<PAGE> 1
PRESIDENT'S LETTER
DEAR SHAREHOLDERS:
The year 1998 turned out to be the fourth year in a row that the financial
markets provided higher-than-normal total returns. Stocks, as measured by the
S&P 500, returned 28.6% for the year. Bonds also provided above-average returns,
as the Merrill Lynch Domestic Master Bond Index* returned 8.9%.
Most pundits did not expect the financial markets to register above-average
performance in 1998. If one thinks about the events that occurred during the
year, it seems even more remarkable. During the course of the year there was a
presidential scandal, impeachment of the President, Asia suffered an economic
meltdown, Russia defaulted on its debt, and U.S. stocks declined almost 25% in a
five-week period. This would hardly seem the background for an outstanding
investment year.
On the bright side, inflation is at its lowest level in a generation, as
energy and commodity prices in general have fallen to near-record lows.
Employment continues to grow. Productivity of workers and corporations has
surpassed expectations. Interest rates are at the lowest levels since the 1960's
and construction activity is brisk. Consumer confidence, although down from its
peak, is still at a respectable level. Evidence of the recently completed
Christmas shopping season suggests that consumers spent well, the consequence of
which is the highest consumer debt level in history.
The current economic expansion is the longest in history, now spanning more
than eight years. During this period, many changes have occurred. Corporations
have cut waste and excess capacity. Workers have become more productive.
Inflation is moderate and commodity prices are falling. The Internet, which
barely existed a few years ago, has become an integral part of almost everyone's
life. But all economic expansions end someday, and this one will, too. It's not
a question of if, but of when. When things seem too good to be true, they
usually are, and it's a good time to contemplate what effects a slowdown in
economic activity might bring.
We think that interest rates will decline again in 1999. A weakening U.S.
economy, almost non-existent inflation, falling commodity prices, and a Federal
Reserve that wants to avoid a severe recession will necessitate this. Even
though the U.S. dollar has fallen from its highs of early 1998, the continuation
of the currency crisis in Asia and Brazil will give the Fed another reason to
keep interest rates from rising.
IAA TRUST GROWTH FUND, INC.
INCEPTION DATE 4/21/66
The annualized returns for the Fund for the period ended December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
17.50% 17.67% 14.25%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
Most of the return of the S&P 500* was provided by a small number of stocks.
Even though the Index rose 28.7% for 1998, almost three-quarters of the stocks
that investors could have owned failed to return even 8%. In fact, 66% of all
common stocks in the U.S. equity universe went down in 1998. The bigger the
stock, the better it did during the year. The Russell 2000*, an indicator of
small stock performance, returned -3.5% for the year. Economic sectors of the
market also showed wide variations in returns. Energy, Capital Goods, Consumer
Cyclicals and Basic Industries performed poorly. Technology, Healthcare,
Financials and Utilities performed well. Consumer Growth, Consumer Services and
Transportation about matched the S&P 500.
Looking forward, little has changed in economies around the world over the
last 12 months. The same problems in the same areas of the world that faced us
then are still with us. Even Europe may be on the verge of a slowdown.
Only the United States is deemed able to continue to be the "engine of
growth" for the world, and the current behavior of the stock market supports
that belief. Internet stocks, the new rage of the stock market, can go up 40-50%
in a single day. These are not penny stocks, either. Forbes Magazine recently
ran an article stating that five million people are trading, and in some cases
day-trading, Internet stocks. These are companies in competitive industries, and
few have any earnings. Some of these stocks have increased more than 110 fold in
value in less than two years. Manias like this cannot be sustained, and the
warning signs confirm this. For example, interest rates have risen from the lows
of November. Earnings expectations are beginning to fall. Companies still lack
pricing power, and competition for consumer dollars is intense.
Declining interest rates make the overall outlook for equities appear
favorable. However, declining corporate earnings could break the positive
psychology that currently exists in the financial markets. We think that 1999
may prove to be a tug-of-war between these
<PAGE> 2
two factors. Our strategy continues to consist of searching for high-quality
growth stocks selling at reasonable prices, or at least selling cheaper than
their peers do. Such stocks are becoming increasingly difficult to find.
IAA TRUST ASSET ALLOCATION FUND, INC.
INCEPTION DATE 12/7/78
The annualized returns for the fund for the period ended December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
11.88% 13.08% 11.46%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
The Asset Allocation Fund posted another strong performance in 1998,
benefiting from both stock and bond prices. The Fund's return for the year was
11.88%. This was lower than the 13.5% return of the average balanced fund. Much
of the difference can be attributed to our lower equity weighting. Many of the
funds in our peer group are carrying stock weightings of greater than 70%.
Although volatility in the stock market was high, we were able to use this
to our advantage by increasing our equity weighting ahead of the end of year
spike in prices. We lifted our exposure to the technology (12.3%), finance
(8.7%), and consumer services (2.6%) sectors. In addition, we continued to
emphasize large capitalization stocks.
Bond returns benefited from continued low inflation and from turmoil
overseas. We carried a heavy position in U.S. Treasuries early in the year,
which helped our overall return.
The asset allocation at the end of the year was 57% stocks, 35% bonds, 5%
U.S. Treasuries and 3% cash equivalents.
IAA TRUST TAX EXEMPT BOND FUND, INC.
INCEPTION DATE 12/7/78
The annualized returns for the Fund for the period ended December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
5.94% 5.28% 6.78%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested. Although the Fund's income is exempt from Federal income tax, it may
be subject to state income taxation, and it may also be subject to the Federal
alternative minimum tax.
The IAA Trust Tax-Exempt Bond Fund maintained a duration equal to or
slightly longer than the duration of the Lehman Index* throughout most of 1998.
This enabled the portfolio to benefit from the decline in municipal yields from
January's high Bond Buyer 20 Index's yield of 5.05% to the September low of
4.82%. During the second half of the year, the decision was made to change the
strategy of the Fund, making it more attractive to our investors. By changing
the Fund's maturity structure from a long-term municipal bond fund to an
intermediate-term municipal bond fund, we should see an increase in the asset
size of the Fund. Over the next twelve months we will shorten the average
maturity and duration of the Fund to align it with our new benchmark, the Lehman
Brothers Seven-Year Index*.
The Fund's one-year total return was 5.94%. This compares to the Lehman
Brothers General Municipal Bond Index's* total return of 6.48%, and the Lehman
Brothers Seven-Year Municipal Bond Index's* total return of 6.22%. Neither index
reflects investments in cash, the impact of any servicing, investment
management, or administrative expenses.
The municipal market underperformed the U.S. Treasury market in 1998. The
BBI 20 declined only 15 basis points from January to January, while the 30-year
Treasury yield declined 83 basis points over the same period. Issuers of
tax-exempt bonds took advantage of the low interest rate environment, selling
more new money debt than in any previous year. The demand kept up with the
supply, thus keeping municipal yields in a tight range. As we go forward into
1999, barring any significant fall in rates, issuance is projected to decline
from its 1998 pace. Should demand remain at current levels, we could see better
performance in the municipal market.
<PAGE> 3
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES**
INCEPTION DATE 10/26/81
Amid the backdrop of a worldwide economic slowdown, financial markets were
aggravated by a liquidity crunch, which caused the Federal Reserve to act
quickly in order to restore price stability. After not changing short-term rates
since March of 1997, the Federal Reserve instituted three 25-basis point rate
cuts over a 49-day period beginning September 28, 1998. Following the drop in
the general level of short-term interest rates, the 7-day average yield for the
IAA Trust Money Market Series decreased from 5.00% to 4.49% from December 31,
1997, to December 31, 1998. Although the Federal Reserve has gone on record as
having a neutral bias toward changing interest rate policy, they stand ready to
act quickly to maintain this delicate balance.
SHORT-TERM GOVERNMENT BOND SERIES
INCEPTION DATE 1/2/97
The annualized returns for the Fund for the period ended December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ------ ---------------
<S> <C>
6.35% 6.05%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
The key factors for the fixed income markets in 1998 were the budget
surplus, reductions in Treasury supply, falling commodity prices, emerging
market contagion, hedge fund deleveraging, risk aversion, and heightened
liquidity premiums. The Fund was a benefactor of these events and had a return
of 6.35% that compares to the Merrill Lynch Short-Term Government and Agency
Index* 6.97% return. During the year we used the spread widening as opportunity
to increase our agency exposure to 47.4%. The Fund currently has an average life
of approximately 3 years.
LONG-TERM BOND SERIES
INCEPTION DATE 1/2/97
The annualized returns for the Fund for the period ended December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ------ ---------------
<S> <C>
9.22% 8.96%
</TABLE>
These returns assume all dividends and capital gains distributions were
reinvested.
<PAGE> 4
Capital markets turmoil brought on by the emerging markets crisis
characterized 1998. Disinflation was a continuing theme as oil and commodity
prices continued their decline. The Fund navigated its way through these
uncharted waters with a very respectable 9.22% return, which compares to the
Merrill Lynch Domestic Master Index* 8.87% return. The Fund had an over-weighted
position in Treasuries as we entered 1998, which enhanced performance. During
the fourth quarter we reduced our Treasury position in favor of corporate bonds
which were trading at attractive levels. As we enter 1999, the Fund is now
over-weighted in corporate bonds (52.4%) and mortgage securities (8.6%) with an
average life of approximately 13 years.
Sincerely,
[Ronald Warfield Photo]
[Ronald Warfield Signature]
Ronald R. Warfield
President
- ---------------
* All indices mentioned are unmanaged indices not available for investment.
** Although a money market seeks to maintain a stable net asset value of $1.00
per share, there is no assurance it will be able to do so. An investment in
the Fund is neither insured nor guaranteed by the U.S. Government.
Past performance is no guarantee of future results. Share prices will
fluctuate and when redeemed, shares may be worth more or less than their
original investment. Effective 1-1-99 the Funds will be distributed by First
Data Distributor, Inc. 4400 Computer Drive, Westborough, MA 01581. This report
must be preceded or accompanied by a prospectus. DFU 2/99
<PAGE> 5
IAA TRUST MUTUAL FUNDS -- PORTFOLIO HIGHLIGHTS (UNAUDITED)
IAA TRUST GROWTH FUND, INC.
PORTFOLIO CHANGES For the Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
AT & T Corp. (1) Invacare Corp. (2)
Reuters Group PLC, ADS (1) Mattel, Inc.
MGIC Investment Corp. (1) American Stores Co. (2)
Bristol-Myers Squibb Co. (1) First Data Corp. (2)
Pioneer Hi-Bred International, Inc. (1) Wells Fargo Co.
Fox Entertainment Group, Inc. (1) IMC Global, Inc (2)
Gillette Co. (1) Federal National Mortgage Association
Halliburton Co. (1) Exxon Corp.
Tellabs, Inc. (1) Engelhard Corp. (2)
Coca-Cola Co. (1) Chrysler Corp. (2)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS December 31, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
General Electric Co......................................... $ 5,817,563 3.62%
Microsoft Corp.............................................. 5,547,500 3.46
Sun Microsystems, Inc....................................... 4,709,375 2.93
Cisco Systems, Inc.......................................... 4,176,563 2.60
Merck & Co.................................................. 3,987,563 2.48
Analog Devices.............................................. 3,765,000 2.35
GTE Corp.................................................... 3,371,875 2.10
Federal National Mortgage Association....................... 3,330,000 2.07
SBC Communications.......................................... 3,217,500 2.00
Procter & Gamble Co......................................... 3,195,937 1.99
----------- -----
$41,118,876 25.60%
=========== =====
</TABLE>
IAA TRUST ASSET ALLOCATION FUND, INC.
PORTFOLIO CHANGES For the Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Coca-Cola Enterprises, 7.000%, 10/01/26 (1) U.S. Treasury Note, 6.500%,
Federal Home Loan Mortgage Corp., 6.400%, 9/25/28 (1) 05/15/98 (2)
Province of Ontario, 5.500%, 10/01/08 (1) U.S. Treasury Note, 7.250%,
Discover Credit Card Trust, 5.600%, 05/15/06 (1) 05/15/04 (2)
Merck & Co., Inc., 5.760%, 05/03/37 (1) U.S. Treasury Note, 5.875%,
Federal Home Loan Mortgage Corp., 6.000%, 12/15/08 (1) 03/31/99 (2)
Xerox Corp., 5.545%, 07/22/37 (1) Federal National Mortgage Association
Campbell Soup Co., 4.750%, 10/01/03 (1) 7.060%, 11/02/05 (2)
Mattel, Inc., 6.000%, 07/15/03 (1) Standard Credit Card Master Trust,
Royal Dutch Petroleum Co. ADR (1) 6.700%, 09/07/02 (2)
Invacare Corp. (2)
U.S. Treasury Bond, 6.750%,
08/15/26 (2)
U.S. Treasury Bond, 6.625%,
02/15/27 (2)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS December 31, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
---------- -------
<S> <C> <C>
Microsoft Corp.............................................. $ 416,063 1.91%
General Electric Co......................................... 408,250 1.88
Sun Microsystems Co......................................... 333,937 1.54
Wells Fargo Co.............................................. 311,512 1.43
Federal National Mortgage Association, 6.247%, 03/25/21..... 308,750 1.42
Bristol-Myers Squibb Co..................................... 307,769 1.42
Cisco Systems, Inc.......................................... 306,281 1.41
Federal National Mortgage Association, 6.000%, 02/18/21..... 300,137 1.38
U.S. Treasury Inflation Index, 3.625%, 04/15/28............. 291,469 1.34
Analog Devices, Inc......................................... 282,375 1.30
---------- -----
$3,266,543 15.03%
========== =====
</TABLE>
<PAGE> 6
IAA TRUST MUTUAL FUNDS -- PORTFOLIO HIGHLIGHTS (UNAUDITED)
IAA TRUST TAX EXEMPT BOND FUND, INC.
PORTFOLIO CHANGES For the Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Massachusetts State Grant Anticipation Notes Revenue San Bernardino, California Joint Powers,
Bond, 5.000%, 12/15/08 (1) Tax Allocation Revenue Bond
Indiana University Trustee Rev Bonds, Student Fees, 5.750%, 07/01/17 (2)
5.700%, 08/01/10 (1) State of Rhode Island Refunding General
Travis County, Texas Limited Tax General Obligation Obligation, 7.000%, 06/15/05 (2)
4.500%, 03/01/18 (1) Vicksburg-Warren, Mississippi School
Indiana Municipal Power Agency, Power Supply District, State Aid, Capital Improvement
System Revenue, 5.000%, 01/01/11 (1) Revenue Bond, 4.700%, 02/01/16 (2)
Long Island, New York Power Authority California State Public Works Board Lease
4.000%, 04/01/04 (1) Revenue, 5.200%, 12/01/09 (2)
Utah State Board of Regents Revenue, 5.500%, 08/01/05 Denver, Colorado City & County General
(1) Obligation, 5.000%, 10/01/10 (2)
Pike Township, Indiana Revenue Bond, 5.700%, 02/01/01 Illinois State Toll Highway Authority Revenue,
(1) Series A, 6.300%, 01/01/12 (2)
Missouri Health & Education Facility Authority Revenue, City of Fresno, California Unified School District,
St. Louis University, 5.500%, 10/01/13 (1) General Obligation, 5.875%, 08/01/15 (2)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS December 31, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
---------- -------
<S> <C> <C>
Massachusetts State Grant Anticipation Revenue Bond, 5.000%,
12/15/08................................................... $ 850,680 4.81%
Indiana University Trustee Rev Bonds, Student Fees, 5.700%,
08/01/10................................................... 819,960 4.64
Wisconsin State Clean Water Revenue Bond, 5.300%,
06/01/12................................................... 747,306 4.23
Texas A&M University Revenue Financing System, 5.375%,
05/15/14................................................... 629,184 3.56
Pennsylvania State Higher Education Revenue Bonds, 5.600%,
09/01/10................................................... 620,552 3.51
Peru, Indiana Community School Corp. Revenue, 6.750%,
01/01/09................................................... 607,761 3.44
Chicago, Illinois Water Revenue, 6.500%, 11/01/15........... 601,690 3.40
Cape Girardeau, Missouri Waterworks System Revenue, 7.450%,
03/01/05................................................... 591,400 3.35
Connecticut State Unlimited Tax General Obligation, 5.400%,
03/15/08................................................... 591,355 3.34
Illinois State Sales Tax Revenue, 5.400%, 06/15/13.......... 588,109 3.33
---------- -----
$6,647,997 37.61%
========== =====
</TABLE>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
TEN LARGEST HOLDINGS December 31, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
John Deere Capital Corp., 5.28%, 02/09/99................... $ 2,940,000 4.43%
International Lease Finance Corp., 5.11%, 01/28/99.......... 2,819,154 4.25
CIT Group Holding Corp., 5.12%, 02/25/99.................... 2,500,000 3.77
USAA Capital Corp., 5.30%, 01/25/99......................... 2,391,520 3.60
Exxon Corp., 4.77%, 01/04/99................................ 2,196,000 3.31
IBM Credit Corp., 5.36%, 01/11/99........................... 2,177,000 3.28
American Express Credit Corp. 5.06%, 03/10/99............... 2,030,000 3.06
Prudential Funding Corp., 4.99%, 03/11/99................... 1,970,000 2.97
Commercial Credit Co., 5.13%, 01/12/99...................... 1,950,000 2.94
Ford Motor Credit Co., 5.19%, 03/08/99...................... 1,925,000 2.90
Household Finance Corp., 5.33%, 01/13/99.................... 1,894,000 2.86
----------- -----
$24,792,674 37.37%
=========== =====
</TABLE>
PORTFOLIO CHARACTERISTICS December 31, 1998
CURRENT YIELD: 4.50%
30-DAY AVERAGE YIELD: 4.46%
7-DAY AVERAGE YIELD: 4.49%
AVERAGE DAYS TO MATURITY: 40.83
<PAGE> 7
IAA TRUST MUTUAL FUNDS -- PORTFOLIO HIGHLIGHTS (UNAUDITED)
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES
PORTFOLIO CHANGES For the Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Morgan Stanley Capital Corp., 6.850%, 02/15/20 (1) None
Federal Home Loan Mortgage Corp., 6.350%, 3/15/11
(1)
Federal Home Loan Mortgage Corp., 5.500%, 11/25/05
(1)
Federal National Mortgage Association, 6.225%,
05/25/14 (1)
Federal National Mortgage Association, 5.100%,
09/25/00 (1)
Federal Farm Credit Bank, 4.630%, 11/05/01 (1)
Tennessee Valley Authority, 5.280%, 09/14/01 (1)
Federal National Mortgage Association, 5.080%,
09/24/99 (1)
International Finance Corp., 5.067%, 04/20/03 (1)
Federal Home Loan Bank, 5.500%, 08/13/01 (1)
(1) New Holdings
</TABLE>
TEN LARGEST HOLDINGS December 31, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
U.S. Treasury Notes, 6.500%, 08/31/01....................... $ 3,140,560 10.95%
Federal National Mortgage Assoc., 6.500%, 08/01/04.......... 2,335,537 8.14
U.S. Treasury Notes, 6.250%, 02/28/02....................... 2,092,668 7.30
Morgan Stanley Capital Corp., 6.850%, 02/15/20.............. 1,289,276 4.50
Federal Home Loan Mortgage Corp., 5.500%, 11/25/05.......... 1,116,659 3.89
Federal Home Loan Mortgage Corp., 6.350%, 3/15/11........... 1,038,585 3.62
Federal Home Loan Bank, 5.500%, 08/13/01.................... 1,015,204 3.54
Tennessee Valley Authority, 5.280%, 09/14/01................ 1,010,000 3.52
U.S. Treasury Notes, 5.500%, 02/29/00....................... 1,009,808 3.52
International Finance Corp., 5.067%, 04/20/03............... 1,005,000 3.51
----------- -----
$15,053,297 52.49%
=========== =====
</TABLE>
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES
PORTFOLIO CHANGES For the Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
<S> <C>
Merck & Co., Inc., 5.760%, 05/03/37 (1) Associates U.S. Treasury Notes, 6.500%, 05/15/05 (2)
Corp. of North America, 5.960%, 05/15/37 (1) Xerox U.S. Treasury Notes, 6.500%, 08/15/05 U.S.
Corp., 5.545%, 07/22/37 (1) Coca-Cola Enterprises, Treasury Notes, 5.625%, 02/15/06 (2) U.S.
7.000%, 10/01/26 (1) Dayton Hudson Corp., 5.895%, Treasury Notes, 6.000%, 02/15/26 (2)
06/15/37 (1) Asian Development Bank, 5.593%, Associates Corp. of North America, 6.950%,
07/16/18 (1) Federal Home Loan Mortgage Corp., 11/01/18 (2)
6.400%, 09/25/28 (1) Procter & Gamble Co., 5.250%,
09/15/03 (1) Mattel, Inc., 6.000%, 07/15/03 (1)
Discover Credit Card Master Trust, 5.850%, 01/17/06
(1)
(1) New Holdings (2) Deletions
</TABLE>
TEN LARGEST HOLDINGS December 31, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF FUND
----------- -------
<S> <C> <C>
Federal Home Loan Mortgage Corp., 7.000%, 03/01/12.......... $ 3,699,947 9.48%
Government National Mortgage Assoc., 8.000%, 07/15/26....... 1,965,643 5.03
Merck & Co., Inc., 5.760%, 05/03/37......................... 1,563,750 4.01
Government National Mortgage Assoc., 6.500%, 04/15/26....... 1,338,880 3.43
Federal Home Loan Mortgage Corp., 6.000%, 03/15/09.......... 1,135,369 2.91
U.S. Treasury Notes, 6.500%, 05/15/05....................... 1,096,194 2.81
U.S. Treasury Notes, 6.000%, 02/15/26....................... 1,093,916 2.80
Pacific Gas & Electric Co., 6.420%, 09/25/08................ 1,030,422 2.64
J.C. Penney Master Credit Card Trust, 8.950%, 10/15/01...... 857,644 2.20
Associates Corp. of North America, 5.960%, 05/15/37......... 772,500 1.98
----------- -----
$14,554,265 37.29%
=========== =====
</TABLE>
<PAGE> 8
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS -- 93.82%
BASIC INDUSTRY -- 2.56%
Monsanto Co. ........................ 50,000 $ 2,375,000
Nucor Corp. ......................... 40,000 1,730,000
------------
4,105,000
------------
CAPITAL GOODS -- 6.00%
Deere & Co. ......................... 45,000 1,490,625
General Electric Co. ................ 57,000 5,817,563
Hardinge, Inc. ...................... 46,000 848,125
Philips Electronics N.V. ............ 21,900 1,482,356
------------
9,638,669
------------
CONSUMER CYCLICAL -- 7.60%
AutoZone, Inc.*...................... 55,000 1,811,563
Gentex Corp. ........................ 130,000 2,600,000
Intimate Brands, Inc. ............... 80,000 2,390,000
Mattel, Inc. ........................ 30,000 684,375
Wal-Mart Stores, Inc. ............... 30,000 2,443,125
Warnaco Group, Inc., Cl. A........... 90,000 2,272,500
------------
12,201,563
------------
CONSUMER SERVICES -- 2.73%
Fox Entertainment Group, Inc.*....... 40,000 1,007,500
MediaOne Group, Inc.*................ 25,000 1,175,000
Reuters Group PLC, ADS............... 34,600 2,192,775
------------
4,375,275
------------
CONSUMER STAPLES -- 10.78%
Coca-Cola Co. ....................... 20,000 1,337,500
Gillette Co. ........................ 40,000 1,932,500
Kimberly-Clark Corp. ................ 55,000 2,997,500
PepsiCo, Inc. ....................... 39,000 1,596,562
Philip Morris Companies, Inc. ....... 40,000 2,140,000
Pioneer Hi-Bred International,
Inc. ............................... 60,000 1,620,000
Procter & Gamble Co. ................ 35,000 3,195,937
Unilever N.V. ....................... 30,000 2,488,125
------------
17,308,124
------------
ENERGY -- 7.15%
Chevron Corp. ....................... 22,800 1,890,975
Diamond Offshore Drilling, Inc. ..... 40,000 947,500
Exxon Corp. ......................... 20,000 1,462,500
Halliburton Co. ..................... 45,000 1,333,125
Phillips Petroleum Co. .............. 28,000 1,193,500
Royal Dutch Petroleum Co., ADR....... 45,000 2,154,375
Schlumberger, Ltd. .................. 32,000 1,476,000
Unocal Corp. ........................ 35,000 1,021,563
------------
11,479,538
------------
FINANCE -- 14.69%
American Express Co. ................ 25,000 2,556,250
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
American International Group,
Inc. ............................... 27,000 $ 2,608,875
Associates First Capital Corp. ...... 70,000 2,966,250
Bank of New York..................... 75,000 3,018,750
Citigroup, Inc. ..................... 50,000 2,475,000
Federal National Mortgage
Association......................... 45,000 3,330,000
MBNA Corp. .......................... 90,000 2,244,375
MGIC Investment Corp. ............... 45,000 1,791,562
Wells Fargo Co. ..................... 65,000 2,595,938
------------
23,587,000
------------
HEALTH -- 10.12%
Bristol-Myers Squibb Co. ............ 14,000 1,873,375
Elan Corp., PLC, ADS................. 40,000 2,782,500
Johnson & Johnson.................... 35,000 2,935,625
Merck & Co., Inc. ................... 27,000 3,987,563
Pfizer, Inc. ........................ 15,000 1,881,563
SmithKline Beecham PLC, ADR.......... 40,000 2,780,000
------------
16,240,626
------------
TECHNOLOGY -- 20.01%
Analog Devices, Inc. ................ 120,000 3,765,000
Boeing Co. .......................... 40,000 1,305,000
Cisco Systems, Inc.*................. 45,000 4,176,562
Hewlett-Packard Co. ................. 33,400 2,281,637
Intel Corp. ......................... 26,000 3,082,625
International Business Machines
Corp. .............................. 10,000 1,847,500
Microsoft Corp.*..................... 40,000 5,547,500
Oracle Corp.*........................ 70,000 3,018,750
Sun Microsystems, Inc.*.............. 55,000 4,709,375
Tellabs, Inc.*....................... 35,000 2,399,687
------------
32,133,636
------------
TRANSPORTATION -- 2.28%
Burlington Northern Corp. ........... 45,000 1,518,750
Federal Express Corp.*............... 24,000 2,136,000
------------
3,654,750
------------
UTILITIES -- 9.90%
AT & T Corp. ........................ 35,000 2,633,750
DPL, Inc. ........................... 125,000 2,703,125
GTE Corp. ........................... 50,000 3,371,875
NICOR, Inc. ......................... 49,150 2,076,588
SBC Communications, Inc. ............ 60,000 3,217,500
Wisconsin Energy Corp. .............. 60,000 1,886,250
------------
15,889,088
------------
TOTAL COMMON STOCKS
(cost $97,271,216).................. 150,613,269
------------
</TABLE>
<PAGE> 9
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST GROWTH FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------
<S> <C> <C>
COMMERCIAL PAPER -- 3.26%
Ford Motor Credit Co.
5.77%, 01/05/99................... $ 1,559,000 $ 1,559,000
Commercial Credit Co.
5.13%, 01/12/99.................... 50,000 50,000
Texaco, Inc.
5.13%, 01/21/99.................... 100,000 100,000
Commercial Credit Co.
5.22%, 01/26/99.................... 105,000 105,000
Household Finance Corp.
5.27%, 01/27/99.................... 1,000,000 1,000,000
International Lease Finance Corp.
5.11%, 01/28/99.................... 170,000 169,349
General Electric Capital Corp.
5.29%, 02/04/99.................... 630,000 630,000
John Deere Capital Corp.
5.28%, 02/09/99.................... 60,000 60,000
Associates Corp of North America
5.24%, 02/24/99.................... 598,000 598,000
American Express Credit Corp.
5.06%, 03/10/99.................... 970,000 970,000
------------
TOTAL COMMERCIAL PAPER
(cost $5,241,349).................. 5,241,349
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 2.76%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund.................................. 884,790 $ 884,790
Federated Prime Obligation Fund........ 3,542,018 3,542,018
------------
TOTAL MONEY MARKET FUNDS
(cost $4,426,808)..................... 4,426,808
------------
TOTAL INVESTMENTS -- 99.84%
(cost $106,939,373)................... 160,281,426
------------
CASH AND OTHER ASSETS NET OF
LIABILITIES -- 0.16%.................. 252,813
------------
NET ASSETS -- 100.00%.................. $160,534,239
============
</TABLE>
* Non-income producing security
See notes to financial statements.
<PAGE> 10
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS -- 56.70%
BASIC INDUSTRY -- 1.47%
Monsanto Co. ........................ 4,000 $ 190,000
Nucor Corp. ......................... 3,000 129,750
------------
319,750
------------
CAPITAL GOODS -- 3.42%
Deere & Co. ......................... 3,500 115,938
General Electric Co. ................ 4,000 408,250
Hardinge, Inc. ...................... 3,300 60,843
Philips Electronics N.V. ............ 2,350 159,066
------------
744,097
------------
CONSUMER CYCLICAL -- 4.70%
AutoZone, Inc.*...................... 4,800 158,100
DaimlerChrysler AG................... 997 95,774
Gentex Corp. ........................ 8,000 160,000
Intimate Brands, Inc. ............... 7,000 209,125
Mattel, Inc. ........................ 4,500 102,656
Wal-Mart Stores, Inc. ............... 1,850 150,659
Warnaco Group, Inc., Cl. A........... 5,800 146,450
------------
1,022,764
------------
CONSUMER SERVICES -- 2.63%
Fox Entertainment Group, Inc.*....... 6,800 171,275
MediaOne Group, Inc.*................ 3,000 141,000
Reuters Group PLC, ADS............... 2,000 126,750
Tribune Co. ......................... 2,000 132,000
------------
571,025
------------
CONSUMER STAPLES -- 6.13%
Albertson's, Inc. ................... 2,900 184,694
Gillette Co. ........................ 3,600 173,925
Kimberly-Clark Corp. ................ 4,000 218,000
PepsiCo, Inc. ....................... 4,000 163,750
Philip Morris Companies, Inc. ....... 3,500 187,250
Pioneer Hi-Bred International,
Inc. ............................... 5,000 135,000
Procter & Gamble Co. ................ 2,950 269,372
------------
1,331,991
------------
ENERGY -- 3.99%
Atlantic Richfield Co. .............. 1,400 91,350
Diamond Offshore Drilling, Inc. ..... 2,800 66,325
Exxon Corp. ......................... 2,000 146,250
Halliburton Co. ..................... 3,000 88,875
Phillips Petroleum Co. .............. 3,000 127,875
Royal Dutch Petroleum Co., ADR....... 4,000 191,500
Williams Cos., Inc. ................. 5,000 155,938
------------
868,113
------------
FINANCE -- 8.72%
American Express Co. ................ 2,200 224,950
American International Group,
Inc. ............................... 2,200 212,575
Associates First Capital Corp. ...... 5,000 211,875
Bank of New York..................... 6,000 241,500
BankAmerica Corp. ................... 3,055 183,682
Citigroup, Inc. ..................... 2,875 142,313
Federal National Mortgage
Association......................... 2,800 207,200
MGIC Investment Corp. ............... 4,000 159,250
Wells Fargo Co. ..................... 7,800 311,512
------------
1,894,857
------------
HEALTH -- 6.17%
Bristol-Myers Squibb Co. ............ 2,300 307,769
Elan Corp., PLC, ADS................. 4,000 278,250
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Johnson & Johnson.................... 3,000 $ 251,625
Merck & Co., Inc. ................... 1,000 147,688
Pfizer, Inc. ........................ 1,500 188,156
SmithKline Beecham PLC, ADR.......... 2,400 166,800
------------
1,340,288
------------
TECHNOLOGY -- 12.25%
AirTouch Communications, Inc. ....... 1,500 108,188
Analog Devices, Inc. ................ 9,000 282,375
Boeing Co. .......................... 3,100 101,137
Cisco Systems, Inc.*................. 3,300 306,281
Hewlett-Packard Co. ................. 2,500 170,781
Intel Corp. ......................... 1,250 148,203
International Business Machine
Corp. .............................. 1,200 221,700
Microsoft Corp.*..................... 3,000 416,063
Oracle Corp.*........................ 6,087 262,502
Raytheon Co., Cl. B.................. 2,000 106,500
Sun Microsystems, Inc.*.............. 3,900 333,937
Tellabs, Inc.*....................... 3,000 205,688
------------
2,663,355
------------
TRANSPORTATION -- 1.32%
Burlington Northern Corp. ........... 3,200 108,000
Federal Express Corp.*............... 2,000 178,000
------------
286,000
------------
UTILITIES/TELEPHONE -- 5.90%
AT & T Corp. ........................ 2,500 188,125
BellSouth Corp....................... 3,000 149,625
CILCORP, Inc. ....................... 1,200 73,425
Florida Progress Corp. .............. 2,200 98,587
GTE Corp. ........................... 3,000 202,312
NICOR, Inc. ......................... 4,500 190,125
SBC Communications, Inc. ............ 3,194 171,278
Texas Utilities, Inc. ............... 1,800 84,038
Wisconsin Energy Corp. .............. 4,000 125,750
------------
1,283,265
------------
TOTAL COMMON STOCKS
(cost $7,854,346)................... 12,325,505
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
BONDS AND NOTES -- 40.04%
ASSET BACKED -- 4.99%
Amresco Residential Securities
Mortgage Loan Trust
6.925%, 06/25/25.................... $ 100,000 108,391
Chemical Master Credit Card Trust
5.980%, 09/15/08.................... 200,000 205,339
Discover Credit Card Trust
6.750%, 02/16/02.................... 200,000 202,531
5.600%, 05/15/06.................... 250,000 249,766
Green Tree Financial Corp.
6.870%, 01/15/29.................... 100,000 108,742
The Money Store Home Equity Trust
8.140%, 10/15/27.................... 200,000 209,699
------------
1,084,468
------------
</TABLE>
<PAGE> 11
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
AUTO -- 1.73%
Ford Credit Auto Owner Trust
5.650%, 10/15/01.................... $ 250,000 $ 250,964
General Motors Acceptance Corp.
8.875%, 06/01/10.................... 100,000 124,375
------------
375,339
------------
BANKING -- 2.51%
ABN AMRO N.V. (Chicago) Global Bond
7.125%, 06/18/07.................... 100,000 107,750
Citicorp
7.200%, 06/15/07.................... 100,000 108,000
International American Development
Bank
8.875%, 06/01/09.................... 100,000 127,875
NationsBank Corp.
5.750%, 03/15/01.................... 200,000 202,750
------------
546,375
------------
CHEMICALS -- 0.49%
Dupont (E.I) De Nemours & Co.
6.750%, 10/15/02.................... 100,000 105,625
------------
FINANCE -- 1.88%
Household Finance Corp.
6.400%, 06/17/08.................... 200,000 206,500
Merrill Lynch & Co., Inc.
6.020%, 05/11/01.................... 200,000 202,750
------------
409,250
------------
FOOD & BEVERAGE -- 2.68%
Campbell Soup Co.
4.750%, 10/01/03.................... 200,000 197,250
Coca-Cola Co.
6.625%, 10/01/02.................... 100,000 105,125
Coca-Cola Enterprises
7.000%, 10/01/26.................... 250,000 279,063
------------
581,438
------------
FOREIGN GOVERNMENTS -- 1.15%
Province of Ontario
5.500%, 10/01/08.................... 250,000 250,938
------------
INDUSTRIAL -- 3.34%
Amoco Canada Petroleum Co.
7.950%, 10/01/22.................... 100,000 109,250
Mattel, Inc.
6.000%, 07/15/03.................... 200,000 204,750
Merck & Co., Inc.
5.760%, 05/03/37.................... 200,000 208,500
Raytheon Co.
5.950%, 03/15/01.................... 100,000 100,750
6.300%, 03/15/05.................... 100,000 102,500
------------
725,750
------------
MUNICIPAL -- 1.16%
New York State Power Authority
Revenue
6.050%, 02/15/15.................... 250,000 253,050
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
OFFICE EQUIPMENT -- 0.93%
Xerox Corp.
5.545%, 07/22/37.................... $ 200,000 $ 202,000
------------
RETAILING -- 1.86%
Dayton Hudson Corp.
5.895%, 06/15/37.................... 200,000 200,750
Sears Roebuck Acceptance Corp.
6.00%, 03/20/03..................... 200,000 203,500
------------
404,250
------------
TELEPHONE UTILITY -- 3.56%
Bell Telephone Co. of PA Putable
Debentures
8.350%, 12/15/30.................... 200,000 256,750
BellSouth Capital Funding Corp.
6.040%, 11/15/26.................... 200,000 207,000
Chesapeake & Potomac Telephone Co. of
Virginia Debentures
8.375%, 10/01/29.................... 100,000 128,375
New Jersey Bell Telephone Co.
7.850%, 11/15/29.................... 150,000 181,875
------------
774,000
------------
TRANSPORTATION -- 1.00%
Norfolk Southern Corp.
7.050%, 05/01/37.................... 200,000 218,250
------------
U.S. GOVERNMENT AGENCIES -- 7.35%
Federal Home Loan Bank
6.830%, 06/07/01.................... 100,000 100,696
8.000%, 09/20/04.................... 100,000 102,030
Federal Home Loan Mortgage Corp.
10.750%, 07/01/00................... 752 792
8.750%, 04/01/01.................... 6,733 6,928
10.150%, 04/15/06................... 6,297 6,298
6.500%, 06/15/06.................... 200,000 203,316
6.000%, 12/15/08.................... 200,000 203,875
6.400%, 09/25/28.................... 250,000 250,351
Federal National Mortgage Association
6.000%, 02/18/21.................... 300,000 300,137
6.247%, 03/25/21.................... 300,000 308,750
Government National Mortgage
Association Pool #30111
9.000%, 05/15/09.................... 16,469 17,586
Government National Mortgage
Association Pool #23653
9.500%, 06/15/09.................... 8,564 9,249
Government National Mortgage
Association Pool #32147
9.500%, 08/15/09.................... 4,368 4,717
Government National Mortgage
Association Pool #161621
9.000%, 07/15/16.................... 77,839 83,118
------------
1,597,843
------------
</TABLE>
<PAGE> 12
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST ASSET ALLOCATION FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 5.41%
U.S. Treasury Notes
5.875%, 02/15/00.................... $ 100,000 $ 101,342
6.625%, 04/30/02.................... 100,000 105,940
11.625%, 11/15/04................... 100,000 134,683
6.875%, 05/15/06.................... 150,000 169,994
6.500%, 10/15/06.................... 200,000 222,520
U.S. Treasury Inflation Index
3.625%, 04/15/28.................... 300,000 291,469
Tennessee Valley Authority
5.375%, 11/13/08.................... 150,000 150,502
------------
1,176,450
------------
TOTAL BONDS AND NOTES
(cost $8,302,500)................... 8,705,026
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 3.03%
MONEY MARKET FUNDS
Federated Prime Obligation Fund...... 657,874 $ 657,874
------------
TOTAL MONEY MARKET FUNDS
(cost $657,874)..................... 657,874
------------
TOTAL INVESTMENTS -- 99.77%
(cost $16,814,720).................. 21,688,405
------------
CASH AND OTHER ASSETS NET OF
LIABILITIES -- 0.23%................ 50,030
------------
NET ASSETS -- 100.00%................ $ 21,738,435
============
* Non-income producing security
</TABLE>
See notes to financial statements.
<PAGE> 13
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
MUNCIPAL BONDS
(TAX EXEMPT) -- 97.95%
ARIZONA -- 3.25%
Maricopa County, School District #93
Arizona Unlimited Tax General
Obligation
6.400%, 07/01/06.................... $ 500,000 $ 574,755
------------
CALIFORNIA -- 1.67%
City of Fresno, California Sewer
System Revenue
6.250%, 09/01/14.................... 250,000 295,615
------------
CONNECTICUT -- 3.35%
Connecticut State Unlimited Tax
General Obligation 5.400%,
03/15/08............................ 550,000 591,355
------------
ILLINOIS -- 12.21%
Chicago, Illinois Water Revenue
6.500%, 11/01/15.................... 500,000 601,690
Illinois State Sales Tax Revenue
5.400%, 06/15/13.................... 550,000 588,109
Northwest Suburban Municipal Joint
Action Water Agency Illinois
Contract Revenue 6.450%, 05/01/07... 400,000 462,764
Northwest Water Commission Illinois,
Cook & Lake Revenue 5.000%,
05/01/13............................ 500,000 505,825
------------
2,158,388
------------
INDIANA -- 12.86%
Indiana Municipal Power Agency, Power
Supply System Revenue 5.000%,
01/01/11............................ 525,000 533,463
Indiana University Trustee Rev Bonds,
Student Fees 5.700%, 08/01/10....... 750,000 819,960
Peru, Indiana Community School Corp.
Revenue 6.750%, 01/01/09............ 550,000 607,761
Pike Township Indiana Revenue Bond
5.700%, 02/01/01.................... 300,000 312,042
------------
2,273,226
------------
KENTUCKY -- 2.93%
Jefferson County, Kentucky School
District
Financing Corp. School Building
Revenue, Series A
5.300%, 07/01/15.................... 500,000 518,765
------------
MASSACHUSETTS -- 7.88%
Massachusetts State Grant
Anticipation Notes Revenue Bond
5.000%, 12/15/08.................... 800,000 850,680
Massachusetts State Water Resource
Authority Revenue 6.000%,
11/01/08............................ 500,000 541,725
------------
1,392,405
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
MINNESOTA -- 2.96%
St. Paul, Minnesota Independent
School District #625 General
Obligation, Series C 5.250%,
02/01/13............................ 500,000 522,940
------------
MISSOURI -- 6.57%
Cape Girardeau, Missouri Waterworks
System Revenue
7.450%, 03/01/05.................... $ 500,000 $ 591,400
Missouri State Environmental
Improvement & Energy Resource
Authority Pollution Control Revenue
5.250%, 12/01/09.................... 250,000 268,023
Missouri Health & Education Facility
Authority Revenue, St. Louis
University
5.500%, 10/01/13.................... 275,000 301,210
------------
1,160,633
------------
NEVADA -- 5.38%
Clark County, Nevada School District
General Obligation
5.250%, 06/01/07.................... 500,000 527,445
Henderson, Nevada Water & Sewer
Unlimited Tax General Obligation
5.375%, 06/01/07.................... 400,000 423,956
------------
951,401
------------
NEW YORK -- 5.23%
Long Island, New York Power Authority
Revenue
4.000%, 04/01/04.................... 400,000 401,296
New York State Dormitory Authority
Revenue
5.500%, 07/01/12.................... 500,000 523,890
------------
925,186
------------
NORTH CAROLINA -- 1.64%
North Carolina Eastern Municipal
Power Agency System Revenue
7.000%, 01/01/08.................... 250,000 290,210
------------
OHIO -- 3.03%
Montgomery County, Ohio Sewer System
Revenue
5.600%, 09/01/11.................... 500,000 535,330
------------
PENNSYLVANIA -- 6.48%
Pennsylvania Intergovernmental Corp.
Authority, Special Tax Revenue
5.450%, 06/15/08.................... 500,000 524,440
Pennsylvania State Higher Education
Revenue Bonds, Series A 5.600%,
09/01/10............................ 575,000 620,552
------------
1,144,992
------------
TENNESSEE -- 3.16%
Shelby County, Tennessee School
General
Obligation, Series B
5.875%, 06/01/18.................... 500,000 558,175
------------
</TABLE>
<PAGE> 14
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAX EXEMPT BOND FUND, INC. (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
TEXAS -- 11.86%
Bexar County, Texas Detention
Facilities
Limited Tax General Obligation
5.750%, 06/15/10.................... $ 500,000 $ 539,220
Garland, Texas Limited Tax General
Obligation
5.800%, 08/15/12.................... 350,000 385,952
Texas A&M University Revenue
Financing System
5.375%, 05/15/14.................... 600,000 629,184
Travis County, Texas Limited Tax
General Obligation
4.500%, 03/01/18.................... 570,000 541,357
------------
2,095,713
------------
UTAH -- 1.83%
Utah State Board of Regents Revenue
5.500%, 08/01/05.................... 300,000 323,343
------------
WISCONSIN -- 5.66%
Wisconsin State Clean Water Revenue
Bond 5.300%, 06/01/12............... 700,000 747,306
Wisconsin State Health & Education
Facility Authority Revenue Bond
5.250%, 08/15/19.................... 250,000 253,282
------------
1,000,588
------------
TOTAL BONDS
(cost $16,244,878 )................. 17,313,020
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
TAX EXEMPT MONEY MARKET
FUNDS -- 0.92%
(cost $162,070)
Nuveen Tax Exempt Fund.................. 162,070 162,070
-----------
TOTAL INVESTMENTS -- 98.87%
(cost $16,406,948)..................... 17,475,090
-----------
CASH AND OTHER ASSETS
NET OF LIABILITIES -- 1.13%............ 200,615
-----------
NET ASSETS -- 100.00%.................. $17,675,705
===========
</TABLE>
See notes to financial statements.
<PAGE> 15
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
COMMERCIAL PAPER -- 97.29%
AIRLINES -- 4.25%
International Lease Finance Corp.
5.11%, 01/28/99...................... $ 2,830,000 $ 2,819,154
-----------
AUTO & TRUCK -- 14.39%
Daimler-Benz N.A. Corp.
5.02%, 03/19/99...................... 1,600,000 1,582,820
4.85%, 03/30/99...................... 1,335,000 1,319,173
Ford Motor Credit Co.
5.77%, 01/05/99...................... 441,000 441,000
5.20%, 01/19/99...................... 937,000 937,000
5.19%, 03/08/99...................... 1,925,000 1,925,000
General Motors Acceptance Corp.
5.73%, 01/08/99...................... 1,802,000 1,802,000
5.31%, 02/11/99...................... 1,540,000 1,540,000
-----------
9,546,993
-----------
COMMERCIAL FINANCE -- 9.59%
CIT Group Holding Corp.
5.31%, 01/15/99...................... 890,000 890,000
5.12%, 02/25/99...................... 2,500,000 2,500,000
Prudential Funding Corp.
5.22%, 01/14/99...................... 1,000,000 1,000,000
4.99%, 03/11/99...................... 1,970,000 1,970,000
-----------
6,360,000
-----------
CONSUMER FINANCE -- 24.50%
American Express Credit Corp.
5.06%, 03/10/99...................... 2,030,000 2,030,000
5.06%, 03/16/99...................... 1,358,000 1,358,000
American General Finance Corp.
5.19%, 02/10/99...................... 1,000,000 1,000,000
5.09%, 03/23/99...................... 1,713,000 1,713,000
Associates Corp. of North America
5.24%, 02/03/99...................... 1,215,000 1,215,000
5.24%, 02/24/99...................... 1,008,000 1,008,000
Commercial Credit Co.
5.13%, 01/12/99...................... 1,950,000 1,950,000
5.22%, 01/26/99...................... 895,000 895,000
Household Finance Corp.
5.33%, 01/13/99...................... 1,894,000 1,894,000
5.27%, 01/27/99...................... 1,492,000 1,492,000
PepsiCo, Inc.
5.25%, 01/06/99...................... 1,700,000 1,698,761
-----------
16,253,761
-----------
ELECTRONICS -- 4.30%
General Electric Capital Corp.
5.29%, 02/04/99...................... 1,370,000 1,370,000
5.06%, 04/05/99...................... 1,480,000 1,480,000
-----------
2,850,000
-----------
FARM MACHINERY & EQUIPMENT -- 4.43%
John Deere Capital Corp.
5.28%, 02/09/99...................... 2,940,000 2,940,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
FOOD & BEVERAGE -- 3.96%
Coca-Cola Co.
5.07%, 02/17/99...................... $ 1,775,000 $ 1,763,251
5.01%, 03/18/99...................... 875,000 865,745
-----------
2,628,996
-----------
FOREIGN GOVERNMENTS -- 4.49%
Province Of Quebec
5.51%, 01/15/99...................... 1,000,000 997,857
4.85%, 03/15/99...................... 1,000,000 990,165
5.10%, 03/16/99...................... 1,000,000 989,517
-----------
2,977,539
-----------
INSURANCE/MULTI-LINE -- 7.23%
Transamerica Financial Corp.
5.47%, 01/20/99...................... 500,000 498,557
5.15%, 02/05/99...................... 914,000 909,424
USAA Capital Corp.
5.22%, 01/20/99...................... 1,000,000 997,245
5.30%, 01/25/99...................... 2,400,000 2,391,520
-----------
4,796,746
-----------
OFFICE EQUIPMENT -- 4.34%
IBM Credit Corp.
5.36%, 01/11/99...................... 2,177,000 2,177,000
4.96%, 02/22/99...................... 700,000 700,000
-----------
2,877,000
-----------
PETROLEUM REFINING -- 7.50%
Exxon Corp.
4.77%, 01/04/99...................... 2,196,000 2,196,000
Texaco, Inc.
5.32%, 01/07/99...................... 1,250,000 1,250,000
5.13%, 01/21/99...................... 450,000 450,000
5.18%, 02/01/99...................... 1,080,000 1,080,000
-----------
4,976,000
-----------
TELEPHONE/UTILITY -- 8.31%
BellSouth Telecommunications, Inc.
5.02%, 02/18/99...................... 1,300,000 1,291,299
5.07%, 02/23/99...................... 1,753,000 1,739,915
GTE Funding, Inc.
5.43%, 02/03/99...................... 500,000 497,511
5.23%, 02/16/99...................... 1,000,000 993,317
5.30%, 02/24/99...................... 1,000,000 992,050
-----------
5,514,092
-----------
TOTAL COMMERCIAL PAPER
(cost $64,540,281)................... 64,540,281
-----------
</TABLE>
<PAGE> 16
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
MONEY MARKET SERIES (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 2.76%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................... 1,357,559 $ 1,357,559
Federated Prime Obligation Fund......... 476,135 476,135
-----------
TOTAL MONEY MARKET FUNDS
(cost $1,833,694 )..................... 1,833,694
-----------
TOTAL INVESTMENTS -- 100.05%
(cost $66,373,975 )..................... 66,373,975
-----------
LIABILITIES NET OF CASH AND OTHER
ASSETS -- (.05%)....................... (35,682)
-----------
NET ASSETS -- 100%...................... $66,338,293
===========
</TABLE>
See notes to financial statements.
<PAGE> 17
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
BONDS & NOTES -- 92.64%
U.S. GOVERNMENT AGENCIES -- 47.40%
Federal Farm Credit Bank
4.630%, 11/05/01.................... $ 1,000,000 $ 993,133
Federal Home Loan Bank
6.830%, 06/07/01.................... 655,000 659,560
5.500%, 08/13/01.................... 1,000,000 1,015,204
8.000%, 09/20/04.................... 750,000 765,227
8.340%, 01/26/05.................... 500,000 516,187
Federal Home Loan Mortgage Corp.
5.500%, 11/15/04.................... 86,392 86,204
5.500%, 11/25/05.................... 1,119,137 1,116,659
6.350%, 03/15/11.................... 1,033,575 1,038,585
6.200%, 11/15/16.................... 536,011 535,371
Federal National Mortgage Association
5.080%, 09/24/99.................... 1,000,000 1,001,116
5.100%, 09/25/00.................... 1,000,000 1,003,358
6.500%, 08/01/04.................... 2,305,281 2,335,537
6.225%, 05/25/14.................... 977,531 982,419
6.950%, 01/25/20.................... 126,014 125,854
6.500%, 07/25/23.................... 406,213 407,322
Tennessee Valley Authority
5.280%, 09/14/01.................... 1,000,000 1,010,000
------------
13,591,736
------------
U.S. GOVERNMENT OBLIGATIONS -- 23.90%
U.S. Treasury Notes
5.875%, 11/15/99.................... 500,000 505,252
5.500%, 02/29/00.................... 1,000,000 1,009,808
6.500%, 08/31/01.................... 3,000,000 3,140,560
6.250%, 02/28/02.................... 2,000,000 2,092,668
6.625%, 04/30/02.................... 100,000 105,940
------------
6,854,228
------------
ASSET BACKED -- 13.68%
Banc One Auto Grantor Trust
6.270%, 11/20/03.................... 686,738 695,410
Discover Credit Card Master Trust
5.600%, 05/15/06.................... 300,000 299,719
First USA Credit Card Master Trust
6.420%, 03/17/05.................... 250,000 255,730
Ford Credit Auto Owner Trust
5.650%, 10/15/01.................... 450,000 451,734
J.P. Morgan Commercial Mortgage
Finance Corp.
6.952%, 09/15/29.................... 407,781 420,716
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
Morgan Stanley Capital Corp.
6.850%, 02/15/20.................... $ 1,269,050 $ 1,289,276
The Money Store Home Equity Trust
7.800%, 10/15/21.................... 500,000 510,884
------------
3,923,469
------------
CORPORATE BONDS -- 7.66%
Bellsouth Telecommunications, Inc.
6.000%, 06/15/02.................... 400,000 409,000
International Finance Corp.
5.067%, 04/20/03.................... 1,000,000 1,005,000
Merck & Co., Inc.
5.760%, 05/03/37.................... 750,000 781,875
------------
2,195,875
------------
TOTAL BONDS & NOTES
(cost $26,167,713).................. 26,565,308
------------
COMMERCIAL PAPER -- .70%
Associates Corp. of North America
5.244%, 02/24/99.................... 39,000 39,000
Daimler-Benz N. A. Corp.
4.850%, 03/30/99.................... 165,000 163,044
------------
TOTAL COMMERCIAL PAPER
(cost $202,044)..................... 202,044
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 5.53%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................... 322,892 322,892
Federated Government Obligation Fund.... 1,262,633 1,262,633
-----------
TOTAL MONEY MARKET FUNDS
(cost $1,585,525)...................... 1,585,525
-----------
TOTAL INVESTMENTS -- 98.87%
(cost $27,955,282)..................... 28,352,877
-----------
CASH AND OTHER ASSETS NET OF
LIABILITIES -- 1.13%................... 323,955
-----------
NET ASSETS -- 100.00%................... $28,676,832
===========
</TABLE>
See notes to financial statements.
<PAGE> 18
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
BONDS -- 96.26%
U.S. GOVERNMENT AGENCIES -- 29.07%
Federal Home Loan Mortgage Corp.
6.000%, 03/15/09.................. $ 1,133,000 $ 1,135,369
7.000%, 03/01/12.................. 3,618,530 3,699,947
6.500%, 02/15/21.................. 500,000 501,451
5.000%, 05/15/21.................. 625,000 610,580
6.400%, 09/25/28.................. 500,000 500,703
Federal National Mortgage
Association
6.000%, 02/18/21.................. 300,000 300,136
6.247%, 03/25/21.................. 300,000 308,750
6.997%, 12/25/21.................. 400,000 426,500
6.500%, 09/25/22.................. 200,000 204,528
Government National Mortgage
Association
6.500%, 04/15/26.................. 1,324,394 1,338,880
8.000%, 07/15/26.................. 1,891,178 1,965,643
Tennessee Valley Authority 5.375%,
11/13/08.......................... 350,000 351,171
--------------
11,343,658
--------------
U.S. GOVERNMENT OBLIGATIONS -- 5.61%
United States Treasury Notes
6.000%, 02/15/26.................. 1,000,000 1,093,916
6.500%, 05/15/05.................. 1,000,000 1,096,194
--------------
2,190,110
--------------
CORPORATE BONDS -- 52.44%
Abbott Laboratories Corp.
5.400%, 09/15/08.................. 500,000 502,795
ABN AMRO N.V. (Chicago) Global Bond
7.125%, 06/18/07.................. 300,000 323,250
Ameritech Capital Funding
5.95%, 01/15/38................... 700,000 721,875
Amoco Canada Petroleum Co.
7.95%, 10/01/22................... 500,000 546,250
Asian Development Bank
5.593%, 07/16/18.................. 500,000 504,822
Associates Corp. of North America
6.375%, 10/15/02.................. 250,000 257,187
5.960%, 05/15/37.................. 750,000 772,500
Canadian National Railway Co.
6.450%, 07/15/06.................. 400,000 414,500
Central Illinois Public Service Co.
7.610%, 06/01/17.................. 300,000 331,125
Citicorp
7.200%, 06/15/07.................. 250,000 270,000
Coca-Cola Enterprises
7.000%, 10/01/26.................. 500,000 558,125
Conagra, Inc.
6.700%, 08/01/27.................. 200,000 210,750
CSX Corp.
6.420%, 06/15/10.................. 250,000 256,554
Dayton Hudson Corp.
5.895%, 06/15/37.................. 700,000 702,625
Federal Express Corp.
6.720%, 01/15/22.................. 400,000 409,519
Florida Power Corp.
6.000%, 07/01/03.................. 400,000 413,000
Ford Motor Credit Co.
5.125%, 10/15/01.................. 300,000 298,125
7.200%, 06/15/07.................. 600,000 663,750
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
General Electric Credit Co.
6.500%, 11/01/06.................. $ 300,000 $ 321,750
GTE Corp.
6.360%, 04/15/06.................. 400,000 419,000
GTE South, Inc.
6.125%, 06/15/07.................. 200,000 207,750
Halliburton Co.
6.750%, 02/01/27.................. 250,000 277,813
Household Finance Corp.
6.400%, 06/17/08.................. 500,000 516,250
Ingersoll-Rand Co.
6.015%, 02/15/28.................. 500,000 513,251
J.P. Morgan & Co.
6.700%, 11/01/07.................. 250,000 265,621
Madison Gas and Electric Co.
6.020%, 09/15/08.................. 300,000 301,622
Mattel, Inc.
6.000%, 07/15/03.................. 500,000 511,875
Merck & Co., Inc.
5.760%, 05/03/37.................. 1,500,000 1,563,750
Merrill Lynch & Co., Inc.
7.150%, 07/30/12.................. 350,000 364,000
Morgan Stanley Dean Witter Discover
6.375%, 08/01/02.................. 250,000 255,937
NationsBank Corp.
5.750%, 03/15/01.................. 300,000 304,125
Norfolk Southern Corp.
7.050%, 05/01/37.................. 350,000 381,938
Oklahoma Gas & Electric Co.
6.650%, 07/15/27.................. 250,000 274,375
Province of Ontario
5.500%, 10/01/08.................. 400,000 401,500
Pacific Gas & Electric Co.
6.420%, 09/25/08.................. 1,000,000 1,030,422
Procter & Gamble Co.
5.250%, 09/15/03.................. 500,000 505,000
Raytheon Co.
5.950%, 03/15/01.................. 200,000 201,500
6.300%, 03/15/05.................. 200,000 205,000
Salomon Smith Barney Holding
6.250%, 05/15/03.................. 250,000 254,687
Sears Roebuck Acceptance Corp.
6.000%, 03/20/03.................. 200,000 203,500
Sherwin-Williams Co.
5.500%, 10/15/27.................. 400,000 411,396
Suntrust Capital II
7.900%, 06/15/27.................. 200,000 221,250
Transamerica Financial Corp.
6.125%, 11/01/01.................. 350,000 350,875
US West Capital Funding, Inc.
6.250%, 07/15/05.................. 300,000 313,125
Wachovia Corp.
6.605%, 10/01/25.................. 600,000 644,250
Wisconsin Bell Telephone Co.
6.350%, 12/01/26.................. 300,000 329,876
Xerox Corp.
5.545%, 07/22/37.................. 750,000 757,500
--------------
20,465,690
--------------
</TABLE>
<PAGE> 19
IAA TRUST MUTUAL FUNDS -- SCHEDULE OF INVESTMENTS December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
IAA TRUST TAXABLE FIXED INCOME SERIES FUND, INC.
LONG-TERM BOND SERIES (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
ASSET BACKED -- 8.60%
Discover Credit Card Master Trust
5.850%, 01/17/06.................. $ 500,000 $ 505,078
First USA Credit Card Master Trust
6.42%, 03/17/05................... 250,000 255,730
Goldman Sachs Mortgage Securities
Corp.-II
6.620%, 10/18/30.................. 300,000 314,953
Green Tree Financial Corp.
6.870%, 01/15/29.................. 200,000 217,485
J.C. Penney Master Credit Card
Trust 8.950%, 10/15/01............ 800,000 857,644
J.P. Morgan Commercial Mortgage Co.
Finance Corp.
7.088%, 09/15/29.................. 556,000 599,177
The Money Store Home Equity Trust
5.675%, 02/15/09.................. 239,652 239,700
8.140%, 10/15/27.................. 350,000 366,972
--------------
3,356,739
--------------
MUNICIPAL -- 0.54%
Wisconsin State Unlimited General
Obligation
6.550%, 11/01/05.................. 200,000 211,750
--------------
TOTAL BONDS AND NOTES
(cost $36,301,577)................ 37,567,947
--------------
COMMERCIAL PAPER -- 0.38%
Associates Corp. of North America
5.244%, 02/24/99 (cost
$149,000)....................... 149,000 149,000
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
OTHER SHORT TERM INVESTMENTS -- 2.24%
MONEY MARKET FUNDS
Dreyfus Cash Management Money Market
Fund................................ 296,400 $ 296,400
Federated Prime Obligation Fund...... 579,277 579,277
------------
TOTAL MONEY MARKET FUNDS
(cost $875,677)..................... 875,677
------------
TOTAL INVESTMENTS -- 98.88%
(cost $37,326,254).................. 38,592,624
------------
CASH AND OTHER ASSETS
NET OF LIABILITIES -- 1.12%......... 436,237
------------
NET ASSETS -- 100.00%................ $ 39,028,861
============
</TABLE>
See notes to financial statements.
<PAGE> 20
STATEMENTS OF ASSETS AND LIABILITIES December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
IAA TRUST IAA TRUST ------------------------------------------
IAA TRUST ASSET TAX EXEMPT SHORT-TERM LONG-TERM
GROWTH ALLOCATION BOND MONEY MARKET GOVERNMENT BOND
FUND, INC. FUND, INC. FUND, INC. SERIES BOND SERIES SERIES
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities:
At cost............................. $106,939,373 $16,814,720 $16,406,948 $66,373,975 $27,955,282 $37,326,254
============ =========== =========== =========== =========== ===========
At value............................ $160,281,426 $21,688,405 $17,475,090 $66,373,975 $28,352,877 $38,592,624
Cash.................................. 1,223 50 1,539 1,794 14,164 15
Receivable for securities sold........ 192,000 -- -- -- 34,000 34,000
Receivable for capital stock sold..... 191,997 2,243 70,000 -- 71,523 99,779
Dividends and interest receivable..... 228,015 102,481 245,485 245,055 316,754 420,147
Due from Advisor...................... -- -- -- -- -- 6,157
Prepaid Expenses...................... 12,224 1,507 1,447 4,371 1,701 2,154
------------ ----------- ----------- ----------- ----------- -----------
Total assets........................ 160,906,885 21,794,686 17,793,561 66,625,195 28,791,019 39,154,876
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for securities purchased...... -- 543 1,539 -- 16,343 15
Payable for capital stock redeemed.... 101,054 15,929 -- -- 65,957 35,862
Distributions Payable................. 152,728 26,285 106,197 244,197 18,908 64,816
Accrued expenses and other
liabilities......................... 118,864 13,494 10,120 42,705 12,979 25,322
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities................... 372,646 56,251 117,856 286,902 114,187 126,015
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS............................. $160,534,239 $21,738,435 $17,675,705 $66,338,293 $28,676,832 $39,028,861
============ =========== =========== =========== =========== ===========
NET ASSETS CONSIST OF:
Capital paid-in....................... $104,314,154 $16,850,816 $16,609,912 $66,338,461 $28,278,332 $37,434,427
Undistributed (Distributions in excess
of) net investment income........... (8,937) (1,387) 42 -- 449 (16)
Accumulated net realized gain (loss)
on investments...................... 2,886,969 15,321 (2,391) (168) 456 328,080
Net unrealized appreciation of
investments......................... 53,342,053 4,873,685 1,068,142 -- 397,595 1,266,370
============ =========== =========== =========== =========== ===========
$160,534,239 $21,738,435 $17,675,705 $66,338,293 $28,676,832 $39,028,861
============ =========== =========== =========== =========== ===========
Shares outstanding.................... 6,828,112 1,375,257 1,973,758 66,338,559 2,825,060 3,734,428
============ =========== =========== =========== =========== ===========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE............................. $23.51 $15.81 $8.96 $1.00 $10.15 $10.45
---- ---- --- ---- ----- ----
---- ---- --- ---- ----- ----
</TABLE>
See notes to financial statements.
<PAGE> 21
STATEMENTS OF OPERATIONS for the Six Months Ended December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
IAA TRUST IAA TRUST -----------------------------------------
IAA TRUST ASSET TAX EXEMPT SHORT-TERM LONG-TERM
GROWTH ALLOCATION BOND MONEY MARKET GOVERNMENT BOND
FUND, INC. FUND, INC. FUND, INC. SERIES BOND SERIES SERIES
----------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................ $ 927,216 $ 64,102 $ -- $ -- $ -- $ --
Interest................................. 280,609 305,156 441,197 1,614,529 849,427 $1,204,309
----------- ---------- ---------- ---------- ---------- ----------
Total investment income................ 1,207,825 369,258 441,197 1,614,529 849,427 1,204,309
----------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fees (Note E)........ 556,222 72,419 44,618 147,974 72,590 147,567
Distribution expenses (Note F)........... 22,120 -- 2,055 -- -- --
Transfer agent fees...................... 38,640 4,839 6,786 18,845 12,501 12,501
Audit fees............................... 19,090 2,664 2,585 8,872 2,745 3,996
Printing................................. 7,563 605 1,008 2,773 399 554
Custody fees............................. 14,646 2,624 3,647 4,317 2,414 3,100
Directors' fees.......................... 3,025 707 756 353 278 278
Administration fees...................... 61,835 7,088 7,212 22,898 10,656 14,442
Accounting fees.......................... 30,605 17,208 16,647 21,946 16,393 18,456
Insurance................................ 7,843 858 944 3,105 1,311 1,816
Registration fees........................ 3,932 1,286 1,260 1,260 1,275 1,345
Legal fees............................... 3,620 2,756 2,748 2,000 1,273 1,273
Miscellaneous............................ 3,443 605 758 1,513 584 687
----------- ---------- ---------- ---------- ---------- ----------
Total expenses......................... 772,584 113,659 91,024 235,856 122,419 206,015
----------- ---------- ---------- ---------- ---------- ----------
Less: Advisory fees waived and reimbursed
(Note E)............................... -- -- -- -- -- (35,671)
Less: Expenses waived (Note E)........... (14,646) (2,624) (3,647) (4,317) (2,414) (3,100)
----------- ---------- ---------- ---------- ---------- ----------
Net expenses........................... 757,938 111,035 87,377 231,539 120,005 167,244
----------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME..................... 449,887 258,223 353,820 1,382,990 729,422 1,037,065
----------- ---------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS-- NOTE (D):
Net realized gain (loss) on
investments............................ 5,474,391 (32,475) 267,007 -- 85,887 822,199
Net change in unrealized appreciation on
investments............................ 6,552,800 1,096,113 26,143 -- 153,098 79,741
----------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain on
investments............................ 12,027,191 1,063,638 293,150 -- 238,985 901,940
----------- ---------- ---------- ---------- ---------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS.... $12,477,078 $1,321,861 $ 646,970 $1,382,990 $ 968,407 $1,939,005
=========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 22
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST ASSET
GROWTH FUND, INC. ALLOCATION FUND, INC.
--------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
12/31/98 YEAR ENDED 12/31/98 YEAR ENDED
(UNAUDITED) 06/30/98 (UNAUDITED) 06/30/98
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................................... $ 449,887 $ 1,155,616 $ 258,223 $ 430,133
Net realized gain (loss) on investments.................... 5,474,391 8,691,628 (32,475) 483,536
Net change in unrealized appreciation of investments....... 6,552,800 6,151,197 1,096,113 802,862
------------ ------------ ----------- -----------
Net increase in net assets from operations................. 12,477,078 15,998,441 1,321,861 1,716,531
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: NOTE (B)
Investment income.......................................... (1,018,529) (945,434) (266,979) (427,135)
Realized gains on investments.............................. (8,886,026) (10,778,777) (164,915) (670,865)
------------ ------------ ----------- -----------
Total distributions........................................ (9,904,555) (11,724,211) (431,894) (1,098,000)
------------ ------------ ----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C)................ (2,352,832) 15,253,968 2,198,726 3,758,827
------------ ------------ ----------- -----------
Total increase in net assets............................... 219,691 19,528,198 3,088,693 4,377,358
NET ASSETS:
Beginning of period........................................ 160,314,548 140,786,350 18,649,742 14,272,384
------------ ------------ ----------- -----------
End of period.............................................. $160,534,239 $160,314,548 $21,738,435 $18,649,742
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME
IAA TRUST SERIES FUND, INC.
TAX EXEMPT BOND FUND, INC. MONEY MARKET SERIES
--------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
12/31/98 YEAR ENDED 12/31/98 YEAR ENDED
(UNAUDITED) 06/30/98 (UNAUDITED) 06/30/98
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................................... $ 353,820 $ 748,004 $ 1,382,990 $ 2,830,723
Net realized gain (loss) on investments.................... 267,007 65,805 -- (40)
Net change in unrealized appreciation of investments....... 26,143 482,740 -- --
----------- ----------- ----------- -----------
Net increase in net assets from operations................. 646,970 1,296,549 1,382,990 2,830,683
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: NOTE (B)
Investment income.......................................... (364,206) (747,014) (1,382,990) (2,830,723)
Realized gains on investments.............................. (273,899) (31,294) -- --
----------- ----------- ----------- -----------
Total distributions........................................ (638,105) (778,308) (1,382,990) (2,830,723)
----------- ----------- ----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C)................ (2,503) (856,926) 13,316,090 (7,651,306)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets.................... 6,362 (338,685) 13,316,090 (7,651,346)
NET ASSETS:
Beginning of period........................................ 17,669,343 18,008,028 53,022,203 60,673,549
----------- ----------- ----------- -----------
End of period.............................................. $17,675,705 $17,669,343 $66,338,293 $53,022,203
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 23
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAA TRUST IAA TRUST
TAXABLE FIXED INCOME TAXABLE FIXED INCOME
SERIES FUND, INC. SERIES FUND, INC.
SHORT-TERM GOVERNMENT BOND SERIES LONG-TERM BOND SERIES
----------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
12/31/98 YEAR ENDED 12/31/98 YEAR ENDED
(UNAUDITED) 06/30/98 (UNAUDITED) 06/30/98
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................... $ 729,422 $ 1,433,346 $ 1,037,065 $ 2,010,422
Net realized gain on investments.................... 85,887 3,974 822,199 459,542
Net change in unrealized appreciation of
investments....................................... 153,098 232,929 79,741 1,126,134
----------- ----------- ----------- -----------
Net increase in net assets from operations.......... 968,407 1,670,249 1,939,005 3,596,098
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
NOTE (B)
Investment income................................... (749,901) (1,421,743) (1,069,180) (1,989,821)
Realized gains on investments....................... (89,406) -- (937,981) (24,332)
----------- ----------- ----------- -----------
Total distributions................................. (839,307) (1,421,743) (2,007,161) (2,014,153)
----------- ----------- ----------- -----------
CAPITAL STOCK TRANSACTIONS -- (NET) NOTE (C)......... 238,316 3,775,891 296,546 4,286,371
----------- ----------- ----------- -----------
Total increase in net assets........................ 367,416 4,024,397 228,390 5,868,316
NET ASSETS:
Beginning of period................................. 28,309,416 24,285,019 38,800,471 32,932,155
----------- ----------- ----------- -----------
End of period....................................... $28,676,832 $28,309,416 $39,028,861 $38,800,471
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 24
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST
GROWTH FUND, INC.
--------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED JUNE 30,
12/31/98 -------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 23.04 $ 22.51 $ 18.88 $ 17.23 $ 15.16 $ 17.55
-------- -------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................ 0.07 0.17 0.15 0.23 0.22 0.27
Net gains or losses on securities (both realized and
unrealized)........................................ 1.85 2.19 4.81 3.23 3.45 (0.63)
-------- -------- -------- ------- ------- -------
Total from investment operations................... 1.92 2.36 4.96 3.46 3.67 (0.36)
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income................. (0.15) (0.15) (0.20) (0.25) (0.17) (0.22)
Distributions from capital gains..................... (1.30) (1.68) (1.13) (1.56) (1.43) (1.81)
-------- -------- -------- ------- ------- -------
Total distributions................................ (1.45) (1.83) (1.33) (1.81) (1.60) (2.03)
-------- -------- -------- ------- ------- -------
Net asset value, end of period......................... $ 23.51 $ 23.04 $ 22.51 $ 18.88 $ 17.23 $ 15.16
======== ======== ======== ======= ======= =======
TOTAL RETURN........................................... 8.83% 10.98% 28.54% 21.51% 26.68% (2.42)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................. $160,534 $160,315 $140,786 $84,800 $70,577 $59,448
Ratio of expenses to average net assets:
Before expense waiver.............................. 1.04%* 1.02% -- -- -- --
After expense waiver............................... 1.02%* 1.00% 1.16% 1.12% 1.14% 1.24%
Ratio of net investment income to average net assets:
Before expense waiver.............................. 0.59%* 0.73% -- -- -- --
After expense waiver............................... 0.61%* 0.75% 0.84% 1.30% 1.41% 1.03%
Portfolio turnover................................... 20.14% 33.06% 30.74% 32.95% 31.84% 49.12%
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
ASSET ALLOCATION FUND, INC.
----------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED JUNE 30,
12/31/98 ---------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $ 15.20 $ 14.64 $ 13.39 $ 12.29 $11.08 $11.60
------- ------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................... 0.20 0.39 0.35 0.37 0.36 0.34
Net gains or losses on securities (both realized and
unrealized)............................................ 0.74 1.22 2.11 1.41 1.38 (0.25)
------- ------- ------- ------- ------ ------
Total from investment operations....................... 0.94 1.61 2.46 1.78 1.74 0.09
------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income..................... (0.21) (0.39) (0.34) (0.37) (0.34) (0.34)
Distributions from capital gains......................... (0.12) (0.66) (0.87) (0.31) (0.18) (0.27)
Distributions from return of capital..................... -- -- -- -- (0.01) --
------- ------- ------- ------- ------ ------
Total distributions.................................... (0.33) (1.05) (1.21) (0.68) (0.53) (0.61)
------- ------- ------- ------- ------ ------
Net asset value, end of period............................. $ 15.81 $ 15.20 $ 14.64 $ 13.39 $12.29 $11.08
======= ======= ======= ======= ====== ======
TOTAL RETURN............................................... 6.25% 11.41% 19.95% 14.74% 16.29% 0.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)..................... $21,738 $18,650 $14,272 $10,083 $9,540 $8,653
Ratio of expenses to average net assets:
Before expense waiver.................................. 1.18%* 1.25% -- -- -- --
After expense waiver................................... 1.15%* 1.21% 1.46% 1.44% 1.46% 1.78%
Ratio of net investment income to average net assets:
Before expense waiver.................................. 2.64%* 2.57% -- -- -- --
After expense waiver................................... 2.67%* 2.61% 2.57% 2.81% 3.18% 2.98%
Portfolio turnover....................................... 20.86% 20.07% 19.25% 33.77% 21.03% 17.39%
</TABLE>
* Annualized
See notes to financial statements.
<PAGE> 25
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
IAA TRUST
SIX MONTHS TAX EXEMPT BOND FUND, INC.
ENDED YEARS ENDED JUNE 30,
12/31/98 ---------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 8.95 $ 8.70 $ 8.41 $ 8.36 $ 8.19 $ 9.11
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................. 0.18 0.37 0.36 0.37 0.39 0.39
Net gains or losses on securities (both realized and
unrealized)......................................... 0.16 0.27 0.31 0.07 0.20 (0.54)
------- ------- ------- ------- ------- -------
Total from investment operations.................... 0.34 0.64 0.67 0.44 0.59 (0.15)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.................. (0.19) (0.37) (0.36) (0.37) (0.39) (0.39)
Distributions from capital gains...................... (0.14) (0.02) (0.02) (0.02) (0.03) (0.38)
------- ------- ------- ------- ------- -------
Total distributions................................. (0.33) (0.39) (0.38) (0.39) (0.42) (0.77)
------- ------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 8.96 $ 8.95 $ 8.70 $ 8.41 $ 8.36 $ 8.19
======= ======= ======= ======= ======= =======
TOTAL RETURN............................................ 3.81% 7.45% 8.15% 5.30% 7.51% (1.86)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's).................. $17,676 $17,669 $18,008 $17,744 $18,833 $19,095
Ratio of expenses to average net assets:
Before expense waiver............................... 1.02%* 1.01% -- -- -- --
After expense waiver................................ 0.98%* 0.97% 1.14% 1.08% 1.06% 1.15%
Ratio of net investment income to average net assets:
Before expense waiver............................... 3.92%* 4.13% -- -- -- --
After expense waiver................................ 3.96%* 4.17% 4.23% 4.30% 4.79% 4.47%
Portfolio turnover.................................... 27.35% 24.83% 11.35% 14.75% 24.89% 41.94%
</TABLE>
<TABLE>
<CAPTION>
IAA TRUST
TAXABLE FIXED INCOME SERIES FUND, INC.
SIX MONTHS MONEY MARKET SERIES
ENDED YEARS ENDED JUNE 30,
12/31/98 ---------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................. 0.02 0.05 0.05 0.05 0.05 0.03
------- ------- ------- ------- ------- -------
Total from investment operations.................... 0.02 0.05 0.05 0.05 0.05 0.03
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.................. (0.02) (0.05) (0.05) (0.05) (0.05) (0.03)
------- ------- ------- ------- ------- -------
Total distributions................................. (0.02) (0.05) (0.05) (0.05) (0.05) (0.03)
------- ------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN............................................ 2.38% 4.94% 4.63% 4.82% 4.85% 2.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's).................. $66,338 $53,022 $60,674 $33,664 $36,415 $38,699
Ratio of expenses to average net assets:
Before expense waiver............................... 0.80%* 0.83% -- -- 0.97% 1.06%
After expense waiver................................ 0.79%* 0.81% 0.94% 0.90% 0.73% 0.56%
Ratio of net investment income to average net assets:
Before expense waiver............................... 4.68%* 4.81% -- -- 4.56% 2.33%
After expense waiver................................ 4.69%* 4.83% 4.55% 4.74% 4.80% 2.83%
</TABLE>
* Annualized
See notes to financial statements.
<PAGE> 26
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 SERIES BOND SERIES
------------------------------------------- -------------------------------------------
SIX MONTHS FOR THE PERIOD SIX MONTHS FOR THE PERIOD
ENDED 01/02/97* ENDED 01/02/97*
12/31/98 YEAR ENDED THROUGH 12/31/98 YEAR ENDED THROUGH
(UNAUDITED) 1998 06/30/97 (UNAUDITED) 1998 06/30/97
----------- ---------- -------------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.11 $ 10.01 $ 10.00 $ 10.48 $ 10.04 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. 0.26 0.54 0.20 0.29 0.56 0.20
Net gains on securities (both
realized and unrealized)......... 0.08 0.10 0.01 0.24 0.45 0.04
------- ------- ------- ------- ------- -------
Total from investment
operations..................... 0.34 0.64 0.21 0.53 1.01 0.24
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.27) (0.54) (0.20) (0.30) (0.56) (0.20)
Distributions from capital gains... (0.03) -- -- (0.26) (0.01) --
------- ------- ------- ------- ------- -------
Total distributions.............. (0.30) (0.54) (0.20) (0.56) (0.57) (0.20)
------- ------- ------- ------- ------- -------
Net asset value, end of period....... $ 10.15 $ 10.11 $ 10.01 $ 10.45 $ 10.48 $ 10.04
======= ======= ======= ======= ======= =======
TOTAL RETURN......................... 3.38% 6.50% 2.10% 5.05% 10.24% 2.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)........................... $28,677 $28,309 $24,285 $39,029 $38,800 $32,932
Ratio of expenses to average net
assets:
Before expense waiver and
reimbursement.................. 0.84%** 0.92% 3.88%** 1.05%** 1.12% 3.82%**
After expense waiver and
reimbursement.................. 0.83%** 0.86% 0.76%** 0.85%** 0.89% 0.78%**
Ratio of net investment income to
average net assets:
Before expense waiver and
reimbursement.................. 5.01%** 5.30% 1.78%** 5.07%** 5.24% 2.11%**
After expense waiver and
reimbursement........................ 5.02%** 5.36% 4.90%** 5.27%** 5.47% 5.15%**
Portfolio turnover................. 22.88% 1.54% 0.00% 26.31% 25.11% 41.77%
</TABLE>
* Commencement of operations.
** Annualized
See notes to financial statements.
<PAGE> 27
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS December 31, 1998
(unaudited)
- --------------------------------------------------------------------------------
NOTE (A) SIGNIFICANT ACCOUNTING POLICIES: The IAA Trust Mutual Funds represent
four separate funds, with one Fund containing three separate Series (referred to
herein as "Funds" or "Series"). Each of the Funds and Series has distinct
investment objectives and policies. The four Funds are as follows: IAA Trust
Growth Fund, Inc. ("Growth Fund"); IAA Trust Asset Allocation Fund, Inc. ("Asset
Allocation Fund"); IAA Trust Tax Exempt Bond Fund, Inc. ("Tax Exempt Bond
Fund"); and IAA Trust Taxable Fixed Income Series Fund, Inc. ("Taxable Fixed
Income Series Fund"), formerly known as IAA Trust Money Market Fund, Inc. The
Taxable Fixed Income Series Fund currently consists of the following three
separate investment Series: IAA Trust Money Market Series ("Money Market
Series"); IAA Trust Short-Term Government Bond Series ("Short-Term Government
Bond Series"); and IAA Trust Long-Term Bond Series ("Long-Term Bond Series").
The Short-Term Government Bond Series and the Long-Term Bond Series commenced
operations on January 2, 1997. The Funds are separately incorporated and
registered companies under the Investment Company Act of 1940 (the "Act"), as
amended, as diversified, open-ended management companies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by each Fund in the preparation of its financial statements.
(1) SECURITY VALUATION: For the Growth Fund, the Asset Allocation Fund, the
Tax Exempt Bond Fund, the Short-Term Government Bond Series and the
Long-Term Bond Series, securities traded on national exchanges and
over-the-counter securities listed in the NASDAQ National Market System are
valued at the last reported sales price at the close of the New York Stock
Exchange. Securities for which there have been no sales on such day are
valued at the last reported bid price on such exchange. Over-the-counter
securities not listed on the NASDAQ National Market System are valued at the
mean of the current bid and asked prices. Fixed-income securities except
short-term securities may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Advisor to reflect the
fair market value of such securities. Short-term investments, such as those
with a remaining maturity of 60 days or less, are valued at amortized cost,
which approximates market value. For the Money Market Series, all securities
are valued at amortized cost, which approximates market value. Under the
amortized cost method, discounts and premiums are accreted and amortized
ratably to maturity and are included in interest income.
(2) INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
Securities transactions are accounted for on the trade date basis. Gains or
losses on the sale of securities are determined by use of the specific
identification method for both financial reporting and income tax purposes.
(3) FEDERAL INCOME TAXES: The Funds have elected to be treated as "regulated
investment companies" under Sub-chapter M of the Internal Revenue Code and
to distribute substantially all of their net taxable income annually.
Accordingly, no provisions for Federal income taxes have been made in the
accompanying financial statements.
(4) DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions to shareholders
are recorded on the ex-dividend date. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles.
NOTE (B) DIVIDENDS FROM NET INVESTMENT INCOME AND DISTRIBUTIONS OF CAPITAL
GAINS: In the Growth Fund, net investment income from investment transactions
are declared and distributed to shareholders twice a year. The Asset Allocation
Fund, the Tax Exempt Bond Fund, the Short-Term Government Bond Series and the
Long-Term Bond Series, declare and distribute net investment income to
shareholders monthly. The Money Market Series declares dividends daily from its
net investment income, which are payable monthly. Dividends are automatically
reinvested in additional Fund shares, at the then current net asset value, for
those shareholders that have elected the reinvestment option. Net realized gains
from investment transactions, if any, of all Funds are generally distributed
twice a year.
<PAGE> 28
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS December 31, 1998
(unaudited) (continued)
- --------------------------------------------------------------------------------
NOTE (C) CAPITAL STOCK: At December 31, 1998, 10,000,000 shares of capital stock
were authorized for each of the Growth Fund, Asset Allocation Fund, and Tax
Exempt Bond Fund, each Fund having a par value of $1.00 per share. The
authorized capitalization of the Taxable Fixed Income Series Fund consists of
250,000,000 shares with the par value of $0.10 per share. 100,000,000 of this
Fund's shares are designated as Money Market Series, 50,000,000 of its shares
are designated as Short-Term Government Bond Series, and 25,000,000 of its
shares are designated as Long-Term Bond Series. The remaining 75,000,000 shares
are undesignated.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
GROWTH FUND ASSET ALLOCATION FUND
------------------------------------------------ -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998 DECEMBER 31, 1998 JUNE 30, 1998
---------------------- ----------------------- ---------------------- ----------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.................. 133,524 $ 2,893,240 935,194 $20,754,538 205,098 $ 3,030,404 350,739 $ 5,233,527
Shares issued through
reinvestment of dividends... 424,032 9,386,930 509,499 11,204,174 24,721 377,485 61,757 911,781
-------- ----------- --------- ----------- -------- ----------- -------- -----------
557,556 12,280,170 1,444,693 31,958,712 229,819 3,407,889 412,496 6,145,308
-------- ----------- --------- ----------- -------- ----------- -------- -----------
Shares Redeemed.............. (688,724) (14,633,002) (740,214) (16,704,744) (81,893) (1,209,163) (159,724) (2,386,481)
-------- ----------- --------- ----------- -------- ----------- -------- -----------
Net increase (decrease)...... (131,168) $(2,352,832) 704,479 $15,253,968 147,926 $ 2,198,726 252,772 $ 3,758,827
======== =========== ========= =========== ======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
TAX EXEMPT BOND FUND
-------------------------------------------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
---------------------- ------------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold................................. 51,093 $ 466,325 90,306 $ 806,911
Shares issued through reinvestment of
dividends.................................. 48,078 432,198 57,420 510,560
-------- ----------- ---------- -----------
99,171 898,523 147,726 1,317,471
-------- ----------- ---------- -----------
Shares redeemed............................. (99,335) (901,026) (244,109) (2,174,397)
-------- ----------- ---------- -----------
Net increase (decrease)..................... (164) $ (2,503) (96,383) $ (856,926)
======== =========== ========== ===========
<CAPTION>
TAXABLE FIXED INCOME SERIES FUND
----------------------------------------------------
MONEY MARKET SERIES
-----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold................................. 44,961,930 $ 44,961,930 53,195,087 $ 53,195,087
Shares issued through reinvestment of
dividends.................................. 1,132,529 1,132,529 2,821,173 2,821,173
----------- ------------ ----------- ------------
46,094,459 46,094,459 56,016,260 56,016,260
----------- ------------ ----------- ------------
Shares redeemed............................. (32,778,368) (32,778,368) (63,667,566) (63,667,566)
----------- ------------ ----------- ------------
Net increase (decrease)..................... 13,316,091 $ 13,316,091 (7,651,306) $ (7,651,306)
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
TAXABLE FIXED INCOME SERIES FUND
-----------------------------------------------
SHORT-TERM GOVERNMENT TAXABLE FIXED INCOME SERIES FUND
----------------------------------------------- --------------------------------------------------
BOND SERIES LONG-TERM BOND SERIES
----------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998 DECEMBER 31, 1998 JUNE 30, 1998
--------------------- ----------------------- ------------------------ -----------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold................ 235,276 $2,397,864 663,670 $ 6,700,365 312,659 $ 3,345,626 896,757 $ 9,186,831
Shares issued through
reinvestment of
dividends................. 76,077 773,127 132,147 1,333,212 180,440 1,896,868 187,795 1,936,407
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
311,353 3,170,991 795,817 8,033,577 493,099 5,242,494 1,084,552 11,123,238
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
Shares redeemed............ (287,252) (2,932,676) (421,052) (4,257,686) (461,148) (4,945,948) (662,006) (6,836,867)
-------- ---------- --------- ----------- ---------- ----------- --------- -----------
Net increase............... 24,101 $ 238,315 374,765 $ 3,775,891 31,951 $ 296,546 422,546 $ 4,286,371
======== ========== ========= =========== ========== =========== ========= ===========
</TABLE>
<PAGE> 29
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS December 31, 1998
(unaudited) (continued)
- --------------------------------------------------------------------------------
NOTE (D) INVESTMENT TRANSACTIONS: Purchases and sales of investment securities,
other than U.S. Government obligations and short-term notes for the six months
ended December 31, 1998 were:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Growth Fund................................................. $27,745,832 $40,962,333
Asset Allocation Fund....................................... $ 5,727,180 $ 1,764,169
Tax Exempt Bond Fund........................................ $ 4,697,287 $ 5,074,519
Short-Term Govt. Bond Series................................ $ 3,389,204 $ --
Long-Term Bond Series....................................... $11,441,933 $ 8,737,438
</TABLE>
For the year six months ended December 31, 1998, the aggregate cost of purchases
and proceeds from sales of U.S. Government Securities were:
<TABLE>
<S> <C> <C>
Asset Allocation Fund....................................... $ 452,442 $ 2,004,316
Short-Term Govt. Bond Series................................ $ 8,326,208 $ 5,783,437
Long-Term Bond Series....................................... $ 1,223,852 $ 1,002,140
</TABLE>
For both Federal income tax and financial statement purposes, the cost of
investments at December 31, 1998 was $106,939,373 for the Growth Fund,
$16,814,720 for the Asset Allocation Fund, $16,406,948 for the Tax Exempt Bond
Fund, $66,373,975 for the Money Market Series, $27,955,282 for the Short-Term
Government Bond Series, and $37,326,254 for the Long-Term Bond Series.
The gross unrealized appreciation/depreciation for book and tax purposes at
December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
------------ ------------
<S> <C> <C>
Growth Fund................................................. $56,725,802 $3,383,749
Asset Allocation Fund....................................... $ 5,022,116 $ 148,431
Tax Exempt Bond Fund........................................ $ 1,068,142 $ 0
Short-Term Government Bond Series........................... $ 406,947 $ 9,352
Long-Term Bond Series....................................... $ 1,279,473 $ 13,103
</TABLE>
NOTE (E) ADVISORY AND OTHER RELATED PARTY TRANSACTIONS: Under its Advisory
Agreements with the Funds, IAA Trust Company (the "Advisor") provides investment
advisory services for the Funds. The Funds pay the Advisor at the following
annual percentage rates of the average daily net assets of each Fund: Growth
Fund 0.75%; Asset Allocation Fund 0.75%; Tax Exempt Bond Fund 0.50%; Money
Market Series 0.50%; Short-Term Government Bond Series 0.50%; and Long-Term Bond
Series 0.75%. These fees are accrued daily and paid to the Advisor monthly. IAA
Trust Company serves as the Funds' Custodian, without compensation after
voluntary waivers. Custody fees waived for Growth Fund, Asset Allocation Fund,
Tax Exempt Bond Fund, Money Market Series, Short-Term Government Bond Series and
Long-Term Bond Series for the six months ended December 31, 1998 were: $14,646,
$2,624, $3,647, $4,317, $2,414 and $3,100, respectively.
For the period January 2, 1997(commencement of operations) through June 30,
1997, the Advisor voluntarily agreed to reduce its fees and reimburse the
Short-Term Government Bond Series and the Long-Term Bond Series to the extent
total annualized expenses exceeded 1.32% and 1.57% of the Funds average daily
net assets. Effective July 1, 1997, the Advisor agreed to continue to reduce its
fees and reimburse the Funds to the extent total annualized expenses exceed
0.98%. Effective November 1, 1997, the Advisor agreed to continue to reduce its
fees and reimburse the Funds to the extent total annualized expenses exceed
0.85% of average daily net assets. Investment advisory fees, for the six months
ended December 31, 1998, are as follows:
<TABLE>
<CAPTION>
EXPENSES
WAIVED
AND
ADVISORY ADVISORY REIMBURSED
FEE FEE BY ADVISOR
-------- -------- --------------
<S> <C> <C> <C>
Short-Term Government Bond Series........................... 0.50% $ 72,590 $ --
Long-Term Bond Series....................................... 0.75% $147,567 $35,671
</TABLE>
<PAGE> 30
IAA TRUST MUTUAL FUNDS -- NOTES TO FINANCIAL STATEMENTS December 31, 1998
(unaudited) (continued)
- --------------------------------------------------------------------------------
The legal counsel to the Fund also serves as in-house counsel to the Advisor and
as secretary to the Fund. Fees paid by the Growth Fund, Asset Allocation Fund,
Tax Exempt Bond Fund, Money Market Series, Short-Term Government Bond Series and
Long-Term Bond Series during for the six months ended December 31, 1998 were
$3,620, $2,756, $2,748, $2,000, $1,273 and $1,273, respectively.
NOTE (F) DISTRIBUTION SERVICES AGREEMENTS: FPS Broker Services, Inc. serves as
the Funds' Distributor. Pursuant to Rule 12b-1 adopted by the Securities and
Exchange Commission under the Act, the Growth Fund, the Asset Allocation Fund,
the Tax Exempt Bond Fund, the Short-Term Government Bond Series, and the
Long-Term Bond Series have each adopted a Plan of Distribution (the "Plans"),
effective April 1, 1993. The Plans permit the participating Funds to pay certain
expenses associated with the distribution of their shares. The maximum annual
contractual fee under the Plans, is 0.25% of the average daily net assets of
each Fund or Series. For the six months ended December 31, 1998, the annualized
Rule 12b-1 Plan expenses incurred for the Growth Fund and the Tax Exempt Fund
were 0.03% and 0.02% of average net assets, respectively.
NOTE (G) SHAREHOLDER CONCENTRATION: On December 31, 1998, three shareholders
held approximately 57.9% of the shares outstanding of the Growth Fund, two
shareholders held approximately 83.5% of the shares outstanding of the Asset
Allocation Fund, one shareholder held approximately 11.8% of the shares
outstanding of the Tax Exempt Bond Fund, two shareholders held approximately
89.4% of the shares outstanding of the Money Market Series, three shareholders
held approximately 95.6% of the shares outstanding of the Short-Term Government
Bond Series, and two shareholders held approximately 93.7% of the shares
outstanding of the Long-Term Bond Series.
<PAGE> 31
IAA TRUST MUTUAL FUNDS
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
Money Market Series
Short-Term Government Bond Series
Long-Term Bond Series
BOARD OF DIRECTORS
Ronald R. Warfield
Herbert G. Allen
Chariot R. Cole
Nancy J. Erickson
William E. Klein, Sr.
Ailene Miller
Rollie D. Moore
OFFICERS
Ronald R. Warfield, President
Bruce D. Finks, Vice President
Gary E Mede, Vice President
Duane L Miller, Vice President
Richard M. Miller, Vice President
Rollie D. Moore, Vice President
Paul M. Harmon, Secretary
Robert W. Weldon, Treasurer
Richard F. Day, Controller
INVESTMENT ADVISOR
IAA Trust Company
Bloomington, Illinois
DISTRIBUTOR
FFS Broker Services, Inc
King of Prussia Pennsylvania
TRANSFER AGENT
First Data Investor Services Group, Inc.
King of Prussia, Pennsylvania
CUSTODIAN
IAA Trust Company
Bloomington, Illinois
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
GENERAL COUNSEL
Paul M. Harmon, Esq.
Office of the General Counsel
Bloomington, Illinois
This Report has been prepared for the qeneral information of shareholders of the
Funds and is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective Prospectus which contains details
concerning the sales charge and other pertinent information.
SEMI-ANNUAL REPORT
[LOGO-PHOTOGRAPH]
IAA TRUST
MUTUAL FUNDS
December 31, 1998
A PLACE TO GROW
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
Money Marker Series
Short-Term Government Bond Series
Long-Term Bond Series
