TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review:
Texas Tax-Free Income Fund 4
Texas Tax-Free Money Market Fund 9
Financial Information:
Statements of Assets and Liabilities 13
Portfolios of Investments in Securities:
Texas Tax-Free Income Fund 15
Texas Tax-Free Money Market Fund 18
Notes to Portfolios of Investments in Securities 20
Statements of Operations 21
Statements of Changes in Net Assets 22
Notes to Financial Statements 23
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than 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 Texas 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)1997, 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 35
funds by investment objective as of September 30, 1997.
<TABLE>
<CAPTION>
Investment Inception Average Annual Total Return(%)*
Objective Date 1 year 5 years 10 years Since Inception
<S> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION
Aggressive Growth 10/19/81 12.97 22.01 12.58 -
Emerging Markets(1) 11/7/94 17.80 - - 9.18
First Start Growth 8/1/97 - - - -0.70
Gold(1) 8/15/84 -15.16 3.76 -6.42 -
Growth 4/5/71 34.93 18.50 12.42 -
Growth & Income 6/1/93 37.04 - - 19.40
International(1) 7/11/88 26.99 17.03 - 11.90
S&P 500 Index(4)+ 5/1/96 40.33 - - 32.89
Science & Technology(5) 8/1/97 - - - -2.00
World Growth(1) 10/1/92 28.41 15.94 - 15.94
ASSET ALLOCATION
Balanced Strategy(1) 9/1/95 26.23 - - 16.92
Cornerstone Strategy(1) 8/15/84 26.15 15.31 9.33 -
Growth and Tax Strategy(2)** 1/11/89 18.12 11.73 - 10.69
Growth Strategy(1) 9/1/95 26.54 - - 24.91
Income Strategy 9/1/95 18.42 - - 11.85
INCOME--TAXABLE
GNMA 2/1/91 10.02 6.70 - 7.81
Income 3/4/74 11.55 7.35 10.31 -
Income Stock 5/4/87 31.46 16.04 13.55 -
Short-Term Bond 6/1/93 8.07 - - 5.92
INCOME--TAX EXEMPT
Long-Term(2)** 3/19/82 10.02 6.87 8.85 -
Intermediate-Term(2)** 3/19/82 9.07 6.89 8.05 -
Short-Term(2)** 3/19/82 5.95 4.89 5.81 -
California Bond(2)** 8/1/89 9.85 7.43 - 7.81
Florida Tax-Free Income(2)** 10/1/93 10.18 - - 4.88
New York Bond(2)** 10/15/90 9.69 6.58 - 8.49
Texas Tax-Free Income(2)** 8/1/94 10.30 - - 9.56
Virginia Bond(2)** 10/15/90 8.92 7.12 - 8.26
MONEY MARKET
Money Market(3) 2/2/81 5.32 4.58 5.77 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.39 3.06 4.13 -
Treasury Money Market Trust(3) 2/1/91 5.16 4.38 - 4.41
California Money Market(2),(3)** 8/1/89 3.30 2.98 - 3.61
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.28 - - 3.06
New York Money Market(2),(3)** 10/15/90 3.22 2.85 - 3.09
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.36 - - 3.33
Virginia Money Market(2),(3)** 10/15/90 3.26 2.90 - 3.21
</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.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* Total return equals income return 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.
+ Includes the $10 annual account maintenance fee through December 31, 1996.
MESSAGE FROM THE PRESIDENT
We recently received a bit of good news.
It is that all eight of the tax-exempt bond funds which we offer, the Long-Term,
Intermediate-Term and Short-Term Funds, plus our five state-specific bond funds,
have been awarded five-star ratings by Morningstar for the one-year period ended
September 30, 1997.* We are pleased with this achievement, mainly because of
what it confirms. To understand that, let's talk about what these ratings mean.
<TABLE>
EIGHT IS GREAT!
USAA's eight Tax-Exempt Bond Funds
all receive Morningstar's 5 star rating
in the municipal bond funds category for the year ended 9-30-97.*
<CAPTION>
FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USAA Tax Exempt Intermediate-Term Fund ***** 5* 5* 5*
USAA Tax Exempt Short-Term Fund ***** 5* 5* 5*
USAA Virginia Bond Fund** ***** 5* 5*
USAA Tax Exempt Long-Term Fund ***** 5* 4* 4*
USAA California Bond Fund** ***** 5* 4*
USAA New York Bond Fund** ***** 5* 3*
USAA Texas Tax-Free Income Fund** ***** 5*
USAA Florida Tax-Free Income Fund** ***** 4*
Total Funds rated: 1,760 1,374 668 326
</TABLE>
Past performance is no guarantee of future results.
* Morningstar proprietary ratings reflect historical risk-adjusted performance
through 9/30/97. The ratings are subject to change monthly. Morningstar ratings
are calculated from the Fund's 3-, 5-, and 10-year average annual total returns
(with fee adjustments) in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day Treasury bill returns. There
is a three-year minimum performance requirement before a fund is rated. The
one-year rating is calculated using the same methodology, but is not a component
of the overall rating. Overall rating is a weighted average of a fund's 3-, 5-,
and 10-year ratings, when applicable. Among 1,374 municipal bond funds, the USAA
Tax Exempt Intermediate-Term, Short-Term, Texas Tax-Free Income, and Virginia
Bond Funds received overall ratings of 5 stars. The USAA Tax Exempt Long-Term,
California Bond, New York Bond, and Florida Tax-Free Income Funds received
overall ratings of 4 stars. The top ten percent of the funds in a rating
category receive five stars and the next 22.5% receive four stars.
** These funds are only available for residents in these states.
(PHOTO OF THE PRESIDENT, MICHAEL J. C. ROTH, APPEARS HERE)
There are some standard words which you will see commonly published along with
any reference to Morningstar ratings. They are what we call a legend and they
include this; "Morningstar proprietary ratings reflect historical risk-adjusted
performance through [date]. The ratings are subject to change monthly..." At
many conferences I have attended, I have heard Morningstar executives emphasize
the point that their ratings are historically based and that they are not
predictive. In other words they tell you who did well, but they do not purport
to tell you who will do well.
Having said all that, we are pleased with these ratings because they are an
affirmation of one of our basic beliefs. We believe investors in tax-exempt bond
funds want, and will benefit most from tax-exempt income. That seems obvious
when you put it on paper, but it is something which is easily obscured. The
performance and the relative ratings of these funds are based upon their total
returns, which means both interest income and price change. We have chosen very
deliberately to manage our funds for consistently high yields, and we believe
that over time this will be beneficial to our investors both in terms of income
and total return. The Morningstar ratings indicate that in the recent past we
have been correct in these beliefs.
And besides, it's nice to have someone say you're "five-star."
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
INVESTMENT REVIEW
TEXAS TAX-FREE INCOME FUND
OBJECTIVE: Provide Texas investors with a high level of current interest income
that is exempt from federal income taxes.
TYPES OF INVESTMENTS: Invests primarily in investment grade Texas
tax-exempt securities.
3/31/97 9/30/97
------- -------
Net Assets........................ $11.2 MILLION $14.9 MILLION
Net Asset Value Per Share......... $10.38 $10.85
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
March 31, 1997 to September 30, 1997........................ 7.89%(+)
1 Year...................................................... 10.30%
Since inception on August 1, 1994........................... 9.56%
(+) 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, 1997..................... 5.00%
*Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return 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.
- ----------------------------------
CUMULATIVE PERFORMANCE COMPARISON
- ----------------------------------
A chart in the form of a line graph appears here, comparing the cumulative
performance of the Texas Tax-Free Income Fund, the Lehman Brothers Municipal
Bond Index and the Lipper Texas Municipal Debt Funds Average. The data
points from the graph are as follows:
USAA Texas-Tax Free Income Fund
Year Amount
- ---- ------
08/01/94 $10,000
12/31/94 $ 9,679
06/30/95 $10,840
12/31/95 $11,830
06/30/96 $11,729
12/31/96 $12,451
06/30/97 $12,946
09/30/97 $13,366
Lehman Brothers Municipal Bond Index
Year Amount
- ---- ------
08/01/94 $10,000
12/31/94 $ 9,746
06/30/95 $10,686
12/31/95 $11,447
06/30/96 $11,396
12/31/96 $11,954
06/30/97 $12,336
09/30/97 $12,708
Lipper Texas Municipal Debt Funds Average
Year Amount
- ---- ------
08/01/94 $10,000
12/31/94 $ 9,712
06/30/95 $10,624
12/31/95 $11,420
06/30/96 $11,283
12/31/96 $11,819
06/30/97 $12,174
09/30/97 $12,530
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the long-term investment grade tax-exempt
bond market. The Lipper Texas Municipal Debt Funds Average is the average
performance level of all Texas Municipal Debt Funds, as computed by Lipper
Analytical Services, an independent organization that monitors the performance
of mutual funds. All tax-exempt bond funds will find it difficult to outperform
the Lehman Index, since funds have expenses.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER: ROBERT R. PARISEAU, CFA IS HERE]
A Remarkable Economy
The Federal Reserve Board (the Fed) has made it quite evident that they will
tolerate a robust economy and low unemployment. After all, Fed Chairman Alan
Greenspan himself described the economy's performance as remarkable. Such
tolerance is unusual for the Fed since in the past prolonged economic growth and
tight labor markets raised serious concerns of inflation. However, Chairman
Greenspan has made it crystal clear that, if inflation should re-ignite, he
would act forcefully. Very likely the Fed would initiate one or more increases
in short-term interest rates triggering a negative reaction by the financial
markets. Obviously, new economic conditions and relationships have lowered the
inflationary threshold compared to the 1980s. But, a limit still exists. It will
be most interesting to see how long and how far this economy can go without
generating inflationary pressures.
Interest Rates
The yield on the Bond Buyer 40-Bond Index (BBI40), the industry standard for the
yield of long-term, investment-grade municipal bonds, fell nearly 1/2 percent
from March 31, 1997, until July. During August and September the BBI40 traded in
the range of 5.40% to 5.60%.
Portfolio Strategy
I focus primarily on generating maximum tax-exempt income that potentially
should produce the best after-tax total return over a 3-5 year investment
horizon. I do not buy exotic derivatives or bonds subject to the alternative
minimum tax (AMT), nor do I hedge the portfolio with futures contracts.
Absolute concentration on pretax total return implies that the manager believes
he or she can forecast interest rates. I don't believe anyone has ever
demonstrated that they can consistently predict the future of interest rates.
Although I pay close attention to total return, my primary concern remains on
generating tax-free income. There are other reasons. Typically income is the
largest component of total return, and over longer time horizons price
volatility tends to even out.
Current Market Conditions
With interest rates nearing four-year lows, finding a value in the marketplace
is more of a challenge. Currently, investment grade bonds, regardless of their
credit rating (AAA or BBB), are selling at yields within a very narrow range. I
will invest only in those bonds that I believe offer the best value for
shareholders.
Your Fund's Performance
Since long-term interest rates dropped during the period, your Fund's net asset
value (NAV) per share increased by $.47 to $10.85, or 4.5%, since March 31,
1997. 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 5.32%, as compared to the Lipper Texas
Municipal Debt Funds average of 4.80% for the 20 funds in the category.(2)For
the same period, the Fund's total return(3) was 7.89%, as compared to the
Lipper's average of 6.31%.
- -------------------------------------
COMPARISON - 12 MONTH DIVIDEND YIELD
- -------------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Texas Tax-Free Income Fund and
the Lipper Texas Municipal Debt Funds Average from 9/30/95 to 9/30/97.
USAA Texas Tax-Free Lipper Texas Municipal
Income Fund Yield Debt Funds Average
9/30/95 5.42% 5.13%
9/30/96 5.48% 4.93%
9/30/97 5.38% 4.82%
The Lipper Texas 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 9/30/95 to
9/30/97.
(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 return equals income return plus share price change and assumes
reinvestment of dividends and capital gains distributions.
The table below compares the yield of the USAA Texas Tax-Free Income Fund with a
taxable equivalent investment.
To match the Texas Tax-Free Income Fund's closing 30-Day SEC yield of 5.00% and:
ASSUMING A MARGINAL FEDERAL TAX RATE OF:
28% 31% 36% 39.6%
A FULLY TAXABLE INVESTMENT MUST PAY: 6.94% 7.25% 7.81% 8.28%
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.
The State of Texas
The Texas economy continues to diversify and now more closely resembles the
national economy as compared to the 1970s and 1980s. Growth in the state's gross
domestic product (GDP), particularly in services, high tech, exports, and
manufacturing, outpaced the nation for the last two years. Texas ranks second in
the nation in total export trade thanks in part to NAFTA.(4) Personal income
growth has exceeded the nation's since 1989, but still remains only 91% of the
national average and ranks 32nd.
Property values have now increased for three consecutive years following
declines that stretched back to the mid 1980s. In fact, construction is the
fastest growing industry sector. State GDP growth may begin to slow as evidenced
by the deceleration of retail sales in 1996. Since Texas has nearly the youngest
median age in the nation, legislators decided to target 60% of incremental state
revenues for public and higher education. After a very exciting legislative
session, Governor Bush's property tax reform was defeated. Looking forward, we
will closely monitor financial and legislative issues that could potentially
impact your Fund's holdings.
(4) Source: U.S. Department of Commerce. The North American Trade Agreement
(NAFTA) is a comprehensive trade agreement that virtually improves all
aspects of doing business within North America.
-----------------------
PORTFOLIO RATINGS/MIX
SEPTEMBER 30, 1997
-----------------------
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1997
of the USAA Texas Tax-Free Income Fund to be:
AAA - 37%, Cash Equivalents - 1%, A -13%, AA 19%, BBB 30%
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group, or Fitch Investors Service.
Note: Income may be subject to the federal alternative minimum tax.
See page 15 for a complete listing of the Portfolio of Investments in
Securities.
INVESTMENT REVIEW
TEXAS TAX-FREE MONEY MARKET FUND
OBJECTIVE: Provide Texas investors with a high level of current interest income
that is exempt from federal income taxes, while preserving capital and
maintaining liquidity.
TYPES OF INVESTMENTS: High quality Texas 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 maintain a
stable net asset value of $1.00 per share.
3/31/97 9/30/97
------- -------
Net Assets............................. $5.3 MILLION $5.3 MILLION
Net Asset Value Per Share.............. $1.00 $1.00
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
March 31, 1997 to September 30, 1997......................... 1.75%(+)
1 Year....................................................... 3.36%
Since inception on August 1, 1994............................ 3.33%
(+) 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, 1997..................... 3.74%
Total return equals income return and assumes reinvestment of all dividends and
any 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. Yields and returns fluctuate.
----------------------
7-DAY YIELD COMPARISON
----------------------
A chart in the form of a line graph appears here illustrating the comparison of
the 7-day yield of the USAA Texas Tax-Free Money Market Fund to the 7-Day Yield
of the IBC/Donoghue's State Specific SB & GP Money Funds from 9/96 to 9/97.
USAA Texas Fund IBC/Donoghue
9/96 3.37% 3.09%
10/96 3.18% 2.94%
11/96 3.15% 2.91%
12/96 3.51% 3.23%
1/97 3.05% 2.83%
2/97 3.06% 2.77%
3/97 2.96% 2.7%
4/97 3.71% 3.48%
5/97 3.5% 3.24%
6/97 3.56% 3.27%
7/97 3.25% 3.02%
8/97 3.09% 2.79%
9/97 3.70%* 3.25%*
Data represent the last Monday of each month.
*Ending date 9/29/97
The graph tracks the Fund's 7-day simple yield against IBC/Donoghue's State
Specific SB (Stock Broker) & GP (General Purpose) (Tax-Free) Money Funds, an
average of all major money market fund yields.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER: JOHN C. BONNELL, CFA IS HERE]
The Market
All financial markets are driven by supply and demand relationships. This was
especially highlighted in the summer months by the tax-exempt money market.
During the six months ending September 30, 1997, the one-year Treasury bill
yield ranged from 6.07% to 5.42% and has generally trended down since the end of
April. The same cannot be said for one-year municipal notes. As measured by the
Bond Buyer One-Year Note Index,(1) yields ranged from 3.97% to 3.76% during the
same time span, and ended the period at 3.82%, only slightly lower than the
3.85% at the end of March. Why didn't short-term municipals follow the
short-term treasury market closer? The municipal market is influenced more by
the amount of securities available in the market, and the amount of cash to be
invested. Several possible factors that combined this year to influence both the
supply of and demand for short-term tax-exempt securities included the
following:
- The scarcity in supply of one-year notes.
- Borrowings made for periods longer than twelve months.
- An increase in the alternative to fixed rate notes.
With improved economic conditions issuers did not need to borrow as much as in
prior years. In fact, more issuers chose to borrow for fifteen months,
temporarily making their securities too long for money market investments.
Alternatively, underwriters created money market eligible variable rate products
out of long-term securities, thus increasing the supply of variable rate
securities.(2)
(1) Bond Buyer Index is the industry standard for yields of investment-grade
municipal bonds.
(2) Variable rate demand note: A note representing borrowings that is payable
on demand and that bears interest tied to money market rate.
The equity and long-term bond markets both experienced tremendous price gains
over the last six months. This was accompanied by extreme volatility which many
expect caused large cash flows into and out of money market funds. In addition,
during the Federal government budget negotiations one proposal contained a
provision that would reduce the amount of tax-exempt interest corporations could
claim. This provision was not included in the final budget bill, but many feel
corporations reduced their municipal holdings (a large amount being short-term
securities) temporarily, only to buy into the market after the budget was
passed. These events combined to influence the demand for short-term municipal
securities. Situations such as these, which are unique to the municipal market,
explain why the municipal market does not always closely track the much larger
and highly efficient treasury market.
Strategy
Your Fund strives to meet its objective in any prevailing market environment.
This is done in part by maintaining a mix of fixed rate securities and variable
rate securities in the fund. Fixed rate securities lock in rates and help
stabilize the Fund's yield during the periods when there is a large amount of
money in the market relative to supply. Variable rate securities provide
liquidity necessary to take advantage of higher yielding securities as
opportunities arise. Our longstanding commitment to credit research is a major
factor that ensures all purchases are the best relative value in the market at
any given time.
Performance
While past performance is no guarantee of future results, for the 12 months
ending September 30, 1997, your Fund ranked 8 out of 149 State Specific
Tax-Exempt Money Market Funds according to IBC Financial Data, Inc. with a yield
of 3.36%. The average for the category over the same time period was 3.00%.
Texas
The Texas economy continues to expand and diversify. While the rate of growth
has tempered (2.8% for 1996 vs. 3.5% in 1995) it still exceeds the national
rate. The Texas economy as measured by its gross state product accounts for 7%
of the total U.S. economy. Exports (especially to Mexico) continue to be a major
factor in the Texas economy, increasing 248% over the last ten years.
One of the key issues debated during the most recent legislative session was an
attempt to lower school property taxes. While both the Senate and the House
passed versions of the bill, a compromise was not reached. As a result, it was
agreed to use the state's $1 billion surplus in the current budget to provide
school property tax relief to homeowners by increasing the homestead exemption.
Even though the state continues to show strong financial performance, we
continue to analyze each issue on a case-by-case basis and remain very selective
when investing Fund assets.
- -----------------------------------
Cumulative Performance of $10,000
- -----------------------------------
A chart in the form of a line graph appears here, illustrating the cumulative
performance of a $10,000 Investment in the Texas Tax-Free Money Market Fund.
The data points from the graph are as follows:
8/1/94 $10,000
8/94 $10,021
12/94 $10,122
08/95 $10,364
12/95 $10,483
08/96 $10,707
12/96 $10,823
08/97 $11,063
09/30/97 $11,096
Past performance is no guarantee of future results and the value of your
investment will 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 this Fund is neither insured nor guaranteed by the U.S.
government and there is no assurance that the Fund will maintain a stable net
asset value of $1 per share.
See page 18 for a complete listing of the Portfolio of Investments in
Securities.
<TABLE>
Statements of Assets and Liabilities
(In Thousands)
September 30, 1997
(Unaudited)
<CAPTION>
Texas Texas
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
<S> <C> <C>
Assets
Investments in securities, at market value
(identified cost of $13,803 and $4,514, respectively) $ 14,625 $ 4,514
Cash 142 110
Receivables:
Capital shares sold 9 12
Interest 182 37
Securities sold - 643
--------- -------
Total assets 14,958 5,316
--------- -------
Liabilities
Securities purchased - 15
Capital shares redeemed - 22
USAA Transfer Agency Company 7 -
Accounts payable and accrued expenses 12 3
Dividends on capital shares 12 1
--------- -------
Total liabilities 31 41
--------- -------
Net assets applicable to capital shares outstanding $ 14,927 $ 5,275
========= =======
Represented by:
Paid-in capital $ 14,030 $ 5,275
Accumulated net realized gain on investments 75 -
Net unrealized appreciation of investments 822 -
--------- -------
Net assets applicable to capital shares outstanding $ 14,927 $ 5,275
========= =======
Capital shares outstanding, unlimited number of shares
authorized, $.001 par value 1,375 5,275
========= =======
Net asset value, redemption price, and offering price per share $ 10.85 $ 1.00
========= =======
See accompanying notes to financial statements.
</TABLE>
Categories & Definitions
Portfolios of Investments in Securities
September 30, 1997
(Unaudited)
Fixed-Rate Instruments -- consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the price
of a fixed-rate instrument generally varies inversely to the movement of
interest rates.
Put Bonds -- provide the right to sell the bond at face value at specific tender
dates prior to final maturity. The put feature shortens the effective maturity
to the next tender date.
Variable Rate Demand Notes (VRDN) -- provide the right, on any business day, to
sell the security 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 the date on which the underlying principal amount may be
recovered or the next rate adjustment date consistent with 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 of the
enhancement to support the issuer's ability to repay the principal when due. 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 provider of the
credit enhancement, rather than the credit standing of the issuer.
Portfolio Description Abbreviations
CRE Credit Enhanced
GO General Obligation
IDA Industrial Development Authority/Agency
IDC Industrial Development Corporation
ISD Independent School District
PCRB Pollution Control Revenue Bond
RB Revenue Bond
<TABLE>
Texas Tax-Free Income Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1997
(Unaudited)
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<C> <S> <C> <C> <C>
Fixed Rate Instruments (96.6%)
Texas (89.5%)
$ 200 Austin Community College District RB,
Series 1995 (CRE) 6.10 % 2/01/15 $ 211
200 Bexar County Health Facilities Development
Corp. Refunding RB, Series 1997A (CRE) 5.25 11/15/27 193
250 Bexar Metropolitan Water District RB,
Series 1995 (CRE) 5.88 5/01/22 260
500 Brazos County Health Facilities RB, Series 1993B 6.00 1/01/19 512
1,000 Cedar Hill ISD GO, Series 1996 (CRE) 6.30(b) 8/15/15 373
150 Coastal Water Auth. Contract RB, Series 1995 (CRE) 5.95 12/15/25 155
500 Denison Hospital Auth. RB, Series 1997 6.13 8/15/27 510
200 Department of Housing and Community Affairs RB,
Series 1991A 6.95 7/01/23 213
300 Guadalupe-Blanco River Auth. IDC RB,
Series 1982A 6.35 7/01/22 324
300 Harlingen Higher Education Facilities Corp. RB,
Series 1995 6.38 8/15/15 306
Harris County Health Facilities RB
200 Series 1991A 6.75 2/15/21 218
150 Series 1992 7.13 6/01/15(a) 168
400 Harris County IDC RB, Series 1992 6.95 2/01/22 436
500 Harris County Refunding Toll Road RB (CRE) 5.38 8/15/20 493
100 Health Facilities Development Corp. RB,
Series 1993B (CRE) 6.38 8/15/23 107
75 Housing Agency Single-Family Mortgage RB,
Series 1991A 7.15 9/01/12 80
Houston Water and Sewer System RB
150 Series 1992B 6.38 12/01/14 160
350 Series 1997C (CRE) 5.25 12/01/22 342
500 Lower Neches Valley Auth. IDC RB, Series 1997 5.80 5/01/22 516
400 Matagorda County Navigation District PCRB,
Series 1993 6.00 7/01/28 416
1,500 Mesquite Health Facilities Development Corp. RB,
Series 1996A 6.40 2/15/20 1,539
500 Midland County Hospital District RB,
Series 1997 (CRE) 5.38 6/01/16 495
1,500 Montgomery County Refunding Bonds,
Series 1997 (CRE) 5.60(b) 3/01/16 551
North Central Texas Health Facilities
Development Corp. RB
300 Series 1993 5.90 6/01/21 309
400 Series 1996 6.30 2/15/15 412
Northeast Hospital Auth. RB
400 Series 1993B 7.25 7/01/22(a) 460
700 Series 1997 (CRE) 5.63 5/15/22 705
800 Orange County Navigation and Port District IDC RB,
Series 1996 6.38 2/01/17 870
Pantego GO
60 Series 1994 7.75 2/15/14 66
65 Series 1994 7.75 2/15/15 72
150 Sabine River Auth. PCRB, Series 1992 (CRE) 6.55 10/01/22 162
San Antonio Electric and Gas RB
80 Series 1989 6.50 2/01/12(a) 84
120 Series 1989 6.50 2/01/12 125
300 Series 1992 5.00 2/01/17 287
150 Tarrant County Health Facilities Development Corp. RB,
Series 1994 6.00 9/01/24 155
Turnpike Auth. Dallas North Tollway RB
150 Series 1994 (CRE) 6.75 1/01/15 166
250 Series 1995 5.25 1/01/23 245
280 Tyler Health Facilities Development Corp. Hospital RB,
Series 1993B 6.63 11/01/11 295
135 Tyler Health Facilities Development Corp. RB,
Series 1993B 6.75 11/01/25 143
200 Water Development Board GO, Series 1994 7.00 8/01/20 225
Puerto Rico (7.1%)
600 Electric Power Auth. RB, Series 1995Z 5.25 7/01/21 580
475 Highway Auth. RB, Series Q 6.00 7/01/20 486
- ------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $13,603) 14,425
- ------------------------------------------------------------------------------------------------------
Variable Rate Demand Note (1.4%)
Texas
1,200 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) (cost: $200) 3.95 5/01/03 200
- ------------------------------------------------------------------------------------------------------
Total investments (cost: $13,803) $ 14,625
======================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 22.9%
Nursing Care 13.1
Electric Power 10.5
General Obligations 8.6
Escrowed Securities 6.2
Toll Roads 6.1
Conglomerates 5.8
Oil - International 4.8
Water/Sewer 4.4
Education 3.5
Special Assessment/Tax/Fee 3.3
Leasing 2.9
Chemicals 2.2
Housing - Single-Family 2.0
Water Utilities 1.7
----
Total 98.0%
====
<TABLE>
Texas Tax-Free Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1997
(Unaudited)
<CAPTION>
Principal Coupon Final
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<C> <S> <C> <C> <C>
Variable Rate Demand Notes (63.0%)
Texas
$ 200 Amarillo Health Facilities Corp. RB,
Series 1985 (CRE) 4.25 % 5/31/25 $ 200
200 Arlington IDC RB, Series 1985 (CRE) 4.30 10/01/20 200
200 Austin Higher Education Auth. RB, Series 1995 (CRE) 4.15 8/01/19 200
225 Garland IDA PCRB 4.25 12/01/05 225
200 Gulf Coast IDA RB, Series 1989 (CRE) 4.15 11/01/19 200
200 Matagorda County Hospital District RB,
Series 1988 (CRE) 4.35 8/01/18 200
100 Maverick County IDC RB, Series 1991 (CRE) 4.15 12/01/01 100
200 Metropolitan Higher Education Auth. RB,
Series 1984 (CRE) 4.35 12/01/04 200
100 North Central Health Facilities Development Corp. RB,
Series 1989 (CRE) 4.15 12/01/98 100
100 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 3.95 5/01/03 100
200 Port Development Corp. RB, Series 1984 (CRE) 4.30 12/01/04 200
Tarrant County Housing Finance Corp. MFH RB
420 Series 1985 (CRE) 4.25 12/01/25 420
875 Series 1994 (CRE) 4.25 11/01/07 875
100 Victoria Health Facilities Development Corp. RB,
Series 1997 (CRE) 4.20 9/01/27 100
- ------------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $3,320) 3,320
- ------------------------------------------------------------------------------------------------------
Fixed Rate Instruments (22.6%)
Texas
185 Carrollton GO, Series 1997 (CRE) 5.80 8/15/98 188
25 Comal ISD RB, Series 1991 (CRE) 6.10 2/01/98 25
140 Dallas Waterworks and Sewer Systems RB,
Series 1994 8.20 4/01/98 143
175 Harris County Flood Control District Refunding GO,
Series 1991 5.60 10/01/97 175
80 Hempstead Tax and Revenue Certificates of Obligation,
Series 1994 (CRE) 7.00 6/01/98 82
25 Jefferson County Drainage GO, Series 1989 (CRE) 6.75 5/01/98 25
85 Lewisville GO, Series 1997 (CRE) 4.20 2/01/98 85
105 Lubbock Refunding GO, Series 1997 3.90 2/15/98 105
25 National Research Laboratory Commission
Financing Corp. RB, Series 1991 5.90 12/01/97 25
50 New Boston GO, Series 1997 (CRE) 4.60 2/15/98 50
15 Socorro ISD Tax Refunding and School Building GO,
Series 1986 (CRE) 7.55 9/01/98 15
190 Spring ISD Tax Refunding GO, Series 1993 (CRE) 4.30 2/15/98 190
85 Valley View ISD School Building GO,
Series 1997 (CRE) 7.00 2/15/98 86
- ------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $1,194) 1,194
- ------------------------------------------------------------------------------------------------------
Total investments (cost: $4,514) $ 4,514
======================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
Housing - Multi-Family 24.5%
General Obligations 19.4
Education 7.6
Healthcare - Miscellaneous 5.7
Oil - International 5.7
Manufacturing - Diversified Industries 4.3
Hospitals 3.8
Ports/Wharfs 3.8
Publishing/Newspapers 3.8
Water/Sewer 2.7
Hotel/Motel 1.9
Nursing Care 1.9
Escrowed Securities .5
----
Total 85.6%
====
Notes to Portfolios of Investments in Securities
September 30, 1997
(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.
Specific Notes
(a) Prerefunded to various dates prior to maturity at the call price.
(b) Zero Coupon security. Rate represents the effective yield at date of
purchase. For the Texas Tax-Free Income Fund these securities represent 6.2%
of the Fund's net assets.
See accompanying notes to financial statements.
<TABLE>
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1997
(Unaudited)
<CAPTION>
Texas Texas
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
<S> <C> <C>
Net investment income:
Interest income $ 388 $ 106
----- ------
Expenses:
Management fees 33 13
Transfer agent's fees 7 3
Custodian's fees 16 11
Postage 1 1
Shareholder reporting fees 1 1
Trustees' fees 4 4
Registration fees 1 -
Professional fees 5 5
Other 1 1
----- ------
Total expenses before reimbursement 69 39
Expenses reimbursed (36) (26)
----- ------
Total expenses after reimbursement 33 13
----- ------
Net investment income 355 93
----- ------
Net realized and unrealized gain on investments:
Net realized gain 75 -
Change in net unrealized appreciation/depreciation 545 -
----- ------
Net realized and unrealized gain 620 -
----- ------
Increase in net assets resulting from operations $ 975 $ 93
===== ======
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended September 30, 1997 and Year ended March 31, 1997
(Unaudited)
<CAPTION>
Texas Tax-Free Texas Tax-Free
Income Fund Money Market Fund
----------- -----------------
9/30/97 3/31/97 9/30/97 3/31/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 355 $ 535 $ 93 $ 162
Net realized gain on investments 75 54 - -
Change in net unrealized appreciation/
depreciation of investments 545 38 - -
-------- --------- ------- -------
Increase in net assets resulting
from operations 975 627 93 162
-------- --------- ------- -------
Distributions to shareholders from:
Net investment income (355) (535) (93) (162)
-------- --------- ------- -------
Net realized gains (54) (160) - -
-------- --------- ------- -------
From capital share transactions:
Proceeds from shares sold 3,607 4,063 4,657 6,602
Shares issued for dividends reinvested 345 583 80 93
Cost of shares redeemed (797) (1,425) (4,742) (6,110)
-------- --------- ------- -------
Increase (decrease) in net assets from
capital share transactions 3,155 3,221 (5) 585
-------- --------- ------- -------
Net increase (decrease) in net assets 3,721 3,153 (5) 585
Net assets:
Beginning of period 11,206 8,053 5,280 4,695
-------- --------- ------- -------
End of period $ 14,927 $ 11,206 $ 5,275 $ 5,280
======== ========= ======= =======
Change in shares outstanding:
Shares sold 338 390 4,657 6,602
Shares issued for dividends reinvested 32 56 80 93
Shares redeemed (75) (137) (4,742) (6,110)
-------- --------- ------- -------
Increase (decrease) in shares outstanding 295 309 (5) 585
======== ========= ======= =======
See accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
September 30, 1997
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA State Tax-Free Trust (the Trust), registered under the Investment Company
Act of 1940, as amended, is a diversified, open-end management investment
company organized as a Delaware business trust consisting of four separate
funds. The information presented in this semiannual report pertains only to the
Texas Tax-Free Income Fund and Texas Tax-Free Money Market Fund (the Funds). The
Funds have a common objective of providing Texas investors with a high level of
current interest income that is exempt from federal income taxes. The Texas
Tax-Free Money Market Fund has a further objective of preserving capital and
maintaining liquidity.
A. Security valuation -- Investments in the Texas Tax-Free Income Fund are
valued each business day by a pricing service (the Service) approved by the
Trust's Board of Trustees. 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
Trustees. 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 Texas Tax-Free 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 -- 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 securities. The Funds concentrate their
investments in Texas 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, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($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 its agreement with CAPCO, each Fund may borrow
from CAPCO an amount up to 5% of its total assets at CAPCO's borrowing rate with
no markup. Subject to availability under its agreement with NationsBank, each
Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 15% of its total assets at
NationsBank's borrowing rate plus a markup. The Funds had no borrowings under
either of these agreements during the six-month period ended September 30, 1997.
(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, 1997.
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.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the six-month period ended September 30, 1997 for the Texas Tax-Free Income
Fund were $6,627,591 and $3,618,909, respectively. Purchases and
sales/maturities of securities for the six-month period ended September 30, 1997
for the Texas Tax-Free Money Market Fund were $8,326,429 and $8,320,000,
respectively.
Gross unrealized appreciation and depreciation of investments at September 30,
1997 for the Texas Tax-Free Income Fund was $824,494 and $2,302, respectively.
(5) Transactions with Manager
A. Management fees -- The investment policies of the Funds and the management of
the Funds' portfolios are 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.
The Manager has voluntarily agreed to limit the annual expenses of each Fund to
.50% of its average net assets through August 1, 1998.
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 Funds based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services -- The Manager provides exclusive underwriting and
distribution of the Funds' shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(6) Transactions with Affiliates
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Funds.
<TABLE>
Notes to Financial Statements (Continued)
Texas Tax-Free Income Fund
September 30, 1997
(Unaudited)
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Six-Month
Period Ended Year Ended March 31,
September 30, ------------------------------------
1997 1997 1996 1995 **
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.38 $ 10.45 $ 10.21 $ 10.00
Net investment income .29 .59 .58 .34
Net realized and
unrealized gain .52 .13 .36 .21
Distributions from net
investment income (.29) (.59) (.58) (.34)
Distributions of realized
capital gains (.05) (.20) (.12) -
-------- -------- ------- --------
Net asset value at
end of period $ 10.85 $ 10.38 $ 10.45 $ 10.21
======== ======== ======= ========
Total return (%) * 7.89 7.06 9.42 5.75
Net assets at end
of period (000) $ 14,927 $ 11,206 $ 8,053 $ 6,446
Ratio of expenses to
average net assets (%) .50(a)(b) .50(b) .50(b) .50(a)(b)
Ratio of net investment
income to average
net assets (%) 5.43(a)(b) 5.63(b) 5.51(b) 5.56(a)(b)
Portfolio turnover (%) 28.46 86.17 71.14 49.63
</TABLE>
(a) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
Six-Month
Period Ended Year Ended March 31,
September 30, ------------------------------
1997 1997 1996 1995**
---- ---- ---- ----
Ratio of expenses to
average net assets (%) 1.06(b) 1.35 1.66 2.40(b)
Ratio of net investment
income to average
net assets (%) 4.87(b) 4.78 4.35 3.66(b)
(b) 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.
** Fund commenced operations August 1, 1994.
<TABLE>
Notes to Financial Statements (Continued)
Texas Tax-Free Money Market Fund
September 30, 1997
(Unaudited)
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Six-Month
Period Ended Year Ended March 31,
September 30, ----------------------------------
1997 1997 1996 1995 **
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .02 .03 .03 .02
Distributions from net
investment income (.02) (.03) (.03) (.02)
------- ------- -------- --------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ========
Total return (%) * 1.75 3.22 3.49 2.09
Net assets at end
of period (000) $ 5,275 $ 5,280 $ 4,695 $ 3,881
Ratio of expenses to
average net assets (%) .50(a)(b) .50(a) .50(a) .50(a)(b)
Ratio of net investment
income to average
net assets (%) 3.47(a)(b) 3.17(a) 3.42(a) 3.18(a)(b)
</TABLE>
(a) The information contained in this table is based on actual expenses for the
period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
Six-Month
Period Ended Year Ended March 31,
September 30, ----------------------------
1997 1997 1996 1995 **
---- ---- ---- ----
Ratio of expenses to
average net assets (%) 1.47(b) 1.77 2.02 2.63(b)
Ratio of net investment
income to average
net assets (%) 2.50(b) 1.90 1.90 1.05(b)
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
** Fund commenced operations August 1, 1994.
