<PAGE>
ISG
-----
FUNDS
-----
[PHOTO APPEARS HERE]
SEMI ANNUAL REPORT June 30, 1999
<PAGE>
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ISG
-----
FUNDS
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The ISG Funds provide shareholders with a variety of features to make investing
in the Funds easy, convenient and manageable.
ISG FUND FACTS
ISG Fund Features ISG Fund Benefits
- --------------------------------------------------------------------------------
Professional Investment The investment managers at First American National
Management Bank are experienced investment professionals who
oversee the investments in each mutualfund.
Low Minimum Investment Initial investments in the Funds can be as low as
$1,000.
Dedicated Customer Account information is available from helpful
Service representatives. Just call 1-800-852-0045.
Automatic Investments Investments can be made once or twice a month with
automatic transfers from your checking account to
your Fund account.
Dollar Cost Dollar Cost Averaging is a means of investing by
Averaging which you invest a fixed dollar amount on a
consistent basis. You invest whether the financial
markets are high or low. As a result, you buy more
shares when prices are low and fewer when prices
are high. In this way, you can achieve a lower
average cost per share.*
Automatic Withdrawals Automatic withdrawals from your Fund account can
be made and credited to any account you designate.
Free Exchange Privileges Shares of a Fund can be exchanged into shares of
other ISGFunds at no cost.**
Regular Informative You will receive account statements after each
Statements and Reports transaction, plus regular financial reports
highlighting performance and investment
strategies.
Dividend Reinvestment Dividend income and capital gains can be
reinvested automatically in additional shares of a
Fund.
Daily Redemptions Shares are redeemable each business day (at the
net asset value per share, which may be worth more
or less than your original cost, next determined
after receipt of your redemption request) by mail,
telephone or bank wire.
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* Dollar Cost Averaging does not assure a profit and does not protect against
loss in declining markets. You should consider your financial ability to
continue your investment program during periods of extreme share price
fluctuations.
** Exchange privileges may be modified or discontinued by the Funds at any
time. Upon redemption, shares may be worth more or less than their original
cost.
<PAGE>
Table of Contents
Letter from the Chief Investment Officer
Page 1
Treasury Money Market Fund
Prime Money Market Fund
Tax-Exempt Money Market Fund
Page 3
Limited Term U.S. Government Fund
Page 19
Government Income Fund
Page 25
Municipal Income Fund
Page 33
Limited Term Tennessee Tax-Exempt Fund
Page 41
Tennessee Tax-Exempt Fund
Page 46
Limited Term Income Fund
Page 53
Income Fund
Page 61
Equity Income Fund
Page 69
Large-Cap Equity Fund
Page 77
Capital Growth Fund
Page 85
Mid-Cap Fund
Page 93
Small-Cap Opportunity Fund
Page 99
International Equity Fund
Page 106
Strategic Portfolios
Page 114
Notes to Financial Statements
Page 141
<PAGE>
Letter from the Chief Investment Officer
- --------------------------------------------------------------------------------
To Our Shareholders:
I am pleased to send you the ISG Funds' semi-annual report for the six months
ended June 30, 1999, a period that saw continued growth in both the equity
markets and the breadth of selection available to our shareholders.
Earlier this year we launched the ISG Mid-Cap Fund and added the ISG Tax-Exempt
Money Market Fund to our lineup. Both new funds add strategic value to our
comprehensive lineup of portfolios. The Mid-Cap Fund, which targets stocks with
median market caps of up to $5 billion, enables investors to pursue
opportunities in the traditionally rewarding mid-capitalization sector. During
the most recent six-month period, such flexibility proved especially
profitable, as the market moved away from large-cap growth stocks and broadened
to include the type of issues the Mid-Cap Fund favors. As for the Tax-Exempt
Money Market Fund,/1/,/2/ shareholders in higher marginal tax brackets will
certainly relish the prospect of earning competitive yields that are free from
federal income taxes.
Overall, the ISG family of funds now offers 21 separate portfolios, including
the five widely diversified "fund of funds" in our Strategic Portfolio series--
with an investment option to meet nearly every shareholder's long- and short-
term financial needs. But, when it comes to finding a fund, that match a
prudent investor's time horizon and tolerance for risk--whether the goal is
retirement, college education or generating high current income--ISG offers an
extraordinarily well-rounded selection of investment opportunities.
Stocks: Market sentiment changed with breathtaking speed
The biggest news in the market was not that stocks continued their climb to new
levels--which they did, with the Dow Industrial Average,/3/ the S&P 500/4/ and
the Nasdaq Composite/5/ setting new highs in the spring. In fact, shareholders
who remained committed to their equity investment program enjoyed historically
handsome returns, coming on the heels of four straight years of impressive
gains.
What really took our breath away was the dramatic and abrupt manner in which
market leadership rotated away from the large-cap growth stocks--which had
powered the market, almost without pause, in recent years--and into cyclical
and "value" names. There were some compelling reasons for this movement. The
prospects for a global economic recovery and cheap relative valuations seemed
to favor those sectors most sensitive to the economic cycle--such as paper,
chemicals, metal and auto companies, among others.
This shift in market sentiment hit in the early weeks of April, damaging the
performance of many growth stocks, especially in the pharmaceutical and
technology sectors, and lifting the prices of relatively undervalued and
generally smaller issues. To underscore the power of the new market leadership,
the Russell 2000 Index,/6/ which is generally representative of smaller stocks,
gained 15.55% in the second quarter of 1999, while the S&P 500 rose less than
half as much, just 7.05%.
The rapid movement from large-cap growth names to cyclical and value stocks
(and then back to growth at the very end of the period) illustrated two key
lessons that shareholders may want to remember. First, chasing after the
current "hot" sector or stock can be folly. Market moves are unpredictable and
investors who try to time the market often find themselves in the wrong place
at the wrong time, a mistake that can cost them money. Second, there is much to
be said for crafting a prudent and appropriate investment strategy and then
sticking to it, regardless of short-term market conditions. An investor who
focused on value stocks did not get much play in the first quarter of the year,
but did quite well for the most recent six-month period as a whole.
Bonds struggled against an interest-rate bias
As most fixed-income investors know, the value of bonds lives or dies with the
direction of interest rates. Bond prices move in the opposite direction of
rates; when rates go down, bond prices rise, and vice versa.
- ---------
/1/The Fund's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
/2/An investment in the Fund is not guaranteed by the FDIC or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
/3/The Dow Jones Industrial Average is a price-weighted average based on the
price movements of 30 blue-chip stocks.
/4/The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the stock market as a whole.
/5/The Nasdaq Composite Index is a market capitalization price-only index that
tracks the performance of domestic common stocks traded on the regular Nasdaq
market, as well as National Market System traded foreign common stocks and
ADRs.
/6/The Russell 2000 Index is an unmanaged index generally representative of the
performance of small-capitalization stocks.
1
<PAGE>
Letter from the Chief Investment Officer -- (continued)
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In 1998, interest rates were generally lower, and bond investors rejoiced as
the value of their portfolios rose. The decline in rates was triggered by fears
of a worldwide financial meltdown (which did not come to pass) and the Federal
Reserve Board's (the Fed) decision to lower its benchmark fed funds rate three
times between September and December of 1998. Bonds' total returns were given
an extra boost by historically mild inflation; on an inflation-adjusted basis,
bonds proved to be an unusually good investment.
Through the first six months of 1999, inflation remained remarkably tame.
However, a number of circumstances conspired to push interest rates up
steadily, and to depress bond prices. Fears of a global financial crisis
evaporated, reducing the downward pressure on rates. In fact, many economists
noted hints of inflation, which portended action by the Fed to raise rates. The
announcement in May that the Consumer Price Index/7/ had risen a whopping 0.7%
in April fueled inflation fears further. Finally, on the last day of our
reporting period, June 30, 1999, the Fed did indeed raise the fed funds rate 25
basis points (0.25%).
While a quarter-point hike was not excessive, the damage already had been done
by investors anticipating such a move. Bonds of every type took hits ranging
from mild to severe. For the first six months of 1999, the fixed-income market
was grim, in contrast to the upwardly mobile stock arena. Last year, bonds were
the darlings of many investors' portfolios. This year, so far, they have not
produced the same sterling returns. Such is the nature of investing.
A mixed bag of news for the rest of the year
As I write this letter in the middle of July, bonds have stabilized, and stocks
continue to march slowly forward. How do we view the remainder of 1999?
Going forward, we are a bit more cautious in our allocations to equities. We do
not believe stocks will continue to perform with the vigor displayed in the
last six months. Although second-quarter earnings reports are generally
positive, we foresee some potential trouble with earnings down the road, as
well as reduced pricing flexibility for many companies. Stocks have risen to
this point faster than we expected, which leads us to think that the road to
future growth could be bumpy in the near term.
As for bonds, we do not believe interest rates are going to explode upward.
Most inflation indicators (the exception being energy prices) remain benign,
and wage increases have been remarkably restrained. However, the Fed has showed
its willingness to raise interest rates when it deems such action necessary,
and we would not be surprised to see rates rise another one-quarter to three-
eighths of a point by the end of the year. Such an increase would not pulverize
bond prices, but they would not do them much good. The stock market is not
likely to digest higher rates without at least a touch of indigestion.
All in all, this could be a dicey time in the markets. But this is where our
expertise pays off: Calmly and clearly, we survey the landscape, consider all
options and make judicious decisions about where and how to invest your money.
We thank you for your support, and we pledge to remain diligent in helping you
achieve your financial goals.
Sincerely,
/s/ Frederick S. Crown Jr.
Frederick S. Crown Jr., CFA
Chief Investment Officer
- ---------
/7/The Consumer Price Index is a measure of the average change in prices over
time in a fixed market basket of goods and services.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
2
<PAGE>
[PICTURE OF JOHN MARK MCKENZIE]
John Mark McKenzie
Portfolio Manager
ISG Prime Money Market Fund
ISG Treasury Money Market Fund
[PICTURE OF SHARON BROWN]
Sharon Brown
Portfolio Manager
ISG Tax-Exempt Money Market Fund
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Investment Goal
The ISG money market funds seek to provide as high a level of current income
as is consistent with the preservation of capital and the maintenance of
liquidity. Each fund seeks its objective by investing in:
Prime Money Market Fund -- A broad range of Government, bank and corporate
short-term, money-market obligations.
Treasury Money Market Fund -- U.S. Treasury Securities, other obligations that
are guaranteed as to principal and interest by the U.S. Government and related
repurchase agreements.
Tax-Exempt Money Market Fund -- Variable-rate municipal notes, along with
short-term municipal bonds with maturities less than 397 days--producing
income that is free from federal income tax.
- --------------------------------------------------------------------------------
Q. What factors affected the performance of the money market funds?
A. During the last six months, interest rates rose steadily. On June 30, 1999,
the last day of the period, the Federal Reserve followed through with a widely
anticipated move, raising short-term rates by 25 basis points (0.25%). This was
in contrast to the latter half of 1998, during which time the Fed lowered rates
three times.
While the climb in rates was bad for bond prices, it helped boost yields on the
types of short-term paper our money market funds favor. However, because fund
yields lag interest-rate movements by 30 to 70 days, the full benefit of rising
yields probably will be felt sometime after the close of the period later this
summer.
As of June 30, 1999, the average maturity of the Prime Money Market Fund was 60
days; for the U.S. Treasury Money Market Fund, it was 54 days; for the Tax-
Exempt Money Market Fund, it was 71 days.
Q. What is your outlook for the next six months?
A. We expect short-term rates to rise (0.25%-0.375%), which would gradually add
to the yield we provide our shareholders.
- ---------
An investment in any of the Funds is not insured or guaranteed by the FDIC or
any other government agency. Although each Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing
in a fund.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
3
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Treasury Money Market Fund June 30, 1999 (Unaudited)
U.S. Treasury Bills* (17.7%)
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
------------ ------------
<S> <C> <C>
4.48%, 7/8/99 (b).................................... $ 20,000,000 $ 19,982,578
4.31%, 9/9/99........................................ 20,000,000 19,832,389
4.57%, 9/16/99....................................... 25,000,000 24,755,365
4.57%, 9/23/99....................................... 20,000,000 19,786,733
------------
TOTAL U.S. TREASURY BILLS
(Cost $84,357,065).................................. 84,357,065
------------
U.S. Treasury Notes (34.8%)
6.38%, 7/15/99 (b)................................... 25,000,000 25,015,534
6.88%, 08/31/99...................................... 25,000,000 25,088,358
7.13%, 9/30/99....................................... 25,000,000 25,144,994
6.00%, 10/15/99...................................... 25,000,000 25,097,828
7.75%, 11/30/99...................................... 20,000,000 20,234,639
5.38%, 1/31/00....................................... 20,000,000 20,057,212
8.50%, 2/15/00....................................... 25,000,000 25,526,744
------------
TOTAL U.S. TREASURY NOTES
(Cost $166,165,309)................................. 166,165,309
------------
Repurchase Agreements (47.0%)
Merrill Lynch, 4.75%, 7/2/99, dated 6/30/99, with a
maturity value of $112,187,038 (Collateralized by
$107,207,000, U.S. Treasury Bonds/Notes, 5.75%-
9.00%, 8/15/03-8/15/27, fair value --
$114,401,211)....................................... 112,157,441 112,157,441
Prudential, 4.75%, 7/1/99, dated 6/30/99, with a
maturity value of $112,172,240 (Collateralized by
$201,085,716, Government National Mortgage Assoc.,
6.13%-6.50%, 1/20/22-6/15/29, fair value --
$114,400,590)...................................... 112,157,441 112,157,440
------------
TOTAL REPURCHASE AGREEMENTS (Cost $224,314,881)...... 224,314,881
------------
</TABLE>
Short-Term Securities Held as Collateral (9.7%)
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
------------ ------------
<S> <C> <C>
Repurchase Agreements (9.7%)
Paine Webber, 4.90%, 7/1/99, dated 6/30/99, with a
maturity value of $46,287,549 (Collateralized by
$67,335,000 U.S. Treasury Bonds/Notes, 6.13%-
12.38%, 5/15/04-11/15/27, fair value --
$47,207,190)...................................... $ 46,281,250 $ 46,281,250
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL
(Cost $46,281,250)................................ 46,281,250
------------
TOTAL INVESTMENTS
(Cost $521,118,505) (a) -- (109.2%)............... 521,118,505
Liabilities in excess of other
assets -- (-9.2%)................................. (43,900,161)
------------
TOTAL NET ASSETS -- (100.0%)....................... $477,218,344
============
</TABLE>
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(a) Cost for federal income tax and financial reporting purposes are the same.
(b) All or a portion of this security has been loaned at June 30, 1999.
* Yield effective at purchase.
See notes to financial statements
4
<PAGE>
ISG FUNDS
Treasury Money Market Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost...................... $250,522,374
Repurchase agreements, at cost...................... 270,596,131
------------
Total Investments.................................. 521,118,505
Interest and dividends receivable................... 3,486,553
Receivable for capital shares issued................ 1,060,783
Receivable from investment adviser.................. 25,300
Prepaid expenses and other assets................... 73,702
------------
Total Assets....................................... 525,764,843
Liabilities:
Payable for return of collateral held for securities
on loan............................................ $46,281,250
Distributions payable............................... 1,724,555
Custody payable..................................... 286,994
Accrued expenses and other payables:
Investment advisory fees........................... 104,453
Administration fees................................ 3,981
Distribution fees.................................. 75,880
Custodian fees..................................... 13,389
Other.............................................. 55,997
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Total Liabilities.................................. 48,546,499
------------
Net Assets:
Capital............................................. 477,237,321
Undistributed (distributions in excess of) net
investment income.................................. 3,539
Undistributed (distributions in excess of) net
realized gains..................................... (22,516)
------------
Net Assets.......................................... $477,218,344
============
Class A Shares
Net Assets......................................... $137,887,899
Shares outstanding................................. 137,895,387
Offering and redemption price per share............ $ 1.00
============
Institutional Shares
Net Assets......................................... $339,330,445
Shares outstanding................................. 339,344,640
Offering and redemption price per share............ $ 1.00
============
</TABLE>
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $11,536,654
Income from securities lending........................... 22,783
-----------
Total Investment Income................................. 11,559,437
Expenses:
Investment advisory fees................................. $611,511
Administration fees...................................... 244,602
Shareholder servicing fees -- Class A Shares............. 211,666
Shareholder servicing fees -- Institutional Shares....... 236,086
Custodian fees........................................... 45,554
Accounting fees.......................................... 8,392
Transfer agent fees...................................... 16,240
Directors' fees.......................................... 5,137
Other fees............................................... 133,672
--------
Total expenses before voluntary fee
reductions/reimbursements.............................. 1,512,860
Expenses voluntarily reduced/reimbursed................. (78,600)
-----------
Net expenses............................................ 1,434,260
-----------
Net Investment Income.................................... 10,125,177
-----------
Change in net assets resulting from operations........... $10,125,177
===========
</TABLE>
See notes to financial statements
5
<PAGE>
ISG FUNDS
Treasury Money Market Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
1999 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................ $ 10,125,177 $ 8,989,954
Net realized gains (losses) from investment
transactions.................................... -- (22,516)
------------ ------------
Change in net assets resulting from operations.... 10,125,177 8,967,438
------------ ------------
Distributions to Class A Shareholders:
From net investment income....................... (3,494,848) (4,199,074)
Distributions to Institutional Shareholders:
From net investment income....................... (6,630,329) (4,790,880)
------------ ------------
Change in net assets from shareholder
distributions.................................... (10,125,177) (8,989,954)
------------ ------------
Change in net assets from capital transactions.... (235,764) 286,236,862
------------ ------------
Change in net assets.............................. (235,764) 286,214,346
Net Assets:
Beginning of period.............................. 477,454,108 191,239,762
------------ ------------
End of period.................................... $477,218,344 $477,454,108
============ ============
</TABLE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999
----------------
(Unaudited)
<S> <C>
Cash Flows from Operating Activities:
Net investment income....................................... $ 10,125,177
Adjustments to reconcile net investment income to net cash
provided by (used in) operating activities:
Cost of investment securities purchased.................... (21,476,517,950)
Proceeds from disposition of investment securities......... 21,478,777,483
Decrease (increase) in investments purchased with cash
collateral from securities lending........................ (46,281,250)
Decrease (increase) in interest and dividends receivable... (291,447)
Decrease (increase) in other assets........................ (56,884)
Increase (decrease) in payable for return of collateral
received from securities lending.......................... 46,281,250
Increase (decrease) in accrued expenses.................... 115,618
Net amortization/accretion from investments................ (1,442,464)
----------------
Net cash provided by (used in) operating activities......... 10,709,533
----------------
Cash Flows from Financing Activities:
Proceeds from shares issued................................. 523,932,361
Cost of shares redeemed..................................... (525,707,811)
Cash distributions paid..................................... (9,220,376)
----------------
Net cash provided by (used in) financing activities......... (10,995,826)
----------------
Net increase (decrease) in cash.............................. (286,293)
Cash:
Beginning balance........................................... (701)
----------------
Ending balance.............................................. $ (286,994)
================
</TABLE>
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Non-cash financing activities not included herein consist of reinvestment of
dividends and distributions of $485,757.
See notes to financial statements
6
<PAGE>
ISG FUNDS
Treasury Money Market Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1994(a)
-------------- ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- ------- ------- -------- --------
Investment Activities
Net investment income
(loss)................ 0.020 0.046 0.047 0.047 0.053 0.030
-------- -------- ------- ------- -------- --------
Total from Investment
Activities............ 0.020 0.046 0.047 0.047 0.053 0.030
-------- -------- ------- ------- -------- --------
Distributions
Net investment income.. (0.020) (0.046) (0.047) (0.047) (0.053) (0.030)
-------- -------- ------- ------- -------- --------
Total Distributions.... (0.020) (0.046) (0.047) (0.047) (0.053) (0.030)
-------- -------- ------- ------- -------- --------
Net change in asset
value.................. -- -- -- -- -- --
-------- -------- ------- ------- -------- --------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======= ======= ======== ========
Total Return............ 2.06%(b) 4.68% 4.78% 4.78% 5.41% 3.01%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $137,888 $167,475 $77,065 $78,308 $168,430 $139,715
Ratio of expenses to
average net assets..... 0.60%(c) 0.77% 0.75% 0.56% 0.50% 0.54%(c)
Ratio of net investment
income to average net
assets................. 4.13%(c) 4.56% 4.68% 4.72% 5.28% 4.02%(c)
Ratio of expenses to
average net assets*.... 0.68%(c) 0.78% (d) 0.74% 0.75% 0.83%(c)
Portfolio turnover**....
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If
such voluntary fee reductions/reimbursements had not occurred, the ratios
would have been as indicated.
(a) For the period from March 29, 1994 (commencement of operations) through
December 31, 1994.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31,
1999 1998 1997 1996(a)
-------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- --------
Investment Activities
Net investment income
(loss)................ 0.021 0.048 0.049 0.024
-------- -------- -------- --------
Total from Investment
Activities............ 0.021 0.048 0.049 0.024
-------- -------- -------- --------
Distributions
Net investment income.. (0.021) (0.048) (0.049) (0.024)
-------- -------- -------- --------
Total Distributions.... (0.021) (0.048) (0.049) (0.024)
-------- -------- -------- --------
Net change in asset
value.................. -- -- -- --
-------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ========
Total Return............ 2.07%(b) 4.93% 5.05% 2.43%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $339,330 $309,979 $114,175 $109,698
Ratio of expenses to
average net assets..... 0.58%(c) 0.53% 0.50% 0.52%(c)
Ratio of net investment
income to average net
assets................. 4.15%(c) 4.78% 4.94% 4.78%(c)
Ratio of expenses to
average net assets*.... 0.58%(c) (d) (d) (d)
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If
such voluntary fee reductions/reimbursements had not occurred, the ratios
would have been as indicated.
(a) For the period from July 1, 1996 (commencement of operations) through
December 31, 1996.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
7
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Prime Money Market Fund June 30, 1999 (Unaudited)
Commercial Paper* (84.7%)
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
----------- ------------
<S> <C> <C>
Banking/Finance (59.8%)
Abbey National N.A., 5.01%, 9/15/99................... $18,000,000 $ 17,809,620
American Express, 4.94%, 8/25/99...................... 19,000,000 18,856,603
American General Finance Corp., 4.83%, 7/12/99........ 17,000,000 16,974,911
Associates Corp. of N.A., 4.83%, 7/6/99............... 18,000,000 17,987,925
Banca Credit Financial Corp., 4.80%, 8/9/99........... 10,000,000 9,948,000
Bancque Generale du Luxembourg S.A., 5.01%, 8/13/99... 19,000,000 18,886,301
Bank Austria AG, 5.08%, 7/28/99....................... 19,000,000 18,927,610
Bayerische Landesbank Ny, 4.98%, 9/13/99.............. 19,000,000 18,805,503
Commercial Credit Co., 4.86%, 7/21/99................. 18,000,000 17,951,400
Ford Motor Credit Co., 4.84%, 7/8/99.................. 18,000,000 17,983,060
Household Finance Corp., 4.90%, 8/11/99............... 19,000,000 18,893,969
IBM Credit Corp., 4.80%, 7/1/99....................... 18,000,000 18,000,000
Lloyds Bank PLC, 4.94%, 8/23/99....................... 18,000,000 17,869,090
USAA Capital Corp., 4.83%, 7/16/99.................... 18,000,000 17,963,775
Wells Fargo Co., 5.01%, 8/20/99....................... 19,000,000 18,867,792
------------
265,725,559
------------
Consumer Products (16.4%)
BellSouth Telecommunications, 5.17%, 7/26/99.......... 16,110,000 16,052,161
General Electric, 4.93%, 8/16/99...................... 19,000,000 18,880,311
Kimberly Clark, 4.90%, 7/19/99........................ 19,000,000 18,953,449
Proctor & Gamble, 4.88%, 8/2/99....................... 19,000,000 18,917,582
------------
72,803,503
------------
Industrial (8.5%)
Alcoa, Inc., 4.85%, 7/14/99........................... 19,000,000 18,966,723
Deere & Co., 4.88%, 7/23/99........................... 19,000,000 18,943,338
------------
37,910,061
------------
TOTAL COMMERCIAL PAPER
(Cost $376,439,123).................................. 376,439,123
------------
</TABLE>
U.S. Government Agency Securities (14.9%)
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
----------- ------------
<S> <C> <C>
Federal Farm Credit Bank (3.4%)
5.26%, 3/17/00....................................... $15,000,000 $ 15,000,000
------------
Federal Home Loan Bank (8.1%)
5.00%, 2/24/00....................................... 15,000,000 15,000,000
5.10%, 3/8/00........................................ 15,000,000 15,000,000
5.07%, 4/19/00....................................... 6,500,000 6,500,000
------------
36,500,000
------------
Student Loan Marketing Assoc. (3.4%)
5.16%, 3/8/00........................................ 15,000,000 15,000,000
------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $66,500,000).................................. 66,500,000
------------
Cash Equivalents (0.0%)
Bank of New York Cash Reserve ....................... 11 11
------------
TOTAL CASH EQUIVALENTS
(Cost $11).......................................... 11
------------
Repurchase Agreements (0.6%)
Cantor Fitzgerald, 4.97%, 7/1/99, dated 6/30/99, with
a maturity value of $2,758,650 (Collateralized by
$3,450,000 Federal Home Loan Bank, 5.48%, 1/8/09,
fair value -- $3,230,898)........................... 2,758,269 2,758,269
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $2,758,269)................................... 2,758,269
------------
TOTAL INVESTMENTS
(Cost $445,697,403)(a) --(100.2%)................... 445,697,403
Liabilities in excess of other
assets -- (-0.2%)................................... (692,635)
------------
TOTAL NET ASSETS -- (100.0%)......................... $445,004,768
============
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
* Yield effective at purchase.
PLC -- Public Limited Company
See notes to financial statements
8
<PAGE>
ISG FUNDS
Prime Money Market Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost....................... $442,939,134
Repurchase agreements, at cost....................... 2,758,269
------------
Total Investments................................... 445,697,403
Interest and dividends receivable.................... 1,058,800
Receivable for capital shares issued................. 58,359
Receivable from investment adviser................... 18,993
Prepaid expenses and other assets.................... 78,138
------------
Total Assets........................................ 446,911,693
Liabilities:
Distributions payable................................ $1,676,882
Accrued expenses and other payables:
Investment advisory fees............................ 97,381
Administration fees................................. 3,771
Distribution fees................................... 85,370
Custodian fees...................................... 10,842
Other............................................... 32,679
----------
Total Liabilities................................... 1,906,925
------------
Net Assets:
Capital.............................................. 445,057,782
Undistributed (distributions in excess of) net
investment income................................... 3,563
Undistributed (distributions in excess of) net
realized gains...................................... (56,577)
------------
Net Assets........................................... $445,004,768
============
Class A Shares
Net Assets.......................................... $316,988,146
Shares outstanding.................................. 317,028,090
Offering and redemption price per share............. $ 1.00
============
Class B Shares
Net Assets.......................................... $ 334,387
Shares outstanding.................................. 334,427
Offering price per share*........................... $ 1.00
============
Institutional Shares
Net Assets.......................................... $127,682,235
Shares outstanding.................................. 127,698,830
Offering and redemption price per share............. $ 1.00
============
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $10,737,884
Expenses:
Investment advisory fees................................. $539,141
Administration fees...................................... 215,655
Distribution fees -- Class B Shares...................... 1,012
Shareholder servicing fees --Class A Shares.............. 404,186
Shareholder servicing fees --Class B Shares.............. 337
Shareholder servicing fees --Institutional Shares........ 79,955
Custodian fees........................................... 41,271
Accounting fees.......................................... 13,586
Transfer agent fees...................................... 25,711
Directors' fees.......................................... 4,311
Other fees............................................... 114,253
--------
Total expenses before voluntary fee
reductions/reimbursements............................. 1,439,418
Expenses voluntarily reduced/reimbursed................ (50,473)
-----------
Net expenses........................................... 1,388,945
-----------
Net Investment Income.................................... 9,348,939
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions............................................ (51,855)
-----------
Net realized/unrealized gains (losses) from investments.. (51,855)
-----------
Change in net assets resulting from operations........... $ 9,297,084
===========
</TABLE>
See notes to financial statements
9
<PAGE>
ISG FUNDS
Prime Money Market Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment income.......................... $ 9,348,939 $ 6,576,108
Net realized gains (losses) from investment
transactions.................................. (51,855) (2,924)
------------ ------------
Change in net assets resulting from operations.. 9,297,084 6,573,184
------------ ------------
Distributions to Class A Shareholders:
From net investment income..................... (6,988,142) (3,802,606)
Distributions to Class B Shareholders:
From net investment income..................... (4,759) (2,455)(a)
Distributions to Institutional Shareholders:
From net investment income..................... (2,356,038) (2,771,047)
------------ ------------
Change in net assets from shareholder
distributions.................................. (9,348,939) (6,576,108)
------------ ------------
Change in net assets from capital transactions.. 67,954,301 294,554,899
------------ ------------
Change in net assets............................ 67,902,446 294,551,975
Net Assets:
Beginning of period............................ 377,102,322 82,550,347
------------ ------------
End of period.................................. $445,004,768 $377,102,322
============ ============
</TABLE>
- ---------
(a) For the period from July 23, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
10
<PAGE>
ISG FUNDS
Prime Money Market Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1994(a)
-------------- ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- ------- ------- ------- -------
Investment Activities
Net investment income
(loss)................ 0.021 0.047 0.048 0.048 0.054 0.031
-------- -------- ------- ------- ------- -------
Total from Investment
Activities............ 0.021 0.047 0.048 0.048 0.054 0.031
-------- -------- ------- ------- ------- -------
Distributions
Net investment income.. (0.021) (0.047) (0.048) (0.048) (0.054) (0.031)
-------- -------- ------- ------- ------- -------
Total Distributions.... (0.021) (0.047) (0.048) (0.048) (0.054) (0.031)
-------- -------- ------- ------- ------- -------
Net change in asset
value.................. -- -- -- -- -- --
-------- -------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======= ======= ======= =======
Total Return............ 2.16%(b) 4.85% 4.90% 4.88% 5.51% 3.13%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $316,988 $310,201 $56,163 $22,836 $63,919 $82,351
Ratio of expenses to
average net assets..... 0.66%(c) 0.81% 0.87% 0.68% 0.65% 0.63%(c)
Ratio of net investment
income to average net
assets................. 4.32%(c) 4.73% 4.82% 4.83% 5.37% 4.00%(c)
Ratio of expenses to
average net assets*.... 0.69%(c) 0.82% (d) 0.86% 0.90% 0.93%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If
such voluntary fee reductions/reimbursements had not occurred, the ratios
would have been as indicated.
(a) For the period from March 29, 1994 (commencement of operations) through
December 31, 1994.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............ $ 1.000 $ 1.000
------- -------
Investment Activities
Net investment income (loss)................... 0.018 0.021
------- -------
Total from Investment Activities............... 0.018 0.021
------- -------
Distributions
Net investment income.......................... (0.018) (0.021)
------- -------
Total Distributions............................ (0.018) (0.021)
------- -------
Net change in asset value....................... -- --
------- -------
Net Asset Value, End of Period.................. $ 1.000 $ 1.000
======= =======
Total Return (excludes redemption charge)....... 1.77%(b) 2.07%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $ 334 $ 187
Ratio of expenses to average net assets......... 1.39%(c) 1.55%(c)
Ratio of net investment income to average net
assets......................................... 3.41%(c) 3.77%(c)
</TABLE>
(a) For the period from July 23, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
11
<PAGE>
ISG FUNDS
Prime Money Market Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31,
1999 1998 1997 1996(a)
-------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- -------
Investment Activities
Net investment income
(loss)................ 0.022 0.050 0.051 0.024
-------- ------- ------- -------
Total from Investment
Activities............ 0.022 0.050 0.051 0.024
-------- ------- ------- -------
Distributions
Net investment income.. (0.022) (0.050) (0.051) (0.024)
-------- ------- ------- -------
Total Distributions.... (0.022) (0.050) (0.051) (0.024)
-------- ------- ------- -------
Net change in asset
value.................. -- -- -- --
-------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======= =======
Total Return............ 2.20%(b) 5.11% 5.17% 2.46%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $127,682 $66,715 $26,389 $48,101
Ratio of expenses to
average net assets..... 0.59%(c) 0.58% 0.62% 0.65%(c)
Ratio of net investment
income to average net
assets................. 4.38%(c) 4.97% 5.05% 4.86%(c)
</TABLE>
(a) For the period from July 1, 1996 (commencement of operations) through
December 31, 1996.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
12
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Tax-Exempt Money Market Fund June 30, 1999 (Unaudited)
Municipal Bonds (106.1%)
<TABLE>
<CAPTION>
Shares or Amortized
Principal Cost
Amount (Note 2)
---------- ------------
<S> <C> <C>
Arizona (1.0%)
Salt River Agriculture Improvement, Series B, Salt
River Project, 4.45%, 1/1/00......................... $1,000,000 $ 1,004,645
------------
Connecticut (5.0%)
Connecticut State Health & Educational Facilities
Authority, Series T-1, Yale University, 3.60%*,
7/1/29............................................... 5,000,000 5,000,000
------------
District of Columbia (0.1%)
District of Columbia, Series B, 7.40%, 6/1/05,
Prerefunded 6/1/00 @ 102, FSA, GO.................... 30,000 31,487
District of Columbia, 1998 Series A, 6.75%, 6/1/08,
Prerefunded 6/1/00 @ 102, MBIA, GO................... 25,000 26,094
------------
57,581
------------
Florida (0.1%)
Martin County, 6.50%, 2/1/10, Prerefunded 2/1/00 @
102, AMBAC, GO....................................... 30,000 31,013
Orlando & Orange County Expressway Revenue, Jr. Lien,
6.50%, 7/1/20, Prerefunded 7/1/00 @ 102, FGIC........ 40,000 41,737
Pinellas County Health Facilities Authority, Morton
Plant Health System Project, 4.50%, 11/15/99, MBIA... 30,000 30,054
------------
102,804
------------
Georgia (14.4%)
Albany Sewer Systems Revenue, 5.35%, 7/1/00, FGIC..... 50,000 50,653
Atlanta Airport Extension & Improvement Revenue,
7.00%,............................................... 30,000 30,441
Douglas County Water & Sewer Authority, 6.70%, 6/1/05,
Prerefunded 6/1/00 @ 102, MBIA....................... 1,000,000 1,050,597
Douglas County Water & Sewer Authority, 6.88%, 6/1/09,
Prerefunded 6/1/00 @ 102, MBIA....................... 1,000,000 1,052,162
Georgia State, Series B, 6.75%, 7/1/05, Prerefunded
7/1/99 @ 102, GO..................................... 1,000,000 1,020,000
Jackson County School District, 4.90%, 7/1/00, MBIA... 30,000 30,261
Metropolitan Atlanta Rapid Transit Authority, Series
L, 6.80%, 7/1/99..................................... 1,365,000 1,365,000
Roswell Housing Authority, Multifamily Revenue,
Greenhouse Roswell, 3.50%*, 8/1/30, FNMA COLL........ 9,800,000 9,800,000
------------
14,399,114
------------
Hawaii (1.3%)
Hawaii County, Series A, 4.80%, 5/1/00, FGIC, GO...... 1,300,000 1,317,450
------------
</TABLE>
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Amortized
Principal Cost
Amount (Note 2)
---------- ------------
<S> <C> <C>
Illinois (15.4%)
Chicago, O'Hare International Airport, Series A,
General Airport Second Lien, 3.40%*, 1/1/18.......... $3,000,000 $ 3,000,000
Du Page County Forest Preservation, 4.00%, 10/1/99,
GO................................................... 50,000 50,000
Elmhurst Revenue, Joint Common Accredation, 3.65%*,
7/1/18............................................... 5,000,000 5,000,000
Illinois Developmental Finance Authority, Series C,
Provena Health, 3.45%*, 5/1/28, MBIA................. 5,000,000 4,999,999
Illinois Health Facilities Authority Revenue, Ingalls
Memorial Hospital Project, 7.00%, 1/1/19, Prerefunded
1/1/00 @ 102, MBIA................................... 90,000 93,087
Kane County Public Building Revenue Bond, 4.20%,
12/1/99.............................................. 1,190,000 1,195,101
Peoria Public Building & School Facilities, School
District #150 Project, 6.50%, 12/1/05, Prerefunded
12/1/99 @ 100, AMBAC................................. 1,000,000 1,013,792
------------
15,351,979
------------
Iowa (5.0%)
Iowa Finance Authority Revenue, Series B, Wheaton
Franciscan, 3.30%*, 8/15/24, MBIA.................... 5,000,000 5,000,000
------------
Kansas (0.1%)
Shawnee County, Series A, 7.00%, 9/1/99, GO........... 100,000 100,567
------------
Kentucky (8.0%)
Kentucky Economic Development Finance Authority,
Hospital Facilities Revenue, Series B, Baptist
Healthcare, 3.40%*, 8/15/31, MBIA.................... 8,000,000 8,000,000
------------
Maryland (0.1%)
Prince Georges County, Series A, Construction Public
Improvement, 4.90%, 9/1/99, MBIA, GO................. 50,000 50,112
------------
Michigan (0.2%)
Macomb County Transportation Funding Notes, 6.50%,
8/1/99............................................... 125,000 125,217
Marquette Electric Utility Revenue, 4.80%, 7/1/00,
AMBAC................................................ 25,000 25,118
------------
150,335
------------
Nebraska (0.2%)
American Public Energy Agency, Series A, Nebraska
Public Gas Agency Project, 3.35%, 6/1/00, AMBAC...... 250,000 249,214
------------
Nevada (0.0%)
Washoe County, Reno Sparks Convention/Visitor, 7.10%,
7/1/07, Prerefunded 7/1/00 @ 102, AMBAC.............. 25,000 26,232
------------
</TABLE>
Continued
13
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Tax-Exempt Money Market Fund June 30, 1999 (Unaudited)
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Amortized
Principal Cost
Amount (Note 2)
---------- ------------
<S> <C> <C>
New Hampshire (0.1%)
Hudson School District, Lot C, 7.25%, 12/15/99......... $ 130,000 $ 131,722
------------
New York (15.0%)
New York City Municipal Assistance Corp., Series J,
5.50%, 7/1/99......................................... 1,000,000 1,000,000
New York City Municipal Assistance Corp., Series 67,
7.50%, 7/1/02, Prerefunded 7/1/99 @ 102............... 5,000,000 5,099,999
New York City, Series B, 7.50%, 10/1/11, Prerefunded
10/1/99 @ 101.50, GO.................................. 20,000 20,468
New York City, Series F-3, 3.30%*, 2/15/13, GO......... 5,000,000 5,000,000
New York State Dorm Authority Revenue, Series B, 4.80%,
5/15/00............................................... 250,000 253,186
New York State Dorm Authority Revenue, Series C, 6.13%,
5/15/20, Prerefunded 5/15/00 @ 100.................... 3,550,000 3,638,319
------------
15,011,972
------------
North Carolina (0.2%)
Clinton, 4.00%, 6/1/00, GO............................. 155,000 155,000
------------
Ohio (1.7%)
Columbus Sewer Revenue, 5.70%, 6/1/00.................. 1,000,000 1,021,870
Ohio Air Quality Development Authority, Mead Corp.,
3.80%*, 10/1/01....................................... 700,000 700,000
------------
1,721,870
------------
Oklahoma (3.0%)
Broken Arrow, 7.00%, 7/1/00, GO........................ 750,000 774,040
Cleveland County Independent School District, 7.40%,
4/1/00, GO............................................ 610,000 626,498
Oklahoma County Independent School District #12, Series
B, 4.50%-6.20%, 7/1/00, GO............................ 1,555,000 1,585,190
------------
2,985,728
------------
Pennsylvania (7.1%)
Allegheny County, Hospital Development Authority, St.
Francis Medical Center, 3.65%*, 11/1/27............... 5,000,000 5,000,000
Derry Township School District, 6.20%, 9/1/13,
Prerefunded 3/1/00 @100, AMBAC, GO.................... 500,000 50,713
Manheim Township School District, Series A, 4.50%,
6/1/00, FGIC, GO...................................... 25,000 25,111
Pennsylvania Housing Finance Agency, Rental Housing,
5.40%, 1/1/00, FNMA COLL.............................. 2,000,000 2,021,050
Perkiomen Valley School District, 4.35%, 3/1/00, AMBAC,
GO.................................................... 25,000 25,000
Westmoreland County Municipal Authority Revenue, Series
M, 7.25%, 7/1/15, Prerefunded 7/1/00 @ 100, MBIA...... 25,000 25,788
------------
7,147,662
------------
</TABLE>
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Amortized
Principal Cost
Amount (Note 2)
---------- ------------
<S> <C> <C>
South Carolina (0.0%)
Oconee County School District, 5.50%, 1/1/00, MBIA,
GO.................................................... $ 20,000 $ 20,147
------------
Tennessee (12.4%)
Knox County Health & Hospital Facilities, Baptist
Health System, 5.00%, 4/15/00, AMBAC.................. 2,245,000 2,274,347
Knox County Hospital Facilities Revenue, Series C, Fort
Sanders Alliance Obligation, 7.00%, 1/1/08,
Prerefunded 1/1/00 @ 102, MBIA........................ 25,000 25,857
Knox County Hospital Facilities Revenue, Series A,
Mercy Health System, 7.60%, 9/1/19, Prerefunded 9/1/99
@ 102, AMBAC.......................................... 25,000 25,643
Metropolitan Government, Nashville & Davidson County,
4.63%, 5/15/00, GO.................................... 30,000 30,158
Metropolitan Government, Nashville & Davidson County,
Country Music Hall of Fame, 3.65%*, 6/1/22............ 5,000,000 5,000,000
Metropolitan Nashville Airport Authority Revenue,
Series C, 5.90%, 7/1/00, FGIC......................... 40,000 40,736
Rhea County, 5.25%, 3/1/00, AMBAC, GO.................. 40,000 40,127
Sevier County Public Building Authority, Series B-1,
Local Government Public Improvement, 4.00%*, 6/1/25... 5,000,000 5,000,001
------------
12,436,869
------------
Texas (5.9%)
Houston Water & Sewer System Revenue, Series C, Jr.
Lien, 5.90%, 12/1/99, MBIA--IBC....................... 80,000 80,556
Lone Star Texas Airport Improvement Authority, Series
B-1, Multiple Mode, 3.85%*, 12/1/14................... 400,000 400,000
Lone Star Texas Airport Improvement Authority, Series
A-5, Multiple Mode, 3.85%*, 12/1/14................... 300,000 300,000
San Antonio Certificates of Obligation, 7.75%, 8/1/99,
GO.................................................... 100,000 100,284
San Antonio Certificates of Obligation, 6.80%, 8/1/06,
Prerefunded 8/1/99 @ 100, GO.......................... 25,000 25,057
Texas Tax & Revenue Anticipation Notes, 4.50%,
8/31/99............................................... 5,000,000 5,010,802
------------
5,916,699
------------
Utah (0.1%)
Intermountain Power Agency Power Supply Revenue, Series
B, 7.00% , 7/1/21, Prerefunded 7/1/99 @102............ 105,000 107,100
------------
Virginia (1.0%)
Arlington County, 5.50%, 6/1/00, GO.................... 1,000,000 1,020,721
------------
</TABLE>
Continued
14
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Tax-Exempt Money Market Fund June 30, 1999 (Unaudited)
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Amortized
Principal Cost
Amount (Note 2)
---------- ------------
<S> <C> <C>
Washington (6.6%)
Tacoma Electric System Revenue, 7.30%, 1/1/00......... $ 500,000 $ 509,541
Washington State, Series VR 96B, 3.40%*, 6/1/20, GO... 5,000,000 5,000,001
Washington State Public Power Supply, Series A,
Project 2, 5.10%, 7/1/00............................. 50,000 50,532
Washington State Public Power Supply, Series B,
Project 3, 7.25%, 7/1/15, Prerefunded 1/1/00 @ 102... 1,000,000 1,039,278
Washington State Public Power Supply, Series B, 7.50%,
7/1/18, Prerefunded 7/1/00 @ 102..................... 30,000 31,594
------------
6,630,946
------------
Wisconsin (1.5%)
Wisconsin State Health & Educational Facilities
Authority Revenue, Series B, SSM Healthcare Projects,
7.00%, 6/1/20, Prerefunded 6/1/00 @ 102, MBIA........ 30,000 31,380
Wisconsin State Transportation Revenue, Series A,
4.10%, 7/1/00........................................ 1,500,000 1,508,730
------------
1,540,110
------------
Wyoming (0.6%)
Lincoln County PCR, Series C, Exxon Co. Project,
3.80%*, 11/1/14...................................... 600,000 600,000
------------
TOTAL MUNICIPAL BONDS
(Cost $106,236,579).................................. 106,236,579
------------
</TABLE>
Investment Companies (0.7%)
<TABLE>
<CAPTION>
Shares or Amortized
Principal Cost
Amount (Note 2)
--------- ------------
<S> <C> <C>
AIM Tax-Free Money Market Fund.......................... 678,943 $ 678,943
Dreyfus Tax-Free Money Market Fund...................... 1,000 1,000
------------
TOTAL INVESTMENT COMPANIES (Cost $679,943).............. 679,943
------------
TOTAL INVESTMENTS
(Cost $106,916,522) (a) -- (106.8%).................... 106,916,522
Liabilities in excess of other
assets -- (-6.8%)...................................... (6,846,450)
------------
TOTAL NET ASSETS -- (100.0%)............................ $100,070,072
============
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate security. Rate represents rate in effect at June 30, 1999.
AMBAC -- Insured by AMBAC Indemnity Corp.
FGIC -- Insured by Financial Guaranty Insurance Corp.
FNMA COLL -- Federal National Mortgage Association Collateral
FSA -- Insured by Financial Security Assurance Inc.
GO -- General Obligation
MBIA -- Insured by Municipal Bond Insurance Association
MBIA - IBC -- MBIA Insured Bond Certificates
PCR -- Pollution Control Revenue
See notes to financial statements
15
<PAGE>
ISG FUNDS
Tax-Exempt Money Market Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost....................... $106,916,522
Cash................................................. 1,264,126
Interest and dividends receivable.................... 1,081,292
Prepaid expenses and other assets.................... 1,077
------------
Total Assets........................................ 109,263,017
Liabilities:
Distributions payable................................ $ 219,026
Payable for investments purchased.................... 8,900,000
Accrued expenses and other payables:
Investment advisory fees............................ 30,311
Administration fees................................. 833
Distribution fees................................... 13,168
Custodian fees...................................... 5,168
Other............................................... 24,439
----------
Total Liabilities................................... 9,192,945
------------
Net Assets:
Capital.............................................. 100,091,293
Undistributed (distributions in excess of) net
realized gains...................................... (21,221)
------------
Net Assets........................................... $100,070,072
============
Class A Shares
Net Assets.......................................... $ 1,695,265
Shares outstanding.................................. 1,695,691
Offering and redemption price per share............. $ 1.00
============
Institutional Shares
Net Assets.......................................... $ 98,374,807
Shares outstanding.................................. 98,395,602
Offering and redemption price per share............. $ 1.00
============
</TABLE>
Statement of Operations
For the period ended June 30, 1999(a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.............................................. $532,267
Dividend income.............................................. 26,111
--------
Total Investment Income..................................... 558,378
Expenses:
Investment advisory fees..................................... $58,404
Administration fees.......................................... 16,687
Shareholder servicing fees -- Class A Shares................. 951
Shareholder servicing fees -- Institutional Shares........... 24,460
Custodian fees............................................... 6,575
Accounting fees.............................................. 2,350
Transfer agent fees.......................................... 4,867
Directors' fees.............................................. 287
Registration and filing fees................................. 9,354
Other fees................................................... 10,527
-------
Net expenses................................................ 134,462
--------
Net Investment Income........................................ 423,916
--------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions..... (21,221)
--------
Net realized/unrealized gains (losses) from investments...... (21,221)
--------
Change in net assets resulting from operations............... $402,695
========
</TABLE>
- ---------
(a) For the period from May 3, 1999 (commencement of operations) through June
30, 1999.
See notes to financial statements
16
<PAGE>
ISG FUNDS
Tax-Exempt Money Market Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income............................................ $ 423,916
Net realized gains (losses) from investment transactions......... (21,221)
------------
Change in net assets resulting from operations.................... 402,695
------------
Distributions to Class A Shareholders:
From net investment income....................................... (9,263)
Distributions to Institutional Shareholders:
From net investment income....................................... (414,653)
------------
Change in net assets from shareholder distributions............... (423,916)
------------
Change in net assets from capital transactions.................... 100,091,293
------------
Change in net assets.............................................. 100,070,072
Net Assets:
Beginning of period.............................................. --
------------
End of period.................................................... $100,070,072
============
</TABLE>
- ---------
(a) For the period from May 3, 1999 (commencement of operations) through June
30, 1999.
See notes to financial statements
17
<PAGE>
ISG FUNDS
Tax-Exempt Money Market Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
<S> <C>
Net Asset Value, Beginning of Period............................. $ 1.000
-------
Investment Activities
Net investment income (loss).................................... 0.004
-------
Total from Investment Activities................................ 0.004
-------
Distributions
Net investment income........................................... (0.004)
-------
Total Distributions............................................. (0.004)
-------
Net change in asset value........................................ --
-------
Net Asset Value, End of Period................................... $ 1.000
=======
Total Return..................................................... 0.38%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 1,695
Ratio of expenses to average net assets.......................... 0.90%(c)
Ratio of net investment income to average net assets............. 2.44%(c)
</TABLE>
(a) For the period from May 3, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
<S> <C>
Net Asset Value, Beginning of Period............................. $ 1.000
-------
Investment Activities
Net investment income (loss).................................... 0.004
-------
Total from Investment Activities................................ 0.004
-------
Distributions
Net investment income........................................... (0.004)
-------
Total Distributions............................................. (0.004)
-------
Net change in asset value........................................ --
-------
Net Asset Value, End of Period................................... $ 1.000
=======
Total Return..................................................... 0.41%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $98,375
Ratio of expenses to average net assets.......................... 0.80%(c)
Ratio of net investment income to average net assets............. 2.54%(c)
</TABLE>
(a) For the period from May 3, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
18
<PAGE>
[PICTURE OF JOHN MARK MCKENZIE]
John Mark McKenzie
Portfolio Manager
ISG Limited Term U.S. GovernmentFund
- --------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with high current income without assuming
undue risk. The Fund will invest primarily in a portfolio of U.S. Government
securities that, under normal market conditions, has a duration that
approximates that of the Merrill Lynch 1-5-Year Government Bond Index. This
Fund is suitable for investors seeking regular monthly income without undue
risk to principal.
- --------------------------------------------------------------------------------
Q. How did the Fund perform during 1999?
A. The last six months were tumultuous for all types of fixed-income
instruments. For the six months ended June 30, 1999, the Fund produced a total
return of 0.07% (Class A Shares at NAV).+ In comparison, the Merrill Lynch 1-5-
Year Government Bond Index/1/ produced a total return of 0.57%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield was 4.44% (Class A Shares at NAV), compared
to 4.32% at the end of 1998. The yield percentage is annualized. We achieved
our objectives while maintaining an average credit quality of AAA (as rated by
Standard & Poor's). As of June 30, 1999, the Fund's average maturity was 2.44
years.
Q. What factors affected your performance?
A. Bonds across the board were hit pretty hard during much of the six-month
period. With the Federal Reserve continuing to express concern about, not only
the domestic economy, but also international economies as well, many analysts
and investors expected the Fed to raise interest rates. Although, to be honest,
economic data did not point to rising inflation, there definitely was an
atmosphere of fear in the marketplace that drove rates upward. On June 30, the
very last day of our period, the Fed finally did act, but, by then, market
forces had already lifted rates across the yield curve; in fact, rates rose in
five of the period's six months. This put serious pressure on
bond prices. (When rates rise, the value of underlying fixed-income securities
falls.) However, with our average maturity resting on the shorter end of the
yield curve, the Fund's total return was not affected as adversely as longer-
term portfolios.
Q. With all this movement in the market, what steps did you take to help
increase current income?
A. This Fund is designed to deliver as high a level of current income as
possible, while not exposing the portfolio to excessive price risk. Our
shareholders are most interested in receiving relatively high yield. To that
end, during the period we reduced our U.S. Treasury allocation and took
advantage of opportunities in agency and mortgage-backed pass-through
securities. With yield spreads widening between Treasuries and agencies/pass-
throughs, we felt we could pick up additional income for our shareholders
without taking on an undue measure of risk.
To keep our trading costs down and enhance the Fund's yield, we continued to be
constrained in our trading activity. In addition, we kept the Fund's average
maturity slightly longer than that of our benchmark; this was another decision
aimed at preserving the income flow we provided to shareholders.
As of June 30, 1999, 43.6% of the Fund was invested in Treasury securities,
44.6% in agencies, 6.1% in pass-through securities and 5% cash.*
Q. What is your outlook for the rest of 1999?
A. We anticipate that the Federal Reserve could raise interest rates another
one-quarter to three-eighths of a percentage point (0.25%-0.375%). We do not
think there will be a runaway problem with higher rates severely damaging bond
prices, because the market is very sensitive to the Fed's position, and may
already have discounted another modest rate hike into bond prices. We intend to
keep our average maturity roughly where it was at the end of June, and to try
to support the Fund's yield by expanding further into high-quality spread
products, such as agency and pass-through securities.
- ---------
+ Including the 3.00% sales load, the Fund's return was -2.96% for the
period.
/1/ The Merrill Lynch 1-5-Year Government Bond Index is an unmanaged index that
is generally representative of the performance of government bonds in that
maturity range with a rating of at least Baa. The index does not reflect the
expenses associated with a mutual fund, such as investment management and
fund accounting fees. The Fund's performance reflects the deduction of fees
for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
19
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Limited Term U.S. Government Fund June 30, 1999 (Unaudited)
U.S. Government Agencies (50.7%)
<TABLE>
<CAPTION>
Shares
or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Fannie Mae (9.9%)
5.04%*, 9/27/99......................................... $ 450,000 $ 444,443
6.05%, 10/20/00......................................... 1,000,000 1,000,679
5.38%, 3/15/02.......................................... 1,000,000 986,250
5.98%, 11/12/02......................................... 500,000 500,255
5.63%, 5/14/04.......................................... 500,000 490,080
5.75%, 6/15/05.......................................... 250,000 245,553
6.44%, 8/14/07.......................................... 500,000 499,950
6.65%, 11/14/07......................................... 500,000 492,720
-----------
4,659,930
-----------
Federal Farm Credit Bank (10.7%)
5.76%, 7/7/03........................................... 750,000 741,810
5.07%, 12/15/03......................................... 3,500,000 3,358,424
6.15%, 3/23/05.......................................... 1,000,000 980,560
-----------
5,080,794
-----------
Federal Home Loan Bank (9.6%)
5.00%*, 8/9/99.......................................... 400,000 397,831
6.28%, 8/13/01,
Callable 8/13/99 @ 100................................. 1,000,000 1,000,350
5.55%, 1/28/02.......................................... 1,000,000 989,120
5.39%, 3/8/02........................................... 1,000,000 984,850
6.34%, 6/29/04.......................................... 750,000 754,500
6.00%, 9/15/04.......................................... 400,000 392,444
-----------
4,519,095
-----------
Freddie Mac (9.1%)
5.04%*, 9/29/99......................................... 500,000 493,685
6.16%, 9/25/02.......................................... 500,000 502,785
5.89%, 7/17/03.......................................... 400,000 396,168
5.00%, 1/15/04.......................................... 1,000,000 956,160
6.25%, 5/18/04.......................................... 1,000,000 992,470
6.53%, 3/3/08........................................... 1,000,000 968,440
-----------
4,309,708
-----------
Government National Mortgage Assoc. (6.1%)
9.00%, 12/15/01, Pool # 152718.......................... 22,682 23,773
9.00%, 2/15/03, Pool # 248038........................... 109,159 114,412
7.50%, 5/15/10, Pool # 407408........................... 534,168 545,850
7.00%, 8/15/11, Pool # 423984........................... 619,942 624,201
7.50%, 8/15/11, Pool # 423914........................... 620,265 633,830
7.00%, 9/15/11, Pool # 423923........................... 523,725 527,323
7.50%, 10/15/11, Pool # 431451.......................... 413,914 422,967
-----------
2,892,356
-----------
Tennessee Valley Authority (5.3%)
5.28%, 9/14/01.......................................... 2,000,000 1,972,500
5.38%, 11/13/08......................................... 600,000 555,126
-----------
2,527,626
-----------
TOTAL U.S. GOVERNMENT AGENCIES (Cost $24,361,408)....... 23,989,509
-----------
</TABLE>
U.S. Treasury Bills (3.5%)
<TABLE>
<CAPTION>
Shares
or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
4.81%*, 11/12/99........................................ $1,700,000 $ 1,669,336
-----------
TOTAL U.S. TREASURY BILLS
(Cost $1,669,563)...................................... 1,669,336
-----------
U.S. Treasury Notes (40.1%)
7.50%, 10/31/99......................................... 2,000,000 2,016,220
6.38%, 5/15/00.......................................... 2,000,000 2,019,120
6.63%, 7/31/01.......................................... 4,000,000 4,079,280
7.50%, 11/15/01......................................... 6,500,000 6,765,785
7.50%, 5/15/02.......................................... 1,000,000 1,047,780
6.25%, 6/30/02.......................................... 750,000 761,423
5.63%, 12/31/02......................................... 2,000,000 1,994,040
6.50%, 10/15/06......................................... 250,000 258,155
-----------
TOTAL U.S. TREASURY NOTES
(Cost $18,765,802)..................................... 18,941,803
-----------
Investment Companies (5.0%)
Dreyfus Prime Money Market Fund......................... 1,000 1,000
AIM Treasury Money Market Fund.......................... 2,348,324 2,348,324
-----------
TOTAL INVESTMENT COMPANIES
(Cost $2,349,324)...................................... 2,349,324
-----------
TOTAL INVESTMENTS
(Cost $47,146,097) (a) -- (99.3%)...................... 46,949,972
Other assets in excess of
liabilities -- (0.7%).................................. 340,884
-----------
TOTAL NET ASSETS -- (100%).............................. $47,290,856
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................... $ 274,556
Unrealized depreciation........................................... (470,681)
---------
Net unrealized depreciation....................................... $(196,125)
=========
</TABLE>
* Yield effective at purchase.
See notes to financial statements
20
<PAGE>
ISG FUNDS
Limited Term U.S. Government Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $47,146,097)................. $46,949,972
Interest and dividends receivable........................ 529,223
Deferred organization costs.............................. 984
Prepaid expenses and other assets........................ 33,067
-----------
Total Assets............................................ 47,513,246
Liabilities:
Distributions payable.................................... $188,130
Accrued expenses and other payables:
Investment advisory fees................................ 13,087
Administration fees..................................... 579
Distribution fees....................................... 6,171
Custodian fees.......................................... 1,515
Other................................................... 12,908
--------
Total Liabilities....................................... 222,390
-----------
Net Assets:
Capital.................................................. 50,847,850
Undistributed (distributions in excess of) net investment
income.................................................. (751)
Undistributed (distributions in excess of) net realized
gains................................................... (3,360,118)
Net unrealized appreciation (depreciation) from
investments............................................. (196,125)
-----------
Net Assets............................................... $47,290,856
===========
Class A Shares
Net Assets.............................................. $ 2,956,484
Shares outstanding...................................... 295,317
Redemption price per share.............................. $ 10.01
===========
Class A Shares -- Maximum Sales Charge................... 3.00%
-----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the
nearest cent).......................................... $ 10.32
===========
Class B Shares
Net Assets.............................................. $ 560,849
Shares outstanding...................................... 55,973
Offering price per share*............................... $ 10.02
===========
Institutional Shares
Net Assets.............................................. $43,773,523
Shares outstanding...................................... 4,372,657
Offering and redemption price per share................. $ 10.01
===========
</TABLE>
- --------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 1,344,756
Dividend income......................................... 37,937
Income from securities lending.......................... 51
-----------
Total Investment Income................................ 1,382,744
Expenses:
Investment advisory fees................................ $117,834
Administration fees..................................... 35,350
Distribution fees -- Class A Shares..................... 3,187
Distribution fees -- Class B Shares..................... 1,843
Shareholder servicing fees --
Class A Shares......................................... 1,912
Shareholder servicing fees --
Class B Shares......................................... 614
Shareholder servicing fees --
Institutional Shares................................... 33,069
Custodian fees.......................................... 8,201
Accounting fees......................................... 13,886
Transfer agent fees..................................... 19,041
Directors' fees......................................... 485
Registration and filing fees............................ 16,656
Other fees.............................................. 13,410
--------
Total expenses before voluntary fee reductions......... 265,488
Expenses voluntarily reduced........................... (42,380)
-----------
Net expenses........................................... 223,108
-----------
Net Investment Income................................... 1,159,636
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... 7,658
Net change in unrealized appreciation (depreciation)
from investments....................................... (1,142,677)
-----------
Net realized/unrealized gains (losses) from
investments............................................ (1,135,019)
-----------
Change in net assets resulting from operations.......... $ 24,617
===========
</TABLE>
See notes to financial statements
21
<PAGE>
ISG FUNDS
Limited Term U.S. Government Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment income............................ $ 1,159,636 $ 1,120,345
Net realized gains (losses) from investment
transactions.................................... 7,658 148,381
Net change in unrealized appreciation
(depreciation) from investments................. (1,142,677) 699,001
----------- -----------
Change in net assets resulting from operations.... 24,617 1,967,727
----------- -----------
Distributions to Class A Shareholders:
From net investment income....................... (62,848) (1,001,210)
From net realized gains on investment
transactions.................................... -- (10,045)
Distributions to Class B Shareholders:
From net investment income....................... (9,942) (7,517)(a)
From net realized gains on investment
transactions.................................... -- (189)(a)
Distributions to Institutional Shareholders:
From net investment income....................... (1,086,846) (111,618)(b)
----------- -----------
Change in net assets from shareholder
distributions.................................... (1,159,636) (1,130,579)
----------- -----------
Change in net assets from capital transactions.... (785,516) 28,270,892
----------- -----------
Change in net assets.............................. (1,920,535) 29,108,040
Net Assets:
Beginning of period.............................. 49,211,391 20,103,351
----------- -----------
End of period.................................... $47,290,856 $49,211,391
=========== ===========
</TABLE>
- ---------
(a) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
22
<PAGE>
ISG FUNDS
Limited Term U.S. Government Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $10.25 $10.12 $ 10.00
------ ------ -------
Investment Activities
Net investment income (loss)........ 0.25 0.53 0.42
Net realized and unrealized gains
(losses) from investments.......... (0.24) 0.14 0.12
------ ------ -------
Total from Investment Activities.... 0.01 0.67 0.54
------ ------ -------
Distributions
Net investment income............... (0.25) (0.53) (0.42)
Net realized gains.................. -- (0.01) --
------ ------ -------
Total Distributions................. (0.25) (0.54) (0.42)
------ ------ -------
Net change in asset value............ (0.24) 0.13 0.12
------ ------ -------
Net Asset Value, End of Period....... $10.01 $10.25 $ 10.12
====== ====== =======
Total Return (excludes sales
charge)............................. 0.07%(b) 6.69% 5.54%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $2,956 $2,437 $20,103
Ratio of expenses to average net
assets.............................. 0.94%(c) 1.02% 1.00%(c)
Ratio of net investment income to
average net assets.................. 4.92%(c) 5.16% 5.34%(c)
Ratio of expenses to average net
assets*............................. 1.36%(c) 1.54% 1.62%(c)
Portfolio turnover**................. 9% 86% 52%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 28, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $10.26 $10.12
------ ------
Investment Activities
Net investment income (loss).................... 0.20 0.35
Net realized and unrealized gains (losses) from
investments.................................... (0.24) 0.15
------ ------
Total from Investment Activities................ (0.04) 0.50
------ ------
Distributions
Net investment income........................... (0.20) (0.35)
Net realized gains.............................. -- (0.01)
------ ------
Total Distributions............................. (0.20) (0.36)
------ ------
Net change in asset value........................ (0.24) 0.14
------ ------
Net Asset Value, End of Period................... $10.02 10.26
====== ======
Total Return (excludes redemption charge)........ (0.35)%(b) 4.98%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $ 561 $ 430
Ratio of expenses to average net assets.......... 1.79%(c) 1.97%(c)
Ratio of net investment income to average net
assets.......................................... 4.04%(c) 4.01%(c)
Ratio of expenses to average net assets*......... 1.95%(c) 2.24%(c)
Portfolio turnover**............................. 9% 86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
23
<PAGE>
ISG FUNDS
Limited Term U.S. Government Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Period Ended December 31,
1999 1998(a)
------------ ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period.............. $ 10.25 $ 10.29
------- -------
Investment Activities
Net investment income (loss)..................... 0.25 0.03
Net realized and unrealized gains (losses) from
investments..................................... (0.24) (0.04)
------- -------
Total from Investment Activities................. 0.01 (0.01)
------- -------
Distributions
Net investment income............................ (0.25) (0.03)
------- -------
Total Distributions.............................. (0.25) (0.03)
------- -------
Net change in asset value......................... (0.24) (0.04)
------- -------
Net Asset Value, End of Period.................... $ 10.01 $ 10.25
======= =======
Total Return...................................... 0.07%(b) (0.14)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................. $43,774 $46,344
Ratio of expenses to average net assets........... 0.94%(c) 0.69%(c)
Ratio of net investment income to average net
assets........................................... 4.93%(c) 5.29%(c)
Ratio of expenses to average net assets*.......... 1.10%(c) 0.96%(c)
Portfolio turnover**.............................. 9% 86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
24
<PAGE>
[PICTURE OF JOHN MARK MCKENZIE]
John Mark McKenzie
Portfolio Manager
ISG Government Income Fund
- --------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with current income without assuming undue
risk. It invests primarily in securities guaranteed as to payment of principal
and interest by the U.S. Government, its agencies or instrumentalities. This
Fund is suitable for investors seeking regular monthly income without undue
risk to principal.
- --------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. The last six months were tumultuous for all types of fixed-income
instruments. For the six months ended June 30, 1999, the Fund produced a total
return of -2.53% (Class A Shares at NAV).+ In comparison, the Merrill Lynch
Corporate/Government Master Index/1/, produced a total return of -2.25%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield was 4.72% (Class A Shares at NAV). The yield
percentage is annualized. We achieved our objectives while maintaining an
average credit quality of AAA (as rated by Standard & Poor's). As of June 30,
1999, the Fund's average maturity was 7.39 years.
Q. What factors affected your performance?
A. Bonds across the board were hit pretty hard during much of the six-month
period. With the Federal Reserve continuing to express concern about, not only
the domestic economy, but also international economies as well, many analysts
and investors expected the Fed to raise interest rates. To be honest, economic
data did not point to rising inflation, but there definitely was an atmosphere
of fear in the marketplace that drove rates upward. On June 30, the very last
day of our period, the Fed finally did act, but, by then, market forces had
already lifted rates across the yield curve; in fact, rates rose in five of the
period's six months. This put serious pressure on bond prices. (When rates
rise, the value of underlying fixed-income securities falls.)
Q. What steps did you take in response to these volatile market conditions?
A. Over time, it has become apparent that many of our shareholders are less
concerned with short-term price fluctuations than with the level of current
income; relatively high yield is of prime importance. To that end, during the
period, we reduced our U.S. Treasury allocation by 10%-12%, and moved that
money over to agency securities. With yield spreads widening between Treasuries
and agencies, we felt we could pick up additional income for our shareholders
without taking on an undue measure of risk. We took this step while remaining
very conscious of keeping our shareholders' tax obligations as low as possible.
In making the shift from Treasuries to agencies, we mostly used new money
flowing into the Fund. We did not sell a lot of our current holdings, which
would have created a taxable event.
We also kept the Fund's average maturity shorter than that of our benchmark's;
we did this because we expected interest rates to continue to rise, which they
did throughout the period.
As of June 30, 1999, 78.6% of the Fund was invested in Treasury and agency
securities, with 16.4% invested in corporate debt and 4% in cash.*
Q. What is your outlook for the rest of 1999?
A. We anticipate that the Federal Reserve will raise interest rates another
(0.25%-0.375%). We do not think there will be a runaway problem with higher
rates severely damaging bond prices, because the market is very sensitive to
the Fed's position and may already have discounted another modest rate hike
into bond prices. We intend to keep our average maturity roughly where it was
at the end of June, and to try to support the Fund's yield by expanding further
into high-quality spread product, such as agencies and some corporate paper.
- ---------
+ Including the 3.00% sales load, the Fund's return was -5.45% for the period.
/1/ The Merrill Lynch Corporate/Government Master Index is generally
representative of the performance of corporate and U.S. Government bonds.
The index is unmanaged and does not reflect the expenses associated with a
mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
25
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Government Income Fund June 30, 1999 (Unaudited)
Commercial Paper (2.9%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- -------------
<S> <C> <C>
Beverages (1.5%)
Coca Cola, Co., 4.83%*, 7/19/99..................... $ 5,000,000 $ 4,987,100
-------------
Financial Services (1.4%)
USAA Capital Corp., 4.87%*, 7/22/99................. 5,000,000 4,984,950
-------------
TOTAL COMMERCIAL PAPER
(Cost $9,973,721).................................. 9,972,050
-------------
Corporate Bonds (13.5%)
Automotive (0.6%)
General Motors, 6.25%, 5/1/05....................... 2,000,000 1,947,500
-------------
Banking (0.3%)
NationsBank Corp., 5.38%, 4/15/00................... 1,000,000 997,500
-------------
Beverages (0.8%)
Anheuser-Busch Cos., 6.90%, 10/1/02, Callable
10/1/99 @ 100...................................... 889,000 897,890
Anheuser-Busch Cos., 5.75%, 1/15/11, Callable
1/15/06 @ 100...................................... 2,000,000 1,822,500
-------------
2,720,390
-------------
Chemicals (0.4%)
Du Pont (E.I.) de Nemours & Co., 9.15%, 4/15/00..... 437,000 447,379
Du Pont (E.I.) de Nemours & Co., 6.75%, 10/15/02.... 889,000 902,335
-------------
1,349,714
-------------
Entertainment (0.8%)
The Walt Disney Co., 5.62%, 12/1/08................. 3,000,000 2,790,000
-------------
Financial Services (4.2%)
Associates Corp N.A., 5.75%, 11/1/03................ 2,000,000 1,940,000
Chubb Corp., 6.15%, 8/15/05......................... 2,250,000 2,179,688
Ford Motor Credit Co., 5.75%, 2/23/04............... 3,000,000 2,898,750
General Electric Capital Corp., 5.92%, 4/3/01....... 2,000,000 1,997,500
General Motors Acceptance Corp., 5.75%, 11/10/03.... 1,000,000 963,750
International Lease Finance Corp., 6.00%, 6/15/03... 2,500,000 2,453,125
Merrill Lynch & Co., 6.00%, 7/15/05................. 2,500,000 2,406,250
-------------
14,839,063
-------------
Food & Related (1.8%)
Campbell Soup Co., 4.75%, 10/1/03................... 2,500,000 2,359,375
H.J. Heinz Co., 6.75%, 10/15/99..................... 1,000,000 1,002,500
Kellogg Co., 4.88%, 10/15/05........................ 3,000,000 2,760,000
-------------
6,121,875
-------------
Industrial Goods & Services (0.3%)
Pharmacia & Upjohn Inc., 5.88%, 4/15/00............. 1,000,000 1,000,000
-------------
</TABLE>
Corporate Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- -------------
<S> <C> <C>
Oil & Gas (1.0%)
Atlantic Richfield Co., 5.55%, 4/15/03............... $ 3,500,000 $ 3,412,500
-------------
Pharmaceuticals (0.4%)
American Home Products, 7.70%, 2/15/00............... 1,400,000 1,417,500
-------------
Technology (0.1%)
Texas Instruments, 9.25%, 6/15/03.................... 437,000 483,431
-------------
Telecommunications (0.6%)
GTE South Inc., 6.13%, 6/15/07....................... 2,000,000 1,927,500
-------------
Utilities (2.2%)
Emerson Electric Co., 5.85%, 3/15/09................. 3,000,000 2,835,000
National Rural Utilities, 5.75%, 12/1/08, MTN........ 3,500,000 3,268,125
Pacific Gas & Electric, 6.25%, 3/1/04................ 1,000,000 992,500
Southern California Edison, 5.63%, 10/1/02........... 1,000,000 978,750
-------------
8,074,375
-------------
TOTAL CORPORATE BONDS
(Cost $48,754,743).................................. 47,081,348
-------------
U.S. Government Agencies (31.2%)
Fannie Mae (7.1%)
4.68%, 7/15/99....................................... 10,000,000 9,980,700
6.46%, 5/9/05, Callable 5/9/01 @ 100................. 5,000,000 4,982,650
6.82%, 12/13/06...................................... 1,000,000 1,001,210
6.94%, 9/5/07, Callable 9/5/02 @ 100................. 2,000,000 2,004,900
6.00%, 5/15/08....................................... 7,000,000 6,811,980
-------------
24,781,440
-------------
Federal Farm Credit Bank (6.0%)
5.07%, 12/15/03...................................... 15,000,000 14,393,250
5.70%, 9/3/08........................................ 7,000,000 6,644,610
-------------
21,037,860
-------------
Federal Home Loan Bank (6.2%)
6.28%, 8/13/01, Callable 8/13/99 @ 100............... 2,000,000 2,000,700
5.35%, 12/1/03....................................... 3,000,000 2,908,200
5.30%, 2/18/04....................................... 5,000,000 4,833,450
6.34%, 6/29/04....................................... 2,250,000 2,263,500
5.80%, 9/2/08........................................ 10,000,000 9,574,200
-------------
21,580,050
-------------
Freddie Mac (9.5%)
5.00%, 1/15/04....................................... 5,000,000 4,780,800
5.75%, 3/15/09....................................... 10,000,000 9,512,500
7.00%, 3/23/09....................................... 5,000,000 5,000,050
6.75%, 5/4/09, Callable 8/4/99 @ 100................. 10,000,000 9,692,100
7.40%, 6/9/14, Callable 6/9/00 @ 100................. 4,000,000 3,928,400
-------------
32,913,850
-------------
</TABLE>
Continued
26
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Government Income Fund June 30, 1999 (Unaudited)
U.S. Government Agencies, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- -------------
<S> <C> <C>
Private Export Funding (2.0%)
6.31%, 9/30/04, Series C............................. $ 2,000,000 $ 2,015,000
6.49%, 7/15/07, Series B............................. 2,000,000 2,030,000
5.87%, 7/31/08, Series D............................. 3,000,000 2,921,250
-------------
6,966,250
-------------
Tennessee Valley Authority (0.4%)
5.38%, 11/13/08...................................... 1,500,000 1,387,815
-------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost $111,937,699) 108,667,265
-------------
U.S. Treasury Notes (31.5%)
7.50%, 10/31/99 (b).................................. 10,000,000 10,081,100
7.75%, 1/31/00 (b)................................... 10,000,000 10,153,000
6.13%, 7/31/00 (b)................................... 10,000,000 10,079,900
5.75%, 10/31/00 (b).................................. 8,000,000 8,038,880
7.75%, 2/15/01 (b)................................... 9,000,000 9,319,590
8.00%, 5/15/01 (b)................................... 9,000,000 9,394,200
7.88%, 8/15/01 (b)................................... 7,000,000 7,311,220
7.50%, 5/15/02 (b)................................... 10,000,000 10,477,800
5.75%, 8/15/03 (b)................................... 10,000,000 9,981,100
6.50%, 8/15/05 (b)................................... 9,000,000 9,259,380
7.00%, 7/15/06 (b)................................... 15,000,000 15,894,450
-------------
TOTAL U.S. TREASURY NOTES
(Cost $110,712,944)................................. 109,990,620
-------------
U.S. Treasury Bonds (15.9%)
7.50%, 11/15/16 (b).................................. 7,000,000 7,886,620
7.25%, 8/15/22 (b)................................... 7,000,000 7,840,140
7.63%, 11/15/22 (b).................................. 7,000,000 8,164,170
7.13%, 2/15/23 (b)................................... 9,000,000 9,976,590
6.88%, 8/15/25 (b)................................... 10,000,000 10,839,400
6.75%, 8/15/26 (b)................................... 10,000,000 10,703,000
-------------
TOTAL U.S. TREASURY BONDS
(Cost $50,085,959).................................. 55,409,920
-------------
Investment Companies (4.0%)
AIM Treasury Money Market Fund....................... 13,915,582 13,915,582
Dreyfus Prime Money Market Fund...................... 1,000 1,000
-------------
TOTAL INVESTMENT COMPANIES (Cost $13,916,582) 13,916,582
-------------
Cash Equivalents (0.0%)
Bank of New York Cash Reserve........................ 1,000 1,000
-------------
TOTAL CASH EQUIVALENTS
(Cost $1,000)....................................... 1,000
-------------
</TABLE>
Short-Term Securities Held as Collateral (49.3%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- -------------
<S> <C> <C>
Commercial Paper (35.8%)
Conagra, 6.00%, 7/1/99.............................. $22,976,869 $ 22,973,040
MCI WorldCom, 5.03%-6.10%, 7/1/99................... 22,976,869 22,939,609
Raytheon, 5.00%, 7/6/99............................. 4,595,374 4,556,441
Rohm & Haas, 4.97%-6.25%, 7/1/99.................... 22,976,869 22,930,466
Safeway, 6.25%, 7/1/99.............................. 17,794,666 17,791,577
Textron Finance, 5.10%, 7/7/99...................... 11,488,435 11,444,491
Tyco International, 5.15%, 8/3/99................... 11,488,435 11,398,042
US West, 5.30%, 8/22/99 11,488,435.................. 11,488,435 11,368,349
-------------
125,402,015
-------------
Floating Rate Note (1.6%)
General Motors Acceptance Corp., 5.62%**, 11/13/00.. 5,514,449 5,514,449
-------------
Investment Companies (8.9%)
AIM Liquid Asset Money Market Fund.................. 31,077,428 31,077,428
-------------
Repurchase Agreements (3.0%)
Lehman Brothers, 5.50%, 7/1/99, dated 6/30/99, with
a maturity value of $10,347,887 (See Significant
Accounting Policies, Securities Lending in the
Notes to Financial Statements for collateral
description) ...................................... 10,346,306 10,346,306
-------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL
(Cost $172,340,198)................................ 172,340,198
-------------
TOTAL INVESTMENTS
(Cost $517,722,846) (a) -- (148.3%)................ 517,378,983
Liabilities in excess of other
assets -- (-48.3%)................................. (168,527,793)
-------------
TOTAL NET ASSETS -- (100.0%)........................ $ 348,851,190
=============
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $6,640,961
Unrealized depreciation.......................................... (6,984,824)
----------
Net unrealized depreciation...................................... $ (343,863)
==========
</TABLE>
(b) All or a portion of this security has been loaned at June 30, 1999.
* Yield effective at purchase.
** Variable rate security. Rate represents rate in effect at June 30, 1999.
MTN -- Medium Term Note
See notes to financial statements
27
<PAGE>
ISG FUNDS
Government Income Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value
(cost $507,376,540)................................ $507,032,677
Repurchase agreements, at cost...................... 10,346,306
------------
Total Investments.................................. 517,378,983
Interest and dividends receivable................... 5,490,308
Receivable for capital shares issued................ 1,798
Receivable from investment adviser.................. 50,361
Prepaid expenses and other assets................... 27,486
------------
Total Assets....................................... 522,948,936
Liabilities:
Payable for return of collateral held for securities
on loan............................................ $172,340,198
Distributions payable............................... 1,485,696
Payable for capital shares redeemed................. 11,614
Accrued expenses and other payables:
Investment advisory fees........................... 171,172
Administration fees................................ 4,274
Distribution fees.................................. 43,160
Custodian fees..................................... 7,688
Other.............................................. 33,944
------------
Total Liabilities.................................. 174,097,746
------------
Net Assets:
Capital............................................. 351,054,141
Undistributed (distributions in excess of) net
investment income.................................. 149,550
Undistributed (distributions in excess of) net
realized gains..................................... (2,008,638)
Net unrealized appreciation (depreciation) from
investments........................................ (343,863)
------------
Net Assets.......................................... $348,851,190
============
Class A Shares
Net Assets......................................... $ 1,757,039
Shares outstanding................................. 178,022
Redemption price per share......................... $ 9.87
============
Class A Shares -- Maximum Sales Charge.............. 3.00%
------------
Maximum Offering Price Per Share (100%/(100% --
Maximum Sales Charge) of net asset value adjusted
to the nearest cent).............................. $ 10.18
============
Class B Shares
Net Assets......................................... $ 586,261
Shares outstanding................................. 59,564
Offering price per share*.......................... $ 9.84
============
Institutional Shares
Net Assets......................................... $346,507,890
Shares outstanding................................. 35,144,941
Offering and redemption price per share............ $ 9.86
============
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income...................................... $ 9,523,944
Dividend income...................................... 535,376
Income from securities lending....................... 11,519
------------
Total Investment Income............................. 10,070,839
Expenses:
Investment advisory fees............................. $1,016,479
Administration fees.................................. 250,494
Distribution fees -- Class A Shares.................. 1,898
Distribution fees -- Class B Shares.................. 829
Shareholder servicing fees -- Class A Shares......... 1,132
Shareholder servicing fees -- Class B Shares......... 270
Shareholder servicing fees -- Institutional Shares... 249,196
Custodian fees....................................... 32,895
Accounting fees...................................... 14,268
Transfer agent fees.................................. 23,754
Directors' fees...................................... 3,427
Other fees........................................... 70,919
----------
Total expenses before voluntary fee
reductions/reimbursements.......................... 1,665,561
Expenses voluntarily reduced/reimbursed............. (146,650)
------------
Net expenses........................................ 1,518,911
------------
Net Investment Income................................ 8,551,928
------------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................ 53,506
Net change in unrealized appreciation (depreciation)
from investments.................................... (17,135,061)
------------
Net realized/unrealized gains (losses) from
investments......................................... (17,081,555)
------------
Change in net assets resulting from operations....... $ (8,529,627)
============
</TABLE>
See notes to financial statements
28
<PAGE>
ISG FUNDS
Government Income Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended
Ended June 30, December 31, February 28,
1999 1998(a) 1998
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income........ $ 8,551,928 $ 12,162,175 $ 14,791,115
Net realized gains (losses)
from investment
transactions................ 53,506 (151,172) 151,276
Net change in unrealized
appreciation (depreciation)
from investments............ (17,135,061) 8,210,092 9,924,175
------------ ------------ ------------
Change in net assets resulting
from operations.............. (8,529,627) 20,221,095 24,866,566
------------ ------------ ------------
Distributions to Class A
Shareholders:
From net investment income... (38,671) (11,516,524) (14,742,578)
Distributions to Class B
Shareholders:
From net investment income... (5,946)(c) -- --
Distributions to Institutional
Shareholders:
From net investment income... (8,364,526) (732,820)(b) --
------------ ------------ ------------
Change in net assets from
shareholder distributions.... (8,409,143) (12,249,344) (14,742,578)
------------ ------------ ------------
Change in net assets from
capital transactions......... 70,360,406 17,054,239 10,661,134
------------ ------------ ------------
Change in net assets.......... 53,421,636 25,025,990 20,785,122
Net Assets:
Beginning of period.......... 295,429,554 270,403,564 249,618,442
------------ ------------ ------------
End of period................ $348,851,190 $295,429,554 $270,403,564
============ ============ ============
</TABLE>
- ---------
(a) For the period from March 1, 1998 through December 31, 1998.
(b) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period from January 21, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
29
<PAGE>
ISG FUNDS
Government Income Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Ended June 30, December 31, February 28, February 28, February 28, February 28, February 28,
1999 1998(a) 1998 1997 1996 1995 1994
-------------- ------------ ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.38 $10.07 $ 9.69 $ 9.87 $ 9.47 $ 9.90 $ 10.25
------ ------ -------- -------- -------- -------- --------
Investment Activities
Net investment income
(loss)................ 0.25 0.45 0.55 0.57 0.58 0.54 0.55
Net realized and
unrealized gains
(losses) from
investments........... (0.51) 0.31 0.38 (0.18) 0.41 (0.44) (0.09)
------ ------ -------- -------- -------- -------- --------
Total from Investment
Activities............ (0.26) 0.76 0.93 0.39 0.99 0.10 0.46
------ ------ -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.25) (0.45) (0.55) (0.57) (0.59) (0.53) (0.55)
Net realized gains..... -- -- -- -- -- -- (0.25)
In excess of net
realized gains........ -- -- -- -- -- -- (0.01)
------ ------ -------- -------- -------- -------- --------
Total Distributions.... (0.25) (0.45) (0.55) (0.57) (0.59) (0.53) (0.81)
------ ------ -------- -------- -------- -------- --------
Net change in asset
value.................. (0.51) 0.31 0.38 (0.18) 0.40 (0.43) (0.35)
------ ------ -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 9.87 $10.38 $ 10.07 $ 9.69 $ 9.87 $ 9.47 $ 9.90
====== ====== ======== ======== ======== ======== ========
Total Return (excludes
sales charge).......... (2.53)%(b) 7.69%(b) 9.90% 4.07% 10.70% 1.20% 4.55%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $1,757 $1,486 $270,404 $249,618 $184,226 $168,313 $118,695
Ratio of expenses to
average net assets..... 0.91%(c) 0.91%(c) 0.80% 0.70% 0.72% 0.68% 0.70%
Ratio of net investment
income to average net
assets................. 5.12%(c) 5.28%(c) 5.62% 5.82% 5.96% 5.79% 5.34%
Ratio of expenses to
average net assets*.... 1.25%(c) (d) 0.86% 0.80% 0.82% 0.83% 0.89%
Portfolio turnover**.... 1% 20% 25% 7% 87% 31% 49%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 1, 1998 through December 31, 1998. In conjunction
with the reorganization of the ISG Funds, the Fund changed its fiscal year
end to December 31.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
30
<PAGE>
ISG FUNDS
Government Income Fund
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.36
------
Investment Activities
Net investment income (loss).................................... 0.20
Net realized and unrealized gains (losses) from investments..... (0.50)
------
Total from Investment Activities................................ (0.30)
------
Distributions
Net investment income........................................... (0.22)
------
Total Distributions............................................. (0.22)
------
Net change in asset value........................................ (0.52)
------
Net Asset Value, End of Period................................... $ 9.84
======
Total Return (excludes redemption charge)........................ (2.89)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 586
Ratio of expenses to average net assets.......................... 1.86%(c)
Ratio of net investment income to average net assets............. 4.25%(c)
Portfolio turnover*.............................................. 1%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 21, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period.......... $ 10.36 $ 10.42
-------- --------
Investment Activities
Net investment income (loss)................. 0.25 0.03
Net realized and unrealized gains (losses)
from investments............................ (0.50) (0.06)
-------- --------
Total from Investment Activities............. (0.25) (0.03)
-------- --------
Distributions
Net investment income........................ (0.25) (0.03)
-------- --------
Total Distributions.......................... (0.25) (0.03)
-------- --------
Net change in asset value..................... (0.50) (0.06)
-------- --------
Net Asset Value, End of Period................ $ 9.86 $ 10.36
======== ========
Total Return.................................. (2.44)%(b) (0.33)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............. $346,508 $293,944
Ratio of expenses to average net assets....... 0.91%(c) 0.88%(c)
Ratio of net investment income to average net
assets....................................... 5.12%(c) 5.07%(c)
Ratio of expenses to average net assets*...... 0.99%(c) (d)
Portfolio turnover**.......................... 1% 20%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
31
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
[PHOTO OF SHARON BROWN APPEARS HERE]
Sharon Brown
Portfolio Manager
ISG Municipal Income Fund
- -------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with dividend income exempt from federal
income tax, without assuming undue risk. The Fund invests primarily in
investment-grade municipal obligations issued by state and local entities
across the United States.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund produced a total return of
- -2.71% (Class A Shares at NAV).+ In comparison, the Fund's benchmark, the
Lipper Municipal General Bond Fund Index/1/, produced a total return of -
0.75%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield (Class A Shares at NAV) was 3.89%. For
investors in the 36% federal income tax bracket, that is equivalent to a
taxable yield of 6.08%. The yield percentage is annualized.
We achieved our objectives while maintaining an average credit quality of AA+
(as rated by Standard & Poor's). As of June 30, 1999, the Fund's average
maturity was 9.80 years.
Q. What factors affected your performance?
A. There was a lot of volatility and instability in the bond market as a
whole. The prospect of the Federal Reserve Board tightening credit hung over
the market throughout the period and weighed on bond prices; the Fed
eventually did raise rates at the end of June. Fortunately for us, the
municipal market fared somewhat better than the taxable bond market. In munis,
we saw more stability and less volatility and anxiety. Generally, munis
outperformed taxable bonds on a relative basis. This is not unusual, as munis
usually outperform taxable bonds when the fixed-income market is in decline.
Q. What are a few of your favorite bonds in the Fund?
A. We like the State of Illinois 6.10%, due 2015 (9.7% of the Fund's net
assets). This particular issue has a decent coupon that does not bump up
against premium resistance and is not callable; the issuer cannot call the
bond back before maturity. So along with providing a steady level of income,
the issue should rise in value if interest rates were to decline. Another
favorite is an Arkansas State zero coupon bond, due 2011 (1.2%). (The interest
on a "zero" is not paid periodically, but at maturity.) This is a total-return
play on the reversal of yields. We believe that, longer term yields will come
back down. When they do, we should be able to sell this particular bond at a
profit.*
Q. What is your outlook for the rest of 1999?
A. A lot of uncertainty remains in the bond market. We continue to get mixed
signals on which direction the economy is heading. Inflation appears to be
under control, but until we have hard evidence that the economy is slowing
down, bonds are going to remain volatile. Adding pressure is the prospect of
the Fed hiking rates again this year. While municipal bonds do not move in
lockstep with the taxable market, they do follow the general trend in rates
and bond prices. Over the next six months, we anticipate a bias toward the
economy slowing down, which could help bring rates down a bit; this would be
positive for all bonds, including munis.
As always, we will attempt to maintain broad diversification across regional
and state lines to provide the Fund with additional stability and relative
safety.
- ---------
+ Including the 3.00% sales load, the Fund's return was -5.64% for the period.
/1/ The Lipper Municipal General Bond Fund Index is an index of managed funds
that invests at least 65% of its assets in municipal debt issues in the top
four credit ratings.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
33
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Municipal Income Fund June 30, 1999 (Unaudited)
Municipal Bonds (97.1%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Alabama (1.7%)
Jefferson County, Sewer Revenue Bonds, 6.00%, 9/1/13,
Callable 9/1/02 @ 102................................. $1,000,000 $ 1,066,250
-----------
Arkansas (1.2%)
Arkansas State Capital Appreciation, College Savings,
Series C, 0.00%, 6/1/11, GO........................... 1,400,000 770,000
-----------
California (6.9%)
California State, 7.00%, 10/1/09, GO................... 1,285,000 1,505,056
Los Angeles County, Metro Transit Authority Sales Tax
Revenue, Series A, 6.00%, 7/1/09...................... 2,655,000 2,890,632
-----------
4,395,688
-----------
Florida (5.3%)
Dade County, Series DD, 7.70%, 10/1/08, GO, AMBAC...... 1,760,000 2,123,000
Dade County, Series DD, 7.70%, 10/1/12, GO, AMBAC...... 1,000,000 1,260,000
-----------
3,383,000
-----------
Georgia (11.1%)
Georgia State, Series B, 7.20%, 3/1/06, GO............. 2,500,000 2,865,624
Georgia State, Series A, 6.25%, 4/1/08, GO............. 2,350,000 2,599,688
Savannah Hospital Authority Revenue, St. Josephs
Hospital Project, 6.20%, 7/1/23, Prerefunded 7/1/03 @
102................................................... 1,500,000 1,620,000
-----------
7,085,312
-----------
Hawaii (1.6%)
Honolulu City & County Unrefunded Balance, Series B,
5.50%, 10/1/11, GO.................................... 730,000 754,637
Honolulu, City & County Prerefunded, Series B, 5.50%,
10/1/11, GO........................................... 270,000 282,488
-----------
1,037,125
-----------
Illinois (9.7%)
Chicago, Metropolitan Water Reclamation District,
Greater Chicago Capital Improvements, 6.90%, 1/1/07,
GO.................................................... 1,830,000 2,072,475
Illinois Educational Facilities Authority Revenue,
Loyola University, Series A, 6.10%, 7/1/15,
Prerefunded 7/1/03 @ 102.............................. 2,830,000 3,042,250
Will County Forest Preservation District, Series B,
0.00%, 12/1/18, GO, FGIC.............................. 3,000,000 1,023,750
-----------
6,138,475
-----------
Kentucky (3.2%)
Carrollton & Henderson, Public Energy Authority Gas
Revenue, Series A, 5.00%, 1/1/09, FSA................. 2,000,000 2,010,000
-----------
</TABLE>
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Michigan (4.1%)
Battle Creek Downtown Development Authority, 7.30%,
5/1/10, Prerefunded 5/1/04 @ 102....................... $1,000,000 $ 1,133,750
Rochester Community School District, 5.00%, 5/1/19, GO,
MBIA, Q-SBLF........................................... 1,500,000 1,443,750
-----------
2,577,500
-----------
Mississippi (1.6%)
Hinds County Refunding Bonds, 5.50%, 3/1/08, GO, MBIA... 1,000,000 1,042,500
-----------
New Jersey (2.6%)
New Jersey Health Care Facilities Funding Authority
Revenue, Cathedral Health Services, 5.50%, 2/1/11,
MBIA................................................... 1,605,000 1,663,181
-----------
New York (9.8%)
Nassau County Refunding, Series A, 6.00%, 7/1/10, GO,
FGIC................................................... 2,000,000 2,162,500
New York State Dorm Authority Revenue, New York
University, Series A, 5.75%, 7/1/13, MBIA.............. 1,225,000 1,306,156
New York State Environmental Facilities Corp. PCR,
Series E, 6.00%, 6/15/12............................... 2,500,000 2,731,250
-----------
6,199,906
-----------
Oklahoma (2.6%)
Moore Oklahoma Refunding, 5.75%, 4/1/12, GO, MBIA....... 1,530,000 1,635,188
-----------
Pennsylvania (8.1%)
Bethlehem Area School District, 6.00%, 3/1/16,
Prerefunded 3/1/06 @ 100, State Aid Withholding, GO,
MBIA................................................... 1,500,000 1,610,625
Pennsylvania Convention Center Authority Revenue, Series
A, 6.70%, 9/1/16, FGIC................................. 3,075,000 3,559,313
-----------
5,169,938
-----------
Rhode Island (1.7%)
Rhode Island Port Authority & Economic Development Corp.
Revenue, Shepard Building Project, Series B, 6.75%,
6/1/25, Prerefunded 6/1/04 @ 102, AMBAC................ 1,000,000 1,111,250
-----------
Tennessee (9.6%)
Metropolitan Government, Nashville & Davidson County,
Electric Revenue, Series B, 5.50%, 5/15/08............. 2,500,000 2,618,750
Metropolitan Government, Nashville & Davidson County,
Industrial Development Board Revenue, Multi Family
Housing, Arbor, Series B, 7.50%, 11/15/10, Prerefunded
5/15/10 @ 100.......................................... 1,000,000 1,207,500
</TABLE>
Continued
34
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Municipal Income Fund June 30, 1999 (Unaudited)
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Tennessee, continued
Metropolitan Government, Nashville & Davidson County,
Industrial Development Board Revenue, Multi Family
Housing, Arbor, Series C, 7.50%, 11/15/12, Prerefunded
5/15/12 @ 100.......................................... $1,000,000 $ 1,221,250
Montgomery County, 5.25%, 5/1/08, GO, FSA............... 1,000,000 1,028,750
-----------
6,076,250
-----------
Texas (9.4%)
Austin Utility Systems Revenue Combined, Series A,
9.50%, 5/15/15, Prerefunded 5/15/00 @ 100.............. 1,000,000 1,049,780
Harris County, Housing Financial Corp., Multi Family
Housing Revenue, Breton Mill Partners, 7.00%, 3/1/07,
Prerefunded 2/15/07 @ 100.............................. 1,000,000 1,138,750
Lubbock Health Facilities Development Corp., Hospital
Revenue, Methodist Hospital, Series B, 6.75%, 12/1/10,
AMBAC.................................................. 1,000,000 1,151,250
North Central Texas Health Facilities Development Corp.,
Baylor Health Care System, 6.25%, 5/15/10.............. 1,600,000 1,736,000
Richardson Independent School District, Series C, 4.75%,
2/15/22, Callable 2/15/08 @ 100,
PSF-GTD................................................ 1,000,000 901,250
-----------
5,977,030
-----------
Washington (2.7%)
Seattle, Series A, 5.50%, 3/1/09, GO.................... 1,675,000 1,748,281
-----------
Wisconsin (4.2%)
Wisconsin State Health & Educational Facilities
Authority Revenue, Wheaton Franciscan Services, Inc.,
6.10%, 8/15/09, MBIA................................... 2,420,000 2,640,825
-----------
TOTAL MUNICIPAL BONDS
(Cost $63,676,295)..................................... 61,727,699
-----------
</TABLE>
Investment Companies (1.6%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
AIM Tax-Free Money Market Fund........................... 973,518 973,518
Dreyfus Tax-Free Money Market Fund....................... 67,389 67,389
-----------
TOTAL INVESTMENT COMPANIES
(Cost $1,040,907)....................................... 1,040,907
-----------
TOTAL INVESTMENTS
(Cost $64,717,202) (a) -- (98.7%)....................... 62,768,606
Other assets in excess of
liabilities -- (1.3%)................................... 814,347
-----------
TOTAL NET ASSETS -- (100.0%)............................. $63,582,953
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $ 169,868
Unrealized depreciation........................................ (2,118,464)
------------
Net unrealized depreciation.................................... $(1,948,596)
============
</TABLE>
AMBAC -- Insured by AMBAC Indemnity Corp.
FGIC -- Insured by Financial Guaranty Insurance Corp.
FSA -- Insured by Financial Security Assurance Inc.
GO -- General Obligation
MBIA -- Insured by Municipal Bond Insurance Assoc.
PCR -- Pollution Control Revenue
PSF-GTD--Permanent School Fund Guarantee
Q-SBLF -- Qualified-School Bond Loan Fund
See notes to financial statements
35
<PAGE>
ISG FUNDS
Municipal Income Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $64,717,202)................. $62,768,606
Interest and dividends receivable........................ 1,057,880
Prepaid expenses and other assets........................ 19,549
-----------
Total Assets............................................ 63,846,035
Liabilities:
Distributions payable.................................... $224,862
Accrued expenses and other payables:
Investment advisory fees................................ 15,768
Administration fees..................................... 784
Distribution fees....................................... 8,130
Custodian fees.......................................... 1,951
Other................................................... 11,587
--------
Total Liabilities....................................... 263,082
-----------
Net Assets:
Capital.................................................. 63,426,325
Undistributed (distributions in excess of) net investment
income.................................................. (52,593)
Undistributed (distributions in excess of) net realized
gains................................................... 2,157,817
Net unrealized appreciation (depreciation) from
investments............................................. (1,948,596)
-----------
Net Assets............................................... $63,582,953
===========
Class A Shares
Net Assets.............................................. $ 3,230,151
Shares outstanding...................................... 309,098
Redemption price per share.............................. $ 10.45
===========
Class A Shares -- Maximum Sales Charge................... 3.00%
-----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the
nearest cent).......................................... $ 10.77
===========
Class B Shares
Net Assets.............................................. $ 346,303
Shares outstanding...................................... 33,238
Offering price per share*............................... $ 10.42
===========
Institutional Shares
Net Assets.............................................. $60,006,499
Shares outstanding...................................... 5,742,449
Offering and redemption price per share................. $ 10.45
===========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 1,363,192
Dividend income......................................... 19,992
-----------
Total Investment Income................................ 1,383,184
Expenses:
Investment advisory fees................................ $182,426
Administration fees..................................... 45,607
Distribution fees -- Class A Shares..................... 3,314
Distribution fees -- Class B Shares..................... 771
Shareholder servicing fees -- Class A Shares............ 1,988
Shareholder servicing fees -- Class B Shares............ 257
Shareholder servicing fees -- Institutional Shares...... 43,465
Custodian fees.......................................... 10,332
Accounting fees......................................... 14,982
Transfer agent fees..................................... 20,088
Directors' fees......................................... 596
Other fees.............................................. 30,465
--------
Total expenses before voluntary fee reductions......... 354,291
Expenses voluntarily reduced........................... (94,527)
-----------
Net expenses........................................... 259,764
-----------
Net Investment Income................................... 1,123,420
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... 2,157,653
Net change in unrealized appreciation (depreciation)
from investments....................................... (5,065,129)
-----------
Net realized/unrealized gains (losses) from
investments............................................ (2,907,476)
-----------
Change in net assets resulting from operations.......... $(1,784,056)
===========
</TABLE>
See notes to financial statements
36
<PAGE>
ISG FUNDS
Municipal Income Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended
Ended June 30, December 31, February 28,
1999 1998 (a) 1998
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income........... $ 1,123,420 $ 1,877,207 $ 2,124,116
Net realized gains (losses) from
investment transactions........ 2,157,653 15,192 72,332
Net change in unrealized
appreciation (depreciation)
from investments............... (5,065,129) 517,234 1,412,573
----------- ----------- -----------
Change in net assets resulting
from operations................. (1,784,056) 2,409,633 3,609,021
----------- ----------- -----------
Distributions to Class A
Shareholders:
From net investment income...... (56,089) (1,816,513) (2,122,421)
From net realized gains on
investment transactions........ -- (87,360) (104,785)
Distributions to Class B
Shareholders:
From net investment income...... (3,943)(c) -- --
Distributions to Institutional
Shareholders:
From net investment income...... (1,176,985) (112,697)(b) --
----------- ----------- -----------
Change in net assets from
shareholder distributions....... (1,237,017) (2,016,570) (2,227,206)
----------- ----------- -----------
Change in net assets from capital
transactions.................... 10,045,333 7,587,023 268,866
----------- ----------- -----------
Change in net assets............. 7,024,260 7,980,086 1,650,681
Net Assets:
Beginning of period............. 56,558,693 48,578,607 46,927,926
----------- ----------- -----------
End of period................... $63,582,953 $56,558,693 $48,578,607
=========== =========== ===========
</TABLE>
- ---------
(a) For the period from March 1, 1998 through December 31, 1998.
(b) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period from February 3, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
37
<PAGE>
ISG FUNDS
Municipal Income Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Ended June 30, December 31, February 28, February 28, February 28, February 28, February 28,
1999 1998 (a) 1998 1997 1996 1995 1994
-------------- ------------ ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.96 $10.89 $ 10.59 $ 10.66 $ 10.15 $ 10.57 $ 10.51
------ ------ ------- ------- ------- ------- -------
Investment Activities
Net investment income
(loss)................ 0.20 0.34 0.47 0.49 0.49 0.49 0.48
Net realized and
unrealized gains
(losses) from
investments........... (0.49) 0.14 0.32 (0.07) 0.50 (0.43) 0.08
------ ------ ------- ------- ------- ------- -------
Total from Investment
Activities............ (0.29) 0.48 0.79 0.42 0.99 0.06 0.56
------ ------ ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.22) (0.39) (0.47) (0.48) (0.48) (0.48) (0.49)
Net realized gains..... -- (0.02) (0.02) (0.01) -- -- (0.01)
------ ------ ------- ------- ------- ------- -------
Total Distributions.... (0.22) (0.41) (0.49) (0.49) (0.48) (0.48) (0.50)
------ ------ ------- ------- ------- ------- -------
Net change in asset
value.................. (0.51) 0.07 0.30 (0.07) 0.51 (0.42) 0.06
------ ------ ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $10.45 $10.96 $ 10.89 $ 10.59 $ 10.66 $ 10.15 $ 10.57
====== ====== ======= ======= ======= ======= =======
Total Return (excludes
sales charge).......... (2.71)%(b) 4.41%(b) 7.70% 4.12% 9.96% 0.81% 5.34%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $3,230 $1,980 $48,579 $46,928 $44,578 $41,542 $34,435
Ratio of expenses to
average net assets..... 0.85%(c) 0.91%(c) 0.76% 0.70% 0.70% 0.75% 0.74%
Ratio of net investment
income to average net
assets................. 3.67%(c) 4.08%(c) 4.40% 4.69% 4.65% 4.93% 4.60%
Ratio of expenses to
average net assets*.... 1.40%(c) 1.21%(c) 1.07% 1.16% 1.17% 1.16% 1.41%
Portfolio turnover**.... 152% 3% 6% 9% 20% 9% 9%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 1, 1998 through December 31, 1998. In conjunction
with the reorganization of the ISG Funds, the Fund changed its fiscal year
end to December 31.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
38
<PAGE>
ISG FUNDS
Municipal Income Fund
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $11.04
------
Investment Activities
Net investment income (loss).................................... 0.15
Net realized and unrealized gains (losses) from investments..... (0.58)
------
Total from Investment Activities................................ (0.43)
------
Distributions
Net investment income........................................... (0.19)
------
Total Distributions............................................. (0.19)
------
Net change in asset value........................................ (0.62)
------
Net Asset Value, End of Period................................... $10.42
======
Total Return (excludes redemption charge)........................ (4.28)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 346
Ratio of expenses to average net assets.......................... 1.70%(c)
Ratio of net investment income to average net assets............. 2.74%(c)
Ratio of expenses to average net assets*......................... 2.00%(c)
Portfolio turnover**............................................. 152%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 3, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............ $ 10.96 $ 11.01
------- -------
Investment Activities
Net investment income (loss)................... 0.20 0.02
Net realized and unrealized gains (losses) from
investments................................... (0.49) (0.05)
------- -------
Total from Investment Activities............... (0.29) (0.03)
------- -------
Distributions
Net investment income.......................... (0.22) (0.02)
------- -------
Total Distributions............................ (0.22) (0.02)
------- -------
Net change in asset value....................... (0.51) (0.05)
------- -------
Net Asset Value, End of Period.................. $ 10.45 $ 10.96
======= =======
Total Return.................................... (2.72)%(b) (0.25)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $60,006 $54,578
Ratio of expenses to average net assets......... 0.85%(c) 0.90%(c)
Ratio of net investment income to average net
assets......................................... 3.70%(c) 4.12%(c)
Ratio of expenses to average net assets*........ 1.15%(c) 1.24%(c)
Portfolio turnover**............................ 152% 3%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
39
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
40
<PAGE>
[PHOTO OF SHARON BROWN APPEARS HERE]
Sharon Brown
Portfolio Manager
ISG Limited Term Tennessee Tax-Exempt Fund**
- --------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with current income exempt from federal
and Tennessee state income taxes without assuming undue risk. The Fund invests
primarily in investment-grade Tennessee Municipal Obligations that generally
have a duration of under five years, producing an effective average portfolio
maturity ranging between three and five years.
- --------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund produced a total return of
- -0.91% (Class A Shares at NAV).+ In comparison, the Fund's benchmark, the
Lehman Brothers Municipal 1-5-Year Index,/1/ produced a total return of -0.90%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield (Class A Shares at NAV) was 2.96%. For
investors in the 36% federal income tax bracket, that is equivalent to a
taxable yield of 4.63%. Shareholders who are residents of Tennessee could
realize a higher taxable-equivalent yield. The yield percentage is annualized.
We achieved our objectives while maintaining an average credit quality of AA
(as rated by Standard & Poor's). As of June 30, 1999, the Fund's average
maturity was 4.94 years.*
Q. What factors affected your performance?
A. There was a lot of volatility and instability in the bond market as a whole.
The prospect of the Federal Reserve Board tightening credit hung over the
market throughout the period and weighed on bond prices; the Fed eventually did
raise rates at the end of June. Fortunately for us, the municipal market fared
somewhat better than the taxable bond market. In munis, we saw more stability,
and less volatility and anxiety. Generally, munis outperformed taxable bonds on
a relative basis. This isn't unusual, as munis usually will outperform taxable
bonds when the fixed-income market is in decline.
The Tennessee economy remained steady and strong. The state's municipal market
offered a bit less supply than the national market. However, with so much
volatility in the marketplace, we decided not to take any dramatic steps with
this Fund during the period, and supply was adequate for our needs. To maintain
high, tax-exempt income for our shareholders, we continued to emphasize
noncallable bonds or longer-term callable bonds with higher coupons.
Q. What are a few of your favorite bonds in the Fund?
A. Among our favorites is the Tennessee State 6.50%, due 2004 (3.9% of the
Fund's net assets). It's a short issue with a high coupon, and it is
noncallable (the issuer cannot call back the bond before its maturity date). A
bit longer out is the Lenoir City Electric, due 2011 (4.8%). This bond is
callable, but with the call date not until 2008, the issue offers good call
protection.*
Q. What is your outlook for the remainder of 1999?
A. A lot of uncertainty remains in the bond market. We continue to get mixed
signals on which direction the economy is heading. Inflation appears to be in
control, but until we have hard evidence that the economy is slowing down,
bonds are going to remain volatile. Adding pressure is the prospect of the Fed
hiking rates again this year. While municipal bonds do not move in lockstep
with the taxable market, they do follow the general trend in rates and bond
prices--as do Tennessee bonds. Over the next six months, we anticipate a bias
toward the economy slowing down, which could help bring rates down a bit; this
would be positive for bonds of all types, including Tennessee munis. As always,
we will attempt to continue to keep the portfolio diversified throughout the
state's various municipalities to provide the Fund with stability and relative
safety.
- ---------
** Regional funds may be subject to additional risk, since the issuers they
invest in are located in one geographical location. The fund's income may be
subject to certain state and local taxes and, depending on your tax status,
the federal alternative minimum tax.
+ Including the 3.00% sales load, the Fund's return was-3.86% for the period.
/1/ The Lehman Brothers Municipal 1-5-Year Index is an unmanaged index that is
generally representative of municipal bonds with maturities between 1 and 5
years. The index does not reflect expenses associated with a mutual fund,
such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
41
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Limited Term Tennessee Tax-Exempt Fund June 30, 1999 (Unaudited)
Municipal Bonds (84.6%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Arizona (5.2%)
Pima County, Unified School District, Series C, 6.60%,
7/1/03,............................................... $1,000,000 $ 1,056,250
-----------
Prerefunded 7/1/01 @ 101, GO, MBIA
Ohio (5.0%)
Youngstown City School District, Revenue Anticipation
Notes, 5.00%, 6/15/00, AMBAC.......................... 1,000,000 1,014,220
-----------
South Carolina (3.8%)
York County School District No. 003, 5.00%, 3/1/10,
Callable 3/1/06 @ 101, GO, SCSDE...................... 750,000 756,563
-----------
Tennessee (70.6%)
Chattanooga, Health Education & Housing, Facilities
Board Revenue, Series A, 5.25%, 12/1/02............... 900,000 924,749
Hamilton County, 6.25%, 2/1/20, Prerefunded 2/1/05 @
102, GO............................................... 490,000 535,938
Johnson City, 5.25%, 6/1/09, GO, FGIC.................. 850,000 873,375
Knox County Refunding, 6.50%, 4/1/04, Callable 4/1/03 @
102, GO............................................... 750,000 814,688
Knox County, Health Education & Housing, Facilities
Board Hospital Revenue Refunding, 7.25%, 1/1/08, MBIA
...................................................... 750,000 870,938
Lenoir City Electrical System Revenue, 4.80%, 6/1/11,
Callable 6/1/08 @ 100, AMBAC.......................... 1,000,000 968,749
Memphis, 6.00%, 7/1/03, GO............................. 500,000 528,750
Memphis, 6.00%, 11/01/03, GO........................... 500,000 533,125
Memphis, 6.00%, 7/1/04, GO............................. 1,000,000 1,066,249
Metropolitan Government, Nashville & Davidson County,
Health & Education Facilities Board Revenue, The
Vanderbilt University, Series A, 6.00%, 7/1/07........ 625,000 676,563
Montgomery County, Tennessee Health Reference &
Improvement, Clarksville Regional Health System,
5.10%, 1/1/11, Callable 1/1/08 @ 101 ................. 750,000 719,063
Rutherford County Capital Outlay Notes, 6.00%, 4/1/04,
GO.................................................... 1,370,000 1,464,187
Shelby County Refunding Bond, Series B, 5.50%, 8/1/10,
GO.................................................... 750,000 782,813
</TABLE>
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
Tennessee, continued
Shelby County, Series B, 6.00%, 12/1/05, GO............ $ 750,000 $ 811,875
Tennergy Corp., Tennessee Gas Revenue, 5.00%, 6/1/09,
MBIA.................................................. 900,000 910,125
Tennessee State, Series B, 6.50%, 6/1/03, Prerefunded
6/1/01 @ 102, GO...................................... 750,000 793,125
Wilson County, 5.00%, 4/1/03, GO....................... 900,000 919,125
-----------
14,193,437
-----------
TOTAL MUNICIPAL BONDS (Cost $17,287,739)............... 17,020,470
-----------
U.S. Treasury Bills (7.4%)
4.05%*, 7/15/99........................................ 1,500,000 1,497,469
-----------
TOTAL U.S. TREASURY BILLS (Cost $1,497,638).................... 1,497,469
-----------
Investment Companies (6.9%)
AIM Tax-Free Money Market Fund......................... 880,091 880,091
Dreyfus Tax-Free Money Market Fund..................... 508,549 508,549
-----------
TOTAL INVESTMENT COMPANIES (Cost $1,388,640)........... 1,388,640
-----------
TOTAL INVESTMENTS (Cost $20,174,017)(a) -- (98.9%)..... 19,906,579
Other assets in excess of
liabilities -- (1.1%)................................. 215,508
-----------
TOTAL NET ASSETS -- (100.0%).......................... $20,122,087
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $ 33,994
Unrealized depreciation......................................... (301,432)
---------
Net unrealized depreciation..................................... $(267,438)
=========
</TABLE>
* Yield effective at purchase.
AMBAC -- Insured by AMBAC Indemnity Corp.
FGIC -- Insured by Financial Guaranty Insurance Corp.
GO -- General Obligation
MBIA -- Insured by Municipal Bond Insurance Assoc.
SCSDE -- South Carolina School District Enhancement
See notes to financial statements
42
<PAGE>
ISG FUNDS
Limited Term Tennessee Tax-Exempt Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $20,174,017)............... $19,906,579
Interest and dividends receivable...................... 269,026
Deferred organization costs............................ 1,151
Prepaid expenses and other assets...................... 20,897
-----------
Total Assets.......................................... 20,197,653
Liabilities:
Distributions payable.................................. $ 50,694
Accrued expenses and other payables:
Investment advisory fees.............................. 6,489
Administration fees................................... 66
Distribution fees..................................... 3,106
Custodian fees........................................ 2,418
Other................................................. 12,793
----------
Total Liabilities..................................... 75,566
-----------
Net Assets:
Capital................................................ 20,355,858
Undistributed (distributions in excess of) net realized
gains................................................. 33,667
Net unrealized appreciation (depreciation) from
investments........................................... (267,438)
-----------
Net Assets............................................. $20,122,087
===========
Class A Shares
Net Assets............................................ $19,333,972
Shares outstanding.................................... 1,959,153
Redemption price per share............................ $ 9.87
===========
Class A Shares -- Maximum Sales Charge................. 3.00%
-----------
Maximum Offering Price Per Share (100%/(100% --
Maximum Sales Charge) of net asset value adjusted to
the nearest cent).................................... $ 10.18
===========
Class B Shares
Net Assets............................................ $ 788,115
Shares outstanding.................................... 79,871
Offering price per share*............................. $ 9.87
===========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 390,403
Dividend income.......................................... 17,459
---------
Total Investment Income................................. 407,862
Expenses:
Investment advisory fees................................. $ 50,302
Administration fees...................................... 15,091
Distribution fees -- Class A Shares...................... 24,112
Distribution fees -- Class B Shares...................... 3,117
Shareholder servicing fees -- Class A Shares............. 14,467
Shareholder servicing fees -- Class B Shares............. 1,039
Custodian fees........................................... 4,859
Accounting fees.......................................... 7,294
Transfer agent fees...................................... 13,700
Directors' fees.......................................... 170
Registration and filing fees............................. 13,839
Other fees............................................... 8,697
---------
Total expenses before voluntary fee reductions.......... 156,687
Expenses voluntarily reduced............................ (46,245)
---------
Net expenses............................................ 110,442
---------
Net Investment Income.................................... 297,420
---------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions............................................ 31,209
Net change in unrealized appreciation (depreciation) from
investments............................................. (514,452)
---------
Net realized/unrealized gains (losses) from investments.. (483,243)
---------
Change in net assets resulting from operations........... $(185,823)
=========
</TABLE>
See notes to financial statements
43
<PAGE>
ISG FUNDS
Limited Term Tennessee Tax-Exempt Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment income............................ $ 297,420 $ 697,091
Net realized gains (losses) from investment
transactions.................................... 31,209 155,050
Net change in unrealized appreciation
(depreciation) from investments................. (514,452) (54,273)
----------- -----------
Change in net assets resulting from operations.... (185,823) 797,868
----------- -----------
Distributions to Class A Shareholders:
From net investment income....................... (288,524) (688,069)
From net realized gains on investment
transactions.................................... -- (152,027)
Distributions to Class B Shareholders:
From net investment income....................... (8,896) (9,022)(a)
From net realized gains on investment
transactions.................................... -- (5,771)(a)
----------- -----------
Change in net assets from shareholder
distributions.................................... (297,420) (854,889)
----------- -----------
Change in net assets from capital transactions.... 434,015 (2,664,724)
----------- -----------
Change in net assets.............................. (49,228) (2,721,745)
Net Assets:
Beginning of period.............................. 20,171,315 22,893,060
----------- -----------
End of period.................................... $20,122,087 $20,171,315
=========== ===========
</TABLE>
- ---------
(a) For the period from February 3, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
44
<PAGE>
ISG FUNDS
Limited Term Tennessee Tax-Exempt Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.11 $ 10.13 $ 10.00
------- ------- -------
Investment Activities
Net investment income (loss)....... 0.15 0.32 0.29
Net realized and unrealized gains
(losses) from investments......... (0.24) 0.06 0.13
------- ------- -------
Total from Investment Activities... (0.09) 0.38 0.42
------- ------- -------
Distributions
Net investment income.............. (0.15) (0.32) (0.29)
Net realized gains................. -- (0.08) --
------- ------- -------
Total Distributions................ (0.15) (0.40) (0.29)
------- ------- -------
Net change in asset value........... (0.24) (0.02) 0.13
------- ------- -------
Net Asset Value, End of Period...... $ 9.87 $ 10.11 $ 10.13
======= ======= =======
Total Return (excludes sales
charge)............................ (0.91)%(b) 3.76% 4.26%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)... $19,334 $19,439 $22,893
Ratio of expenses to average net
assets............................. 1.06%(c) 1.05% 0.98%(c)
Ratio of net investment income to
average net assets................. 2.99%(c) 3.11% 3.48%(c)
Ratio of expenses to average net
assets*............................ 1.53%(c) 1.52% 1.52%(c)
Portfolio turnover**................ 58% 189% 179%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 28, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $10.10 $10.18
------ ------
Investment Activities
Net investment income (loss).................... 0.11 0.20
Net realized and unrealized gains (losses) from
investments.................................... (0.23) --
------ ------
Total from Investment Activities................ (0.12) 0.20
------ ------
Distributions
Net investment income........................... (0.11) (0.20)
Net realized gains.............................. -- (0.08)
------ ------
Total Distributions............................. (0.11) (0.28)
------ ------
Net change in asset value........................ (0.23) (0.08)
------ ------
Net Asset Value, End of Period................... $ 9.87 $10.10
====== ======
Total Return (excludes redemption charge)........ (1.23)%(b) 1.94%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $ 788 $ 732
Ratio of expenses to average net assets.......... 1.91%(c) 2.05%(c)
Ratio of net investment income to average net
assets.......................................... 2.14%(c) 2.02%(c)
Ratio of expenses to average net assets*......... 2.13%(c) 2.27%(c)
Portfolio turnover**............................. 58% 189%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 3, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
45
<PAGE>
[PHOTO OF SHARON BROWN APPEARS HERE]
Sharon Brown
Portfolio Manager
ISG Tennessee Tax-Exempt Fund**
- -------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with current income exempt from federal and
Tennessee state income taxes without assuming undue risk. The Fund invests
primarily in investment-grade Tennessee municipal obligations and is suitable
for Tennessee residents seeking monthly state income exempt from both federal
and Tennessee personal income taxes. The Fund affords greater diversification
and liquidity than most investors would achieve by purchasing municipal
securities directly.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund produced a total return
of -2.19% (Class A Shares at NAV).+ In comparison, the Fund's benchmark, the
Lipper States Intermediate Municipal Average,/1/ produced a total
return of -1.40%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield (Class A Shares at NAV) was 2.99%. For
investors in the 36% federal income tax bracket, that is equivalent to a
taxable yield of 4.67%. Shareholders who are residents of Tennessee could
realize a higher taxable-equivalent yield. The yield percentage is annualized.
We achieved our objectives while maintaining an average credit quality of AA+
(as rated by Standard & Poor's). As of June 30, 1999, the Fund's average
maturity was 8.63 years.
Q. What factors affected your performance?
A. There was a lot of volatility and instability in the bond market as a
whole. The prospect of the Federal Reserve Board tightening credit hung over
the market throughout the period and weighed on bond prices; the Fed
eventually did raise rates at the end of June. Fortunately for us, the
municipal market fared somewhat better than the taxable bond market. In munis,
we saw more stability and less volatility and anxiety.
Generally, munis outperformed taxable bonds on a relative basis. This is not
unusual, as munis usually outperform taxable bonds when the fixed-income
market is in decline.
The Tennessee economy remained steady and strong. The state's municipal market
offered a bit less supply than the national market. However, with so much
volatility in the marketplace, we decided not to take any dramatic steps with
this Fund during the period, and supply was adequate for our needs. To
maintain high, tax-exempt income for our shareholders, we continued to
emphasize noncallable bonds or longer-term callable bonds with higher coupons.
Q. What are a few of your favorite bonds in the Fund?
A. Among our favorites is the Rutherford County 6.25%, due 2005 (3.0% of the
Fund's net assets). It has a decent coupon and is noncallable (the issuer
cannot call back the bond before its maturity date). A bit longer on the yield
curve is the Wilson County 5.25%, due 2015 (1.7%). This is a discount bond
with a call date in 2008. This issue offers decent call protection, and if
interest rates were to fall, the bond would provide some price appreciation.*
Q. What is your outlook for the rest of 1999?
A. A lot of uncertainty remains in the bond market. We continue to get mixed
signals on which direction the economy is heading. Inflation appears to be in
control, but until we have hard evidence that the economy is slowing down,
bonds are going to remain volatile. Adding pressure is the prospect of the Fed
hiking rates again this year. While municipal bonds do not move in lockstep
with the taxable market, they do follow the general trend in rates and bond
prices--as do Tennessee bonds. Over the next six months, we anticipate a bias
toward the economy slowing down, which could help bring rates down a bit; this
would be positive for bonds of all types, including Tennessee munis. As
always, we will continue to keep the portfolio diversified throughout the
state's various municipalities, to provide the Fund with stability and
relative safety.
- ---------
** Regional funds may be subject to additional risk, since the issuers they
invest in are located in one geographical location. The Fund's income may
be subject to certain state and local taxes and, depending on your tax
status, the federal alternative minimum tax.
+ Including the 3.00% sales load, the Fund's return was -5.17% for the period.
/1/ The Lipper States Intermediate Municipal Average is comprised of managed
funds that invest in municipal debt issues that have dollar-weighted average
maturities of five to ten years and are exempt from taxation on a specified
city or state basis.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
46
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Tennessee Tax-Exempt Fund June 30, 1999 (Unaudited)
Municipal Bonds (97.7%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Alabama (2.3%)
Jefferson County Sewer Revenue Refunded Warrants, Series
A, 5.63%, 2/1/22, Callable 2/1/07 @ 101, FGIC.......... $1,995,000 $ 2,057,344
-----------
Arizona (2.3%)
Maricopa County School District No 008 Refunding, 7.50%,
7/1/07, GO, MBIA....................................... 1,750,000 2,065,000
-----------
Arkansas (1.3%)
North Little Rock Electric Power and Light Refunding,
Series A, 6.50%, 7/1/15, MBIA.......................... 1,000,000 1,151,250
-----------
Florida (2.5%)
Hillsborough County Industrial Development Authority,
PCR, Tampa Electric Project, 8.00%, 5/1/22, Callable
5/1/02 @ 103........................................... 2,000,000 2,250,000
-----------
Georgia (5.7%)
Fulton County School District Refunded, 6.38%, 5/1/11,
GO..................................................... 1,480,000 1,661,300
Georgia State School Improvements, Series C, 7.25%,
7/1/06, GO............................................. 2,000,000 2,310,000
Georgia State School Improvements, Series D, 6.50%,
8/1/05, GO............................................. 1,000,000 1,103,750
-----------
5,075,050
-----------
Hawaii (1.9%)
Hawaii State School Improvements, Series CL, 6.00%,
3/1/08, GO, MBIA-IBC................................... 1,550,000 1,668,188
-----------
Minnesota (1.2%)
Minnesota Public Facilities Authority, Water PCR, Series
B, 6.50%, 3/1/03....................................... 1,000,000 1,073,750
-----------
New York (1.8%)
New York State, Series A, 7.00%, 8/1/06, GO, AMBAC-
TCRS................................................... 1,405,000 1,589,406
-----------
Ohio (2.6%)
Moraine Solid Waste Disposal Revenue, Resource Recovery
Improvements, General Motors Corp. Project, 6.75%,
7/1/14................................................. 2,000,000 2,287,500
-----------
Tennessee (76.1%)
Bristol Health & Educational Facilities Revenue, Bristol
Memorial Hospital, Revenue Bond, 6.75%, 9/1/07, FGIC... 3,340,000 3,761,674
Chattanooga-Hamilton County Hospital Authority, Hospital
Revenue, 5.63%, 10/1/09, FSA........................... 1,000,000 1,053,750
Dickson County School Improvements, 6.25%, 4/1/08, GO,
FGIC................................................... 1,220,000 1,342,000
</TABLE>
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Tennessee, continued
Hamilton County Industrial Development Board Lease, Rent
Revenue, 5.75%, 9/1/05, FGIC........................... $1,000,000 $ 1,061,250
Humphreys County Industrial Development Board, Solid
Waste Disposal Revenue, E.I. Dupont de Nemours & Co.
Project, 6.70%, 5/1/24, Callable 5/1/04 @ 102.......... 1,455,000 1,598,681
Jackson Hospital Revenue Refunding and Improvement,
6.00%, 4/1/05, AMBAC................................... 1,150,000 1,227,625
Johnson City Health & Education Revenue Refunding and
Improvement, Medical Center Hospital, 5.13%, 7/1/10,
MBIA................................................... 1,000,000 1,003,750
Knox County Health, Education & Housing Facilities
Board, Hospital Facilities Revenue, Fort Sanders
Alliance, 6.25%, 1/1/13, MBIA.......................... 1,000,000 1,102,500
Knox County Refunding, 6.50%, 4/1/04, Callable 4/1/03 @
102, GO................................................ 1,965,000 2,134,481
Lawrenceburg Electric, Revenue Bond, 6.63%, 7/1/18,
MBIA................................................... 1,250,000 1,439,063
Memphis, 6.25%, 7/1/04, GO.............................. 1,500,000 1,616,250
Memphis, 6.00%, 11/1/06, GO............................. 1,000,000 1,086,250
Memphis Refunding General Improvement, Series B, 5.25%,
10/1/10, GO............................................ 1,000,000 1,022,500
Memphis Refunding General Improvement, Series B, 5.25%,
10/1/11, GO............................................ 1,045,000 1,063,288
Memphis-Shelby County Airport Authority, Revenue Bonds,
Series A, 6.25%, 2/15/09, MBIA......................... 1,790,000 1,951,100
Metropolitan Government, Nashville & Davidson County,
5.60%, 5/15/07, Callable 5/15/06 @ 101, GO............. 1,045,000 1,105,088
Metropolitan Government, Nashville & Davidson County
Energy Project, Series B, Revenue Bond, 6.00%, 7/1/10,
AMBAC.................................................. 1,335,000 1,448,475
Metropolitan Government, Nashville & Davidson County
Health & Educational Facilities Board, Refunding &
Improvements, Meharry Medical College, 6.00%, 12/1/09,
AMBAC.................................................. 1,000,000 1,085,000
Metropolitan Government, Nashville & Davidson County
Health & Educational Facilities Board, Refunding &
Improvements, Meharry Medical College, 6.00%, 12/1/13,
AMBAC.................................................. 2,030,000 2,197,475
</TABLE>
Continued
47
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Tennessee Tax-Exempt Fund June 30, 1999 (Unaudited)
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Tennessee, continued
Metropolitan Government, Nashville & Davidson County
Refunding, 6.25%, 12/1/01, GO......................... $1,000,000 $ 1,051,250
Metropolitan Government, Nashville & Davidson County
Water & Sewer Revenue, 6.50%, 4/1/03, Callable 4/1/99
@ 102................................................. 1,000,000 1,071,250
Metropolitan Government, Nashville & Davidson County,
Industrial Development Board Revenue, Multi Family
Housing, Arbor, Series B, 7.50%, 11/15/10, Prerefunded
5/15/10 @ 100......................................... 5,000,000 6,037,499
Metropolitan Government, Nashville & Davidson County,
Vanderbilt University, Series A, 5.75%, 1/1/07........ 1,035,000 1,099,688
Monroe County High School Refunding, 5.25%, 5/1/10, GO,
FSA................................................... 970,000 995,463
Rutherford County, Capital Outlay, Series A, 6.25%,
5/1/04, GO............................................ 2,000,000 2,160,000
Rutherford County, Capital Outlay, Series A, 6.25%,
5/1/05, GO............................................ 2,500,000 2,721,875
Shelby County Health, Education & Housing Facilities
Board, Hospital Revenue, Methodist Health Systems,
Inc., 6.25%, 8/1/07, MBIA............................. 3,500,000 3,823,749
Shelby County, Series A, 6.75%, 4/1/05, GO............. 1,000,000 1,108,750
Shelby County, Series A, 5.63%, 6/1/05, GO............. 1,000,000 1,057,500
Shelby County, Series B, 6.00%, 12/1/05, GO............ 1,250,000 1,353,125
Tennergy Corp., Tennessee Gas Revenue, 5.00%, 6/1/09,
MBIA.................................................. 1,000,000 1,011,250
Tennessee Energy Acquisition Corp. Gas Revenue, Series
B, 5.00%, 9/1/07, AMBAC............................... 2,000,000 2,020,000
Tennessee State, Refunded, Series B, 6.00%, 5/1/05,
GO.................................................... 3,000,000 3,232,500
Tennessee State, Refunded, Series B, 6.00%, 5/1/06,
GO.................................................... 1,000,000 1,082,500
Williamson County, 5.50%, 9/1/09, GO................... 2,180,000 2,289,000
Williamson County, 5.25%, 9/1/11, GO................... 2,430,000 2,484,675
</TABLE>
Municipal Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Tennessee, continued
Williamson County Public Improvement, 6.25%, 4/1/06,
GO.................................................. $1,000,000 $ 1,092,500
Williamson County, Rural School, 5.50%, 9/1/09, GO... 1,000,000 1,050,000
Williamson County, Rural School, 5.25%, 9/1/10, GO... 1,655,000 1,698,444
Wilson County Certificate of Participation Refunding,
5.25%, 6/30/15, Callable 6/30/09 @ 101, FSA......... 1,500,000 1,496,250
------------
68,237,468
------------
TOTAL MUNICIPAL BONDS (Cost $88,699,056)............. 87,454,956
------------
Investment Companies (1.0%)
AIM Tax-Free Money Market Fund....................... 921,199 $ 921,199
Dreyfus Tax-Free Money Market Fund................... 2,007 2,007
------------
TOTAL INVESTMENT COMPANIES (Cost $923,206)........... 923,206
------------
TOTAL INVESTMENTS (Cost $89,622,262) (a) -- (98.7%).. 88,378,162
Other assets in excess of liabilities -- (1.3%)...... 1,124,388
------------
TOTAL NET ASSETS -- (100.0%)......................... $ 89,502,550
============
</TABLE>
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation....................................... $ 469,075
Unrealized depreciation....................................... (1,713,175)
-----------
Net unrealized depreciation................................... $(1,244,100)
===========
</TABLE>
AMBAC -- Insured by AMBAC Indemnity Corp.
AMBAC-TCRS -- AMBAC Transferable Custodial Receipts
FGIC -- Insured by Financial Guaranty Insurance Corp.
FSA -- Insured by Financial Security Assurance Inc.
GO -- General Obligation
MBIA -- Insured by Municipal Bond Insurance Assoc.
PCR -- Pollution Control Revenue
Continued
48
<PAGE>
ISG FUNDS
Tennessee Tax-Exempt Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $89,622,262)................. $88,378,162
Interest and dividends receivable........................ 1,435,291
Receivable for capital shares issued..................... 2,974
Prepaid expenses and other assets........................ 27,957
-----------
Total Assets............................................ 89,844,384
Liabilities:
Distributions payable.................................... $262,334
Accrued expenses and other payables:
Investment advisory fees................................ 37,198
Administration fees..................................... 1,101
Distribution fees....................................... 12,850
Custodian fees.......................................... 6,897
Other................................................... 21,454
--------
Total Liabilities...................................... 341,834
-----------
Net Assets:
Capital.................................................. 90,595,331
Undistributed (distributions in excess of) net investment
income.................................................. 5,860
Undistributed (distributions in excess of) net realized
gains................................................... 145,459
Net unrealized appreciation (depreciation) from
investments............................................. (1,244,100)
-----------
Net Assets............................................... $89,502,550
===========
Class A Shares
Net Assets.............................................. $ 3,080,484
Shares outstanding...................................... 314,003
Redemption price per share.............................. $ 9.81
===========
Class A Shares -- Maximum Sales Charge................... 3.00%
-----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the
nearest cent).......................................... $ 10.11
===========
Class B Shares
Net Assets.............................................. $ 1,539,574
Shares outstanding...................................... 156,605
Offering price per share*............................... $ 9.83
===========
Institutional Shares
Net Assets.............................................. $84,882,492
Shares outstanding...................................... 8,653,198
Offering and redemption price per share................. $ 9.81
===========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 2,014,507
Dividend income......................................... 35,121
-----------
Total Investment Income................................ 2,049,628
Expenses:
Investment advisory fees................................ $230,770
Administration fees..................................... 69,231
Distribution fees -- Class A Shares..................... 3,715
Distribution fees -- Class B Shares..................... 5,318
Shareholder servicing fees -- Class A Shares............ 2,229
Shareholder servicing fees -- Class B Shares............ 1,773
Shareholder servicing fees -- Institutional Shares...... 65,939
Custodian fees.......................................... 12,756
Accounting fees......................................... 14,171
Transfer agent fees..................................... 21,382
Directors' fees......................................... 794
Other fees.............................................. 40,979
--------
Net expenses........................................... 469,057
-----------
Net Investment Income................................... 1,580,571
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... 116,113
Net change in unrealized appreciation (depreciation)
from investments....................................... (3,611,255)
-----------
Net realized/unrealized gains (losses) from
investments............................................ (3,495,142)
-----------
Change in net assets resulting from operations.......... $(1,914,571)
===========
</TABLE>
See notes to financial statements
49
<PAGE>
ISG FUNDS
Tennessee Tax-Exempt Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
1999 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income......................... $ 1,580,571 $ 3,612,792
Net realized gains (losses) from investment
transactions................................. 116,113 1,356,524
Net change in unrealized appreciation
(depreciation) from investments.............. (3,611,255) (524,589)
----------- ------------
Change in net assets resulting from
operations.................................... (1,914,571) 4,444,727
----------- ------------
Distributions to Class A Shareholders:
From net investment income.................... (47,647) (86,286)
From net realized gains on investment
transactions................................. -- (19,251)
Distributions to Class B Shareholders:
From net investment income.................... (18,316) (17,207)(a)
From net realized gains on investment
transactions................................. -- (9,170)(a)
Distributions to Institutional Shareholders:
From net investment income.................... (1,514,608) (3,509,299)
From net realized gains on investment
transactions................................. -- (638,254)
----------- ------------
Change in net assets from shareholder
distributions................................. (1,580,571) (4,279,467)
----------- ------------
Change in net assets from capital
transactions.................................. (3,004,761) (6,573,702)
----------- ------------
Change in net assets........................... (6,499,903) (6,408,442)
Net Assets:
Beginning of period........................... 96,002,453 102,410,895
----------- ------------
End of period................................. $89,502,550 $ 96,002,453
=========== ============
</TABLE>
- ---------
(a) For the period from February 24, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
50
<PAGE>
ISG FUNDS
Tennessee Tax-Exempt Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1994(a)
-------------- ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.19 $10.18 $ 9.90 $ 10.19 $ 9.40 $ 10.00
------ ------ ------ ------- ------- -------
Investment Activities
Net investment income
(loss)................ 0.16 0.35 0.44 0.42 0.45 0.34
Net realized and
unrealized gains
(losses) from
investments........... (0.38) 0.08 0.25 (0.29) 0.79 (0.60)
------ ------ ------ ------- ------- -------
Total from Investment
Activities............ (0.22) 0.43 0.69 0.13 1.24 (0.26)
------ ------ ------ ------- ------- -------
Distributions
Net investment income.. (0.16) (0.35) (0.41) (0.42) (0.45) (0.34)
Net realized gains..... -- (0.07) -- -- -- --
------ ------ ------ ------- ------- -------
Total Distributions.... (0.16) (0.42) (0.41) (0.42) (0.45) (0.34)
------ ------ ------ ------- ------- -------
Net change in asset
value.................. (0.38) 0.01 0.28 (0.29) 0.79 (0.60)
------ ------ ------ ------- ------- -------
Net Asset Value, End of
Period................. $ 9.81 $10.19 $10.18 $ 9.90 $ 10.19 $ 9.40
====== ====== ====== ======= ======= =======
Total Return (excludes
sales charge).......... (2.19)%(b) 4.25% 7.13% 1.39% 13.40% 2.63%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $3,080 $2,919 $1,669 $88,084 $94,143 $86,127
Ratio of expenses to
average net assets..... 1.25%(c) 1.20% 0.84% 0.86% 0.87% 0.82%(c)
Ratio of net investment
income to average net
assets................. 3.21%(c) 3.37% 4.13% 4.29% 4.52% 4.61%(c)
Ratio of expenses to
average net assets*.... (d) 1.20% 1.09% 1.11% 1.12% 1.18%(c)
Portfolio turnover**.... 36% 155% 253% 219% 188% 0.41%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 28, 1994 (commencement of operations) through
December 31, 1994.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $10.21 $10.22
------ ------
Investment Activities
Net investment income (loss).................... 0.13 0.26
Net realized and unrealized gains (losses) from
investments.................................... (0.38) 0.06
------ ------
Total from Investment Activities................ (0.25) 0.32
------ ------
Distributions
Net investment income........................... (0.13) (0.26)
Net realized gains.............................. -- (0.07)
------ ------
Total Distributions............................. (0.13) (0.33)
------ ------
Net change in asset value........................ (0.38) (0.01)
------ ------
Net Asset Value, End of Period................... $ 9.83 $10.21
====== ======
Total Return (excludes redemption charge)........ (2.48)%(b) 3.17%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $1,540 $1,397
Ratio of expenses to average net assets.......... 1.84%(c) 1.95%(c)
Ratio of net investment income to average net
assets.......................................... 2.58%(c) 2.50%(c)
Portfolio turnover*.............................. 36% 155%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from February 24, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
51
<PAGE>
ISG FUNDS
Tennessee Tax-Exempt Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 10.19 $ 10.18 $ 10.05
------- ------- --------
Investment Activities
Net investment income (loss)...... 0.17 0.37 0.10
Net realized and unrealized gains
(losses) from investments........ (0.38) 0.08 0.13
------- ------- --------
Total from Investment Activities.. (0.21) 0.45 0.23
------- ------- --------
Distributions
Net investment income............. (0.17) (0.37) (0.10)
Net realized gains................ -- (0.07) --
------- ------- --------
Total Distributions............... (0.17) (0.44) (0.10)
------- ------- --------
Net change in asset value.......... (0.38) 0.01 0.13
------- ------- --------
Net Asset Value, End of Period..... $ 9.81 $ 10.19 $ 10.18
======= ======= ========
Total Return....................... (2.07)%(b) 4.52% 2.35%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $84,882 $91,687 $100,742
Ratio of expenses to average net
assets............................ 1.00%(c) 0.95% 0.56%(c)
Ratio of net investment income to
average net assets................ 3.45%(c) 3.65% 4.22%(c)
Ratio of expenses to average net
assets*........................... (d) 0.95% 0.87%(c)
Portfolio turnover**............... 36% 155% 253%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from October 3, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
52
<PAGE>
[PHOTO OF DONALD F. TURK APPEARS HERE]
Donald F. Turk, CFA
Portfolio Manager
ISG Limited Term Income Fund
- -------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with current income without assuming undue
risk. It invests primarily in investment-grade, U.S. dollar-denominated, fixed-
income securities of domestic and foreign issuers that generally have a
duration of less than four years. This Fund is suitable for investors seeking
regular monthly income without undue risk to principal.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund produced a total return of
- -0.11% (Class A Shares at NAV).+ In comparison, the Merrill Lynch 1-5-Year
Government/Corporate Bond Index/1/ produced a total return of 0.64%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield was 4.77% (Class A Shares at NAV), compared
to 4.06% at the end of 1998. The yield percentage is annualized. We achieved
these yields while maintaining an average credit quality of AA (rated by
Standard & Poor's). As of June 30, 1999, the Fund's average maturity was 5.10
years.
Q. What factors affected your performance?
A. There were two key factors. First, spreads remained wide relative to
Treasuries, and even widened somewhat during the period. Treasuries account
for nearly 85% of the index, a higher proportion than we hold in the Fund. With
Treasuries performing better than corporates, our relative underweighting
reduced our returns.
Second, we were longer than the market, going into the first quarter of 1999.
When interest rates rose, our longer-than-average maturity dragged down the
prices of the bonds in our portfolio. (Rising rates result in lower bond
prices.)
Q. Why did you hold a relatively high allocation of corporate bonds?
A. Our primary purpose is to generate sustainable, high current income for our
shareholders. Generally, we hold a greater percentage of corporate debt, which
normally yields greater income than Treasury securities of similar maturities.
While corporate bond prices fell during the latest period, over time our
approach has proven beneficial to our income-oriented shareholders.
Q. What strategies did you employ to help sustain current income?
A. Early on in the period, we took a fairly large position in Ginnie Maes,
which are adding a significant bump to the Fund's yield (Ginnie Maes comprise
24% of the Fund's assets). We bought the Ginnie Maes with money we received by
selling some of our Treasury holdings and some Disney corporate debt. We also
added Eastman Chemicals 6.38%, due 2004 (1.5%).*
As of June 30, 1999, 67.9% of the Fund was invested in corporate paper, with a
total of 26.5% invested in Treasury, agency and pass-through securities, and
4.6% in cash.*
Q. What is your outlook for the rest of 1999?
A. Over the balance of the year, we believe rates could go higher. At the same
time, the outlook for bonds has improved from the first six months. First of
all, with rates higher, our yields are also more robust. Second, inflation-
adjusted yields (gross yields minus the rate of inflation) are now
historically attractive. With inflation still quite low, the prospects for
strong bond returns are promising.
- ---------
+ Including the 3.00% sales load, the Fund's return was -3.09% for the period.
/1/ The Merrill Lynch 1-5-Year Government/Corporate Bond Index is an unmanaged
index, that is generally representative of the performance of government and
corporate bonds in that maturity range with a rating of at least Baa/BBB.
The index is unmanaged and does not reflect the expenses associated with a
mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
53
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Limited Term Income Fund June 30, 1999 (Unaudited)
Corporate Bonds (67.9%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Banking (6.2%)
ABN AMRO Bank, 6.63%, 10/31/01.......................... $2,500,000 $ 2,515,625
Bankers Trust, 6.75%, 10/3/01........................... 1,500,000 1,507,500
NationsBank Corp., 7.00%, 9/15/01....................... 2,000,000 2,030,000
-----------
6,053,125
-----------
Beverages (1.3%)
Anheuser-Busch Cos., 7.13%, 7/1/17...................... 1,250,000 1,240,625
-----------
Chemicals (1.5%)
Eastman Chemical, 6.38%, 1/15/04........................ 1,500,000 1,471,875
-----------
Entertainment (1.5%)
The Walt Disney Co., 6.38%, 3/30/01..................... 1,500,000 1,509,375
-----------
Financial Services (10.0%)
Associates Corp. N.A., 7.68%, 3/3/00.................... 1,500,000 1,522,245
Ford Motor Credit Co., 6.50%, 2/28/02................... 2,500,000 2,506,250
General Motors Acceptance Corp., 5.80%, 4/9/01, MTN..... 2,000,000 1,987,500
John Deere Capital Corp., 5.90%, 4/8/03................. 2,000,000 1,957,500
Merrill Lynch & Co., Inc., 6.00%, 1/15/01............... 1,750,000 1,750,000
-----------
9,723,495
-----------
Industrial Goods & Services (9.4%)
Archer Daniels Midland, 6.25%, 5/15/03.................. 1,500,000 1,492,500
IBM Corp., 6.25%, 2/24/00............................... 1,036,000 1,037,450
IBM Corp., 6.04%, 8/7/00, MTN........................... 1,000,000 1,001,250
Imperial Oil Ltd., 8.75%, 10/15/19...................... 3,000,000 3,135,000
Martin Marietta, 6.50%, 4/15/03......................... 2,500,000 2,493,750
-----------
9,159,950
-----------
Insurance -- Property & Casualty (2.1%)
Travelers/Aetna Property & Casualty, 6.75%, 4/15/01..... 2,000,000 2,012,500
-----------
Paper Products (2.1%)
International Paper Co., 6.88%, 7/10/00................. 2,000,000 2,007,500
-----------
Retail-Stores (7.2%)
Dayton Hudson Co., 6.40%, 2/15/03....................... 2,500,000 2,503,125
J.C. Penney & Co., 7.25%, 4/1/02........................ 2,000,000 2,030,000
Wal-Mart Stores, 5.85%, 6/1/18.......................... 2,500,000 2,503,125
-----------
7,036,250
-----------
Telecommunications (3.1%)
MCI WorldCom, Inc., 7.13%, 1/20/00...................... 1,500,000 1,511,250
WorldCom, Inc., 6.13%, 8/15/01.......................... 1,500,000 1,492,500
-----------
3,003,750
-----------
Utilities -- Electric (17.2%)
Alabama Power Co., 5.35%, 11/15/03...................... 2,000,000 1,922,500
Central Power & Light Co., 6.00%, 4/1/00................ 2,000,000 2,000,000
Florida Power Corp., 6.54%, 7/1/02, MTN................. 2,000,000 2,010,000
MidAmerican Energy, 6.50%, 12/15/01..................... 2,500,000 2,496,875
</TABLE>
Corporate Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Utilities -- Electric, continued
National Rural Utilities Corp., Series C, 6.49%,
7/10/02, MTN.......................................... $2,000,000 $ 2,015,000
Potomac Electric Power Corp., 6.00%, 4/1/04............ 2,500,000 2,448,000
Puget Sound Power & Light, 6.61%, 2/9/00, MTN.......... 2,000,000 2,007,500
SCANA Corp., Series B, 6.25%, 7/8/03, MTN.............. 2,000,000 1,972,500
-----------
16,872,375
-----------
Utilities -- Gas (2.4%)
ENSERCH Corp., 7.00%, 8/15/99.......................... 1,000,000 1,001,885
Smith Enron, 5.97%, 12/15/06........................... 1,321,000 1,304,488
-----------
2,306,373
-----------
Utilities -- Gas & Electric (3.9%)
Baltimore Gas & Electric, 6.50%, 2/15/03............... 2,500,000 2,509,375
Cincinnati Gas & Electric Co., 6.45%, 2/15/04.......... 1,300,000 1,295,125
-----------
3,804,500
-----------
TOTAL CORPORATE BONDS
(Cost $66,551,440).................................... 66,201,693
-----------
U.S. Government Agencies (23.9%)
Fannie Mae (1.5%)
6.35%, 11/23/01........................................ 1,500,000 1,501,140
-----------
Freddie Mac (2.0%)
6.75%, 4/1/08.......................................... 2,000,000 1,969,960
-----------
Government National Mortgage Assoc. (20.4%)
8.00%, 12/15/07, Pool # 339455......................... 453,805 470,677
8.00%, 8/15/08, Pool # 358725.......................... 829,955 860,813
7.50%, 4/15/09, Pool # 392085.......................... 535,211 546,916
7.50%, 4/15/09, Pool # 368641.......................... 375,406 383,616
7.50%, 6/15/09, Pool # 345752.......................... 484,124 494,712
8.50%, 9/15/09, Pool # 376589.......................... 495,162 516,825
8.00%, 11/15/09, Pool # 380660......................... 955,143 990,655
8.50%, 12/15/09, Pool # 392770......................... 375,188 391,602
8.50%, 12/15/09, Pool # 392814......................... 454,516 474,401
8.00%, 4/15/10, Pool # 407337.......................... 911,191 945,069
8.00%, 4/15/10, Pool # 405445.......................... 1,127,677 1,169,604
7.50%, 8/15/11, Pool # 423983.......................... 1,232,009 1,258,953
6.00%, 1/15/14, Pool # 439688.......................... 1,940,629 1,876,336
6.00%, 1/15/14, Pool # 494279.......................... 1,963,271 1,898,228
6.50%, 1/15/29, Pool # 467451.......................... 1,934,348 1,863,010
6.50%, 1/20/29, Pool # 2701............................ 1,952,123 1,871,598
6.50%, 3/15/29, Pool # 434219.......................... 1,993,964 1,920,425
6.50%, 4/20/29, Pool # 2741............................ 1,993,556 1,911,321
-----------
19,844,761
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $23,597,554).................................... 23,315,861
-----------
</TABLE>
Continued
54
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Limited Term Income Fund June 30, 1999 (Unaudited)
U.S. Treasury Notes (2.6%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
7.75%, 1/31/00.......................................... $1,500,000 $ 1,522,950
6.25%, 6/30/02.......................................... 1,000,000 1,015,230
-----------
TOTAL U.S. TREASURY NOTES
(Cost $2,512,507)...................................... 2,538,180
-----------
Investment Companies (4.6%)
AIM Liquid Assets Money Market Fund..................... 2,256,752 2,256,752
AIM Prime Money Market Fund............................. 2,181,062 2,181,062
-----------
TOTAL INVESTMENT COMPANIES
(Cost $4,437,814)...................................... 4,437,814
-----------
</TABLE>
Cash Equivalents (0.0%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
Bank of New York Cash Reserve........................... $ 3,095 $ 3,095
-----------
TOTAL CASH EQUIVALENTS
(Cost $3,095).......................................... 3,095
-----------
TOTAL INVESTMENTS
(Cost $97,102,410) (a) -- (99.0%)...................... 96,496,643
Other assets in excess of
liabilities -- (1.0%).................................. 960,240
-----------
TOTAL NET ASSETS -- (100.0%)............................ $97,456,883
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation....................................... $ 409,325
Unrealized depreciation....................................... (1,015,092)
-----------
Net unrealized depreciation................................... $ (605,767)
===========
</TABLE>
MTN -- Medium Term Note
See notes to financial statements
55
<PAGE>
ISG FUNDS
Limited Term Income Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $97,102,410)................. $96,496,643
Interest and dividends receivable........................ 1,449,388
Receivable for capital shares issued..................... 4,773
Prepaid expenses and other assets........................ 23,722
-----------
Total Assets............................................ 97,974,526
Liabilities:
Distributions payable.................................... $434,748
Accrued expenses and other payables:
Investment advisory fees................................ 40,246
Administration fees..................................... 1,198
Distribution fees....................................... 13,956
Custodian fees.......................................... 6,157
Other................................................... 21,338
--------
Total Liabilities....................................... 517,643
-----------
Net Assets:
Capital.................................................. 98,245,391
Undistributed (distributions in excess of) net investment
income.................................................. (79,049)
Undistributed (distributions in excess of) net realized
gains................................................... (103,692)
Net unrealized appreciation (depreciation) from
investments............................................. (605,767)
-----------
Net Assets............................................... $97,456,883
===========
Class A Shares
Net Assets.............................................. $ 6,918,630
Shares outstanding...................................... 706,399
Redemption price per share.............................. $ 9.79
===========
Class A Shares -- Maximum Sales Charge................... 3.00%
-----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the
nearest cent).......................................... $ 10.09
===========
Class B Shares
Net Assets.............................................. $ 701,906
Shares outstanding...................................... 71,772
Offering price per share*............................... $ 9.78
===========
Institutional Shares
Net Assets.............................................. $89,836,347
Shares outstanding...................................... 9,172,774
Offering and redemption price per share................. $ 9.79
===========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 2,994,310
Dividend income......................................... 115,330
Income from securities lending.......................... 3,876
-----------
Total Investment Income................................ 3,113,516
Expenses:
Investment advisory fees................................ $246,740
Administration fees..................................... 74,022
Distribution fees -- Class A Shares..................... 9,207
Distribution fees -- Class B Shares..................... 2,341
Shareholder servicing fees -- Class A Shares............ 5,524
Shareholder servicing fees -- Class B Shares............ 780
Shareholder servicing fees -- Institutional Shares...... 68,030
Custodian fees.......................................... 13,512
Accounting fees......................................... 14,267
Transfer agent fees..................................... 21,270
Directors' fees......................................... 822
Other fees.............................................. 40,797
--------
Net expenses........................................... 497,312
-----------
Net Investment Income................................... 2,616,204
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... (103,692)
Net change in unrealized appreciation (depreciation)
from investments....................................... (2,460,653)
-----------
Net realized/unrealized gains (losses) from
investments............................................ (2,564,345)
-----------
Change in net assets resulting from operations.......... $ 51,859
===========
</TABLE>
See notes to financial statements
56
<PAGE>
ISG FUNDS
Limited Term Income Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment income............................ $ 2,616,204 $ 4,984,671
Net realized gains (losses) from investment
transactions.................................... (103,692) 394,336
Net change in unrealized appreciation
(depreciation) from investments................. (2,460,653) 697,321
----------- -----------
Change in net assets resulting from operations.... 51,859 6,076,328
----------- -----------
Distributions to Class A Shareholders:
From net investment income....................... (186,709) (343,556)
In excess of net investment income............... -- (100)
From net realized gains on investment
transactions.................................... -- (33,464)
In excess of net realized gains.................. -- (6,420)
Distributions to Class B Shareholders:
From net investment income....................... (13,963) (15,167)(a)
In excess of net investment income............... -- (5)(a)
From net realized gains on investment
transactions.................................... -- (2,607)(a)
In excess of net realized gains.................. -- (500)(a)
Distributions to Institutional Shareholders:
From net investment income....................... (2,415,532) (4,626,791)
In excess of net investment income............... -- (1,350)
From net realized gains on investment
transactions.................................... -- (368,402)
In excess of net realized gains.................. -- (70,674)
----------- -----------
Change in net assets from shareholder
distributions.................................... (2,616,204) (5,469,036)
----------- -----------
Change in net assets from capital transactions.... 6,511,287 2,123,138
----------- -----------
Change in net assets.............................. 3,946,942 2,730,430
Net Assets:
Beginning of period.............................. 93,509,941 90,779,511
----------- -----------
End of period.................................... $97,456,883 $93,509,941
=========== ===========
</TABLE>
- ---------
(a) For the period from February 4, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
57
<PAGE>
ISG FUNDS
Limited Term Income Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1994(a)
-------------- ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.05 $ 9.99 $ 9.96 $ 10.13 $ 9.66 $ 10.00
------ ------ ------ ------- -------- -------
Investment Activities
Net investment income
(loss)................ 0.25 0.52 0.59 0.58 0.59 0.38
Net realized and
unrealized gains
(losses) from
investments........... (0.26) 0.11 0.04 (0.16) 0.47 (0.34)
------ ------ ------ ------- -------- -------
Total from Investment
Activities............ (0.01) 0.63 0.63 0.42 1.06 0.04
------ ------ ------ ------- -------- -------
Distributions
Net investment income.. (0.25) (0.52) (0.59) (0.58) (0.59) (0.38)
Net realized gains..... -- (0.04) (0.01) (0.01) -- --
In excess of net
realized gains........ -- (0.01) -- -- --
------ ------ ------ ------- -------- -------
Total Distributions.... (0.25) (0.57) (0.60) (0.59) (0.59) (0.38)
------ ------ ------ ------- -------- -------
Net change in asset
value.................. (0.26) 0.06 0.03 (0.17) 0.47 (0.34)
------ ------ ------ ------- -------- -------
Net Asset Value, End of
Period................. $ 9.79 $10.05 $ 9.99 $ 9.96 $ 10.13 $ 9.66
====== ====== ====== ======= ======== =======
Total Return (excludes
sales charge).......... (0.11)%(b) 6.48% 6.47% 4.28% 11.20% 0.42%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $6,919 $7,484 $5,894 $98,197 $103,382 $93,189
Ratio of expenses to
average net assets..... 1.23%(c) 1.19% 0.83% 0.83% 0.87% 0.83%(c)
Ratio of net investment
income to average net
assets................. 5.07%(c) 5.17% 5.92% 5.84% 5.89% 5.27%(c)
Ratio of expenses to
average net assets*.... (d) 1.20% 1.09% 1.08% 1.12% 1.28%(c)
Portfolio turnover**.... 18% 41% 45% 51% 28% 6%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 28, 1994 (commencement of operations) through
December 31, 1994.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
58
<PAGE>
ISG FUNDS
Limited Term Income Fund
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $10.04 $10.03
------ ------
Investment Activities
Net investment income (loss).................... 0.22 0.41
Net realized and unrealized gains (losses) from
investments.................................... (0.26) 0.06
------ ------
Total from Investment Activities................ (0.04) 0.47
------ ------
Distributions
Net investment income........................... (0.22) (0.41)
Net realized gains.............................. -- (0.04)
In excess of net realized gains................. -- (0.01)
------ ------
Total Distributions............................. (0.22) (0.46)
------ ------
Net change in asset value........................ (0.26) 0.01
------ ------
Net Asset Value, End of Period................... $ 9.78 $10.04
====== ======
Total Return (excludes redemption charge)........ (0.40)%(b) 4.76%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $ 702 $ 601
Ratio of expenses to average net assets.......... 1.83%(c) 1.94%(c)
Ratio of net investment income to average net
assets.......................................... 4.47%(c) 4.33%(c)
Portfolio turnover*.............................. 18% 41%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 4, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 10.05 $ 9.98 $ 10.00
------- ------- -------
Investment Activities
Net investment income (loss)........ 0.26 0.54 0.15
Net realized and unrealized gains
(losses) from investments.......... (0.26) 0.13 (0.01)
------- ------- -------
Total from Investment Activities.... -- 0.67 0.14
------- ------- -------
Distributions
Net investment income............... (0.26) (0.55) (0.15)
Net realized gains.................. -- (0.04) (0.01)
In excess of net realized gains..... -- (0.01) --
------- ------- -------
Total Distributions................. (0.26) (0.60) (0.16)
------- ------- -------
Net change in asset value............ (0.26) 0.07 (0.02)
------- ------- -------
Net Asset Value, End of Period....... $ 9.79 $ 10.05 $ 9.98
======= ======= =======
Total Return......................... 0.02%(b) 6.86% 1.36%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $89,836 $85,425 $84,886
Ratio of expenses to average net
assets.............................. 0.98%(c) 0.94% 0.56%(c)
Ratio of net investment income to
average net assets.................. 5.32%(c) 5.43% 6.08%(c)
Ratio of expenses to average net
assets*............................. (d) 0.95% 0.87%(c)
Portfolio turnover**................. 18% 41% 45%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from October 3, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
59
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
60
<PAGE>
[PHOTO OF DONALD F. TURK APPEARS HERE]
Donald F. Turk, CFA
Portfolio Manager
ISG Income Fund
- --------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with current income without assuming undue
risk. It invests primarily in investment-grade, U.S. dollar-denominated,
fixed-income securities of domestic and foreign issuers with average
maturities of 8 to 13 years. This Fund is suitable for investors seeking
regular monthly income without undue risk to principal.
- --------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund produced a total return of
- -2.85% (Class A Shares at NAV).+ In comparison, the Merrill Lynch
Corporate/Government Master Index/1/ produced a total return of -2.25%.
It is also important to recognize income yield to shareholders. As of June 30,
1999, the Fund's 30-day SEC yield was 5.01% (Class A Shares at NAV), compared
to 4.11% at the end of 1998. The yield percentage is annualized. We achieved
these yields while increasing our average credit quality to AA (rated by
Standard & Poor's). As of June 30, 1999, the Fund's average maturity was 10.64
years.
Q. What factors affected your performance?
A. There were two key factors. First, corporate spreads remained wide relative
to Treasuries, and even widened somewhat during the period. Treasuries account
for nearly 70% of the index, a higher proportion than we hold in the Fund. With
Treasuries performing better than corporates, our relative underweighting
reduced our returns.
Second, we were longer than the market, going into the first quarter of 1999.
When interest rates rose, our longer-than-average maturity dragged down the
prices of the bonds in our portfolio. (Rising rates result in lower bond
prices.)
Q. Why did you hold a relatively high allocation of corporate bonds?
A. Our primary purpose is to generate sustainable, high current income for our
shareholders. Generally, we hold a greater percentage of corporate debt, which
normally yield greater income than Treasury securities of like maturities. For
example, a 30-year corporate bond typically will yield 1 1/8% to 1 1/4% more
income than a similar Treasury bond. While corporate bond prices fell during
the latest period, over time our approach has proven beneficial to our income-
oriented shareholders.
Q. What strategies did you employ to help sustain current income?
A. Early on in the period, we bought Ginnie Maes (Ginnie Maes comprise 9.4% of
the Fund's net assets). Later, we also bought Motorola 6.50%, due 2028 (2.3%),
and some securities issued by AmSouth Bank (2.0%).*
Back in February, when it became obvious that interest rates would be moving
up, we took steps to shorten the portfolio's average maturity by selling a
number of our longer-term holdings. Those were good sales; they helped us avoid
further losses when the rates did, indeed, rise sharply.
Overall, during the course of the six-month period, we shortened the
portfolio's average maturity by about 3.2 years and increased its yield by
roughly 0.2%.*
As of June 30, 1999, 75.8% of the Fund was invested in corporate securities,
with a total of 11.7% invested in Treasury, agency and pass-through securities,
and 8.4% in cash.*
Q. What is your outlook for the rest of 1999?
A. Over the balance of the year, we believe rates could go higher. At the same
time, the outlook for bonds has improved from the first six months. First of
all, with rates higher, our yields are also more robust. Second, inflation-
adjusted yields (gross yields minus the rate of inflation) are now historically
attractive. With inflation still quite low, the prospects for strong bond
returns are promising.
- ---------
+ Including the 3.00% sales load, the Fund's return was -5.76% for the period.
/1/ The Merrill Lynch Corporate/Government Master Index is generally
representative of the performance of corporate and U.S. Government bonds.
The index does not reflect expenses associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
61
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Income Fund June 30, 1999 (Unaudited)
Commercial Paper (2.1%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Financial Services (2.1%)
General Electric Capital Corp., 4.99%, 7/6/99........ $2,000,000 $ 1,998,337
------------
TOTAL COMMERCIAL PAPER (Cost $1,998,614)............. 1,998,337
------------
Corporate Bonds (75.9%)
Banking (11.2%)
ABN AMRO Bank, 6.63%, 10/31/01....................... 1,750,000 1,760,938
AmSouth Bancorp., 6.13%, 3/1/09...................... 2,000,000 1,865,800
Bank One, Texas, 6.25%, 2/15/08...................... 1,000,000 957,500
First Union Corp., 6.18%, 2/15/36.................... 1,700,000 1,638,375
National City Corp., 6.88%, 5/15/19.................. 1,500,000 1,404,375
NationsBank Corp., 7.75%, 8/15/15.................... 925,000 968,938
Wachovia Corp., 6.61%, 10/1/25....................... 2,100,000 2,071,124
------------
10,667,050
------------
Beverages (2.3%)
Anheuser-Busch Cos., 7.13%, 7/1/17................... 2,250,000 2,233,125
------------
Chemicals (1.5%)
Eastman Chemical, 6.38%, 1/15/04..................... 1,500,000 1,471,875
------------
Electronic Components (2.3%)
Motorola, Inc., 6.50%, 11/15/28...................... 2,500,000 2,231,250
------------
Financial Services (10.1%)
Associates Corp. N.A., 7.32%, 1/13/03, MTN........... 800,000 821,000
Countrywide Home Loan, 6.84%, 10/22/04, MTN.......... 2,400,000 2,400,000
Ford Motor Credit Corp., 7.35%, 11/7/11, MTN......... 2,000,000 2,050,000
General Electric Capital Corp., 7.50%, 8/21/35....... 1,500,000 1,578,750
General Motors Acceptance Corp., 5.80%, 4/9/01, MTN.. 1,500,000 1,490,625
USLIFE Corp., 6.38%, 6/15/00......................... 1,250,000 1,250,325
------------
9,590,700
------------
Food & Related (1.3%)
Sara Lee Corp., 6.15%, 6/19/08, MTN.................. 1,250,000 1,206,250
------------
Industrial Goods & Services (10.0%)
Albertson's, Inc., 6.52%, 4/10/28, MTN............... 2,500,000 2,284,375
H.J. Heinz Co., 6.38%, 7/15/28....................... 2,000,000 1,842,500
IBM Corp., 6.25%, 2/24/00............................ 1,000,000 1,001,400
IBM Corp., 6.50%, 1/15/28............................ 2,000,000 1,852,500
Lockheed Martin Corp., 7.88%, 3/15/23................ 1,000,000 995,000
Reliance Electric Co., 6.80%, 4/15/03................ 1,500,000 1,516,875
------------
9,492,650
------------
Insurance -- Property & Casualty (2.1%)
Travelers/Aetna Property & Casualty, 6.75%, 4/15/01.. 2,000,000 2,012,500
------------
</TABLE>
Corporate Bonds, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Paper Products (1.1%)
International Paper Co., 6.88%, 7/10/00............... $1,000,000 $ 1,003,750
------------
Retail-Stores (6.2%)
AutoZone, Inc., 6.50%, 7/15/08........................ 2,000,000 1,905,000
Dayton Hudson Co., 6.80%, 10/1/01..................... 1,500,000 1,516,875
J. C. Penney & Co., 6.50%, 6/15/02, MTN............... 1,500,000 1,494,375
May Department Stores Co., 7.15%, 8/15/04............. 1,000,000 1,017,500
------------
5,933,750
------------
Telecommunications (4.8%)
AT&T Corp., 6.50%, 3/15/29............................ 1,500,000 1,357,500
BellSouth Corp., 8.25%, 7/1/32........................ 475,000 495,188
GTE Corp., 7.90%, 2/1/27.............................. 1,450,000 1,482,625
WorldCom, Inc., 6.13%, 8/15/01........................ 1,250,000 1,243,750
------------
4,579,063
------------
Utilities -- Electric (13.8%)
Florida Power Corp., 6.54%, 7/1/02, MTN............... 1,500,000 1,507,500
Houston Light & Power Corp., 6.10%, 3/1/00, MTN....... 1,725,000 1,727,156
National Rural Utilities Corp., Series C, 6.49%,
7/10/02, MTN......................................... 1,600,000 1,612,000
Potomac Electric Power Corp., 6.00%, 4/1/04........... 2,500,000 2,448,000
Puget Sound Power & Light, 6.61%, 2/9/00, MTN......... 1,500,000 1,505,625
SCANA Corp., Series B, 6.25%, 7/8/03, MTN............. 2,500,000 2,465,624
Virginia Electric & Power, 6.63%, 4/1/03.............. 1,750,000 1,758,750
------------
13,024,655
------------
Utilities -- Gas (3.7%)
Consolidated Natural Gas, 6.80%, 12/15/27............. 1,600,000 1,480,000
Smith Enron, 5.97%, 12/15/06.......................... 2,049,700 2,024,079
------------
3,504,079
------------
Utilities -- Gas & Electric (5.5%)
Cincinnati Gas & Electric Co., 6.45%, 2/15/04......... 1,500,000 1,494,375
Public Service Electric & Gas, 6.25%, 1/1/07.......... 2,400,000 2,319,000
Washington Gas Light, Series D, 6.85%, 3/9/28, MTN.... 1,500,000 1,411,875
------------
5,225,250
------------
TOTAL CORPORATE BONDS (Cost $73,775,175).............. 72,175,947
------------
</TABLE>
Continued
62
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Income Fund June 30, 1999 (Unaudited)
Municipal Bonds (0.8%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Georgia (0.8%)
Atlanta Downtown Development Lease Revenue Bond,
6.88%, 2/1/21........................................ $ 800,000 $ 767,000
------------
TOTAL MUNICIPAL BONDS
(Cost $761,814)...................................... 767,000
------------
U.S. Government Agencies (10.4%)
Fannie Mae (1.1%)
6.35%, 11/23/01....................................... 1,000,000 1,000,760
------------
Government National Mortgage
Assoc. (9.3%)
8.00%, 5/15/10, Pool # 407413......................... 403,285 418,279
6.50%, 8/15/11, Pool # 780479......................... 774,736 765,772
7.50%, 8/15/11, Pool # 423914......................... 620,265 633,831
7.00%, 9/15/11, Pool # 423923......................... 1,028,310 1,035,374
6.50%, 1/15/29, Pool #467451.......................... 1,450,761 1,397,257
6.50%, 3/15/29, Pool #434219.......................... 1,993,964 1,920,426
6.50%, 4/20/29, Pool #2741............................ 2,890,656 2,771,418
------------
8,942,357
------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost $10,267,508)..... 9,943,117
------------
U.S. Treasury Bonds (1.3%)
8.13%, 8/15/21........................................ 1,000,000 1,217,490
------------
TOTAL U.S. TREASURY BONDS (Cost $1,246,780)........... 1,217,490
------------
</TABLE>
Investment Companies (8.4%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
AIM Liquid Assets Money Market Fund.................... 3,557,998 $ 3,557,998
AIM Prime Money Market Fund............................ 4,477,092 4,477,092
------------
TOTAL INVESTMENT COMPANIES (Cost $8,035,090)........... 8,035,090
------------
Cash Equivalents (0.0%)
Bank of New York Cash Reserve ......................... $ 1,000 1,000
------------
TOTAL CASH EQUIVALENTS
(Cost $1,000)......................................... 1,000
------------
TOTAL INVESTMENTS
(Cost $96,085,981)(a) -- (98.9%)...................... 94,137,981
Other assets in excess of
liabilities -- (1.1%)................................. 1,091,272
------------
TOTAL NET ASSETS -- (100.0%)........................... $ 95,229,253
============
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $ 238,007
Unrealized depreciation......................................... (2,186,007)
-----------
Net unrealized depreciation..................................... $(1,948,000)
===========
</TABLE>
MTN -- Medium Term Note
See notes to financial statements
63
<PAGE>
ISG FUNDS
Income Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $96,085,981)................. $94,137,981
Interest and dividends receivable........................ 1,557,926
Receivable for capital shares issued..................... 14,362
Prepaid expenses and other assets........................ 24,311
-----------
Total Assets............................................ 95,734,580
Liabilities:
Distributions payable.................................... $426,533
Accrued expenses and other payables:
Investment advisory fees................................ 38,904
Administration fees..................................... 1,164
Distribution fees....................................... 13,368
Custodian fees.......................................... 6,505
Other................................................... 18,853
--------
Total Liabilities....................................... 505,327
-----------
Net Assets:
Capital.................................................. 97,269,279
Undistributed (distributions in excess of) net investment
income.................................................. (88,595)
Undistributed (distributions in excess of) net realized
gains................................................... (3,431)
Net unrealized appreciation (depreciation) from
investments............................................. (1,948,000)
-----------
Net Assets............................................... $95,229,253
===========
Class A Shares
Net Assets.............................................. $ 3,611,149
Shares outstanding...................................... 366,923
Redemption price per share.............................. $ 9.84
===========
Class A Shares -- Maximum Sales Charge................... 3.00%
-----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the
nearest cent).......................................... $ 10.14
===========
Class B Shares
Net Assets.............................................. $ 1,312,353
Shares outstanding...................................... 133,427
Offering price per share*............................... $ 9.84
===========
Institutional Shares
Net Assets.............................................. $90,305,751
Shares outstanding...................................... 9,179,618
Offering and redemption price per share................. $ 9.84
===========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 2,626,680
Dividend income......................................... 122,694
-----------
Total Investment Income................................ 2,749,374
Expenses:
Investment advisory fees................................ $215,592
Administration fees..................................... 64,678
Distribution fees -- Class A Shares..................... 4,134
Distribution fees -- Class B Shares..................... 5,023
Shareholder servicing fees -- Class A Shares............ 2,480
Shareholder servicing fees -- Class B Shares............ 1,674
Shareholder servicing fees -- Institutional Shares...... 61,193
Custodian fees.......................................... 12,264
Accounting fees......................................... 13,889
Transfer agent fees..................................... 22,122
Directors' fees......................................... 721
Other fees.............................................. 34,344
--------
Net expenses........................................... 438,114
-----------
Net Investment Income................................... 2,311,260
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... (3,411)
Net change in unrealized appreciation (depreciation)
from investments....................................... (4,731,311)
-----------
Net realized/unrealized gains (losses) from
investments............................................ (4,734,722)
-----------
Change in net assets resulting from operations.......... $(2,423,462)
===========
</TABLE>
See notes to financial statements
64
<PAGE>
ISG FUNDS
Income Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment income............................ $ 2,311,260 $ 4,260,780
Net realized gains (losses) from investment
transactions.................................... (3,411) 1,166,328
Net change in unrealized appreciation
(depreciation) from investments................. (4,731,311) 1,069,978
----------- -----------
Change in net assets resulting from operations.... (2,423,462) 6,497,086
----------- -----------
Distributions to Class A Shareholders:
From net investment income....................... (84,693) (66,097)
From net realized gains on investment
transactions.................................... -- (37,753)
In excess of net realized gains.................. -- (571)
Distributions to Class B Shareholders:
From net investment income....................... (30,247) (29,251)(a)
From net realized gains on investment
transactions.................................... -- (17,873)(a)
In excess of net realized gains.................. -- (271)(a)
Distributions to Institutional Shareholders:
From net investment income....................... (2,196,320) (4,165,432)
From net realized gains on investment
transactions.................................... -- (1,110,702)
In excess of net realized gains.................. -- (16,809)
----------- -----------
Change in net assets from shareholder
distributions.................................... (2,311,260) (5,444,759)
----------- -----------
Change in net assets from capital transactions.... 17,993,503 8,832,471
----------- -----------
Change in net assets.............................. 13,258,781 9,884,798
Net Assets:
Beginning of period.............................. 81,970,472 72,085,674
----------- -----------
End of period.................................... $95,229,253 $81,970,472
=========== ===========
</TABLE>
- ---------
(a) For the period from February 4, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
65
<PAGE>
ISG FUNDS
Income Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31,
1999 1998 1997 1996(a)
-------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.39 $10.25 $10.00 $ 10.00
------ ------ ------ -------
Investment Activities
Net investment income
(loss)................ 0.26 0.54 0.58 0.40
Net realized and
unrealized gains
(losses) from
investments........... (0.55) 0.29 0.26 --
------ ------ ------ -------
Total from Investment
Activities............ (0.29) 0.83 0.84 0.40
------ ------ ------ -------
Distributions
Net investment income.. (0.26) (0.54) (0.59) (0.40)
Net realized gains..... -- (0.14) -- --
In excess of net
realized gains........ -- (0.01) -- --
------ ------ ------ -------
Total Distributions.... (0.26) (0.69) (0.59) (0.40)
------ ------ ------ -------
Net change in asset
value.................. (0.55) 0.14 0.25 --
------ ------ ------ -------
Net Asset Value, End of
Period................. $ 9.84 $10.39 $10.25 $ 10.00
====== ====== ====== =======
Total Return (excludes
sales charge).......... (2.85)%(b) 8.28% 8.66% 4.12%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $3,611 $2,624 $ 95 $38,815
Ratio of expenses to
average net assets..... 1.24%(c) 1.24% 0.87% 1.13%(c)
Ratio of net investment
income to average net
assets................. 5.11%(c) 5.07% 5.74% 5.37%(c)
Ratio of expenses to
average net assets*.... (d) 1.24% 1.12% 1.32%(c)
Portfolio turnover**.... 20% 42% 56% 65%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from April 1, 1996 (commencement of operations) through
December 31, 1996.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $10.38 $10.32
------ ------
Investment Activities
Net investment income (loss).................... 0.23 0.43
Net realized and unrealized gains (losses) from
investments.................................... (0.54) 0.21
------ ------
Total from Investment Activities................ (0.31) 0.64
------ ------
Distributions
Net investment income........................... (0.23) (0.43)
Net realized gains.............................. -- (0.14)
In excess of net realized gains................. -- (0.01)
------ ------
Total Distributions............................. (0.23) (0.58)
------ ------
Net change in asset value........................ (0.54) 0.06
------ ------
Net Asset Value, End of Period................... $ 9.84 10.38
====== ======
Total Return (excludes redemption charge)........ (3.05)%(b) 6.30%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $1,312 $1,241
Ratio of expenses to average net assets.......... 1.84%(c) 1.98%(c)
Ratio of net investment income to average net
assets.......................................... 4.52%(c) 4.29%(c)
Portfolio turnover*.............................. 20% 42%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from February 4, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
66
<PAGE>
ISG FUNDS
Income Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.39 $ 10.25 $ 10.16
------- ------- -------
Investment Activities
Net investment income (loss)....... 0.27 0.56 0.16
Net realized and unrealized gains
(losses) from investments......... (0.55) 0.29 0.09
------- ------- -------
Total from Investment Activities... (0.28) 0.85 0.25
------- ------- -------
Distributions
Net investment income.............. (0.27) (0.56) (0.16)
Net realized gains................. -- (0.14) --
In excess of net realized gains.... -- (0.01) --
------- ------- -------
Total Distributions................ (0.27) (0.71) (0.16)
------- ------- -------
Net change in asset value........... (0.55) 0.14 0.09
------- ------- -------
Net Asset Value, End of Period...... $ 9.84 $ 10.39 $ 10.25
======= ======= =======
Total Return........................ (2.73)%(b) 8.55% 2.45%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)... $90,306 $78,105 $71,991
Ratio of expenses to average net
assets............................. 0.99%(c) 0.97% 0.60%(c)
Ratio of net investment income to
average net assets................. 5.38%(c) 5.41% 6.28%(c)
Ratio of expenses to average net
assets*............................ (d) 0.98% 0.92%(c)
Portfolio turnover**................ 20% 42% 56%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from October 3, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
67
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
68
<PAGE>
[PHOTO OF ROBERT RINNER APPEARS HERE]
Robert Rinner
CFA -- Equity Team Leader
ISG Equity Income Fund
- -------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with current income and capital
appreciation. The Fund invests primarily in dividend-paying equity securities
of domestic issuers that are expected to provide reasonable income and may have
capital appreciation potential.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund's total return was 6.70%
(Class A Shares at NAV).+ In comparison, the Lipper Equity Income Fund
Index/1/ rose 9.03%, and the Standard & Poor's 500 Stock Index/2/ returned
12.38%.
Q. What factors affected your performance?
A. Rotation was a key factor. Through the first quarter of the year, large-cap
growth stocks continued their dominance. At the same time, interest rates were
edging up, which hurt utilities--a significant portion of the Fund's assets
was invested in utility stocks--and dampened our performance. Then in April,
investors began to rotate out of growth names and into more of the cyclical
and value issues we hold. Utilities also regained some luster, along with real
estate investment trusts (REITs), another sector in which we are overweighted.
We began the year underweighted in energy stocks. Early on, in February, we
recognized that the global economy was picking up, and we increased our
allocation to energy, capital goods and basic industry. Energy did
particularly well, and the Fund benefited.
Then came a run-up in cyclical stocks in the second quarter--a rise that was
one of the sharpest we have seen in 30 years--which led us to take some
profits in the cyclical and energy areas and use the money to establish larger
positions in financial and consumer services.
Some of our individual stock winners during the period were Telefonos de
Mexico (0.6% of the net Fund's assets), Enron (1.4%), Dupont (0.9%) and
Honeywell (0.7%).*
Q. And you continued to provide shareholders with an above-average yield?
A. Yes. As of June 30, 1999, the Fund's yield was 2.4%, versus 1.2% for the
S&P 500; our yield was roughly double the benchmark's.
We believe that strong capital appreciation can help our shareholders grow
wealth, while higher-than-average current income can smooth out some of the
market's volatility. Our significant weighting in REITs helped maintain a
healthy income stream. REITs continue to offer the best dividend yields in the
market. They were hurt in the first quarter by rising interest rates, but they
had a much better second quarter. We believe that, going forward, there is
going to be more opportunity in this sector. We emphasize residential and
office REITs, rather than hotel REITs.
Q. What is your outlook for the rest of 1999?
A. The way we see it, stocks are being pulled in two different directions. On
the positive side, corporate earnings are expected to be quite healthy in the
third quarter, and money continues to flow into the market. However, we are
wary of the historically rich valuations that permeate the market.
All of which is why many investors could find it worthwhile to own shares of
this Fund. The portfolio does not offer a lot of exposure to high-growth
sectors, such as Internet stocks, and, thus, has proven to be relatively
stable during previous periods of market volatility. We believe the Fund can
be attractive during turbulent times, while helping shareholders build long-
term value.
- ---------
+ Including the 4.75% sales load, the Fund's return was 1.64% for the period.
/1/ The Lipper Equity Income Fund Index is an index of managed funds that seeks
relatively high current income and growth of income through investing 60% or
more of its portfolio in equities.
/2/ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the stock market as a whole. The index does not reflect
expenses associated with a mutual fund, such as investment management and
fund accounting fees. The Fund's performance reflects the deduction of fees
for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
69
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Equity Income Fund June 30, 1999 (Unaudited)
Common Stocks (89.5%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Aerospace & Military Technology (2.3%)
Raytheon Co., Class B (b).............................. 13,000 $ 914,875
United Technologies Corp. (b).......................... 18,100 1,297,544
------------
2,212,419
------------
Automobiles (1.2%)
Ford Motor Co.......................................... 20,000 1,128,750
------------
Banking (7.8%)
Bank of America Corp................................... 31,000 2,272,687
First Tennessee National Corp. (b)..................... 19,000 727,938
KeyCorp................................................ 19,000 610,375
Wachovia Corp. (b)..................................... 16,000 1,369,000
Wells Fargo & Co....................................... 55,100 2,355,524
------------
7,335,524
------------
Beverages (1.7%)
Pepsi Bottling Group, Inc. ............................ 52,000 1,199,250
PepsiCo, Inc. (b)...................................... 10,000 386,875
------------
1,586,125
------------
Business Equipment & Services (2.6%)
Electronic Data Systems Corp. (b)...................... 12,000 678,750
Pitney Bowes, Inc. .................................... 27,500 1,766,875
------------
2,445,625
------------
Chemicals (2.0%)
Air Products & Chemicals, Inc. (b)..................... 26,500 1,066,625
Du Pont (E.I.) de Nemours & Co. ....................... 12,000 819,750
------------
1,886,375
------------
Consumer Non-Durables (1.7%)
Philip Morris Cos., Inc................................ 40,200 1,615,538
------------
Containers & Packaging (1.0%)
Sherwin Williams Co.................................... 34,000 943,500
------------
Cosmetics & Toiletries (0.9%)
Colgate-Palmolive Co................................... 8,500 839,375
------------
Data Processing (2.7%)
Automatic Data Processing, Inc. (b).................... 57,200 2,516,800
------------
Electrical Equipment (3.7%)
Emerson Electric (b)................................... 15,400 968,275
General Electric Co.................................... 16,000 1,808,000
Honeywell, Inc. (b).................................... 6,000 695,250
------------
3,471,525
------------
Financial Services (5.1%)
American Express Co.................................... 6,700 871,838
Citigroup, Inc......................................... 25,750 1,223,125
Fannie Mae............................................. 26,700 1,825,612
Washington Mutual, Inc. (b)............................ 26,000 919,750
------------
4,840,325
------------
Food & Related (3.1%)
Bestfoods (b).......................................... 16,500 816,750
Campbell Soup Co. (b).................................. 7,000 314,125
Heinz (H.J.) Co. ...................................... 36,000 1,804,500
------------
2,935,375
------------
Health Care (0.6%)
Hillenbrand Industries, Inc............................ 12,500 540,625
------------
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Health Care -- Drugs (8.6%)
Abbott Laboratories.................................... 46,000 $ 2,093,000
Bristol Myers Squibb Co................................ 16,800 1,183,350
Merck & Co., Inc. (b).................................. 26,500 1,960,999
Schering-Plough Corp. ................................. 26,000 1,378,000
Warner-Lambert Co. .................................... 21,500 1,491,563
------------
8,106,912
------------
Household -- General Products (1.0%)
Procter & Gamble Co.................................... 11,000 981,750
------------
Industrial Goods & Services (2.2%)
Hewlett-Packard Co. ................................... 10,500 1,055,250
IBM Corp. ............................................. 8,000 1,034,000
------------
2,089,250
------------
Insurance (3.0%)
Allstate Corp. ........................................ 25,000 896,875
Conseco, Inc. (b)...................................... 35,000 1,065,313
Torchmark Corp. ....................................... 25,000 853,125
------------
2,815,313
------------
Manufacturing (1.5%)
Minnesota Mining & Manufacturing Co. (b)............... 16,000 1,391,000
------------
Oil & Gas (5.7%)
Enron Corp............................................. 16,000 1,308,000
Exxon Corp. (b)........................................ 16,400 1,264,850
Mobil Corp............................................. 7,500 742,500
Royal Dutch Petroleum (b).............................. 18,300 1,102,575
Texaco, Inc. (b)....................................... 15,600 975,000
------------
5,392,925
------------
Petroleum -- Services (1.0%)
Halliburton Co. (b).................................... 20,000 905,000
------------
Publishing (2.3%)
Gannett Co., Inc. (b).................................. 13,000 927,875
McGraw-Hill, Inc. ..................................... 24,000 1,294,500
------------
2,222,375
------------
Real Estate Investment Trust (3.8%)
Equity Residential Property............................ 21,000 946,313
Post Properties (b).................................... 28,000 1,148,000
Prison Realty Trust, Inc............................... 2,000 19,625
Simon Property Group, Inc.............................. 10,600 268,975
Spieker Properties, Inc................................ 31,000 1,205,125
------------
3,588,038
------------
Retail (6.1%)
Albertsons, Inc. (b)................................... 21,000 1,082,813
Dayton Hudson Corp. ................................... 9,500 617,500
Dollar General Stores.................................. 31,500 1,350,563
J.C. Penney, Inc. (b).................................. 10,500 509,906
McDonald's Corp. ...................................... 33,500 1,383,968
Wal-Mart Stores, Inc. (b).............................. 18,000 868,500
------------
5,813,250
------------
Retail -- Specialty Stores (1.6%)
CVS Corp. ............................................. 29,000 1,482,625
------------
Transportation (1.5%)
CSX Corp. ............................................. 30,500 1,382,031
------------
</TABLE>
Continued
70
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Equity Income Fund June 30, 1999 (Unaudited)
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Utilities (2.8%)
DPL, Inc. (b).......................................... 25,000 $ 459,375
NiSource, Inc. (b)..................................... 32,500 838,906
Sierra Pacific Resources............................... 37,000 1,345,875
------------
2,644,156
------------
Utilities -- Electric (1.7%)
Duke Energy Corp. (b).................................. 29,500 1,604,063
------------
Utilities -- Gas & Pipeline (2.3%)
Sonat, Inc. (b)........................................ 25,500 844,688
Washington Gas Light Co................................ 52,000 1,352,000
------------
2,196,688
------------
Utilities -- Telephone (7.2%)
AT&T Corp. (b)......................................... 33,250 1,855,765
GTE Corp. ............................................. 27,000 2,043,562
SBC Communications, Inc. .............................. 28,500 1,653,000
Sprint Corp............................................ 14,400 760,500
Telefonos de Mexico SA, Class L, ADR................... 6,500 525,281
------------
6,838,108
------------
Wholesale (0.8%)
Sysco Corp. (b)........................................ 26,000 775,125
------------
TOTAL COMMON STOCKS
(Cost $76,999,386).................................... 84,526,490
------------
Convertible Preferred Stocks (1.3%)
Utilities (1.3%)
Texas Utilities, 9.25%................................. 23,000 1,265,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $1,268,322)..................................... 1,265,000
------------
Convertible Bonds (0.5%)
Industrial Goods & Services (0.5%)
EMC Corp., 3.25%, 3/15/02, Callable 3/15/00 @ 101.3,
Convertible to 88.2807 Shares Per 1000, Until
3/15/02............................................... $ 100,000 496,250
------------
TOTAL CONVERTIBLE BONDS
(Cost $486,250)....................................... 496,250
------------
U.S. Treasury Bills* (1.3%)
U.S. Treasury Bills, 4.43%, 7/15/99.................... 1,250,000 1,247,756
------------
TOTAL U.S. TREASURY BILLS
(Cost $1,247,847)..................................... 1,247,756
------------
Investment Companies (9.3%)
AIM Liquid Assets Money Market Fund.................... 2,952,035 2,952,035
AIM Prime Money Market Fund............................ 4,479,639 4,479,639
S&P 500 Depository Receipt............................. 10,000 1,369,219
------------
TOTAL INVESTMENT COMPANIES
(Cost $8,764,074)..................................... 8,800,893
------------
</TABLE>
Cash Equivalents (0.1%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Bank of New York Cash Reserve......................... $ 94,497 $ 94,497
------------
TOTAL CASH EQUIVALENTS
(Cost $94,497)....................................... 94,497
------------
Short-Term Securities Held as Collateral (29.7%)
Commercial Paper (21.5%)
Conagra, 6.00%, 7/1/99................................ 3,750,343 3,749,718
MCI WorldCom, 5.03%-6.10%, 7/1/99..................... 3,750,343 3,744,261
Raytheon, 5.00%, 7/6/99............................... 750,069 743,714
Rohm & Haas, 4.97%-6.25%, 7/1/99...................... 3,750,343 3,742,769
Safeway, 6.25%, 7/1/99................................ 2,904,491 2,903,986
Textron Finance, 5.10%, 7/7/99........................ 1,875,172 1,867,999
Tyco International, 5.15%, 8/3/99..................... 1,875,172 1,860,417
US West, 5.30%, 8/22/99............................... 1,875,172 1,855,571
------------
20,468,435
------------
Floating Rate Note (1.0%)
General Motors Acceptance Corp., 5.62%**, 11/13/00.... 900,082 900,082
------------
Investment Companies (5.4%)
AIM Liquid Asset Money Market Fund.................... 5,072,537 5,072,537
------------
Repurchase Agreements (1.8%)
Lehman Brothers, 5.50%, 7/1/99, dated 6/30/99, with a
maturity value of $1,689,008 (See Significant
Accounting Policies, Securities Lending in the Notes
to Financial Statements for collateral description).. 1,688,750 1,688,750
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL
(Cost $28,129,804)................................... 28,129,804
------------
TOTAL INVESTMENTS
(Cost $116,990,180) (a) -- (131.7%).................. 124,560,690
Liabilities in excess of other
assets -- (-31.7%)................................... (29,986,880)
------------
TOTAL NET ASSETS -- (100.0%).......................... $ 94,573,810
============
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $ 9,287,665
Unrealized depreciation......................................... (1,717,155)
-----------
Net unrealized appreciation..................................... $ 7,570,510
===========
</TABLE>
(b) All or a portion of this security has been loaned at June 30, 1999.
* Yield effective at purchase.
** Variable rate security. Rate represents rate in effect at June 30, 1999.
ADR -- American Depository Receipt
See notes to financial statements
71
<PAGE>
ISG FUNDS
Equity Income Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $115,301,430)............. $122,871,940
Repurchase agreements, at cost........................ 1,688,750
------------
Total Investments.................................... 124,560,690
Interest and dividends receivable..................... 190,695
Receivable for capital shares issued.................. 48,781
Receivable for investments sold....................... 254,947
Deferred organization costs........................... 2,620
Prepaid expenses and other assets..................... 36,503
------------
Total Assets......................................... 125,094,236
Liabilities:
Payable for return of collateral held for securities
on loan.............................................. $28,129,804
Distributions payable................................. 95,595
Payable for investments purchased..................... 2,201,991
Payable for capital shares redeemed................... 1,150
Accrued expenses and other payables:
Investment advisory fees............................. 49,080
Administration fees.................................. 1,144
Distribution fees.................................... 17,555
Custodian fees....................................... 5,557
Other................................................ 18,550
-----------
Total Liabilities.................................... 30,520,426
------------
Net Assets:
Capital............................................... 76,798,533
Undistributed (distributions in excess of) net
investment income.................................... 4,035
Undistributed (distributions in excess of) net
realized gains....................................... 10,200,732
Net unrealized appreciation (depreciation) from
investments.......................................... 7,570,510
------------
Net Assets............................................ $ 94,573,810
============
Class A Shares
Net Assets........................................... $ 5,767,253
Shares outstanding................................... 540,948
Redemption price per share........................... $ 10.66
============
Class A Shares -- Maximum Sales Charge................ 4.75%
------------
Maximum Offering Price Per Share (100%/(100% --
Maximum Sales Charge) of net asset value adjusted
to the nearest cent)................................ $ 11.19
============
Class B Shares
Net Assets........................................... $ 7,630,980
Shares outstanding................................... 716,219
Offering price per share*............................ $ 10.65
============
Institutional Shares
Net Assets........................................... $ 81,175,577
Shares outstanding................................... 7,608,923
Offering and redemption price per share.............. $ 10.67
============
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 14,096
Dividend income.......................................... 1,080,536
Income from securities lending........................... 41,728
----------
Total Investment Income................................. 1,136,360
Expenses:
Investment advisory fees................................. $282,689
Administration fees...................................... 65,236
Distribution fees -- Class A Shares...................... 6,127
Distribution fees -- Class B Shares...................... 21,814
Shareholder servicing fees -- Class A Shares............. 3,676
Shareholder servicing fees -- Class B Shares............. 7,271
Shareholder servicing fees -- Institutional Shares....... 57,197
Custodian fees........................................... 15,011
Accounting fees.......................................... 12,169
Transfer agent fees...................................... 29,905
Directors' fees.......................................... 744
Other fees............................................... 35,192
--------
Net expenses............................................ 537,031
----------
Net Investment Income.................................... 599,329
----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions............................................ 5,906,656
Net change in unrealized appreciation (depreciation) from
investments............................................. (507,318)
----------
Net realized/unrealized gains (losses) from investments.. 5,399,338
----------
Change in net assets resulting from operations........... $5,998,667
==========
</TABLE>
See notes to financial statements
72
<PAGE>
ISG FUNDS
Equity Income Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
1999 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income.......................... $ 599,329 $ 856,254
Net realized gains (losses) from investment
transactions.................................. 5,906,656 17,445,684
Net change in unrealized appreciation
(depreciation) from investments............... (507,318) (4,356,815)
----------- -----------
Change in net assets resulting from operations.. 5,998,667 13,945,123
----------- -----------
Distributions to Class A Shareholders:
From net investment income..................... (30,257) (17,468)
From net realized gains on investment
transactions.................................. -- (643,995)
Distributions to Class B Shareholders:
From net investment income..................... (19,356) (4,921)(a)
From net realized gains on investment
transactions.................................. -- (657,287)(a)
Distributions to Institutional Shareholders:
From net investment income..................... (543,892) (833,860)
From net realized gains on investment
transactions.................................. -- (14,249,617)
----------- -----------
Change in net assets from shareholder
distributions.................................. (593,505) (16,407,148)
----------- -----------
Change in net assets from capital transactions.. 5,479,771 17,813,222
----------- -----------
Change in net assets............................ 10,884,933 15,351,197
Net Assets:
Beginning of period............................ 83,688,877 68,337,680
----------- -----------
End of period.................................. $94,573,810 $83,688,877
=========== ===========
</TABLE>
- ---------
(a) For the period from February 3, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
73
<PAGE>
ISG FUNDS
Equity Income Fund
Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1999
--------------
(Unaudited)
<S> <C>
Cash Flows from Operating Activities:
Net investment income.......................................... $ 599,329
Adjustments to reconcile net investment income to net cash
provided by (used in) operating activities:
Cost of investment securities purchased....................... (104,335,608)
Proceeds from disposition of investment securities............ 98,856,772
Decrease (increase) in investments purchased with cash
collateral from securities lending........................... (7,098,378)
Decrease (increase) in interest and dividends receivable...... (73,655)
Decrease (increase) in other assets........................... (14,884)
Increase (decrease) in payable for return of collateral
received from securities lending............................. 7,098,378
Increase (decrease) in accrued expenses....................... 11,748
Net amortization/accretion from investments................... (7,692)
-------------
Net cash provided by (used in) operating activities............ (4,963,990)
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 16,424,101
Cost of shares redeemed........................................ (10,988,791)
Cash distributions paid........................................ (471,320)
-------------
Net cash provided by (used in) financing activities............ 4,963,990
-------------
Net increase (decrease) in cash................................. --
Cash:
Beginning balance.............................................. --
-------------
Ending balance................................................. $ --
=============
</TABLE>
- ---------
Non-cash financing activities not included herein consist of reinvestment of
dividends and distributions of $74,546.
See notes to financial statements
74
<PAGE>
ISG FUNDS
Equity Income Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $10.05 $10.37 $10.00
------ ------ ------
Investment Activities
Net investment income (loss)........ 0.06 0.10 0.65
Net realized and unrealized gains
(losses) from investments.......... 0.61 1.81 1.71
------ ------ ------
Total from Investment Activities.... 0.67 1.91 2.36
------ ------ ------
Distributions
Net investment income............... (0.06) (0.10) (0.19)
Net realized gains.................. -- (2.13) (1.80)
------ ------ ------
Total Distributions................. (0.06) (2.23) (1.99)
------ ------ ------
Net change in asset value............ 0.61 (0.32) 0.37
------ ------ ------
Net Asset Value, End of Period....... $10.66 $10.05 $10.37
====== ====== ======
Total Return (excludes sales
charge)............................. 6.70%(b) 19.46% 24.20%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $5,767 $3,658 $ 388
Ratio of expenses to average net
assets.............................. 1.41%(c) 1.45% 1.06%(c)
Ratio of net investment income to
average net assets.................. 1.22%(c) 0.86% 2.11%(c)
Ratio of expenses to average net
assets*............................. (d) 1.45% 1.31%(c)
Portfolio turnover**................. 81% 159% 86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 28, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period.............. $10.04 $10.63
------ ------
Investment Activities
Net investment income (loss)..................... 0.03 0.04
Net realized and unrealized gains (losses) from
investments..................................... 0.61 1.54
------ ------
Total from Investment Activities................. 0.64 1.58
------ ------
Distributions
Net investment income............................ (0.03) (0.04)
Net realized gains............................... -- (2.13)
------ ------
Total Distributions.............................. (0.03) (2.17)
------ ------
Net change in asset value......................... 0.61 (0.59)
------ ------
Net Asset Value, End of Period.................... $10.65 $10.04
====== ======
Total Return (excludes redemption charge)......... 6.41%(b) 15.79%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................. $7,631 $4,189
Ratio of expenses to average net assets........... 2.01%(c) 2.20%(c)
Ratio of net investment income to average net
assets........................................... 0.63%(c) 0.12%(c)
Portfolio turnover*............................... 81% 159%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 3, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
75
<PAGE>
ISG FUNDS
Equity Income Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 10.05 $ 10.37 $ 11.73
------- ------- -------
Investment Activities
Net investment income (loss)........ 0.07 0.13 0.06
Net realized and unrealized gains
(losses) from investments.......... 0.62 1.81 0.44
------- ------- -------
Total from Investment Activities.... 0.69 1.94 0.50
------- ------- -------
Distributions
Net investment income............... (0.07) (0.13) (0.06)
Net realized gains.................. -- (2.13) (1.80)
------- ------- -------
Total Distributions................. (0.07) (2.26) (1.86)
------- ------- -------
Net change in asset value............ 0.62 (0.32) (1.36)
------- ------- -------
Net Asset Value, End of Period....... $ 10.67 $ 10.05 $ 10.37
======= ======= =======
Total Return......................... 6.92%(b) 19.72% 4.62%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $81,176 $75,842 $67,949
Ratio of expenses to average net
assets.............................. 1.16%(c) 1.16% 0.68%(c)
Ratio of net investment income to
average net assets.................. 1.44%(c) 1.14% 2.15%(c)
Ratio of expenses to average net
assets*............................. (d) 1.17% 1.09%(c)
Portfolio turnover**................. 81% 159% 86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from October 3, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
76
<PAGE>
[PHOTO OF RON LINDQUIST APPEARS HERE]
Ron Lindquist
Portfolio Manager
ISG Large-Cap Equity Fund
- --------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with long-term capital appreciation by
investing primarily in large-capitalization stocks (markets caps over $1
billion). The Fund's holdings are typically characterized by higher-than-
average return on equity, superior long-term earnings-per-share growth rates
and consistent earnings generation. This Fund is suitable for investors who
are investing for the long term and are willing to assume the additional risk
of investing in growth stocks in return for potentially higher total returns.
- --------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund's total return was 7.55%
(Class A Shares at NAV).+ In comparison, the Standard & Poor's 500 Stock
Index/1/ rose 12.38%.
Q. What factors affected your performance?
A. We did somewhat better in the first quarter than in the second quarter.
Overall, the sectors that performed well for us in 1998 were not particularly
strong in the first six months of 1999. For example, the consumer cyclicals
area was a winner for us last year, but in the most recent period, the sector
produced decent, but decidedly less spectacular results.
Also, our holdings in the consumer staples segment of the portfolio (which
represented 20.9% of our total assets) posted disappointing numbers, as did our
health-care stocks; health care is traditionally one of our largest sectors.*
Nonetheless, we remain committed to the seven broad economic sectors
represented in the Fund; we believe that all of these market segments offer
outstanding earnings-per-share growth potential in the months and years ahead.
It is our feeling that the results of the last six months represent little more
than the normal, short-term variances of the market, and are not evidence of
weakness in the long-term earnings growth outlook for the companies we favor.
Q. What stocks performed well for you?
A. On the positive side, our technology holdings performed extremely well
during the period as a whole. We did particularly well with such stocks as
Microsoft (2.8% of the Fund's net assets), IBM (3.9%), Sun Microsystems (2.2%),
Applied Materials (2.0%), Oracle (1.6%), and Motorola (1.5%), which rebounded
in a big way during the period.*
Q. What is your outlook for the rest of 1999?
A. As we anticipated, the U.S. economy was much stronger in the first quarter
of 1999 than most forecasters had predicted. We believe that the same will
likely be true of the second quarter.
Although the year's robust first two quarters are past us now, we feel the
stage is set for the economy to turn in another fairly strong performance in
the third quarter, as well. The Federal Reserve's decision to raise short-term
interest rates on June 30, 1999, is unlikely to have a significant effect on
corporate earnings, at least in the short run. This is cause for optimism. Many
of the companies we like are multinational corporations with significant
overseas operations and markets, and quite a few of these previously weak
foreign economies are beginning to "bottom out" and stage at least mild
recoveries. This developing international strength is likely to boost the
earnings of the companies in our portfolio.
Because we are long-term equity investors, we typically focus on companies'
earnings streams, and the expected persistency of these earnings streams, over
an extended investment horizon. However, at this juncture, our main short-term
concern is that, if the Fed feels compelled to tighten interest rates even
more, it is possible some corporate managers will take steps that will
potentially dampen their earnings growth rates--which would likely have an
adverse impact on stock prices, near term.
- ---------
+Including the 4.75% sales load, the Fund's return was 2.46% for the period.
/1/The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the stock market as a whole. The index does not reflect
expenses associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for
these value-added services.
*The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
77
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Large-Cap Equity Fund June 30, 1999 (Unaudited)
Common Stocks (93.2%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- ------------
<S> <C> <C>
Beverages (3.6%)
Coca-Cola Co.(c).................................... 245,000 $ 15,312,500
PepsiCo, Inc. ...................................... 355,000 13,734,063
------------
29,046,563
------------
Business Equipment & Services (4.2%)
Donnelley (R. R.) & Sons Co.(c)..................... 100,000 3,706,250
Electronic Data Systems Corp. ...................... 150,000 8,484,375
Pitney Bowes, Inc. ................................. 335,000 21,523,750
------------
33,714,375
------------
Capital Goods (2.8%)
Dover Corp.(c)...................................... 420,000 16,065,000
PPG Industries, Inc.(c)............................. 100,000 5,906,250
------------
21,971,250
------------
Consumer Non-Durables (5.0%)
Gillette Co. ....................................... 260,000 10,660,000
International Flavors and Fragrances, Inc.(c)....... 250,000 11,093,750
Nike, Inc., Class B................................. 60,000 3,798,750
Philip Morris Cos., Inc. ........................... 150,000 6,028,125
Sara Lee Corp. ..................................... 350,000 7,940,625
------------
39,521,250
------------
Consumer Services (1.9%)
Disney (Walt) Co. .................................. 500,000 15,406,250
------------
Data Processing (2.8%)
Automatic Data Processing, Inc. .................... 500,000 22,000,000
------------
Electrical Equipment (3.4%)
General Electric Co. ............................... 240,000 27,120,000
------------
Food & Related (1.7%)
Bestfoods........................................... 150,000 7,425,000
Heinz (H.J.) Co. ................................... 129,450 6,488,681
------------
13,913,681
------------
Health Care (6.0%)
American Home Products Corp. ....................... 220,000 12,650,000
Hillenbrand Industries, Inc. ....................... 100,000 4,325,000
Johnson & Johnson................................... 250,000 24,500,000
United Health Care Corp.(c)......................... 100,000 6,262,500
------------
47,737,500
------------
Health Care -- Drugs (11.4%)
Abbott Laboratories................................. 350,000 15,925,000
Amgen, Inc.(b)...................................... 200,000 12,175,000
Merck & Co., Inc. .................................. 300,000 22,200,000
Pfizer, Inc......................................... 150,000 16,462,500
Schering-Plough Corp. .............................. 450,000 23,850,000
------------
90,612,500
------------
Household -- General Products (2.0%)
Procter & Gamble Co. ............................... 180,000 16,065,000
------------
Industrial Goods & Services (7.2%)
Hewlett-Packard Co. ................................ 260,000 26,130,000
IBM Corp. .......................................... 240,000 31,020,000
------------
57,150,000
------------
Manufacturing (3.0%)
Tyco International, Ltd.(c)......................... 250,000 23,687,500
------------
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- ------------
<S> <C> <C>
Medical Equipment & Supplies (3.7%)
IMS Health, Inc. ..................................... 200,000 $ 6,250,000
Medtronic, Inc. ...................................... 300,000 23,362,500
------------
29,612,500
------------
Raw Materials (0.9%)
Avery Dennison Corp. ................................. 120,000 7,245,000
------------
Retail (7.2%)
Albertsons, Inc. ..................................... 180,000 9,281,250
Gap (The), Inc.(c).................................... 240,000 12,090,000
McDonald's Corp. ..................................... 520,000 21,482,500
Wal-Mart Stores, Inc.(c).............................. 300,000 14,475,000
------------
57,328,750
------------
Retail -- Specialty Stores (5.8%)
Home Depot, Inc. ..................................... 350,000 22,553,125
Walgreen Co. ......................................... 800,000 23,500,000
------------
46,053,125
------------
Technology (15.8%)
Applied Materials, Inc.(b)............................ 220,000 16,252,500
Boeing Co. ........................................... 220,000 9,721,250
Compaq Computer Corp. ................................ 700,000 16,581,250
Intel Corp. .......................................... 300,000 17,850,000
Microsoft Corp.(b)(c)................................. 250,000 22,546,874
Motorola, Inc. ....................................... 130,000 12,317,500
Oracle Corp.(b)....................................... 350,000 12,993,750
Sun Microsystems, Inc.(b)............................. 260,000 17,907,500
------------
126,170,624
------------
Telecommunications (1.4%)
Lucent Technologies, Inc. ............................ 160,000 10,790,000
------------
Utilities -- Telephone (2.2%)
AT&T Corp.(c)......................................... 195,000 10,883,438
SBC Communications, Inc. ............................. 120,000 6,960,000
------------
17,843,438
------------
Wholesale (1.2%)
Sysco Corp.(c)........................................ 320,000 9,540,000
------------
TOTAL COMMON STOCKS (Cost $293,119,299)............... 742,529,306
------------
Investment Companies (6.8%)
AIM Liquid Assets Money Market Fund................... 33,274,839 33,274,839
AIM Prime Money Market Fund........................... 21,023,610 21,023,610
------------
TOTAL INVESTMENT COMPANIES (Cost $54,298,449) 54,298,449
------------
</TABLE>
Continued
78
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Large-Cap Equity Fund June 30, 1999 (Unaudited)
Short-Term Securities Held as Collateral (8.7%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- ------------
<S> <C> <C>
Commercial Paper (6.3%)
Conagra, 6.00%, 7/1/99............................... $ 9,275,505 $ 9,273,959
MCI WorldCom, 5.03% - 6.10%, 7/1/99.................. 9,275,505 9,260,464
Raytheon, 5.00%, 7/6/99.............................. 1,855,101 1,839,384
Rohm & Haas, 4.97% - 6.25%, 7/1/99................... 9,275,505 9,256,773
Safeway, 6.25%, 7/1/99............................... 7,183,508 7,182,261
Textron Finance, 5.10%, 7/7/99....................... 4,637,753 4,620,013
Tyco International, 5.15%, 8/3/99.................... 4,637,753 4,601,262
US West, 5.30%, 8/22/99.............................. 4,637,753 4,589,275
------------
50,623,391
------------
Floating Rate Note (0.3%)
General Motors Acceptance Corp., 5.41%*, 11/13/00.... 2,226,121 2,226,121
------------
Investment Companies (1.6%)
AIM Liquid Asset Money Market Fund................... 12,545,610 12,545,610
------------
Repurchase Agreements (0.5%)
Lehman Brothers, 5.50%, 7/1/99, dated 6/30/99, with a
maturity value of $4,177,326 (See Significant
Accounting Policies, Securities Lending in the Notes
to Financial Statements for collateral
description)........................................ 4,176,688 4,176,688
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL
(Cost $69,571,810).................................. 69,571,810
------------
TOTAL INVESTMENTS
(Cost $416,989,558)(a) -- (108.7%).................. 866,399,565
Liabilities in excess of other
assets -- (-8.7%)................................... (69,184,653)
------------
TOTAL NET ASSETS -- (100.0%)......................... $797,214,912
============
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $450,903,518
Unrealized depreciation........................................ (1,493,511)
------------
Net unrealized appreciation.................................... $449,410,007
============
</TABLE>
(b) Non-income producing security.
(c) All or a portion of this security has been loaned at June 30, 1999.
* Variable rate security. Rate represents rate in effect at June 30, 1999.
See notes to financial statements
79
<PAGE>
ISG FUNDS
Large-Cap Equity Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $412,812,870)............. $862,222,877
Repurchase agreements, at cost........................ 4,176,688
------------
Total Investments.................................... 866,399,565
Interest and dividends receivable..................... 844,897
Receivable for capital shares issued.................. 181,175
Receivable from investment adviser.................... 86,620
Prepaid expenses and other assets..................... 55,122
------------
Total Assets......................................... 867,567,379
Liabilities:
Payable for return of collateral held for securities
on loan.............................................. $69,571,810
Distributions payable................................. 73,352
Payable for capital shares redeemed................... 29,491
Accrued expenses and other payables:
Investment advisory fees............................. 466,317
Administration fees.................................. 9,496
Distribution fees.................................... 100,502
Custodian fees....................................... 22,946
Other................................................ 78,553
-----------
Total Liabilities.................................... 70,352,467
------------
Net Assets:
Capital............................................... 228,303,235
Undistributed (distributions in excess of) net
investment income.................................... 47,092
Undistributed (distributions in excess of) net
realized gains....................................... 119,454,578
Net unrealized appreciation (depreciation) from
investments.......................................... 449,410,007
------------
Net Assets............................................ $797,214,912
============
Class A Shares
Net Assets........................................... $ 73,377,615
Shares outstanding................................... 2,477,339
Redemption price per share........................... $ 29.62
============
Class A Shares -- Maximum Sales Charge................ 4.75%
------------
Maximum Offering Price Per Share (100%/(100% --
Maximum Sales Charge) of net asset value adjusted
to the nearest cent)................................ $ 31.10
============
Class B Shares
Net Assets........................................... $ 11,811,889
Shares outstanding................................... 400,485
Offering price per share*............................ $ 29.49
============
Institutional Shares
Net Assets........................................... $712,025,408
Shares outstanding................................... 24,045,811
Offering and redemption price per share.............. $ 29.61
============
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Dividend income...................................... $ 4,264,940
Expenses:
Investment advisory fees............................. $2,843,312
Administration fees.................................. 568,665
Distribution fees -- Class A Shares.................. 79,460
Distribution fees -- Class B Shares.................. 18,626
Shareholder servicing fees -- Class A Shares......... 47,462
Shareholder servicing fees -- Class B Shares......... 6,210
Shareholder servicing fees -- Institutional Shares... 517,262
Custodian fees....................................... 68,322
Accounting fees...................................... 12,680
Transfer agent fees.................................. 54,604
Directors' fees...................................... 8,629
Other fees........................................... 129,943
----------
Total expenses before voluntary fee
reductions/reimbursements.......................... 4,355,175
Expenses voluntarily reduced/reimbursed............. (388,746)
------------
Net expenses........................................ 3,966,429
------------
Net Investment Income................................ 298,511
------------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................ 119,454,578
Net change in unrealized appreciation (depreciation)
from investments.................................... (62,589,567)
------------
Net realized/unrealized gains (losses) from
investments......................................... 56,865,011
------------
Change in net assets resulting from operations....... $ 57,163,522
============
</TABLE>
See notes to financial statements
80
<PAGE>
ISG FUNDS
Large-Cap Equity Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended
Ended June 30, December 31, February 28,
1999 1998(a) 1998
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income........... $ 298,511 $ 1,332,058 $ 3,179,613
Net realized gains (losses) from
investment transactions........ 119,454,578 32,550,780 9,991,335
Net change in unrealized
appreciation (depreciation)
from investments............... (62,589,567) 146,744,324 193,990,094
------------- ------------ ------------
Change in net assets resulting
from operations................. 57,163,522 180,627,162 207,161,042
------------- ------------ ------------
Distributions to Class A
Shareholders:
From net investment income...... (23,624) (1,672,643) (3,295,484)
From net realized gains on
investment transactions........ -- (38,068,113) (4,463,969)
Distributions to Class B
Shareholders:
From net investment income...... -- (10)(b) --
Distributions to Institutional
Shareholders:
From net investment income...... (219,555) (58,445)(c) --
------------- ------------ ------------
Change in net assets from
shareholder distributions....... (243,179) (39,799,211) (7,759,453)
------------- ------------ ------------
Change in net assets from capital
transactions.................... (104,039,285) (12,124,764) 25,837,177
------------- ------------ ------------
Change in net assets............. (47,118,942) 128,703,187 225,238,766
Net Assets:
Beginning of period............. 844,333,854 715,630,667 490,391,901
------------- ------------ ------------
End of period................... $ 797,214,912 $844,333,854 $715,630,667
============= ============ ============
</TABLE>
- ---------
(a) For the period from March 1, 1998 through December 31, 1998.
(b) For the period from December 15, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
81
<PAGE>
ISG FUNDS
Large-Cap Equity Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Ended June 30, December 31, February 28, February 28, February 28, February 28, February 28,
1999 1998(a) 1998 1997 1996 1995 1994
-------------- ------------ ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 27.55 $ 23.01 $ 16.68 $ 14.49 $ 11.41 $ 10.87 $ 10.54
------- ------- -------- -------- -------- -------- --------
Investment Activities
Net investment income
(loss)................ 0.01 0.05 0.11 0.14 0.16 0.16 0.14
Net realized and
unrealized gains
(losses) from
investments........... 2.07 5.79 6.48 2.54 3.63 0.71 0.38
------- ------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 2.08 5.84 6.59 2.68 3.79 0.87 0.52
------- ------- -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.01) (0.05) (0.11) (0.14) (0.17) (0.16) (0.14)
Net realized gains..... -- (1.25) (0.15) (0.35) (0.54) (0.17) (0.05)
------- ------- -------- -------- -------- -------- --------
Total Distributions.... (0.01) (1.30) (0.26) (0.49) (0.71) (0.33) (0.19)
------- ------- -------- -------- -------- -------- --------
Net change in asset
value.................. 2.07 4.54 6.33 2.19 3.08 0.54 0.33
------- ------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 29.62 $ 27.55 $ 23.01 $ 16.68 $ 14.49 $ 11.41 $ 10.87
======= ======= ======== ======== ======== ======== ========
Total Return (excludes
sales charge).......... 7.55%(b) 25.83%(b) 39.74% 18.79% 33.73% 8.23% 4.99%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $73,378 $57,772 $715,631 $490,392 $385,145 $259,998 $284,203
Ratio of expenses to
average net assets..... 1.04%(c) 1.03%(c) 0.99% 0.92% 0.94% 0.95% 0.96%
Ratio of net investment
income to average net
assets................. 0.10%(c) 0.21%(c) 0.54% 0.95% 1.24% 1.54% 1.38%
Ratio of expenses to
average net assets*.... 1.37%(c) 1.03%(c) (d) (d) (d) (d) 0.97%
Portfolio turnover**.... 3% 3% 6% 7% 15% 1% 7%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If
such voluntary fee reductions/reimbursements had not occurred, the ratios
would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 1, 1998 through December 31, 1998. In conjunction
with the reorganization of the ISG Funds, the Fund changed its fiscal year
end to December 31.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
82
<PAGE>
ISG FUNDS
Large-Cap Equity Fund
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $ 27.54 $25.98
------- ------
Investment Activities
Net investment income (loss).................... (0.05) --
Net realized and unrealized gains (losses) from
investments.................................... 2.00 1.56
------- ------
Total from Investment Activities................ 1.95 1.56
------- ------
Net change in asset value........................ 1.95 1.56
------- ------
Net Asset Value, End of Period................... $ 29.49 $27.54
======= ======
Total Return (excludes redemption charge)........ 7.08%(b) 6.02%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $11,812 $ 100
Ratio of expenses to average net assets.......... 1.97%(c) 1.10%(c)
Ratio of net investment income to average net
assets.......................................... (0.74)%(c) 0.23%(c)
Ratio of expenses to average net assets*......... (d) 2.11%(c)
Portfolio turnover**............................. 3% 3%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 15, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............ $ 27.54 $ 25.52
-------- --------
Investment Activities
Net investment income (loss)................... 0.01 --
Net realized and unrealized gains (losses) from
investments................................... 2.07 2.02
-------- --------
Total from Investment Activities............... 2.08 2.02
-------- --------
Distributions
Net investment income.......................... (0.01) --
-------- --------
Total Distributions............................ (0.01) --
-------- --------
Net change in asset value....................... 2.07 2.02
-------- --------
Net Asset Value, End of Period.................. $ 29.61 $ 27.54
======== ========
Total Return.................................... 7.55%(b) 7.92%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $712,025 $786,462
Ratio of expenses to average net assets......... 1.04%(c) 1.04%(c)
Ratio of net investment income to average net
assets......................................... 0.08%(c) 0.20%(c)
Ratio of expenses to average net assets*........ 1.12%(c) 1.09%(c)
Portfolio turnover**............................ 3% 3%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
83
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
84
<PAGE>
[PHOTO OF CHARLES WINGER APPEARS HERE]
Charles Winger
Portfolio Manager
ISG Capital Growth Fund
- --------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with the potential to achieve long-term
capital growth by investing primarily in the equity securities of domestic
issuers whose earnings are growing faster than the economy as a whole. It
invests primarily in large U.S. companies with market capitalizations of at
least $500 million. This Fund is suitable for investors who are investing for
the long term and are comfortable assuming the additional risk of investing in
stocks in exchange for potentially higher total returns.
- --------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund's total return was 8.59%
(Class A Shares at NAV).+ In comparison, the Lipper Growth Fund Index/1/ was up
11.89%, and the Standard & Poor's 500 Stock Index/2/ rose 12.38%.
We did well in the first quarter, running ahead of both of our benchmarks.
However, beginning in April, the market moved away from the type of high-growth
stocks we pursue, and, hence, the second quarter was a difficult period.
Q. What factors affected your performance?
A. There was a tremendous shift during the second quarter away from growth
stocks and into the value segment of the market. Two sectors that were hit the
hardest, especially during April, were pharmaceuticals and technology issues.
Our significant overweighting in those sectors, which has served us well in
recent years, proved to be a serious hindrance to the Fund's performance; many
stocks in those sectors fell sharply in a very short period of time.
For the rest of the second quarter, from late April to the end of June, the
Fund again outperformed its benchmarks. So, although we posted solid results
for the period as a whole, we could not overcome the dramatic, aberrant decline
in the early part of the second quarter.
Q. So the decline in growth stocks proved to be short-lived?
A. Yes. The dramatic shift in leadership during the second quarter came about
when investors began to feel that growth stocks were overvalued and value
stocks were undervalued. But by the end of the quarter, momentum had begun to
return to the growth sector.
At the same time, although we are primarily growth managers, we are not afraid
of buying "value" names that we believe offer substantial growth prospects.
Toward the end of the period, we took positions in two traditionally cyclical
stocks: Air Products (0.6% of the Fund's net assets), a chemical company; and
Willamette Industries (0.7%), a paper company.*
We also increased our weighting in the industrial/capital goods area. We felt
that with the economic cycle being in its latter stages, it was a good time to
invest in these types of companies. One of the stocks we bought was Sealed Air
(1.6%), which produces bubble packaging material. Another important move was
into the mid-cap growth sector, where we added positions in such stocks as
Global Marine (0.8%), General Instrument (2.2%) and LSI Logic (0.9%). Finally,
we bought into two retailers: Tommy Hilfiger (1.2%) and Abercrombie & Fitch
(1.0%).*
Another major shift we made in the second quarter was to trim our holdings in
health care considerably, due to the sector's sky-high valuations. We
completely liquidated our positions in Eli Lilly and Merck.
Q. What is your outlook for the rest of 1999?
A. We are fairly optimistic about a summer rally during the first couple of
months of the third quarter. However, we are very concerned about the Federal
Reserve's outlook on the economy. We feel they mean business when they say they
intend to head off inflation, and we do not think the market recognizes how
serious the Fed is. We think the June 30 rise in short-term interest rates is
just the first of at least two, and perhaps three, rate hikes this year. The
Fed lowered rates three times last fall, and chances are good they are going to
take those three cuts back again. If that happens, we could have another
downturn in the market.
- ---------
+ Including the 4.75% sales load, the Fund's return was 3.42% for the period.
/1/The Lipper Growth Fund Index is an index of managed funds that normally
invest in companies with long-term earnings expected to grow significantly
faster than the earnings of the stocks represented in the major unmanaged
stock indices.
/2/The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the stock market as a whole. The index does not reflect
expenses associated with a mutual fund, such as investment management and
fund accounting fees. The Fund's performance reflects the deduction of fees
for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
85
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Capital Growth Fund June 30, 1999 (Unaudited)
Common Stocks (91.7%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- ------------
<S> <C> <C>
Aerospace & Military Technology (3.2%)
Raytheon Co., Class B.................................... 30,000 $ 2,111,250
United Technologies Corp. (c)............................ 75,000 5,376,563
------------
7,487,813
------------
Air Transportation (1.8%)
Southwest Airlines Co. (c)............................... 133,500 4,155,188
------------
Banking (5.6%)
Fifth Third Bancorp (c).................................. 58,000 3,860,625
Firstar Corp. ........................................... 180,000 5,040,000
Wachovia Corp. .......................................... 50,500 4,320,906
------------
13,221,531
------------
Building & Construction (0.9%)
Jacobs Engineering Group, Inc. (b)(c).................... 57,000 2,166,000
------------
Business Equipment & Services (2.5%)
Pitney Bowes, Inc. ...................................... 92,500 5,943,125
------------
Chemicals (0.6%)
Air Products & Chemicals, Inc. .......................... 35,000 1,408,750
------------
Computer Software and Services (4.5%)
America Online, Inc. (b)(c).............................. 2,000 221,000
BMC Software, Inc. (b)(c)................................ 25,000 1,350,000
Cisco Systems, Inc. (b).................................. 70,000 4,501,875
Dell Computer Corp. (b)(c)............................... 60,000 2,220,000
EMC Corp. (b)............................................ 41,000 2,255,000
------------
10,547,875
------------
Containers & Packaging (1.6%)
Sealed Air Corp. (b) (c)................................. 58,500 3,795,188
------------
Cosmetics & Toiletries (0.9%)
Colgate-Palmolive Co. (c)................................ 22,500 2,221,875
------------
Data Processing (1.9%)
Automatic Data Processing, Inc. (c)...................... 104,000 4,576,000
------------
Electrical Equipment (3.3%)
General Electric Co. .................................... 54,000 6,102,000
Honeywell, Inc. ......................................... 15,000 1,738,125
------------
7,840,125
------------
Electronic Components (0.9%)
LSI Logic Corp. (b)...................................... 45,000 2,075,625
------------
Entertainment (1.5%)
Time Warner, Inc. (c).................................... 50,000 3,600,000
------------
Financial Services (0.7%)
Fannie Mae............................................... 25,500 1,743,563
------------
Health Care -- Drugs (8.9%)
Abbott Laboratories...................................... 93,500 4,254,250
Amgen, Inc. (b).......................................... 60,000 3,652,500
Bristol Myers Squibb Co. ................................ 50,000 3,521,875
Pfizer, Inc. ............................................ 21,500 2,359,625
Schering-Plough Corp. ................................... 35,000 1,855,000
Warner-Lambert Co. ...................................... 71,500 4,960,312
------------
20,603,562
------------
Household -- General Products (0.5%)
Clorox Co. .............................................. 10,000 1,068,125
------------
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- ------------
<S> <C> <C>
Industrial Goods & Services (3.5%)
Hewlett-Packard Co. ..................................... 18,000 $ 1,809,000
IBM Corp. ............................................... 50,000 6,462,500
------------
8,271,500
------------
Insurance -- Property & Casualty (1.0%)
American International Group, Inc. ...................... 19,500 2,282,719
------------
Manufacturing (4.8%)
Corning Inc. ............................................ 65,000 4,558,125
Tyco International, Ltd. ................................ 71,010 6,728,198
------------
11,286,323
------------
Medical Equipment & Supplies (2.6%)
Medtronic, Inc. (c)...................................... 25,500 1,985,813
Sybron International Corp. (b)........................... 150,000 4,134,375
------------
6,120,188
------------
Oil & Gas (0.8%)
Global Marine, Inc. (b).................................. 125,000 1,929,688
------------
Paper and Forest (0.7%)
Willamette Industries, Inc. ............................. 36,000 1,658,250
------------
Petroleum--Services (1.3%)
Halliburton Co. (c)...................................... 65,000 2,941,250
------------
Pharmaceuticals (0.8%)
Cardinal Health, Inc. ................................... 30,000 1,923,750
------------
Retail (11.6%)
Abercrombie & Fitch Co. (b).............................. 50,000 2,400,000
Albertsons, Inc. (c)..................................... 52,500 2,707,031
Dayton Hudson Corp. ..................................... 63,000 4,095,000
Dollar General Corp. .................................... 125,000 3,625,000
Gap (The), Inc. (c)...................................... 82,500 4,155,937
Safeway, Inc. (b)........................................ 46,000 2,277,000
Tommy Hilfiger Corp. (b)................................. 37,500 2,753,906
Wal-Mart Stores, Inc. (c)................................ 106,000 5,114,500
------------
27,128,374
------------
Retail-Specialty Stores (8.7%)
Best Buy Co., Inc. (b)(c)................................ 51,000 3,442,500
CVS Corp. ............................................... 61,618 3,150,220
Home Depot, Inc. (c)..................................... 88,500 5,702,718
Lowe's Cos., Inc. ....................................... 76,000 4,308,250
Walgreen Co. (c)......................................... 133,000 3,906,875
------------
20,510,563
------------
Technology (6.5%)
Applied Materials, Inc. (b).............................. 32,000 2,364,000
Intel Corp. (c).......................................... 27,000 1,606,500
Microsoft Corp. (b)...................................... 72,500 6,538,594
Oracle Corp. (b)(c)...................................... 25,000 928,125
Sun Microsystems, Inc. (b)............................... 54,000 3,719,250
------------
15,156,469
------------
Telecommunications (7.4%)
General Instrument Corp. (b)............................. 120,000 5,100,000
Lucent Technologies, Inc. (c)............................ 81,500 5,496,156
Tellabs, Inc. (b)........................................ 99,800 6,742,737
------------
17,338,893
------------
</TABLE>
Continued
86
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Capital Growth Fund June 30, 1999 (Unaudited)
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Utilities -- Telephone (2.7%)
MCI WorldCom, Inc. (b)(c)............................... 74,500 $ 6,425,625
------------
TOTAL COMMON STOCKS
(Cost $170,112,107).................................... 215,427,937
------------
Investment Companies (7.0%)
AIM Liquid Assets Money Market Fund..................... 7,950,945 7,950,945
AIM Prime Money Market Fund............................. 3,692,506 3,692,506
S&P 400 Mid-Cap Depositary Receipts..................... 60,000 4,702,500
------------
TOTAL INVESTMENT COMPANIES
(Cost $16,090,804)..................................... 16,345,951
------------
Cash Equivalents (0.0%)
Bank of New York Cash Reserve .......................... $1,000 1,000
------------
TOTAL CASH EQUIVALENTS
(Cost $1,000).......................................... 1,000
------------
Short-Term Securities Held as Collateral (34.6%)
Commercial Paper (25.2%)
Conagra, 6.00%, 7/1/99.................................. 10,837,895 10,836,089
MCI WorldCom, Inc., 5.03%-6.10%, 7/1/99................. 10,837,895 10,820,320
Raythcon, 5.00%, 7/6/99................................. 2,167,579 2,149,215
Rohm & Haas, 4.97%-6.25%, 7/1/99........................ 10,837,895 10,816,007
Safeway, 6.25%, 7/1/99.................................. 8,393,516 8,392,059
Textron Finance, 5.10%, 7/7/99.......................... 5,418,948 5,398,220
Tyco International, 5.15%, 8/3/99....................... 5,418,948 5,376,311
US West, 5.30%, 8/22/99................................. 5,418,948 5,362,304
------------
59,150,525
------------
</TABLE>
Short-Term Securities Held as Collateral, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
----------- ------------
<S> <C> <C>
Floating Rate Note (1.1%)
General Motors Acceptance Corp., 5.62%*, 11/13/00.... $ 2,601,095 $ 2,601,095
------------
Investment Companies (6.2%)
AIM Liquid Asset Money Market Fund................... 14,658,825 14,658,825
------------
Repurchase Agreements (2.1%)
Lehman Brothers, 5.50%, 7/1/99, dated 6/30/99, with a
maturity value of $4,880,966 (See Significant
Accounting Policies, Securities Lending in the Notes
to Financial Statements for collateral
descriptions)....................................... $ 4,880,220 4,880,220
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL
(Cost $81,290,665).................................. 81,290,665
------------
TOTAL INVESTMENTS
(Cost $267,494,576) (a) -- (133.3%)................. 313,065,553
Liabilities in excess of other
assets -- (-33.3%).................................. (78,169,583)
------------
TOTAL NET ASSETS -- (100.0%)......................... $234,895,970
============
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net realized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..... $48,318,809
Unrealized depreciation..... (2,747,832)
-----------
Net unrealized
appreciation............... $45,570,977
===========
</TABLE>
(b) Non-income producing security.
(c) All or a portion of this security has been loaned at June 30, 1999.
* Variable rate security. Rate represents rate in effect at June 30, 1999.
See notes to financial statements
87
<PAGE>
ISG FUNDS
Capital Growth Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $262,614,356)............ $308,185,333
Repurchase agreements, at cost....................... 4,880,220
------------
Total Investments................................... 313,065,553
Interest and dividends receivable.................... 152,204
Receivable for capital shares issued................. 3,128,133
Deferred organization costs.......................... 4,095
Prepaid expenses and other assets.................... 29,561
------------
Total Assets........................................ 316,379,546
Liabilities:
Payable for return of collateral held for securities
on loan............................................. $81,290,665
Payable for capital shares redeemed.................. 4,500
Accrued expenses and other payables:
Investment advisory fees............................ 118,105
Administration fees................................. 2,788
Distribution fees................................... 32,443
Custodian fees...................................... 7,090
Other............................................... 27,985
-----------
Total Liabilities................................... 81,483,576
------------
Net Assets:
Capital.............................................. 161,309,171
Undistributed (distributions in excess of) net
investment income................................... (101,800)
Undistributed (distributions in excess of) net
realized gains...................................... 28,117,622
Net unrealized appreciation (depreciation) from
investments......................................... 45,570,977
------------
Net Assets........................................... $234,895,970
============
Class A Shares
Net Assets.......................................... $ 7,724,873
Shares outstanding.................................. 500,831
Redemption price per share.......................... $ 15.42
============
Class A Shares -- Maximum Sales Charge............... 4.75%
------------
Maximum Offering Price Per Share (100%/(100% --
Maximum Sales Charge) of net asset value adjusted
to the nearest cent)............................... $ 16.19
============
Class B Shares
Net Assets.......................................... $ 5,799,134
Shares outstanding.................................. 384,503
Offering price per share*........................... $ 15.08
============
Institutional Shares
Net Assets.......................................... $221,371,963
Shares outstanding.................................. 14,446,365
Offering and redemption price per share............. $ 15.32
============
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 1,241
Dividend income......................................... 967,188
Income from securities lending.......................... 117,853
-----------
Total Investment Income............................... 1,086,282
Expenses:
Investment advisory fees................................ $709,329
Administration fees..................................... 163,692
Distribution fees -- Class A Shares..................... 7,696
Distribution fees -- Class B Shares..................... 15,721
Shareholder servicing fees -- Class A Shares............ 4,618
Shareholder servicing fees -- Class B Shares............ 5,240
Shareholder servicing fees -- Institutional Shares...... 155,930
Custodian fees.......................................... 24,724
Accounting fees......................................... 11,837
Transfer agent fees..................................... 29,948
Directors' fees......................................... 1,836
Other fees.............................................. 53,812
--------
Net expenses........................................... 1,184,383
-----------
Net Investment Income (Loss)............................ (98,101)
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... 23,732,201
Net change in unrealized appreciation (depreciation)
from investments....................................... (5,386,494)
-----------
Net realized/unrealized gains (losses) from
investments............................................ 18,345,707
-----------
Change in net assets resulting from operations.......... $18,247,606
===========
</TABLE>
See notes to financial statements
88
<PAGE>
ISG FUNDS
Capital Growth Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
1999 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income (loss).................. $ (98,101) $ 86,749
Net realized gains (losses) from investment
transactions................................. 23,732,201 31,139,357
Net change in unrealized appreciation
(depreciation) from investments.............. (5,386,494) 13,755,998
------------ ------------
Change in net assets resulting from
operations.................................... 18,247,606 44,982,104
------------ ------------
Distributions to Class A Shareholders:
From net realized gains on investment
transactions................................. -- (660,055)
Distributions to Class B Shareholders:
From net realized gains on investment
transactions................................. -- (355,976)(a)
Distributions to Institutional Shareholders:
From net investment income.................... -- (86,749)
In excess of net investment income............ -- (1,592)
From net realized gains on investment
transactions................................. -- (25,873,606)
------------ ------------
Change in net assets from shareholder
distributions................................. -- (26,977,978)
------------ ------------
Change in net assets from capital
transactions.................................. 35,621,122 20,403,758
------------ ------------
Change in net assets........................... 53,868,728 38,407,884
Net Assets:
Beginning of period........................... 181,027,242 142,619,358
------------ ------------
End of period................................. $234,895,970 $181,027,242
============ ============
</TABLE>
- ---------
(a) For the period from February 5, 1998 (commencement of operations) through
December 31, 1998.
Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1999
--------------
(Unaudited)
<S> <C>
Cash Flows from Operating Activities:
Net investment income (loss)................................... $ (98,101)
Adjustments to reconcile net investment income (loss) to net
cash provided by (used in) operating activities:
Cost of investment securities purchased....................... (316,285,052)
Proceeds from disposition of investment securities............ 283,852,692
Decrease (increase) in investments purchased with cash
collateral from securities lending........................... (30,277,869)
Decrease (increase) in interest and dividends receivable...... (31,067)
Decrease (increase) in other assets........................... (10,440)
Increase (decrease) in payable for return of collateral
received from securities lending............................. 30,277,869
Increase (decrease) in accrued expenses....................... 50,986
-------------
Net cash provided by (used in) operating activities............ (32,520,982)
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 58,077,125
Cost of shares redeemed........................................ (25,543,739)
Cash distributions paid........................................ (12,404)
-------------
Net cash provided by (used in) financing activities............ 32,520,982
-------------
Net increase (decrease) in cash................................. --
Cash:
Beginning balance.............................................. --
-------------
Ending balance................................................. $ --
=============
</TABLE>
- ---------
Non-cash financing activities not included herein consist of reinvestment of
dividends and distributions of $6,691.
See notes to financial statements
89
<PAGE>
ISG FUNDS
Capital Growth Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended June 30, December 31, December 31, December 31,
1999 1998 1997 1996(a)
-------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $14.20 $12.80 $11.32 $ 10.00
------ ------ ------ -------
Investment Activities
Net investment income
(loss)................ (0.02) (0.01) 0.06 --
Net realized and
unrealized gains
(losses) from
investments........... 1.24 3.89 3.40 1.32
------ ------ ------ -------
Total from Investment
Activities............ 1.22 3.88 3.46 1.32
------ ------ ------ -------
Distributions
Net investment income.. -- -- (0.06) --
Net realized gains..... -- (2.48) (1.92) --
------ ------ ------ -------
Total Distributions.... -- (2.48) (1.98) --
------ ------ ------ -------
Net change in asset
value.................. 1.22 1.40 1.48 1.32
------ ------ ------ -------
Net Asset Value, End of
Period................. $15.42 $14.20 $12.80 $ 11.32
====== ====== ====== =======
Total Return (excludes
sales charge).......... 8.59%(b) 32.05% 30.79% 13.20%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $7,725 $4,631 $ 858 $49,008
Ratio of expenses to
average net assets..... 1.31%(c) 1.28% 0.93% 1.20%(c)
Ratio of net investment
income to average net
assets................. (0.31)%(c) (0.19)% 0.42% (0.02)%(c)
Ratio of expenses to
average net assets*.... (d) 1.29% 1.18% 1.39%(c)
Portfolio turnover**.... 78% 152% 116% 69%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from April 1, 1996 (commencement of operations) through
December 31, 1996.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............ $13.92 $13.10
------ ------
Investment Activities
Net investment income (loss)................... (0.05) (0.05)
Net realized and unrealized gains (losses) from
investments................................... 1.21 3.35
------ ------
Total from Investment Activities............... 1.16 3.30
------ ------
Distributions
Net realized gains............................. -- (2.48)
------ ------
Total Distributions............................ -- (2.48)
------ ------
Net change in asset value....................... 1.16 0.82
------ ------
Net Asset Value, End of Period.................. $15.08 $13.92
====== ======
Total Return (excludes redemption charge)....... 8.33%(b) 26.86%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $5,799 $2,854
Ratio of expenses to average net assets......... 1.91%(c) 2.04%(c)
Ratio of net investment income to average net
assets......................................... (0.91)%(c) (0.95)%(c)
Portfolio turnover*............................. 78% 152%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 5, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
90
<PAGE>
ISG FUNDS
Capital Growth Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended June 30, December 31, December 31,
1999 1998 1997(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 14.09 $ 12.69 $ 14.51
-------- -------- --------
Investment Activities
Net investment income (loss).... (0.01) 0.01 0.02
Net realized and unrealized
gains (losses) from
investments.................... 1.24 3.88 0.10
-------- -------- --------
Total from Investment
Activities..................... 1.23 3.89 0.12
-------- -------- --------
Distributions
Net investment income........... -- (0.01) (0.02)
Net realized gains.............. -- (2.48) (1.92)
-------- -------- --------
Total Distributions............. -- (2.49) (1.94)
-------- -------- --------
Net change in asset value........ 1.23 1.40 (1.82)
-------- -------- --------
Net Asset Value, End of Period... $ 15.32 $ 14.09 $ 12.69
======== ======== ========
Total Return..................... 8.73% (b) 32.40% 0.88% (b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................... $221,372 $173,542 $141,761
Ratio of expenses to average net
assets.......................... 1.06% (c) 1.02% 0.58% (c)
Ratio of net investment income to
average net assets.............. (0.07)%(c) 0.07% (0.80)%(c)
Ratio of expenses to average net
assets*......................... (d) 1.03% 0.99% (c)
Portfolio turnover**............. 78% 152% 116%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from October 3, 1997 (commencement of operations) through
December 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
91
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
92
<PAGE>
Bennett Lawrence Management, LLC
Investment Team
ISG Mid-Cap Fund
- -------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors with the potential to achieve significant
capital appreciation by investing primarily in mid-capitalization stocks
(median market cap of approximately $5.5 billion). This Fund is suitable for
investors who are investing for the long-term and are willing to assume the
additional risk of investing in growth stocks in return for potentially higher
total returns.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. It was a good time to introduce this new Fund. Since the Fund's inception
on May 4, 1999, which represented slightly less than two months of
performance, the Fund's total return was 9.30% (Class A Shares at NAV).+ In
comparison, the Russell Mid-Cap Growth Index/1/ gained 14.19%.
During the quarter the market broadened. There was a shift in leadership from
the large-cap stocks that had dominated the market over the last five years to
mid-size and smaller companies that offered more attractive fundamentals and
valuations. The renewed interest in more than just a few large-cap growth
stocks was helpful for our strategy.
Q. What types of companies will normally be included in the Fund?
A. We like competitively advantaged companies that are beneficiaries of major
economic trends, companies that offer outstanding fundamentals--especially
earnings growth potential. Currently, the companies in our portfolio sport an
average earnings growth projection for the next 12 months of 28%, which is
much higher than the earnings projection for the Fund's benchmark or for the
S&P 500./2/
Along with rigorously examining financials, we visit the management of all
companies we purchase for the portfolio to examine how they are positioning
themselves within their respective industries in order to maintain their
competitive advantage. During these meetings we are trying to judge whether or
not the management team is innovative, has a past record of success and a high
energy level. Every company in which we invest must be in an industry where
the climate is favorable for future growth. Pricing trends must be solid, to
support our projections.
Generally, the Fund will have most of its assets invested in five to six
sectors; right now the fund's main focus is on retail, health care,
technology, media, telecommunications services and basic material companies.
Q. What stocks are you particularly excited about right now?
A. We are very positive about Tiffany & Co. (3.2% of the Fund's net assets).
It is a brand-name, global retailer that has created a pre-eminent brand
through high-end retail distribution centers. Now, management is exploring the
opportunities that electronic commerce might present. If done correctly, this
strategic shift could result in huge sales for Tiffany.*
We also like QLogic Corp. (3.1%), a semiconductor company with an enabling
technology that takes advantage of two trends. The first trend is a
significant increase in the amount of data that is stored in computer systems.
This trend is being fueled by the reliance of businesses on stored
information. The second trend is a change in the technology used to connect
stored data to computers. This new technology is called "fibre channel," and
it is a faster and more reliable way to store and access information. We
consider QLogic to be the leader in this technology, and the stock market is
responding in a major way.*
Q. What is your outlook for the rest of 1999?
A. We feel that, provided there are not any unexpected shocks to the stock
market, mid-cap and small-cap companies should outperform the S&P 500. We are
watching interest rates closely. The Federal Reserve's rate hike on June 30,
1999 did not appear to do any damage to stock prices, but we would not like to
see rates go much higher.
- ---------
+ Including the 4.75% sales load, the return of the Portfolio was 4.10% for
the period.
/1/The Russell Mid-Cap Growth Index is an unmanaged index representative of
the performance of a basket of more than 430 mid-cap growth stocks. The
index does not reflect expenses associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services.
/2/The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the stock market as a whole. The index does not reflect
expenses associated with a mutual fund, such as investment management and
fund accounting fees. The Fund's performance reflects the deduction of fees
for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
93
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Mid-Cap Fund June 30, 1999 (Unaudited)
Common Stocks (79.8%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- ----------
<S> <C> <C>
Cable Television (5.0%)
AT&T Corp. -- Liberty Media Group, Class A (b)............. 7,000 $ 257,250
Comcast Corp., Special Class A............................. 5,000 192,188
----------
449,438
----------
Chemicals (2.0%)
Hercules, Inc. ............................................ 4,500 176,906
----------
Computer Software and Services (6.2%)
Eclipsys Corp. (b)......................................... 8,000 191,500
Peregrine Systems, Inc. (b)................................ 8,500 218,344
Veritas Software Corp. (b)................................. 1,600 151,900
----------
561,744
----------
Electronic Components (6.3%)
Altera Corp. (b)........................................... 8,000 294,500
QLogic Corp. (b)........................................... 2,100 277,200
----------
571,700
----------
Financial Services (7.8%)
Associates First Capital Corp., Class A.................... 4,600 203,838
Concord EFS, Inc. (b)...................................... 6,000 253,875
Metris Companies, Inc...................................... 6,000 244,500
----------
702,213
----------
Industrial Goods & Services (2.4%)
SPX Corp................................................... 2,650 221,275
----------
Manufacturing (3.1%)
Tyco International, Ltd. .................................. 3,000 284,250
----------
Oil & Gas Exploration & Production (2.4%)
Anadarko Petroleum Corp.................................... 6,000 220,875
----------
Paper and Forest (2.3%)
Mead Corp.................................................. 5,000 208,750
----------
Pharmaceuticals (5.3%)
IDEC Pharmaceuticals Corp. (b)............................. 4,000 308,250
MedImmune, Inc. (b)........................................ 2,500 169,375
----------
477,625
----------
Retail (5.6%)
Abercrombie & Fitch Co. (b)................................ 5,000 240,000
AnnTaylor Stores Corp. (b)................................. 6,000 270,000
----------
510,000
----------
Retail-Specialty Stores (12.1%)
Best Buy Co., Inc. (b)..................................... 5,000 337,499
Staples, Inc. (b).......................................... 7,000 216,563
Tandy Corp. ............................................... 5,000 244,375
Tiffany & Co............................................... 3,000 289,500
----------
1,087,937
----------
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ----------
<S> <C> <C>
Technology (3.3%)
Applied Materials, Inc. (b).............................. 4,000 $ 295,500
----------
Telecommunications (10.9%)
Echostar Communications, Class A (b)..................... 1,500 230,156
General Instrument Corp. (b)............................. 5,000 212,500
NTL, Inc. (b)............................................ 3,050 262,872
Tellabs, Inc. (b)........................................ 4,000 270,250
----------
975,778
----------
Utilities-Telephone (5.1%)
MCI WorldCom, Inc. (b)................................... 2,800 241,500
NEXTLINK Communications, Inc., Class A (b)............... 3,000 223,125
----------
464,625
----------
TOTAL COMMON STOCKS
(cost $6,422,046)....................................... 7,208,616
----------
Cash Equivalents (20.4%)
Bank of New York Cash Reserve ........................... $1,843,473 1,843,473
----------
TOTAL CASH EQUIVALENTS
(Cost $1,843,473)....................................... 1,843,473
----------
TOTAL INVESTMENTS
(Cost $8,265,519) (a) -- (100.2%)....................... 9,052,089
Liabilities in excess of other
assets -- (-0.2%)....................................... (13,707)
----------
TOTAL NET ASSETS -- (100.0%)............................. $9,038,382
==========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................... $885,477
Unrealized depreciation........................................... (98,907)
--------
Net unrealized appreciation....................................... $786,570
========
</TABLE>
(b) Non-income producing security.
See notes to financial statements
94
<PAGE>
ISG FUNDS
Mid-Cap Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $8,265,519).................... $9,052,089
Interest and dividends receivable.......................... 4,561
Receivable for capital shares issued....................... 15,000
Prepaid expenses and other assets.......................... 95
----------
Total Assets.............................................. 9,071,745
Liabilities:
Accrued expenses and other payables:
Investment advisory fees.................................. $ 6,221
Administration fees....................................... 106
Distribution fees......................................... 1,116
Custodian fees............................................ 221
Other..................................................... 25,699
-------
Total Liabilities......................................... 33,363
----------
Net Assets:
Capital.................................................... 8,315,240
Undistributed (distributions in excess of) net investment
income.................................................... (31,379)
Undistributed (distributions in excess of) net realized
gains..................................................... (32,049)
Net unrealized appreciation (depreciation) from
investments............................................... 786,570
----------
Net Assets................................................. $9,038,382
==========
Class A Shares
Net Assets................................................ $ 505,149
Shares outstanding........................................ 46,211
Redemption price per share................................ $ 10.93
==========
Class A Shares -- Maximum Sales Charge..................... 4.75%
----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the nearest
cent).................................................... $ 11.48
==========
Class B Shares
Net Assets................................................ $ 366,895
Shares outstanding........................................ 33,586
Offering price per share*................................. $ 10.92
==========
Institutional Shares
Net Assets................................................ $8,166,338
Shares outstanding........................................ 746,659
Offering and redemption price per share................... $ 10.94
==========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the period ended June 30, 1999(a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................. $ 10,309
Dividend income............................................. 2,355
--------
Total Investment Income.................................... 12,664
Expenses:
Investment advisory fees.................................... $10,990
Administration fees......................................... 1,648
Distribution fees -- Class A Shares......................... 71
Distribution fees -- Class B Shares......................... 172
Shareholder servicing fees -- Class A Shares................ 42
Shareholder servicing fees -- Class B Shares................ 57
Shareholder servicing fees -- Institutional Shares.......... 1,572
Custodian fees.............................................. 309
Accounting fees............................................. 3,489
Transfer agent fees......................................... 6,768
Directors' fees............................................. 17
Registration and filing fees................................ 5,048
Audit fees.................................................. 3,187
Other fees.................................................. 10,673
-------
Net expenses............................................... 44,043
--------
Net Investment Income (Loss)................................ (31,379)
--------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions.... (32,049)
Net change in unrealized appreciation (depreciation) from
investments................................................ 786,570
--------
Net realized/unrealized gains (losses) from investments..... 754,521
--------
Change in net assets resulting from operations.............. $723,142
========
</TABLE>
- ---------
(a) For the period from May 4, 1999 (commencement of operations) through June
30, 1999.
See notes to financial statements
95
<PAGE>
ISG FUNDS
Mid-Cap Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income (loss)..................................... $ (31,379)
Net realized gains (losses) from investment transactions......... (32,049)
Net change in unrealized appreciation (depreciation) from
investments..................................................... 786,570
----------
Change in net assets resulting from operations.................... 723,142
----------
Change in net assets from capital transactions.................... 8,315,240
----------
Change in net assets.............................................. 9,038,382
Net Assets:
Beginning of period.............................................. --
----------
End of period.................................................... $9,038,382
==========
</TABLE>
- ---------
(a) For the period from May 4, 1999 (commencement of operations) through June
30, 1999.
See notes to financial statements
96
<PAGE>
ISG FUNDS
Mid-Cap Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net investment income (loss).................................... (0.02)
Net realized and unrealized gains (losses) from investments..... 0.95
------
Total from Investment Activities................................ 0.93
------
Net change in asset value........................................ 0.93
------
Net Asset Value, End of Period................................... $10.93
======
Total Return (excludes sales charge)............................. 9.30% (b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 505
Ratio of expenses to average net assets.......................... 3.66% (c)
Ratio of net investment income to average net assets............. (2.73)%(c)
Portfolio turnover*.............................................. 2%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from May 4, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net investment income (loss).................................... (0.02)
Net realized and unrealized gains (losses) from investments..... 0.94
------
Total from Investment Activities................................ 0.92
------
Net change in asset value........................................ 0.92
------
Net Asset Value, End of Period................................... $10.92
======
Total Return (excludes redemption charge)........................ 9.20% (b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 367
Ratio of expenses to average net assets.......................... 4.47% (c)
Ratio of net investment income to average net assets............. (3.45)%(c)
Portfolio turnover*.............................................. 2%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from May 4, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
97
<PAGE>
ISG FUNDS
Mid-Cap Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net investment income (loss).................................... (0.04)
Net realized and unrealized gains (losses) from investments..... 0.98
------
Total from Investment Activities................................ 0.94
------
Net change in asset value........................................ 0.94
------
Net Asset Value, End of Period................................... $10.94
======
Total Return..................................................... 9.40% (b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $8,166
Ratio of expenses to average net assets.......................... 3.91% (c)
Ratio of net investment income to average net assets............. (2.78)%(c)
Portfolio turnover*.............................................. 2%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from May 4, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
98
<PAGE>
[PICTURE OF WILLIAM A. WOMACK]
William A. Womack
Portfolio Manager
ISG Small-Cap Opportunity Fund+
- -------------------------------------------------------------------------------
Investment Goal
The Fund aggressively seeks to provide investors with the potential to achieve
a high level of total return through investments in smaller, domestic, high-
growth companies with small capitalizations. The Fund is most suitable for
investors who are investing for the long term and are comfortable assuming the
additional risk of investing in stocks in exchange for potentially higher
total returns.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund's total return was 5.03%
(Class A Shares at NAV)./1/ In comparison, the Russell 2000 Index/2/ rose
9.28%.
Q. What factors affected your performance?
A. We had a tough first quarter, but our results turned dramatically positive
in the second quarter of the year. The dominance of large-cap stocks, which
dampened our performance in 1998, continued through the first three months of
1999. However, in early April, investors began to understand that many small-
cap stocks offered compelling value, and the issues in our portfolio benefited
from this renewed interest.
We saw particularly good performance in some energy-related areas, such as oil
and gas exploration and oil field services. Some of our top energy holdings
were Forest Oil (1.5% of the Fund's net assets), Ocean Energy (1.0%), Pool
Energy (1.4%) and Transcoastal Marine (0.6%). As a result of sharply rising
energy prices, we moved out of the transportation sector.*
We also increased our allocation in health care. The sector looks to be on the
rebound; the government is backing up from some onerous restrictions, and the
aging Baby Boomer generation will increasingly depend on products and services
produced by drug makers, health insurance companies and extended care
facilities. Some of the names we favor in this sector are MedPartners (1.7%),
a company that is changing its stripes from being a physicians' practice
management concern to a pharmacy benefit manager; Res-Care (2.4%), which runs
facilities for disturbed juveniles and emotionally challenged children; and
NeoTherapeutics (1.4%), which is developing an Alzheimer's drug.*
Q. During the difficult time you experienced early in the period, did you
change your investment approach?
A. No. It is not our custom to chase "hot" stocks or short-term momentum. As
always, we remained committed to our disciplined approach of finding smaller
companies with significant earnings and/or revenue growth prospects.
We also strive to provide shareholders with a highly diversified portfolio. To
that end, along with the stocks mentioned earlier, we did well with our
holdings in the restaurant group. Some successful names were CEC Entertainment
(3.1%), which runs the Chuck E. Cheese chain; Rare Hospitality (2.4%), the
parent company of the Longhorn Steakhouse, Bugaboo Steakhouse and the Capital
Grill chains; and Sonic Hamburgers (2.5%), a successful franchise of drive-in
restaurants. In a very different type of business, we are also pleased to own
shares of THQ Inc. (1.8%), which is making a video game for the World
Wrestling Federation; and JAKKS Pacific (2.1%), a toy company that
manufactures wrestling figurines and other doll lines.*
Q. What is your outlook for the rest of 1999?
A. We think conditions for small-cap stocks are extremely favorable for the
next six months--and the next three years, for that matter. We believe energy,
particularly natural gas, will remain a profitable area for us. Another area
that should do well is communications-related technology. We expect to
increase our technology weighting later in the year.
- ---------
+ Small-capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure. Historically, smaller
companies' stocks have experienced a greater degree of market volatility
than large-company stocks on average.
/1/ Including the 4.75% sales load, the Fund's return was 0.07% for the period.
/2/ The Russell 2000 Index is an unmanaged index generally representative of the
performance of small-capitalization stocks. The index does not reflect
expenses associated with a mutual fund, such as investment management and
fund accounting fees. The Fund's performance reflects the deduction of fees
for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
99
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Small-Cap Opportunity Fund June 30, 1999 (Unaudited)
Common Stocks (91.5%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
Business Equipment & Services (6.7%)
ACT Networks, Inc. (b).................................... 18,000 $ 307,125
Comforce Corp. (b)........................................ 160,000 480,000
MasTec, Inc. (b)(c)....................................... 95,000 2,683,750
OfficeMax, Inc. (b)....................................... 245,000 2,940,000
Staffmark, Inc. (b)....................................... 80,000 802,500
-----------
7,213,375
-----------
Capital Goods (5.2%)
AGCO Corp................................................. 150,000 1,696,875
Terex Corp. (b)........................................... 129,700 3,947,744
-----------
5,644,619
-----------
Consumer Non-Durables (2.4%)
Hain Food Group, Inc. (b)................................. 125,000 2,578,125
-----------
Financial Services (6.0%)
Morgan Keegan, Inc. ...................................... 137,000 2,594,438
T. Rowe Price Associates.................................. 100,200 3,845,175
-----------
6,439,613
-----------
Health Care (7.9%)
MedPartners, Inc. (b)..................................... 250,000 1,890,625
Neotherapeutics, Inc. (b)(c).............................. 119,000 1,517,250
PSS World Medical, Inc. (b)(c)............................ 225,000 2,517,188
Res-Care, Inc. (b)(c)..................................... 115,000 2,616,250
-----------
8,541,313
-----------
Leisure (3.4%)
Action Performance Companies,
Inc. (b)(c).............................................. 71,000 2,343,000
Fairfield Communities, Inc. (b)(c)........................ 85,600 1,380,300
-----------
3,723,300
-----------
Oil & Gas Exploration (4.9%)
Forest Oil Corp. (b)...................................... 133,000 1,670,813
McDermott International, Inc. ............................ 92,000 2,599,000
Ocean Energy, Inc. (b).................................... 109,000 1,049,125
-----------
5,318,938
-----------
Oil Field Services (3.5%)
Gulf Island Fabrication, Inc. (b)......................... 138,000 1,647,375
Pool Energy Services Co. (b).............................. 73,800 1,499,063
TransCoastal Marine Services, Inc. (b).................... 140,000 682,500
-----------
3,828,938
-----------
Restaurants (10.4%)
CBRL Group, Inc. (c)...................................... 150,000 2,596,875
CEC Entertainment, Inc. (b)(c)............................ 80,000 3,379,999
RARE Hospitality International, Inc. (b).................. 100,000 2,550,000
Sonic Corp. (b)........................................... 82,000 2,675,250
-----------
11,202,124
-----------
Retail (21.2%)
Bebe Stores, Inc. (b)(c).................................. 37,000 1,258,000
CompUSA, Inc. (b)(c)...................................... 135,000 1,004,063
Goody's Family Clothing, Inc. (b)(c)...................... 250,000 2,859,374
Horizon Pharmacies, Inc. (b).............................. 155,000 910,625
J. Jill Group, Inc. (b)................................... 100,000 1,462,500
JAKKS Pacific, Inc. (b)................................... 77,000 2,295,563
Jones Apparel Group, Inc. (b)............................. 83,000 2,847,938
Micro Warehouse, Inc. (b)................................. 110,000 1,966,250
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- ------------
<S> <C> <C>
Retail, continued
Rainbow Rentals, Inc. (b)............................... 115,000 $ 1,322,500
Stein Mart, Inc. (b).................................... 360,000 3,374,999
THQ, Inc. (b)........................................... 69,000 1,983,750
Trans World Entertainment Corp. (b)..................... 145,000 1,631,250
------------
22,916,812
------------
Shelter (2.2%)
Clayton Homes, Inc. (c)................................. 207,000 2,367,563
------------
Technology (10.8%)
Data General Corp. (b)(c)............................... 125,000 1,820,313
Datastream Systems, Inc. (b)............................ 186,000 2,976,000
Insight Enterprises, Inc. (b)........................... 124,000 3,068,999
Inso Corp. (b).......................................... 68,000 365,500
Micrografx, Inc. (b).................................... 96,500 585,031
Pericom Semiconductor Corp. (b)......................... 36,000 405,000
Scientific-Atlanta, Inc. ............................... 68,000 2,448,000
------------
11,668,843
------------
Telecommunications (6.6%)
ITC DeltaCom, Inc. (b)(c)............................... 100,000 2,800,000
Paging Network, Inc. (b)................................ 310,000 1,491,875
World Access, Inc. (b)(c)............................... 200,000 2,825,000
------------
7,116,875
------------
Waste Services (0.3%)
U.S. Liquids, Inc. (b).................................. 18,000 375,750
------------
TOTAL COMMON STOCKS
(Cost $86,569,073)..................................... 98,936,188
------------
Cash Equivalents (0.0%)
Bank of New York Cash Reserve .......................... $ 41 41
------------
TOTAL CASH EQUIVALENTS
(Cost $41)............................................. 41
------------
Repurchase Agreements (8.1%)
Cantor Fitzgerald, 4.70%, 7/1/99, dated 6/30/99, with a
maturity value of $8,768,245 (Collateralized by
$9,045,000 U.S. Treasury Note, 6.13%, 11/15/27, fair
value --$8,919,218).................................... 8,767,100 8,767,100
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $8,767,100)...................................... 8,767,100
------------
</TABLE>
Continued
100
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Small-Cap Opportunity Fund June 30, 1999 (Unaudited)
Short-Term Securities Held as Collateral (21.9%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- ------------
<S> <C> <C>
Commercial Paper (15.9%)
Conagra, 6.00%, 7/1/99................................ $3,159,387 $ 3,158,861
MCI WorldCom, 5.03%-6.10%, 7/1/99..................... 3,159,387 3,154,264
Raytheon, 5.00%, 7/6/99............................... 631,877 626,524
Rohm & Haas, 4.97%-6.25%, 7/1/99...................... 3,159,387 3,153,006
Safeway, 6.25%, 7/1/99................................ 2,446,819 2,446,394
Textron Finance, 5.10%, 7/7/99........................ 1,579,694 1,573,651
Tyco International, 5.15%, 8/3/99..................... 1,579,694 1,567,264
US West, 5.30%, 8/22/99............................... 1,579,694 1,563,181
------------
17,243,145
------------
Floating Rate Note (0.7%)
General Motors Acceptance Corp., 5.62%*, 11/13/00..... 758,253 758,253
------------
Investment Companies (4.0%)
AIM Liquid Asset Money Market Fund.................... 4,273,238 4,273,238
------------
Repurchase Agreements (1.3%)
Lehman Brothers, 5.50%, 7/1/99, dated 6/30/99, with a
maturity value of $1,422,864 (See Significant
Accounting Policies, Securities Lending in the Notes
to Financial Statements for collateral description).. $1,422,647 1,422,647
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL
(Cost $23,697,283)................................... 23,697,283
------------
TOTAL INVESTMENTS
(Cost $119,033,497)(a) --(121.5%).................... 131,400,612
Liabilities in excess of other
assets -- (-21.5%)................................... (23,255,548)
------------
TOTAL NET ASSETS -- (100.0%).......................... $108,145,064
============
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $19,402,850
Unrealized depreciation........................................ (7,035,735)
-----------
Net unrealized appreciation.................................... $12,367,115
===========
</TABLE>
(b) Non-income producing security.
(c) All or a portion of this security has been loaned at June 30, 1999.
* Variable rate security. Rate represents rate in effect at June 30, 1999.
See notes to financial statements
101
<PAGE>
ISG FUNDS
Small-Cap Opportunity Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value
(cost $108,843,750)................................. $121,210,865
Repurchase agreements, at cost....................... 10,189,747
------------
Total Investments................................... 131,400,612
Interest and dividends receivable.................... 31,564
Receivable for capital shares issued................. 1,518
Receivable for investments sold...................... 1,452,902
Receivable from investment adviser................... 21,279
Prepaid expenses and other assets.................... 28,413
------------
Total Assets........................................ 132,936,288
Liabilities:
Payable for return of collateral held for securities
on loan............................................. $23,697,283
Payable for investments purchased.................... 979,410
Payable for capital shares redeemed.................. 5,927
Accrued expenses and other payables:
Investment advisory fees............................ 79,946
Administration fees................................. 1,272
Distribution fees................................... 12,816
Custodian fees...................................... 1,271
Other............................................... 13,299
-----------
Total Liabilities................................... 24,791,224
------------
Net Assets:
Capital.............................................. 100,583,106
Undistributed (distributions in excess of) net
investment income................................... (358,010)
Undistributed (distributions in excess of) net
realized gains...................................... (4,447,147)
Net unrealized appreciation (depreciation) from
investments......................................... 12,367,115
------------
Net Assets........................................... $108,145,064
============
Class A Shares
Net Assets.......................................... $ 12,816,993
Shares outstanding.................................. 943,835
Redemption price per share.......................... $ 13.58
============
Class A Shares -- Maximum Sales Charge............... 4.75%
------------
Maximum Offering Price Per Share (100%/(100% --
Maximum Sales Charge) of net asset value adjusted
to the nearest cent)............................... $ 14.26
============
Class B Shares
Net Assets.......................................... $ 311,435
Shares outstanding.................................. 23,047
Offering price per share*........................... $ 13.51
============
Institutional Shares
Net Assets.......................................... $ 95,016,636
Shares outstanding.................................. 7,002,507
Offering and redemption price per share............. $ 13.57
============
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 247,249
Dividend income......................................... 63,512
-----------
Total Investment Income................................ 310,761
Expenses:
Investment advisory fees................................ $477,042
Administration fees..................................... 75,323
Distribution fees -- Class A Shares..................... 14,544
Distribution fees -- Class B Shares..................... 685
Shareholder servicing fees -- Class A Shares............ 8,691
Shareholder servicing fees -- Class B Shares............ 228
Shareholder servicing fees -- Institutional Shares...... 68,239
Custodian fees.......................................... 14,464
Accounting fees......................................... 12,678
Transfer agent fees..................................... 27,739
Directors' fees......................................... 1,051
Other fees.............................................. 37,609
--------
Total expenses before voluntary fee
reductions/reimbursements............................. 738,293
Expenses voluntarily reduced/reimbursed................ (69,522)
-----------
Net expenses........................................... 668,771
-----------
Net Investment Income (Loss)............................ (358,010)
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment
transactions........................................... 6,946,897
Net change in unrealized appreciation (depreciation)
from investments....................................... (1,786,800)
-----------
Net realized/unrealized gains (losses) from
investments............................................ 5,160,097
-----------
Change in net assets resulting from operations.......... $ 4,802,087
===========
</TABLE>
See notes to financial statements
102
<PAGE>
ISG FUNDS
Small-Cap Opportunity Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended
Ended June 30, December 31, February 28,
1999 1998(a) 1998
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income (loss)....... $ (358,010) $ (387,203) $ (398,934)
Net realized gains (losses) from
investment transactions........... 6,946,897 (11,393,210) 24,232,586
Net change in unrealized
appreciation (depreciation) from
investments....................... (1,786,800) (3,912,574) 8,351,884
------------ ------------ ------------
Change in net assets resulting from
operations......................... 4,802,087 (15,692,987) 32,185,536
------------ ------------ ------------
Distributions to Class A
Shareholders:
From net realized gains on
investment transactions........... -- (7,316,799) (16,352,806)
------------ ------------ ------------
Change in net assets from
shareholder distributions.......... -- (7,316,799) (16,352,806)
------------ ------------ ------------
Change in net assets from capital
transactions....................... (4,110,551) 7,591,804 26,511,632
------------ ------------ ------------
Change in net assets................ 691,536 (15,417,982) 42,344,362
Net Assets:
Beginning of period................ 107,453,528 122,871,510 80,527,148
------------ ------------ ------------
End of period...................... $108,145,064 $107,453,528 $122,871,510
============ ============ ============
</TABLE>
- ---------
(a) For the period from March 1, 1998 through December 31, 1998.
See notes to financial statements
103
<PAGE>
ISG FUNDS
Small-Cap Opportunity Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Period Ended Year Ended Year Ended Year Ended Year Ended
Ended June 30, December 31, February 28, February 28, February 28, February 28,
1999 1998(d) 1998 1997 1996 1995(a)
-------------- ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.93 $ 15.84 $ 13.53 $ 12.79 $ 11.15 $ 10.00
------- ------- -------- ------- ------- -------
Investment Activities
Net investment income
(loss)................ (0.04) (0.42) (0.05) (0.03) -- 0.02
Net realized and
unrealized gains
(losses) from
investments........... 0.69 (1.61) 4.90 1.60 3.30 1.17
------- ------- -------- ------- ------- -------
Total from Investment
Activities............ 0.65 (2.03) 4.85 1.57 3.30 1.19
------- ------- -------- ------- ------- -------
Distributions
Net investment income.. -- -- -- -- -- (0.02)
Net realized gains..... -- (0.88) (2.54) (0.83) (1.66) (0.02)
------- ------- -------- ------- ------- -------
Total Distributions.... -- (0.88) (2.54) (0.83) (1.66) (0.04)
------- ------- -------- ------- ------- -------
Net change in asset
value.................. 0.65 (2.91) 2.31 0.74 1.64 1.15
------- ------- -------- ------- ------- -------
Net Asset Value, End of
Period................. $ 13.58 $ 12.93 $ 15.84 $ 13.53 $ 12.79 $ 11.15
======= ======= ======== ======= ======= =======
Total Return (excludes
sales charge).......... 5.03%(b) (13.00)%(b) 37.81% 12.08% 31.42% 11.84%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $12,817 $11,145 $122,872 $80,527 $53,477 $36,664
Ratio of expenses to
average net assets..... 1.33%(c) 1.38%(c) 1.20% 1.14% 1.17% 0.79%(c)
Ratio of net investment
income to average net
assets................. (0.71)%(c) (0.42)%(c) (0.39)% (0.24)% 0.00% 0.06%(c)
Ratio of expenses to
average net assets*.... 1.68%(c) 1.39%(c) 1.31% 1.30% 1.52% 2.13%(c)
Portfolio turnover**.... 112% 110% 180% 116% 154% 45%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from August 1, 1994 (commencement of operations) through
February 28, 1995.
(b) Not annualized.
(c) Annualized.
(d) For the period March 1, 1998 through December 31, 1998. In conjunction with
the reorganization of the ISG Funds, the Fund changed its fiscal year end
to December 31.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998 (a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............ $12.94 $12.38
------ ------
Investment Activities
Net investment income (loss)................... (0.07) --
Net realized and unrealized gains (losses) from
investments................................... 0.64 0.56
------ ------
Total from Investment Activities............... 0.57 0.56
------ ------
Net change in asset value....................... 0.57 0.56
------ ------
Net Asset Value, End of Period.................. $13.51 $12.94
====== ======
Total Return (excludes redemption charge)....... 4.41%(b) 4.52%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $ 311 $ 8
Ratio of expenses to average net assets......... 2.29%(c) 1.36%(c)
Ratio of net investment income to average net
assets......................................... (1.63)%(c) (0.45)%(c)
Ratio of expenses to average net assets*........ (d) 2.35%(c)
Portfolio turnover*............................. 112% 110%
</TABLE>
* Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 21, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
(d) There were no fee reductions in this period.
See notes to financial statements
104
<PAGE>
ISG FUNDS
Small-Cap Opportunity Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............ $ 12.93 $ 11.85
------- -------
Investment Activities
Net investment income (loss)................... (0.04) --
Net realized and unrealized gains (losses) from
investments................................... 0.68 1.08
------- -------
Total from Investment Activities............... 0.64 1.08
------- -------
Net change in asset value....................... 0.64 1.08
------- -------
Net Asset Value, End of Period.................. $ 13.57 $ 12.93
======= =======
Total Return.................................... 4.95% (b) 9.11% (b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $95,017 $96,301
Ratio of expenses to average net assets......... 1.33% (c) 1.33% (c)
Ratio of net investment income to average net
assets......................................... (0.71)%(c) (0.54)%(c)
Ratio of expenses to average net assets*........ 1.44% (c) 1.48% (c)
Portfolio turnover**............................ 112% 110%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
105
<PAGE>
Lazard International Equity Investment Team
ISG International Equity Fund+
- -------------------------------------------------------------------------------
Investment Goal
The Fund seeks to provide investors
with capital appreciation. The Fund
invests primarily in equity
securities of foreign issuers that
the Fund manager considers
attractive based on their return on
total capital or equity. The Fund
expects to invest primarily in the
stocks of companies located in
developed foreign countries.
However, the Fund may invest up to
25% of its assets in companies
located or doing significant
business in emerging markets.
- -------------------------------------------------------------------------------
Q. How did the Fund perform during the period?
A. For the six months ended June 30, 1999, the Fund's total return was 6.14%
(Class A Shares at NAV)./1/ In comparison, the Morgan Stanley Capital
International All World US Ex Index/2/ rose 5.65%, and the Morgan Stanley
Capital International (MSCI) EAFE Index returned 3.97%.
Q. What factors affected your performance?
A. The primary reason why we outperformed the benchmark was due to our
individual stock selection, which outperformed in virtually every region in
which we invested.*
This success came despite the fact that we were slightly overweighted in
Europe--which was not a productive area for us--and underweighted in Japan and
Hong Kong, two markets that were up significantly.
Q. Did many European markets not perform well during the period?
A. That's correct. Europe as a whole was up fairly sharply--in local
currencies. But the new European currency, the Euro, has lost approximately
12% since being introduced in January, which wiped out virtually all of the
positive stock returns when Euro-backed gains were converted to dollars.
Q. Why did the Euro exhibit such unexpected weakness?
A. Across Europe, short-term interest rates fell approximately 50 basis points
(0.5%), while long-term rates rose only modestly. The differential between
U.S. and European interest rates widened. European interest rates are now
between 1.5% and 2% less than U.S. rates. This disparity enticed many
investors to jump out of European fixed-income instruments and seek higher-
yielding bonds in the United States--which, in turn, drove the dollar up and
the Euro down.
Q. Nonetheless, is Europe still ripe for investment?
A. Yes, the continent is experiencing important new restructuring and industry
consolidation, which underscore a radical shift in bureaucratic attitudes. For
example, just a few years ago, European governments would have opposed hostile
takeover attempts. Now, they are becoming common. Earlier this year, we owned
Telecom Italia (1.7% of the Fund's net assets), which was bought by Olivetti
after a bitter fight with Deutsche Telecom. Similarly, in France, we saw a
number of large bank mergers, one of which included one of our portfolio
holdings, BNP (1.6%).* Under the old model, Europe was a loose confederation
of 15 separate capital markets. Now, under the European Union, with a single
currency, we see a single economic entity with a population and gross national
product roughly the size of the United States.
Q. How diversified is the Fund across the world's markets?
A. We are broadly diversified, which enables our shareholders to invest in
many countries, sectors and individual companies, with a single investment.
As of June 30, 1999, approximately 20.9% of the Fund's net assets were
invested in Japan, 18.2% in the United Kingdom, 12.4% in France, 8.0% in
Germany, 6.3% in Sweden, 4.8% in Spain, 4.0% in the Netherlands, 3.8% in Italy
and 3.5% in Switzerland. Our remaining assets were invested in Australia,
Denmark, Mexico, Singapore, South Korea, Brazil, Hong Kong, Finland, India,
South Africa and Malaysia.*
Q. What is your outlook for the rest of 1999?
A. We remain enthusiastic about the prospects in Europe. When a country or
region undergoes significant corporate restructuring and consolidation,
earnings tend to rise faster than usual for a time. There certainly is a
chance that European corporations will be able to grow their earnings at a
double-digit rate while valuations in Europe are relatively attractive; they
are 20% to 30% cheaper than U.S. valuations for similar companies. Valuations
are also cheap in Japan, both relative to their history and relative to other
markets. The question in Japan is whether constructive reforms will continue.
- ---------
+International investing involves increased risk and volatility.
/1/Including the 4.75% sales load, the Fund's return was 1.08% for the period.
/2/The Fund's performance is compared to the MSCI All World Ex US Index and,
the MSCI EAFE Index, which are unmanaged indices generally representative of
the performance of stock markets in those regions. Neither index does not
reflect the expenses associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value-added services.
* The Fund's portfolio composition is subject to change.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
106
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
International Equity Fund June 30, 1999 (Unaudited)
Common Stocks (95.8%)
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
Australia (2.2%):
Banking (0.5%)
Westpac Banking Corp., Ltd. .............................. 22,700 $ 147,251
-----------
Materials & Commodities (1.7%)
Broken Hill Proprietary Co., Ltd.......................... 48,117 557,369
-----------
704,620
-----------
Brazil (1.5%):
Beverages (0.7%)
Companhia Cervejaria Brahma -- ADR........................ 19,800 223,988
-----------
Telecommunications (0.8%)
Telebras Brasileiras--ADR, Preferred Block................ 2,700 243,504
-----------
467,492
-----------
Denmark (0.6%):
Banking (0.6%)
Unidanmark, Class A....................................... 2,950 196,892
-----------
Finland (0.8%):
Banking (0.4%)
Merita Ltd., Class A...................................... 21,200 120,465
-----------
Forest Products & Paper (0.4%)
UPM-Kymmene OYJ........................................... 4,800 148,503
-----------
268,968
-----------
France (12.4%):
Automobile (0.5%)
Michelin, Class B......................................... 4,100 167,734
-----------
Banking (1.6%)
Banque Nationale de Paris................................. 6,200 516,627
-----------
Chemicals (1.2%)
Rhone-Poulenc SA.......................................... 8,400 383,844
-----------
Electrical & Electronics (1.4%)
Alcatel Alsthom........................................... 3,140 442,014
-----------
Energy Sources (1.7%)
Elf Aquitaine SA.......................................... 3,630 532,703
-----------
Insurance (1.3%)
AXA....................................................... 3,500 426,999
-----------
Materials & Commodities (1.3%)
Compagnie de Saint Gobain................................. 2,600 414,263
-----------
Multi-Industry (3.4%)
Suez Lyonnaise des Eaux................................... 2,090 376,972
Vivendi................................................... 8,738 707,849
-----------
1,084,821
-----------
3,969,005
-----------
Germany (8.0%):
Automobile (1.0%)
DaimlerChrysler AG........................................ 3,718 322,079
-----------
Chemicals (1.4%)
Hoechst AG................................................ 9,600 434,620
-----------
Insurance (1.0%)
Allianz AG................................................ 1,110 307,928
-----------
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
Germany, continued
Multi-Industry (2.9%)
Siemens AG................................................ 5,300 $ 408,837
Thyssen Krupp AG (b)...................................... 10,000 219,971
Veba AG................................................... 5,400 317,426
-----------
946,234
-----------
Retail (1.3%)
Metro AG.................................................. 7,144 443,519
-----------
Telecommunications (0.4%)
Deutsche Telekom AG....................................... 3,000 125,918
-----------
2,580,298
-----------
Hong Kong (1.3%):
Banking (1.3%)
HSBC Holdings PLC......................................... 11,200 408,527
-----------
India (0.9%):
Telecommunications (0.9%)
Mahanager Telephone Nigam, Ltd. -- GDR (b)(c)............. 29,300 297,395
-----------
Italy (3.8%):
Banking (1.0%)
Istituto Bancario San Paolo di Torino..................... 23,600 321,262
-----------
Energy Sources (1.1%)
ENI SpA................................................... 60,500 361,250
-----------
Telecommunications (1.7%)
Telecom Italia SpA........................................ 97,300 527,804
-----------
1,210,316
-----------
Japan (20.9%):
Automobile (1.4%)
Nissan Motor Co., Ltd. (b)................................ 95,000 453,666
-----------
Banking (2.9%)
Fuji Bank, Ltd............................................ 20,000 139,462
Industrial Bank of Japan, Ltd............................. 39,000 309,329
Sumitomo Trust & Banking, Ltd............................. 100,000 480,849
-----------
929,640
-----------
Beverages (0.9%)
Asahi Breweries, Ltd...................................... 24,000 298,622
-----------
Electrical & Electronics (3.0%)
Sony Corp................................................. 4,800 517,532
TDK Corp. ................................................ 5,000 457,301
-----------
974,833
-----------
Finanacial Services (2.6%)
Orix Corp................................................. 6,000 535,377
Promise Co., Ltd.......................................... 5,300 313,088
-----------
848,465
-----------
Food & Household Products (1.2%)
Kao Corp. ................................................ 14,000 393,271
-----------
Office Equipment (2.0%)
Canon, Inc. .............................................. 16,000 460,028
Ricoh Co., Ltd. .......................................... 12,000 165,174
-----------
625,202
-----------
Pharmaceutical (1.0%)
Sankyo Co., Ltd. ......................................... 13,000 327,588
-----------
</TABLE>
Continued
107
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
International Equity Fund June 30, 1999 (Unaudited)
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
Japan, continued
Recreation & Other Consumer
Goods (1.1%)
Nintendo Co., Ltd. ..................................... 2,400 $ 337,288
-----------
Telecommunications (3.2%)
Nippon Telegraph & Telephone Corp. ..................... 32 372,781
NTT Mobile Communications Network, Inc. ................ 10 135,497
NTT Mobile Communications Network, Inc. -- NEW (b)...... 40 535,377
-----------
1,043,655
-----------
Tobacco (1.6%)
Japan Tobacco, Inc. .................................... 45 498,198
-----------
6,730,428
-----------
Malaysia (0.4%):
Leisure & Tourism (0.4%)
Genting Berhad.......................................... 41,300 141,912
-----------
Mexico (2.1%):
Beverages (1.0%)
Fomento Economico Mexicano, SA de CV -- ADR............. 7,900 315,013
-----------
Finanacial Services (1.1%)
Grupo Financiero Banamex Accival, SA de CV, Class O
(b).................................................... 146,800 369,808
-----------
684,821
-----------
Netherlands (4.0%):
Beverages (1.3%)
Heineken NV............................................. 8,325 426,263
-----------
Electrical & Electronics (1.4%)
Philips Electronics NV.................................. 4,324 426,525
-----------
Finanacial Services (1.3%)
ING Groep NV............................................ 7,700 416,892
-----------
1,269,680
-----------
Singapore (1.7%):
Banking (1.7%)
Oversea -- Chinese Banking Corp., Ltd. ................. 21,000 175,158
United Overseas Bank, Ltd. ............................. 51,000 356,482
-----------
531,640
-----------
South Africa (0.6%):
Insurance (0.6%)
Liberty Life Association of Africa, Ltd. ............... 14,700 188,308
-----------
South Korea (1.8%):
Electrical & Electronics (1.0%)
Samsung Electronics Co. -- GDR (c)...................... 5,950 320,110
-----------
Telecommunications (0.8%)
Korea Telecom Corp. -- ADR (b).......................... 6,600 264,000
-----------
584,110
-----------
Spain (4.8%):
Banking (1.6%)
Argentaria, Caja Postal y Banco Hipotecario de Espana
SA..................................................... 23,000 523,959
-----------
Energy Sources (0.9%)
Endesa SA............................................... 14,000 298,574
-----------
</TABLE>
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
--------- -----------
<S> <C> <C>
Spain, continued
Telecommunications (2.3%)
Telefonica de Espana
(b).................... 14,844 $ 715,047
-----------
1,537,580
-----------
Sweden (6.3%):
Appliances & Household Durables
(1.2%)
Electrolux AB, Class B.. 18,000 376,864
-----------
Automobile (0.9%)
Volvo AB, Class B....... 9,900 287,041
-----------
Banking (1.5%)
Nordbanken Holding AB... 22,900 133,870
Svenska Handelsbanken
AB, Class A............ 31,100 373,123
-----------
506,993
-----------
Machinery & Engineering (1.2%)
ABB AB, Class A......... 28,600 380,134
-----------
Pharmaceutical (1.5%)
AstraZeneca Group PLC... 12,160 473,428
-----------
2,024,460
-----------
Switzerland (3.5%):
Food & Household Products (0.8%)
Nestle SA............... 141 254,049
-----------
Insurance (1.1%)
Zurich Allied AG........ 635 361,086
-----------
Pharmaceutical (1.2%)
Roche Holding AG........ 37 380,331
-----------
Retail (0.4%)
The Swatch Group AG,
Class B................ 176 118,421
-----------
1,113,887
-----------
United Kingdom (18.2%):
Aerospace & Military Technology
(1.7%)
British Aerospace PLC... 84,500 548,440
-----------
Banking (1.9%)
National Westminster
Bank PLC............... 28,100 595,754
-----------
Beverages (1.1%)
Diageo PLC.............. 34,368 358,905
-----------
Chemicals (1.2%)
Imperial Chemical
Industries PLC......... 37,800 373,593
-----------
Electrical & Electronics (1.4%)
Siebe PLC............... 94,800 448,673
-----------
Energy Sources (1.4%)
BP Amoco PLC............ 25,000 448,063
-----------
Food & Household Products (1.2%)
Cadbury Schweppes PLC... 23,200 147,743
Unilever PLC............ 26,696 237,547
-----------
385,290
-----------
Insurance (3.8%)
Allied Zurich PLC....... 20,700 260,220
Liberty International
PLC (b)................ 6,854 46,567
Prudential Corp. PLC.... 29,800 438,734
Royal & Sun Alliance
Insurance Group PLC.... 48,818 437,856
-----------
1,183,377
-----------
</TABLE>
Continued
108
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
International Equity Fund June 30, 1999 (Unaudited)
Common Stocks, continued
<TABLE>
<CAPTION>
Shares or Market
Principal Value
Amount (Note 2)
---------- -----------
<S> <C> <C>
United Kingdom, continued
Leisure & Tourism (1.4%)
Granada Group PLC....................................... 24,800 $ 460,116
-----------
Pharmaceutical (0.7%)
SmithKline Beecham PLC.................................. 18,500 240,437
-----------
Retail (1.0%)
Great Universal Stores PLC.............................. 27,800 308,063
-----------
Tobacco (1.2%)
British American Tobacco PLC............................ 42,200 396,791
-----------
Utilities -- Electrical & Gas (0.2%)
British Energy PLC...................................... 9,300 79,162
-----------
5,826,664
-----------
TOTAL COMMON STOCKS (Cost $26,757,013).................. 30,737,003
-----------
Cash Equivalents (5.2%)
Bank of New York Cash Reserve........................... $1,652,407 1,652,407
-----------
TOTAL CASH EQUIVALENTS (Cost $1,652,407)................ 1,652,407
-----------
TOTAL INVESTMENTS
(Cost $28,409,420) (a) -- (101.0%)..................... 32,389,410
Liabilities in excess of other
assets -- (-1.0%)...................................... (329,982)
-----------
TOTAL NET ASSETS -- (100.0%)............................ $32,059,428
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $4,758,392
Unrealized depreciation......................................... (778,402)
----------
Net unrealized appreciation..................................... $3,979,990
==========
</TABLE>
(b) Non-income producing security.
(c) Represents a restricted security purchased under Rule 144A which is exempt
from registration under the Security Act of 1933, as amended. These
securities have been deemed liquid under guidelines established by the
Board of Directors.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
PLC -- Public Limited Company
See notes to financial statements
109
<PAGE>
ISG FUNDS
International Equity Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $28,409,420)................. $32,389,410
Foreign currency (cost $56,563).......................... 57,668
Interest and dividends receivable........................ 26,705
Receivable for capital shares issued..................... 1,093
Receivable for investments sold.......................... 52,658
Reclaim receivable....................................... 86,560
Prepaid expenses and other assets........................ 22,806
-----------
Total Assets............................................ 32,636,900
Liabilities:
Payable for investments purchased........................ $532,718
Unrealized losses on forward currency contracts.......... 840
Accrued expenses and other payables:
Investment advisory fees................................ 18,520
Administration fees..................................... 394
Distribution fees....................................... 3,888
Custodian fees.......................................... 14,413
Other................................................... 6,699
--------
Total Liabilities....................................... 577,472
-----------
Net Assets:
Capital.................................................. 29,175,794
Undistributed (distributions in excess of) net investment
income.................................................. 201,393
Accumulated net realized gains (losses) from investments
and foreign currency transactions....................... (1,294,043)
Net unrealized appreciation (depreciation) from
investments and translation of assets and liabilities
denominated in foreign currencies....................... 3,976,284
-----------
Net Assets............................................... $32,059,428
===========
Class A Shares
Net Assets.............................................. $ 391,157
Shares outstanding...................................... 34,825
Redemption price per share.............................. $ 11.23
===========
Class A Shares -- Maximum Sales Charge................... 4.75%
-----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the
nearest cent).......................................... $ 11.79
===========
Class B Shares
Net Assets.............................................. $ 45,116
Shares outstanding...................................... 4,025
Offering price per share*............................... $ 11.21
===========
Institutional Shares
Net Assets.............................................. $31,623,155
Shares outstanding...................................... 2,817,375
Offering and redemption price per share................. $ 11.22
===========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the six months ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income........................................... $ 12,102
Dividend income........................................... 479,976
Foreign withholding tax expense........................... (29,200)
----------
Total Investment Income.................................. 462,878
Expenses:
Investment advisory fees.................................. $144,425
Administration fees....................................... 21,664
Distribution fees -- Class A Shares....................... 155
Distribution fees -- Class B Shares....................... 67
Shareholder servicing fees -- Class A Shares.............. 95
Shareholder servicing fees -- Class B Shares.............. 22
Shareholder servicing fees -- Institutional Shares........ 21,556
Custodian fees............................................ 15,873
Accounting fees........................................... 13,191
Transfer agent fees....................................... 19,739
Directors' fees........................................... 300
Registration and filing fees.............................. 13,241
Other fees................................................ 12,762
--------
Total expenses before voluntary fee reductions.......... 263,090
Expenses voluntarily reduced............................ (40,594)
----------
Net expenses............................................ 222,496
----------
Net Investment Income..................................... 240,382
----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investments and foreign
currency transactions.................................... 496,815
Net change in unrealized appreciation (depreciation) from
investments and translation of assets and liabilities
denominated in foreign currencies........................ 1,032,607
----------
Net realized/unrealized gains (losses) from investments... 1,529,422
----------
Change in net assets resulting from operations............ $1,769,804
==========
</TABLE>
See notes to financial statements
110
<PAGE>
ISG FUNDS
International Equity Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Period Ended Period Ended
Ended June 30, December 31, February 28,
1999 1998(b) 1998(a)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income................ $ 240,382 $ 143,332 $ (45,719)
Net realized gains (losses) from
investment and foreign currency
transactions........................ 496,815 (1,608,869) (240,297)
Net change in unrealized appreciation
(depreciation) from investments and
translation of assets and
liabilities in foreign currencies... 1,032,607 1,521,825 1,421,852
----------- ----------- -----------
Change in net assets resulting from
operations........................... 1,769,804 56,288 1,135,836
----------- ----------- -----------
Distributions to Class A Shareholders:
From net investment income........... -- (71,392) --
In excess of net investment income... -- -- (20,145)
----------- ----------- -----------
Change in net assets from shareholder
distributions........................ -- (71,392) (20,145)
----------- ----------- -----------
Change in net assets from capital
transactions......................... 2,163,701 1,607,816 25,417,520
----------- ----------- -----------
Change in net assets.................. 3,933,505 1,592,712 26,533,211
Net Assets:
Beginning of period.................. 28,125,923 26,533,211 --
----------- ----------- -----------
End of period........................ $32,059,428 $28,125,923 $26,533,211
=========== =========== ===========
</TABLE>
- ---------
(a) For the period from August 15, 1997 (commencement of operations) through
February 28, 1998.
(b) For the period from March 1, 1998 through December 31, 1998.
See notes to financial statements
111
<PAGE>
ISG FUNDS
International Equity Fund
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Six Months Period Ended Period Ended
Ended June 30, December 31, February 28,
1999 1998(a) 1998(b)
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $10.58 $10.46 $ 10.00
------ ------ -------
Investment Activities
Net investment income (loss)...... 0.04 0.03 (0.02)
Net realized and unrealized gains
(losses) from investments and
foreign currencies............... 0.61 0.12 0.49
------ ------ -------
Total from Investment Activities.. 0.65 0.15 0.47
------ ------ -------
Distributions
Net investment income............. -- (0.03) --
In excess of net investment
income........................... -- -- (0.01)
------ ------ -------
Total Distributions............... -- (0.03) (0.01)
------ ------ -------
Net change in asset value.......... 0.65 0.12 0.46
------ ------ -------
Net Asset Value, End of Period..... $11.23 $10.58 $ 10.46
====== ====== =======
Total Return (excludes sales
charge)........................... 6.14%(c) 1.42%(c) 4.71%(c)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $ 391 $ 149 $26,533
Ratio of expenses to average net
assets............................ 1.54%(d) 1.81%(d) 1.77%(d)
Ratio of net investment income to
average net assets................ 1.91%(d) 0.71%(d) (0.48)%(d)
Ratio of expenses to average net
assets*........................... 2.06%(d) 2.16%(d) 2.27%(d)
Portfolio turnover**............... 22% 62% 21%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from March 1, 1998 through December 31, 1998. In conjunction
with the reorganization of the ISG Funds, the Fund changed its year end to
December 31.
(b) For the period from August 15, 1997 (commencement of operations) through
February 28, 1998.
(c) Not annualized.
(d) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.66
------
Investment Activities
Net investment income (loss).................................... 0.05
Net realized and unrealized gains (losses) from investments and
foreign currencies............................................. 0.50
------
Total from Investment Activities................................ 0.55
------
Net change in asset value........................................ 0.55
------
Net Asset Value, End of Period................................... $11.21
======
Total Return (excludes redemption charge)........................ 5.16%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 45
Ratio of expenses to average net assets.......................... 2.38%(c)
Ratio of net investment income to average net assets............. 2.10%(c)
Ratio of expenses to average net assets*......................... 2.67%(c)
Portfolio turnover**............................................. 22%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from February 2, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
112
<PAGE>
ISG FUNDS
International Equity Fund
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Six Months Period Ended
Ended June 30, December 31,
1999 1998(a)
-------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period............. $ 10.58 $ 10.05
------- -------
Investment Activities
Net investment income (loss).................... 0.09 (0.01)
Net realized and unrealized gains (losses) from
investments and foreign currencies............. 0.55 0.54
------- -------
Total from Investment Activities................ 0.64 0.53
------- -------
Net change in asset value........................ 0.64 0.53
------- -------
Net Asset Value, End of Period................... $ 11.22 $ 10.58
======= =======
Total Return..................................... 6.05%(b) 5.27%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $31,623 $27,977
Ratio of expenses to average net assets.......... 1.54%(c) 1.61%(c)
Ratio of net investment income to average net
assets.......................................... 1.66%(c) (1.47)%(c)
Ratio of expenses to average net assets*......... 1.82%(c) 1.89%(c)
Portfolio turnover**............................. 22% 62%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
113
<PAGE>
ISG Investment Management Team
Portfolio Manager
ISG Strategic Portfolios
Current Income
Moderate Growth & Income
Growth & Income
Growth
Aggressive Growth
- -------------------------------------------------------------------------------
Investment Goal
The Funds seek to provide investors with the potential to achieve a variety of
long- and short-term goals, commensurate with investors' specific time horizons
and tolerance for risk. Each of the five Strategic Portfolios invests in a
combination of underlying mutual funds from the ISG family. Based on each
Portfolio's asset-allocation target, the managers periodically rebalance stock,
bond and money market holdings--based on analysis of economic and market
trends.
- -------------------------------------------------------------------------------
Q. How did the Funds perform during the period?
A. For the period ended June 30, 1999, the Funds' total returns and
comparative benchmark returns were as follows:
ISG Current Income Portfolio from its inception on 2/2/99 to 6/30/99
Class A Shares at NAV++: -1.72%
Lipper Income Funds Index/3/: 5.32%
ISG Moderate Growth & Income Portfolio from its inception on 2/9/99 to 6/30/99
Class A Shares at NAV+: 0.75%
Lipper Balanced Fund Index/2/: 6.01%
ISG Growth & Income Portfolio from its inception on 3/8/99 to 6/30/99
Class A Shares at NAV+: 0.64%
Lipper Balanced Fund Index/2/: 6.01%
ISG Growth Portfolio from its inception on 2/11/99 to 6/30/99
Class A Shares at NAV+: 1.66%
Lipper Balanced Fund Index/2/: 6.01
ISG Aggressive Growth Portfolio from its inception on 1/13/99 to 6/30/99
Class A Shares at NAV+: 3.40%
Lipper Growth Funds Average/1/: 13.06%
Q. What factors affected the Funds' performance?
A. Generally, the Funds performed as we would have expected. Because stocks
produced higher returns than bonds during the period, the more aggressive
Portfolios (which held higher concentrations of underlying stock funds) did
better than the more conservative Portfolios.
The strategy of owning more than one style of fund--for example, having stakes
in such diverse sectors as large-cap growth, small-cap and international
equities--proved beneficial, even in the period's relatively short time frame.
During the last six months, investor sentiment rotated very quickly from
sector to sector, making it virtually impossible to identify the next "hot"
sector in advance. But shareholders in our Strategic Portfolios enjoyed the
advantage of usually having some of their money invested in whatever style was
currently fashionable. This extraordinary diversification is one of the
primary benefits offered by the Strategic Portfolio concept.
Q. How do the managers determine the Portfolios' asset allocation policy?
A. Each Portfolio has a target range for how much of its assets should be
invested in different types of underlying funds. This "road map" guides our
team in its asset-allocation decisions. At least once a month, the managers
review each Portfolio's current allocation and, based on a Portfolio's target,
our valuation discipline and the team's assessment of market conditions, new
monies may be invested in various sectors.
Q. How can shareholders use the Portfolios to take advantage of changing
market conditions in the future?
A. The real strength of these Funds is that an investor can implement an
asset-allocation strategy supporting his or her individual needs--with a
single investment in the most suitable Strategic Portfolio. Rather than worry
about macroeconomic events or sector rotation, an investor can simply choose
the Portfolio that offers the appropriate measure of potential risk and
reward. If this is done correctly, we believe that, over time, shareholders
could earn returns that equal the level of risk they have accepted.
- ---------
+ Including the 4.75% sales load, the ISG Moderate Growth & Income Portfolio,
the ISG Growth & Income Portfolio, the ISG Growth Portfolio, and the ISG
Aggressive Growth Portfolio return would have been -4.02%, -4.11%, -3.22%
and -1.52%, respectively.
++ Including the 3.00% sales load, the ISG Current Income Portfolio return
would have been -4.71%.
/1/ The Lipper Growth Funds Average is an average of managed funds that
normally seek growth of principal through equity investments.
/2/ The Lipper Balanced Fund Index is an index of managed funds whose primary
objective is to conserve principal by maintaining at all times a balanced
portfolio of both stocks and bonds. Typically, the stock/bond ratio ranges
around 60%/40%.
/3/ The Lipper Income Funds Index is an index of managed funds that normally
seeks a high level of current income through investing in income-producing
stocks, bonds and money market instruments.
Past performance is not a prediction of future results. The Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
114
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Current Income Portfolio June 30, 1999 (Unaudited)
Investment Companies (71.9%)
<TABLE>
<CAPTION>
Market
Value
Shares (Note 2)
------ --------
<S> <C> <C>
ISG Income Fund................................................ 19,373 $190,631
ISG Limited Term Income Fund................................... 21,636 211,812
ISG Prime Money Market Fund.................................... 20,777 20,777
--------
TOTAL INVESTMENT COMPANIES
(Cost $435,766)............................................... 423,220
--------
TOTAL INVESTMENTS
(Cost $435,766) (a) -- (71.9%)................................ 423,220
Other assets in excess of liabilities -- (28.1%)............... 165,616
--------
TOTAL NET ASSETS -- (100.0%)................................... $588,836
========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ --
Unrealized depreciation.......................................... (12,546)
--------
Net unrealized depreciation...................................... $(12,546)
========
</TABLE>
See notes to financial statements
115
<PAGE>
ISG FUNDS
Current Income Portfolio
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $435,766)......................... $423,220
Interest and dividends receivable............................. 1,861
Receivable for capital shares issued.......................... 191,266
Receivable from investment adviser............................ 11,317
--------
Total Assets................................................. 627,664
Liabilities:
Distributions payable......................................... $1,747
Accrued expenses and other payables:
Investment advisory fees..................................... 33
Administration fees.......................................... 6
Distribution fees............................................ 103
Custodian fees............................................... 521
Other........................................................ 36,418
------
Total Liabilities............................................ 38,828
--------
Net Assets:
Capital....................................................... 601,810
Undistributed (distributions in excess of) net investment
income....................................................... 50
Accumulated net realized gains (losses) from investments...... (478)
Net unrealized appreciation (depreciation) from investments... (12,546)
--------
Net Assets.................................................... $588,836
========
Class A Shares
Net Assets................................................... $ 3,145
Shares outstanding........................................... 327
Redemption price per share................................... $ 9.61
========
Class A Shares -- Maximum Sales Charge........................ 3.00%
--------
Maximum Offering Price Per Share (100%/(100% -- Maximum Sales
Charge) of net asset value adjusted to the nearest cent).... $ 9.91
========
Class B Shares
Net Assets................................................... $ 28,838
Shares outstanding........................................... 2,996
Offering price per share*.................................... $ 9.63
========
Institutional Shares
Net Assets................................................... $556,853
Shares outstanding........................................... 57,719
Offering and redemption price per share...................... $ 9.65
========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the period ended June 30, 1999(a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.............................................. $ 34
Dividend income.............................................. 8,038
--------
Total Investment Income..................................... 8,072
Expenses:
Investment advisory fees..................................... $ 300
Administration fees.......................................... 225
Distribution fees -- Class A Shares.......................... 1
Distribution fees -- Class B Shares.......................... 71
Shareholder servicing fees -- Class B Shares................. 24
Shareholder servicing fees -- Institutional Shares........... 204
Custodian fees............................................... 532
Accounting fees.............................................. 8,939
Transfer agent fees.......................................... 17,826
Directors' fees.............................................. 3
Registration and filing fees................................. 9,676
Audit fees................................................... 4,815
Legal fees................................................... 4,403
Other fees................................................... 330
------
Total expenses before voluntary fee
reductions/reimbursements................................. 47,349
Expenses voluntarily reduced/reimbursed.................... (46,388)
--------
Net expenses............................................... 961
--------
Net Investment Income........................................ 7,111
--------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions..... (478)
Net change in unrealized appreciation (depreciation) from
investments................................................. (12,546)
--------
Net realized/unrealized gains (losses) from investments...... (13,024)
--------
Change in net assets resulting from operations............... $ (5,913)
========
</TABLE>
- ---------
(a) For the period from January 25, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
116
<PAGE>
ISG FUNDS
Current Income Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(c)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income.......................................... $ 7,111
Net realized gains (losses) from investment transactions....... (478)
Net change in unrealized appreciation (depreciation) from
investments................................................... (12,546)
--------
Change in net assets resulting from operations.................. (5,913)
--------
Distributions to Class A Shareholders:
From net investment income..................................... (26)(a)
Distributions to Class B Shareholders:
From net investment income..................................... (346)(b)
Distributions to Institutional Shareholders:
From net investment income..................................... (6,689)
--------
Change in net assets from shareholder distributions............. (7,061)
--------
Change in net assets from capital transactions.................. 601,810
--------
Change in net assets............................................ 588,836
Net Assets:
Beginning of period............................................ --
--------
End of period.................................................. $588,836
========
</TABLE>
- ---------
(a) For the period from February 23, 1999 (commencement of operations) through
June 30, 1999.
(b) For the period from March 17, 1999 (commencement of operations) through
June 30, 1999.
(c) For the period from January 25, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
117
<PAGE>
ISG FUNDS
Current Income Portfolio
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $9.88
-----
Investment Activities
Net investment income (loss).................................... 0.07
Net realized and unrealized gains (losses) from investments..... (0.24)
-----
Total from Investment Activities................................ (0.17)
-----
Distributions
Net investment income........................................... (0.10)
-----
Total Distributions............................................. (0.10)
-----
Net change in asset value........................................ (0.27)
-----
Net Asset Value, End of Period................................... $9.61
=====
Total Return (excludes sales charge)............................. (1.72)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 3
Ratio of expenses to average net assets.......................... 0.96%(c)
Ratio of net investment income to average net assets............. 4.29%(c)
Ratio of expenses to average net assets*......................... 26.06%(c)
Portfolio turnover**............................................. 20%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If
such voluntary fee reductions/reimbursements had not occurred, the ratios
would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from February 23, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $9.87
-----
Investment Activities
Net investment income (loss).................................... 0.12
Net realized and unrealized gains (losses) from investments..... (0.25)
-----
Total from Investment Activities................................ (0.13)
-----
Distributions
Net investment income........................................... (0.11)
-----
Total Distributions............................................. (0.11)
-----
Net change in asset value........................................ (0.24)
-----
Net Asset Value, End of Period................................... $9.63
=====
Total Return (excludes redemption charge)........................ (1.29)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 29
Ratio of expenses to average net assets.......................... 1.40%(c)
Ratio of net investment income to average net assets............. 3.76%(c)
Ratio of expenses to average net assets*......................... 31.40%(c)
Portfolio turnover**............................................. 20%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If
such voluntary fee reductions/reimbursements had not occurred, the ratios
would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from March 7, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
118
<PAGE>
ISG FUNDS
Current Income Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999 (a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net investment income (loss).................................... 0.18
Net realized and unrealized gains (losses) from investments..... (0.35)
------
Total from Investment Activities................................ (0.17)
------
Distributions
Net investment income........................................... (0.18)
------
Total Distributions............................................. (0.18)
------
Net change in asset value........................................ (0.35)
------
Net Asset Value, End of Period................................... $ 9.65
======
Total Return..................................................... (1.71)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 557
Ratio of expenses to average net assets.......................... 0.58%(c)
Ratio of net investment income to average net assets............. 4.76%(c)
Ratio of expenses to average net assets*......................... 32.95%(c)
Portfolio turnover**............................................. 20%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 25, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
119
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Moderate Growth & Income Portfolio June 30, 1999 (Unaudited)
Investment Companies (58.5%)
<TABLE>
<CAPTION>
Market
Value
Shares (Note 2)
------ -----------
<S> <C> <C>
ISG Capital Growth Fund..................................... 7,473 $ 114,492
ISG Equity Income Fund...................................... 13,966 149,017
ISG Income Fund............................................. 52,457 516,175
ISG Large-Cap Equity Fund................................... 3,887 115,082
ISG Limited Term Income Fund................................ 52,403 513,026
ISG Prime Money Market Fund................................. 71,103 71,103
-----------
TOTAL INVESTMENT COMPANIES (Cost $1,484,227)................ 1,478,895
-----------
TOTAL INVESTMENTS
(Cost $1,484,227) (a) -- (58.5%)........................... 1,478,895
Other assets in excess of liabilities -- (41.5%)............ 1,047,433
-----------
TOTAL NET ASSETS -- (100.0%)................................ $ 2,526,328
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......... $ 14,541
Unrealized depreciation......... (19,873)
--------
Net unrealized depreciation..... $ (5,332)
========
</TABLE>
See notes to financial statements
120
<PAGE>
ISG FUNDS
Moderate Growth & Income Portfolio
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $1,484,227)..................... $1,478,895
Interest and dividends receivable........................... 4,996
Receivable for capital shares issued........................ 1,075,277
Receivable from investment adviser.......................... 12,230
----------
Total Assets............................................... 2,571,398
Liabilities:
Distributions payable....................................... $8,510
Accrued expenses and other payables:
Investment advisory fees................................... 121
Administration fees........................................ 22
Distribution fees.......................................... 787
Custodian fees............................................. 523
Other...................................................... 35,107
------
Total Liabilities.......................................... 45,070
----------
Net Assets:
Capital..................................................... 2,531,414
Undistributed (distributions in excess of) net investment
income..................................................... 264
Accumulated net realized gains (losses) from investments.... (18)
Net unrealized appreciation (depreciation) from
investments................................................ (5,332)
----------
Net Assets.................................................. $2,526,328
==========
Class A Shares
Net Assets................................................. $ 133,046
Shares outstanding......................................... 13,457
Redemption price per share................................. $ 9.89
==========
Class A Shares -- Maximum Sales Charge...................... 4.75%
----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the nearest
cent)..................................................... $ 10.38
==========
Class B Shares
Net Assets................................................. $ 790,211
Shares outstanding......................................... 79,930
Offering price per share*.................................. $ 9.89
==========
Institutional Shares
Net Assets................................................. $1,603,071
Shares outstanding......................................... 161,964
Offering and redemption price per share.................... $ 9.90
==========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the period ended June 30, 1999(a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income................................................ $ 104
Dividend income................................................ 13,659
-------
Total Investment Income....................................... 13,763
Expenses:
Investment advisory fees....................................... $ 692
Administration fees............................................ 519
Distribution fees -- Class A Shares............................ 116
Distribution fees -- Class B Shares............................ 1,511
Shareholder servicing fees -- Class A Shares................... 70
Shareholder servicing fees -- Class B Shares................... 504
Shareholder servicing fees -- Institutional
Shares....................................................... 147
Custodian fees................................................. 559
Accounting fees................................................ 8,553
Transfer agent fees............................................ 17,727
Directors' fees................................................ 5
Registration and filing fees................................... 9,710
Audit fees..................................................... 4,793
Legal fees..................................................... 3,720
Other fees..................................................... 345
------
Total expenses before voluntary fee
reductions/reimbursements.................................... 48,971
Expenses voluntarily reduced/reimbursed....................... (45,004)
-------
Net expenses.................................................. 3,967
-------
Net Investment Income.......................................... 9,796
-------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions....... (18)
Net change in unrealized appreciation (depreciation) from
investments................................................... (5,332)
-------
Net realized/unrealized gains (losses) from investments........ (5,350)
-------
Change in net assets resulting from operations................. $ 4,446
=======
</TABLE>
- ---------
(a) For the period from January 28, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
121
<PAGE>
ISG FUNDS
Moderate Growth & Income Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(b)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income......................................... $ 9,796
Net realized gains (losses) from investment transactions...... (18)
Net change in unrealized appreciation (depreciation) from
investments.................................................. (5,332)
----------
Change in net assets resulting from operations................. 4,446
----------
Distributions to Class A Shareholders:
From net investment income.................................... (575)(a)
Distributions to Class B Shareholders:
From net investment income.................................... (2,199)
Distributions to Institutional Shareholders:
From net investment income.................................... (6,758)(c)
----------
Change in net assets from shareholder distributions............ (9,532)
----------
Change in net assets from capital transactions................. 2,531,414
----------
Change in net assets........................................... 2,526,328
Net Assets:
Beginning of period........................................... --
----------
End of period................................................. $2,526,328
==========
</TABLE>
- ---------
(a) For the period from February 9, 1999 (commencement of operations) through
June 30, 1999.
(b) For the period from January 28, 1999 (commencement of operations) through
June 30, 1999.
(c) For the period from February 10, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
122
<PAGE>
ISG FUNDS
Moderate Growth & Income Portfolio
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $9.86
-----
Investment Activities
Net investment income (loss)..................................... 0.10
Net realized and unrealized gains (losses) from investments...... (0.03)
-----
Total from Investment Activities................................. 0.07
-----
Distributions
Net investment income............................................ (0.04)
-----
Total Distributions.............................................. (0.04)
-----
Net change in asset value......................................... 0.03
-----
Net Asset Value, End of Period.................................... $9.89
=====
Total Return (excludes sales charge).............................. 0.75%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $ 133
Ratio of expenses to average net assets........................... 0.84%(c)
Ratio of net investment income to average net assets.............. 2.94%(c)
Ratio of expenses to average net assets*.......................... 19.89%(c)
Portfolio turnover**.............................................. 66%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 9, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net investment income (loss).................................... 0.07
Net realized and unrealized gains (losses) from investments..... (0.15)
------
Total from Investment Activities................................ (0.08)
------
Distributions
Net investment income........................................... (0.03)
------
Total Distributions............................................. (0.03)
------
Net change in asset value........................................ (0.11)
------
Net Asset Value, End of Period................................... $ 9.89
======
Total Return (excludes redemption charge)........................ (0.78)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 790
Ratio of expenses to average net assets.......................... 1.43%(c)
Ratio of net investment income to average net assets............. 2.45%(c)
Ratio of expenses to average net assets*......................... 14.27%(c)
Portfolio turnover**............................................. 66%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 28, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
123
<PAGE>
ISG FUNDS
Moderate Growth & Income Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $ 9.88
------
Investment Activities
Net investment income (loss)..................................... 0.04
Net realized and unrealized gains (losses) from investments...... 0.04
------
Total from Investment Activities................................. 0.08
------
Distributions
Net investment income............................................ (0.06)
------
Total Distributions.............................................. (0.06)
------
Net change in asset value......................................... 0.02
------
Net Asset Value, End of Period.................................... $ 9.90
======
Total Return...................................................... 0.78%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $1,603
Ratio of expenses to average net assets........................... 0.65%(c)
Ratio of net investment income to average net assets.............. 3.33%(c)
Ratio of expenses to average net assets*.......................... 10.28%(c)
Portfolio turnover**.............................................. 66%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 10, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
124
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Growth & Income Portfolio June 30, 1999 (Unaudited)
Investment Companies (47.7%)
<TABLE>
<CAPTION>
Market
Value
Shares (Note 2)
------- ----------
<S> <C> <C>
ISG Capital Growth Fund..................................... 37,338 $ 572,017
ISG Equity Income Fund...................................... 52,999 565,500
ISG Income Fund............................................. 92,645 911,623
ISG Large-Cap Equity Fund................................... 19,422 575,090
ISG Limited Term Income Fund................................ 73,792 722,428
ISG Prime Money Market Fund................................. 358,707 358,707
----------
TOTAL INVESTMENT COMPANIES (Cost $3,674,855)................ 3,705,365
----------
TOTAL INVESTMENTS
(Cost $3,674,855) (a) -- (47.7%)........................... 3,705,365
Other assets in excess of liabilities -- (52.3%)............ 4,068,550
----------
TOTAL NET ASSETS -- (100.0%)................................ $7,773,915
==========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......... $ 61,213
Unrealized depreciation.......... (30,703)
--------
Net unrealized appreciation...... $ 30,510
========
</TABLE>
See notes to financial statements
125
<PAGE>
ISG FUNDS
Growth & Income Portfolio
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $3,674,855)..................... $3,705,365
Interest and dividends receivable........................... 9,071
Receivable for capital shares issued........................ 4,098,805
Receivable from investment adviser.......................... 11,717
----------
Total Assets............................................... 7,824,958
Liabilities:
Distributions payable....................................... $11,807
Payable for capital shares redeemed......................... 389
Accrued expenses and other payables:
Investment advisory fees................................... 302
Administration fees........................................ 62
Distribution fees.......................................... 1,591
Custodian fees............................................. 575
Other...................................................... 36,317
-------
Total Liabilities.......................................... 51,043
----------
Net Assets:
Capital..................................................... 7,739,100
Undistributed (distributions in excess of) net investment
income..................................................... 760
Undistributed (distributions in excess of) net realized
gains...................................................... 3,545
Net unrealized appreciation (depreciation) from
investments................................................ 30,510
----------
Net Assets.................................................. $7,773,915
==========
Class A Shares
Net Assets................................................. $ 355,888
Shares outstanding......................................... 35,085
Redemption price per share................................. $ 10.14
==========
Class A Shares -- Maximum Sales Charge...................... 4.75%
----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the nearest
cent)..................................................... $ 10.65
==========
Class B Shares
Net Assets................................................. $1,463,248
Shares outstanding......................................... 143,938
Offering price per share*.................................. $ 10.17
==========
Institutional Shares
Net Assets................................................. $5,954,779
Shares outstanding......................................... 585,328
Offering and redemption price per share.................... $ 10.17
==========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the period ended June 30, 1999(a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................... $ 159
Dividend income............................................... 21,206
-------
Total Investment Income...................................... 21,365
Expenses:
Investment advisory fees...................................... $1,513
Administration fees........................................... 1,134
Distribution fees -- Class A Shares........................... 157
Distribution fees -- Class B Shares........................... 2,772
Shareholder servicing fees -- Class A Shares.................. 94
Shareholder servicing fees -- Class B Shares.................. 924
Shareholder servicing fees -- Institutional Shares............ 486
Custodian fees................................................ 650
Accounting fees............................................... 8,815
Transfer agent fees........................................... 17,830
Directors' fees............................................... 8
Registration and filing fees.................................. 9,745
Legal fees.................................................... 4,830
Audit fees.................................................... 4,813
Other fees.................................................... 363
------
Total expenses before voluntary fee
reductions/reimbursements................................... 54,134
Expenses voluntarily reduced/reimbursed...................... (46,042)
-------
Net expenses................................................. 8,092
-------
Net Investment Income......................................... 13,273
-------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions...... 3,545
Net change in unrealized appreciation (depreciation) from
investments.................................................. 30,510
-------
Net realized/unrealized gains (losses) from investments....... 34,055
-------
Change in net assets resulting from operations................ $47,328
=======
</TABLE>
- ---------
(a) For the period from January 27, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
126
<PAGE>
ISG FUNDS
Growth & Income Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(b)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income......................................... $ 13,273
Net realized gains (losses) from investment transactions...... 3,545
Net change in unrealized appreciation (depreciation) from
investments.................................................. 30,510
----------
Change in net assets resulting from operations................. 47,328
----------
Distributions to Class A Shareholders:
From net investment income.................................... (586)(a)
Distributions to Class B Shareholders:
From net investment income.................................... (472)
Distributions to Institutional Shareholders:
From net investment income.................................... (11,455)(c)
----------
Change in net assets from shareholder distributions............ (12,513)
----------
Change in net assets from capital transactions................. 7,739,100
----------
Change in net assets........................................... 7,773,915
Net Assets:
Beginning of period........................................... --
----------
End of period................................................. $7,773,915
==========
</TABLE>
- ---------
(a) For the period from March 8, 1999 (commencement of operations) through June
30, 1999.
(b) For the period from January 27, 1999 (commencement of operations) through
June 30, 1999.
(c) For the period from February 8, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
127
<PAGE>
ISG FUNDS
Growth & Income Portfolio
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.10
------
Investment Activities
Net investment income (loss)..................................... 0.04
Net realized and unrealized gains (losses) from investments...... 0.02
------
Total from Investment Activities................................. 0.06
------
Distributions
Net investment income............................................ (0.02)
------
Total Distributions.............................................. (0.02)
------
Net change in asset value......................................... 0.04
------
Net Asset Value, End of Period.................................... $10.14
======
Total Return (excludes sales charge).............................. 0.64%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $ 356
Ratio of expenses to average net assets........................... 0.90%(c)
Ratio of net investment income to average net assets.............. 1.91%(c)
Ratio of expenses to average net assets*.......................... 5.61%(c)
Portfolio turnover**.............................................. 75%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from March 8, 1999 (commencement of operations) through June
30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.00
------
Investment Activities
Net investment income (loss)..................................... 0.03
Net realized and unrealized gains (losses) from investments...... 0.15
------
Total from Investment Activities................................. 0.18
------
Distributions
Net investment income............................................ (0.01)
------
Total Distributions.............................................. (0.01)
------
Net change in asset value......................................... 0.17
------
Net Asset Value, End of Period.................................... $10.17
======
Total Return (excludes redemption charge)......................... 1.75%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $1,463
Ratio of expenses to average net assets........................... 1.42%(c)
Ratio of net investment income to average net assets.............. 1.23%(c)
Ratio of expenses to average net assets*.......................... 9.03%(c)
Portfolio turnover**.............................................. 75%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 27, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
128
<PAGE>
ISG FUNDS
Growth & Income Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $ 9.85
------
Investment Activities
Net investment income (loss)..................................... 0.02
Net realized and unrealized gains (losses) from investments...... 0.33
------
Total from Investment Activities................................. 0.35
------
Distributions
Net investment income............................................ (0.03)
------
Total Distributions.............................................. (0.03)
------
Net change in asset value......................................... 0.32
------
Net Asset Value, End of Period.................................... $10.17
======
Total Return...................................................... 3.56%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $5,955
Ratio of expenses to average net assets........................... 0.65%(c)
Ratio of net investment income to average net assets.............. 2.20%(c)
Ratio of expenses to average net assets*.......................... 4.94%(c)
Portfolio turnover**.............................................. 75%
</TABLE>
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 8, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
129
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Growth Portfolio June 30, 1999 (Unaudited)
Investment Companies (101.2%)
<TABLE>
<CAPTION>
Market
Value
Shares (Note 2)
------- -----------
<S> <C> <C>
ISG Capital Growth Fund.................................... 19,576 $ 299,903
ISG Equity Income Fund..................................... 27,504 293,470
ISG Income Fund............................................ 38,522 379,060
ISG International Equity Fund.............................. 16,903 189,650
ISG Large-Cap Equity Fund.................................. 10,108 299,298
ISG Prime Money Market Fund................................ 281,667 281,667
ISG Small-Cap Opportunity Fund(b).......................... 14,414 195,594
-----------
TOTAL INVESTMENT COMPANIES (Cost $1,896,995)............... 1,938,642
-----------
TOTAL INVESTMENTS (Cost $1,896,995) (a) -- (101.2%)........ 1,938,642
Liabilities in excess of other
assets -- (-1.2%)......................................... (22,424)
-----------
TOTAL NET ASSETS -- (100.0%)............................... $ 1,916,218
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......... $ 51,839
Unrealized depreciation......... (10,192)
--------
Net unrealized appreciation..... $ 41,647
========
</TABLE>
(b) Non-income producing security.
See notes to financial statements
130
<PAGE>
ISG FUNDS
Growth Portfolio
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $1,896,995)..................... $1,938,642
Interest and dividends receivable........................... 3,035
Receivable for capital shares issued........................ 1,195
Receivable from investment adviser.......................... 11,615
Prepaid expenses and other assets........................... 57
----------
Total Assets............................................... 1,954,544
Liabilities:
Distributions payable....................................... $ 2,760
Accrued expenses and other payables:
Investment advisory fees................................... 153
Administration fees........................................ 23
Distribution fees.......................................... 704
Custodian fees............................................. 492
Other...................................................... 34,194
-------
Total Liabilities.......................................... 38,326
----------
Net Assets:
Capital..................................................... 1,870,456
Undistributed (distributions in excess of) net investment
income..................................................... 381
Undistributed (distributions in excess of) net realized
gains...................................................... 3,734
Net unrealized appreciation (depreciation) from
investments................................................ 41,647
----------
Net Assets.................................................. $1,916,218
==========
Class A Shares
Net Assets................................................. $ 130,999
Shares outstanding......................................... 12,992
Redemption price per share................................. $ 10.08
==========
Class A Shares -- Maximum Sales Charge...................... 4.75%
----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the nearest
cent)..................................................... $ 10.58
==========
Class B Shares
Net Assets................................................. $ 658,244
Shares outstanding......................................... 65,237
Offering price per share*.................................. $ 10.09
==========
Institutional Shares
Net Assets................................................. $1,126,975
Shares outstanding......................................... 111,686
Offering and redemption price per share.................... $ 10.09
==========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the period ended June 30, 1999 (a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................. $ 20
Dividend income............................................. 7,049
--------
Total Investment Income.................................... 7,069
Expenses:
Investment advisory fees.................................... $ 803
Administration fees......................................... 602
Distribution fees -- Class A Shares......................... 93
Distribution fees -- Class B Shares......................... 1,100
Shareholder servicing fees -- Class A Shares................ 56
Shareholder servicing fees -- Class B Shares................ 366
Shareholder servicing fees -- Institutional Shares.......... 327
Custodian fees.............................................. 541
Accounting fees............................................. 8,277
Transfer agent fees......................................... 17,235
Directors' fees............................................. 6
Registration and filing fees................................ 9,716
Audit fees.................................................. 4,678
Legal fees.................................................. 3,374
Other fees.................................................. 340
-------
Total expenses before voluntary fee
reductions/reimbursements................................. 47,514
Expenses voluntarily reduced/reimbursed.................... (43,586)
--------
Net expenses............................................... 3,928
--------
Net Investment Income....................................... 3,141
--------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions.... 3,734
Net change in unrealized appreciation (depreciation) from
investments................................................ 41,647
--------
Net realized/unrealized gains (losses) from investments..... 45,381
--------
Change in net assets resulting from operations.............. $ 48,522
========
</TABLE>
- ---------
(a) For the period from February 1, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
131
<PAGE>
ISG FUNDS
Growth Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(c)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income......................................... $ 3,141
Net realized gains (losses) from investment transactions...... 3,734
Net change in unrealized appreciation (depreciation) from
investments.................................................. 41,647
----------
Change in net assets resulting from operations................. 48,522
----------
Distributions to Class A Shareholders:
From net investment income.................................... (190)(a)
Distributions to Class B Shareholders:
From net investment income.................................... (193)(b)
Distributions to Institutional Shareholders:
From net investment income.................................... (2,377)
----------
Change in net assets from shareholder distributions............ (2,760)
----------
Change in net assets from capital transactions................. 1,870,456
----------
Change in net assets........................................... 1,916,218
Net Assets:
Beginning of period........................................... --
----------
End of period................................................. $1,916,218
==========
</TABLE>
- ---------
(a) For the period from February 11, 1999 (commencement of operations) through
June 30, 1999.
(b) For the period from February 15, 1999 (commencement of operations) through
June 30, 1999.
(c) For the period from February 1, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
132
<PAGE>
ISG FUNDS
Growth Portfolio
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $ 9.93
------
Investment Activities
Net investment income (loss)..................................... 0.02
Net realized and unrealized gains (losses) from investments...... 0.15
------
Total from Investment Activities................................. 0.17
------
Distributions
Net investment income............................................ (0.02)
------
Total Distributions.............................................. (0.02)
------
Net change in asset value......................................... 0.15
------
Net Asset Value, End of Period.................................... $10.08
======
Total Return (excludes sales charge).............................. 1.66%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $ 131
Ratio of expenses to average net assets........................... 0.86%(c)
Ratio of net investment income to average net assets.............. 0.75%(c)
Ratio of expenses to average net assets*.......................... 19.37%(c)
Portfolio turnover**.............................................. 60%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 11, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $ 9.84
------
Investment Activities
Net investment income (loss)..................................... 0.01
Net realized and unrealized gains (losses) from investments...... 0.24
------
Total from Investment Activities................................. 0.25
------
Net change in asset value......................................... 0.25
------
Net Asset Value, End of Period.................................... $10.09
======
Total Return (excludes redemption charge)......................... 2.57%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $ 658
Ratio of expenses to average net assets........................... 1.45%(c)
Ratio of net investment income to average net assets.............. 0.27%(c)
Ratio of expenses to average net assets*.......................... 12.57%(c)
Portfolio turnover**.............................................. 60%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 15, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
133
<PAGE>
ISG FUNDS
Growth Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.00
------
Investment Activities
Net investment income (loss)..................................... 0.02
Net realized and unrealized gains (losses) from investments...... 0.09
------
Total from Investment Activities................................. 0.11
------
Distributions
Net investment income............................................ (0.02)
------
Total Distributions.............................................. (0.02)
------
Net change in asset value......................................... 0.09
------
Net Asset Value, End of Period.................................... $10.09
======
Total Return...................................................... 1.11%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $1,127
Ratio of expenses to average net assets........................... 0.66%(c)
Ratio of net investment income to average net assets.............. 1.11%(c)
Ratio of expenses to average net assets*.......................... 9.76%(c)
Portfolio turnover**.............................................. 60%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from February 1, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
134
<PAGE>
ISG FUNDS Schedule of Portfolio Investments
Aggressive Growth Portfolio June 30, 1999 (Unaudited)
Investment Companies (81.6%)
<TABLE>
<CAPTION>
Market
Value
Shares (Note 2)
------- ----------
<S> <C> <C>
ISG Capital Growth Fund..................................... 51,183 $ 784,127
ISG International Equity Fund............................... 26,677 299,312
ISG Large-Cap Equity Fund................................... 31,916 945,039
ISG Prime Money Market Fund................................. 738,573 738,573
ISG Small-Cap Opportunity Fund(b)........................... 22,972 311,724
----------
TOTAL INVESTMENT COMPANIES (Cost $2,996,468)................ 3,078,775
----------
TOTAL INVESTMENTS
(Cost $2,996,468) (a) -- (81.6%)........................... 3,078,775
Other assets in excess of liabilities -- (18.4%)............ 695,297
----------
TOTAL NET ASSETS -- (100.0%)................................ $3,774,072
==========
</TABLE>
- ---------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......... $82,327
Unrealized depreciation.......... (20)
-------
Net unrealized appreciation...... $82,307
=======
</TABLE>
(b) Non-income producing security.
See notes to financial statements
135
<PAGE>
ISG FUNDS
Aggressive Growth Portfolio
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $2,996,468)..................... $3,078,775
Interest and dividends receivable........................... 2,698
Receivable for capital shares issued........................ 716,828
Receivable from investment adviser.......................... 14,975
----------
Total Assets.............................................. 3,813,276
Liabilities:
Distributions payable....................................... $ 411
Accrued expenses and other payables:
Investment advisory fees................................... 243
Administration fees........................................ 40
Distribution fees.......................................... 703
Custodian fees............................................. 641
Other...................................................... 37,166
-------
Total Liabilities.......................................... 39,204
----------
Net Assets:
Capital..................................................... 3,691,296
Undistributed (distributions in excess of) net investment
income..................................................... 91
Undistributed (distributions in excess of) net realized
gains...................................................... 378
Net unrealized appreciation (depreciation) from
investments................................................ 82,307
----------
Net Assets.................................................. $3,774,072
==========
Class A Shares
Net Assets................................................. $ 205,374
Shares outstanding......................................... 19,857
Redemption price per share................................. $ 10.34
==========
Class A Shares -- Maximum Sales Charge...................... 4.75%
----------
Maximum Offering Price Per Share (100%/(100% -- Maximum
Sales Charge) of net asset value adjusted to the nearest
cent)..................................................... $ 10.86
==========
Class B Shares
Net Assets................................................. $ 354,983
Shares outstanding......................................... 34,501
Offering price per share*.................................. $ 10.29
==========
Institutional Shares
Net Assets................................................. $3,213,715
Shares outstanding......................................... 311,511
Offering and redemption price per share.................... $ 10.32
==========
</TABLE>
- ---------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the period ended June 30, 1999 (a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................. $ 44
Dividend income............................................. 4,817
--------
Total Investment Income.................................... 4,861
Expenses:
Investment advisory fees.................................... $ 1,029
Administration fees......................................... 772
Distribution fees -- Class A Shares......................... 114
Distribution fees -- Class B Shares......................... 722
Shareholder servicing fees -- Class A Shares................ 68
Shareholder servicing fees -- Class B Shares................ 241
Shareholder servicing fees -- Institutional Shares.......... 559
Custodian fees.............................................. 689
Accounting fees............................................. 9,382
Transfer agent fees......................................... 18,957
Directors' fees............................................. 5
Registration and filing fees................................ 9,715
Audit fees.................................................. 5,009
Legal fees.................................................. 4,030
Other fees.................................................. 362
-------
Total expenses before voluntary fee
reductions/reimbursements................................. 51,654
Expenses voluntarily reduced/reimbursed.................... (47,295)
--------
Net expenses............................................... 4,359
--------
Net Investment Income....................................... 502
--------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions.... 378
Net change in unrealized appreciation (depreciation) from
investments................................................ 82,307
--------
Net realized/unrealized gains (losses) from investments..... 82,685
--------
Change in net assets resulting from operations.............. $ 83,187
========
</TABLE>
- ---------
(a) For the period from January 13, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
136
<PAGE>
ISG FUNDS
Aggressive Growth Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
From Investment Activities:
Operations:
Net investment income......................................... $ 502
Net realized gains (losses) from investment transactions...... 378
Net change in unrealized appreciation (depreciation) from
investments.................................................. 82,307
----------
Change in net assets resulting from operations................. 83,187
----------
Distributions to Institutional Shareholders:
From net investment income.................................... (411)(b)
----------
Change in net assets from shareholder distributions............ (411)
----------
Change in net assets from capital transactions................. 3,691,296
----------
Change in net assets........................................... 3,774,072
Net Assets:
Beginning of period........................................... --
----------
End of period................................................. $3,774,072
==========
</TABLE>
- ---------
(a) For the period from January 13, 1999 (commencement of operations) through
June 30, 1999.
(b) For the period from January 28, 1999 (commencement of operations) through
June 30, 1999.
See notes to financial statements
137
<PAGE>
ISG FUNDS
Aggressive Growth Portfolio
Financial Highlights, Class A Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net realized and unrealized gains (losses) from investments..... 0.34
------
Total from Investment Activities................................ 0.34
------
Net change in asset value........................................ 0.34
------
Net Asset Value, End of Period................................... $10.34
======
Total Return (excludes sales charge)............................. 3.40%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 205
Ratio of expenses to average net assets.......................... 0.85%(c)
Ratio of net investment income to average net assets............. (0.06)%(c)
Ratio of expenses to average net assets*......................... 19.50%(c)
Portfolio turnover**............................................. 2%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 13, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
Financial Highlights, Class B Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period............................. $10.03
------
Investment Activities
Net investment income (loss).................................... (0.02)
Net realized and unrealized gains (losses) from investments..... 0.28
------
Total from Investment Activities................................ 0.26
------
Net change in asset value........................................ 0.26
------
Net Asset Value, End of Period................................... $10.29
======
Total Return (excludes redemption charge)........................ 2.59%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 355
Ratio of expenses to average net assets.......................... 1.39%(c)
Ratio of net investment income to average net assets............. (0.67)%(c)
Ratio of expenses to average net assets*......................... 17.63%(c)
Portfolio turnover**............................................. 2%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 27, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
138
<PAGE>
ISG FUNDS
Aggressive Growth Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
Period Ended
June 30,
1999(a)
------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.05
------
Investment Activities
Net realized and unrealized gains (losses) from investments...... 0.27
------
Total from Investment Activities................................. 0.27
------
Net change in asset value......................................... 0.27
------
Net Asset Value, End of Period.................................... $10.32
======
Total Return...................................................... 2.70%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................. $3,214
Ratio of expenses to average net assets........................... 0.68%(c)
Ratio of net investment income to average net assets.............. 0.31%(c)
Ratio of expenses to average net assets*.......................... 6.70%(c)
Portfolio turnover**.............................................. 2%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced/reimbursed. If such
voluntary fee reductions/reimbursements had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from January 28, 1999 (commencement of operations) through
June 30, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
139
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
140
<PAGE>
ISG FUNDS
Notes to Financial Statements
June 30, 1999
(Unaudited)
Note 1 -- Organization
ISG Funds, are a separate series of The Infinity Mutual Funds, Inc. (the
"Company") which was organized as a Maryland corporation on March 6, 1990 and
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end, management investment company. The Company operates as a series
of twenty-three funds. The accompanying financial statements and notes relate
to the ISG Treasury Money Market Fund, the ISG Prime Money Market Fund, the ISG
Tax-Exempt Money Market Fund (collectively the "Money Market Funds"), the ISG
Limited Term U.S. Government Fund, the ISG Government Income Fund, the ISG
Municipal Income Fund, the ISG Limited Term Tennessee Tax-Exempt Fund, the ISG
Tennessee Tax-Exempt Fund, the ISG Limited Term Income Fund, the ISG Income
Fund, the ISG Equity Income Fund, the ISG Large-Cap Equity Fund, the ISG
Capital Growth Fund, the ISG Mid-Cap Fund, the ISG Small-Cap Opportunity Fund,
the ISG International Equity Fund, the ISG Current Income Portfolio, the ISG
Moderate Growth & Income Portfolio, the ISG Growth & Income Portfolio, the ISG
Growth Portfolio and the ISG Aggressive Growth Portfolio (collectively, the
"Variable Net Asset Value Funds") (individually, a "Fund") and (collectively,
the "Funds").
The TREASURY MONEY MARKET FUND seeks to provide investors with as high a
level of current income as is consistent with the preservation of capital and
the maintenance of liquidity. This Fund will invest only in U.S. Treasury
securities and in other securities guaranteed as to principal and interest by
the U.S. Government, and repurchase agreements in respect thereof.
The PRIME MONEY MARKET FUND seeks to provide investors with as high a level
of current income as is consistent with the preservation of capital and the
maintenance of liquidity. This Fund will invest in short-term money market
instruments.
The TAX-EXEMPT MONEY MARKET seeks to provide investors with as high a level
of current income exempt from Federal income tax as is consistent with the
preservation of capital and the maintenance of liquidity. This Fund will invest
primarily in short-term municipal obligations.
The LIMITED TERM U.S. GOVERNMENT FUND seeks to provide investors with high
current income without assuming undue risk. This Fund will invest primarily in
a portfolio of U.S. government securities that, under normal market conditions,
has an effective duration that approximates that of the Merrill Lynch
Government 1 to 5 Year Bond Index.
The GOVERNMENT INCOME FUND seeks to provide investors with current income.
This Fund will invest primarily in securities guaranteed as to payment of
principal and interest by the U.S. government, its agencies or
instrumentalities.
The MUNICIPAL INCOME FUND seeks to provide investors with dividend income
exempt from Federal income tax. This Fund will invest primarily in investment
grade municipal obligations.
The LIMITED TERM TENNESSEE TAX-EXEMPT FUND seeks to provide investors with
current income exempt from Federal and Tennessee income taxes without assuming
undue risk. This Fund will invest primarily in a portfolio of investment grade
Tennessee municipal obligations that, under normal market conditions, has a
duration of under five years and an effective average portfolio maturity
ranging between three and five years.
The TENNESSEE TAX-EXEMPT FUND seeks to provide investors with current income
exempt from Federal and Tennessee income taxes without assuming undue risk.
This Fund will invest primarily in investment grade Tennessee municipal
obligations without regard to maturity.
The LIMITED TERM INCOME FUND seeks to provide investors with current income
without assuming undue risk. This Fund will invest primarily in a portfolio of
investment grade, U.S. dollar denominated fixed-income securities of domestic
and foreign issuers, which, under normal market conditions, has a duration of
under four years.
The INCOME FUND seeks to provide investors with current income without
assuming undue risk. This Fund will invest primarily in a portfolio of
investment grade, U.S. dollar denominated fixed-income securities of domestic
and foreign issuers, which, under normal market conditions, has an effective
duration of 50% to 150% of that of the Merrill Lynch Corporate Government
Master Index.
Continued
141
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
The EQUITY INCOME FUND seeks to provide investors with current income and
capital appreciation. This Fund will invest primarily in dividend-paying equity
securities of domestic issuers which are expected to provide reasonable income
and may have capital appreciation potential.
The LARGE-CAP EQUITY FUND seeks to provide investors with long-term capital
appreciation and, as a secondary objective, current income. This Fund will
invest primarily in equity securities of large capitalization (over $1 billion)
domestic issuers that have the potential to provide capital appreciation and
income.
The CAPITAL GROWTH FUND seeks to provide investors with capital growth. This
Fund will invest primarily in the equity securities of domestic issuers.
The MID-CAP FUND seeks to provide investors with capital appreciation. This
Fund will invest primarily in equity securities of moderate capitalization
($500 million to $5 billion) domestic issuers.
The SMALL-CAP OPPORTUNITY FUND seeks to provide investors with capital
appreciation. This Fund will invest primarily in equity securities of small
capitalization (under $1 billion) domestic issuers.
The INTERNATIONAL EQUITY FUND seeks to provide investors with capital
appreciation. This Fund will invest primarily in equity securities of foreign
issuers which are established companies in economically developed countries.
The CURRENT INCOME PORTFOLIO seeks to provide investors with current income.
This Fund will allocate its assets among various ISG Funds within a
predetermined strategy range which invest primarily in fixed income securities.
The MODERATE GROWTH & INCOME PORTFOLIO seeks to provide investors with
current income and a moderate level of capital growth. This Fund will allocate
its assets among various ISG Funds within a predetermined strategy range which
invest primarily in equity and fixed income securities.
The GROWTH & INCOME PORTFOLIO seeks to provide investors with long-term
capital growth and a moderate level of current income. This Fund will allocate
its assets among various ISG Funds within a predetermined strategy range which
invest primarily in equity securities.
The GROWTH PORTFOLIO seeks to provide investors with long-term capital
growth. The Fund will allocate its assets among various ISG Funds within a
predetermined strategy range which invest primarily in equity securities.
The AGGRESSIVE GROWTH PORTFOLIO seeks to provide investors with capital
growth. The Fund will allocate its assets among various ISG Funds within a
predetermined strategy range which invest primarily in equity securities.
The Funds are authorized to issue three classes of shares as follows:
Institutional Shares, Class A Shares and Class B Shares (except for the
Treasury Money Market Fund and Tax-Exempt Money Market Fund which do not offer
Class B Shares and the Limited Term Tennessee Tax-Exempt Fund which does not
offer Institutional Shares). Class A Shares are subject to an initial sales
charge imposed at the time of purchase and Class B Shares are subject to a
contingent deferred sales charge imposed at the time of redemption, as
described in the Funds' prospectus. Class A Shares (except for the Money Market
Funds) and Class B Shares bear distribution (12b-1) fees. Class A, Class B and
Institutional Shares bear shareholder servicing fees. Each class has identical
rights and privileges except with respect to the distribution (12b-1) fees paid
by Class A and Class B Shares, the shareholder servicing fees paid by each
respective class, voting matters affecting a single class of shares and the
exchange privileges of each class of shares.
At June 30, 1999, there were 27 billion shares of the Funds' $0.001 par value
common stock authorized, of which each Fund's shares are classified into Class
A Shares, Class B Shares and Institutional Shares, except as noted above.
Note 2 -- Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Funds in preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles (GAAP). The
preparation of financial statements 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 income and
expenses for the period. Actual results could differ from those estimates.
Continued
142
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
A) Security Valuation:
The Money Market Funds' securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a
security at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
The Variable Net Asset Value Funds' investments are valued each business day
using available market quotations or at fair value as determined by one or more
independent pricing services (collectively, the "Service") approved by the
Board of Directors. The Service may use available market quotations, employ
electronic data processing techniques and/or a matrix system to determine
valuations. Investments in foreign securities of the International Equity Fund
are valued based on quotations from the primary market in which they are
traded. Investment companies are valued at the published net asset value per
share. Debt securities with remaining maturities of 60 days or less are
normally valued at amortized cost, which approximates market value. Restricted
securities and securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Directors. The differences between cost and market values of such
investments are reflected as unrealized appreciation or depreciation.
B) Security Transactions and Investment Income:
Security transactions are recorded on trade date. Realized gains and losses
from sales of investments are calculated on the identified cost basis. Interest
income, including accretion of discount and amortization of premium on
investments (when applicable), is accrued daily. Dividend income is recorded on
the ex-dividend date.
C) Repurchase Agreements:
The Funds may invest in repurchase agreements from financial institutions,
such as banks and broker-dealers approved by the Board of Directors. The Funds'
custodian and other banks acting in a sub-custodian capacity take possession of
the collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to determine that the
value, including accrued interest, exceeds the repurchase price. In the event
of the seller's default on the obligation to repurchase, the Funds have the
right to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Accordingly, the Funds could
receive less than the carrying value upon the sale of the underlying collateral
securities.
D) Securities Purchased on a When-Issued Basis:
Each Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and/or yield, thereby, involving the risk that the price
and/or yield obtained may be more or less than those available in the market
when delivery takes place. At the time a Fund makes the commitment to purchase
a security on a when-issued basis, the Fund records the transaction and
reflects the value of the security in determining net asset value. Normally,
the settlement date occurs within one month of the purchase. A segregated
account is established and the Funds maintain cash and marketable securities at
least equal in value to commitments for when-issued securities. Securities
purchased on a when-issued basis do not earn income until settlement date.
E) Foreign Currency Translation:
The market value of investment securities, other assets and liabilities of
the International Equity Fund denominated in a foreign currency are translated
into U.S. dollars at the current exchange rate. Purchases and sales of
securities, income receipts and expense payments are translated into U.S.
dollars at the exchange rate on the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gains or losses from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of fund securities, sales of foreign currencies, currency exchange
fluctuations between the trade and settlement dates of securities transactions,
and the difference
Continued
143
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
between the amounts of assets and liabilities recorded and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities, including investments in securities, resulting from changes in
currency exchange rates.
F) Risks Associated with Foreign Securities and Currencies:
Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include future political and economic developments and the possible
imposition of exchange controls or other foreign governmental laws and
restrictions. In addition, with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on
investments in issuers or industries deemed sensitive to relevant national
interests. These factors may limit the investment opportunities available to
the International Equity Fund or result in a lack of liquidity and high price
volatility with respect to securities of issuers from developing countries.
G) Forward Currency Contracts:
The International Equity Fund may enter into a forward currency contract
("forward") which is an agreement between two parties to buy and sell a
currency at a set price on a future date. The market value of the forward
fluctuates with changes in currency exchange rates. The forward is marked-to-
market daily and the change in market value is recorded by the Fund as
unrealized appreciation or depreciation. When the forward is closed, the Fund
records a realized gain or loss equal to the difference between the value at
the time it was opened and the value at the time it was closed. The Fund could
be exposed to risk if a counterparty is unable to meet the terms of a forward
or if the value of the currency changes unfavorably.
Forwards may involve market or credit risk in excess of the amounts reflected
on the Fund's statement of assets and liabilities. The gain or loss from the
difference between the cost of original contracts and the amount realized upon
the closing of such contracts is included in net realized gains/losses from
investment and foreign currency transactions. Fluctuations in the value of
forwards held are recorded for financial reporting purposes as unrealized gains
and losses by the Fund. The following forwards were open at June 30, 1999.
<TABLE>
<CAPTION>
Unrealized Unrealized
Gain Loss
---------- ----------
<S> <C> <C>
48,893 British Pounds vs. $77,886 for value date,
July 1, 1999........................................ -- $(816)
4,719,647 Japanese Yen vs. $38,970 for value date,
July 1, 1999........................................ -- (24)
--- -----
-- $(840)
=== =====
</TABLE>
H) Securities Lending:
To generate additional income, the Funds may lend up to 33 1/3% of securities
in which they are invested pursuant to agreements requiring that the loan be
continuously secured by cash, U.S. government or U.S. government agency
securities, shares of an investment trust or mutual fund, or any combination of
cash and such securities as collateral equal at all times to at least 100% of
the market value plus accrued interest on the securities loaned. The Funds
continue to earn interest and dividends on securities loaned while
simultaneously seeking to earn interest on the investment of collateral.
When cash is received as collateral for securities loaned, the Funds may
invest such cash in short-term U.S. government securities, repurchase
agreements, or other short-term corporate securities. The cash or subsequent
short-term investments are recorded as assets of the Funds, offset by a
corresponding liability to repay the cash at the termination of the loan. In
addition, the short-term securities purchased with the cash collateral are
included in the accompanying schedules of portfolio investments. Fixed income
securities received as collateral are not recorded as an asset or liability of
the Fund because the Fund does not have effective control of such securities.
There may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
adviser to be of good standing and
Continued
144
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
creditworthy under guidelines established by the Board of Directors and when,
in the judgment of the adviser, the consideration which can be earned currently
from such securities loans justifies the attendant risks. Loans are subject to
termination by the Funds or the borrower at any time, and are, therefore, not
considered to be illiquid investments. According to GAAP, a statement of cash
flows is presented if the Fund loaned out, on average, more than 10% of net
assets during the year. Under this guideline, a statement of cash flows is
presented for the Treasury Money Market Fund, Equity Income Fund and Capital
Growth Fund. As of June 30, 1999, the following Funds had securities with the
following market values on loan:
<TABLE>
<CAPTION>
Market Market Value
Value of of Loaned
Collateral Securities
------------ ------------
<S> <C> <C>
Treasury Money Market Fund........................... $ 46,281,250 $ 45,739,700
Government Income Fund............................... 172,340,198 168,682,620
Equity Income Fund................................... 28,129,804 27,532,806
Large-Cap Equity Fund................................ 69,571,810 68,095,288
Capital Growth Fund.................................. 81,290,665 79,565,431
Small-Cap Opportunity Fund........................... 23,697,283 23,194,356
</TABLE>
The loaned securities were fully collateralized by cash which was invested in
U.S. government securities, commercial paper, investment companies and
repurchase agreements at June 30, 1999.
As disclosed in the schedules of portfolio investments the Government Income,
Equity Income, Large-Cap Equity, Capital Growth and Small-Cap Opportunity Funds
collectively invested cash collateral in a Lehman Brothers Repurchase Agreement
with an interest rate of 5.50% and a maturity of 7/1/99 which was
collateralized by the following securities:
<TABLE>
<CAPTION>
Principal Description Market Value
--------- ----------- ------------
<C> <S> <C> <C> <C>
$ 108,492 Bear Stearns Mortgage 7.00% 1/25/13 $ 90,771
Various CMC Securities
2,437,677 Corp. 0.00% 10/25/24 1,254,091
510,000 CMST 0.00% 2/1/15 25,500
10,138,000 Various Fannie Mae 6.50% 3/20/10-6/20/14 9,631,202
GMAC Commercial Mortgage
1,000,000 Securities Inc. 0.00% 1/15/13 921,700
Lehman Home Equity Loan
965,552 Trust 0.00% 5/25/28 64,982
Various Merit Securities
6,933,000 Corp. 6.50-8.00% 1/28/27 6,032,306
Various Residential
3,833,978 Funding Mortgage Corp. 7.00% 3/25/12 2,587,671
1,000 Ryland Acceptance Corp. 0.00% 5/15/00 900
Saxon Mortgage
311,949 Securities 6.25% 5/25/09 247,583
2,451,718 Various SMSC 6.25-7.00% 5/25/09-7/25/24 1,115,764
Various Structured Asset
3,736,983 Securities Corp. 0.00-7.43% 7/25/13-10/1/36 994,616
</TABLE>
I) Expenses:
The Limited Term U.S. Government, Limited Term Tennessee Tax-Exempt, Equity
Income and Capital Growth Funds incurred certain costs in connection with their
organization. These costs were deferred and are being amortized on a straight-
line basis over five years from their commencement of operations. ISG accounts
separately for the assets, liabilities and operations of each Fund. Direct
expenses of a Fund are charged to that Fund while general ISG or Company
expenses are allocated among the ISG Funds' or Company's respective Funds based
on the relative net assets of each Fund.
J) Federal Income Taxes:
For federal income tax purposes, each Fund is treated as a separate entity
for the purpose of determining its qualification as a regulated investment
company under the Internal Revenue Code (the "Code"). It is the policy of each
Fund to meet the requirements of the Code applicable to regulated investment
companies, including the requirement that they distribute substantially all of
their income and capital gains to shareholders. Therefore, no federal income
tax provision is required.
Continued
145
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
K) Dividends and Distributions to Shareholders:
Dividends are declared daily to shareholders of record at the close of
business on the day of declaration and are paid monthly for the Treasury Money
Market Fund, Prime Money Market Fund, Tax-Exempt Money Market Fund, Limited
Term U.S. Government Fund, Limited Term Tennessee Tax-Exempt Fund, Tennessee
Tax-Exempt Fund, Limited Term Income Fund and Income Fund. Dividends are
declared and paid monthly for the Government Income Fund, Municipal Income
Fund, Equity Income Fund and Current Income Portfolio. Dividends, if any, are
declared and paid quarterly for the Large-Cap Equity Fund, Capital Growth Fund,
Mid-Cap Fund, Small-Cap Opportunity Fund, Moderate Growth & Income Portfolio,
Growth & Income Portfolio, Growth Portfolio and Aggressive Growth Portfolio.
Dividends, if any, are declared and distributed annually for International
Equity Fund. For all Funds, distributions of net realized gains, if any, will
be paid at least annually.
Dividends and distributions are recorded on the ex-dividend date.
Distributions from net investment income and from net realized gains are
determined in accordance with federal income tax regulations that may differ
from GAAP. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the composition of net assets based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
Note 5 -- Related Party Transactions
First American National Bank ("First American") serves as the Funds'
investment adviser and is a wholly-owned subsidiary of First American Corp.
Bennett Lawrence Management, LLC serves as the sub-investment adviser to the
ISG Mid-Cap Fund. Womack Asset Management, Inc. serves as the sub-investment
adviser to the ISG Small-Cap Opportunity Fund. Lazard Asset Management serves
as the sub-investment adviser to the ISG International Equity Fund. Under the
terms of the sub-investment advisory agreements, Bennett Lawrence, Womack and
Lazard are entitled to receive fees from First American based on a percentage
of the average daily net assets of their respective funds. The agreements
stipulate Bennet Lawrence to receive 0.75% on the first $25 million, .625% on
the next $50 million, and .50% on assets in excess of $75 million of the value
of the Mid-Cap Fund's average daily net assets, Womack to receive a monthly fee
of 0.35% of the value of Small-Cap Opportunity Fund's average daily net assets
and Lazard to receive a monthly fee of 0.50% of the value of International
Equity Fund's average daily net assets.
BISYS Fund Services Ohio, Inc. ("BISYS") serves as the Funds' administrator
and distributor. BISYS is a subsidiary of The BISYS Group, Inc.
As investment adviser, First American manages the investments of each Fund,
supervises the sub-investment advisers with respect to the ISG Mid-Cap Fund,
the ISG Small-Cap Opportunity Fund and the ISG International Equity Fund and is
responsible for all purchases and sales of each Fund's investment securities.
Pursuant to the Administration Agreement, BISYS assists in supervising the
operations of the Funds. For its services, BISYS is entitled to receive a fee
at the annual rate of 0.10% of the average daily net assets of each Money
Market Fund and 0.15% of the average daily net assets of each Variable Net
Asset Value Fund.
Pursuant to the Shareholder Service Plan, the Funds pay BISYS for the
provision of certain services at an annual rate of 0.15% of the value of the
average daily net assets represented by Institutional Shares (except for the
Limited Term Tennessee Tax-Exempt Fund which does not offer Institutional
Shares) and Class A Shares (0.25% in the case of Class A Shares of the Money
Market Funds) and at an annual rate of 0.25% of the value of the average daily
net assets represented by Class B Shares. The services provided may include
personal services relating to shareholder accounts and services related to the
maintenance of such shareholder accounts. BISYS may pay financial institutions,
including the investment adviser, broker/dealers and other institutions in
respect to these services.
Pursuant to the Distribution Plan, each Fund pays BISYS for advertising,
marketing and distributing Class A Shares (other than the Money Market Funds)
and Class B Shares (other than the Treasury Money Market Fund and Tax-Exempt
Money Market Fund which do not offer Class B Shares) at an annual rate of 0.25%
of the average daily net assets represented by Class A Shares and at an annual
rate of 0.75% of the average daily net assets represented by Class B Shares.
BISYS may pay financial institutions, broker/dealers and other institutions, in
respect of these services.
Continued
146
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
For the six months ended June 30, 1999, BISYS realized $322,696 from
commissions on the sales of Class A Shares and Class B Shares, of which, $8,012
was reallowed to affiliated broker/dealers of the Funds.
BISYS Fund Services Ohio, Inc., a subsidiary of The BISYS Group, Inc., serves
the Funds as Transfer Agent and Mutual Fund Accountant. The Mutual Fund
Accountant fees are included in the Administration Agreement, plus out of
pocket costs. The Transfer Agent Fees are based on a fixed fee of $12,500 per
class, plus out of pocket costs.
Certain officers and Directors of the Company are "affiliated persons" (as
defined in the Act) of BISYS and therefore do not receive compensation. As of
the May 13, 1999 Board meeting, each "non-affiliated" Director will receive an
annual fee of $14,000, a meeting fee of $2,500 per meeting and $1,000 for each
telephonic meeting for services relating to the Company. These fees are
effective as of the next regular Board meeting on August 12, 1999.
Information regarding these transactions for the six months ended June 30,
1999 is as follows:
<TABLE>
<CAPTION>
Administration Distribution Fees --
Investment Advisory Fees Fees Class A Shares Reimbursements
--------------------------- -------------- -------------------- -----------------------------
Annual Fee Voluntary Voluntary Voluntary
Before Voluntary Fee Fee Fee Class A Class B Institutional
Fee Reductions Reductions Reductions Reductions Shares Shares Shares
---------------- ---------- -------------- -------------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury Money Market
Fund................... 0.25% $ -- $ -- $ -- $72,186 $ -- $ 6,414
Prime Money Market
Fund................... 0.25% -- -- -- 50,473 -- --
Tax-Exempt Money Market
Fund................... 0.35% -- -- -- -- -- --
Limited Term U.S.
Government Fund........ 0.50% 37,707 1,486 3,187 -- -- --
Government Income Fund.. 0.60% -- -- 1,898 665 -- 144,087
Municipal Income Fund... 0.60% 91,213 -- 3,314 -- -- --
Limited Term Tennessee
Tax-Exempt Fund........ 0.50% 11,067 11,066 24,112 -- -- --
Tennessee Tax-Exempt
Fund................... 0.50% -- -- -- -- -- --
Limited Term Income
Fund................... 0.50% -- -- -- -- -- --
Income Fund............. 0.50% -- -- -- -- -- --
Equity Income Fund...... 0.65% -- -- -- -- -- --
Large-Cap Equity Fund... 0.75% -- -- 79,460 26,806 -- 282,480
Capital Growth Fund..... 0.65% -- -- -- -- -- --
Mid-Cap Fund............ 1.00% -- -- -- -- -- --
Small-Cap Opportunity
Fund................... 0.95% -- -- 14,544 6,075 -- 48,903
International Equity
Fund................... 1.00% 40,439 -- 155 -- -- --
Current Income
Portfolio.............. 0.20% 150 -- -- 92 2,822 43,324
Moderate Growth & Income
Portfolio.............. 0.20% 346 -- -- 8,918 25,965 9,775
Growth & Income
Portfolio.............. 0.20% 756 -- -- 2,935 28,095 14,256
Growth Portfolio........ 0.20% 402 -- -- 6,915 16,366 19,903
Aggressive Growth
Portfolio.............. 0.20% 514 -- -- 8,522 15,694 22,565
</TABLE>
Continued
147
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
Note 6 -- Purchases and Sales of Investment Securities
For the six months ended June 30, 1999, the cost of purchases and the
proceeds from sales of fund securities (excluding short-term investments) were
as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Limited Term U.S. Government Fund.................... $ 6,223,590 $ 3,892,936
Government Income Fund............................... 55,783,075 2,508,000
Municipal Income Fund................................ 99,764,479 89,445,021
Limited Term Tennessee Tax-Exempt Fund............... 9,128,926 9,261,232
Tennessee Tax-Exempt Fund............................ 32,272,747 36,468,293
Limited Term Income Fund............................. 20,801,216 16,680,758
Income Fund.......................................... 25,229,555 16,274,946
Equity Income Fund................................... 65,738,633 66,093,972
Large-Cap Equity Fund................................ 19,609,965 159,055,599
Capital Growth Fund.................................. 187,155,707 157,763,821
Mid-Cap Fund......................................... 6,574,013 119,918
Small-Cap Opportunity Fund........................... 103,918,053 108,451,140
International Equity Fund............................ 6,197,380 6,874,628
Current Income Portfolio............................. 647,697 73,485
Moderate Growth & Income Portfolio................... 5,308,269 968,089
Growth & Income Portfolio............................ 10,420,685 2,187,428
Growth Portfolio..................................... 2,276,024 654,077
Aggressive Growth Portfolio.......................... 2,925,629 23,937
</TABLE>
Note 7 -- Concentration of Credit Risk
The Limited Term Tennessee Tax-Exempt Fund and Tennessee Tax-Exempt Fund
invest substantially all of their assets in a non-diversified portfolio of tax-
exempt debt obligations primarily consisting of securities issued by the State
of Tennessee, its municipalities, counties and other taxing districts. The
issuers' abilities to meet their obligations may be affected by Tennessee
economic, regional and political developments.
The Municipal Income Fund, Limited Term Tennessee Tax-Exempt Fund and
Tennessee Tax-Exempt Fund had the following concentrations by sector at June
30, 1999 (as a percentage of total investments):
<TABLE>
<CAPTION>
Limited Term
Municipal Tennessee Tennessee
Income Tax-Exempt Tax-Exempt
Fund Fund Fund
--------- ------------ ----------
<S> <C> <C> <C>
General Obligation............................ 40.1% 54.9% 47.4%
Utilities..................................... 15.1% 9.5% 18.3%
Health & Medical.............................. 9.8% 7.0% 17.4%
Educational................................... 13.8% 9.7% 3.2%
Transportation................................ 4.6% -- 2.2%
Housing....................................... 5.7% 4.4% --
Others........................................ 9.2% 7.5% 11.5%
Cash and Cash Equivalents..................... 1.7% 7.0% --
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Continued
148
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
Note 8 -- Capital Share Transactions
Transactions in shares in the multi-class Funds are summarized below:
<TABLE>
<CAPTION>
Treasury Money Market Fund Prime Money Market Fund
---------------------------- ----------------------------
Six Months Six Months Year
Ended Year Ended Ended Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................ $ 285,637,865 $ 451,868,071 $ 301,400,117 $ 570,797,942
Dividends reinvested... 359,486 394,398 5,813,083 1,864,545
Cost of shares
redeemed.............. (315,584,834) (361,844,685) (300,389,034) (318,621,139)
------------- ------------- ------------- -------------
(29,587,483) 90,417,784 6,824,166 254,041,348
------------- ------------- ------------- -------------
Class B Shares:
Proceeds from shares
issued................ -- -- 485,283 232,471 (a)
Dividends reinvested... -- -- 2,684 1,499 (a)
Cost of shares
redeemed.............. -- -- (340,345) (47,165)(a)
------------- ------------- ------------- -------------
-- -- 147,622 186,805
------------- ------------- ------------- -------------
Institutional Shares:
Proceeds from shares
issued................ 239,348,425 382,986,334 197,523,784 190,307,006
Dividends reinvested... 126,271 10,935 7,826 1
Cost of shares
redeemed.............. (210,122,977) (187,178,191) (136,549,097) (149,980,261)
------------- ------------- ------------- -------------
29,351,719 195,819,078 60,982,513 40,326,746
------------- ------------- ------------- -------------
Total net increase
(decrease) from capital
transactions........... $ (235,764) $ 286,236,862 $ 67,954,301 $ 294,554,899
============= ============= ============= =============
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 285,637,865 451,868,071 301,400,119 570,797,942
Reinvested............. 359,486 394,398 5,813,083 1,864,545
Redeemed............... (315,584,834) (361,844,685) (300,389,034) (318,621,139)
------------- ------------- ------------- -------------
(29,587,483) 90,417,784 6,824,168 254,041,348
------------- ------------- ------------- -------------
Class B Shares:
Issued................. -- -- 485,283 232,471 (a)
Reinvested............. -- -- 2,684 1,499 (a)
Redeemed............... -- -- (340,345) (47,165)(a)
------------- ------------- ------------- -------------
-- -- 147,622 186,805
------------- ------------- ------------- -------------
Institutional Shares:
Issued................. 239,347,592 382,986,334 197,523,784 190,307,006
Reinvested............. 126,271 10,935 7,826 1
Redeemed............... (210,122,977) (187,178,191) (136,549,097) (149,980,261)
------------- ------------- ------------- -------------
29,350,886 195,819,078 60,982,513 40,326,746
------------- ------------- ------------- -------------
Total net increase
(decrease) from share
transactions........... (236,597) 286,236,862 67,954,303 294,554,899
============= ============= ============= =============
</TABLE>
- ---------
(a) For the period from July 23, 1998 (commencement of operations) through
December 31, 1998.
Continued
149
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Tax-Exempt
Money Market Limited Term
Fund U.S. Government Fund
------------ -----------------------------
Period Ended Six Months Ended Year Ended
June 30, June 30, December 31,
1999(a) 1999 1998
------------ ---------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares issued.. $ 4,938,574 $ 942,997 $ 33,332,277
Dividends reinvested......... -- 45,341 52,770
Cost of shares redeemed...... (3,242,883) (407,017) (52,018,890)
------------ ----------- ------------
1,695,691 581,321 (18,633,843)
------------ ----------- ------------
Class B Shares:
Proceeds from shares issued.. -- 239,772 428,519 (b)
Dividends reinvested......... -- 7,324 5,919 (b)
Cost of shares redeemed...... -- (104,390) (7,611)(b)
------------ ----------- ------------
-- 142,706 426,827
------------ ----------- ------------
Institutional Shares:
Proceeds from shares issued.. 135,104,572 4,814,371 47,242,730 (c)
Dividends reinvested......... -- 357,884 -- (c)
Cost of shares redeemed...... (36,708,970) (6,681,798) (764,822)(c)
------------ ----------- ------------
98,395,602 (1,509,543) 46,477,908
------------ ----------- ------------
Total net increase (decrease)
from capital transactions.... $100,091,293 $ (785,516) $ 28,270,892
============ =========== ============
SHARE TRANSACTIONS:
Class A Shares:
Issued....................... 4,938,574 93,270 3,245,674
Reinvested................... -- 4,465 5,139
Redeemed..................... (3,242,883) (40,037) (4,999,183)
------------ ----------- ------------
1,695,691 57,698 (1,748,370)
------------ ----------- ------------
Class B Shares:
Issued....................... -- 23,656 42,105 (b)
Reinvested................... -- 721 577 (b)
Redeemed..................... -- (10,337) (749)(b)
------------ ----------- ------------
-- 14,040 41,933
------------ ----------- ------------
Institutional Shares:
Issued....................... 135,104,572 474,596 4,594,333 (c)
Reinvested................... -- 35,252 -- (c)
Redeemed..................... (36,708,970) (657,030) (74,494)(c)
------------ ----------- ------------
98,395,602 (147,182) 4,519,839
------------ ----------- ------------
Total net increase (decrease)
from share transactions...... 100,091,293 (75,444) 2,813,402
============ =========== ============
</TABLE>
- ---------
(a) For the period from May 3, 1999 (commencement of operations) through June
30, 1999.
(b) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
Continued
150
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Government Income Fund Municipal Income Fund
------------------------------------------------- ------------------------------------------------
Six Months Ended Period Ended Year Ended Six Months Ended Period Ended Year Ended
June 30, December 31, February 28, June 30, December 31, February 28,
1999 1998(a) 1998 1999 1998(a) 1998
---------------- ------------- ------------ ---------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................ $ 606,306 $ 100,273,406 $ 97,746,058 $ 2,039,035 $ 16,018,219 $ 12,400,013
Dividends reinvested... 27,965 4,696,756 5,515,899 23,396 18,913 26,535
Cost of shares
redeemed.............. (284,751) (383,504,573) (92,600,823) (662,812) (63,292,954) (12,157,682)
------------ ------------- ------------ ----------- ------------ ------------
349,520 (278,534,411) 10,661,134 1,399,619 (47,255,822) 268,866
------------ ------------- ------------ ----------- ------------ ------------
Class B Shares:
Proceeds from shares
issued................ 597,054 (b) -- -- 409,951 (d) -- --
Dividends reinvested... 3,114 (b) -- -- 2,181 (d) -- --
Cost of shares
redeemed.............. (3,750)(b) -- -- (49,331)(d) -- --
------------ ------------- ------------ ----------- ------------ ------------
596,418 -- -- 362,801 -- --
------------ ------------- ------------ ----------- ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ 111,093,791 299,288,856 (c) -- 12,940,473 55,260,352 (c) --
Dividends reinvested... 4,056,171 -- (c) -- 43,312 -- (c) --
Cost of shares
redeemed.............. (45,735,494) (3,700,206)(c) -- (4,700,872) (417,507)(c) --
------------ ------------- ------------ ----------- ------------ ------------
69,414,468 295,588,650 -- 8,282,913 54,842,845 --
------------ ------------- ------------ ----------- ------------ ------------
Total net increase
(decrease) from capital
transactions........... $ 70,360,406 $ 17,054,239 $ 10,661,134 $10,045,333 $ 7,587,023 $ 268,866
============ ============= ============ =========== ============ ============
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 60,187 9,822,777 9,911,035 187,017 1,473,050 1,162,205
Reinvested............. 2,760 460,321 561,104 2,159 1,731 2,485
Redeemed............... (28,138) (37,005,291) (9,367,967) (60,780) (5,756,013) (1,136,101)
------------ ------------- ------------ ----------- ------------ ------------
34,809 (26,722,193) 1,104,172 128,396 (4,281,232) 28,589
------------ ------------- ------------ ----------- ------------ ------------
Class B Shares:
Issued................. 59,633 (b) -- -- 37,676 (d) -- --
Reinvested............. 310 (b) -- -- 203 (d) -- --
Redeemed............... (379)(b) -- -- (4,641)(d) -- --
------------ ------------- ------------ ----------- ------------ ------------
59,564 -- -- 33,238 -- --
------------ ------------- ------------ ----------- ------------ ------------
Institutional Shares:
Issued................. 10,871,550 28,716,929 (c) -- 1,190,748 5,018,064 (c) --
Reinvested............. 400,837 -- (c) -- 4,016 -- (c) --
Redeemed............... (4,488,644) (355,731)(c) -- (432,405) (37,974)(c) --
------------ ------------- ------------ ----------- ------------ ------------
6,783,743 28,361,198 -- 762,359 4,980,090 --
------------ ------------- ------------ ----------- ------------ ------------
Total net increase
(decrease) from share
transactions.......... 6,878,116 1,639,005 1,104,172 923,993 698,858 28,589
============ ============= ============ =========== ============ ============
</TABLE>
- ---------
(a) For the period from March 1, 1998 through December 31, 1998.
(b) For the period from January 21, 1999 (commencement of operations) through
June 30, 1999.
(c) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(d) For the period from February 3, 1999 (commencement of operations) through
June 30, 1999.
Continued
151
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Limited Term Tennessee Tennessee Tax-Exempt
Tax-Exempt Fund Fund
------------------------ -------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December June 30, December 31,
1999 31, 1998 1999 1998
----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................ $ 2,863,567 $ 3,962,167 $ 1,169,454 $ 1,752,569
Dividends reinvested... 5,013 12,988 20,527 50,304
Cost of shares
redeemed.............. (2,511,905) (7,373,121) (909,714) (552,522)
----------- ----------- ----------- ------------
356,675 (3,397,966) 280,267 1,250,351
----------- ----------- ----------- ------------
Class B Shares:
Proceeds from shares
issued................ 173,008 755,289 (a) 224,733 1,466,601 (b)
Dividends reinvested... 4,975 8,566 (a) 8,293 11,439 (b)
Cost of shares
redeemed.............. (100,643) (30,613)(a) (33,829) (85,460)(b)
----------- ----------- ----------- ------------
77,340 733,242 199,197 1,392,580
----------- ----------- ----------- ------------
Institutional Shares:
Proceeds from shares
issued................ -- -- 4,239,908 7,579,865
Dividends reinvested... -- -- 45,570 362,424
Cost of shares
redeemed.............. -- -- (7,769,703) (17,158,922)
----------- ----------- ----------- ------------
-- -- (3,484,225) (9,216,633)
----------- ----------- ----------- ------------
Total net increase (de-
crease) from capital
transactions........... $ 434,015 $(2,664,724) $(3,004,761) $ (6,573,702)
=========== =========== =========== ============
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 284,206 390,602 115,771 171,828
Reinvested............. 499 1,281 2,024 4,932
Redeemed............... (249,132) (727,402) (90,194) (54,274)
----------- ----------- ----------- ------------
35,573 (335,519) 27,601 122,486
----------- ----------- ----------- ------------
Class B Shares:
Issued................. 17,115 74,613 (a) 22,356 144,107 (b)
Reinvested............. 493 844 (a) 816 1,117 (b)
Redeemed............... (10,207) (2,987)(a) (3,332) (8,459)(b)
----------- ----------- ----------- ------------
7,401 72,470 19,840 136,765
----------- ----------- ----------- ------------
Institutional Shares:
Issued................. -- -- 419,421 746,499
Reinvested............. -- -- 4,490 35,452
Redeemed............... -- -- (768,695) (1,681,956)
----------- ----------- ----------- ------------
-- -- (344,784) (900,005)
----------- ----------- ----------- ------------
Total net increase (de-
crease) from share
transactions........... 42,974 (263,049) (297,343) (640,754)
=========== =========== =========== ============
</TABLE>
- ---------
(a) For the period from February 3, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period from February 24, 1998 (commencement of operations) through
December 31, 1998.
Continued
152
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Limited Term Income Fund Income Fund
-------------------------- -------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
------------ ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................ $ 1,326,636 $ 4,247,501 $ 1,305,210 $ 2,623,611
Dividends reinvested... 160,454 356,704 50,145 67,401
Cost of shares
redeemed.............. (1,861,365) (3,059,492) (186,482) (166,568)
------------ ------------ ----------- ------------
(374,275) 1,544,713 1,168,873 2,524,444
------------ ------------ ----------- ------------
Class B Shares:
Proceeds from shares
issued................ 151,078 596,723 (a) 337,700 1,212,642 (a)
Dividends reinvested... 9,600 12,488 (a) 24,749 36,013 (a)
Cost of shares
redeemed.............. (43,474) (10,782)(a) (217,298) (11,721)(a)
------------ ------------ ----------- ------------
117,204 598,429 145,151 1,236,934
------------ ------------ ----------- ------------
Institutional Shares:
Proceeds from shares
issued................ 17,288,142 17,402,254 21,361,996 13,962,624
Dividends reinvested... 897,243 1,814,546 774,101 1,919,389
Cost of shares
redeemed.............. (11,417,027) (19,236,804) (5,456,618) (10,810,920)
------------ ------------ ----------- ------------
6,768,358 (20,004) 16,679,479 5,071,093
------------ ------------ ----------- ------------
Total net increase
(decrease) from capital
transactions........... $ 6,511,287 $ 2,123,138 $17,993,503 $ 8,832,471
============ ============ =========== ============
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 133,477 423,480 128,025 252,785
Reinvested............. 16,126 35,505 4,936 6,446
Redeemed............... (187,812) (304,615) (18,601) (15,901)
------------ ------------ ----------- ------------
(38,209) 154,370 114,360 243,330
------------ ------------ ----------- ------------
Class B Shares:
Issued................. 15,332 59,685 (a) 33,338 117,222 (a)
Reinvested............. 967 1,241 (a) 2,437 3,447 (a)
Redeemed............... (4,386) (1,067)(a) (21,892) (1,125)(a)
------------ ------------ ----------- ------------
11,913 59,859 13,883 119,544
------------ ------------ ----------- ------------
Institutional Shares:
Issued................. 1,734,558 1,734,900 2,124,599 1,349,996
Reinvested............. 90,233 180,765 76,220 184,826
Redeemed............... (1,151,885) (1,918,236) (541,044) (1,041,209)
------------ ------------ ----------- ------------
672,906 (2,571) 1,659,775 493,613
------------ ------------ ----------- ------------
Total net increase (de-
crease) from share
transactions........... 646,610 211,658 1,788,018 856,487
============ ============ =========== ============
</TABLE>
- ---------
(a) For the period from February 4, 1998 (commencement of operations) through
December 31, 1998.
Continued
153
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Equity Income Fund Large-Cap Equity Fund
------------------------ ----------------------------------------------
Six Months Six Months
Ended Year Ended Ended Period Ended Year Ended
June 30, December June 30, December 31, February 28,
1999 31, 1998 1999 1998(b) 1998
----------- ----------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................ $ 2,307,811 $ 3,518,621 $ 14,861,917 $ 114,374,074 $ 146,010,215
Dividends reinvested... 17,344 544,283 13,117 27,316,773 4,620,893
Cost of shares
redeemed.............. (546,646) (448,062) (4,101,788) (882,188,167) (124,793,931)
----------- ----------- ------------- ------------- -------------
1,778,509 3,614,842 10,773,246 (740,497,320) 25,837,177
----------- ----------- ------------- ------------- -------------
Class B Shares:
Proceeds from shares
issued................ 3,514,140 4,390,413 (a) 11,468,369 96,706 (c) --
Dividends reinvested... 15,362 503,786 (a) 13 -- (c) --
Cost of shares
redeemed.............. (480,430) (330,052)(a) (256,804) -- (c) --
----------- ----------- ------------- ------------- -------------
3,049,072 4,564,147 11,211,578 96,706 --
----------- ----------- ------------- ------------- -------------
Institutional Shares:
Proceeds from shares
issued................ 10,547,662 9,946,074 57,409,009 740,608,981 (d) --
Dividends reinvested... 41,840 9,267,437 145,182 -- (d) --
Cost of shares
redeemed.............. (9,937,312) (9,579,278) (183,578,300) (12,333,131)(d) --
----------- ----------- ------------- ------------- -------------
652,190 9,634,233 (126,024,109) 728,275,850 --
----------- ----------- ------------- ------------- -------------
Total net increase
(decrease) from capital
transactions........... $ 5,479,771 $17,813,222 $(104,039,285) $ (12,124,764) $ 25,837,177
=========== =========== ============= ============= =============
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 227,858 313,892 524,955 4,798,706 7,924,532
Reinvested............. 1,716 55,085 464 1,053,720 234,089
Redeemed............... (52,676) (42,400) (145,015) (34,859,881) (6,448,544)
----------- ----------- ------------- ------------- -------------
176,898 326,577 380,404 (29,007,455) 1,710,077
----------- ----------- ------------- ------------- -------------
Class B Shares:
Issued................. 344,693 396,049 (a) 405,997 3,648 (c) --
Reinvested............. 1,522 51,347 (a) -- -- (c) --
Redeemed............... (47,149) (30,243)(a) (9,160) -- (c) --
----------- ----------- ------------- ------------- -------------
299,066 417,153 396,837 3,648 --
----------- ----------- ------------- ------------- -------------
Institutional Shares:
Issued................. 1,038,884 907,955 2,034,506 29,010,448 (d) --
Reinvested............. 4,129 936,932 5,170 -- (d) --
Redeemed............... (976,997) (856,372) (6,549,735) (454,578)(d) --
----------- ----------- ------------- ------------- -------------
66,016 988,515 (4,510,059) 28,555,870 --
----------- ----------- ------------- ------------- -------------
Total net increase
(decrease) from share
transactions........... 541,980 1,732,245 (3,732,818) (447,937) 1,710,077
=========== =========== ============= ============= =============
</TABLE>
- ---------
(a) For the period from February 3, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period from March 1, 1998 through December 31, 1998.
(c) For the period from December 15, 1998 (commencement of operations) through
December 31, 1998.
(d) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
Continued
154
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Mid-
Cap Equity
Capital Growth Fund Fund
-------------------------- -----------
Six Months Year Period
Ended Ended Ended
June 30, December 31, June 30,
1999 1998 1999(b)
------------ ------------ -----------
(Unaudited) (Unaudited)
CAPITAL TRANSACTIONS:
<S> <C> <C> <C>
Class A Shares:
Proceeds from shares issued....... $ 3,267,429 $ 3,357,975 $ 474,843
Dividends reinvested.............. -- 629,861 --
Cost of shares redeemed........... (695,403) (390,437) (265)
------------ ------------ ----------
2,572,026 3,597,399 474,578
------------ ------------ ----------
Class B Shares:
Proceeds from shares issued....... 3,013,295 2,770,518 (a) 345,595
Dividends reinvested.............. -- 321,359 (a) --
Cost of shares redeemed........... (411,716) (255,741)(a) --
------------ ------------ ----------
2,601,579 2,836,136 345,595
------------ ------------ ----------
Institutional Shares:
Proceeds from shares issued....... 54,880,787 14,229,454 7,506,647
Dividends reinvested.............. 6,691 25,469,627 --
Cost of shares redeemed........... (24,439,961) (25,728,858) (11,580)
------------ ------------ ----------
30,447,517 13,970,223 7,495,067
------------ ------------ ----------
Total net increase (decrease) from
capital transactions.............. $ 35,621,122 $ 20,403,758 $8,315,240
============ ============ ==========
SHARE TRANSACTIONS:
Class A Shares:
Issued............................ 220,997 238,241 46,236
Reinvested........................ -- 48,319 --
Redeemed.......................... (46,422) (27,381) (25)
------------ ------------ ----------
174,575 259,179 46,211
------------ ------------ ----------
Class B Shares:
Issued............................ 208,134 198,308 (a) 33,586
Reinvested........................ -- 25,125 (a) --
Redeemed.......................... (28,614) (18,450)(a) --
------------ ------------ ----------
179,520 204,983 33,586
------------ ------------ ----------
Institutional Shares:
Issued............................ 3,791,202 1,020,991 747,752
Reinvested........................ 475 1,969,036 --
Redeemed.......................... (1,665,216) (1,842,736) (1,093)
------------ ------------ ----------
2,126,461 1,147,291 746,659
------------ ------------ ----------
Total net increase (decrease) from
share transactions................ 2,480,556 1,611,453 826,456
============ ============ ==========
</TABLE>
(a) For the period from February 5, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period from May 4, 1999 (commencement of operations) through June
30, 1999.
Continued
155
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Small-Cap Opportunity Fund International Equity Fund
-------------------------------------------- ---------------------------------------------
Six Months Period Year Six Months Period Period
Ended Ended Ended Ended Ended Ended
June 30, December 31, February 28, June 30, December 31, February 28,
1999 1998(a) 1998 1999 1998(a) 1998(d)
------------ ------------- ------------ ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................ $ 88,050,948 $ 77,866,066 $ 47,226,667 $ 366,058 $ 7,649,448 $26,266,042
Dividends reinvested... -- 4,840,922 10,900,651 -- 48,021 17,816
Cost of shares
redeemed.............. (87,179,158) (163,322,368) (31,615,686) (131,792) (32,664,626) (866,338)
------------ ------------- ------------ ---------- ------------ -----------
871,790 (80,615,380) 26,511,632 234,266 (24,967,157) 25,417,520
------------ ------------- ------------ ---------- ------------ -----------
Class B Shares:
Proceeds from shares
issued................ 294,362 8,011 (b) -- 43,360 (e) -- --
Dividends reinvested... -- -- (b) -- -- (e) -- --
Cost of shares
redeemed.............. (13,625) -- (b) -- -- (e) -- --
------------ ------------- ------------ ---------- ------------ -----------
280,737 8,011 -- 43,360 -- --
------------ ------------- ------------ ---------- ------------ -----------
Institutional Shares:
Proceeds from shares
issued................ 10,867,084 89,048,532 (c) -- 4,136,366 26,755,898 (c) --
Dividends reinvested... -- -- (c) -- -- -- (c) --
Cost of shares
redeemed.............. (16,130,162) (849,359)(c) -- (2,250,291) (180,925)(c) --
------------ ------------- ------------ ---------- ------------ -----------
(5,263,078) 88,199,173 -- 1,886,075 26,574,973 --
------------ ------------- ------------ ---------- ------------ -----------
Total net increase
(decrease) from capital
transactions........... $ (4,110,551) $ 7,591,804 $ 26,511,632 $2,163,701 $ 1,607,816 $25,417,520
============ ============= ============ ========== ============ ===========
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 7,050,437 6,023,495 3,050,510 32,983 693,655 2,623,705
Reinvested............. -- 360,456 759,627 -- 4,764 1,867
Redeemed............... (6,968,522) (13,280,164) (2,003,613) (12,293) (3,221,732) (88,124)
------------ ------------- ------------ ---------- ------------ -----------
81,915 (6,896,213) 1,806,524 20,690 (2,523,313) 2,537,448
------------ ------------- ------------ ---------- ------------ -----------
Class B Shares:
Issued................. 23,465 647 (b) -- 4,025 (e) -- --
Reinvested............. -- -- (b) -- -- (e) -- --
Redeemed............... (1,065) -- (b) -- -- (e) -- --
------------ ------------- ------------ ---------- ------------ -----------
22,400 647 -- 4,025 -- --
------------ ------------- ------------ ---------- ------------ -----------
Institutional Shares:
Issued................. 876,757 7,515,579 (c) -- 383,727 2,661,813 (c) --
Reinvested............. -- -- (c) -- -- -- (c) --
Redeemed............... (1,320,293) (69,536)(c) -- (210,873) (17,292)(c) --
------------ ------------- ------------ ---------- ------------ -----------
(443,536) 7,446,043 -- 172,854 2,644,521 --
------------ ------------- ------------ ---------- ------------ -----------
Total net increase
(decrease) from share
transactions........... (339,221) 550,477 1,806,524 197,569 121,208 2,537,448
============ ============= ============ ========== ============ ===========
</TABLE>
- ---------
(a) For the period from March 1, 1998 through December 31, 1998.
(b) For the period from December 21, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period from December 14, 1998 (commencement of operations) through
December 31, 1998.
(d) For the period from August 15, 1997 (commencement of operations) through
February 28, 1998.
(e) For the period from February 2, 1999 (commencement of operations) through
June 30, 1999.
Continued
156
<PAGE>
ISG FUNDS
Notes to Financial Statements, Continued
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Moderate
Current Growth & Growth & Aggressive
Income Income Income Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30, June 30,
1999(c) 1999(e) 1999(h) 1999(l) 1999(m)
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CAPITAL TRANSACTIONS:
<S> <C> <C> <C> <C> <C>
Class A Shares:
Proceeds from shares
issued................ $ 3,191 (a) $ 132,964 (d) $ 353,978 (g) $ 132,216 (j) $ 201,176
Dividends reinvested... 12 (a) 14 (d) 109 (g) -- (j) --
Cost of shares
redeemed.............. -- (a) -- (d) -- (g) (4,633)(j) (586)
-------- ---------- ---------- ---------- ----------
3,203 132,978 354,087 127,583 200,590
-------- ---------- ---------- ---------- ----------
Class B Shares:
Proceeds from shares
issued................ 60,551 (b) 809,598 1,590,202 662,977 (k) 344,083 (h)
Dividends reinvested... 282 (b) 644 444 -- (k) -- (h)
Cost of shares
redeemed.............. (31,174)(b) (16,197) (136,322) (21,000)(k) (657)(h)
-------- ---------- ---------- ---------- ----------
29,659 794,045 1,454,324 641,977 343,426
-------- ---------- ---------- ---------- ----------
Institutional Shares:
Proceeds from shares
issued................ 564,165 1,616,022 (f) 5,999,407 (i) 1,113,876 3,189,388 (e)
Dividends reinvested... 5,019 229 (f) 125 (i) -- -- (e)
Cost of shares
redeemed.............. (236) (11,860)(f) (68,843)(i) (12,980) (42,108)(e)
-------- ---------- ---------- ---------- ----------
568,948 1,604,391 5,930,689 1,100,896 3,147,280
-------- ---------- ---------- ---------- ----------
Total net increase
(decrease) from capital
transactions........... $601,810 $2,531,414 $7,739,100 $1,870,456 $3,691,296
======== ========== ========== ========== ==========
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 326 (a) 13,456 (d) 35,074 (g) 13,468 (j) 19,917
Reinvested............. 1 (a) 1 (d) 11 (g) -- (j) --
Redeemed............... -- (a) -- (d) -- (g) (476)(j) (60)
-------- ---------- ---------- ---------- ----------
327 13,457 35,085 12,992 19,857
-------- ---------- ---------- ---------- ----------
Class B Shares:
Issued................. 6,132 (b) 81,510 157,462 67,360 (k) 34,567 (h)
Reinvested............. 29 (b) 65 44 -- (k) -- (h)
Redeemed............... (3,165)(b) (1,645) (13,568) (2,123)(k) (66)(h)
-------- ---------- ---------- ---------- ----------
2,996 79,930 143,938 65,237 34,501
-------- ---------- ---------- ---------- ----------
Institutional Shares:
Issued................. 57,231 163,148 (f) 592,170 (i) 112,997 315,715 (e)
Reinvested............. 512 23 (f) 13 (i) -- -- (e)
Redeemed............... (24) (1,207)(f) (6,855)(i) (1,311) (4,204)(e)
-------- ---------- ---------- ---------- ----------
57,719 161,964 585,328 111,686 311,511
-------- ---------- ---------- ---------- ----------
Total net increase
(decrease) from share
transactions........... 61,042 255,351 764,351 189,915 365,869
======== ========== ========== ========== ==========
</TABLE>
- ---------
(a) For the period from February 23, 1999 (commencement of operations) through
June 30, 1999.
(b) For the period from March 17, 1999 (commencement of operations) through
June 30, 1999.
(c) For the period from January 25, 1999 (commencement of operations) through
June 30, 1999.
(d) For the period from February 9, 1999 (commencement of operations) through
June 30, 1999.
(e) For the period from January 28, 1999 (commencement of operations) through
June 30, 1999.
(f) For the period from February 10, 1999 (commencement of operations) through
June 30, 1999.
(g) For the period from March 8, 1999 (commencement of operations) through June
30, 1999.
(h) For the period from January 27, 1999 (commencement of operations) through
June 30, 1999.
(i) For the period from February 8, 1999 (commencement of operations) through
June 30, 1999.
(j) For the period from February 11, 1999 (commencement of operations) through
June 30, 1999.
(k) For the period from February 15, 1999 (commencement of operations) through
June 30, 1999.
(l) For the period from February 1, 1999 (commencement of operations) through
June 30, 1999.
(m) For the period from January 13, 1999 (commencement of operations) through
June 30, 1999.
157
<PAGE>
- --------------------------------------------------------------------------------
ISG FUNDS
3435 Stelzer Road . Columbus, OH43219
INVESTMENT ADVISER
First American National Bank
315 Deaderick Street . Nashville, TN37237-0401
ADMINISTRATOR
BISYSFund Services Ohio, Inc.
3435 Stelzer Road . Columbus, OH43219
DISTRIBUTOR
BISYSFund Services Limited Partnership
3435 Stelzer Road . Columbus, OH43219
CUSTODIAN
The Bank of New York
90 Washington Street . New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
BISYSFund Services Ohio, Inc.
3435 Stelzer Road . Columbus, OH43219
BISYSFund Services Limited Partnership is the Funds' distributor and is
unaffiliated with First American National Bank, the Funds' adviser.
Investments in the Funds are neither guaranteed by nor obligations of First
American National Bank or any other bank and are not insured by the FDICor any
other government agency. Investments in mutual funds involve risk, including the
possible loss of principal. This material must be preceded or accompanied by a
current prospectus.
- --------------------------------------------------------------------------------
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
LANCASTER, PA
PERMIT 1793
ISG-0006-0899
