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
Financial Information:
Independent Auditors' Report 10
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.
(copyright)1995, 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 29 funds by investment objective as of March 31,
1995. If you're interested in more information, please call us at
1-800-531-1087 for a prospectus. Please read the prospectus carefully
before investing.
<TABLE>
<CAPTION>
Average Annual Total Return**
Investment Inception Since 7-Day 30-Day***
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
Capital Appreciation % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 10/19/81 12.44 9.92 9.01 - - -
Emerging Markets 11/7/94 - - - (12.80) - -
Gold 8/15/84 (4.24) .87 1.51 - - -
Growth 4/5/71 20.03 12.05 11.71 - - -
Growth & Income 6/1/93 12.40 - - 6.96 - -
International 7/11/88 (1.37) 7.67 - 8.47 - -
World Growth 10/1/92 (.78) - - 9.20 - -
Diversified/Balanced
Balanced Portfolio 1/11/89 7.99 8.08 - 8.64 - 4.16
Cornerstone 8/15/84 2.18 7.66 11.59 - - -
Income - Taxable
GNMA 2/1/91 5.45 - - 7.29 - 7.10
Income 3/4/74 5.42 9.18 10.14 - - 7.34
Income Stock 5/4/87 11.41 11.17 - 10.84 - -
Short-Term Bond 6/1/93 3.27 - - 2.88 - 7.68
Income - Tax Exempt
Long-Term 3/19/82 5.07 7.68 9.13 - - 5.96
Intermediate-Term 3/19/82 6.16 7.58 8.22 - - 5.45
Short-Term 3/19/82 4.51 5.41 5.96 - - 4.58
California Bond* 8/1/89 6.89 7.66 - 7.09 - 5.94
Florida Tax-Free Income* 10/1/93 7.01 - - (1.19) - 5.80
New York Bond* 10/15/90 5.42 - - 8.59 - 5.73
Texas Tax-Free Income* 8/1/94 - - - 5.75 - 5.72
Virginia Bond* 10/15/90 6.61 - - 8.30 - 5.83
Money Market
Money Market 2/2/81 4.78 4.87 6.11 - 5.80 -
Tax Exempt Money Market 2/6/84 2.98 3.68 4.48 - 3.70 -
Treasury Money Market Trust 2/1/91 4.45 - - 3.91 5.63 -
California Money Market* 8/1/89 2.94 3.45 - 3.70 3.69 -
Florida Tax-Free Money Market* 10/1/93 2.86 - - 2.54 3.61 -
New York Money Market* 10/15/90 2.76 - - 2.94 3.48 -
Texas Tax-Free Money Market* 8/1/94 - - - 2.09 3.63 -
Virginia Money Market* 10/15/90 2.91 - - 3.15 3.60 -
</TABLE>
* Shares of the state funds are authorized for sale only to residents of the
states listed above.
** 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.
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 maintain a stable net asset value of $1 per share.
Some tax-exempt income may be subject to state or local taxes or the
federal alternative minimum tax.
Foreign investing is subject to certain risks, which are discussed in
the funds' prospectuses.
***Calculated as prescribed by the Securities and Exchange Commission.
Message from the President
{Photograph of Michael J. C. Roth appears here}
*INCOME FUND
Average Annual Total
Return
as of 3/31/95
1 Year 5.42%
5 Years 9.18%
10 Years 10.14%
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gains 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 the original cost.
Recently in Houston, I had a fascinating conversation with a USAA member
and shareholder of our funds. This gentleman is an owner
of the USAA Income Fund, but our conversation is applicable, with some
modification for returns, to any of our longer-term fixed-income funds.
Around 1990, after diligent research, he had invested the bulk of
his retirement funds into the Income Fund. When I met him in Houston,
he said to me, "The Income Fund had a 10-year record of 12% compound returns*,
so I chose it for my retirement fund." (From 1980 to 1990, the Income Fund's
annual compound return was actually 13.03%.)(1)
This gentleman then pulled out a large graph which he had constructed on
several pieces of graph paper carefully taped together. He had drawn a
line which began at the value of his account in 1990, which then curved
upward for 20 years. The upward curve was simply an extrapolation of
12% returns for the next 20 years. This mathematical exercise, created
by the investor, will show the original value to grow over 9 1/2 times.
But, remember, this is a hypothetical exercise, and as we always tell you,
past performance is not a guarantee of future results.(2) A second line
on the graph plotted the actual value of his account. Through 1993 this
actual value stayed close to the extrapolation, but in 1994 fell below it.
He asked me, "How are you experts going to get me back to the 12% line?"
The first thing I told him was that if he updated his graph
at the end of the first quarter of 1995, he would find that
the loss of 1994 had been recouped.(3) But after that, we
had a bit of a problem.
"The bond market can fluctuate, but over the years it has
been a good place to invest. Risks have been rewarded."
I pointed out to him that the period from the early 1980s until 1993 was
an unusual one in the bond market. Interest rates declined, with a few jiggles,
from all-time highs to notable lows. That meant, in addition to all the
income bonds produced, their market prices kept rising, and investors saw
total returns that rivaled those of stocks.(4, 5)
We had a great conversation. He smiled and said, "I know all that, I
just want to know how you're going to get me back to my line." I told
him he could not dismiss the market so easily. Over time, bonds may return
their interest rate, with perhaps a bit more for premiums received if
they get called. Investors may enjoy a market run like we had in
the 1980s and early 1990s, but they must not deceive themselves.(5)
1994 was a signal that a unique period in the bond market was over. We
probably won't keep on going at 12% a year. But so far, 1995 has sent
another signal. That is - remember! The bond market can fluctuate, but
over the years it has been a good place to invest.(5) Risks have been
rewarded.
Sincerely,
Michael J.C. Roth
President and
Vice Chairman of the Board
(1)Average annual 10-year return at December 31, 1990.
(2)This hypothetical exercise does not imply that gain or income
realized in the past will be repeated in the future.
(3) Income Fund: One-year total return as of December 31, 1994: -5.21%
Quarter ending March 31, 1995 total return: 5.56%
(4) Based on price return data provided by Lehman Brothers, 1993 Bond
Market Annual Book.
(5)Source: (copyright)Stocks, Bonds, Bills and Inflation 1995 Yearbook (TM),
Ibbotson Associates, Chicago (Annually updates work by Roger G. Ibbotson
and Rex A. Sinquefield). Used with permission. All rights reserved.
For more complete information about any of the USAA Family of Funds
including charges and expenses, call for a prospectus. Please read it
carefully before investing or sending money.
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.
3/31/94 3/31/95
Net Assets $ 24.9 Million $ 42.9 Million
Net Asset Value Per Share $8.98 $9.09
Average Annual Total Return as of 3/31/95
1 Year 7.01%
Since inception on October 1, 1993 -1.19%
30-Day SEC Yield* on March 31, 1995 5.80%
*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 3-31-95,
with dividends and capital gains reinvested. The ending values
for the items graphed are:
Lehman Brothers Muni. Bond Index $10,296
USAA Florida Tax-Free Income Fund 9,822}
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.
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 David G. Miller, Portfolio Manager, appears here}
No Auld Lang Synes
There were certainly no teary good-byes to the bond market in 1994. This
past year was brutal, as investors saw their Fund suffer through market
shocks including interest rate hikes by the Federal Reserve Board,
derivative-induced bankruptcies, and the peso devaluation.
For the most part, rates increased and prices declined
on bonds throughout the year, with a slight price recovery in December.
However, with the new year, the bond market seems less worried about
another series of rate increases. Despite the weaker dollar, the market
has staged a remarkable recovery.
Still struggling to offset the effects of lower-yielding
bonds purchased at the Fund's inception in late 1993, the Fund suffered
a total return loss of 10.04% during 1994. However, as of this writing,
the Fund has recovered most of the 1994 decline with a calendar
year-to-date total return at March 31, 1995, of 8.34%.
Investment Philosophy
The Florida Tax-Free Income Fund is managed as a long-term bond fund.
Although longer-term bonds tend to have greater price volatility than
shorter bonds, they have historically provided higher income levels and
higher total return levels. In addition, because of the nature of bonds
- you buy it, it pays interest for the term of the bond, then you get your
money back - we see the primary value of a bond being the level of interest
income it provides.
These two observations form the basis for our income-oriented investment
philosophy in this Fund. Our focus on maintaining a high level of income
improves the prospects for dependable and solid long-term total returns.
Managing for stable income does not mean we ignore price movement. However,
this income strategy does avoid the distractions of chasing an ever-changing
market price, which adds inappropriate risk.
Although the Fund's track record is somewhat brief, this strategy is
allowing us to consistently provide above-average income levels and
improve our total returns that, thus far in 1995, place us solidly in
the upper half of our peer class.(1)
Adjustment in Strategy
As we have explained in previous reports, we do not try to predict the
level or direction of interest rates. It is a risky strategy, with
debatable benefit in the tax-free markets, that invites unstable income
levels while exposing the portfolio to undue volatility. Instead,
we prefer to seek out the best relative values in the current market
environment consistent with our long-term income orientation.
While previously we had concentrated our buying in the 15- to 20-year
maturities, recently we decided to extend our average maturity and take
advantage of the longer-term higher yields. We view the market as more
receptive to the Federal Reserve's actions to manage a "soft landing"
and keep inflation in check. This extension of the average maturity, in
addition to increasing our dividend levels, has been a major factor in
the excellent performance of the Fund so far this year. As of this
writing, we are maintaining this approach.
Outlook
For whatever reasons - the state tax relief or the financial comfort of
buying close to home - investor response in the Florida Tax-Free Income
Fund has been strong, as has the general demand for Florida bonds. This
strong demand, coupled with the sharply reduced supply of Florida bonds,
should benefit our Fund. The supply of new Florida bonds declined over
57% last year, with this year's first quarter new issuance off another
39% from last year.
(1)Source: Lipper Analytical Services, an independent organization
that monitors the performance of mutual funds. Total return equals
income yield plus share price change and assumes reinvestment of all
dividends and capital gains distributions. 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.
Data as of 3/31/95: Total return Total return 12-month
with ranking with ranking dividend
Year-to-date 1 Year yield
USAA Florida Tax-Free
Income Fund 8.34% 11/74 7.01% 22/58 5.4%
Lipper Florida Municipal
Debt Funds Average 7.42% 6.67% 5.3%
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.
Portfolio Ratings/Mix
March 31, 1995
{A pie chart is shown here depicting the Portfolio Ratings/Mix as of
March 31, 1995 for the USAA Florida Tax-Free Income Fund to be:
AAA - 14%, AA - 19%, A - 41%, BBB - 23%, and Cash Equivalents - 3%.}
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 can maintain
a stable net asset value of $1.00 per share.
3/31/94 3/31/95
Net Assets $29.9 Million $52.2 Million
Net Asset Value Per Share $1.00 $1.00
Average Annual Total Return as of 3/31/95
1 Year 2.86%
Since inception on October 1, 1993 2.54%
7-Day Simple Yield on March 31, 1995 3.61%
{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 3/94 to 3/95. The vertical axis shows the yield and
the horizontal axis shows the time period. The ending value, on 3/27/95,
for the USAA Florida Tax-Free Money Market Fund is 3.53% and the ending
value for the for the IBC/Donoghue's State Specific SB & GP (Tax-Free)
is 3.38%.}
Data represents the last Monday of each month.
*Ending date 3/27/95
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 Robert R. Pariseau, Portfolio Manager, appears here}
Factors That Affect Performance
Last month, an investor asked me what were the most critical
determinants of money market fund performance. The answer provides
insight into how I manage the USAA Florida Tax-Free Money Market Fund.
Two factors typically have the greatest impact on a fund's yield:
maturity and credit risk.
A portfolio manager adjusts the fund's average maturity to benefit from
the current interest rate environment. If rates are falling, I lengthen
the Fund's maturity to lock in high rates. But as rates increased last
year, I kept the portfolio moderately short to reinvest at ever-higher
rates. Since portfolio managers may buy only a limited number of
fixed-rate instruments to comply with the SEC's 90-day limit, they must
buy at the most opportune time to maximize a fund's yield. I expect rates
to stabilize or decline over the coming year, so I am extending the Fund's
average maturity from its March 31, 1995 level of 29 days.
Credit risk, the second factor, typically affects the fund's yield in a
more subtle manner. The trick is to buy bonds that have "value"- a
beneficial relationship between credit risk and market return. Our
analysts and I work as a team in an analytical process - independent of
the rating agencies and "the street" - to judge whether the bond is
appropriate for a money market fund. Only after understanding all
of the pertinent credit issues can I accurately make this determination.
I completely avoid low-quality bonds or derivatives. The benefits of
stretching for yield are illusionary, since you cannot be paid enough to
take speculative risks in a money market fund. This cautious process
hasn't hampered our performance.
While past performance is no guarantee of future results, the Fund's
yield was 2.86% for the 12-month period ending March 31, 1995, as
compared to the 2.67% average yield for the same time period according
to IBC/Donoghue's Money Vision.(1)
The Orange County Experience
Although it didn't involve a Florida municipality, the Orange County,
California bankruptcy presents vivid examples of our research process
and investment strategy. In the spring of 1994 one of our analysts,
John Bonnell, CFA, visited the Orange County office to discover why
the returns on their investment pool were excessively high. Although
he couldn't determine the exact magnitude of risk, he disapproved
the purchase of any municipality that participated in the Orange
County investment pool. His astute analysis months before the event
meant that none of USAA's mutual funds held any security jeopardized
by the bankruptcy.
But the story doesn't end there. After further analysis, we decided that
the market turmoil also presented an opportunity to buy safe, secure
bonds in Orange County. The county and its agencies often function
solely as "conduits" to issue bonds, for example, to finance low-income,
multi-family housing projects. The bond cash flows are entirely
independent of the Orange County office and investment pool. In
addition, an unconditional, irrevocable letter of credit issued by a
top-quality bank absolutely supports the bond's principal, interest, and
the put option. The same penetrating analysis, which kept the USAA funds
clear of the tragic Orange County bankruptcy, has been used to buy these
and other types of securities that represent value for our investors.
The Florida Economy
Our state outlook remains quite positive as the economy has entered a
style of growth more sustainable than that of the 1980s. Military base
cutbacks and well-publicized attacks on tourists will not dampen the
strong job growth that continues to outpace the national rate. Prison
expansion and public education issues will pressure budgets at all state
levels.
(1)Source: IBC/Donoghue's Money Vision, a monthly market industry
analysis prepared by IBC USA, Inc.
The 12-month dividend yield investment results for each fund are
effective yields assuming reinvestment of dividends for up to one year.
Total returns include any realized capital gains or losses, while yields
exclude capital gains and losses.
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 3/31/95,
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 $10,384.}
Past performance is no guarantee of future results and the value of your
investment may vary according to the fund's performance. Income may be
subject to federal, state or local taxes, or to the alternative minimum
tax.
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 Florida Tax-Free
Income and Florida Tax-Free Money Market Funds, separate Funds of USAA
State Tax-Free Trust, as of March 31, 1995, the related statements of
operations for the year then ended, the statements of changes in net
assets for the year ended March 31, 1995, and the six-month period ended
March 31, 1994, and the financial highlights information presented in
note 7 to the financial statements for the year ended March
31, 1995, and the six-month period ended March 31, 1994. 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, 1995, 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 Florida Tax-Free Income and Florida
Tax-Free Money Market Funds, separate Funds of USAA State Tax-Free
Trust, as of March 31, 1995, the results of their operations for the
year then ended, the changes in their net assets for the year ended
March 31, 1995, and the six-month period ended March 31, 1994, and the
financial highlights information for the year ended March 31, 1995, and
the six-month period ended March 31, 1994, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
May 3, 1995
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
(In Thousands)
March 31, 1995
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
<S>
Assets
Investments in securities, at market value <C> <C>
(identified cost of $40,440 and $51,885, respectively) $40,399 $51,885
Cash 40 146
Receivables:
Capital shares sold 71 11
Interest 955 315
Securities sold 1,539 -
------ ------
Total assets 43,004 52,357
------ ------
Liabilities
Capital shares redeemed 10 51
USAA Investment Management Company (note 5) 26 38
USAA Transfer Agency Company (note 5) - 2
Accounts payable and accrued expenses 25 28
Dividends on capital shares 52 13
------ ------
Total liabilities 113 132
------ ------
Net assets applicable to capital shares outstanding $42,891 $52,225
======= =======
Represented by:
Paid-in capital $44,598 $52,225
Accumulated net realized loss on investments (1,666) -
Net unrealized depreciation of investments (41) -
------- -------
Net assets applicable to capital shares outstanding $42,891 $52,225
======= =======
Capital shares outstanding, unlimited number of shares
authorized, $.001 par value 4,717 52,225
======= =======
Net asset value, redemption price, and offering price per
share $ 9.09 $ 1.00
======= =======
See accompanying notes to financial statements.
</TABLE>
Categories & Definitions
Portfolios of Investments in Securities
March 31, 1995
This year's Portfolios of Investments in Securities have a new format.
The securities are now divided into three categories - fixed rate
instruments, put bonds, and variable rate demand notes. We hope this
presentation enhances your understanding of the securities held in each
fund.
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)
March 31, 1995
[CAPTION]
<TABLE>
Principal Coupon Final Market
Amount Security Rate Maturity Value
Fixed Rate Instruments (90.9%)
<C> <S> <C> <C> <C>
Florida (83.8%)
$1,500 Atlantis Water and Sewer RB, Series 1992 6.50% 9/01/22 $1,505
1,100 Broward County Housing Finance Auth. MFH RB,
Series 1995A 7.00 2/01/25 1,159
1,855 Citrus County PCRB, Series 1992B 6.35 2/01/22 1,898
2,000 Collier County Health Facilities Auth. RB,
Series 1994 7.00 12/01/19 2,004
1,570 Dunes Community Development District RB,
Series 1992 6.10 10/01/18 1,553
1,000 Florida State Univ. Family Housing RB,
Series 1994, (CRE) 6.00 5/01/23 991
2,000 Hillsborough County IDA PCRB 6.25 12/01/34 2,015
1,960 Housing Finance Agency RB, Series 1994B 6.35 7/01/14 1,990
1,330 Lakeland Electric and Water RB 5.75 10/01/19 1,279
1,000 Miami Beach Health Facilities Auth. Hospital
RB, Series 1992, (CRE) 6.25 11/15/19 1,003
1,000 Miramar Wastewater Improvement
Assessment Bonds, Series 1994, (CRE) 6.75 10/01/25 1,068
Nassau County PCRB,
1,000 Series 1992 6.25 6/01/10 985
1,000 Series 1993 6.20 7/01/15 961
5,000 North Miami Educational Facilities RB,
Series 1994A 6.13 4/01/20 4,625
1,120 Orange County Sales Tax RB, Series 1993B 5.38 1/01/24 1,005
2,000 Orlando and Orange County Expressway Auth.
RB, Series 1993 5.95 7/01/23 1,928
Palm Beach County Health Facilities Auth.
Hospital RB,
1,195 Series 1993 6.20 10/01/11 1,182
2,500 Series 1993 6.30 10/01/22 2,464
1,340 Palm Beach County Housing Finance Auth. RB,
Series 1994B 6.40 4/01/14 1,369
1,250 Reedy Creek Improvement District RB,
Series 1991A 6.00 6/01/16 1,251
1,215 Sunrise Special Tax District #1 RB,
Series 1991, (CRE) 6.38 11/01/21 1,216
1,150 Tallahassee Consolidated Utility Systems RB,
Series 1994 6.20 10/01/19 1,169
1,300 Turtle Run Community Development District
RB, (CRE) 6.40 5/01/11 1,316
Guam (4.8%)
1,000 Government Limited Obligation Infrastructure
Improvement RB, Series 1989A, (CRE) 7.10 11/15/09 1,053
1,000 Power Auth. RB, Series 1992A 6.38 10/01/08 1,006
Puerto Rico (2.3%)
1,000 Electric Power Auth. RB, Series T 6.38 7/01/24 1,004
------
Total fixed rate instruments (cost: $39,040) 38,999
------
Variable Rate Demand Notes (3.3%)
Florida
1,100 Dade County Health Facilities Auth. RB,
Series 1990, (CRE) 4.60 9/01/20 1,100
100 Jacksonville Health Facilities Auth. RB,
Series 1990, (CRE) 4.50 6/01/20 100
100 Plant City Hospital RB, Series 1993, (CRE)4.25 3/01/13 100
100 Sarasota County Health Facilities Auth. RB,
Series 1989, (CRE) 4.40 12/01/19 100
------
Total variable rate demand notes (cost: $1,400) 1,400
------
Total investments (cost: $40,440) $40,399
======
</TABLE>
Portfolio Summary By Industry
Electric Power 16.8%
Hospitals 13.9
Education 13.1
Water/Sewer 12.4
Special Assessment/Tax/Fee 8.4
Housing - Single/Family 7.8
Nursing Care 4.9
Paper & Forest Products 4.5
Toll Roads 4.5
General Obligations 2.8
Housing - Multi/Family 2.7
Sales Tax Obligations 2.4
----
Total 94.2%
====
[CAPTION]
<TABLE>
Florida Tax-Free Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1995
Principal Coupon Final Market
Amount Security Rate Maturity Value
Variable Rate Demand Notes (68.8%)
<C> <S> <C> <C> <C>
Florida
Brevard County Housing Finance Auth. MFH RB,
$1,800 Series 1993, (CRE) 4.35% 7/01/05 $1,800
1,500 Series 1995, (CRE) 4.25 2/01/15 1,500
1,535 Brevard County Mental Health Facilities RB,
Series 1994C, (CRE) 4.20 1/01/10 1,535
600 Broward County IDA RB, Series 1992,(CRE) 4.35 3/01/99 600
2,500 Dade County Aviation Facilities RB,
Series 1984A, (CRE) 4.25 10/01/09 2,500
400 Dade County Health Facilities Auth. RB,
Series 1990, (CRE) 4.60 9/01/20 400
2,500 Dade County MFH RB, Series 1993-1, (CRE) 4.30 2/01/28 2,500
2,200 Greater Orlando Aviation Auth. Special
Purpose RB, Series 1990, (CRE) 4.35 12/01/14 2,200
1,000 Jacksonville Hospital RB, Series 1989,(CRE)4.33 2/01/19 1,000
Jacksonville IDA RB,
900 Series 1989, (CRE) 4.25 7/01/19 900
2,400 Series 1993, (CRE) 4.20 7/01/13 2,400
1,100 Palm Beach County IDRB, Series 1990,(CRE) 4.20 5/01/02 1,100
2,400 Pinellas County Housing Finance Auth. MFH
RB, Series 1989A, (CRE) 4.35 7/01/07 2,400
5,560 Plant City Hospital RB, Series 1993, (CRE) 4.25 3/01/13 5,560
2,400 Sarasota County Health Facilities Auth. RB,
Series 1989, (CRE) 4.40 12/01/19 2,400
3,000 Volusia County Housing Finance Auth. RB,
Series 1985C, (CRE) 4.75 9/01/05 3,000(a)
4,150 Wauchula IDA RB, Series 1993, (CRE) 4.40 12/01/13 4,150
-----
Total variable rate demand notes (cost: $35,945) 35,945
------
Put Bonds (11.7%)
Florida
1,000 Jacksonville IDA RB, Series 1989, (CRE) 3.95 10/01/09 1,000
2,200 Putnam County Development Auth. PCRB,
Series 1984H-3, (CRE) 4.30 3/15/14 2,200
1,500 St. Lucie County PCRB, Series 1992, (CRE) 4.30 5/01/27 1,500
1,400 West Orange Memorial Hospital RB,
Series 1991A-1, (CRE) 4.20 2/01/22 1,400
-----
Total put bonds (cost: $6,100) 6,100
-----
Fixed Rate Instruments (18.8%)
Florida
830 Dade County School District GO,
Series 1994A, (CRE) 3.70 6/01/95 830
1,600 Gainesville Utilities System CP Notes,
Series C 4.05 6/05/95 1,600
1,000 Indian River County School District TAN 4.50 6/30/95 1,001
1,500 Local Government Finance Commission Pooled
CP Notes, Series A, (CRE) 4.40 6/08/95 1,500
1,000 Martin County School District TAN,
Series 1994 4.35 6/30/95 1,001
1,400 Orange County School District RAN,
Series 1994B 3.75 4/06/95 1,400
1,000 Palm Beach County School District TAN,
Series 1994 4.75 9/13/95 1,003
1,505 Sunshine State Government Finance Commission
CP Notes, (CRE) 4.05 5/19/95 1,505
------
Total fixed rate instruments (cost: $9,840) 9,840
------
Total investments (cost: $51,885) $51,885
=======
</TABLE>
Portfolio Summary By Industry
Housing - Multi/Family 21.4%
Hospitals 18.9
Buildings 9.7
Airports 9.0
Electric Power 7.1
Nursing Care 6.5
Special Assessment/Tax/Fee 5.8
Finance - Municipal 5.7
Hotel - Motel 4.6
General Obligations 4.3
Water/Sewer 3.1
Community Service 2.1
Aerospace/Defense 1.1
----
Total 99.3%
====
Notes to Portfolios of Investments
March 31, 1995
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
GO General Obligation
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 March 31, 1995, this
security represented 5.7% of the Florida Tax-Free Money Market Fund's
net assets.
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Statements of Operations
(In Thousands)
Year ended March 31, 1995
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
<S> <C> <C>
Net investment income:
Interest income $ 2,063 $ 1,404
-------- --------
Expenses (note 5):
Management fees 158 188
Transfer agent's fees 33 25
Custodian's fees 41 39
Postage 3 3
Shareholder reporting fees 3 3
Trustees' fees 7 7
Registration fees 6 8
Audit fees 13 13
Legal fees 7 3
Other 3 4
-------- -------
Total expenses before reimbursement 274 293
Expenses reimbursed (105) (91)
-------- -------
Total expenses after reimbursement 169 202
-------- -------
Net investment income 1,894 1,202
-------- -------
Net realized and unrealized gain (loss)
on investments (note 4):
Net realized loss (1,409) -
Change in net unrealized appreciation/depreciation 2,180 -
-------- -------
Net realized and unrealized gain 771 -
-------- -------
Increase in net assets resulting from operations $ 2,665 $ 1,202
======== =======
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
(In Thousands)
Year ended March 31, 1995 and Six-month period ended March 31, 1994*
<CAPTION>
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
<S> <C> <C> <C> <C>
1995 1994 1995 1994
From operations:
Net investment income $ 1,894 $ 368 $ 1,202 $ 210
Net realized loss on investments (1,409) (257) - -
Change in net unrealized appreciation/
depreciation of investments 2,180 (2,221) - -
------ ------- ------ -----
Increase (decrease) in net assets resulting
from operations 2,665 (2,110) 1,202 210
------ ------- ------ -----
Distributions to shareholders from:
Net investment income (note 3) (1,894) (368) (1,202) (210)
------- ------ ------- ------
From capital share transactions:
Shares sold 36,242 36,330 102,680 69,985
Shares issued for dividends reinvested 1,425 288 1,087 190
Shares redeemed (20,495) (9,192) (81,419) (40,298)
------- ------ ------- -------
Increase in net assets from
capital share transactions 17,172 27,426 22,348 29,877
------- ------ ------ ------
Net increase in net assets 17,943 24,948 22,348 29,877
Net assets:
Beginning of period 24,948 - 29,877 -
------- ------ ------ ------
End of period $42,891 $24,948 $52,225 $29,877
======= ======= ======= =======
Change in shares outstanding:
Shares sold 4,140 3,694 102,680 69,985
Shares issued for dividends reinvested 161 30 1,087 190
Shares redeemed (2,363) (945) (81,419) (40,298)
------- ------ ------- -------
Increase in shares outstanding 1,938 2,779 22,348 29,877
======= ====== ======= ======
*Funds commenced operations October 1, 1993.
See accompanying notes to financial statements.
</TABLE>
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Notes to Financial Statements
(In Thousands)
March 31, 1995
(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 annual 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 year ended
March 31, 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 March 31, 1995.
Distributions of realized gains from security transactions not offset by
capital losses are generally made in the succeeding fiscal year. At
March 31, 1995, the Florida Tax-Free Income Fund had a capital loss
carryover of approximately $1,666 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.
The Funds completed their fiscal year on March 31, 1995. 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 the 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. There were no long-term capital gain distributions for the
year ended March 31, 1995.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the year ended March 31, 1995, for the Florida Tax-Free
Income Fund were $77,801 and $62,597, respectively. Purchases and
sales/maturities of securities for the year ended March 31, 1995, for
the Florida Tax-Free Money Market Fund were $169,248 and $146,810,
respectively.
Gross unrealized appreciation and depreciation of investments at March
31, 1995, for the Florida Tax-Free Income Fund was $553 and $594,
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 asses (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 $100,000. These fees are allocated on a proportional basis
to each Fund monthly based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of each
Fund to .50% of its annual average net assets. This limitation may be
rescinded at any time and in the event of rescission the terms of the
advisory agreement would govern.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides
transfer agent services to the Trust. Shareholder accounting service
fees are based on an annual charge per shareholder account plus
out-of-pocket expenses.
C. Underwriting agreement - The Trust has an agreement with the Manager
for exclusive underwriting and distribution of the Funds' shares on a
continuing best efforts basis. The agreement provides that the Manager
will receive no fee or other remuneration for such services.
(6) Transactions with Affiliates
USAA Investment Management Company is wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution.
At March 31, 1995, the Association and its affiliates owned 5 shares
(.1%) of the Florida Tax-Free Income Fund and 52 shares (.1%) of the
Florida Tax-Free Money Market Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
[CAPTION]
<TABLE>
Net Asset Net Realized Distributions
Fiscal Value At Net and from Net
Year Beginning Investment Unrealized Investment
Ended of Period Income Gain (Loss) Income
($) ($) ($) ($)
<S> <C> <C> <C> <C>
Florida Tax-Free Income Fund:
March 31,
1994* 10.00 .21 (1.02) (.21)
1995 8.98 .49 .11 (.49)
Florida Tax-Free Money Market Fund:
March 31,
1994* 1.00 .01 - (.01)
1995 1.00 .03 - (.03)
<CAPTION>
</TABLE>
<TABLE>
Ratio of Net
Net Asset Ratio of Investment
Fiscal Distributions Value at Net Assets Expenses Income
Year of Realized End Total at End to Average to Average Portfolio
End Capital Gains of Period Return of Period Net Assets Net Assets Turnover
($) ($) (%) ($000) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
Florida Tax-Free Income Fund:
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(b) 5.59(b) 183.44
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(b) 2.97(b) -
</TABLE>
(a)Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b)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:
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Expenses Investment Income
to Average to Average
Net Assets Net Assets
(%) (%)
<S> <C> <C>
Florida Tax-Free Income Fund:
March 31,
1994* 1.33(a) 3.80(a)
1995 .81 5.28
Florida Tax-Free Money Market Fund:
March 31,
1994* 1.11(a) 1.37(a)
1995 .72 2.75
* Funds commenced operations October 1, 1993.
</TABLE>
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