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:
Independent Auditors' Report 12
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 21
Statements of Operations 22
Statements of Changes in Net Assets 23
Notes to Financial Statements 24
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.
<TABLE>
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the performance
of our other funds. This summary is a snapshot of the performance of all 33
funds by investment objective as of March 31, 1997.
<CAPTION>
Average Annual Total Return(%)*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
<S> <C> <C> <C> <C> <C>
Capital Appreciation
========================================================================================================
Aggressive Growth 10/19/81 -5.70 11.02 8.98 -
Emerging Markets(1) 11/7/94 12.86 - - 8.14
Gold(1) 8/15/84 -24.30 6.19 -4.11 -
Growth 4/5/71 10.96 14.37 10.98 -
Growth & Income 6/1/93 17.96 - - 15.82
International(1) 7/11/88 15.64 14.34 - 10.77
S&P 500 Index(4) 5/1/96 - - - 19.78+
World Growth(1) 10/1/92 14.38 - - 13.53
Asset Allocation
==================
Balanced Strategy(1) 9/1/95 12.87 - - 11.35
Cornerstone Strategy(1) 8/15/84 13.36 13.32 8.63 -
Growth and Tax Strategy(2)** 1/11/89 8.57 10.08 - 9.71
Growth Strategy(1) 9/1/95 11.02 - - 16.09
Income Strategy 9/1/95 7.17 - - 7.36
Income-Taxable
================
GNMA 2/1/91 5.59 6.94 - 7.35
Income 3/4/74 4.53 7.49 8.79 -
Income Stock 5/4/87 14.01 13.16 - 12.49
Short-Term Bond 6/1/93 6.73 - - 5.45
Income - Tax Exempt
=====================
Long-Term(2)** 3/19/82 6.51 6.80 7.04 -
Intermediate-Term(2)** 3/19/82 5.80 6.82 6.92 -
Short-Term(2)** 3/19/82 4.70 4.85 5.38 -
California Bond(2)** 8/1/89 6.60 7.06 - 7.32
Florida Tax-Free Income(2)** 10/1/93 6.51 - - 3.45
New York Bond(2)** 10/15/90 5.89 6.60 - 8.03
Texas Tax-Free Income(2)** 8/1/94 7.06 - - 8.32
Virginia Bond(2)a** 10/15/90 5.82 7.01 - 7.80
Money Market
==============
Money Market(3) 2/2/81 5.21 4.41 5.82 -
Tax Exempt Money Market(2,3)** 2/6/84 3.30 3.03 4.18 -
Treasury Money Market Trust(3) 2/1/91 5.07 4.20 - 4.35
California Money Market(2,3)** 8/1/89 3.23 2.93 - 3.62
Florida Tax-Free Money Market(2,3)** 10/1/93 3.20 - - 3.01
New York Money Market(2,3)** 10/15/90 3.16 2.80 - 3.07
Texas Tax-Free Money Market(2,3)** 8/1/94 3.22 - - 3.30
Virginia Money Market(2,3)** 10/15/90 3.14 2.85 - 3.19
</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 alterna-
tive minimum tax.
3 An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will be
able to maintain a stable net asset value of $1 per share.
4 S&P 500(Registered Trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
* Total return equals income 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.
+ Cumulative total return since inception, including account maintenance fee.
Message from the President
[Photograph of Michael J. C. Roth, CFA, President and Vice Chairman of the
Board appears here]
At the most recent USAA Strategic Planning Conference, we spent much of our
time discussing USAA's Mission and how to accomplish it in today's world. Our
Mission has three main elements:
+We want to facilitate the financial
security of those whom we serve.
+We seek to do this with highly competitive
products and services.
+In so doing, we want to be the provider of
choice to the military community.
One evening I sat down and considered each of these separately. Perhaps the most
interesting outcome was my thoughts on financial security. What does that mean
to those who make up the USAA family?
I set down these elements:
+Housing and caring for a family
+Pursuing a rewarding career
+Providing for children's educations
+Providing proper medical care
+Protecting the family against accidents and emergencies
+Providing for a comfortable retirement
+Perhaps providing comfort to aging parents
+Creating an estate plan that will serve well those who survive you
+Enjoying life
The last point struck me especially.
Financial planning almost always focuses on the very serious reasons to save and
invest. But there needs to be a balance in people's lives. Here I have learned a
valuable lesson from my wife, Jutta. She has special china and silver. However,
she has always said, "Nothing is stored away in cabinets. I use it as often as I
can. These things are meant to be enjoyed."
This philosophy meshed very well with my ideas on saving. Here too I have urged
balance. You must save for the future, but you must not strangle on that saving.
You should use plans like 401(k)s and IRAs, but you should also set something
aside for now. That means saving in accounts that are not tax-sheltered, and
that means looking at vehicles like tax-exempt bond and money market funds. They
can perform the job of controlling overall portfolio risk, just as they would in
an IRA by combining equity and taxable bond funds. In this case, they are
valuable tools in helping your after-tax return while you enjoy life, the most
pleasant outcome of financial planning.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
USAA Funds Rated 5 Stars
on Overall Performance
Five-star ratings for overall risk-adjusted performance have been awarded by
Morningstar for USAA Funds as of March 31, 1997.*
USAA Tax Exempt Intermediate-Term Fund & USAA Tax Exempt Short-Term Fund
were rated 5 Stars overall among 1,751, 1,237, 601, and 267 municipal bond
funds for the 1-,3-,5-, and 10-year periods, respectively.
USAA Growth & Income Fund was rated 5 Stars for the 3-year period and 4 Stars
for the 1-year period among 1,919 and 3,048 domestic equity funds, respectively.
USAA International Fund was rated 5 Stars for the 5-year period and 4 Stars for
the 1- and 3-year periods overall and among 219, 939, and 478 international
equity funds, respectively.
*Morningstar proprietary ratings reflect historical risk-adjusted performance
through March, 31 1997. The ratings are subject to change monthly. Past
performance is no guarantee of future results. 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 T-bill returns. The one-year
rating is calculated using the same methodology, but is not a component of the
overall rating. Ten percent of the funds in a rating category receive five
stars and the next 22.5% receive four stars.
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.
3/31/96 3/31/97
Net Assets..................... $8.1 Million $11.2 Million
Net Asset Value Per Share...... $10.45 $10.38*
Average Annual Total Returns as of 3/31/97
1 Year........................................................ 7.06%
Since inception on August 1, 1994............................. 8.32%
30-Day SEC Yield** on March 31, 1997.......................... 5.56%
* A capital gain distribution of $.196 was made in May 1996.
**Calculated as prescribed by the securities and exchange commission
A graph is shown here which is a comparison of the change in value of a
$10,000 investment for the period of 8/1/94 to 3/31/97, with dividends and
capital gains reinvested. The ending values for the items graphed are:
Lehman Brothers Muni Bond Index $11,925
USAA Texas Tax-Free Income Fund 12,389
Lipper Texas Municipal Debt Funds Average 11,786
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.
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.
Message from the Manager
[A photograph of Robert R. Pariseau, CFA appears here]
The Envy of the World
Since 1983, the United States economy has enjoyed
impressive, but not spectacular, growth with steadily rising employment,
relatively low inflation and only one short recession in these 14 years. Using
conventional wisdom from the 1970's and early 1980's, an economist would expect
such sustained growth to strain production capacity and trigger higher prices.
However, since 1991, inflation has been consistently below 3.5%, as measured by
the Consumer Price Index.
Has inflation been tamed? My first boss at USAA, Harry Miller, Senior Vice
President for Equity Investments, taught me that the four most dangerous words
in investing are - "it's different this time." Fixed income investors demand
higher interest rates when the inflation rate accelerates, because their future
interest payments will have less purchasing power. Since bond prices fall when
interest rates rise, the bond market reacts negatively to the threat of higher
inflation.
What Is Different This Time?
Compared to earlier decades, quite different factors now influence the many
pieces of the economic puzzle. For example: Have computer technology and
just-in-time manufacturing increased productivity and smoothed economic cycles?
Are workers and managers too concerned about job security and benefits to demand
a raise? Have manufacturers lost pricing power to global competitors? Has the
threat of reform tamed the excessive growth in healthcare costs? Will the new
fiscal conservatism prevail in Congress? Finally, will these factors continue to
dampen inflationary pressures; or, are they temporary in nature?
A Preemptive Move
Chairman Greenspan and the Federal Reserve Board (the "Fed") grappled with these
issues over the last year. Their dilemma - although economic statistics still
indicated benign inflation, economic growth has been vibrant. After concluding
it was too risky to wait for inflation to accelerate, the Fed raised the federal
funds rate on March 25 by .25% to 5.50%. This was the first increase since
February 1995. Inflation won't have a free ride on their watch! As the adage
goes, the Fed's job is to remove the punch bowl just before the party really
gets going. I believe the Fed hopes that a preemptive rate increase now would
slow the economy, restrain inflation, and eliminate the need for a more forceful
response later.
Portfolio Strategy
What should investors do? For many investors, a diversified portfolio of stocks,
bonds, and cash equivalents (money market or short-term bond funds) gives them
the confidence to endure the bumps in the road. As I have said in the past, no
one has yet proven that they can consistently predict the future of interest
rates. Rather than chasing the market, I follow a strategy of generating maximum
tax-exempt income that potentially should produce the best after-tax total
return over a 3-5 year investment horizon. Since I tend to focus on maturities
20 years or longer, this Fund will generally be more volatile than a fund with a
shorter average maturity. Potentially, investors should be rewarded over time
with higher tax-free income and the volatility, both up and down, typically
evens out.
Focus on Healthcare
You may notice that healthcare-related bonds are the largest "industry" segment
for this Fund. I actively seek healthcare providers with certain credit
characteristics. Typically, they yield more because of the uncertainty of
healthcare reform and excess capacity in some markets. I believe we have picked
the winners. Healthcare has been and will continue to be an essential service.
Those providers with dominant market share, solidly profitable operations, and
talented management will not just survive, but thrive in a more competitive
environment.
Bond Selection
You may be interested to know what isn't in the Fund. The Fund currently owns no
lease revenue bonds that rely upon a local municipality, such as a city or
county, to appropriate annually the debt service from their General Fund. Unless
extenuating circumstances exist, an analyst cannot confidently predict debt
service payments that depend upon the actions of an elected governmental body
five or ten years into the future.
Since considerable public controversy typically embroils sports stadium
financing, I tend to avoid these bonds also. As I have said before, I do not buy
exotic derivatives, futures contracts, or bonds subject to the alternative
minimum tax (AMT).
Interest Rates
Interest rates on the 30-year U.S. Treasury Bond(1) (the "Long Bond") began the
reporting period at 6.67% on March 29, 1996. Over the next seven months, rates
traded nervously in a choppy range from 6.60% to 7.19%, falling to a fiscal year
low of 6.35% in November 1996. In December, Long Bond rates began an upward
trend closing the year at 7.10% on March 31, 1997. The yield on the Bond Buyer
40-Bond Index (BBI40), the industry standard for long-term, investment-grade
municipal bonds, behaved similarly. The BBI40 began the one-year period at 5.96%
on March 29, 1996, but closed slightly lower at 5.95% on March 31, 1997.
(1) The 30-year Treasury Bond is generally considered the benchmark for long-
term interest rates in the U.S.
Your Fund's Performance
Your Fund's net asset value per share increased by $.13, or 1.2%, since March
31, 1996, after adjusting for the $.196 capital gain distributed on May 14,
1996. The Fund's performance compared very favorably to its peer group. While
past performance is no guarantee of future results, the Fund's dividend
distribution yield(2) for the past 12 months was 5.64%, as compared to Lipper's
Texas Municipal Debt Funds average of 4.99% for the 20 funds in the category.(3)
For the same period and category, the Fund was ranked #1 for its total return of
7.06%, as compared to the Lipper average of 5.10%.(4)
(2) 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.
(3) Lipper Analytical Services is an independent organization that monitors
the performance of mutual funds.
(4) Total return equals income return plus share price change and
assumes reinvestment of all dividends and capital gain distributions. See the
Fund's average annual total return figures under Investment Review on page 4.
A graph is shown here comparing the 12-month dividend yield of the USAA Texas
Tax-Free Income Fund and the Lipper Texas Municipal Debt Funds Average from
3/31/96 to 3/31/97. The vertical axis shows the yield and the horizontal
axis shows the time period. The values are:
USAA Texas
Tax-Free
Income Fund 5.50 5.60
Lipper. Texas
Muni. Debt
Funds Avg. 5.00 5.00
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 3/31/96 to
3/31/97.
The State of Texas
Job growth "slowed" in Texas to a 2.8% increase in 1996. Last year, the state
created 227,600 jobs which exceeded the nation's 2.1% growth rate. The service
sector is the major source of growth and includes transportation, public
utilities, finance, insurance and government--not just fast food restaurants.
Paced by the high-tech industry, manufacturing employment is up 8% over the last
four years. Even the oil and gas industry achieved its first annual increase
since 1991. At year end 1996, Texas' unemployment rate matched the nation's of
5.3%.
Retail sales are booming - up 8.7% annually since 1991. Per capita income has
made steady improvements but still lags the nation. Texas trade with Mexico
increased 20% in 1996, reversing an 8% decline in 1995. With a young population
and growing trade opportunities, the future is bright for the Lone Star State.
Reflecting economic growth and stable financial strength, all three rating
agencies rate the state as a "AA" credit.
Governor George Bush is petitioning lawmakers to approve his tax restructuring
plan. The Governor wants to drastically reduce property taxes, currently
disproportionately high compared to some states, and shift to higher and broader
sales, business and franchise taxes. He has ruled out the possibility of a state
income tax. Local school districts would then receive more state funding and
rely less on their local property taxes. At this point, we do not anticipate any
negative credit implications for local school districts or municipalities.
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 5.56% and:
Assuming a Marginal Federal Tax Rate of:
28% 31% 36% 39.6%
A fully taxable investment must pay: 7.72% 8.06% 8.69% 9.21%
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.
A pie chart is shown here depicting the Portfolio Ratings/Mix as of March 31,
1997 of the USAA Texas Tax-Free Income Fund to be:
AAA - 23%, AA - 22%, A - 13%, BBB - 41%, and Cash Equivalents - 1%.
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group, or Fitch Investors Service.
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.
3/31/96 3/31/97
Net Assets................................ $4.7 Million $5.3 Million
Net Asset Value Per Share................. $1.00 $1.00
Average Annual Total Returns as of 3/31/97
1 Year........................................................... 3.22%
Since inception on August 1, 1994................................ 3.30%
7-Day Simple Yield on March 31, 1997............................. 3.13%
A graph is shown here comparing the 7-day yield of the USAA Texas Tax-Free
Money Market Fund and the IBC/Donoghue's State Specific SB & GP (Tax-Free)
from 3/96 to 3/97. The vertical axis shows the yield and the horizontal
axis shows the time period. The ending value, on 3/25/97, for the USAA
Texas Tax-Free Money Market Fund is 2.98% and the ending value for the IBC
Donoghue's State Specific SB & GP (Tax-Free) is 2.70%.
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 and the value of your investment
may vary according to the Fund's performance. The graph tracks the Fund's 7-day
simple yield against IBC/Donoghue's State Specific SB (Stock Broker) & GP
(General Purpose) (Tax-Free) Money Funds, an average of all major money market
fund yields.
Message from the Manager
[A photograph of John C. Bonnell, CFA appears here]
Interest Rates
The short-term debt markets are heavily influenced by actions taken, or not
taken by the Federal Reserve (the Fed). After lowering the federal funds rate
(the rate banks charge each other for overnight loans) .25% on January 31, 1996,
the Fed maintained a stable policy for the remainder of 1996. However, an
exceptionally strong jobs report in February 1996 was the first of many signs
that the economy was growing much faster than originally anticipated. These
strong economic indicators and statistics were perceived by many to have the
potential of producing inflation. On March 25, 1997, the Fed announced it was
increasing the federal funds rate .25% in an attempt to prevent inflation before
it became a problem. It is still unclear (as it always is) whether this will be
a single move, or one of a series of rate hikes. The volatility in short-term
rates is illustrated by the one-year Treasury bill rate which increased more
than 1.0% between February and July 1996, before falling approximately .5% by
the end of 1996. The first quarter of 1997 brought higher rates once again with
the one-year Treasury bill increasing .5% to end the quarter at 6.0%, the
highest since May 22, 1995.
Strategy
We strive to meet the Fund's objective in any prevailing interest rate
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
for a given period of time, and help stabilize the Fund's yield during the
periods when there is a large amount of cash in the market relative to supply.
Variable rate securities pay interest that adjusts periodically to prevailing
market conditions, and also provide liquidity necessary to take advantage of
higher yielding securities when opportunities arise. Maintaining an appropriate
mix of different types of securities and conducting internal credit research
combine to provide a highly competitive return. As part of our stringent
selection criteria, we strive to ensure 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 March 31, 1997, your Fund ranked 10 out of 149 State Specific Tax-Exempt
Money Market Funds according to IBC Financial Data, Inc.(1) The Fund's
compounded dividend yield was 3.22%, while the average for the category over
the same time period was 2.89%.
(1) IBC Financial Data, Inc. provides independent analyses of trends in
the financial services and investing industries, with particular concentration
on money market funds.
Texas
The Texas economy continues to expand but at a more moderate pace than in the
past. As measured by Gross State Product, Texas' economy accounts for more than
7% of the total U.S. economy. Despite a slowdown in the rate of job growth, the
state still added approximately 227,600 jobs in 1996, which is the fourth
consecutive year the state added over 200,000 jobs! Texas ranked 10th among the
states in rate of employment growth, behind mostly western states with smaller
populations. The economy continues to diversify with the oil and gas industry
now accounting for 10% of jobs, compared to 25% fifteen years ago. Texas ranks
2nd among the states in total export trade. Trade with Mexico now accounts for
nearly one-third of all Texas exports. This number is expected to increase as
Mexico solves its own economic difficulties. One of the key issues currently
being debated is Governor Bush's attempt to lower school property taxes. While
ideas are being proposed now, this is certainly an issue we are monitoring
closely. Even though the state is performing very well, we continue to analyze
each issue on a case by case basis and remain very selective when investing fund
assets.
A graph is here showing the growth of $10,000, from 8/1/94 to 3/31/97, invested
in the USAA Texas Tax-Free Money Market Fund. The vertical axis shows the
dollar amount and the horizontal axis shows the time period. The ending
value is $10,906.
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance. Income may vary
according to the Fund's performance. Income may be subject to federal taxes,
or to the alternative minimuum 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.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
USAA State Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities and
portfolios of investments in securities of the Texas Tax-Free Income and Texas
Tax-Free Money Market Funds, separate Funds of USAA State Tax-Free Trust, as of
March 31, 1997, the related statements of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights information presented in note 7
to the financial statements for each of the years in the two-year period ended
March 31, 1997, and the eight-month period ended March 31, 1995. These financial
statements and the financial highlights information are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights information based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 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, the financial statements and financial highlights information
referred to above present fairly, in all material respects, the financial
position of the Texas Tax-Free Income and Texas Tax-Free Money Market Funds,
separate Funds of USAA State Tax-Free Trust, as of March 31, 1997, the results
of their operations for the year then ended, the changes in their net assets for
each of the years in the two-year period then ended, and the financial
highlights information for each of the years in the two-year period ended March
31, 1997, and the eight-month period ended March 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
May 9, 1997
<TABLE>
Statements of Assets and Liabilities
(In Thousands)
March 31, 1997
<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 $10,603 and $4,518, respectively) $ 10,880 $ 4,518
Cash 30 99
Receivables:
Capital shares sold 6 36
Interest 125 34
Securities sold 1,199 803
--------- --------
Total assets 12,240 5,490
--------- --------
Liabilities
Securities purchased 1,018 138
Capital shares redeemed - 66
Accounts payable and accrued expenses 8 3
Dividends on capital shares 8 3
--------- --------
Total liabilities 1,034 210
--------- --------
Net assets applicable to capital shares outstanding $ 11,206 $ 5,280
========= ========
Represented by:
Paid-in capital $ 10,875 $ 5,280
Accumulated net realized gain on investments 54 -
Net unrealized appreciation of investments 277 -
--------- --------
Net assets applicable to capital shares outstanding $ 11,206 $ 5,280
========= ========
Capital shares outstanding, unlimited number of shares
authorized, $.001 par value 1,080 5,280
========= ========
Net asset value, redemption price, and offering price per share $ 10.38 $ 1.00
========= ========
</TABLE>
See accompanying notes to financial statements.
Categories & Definitions
Portfolios of Investments in Securities
March 31, 1997
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.
<TABLE>
Texas Tax-Free Income Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1997
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Fixed Rate Instruments (96.2%)
<C> <S> <C> <C> <C>
Texas (92.0%)
$ 200 Austin Community College District RB,
Series 1995 (CRE) 6.10 % 2/01/15 $ 205
250 Bexar Metropolitan Water District RB,
Series 1995 (CRE) 5.88 5/01/22 250
500 Brazos County Health Facilities RB,
Series 1993B 6.00 1/01/19 484
1,000 Cedar Hill ISD GO, Series 1996 (CRE) 6.30 (a) 8/15/15 325
150 Coastal Water Auth. Contract RB,
Series 1995 (CRE) 5.95 12/15/25 147
500 Denison Hospital Auth. RB, Series 1997 6.13 8/15/27 478 (c)
200 Department of Housing and Community
Affairs RB, Series 1991A 6.95 7/01/23 209
300 Guadalupe-Blanco River Auth. IDC RB,
Series 1982A 6.35 7/01/22 315
300 Harlingen Higher Education Facilities Corp. RB,
Series 1995 6.38 8/15/15 288
Harris County Health Facilities RB,
200 Series 1991A 6.75 2/15/21 212
150 Series 1992 7.13 6/01/15(b) 165
400 Harris County IDC RB, Series 1992 6.95 2/01/22 421
100 Health Facilities Development Corp. RB,
Series 1993B (CRE) 6.38 8/15/23 104
75 Housing Agency Single-Family Mortgage RB,
Series 1991A 7.15 9/01/12 79
150 Houston Water and Sewer System RB,
Series 1992B 6.38 12/01/14 156
400 Matagorda County Navigation District PCRB,
Series 1993 6.00 7/01/28 400
1,500 Mesquite Health Facilities Development Corp. RB,
Series 1996A 6.40 2/15/20 1,463
North Central Texas Health Facilities
Development Corp. RB,
300 Series 1993 5.90 6/01/21 293
400 Series 1996 6.30 2/15/15 392
400 Northeast Hospital Auth. RB, Series 1993B 7.25 7/01/22 426
2,900 Northwest ISD GO, Series 1997 (CRE) 6.32 (a) 8/15/25 482
500 Nueces River Auth. Water Supply Facilities RB,
Series 1997 (CRE) 5.50 3/01/27 469
800 Orange County Navigation and Port District
IDC RB, Series 1996 6.38 2/01/17 831
Pantego GO,
60 Series 1994 7.75 2/15/14 65
65 Series 1994 7.75 2/15/15 70
150 Sabine River Auth. PCRB, Series 1992 (CRE) 6.55 10/01/22 158
300 San Antonio Electric and Gas RB, Series 1992 5.00 2/01/17 269
200 San Antonio Electric and Gas RB, Series 1989 6.50 2/01/12 208
150 Tarrant County Health Facilities Development
Corp. RB, Series 1994 6.00 9/01/24 146
150 Turnpike Auth. Dallas North Tollway RB,
Series 1994 (CRE) 6.75 1/01/15 162
Tyler Health Facilities Development Corp. RB,
280 Series 1993B 6.63 11/01/11 286
135 Series 1993B 6.75 11/01/25 138
200 Water Development Board GO, Series 1994 7.00 8/01/20 219
Puerto Rico (4.2%)
500 Electric Power Auth. RB, Series X 5.50 7/01/25 465
- -------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $10,503) 10,780
- -------------------------------------------------------------------------------------------------------
Variable Rate Demand Note (0.9%)
Texas
100 Nueces River Auth. PCRB,
Series 1985 (CRE) (cost: $100) 4.00 12/01/99 100
- -------------------------------------------------------------------------------------------------------
Total investments (cost: $10,603) $ 10,880
Portfolio Summary By Industry
- -------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio Summary by Industry
-----------------------------
Hospitals 22.9%
Nursing Care 16.5
Electric Power 13.4
General Obligations 10.4
Conglomerates 7.4
Water/Sewer 6.9
Education 4.4
Leasing 3.8
Chemicals 2.8
Single-Family Housing 2.6
Water Utilities 2.2
Escrowed Securities 1.5
Toll Roads 1.4
Aluminum .9
----
Total 97.1%
====
<TABLE>
Texas Tax-Free Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1997
<CAPTION>
Principal Coupon Final
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Variable Rate Demand Notes (55.3%)
<C> <S> <C> <C> <C>
Texas
Amarillo Health Facilities Corp. RB,
$ 100 Series 1985 (CRE) 3.65 % 5/31/25 $ 100
100 Series 1996A (CRE) 3.50 8/15/06 100
200 Arlington IDC RB, Series 1985 (CRE) 3.80 10/01/20 200
200 Austin Higher Education Auth. RB,
Series 1995 (CRE) 3.55 8/01/19 200
200 Gulf Coast IDA RB, Series 1989 (CRE) 3.55 11/01/19 200
100 Hunt County IDC RB, Series 1987 (CRE) 3.40 10/01/02 100
200 Lubbock Health Facilities Development Corp. RB,
Series 1992 (CRE) 3.60 10/01/13 200
100 Maverick County IDC RB, Series 1991 (CRE) 3.55 12/01/01 100
200 Metropolitan Higher Education Auth. RB,
Series 1984 (CRE) 3.75 12/01/04 200
200 Port Development Corp. RB, Series 1984 (CRE) 3.65 12/01/04 200
Tarrant County Housing Finance Corp. MFH RB,
720 Series 1985 (CRE) 3.60 12/01/25 720
500 Series 1994 (CRE) 3.70 11/01/07 500
100 Trinity River IDA RB, Series 1994 (CRE) 3.53 11/01/14 100
- ---------------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $2,920) 2,920
- ---------------------------------------------------------------------------------------------------------
Put Bonds (3.8%)
Texas
100 Matagorda County Hospital District RB,
Series 1988 (CRE) 3.80 8/01/18 100
100 Tyler Health Facilities Development Corp.
Hospital RB, Series 1993C (CRE) 3.50 11/01/25 100
- ---------------------------------------------------------------------------------------------------------
Total put bonds (cost: $200) 200
- ---------------------------------------------------------------------------------------------------------
Fixed Rate Instruments (26.5%)
Texas
200 Arlington Permanent Improvement GO,
Series 1992A 5.45 8/15/97 201
145 Association of School Boards TAN,
Series 1996A (CRE) 4.75 8/29/97 146
175 Harris County Flood Control District
Refunding GO, Series 1991 5.60 10/01/97 176
105 Lubbock Refunding GO, Series 1997 3.90 2/15/98 105
50 New Boston GO, Series 1997 (CRE) 4.60 2/15/98 50 (c)
115 Queen City ISD GO, Series 1996 (CRE) 4.00 8/15/97 115
190 Spring ISD Tax Refunding GO,
Series 1993 (CRE) 4.30 2/15/98 191
100 Texas A & M University RB, Series 1995 5.10 5/15/97 100
85 Valley View ISD School Building GO,
Series 1997 (CRE) 7.00 2/15/98 87 (c)
225 Water Development Refunding GO, Series 1986B 7.10 8/01/97 227
- ----------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $1,398) 1,398
- ----------------------------------------------------------------------------------------------------------
Total investments (cost: $4,518) $ 4,518
==========================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
Multi-Family Housing 23.1%
General Obligations 15.3
Education 14.4
Hospitals 7.6
Escrowed Securities 4.3
Oil - International 3.8
Ports/Wharfs 3.8
Publishing/Newspapers 3.8
Healthcare - Miscellaneous 1.9
Hotel/Motel 1.9
Oil Well Equipment & Service 1.9
Retail - Specialty 1.9
Retirement Homes 1.9
----
Total 85.6%
====
Notes to Portfolios of Investments in Securities
March 31, 1997
General Notes
Values of securities are determined by procedures and practices discussed in
note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
Portfolio Description Abbreviations
CRE Credit Enhanced
GO General Obligation
IDA Industrial Development Authority/Agency
IDC Industrial Development Corporation
ISD Independent School District
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
TAN Tax Anticipation Notes
Specific Notes
(a) Zero Coupon security. Rate represents the effective yield at date
of purchase. For the Texas Tax-Free Income Fund these securities represent
7.2% of the Fund's net assets.
(b) Prerefunded to various dates prior to maturity at the call price.
(c) At March 31, 1997, the cost of securities purchased on a delayed
delivery basis for the Texas Tax-Free Income Fund and Texas Tax-Free Money
Market Fund was $484,890 and $137,049, respectively.
See accompanying notes to financial statements.
<TABLE>
Statements of Operations
(In Thousands)
Year ended March 31, 1997
<CAPTION>
Texas Texas
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
<S> <C> <C>
Net investment income:
Interest income $ 583 $ 187
----- ------
Expenses:
Management fees 48 25
Transfer agent's fees 11 5
Custodian's fees 40 33
Postage 1 1
Shareholder reporting fees 3 2
Trustees' fees 7 7
Registration fees 1 -
Audit fees 8 8
Legal fees 6 6
Other 3 3
----- ------
Total expenses before reimbursement 128 90
Expenses reimbursed (80) (65)
----- ------
Total expenses after reimbursement 48 25
----- ------
Net investment income 535 162
----- ------
Net realized and unrealized gain on investments:
Net realized gain 54 -
Change in net unrealized appreciation/depreciation 38 -
----- ------
Net realized and unrealized gain 92 -
----- ------
Increase in net assets resulting from operations $ 627 $ 162
===== ======
</TABLE>
See accompanying notes to financial statements.
<TABLE>
Statements of Changes in Net Assets
(In Thousands)
Years ended March 31,
<CAPTION>
Texas Tax-Free Texas Tax-Free
Income Fund Money Market Fund
----------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 535 $ 394 $ 162 $ 155
Net realized gain on investments 54 255 - -
Change in net unrealized appreciation/
depreciation of investments 38 (37) - -
--------- ------- ------- -------
Increase in net assets resulting from
operations 627 612 162 155
--------- ------- ------- -------
Distributions to shareholders from:
Net investment income (535) (394) (162) (155)
--------- ------- ------- -------
Net realized gains (160) (85) - -
--------- ------- ------- -------
From capital share transactions:
Proceeds from shares sold 4,063 6,568 6,602 3,978
Shares issued for dividends reinvested 583 412 93 123
Cost of shares redeemed (1,425) (5,506) (6,110) (3,287)
--------- ------- ------- -------
Increase in net assets from
capital share transactions 3,221 1,474 585 814
--------- ------- ------- -------
Net increase in net assets 3,153 1,607 585 814
Net assets:
Beginning of period 8,053 6,446 4,695 3,881
--------- ------- ------- -------
End of period $ 11,206 $ 8,053 $ 5,280 $ 4,695
========= ======= ======= =======
Change in shares outstanding:
Shares sold 390 621 6,602 3,978
Shares issued for dividends reinvested 56 39 93 123
Shares redeemed (137) (520) (6,110) (3,287)
--------- ------- ------- -------
Increase in shares outstanding 309 140 585 814
========= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
March 31, 1997
(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 annual 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 bonds. 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 through January 13, 1998, one with USAA
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank ($100 million committed). The
purpose of the agreements is to meet temporary or emergency cash needs,
including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under these agreements, each
Fund may borrow up to a maximum of 15% of its total assets, of which only 5% may
be borrowed from CAPCO, at the lending institution's borrowing rate plus a
markup. The Funds had no borrowings under either of these agreements during the
year ended March 31, 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 March 31, 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. A long-term capital gain distribution of $.0479
per share for the Texas Tax-Free Income Fund, declared and paid in May 1997, is
not reflected in the accompanying financial statements.
The Funds completed their fiscal year on March 31, 1997. Federal law (Internal
Revenue Code of 1986, as amended, and the regulations thereunder) requires each
Fund to notify its shareholders after the close of its taxable year as to what
portion of its earnings was exempt from federal taxation and dividend
distributions which represent long-term capital gains. The net investment income
earned and distributed by each of the Funds was 100% tax-exempt for federal
income tax purposes. The Texas Tax-Free Income Fund paid $.0479 per share of
long-term capital gain distributions for the year ended March 31, 1997.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the year ended March 31, 1997 for the Texas Tax-Free Income Fund were
$11,347,144 and $8,069,674, respectively. Purchases and sales/maturities of
securities for the year ended March 31, 1997 for the Texas Tax-Free Money Market
Fund were $16,146,229 and $16,217,250, respectively.
Gross unrealized appreciation and depreciation of investments at March 31, 1997
for the Texas Tax-Free Income Fund was $326,572 and $50,017, 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.
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 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
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At March 31, 1997, the Association and its affiliates
owned 894,890 shares (16.9%) of the Texas Tax-Free Money Market Fund.
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>
Texas Tax-Free Income Fund
March 31, 1997
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<CAPTION>
Year Ended March 31,
---------------------------------------------------
1997 1996 1995 **
---- ---- ----
<S> <C> <C> <C>
Net asset value at
beginning of period $ 10.45 $ 10.21 $ 10.00
Net investment income .59 .58 .34
Net realized and
unrealized gain .13 .36 .21
Distributions from net
investment income (.59) (.58) (.34)
Distributions of realized
capital gains (.20) (.12) -
-------- ------- -------
Net asset value at
end of period $ 10.38 $ 10.45 $ 10.21
======== ======= =======
Total return (%) * 7.06 9.42 5.75
Net assets at end
of period (000) $ 11,206 $ 8,053 $ 6,446
Ratio of expenses to
average net assets (%) .50 (a) .50(a) .50(a)(b)
Ratio of net investment
income to average
net assets (%) 5.63 (a) 5.51(a) 5.56(a)(b)
Portfolio turnover (%) 86.17 71.14 49.63
(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:
Ratio of expenses to
average net assets (%) 1.35 1.66 2.40(b)
Ratio of net investment
income to average
net assets (%) 4.78 4.35 3.66(b)
</TABLE>
(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>
Texas Tax-Free Money Market Fund
March 31, 1997
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each
period is as follows:
<CAPTION>
Year Ended March 31,
--------------------------------------------------
1997 1996 1995 **
---- ---- ----
<S> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income .03 .03 .02
Distributions from net
investment income (.03) (.03) (.02)
------- ------- -------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return (%) * 3.22 3.49 2.09
Net assets at end
of period (000) $ 5,280 $ 4,695 $ 3,881
Ratio of expenses to
average net assets (%) .50 (a) .50(a) .50(a)(b)
Ratio of net investment
income to average
net assets (%) 3.17 (a) 3.42(a) 3.18(a)(b)
(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:
Ratio of expenses to
average net assets (%) 1.77 2.02 2.63(b)
Ratio of net investment
income to average
net assets (%) 1.90 1.90 1.05(b)
</TABLE>
(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.
