Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
Florida Tax-Free Income Fund 4
Florida Tax-Free Money Market Fund 7
Shareholder Voting Results 10
Financial Information:
Statements of Assets and Liabilities 11
Portfolios of Investments in Securities:
Florida Tax-Free Income Fund 13
Florida Tax-Free Money Market Fund 16
Notes to Portfolios of Investments 19
Statements of Operations 20
Statements of Changes in Net Assets 21
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 now "streamlined."
One copy of each report will be sent to each address, instead of our previous
practice of sending one report to every registered owner. For many
shareholders and their families, this eliminates duplicate copies, saving
paper and postage costs to the Funds.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one
report per registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business
hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Florida
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.
c1995, 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 32 funds by investment objective as of September 30,
1995. 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.
<TABLE>
<CAPTION>
Average Annual Total Return*
Investment Inception Since 7-Day 30-Day(1)
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 46.21 22.58 12.68 - - -
Emerging Markets(2) 11/7/94 - - - (.60) - -
Gold(2) 8/15/84 (9.21) 2.95 4.46 - - -
Growth 4/5/71 18.48 16.12 13.22 - - -
Growth & Income 6/1/93 23.46 - - 12.88 - -
International(2) 7/11/88 1.58 13.34 - 9.56 - -
World Growth(2) 10/1/92 6.47 - - 12.43 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - .40 - -
Cornerstone Strategy(2)# 8/15/84 10.89 11.97 12.98 - - -
Growth and Tax Strategy**# 1/11/89 13.86 10.20 - 9.35 - 3.75
Growth Strategy(2) 9/1/95 - - - .30 - -
Income Strategy 9/1/95 - - - 1.50 - -
Income - Taxable
GNMA 2/1/91 12.56 - - 8.18 - 6.82
Income 3/4/74 18.64 10.98 10.47 - - 6.61
Income Stock 5/4/87 20.54 15.74 - 11.95 - -
Short-Term Bond 6/1/93 9.37 - - 5.15 - 6.58
Income - Tax Exempt
Long-Term(3)** 3/19/82 9.83 8.25 8.92 - - 5.73
Intermediate-Term(3)** 3/19/82 9.76 8.14 8.23 - - 5.15
Short-Term(3)** 3/19/82 6.41 5.65 5.94 - - 4.33
California Bond(3)** 8/1/89 11.24 8.28 - 7.39 - 5.75
Florida Tax-Free Income(3)** 10/1/93 9.67 - - 1.17 - 5.71
New York Bond(3)** 10/15/90 9.71 - - 8.68 - 5.65
Texas Tax-Free Income(3)** 8/1/94 13.26 - - 9.80 - 5.61
Virginia Bond(3)** 10/15/90 10.51 - - 8.38 - 5.72
Money Market
Money Market(4) 2/2/81 5.67 4.65 6.01 - 5.56 -
Tax Exempt Money Market(3),(4)** 2/6/84 3.57 3.45 4.40 - 3.89 -
Treasury Money Market Trust(4) 2/1/91 5.42 - - 4.09 5.35 -
California Money Market(3),(4)** 8/1/89 3.53 3.27 - 3.70 3.79 -
Florida Tax-Free Money
Market(3),(4)** 10/1/93 3.45 - - 2.81 3.67 -
New York Money Market(3),(4)** 10/15/90 3.42 - - 3.01 3.89 -
Texas Tax-Free Money
Market(3),(4)** 8/1/94 3.46 - - 3.33 3.57 -
Virginia Money Market(3),(4)** 10/15/90 3.44 - - 3.19 3.62 -
</TABLE>
(1) Calculated as prescribed by the Securities and Exchange Commission.
(2) Foreign investing is subject to additional risks, which are discussed
in the funds' prospectuses.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) 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.
* Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No
adjustment has been made for taxes payable by shareholders on their
reinvested dividends and capital gain distributions. The performance
data quoted represents past performance and is 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, New York, Virginia,
Florida, and Texas funds available to residents only.
# Formerly known as Cornerstone Fund and Balanced Portfolio Fund,
respectively.
Message from the President
[Photograph of Michael J. C. Roth, CFA, President and Vice Chairman of the
Board appears here]
In September I attended an Investment Company Institute conference for
mutual fund directors. It was in Washington D.C., and the speakers included
a current member of the House and a former senator. Both delivered similar
messages: Expect a reform of the tax system.
This news is not a surprise to tax-exempt fund investors. As I pointed out
in a letter earlier this year, the tax-exempt bond market has spent much of
1995 adjusting to the expectation of lower tax rates. It has done this by
narrowing the difference in yields between taxable and tax-exempt bonds.
This adjustment has been well masked by the very handsome total returns in
tax-exempt bonds this year. The portfolio managers will give you details
in their reports.
"We will always remember that you are the reason we are in business."
I wish I could give you simple guidance on where to go from here, but I
cannot. In fact, one of the most difficult questions in reforming the tax
system will be how to approach the tax-exempt bond market. It is not only
important to you, the investor, but also to the state and local entities that
borrow your money through these bonds.
Do we suddenly, in one fell swoop, dramatically raise their cost of
borrowing? If we do, current owners of bonds will be hurt, but so will
everyone who pays taxes in states and cities. Those borrowers will need more
revenue to pay interest on their bonds. Therefore, a radical reform might
lower federal taxes, but raise state and local taxes. I do not think this is
a desirable or desired outcome. It certainly is not a simple problem to solve.
I do not believe that any major change will take place until after the next
national election. At this uncertain time I will make this pledge to you:
We will watch the tax reform situation very closely.
Our guidance to you will keep your interests uppermost.
We will always remember that you are the reason we are in business.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Investment Review
Florida Tax-Free Income Fund
OBJECTIVE: Provide Florida investors with a high level of current interest
income that is exempt from federal income taxes and shares that are exempt
from the Florida intangible personal property tax.
Types of Investments: Invests primarily in long-term investment grade
Florida tax-exempt securities.
3/31/95 9/30/95
Net Assets $42.9 Million $53.8 Million
Net Asset Value Per Share $9.09 $9.21
Average Annual Total Returns as of 9/30/95
March 31, 1995 to September 30, 1995 4.21%**
1 Year 9.67%
Since inception on October 1, 1993 1.17%
** 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, 1995 5.71%*
* 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 10-1-93 to 9/30/95, with dividends and
capital gains reinvested. The ending values for the items graphed are:
Lehman Brokers Muni. Bond Index $10,847
USAA Florida Tax-Free Income Fund 10,235]
The Lehman Brothers Municipal Bond Index is an unmanaged index that tracks
total return performance for the long-term investment grade tax-exempt bond
market. All tax-exempt bond funds will find it difficult to outperform such
an index, since funds have expenses.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested
dividends and capital gain distributions. The performance data quoted
represents past performance and is 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
[Photograph of Robert R. Pariseau, CFA, Portfolio Manager appears here]
The Municipal Market
Compared to the roller-coaster ride last fall, the last six months have
been pretty tame. The yield on the Bond Buyer 40 Bond Index traded in a
narrow range from 6.00% to 6.35%. Last October it was quite different when
the Bond Buyer Index increased .80% to 7.40% within a month, then fell a
full 1.0% by March 1995, as the economy peaked, then decelerated. Confident
that inflation was in check, Chairman Greenspan lowered the federal funds
rate by .25% on July 6, 1995 - the first cut in nearly three years - as
the Federal Reserve Board successfully engineered the economy's "soft
landing."
In this favorable environment, your fund's net asset value (NAV)
per share rose $.12 to $9.21, or 1.32%, since March 31, 1995. The Fund's
performance compared very favorably to its peer group. For the past six
months, the Fund's annualized dividend yield(1) was 5.61%, compared to
Lipper's Florida Municipal Debt Funds average of 5.06%.(2) For the same
period, the Fund's total return(3) was 4.21%, compared to the Florida Debt
Funds average of 4.30%.
A tax-exempt mutual fund may provide more income after taxes than a fully
taxable mutual fund. The table below compares the yield of the USAA Florida
Tax-Free Income Fund with a taxable equivalent investment.(4)
To match the Florida Tax-Free Income Fund's closing 30-Day
SEC yield of 5.71% and:
Assuming a marginal federal tax rate of:
28% 31% 36% 39.6%
A fully taxable investment must pay:
Individual with $20,000-100,000 Intangible Assets 8.03% 8.38% 9.02% 9.55%
Individual with $100,000+ Intangible Assets 8.13% 8.48% 9.12% 9.65%
Married with $40,000-200,000 Intangible Assets 8.03% 8.38% 9.02% 9.55%
Married with $200,000+ Intangible Assets 8.13% 8.48% 9.12% 9.65%
Strategy & Outlook
As the yield curve steepened, the best market values were 25-year
maturities and longer, as evidenced by the particularly wide spread between
interest rates for the 15- and 25-year maturities. I pursue a strategy to
maximize tax-exempt interest because, over the long run, shareholders of
tax-exempt funds receive the greatest portion of their total return from
interest. Over time, the increased yield from longer maturities offsets the
increased sensitivity of market value to changes in interest rates, so this
policy rewards long-term investors.
A manager who concentrates exclusively on total return must correctly and
consistently time the market. At USAA IMCO, we strongly believe that no one can
accurately predict the future course of interest rates. More often than not,
managing by a total-return strategy results in higher taxable capital gains
and trading costs and lower tax-exempt income. Although my primary focus is on
tax-exempt distributions, I do pay attention to total return. For example,
if interest rates should increase dramatically, I would position the Fund
more defensively by buying shorter-maturity and higher-coupon bonds.
Purchase Criteria
Before buying a new security, our experienced municipal analysts conduct an
independent, bottom-up, credit analysis. In their critical judgement, the
bond must be investment grade, standing on its own fundamental merits
without relying on good fortune or municipal bond insurance.
The Florida Economy
Florida's economy floated to the softest of landings. The Sunshine State is
#2 in the nation in job creation and has the second lowest unemployment
rate among the 11 most populous states. Taxable sales are up strongly this
year _ vital to a state that relies heavily upon the sales tax for the vast
majority of its governmental revenues. High population growth drives the
economy but creates demand for additional schools, health services, prisons
and transportation infrastructure.
(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) Source: Lipper Analytical Services, an independent organization that
monitors the performance of mutual funds.
(3) Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gains distributions.
(4) 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.
See page 13 for a complete listing of the Portfolio of Investments in
Securities.
Note: Income may be subject to federal, state or local taxes, or the
alternative minimum tax.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of
September 30, 1995 for the USAA Florida Tax-Free Income Fund to be:
AAA - 19%, AA - 13%, A - 38%, BBB - 23%, and Cash Equivalents - 7 %]
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group or Fitch Investors Service. Unrated
securities that have been determined by USAA IMCO to be of equivalent
investment quality to category BBB account for 9.0% of the Fund's
investments.
Investment Review
Florida Tax-Free Money Market Fund
OBJECTIVE: Provide Florida investors with a high level of current interest
income that is exempt from federal income taxes and shares that are exempt
from the Florida intangible personal property tax, while preserving capital
and maintaining liquidity.
Types of Investments: High quality Florida tax-exempt securities with
maturities of 397 days or less. The Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less and will endeavor to maintain
a constant net asset value per share of $1.00.*
* An investment in this Fund is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
3/31/95 9/30/95
Net Assets $52.2 Million $51.4 Million
Net Asset Value Per Share $1.00 $1.00
Average Annual Total Returns as of 9/30/95
March 31, 1995 to September 30, 1995 1.79%**
1 Year 3.45%
Since Inception on October 1, 1993 2.81%
** 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, 1995 3.67%
[A graph is shown here comparing the 7-day yield of the USAA Florida Tax-
Free Money Market Fund and the IBC/Donoghue's State Specific SB & GP (Tax-
Free) from 9/94 to 9/95. The vertical axis shows the yield and the horizontal
axis shows the time period. The ending value, on 9/25/95, for the USAA Florida
Tax-Free Money Market Fund is 3.69% and the ending value for the IBC Donoghue's
State Specific SB & GP (Tax-Free) is 3.33%.]
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested dividends
and capital gain distributions. Past performance is no guarantee of future
results and the value of your investment may vary according to the Fund's
performance. The graph tracks the Fund's 7-day simple yield against IBC/
Donoghue's State Specific SB (Stock Broker) & GP (General Purpose) (Tax-Free)
Money Funds, an average of all major money market fund yields.
Message from the Manager
[Photograph of Pamela K. Bledsoe, CFA, Portfolio Manager appears here]
Economic Volatility in the Market
Contrary to the long-term bond market, the money market continues to
experience a roller-coaster ride. Since March, the yield on the Tax Exempt
Note Rate (TENR)(1) has traded from a high of 4.75% in May to a low of 2.65%
in early June. These ups and downs have been driven by mixed economic data,
supply and demand factors and credit risk. The Federal Reserve (Fed) uses
economic data such as unemployment levels, retail sales and new housing
starts to make interest rate decisions. On July 6, 1995, the Fed reduced
interest rates .25% after raising interest rates seven times during 1994
and 1995. This reduction was spurred by easing inflationary pressures and
the Fed's desire to keep the economy strong enough to avoid a recession. In
anticipation of this activity, I extended the Fund's maturity to lock in
the higher rates and will try to continue to do so as I expect rates to be
in a generally downward trend.
Economic volatility is intensified by the short-term market's sensitivity
to supply and demand factors, especially during the months of January,
April, May, June, July, and December. Yields on variable-rate money market
instruments typically rise in April and May as the need to cover tax
payments creates an excess of bonds in the market. This situation reverses
itself in the first weeks of June, July, December, and January since excess
cash that needs to be invested creates a shortage of bonds leading to a
sharp decline in yields. To minimize the impact of this phenomenon, I
aggressively manage our variable rate demand notes (VRDNs)(2) to pursue top
performance in this segment of the portfolio.
Credit risk, the relationship between market value and the likelihood of
receiving payment at maturity, has also added to the volatility in the
municipal note market. Our own research staff has proven invaluable in
making credit-quality determinations. We'll continue to carefully evaluate
credit risk to determine if a security is appropriate for this fund.
Outlook
Although the Florida economy has slowed, it continues to outperform the
national economy because of its diverse base and strong job growth.
Employment opportunities are expanding in computer programming, healthcare,
tourism, and service-related sectors. Manufacturing and defense-related
industries remain the weakest areas. Population growth continues to pressure
government services. However, responsible financial management has allowed
the state to meet its funding challenges while incurring only moderate debt
levels.
(1) Tax Exempt Note Rate (TENR): A general market "AAA" weekly index as
determined by Bankers Trust.
(2) Variable rate demand note (VRDN): A note representing borrowings that is
payable on demand and that bears interest tied to a money market rate.
An investment in any 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.
See page 16 for a complete listing of the Portfolio of Investments in
Securities.
[A graph is here showing the growth of $10,000, from 10/1/93 to 9/30/95,
invested in the USAA Florida Tax-Free Money Market Fund. The vertical
axis shows the dollar amount and the horizontal axis shows the time period.
The ending value is $10,570.]
Shareholder Voting Results
On October 13, 1995, a special meeting of shareholders was held to vote on
the following proposals. All proposals were approved by the shareholders.
All shareholders of record on August 17, 1995 were entitled to vote on each
proposal. The number of votes shown below are in aggregate for the entire
USAA State Tax-Free Trust (the Trust).
(1) Proposal to elect a Board of Trustees as follows:
Votes Votes
Trustee For Withheld
Hansford T. Johnson 43,808,597 1,071,761
Michael J.C. Roth 43,769,955 1,110,403
John W. Saunders, Jr. 43,806,446 1,073,912
George E. Brown 43,419,645 1,460,713
Howard L. Freeman, Jr. 43,762,837 1,117,521
Richard A. Zucker 43,718,516 1,161,842
Barbara B. Dreeben 43,642,054 1,238,304
Mr. C. Dale Briscoe did not stand for re-election to the Board. His term of
office will terminate on December 31, 1995.
(2) Proposal to ratify or reject the selection by the Board of Trustees of
KPMG Peat Marwick LLP as auditors for the Trust for the fiscal year ending
March 31, 1996.
Number of Shares Voting
For Against Abstain
43,311,082 180,939 1,392,391
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
(In Thousands)
September 30, 1995
(Unaudited)
Florida Forida
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- --------------
<S> <C> <C>
Assets
Investments in securities, at market value
(identified cost of $51,768 and $51,029, respectively) $52,563 $51,029
Cash 321 324
Receivables:
Capital shares sold 470 35
Interest 1,052 284
------ ------
Total assets 54,406 51,672
------ ------
Liabilities
Securities purchased 498 -
Capital shares redeemed - 146
USAA Investment Management Company 59 73
USAA Transfer Agency Company 3 3
Accounts payable and accrued expenses 20 17
Dividends on capital shares 62 11
------ ------
Total liabilities 642 250
------ ------
Net assets applicable to capital shares outstanding $53,764 $51,422
====== ======
Represented by:
Paid-in capital $54,866 $51,422
Accumulated net realized loss on investments (1,897) -
Net unrealized appreciation of investments 795 -
------ ------
Net assets applicable to capital shares outstanding $53,764 $51,422
====== ======
Capital shares outstanding, unlimited number of shares
authorized, $.001 par value 5,839 51,422
====== ======
Net asset value, redemption price, and offering price
per share $ 9.21 $ 1.00
====== ======
</TABLE>
See accompanying notes to financial statements.
Categories & Definitions
Portfolios of Investments in Securities
September 30, 1995
(Unaudited)
Fixed Rate Instruments - consist of municipal bonds, notes, and commercial
paper. The coupon rate is constant to maturity. Prior to maturity, the price
of a fixed rate instrument generally varies inversely to the movement of
interest rates. At maturity, the security pays face value.
Put Bonds - provide the right to tender, or put, the bond for redemption at
face value at specific tender dates prior to final maturity. The put
feature shortens the effective maturity to the next tender date. Between
tender dates, the price of a put bond generally varies inversely to the
movement of interest rates.
Variable Rate Demand Notes (VRDN) - provide the right, on any business
day, to demand, or put, the security for redemption at face value on either
that day or in seven days. The interest rate is adjusted at the stipulated
daily, weekly, or monthly interval to a rate that reflects current market
conditions. In money market funds, the VRDN's effective maturity is the
longer of the next put date or the interest reset date rather than the final
maturity. In bond funds, the effective maturity is the next put date. Most
VRDNs possess a credit enhancement.
Credit Enhancement (CRE) - adds the financial strength of the provider to
support the underlying obligor's debt service obligations and/or the put
option. The enhancement may be provided by either a high quality bank,
insurance company or other corporation, or a collateral trust. Typically,
the rating agencies evaluate the security based upon the credit standing
of the credit enhancement.
Florida Tax-Free Income Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1995
(Unaudited)
Principal Coupon Final Market
Amount Security Rate Maturity Value
- --------- -------- ------ -------- ------
Fixed Rate Instruments (91.3%)
Florida (80.6%)
$2,500 Board of Education Capital Outlay Bonds,
Series B 5.88% 6/01/20 $ 2,466
1,100 Broward County Housing Finance Auth. MFH RB,
Series 1995A 7.00 2/01/25 1,166
1,855 Citrus County PCRB, Series 1992B 6.35 2/01/22 1,928
2,000 Collier County Health Facilities Auth. RB,
Series 1994 7.00 12/01/19 2,054
5,000 Dade County Guaranteed Entitlement RB,
Series A (CRE) 6.21(b) 2/01/18 1,290
335 Dunes Community Development District RB,
Series 1992 6.10 10/01/18 337
3,500 Duval County Housing Finance Auth. RB,
Series 1995 (CRE) 6.75 4/01/25 3,505
1,000 Florida State Univ. Family Housing RB,
Series 1994 (CRE) 6.00 5/01/23 1,005
2,000 Hillsborough County IDA PCRB 6.25 12/01/34 2,048
1,940 Housing Finance Agency RB, 6.35 7/01/14 1,995
Series 1994B
1,000 Miami Beach Health Facilities Auth. Hospital
RB, Series 1992 (CRE) 6.25 11/15/19 1,020
1,000 Miramar Wastewater Improvement Assessment
Bonds, Series 1994 (CRE) 6.75 10/01/25 1,096
5,000 North Miami Educational Facilities RB,
Series 1994A 6.13 4/01/20 4,742
4,000 Orange County Health Facilities Auth. RB,
Series 1995 6.75 7/01/20 3,961
1,000 Orange County Housing Finance Auth. RB 6.40 2/01/30 1,011
2,600 Orlando and Orange County Expressway Auth.
RB, Series 1993 5.95 7/01/23 2,531
2,305 Palm Beach County Health Facilities Auth.
Hospital RB, Series 1993 6.30 10/01/22 2,336
1,340 Palm Beach County Housing Finance Auth. RB,
Series 1994B 6.40 4/01/14 1,387
1,250 Reedy Creek Improvement District RB,
Series 1991A 6.00 6/01/16 1,265
2,550 St. Johns County IDA RB 6.00 8/01/22 2,445
1,215 Sunrise Special Tax District #1 RB,
Series 1991 (CRE) 6.38 11/01/21 1,238
1,150 Tallahassee Consolidated Utility Systems RB,
Series 1994 6.20 10/01/19 1,179
1,300 Turtle Run Community Development
District RB (CRE) 6.40 5/01/11 1,338
Guam (2.0%)
1,000 Government Limited Obligation Infrastructure
Improvement RB, Series 1989A (CRE) 7.10 11/15/09 1,060
Puerto Rico (8.7%)
Electric Power Auth. RB,
1,000 Series T 6.38 7/01/24 1,030
1,500 Series U 6.00 7/01/14 1,488
2,500 Highway and Transportation Auth. RB,
Series X 5.00 7/01/22 2,142
------
Total fixed rate instruments (cost: $48,268) 49,063
------
Variable Rate Demand Notes (6.5%)
Florida
200 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 4.85 7/01/05 200
200 Broward County IDA RB, Series 1992 4.40 3/01/99 200
2,200 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 4.60 9/01/20 2,200
900 Jacksonville Health Facilities Auth. RB,
Series 1990 (CRE) 4.65 6/01/20 900
------
Total variable rate demand notes (cost: $3,500) 3,500
------
Total investments (cost: $51,768) $52,563
======
Portfolio Summary By Industry
-----------------------------
Hospitals 16.5%
Electric Power 12.1
Special Assessment/Tax/Fee 11.4
Multi-Family Housing 10.9
Education 10.7
Toll Roads 8.7
Healthcare - Miscellaneous 7.4
Single-Family Housing 6.3
Water/Sewer 4.9
Nursing Care 3.8
Sales Tax Obligations 2.4
General Obligations 2.3
Aerospace/Defense .4
----
Total 97.8%
====
Florida Tax-Free Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1995
(Unaudited)
Principal Coupon Final Market
Amount Security Rate Maturity Value
- --------- -------- ------ -------- ------
Variable Rate Demand Notes (61.1%)
Florida
$1,100 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 4.85% 7/01/05 $ 1,100
1,535 Brevard County Mental Health Facilities RB,
Series 1994C (CRE) 4.50 1/01/10 1,535
3,300 Broward County Housing Finance Auth. MFH RB,
Series 1990 (CRE) 4.75 10/01/07 3,300
400 Broward County IDA RB, Series 1992 4.40 3/01/99 400
2,500 Dade County Aviation Facilities RB,
Series 1984A (CRE) 4.40 10/01/09 2,500
1,800 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 4.60 9/01/20 1,800
2,400 Dade County IDA RB, Series 1985B (CRE) 4.35 1/01/16 2,400
1,600 Dade County MFH RB, Series 1993-1 (CRE)4.55 2/01/28 1,600
2,200 Greater Orlando Aviation Auth. Special
Purpose RB, Series 1990 (CRE) 4.50 12/01/14 2,200
1,000 Jacksonville Hospital RB, Series
1989 (CRE) 4.60 2/01/19 1,000
600 Jacksonville IDRB, Series 1989 (CRE) 4.25 7/01/19 600
4,660 Plant City Hospital RB, Series
1993 (CRE) 4.55 3/01/13 4,660
1,900 Sarasota County Health Facilities Auth. RB,
Series 1989 (CRE) 4.50 12/01/19 1,900
600 Southeast Volusia Hospital RB,
Series 1995 (CRE) 4.35 5/01/22 600
1,700 Suwannee County Health Facilities RB,
Series 1994 (CRE) 4.35 2/01/21 1,700
3,000 Volusia County Housing Finance Auth. RB,
Series 1985C (CRE) 5.03 9/01/05 3,000(a)
1,150 Wauchula IDA RB, Series 1993 (CRE) 4.40 12/01/13 1,150
------
Total variable rate demand notes (cost: $31,445) 31,445
------
Put Bonds (13.7%)
Florida
$ 955 Jacksonville IDA RB, Series 1989 (CRE) 4.00% 10/01/09 $ 955
1,000 Jacksonville PCRB, Series 1992 4.20 5/01/27 1,000
2,200 Putnam County Development Auth. PCRB,
Series 1984H-3 (CRE) 3.75 3/15/14 2,200
1,500 St. Lucie County PCRB, Series 1992 4.20 5/01/27 1,500
1,400 West Orange Memorial Hospital RB,
Series 1991A-1 (CRE) 3.75 2/01/22 1,400
------
Total put bonds (cost: $7,055) 7,055
------
Fixed Rate Instruments (24.4%)
Florida
2,000 Department of Environmental Protection RB,
Series 1995A (CRE) 5.00 7/01/96 2,018
Gainesville Utilities System CP Notes,
800 Series 1995C 3.65 10/05/95 800
1,600 Series 1995C 3.60 10/11/95 1,600
2,000 Jacksonville Electric System CP Notes,
Series 1995A 3.70 10/02/95 2,000
2,100 Local Government Finance Commission Pooled
CP Notes, Series 1995A (CRE) 3.85 1/09/96 2,100
1,500 Monroe County School District TAN,
Series 1995 4.00 6/05/96 1,500
1,000 Orange County School District RAN,
Series 1995A 4.50 6/25/96 1,006
1,505 Sunshine State Government Finance Commission
CP Notes (CRE) 4.00 10/05/95 1,505
------
Total fixed rate instruments (cost: $12,529) 12,529
------
Total investments (cost: $51,029) $51,029
======
Portfolio Summary By Industry
-----------------------------
Hospitals 24.7%
Multi-Family Housing 17.5
Electric Power 13.0
Airports 9.1
Finance -- Municipal 7.0
Nursing Care 5.5
Education 4.9
Special Assessment/Tax/Fee 4.7
Water/Sewer 4.7
Real Estate 3.9
Buildings 3.4
Aerospace/Defense .8
-----
Total 99.2%
-----
Notes to Portfolios of Investments
September 30, 1995
(Unaudited)
General Notes
Market 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
CP Commercial Paper
CRE Credit Enhanced
IDA Industrial Development Authority/Agency
IDRB Industrial Development Revenue Bond
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RAN Revenue Anticipation Note
RB Revenue Bond
TAN Tax Anticipation Note
Specific Notes
(a) This security was purchased within the terms of a private placement
memorandum and is subject to a seven day demand feature. Under procedures
adopted by the Board of Trustees, the adviser has determined that this
security is liquid. At September 30, 1995, this security represented 5.8%
of the Florida Tax-Free Money Market Fund's net assets.
(b) Zero Coupon security. Rate represents the effective yield at date of
purchase.
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1995
(Unaudited)
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- --------------
Net investment income:
Interest income $1,465 $1,043
------ ------
Expenses:
Management fees 107 116
Transfer agent's fees 19 18
Custodian's fees 20 18
Postage 2 2
Shareholder reporting fees 1 2
Trustees' fees 3 3
Registration fees 4 1
Audit fees 6 6
Legal fees 3 3
Other 2 2
------ ------
Total expenses before reimbursement 167 171
Expenses reimbursed (48) (43)
------ ------
Total expenses after reimbursement 119 128
------ ------
Net investment income 1,346 915
------ ------
Net realized and unrealized gain (loss)
on investments:
Net realized loss (231) _
Change in net unrealized appreciation/
depreciation 836 _
------ ------
Net realized and unrealized gain 605 _
------ ------
Increase in net assets resulting from
operations $1,951 $ 915
====== ======
See accompanying notes to financial statements.
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended September 30, 1995 and Year ended March 31, 1995
(Unaudited)
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- --------------
9/30/95 3/31/95 9/30/95 3/31/95
------- ------- ------- -------
From operations:
Net investment income $ 1,346 $ 1,894 $ 915 $ 1,202
Net realized loss on investments (231) (1,409) _ _
Change in net unrealized appreciation/
depreciation of investments 836 2,180 _ _
------ ------ ------ -------
Increase in net assets resulting
from operations 1,951 2,665 915 1,202
------ ------ ------ -------
Distributions to shareholders from:
Net investment income (1,346) (1,894) (915) (1,202)
------ ------ ------ -------
From capital share transactions:
Shares sold 18,670 36,242 25,360 102,680
Shares issued for dividends reinvested 981 1,425 837 1,087
Shares redeemed (9,383) (20,495) (27,000) (81,419)
------ ------ ------ -------
Increase (decrease) in net assets from
capital share transactions 10,268 17,172 (803) 22,348
------ ------ ------ -------
Net increase (decrease) in net assets 10,873 17,943 (803) 22,348
Net assets:
Beginning of period 42,891 24,948 52,225 29,877
------ ------ ------ -------
End of period $53,764 $42,891 $51,422 $ 52,225
====== ====== ====== =======
Change in shares outstanding:
Shares sold 2,030 4,140 25,360 102,680
Shares issued for dividends reinvested 107 161 837 1,087
Shares redeemed (1,015) (2,363) (27,000) (81,419)
------ ------ ------ -------
Increase (decrease) in shares
outstanding 1,122 1,938 (803) 22,348
====== ====== ====== =======
See accompanying notes to financial statements.
Notes to Financial Statements
(In Thousands)
September 30, 1995
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA State Tax-Free Trust (the Trust), registered under the Investment
Company Act of 1940, 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
Florida Tax-Free Income Fund and Florida Tax-Free Money Market Fund (the
Funds).
A. Security valuation - Investments in the Florida 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
Securities and Exchange Commission, all securities in the Florida 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 - As is common in the industry, security
transactions are accounted for on the date the securities are purchased or
sold (trade date). Gain or loss from sales of investment securities is
computed on the identified cost basis. Interest income is recorded daily
on the accrual basis. Premiums and original issue discounts are amortized
over the life of the respective securities. Market discounts are not
amortized. Any ordinary income related to market discounts is recognized
upon disposition of the bonds. The Funds concentrate their investments in
Florida municipal securities and therefore may be exposed to more credit
risk than portfolios with a broader geographical diversification.
(2) Line of Credit
The Funds participate with other USAA funds in a joint $150 million
short-term revolving loan agreement (the Agreement) through January 15,
1996 for temporary or emergency purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities. Subject to availability under this Agreement, each Fund may
borrow amounts not to exceed 10% of the value of its total assets. Neither
Fund may purchase securities when its borrowings exceed 5% of its total
assets. Borrowings under this Agreement will bear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank of New York
or at .125% over the London Interbank Offered Rate. The Funds had no
borrowings under this Agreement during the six-month period ended September
30, 1995.
(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, 1995.
Distributions of realized gains from security transactions not offset by
capital losses are generally made in the succeeding fiscal year. At
September 30, 1995, the Florida Tax-Free Income Fund had a capital loss
carryover of approximately $1,897 which will expire in or before 2004. It
is unlikely that the Board of Trustees of the Trust will authorize a
distribution of capital gains realized in the future until the capital loss
carryover has been utilized or expires.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the six-month period ended September 30, 1995 for the
Florida Tax-Free Income Fund were $29,298 and $20,889, respectively.
Purchases and sales/maturities of securities for the six-month period ended
September 30, 1995 for the Florida Tax-Free Money Market Fund were $79,793
and $80,635, respectively.
Gross unrealized appreciation and depreciation of investments at September
30, 1995 for the Florida Tax-Free Income Fund was $986 and $191,
respectively.
(5) Transactions with Manager
A. Management fees - The investment policy of the Funds and the
management of the Funds' portfolios is carried out by USAA Investment
Management Company (the Manager). Management fees are computed as a
percentage of aggregate average net assets (ANA) of both Funds combined,
which on an annual basis is equal to .50% of the first $50,000, .40% of
that portion over $50,000 but not over $100,000, and .30% of that portion
over $100,000. These fees are allocated on a proportional basis to each
Fund monthly based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of each
Fund to .50% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides
transfer agent services to the Trust. Shareholder accounting service fees
are based on an annual charge per shareholder account plus out-of-pocket
expenses.
C. Underwriting agreement - The Trust has an agreement with the Manager
for exclusive underwriting and distribution of the Funds' shares on a
continuing best efforts basis. The agreement provides that the Manager will
receive no fee or other remuneration for such services.
(6) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by United
Services Automobile Association (the Association), a large, diversified
financial services institution.
At September 30, 1995, the Association and its affiliates owned 6 shares
(.1%) of the Florida Tax-Free Income Fund and 53 shares (.1%) of the
Florida Tax-Free Money Market Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
Net Asset Net Realized Distributions
Fiscal Value at Net and From Net Distributions
Year Beginning Investment Unrealized Investment of Realized
Ended Of Period Income Gain (Loss) Income Capital Gains
($) ($) ($) ($) ($)
Florida Tax-Free Income Fund:
March 31, 1994* 10.00 .21 (1.02) (.21) -
1995 8.98 .49 .11 (.49) -
1996** 9.09 .26 .12 (.26) -
Florida Tax-Free Money Market Fund:
March 31, 1994* 1.00 .01 - (.01) -
1995 1.00 .03 - (.03) -
1996** 1.00 .02 - (.02) -
<TABLE>
<CAPTION>
Ratio of Net
Net Asset Ratio of Investment
Value At Net Assets Expenses Income
End Total At End To Average To Average Portfolio
of Period Return of Period Net Assets Net Assets Turnover
($) (%) ($000) (%) (%) (%)
Florida Tax-Free Income Fund:
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994* 8.98 (8.22) 24,948 .50(a)(b) 4.63(a)(b) 284.11
1995 9.09 7.01 42,891 .50(a) 5.59(a) 183.44
1996** 9.21 4.21 53,764 .50(a)(b) 5.62(a)(b) 46.53(c)
Florida Tax-Free Money Market Fund:
March 31, 1994* 1.00 .96 29,877 .50(a)(b) 1.98(a)(b) -
1995 1.00 2.86 52,225 .50(a) 2.97(a) -
1996** 1.00 1.79 51,422 .50(a)(b) 3.55(a)(b) -
</TABLE>
Ratio of Ratio of Net
Expenses Investment Income
To Average To Average
Net Assets Net Assets
(%) (%)
Florida Tax-Free Income Fund:
March 31, 1994* 1.33(b) 3.80(b)
1995 .81 5.28
1996** .70(b) 5.42(b)
Florida Tax-Free Money Market Fund:
March 31, 1994* 1.11(b) 1.37(b)
1995 .72 2.75
1996** .66(b) 3.39(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 Funds' ratios would have been:
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Effective September 30, 1995, the portfolio turnover rate has been
calculated excluding short-term variable rate securities, which are those
with put date intervals of less than one year. Had these securities been
excluded for March 31, 1995, the portfolio turnover rate for the Florida
Tax-Free Income Fund would have been 71.76%.
* Funds commenced operations October 1, 1993.
** For the six-month period ended September 30, 1995.
Total return assumes reinvestment of all dividend income and capital gains
distributions during the period.
