ALLEGIANCE
INVESTMENT TRUST
ANNUAL REPORT
OCTOBER 31, 1999
VH
<PAGE>
ALLEGIANCE INVESTMENT TRUST
TABLE OF CONTENTS
ALLEGIANCE AMERICAN VALUE FUND
Shareholder Letter........................................................ 2
Investment Portfolio...................................................... 4
Statement of Assets and Liabilities....................................... 7
Statement of Operations................................................... 8
Statement of Changes in Net Assets........................................ 9
Financial Highlights...................................................... 10
ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
Shareholder Letter........................................................ 11
Investment Portfolio...................................................... 13
Statement of Assets and Liabilities....................................... 15
Statement of Operations................................................... 16
Statement of Changes in Net Assets........................................ 17
Financial Highlights...................................................... 18
ALLEGIANCE INVESTMENT TRUST
Notes to Financial Statements............................................. 19
<PAGE>
ALLEGIANCE AMERICAN VALUE FUND
December 7, 1999
Dear Shareholder:
The American Value Fund posted a negative return of 12.4% since its inception on
May 7, 1999, through October 31, 1999. By comparison, the Russell Mid Cap Value
Index declined 8.6% during the same period.
The Fund's disappointing return reflects factors that we believe are short term
in nature. Foremost has been the general lack of enthusiasm in the market for
medium-sized U.S. companies. This is evidenced by the wide gap in the valuations
between mid-sized stocks and an ever-narrowing list of large growth companies.
This sentiment has been compounded since mid-summer by the Federal Reserve
Board's three interest rate boosts aimed at containing economic growth.
Investors, fearing a slowing economy, shunned all but the perceived safest areas
of today's market - a small list of large growth and technology companies.
We continue to believe strongly that the stocks of many neglected mid-sized
companies represent outstanding long-term values at today's prices. Our analysis
of potential return on investment compared to potential investment risk
continues to lead us toward favoring these well-managed, medium-sized companies
with demonstrated earnings growth. In particular, we are finding some
outstanding values within the financial services and consumer staples groups.
Although recent performance has been disappointing, patient investors in the
Allegiance American Value Fund should be well rewarded in the years ahead.
History shows clearly how groups of good stocks fall from favor only to rise
again when most investors least expect such change. We cannot predict when the
portfolio's holdings will gain favor with other investors and begin to reflect
valuation measures more typical of their prospects. In the meantime, we will
continue to position the Fund in very promising businesses that sell at
attractive prices. In our experience, these are two key tenets to profitable
long-term investing.
Thank you for your continued patience and confidence.
Sincerely,
/s/ Russell D. Kartub
Russell D. Kartub
Portfolio Manager of American Value Fund
2
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ALLEGIANCE AMERICAN VALUE FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
ALLEGIANCE AMERICAN VALUE FUND AND THE RUSSELL MID CAP VALUE INDEX
Total Returns
Periods Ended October 31, 1999
Cumulative Since Inception (May 7, 1999)...-12.43%
Russell Mid Cap Value Index American Value Fund
--------------------------- -------------------
May-7-99 10,000 10,000
May-99 9,825 9,731
Jun-99 9,937 9,927
Jul-99 9,689 9,680
Aug-99 9,354 9,172
Sep-99 8,880 8,597
Oct-99 9,142 8,757
Past performance is not predictive of future performance. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
The Russell Mid Cap Value Index is comprised of securities in the Russell Mid
Cap Index with less than average growth orientations, including lower
price-to-book and price-to earnings ratios. The Russell Mid Cap Index is a
widely used benchmark of the mid-cap universe.
3
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ALLEGIANCE AMERICAN VALUE FUND
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS - 89.0% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS 5.2%
4,000 Goodyear Tire & Rubber Co............................. $ 165,250
12,500 Louisiana - Pacific Corp.............................. 158,594
10,800 Reliance Steel & Aluminum Company..................... 226,800
-----------
550,644
-----------
BUILDING AND CONSTRUCTION 1.9%
9,000 Sherwin-Williams Co................................... 201,375
-----------
CAPITAL GOODS 6.6%
6,500 Crown Cork & Seal Co., Inc............................ 155,594
3,000 Fluor Corp............................................ 119,625
7,500 Hubbell, Inc. Class B................................. 207,656
6,500 ITT Industries, Inc................................... 222,219
-----------
705,094
-----------
CHEMICALS 5.6%
7,000 Air Products & Chemicals, Inc......................... 192,500
2,000 Avery Dennison Corp................................... 125,000
6,000 Praxair, Inc.......................................... 280,500
-----------
598,000
-----------
COMMUNICATION SERVICES 1.6%
2,200 GTE Corp.............................................. 165,000
-----------
CONSUMER CYCLICAL 6.9%
2,500 Fleetwood Enterprises, Inc............................ 54,531
27,000 Mattel, Inc........................................... 361,125
3,000 May Department Stores, Co............................. 104,063
7,000 V F Corp.............................................. 210,437
-----------
730,156
-----------
CONSUMER STAPLES 11.3%
7,000 Albertson's, Inc...................................... 254,187
12,000 Bowne & Co., Inc...................................... 133,500
1,800 Cardinal Health, Inc.................................. 77,625
3,000 Clorox Co............................................. 122,813
2,500 ConAgra, Inc.......................................... 65,156
See accompanying Notes to Financial Statements.
4
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ALLEGIANCE AMERICAN VALUE FUND
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS - continued Value
- --------------------------------------------------------------------------------
CONSUMER STAPLES, CONTINUED
5,000 Kimberly-Clark Corp................................... $ 315,625
6,500 McKesson HBOC, Inc.................................... 130,406
5,000 Supervalu, Inc........................................ 105,000
-----------
1,204,312
-----------
ENERGY 13.5%
3,500 Burlington Resources, Inc............................. 122,062
10,000 EOG Resources, Inc.................................... 208,125
7,600 Halliburton Co........................................ 286,425
4,800 Lubrizol Corporation.................................. 123,000
9,500 Occidental Petroleum Corp............................. 216,719
5,600 Phillips Petroleum Co................................. 260,400
5,000 Texas Pacific Land Trust.............................. 217,500
-----------
1,434,231
-----------
FINANCIAL SERVICES 19.4%
10,000 Allstate Corp......................................... 287,500
4,000 A O N Corp............................................ 142,000
4,697 Bank One Corp......................................... 176,431
4,000 Edwards A.G., Inc..................................... 120,250
5,000 Fannie Mae............................................ 353,750
3,600 MBIA, Inc............................................. 205,425
4,800 Metris Companies, Inc................................. 165,300
6,000 UnumProvident Corp.................................... 197,625
2,000 Wachovia Corp......................................... 172,500
6,720 Washington Mutual, Inc................................ 241,500
-----------
2,062,281
-----------
REAL ESTATE INVESTMENT TRUST 2.1%
9,674 BRE Properties, Inc., Class A......................... 219,479
-----------
TECHNOLOGY 7.3%
2,700 Boeing Co............................................. 124,369
5,500 Compaq Computer Corp.................................. 104,500
6,000 Electronic Data Systems Corp.......................... 351,000
7,000 Xerox Corp............................................ 196,000
-----------
775,869
-----------
See accompanying Notes to Financial Statements.
5
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ALLEGIANCE AMERICAN VALUE FUND
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS - continued Value
- --------------------------------------------------------------------------------
TRANSPORTATION & SERVICES 2.9%
9,000 Norfolk Southern Corp................................. $ 219,938
1,500 Union Pacific Corp.................................... 83,625
-----------
303,563
-----------
UTILITIES 4.7%
4,000 American Water Works Co., Inc......................... 116,750
3,500 El Paso Energy Corp................................... 143,500
3,000 FPL Group, Inc........................................ 150,938
2,500 Hawaiian Electric Industries, Inc..................... 84,531
-----------
495,719
-----------
Total Common Stocks (Cost $ 8,641,407)................ 9,445,723
-----------
Principal
Amount SHORT-TERM INVESTMENTS: 11.0%
- --------------------------------------------------------------------------------
MONEY MARKETS 0.0%
$ 51 UMB Money Market Fiduciary (Cost $51)................. 51
-----------
U.S. TREASURY OBLIGATIONS 5.8%
619,000 U.S. Treasury Bill, due 12/02/1999 (Cost $616,641).... 616,641
-----------
COMMERCIAL PAPER 5.2%
179,200 American Express Credit Corp., 5.25% due 11/09/99..... 178,965
179,200 Ford Motor Credit Co., 5.25% due 11/04/99............. 179,095
200,200 General Electric Capital Corp., 5.20% due 11/02/99.... 200,142
-----------
Total Commercial Paper (Cost $558,202)................ 558,202
-----------
Total Short-Term Investments (Cost $1,174,894)........ 1,174,894
-----------
Total investments 100.0% (cost $9,816,301)............ 10,620,617
Liabilities in excess of Other Assets: (0.0%)......... (3,071)
-----------
Net Assets: 100.0%.................................... $10,617,546
===========
See accompanying Notes to Financial Statements.
6
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ALLEGIANCE AMERICAN VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $9,816,301)........................ $10,620,617
-----------
Dividends receivable........................................... 12,661
-----------
Total Assets............................................... 10,633,278
-----------
LIABILITIES
Accrued expenses............................................... 15,732
-----------
Total Liabilities.......................................... 15,732
-----------
NET ASSETS....................................................... $10,617,546
===========
COMPOSITION OF NET ASSETS
Paid-in capital.................................................. $ 9,747,800
Undistributed net investment income.............................. 71,511
Accumulated net realized loss on investment transactions......... (6,081)
Net unrealized appreciation of investments....................... 804,316
-----------
NET ASSETS....................................................... $10,617,546
===========
Shares outstanding (unlimited number of
shares authorized, $0.01 par value)............................ 891,693
===========
Net asset value, offering and redemption price per share......... $ 11.91
===========
See accompanying Notes to Financial Statements.
7
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ALLEGIANCE AMERICAN VALUE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
May 7, 1999*
to
October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income (net of withholding taxes of $1,541)............ $ 109,434
Interest income................................................. 37,066
-----------
Total investment income................................... 146,500
-----------
EXPENSES
Management fees................................................. 40,379
Administration fees............................................. 20,189
Distribution fees............................................... 14,421
-----------
Total expenses............................................ 74,989
-----------
NET INVESTMENT INCOME........................................... 71,511
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments................................ (6,081)
Change in unrealized appreciation on investments................ (1,584,652)
-----------
Net realized and unrealized loss on investments........... (1,590,733)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(1,519,222)
===========
* Commencement of the Fund.
See accompanying Notes to Financial Statements.
8
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ALLEGIANCE AMERICAN VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
May 7, 1999*
to
October 31, 1999
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income........................................... $ 71,511
Net realized loss on investments................................ (6,081)
Change in net unrealized appreciation on investments............ (1,584,652)
-----------
DECREASE IN NET ASSETS FROM OPERATIONS.................... (1,519,222)
-----------
CAPITAL SHARE TRANSACTIONS
Initial capitalization.......................................... 12,291,651
Proceeds from shares sold....................................... 924,279
Cost of shares redeemed......................................... (1,079,162)
-----------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS.... 12,136,768
-----------
Total increase in net assets.................................... 10,617,546
-----------
NET ASSETS
Beginning of period....................................... --
-----------
END OF PERIOD............................................. $10,617,546
===========
CAPITAL SHARE ACTIVITY
Initial capitalization.......................................... 903,489
Shares sold..................................................... 67,932
Shares redeemed................................................. (79,728)
-----------
Net share activity........................................ 891,693
===========
* Commencement of the Fund.
See accompanying Notes to Financial Statements.
9
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ALLEGIANCE AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
May 7, 1999*
to
October 31, 1999
- --------------------------------------------------------------------------------
Net asset value, beginning of period............................ $ 13.60
-----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................................... 0.08
Net realized and unrealized loss on investments................. (1.77)
-----------
Total from investment operations.......................... (1.69)
-----------
Net asset value, end of period.................................. $ 11.91
===========
Total return.................................................... (12.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........................ $ 10,618
Average net assets (in thousands)............................... $ 11,895
Ratio of expenses to average net assets**....................... 1.29%
Ratio of net investment income to average net assets**.......... 1.23%
Portfolio turnover rate......................................... 25.16%
* Commencement of the Fund.
** Annualized.
See accompanying Notes to Financial Statements.
10
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ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
December 7, 1999
Dear Shareholder:
Since its inception on May 7, 1999, the Fund posted a negative total return of
1.18 percent through October 31, 1999. While down, this compared favorably with
most bond indices which declined noticeably. For example, between April 30 and
October 31 the Lipper California Intermediate Municipal Index declined 2.25
percent and the Lehman 10-year Municipal Index fared even worse and was down
2.62 percent.
The Fund's performance reflects the difficult environment for bonds during 1999.
Since the fund's inception the Federal Reserve Board has raised its target for
short-term interest rates three times hoping to slow the strong economy.
However, the domestic economy continues to be supported by strong consumer
demand, and foreign economies are recovering from the problems of 1998. Only
time will tell whether recent Fed action will be sufficient to quell
inflationary fears and reinvigorate the bond market.
The Fund's relatively favorable performance results from keeping the average
maturity short, a defensive strategy in the face of rising interest rates.
Normally a short-term maturity means that when interest rates rise a bond
portfolio's price falls less than that of a longer-term portfolio. The Fund
plans to maintain its average maturity between five and ten years, and on
October 31, 1999 the Fund's average maturity was 6.8 years. Bonds were well
diversified among a variety of sectors in the California economy with an average
quality rating of Aa by Moody's Investor Service.
Rather than extend maturities at this point, the Fund is maintaining short-term
holdings for later reinvestment at hopefully higher rates than those currently
available. We believe this strategy of emphasizing undervalued shorter-term
bonds in good quality sectors while maintaining higher than average reserves for
future reinvestment will serve the Fund's shareholders well in coming months.
Sincerely,
/s/ Celia R. Vorsanger
Celia R. Vorsanger
Portfolio Manager of California Tax-Free Intermediate Bond Fund
11
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ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND AND THE
LIPPER CALIFORNIA INTERMEDIATE MUNICIPAL BOND INDEX
Total Returns
Period Ended October 31, 1999
Cumulative Since Inception (May 7, 1999).... -1.18%
Lipper CA Intermediate Muni Index CA Tax-Free Intermediate Bond
--------------------------------- -----------------------------
May-7-99 10,000 10,000
May-99 9,952 9,972
Jun-99 9,824 9,889
Jul-99 9,873 9,940
Aug-99 9,839 9,900
Sep-99 9,869 9,951
Oct-99 9,789 9,882
Past performance is not predictive of future performance. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. As the Fund commenced
operations on May 7, 1999, an average return is used for the Lipper CA
Intermediate Muni Index.
The Lipper California Intermediate Municipal Bond Index consists of funds with
at least 65% of their assets in municipal debt issues, with dollar-weighted
maturities of five to ten years, that are exempt for taxation in California.
12
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ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1999
- --------------------------------------------------------------------------------------------
Par Value Municipal Bonds - 87.5% Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
$ 30,000 Anaheim California Electric Revenue, 4.900% due 10/01/2003.......... $ 30,525
California Educational FACS Authority Claremont McKenna
20,000 College Revenue, 3.700% due 11/01/2006............................. 18,775
California Educational FACS Authority Pepperdine University,
20,000 2.900% Series A, due 11/01/2000.................................... 19,862
California Public Works Board Prison Susanville Lease Revenue,
25,000 4.900% Series D, due 06/01/2004.................................... 25,406
California Statewide Communities Development Authority Water &
15,000 Waste Revenue, 3.900% Series A, due 10/01/2006..................... 14,269
Contra Costa County California Public Financing Authority Tax
Allocation Revenue Pleasant Hill, BART ETC REDEV, 4.400%
10,000 due 08/01/2006..................................................... 9,638
Contra Costa County California Public Financing Authority Tax
Allocation Revenue Pleasant Hill, BART ETC REDEV, 4.700%
30,000 due 08/01/2009..................................................... 28,350
Corona California Public Financing Authority Superior Lien Revenue,
15,000 3.900% Series A, due 09/01/2004................................... 14,644
Emeryville California Public Financing Authority Shellmound Park
Redevelopment & Housing Project Revenue, 4.500% Series B,
25,000 due 09/01/2009..................................................... 23,625
Imperial Irrigation District California Electric Revenue, 4.250%
25,000 due 11/01/2006..................................................... 24,281
Los Angeles California Department of Water & Electric Plant Revenue,
5,000 5.400% due11/15/2012............................................... 5,025
Los Angeles County Municipal IMPT Corperation Sanitation
10,000 Equipment Charge Revenue, 4.600% Series B, due 02/01/2006.......... 9,950
Los Angeles California State Building Authority Lease Revenue,
25,000 5.250% Series A, due 10/01/2013.................................... 24,219
Los Angeles County California Financing Authority Sanitation
District Capital Projects Revenue, 5.375% Series A,
15,000 due 10/01/2013..................................................... 14,888
Los Angeles County Flood Control District, 5.100%
5,000 due 11/01/1999..................................................... 5,000
Mission Viejo California Development Authority Community
20,000 Facilities District # 92-1, 4.500% Series C, due 08/01/2003........ 19,650
</TABLE>
See accompanying Notes to Financial Statements.
13
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ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1999
- --------------------------------------------------------------------------------------------
Par Value Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Monterey County California Natividad Medical Center Improvement,
5,000 4.375% Series E, due 08/01/2008.................................... $ 4,800
Pico Rivera California Water Authority Water System Project Revenue,
10,000 3.750% Series A, due 05/01/2004.................................... 9,712
Rancho California Water district Financing Authority Revenue,
20,000 5.100% due 08/01/2009.............................................. 20,050
Rocklin California Unified School District Community Facilities
25,000 District Special Tax # 1, 4.100% due 09/01/2009.................... 23,125
15,000 Roseville California City School District, 4.100% due 09/01/2008.... 14,156
Sacramento County California Financing Authority Sanitation
25,000 District Revenue, 5.125% due 12/01/2013............................ 24,094
San Bernardino California Finance Authority Department of
20,000 Transportation Lease Revenue, 4.400% Series A, due 12/01/1999...... 20,013
San Francisco California City & County International Airports
15,000 Commission, 4.875% Series 2, due 05/01/2015 ....................... 13,669
South Orange County California Community College, 3.800%
10,000 due 08/01/2005..................................................... 9,600
University of California Multiple Purpose Projects Revenue, 4.500%
5,000 Series B, due 09/01/2004........................................... 5,019
Vallejo California Water Parity Improvement Project Revenue, 4.600%
15,000 Series A, due 05/01/2007........................................... 14,831
-----------
Total Municipal Bonds (Cost $459,922)............................... 447,176
-----------
U.S. TREASURY OBLIGATIONS - 11.5%
- --------------------------------------------------------------------------------------------
59,000 U.S. Treasury Bill, due 12/02/99 (Cost $58,768)..................... 58,768
-----------
Total Investments 99.0% (Cost $518,690)............................. 505,944
Other Assets in excess of Liabilities: (1.0%)....................... 4,974
-----------
Net Assets: 100.0% ................................................. $ 510,918
===========
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE>
ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $518,690).......................... $ 505,944
Cash........................................................... 1,123
Interest receivable............................................ 5,970
-----------
Total Assets............................................ 513,037
-----------
LIABILITIES
Distributions payable.......................................... 1,638
Accrued expenses............................................... 481
-----------
Total Liabilities....................................... 2,119
-----------
NET ASSETS....................................................... $ 510,918
===========
COMPOSITION OF NET ASSETS
Paid-in capital.................................................. $ 523,679
Accumulated net realized loss on investment transactions......... (15)
Net unrealized depreciation of investments....................... (12,746)
-----------
NET ASSETS....................................................... $ 510,918
===========
Shares outstanding (unlimited number of
shares authorized, $0.01 par value)............................ 52,579
===========
Net asset value, offering and redemption price per share......... $ 9.72
===========
See accompanying Notes to Financial Statements.
15
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ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
May 7, 1999*
to
October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income................................................. $ 9,217
-----------
Total investment income................................... 9,217
-----------
EXPENSES
Management fees................................................. 658
Administration fees............................................. 220
Distribution fees............................................... 548
-----------
Total expenses............................................ 1,426
-----------
NET INVESTMENT INCOME........................................... 7,791
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments................................ (15)
Net unrealized depreciation on investments...................... (12,746)
-----------
Net realized and unrealized loss on investments........... (12,761)
-----------
Net decrease in net assets resulting from operations............ $ (4,970)
===========
* Commencement of the Fund.
See accompanying Notes to Financial Statements.
16
<PAGE>
ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
May 7, 1999*
to
October 31, 1999
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income........................................... $ 7,791
Net realized loss on investments................................ (15)
Net unrealized depreciation on investments...................... (12,746)
-----------
DECREASE IN NET ASSETS FROM OPERATIONS.................... (4,970)
-----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................................... (7,791)
-----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS....................... (7,791)
-----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold....................................... 535,150
Dividend reinvestments.......................................... 3,529
Cost of shares redeemed......................................... (15,000)
-----------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS.... 523,679
-----------
Total increase in net assets.................................... 510,918
-----------
NET ASSETS
Beginning of period....................................... --
-----------
End of period............................................. $ 510,918
===========
CAPITAL SHARE ACTIVITY
Shares sold .................................................... 53,749
Shares issued for reinvestment of distributions................. 359
Shares redeemed................................................. (1,529)
-----------
Net share activity........................................ 52,579
===========
* Commencement of the Fund.
See accompanying Notes to Financial Statements.
17
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ALLEGIANCE CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
May 7, 1999*
to
October 31, 1999
- --------------------------------------------------------------------------------
Net asset value, beginning of period............................ $ 10.00
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................... 0.16
Net realized and unrealized loss on investments................. (0.28)
-----------
Total from investment operations.......................... (0.12)
-----------
LESS DISTRIBUTIONS:
Net investment income........................................... (0.16)
-----------
Total distributions....................................... (0.16)
-----------
Net asset value, end of period.................................. $ 9.72
===========
Total return.................................................... (1.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........................ $ 511
Average net assets (in thousands)............................... $ 453
Ratio of expenses to average net assets**....................... 0.65%
Ratio of net investment income to average net assets**.......... 3.53%
Portfolio turnover rate......................................... 2.71%
* Commencement of the Fund.
** Annualized.
See accompanying Notes to Financial Statements.
18
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ALLEGIANCE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS AT OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
Allegiance Investment Trust (the "Trust"), was organized as a business trust
under the laws of the Commonwealth of Delaware on October 12, 1997. The Trust
presently consists of three separate series: Allegiance Intermediate-Term Bond
Fund, Allegiance California Tax-Free Intermediate Bond Fund (the "Bond Fund")
and Allegiance American Value Fund (the "Value Fund"). The Bond Fund is a
non-diversified fund and the Value Fund is a diversified fund, as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). The
Allegiance Intermediate Term Bond Fund has not commenced operations.
The Bond Fund and Value Fund commenced operations on May 7, 1999. The Board of
Trustees of the Trust approved an Agreement and Plan of Reorganization
("Reorganization Plan") for a tax free reorganization whereby substantially all
of the assets of the Van Deventer & Hoch American Value Fund were to be acquired
by the Value Fund. The Reorganization Plan was approved by applicable
shareholders on April 19, 1999. In accordance with Reorganization Plan, on May
7, 1999, investments with a cost basis of $10,440,389 and unrealized
appreciation of $2,388,967 were received by the Value Fund as its capitalization
in exchange for issuance of 903,489 new shares.
The Bond Fund seeks to provide investors with high current income exempt from
both federal and California personal income taxes while striving to preserve
investors' capital. The Value Fund seeks to provide long-term growth of capital
and above average current income with investments primarily in equity securities
of U.S. companies (I.E. companies with at least a five-year operating history)
which, in the opinion of the Fund's advisor, are undervalued by the market.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION
The Funds' investments are carried at value. Securities listed on a securities
exchange are valued at the last sales price on such exchange or system on the
day of valuation, or, if there was no sale on such day, at the mean between the
last bid and asked price on such day. Fixed income securities are valued on the
basis of valuations received from a pricing service. Short-term obligations are
valued at amortized cost, which approximates market value. Securities for which
market quotations are not readily available, if any, are valued following
procedures approved by the Board of Trustees.
FEDERAL INCOME TAXES
It is the policy of each Fund to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
Federal income tax provision is required.
19
<PAGE>
ALLEGIANCE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of the Bond Fund are accrued daily and paid
monthly. Dividends from net investment income of the Value Fund are declared and
paid annually. Distributions of net realized gains for both Funds, if any, will
be declared and distributed at least annually. Distributions to shareholders are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
SECURITY TRANSACTIONS AND NET INVESTMENT INCOME
Investment transactions are accounted for on the trade date (the date the order
to buy or sell is executed). Securities gains and losses are calculated on the
identified cost basis. Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discount and amortization of premium. Expenses
are recorded on the accrual basis.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE
Van Deventer & Hoch (the "Advisor") acts as the Investment Advisor to the Fund.
As Investment Advisor, Van Deventer & Hoch has responsibility for all investment
advisory services of the Funds and for such services is paid a fee. The fee is
computed daily and paid monthly at an annual rate equal to 0.30% of the average
daily net assets of the Bond Fund and 0.70% of the average daily net assets for
the Value Fund.
ADMINISTRATIVE SERVICE FEES
Pursuant to an Administrative Services Agreement, Van Deventer & Hoch (the
"Administrator") provides certain administration services to the Funds. In
consideration of the services provided by the Administrator, the Administrator
receives from the Funds a fee computed daily and paid monthly at an annual rate
equal to 0.10% of average daily net assets of the Bond Fund and 0.35% of average
daily net assets for the Value Fund. This fee arrangement requires the
administrator to absorb and pay out of its own resources all operating expenses
that exceed an annual rate of 1.30% for the American Value Fund and 0.65% for
the Bond Fund.
20
<PAGE>
ALLEGIANCE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTION FEES
The Funds have adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act. The Distribution Plan provides
that the Funds shall pay distribution fees, including payments to the
Distributor, at an annual rate not to exceed 0.25% of the average daily net
assets of the Funds.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds during the period from May 7, 1999 (commencement of
operations) through October 31, 1999 is summarized below:
Bond Fund Value Fund
--------- ----------
Purchases $ 444,847 $3,305,385
Sales 9,933 2,553,298
At October 31, 1999, gross unrealized appreciation and depreciation of
investments, based on cost for Federal income tax purposes of $518,499 and
$9,816,301 respectively for the Bond Fund and Value Fund were as follows:
Bond Fund Value Fund
--------- ----------
Appreciation $ 1 $1,488,202
Depreciation 12,747 683,886
Net appreciation (depreciation) on investments $ (12,746) $ 804,316
21
<PAGE>
To the Shareholders and Board of Trustees of
Allegiance Investment Trust
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Allegiance American Value Fund
and the Allegiance California Tax-Free Intermediate Bond Fund (constituting the
Allegiance Investment Trust, hereafter referred to as the "Trust") at October
31, 1999, the results of each of their operations, the changes in each of their
net assets and each of their financial highlights for the period May 7, 1999
(commencement of operations) through October 31, 1999, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial presentation. We believe our audits, which
included confirmation of securities at October 31, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
November 30, 1999
<PAGE>
ADVISER
Van Deventer & Hoch
800 North Brand Blvd., Suite 300
Glendale, CA 91203
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
United Missouri Bank, N.A.
928 Grand Blvd.
Kansas City, MO 64106
TRANSFER AGENT
National Financial Data Services
330 West 9th Street
Kansas City, MO 64105
AUDITORS
Pricewaterhouse Coopers, LLP
400 South Hope St.
Los Angeles, CA 90071
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, CA 94104
This report is intended for the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
