Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
California Bond Fund 4
California Money Market Fund 9
Financial Information:
Statements of Assets and Liabilities 13
Portfolios of Investments in Securities:
California Bond Fund 15
California Money Market Fund 18
Notes to Portfolios of Investments in Securities 22
Statements of Operations 23
Statements of Changes in Net Assets 24
Notes to Financial Statements 25
Important Information:
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are now "streamlined."
One copy of each report will be sent to each address, instead of our previous
practice of sending one report to every registered owner. For many
shareholders and their families, this eliminates duplicate copies, saving
paper and postage costs to the Funds.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report
per registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA California
Funds, managed by USAA Investment Management Company (IMCO). It may be used as
sales literature only when preceded or accompanied by a current prospectus
which gives further details about the funds.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(copyright)1996, USAA. All rights reserved.
USAA FAMILY OF FUNDS PERFORMANCE SUMMARY
If you own only one or two USAA funds, you may not be aware of the performance
of our other funds. This summary is a snapshot of the performance of all 33
funds by investment objective as of September 30, 1996.
<TABLE>
______________________________________________________________________________________________
Average Annual Total Return*
______________________________________________________________________________________________
<CAPTION>
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 33.19 16.98 14.08 -
Emerging Markets(1) 11/7/94 10.41 - - 4.96
Gold(1) 8/15/84 1.19 7.93 2.40 -
Growth 4/5/71 14.86 13.79 12.67 -
Growth & Income 6/1/93 18.80 - - 14.61
International(1) 7/11/88 15.03 12.73 - 10.21
S&P 500 Index(4) 5/1/96 - - - 7.76 ++
World Growth(1) 10/1/92 14.79 - - 13.01
______________________________________________________________________________________________
Asset Allocation
Balanced Strategy 9/1/95 9.32 - - 8.97
Cornerstone Strategy(1) 8/15/84 14.28 12.30 10.57 -
Growth and Tax Strategy(2)** 1/11/89 12.63 9.89 - 9.77
Growth Strategy(1) 9/1/95 25.37 - - 23.43
Income Strategy 9/1/95 5.08 - - 6.13
______________________________________________________________________________________________
Income - Taxable
GNMA 2/1/91 3.98 6.92 - 7.43
Income 3/4/74 3.26 7.76 9.17 -
Income Stock 5/4/87 12.73 12.41 - 12.03
Short-Term Bond 6/1/93 5.60 - - 5.29
_______________________________________________________________________________________________
Income - Tax Exempt
Long-Term(2)** 3/19/82 6.91 7.06 7.52 -
Intermediate-Term(2)** 3/19/82 5.43 7.02 7.12 -
Short-Term(2)** 3/19/82 4.51 5.04 5.49 -
California Bond(2)** 8/1/89 8.34 7.34 - 7.52
Florida Tax-Free Income(2)** 10/1/93 7.30 - - 3.17
New York Bond(2)** 10/15/90 6.34 6.80 - 8.29
Texas Tax-Free Income(2)** 8/1/94 8.56 - - 9.23
Virginia Bond(2)** 10/15/90 6.98 7.34 - 8.15
_______________________________________________________________________________________________
Money Market
Money Market(3) 2/2/81 5.33 4.38 5.85 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.45 3.09 4.23 -
Treasury Money Market Trust(3) 2/1/91 5.18 4.16 - 4.28
California Money Market(2),(3)** 8/1/89 3.37 2.98 - 3.65
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.34 - - 2.99
New York Money Market(2),(3)** 10/15/90 3.35 2.82 - 3.06
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.32
Virginia Money Market(2),(3)** 10/15/90 3.24 2.91 - 3.20
_________________________________________________________________________________________
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
For more complete information about the mutual funds managed and distributed
by USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(3) An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will
be able to maintain a stable net asset value of $1 per share.
(4) S&P 500(registered trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold
or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the product.
* Total return equals income yield plus share price change and
assumes reinvestment of all dividends and capital gain distributions. No
adjustment has been made for taxes payable by shareholders on their
reinvested dividends and capital gain distributions. The performance data
quoted represent past performance and are not an indication of future
results. Investment return and principal value of an investment will
fluctuate, and an investor's shares, when redeemed, may be worth more
or less than their original cost.
** IRAs are not available for tax-exempt funds. The Growth and Tax
Strategy Fund is not available as an investment for your IRA because the
majority of its income is tax-exempt. California, Florida, New York,
Texas, and Virginia funds available to residents only.
++ Cumulative total return since inception.
(A photo of Michael J.C. Roth, President and Vice Chairman of the Board,
appears here)
I am writing this message in late October and every day it seems someone
asks what effect the election will have on the financial markets. My frank
answer is that I don't know. What I prefer to talk about are things that
concern me about the markets and things that give me hope.
My greatest concern is the promises we as a nation have made to our citizens
coupled with our unwillingness to face the cost of those promises. Some of
these promises are highly noble. We have tried to provide decent housing
for those in our midst who cannot afford it. With a decent and safe home
most people would have the opportunity to seek the education and work that
could lift families out of poverty. But effective solutions are very difficult
to achieve, and too often we succeed only in creating generations mired in
hopeless dependency. We have promised medical care to the poor and the
elderly, but the cost of that care runs away from the tax revenues we have
dedicated to it. We have promised a safety net, social security, to our
elderly, and we did take decisive steps to raise the tax revenue to fund that.
But the excess of social security taxes over benefits, which should
have built a meaningful trust fund, has been systematically borrowed by the
treasury and spent on other current needs. That trust fund consists solely of
promises by the federal government which will have to be funded somehow in
the future. And then we have quite properly promised our citizens a strong
national defense. These are decent and noble promises but they translate to a
debt burden whose service requires a large and growing part of what we produce
as a nation.
But there is much we are prone to overlook. We forgot in the 80s that the
Japanese borrowed heavily from American knowledge and American methods
to work their economic miracle. We forget that the freedom of our society,
both political and intellectual, draws bright people from all over the world
and allows them and our own citizens the opportunity to take risks and reap
the rewards. We are a vibrant nation in the forefront of change that is
shaping the world. From IMCO's standpoint this means that there are great
opportunities for investors.
We tend, at times, to dwell on the problems. USAA, as a citizen of San Antonio
and the other great cities in which we have a presence, has confronted these.
Hundreds of our employees are mentors in schools. They and others in our
company devote their skills and their money to bettering the lives of people
in our communities. But while we in the Investment Management Company
participate in these endeavors, our attention is focused on the opportunities
that abound in the U.S. and other countries. We see, perhaps more clearly than
most people, that those opportunities offer great hope to very many people and
that great hope offers great opportunity to our investors.
This election is a small step on a long journey.
Sincerely,
Michael J.C. Roth
President and
Vice Chairman of the Board
INVESTMENT REVIEW
California Bond Fund
OBJECTIVE: Provide California investors with a high level of current interest
income that is exempt from federal and California state income taxes.
Types of Investments: Invests primarily in long-term investment grade
California tax-exempt securities.
______________________________________________________________________________
3/31/96 9/30/96
Net Assets $409.2 Million $430.6 Million
Net Asset Value Per Share $10.43 $10.57
______________________________________________________________________________
Average Annual Total Returns as of 9/30/96
March 31, 1996 to September 30, 1996 4.33% ++
1 Year 8.34%
5 Years 7.34%
Since inception on August 1, 1989 7.52%
++ Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
______________________________________________________________________________
30-Day SEC Yield on September 30, 1996 5.47%*
* Calculated as prescribed by the Securities and Exchange Commission.
______________________________________________________________________________
[A graph is shown here which is a comparison of the change in value of a
$10,000 investment for the period of 8/1/89 to 9/30/96, with dividends
and capital gains reinvested. The ending values for the items graphed are:
Lehman Brothers Muni. Bond Index $17,093
USAA California Bond Fund 16,829 ]
The Lehman Brothers Municipal Bond Index is an unmanaged index that tracks
total return performance for the long-term investment grade tax-exempt bond
market. All tax-exempt bond funds will find it difficult to outperform such
an index, since funds have expenses.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested dividends
and capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return
and principal value of an investment will fluctuate, and an investor's shares,
when redeemed, may be worth more or less than their original cost.
Message from the Manager
(A photo of Robert R. Pariseau, CFA, Portfolio Manager, appears here)
A Volatile Market
Since March, bond market investors have held passionate feelings towards the
future direction of the economy and interest rates. The problem was that
investors did not hold a particular feeling very long. Emotions ranged from
elation to depression, mixed with numbing confusion. Interest rate trends,
either up or down, lasted only weeks. The reason for such vacillation is
quite simple. The economy itself has behaved in fits and starts since late
last fall.
From March 31, 1996, to September 30, 1996, the 30-year U.S. Treasury bond
(the "Long Bond") started at 6.67%, peaked at 7.19% in June and again in
July, and then ended the quarter at 6.92%. Municipal bonds outperformed
the Long Bond, as the yield on the Bond Buyer 40 Index, which is the
industry standard for the yield of long-term, investment-grade municipal
bonds, declined slightly during the same period. In volatile periods such
as these, how should a single state municipal fund fit into your investment
strategy?
Why a State Municipal Fund?
In a growth-oriented portfolio, municipal bonds provide essential
diversification and respectable after-tax total return. For investors who
focus on income and are in the 28% and higher federal tax brackets, single
state funds typically generate higher tax-equivalent yields than fully
taxable funds or tax-exempt national municipal funds of comparable credit
quality.
The table below compares the yield of the USAA California Bond Fund with a
taxable equivalent investment.
To match the California Bond Fund's closing 30-Day SEC yield of 5.47% and:
______________________________________________________________________________
Assuming a Marginal Federal Tax Rate of:
28% 31% 36% 39.6%
and
Assuming a California State Tax Rate of:
9.30% 9.30% 9.30% 9.30%
______________________________________________________________________________
A fully Taxable Investment Must Pay: 8.37% 8.74% 9.42% 9.98%
______________________________________________________________________________
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA
Family of Funds.
Single state funds allow investors to invest close to home where they may be
more comfortable with regional economic and fiscal issues. Your fund consists
of over 50 different securities all thoroughly researched by experienced
credit analysts. Geographic, industry and issuer diversification mitigates the
risk of investing in a single state. Proper diversification and credit research
are critical, yet daunting tasks for the average investor to achieve on his own
with individual bonds.
Although most municipal bonds pay their interest coupons at six-month
intervals, mutual funds provide the convenience and efficiency of monthly
dividends and automatic reinvestment of interest and other proceeds. As for
liquidity, your money is available sooner than the normal 3-day settlement with
individual bonds. Convenient periodic statements and worry-free custodial
services are additional benefits.
Each business day the mutual fund is "marked to market" by an independent
pricing service to reflect fairly the market value of the fund's assets. USAA
has three full-time fixed income traders who monitor the pulse of the bond
market. Municipals are not traded in an organized exchange with posted quotes.
Instead, each trade is the result of a unique negotiation. When we enter the
market to buy or sell, our traders are in contact with dozens of market makers,
primary dealers and brokers to obtain the best price. The spread, or markup,
is the difference between the bid and the asking price. Effectively, it is
the broker's compensation for the trade. Because of its greater buying power,
the spread for an institution's $1 million block is much smaller than the
individual's order for $25,000 of bonds.
Strategy & Outlook
With no real consensus over the future direction of interest rates, the bond
market is prone to volatility as investors react to the latest economic data.
I continue to pursue tax-exempt income and invest in investment-grade quality
securities. Secondarily, I will focus on total return. When pursuing tax-
exempt income, I will typically buy bonds with 20-year or longer maturities,
although their market values are more sensitive to changes in interest rates.
I do not buy exotic derivatives, hedge the portfolio with futures, or try to
time the market because no one has demonstrated that they can consistently
predict the future direction of interest rates.
Your Fund's Performance
Since municipal rates declined slightly during the same period, your Fund's
net asset value (NAV) per share increased $.14 to $10.57, or 1.3%, since March
31, 1996. The Fund's performance compared favorably to its peer group. While
past performance is no guarantee of future results, the Fund's annualized
dividend yield(1) for the past six months was 5.74%, as compared to Lipper's
California Municipal Debt Funds average of 5.01% for the 99 funds in the
category.(2) For the same period, the Fund's total return(3) was 4.33%,
compared to the Lipper average of 3.39%.
The State of California
In the September Beige Book, the Federal Reserve Board confirmed that
California is now well into a broad economic recovery. The state government's
finances are another matter. During the recession, the state restrained
expenditures to match revenues, but now has minimal cash reserves and a
lingering general fund deficit. The limited ability to increase revenues
and the relentless pressures of education, prison, healthcare and welfare
spending continue to stress budgets. I will follow closely the impact of
welfare reform on state and local governments.
[A graph is shown here comparing the 12-month dividend yield of the USAA
California Bond Fund and the Lipper California Municipal Debt Funds
Average from 9/30/90 to 9/30/96. The vertical axis shows the yield and
the horizontal axis shows the time period. The values are:
USAA Calif.
Bond Fund 6.82 6.53 6.10 5.41 5.84 5.80 5.70
Lipper. Calif.
Muni. Debt 6.78 6.40 6.05 5.36 5.77 5.31 5.08 ]
Funds Avg.
The Lipper California Municipal Debt Funds Average is computed by Lipper
Analytical Services, an independent organization that monitors the performance
of mutual funds. 12-month dividend yield is computed by dividing income
dividends paid during the previous 12 months by the latest month-end net
asset value adjusted for capital gains distributions. The graph represents
data from 9/30/90 to 9/30/96.
(1) Dividend yield is computed by dividing income dividends paid during the
previous 6 months by the latest month-end net asset value adjusted for capital
gains distributions and annualizing the result.
(2) Lipper Analytical Services is an independent organization that monitors the
performance of mutual funds.
(3) Total returns equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
I am not gloomy; quite the contrary, Standard & Poor's Ratings Group and Fitch
Investors Services, Inc. just raised the state's credit rating to "A+." As
long as tax revenues continue to grow with the economy, state and local
governments will have the breathing room to grapple with their fiscal
problems. Our analysts remain cautious in regard to county and local municipal
lease obligations that rely on annual appropriations. As we go to press,
California voters will consider the passage of several interesting Propositions
in the November elections regarding healthcare regulation, a reinstatement of
the 10% state personal income tax bracket and new restrictions on non-voted
local taxes.
PORTFOLIO RATINGS/MIX
SEPTEMBER 30, 1996
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of September
30, 1996 for the California Bond Fund to be:
AAA - 28%, AA - 20%, A -26%, BBB -25% and Cash Equivalents - 1%.]
This chart reflects the highest rating of either Moody's Investors
Service, Standard & Poor's Rating Group or Fitch Investors Service.
Unrated securities that have been determined by USAA Investment
Management Company to be of equivalent investment quality to
category BBB account for .6% of the Fund's investments.
Note: Income may be subject to federal, state or local taxes, or the
alternative minimum tax.
See page 15 for a complete listing of the Portfolio of Investments in
Securities.
Investment Review
California Money Market Fund
OBJECTIVE: Provide California investors with a high level of current interest
income that is exempt from federal and California state income taxes, while
preserving capital and maintaining liquidity.
Types of Investments: High quality California tax-exempt securities with
maturities of 397 days or less. The Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less and will endeavor to maintain a
constant net asset value per share of $1.00.*
* An investment in this Fund is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
______________________________________________________________________________
3/31/96 9/30/96
______________________________________________________________________________
Net Assets $296.3 Million $314.7 Million
Net Asset Value Per Share $1.00 $1.00
______________________________________________________________________________
Average Annual Total Returns as of 9/30/96
March 31, 1996 to September 30, 1996 1.62% ++
1 Year 3.37%
5 Years 2.98%
Since inception on August 1, 1989 3.65%
++ Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
______________________________________________________________________________
7-Day Simple Yield on September 30, 1996 3.41%
______________________________________________________________________________
[A graph is shown here comparing the 7-day yield of the USAA California Money
Market Fund and the IBC/Donoghue's State Specific SB & GP (Tax-Free):
California from 9/95 to 9/96. The vertical axis shows the yield and the
horizontal axis shows the time period. The ending value, on 9/30/96, for
the USAA California Money Market Fund is 3.41% and the ending value for
the IBC Donoghue's State Specific SB & GP (Tax-Free): California is 3.09%.]
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested dividends
and capital gain distributions. Past performance is no guarantee of future
results and the value of your investment may vary according to the Fund's
performance. The graph tracks the Fund's 7-day simple yield against
IBC/Donoghue's State Specific SB (Stock Broker) & GP (General Purpose)
(Tax-Free): California Money Funds, an average of all major money market
fund yields.
Message from the Manager
(A photo of John C. Bonnell, CFA, Portfolio Manager, appears here.)
Interest Rates
When 1996 began, interest rates were falling. The Federal Reserve (Fed)
lowered the Federal Funds rate (the rate banks charge other banks for
overnight loans) by .25% at the end of January. This move proved to be
the only action taken so far this year by the Fed. Not long after the Fed's
action, however, economic indicators and statistics came out reflecting much
stronger growth than expected, sending short-term interest rates higher. With
investors trying to anticipate interest rate actions by the Fed and reacting
to each economic indicator released, short-term interest rates remained very
volatile throughout 1996. Many investors were caught off guard after expecting
the Fed to raise the rate .25% to .50% following their September 24th meeting.
When the Fed left the Federal Funds rate unchanged, market interest rates fell
significantly. Clearly, the true magnitude of economic growth taking place
remains elusive. This illustrates why we do not forecast interest rates. It is
difficult, if not impossible, for anyone to consistently predict future
interest rate movements. Your money market fund strives to meet its objective
in any prevailing interest rate environment.
Strategy
Your Fund's success stems from two major advantages. First is the expense
ratio. Your Fund's expense ratio was .46% versus an industry average of .63%.*
The lower a fund's expense ratio (everything else being equal), the higher
the potential return is to you. The second major advantage your fund has is
the quality of research provided by our internal research department. Our
credit research team, which includes four full-time money market analysts,
not only pores over financial statements, but also interrogates the appropriate
individuals (often including on-site tours/visits) responsible for repayment of
the debt we are considering purchasing for the portfolio. This type of
analysis helps avoid problems such as the Orange County bankruptcy, and helps
us identify opportunities to enhance performance without taking risks
inappropriate for a money market fund. Credit quality and preservation of
capital remain top priorities of the Fund.
Our conservative approach to managing the Fund includes strict limits we place
on the portfolio regarding diversification. These limits go beyond the rules
governing money market funds set forth by the Securities and Exchange
Commission (SEC) which are intended to protect the safety and quality of money
market funds.
Performance
While past performance is no guarantee of future results, for the 12 months
ending 9/30/96 your fund ranked 2 out of 41 California Money Market Funds
according to IBC/Donoghue, Inc. with a yield of 3.35%. The average for the
category over the same time period was 2.96%.
California
California's broad-based economy continues to expand. The strongest growth has
been in export-related industries, business services, retail trade, high
technology, entertainment, and tourism. Reflecting these conditions are recent
unemployment rates. While still above national levels, California had a 7.1%
seasonally adjusted unemployment rate in July 1996, down from 7.8% in July
1995. Improved business activity translated into improved financial operations
at the state level, and the elimination of external cash flow borrowing at the
end of fiscal 1996. However, continued spending pressures, most notably on
education and public safety, will likely hinder the ability of the state to
accrue significant financial reserves. While the economic picture is clearly
improving in California, we continue to analyze each issue on a case by case
basis and remain very selective when investing fund assets.
* Source: IBC/Donoghue's State Specific SB & GP (Tax-Free): California
[A graph is here showing the growth of $10,000 from 8/1/89 to 9/30/96,
invested in the USAA California Money Market Fund. The vertical axis shows
the dollar amount and the horizontal axis shows the time period. The ending
value is $12,935.]
Past performance is no guarantee of future results and the value of your
investment may vary according to the fund's performance. Income may be
subject to federal, state or local taxes or to the alternative minimum
tax.
An investment in any money market fund is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that the Fund will be able
to maintain a stable net asset value of $1.00 per share.
See page 18 for a complete listing of the Portfolio of Investments of
Securities.
Statements of Assets and Liabilities
(In Thousands)
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
California California
Bond Money Market
Fund Fund
------ ------
<S> <C> <C>
Assets
Investments in securities, at market value
(identified cost of $404,288 and $321,463,
respectively) $427,528 $ 321,463
Cash 141 746
Receivables:
Capital shares sold 73 284
Interest 6,843 1,479
---------- ---------
Total assets 434,585 323,972
---------- ---------
Liabilities
Securities purchased 3,027 8,561
Capital shares redeemed 90 486
USAA Investment Management Company 112 82
USAA Transfer Agency Company 20 17
Accounts payable and accrued expenses 61 53
Dividends on capital shares 636 54
----------- ----------
Total liabilities 3,946 9,253
----------- ----------
Net assets applicable to capital shares outstanding $ 430,639 $ 314,719
=========== ==========
Represented by:
Paid-in capital $ 414,376 $ 314,719
Accumulated net realized loss on investments (6,977) -
Net unrealized appreciation of investments 23,240 -
------------ ----------
Net assets applicable to capital shares outstanding $ 430,639 $ 314,719
============ ==========
Capital shares outstanding 40,724 314,719
============ ==========
Net asset value, redemption price, and offering price
per share $ 10.57 $ 1.00
============ ==========
See accompanying notes to financial statements.
</TABLE>
Categories & Definitions
Portfolios of Investments in Securities
September 30, 1996
(Unaudited)
Fixed Rate Instruments - consist of municipal bonds, notes, and commercial
paper. The coupon rate is constant to maturity. Prior to maturity, the price
of a fixed-rate instrument generally varies inversely to the movement of
interest rates. At maturity, the security pays face value.
Put Bonds - provide the right to tender, or put, the bond for redemption at
face value at specific tender dates prior to final maturity. The put feature
shortens the effective maturity to the next tender date. Between tender dates,
the price of a put bond generally varies inversely to the movement of interest
rates.
Variable Rate Demand Notes (VRDN) - provide the right, on any business day, to
demand, or put, the security for redemption at face value on either that day
or in seven days. The interest rate is adjusted at a stipulated daily, weekly,
or monthly interval to a rate that reflects current market conditions. In
money market funds, the effective maturity is equal to either the date on
which the underlying principal amount may be recovered through demand or the
next rate adjustment date consistent with applicable regulatory requirements.
In bond funds, the effective maturity is the next put date. Most VRDNs
possess a credit enhancement.
Credit Enhancement (CRE) - adds the financial strength of the provider to
support the underlying obligor's debt service obligations and/or the put
option. The enhancement may be provided by either a high quality bank,
insurance company, or other corporation, or a collateral trust. Typically,
the rating agencies evaluate the security based upon the credit standing
of the credit enhancement.
California Bond Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ------- --------- ------
Fixed Rate Instruments (98.8%)
<C> <S> <C> <C> <C>
California (91.8%)
$ 5,240 Alameda Housing Auth. MFH RB,
Series 1989A 7.50% 2/20/31 $ 5,382
4,000 Big Bear Lake Water RB (CRE) 6.38 4/01/22(a) 4,404
20,000 Central Valley Cogeneration Financing
Auth. RB 6.20 7/01/20 19,924
7,175 Contra Costa Water District RB,
Series D (CRE) 6.38 10/01/22 7,525
11,000 Department of Water Resources RB,
Series K 6.00 12/01/21 11,143
5,000 Desert Hospital Dist. COP (CRE) 6.39 7/28/20 5,180
Educational Facilities Auth. RB,
9,500 Series 1991 (CRE) 7.15 5/01/21(a) 10,686
5,000 Series 1992 6.00 2/15/17 5,073
1,775 Series 1992 6.88 9/01/22 1,890
8,990 Series 1992 6.50 10/01/22 9,330
9,000 Series 1994 (CRE) 6.20 5/01/21 9,288
8,015 Series 1995 6.00 10/01/25 8,015
2,250 Series 1995A 5.60 12/01/20 2,138
Encinitas Union School District GO,
500 Series 1996 (CRE) 5.85(d) 8/01/20 123
4,250 Series 1996 (CRE) 5.85(d) 8/01/21 989
2,435 Fresno COP 8.50 5/01/16 2,487
Health Facilities Financing Auth. RB,
8,000 Series 1990 7.50 10/01/10(a) 9,002
6,500 Series 1990A (CRE) 7.70 9/01/10 7,133
35,000 Series 1990A 6.50 12/01/20 36,637
11,500 Series 1991 (CRE) 6.75 6/01/21 12,018
3,175 Series 1992A (CRE) 6.38 10/01/22 3,330
2,000 Series 1994 (CRE) 6.50 9/01/14 2,047
5,000 Series 1994A 6.63 7/01/18 5,261
4,180 Hollister Joint Powers Financing Auth. RB 5.90 12/01/23 3,963
Housing Finance Agency Home Mortgage RB,
1,035 Series 1988F 7.88 8/01/19 1,072
10,645 Series 1991F 6.85 8/01/17 11,139
5,990 Series 1994A 6.55 8/01/26 6,204
3,000 Housing Finance Agency MFH RB,
Series 1996A (CRE) 16.05 8/01/27 3,000(c)
5,455 Imperial Beach MFH RB, Series 1995A 6.45 9/01/25 5,588
5,000 Metropolitan Water District RB 5.50 7/01/19 4,799
12,000 Modesto Irrigation District RB,
Series 1992A (CRE) 6.13 9/01/19 12,313
4,000 Mojave Water Agency Improvement
District GO 6.60 9/01/22(a) 4,471
11,195 Pleasanton Joint Powers Financing Auth.
RB, Series 1993A 6.15 9/01/12 11,225
Sacramento Cogeneration Auth. RB,
6,500 Series 1995 6.50 7/01/21 6,635
6,000 Series 1995 6.00 7/01/22 5,824
6,130 Sacramento Municipal Utility District
Electric RB, Series 1987R 6.00 2/01/15 6,062
7,040 San Diego MFH RB, Series 1995A 6.45 5/01/25 7,191
13,500 San Joaquin Hills Transportation Corridor
Agency RB 6.75 1/01/32 13,911
40,900 San Joaquin Hills Transportation Corridor
Agency RB 5.00 1/01/33 34,150
11,320 San Mateo Sewer RB, Series 1992 (CRE) 6.30 8/01/17 11,881
12,455 Southern California Public Power Auth. RB,
Series 1989 (CRE) 6.00 7/01/18 12,495
Statewide Communities Development Auth. COP,
10,500 Huntington Memorial Hospital (CRE) 5.80 7/01/26 10,410
4,000 Series 1996A (CRE) 5.50 9/01/14 3,816
11,005 Turlock Irrigation District RB,
Series 1992A (CRE) 6.25 1/01/12 11,777
Univ. of California RB,
12,000 Series 1991A 6.88 9/01/16(a) 13,548
8,000 Series 1996 (CRE) 5.75 7/01/24 7,988
Watsonville Insured Hospital RB,
5,000 Series 1995A (CRE) 6.35 7/01/24 5,137
1,515 Series 1996A (CRE) 6.20 7/01/12 1,553
Puerto Rico (7.0%)
10,000 Electric Power Auth. RB, Series X 6.13 7/01/21 10,192
Highway and Transportation Auth. RB,
4,000 Series 1996Y 5.50 7/01/26 3,820
17,000 Series 1996Y 5.50 7/01/36 16,159
---------
Total fixed rate instruments (cost: $402,088) 425,328
---------
Variable Rate Demand Note (0.5%)
California
2,200 Irvine Ranch Water District RB,
Series 1985 (CRE) (cost: $2,200) 3.65 10/01/05 2,200
-----------
Total investments (cost: $404,288) $ 427,528
=========
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 18.9 %
Electric Power 16.9
Toll Roads 11.2
Escrowed Securities 9.8
Education 8.3
Water Utilities 8.3
Special Assessment/Tax/Fee 7.2
Multi-Family Housing 4.9
Single-Family Housing 4.3
Sewer 3.7
Nursing Care 2.8
Healthcare - Miscellaneous 1.2
Other 1.8
---------
Total 99.3 %
=========
California Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ------- --------- ------
<C> <S> <C> <C> <C>
Variable Rate Demand Notes (73.8%)
California
$ 1,100 Auburn Union School District COP,
Series 1993 (CRE) 3.90% 12/01/21 $ 1,100
3,100 Azusa MFH RB, Series 1994 (CRE) 4.10 7/15/15 3,100
4,000 Central Unified School District COP,
Series 1995 (CRE) 4.10 6/01/15 4,000
9,700 Corona MFH RB, Series 1985B (CRE) 3.93 2/01/05 9,700(b)
3,700 Covina Redevelopment Agency MFH RB,
Series 1994A (CRE) 4.10 12/01/15 3,700
2,100 Educational Facilities Auth. RB,
Series 1996A (CRE) 3.70 7/01/26 2,100
13,425 Fontana COP, Series 1991 (CRE) 4.70 7/01/21 13,425
Foothill/Eastern Transportation Corridor
Agency RB,
3,400 Series 1995B (CRE) 3.65 1/02/35 3,400
2,200 Series 1995D (CRE) 3.80 1/02/35 2,200
5,900 Series 1995E (CRE) 3.75 1/02/35 5,900
5,100 Health Facilities Financing Auth. RB,
Series 1991B (CRE) 3.75 8/01/21 5,100
4,900 Huntington Beach MFH RB, Series 1985A
(CRE) 4.00 2/01/10 4,900
1,900 Irvine Ranch Water District RB,
Series 1985 (CRE) 3.65 10/01/05 1,900
10,400 Irvine Special Assessment District 85-7
Improvement Bonds (CRE) 3.60 9/02/11 10,400
15,000 Kern Community College District COP,
Series 1995 (CRE) 4.45 1/01/25 15,000
7,000 Loma Linda Water RB, Series 1995 (CRE) 4.10 6/01/25 7,000
3,000 Los Angeles Community Redevelopment Agency
MFH RB, Series 1985 (CRE) 3.90 12/01/05 3,000
800 Merced IDA RB, Series 1989 (CRE) 3.85 12/01/97 800
4,400 Monrovia Redevelopment Agency COP,
Series 1984 (CRE) 3.85 12/01/14 4,400
Orange County Apartment Development RB,
8,100 Series 1984D (CRE) 3.93 8/01/19 8,100
14,450 Series 1992B (CRE) 4.15 11/01/05 14,450
2,600 Otay Water District COP, Series 1996 (CRE) 3.60 9/01/26 2,600
Pollution Control Financing Auth. PCRB,
5,000 Series 1985 (CRE) 3.68 12/01/00 5,000
12,900 Series 1996F (CRE) 3.90 11/01/26 12,900
3,180 Riverside County Housing Auth. MFH RB,
Series 1986F (CRE) 3.90 12/01/16 3,180
5,000 San Bernardino County COP, Series 1996
(CRE) 4.20 11/01/25 5,000
San Bernardino County MFH RB,
3,850 Series 1985A (CRE) 3.93 6/01/05 3,850(b)
1,500 Series 1985B (CRE) 3.93 6/01/05 1,500(b)
12,945 Series 1989A (CRE) 3.75 5/01/06 12,945
5,200 San Bernardino IDA RB, Series 1992 (CRE) 3.90 2/01/12 5,200
7,700 San Diego MFH RB, Series 1993A (CRE) 4.20 12/01/15 7,700
7,210 Statewide Communities Development Auth.
Apartment Development RB,
Series 1995D (CRE) 4.05 12/01/22 7,210
Statewide Communities Development Auth. COP,
2,200 Covenant Retirement Communities,
Series 1992 (CRE) 3.85 12/01/22 2,200
4,075 Institute for Defense Analysis,
Series 1992 (CRE) 3.85 11/01/22 4,075
4,000 Kaiser Foundation Hospital, Series 1995 3.80 12/01/15 4,000
4,100 St. Joseph Health System, Series 1993 3.80 7/01/08 4,100
24,000 Torrance Hospital RB, Series 1992 (CRE) 3.80 2/01/22 24,000
1,700 Union City MFH RB, Series 1989B (CRE) 3.75 11/01/07 1,700
1,490 Visalia Public Finance Auth. RB,
Series 1996 (CRE) 3.70 10/01/26 1,490
Total variable rate demand notes --------
(cost: $232,325) 232,325
--------
Put Bonds (7.2%)
California
Pollution Control Financing Auth. PCRB,
2,660 Series 1984 3.70 5/15/02 2,660
5,260 Series 1984B 3.70 6/15/05 5,260
2,000 Series 1996E (CRE) 3.45 11/01/26 2,000
12,700 Public Capital Improvement Finance Auth. RB,
Series 1988C (CRE) 3.80 6/01/28 12,700
-------
Total put bonds (cost: $22,620) 22,620
-------
Fixed Rate Instruments (21.1%)
California (16.4%)
5,000 Contra Costa Community College District
TRAN, Series 1996 4.50 6/30/97 5,025
4,000 Hesperia Unified School District TRAN,
Series 1996 4.25 6/30/97 4,012
8,500 Long Beach TRAN, Series 1996-97 4.75 10/09/97 8,561(c)
4,200 North County Schools Financing Auth.
TRAN, Series 1996 4.75 7/01/97 4,218
1,100 Orange County Municipal Water District CP,
Series 1994 (CRE) 3.60 11/05/96 1,100
3,000 Rialto Unified School District TRAN,
Series 1996 4.50 7/11/97 3,013
6,500 Riverside County Transportation Commission
CP Notes (CRE) 3.55 10/02/96 6,500
6,500 San Jose Unified School District TRAN,
Series 1996 4.50 8/05/97 6,529
7,530 Santa Cruz County Teeter Plan TRAN,
Series 1995-96 (CRE) 4.50 6/26/97 7,556
5,000 Yuba Community College TRAN, Series 1995-96 4.25 11/21/96 5,004
Puerto Rico (4.7%)
10,000 Government Development Bank CP 3.25 10/01/96 10,000
5,000 Government Development Bank CP 3.20 10/01/96 5,000
----------
Total fixed rate instruments (cost: $66,518) 66,518
---------
Total investments (cost: $321,463) $ 321,463
=========
</TABLE>
Portfolio Summary By Industry
Multi-Family Housing 24.4%
Education 15.5
Hospitals 11.8
Special Assessment/Tax/Fee 6.1
Buildings 5.9
Bank Holding Companies - Other Major 4.8
Electric Power 4.7
Finance - Municipal 4.0
Toll Roads 3.6
Water Utilities 3.4
Hotel/Motel 3.0
General Obligations 2.7
Retirement Homes 2.6
Oil - International 2.5
Sales Tax Obligations 2.1
Pollution Control 1.6
Specialized Services 1.3
Other 2.1
----------
Total 102.1%
==========
Notes to Portfolios of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
General Notes
Values of securities are determined by procedures and practices discussed in
note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the
same as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net
assets.
Portfolio Description Abbreviations
COP Certificate of Participation
CP Commercial Paper
CRE Credit Enhanced
GO General Obligation
IDA Industrial Development Authority/Agency
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
TRAN Tax Revenue Anticipation Notes
Specific Notes
(a) Pre-refunded to various dates prior to maturity at the call price.
(b) These securities were purchased within the terms of a private placement
memorandum and are subject to a seven day demand feature. Under procedures
adopted by the Board of Directors, the adviser has determined that these
securities are liquid. At September 30, 1996, these securities represented
4.8% of the California Money Market Fund's net assets.
(c) At September 30, 1996, the cost of securities purchased on a delayed
delivery basis for the California Bond Fund and California Money
Market Fund was $3,000 and $8,561, respectively.
(d) Zero Coupon security. Rate represents the effective yield at date of
purchase.
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1996
(Unaudited)
California
California Money Market
Bond Fund Fund
----------- ------------
Net investment income:
Interest income $ 12,982 $ 5,580
-------- --------
Expenses:
Management fees 667 489
Transfer agent's fees 116 100
Custodian's fees 48 53
Postage 12 12
Shareholder reporting fees 7 9
Directors' fees 2 2
Registration fees 5 8
Audit fees 13 13
Legal fees 4 4
Other 8 5
-------- ------
Total expenses 882 695
-------- ------
Net investment income 12,100 4,885
-------- ------
Net realized and unrealized gain on investments:
Net realized gain 669 -
Change in net unrealized appreciation/depreciation 5,329 -
-------- -------
Net realized and unrealized gain 5,998 -
-------- ---------
Increase in net assets resulting from operations $ 18,098 $ 4,885
======== =========
See accompanying notes to financial statements.
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended September 30, 1996 and Year ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
California California
Bond Fund Money Market Fund
9/30/96 3/31/96 9/30/96 3/31/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 12,100 $ 22,825 $4,885 $ 9,711
Net realized gain on investments 669 3,356 - -
Change in net unrealized appreciation/
depreciation of investments 5,329 8,681 - -
------- ------- ----- ------
Increase in net assets resulting from
operations 18,098 34,862 4,885 9,711
------- ------- ------ ------
Distributions to shareholders from:
Net investment income (12,100) (22,825) (4,885) (9,711)
------- -------- -------- -------
From capital share transactions:
Proceeds from shares sold 33,271 64,140 181,874 262,179
Shares issued for dividends reinvested 8,396 16,097 4,552 8,964
Cost of shares redeemed (26,206) (55,971) (168,056) (241,558)
-------- -------- --------- ---------
Increase in net assets from
capital share transactions 15,461 24,266 18,370 29,585
-------- -------- --------- --------
Net increase in net assets 21,459 36,303 18,370 29,585
Net assets:
Beginning of period 409,180 372,877 296,349 266,764
-------- -------- --------- --------
End of period $ 430,639 $409,180 $314,719 $296,349
========= ========= ======== =========
Change in shares outstanding:
Shares sold 3,197 6,158 181,874 262,179
Shares issued for dividends reinvested 804 1,543 4,552 8,964
Shares redeemed (2,521) (5,376) (168,056) (241,558)
---------- -------- --------- ---------
Increase in shares outstanding 1,480 2,325 18,370 29,585
========== ======== ========= ========
Authorized shares of $.01 par value 50,000 50,000 425,000 425,000
========== ======== ========= ========
See accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
September 30, 1996
(Unaudited)
(1) Summary of Significant Accounting Policies USAA Tax Exempt Fund, Inc.
(the Company), registered under the Investment Company Act of 1940,
as amended, is a diversified, open-end management investment company
incorporated under the laws of Maryland consisting of ten separate funds.
The information presented in this semiannual report pertains only to the
California Bond Fund and California Money Market Fund (the Funds). The
Funds have a common objective of providing California investors with a
high level of current interest income that is exempt from federal and
California state income taxes. The California Money Market Fund has a further
objective of preserving capital and maintaining liquidity.
A. Security valuation - Investments in the California Bond Fund are valued
each business day by a pricing service (the Service) approved by the Company's
Board of Directors. The Service uses the mean between quoted bid and asked
prices or the last sale price to price securities when, in the Service's
judgement, these prices are readily available and are representative of the
securities' market values. For many securities, such prices are not readily
available. The Service generally prices these securities based on methods
which include consideration of yields or prices of municipal securities of
comparable quality, coupon, maturity and type, indications as to values from
dealers in securities, and general market conditions. Securities which are not
valued by the Service, and all other assets, are valued in good faith at fair
value using methods determined by the Manager under the general supervision
of the Board of Directors. Securities purchased with maturities of 60 days
or less and, pursuant to Rule 2a-7 of the Investment Company Act of 1940,
as amended, all securities in the California Money Market Fund are stated
at amortized cost which approximates market value.
B. Federal taxes - Each Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - As is common in the industry, security
transactions are accounted for on the date the securities are purchased or
sold (trade date). Gain or loss from sales of investment securities is
computed on the identified cost basis. Interest income is recorded daily
on the accrual basis. Premiums and original issue discounts are amortized
over the life of the respective securities. Market discounts are not amortized.
Any ordinary income related to market discounts is recognized upon disposition
of the bonds. The Funds concentrate their investments in California municipal
securities and therefore may be exposed to more credit risk than portfolios
with a broader geographical diversification.
D. Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the financial
statements.
(2) Lines of Credit
The Funds participate with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank ($100 million committed). The
purpose of the agreements is to meet temporary or emergency cash needs,
including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under these agreements,
each Fund may borrow up to a maximum of 15% of its total assets, of which only
5% may be borrowed from CAPCO, at the lending institution's borrowing rate
plus a markup. The Funds had no borrowings under either of these agreements
during the six-month period ended September 30, 1996.
(3) Distributions
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. All net investment income available for distribution was
distributed at September 30, 1996.
Distributions of realized gains from security transactions not offset by
capital losses are made in the succeeding fiscal year or as otherwise required
to avoid the payment of federal taxes. At September 30, 1996, the California
Bond Fund had capital loss carryovers for federal income tax purposes of
approximately $6,977,000 which, if not offset by subsequent capital gains
will expire in 2003. It is unlikely that the Board of Directors of the Company
will authorize a distribution of capital gains realized in the future until
the capital loss carryovers have been utilized or expire.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the six-month period ended September 30, 1996 for the California Bond Fund
were $63,388,409 and $46,498,395, respectively. Purchases and sales/maturities
of securities for the six-month period ended September 30, 1996 for the
California Money Market Fund were $667,089,018 and $638,630,900, respectively.
Gross unrealized appreciation and depreciation of investments at September 30,
1996 for the California Bond Fund was $23,443,397 and $202,838, respectively.
(5) Transactions with Manager
A. Management fees - The investment policies of the Funds and the management
of the Funds' portfolios is carried out by USAA Investment Management Company
(the Manager). Management fees are computed as a percentage of aggregate
average net assets (ANA) of both Funds combined, which on an annual basis is
equal to .50% of the first $50,000,000, .40% of that portion over $50,000,000
but not over $100,000,000, and .30% of that portion over $100,000,000. These
fees are allocated on a proportional basis to each Fund monthly based upon
ANA.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides transfer
agent services to the Company. Shareholder accounting service fees are based
on an annual charge per shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Company has an agreement with the Manager for
exclusive underwriting and distribution of the Funds' shares on a continuing
best efforts basis. The agreement provides that the Manager will receive no
fee or other remuneration for such services.
Notes to Financial Statements (continued)
California Bond Fund
September 30, 1996
(Unaudited)
(6) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
-----------------------
1996 1996 1995 1994 1993 1992
---- ----- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.43 $ 10.10 $ 10.03 $ 10.75 $ 10.25 $ 9.98
Net investment income .30 .60 .59 .59 .62 .66
Net realized and
unrealized gain (loss) .14 .33 .07 (.52) .62 .27
Distributions from net
investment income (.30) (.60) (.59) (.59) (.62) (.66)
Distributions of realized
capital gains - - - (.20) (.12) -
------- -------- ------- --------- ---------- ---------
Net asset value at
end of period $ 10.57 $ 10.43 $ 10.10 $ 10.03 $ 10.75 $ 10.25
===== ====== ======= ======== ======== ========
Total return (%) * 4.33 9.35 6.89 .31 12.56 9.52
Net assets at end
of period ($000) $430,639 $409,180 $372,877 $382,766 $386,933 $305,834
Ratio of expenses to
average net assets (%) .42(a) .42 .44 .44 .46 .48
Ratio of net investment
income to average
net assets (%) 5.82(a) 5.74 5.98 5.40 5.94 6.44
Portfolio turnover (%) 11.37 23.09 28.86 102.85 86.53 50.61
(a) Annualized. The ratio is not necessarily indicative of 12 months of operations.
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
</TABLE>
Notes to Financial Statements (continued)
California Money Market Fund
September 30, 1996
(Unaudited)
(6) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
--------------- ----------------------
1996 1996 1995 1994 1993 1992
------ ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .02 .04 .03 .02 .03 .04
Distributions from net
investment income (.02) (.04) (.03) (.02) (.03) (.04)
--------- -------- -------- --------- -------- -------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========= ========= ======
Total return (%) * 1.62 3.58 2.94 2.22 2.66 4.03
Net assets at end
of period ($000) $314,719 $ 296,349 $ 266,764 $ 247,303 $ 219,097 $229,328
Ratio of expenses to
average net assets (%) .46(a) .47 .47 .49 .50 .50
Ratio of net investment
income to average
net assets (%) 3.21 (a) 3.52 2.91 2.19 2.63 3.94
(a) Annualized. The ratio is not necessarily indicative of 12 months of operations.
* Assumes reinvestment of all dividend income distributions during the period.
</TABLE>
