<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management
January 10, 2000
Dear Fellow Shareholders, Clients and Friends:
Your Brazos Small Cap, Brazos Micro Cap and Brazos Multi Cap Growth, formerly
Brazos Growth, portfolios once again posted impressive returns in 1999. Your
portfolio management team, co-investors with you in all of our Brazos
portfolios, are pleased to report that each of these funds dramatically
outpaced their respective benchmarks this year. In the December quarter, Brazos
Small Cap, Brazos Micro Cap and Brazos Multi Cap Growth's 29.9, 36.6 and 28.7
percent gains substantially exceeded the Russell 2000, S&P Midcap and S&P 500
returns! These results capped an even stronger year as summarized in the table
below:
<TABLE>
<CAPTION>
Quarter Year Inception
Ending To Date to
12/31/99 12/31/99 12/31/99
-------- -------- ---------
<S> <C> <C> <C>
Brazos Small Cap Growth(/1/) Class Y Inception
12/31/96 29.9% 37.0% 140.5%
Russell 2000 w/Inc. 18.4% 21.3% 44.6%
Brazos Micro Cap Growth(/1/) Inception 12/31/97 36.6% 80.8% 140.2%
Russell 2000 w/Inc. 18.4% 21.3% 18.2%
Brazos Multi Cap Growth(/1/) Inception 12/31/98 28.7% 92.1% 92.1%
S&P 500 w/Inc. 14.9% 21.0% 21.0%
Brazos Real Estate Securities(/1/) Class Y
Inception 12/31/96 -1.3% -4.6% 1.8%
NAREIT Equity Index -1.0% -4.6% -5.4%
</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. Returns are higher due to the
maintenance of the portfolios' expenses by John McStay Investment Counsel.
1
<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management--continued
These strong results came despite heightened concerns regarding interest
rates, inflation, stock valuations, a strengthening yen and a record U.S. trade
deficit. We are very proud of these returns, but we are aware that we could be
criticized for being too cautious and too focused on companies with strong fun-
damentals and earnings. As you've seen in the press, companies with no earn-
ings, namely Internet companies, skyrocketed to incredible valuations. Gains of
several hundred percent were not uncommon.
But don't worry, our bottom up fundamental research led us to participate in
real companies that are part of this Internet and technology revolution. One of
your key investment disciplines is identifying and investing in companies with
accelerating revenues and earnings. This process led the Brazos portfolios to
increase your holdings in technology and telecommunication stocks. For example,
semiconductor holdings benefited from higher demand for chips and components
used in computer, telecom and consumer electronic products, which comprise the
backbone of the Internet. By identifying this accelerating demand for chips you
were able to capitalize on this strong part of the market.
Your weightings in consumer and financial stocks declined in 1999. With the
Federal Reserve spooked by fears of potential inflation, raising interest rates
three times in 1999, these moves heightened concerns over the levels of con-
sumer spending and financial institutions' growth. Your team of portfolio man-
agers harvested many gains in these sectors which enabled redeployment into the
strong technology and telecommunication stocks. Additionally, the Brazos Funds
were the beneficiary of a steady inflow of fresh cash. These funds were also
deployed in the strongest stocks at the time.
Even with your solid returns, many companies outside of technology did not
participate in 1999's strong market. As always, our risk management tools have
your portfolios well diversified in quality companies with strong earnings
growth and very attractive valuations across several different sectors of the
economy. This is a vital part of our risk control effort that has benefited
your management team and investors over the past 20 plus years. As the market
ultimately broadens, these non-tech holdings will benefit.
By isolating one company at a time, we seek the rewards of strong revenue and
earnings growth while avoiding the potential pitfalls that very high price-to-
earnings ratios and profitless companies can present. In 2000, your companies
are expected to grow earnings three times faster than the S&P 500 index. Yet,
your holdings trade at near parity to the index's price-to-earnings ratio.
Meanwhile, results for investors in real estate securities [including your
fund] were very disappointing. In an environment where the riskier strategies
provided some of the best returns, investors showed little interest in income
producing asset classes in general--not only REITs but most fixed income alter-
natives and utility funds.
2
<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management--continued
Our many years in the investment arena have witnessed such periods before.
Eventually, stocks yielding nearly nine percent, on average, at all-time record
low multiples of earnings and selling at well below the value of the underlying
assets will be "discovered". If not, then the year 2000 will most likely wit-
ness an acceleration in insider buying, corporate share repurchases, mergers,
acquisitions and LBOs, as those most aware of the incredible valuations and
still quite healthy real estate operating environment take additional steps to
enhance shareholder value. While we [your Brazos team has always been invested
side by side with our shareholders] wait for those events to transpire, there
are worse things than your fund receiving excellent up-front yields that are
also growing at a 3-5% annual rate, while being covered by a greater degree of
earnings cushion than ever before.
In closing, we would like to take this opportunity to announce the January
introduction of our fifth Brazos mutual fund portfolio. The Brazos Mid Cap
Portfolio will be managed by the same team of portfolio managers/analysts and
we will employ the same disciplines as our other equity fund portfolios. The
Brazos Mid Cap Portfolio fits well between the Brazos Small Cap and Brazos
Multi Cap Growth portfolios. For information, please call Loren Soetenga at
(214) 365-5233.
Your Brazos team is grateful for your continued confidence. We send our best
wishes for a great 2000.
/s/ John McStay
Sincerely,
John McStay Investment Counsel
3
<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management -- continued
BRAZOS SMALL CAP GROWTH PORTFOLIO
[LINE GRAPH]
- -------------------------------------------------------------------------------
SEC Avg. Annual Total Return
(as of 11/30/99)
1 Year Since Inception
Small Cap Growth Portfolio Class Y 31.77% 27.63%
Russell 2000 Index 15.83% 9.50%
Small Cap Growth Portfolio Class A N/A 3.17%*
Small Cap Growth Portfolio Class B N/A 5.41%*
Small Cap Growth Portfolio Class II N/A 7.37%*
* SEC cumulative total return from commencement of
operations: 9/8/99
- -------------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on December 31,
1996 (commencement of operations). Returns shown include the reinvestment of all
dividends. 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 investment.
4
<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management -- continued
BRAZOS REAL ESTATE SECURITIES PORTFOLIO
[LINE GRAPH]
- -------------------------------------------------------------------------------
SEC Avg. Annual Total Return
(as of 11/30/99)
1 Year Since Inception
Real Estate Securities Portfolio Class Y -7.86% -0.35%
Wilshire REIT Index -14.73% -8.61%
NAREIT Equity Index -9.88% -8.28%
Real Estate Securities Portfolio Class A N/A -12.40%*
Real Estate Securities Portfolio Class B N/A -10.92%*
Real Estate Securities Portfolio Class II N/A -9.06%*
* SEC cumulative total return from commencement of
operations: 9/8/99
- -------------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on December 31,
1996 (commencement of operations). Returns shown include the reinvestment of all
dividends. 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 investment.
5
<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management -- continued
BRAZOS MICRO CAP GROWTH PORTFOLIO
[LINE GRAPH]
- -------------------------------------------------------------------------------
SEC Avg. Annual Total Return
(as of 11/30/99)
1 Year Since Inception
Micro Cap Growth Portfolio 65.67% 43.35%
Russell 2000 Index 15.83% 3.39%
- -------------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on December 31,
1997 (commencement of operations). Returns shown include the reinvestment of all
dividends. 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 investment.
6
<PAGE>
BRAZOS MUTUAL FUNDS
Report From Management -- continued
BRAZOS MULTI CAP GROWTH PORTFOLIO
[LINE GRAPH]
- -------------------------------------------------------------------------------
Aggregate Total Return
For the period December 31, 1998
through November 30, 1999
Multi Cap Growth Portfolio 72.39%
S&P 500 Index 14.31%
- -------------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on December 31,
1998 (commencement of operations). Returns shown include the reinvestment of all
dividends. 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 investment.
7
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Common Stock -- 95.0%
Basic Resources (Excluding Energy) -- 1.5%
Millipore Corp. ....................................... 278,300 $ 9,131,719
------------
Business Services -- 7.8%
Corporate Executive Board Co.+ ........................ 105,500 4,905,750
Iron Mountain, Inc.+................................... 204,015 6,005,692
Maximus, Inc.+......................................... 255,712 7,159,936
NOVA Corp.+............................................ 235,167 7,201,989
Paychex, Inc. ......................................... 351,734 14,047,377
Profit Recovery Group International, Inc. ............. 256,682 9,509,266
------------
48,830,010
------------
Consumer Merchandising -- 5.4%
Ames Department Stores, Inc.+.......................... 160,730 4,269,391
BJ's Wholesale Club, Inc.+............................. 110,636 4,135,021
CEC Entertainment, Inc.+............................... 72,850 2,185,500
Cheesecake Factory, Inc.+.............................. 141,856 4,397,536
Linens' n Things, Inc.+................................ 167,936 5,667,840
Regis Corp. ........................................... 212,687 4,386,669
Ross Stores, Inc. ..................................... 175,100 3,359,731
Williams-Sonoma, Inc.+................................. 101,700 5,542,650
------------
33,944,338
------------
Consumer Non-Durables -- 0.8%
Wild Oats Markets, Inc.+............................... 147,261 5,246,173
------------
Consumer Services -- 4.5%
Bright Horizons Family Solutions, Inc.+ ............... 364,573 5,628,096
International Speedway Corp. .......................... 216,605 14,295,930
SFX Entertainment, Inc.+............................... 247,200 8,343,000
------------
28,267,026
------------
Electronic Technology -- 19.1%
Adtran, Inc.+.......................................... 285,800 11,146,200
Advanced Energy Industries, Inc.+...................... 84,700 2,848,038
ANTEC Corp.+........................................... 120,600 6,753,600
Applied Micro Circuits Corp.+.......................... 73,200 6,084,750
Applied Power, Inc. ................................... 144,100 4,602,194
Burr-Brown Corp.+...................................... 94,000 4,165,375
Cabletron Systems, Inc.+............................... 565,000 12,959,687
CommScope, Inc.+....................................... 169,600 7,144,400
Crossroads Systems, Inc.+.............................. 20,000 1,763,750
Efficient Networks, Inc. .............................. 125,000 7,500,000
Galileo Technology Ltd.+............................... 145,000 3,307,813
KEMET Corp. ........................................... 250,200 9,069,750
Packeteer, Inc.+....................................... 45,000 2,334,375
</TABLE>
See Notes to Financial Statements
8
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Common Stock (continued)
Electronic Technology -- 19.1% (continued)
Powerwave Technologies, Inc.+.......................... 73,700 $ 4,408,181
S3, Inc.+.............................................. 697,000 5,837,375
SDL, Inc.+............................................. 68,600 11,164,650
TranSwitch Corp.+...................................... 87,000 4,089,000
TriQuint Semiconductor, Inc. .......................... 174,300 14,837,287
------------
120,016,425
------------
Energy -- 3.5%
Devon Energy Corp. .................................... 159,300 5,615,325
Nabors Industries, Inc.+............................... 250,000 6,640,625
Newfield Exploration Co. .............................. 103,500 2,671,594
Pogo Producing Co. .................................... 293,200 5,277,600
Santa Fe Snyder Corp.+................................. 192,900 1,543,200
TransMontaigne, Inc.+.................................. 53,698 362,461
------------
22,110,805
------------
Financial -- 14.1%
AmeriCredit Corp.+..................................... 491,676 8,358,492
Bank United Corp., Class A ............................ 77,400 2,757,375
CyberSource Corp.+..................................... 146,400 8,729,100
First Sierra Financial, Inc.+.......................... 507,000 10,805,437
Heller Financial, Inc. ................................ 1 21
Intertrust Technologies Corp.+......................... 73,700 9,475,056
Knight/Trimark Group, Inc., Class A+................... 356,900 14,699,819
Metris Cos., Inc. ..................................... 453,282 14,335,043
NextCard, Inc. ........................................ 81,700 2,711,419
PMI Group, Inc. ....................................... 155,000 7,740,313
Radian Group, Inc. .................................... 193,200 9,442,650
------------
89,054,725
------------
Healthcare Products -- 3.6%
Biovail Corp. International+........................... 89,900 6,253,669
Jones Pharma, Inc. .................................... 88,460 3,062,927
Medicis Pharmaceutical Corp., Class A+................. 203,367 7,143,266
Symyx Technologies, Inc.+.............................. 75,000 2,587,500
Waters Corp.+.......................................... 78,872 3,864,728
------------
22,912,090
------------
Healthcare Services -- 3.1%
Accredo Health, Inc.+.................................. 242,900 6,694,931
Advance Paradigm, Inc.+................................ 195,300 7,763,175
Professional Detailing, Inc.+.......................... 188,200 4,987,300
------------
19,445,406
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Common Stock (continued)
Media -- 10.7%
American Tower Corp.+.................................. 283,406 $ 7,403,982
Cinar Corp., Inc. ..................................... 387,420 5,302,811
Clear Channel Communications, Inc.+.................... 173,961 13,982,115
Cumulus Media, Inc.+................................... 117,000 4,680,000
Hispanic Broadcasting Corp.+........................... 169,326 13,948,229
Outdoor Systems, Inc.+................................. 151,081 6,723,104
Radio One, Inc.+....................................... 48,200 3,045,638
Radio Unica Corp.+..................................... 75,000 2,071,875
TMP Worldwide, Inc.+................................... 50,871 4,823,208
Westwood One, Inc.+.................................... 96,800 5,541,800
------------
67,522,762
------------
Technology Services & Software -- 20.6%
Affiliated Computer Services, Inc.+.................... 314,156 11,761,215
Art Technology Group, Inc.+............................ 91,400 5,803,900
Business Objects SA+................................... 47,400 4,194,900
Critical Path, Inc.+................................... 104,300 5,808,206
CSG Systems International, Inc.+....................... 131,408 5,732,674
Data Return Corp.+..................................... 12,800 346,400
Diamond Technology Partner, Inc.+...................... 101,100 5,307,750
Great Plains Software, Inc.+........................... 124,800 6,669,000
Illuminet Holdings, Inc.+.............................. 107,500 5,643,750
ISS Group, Inc. ....................................... 72,600 3,502,950
Mercury Interactive Corp.+............................. 81,700 6,791,312
Metasolv Software, Inc. ............................... 35,000 2,159,063
Net Perceptions, Inc.+................................. 72,200 2,725,550
Netcentives, Inc.+..................................... 300,000 7,875,000
NetScout Systems, Inc.+................................ 77,500 1,937,500
Network Solutions, Inc.+............................... 38,664 5,797,184
Proxicom, Inc.+........................................ 94,500 6,520,500
Quintus Corp.+......................................... 25,000 1,387,500
Razorfish, Inc. ....................................... 52,300 3,827,706
TIBCO Software, Inc.+.................................. 40,000 3,880,000
USWeb Corp.+........................................... 164,117 6,800,598
Vignette Corp.+........................................ 56,900 11,835,200
Visual Networks, Inc.+................................. 109,300 6,448,700
Xceed, Inc.+........................................... 264,000 6,930,000
------------
129,686,558
------------
Traditional Heavy Industry -- 0.3%
Waste Connections, Inc.+............................... 138,600 1,801,800
------------
Total Investment Securities (Cost $465,339,517).................. 597,969,837
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
BRAZOS MUTUAL FUNDS -- SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Principal Amount
Security Description (in thousands) Value
- -------------------- ---------------- ------------
<S> <C> <C>
Repurchase Agreement -- 3.4%
Agreement with State Street Bank & Trust Co.,
bearing interest at 4.50%, dated 11/30/99, to
be repurchased 12/01/99 in the amount of
$21,366,671 and collateralized by $6,240,000
and $11,830,000 of U.S. Treasury Bonds,
bearing interest at 7.88% and 8.50%,
respectively, due 2/15/21 and 2/15/20,
respectively, and having an approximate
aggregate value of $21,797,913 (cost
$21,364,000)................................. 21,364 $ 21,364,000
------------
Total Investments -- 98.4% (Cost $486,703,517)..................... 619,333,837
Other Assets Less Liabilities -- 1.6%.............................. 9,996,936
------------
Net Assets -- 100.0%............................................... $629,330,773
============
</TABLE>
- -------
+Non-income producing securities.
See Notes to Financial Statements
11
<PAGE>
BRAZOS MUTUAL FUNDS -- REAL ESTATE SECURITIES PORTFOLIO
Portfolio of Investments November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Reit Stock -- 94.1%
Apartments -- 17.6%
Apartment Investment & Management Co. ................. 74,100 $ 2,755,594
Archstone Communities Trust............................ 172,357 3,457,912
Avalonbay Communities, Inc. ........................... 82,062 2,656,757
BRE Properties, Inc. .................................. 109,300 2,513,900
Camden Property Trust.................................. 61,100 1,634,425
Equity Residential Property Trust...................... 139,000 5,586,063
Gables Residential Trust............................... 42,400 1,007,000
Post Properties, Inc. ................................. 59,600 2,272,250
Walden Residential Properties, Inc. ................... 46,000 943,000
------------
22,826,901
------------
Free Standing -- 2.9%
Captec Net Lease Realty, Inc. ......................... 94,000 992,875
Franchise Finance Corp. of America..................... 75,100 1,670,975
U.S. Restaurant Properties, Inc. ...................... 72,000 1,071,000
------------
3,734,850
------------
Healthcare -- 4.7%
ElderTrust............................................. 99,100 613,181
Health Care Property Investors, Inc. .................. 62,718 1,626,748
Healthcare Realty Trust, Inc. ......................... 18,900 313,031
LTC Properties, Inc. .................................. 93,900 909,657
Nationwide Health Properties, Inc. .................... 110,100 1,644,619
OMEGA Healthcare Investors, Inc. ...................... 57,800 968,150
------------
6,075,386
------------
Industrial -- 7.5%
AMB Property Corp. .................................... 149,200 2,984,000
First Industrial Realty Trust, Inc. ................... 70,000 1,785,000
ProLogis Trust......................................... 274,200 4,987,012
------------
9,756,012
------------
Lodging/Resorts -- 6.0%
FelCor Lodging Trust, Inc. ............................ 93,887 1,596,079
Hilton Hotels Corp. ................................... 17,000 171,062
Hospitality Properties Trust........................... 49,900 923,150
Host Marriott Corp. ................................... 534,400 4,976,600
RFS Hotel Investors, Inc. ............................. 9,300 103,463
------------
7,770,354
------------
Manufactured Homes -- 1.2%
Chateau Communities, Inc. ............................. 20,800 540,800
Manufactured Home Communities, Inc. ................... 43,100 1,020,931
------------
1,561,731
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
BRAZOS MUTUAL FUNDS -- REAL ESTATE SECURITIES PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Reit Stock (continued)
Mixed: Office/Industrial -- 5.4%
Duke-Weeks Realty Corp. ............................... 248,232 $ 4,592,292
PS Business Parks, Inc. ............................... 3,200 69,600
Reckson Associates Realty Corp. ....................... 116,600 2,353,863
------------
7,015,755
------------
Office -- 17.3%
Arden Realty, Inc. .................................... 112,500 2,165,625
Boston Properties, Inc. ............................... 52,100 1,475,081
CarrAmerica Realty Corp. .............................. 79,600 1,651,700
Cornerstone Properties, Inc. .......................... 91,800 1,267,987
Equity Office Properties Trust......................... 326,678 7,166,499
Highwoods Properties, Inc. ............................ 110,100 2,422,200
Kilroy Realty Corp. ................................... 29,600 562,400
Mack-Cali Realty Corp. ................................ 112,400 2,774,875
SL Green Realty Corp. ................................. 51,500 1,039,656
Spieker Properties, Inc. .............................. 13,600 476,000
Trizec Hahn Corp. ..................................... 86,500 1,421,844
------------
22,423,867
------------
Other -- 5.2%
Crescent Real Estate Equities Co. ..................... 100,500 1,702,219
Glenborough Realty Trust, Inc. ........................ 68,800 903,000
Meditrust Cos. ........................................ 188,400 1,236,375
Vornado Realty Trust................................... 90,700 2,862,719
------------
6,704,313
------------
Regional Malls -- 10.3%
General Growth Properties, Inc. ....................... 103,200 3,089,550
Simon Property Group, Inc. ............................ 168,800 3,935,150
Taubman Centers, Inc. ................................. 47,300 514,387
The Macherich Co. ..................................... 101,200 2,011,350
The Rouse Co. ......................................... 123,700 2,713,669
Urban Shopping Centers, Inc. .......................... 42,800 1,104,775
------------
13,368,881
------------
Specialty -- 1.2%
Golf Trust of America, Inc. ........................... 88,500 1,504,500
------------
Storage -- 4.7%
Public Storage, Inc. .................................. 185,036 4,221,134
Storage USA, Inc. ..................................... 68,600 1,852,200
------------
6,073,334
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
BRAZOS MUTUAL FUNDS -- REAL ESTATE SECURITIES PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Shares/
Principal Amount
Security Description (in thousands) Value
- -------------------- ---------------- ------------
<S> <C> <C>
Reit Stock (continued)
Strip Centers -- 10.1%
Bradley Real Estate, Inc. ................... 55,500 $ 999,000
Burnham Pacific Properties, Inc. ............ 59,600 584,825
Developers Diversified Realty Corp. ......... 155,000 2,160,312
First Washington Realty Trust, Inc. ......... 43,900 784,713
JDN Realty Corp. ............................ 87,400 1,436,637
Kimco Realty Corp. .......................... 105,000 3,491,250
New Plan Excel Realty Trust.................. 104,400 1,696,500
Philips International Realty Corp. .......... 42,700 699,213
Regency Realty Corp. ........................ 57,300 1,160,325
------------
13,012,775
------------
Total Investment Securities (Cost $134,978,118)................. 121,828,659
------------
Repurchase Agreement -- 5.8%
Agreement with State Street Bank & Trust Co.,
bearing interest at 4.50%, dated 11/30/99,
to be repurchased 12/01/99 in the amount of
$7,476,935 and collateralized by $6,555,000
of U.S. Treasury Bonds, bearing interest at
7.88%, due 2/15/21 and having an approximate
aggregate value of $7,628,381 (cost
$7,476,000)................................. $7,476 7,476,000
------------
Total Investments -- 99.9% (Cost $143,051,649).................... 129,304,659
Other Assets Less Liabilities -- 0.1%............................. 139,950
------------
Net Assets -- 100.0%.............................................. $129,444,609
============
</TABLE>
See Notes to Financial Statements
14
<PAGE>
BRAZOS MUTUAL FUNDS -- MICRO CAP GROWTH PORTFOLIO
Portfolio of Investments November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Common Stock -- 95.7%
Business Services -- 5.1%
Corporate Executive Board Co.+......................... 22,000 $ 1,023,000
Maximus, Inc.+......................................... 98,800 2,766,400
Miami Computer Supply Corp.+........................... 29,600 828,800
Profit Recovery Group International, Inc.+............. 43,900 1,626,358
------------
6,244,558
------------
Consumer Merchandising -- 8.7%
99 Cents Only Stores+.................................. 23,750 673,906
Ames Department Stores, Inc.+.......................... 35,400 940,313
Brown Shoe Co., Inc. .................................. 61,800 973,350
Cheesecake Factory, Inc. .............................. 26,500 821,500
Chico's FAS, Inc.+..................................... 81,000 3,113,437
Intertan, Inc.+........................................ 83,500 1,998,781
O'Charleys, Inc.+...................................... 72,400 950,250
Pantry, Inc. .......................................... 72,000 630,000
Project America, Inc. ................................. 28,400 450,850
------------
10,552,387
------------
Consumer Non-Durables -- 0.6%
Wild Oats Markets, Inc.+............................... 21,200 755,250
------------
Consumer Services -- 3.1%
Bright Horizons Family Solutions, Inc.+................ 66,010 1,019,029
Scientific Learning Corp.+............................. 70,000 1,898,750
Zixit Corp. ........................................... 20,000 865,000
------------
3,782,779
------------
Electronic Technology -- 20.8%
AstroPower, Inc.+...................................... 167,700 2,096,250
Data Return Corp....................................... 50,000 700,000
Metron Technology...................................... 148,200 2,361,937
Oak Industries, Inc.+.................................. 63,600 4,789,875
S3, Inc.+.............................................. 237,500 1,989,063
Tollgrade Communications, Inc.+........................ 129,700 3,655,919
TriQuint Semiconductor, Inc.+.......................... 36,700 3,124,087
Virata Corp.+.......................................... 91,600 2,942,650
Westell Technologies+.................................. 408,700 3,716,616
------------
25,376,397
------------
Energy -- 4.4%
Key Production Co., Inc.+.............................. 97,700 793,813
Midcoast Energy Resources, Inc. ....................... 125,000 2,343,750
Pennaco Energy, Inc.+.................................. 52,000 500,500
Spinnaker Exploration Co.+............................. 109,500 1,615,125
TransMontaigne, Inc.+.................................. 20,100 135,675
------------
5,388,863
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE>
BRAZOS MUTUAL FUNDS -- MICRO CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------- ------------
<S> <C> <C>
Common Stock (continued)
Financial -- 7.5%
First Sierra Financial, Inc.+.......................... 159,100 $ 3,390,819
Indigo Aviation AB ADR+................................ 63,900 802,744
Mobile Mini, Inc.+..................................... 164,400 2,825,625
Triad Guaranty, Inc.+.................................. 94,400 2,147,600
------------
9,166,788
------------
Healthcare Products -- 7.3%
Dura Pharmaceuticals, Inc.+............................ 161,700 2,107,153
Ilex Oncology, Inc.+................................... 152,500 2,649,688
Invitrogen Corp.+...................................... 74,000 2,229,250
Medicis Pharmaceutical Corp., Class A+................. 54,450 1,912,556
------------
8,898,647
------------
Healthcare Services -- 9.3%
Accredo Health, Inc.+.................................. 87,100 2,400,694
Advance Paradigm, Inc.+................................ 37,200 1,478,700
Drkoop.com, Inc.+...................................... 138,000 2,466,750
Healtheon Corp.+....................................... 74,940 3,405,086
Orthodontic Centers of America, Inc.+.................. 13,500 164,531
Professional Detailing, Inc.+.......................... 54,600 1,446,900
------------
11,362,661
------------
Media -- 5.6%
Cinar Corp., Inc.+..................................... 68,700 940,331
Emmis Communications Corp., Class A+................... 15,000 1,215,000
Lifeminders.com, Inc................................... 50,000 1,068,750
Media Metrix, Inc.+.................................... 53,200 1,968,400
SBA Communcations Corp. ............................... 145,000 1,667,500
------------
6,859,981
------------
Technology Services & Software -- 23.0%
Cysive, Inc.+.......................................... 56,200 2,838,100
Daleen Technologies, Inc.+............................. 125,000 6,164,062
Great Plains Software, Inc.+........................... 16,500 881,719
MessageMedia, Inc.+.................................... 142,900 2,339,988
Netcentives, Inc.+..................................... 169,000 4,436,250
NetScout Systems, Inc.+................................ 150,000 3,750,000
NetSolve, Inc. ........................................ 115,000 2,990,000
PSW Technologies, Inc. ................................ 283,100 3,361,812
Xceed, Inc.+........................................... 45,700 1,199,625
------------
27,961,556
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
BRAZOS MUTUAL FUNDS -- MICRO CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Shares/
Principal Amount
Security Description (in thousands) Value
- -------------------- ---------------- ------------
<S> <C> <C>
Common Stock (continued)
Traditional Heavy Industry -- 0.3%
Waste Connections, Inc.+.................... 27,600 $ 358,800
------------
Total Investment Securities (Cost $90,370,192)................. 116,708,667
------------
Repurchase Agreement -- 6.5%
Agreement with State Street Bank & Trust
Co., bearing interest at 4.50%, dated
11/30/99, to be repurchased 12/01/99 in the
amount of $7,867,983 and collateralized by
$6,900,000 of U.S. Treasury Bonds, bearing
interest at 7.88%, due 2/15/21 and having
an approximate aggregate value of
$8,029,875 (cost $7,867,000) .............. $ 7,867 7,867,000
------------
Total Investments -- 102.2% (Cost $98,237,192)................... 124,575,667
Liabilities in Excess of Other Assets -- (2.2)................... (2,661,434)
------------
Net Assets -- 100.0%............................................. $121,914,233
============
</TABLE>
- -------
+Non-income producing security.
ADR ("American Depository Receipt")
See Notes to Financial Statements
17
<PAGE>
BRAZOS MUTUAL FUNDS -- MULTI CAP GROWTH PORTFOLIO
Portfolio of Investments November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----------
<S> <C> <C>
Common Stock -- 88.9%
Basic Resources (Excluding Energy) -- 1.6%
Millipore Corp. ......................................... 17,000 $ 557,812
-----------
Business Services -- 8.9%
Concord EFS, Inc.+....................................... 18,400 487,600
Iron Mountain, Inc.+..................................... 9,700 285,544
Maximus, Inc.+........................................... 16,400 459,200
Miami Computer Supply Corp.+............................. 8,700 243,600
NOVA Corp.+.............................................. 9,400 287,875
Paychex, Inc. ........................................... 20,200 806,737
Pierce Leahy Corp.+...................................... 20,000 640,000
-----------
3,210,556
-----------
Consumer Durables -- 1.4%
Gentex Corp.+............................................ 9,700 181,269
Miller (Herman), Inc. ................................... 13,800 315,675
-----------
496,944
-----------
Consumer Merchandising -- 10.8%
Ames Department Stores, Inc.+............................ 6,800 180,625
BJ's Wholesale Club, Inc.+............................... 6,000 224,250
Brinker International, Inc.+............................. 12,500 282,813
CEC Entertainment, Inc.+................................. 2,550 76,500
Dollar Tree Stores, Inc.+................................ 8,400 375,900
InterTAN, Inc.+.......................................... 25,000 598,437
Linens 'n Things, Inc.+.................................. 15,000 506,250
Pantry, Inc.+............................................ 16,200 141,750
Ross Stores, Inc. ....................................... 8,200 157,338
Tandy Corp. ............................................. 10,700 819,887
Williams-Sonoma, Inc.+................................... 9,400 512,300
-----------
3,876,050
-----------
Consumer Services -- 3.4%
International Speedway Corp. ............................ 4,900 323,400
SFX Entertainment, Inc.+................................. 6,900 232,875
World Wrestling Federation Entertainment, Inc.+.......... 33,200 668,150
-----------
1,224,425
-----------
</TABLE>
See Notes to Financial Statements
18
<PAGE>
BRAZOS MUTUAL FUNDS -- MULTI CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----------
<S> <C> <C>
Common Stock (continued)
Electronic Technology -- 22.5%
ADC Telecommunications, Inc.+............................ 11,700 $ 623,756
Amphenol Corp.+.......................................... 8,068 551,145
ANTEC Corp.+............................................. 7,300 408,800
AVX Corp. ............................................... 16,500 675,469
Cabletron Systems, Inc.+................................. 45,000 1,032,187
Conexant Systems, Inc.+.................................. 13,000 770,250
Copper Mountain Networks, Inc.+.......................... 5,800 483,938
Oak Industries, Inc.+.................................... 9,900 745,594
S3, Inc.+................................................ 23,200 194,300
Scientific-Atlanta, Inc. ................................ 11,600 676,425
SDL, Inc.+............................................... 3,700 602,175
Texas Instruments, Inc. ................................. 8,600 826,137
Vitesse Semiconductor Corp.+............................. 10,800 486,675
-----------
8,076,851
-----------
Energy -- 1.9%
Apache Corp. ............................................ 10,500 376,031
Vastar Resources, Inc. .................................. 5,500 308,000
-----------
684,031
-----------
Financial -- 17.4%
AmeriCredit Corp.+....................................... 26,900 457,300
Capital One Financial Corp. ............................. 15,200 707,750
Charter One Financial, Inc. ............................. 10,310 223,598
CyberSource Corp.+....................................... 6,100 363,713
FINOVA Group, Inc. ...................................... 17,200 639,625
Knight/Trimark Group, Inc., Class A+..................... 19,900 819,631
MBNA Corp. .............................................. 8,500 214,625
Metris Cos., Inc. ....................................... 24,000 759,000
MGIC Investment Corp. ................................... 17,100 966,150
PMI Group, Inc. ......................................... 10,700 534,331
Radian Group, Inc. ...................................... 11,600 566,950
-----------
6,252,673
-----------
Healthcare Products -- 3.0%
Biovail Corp. International+............................. 5,000 347,812
Dura Pharmaceuticals, Inc.+.............................. 26,900 350,541
Waters Corp.+............................................ 7,700 377,300
-----------
1,075,653
-----------
Healthcare Services -- 0.9%
Healtheon Corp.+......................................... 7,494 340,509
-----------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
BRAZOS MUTUAL FUNDS -- MULTI CAP GROWTH PORTFOLIO
Portfolio of Investments -- continued November 30, 1999
<TABLE>
<CAPTION>
Shares/
Principal Amount
Security Description (in thousands) Value
- -------------------- ---------------- -----------
<S> <C> <C>
Common Stock (continued)
Media -- 5.9%
American Tower Corp., Class A+................ 11,900 $ 310,888
Amfm, Inc.+................................... 5,330 376,764
CBS Corp.+.................................... 12,500 650,000
Hispanic Broadcasting Corp.+.................. 6,200 510,725
Outdoor Systems, Inc.+........................ 6,300 280,350
-----------
2,128,727
-----------
Technology Services & Software -- 9.8%
Affiliated Computer Services, Inc., Class A+.. 17,000 636,437
CSG Systems International, Inc.+.............. 4,500 196,313
Fiserv, Inc.+................................. 5,250 186,375
iXL Enterprises, Inc.+........................ 20,100 723,600
Mercury Interactive Corp.+.................... 4,300 357,438
Network Solutions, Inc.+...................... 4,600 689,712
SunGard Data Systems, Inc.+................... 4,900 109,025
Transaction Systems Architects, Inc.+......... 500 17,469
Vignette Corp.+............................... 2,900 603,200
-----------
3,519,569
-----------
Traditional Heavy Industry -- 1.4%
Danaher Corp. ................................ 10,300 505,988
-----------
Total Common Stock (Cost $28,258,606)............................ 31,949,788
-----------
Corporate Bonds -- 2.1%
American Tower Corp. convertible 6.25% 2009... $ 260 323,375
Lamar Advertising Co. convertible 5.25% 2006.. 310 434,000
-----------
Total Corporate Bonds (Cost $595,627)............................ 757,375
-----------
Total Investment Securities (Cost $28,854,233)................... 32,707,163
-----------
Repurchase Agreement -- 7.1%
Agreement with State Street Bank & Trust Co.,
bearing interest at 4.50%, dated 11/30/99, to
be repurchased 12/01/99 in the amount of
$2,546,318 and collateralized by $2,235,000
of U.S. Treasury Bonds, bearing interest at
7.88%, due 2/15/21 and having an approximate
aggregate value of $2,600,981 (cost
$2,546,000).................................. 2,546 2,546,000
-----------
Total Investments -- 98.1% (Cost $31,400,233)...................... 35,253,163
Other Assets Less Liabilities -- 1.9%.............................. 690,997
-----------
Net Assets -- 100.0%............................................... $35,944,160
===========
</TABLE>
- -------
+Non-income producing security.
See Notes to Financial Statements
20
<PAGE>
BRAZOS MUTUAL FUNDS
Statement of Assets and Liabilities November 30, 1999
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap Multi Cap
Growth Securities Growth Growth
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
assets:
Investment securities, at
value*................... $597,969,837 $121,828,659 $116,708,667 $32,707,163
Repurchase agreements
(cost equals market)..... 21,364,000 7,476,000 7,867,000 2,546,000
Cash...................... -- 324 1,299,204 --
Receivable for
investments sold......... 15,229,642 1,458,967 2,178,891 748,804
Interest and dividends
receivable............... 8,467 304,524 9,733 12,626
Receivable for shares of
beneficial interest
sold..................... 673,909 26,286 104,381 8,226
Prepaid expenses.......... 3,655 842 635 154
Receivable from
investment
adviser/administrator.... 193 133 -- 6,401
Deferred organizational
expenses................. 16,510 16,510 -- --
------------ ------------ ------------ -----------
Total assets............ 635,266,213 131,112,245 128,168,511 36,029,374
------------ ------------ ------------ -----------
liabilities:
Payable for investments
purchased................ 2,136,535 1,433,299 4,894,857 10,600
Payable for shares of
beneficial interest
redeemed................. 928,114 52,214 1,168,868 11
Investment advisory and
management fees payable.. 460,031 96,681 117,382 --
Accrued expenses.......... 192,988 84,656 73,171 59,384
Distribution and service
maintenance fees
payable.................. 1,288 786 -- --
Due to Adviser............ -- -- -- 15,200
Due to Custodian.......... 2,216,484 -- -- 19
------------ ------------ ------------ -----------
Total liabilities....... 5,935,440 1,667,636 6,254,278 85,214
------------ ------------ ------------ -----------
Net assets............ $629,330,773 $129,444,609 $121,914,233 $35,944,160
============ ============ ============ ===========
net assets were composed
of:
Shares of beneficial
interest, $.001 par
value.................... $ 33,951 $ 16,038 $ 6,649 $ 2,433
Paid-in capital........... 491,266,546 161,703,506 87,292,330 29,831,259
------------ ------------ ------------ -----------
491,300,497 161,719,544 87,298,979 29,833,692
Accumulated undistributed
net investment income
(loss)................... -- 851,041 -- --
Accumulated undistributed
net realized gain (loss)
on investments, foreign
currency and other
assets and liabilities... 5,399,956 (19,976,517) 8,276,779 2,257,538
Net unrealized
appreciation
(depreciation) of
investments.............. 132,630,320 (13,149,459) 26,338,475 3,852,930
------------ ------------ ------------ -----------
Net assets............ $629,330,773 $129,444,609 $121,914,233 $35,944,160
============ ============ ============ ===========
*Identified cost
Investment securities..... $465,339,517 $134,978,118 $ 90,370,192 $28,854,233
============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements
21
<PAGE>
BRAZOS MUTUAL FUNDS
Statement of Assets and Liabilities -- continued November 30, 1999
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap Multi Cap
Growth Securities Growth Growth
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Class Y (unlimited shares
authorized):
Net assets................ $627,977,577 $128,996,487 $121,914,233 $35,944,160
Shares of beneficial
interest issued and
outstanding.............. 33,877,855 15,982,180 6,649,389 2,432,517
Net asset value, offering
and redemption price
per share................ $ 18.54 $ 8.07 $ 18.33 $ 14.78
============ ============ ============ ===========
Class A (unlimited shares
authorized):
Net assets................ $ 393,786 $ 142,682 -- --
Shares of beneficial
interest issued and
outstanding.............. 21,287 17,710 -- --
Net asset value and
redemption price per
share.................... $ 18.50 $ 8.06 -- --
Maximum sales charge
(5.75% of offering
price)................... 1.13 0.49 -- --
------------ ------------ ------------ -----------
Maximum offering price to
public................... $ 19.63 $ 8.55 -- --
============ ============ ============ ===========
Class B (unlimited shares
authorized):
Net assets................ $ 562,445 $ 162,422 -- --
Shares of beneficial
interest issued and
outstanding.............. 30,424 20,173 -- --
Net asset value, offering
and redemption price per
share (excluding any
applicable contingent
deferred sales charge)... $ 18.49 $ 8.05 -- --
============ ============ ============ ===========
Class II (unlimited shares
authorized):
Net assets................ $ 396,965 $ 143,018 -- --
Shares of beneficial
interest issued and
outstanding.............. 21,452 17,755 -- --
Net asset value and
redemption price per
share (excluding any
applicable contigent
deferred sales charge)... $ 18.50 $ 8.05 -- --
Maximum sales charge
(1.00% of offering
price)................... 0.19 0.08 -- --
------------ ------------ ------------ -----------
Maximum offering price to
public................... $ 18.69 $ 8.13 -- --
============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements
22
<PAGE>
BRAZOS MUTUAL FUNDS
Statement of Operations -- For the year ended November 30, 1999
<TABLE>
<CAPTION>
Small Cap Real Estate Micro Cap Multi Cap
Growth Securities Growth Growth
Portfolio Portfolio Portfolio Portfolio*
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest................... $ 962,295 $ 337,007 $ 454,958 $ 102,569
Dividends (net of
withholding taxes of
$1,365 on the Real Estate
Securities Portfolio)..... 511,381 7,346,312 28,007 31,124
------------ ------------ ----------- ----------
Total investment income... 1,473,676 7,683,319 482,965 133,693
------------ ------------ ----------- ----------
Expenses:
Investment advisory and
management fees........... 4,480,753 1,075,480 972,652 128,625
Administration fees........ 329,034 85,854 57,271 13,760
Distribution and service
maintenance fees-Class A.. 159 116 -- --
Distribution and service
maintenance fees-Class B.. 645 337 -- --
Distribution and service
maintenance fees-Class
II........................ 489 332 -- --
Transfer agent fees and
expenses-Class A.......... 125 91 -- --
Transfer agent fees and
expenses-Class B.......... 178 92 -- --
Transfer agent fees and
expenses-Class II......... 134 91 -- --
Transfer agent fees and
expenses-Class Y.......... 73,232 25,309 17,490 15,134
Custodian fees and
expenses.................. 173,212 104,324 56,203 36,291
Registration fees-Class A.. 45 33 -- --
Registration fees-Class B.. 62 34 -- --
Registration fees-Class
II........................ 48 33 -- --
Registration fees-Class Y.. 135,848 57,710 78,286 49,368
Audit and tax consulting
fees...................... 39,840 19,549 22,321 20,425
Trustees' fees and
expenses.................. 30,225 12,891 11,823 12,580
Printing expense........... 36,660 12,444 15,658 7,872
Legal fees and expenses.... 54,264 24,313 16,811 6,653
Insurance expense.......... 12,569 2,460 1,817 553
Amortization of
organizational expenses... 1,682 1,683 -- --
Miscellaneous expenses..... 1,819 1,666 1,327 2,471
------------ ------------ ----------- ----------
Total expenses............. 5,371,023 1,424,842 1,251,659 293,732
Less: Expenses
waived/reimbursed......... (220) (182) -- (100,115)
Less: Custody credits
earned on cash balances... (6,953) (328) (797) (233)
------------ ------------ ----------- ----------
Net expenses............... 5,363,850 1,424,332 1,250,862 193,384
------------ ------------ ----------- ----------
Net investment income
(loss)..................... (3,890,174) 6,258,987 (767,897) (59,691)
------------ ------------ ----------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on
investments................ 25,362,554 (12,384,265) 17,495,994 4,217,316
Net change in unrealized
appreciation/depreciation
on investments............. 107,534,782 (4,486,508) 23,601,585 3,852,930
------------ ------------ ----------- ----------
Net realized and unrealized
gain (loss) on investments,
foreign currency and other
assets and liabilities..... 132,897,336 (16,870,773) 41,097,579 8,070,246
------------ ------------ ----------- ----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS:................ $129,007,162 ($10,611,786) $40,329,682 $8,010,555
============ ============ =========== ==========
</TABLE>
- -------
*For the period December 31, 1998, commencement of operations, through November
30, 1999
See Notes to Financial Statements
23
<PAGE>
BRAZOS MUTUAL FUNDS
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Small Cap Growth Real Estate Securities
Portfolio Portfolio
-------------------------- --------------------------
For the year For the year For the year For the year
ended ended ended ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income
(loss).................. ($3,890,174) ($1,321,902) $ 6,258,987 $ 3,324,100
Net realized gain (loss)
on investments.......... 25,362,554 (19,900,633) (12,384,265) (7,566,179)
Net change in unrealized
appreciation/depreciation
of investments.......... 107,534,782 22,192,195 (4,486,508) (9,733,110)
------------ ------------ ------------ -----------
Net increase (decrease)
in net assets resulting
from operations......... 129,007,162 969,660 (10,611,786) (13,975,189)
------------ ------------ ------------ -----------
Dividends and
distributions to
shareholders:
From net investment
income (Class Y)........ -- -- (5,836,341) (3,252,946)
From net investment
income (Class A)........ -- -- (2,095) --
From net investment
income (Class B)........ -- -- (2,047) --
From net investment
income (Class II)....... -- -- (2,046) --
From net realized gains
on investments
(Class Y)............... -- (650,416) -- (567,899)
From net realized gains
on investments
(Class A)............... -- -- -- --
From net realized gains
on investments
(Class B)............... -- -- -- --
From net realized gains
on investments
(Class II).............. -- -- -- --
------------ ------------ ------------ -----------
Total dividends and
distributions to
shareholders............. -- (650,416) (5,842,529) (3,820,845)
------------ ------------ ------------ -----------
Net increase in net assets
resulting from capital
share transactions (Note
5)....................... 187,116,304 231,990,081 61,109,901 49,276,804
------------ ------------ ------------ -----------
Total increase in net
assets................... 316,123,466 232,309,325 44,655,586 31,480,770
NET ASSETS:
Beginning of period....... 313,207,307 80,897,982 84,789,023 53,308,253
------------ ------------ ------------ -----------
End of period [including
undistributed net
investment income (loss)
for November 30,1999 and
November 30, 1998 of $0,
$0; $851,041 and $435,600
respectively............. $629,330,773 $313,207,307 $129,444,609 $84,789,023
============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements
24
<PAGE>
BRAZOS MUTUAL FUNDS
Statement of Changes in Net Assets-- continued
<TABLE>
<CAPTION>
Multi Cap
Growth
Micro Cap Growth Portfolio Portfolio
---------------------------- --------------
For the period For the period
December 31, December 31,
For the year 1997 1998
ended through through
November 30, November 30, November 30,
1999 1998 1999
------------ -------------- --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss)...... ($767,897) ($125,108) (59,691)
Net realized gain (loss) on
investments...................... 17,495,994 (567,935) 4,217,316
Net change in unrealized
appreciation/depreciation of
investments...................... 23,601,585 2,736,890 3,852,930
------------ ----------- -----------
Net increase (decrease) in net
assets resulting from operations. 40,329,682 2,043,847 8,010,555
------------ ----------- -----------
Dividends and distributions to
shareholders:
From net investment income (Class
Y)............................... -- -- --
From net investment income (Class
A)............................... -- -- --
From net investment income (Class
B)............................... -- -- --
From net investment income (Class
II).............................. -- -- --
From net realized gains on
investments (Class Y)............ (7,883,383) -- (1,900,087)
From net realized gains on
investments (Class A)............ -- -- --
From net realized gains on
investments (Class B)............ -- -- --
From net realized gains on
investments (Class II)........... -- -- --
------------ ----------- -----------
Total dividends and distributions
to shareholders................... (7,883,383) -- (1,900,087)
------------ ----------- -----------
Net increase in net assets
resulting from capital share
transactions (Note 5)............. 41,693,949 45,730,138 29,833,692
------------ ----------- -----------
Total increase in net assets....... 74,140,248 47,773,985 35,944,160
NET ASSETS:
Beginning of period................ 47,773,985 -- --
------------ ----------- -----------
End of period [including
undistributed net investment
income (loss) for November 30,1999
and November 30, 1998 of $0; $0,
$0 and $0, respectively........... $121,914,233 $47,773,985 $35,944,160
============ =========== ===========
</TABLE>
See Notes to Financial Statements
25
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights
<TABLE>
<CAPTION>
SMALL CAP GROWTH PORTFOLIO
--------------------------
Net
gain(loss)
Net on invest- Total Dividends Distri- Net
Net Asset invest- ments (both from from net butions Net Asset Assets Ratio of
Value, ment realized invest- invest- from Total Value, end of expenses
Period beginning income and ment ment capital distri- end of Total period to average
Ended of period (loss)(1) unrealized) operations income gains butions period Return(2) (000's) net assets
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class Y
-------
12/31/96-
11/30/97(3).... $10.00 $(0.03) $4.69 $4.66 $-- $(1.17) $(1.17) $13.49 47.08% $80,898 1.35%(4)(5)
11/30/98........ 13.49 (0.11) 0.79 0.68 -- (0.10) (0.10) 14.07 5.06 313,207 1.21
11/30/99........ 14.07 (0.13) 4.60 4.47 -- -- -- 18.54 31.77 627,978 1.08
Class A
-------
9/8/99-
11/30/99(3).... $16.90 $(0.05) $1.65 $1.60 $-- $-- $-- $18.50 9.47% $ 394 1.65%(4)(5)
Class B
-------
9/8/99-
11/30/99(3).... $16.90 $(0.09) $1.68 $1.59 $-- $-- $-- $18.49 9.41% $ 562 2.30%(4)(5)
Class II
--------
9/8/99-
11/30/99(3).... $16.90 $(0.08) $1.68 $1.60 $-- $-- $-- $18.50 9.47% $ 397 2.30%(4)(5)
<CAPTION>
SMALL CAP GROWTH PORTFOLIO
--------------------------
Ratio of net
investment
income
(loss)
Period to average Portfolio
Ended net assets turnover
- ---------------- ------------- ---------
<S> <C> <C>
Class Y
-------
12/31/96-
11/30/97(3).... (0.68)%(4)(5) 148%
11/30/98........ (0.71) 104
11/30/99........ (0.78) 105
Class A
-------
9/8/99-
11/30/99(3).... (1.46)%(4)(5) 105%
Class B
-------
9/8/99-
11/30/99(3).... (2.12)%(4)(5) 105%
Class II
--------
9/8/99-
11/30/99(3).... (2.11)%(4)(5) 105%
</TABLE>
- ----------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
11/30/97 11/30/98 11/30/99
-------- -------- --------
<S> <C> <C> <C>
Small Cap Growth Class Y............... 0.45% -- --
Small Cap Growth Class A............... -- -- 0.14%
Small Cap Growth Class B............... -- -- 0.14
Small Cap Growth Class II.............. -- -- 0.14
</TABLE>
See Notes to Financial Statements
26
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights -- continued
REAL ESTATE SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
Net
gain (loss)
Net Asset on invest- Total Dividends Distri- Net Net
Value, Net ments (both from from net butions Asset Assets Ratio of
begin- invest- realized invest- invest- from Total Value, end of expenses
Period ning ment and ment ment capital distri- end of Total period to average
Ended of period income(1) unrealized) operations income gains butions period Return(2) (000's) net assets
---------------- --------- --------- ----------- ---------- --------- ------- ------- ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class Y
-------
12/31/96-
11/30/97(3)..... $10.00 $0.35 $ 2.05 $ 2.40 $(0.23) $(0.93) $(1.16) $11.24 24.39 % $53,308 1.25%(4)(5)
11/30/98........ 11.24 0.44 (1.90) (1.46) (0.43) (0.14) (0.57) 9.21 (13.64) 84,789 1.25 (5)
11/30/99........ 9.21 0.47 (1.17) (0.70) (0.44) -- (0.44) 8.07 (7.86) 128,997 1.19
<CAPTION>
Ratio of net
investment
income
(loss)
Period to average Portfolio
Ended net assets turnover
- ------------------ ------------ ---------
<S> <C> <C>
Class Y
-------
12/31/96-
11/30/97(3)..... 4.61%(4)(5) 185%
11/30/98........ 4.19 (5) 157
11/30/99........ 5.23 100
Class A
-------
9/08/99-
11/30/99(3).... $ 8.80 $0.12 $(0.74) $(0.62) $(0.12) $ -- $(0.12) $8.06 (7.06)% $ 143 1.65%(4)(5)
Class B
-------
9/08/99-
11/30/99(3).... $ 8.80 $0.10 $(0.73) $(0.63) $(0.12) $ -- $(0.12) $8.05 (7.20)% $ 162 2.30%(4)(5)
Class II
--------
9/08/99-
11/30/99(3).... $ 8.80 $0.11 $(0.74) $(0.63) $(0.12) $ -- $(0.12) $8.05 (7.20)% $ 143 2.30%(4)(5)
Class A
-------
9/08/99-
11/30/99(3).... 6.13%(4)(5) 100%
Class B
-------
9/08/99-
11/30/99(3).... 5.48%(4)(5) 100%
Class II
--------
9/08/99-
11/30/99(3).... 5.61%(4)(5) 100%
</TABLE>
- ----------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
11/30/97 11/30/98 11/30/99
-------- -------- --------
<S> <C> <C> <C>
Real Estate Securities
Class Y.................. 0.58% 0.06% --
Real Estate Securities
Class A.................. -- -- 0.18%
Real Estate Securities
Class B.................. -- -- 0.18
Real Estate Securities
Class II................. -- -- 0.18
</TABLE>
See Notes to Financial Statements
27
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights -- continued
<TABLE>
<CAPTION>
MICRO CAP GROWTH PORTFOLIO
--------------------------
Net
gain (loss) Ratio of
Net on invest- Total Dividends Distri- Net Net expenses
Net Asset invest- ments (both from from net butions Asset Assets to
Value, ment realized invest- invest- from Total Value, end of average
Period beginning income and ment ment capital distri- end of Total period net
Ended of period (loss)(1) unrealized) operations income gains butions period Return(2) (000's) assets
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class Y
-------
12/31/97-
11/30/98(3)..... $10.00 $(0.05) $2.08 $2.03 $-- $ -- $ -- $12.03 20.30% $ 47,774 1.60%(4)(5)
11/30/99........ 12.03 (0.14) 7.91 7.77 -- (1.47) (1.47) 18.33 65.67 121,914 1.54
<CAPTION>
MICRO CAP GROWTH PORTFOLIO
--------------------------
Ratio
of net
investment
income
(loss) to
Period average Portfolio
Ended net assets turnover
- ---------------- ---------------- ---------
<S> <C> <C>
Class Y
-------
12/31/97-
11/30/98(3)..... (0.46)%(4)(5) 121%
11/30/99........ (0.95) 150
</TABLE>
- ----------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
11/30/98
--------
<S> <C>
Micro Cap Growth................... 0.30%
</TABLE>
See Notes to Financial Statements
28
<PAGE>
BRAZOS MUTUAL FUNDS
Financial Highlights -- continued
<TABLE>
<CAPTION>
MULTI CAP GROWTH PORTFOLIO
--------------------------
Net gain
Net on invest-
Asset ments
Value, Net (both Total Dividends Distri- Net Net
begin- invest- realized from from net butions Asset Assets Ratio of
ning ment and invest- invest- from Total Value, end of expenses
Period of income unreal- ment ment capital distri- end of Total period to average
Ended period (loss)(1) ized) operations income gains butions period Return(2) (000's) net assets
- ---------------- ------ --------- ---------- ---------- --------- ------- ------- ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class Y
-------
12/31/98-
11/30/99(3).... $10.00 $(0.05) $6.96 $6.91 $ -- $ (2.13) $ (2.13) $14.78 72.39%(4) $35,944 1.35%(4)(5)
<CAPTION>
MULTI CAP GROWTH PORTFOLIO
--------------------------
Ratio
of net
investment
income
(loss) to
Period average Portfolio
Ended net assets turnover
- ---------------- --------------- ---------
<S> <C> <C>
Class Y
-------
12/31/98-
11/30/99(3).... (0.42)%(4)(5) 154%
</TABLE>
- ----------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
11/30/99
--------
<S> <C>
Multi Cap Growth Portfolio............ 0.64%
</TABLE>
See Notes to Financial Statements
29
<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. At November 30, 1999 the authorized shares of bene-
ficial interest of the Fund were divided into four Portfolios, the BRAZOS Small
Cap Growth Portfolio ("Small Cap Growth Portfolio"), the BRAZOS Real Estate Se-
curities Portfolio ("Real Estate Securities Portfolio"), the BRAZOS Micro Cap
Growth Portfolio ("Micro Cap Growth Portfolio") and the BRAZOS Multi Cap Growth
Portfolio, formerly BRAZOS Growth Portfolio ("Multi Cap Growth Portfolio")
(each, a "Portfolio" and collectively, the "Portfolios"). The investment objec-
tive of the Small Cap Growth Portfolio is to provide maximum capital apprecia-
tion, consistent with reasonable risk to principal, by investing primarily in
small capitalization companies. The investment objective of the Real Estate Se-
curities Portfolio is to provide a balance of income and appreciation, consis-
tent 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 Micro Cap Growth Portfolio is to provide
maximum capital appreciation, consistent with reasonable risk to principal, by
investing primarily in micro capitalization companies. The investment objective
of the Multi Cap Growth Portfolio is to provide maximum capital growth. Effec-
tive December 31, 1999, the Growth Portfolio changed its name to the Multi Cap
Growth Portfolio. The Portfolio's investment objective remains unchanged.
The Real Estate Securities Portfolio and the Small Cap Growth Portfolio offer
multiple classes of shares. The classes within each Portfolio are presented in
the Statement of Assets and Liabilities. The cost structure for each class is
as follows:
Class A shares-- Offered at net asset value per share plus an initial sales
charge. Any purchases of Class A shares in excess of
$1,000,000 will be subject to a contingent deferred sales
charge on redemptions made within 18 months of purchase.
Class B shares-- Offered at net asset value per share without an initial
sales charge, although a declining contingent deferred sales
charge may be imposed on redemptions made within six years
of purchase. Class B shares will convert automatically to
Class A shares on the first business day of the month after
seven years from the issuance of such shares and at such
time will be subject to the lower distribution fee
applicable to Class A shares.
Class II shares-- Offered at net asset value per share plus an initial sales
charge. Certain redemptions made within the first 18 months
of the date of purchase are subject to a contingent deferred
sales charge.
Class Y shares-- Offer at net asset value per share exclusively for
institutional investors.
30
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
Each class of shares bears the same voting, dividend, liquidation and other
rights and conditions. Class A, Class B and Class II shares each make distribu-
tion and account maintenance and service fee payments under the distribution
plans pursuant to Rule 12b-1 under the Investment Company Act of 1940, except
that Class B and Class II shares are subject to higher distribution fee rates.
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
investments with remaining maturities of 60 days or less are valued at amor-
tized cost, which approximates market value, unless the Fund's Board of Trust-
ees determines that this does not represent fair value. The value of all other
securities is determined in good faith under the direction of the Board of
Trustees. As of November 30, 1999, 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.
31
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
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. For the year ended November 30, 1999, the
reclassifications arising from book/tax differences are primarily related to
net operating losses.
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.
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.
32
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
3. Investment Securities. The aggregate purchases and sales of long-term secu-
rities for the year ended November 30, 1999 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Small Cap Growth Portfolio........................ $661,713,632 $502,504,217
Real Estate Securities Portfolio.................. 172,195,358 110,555,419
Micro Cap Growth Portfolio........................ 145,425,433 109,211,080
Multi Cap Growth Portfolio........................ 46,169,943 21,533,267
</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. On April 19, 1999 the Adviser became an indirect
majority owned subsidiary of American International Group. Under Investment Ad-
visory Agreements with the Fund, the Adviser manages the investment and rein-
vestment 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, Multi Cap Growth Portfolio, Small Cap Growth
Portfolio and Real Estate Securities Portfolio, respectively. The Adviser has
voluntarily agreed to keep operating expenses for the Micro Cap Growth Portfo-
lio, Multi Cap Growth Portfolio, Small Cap Growth Portfolio and Real Estate Se-
curities Portfolio Class Y shares (excluding extraordinary expenses) from
exceeding an annual rate of 1.60%, 1.35%, 1.35% and 1.25%, respectively, of
each Portfolio's average daily net assets.
For the year ended November 30, 1999 the Adviser waived/reimbursed fees in the
amount of $92,990 on the Multi Cap Growth Portfolio.
Effective August 1, 1999 the Fund, on behalf of each Portfolio, has entered
into an Administration Agreement with SunAmerica Asset Management Corp.
("SAAMCo") an indirect wholly owned subsidiary of American International Group.
SAAMCo receives an annual fee based upon average daily net asset for each Port-
folio as follows:
.07% on the first $200 million
.06% on the next $500 million
.04% on the balance
Minimum annual fee: $35,000/first portfolio; $25,000/portfolio for the next
three portfolios; $20,000/portfolio for any additional portfolios.
33
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
For the period August 1, 1999 through November 30, 1999, SAAMCo received fees
of
<TABLE>
<CAPTION>
Expenses
Reimbursed by
Administration fee Administrator
------------------ -------------
<S> <C> <C>
Small Cap Growth Portfolio.................. $122,861 $220
Real Estate Securities Portfolio............ 30,627 182
Micro Cap Growth Portfolio.................. 24,386 --
Multi Cap Growth Portfolio.................. 6,272 --
</TABLE>
Effective September 8, 1999 the Fund, on behalf of each Portfolio, has a Dis-
tribution Agreement with SunAmerica Capital Services, Inc. ("SACS"), an affili-
ate of the Administrator. Each Portfolio has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Rule 12b-1 permits an investment company directly or indirectly to pay expenses
associated with the distribution of its shares ("distribution expenses") in ac-
cordance with a plan adopted by the investment company's board of trustees and
approved by its shareholders. Pursuant to such rule, the Trustees and the
shareholders of Class A, Class B and Class II have adopted Distribution Plans
hereinafter referred to as the "Class A Plan", "Class B Plan" and "Class II
Plan". In adopting the Distribution Plans, the Trustees determined that there
was a reasonable likelihood that each such Plan would benefit the Portfolio and
the shareholders of the respective class. The sales charge and distribution
fees of a particular class will not be used to subsidize the sale of shares of
any other class.
Under the Class A Plan, Class B Plan and Class II Plan, the Distributor re-
ceives payments from a Portfolio at an annual rate of up to 0.10%, 0.75% and
0.75%, respectively, of average daily net assets of such Portfolio's Class to
compensate the Distributor and certain securities firms for providing sales and
promotional activities for distributing that class of shares. The distribution
costs for which the Distributor may be reimbursed out of such distribution fees
include fees paid to broker-dealers that have sold Portfolio shares, commis-
sions and other expenses such as those incurred for sales literature, prospec-
tus printing and distribution and compensation to wholesalers. It is possible
that in any given year the amount paid to the Distributor under each Class'
Plan may exceed the Distributor's distribution costs as described above. The
Distribution Plans provide that each class of shares of each Portfolio may also
pay the Distributor an account maintenance and service fee up to an annual rate
of 0.25% of the aggregate average daily net assets of such class of shares for
payments to broker-dealers for providing continuing account maintenance. Ac-
cordingly, for the period September 8, 1999 through November 30, 1999, SACS re-
ceived fees (see Statement of Operations) based upon the aforementioned rates.
SACS receives sales charges on each Portfolio's Class A and Class II shares,
portions of which are reallowed to affiliated broker-dealers and non-affiliated
broker-dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemp-
34
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
tions of each Portfolio's Class B and Class II shares. SACS has advised the
Fund that for the period September 8, 1999 through November 30, 1999 the pro-
ceeds received from sales (and paid out to affiliated and non-affiliated bro-
ker-dealers) and redemptions are as follows:
<TABLE>
<CAPTION>
Class A Class B
------------------------------------- -------------
Contingent
Sales Affiliated Non-affiliated Deferred
Charges Broker-dealers Broker-dealers Sales Charges
------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Small Cap Growth Portfolio. $9,841 $4,478 $5,359 $--
Real Estate Securities
Portfolio................. -- -- -- --
<CAPTION>
Class II Class II
------------------------------------- -------------
Contingent
Sales Affiliated Non-affiliated Deferred
Charges Broker-dealers Broker-dealers Sales Charges
------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Small Cap Growth Portfolio. $1,875 $ 690 $1,185 $--
Real Estate Securities
Portfolio................. 37 -- 37 --
</TABLE>
Effective August 15, 1999 the Fund has entered into a Service Agreement with
SunAmerica Fund Services, Inc. ("SAFS"), an affiliate of the Administrator. Un-
der the Service Agreement, SAFS performs certain shareholder account functions
by assisting the Portfolios' transfer agent in connection with the services
that it offers to the shareholders of the Portfolios. The Service Agreement,
which is approved annually by the Trustees, permits the Portfolios to compen-
sate SAFS for services rendered based upon the following rates:
Class A, Class B, Class II--0.22% of average daily net assets
Class Y--transaction fee based, minimum annual fee of $25,000 for the first
fund, $10,000 for each additional fund. Any transaction fees earned are
remitted to State Street Bank & Trust Co.
For the period August 15, 1999 through November 30 1999, the Portfolios in-
curred the following expenses which are included in transfer agent fees in the
Statement of Operations to compensate SAFS pursuant to the terms of the Service
Agreement.
<TABLE>
<CAPTION>
Payable at
Expense November 30, 1999
------------------------ ------------------------
Class A Class B Class II Class A Class B Class II
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Growth Portfolio... $100 $141 $107 $50 $83 $55
Real Estate Securities
Portfolio................... 73 74 73 26 27 26
</TABLE>
Firstar Mutual Fund Services, LLC, a subsidiary of Firstar Bank Milwaukee, NA
("Firstar Bank") served as administrator and accounting services agent for the
Fund for the period October 1, 1998 through August 1, 1999 and served as custo-
dian and transfer agent for the period October 1, 1998 through August 15, 1999.
35
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
The following table summarizes the administration, accounting and transfer
agent fees waived by Firstar Mutual Fund Services, LLC in the Multi Cap Growth
Portfolio for the period December 31, 1998 through August 15, 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 to Pembrook
by the Small Cap Growth Portfolio, Real Estate Securities Portfolio, Micro Cap
Growth Portfolio and Multi Cap Growth Portfolio for the year ended November 30,
1999 totaled $386,992, $36,492, $27,212 and $24,411, respectively.
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 November 30, 1999, there were an unlimited number of shares
of beneficial interest authorized. The following table summarizes the activity
in shares of each Portfolio:
<TABLE>
<CAPTION>
Small Cap Growth Portfolio
--------------------------------------------------------------------------------
Class Y Class A
--------------------------------------------------- ---------------------------
For the For the For the Period
Year ended Year ended September 8, 1999* through
November 30, 1999 November 30, 1998 November 30, 1999
------------------------- ------------------------ ---------------------------
Shares Amount Shares Amount Shares Amount
----------- ------------ ---------- ------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 21,881,783 $354,179,466 18,407,184 $262,346,037 21,287 $ 376,710
Reinvestment dividends . -- -- 46,937 638,350 -- --
Shares redeemed......... (10,267,250) (168,346,125) (2,189,181) (30,994,306) -- --
----------- ------------ ---------- ------------ ------------ --------------
Net increase (decrease). 11,614,533 $185,833,341 16,264,940 $231,990,081 21,287 $ 376,710
=========== ============ ========== ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Small Cap Growth Portfolio
-------------------------------------------------------
Class B Class II
--------------------------- ---------------------------
For the Period For the Period
September 8, 1999* through September 8, 1999* through
November 30, 1999 November 30, 1999
-------------------------- --------------------------
Shares Amount Shares Amount
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Shares sold...................... 30,424 $ 531,359 21,452 $ 374,894
Reinvestment dividends .......... -- -- -- --
Shares redeemed.................. -- -- -- --
------------ -------------- ------------ --------------
Net increase (decrease).......... 30,424 $ 531,359 21,452 $ 374,894
============ ============== ============ ==============
</TABLE>
* Inception of the class
36
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
Real Estate Securities Portfolio
-----------------------------------------------------------------------------
Class Y Class A
------------------------------------------------ ---------------------------
For the For the For the Period
Year ended Year ended September 8, 1999* through
November 30, 1999 November 30, 1998 November 30, 1999
------------------------ ---------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ --------- ----------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 10,276,203 $ 92,129,473 4,926,396 $53,668,701 17,458 $ 153,431
Reinvestment dividends . 495,029 4,327,366 260,983 2,785,442 252 2,094
Shares redeemed......... (3,996,289) (35,833,646) (722,943) (7,177,339) -- --
---------- ------------ --------- ----------- ------------ --------------
Net increase (decrease). 6,774,943 $ 60,623,193 4,464,436 $49,276,804 17,710 $ 155,525
========== ============ ========= =========== ============ ==============
</TABLE>
* Inception of the class
<TABLE>
<CAPTION>
Real Estate Securities Portfolio
---------------------------------------------------------
Class B Class II
--------------------------- ----------------------------
For the Period For the Period
September 8, 1999* through September 8, 1999* through
November 30, 1999 November 30, 1999
--------------------------- ----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold............. 20,751 $ 180,060 17,509 $ 153,746
Reinvestment dividends . 246 2,047 246 2,046
Shares redeemed......... (824) (6,716) -- --
------------ ------------- ------------ --------------
Net increase (decrease). 20,173 $ 175,391 17,755 $ 155,792
============ ============= ============ ==============
<CAPTION>
Micro Cap Growth Portfolio
---------------------------------------------------------
Class Y
---------------------------------------------------------
For the For the Period
Year ended December 31, 1997* through
November 30, 1999 November 30, 1998
--------------------------- ----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold............. 4,272,442 $ 65,162,561 4,701,406 $ 54,365,739
Reinvestment dividends . 437,475 7,415,212 -- --
Shares redeemed......... (2,032,966) (30,883,824) (728,968) (8,635,601)
------------ ------------- ------------ --------------
Net increase (decrease). 2,676,951 $ 41,693,949 3,972,438 $ 45,730,138
============ ============= ============ ==============
</TABLE>
37
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
Multi Cap
Growth Portfolio
-------------------------------------
Class Y
----------------------------
For the Period
December 31, 1998* through
November 30, 1999
----------------------------
Shares Amount
------------- --------------
<S> <C> <C> <C> <C>
Shares sold............. 2,405,047 $29,483,729
Reinvestment dividends . 133,689 1,711,221
Shares redeemed......... (106,219) (1,361,258)
------------ --------------
Net increase (decrease). 2,432,517 $29,833,692
============ ==============
</TABLE>
* Inception of the class
6. Income Tax Information. At November 30, 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.............. $486,799,902 $154,318,202 $(21,784,267) $132,533,935
Real Estate Securities
Portfolio.............. 145,087,627 301,088 (16,084,056) (15,782,968)
Micro Cap Growth
Portfolio.............. 98,237,192 30,999,613 (4,661,138) 26,338,475
Multi Cap Growth
Portfolio.............. 31,400,233 5,106,059 (1,253,129) 3,852,930
</TABLE>
At November 30, 1999, the Real Estate Securities Portfolio had capital loss
carryovers (which may be carried over to offset future capital gains) totaling
$2,392,969 and $14,950,012 to expire in the years 2006 and 2007, respectively.
For the year ended November 30, 1998 the Small Cap Growth and Micro Cap Growth
Portfolios utilized capital loss carryovers from the prior year in the amount
of $19,665,161 and $451,347, respectively.
7. Subsequent Events. As of December 31, 1999, the Fund offers the Brazos Mid
Cap Growth Portfolio. The investment objective is to provide maximum capital
appreciation, consistent with reasonable risk to principal.
38
<PAGE>
BRAZOS MUTUAL FUNDS
Report of Independent Accountants
To the Board of Trustees and Shareholders of Brazos Mutual Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all mate-
rial respects, the financial position of Small Cap Growth Portfolio, Real Es-
tate Securities Portfolio, Micro Cap Growth Portfolio and Multi Cap Growth
Portfolio (formerly Growth Portfolio) (constituting Brazos Mutual Funds, here-
after referred to as the "Fund") at November 30, 1999, and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with generally ac-
cepted accounting principles. These financial statements and financial high-
lights (hereafter referred to as "financial statements") are the responsibility
of the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these fi-
nancial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1999 by correspondence with the cus-
todian and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 21, 2000
39
<PAGE>
BRAZOS MUTUAL FUNDS
Shareholder Tax Information (unaudited)
Certain tax information regarding the Brazos Mutual Funds is required to be
provided to shareholders based upon each Portfolio's income and distributions
for the taxable year ended November 30, 1999. The information and distributions
reported herein may differ from the information and distributions taxable to
the shareholders for the calendar year ending December 31,1999. The information
necessary to complete your income tax returns will be included with your Form
1099-DIV which will be sent to you under a separate cover in January 2000.
During the year ended November 30, 1999 the Portfolios paid the following divi-
dends per share:
<TABLE>
<CAPTION>
Net Net
Net short-term long-term Qualifying % for the
Total Investment capital capital 70% dividends
dividends income gains* gains received deductions
--------- ---------- ---------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Small Cap Growth Class
Y...................... $ -- $ -- $ -- $ -- -- %
Small Cap Growth Class
A...................... -- -- -- -- --
Small Cap Growth Class
B...................... -- -- -- -- --
Small Cap Growth Class
II..................... -- -- -- -- --
Real Estate Securities
Class Y................ 0.44 0.44 -- -- --
Real Estate Securities
Class A................ 0.12 0.12 -- -- --
Real Estate Securities
Class B................ 0.12 0.12 -- -- --
Real Estate Securities
Class II............... 0.12 0.12 -- -- --
Micro Cap Growth........ 1.47 -- 1.47 -- 0.20
Multi Cap Growth........ 2.13 -- 2.13 -- 0.73
</TABLE>
- -------
* Short-term capital gains are treated as ordinary income for tax purposes.
40
<PAGE>
TRUSTEES
GEORGE W. GAU
JOHN H. MASSEY
DAVID M. REICHERT
DAN L. HOCKENBROUGH
OFFICERS
DAN L. HOCKENBROUGH
Chairman of the Board,
President, Treasurer andChief 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
SUNAMERICA ASSET MANAGEMENT CORP
733 THIRD AVENUE
NEW YORK, NEW YORK 10017
CUSTODIAN & TRANSFER AGENT
STATE STREET BANK AND TRUST CO.
P.O. BOX 419572
KANSAS CITY, MO 64141-6572
COUNSEL
DRINKER, BIDDLE & REATH LLP
ONE LOGAN SQUARE
18TH AND CHERRY STREETS
PHILADELPHIA, PENNSYLVANIA 19103-6996
AUDITORS
PRICEWATERHOUSECOOPERS LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
BYRAP
BRAZOS MUTUAL FUNDS
ANNUAL REPORT
NOVEMBER 30, 1999
BRAZOS
SMALL CAP
GROWTH PORTFOLIO
REAL ESTATE
SECURITIES PORTFOLIO
MICRO CAP
GROWTH PORTFOLIO
MULTI CAP
GROWTH PORTFOLIO
----------
INVESTMENT ADVISER
JOHN McSTAY
INVESTMENT COUNSEL
5949 SHERRY LANE
SUITE 1600
DALLAS, TEXAS 75225
