<PAGE> 1
As filed with the Securities and Exchange Commission File No. 2-73768
on June 27, 1997 File No. 811-3186
================================================================================
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. [ 21]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. [ 22]
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
(Exact Name of Registrant as Specified on 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)(i);
[ ] on (date) pursuant to paragraph (a)(i);
-----------
[ ] 75 days after filing pursuant to paragraph (a)(ii); or
[ ] on (date) pursuant to paragraph (a) of Rule 485.
-----------
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 and the Rule 24f-2 notice for
Registrant's most recent fiscal year was filed on or before August 31, 1996.
TOTAL PAGES: EXHIBITS BEGIN ON PAGE:
<PAGE> 2
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN THE PROSPECTUS
<TABLE>
<CAPTION>
PART A PROSPECTUS HEADINGS
- ------------------------------------------------- --------------------------------------
<S> <C> <C>
Item 1. Cover Page Not Titled
Item 2. Synopsis Synopsis; Operating Expenses Table
Item 3. Condensed Financial
Information Financial Highlights
Item 4. General Description
of Registrant Investment Objectives and Policies
Item 5. Management of the Funds Management of the Funds; Management's
Discussion of Funds' Performance
Item 6. Capital Stock and Capital Stock; Income Dividends,
Other Securities Capital Gains Distributions, and Taxes
Item 7. Purchase of Securities Purchase of Shares; Special Plans and
Being Offered Other Purchase Information; Valuation of
Shares
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings *
</TABLE>
* The answer to the item is negative or the item is not applicable to this
filing, the registrant, or the securities being registered.
<PAGE> 3
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Statement of Additional Information
Part B Headings
- -------------------------------------------- --------------------------------------
<S> <C> <C>
Item 10 Cover Page Not Titled
Item 11. Table of Contents Table of Contents
Item 12. General Information Investment Objectives and Policies;
and History Policies and Investment Restrictions
Aimed at Protecting Investors
Item 13. Investment Objectives Investment Objectives and Policies;
and Policies Policies and Investment Restrictions
Aimed at Protecting Investors
Item 14. Management of the
Registrant Directors and Officers of the Funds
Item 15. Control Persons and
Principal Holders Control Persons and Principal Holders
of Securities of Securities
Item 16. Investment Advisory
and Other Services Investment Advisory and Other Services
Item 17. Brokerage Allocation
and Other Practices Brokerage
Item 18. Capital Stock
and Other Securities Brokerage
Item 19. Purchase, Redemption and Purchases, Redemptions, and
Pricing of Securities Pricing of Fund Securities;
Being Offered Underwriter Compensation
Item 20. Tax Status Purchases, Redemptions, and
Pricing of Fund Securities
Item 21. Underwriters Underwriter Compensation
Item 22. Calculations of
Performance Data Investment Performance Information
Item 23. Financial Statements Reports to Shareholders and Financial
Statements
</TABLE>
<PAGE> 4
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
CROSS REFERENCE SHEET
PART C - OTHER INFORMATION
- --------------------------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE> 5
THE IAA TRUST MUTUAL FUNDS
IAA TRUST GROWTH FUND, INC.
IAA TRUST ASSET ALLOCATION FUND, INC.
IAA TRUST TAX EXEMPT BOND FUND, INC.
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
PROSPECTUS
OCTOBER 28, 1996
AS SUPPLEMENTED JUNE 27, 1997
808 IAA Drive Bloomington, Illinois 61702
(309) 557-3222
The IAA Trust Mutual Funds represent four separate funds, with one Fund
containing three separate Series (referred to herein as "Funds" or "Series").
Each of the Funds and Series has distinct investment objectives and policies.
Information concerning the Funds has been combined into this one Prospectus to
aid investors in understanding the similarities and differences among the Funds.
The four Funds are as follows:
IAA TRUST GROWTH FUND, INC. is a mutual fund with an investment objective of
capital growth. The Fund seeks to achieve its investment objective by investing
principally in common stocks or securities with equity characteristics.
IAA TRUST ASSET ALLOCATION FUND, INC. seeks growth of capital and current income
as near-equal objectives. The Fund seeks to achieve this objective by investing
in a mix of assets consisting of common stocks (both dividend and non-dividend
paying), preferred and convertible preferred stocks, fixed income securities
including bonds, bonds convertible into common stocks and short-term interest
bearing obligations.
IAA TRUST TAX EXEMPT BOND FUND, INC. is a mutual fund with an investment
objective of seeking as high a level of current interest income exempt from
Federal income taxes as is available from municipal bonds, consistent with the
conservation of capital. The Fund seeks to achieve its investment objective by
investing substantially all of its assets in a diversified portfolio of
municipal bonds, the interest from which is exempt from Federal income tax in
the opinion of bond counsel to the issuers.
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC. currently consists of three
separate investment Series designed to offer investors a variety of fixed income
investment opportunities.
IAA TRUST MONEY MARKET SERIES is a mutual fund whose objective is to
earn as high a level of current income as possible, consistent with maintaining
liquidity and stability of principal. The Series seeks to achieve its investment
objective by investing in high-quality money market instruments maturing in one
year or less, including securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, certificates of deposit issued by domestic
banks, bankers acceptances, commercial paper and other corporate debt, and
repurchase agreements.
IAA TRUST MONEY MARKET SERIES IS A MONEY MARKET FUND WHICH SEEKS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE. SHARES OF A MONEY MARKET FUND ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE
THAT THIS SERIES WILL BE SUCCESSFUL IN MEETING ITS INVESTMENT OBJECTIVE OR IN
MAINTAINING A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
IAA TRUST SHORT-TERM GOVERNMENT BOND SERIES seeks maximum total return
consistent with the preservation of capital. The Series seeks to achieve its
investment objective by investing primarily in securities of the U.S. Government
and its agencies and maintain a dollar-weighted average maturity of less than
three years.
1
<PAGE> 6
IAA TRUST LONG-TERM BOND SERIES seeks to provide as high a level of
current income and capital appreciation as possible, consistent with the
preservation of capital and the maintenance of liquidity. The Series seeks to
achieve its investment objective by investing in bonds and other debt
obligations and maintain a dollar-weighted average maturity of more than ten
years.
The Funds' principal Underwriter is FPS Broker Services, Inc., 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, PA 19406-0903 (formerly at #2 West Elm
Street, P.O. Box 874, Conshohocken, Pennsylvania 19428).
For information about how to invest in the IAA Trust Mutual Funds, contact FPS
Broker Services, Inc., or a local Country Capital Management Company
salesperson, or call toll-free 1 (800) 245-2100. In Bloomington/Normal, call
557-3222. Country Capital Management Company has a selling agreement with FPS
Broker Services, Inc. Shares of the Funds are sold only in states where the
Funds are registered.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUNDS THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. PLEASE READ AND RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE.
A Statement of Additional Information combining information about each of the
Funds has been filed with the Securities and Exchange Commission. This Statement
of Additional Information is incorporated by reference in its entirety in this
Prospectus. Copies of the Statement of Additional Information dated October 28,
1996 are available upon request and without charge by contacting FPS Broker
Services, Inc., at the address or telephone numbers listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 7
TABLE OF CONTENTS
-----------------
SUBJECT PAGE
- ------- ----
Synopsis.................................................................. 4
Operating Expenses Tables................................................. 7
Financial Highlights...................................................... 8
Performance Calculations..................................................12
Investment Objectives and Policies........................................12
Investment Strategies and Risk Considerations.............................17
Management of the Funds...................................................21
Management's Discussion of the Funds' Performance.........................22
Distribution of the Funds' Shares.........................................29
Distribution Plans........................................................29
Capital Stock.............................................................29
Income Dividends, Capital Gains Distributions, and Taxes..................31
Purchase of Shares........................................................33
Special Plans and Other Purchase Information..............................34
Valuation of Shares.......................................................35
Redemption of Shares......................................................36
3
<PAGE> 8
SYNOPSIS
--------
THE FUNDS
- ---------
The securities offered by this Prospectus consist of shares of four separate
Funds , one of which contains three separate Series. Each Fund and Series has
distinct investment objectives and policies. The Funds are open-end, diversified
management investment companies incorporated under the laws of the State of
Maryland. Investors should be aware that by combining the Prospectus of each
Fund into this one document, there is a remote possibility that one Fund may
become liable for any misstatements in the Prospectus about another Fund. To the
extent that a Fund incurs such liability, a shareholder's investment in such
Fund could be adversely affected.
The four Funds are identified herein as follows: IAA Trust Growth Fund, Inc.
("GROWTH FUND"); IAA Trust Asset Allocation Fund, Inc. ("ASSET ALLOCATION
FUND"); IAA Trust Tax Exempt Bond Fund, Inc. ("TAX EXEMPT BOND FUND"), and IAA
Trust Taxable Fixed Income Series Fund, Inc. ("TAXABLE FIXED INCOME SERIES
FUND"). TAXABLE FIXED INCOME SERIES FUND, INC. currently consists of three
separate investment Series: IAA Trust Money Market Series ("MONEY MARKET
SERIES"); IAA Trust Short-Term Government Bond Series ("SHORT-TERM GOVERNMENT
BOND SERIES"); and IAA Trust Long-Term Bond Series ( "LONG-TERM BOND SERIES").
The value of each Fund's and Series' shares (with the exception of MONEY MARKET
SERIES) fluctuate because the value of the securities in which each Fund/Series
invests fluctuate. The Funds and Series will earn dividend or interest income to
the extent that they receive dividends or interest from their investments. An
investment in any of the Funds/Series is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that any Fund's or Series' investment
objective will be achieved.
INVESTMENT DEFINITIONS
- ----------------------
OPEN-END - The term "open-end" means that a Fund continually offers new shares
for sale to the public and are legally obligated to buy back such shares held by
an investor and pay the investor the next determined net asset value of the
shares. This open-end type of investment company is commonly called a mutual
fund.
DIVERSIFIED - The Funds are "diversified" because each invests in securities of
different companies and industries in an attempt to spread and reduce the risks
inherent in all investing. Each Fund and Series has adopted a policy prohibiting
it from investing more than 5% of its total assets in the securities of any one
issuer (other than securities issued by the United States Government or its
agencies or instrumentalities). This restriction applies to 75% of the total
asset of each Fund and Series, except for GROWTH FUND and MONEY MARKET SERIES
where this restriction applies to 100% of total assets.
MANAGEMENT INVESTMENT COMPANY - The Funds are separate "management investment
companies" because upon the advice of professional investment managers, each
Fund continuously reviews, and from time to time changes, its portfolio holdings
in an effort to achieve its investment objective.
INVESTMENT OBJECTIVES
- ---------------------
GROWTH FUND:
- ------------
This Fund has an investment objective of capital growth. This Fund seeks to
achieve its investment objective by investing principally in common stocks or
securities with equity characteristics.
ASSET ALLOCATION FUND:
- ----------------------
This Fund seeks growth of capital and current income as near-equal objectives,
primarily through equity securities. In general, this Fund may hold a mix of
assets consisting of common stocks (both dividend and non-dividend paying),
preferred and convertible preferred stocks, fixed income securities including
bonds, bonds convertible into
4
<PAGE> 9
common stocks, and short-term interest bearing obligations.
TAX EXEMPT BOND FUND:
- ---------------------
This Fund has an investment objective of seeking as high a level of current
interest income exempt from Federal income taxes as is available from municipal
bonds. This Fund seeks to achieve its objective by investing in a diversified
portfolio of municipal bonds, the interest from which is exempt from Federal
income tax in the opinion of bond counsel to the issuers.
TAXABLE FIXED INCOME SERIES FUND:
- ---------------------------------
MONEY MARKET SERIES:
This Series has an investment objective of earning a high level of current
income, consistent with maintaining liquidity and stability of principal. This
Series attempts to maintain the value of its shares at a constant $1.00,
although there can be no assurance that the Series will be able to maintain a
stable net asset value of $1.00 per share. This Series seeks to achieve its
investment objective by investing in high-quality money market instruments
maturing in one year or less, including securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, certificates of deposit
issued by domestic banks, bankers acceptances, commercial paper and other
corporate debt, and repurchase agreements. An investment in the Series is
neither insured nor guaranteed by the U.S. Government.
SHORT-TERM GOVERNMENT BOND SERIES:
This Series seeks maximum total return consistent with the preservation of
capital. The Series seeks to achieve its investment objective by investing
primarily in securities of the U.S. Government and its agencies and maintain a
dollar-weighted average maturity of less than 3 years.
LONG-TERM BOND SERIES:
This Series seeks to provide as high a level of current income as possible,
consistent with the preservation of capital and the maintenance of liquidity.
The Series seeks to achieve its investment objective by investing in bonds and
other debt obligations and maintain a dollar-weighted average maturity of more
than 10 years.
HOW TO BUY SHARES
- -----------------
The minimum initial single purchase for all the Funds is $1,000. The minimum
additional investment for all the Funds is $100. The public offering price of
shares of a Fund is the net asset value per share next determined after receipt
and acceptance of the purchase order at the Transfer Agent in proper form with
accompanying check or other bank wire arrangements satisfactory to the Funds.
See "PURCHASE OF SHARES".
HOW TO REDEEM SHARES
- --------------------
Shares may be redeemed at the net asset value per share of a Fund next
determined after receipt by the Transfer Agent of a redemption request in proper
form. Signature guarantees may be required in some cases. See "REDEMPTION OF
SHARES".
DIVIDENDS AND REINVESTMENT
- --------------------------
The GROWTH FUND intends to pay semi-annual dividends from its net investment
income and may pay short-term capital gains, if earned and as declared by the
Board of Directors. Distributions of net capital gains, if any, will be paid
annually.
5
<PAGE> 10
The ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, SHORT-TERM GOVERNMENT BOND
SERIES and LONG-TERM BOND SERIES pay monthly dividends from their respective net
investment income on the last business day of the month to shareholders of
record on the preceding business day. Distributions of net capital gains, if
any, will be paid annually.
The MONEY MARKET SERIES declares and distributes dividends of all its daily net
investment income on each day the Series' net asset value per share is
determined. Each shareholder receives a monthly payment and summary of such
amounts.
Any dividend and distribution payments will be reinvested at net asset value, in
additional full and fractional shares of the particular Fund unless and until
the shareholder notifies the Transfer Agent in writing requesting payments in
cash. Provisions of the Tax Reform Act of 1986 may result in additional net
investment income and/or capital gain distributions at the end of the calendar
year. See "INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, AND TAXES".
INVESTMENT MANAGEMENT, UNDERWRITER, AND SERVICING AGENTS
- --------------------------------------------------------
The IAA Trust Company, 808 IAA Drive, Bloomington, Illinois 61702 is the
Investment Adviser and Custodian for the Funds.
FPS Broker Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia,
PA 19406-0903 serves as the Funds' Underwriter. FPS Services, Inc., 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, PA 19406-0903 (formerly at #2 West Elm
Street, P.O. Box 874, Conshohocken, Pennsylvania 19428) serves as the Funds'
Administrator, Accounting/Pricing Agent, and Transfer Agent.
6
<PAGE> 11
OPERATING EXPENSES TABLE
------------------------
<TABLE>
<CAPTION>
TAX
ASSET EXEMPT TAXABLE
GROWTH ALLOCATION BOND FIXED INCOME SERIES
FUND FUND FUND SERIES FUND
------ ---------- ------- -----------------------------
SHORT-
TERM LONG-
MONEY GOV'T TERM
MARKET BOND BOND
SERIES SERIES(1) SERIES(1)
------ --------- ---------
SHAREHOLDER TRANSACTION EXPENSES:
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............. none none none none none none
Maximum Sales Load Imposed
on Reinvested Dividends.......................... none none none none none none
Deferred Sales Load (2).............................. none none none none none none
Redemption Fee....................................... none none none none none none
Exchange Fee......................................... none none none none none none
ANNUAL FUND OPERATING EXPENSES:
- -------------------------------
(as a percentage of average net assets)
Management Fees...................................... 0.75% 0.75% 0.50% 0.50% 0.50% 0.75%
Waiver of Management Fees............................ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
12(b)1 Fees.......................................... 0.25% 0.25% 0.25% none 0.25% 0.25%
Other Expenses....................................... 0.12% 0.44% 0.33% 0.40% 0.57% 0.57%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses........................ 1.12% 1.44% 1.08% 0.90% 1.32% 1.57%
<FN>
(1) With respect to SHORT-TERM GOVERNMENT BOND SERIES and LONG-TERM BOND
SERIES, the ratios shown are those expected to be incurred for the first
fiscal period for these new Series.
(2) The 3% sales load which existed prior to the date hereof has been
eliminated as of the date hereof.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR $11 $15 $11 $9 $13 $16
You would pay the following expenses 3 YEARS $36 $46 $34 $29 $42 $50
on a $1,000 investment, assuming a 5 YEARS $62 $79 $60 $50 -- --
5% annual return. ....................... 10 YEARS $136 $172 $132 $111 -- --
</TABLE>
The purpose of these tables are to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly and
indirectly. This information has been restated to reflect current fees as if
they had been in effect during the previous fiscal year. The information
contained in the tables should not be considered a representation of future
expenses. Actual expenses may be greater than or less than those stated.
7
<PAGE> 12
FINANCIAL HIGHLIGHTS
--------------------
The following financial highlights, except for the Short-Term Government Bond
Series and the Long-Term Bond Series, are a part of the Funds' financial
statements which have been audited by Coopers & Lybrand L.L.P., independent
accountants, for the most recent five years. The Funds' most recent annual
audited financial statements and the report of Coopers & Lybrand L.L.P. thereon
appear in the Funds' Annual Report dated June 30, 1996. The following tables
should be read in conjunction with these financial statements and related notes
which are included in the Funds' Statement of Additional Information.
GROWTH FUND:
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST GROWTH FUND, INC.
Years ended June 30,
-------------------------------------------------------
1996 1995 1994 1993
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ..... $17.23 $15.16 $17.55 $17.23
------------ ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................ 0.23 0.22 0.27 0.25
Net gains (losses) on securities (both
realized and unrealized) .......... 3.23 3.45 (0.63) 1.67
------------ ---------- ---------- ----------
Total from investment operations . 3.46 3.67 (0.36) 1.92
------------ ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends (from net investment
income) ............................ (0.25) (0.17) (0.22) (0.29)
Distributions (from capital gains) .. (1.56) (1.43) (1.81) (1.31)
------------ ---------- ---------- ----------
Total distributions .............. (1.81) (1.60) (2.03) (1.60)
------------ ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR ........... $18.88 $17.23 $15.16 $17.55
============ ========== ========== ==========
TOTAL RETURN+ .......................... 21.51% 26.68% (2.42%) 11.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $84,800 $70,577 $59,448 $70,785
Ratio of expenses to average
net assets * ....................... 1.12% 1.14% 1.24% 1.18%
Ratio of net investment
income to average net assets * ..... 1.30% 1.41% 1.03% 1.36%
Portfolio turnover rate .............. 32.95% 31.84% 49.12% 55.36%
Average Commission Rate Paid** ....... $0.064 N/A N/A N/A
<CAPTION>
IAA TRUST GROWTH FUND, INC.
YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987
----------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ..... $17.35 $17.42 $16.83 $15.06 $19.43 $20.64
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................ 0.35 0.41 0.61 0.52 0.43 0.31
Net gains (losses) on securities (both
realized and unrealized) .......... 0.40 0.44 1.93 2.32 (1.62) 1.96
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations . 0.75 0.85 2.54 2.84 (1.19) 2.27
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends (from net investment
income) ............................ (0.38) (0.51) (0.65) (0.42) (0.54) (0.38)
Distributions (from capital gains) .. (0.49) (0.41) (1.30) (0.65) (2.64) (3.10)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions .............. (0.87) (0.92) (1.95) (1.07) (3.18) (3.48)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR ........... $17.23 $17.35 $17.42 $16.83 $15.06 $19.43
============ ========== ========== ========== ========== ==========
TOTAL RETURN+ .......................... 4.23% 5.37% 16.09% 20.06% (6.68%) 14.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $76,147 $81,974 $81,511 $74,327 $68,436 $79,194
Ratio of expenses to average
net assets * ....................... 0.85% 0.82% 0.84% 0.93% 0.96% 0.95%
Ratio of net investment
income to average net assets * ..... 1.91% 2.58% 3.58% 3.29% 2.69% 1.70%
Portfolio turnover rate .............. 45.50% 26.00% 18.10% 42.60% 51.20% 40.10%
Average Commission Rate Paid** ....... N/A N/A N/A N/A N/A N/A
<FN>
- ---------------------------------------------
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ Total return calculation does not reflect sales load.
** Computed by dividing the total amount of commission paid by the total number of shares purchased and sold during the period for
which there was a commission. The disclosure is required by the SEC beginning in 1996.
</TABLE>
8
<PAGE> 13
FINANCIAL HIGHLIGHTS
--------------------
ASSET ALLOCATION FUND:
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST ASSET ALLOCATION FUND, INC.
YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ...... $12.29 $11.08 $11.60 $11.20 $10.74 $10.56 $10.80 $10.51 $10.84 $11.14
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.37 0.36 0.34 0.57 0.68 0.73 0.78 0.75 0.73 0.73
Net gains (losses) on securities (both
realized and unrealized) ............ 1.41 1.38 (0.25) 0.47 0.55 0.24 (0.11) 0.29 (0.08) (0.30)
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations .. 1.78 1.74 0.09 1.04 1.23 0.97 0.67 1.04 0.65 0.43
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net investment
income) ............................. (0.37) (0.34) (0.34) (0.57) (0.68) (0.76) (0.77) (0.75) (0.72) (0.73)
Distributions (from capital gains) .... (0.31) (0.18) (0.27) (0.07) (0.09) (0.03) (0.14) 0.00 (0.26) 0.00
Distributions( from return of capital) 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ............... (0.68) (0.53) (0.61) (0.64) (0.77) (0.79) (0.91) (0.75) (0.98) (0.73)
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ............ $13.39 $12.29 $11.08 $11.60 $11.20 $10.74 $10.56 $10.80 $10.51 $10.84
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN+ ........................... 14.74% 16.29% 0.71% 9.58% 11.84% 9.47% 6.50% 10.40% 6.47% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .. $10,083 $9,540 $8,653 $6,663 $6,233 $5,768 $5,714 $5,812 $5,966 $6,003
Ratio of expenses to average
net assets * ........................ 1.44% 1.46% 1.78% 1.71% 1.51% 1.33% 1.39% 1.34% 1.17% 1.42%
Ratio of net investment
income to average net assets * ...... 2.81% 3.18% 2.98% 4.97% 6.20% 6.83% 7.31% 7.12% 6.92% 6.61%
Portfolio turnover rate ............... 33.77% 21.03% 17.39% 36.70% 14.10% 20.60% 6.50% 45.20% 11.70% 51.40%
Average Commission Rate Paid** ........ $0.0861 N/A N/A N/A N/A N/A N/A N/A N/A N/A
<FN>
- ---------------------------------------------
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ Total return calculation does not reflect sales load.
** Computed by dividing the total amount of commission paid by the total number of shares purchased and
sold during the period for which there was a commission. The disclosure is required by the SEC beginning in 1996.
</TABLE>
9
<PAGE> 14
FINANCIAL HIGHLIGHTS
--------------------
TAX EXEMPT BOND FUND:
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST TAX EXEMPT BOND FUND, INC.
YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ------ ------ ----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ....... $8.36 $8.19 $9.11 $8.78 $8.44 $8.32 $8.41 $8.15 $8.09 $8.10
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .................. 0.37 0.39 0.39 0.46 0.49 0.52 0.52 0.54 0.54 0.51
Net gains (losses) on securities (both
realized and unrealized) ............. 0.07 0.20 (0.54) 0.33 0.34 0.13 (0.09) 0.26 0.06 (0.01)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations ... 0.44 0.59 (0.15) 0.79 0.83 0.65 0.43 0.80 0.60 0.50
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment
income) .............................. (0.37) (0.39) (0.39) (0.46) (0.49) (0.53) (0.52) (0.54) (0.54) (0.51)
Distributions (from capital gains) ..... (0.02) (0.03) (0.38) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ................ (0.39) (0.42) (0.77) (0.46) (0.49) (0.53) (0.52) (0.54) (0.54) (0.51)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ............. $8.41 $8.36 $8.19 $9.11 $8.78 $8.44 $8.32 $8.41 $8.15 $8.09
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN+ ............................ 5.30% 7.51% (1.86%) 9.19% 10.05% 8.05% 5.24% 10.15% 7.69% 6.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ...$17,744 $18,833 $19,095 $20,026 $17,872 $16,035 $14,957 $14,307 $12,906 $13,328
Ratio of expenses to average
net assets * ......................... 1.08% 1.06% 1.15% 1.03% 0.95% 0.83% 0.90% 0.91% 0.89% 1.02%
Ratio of net investment
income to average net assets * ....... 4.30% 4.79% 4.47% 5.11% 5.65% 6.17% 6.22% 6.51% 6.66% 6.27%
Portfolio turnover rate ................ 14.75% 24.89% 41.94% 39.60% 20.30% 6.30% 23.50% 12.70% 16.40% 13.90%
<FN>
- -----------------------------------------
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ Total return calculation does not reflect sales load.
</TABLE>
10
<PAGE> 15
FINANCIAL HIGHLIGHTS
--------------------
TAXABLE FIXED INCOME SERIES FUND
MONEY MARKET SERIES:
The table below sets forth financial data for a share of capital stock of the
MONEY MARKET SERIES outstanding throughout each period presented.
<TABLE>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
Years ended June 30,
<CAPTION>
---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ------ ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.05 0.05 0.03 0.02 0.03 0.06 0.07 0.08 0.06 0.05
Net gains (losses) on securities (both
realized and unrealized) ............ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment operations .. 0.05 0.05 0.03 0.02 0.03 0.06 0.07 0.08 0.06 0.05
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Dividends (from net investment
income) ............................. (0.05) (0.05) (0.03) (0.02) (0.03) (0.06) (0.07) (0.08) (0.06) (0.05)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ............... (0.05) (0.05) (0.03) (0.02) (0.03) (0.06) (0.07) (0.08) (0.06) (0.05)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ............ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN+ ........................... 4.82% 4.85% 2.86% 2.41% 3.49% 6.40% 7.74% 7.90% 5.90% 5.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .. $33,664 $36,415 $38,699 $33,302 $10,191 $19,839 $21,920 $17,421 $14,211 $16,875
Ratio of expenses to average
net assets * ........................ 0.90% 0.73% 0.56% 0.58% 1.32% 1.03% 1.05% 1.28% 1.28% 1.24%
Ratio of net investment
income to average net assets * ...... 4.74% 4.80% 2.83% 2.67% 3.60% 6.26% 7.49% 7.58% 5.74% 5.01%
<FN>
- --------------------------------------
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ After voluntary waiver of advisory fees. Before voluntary waiver of advisory fees, the ratio of
expenses to average net assets was .97%, 1.06% and 1.02% for the years ended June 30, 1995,
June 30, 1994 and June 30, 1993, respectively.
</TABLE>
11
<PAGE> 16
FINANCIAL HIGHLIGHTS
--------------------
TAXABLE FIXED INCOME SERIES FUND
SHORT-TERM GOVERNMENT BOND SERIES:
The table below sets forth unaudited financial data for a share of capital stock
of the SHORT-TERM GOVERNMENT BOND SERIES outstanding during the period of
January 2, 1997 (commencement of operations) through April 30, 1997.
<TABLE>
<CAPTION>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES
Four Months Ended
04/30/97
(unaudited)
-----------
<S> <C>
Net asset value, beginning of period............................ $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......................................... 0.13
Net gains or losses on securities
(both realized and unrealized)................................. (0.02)
-----
Total from investment operations............................. 0.11
----
LESS DISTRIBUTIONS
Dividends from net investment income........................... (0.13)
------
Total distributions.......................................... (0.13)
------
Net asset value, end of period.................................. $9.98
=====
TOTAL RETURN ................................................... 1.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)........................... $1,206
Ratio of expenses to average net assets*+ ..................... 1.32%**
Ratio of net investment income to
average net assets*.......................................... 4.29%**
Portfolio turnover............................................. 0.00%
<FN>
* Average net assets have been computed based on the aggregate value of the
Fund's daily net assets.
** Annualized.
+ After voluntary waiver of advisory and legal fees and expenses reimbursed
by advisor. Before voluntary waiver and reimbursement of expenses, the
ratio of expenses to average net assets was 6.53%. The ratio of net
investment income to average net assets would have been (0.92%).
</TABLE>
12
<PAGE> 17
FINANCIAL HIGHLIGHTS
--------------------
TAXABLE FIXED INCOME SERIES FUND
LONG-TERM BOND SERIES:
The table below sets forth unaudited financial data for a share of capital stock
of the LONG-TERM BOND SERIES outstanding during the period of January 2, 1997
(commencement of operations) through April 30, 1997.
<TABLE>
<CAPTION>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES
Four Months Ended
04/30/97
(unaudited)
-----------
<S> <C>
Net asset value, beginning of period............................ $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......................................... 0.13
Net gains or losses on securities
(both realized and unrealized)................................. (0.05)
-----
Total from investment operations............................. 0.08
----
LESS DISTRIBUTIONS
Dividends from net investment income........................... (0.13)
-----
Total distributions.......................................... (0.13)
-----
Net asset value, end of period.................................. $9.95
=====
TOTAL RETURN ................................................... 0.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)........................... $1,301
Ratio of expenses to average net assets*+ ..................... 1.57%**
Ratio of net investment income to
average net assets*.......................................... 4.26%**
Portfolio turnover............................................ 0.00%
<FN>
* Average net assets have been computed based on the aggregate value of the
Fund's daily net assets.
** Annualized.
+ After voluntary waiver of advisory and legal fees and expenses reimbursed
by advisor. Before voluntary waiver and reimbursement of expenses, the
ratio of expenses to average net assets was 6.72%. The ratio of net
investment income to average net assets would have been (0.90%).
</TABLE>
13
<PAGE> 18
PERFORMANCE CALCULATIONS
------------------------
From time to time, the Funds may advertise performance measures such as total
percentage increase, total return, and yield. Whenever total percentage increase
or yield is advertised, total return will be advertised as well. The following
is a brief explanation of how these figures are obtained.
YIELDS
- ------
With respect to the ASSET ALLOCATION FUND, the TAX EXEMPT BOND FUND, the
SHORT-TERM GOVERNMENT BOND SERIES and the LONG-TERM BOND SERIES, yield is a
measure of the total current income for the 30-day period ended on the given
date, stated as a percentage of the original investment. With respect to the
MONEY MARKET SERIES, yield is a measure of the total current income for the
7-day period ended on the given date. This percent is annualized and compounded,
which means that the income is assumed to be earned and reinvested over a
one-year period. Effective yield is computed in the same manner, except that
income is assumed to have been reinvested over a one-year period. Yield differs
from total percentage increase and total return since it only considers current
income and does not take into account gains or losses on securities held by a
Fund or Series.
With respect to the TAX EXEMPT BOND FUND, tax-equivalent yield is the yield
which would be required from a fund whose income is subject to Federal income
tax in order to equal the amount of after-tax income received by a shareholder
based on the tax exempt yield of this Fund. The rate simplifies the comparison
of yields of tax exempt funds with yields of taxable funds.
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.
TOTAL RETURN
- ------------
Total return is calculated in the same way as the total percentage increase
except that it is stated in terms of a level one-year compound rate of return
(all earnings reinvested on an annual basis) over the investment period.
Advertisements of the Funds' performance may also include the ending value of
the illustrated investment for the period stated. This is the amount that would
be received by a shareholder who sold all shares at the end of the stated
period. Advertised performance is based on historical earnings and is not
intended to indicate future performance.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of each Fund and Series is fundamental and may not be
changed without a vote of the holders of the majority of the voting securities
of the Fund/Series. Unless otherwise stated in this Prospectus or the Statement
of Additional Information, each Fund's and Series' investment policies are not
fundamental and may be changed without shareowner approval. While a
non-fundamental policy or restriction may be changed by the Directors of the
Fund without shareowner approval, the Funds intend to notify shareowners before
making any change in any such policy or restriction. Fundamental policies may
not be changed without shareowner approval. The Funds and Series strive to
attain their investment objectives, but there can, of course, be no assurance
that they will do so.
14
<PAGE> 19
GROWTH FUND:
- ------------
The investment objective of the GROWTH FUND is capital growth. Current income
through the receipt of interest or dividends from investments will be secondary
to this Fund's goal of capital growth. Thus, the Fund is not intended for
investors whose principal objective is dividend income. Achievement of the
Fund's objective cannot be assured, but through professional management, the
Fund will seek to obtain results which are in keeping with its objective.
Although the portfolio of the Fund may be restructured at times for temporary
defensive purposes, it is the intention of the Board of Directors that no
material change of a permanent nature will be made in the Fund's investment
objective without the approval of the holders of at least a majority of the
Fund's outstanding capital stock.
In seeking capital growth, the GROWTH FUND will constantly search for the best
values and will make investment decisions based primarily upon fundamental
valuation of securities. The Fund will dispose of securities held whenever, in
the judgment of its management, such securities do not represent the best values
for the purpose of achieving the Fund's objective. This can occur for a variety
of reasons, such as an increase in the market value of a particular security to
what is believed to be an unreasonably high level, a change in trend of growth
which was used as a basis of purchase, what is believed to be a vulnerable
general level of security prices, and other such circumstances bearing on the
desirability of continuing a given investment. Under ordinary circumstances,
securities will be held for periods of time sufficient to qualify for long-term
capital gain treatment for Federal income tax purposes.
The GROWTH FUND'S investment policy is to invest principally in common stocks
and securities with equity characteristics, such as convertible preferred stocks
and convertible bonds; however, it may invest fully in common stocks or
securities with equity characteristics. To a lesser extent, the Fund may also
invest in bonds and preferred stocks when deemed prudent. The Fund may adopt a
temporary defensive position when it deems advisable due to a change in economic
conditions. This may be done by establishing and maintaining a reserve in: cash;
short-term U.S. Government bonds, bills or notes; prime commercial paper of
major companies; and certificates of deposit issued by major banks, for the
purpose of providing working capital, funds for possible redemption of shares,
or to enable the Fund to take advantage of buying opportunities. The adoption of
any such temporary defensive position will be on a temporary basis and will not
be utilized to change the long-term investment objective and policies of the
Fund. The word "temporary" as used in the preceding sentence should not be read
as having a fixed meaning in the sense that it designates any fixed period of
time.
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 Corporation ("S&P") ("AAA",
"AA", "A", or "BBB"); or in those securities, although not rated as a matter of
policy by either of the above two ratings services, which are considered by
management to have investment quality comparable to securities that fall within
the four highest grades assigned by the above two rating services. In the event
a fixed income security held by the Fund is downgraded below a "Baa" or "BBB"
rating, the Investment Adviser (IAA Trust Company) shall promptly reassess the
risks involved and take such actions as it determines are in the best interests
of the Fund and its shareholders. See the Appendix to the Statement of
Additional Information for explanations on applicable ratings.
ASSET ALLOCATION FUND:
- ----------------------
The primary investment objective of the ASSET ALLOCATION FUND is growth of
capital with current income. The Fund seeks to achieve its objective by
following an asset allocation strategy utilizing a wide range of equity, debt,
and money market securities. Asset classes and securities strategies selected
will be those that the Investment Adviser believes offer the greatest potential
for maximizing total return.
Income and capital appreciation will be derived from the ASSET ALLOCATION FUND'S
investment in common stocks and fixed income securities consisting of bonds,
preferred stocks, and short-term obligations. Short-term obligations are
15
<PAGE> 20
instruments maturing in one year or less (measured from the time of investment)
and include: obligations of or guaranteed by the U.S. Government, its agencies
or instrumentalities; certificates of deposit of domestic banks; 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; non-convertible corporate debt securities such as bonds, notes
and debentures which are rated in the top two grades -- "Aaa" or "Aa" by Moody's
or "AAA" or "AA" by S&P; negotiable certificates of deposit of savings and loan
associations; and repurchase agreements. Fixed income securities may have equity
conversion privileges or other equity features, including attached warrants or
rights.
When investing in fixed income securities, the ASSET ALLOCATION 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 ("Aaa", "Aa", "A",
or "Baa") or S&P ("AAA", "AA", "A", or "BBB"); or in those securities, although
not rated as a matter of policy by either of the above two rating services,
which are considered by management to have investment quality comparable to
securities that fall within the four highest grades assigned by the above two
rating services. In the event a fixed income security held by the Fund is
downgraded below a "Baa" or "BBB" rating, the Investment Adviser shall promptly
reassess the risks involved and take such actions as it determines to be in the
best interest of the Fund and its shareholders. See the Appendix to the
Statement of Additional Information for explanations on applicable ratings.
Although it is not the intent of the ASSET ALLOCATION FUND'S management to trade
for short-term profits, purchases and sales of securities will be made whenever
management deems it would contribute to the achievement of the Fund's objective.
The Fund will be invested in securities representing a number of different
industry classifications and does not intend to concentrate its investments in a
particular industry. In addition to domestic securities, the Fund may invest in
Canadian and other foreign securities, both corporate and government, which are
payable in United States dollars. To the extent that the Fund does invest in
foreign securities, such investments may be subject to special risks, such as
changes in the administration or economic and monetary policies of foreign
governments. However, the Fund will not invest as much as 5% of its total assets
in foreign securities.
TAX EXEMPT BOND FUND:
- ---------------------
The investment objective of the TAX EXEMPT BOND FUND is to seek as high a level
of current interest income exempt from Federal income taxes as is available from
municipal bonds, consistent with the conservation of capital. The Fund's
investments (and thus the value of shares held by shareholders) will be subject
to the market fluctuations and risks inherent in all securities, and there can
be no assurance that the Fund's stated objective will be realized.
The TAX EXEMPT BOND FUND will seek to achieve its objective by investing
substantially all of its assets in a diversified portfolio of debt obligations
issued by or on behalf of states, territories or possessions of the United
States and the District of Columbia or their political subdivisions, agencies
and instrumentalities, or multi-state agencies or authorities, the interest from
which is exempt from Federal income taxes in the opinion of bond counsel to the
issuers. Under normal market conditions, the Fund will maintain at least 80% of
its net assets in tax exempt municipal bonds (not including assets invested in
temporary investments for defensive purposes-- see following paragraph). This
80% limitation is considered a fundamental policy. . The Fund's assets will
consist of: (1) municipal bonds 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"), or in those municipal bonds, although not rated as
a matter of policy by either of the above two rating services, which are
considered by management to have investment quality comparable to municipal
bonds that fall within the four highest grades assigned by the above two rating
services (municipal bonds rated "Baa" or "BBB" have speculative
characteristics); (2) temporary investments as described below; and (3) cash.
While ratings at the time of purchase will determine which securities may be
acquired, a subsequent reduction in rating will not require the Fund to dispose
of the securities. See the Appendix to the Statement of Additional Information
for explanations on applicable ratings. No limitations are imposed as to the
percentage of the Fund's assets which may be invested among Moody's or S&P's
highest four ratings; however,
16
<PAGE> 21
the Fund will not invest more than 20% of its net assets (measured at the time
of investment) in municipal bonds which are not rated, or in taxable
investments, or in investments subject to the alternative minimum tax.
Pending investment of proceeds from the sale of the TAX EXEMPT BOND FUND'S
shares, the changing of portfolio composition, and from time to time when deemed
appropriate by the Investment Adviser for defensive purposes, the Fund may
invest in temporary investment securities. Temporary investment securities
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
United States 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 banks having investment
quality, in management's opinion, comparable to debt securities of the type
described in category (5) above. The income from the securities described in
categories (4) through (7) above, is subject to Federal income taxes.
Consequently, interest income from temporary investments may be taxable to
shareholders as ordinary income.
TAXABLE FIXED INCOME SERIES FUND:
- ---------------------------------
Each Series of the Taxable Fixed Income Series Fund will invest at least 65% of
its total assets in taxable, fixed income securities, also known as "debt
securities". Examples of debt securities are commercial paper, bills, notes and
bonds, each representing a promise by the issuer to re-pay a debt which is
generally secured by the assets of such issuer. Also in this investment category
are debentures, which are bonds or promissory notes that are backed by the
general credit of the issuer, but not secured by specific assets of such issuer.
The types of debt securities in which each Series may invest have been
determined by the investment objective of the Series.
MONEY MARKET SERIES:
The investment objective of the MONEY MARKET SERIES is to earn as high a level
of current income as possible, consistent with maintaining liquidity and
stability of principal. In pursuing its objective, the Series may not always
purchase securities offering the highest yield. The Series will only invest in
high-quality rated securities or unrated securities determined by the Board of
Directors to be of high-quality and present minimum credit risk. There can be no
assurance that the Series' stated objective will be realized.
The MONEY MARKET SERIES seeks to achieve its objective by investing in the
following types of money market instruments, which are maturing in one year or
less, measured from the time of investment:
- - Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.
- - Certificates of deposit 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 Series may purchase both negotiable
and non-negotiable certificates of deposit. Non-negotiable certificates of
deposit are not purchased or sold in a secondary trading market and must be
held to maturity unless, at the request of the Series, the issuer agrees to
redeem them earlier, possibly at less than par. Accordingly, the Series
will not invest more than 10% of its net assets in non-negotiable
certificates of deposit or in other illiquid, restricted securities so that
this potential liquidity risk will be minimal. 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.
17
<PAGE> 22
- - Commercial paper rated in the top grade by two nationally recognized
statistical rating organizations (NRSRO's) one of which must be either
Moody's Investors Service, Inc., or Standard & Poor's Corporation.
- - Non-convertible corporate debt securities such as bonds, notes and
debentures which are rated in the top grade -- "Aaa" by Moody's or "AAA" by
S&P.
- - Negotiable certificates of deposit of savings and loan associations in
amounts (currently $100,000) that are fully insured by The FDIC.
- - Repurchase agreements of obligations which are suitable for investment
under the categories set forth above and issued by a member bank or certain
broker/dealers who have been approved by the Board of Directors and are
participating in the Federal Reserve System. The Series will only invest in
repurchase agreements maturing in seven days or less.
SHORT-TERM GOVERNMENT BOND SERIES:
The investment objective of the SHORT-TERM GOVERNMENT BOND SERIES is to provide
maximum total return, consistent with preservation of capital and prudent
investment management. Total return consists of interest, and dividends from
underlying securities and capital appreciation realized from the purchase and
sale of securities. Under normal conditions, the Series seeks to achieve its
objective by investing at least 65% of the value of its total assets in
short-term government bonds. Short-term government bonds include U.S. Government
securities, such as bonds, notes, and bills which are (a) direct obligations of
the U.S. Treasury, and (b) securities issued or guaranteed by U.S. Government
agencies. The estimated portfolio turnover rate for the Series is less than
100%.
Government securities may be backed by (i) the full faith and credit of the
United States; (ii) the particular Government agency's ability to borrow
directly from the Treasury; (iii) some other type of United States support; or
(iv) the credit of the issuing agency, only. The government guarantee of the
U.S. Government securities in the Series' portfolio, however, does not guarantee
the net asset value of the shares of the Series. There are market risks inherent
in all investments in securities, and the value of an investment in the Series
will fluctuate over time. Normally, the value of the Series' investments varies
inversely with changes in interest rates. For example, as interest rates rise,
the value of the Series' investments will tend to decline, and as rates fall,
investment values tend to increase.
The Series expects to maintain a dollar-weighted average maturity of less than
three years. . Because the manager seeks to minimize interest rate risk by
managing effective duration, the Series may invest in securities of any
maturity.
The Series is designed primarily for investors who seek higher yields than money
market funds generally offer and are willing to accept nominal fluctuation in
the value of the shares but who are not willing to accept the greater
fluctuations that long-term bond funds might entail. This Series is not an
appropriate investment for investors whose primary investment objective is
absolute principal stability. Because the values of the securities in which this
Series invests generally change with interest rates, the value of its shares
will fluctuate, unlike the value of the shares of a money market fund, seeking
to maintain a stable net asset value per share of $1.00. Consequently, this
Series seeks to reduce such fluctuations by managing the effective duration, and
thus the interest rate risk, of its portfolio.
The Series also 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
rated within the three highest grades assigned by S&P (AAA, AA, A or A-1) or
Moody's (Aaa, Aa, A or P-1) or in unrated securities such as certificates of
deposit issued by banks, bankers' acceptances, and repurchase agreements
18
<PAGE> 23
deemed by the manager to be of comparable quality. Further, the Series may
invest in long-term fixed rate bonds that allow the Series to tender (or "put")
bonds to the issuer at specified intervals and receive face value for them. In
addition, the Series may invest in other investment companies investing
primarily in U.S. Government securities for the appropriate duration.
LONG-TERM BOND SERIES:
The investment objective of the LONG-TERM BOND SERIES is to provide the maximum
amount of current income and capital appreciation to the extent consistent with
the preservation of capital and the maintenance of liquidity. The Series invests
principally in debt obligations of corporations, the U.S. Government and its
agencies and instrumentalities, and major U.S. banking institutions and may also
purchase obligations of international agencies and U.S. dollar denominated
foreign debt securities. The estimated portfolio turnover rate for the Series is
less than 100%.
At least 80% of the value of the Series' net assets will consist of obligations
of corporations which, at the time of purchase by the Series 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. The Series may also invest in securities which, while not
rated, are determined by the investment manager to be of comparable quality to
those rated securities in which the Series may invest; for purposes of the 80%
requirement described in this paragraph, such unrated securities shall be deemed
to have the ratings so determined. See the Appendix to the Statement of
Additional Information for explanations on applicable ratings. At least 65% of
the value of the Series' total assets (except when maintaining a temporary
defensive position) will be invested in bonds. Such instruments include U.S.
Government and corporate bonds, notes, and convertible issues.
On occasion, up to 20% of the Series' 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 Series' investment in commercial
paper, certificates of deposit, time deposits and bankers' acceptances may
exceed 20% of its net assets, although the Series 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 Series 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. See the Appendix to the
Statement of Additional Information for explanations on applicable ratings. The
Series may invest up to 10% of its assets in securities of foreign issuers.
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
---------------------------------------------
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.
SECURITIES OF OTHER INVESTMENT COMPANIES
- ----------------------------------------
All Funds may purchase or acquire securities of other investment companies 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
19
<PAGE> 24
value of the Fund's total assets. By investing in another registered investment
company, there may be a duplication in fees and expenses.
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 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.
Still, there are certain risks involved with the use of certain repurchase
agreements. For example, if the seller should default on its obligation to
repurchase the securities, a Fund may experience delay 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 Funds' Investment Adviser.
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, of course, 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.
20
<PAGE> 25
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 was 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.
GOVERNMENT SECURITIES
- ---------------------
The LONG-TERM BOND SERIES may invest in 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 initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury Bonds
generally have initial maturities of greater than ten years. Some obligations
issued or guaranteed by U.S. Government agencies and instrumentalities, for
example, Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow from
the Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of the
agency or instrumentality. These securities bear fixed, floating or variable
rates of interest. Principal and interest may fluctuate based on generally
recognized reference rates or the relationship of rates. While the U.S.
Government provides financial support to such U.S. Government sponsored agencies
or instrumentalities, no assurance can be given that it will always do so since
it is not so obligated by law. The Series will invest in such securities only
when it is satisfied that the credit risk with respect to the issuer is minimal.
ZERO COUPON SECURITIES
- ----------------------
The LONG-TERM BOND SERIES 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 Series
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.
MORTGAGE-RELATED SECURITIES
- ---------------------------
The LONG-TERM BOND SERIES 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 Series 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
21
<PAGE> 26
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 underlying mortgage and, therefore, it is not
possible to predict accurately the security's return to the Series. The Series
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 a nationally recognized
rating organization such as Moody's or S&P.
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 inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. 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. The GROWTH
FUND, the ASSET ALLOCATION FUND, and the TAX EXEMPT BOND FUND may purchase
fixed-income securities rated Baa by Moody's and BBB by S&P. Such securities may
be subject to the aforementioned risk with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Obligations which are rated Baa are considered medium
grade obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are regarded as having adequate capacity to pay interest and repay
principal, and while such bonds ordinarily 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 in higher rated categories.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
- ----------------------------------------------
The LONG-TERM BOND SERIES 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 Series will make commitments to purchase
such securities only with the intention of actually acquiring the securities,
but the Series may sell these securities before the settlement date if it is
deemed advisable. The Series 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 SERIES 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 Series 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 Series 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 Series' custodian bank.
Purchasing securities on a forward commitment or when-issued basis when the
Series is fully or
22
<PAGE> 27
almost fully invested may result in greater potential fluctuation in the value
of the Series' net assets and its net asset value per share.
FOREIGN SECURITIES
- ------------------
Since up to 10% of the LONG-TERM BOND SERIES' portfolio may consist of
securities of foreign issuers, the Series may be subject to investment risks as
to these securities that are greater in some respects than those incurred by a
Series 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 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.
MANAGEMENT OF THE FUNDS
-----------------------
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 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
("IAATC"), 808 IAA Drive, Bloomington, Illinois, as their Investment Adviser
under written Agreements which are renewable annually by the Funds' 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 Agreement 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, or by votes of the shareholders,
or by IAATC upon sixty days written notice, and they terminate automatically in
the event of their assignment. IAATC was organized on December 30, 1970 and has
no investment company clients other than the IAA Trust Mutual Funds discussed
herein. Illinois Agricultural Holding Co. owns all of the outstanding voting
securities of IAATC. Approximately 98% of the issued and outstanding voting
stock of the Illinois Agricultural Holding Co. is owned by the Illinois
Agricultural Association ("IAA"). IAA is an Illinois not-for-profit membership
corporation organized to promote the interest of agriculture.
IAATC, subject to the authority of the Board of the Funds, is generally
responsible for the overall management of the Funds' business. For these
services performed and expenses assumed, the GROWTH FUND, the ASSET ALLOCATION
FUND and the LONG-TERM BOND SERIES each pay IAATC an annual fee of approximately
.75% of their respective average daily net assets. These fees are considered
higher than the advisory fees paid by most other mutual funds; however, these
fees are comparable with those of other mutual funds with similar investment
objectives. The TAX EXEMPT BOND FUND, the MONEY MARKET SERIES and the SHORT-TERM
GOVERNMENT BOND SERIES each pay IAATC an annual fee of approximately .50% of
their respective average daily net assets. All of these fees are computed on a
daily basis and are paid monthly. Neither IAATC nor any company affiliated with
it receives any brokerage commissions from the Funds, as such business is
transacted with non-affiliated broker-dealers.
The following persons who are Officers and/or Directors of the Funds also hold
positions with IAATC as indicated: Ronald R. Warfield, Director and President;
Bruce Finks, Vice President--Investments; Gary E. Mede, Executive Vice
President; Richard M. Miller, Senior Vice President and Senior Trust Officer;
Rollie D. Moore, Director and Vice President; Paul M. Harmon, Secretary; Robert
W. Weldon, Vice President--Finance and Treasurer; Richard F. Day, Controller.
23
<PAGE> 28
MANAGEMENT'S DISCUSSION OF FUNDS' PERFORMANCE
GROWTH FUND:
- ------------
IAA TRUST GROWTH FUND VS. STANDARD & POOR'S INDEX
[GRAPH]
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth 9,700 11,131 10,387 12,471 14,477 15,255 15,900 17,762 17,332 21,956 26,679
S&P's 500 10,000 12,509 11,646 14,037 16,339 17,546 19,908 22,550 22,868 28,829 36,325
* Past performance is not indicative of future results.
</TABLE>
Note 1: Fund returns are net of all fees and transaction costs, while the
Index returns are based solely on market returns without deduction for
fees or transaction costs for rebalancing. The Index is un-managed.
Note 2: The above graph reflects the impact of sales charges which were placed
on purchases. The maximum sales charge for the period indicated was
3.0%. BEGINNING OCTOBER 28, 1996, NO SALES CHARGES WILL BE PLACED ON
PURCHASES.
Fund returns are net of all fees and transaction costs, while the Index returns
are based solely on market returns without deduction for fees or transaction
costs for rebalancing.
The net asset value of the GROWTH FUND closed the fiscal year on June 30, 1996
at $18.88 per share. The figures below show historical compound annual returns
of Fund shares with dividends reinvested, as of June 30, 1996.
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Without Sales Charge 21.51% 11.83% 10.65%
Maximum Sales Charge Deducted 17.88% 11.14% 10.31%
</TABLE>
These annual returns are for prior years' performance. Returns in future periods
cannot be guaranteed, and the value of Fund shares can fluctuate either above or
below their original cost. The Maximum Sales Charge Deducted referred to in the
above chart applies to the fund's performance during the periods indicated.
BEGINNING OCTOBER 28, 1996, NO SALES CHARGE WILL BE DEDUCTED.
24
<PAGE> 29
picture of Michael E. Marks: Earned his B.S. in Business Administration
Michael Marks from Washington University in St. Louis, his M.B.A. from
here Indiana University in Bloomington, and is currently pursuing
the Chartered Financial Analyst certification. Prior to
graduate school, he was a management consultant for Price
Waterhouse's Strategic Consulting Group. Mr. Marks joined
IAA Trust Company in 1993 and manages the GROWTH FUND, and
the equity portion of the ASSET ALLOCATION FUND.
25
<PAGE> 30
ASSET ALLOCATION FUND:
- ----------------------
IAA ASSET ALLOCATION FUND VS. MERRILL LYNCH CORPORATE AND GOVERNMENT
BOND MASTER INDEX & LIPPER-BALANCED FUNDS INDEX
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation 9,700 10,079 10,731 11,847 12,618 13,812 15,448 16,928 17,048 19,825 22,747
Merrill Lynch 10,000 10,470 11,232 12,645 13,516 14,915 17,029 19,261 19,229 21,658 22,732
Lipper-balanced 10,000 11,426 10,776 12,387 13,643 14,778 16,820 19,194 22,075 25,604 29,578
* Past performance is not indicative of future results.
</TABLE>
Note 1: Fund returns are net of all fees and transaction costs, while the Index
returns are based solely on market returns without deduction for fees
or transaction costs for rebalancing. The Index is un-managed.
Note 2: The above graph reflects the impact of sales charges which were placed
on purchases. The maximum sales charge for the period indicated was
3.0%. BEGINNING OCTOBER 28, 1996, NO SALES CHARGES WILL BE PLACED ON
PURCHASES.
The net asset value of the ASSET ALLOCATION FUND closed the fiscal year on June
30, 1996 at $13.39 per share. The figures below show historical compound annual
returns of Fund shares with dividends reinvested, as of June 30, 1996.
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Without Sales Charge 14.74% 10.49% 8.90%
Maximum Sales Charge Deducted 11.30% 9.83% 8.57%
</TABLE>
These annual returns are for prior years' performance. Returns in future periods
cannot be guaranteed, and the value of Fund shares can fluctuate either above or
below their original cost. The Maximum Sales Charge Deducted referred to in the
above chart applies to the Fund's performance during the periods indicated.
BEGINNING OCTOBER 28, 1996, NO SALES CHARGE WILL BE DEDUCTED.
26
<PAGE> 31
picture of John Jacobs, Investment Officer for the ASSET ALLOCATION FUND:
John Jacobs Earned a B.S. in Business and Finance at Illinois Wesleyan
here Financial Analyst, and has served as a member of IAA Trust
University in Bloomington. Mr. Jacobs is also a Chartered
Company's Investment Committee. Prior to joining the Company in
1975, he was an account executive for one of the leading
national brokerage firms. Mr. Jacobs is also Investment Officer
to the SHORT-TERM GOVERNMENT BOND SERIES and the LONG-TERM BOND
SERIES of the TAXABLE FIXED INCOME SERIES FUND.
27
<PAGE> 32
TAX EXEMPT BOND FUND:
- ---------------------
IAA TAX EXEMPT BOND FUND VS. LEHMAN MUNI GENERAL BOND INDEX
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax Exempt 9,700 10,299 11,091 12,217 12,857 13,892 15,289 16,694 16,383 17,614 18,547
Lehman Muni 10,000 10,862 11,668 12,997 13,882 15,133 16,914 18,937 18,969 20,642 21,813
* Past performance is not indicative of future results.
* Past performance is not indicative of future results.
</TABLE>
Note 1: The IAA Trust Tax Exempt Bond Fund's portfolio does not mirror the
Lehman Index.
Note 2: Fund returns are net of all fees and transaction costs, while the Index
returns are based solely on market returns without deduction for fees
or transaction costs for rebalancing. The Index is un-managed.
Note 3: The above graph reflects the impact of sales charges which were placed
on purchases. The maximum sales charge for the period indicated was
3.0%. BEGINNING OCTOBER 28, 1996, NO SALES CHARGES WILL BE PLACED ON
PURCHASES.
The net asset value of the TAX EXEMPT BOND FUND closed the fiscal year on June
30, 1996 at $8.41 per share. The figures below show historical compound annual
returns of Fund shares with dividends reinvested, as of June 30, 1996.
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Without Sales Charge 5.30% 5.95% 6.70%
Maximum Sales Charge Deducted 2.12% 5.31% 6.37%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested and the maximum sales charge applied on initial investments. The
Maximum Sales Charge Deducted referred to in the above chart applies to the
fund's performance during the periods indicated. BEGINNING OCTOBER 28, 1996, NO
SALES CHARGE WILL BE DEDUCTED. Although the Fund's income is generally exempt
from Federal income taxes, it may, under certain circumstances, be subject to
state income taxation. See "INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, AND
TAXES".
28
<PAGE> 33
picture of Mary S. Guinane, Investment Officer for the TAX EXEMPT BOND
Mary S. Guinane FUND: Earned a M.B.A. at Illinois State University and a
here B.A. in Psychology and Sociology at St. Ambrose College.
Ms. Guinane has been with IAA Trust Company since 1981.
29
<PAGE> 34
TAXABLE FIXED INCOME SERIES FUND:
- ---------------------------------
MONEY MARKET SERIES:
picture of Robert L. Sammer, B.S. manages the IAA Money Market
Robert L. Sammer Fund. Bob received his bachelor of science degree in
here finance from Illinois State University in 1988 and is
currently pursuing his MBA from the same institution.
After working as a trust administrator for Independent
Trust Corporation in Lombard, Illinois, he joined IAA
Trust Company in 1991. Here, he has served as client
services coordinator, corporate retirement and agency
accounts coordinator and, now investment analyst.
30
<PAGE> 35
FPS SERVICES, INC.
- ------------------
FPS Services, Inc. ("FPS"), 3200 Horizon Drive, P.O. Box 61503, King of Prussia,
Pennsylvania 19406-0903, is the Funds' Transfer and Dividend Disbursing Agent
and as such performs all shareholder services for the Funds. The Funds have also
entered into Agreements with FPS under which FPS provides accounting and
administration services.
Administration services include all administrative services except those
relating to the investment portfolios of the Funds, the distribution of the
Funds, and the maintenance of the Funds' financial records. The fees for
administrative services are based on a declining percentage of each Fund's
average net assets, beginning at .0015% of the first $50,000,000 of average net
assets. However, the ASSET ALLOCATION FUND, the TAX EXEMPT BOND FUND, and the
TAXABLE FIXED INCOME SERIES FUND are each required to pay a minimum annual fee
of $10,000 and the GROWTH FUND is required to pay a minimum annual fee of
$50,000 for such services.
The Funds each pay a minimum accounting fee of $25,000 and pay additional
accounting fees, based on declining percentages of their respective average net
assets in excess of $10,000,000. There are no direct or indirect relationships
between FPS Services, Inc. and the Funds or IAA Trust Company.
DISTRIBUTION OF THE FUNDS' SHARES
---------------------------------
FPS Broker Services, Inc. ("FPBS") serves as the Distributor for the Funds on a
best efforts basis, pursuant to various Underwriting Agreements. The Distributor
is an affiliated company of FPS Services, Inc. ("FPS"), the Funds' servicing
agent, inasmuch as both the Distributor and FPS are under common ownership.
DISTRIBUTION PLANS
------------------
The shareholders of the GROWTH FUND, the ASSET ALLOCATION FUND, the TAX EXEMPT
BOND FUND, the SHORT-TERM GOVERNMENT BOND SERIES and the LONG-TERM BOND SERIES
have each adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The MONEY MARKET SERIES does not
participate in any plan pursuant to this Rule. The Plan permits the
participating Funds to pay certain expenses associated with the distribution of
their shares. The Plan provides that the participating Funds will reimburse the
Distributor for actual distribution and shareholder servicing expenses incurred
by the Distributor not exceeding, on an annual basis, 0.25% of each
participating Fund's average daily net assets. Amounts expended by the
Distributor, but not reimbursed by each participating Fund's Plan, will not be a
continuing liability of such Fund in subsequent years. Because the Funds
reimburse the Distributor only for actual expenditures, the Distributor realizes
no profit from the 12b-1 Plan. The Plan 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.
All such payments made pursuant to the Plan 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 maximum amount which will be
paid to such parties by the Distributor is 0.25% (on an annual basis) of a
participating Fund's average net assets, owned by client of that party.
Management may choose to pay a lesser amount.
31
<PAGE> 36
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
nonassessable 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 of the par value of $0.10 per share. 100,000,000 of this
Fund's shares are designated as MONEY MARKET SERIES, 50,000,000 of its shares
are designated as SHORT-TERM GOVERNMENT BOND SERIES, and 25,000,000 of its
shares are designated as LONG-TERM BOND SERIES. The remaining 75,000,000 shares
are undesignated.
COUNTRY LIFE INSURANCE COMPANY
- ------------------------------
As of June 10, 1997, 435,498 shares or 7.76% of the issued and outstanding
capital stock of the GROWTH FUND were owned by Country Life Insurance Company
("Country Life"), Bloomington, Illinois. Country Life's capital stock enables it
to influence the outcome of shareholder votes. Country Life is organized in
Illinois. Substantially all issued and outstanding stock of Country Life is
owned by Illinois Agricultural Holding Co.
As of June 10, 1997, 96,228 shares or 9.92% of the issued and outstanding
capital stock of the ASSET ALLOCATION FUND were owned by Country Life Insurance
Company ("Country Life"), Bloomington, Illinois. Country Life's capital stock
enables it to strongly influence the outcome of shareholder votes. Country Life
is organized in Illinois. Substantially all issued and outstanding stock of
Country Life is owned by Illinois Agricultural Holding Co.
IAA TRUST COMPANY
- -----------------
As of June 10, 1997, IAA Trust Company owned of record 2,760,287 shares or
49.24% of the issued and outstanding capital stock of the GROWTH FUND, 720,719
shares or 74.36% of the issued and outstanding capital stock of the ASSET
ALLOCATION FUND, 232,558 or 11.24% of the issued and outstanding capital stock
of the TAX EXEMPT BOND FUND, 39,723,670 shares or 83.61% of the issued and
outstanding capital stock of the MONEY MARKET SERIES, 1,184,938 shares or 99.99%
of the issued and outstanding capital stock of SHORT-TERM GOVERNMENT BOND
SERIES, and 1,361,069 shares or 99.99% of the issued and outstanding capital
stock of LONG-TERM BOND SERIES.
32
<PAGE> 37
Illinois Agricultural Holding Co. owns 100% of the outstanding voting securities
of the Trust Company. For additional information on the ownership of Illinois
Agricultural Holding Co. See "MANAGEMENT OF THE FUNDS".
Shareholder inquiries should be directed to FPS Services, Inc., 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903, or call
toll-free 1 (800) 245-2100.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, AND TAXES
Dividends and capital gains distributions may be automatically reinvested in
additional shares of a particular Fund/Series at net asset value , or paid in
cash, at the choice of the investor. The cash option is not available under the
Systematic Withdrawal Plan or Retirement Plans.
Capital gains are taxed at the same rate as ordinary income. The dividends
received deduction for corporations is 70% and is applicable to the GROWTH FUND
and the ASSET ALLOCATION FUND. Each shareholder will receive a summary of the
dividends paid or reinvested as they are declared. If the entire amount in an
account is redeemed at any time during a month, dividends credited to that
account from the beginning of the month through the day of redemption will be
paid together with the proceeds of the redemption.
GROWTH FUND:
- ------------
It is the policy of the GROWTH FUND to distribute semi-annually, all of its net
investment income and, if any, all of its net realized capital gains according
to tax regulations. Currently, these distributions are made at the end of the
Fund's fiscal year and at calendar year-end.
ASSET ALLOCATION FUND,
SHORT-TERM GOVERNMENT BOND SERIES and
LONG-TERM BOND SERIES:
- ----------------------
It is the policy of each of the ASSET ALLOCATION FUND, the SHORT-TERM GOVERNMENT
BOND SERIES, and the LONG-TERM BOND SERIES to pay monthly dividends from its net
investment income and to distribute net capital gains, if any, according to tax
regulations at the end of its fiscal and calendar years.
TAX EXEMPT BOND FUND:
- ---------------------
It is the policy of the TAX EXEMPT BOND FUND to pay monthly dividends from its
net investment income.
The Fund intend to qualify each fiscal year (under the Internal Revenue Code of
1986 and any amendments thereto) to pay "exempt-interest dividends" to their
shareholders. Exempt-interest dividends which are derived from net income earned
by the Fund on tax-exempt bonds will be excludable from gross income of the
shareholders for Federal income tax purposes. That part of monthly net
investment income which may be earned by the Fund from certain taxable temporary
investments, together with any annual distributions attributable to short-term
capital gains, are taxable as ordinary income to investors whether received in
cash or reinvested in shares. The percentage of each monthly dividend designated
by the Fund as tax exempt will be the same percentage as the actual tax exempt
income earned during the period covered by the distribution bears to total
income earned by the Fund during the period. Shareholders will be notified of
such designations monthly and information regarding the tax status of any other
distributions will be mailed annually. The percentage of the monthly dividend
which is tax exempt may vary from distribution to distribution. Long-term
capital gains distributions are taxable to shareholders as long-term capital
gain, regardless of how long a shareholder has held shares.
33
<PAGE> 38
Shareholders of the Fund should recognize that should they redeem shares between
dividend dates, a portion of the per share redemption price may represent
interest accrued on municipal bonds and said portion may be taxed at long- or
short-term capital gains rates and not as a tax-exempt dividend excludable from
gross income.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
the Fund will not be deductible for Federal income tax purposes. The exemption
of interest income for Federal income tax purposes does not necessarily result
in exemption under the income or other tax laws of any state or local authority.
Thus, shareholders may be subject to state and local taxes on distributions of
tax-exempt interest income from the Fund.
MONEY MARKET SERIES:
- --------------------
The MONEY MARKET SERIES declares and distributes dividends of all of its daily
net investment income on each day that its net asset value is determined.
Dividends are paid to shareholders on a monthly basis.
Net investment income, for dividend purposes of this Series, consists of: (1)
accrued interest income plus or minus amortized purchase discount or premium;
(2) plus or minus all short-term realized gains and losses and unrealized
appreciation and depreciation on portfolio assets; and (3) minus all accrued
expenses of such Series, which are accrued each day. Net income will be
calculated immediately prior to the determination of the net asset value per
share of the Series Since the net income of the Series (including realized gains
and losses and unrealized appreciation and depreciation on the portfolio
securities) is declared as a dividend each time the net income of the Series is
determined, the net asset value per share of the Series normally remains at
$1.00 per share immediately after each such determination and dividend
declaration. Any increase in the value of a shareholder's investment in the
Series representing the reinvestment of dividend income is reflected by an
increase in the number of shares of the Series in the account. Normally, the
Series will have a positive net income at the time of each determination
thereof. Net income may be negative if an unexpected liability must be accrued,
a loss realized, or unrealized depreciation occurs. If the net income of the
Series determined at any time is a negative amount, the net asset value per
share will be reduced below $1.00. The Series may endeavor to restore the net
asset value per share to $1.00 by not declaring dividends from net income on
subsequent days until restoration, with the result that the net asset value per
share will increase to the extent of positive net income which is not declared.
ALL FUNDS/SERIES:
- -----------------
The Board of Directors may revise the above dividend policies, or postpone the
payment of dividends, if a Fund/Series should have or anticipate any large
presently unexpected expense, loss, or fluctuation in net assets which in the
opinion of the Board might have a significant adverse effect on shareholders.
All of the Funds/Series comply with Subchapter M of the Internal Revenue Code
available to investment companies and therefore, maintain exemption from Federal
income tax.
Long-term capital gains distributions are taxable to shareholders as long-term
capital gain, regardless of how long a person has been a shareholder. Any
dividend or distribution received shortly after the purchase of shares reduces
the net asset value of the shares by the amount of the dividend or distribution
and, although in effect a return of capital, is subject to income taxes. The
Funds/Series are required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income, capital gains distributions, and redemption proceeds
for any account which provides an incorrect taxpayer identification number, no
number at all, or no certified number for a new account.
In order to avoid an excise tax on undistributed amounts, the Funds/Series must
declare by the end of the calendar year a dividend representing 98% of their
ordinary income for the calendar year and 98% of their net capital gains (both
long-term and short-term) for the period of November 1 of the previous year
through October 31 of the current year. Such dividends will be paid on the last
business day of the calendar year to shareholders of record at the close of
business on the preceding business day.
34
<PAGE> 39
Statements as to the tax status of distributions to shareholders will be mailed
annually. If shareholders are not subject to Federal income taxes on their
income, then they are not required to pay Federal tax on amounts distributed to
them. This section is not intended to be a complete discussion of all aspects of
the Federal income tax law and its effect on shareholders. For other tax
information, you may wish to consult your tax adviser.
PURCHASE OF SHARES
------------------
You may open an account by contacting FPS Broker Services, Inc., 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903, 1(800)245-2100
or your local Country Capital Management Company sales representative. Purchases
of Fund shares may be made in two ways: by mail or by wire transfer, as
discussed further below. The minimum initial investment is $1,000 for all Funds.
The minimum subsequent investment amount is $100 for all Funds. After an account
has been opened, you may purchase additional shares through a sales
representative or you may send your order directly to IAA Trust Company c/o FPS
Broker Services Inc. ("FPBS"), 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, Pennsylvania 19406-0903. Each check should be made payable to a
specific Fund. All orders are subject to acceptance by FPBS and without in any
way limiting the foregoing, the Funds (through FPBS) reserve the right to refuse
any purchase which would result in ownership by any shareholder of 5% or more of
a Fund's outstanding shares at that time. The Funds will automatically redeem
shares if a purchase check is returned for non-sufficient funds (NSF). This
procedure places the risk for loss on the shareholder. The Funds reserve the
right to automatically redeem shares if the share balance of an account falls
below $1,000.
PURCHASE PRICE
- --------------
Shares of all Funds and Series are sold at the net asset value (without a sales
charge) next determined after receipt of the order by FPBS.
PURCHASES BY MAIL
- -----------------
To open an account and purchase shares by mail, complete an application and mail
it with your check payable to "IAA Trust ___________________ Fund, Inc.", or
IAA Trust ___________________ Series", whichever is appropriate, c/o FPS Broker
Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia,
Pennsylvania 19406-0903. Applications may be obtained by calling toll-free, 1
(800) 245-2100.
The application need not be signed by a sales representative if you prefer to
purchase directly with Country Capital Management Company or FPBS. If you deal
with a sales representative, he or she will assist you in completing the
application, answer any of your questions, and mail the application for you.
Although no commission is paid, the sales representative may, at times, receive
additional compensation.
In order to maximize current income, all investments in the Funds must be made
in Federal Funds so that the Fund can put the money to work immediately. Checks
drawn on a member bank of the Federal Reserve System usually are converted into
Federal Funds within two business days of receipt by FPBS. Shares begin earning
income dividends on the day the purchase order is effective. A Fund will
automatically redeem shares if the purchase check is returned for non-sufficient
funds (NSF). This procedure places the risk for loss on the shareholder.
PURCHASES BY WIRE TRANSFER
- --------------------------
To open an account and become a shareholder on the same day, first you (or our
sales representative) must telephone FPBS toll-free at 1 (800) 245-2100, by
12:00 Noon Eastern Time. An account number will be assigned to you for use in
identifying your wire transfer of money.
35
<PAGE> 40
Second, you must request your bank to transmit immediately available funds
(Federal Funds) by wire to:
UMB BANK, NA
ABA #10-10-00695
For: FPS Services, Inc.
Account #98-7037-071-9
IAA TRUST ________________ FUND (or SERIES)
Account of (exact name(s) of Account Registration)
Shareholder Account #_______________
In order to obtain same-day investment, your wire must be received by the above
bank by 12:00 Noon Eastern Time. The bank that wires your money may charge a fee
for this service.
Third, you or our sales representative must mail a completed application to
FPBS, as noted above.
SUBSEQUENT INVESTMENTS
- ----------------------
Once your account has been established, additional investments in any of the
Funds may be made at any time by mailing a check or by wiring money as described
above. When you wire money for either the initial or additional investments,
ALWAYS CALL FPBS on the same day to notify them of the investment. The minimum
subsequent investments are $100 by mail and $1,000 by wire transfer.
SPECIAL PLANS AND OTHER PURCHASE INFORMATION
--------------------------------------------
The Funds have available the following special Plans and purchase options.
Further information with respect to these plans is contained in the Funds'
Statement of Additional Information. Further information on these Plans may also
be obtained by contacting FPBS or Country Capital Management Company.
AUTOMATIC INVESTING
- -------------------
A shareholder may authorize Systematic Investing through automatic withdrawals
from his/her bank account(s).
EXCHANGE PRIVILEGES
- -------------------
Shareholders in any of the Funds may exchange shares of their respective Fund
for shares of the other Funds on the basis of the relative net asset values per
share at the time of the exchange. 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 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. Sixty days written notice will be given to shareholders before any
modifications to this privilege are implemented.
RETIREMENT PLANS
- ----------------
IAA Trust Company ("IAATC") sponsors a prototype Defined Contribution Plan which
has been approved by the Internal Revenue Service and which meets the
requirements of the Tax Reform Act of 1986, as amended. This Plan can invest in
shares of the GROWTH FUND, the ASSET ALLOCATION FUND, and Series of the TAXABLE
FIXED INCOME SERIES FUND. The minimum initial investment for each Fund is $100,
with no minimum for subsequent investments.
36
<PAGE> 41
For individuals eligible to establish an Individual Retirement Account ("IRA"),
IAATC sponsors a prototype IRA Plan which has been approved by the Internal
Revenue Service.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------
Shareholders who purchase or already own $5,000 or more of a Fund's shares,
valued at the current public offering price, and who wish to receive periodic
payments may establish a Systematic Withdrawal Plan. Such plan holders will
receive monthly, quarterly or annual checks in the amount they designate.
VALUATION OF SHARES
-------------------
The Funds will be open for business and will price their respective shares on
each day the New York Stock Exchange is open for trading. The Funds' share
prices 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 SERIES
reserves the right to calculate its net asset value more frequently than once a
day if deemed desirable.
The net asset value per share is determined as follows. 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. Equity securities which are traded in the
over-the-counter market only and which are included in the NASDAQ National
Market System will be valued at the last sales price preceding the time for
valuation. 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 price. Valuations
may also be obtained from a 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.
From the gross value of the assets so determined, there will be deducted all
liabilities, including accrued expenses and taxes, and any necessary reserves.
The remainder will be the net asset value of a Fund, which will be divided by
the number of shares of capital stock outstanding in order to determine the
Fund's net asset value per share. (The net asset value per share of the MONEY
MARKET SERIES is ordinarily $1.00.) On any day when depreciation in the value of
a Fund's portfolio securities exceeds income after expenses, such Fund's net
asset value per share may decline.
The market values of debt securities usually reflect yields generally available
on securities of similar quality. When yields decline, the market value of a
portfolio holding higher-yielding securities increases; and when yields
increase, the market value of the portfolio invested at lower yields can be
expected to decline. In addition, if a Fund has net redemptions at a time when
interest rates have increased, such Fund may have to sell portfolio securities
prior to maturity at a price below the Fund's carrying value. Also, because at
least a portion of the portfolio may be valued at amortized cost rather than
market, any yield quoted may be different if the entire portfolio were valued at
market, since amortized cost does not take market fluctuation into
consideration.
With respect to the MONEY MARKET SERIES, the value of all of its securities is
determined by using the amortized cost method of valuation, pursuant to Rule
2a-7 under the Investment Company Act. The amortized cost method of valuation
involves valuing a security at its cost at the time of purchase and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
such security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Series would receive if it sold the instrument. The
purpose of this method of calculation is to attempt to maintain a constant net
asset value per share of $1.00, which may or may not result.
37
<PAGE> 42
REDEMPTION OF SHARES
--------------------
Each Fund will redeem any part or all of your shares whenever you request. The
price you receive will be the net asset value per share as next computed after
your request is received by FPS Services, Inc. ("FPS"), as Transfer Agent, in
proper form. Accounts in the MONEY MARKET SERIES will earn daily dividends up to
the day before the date of redemption. Your redemption proceeds may be delayed
if you purchased the shares to be redeemed by check (including certified or
cashier checks) until such check has cleared and the Fund has collected good
funds for your purchase. Such collection may take 15 days or more.
You can redeem shares from an account -- by mail or by telephone, and with
respect to the MONEY MARKET SERIES ONLY, by writing a check.
REDEMPTIONS BY MAIL
- -------------------
To redeem by mail, simply send a letter to:
IAA Trust Mutual Funds
c/o FPS Services, Inc.
P.O. Box 61503
King of Prussia, PA 19406
Your letter must specify the name of the Fund or Series, your account number and
either the number of shares or the dollar amount to be redeemed. Your request
must be signed exactly as your account is registered. If your account is owned
jointly, both owners must sign. If a stock certificate has been issued, it must
be forwarded back (blank and unsigned) with your written request.
The Funds reserve the right to 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 adjustments. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies, and savings associations.
A broker-dealer guaranteeing signatures must be a member of a clearing
corporation or maintain net capital of at least $100,000. Credit unions must be
authorized to issue signature guarantees. Signature guarantees will be accepted
from any eligible guarantor institution which participates in a signature
guarantee program.
REDEMPTIONS BY TELEPHONE
- ------------------------
If you completed the portion of the application so as to authorize redemptions
by telephone, you may redeem in this manner by calling toll-free 1 (800)
245-2100 before the close of business on any business day. Telephone redemptions
are not available if a joint owner is under age 14. When one of the joint
tenants is age 14 to 17, the adult tenant must authorize telephone redemptions.
All telephone conversations with FPS will be recorded. The proceeds will be sent
only to the financial institution you designate or to the address of record of
the account. The proceeds will normally be sent the next business day by mail
or, if you prefer and pay the expense, they will be wire transferred (minimum
$1,000). If wire transferred, the Fund(s) cannot be responsible for any delays
which may occur after a Fund has entered the proceeds in the Federal wire
systems. The financial institution you designate must be a bank, savings and
loan or credit union which is insured under The FDIC, as only these institutions
can send or receive Federal wire transfers. These instructions will remain in
effect until you cancel or change them by written request. No stock certificates
will be issued to or may be held by shareholders electing this privilege. The
Funds reserve the right to terminate or modify this privilege at any time upon
thirty days notice to shareholders. Shareholders recently purchasing shares by
check may not use the telephone redemption privilege under certain
circumstances.
38
<PAGE> 43
Neither the Funds nor any of their service contractors 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,
including requesting a shareholder to correctly state his or her Fund account
number, the name in which his or her account is registered, his or her social
security number, banking institution, bank account number, and the name in which
his or her bank account is registered. 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.
REDEMPTIONS BY WRITING A CHECK
- ------------------------------
If you so request on the application, the MONEY MARKET SERIES ONLY will provide
you with an initial supply of checks, which you should receive within two or
three weeks. These checks may be written in any amount not less than $100 nor
more than $100,000, and can be made payable to you or anyone you desire.
Redemption procedures will enable you to continue to earn daily income dividends
until your redemption check has cleared. Payment of all redemption checks is
subject to approval by the Fund, and if there are not sufficient shares in your
account, the check will be returned marked "Insufficient Funds". The Fund
reserves the right to terminate or modify this privilege at any time upon thirty
days notice to shareholders. Shareholders purchasing shares by check may not use
the check redemption privilege under certain circumstances.
CHECK-WRITING PRIVILEGE TERMS: Persons electing check-writing automatically
authorize the bank to honor checks drawn by them on the bank and appoint FPS,
the Fund's Transfer Agent, as their agent to redeem a sufficient number of MONEY
MARKET SERIES shares to pay such checks. They also automatically agree: (1) The
owner or owners who signs the check will sign their name exactly as it appears
in Item 1 on the application or the check will not be honored; (2) This
privilege is subject to the Fund's 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, FPS, 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.
REDEMPTION PAYMENTS TO SHAREHOLDERS
- -----------------------------------
If a partial redemption is being made and the shareholder is using "specific
identification" accounting in determining his/her gain or loss for tax purposes,
it is important that he/she indicate which shares are to be redeemed, giving the
date acquired and number of shares. If several purchases are involved and the
shareholder desires a check for a stated amount, the order in which shares are
to be redeemed should also be specified. If no such instructions are given, the
shareholder will be required to compute his/her tax on a "first in - first out"
basis. No designation of purchase dates is necessary in connection with a
redemption of all shares. The sale date and proceeds of redemptions (unless
exempt) will be reported by the Funds to the Internal Revenue Service at the end
of each year, as required by law.
Redemption of shares may be made from any available assets of each Fund, and if
a Fund does not have sufficient cash on hand, such Fund will normally sell
portfolio securities to effect such redemption.
Payment to shareholders for shares surrendered for redemption is made in cash as
soon as practicable after surrender, within seven days, except: (1) for any
period (a) during which the New York Stock Exchange is closed other than
customary weekend and holiday closing, or (b) during which trading on the New
York Stock Exchange is restricted; (2) for any period during which an emergency
exists as determined by the Securities and Exchange
39
<PAGE> 44
Commission as a result of which (a) disposal by a Fund of securities owned by it
is not reasonably practicable, or (b) it is not reasonably practicable for a
Fund to determine the value of its net assets; or (3) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
security holders of the Funds. In such event, the day will not be regarded as a
business day, the Funds' share prices will not be calculated, and all orders
will be held for execution on the following business day. The Funds, however,
will not mail redemption proceeds until they have assured themselves that checks
received for the purchase of any shares being redeemed have, or will be,
cleared. Accordingly, redemption checks may not be mailed until the shares being
redeemed have been on a Fund's books for at least fifteen business days measured
from the date shown on the purchase confirmation, although the effective date of
the redemption will be the date the redemption request is received by the
particular Fund. Payment for redeemed shares may be made in whole or in part in
portfolio securities of a Fund, at the portfolio value on the day the proper
redemption request is received, if the Board of Directors determines that the
liquidation of securities is impracticable or that payment in cash would
prejudice the best interests of the remaining shareholders.
The Funds have elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, pursuant to which the Funds are obligated to redeem shares solely
in cash, up to the lesser of $250,000 or one percent of the net asset value of
the particular Fund during any 90-day period for any one shareholder. The one
percent net asset value of each Fund shall be computed at the beginning of such
90-day period. In the event of a redemption in kind, it should be noted that a
shareholder would incur brokerage costs if he sold the securities received.
The value of the shares on redemption may be more or less than the shareholder's
cost, depending upon the market value of the portfolio securities at the time of
redemption. Shares redeemed will be canceled. Each Fund has the right to
establish a withdrawal charge on redemption of its shares, but the Funds do not
make any such charge and have no present intention of making such a charge, and
in the event such a withdrawal charge is established, at least thirty days prior
notice will be given to shareholders.
40
<PAGE> 45
IAA TRUST MUTUAL FUNDS:
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
IAA Trust Money Market Series
IAA Trust Short-Term Government Bond Series
IAA Trust Long-Term Bond Series
BOARD OF DIRECTORS:
Ronald R. Warfield
Herbert G. Allen
Charlot R. Cole
Nancy J. Erickson
William E. Klein, Sr.
Ailene Miller
Rollie D. Moore
OFFICERS:
Ronald R. Warfield, President
Bruce Finks, Vice President
Gary E. Mede, Vice President
Richard M. Miller, Vice President
Rollie D. Moore, Vice President
Paul M. Harmon, Secretary
Robert W. Weldon, Treasurer
Richard F. Day, Controller
INVESTMENT ADVISER:
IAA Trust Company
Bloomington, Illinois
DISTRIBUTOR:
FPS Broker Services, Inc.
King of Prussia, Pennsylvania
TRANSFER AGENT:
FPS Services, Inc.
King of Prussia, Pennsylvania
CUSTODIAN:
IAA Trust Company
Bloomington, Illinois
INDEPENDENT ACCOUNTANTS:
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
GENERAL COUNSEL
Paul M. Harmon, Esq.
Office of the General Counsel
Bloomington, Illinois
F30-117-04
<PAGE> 46
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 28, 1996
AS SUPPLEMENTED JUNE 27, 1997
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.
808 IAA DRIVE, BLOOMINGTON, ILLINOIS 61702, PHONE (309) 557-3222
The IAA Trust Mutual Funds consist of four separate funds (collectively, the
"Funds"): IAA Trust Growth Fund, Inc. ("GROWTH FUND"); IAA Trust Asset
Allocation Fund, Inc. ("ASSET ALLOCATION FUND"); IAA Trust Tax Exempt Bond Fund,
Inc. ("TAX EXEMPT BOND FUND"); and IAA Trust Taxable Fixed Income Series Fund,
Inc.* ("TAXABLE FIXED INCOME SERIES FUND") which currently consists of three
Series: IAA Trust Money Market Series ( "MONEY MARKET SERIES"); IAA Trust
Short-Term Government Bond Series ("SHORT-TERM GOVERNMENT BOND SERIES"); and IAA
Trust Long-Term Bond Series ("LONG-TERM BOND SERIES"). This Statement of
Additional Information is not a prospectus, but should be read in conjunction
with the Funds' Prospectus dated October 28, 1996.
A copy of the Funds' Prospectus may be obtained from a local Country Capital
Management Company salesperson who is also a Country Companies agent, a licensed
salesperson at IAA Trust Company, 808 IAA Drive, Bloomington, Illinois 61702, by
writing the Funds' principal Underwriter, FPS Broker Services, Inc., 3200
Horizon Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903
(formerly at #2 Elm Street, P.O. Box 874, Conshohocken, Pennsylvania 19428), or
by calling toll-free 1 (800) 245-2100.
TABLE OF CONTENTS
=================
<TABLE>
<CAPTION>
SUBJECT PAGE
------- ----
<S> <C>
Investment Objectives and Policies................................................................ 2
Policies and Investment Restrictions Aimed at Protecting Investors................................ 2
Directors and Officers of the Funds............................................................... 4
Control Persons and Principal Holders of Securities............................................... 6
Investment Advisory and Other Services............................................................ 7
Brokerage......................................................................................... 10
Purchases, Redemptions, and Pricing of Fund Securities............................................ 13
Exchange Privileges....................................................................... 13
Retirement Plans.......................................................................... 13
Automatic Investing....................................................................... 14
Systematic Withdrawal Plan................................................................ 14
Underwriter Compensation.......................................................................... 15
Investment Performance Information................................................................ 15
Reports to Shareholders and Financial Statements.................................................. 19
</TABLE>
APPENDIX "A": Descriptions of Securities Ratings
APPENDIX "B": Audited Financial Statements dated June 30, 1996
IAA TRUST GROWTH FUND, INC.; IAA TRUST ASSET ALLOCATION FUND, INC.;
IAA TRUST TAX EXEMPT BOND FUND, INC.; IAA TRUST MONEY MARKET SERIES
APPENDIX "C": Unaudited Financial Statements dated January 2, 1997 through
April 30, 1997
IAA TRUST SHORT-TERM GOVERNMENT BOND SERIES; IAA TRUST LONG-TERM BOND
SERIES
* Name change from IAA Trust Money Market Fund, Inc. was approved by such
Fund's Board of Directors on April 29, 1996.
<PAGE> 47
INVESTMENT OBJECTIVES AND POLICIES
For information with respect to the Funds' individual investment objectives and
policies, see " Investment Objectives and Policies" in the Funds' Prospectus,
and "Policies and Investment Restrictions Aimed at Protecting Investors" in this
Statement of Additional Information.
For the fiscal years ended June 30, 1995 and 1996, GROWTH FUND'S portfolio
turnover rate was 31.84% and 32.95%, respectively. This Fund does not expect
that its turnover rate as of June 30, 1997 will vary significantly from that at
June 30, 1996.
For the fiscal years ended June 30, 1995, and 1996, ASSET ALLOCATION FUND'S
portfolio turnover rate was 21.03% and 33.77%, respectively. This Fund does not
expect that its turnover rate as of June 30, 1997 will vary significantly from
that at June 30, 1996.
For the fiscal years ended June 30, 1995 and 1996, TAX EXEMPT BOND FUND'S
portfolio turnover rate was 24.89% and 14.75%, respectively. This Fund does not
expect that its turnover rate as of June 30, 1997 will vary significantly from
that at June 30, 1996.
POLICIES AND INVESTMENT RESTRICTIONS AIMED AT PROTECTING INVESTORS
FUNDAMENTAL INVESTMENT RESTRICTIONS
- -----------------------------------
The following investment restrictions are considered fundamental policies and
may be changed only 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:
- - All Funds will not authorize or issue any class of senior securities.
- - GROWTH FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, SHORT-TERM
GOVERNMENT BOND SERIES and LONG-TERM BOND SERIES 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, nor 5% of the value of such Fund's total assets if
such debt matures more than sixty days after issuance.
MONEY MARKET SERIES 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 and will
not purchase securities at any time a loan to such Fund is outstanding
(investments in repurchase agreements are not subject to these
restrictions).
- - All Funds will not underwrite or participate in the underwriting of
securities of other issuers.
- - All Funds will not purchase or sell real estate, commodities, or commodity
contracts.
- - All Funds will not 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. (See the Appendix for risk
disclosure statement on repurchase agreements).
2
<PAGE> 48
RESTRICTIONS APPLICABLE TO CERTAIN FUNDS AND SERIES:
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.
ASSET ALLOCATION FUND, SHORT-TERM GOVERNMENT BOND SERIES and LONG-TERM BOND
SERIES 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.
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, will not 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.
MONEY MARKET SERIES 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 (See
the Appendix for risk disclosure statement on repurchase agreements).
- - 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, other than banks.
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 FUNDS 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, Investment Advisers or Underwriters as principals except as
otherwise approved by the Board of Directors and in accordance with Section
17 of the Investment Company Act of 1940.
3
<PAGE> 49
- - Will not 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.
- - Will not purchase or retain securities of any company if persons affiliated
with such Fund or its Investment 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.
ALL FUNDS 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.
DIRECTORS AND OFFICERS OF THE FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND POSITION(S) AGGREGATE TOTAL PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
AGE HELD WITH COMPENSATION COMPENSATION
FUND(S) FROM FUNDS FOR FROM FUNDS
FISCAL YEAR & FUND
ENDED 6/30/96 COMPLEX PAID
TO DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ronald R. Director 0 0 Director and President: Illinois Agricultural Association,
Warfield(2) since 1994 Agricultural Holding Co., CC Services, Inc.(4), Country Capital
(52) President Management Company, Country Casualty Insurance Company, Country
since 1994 Investors Life Assurance Company, Country Life Insurance Company,
Country Mutual Insurance Company, and Country Preferred Insurance
Company, 1993 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; Director and President: 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.(1),
Illinois Agricultural Service Company, 1994 to date; Country Medical
Plans, Inc., 1996 to date; President: AgriVisor Services, Inc., and
IAA Trust Company, 1994 to date; Chairman of the Board: Country
Capital Management Company, 1994 to date; Director: American Farm
Bureau Federation and certain of its affiliated companies, 1995 to
date. Farmer.
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert G. Director 1,400 1,400 Director: IAA Trust Growth Fund, Inc., IAA Trust Asset Allocation
Allen since 1987 Fund, Inc., IAA Trust Tax Exempt Bond Fund, Inc., and IAA Trust
(66) Taxable Fixed Income Series Fund, Inc.(1), 1987 to date. Farmer.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 50
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charlot R. Director 0 0 Property Developer, 1979 to date; Member Macoupin-Greene County
Cole since 1996 Cooperation Extension Council (Formerly Macoupin County Cooperative
(55) Extension Council), 1992 to date and President 1995 to date;
Secretary/Treasurer; Cole Farms, Inc., 1993 to date. Farmer
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Director 700 700 President of McHatton Farm Management, Inc., 1981 to date; Director:
Erickson since 1995 IAA Growth Fund, Inc., IAA Trust Asset Allocation Fund, Inc., IAA
(39) Trust Taxable Fixed Income Series Fund, Inc.(1), and IAA Trust Tax
Exempt Bond Fund, Inc., 1995 to date. Farmer.
- ------------------------------------------------------------------------------------------------------------------------------------
William E. Director 1,050 1,050 Director: Illinois Agricultural Association, Illinois Agricultural
Klein, Sr. (2) since 1993 Holding Co., CC Services, Inc.(4), Country Casualty Insurance
(68) Company, Country Investors Life Assurance Company, Country Life
Insurance Company, Country Mutual Insurance Company, and Country
Preferred Insurance Company, 1988 to date; Director: Country Capital
Management Company, 1992 to date; Director: 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.
(1), 1993 to date. Farmer.
- ------------------------------------------------------------------------------------------------------------------------------------
Ailene Director 1,400 1,400 McLean County (Illinois) Board Member: 1986 to date; Member: IAA
Miller since 1991 Foundation(2), Trustee-Emeritus, 1988 to date; Director: IAA Trust
(70) 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.(1), 1991 to date.
- ------------------------------------------------------------------------------------------------------------------------------------
Rollie D. Director 0 0 Director and Vice President: Illinois Agricultural Association,
Moore since 1996 Illinois Agricultural Holding Co., CC Services, Inc.(4), Country
(47) 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(2), 1993 to
date; Vice President: 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.(1), 1994 to date;
Vice President and Director: IAA Trust Company, 1994 to date and
Country Medical Plans, Inc., 1996 to date; Director: AgriVisor
Services, Inc. and Illinois Agricultural Service Company, 1994 to
date; Coordinating Committee Member of GROWMARK, Inc., 1994 to date.
Farmer. Previously served as Director: Illinois Agricultural
Association, Illinois Agricultural Holding Co., CC Services, Inc.(4),
Country Casualty Insurance Company, Country Investors Life Assurance
Company, Country Life Insurance Company, Country Mutual Insurance
Company, and Country Preferred Insurance Company, 1984 to 1992;
Country Capital Management Company, 1989 to 1992; IAA Trust Growth
Fund, Inc., IAA Trust Asset Allocation Fund, Inc., IAA Trust Taxable
Fixed Income Series Fund, Inc.(1), and IAA Trust Tax Exempt Bond
Fund, Inc., 1989 to 1993; AgriVisor Services, Inc., 1991 to 1992.
Farmer.
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Finks Vice 0 0 Vice President -- Investments: IAA Trust Company, 1996 to date; Vice
(43) President President: IAA Trust Growth Fund, Inc., IAA Trust Asset Allocation
since 1996 Fund, Inc. IAA Trust Tax Exempt Bond Fund, Inc., and IAA Trust
Taxable Fixed Income Series Fund, Inc.(1), 1996 to date.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary E. Vice 0 0 Executive Vice President: IAA Trust Company, 1977 to date; Vice
Mede President President-- Investments: Country Capital Management Company, 1977 to
(59) since 1978 date; Vice President: IAA Trust Growth Fund, Inc., IAA Trust Asset
Allocation Fund, Inc., and IAA Trust Tax Exempt Bond Fund, Inc., 1978
to date; IAA Trust Taxable Fixed Income Series Fund, Inc.(1), 1981 to
date.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard M. Vice 0 0 Senior Vice President and Senior Trust Officer: IAA Trust Company,
Miller President 1991 to date (prior thereto Senior Vice President and Trust Officer);
(58) since 1992 Vice President: 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.(1), 1992 to date.
- ------------------------------------------------------------------------------------------------------------------------------------
Paul M. Secretary 0 0 General Counsel: Illinois Agricultural Association and Affiliated
Harmon since 1995 Companies, 1996 to date. Deputy General Counsel: Illinois
(54) Agricultural Association and Affiliated Companies, 1991 to date.
Secretary: Country Capital Management Company, IAA Trust Growth Fund,
Inc., IAA Trust Asset Allocation Fund, Inc., IAA Trust Taxable Fixed
Income Series Fund, Inc.(1), IAA Trust Tax Exempt Bond Fund, Inc.,
1995 to date; and IAA Trust Company, 1995 to date. General Counsel:
each of the Companies and IAA Trust Company, 1996 to date; prior
thereto Deputy General Counsel.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 51
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Treasurer 0 0 Vice President--Finance and Treasurer: IAA Trust Company, Illinois
Weldon since 1975 Agricultural Association, Country Life Insurance Company, Country
(62) Mutual Insurance Company, Country Casualty Insurance Company, Country
Preferred Insurance Company, and Country Capital Management Company,
1974 to date; Director and Treasurer: Illinois Agricultural Service
Company, 1974 to date; Vice President--Finance and Treasurer: CC
Services, Inc.(4), 1975 to date; Country Investors Life Assurance
Company, 1981 to date; Treasurer: Illinois Agricultural Holding Co.,
1974 to date; Illinois Agricultural Auditing Association, 1975 to
date; IAA Trust Growth Fund, Inc., 1975 to date; IAA Trust Asset
Allocation Fund, Inc. and IAA Trust Tax Exempt Bond Fund, Inc., 1978
to date; IAA Trust Taxable Fixed Income Series Fund, Inc.(1), 1981 to
date; AgriVisor Services, Inc., 1984 to date.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard F. Controller 0 0 Controller: IAA Trust Company, 1974 to date; IAA Trust Growth Fund,
Day since 1992 Inc., IAA Trust Asset Allocation Fund, Inc., IAA Trust Tax Exempt
(56) Bond Fund, Inc., and IAA Trust Taxable Fixed Income Series Fund, Inc.
(1), 1992 to date.
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) IAA Trust Taxable Fixed Income Series Fund, Inc. was formerly IAA
Trust Money Market Fund, Inc
(2) Interested Directors: 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, Country Mutual Insurance
Company (CLIC). IAHC owns 99.9% of the outstanding stock of CLIC
and 100% of the outstanding stock of IAA Trust Company (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.
(3) The mailing address for all the Funds' officers and directors is in
care of the IAA Trust Funds, 808 IAA Drive, Bloomington, Illinois
61702.
(4) 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>
Directors of the Funds are entitled to payment ($200 for GROWTH
FUND, $50 for each of ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND and TAXABLE
FIXED INCOME SERIES FUND) 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 or the Board of Directors and to
reimbursement of expenses for each directors' meeting attended of while
engaged in a special work authorized by the President or by the Board of
Directors, but no fees are paid to any director if such director is also a
director, officer or employee of the Investment Adviser of the Funds.
Directors and officers receive no other compensation from the Funds for their
services. During the fiscal year ended June 30, 1996, the aggregate amount of
fees and expenses paid to directors and officers was $4,550.00.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
COUNTRY LIFE INSURANCE COMPANY
------------------------------
As of June 10, 1997, Country Life Insurance Company ("Country Life") owned
435,498 shares or 7.76% of the outstanding shares of GROWTH FUND, and 96,228
shares or 9.92% of the outstanding shares of ASSET ALLOCATION FUND.
Substantially all of the issued and outstanding voting securities of Country
Life 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. Country Life's home office is at 1711 G.E. Road, Bloomington,
Illinois. The home office address for both Illinois Agricultural Holding
Company and Illinois Agricultural Association is 1701 Towanda Avenue,
Bloomington, Illinois. For the effect of Country Life's stock ownership in
the Funds on other Fund shareholders, see the section titled "CAPITAL STOCK"
in the Funds' Prospectus.
6
<PAGE> 52
IAA TRUST COMPANY
-----------------
As of June 10, 1997, IAA Trust Company owned of record 2,760,287 shares or
49.24% of the issued and outstanding capital stock of GROWTH FUND,
720,719,154 shares or 74.36% of the issued and outstanding capital stock of
ASSET ALLOCATION FUND, 232,558 shares or 11.24% of the issued and outstanding
capital stock of TAX EXEMPT BOND FUND, 39,723,670 shares or 83.61% of the
issued and outstanding capital stock of MONEY MARKET SERIES, 1,184,938 shares
or 99.99% of the issued and outstanding capital stock of SHORT-TERM
GOVERNMENT BOND SERIES, and 1,361,069 shares or 99.99% of the issued and
outstanding capital stock of LONG-TERM BOND SERIES.
IAA Trust Company's address is 808 IAA Drive, Bloomington, Illinois. Illinois
Agricultural Holding Co. owns 100% of the outstanding voting securities of
the Trust Company.
OFFICERS AND DIRECTORS
----------------------
As of October 1, 1996, the Officers and Directors of the Funds as a group
beneficially owned, directly or indirectly, less than 1% of the issued and
outstanding capital stock of any Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
CONTROLLING SHAREHOLDERS
------------------------
For the names of all controlling persons of IAA Trust Company, see section
titled " MANAGEMENT OF THE FUNDS" in the Funds' Prospectus.
FUND OFFICERS AFFILIATED WITH ADVISER
-------------------------------------
Fund Officers and Directors who are also Officers or Directors of IAA Trust
Company are set forth in the section titled " MANAGEMENT OF THE FUNDS" in the
Funds' Prospectus.
THE INVESTMENT ADVISER
----------------------
IAA Trust Company, as Investment Adviser to the Funds, advises each Fund as
to: investing its capital; continually reviews its investment portfolio and
recommends changes that appear desirable; furnishes statistical and research
information, office space, facilities, and equipment required for each Fund;
and pays the compensation of Directors, Officers, and employees of the Funds
who are also Directors, Officers, and employees of IAA Trust Company. For
these services performed and expenses assumed, each Fund or Series pays IAA
Trust Company the annual fees as shown below. Such fees are computed on a
daily basis and are paid monthly.
GROWTH FUND pays approximately .75% of 1% in any fiscal year of its average
net assets. For the fiscal years ended June 30, 1994, 1995, and 1996, IAA
Trust Company received $497,296, $476,164, and $580,601, respectively, for
its services as Investment Adviser to the Fund. Neither IAA Trust Company nor
any Company
7
<PAGE> 53
affiliated with it receives any brokerage commissions from the Fund, as such
business is transacted with non-affiliated broker-dealers.
ASSET ALLOCATION FUND pays approximately .75% of 1% in any fiscal year of its
average net assets. For the fiscal years ended June 30, 1994, 1995, and 1996,
IAA Trust Company received $58,895, $67,275, and $78,490, respectively, for
its services as Investment Adviser to the Fund. Neither IAA Trust Company nor
any Company affiliated with it receives any brokerage commissions from the
Fund, as such business is transacted with non-affiliated broker-dealers.
TAX EXEMPT BOND FUND pays approximately .50% of 1% in any fiscal year of its
average net assets. For the fiscal years ended June 30, 1994, 1995, and 1996,
IAA Trust Company received $100,624, $93,589, and $93,863, respectively, for
its services as Investment Adviser to the Fund. Neither IAA Trust Company nor
any Company affiliated with it receives any brokerage commissions from the
Fund, as such business is transacted with non-affiliated broker-dealers.
MONEY MARKET SERIES pays approximately .50% of 1% in any fiscal year of its
average net assets. For the fiscal year ended June 30, 1994, IAA Trust
Company received $182,832 for investment advisory services, all of which was
voluntarily waived. For the fiscal year ended June 30, 1995, IAA Trust
Company earned $178,518 for investment advisory services and voluntarily
agreed to waive fees totaling $86,900. For the fiscal year ended June 30,
1996, IAA Trust Company received $201,429 for investment advisory services.
The Advisor is currently not waiving any of its investment advisory fees.
Neither IAA Trust Company nor any Company affiliated with it receives any
brokerage commissions from the Fund, as such business is transacted with
non-affiliated broker-dealers.
SHORT-TERM GOVERNMENT BOND SERIES pays approximately .50% of 1% in any fiscal
year of its average net assets. Neither IAA Trust Company nor any Company
affiliated with it receives any brokerage commissions from the Fund, as such
business is transacted with non-affiliated broker-dealers.
LONG-TERM BOND SERIES pays approximately .75% of 1% in any fiscal year of its
average net assets. Neither IAA Trust Company nor any Company affiliated with
it receives any brokerage commissions from the Fund, as such business is
transacted with non-affiliated broker-dealers.
THE DISTRIBUTOR
---------------
FPS Broker Services, Inc. ("FPSB") is the primary and exclusive Distributor
of the Funds' shares, pursuant to Underwriting Agreements with each Fund. As
Distributor, FPSB 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 FPSB do not represent
compensation paid by the Funds to FPSB and are not expenses of the Funds.
12b-1 PLAN
----------
The shareholders of GROWTH FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND,
SHORT-TERM GOVERNMENT BOND SERIES, and LONG-TERM BOND SERIES have adopted
respective Plans of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940. During the fiscal year ended June 30, 1996, GROWTH FUND
paid $8,912 to FPSB from its Distribution Plan. During the fiscal year ended
June 30, 1996, ASSET ALLOCATION FUND paid $8,538 to FPSB from its
Distribution Plan. During the fiscal year ended June 30,1996, TAX EXEMPT BOND
FUND paid $15,380 to FPSB from its Distribution Plan. See "DISTRIBUTION
PLANS" in the Funds' Prospectus.
8
<PAGE> 54
THE TRANSFER AGENT
------------------
FPS Services, Inc. ("FPS"), 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, Pennsylvania 19406-0903 (formerly at #2 Elm Street, P.O. Box 874,
Conshohocken, Pennsylvania 19428) is the Funds' Transfer and Dividend
Disbursing Agent and as such performs all shareholder services for the Funds.
As part of these services, FPS 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 FPS fees
which management believes are comparable to fees charged by others who
perform such transfer agency services.
GROWTH FUND paid FPS, for the fiscal years ended June 30, 1994, 1995, and
1996, $83,386, $68,022, and $67,980, respectively. These fees were for
transfer and dividend disbursing agent services.
ASSET ALLOCATION FUND paid FPS, for the fiscal years ended June 30, 1994,
1995, and 1996, $15,771, $11,101, and $7,695, respectively. These fees were
for transfer and dividend disbursing agent services.
TAX EXEMPT BOND FUND paid FPS for the fiscal years ended June 30, 1994, 1995,
and 1996, $28,536, $21,475, and $14,263, respectively. These fees were for
transfer and dividend disbursing agent services.
MONEY MARKET SERIES paid FPS for the fiscal years ended June 30, 1994, 1995,
and 1996, $71,526, $41,216, and $39,872, respectively. These fees were for
transfer and dividend disbursing agent services.
ACCOUNTING SERVICES
-------------------
The Funds have entered into Accounting Services Agreements with FPS. These
Agreements require FPS 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 the fees for these
services are comparable to those charged by others who perform such
accounting services.
GROWTH FUND paid FPS for the fiscal years ended June 30, 1994, 1995, and
1996, $45,128, $44,673, and $48,794, respectively.
ASSET ALLOCATION FUND paid FPS for the fiscal years ended June 30, 1994,
1995, and 1996, $25,089, $25,883, and $28,996, respectively.
TAX EXEMPT BOND FUND paid FPS for the fiscal years ended June 30, 1994, 1995,
and 1996, $29,049, $30,271, and $35,352, respectively.
MONEY MARKET SERIES paid FPS for the fiscal years ended June 30, 1994, 1995,
and 1996, $39,106, $35,458, and $37,196, respectively.
9
<PAGE> 55
ADMINISTRATIVE SERVICES
-----------------------
The Funds have entered into Administration Agreements with FPS. 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 GROWTH FUND is $50,000. The minimum annual
administrative fee for each of ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND,
MONEY MARKET SERIES, and TAXABLE FIXED INCOME SERIES FUND is $10,000.
For the fiscal year ended June 30, 1996, GROWTH FUND paid $79,358 to FPS for
administrative services.
For the fiscal year ended June 30, 1996, ASSET ALLOCATION FUND paid $10,737
to FPS for administrative services.
For the fiscal year ended June 30, 1996, TAX EXEMPT BOND FUND paid $19,820 to
FPS for administrative services.
For the fiscal year ended June 30, 1996, MONEY MARKET SERIES paid $42,050 to
FPS for administrative services.
THE CUSTODIAN
-------------
IAA Trust Company, 808 IAA Drive, Bloomington, Illinois 61702, serves as
Custodian for the Funds and all securities and cash of each Fund will be held
by it. None of the Directors, Officers or other employees of the Funds ever
have personal possession of any Fund's investments. The Custodian attends to
the collection of principal and income, pays and collects all monies for
securities bought and sold by each Fund, and performs certain other
ministerial duties. 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 Coopers & Lybrand L.L.P., 2400 Eleven Penn Center,
Philadelphia, Pennsylvania, has been designated as Auditors for each Fund.
Coopers & Lybrand L.L.P. performs annual audits of each Fund and is
periodically called upon to provide accounting and tax advice.
BROKERAGE
GROWTH FUND, and 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, the Fund through its Investment
Adviser, maintains an awareness of general practices with regard to
commission levels and rates charged by reputable brokerage firms.
While there is no undertaking or agreement with any broker or dealer to do
so, either Fund may, subject to the
10
<PAGE> 56
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, 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. 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, all research information obtained from brokers
and dealers while serving the Fund may not 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, 1994, 1995, and 1996, brokerage
commissions paid by GROWTH FUND totaled $135,169, $64,267, and $58,079,
respectively. No brokerage transactions were allocated to brokers or dealers
for the sale of the Fund's shares; such sales are made by FPS Broker
Services, Inc. and Country Capital Management Company through their own
representatives.
During the fiscal years ended June 30, 1994, 1995, and 1996, brokerage
commissions paid by ASSET ALLOCATION FUND totaled $4,558, $6,980, and $5,540,
respectively. No brokerage transactions were allocated to brokers or dealers
for the sale of the Fund's shares; such sales are made by FPS Broker
Services, 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 SERIES, and LONG-TERM BOND
SERIES:
This Fund always seeks to effect its transactions in buying and selling
portfolio securities, acting through a broker as agent or with a dealer as
principal so that it can obtain reasonable execution at the most favorable
prices. Accordingly, TAX EXEMPT BOND 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 TAX EXEMPT BOND 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, TAX EXEMPT BOND FUND
through its Investment Adviser, maintains an awareness of general practices
with regard to commission levels and rates charged by reputable brokerage
firms.
The primary brokerage allocation criterion of each Fund is that the Fund
obtain reasonable execution at the most favorable prices. 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
11
<PAGE> 57
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 either the Fund or the
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 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 each Fund. Further,
all research information obtained from brokers and dealers while serving the
Fund may not be used by the Fund. During the fiscal years ended June 30,
1994, 1995, and 1996, all transactions for TAX EXEMPT BOND FUND were placed
with a principal market dealer. No commissions as such 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
the Fund's shares; such sales are made by FPS Broker Services, Inc. and
Country Capital Management Company through their own representatives.
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.
MONEY MARKET SERIES:
This 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, 1994, 1995, and 1996, MONEY MARKET
SERIES incurred no brokerage commissions.
There may be occasions when portfolio transactions for this Series are
executed as part of concurrent authorizations to purchase or sell the same
security for other Funds served by IAA Trust Company. Although
12
<PAGE> 58
such concurrent authorizations potentially could be either advantageous or
disadvantageous to a Series, they are effected only when a Series, acting on
the advice of IAA Trust Company, believes that to do so is in the interest of
such Series. When such concurrent authorizations occur, the executions will
be allocated in an equitable manner.
PURCHASES, REDEMPTIONS, AND PRICING OF FUND SECURITIES
For the method followed by the Funds in determining the total offering price
at which each Fund's securities are offered to the public and the method used
to value each Fund's assets, see sections titled "HOW TO BUY SHARES",
"SPECIAL PLANS AND OTHER PURCHASE INFORMATION", "HOW THE VALUE OF YOUR SHARES
IS DETERMINED", and "HOW TO REDEEM YOUR SHARES" in the Funds' Prospectus. See
the following for additional information on various special Plans the Funds
offer to investors.
EXCHANGE PRIVILEGES
-------------------
A shareholder may exchange his/her shares of one IAA Trust Fund or Series for
shares of another IAA Trust Fund or Series on the basis of the relative net
asset values per share of each Fund at the time of the exchange. When shares
of one Fund or Series are exchanged for shares of another Fund or Series, the
minimum investment requirement of such other Fund or Series must be met. The
two ways to exchange shares, by mail and by telephone, are discussed below.
BY MAIL: The exchange can be made by forwarding a written request signed by
the registered shareholder(s) and returning any outstanding certificates
needed to effect the exchange to FPS Broker Services, Inc. ("FPSB"), c/o Fund
Plan Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia,
Pennsylvania 19406-0903.
BY TELEPHONE: You may make the exchange by telephone provided that: (1) you
have elected the Telephone Exchange option on the initial application or have
authorized this option after your initial purchase; (2) the registration of
the accounts will be identical; and (3) the shares to be exchanged are not in
certificate form. You can call toll-free 1 (800) 245-2100 on any business
day. All telephone conversations with FPSB will be recorded. Neither the
Funds, Country Capital Management Company, or FPSB will be responsible for
the authenticity of the exchange instructions received by telephone.
An exchange is effected by redemption of shares of one Fund or Series and the
issuance of shares of the other Fund or Series selected, and only after
delivery of the current Prospectus. With respect to an exchange among GROWTH
FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, SHORT-TERM GOVERNMENT BOND
SERIES, and LONG-TERM BOND SERIES, 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 SERIES,
assuming such Series maintains its share value at $1.00 per share, an
exchange of this Series' shares for shares of another IAA Trust Fund or
Series should not create a Federal income tax incident, except for the
establishment of a new holding period.
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
GROWTH FUND, ASSET ALLOCATION FUND, MONEY MARKET SERIES, SHORT-TERM
GOVERNMENT BOND SERIES, or LONG-TERM BOND SERIES. Contributions to the Plan
of up to $30,000 or 25% of earned income, whichever is the lesser, may be
made each year and subtracted from gross income at tax time. Please note that
the tax laws with respect to retirement accounts are being amended with
changes that will become effective in 1997.
For individuals eligible to establish an Individual Retirement Account (IRA),
IAA Trust Company sponsors a prototype individual retirement Plan which has
been approved by the Internal Revenue Service. An individual
13
<PAGE> 59
may be able to deduct contributions made to such a Plan up to an annual
amount of $2,000 or 100% of compensation, whichever is less. 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. If a joint tax return is filed, a married person whose
spouse is not employed may contribute up to $2,250 annually to be divided in
any manner between the individual's IRA and the IRA established for the
nonworking spouse so long as no more than $2,000 is contributed in any one
year to either IRA. The deductibility of contributions to an IRA by taxpayers
who are active participants in an employer's retirement plan is determined by
the amount of the 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.
An investor considering either the Defined Contribution Plan or the IRA Plan
should consult with his or her attorney 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 the IRA,
by reading the disclosure statement which the IRA requires to be furnished to
individuals who are considering the adoption of an IRA.
For more information about these Plans, contact IAA Trust Company, 808 IAA
Drive, Bloomington, Illinois 61702 or call toll-free 1 (800) 422-8261.
AUTOMATIC INVESTING
-------------------
A shareholder may authorize Systematic Investing through automatic
withdrawals from his/her bank accounts.
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 may establish a Systematic Withdrawal Plan by completing an
application provided by FPSB for this purpose. Such planholders will receive
monthly, quarterly or annual checks in the amount they designate. 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, without a sales charge. 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 SERIES, and LONG-TERM BOND SERIES, each
redemption of shares may result in a gain or loss which is reportable by the
investor on his income tax return.
Redemptions required for payments may reduce or use up the planholder's
investment, depending upon the size of payment and market fluctuations, if
applicable. 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.
FPS Services, Inc., ("FPS") as agent for the shareholder, may make a 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 FPS 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
FPS.
14
<PAGE> 60
UNDERWRITER COMPENSATION
Shares of the Funds are continuously offered to the public through FPS Broker
Services, Inc. ("FPSB").
Currently, out of commissions to be received, FPSB has agreed to pay all
expenses incident to the distribution of shares. If commissions are not
sufficient to pay these expenses, FPSB will look to the Funds' Investment
Adviser for reimbursement. For the fiscal year ended June 30, 1996, FPSB
received no underwriting fees.
For additional information, see "DISTRIBUTION OF THE FUNDS' SHARES" in the
Funds' Prospectus.
INVESTMENT PERFORMANCE INFORMATION
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.
TOTAL RETURN CALCULATIONS
-------------------------
With respect to GROWTH FUND, ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND,
LONG-TERM GOVERNMENT BOND SERIES, and SHORT-TERM BOND SERIES, the Funds and
Series that compute their average annual total returns do so 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:
Average Annual Total Return = left( ERV over P right) sup {1/n} - 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.
15
<PAGE> 61
The Funds and Series 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) over P - 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.
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 Funds and Series
should not be used to compare an investment in a Fund's or Series' 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
-------------------------
With respect to ASSET ALLOCATION FUND, TAX EXEMPT BOND FUND, LONG-TERM
GOVERNMENT BOND SERIES, and SHORT-TERM BOND SERIES, the yield of each of
these Funds or Series is calculated by dividing the net investment income per
share (as described below) earned by the Fund or Series during a 30-day (or
one month) period by the maximum offering price per share on the last day of
the period and annualizing the result 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 or Series' 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).
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),
16
<PAGE> 62
dividend income on equity securities held by a Fund or Series is recognized
by accruing 1/360 of the stated dividend rate of the security each day that
the security is in the Fund or Series. Except as noted below, interest earned
on any debt obligations held by a Fund or Series is calculated by computing
the yield to maturity of each obligation held by that Fund or Series 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 or
Series. 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 or Series to all shareholder accounts in
proportion to the length of the base period and the Fund's or Series' 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 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 TAX EXEMPT BOND FUND, the "tax-equivalent yield" of this Fund
is computed by (a) dividing the portion of the yield (calculated as above)
that is exempt from Federal income tax by one minus a stated Federal income
tax rate and (b) adding to that figure to that portion, if any, of the yield
that is not exempt from Federal income tax.
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 36%, the computation is:
5% Tax-Free Yield - (1/.36 Tax Rate) = 5%/.64% = 7.8125% Tax Equivalent Yield
In this example, your after-tax return would be higher from the 5% tax-free
investment if available taxable yields are below 7.8125%. Conversely, the
taxable investment would provide a higher yield when taxable yields exceed
7.8125%.
17
<PAGE> 63
7-DAY YIELD CALCULATIONS
------------------------
MONEY MARKET SERIES' standard yield quotations as they appear in reports and
other material distributed by the Series 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 Series for a 7-day
period (the "base period") will be computed by determining the net change in
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)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 June 30, 1996 was 2.62%. 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 June 30, 1996 was 4.25%. 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 6.64% for the thirty
days ended June 30, 1996.
MONEY MARKET SERIES:
The yield and effective yield of this Series will vary in response to
fluctuations in interest rates and in the expenses of the Fund. For the seven
days ended June 30, 1996 the Fund's annualized standard (cash) yield was
4.49% and its annualized effective (compound) yield was 4.59%. 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.
18
<PAGE> 64
REPORTS TO SHAREHOLDERS AND 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 Funds' financial statements, including the notes thereto, dated as of
June 30, 1996, which have been audited by Coopers & Lybrand L.L.P., are
included with this Statement of Additional Information.
For SHORT-TERM GOVERNMENT BOND SERIES and LONG-TERM BOND SERIES, the
unaudited, interim financial statements, including the notes thereto, dated
as of April 30, 1997, are included with this Statement of Additional
Information.
19
<PAGE> 65
APPENDIX "A" -- DESCRIPTIONS OF SECURITIES RATINGS
COMMERCIAL PAPER RATINGS
------------------------
MOODY'S INVESTORS SERVICE, INC.: "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 CORPORATION: "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-1" 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
------------
STANDARD AND POOR'S CORPORATION: 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.
<PAGE> 66
The four highest bond ratings of S&P and their meanings are:
"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 INVESTORS SERVICE, INC.: 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.
<PAGE> 67
DESCRIPTIONS OF SHORT-TERM INSTRUMENTS
--------------------------------------
OBLIGATIONS OF THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES:
Securities issued or guaranteed by the U.S. Government include a
variety of Treasury securities, which differ only in their interest
rate, maturity and date 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 of U.S. Government agencies
and instrumentalities such as Treasury bills and Government National
Mortgage Association pass-through certificates, are supported by the
full faith and credit of the U.S. Treasury; others, such as securities
of Federal Loan Banks, have the right of the issuer to borrow from the
Treasury; and still others, such as bonds issued by Federal National
Mortgage Association, a private corporation, are supported only by the
credit of the instrumentalities. 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.
CERTIFICATES OF DEPOSIT:
In essence, a certificate of deposit is a negotiable receipt issued by
a bank or savings and loan association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate.
BANKERS' ACCEPTANCES:
A bankers' acceptance generally arises from a short-term credit
arrangement designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft
drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then
"accepted" by the bank that, in effect, unconditionally guarantees to
pay the face value of the instrument on its maturity date.
COMMERCIAL PAPER:
Commercial paper is generally defined as unsecured short-term notes
issued in bearer form by large, well-known corporations and finance
companies. Maturities on commercial paper range from a few days to
nine months.
REPURCHASE AGREEMENTS:
Repurchase agreements are transactions in which a Fund purchases a
security (usually a U.S. Government obligation) and simultaneously
obtains the commitment of the seller (a member bank of the Federal
Reserve System) 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 security. With respect to MONEY MARKET SERIES, repurchase
agreements of over seven day's duration will not be more than 10% of
the assets of such Fund.
FOREIGN SECURITIES RISKS
------------------------
Foreign securities involve investment risk in addition to those of
domestic obligations of domestic issuers, including the possibility that:
liquidity can be impaired because of future political and economic
developments; the obligations may be less marketable than comparable
domestic obligations of domestic issuers; a foreign jurisdiction might
impose withholding taxes or interest income payable on these obligations;
deposits may be seized or nationalized; foreign governmental restrictions
such as exchange controls may be adopted which might adversely affect the
payment of principal and interest on those obligations; the selection of
foreign bank obligations might be more difficult because there may be less
publicly available information concerning foreign banks; there may be
difficulties in obtaining or enforcing a judgement against a foreign bank;
or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those
applicable to U.S. banks. Foreign banks are not subject to examination by
any U.S. Government agency or instrumentality.
<PAGE> 68
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
APPENDIX "B": Audited Financial Statements dated June 30, 1996
IAA TRUST GROWTH FUNDS, INC.
IAA TRUST ASSET ALLOCATION FUND, INC.
IAA TRUST TAX EXEMPT BOND FUND, INC.
IAA TRUST MONEY MARKET SERIES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
<PAGE> 69
June 30,1996
Dear Shareholder:
IAA TRUST GROWTH FUND, INC.
The net asset value of the Fund on June 30, 1996 was $18.88.
(WITHOUT SALES CHARGES)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C>
21.51% 11.83% 10.65%
(CURRENT MAXIMUM SALES CHARGES DEDUCTED)
17.88% 11.14% 10.31%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested and the maximum sales charge was applied on initial investments.
The first half of calendar 1996 saw stocks continuing to advance
despite rising interest rates. For the six month period ended June 30, 1996, the
S&P 500 had a total return of 10.07% and 25.80% for the 12 month period. The IAA
Growth Fund had total returns of 10.54% and 21.51%, respectively. According to
Lipper, the average growth fund posted returns of 10.08% and 22.20% over the
same periods.
The rise in interest rates that began in mid-February continued during
the second quarter as the level of the 30-year Treasury Notes rose from about
6.2% in March to over 7% at the end of June. These same bonds yielded about 5.2%
at the end of 1995. Stronger than expected employment gains and retail sales
have caused many market pundits to assume the economy is much more robust than
they had originally thought. The strong economy could bring about an upsurge in
inflation which, in turn, could force the Federal Reserve to raise interest
rates. As recently as last week, the Federal Open Market Committee of the
Federal Reserve decided to leave interest rates unchanged because they felt that
the economy was not overheating. On July 5, 1996 employment reports showed much
stronger growth than anyone had anticipated. Bond prices declined sharply,
reflecting investor concern that the Fed had missed its chance to raise interest
rates.
The prospect that rates will be raised soon has forced investors to
lessen their hopes for expanded price earnings ratios. If interest rates stay at
current levels or go higher, a correction of around 15% would not be
unreasonable.
Cash has been pouring into mutual funds at more than double the pace of
last year with investors looking for returns similar to those reaped in 1995.
The level of new issues, also known as "initial public offerings" or "IPOs," has
also increased to new records. IPOs are absorbing vast amounts of cash that
might otherwise be used to purchase existing stocks. Many are low-quality
companies with no earnings and poor prospects of such anytime soon. Investors
are still buying them in hope of a quick gain.
We started this year with about 15% cash in the portfolio. The cash
was worked down during the past six months by increasing sector weightings in
Health, Basic Industry, and Consumer Staples. We also had sharp advances in
several of our holdings and took partial profits to reposition ourselves in
issues that we felt had better appreciation potential. At the end of the period,
our cash holdings were almost 15% again. We are comfortable holding some cash
reserves in view of what we foresee in the near future.
IAA TRUST ASSET ALLOCATION FUND, INC.
The annualized total returns for the Fund for the period ended June 30, 1996,
were as follows:
<TABLE>
<CAPTION>
(WITHOUT SALES CHARGES)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C>
14.74% 10.49% 8.90%
(CURRENT MAXIMUM SALES CHARGES DEDUCTED)
11.30% 9.83% 8.57%
</TABLE>
During the past year, the U.S. economy has been consistent only in confounding
most forecasters. During the second half of calendar year 1995, the economy
showed unexpected weakness. This was followed by unexpected strength in the
first half of 1996. The bond market was turbulent in reaction to the economic
surprises. The stock market however, showed remarkable strength in the face of
economic uncertainty and bond market instability.
The stock market's strength was largely due to record money flows into
mutual funds. Strong profits also supported the market's rise. Interest rates,
whose decline has acted as a tailwind in propelling the stock market higher in
the second half of 1995, (as well as since the bull market began in 1982)
reversed direction in 1996 and began acting as a drag on stock market momentum.
The stock market is facing a precarious situation. The market's rise
has been based on falling interest rates, rising corporate profits and record
mutual fund money flows. Interest rates have stopped falling and corporate
profit growth has slowed (particularly in the technology area). This has left
the market supported solely by rising mutual fund money flows. Recent data
indicate that this final pillar of support for the bull market may be breaking
down as mutual fund flows (although still strong) declined significantly in
June.
The recent rise in interest rates has made bonds a more attractive
investment. Inflation remains moderate despite the strength in the U.S. economy.
Should inflation begin to accelerate, we believe that the Federal Reserve would
likely tighten monetary policy. We have increased the Fund's allocation on bonds
to 41% from 35% a year ago. The Fund's equity weighting has remained relatively
stable at 53% (vs. 52% a year ago) and cash has declined to 6% from 13%. Based
on our increasing concern regarding stock prices, we will look to decrease the
Fund's equity weighting while redeploying the assets in bonds and cash.
Over the past year, your Fund returned 14.74%. This slightly lagged the
Lipper Balanced Fund Index return of 15.52% due to a more conservative equity
weighting as well as a higher than average bond duration during the first
quarter of 1996. We expect the Fund's more conservative stock allocation and
extended bond duration to bolster returns in the coming year.
<PAGE> 70
IAA TRUST TAX EXEMPT BOND FUND, INC.
The annualized total returns for the Fund for the period ended June 30, 1996,
were as follows:
<TABLE>
<CAPTION>
(WITHOUT SALES CHARGES)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C>
5.30% 5.95% 6.70%
(CURRENT MAXIMUM SALES CHARGES DEDUCTED)
2.12% 5.31% 6.37%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested and the maximum sales charge was applied on initial investments.
Although the Fund's income is exempt from Federal income tax, it may be subject
to state income taxation.
The general interest rate decline of 1995 reversed itself in 1996, due
to increasing signs of economic growth. This reversal moved the Bond Buyer 20
Index from a yield of 5.97% this time last year, to a low of 5.33% mid-year,
back to 5.97% as of June 27, 1996. The good news for some investors is that
municipal bonds have outperformed the treasury market over the past year.
Several factors influenced this performance. They include a diminishing supply
picture coupled with a resurgence of retail and institutional interest in
higher-yielding tax-exempts. Additionally, fears of major tax reform which
plagued the market for much of 1995 have abated.
Our decision to maintain the portfolio's duration at approximately the
same level it was this time last year benefited the Fund versus other funds as
interest rates declined in 1995. However, as interest rates rose during 1996,
the duration position did not help the Fund performance as reflected in the
Fund's total return for the year of 5.30%. In comparison, the Lehman Brothers
Municipal Bond Index had a total return of 6.64%. The Lehman Index has a higher
return because it contains an unmanaged list of long-term investment-grade
tax-exempt bonds. The Index does not take into account brokerage commissions or
other costs, may include bonds different from those in the Fund, and may pose
different risks than the Fund.
Going forward, a key determinant of the direction interest rates will
take over the course of the year will be the Federal Reserve's stance on
controlling inflation. Near-term economic indicators, including the Employment
Cost Index, second quarter GDP, and the next National Association of Purchasing
Managers survey will be key factors influencing the Fed's next moves. Municipal
bonds will continue to be influenced by the political debate on tax-reform as we
move closer to national elections. With this in mind, we will continue our
strategy of investing in high-quality bonds, while seeking the best possible
return.
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
On January 31, the Federal Reserve's policy-making board lowered
short-term interest rates by 25 basis points. Markets remained quiet until the
March 8 news that February's employment was unexpectedly high. The Federal
Reserve has since left rates alone. However, a surprising June report stated
that twice as many jobs were added as economists expected. That report has left
investors wondering when the Federal Reserve will raise rates.
Fixed income investors have anticipated the effects of inflation by
demanding higher rates to compensate for the value that inflation might erode.
These higher rates can slow the economy, since higher borrowing costs tend to
discourage spending. Recently, this slowing effect was named, "opportunistic
disinflation." The theory suggests that when inflation is low, but above the
Federal Reserve's target, its policy should be to wait for a recession to help
cool the economy. Taken to this extreme, the theory seems to ignore the lagged
effects of monetary policy. Low unemployment and low inventory levels are a
troubling combination in an era when re-engineered companies have little room to
cut costs and the freedom to raise prices. We do not expect sustained
inflation since Federal Reserve Chairman Alan Greenspan is still an inflation
hawk and understands the lagged effect of his policies. We will shorten the
average maturity of the Fund to take advantage of the higher rates that will
prevail if the Federal Reserve takes action.
The average maturity of the Fund increased from 35 days on December
29, 1995 to 45 days on June 30, 1996. During the same period, the seven-day
average yield decreased from 4.93% to 4.49%. The decrease in yield is largely
due to the decreased supply of higher-quality, short-term instruments. This is
the result of corporations trying to lock in lower borrowing costs by issuing
longer term debt. As longer term rates have risen, this trend has begun to
reverse.
Sincerely,
Ronald R. Warfield
President
<PAGE> 71
IAA TRUST MUTUAL FUNDS - PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC.
PORTFOLIO CHANGES For the Year Ended June 30, 1996
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Department 56, Inc. (1) Sun Microsystems, Inc.
SmithKline Beecham PLC, ADR (1) Cisco Systems (2)
Vishay Intertechnology, Inc. (1) Acclaim Entertainment, Inc. (2)
Phillips Electronics. N.V. (1) Pep Boys (2)
Wellman, Inc. (1) Toys-R-Us, Inc. (2)
Procter & Gamble Co. (1) Intel Corp.
Microsoft Corp. (1) Rubbermaid, Inc.(2)
International Business Machines Corp. (1) VeriFone, Inc. (2)
Ivax Corp. (1) Minnesota Mining & Mfg. (2)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1996
<TABLE>
<CAPTION>
PERCENT
VALUE AT FUND
----- -------
<S> <C> <C>
General Electric Co. ............ $ 2,768,000 3.27%
Motorola, Inc. .................. 2,515,000 2.97
Intel Corp. ..................... 2,350,000 2.77
Green Tree Financial Corp. ...... 2,250,000 2.65
MBNA Corp. ...................... 2,137,500 2.52
Travelers, Inc. ................. 2,053,125 2.42
Hewlett-Packard Co. ............. 1,992,500 2.35
GTE Corp. ....................... 1,969,000 2.32
Royal Dutch Petroleum Co., ADR... 1,968,000 2.32
DPL, Inc. ....................... 1,828,125 2.15
----------- -----
$21,831,250 25.74%
=========== =====
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC.
PORTFOLIO CHANGES For the Year Ended June 30, 1996
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Tennessee Valley Authority, 5.980%, 04/01/36 (1) United State Treasury Notes (2)
Federal Home Loan Mortgage Corp., 6.500%, 06/15/06 (1) 4.750%, 2/15/97
Chemical Master Credit Card Trust, 5.980%, 09/15/08 (1) Sun Microsystems, Inc. (2)
Federal National Mortgage Assn. Notes, 7.060%, 11/02/05(1) Chesapeake & Potomac Telephone
United States Treasury Notes, 6.875%, 05/15/06(1) Wolverine World Wide (2)
Xerox Corp. (2)
Caterpiller, Inc. (2)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1996
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- ----------
<S> <C> <C>
Tennessee Valley Authority, 5.980%, 04/01/36 ....................... $ 498,125 4.94%
International American Devel. Bank, 8.875%, 06/01/09................ 229,750 2.28
Bell of Pennsylvania, Putable Debentures, 8.350%, 12/15/30.......... 229,250 2.27
United States Treasury Notes, 7.250%, 05/15/04...................... 207,364 2.06
United States Treasury Notes, 5.875%, 03/31/99...................... 198,158 1.96
Federal Home Loan Mortgage Corp., 6.500%, 06/15/06................. 197,500 1.96
Discover Credit Card Trust, 6.750%, 02/16/02....................... 196,250 1.95
Federal National Mortgage Association, 7.060%, 11/02/05............ 193,000 1.91
Chemical Master Credit Card Trust, 5.980%, 09/15/08................ 185,065 1.84
Procter & Gamble Co. .............................................. 181,250 1.80
----------- -----
$ 2,315,712 22.97%
=========== =====
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 72
IAA Trust Mutual Funds - Portfolio Highlights
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT BOND FUND, INC.
PORTFOLIO CHANGES For the Year Ended June 30, 1996
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Texas A & M University Revenues Fin. System (1) Kaukauna Wisconsin Electric (2)
5.375%, 05/15/14 7.250%, 12/15/08
Denver, Colorado City & County (1) DuPage Water Commission, Illinois (2)
5.000%, 10/01/10 5.750%, 03/01/11
Fresno, California Massachusetts Bay Transit Authority (2)
Unified School District (1) 5.875%, 03/01/15
5.875%, 08/01/15 Pleasant Co. W.V. Pollution Control (2)
7.000%, 08/01/08
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS June 30, 1996
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----- -------
<S> <C> <C>
Wisconsin State Clean Water Revenue, 5.300%, 06/01/12 ................. $ 661,500 3.73%
Peru, Indiana Community School, 6.750%, 01/01/09....................... 580,938 3.28
Texas A & M University Revenues Fin. System, 5.375%, 05/15/14.......... 573,000 3.23
Pennsylvania State Higher Education Revenue, 5.600%, 09/01/10.......... 571,406 3.22
Cape Girardeau, Missouri Waterworks System, 7.450%, 03/01/05........... 568,125 3.20
State of Rhode Island Ref. General Obligation, 7.000%, 06/15/05........ 565,000 3.18
Louisville & Jefferson County, Met. Sewer Dist. Rev., 5.250%, 05/15/10. 554,875 3.13
Connecticut State Unlimited Tax General Obligation, 5.400%, 03/15/08... 548,625 3.09
Maricopa County School Dist. Arizona Unlimited, 6.400%, 07/01/06....... 541,875 3.05
Chicago, Illinois Water Revenue, 6.500%, 11/01/15...................... 533,125 3.01
----------- -----
$ 5,698,469 32.12%
=========== =====
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
TEN LARGEST HOLDINGS June 30, 1996
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
------------ --------
<S> <C> <C>
Hewlett-Packard Corp., 5.36%, 08/29/96................................. $ 1,497,727 4.45%
Schering Corp., 5.36%, 08/27/96........................................ 1,488,261 4.42
Norwest Corp., 5.32%, 08/01/96......................................... 1,400,000 4.16
Province of Quebec, 5.32%, 09/16/96.................................... 1,384,070 4.11
CIT Group Holdings Inc., 5.35%, 07/25/96............................... 1,220,000 3.62
Assoc. Corp. of North America, 5.35%, 08/07/96......................... 1,200,000 3.57
Philip Morris Cos., Inc., 5.30%, 07/22/96.............................. 1,186,321 3.53
USAA Capital Corp., 5.37%, 08/23/96.................................... 1,041,699 3.09
Household Finance Corp., 5.36%, 08/22/96............................... 1,000,000 2.97
Federal National Mortgage Assn., 5.09%, 10/30/96....................... 982,892 2.92
----------- -----
$12,400,970 36.84%
=========== =====
</TABLE>
PORTFOLIO CHARACTERISTICS June 30, 1996
30 DAY AVERAGE YIELD: 4.40%
7 DAY AVERAGE YIELD: 4.49%
AVERAGE DAYS TO MATURITY: 45.01
- --------------------------------------------------------------------------------
<PAGE> 73
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
-------- -----------
<S> <C> <C>
COMMON STOCKS - 85.51%
BASIC INDUSTRY - 6.20%
Engelhard Corp................. 50,000 $ 1,150,000
IMC Global, Inc................ 10,000 376,250
Newmont Mining Corp............ 20,000 987,500
Nucor Corp..................... 24,000 1,215,000
Wellman, Inc................... 29,000 677,875
Weyerhaeuser Co................ 20,000 850,000
-----------
5,256,625
-----------
CAPITAL GOODS - 7.76%
Deere & Co..................... 20,400 816,000
General Electric Co............ 32,000 2,768,000
Hardinge, Inc.................. 30,000 952,500
Philips Electronics N.V........ 15,000 489,375
York International, Inc........ 30,000 1,552,500
-----------
6,578,375
-----------
CONSUMER CYCLICAL - 6.17%
Department 56, Inc.*........... 25,000 565,625
Ford Motor Co.................. 30,000 971,250
Gentex Corp.................... 35,700 696,150
Gymboree Corp.................. 25,000 762,500
Titan Wheel International, Inc. 35,000 560,000
Harley-Davidson, Inc........... 10,000 411,250
Wal-Mart Stores, Inc........... 50,000 1,268,750
-----------
5,235,525
-----------
CONSUMER SERVICES - 1.82%
American Greetings Corp........ 10,000 273,750
First Data Corp................ 16,000 1,274,000
-----------
1,547,750
-----------
CONSUMER STAPLES - 7.96%
American Stores Co............. 40,000 1,650,000
Archer-Daniels-Midland Co...... 73,500 1,405,688
PepsiCo, Inc................... 50,000 1,768,750
Procter & Gamble Co............ 10,000 906,250
Unilever N.V................... 7,000 1,015,875
-----------
6,746,563
-----------
ENERGY - 9.28%
Chevron Corp................... 25,000 1,475,000
Exxon Corp..................... 20,000 1,737,500
Phillips Petroleum Co.......... 40,000 1,675,000
Royal Dutch Petroleum Co., ADR. 12,800 1,968,000
Unocal Corp.................... 30,000 1,012,500
-----------
7,868,000
-----------
SHARES VALUE
-------- -----------
FINANCE - 11.28%
American International Group, Inc 15,000 $ 1,479,375
Federal National Mortgage Assoc 49,000 1,641,500
Green Tree Financial Corp...... 72,000 2,250,000
MBNA Corp...................... 75,000 2,137,500
Travelers, Inc................. 45,000 2,053,125
-----------
9,561,500
-----------
HEALTH - 11.41%
Columbia/HCA Healthcare Corp... 6,000 320,250
Elan Corp., PLC*............... 24,000 1,371 000
Ivax Corp...................... 30,000 476,250
Johnson & Johnson.............. 36,000 1,782,000
Merck & Co..................... 25,000 1,615,625
Mylan Laboratories. Inc........ 80,000 1,380,000
SmithKline Beecham PLC, ADR.... 25,000 1,359,375
U.S. Healthcare, Inc........... 25,000 1,375,000
-----------
9 679,500
-----------
TECHNOLOGY - 13.09%
Hewlett-Packard Co............. 20,000 1,992,500
Intel Corp..................... 32,000 2,350,000
International Business Machines
Corp......................... 8,000 792,000
Microsoft Corp.*............... 10,000 1,201,250
Motorola, Inc.................. 40,000 2,515,000
Sun Microsystems, Inc.*........ 14,000 824,250
Vishay Intertechnology, Inc.... 47,000 1,110,375
Xilinx, Inc.*.................. 10,000 317,500
-----------
11,102,875
-----------
TRANSPORTATION - 2.34%
Burlington Northern Corp....... 10,000 808,750
Federal Express Corp........... 6,000 492,000
Illinois Central Corp.......... 24,000 681,000
-----------
1,981,750
-----------
UTILITIES - 8.20%
A T & T Corp................... 28,000 1,736,000
DPL, Inc....................... 75,000 1,828,125
GTE Corp....................... 44,000 1,969,000
NICOR, Inc..................... 50,000 1,418,750
-----------
6,951,875
-----------
TOTAL COMMON STOCKS
(cost $46,614,589)........... 72,510,338
-----------
</TABLE>
<PAGE> 74
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS June 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
COMMERCIAL PAPER - 12.23%
Beneficial Corp.
5.29%, 07/01/96................. $ 1,042,000 $ 1,042,000
General Electric. Capital Corp.
5.32%, 07/03/96................. 488,000 488,000
General Electric. Capital Corp.
5.32%, 07/09/96................. 173,000 173,000
Commercial Credit Co.
5.35%, 07/18/96................. 352,000 352,000
Ford Motor Credit Co.
5.37%, 07/23/96................. 500,000 500,000
Ford Motor Credit Co.
5.39%, 07/25/96................. 1,200,000 1,200,000
American Express Credit Corp.
5.37%, 08/01/96................. 2,910,000 2,910,000
AVCO Financial Services, Inc.
5.40%, 08/01/96................. 1,160,000 1,160,000
Norwest Corp.
5.37%, 08/05/96................. 444,000 444,000
Schering Corp.
5.36%, 08/27/96................. 299,000 296,462
PRINCIPAL
AMOUNT VALUE
----------- -----------
Hewlett-Packard Corp.
5.36%, 08/29/96................. $ 189,000 $ 187,340
Coca-Cola Co.
5.34%, 09/03/96................. 1,267,000 1,254,972
Toyota Motor Credit Co.
5.38%, 10/01/96................. 370,000 364,913
-----------
TOTAL COMMERCIAL PAPER
(cost $10,372,687)............. 10,372,687
-----------
SHARES
-----------
OTHER SHORT-TERM INVESTMENTS -- 2.18%
MONEY MARKET FUND
(cost $1,849,941)
Federated Prime Obligation Fund... 1,849,941 1,849,941
-----------
TOTAL INVESTMENTS - 99.92%
(cost $58,837,217).............. 84,732,966
-----------
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.08% 67,477
-----------
NET ASSETS - 100.00%.............. $84,800,443
===========
<FN>
* Non-income producing security
</TABLE>
See notes to financial statements.
<PAGE> 75
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS June 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
--------- ----------
<S> <C> <C>
COMMON STOCKS - 52.71%
BASIC INDUSTRY - 2.57%
Learonal, Inc...................... 3,000 $ 75,000
Mead Corp.......................... 1,200 62,250
Potash Corp. of Saskatchewan....... 1,000 66,250
Wellman, Inc....................... 2,400 56,100
----------
259,600
----------
CAPITAL GOODS - 3,34%
Case Corp.......................... 1,000 48,000
Fluor Corp......................... 700 45,763
General Electric Co................ 900 77,850
Illinois Tool Works, Inc........... 1,500 101,438
Philips Electronics N.V............ 1,950 63,619
----------
336,670
----------
CONSUMER CYCLICAL - 4.61%
Chrysler Corp...................... 1,000 62,000
Department 56, Inc*................ 3,000 67,875
Fleetwood Enterprises, Inc......... 2,400 74,400
Harley-Davidson, Inc............... 1,600 65,800
Magna International, Inc., CI. A... 1,500 69,000
Planet Hollywood Int'l, Inc., CI. A* 1,000 27,000
Titan Wheel International, Inc..... 3,000 48,000
Wal-Mart Stores, Inc............... 2,000 50,750
----------
464,825
----------
CONSUMER SERVICES - 0.72%
Tribune Co......................... 1,000 72,625
----------
CONSUMER STAPLES - 6.05%
Albertson's, Inc................... 2,900 119,987
Coca-Cola Co....................... 2,400 117,300
Gillette Co........................ 2,000 124,750
Procter & Gamble Co................ 2,000 181,250
Walgreen Co........................ 2,000 67,000
----------
610,267
----------
ENERGY - 5.82%
Atlantic. Richfield Co............. 700 82,950
Exxon Corp......................... 2,000 173,750
Repsol S.A., ADR................... 2,100 72,975
Schlumberger, Ltd.................. 600 50,550
Williams Cos., Inc................. 2,800 138,600
YPF Sociedad Anonima, ADS.......... 3,000 67,500
----------
586,325
----------
FINANCE - 6.96%
Bank of New York................... 1,500 76,875
BankAmerica Corp................... 1,000 75,750
Citicorp........................... 1,950 161,119
Meditrust, Inc..................... 2,700 90,113
National Golf Properties, Inc...... 2,500 60,625
Norwest Corp....................... 3,400 118,575
Travelers, Inc..................... 2,599 118,579
----------
701,636
----------
HEALTH - 7.69%
Bristol-Myers Squibb Co.......... 1,000 90,000
Columbia/HCA Healthcare Corp..... 2,700 144,112
SHARES VALUE
--------- ----------
Elan Corp., PLC*................. 1,600 $ 91 400
ESC Medical Systems, Ltd.*....... 450 12,713
Healthdyne, Inc. *............... 5,000 65,000
Integrated Health Services, Inc.. 2,700 64,125
Johnson & Johnson................ 2,400 118,800
Mylan Laboratories, Inc.......... 3,000 51,750
US Healthcare, Inc............... 2,500 137,500
----------
775,400
----------
TECHNOLOGY - 9.50%
AirTouch Communications, Inc.*... 1,500 42,375
Intel Corp....................... 800 58,750
Kemel Corp.*..................... 4,000 80,000
Lam Research Corp.*.............. 2,000 52,000
Lucent Technologies, Inc.*....... 1,000 37,875
Microsoft Corp. *................ 500 60,062
Motorola, Inc.................... 2,000 125,750
Oracle Corp...................... 4,125 162,680
Raytheon Co...................... 2,200 113,575
Sun Microsystems, Inc............ 800 47,100
Tektronix, Inc................... 2,500 111,875
Ultratech Stepper, Inc.*......... 3,500 65,625
----------
957,667
----------
TRANSPORTATION - 1.55%
Federal Express Corp.*........... 1,900 155,800
----------
UTILITIES - 3.90%
AT & T Corp...................... 1,200 74,400
BellSouth Corp................... 1,500 63,562
CILCORP, Inc..................... 1,200 51,300
Florida Progress Corp............ 1,200 41,700
Pacific Telesis Group., Inc...... 1,500 50,625
Texas Utilities, Inc............. 1,000 42,750
Wisconsin Energy Corp............ 2,400 69,300
----------
393,637
----------
TOTAL COMMON STOCKS
(cost $3,731,901).............. 5,314,472
----------
PRINCIPAL
AMOUNT VALUE
----------- -----------
BONDS AND NOTES - 41.03%
AUTO - 1.11%
General Motors Acceptance Corp.
8.875%, 06/01/10............... $ 100,000 111,750
----------
BANKING - 3.31%
International American Development
Bank 9.500%, 10/15/97.......... 100,000 104,125
International American Development
Bank 8.875%, 06/01/09........... 200,000 229,750
----------
333,875
----------
BEVERAGES - 0.98%
Coca-Cola Co.
6.625%, 10/01/02............... 100,000 99,125
----------
CHEMICALS - 0.99%
DuPont (E.I.) DeNemours & Co.
6.750%, 10/15/02............... 100,000 99,875
----------
</TABLE>
<PAGE> 76
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS June 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
BONDS AND NOTES (CONTINUED)
FINANCE COMPANIES - 4.39%
Chemical Master Credit Card Trust
5.980%, 09/15/08......................... $ 200,000 $ 185,065
Discover Credit Card Trust
6.750%, 02/16/02......................... 200,000 196,250
Thrift Financial Corp.
8.550%, 05/20/18......................... 58,961 61,056
-----------
442,371
-----------
TELEPHONE UTILITY - 4.99%
Bell of Pennsylvania
Putable Debentures
8.350%, 12/15/30......................... 200,000 229,250
Chesapeake & Potomac Telephone Co.
of Virginia Debentures
8.375%, 10/01/29......................... 100,000 113,375
New Jersey Bell Telephone Co.
7.850%, 11/15/29......................... 150,000 160,687
-----------
503,312
-----------
U.S. GOVERNMENT AGENCIES - 14.41%
Federal Farm Credit Bank
5.800%, 12/18/00......................... 100,000 96,016
Federal Home Loan Bank
6.830%, 06/07/01......................... 100,000 98,500
Federal Home Loan Bank
8.000%, 09/20/04......................... 100,000 102,500
Federal Home Loan Mortgage Corp.
10.750%, 07/01/00........................ 4,815 4,815
Federal Home Loan Mortgage Corp.
8.750%, 04/01/01......................... 42,057 42,899
Federal Home Loan Mortgage Corp.
10.150%, 04/15/06........................ 28,788 29,975
Federal Home Loan Mortgage Corp.
6.500%, 06/15/06......................... 200,000 197,500
Federal National Mortgage Association
7.060%, 11/02/05......................... 200,000 193,000
Government National Mortgage
Association Pool #60721
9.750%, 04/15/98......................... 3,525 3,768
Government National Mortgage
Association Pool #30111
9.000%, 05/15/09......................... 18,586 19,469
Government National Mortgage
Association Pool #23653
9.500%, 06/15/09......................... 14,101 15,080
PRINCIPAL
AMOUNT VALUE
--------- ---------
Government National Mortgage
Association Pool #32147
9.500%, 08/15/09......................... $ 13,916 $ 14,881
Government National Mortgage
Association Pool #161621
9.000%, 07/15/16......................... 130,261 136,448
Tennessee Valley Authority
5.980%, 04/01/36......................... 500,000 498,125
-----------
1,452,976
-----------
U.S. GOVERNMENT OBLIGATIONS - 10.85%
United States Treasury Notes
5.875%, 03/31/99......................... 200,000 198,158
United States Treasury Notes
6.750%, 06/30/99......................... 100,000 101,238
United States Treasury Notes
6.875% 07/31/99.......................... 100,000 101,553
United States Treasury Notes
6.375%, 08/15/02......................... 100,000 99,218
United States Treasury Notes
7.250%, 05/15/04......................... 200,000 207,364
United States Treasury Notes
7.250%, 08/15/04......................... 100,000 103,644
United States Treasury Notes
6.875%, 05/15/06......................... 150,000 151,641
United States Treasury Bonds
11.625%, 11/15/04........................ 100,000 131,304
-----------
1,094,120
-----------
TOTAL BONDS AND NOTES
(cost $4,019,327)...................... 4,137,404
-----------
SHARES VALUE
--------- ---------
SHORT-TERM INVESTMENTS - 5.84%
MONEY MARKET FUNDS
(cost $588,589)
Dreyfus Money Market Fund.................. 153,589 153,589
Federated Prime Obligation Fund............ 453,000 435,000
-----------
588,589
-----------
TOTAL INVESTMENTS - 99.58%
(cost $8,339,817)........................ 10,040,465
-----------
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.42%............... 42,481
-----------
NET ASSETS - 100.00%....................... $10,082,946
===========
<FN>
* Non-income producing security
</TABLE>
See notes to financial statements
<PAGE> 77
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS June 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS
(TAX EXEMPT) - 95.89%
ARIZONA - 5.93%
Bullhead City Arizona Parkway Revenue
6.100%, 01/01/07.............................. $ 250,000 $ 250,938
Maricopa County School District #93
Arizona Unlimited Tax General Obligation
6.400%, 07/01/06.............................. 500,000 541,875
Salt River Protect Arizona Agriculture
Improvement & Power District Electric
System Revenue
5.625%, 01/01/06.............................. 250,000 258,438
----------
1,051,251
----------
CALIFORNIA - 8.56%
California State Public Works Board
Lease Revenue
5.200%, 12/01/09.............................. 500,000 473,125
City of Fresno California
Sewer System Revenue
6.250%, 09/01/14.............................. 250,000 266,562
Fresno, California
Unified School District, General
Obligation
5.875%, 08/01/15.............................. 275,000 273,969
Los Angeles California Wastewater
System Revenue
6.000%, 11/01/14.............................. 500,000 505,000
----------
1,518,656
----------
COLORADO - 2.64%
Denver, Colorado City & County
General Obligation
5.000%, 10/01/10.............................. 500,000 467,500
----------
CONNECTICUT - 3.09%
Connecticut State Unlimited Tax
General Obligation
5.400%, 03/15/08.............................. 550,000 548,625
----------
FLORIDA - 2.91%
Port St. Lucie, Florida
Utility System Revenue
5.900%, 09/01/09.............................. 500,000 516,250
----------
ILLINOIS - 16.28%
Chicago, Illinois O'Hare
International Airport Revenue
5.000%, 01/01/16.............................. 500,000 443,125
Chicago, Illinois Water Revenue
6.500%, 11/01/15.............................. 500,000 533,125
Illinois State Sales Tax Revenue
5.400%, 06/15/13.............................. 550,000 517,000
Illinois State Toll Highway
Authority Revenue, Series A
6.300%, 01/01/12.............................. 275,000 291,156
Northwest Suburban Municipal
Joint Action Water Agency
Illinois Contract Revenue
6.450%, 05/01/07.............................. 400,000 431,500
Northwest Water Commission
Illinois, Cook & Lake Revenue
5.000%, 05/01/13............................. $ 500,000 $ 455,625
Sangamon County Illinois Tax
General Obligation
6.500%, 03/01/08............................. 200,000 217,750
----------
2,889,281
----------
INDIANA - 3.27%
Peru, Indiana Community School Corp.
Revenue
6.750%, 01/01/09............................. 550,000 580,938
----------
KENTUCKY - 3.13%
Louisville & Jefferson County
Metropolitan Sewer District
Revenue, Series A
5.250%, 05/15/10............................. 575,000 554,875
----------
MASSACHUSETTS - 2.91%
Massachusetts State Water
Resource Authority Revenue
6.000%, 11/01/08............................. 500,000 515,625
----------
MISSISSIPPI - 1.46%
Mississippi State Unlimited
General Obligation, Series B
5.900%, 11/15/11............................. 250,000 259,062
----------
MISSOURI - 3.20%
Cape Girardeau, Missouri Waterworks
System Revenue
7.450%, 03/01/05............................. 500,000 568,125
----------
NEBRASKA - 1.70%
Grand Island, Nebraska Sewer Project
Revenue
5.850%, 04/01/08 200,000 205,000
Nebraska Public Power District Revenue
5.400%, 01/01/10............................. 100,000 97,250
----------
302,250
----------
NEVADA - 5.04%
Clark County, Nevada School District
General Obligation
5.250%, 06/01/07............................. 500,000 493,750
Henderson, Nevada Water and Sewer
Unlimited Tax General Obligation
5.375%, 06/01/07............................ 400,000 400,500
----------
894,250
----------
NEW YORK - 2.61%
New York State Dormitory Authority
Revenue
5.500%, 07/01/12............................. 500,000 463,125
----------
NORTH CAROLINA - 1.53%
North Carolina East Municipal Power
Agency System Revenue
7.000%, 01/01/08............................. 250,000 270,625
----------
</TABLE>
<PAGE> 78
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS June 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT BOND FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ----------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
OHIO -- 2.78%
Montgomery County, Ohio
Sewer System Revenue
5.600%, 09/01/11........................ $ 500,000 $ 493,125
-----------
PENNSYLVANIA - 6.04%
Pennsylvania Intergovernmental Corp.
Authority, Special Tax Revenue
5.450%, 06/15/08........................ 500,000 499,375
Pennsylvania State Higher Education
Revenue Bonds, Series A
5.600%, 09/01/10........................ 575,000 571,406
-----------
1,070,781
-----------
RHODE ISLAND - 3.18%
State of Rhode Island Refunding
General Obligation
7.000%, 06/15/05........................ 500,000 565,000
-----------
TEXAS - 10.26%
Austin, Texas Limited Tax
General Obligation
7.250%, 09/01/03........................ 350,000 395,937
Bexar County, Texas
Detention Facilities Limited Tax
General Obligation
5.750%, 06/15/10........................ 500,000 500,625
Garland, Texas Limited Tax
General Obligation
5.800%, 08/15/12........................ 350,000 351,750
Texas A&M University Revenues
Financing System
5.375%, 05/15/14........................ 600,000 573,000
-----------
1,821,312
-----------
PRINCIPAL
AMOUNT VALUE
----------- ----------
WASHINGTON - 4.08%
Public Utility District #1 of
Chelan County, Washington Revenue
5.250%, 06/01/13........................ $ 500,000 $ 448,125
Washington Public Power Supply,
System, Nuclear Project #1,
Refunding Revenue 1990-C
7.625%, 07/01/01........................ 250,000 275,937
-----------
724,062
-----------
WISCONSIN - 5.29%
Brookfield, Wisconsin Unlimited Tax
Corp. General Obligation
6.900%, 03/15/03........................ 250,000 277,500
Wisconsin State Clean Water
Revenue Bond
5.300% 06/01/12......................... 700,000 661,500
-----------
939,000
-----------
TOTAL MUNICIPAL BONDS
(cost $17,099,793)...................... 17,013,718
-----------
SHARES VALUE
--------- ----------
TAX EXEMPT
MONEY MARKET FUNDS - 2.75%
(cost $488,961)
Nuveen Tax Exempt.......................... 488,961 488,961
-----------
TOTAL INVESTMENTS - 98.64%
(cost $17,588,754)....................... 17,502,679
-----------
CASH AND OTHER ASSETS
NET OF LIABILITIES - 1.36%............... 241,040
-----------
NET ASSETS - 100%.......................... $17,743,719
===========
</TABLE>
See notes to financial statements.
<PAGE> 79
IAA TRUST MUTUAL FUNDS - SCHEDULE OF INVESTMENTS June 30, 1996
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
COMMERCIAL PAPER - 92.37%
AUTO & TRUCK -- 11.70%
Daimler-Benz NA Corp.
5.38%, 09/24/96.................... $ 870,000 $ 858,949
Daimler-Benz NA Corp
5.43%, 10/15/96.................... 700,000 688,808
Ford Motor Credit Co.
5,34%, 07/08/96.................... 900,000 900,000
Ford Motor Credit Co.
5.36%, 07/16/96.................... 550,000 550,000
Ford Motor Credit Co
5.37%, 07/23/96.................... 250,000 250,000
Toyota Motor Credit Co.
5.38%, 10/01/96.................... 700,000 690,376
-----------
3,938,133
-----------
BEVERAGES - 2.80%
Coca-Cola Co.
5.34%, 09/03/96.................... 953,000 943,953
-----------
COMMERCIAL BANKING - 5.05%
Norwest Corp.
5.34%, 07/01/96.................... 300,000 300,000
Norwest Corp.
5.32%, 08/01/96.................... 1,400,000 1,400,000
-----------
1,700,000
-----------
COMMERCIAL FINANCE - 3.63%
CIT Group Holdings, Inc.
5.35%, 07/25/96.................... 1,220,000 1,220,000
-----------
COMMERCIAL SERVICES - 4.74%
PHH Corp.
5.27%, 07/17/96.................... 849,000 847,011
PHH Corp.
5.27%, 07/19/96.................... 751,000 749,021
-----------
1,596,032
-----------
CONSUMER FINANCE - 35.70%
American Express Credit Corp.
5.30%, 07/09/96.................... 483,000 483,000
American Express Credit Corp.
5.36%, 07/24/96.................... 400,000 400,000
American Express Credit Corp.
5.37%, 08/01/96.................... 750,000 750,000
American General Finance Corp.
5.36%, 07/18/96.................... 860,000 860,000
American General Finance Corp.
5.38%, 07/23/96.................... 740,000 740,000
Associates Corp. of N. America
5.35%, 08/07/96.................... 1,200,000 1,200,000
AVCO Financial Services, Inc.
5.41%, 07/29/96.................... 900,000 900,000
AVCO Financial Services, Inc,
5.36%, 07/31/96.................... 700,000 700,000
Beneficial Corp.
5.29%, 07/01/96.................... 423,000 423,000
Beneficial Corp.
5.30%, 07/02/96.................... 600,000 600,000
Beneficial Corp.
5.50%, 10/17/96.................... 637,000 637,000
Commercial Credit Co.
5.32%, 07/10/96.................... 844,000 844,000
Household Finance Corp.
5.36%, 07/30/96.................... 600,000 600,000
Household Finance Corp,
5.36%, 08/22/96.................... 1,000,000 1,000,000
International Lease Finance Corp.
5.40%, 09/12/96.................... $ 450,000 $ 445,072
Prudential Funding Corp.
5.31%, 07/03/96.................... 840,000 840,000
Prudential Funding Corp.
5.42%, 08/05/96.................... 596,000 596,000
-----------
12,018,072
-----------
ELECTRONICS - 4.67%
General Electric Capital Corp.
5.32%, 07/09/96.................... 671,000 671,000
General Electric Capital Corp.
5.46%, 10/03/96.................... 900,000 900,000
-----------
1,571,000
-----------
FARM MACHINERY & EQUIPMENT - 2.80%
John Deere Capital Corp.
5.33%, 07/11/96.................... 943,000 943,000
-----------
FOOD PRODUCTS - 3.52%
Philip Morris Cos., Inc.
5.30%, 07/22/96.................... 1,190,000 1,186,321
-----------
FOREIGN GOVERNMENTS - 4.11%
Province of Quebec
5.32%, 09/16/96.................... 1,400,000 1,384,070
-----------
INSURANCE/MULTI-LINE - 4.78%
USAA Capital Corp
5.38%, 08/06/96.................... 570,000 566,933
USAA Capital Corp.
5.37%, 08/23/96.................... 1,050,000 1,041,699
-----------
1,608,632
-----------
OFFICE EQUIPMENT - 4.45%
Hewlett-Packard Corp.
5.36%, 08/29/96................... 1,511,000 1,497,727
-----------
PHARMACEUTICALS - 4.42%
Schering Corp.
5.36%, 08/27/96................... 1,501,000 1,488,261
-----------
TOTAL COMMERCIAL PAPER
(cost $31,095,201)................ 31,095,201
-----------
BONDS & NOTES -- 4.40%
U.S. Government Agencies
(cost $1,482,892)
Federal National Mortgage Association
5.09%, 10/30/96................... 1,000,000 982,892
Student Loan Marketing Association
6.07%, 07/03/97................... 500,000 500,000
-----------
1,482,892
-----------
SHARES VALUE
----------- -------------
OTHER SHORT-TERM INVESTMENTS - 4.45%
MONEY MARKET FUND
(cost $1,498,623)
Federated Prime Obligation Fund...... 1,498,623 1,498,623
-----------
TOTAL INVESTMENTS - 101.22%
(cost $34,076,716)................. 34,076,716
-----------
LIABILITIES NET OF CASH
AND OTHER ASSETS - (1.22%)......... (412,526)
-----------
NET ASSETS - 100.00%................. $33,664,190
===========
</TABLE>
See notes to financial statements.
<PAGE> 80
STATEMENTS OF ASSETS AND LIABILITIES June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE
IAA TRUST IAA TRUST FIXED INCOME
IAA TRUST ASSET TAX EXEMPT SERIES FUND, INC.
GROWTH FUND, ALLOCATION FUND, BOND FUND, MONEY MARKET
INC. INC. INC. SERIES
---------- ---------------- ---------- -----------------
ASSETS:
<S> <C> <C> <C> <C>
Investments in securities at value (cost $58,837,217, $8,339,817,
$17,588,754, and $34,076,716, respectively) ................... $84,732,966 $10,040,465 $17,502,679 $34,076,716
Cash ........................................................... -- 3,375 -- --
Receivable for capital stock sold .............................. 54,434 -- -- --
Dividends and interest receivable .............................. 130,814 55,738 256,360 109,743
Other assets ................................................... 5,464 745 1,453 2,826
---------- ---------- ---------- ----------
Total assets ................................................. 84,922,678 10,100,323 17,760,492 34,189,285
---------- ---------- ---------- ----------
LIABILITIES:
Payable for securities purchased ............................... -- -- -- 500,000
Payable for capital stock redeemed ............................ 58,134 7,000 -- --
Distributions payable .......................................... 2,124 -- -- --
Accrued expenses and other liabilities ......................... 61,977 10,377 16,773 25,095
---------- ---------- ---------- ----------
Total liabilities ............................................. 122,235 17,377 16,773 525,095
---------- ---------- ---------- ----------
NET ASSETS:
Applicable to 4,492,226, 753,062, 2,110,571 and 33,664,227 shares
outstanding, respectively ..................................... $84,800,443 $10,082,946 $17,743,719 $33,664,190
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Capital paid-in ................................................. $54,289,748 $7,929,729 $17,815,294 $33,664,129
Undistributed (Distributions in excess of) net investment income 461,403 (325) (1,726) 61
Accumulated net realized gain on investments .................... 4,153,543 452,894 16,226 --
Net unrealized appreciation (depreciation) of investments ....... 25,895,749 1,700,648 (86,075) --
---------- ---------- ---------- ----------
$84,800,443 $10,082,946 $17,743,719 $33,664,190
=========== =========== =========== ===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ................... $18.88 $13.39 $8.41 $1.00
====== ====== ===== =====
OFFERING PRICE PER SHARE (NET ASSET VALUE (divided by) .97,
EXCEPT MONEY MARKET SERIES) .................................... $19.46 $13.80 $8.67 $1.00
====== ====== ===== =====
</TABLE>
See notes to financial statements.
<PAGE> 81
STATEMENTS OF OPERATIONS for the Year Ended June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE
IAA TRUST FIXED INCOME
IAA TRUST ASSET IAA TRUST SERIES FUND, INC.
GROWTH ALLOCATION TAX EXEMPT MONEY MARKET
FUND, INC. FUND, INC. BOND FUND, INC. SERIES
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $1,156,931 $101,615 $ -- $ --
Interest ............................................ 712,345 341,984 1,009,044 2,270,886
---------- -------- ---------- ----------
Total investment income ....................... 1,869,276 443,599 1,009.044 2,270,886
---------- -------- ---------- ----------
EXPENSES:
Investment advisory fees (Note E) ................... 580,601 78,490 93,863 201,429
Distribution expenses (Note E) ...................... 8,912 8,538 15,380 --
Legal fees .......................................... 5,224 4,022 3,887 5,000
Transfer agent fees (Note E) ........................ 67,980 7,695 14,263 39,872
Auditing fees ....................................... 32,357 3,915 7,976 16,491
Printing ............................................ 9,780 805 1,741 3,993
Directors' fees ..................................... 4,967 1,178 1,239 1,397
Administration fees (Note E) ........................ 79,358 10,737 19,820 42,050
Accounting fees (Note E) ............................ 48,794 28,996 35,352 37,196
Insurance ........................................... 17,778 2,445 4,744 9,532
Registration fees ................................... 2,300 2,272 2,333 2,277
Miscellaneous ....................................... 5,749 1,094 1,810 3,929
---------- -------- ---------- ----------
Total expenses .................................... 863,800 150,187 202,408 363,166
---------- -------- ---------- ----------
NET INVESTMENT INCOME ................................. 1,005,476 293,412 806,636 1,907,720
---------- -------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS - NOTE (D):
Net realized gain on investments .................... 7,560,208 736,443 27,534 --
Net change in unrealized appreciation on investments 6,380,518 385,622 141,343 --
---------- -------- ---------- ----------
Net realized and unrealized gain on investments ..... 13,940,726 1,122,065 168,877 --
----------- ---------- ----------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS ................ $14,946,202 $1,415,477 $ 975,513 $1,907,720
=========== ========== =========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 82
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST ASSET
GROWTH FUND, INC. ALLOCATION FUND, INC.
-------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/96 6/30/95 6/30/96 6/30/95
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ................................. $1,005,476 $893,251 $293,412 $284,971
Net realized gain (loss) on investments ............... 7,560,208 4,148,412 736,443 (37,078)
Net change in unrealized appreciation of investments .. 6,380,518 10,210,477 385,622 1,113,816
---------- ---------- --------- ---------
Increase in net assets from operations ................ 14,946,202 15,252,140 1,415,477 1,361,709
---------- ---------- --------- ---------
DIVIDEND: AND DISTRIBUTIONS TO SHAREHOLDER FROM:
Investment income ..................................... (1,047,434) (671,272) (293,737) (219,893)
Realized gains on investments ......................... (6,467,667) (5,659,861) (250,319) (145,553)
Distribution in excess of realized gains on investments -- -- -- (49,654)
Return of capital ..................................... -- -- -- (6,398)
---------- ---------- --------- ---------
(7,515,101) (6,331,133) (544,056) (421,498)
---------- ---------- --------- ---------
CAPITAL STOCK TRANSACTIONS - (NET) Note (C) ............ 6,792,238 2,208,346 (328,304) (52,911)
---------- ---------- --------- ---------
Total increase in net assets .......................... 14,223,339 11,129,353 543,117 887,300
NET ASSETS:
Beginning of year ..................................... 70,577,104 59,447,751 9,539,829 8,652,529
---------- ---------- --------- ---------
End of year ........................................... $84,800,443 $70,577,104 $10,082,946 $9,539,829
=========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME
IAA TRUST SERIES FUND, INC.
TAX EXEMPT BOND FUND, INC. MONEY MARKET SERIES
--------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/96 6/30/95 6/30/96 6/30/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................. $806,636 $895,922 $1,907,720 $1,714,406
Net realized gain on investments ................... 27,534 35,903 -- --
Net change in unrealized appreciation of investments 141,343 411,011 -- --
----------- ----------- ----------- -----------
Increase in net assets from operations ............. 975,513 1,342,836 1,907,720 1,714,406
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDER FROM:
Investment income .................................. (808,361) (894,338) (1,907,605) (1,714,510)
Realized gains on investments ...................... (46,251) (69,768) -- --
----------- ----------- ----------- -----------
(854,612) (964,106) (1,907,605) (1,714,510)
----------- ----------- ----------- -----------
CAPITAL STOCK TRANSECTIONS - (NET) Note (C) ......... (1,209,728) (640,781) (2,751,388) (2,283,706)
----------- ----------- ----------- -----------
Total decrease in net assets ...................... (1,088,827) (262,051) (2,751,273) (2,283,810)
NET ASSETS:
Beginning of year ................................. 18,832,546 19,094,597 36,415,463 38,699,273
----------- ----------- ----------- -----------
End of year ....................................... $17,743,719 $18,832,546 $33,664,190 $36,415,463
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 83
IAA TRUST MUTUAL FUNDS - NOTES TO FINANCIAL STATEMENTS June 30, 1996
- --------------------------------------------------------------------------------
NOTE (A) SIGNIFICANT ACCOUNTING POLICIES: IAA Trust Growth Fund, Inc. ("Growth
Fund"), IAA Trust Asset Allocation Fund, Inc. ("Asset AlloCation Fund"), IAA
Trust Tax Exempt Bond Fund, Inc. ("Tax Exempt Bond Fund") and IAA Trust Taxable
Fixed Income Series Fund, Inc. ("Taxable Fixed Income Series Fund"), formerly
known as IAA Trust Money Market Fund, Inc., (collectively, "the Funds") are
separately incorporated and registered companies under the Investment Company
Act of 1940 (the "Act"), as amended, as diversified, open-ended management
companies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statement and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by each Fund in the preparation of its financial statements.
(1) SECURITY VALUATION: For the Growth Fund, the Asset Allocation Fund and
the Tax Exempt Bond Fund, securities traded on national exchanges and
over-the-counter securities listed in the NASDAQ National Market System are
valued at the last reported sales price at the close of the New York Stock
Exchange. Securities for which there have been no sales on such day are
valued at the last reported bid price on such exchange. Over-the-counter
securities not listed on the NASDAQ National Market System are valued at
the mean of the current bid and asked prices. Fixed-income securities
except short-term securities may be valued on the basis of prices provided
by a pricing service when such prices are believed by the Advisor to
reflect the fair market value of such securities. Short-term investments,
those with a remaining maturity of 60 days or less, are valued at amortized
cost, which approximates market value. For the Money Market Series of
Taxable Fixed Income Series Fund, all securities are valued at amortized
cost, which approximates market value. Under the amortized cost method,
discounts and premiums are accreted and amortized ratably to maturity and
are included in interest income.
(2) INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
Securities transactions are accounted for on the date securities are
purchased or sold. Securities gains and losses are determined on the
identified cost basis.
(3) FEDERAL INCOME TAXES: The Funds have elected to be treated as
"regulated investment companies" under Sub-chapter M of the Internal
Revenue Code and to distribute substantially all of their net taxable
income annually. Accordingly, no provisions for Federal income taxes have
been made in the accompanying financial statements.
(4) DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
NOTE (B) DIVIDENDS FROM NET INVESTMENT INCOME AND DISTRIBUTIONS OF CAPITAL
GAINS: In the Growth Fund, net investment income from investment transactions
are distributed to shareholders twice a year. The Asset Allocation Fund and the
Tax Exempt Bond Fund distribute net investment income to shareholders monthly.
The Money Market Series of Taxable Fixed Income Series Fund declares dividends
daily from its net investment income, which are payable monthly. Dividends are
automatically reinvested in additional Fund shares, at the then current net
asset value, for those shareholders that have elected the reinvestment option.
Net realized gains from investment transactions, if any, of all Funds are
generally distributed once a year. For the Growth Fund and the Asset Allocation
Fund, distributions, if any, are made at the end of the fiscal year and calendar
year.
NOTE (C) CAPITAL STOCK: At June 30, 1996, 10,000,000 shares of capital stock
were authorized for each of the Growth Fund, Asset Allocation Fund, and Tax
Exempt Bond Fund. The shares of capital stock authorized for the Money Market
Series of Taxable Fixed Income Series Fund were 250,000,000. The par value for
each share of the Growth Fund, Asset Allocation Fund, and Tax Exempt Bond Fund
is $1.00 per share. The par value for each share of the Money Market Series is
$0.10 per share.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
GROWTH FUND ASSET ALLOCATION FUND
----------- ---------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30,1996 JUNE 30,1995
---------------------- ----------------------- ---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- ----------- -------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares Sold .............. 367,621 $ 6,620,827 82,369 $ 1,266,232 174,733 $ 2,278,506 70,254 $ 788,460
Shares issued through
reinvestment of dividends 416,875 7,132,281 424,176 6,030,680 27,062 350,628 23,407 261,811
-------- ----------- -------- ----------- -------- ----------- ------- -----------
784,496 13,753,108 506,545 7,296,912 201,795 2,629,134 93,661 1,050,271
-------- ----------- -------- ----------- -------- ----------- ------- -----------
Shares redeemed .......... (388,989) (6,960,870) (331,902) (5,088,566) (224,935) (2,957,438) (98,290) (1,103,182)
-------- ----------- -------- ----------- -------- ----------- ------- -----------
Net increase (decrease) .. 395,507 $ 6,792,238 174,643 $ 2,208,346 (23,140) $ (328,304) (4,629) $ (52,911)
======== =========== ======== =========== ======== =========== ======= ===========
</TABLE>
<PAGE> 84
IAA TRUST MUTUAL FUNDS - NOTES TO FINANCIAL STATEMENTS June 30, 1996 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE FIXED INCOME SERIES FUND
--------------------------------
TAX EXEMPT BOND FUND MONEY MARKET SERIES
-------------------- -------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
-------------------- ------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- ------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ................. 63,839 $ 550,009 66,402 $ 546,984 51,403,909 $ 51,403,909 54,472,453 $ 54,472,453
Shares issued through
reinvestment of dividends . 64,497 549,480 76,197 620,434 1,795,132 1,795,132 1,587,538 1,587,538
-------- ----------- -------- ----------- ---------- ------------ ----------- ------------
128,336 1,099,469 142,599 1,167,418 53,199,041 53,199,041 56,059,991 56,059,991
-------- ----------- -------- ----------- ---------- ------------ ----------- ------------
Shares redeemed ............. (271,157) (2,309,217) (221,928) (1,808,199) (55,950,429) (55,950,429) (58,343,697) (58,343,697)
-------- ----------- -------- ----------- ----------- ------------ ----------- ------------
Net (decrease) .............. (142,821) $(1,209,728) (79,329) $ (640,781) (2,751,388) $ (2,751,386) (2,283,706) $ (2,283,706)
======== =========== ======== =========== =========== ============ =========== ============
</TABLE>
NOTE (D) INVESTMENT TRANSACTIONS: Purchases and sales of investment securities,
other than U.S. Government obligations and short term notes for the year ended
June 30, 1996 were:
PURCHASES SALES
----------- -----------
Growth Fund .......................... $21,795,215 $21,382,303
Asset Allocation Fund ................ $ 2,060,455 $ 2,322,849
Tax Exempt Bond Fund ................. $ 2,676,288 $ 4,038,703
For the year ended June 30, 1996, the aggregate cost of purchases and proceeds
from sales of U.S. Government Securities for the Asset Allocation Fund was
$1,154,178 and $686,172, respectively.
For both Federal income tax and financial statement purposes, the identified
cost of investments at June 30,1996 was $58,837,217 for the Growth Fund,
$8,339,817 for the Asset Allocation Fund, $17,588,754 for the Tax Exempt Bond
Fund and $34,076,716 for the Money Market Series of Taxable Fixed Income Series
Fund.
The gross unrealized appreciation/depreciation for book and tax purposes at June
30,1996 consisted of the following:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
------------ ------------
<S> <C> <C>
Growth Fund .......................... $26,545,611 $649,862
Asset Allocation Fund ................ $1,833,552 $132,904
Tax Exempt Bond Fund ................. $220,339 $306,414
</TABLE>
NOTE (E) ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES AGREEMENTS: Under
its Advisory Agreements with the Funds, IAA Trust Company (the "Advisor")
provides investment advisory services for the Funds. The Funds pay the Advisor
at the following annual percentage rates of the average daily net assets of each
Fund: Growth Fund 0.75%; Asset Allocation Fund 0.75%; Tax Exempt Bond Fund
0.50%; and Money Market Series of Taxable Fixed Income Series Fund 0.50%. These
fees are accrued daily and paid to the Advisor monthly. IAA Trust Company serves
as the Funds' Custodian, without compensation.
Under its agreements with the Funds, Fund/Plan Services, Inc., the Funds'
Administrator, provides certain administrative services for which the Funds pay
an annual fee at the following annual percentage rates of the combined average
net assets of the Funds: 0.15% of the first $50,000,000; 0.07% on the next
$50,000,000; and 0.05% of the balance. Fund/Plan Services, Inc., also serves as
the Funds' Accounting and Transfer Agent.
Fund/Plan Broker Services, Inc. serves as the Funds' Distributor. Pursuant to
Rule 12b-1 adopted by the Securities and Exchange Commission under the Act, the
Growth Fund, the Asset Allocation Fund, and the Tax Exempt Bond Fund have each
adopted a Plan of Distribution (the "Plans"), effective April 1, 1993. The Plans
permit the participating Funds to pay certain expenses associated with the
distribution of their shares. The maximum amount payable under the Plans, on an
annual basis, is 0.25% of each Fund's average daily net assets. For the year
ended June 30, 1996, for the Growth Fund, the Asset Allocation Fund and the Tax
Exempt Fund, the actual percentage of average daily net assets was 0.011%,
0.081% and 0.082%, respectively.
<PAGE> 85
Financial Highlights
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST
GROWTH FUND, INC.
YEARS ENDED JUNE 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................. $17.23 $15.16 $17.55 $17.23 $17.35
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................................. 0.23 0.22 0.27 0.25 0.35
Net gains or losses on securities (both realized and unrealized) .. 3.23 3.45 (0.63) 1.67 0.40
------- ------- ------- ------- -------
Total from investment operations ................................ 3.46 3.67 (0.36) 1.92 0.75
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income .............................. (0.25) (0.17) (0.22) (0.29) (0.38)
Distributions from capital Gains .................................. (1.56) (1.43) (1.81) (1.31) (0.49)
------- ------- ------- ------- -------
Total distributions ........................................ (1.81) (1.60) (2.03) (1.60) (0.87)
------- ------- ------- ------- -------
Net asset value, end of year ....................................... $18.88 $17.23 $15.16 $17.55 $17.23
======= ======= ======= ======= =======
TOTAL RETURN+ ...................................................... 21.51% 26.68% (2.42)% 11.71% 4.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ....................... $84,800 $70,577 $59,448 $70,785 $76,147
Ratio of expenses to average net assets* ................... 1.12% 1.14% 1.24% 1.18% 0.85%
Ratio of net investment income to average net assets* ...... 1.30% 1.41% 1.03% 1.36% 1.91%
Portfolio turnover ......................................... 32.95% 31.84% 49.12% 55.36% 45.50%
Average commission Rate Paid** ............................ $0.0645 N/A N/A N/A N/A
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ Total return calculation does not reflect sales load.
** Computed by dividing the total amount of commission paid by the total number of shares purchased and sold during the period
for which there was a commission. The disclosure is required by the SEC beginning in 1996.
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
ASSET ALLOCATION FUND, INC.
YEARS ENDED JUNE 30,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................. $ 12.29 $11.08 $11.60 $11.20 $10.74
------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................................. 0.37 0.36 0.34 0.57 0.68
Net gains or losses on securities (both realized and unrealized) .. 1.41 1.38 (0.25) 0.47 0.55
------- ------ ------ ------ ------
Total from investment operations ................................ 1.78 1.74 0.09 1.04 1.23
------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income .............................. (0.37) (0.34) (0.34) (0.57) (0.68)
Distributions from capital gains .................................. (0.31) (0.18) (0.27) (0.07) (0.09)
Distributions from return of capital .............................. (0.00) (0.01) (0.00) (0.00) (0.00)
------- ------ ------ ------ ------
Total distributions ........................................ (0.68) (0.53) (0.61) (0.64) (0.77)
------- ------ ------ ------ ------
Net asset value, end of year ....................................... $ 13.39 $12.29 $11.08 $11.60 $11.20
======= ====== ====== ====== ======
TOTAL RETURN+ ...................................................... 14.74% 16.29% 0.71% 9.58% 11.84%
Ratios/Supplemental Data
Net assets, end of period (in 000's) ....................... $10,083 $9,540 $8,653 $6,663 $6,233
Ratio of expenses to average net assets* ................... 1.44% 1.46% 1.78% 1.71% 1.51%
Ratio of net investment income to average net assets* ...... 2.81% 3.18% 2.98% 4.97% 6.20%
Portfolio turnover ......................................... 33.77% 21.03% 17.39% 36.70% 14.10%
Average Commission Rate Paid**.............................. $0.0861 N/A N/A N/A N/A
* Average net assets have been computed based on the aggregate value of the fund's daily net assets
+ Total return calculation does not reflect sales load.
** Computed by dividing the total amount of commission paid by the total number of shares purchased and sold during the period for
which there was a commission. The disclosure is required by the SEC beginning in 1996.
</TABLE>
<PAGE> 86
Financial Highlights
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST
TAX EXEMPT BOND FUND, INC.
YEARS ENDED JUNE 30,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................... $8.36 $8.19 $9.11 $8.78 $8.44
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .............................................. 0.37 0.39 0.39 0.46 0.49
Net gains or losses on securities (both realized and unrealized) ... 0.07 0.20 (0.54) 0.33 0.34
------- ------- ------- ------- -------
Total from investment operations ................................... 0.44 0.59 (0.15) 0.79 0.83
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income ............................... (0.37) (0.39) (0.39) (0.46) (0.49)
Distributions from capital gains ................................... (0.02) (0.03) (0.38) 0.00 0.00
------- ------- ------- ------- -------
Total distributions ................................................ (0.39) (0.42) (0.77) (0.46) (0.49)
------- ------- ------- ------- -------
Net asset value, end of year ......................................... $8.41 $8.36 $8.19 $9.11 $8.78
======= ======= ======= ======= =======
TOTAL RETURN+ ........................................................ 5.30% 7.51% (1.86%) 9.19% 10.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ............................... $17,744 $18,833 $19,095 $20,026 $17,872
Ratio of expenses to average net assets* ........................... 1.08% 1.06% 1.15% 1.03% 0.95%
Ratio of net investment income to average net assets* .............. 4.30% 4.79% 4.47% 5.11% 5.65%
Portfolio turnover ................................................. 14.75% 24.89% 41.94% 39.60% 20.30%
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ Total return calculation does not reflect sales load.
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME
SERIES FUND, INC.
MONEY MARKET SERIES
YEARS ENDED JUNE 30,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment income ........................................ 0.05 0.05 0.03 0.02 0.03
------- ------- ------- ------- -------
Total from investment operations ............................. 0.05 0.05 0.03 0.02 0.03
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income ......................... (0.05) (0.05) (0.03) (0.02) (0.03)
------- ------- ------- ------- -------
Total distributions .......................................... (0.05) (0.05) (0.03) (0.02) (0.03)
------- ------- ------- ------- -------
Net asset value, end of year ................................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
TOTAL RETURN ................................................... 4.82% 4.85% 2.86% 2.41% 3.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ......................... $33,664 $36,415 $38,699 $33,302 $10,191
Ratio of expenses to average net assets*+ .................... 0.90% 0.73% 0.56% 0.58% 1.32%
Ratio of net investment Income to average net assets* ........ 4.74% 4.80% 2.83% 2.67% 3.60%
* Average net assets have been computed based on the aggregate value of the fund's daily net assets.
+ After voluntary waiver of advisory fees. Before voluntary waiver of advisory fees, the ratio of expenses to average
net assets was .97%, 1.06% and 1.02% for the years ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively.
</TABLE>
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Boards of Directors
IAA Trust Mutual Funds
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of the IAA Trust Mutual Funds (the
"Funds") (comprising, respectively, the IAA Trust Growth Fund, Inc., the IAA
Trust Asset Allocation Fund, Inc., the IAA Trust Tax Exempt Bond Fund, Inc. and
the IAA Trust Taxable Fixed Income Series Fund, Inc. - Money Market Series
(formerly known as IAA Trust Money Market Fund, Inc.)) as of June 30, 1996, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation and physical inspection of
securities held by the custodian as of June 30, 1996. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective Funds comprising the IAA Trust Mutual Funds
as of June 30, 1996, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
August 14, 1996
<PAGE> 88
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
APPENDIX "C": Unaudited Financial Statements dated April 2, 1997 through
April 30, 1997
IAA TRUST SHORT-TERM GOVERNMENT BOND SERIES
IAA TRUST LONG-TERM BOND SERIES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
<PAGE> 89
STATEMENTS OF ASSETS AND LIABILITIES APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST
TAXABLE TAXABLE
FIXED INCOME FIXED INCOME
SERIES FUND, INC. SERIES FUND, INC.
SHORT-TERM LONG-TERM
GOVERNMENT BOND SERIES BOND SERIES
------------------ ------------------
<S> <C> <C>
ASSETS:
Investments in securities at value
(cost $1,256,469 and $1,305,792, respectively) $ 1,253,901 $ 1,299,298
Receivable for securities sold .................. 42,653 99,498
Dividends and interest receivable ............... 14,064 6,605
Reimbursement due from advisor .................. 6,376 5,760
Deferred organizational costs ................... 15,417 15,816
Other assets .................................... 1,375 1,296
----------- -----------
Total assets ............................... 1,333,786 1,428,273
----------- -----------
LIABILITIES:
Payable for securities purchased ................ 99,498 99,498
Payable to advisor-organizational costs ......... 16,589 16,912
Distributions payable ........................... 3,800 3,800
Accrued expenses and other liabilities .......... 7,454 7,390
----------- -----------
Total liabilities .......................... 127,341 127,600
----------- -----------
NET ASSETS:
Applicable to 120,842 and 130,675 shares
outstanding, respectively .................... $ 1,206,445 $ 1,300,673
=========== ===========
NET ASSETS CONSIST OF:
Capital paid-in ................................. $ 1,208,609 $ 1,306,765
Undistributed
net investment income ........................ 404 418
Accumulated net realized loss
on investments ............................... 0 (16)
Net unrealized depreciation
of investments ............................... (2,568) (6,494)
----------- -----------
$ 1,206,445 $ 1,300,673
=========== ===========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE ....................................... $ 9.98 $ 9.95
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 90
IAA TRUST MUTUAL FUNDS--SCHEDULE OF INVESTMENTS APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
IAA TRUST SHORT-TERM GOVERNMENT BOND SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------- --------------
BONDS AND NOTES-99.79%
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 99.79%
U.S. TREASURY NOTES - 49.28%
United States Treasury Notes
5.875%, 11/15/99 ......................... $ 500,000 $ 494,260
United States Treasury Notes
6.625%, 04/30/02 ......................... 100,000 100,230
-----------
TOTAL U.S. TREASURY NOTES
(cost $597,058) ....................... 594,490
-----------
U.S. TREASURY BILLS - 50.51%
United States Treasury Bills
5.030%, 05/01/97 ......................... 180,000 180,000
United States Treasury Bills
4.940%, 05/08/97 ......................... 250,000 249,760
United States Treasury Bills
4.980%, 05/15/97 ......................... 180,000 179,651
-----------
TOTAL U.S. TREASURY BILLS
(cost $609,411) ....................... 609,411
-----------
TOTAL BONDS AND NOTES
(cost $1,206,469) ..................... 1,203,901
-----------
COMMERCIAL PAPER - 4.14%
Commercial Credit Co
5.504%, 05/01/97 ......................... 50,000 50,000
-----------
TOTAL COMMERCIAL PAPER
(cost $50,000) ........................ 50,000
-----------
TOTAL INVESTMENTS - 103.93%
(cost $1,256,469) ......................... 1,253,901
-----------
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS - (3.93%) ........... (47,456)
-----------
NET ASSETS - 100.00% ........................ $ 1,206,445
===========
</TABLE>
See notes to financial statements.
<PAGE> 91
IAA TRUST MUTUAL FUNDS--SCHEDULE OF INVESTMENTS APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
IAA TRUST LONG-TERM BOND SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------
BONDS AND NOTES-98.72%
U.S. GOVERNMENT OBLIGATIONS - 98.72%
<S> <C> <C>
U.S. TREASURY NOTES - 61.08%
United States Treasury Notes
6.625%, 04/30/02 ....................... $ 100,000 $ 100,230
United States Treasury Notes
5.875%, 02/15/04 ....................... 100,000 95,703
United States Treasury Notes
7.875%, 11/15/04 ....................... 100,000 106,861
United States Treasury Notes
6.500%, 10/15/06 ....................... 500,000 491,685
----------
TOTAL U.S. TREASURY NOTES
(cost $800,973) ..................... 794,479
----------
U.S. TREASURY BILLS - 37.64%
United States Treasury Bills
5.030%, 05/01/97 ....................... 140,000 140,000
United States Treasury Bills
4.940%, 05/08/97 ....................... 250,000 249,760
United States Treasury Bills
4.980%, 05/15/97 ....................... 100,000 99,806
----------
TOTAL U.S. TREASURY BILLS
(cost $489,566) ..................... 489,566
----------
TOTAL BONDS AND NOTES
(cost $1,290,539) ................... 1,284,045
----------
SHARES
----------
OTHER SHORT TERM INVESTMENTS - 1.17%
MONEY MARKET FUNDS - 1.17%
Federated Prime Obligation Fund ........... 15,253 15,253
----------
TOTAL MONEY MARKET FUNDS
(cost $15,253) ...................... 15,253
----------
TOTAL INVESTMENTS - 99.89%
(cost $1,305,792) ....................... 1,299,298
----------
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.11% .............. 1,375
----------
NET ASSETS - 100.00% ...................... $1,300,673
==========
</TABLE>
See notes to financial statements.
<PAGE> 92
STATEMENTS OF OPERATIONS FOR THE FOUR MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST
TAXABLE TAXABLE
FIXED INCOME FIXED INCOME
SERIES FUND, INC. SERIES FUND, INC.
SHORT-TERM LONG-TERM
GOVERNMENT BOND SERIES BOND SERIES
------------------ ------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................. $ 20,775 $ 21,719
-------- --------
Total investment income ......................... 20,775 21,719
-------- --------
EXPENSES:
Investment advisory fees (Note E) .................... 1,851 2,795
Transfer agent fees (Note E) ......................... 6,576 6,576
Auditing fees ........................................ 2,885 2,885
Legal fees ........................................... 1,603 1,603
Printing ............................................. 375 375
Directors' fees ...................................... 312 312
Administration fees (Note E) ......................... 2,219 2,219
Accounting fees (Note E) ............................. 5,152 5,087
Insurance ............................................ 1,729 1,729
Registration fees .................................... 420 406
Amortization of organizational costs (Note A) ........ 640 657
Miscellaneous ........................................ 417 416
-------- --------
Total expenses .................................. 24,179 25,060
Less expenses waived and reimbursed by advisor (19,293) (19,209)
-------- --------
Net expenses .................................... 4,886 5,851
-------- --------
NET INVESTMENT INCOME ..................................... 15,889 15,868
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS-- NOTE (D):
Net realized loss on investments ..................... 0 (16)
Net change in unrealized depreciation
on investments .................................... (2,568) (6,494)
-------- --------
Net realized and unrealized loss
on investments .................................... (2,568) (6,510)
-------- --------
INCREASE IN NET ASSETS FROM OPERATIONS .................... $ 13,321 $ 9,358
======== ========
</TABLE>
See notes to financial statements.
<PAGE> 93
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE
FIXED INCOME
SERIES FUND, INC.
--------------------------------------------
SHORT TERM LONG TERM
GOVERNMENT BOND SERIES BOND SERIES
FOUR MONTHS ENDED FOUR MONTHS ENDED
04/30/97 04/30/97
(UNAUDITED) (UNAUDITED)
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................... $ 15,889 $ 15,868
Net realized loss on investments ........... 0 (16)
Net change in unrealized depreciation
of investments .......................... (2,568) (6,494)
----------- -----------
Increase in net assets from operations ..... 13,321 9,358
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income .......................... (15,485) (15,450)
Realized gains on investments .............. 0 0
----------- -----------
(15,485) (15,450)
----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C) .... 1,208,609 1,306,765
----------- -----------
Total increase in net assets ............... 1,206,445 1,300,673
NET ASSETS:
Beginning of period ........................ 0 0
----------- -----------
End of period .............................. $ 1,206,445 $ 1,300,673
=========== ===========
</TABLE>
<PAGE> 94
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME
SERIES FUND, INC.
-----------------
SHORT-TERM GOVERNMENT LONG-TERM BOND
BOND SERIES SERIES
----------- ------
FOUR MONTHS ENDED FOUR MONTHS ENDED
04/30/97 04/30/97
(UNAUDITED) (UNAUDITED)
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ..... $ 10.00 $ 10.00
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................... 0.13 0.13
Net gains or losses on securities
(both realized and unrealized) .......... (0.02) (0.05)
--------- ---------
Total from investment operations ...... 0.11 0.08
--------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income .... (0.13) (0.13)
--------- ---------
Total distributions ................... (0.13) (0.13)
--------- ---------
Net asset value, end of period ........... $ 9.98 $ 9.95
========= =========
TOTAL RETURN ............................. 1.13% 0.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .... $ 1,206 $ 1,301
Ratio of expenses to average net assets*+ 1.32%** 1.57%**
Ratio of net investment income to
average net assets* ................... 4.29%** 4.26%**
Portfolio turnover ...................... 0.00% 0.00%
<FN>
* Average net assets have been computed based on the aggregate value of the
Fund's daily net assets.
** Annualized.
+ After voluntary waiver of advisory and legal fees and expenses reimbursed by
advisor. Before voluntary waiver and reimbursement of expenses, the ratio of
expenses to average net assets was 6.53% and 6.72% for Short-Term Government
Bond Series and Long-Term Bond Series, respectively. The ratio of net
investment income to average net assets would have been (0.92%) and (0.90%)
for Short-Term Government Bond Series and Long-Term Bond Series,
respectively.
</TABLE>
<PAGE> 95
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC. - NOTES TO FINANCIAL STATEMENTS
April 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
NOTE (A) SIGNIFICANT ACCOUNTING POLICIES: IAA Trust Taxable Fixed Income Series
Fund, Inc. ("Taxable Fixed Income Series Fund"or the "Fund"), formerly known as
IAA Trust Money Market Fund, Inc., is an incorporated and registered company
under the Investment Company Act of 1940 (the "Act"), as amended, as a
diversified, open-ended management company. The Taxable Fixed Income Series Fund
currently consists of three separate investment Series: IAA Trust Money Market
Series ("Money Market Series"), IAA Trust Short-Term Government Bond Series
("Short-Term Government Bond Series") and IAA Trust Long-Term Bond Series
("Long-Term Bond Series"). These notes relate only to the initial period of
operations for the Short-Term Government Bond Series and the Long-Term Bond
Series, which commenced on January 2, 1997. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies consistently followed by each Fund in the preparation of its
financial statements.
(1) SECURITY VALUATION: Securities traded on national exchanges and
over-the-counter securities listed in the NASDAQ National Market System
are valued at the last reported sales price at the close of the New
York Stock Exchange. Securities for which there have been no sales on
such day are valued at the last reported bid price on such exchange.
Over-the-counter securities not listed on the NASDAQ National Market
System are valued at the mean of the current bid and asked prices.
Fixed-income securities, except short-term securities, may be valued on
the basis of prices provided by a pricing service when such prices are
believed by the Advisor to reflect the fair market value of such
securities. Short-term investments, those with a remaining maturity of
60 days or less, are valued at amortized cost, which approximates
market value.
(2) INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
Securities transactions are accounted for on the date securities are
purchased or sold. Securities gains and losses are determined on the
identified cost basis.
(3) FEDERAL INCOME TAXES: The Fund has elected to be treated as
"regulated investment companies" under Sub-chapter M of the Internal
Revenue Code and to distribute substantially all of its net taxable
income annually. Accordingly, no provisions for Federal income taxes
have been made in the accompanying financial statements.
(4) DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions
and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles.
(5) ORGANIZATIONAL COSTS: Organizational costs for Short-Term
Government Bond Series and Long-Term Bond Series are being amortized on
a straight-line basis over five years.
NOTE (B) DIVIDENDS FROM NET INVESTMENT INCOME AND DISTRIBUTIONS OF CAPITAL
GAINS: The Short-Term Government Bond Series and Long-Term Bond Series of
Taxable Fixed Income Series Fund distribute net investment income to
shareholders monthly. Dividends are automatically reinvested in additional Fund
shares, at the then current net asset value, for those shareholders that have
elected the reinvestment option. Net realized gains from investment
transactions, if any, of all Funds are generally distributed once a year.
NOTE (C) CAPITAL STOCK: The authorized capitalization of the Taxable Fixed
Income Series Fund consists of 250,000,000 shares with par value of $0.10 per
share. 100,000,000 of this Fund's shares are designated as Money Market Series,
50,000,000 of its shares are designated as Short-Term Government Bond Series,
and 25,000,000 of its shares are designated as Long-Term Bond Series. The
remaining 75,000,000 shares are undesignated.
<PAGE> 96
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC. - NOTES TO FINANCIAL STATEMENTS
April 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE FIXED INCOME TAXABLE FIXED INCOME
-------------------- --------------------
SERIES FUND SERIES FUND
----------- -----------
SHORT-TERM GOVERNMENT LONG-TERM BOND SERIES
--------------------- ---------------------
BOND SERIES
-----------
Four Months Ended Four Months Ended
April 30, 1997 April 30, 1997
---------------- ---------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold....... 123,701 $1,237,237 167,571 $1,671,730
Shares
issued through
reinvestment of
dividends......... 229 2,285 247 2,449
----- --------- ----- -------
123,930 1,239,522 167,818 1,674,179
------- ----------- ------- ---------
Shares
redeemed.......... (3,088) (30,913) (37,143) (367,414)
------ --------- ------ --------
Net increase...... 120,842 $ 1,208,609 130,675 $1,306,765
======= =========== ======== ==========
</TABLE>
NOTE (D) INVESTMENT TRANSACTIONS:
For the four months ended April 30, 1997, the aggregate cost of purchases and
proceeds from sales of U.S. Government Obligations for the Short-Term Government
Bond Series was $596,764 and $0, respectively. For the four months ended April
30, 1997, the aggregate cost of purchases and proceeds from sales of U.S.
Government Obligations for the Long-Term Bond Series was $801,014 and $0,
respectively.
For both Federal income tax and financial statement purposes, the identified
cost of investments at April 30,1997 was $1,256,469 for the Short-Term
Government Bond Series and $1,305,792 for the Long-Term Bond Series.
<PAGE> 97
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC. - NOTES TO FINANCIAL STATEMENTS
April 30,1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
The gross unrealized appreciation/depreciation for book and tax purposes at
April 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
------------ ------------
<S> <C> <C>
Short-Term Government Bond Series $ 732 $3,300
Long-Term Bond Series $1,518 $8,012
</TABLE>
NOTE (E) ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES AGREEMENTS: Under
its Advisory Agreements with the Fund, IAA Trust Company (the "Advisor")
provides investment advisory services for the Taxable Fixed Income Series Fund.
The Fund pays the Advisor at the following annual percentage rates of the
average daily net assets of each new Series: Short-Term Government Bond Series
0.50% and Long-Term Bond Series 0.75%. These fees are accrued daily and paid to
the Advisor monthly. IAA Trust Company serves as the Fund's Custodian, without
compensation.
Under its agreement with the Fund, FPS Services, Inc., the Fund's Administrator,
provides certain administrative services for which the Fund pays an annual fee
at the following annual percentage rates of the combined average net assets of
each Series: 0.15% of the first $50,000,000; 0.10% on the next $50,000,000; and
0.05% of the balance. FPS Services, Inc., also serves as the Fund's Accounting
and Transfer Agent.
FPS Broker Services, Inc. serves as the Fund's Distributor. Pursuant to Rule
12b-1 adopted by the Securities and Exchange Commission under the Act, the
Short-Term Government Bond Series and the Long-Term Bond Series have each
adopted a Plan of Distribution (the "Plan"). The Plan permits the participating
Funds to pay certain expenses associated with the distribution of their shares.
The maximum amount payable under the Plan, on an annual basis, is 0.25% of the
average daily net assets of each Series.
<PAGE> 98
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
Item 24. Financial Statements and Exhibits:
----------------------------------
(a) Financial Statements for Money Market Series included in Part A:
Financial Highlights
Financial Statements in Part B:
Annual Report to Shareholders (IAA Trust Mutual Funds) dated June
30, 1996
Interim Financial Statements for the Short-Term Government Bond
Series and the Long-Term Bond Series, dated April 30, 1997.
(b) Exhibits
(1) Charter. See Articles of Incorporation dated April 14, 1981, as
amended June 24, 1996, which are incorporated herein by reference
to and were filed electronically with Post-Effective Amendment
filing Number 19, on August 14, 1996.
(2) Bylaws. Bylaws of IAA Trust Taxable Fixed Income Series Fund,
Inc., as amended November 23, 1992 -- Incorporated by reference
to Post-Effective Amendment Number 20 to Form N-1A filed on
October 28, 1996.
(3) Voting Trust Agreement. None.
(4) a. Specimen stock certificate. See Exhibit 4 to Amendment No. 1
to Form N-8B-1 filed March 1966, and incorporated herein by
reference.
b. Share account application form --Incorporated by reference
to Post-Effective Amendment Number 20 to Form N- 1A filed on
October 28, 1996.
(5) Investment Advisory Contracts.
a. Investment Advisory Agreement for IAA Trust Money Market
Fund, Inc. , effective September 29, 1992 -- Incorporated
by reference to Post-Effective Amendment Number 20 to Form
N-1A filed on October 28, 1996.
b. Investment Advisory Agreement, effective October 1, 1996
for IAA Trust Short-Term Government Bond Series
--Incorporated by reference to Post-Effective Amendment
Number 20 to Form N-1A filed on October 28, 1996.
c. Investment Advisory Agreement, effective October 1, 1996
for IAA Trust Long-Term Bond Series --Incorporated by
reference to Post-Effective Amendment Number 20 to Form N-
<PAGE> 99
1A filed on October 28, 1996.
(6) Underwriting Agreements.
a. Underwriting Agreement effective August 1, 1995 is
incorporated herein by reference and was filed
electronically with Post-Effective Amendment Number 19 on
August 14, 1996.
b. Amendment dated July 29, 1996 to Underwriting Agreement is
incorporated herein by reference and was filed
electronically with Post-Effective Amendment Number 19 on
August 14, 1996.
(7) Bonus, profit sharing, pension or similar agreements. None.
(8) Custodian Agreements.
a. Custodian Agreement, effective March 31, 1992 for IAA Trust
Money Market Fund, Inc. --Incorporated by reference to
Post-Effective Amendment Number 20 to Form N-1A filed on
October 28, 1996.
b. Custodian Agreement, effective October 1, 1996 for IAA
Trust Short-Term Government Bond Series --Incorporated by
reference to Post-Effective Amendment Number 20 to Form
N-1A filed on October 28, 1996.
c. Custodian Agreement, effective October 1, 1996 for IAA
Trust Long-Term Bond Series --Incorporated by reference to
Post-Effective Amendment Number 20 to Form N-1A filed on
October 28, 1996.
(9) Other material contracts not made in the ordinary course of
business.
a.i. Transfer Agent Services Agreement, effective August 1,
1995 is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment Number 19 on
August 14, 1996.
ii. Amendment dated July 29, 1996 to Transfer Agent Services
Agreement, reflecting the name change and the creation of
two new Series is incorporated herein by reference to and
was filed electronically with Post-Effective Amendment
Number 19 on August 14, 1996.
b.i. Administration Agreement, effective August 1, 1995 is
incorporated herein by reference to and was filed
electronically with Post-Effective Amendment Number 19 on
August 14, 1996.
ii. Amendment dated July 29, 1996 to Administration
Agreement, reflecting the name change and the creation
of two new Series is incorporated herein by reference to
and was filed electronically with Post-Effective
Amendment Number 19 on August 14, 1996.
c.i. Accounting Services Agreement, effective August 1, 1995
is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment Number 19 on
August 14, 1996.
ii. Amendment dated July 29, 1996 to Accounting Services
Agreement, reflecting the name change and the creation
of two new Series is incorporated herein by reference to
and was filed electronically with Post-Effective
Amendment Number 19 on August 14, 1996.
(10) Opinion and consent of Counsel. See Exhibit A to 24f-2
Notice filed August 1996, and incorporated herein by reference.
(11) Consent of Independent Accountants -- filed herewith.
<PAGE> 100
(12) All financial statements omitted from Item 23. See Item 24(a)
above.
(13) Agreements regarding initial capital.
a. Subscription Agreement. Not Applicable.
b. Letter of Intent of initial subscriber of shares. Not
Applicable.
(14) Copies of model plan used in establishment of any retirement plan
in conjunction with which Registrant offers its securities. --
filed herewith.
(15) Plan pursuant to Rule 12b-1 describing financing of distribution
of Registrant's shares.
a. 12b-1 Plan Agreement with FPS Broker Services, Inc.,
effective October 1, 1996 for IAA Trust Short-Term
Government Bond Series -- Incorporated by reference to
PostEffective Amendment Number 20 to Form N-1A filed
on October 28, 1996.
b. 12b-1 Plan Agreement with FPS Broker Services, Inc.,
effective October 1, 1996 for IAA Trust Long-Term Bond
Series -- Incorporated by reference to Post-Effective
Amendment Number 20 to Form N-1A filed on October 28, 1996.
(16) Schedule for computation of each performance quotation. Not
applicable.
(27) Electronic Filers -- Financial Data Schedules attached.
Item 25. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
IAA Control Chart. --Incorporated by reference to Post-
Effective Amendment Number 20 to Form N-1A filed on
October 28, 1996.
Item 26. Number of Holders of Securities.
--------------------------------
(1) (2)
Title of Class Number of Record Holders
Common
As of June 10, 1997
Money Market Series 1,059
Short-Term Government Bond Series 2
Long-Term Bond Series 2
Item 27. Indemnification.
----------------
See Item 1.14 to Form N-1R filed for the fiscal year ended June
30, 1977, and incorporated herein by reference. The Registrant
also purchases Errors and Omissions insurance with Directors and
Officers liability coverage.
Item 28. 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.
<PAGE> 101
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., Illinois
Director Agricultural Association, Illinois Agricultural
Holding Co., IAA Trust Company, 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. Farmer.
Robert L. Phelps, Director: AgriVisor Services, Inc., Illinois
Director Agricultural Association, 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 Holding Co., IAA Trust Company. Farmer.
Paul G. Fiedler, Director: AgriVisor Services, Inc., Illinois
Director Agricultural Association, Illinois Agricultural
Holding Co., IAA Trust Company, CC Services, Inc.,
Country Medical Plans, Inc., Country Casualty
Insurance Company, Country Investors
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
<S> <C>
Life Assurance Company, Country Life Insurance
Company, Country Mutual Insurance Company, Country
Preferred Insurance Company, Country Capital
Management Company. Farmer.
Gary E. Mede, C.F.A., See information on "Directors and Officers of
Executive Vice President the Funds" - Part B.
and Trust Officer
Bruce Finks, See information on "Directors and Officers
Vice President the Funds" - Part B
Investments
Richard M. Miller, See information on "Directors and Officers of
Senior Vice President--Trusts the Funds" - Part B.
and Senior Trust Officer
Richard F. Day, See information on "Directors and Officers of
Vice President and Controller the Funds" - Part B.
David Tipsword, Vice President--Pension Trusts, Trust Officer:
Vice President--Pension IAA Trust Company.
Trusts and Trust Officer
Connie Denison Vice President--Management Information Systems
Vice President--Management and Assistant Trust Officer: IAA Trust Company.
Information Systems and
Assistant Trust Officer
Bernard Dornedon Vice President--Equity Investments: IAA Trust
Vice President-- Company.
Equity Investments
Paul M. Harmon, See information on "Directors and Officers
Secretary and General Counsel the Funds" - Part B
Robert W. Weldon, See information on "Directors and Officers of
Treasurer the Funds" - Part B.
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) As of May 31, 1997 in addition to acting as the Registrant's
distributor, FPS Broker Services, Inc. also served as distributor
of the shares of IAA Trust Growth Fund, Inc., IAA Trust Tax
Exempt Bond Fund, Inc., and IAA Trust Taxable Fixed Income Series
Fund, Inc. FPS Broker Services, Inc., the principal underwriter
for the Registrant's securities, currently acts as principal
underwriter for the following entities:
The Govett Funds, Inc.
Bjurman Funds
<PAGE> 103
Farrell Alpha Strategies
Focus Trust, Inc.
Polynous Trust
Matthews International Funds
McM Funds
Metropolitan West Funds
Smith Breeden Series Fund
Smith Breeden Short Duration U.S. Government Fund
Smith Breeden Trust
Sage/Tso Trust
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend Shares, Inc.
The Timothy Plan (Until 7/97)
Trainer Wortham First Mutual Funds
(b) The table below sets forth certain information as to the
Underwriter's Directors, Officers and Control Persons:
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------------------- --------------------
<S> <C> <C>
Kenneth J. Kempf Director, and None
3200 Horizon Drive President
King of Prussia, PA 19406-0903
Lynne M. Cannon Vice President and None
3200 Horizon Drive Principal
King of Prussia, PA 19406-0903
Rocco J. Cavalieri Director and None
3200 Horizon Drive Vice President
King of Prussia, PA 19406-0903
Gerald J. Holland Director, None
3200 Horizon Drive Senior Vice President and
King of Prussia, PA 19406-0903 Principal
Joseph M. O'Donnell, Esq. Director and None
3200 Horizon Drive Vice President
King of Prussia, PA 19406-0903
Sandra L. Adams Assistant Vice None
3200 Horizon Drive President and
King of Prussia, PA 19406-0903 Principal
Mary P. Efstration Secretary None
3200 Horizon Drive
King of Prussia, PA 19406-0903
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
<S> <C> <C>
John H. Leven Treasurer None
3200 Horizon Drive
King of Prussia, PA 19406-0903
</TABLE>
James W. Stratton may be considered a control person of the Underwriter due to
his direct or indirect ownership of Fund/Plan Services, Inc., the parent of the
Underwriter.
(c) Not Applicable.
Item 30. 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, Senior Vice President Accounting
Services, 3200 Horizon Drive, 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 Robert W. Weldon, 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 31. Management Services.
--------------------
Not Applicable.
Item 32. Undertakings.
-------------
a. If requested to do so by the holders of at least 10% of the
outstanding shares of either IAA Trust Short-Term Government
Bond Series or IAA Trust Long-Term Bond Series, the Fund will
call a meeting of the shareholders of the respective series
for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with
other shareholders as required by section 16(c) of the
Investment Company Act of 1940.
b. Registrant will file a Post-Effective amendment for each of
IAA Trust Short-Term Government Bond Series and IAA Trust
Long-Term Bond Series containing unaudited financial
statements for within four to six months from the effective or
commencement date of such new Series.
c. Not applicable.
<PAGE> 105
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
EXHIBIT INDEX TO PART "C"
OF
POST-EFFECTIVE AMENDMENT
Item No. Description
- -------- -----------
99(b)(11) Consent of Independent Accountants
99(b)(27) Financial Data Schedules
<PAGE> 1
Part C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report in this Post-Effective Amendment No.
21 to the Registration Statement under the Securities Act of 1933 on Form N-1A
(File No. 2-73768) of our report dated August 14, 1996 on our audit of the
financial statements and financial highlights of the IAA Trust Taxable Fixed
Income Series Fund, Inc. 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.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 26, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000353312
<NAME> IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
<SERIES>
<NUMBER> 3
<NAME> IAA TRUST LONG-TERM BOND SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 1305792
<INVESTMENTS-AT-VALUE> 1299298
<RECEIVABLES> 106103
<ASSETS-OTHER> 22872
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1428273
<PAYABLE-FOR-SECURITIES> 99498
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28102
<TOTAL-LIABILITIES> 127600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1306765
<SHARES-COMMON-STOCK> 130675
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 418
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6494)
<NET-ASSETS> 1300673
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21719
<OTHER-INCOME> 0
<EXPENSES-NET> 5851
<NET-INVESTMENT-INCOME> 15868
<REALIZED-GAINS-CURRENT> (16)
<APPREC-INCREASE-CURRENT> (6494)
<NET-CHANGE-FROM-OPS> 9358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15450
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 167571
<NUMBER-OF-SHARES-REDEEMED> 37143
<SHARES-REINVESTED> 247
<NET-CHANGE-IN-ASSETS> 1300673
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2795
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25060
<AVERAGE-NET-ASSETS> 1185007
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000353312
<NAME> IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
<SERIES>
<NUMBER> 2
<NAME> SHORT-TERM GOVERNMENT BOND SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 1256469
<INVESTMENTS-AT-VALUE> 1253901
<RECEIVABLES> 56717
<ASSETS-OTHER> 23168
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1333786
<PAYABLE-FOR-SECURITIES> 99498
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27843
<TOTAL-LIABILITIES> 127341
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1208609
<SHARES-COMMON-STOCK> 120842
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 404
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2568)
<NET-ASSETS> 1206445
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20775
<OTHER-INCOME> 0
<EXPENSES-NET> 4886
<NET-INVESTMENT-INCOME> 15889
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (2568)
<NET-CHANGE-FROM-OPS> 13321
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15485
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 123701
<NUMBER-OF-SHARES-REDEEMED> 3088
<SHARES-REINVESTED> 229
<NET-CHANGE-IN-ASSETS> 1206445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1851
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24179
<AVERAGE-NET-ASSETS> 1175552
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (.02)
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
