BABSON
Tax-Free
Income
FUND
Annual Report
June 30, 1998
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
Message
To Our Shareholders
For the fiscal year ended June 30, 1998, total investment returns (price
change and reinvested distributions) for Babson Tax-Free Income Fund
were 7.8% for Portfolio L and 4.8% for Portfolio S. Portfolio MM's price
remained at $1.00 and provided a return of 3.1% for the same period.
Some income from the fund may be subject to the federal Alternative
Minimum Tax as well as state and local taxes. The average maturities of
Portfolio L, S and MM were 13.9 years, 4.7 years and 56 days,
respectively.
Interest rates declined over the past year, with the yield on the 30-
year Treasury bond falling over one percentage point to 5.60%. With long
rates leading the way, the Treasury yield curve flattened considerably.
Short rates remained steady as the Federal Reserve, in light of the
favorable inflationary environment, signaled that it is willing to keep
monetary policy on hold. At June 30, the yield differential between 2-
year notes and 30-year Treasury bonds was less than 20 basis points.
The catalyst for the most recent downward move in interest rates has
been concern over the health of Asian economies, and in particular, the
weakness in the Japanese yen. Japan's troubles are exacerbating an
already fragile situation in the rest of Asia, and the turmoil has
spread to parts of Latin America and Eastern Europe as well. As a
result, investors have flocked to U.S. Treasury debt, seeking a safe
haven from turbulent world markets.
Although tax-exempt interest rates declined over the past year, their
performance lagged that of their taxable counterparts. This
underperformance can be attributed to lackluster demand for municipals,
combined with the tremendous amount of supply entering the market over
the past year. Whereas the Treasury market benefited from the flight to
quality by overseas investors, the municipal market failed to benefit
from this class of investors. Retail demand for municipals has picked up
modestly, but many investors are experiencing rate shock over such low
yields.
This has been one of the busiest periods of issuance seen in the history
of the municipal bond market. With long-term interest rates hovering at
or near recent historical lows throughout the first half of 1998,
eligible issuers continue to issue bonds to refinance higher coupon
debt. This refunding phenomenon, along with strong new money issuance is
boosting the amount of tax-exempt debt outstanding. According to
preliminary statistics released by the Federal Reserve Board,
outstanding municipal debt is now at a record $1.7 trillion dollars.
Credit quality in the municipal market continues to improve. While
credit upgrades have been broad based, the tax-backed sector has
benefited the most. The strong economy, combined with fiscal restraint
and replenished reserve funds, has enabled many municipalities to
receive ratings upgrades.
Longer duration municipals outperformed shorter maturities, and quality
spreads remain narrow. More than half of the issues sold over the past
year have come insured, further compressing quality spreads. As a result
of the tremendous amount of supply issued recently, municipals are
currently very attractive relative to Treasuries. Municipal/Treasury
ratios are at their highest, and therefore, cheapest level of the past
three and a half years. Municipal bonds currently represent tremendous
value for almost all investors.
We believe that our philosophy of focusing on high quality issues will
continue to serve our shareholders well, and we will continue to look
for opportunities to improve total return through security selection in
undervalued sectors of the market and yield curve.
Sincerely,
/s/ Larry D. Armel
Larry D. Armel
President
Tables indicating Tax Information, Quality Ratings and Indices
Comparisons of D.L. Babson Tax-Free Income Fund are shown below:
Tax Information
During the past fiscal year, the following percentages of total regular
income dividends declared are exempt-interest dividends for federal
income tax purposes:
Portfolio L - Longer Term 97.85%
Portfolio S - Shorter Term 99.76%
Portfolio MM - Money Market 99.82%
Quality Ratings
Portfolio Portfolio Portfolio
L S MM
Aaa 50% 51 % 86%
Aa 27 15 14
A 17 17 0
Lower 6 17 0
TOTAL 100% 100% 100%
Source: Moody's
D.L. Babson Tax-Free Income Fund Portfolios L & S versus
Lipper General Municipal Bond Funds & Lipper Short Term Municipal Bond
Funds
CHART
Average annual compounded total returns for one, five and ten year
periods ended June 30, 1998, were 7.82%, 5.25% and 7.55% for Portfolio L
and 4.84%, 4.05% and 5.61% for Portfolio S, respectively. Performance
data contained in this report is for past periods only. Past performance
is not predictive of future performance. Investment return and share
value will fluctuate, and redemption value may be more or less than
original cost.
STATEMENT OF NET ASSETS
June 30, 1998
PORTFOLIO L - LONGER TERM
<TABLE>
<CAPTION>
PRINCIPAL MARKET
STATE/TERRITORY DESCRIPTION AMOUNT VALUE
</CAPTION>
<S> <C> <C>
ARIZONA
Maricopa Cnty Unified School Dist #48 (Scottsdale),
9.25%, due July 1, 2007 $ 500,000 $ 678,750
ARKANSAS
Arkansas GO, Series B,
0.00%, due June 1, 2010 1,000,000 568,750
Univ of Arkansas Rev Ref (Athletic Facs Fayetteville)
(Call 9/15/05 @ 100),
4.80%, due September 15, 2007 1,000,000 1,018,750
CALIFORNIA
California Health Fac Auth Rev (Kaiser
Permanente Medical) (Call 10/1/01 @ 101),
5.45%, due October 1, 2013 250,000 253,750
Santa Rosa Water Rev Ref (FGIC Ins) Series B
(Call 9/1/02 @ 101.5), O.I.D.,
6.00%, due September 1, 2015 500,000 563,125
Univ of California Multiple Purpose Rev
(MBIA Ins) Series D (Call 7/1/06 @ 101),
5.75%, due July 1, 2013 1,000,000 1,073,750
COLORADO
Adams Cnty School Dist #12 Thornton Rev Ref
(FGIC Ins) (Call 12/15/03 @ 100), O.I.D.,
6.20%, due December 15, 2010 500,000 541,875
Denver City & Cnty School Dist #1 GO, Series A
(Call 12/1/04 @ 101), O.I.D.,
5.125%, due December 1, 2012 500,000 507,500
DIST OF COLUMBIA
Dist of Columbia GO, Series A,
5.75%, due June 1, 2003 500,000 525,394
FLORIDA
Dade Cnty Special Obligation Cabs
(AMBAC Ins) (Call 10/1/08 @ 30.8464),
0.00%, due October 1, 2027 1,000,000 195,000
Florida State Public Board of Ed Capital Outlay Ref,
Series A (Call 6/1/00 @ 102), O.I.D.,
7.25%, due June 1, 2023 1,000,000 1,073,750
Miami-Dade Cnty Special Obligation Ref
(MBIA Ins) Series A (Call 4/1/08 @ 69.484), O.I.D.,
0.00%, due October 1, 2015 500,000 208,125
Palm Beach Cnty Airport Sys Rev Ref
(MBIA Ins) (Call 10/1/01 @ 102),
7.75%, due October 1, 2010 500,000 562,500
Tampa Rev (Catholic Health Care East) (FGIC Ins)
(Call 11/15/08 @ 101),
4.875%, due November 15, 2023 500,000 474,375
ILLINOIS
Chicago GO (AMBAC Ins) Series B,
5.125%, due January 1, 2022 1,000,000 998,750
Lake Cnty Community Unit School
Dist #60 Waukegan (FSA Ins),
6.10%, due December 1, 2001 500,000 531,875
INDIANA
Indiana Bond Bank Special Program,
Series 94 A-1 (Call 8/1/04 @ 102),
5.60%, due August 1, 2015 500,000 518,750
KANSAS
Johnson Cnty Unified School Dist #229 GO,
Series A (Call 10/1/07 @ 100),
4.90%, due October 1, 2011 1,000,000 1,013,750
LOUISIANA
St. Tammany Parish Hosp Service Dist #2 Rev
(Slidell Memorial Hosp & Medical Center)
(Connie Lee Ins) (Call 10/1/04 @ 102), O.I.D.,
6.125%, due October 1, 2011 500,000 548,125
MASSACHUSETTS
Massachusetts Health & Ed Fac Auth Rev
(Winchester Hosp) (Connie Lee Ins) Series D
(Call 7/1/04 @ 102), O.I.D.,
5.75%, due July 1, 2014 500,000 529,375
Massachusetts Housing Finance Agy Projects,
Series A (Call 4/1/03 @ 102),
6.375%, due April 1, 2021 975,000 1,034,719
MICHIGAN
Michigan State Hospital Finance Auth Rev
(Mercy Health Services) (AMBAC Ins)
Series Q (Call 8/15/06 @ 101),
5.375%, due August 15, 2026 500,000 504,375
Milan Area Schools GO
(Call 5/1/04 @ 101; 5/1/06 @ 100), O.I.D.,
5.00%, due May 1, 2013 500,000 502,500
NEVADA
Clark Cnty School Dist GO (MBIA Ins)
Series A (Call 3/1/01 @ 101),
6.75%, due March 1, 2007 500,000 536,250
Nevada GO (Natural Resources)
Series C (Call 5/15/07 @ 100),
5.375%, due May 15, 2017 500,000 508,125
NEW HAMPSHIRE
New Hampshire Higher Ed & Health Fac Auth
(AMBAC Ins) (Call 10/1/06 @ 102),
5.70%, due October 1, 2010 500,000 538,125
NEW JERSEY
New Jersey Economic Dev Auth Public Schools Rev
(Small Project Loan Program) (Call 8/15/03 @ 102),
5.20%, due August 15, 2008 250,000 263,750
New Jersey Turnpike Auth Rev,
10.375%, due January 1, 2003 135,000 156,262
NEW YORK
Battery Park City Auth Rev Ref (AMBAC Ins)
Series A (Call 11/1/03 @ 102), O.I.D.,
5.00%, due November 1, 2004 1,000,000 1,037,500
New York City Municipal Water Financing Auth
Water & Sewer Sys Rev (FSA Ins)
Series A (Call 6/15/01 @ 101),
6.80%, due June 15, 2004 1,000,000 1,081,250
New York Dormitory Auth Rev (State Univ Ed Fac)
Series B (Pre-refunded 5/1/04 @ 102), O.I.D.,
6.10%, due May 15, 2008 1,000,000 1,110,000
New York Environmental Fac Corp PCR
(State Water-Revolving Fund) Series B
(Call 6/15/07 @ 101),
6.65%, due September 15, 2013 500,000 551,875
PENNSYLVANIA
Philadelphia School Dist Rev Ref (AMBAC Ins) Series A,
5.00%, due April 1, 2003 500,000 516,875
RHODE ISLAND
Rhode Island Depositors Economic Protection Corp
Special Obligation (MBIA Ins) Series B, O.I.D.,
5.80%, due August 1, 2009 500,000 556,875
Rhode Island Industrial Fac Corp PCR
(Inge Co) (SBA Gtd) (Call 8/20/97 @ 100),
9.125%, due October 1, 2000 60,000 59,976
TEXAS
Harris Cnty Toll Road Ref (FGIC Ins)
(Call 8/15/04 @ 102), O.I.D.,
5.00%, due August 15, 2016 500,000 497,500
Hays Consolidated Independent School Dist
(PSF Gtd) (Call 9/1/06 @ 100), O.I.D.,
4.50%, due September 1, 2010 500,000 490,000
San Antonio Electric & Gas Rev
(Call 2/1/02 @ 101; 2/1/03 @ 100), O.I.D.,
5.75%, due February 1, 2011 295,000 309,750
San Antonio Electric & Gas Rev
(Escrowed) (Pre-refunded 2/1/02 @ 101), O.I.D.,
5.75%, due February 1, 2011 205,000 217,813
Texas Public Finance Auth Bldg Rev
(AMBAC Ins) Series A (Call 2/1/05 @ 100),
6.00%, due February 1, 2008 500,000 548,125
VIRGINIA
Danville Industrial Dev Auth Hosp Rev
(Danville Regional Medical Center) (FGIC Ins)
(Call 10/1/04 @ 101), O.I.D.,
6.375%, due October 1, 2014 500,000 551,875
Fairfax Cnty Industrial Dev Auth Rev
(Inova Health System) (Call 8/15/06 @ 102),
5.50%, due August 15, 2009 500,000 530,625
Virginia State Univ Commonwealth Rev
(Call 5/1/06 @ 102; 5/1/08 @ 100),
5.75%, due May 1, 2021 500,000 525,000
WASHINGTON
Tacoma Conservation Sys Project Rev
(Tacoma Public Utilities Light Div) (Call 1/1/05 @ 100),
6.50%, due January 1, 2012 500,000 553,125
Washington GO, Series DD-13 (Call 3/1/04 @ 100),
5.875%, due March 1, 2014 500,000 530,625
Washington Public Power Supply Sys Nuclear Project #2
Rev Ref, Series 94 A (Call 7/1/04 @ 102), O.I.D.,
5.375%, due July 1, 2011 500,000 512,500
WISCONSIN
Wisconsin Public Power Inc Sys Rev
(MBIA Ins) (Call 7/1/06 @ 102),
5.90%, due July 1, 2011 500,000 545,000
TOTAL INVESTMENTS - 99.49% $ 27,156,414
(COST $25,476,734)
Other assets less liabilities - 0.51% 138,152
TOTAL NET ASSETS - 100.00%
(equivalent to $9.22 per share;
50,000,000 shares of $0.10 par value
capital shares authorized;
2,960,707 shares outstanding) $ 27,294,566
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
June 30, 1998, was $25,476,734.
Net unrealized appreciation for federal income tax purposes was $1,679,680,
which is comprised of unrealized appreciation of $1,707,560 and
unrealized depreciation of $27,880.
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
June 30, 1998
PORTFOLIO S - SHORTER TERM
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
STATE/TERRITORY DESCRIPTION
</CAPTION>
<S> <C> <C>
ARIZONA
Chandler GO (FGIC Ins) (Call 7/1/01 @ 101),
6.90%, due July 1, 2005 $ 1,000,000 $ 1,083,750
Lake Havasu City Municipal Property Corp Fac Rev
(AMBAC Ins) Series A (Call 8/20/97 @ 100.5),
6.30%, due June 1, 1999 500,000 502,800
Maricopa Cnty Unified School Dist #93 Cave Creek,
6.40%, due July 1, 2005 500,000 557,990
ARKANSAS
Univ of Arkansas Rev Ref (Athletic Facs Fayetteville),
4.50%, due September 15, 2003 500,000 506,875
DIST OF COLUMBIA
Dist of Columbia GO, Series A,
5.75%, due June 1, 2003 465,000 488,250
Dist of Columbia GO, Series A (Escrowed to maturity),
5.75%, due June 1, 2003 35,000 37,144
GUAM
Guam Gov't Limited Obligation Hwy (FSA Ins) Series A,
5.75%, due May 1, 2001 500,000 523,125
Guam Power Auth Rev, Series A,
5.00%, due October 1, 2002 500,000 510,000
ILLINOIS
Du Page & Will Cntys Community School District #204,
7.25%, due December 30, 2004 500,000 578,125
Illinois GO (Call 8/15/97 @ 102),
5.90%, due December 1, 1998 500,000 508,800
Illinois State Toll Hwy Auth Priority Rev Ref,
Series A (Call 1/1/03 @ 100), O.I.D.,
3.50%, due January 1, 2005 500,000 472,500
INDIANA
Indianapolis Line of Credit Public Improvement
Bond Bank, Series D,
5.70%, due February 1, 2000 250,000 256,562
Kokomo-Center School Building Corp
(First Mortgage) (AMBAC Ins),
6.75%, due July 15, 2007 250,000 290,000
MASSACHUSETTS
Massachusetts Health & Ed Fac Auth Rev
(Winchester Hosp) (Connie Lee Ins) Series D,
5.10%, due July 1, 2001 500,000 513,125
Massachusetts Health & Ed Fac Auth Rev
(Milford-Whitinsville Regional) Series C,
4.75%, due July 15, 2003 500,000 499,375
Massachusetts Housing Finance Agy Projects
(AMBAC Ins) Series A,
5.35%, due April 1, 2003 500,000 524,375
Massachusetts Municipal Wholesale Electric Co
Power Supply Sys Rev, Series D,
5.70%, due July 1, 2001 500,000 519,375
MISSOURI
Jackson Cnty Industrial Dev Auth Health Care Corp Rev
(St. Joseph Health Center) (MBIA Ins),
4.60%, due July 1, 2001 500,000 506,250
Sikeston Electric Rev Ref (MBIA Ins),
5.80%, due June 1, 2002 500,000 531,250
NEVADA
Washoe Cnty Hospital Fac Rev Ref
(Washoe Medical Center Inc) (AMBAC Ins) Series A,
5.25%, due June 1, 2001 500,000 515,625
NEW MEXICO
Albuquerque Hosp Rev Ref (MBIA Ins)
Series A, O.I.D.,
5.60%, due August 1, 1999 500,000 509,485
Las Cruces School Dist (MBIA Ins),
6.125%, due August 1, 2000 500,000 521,875
NEW YORK
Battery Park City Auth Rev Ref,
6.00%, due November 1, 2003 500,000 541,250
New York Medical Care Fac Finance Agy Rev Ref
(Mental Health Services) (MBIA Ins) Series F,
6.00%, due August 15, 2002 500,000 532,500
NEW YORK (Continued)
New York Medical Care Fac Finance Agy Rev
(Surgical Hosp) (FHA Ins) Series A,
5.40%, due August 15, 2004 500,000 520,000
New York State Dormitory Auth Rev
(Beth Israel Medical Center) (MBIA Ins),
5.35%, due November 1, 2005 500,000 530,625
NORTH CAROLINA
North Carolina Eastern Municipal Power
Agy Sys Rev Ref, Series 93 B,
5.375%, due January 1, 2001 500,000 510,625
OHIO
Columbus City School Dist (FGIC Ins)
(Pre-refunded 12/1/02 @ 102),
6.65%, due December 1, 2012 500,000 560,000
Ohio Special Obligation (AMBAC Ins) Series A,
5.55%, due June 1, 2000 500,000 515,000
PENNSYLVANIA
Pennsylvania State Univ GO, E.T.M.,
6.75%, due July 1, 1999 500,000 514,630
PUERTO RICO
Puerto Rico Commonwealth Hwy & Transportation
Auth Rev Ref, Series V,
6.10%, due July 1, 2001 250,000 263,750
Puerto Rico Electric Power Auth Rev Ref, Series Q,
5.30%, due July 1, 1998 500,000 500,000
RHODE ISLAND
Rhode Island Depositors Economic Protection Corp
Special Obligation (FSA Ins) Series A,
5.60%, due August 1, 1998 500,000 500,705
SOUTH DAKOTA
South Dakota Housing Dev Auth
(Home Ownership Mortgage) Series C,
4.70%, due May 1, 1999 500,000 503,730
TENNESSEE
Tennessee Housing Dev Agy Mortgage Finance, Series A,
4.95%, due July 1, 2000 500,000 507,500
TEXAS
Fort Bend Cnty Industrial Dev Corp Rev Ref
(Frito-Lay Inc) (Call 10/1/99 @ 100),
4.55%, due October 1, 2011 500,000 503,750
Houston GO, Series C (Call 3/1/02 @ 100),
5.90%, due March 1, 2003 500,000 527,500
San Antonio Water Rev (AMBAC Ins)
(Pre-refunded 5/1/00 @ 49.8), O.I.D.,
0.00%, due May 1, 2010 1,250,000 578,125
WASHINGTON
Washington Public Power Supply Sys Nuclear
Project #2 Rev Ref (MBIA Ins) Series B,
5.10%, due July 1, 2004 500,000 518,750
Washington Public Power Supply Sys Nuclear
Project #2 Rev Ref, Series B (Pre-refunded 7/1/00 @ 102),
7.50%, due July 1, 2004 300,000 325,875
WISCONSIN
Chippewa Valley Technologies College Dist, Series A,
4.75%, due April 1, 2007 500,000 513,125
Milwaukee Cnty GO, Series A,
5.35%, due September 1, 2001 500,000 520,000
Milwaukee Metropolitan Sewer Dist GO, Series A,
7.00%, due September 1, 2000 500,000 531,250
21,475,346
TOTAL INVESTMENTS - 100.61%
(COST $21,007,236) $ 21,475,346
Other assets less liabilities - (0.61%) (130,435)
TOTAL NET ASSETS - 100.00%
(equivalent to $10.79 per share;
50,000,000 shares of $0.10 par value
capital shares authorized;
1,979,110 shares outstanding) $ 21,344,911
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
June 30, 1998, was $21,007,236.
Net unrealized appreciation for federal income tax purposes was $468,110,
which is comprised of unrealized
appreciation of $493,743 and unrealized depreciation of $25,633.
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
June 30, 1998
PORTFOLIO MM - MONEY MARKET
<TABLE>
<CAPTION>
PRINCIPAL MARKET
STATE DESCRIPTION AMOUNT VALUE
</CATPION>
<S> <C> <C>
ALASKA
Alaska Housing Finance Corp,
Series C (SBPA: Swiss Bank Corp),
Fltg Rate, 3.50%, due June 1, 2026 $ 500,000 $ 500,000
Anchorage Ref Bond (MBIA Ins),
5.25%, due February 1, 1999 100,000 100,919
CALIFORNIA
Los Angeles Cnty Tax & Rev Anticipation Notes, Series A,
4.50%, due June 30, 1999 300,000 302,391
COLORADO
Regional Transportation Dist, Series 89 A
(LOC: Credit Local De France),
Fltg Rate, 3.45%, due June 1, 1999 200,000 200,000
CONNECTICUT
Connecticut GO, Series 97 B
(SBPA: Bayerische Landesbank),
Fltg Rate, 3.30%, due May 15, 2014 400,000 400,000
Connecticut Special Assessment Unemployment
Compensation Adv Fund Rev (FGIC Ins) Series C
(SBPA: FGIC SPI) (Mandatory Redemption 7/1/98 @ 100),
3.90%, due November 15, 2001 300,000 300,000
Connecticut Special Assessment Unemployment
Compensation Adv Fund Rev (FGIC Ins) Series C
(SBPA: FGIC SPI) (Optional Put 7/1/99 @ 100),
3.60%, due November 15, 2001 200,000 200,000
FLORIDA
Dade Cnty Water & Sewer Sys Rev
(FGIC Ins) (SBPA: Commerzbank),
Fltg Rate, 3.40%, due October 5, 2022 400,000 400,000
GEORGIA
Burke Cnty PCR (Georgia Power) Series 5,
Fltg Rate, 3.95%, due July 1, 2024 200,000 200,000
De Kalb Private Hosp Auth Rev Anticipation Certificates
(Egleston Childrens Hosp) Series A (LOC: Sun Trust),
Fltg Rate, 3.45%, due March 1, 2024 300,000 300,000
ILLINOIS
Chicago GO Tender Notes (LOC: Morgan Guaranty Trust Co)
(Mandatory Redemption 10/29/98 @ 100),
3.55%, due January 31, 1999 200,000 200,000
Illinois Health Fac Auth Rev (Rush/Presbyterian, St Lukes)
Series 96 (LOC: Northern Trust),
3.75%, due July 7, 1998 300,000 300,000
IOWA
Polk Cnty Rev (Catholic Health Initiatives),
3.85%, due December 1, 1998 200,000 200,000
MISSISSIPPI
Jackson Cnty Port Auth Fac Rev Ref
(Chevron Corp) Series 93,
Fltg Rate, 3.80%, due June 1, 2023 200,000 200,000
NEW HAMPSHIRE
New Hampshire GO Bond Aniticipation Notes,
Series 98 (LOC: Landesbank Hessen),
3.60%, due July 21, 1998 200,000 200,000
NEW MEXICO
Albuquerque Airport Rev Ref, Series 95 (AMBAC Ins)
(SBPA: Canadian Imperial Bank of Commerce),
Fltg Rate, 3.40%, due July 1, 2014 300,000 300,000
Albuquerque Joint Water & Sewer Sys Rev Ref, Series B,
6.75%, due July 1, 1998 250,000 250,019
NEW YORK
New York City GO, Series 95F-7
(LOC: Union Bank of Switzerland),
Fltg Rate, 3.35%, due February 15, 2012 200,000 200,000
NORTH CAROLINA
Charlotte Airport Rev Ref, Series 93 A
(MBIA Ins) (SBPA: Commerzbank),
Fltg Rate, 3.40%, due July 1, 2016 300,000 300,000
Charlotte GO, Series 93,
4.20%, due February 1, 1999 250,000 250,854
Winston-Salem Water & Sewer Sys Rev
(SBPA: Wachovia Bank NC),
Fltg Rate, 3.50%, due June 1, 2014 200,000 200,000
PENNSYLVANIA
Delaware Cnty GO,
4.90%, due November 15, 1998 250,000 251,197
SOUTH CAROLINA
Greenville Cnty GO,
4.30%, due March 1, 1999 345,000 346,455
TEXAS
Dallas Water & Sewer Sys,
(Line: Union Bank of Switzerland),
3.70%, due July 28, 1998 200,000 200,000
Harris Cnty GO, Series A
(LOC: Union Bank of Switzerland),
3.60%, due July 8, 1998 200,000 200,000
Harris Cnty GO, Series C
(LOC: Union Bank of Switzerland),
3.80%, due August 13, 1998 240,000 240,000
Houston GO Public Improvement Bonds
(Pre-refunded 2/1/99 @ 100),
7.00%, due February 1, 2000 200,000 203,855
Lone Star Airport Improvement Auth Inc Rev
(American Airlines) Series B-1
(LOC: Royal Bank of Canada),
Fltg Rate, 4.00%, due December 1, 2014 200,000 200,000
Lower Neches Valley Auth Industrial
Dev Corp PCR (Mobil Corp),
Fltg Rate, 3.50%, due February 1, 2004 300,000 300,000
Round Rock Independent School Dist,
Series A (Gty: PSF),
4.75%, due August 1, 1998 100,000 100,293
Texas GO Tax & Rev Anticipation Notes, Series A,
4.75%, due August 31, 1998 300,000 300,452
Texas Public Fin Auth,
6.00%, due October 1, 1998 185,000 186,135
Univ of Texas, Series A,
3.60%, due July 15, 1998 400,000 400,000
UTAH
Utah Highway GO, Series 98 B,
3.65%, due July 9, 1998 200,000 200,000
Intermountain Power Agy Supply Rev (AMBAC Ins)
Series 85 E (Optional Put 9/15/98 @ 100),
3.45%, due July 1, 2014 250,000 250,000
Utah State Building Ownership Auth Lease Rev
(Dept Employment Sec) (Pre-refunded 8/15/98 @ 100),
7.80%, due August 15, 2010 100,000 100,490
Utah Transit Auth Sales Tax & Transportation Rev Bonds
(LOC: Bayerische Landesbank),
Fltg Rate, 3.60%, due May 1, 2028 400,000 400,000
WASHINGTON
Washington GO, Series 96 B
(LOC: Landesbank Hessen),
Fltg Rate, 3.45%, due June 1, 2020 200,000 200,000
Washington Health Care Fac Auth Rev
(Sisters of Providence) Series D
(Line: Morgan Guaranty Trust Co),
Fltg Rate, 3.80%, due October 1, 2005 400,000 400,000
Washington Public Power Supply Sys Nuclear Project #1
Rev Ref, Series 1A-1 (LOC: Bank of America),
Fltg Rate, 3.50%, due July 1, 2017 200,000 200,000
WISCONSIN
Sheboygan PCR (Wisconsin Power & Light Co),
Fltg Rate, 3.70%, due August 1, 2014 300,000 300,000
WYOMING
Sublette Cnty PCR (Exxon Corp),
Fltg Rate, 3.80%, due November 1, 2014 200,000 200,000
TOTAL INVESTMENTS - 104.03% $ 10,683,060
(COST $10,683,060)
Other assets less liabilities - (4.03%) (413,685)
TOTAL NET ASSETS - 100.00%
(equivalent to $1.00 per share; 100,000,000 shares of $0.10 par value
capital shares authorized; 10,263,360 shares outstanding) $ 10,269,375
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
June 30, 1998, was $10,683,060.
Line (Line of Credit)
LOC (Letter of Credit)
SBPA (Stand by Purchase Agreement)
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
</CAPTION>
<S> <C> <C> <C>
ASSETS:
Investment securities, at market value (identified cost of $ 25,476,734,
$21,007,236 and $10,683,060, respectively) $ 27,156,414 $ 21,475,346 $ 10,683,060
Cash - - 4,547
Interest receivable 400,710 373,181 87,267
Receivable for investments sold - 494,000 -
Total assets 27,557,124 22,342,527 10,774,874
LIABILITIES AND NET ASSETS:
Cash overdraft 255,129 433,319 -
Payable for investments purchased - 557,990 502,391
Fees payable 7,429 6,307 3,108
Total liabilities 262,558 997,616 505,499
NET ASSETS $ 27,294,566 $ 21,344,911 $ 10,269,375
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 25,355,681 $ 20,881,292 $ 10,264,760
Accumulated undistributed net realized gain (loss) on investments 259,205 (4,491) 4,615
Net unrealized appreciation in value of investments 1,679,680 468,110 -
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 27,294,566 $ 21,344,911 $ 10,269,375
Capital shares, $0.10 par value
Authorized 50,000,000 50,000,000 100,000,000
Outstanding 2,960,707 1,979,110 10,263,360
NET ASSET VALUE PER SHARE $ 9.22 $ 10.79 $ 1.00
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended June 30, 1998
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
</CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,513,748 $ 1,134,344 $ 401,366
Expenses:
Management fees (Note 3) 261,400 213,466 55,535
Registration fees and other expenses 28,807 23,525 11,484
290,207 236,991 67,019
Net investment income 1,223,541 897,353 334,347
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales and maturities of investments 5,493,600 5,628,330 29,592,000
Cost of investments sold and matured 5,273,644 5,554,291 29,592,000
Net realized gain from investment transactions 219,956 74,039 -
Unrealized appreciation on investments:
Beginning of year 1,044,898 388,509 -
End of year 1,679,680 468,110 -
Increase in net unrealized appreciation on investments 634,782 79,601 -
Net gain on investments 854,738 153,640 -
Increase in net assets resulting from operations $ 2,078,279 $ 1,050,993 $ 334,347
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended June 30, 1998
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
</CAPTION>
<S> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,272,767 $ 990,979 $ 299,426
Net realized gain from investment transactions 88,015 71,438 -
Increase in net unrealized appreciation on investments 638,927 154,211 -
Net increase in net assets resulting from operations 1,999,709 1,216,628 299,426
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,272,767) (990,979) (299,426)
Net realized gain from investment transactions (60,533) (112,777) -
Total distributions to shareholders (1,333,300) (1,103,756) (299,426)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold, 105,940(L), 54,132(S), 18,555,914(MM) 930,420 579,845 18,555,943
Net asset value of shares issued for reinvestment of distributions,
88,162(L), 62,762(S), 237,906(MM) 791,899 673,723 237,906
1,722,319 1,253,568 18,793,849
Cost of shares redeemed, 238,370(L), 345,284(S), 17,374,707(MM) (2,112,020) (3,699,095) (17,374,733)
Net increase (decrease) from capital share transactions (389,701) (2,445,527) 1,419,116
Total increase (decrease) in net assets 276,708 (2,332,655) 1,419,116
NET ASSETS - June 30, 1996 26,966,421 25,268,497 8,031,257
NET ASSETS - June 30, 1997 $ 27,243,129 $ 22,935,842 $ 9,450,373
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,223,541 $ 897,353 $ 334,347
Net realized gain from investment transactions 219,956 74,039 -
Increase in net unrealized appreciation on investments 634,782 79,601 -
Net increase in net assets resulting from operations 2,078,279 1,050,993 334,347
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,223,541) (897,353) (334,347)
Net realized gain from investment transactions (65,480) (62,303) -
Total distributions to shareholders (1,289,021) (959,651) (334,347)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold, 198,138(L), 105,752(S), 16,714,916(MM) 1,816,295 1,144,592 16,714,916
Net asset value of shares issued for reinvestment of distributions,
77,757(L), 55,359(S), 261,990(MM) 713,850 598,777 261,990
2,530,145 1,743,369 16,976,906
Cost of shares redeemed, 355,788(L), 316,848(S), 16,157,904(MM) (3,267,966) (3,425,637) (16,157,904)
Net increase (decrease) from capital share transactions (737,821) (1,682,268) 819,002
Total increase (decrease) in net assets 51,437 (1,590,931) 819,002
NET ASSETS - June 30, 1997 27,243,129 22,935,842 9,450,373
NET ASSETS - June 30, 1998 $ 27,294,566 $ 21,344,911 $ 10,269,375
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management investment company. Its
shares are currently issued in three series with each series, in effect,
representing a separate Fund. The financial statements have been
prepared in conformity with generally accepted accounting principles
which require management to make certain estimates and assumptions at
the date of the financial statements. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Investments - Securities held in the short-term and long-term
portfolios are valued at the market value on the last business day of
the period as determined by an independent pricing service. Short-term
notes and the money market portfolio are valued at amortized cost which
approximates market value. Investment transactions are recorded on the
trade date. Investment income and dividends to shareholders are recorded
daily and dividends are distributed monthly. Realized gains and losses
from investment transactions and unrealized appreciation and
depreciation of investments are reported on the identified cost basis.
Federal and State Taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no provision for federal or state tax is
required.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate amounts of security transactions during the year ended
June 30, 1998 (excluding repurchase agreements), were as follows:
Portfolio L
Purchases $ 4,967,960
Proceeds from sales 5,493,600
Portfolio S
Purchases $ 4,680,612
Proceeds from sales 5,628,330
Portfolio MM
Purchases $ 31,299,105
Proceeds from sales 29,592,000
3. MANAGEMENT FEES:
Management fees, which include all normal expenses of the Fund other
than taxes, fees and other charges of governmental agencies for
qualifying the Fund's shares for sale, special legal fees, interest and
brokerage commissions, are paid to Jones & Babson, Inc., an affiliated
company. These fees are based on average daily net assets of the
portfolios at the annual rate of .95 of one percent of net assets of
Portfolio L and Portfolio S and .50 of one percent of net assets of
Portfolio MM. Certain officers and/or directors of the Fund are also
officers and/or directors of Jones & Babson, Inc.
FINANCIAL HIGHLIGHTS
The following table sets forth information as to capital and income changes
for a share outstanding for each of the five years in the period ended
June 30, 1998:
<TABLE>
<CAPTION>
PORTFOLIO L 1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.96 $ 8.74 $ 8.67 $ 8.52 $ 9.49
Income from investment operations:
Net investment income 0.40 0.42 0.41 0.42 0.43
Net gains (or losses) on securities
(both realized and unrealized) 0.28 0.24 0.07 0.17 (0.56)
Total from investment operations 0.68 0.66 0.48 0.59 (0.13)
Less distributions:
Dividends from net investment income (0.40) (0.42) (0.41) (0.42) (0.43)
Distributions from capital gains (0.02) (0.02) - (0.02) (0.41)
Total distributions (0.42) (0.44) (0.41) (0.44) (0.84)
Net asset value, end of year $ 9.22 $ 8.96 $ 8.74 $ 8.67 $ 8.52
Total return 8% 8% 6% 7% (2%)
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 27 $ 27 $ 27 $ 28 $ 30
Ratio of expenses to average net assets 1.06% 1.01% 1.01% 1.02% 1.02%
Ratio of net investment income to average net assets 4.46% 4.71% 4.67% 4.98% 4.73%
Portfolio turnover rate 18% 21% 39% 34% 53%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO S 1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.74 $ 10.69 $ 10.71 $ 10.62 $ 11.05
Income from investment operations:
Net investment income 0.44 0.44 0.44 0.45 0.46
Net gains (or losses) on securities
(both realized and unrealized) 0.08 0.10 0.01 0.10 (0.37)
Total from investment operations 0.52 0.54 0.45 0.55 0.09
Less distributions:
Dividends from net investment income (0.44) (0.44) (0.44) (0.45) (0.46)
Distributions from capital gains (0.03) (0.05) (0.03) (0.01) (0.06)
Total distributions (0.47) (0.49) (0.47) (0.46) (0.52)
Net asset value, end of year $ 10.79 $ 10.74 $ 10.69 $ 10.71 $ 10.62
Total return 5% 5% 4% 5% 1%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 21 $ 23 $ 25 $ 28 $ 29
Ratio of expenses to average net assets 1.06% 1.01% 1.01% 1.01% 1.02%
Ratio of net investment income to average net assets 4.00% 4.12% 4.13% 4.28% 4.22%
Portfolio turnover rate 21% 23% 41% 34% 21%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO MM 1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.03 0.03 0.03 0.03 0.02
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 3% 3% 3% 3% 2%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 10 $ 9 $ 8 $ 16 $ 15
Ratio of expenses to average net assets 0.61% 0.58% 0.58% 0.59% 0.57%
Ratio of net investment income to average net assets 3.06% 3.10% 3.15% 3.07% 1.99%
</TABLE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
D.L. Babson Tax-Free Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
D.L. Babson Tax-Free Income Fund, Inc. (a Maryland corporation,
comprising, respectively, Portfolio L, Portfolio S and Portfolio MM),
including the statement of net assets as of June 30, 1998, and the
related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1998, by correspondence
with the custodian or brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the respective portfolios constituting the
D.L. Babson Tax-Free Income Fund, Inc. as of June 30, 1998, the results
of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
July 28, 1998
This report has been prepared for the information of the Shareholders of
the D.L. Babson Tax-Free Income Fund, Inc., and is not to be construed
as an offering of the shares of the Fund. Shares of this Fund and of the
other Babson Funds are offered only by the Prospectus, a copy of which
may be obtained from Jones & Babson, Inc.
EQUITIES
Growth Fund
Enterprise Fund*
Enterprise Fund II
Value Fund
Shadow Stock Fund
International Fund
FIXED INCOME
Bond Trust
Money Market Fund
Tax-Free Income Fund
* Closed to new investors.
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
JB5C-2 8/98
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