Madison G.O., 3.70%, 5/1/99 $2,280,000 $2,285,791
La Crosse IDA (Dairyland Power Cooperative),
3.70%, 9/1/14-2/1/15, AMBAC Insured 2,400,000 (b) 2,400,000
3.70%, 2/1/15, LOC AMBAC 4,550,000 (b) 4,550,000
State Health and Educational Facilities Authority,
3.80%, 10/1/26, LOC Firstar Bank 1,000,000 (b) 1,000,000
(Wheaton Franciscan), 3.75%, 8/15/98 3,000,000 3,064,900
State of Wisconsin G.O.,
3.78%, 5/1/99, Prerefunded 3,000,000 3,010,215
------------
16,310,906
------------
Wyoming (3.28%)
Lincoln County PCR, 3.70%, 11/1/14,
Guaranty: Exxon Corporation 5,100,000 (b) 5,100,000
Platte County PCR, 3.90%,
7/1/14, LOC Societe Generale 2,400,000 (b) 2,400,000
Sweetwater County PCR, 3.45%-3.50%,
6/4/98-10/6/98, LOC Union Bank of Switzerland 10,400,000 10,400,000
------------
17,900,000
- -------------------------------------------------------------------------------
Total Investments in Securities
(cost: $544,295,708) (d) $544,295,708
- -------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Interest rate varies to reflect current market conditions; rate shown is
the effective rate on July 31, 1998. The maturity date shown represents
final maturity. However, for purposes of Rule 2a-7, maturity is the next
interest rate reset date at which time the security can be put back to the
issuer.
(c) Portfolio abbreviations: AMBAC - American Municipal Bond
Association Corporation
CIBC - Canadian Imperial Bank of Commerce
FGIC - Financial Guaranty Insurance Corporation
FSA - Financial Security Assurance Corporation
G.O. - General Obligation
GECC - General Electric Capital Corporation
IDA - Industrial Development Authority
IDR - Industrial Development Revenue
LOC - Letter of Credit
MBIA - Municipal Bond Insurance Association
MFHR - Multi-Family Housing Revenue
PCR - Pollution Control Revenue
PSF - Texas Permanent School Fund
(d) Also represents cost for federal income tax purposes.
(e) On July 31, 1998, the cost of securities purchased on a when-issued basis
was $1,266,974.
F-25
<PAGE>
INSTITUTIONAL PRIME MONEY MARKET FUND
Investments in Securities
July 31, 1998
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Percentages of each investment category relate to total net assets.)
Commercial Paper & Other Corporate Obligations (93.04%):
- -------------------------------------------------------------------------------
Agricultural Products (3.01%)
Archer Daniels Midland Company, 5.50%, 8/17/98 $6,450,000 $6,434,233
------------
Banks - Domestic (11.42%)
Bankers Trust Company, 5.98%, 8/12/98 4,000,000 4,000,089
Citibank N.A., Bankers Acceptance, 5.50%, 9/14/98 713,273 708,478
Commed Fuel Co., Inc., 5.51%, 8/7/98,
LOC First National Bank of Chicago 4,765,000 4,760,624
First National Bank of Chicago,
5.72%-5.75%, 4/1/99-5/10/99 2,000,000 1,999,373
First Union National Bank, 5.56%, 9/22/98 8,000,000 8,000,000
Formosa Plastics Corporation USA,
5.51%,10/16/98, LOC Bank of America 5,000,000 4,941,839
------------
24,410,403
------------
Banks - Other (10.68%)
Bank of Nova Scotia, 5.50%, 8/19/98 5,000,000 4,986,250
Canadian Imperial Bank of Commerce,
5.82%, 9/30/98 5,000,000 5,000,068
Cemex S.A., 5.53%, 11/10/98, LOC Credit Suisse 3,000,000 2,953,456
Deutsche Bank, 5.57%-5.73%, 8/11/98-4/16/99 7,700,000 7,698,195
Societe Generale, 5.76%, 4/16/99 1,500,000 1,499,797
Swiss Bank Corporation, 5.65%, 3/24/99 700,000 699,432
------------
22,837,198
------------
Chemicals (5.31%)
Air Products and Chemicals, Inc., 5.50%, 8/18/98 3,200,000 3,191,689
Henkel Corporation, 5.50%, 9/18/98 8,215,000 (c) 8,154,757
------------
11,346,446
------------
Conglomorates (1.50%)
Diageo Capital PLC, 5.52%-5.60%, 8/12/98-8/31/98 3,208,000 (c) 3,196,747
------------
Drugs and Cosmetics (1.92%)
American Home Products Corporation,
5.48%, 10/9/98 3,735,000 (c) 3,695,770
Eli Lilly & Company, 5.59%, 2/16/99 400,000 403,173
------------
4,098,943
------------
Electronics (0.22%)
Emerson Electric Company, 5.47%, 10/30/98 485,000 478,368
------------
See accompanying notes to investments in securities.
F-26
<PAGE>
INSTITUTIONAL PRIME MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Commercial Paper & Other Corporate Obligations (continued):
- -------------------------------------------------------------------------------
Entertainment (3.79%)
Walt Disney Company, 5.65%, 8/3/98 $8,100,000 $8,097,458
------------
Financial - Auto (7.89%)
General Motors Acceptance Corporation,
5.49%, 11/2/98 8,000,000 7,886,540
Toyota Motor Credit Corporation, 5.51%, 8/25/98 9,015,000 8,981,885
------------
16,868,425
------------
Financial - Diversified Business (14.52%)
Associates Corporation of North America,
5.87%, 9/1/98 3,000,000 2,999,008
Avco Financial Services, 5.51%, 8/18/98 9,000,000 8,976,507
Morgan (J.P.) and Company,
5.48%-5.59%, 9/28/98-4/5/99 9,800,000 (d) 9,688,025
Morgan Stanley Dean Witter Discover,
5.52%, 3/2/99 2,000,000 (d) 1,999,271
Norwest Corporation, 5.50%, 8/14/98 7,395,000 7,380,313
------------
31,043,124
------------
Financial - Diversified Business, Asset-Backed (13.94%)
Asset Securitization Coop. Corporation,
5.52%, 8/21/98 6,970,000 (c) 6,948,625
Delaware Funding Corporation,
5.51%-5.55%, 8/28/98-10/20/98 9,836,000 (c) 9,756,386
Monte Rosa Capital Corporation, 5.57%, 8/14/98 8,210,000 (c) 8,193,546
Windmill Funding Corporation, 5.53%, 10/19/98 4,955,000 (c) 4,894,870
------------
29,793,427
------------
Household Products (8.57%)
Clorox Corporation, 5.50%, 8/10/98 9,110,000 9,097,474
Sherwin-Williams Company,
5.50%-5.52%, 8/12/98-10/2/98 9,302,000 (c) 9,229,460
------------
18,326,934
------------
Municipals (1.40%)
Parish of West Baton Rouge Industrial District #3,
5.63%, 11/1/25, Guaranty: Dow Chemical Co. 3,000,000 (e) 3,000,000
------------
Printing and Publishing (0.87%)
McGraw-Hill Companies, Inc., 5.51%, 8/27/98 1,870,000 1,862,558
------------
Retail Stores (4.67%)
J.C. Penney Funding Inc.,
5.50%, 8/28/98-9/11/98 10,030,000 (c) 9,982,691
------------
See accompanying notes to investments in securities.
F-27
<PAGE>
INSTITUTIONAL PRIME MONEY MARKET FUND
Investments in Securities (continued)
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------
Commercial Paper & Other Corporate Obligations (continued):
- -------------------------------------------------------------------------------
Utilities - Electric (3.33%)
Citizens Utilities Company, 5.55%, 8/24/98 $3,920,000 $3,906,100
Pacific Gas and Electric Company,
5.85%, 11/12/98 700,000 703,739
Southern California Edison Company,
5.60%, 12/15/98 930,000 929,170
Tampa Electric Company, 5.50%, 8/31/98 1,590,000 (c) 1,582,713
------------
7,121,722
- -------------------------------------------------------------------------------
Total Commercial Paper &
Other Corporate Obligations (cost: $198,898,677) $198,898,677
- -------------------------------------------------------------------------------
Government & Agencies Securities (6.55%):
- -------------------------------------------------------------------------------
Federal Home Loan Bank,
5.40%-5.55%, 11/6/98-3/10/99 14,000,000 (d) 13,997,438
- -------------------------------------------------------------------------------
Total Government & Agencies Securities
(cost: $13,997,438) $13,997,438
- -------------------------------------------------------------------------------
Total Investment in Securities
(cost: $212,896,115) (b) $212,896,115
- -------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Also represents cost for federal income tax purposes.
(c) All or a portion consists of commercial paper sold within terms of a
private placement memorandum, exempt from registration under section 4(2)
of the Securities Act of 1933, as amended, and may be sold only to dealers
in that program or other "accredited investors." These securities have
been determined to be liquid under guidelines established by the Board of
Directors.
(d) All or a portion consists of short-term securities with interest rates
that reset at set intervals at rates that are based on specific market
indices. Rate shown is the effective rate on July 31, 1998.
(e) Interest rate varies to reflect current market conditions; rate shown is
the effective rate on July 31, 1998. The maturity date shown represents
final maturity. However, for purposes of Rule 2a-7, maturity is the next
interest rate reset date at which time the security can be put back to the
issuer.
F-28
