<PAGE>
Torchmark
Insured
Tax-Free
Fund, Inc.
SEMIANNUAL
REPORT
--------------------------------------
For the six months ended June 30, 1994
This report is submitted for the general information of the shareholders of
Torchmark Insured Tax-Free Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
Torchmark Insured Tax-Free Fund, Inc. current prospectus.
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PRESIDENT'S LETTER
- -----------------------------------------------------------------
JUNE 30, 1994
Dear Shareholder:
This report covers the investment performance of your Fund for the six
months ended June 30, 1994.
During the past six months, bond and equity markets have been affected by
increases in interest rates and the fear of higher inflation. We expect these
markets will continue to react to action, if any, taken by the Federal Reserve
to prevent increases in the inflation rate. Although markets have declined
since the beginning of 1994, historically such intermediate and short-term
fluctuations have had limited impact on achieving investors' long-term financial
goals.
Over time, interest rates follow inflation. Once it has been determined
that the rate of economic growth is manageable, the Federal Reserve Board's
actions will be seen as beneficial to combating inflation, which eventually
should lead to interest rates that are more favorable to the markets.
Based on our 57 years in the financial services industry, we believe that
our commitment to professional portfolio management is the key value-added
service we provide: we select and continuously supervise the Fund's investments
using the most up-to-date information and research available to ensure the
investments meet the Fund's stated objectives.
And, we believe our "hands-on" approach to investment management can help
reward the patient investor over the long term. We never forget that we manage
your money.
The following is an in-depth review of your Fund's recent performance. We
believe the information included in this review continues to reflect our aim of
achieving the goals and purposes of the Fund. Thank you for your continued
confidence in our products and services.
Respectfully,
Keith A. Tucker
President
<PAGE>
THE INVESTMENTS OF
TORCHMARK INSURED TAX-FREE FUND, INC.
JUNE 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALABAMA - 4.18%
The DCH Health Care Authority, Health
Care Facilities Revenue Bonds,
Series 1993-A,
5.5%, 6-1-2013 ........................ $100 $ 91,875
ARIZONA - 3.13%
Paradise Valley Unified School District
No. 69 of Maricopa County, Arizona,
Refunding Bonds, Second Series 1993,
0.0%, 7-1-2007 ........................ 150 68,813
CONNECTICUT - 4.45%
Connecticut Housing Finance Authority,
Housing Mortgage Finance Program Bonds,
1993 Series B,
6.0%, 5-15-2009 ....................... 100 97,750
FLORIDA - 4.61%
City of Jacksonville, Florida, Excise
Taxes Revenue Bonds, Series 1993,
0.0%, 10-1-2011 ....................... 300 101,250
ILLINOIS - 16.51%
Illinois Health Facilities Authority:
Revenue Refunding Bonds, Series 1993A
(Elmhurst Memorial Hospital),
5.5%, 1-1-2013 ........................ 100 89,000
Hospital Revenue Refunding Bonds,
Series 1993 (Delnor-Community Hospital),
5.5%, 5-15-2013 ....................... 100 87,875
Northwest Suburban Municipal Joint Action
Water Agency (Cook, DuPage and Kane
Counties, Illinois), Water Supply
System Revenue Bonds, Series 1993A,
5.9%, 5-1-2013 ........................ 100 95,625
City of Chicago, Wastewater Transmission
Revenue Bonds, Refunding Series 1993,
5.375%, 1-1-2013 ...................... 100 90,125
Total ................................. 362,625
IOWA - 4.27%
City of Ames, Iowa, Hospital Revenue
Bonds (Mary Greeley Medical Center
Project), Series 1993,
5.7%, 8-15-2012 ....................... 100 93,750
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
TORCHMARK INSURED TAX-FREE FUND, INC.
JUNE 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MICHIGAN - 6.85%
Huron School District, Counties of Wayne
and Monroe, State of Michigan, 1992
Refunding Bonds (General Obligation -
Unlimited Tax),
0.0%, 5-1-2013 ........................ $340 $ 104,125
Godfrey-Lee Public Schools, County of
Kent, State of Michigan, 1993 Refunding
Bonds (General Obligation - Unlimited Tax),
5.5%, 5-1-2013 ........................ 50 46,250
Total ................................. 150,375
NEVADA - 9.03%
Clark County School District, Las Vegas,
Nevada, General Obligation (Limited Tax)
Refunding Bonds, Series 1991B,
0.0%, 3-1-2009 ........................ 250 100,000
Clark County Nevada, Las Vegas - McCarran
International Airport, Passenger Facility
Charge Revenue Bonds, 1992 Series B,
6.25%, 7-1-2011 ....................... 100 98,375
Total ................................. 198,375
OHIO - 4.22%
Ohio Water Development Authority, State
of Ohio, Water Development Revenue
Refunding Bonds, Pure Water Refunding
and Improvement Series,
5.5%, 12-1-2011 ....................... 100 92,750
PENNSYLVANIA - 8.33%
County of Allegheny, Pennsylvania, Airport
Revenue Bonds, Series 1993C (Pittsburgh
International Airport),
5.625%, 1-1-2013 ...................... 100 92,125
Berks County Municipal Authority,
Berks County, Pennsylvania, College
Revenue Bonds, Series of 1993
(Albright College),
5.1%, 10-1-2008 ....................... 100 90,750
Total ................................. 182,875
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
TORCHMARK INSURED TAX-FREE FUND, INC.
JUNE 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
SOUTH DAKOTA - 4.31%
Sioux Falls School District 49-5,
Sioux Falls, South Dakota, Refunding
Capital Outlay Certificates of 1992,
Series 1992B (Limited Tax Obligation),
5.75%, 7-1-2012 ....................... $100 $ 94,625
TEXAS - 8.92%
Tarrant County Water Control and
Improvement District Number One
(Tarrant County, Texas), Water Revenue
Refunding and Improvement Bonds,
Series 1992,
5.75%, 3-1-2013 ....................... 100 102,250
City of Austin, Texas, Combined Utility
Systems Revenue Refunding Bonds, Series 1992A,
5.75%, 11-15-2014 ..................... 100 93,500
Total ................................. 195,750
UTAH - 4.27%
Salt Lake City, Salt Lake County, Utah,
Airport Revenue Bonds, Series 1993A (AMT),
6.0%, 12-1-2012 ....................... 100 93,750
VIRGINIA - 3.03%
County of Stafford, Virginia, Refunding
Certificates of Participation,
Series 1994,
5.0%, 11-1-2009 ....................... 75 66,469
WASHINGTON - 8.41%
Public Utility District No. 1 of Snohomish
County, Washington, Generation System
Revenue Bonds, Series 1993,
6.0%, 1-1-2013 ........................ 100 96,375
Washington Public Power Supply System,
Nuclear Project No. 2, Refunding
Revenue Bonds, Series 1994A,
5.0%, 7-1-2009 ........................ 100 88,250
Total ................................. 184,625
TOTAL MUNICIPAL BONDS - 94.52% $2,075,657
(Cost: $2,217,755)
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
TORCHMARK INSURED TAX-FREE FUND, INC.
JUNE 30, 1994
Value
TOTAL SHORT-TERM SECURITIES - 4.10% $ 90,000
(Cost: $90,000)
TOTAL INVESTMENT SECURITIES - 98.62% $2,165,657
(Cost: $2,307,755)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.38% 30,236
NET ASSETS - 100.00% $2,195,893
Notes to Schedule of Investments
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
TORCHMARK INSURED TAX-FREE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
Assets
Investment securities - at value
(Notes 1 and 4) ................................. $2,165,657
Cash ............................................ 5,257
Receivables:
Interest ........................................ 30,845
Fund shares sold ................................ 25
Unamortized organization expenses (Note 2) ....... 28,028
----------
Total assets .................................. 2,229,812
----------
Liabilities
Organization expenses payable .................... 28,028
Dividends payable ................................ 995
Payable for Fund shares redeemed ................. 97
Other ............................................ 4,799
----------
Total liabilities ............................. 33,919
----------
Total net assets.............................. $2,195,893
==========
Net Assets
$0.01 par value capital stock, authorized --
200,000,000; shares outstanding -- 233,143
Capital stock ................................... $ 2,331
Additional paid-in capital ...................... 2,330,149
Accumulated undistributed gain (loss):
Accumulated undistributed net realized gain on
investment transactions ....................... 5,511
Net unrealized depreciation in value of
investments at end of period ................... (142,098)
----------
Net assets applicable to outstanding units
of capital ................................... $2,195,893
==========
Net asset value per share (net assets divided by
shares outstanding) .............................. $9.42
=====
See notes to financial statements.
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TORCHMARK INSURED TAX-FREE FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1994
Investment Income
Interest ......................................... $ 63,684
---------
Expenses (Notes 2 and 3):
Investment management fee ....................... 5,590
Registration fees ............................... 5,124
Accounting services fee ......................... 5,000
Audit fees ...................................... 4,000
Amortization of organization expenses ........... 3,822
Distribution fee ................................ 2,797
Shareholder reports.............................. 2,609
Transfer agency and dividend disbursing ......... 1,970
Legal fees ...................................... 1,687
Taxes ........................................... 1,300
Custodian fees .................................. 177
Other ........................................... 234
---------
Total ......................................... 34,310
Less expenses in excess of limitation ......... (23,119)
---------
Total expenses ............................... 11,191
---------
Net investment income ...................... 52,493
---------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on investments ................. 5,728
Unrealized depreciation in value of investments
during the period ............................... (233,216)
---------
Net loss on investments ......................... (227,488)
---------
Net decrease in net assets resulting
from operations .............................. $(174,995)
=========
See notes to financial statements.
<PAGE>
TORCHMARK INSURED TAX-FREE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the
For the period from
six months February 26,
ended 1993 through
June 30, December 31,
1994 1993
----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............... $ 52,493 $ 82,132
Realized net gain (loss) on
investments ....................... 5,728 (217)
Unrealized appreciation
(depreciation) .................... (233,216) 91,118
---------- ----------
Net increase (decrease) in net
assets resulting from
operations ....................... (174,995) 173,033
---------- ----------
Dividends to shareholders from
net investment income* .............. (52,493) (82,132)
---------- ----------
Capital share transactions:
Proceeds from sale of shares
(3,733 and 206,433
shares, respectively) ............. 37,646 2,065,047
Proceeds from reinvestment of
dividends (5,218 and 8,085
shares, respectively) ............. 50,963 82,019
Payments for shares redeemed (326 and
0 shares, respectively) ........... (3,195) ---
---------- ----------
Net increase in net assets
resulting from capital
share transactions ............... 85,414 2,147,066
---------- ----------
Total increase (decrease) ........ (142,074) 2,237,967
Net Assets
Beginning of period .................. 2,337,967 100,000
---------- ----------
End of period ........................ $2,195,893 $2,337,967
========== ==========
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on page 11.
See notes to financial statements.
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TORCHMARK INSURED TAX-FREE FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
period
For the from
six February
months 26, 1993
ended through
June 30, December 31,
1994 1993
------- -------
Net asset value,
beginning of
period ........... $10.41 $10.00
------ ------
Income from investment
operations:
Net investment
income .......... .23 .38
Net realized and
unrealized gain
(loss) on
investments ..... (0.99) .41
------ ------
Total from investment
operations ....... (0.76) .79
------ ------
Less dividends declared
from net investment
income ............ (0.23) (0.38)
------ ------
Net asset value,
end of period .... $ 9.42 $10.41
====== ======
Total return ....... -7.41% 9.62%*
Net assets, end of
period (000
omitted) .......... $2,196 $2,338
Ratio of expenses
to average net
assets ........... 1.00%*+ 1.00%*+
Ratio of net investment
income to average
net assets ....... 4.69%* 4.46%*
Portfolio turnover
rate .............. 10.24%* 79.14%*
*Annualized.
+See Note 3 for voluntary assumption of Fund expenses by Torchmark Corporation.
The ratios of expenses to average net assets shown in the table would have been
3.07% and 2.30%, respectively.
See notes to financial statements.
<PAGE>
TORCHMARK INSURED TAX-FREE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE 1 -- Significant Accounting Policies
Torchmark Insured Tax-Free Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Municipal bonds and the taxable obligations in the
Fund's investment portfolio are not listed or traded on any securities
exchange. Therefore, municipal bonds are valued using prices quoted by
Muller and Company, a dealer in bonds which offers a pricing service.
Short-term debt securities, whether taxable or nontaxable, are valued at
amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined by the Internal
Revenue Code) and premiums on the purchase of bonds are amortized for both
financial and tax reporting purposes over the remaining lives of the bonds.
Interest income is recorded on the accrual basis. See Note 4 -- Investment
Security Transactions.
C. Federal income taxes -- The Fund intends to distribute all of its net
investment income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue Code.
The Fund intends to pay distributions as required to avoid imposition of
excise tax. Accordingly, provision has not been made for Federal income
taxes. In addition, the Fund intends to meet requirements of the Internal
Revenue Code which will permit it to pay dividends from net investment
income, substantially all of which will be exempt from Federal income tax.
See Note 5 -- Federal Income Tax Matters.
D. Dividends and distributions -- All of the Fund's net investment income is
declared and recorded by the Fund as dividends payable on each day to
shareholders of record at the time of the previous determination of net
asset value.
NOTE 2 -- Organization
The Fund was incorporated in Maryland on September 9, 1992 and was inactive
(except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and registration of
shares under the Securities Act of 1933) until February 26, 1993 (the date of
the initial public offering).
On February 17, 1993, Waddell & Reed, Inc. ("W&R") purchased for investment
10,000 shares of the Fund at their net asset value of $10.00 per share. On
February 26, 1993, United Investors Life Insurance Company ("UILIC"), an
affiliate of W&R, purchased 200,000 shares of the Fund. As of June 30, 1994,
UILIC owned 212,429 shares.
The Fund's organizational expenses in the amount of $38,220 were advanced
to the Fund by W&R and are an obligation to be paid by the Fund. These expenses
are being amortized and are payable evenly over 60 months following the date of
the initial public offering. In the event that all or any part of W&R's initial
investment in the Fund's shares is redeemed before the full reimbursement of
these organizational expenses, the Fund's obligation to make further
reimbursement will cease.
NOTE 3 -- Investment Management and Payments to Affiliated Persons
Waddell & Reed Investment Management Company ("WRIMCO"), a wholly-owned
subsidiary of W&R, acts as investment manager to the Fund and, as such, receives
a fee for such services. The fee is accrued and paid daily at the annual rate
of .50% of the Fund's net asset value.
The Torchmark Division of Waddell & Reed Services Company ("Torchmark
Services"), another wholly-owned subsidiary of W&R, acts as transfer agent for
the Fund and processes the payments of dividends to Fund shareholders. The Fund
pays Torchmark Services a monthly fee of $1.0208 for each shareholder account
that was in existence at any time during the prior month, plus $0.30 for each
account on which a dividend or distribution of cash or shares had a record date
in that month. The Fund also pays for certain out-of-pocket costs.
Torchmark Services also acts as agent ("Accounting Services Agent") in
providing bookkeeping and accounting services and assistance to the Fund and
pricing daily the value of shares of the Fund. For these services the Fund pays
the Accounting Services Agent a monthly fee of 1/12th of the annual fee shown in
the following table:
Accounting Services Fee
Average Net Asset Level Annual Fee
(dollars in millions) Rate for Each Level
----------------------- -------------------
From $ 0 to $ 25 $ 10,000
From $ 25 to $ 100 $ 25,000
From $ 100 to $ 500 $ 50,000
From $ 500 to $1,000 $ 75,000
Above $1,000 $100,000
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay a fee to Torchmark
Distributors, Inc. ("Torchmark Distributors"), another wholly-owned subsidiary
of W&R, the principal underwriter for the Fund, and to Torchmark Services in an
aggregate amount not to exceed .25% per annum of the Fund's net asset value
accrued and paid daily to reimburse them for amounts expended in preparing,
printing and distributing informational material to investors and Fund
shareholders, providing yield and performance information and in answering
telephone or written inquiries of investors concerning the Fund or shareholders
concerning their accounts.
Torchmark Corporation guarantees that for at least the first three years
commencing February 26, 1993, the total expenses of the Fund, excluding
brokerage commissions and extraordinary expenses, will not exceed 1% annualized
of the Fund's daily net asset value. To ensure that the Fund's daily expenses
do not exceed this limit, first WRIMCO, Torchmark Distributors and Torchmark
Services will waive or refund fees payable to them commencing with the service
fee; then, if such reductions or refunds are inadequate to reduce the daily
expenses below the 1% annualized limit, Torchmark Corporation will immediately
pay to the Fund the amount by which the Fund's expenses computed daily exceed
the 1% limit.
W&R is an indirect subsidiary of Torchmark Corporation, a publicly held
company whose address is 2001 Third Avenue South, Birmingham, Alabama 35233.
Torchmark Corporation is an insurance and financial services holding company
whose shares are listed on the New York Stock Exchange. W&R is also an indirect
subsidiary of United Investors Management Company, a holding company, and a
direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $171,488 while proceeds from maturities and sales
aggregated $109,018. Purchases of short-term securities aggregated $220,000
while proceeds from maturities and sales aggregated $196,407. No U.S.
Government securities were bought or sold during the period ended June 30, 1994.
For Federal income tax purposes, cost of investments owned at June 30, 1994
was $2,307,755, resulting in net unrealized depreciation of $142,098, of which
$1,945 related to appreciated securities and $144,043 related to depreciated
securities.
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $400 during the fiscal period ended December 31, 1993, which is available for
future distribution.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Torchmark Insured Tax-Free Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Torchmark Insured Tax-Free Fund,
Inc. (the "Fund") at June 30, 1994, the results of its operations for the six
months then ended and the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1994 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above. The
financial statements and financial highlights of the Fund for the period ended
December 31, 1993 were audited by other independent accountants whose report
dated February 18, 1994 expressed an unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Kansas City, Missouri
July 29, 1994
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<PAGE>
DIRECTORS OFFICERS
Ronald K. Richey, Birmingham, Keith A. Tucker, President
Alabama, Chairman of the Board Robert L. Hechler, Vice
Henry L. Bellmon, Red Rock, President
Oklahoma Henry J. Herrmann, Vice
Dodds I. Buchanan, Boulder, Colorado President
Jay B. Dillingham, Kansas City, John M. Holliday, Vice
Missouri President
John F. Hayes, Hutchinson, Kansas Theodore W. Howard, Vice
Glendon E. Johnson, Miami, Florida President and Treasurer
William T. Morgan, Los Angeles, Rodney O. McWhinney, Vice
California President
Doyle Patterson, Kansas City, Missouri Sharon K. Pappas, Vice
Keith A. Tucker, Overland Park, Kansas President and Secretary
Frederick Vogel, III, Milwaukee,
Wisconsin
Paul S. Wise, Carefree, Arizona
Leslie S. Wright, Birmingham, Alabama
<PAGE>
TORCHMARK INSURED TAX-FREE FUND, INC.
June 30, 1994
FOR MORE INFORMATION:
TORCHMARK SERVICES
6300 Lamar Avenue
P.O. Box 2995
Shawnee Mission, KS 66201-1395
(800) 733-3863
FOOO299SA(6-94)
