<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FILE NO. 2-62539
ON OCTOBER 28, 1999 FILE NO. 811-2840
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 29 [ X ]
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 27 [ X ]
----
IAA TRUST TAX EXEMPT BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)
808 IAA Drive
Bloomington, Illinois 61702
---------------------------
(Address of Principal Executive Offices)
(309) 557-3092
--------------
(Registrant's Telephone Number)
IAA TRUST COMPANY
808 IAA Drive
Bloomington, Illinois 61702
---------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ X ] immediately upon filing pursuant to paragraph (b);
[ ] on (date) pursuant to paragraph (b);
--------
[ ] 60 days after filing pursuant to paragraph (a)(1);
[ ] on pursuant to paragraph (a)(1);
[ ] 75 days after filing pursuant to paragraph (a)(2); or
[ ] on ----------- pursuant to paragraph (a)(2) of Rule 485.
<PAGE> 2
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES (fees paid directly from your investment):
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... None
Maximum Deferred Sales Load (as a percentage of offering
price).................................................... None
Maximum Sales Load on reinvested dividends (as a percentage
of offering price)........................................ None
Redemption Fees............................................. None
Exchange Fee................................................ None
Maximum Account Fee......................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from each fund's
assets):
<TABLE>
<CAPTION>
TOTAL ANNUAL FUND
MANAGEMENT FEES DISTRIBUTION FEES OTHER EXPENSES OPERATING EXPENSES*
--------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
Growth Fund.................................... 0.75% 0.06% 0.27% 1.08%
Asset Allocation Fund.......................... 0.75% 0.03% 0.44% 1.22%
Tax Exempt Bond Fund........................... 0.50% 0.05% 0.52% 1.07%
Money Market Fund.............................. 0.50% 0.00% 0.32% 0.82%
Short-Term Government Bond Fund................ 0.50% 0.01% 0.39% 0.90%
Long-Term Bond Fund............................ 0.75% 0.01% 0.33% 1.09%
</TABLE>
- ---------------
* The annual fund operating expenses in the table reflect expenses before
voluntary fee waivers and/or reimbursements from the adviser. Actual total
operating expenses for the fiscal year ended June 30, 1999 after voluntary fee
waivers and/or reimbursements were 1.04% for the Growth Fund, 1.16% for the
Asset Allocation Fund, 1.00% for the Tax Exempt Bond Fund, 0.77% for the Money
Market Fund, 0.83% for the Short-Term Government Bond Fund and 0.85% for the
Long-Term Bond Fund. The funds expect the expense subsidy to continue through
the current fiscal year, although there is no guarantee that it will do so.
Distribution fees represent amounts incurred during the last fiscal year. The
maximum amount under each fund's plan is 0.25% on an annual basis. The Money
Market Fund does not have a distribution plan. IAA Trust Company serves as the
funds' custodian, without compensation, after voluntary waivers. For the
fiscal year ended June 30, 1999, IAA Trust Company waived $55,194, $12,066,
$12,521, $26,555, $15,505, and $16,743, respectively, for custodian fees for
the Growth Fund, Asset Allocation Fund, Tax Exempt Bond Fund, Money Market
Fund, Short-Term Government Bond Fund and the Long-Term Bond Fund.
2
<PAGE> 3
EXAMPLE
This example is designed so that you may compare the cost of investing in the
funds with the cost of investing in other mutual funds. The example assumes
that:
- you invest $10,000 for the time periods indicated;
- you redeem all of your shares at the end of the time periods;
- your investment has a hypothetical 5% return each year;
- all distributions are reinvested; and
- each fund's operating expenses remain the same.
Because actual return and expenses will be different, the example is for
comparison purposes only. Each fund's actual performance and expenses may be
higher or lower. Based on the above assumptions, your costs for each fund would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund............................................ $106 $343 $595 $1,317
Asset Allocation Fund.................................. $118 $387 $670 $1,477
Tax Exempt Bond Fund................................... $102 $340 $590 $1,306
Money Market Fund...................................... $ 79 $262 $455 $1,014
Short-Term Government Bond Fund........................ $ 85 $287 $498 $1,108
Long-Term Bond Fund.................................... $ 87 $346 $601 $1,329
</TABLE>
3
<PAGE> 4
[ICON]
<CN>
INVESTMENT GOAL
Growth of capital. Dividend income, if any, will be incidental to this goal.
[ICON]
<CN>
PRINCIPAL STRATEGY
The fund invests primarily in common stocks and other equity
securities of well-established, large-capitalization companies that
are determined to have above average long-term growth potential. In
selecting stocks, the portfolio managers identify factors, both on
company-specific and macroeconomic levels, which
can provide opportunities for certain firms or
industries to achieve above average growth in
earnings. Other considerations in stock selection
include opportunities for growth in sales,
revenues, and cash flow, manageability of debt
levels and capital structure, corporate
profitability, and competitive position relative
to other companies. Additionally, the stock must
fit into the existing portfolio scheme and
contribute to the overall diversification of the
portfolio. This is a growth-oriented strategy.
Current income is not a significant factor in
stock selection.
The fund may also invest in fixed-income securities
sucjh as convertible bonds and convertible preferred
stocks when the portfolio managers believe the
risk/reward characteristics of such issues
warrant such action. The fixed-income securities
will be rated at the time of purchase within the
four highest grades assigned by independent
ratings agencies or in non-rated equivalents.
WHAT IS THE S&P 500? The
fund uses the S&P 500
for performance
comparisons. The S&P 500
is a major stock market
index (or "benchmark")
comprised of 500
companies representing a
broad range of
industries. Standard &
Poor's, a division of
the McGraw-Hill
Companies, Inc., created
the index. Companies
included in the S&P 500
are large, industry
leaders and are
financially and
operationally stable.
Their stocks tend to
trade frequently and are
easy to buy and sell.
The S&P 500 is
constructed using market
weights
to provide a broad
indicator of stock price
movements. Changes in
the makeup of the S&P
500 are not made very
often. Companies are
removed from the index
if they
[ICON]
<CN>
IMPORTANT RISKS
There are risks involved with any investment, but the
risks associated with an investment in the fund
include:
- stock market risk, or the risk that the price of
securities held by the fund will rise or fall due to
various conditions or circumstances which may be
unpredictable
- there is the risk of losing your money (investment)
- the success of the fund's investments depends on the portfolio managers'
skill in assessing the potential of the stocks they buy
- the value of any fixed-income security held by the fund is likely to decline
when interest rates rise
no longer meet certain
standards.
[ICON]
<CN>
SUITABILITY
The fund may be a suitable investment for you if you:
- have a long-term investment horizon such as investing for retirement or
other future goals
- can accept the risks of investing in a portfolio of common stocks
- desire a fund that uses a growth-oriented strategy
- can tolerate performance which varies from year to year
The fund may not be suitable for you if you have a short investment
horizon, are investing emergency reserve money, are seeking regular
income, or find it difficult to deal with an investment that may go
up and down in value.
4
<PAGE> 5
[ICON]
<CN>
BAR CHART AND PERFORMANCE TABLE
The following bar chart and performance
table provide some indication
of the risks of investing in
the fund by showing changes in
the fund's performance from
year to year and showing how
the fund's average annual
returns compare with those of
a broad measure of market
performance. Both tables
assume reinvestment of
dividends and distributions.
As with all mutual funds, past
performance is not a
prediction of future
performance.
During the ten years ending December
31, 1998, the highest return
for a quarter was 22.38% for
the quarter ended December 31, 1998 and the lowest return for a quarter
was -12.51% for the quarter ended September 30, 1990. The year-to-date
total return as of September 30, 1999 was +8.36%.
PERFORMANCE TABLE
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Fund 17.50% 17.67% 14.25%
S&P 500 Index 28.58% 23.81% 18.95%
</TABLE>
[ICON]
<CN>
PORTFOLIO MANAGERS
A team of portfolio managers led by Bruce Finks manages the fund. Mr.
Finks was the fund's primary portfolio manager from 1994 to 1996 and
became head of the committee in 1998. Mr. Finks received his B.S. in
finance from Illinois State University in 1976 and earned his
Chartered Financial Analyst designation in 1987. He joined the advisor
in 1992 as an Equity Investment Officer and is currently the Vice
President of Investments for the advisor. Other members of the
committee currently include Bernard R. Dorneden, John D. Enlund, John
Jacobs and Derek Vogler. Mr. Dorneden received his B.S. in business
administration from Nortern Illinois University in 1966, his M.B.A.
from Bradley University in 1970 and his Chartered Financial Analyst
designation in 1980. Mr. Dorneden joined the advisor in 1966 and his
current position is Vice President -- Equities. Mr. Enlund received
his B.A. from St. Olaf College in 1978, his J.D. from DePaul
University in 1981 and earned the Chartered Financial Analyst
designation in 1986. Mr. Enlund, an Investment Officer of the advisor,
manages various trust portfolios for IAA Trust Company in addition to
his responsibilities with the Growth Fund. He joined the advisor in
1999. See "Asset Allocation Fund" for biographies of Mr. Jacobs and
Mr. Vogler.
5
<PAGE> 6
[ICON]
<CN>
INVESTMENT GOAL
Growth of capital and current income.
[ICON]
<CN>
PRINCIPAL STRATEGY
The fund invests in a mix of stocks and bonds. Stocks include common,
preferred, and convertible preferred. Bonds include convertibles,
short-term interest bearing obligations, U.S. Government securities,
corporate, mortgage-backed and asset-backed securities. The
fund's mix of stocks and bonds varies in response
to market conditions, investment outlooks, and
risk/reward characteristics of the two asset
classes. In order to manage risk, the fund will
be invested in securities representing a number
of different industries.
The common stocks and equity securities purchased
are primarily those of well-established,
large-capitalization companies that are
determined to have above average long-term growth
potential. In selecting stocks, the portfolio
managers identify factors, both on
company-specific and macroeconomic levels, which
can provide opportunities for certain firms or
industries to achieve above average growth in
earnings. Other considerations in stock selection
include opportunities for growth in sales,
revenues, and cash flow, manageability of debt
levels and capital structure, corporate
profitability, and competitive position relative
to other companies. Additionally, the stock must
fit into the existing portfolio scheme and
contribute to the overall diversification of the
portfolio. This is a growth-oriented strategy.
Current income is not a significant factor in
stock selection.
Bonds purchases are based on maturity and quality.
The ones chosen offer the best return relative to
the risk taken. If the advisor believes that interest
rates may decline, longer maturity issues will be
purchased. Conversely, when the advisor believes
that interest rates may rise, emphasis is placed
on shorter maturities.
The fund will invest in corporate debt securities. These securities
will be within the four highest grades assigned by independent ratings
agencies or in non-rated equivalents. The commercial paper in which
the fund may invest will be in the top two grades assigned by
independent ratings agencies or in non-rated equivalents.
WHAT IS CAPITAL? In
regard to the investment
goal of the fund,
capital refers to the
amount of money that you
invest in a fund. If you
choose to have your
dividends and other
distributions reinvested
in additional shares of
a fund, the amount of
the dividends or other
distributions will be
added to your initial
investment to increase
the amount of your
capital. If the price of
the fund's net asset
value increases because
of increases in the
value of the securities
in the fund, your
capital will also
increase. Conversely, if
the value of the fund's
investments go down and
the price of the fund's
shares decreases, you
may lose some of your
capital.
[ICON]
<CN>
IMPORTANT RISKS
There are risks involved with any investment, but the risks associated with an
investment in the fund include:
- Stock market risk, or the risk that the price of a security will rise or
fall due to various conditions or circumstances which may be unpredictable
- the value of your investment will fluctuate in response to stock and bond
market movements
- the possibility that bond issuers may not make promised interest and
principal payments on time or in full or interest rates may rise causing
bond prices to decline in value
- there is the risk of losing your money (investment)
6
<PAGE> 7
[ICON]
<CN>
SUITABILITY
The fund may be a suitable investment for you if you:
- desire an investment that focuses on both growth and income
- are investing for retirement or other long-term goals
- can tolerate performance which varies from year to year
The fund may not be suitable for you if you have a shorter-term
investment horizon, are investing emergency reserve money, are seeking
regular income, or find it difficult to deal with an investment that
may go up and down in value.
[ICON]
<CN>
BAR CHART AND PERFORMANCE TABLE
The following bar chart and performance
table provide some indication
of the risks of investing in
the fund by showing changes in
the fund's performance from
year to year and showing how
the fund's average annual
returns compare with those of
a broad measure of market
performance. Both tables
assume reinvestment of
dividends and distributions.
As with all mutual funds, past
performance is not a
prediction of future
performance.
During the ten years ending December
31, 1998, the highest return
for a quarter was +11.74% for
the quarter ended December 31,
1998 and the lowest return for
a quarter was -4.91% for the
quarter ended September 30, 1998. The year-to-date total return as of
September 30, 1999 was +5.74%. The calendar year annual returns for the
years ended 1988 through 1992 reflect the operation of the fund with an
investment objective of income. The fund's performance for the calendar
years ended 1993 to present reflect the current investment objective of
the fund.
PERFORMANCE TABLE
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund 11.88% 13.08% 11.46%
S&P 500 Index 28.58% 23.81% 18.95%
Merrill Lynch U.S. Domestic Master Bond Index 8.87% 10.02% 8.04%
</TABLE>
[ICON]
<CN>
PORTFOLIO MANAGERS
A committee led by Bruce Finks is responsible for the stock portion of
the fund. Current members of the committee include Bernard R.
Dorneden, John D. Enlund, Derek Vogler, and John Jacobs. Derek Vogler,
a graduate of Illinois State University, received his B.S. in finance
in 1993, his M.B.A. in 1995, and his Chartered Financial Analyst
designation in 1998. Mr. Vogel joined the advisor in 1995 and his
current position is Portfolio Manger. John Jacobs is the manager of
the fixed-income portion of the fund. Mr. Jacobs earned a B.S. in
business and finance from Illinois Wesleyan University in Bloomington.
He is a Chartered Financial Analyst and has served as a member of the
advisor's investment committee. Prior to joining the advisor in 1975,
Mr. Jacobs was an account executive for one of the leading national
brokerage firms. Mr. Jacobs has been managing the fixed-income portion
of the fund since December of 1978. Mr. Jacobs is also the portfolio
manager for both the Short-Term Government Bond Fund and the Long-Term
Bond Fund (since January, 1997).
7
<PAGE> 8
[ICON]
INVESTMENT GOAL
Highest level of current interest income exempt from Federal income taxes.
[ICON]
PRINCIPAL STRATEGY
The fund invests at least 80% of its assets in municipal bonds. The remainder
of the portfolio may consist of temporary investments and cash. The municipal
bonds purchased by the fund are exempt from Federal income taxes. The fund will
purchase municipal bonds that are rated, at the time of purchase, within the
four highest grades assigned by independent rating agencies or in non-rated
equivalents. The portfolio manager may buy non-rated municipal bonds if the
adviser judges them to be equivalent to investment-grade. The fund may invest
up to 20% of net assets in non-rated bonds, taxable investments or investments
subject to the alternative minimum tax.
To reduce risk, the portfolio manager diversifies the investment portfolio
geographically and across different industry sectors. The fund purchases bonds
that meet its current duration specification, which is five to seven years.
Other considerations include interest rate anticipation, yield curve shifts,
shifts in quality spreads, shifts in geographic value (i.e., State vs. State,
State vs. City), rating upgrades and downgrades, and yield curve inflection
points.
WHAT ARE MUNICIPAL
SECURITIES? The fund
invests in municipal
securities which are
debt obligations of
states, cities, towns,
and other political
subdivisions, agencies
or public authorities
that pay interest exempt
from Federal income tax.
These securities are
often issued to raise
money for public
services and projects
such as schools,
hospitals and public
transportation systems.
Municipal securities may
be bonds, notes and
commercial paper, may
have a fixed or
floating rate of
interest, or be issued
as zero coupon bonds.
[ICON]
IMPORTANT RISKS
There are risks involved with any investment, but the risks associated with an
investment in the fund include:
- interest rate risk, or the risk that the value of the securities the fund
holds will rise or fall as a result of changes in interest rates
- tax law risk, or the risk that changes in tax laws could affect the prices
of municipal securities in an unfavorable way
- credit risk, or the risk that issuers' credit ratings may be lowered or may
not make interest and principal payments on time or in full
- call risk, or the risk that a bond might be called or forcibly redeemed
during a period of declining interest rates
- there is the risk of losing your money (investment)
[ICON]
SUITABILITY
The Fund may be a suitable investment for you if you seek to:
- earn regular monthly dividends exempt from Federal income tax
- preserve investment capital over time
- reduce taxes on investment income
- invest in a fund which complements a more aggressive investment approach
You should not consider this fund for your IRA or 401(k) plan, or if you wish a
growth investment strategy or you do not pay U.S. income taxes.
8
<PAGE> 9
[ICON]
BAR CHART AND PERFORMANCE TABLE
The following bar chart and
performance table provide some
indication of the risks of
investing in the fund by showing
changes in the fund's performance
from year to year and showing how
the fund's average annual
returns compare with those of
a broad measure of market
performance. Both tables
assume reinvestment of
dividends and distributions.
As with all mutual funds, past
performance is not a
prediction of future
performance.
During the ten years ending December 31, 1998, the highest return for a
quarter was +6.58% for the quarter ended March 31, 1995 and the lowest
return for a quarter was -6.03% for the quarter ended March 31, 1994.
The year-to-date total return as of September 30, 1999 was -1.35%.
PERFORMANCE TABLE
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax Exempt Bond Fund 5.94% 5.28% 6.78%
Lehman Brothers 7-year Municipal Bond
Index 6.22% 5.78% *%
Lehman General Muni Fund Index Returns 6.48% 6.22% 8.22%
</TABLE>
The taxable equivalent yield for the fund for the 30 days ending
December 31, 1998 was +6.01%.
* The Lehman Seven-Year Municipal Bond Index inception is 1991.
[ICON]
PORTFOLIO MANAGER
Mary S. Guinane is the portfolio manager for this fund. Ms. Guinane
earned an M.B.A. from Illinois State University and a B.A. in
psychology and sociology from St. Ambrose College. Ms. Guinane has been
with the adviser since 1981 and has managed this fund since October 1,
1986.
9
<PAGE> 10
[ICON]
INVESTMENT GOALS
Maximum current income, a stable net asset value of $1.00 per share and daily
liquidity.
[ICON]
PRINCIPAL STRATEGY
To pursue its goal, the fund invests in a portfolio of high-quality, money
market securities maturing in one year or less. The fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The securities
in which the fund invests include:
- investments issued by U.S. banks, such as certificates
of deposit or bankers acceptances and repurchase
agreements
- investments issued by the U.S. Government, its
agencies and instrumentalities, such as notes and
bonds
- investments issued by corporations, such as
high-quality debt securities (bonds, notes and
debentures)
- commercial paper rated in the top tier by two
independent rating agencies, issued by foreign and
domestic corporations, banks and government entities
The fund may invest up to 5% of its assets in non-rated securities which the
investment adviser has determined are of high-quality and present minimal
credit risks, subject to guidelines and criteria approved by the Board of
Directors. The fund may also invest in U.S. dollar denominated securities of
foreign issuers. The fund will not invest more than 5% of its assets in second
tier securities.
WHAT IS A MONEY MARKET
FUND? A money market
fund, such as our fund
described on this page,
is designed for current
income and invests in
very liquid assets such
as Federal securities,
certificates of deposit
and commercial paper
(very short-term bonds).
An investment in a money
market fund is neither
insured nor guaranteed
by the U.S. Government,
and there can be no
assurance that money
market funds will be
able to maintain a
stable net asset value
of $1.00 per share. Most
money market funds offer
checkwriting for easy
liquidity.
[ICON]
IMPORTANT RISKS
There are risks involved with any investment, but the risks associated with an
investment in the fund include:
- risk that the value of the securities the fund holds will rise or fall as a
result of changes in interest rates
- your investment is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency
- the rate of income will vary from day to day so that the monthly dividends
paid to your account will vary
- there is the risk of losing your money (investment) even though the fund
seeks to preserve the value of your investment at $1.00 per share
[ICON]
SUITABILITY
The fund may be a suitable investment for you if you seek to:
- earn regular monthly dividends
- preserve your initial investment
- invest for a short period of time
- invest emergency reserves
You should not consider this fund if you want Federal deposit insurance, your
financial goals are at least several years away or you wish to have a growth
investment strategy.
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the fund.
10
<PAGE> 11
[ICON]
PERFORMANCE TABLE
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 4.86% 4.63% 4.88%
Salomon Brothers 3-month Treasury Bill Index 5.06% 5.08% 5.09%
</TABLE>
The fund's 7-day yield for the period ending on September 30, 1999 was
+4.65%. You may obtain the fund's current 7-day yield by calling (800)
245-2100.
[ICON]
BAR CHART AND PERFORMANCE TABLE
The following bar chart and
performance table provide some
indication of the risks of
investing in the fund by
showing changes in the fund's
performance from year to year
and showing how the fund's
average annual returns compare
with those of a broad measure
of market performance. Both
tables assume reinvestment of
dividends and distributions.
As with all mutual funds, past
performance is not a
prediction of future
performance.
During the ten years ending
December 31, 1998, the highest
return for a quarter was
+2.22% for the quarter ended June 30, 1989 and the lowest return for a
quarter was +0.45% for the quarter ended September 30, 1992. The
year-to-date total return as of September 30, 1999 was +3.24%.
PORTFOLIO MANAGER
Robert L. Sammer is the portfolio manager for the fund. Mr. Sammer
received his Bachelor of Science degree in finance from Illinois State
University in 1988, his M.B.A. in 1996 and his Charted Financial
Analyst in 1998. After joining the adviser in 1991, he served as client
services coordinator, corporate retirement and agency accounts
coordinator, and now as investment analyst. Mr. Sammer has been
portfolio manager of the fund since 1994.
11
<PAGE> 12
[ICON]
INVESTMENT GOAL
Maximum total return consistent with preservation of capital.
[ICON]
PRINCIPAL STRATEGY
The fund mainly invests in a portfolio of U.S. Government and agency securities
and expects to maintain a duration of less than three years. Under normal
conditions, the fund invests at least 65% of assets in government securities
including:
- U.S. Government securities such as bills, notes and
bonds
- securities issued or guaranteed by U.S. Government
agencies such as the Federal National Mortgage
Association (Fannie Mae) and the Government National
Mortgage Association (Ginnie Mae)
The remaining 35% may be invested in cash, commercial paper and high-grade
liquid debt securities. These securities include corporate debt instruments and
privately issued mortgage-related and asset-backed securities within the three
highest grades assigned by independent rating agencies or in non-rated
equivalents. We emphasize government securities. High-grade corporate and
asset-backed securities are purchased for their yield advantage versus
governments and agencies.
WHAT ARE U.S. GOVERNMENT
SECURITIES? The fund
mainly invests in U.S.
Government securities
which are bonds or other
debt obligations issued
by, or whose principal
and interest are
guaranteed by, the U.S.
Government or one of its
agencies or
instrumentalities. U.S.
Treasury securities and
some obligations of U.S.
Government agencies and
instrumentalities are
supported by the "full
faith and credit" of the
United States. Others
are backed by the right
of the issuer to borrow
from the U.S. Treasury
and others, only by the
credit of the issuing
agency or
instrumentality. U. S.
Government securities
generally have less
credit risk than other
debt obligations.
[ICON]
IMPORTANT RISKS
There are risks involved with any investment, but the risks associated with an
investment in the fund include:
- the U.S. Government does not guarantee the market
value or the current yield of government securities or
the net asset value of shares of the fund
- a fall in the worldwide demand for U.S. Government
securities could lower the prices of these securities
- in some instances, when interest rates fall, mortgage-
and asset-backed securities may incur prepayments which could adversely
affect performance by lowering duration
- conversely, when interest rates rise, mortgage- and asset-backed securities
may extend duration due to lower than projected prepayments which could
adversely affect investment returns
- the value of the fund's shares will fluctuate and there is the risk of
losing your money (investment) risk than other debt obligations.
[ICON]
SUITABILITY
The fund may be a suitable investment for you if you seek:
- to earn higher yields than money market funds offer and are able to tolerate
larger fluctuations in the value of shares
- an investment for income
- a bond fund that emphasizes highly creditworthy U.S. Government securities
You should not consider this fund if your primary investment objective is
absolute principal stability or if you are seeking growth of capital.
12
<PAGE> 13
[ICON]
BAR CHART AND PERFORMANCE TABLE
The following bar chart and
performance table provide some
indication of the risks of
investing in the fund by showing
changes in the fund's performance
from year to year and showing how
the fund's average annual
returns compare with those of
a broad measure of market
performance. Both tables
assume reinvestment of
dividends and distributions.
As with all mutual funds, past
performance is not a
prediction of future
performance.
During the period ending
December 31, 1998 the highest
return for a quarter was
+2.45% for the quarter ended
September 30, 1998 and the
lowest return for a quarter
was +0.91% for the quarter
ended December 31, 1998. The
year-to-date total return as
of September 30, 1999 was
+1.98%.
PERFORMANCE TABLE
Average annual returns as of December 31, 1998
<TABLE>
<CAPTION>
1 Year*
-------------------------------------------------------------------------
<S> <C>
Short-Term Government Bond Fund 6.35%
Merrill Lynch U.S. Domestic Master Bond Index 8.87%
</TABLE>
* The Fund commenced operations on January 2, 1997.
[ICON]
PORTFOLIO MANAGER
John Jacobs is the portfolio manager of the fund. See "Asset Allocation Fund"
for Mr. Jacobs' biography.
13
<PAGE> 14
[ICON]
INVESTMENT GOAL
High level of current income consistent with preservation of capital and
maintenance of liquidity.
[ICON]
PRINCIPAL STRATEGY
To pursue its goal, the fund invests in a portfolio of bonds and other debt
obligations (debentures, notes, mortgage-backed and asset-backed) and maintains
a dollar-weighted average maturity of more than 10 years. Under normal
conditions, the fund invests at least 80% of assets in the following:
- debt obligations of corporations which are rated
within the top three rating categories by independent
rating agencies or in non-rated equivalents
- securities issued by the U.S. Government or its
agencies or instrumentalities
- securities of major U.S. banking institutions,
obligations of international agencies and U.S. dollar
denominated foreign debt securities
At least 65% of the value of the fund's total assets will be invested in bonds
(U.S. Government, corporate and convertible issues). The fund may invest up to
20% of its net assets in corporate bonds which are rated below investment-grade.
On occasion, up to 20% of the fund's net assets may be invested in commercial
paper within the two highest rating categories of independent rating agencies.
The fund may invest up to 10% of its assets in securities of foreign issuers.
The fund may also invest in zero coupon U.S. Government securities.
In managing its portfolio, the portfolio manager attempts to balance sensitivity
to interest rate movements with the potential for yields. The fund invests in
securities of longer-term maturities in order to obtain higher yields.
Securities with longer maturities, however, tend to be more sensitive to
interest rate changes.
WHAT IS A BOND? The fund
mainly invests in bonds.
A bond, which is also
called a debt security,
is a long-term
promissory note. The
issuer of the bond,
which could be the U.S.
Government, a
corporation, or a city
or state, borrows money
from investors and
agrees to pay back the
loan on a certain date.
Bonds vary widely in
maturity, security, and
type of issuer, although
most are sold in $1,000
denominations. Because
bond performance can be
influenced by different
factors than those that
drive the stock market,
bonds may move in
different cycles than
stocks.
[ICON]
IMPORTANT RISKS
There are risks involved with any investment, but the risks associated with an
investment in the fund include:
- risk that the value of the securities the fund holds will rise or fall as a
result of changes in interest rates, an issuer's actual or perceived
creditworthiness or an issuer's ability to meet its obligations
- call risk or the risk that a bond might be called or forcibly redeemed
during a period of declining interest rates
- the longer the average maturity of the bonds in the fund, the more the
fund's share price will fluctuate in response to interest rate changes
- the fund could lose money if any bonds it owns are downgraded in credit
rating or go into default
- in some instances, when interest rates fall, mortgage- and asset-backed
securities may incur prepayments which could adversely affect performance by
lowering duration
- conversely, when interest rates rise, mortgage- and asset-backed securities
may extend duration due to lower than projected prepayments which could
adversely affect investment returns
- there is the risk of losing your money (investment)
- foreign securities carry additional risks, including currency, natural event
and political risks
14
<PAGE> 15
[ICON]
SUITABILITY
The fund may be a suitable investment for you if you seek:
- a relatively conservative investment for income
- a bond fund that invests in both corporate and U.S. Government securities
- a fund to complement a portfolio of more aggressive investments
You should not consider this fund if you are seeking high growth or maximum
income or are investing emergency reserve money.
[ICON]
BAR CHART AND PERFORMANCE TABLE
The following bar chart and
performance table provide some
indication of the risks of
investing in the fund by showing
changes in the fund's performance
from year to year and showing how
the fund's average annual
returns compare with those of
a broad measure of market
performance. Both tables
assume reinvestment of
dividends and distributions.
As with all mutual funds, past
performance is not a
prediction of future
performance.
During the period ending December 31,
1998, the highest return for a
quarter was +4.79% for the
quarter ended September 30,
1998 and the lowest return for
a quarter was +0.25% for the
quarter ended December 31,
1998. The year-to-date total
return as of September 30,
1999 was -.90%.
PERFORMANCE TABLE
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
1 Year*
-------------------------------------------------------------------------
<S> <C>
Long-Term Bond Fund 9.22%
Merrill Lynch U.S. Domestic Master Bond Index 8.87%
</TABLE>
* The Fund commenced operations on January 2, 1997.
[ICON]
PORTFOLIO MANAGER
John Jacobs is the portfolio manager of the fund. See "Asset Allocation Fund"
for Mr. Jacobs' biography.
15
<PAGE> 16
MANAGEMENT OF THE FUNDS
IAA Trust Company, 808 IAA Drive, Bloomington, Illinois 61702 serves as the
investment adviser to the funds and is responsible for the selection and
on-going monitoring of the securities in each fund's investment portfolio and
managing the funds' business affairs. The adviser was organized in 1970 and has
no other investment company clients other than the funds.
DISTRIBUTION ARRANGEMENTS
You pay no sales charges to invest in the funds, either up-front or deferred.
The funds (with the exception of the Money Market Fund) have adopted separate
plans under rule 12b-1. These plans allow each fund to pay distribution fees for
the sale and distribution of its shares. For instance, fees are paid to persons
who sell the funds' shares. From time to time, additional cash compensation may
be paid to persons affiliated with Country Capital Management Company who reach
certain sales goals. Because these fees are paid out of the funds' assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. The maximum
amount which each fund may pay for rule 12b-1 plan expenses, on an annual basis,
is 0.25% of average net assets. While First Data Distributors, Inc. currently
serves as the distributor for the funds on a best efforts basis, it is
anticipated that on or about December 1, 1999, these services will be assumed by
Provident Distributors, Inc., which will provide substantially similar
distribution services.
YOUR INVESTMENT -- BUYING SHARES
PURCHASE PRICE: You pay no sales charge to invest in any of the funds. Shares of
all funds are sold at the net asset value per share (NAV) next determined after
receipt of the order by First Data Investor Services Group, Inc. The NAV for all
funds is calculated at the close of regular trading hours of the New York Stock
Exchange, normally 4:00 p.m. Eastern Standard Time. The Money Market Fund
reserves the right to calculate its net asset value more frequently than once a
day if deemed desirable. Each fund's investments are valued based on market
value, or where market quotations are not readily available, based on fair value
as determined in good faith by the funds' board of directors. The Money Market
Fund is valued based on an amortized cost method of valuation according to
procedures adopted under SEC regulations.
TIMING OF REQUESTS: All requests received by First Data Investor Services Group
before 4:00 p.m. Eastern Standard Time will be executed the same day, at that
day's closing share price. Orders received after 4:00 p.m. Eastern Standard Time
will be executed the following day, at that day's closing share price. Shares
will not be priced on days when the New York Stock Exchange is closed.
STOCK EXCHANGE CLOSINGS: Shares of the funds will not be priced and are not
available for purchase on the following days on which the New York Stock
Exchange is closed for trading: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
RETIREMENT PLANS: The adviser offers a variety of retirement plans including a
prototype Defined Contribution Plan. This plan can invest in shares of all funds
except the Tax Exempt Bond Fund. For further information, please call (800)
245-2100. You may also establish IRA accounts -- Traditional IRAs, Spousal IRAs,
Roth IRAs or Education IRAs. To request that an IRA application be sent to you,
call (800) 422-8261. For individuals eligible to establish a Medical Savings
Account, the adviser sponsors a prototype plan which has been approved by the
IRS.
GENERAL INFORMATION: The funds reserve the right to reject any purchase order or
suspend the offering of shares of the funds. All investments must be in U.S.
dollars. The funds also reserve the right to vary the initial and subsequent
investment minimums, or to waive the minimum investment requirement for any
investor. The funds will automatically redeem shares if a purchase check is
returned for insufficient funds. The funds reserve the right to reject any third
party check greater than $5,000 used for the purchase of shares. However, third
party checks issued by IAA Trust Company, Illinois Agricultural Association, any
of the Country Companies or any of their affiliates will be accepted regardless
of their amount.
16
<PAGE> 17
HOW TO BUY SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------- -------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ------------------------------------------------------- -------------------------------------------------------
<S> <C>
BY MAIL BY MAIL
- ------------------------------------------------------- -------------------------------------------------------
Complete the application. Fill out an investment slip from a previous
Mail the application and your check to: confirmation and write your account number on your
FIRST DATA INVESTOR SERVICES GROUP check. Mail the slip and your check to:
P.O. BOX 61503
KING OF PRUSSIA, PA 19406-0903 IAA TRUST MUTUAL FUNDS
Please make check payable to the name of the fund you C/O FIRST DATA INVESTOR SERVICES GROUP, INC.
wish to invest in. 211 SOUTH GULPH ROAD
P.O. BOX 61767
KING OF PRUSSIA, PA 19406-0903
Please make check payable to the name of the fund you
are investing in.
Minimum initial investment for the funds: Minimum additional investments for the funds:
$1,000 for non-retirement accounts $100 if by mail for all accounts (retirement and non-
$100 for retirement accounts including IRAs and retirement accounts)
medical savings accounts $1,000 if by wire for all accounts
- ------------------------------------------------------- -------------------------------------------------------
BY WIRE BY WIRE
- ------------------------------------------------------- -------------------------------------------------------
To make a same-day wire investment, call (800) Call (800) 245-2100. The wire must be received by 4:00
245-2100. The wire must be received by 4:00 p.m. p.m. Eastern Standard Time for same day processing
Eastern Standard Time for same day processing (12:00 (12:00 noon Eastern Standard Time for the Money Market
noon Eastern Standard Time for the Money Market Fund). Fund).
An account number will be assigned to you.
Follow the instructions under TO OPEN AN ACCOUNT -- By
Call your bank with instructions to transmit funds to: Wire.
- Boston Safe Deposit & Trust
- ABA #: 011001234 The minimum additional investment made by wire must be
- Credit (Insert Name of Your Fund) for at least $1,000.
- Acct #: 00370
- FBO: (Insert Shareholder Name & Acct. Number)
Your bank may charge a wire fee.
Mail your completed application to First Data Investor
Services Group at the address above.
- ------------------------------------------------------- -------------------------------------------------------
BY AUTOMATIC INVESTMENT BY AUTOMATIC INVESTMENT
- ------------------------------------------------------- -------------------------------------------------------
With an initial investment, indicate on your If you wish to add the AUTOMATIC INVESTMENT PLAN after
application that you would like to participate in the your account has initially been opened, call (800)
AUTOMATIC INVESTMENT PLAN. Return your application with 245-2100 to request the form.
your initial investment.
Complete and return the form along with any other
Subsequent investments will be drawn from your bank required materials.
account and invested into the fund(s).
Subsequent investments will be drawn from your bank
account and invested into the fund(s).
- ------------------------------------------------------- -------------------------------------------------------
BY EXCHANGE BY EXCHANGE
- ------------------------------------------------------- -------------------------------------------------------
Call (800) 245-2100 to request an exchange of shares Call (800) 245-2100 to request an exchange of shares
into another IAA Trust Mutual Fund. into another IAA Trust Mutual Fund.
- ------------------------------------------------------- -------------------------------------------------------
</TABLE>
17
<PAGE> 18
YOUR INVESTMENT -- SELLING SHARES
TIMING OF REQUESTS: All requests received in good order by First Data Investor
Services Group before 4:00 p.m. Eastern Standard Time (12:00 noon Eastern
Standard Time for the Money Market Fund) will be executed the same day, at that
day's closing price. Requests received after 4:00 p.m. (12:00 noon Eastern
Standard Time for the Money Market Fund) will be executed the following day, at
that day's closing share price. Accounts in the Money Market Fund will earn
daily dividends up to the day before the date of redemption.
SELLING RECENTLY PURCHASED SHARES: If you wish to sell shares that were recently
purchased by check, the funds may delay mailing of your redemption check for up
to 15 business days after your redemption request to allow the purchase check to
clear. If you are considering redeeming shares soon after purchase, you should
purchase by bank wire or certified check to avoid delay.
SIGNATURE GUARANTEES: The funds may require additional documentation, or
signature guarantees on any redemptions in amounts over $25,000 in value or for
the redemption of corporate, partnership or fiduciary accounts, or for certain
types of transfer requests or account registration changes. A signature
guarantee helps protect against fraud. You can obtain one from most banks or
securities dealers, but not from a notary public. Please call (800) 245-2100 for
information on obtaining a signature guarantee.
HOW TO SELL SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------- -------------------------------------------------------
TO SELL FROM OR CLOSE AN ACCOUNT TO SELL FROM OR CLOSE AN ACCOUNT
- ------------------------------------------------------- -------------------------------------------------------
<S> <C>
BY MAIL -- ALL FUNDS BY TELEPHONE -- ALL FUNDS
- ------------------------------------------------------- -------------------------------------------------------
Write a letter of instruction that includes: If you have previously authorized redemptions by
- The fund name, your account number, the name(s) in telephone, call (800) 245-2100 before the close of
which the account is registered and the dollar business on any business day.
value or number of shares you wish to sell. Proceeds will normally be sent the next business day by
- Include all signatures and any additional documents first class mail, or if you prefer and pay the expense,
that may be required. they may be wired to your account ($1,000 minimum).
- Mail your request to: If you request a check, it will be sent to the address
FIRST DATA INVESTOR SERVICES GROUP in which the account is registered.
P.O. BOX 61503 Telephone redemptions are not available if a joint
KING OF PRUSSIA, PA 19406-0903 owner is under age 14.
- A check will be mailed to the name(s) and address
in which the account is registered.
- ------------------------------------------------------- -------------------------------------------------------
BY SYSTEMATIC WITHDRAWAL PLAN -- ALL FUNDS BY CHECK -- MONEY MARKET FUND ONLY
- ------------------------------------------------------- -------------------------------------------------------
Call us to request a form to add the SYSTEMATIC When your account in the Money Market Fund is opened,
WITHDRAWAL PLAN, specifying the amount and frequency of you will receive an initial supply of checks within 2
withdrawals you would like (monthly minimum is $25). to 3 weeks if you choose so on the application.
Be sure to maintain an account balance of $5,000 or The checks may be written in amounts from $100 minimum
more. to $100,000 maximum.
- -------------------------------------------------------
BY EXCHANGE
- -------------------------------------------------------
Call (800) 245-2100 to request an exchange of shares
into another IAA Trust Mutual Fund.
- -------------------------------------------------------
</TABLE>
18
<PAGE> 19
YOUR INVESTMENT -- TRANSACTION POLICIES
EXECUTION OF REQUESTS: Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next net asset value to be calculated after your request is
accepted by First Data Investor Services Group.
CHECKWRITING TERMS: If you so request, the Money Market Fund will provide you
with an initial supply of checks. These checks may be written in any amount not
less than $100 nor more than $100,000. You continue to earn daily income
dividends until your check has cleared.
TELEPHONE REQUESTS: For your protection, telephone requests may be recorded in
order to verify their accuracy. In addition, First Data Investor Services Group
will take measures to verify the identity of the caller. If appropriate measures
are taken, First Data Investor Services Group is not responsible for any losses
that may occur to any account due to an unauthorized telephone call. At times of
peak activity, it may be difficult to place requests by phone.
EXCHANGE PRIVILEGES: You may exchange shares for shares of other IAA Trust
Mutual Funds without paying any fees or charges. If the exchange is made by
telephone, the new shares will be registered in the same manner as the shares
for which they were exchanged. A fund may change or cancel exchange policies at
any time, upon 60 days' notice to its shareholders. You may realize a capital
gain or loss for Federal income tax purposes when shares are exchanged.
ACCOUNTS WITH LOW BALANCES: If your account falls below $1,000, the fund may ask
you to increase your balance. If it is still below $1,000 after 30 days, the
fund may close your account and send you the proceeds.
INTEGRATED VOICE RESPONSE SYSTEM: You may obtain access to account information
by calling (800) 245-2100. The System provides share price and price change for
all the funds and gives account balances and history and allows sales or
exchanges of shares.
DISTRIBUTIONS AND TAXES
DIVIDEND REINVESTMENT: You may have your distributions reinvested in the fund or
mailed out by check. If you do not give the fund instructions, your
distributions will automatically be reinvested in the particular fund. There are
no fees or sales charges on reinvestments. You may not have distributions mailed
out by check if you participate in the Systematic Withdrawal Plan or any
Retirement Plans.
TIMING OF DISTRIBUTIONS: The funds generally distribute dividends from their net
investment income and net capital gains, if any. The Growth Fund typically pays
income dividends semi-annually. The Asset Allocation Fund, Short-Term Government
Bond Fund, Tax Exempt Bond Fund and the Long-Term Bond Fund typically pay
monthly dividends. The Money Market Fund declares and distributes dividends on
each day that its net asset value is determined and dividends are then paid to
you on a monthly basis.
TAXES: As long as a fund meets the requirements for being a tax-qualified
regulated investment company, which each fund in the past has done and intends
to do in the future, it pays no Federal income tax on the earnings it
distributes to shareholders. Dividends and distributions you receive from a
fund, whether reinvested or taken as cash, are generally considered taxable.
Dividends from net investment income are taxed as ordinary income. Capital gains
distributions are taxed based on how long a fund held the assets. Net short-term
capital gains are taxable to shareholders as ordinary income. Distributions of
net long-term capital gains are taxable as long-term capital gains. The tax
status of the distributions for each calendar year will be detailed in your
annual tax statement from each fund. Because everyone's tax situation is unique,
always consult your tax professional about Federal, state and local tax
consequences. An exchange of shares of a fund for shares of another fund is a
sale of fund shares for tax purposes.
19
<PAGE> 20
TAX EXEMPT BOND FUND: The fund intends to pay federally tax-exempt interest
dividends to its shareholders. You may be subject to state and local taxes on
distributions of federally tax-exempt income from the fund. However, some
distributions may also be taxed for Federal income tax purposes (including all
capital gains distributions). You will be notified regarding the designation of
distributions. Information regarding the tax-exempt status of any distributions
will be mailed annually. The percentage of the monthly dividend which is
tax-exempt may vary from distribution to distribution.
BACKUP WITHHOLDING: By law, the funds must withhold 31% of your distributions
and proceeds if you have not provided complete, correct taxpayer information.
ACCOUNT STATEMENTS: You will receive an account statement after every
transaction that affects your account balance, after any change of name or
address of the registered owner, and in all other cases, semi-annually.
OTHER SECURITIES AND RISKS
Each fund's portfolio securities and investment practices offer certain
opportunities and carry various risks. Major investments and risk factors are
outlined in the front of the prospectus. Below are brief descriptions of other
securities and practices, along with their associated risks.
BONDS: The value of any bond held by a fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund.
COMMERCIAL PAPER: Commercial paper is unsecured short-term promissory notes
issued by corporations and other entities. Maturities on these issues typically
vary from a few days to nine months.
DEFENSIVE INVESTING: The funds may, from time to time, take temporary defensive
positions that are inconsistent with each fund's principal investment strategies
in attempting to respond to adverse market, economic, political or other
conditions. When a fund takes a temporary defensive position it may not achieve
its investment goals.
FOREIGN SECURITIES: Foreign securities present risks beyond those of U.S.
securities. They are generally more volatile and less liquid than their U.S.
counterparts. Moreover, changes in currency exchange rates have the potential to
reduce or eliminate certain gains achieved in securities markets or create net
losses. These risks are usually higher for investments in less developed
markets.
WHEN-ISSUED SECURITIES: The funds may invest in securities prior to their date
of issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
REPURCHASE AGREEMENTS: The funds may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the funds could
lose money.
SECURITIES OF OTHER INVESTMENT COMPANIES: The funds may acquire securities of
other investment companies (including unit investment trusts) on the open market
if (1) the fund would not own more than 3% of the total outstanding voting stock
of such investment company; (2) such investment represents not more than 5% of
the value of the fund's assets; or (3) such investment plus investments in all
other investment companies represents not more than 10% of the value of the
fund's assets.
ZERO COUPONS: A zero coupon security is a debt security that is purchased and
traded at a discount to its face value because it pays no interest for some or
all of its life. Interest, however, is reported as income to the fund and the
fund is required to distribute to shareholders an amount equal to the amount
reported. Those distributions may force the fund to liquidate portfolio
securities at a disadvantageous time.
20
<PAGE> 21
ASSET-BACKED SECURITIES: Asset-backed securities represent interests in pools of
debt (other than mortgage notes), such as credit card accounts. The principal
risks of asset-backed securities are that on the underlying obligations,
payments may be made more slowly, and rates of default may be higher than
expected. In addition, because some of these securities are new or complex,
unanticipated problems may affect their value or liquidity.
MORTGAGE-RELATED SECURITIES: These securities, which represent interests in
pools of mortgages, may offer attractive yields but generally carry additional
risks. The prices and yields of mortgage-related securities typically assume
that the securities will be redeemed at a given time before maturity. When
interest rates fall substantially, these securities usually are redeemed early
because the underlying mortgages are often prepaid. The fund would then have to
reinvest the money at a lower rate. The price or yield of mortgage-related
securities may fall if they are redeemed later than expected.
YEAR 2000 COMPLIANCE: The funds could be adversely affected if the computer
systems used by the funds and their service providers do not properly process
and calculate date-related information after December 31, 1999. The Year 2000
issue affects virtually all companies and organizations. While Year 2000-related
computer problems could have a negative effect on the funds, the adviser is
working to avoid such problems and to obtain assurances from the funds' service
providers that they are taking similar steps. Companies, organizations,
governmental entities and securities in which the funds invest could be affected
by the Year 2000 issue, but at this time the funds cannot predict the degree of
impact. To the extent the effect is negative, a fund's returns could be reduced.
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the funds'
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single fund share. Total return shows how much
your investment in the fund(s) would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the funds' financial statements, are included in the annual report which is
available upon request.
GROWTH FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... 23.04 $ 22.51 $ 18.88 $ 17.23 $ 15.16
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income...................... 0.15 0.17 0.15 0.23 0.22
Net gains or losses on securities (both
realized and unrealized)................. 5.50 2.19 4.81 3.23 3.45
-------- -------- -------- ------- -------
Total from investment operations..... 5.65 2.36 4.96 3.46 3.67
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.15) (0.15) (0.20) (0.25) (0.17)
Distributions from capital gains........... (1.30) (1.68) (1.13) (1.56) (1.43)
-------- -------- -------- ------- -------
Total distributions...................... (1.45) (1.83) (1.33) (1.81) (1.60)
-------- -------- -------- ------- -------
Net asset value, end of year................. $ 27.24 $ 23.04 $ 22.51 $ 18.88 $ 17.23
======== ======== ======== ======= =======
TOTAL RETURN................................. 26.10% 10.98% 28.54% 21.51% 26.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)......... $182,070 $160,315 $140,786 $84,800 $70,577
Ratio of expenses to average net assets:... .
Before expense waiver.................. 1.08% 1.02% -- -- --
After expense waiver................... 1.04% 1.00% 1.16% 1.12% 1.14%
Ratio of net investment income to average
net assets:
Before expense waiver.................. 0.55% 0.73% -- -- --
After expense waiver................... 0.59% 0.75% 0.84% 1.30% 1.41%
Portfolio turnover......................... 31.88% 33.06% 30.74% 32.95% 31.84%
</TABLE>
22
<PAGE> 23
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 15.20 $ 14.64 $ 13.39 $ 12.29 $11.08
------- ------- ------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................... 0.37 0.39 0.35 0.37 0.36
Net gains or losses on securities (both realized
and unrealized)............................... 2.04 1.22 2.11 1.41 1.38
------- ------- ------- -------- ------
Total from investment operations.............. 2.41 1.61 2.46 1.78 1.74
------- ------- ------- -------- ------
LESS DISTRIBUTIONS
Dividends from net investment income............ (0.37) (0.39) (0.34) (0.37) (0.34)
Distributions from capital gains................ (0.12) (0.66) (0.87) (0.31) (0.18)
Distributions from return of capital............ -- -- -- -- (0.01)
------- ------- ------- -------- ------
Total distributions........................... (0.49) (1.05) (1.21) (0.68) (0.53)
------- ------- ------- -------- ------
Net asset value, end of year...................... $ 17.12 $ 15.20 $ 14.64 $ 13.39 $12.29
======= ======= ======= ======== ======
TOTAL RETURN...................................... 16.22% 11.41% 19.95% 14.74% 16.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's).............. $23,285 $18,650 $14,272 $ 10,083 $9,540
Ratio of expenses to average net assets:........ .
Before expense waiver....................... 1.22% 1.25% -- -- --
After expense waiver........................ 1.16% 1.21% 1.46% 1.44% 1.46%
Ratio of net investment income to average net
assets:
Before expense waiver....................... 2.30% 2.57% -- -- --
After expense waiver........................ 2.36% 2.61% 2.57% 2.81% 3.18%
Portfolio turnover.............................. 33.91% 20.07% 19.25% 33.77% 21.03%
</TABLE>
23
<PAGE> 24
TAX EXEMPT BOND FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 8.95 $ 8.70 $ 8.41 $ 8.36 $ 8.19
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......................... 0.36 0.37 0.36 0.37 0.39
Net gains or losses on securities (both
realized and unrealized)..................... (0.16) 0.27 0.31 0.07 0.20
------- ------- ------- ------- -------
Total from investment operations............. 0.20 0.64 0.67 0.44 0.59
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income........... (0.36) (0.37) (0.36) (0.37) (0.39)
Distributions from capital gains............... (0.14) (0.02) (0.02) (0.02) (0.03)
------- ------- ------- ------- -------
Total distributions.......................... (0.50) (0.39) (0.38) (0.39) (0.42)
------- ------- ------- ------- -------
Net asset value, end of year..................... $ 8.65 $ 8.95 $ 8.70 $ 8.41 $ 8.36
======= ======= ======= ======= =======
TOTAL RETURN..................................... 2.14% 7.45% 8.15% 5.30% 7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)............. $17,507 $17,669 $18,008 $17,744 $18,833
Ratio of expenses to average net assets:
Before expense waiver...................... 1.07% 1.01% -- -- --
After expense waiver....................... 1.00% 0.97% 1.14% 1.08% 1.06%
Ratio of net investment income to average net
assets:
Before expense waiver...................... 3.83% 4.13% -- -- --
After expense waiver....................... 3.90% 4.17% 4.23% 4.30% 4.79%
Portfolio turnover............................. 39.85% 24.83% 11.35% 14.75% 24.89%
</TABLE>
24
<PAGE> 25
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<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........................... 0.04 0.05 0.05 0.05 0.05
------- ------- ------- ------- -------
Total from investment operations.............. 0.04 0.05 0.05 0.05 0.05
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income............ (0.04) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Total distributions........................... (0.04) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Net asset value, end of year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN...................................... 4.54% 4.94% 4.63% 4.82% 4.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's).............. $63,022 $53,022 $60,674 $33,664 $36,415
Ratio of expenses to average net assets:
Before expense waiver....................... 0.82% 0.83% -- -- 0.97%
After expense waiver........................ 0.77% 0.81% 0.94% 0.90% 0.73%
Ratio of net investment income to average net
assets:
Before expense waiver....................... 4.39% 4.81% -- -- 4.56%
After expense waiver........................ 4.44% 4.83% 4.55% 4.74% 4.80%
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
SHORT-TERM GOVERNMENT LONG-TERM
BOND FUND BOND FUND
------------------------------------------ ------------------------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR YEAR 1/02/97* YEAR YEAR 1/02/97*
ENDED ENDED THROUGH ENDED ENDED THROUGH
6/30/99 6/30/98 6/30/97 6/30/99 6/30/98 6/30/97
---------- ---------- ---------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 10.11 $ 10.01 $ 10.00 $ 10.48 $ 10.04 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.51 0.54 0.20 0.56 0.56 0.20
Net gains on securities (both
realized and unrealized).......... (0.09) 0.10 0.01 (0.21) 0.45 0.04
------- ------- ------- ------- ------- -------
Total from investment
operations...................... 0.42 0.64 0.21 0.35 1.01 0.24
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income............................ (0.51) (0.54) (0.20) (0.56) (0.56) (0.20)
Distributions from capital gains.... (0.03) -- -- (0.26) (0.01) --
------- ------- ------- ------- ------- -------
Total distributions............... (0.54) (0.54) (0.20) (0.82) (0.57) (0.20)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 9.99 $ 10.11 $ 10.01 $ 10.01 $ 10.48 $ 10.04
======= ======= ======= ======= ======= =======
TOTAL RETURN.......................... 4.27% 6.50% 2.10% 3.29% 10.24% 2.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)............................ $29,738 $28,309 $24,285 $40,734 $38,800 $32,932
Ratio of expenses to average net
assets:
Before expense waiver and
reimbursement................. 0.90% 0.92% 3.88%** 1.09% 1.12% 3.82%**
After expense waiver and
reimbursement................. 0.83% 0.86% 0.76%** 0.85% 0.89% 0.78%**
Ratio of net investment income to
average net assets:
Before expense waiver and
reimbursement................. 4.93% 5.30% 1.78%** 5.08% 5.24% 2.11%**
After expense waiver and
reimbursement................. 5.00% 5.36% 4.90%** 5.32% 5.47% 5.15%**
Portfolio turnover.................. 29.24% 1.54% 0.00% 29.19% 25.11% 41.77%
</TABLE>
- ---------------
* Commencement of operations.
** Annualized
26
<PAGE> 27
IAA TRUST MUTUAL FUNDS
INVESTMENT APPLICATION
(PLEASE PRINT)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
[Picture of Calculator]
<S> <C> <C> <C>
TOTAL AMOUNT INVESTED $ (MINIMUM INITIAL INVESTMENT - $1,000) (RETIREMENT A/C MINIMUM - $100)
===========
ALLOCATIONS:
$ IN THE GROWTH FUND $ IN THE MONEY MARKET FUND
---------- ----------
$ IN THE ASSET ALLOCATION FUND $ IN THE SHORT-TERM GOVERNMENT BOND FUND
---------- ----------
$ IN THE TAX EXEMPT BOND FUND $ IN THE LONG-TERM BOND FUND
---------- ----------
FORM OF PAYMENT: [ ] BY CHECK(S) [ ] BY WIRE
TYPE OF PURCHASE: [ ] DIRECT - NAV OR [ ] THROUGH BROKER-DEALER
FARM BUREAU MEMBER MEMBERSHIP # MY DEALER PURCHASED SHARES OF
--- ------------ ---------
CUSTOMER OF IAA TRUST COMPANY THE FUND
--- -----------------
EMPLOYEE OF IAA OR AFFILIATE ON , 199 .
--- ---------------
- -----------------------------------------------------------------------------------------------------------------------------------
[Picture of File]
TYPE OF REGISTRATION
[ ] SINGLE/INDIVIDUAL [ ] JOINT (WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE NOTED)
----------------------------- ---------------- -------------------------------- ------------------
(FIRST NAME) (MIDDLE INITIAL) (LAST NAME) (SOCIAL SECURITY #)
----------------------------- ---------------- -------------------------------- ------------------
(FIRST NAME) (MIDDLE INITIAL) (LAST NAME) (SOCIAL SECURITY #)
[ ] GIFT TO MINORS
----------------------------------- ----------------------------------- ------------------
(NAME OF CUSTODIAN - ONE NAME ONLY) (AS CUSTODIAN FOR - ONE NAME ONLY) (MINOR'S SOCIAL SECURITY #)
UNDER THE (STATE'S) UNIFORM GIFT TO MINORS ACT
-------------------------
[ ] CORPORATIONS, PARTNERSHIPS, TRUSTS & OTHERS (COMPLETE CORPORATE RESOLUTIONS)
------------------------------------------------ -------------- --------------------- --------------
(NAME OF CORPORATION, PARTNERSHIP, TRUST, OTHER) (TAX I.D. #) NAME OF TRUSTEE(S) (DATE OF TRUST)
- -----------------------------------------------------------------------------------------------------------------------------------
[Picture of Mailbox]
MAILING ADDRESS OF RECORD & TELEPHONE NUMBER(S)
---------------------------------------- ---------------------------- ------- --------------
(STREET ADDRESS AND APT. NUMBER) (CITY) (STATE) (ZIP)
( ) --------------------- ( ) ---------------------
(RESIDENCE PHONE) (BUSINESS PHONE)
- -----------------------------------------------------------------------------------------------------------------------------------
[Picture of Money]
DISTRIBUTION OPTIONS (UNLESS INDICATED OTHERWISE, ALL DISTRIBUTIONS WILL BE REINVESTED)
[ ] AUTOMATIC COMPOUNDING [ ] CASH DIVIDENDS [ ] ALL CASH
-DIVIDENDS & CAPITAL GAINS -DIVIDENDS IN CASH, -DIVIDENDS AND CAPITAL GAINS
IN ADDITIONAL SHARES CAPITAL GAINS IN ADDITIONAL SHARES IN CASH
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C>
[Picture of Telephone]
TELEPHONE EXCHANGE & REDEMPTION OPTION
(NOTE - THIS OPTION WILL BE ASSIGNED TO YOUR ACCOUNT UNLESS YOU ELECT OTHERWISE BELOW!)
[ ] CHECK HERE IF YOU DO NOT WANT THIS OPTION MADE AVAILABLE.
[ ] I/WE AUTHORIZE FDISG TO HONOR TELEPHONE REDEMPTIONS (TO MY/OUR BANK) AND/OR EXCHANGES (BETWEEN MY/ OUR FUNDS) WITH
IDENTICAL REGISTRATIONS. NEITHER THE FUND(S) NOR FDISG WILL BE LIABLE FOR PROPERLY ACTING UPON TELEPHONE
INSTRUCTIONS BELIEVED TO BE GENUINE.
----------------------------------------------- ------------------------------------ ----------------
(NAME OF BANK) (CITY) (STATE)
----------------------------------------------- ----------------------------------------------------------------------
(ACCOUNT #) (BANK WIRE ROUTING # - 9 DIGITS) [ ] CHECKING A/C
[ ] SAVINGS A/C
[Check Mark] PLEASE REMEMBER ATTACH A VOIDED CHECK!
- ------------------------------------------------------------------------------------------------------------------------------------
[PICTURE]
REDEMPTIONS BY CHECK - AVAILABLE FOR THE MONEY MARKET FUND ONLY
[ ] CHECK HERE IF YOU WOULD LIKE TO RECEIVE A SUPPLY OF CHECKS TO WRITE REDEMPTIONS OUT OF YOUR ACCOUNT.
- ------------------------------------------------------------------------------------------------------------------------------------
[Left Arrow and Picture of Computer]
SYSTEMATIC WITHDRAWAL PLAN (MINIMUM ACCOUNT BALANCE - $5,000)
A CHECK WILL BE SENT EACH [ ] MONTH OR [ ] QUARTER IN THE AMOUNT OF $ TO YOUR ADDRESS UNLESS OTHERWISE NOTED.
-------
(MINIMUM $25)
- ------------------------------------------------------------------------------------------------------------------------------------
[Right Arrow and Picture of Computer]
SYSTEMATIC INVESTMENT PLAN
(NOTE - YOUR BANK MUST BE ABLE TO ACCEPT ACH TRANSACTIONS AND/OR BE A MEMBER OF AN ACH ASSOCIATION FOR YOU TO USE THIS
SERVICE.)
PLEASE INVEST: $ ON THE [ ] 10TH [ ] 15TH OR [ ] 20TH OF EACH MONTH IN SHARES AS FOLLOWS:
----------
($100 OR MORE)
$ IN THE GROWTH FUND $ IN THE MONEY MARKET FUND
---------- ----------
$ IN THE ASSET ALLOCATION FUND $ IN THE SHORT-TERM GOVERNMENT BOND FUND
---------- ----------
$ IN THE TAX EXEMPT BOND FUND $ IN THE LONG-TERM BOND FUND
---------- ----------
CHECK ONE: [ ] I AM IN THE PROCESS OF ESTABLISHING AN ACCOUNT [ ] MY ACCOUNT # IS
-------------
---------------------------------- ------------------------------- --------------------------------------------
(NAME OF BANK) (ACCOUNT NUMBER) (BRANCH LOCATION)
---------------------------------- ------------------ ------------
(CITY) (STATE) (ZIP)
AUTHORIZATION TO FIRST DATA INVESTOR SERVICES GROUP, INC.:
"I/WE UNDERSTAND THAT MY/OUR ACH DEBIT WILL BE DATED ON THE DAY OF EACH MONTH AS INDICATED ABOVE. I/WE AGREE THAT IF SUCH
DEBIT IS NOT HONORED UPON PRESENTATION, FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG") MAY DISCONTINUE THIS SERVICE AND
ANY SHARE PURCHASE MADE UPON DEPOSIT OF SUCH DEBIT MAY BE CANCELED. I/WE FURTHER AGREE THAT IF THE NET ASSET VALUE OF THE
SHARES PURCHASED WITH SUCH DEBIT IS LESS WHEN SAID PURCHASE IS CANCELLED THAN WHEN THE PURCHASE WAS MADE, FDISG SHALL BE
AUTHORIZED TO LIQUIDATE OTHER SHARES OR FRACTIONS THEREOF HELD IN MY/OUR ACCOUNT TO MAKE UP THE DEFICIENCY. THIS PLAN MAY BE
DISCONTINUED BY FDISG UPON 30 DAYS WRITTEN NOTICE OR AT ANY TIME BY ME/US BY WRITTEN NOTICE TO FDISG THAT IS RECEIVED NO
LATER THAN FIVE (5) BUSINESS DAYS PRIOR TO THE INVESTMENT DATE DESIGNATED ABOVE."
AUTHORIZATION TO BANK:
"AS A CONVENIENCE TO ME/US, PLEASE HONOR ACH DEBITS ON MY/OUR ACCOUNT DRAWN BY FDISG AND PAYABLE TO THE FUND(S) DESIGNATED
ABOVE. I/WE AGREE THAT YOUR RIGHTS WITH RESPECT TO EACH DEBIT SHALL BE THE SAME AS IF IT WERE A CHECK DRAWN UPON YOU AND
SIGNED PERSONALLY BY ME/US. THIS AUTHORITY SHALL REMAIN IN EFFECT UNTIL YOU RECEIVE WRITTEN NOTICE FROM ME/US CHANGING ITS
TERMS OR REVOKING IT, AND UNTIL YOU ACTUALLY RECEIVE SUCH NOTICE,
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
I/WE AGREE THAT YOU SHALL BE FULLY PROTECTED IN HONORING ANY SUCH DEBIT. I/WE FURTHER AGREE THAT IF ANY DEBIT SHALL BE
DISHONORED, WHETHER WITH OR WITHOUT CAUSE OR WHETHER INTENTIONALLY OR INADVERTENTLY, YOU SHALL BE UNDER NO LIABILITY
WHATSOEVER."
TO THE BANK NAMED ABOVE:
"SO THAT YOU MAY COMPLY WITH YOUR DEPOSITOR'S REQUEST AND AUTHORIZATION, IAA TRUST MUTUAL FUNDS AGREE AS FOLLOWS: (1) TO
INDEMNIFY AND HOLD YOU HARMLESS FROM ANY LOSS YOU MAY SUFFER ARISING OR IN CONNECTION WITH A PAYMENT BY YOU, OF A DEBIT DRAWN
BY FDISG TO THE ORDER OF SUCH FUND(S) DESIGNATED ON THE ACCOUNT OF YOUR DEPOSITOR(S) EXECUTING THE AUTHORIZATION INCLUDING
ANY COSTS OR EXPENSES REASONABLY INCURRED IN CONNECTION WITH SUCH LOSS. SUCH FUND(S) WILL NOT, HOWEVER, INDEMNIFY YOU AGAINST
ANY LOSS DUE TO YOUR PAYMENT OF ANY DEBIT GENERATED AGAINST INSUFFICIENT FUNDS; AND (2) TO REFUND TO YOU ANY AMOUNT
ERRONEOUSLY PAID BY YOU TO FDISG ON ANY SUCH DEBIT IF CLAIM FOR THE AMOUNT OF SUCH ERRONEOUS PAYMENT IS MADE BY YOU WITHIN
THREE (3) MONTHS OF THE DATE OF SUCH DEBIT ON WHICH ERRONEOUS PAYMENT WAS MADE."
[Check Mark] PLEASE REMEMBER TO ATTACH A VOIDED CHECK!
- ------------------------------------------------------------------------------------------------------------------------------------
[Picture of Feather & Inkwell]
SIGNATURE & CERTIFICATION - INCLUDING BACK-UP WITHHOLDING CERTIFICATION UNDER
THE PENALTIES OF PERJURY, I/WE CERTIFY THE FOLLOWING:
1. I/WE CERTIFY THAT THE NUMBER SHOWN ON THIS FORM IS MY/OUR CORRECT TAX IDENTIFICATION NUMBER.
2. I/WE AM NOT/ARE NOT SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST AND
DIVIDENDS, OR THE INTERNAL REVENUE SERVICE HAS NOTIFIED ME/US THAT I/WE AM/ARE NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
CITIZEN OF: [ ] UNITED STATES [ ] OTHER (PLEASE INDICATE)
-----------------------
"THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION
REQUIRED TO AVOID BACKUP WITHHOLDING."
--------------------------------------------------------------------------- ------------------------------
SIGNATURE [ ] OWNER [ ] CUSTODIAN [ ] TRUSTEE DATE
--------------------------------------------------------------------------- -------------------------------
SIGNATURE OF JOINT OWNER (IF APPLICABLE) DATE
[ ] CHECK BOX IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING.
- ------------------------------------------------------------------------------------------------------------------------------------
[Picture of Shaking Hands]
INVESTMENT DEALER INFORMATION
-------------------------------------------------------------------------------------------------
FIRM NAME REP. NAME & NUMBER AUTHORIZED SIGNATURE
-------------------------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
[COVER PAGE]
STATEMENT OF ADDITIONAL INFORMATION
October 28, 1999
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.
IAA Trust Money Market Fund
IAA Trust Short-Term Government Bond Fund
IAA Trust Long-Term Bond Fund
808 IAA Drive
Bloomington, IL 61702
(309) 557-3222
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the funds' Prospectus dated October 28, 1999, and is
incorporated by reference in its entirety into the Prospectus. The Statement of
Additional Information may be obtained without charge from a licensed
salesperson at IAA Trust Company, 808 IAA Drive, Bloomington, IL 61702, or by
contacting the funds' principal underwriter, First Data Distributors, Inc., it
is anticipated that on or about December 1, 1999 these services will be assumed
by Provident Distributors, Inc., which will provide substantially similar
distribution services. There will be no change to the address or phone number,
which shall remain as follows: P.O. Box 61503, King of Prussia, PA 19406-0903,
(800-245-2100) The Funds' most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents that are incorporated by reference in this
Statement of Additional Information.
<PAGE> 31
CONTENTS
PAGE
History of the Funds........................................................ 3
Description of Investments and Risks........................................ 3
Investment Restrictions..................................................... 7
Portfolio Turnover ......................................................... 9
Management of the Funds..................................................... 9
Control Persons and Principal Holders of Securities........................ 13
Investment Advisory and Other Services......................................14
Other Service Providers.....................................................16
Brokerage...................................................................17
Capital Stock...............................................................20
Purchases, Redemptions and Pricing of Shares................................20
Taxation of the Funds.......................................................23
Underwriter Compensation....................................................23
Calculation of Performance Data.............................................23
Financial Statements........................................................27
Appendix A - Descriptions of Securities Ratings.............................28
2
<PAGE> 32
HISTORY OF THE FUNDS
This Statement of Additional Information pertains to the following four separate
funds incorporated under the laws of the State of Maryland:
<TABLE>
<CAPTION>
NAME OF FUND DATE OF INCORPORATION
- ------------ ---------------------
<S> <C>
IAA Trust Growth Fund ("GROWTH FUND") August 5, 1965
IAA Trust Asset Allocation Fund ("ASSET ALLOCATION FUND") March 20, 1978
IAA Trust Tax Exempt Bond Fund ("TAX EXEMPT BOND FUND") March 20, 1978
IAA Trust Taxable Fixed Income Series Fund ("TAXABLE FIXED INCOME SERIES FUND") April 14, 1981
</TABLE>
In addition, the Taxable Fixed Income Series Fund consists of the following
three separate series or funds described in this Statement of Additional
Information:
IAA Trust Money Market Fund ("MONEY MARKET FUND")
IAA Trust Short-Term Government Bond Fund ("SHORT-TERM GOVERNMENT FUND")
IAA Trust Long-Term Bond Fund ("LONG-TERM BOND FUND")
CLASSIFICATION:
- ---------------
The funds are classified as open-end, management investment companies. The funds
are diversified, which means that, with respect to 75% (100% for the GROWTH FUND
and MONEY MARKET FUND) of its total assets, a fund will not invest more than 5%
of its assets in the securities of any single issuer (other than securities
issued by the U. S. government or its agencies or instrumentalities).
DESCRIPTION OF INVESTMENTS AND RISKS
The following section describes credit quality ratings applicable to various
types of investments of the funds. Under normal circumstances, the funds will
not purchase investments below these ratings. However, each fund may purchase
investments which, although not rated, are considered by management to have
investment quality comparable to the applicable minimum rating. In the event a
security held by the fund is downgraded below the minimum rating stated below,
the investment adviser shall promptly reassess the risks involved and take such
actions as it determines are in the best interests of the fund and its
shareholders.
CREDIT QUALITY:
Growth Fund: When investing in fixed income securities, the Growth Fund's
management intends to invest in those securities which are rated at the time of
purchase within the four highest grades assigned by Moody's Investors Service,
Inc. ("Moody's")(Aaa, Aa, A, or Baa) or Standard & Poor's ("S&P")(AAA, AA, A, or
BBB).
Asset Allocation Fund: The fund may invest in commercial paper rated in the top
two grades - "Prime-1" or "Prime-2" by Moody's or "A-1" or "A-2" by S&P; and
fixed income securities rated at the time of purchase within the four highest
grades assigned by Moody's (Aaa, Aa, A, or Baa) or S&P (AAA, AA, A, or BBB).
Tax Exempt Bond Fund: The fund's investments in municipal bonds will be those
which are rated at the time of purchase within the four highest grades assigned
by Moody's (Aaa, Aa, A, or Baa) or S&P (AAA, AA, A, or BBB). Temporary
investments made by the fund may consist of: (1) notes issued by or on behalf of
municipal issuers backed by the Federal Government; (2) notes of issuers having,
at the time of purchase, an outstanding issue of municipal bonds rated within
the four highest grades of Moody's or S&P; (3) municipal notes rated at the time
of purchase within the two highest grades assigned by Moody's (MIG-1 and MIG-2);
(4) obligations of the U.S. government, its agencies or instrumentalities; (5)
bonds, notes and certificates rated within the four highest grades of Moody's or
S&P; (6) commercial paper rated within the two highest grades assigned by
Moody's (P-1 or P-2) or by S&P (A-1 or A-2); and (7) debt securities (including
repurchase agreements) issued or guaranteed by domestic
3
<PAGE> 33
banks having investment quality, in management's opinion, comparable to debt
securities of the type described in category (5) above.
Money Market Fund: The certificates of deposit in which the fund may invest will
be of domestic banks in amounts (currently $100,000) that are fully insured by
the Federal Deposit Insurance Corporation (the "FDIC") and, for larger amounts,
bank certificates of deposit or bankers acceptances of domestic banks having
total assets in excess of $1 billion and which are members of the FDIC. The fund
may purchase negotiable certificates of deposit. Banks are subject to
extensive but different government regulations which may limit the amount and
types of their loans and the interest rates that may be charged. In addition,
the profitability of the banking industry is largely dependent upon the
availability and cost of funds to finance lending operations and the quality of
underlying bank assets. Commercial paper purchased by the fund will be rated in
the top grade by two nationally recognized statistical rating organizations
(NRSROs) one of which must be either Moody's Inc., or S&P. The fund may also
purchase negotiable certificates of deposit of savings and loan associations in
amounts (currently $100,000) that are fully insured by the FDIC.
Short-Term Government Bond Fund: The fund may invest up to 35% of its total
assets in cash, commercial paper and high-grade liquid debt securities,
including corporate debt instruments and privately issued mortgage-related and
asset-backed securities within the three highest grades assigned by S&P (AAA,
AA, A) or Moody's (Aaa, Aa, A ).
Long-Term Bond Fund: At least 80% of the fund's assets will consist of
obligations of corporations which, at the time of purchase by the fund are rated
at least "A-" by S&P or "A3" by Moody's, and of securities issued or guaranteed
as to principal and interest by the U.S. government or its agencies or
instrumentalities. Up to 20% of the fund's net assets may consist of commercial
paper of U.S. issuers rated "A-1" or "A-2" by S&P or "P-1" or "P-2" by Moody's,
certificates of deposit, time deposits and bankers' acceptances, and corporate
bonds which are rated in any category lower than "A-" by S&P and "A3" by
Moody's. When deemed necessary for temporary defensive purposes, the fund's
investment in commercial paper, certificates of deposit, time deposits and
bankers' acceptances may exceed 20% of its net assets, although the fund
currently does not intend to invest more than 5% of its assets in any one of
these types of instruments. Commercial paper and certificates of deposit could
be over 5%. Under no circumstances will the fund invest more than 20% of its net
assets in corporate bonds which are rated lower than "A-" by S&P and "A3" by
Moody's or are unrated. Obligations rated "BBB" by S&P and "Baa" by Moody's are
considered investment grade obligations which lack outstanding investment
characteristics and may have speculative characteristics as well.
DESCRIPTION OF INVESTMENTS
- --------------------------
Shareowners should understand that all investments involve risk and there can be
no guarantee against loss resulting from an investment in the funds. Unless
otherwise indicated, all percentage limitations governing the investments of the
funds apply only at the time of transaction. Under normal circumstances, only
the funds indicated will invest in each type of security.
FIXED-INCOME SECURITIES:
ALL FUNDS may invest in fixed-income securities. Even though interest-bearing
securities are investments which promise a stable stream of income, the prices
of such securities are affected by changes in interest rates. In general, bond
prices rise when interest rates fall and fall when interest rates rise. The
values of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. Once the rating of a
portfolio security has been changed, the fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security.
FOREIGN SECURITIES:
Since the MONEY MARKET FUND, the GROWTH FUND (up to 10%), the LONG-TERM BOND
FUND (up to 10%) and the ASSET ALLOCATION FUND (up to 10%) may invest in
securities of foreign issuers, these funds may be subject to investment risks
that are greater in some respects than those incurred by a portfolio which
invests only in securities of U.S. domestic issuers. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange
4
<PAGE> 34
controls, the possible seizure or nationalization of foreign deposits, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such securities.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES:
The LONG-TERM BOND FUND and ASSET ALLOCATION FUND may purchase securities on a
forward commitment or when-issued basis, which means that the price is fixed at
the time of commitment, but delivery and payment ordinarily take place a number
of days after the commitment to purchase. The funds will make commitments to
purchase such securities only with the intention of actually acquiring the
securities, but the fund may sell these securities before the settlement date if
it is deemed advisable. The funds will not accrue income in respect of a forward
commitment or when-issued security prior to its stated delivery date.
Securities purchased on a forward commitment or when-issued basis and the
securities held in the LONG-TERM BOND FUND portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when interest
rates decline and depreciating when interest rates rise) based upon the public?s
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a forward
commitment or when-issued basis may expose the fund to risk because they may
experience such fluctuations prior to their actual delivery. Purchasing
securities on a forward commitment or when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself. A
segregated account of the fund, consisting of cash, cash equivalents or U.S.
Government securities or other high quality liquid debt securities at least
equal at all times to the amount of the forward commitment or when-issued
securities, will be established and maintained at the fund's custodian bank.
Purchasing securities on a forward commitment or when-issued basis when the fund
is fully or almost fully invested may result in greater potential fluctuation in
the value of the fund's net assets and its net asset value per share.
GOVERNMENT SECURITIES:
ALL FUNDS may invest in certain securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities which includes U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Treasury bills have a maturity of one year or less. Treasury notes
have a maturity of one to ten years and Treasury bonds generally have maturities
of greater than ten years at the date of issuance. Some obligations issued or
guaranteed by U.S. government agencies and instrumentalities, such as Government
National Mortgage Association pass-through certificates, are supported by the
full faith and credit of the U.S. Treasury. Other obligations such as those of
the Federal Home Loan Bank, are supported only by the credit of the
instrumentalities. Government securities may have fixed, floating or variable
rates of interest. Principal and interest may fluctuate based on generally
recognized reference rates or the relationship of rates. No assurance can be
given that the U.S. government would provide financial support to U.S.
government instrumentalities as it is not obligated to do so by law. The fund
will invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
MORTGAGE-RELATED SECURITIES:
The SHORT-TERM GOVERNMENT BOND FUND and LONG-TERM BOND FUND may invest in
mortgage-related securities which are collateralized by pools of mortgage loans
assembled for sale to investors by various governmental agencies, such as
Government National Mortgage Association and government-related organizations
such as Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation, as well as by private issuers such as commercial banks, savings and
loan institutions, mortgage banks and private mortgage insurance companies, and
similar foreign entities. Mortgage-related securities are a form of derivative
securities. The mortgage-related securities in which the fund may invest include
those with fixed, floating and variable interest rates and those with interest
rates that change based on multiples of changes in interest rates. Although
certain mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If a mortgage-related security is purchased at a premium, all or
part of the premium may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of certain mortgage-backed securities are inversely affected by changes
in interest rates. However, although the value of a mortgage-related security
may decline when interest rates rise, the converse is not necessarily true,
since in periods of declining interest rates the mortgage underlying the
security are more likely to be prepaid. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on the
5
<PAGE> 35
underlying mortgage and, therefore, it is not possible to predict accurately the
security's return to the fund. The fund also may invest in collateralized
mortgage obligations structures on pools of mortgage pass-through certificates
or mortgage loans. The issuers of collateralized mortgage obligations typically
do not have assets other than those pledged to secure separately the
obligations. Holders of these obligations must rely principally on distributions
on the underlying mortgage-related securities and other collateral securing the
obligations for payments of principal and interest on the obligations. If the
collateral securing the obligations is insufficient to make payments on the
obligations, a holder could sustain a loss. Collateralized mortgage obligations
will be purchased only if rated in one of the two highest rating categories by
an NRSRO such as Moody's or S&P.
MUNICIPAL BONDS:
The TAX EXEMPT BOND FUND may purchase municipal bonds which are generally debt
obligations issued by states, territories and possessions of the United States
and the District of Columbia and their political subdivisions, agencies and
instrumentalities. They are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as:
airports, bridges, highways, hospitals, housing, mass transportation, schools,
streets, and water and sewer works. Other public purposes for which municipal
bonds may be issued include obtaining funds for general operating expenses and
obtaining funds to lend to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide: privately-operated
housing facilities, airports, mass transit, industrial port or parking
facilities, air or water pollution control facilities and certain facilities for
water supply, gas, electricity or sewage or solid waste disposal. Other types of
facilities and certain industrial development bonds, the proceeds of which are
used for the acquisition, construction, reconstruction or improvement of or to
provide equipment for privately-operated industrial or commercial facilities,
may qualify as municipal bonds, although current Federal tax laws place
substantial limitations on the size of such funds. Moreover, when an industrial
development bond is backed only by the assets and revenue of the
non-governmental user, then such non-governmental user is deemed to be the
issuer.
The two principal classifications of municipal bonds are "general obligation
bonds" and "revenue bonds". General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. The taxes or special assessments that can be levied for the payment of
debt service may be limited or unlimited as to rate or amount. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the insurer of such bonds. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications. The fund's portfolio may consist of
any combination of general obligation bonds, revenue bonds, and industrial
revenue bonds, and it can be expected that the ratios of such bonds will vary
from time to time.
Yields on municipal bonds are dependent on, among other things, general money
market conditions, conditions of the municipal bond market, size of a particular
offering, maturity of the obligation, the financial condition of the issuer, and
the rating of the issue. Additionally, the imposition of the fund's management
fee, as well as other operating expenses, will have the effect of reducing the
yield to investors. Proposals have been introduced periodically before Congress
to restrict or eliminate the Federal income tax exemption for interest on
municipal bonds. Similar proposals may be introduced in the future. If such a
proposal would be enacted, the availability of municipal bonds for investment by
the fund and the value of the fund's portfolio would be affected. In such event,
the fund would reevaluate its objective and policies and consider recommending
to its shareholders changes in the structure of the fund.
REPURCHASE AGREEMENTS:
ALL FUNDS may enter into repurchase agreements which are transactions in which
the funds purchase a security (usually a U.S. government obligation) and
simultaneously obtain the commitment of the seller to repurchase the security at
an agreed upon price on an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. Such transactions afford an opportunity for
a fund to earn a return on cash which is only temporarily available. The fund's
risk is limited to the ability of the seller to pay the agreed upon sum upon the
delivery date, but the seller's obligation is in effect secured by the value of
the underlying
6
<PAGE> 36
security. The funds will only invest in repurchase agreements of domestic banks
maturing in seven days or less and will not invest in repurchase agreements of
broker-dealers.
If the seller of a repurchase agreement should default on its obligation to
repurchase the securities, a fund may experience delays or difficulties in
exercising its rights upon the securities held as collateral and might incur a
loss if the value of the securities should decline. A fund also might incur
disposition costs in connection with liquidating the securities. While the funds
acknowledge these risks, it is expected that they can be controlled through
careful monitoring procedures offered by the adviser.
RESTRICTED SECURITIES:
The funds will not make any investment in restricted securities.
SECURITIES OF OTHER INVESTMENT COMPANIES:
ALL FUNDS may purchase or acquire securities of other investment companies
(including, without limitation, unit investment trusts) on the open market if
immediately after such purchase or acquisition the fund would not own, in the
aggregate, (1) more than 3% of the total outstanding voting stock of such other
investment company; (2) securities issued by such other investment company
having an aggregate value in excess of 5% of the value of the fund's total
assets; or (3) securities issued by such other investment company and all other
investment companies having an aggregate value in excess of 10% of the value of
the fund's total assets. By investing in another registered investment company,
there may be a duplication in fees and expenses.
NORMAL AND TEMPORARY DEFENSIVE CASH POSITIONS
ALL FUNDS invest a portion of their assets in cash deposits or short-term bank
deposits, shares of money market funds and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, or banker's acceptances. During periods of unusual
economic or market conditions or for temporary defensive purposes, each fund may
increase its investment in cash or related investments.
ZERO COUPON SECURITIES:
The LONG-TERM BOND FUND may invest in zero coupon U.S. Government securities,
which are U.S. Government obligations that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The fund
also may invest in zero coupon securities issued by corporations and financial
institutions and by foreign governments where such securities are denominated in
U.S. dollars. A zero coupon security pays no interest to its holder during its
life and is sold at a discount to its face value at maturity. The amount of the
discount fluctuates with the market price of the security. The market prices of
zero coupon securities generally are more volatile than the market price of
securities that pay interest periodically and are likely to respond to a greater
degree to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualities.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
- -----------------------------------
The following investment restrictions are considered fundamental which means
that they may only be changed by the vote of a majority of a fund's outstanding
shares, which as used herein and in the Prospectus, means the lesser of: (1) 67%
of such fund's outstanding shares present at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of such fund's outstanding shares.
RESTRICTIONS APPLICABLE TO ALL FUNDS:
- - No fund will authorize or issue any class of senior securities.
- - The GROWTH FUND, the ASSET ALLOCATION FUND, the TAX EXEMPT BOND FUND, the
SHORT-TERM GOVERNMENT BOND FUND and the LONG-TERM BOND FUND each will not
borrow money, except as a temporary measure for extraordinary or emergency
purposes. Such borrowings will only be from a bank in an amount not to
exceed 10% of the value of the fund's total assets, nor 5% of the value of
such fund's total assets if such debt matures more than sixty days after
issuance.
7
<PAGE> 37
- - The MONEY MARKET FUND will not borrow money, except as a temporary measure
for extraordinary or emergency purposes, and then only from a bank in an
amount not to exceed 10% of the value of the fund's total assets. The MONEY
MARKET FUND will not purchase securities at any time a loan to such fund is
outstanding (investments in repurchase agreements are not subject to these
restrictions).
- - No fund will underwrite or participate in the underwriting of securities of
other issuers.
- - No fund will purchase or sell real estate, commodities, or commodity
contracts.
- - No fund will make loans, except through the purchase of publicly
distributed debt securities in accordance with each fund's investment
policies. Investments in repurchase agreements shall not be considered a
loan for purposes of this restriction.
RESTRICTIONS APPLICABLE TO CERTAIN FUNDS:
The GROWTH FUND will not:
- - Invest more than 5% of its assets in the securities of any one issuer.
- - Purchase or hold as much as 10% of any class of outstanding equity
securities or as much as 10% of the outstanding voting securities of any
one issuer.
- - Concentrate the investments of more than 25% of the total value of its
assets in any single industry.
The ASSET ALLOCATION FUND, the SHORT-TERM GOVERNMENT BOND FUND and the
LONG-TERM BOND FUND each will not:
- - With respect to 75% of its assets, invest more than 5% of its assets in the
securities of any one issuer.
- - Purchase or hold as much as 10% of any class of outstanding equity
securities or as much as 10% of the outstanding voting securities of any
one issuer.
- - Concentrate the investments of more than 25% of the total value of its
assets in any single industry.
The TAX EXEMPT BOND FUND will not:
- - With respect to 75% of its assets, invest more than 5% of its assets in the
securities of any one issuer. The term ?issuer? as used by this fund will
mean any one state municipality, agency, authority, instrumentality or
other entity which is directly responsible for the payment of debt service
on its outstanding obligations.
- - With respect to non-municipal bond investments, concentrate investments
of more than 25% of the total value of its assets in any single
industry, except that there is no limitation with regard to investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The MONEY MARKET FUND will not:
- - Invest more than 10% of its total assets in repurchase agreements maturing
in more than seven days or in non-negotiable certificates of deposit.
[However, as described in "Description of Investments and Risks" above,
under normal circumstances, the fund will not invest in repurchase
agreements maturing in more than seven days and will not invest in
illiquid, restricted securities (including non-negotiable certificates of
deposit.]
- - Invest more than 5% of its total assets in the securities of any one
issuer.
- - Concentrate the investments of more than 25% of the total value of its
assets in any single industry.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The following restrictions are imposed by the management of the funds, and may
be modified by the Board of Directors of the funds without shareholder approval.
All restrictions listed in this Statement of Additional Information other than
those listed above as fundamental investment restrictions are non-fundamental.
In addition to other restrictions previously noted, each fund will not:
- - Invest in companies for purposes of exercising control or management.
- - Buy from or sell portfolio securities to any of its officers, directors,
employees, adviser or underwriter as principals except as otherwise
approved by the Board of Directors and in accordance with Section 17 of the
Investment Company Act of 1940.
- - Purchase securities on margin, effect a short sale of any security,
purchase or sell puts, calls, straddles or spreads, or participate in any
joint or joint and several trading accounts.
8
<PAGE> 38
- - Purchase or retain securities of any company if persons affiliated with
such fund or its adviser, as a group, beneficially own more than 1% of the
securities of such a company.
- - In any case, borrow money in an amount which exceeds 5% of the value of its
total assets and will not purchase securities at any time a loan to such
fund is outstanding (investment in repurchase agreements will not be
considered to be loans for purposes of this restriction).
INVESTMENT COMPANY ACT RESTRICTIONS
- -----------------------------------
The following restrictions are imposed by the Investment Company Act of 1940.
Each fund will not:
- - Purchase or acquire securities of another investment company except by
purchase on the open market at regular brokerage rates (other than when
such purchase or acquisition is part of a plan of merger or consolidation)
if immediately after such purchase or acquisition, such fund would own in
the aggregate: (1) more than 3% of the total outstanding voting stock of
such other investment company; (2) securities issued by such other
investment company having an aggregate value in excess of 5% of the value
of such fund's total assets; or (3) securities issued by such other
investment company and all other investment companies having an aggregate
value in excess of 10% of the value of such fund's total assets.
Any investment policy or restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities and
results therefrom.
PORTFOLIO TURNOVER
The table below indicates each fund's portfolio turnover (with the exception of
the MONEY MARKET FUND) for the two most recently completed fiscal years. The
funds do not anticipate significant variations in portfolio turnover for the
fiscal year end June 30, 2000.
<TABLE>
<CAPTION>
FUND NAME FISCAL YEAR ENDED 6/30/97 FISCAL YEAR ENDED 6/30/98 FISCAL YEAR ENDED 6/30/99
- --------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
GROWTH FUND 30.74% 33.06% 31.88%
ASSET ALLOCATION FUND 19.25% 20.07% 33.91%
TAX EXEMPT BOND FUND 11.35% 24.83% 39.85%
SHORT-TERM GOVERNMENT BOND FUND 00.0%* 1.54% 29.24%
LONG-TERM BOND FUND 41.77%* 25.11% 29.19%
* For the period beginning January 2, 1997 (commencement of operations) through
June 30, 1997.
</TABLE>
A portfolio turnover of 100% indicates that the equivalent of all of the fund's
assets have been sold and reinvested in a year. The amount of brokerage
commissions will tend to increase as the level of portfolio activity increases.
High portfolio turnover may result in the realization of substantial net capital
gains or losses.
MANAGEMENT OF THE FUNDS
THE BOARD OF DIRECTORS
The operations of each fund are under the direction of a Board of Directors who
have been elected by the shareholders of each fund. The Board establishes each
fund's policies and oversees and reviews the management of each fund. The Board
meets regularly to review the activities of the officers, who are responsible
for day-to-day operations of the funds. To assist the directors and officers in
carrying out their duties and responsibilities, the funds have employed IAA
Trust Company as their investment adviser. The Board reviews the various
services provided by the adviser to ensure that each fund's general investment
policies and programs are being carried out and administrative services are
being provided to the funds in a satisfactory manner.
9
<PAGE> 39
The directors and executive officers of the funds and their principal
occupations during the past five years are set forth below. An asterisk
indicates a director who may be deemed to be an "interested person" (as that
term is defined in the Investment Company Act of 1940) of the funds. All
directors classified by the funds as "interested directors" also serve as
directors of Illinois Agricultural Association ("IAA"), Illinois Agricultural
Holding Co. ("IAHC"), Country Life Insurance Company ("CLIC"), Country
Mutual Insurance Company ("CMIC") and IAA Trust Company ("IAATC"). IAHC owns
99.9% of the outstanding stock of CLIC and 95% of the outstanding stock of
IAATC. Ronald R. Warfield and Rollie D. Moore also serve as directors of IAATC
and as President and Vice President, respectively, of CLIC, IAATC, IAHC and IAA.
<TABLE>
<CAPTION>
POSITIONS HELD
NAME AND AGE WITH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------ -------------- ----------------------------------------------
<S> <C> <C>
Ronald R. Warfield * (55) Director and Director and President: Illinois Agricultural Association,
President since 1994 Illinois Agricultural Holding Co., CC Services, Inc. (3),
Country Capital Management Company, Country Casualty
Insurance Company, Country Investors Life Assurance Company,
Country Life Insurance Company, Country Mutual Insurance
Company, and Country Preferred Insurance Company, 1993 to
date; Country Medical Plans, Inc., 1996 to date; Director:
AgriVisor Services, Inc. and IAA Trust Company, 1993 to
date; Coordinating Committee Member of GROWMARK, Inc. and
Chairman, Board of Trustees, IAA Foundation (2), 1993 to
date; President: AgriVisor Services, Inc., and IAA Trust
Company, and Illinois Agricultural Service Company, 1994 to
date; Chairman of the Board: Country Capital, Director:
Illinois Agricultural Service Company, 1994 to date;
Management Company, 1994 to date; Director: American Farm
Bureau Federation and certain of its affiliated companies,
1996 to date. Member of the USDA National Agricultural
Research, Extension, Education & Economics Advisory Board,
1996 to date. Director of Bank of Gibson City, 1989 to
1994; Director: IAA Communications Company, 1993-96;
President, IAA Communications Company 1994-96. Farmer.
Herbert G. Allen (69) Director since 1987 Farmer
Charlot R. Cole (58) Director since 1996 Property Developer, 1979 to date; Member Macoupin-Greene
County Cooperation Extension Council (formerly Macoupin
County Cooperative Extension Council), 1992 to date and
President, 1995 to date; Secretary/Treasurer, Cole Farms,
Inc., 1993 to date. Farmer.
Nancy J. Erickson (42) Director since 1995 President of McHatton Farm Management, Inc., 1981 to date.
Farmer.
</TABLE>
10
<PAGE> 40
<TABLE>
<CAPTION>
POSITIONS HELD
NAME AND AGE WITH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------ -------------- ----------------------------------------------
<S> <C> <C>
Ailene Miller (73) Director since 1991 McLean County (Illinois) Board Member, 1986 to date; Member
of IAA Foundation Trustee Emeritus, 1988 to date.
Rollie D. Moore * (50) Director Director and Vice President: Illinois Agricultural
and Vice President Association, Illinois Agricultural Holding Co., CC Services,
since 1994 Inc. (3), Country Capital Management Company, Country
Casualty Insurance Company, Country Investors Life Assurance
Company, Country Life Insurance Company, Country Mutual
Insurance Company, and Country Preferred Insurance Company,
1993 to date; Director: IAA Trust Company, 1993 to date; Vice
Chairman, Board of Trustees, IAA Foundation, 1993 to date;
Vice President: IAA Trust Company, 1994 to date; Vice
President and Director: Country Medical Plans, Inc., 1996 to
date; Director: AgriVisor Services, Inc., 1994 to date; Vice
President and Director: Illinois Agricultural Service
Company, 1994 to date; Director, IAA Communications Company,
1993 to 1996; Vice President, IAA Communications Company,
1994 to 1996; Coordinating Committee Member of GROWMARK,
Inc., 1994 to date. Member of Broadcast Partners Steering
Committee, 1996 to date; Farmer.
Bruce D. Finks (46) Vice President since Vice President - Investments, IAA Trust Company, 1995 to date
1996 and Director of Investments, 1995 to date; Head of the
committee of portfolio managers of the Growth Fund, 1998 to
present; Primary portfolio manager of the Growth Fund from
1994 to 1996; Portfolio manager, 1992 to 1994.
Richard M. Miller (61) Vice President since Senior Vice President and Senior Trust Officer: IAA Trust
1992 Company, 1991 to date (prior thereto Senior Vice President
and Trust Officer).
Duane L. Miller (62) Vice President since President, Director and Chairman of the Board of Directors:
1998 Middlesex Mutual Assurance Company and Midfield Corporation,
1998 to date. Chief Executive Officer (Executive Vice
President and CEO, 1996 to 1998): Country Medical Plans, Inc.,
1998 to date. Chief Executive Officer (Executive Vice President
& CEO, 1994 to 1998): CC Services, Inc., Country Casualty
Insurance Company, Country Investors Life Assurance Company. Country
Life Insurance Company, Country Mutual Insurance Company, and
Country Preferred Insurance Company, 1998 to date. Chief
Executive Officer: IAA Trust Company, 1997 to date. Chief Executive
Officer (Executive Vice President, 1982 to 1994 and Director, 1972
to 1982): Country Capital Management Company, 1994 to date.
Robert W. Rush, Jr. (54) Executive Vice Executive Vice President & Trust Officer: IAA Trust Company,
President 1999 to date: Chairman, President & CEO: Bank One Illinois, 1972
since 1999 to 1999.
David A. Magers (44) Treasurer since 1999 Controller: Illinois Agricultural Association, Illinois Agricultural
Holding Co., and Illinois Agricultural Service Company, 1988 to date.
AgriVisor Services, Inc., 1994 to date; Assistant Secretary and Director:
Illinois Agricultural Service Company, 1998 to date. Vice President-Finance
& Treasurer: Illinois Agricultural Association, AgriVisor Services, Inc., CC
Services, Inc., Country Capital Management Company, County Casualty
Insurance Company, Country Investors Life Assurance Company, Country Life
Insurance Company. Country Medical Plans, Inc. Country Mutual Insurance
Company, and Country Preferred Insurance Company, 1998 to date. Assistant
Treasurer: Association of Farm Bureaus in Illinois, The Association of
Illinois Agricultural Associations, Middlesex Mutual Assurance Company, and
Midfield Corporation, 1998 to date; Producers Alliance, Inc., 1999 to date.
Treasurer: IAA Trust Company, Illinois Agricultural Auditing Association,
Illinois Agricultural Holding Co., Illinois Agricultural Service Company,
and Mid-America Brokerage, Inc. (Oklahoma), 1998 to date.
Wendell L. Shauman (54) Director Director: Illinois Agricultural Association, Illinois Agricultural
since 1999 Holding Co., CC Services, Inc., Country Casualty Insurance Company,
Country Investors Life Assurance Company, Country Life Insurance
Company, Country Mutual Insurance Company, and Country Preferred
Insurance Company, 1992 to date; Country Medical Plans, Inc., 1996 to
date; IAA Trust Company, 1998 to date.
</TABLE>
11
<PAGE> 41
<TABLE>
<CAPTION>
POSITIONS HELD
NAME AND AGE WITH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------ -------------- ----------------------------------------------
<S> <C> <C>
Company, Country Mutual Insurance Company and Country
Preferred Insurance Company, 1974 to date. Chief Executive
Officer of IAA Trust Company, 1997 to date.
Paul M. Harmon (57) Secretary since 1995 General Counsel: Illinois Agricultural Association and
and General Counsel affiliated companies, 1996 to date. Deputy General Counsel:
since 1996 Illinois Agricultural Association and affiliated companies,
1991 to 1996. General Counsel; Country Capital Management Company,
1997 to date; Secretary: Country Capital Management Company,
1995 to date; General Counsel, Secretary and Director:
Middlesex Mutual Assurance Company and Midfield Corporation,
1998 to date. Secretary: Illinois Agricultural Association and
affiliated companies, 1998 to date; Assistant Secretary: Interstate
Producers Livestock Association, 1998 to date; and Director:
Illinois Agricultural Service Company, 1997 to date.
Richard F. Day (59) Controller since 1992 Controller, IAA Trust Company, 1974 to date.
<FN>
(1) IAA Trust Taxable Fixed Income Series Fund, Inc. was formerly IAA Trust Money Market Fund, Inc.
(2) The mailing address for all officers and directors of the funds is c/o IAA Trust Company, 808 IAA Drive,
Bloomington, Illinois 61702.
(3) CC Services, Inc. was organized to provide insurance brokerage,
administrative, marketing and other services to the insurance companies
affiliated with the Illinois Agricultural Association.
</TABLE>
The directors of the funds receive a directors fee of $200 for the GROWTH
FUND and $50 for each of the ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, MONEY
MARKET FUND, SHORT-TERM GOVERNMENT BOND FUND and LONG-TERM BOND FUND. This fee
is paid for each day or a portion thereof spent in a meeting or meetings of the
Board of Directors or while engaged in special work authorized by the President
of the funds or the Board of Directors. The directors may also be reimbursed for
travel expenses for each meeting of the Board of Directors attended, and while
engaged in special work authorized by the President of the funds or by the Board
of Directors. Directors and officers receive no other compensation from the
funds for their services. The funds do not provide any pension or retirement
benefits for the directors. During the fiscal year ended June 30, 1999, the
aggregate amount of fees and expenses paid to directors and officers was $9,623.
Ms. Miller and Messrs. Warfield and Allen serve as members of the
Executive Committee. Mr. Warfield is Chairman of the Executive Committee. Ms.
Cole, Erickson and Miller and Mr. Allen are members of the Nominating Committee.
12
<PAGE> 42
The following table provides information regarding the compensation paid
by the funds to the directors for their services during the fiscal year ended
June 30, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
TOTAL COMPENSATION FROM
NAME FUNDS AND FUND COMPLEX PAID TO DIRECTORS
- ----------------------------------------------------------------------------------------
<S> <C>
Ronald R. Warfield $ 0
Herbert G. Allen $1,400
Charlot R. Cole $1,400
Nancy J. Erickson $1,050
William E. Klein, Sr. $1,400
Aileen Miller $1,400
Rollie D. Moore $1,400
- -------------------------------- ----- -------------------------------------------------
</TABLE>
CONTROL PERSONS
AND PRINCIPAL HOLDERS OF SECURITIES
Ownership of 25% or more of a voting security is deemed "control" as defined
in the Investment Company Act of 1940. So long as 25% of a fund is so owned,
such owners will be presumed to be in control of such fund for purposes of
voting on certain matters submitted to a vote of shareholders. Principal
holders own of record or beneficially 5% or more of a fund's outstanding
voting securities.
CONTROL PERSONS
As of September 30, 1999, IAA Trust Company owned of record the following
shares (and corresponding percentage) of the issued and outstanding capital
stock of each fund:
<TABLE>
<CAPTION>
FUND NAME NUMBER OF SHARES PERCENTAGE
--------- ---------------- ----------
<S> <C> <C>
GROWTH FUND 3,835,018.409 54.29%
ASSET ALLOCATION FUND 1,078,359.071 79.67%
TAX EXEMPT BOND FUND 327,986.054 16.24%
MONEY MARKET FUND 53,170,159.55 88.07%
SHORT-TERM GOVERNMENT
BOND FUND 5,134,489.23 99.03%
LONG-TERM BOND FUND 4,048,302.724 99.87%
</TABLE>
IAA Trust Company's address is 808 IAA Drive, Bloomington, Illinois. IAA
Trust Company is organized under the laws of the State of Illinois. Illinois
Agricultural Holding Co. owns 95% of the outstanding voting securities of IAA
Trust Company.
PRINCIPAL HOLDERS
As of September 30, 1999, Country Life Insurance Company owned 403,006,449
shares or 5.07% of the outstanding shares of the GROWTH FUND, and 96,227.589
shares or 7.11% of the outstanding shares of the ASSET ALLOCATION FUND.
13
<PAGE> 43
Substantially all of the issued and outstanding voting securities of Country
Life Insurance Company are owned by Illinois Agricultural Holding Co. and
approximately 98% of the outstanding voting securities of this latter company
are owned by Illinois Agricultural Association. Each of these companies is
incorporated in Illinois. The home office address for Illinois Agricultural
Holding Co., Illinois Agricultural Association and Country Life Insurance
Company is 1701 Towanda Avenue, Bloomington, Illinois.
MANAGEMENT OWNERSHIP
--------------------
As of September 30, 1999, the officers and directors of the funds as a group
owned less than 1% of the issued and outstanding capital stock of any fund.
INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER
----------------------
The funds' investment adviser is IAA Trust Company. The funds and the adviser
have entered into investment advisory agreements with respect to each fund
which are renewable annually by the Board of Directors or by votes of a
majority of each fund's outstanding voting securities. Any such renewals must
also be approved by the votes of a majority of each fund's directors who are
not parties to the agreements or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approvals.
The agreements may be terminated without penalty at any time by the Board of
Directors of a fund, by votes of the shareholders or by the adviser upon
sixty days written notice. The agreements terminate automatically if
assigned.
For providing investment advisory services and assuming certain fund
expenses, each fund pays the adviser annual fees that are based on each
fund's average daily net assets. Such fees are computed on a daily basis and
paid monthly. The table below lists these annual fees as well as the total
dollar amounts that each fund paid the adviser for the last three fiscal
years.
<TABLE>
<CAPTION>
-------------------------- --------------- ----------------------------------------------------------------
FEES PAID
----------------------------------------------------------------
ADVISORY
FUND NAME FEE YEAR END 6/30/97 YEAR END 6/30/98 YEAR END 6/30/99
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH FUND 0.75% $709,406 $ 1,154,966 $1,187,306
ASSET ALLOCATION FUND 0.75% $ 85,470 $ 123,435 $ 156,476
TAX EXEMPT BOND FUND 0.50% $ 89,246 $ 89,775 $ 88,113
MONEY MARKET FUND 0.50% $193,648 $ 292,932 $ 306,970
SHORT-TERM GOVERNMENT
BOND FUND 0.50% $ 6,982* $ 133,520 $ 144,676*
LONG-TERM BOND FUND 0.75% $ 11,550* $ 275,862 $ 296,621*
------------------------------------------------------------------------------------------------------------
* For the SHORT-TERM GOVERNMENT BOND FUND and LONG-TERM BOND FUND, advisory fees for the fiscal year ended
6/30/97 are for the period January 2, 1997 (commencement of operations) through 6/30/97. For this same
period, The Advisor voluntarily waived fees and reimbursed expenses for the SHORT-TERM GOVERNMENT BOND FUND
and LONG-TERM BOND FUND totaling $32,422 and $35,805, respectively. For the period ended 6/30/98, the
Advisor voluntarily waived fees and reimbursed expenses for the SHORT-
</TABLE>
14
<PAGE> 44
TERM GOVERNMENT BOND FUND and LONG-TERM BOND FUND totaling $10,437 and
$75,493, respectively. For the period ended, 6/30/99, the SHORT-TERM
GOVERNMENT BOND FUND and LONG-TERM BOND FUND waived advisory fees and
reimbursement expenses totaling $3,969 and $77,861, respectively.
CONTROLLING SHAREHOLDERS
------------------------
Illinois Agricultural Holding Co. owns 95% of the outstanding voting
securities of IAA Trust Company, the investment adviser for the funds.
Approximately 98% of the issued and outstanding voting stock of the Illinois
Agricultural Holding Co. is owned by the Illinois Agricultural Association,
an Illinois not-for-profit membership corporation organized to promote the
interest of agriculture.
FUND OFFICERS AFFILIATED WITH ADVISER
-------------------------------------
The following persons who are officers and/or directors of the funds also
hold positions with the adviser as indicated: Ronald R. Warfield, Director
and President; Duane L. Miller, Chief Executive Officer; Bruce D. Finks, Vice
President - Investments; Richard M. Miller, Senior Vice President and Senior
Trust Officer; Rollie D. Moore, Director and Vice President; Paul M. Harmon,
Secretary and General Counsel; David A. Magers, Vice President - Treasurer;
Richard F. Day, Controller; Robert W. Rush Jr., Executive Vice President;
Wendell L. Shauman - Director
THE DISTRIBUTOR
---------------
First Data Distributors Inc. FDDI, P.O. Box 61503, King of Prussia, PA
19406-0903 is the primary and exclusive distributor of the funds' shares,
pursuant to Underwriting Agreements with each fund. As distributor, FDDI will
use its best efforts to effect such distributions, but it is required to take
and pay for only such securities as it sells to the public. Commissions for
the sale of shares received by FDDI do not represent compensation paid by the
funds to FDDI and are not expenses of the funds. Effective on or about
December 1, 1999 it is anticipated that these services will be assumed by
Provident Distributors, Inc. Each fund has entered into Underwriting
Agreements with FDDI that are identical in terms and conditions as those with
FDDI. The address will remain the same as above.
RULE 12b-1 PLANS
----------------
The shareholders of the GROWTH FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND
FUND, SHORT-TERM GOVERNMENT BOND FUND, and LONG-TERM BOND FUND have adopted
respective Plans of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940. All payments made pursuant to the plans shall be made
for the purpose of promoting the sale of shares or other such
distribution-related expenses, including any distribution or service fees
paid to securities dealers, investment advisers, financial planners, and
others, who have executed a distribution agreement with the distributor.
The plans are considered reimbursement plans because the funds reimburse the
distributor for actual distribution and shareholder servicing expenses
incurred by the distributor not exceeding, on an annual basis, 0.25% of each
fund's average daily net assets. Because the funds reimburse the distributor
only for actual expenditures, the distributor realizes no profit from the
plans. The plans may be terminated at any time and the funds shall have no
liability for expenses that were not reimbursed as of the date of
termination. The funds do not participate in any joint distribution
activities and fees paid under the plans may not be used to finance the
distribution of the shares of another fund. Any unreimbursed expenses
incurred under the plans will not be carried over to future years.
FDDI was reimbursed $96,309 by the GROWTH FUND during the fiscal year ended
June 30, 1999, pursuant to its Plan. The principal types of activities for
which payments were made include: compensation to dealers - $8,676,
compensation to distributor - $1,981, printing costs - $24,352 and
advertising expenses - $1,036.
FDDI was reimbursed $6,869 by the ASSET ALLOCATION FUND during the fiscal
year ended June 30, 1999, pursuant to its Plan. The principal types of
activities for which payments were made include: compensation to dealers -
$875, compensation to distributor - $1,408, printing costs - $3,441 and
advertising expenses - $140.
FDDI was reimbursed $9,474 by the TAX EXEMPT BOND FUND during the fiscal year
ended June 30, 1999, pursuant to its Plan. The principal types of activities
for which payments were made include: compensation to dealers - $2,524,
compensation to distributor - $1,406, printing costs - $3,088 and advertising
expenses - $137.
FDDI was reimbursed $3,760 by the SHORT-TERM GOVERNMENT BOND FUND during the
fiscal year ended June 30, 1999, pursuant to its Plan. The principal types of
activities for which payments were made include: compensation to dealers -
$10, compensation to distributor - $1,458, printing costs - $5,012 and
advertising expenses - $222.
15
<PAGE> 45
FDDI was reimbursed $5,076 by the LONG-TERM BOND FUND during the fiscal year
ended June 30, 1999, pursuant to its Plan. The principal types of activities
for which payments were made include: compensation to dealers - $12,137.14
compensation to distributor - $1,558.09 printing costs - $6,683.46 and
advertising expenses - $299.06.
EXPENSES
--------
Each fund pays all expenses not assumed by IAA Trust Company, including, but
are not limited to: directors' fees, audit fees, legal fees, interest
expenses, brokerage commissions, registration and notification of shares for
sale with the SEC and with various state securities commissions, taxes, cost
of insurance, fees of the funds' administrator, transfer agent or other
service providers, costs of obtaining quotations of portfolio securities,
pricing of fund shares and payments under its respective distribution plans.
OTHER SERVICE PROVIDERS
THE TRANSFER AGENT
------------------
First Data Investor Services Group, Inc. a wholly owned subsidiary of First
Data Corporation, which has its principal business address at 4400 Computer
Drive, Westborough, MA 01581, provides transfer agency and dividend
disbursing agent services for the funds. As part of these services, First
Data Investor Services Group will maintain records pertaining to the sale,
redemption, and transfer of fund shares and will distribute each fund's cash
dividends to shareholders. For such services, each fund will pay First Data
Investor Services Group fees which management believes are comparable to fees
charged by others who perform such transfer agency services.
The GROWTH FUND paid transfer agent fees totaling $74,484, $75,623, and
$71,863 respectively, for the fiscal years ended June 30, 1997, 1998 and
1999. The ASSET ALLOCATION FUND paid transfer agent fees totaling $9,043,
$9,262, and $9,800 respectively, for the fiscal years ended June 30, 1997,
1998 and 1999. The TAX EXEMPT BOND FUND paid transfer agent fees totaling
$13,220, $13,418, and $11,983 respectively, for the fiscal years ended June
30, 1997, 1998 and 1999. The MONEY MARKET FUND paid transfer agent fees
totaling $42,866, $39,680, and $38,008 respectively, for the fiscal years
ended June 30, 1997, 1998 and 1999. For the period of January 2, 1997
(commencement of operations) to June 30, 1997, fees totaling $12,056 for
transfer agent services were accrued for the SHORT-TERM GOVERNMENT BOND FUND,
but the service provider voluntarily agreed to waive fees totaling $4,500.
For the fiscal year ended June 30, 1998 and 1999 transfer agent fees totaled
$24,899 and $25,047. For the period of January 2, 1997 (commencement of
operations) to June 30, 1997, fees totaling $12,058 for transfer agent
services were accrued for the LONG-TERM BOND FUND, but the service provider
voluntarily agreed to waive fees totaling $4,500. For the fiscal year ended
June 30, 1998 and 1999 transfer agent fees totaled $24,901 and $25,139
respectively.
ACCOUNTING SERVICES
-------------------
The funds have entered into Accounting Services Agreements with First Data
Investor Services Group. These agreements require First Data Investor
Services Group to calculate each fund's net asset value in accordance with
the provisions of the funds' current Prospectus and to prepare for fund
approval and use various government reports, tax returns, and proxy
materials. Each fund will pay a minimum fee of $25,000 for these services and
additional fees based on declining percentages of their respective average
net assets in excess of $10,000,000. Management believes that the fees for
these services are comparable to those charged by others who perform such
accounting services.
The GROWTH FUND paid accounting fees of $53,396, $61,098, and $64,830
respectively, for the fiscal years ended June 30, 1997, 1998, and 1999. The
ASSET ALLOCATION FUND paid accounting fees of $29,320 $32,512, and $31,494
respectively, for the fiscal years ended June 30, 1997, 1998 and 1999. The
TAX EXEMPT BOND FUND paid accounting fees of $33,041, $32,993, and $30,358
respectively for the fiscal years ended June 30, 1997, 1998 and 1999. The
MONEY MARKET FUND paid accounting fees of $35,760, $43,806, and $44,561
respectively, for the fiscal years ended June 30, 1997, 1998 and 1999. For
the period of January 2, 1997 (commencement of operations) to June 30, 1997,
the SHORT-TERM GOVERNMENT BOND FUND accrued accounting fees of $12,500, but
the service provider voluntarily agreed to waive fees totaling $4,688. For
the year ended June 30, 1998 and 1999, the fund paid $31,135 and $32,573
respectively for accounting services. For the period of January 2, 1997
(commencement of operations) to June 30, 1997, the LONG-TERM BOND FUND
accrued accounting fees of $12,500, but the service provider voluntarily
agreed to waive fees totaling $4,688. For the year ended June 30, 1998 and
1999, the fund paid $34,873 and $36,819 respectively for accounting services.
16
<PAGE> 46
ADMINISTRATIVE SERVICES
-----------------------
The funds have entered into Administration Agreements with First Data
Investor Services Group. These Agreements provide that the Administrator
shall provide all administrative services to each fund other than those
relating to the investment portfolio of the funds, the distribution of the
funds and the maintenance of each fund's financial records. The fees for
these services are based on declining percentages of each fund's average net
assets beginning at .0015% of the first $50,000,000 of average net assets,
.0010% on the next $50,000,000 of average net assets, and .0005% over
$100,000,000 of average net assets. The funds are, however, required to pay
minimum annual administrative fees. The minimum annual fee for the GROWTH
FUND is $50,000. The minimum annual administrative fee for each of the ASSET
ALLOCATION FUND, TAX EXEMPT BOND FUND, MONEY MARKET FUND, SHORT-TERM
GOVERNMENT BOND FUND and LONG-TERM BOND FUND is $10,000.
For the fiscal year ended June 30, 1999, the GROWTH FUND, ASSET ALLOCATION
FUND, TAX EXEMPT BOND FUND, MONEY MARKET FUND, SHORT-TERM GOVERNMENT BOND
FUND and LONG-TERM BOND FUND paid fees of $122,662, $15,314, $13,857,
$46,738, $21,238, and $28,843, respectively, for administrative services.
THE CUSTODIAN
-------------
IAA Trust Company, 808 IAA Drive, Bloomington, Illinois 61702, serves as
custodian for the funds. IAA Trust Company is an affiliated person of the
funds. As custodian, IAA Trust Company is responsible for, among other
things, safeguarding and controlling each fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on each fund's investments. None of the directors, officers or
other employees of the funds ever have personal possession of any fund's
investments. These services do not include any managerial or policy making
functions of the funds. The funds have agreed to pay the custodian such
compensation as may be agreed upon from time to time, but currently the
custodian is voluntarily waiving the receipt of any fees for custodial
services.
INDEPENDENT ACCOUNTANTS
-----------------------
The accounting firm of PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania, has been designated as independent
accountants for each fund. PricewaterhouseCoopers LLP performs annual
audits of each fund and is periodically called upon to provide accounting and
tax advice.
BROKERAGE
THE GROWTH FUND AND THE ASSET ALLOCATION FUND:
These funds always seek to effect their respective transactions in buying and
selling portfolio securities, acting through a broker as agent or with a
dealer as principal so that they can obtain reasonable execution at the most
favorable prices. Accordingly, each fund, through IAA Trust Company, the
investment adviser, negotiates commission rates in accordance with the
reliability and quality of a broker's or dealer's services, the financial
condition of the firm and the value and expected contribution of the
broker-dealer to the performance of the fund on a continuing basis. Thus,
what a fund determines to be the most favorable commission price may be
higher than the lowest available price. In evaluating the overall
reasonableness of brokerage commissions paid, each fund through its
investment adviser maintains an awareness of general practices with regard to
commission levels and rates charged by reputable brokerage firms.
A fund may, subject to the primary brokerage allocation criterion that a fund
obtain reasonable execution at the most favorable prices, place orders for
the purchase or sale of portfolio securities with brokers or dealers who have
provided research, statistical, or other financial information to the fund or
its investment adviser. Brokerage house research generally provides economic
and financial market analysis as well as industry studies and investment
analysis of individual companies or entities.
The primary brokerage allocation criterion of the funds is that each fund
obtain reasonable execution at the most favorable prices. If two or more
brokers or dealers meet this criterion, a fund may place orders for the
purchase or sale of portfolio securities with brokers or dealers who have
provided research,
17
<PAGE> 47
statistical or other financial information to the fund or its investment
adviser. Research information obtained from brokers and dealers while
servicing the fund may be used by IAA Trust Company in servicing all of its
accounts and, conversely, research information obtained from brokers and
dealers while servicing other accounts may be used by IAA Trust Company in
servicing the fund. Further, not all research information obtained from
brokers and dealers while serving the fund may be used by the fund.
Over-the-counter transactions are usually placed with a principal market
maker unless a better net security price is obtainable elsewhere.
During the fiscal years ended June 30, 1997, 1998 and 1999, brokerage
commissions paid by the GROWTH FUND totaled, $80,557, $128,562, and $152,131
respectively. No brokerage transactions were allocated to brokers or dealers
for the sale of the fund's shares; such sales are made by First Data
Distributors, Inc. and Country Capital Management Company through their own
representatives.
During the fiscal years ended June 30, 1997, 1998 and 1999, brokerage
commissions paid by the ASSET ALLOCATION FUND totaled, $6,667, $6,708 and
$15,497 respectively. No brokerage transactions were allocated to brokers or
dealers for the sale of the fund's shares; such sales are made by First Data
Distributors, Inc. and Country Capital Management Company through their own
representatives.
There may be occasions when portfolio transactions for these funds are
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by IAA Trust Company. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to a fund, they are effected only when a fund, acting on the
advice of IAA Trust Company, believes that to do so is in the interest of
such fund. When such concurrent authorizations occur, the executions will be
allocated in an equitable manner.
TAX EXEMPT BOND FUND, SHORT-TERM GOVERNMENT BOND FUND,
and LONG-TERM BOND FUND:
The TAX EXEMPT BOND FUND, SHORT-TERM GOVERNMENT BOND FUND and LONG-TERM BOND
FUND seek to effect their transactions in buying and selling portfolio
securities, acting through a broker as agent or with a dealer as principal,
so that they can obtain reasonable execution at the most favorable prices.
Accordingly, a fund, through IAA Trust Company, its investment adviser,
negotiates commission rates in accordance with the reliability and quality of
a broker's or dealer's services, the financial condition of the firm and the
value and expected contribution of the broker-dealer to the performance of
the fund on a continuing basis. Thus, what a fund determines to be the most
favorable commission price may be higher than the lowest available price. In
evaluating the overall reasonableness of brokerage commissions paid, a fund
maintains through its investment adviser an awareness of general practices
with regard to commission levels and rates charged by reputable brokerage
firms.
The primary brokerage allocation criterion of the TAX EXEMPT BOND FUND,
SHORT-TERM GOVERNMENT BOND FUND and LONG-TERM BOND FUND is that each fund
obtain reasonable execution at the most favorable prices. If two or more
brokers or dealers meet this criterion, a fund may place orders for the
purchase or sale of portfolio securities with brokers or dealers who have
provided research, statistical or other financial information to the
investment adviser of the fund. Brokerage house research generally provides
economic and financial market analysis as well as industry studies and
investment analysis of individual companies or entities.
It is the opinion of the investment adviser, that the furnishing of research,
statistical, and other financial information to a fund, or the fund's
investment adviser, by brokers and dealers, will not materially reduce the
cost to the investment adviser of fulfilling the terms of its advisory
contract with the fund because the investment adviser must review and analyze
such information along with all other information available to it. Research
information obtained from brokers and dealers while servicing a fund may be
used by IAA Trust Company in servicing all of its accounts and, conversely,
research information obtained from brokers and dealers while servicing other
accounts may be used by IAA Trust Company in servicing each fund. Further,
not all research information obtained from brokers and dealers while serving
the funds may be used by a fund.
18
<PAGE> 48
During the fiscal years ended 1997, 1998 and 1999, all transactions for the
TAX EXEMPT BOND FUND were placed with a principal market dealer. For the
period of January 2, 1997 (commencement of operations) to June 30, 1997, and
the fiscal year ended June 30, 1998 and June 30, 1999, all transactions for
both the SHORT-TERM GOVERNMENT BOND FUND and LONG-TERM BOND FUND were placed
with a principal market dealer. No commissions are paid on transactions with
the principal market dealer as the asked price on such transactions usually
includes an allowance for such compensation.
No brokerage transactions are allocated to brokers or dealers for the sale of
a fund's shares; such sales are made by First Data Distributors, Inc. and
Country Capital Management Company through their own representatives.
There may be occasions when portfolio transactions for the funds are executed
as part of concurrent authorizations to purchase or sell the same security
for other funds served by IAA Trust Company. Although such concurrent
authorizations potentially could be either advantageous or disadvantageous to
a fund, they are effected only when a fund, acting on the advice of IAA Trust
Company, believes that to do so is in the interest of such fund. When such
concurrent authorizations occur, the executions will be allocated in an
equitable manner.
MONEY MARKET FUND:
The MONEY MARKET FUND, acting on recommendations received from its investment
adviser, IAA Trust Company, expects that purchases and sales of portfolio
securities usually will be principal transactions. Portfolio securities will
normally be purchased directly from the issuer or from an underwriter or a
market maker for the securities. Usually, no brokerage commissions will be
paid on such purchases. Purchases from underwriters of portfolio securities
will include a concession paid by the issuer to the underwriter and the
purchase price paid to market makers for money market instruments may include
the spread between the bid and asked price.
The primary consideration in the allocation of portfolio transactions will be
prompt and effective execution of orders at the most favorable price. If two
or more brokers or dealers meet this criterion, the fund may, although there
is no undertaking or agreement with any broker or dealer to do so or any
specific internal allocation procedure, place orders for the purchase or sale
of portfolio securities with brokers or dealers who have provided research,
statistical, or other financial information to the fund or its investment
adviser. Brokerage house research generally provides economic and financial
market analysis as well as industry studies and investment analysis of
individual companies or entities. Such information is of the kind generally
supplied by broker-dealers to their customers without obligation. This
information may be used by IAA Trust Company to supplement its own research
and analysis. Although it is not possible to place a dollar value on this
information, it is the opinion of IAA Trust Company that the receipt and
study of such information does not reduce its expenses. Research information
obtained from brokers and dealers while servicing the fund may be used by IAA
Trust Company in servicing all of its accounts and, conversely, research
information obtained from brokers and dealers while servicing other accounts
may be used by IAA Trust Company in servicing the fund. Further, not all
research information obtained from brokers and dealers while servicing the
fund may be used by the fund.
During the fiscal years ended June 30, 1997, 1998 and 1999, the MONEY MARKET
FUND incurred no brokerage commissions.
There may be occasions when portfolio transactions for this fund are executed
as part of concurrent authorizations to purchase or sell the same security
for other funds served by IAA Trust Company. Although such concurrent
authorizations potentially could be either advantageous or disadvantageous to
a fund, they are effected only when a fund, acting on the advice of IAA Trust
Company, believes that to do so is in the interest of such fund. When such
concurrent authorizations occur, the executions will be allocated in an
equitable manner.
ALL FUNDS:
IAA Trust Company has an arrangement with Lipper Analytical Securities
Corporation whereby IAA Trust Company receives specific research products
known as Lipper-Mutual Fund Performance Analysis (Weekly) in exchange for
placing an agreed-upon amount of trades on behalf of privately managed
accounts and the Funds. If IAA Trust Company does not place all of the
agreed-upon amount of trades, any remaining amounts will be carried forward
to future years.
19
<PAGE> 49
CAPITAL STOCK
There are no conversion or preemptive rights in connection with any shares of
the funds, nor are there cumulative voting rights with respect to the shares
of any of the funds. Each of the fund's shares has equal voting rights. Each
issued and outstanding share of each fund is entitled to participate equally
in dividends and distributions declared by such fund and in net assets of
such fund upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities.
All issued and outstanding shares of each fund will be fully paid and
non-assessable and will be redeemable at the net asset value per share. The
interests of shareholders in the funds will not, unless specifically
requested in writing by a shareholder, be evidenced by a certificate or
certificates representing shares of a fund.
The authorized capitalizations of the GROWTH FUND, the ASSET ALLOCATION FUND,
and the TAX EXEMPT BOND FUND consist of 10,000,000 shares for each of these
funds, 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 a par value of $0.10 per share. Of this
amount, 100,000,000 shares are designated to the MONEY MARKET FUND,
50,000,000 shares are designated to the SHORT-TERM GOVERNMENT BOND FUND, and
25,000,000 shares are designated to the LONG-TERM BOND FUND. The remaining
75,000,000 shares are undesignated.
The Board of Directors has authority, without the necessity of a shareholder
vote, to create any number of new series or classes. The directors have
authorized one class of share to be issued.
PURCHASES, REDEMPTIONS, AND PRICING OF SHARES
NET ASSET VALUE
---------------
Shares of each fund are purchased at net asset value. The net asset value per
share of each fund is calculated by adding the value of securities and other
assets of that fund, subtracting liabilities and dividing by the number of
its outstanding shares. Each fund's share price will be determined at the
close of regular trading hours of the New York Stock Exchange, normally 4:00
p.m. Eastern Time. The MONEY MARKET FUND may calculate its net asset value
more than once a day if deemed desirable.
VALUATION OF THE MONEY MARKET FUND
----------------------------------
All securities of the MONEY MARKET FUND will be valued by using the amortized
cost method, which involves valuing a security at its costs on the date of
purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuations in general market rates of interest on the value of the
instrument. While this method provides certainty in valuation, it may result
in periods during which a security's value, as determined by this method, is
higher or lower than the price a fund would receive if it sold the
instrument.
The use by the MONEY MARKET FUND of amortized cost and the maintenance by
this fund of a net asset value at $1.00 are permitted by regulations
promulgated by Rule 2a-7 under the Investment Company Act of 1940, provided
that certain conditions are met. The regulations also require the directors
to establish procedures which are reasonably designed to stabilize the net
asset value per share at $1.00 for this fund. Such procedures include the
determination of the extent of deviation, if any, of the fund's current net
asset value per share calculated using available market quotations from the
fund's amortized cost price per share.
VALUATION OF ALL OTHER FUNDS
----------------------------
For all other funds, securities listed or admitted to trading privileges on
any national securities exchange will be valued at the last sales price on
that day before the time for valuation, or, if there is no sale before that
time that day, the last bid price on such exchange before that time that day,
the last bid price on such exchange before that time that day. Equity
securities which are traded in the over-the-counter market only, but which
are not included in the NASDAQ National Market System will be valued at the
mean between the last preceding bid and asked
20
<PAGE> 50
price. Valuations may also be obtained from pricing services when such prices
are believed to reflect the fair market value. Securities with a remaining
maturity of sixty days or less are valued at amortized cost, which
approximates market value. Short-term notes are valued at cost. Corporate
bonds, municipal bonds, receivables and portfolio securities not currently
quoted as indicated above, and other assets will be valued at fair value as
determined in good faith by the Board of Directors.
REDEMPTIONS IN KIND
-------------------
The funds reserve the right to pay redemptions in kind with portfolio
securities in lieu of cash. In accordance with its election pursuant to Rule
18f-1 under the Investment Company Act of 1940, the funds may limit the
amount of redemption proceeds paid in cash. The funds may, under unusual
circumstances, limit redemptions in cash with respect to each shareholder
during any ninety-day period to the lesser of (i) $250,000 or (ii) 1% of the
net asset value of the fund at the beginning of such period. A shareholder
may incur brokerage costs if the securities received were sold.
REDEMPTIONS
-----------
Payment to shareholders for shares surrendered for redemption is made in cash
as soon as practicable after surrender, within seven days, except that a
fund: (a) may elect to suspend the redemption of shares or postpone the date
of payment of redemption proceeds: (1) during any period that the New York
Stock Exchange is closed (other than customary weekend and holiday closings)
or trading on the New York Stock Exchange is restricted; (2) during any
period in which an emergency exists as a result of which disposal of
portfolio securities is not reasonably practicable to fairly determine the
fund's net asset values; or (3) during such other periods as the Securities
and Exchange Commission may by order permit for the protection of investors.
EXCHANGE OF SHARES
------------------
An exchange is effected by redemption of shares of one fund and the issuance
of shares of the other fund selected, and only after delivery of the current
Prospectus. With respect to an exchange among the GROWTH FUND, ASSET
ALLOCATION FUND, TAX EXEMPT BOND FUND, SHORT-TERM GOVERNMENT BOND FUND and
LONG-TERM BOND FUND, a capital gain or loss for Federal income tax purposes
will be realized upon the exchange, depending upon the cost or other basis of
the shares redeemed. With respect to the MONEY MARKET FUND, assuming such
fund maintains its share value at $1.00 per share, an exchange of this fund's
shares for shares of another IAA Trust fund should not create a Federal
income tax incident, except for the establishment of a new holding period.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. The exchange privilege may be terminated
or suspended or its terms changed at any time, subject to 60 days' prior
notice.
TELEPHONE INSTRUCTIONS
----------------------
Neither the funds nor any of their service providers will be liable for any
loss or expense in acting upon telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions
are genuine, the funds will use such procedures that are considered
reasonable. Shareholders assume the risk to the full extent of their accounts
that telephone requests may be unauthorized. To the extent that a fund fails
to use reasonable procedures to verify the genuineness of telephone
instructions, it and/or its service contractors may be liable for any such
instructions that prove to be fraudulent or unauthorized. All telephone
conversations with First Data Investor Services Group will be recorded.
RETIREMENT PLANS
----------------
IAA Trust Company sponsors a prototype Defined Contribution Plan which has
been approved by the Internal Revenue Service and which meets the requirement
of the Tax Reform Act of 1986, as amended. This Plan can invest in shares of
all funds except the TAX EXEMPT BOND FUND.
For individuals eligible to establish an Individual Retirement Account
("IRA"), IAA Trust Company sponsors a prototype "traditional" IRA which has
been approved by the Internal Revenue Service. An individual may be able to
deduct contributions made to such a Plan. The deductibility of contributions
to an IRA by taxpayers who are participants in an employer's retirement plan
is determined by the amount of taxpayer's adjusted gross income. "Rollover
contributions" from certain other tax-qualified plans may also be made to
this Plan. Possible penalties may be imposed for excess IRA contributions,
premature withdrawals or insufficient distributions after age 70 1/2.
21
<PAGE> 51
An investor considering either the Defined Contribution Plan or the
"traditional" IRA , along with the two new types of IRAs which were created
by the Taxpayers Relief Act of 1997 as described in the Prospectus, should
consult with his or her attorney or tax advisor with respect to Plan
requirements and tax implications. Other information relating to eligibility
and service fees may be obtained by reading the prototype Plans and, in the
case of IRAs, by reading the disclosure statement(s) which the IRS requires
to be furnished to individuals who are considering the adoption of an IRA.
For more information, contact IAA Trust Company, 808 IAA Drive, Bloomington,
Illinois 61702 or call toll-free (800) 422-8261.
AUTOMATIC INVESTING
-------------------
A shareholder may authorize automatic investing through automatic withdrawals
from his/her bank accounts on a regular basis.
SYSTEMATIC WITHDRAWAL PLAN
--------------------------
Shareholders who purchase or already own $5,000 or more of any fund's shares,
valued at the current public offering price, and who wish to receive periodic
payments from their account(s) may establish a Systematic Withdrawal Plan by
completing an application. If you participate in this plan, you will receive
monthly, quarterly or annual checks in the amount designated. While no
particular withdrawal amount is necessarily recommended, the minimum is $25.
The amount of payment may be changed at any time. Dividends and capital gains
distributions on a fund's shares in the Plan are automatically reinvested in
additional shares at net asset value. All certificates for shares deposited
under this Plan must be surrendered and no certificates will be issued unless
the Plan is terminated. Payments are made from the proceeds derived from the
redemption of fund shares owned by the planholder. With respect to GROWTH
FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, SHORT-TERM GOVERNMENT BOND
FUND and LONG-TERM BOND FUND, each redemption of shares may result in a gain
or loss which is reportable by the investor on their income tax return.
Redemptions required for payments may reduce or use up the planholder's
investment, depending upon the size and frequency of withdrawal payments and
market fluctuations. Accordingly, Plan payments cannot be considered as yield
or income on the investment. Additional purchases may be made under the
Systematic Withdrawal Plan in amounts of $5,000 or more.
First Data Investor Services Group, as agent for the shareholder, may charge
for services rendered beyond those normally assumed by the funds. No such
charge is currently assessed, but such a charge may be instituted by First
Data Investor Services Group upon notice in writing to shareholders. This
Plan may be terminated at any time without penalty upon written notice by the
shareholder, by the funds, or by First Data Investor Services Group.
CHECKWRITING PRIVILEGE TERMS (MONEY MARKET FUND):
-------------------------------------------------
Persons electing checkwriting automatically authorize the bank to honor
checks drawn by them on the bank and appoint First Data Investor Services
Group, the fund's transfer agent, as their agent to redeem a sufficient
number of shares of the Money Market Fund shares to pay such checks. They
also automatically agree: (1) The owners or owners who signs the check will
sign their name exactly as it appears on the application or the check will
not be honored; (2) This privilege is subject to the fund and the bank's
rules and regulations and applicable government regulations as amended from
time to time; (3) The bank may refuse to honor checks and the fund may refuse
to effect redemptions to pay checks whenever the right of redemption has been
suspended or postponed; (4) To examine confirmations and to notify the fund,
within thirty days after mailing to the owner(s), of any error in the
confirmations and that failure to do so shall preclude any claim against the
fund, the distributor, the bank, First Data Investor Services Group, and each
of their representatives and agents by reason of such failure; (5) This
privilege may be modified or terminated by any owner by serving written
notice to the fund, and the fund may modify or terminate it by serving
written notice to the owner(s) thirty days in advance thereof. This feature
is not available if a part owner is under age 14. When one of its joint
tenants is age 14 to 17, both tenants must sign drafts.
22
<PAGE> 52
INTEGRATED VOICE RESPONSE (IVR) SYSTEM
--------------------------------------
Shareholders in the funds can obtain toll-free access to account information,
as well as certain transactions, by calling (800) 245-2100. IVR provides
share price, price change, account balances and history (i.e., last
transaction, latest dividend distribution, redemptions by check during the
last three months); and allows sales or exchanges of shares.
TAXATION OF THE FUNDS
Each fund has elected to be treated, and intends to qualify each year, as a
"regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, by meeting all applicable requirements of Subchapter M,
including requirements as to the nature of the fund's gross income, the
amount of fund distributions (as a percentage of both the fund's overall
income and, in the case of the TAX EXEMPT BOND FUND, its tax-exempt income),
and the composition of the fund's portfolio assets. Because each fund intends
to distribute all of its net investment income and net realized capital gains
to shareholders in accordance with the timing requirements imposed by the
Code, it is not expected that the funds will be required to pay any federal
income or exise taxes. If a fund failed to qualify, it would be required to
pay such taxes.
UNDERWRITER COMPENSATION
Shares of the funds are continuously offered to the public through the
distributor. Currently, out of commissions to be received, FDDI has agreed to
pay all expenses incident to the distribution of shares. If commissions are
not sufficient to pay these expenses, FDDI will look to the funds' investment
adviser for reimbursement. For the fiscal year ended June 30, 1999, FDDI
received no underwriting fees.
CALCULATION OF PERFORMANCE DATA
From time to time, the funds advertise their various respective performance
measures, such as: 7- or 30-day yield; tax-equivalent yield; total percentage
increase; and total return. Performance will vary and the results shown
herein and in the funds' Prospectus are historical information and will not
be representative of future results. Factors affecting the Funds' performance
include general market conditions, operating expenses, and portfolio
management. No adjustment has been made for taxes payable on dividends and
distributions.
TOTAL PERCENTAGE INCREASE
-------------------------
Total percentage increase is calculated for the specified periods of time by
assuming a hypothetical investment of $1,000 in a fund's shares. Each
dividend or other distribution is treated as having been reinvested at net
asset value on the reinvestment date. The percentage increases stated are the
percent that an original investment would have increased during the
applicable period.
AVERAGE ANNUAL TOTAL RETURN
---------------------------
The GROWTH FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, LONG-TERM
GOVERNMENT BOND FUND and SHORT-TERM BOND FUND compute their average annual
total returns by determining the average annual compounded rates of return
during specified periods that equate the initial amount invested to the
ending redeemable value of such investment. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000
and raising the quotient to a power equal to one divided by the number of
years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as
follows:
23
<PAGE> 53
Average Annual Total Return = ( ERV/P ) RAISED TO THE 1/n POWER - 1
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
The funds that compute their aggregate total returns over a specified period
do so by determining the aggregate compounded rate of return during such
specified period that likewise equates over a specified period the initial
amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ ERV - P ]/P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on
the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete
redemption of the hypothetical investment and the deduction of all
nonrecurring charges at the end of the period covered by the computations.
Such calculations are not necessarily indicative of future results and do not
take into account Federal, state and local taxes that shareholders must pay
on a current basis.
Since performance will fluctuate, performance data for the fund should not be
used to compare an investment in a funds' shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should
remember that performance is generally a function of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses
and market conditions.
30-DAY YIELD CALCULATIONS
-------------------------
The ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, LONG-TERM GOVERNMENT BOND
FUND and SHORT-TERM BOND FUND calculate a 30-day yield by dividing the net
investment income per share (as described below) earned by the fund during a
30-day (or one month) period by the maximum offering price per share on the
last day of the period. The result is then annualized on a semi-annual basis
by adding one to the quotient, raising the sum to the power of six,
subtracting one from the result and then doubling the difference. A fund's
net investment income per share earned during the period is based on the
average daily number of shares outstanding during the period entitled to
receive dividends and includes dividends and interest earned during the
period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
YIELD = 2 [ ( a - b + 1) - 1 ]
-------
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
24
<PAGE> 54
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the fund. Except as noted below,
interest earned on any debt obligations held by a fund is calculated by
computing the yield to maturity of each obligation held by that fund based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of the month, the purchase price
(plus actual accrued interest) and dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for
each day of the subsequent month that the obligation is held by that fund.
For purposes of this calculation, it is assumed that each month contains
thirty days. The date on which the obligation reasonably may be expected to
be called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for
amortization of the discount premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a fund to all shareholder accounts in proportion to
the length of the base period and the fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per
capital share (variable "d" in the formula).
With respect to the TAX EXEMPT BOND FUND, interest earned on tax-exempt
obligations that are issued without original issue discount and have a
current market discount is calculated by using the coupon rate of interest
instead of the yield to maturity. In the case of tax-exempt obligations that
are issued with original issue discount but which have discounts based on
current market value that exceed the then-remaining portion of the original
discount (market discount), the yield to maturity is the imputed rate based
on the original issue discount calculation. On the other hand, in the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that are less than the
then-remaining portion of the original discount (market premium), the yield
to maturity is based on the market value.
With regard to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest
("pay-downs"): (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the
period; and (ii) a fund may elect either (a) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average date is not
available or (b) not to amortize discount or premium on the remaining
security.
TAX-EQUIVALENT YIELD CALCULATIONS
---------------------------------
With respect to the TAX EXEMPT BOND FUND, the "tax-equivalent yield" of this
fund is computed by: (a) dividing that portion of the fund's yield
(calculated as above) that is tax-exempt by one minus a stated Federal income
tax rate, and (b) adding the quotient to that portion, if any, of the fund's
yield that is not tax-exempt.
The tax equivalent yield reflects the taxable yield that an investor at the
highest marginal Federal income tax rate would have to receive to equal the
primarily tax-exempt yield from the fund. Before investing in a tax-exempt
fund, you may want to determine which investment -- tax-free or taxable --
will result in a higher after-tax yield. To do this, divide the yield on the
tax-free investment by the decimal determined by subtracting from 1 the
highest Federal tax rate you pay. For example, if the tax-free yield is 5%
and your maximum tax bracket is 39.6%, the computation is:
5% Tax-Free Yield - (1/.396 Tax Rate) = 5%/.604% = 8.2781% Tax Equivalent Yield
25
<PAGE> 55
In this example, your after-tax return would be higher from the 5% tax-free
investment if available taxable yields are below 8.2781%. Conversely, the
taxable investment would provide a higher yield when taxable yields exceed
8.2781%.
7-DAY YIELD CALCULATIONS
------------------------
The MONEY MARKET FUND'S standard yield quotations as they appear in reports
and other material distributed by the fund or by Country Capital Management
Company are calculated by a standard method prescribed by rules of the
Securities and Exchange Commission. The yield of this fund for a 7-day period
(the "base period") will be computed by determining the net change in the
value (calculated as set forth below) of a hypothetical account having a
balance of one share at the beginning of the period, dividing the net change
in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period
return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent.
Net changes in value of a hypothetical account will include the value of
additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares,
but will not include realized gains or losses or unrealized appreciation or
depreciation on portfolio investments.
The effective yield is computed by compounding the unannualized base period
return by adding 1 to the base period return, raising the sum to a power
equal to 365 divided by 7, and subtracting one from the result, according to
the following formula:
Effective Yield = [(base period return + 1) RAISED TO THE 365/7 POWER ]-1
GROWTH FUND:
This fund's net asset value and return will fluctuate. Please note the
differences and similarities between the investments which the fund may
purchase for its portfolio and the investments measured by the index which is
described in the Prospectus. Please refer to the Prospectus for specific
information.
ASSET ALLOCATION FUND:
This fund's net asset value, return, and yield will fluctuate. The fund's
yield for the thirty days ended September 30, 1999 was 2.12%. Yield differs
from total return in that it only considers current income and does not take
into account gains or losses on securities held by the fund. Please refer to
the Prospectus for specific information.
TAX EXEMPT BOND FUND:
This fund's net asset value, return, and yield will fluctuate. The fund's
yield for the thirty days ended September 30, 1999 was 3.63%. Yield differs
from total return in that it only considers current income and does not take
into account gains or losses on securities held by the fund. Please refer to
the Prospectus for specific information. The above yield results in a
tax-equivalent yield of 6.01% for the thirty days ended September 30, 1999.
MONEY MARKET FUND:
The yield and effective yield of this fund will vary in response to
fluctuations in interest rates and in the expenses of the fund. For the seven
days ended September 30, 1999 the fund's annualized standard (cash) yield was
4.65% and its annualized effective (compound) yield was 4.33%. For
comparative purposes, the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for
the same base period and calculated by the methods described above.
SHORT-TERM GOVERNMENT BOND FUND:
This fund's net asset value, return, and yield will fluctuate. The fund's
yield for the thirty days ended September 30, 1999 was 5.21%. Yield differs
from total return in that it only considers current income and does not take
into account gains or losses on securities held by the fund. Please refer to
the Prospectus for specific information.
26
<PAGE> 56
LONG-TERM BOND FUND:
This fund's net asset value, return, and yield will fluctuate. The fund's
yield for the thirty days ended September 30, 1999 was 5.81%. Yield differs
from total return in that it only considers current income and does not take
into account gains or losses on securities held by the fund. Please refer to
the Prospectus for specific information.
FINANCIAL STATEMENTS
REPORTS TO SHAREHOLDERS
-----------------------
Shareholders will receive unaudited semi-annual reports describing the funds'
investment operations and annual financial statements audited by independent
certified public accountants.
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto for each fund contained in
the Annual Report to Shareholders dated June 30, 1999, are incorporated by
reference into this Statement of Additional Information. The financial
statements have been audited by PricewaterhouseCoopers L.L.P. Their report
appears in the Annual Report and is also incorporated by reference herein. No
other parts of the Annual Report are incorporated by reference herein. Such
financial statements and notes thereto have been incorporated herein in
reliance on the report of PricewaterhouseCoopers L.L.P., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
27
<PAGE> 57
APPENDIX "A" -- DESCRIPTIONS OF SECURITIES RATINGS
--------------------------------------------------
COMMERCIAL PAPER RATINGS
------------------------
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"): "PRIME-1" and "PRIME-2" are
Moody's two highest commercial paper rating categories. Moody's evaluates
the salient features that affect a commercial paper issuer's financial and
competitive position. The appraisal includes, but is not limited to the
review of such factors as:
1. Quality of management.
2. Industry strengths and risks.
3. Vulnerability to business cycles.
4. Competitive position.
5. Liquidity measurements.
6. Debt structures.
7. Operating trends and access to capital markets.
Differing degrees of weight are applied to the above factors as deemed
appropriate for individual situations.
STANDARD & POOR'S, A DIVISION OF MCGRAW-HILL COMPANIES, INC. ("S&P"):
"A-1" and "A-2" are S&P's two highest commercial paper rating categories and
issuers rated in these categories have the following characteristics:
1. Liquidity ratios are adequate to meet cash requirements.
2. Long-term senior debt is rated "A" or better.
3. The issuer has access to at least two additional channels of
borrowing.
4. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances.
5. Typically, the issuer is in a strong position in a
well-established industry or industries.
6. The reliability and quality of management is unquestioned.
Relative strength or weakness of the above characteristics determine
whether an issuer's paper is rated "A-or "A-2". Additionally, within the
"A-1" designation, those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) rating category.
BOND RATINGS
------------
S&P: An S&P bond rating is a current assessment of the creditworthiness of
an obligor with respect to a specific debt obligation. This assessment may
take into consideration obligors such as guarantors, insurers or lessees.
The bond ratings are not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not
perform any audit in connection with any ratings and may, on occasion,
rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditor's
rights.
The four highest bond ratings of S&P and their meanings are:
28
<PAGE> 58
"AAA" Bonds rated "AAA" have the highest rating assigned by S&P to a
----- debt obligation. Capacity to pay interest and repay principal is
extremely strong.
"AA" Bonds rated "AA" have a very strong capacity to pay interest and
---- repay principal and differ from the highest rated issues only in
small degree.
"A" Bonds rated "A" have a strong capacity to pay interest and repay
--- principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
"BBB" Bonds rated "BBB" are regarded as having an adequate capacity to
----- pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS The letter "P" indicates that the rating is provisional.
A provisional ratings assumes the successful completion of the project being
financed by the bonds being rated and indicate that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgement with respect to such likelihood
and risk.
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories ("AAA", "AA", "A", and
"BBB", commonly known as "investment-grade" ratings) are generally regarded
as eligible for bank investment.
MOODY'S.: The four highest ratings of Moody's and their meanings are:
"AAA" Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
"AA" Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what
are generally known as high-grade bonds. They are rated lower
then the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"BAA" Bonds which are rated "Baa" are considered as medium-grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
29
<PAGE> 59
IAA TRUST TAX EXEMPT BOND FUND, INC.
PART C - OTHER INFORMATION
Item 23. Exhibits:
---------
(a) Articles of Incorporation. Articles of Incorporation dated
May 20, 1978 are incorporated by reference to Post-Effective
Amendment No. 24 to Registrant's Registration Statement filed
electronically on October 28, 1996.
(b) Bylaws. Bylaws of IAA Trust Tax Exempt Bond Fund, Inc., as
amended November 23, 1992, are incorporated by reference to
Post-Effective Amendment No. 24 to Registrant's Registration
Statement filed electronically on October 28, 1996.
(c) Instruments Defining Rights of Security Holders. Not
applicable.
(d) Investment Advisory Contracts. Investment Advisory Agreement,
effective September 29, 1992, is incorporated by reference to
Post-Effective Amendment No. 24 to Registrant's Registration
Statement filed electronically on October 28, 1996.
(e) Underwriting Contracts. Underwriting Agreement, effective
January 1, 1999 is filed herewith.
(f) Bonus or Profit Sharing Contracts. None.
(g) Custodian Agreement. Custodian Agreement with FPS Services,
Inc., dated March 31, 1992, is incorporated by reference
to Post-Effective Amendment No. 24 to Registrant's
Registration Statement filed electronically on October 28,
1996.
(h) Other Material Contracts.
a. Transfer Agent Services Agreement, effective August 1,
1995, is incorporated by reference to Post-Effective Amendment
Number 24 to Registrant's Registration Statement filed
electronically on October 28, 1996.
(i) Amendment to Transfer Agent Services Agreement dated
April 27, 1998 incorporated by reference to
Post-Effective No. 28 to Registration Statement filed
electronically on October 28, 1998.
b. Administration Agreement, effective August 1, 1995, is
incorporated by reference to Post-Effective Amendment Number
24 to Registrant's Registration Statement filed electronically
on October 28, 1996.
(i) Amendment to Administration Agreement dated April 27,
1998 incorporated by reference to Post-Effective No. 28
to Registration Statement filed electronically on
October 28, 1998.
c. Accounting Services Agreement, effective August 1, 1995, is
incorporated by reference to Post-Effective Amendment No. 24
to Registrant's Registration Statement filed electronically on
October 28, 1996.
(i) Amendment to Accounting Services Agreement
dated April 27, 1998 incorporated by reference to
Post-Effective No. 28 to Registration Statement filed
electronically on October 28, 1998.
(i) Legal Opinion. -- Not Applicable
(j) Other Opinions. Consent of Independent Accountants is
filed herewith.
(k) Omitted Financial Statements. None
<PAGE> 60
(l) Initial Capital Agreements. See Exhibit 13 to Fund's
Post-Effective Amendment No. 3 to its 1933 Act Registration
Statement and Amendment No. 2 to its 1940 Act Registration
Statement on Form N-1A, and incorporated herein by reference.
(m) Rule 12b-1 Plan. Amended 12b-1 Plan Agreement effective
September 28, 1998 is filed herewith.
(n) Financial Data Schedule -- Not Applicable
(o) Rule 18f-3 Plan. None.
Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
IAA Control Chart as of June 30, 1999.
*ILLINOIS AGRICULTURAL ASSOCIATION
Illinois Agricultural Association and Affiliated Companies as of June 30, 1999
1. Country Mutual Insurance Company
2. Country Casualty Insurance Company
3. Country Preferred Insurance Company
4. Mid-America Brokerage, Inc. (Oklahoma)
5. Middlesex Mutual Assurance Company
6. Midfield Corporation
7. Alliance Agency, LLC
8. CC Services, Inc.
9. Mid-America Services of Alaska, Inc.
Mid-America Services of Arizona, Inc.
Mid-America Services of Nevada, Inc.
Mid-America Services of Oregon, Inc.
Mid-America Services of Washington, Inc.
10. Illinois Agricultural Holding Co.
11. Country Life Insurance Company
12. Country Investors Life Assurance Company
13. Country Medical Plans Inc.
14. Country Capital Management Company
15. IAA Trust Company
16. IAA Trust Asset Allocation Fund, Inc.
17. IAA Trust Growth Fund, Inc.
18. IAA Trust Taxable Fixed Income Series Fund, Inc.
19. IAA Trust Tax Exempt Bond Fund, Inc.
20. AgriVisor Services, Inc.
21. Illinois Agricultural Service Company
22. Illinois Milk Producers Association
23. Interstate Producers Livestock Association
24. Illinois Livestock Marketing Company
25. IAA Federal Credit Union
26. Illinois Agricultural Auditing Association
27. Prairie Farms Dairy, Inc.
28. Muller-Pinehurst Dairy, Inc.
29. East Side Jersey Diary, Inc.
30. Ice Cream Specialties, Inc.
31. ABC Dairy, Inc.
32. P.F.D. Supply Corporation
33. Mo-Kan Express, Inc.
34. GMS Transportation Co.
35. Hoosier Dairy, Inc.
36. ** ***GROWMARK, Inc.
37. FS Credit Corporation
38. MID-CO Commodities, Inc.
39. TRI-FS, Inc.
40. FS Financial Services Corporation
41. Lakeland FS, Inc.
42. Southwest FS, Inc.
43. FS Services Ontario Ltd.
44. Henry Foods, L.L.C.
45. FS Structures of Iowa, L.L.C.
46. American Quality Pork, L.L.C.
47. Project Explorer Corporation
48. Project Explorer Mark II Corp.
49. FS Export Services, Inc.
50. FS Energy, Inc.
51. 1105433 Ontario Inc.
52. UCO Petroleum, Inc.
1. Organized in Illinois as a mutual insurance company. Proxy control in
Illinois Agricultural Association.
2. Organized in Illinois as a stock insurance company. 99.9% of voting
securities owned by Country Mutual Insurance Company.
3. Organized in Illinois as a stock insurance company. 100% of voting
securities owned by Country Mutual Insurance Company.
4. Organized in Oklahoma as a business corporation. 100% of voting securities
owned by Country Mutual Insurance Company.
5. Organized in Connecticut as a mutual insurance company. Board and
management control by Country Mutual Insurance Company.
6. Organized in Connecticut as a stock business corporation. 100% of voting
securities owned by Middlesex Mutual Assurance Company.
7. Organized in Connecticut under the Limited Liability Company Act. 77.5% of
voting securities owned by Middlesex Mutual Assurance Company.
8. Organized in Illinois as a business corporation. 71.4% of voting
securities owned by Illinois Agricultural Association; 17.14% of voting
securities owned by Country Mutual Insurance Company; 11.43% of voting
securities owned by Country Life Insurance Company.
9. Organized as a business corporation in the state indicated. 100% of voting
securities of each company owned by CC Services, Inc.
10. Organized in Illinois under the General Corporation Act. 98.3% of voting
securities owned by Illinois Agricultural Association.
11. Organized in Illinois as a stock insurance company. 99.99% of voting
securities owned by Illinois Agricultural Holding Co.
12. Organized in Illinois as a stock insurance company. 100% of voting
securities owned by Country Life Insurance Company.
13. Organized in Illinois as stock insurance company. 100% of voting securities
owned by Country Life Insurance Company.
14. Organized in Illinois as a business corporation. 100% of voting securities
owned by Country Life Insurance Company.
15. Organized in Illinois as a business corporation. 95% of voting securities
owned by Illinois Agricultural Holding Co. and 5% owned by Country Mutual
Insurance Company.
16. Organized in Maryland as a mutual fund under the General Corporation Law.
7.07% of voting securities owned by Country Life Insurance Company. 79.7%
of the securities owned of record by IAA Trust Company. Investment Advisory
Agreement with IAA Trust Company.
17. Organized in Maryland as a mutual fund under the General Corporation Law.
5.85% of voting securities owned by Country Life Insurance Company.
54.1% of the voting securities owned of record by IAA Trust Company.
Investment Advisory Agreement with IAA Trust Company.
18. Organized in Maryland as a mutual fund under the General Corporal Law.
90.4% of the voting securities owned of record by IAA Trust Company.
Investment Advisory Agreement with IAA Trust Company.
19. Organized in Maryland as a mutual fund under the General Corporation Law.
27.5% of the voting securities owned of record by the IAA Trust Company.
Investment Advisory Agreement with IAA Trust Company.
20. Organized in Illinois under the General Corporation Act. 100% of voting
securities owned by Illinois Agricultural Holding Co.
21. Organized in Illinois as a business corporation. 100% of voting securities
owned by Illinois Agricultural Holding Co.
22. Organized in Illinois as an agricultural cooperative. 44.4% of voting
securities owned by Illinois Agricultural Association.
23. Organized in Illinois as an agricultural cooperative. 37.7% of voting
securities owned by Illinois Agricultural Association.
24. Organized in Illinois as a business corporation. 100% of voting securities
owned by Interstate Producers Livestock Association.
25. Organized as a Federal Credit Union. No corporate control. Membership
control in Illinois Agricultural Association and certain affiliated
companies.
26. Organized in Illinois as an agricultural cooperative. 46.1% of voting
securities owned by Illinois Agricultural Association.
27. Organized in Illinois as an agricultural cooperative. 39.9% of voting
securities owned by Illinois Agricultural Association.
28. Organized in Illinois as a business corporation. 50% of voting securities
owned by Prairie Farms Dairy, Inc.
29. Organized in Indiana as a business corporation. 100% of voting securities
owned by Prairie Farms Dairy, Inc.
30. Organized in Missouri as a business corporation. 100% of voting securities
owned by Prairie Farms Dairy, Inc.
31. Organized in Missouri as a business corporation. 100% of voting securities
owned by Prairie Farms Dairy, Inc.
32. Organized in Illinois as a business corporation. 100% of voting securities
owned by Prairie Farms Dairy, Inc.
33. Organized in Kansas as a business corporation. 50% of voting securities
owned by P.F.D. Supply Corporation.
34. Organized in Illinois as a business corporation. 100% of voting securities
owned by Prairie Farms Dairy, Inc.
35. Organized in Indiana as a business corporation. 100% of voting securities
owned by Prairie Farms Dairy, Inc.
36. Organized in Delaware under the General Corporation Act. 23.1% of voting
securities owned by Illinois Agricultural Association.
37. Organized in Illinois as an agricultural cooperative. 99.7% of voting
securities owned by GROWMARK, Inc.
38. Organized in Delaware under the General Corporation Act. 95.2% of voting
securities owned by GROWMARK, Inc.
39. Organized in Iowa under the Business Corporation Act. 100% of voting
securities owned by GROWMARK, Inc.
40. Organized in Delaware under the General Corporation Act. 100% of voting
securities owned by GROWMARK, Inc.
41. Organized in Illinois as an agricultural cooperative. 47.44% of voting
securities owned by FS Financial Services Corporation.
42. Organized in Delaware under the General Corporation Act. 100% of voting
securities owned by GROWMARK, Inc.
43. Organized in Ontario under the Business Corporations Act. 100% of
voting securities owned by GROWMARK, Inc.
44. Organized in Illinois under the Limited Liability Company Act. 50% of
voting securities owned by GROWMARK, Inc.
45. Organized in Illinois under the Limited Liability Company Act. 34.5% of
voting securities owned by GROWMARK, Inc.
46. Organized in Illinois under the Limited Liability Company Act. 60% of
voting securities owned by GROWMARK, Inc.
47. Organized in Delaware under the General Corporation Act. 50% of voting
securities owned by GROWMARK, Inc.
48. Organized in Delaware under the General Corporation Act. 50% of
voting securities owned by GROWMARK, Inc.
49. Organized in Barbados, West Indies as a foreign sales corporation. 100% of
voting securities owned by GROWMARK, Inc.
50. Organized in Iowa under the Business Corporation Act. 94.4% of
voting securities owned by GROWMARK, Inc.
51. Organized in Ontario under the Business Corporations Act. 100% of voting
securities owned by GROWMARK, Inc.
52. Organized in Ontario under the Business Corporations Act. 50% of voting
securities owned by 1105433 Ontario Inc.
- --------------------------------------------------------------------------------
*Organized in Illinois as a not-for-profit corporation. No voting securities. No
person controls it.
**GROWMARK, Inc. owns stock in approximately 70 of its Illinois and Iowa member
companies.
***GROWMARK, Inc. owns 33% or more of the outstanding voting securities in 10
fuel limited liability companies owned in connection with its various Illinois
and Iowa member companies.
Item 25. Indemnification.
----------------
See Item 19 to Form N-8B-1 filed September 1978, and
incorporated herein by reference. The Registrant also
purchases Errors and Omissions insurance with Directors and
Officers liability coverage.
Item 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
As of September 29, 1992, IAA Trust Company became the
Registrant's Investment Adviser. The Trust Company serves as
Investment Adviser to IAA Trust Growth Fund, Inc., IAA Trust
Asset Allocation Fund, Inc., IAA Trust Tax Exempt Bond Fund,
Inc., and IAA Trust Taxable Fixed Income Series Fund, Inc. The
Trust Company also provides investment services to the Country
Companies Insurance Group and exercises fiduciary powers as
permitted by its charter and the State of Illinois.
Other substantial business, professional, vocational or
employment activities of each director and officer of the
Registrant's Investment Adviser during the past two fiscal
years are:
<TABLE>
<CAPTION>
Substantial Business Activities
Name and Position During Past Two Fiscal Years
--------------------------------- ---------------------------------------------
<S> <C>
Ronald R. Warfield, See information on "Directors and Officers of
Director and President the Funds" - Part B.
Rollie D. Moore, See information on "Directors and Officers of
Director and Vice President the Funds" - Part B.
Charles William Williams, Director: AgriVisor Services, Inc., 1/22/97-1/20/99, Illinois
Director Agricultural Association, Illinois Agricultural
Holding Co., IAA Trust Company, 1985-Present CC Services, Inc.,
Country Medical Plans, Inc., Country Casualty
Insurance Company, Country Investors Life Assurance
Company, Country Life Insurance Company, Country
Mutual Insurance Company, Country Preferred
Insurance Company 12/18/96-Present Farmer.
</TABLE>
<PAGE> 61
DAVID BRODIE GARDNER 12/8/97-PRESENT -- DIRECTOR OF:
CC Services, Inc., Country Casualty Insurance
Company, Country Investors Life Assurance Company,
Country Life Insurance Company, Country Medical
Plans, Inc., Country Mutual Insurance Company,
Country Preferred Insurance Company, Illinois
Agricultural Association, Illinois Agricultural
Holding Co.
12/17/97-PRESENT - DIRECTOR OF:Illinois Milk
Producers' Association
12/17/97-PRESENT - MEMBER OF BOARD STANDING COMMITTEE
FOR: IAA National Affairs & Marketing
1/1/98-PRESENT -- DIRECTOR OF: IAA Trust Company
1970-PRESENT -- SELF-EMPLOYED FARM OWNER-OPERATOR:
ROBERT LOWELL PHELPS
*2/97-PRESENT -- DIRECTOR OF: GROWMARK, Inc.
*5/22/96-PRESENT - DIRECTOR OF: Country Medical
Plans, Inc.
2/21/96-PRESENT -- DIRECTOR OF: IAA Trust Company
*1992-PRESENT -- DIRECTOR OF:
CC Services, Inc. Country Casualty Insurance Company
Country
Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
1974-PRESENT -- SELF-EMPLOYED OWNER-OPERATOR
PRODUCTION AGRICULTURE:
*1/17/96-1/21/98 -- DIRECTOR OF:
AgriVisor Services, Inc,
<PAGE> 62
*12/18/96-12/97 -- MEMBER OF INVESTMENT COMMITTEE
FOR:
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Medical Plans, Inc.
Country Mutual Insurance Company
Country Preferred Insurance Company
*NOTE: The above listed companies are all affiliated
and reside at the following address:
1701 N. Towanda Avenue
Bloomington, IL 61702
RICHARD ALLAN BACHMAN
1/1/98-PRESENT -- DIRECTOR OF: IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
1701 N. Towanda Avenue
Bloomington, IL 61702
12/95-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1992-PRESENT -- EUREKA COMMUNITY HOSPITAL ADVISORY
COUNCIL
1975-PRESENT -- WOODFORD COUNTY FARM BUREAU BOARD
MEMBER
1969-PRESENT: Delivery Driver
Roanoke Milling Co.
Roanoke, IL 61561
1959-PRESENT -- SELF-EMPLOYED FARM OWNER-OPERATOR:
STANLEY RAY BLUNIER
8/3/99-PRESENT -- DIRECTOR OF: Producers Alliance,
Inc.
1/21/98-PRESENT -- DIRECTOR OF: AgriVisor Services,
Inc.
<PAGE> 63
8/3/99-PRESENT -- DIRECTOR OF:
Producers Alliances, Inc.
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF: Country Medical
Plans, Inc.
1992-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1992-PRESENT -- DIRECTOR OF:
Illinois Corn Growers Association
2415 E. Washington St.
P.O. Box 1623
Bloomington, IL 61702-1623
1974-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR:
DAVID ARTHUR DOWNS
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
12/96-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Medical Plans, Inc.
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
1/98-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR:
<PAGE> 64
PAUL G. FIEDLER
12/18/96-PRESENT -- DIRECTOR OF: IAA Trust Company
1/22/97-1/20/99 -- DIRECTOR OF:
AgriVisor Services, Inc.
12/18/96-PRESENT -- MEMBER OF FINANCE COMMITTEE FOR:
*5/22/96-PRESENT -- DIRECTOR & MEMBER OF AUDIT
COMMITTEE FOR:
Country Medical Plans, Inc.
*1987-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
*12/18/96-PRESENT -- MEMBER OF AUDIT & FINANCE
COMMITTEES FOR:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
*12/18/96-PRESENT -- MEMBER OF INVESTMENT COMMITTEE
FOR:
Country Investors Life Assurance Company
Country Life Insurance Company
Country Medical Plans, Inc.
Country Mutual Insurance Company
Country Preferred Insurance Company
*NOTE: The above listed companies are
all affiliated and reside at the following address:
1701 N. Towanda Avenue
Bloomington, IL 61702
12/18/96-PRESENT -- DIRECTOR OF: Country Capital
Management Company
<PAGE> 65
1701 N. Towanda Avenue
Bloomington, IL 61702
9/59-PRESENT -- U.S. POSTAL SERVICE
1955-PRESENT -- SELF-EMPLOYED FARM OWNER-OPERATOR:
RALPH W. FREEBAIRN
2/10/97-PRESENT -- DIRECTOR OF:
Interstate Producers Livestock Association
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF: Country Medical
Plans, Inc.
12/94-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Medical Plans, Inc.
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1965-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR:
ANDREW LEO GOLEMAN
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
12/96-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Medical Plans, Inc.
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
<PAGE> 66
Bloomington, IL 61702
1989-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR:
ROGER DALTON KIDDOO
1/1/98-PRESENT -- DIRECTOR OF:
12/17/92-2/21/96 -- DIRECTOR OF:
IAA Trust Company
1992-PRESENT - DIRECTOR OF:
Illinois Agricultural Auditing Association
1990-PRESENT -- DIRECTOR OF:
CC Services, Inc.Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
NOTE: The above listed companies are all affiliated
and reside at the following address:
1701 N. Towanda Avenue,
Bloomington, IL 61702
1986-PRESENT - DIRECTOR OF: Joy State Bank, Joy, IL
61260
1984-PRESENT - DIRECTORMercer County Farm Bureau
Aledo, IL 61231
1956-PRESENT - SELF-EMPLOYED FARM OWNER-
OPERATOR:
GLENN R. MEYER
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
<PAGE> 67
1992-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1954-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR:
JAMES PAUL SCHILLINGER
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
1991-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, Illinois 61702
1965-PRESENT - SELF-EMPLOYED FARM OWNER-
OPERATOR:
WENDELL L. SHAUMAN
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
1992-PRESENT -- DIRECTOR OF:
<PAGE> 68
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1975-PRESENT -- SELF-EMPLOYED FARM OWNER-OPERATOR:
PAUL EDWARD SHUMAN
1/20/99-PRESENT -- DIRECTOR OF:
AgriVisor Services, Inc.
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
12/95- PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1960-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR:
RANDALL LEE SIMS
DIRECTOR SINCE
<PAGE> 69
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
1994-PRESENT - PRESIDENT OF:
Sims Enterprises, Inc.
RR 3, Box 93
Liberty, IL 62347
All address: 1701 N. Towanda Avenue,
Bloomington, IL 61702
DONALD EDWIN STEPHEN
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
1/24/95-Present -- DIRECTOR OF:
IAA Communications Company
1981-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
<PAGE> 70
1971-PRESENT -- SELF-EMPLOYED FARM OWNER-
OPERATOR: 3733 East Snake Trail Road
Martinsville, IL, 62442
ROBERT EARL THURSTON
1/1/98-PRESENT -- DIRECTOR OF:
IAA Trust Company
5/22/96-PRESENT -- DIRECTOR OF:
Country Medical Plans, Inc.
1992-PRESENT -- DIRECTOR OF:
CC Services, Inc.
Country Casualty Insurance Company
Country Investors Life Assurance Company
Country Life Insurance Company
Country Mutual Insurance Company
Country Preferred Insurance Company
Illinois Agricultural Association
Illinois Agricultural Holding Co.
ALL ADDRESSES: 1701 N. Towanda Avenue
Bloomington, IL 61702
1970-PRESENT -- SELF-EMPLOYED FARM
OWNER-OPERATOR:
<PAGE> 71
Bruce D. Finks, See information on "Directors and Officers
Vice President the Funds" - Part B.
Investments
Richard M. Miller, See information on "Directors and Officers
Senior Vice President--Trusts of the Funds" - Part B.
and Senior Trust Officer
Richard F. Day, See information on "Directors and Officers
Vice President and Controller of the Funds" - Part B.
Robert W. Rush, Jr. See information on "Directors and Officers
Executive Vice President of the Funds" - Part B.
and Trust Officer
Duane L. Miller See information on "Directors and Officers
Chief Executive Officer of the Funds" - Part B
David Tipsword, Vice President--Pension Trusts, Trust
Vice President--Marketing and Officer: IAA Trust Company.
Trust Officer
Connie Denison Vice President--Management Information
Vice President--and Employee Systems and Assistant Trust Officer: IAA
Benefit Trust and Trust
Officer
Bernard Dornedon Vice President--Equity Investments: IAA
Vice President-- Trust Company.
Equity Investments
Paul M. Harmon, See information on "Directors and Officers
General Counsel and Secretary of the Funds" - Part B.
David A. Magers See information on "Directors and Officers
Treasurer of the Funds" - Part B.
<PAGE> 72
Item 27. PRINCIPAL UNDERWRITER
(a) First Data Distributors, Inc. the principal underwriter for the
Registrant's securities, currently acts as principal underwriter
for the following entities:
The Galaxy Fund
Galaxy Fund II
The Galaxy VIP Fund
Alleghany Funds (f/k/a CT&T Funds)
Wilshire Target Funds, Inc.
The Potomac Funds
Panorama Trust
First Choice Funds Trust
Undiscovered Managers Fund
LKCM Funds
BT Insurance Funds Trust
ABN AMRO Funds (f/k/a Rembrandt Funds)
IBJ Funds Trust
ICM Series Trust
Forward Funds, Inc.
Light Index Funds, Inc.
WorldWide Index Funds
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth Fund
WPG Growth and Income Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The Govett Funds, Inc.
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.
Matthews International Funds
McM Funds
Metropolitan West Funds
Smith Breeden Series Fund
Smith Breeden Trust
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
Trainer Wortham First Mutual Funds
(b) The information required by this Item 29 with respect to each
director, officer or partner of First Data Distributors, Inc. is
incorporated herein by reference to Form BD filed with the
Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-45467)
<PAGE> 73
(c) Not Applicable.
Item 28. Location of Accounts and Records.
---------------------------------
The following accounts, books and other documents of
Registrant required to be maintained by Section 31(a) of
the 1940 Act and the Rule(17 CFR 270.31a-1 to 31a-3)
promulgated thereunder are maintained by Barbara H. Tolle,
Vice President, Accounting Services, P.O. Box 61503, King
of Prussia, PA 19406-0903.
1. Journals, general ledger and supporting ledger.
2. Record of the proof of money balance in all ledger
accounts in form of trial balances.
3. Separate ledger accounts showing each shareholder of
record and the number of shares of capital stock held.
IAA Trust Company maintains record of all portfolio
purchases and sales with supporting authorization and
records at 808 IAA Drive, Bloomington, Illinois 61702.
The Certificate of Incorporation of Registrant is
maintained in safekeeping by David A. Magers, Treasurer,
1701 Towanda Avenue, Bloomington, Illinois 61702.
The Bylaws of Registrant and minute books of stockholders,
directors and directors' committee meetings are maintained
by Paul M. Harmon, Secretary, 1701 Towanda Avenue,
Bloomington, Illinois 61702.
Item 29. Management Services. Not Applicable.
-------------------
Item 30. Undertakings.
-------------
(a) If the information called for by Item 5A of
Form N-1A is contained in the latest annual report to
shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a
copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section
16(c) of the 1940 Act as though such provisions of
the 1940 Act were applicable to the Registrant,
except that the request referred to in the third full
paragraph thereof may only be made by shareholders
who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of
the net asset value of shares held by such requesting
shareholders.
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 29 to its registration Statement under the Securities Act of 1933
and Amendment No. 27 to its Registration Statement under the Investment Company
Act of 1940 to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Bloomington and the State of Illinois on this 27th day
of September, 1999.
IAA TRUST TAX EXEMPT BOND FUND, INC.
(Registrant)
By: /s/ Ronald R. Warfield
-----------------------------------
Ronald R. Warfield, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 29 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ronald R. Warfield President and Director September 27, 1999
- ---------------------------------- (Principal Executive Officer)
Ronald R. Warfield
/s/ David A. Magers Treasurer September 27, 1999
- -------------------------------- (Principal Financial and
David A. Magers Accounting Officer)
Director September 27, 1999
- -----------------------------------
Herbert G. Allen
Director September 27, 1999
- -----------------------------------
Charlot R. Cole
Director September 27, 1999
- -----------------------------------
Nancy J. Erickson
/s/ Wendell L. Shauman Director September 27, 1999
- -----------------------------------
Wendell L. Shauman
/s/ Ailene Miller Director September 27, 1999
- -----------------------------------
Ailene Miller
/s/ Rollie D. Moore Director September 27, 1999
- -----------------------------------
Rollie D. Moore
</TABLE>
<PAGE> 75
IAA TRUST TAX EXEMPT BOND FUND, INC.
EXHIBIT INDEX TO PART "C"
OF
POST-EFFECTIVE AMENDMENT
Item No. Description
-------- -----------
99(e) Underwriting Agreement
99(j) Consent of Independent Accountants
<PAGE> 1
UNDERWRITING AGREEMENT
This Agreement, dated as of January 1, 1999, is made by and between IAA
Trust Tax Exempt Bond Fund, Inc., a Maryland corporation (the "Fund") operating
as an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "Act"), IAA Trust Company (the "Company"),
a registered investment advisor duly organized and existing as a corporation
under the laws of the state of Illinois, and First Data Distributors, Inc.
("FDDI"), a corporation duly organized and existing under the laws of the
Commonwealth of Massachusetts (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Company has been appointed investment advisor to the Fund;
and
WHEREAS, FDDI is a broker-dealer registered with the U.S. Securities
and Exchange Commission (the "SEC") and a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Parties are desirous of entering into an agreement
providing for the distribution by FDDI of the shares of the Fund (the "Shares").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Appointment
-----------
The Fund hereby appoints FDDI as its principal agent for the
distribution of the Shares, and FDDI hereby accepts such appointment
under the terms of this Agreement. The Fund agrees that it will not
sell any Shares to any person except to fill orders for the Shares
received through FDDI, provided, however, that the foregoing exclusive
right shall not apply to: (a) Shares issued or sold in connection with
the merger or consolidation of any other investment company with the
Fund or the acquisition by purchase of otherwise of all or
substantially all of the assets of any investment company or
substantially all of the outstanding shares of any such company by the
Fund; (b) Shares which may be offered by the Fund to its stockholders
for reinvestment of cash distributed from capital gains or net
investment income of the Fund; or (c) Shares which may be issued to
shareholders of other funds who exercise any exchange privilege set
forth in the Fund's Prospectus. Notwithstanding any other provision
hereof, the Fund may terminate, suspend, or withdraw the offering of
the Shares whenever, in their sole discretion, they deem such action to
be desirable.
-1-
<PAGE> 2
2. Sale and Repurchase of Shares
-----------------------------
(a) FDDI is hereby granted the right, as agent for the Fund, to
sell Shares to the public against orders received at the
public offering price as defined in the Fund's Prospectus and
Statement of Additional Information.
(b) FDDI will also have the right to take, as agent for the Fund,
all actions which, in FDDI's judgment, and subject to the
Fund's reasonable approval, are necessary to carry into effect
the distribution of the Shares.
(c) FDDI will act as agent for the Fund in connection with the
repurchase of Shares by the Fund upon the terms set forth in
the Fund's Prospectus and Statement of Additional Information.
(d) The net asset value of the Shares shall be determined in the
manner provided in the then current Prospectus and Statement
of Additional Information relating to the Shares, and when
determined shall be applicable to all transactions as provided
in the Prospectus. The net asset value of the Shares shall be
calculated by the Fund or by another entity on behalf of the
Fund. FDDI shall have no duty to inquire into, or liability
for, the accuracy of the net asset value per Share as
calculated.
(e) On every sale, FDDI shall promptly pay to the Fund the
applicable net asset value of the Shares.
(f) Upon receipt of purchase instructions, FDDI will transmit such
instructions to the Fund or its transfer agent for
registration of the Shares purchased.
(g) Nothing in this Agreement shall prevent FDDI or any affiliated
person (as defined in the Act) of FDDI from acting as
underwriter for any other person, firm or corporation
(including other investment companies), or in any way limit or
restrict FDDI or such affiliated person from buying, selling
or trading any securities for its or their own account or for
the account of others for whom it or they may be acting,
provided, however, that FDDI expressly agrees that it will not
for its own account purchase any Shares of the Fund except for
investment purposes, and that it will not for its own account
dispose of any such Shares except by redemption of such Shares
with the Fund, and that it will not undertake in any
activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this
Agreement.
3. Rules of Sale of Shares
-----------------------
-2-
<PAGE> 3
FDDI does not agree to sell any specific number of Shares and serves
only in the capacity of Statutory Underwriter. The Fund reserves the
right to terminate, suspend or withdraw the sale of its Shares for any
reason deemed adequate by it, and the Fund reserves the right to refuse
at any time or times to sell any of its Shares to any person for any
reason deemed adequate by it.
4. Rules of NASD, etc.
-------------------
(a) FDDI will conform tot he Conduct Rules of the NASD and the
securities laws of any jurisdiction in which it directly or
indirectly sells any Shares.
(b) FDDI will require each dealer with whom FDDI has a selling
agreement to conform to the applicable provisions of the
Prospectus, with respect to the public offering price of the
Shares, and FDDI shall not cause the Fund to withhold the
placing of purchase orders so as to make a profit thereby.
(c) The Fund and the Company agree to furnish FDDI sufficient
copies of any and all: agreements, plans, communications with
the public or other materials which the Fund or the Company
intend to use in connection with any sales of Shares, in
adequate time for FDDI to file and clear such materials with
the proper authorities before they are put in use. FDDI and
the Fund or the Company may agree that any such material does
not need to be filed subsequent to distribution. In addition,
the Fund and the Company agree not to use any such materials
until so filed and cleared for use, if required, by
appropriate authorities as well as by FDDI.
(d) FDDI, at its own expense, will qualify as a dealer or broker,
or otherwise, under all applicable state or federal laws
required in order that the Shares may be sold in such states
as may be mutually agreed upon by the Parties.
(e) FDDI shall remain registered with the SEC and a member of the
NASD for the term of this Agreement.
(f) FDDI shall not, in connection with any sale or solicitation of
a sale of the Shares, make or authorize any representative,
service organization, broker or dealer to make any
representations concerning the Shares, except those contained
in the Prospectus offering the Shares and in communications
with the public or sales materials approved by FDDI as
information supplemental to such Prospectus. Copies of the
Prospectus will be supplied by the Fund or the Company to FDDI
in reasonable quantities upon request.
(g) FDDI shall only be authorized to make representations in
respect of the Fund consistent with the then current
Prospectus, Statement of Additional
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<PAGE> 4
Information, and other written information provided by the
Fund or its agents to be used explicitly with respect to the
sale of Shares.
5. Records to be Supplied by the Fund
----------------------------------
The Fund shall furnish to FDDI copies of all information, financial
statements and other papers which FDDI may reasonably request for use
in connection with the underwriting of the Shares including, but not
limited to, one certified copy of all financial statements prepared for
the Fund by its independent public accountants.
6. Expenses
--------
(a) The Fund will bear the following expenses:
(i) preparation, setting in type, and printing of
sufficient copies of the Prospectus and Statement of
Additional Information for distribution to
shareholders, and the cost of distribution of same to
the shareholders;
(ii) preparation, printing and distribution of reports and
other communications to shareholders;
(iii) registration of the Shares under the federal
securities laws;
(iv) qualification of the Shares for sale in the
jurisdictions as directed by the Fund;
(v) maintaining facilities for the issue and transfer of
the Shares;
(vi) supplying information, prices and other data to be
furnished by the Fund under this Agreement; and
(vii) any original issue taxes or transfer taxes applicable
to the sale or delivery of the Shares or certificates
therefor.
(b) The Company will pay all other expenses incident to the sale
and distribution of the Shares sold hereunder.
(c) FDDI agrees to pay all of its own expenses in performing its
obligations hereunder.
7. Term and Compensation
---------------------
(a) The term of this Agreement shall commence on the date on
hereinabove first written (the "Effective Date").
-4-
<PAGE> 5
(b) This Agreement shall remain in effect for one (1) year from
the Effective Date. This Agreement shall continue thereafter
for periods not exceeding one (1) year, if approved at least
annually (i) by a vote of a majority of the outstanding voting
securities of the Fund, or (ii) by a vote of a majority of the
Board Members of the Fund who are not parties to this
Agreement (other than as Board Members of the Fund) or
interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
(c) This Agreement (i) may be terminated at any time without the
payment of any penalty, either by a vote of the Trustees of
the Fund or by a vote of a majority of the outstanding voting
securities of the Fund with respect to the Fund, on sixty (60)
days' written notice to FDDI; and (ii) may be terminated by
FDDI on sixty (60) days' written notice to the Fund with
respect to the Fund.
(d) This Agreement shall automatically terminate in the event of
its assignment, as defined in the Act.
8. Indemnification of FDDI by the Company and the Fund
---------------------------------------------------
FDDI is responsible for its own conduct and the employment, control,
and conduct of its agents and employees and for injury to such agents
or employees or to others caused by it, its agents or employees.
Notwithstanding the above, the Company and the Fund will indemnify and
hold FDDI harmless for the actions of the Company's employees
registered with the NASD as registered representatives of FDDI, and the
Company hereby undertakes to maintain compliance with all NASD and SEC
rules and regulations concerning any activities of such employees. FDDI
shall have the right, in its sole discretion, to refuse to register any
individual as its representative.
9. Liability of FDDI
-----------------
(a) FDDI, its directors, officers, employees, shareholders and
agents shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in
connection with the performance of this Agreement, except a
loss resulting from a breach of FDDI's obligations pursuant to
Section 4 of this Agreement (Rules of NASD), a breach of
fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of FDDI in the
performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under this
Agreement. FDDI agrees to indemnify and hold harmless the Fund
and each person who has been, is, or may hereafter be a
Trustee, officer, or
-5-
<PAGE> 6
employee of the Fund against expenses reasonably incurred by
any of them in connection with any claim or in connection with
any action, suit, or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact, on the
part of FDDI or any agent of employee of FDDI or any of the
persons for whose acts FDDI is responsible or is alleged to be
responsible unless such misrepresentation or omission was made
in reliance upon written information furnished to FDDI by the
Fund. FDDI also agrees to indemnify and hold harmless the Fund
and each such person in connection with any claim or in
connection with any action, suit, or proceeding which arises
out of or is alleged to arise out of FDDI's failure to
exercise reasonable care and diligence with respect to its
services rendered in connection with the purchase and sale of
Shares. The foregoing rights of indemnification shall be in
addition to any other rights to which the Fund or any such
person shall be entitled to as a matter of law.
(b) The Fund agrees to indemnify and hold harmless FDDI against
any and all liability, loss, damages, costs of expenses
(including reasonable counsel fees) which FDDI may incur or be
required to pay hereafter, in connection with any action, suit
or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which FDDI may
be involved as a party or otherwise or with which FDDI may be
threatened, by reason of the offer or sale of the Fund's
Shares by persons other than FDDI or its representatives,
prior to the execution of this Agreement. If a claim is made
against FDDI as to which FDDI may seek indemnity under the
Section, FDDI shall notify the Fund promptly after any written
assertion of such claim threatening to institute an action or
proceeding with respect thereto and shall notify the Fund
promptly of any action commenced against FDDI within 10 days
time after FDDI shall have been served with a summons or other
legal process, giving information as to the nature and basis
of the claim. Failure to notify the Fund shall not, however,
relieve the Fund from any liability which it may have on
account of the indemnity under this Section 9(b) if the Fund
has not been prejudiced in any material respect by such
failure. The Fund shall have the sole right to control the
settlement of any such action, suit or proceeding subject to
FDDI approval, which shall not be unreasonably withheld. FDDI
shall have the right to participate in the defense of an
action or proceeding and to retain its own counsel, and the
reasonable fees and expenses of such counsel shall be borne by
the Fund (which shall pay such fees, costs and expenses at
least quarterly) if:
(i) FDDI has received an opinion of counsel
stating that the use of counsel chosen by
the Fund to represent FDDI would present
such counsel with a conflict of interest:
-6-
<PAGE> 7
(ii) the defendants in, or targets of, any such
action or proceeding include both FDDI and
the Fund, and legal counsel to FDDI shall
have reasonably concluded that there are
legal defenses available to it which are
different from or additional to those
available to the trust or which may be
adverse to or inconsistent with defenses
available to the Fund (in which case the
Fund shall not have the right to direct the
defense of such action on behalf of FDDI);
or
(iii) the Fund shall authorize FDDI to employ
separate counsel at the expense of the Fund.
(c) Any person, even though also a director, officer, employee,
shareholder or agent of FDDI who may be or become an officer,
director, trustee, employee or agent of the Fund, shall be
deemed, when rendering services to the Fund or acting on any
business of the Fund (other than services or business in
connection with FDDI's duties hereunder), to be rendering such
services to or acting solely for the Fund and not as a
director, officer, employee, shareholder or agent, or one
under the control or direction of FDDI even though receiving a
salary from FDDI.
(d) The Fund agrees to indemnify and hold harmless FDDI, and each
person who controls FDDI within the meaning of Section 15 of
the Securities Act of 1933, as amended (the "Securities Act"),
or Section 20 of the Securities Exchange Act of 1934, s
amended (the "Exchange Act"), against any and all losses,
claims, damages and liabilities, joint or several (including
any reasonable investigative, legal and other expenses
incurred in connection therewith) to which they, or any of
them, may become subject under the Act, the Securities Act,
the Exchange Act or other federal or state law or regulations,
at common law or otherwise insofar as such losses, claims,
damages or liabilities (or actions, suits or proceedings in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
contained in a Prospectus, Statement of Additional
Information, supplement thereto, sales literature (or other
written information) prepared by the Fund and furnished by the
Fund to FDDI for FDDI's use hereunder, disseminated by the
trust or which arise out of or are based upon any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading.
Such indemnity shall not, however, inure to the benefit of
FDDI (or any person controlling FDDI) on account of any
losses, claims, damages or liabilities (or actions, suits or
proceedings in respect thereof) arising from the sale of the
Shares of the Fund to any person by FDDI (i) if such untrue
-7-
<PAGE> 8
statement or omission or alleged untrue statement or omission
was made in the Prospectus, Statement of Additional
Information, or supplement, sales or other literature, in
reliance upon and in conformity with information furnished in
writing to the Fund by FDDI specifically for use therein or
(ii) if such losses, claims, damages or liabilities arise out
of or are based upon an untrue statement or omission or
alleged untrue statement or omission found in any Prospectus,
Statement of Additional Information, supplement, sales or
other literature, subsequently corrected, but negligently
distributed by FDDI and a copy of the corrected Prospectus was
not delivered to such person at or before the confirmation of
the sale to such person
(e) FDDI shall not be responsible for any damages, consequential
or otherwise, which the Company or the Fund may experience,
due to the disruption of the distribution of Shares caused by
any action or inaction of any registered representative or
affiliate of FDDI or of FDDI itself.
(f) Notwithstanding anything in this Agreement to the contrary, in
no event shall any party to this Agreement, its affiliates or
any of its or their directors, trustees, officers, employees,
agents or subcontractors be liable for lost profits,
exemplary, punitive, special, incidental, indirect or
consequential damages.
10. Amendments
----------
No provision of this Agreement may be amended or modified in any manner
whatsoever, except by a written agreement properly authorized and
executed by the Parties.
11. Section Headings
----------------
Section and paragraph headings are for convenience only and shall not
be construed as part of this Agreement.
12. Reports
-------
FDDI shall prepare reports for the Board of the Fund, on a quarterly
basis, showing such information as, from time to time, shall be
reasonably requested by the Board.
13. Severability
------------
If any part, term or provision of this Agreement is held by any court
to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not
affected, and the rights and obligations of
-8-
<PAGE> 9
the Parties shall be construed and enforced as if the Agreement did not
contain the particular part, term or provision held to be illegal or
invalid provided that the basic agreement is not thereby substantially
impaired.
14. Governing Law
-------------
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts and the exclusive venue of any action arising under this
Agreement shall be the City of Boston, Commonwealth of Massachusetts.
15. Authority to Execute
--------------------
The Parties represent and warrant to each other that the execution and
delivery of this Agreement by the undersigned officer of each Party has
been duly and validly authorized; and, when duly executed, this
Agreement will constitute a valid and legally binding and enforceable
obligation of each Party.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed
by their duly authorized officer, of the day and year first above written.
FIRST DATA DISTRIBUTORS, INC.
- -----------------------------
By:
Title:
IAA TRUST TAX EXEMPT BOND FUND, INC.
- -----------------------------
By: Richard M. Miller
Title: Vice President
IAA TRUST COMPANY
- -----------------------------
By: Duane L. Miller
Title: Chief Executive Officer
-10-
<PAGE> 11
SCHEDULE A
UNDERWRITER SERVICES
1. Underwriter services include:
----------------------------
A) Preparation and execution of Underwriter and 12b-1 Plan Agreements
- Monitoring accruals
- Monitoring expenses
- Disbursements for expenses and tail commissions
B) Quarterly 12b-1 Reports to Board
C) Literature review, recommendations and submission to the NASD
D) Initial NASD Licensing and Transfers of Registered Representatives
- U-4 Form and Fingerprinting Submission to NASD
- Supplying Series 6 and 63 written study material
- Registration for Exam Preparation classes
- Renewals and Termination of Representatives
E) Written supervisory procedures and manuals for Registered
Representatives
F) Ongoing compliance updates for Representatives regarding sales
practices, written correspondence and other communications with the
public.
G) NASD Continuing Education Requirement
-11-
<PAGE> 1
Exhibit 99(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 29 (File No. 2-24221) under the Securities Act of 1933 and Post-Effective
Amendment No. 27 (File No. 811-1338) under the Investment Company Act of 1940 to
the Registration Statement on Form N-1A of IAA Trust Growth Fund, Inc. (the
"Fund) of our report for the Fund, dated August 6, 1999, on our audits of the
financial statements and financial highlights of the Fund as of June 30, 1999
and for the respective periods then ended, which report is included in the
Annual Reports to Shareholders. We also consent to the reference to our Firm
under the caption "Financial Highlights" in the Prospectus and under the
captions "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA
October 28, 1999
