<PAGE> 1
PRESIDENT'S LETTER
July 28, 1998
DEAR SHAREHOLDERS:
The U.S. financial markets staged yet another impressive rally for the
twelve months ended June 30, 1998. Stocks, as measured by the Standard & Poor's
500 Index returned 30.2% during the period. Bonds also recorded strong gains for
the twelve months, with the Salomon Broad Index returning 10.6%.
Although many Asian countries are experiencing severe economic and political
problems, investors act as if this will have little, if any, impact on the U.S.
economy and financial markets. There have been occasional hiccups in the stock
market since the "Asian Flu" became rampant, but overall, the effect from Asia
has been minimal.
One reason cited for the continuing bull market in stocks is the massive
flow of money into mutual funds from individual investors and their retirement
plans. As the U.S. workforce continues to mature and enter their high-earning
years, they are plowing more money into their savings and retirement accounts.
Some economists believe this trend could continue for at least the next ten
years. Foreign purchases of U.S. equities have also provided strong liquidity
for the stock market. Over the past few years, investors around the world have
begun to think of the U.S. equity market as being immune from risk. Although we
disagree wholeheartedly with this view, investors from all over the world have
been pouring money into U.S. securities.
The bond market is also being affected by numerous positive events that are
pushing interest rates lower almost every quarter. Low inflation has been one of
the driving forces. The U.S. economy is charging along with steady growth, but
apparently not producing any residual inflation. Another positive for the bond
market has been the reduction in the federal deficit. As the U.S. Treasury seeks
to borrow less money for its spending, the supply of bonds is decreasing. This
decrease in supply causes bond prices to rise and interest rates to decline. One
last factor responsible for at least some of the strength in bonds is foreign
buying. We are witnessing a "flight to quality" from foreign investors, similar
to what we are seeing in the stock market. Uncertainties created through foreign
bank insolvencies and even government defaults have left investors searching for
a safe haven. The result has been strong demand for U.S. fixed income
securities.
All of these factors have caused enormous upside pressure on both stocks and
bonds. This has truly been an unprecedented environment for investing.
Unfortunately we have no way of knowing how much longer this great investing
climate will be around, but we will continue to reap the rewards for all of our
shareholders.
IAA TRUST GROWTH FUND, INC.
The annualized returns for the Fund for the period ended June 30, 1998, are as
follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
10.98% 16.46% 13.86%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
The IAA Trust Growth Fund returned 10.98% over the past twelve months.
Although this was good compared to historical stock returns, it was well short
of the S&P 500 Index. Much of the strong performance in the Index was due to the
largest stocks, which accounted for an unusually large portion of the total
return. Like other mutual funds, our weightings in these stocks were much
smaller than their corresponding weightings in the Index. This put us at a
serious disadvantage compared to the S&P 500. We also carried a fairly
significant cash balance. Unfortunately, the market advanced rapidly during that
time and left us behind. Small-cap value and mid-cap value stocks, which
severely underperformed during the period, were approximately one-third of our
holdings.
In response to our recent disappointing performance, we have instituted some
changes which we believe will enhance the performance of the Fund. A team of IAA
Trust Company professionals, as opposed to one manager, now manages the Fund. We
believe the combined experience of our personnel will allow the Fund to become a
better performer. We have also invested a heavier portion of the Fund's assets
in large capitalization securities. These are the companies whose performance is
currently driving the Index. Our goal is to align the performance of our Fund
more closely with the S&P 500.
<PAGE> 2
IAA TRUST ASSET ALLOCATION FUND, INC.
The annualized returns for the Fund for the period ended June 30, 1998, are as
follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
11.41% 12.42% 10.97%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
The Asset Allocation Fund returned 11.41% during the past year. This
compared with 17.58% for the average "Balanced Fund". Much of the return
differential was caused by a more conservative asset allocation than the average
fund combined with an underrepresentation in large capitalization stocks. A
preference for value stocks in a market favoring growth stocks also contributed
to the shortfall.
Although large capitalization stocks seem to be at extreme valuations
relative to smaller stocks, we have decided to make some concessions to current
market trends and have increased our exposure to large cap stocks. We've also
sold some marginal positions in order to be better focused on our remaining
companies. We continue to be conservatively positioned with the portfolio split
between stocks and bonds.
IAA TRUST TAX EXEMPT BOND FUND, INC.
The annualized total returns for the Fund for the period ending June 30, 1998,
are as follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
7.45% 5.24% 6.87%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested. Although the Fund's income is exempt from federal income tax, it may
be subject to state income taxation.
The IAA Trust Tax Exempt Bond Fund maintained a duration equal to or
slightly longer than the duration of the Lehman Index throughout the second half
of 1997. This enabled the portfolio to benefit from 1997's general interest rate
decline. However, in the first half of 1998, the duration of the portfolio fell
behind the Index, and consequently, so did our return. In comparison to the
Fund's one-year total return of 7.45%, the Lehman Brothers Municipal Bond Index,
which does not reflect investments in cash, the impact of any servicing,
investment management, or administrative expenses, had a total return of 8.66%.
Why did the duration fall behind in 1998? One of the philosophies of the Tax
Exempt Bond Fund has been to avoid distributions of capital gains to
shareholders. Currently, the capital gains rate is 20%. As the market continued
to rally throughout 1997 and into 1998, over 90% of the securities listed in the
portfolio posted unrealized gains. We managed to marginally extend the duration
of the portfolio by selling those securities with minimal tax consequences and
purchased longer duration securities. Recently, we decided to prioritize total
return, instead of minimizing capital gains.
Municipal bonds continue to be a safe haven, not only for their inherent tax
advantage, but also, because of their relatively high yield as a percentage of
U.S. Treasuries. The 30-year ratios ended 1997, at 85%, approximately three
percentage points higher than where they started the year. As of June 30, 1998,
those ratios were better than 90%. Low interest rates spurred new issuance of
municipal debt. This additional supply outweighed the demand, thus causing these
high ratios. As a result, municipals remain an attractive investment relative to
other taxable fixed income investments.
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
Over the past fiscal year, the Money Market Series' 7-day yield increased
from 4.81% to 4.88%. The slight improvement in the Fund's yield was primarily
due to a lowering of the expense ratio as short-term interest rates ended the
fiscal year unchanged. The Federal Reserve has not adjusted monetary policy
since March 1997 when interest rates were increased to prevent upward pressure
on inflation. The lowering of expenses and the previous year's Federal Reserve
action allowed the Money Market Series' one-year total return to increase from
4.63% on June 30, 1997, to 4.94% on June 30, 1998.
<PAGE> 3
SHORT-TERM GOVERNMENT BOND SERIES
The annualized total returns for the Fund for this period ended June 30, 1998,
are as follows:
<TABLE>
<CAPTION>
1 YEAR
-------
<S> <C> <C>
6.50%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
Short-term bonds had a good year and outperformed money market instruments.
The Fund had an average life of approximately 2 1/2 years and maintained a heavy
weighting in governments and agencies. Recently, there has been spread-widening
in corporates and mortgages, and we plan to increase our holdings of high-grade
corporates. With the current flat yield curve, short bond rates look attractive.
For the year the Short-Term Bond Fund had a return of 6.50%, which compares
to the Merrill Lynch Short Treasury Index return of 6.81%.
LONG-TERM BOND SERIES
The annualized total returns for the Fund for the period ended June 30, 1998,
are as follows:
<TABLE>
<CAPTION>
1 YEAR
-------
<S> <C> <C>
10.24%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
The past year has been characterized by declining interest rates, widening
yield spreads, and a flattening yield curve. The combination of increasing
budget surpluses and benign inflation justify most of the recent flattening
rally in the U.S. Treasury yield curve. Our performance benefited from an
overweighting in Treasuries. Recent spread widening in corporates and mortgages
make them look much more attractive at current rate levels. We are taking
advantage of the wider spread by increasing our corporate bond position. Even
though bond yields are relatively low, they compare favorably to today's
inflation environment.
For the year the Long-Term Bond Fund had a total return of 10.24%, which
compares to the Merrill Lynch Domestic Bond Index return of 10.67%.
Sincerely,
[Ronald Warfield Photo]
[Ronald Warfield Signature]
Ronald R. Warfield
President
<PAGE> 4
IAA TRUST MUTUAL FUNDS -- PORTFOLIO HIGHLIGHTS (UNAUDITED)
IAA TRUST GROWTH FUND, INC.
PORTFOLIO CHANGES For the Year Ended June 30, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Bank of New York (1) Green Tree Financial Corp. (2)
Intimate Brands, Inc. (1) Columbia/HCA Healthcare Corp. (2)
Landry's Seafood Restaurants, Inc. (1) Travelers, Inc. (2)
SBC Communications, Inc. (1) Wendy's International, Inc.
Mattel, Inc. (1) AGCO Corp.
Schlumberger, Ltd. (1) Adaptec, Inc.
Baker Hughes, Inc. (1) Kemet Corp.
Associates First Capital Corp. (1) Warnaco Group, Inc., Cl. A
Monsanto Co. (1) York International, Inc.
American International Group, Inc. AT & T Corp.
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
General Electric Co......................................... $ 5,514,600 3.44%
Microsoft Corp.............................................. 4,768,500 2.97
Norwest Corp................................................ 4,111,250 2.56
Federal National Mortgage Association....................... 4,039,875 2.52
Citicorp.................................................... 3,731,250 2.33
Procter & Gamble Co......................................... 3,678,925 2.29
Merck & Co., Inc............................................ 3,611,250 2.25
Sun Microsystems, Inc....................................... 3,509,750 2.19
Bank of New York............................................ 3,277,125 2.04
Intimate Brands, Inc........................................ 3,219,300 2.01
----------- -----
$39,461,825 24.60%
=========== =====
</TABLE>
IAA TRUST ASSET ALLOCATION FUND, INC.
PORTFOLIO CHANGES For the Year Ended June 30, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Federal National Mortgage Association, 6.247%, 03/25/21 Tektronix, Inc. (2)
(1) Wendy's International, Inc. (2)
Federal National Mortgage Association, 6.000%, 02/18/21 Green Tree Financial Corp. (2)
(1) Coca-Cola Co. (2)
U.S. Treasury Inflation Index, 3.625%, 04/15/28 (1) Columbia/HCA Healthcare Corp. (2)
New York State Power Authority Revenue, 6.050%, 02/15/15 Ultratech Stepper, Inc. (2)
(1) YPF Sociedad Anonima, ADS (2)
Ford Credit Auto Owner Trust, 5.650%, 10/15/01 (1) AGCO Corp. (2)
The Money Store Home Equity Trust, 8.140%, 10/15/27 (1) Depuy, Inc. (2)
Dayton Hudson Corp., 5.895%, 06/15/37 (1) Schlumberger, Ltd. (2)
Merrill Lynch & Co., 6.020%, 05/11/01 (1)
Household Finance Corp., 6.400%,06/17/08 (1)
NationsBank Corp., 5.750%, 03/15/01 (1)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
---------- -------
<S> <C> <C>
U.S. Treasury Notes, 6.500%, 05/15/05....................... $ 369,572 1.98%
Elan Corp., PLC, ADS........................................ 321,562 1.72
Federal National Mortgage Association, 6.247%, 03/25/21..... 300,702 1.61
Federal National Mortgage Association, 6.000%, 02/18/21..... 297,741 1.60
U.S. Treasury Inflation Index, 3.625%, 04/15/28............. 296,625 1.59
Norwest Corp................................................ 291,525 1.56
Procter & Gamble Co......................................... 268,634 1.44
Bell Telephone Co. of PA, Putable Debentures, 8.350%,
12/15/30................................................... 250,750 1.34
New York State Power Authority Revenue, 6.050%, 02/15/15.... 250,575 1.34
Ford Credit Auto Owner Trust, 5.650%, 10/15/01.............. 249,375 1.34
---------- -----
$2,897,061 15.52%
========== =====
</TABLE>
<PAGE> 5
IAA TRUST MUTUAL FUNDS -- PORTFOLIO HIGHLIGHTS (UNAUDITED)
IAA TRUST TAX EXEMPT BOND FUND, INC.
PORTFOLIO CHANGES For the Year Ended June 30, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
San Bernadino, California Joint Powers, Tax Port St. Lucie, Florida Utility System
Allocation Revenue, 5.900%, 09/01/09 (2)
Revenue, 5.750%, 07/01/17 (1) Austin, Texas Limited Tax General
Vicksburg-Warren, Mississippi School Dist., State Obligation, 7.250%, 09/01/03 (2)
Aid, Washington Public Power Supply System, Nuclear
Capital Improvement Revenue, 4.700%, 02/01/16 (1) Project #1, Refunding Revenue, 1990-C, 7.625%,
07/01/01 (2)
Salt River Project Arizona Agriculture Improvement &
Power District Electric System Revenue, 5.625%,
01/01/06 (2)
Nebraska Public Power District Revenue, 5.400%,
01/01/10 (2)
Chicago, Illinois O'Hare International Airport
Revenue, 5.000%, 01/01/16 (2)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
---------- -------
<S> <C> <C>
San Bernadino, California Joint Powers, Tax Allocation
Revenue, 5.750%, 07/01/17.................................. $ 851,802 4.82%
Wisconsin State Clean Water Revenue, 5.300%, 06/01/12....... 716,625 4.06
Texas A&M University Revenue Financing System, 5.375%,
05/15/14................................................... 617,412 3.49
Pennsylvania State Higher Education Revenue Bonds, Series A,
5.600%, 09/01/10........................................... 608,764 3.45
Peru, Indiana Community School Corp. Revenue, 6.750%,
01/01/09................................................... 607,810 3.44
Chicago, Illinois Water Revenue, 6.500%, 11/01/15........... 593,335 3.36
Cape Girardeau, Missouri Waterworks System Revenue, 7.450%,
03/01/05................................................... 587,780 3.33
Connecticut State Unlimited Tax General Obligation, 5.400%,
03/15/08................................................... 582,604 3.30
State of Rhode Island Ref. General Obligation, 7.000%,
06/15/05................................................... 577,995 3.27
Illinois State Sales Tax Revenue, 5.400%, 06/15/13.......... 570,663 3.23
---------- -----
$6,314,790 35.75%
========== =====
</TABLE>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
TEN LARGEST HOLDINGS June 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
John Deere Capital Corp., 5.57%, 08/12/98................... $ 2,600,000 4.90%
American General Finance Corp., 5.62%, 08/27/98............. 2,500,000 4.72
Transamerica Financial Corp., 5.53%, 08/24/98............... 1,933,825 3.65
Toyota Motor Credit Corp., 6.16%, 07/01/98.................. 1,900,000 3.58
American Express Credit Corp., 5.55%, 08/05/98.............. 1,860,000 3.51
Associates Corp. of North America, 5.56%, 09/21/98.......... 1,858,000 3.50
Commercial Credit Co., 5.55%, 08/06/98...................... 1,780,000 3.36
Xerox Corp., 5.51%, 07/28/98................................ 1,593,388 3.01
Ford Motor Credit Corp., 5.56%, 07/15/98.................... 1,557,000 2.94
General Electric Capital Corp., 5.56%, 07/20/98............. 1,500,000 2.83
Household Finance Corp., 5.57%, 09/03/98.................... 1,500,000 2.83
----------- -----
$20,582,213 38.83%
=========== =====
</TABLE>
PORTFOLIO CHARACTERISTICS June 30, 1998
CURRENT YIELD: 4.95%
30 DAY AVERAGE YIELD: 4.85%
7 DAY AVERAGE YIELD: 4.88%
AVERAGE DAYS TO MATURITY: 39.50
<PAGE> 6
IAA TRUST MUTUAL FUNDS -- PORTFOLIO HIGHLIGHTS (UNAUDITED)
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES
PORTFOLIO CHANGES For the Year Ended June 30, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Federal National Mortgage Assoc., 6.500%, 08/01/04 None
(1)
Federal Home Loan Mortgage Corp., 6.000%, 02/15/23
(1)
Banc One Auto Grantor Trust, 6.270%, 11/20/03 (1)
Federal Home Loan Bank, 6.477%, 08/26/02 (1)
Federal Home Loan Mortgage Corp., 6.200%, 11/15/16
(1)
Federal Home Loan Bank, 6.000%, 04/06/01 (1)
U.S. Treasury Notes, 5.500%, 02/29/00 (1)
Federal National Mortgage Assoc., 6.500%, 07/25/23
(1)
Federal National Mortgage Assoc., 8.500%, 06/25/01
(1)
Chase Mortgage Finance Corp. Series 92-G, 5.550%,
04/25/24 (1)
(1) New Holdings
</TABLE>
TEN LARGEST HOLDINGS June 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
U.S. Treasury Notes, 6.500%, 08/31/01....................... $ 3,082,290 10.89%
U.S. Treasury Notes, 6.250%, 05/31/99....................... 3,019,650 10.67
Federal National Mortgage Assoc., 6.500%, 08/01/04.......... 2,783,791 9.83
U.S. Treasury Notes, 6.250%, 02/28/02....................... 2,045,580 7.23
Federal Home Loan Bank, 6.477%, 08/26/02.................... 1,100,429 3.89
U.S. Treasury Notes, 6.250%, 06/30/02....................... 1,025,140 3.62
U.S. Treasury Notes, 5.500%, 02/29/00....................... 1,000,070 3.53
Federal Home Loan Bank, 6.000%, 04/06/01.................... 996,250 3.52
Banc One Auto Grantor Trust, 6.270%, 11/20/03............... 911,964 3.22
Federal Home Loan Mortgage Corp., 6.200%, 11/15/16.......... 775,109 2.74
----------- -----
$16,740,273 59.14%
=========== =====
</TABLE>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES
PORTFOLIO CHANGES For the Year Ended June 30, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Federal Home Loan Mortgage Corp., 7.000%, 03/01/12 Tennessee Valley Authority, 5.980%, 04/01/36
(1) Government National Mortgage Assoc., 8.000%, (2) U.S. Treasury Notes, 6.500%, 10/15/06 (2)
07/15/26 (1) Federal Home Loan Mortgage Corp.,
6.000%, 03/15/09 (1) Government National Mortgage
Assoc., 6.500%, 04/15/26 (1) Pacific Gas & Electric
Co., 6.420%, 09/25/08 (1) J.C. Penney Master Credit
Card Trust, 8.950%, 10/15/01 (1) Ameritech Capital
Funding, 5.950%, 01/15/38 (1) Ford Motor Credit
Co., 7.200%, 06/15/07 (1) Federal Home Loan
Mortgage Corp., 5.000%, 05/15/21 (1) J.P. Morgan
Commercial Mortg. Fin. Corp., 7.088%, 09/15/29 (1)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
Federal Home Loan Mortgage Corp., 7.000%, 03/01/12.......... $ 4,298,780 11.08%
U.S. Treasury Notes, 6.500%, 05/15/05....................... 2,903,780 7.48
U.S. Treasury Notes, 6.500%, 08/15/05....................... 2,901,745 7.48
Government National Mortgage Assoc., 8.000%, 07/15/26....... 2,485,254 6.41
U.S. Treasury Notes, 6.000%, 02/15/26....................... 2,082,800 5.37
U.S. Treasury Notes, 5.625%, 02/15/06....................... 1,455,684 3.75
Government National Mortgage Assoc., 6.500%, 04/15/26....... 1,403,557 3.62
Federal Home Loan Mortgage Corp., 6.000%, 03/15/09.......... 1,121,880 2.89
Pacific Gas & Electric Co., 6.420%, 09/25/08................ 1,016,563 2.62
J.C. Penney Master Credit Card Trust, 8.950%, 10/15/01...... 849,707 2.19
----------- -----
$20,519,750 52.89%
=========== =====
</TABLE>
<PAGE> 7
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS -- 94.69%
BASIC INDUSTRY -- 4.44%
British Steel PLC, ADS............... 30,000 $ 682,500
Engelhard Corp....................... 80,000 1,620,000
IMC Global, Inc...................... 60,500 1,822,563
Monsanto Co.......................... 35,000 1,955,625
Nucor Corp........................... 22,500 1,035,000
------------
7,115,688
------------
CAPITAL GOODS -- 7.07%
Deere & Co........................... 50,000 2,643,750
General Electric Co.................. 60,600 5,514,600
Hardinge, Inc........................ 54,000 1,316,250
Philips Electronics N.V.............. 21,900 1,861,500
------------
11,336,100
------------
CONSUMER CYCLICAL -- 12.20%
AutoZone, Inc.*...................... 83,600 2,669,975
Chrysler Corp........................ 36,700 2,068,962
Gentex Corp.......................... 130,000 2,356,250
Intimate Brands, Inc................. 116,800 3,219,300
Mattel, Inc.......................... 62,100 2,627,606
Titan International, Inc............. 59,000 1,003,000
Wal-Mart Stores, Inc................. 40,000 2,430,000
Warnaco Group, Inc., Cl. A........... 75,000 3,182,813
------------
19,557,906
------------
CONSUMER SERVICES -- 2.62%
First Data Corp...................... 63,000 2,098,687
Landry's Seafood Restaurants,
Inc.*............................... 116,000 2,098,869
------------
4,197,556
------------
CONSUMER STAPLES -- 9.31%
American Stores Co................... 86,000 2,080,125
Archer-Daniels-Midland Co............ 56,500 1,094,688
Kimberly-Clark Corp.................. 55,000 2,523,125
PepsiCo, Inc......................... 39,000 1,606,312
Philip Morris Companies, Inc......... 40,000 1,575,000
Procter & Gamble Co.................. 40,400 3,678,925
Unilever N.V......................... 30,000 2,368,125
------------
14,926,300
------------
ENERGY -- 8.66%
Baker Hughes, Inc.................... 44,000 1,520,750
Chevron Corp......................... 22,800 1,893,825
Diamond Offshore Drilling, Inc....... 29,500 1,180,000
Exxon Corp........................... 40,000 2,852,500
Phillips Petroleum Co................ 28,000 1,349,250
Royal Dutch Petroleum Co., ADR....... 40,000 2,192,500
Schlumberger, Ltd.................... 24,000 1,639,500
Unocal Corp.......................... 35,000 1,251,250
------------
13,879,575
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
FINANCE -- 14.61%
American Express Co.................. 15,000 $ 1,710,000
American International Group, Inc.... 17,000 2,482,000
Associates First Capital Corp........ 25,000 1,921,875
Bank of New York..................... 54,000 3,277,125
Citicorp............................. 25,000 3,731,250
Federal National Mortgage
Association......................... 66,500 4,039,875
MBNA Corp............................ 65,250 2,153,250
Norwest Corp......................... 110,000 4,111,250
------------
23,426,625
------------
HEALTH -- 11.38%
Elan Corp., PLC, ADS................. 50,000 3,215,625
Integrated Health Services, Inc...... 53,000 1,987,500
Invacare Corp........................ 109,300 2,800,812
Johnson & Johnson.................... 35,000 2,581,250
Merck & Co., Inc..................... 27,000 3,611,250
Pfizer, Inc.......................... 15,000 1,630,313
SmithKline Beecham PLC, ADR.......... 40,000 2,420,000
------------
18,246,750
------------
TECHNOLOGY -- 15.83%
Analog Devices, Inc.*................ 53,500 1,314,094
Boeing Co............................ 40,000 1,782,500
Cisco Systems, Inc.*................. 33,150 3,051,872
Diebold, Inc......................... 50,700 1,463,962
Hewlett-Packard Co................... 33,400 1,999,825
Intel Corp........................... 39,100 2,898,287
International Business Machines
Corp................................ 15,000 1,722,187
Microsoft Corp.*..................... 44,000 4,768,500
Motorola, Inc........................ 21,800 1,145,863
Oracle Corp.*........................ 70,000 1,719,375
Sun Microsystems, Inc.*.............. 80,800 3,509,750
------------
25,376,215
------------
TRANSPORTATION -- 1.67%
Burlington Northern Corp............. 10,000 981,875
Federal Express Corp.*............... 27,000 1,694,250
------------
2,676,125
------------
UTILITIES -- 6.90%
DPL, Inc............................. 128,550 2,329,969
GTE Corp............................. 57,200 3,181,750
NICOR, Inc........................... 49,150 1,972,144
SBC Communications, Inc.............. 61,400 2,456,000
Wisconsin Energy Corp................ 37,000 1,123,875
------------
11,063,738
------------
TOTAL COMMON STOCKS
(cost $105,013,325)................. 151,802,578
------------
</TABLE>
<PAGE> 8
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
COMMERCIAL PAPER -- 4.76%
IBM Credit Corp.
5.55%, 07/01/98.................... $ 1,214,000 $ 1,214,000
Commercial Credit Co.
5.55%, 07/06/98..................... 230,000 230,000
Associates Corp. of North America
5.54%, 07/08/98..................... 400,000 400,000
Ford Motor Credit Co.
5.54%, 07/20/98..................... 58,000 58,000
Household Finance Corp.
5.55%, 07/21/98..................... 31,000 31,000
AVCO Financial Services, Inc.
5.56%, 08/10/98..................... 1,231,000 1,231,000
General Motors Acceptance Corp.
5.57%, 08/17/98..................... 2,000,000 2,000,000
CIT Group Holding Corp.
5.56%, 08/19/98..................... 1,106,000 1,106,000
American General Finance Corp.
5.62%, 08/27/98..................... 1,000,000 1,000,000
Associates Corp. of North America
5.56%, 09/21/98..................... 361,000 361,000
------------
TOTAL COMMERCIAL PAPER
(cost $7,631,000)................... 7,631,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 0.12%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................ 156,782 $ 156,782
Federated Prime Obligation Fund...... 28,342 28,342
------------
TOTAL MONEY MARKET FUNDS
(cost $185,124)..................... 185,124
------------
TOTAL INVESTMENTS -- 99.57%
(cost $112,829,449)................. 159,618,702
------------
CASH AND OTHER ASSETS NET OF
LIABILITIES -- 0.43%................ 695,846
------------
NET ASSETS -- 100.00%................ $160,314,548
============
</TABLE>
* Non-income producing security.
See notes to financial statements
<PAGE> 9
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS -- 47.96%
BASIC INDUSTRY -- 1.43%
British Steel PLC, ADS............... 3,600 $ 81,900
IMC Global, Inc...................... 3,600 108,450
Mead Corp............................ 2,400 76,200
------------
266,550
------------
CAPITAL GOODS -- 3.22%
Case Corp............................ 2,000 96,500
General Electric Co.................. 2,400 218,400
Hardinge, Inc........................ 4,950 120,656
Philips Electronics N.V.............. 1,950 165,750
------------
601,306
------------
CONSUMER CYCLICAL -- 6.83%
AutoZone, Inc.*...................... 4,400 140,525
Chrysler Corp........................ 2,000 112,750
Fleetwood Enterprises, Inc........... 2,400 96,000
Harley-Davidson, Inc................. 1,000 38,750
Intimate Brands, Inc................. 7,000 192,938
Magna International, Inc., Cl. A..... 1,000 68,625
Mattel, Inc.......................... 3,800 160,787
Titan International, Inc............. 5,600 95,200
Wal-Mart Stores, Inc................. 2,000 121,500
Warnaco Group, Inc., Cl. A........... 5,800 246,137
------------
1,273,212
------------
CONSUMER SERVICES -- 1.91%
First Data Corp...................... 3,000 99,938
Landry's Seafood Restaurants,
Inc.*............................... 6,600 119,418
Tribune Co........................... 2,000 137,625
------------
356,981
------------
CONSUMER STAPLES -- 4.79%
Albertson's, Inc..................... 2,900 150,256
Gillette Co.......................... 2,400 136,050
Kimberly-Clark Corp.................. 3,000 137,625
PepsiCo, Inc......................... 2,500 102,969
Philip Morris Cos., Inc.............. 2,500 98,437
Procter & Gamble Co.................. 2,950 268,634
------------
893,971
------------
ENERGY -- 3.55%
Atlantic Richfield Co................ 1,400 109,375
Baker Hughes, Inc.................... 2,300 79,494
Diamond Offshore Drilling, Inc....... 1,800 72,000
Exxon Corp........................... 2,500 178,281
Repsol S.A., ADR..................... 1,000 55,000
Williams Cos., Inc................... 5,000 168,750
------------
662,900
------------
FINANCE -- 7.65%
American Express Co.................. 1,300 148,200
American International Group, Inc.... 800 116,800
Bank of New York..................... 3,000 182,063
BankAmerica Corp..................... 2,700 233,381
Citicorp............................. 1,250 186,562
Federal National Mortgage
Association......................... 2,400 145,800
National Golf Properties, Inc........ 4,100 123,000
Norwest Corp......................... 7,800 291,525
------------
1,427,331
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
HEALTH -- 7.63%
Bristol-Myers Squibb Co.............. 2,000 $ 229,875
Concentra Managed Care, Inc.*........ 4,000 104,000
Elan Corp., PLC, ADS................. 5,000 321,563
ESC Medical Systems, Ltd.*........... 1,450 48,938
Integrated Health Services, Inc...... 5,200 195,000
Invacare Corp........................ 6,000 153,750
Johnson & Johnson.................... 1,900 140,125
Pfizer, Inc.......................... 1,000 108,688
SmithKline Beecham PLC, ADS.......... 2,000 121,000
------------
1,422,939
------------
TECHNOLOGY -- 6.42%
Analog Devices, Inc.*................ 3,000 73,688
Cisco Systems, Inc.*................. 1,875 172,617
Diebold, Inc......................... 2,400 69,300
Hewlett-Packard Co................... 1,500 89,812
Intel Corp........................... 1,550 114,894
International Business Machines
Corp................................ 1,000 114,812
Microsoft Corp.*..................... 1,600 173,400
Oracle Corp.*........................ 4,087 100,387
Raytheon Co., Cl B................... 2,000 118,250
Sun Microsystems, Inc.*.............. 3,900 169,406
------------
1,196,566
------------
TRANSPORTATION -- 0.51%
Federal Express Corp.*............... 1,500 94,125
------------
UTILITIES/TELEPHONE -- 4.02%
AirTouch Communications, Inc.*....... 1,500 87,656
BellSouth Corp....................... 1,500 100,687
CILCORP, Inc......................... 1,200 57,600
Florida Progress Corp................ 1,200 49,350
GTE Corp............................. 1,600 89,000
NICOR, Inc........................... 2,000 80,250
SBC Communications, Inc.............. 3,194 127,760
Texas Utilities, Inc................. 1,800 74,925
Wisconsin Energy Corp................ 2,700 82,013
------------
749,241
------------
TOTAL COMMON STOCKS
(cost $5,567,633)................... 8,945,122
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
BONDS AND NOTES -- 46.26%
ASSET BACKED -- 4.08%
Amresco Residential Securities
Mortgage
Loan Trust 6.925%, 06/25/25......... $ 100,000 103,693
Chemical Master Credit Card Trust
5.980%, 09/15/08.................... 200,000 201,226
Discover Credit Card Trust
6.750%, 02/16/02.................... 200,000 201,156
Green Tree Financial Corp.
6.870%, 01/15/29.................... 100,000 104,045
Standard Credit Card Master Trust
6.700%, 09/07/02.................... 150,000 151,570
------------
761,690
------------
</TABLE>
<PAGE> 10
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
AUTO -- 1.98%
Ford Credit Auto Owner Trust
5.650%, 10/15/01.................... $ 250,000 $ 249,375
General Motors Acceptance Corp.
8.875%, 06/01/10.................... 100,000 120,625
------------
370,000
------------
BANKING -- 4.02%
ABN AMRO N.V. (Chicago) Global Bond
7.125%, 06/18/07.................... 100,000 106,500
Citicorp
7.200%, 06/15/07.................... 100,000 106,125
International American Development
Bank
8.875%, 06/01/09.................... 100,000 123,750
The Money Store Home Equity Trust
8.140%, 10/15/27.................... 200,000 214,753
NationsBank Corp.
5.750%, 03/15/01.................... 200,000 199,250
------------
750,378
------------
BEVERAGES -- 0.55%
Coca-Cola Co.
6.625%, 10/01/02.................... 100,000 102,875
------------
CHEMICALS -- 0.56%
Dupont (E.I) De Nemours & Co.
6.750%, 10/15/02.................... 100,000 103,750
------------
FINANCE -- 2.14%
Household Finance Corp.
6.400%, 06/17/08.................... 200,000 198,500
Merrill Lynch & Co., Inc.
6.020%, 05/11/01.................... 200,000 200,288
------------
398,788
------------
INDUSTRIAL -- 2.75%
Amoco Canada Petroleum Co.
7.950%, 10/01/22.................... 100,000 111,875
Dayton Hudson Corp.
5.895%, 06/15/37.................... 200,000 200,250
Raytheon Co.
5.950%, 03/15/01.................... 100,000 100,000
6.300%, 03/15/05.................... 100,000 100,625
------------
512,750
------------
MUNICIPAL -- 1.34%
New York State Power Authority
Revenue
6.050%, 02/15/15.................... 250,000 250,575
------------
RETAIL -- 1.06%
Sears Roebuck Acceptance Corp.
6.000%, 03/20/03.................... 200,000 198,500
------------
TELEPHONE UTILITY -- 4.07%
Bell Telephone Co. of PA, Putable
Debentures
8.350%, 12/15/30.................... 200,000 250,750
BellSouth Capital Funding Corp.
6.040%, 11/15/26.................... 200,000 203,000
Chesapeake & Potomac Telephone Co. of
Virginia Debentures
8.375%, 10/01/29.................... 100,000 126,500
New Jersey Bell Telephone Co.
7.850%, 11/15/29.................... 150,000 179,438
------------
759,688
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
TRANSPORTATION -- 1.15%
Norfolk Southern Corp.
7.050%, 05/01/37.................... $ 200,000 $ 214,250
------------
U.S. GOVERNMENT AGENCIES -- 7.80%
Federal Farm Credit Bank
5.800%, 12/18/00.................... 100,000 99,985
Federal Home Loan Bank
6.830%, 06/07/01.................... 100,000 100,953
8.000%, 09/20/04.................... 100,000 102,825
Federal Home Loan Mortgage Corp.
10.750%, 07/01/00................... 768 807
8.750%, 04/01/01.................... 7,961 8,185
10.150%, 04/15/06................... 9,312 9,316
6.500%, 06/15/06.................... 200,000 203,272
Federal National Mortgage Association
7.060%, 11/02/05.................... 200,000 200,344
6.000%, 02/18/21.................... 300,000 297,741
6.247%, 03/25/21.................... 300,000 300,702
Government National Mortgage
Association Pool #30111
9.000%, 05/15/09.................... 16,929 18,130
Government National Mortgage
Association Pool #23653
9.500%, 06/15/09.................... 9,906 10,704
Government National Mortgage
Association Pool #32147
9.500%, 08/15/09.................... 6,539 7,066
Government National Mortgage
Association Pool #161621
9.000%, 07/15/16.................... 88,385 94,655
------------
1,454,685
------------
U.S. GOVERNMENT OBLIGATIONS -- 14.75%
U.S. Treasury Bonds
6.750%, 08/15/26.................... 100,000 114,465
6.625%, 02/15/27.................... 100,000 112,971
U.S. Treasury Notes
5.875%, 03/31/99.................... 200,000 200,624
6.750%, 06/30/99.................... 100,000 101,216
6.875%, 07/31/99.................... 100,000 101,420
5.875%, 02/15/00.................... 100,000 100,567
6.625%, 04/30/02.................... 100,000 103,654
6.375%, 08/15/02.................... 100,000 103,069
5.875%, 02/15/04.................... 100,000 101,833
7.250%, 05/15/04.................... 200,000 217,030
7.250%, 08/15/04.................... 100,000 108,767
7.875%, 11/15/04.................... 100,000 112,326
11.625%, 11/15/04................... 100,000 132,220
6.500%, 05/15/05.................... 350,000 369,572
5.625%, 02/15/06.................... 100,000 100,392
6.875%, 05/15/06.................... 150,000 162,425
6.500%, 10/15/06.................... 200,000 212,328
U.S. Treasury Inflation Index
3.625%, 04/15/28.................... 300,000 296,625
------------
2,751,504
------------
TOTAL BONDS AND NOTES
(cost $8,229,350)................... 8,629,433
------------
</TABLE>
<PAGE> 11
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
COMMERCIAL PAPER -- 1.82%
AVCO Financial Services, Inc.
5.562%, 08/10/98.................... $ 9,000 $ 9,000
CIT Group Holding Corp.
5.561%, 08/19/98.................... 330,000 330,000
------------
TOTAL COMMERCIAL PAPER
(cost $339,000)..................... 339,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 4.93%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................ 365,311 $ 365,311
Federated Prime Obligation Fund...... 554,200 554,200
------------
TOTAL MONEY MARKET FUNDS
(cost $919,511)..................... 919,511
------------
TOTAL INVESTMENTS -- 100.97%
(cost $15,055,494).................. 18,833,066
------------
LIABILITIES NET OF CASH AND OTHER
ASSETS -- (0.97%)................... (183,324)
------------
NET ASSETS -- 100.00%................ $ 18,649,742
============
* Non-income producing security.
</TABLE>
See notes to financial statements.
<PAGE> 12
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
MUNICIPAL BONDS
(TAX EXEMPT) -- 98.57%
ARIZONA -- 4.74%
Bullhead City, Arizona Parkway
Revenue
6.100%, 01/01/07.................... $ 250,000 $ 270,513
Maricopa County, School District #93
Arizona Unlimited Tax General
Obligation
6.400%, 07/01/06.................... 500,000 567,025
------------
837,538
------------
CALIFORNIA -- 11.09%
California State Public Works Board
Lease Revenue
5.200%, 12/01/09.................... 500,000 524,360
City of Fresno, California Sewer
System Revenue
6.250%, 09/01/14.................... 250,000 290,120
City of Fresno, California Unified
School District, General Obligation
5.875%, 08/01/15.................... 275,000 293,942
San Bernadino, California Joint
Powers, Tax Allocation Revenue Bond
5.750%, 07/01/17.................... 775,000 851,802
------------
1,960,224
------------
COLORADO -- 2.87%
Denver, Colorado City & County
General Obligation
5.000%, 10/01/10.................... 500,000 507,100
------------
CONNECTICUT -- 3.30%
Connecticut State Unlimited Tax
General Obligation
5.400%, 03/15/08.................... 550,000 582,604
------------
ILLINOIS -- 15.09%
Chicago, Illinois Water Revenue
6.500%, 11/01/15.................... 500,000 593,335
Illinois State Sales Tax Revenue
5.400%, 06/15/13.................... 550,000 570,663
Illinois State Toll Highway Authority
Revenue, Series A
6.300%, 01/01/12.................... 275,000 313,728
Northwest Suburban Municipal Joint
Action Water Agency Illinois
Contract Revenue
6.450%, 05/01/07.................... 400,000 457,420
Northwest Water Commission Illinois,
Cook & Lake Revenue
5.000%, 05/01/13.................... 500,000 500,710
Sangamon County, Illinois Tax General
Obligation
6.500%, 03/01/08.................... 200,000 231,322
------------
2,667,178
------------
INDIANA -- 3.44%
Peru, Indiana Community School Corp.
Revenue
6.750%, 01/01/09.................... 550,000 607,810
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
KENTUCKY -- 2.89%
Jefferson County, Kentucky School
District Financing Corp. School
Building Revenue, Series A
5.300%, 07/01/15.................... $ 500,000 $ 510,150
------------
MASSACHUSETTS -- 3.05%
Massachusetts State Water Resource
Authority Revenue
6.000%, 11/01/08.................... 500,000 539,205
------------
MINNESOTA -- 2.90%
Saint Paul, Minnesota Independent
School District #625 General
Obligation, Series C
5.250%, 02/01/13.................... 500,000 512,070
------------
MISSISSIPPI -- 3.02%
Vicksburg-Warren, Mississippi School
Dist., State Aid, Capital
Improvement Revenue Bond
4.700%, 02/01/16.................... 560,000 534,234
------------
MISSOURI -- 4.82%
Cape Girardeau, Missouri Waterworks
System Revenue
7.450%, 03/01/05.................... 500,000 587,780
Missouri State Environmental
Improvement & Energy Resources
Authority Pollution Control Revenue
5.250%, 12/01/09.................... 250,000 263,023
------------
850,803
------------
NEVADA -- 5.31%
Clark County, Nevada School District
General Obligation
5.250%, 06/01/07.................... 500,000 520,495
Henderson, Nevada Water & Sewer
Unlimited Tax General Obligation
5.375%, 06/01/07.................... 400,000 418,580
------------
939,075
------------
NEW YORK -- 2.91%
New York State Dormitory Authority
Revenue
5.500%, 07/01/12.................... 500,000 513,725
------------
NORTH CAROLINA -- 1.63%
North Carolina Eastern Municipal
Power Agency System Revenue
7.000%, 01/01/08.................... 250,000 288,273
------------
OHIO -- 3.01%
Montgomery County, Ohio Sewer System
Revenue
5.600%, 09/01/11.................... 500,000 531,015
------------
</TABLE>
<PAGE> 13
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT BOND FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
PENNSYLVANIA -- 6.39%
Pennsylvania Intergovernmental Corp.
Authority, Special Tax Revenue
5.450%, 06/15/08.................... $ 500,000 $ 520,100
Pennsylvania State Higher Education
Revenue Bonds, Series A
5.600%, 09/01/10.................... 575,000 608,764
------------
1,128,864
------------
RHODE ISLAND -- 3.27%
State of Rhode Island Refunding
General Obligation
7.000%, 06/15/05.................... 500,000 577,995
------------
TENNESSEE -- 3.12%
Shelby County, Tennessee School
General Obligation, Series B
5.875%, 06/01/18.................... 500,000 550,780
------------
TEXAS -- 8.67%
Bexar County, Texas Detention
Facilities Limited Tax General
Obligation
5.750%, 06/15/10.................... 500,000 532,875
Garland, Texas Limited Tax General
Obligation
5.800%, 08/15/12.................... 350,000 381,794
Texas A&M University Revenue
Financing System
5.375%, 05/15/14.................... 600,000 617,412
------------
1,532,081
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
WISCONSIN -- 7.05%
Brookfield, Wisconsin Unlimited Tax
Corp. General Obligation
6.900%, 03/15/03.................... $ 250,000 $ 278,578
Wisconsin State Clean Water Revenue
Bond
5.300%, 06/01/12.................... 700,000 716,625
Wisconsin State Health & Educational
Facility Authority Revenue Bond
5.250%, 08/15/19.................... 250,000 250,275
------------
1,245,478
------------
TOTAL MUNICIPAL BONDS
(cost $16,374,203).................. 17,416,202
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
TAX EXEMPT MONEY MARKET
FUND -- 0.24%
(cost $42,656)
Nuveen Tax Exempt Fund.................. 42,656 42,656
-----------
TOTAL INVESTMENTS -- 98.81%
(cost $16,416,859)..................... 17,458,858
-----------
CASH AND OTHER ASSETS
NET OF LIABILITIES -- 1.19%............ 210,485
-----------
NET ASSETS -- 100.00%................... $17,669,343
===========
</TABLE>
See notes to financial statements.
<PAGE> 14
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
COMMERCIAL PAPER -- 99.31%
AUTO & TRUCK -- 15.47%
Daimler-Benz N.A. Corp.
5.52%, 10/20/98...................... $ 400,000 $ 393,192
Ford Motor Credit Co.
5.56%, 07/15/98...................... 1,557,000 1,557,000
5.54%, 07/20/98...................... 1,052,000 1,052,000
General Motors Acceptance Corp.
5.55%, 07/21/98...................... 1,300,000 1,300,000
5.57%, 08/17/98...................... 1,300,000 1,300,000
Toyota Motor Credit Corp.
5.70%, 07/01/98...................... 700,000 700,000
6.16%, 07/01/98...................... 1,900,000 1,900,000
-----------
8,202,192
-----------
COMMERCIAL BANKING -- 8.46%
Bankers Trust New York Corp.
5.48%, 07/07/98...................... 1,000,000 999,087
5.48%, 10/23/98...................... 1,000,000 982,647
Norwest Corp.
5.51%, 07/22/98...................... 1,008,000 1,004,760
5.54%, 07/29/98...................... 1,498,000 1,498,000
-----------
4,484,494
-----------
COMMERCIAL FINANCE -- 8.70%
CIT Group Holding Corp.
5.56%, 08/19/98...................... 1,450,000 1,450,000
5.57%, 08/31/98...................... 1,180,000 1,180,000
Prudential Funding Corp.
5.55%, 07/09/98...................... 550,000 550,000
5.55%, 07/09/98...................... 1,433,000 1,433,000
-----------
4,613,000
-----------
CONSUMER FINANCE -- 32.60%
American Express Credit Corp.
5.55%, 08/05/98...................... 1,860,000 1,860,000
5.56%, 08/18/98...................... 800,000 800,000
American General Finance Corp.
5.62%, 08/27/98...................... 2,500,000 2,500,000
Associates Corp. of North America
5.54%, 07/08/98...................... 600,000 600,000
5.56%, 09/21/98...................... 1,858,000 1,858,000
AVCO Financial Services, Inc.
5.57%, 07/23/98...................... 800,000 800,000
5.56%, 08/10/98...................... 1,252,000 1,252,000
Commercial Credit Co.
5.55%, 07/06/98...................... 770,000 770,000
5.55%, 08/06/98...................... 1,780,000 1,780,000
Household Finance Corp.
5.55%, 07/21/98...................... 947,000 947,000
5.57%, 09/03/98...................... 1,500,000 1,500,000
GTE Funding, Inc.
5.58%, 07/02/98...................... 425,000 424,934
5.56%, 07/17/98...................... 1,200,000 1,197,035
5.57%, 07/27/98...................... 1,000,000 995,977
-----------
17,284,946
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
ELECTRONICS -- 4.90%
General Electric Capital Corp.
5.56%, 07/20/98...................... $ 1,500,000 $ 1,500,000
5.57%, 08/06/98...................... 1,100,000 1,100,000
-----------
2,600,000
-----------
FARM MACHINERY & EQUIPMENT -- 4.90%
John Deere Capital Corp.
5.57%, 08/12/98...................... 2,600,000 2,600,000
-----------
FOREIGN GOVERNMENTS -- 3.67%
Province of Quebec
5.50%, 11/20/98...................... 1,000,000 978,306
5.51%, 01/15/99...................... 1,000,000 969,695
-----------
1,948,001
-----------
INSURANCE/MULTI-LINE -- 9.84%
Transamerica Financial Corp.
5.51%, 07/16/98...................... 665,000 663,473
5.53%, 08/24/98...................... 1,950,000 1,933,825
USAA Capital Corp.
5.48%, 07/24/98...................... 1,330,000 1,325,344
5.49%, 08/12/98...................... 1,300,000 1,291,673
-----------
5,214,315
-----------
OFFICE EQUIPMENT -- 6.96%
IBM Credit Corp.
5.55%, 07/01/98...................... 1,100,000 1,100,000
Xerox Corp.
5.51%, 07/28/98...................... 1,600,000 1,593,388
5.47%, 08/11/98...................... 1,000,000 993,770
-----------
3,687,158
-----------
PETROLEUM REFINING -- 3.81%
Texaco, Inc.
5.55%, 07/13/98...................... 1,022,000 1,022,000
5.55%, 07/14/98...................... 1,000,000 1,000,000
-----------
2,022,000
-----------
TOTAL COMMERCIAL PAPER
(cost $52,656,106)................... 52,656,106
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 0.50%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................... 198,009 198,009
Federated Prime Obligation Fund......... 66,266 66,266
-----------
TOTAL MONEY MARKET FUNDS
(cost $264,275)........................ 264,275
-----------
TOTAL INVESTMENTS -- 99.81%
(cost $52,920,381)..................... 52,920,381
-----------
CASH AND OTHER ASSETS NET OF
LIABILITIES -- 0.19%................... 101,822
-----------
NET ASSETS -- 100.00%................... $53,022,203
===========
</TABLE>
See notes to financial statements.
<PAGE> 15
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
BONDS & NOTES -- 85.77%
U.S. GOVERNMENT AGENCIES -- 36.43%
Federal Home Loan Bank
6.000%, 04/06/01.................... $ 1,000,000 $ 996,250
6.830%, 06/07/01.................... 655,000 661,242
6.477%, 08/26/02.................... 1,100,000 1,100,429
8.000%, 09/20/04.................... 750,000 771,187
8.340%, 01/26/05.................... 500,000 513,895
Federal Home Loan Mortgage Corp.
6.825%, 09/18/02.................... 500,000 500,895
5.500%, 11/15/04.................... 398,063 397,358
6.200%, 11/15/16.................... 775,572 775,109
6.000%, 02/15/23.................... 19,115 19,075
Federal National Mortgage Association
8.500%, 06/25/01.................... 743,910 740,444
6.820%, 11/05/01.................... 200,000 200,776
6.500%, 08/01/04.................... 2,757,936 2,783,791
6.950%, 01/25/20.................... 298,033 298,765
6.500%, 07/25/23.................... 552,440 553,606
------------
10,312,822
------------
U.S. GOVERNMENT OBLIGATIONS -- 38.08%
U.S. Treasury Notes
6.250%, 05/31/99.................... 3,000,000 3,019,650
5.875%, 11/15/99.................... 500,000 502,405
5.500%, 02/29/00.................... 1,000,000 1,000,070
6.500%, 08/31/01.................... 3,000,000 3,082,290
6.250%, 02/28/02.................... 2,000,000 2,045,580
6.625%, 04/30/02.................... 100,000 103,654
6.250%, 06/30/02.................... 1,000,000 1,025,140
------------
10,778,789
------------
ASSET BACKED -- 9.85%
Banc One Auto Grantor Trust
6.270%, 11/20/03.................... 907,585 911,964
First USA Credit Card Master Trust
6.420%, 03/17/05.................... 250,000 255,259
Ford Credit Auto Owner Trust
5.650%, 10/15/01.................... 450,000 448,945
Chase Mortgage Finance Corp.
5.550%, 04/25/24.................... 205,057 203,676
JP Morgan Commercial Mortgage Finance
Corp.
6.952%, 09/15/29.................... 449,215 457,638
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
The Money Store Home Equity Trust
7.800%, 10/15/21.................... $ 500,000 $ 511,158
------------
2,788,640
------------
CORPORATE -- 1.41%
BellSouth Telecommunications, Inc.
6.000%, 06/15/02.................... 400,000 399,019
------------
TOTAL BONDS
(cost $24,034,773).................. 24,279,270
------------
COMMERCIAL PAPER -- 3.54%
Household Finance Corp.
5.549%, 07/21/98.................... 8,000 8,000
AVCO Financial Services, Inc.
5.563%, 08/10/98.................... 18,000 18,000
CIT Group Holdings Corp.
5.561%, 08/19/98.................... 300,000 300,000
Prudential Funding Corp.
5.575%, 08/26/98.................... 503,000 503,000
Associates Corp. of North America
5.556%, 09/21/98.................... 174,000 174,000
------------
TOTAL COMMERCIAL PAPER
(cost $1,003,000)................... 1,003,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
OTHER SHORT TERM
INVESTMENTS -- 9.63%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................... 1,377,000 1,377,000
Federated Prime Obligation Fund......... 1,350,000 1,350,000
-----------
TOTAL MONEY MARKET FUNDS
(cost $2,727,000)...................... 2,727,000
-----------
TOTAL INVESTMENTS -- 98.94%
(cost $27,764,773)..................... 28,009,270
-----------
CASH AND OTHER ASSETS NET OF
LIABILITIES -- 1.06%................... 300,146
-----------
NET ASSETS -- 100.00%................... $28,309,416
===========
</TABLE>
See notes to financial statements.
<PAGE> 16
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
BONDS & NOTES -- 90.18%
U.S. GOVERNMENT AGENCIES -- 29.95%
Federal Home Loan Mortgage Corp.
6.000%, 03/15/09.................... $ 1,133,000 $ 1,121,880
7.000%, 03/01/12.................... 4,217,074 4,298,780
6.500%, 02/15/21.................... 500,000 496,769
5.000%, 05/15/21.................... 625,000 592,412
Federal National Mortgage Association
6.000%, 02/18/21.................... 300,000 297,741
6.247%, 03/25/21.................... 300,000 300,702
6.997%, 12/25/21.................... 400,000 420,922
6.500%, 09/25/22.................... 200,000 203,486
Government National Mortgage
Association
6.500%, 04/15/26.................... 1,405,754 1,403,557
8.000%, 07/15/26.................... 2,396,870 2,485,254
------------
11,621,503
------------
U.S. GOVERNMENT OBLIGATIONS -- 26.07%
U.S. Treasury Notes
6.625%, 04/30/02.................... 100,000 103,654
5.875%, 02/15/04.................... 100,000 101,833
7.875%, 11/15/04.................... 100,000 112,326
6.500%, 05/15/05.................... 2,750,000 2,903,780
6.500%, 08/15/05.................... 2,750,000 2,901,745
5.625%, 02/15/06.................... 1,450,000 1,455,684
6.000%, 02/15/26.................... 2,000,000 2,082,800
6.625%, 02/15/27.................... 400,000 451,884
------------
10,113,706
------------
CORPORATE BONDS -- 24.43%
ABN AMRO NV (Chicago) Global Bond
7.125%, 06/18/07.................... 300,000 319,500
Ameritech Capital Funding
5.950%, 01/15/38.................... 700,000 697,375
Amoco Canada Petroleum Co.
7.950%, 10/01/22.................... 500,000 559,375
Central Illinois Public Service Co.
7.610%, 06/01/17.................... 300,000 335,250
Citicorp
7.200%, 06/15/07.................... 250,000 265,312
Conagra, Inc.
6.700%, 08/01/27.................... 200,000 207,500
CSX Corp.
6.420%, 06/15/10.................... 250,000 248,147
Dayton Hudson Corp.
5.895%, 06/15/37.................... 200,000 200,250
Ford Motor Credit Co.
7.200%, 06/15/07.................... 600,000 640,500
General Electric Credit Corp.
6.500%, 11/01/06.................... 300,000 310,500
GTE Corp.
6.360%, 04/15/06.................... 400,000 403,000
GTE South, Inc.
6.125%, 06/15/07.................... 200,000 197,500
Halliburton Co.
6.750%, 02/01/27.................... 250,000 261,875
Household Finance Corp.
6.400%, 06/17/08.................... 500,000 496,250
Ingersoll-Rand Co.
6.015%, 02/15/28.................... 250,000 254,441
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
J.P. Morgan & Co.
6.700%, 11/01/07.................... $ 250,000 $ 257,500
Merck & Co., Inc.
5.760%, 05/03/37.................... 270,000 274,050
Merrill Lynch & Co., Inc.
7.150%, 07/30/12.................... 350,000 360,938
Morgan Stanley Dean Witter Discover
6.375%, 08/01/02.................... 250,000 252,812
NationsBank Corp.
5.750%, 03/15/01.................... 300,000 298,875
Norfolk Southern Corp.
7.050%, 05/01/37.................... 350,000 374,938
Oklahoma Gas & Electric Co.
6.650%, 07/15/27.................... 250,000 264,063
Raytheon Co.
5.950%, 03/15/01.................... 200,000 200,000
6.300%, 03/15/05.................... 200,000 201,250
Salomon Smith Barney Holding
6.250%, 05/15/03.................... 250,000 250,937
Sears Roebuck Acceptance Corp.
6.000%, 03/20/03.................... 200,000 198,500
Suntrust Capital II
7.900%, 06/15/27.................... 200,000 221,000
US West Cap. Funding, Inc.
6.250%, 07/15/05.................... 300,000 299,625
Wachovia Corp.
6.605%, 10/01/25.................... 600,000 627,750
------------
9,479,013
------------
ASSET BACKED -- 9.20%
First USA Credit Card Master Trust
6.420%, 03/17/05.................... 250,000 255,259
Green Tree Financial Corp.
6.870%, 01/15/29.................... 200,000 208,089
J.C. Penney Master Credit Card Trust,
Series B, Class A
8.950%, 10/15/01.................... 800,000 849,707
J.P. Morgan Commercial Mortgage
Finance Corp.
7.088%, 09/15/29.................... 556,000 576,850
The Money Store Home Equity Trust
5.675%, 02/15/09.................... 291,846 286,742
8.140%, 10/15/27.................... 350,000 375,818
Pacific Gas & Electric Co
6.420%, 09/25/08.................... 1,000,000 1,016,563
------------
3,569,028
------------
MUNICIPAL -- 0.53%
Wisconsin State Unlimited General
Obligation
6.550%, 11/01/05.................... 200,000 205,000
------------
TOTAL BONDS & NOTES
(cost $33,801,621).................. 34,988,250
------------
COMMERCIAL PAPER -- 0.68%
Associates Corp. of North America
5.556%, 09/21/98 (cost $264,000).... 264,000 264,000
------------
</TABLE>
<PAGE> 17
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS June 30, 1998
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 8.20%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................ 1,465,141 $ 1,465,141
Federated Prime Obligation Fund...... 1,716,473 1,716,473
------------
TOTAL MONEY MARKET FUNDS
(cost $3,181,614)................... 3,181,614
------------
TOTAL INVESTMENTS -- 99.06%
(cost $37,247,235).................. 38,433,864
------------
CASH AND OTHER ASSETS
NET OF LIABILITIES -- 0.94%......... 366,607
------------
NET ASSETS -- 100.00%................ $ 38,800,471
============
</TABLE>
See notes to financial statements.
<PAGE> 18
STATEMENTS OF ASSETS AND LIABILITIES June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
IAA TRUST IAA TRUST ------------------------------------------
IAA TRUST ASSET TAX EXEMPT SHORT-TERM LONG-TERM
GROWTH ALLOCATION BOND MONEY MARKET GOVERNMENT BOND
FUND, INC. FUND, INC. FUND, INC. SERIES BOND SERIES SERIES
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities:
At cost............................. $112,829,449 $15,055,494 $16,416,859 $52,920,381 $27,764,773 $37,247,235
============ =========== =========== =========== =========== ===========
At value............................ $159,618,702 $18,833,066 $17,458,858 $52,920,381 $28,009,270 $38,433,864
Cash.................................. 65,485 -- -- 49,429 -- --
Receivable for securities sold........ 2,923,920 295,061 -- -- -- --
Receivable for capital stock sold..... 73,876 324 -- 1,048 65,295 14,126
Dividends and interest receivable..... 260,899 110,205 245,335 183,666 298,188 412,746
Due from Advisor...................... -- -- -- -- -- 5,580
Prepaid Expenses...................... 4,090 416 498 1,703 -- --
------------ ----------- ----------- ----------- ----------- -----------
Total assets........................ 162,946,972 19,239,072 17,704,691 53,156,227 28,372,753 38,866,316
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Cash overdraft........................ -- 6,093 22,072 -- 20,786 10,022
Payable for securities purchased...... 2,361,534 561,006 -- -- -- --
Payable for capital stock redeemed.... 140,064 5,850 -- 95,249 27,350 27,292
Accrued expenses and other
liabilities......................... 130,826 16,380 13,276 38,775 15,201 28,531
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities................... 2,632,424 589,330 35,348 134,024 63,337 65,845
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS............................. $160,314,548 $18,649,742 $17,669,343 $53,022,203 $28,309,416 $38,800,471
============ =========== =========== =========== =========== ===========
NET ASSETS CONSIST OF:
Capital paid-in....................... $106,666,986 $14,652,090 $16,612,415 $53,022,371 $28,040,017 $37,137,881
Undistributed net investment income... 559,705 7,369 10,428 -- 20,928 32,099
Accumulated net realized gain (loss)
on investments...................... 6,298,604 212,711 4,501 (168) 3,974 443,862
Net unrealized appreciation of
investments......................... 46,789,253 3,777,572 1,041,999 -- 244,497 1,186,629
============ =========== =========== =========== =========== ===========
$160,314,548 $18,649,742 $17,669,343 $53,022,203 $28,309,416 $38,800,471
============ =========== =========== =========== =========== ===========
Shares outstanding.................... 6,959,280 1,227,330 1,973,922 53,022,469 2,800,959 3,702,477
============ =========== =========== =========== =========== ===========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE............................. $23.04 $15.20 $8.95 $1.00 $10.11 $10.48
---- ---- --- ---- ----- ----
---- ---- --- ---- ----- ----
</TABLE>
See notes to financial statements.
<PAGE> 19
STATEMENTS OF OPERATIONS for the Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
IAA TRUST IAA TRUST -----------------------------------------
IAA TRUST ASSET TAX EXEMPT SHORT-TERM LONG-TERM
GROWTH ALLOCATION BOND MONEY MARKET GOVERNMENT BOND
FUND, INC. FUND, INC. FUND, INC. SERIES BOND SERIES SERIES
----------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................ $ 1,792,319 $ 117,392 $ -- $ -- $ -- $ --
Interest................................. 906,436 511,657 921,695 3,305,920 1,663,019 $2,338,777
----------- ---------- ---------- ---------- ---------- ----------
Total investment income................ 2,698,755 629,049 921,695 3,305,920 1,663,019 2,338,777
----------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fees (Note E)........ 1,154,966 123,435 89,775 292,932 133,520 275,862
Distribution expenses (Note F)........... 29,240 2,100 6,300 -- 7,314 10,262
Transfer agent fees...................... 75,623 9,262 13,418 39,680 24,899 24,901
Audit fees............................... 44,229 4,399 1,512 22,528 4,621 7,700
Printing................................. 13,205 1,076 1,875 5,118 818 1,086
Custody fees............................. 34,908 6,290 7,787 9,200 5,429 6,891
Directors' fees.......................... 5,305 1,224 1,234 658 503 550
Administration fees...................... 118,256 12,695 14,331 46,018 23,688 30,584
Accounting fees.......................... 61,098 32,512 32,993 43,806 31,135 34,873
Insurance................................ 17,283 1,874 2,649 7,319 176 1,328
Registration fees........................ 13,010 4,340 3,374 10,510 9,105 12,068
Legal fees............................... 5,299 5,347 5,290 3,898 2,874 3,099
Miscellaneous............................ 5,625 652 940 2,730 1,457 1,535
----------- ---------- ---------- ---------- ---------- ----------
Total expenses......................... 1,578,047 205,206 181,478 484,397 245,539 410,739
----------- ---------- ---------- ---------- ---------- ----------
Less: Advisory fees waived and reimbursed
(Note E)............................... -- -- -- -- (10,437) (75,493)
Less: Expenses waived (Note E)........... (34,908) (6,290) (7,787) (9,200) (5,429) (6,891)
----------- ---------- ---------- ---------- ---------- ----------
Net expenses........................... 1,543,139 198,916 173,691 475,197 229,673 328,355
----------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME..................... 1,155,616 430,133 748,004 2,830,723 1,433,346 2,010,422
----------- ---------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS -- NOTE (D):
Net realized gain (loss) on
investments............................ 8,691,628 483,536 65,805 (40) 3,974 459,542
Net change in unrealized appreciation on
investments............................ 6,151,197 802,862 482,740 -- 232,929 1,126,134
----------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments......................... 14,842,825 1,286,398 548,545 (40) 236,903 1,585,676
----------- ---------- ---------- ---------- ---------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS.... $15,998,441 $1,716,531 $1,296,549 $2,830,683 $1,670,249 $3,596,098
=========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 20
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST ASSET
GROWTH FUND, INC. ALLOCATION FUND, INC.
--------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
06/30/98 06/30/97 06/30/98 06/30/97
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................................... $ 1,155,616 $ 793,987 $ 430,133 $ 293,475
Net realized gain on investments........................... 8,691,628 9,367,268 483,536 617,456
Net change in unrealized appreciation of investments....... 6,151,197 14,742,307 802,862 1,274,062
------------ ------------ ----------- -----------
Net increase in net assets from operations................. 15,998,441 24,903,562 1,716,531 2,184,993
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: NOTE (B)
Investment income.......................................... (945,434) (905,867) (427,135) (288,779)
Realized gains on investments.............................. (10,778,777) (5,135,058) (670,865) (670,310)
------------ ------------ ----------- -----------
Total distributions........................................ (11,724,211) (6,040,925) (1,098,000) (959,089)
------------ ------------ ----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C)................ 15,253,968 37,123,270 3,758,827 2,963,534
------------ ------------ ----------- -----------
Total increase in net assets............................... 19,528,198 55,985,907 4,377,358 4,189,438
NET ASSETS:
Beginning of year.......................................... 140,786,350 84,800,443 14,272,384 10,082,946
------------ ------------ ----------- -----------
End of year................................................ $160,314,548 $140,786,350 $18,649,742 $14,272,384
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME
IAA TRUST SERIES FUND, INC.
TAX EXEMPT BOND FUND, INC. MONEY MARKET SERIES
--------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
06/30/98 06/30/97 06/30/98 06/30/97
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................................... $ 748,004 $ 755,178 $ 2,830,723 $ 1,760,854
Net realized gain (loss) on investments.................... 65,805 2,423 (40) (128)
Net change in unrealized appreciation of investments....... 482,740 645,334 -- --
----------- ----------- ----------- -----------
Net increase in net assets from operations................. 1,296,549 1,402,935 2,830,683 1,760,726
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: NOTE (B)
Investment income.......................................... (747,014) (744,014) (2,830,723) (1,760,915)
Realized gains on investments.............................. (31,294) (48,659) -- --
----------- ----------- ----------- -----------
Total distributions........................................ (778,308) (792,673) (2,830,723) (1,760,915)
----------- ----------- ----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C)................ (856,926) (345,953) (7,651,306) 27,009,548
----------- ----------- ----------- -----------
Total increase (decrease) in net assets.................... (338,685) 264,309 (7,651,346) 27,009,359
NET ASSETS:
Beginning of year.......................................... 18,008,028 17,743,719 60,673,549 33,664,190
----------- ----------- ----------- -----------
End of year................................................ $17,669,343 $18,008,028 $53,022,203 $60,673,549
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 21
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST
TAXABLE FIXED INCOME TAXABLE FIXED INCOME
SERIES FUND, INC. SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES LONG-TERM BOND SERIES
----------------------------------- -----------------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED 01/02/97* YEAR ENDED 01/02/97*
06/30/98 THROUGH 06/30/97 06/30/98 THROUGH 06/30/97
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................... $ 1,433,346 $ 68,364 $ 2,010,422 $ 79,333
Net realized gain on investments.................... 3,974 -- 459,542 8,652
Net change in unrealized appreciation of
investments....................................... 232,929 11,568 1,126,134 60,495
----------- ----------- ----------- -----------
Net increase in net assets from operations.......... 1,670,249 79,932 3,596,098 148,480
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
NOTE (B)
Investment income................................... (1,421,743) (59,039) (1,989,821) (67,835)
Realized gains on investments....................... -- -- (24,332) --
----------- ----------- ----------- -----------
Total distributions................................. (1,421,743) (59,039) (2,014,153) (67,835)
----------- ----------- ----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C)......... 3,775,891 24,264,126 4,286,371 32,851,510
----------- ----------- ----------- -----------
Total increase in net assets........................ 4,024,397 24,285,019 5,868,316 32,932,155
NET ASSETS:
Beginning of period................................. 24,285,019 -- 32,932,155 --
----------- ----------- ----------- -----------
End of period....................................... $28,309,416 $24,285,019 $38,800,471 $32,932,155
=========== =========== =========== ===========
</TABLE>
* Commencement of operations.
See notes to financial statements.
<PAGE> 22
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
IAA TRUST
GROWTH FUND, INC.
YEARS ENDED JUNE 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 22.51 $ 18.88 $ 17.23 $ 15.16 $ 17.55
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................... 0.17 0.15 0.23 0.22 0.27
Net gains or losses on securities (both realized and
unrealized)............................................. 2.19 4.81 3.23 3.45 (0.63)
-------- -------- ------- ------- -------
Total from investment operations........................ 2.36 4.96 3.46 3.67 (0.36)
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.15) (0.20) (0.25) (0.17) (0.22)
Distributions from capital gains.......................... (1.68) (1.13) (1.56) (1.43) (1.81)
-------- -------- ------- ------- -------
Total distributions..................................... (1.83) (1.33) (1.81) (1.60) (2.03)
-------- -------- ------- ------- -------
Net asset value, end of year................................ $ 23.04 $ 22.51 $ 18.88 $ 17.23 $ 15.16
======== ======== ======= ======= =======
TOTAL RETURN................................................ 10.98% 28.54% 21.51% 26.68% (2.42)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)........................ $160,315 $140,786 $84,800 $70,577 $59,448
Ratio of expenses to average net assets:
Before expense waiver................................... 1.02% -- -- -- --
After expense waiver.................................... 1.00% 1.16% 1.12% 1.14% 1.24%
Ratio of net investment income to average net assets:
Before expense waiver................................... 0.73% -- -- -- --
After expense waiver.................................... 0.75% 0.84% 1.30% 1.41% 1.03%
Portfolio turnover........................................ 33.06% 30.74% 32.95% 31.84% 49.12%
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
ASSET ALLOCATION FUND, INC.
YEARS ENDED JUNE 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 14.64 $ 13.39 $ 12.29 $ 11.08 $ 11.60
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................... 0.39 0.35 0.37 0.36 0.34
Net gains or losses on securities (both realized and
unrealized)............................................. 1.22 2.11 1.41 1.38 (0.25)
-------- -------- ------- ------- -------
Total from investment operations........................ 1.61 2.46 1.78 1.74 0.09
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.39) (0.34) (0.37) (0.34) (0.34)
Distributions from capital gains.......................... (0.66) (0.87) (0.31) (0.18) (0.27)
Distributions from return of capital...................... -- -- -- (0.01) --
-------- -------- ------- ------- -------
Total distributions..................................... (1.05) (1.21) (0.68) (0.53) (0.61)
-------- -------- ------- ------- -------
Net asset value, end of year................................ $ 15.20 $ 14.64 $ 13.39 $ 12.29 $ 11.08
======== ======== ======= ======= =======
TOTAL RETURN................................................ 11.41% 19.95% 14.74% 16.29% 0.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)........................ $ 18,650 $ 14,272 $10,083 $ 9,540 $ 8,653
Ratio of expenses to average net assets:
Before expense waiver................................... 1.25% -- -- -- --
After expense waiver.................................... 1.21% 1.46% 1.44% 1.46% 1.78%
Ratio of net investment income to average net assets:
Before expense waiver................................... 2.57% -- -- -- --
After expense waiver.................................... 2.61% 2.57% 2.81% 3.18% 2.98%
Portfolio turnover........................................ 20.07% 19.25% 33.77% 21.03% 17.39%
</TABLE>
See notes to financial statements.
<PAGE> 23
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
IAA TRUST
TAX EXEMPT BOND FUND, INC.
YEARS ENDED JUNE 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 8.70 $ 8.41 $ 8.36 $ 8.19 $ 9.11
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................... 0.37 0.36 0.37 0.39 0.39
Net gains or losses on securities (both realized and
unrealized)............................................. 0.27 0.31 0.07 0.20 (0.54)
-------- -------- ------- ------- -------
Total from investment operations........................ 0.64 0.67 0.44 0.59 (0.15)
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.37) (0.36) (0.37) (0.39) (0.39)
Distributions from capital gains.......................... (0.02) (0.02) (0.02) (0.03) (0.38)
-------- -------- ------- ------- -------
Total distributions..................................... (0.39) (0.38) (0.39) (0.42) (0.77)
-------- -------- ------- ------- -------
Net asset value, end of year................................ $ 8.95 $ 8.70 $ 8.41 $ 8.36 $ 8.19
======== ======== ======= ======= =======
TOTAL RETURN................................................ 7.45% 8.15% 5.30% 7.51% (1.86)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)........................ $ 17,669 $ 18,008 $17,744 $18,833 $19,095
Ratio of expenses to average net assets:
Before expense waiver................................... 1.01% -- -- -- --
After expense waiver.................................... 0.97% 1.14% 1.08% 1.06% 1.15%
Ratio of net investment income to average net assets:
Before expense waiver................................... 4.13% -- -- -- --
After expense waiver.................................... 4.17% 4.23% 4.30% 4.79% 4.47%
Portfolio turnover........................................ 24.83% 11.35% 14.75% 24.89% 41.94%
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
YEARS ENDED JUNE 30,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................... 0.05 0.05 0.05 0.05 0.03
-------- ------- ------- ------- -------
Total from investment operations........................ 0.05 0.05 0.05 0.05 0.03
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.05) (0.05) (0.05) (0.05) (0.03)
-------- ------- ------- ------- -------
Total distributions..................................... (0.05) (0.05) (0.05) (0.05) (0.03)
-------- ------- ------- ------- -------
Net asset value, end of year................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= =======
TOTAL RETURN................................................ 4.94% 4.63% 4.82% 4.85% 2.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)........................ $ 53,022 $60,674 $33,664 $36,415 $38,699
Ratio of expenses to average net assets:
Before expense waiver..................................... 0.83% -- -- 0.97% 1.06%
After expense waiver...................................... 0.81% 0.94% 0.90% 0.73% 0.56%
Ratio of net investment income to average net assets:
Before expense waiver..................................... 4.81% -- -- 4.56% 2.33%
After expense waiver...................................... 4.83% 4.55% 4.74% 4.80% 2.83%
</TABLE>
See notes to financial statements.
<PAGE> 24
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
------------------------------------------------------------
SHORT-TERM GOVERNMENT LONG-TERM
BOND SERIES BOND SERIES
---------------------------- ----------------------------
FOR THE PERIOD FOR THE PERIOD
01/02/97* 01/02/97*
YEAR ENDED THROUGH YEAR ENDED THROUGH
1998 06/30/97 1998 06/30/97
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.01 $ 10.00 $ 10.04 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................... 0.54 0.20 0.56 0.20
Net gains on securities (both realized and unrealized).... 0.10 0.01 0.45 0.04
------- ------- ------- -------
Total from investment operations........................ 0.64 0.21 1.01 0.24
------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.54) (0.20) (0.56) (0.20)
Distributions from capital gains.......................... -- -- (0.01) --
------- ------- ------- -------
Total distributions..................................... (0.54) (0.20) (0.57) (0.20)
------- ------- ------- -------
Net asset value, end of period.............................. $ 10.11 $ 10.01 $ 10.48 $ 10.04
======= ======= ======= =======
TOTAL RETURN............................................ 6.50% 2.10% 10.24% 2.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)...................... $28,309 $24,285 $38,800 $32,932
Ratio of expenses to average net assets:
Before expense waiver and reimbursement................. 0.92% 3.88%** 1.12% 3.82%**
After expense waiver and reimbursement.................. 0.86% 0.76%** 0.89% 0.78%**
Ratio of net investment income to average net assets:
Before expense waiver and reimbursement................. 5.30% 1.78%** 5.24% 2.11%**
After expense waiver and reimbursement.................. 5.36% 4.90%** 5.47% 5.15%**
Portfolio turnover........................................ 1.54% 0.00% 25.11% 41.77%
</TABLE>
* Commencement of operations.
** Annualized.
See notes to financial statements.
<PAGE> 25
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS June 30, 1998
- --------------------------------------------------------------------------------
NOTE (A) SIGNIFICANT ACCOUNTING POLICIES: The IAA Trust Mutual Funds represent
four separate funds, with one Fund containing three separate Series (referred to
herein as "Funds" or "Series"). Each of the Funds and Series has distinct
investment objectives and policies. The four Funds are as follows: IAA Trust
Growth Fund, Inc. ("Growth Fund"); IAA Trust Asset Allocation Fund, Inc. ("Asset
Allocation Fund"); IAA Trust Tax Exempt Bond Fund, Inc. ("Tax Exempt Bond
Fund"); and IAA Trust Taxable Fixed Income Series Fund, Inc. ("Taxable Fixed
Income Series Fund"), formerly known as IAA Trust Money Market Fund, Inc. The
Taxable Fixed Income Series Fund currently consists of the following three
separate investment Series: IAA Trust Money Market Series ("Money Market
Series"); IAA Trust Short-Term Government Bond Series ("Short-Term Government
Bond Series"); and IAA Trust Long-Term Bond Series ("Long-Term Bond Series").
The Short-Term Government Bond Series and the Long-Term Bond Series commenced
operations on January 2, 1997. The Funds are separately incorporated and
registered companies under the Investment Company Act of 1940 (the "Act"), as
amended, as diversified, open-ended management companies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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. The
following is a summary of significant accounting policies consistently followed
by each Fund in the preparation of its financial statements.
(1) SECURITY VALUATION: For the Growth Fund, the Asset Allocation Fund, the
Tax Exempt Bond Fund, the Short-Term Government Bond Series and the
Long-Term Bond Series, securities traded on national exchanges and
over-the-counter securities listed in the NASDAQ National Market System are
valued at the last reported sales price at the close of the New York Stock
Exchange. Securities for which there have been no sales on such day are
valued at the last reported bid price on such exchange. Over-the-counter
securities not listed on the NASDAQ National Market System are valued at the
mean of the current bid and asked prices. Fixed-income securities except
short-term securities may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Advisor to reflect the
fair market value of such securities. Short-term investments, such as those
with a remaining maturity of 60 days or less, are valued at amortized cost,
which approximates market value. For the Money Market Series, all securities
are valued at amortized cost, which approximates market value. Under the
amortized cost method, discounts and premiums are accreted and amortized
ratably to maturity and are included in interest income.
(2) INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
Securities transactions are accounted for on the trade date basis. Gains or
losses on the sale of securities are determined by use of the specific
identification method for both financial reporting and income tax purposes.
(3) FEDERAL INCOME TAXES: The Funds have elected to be treated as "regulated
investment companies" under Sub-chapter M of the Internal Revenue Code and
to distribute substantially all of their net taxable income annually.
Accordingly, no provisions for Federal income taxes have been made in the
accompanying financial statements.
(4) DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions to shareholders
are recorded on the ex-dividend date. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles.
NOTE (B) DIVIDENDS FROM NET INVESTMENT INCOME AND DISTRIBUTIONS OF CAPITAL
GAINS: In the Growth Fund, net investment income from investment transactions
are declared and distributed to shareholders twice a year. The Asset Allocation
Fund, the Tax Exempt Bond Fund, the Short-Term Government Bond Series and the
Long-Term Bond Series, declare and distribute net investment income to
shareholders monthly. The Money Market Series declares dividends daily from its
net investment income, which are payable monthly. Dividends are automatically
reinvested in additional Fund shares, at the then current net asset value, for
those shareholders that have elected the reinvestment option. Net realized gains
from investment transactions, if any, of all Funds are generally distributed
twice a year.
<PAGE> 26
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS June 30, 1998
(continued)
- --------------------------------------------------------------------------------
NOTE (C) CAPITAL STOCK: At June 30, 1998, 10,000,000 shares of capital stock
were authorized for each of the Growth Fund, Asset Allocation Fund, and Tax
Exempt Bond Fund, each Fund having a par value of $1.00 per share. The
authorized capitalization of the Taxable Fixed Income Series Fund consists of
250,000,000 shares with the par value of $0.10 per share. 100,000,000 of this
Fund's shares are designated as Money Market Series, 50,000,000 of its shares
are designated as Short-Term Government Bond Series, and 25,000,000 of its
shares are designated as Long-Term Bond Series. The remaining 75,000,000 shares
are undesignated.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
GROWTH FUND ASSET ALLOCATION FUND
------------------------------------------------ -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
---------------------- ----------------------- ---------------------- ----------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.................. 935,194 $20,754,538 1,905,852 $40,718,271 350,739 $ 5,233,527 274,886 $ 3,715,120
Shares issued through
reinvestment of dividends... 509,499 11,204,174 331,143 5,730,849 61,757 911,781 60,513 776,909
-------- ----------- --------- ----------- -------- ----------- -------- -----------
1,444,693 31,958,712 2,236,995 46,449,120 412,496 6,145,308 335,399 4,492,029
-------- ----------- --------- ----------- -------- ----------- -------- -----------
Shares Redeemed.............. (740,214) (16,704,744) (474,420) (9,325,850) (159,724) (2,386,481) (113,903) (1,528,495)
-------- ----------- --------- ----------- -------- ----------- -------- -----------
Net increase................. 704,479 $15,253,968 1,762,575 $37,123,270 252,772 $ 3,758,827 221,496 $ 2,963,534
======== =========== ========= =========== ======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
TAX EXEMPT BOND FUND
-------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------------- ------------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold.................................. 90,306 $ 806,911 275,666 $ 2,369,946
Shares issued through reinvestment of
dividends................................... 57,420 510,560 61,144 522,920
-------- ----------- ---------- -----------
147,726 1,317,471 336,810 2,892,866
-------- ----------- ---------- -----------
Shares redeemed.............................. (244,109) (2,174,397) (377,076) (3,238,819)
-------- ----------- ---------- -----------
Net increase (decrease)...................... (96,383) $ (856,926) (40,266) $ (345,953)
======== =========== ========== ===========
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold.................................. 53,195,087 $ 53,195,087 74,925,622 $ 74,925,622
Shares issued through reinvestment of
dividends................................... 2,821,173 2,821,173 1,751,343 1,751,343
----------- ------------ ----------- ------------
56,016,260 56,016,260 76,676,965 76,676,965
----------- ------------ ----------- ------------
Shares redeemed.............................. (63,667,566) (63,667,566) (49,667,417) (49,667,417)
----------- ------------ ----------- ------------
Net increase (decrease)...................... (7,651,306) $ (7,651,306) 27,009,548 $ 27,009,548
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
TAXABLE FIXED INCOME SERIES FUND
-----------------------------------------------
SHORT-TERM GOVERNMENT TAXABLE FIXED INCOME SERIES FUND
----------------------------------------------- --------------------------------------------------
BOND SERIES LONG-TERM BOND SERIES
----------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED PERIOD 1/2/97* YEAR ENDED PERIOD 1/2/97*
JUNE 30, 1998 THROUGH 6/30/97 JUNE 30, 1998 THROUGH 6/30/97
--------------------- ----------------------- ------------------------ -----------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold................ 663,670 $6,700,365 2,427,250 $24,274,746 896,757 $ 9,186,831 3,317,112 $33,219,414
Shares issued through
reinvestment of
dividends................. 132,147 1,333,212 3,918 39,239 187,795 1,936,407 4,765 47,835
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
795,817 8,033,577 2,431,168 24,313,985 1,084,552 11,123,238 3,321,877 33,267,249
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
Shares redeemed............ (421,052) (4,257,686) (4,974) (49,859) (662,006) (6,836,867) (41,946) (415,739)
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
Net increase............... 374,765 $3,775,891 2,426,194 $24,264,126 422,546 $ 4,286,371 3,279,931 $32,851,510
======== ========== ========= =========== ========== =========== ========= ===========
</TABLE>
* Commencement of operations.
<PAGE> 27
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS June 30, 1998
(continued)
- --------------------------------------------------------------------------------
NOTE (D) INVESTMENT TRANSACTIONS: Purchases and sales of investment securities,
other than U.S. Government obligations and short-term notes for the year ended
June 30, 1998 were:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Growth Fund................................................. $73,674,061 $45,228,065
Asset Allocation Fund....................................... $ 4,928,475 $ 2,538,473
Tax Exempt Bond Fund........................................ $ 4,321,707 $ 4,981,866
Short-Term Govt. Bond Series................................ $ 4,137,948 $ --
Long-Term Bond Series....................................... $10,168,477 $ --
</TABLE>
For the year ended June 30, 1998, the aggregate cost of purchases and proceeds
from sales of U.S. Government Securities were:
<TABLE>
<S> <C> <C>
Asset Allocation Fund....................................... $ 1,093,452 $ 509,687
Short-Term Govt. Bond Series................................ $11,826,540 $ 346,758
Long-Term Bond Series....................................... $23,125,472 $ 7,787,375
</TABLE>
For both Federal income tax and financial statement purposes, the cost of
investments at June 30, 1998 was $112,829,449 for the Growth Fund, $15,055,494
for the Asset Allocation Fund, $16,416,859 for the Tax Exempt Bond Fund,
$52,920,381 for the Money Market Series, $27,764,773 the Short-Term Government
Bond Series, and $37,247,235 for the Long-Term Bond Series.
The gross unrealized appreciation/depreciation for book and tax purposes at June
30, 1998 consisted of the following:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
------------ ------------
<S> <C> <C>
Growth Fund................................................. $49,634,343 $2,845,090
Asset Allocation Fund....................................... $ 3,943,013 $ 165,441
Tax Exempt Bond Fund........................................ $ 1,041,999 $ 0
Short-Term Government Bond Series........................... $ 271,089 $ 26,592
Long-Term Bond Series....................................... $ 1,195,791 $ 9,162
</TABLE>
NOTE (E) ADVISORY AND OTHER RELATED PARTY TRANSACTIONS: Under its Advisory
Agreements with the Funds, IAA Trust Company (the "Advisor") provides investment
advisory services for the Funds. The Funds pay the Advisor at the following
annual percentage rates of the average daily net assets of each Fund: Growth
Fund 0.75%; Asset Allocation Fund 0.75%; Tax Exempt Bond Fund 0.50%; Money
Market Series 0.50%; Short-Term Government Bond Series 0.50%; and Long-Term Bond
Series 0.75%. These fees are accrued daily and paid to the Advisor monthly. IAA
Trust Company serves as the Funds' Custodian, without compensation after
voluntary waivers. Custody fees waived for Growth Fund, Asset Allocation Fund,
Tax Exempt Fund, Money Market Series, Short-Term Government Bond Series and
Long-Term Bond Series for the year ended June 30, 1998 were: $34,908, $6,290,
$7,787, $9,200, $5,429 and $6,891, respectively.
For the period January 2, 1997(commencement of operations) through June 30,
1997, the Advisor voluntarily agreed to reduce its fees and reimburse the
Short-Term Government Bond Series and the Long-Term Bond Series to the extent
total annualized expenses exceeded 1.32% and 1.57% of the Funds average daily
net assets. Effective July 1, 1997, the Advisor agreed to continue to reduce its
fees and reimburse the Funds to the extent total annualized expenses exceed
0.98%. Effective November 1, 1997, the Advisor agreed to continue to reduce its
fees and reimburse the Funds to the extent total annualized expenses exceed
0.85% of average daily net assets. Investment advisory fees, for the year ended
June 30, 1998, are as follows:
<TABLE>
<CAPTION>
EXPENSES
WAIVED
AND
ADVISORY ADVISORY REIMBURSED
FEE FEE BY ADVISOR
-------- -------- --------------
<S> <C> <C> <C>
Short-Term Government Bond Series........................... 0.50% $133,520 $10,437
Long-Term Bond Series....................................... 0.75% $275,862 $75,493
</TABLE>
The legal counsel to the Fund also serves as in-house counsel to the Advisor and
as secretary to the Fund. Fees paid by the Growth Fund, Asset Allocation Fund,
Tax Exempt Bond Fund, Money Market Series, Short-Term Government Bond Series and
Long-Term Bond Series during for the year ended June 30, 1998 were $5,299,
$5,347, $5,290, $3,898, $2,874 and $3,099, respectively.
<PAGE> 28
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS June 30, 1998
(continued)
- --------------------------------------------------------------------------------
NOTE (F) DISTRIBUTION SERVICES AGREEMENTS: FPS Broker Services, Inc. serves as
the Funds' Distributor. Pursuant to Rule 12b-1 adopted by the Securities and
Exchange Commission under the Act, the Growth Fund, the Asset Allocation Fund,
the Tax Exempt Bond Fund, the Short-Term Government Bond Series, and the
Long-Term Bond Series have each adopted a Plan of Distribution (the "Plans"),
effective April 1, 1993. The Plans permit the participating Funds to pay certain
expenses associated with the distribution of their shares. The maximum annual
contractual fee under the Plans, is 0.25% of the average daily net assets of
each Fund or Series. For the year ended June 30, 1998, the annualized Rule 12b-1
Plan expenses incurred for Growth Fund, the Asset Allocation Fund, the Tax
Exempt Fund, the Short-Term Government Bond Series and the Long-Term Bond Series
were 0.02%, 0.01%, 0.04%, 0.03% and 0.03% of average net assets, respectively.
NOTE (G) SHAREHOLDER CONCENTRATION: On June 30, 1998 three shareholders held
approximately 59.5% of the shares outstanding of the Growth Fund, two
shareholders held approximately 81.3% of the shares outstanding of the Asset
Allocation Fund, one shareholder held approximately 11.8% of the shares
outstanding of the Tax Exempt Bond Fund, two shareholders held approximately
87.1% of the shares outstanding of the Money Market Series, three shareholders
held approximately 97.9% of the shares outstanding of the Short-Term Government
Bond Series, and two shareholders held approximately 95.1% of the shares
outstanding of the Long-Term Bond Series.
<PAGE> 29
ILLUSTRATION OF $10,000 INVESTMENT June 30, 1998
- --------------------------------------------------------------------------------
GROWTH FUND VS. STANDARD & POOR'S 500 INDEX
<TABLE>
<CAPTION>
GROWTH S&P'S
<S> <C> <C>
1988 10000 10000
1989 12006 12053
1990 13938 14030
1991 14686 15066
1992 15307 17094
1993 17100 19363
1994 16686 19636
1995 21138 24755
1996 25685 31191
1997 33015 42015
1998 36640 54686
</TABLE>
AVERAGE ANNUAL RETURNS*
1 Year 10.98%
5 Year 16.46%
10 Year 13.86%
Past performance is not indicative of future results.
ASSET ALLOCATION FUND VS. MERRILL LYNCH CORPORATE AND
GOVERNMENT BOND MASTER INDEX & LIPPER FLEXIBLE FUNDS INDEX
<TABLE>
<CAPTION>
ASSET ALLOCATION MERRILL LYNCH LIPPER FLEXIBLE
<S> <C> <C> <C>
1988 10000 10000 10000
1989 11040 11258 11122
1990 11758 12034 12105
1991 12971 13279 13302
1992 14395 15161 14940
1993 15774 17148 17012
1994 15886 17120 17230
1995 18474 19282 20028
1996 21197 20238 23074
1997 25426 21893 27338
1998 28327 24372 32303
</TABLE>
AVERAGE ANNUAL RETURNS*
1 Year 11.41%
5 Year 12.42%
10 Year 10.97%
Past performance is not indicative of future results.
The Fund has changed its Lipper benchmark because Lipper has classified the Fund
from its database of balanced funds into the flexible funds category as the
portfolio's investment objectives and allocations more closely compare to a
"flexible" style rather than a "balanced" style. The performance of the Fund
from 1988 through 1992 reflects the operation of the Fund with its prior
investment objective. The Fund's performance since 1993 reflects its current
investment objective.
* Fund returns are net of all fees and transaction costs, while the index
returns are based solely on market returns without deductions for fees or
transaction costs for rebalancing. The index is un-managed.
<PAGE> 30
ILLUSTRATION OF $10,000 INVESTMENT June 30, 1998 (continued)
- --------------------------------------------------------------------------------
TAX EXEMPT BOND FUND VS. LEHMAN BROTHERS' MUNICIPAL BOND INDEX
<TABLE>
<CAPTION>
GROWTH S&P'S
<S> <C> <C>
1988 10000 10000
1989 11015 11139
1990 11592 11898
1991 12525 12970
1992 13784 14496
1993 15015 16230
1994 14771 16257
1995 15880 17691
1996 16722 18694
1997 18085 20237
1998 19432 21989
</TABLE>
AVERAGE ANNUAL RETURNS*
1 Year 7.45%
5 Year 5.24%
10 Year 6.87%
Past performance is not indicative of future results.
The Tax Exempt Bond Fund's portfolio does not mirror the Lehman Index.
SHORT-TERM GOVERNMENT BOND SERIES VS. MERRILL LYNCH U.S. DOMESTIC MASTER BOND
INDEX AND MERRILL LYNCH U.S. TREASURY/AGENCY 1-3 YEAR BOND INDEX
<TABLE>
<CAPTION>
MERRILL LYNCH U.S. MERRILL LYNCH U.S.
SHORT-TERM DOMESTIC TREASURY/AGENCY
<S> <C> <C> <C>
1/2/97 10000 10000 10000
1/31/97 10037 10028 10047
2/28/97 10057 10046 10070
3/31/97 10054 9945 10067
4/30/97 10113 10096 10149
5/31/97 10156 10186 10219
6/30/97 10210 10308 10289
6/30/98 10874 11407 10989
</TABLE>
AVERAGE ANNUAL RETURNS*
1 Year 6.50%
Past performance is not indicative of future results.
The Fund has added the Merrill Lynch U.S. Treasury/Agency 1-3 Year Bond Index as
a more appropriate benchmark because such Index more closely compares with the
investment selections and maturities of the portfolio since its inception.
* Fund returns are net of all fees and transaction costs, while the index
returns are based solely on market returns without deductions for fees or
transaction costs for rebalancing. The index is un-managed.
<PAGE> 31
ILLUSTRATION OF $10,000 INVESTMENT June 30, 1998 (continued)
- --------------------------------------------------------------------------------
LONG-TERM BOND SERIES VS. MERRILL LYNCH U.S. DOMESTIC MASTER BOND INDEX
<TABLE>
<CAPTION>
LONG TERM MERRILL LYNCH
<S> <C> <C>
1/2/97 10000 10000
1/31/97 10036 10028
2/28/97 10046 10046
3/31/97 9971 9945
4/30/97 10081 10096
5/31/97 10147 10186
6/30/97 10244 10308
6/30/98 11293 11407
</TABLE>
AVERAGE ANNUAL RETURNS*
1 Year 10.24%
Past performance is not indicative of future results.
* Fund returns are net of all fees and transaction costs, while the Index
returns are based solely on market returns without deduction for fees or
transaction costs for rebalancing. The Index is un-managed.
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of IAA Trust Company Mutual Funds:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations,
changes in net assets, and the financial highlights present fairly, in all
material respects, the financial position of IAA Trust Company Mutual Funds (the
"Fund") (comprising, respectively, the IAA Trust Growth Fund, Inc., the IAA
Trust Asset Allocation Fund, Inc., the IAA Trust Tax Exempt Bond Fund, Inc. and
the IAA Trust Taxable Fixed Income Series Fund, Inc. which includes the IAA
Trust Money Market Series (formerly known as the IAA Trust Money Market Fund,
Inc.), the IAA Trust Short-Term Government Bond Series and the IAA Trust
Long-Term Bond Series) at June 30, 1998, and the results of its operations,
changes in its net assets, and its financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial 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 June
30, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 31, 1998
<PAGE> 33
IAA TRUST MUTUAL FUNDS
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
Money Market Series
Short-Term Government Bond Series
Long-Term Bond Series
BOARD OF DIRECTORS ANNUAL REPORT
Ronald R. Warfield
Herbert G. Allen
Charlot R. Cole
Nancy J. Erickson
William E. Klein, Sr.
Ailene Miller
Rollie D. Moore [IAA TRUST COMPANY LOGO]
OFFICERS
Ronald R. Warfield, President
Bruce D. Finks, Vice President
Gary E. Mede, Vice President
Duane L. Miller, Vice President
Richard M. Miller, Vice President IAA Trust Company
Rollie D. Moore, Vice President Mutual funds
Paul M. Harmon, Secretary
Robert W. Weldon, Treasurer
Richard F. Day, Controller
INVESTMENT ADVISOR
IAA Trust Company
Bloomington, Illinois
DISTRIBUTOR June 30, 1998
FPS Broker Services, Inc.
King of Prussia, Pennsylvania
TRANSFER AGENT
First Data Investor Services Group, Inc.
King of Prussia, Pennsylvania
CUSTODIAN
IAA Trust Company
Bloomington, Illinois
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
GENERAL COUNSEL
Paul M. Harmon, Esq.
Office of the General Counsel
Bloomington, Illinois
This report has been prepared for the
general information of shareholders of A PLACE TO GROW
the Funds and is not authorized for
distribution to prospective investors IAA Trust Growth Fund, Inc.
unless preceded or accompanied by an IAA Trust Asset Allocation Fund, Inc.
effective Prospectus which contains IAA Trust Tax Exempt Bond Fund, Inc.
details concerning the sales charge IAA Trust Taxable Fixed Income
and other pertinent information. Series Fund, Inc.
Money Market Series
Short-Term Government Bond Series
F30-113-08 (8/98) Long-Term Bond Series
