Mosaic Tax-Free Trust
Annual Report
September 30, 1997
<PAGE>
Mosaic Tax-Free Trust
Management's Discussion of Fund Performance
September 30, 1997
Dear Shareholder,
The annual period ended September 30, 1997 was marked by an economy that
continued to produce strong growth with very low inflation. Consumer
confidence remained at or above record levels while the unemployment
rate was at its lowest level in decades (below 5%). At the same time,
the consumer and producer price indices remained well behaved, averaging
a scant annualized rate of 2.3% and .06% respectively over the last 12
months.
The "steady growth without inflation" theme was just the recipe for
lower interest rates during the period. The 30-year generic municipal
bond yield fell .30% from 5.55% on September 30, 1996 to 5.25% on
September 30, 1997. The 2-year generic municipal bond yield had a .10%
decline from 4% at the end of September 1996 to 3.9% at the end of the
period. Overall, longer municipals outperformed shorter bonds as
investors sought higher yields. The municipal bond market posted a
6.31% total return for the 12-month period as measured by the Lehman
Brothers Municipal Bond Index.
Concerns over Public Utilities
Municipal market investors are keeping a close eye on the electric
utility segment of the market. For some time now legislators and
privately owned utilities have been pushing for deregulation that would
open the door to direct competition for industrial and retail
electricity customers. In this case, the low cost producer of
electricity in a given market would attract customers away from costlier
producers. Publicly owned (municipal bond financed) utilities that wish
to enter this market face the risk of having their outstanding debt
deemed taxable by the Internal Revenue Service. Under current "private
use" laws, public utilities are restricted as to how much power they can
sell to private parties. If that threshold is violated, the municipal
issuer risks losing the tax exempt status of their outstanding debt.
This has the potential of impacting up to $100 billion in outstanding
debt.
Another issue that will need to be addressed during the deregulation
talks is what to do with the so called "stranded costs" that municipal
utilities have incurred over the years. Basically, stranded costs refer
to large, bond-financed capital expenditures in physical plants made by
publicly owned utilities. These costs were incurred at a time when
utilities operated under the auspices of a regulated monopoly. It is
important to note that credit ratings in this sector have not suffered a
rash of downgrades nor have yield spreads widened out significantly
versus other sectors. Legislators are under pressure from market
participants to resolve these issues in a way that protects bondholders.
Portfolio Strategy
Our response to this environment was to emphasize bond structure and
credit quality. We have purchased bonds that will allow the Tax-Free
Trust's Funds to participate in bull markets (falling interest rates)
through price appreciation while still generating attractive levels of
tax-free income. We also shortened the duration of the portfolios
during the period when we felt that the lower yields offered in the
market did not have promising risk/reward characteristics. We continue
to believe credit spreads are tight and therefore prefer to buy or
"swap" into higher quality bonds.
National Fund
The National Fund had a total return of 7.70% for the annual period and
the 30-day SEC yield was 3.53%. The duration of the portfolio was 7.27
years while the average credit quality was maintained at AA. Two
interesting purchases that were made include non-callable University of
Massachusetts Building revenue bonds due in 2008 with a 6.625% coupon,
and Hanover County Virginia Industrial revenue bonds due in 2010 with a
6% coupon and also non-callable. Both bonds highlight our desire to
maintain high levels of income while emphasizing bond structure. The
United States and its territories issued $154 billion in municipal bonds
through the end of September which represents a 17% increase in volume
over the same period last year.
Arizona Fund
Arizona continues to enjoy a strong, well diversified service and
tourism based economy. The State does not have a credit rating because
it does not issue general obligation bonds. The Fund had a total return
of 7.67% for the 12-month period and the 30-day SEC yield was 3.83%.
The duration of the portfolio was 6.69 years while the average credit
quality remained at AA. Purchases during the period included Maricopa
County School District, Scottsdale Preservation Authority Excise Tax,
and Tempe Unified High School District. Arizona ranked 18th in the
country in terms of issuance on a year-to-date basis. Arizona issued
$2.25 billion in municipal bonds through the end of September.
Missouri Fund
Missouri has a broad-based and diversified economy that is service-
sector oriented. The State's general obligation bonds are rated AAA.
The Fund had a total return of 7.72% for the 12-month period and the 30-
day SEC yield was 3.73%. The duration of the portfolio was 6.73 years
while the average credit quality was maintained at AA. Purchases during
the period included Riverview Gardens School District, St. Louis
Parking Revenue, and Kansas City Municipal Assistance Corporation.
Missouri ranked 21st in the country in terms of issuance on a year-to-
date basis. Missouri issued nearly $2 billion in municipal bonds
through the end of September.
Maryland Fund
Maryland's economy is diversified among services, light manufacturing,
and the federal government. The State's general obligation bonds are
rated AAA. The Fund had a total return of 7.42% for the annual period
and the 30-day SEC yield was 3.99%. The duration of the portfolio was
6.81 years while the average credit quality continues to be AA.
Purchases during the period included Maryland State, Washington Suburban
Sanitation District, and Maryland Health and Education Authority for
Loyola College. Maryland ranked 22nd in the country in terms of
issuance on a year-to-date basis. Maryland issued $1.9 billion in
municipal bonds through the end of September.
Virginia Fund
The Commonwealth of Virginia maintains a AAA general obligation bond
rating based on a well-diversified economy that emphasizes services and
government. The Fund had a total return of 7.95% for the annual period
and the 30-day SEC yield was 4.03%. The duration of the portfolio was
6.99 years while the average credit quality was maintained at AA.
Purchases during the period included Augusta Water and Sewer Authority,
Virginia Port Authority, and Lynchburg Industrial Development Authority
for the Randolph-Macon Woman's College. Virginia ranked 15th in the
country in terms of issuance on a year-to-date basis. Virginia issued
$2.6 billion in municipal bonds through the end of September.
We appreciate your confidence in Mosaic Funds and reaffirm our
commitment to provide you with competitive returns to meet your
investment objectives.
Sincerely,
(signature)
Michael J. Peters, CFA
Vice President
Comparison of Changes in the Value of a $10,000 Investment
and the Lehman Municipal Bond Index
Depicted herein are graphic comparisons of the changes in the value of a
$10,000 investment in each respective fund with a hypothetical
investment in the Lehman Municipal Bond Index.
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Lehman National Lehman VA Lehman AZ Lehman MO Lehman MD
1997 "23,174" "19,418" "23,094" "19,815" "18,649" "16,409" "18,649" "16,262" "13,246" "12,156"
1996 "21,257" "18,030" "21,184" "18,356" "17,106" "15,240" "17,106" "15,097" "12,151" "11,317"
1995 "20,046" "17,143" "19,977" "17,399" "16,132" "14,535" "16,132" "14,345" "11,458" "10,886"
1994 "18,029" "15,815" "17,967" "15,884" "14,508" "13,341" "14,508" "13,176" "10,305" "9,971"
1993 "18,480" "16,869" "18,416" "16,838" "14,871" "14,223" "14,871" "13,988" "10,563" "10,645"
1992 "16,392" "15,003" "16,335" "14,921" "13,191" "12,635" "13,191" "12,491" "10,000" "10,000"
1991 "14,839" "13,537" "14,788" "13,699" "11,942" "11,513" "11,942" "11,453"
1990 "13,111" "12,251" "13,066" "12,379" "10,551" "10,362" "10,551" "10,337"
1989 "12,276" "11,737" "12,234" "11,759" "10,000" "10,000" "10,000" "10,000"
1988 "11,297" "11,131" "11,258" "11,134"
1987 "10,000" "10,000" "10,000" "10,000"
</TABLE>
Notes to tabular presentation of graphic representations:
Data for Virginia starts 10/31/97
Data for Arizona and Missouri starts 10/31/89
Data for Maryland starts 2/28/93
The following average annual total returns are presented within each
graph:
1 Year 5 Year 10 Year Since Inception
Arizona Portfolio 7.67% 5.37% 6.34% October 13, 1989
Maryland Portfolio 7.42% 4.47% February 10, 1993
Missouri Portfolio 7.72% 5.42% 6.21% October 12, 1989
Virginia Portfolio 7.95% 5.84% 7.72% October 13, 1987
National Portfolio 7.70% 5.29% 6.86%
Past performance is not predictive of future performance.
Figures as of September 30, 1997, unless otherwise noted.
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of Mosaic Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of
the Arizona, Maryland, Missouri, Virginia, National, and Money Market
Funds (the "Funds"), including the statements of net assets, of the
Mosaic Tax-Free Trust, formerly the GIT Tax-Free Trust, as of September
30, 1997, and the related statements of operations and changes in net
assets and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
The financial statements of GIT Tax-Free Trust for the year ended
September 30, 1996 and the financial highlights for each of the years in
the four year period then ended were audited by other auditors whose
report, dated November 7, 1996, expressed an unqualified opinion on
those financial statements and financial highlights.
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 at September 30, 1997, by
correspondence with the custodian and 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, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Funds as of September 30, 1997, the results of their operations, the
changes in their net assets, and their financial highlights for the year
then ended in conformity with generally accepted accounting principles.
(signature)
Deloitte & Touche LLP
Princeton, New Jersey
November 21, 1997
<PAGE>
Arizona Fund
Statement of Net Assets -- September 30, 1997
<TABLE>
<C> <C> <C> <C> <C>
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 96.80% of Net Assets
AIRPORT: 5.9%
Aaa AAA Tucson Airport Authority, Airport Revenue (MBIA Insured), 5.7%, 6/1/13 500,000 515,000
EDUCATION: 4.9%
A nr Arizona Educational Loan Marketing Corporation, Student Loan Revenue
(AMT), 7%, 3/1/03 400,000 434,000
GENERAL OBLIGATION: 45.7%
Aaa AAA Chandler (FGIC Insured), 7%, 7/1/12 300,000 329,250
Aaa AAA Maricopa County School District (FGIC Insured), 6.25%, 7/1/11 500,000 566,250
Aaa AAA Maricopa County School District (FGIC Insured), 6.7%, 7/1/11 300,000 323,250
Aaa AAA Mohave County Elementary School District (MBIA Insured), 5.375%, 7/01/13 425,000 435,094
Aaa AAA Tempe High School District #213 (MBIA Insured). 4.7%, 7/1/08 400,000 400,500
Aaa AAA Maricopa County School District #14 (FGIC Insured), 5.30%, 7/1/09 300,000 313.500
A1 A+ Maricopa County School District #6, 4.875%, 7/1/10 400,000 393,500
Aa3 AA Maricopa County School District #210, 5.375%, 7/1/13 400,000 407,000
A1 AA Tucson, 5.6%, 7/1/16 400,000 410,000
AA+ Aa1 Phoenix, 5.0%, 7/1/19 430,000 416,025
HOSPITAL: 5.6%
Aaa AAA Arizona Health Facilities Authority, Hospital Revenue (Samaritan Health
Services) (MBIA Insured), 6.25%, 12/1/06 250,000 268,125
Aaa AAA Arizona Health Facilities Authority, Hospital Revenue (Phoenix Baptist
Hospital) (MBIA Insured), 6.25%, 9/1/11 200,000 218,000
HOUSING: 6.0%
nr AAA Phoenix Industrial Development Authority, Mortgage Revenue (Chris Ridge)
(FHA), 6.75%, 11/1/12 500,000 528,125
INDUSTRIAL DEVELOPMENT: 3.7%
nr AA+ Mohave County Industrial Development Authority, Industrial Development
Revenue (Citizens Utilities), 7.05%, 8/1/20 300,000 322,125
REVENUE: 4.9%
Aaa AAA Scottsdale Presv Authority Excise Tax (FGIC Insured), 5.625%, 7/1/22 425,000 432,438
TRANSPORTATION: 17.0%
Aa AA Arizona State Transportation Board, Highway Revenue, 6%, 7/1/08 400,000 445,000
Aaa AAA Flagstaff, Street And Highway User Revenue (FGIC Insured), 5.9%, 7/1/10 500,000 552,500
Baa1 A Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue, 6.375%, 7/1/08 450,000 483,750
WATER AND SEWER: 3.1%
Aaa AAA Chandler, Water and Sewer Revenue (FGIC Insured), 6.75%, 7/1/06 250,000 272,187
TOTAL INVESTMENTS (Cost $8,005,642)+ $8,465,619
CASH, RECEIVABLES LESS LIABILITIES: 3.2% of Net Assets 280,172
TOTAL NET ASSETS: Equivalent to offering and redemption price
$10.45 per share on 837,062 shares. $8,745,791
</TABLE>
See Notes to Statement of Net Assets.
Maryland Fund
Statement of Net Assets - September 30, 1997
<TABLE>
<C> <C> <C> <C> <C>
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 94.0% of Net Assets
EDUCATION: 14.7%
Aa1 AA- Maryland State Health and Higher Educational Facilities Authority, University
Revenue (Johns Hopkins University) 7.5%, 7/1/20 100,000 104,225
Aaa AAA Saint Mary's College, University Revenue (MBIA Insured), 5.55%, 9/1/23 100,000 102,625
Aaa AAA Maryland State Health and Higher Educational Facilities Authority,
(Loyola College) (MBIA Insured), 5.375%, 10/1/26 100.000 100,750
ELECTRIC: 5.0%
Baa1 A- Puerto Rico Electric Power Authority, Power Revenue, 6%, 7/1/14 100,000 105,500
GENERAL OBLIGATION: 16.2%
Aa AA+ Anne Arundel County (AMT), 5.5%, 9/1/16 100,000 102,250
Aaa AAA Baltimore (AMBAC Insured), 6%, 10/15/04 100,000 109,750
Aa AA- Harford County, 5.75%, 9/1/08 25,000 26,469
Aaa AAA Prince George County, 5.375%, 3/15/16 100,000 101,375
HOSPITAL: 4.8%
Baa nr Prince George's County Hospital, Hospital Revenue (Greater Southeast
Healthcare System), 6.2%, 1/1/08 100,000 101,375
HOUSING: 5.0%
Aa nr Maryland State Community Development Administration, Single-Family
Housing Revenue (AMT), 6.2%, 4/1/17 100,000 105,250
LEASING: 11.4%
Aa AA- Maryland State Stadium Authority, Sports Facilities Lease Revenue (AMT),
7.5%, 12/15/10 125,000 135,625
nr AA Montgomery County, Lease Revenue (Human Services Headquaters Project),
5.6%, 8/1/14 100,000 103,250
POLLUTION CONTROL: 11.4%
A2 A Anne Arundel County, Pollution Control Revenue (Baltimore Gas and Electric
Company), 6%, 4/1/24 100,000 104,500
A1 A Prince George's County, Pollution Control Revenue (Potomac Electric),
6.375%,1/15/23 125,000 133,906
PUBLIC FACILITIES: 5.1%
Aa AA- Howard County, Recreational Revenue, 5.95%, 2/15/10 100,000 106,750
TRANSPORTATION: 10.8%
Aa3 AA- Baltimore, Port Facilities Revenue (Consolidated Coal Sales), 6.5%,
10/1/11 100,000 109,375
#Aaa AAA Maryland State Transportation Authority, Transportation Revenue
(escrowed to maturity), 6.8%, 7/1/16 100,000 116,875
WASTE: 9.6%
Aa1 AA Washington Suburban Sanitation District of Maryland, 5.25%, 6/1/13 95,000 96,544
A nr Northeast Maryland Waste Disposal Authority, Waste Revenue (Montgomery
County)(AMT), 6.3%, 7/1/16 100,000 105,375
TOTAL INVESTMENTS (Cost $1,886,956)+ $1,971,769
CASH, RECEIVABLES LESS LIABILITIES: 6% of Net Assets 126,314
TOTAL NET ASSETS: Equivalent to offering and redemption price
$10.00 per share on 209,859 shares. $2,098,083
</TABLE>
See Notes to Statement of Net Assets.
Missouri Fund
Statement of Net Assets - September 30, 1997
<TABLE>
<C> <C> <C> <C> <C>
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 95.1% of Net Assets
AIRPORT: 4.6%
Aaa AAA St. Louis, Airport Revenue, Lambert-St. Louis International (FGIC
Insured) (AMT), 6.125%, 7/1/12 500,000 $531,875
EDUCATION: 8.4%
A nr Missouri Higher Education Loan Authority, Student Loan Revenue Sub Lien (AMT),
5.9%, 2/15/08 500,000 514,375
Aaa AAA Missouri State Health & Educational Facilities Authority, University
Revenue, (St. Louis University) (AMBAC Insured) 6.5%, 8/1/16 150,000 162,375
Aaa AAA Missouri State Health & Educational Facilities Authority
St. Louis University (AMBAC Insured), 5.125%, 10/1/16 300,000 294,375
ELECTRIC: 9.9%
nr AAA Puerto Rico Electric Power Authority, Power Revenue, 8%, 7/1/08 175,000 183,998
Aaa AAA Sikeston, Electric Revenue (MBIA Insured), 6%, 6/1/14 400,000 441,000
nr A University Development Foundation, Lease Revenue (Missouri Power),
5.75%, 5/1/13 500,000 514,375
GENERAL OBLIGATION: 20.8%
Aa nr Jefferson City School District, 6.7%, 3/1/11 200,000 236,000
Aaa AAA Missouri State, Correctional Facilities Improvements, 5.5%, 4/1/20 500,000 512,500
Aaa AAA Missouri State (Fourth State Building), 5.75%, 8/1/19 400,000 416,000
nr AA North Kansas City School District, 5.25%, 3/1/12 450,000 459,562
Aaa AAA St. Charles County, Francis Howell School District (FGIC Insured),
6.5%, 3/1/05 250,000 269,063
Aaa AAA St. Louis County, General Obligation, 5.20%, 2/1/12 500,000 509,375
HOSPITAL: 16.7%
A3 nr Boone County Hospital Revenue, 7.10%, 8/1/99 450,000 471,938
Aaa AAA Missouri State Health and Educational Facilities Authority, Health
Facilities Revenue (SSM Health Care) (MBIA Insured), 6.25%, 6/1/16 250,000 270,000
Aaa AAA Missouri State Health and Educational Facilities Authority, Health
Facilities Revenue (Heartland Health System) (AMBAC Insured), 6.35%,
11/15/17 500,000 544,375
nr nr Missouri State Health and Educational Facilities Authority, Health
Facilities Revenue, 7.625%, 7/1/18 95,000 103,906
Aaa AAA Missouri State Health and Educational Facilities Authority, Health
Facilities Revenue (Health Midwest) (MBIA Insured), 6.25%, 2/15/22 500,000 536,250
HOUSING: 6.9%
nr AAA Missouri State Housing Development Commission, Single-Family Mortgage
Revenue (GNMA Collaterized) (FHA) (AMT), 7.75%, 6/1/22 70,000 74,113
nr AAA Missouri State Housing Development Commission, Single-Family Mortgage
Revenue (GNMA Collaterized) (FHA) (AMT), 7.375%, 8/1/23 190,000 203,063
nr AAA St. Louis County, Mortgage Revenue (Certificates of Receipt) (AMT),
5.65%, 2/1/20 500,000 519,375
LEASING AND OTHER FACILITIES: 22.3%
AAA AAA Kansas City Assistance Corp (AMBAC Insured), 5.20%, 1/15/06 400,000 418,000
Aa AA Missouri State Board of Public Buildings, Lease Revenue (State Office
Building), 6.4%, 12/1/08 300,000 320,625
A1 A+ Missouri State Regional Convention and Sports Complex Authority, 5.5%,
8/15/13 250,000 254,062
A BBB+ St. Louis County Regional Convention & Sports Complex, 5.50%, 8/15/13 300,000 298,125
A1 A+ Missouri State Regional Convention & Sports Complex, 5.60%, 8/15/17 250,000 253,125
#Aaa AAA Kansas City Municipal Assistance Corporation, Lease Revenue (H. Roe
Bartle)(AMBAC Insured) (prerefunded 4/15/01 e100), 6%, 4/15/20 500,000 530,625
Aaa AAA St. Louis Parking Facilities Revenue (MBIA Insured), 5.375%, 12/15/21 500,000 501,250
REVENUE: 2.0%
St. Louis Industrial Development Pollution Control (Anheuser-Busch Co., Inc.),
6.65%, 5/1/16 200,000 233,000
TRANSPORTATION: 3.5%
Baa1 A Puerto Rico Highway & Transportation Authority, 4.90%, 7/1/01 400,000 407,084
TOTAL INVESTMENTS (Cost $10,469,142)+ $10,983,789
CASH, RECEIVABLES, LESS LIABILITIES: 4.9% of Net Assets 569,687
TOTAL NET ASSETS: Equivalent to offering and redemption price
$10.53 per share on 1,097,126 shares. $11,553,476
</TABLE>
See Notes to Statement of Net Assets.
Virginia Fund
Statement of Net Assets - September 30, 1997
<TABLE>
<C> <C> <C> <C> <C>
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 97.4% of Net Assets
AIRPORT: 4.9%
Aaa AAA Capital Regional Airport Commission, Airport Revenue (AMBAC Insured),
5.625%, 7/1/15 $ 500,000 $510,000
Aaa AAA Metropolitan Washington D.C. Airports Authority, Airport Revenue
(MBIA Insured) (AMT), 6.625%, 10/1/12 500,000 550,000
Aaa AAA Metropolitan Washington D.C. Airports Authority, Airport Revenue
(FGIC Insured) (AMT), 7%, 10/1/18 500,000 543,750
EDUCATION: 17.7%
Aaa AAA Virginia State Public School Henrico County, 5.10%, 7/15/99 1,060,000 1,081,200
A1 nr Loudoun County Industrial Development Authority, Facilities Revenue
(George Washington University), 6.25%, 5/15/22 500,000 530,625
nr A- Lynchburg Industrial Development Authority, Educational Facility for
Randolph-Macon Women's College, 5.875%, 9/1/13 500,000 520,000
nr BBB- Virginia College Building Authority, Facilities Revenue (Marymount
University), 7%, 7/1/22 350,000 381,063
Aa2 AA Virginia College Building Authority, Facilities Revenue (Washington and Lee
University), 5.75%, 1/1/14 555,000 571,650
Aa AA Virginia State Public School Authority, Revenue, 6.25%, 8/1/10 500,000 538,750
Aa AA Virginia State Public School Authority, Revenue, 6.2%, 8/1/13 500,000 541,250
Aa AA Virginia State Public School Authority, Revenue, 6.5%, 8/1/15 500,000 550,625
Aa AA Virginia State Public School Authority, Special Obligation (York County),
5.9%, 7/15/13 500,000 526,250
A1 AA- Virginia State Universities, University Revenue (Virginia Commonwealth
University), 5.75%, 5/1/15 500,000 517,500
ELECTRICAL: 3.1%
Aaa AAA Halifax County Industrial Development Authority, Power Revenue (Old Dominion
Electric) (MBIA Insured) (AMT), 6%, 12/1/22 1,000,000 1,027,500
GENERAL OBLIGATION: 23.0%
Aaa AAA Arlington County, 6%, 8/1/12 1,000,000 1,073,750
Aaa AAA Fairfax County, 5.625%, 6/1/13 500,000 516,875
Aaa AAA Franklin County (FGIC Insured), 6.5%, 7/15/12 300,000 321,000
Aa AA- Hampton, 6%, 1/15/08 500,000 545,625
A A Henry County, 6%, 7/15/14 500,000 528,125
Aaa AAA James City County (FGIC Insured), 6.40%, 12/15/99 1,130,000 1,187,913
Aaa AAA Leesburg (AMBAC Insured), 5.6%, 6/1/15 500,000 518,750
Aaa AAA Norfolk (MBIA Insured), 5.75%, 6/1/13 500,000 522,500
Aa AA Winchester, 5.5%, 1/15/14 1,000,000 1,016,250
Aaa AAA Virginia State, 5.125%, 6/1/21 1,250,000 1,256,250
HOSPITAL: 8.9%
Aaa AAA Hanover County Industrial Development Authority, Bon Secours Health System
(MBIA Insured), 6.0%, 8/15/10 640,000 712,000
Aaa AAA Danville Industrial Development Authority, Hospital Revenue (Danville Regional
Medical Center) (FGIC Insured), 6.375%, 10/1/14 500,000 545,625
Aa2 AA Norfolk Industrial Development Authority, Hospital Revenue (Sentara Hospital),
6.5%, 11/1/13 1,000,000 1,095,000
Aaa AAA Roanoke Industrial Development Authority, Hospital Revenue (Roanoke Memorial
Hospitals) (MBIA Insured), 6.125%, 7/1/17 500,000 552,500
Aa2 AA Fairfax County Industrial Development Authority (Inova Health System),
5.25%, 8/15/19 1,000,000 995,000
HOUSING: 3.2%
Aa1 AA+ Virginia State Housing Development Authority, Mortgage Revenue (AMT), 6.95%,
1/1/10 1,000,000 1,050,000
INDUSTRIAL DEVELOPMENT: 5.0%
Baa3 BBB- Peninsula Ports Authority, Coal Terminal Revenue, 7.375%, 6/1/20 1,000,000 1,097,500
A1 A Puerto Rico, Industrial Revenue (Pepsico, Inc.), 6.25%, 11/15/13 500,000 545,000
LEASING AND OTHER FACILITIES: 6.2%
nr BBB Fairfax County Park Authority, Facilities Revenue, 6.625%, 7/15/14 500,000 531,875
Aa AA Fairfax County Economic Development Authority, Lease Revenue, 5.5%,
5/15/18 500,000 503,125
TRANSPORTATION: 9.0%
Aaa AAA Virginia Port Authority (MBIA Insured) (AMT), 6.0%, 7/1/05 685,000 744,937
Aaa AAA Richmond Metropolitan Authority, Expressway Revenue (FGIC Insured),
6.375%, 7/15/16 1,000,000 1,068,750
Aaa AAA Washington D.C. Metropolitan Area Transportation Authority, Transit Revenue
(FGIC Insured), 6%, 7/1/07 1,000,000 1,110,000
WASTE: 4.1%
A1 A+ Fairfax County Economic Development Authority, Revenue (Ogden Martin Systems)
(AMT), 7.75%, 2/1/11 $ 500,000 535,000
Aaa AAA Loudoun County Sanitation Authority, Water and Sewer Revenue
(FGIC Insured), 6.25%, 1/1/16 500,000 536,875
Baa3 BBB West Point Industrial Development Authority, Waste Revenue (Chesapeake
Corporation), 6.25%, 3/1/19 250,000 265,625
WATER: 12.3%
Aaa AAA Norfolk, Water Revenue (MBIA Insured), 5.75%, 11/1/12 500,000 523,125
Aa3 AA Chesapeake Water & Sewer, 5.375%, 12/1/14 1,000,000 1,021,250
Aaa AAA Frederick-Winchester Service Authority, Sewer Revenue (AMBAC Insured),
5.75%, 10/1/15 1,000,000 1,025,000
Aaa AAA Augusta County Service Authority Water & Sewer (MBIA Insured), 5.0%,
11/1/24 1,500,000 1,430,625
LONG-TERM MUNICIPAL BONDS (Cost $30,005,678)+ $31,766,013
CASH, RECEIVABLES LESS LIABILITIES: 2.6% of Net Assets 847,663
TOTAL NET ASSETS: Equivalent to offering and redemption price
$11.56 per share on 2,820,392 shares. $32,613,676
</TABLE>
See Notes to Statement of Net Assets.
National Fund
Statement of Net Assets - September 30, 1997
<TABLE>
<C> <C> <C> <C> <C>
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 95.8% of Net Assets
ARIZONA: 4.2%
Aa AA Arizona State Transportation Board, Highway Revenue, 6%, 7/1/08 1,000,000 1,112,500
GEORGIA: 3.9%
Aaa AAA Georgia Municipal Electric Authority, Electric Revenue (MBIA Insured),
5.5%, 1/01/12 1,000,000 1,048,750
ILLINOIS: 1.4%
Aaa AAA Regional Transportation Authority, Transit Revenue (AMBAC Insured),
7.2%, 11/1/20 300,000 373,500
IOWA: 4.1%
Aaa AAA Mason City, Hospital Revenue (Sisters of Mercy) (FSA Insured),
7%, 8/15/14 1,000,000 1,100,000
KANSAS: 2.1%
Aa AA Kansas State Department of Transportation, Highway Revenue, 6.125%,9/1/09 500,000 567,500
KENTUCKY: 2.0%
A1 NR Lexington-Fayette Urban County, 4.30%, 6/1/01 535,000 534,074
MAINE: 2.0%
Aaa AAA Maine State Turnpike Authority, Highway Revenue (MBIA Insured),6%, 7/1/18 500,000 528,125
MASSACHUSETTS: 8.8%
A1 A+ University of Massachusetts Building Referendum, 6.625%, 5/1/08 1,000,000 1,157,500
A1 A+ Massachusetts Bay Transportation Authority, Transit Revenue, 7%, 3/1/14 1,000,000 1,203,750
MICHIGAN: 2.8%
Aa1 AA+ Michigan Muni Bond Authority, 5.40%, 10/1/00 725,000 751,281
MINNESOTA: 2.0%
Aa AA+ Minnesota State Housing Finance Agency, Housing Revenue (Single-Family Mortgage)
(AMT), 6.25%, 7/1/26 500,000 521,875
MISSISSIPPI: 5.0%
Aaa AAA Harrison County Wastewater Management District, Sewer Revenue (Wastewater
Treatment Facilities) (FGIC Insured) 8.5%, 2/1/13 500,000 686,875
Aaa AAA Harrison County Wastewater Management District, Sewer Revenue (Wastewater
Treatment Facilities) (FGIC Insured) 7.75%, 2/1/14 500,000 650,000
MISSOURI: 0.7%
Aaa AAA Missouri State Health & Educational Facilities, St. Louis (AMBAC Insured),
5.125%, 10/1/16 200,000 196,250
NEW YORK: 3.9%
#Aaa AAA Triborough Bridge & Tunnel (prerefunded 1/1/00 e100), 6.0%, 1/1/20 1,000,000 1,042,500
PENNSYLVANIA: 8.5%
Aaa AAA Lehigh County, Hospital Revenue (Lehigh Valley Hospital) (MBIA Insured),
7%, 7/1/16 1,000,000 1,190,000
Aaa AAA Pennsylvania State Industrial Development Authority, Economic Development
Revenue (AMBAC Insured), 6%, 1/1/12 1,000,000 1,067,500
RHODE ISLAND: 2.0%
Aa1 AA Rhode Island State Health and Higher Educational Facilities, University Revenue
(Brown University), 6.75%, 9/1/16 500,000 528,125
SOUTH CAROLINA: 4.3%
#Aaa AAA Piedmont Municipal Power Agency Electric Revenue (FGIC Insured)
(escrowed to maturity), 6.5%, 1/01/16 145,000 170,738
Aaa AAA Piedmont Municipal Power Agency Electric Revenue (FGIC Insured), 6.5%,
1/01/16 855,000 977,906
TEXAS: 12.9%
Aa AA Harris County, General Obligtion, 6.5%, 8/15/15 1,000,000 1,093,750
Aaa AAA Texas Public Building Authority, Building Revenue (MBIA Insured),
7.125%, 8/1/11 1,000,000 1,193,750
Aaa AAA United Independent School District, General Obligation (PSFG guarantee),
7%, 8/15/05 1,000,000 1,165,000
VIRGINIA: 15.4%
#Aaa nr Charlottesville Industrial Development Authority (prerefunded 10/1/00 e102),
7.375%, 10/1/20 1,000,000 1,110,000
Aa2 AA Fairfax County Industrial Development Authority (MBIA Insured),
Revenue (Inova Health System), 5.25%, 8/15/19 1,000,000 995,000
Aaa AAA Hanover County Industrial Development Authority, 6.0%, 8/15/10 500,000 556,250
Aa AA+ Virginia State Housing Development Authority, Multifamily Housing Revenue,
6.65%, 11/1/13 400,000 433,500
Aaa AAA Virginia Beach Development Authority, Hospital Revenue (General Hospital) (AMBAC
Insured), 5%, 2/15/06 1,000,000 1,030,000
WASHINGTON: 7.8%
Aa1 AA+ King County, General Obligation, 5.25%, 1/01/14 $1,000,000 1,011,250
A1 AA- Port Seattle, Revenue (AMBAC Insured) (AMT), 7.6%, 12/1/09 500,000 556,250
Aa1 AA- Washington State Public Power Supply, Electric Revenue (System Nuclear
Project Number 2), 4.9%, 7/01/05 500,000 508,125
WYOMING: 2.0%
Aaa AAA Wyoming Municipal Power Agency Authority, Electric Revenue (MBIA Insured),
6.125%, 1/1/16 500,000 528,750
TOTAL LONG-TERM MUNICIPAL BONDS (Cost $24,282,129)+ $25,590,374
CASH, RECEIVABLES LESS LIABILITIES: 4.2% of Net Assets 1,107,988
TOTAL NET ASSETS: Equivalent to offering and redemption price
$10.62 per share on 2,513,136 shares. $26,698,362
</TABLE>
See Notes to Statement of Net Assets.
Money Market
Statement of Net Assets - September 30, 1997
<TABLE>
<C> <C> <C> <C> <C>
Credit Rating* Principal
Moody's S&P Amount Value
SHORT-TERM MUNICIPAL SECURITIES: 100.9% of Net Assets
CALIFORNIA: 4.4%
MIGI Spl+ West Contra Costa California UNI School District, 4.25%, 6/30/98 300,000 300,921
FLORIDA: 2.9%
VMIGI nr Atlantic Beach, Hospital Revenue (Fleet Landing) (LOC - Barnett Bank),
3.95%, 10/1/24^ 200,000 200,000
GEORGIA: 4.4%
VMIGI A1 Burke County Development Authority Pollution Control (Georgia Power),
3.85%, 7/1/24^ 300,000 300,000
ILLINOIS: 2.9%
nr A1+ Illinois Development Finance Authority (Field Container Corp.)
(LOC-American National Bank), 4.20%, 12/1/99^ 200,000 200,000
KENTUCKY: 4.4%
P1 nr Ashland Pollution Control (Ashland Oil Inc. Project) (LOC-Swiss Bank),
3.55%, 4/1/09^ 300,000 300,000
LOUISIANA: 8.8%
VMIGI A1+ New Orleans Aviation Board, Airport Revenue (MBIA Insured)
(LOC - Credit Local de France), 4.05%, 8/1/16^ 400,000 400,000
VMIGI nr Louisiana Public Authority Hospital Revenue (Willis-Knighton) (SPA-Mellon Bank)
(AMBAC Insured), 4.10%, 9/1/23^ 200,000 200,000
MARYLAND: 2.9%
nr A1+ Maryland State Economic Development Corp. (LOC-Nations Bank N.A.),
4.10%, 6/1/20^ 200,000 200,000
MINNESOTA: 1.5%
VMIGI A1+ Minneapolis & St. Paul Housing & Redevelopment Authority (SPA-Norwest Bank)
Children's Health Care (FSA Insured) 3.90%, 8/15/25^ 100,000 100,000
MISSISSIPPI: 4.4%
P1 nr Jackson Cty Polution Control (Chevron USA Inc. Project), 3.75%, 6/1/23^ 300,000 300,000
MISSOURI: 7.7%
VMIGI nr Columbia (LOC - Toronto Dominion Bank), 4.15% , 6/1/08^ 300,000 300,000
VMIGI nr Missouri State Health & Educational Facilities, University Revenue
(LOC-Chase Manhattan), 3.90%, 8/15/21^ 230,000 230,000
NEBRASKA: 5.8%
VMIGI nr Nebraska Higher Education Loan Program, Student Loan (MBIA Insured)
(SPA-Sallie Mae), 4.05%, 12/1/15^ 400,000 400,000
NEW YORK: 5.8%
#Aaa AAA New York State Housing Finance Agency (Prerefunded in U.S. Govt. Securities),
6.60%, 11/1/97 100,000 100,218
VMIGI A1+ New York, General Obligation (LOC-Morgan Guaranty), 3.80%, 8/1/20^ 300,000 300,000
NORTH CAROLINA: 13.1%
VMIGI A1+ Greensboro North Carolina, General Obligation (LOC-Wachovia Bank), 4.15%,
4/1/07^ 300,000 300,000
VMIGI A1+ North Carolina Medical Care Commission, Hospital Revenue (SPA-Wachovia Bank),
4.05%, 6/1/22^ 300,000 300,000
VMIGI A1+ North Carolina Medical Care Commission, Hospital Revenue (MBIA Insured)
(SPA-Krediet Bank), 4.20%, 12/1/25^ 300,000 300,000
OKLAHOMA: 3.7%
Aa2 AA Oklahoma City, General Obligation, 4.85%, 8/1/98 250,000 251,942
TEXAS: 5.8%
VMIGI A1+ Port Development Corporation, Marine Terminal Revenue (STOLT Terminals)
(LOC-Credit Suisse, NY), 4.15%, 1/15/14^ 400,000 400,000
UTAH: 2.9%
VMIGI A1+ Salt Lake City, Airport Revenue (LOC-Credit Suisse, N.Y.) (AMT), 4.15%,
6/1/98^ 200,000 200,000
VIRGINIA: 1.5%
VMIGI nr Henrico County, Industrial Development Revenue (Hermitage Project)
(LOC-Nations Bank of Virginia), 3.95%, 5/1/24^ 100,000 100,000
WASHINGTON: 6.6%
nr A1+ Port Kalama, Port Facilities Revenue (Conagra) (LOC-Morgan Guaranty Trust),
3.95%, 1/1/04^ 50,000 50,000
nr A1+ Washington State Housing Finance Commission, Multifamily Mortgage Revenue
(LOC-Pacific First Federal Savings), 4.05%, 7/1/20^ 300,000 300,000
VMIGI nr Washington State Housing Finance Commission, Housing Revenue (Panorama
City Project) (LOC-Key Bank of Washington), 4.10%,1/1/27^ 100,000 100,000
WISCONSIN: 11.4%
MIGI Spl+ Pulaski Community School District, 4.70%, 3/1/98 275,000 275,949
Aa2 AA Wisconsin State, General Obligation, 5.30%, 5/1/98 250,000 252,200
Aa2 AA Rock County, Promissory Notes, 4.30%, 9/1/98 250,000 250,953
TOTAL INVESTMENTS (Cost $6,912,204)+ $6,912,183
LIABILITIES LESS CASH & RECEIVABLES: (.9%) of Net Assets (60,094)
TOTAL NET ASSETS: Equivalent to offering and redemption price
$1.00 per share on 6,851,792 shares. $6,852,089
</TABLE>
Notes to Statement of Net Assets:
+ Aggregate cost for federal income tax purposes
Arizona Maryland Missouri Virginia National Money
Fund Fund Fund Fund Fund Market
Aggregate
cost $8,005,642 $1,886,956 $10,469,142 $30,005,678 $24,282,129 $6,912,204
Gross unrealized
appreciation 459,977 84,813 515,774 1,760,335 1,315,024 241
Gross unrealized
depreciation - - - - (1,127) - - (6,779) (262)
Net unrealized
appreciation
(depreciation)459,977 84,813 514,647 1,760,335 1,308,245 (21)
^ Security has a variable coupon rate and is subject to a demand
feature before final maturity.
Coupon rate as of September 30, 1997
#Aaa Refunded Bonds
AMBAC American Municipal Bond Assurance Corporation
AMT Subject to Alternative Minimum Tax
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Administration
FSA Federal Security Assistance
GNMA Government National Mortgage Association
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
Moody's Moody's Investors Service, Inc.
nr Not rated
PSFG Permanent School Fund Guaranty
S&P Standard & Poor's Corporation
* Credit Ratings are unaudited
See Notes to Statement of Net Assets.
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
September 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National Money
Fund Fund Fund Fund Fund Market
ASSETS
Investments, at value
(Note 1) $8,465,619 $1,971,769 $10,983,789 $31,766,013 $25,590,374 $6,912,183
Cash 149,663 93,78 2 827,753 297,263 1,376,139 156,885
Receivables
Interest 139,924 32,087 158,975 525,212 337,224 34,934
Share subscription
(Note 1) 100 1,184 - - 45,353 50 69
Other assets - - - - - - 195 - - - -
Total assets 8,755,306 2,098,822 11,970,517 32,634,036 27,303,787 7,104,071
LIABILITIES
Payables
Investment
securities
purchased - - - - 412,093 - - 535,225 251,099
For fund shares
redeemed 1,434 - - - - 3,511 63,120 - -
Dividends 8,081 738 4,945 16,849 7,080 529
Other liabilities - - 1 3 - - - - 354
Total
Liabilities 9,515 739 417,041 20,360 605,425 251,982
NET ASSETS(Note 4)$8,745,791 $2,098,083 $11,553,476 $32,613,676 $26,698,362 $6,852,089
</TABLE>
The Notes to Financial Statements are an integral part of these
statements.
Statements of Operations
For the Year Ended September 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National Money
Fund Fund Fund Fund Fund Market
INVESTMENT INCOME (Note 1)
Interest income 498,645 110,307 616,292 1,833,650 1,485,543 255,036
EXPENSES (Notes 3 and 4)
Investment
advisory fee 55,147 12,517 70,293 204,610 176,540 36,259
Transfer agent and
administrative
expenses 34,234 5,944 35,598 117,503 97,440 22,206
Securities registration
and blue sky
expenses 759 789 645 226 4,410 3,788
Auditing fees 3,420 800 4,334 12,557 11,014 2,875
Trustees' fees 2,000 2,000 2,000 2,000 2,000 2,000
Printing costs 1,066 462 933 3,442 3,045 1,045
Fidelity bond 567 73 403 1,177 1,028 382
Legal fees 720 252 895 2,382 2,102 608
Expenses incurred
and paid by investment
advisor - - - - - - - - - - (8,784)
Total net expenses 97,913 22,837 115,101 343,897 297,579 60,379
NET INVESTMENT
INCOME 400,732 87,470 501,191 1,489,753 1,187,964 194,657
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain
on investments 120,555 10,664 122,415 259,497 389,761 114
Net unrealized
appreciation of
investments 131,914 46,291 209,786 756,780 500,002 125
NET GAIN ON
INVESTMENTS 252,469 56,955 332,201 1,016,277 889,763 239
TOTAL INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS $653,201 $144,425 $833,392 $2,506,030 $2,077,727 $194,896
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
Statements of Changes in Net Assets
For the Years Ended September 30, 1997 and 1996
Arizona Fund Maryland Fund Missouri Fund
1997 1996 1997 1996 1997 1996
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
Net investment
income $400,732 $413,956 $ 87,470 $107,533 $501,191 $486,004
Net realized gain
(loss) on
investments 120,555 67,565 10,664 (13,070) 122,415 60,309
Net unrealized appreciation
(depreciation) of
investments 131,914 (20,919) 46,291 2,576 209,786 41,399
Total increase in net assets
resulting from
operations 653,201 460,602 144,425 97,039 833,392 587,712
DISTRIBUTIONS TO SHAREHOLDERS
Net investment
income (400,732) (413,956) (87,470) (107,533) (501,191) (486,004)
CAPITAL SHARE
TRANSACTIONS
(Note 6) (572,609) (989,440) (813) (827,686) (159,832) (114,267)
TOTAL INCREASE (DECREASE)
IN NET ASSETS (320,140) (942,794) 56,142 (838,180) 172,369 (12,559)
NET ASSETS
Beginning of
period 9,065,931 10,008,725 2,041,941 2,880,121 11,381,107 11,393,666
End of period8,745,791 $9,065,931 $2,098,083 $2,041,941 $11,553,476$11,381,107
Virginia Fund National Fund Money Market Fund
1997 1996 1997 1996 1997 1996
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
Net investment
income $1,489,753 $1,548,399 $1,187,964 $1,333,386 $ 194,657 $ 215,682
Net realized gain
on investments 259,497 394,667 389,761 139,533 114 - -
Net unrealized appreciation
(depreciation) of
investments 756,780 (128,139) 500,002 106,127 125 414
Total increase in net assets
resulting from
operations 2,506,030 1,814,927 2,077,727 1,579,046 194,896 216,096
DISTRIBUTIONS TO SHAREHOLDERS
Net investment
income (1,489,753)(1,548,399)(1,187,964)(1,333,386) (194,282) (215,787)
CAPITAL SHARE
TRANSACTIONS
(Note 6) (1,742,549) (748,933)(3,477,538)(3,693,916) (647,793) (955,285)
TOTAL DECREASE IN
NET ASSETS (726,272) (482,405)(2,587,775)(3,448,256) (647,179) (954,976)
NET ASSETS
Beginning of
period 33,339,948 33,822,353 29,286,137 32,734,393 7,499,268 8,454,244
End of period $32,613,676$33,339,948$26,698,362$29,286,137$6,852,089$7,499,268
The Notes to Financial Statements are an integral part of these statements.
Financial Highlights
Selected data for a share outstanding throughout each period:
Arizona Portfolio
Years ended September 30,
[C] [C] [C] [C] [C] [C]
1997 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $10.153 10.113 9.706 11.208 10.568 10.187
Net
investment
income $0.466 0.444 0.440 0.436 0.490 0.528
Net
realized &
unrealized
gains
(losses) on
securities $ 0.295 $0.040 0.407 (1.102) 0.786 0.434
Total from
investment
operations $0.761 0.484 0.847 (0.666) 1.276 0.962
Distributions
from net
investment
income $(0.466)(0.444)(0.440)(0.436)(0.490)(0.528)
Distributions
from capital
gains $ -- -- -- (0.400)(0.146)(0.053)
Total
Distributions$(0.466)(0.444)(0.440)(0.836)(0.636)(0.581)
Net asset
value end
of period $10.448 10.153 10.113 9.706 11.208 10.568
Total
Return 7.67% 4.85% 8.95% (6.20)%12.57% 9.74%
Net assets
at end of
period
(thousands) $ 8,746 9,066 10,009 11,815 15,471 11,911
Ratio of
expenses to
average net
assets*** 1.11% 1.35% 1.31% 1.29% 1.23% 1.15%
Net
investment
income to
average
net assets 4.54% 4.35% 4.48% 4.23% 4.54% 5.14%
Portfolio
turnover 32% 9% 24% 67% 63% 23%
Maryland Portfolio
Years ended September 30,
[C] [C] [C] [C] [C]
1997 1996 1995 1994 1993*
Net asset
value
beginning
of period $ 9.714 9.738 9.323 10.441 10.000
Net
investment
income $ 0.421 0.405 0.418 0.455 0.274
Net
realized &
unrealized
gains
(losses) on
securities $ 0.284(0.024) 0.415 (1.102) 0.441
Total from
investment
operations $0.705 0.381 0.833 (0.647) 0.715
Distributions
from net
investment
income $(0.421)(0.405)(0.418)(0.455)(0.274)
Distributions
from capital
gains $ -- -- -- (0.016) --
Total
Distributions$(0.421)(0.405)(0.418)(0.471)(0.274)
Net asset
value end
of period $ 9.998 9.714 9.738 9.323 10.441
Total
Return 7.42% 3.96% 9.17% (6.33)%11.91%2
Net assets
at end of
period
(thousands) $2,098 2,042 2,880 3,083 3,377
Ratio of
expenses to
average net
assets*** 1.12% 1.28% 0.87% 0.64% 0.20%2
Net
investment
income to
average
net assets 4.29% 4.12% 4.42% 4.60% 4.72%2
Portfolio
turnover 15% 21% 9% 78% 35%
Missouri Portfolio
Years ended September 30,
[C] [C] [C] [C] [C] [C]
1997 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $10.220 10.113 9.728 11.173 10.468 10.117
Net
investment
income $0.460 0.438 0.436 0.437 0.494 0.514
Net
realized &
unrealized
gains
(losses) on
securities $ 0.311 0.087 0.405 (1.058) 0.726 0.377
Total from
investment
operations $0.771 0.525 0.841 (0.621) 1.220 0.891
Distributions
from net
investment
income $(0.460)(0.438)(0.436)(0.437)(0.494)(0.514)
Distributions
from capital
gains $ -- -- -- (0.387)(0.021)(0.026)
Total
Distributions$(0.460)(0.438)(0.436)(0.824)(0.515)(0.540)
Net asset
value end
of period $10.531 10.220 10.133 9.728 11.173 10.468
Total
Return 7.72% 5.24% 8.87% (5.80)%11.98% 9.06%
Net assets
at end of
period
(thousands) $11,553 11,381 11,394 11,490 14,001 11,023
Ratio of
expenses to
average net
assets*** 1.02% 1.34% 1.31% 1.29% 1.23% 1.18%
Net
investment
income to
average
net assets 4.45% 4.27% 4.43% 4.23% 4.59% 5.05%
Portfolio
turnover 41% 21% 16% 52% 65% 8%
Virginia Portfolio
Years ended September 30,
[C] [C] [C] [C] [C] [C]
1997 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $11.209 11.115 10.631 12.372 11.621 11.351
Net
investment
income $ 0.515 0.508 0.503 0.479 0.569 0.592
Net
realized &
unrealized
gains
(losses) on
securities $ 0.355 0.094 0.484 (1.146) 0.871 0.387
Total from
investment
operations $0.870 0.602 0.987 (0.667) 1.440 0.979
Distributions
from net
investment
income $(0.515)(0.508)(0.503)(0.479)(0.569)(0.592)
Distributions
from capital
gains $ -- -- -- (0.595)(0.120)(0.117)
Total
Distributions$(0.515)(0.508)(0.503)(1.074)(0.689)(0.709)
Net asset
value end
of period $11.564 11.209 11.115 10.631 12.372 11.621
Total
Return 7.95% 5.50% 9.54% (5.67)%12.85% 8.92%
Net assets
at end of
period
(thousands) $32,614 33,340 33,822 35,550 44,092 37,421
Ratio of
expenses to
average net
assets*** 1.05% 1.20% 1.14% 1.18% 1.10% 1.13%
Net
investment
income to
average
net assets 4.55% 4.53% 4.68% 4.23% 4.80% 5.20%
Portfolio
turnover 28% 28% 55% 104% 80% 74%
National Portfolio
Years ended September 30,
[C] [C] [C] [C] [C] [C]
1997 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $10.286 10.211 9.851 11.910 11.329 10.794
Net
investment
income $ 0.437 0.446 0.446 0.420 0.550 0.605
Net
realized &
unrealized
gains
(losses) on
securities $ 0.338 $0.075 0.360 (1.122) 0.793 0.535
Total from
investment
operations $0.775 0.521 0.806 (0.702) 1.343 1.140
Distributions
from net
investment
income $(0.437)(0.446)(0.446)(0.420)(0.550)(0.605)
Distributions
from capital
gains $ -- -- -- (0.937)(0.212) --
Total
Distributions$(0.437)(0.446)(0.446)(1.357)(0.762)(0.605)
Net asset
value end
of period $10.624 10.286 10.211 9.851 11.910 11.329
Total
Return 7.70% 5.17% 8.40% (6.25)%12.44% 10.83%
Net assets
at end of
period
(thousands) $26,698 29,286 32,734 34,072 42,483 41,273
Ratio of
expenses to
average net
assets*** 1.05% 1.20% 1.18% 1.23% 1.10% 1.17%
Net
investment
income to
average
net assets 4.20% 4.32% 4.49% 3.98% 4.83% 5.47%
Portfolio
turnover 44% 39% 56% 175% 212% 114%
Money Market Portfolio
Years ended September 30,
[C] [C] [C] [C] [C] [C]
1997 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $ 1.000 1.000 1.000 1.000 1.000 1.000
Net
investment
income $ 0.027 0.026 0.028 0.015 0.020 0.030
Net
realized &
unrealized
gains
(losses) on
securities $ -- -- -- -- -- --
Total from
investment
operations $ 0.027 0.026 0.028 0.015 0.020 0.030
Distributions
from net
investment
income $(0.027)(0.026)(0.028)(0.015)(0.020)(0.030)
Distributions
from capital
gains $ -- -- -- -- -- --
Total
distributions$(0.027)(0.026)(0.028)(0.015)(0.020)(0.030)
Net asset
value end
of period $ 1.000 1.000 1.000 1.000 1.000 1.000
Total
Return 2.71% 2.63% 2.87% 1.56% 1.53% 2.57%
Net assets
at end of
period
(thousands) $6,852 7,499 8,454 8,916 13,391 14,861
Ratio of
expenses to
average net
assets*** 0.83%5 0.88% 0.81% 0.81% 0.81% 0.83%
Net
investment
income to
average
net assets 2.68%5 2.59% 2.83% 1.52% 1.52% 2.55%
Portfolio
turnover -- -- -- -- -- --
1 For the period from February 10, 1993 (inception) to September 30, 1993
2 Annualized
3 For the years ended September 30, 1997 and 1996, ratio reflects fees
paid indirectly (Note 3). Ratio of expenses before expenses incurred and
paid by the investment advisor to average net assets for the Money
Market fund would have been 0.95% and 1.15%, respectively.
4 Effective July 31, 1996, the investment advisory services transferred
to Bankers Finance Advisors, LLC from Bankers Finance Investment
Management Corp. (See Note 2).
5 For the years ended September 30, 1997 and 1996, ratio reflects fees
paid indirectly (see Note 3). Ratio of net investment income before
expenses incurred and paid by the investment advisor to average net
assets would have been 2.56% and 2.32%, respectively.
The Notes to Financial Statements are an integral part of these
statements.
<PAGE>
Mosaic Tax-Free Trust
Notes to Financial Statements
September 30, 1997
1. Summary of Significant Accounting Policies. Mosaic Tax-Free Trust
(the "Trust"), formerly known as GIT Tax-Free Trust, is registered with
the Securities and Exchange Commission under the Investment Company Act
of 1940 as an open-end, diversified investment management company. The
Trust maintains six separate funds (described in the following sentences
and defined as the "Funds") which invest principally in securities
exempt from federal income taxes, commonly known as "municipal"
securities. The Arizona, Maryland, Missouri and Virginia Funds (the
"State Funds") invest solely in securities exempt from both federal and
state income taxes in their respective states. The National Fund seeks
higher yields and invests in long-term securities. The Money Market
invests in short-term securities and is priced according to the "penny
rounding" method whereby the share price is rounded to the nearest cent
to maintain a stable share price of $1.00. The State and National Funds"
price per share fluctuates with the market value of the respective
underlying portfolio of securities.
Securities Valuation: Securities having maturities of 60 days or less
are valued at amortized cost, which approximates market value.
Securities having longer maturities, for which market quotations are
readily available are valued at the mean between their bid and asked
prices. Securities for which market quotations are not readily available
are valued at their fair value as determined in good faith by the
trustees. Investment transactions are recorded on the trade date. The
cost of investments sold is determined on the identified cost basis for
financial statement and federal income tax purposes.
Investment Income: Interest income, net of amortization of premium and
original issue discount, and other income (if any) is recorded as
earned.
Dividends: Net investment income, determined as gross investment income
less expenses, is declared as a regular dividend each business day.
Dividends are distributed to shareholders or reinvested in additional
shares as of the close of business at the end of each month. Capital
gain dividends, if any, are declared and paid annually in December.
Additional distributions may be made if necessary.
Income Tax: In accordance with the provisions of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, all
taxable income, if any, of each fund is distributed to its shareholders,
and therefore, no federal income tax provision is required. As of
September 30, 1997, capital loss carryovers available to offset future
capital gains for federal income tax purposes were $396,310 for the
Arizona Fund; $186,473 for the Maryland Fund; $158,076 for the Missouri
Fund; $804,626 for the Virginia Fund; and $1,727,210 for the National
Fund. The preceding carryovers expire from September 30, 2003 through
September 30, 2004.
Use of Estimates: The preparation of the 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 and reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
Change of Independent Auditor: Effective for fiscal years beginning on
or after October 1, 1996, the Trust's Independent Auditor is Deloitte &
Touche LLP. Financial information appearing in this Annual Report for
fiscal years beginning prior to October 1, 1996 was audited by another
independent auditor.
2. Investment Advisory Fees and Other Transactions with Affiliates. The
investment advisor to the Trust, Bankers Finance Advisors, LLC, a wholly
owned subsidiary of Madison Investment Advisors, Inc., ("the Advisor"),
earns an advisory fee equal to 0.625% per annum of the average net
assets of the State and National Funds and 0.5% per annum of the average
net assets of the Money Market; the fees are accrued daily and are paid
monthly. The Advisory Agreement between each fund and the Advisor was
approved at the special meeting of the Trust's shareholders on July 29,
1996. The Advisor purchased the investment management assets of Bankers
Finance Investment Management Corp. ("BFIMC"), the Trust's previous
investment advisor, effective July 31, 1996.
The Advisor is responsible for the fees and expenses of trustees who are
affiliated with the Advisor and certain promotional expenses. For the
year ended September 30, 1997, outside trustee fees were $2,000 for each
fund.
3. Other Expenses. Between October 1, 1996 and March 31, 1997, with the
exception of certain expenses of the Trust payable by it directly, all
support services were provided to the Trust under a Services Agreement
between the Trust and the Advisor, pursuant to which such services were
provided for amounts not exceeding the cost to the Advisor. Common
expenses incurred by the Trust, Mosaic Equity Trust, Mosaic Income Trust
and Mosaic Government Money Market Trust (the "Trusts") were allocated
among the funds based on the ratio of net assets of each fund to the
combined net assets of the Trusts. Effective April 1, 1997, the Trust
reimbursed the Advisor under the amended Services Agreement for all the
Trust's direct expenses, namely fees for bluesky, SEC registration,
custody, legal and accounting, printing, insurance and the independent
trustees. All remaining support services were provided by the Advisor
for a fee equal to a specific percentage of average net assets per fund,
based on a gradually decreasing scale as average net assets exceeded
$10,000,000. In addition, pusuant to the Services Agreement, each fund
except the Money Market paid an "activity fee" to the Advisor. The sum
of such direct, administrative and activity fee service expenses were,
as an annualized percentage of average net assets, as follows: Arizona
0.48%, Maryland 0.51%, Missouri 0.40%, Virginia 0.43%, National 0.43%
and Money Market 0.33%. Effective October 1, 1997, the Services
Agreement was amended by the Trustees to provide for a single fee based
on a percentage of net assets for all such other expenses. For the year
ended September 30, 1997, expenses of $42,766 for the Arizona Fund;
$10,320 for the Maryland Fund; $44,808 for the Missouri Fund; $139,287
for the Virginia Fund; $121,039 for the National Fund; and $24,120 for
the Money Market have been reimbursed under the Services Agreement. For
the year ended September 30, 1997 the Advisor incurred expenses of
$8,784 on behalf of the Money Market fund, the billing of which has been
waived.
4. Net Assets. At September 30, 1997, net assets included the
following:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National Money
Portfolio Portfolio Portfolio Portfolio Portfolio Market
Paid in capital $8,682,124 $2,199,743 $11,196,905 $31,657,967 $27,117,327 $6,851,735
Undistributed net
investment income - - - - - - - - - - 375
Accumulated net
realized losses (396,310) (186,473) (158,076) (804,626) (1,727,210) - -
Net unrealized
appreciation
(depreciation)
of investments 459,977 84,813 514,647 1,760,335 1,308,245 (21)
Total net assets $8,745,791 $2,098,083 $11,553,476 $32,613,676 $26,698,362 $6,852,089
</TABLE>
5. Investment Transactions. Purchases and sales of securities other
than short-term securities, for the year ended September 30, 1997, were
as follows:
Arizona Maryland Missouri Virginia National
Portfolio Portfolio Portfolio Portfolio Portfolio
Purchases $2,719,684 $288,218 $4,397,925 $ 9,046,944 $11,763,055
Sales 3,317,081 335,965 4,422,509 10,369,473 15,116,711
6. Capital Share Transactions. An unlimited number of capital shares, without
par value, are authorized. Transactions in capital shares for the years ended
September 30 were as follows:
Arizona Fund Maryland Fund Missouri Fund
1997 1996 1997 1996 1997 1996
In Dollars
Shares sold $ 666,047 $ 757,915 $ 766,040 $ 652,771 $1,704,174 $1,076,024
Shares issued
in reinvestment
of dividends 289,326 294,581 76,269 95,818 428,836 410,156
Total shares
issued 955,373 1,052,496 842,309 748,589 2,133,010 1,486,180
Shares
redeemed (1,527,982)(2,041,936) (843,122)(1,576,275)(2,292,842)(1,600,447)
Net decrease $ (572,609)$ (989,440) $ (813)$ (827,686)$ (159,832) $(114,267)
In Shares
Shares sold 64,807 74,043 77,959 66,623 164,166 105,022
Shares issued
in reinvestment
of dividends 28,120 28,857 7,759 9,798 41,465 39,955
Total shares
issued 92,927 102,900 85,718 76,421 205,631 144,977
Shares
redeemed (148,830) (199,582) (86,058) (161,971) (222,102) (155,774)
Net decrease (55,903) (96,682) (340) (85,550) (16,471) (10,797)
Virginia Fund National Fund Money Market
1997 1996 1997 1996 1997 1996
In Dollars
Shares sold $ 4,270,549 $4,310,056 $2,161,833 $2,853,531 $5,684,463 $6,433,272
Shares issued
in reinvestment
of dividends 1,262,506 1,325,938 1,075,273 1,210,230 187,148 206,235
Total shares
issued 5,533,055 5,635,994 3,237,106 4,063,761 5,871,611 6,639,507
Shares
redeemed (7,275,604)(6,384,927)(6,714,644)(7,757,677)(6,519,404)(7,594,792)
Net decrease$(1,742,549)$ (748,933)(3,477,538)(3,693,916) $(647,793) $(955,285)
In Shares
Shares sold 377,392 383,786 208,047 276,849 5,684,463 6,433,272
Shares issued
in reinvestment
of dividends 111,204 118,040 103,207 117,257 187,148 206,235
Total shares
issued 488,596 501,826 311,254 394,106 5,871,611 6,639,507
Shares redeemed(642,474) (570,610) (645,357) (752,707)(6,519,404)(7,594,792)
Net decrease (153,878) (68,784) (334,103) (358,601) (647,793) (955,285)
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<PAGE>
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 1 888 670-3600
Mosaic Tiles (24 hours automated information)
Toll-free nationwide: 1 800 336-3063
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Balanced Fund
Mosaic Mid-Cap Growth Fund
Mosaic Worldwide Growth Fund
Mosaic Income Trust
Mosaic High Yield Fund
Mosaic Government Fund
Mosaic Tax-Free Trust
Mosaic Tax-Free Arizona Fund
Mosaic Tax-Free Maryland Fund
Mosaic Tax-Free Missouri Fund
Mosaic Tax-Free Virginia Fund
Mosaic Tax-Free National Fund
Mosaic Tax-Free Money Market
Mosaic Government Money Market
For more complete information on any Mosaic Fund, including charges and
expenses, request a prospectus by calling the numbers above. Read it
carefully before you invest or send money.
1655 Ft. Myer Drive, 10th floor
Arlington, Virginia 22209-3108
http://www.mosaicfunds.com
