<PAGE>
BRAZOS MUTUAL FUNDS
Performance Summary
Fund Performance Summary
(Unaudited)
<TABLE>
<CAPTION>
Fiscal
Quarter Year Inception
Ending To Date to
5/31/99 5/31/99 5/31/99
------- ------- ---------
<S> <C> <C> <C>
Brazos Small Cap Growth(/1/) Inception 12/31/96 9.1% 15.5% 27.1%
Russell 2000 Index 12.3% 11.0% 24.7%
Brazos Real Estate Securities(/1/) Inception
12/31/96 12.4% 7.2% 6.0%
NAREIT Equity Index 11.1% 3.8% 6.5%
Brazos Micro Cap Growth(/1/) Inception 12/31/97 22.8% 29.3% 36.6%
Russell 2000 Index 12.3% 11.0% 1.9%
Brazos Growth(/1/) Inception 12/31/98 30.8% 32.8% 32.8%
S&P 400 Midcap Index 11.4% 1.4% 1.4%
</TABLE>
(1) Past performance is not indicative of future results. Investment returns
and principal values may fluctuate, so that, when redeemed, shares may be
worth more or less than their original value.
1
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Common Stock -- 97.1%
Basic Resources (Not Energy) -- 0.4%
MacDermid, Inc....................................... 49,800 $ 2,004,450
------------
2,004,450
------------
Business Services -- 10.3%
Abacus Direct Corp.*................................. 46,729 3,437,502
The Corporate Executive Board Company*............... 153,000 4,484,812
Harte-Hanks, Inc..................................... 154,194 3,507,914
Iron Mountain, Inc.*................................. 204,015 5,635,914
The Metzler Group, Inc.*............................. 251,600 8,239,900
NOVA Corp.*.......................................... 227,167 5,054,466
Paychex, Inc......................................... 309,634 9,172,922
The Profit Recovery Group International, Inc.*....... 275,588 10,145,083
Sykes Enterprises, Inc.*............................. 83,800 2,608,275
------------
52,286,788
------------
Consumer Durables -- 2.4%
D.R. Horton, Inc..................................... 119,000 2,023,000
Gentex Corp.*........................................ 260,000 7,808,125
Toll Brothers, Inc.*................................. 119,800 2,613,138
------------
12,444,263
------------
Consumer Merchandising -- 13.5%
99 Cents Only Stores*................................ 95,331 4,492,473
Ames Department Stores, Inc.*........................ 160,730 6,589,930
BJ's Wholesale Club, Inc.*........................... 110,636 2,876,536
Blue Rhino Corp.*.................................... 210,800 2,318,800
Brown Shoe Company, Inc.............................. 139,000 2,641,000
The Cheesecake Factory, Inc.*........................ 164,156 4,534,810
Claire's Stores, Inc................................. 135,300 3,957,525
Cost Plus, Inc.*..................................... 148,450 5,548,319
Linens 'n Things, Inc.*.............................. 185,936 7,414,198
PETsMART, Inc.*...................................... 663,200 5,968,800
Regis Corp........................................... 160,087 3,862,099
Ross Stores, Inc..................................... 167,300 7,685,344
Sonic Automotive, Inc.*.............................. 337,300 4,384,900
Starbucks Corp.*..................................... 168,200 6,202,375
------------
68,477,109
------------
Consumer Non-Durables -- 0.8%
Wild Oats Markets, Inc.*............................. 147,261 4,316,588
------------
4,316,588
------------
Consumer Services -- 9.8%
Bright Horizons Family Solutions, Inc.*.............. 364,573 6,926,887
DeVry, Inc.*......................................... 397,226 8,838,278
</TABLE>
See accompanying Notes to Financial Statements
2
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Consumer Services -- 9.8% (continued)
Education Management Corp.*.......................... 360,300 $ 6,440,363
International Speedway Corp.......................... 216,605 10,613,645
SFX Entertainment, Inc.*............................. 164,800 8,971,300
Sylvan Learning Systems, Inc.*....................... 287,756 7,841,351
------------
49,631,824
------------
Electronic Technology -- 9.4%
ANTECH Corp.*........................................ 289,900 8,497,694
C-COR Electronics, Inc.*............................. 138,600 3,274,425
CommScope, Inc.*..................................... 94,900 2,491,125
DSP Communications, Inc.*............................ 133,100 4,092,825
Harmonic, Inc.*...................................... 250,100 12,348,687
Oak Industries, Inc.................................. 211,937 10,212,714
SDL, Inc.*........................................... 71,100 6,612,300
------------
47,529,770
------------
Energy -- 1.0%
Pogo Producing Company............................... 161,700 2,961,131
Transmontaigne, Inc.*................................ 141,898 2,004,309
------------
4,965,440
------------
Financial -- 8.4%
AmeriCredit Corp.*................................... 387,276 6,172,211
Bank United Corp. Class-A............................ 119,900 4,960,863
First Sierra Financial, Inc.*........................ 94,900 2,087,800
FirstMerit Corp...................................... 129,000 3,523,313
Golden State Bancorp, Inc.*.......................... 169,000 4,151,063
HealthCare Financial Partners, Inc.*................. 281,694 9,507,173
Indigo Aviation AB ADR.*............................. 245,357 1,901,517
Knight/Trimark Group, Inc. Class-A*.................. 62,600 3,505,600
Litchfield Financial Corp............................ 76,500 1,243,125
Metris Companies, Inc................................ 75,741 4,416,643
NextCard, Inc.*...................................... 32,600 975,962
Sky Financial Group, Inc............................. 15,000 441,562
------------
42,886,832
------------
Healthcare Products -- 3.3%
Dura Pharmaceuticals, Inc.*.......................... 336,400 3,490,150
Jones Pharma, Inc.................................... 108,440 3,856,397
Medicis Pharmaceutical Corp.*........................ 138,367 3,701,317
PharmaPrint, Inc.*................................... 219,700 1,688,944
Waters Corp.*........................................ 39,436 3,889,376
------------
16,626,184
------------
Healthcare Services -- 5.8%
Accredo Health, Inc.*................................ 242,900 6,619,025
Advance Paradigm, Inc.*.............................. 43,300 2,094,638
</TABLE>
See accompanying Notes to Financial Statements
3
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Healthcare Services -- 5.8% (continued)
Concentra Managed Care, Inc.*........................ 94,400 $ 1,386,500
MAXIMUS, Inc.*....................................... 175,812 5,230,407
Omnicare, Inc........................................ 173,200 4,145,975
Professional Detailing, Inc.*........................ 138,200 3,765,950
Trigon Healthcare, Inc.*............................. 157,200 5,993,250
------------
29,235,745
------------
Media -- 13.2%
American Tower Corp.................................. 283,406 6,376,635
Capstar Broadcasting Corp.*.......................... 105,200 2,643,150
Cinar Corp.*......................................... 387,420 9,201,225
Clear Channel Communications, Inc.*.................. 173,961 11,492,298
Hispanic Broadcasting Corp.*......................... 169,326 10,519,378
Infoseek Corp.*...................................... 62,200 2,604,625
Outdoor Systems, Inc.*............................... 581,281 17,402,099
Pixar, Inc.*......................................... 56,800 2,243,600
TMP Worldwide, Inc.*................................. 50,871 2,483,141
Westwood One, Inc.................................... 67,700 2,352,575
------------
67,318,726
------------
Technology Services & Software -- 14.7%
Affiliated Computer Services, Inc.*.................. 248,456 10,776,779
CSG Systems International, Inc.*..................... 257,208 8,214,581
EarthWeb, Inc.*...................................... 67,200 2,293,200
Great Plains Software, Inc.*......................... 124,800 4,703,400
INSpire Insurance Solutions, Inc.*................... 189,004 3,295,757
NetGravity, Inc.*.................................... 98,600 2,082,925
Network Solutions, Inc.*............................. 38,664 2,459,997
Pervasive Software, Inc.*............................ 419,000 7,175,375
SunGard Data Systems, Inc.*.......................... 440,692 15,424,220
Superior Consultant Holdings Corp.*.................. 110,100 4,135,631
Transaction Systems Architects, Inc.*................ 233,862 7,454,351
USWeb Corp.*......................................... 164,117 4,164,469
Visual Networks, Inc.*............................... 86,800 2,560,600
------------
74,741,285
------------
Traditional Heavy Industry -- 4.1%
Cummins Engine Company, Inc.......................... 206,500 10,454,063
Tetra Tech, Inc.*.................................... 206,813 4,394,776
Waste Connections, Inc.*............................. 224,700 6,010,725
------------
20,859,564
------------
Total Common Stock (Cost $434,989,461)........................... 493,324,568
------------
</TABLE>
See accompanying Notes to Financial Statements
4
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Mutual Funds -- 3.2%
Firstar Institutional Money Market.................. 8,048,994 8,048,994
Firstar US Government Money Market.................. 8,048,994 8,048,994
------------
Total Mutual Funds (Cost $16,097,988)........................... 16,097,988
------------
Total Investments -- 100.3% (Cost $451,087,449)........ 509,422,556
Other Assets and Liabilities (Net) -- (0.3%)........... (1,679,240)
------------
Total Net Assets -- 100.0%............................. $507,743,316
============
</TABLE>
* Denotes non-income producing security.
See accompanying Notes to Financial Statements
5
<PAGE>
BRAZOS MUTUAL FUNDS -- REAL ESTATE SECURITIES PORTFOLIO
Schedule of Portfolio Investments (Unaudited) May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Reit Stock -- 95.7%
Apartments -- 16.4%
Apartment Investment & Management Company............ 49,400 $ 2,074,800
Archstone Communities Trust.......................... 110,157 2,478,533
Avalonbay Communities, Inc........................... 66,462 2,351,093
BRE Properties, Inc.................................. 18,400 474,950
Camden Property Trust................................ 76,700 2,104,456
Equity Residential Property Trust.................... 97,300 4,664,319
Essex Property Trust, Inc............................ 27,800 893,075
Gables Residential Trust............................. 82,500 1,980,000
Home Properties of New York, Inc..................... 38,500 1,003,406
Post Properties, Inc................................. 45,700 1,913,688
Walden Residential Properties, Inc................... 71,200 1,419,550
------------
21,357,870
------------
Free Standing -- 2.3%
Captec Net Lease Realty,Inc.......................... 63,800 857,312
Franchise Finance Corporation of America............. 63,300 1,558,762
U.S. Restaurant Properties, Inc...................... 29,200 625,975
------------
3,042,049
------------
Healthcare -- 5.4%
American Health Properties, Inc...................... 40,400 808,000
ElderTrust........................................... 40,800 397,800
Health Care Property Investors, Inc.................. 32,500 985,156
Healthcare Realty Trust, Inc......................... 71,800 1,552,675
HRPT Properties Trust................................ 86,600 1,326,062
LTC Properties, Inc.................................. 22,500 299,531
Nationwide Health Properties, Inc.................... 36,400 741,650
OMEGA Healthcare Investors, Inc...................... 15,100 396,375
Ventas, Inc.......................................... 97,000 521,375
------------
7,028,624
------------
Industrial -- 7.8%
AMB Property Corp.................................... 121,200 2,727,000
First Industrial Realty Trust, Inc................... 78,500 2,124,406
Prologis Trust....................................... 226,100 4,620,919
Weeks Corp........................................... 21,400 668,750
------------
10,141,075
------------
Lodging/Resorts -- 8.1%
Candlewood Hotel Company, Inc........................ 80,900 293,262
Equity Inns, Inc..................................... 26,100 249,581
FelCor Lodging Trust, Inc............................ 132,587 3,008,068
Hospitality Properties Trust......................... 49,400 1,339,975
Host Marriott Corp................................... 308,200 3,852,500
</TABLE>
See accompanying Notes to Financial Statements
6
<PAGE>
BRAZOS MUTUAL FUNDS -- REAL ESTATE SECURITIES PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Lodging/Resorts -- 8.3% (continued)
Innkeepers USA Trust................................. 73,900 $ 762,094
MeriStar Hospitality Corp............................ 12,500 273,438
Patriot American Hospitality, Inc.................... 51,000 264,563
Promus Hotel Corp.*.................................. 10,900 272,500
RFS Hotel Investors, Inc............................. 1,700 23,269
Sunstone Hotel Investors, Inc........................ 48,800 442,250
------------
10,781,500
------------
Manufactured Homes -- 1.7%
Chateau Communities, Inc............................. 20,000 603,750
Manufactured Home Communities, Inc................... 44,800 1,159,200
Sun Communities, Inc................................. 11,000 402,188
------------
2,165,138
------------
Mixed: Office/Industrial -- 3.5%
Bedford Property Investors, Inc...................... 45,300 784,256
Duke Realty Investments, Inc......................... 59,700 1,380,562
Liberty Property Trust............................... 72,900 1,758,712
Reckson Associates Realty Corp....................... 22,000 569,250
------------
4,492,780
------------
Office -- 17.3%
Arden Realty, Inc.................................... 63,200 1,615,550
Brandywine Realty Trust.............................. 60,400 1,174,025
CarrAmerica Realty Corp.............................. 93,100 2,321,681
Cornerstone Properties, Inc.......................... 119,900 1,985,844
Equity Office Properties Trust....................... 190,178 5,372,528
Great Lakes REIT, Inc................................ 21,000 333,375
Highwoods Properties, Inc............................ 88,100 2,318,131
Mack-Cali Realty Corp................................ 57,500 1,861,562
Parkway Properties, Inc.............................. 16,000 529,000
Prentiss Properties Trust............................ 48,100 1,136,363
SL Green Realty Corp................................. 93,500 2,033,625
Spieker Properties, Inc.............................. 31,500 1,289,531
TrizecHahn Corp...................................... 25,600 528,000
------------
22,499,215
------------
Other -- 8.3%
Crescent Real Estate Equities Company................ 126,500 2,917,406
Glenborough Realty Trust, Inc........................ 110,200 2,018,037
Meditrust Companies.................................. 210,300 2,917,913
Vornado Realty Trust................................. 74,300 2,883,769
------------
10,737,125
------------
</TABLE>
See accompanying Notes to Financial Statements
7
<PAGE>
BRAZOS MUTUAL FUNDS -- REAL ESTATE SECURITIES PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31,1999
<TABLE>
<CAPTION>
Shares Market Value
--------- ------------
<S> <C> <C>
Regional Malls -- 9.8%
General Growth Properties, Inc.................... 36,500 $ 1,402,969
The Macherich Company............................. 57,100 1,509,581
The Rouse Company................................. 122,400 3,151,800
Simon Property Group, Inc......................... 137,300 4,016,025
Taubman Centers, Inc.............................. 33,200 454,425
Urban Shopping Centers, Inc....................... 27,400 904,200
Westfield America, Inc............................ 72,800 1,210,300
------------
12,649,300
------------
Specialty -- 0.8%
Golf Trust of America, Inc........................ 25,500 621,562
Prison Realty Trust, Inc.......................... 31,900 402,738
------------
1,024,300
------------
Storage -- 3.6%
Public Storage, Inc............................... 108,236 3,159,138
Storage USA, Inc.................................. 46,200 1,541,925
------------
4,701,063
------------
Strip Centers -- 10.5%
Bradley Real Estate, Inc.......................... 40,700 849,613
Burnham Pacific Properties, Inc................... 71,000 785,438
Developers Diversified Realty Corp................ 160,400 2,646,600
First Washington Realty Trust, Inc................ 30,800 669,900
IRT Property Company.............................. 77,300 748,844
JDN Realty Corp................................... 21,300 465,937
Kimco Realty Corp................................. 42,500 1,697,344
New Plan Excel Realty Trust....................... 117,700 2,354,000
Pan Pacific Retail Properties, Inc................ 60,800 1,208,400
Phillips International Realty Corp................ 23,800 382,288
Regency Realty Corp............................... 82,300 1,815,744
------------
13,624,108
------------
Total Reit Stock (Cost $120,384,029).......................... 124,244,147
------------
Mutual Funds -- 4.8%
Firstar Institutional Money Market................ 3,065,977 3,065,977
Firstar US Government Money Market................ 3,152,500 3,152,500
------------
Total Mutual Funds (Cost $6,218,477).......................... 6,218,477
------------
Total Investments -- 100.5% (Cost $126,602,506)................. 130,462,624
------------
Other Assets and Liabilities (Net) -- (0.5)%.................... (665,094)
------------
Total Net Assets -- 100.0%...................................... $129,797,530
============
</TABLE>
See accompanying Notes to Financial Statements
8
<PAGE>
BRAZOS MUTUAL FUNDS -- MICRO CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
-------- ------------
<S> <C> <C>
Common Stock -- 84.8%
Business Services -- 7.8%
Abacus Direct Corp.*.................................. 6,800 $ 500,225
The Corporate Executive Board Company*................ 22,000 644,875
Market Facts, Inc.*................................... 59,900 1,875,619
Paymentech, Inc.*..................................... 75,000 1,879,687
The Profit Recovery Group International, Inc.*........ 32,400 1,192,725
-----------
6,093,131
-----------
Consumer Merchandising -- 12.8%
99 Cents Only Stores*................................. 23,750 1,119,219
Ames Department Stores, Inc.*......................... 35,400 1,451,400
Blue Rhino Corp.*..................................... 51,800 569,800
Brown Shoe Company, Inc............................... 20,800 395,200
Buca, Inc.*........................................... 66,000 1,146,750
The Cheesecake Factory, Inc.*......................... 26,500 732,063
Chico's Fas, Inc.*.................................... 25,000 567,187
Cost Plus, Inc.*...................................... 22,050 824,119
O'Charleys, Inc.*..................................... 72,400 945,725
PJ America, Inc.*..................................... 45,000 1,054,688
Rubio's Restaurants, Inc.............................. 35,000 527,187
Sonic Automotive, Inc.*............................... 46,000 598,000
-----------
9,931,338
-----------
Consumer Non Durables -- 0.8%
Wild Oats Markets, Inc.*.............................. 21,200 621,425
-----------
621,425
-----------
Consumer Services -- 6.2%
Bright Horizons Family Solutions, Inc.*............... 66,010 1,254,190
Bristol Hotels & Resorts, Inc.*....................... 18,800 151,575
Carriage Services, Inc.*.............................. 40,000 682,500
CustomTracks Corp..................................... 25,000 1,500,000
Education Management Corp.*........................... 70,300 1,256,613
-----------
4,844,878
-----------
Electronic Technology -- 13.7%...........................
ANTEC Corp.*.......................................... 40,300 1,181,294
AstroPower, Inc.*..................................... 135,200 1,766,050
C-COR Electronics, Inc.*.............................. 47,600 1,124,550
DSP Communications, Inc.*............................. 38,700 1,190,025
Harmonic, Inc.*....................................... 41,200 2,034,250
Maker Communications, Inc.*........................... 15,000 343,125
Oak Industries, Inc................................... 33,600 1,619,100
PLX Technology, Inc.*................................. 75,000 1,368,750
-----------
10,627,144
-----------
</TABLE>
See accompanying Notes to Financial Statements
9
<PAGE>
BRAZOS MUTUAL FUNDS -- MICRO CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
------- ------------
<S> <C> <C>
Energy -- 3.9%
Key Production Company, Inc.*.......................... 83,700 $ 711,450
Midcoast Energy Resources, Inc......................... 94,000 1,527,500
TransMontaigne Inc.*................................... 56,900 803,712
----------
3,042,662
----------
Financial -- 5.3%
First Sierra Financial, Inc.*.......................... 23,200 510,400
HealthCare Financial Partners, Inc.*................... 46,300 1,562,625
Indigo Aviation AB ADR*................................ 82,800 641,700
Litchfield Financial Corp.............................. 41,200 669,500
Mobile Mini, Inc.*..................................... 54,800 722,675
----------
4,106,900
----------
Healthcare Products -- 4.7%
Dura Pharmaceuticals, Inc.*............................ 93,500 970,063
Invitrogen Corp.*...................................... 74,000 1,443,000
Medicis Pharmaceutical Corp.*.......................... 24,450 654,037
PharmaPrint, Inc.*..................................... 76,000 584,250
----------
3,651,350
----------
Healthcare Services -- 15.9%
Accredo Health, Inc.*.................................. 67,100 1,828,475
Advance Paradigm, Inc.*................................ 24,300 1,175,513
Concentra Managed Care, Inc.*.......................... 146,000 2,144,375
MAXIMUS, Inc.*......................................... 39,200 1,166,200
MEDE AMERICA Corp.*.................................... 100,000 3,075,000
OnHealth Network Company*.............................. 48,700 557,006
Orthodontic Centers of America, Inc.*.................. 80,600 972,237
PAREXEL International Corp.*........................... 24,700 591,256
Professional Detailing, Inc.*.......................... 29,300 798,425
----------
12,308,487
----------
Media -- 4.4%
Cinar Corp.*........................................... 68,700 1,631,625
Emmis Communications Corp. Class-A*.................... 15,000 701,250
Media Metrix, Inc.*.................................... 15,000 713,437
TMP Worldwide, Inc.*................................... 7,300 356,331
----------
3,402,643
----------
Technology Services & Software -- 7.2%
Earth Web, Inc.*....................................... 18,300 624,488
Great Plains Software, Inc.*........................... 16,500 621,844
INSpire Insurance Solutions, Inc.*..................... 66,000 1,150,875
Insurance Mgmt Solutions Group, Inc.*.................. 75,000 684,375
Pervasive Software, Inc.*.............................. 92,400 1,582,350
Superior Consultant Holdings Corp.*.................... 25,400 954,087
----------
5,618,019
----------
</TABLE>
See accompanying Notes to Financial Statements
10
<PAGE>
BRAZOS MUTUAL FUNDS -- MICRO CAP GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
----------- ------------
<S> <C> <C>
Traditional Heavy Industry -- 2.1%
Tetra Tech, Inc.*.................................. 31,575 $ 670,969
Waste Connections, Inc.*........................... 35,800 957,650
-----------
1,628,619
-----------
Total Common Stocks (Cost $53,794,865)........................... 65,876,596
-----------
Mutual Funds -- 9.0%
Firstar Institutional Money Market................. 3,464,729 3,464,729
Firstar US Government Money Market................. 3,465,230 3,465,230
-----------
Total Mutual Funds (Cost $6,929,959)............................. 6,929,959
-----------
<CAPTION>
Par Value
-----------
<S> <C> <C>
Government Securities -- 3.0%
U.S. Treasury Bill, 3.63%, 6/10/99................. $ 2,360,000 2,357,623
-----------
Total Government Securities (Cost $2,357,623).................... 2,357,623
-----------
Total Investments -- 96.8% (Cost $63,082,447)...................... 75,164,178
-----------
Other Assets and Liabilities (Net) -- 3.2%......................... 2,489,551
-----------
Total Net Assets -- 100%........................................... $77,653,729
===========
</TABLE>
* Denotes non-income producing security
See accompanying Notes to Financial Statements
11
<PAGE>
BRAZOS MUTUAL FUNDS -- GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
------- ------------
<S> <C> <C>
Common Stock -- 90.9%
Business Services -- 7.7%
Concord EFS, Inc.*..................................... 4,500 $ 152,438
Iron Mountain, Inc.*................................... 4,700 129,838
MSC Industrial Direct Co., Inc. Class-A................ 8,000 151,000
The Metzler Group, Inc.*............................... 4,400 144,100
NOVA Corp.*............................................ 4,700 104,575
Paychex, Inc........................................... 4,200 124,425
-----------
806,376
-----------
Consumer Durables -- 5.8%
D.R. Horton, Inc....................................... 6,300 107,100
Gentex Corp.*.......................................... 6,800 204,212
Toll Brothers, Inc.*................................... 6,400 139,600
WestPoint Stevens, Inc................................. 5,000 158,125
-----------
609,037
-----------
Consumer Merchandising -- 19.7%
Ames Department Stores, Inc.*.......................... 6,800 278,800
BJ's Wholesale Club, Inc.*............................. 5,400 140,400
Brinker International, Inc.*........................... 8,600 241,338
CSK Auto Corp.*........................................ 4,900 137,200
Dollar Tree Stores, Inc.*.............................. 3,400 114,325
InterTAN, Inc.*........................................ 10,000 154,375
Linens 'n Things, Inc.*................................ 3,000 119,625
Outback Steakhouse, Inc.*.............................. 6,300 226,012
PETsMART, Inc.*........................................ 15,700 141,300
Ross Stores, Inc....................................... 1,700 78,094
Starbucks Corp.*....................................... 3,600 132,750
Tandy Corp............................................. 3,500 288,750
-----------
2,052,969
-----------
Consumer Services -- 1.5%
SFX Entertainment, Inc.*............................... 2,900 157,869
-----------
157,869
-----------
Electronic Technology -- 11.0%
ADC Telecommunications, Inc.*.......................... 4,500 219,938
ANTEC Corp.*........................................... 5,500 161,219
General Instrument Corp.*.............................. 4,500 174,094
Harmonic, Inc.*........................................ 4,900 241,937
Oak Industries, Inc.................................... 4,300 207,206
Scientific-Atlanta, Inc................................ 4,000 141,250
-----------
1,145,644
-----------
</TABLE>
See accompanying Notes to Financial Statements
12
<PAGE>
BRAZOS MUTUAL FUNDS -- GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C>
Energy -- 4.2%
Apache Corp............................................. 3,300 $ 118,800
The Coastal Corp........................................ 2,600 100,262
Vastar Resources, Inc................................... 4,000 220,000
-----------
439,062
-----------
Financial -- 11.8%
Charter One Financial, Inc.............................. 6,200 176,313
The FINOVA Group, Inc................................... 4,200 200,812
Knight/Trimark Group, Inc. Class-A*..................... 1,000 56,000
MBNA Corp............................................... 8,500 234,812
Mercantile Bancorporation, Inc.......................... 2,200 128,563
Metris Companies, Inc................................... 3,400 198,262
Paine Webber Group, Inc................................. 5,000 235,000
-----------
1,229,762
-----------
Healthcare Products -- 3.0%
Dura Pharmaceuticals, Inc.*............................. 10,700 111,012
Waters Corp.*........................................... 2,000 197,250
-----------
308,262
-----------
Healthcare Services -- 7.3%
Concentra Managed Care, Inc.*........................... 12,500 183,594
MAXIMUS, Inc.*.......................................... 5,100 151,725
MEDE AMERICA Corp.*..................................... 10,000 307,500
Wellpoint Health Networks, Inc.*........................ 1,400 115,413
-----------
758,232
-----------
Media -- 7.5%
American Tower Corp..................................... 5,400 121,500
CBS Corp.*.............................................. 3,500 146,125
Capstar Broadcasting Corp.*............................. 4,300 108,037
Hispanic Broadcasting Corp.*............................ 2,800 173,950
Infoseek Corp.*......................................... 1,100 46,063
Outdoor Systems, Inc.*.................................. 6,300 188,606
-----------
784,281
-----------
Technology Services & Software -- 7.9%
Affiliated Computer Services, Inc.*..................... 2,000 86,750
CSG Systems International, Inc.*........................ 4,500 143,719
EarthWeb, Inc.*......................................... 1,200 40,950
Fiserv, Inc.*........................................... 5,250 196,875
Network Solutions, Inc.*................................ 1,200 76,350
SunGard Data Systems, Inc.*............................. 4,900 171,500
Transaction Systems Architects, Inc.*................... 3,400 108,375
-----------
824,519
-----------
</TABLE>
See accompanying Notes to Financial Statements
13
<PAGE>
BRAZOS MUTUAL FUNDS -- GROWTH PORTFOLIO
Schedule of Portfolio Investments (Unaudited) -- continued May 31, 1999
<TABLE>
<CAPTION>
Shares Market Value
-------- ------------
<S> <C> <C>
Traditional Heavy Industry -- 3.5%
Danaher Corp.......................................... 3,000 $ 181,312
PACCAR, Inc........................................... 3,300 185,831
-----------
367,143
-----------
Total Common Stocks (Cost $8,884,338)............................ 9,483,156
-----------
Mutual Funds -- 8.5%
Firstar Institutional Money Market.................... 443,518 443,518
Firstar US Government Money Market.................... 443,518 443,518
-----------
Total Mutual Funds (Cost $887,036)............................... 887,036
-----------
<CAPTION>
Par
Value
--------
<S> <C> <C>
Government Securities -- 2.9%
U.S. Treasury Bill, 3.86%, 6/10/99.................... $300,000 299,678
-----------
Total Government Securities (Cost $299,678)...................... 299,678
-----------
Total Investments -- 102.3% (Cost $10,071,052)..................... 10,669,870
-----------
Other Assets and Liabilities (Net) -- (2.3)%....................... (236,886)
-----------
Total Net Assets -- 100%........................................... $10,432,984
===========
</TABLE>
* Denotes non-income producing security
See accompanying Notes to Financial Statements
14
<PAGE>
BRAZOS MUTUAL FUNDS
Statements of Assets and Liabilities (Unaudited) May 31, 1999
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap
Growth Securities Growth Growth
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
--------------------------------------------------------
Assets:
Investments, at market
value (identified cost
$451,087,449,
$126,602,506,
$63,082,447 and
$10,071,052,
respectively).......... $509,422,556 $130,462,624 $75,164,178 $10,669,870
Cash.................... 107,201 9,460 50,235 49,960
Receivable for
investment securities
sold................... 4,559,702 947,365 1,954,871 214,835
Receivable for fund
shares sold............ -- -- 800,031 --
Dividends and interest
receivable............. 164,400 196,332 26,280 4,002
Deferred organization
costs.................. 17,354 17,354 -- --
Other assets............ 11,032 18,370 30,299 12,445
--------------------------------------------------------
Total Assets.......... 514,282,245 131,651,505 78,025,894 10,951,112
--------------------------------------------------------
Liabilities:
Payable for investment
securities purchased... 5,928,824 1,673,108 219,844 455,526
Payable to Adviser...... 389,778 98,613 76,862 14,481
Payable for fund shares
repurchased............ -- -- 17,392 --
Other accrued expenses.. 220,327 82,254 58,067 48,121
--------------------------------------------------------
Total Liabilities..... 6,538,929 1,853,975 372,165 518,128
--------------------------------------------------------
Net Assets.............. $507,743,316 $129,797,530 $77,653,729 $10,432,984
========================================================
Net Assets Consisted Of:
Capital paid in......... $448,116,291 $139,030,394 $59,227,983 $8,127,041
Undistributed net
investment income
(loss)................. (1,607,744) 1,306,362 (321,440) (13,768)
Accumulated net realized
gain (loss)............ 2,899,662 (14,399,344) 6,665,455 1,720,893
Net unrealized
appreciation on
investments............ 58,335,107 3,860,118 12,081,731 598,818
--------------------------------------------------------
Total Net Assets........ $507,743,316 $129,797,530 $77,653,729 $10,432,984
========================================================
Shares of beneficial
interest outstanding
(unlimited shares of no
par value authorized).. 31,252,831 13,465,230 4,989,877 785,500
Net Asset Value,
offering and redemption
price per share........ $16.25 $9.64 $15.56 $13.28
========================================================
</TABLE>
See accompanying Notes to Financial Statements
15
<PAGE>
BRAZOS MUTUAL FUNDS
Statements of Operations for the Six-Month Period ended May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Real
Small Cap Estate Micro Cap
Growth Securities Growth Growth
Portfolio Portfolio Portfolio Portfolio+
<S> <C> <C> <C> <C>
-------------------------------------------------
Investment Income:
Dividends................. $ 192,571 $3,725,833 $ 4,417 $ 6,362
Interest.................. 545,455 179,795 149,765 20,800
-------------------------------------------------
Total investment income. 738,026 3,905,628 154,182 27,162
-------------------------------------------------
Expenses:
Advisory fees............. 1,905,910 477,518 375,275 28,161
Administration fees....... 139,457 37,745 21,327 10,570
Accounting fees........... 30,002 16,305 13,579 9,888
Custodian fees............ 51,766 44,316 12,482 6,038
Transfer agent fees and
expenses................. 31,095 9,029 7,254 7,515
Trustees' fees and
expenses................. 2,544 2,580 2,672 2,315
Amortization of
organization and offering
expenses................. 839 839 -- --
Registration fees......... 97,989 26,970 21,627 11,390
Reports to shareholders... 11,329 6,065 4,693 6,555
Professional fees......... 66,041 20,952 15,150 8,937
Other..................... 8,798 2,167 1,563 1,574
-------------------------------------------------
Total expenses before
fee waivers............ 2,345,770 644,486 475,622 92,943
Advisory fees waived.... -- -- -- (28,161)
Administration fees
waived................. -- -- -- (3,125)
Accounting fees waived.. -- -- -- (2,750)
Transfer agent fees
waived................. -- -- -- (1,250)
Reimbursement by
Adviser................ -- -- -- (16,727)
-------------------------------------------------
Total expenses, net..... 2,345,770 644,486 475,622 40,930
-------------------------------------------------
Net Investment Income
(Loss)................... (1,607,744) 3,261,142 (321,440) (13,768)
-------------------------------------------------
Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain (loss)
on investment
transactions............. 22,862,260 (6,807,092) 7,233,390 1,720,893
Net unrealized
appreciation on
investments during the
period................... 33,239,569 13,120,600 9,344,841 598,818
-------------------------------------------------
Net gain on investments... 56,101,829 6,313,508 16,578,231 2,319,711
-------------------------------------------------
Net Increase in Net Assets
Resulting From Operations.. $ 54,494,085 $9,574,650 $16,256,791 $2,305,943
=================================================
</TABLE>
+ The Growth Portfolio commenced operations on December 31, 1998.
See accompanying Notes to the Financial Statements
16
<PAGE>
BRAZOS MUTUAL FUNDS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap
Growth Securities Growth Growth
Portfolio Portfolio Portfolio Portfolio+
<S> <C> <C> <C> <C>
----------------------------------------------------
For the Six-Month Period
Ended May 31, 1999
(Unaudited)
Increase (Decrease) in
Net Assets:
Operations:
Net investment income
(loss)................ $ (1,607,744) $ 3,261,142 $ (321,440) $ (13,768)
Net realized gain
(loss) on investment
transactions.......... 22,862,260 (6,807,092) 7,233,390 1,720,893
Net unrealized
appreciation of
investments during the
period................ 33,239,569 13,120,600 9,344,841 598,818
----------------------------------------------------
Net increase in net
assets resulting from
operations............ 54,494,085 9,574,650 16,256,791 2,305,943
----------------------------------------------------
Distributions to
shareholders from:
Net investment income.. -- (2,390,380) -- --
Net realized gain on
investments........... -- -- -- --
----------------------------------------------------
Total distributions.... -- (2,390,380) -- --
----------------------------------------------------
Increase in net assets
from Fund share
transactions............ 140,041,924 37,824,237 13,622,953 8,127,041
----------------------------------------------------
Total increase in net
assets................ 194,536,009 45,008,507 29,879,744 10,432,984
Net Assets:
Beginning of period.... 313,207,307 84,789,023 47,773,985 0
----------------------------------------------------
End of period.......... $507,743,316 $129,797,530 $77,653,729 $10,432,984
====================================================
Undistributed Net
Investment Income
(Loss) included in Net
Assets at May 31,
1999.................. $ (1,607,744) $ 1,306,362 $ (321,400) $ (13,768)
====================================================
</TABLE>
+ The Growth Portfolio commenced operations on December 31, 1998.
See accompanying Notes to the Financial Statements
17
<PAGE>
BRAZOS MUTUAL FUNDS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap
Growth Securities Growth
Portfolio Portfolio Portfolio+
<S> <C> <C> <C>
--------------------------------------
For the Year Ended November 30, 1998
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss)......... $ (1,321,902) $ 3,324,100 $ (125,108)
Net realized loss on investment
transactions........................ (19,900,633) (7,566,179) (567,935)
Net unrealized appreciation
(depreciation) of investments during
the period.......................... 22,192,195 (9,733,110) 2,736,890
--------------------------------------
Net increase (decrease) in net assets
resulting from operations........... 969,660 (13,975,189) 2,043,847
--------------------------------------
Distributions to shareholders from:
Net investment income................ -- (3,252,946) --
Net realized gain on investments..... (650,416) (567,899) --
--------------------------------------
Total distributions.................. (650,416) (3,820,845) --
--------------------------------------
Increase in net assets from Fund share
transactions.......................... 231,990,081 49,276,804 45,730,138
--------------------------------------
Total increase in net assets......... 232,309,325 31,480,770 47,773,985
--------------------------------------
Net Assets:
Beginning of period.................. 80,897,982 53,308,253 --
--------------------------------------
End of period........................ $313,207,307 $84,789,023 $47,773,985
======================================
Undistributed Net Investment Income
included in Net Assets at November
30, 1998............................ $ -- $ 435,600 $ --
======================================
</TABLE>
+ The Micro Cap Growth Portfolio commenced operations on December 31, 1997.
See accompanying Notes to Financial Statements
18
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights
The following tables include selected per-share data for a share outstanding
for the entire period and other performance information derived from the finan-
cial statements. They should be read in conjunction with the financial state-
ments and notes thereto.
<TABLE>
<CAPTION>
Six Months For the For the
Ended Year Ended Period December 31, 1996*
May 31, 1999 November 30, 1998 through November 30, 1997
------------ ----------------- -------------------------
(Unaudited)
<S> <C> <C> <C>
Small Cap Growth
Portfolio
Net Asset Value --
Beginning of Period... $ 14.07 $ 13.49 $ 10.00
-------- -------- -------
Investment Operations:
Net investment income
(loss).............. (0.05) (0.11)/1/ (0.03)
Net realized and
unrealized gains on
investments......... 2.23 0.79 4.69
-------- -------- -------
Total from
investment
operations........ 2.18 0.68 4.66
-------- -------- -------
Distributions:
From net realized
gains............... 0.00 (0.10) (1.17)
-------- -------- -------
Net Asset Value -- End
of Period............. $ 16.25 $ 14.07 $ 13.49
======== ======== =======
Ratios and Supplemental
Data:
Total Return........... 15.49%*** 5.06% 47.08%***
Ratios (to average net
assets)...............
Expenses/2........./. 1.10%** 1.21% 1.35%**
Net investment loss,
including effects of
waiver.............. (0.76%)** (0.75%) (0.68)%**
Portfolio turnover
rate.................. 42% 104% 148%
Net assets at end of
period (000 omitted).. $507,743 $313,207 $80,898
</TABLE>
See accompanying Notes to Financial Statements
19
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights -- continued
<TABLE>
<CAPTION>
For the Period
Six Months For the December 31, 1996*
Ended Year Ended through
May 31, 1999 November 30, 1998 November 30, 1997
------------ ----------------- ------------------
(Unaudited)
<S> <C> <C> <C>
Real Estate Securities
Portfolio
Net Asset Value -- Beginning
of Period.................. $ 9.21 $ 11.24 $ 10.00
-------- ------- -------
Investment Operations:
Net investment income..... 0.26 0.44/1/ 0.35
Net realized and
unrealized gains (losses)
on investments........... 0.38 (1.90) 2.05
-------- ------- -------
Total from investment
operations............... 0.64 (1.46) 2.40
-------- ------- -------
Distributions:
From net investment
income................... (0.21) (0.43) (0.23)
From net realized gains... 0.00 (0.14) (0.93)
-------- ------- -------
Total distributions....... (0.21) (0.57) (1.16)
-------- ------- -------
Net Asset Value -- End of
Period..................... $ 9.64 $ 9.21 $ 11.24
======== ======= =======
Ratios and Supplemental
Data:
Total Return................ 7.19%*** (13.64%) 24.39%***
Ratios (to average net
assets):
Expenses/3............../. 1.21%** 1.25% 1.25%**
Net investment loss,
including effects of
waiver................... 6.13%** 4.19% 4.61%**
Portfolio turnover rate..... 53% 157% 185%
Net assets at end of period
(000 omitted).............. $129,798 $84,789 $53,308
</TABLE>
See accompanying Notes to Financial Statements
20
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights -- continued
<TABLE>
<CAPTION>
Six Months For the Period
Ended December 31, 1997* through
May 31, 1999 November 30, 1998
------------ ---------------------------
(Unaudited)
<S> <C> <C>
Micro Cap Growth Portfolio
Net Asset Value -- Beginning of
Period............................... $12.03 $10.00
------- -------
Investment Operations:
Net investment loss................. (0.06) (0.05)/1/
Net realized and unrealized gains on
investments........................ 3.59 2.08
------- -------
Total from investment operations.. 3.53 2.03
------- -------
Net Asset Value -- End of Period...... $15.56 $12.03
======= =======
Ratios and Supplemental Data:
Total Return.......................... 29.34%*** 20.30%***
Ratios (to average net assets)
Expenses/4......................../. 1.52%** 1.60%**
Net investment loss, including
effects of waiver.................. (1.03)%** (0.46)%**
Portfolio turnover rate............... 73% 121%
Net assets at end of period (000
omitted)............................. $77,654 $47,774
</TABLE>
See accompanying Notes to Financial Statements
21
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights -- continued
<TABLE>
<CAPTION>
For the Period
December 31, 1998* through
May 31, 1999
---------------------------
(Unaudited)
<S> <C>
Growth Portfolio
Net Asset Value --
Beginning of Period...... $10.00
-------
Investment Operations:
Net investment loss..... (0.02)
Net realized and
unrealized gains on
investments............ 3.30
-------
Total from investment
operations............. 3.28
-------
Net Asset Value -- End of
Period................... $13.28
=======
Ratios and Supplemental
Data:
Total Return.............. 32.80%***
Ratios (to average net
assets):
Expenses/5............/. 1.35%**
Net investment loss,
including effects of
waiver................. (0.45)%**
Portfolio turnover rate... 106%
Net assets at end of
period (000 omitted)..... $10,433
</TABLE>
* Commencement of operations.
** Annualized.
*** Not annualized.
1 Net investment income (loss) per share represents net investment income
(loss) divided by the average shares outstanding throughout the period.
2 The Adviser has voluntarily agreed to waive a portion of its advisory fees
and to assume expenses otherwise payable by the Portfolio (if necessary) in
order to keep the annual expense ratio from exceeding 1.35% of its average
daily net assets. In addition, the Administrator, Accounting Agent and Trans-
fer Agent waived a portion of their fees for the period ended November 30,
1997. Without the waiver of expenses, the annualized ratio of expenses to av-
erage net assets would have been 1.80% for the period ended November 30,
1997.
3 The Adviser has voluntarily agreed to waive a portion of its advisory fees
and to assume expenses otherwise payable by the Portfolio (if necessary) in
order to keep the annual expense ratio from exceeding 1.25% of its average
daily net assets. In addition, the Administrator, Accounting Agent and Trans-
fer Agent waived a portion of their fees for the period ended November 30,
1997. Without the waiver of expenses, the annualized ratio of expenses to av-
erage net assets would have been 1.31% for the year ended November 30, 1998
and 1.83% for the period ended November 30, 1997.
4 The Adviser has voluntarily agreed to waive a portion of its advisory fees
and assume expenses otherwise payable by the Portfolio (if necessary) in or-
der to keep the annual expense ratio from exceeding 1.60% of its average
daily net assets. In addition, the prior Administrator, Accounting Agent and
Transfer Agent waived a portion of their fees for the period ended November
30, 1998. Without the waiver of expenses, the annualized ratio of expenses to
average net assets would have been 1.90% for the period ended November 30,
1998.
/5/The Adviser has voluntarily agreed to waive a portion of its advisory fees
and assume expenses otherwise payable by the Portfolio (if necessary) in or-
der to keep the annual expense ratio from exceeding 1.35% of its average
daily net assets. In addition, the Administrator, Accounting Agent and Trans-
fer Agent waived a portion of their fees for the five-month period ended May
31, 1999. Without the waiver of expenses, the annualized ratio of expenses to
average net assets would have been 3.07% for the five-month period ended May
31, 1999.
See accompanying Notes to Financial Statements
22
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements
1. Description of the Fund. Brazos Mutual Funds (the "Fund") is registered un-
der the Investment Company Act of 1940, as amended (the "1940 Act"), as a di-
versified, open-end management investment company established as a Delaware
business trust. The Declaration of Trust, dated October 28, 1996, permits the
Trustees to establish separate series or "Portfolios," each of which may issue
separate classes of shares. The authorized shares of beneficial interest of the
Fund are currently divided into four Portfolios, the BRAZOS Growth Portfolio
("Growth Portfolio"), the BRAZOS Micro Cap Growth Portfolio ("Micro Cap Growth
Portfolio"), the BRAZOS Real Estate Securities Portfolio ("Real Estate Securi-
ties Portfolio") and the BRAZOS Small Cap Growth Portfolio ("Small Cap Growth
Portfolio") (each, a "Portfolio" and collectively, the "Portfolios"). Each
Portfolio currently consists of a single class of shares. The investment objec-
tive of the Growth Portfolio is to provide maximum capital growth. The invest-
ment objective of the Micro Cap Growth Portfolio is to provide maximum capital
appreciation, consistent with reasonable risk to principal, by investing pri-
marily in micro capitalization companies. The investment objective of the Real
Estate Securities Portfolio is to provide a balance of income and appreciation,
consistent with reasonable risk to principal, by investing primarily in equity
securities of companies which are principally engaged in the real estate indus-
try. The investment objective of the Small Cap Growth Portfolio is to provide
maximum capital appreciation, consistent with reasonable risk to principal, by
investing primarily in small capitalization companies.
Because the Real Estate Securities Portfolio may invest a substantial portion
of its assets in Real Estate Investment Trusts ("REITs"), the Portfolio may
also be subject to certain risks associated with direct investments in REITs.
REITs may be affected by changes in the value of their underlying properties
and by defaults by borrowers or tenants. Furthermore, REITs are dependent upon
specialized management skills, have limited diversification and are, therefore,
subject to risks inherent in financing a limited number of projects. REITs de-
pend generally on their ability to generate cash flow to make distributions to
shareholders and certain REITs have self-liquidation provisions by which mort-
gages held may be paid in full and distributions of capital returns may be made
at any time. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free, pass-through of income under the Internal Rev-
enue Code of 1986, as amended (the "Internal Revenue Code") or its failure to
maintain exemption from registration under the 1940 Act.
2. Significant Accounting Policies. The following is a summary of the signifi-
cant accounting policies of the Fund:
Security Valuation. Each Portfolio's securities, except short-term investments
with remaining maturities of 60 days or less, use the last quoted trading price
as the market value. For listed securities, the Portfolios use the price quoted
by the exchange on which the security is primarily traded. Unlisted securities
and listed securities, including REITs, which have not been traded on the valu-
ation date or for which market quotations are not readily available are valued
at the average between the last price asked and the last price bid. Short-term
invest-
23
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
ments with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value, unless the Fund's Board of Trustees de-
termines that this does not represent fair value. The value of all other secu-
rities is determined in good faith under the direction of the Board of
Trustees. As of November 30, 1998, no securities were valued by the Board of
Trustees.
Federal Income Taxes. Each Portfolio is treated as a separate entity and in-
tends to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code, and to distribute all of its taxable income to its
shareholders. Therefore, no provision for federal income tax is required.
The Portfolios may be subject to a nondeductible 4% excise tax calculated as a
percentage of certain undistributed amounts of net investment income and net
capital gains. The Portfolios intend to distribute their net investment income
and capital gains as necessary to avoid this excise tax.
Distributions to Shareholders. Each Portfolio will distribute annually to
shareholders substantially all of its net investment income and any net real-
ized capital gains. The character of distributions made during the year from
net investment income or net realized gains may differ from the characteriza-
tion for federal income tax purposes due to differences in the recognition of
income and expense items for financial statement and tax purposes. Where appro-
priate, reclassifications between net asset accounts are made for such differ-
ences that are permanent in nature.
The Real Estate Securities Portfolio receives a majority of its dividend income
from REITs. For tax purposes, a portion of these dividends may consist of capi-
tal gains and returns of capital. Accordingly, the Portfolio's distributions to
shareholders may include a portion that may be a return of capital received
from the REITs, as well as a return of capital attributed to distributions of
other income for financial reporting purposes. Distributions determined to be
returns of capital are not subject to current taxation. In accordance with
Statement of Position ("SOP") 93-2, Determination, Disclosure and Financial
Statement Presentation of Income, Capital Gain and Return of Capital Distribu-
tions by Investment Companies, distributions representing a return of capital
for tax purposes are charged to capital paid in.
Deferred Organization Costs. Organizational costs have been capitalized by the
Fund and are being amortized over sixty months commencing with operations by
the Small Cap Growth Portfolio and the Real Estate Securities Portfolio. In the
event any of the initial shares of the Fund are redeemed by any holder thereof
during the period that the Fund is amortizing organizational costs, the redemp-
tion proceeds payable to the holder thereof by the Fund will be reduced by the
unamortized organizational costs in the same ratio as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of redemption.
24
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements in conformity will generally accepted accounting princi-
ples requires management to make estimates and assumptions that affect the re-
ported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Other. Investment security transactions are accounted for on a trade date ba-
sis. Each Portfolio uses the specific identification method for determining re-
alized gain and loss on investments for both financial and federal income tax
reporting purposes. Dividend income and distributions to shareholders are re-
corded on the ex-dividend date. Interest income is recorded on the accrual ba-
sis.
3. Investment Securities. The aggregate purchases and sales of long-term secu-
rities for the six-month period ended May 31, 1999 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Small Cap Growth Portfolio........................... $301,600,313 $170,240,661
Real Estate Securities Portfolio..................... 91,702,922 52,243,420
Micro Cap Growth Portfolio........................... 51,357,148 41,455,164
Growth Portfolio..................................... 14,015,831 6,852,548
</TABLE>
4. Advisory Fees and Other transactions with Affiliates. The Fund, on behalf of
each Portfolio, employs John McStay Investment Counsel (the "Adviser"), an in-
vestment counseling firm founded in 1983, to furnish investment advisory and
other services to the Fund. Under Investment Advisory Agreements with the Fund,
dated November 25, 1996, November 14, 1997 and December 31, 1998, the Adviser
manages the investment and reinvestment of the assets of the Portfolios. The
Adviser must adhere to the stated investment objectives and policies of the
Portfolios, and is subject to the control and supervision of the Fund's Board
of Trustees. For its services under the Advisory Agreement, the Portfolios' pay
the Adviser a monthly fee at the annual rate of 1.20%, 0.90%, 0.90% and 0.90%
of the average daily net assets of the Micro Cap Growth Portfolio, Growth Port-
folio, Small Cap Growth Portfolio and Real Estate Securities Portfolio, respec-
tively. The Adviser has voluntarily agreed to keep operating expenses for the
Micro Cap Growth Portfolio, Growth Portfolio, Small Cap Growth Portfolio and
Real Estate Securities Portfolio (excluding taxes, extraordinary expenses, bro-
kerage commissions and interest) from exceeding an annual rate of 1.60%, 1.35%,
1.35% and 1.25%, respectively, of each Portfolio's average daily net assets.
The following table summarizes the advisory fees for the six-month period ended
May 31, 1999:
<TABLE>
<CAPTION>
Gross
Adviser Adviser Fee Reimbursement
Fee Waived by Adviser
---------- ----------- -------------
<S> <C> <C> <C>
Small Cap Growth Portfolio.............. $1,905,910 $ -- $ --
Real Estate Securities Portfolio........ 477,518 -- --
Micro Cap Growth Portfolio.............. 375,275 -- --
Growth Portfolio........................ 28,161 28,161 16,727
</TABLE>
25
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
Firstar Mutual Fund Services, LLC, a subsidiary of Firstar Bank Milwaukee, NA
("Firstar Bank") serves as transfer agent, administrator and accounting serv-
ices agent for the Fund. Firstar Bank serves as custodian for the Fund.
The following table summarizes the administration, accounting and transfer
agent fees waived by Firstar Mutual Fund Services, LLC in the Growth Portfolio
for the five-months ended May 31, 1999:
<TABLE>
<CAPTION>
Administration Fees Accounting Fees Transfer Agent Fees
Waived Waived Waived
------------------- --------------- -------------------
<S> <C> <C>
$3,125 $2,750 $1,250
</TABLE>
Pembrook Securities ("Pembrook"), a brokerage firm directly owned by the Ad-
viser of the Portfolios, directly effects purchases and sales of securities for
the Portfolios. In connection therewith, brokerage commissions paid by the
Portfolios for the six-month period ended May 31, 1999 totaled $147,081.
Rafferty Capital Markets, Inc., 550 Mamaroneck Avenue, Harrison, NY 10528, has
been engaged to assist in securing purchasers for shares of the Portfolios.
Rafferty will receive no compensation from the Fund for distribution of shares
of the Portfolios, although it will receive reimbursement by the Adviser of
out-of-pocket expenses.
5. Fund Shares. At May 31, 1999, there were an unlimited number of shares of
beneficial interest, no par value, authorized. The following table summarizes
the activity in shares of each Portfolio:
For the Six-Months Ended May 31, 1999
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap
Growth Portfolio Securities Portfolio Growth Portfolio Growth Portfolio+
------------------------ ----------------------- ---------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ----------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 13,336,321 $208,036,567 6,111,141 $54,998,836 1,919,938 $25,599,511 795,497 $8,242,921
Shares issued to
shareholders in
reinvestment of
distributions.......... -- -- 196,782 1,712,417 -- -- -- --
Shares redeemed......... (4,346,812) (67,994,643) (2,049,930) (18,887,016) (902,499) (11,976,558) (9,997) (115,880)
---------- ------------ ---------- ----------- --------- ----------- ------- ----------
Net increase............ 8,989,509 $140,041,924 4,257,993 $37,824,237 1,017,439 $13,622,953 785,500 $8,127,041
============ =========== =========== ==========
Shares outstanding:
Beginning of period..... 22,263,322 9,207,237 3,972,438 --
---------- ---------- --------- -------
End of period........... 31,252,831 13,465,230 4,989,877 785,500
========== ========== ========= =======
</TABLE>
+ The Growth Portfolio commenced operations on December 31, 1998.
26
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
For the Year Ended November 30, 1998
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap
Growth Portfolio Securities Portfolio Growth Portfolio++
------------------------ ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 18,407,184 $262,346,037 4,926,396 $53,668,701 4,701,406 $54,365,739
Shares issued to
shareholders in
reinvestment of
distributions.......... 46,937 638,350 260,983 2,785,442 -- --
Shares redeemed......... (2,189,181) (30,994,306) (722,943) (7,177,339) (728,968) (8,635,601)
---------- ------------ --------- ----------- --------- -----------
Net increase............ 16,264,940 $231,990,081 4,464,436 $49,276,804 3,972,438 $45,730,138
============ =========== ===========
Shares outstanding:
Beginning of period..... 5,998,382 4,742,801 --
---------- --------- ---------
End of period........... 22,263,322 9,207,237 3,972,438
========== ========= =========
</TABLE>
++The Micro Cap Growth Portfolio commenced operations on December 31, 1997.
6. Income Tax Information. At May 31, 1999, the investment cost and gross
unrealized appreciation and depreciation on investments for federal income tax
purposes were as follows:
<TABLE>
<CAPTION>
Net
Federal Tax Unrealized Unrealized Appreciation/
Cost Appreciation Depreciation (Depreciation)
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Small Cap Growth
Portfolio.............. $451,830,663 $85,705,552 $(28,113,659) $ 57,591,893
Real Estate Securities
Portfolio.............. 131,769,388 6,456,036 (7,762,799) (1,306,763)
Micro Cap Growth
Portfolio.............. 63,203,460 15,760,915 (3,800,197) 11,960,718
Growth Portfolio........ 10,071,052 1,046,379 (447,561) 598,818
</TABLE>
At November 30, 1998, the Portfolios had capital loss carryovers (which may be
carried over to offset future capital gains through November 30, 2006) totaling
$19,664,261, $2,392,996 and $451,347 in the Small Cap Growth Portfolio, Real
Estate Securities Portfolio and Micro Cap Growth Portfolio, respectively.
7. Subsequent Events. On April 19, 1999 John McStay Investment Counsel, L.P.
("JMIC") entered into an agreement with AIG Global Investment Group, Inc. ("AIG
Global"), a direct wholly owned subsidiary of American International Group,
Inc. ("AIG"), the leading U.S.-
27
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
based international insurance organization. Under the terms of the agreement,
JMIC's assets and liabilities are to be transferred to a newly formed Delaware
limited liability company ("New JMIC") in which a wholly owned subsidiary of
AIG will have a majority interest. Consequently, New JMIC will become an indi-
rect subsidiary of AIG (the "Transaction"). The Transaction is not expected to
affect advisory services provided to any Portfolio of the Brazos Mutual Funds.
As a result of the Transaction, shareholders for each Portfolio, as of record
May 24, 1999, were asked to approve a new investment advisory agreement with
New JMIC. The new agreement is identical to the prior agreement in all re-
spects, except for its effective date and termination date and will have no ef-
fect on the fees or expenses payable to the Fund or its shareholders. On June
25, 1999 the proposed investment advisory agreement was approved, and thus, ef-
fective June 25, 1999, the new investment advisory agreements were placed in
effect.
28
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
TRUSTEES
GEORGE W. GAU
JOHN H. MASSEY
DAVID M. REICHERT
DAN L. HOCKENBROUGH
OFFICERS
DAN L. HOCKENBROUGH
Chairman of the Board,
President, Treasurer and Chief Financial Officer
LOREN J. SOETENGA
Vice President
TRICIA A. HUNDLEY
Secretary
ROBERT M. ZAKEM
Vice President and Assistant Secretary
PETER C. SUTTON
Vice President and Assistant Treasurer
ADMINISTRATOR
FIRSTAR MUTUAL FUND SERVICES LLC
615 E. MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
CUSTODIAN
FIRSTAR BANK MILWAUKEE, N.A.
615 E. MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
COUNSEL
DRINKER, BIDDLE & REATH LLP
1345 CHESTNUT STREET
PHILADELPHIA, PENNSYLVANIA 19107
AUDITORS
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
MILWAUKEE, WISCONSIN 53202
SEMI-ANNUAL REPORT
MAY 31, 1999
BRAZOS
SMALL CAP
GROWTH PORTFOLIO
REAL ESTATE
SECURITIES PORTFOLIO
MICRO CAP
GROWTH PORTFOLIO
GROWTH PORTFOLIO
----------
INVESTMENT ADVISER
JOHN McSTAY
INVESTMENT COUNSEL
5949 SHERRY LANE
SUITE 1600
DALLAS, TEXAS 75225
BRAZOS MUTUAL FUNDS
BRAZOS MUTUAL FUNDS
