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 9
Financial Information:
Independent Auditors' Report 12
Statements of Assets and Liabilities 13
Portfolios of Investments in Securities:
Florida Tax-Free Income Fund 15
Florida 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 25
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)1996, 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 March 31,
1996.
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* Yield
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 53.09 16.33 11.30 - - -
Emerging Markets(2) 11/7/94 22.89 - - 4.97 - -
Gold(2) 8/15/84 22.74 11.44 6.69 - - -
Growth 4/5/71 28.37 14.63 11.60 - - -
Growth & Income 6/1/93 31.71 - - 15.08 - -
International(2) 7/11/88 22.25 12.71 - 10.15 - -
World Growth(2) 10/1/92 24.29 - - 13.28 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - 5.16 - -
Cornerstone Strategy(2) 8/15/84 22.70 12.02 11.45 - - -
Growth and Tax Strategy(3)** 1/11/89 17.89 9.91 - 9.87 - 3.59
Growth Strategy(2) 9/1/95 - - - 14.32 - -
Income Strategy 9/1/95 - - - 4.46 - 5.04
Income - Taxable
GNMA 2/1/91 9.42 7.90 - 7.69 - 6.81
Income 3/4/74 12.98 9.15 9.37 - - 6.68
Income Stock 5/4/87 24.73 13.01 - 12.32 - -
Short-Term Bond 6/1/93 9.03 - - 5.01 - 6.30
Income - Tax Exempt
Long-Term(3)** 3/19/82 7.88 7.57 7.60 - - 5.72
Intermediate-Term(3)** 3/19/82 7.97 7.51 7.17 - - 5.23
Short-Term(3)** 3/19/82 5.83 5.32 5.54 - - 4.33
California Bond(3)** 8/1/89 9.35 7.64 - 7.42 - 5.54
Florida Tax-Free Income(3)** 10/1/93 7.66 - - 2.26 - 5.61
New York Bond(3)** 10/15/90 7.67 7.61 - 8.42 - 5.49
Texas Tax-Free Income(3)** 8/1/94 9.42 - - 9.08 - 5.41
Virginia Bond(3)** 10/15/90 7.57 7.77 - 8.16 - 5.37
Money Market
Money Market(4) 2/2/81 5.64 4.46 5.92 - 5.00 -
Tax Exempt Money Market(3)(4)** 2/6/84 3.65 3.22 4.30 - 3.17 -
Treasury Money Market Trust(4) 2/1/91 5.48 4.20 - 4.21 4.96 -
California Money Market(3),(4)** 8/1/89 3.58 3.08 - 3.68 3.14 -
Florida Tax-Free Money Market(3,4)**10/1/93 3.51 - - 2.93 3.06 -
New York Money Market(3),(4)** 10/15/90 3.56 2.91 - 3.05 3.07 -
Texas Tax-Free Money Market(3,4)** 8/1/94 3.49 - - 3.34 3.06 -
Virginia Money Market(3),(4)** 10/15/90 3.42 3.04 - 3.20 2.99 -
(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 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.
</TABLE>
Message from the President
[A photo of Michael J.C. Roth, President and Vice Chairman of the Board,
appears here.]
One of the most striking reactions of an audience to a speaker
that I have ever witnessed came during a shareholders' meeting that
we had last year. The speaker was Ken Willmann, who guides our efforts
in the tax-exempt bond area. He was talking about bond investors in general,
and the statement that evoked such a memorable reaction was, "If you are going
to take the income, you should not invest in bonds." There was dead silence in
the room.
Ken's statement is magnificently perceptive. There has been a tradition of
opposite thinking. For as long as I can remember people talking about
investments, the phrase, "I only spend the income - I never touch the
principal," has elicited nods of admiration. Here was a disciplined person.
This thinking even found its way into our legal process. During my six years
as a trust investment officer, I frequently saw trust instruments which
allowed beneficiaries to spend income but forbade them to "invade corpus."
In 1990, we first published information showing the experience of an
investor who made one of two theoretical choices in 1975. One was to purchase
a 9% bond, and the other was to buy the S&P 40 Utilities Index (an unmanaged
index representing the market value weighted performance of a group of
approximately 40 publicly traded utilities stocks). Although this is
theoretical, it provides us easy measurement. In this report we have updated
the bond data through 1995. The black bars on the chart show the value of the
bond portfolio assuming all the interest is spent, and we applied the actual
rates of inflation to the portfolio. The income from the bond, by 1995, is of
course unchanging, and its purchasing power has also fallen, to about 1/3 of
its 1975 level.
The gray bars on the chart reflect the real value of the portfolio if
interest is reinvested. This chart illustrates just what Ken Willmann said.
The only way to maintain the purchasing power of a bond portfolio is to
reinvest the income. The primary purpose of investing in bonds is the
excellent synergy they add to a portfolio. Their combination with stocks
can result in a portfolio that has better return and risk characteristics
than either stocks or bonds alone.
But when it comes time to take some of your investment return, you do
not want to only take your bond portfolio's income. That is the time
to look at total return.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
[A graph is shown here entitled "Real Value of a Bond Portfolio - $100,000
Invested on January 1, 1975". The graph shows the impact of inflation on a
$100,000 investment with interest reinvested vs. interest distributed. The
vertical axis shows the dollar amount and the horizontal axis shows the year.
The data is as follows:
Interest Interest
Reinvested Distributed
1975 101,860 93,449
1976 105,932 89,161
1977 108,144 83,507
1978 108,114 76,591
1979 104,002 67,594
1980 100,856 60,137
1981 100,912 55,202
1982 105,896 53,145
1983 111,200 51,200
1984 116,603 49,254
1985 122,480 47,465
1986 132,011 46,934
1987 137,814 44,952
1988 143,859 43,049
1989 149,839 41,136
1990 153,920 38,768
1991 162,791 37,617
1992 172,442 36,557
1993 182,931 35,578
1994 194,209 34,653
1995 206,042 33,729]
NOTE: Real value is the purchasing power of the dollars accumulated
when the actual rate of inflation is applied. The return used in this
example of a fixed-rate investment is hypothetical and for illustrative
purposes only. Investors are encouraged to closely monitor changes in
any factor which may affect their investments.
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 3/31/96
Net Assets $42.9 Million $69.1 Million
Net Asset Value Per Share $9.09 $9.26
Average Annual Total Return as of 3/31/96
1 Year 7.66%
Since inception on October 1, 1993 2.26%
30-Day SEC Yield* on March 31, 1996 5.61%
*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 3-31-96, with
dividends and capital gains reinvested. The ending values for the
items graphed are:
Lehman Brothers Muni. Bond Index $11,159
USAA Florida Tax-Free income Fund 10,574]
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 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, Portfolio Manager appears here]
When Good News is Bad
Interest rates had been falling for 15 months, but on February 20,
1996, news screens flashed, "Greenspan says U.S. Economy 'On Track for
Sustained Growth'." Two weeks later, on March 8th, the screens read,
"Non-Farm Jobs Up 705,000; Biggest Gain since 1983." The bond and
stock markets, seemingly unable to cope with so much good news,
promptly suffered their worst single day's decline in years. What
caused interest rates to increase on the 30-year U.S. Treasury bond
(the "Long Bond") from 5.95% last December to 6.67% on March 31, 1996?
Investors perceived that if the economy were strengthening too fast,
then inflation would eventually follow.
A Change in Sentiment
Since last spring, bond market sentiment has been very positive,
meaning investors were expecting the continuation of weak economic
conditions and falling interest rates. At one point, the market was
also counting on Congress to develop a bi-partisan deficit reduction
plan and for fiscal conservatives to capture the White House and
dominate Congress. Confounding the situation was the delayed release
of critical economic statistics caused by last fall's federal government
shutdown and then the distortion of the statistics by the January
blizzard and major strikes at Boeing and General Motors. Financial
markets rely upon this information to gauge the strength of the economy,
the resulting demand for credit, and the relative risk of inflation.
I believe that bond market sentiment has swung from overly optimistic
to a more realistic and cautious outlook.
The Municipal Market
As interest rates rose during the recent correction, the municipal
bond market fell less in value and has out-performed the government
market. This process started when the pro-flat tax presidential candidates
did poorly in the Republican primary elections. The improvement continued
when several influential financial publications printed articles projecting
that the middle class would end up paying higher taxes under a flat
tax system or that massive changes to the tax code would create unwise
economic risks. Does this mean that worries over major tax reform have
vanished? No, but for now, markets are less concerned that significant
tax reform is likely. I promise to monitor the situation very closely.
Strategy & Outlook
Although inflation has remained very tame since 1990, the bond market
is uneasy because of the recent rise in commodity prices - especially
gasoline. Key indicators of prevailing economic conditions are very
anemic now compared to 1994 when inflation last spooked the financial
markets. How will this uncertainty impact my strategy for managing the
fund? You may be surprised, but under most market conditions, the
near-term economic outlook will have little influence on my long-term
strategy. I plan to do what has worked successfully over the years -
primarily concentrate on generating a high level of tax-exempt income
and invest in quality securities. Secondarily, I will focus on total
return. This strategy means that I typically will buy maturities 20
years or longer with higher yields, although the market values of
these bonds are more sensitive to changes in interest rates. I rely on
our seasoned research staff to find value in lesser-known issuers and
to help me avoid credit problems. In short, I position the fund for
long-term investors that want to enhance tax-exempt income and reduce
taxable capital gain distributions. I do not buy derivatives, hedge
the portfolio with futures, or try to time the market because no one
has demonstrated that they can consistently predict the future course
of interest rates.
Your Fund's Performance
Looking over the past 12 months, the bond market had a very good year
as the Long Bond rates fell from about 7.43% last March 1995 to 6.67%
on March 31, 1996. Your Fund's net asset value (NAV) per share rose
$.17 to $9.26, or 1.9%, since March 31, 1995. The Fund's performance
compared very favorably to its peer group. For the past year, the Fund's
dividend yield(1) was 5.57% compared to the Lipper Florida Municipal Debt
Funds average of 5.05% for the 74 funds in the category.(2) For the same
period, the Fund's total return(3) was 7.66% compared to the Florida
Debt Funds average of 7.13%.
(1) 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.
(2) Lipper Analytical Services is 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.
The State of Florida
The credit rating agencies continue to rate Florida as a "AA" category
credit due to its well-managed finances and steady economic performance.
In 1995, the state added the third highest number of new jobs in the nation
behind Texas and California. Sales tax revenues have grown by 8.8% from June
through December 1995 - vital to a state that relies upon the sales
tax for 70% of its governmental revenues. Although the rate of growth
will slow somewhat, the state's economic outlook is bright. I remain
very cautious regarding municipal lease obligations that rely on
annual appropriations, despite their somewhat higher yields.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of
March 31, 1996 for the USAA Florida Tax-Free Income Fund to be: AAA - 20%,
AA - 10%, A - 37%, BBB - 22%, and Cash Equivalents - 11%.]
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 4.8% of
the Fund's investments.
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.
To match the Florida Tax-Free Income Fund's closing 30-Day SEC yield
of 5.61% 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 7.89% 8.23% 8.87% 9.39%
Individual with $100,000+
Intangible Assets 7.99% 8.33% 8.97% 9.49%
Married with $40,000-200,000
Intangible Assets 7.89% 8.23% 8.87% 9.39%
Married with $200,000+ Intangible
Assets 7.99% 8.33% 8.97% 9.49%
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 15 for a complete listing of the Portfolio Investments in Securities.
Note: Income may be subject to federal, state or local taxes, or the
alternative minimum tax.
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 maintain
a stable net asset value of $1.00 per share.
3/31/95 3/31/96
Net Assets $52.2 Million $71.2 Million
Net Asset Value Per Share $1.00 $1.00
Average Annual Total Return as of 3/31/96
1 Year 3.51%
Since inception on October 1, 1993 2.93%
7-Day Simple Yield on March 31, 1996 3.06%
[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 & GB
(Tax-Free) from 3/95 to 3/96. The vertical axis shows the yield and the
horizontal axis shows the time period. The ending value, on 3/25/96, for
the USAA Florida Tax-Free Money Market Fund is 3.06% and the ending value
for the IBC Donoghue's State Specific SB & GP (Tax-Free) is 2.72%.]
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
[A photograph of Pamela K. Bledsoe, Portfolio Manager, appears here]
The Market
A year ago the Federal Reserve (Fed) instituted a directional shift
from increasing short-term interest rates to lowering them. Short-term
interest rates have been decreased by the Fed three times since July 1995
in an effort to stimulate growth in the national economy. If the economy
grows too slowly it could result in a recession; if it grows too rapidly,
it could cause inflation. Reports used to measure the country's level of
economic growth show mixed signals for the rate of growth. The impact of
these mixed signals results in fluctuating yields for money market funds.
As we make new purchases, we consider the trends in interest rates
although we do not attempt to forecast rates. In general, if rates are
trending higher, purchasing securities with very short maturities allows the
Fund to reinvest at higher rates. If rates are trending lower, securities
with longer maturities allow the Fund to hold on to higher rates as long
as possible. Over the last six months, I have tried to maintain
a longer average maturity as the Fed has continued to lower short-term
rates. However, the need for liquidity requires that the Fund hold a
large percentage of variable rate demand notes (VRDNs).(1) These notes
have yields that change weekly and will fluctuate with changing market
conditions.
Regardless of the trend in interest rates, we strive to maintain a
portfolio of high quality, competitive yielding securities. All of our
holdings must meet our standards for liquidity, credit quality, yield,
and maturity.
Florida
The sun continues to shine on the Florida economy. Tourism and the
associated sales tax revenues continue to provide the State with
positive revenue gains for the 1995/96 fiscal year. Overall, Florida's
growth is expected to moderate to national growth levels, including the
growth in population, allowing infrastructure needs to stabilize.
(1) Variable rate demand note (VRDN): A note representing borrowings
that is payable on demand and that bears interest tied to a money
market rate.
[A graph is here showing the growth of $10,000, from 10/1/93 to 3/31/96,
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 id $10,749.]
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 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 Florida Tax-Free
Income and Florida Tax-Free Money Market Funds, separate Funds of
USAA State Tax-Free Trust, as of March 31, 1996, 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 6 to the
financial statements for each of the years in the two-year period ended
March 31, 1996, 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, 1996, 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, 1996, 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, 1996, and the six-month
period ended March 31, 1994, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
May 10, 1996
Statements of Assets and Liabilities
(In Thousands)
March 31, 1996
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
Assets
Investments in securities, at market value
(identified cost of $71,808 and $70,814,
respectively) $ 72,590 $ 70,814
Cash 76 113
Receivables:
Capital shares sold 11 25
Interest 1,261 468
Securities sold 1,553 -
-------- --------
Total assets 75,491 71,420
-------- --------
Liabilities
Securities purchased 6,239 -
Capital shares redeemed 2 84
USAA Investment Management Company 55 74
USAA Transfer Agency Company 4 3
Accounts payable and accrued expenses 26 24
Dividends on capital shares 86 11
-------- --------
Total liabilities 6,412 196
-------- --------
Net assets applicable to capital
shares outstanding $ 69,079 $ 71,224
======== ========
Represented by:
Paid-in capital $ 70,234 $ 71,224
Accumulated net realized loss on investments (1,937) -
Net unrealized appreciation of investments 782 -
-------- --------
Net assets applicable to capital shares
outstanding $ 69,079 $ 71,224
======== ========
Capital shares outstanding, unlimited number of
shares authorized, $.001 par value 7,462 71,224
======== ========
Net asset value, redemption price, and offering
price per share $ 9.26 $ 1.00
========= ========
See accompanying notes to financial statements.
Categories & Definitions
Portfolios of Investments in Securities
March 31, 1996
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)
<TABLE>
<CAPTION>
March 31, 1996
Principal Coupon Final Market
Amount Security Rate Maturity Value
Fixed Rate Instruments (88.8%)
<C> <S> <C> <C> <C>
Florida (78.5%)
$ 2,500 Board of Education Capital Outlay Bonds,
Series 1995B 5.88 % 6/01/20 $ 2,498
1,100 Broward County Housing Finance Auth.
MFH RB, Series 1995A 7.00 2/01/25 1,165
1,855 Citrus County PCRB, Series 1992B 6.35 2/01/22 1,930
2,000 Collier County Health Facilities Auth. RB,
Series 1994 7.00 12/01/19 2,046
3,300 Dade County Aviation RB, Series 1996B
(CRE) 5.60 10/01/26 3,183
2,000 Dade County Special Obligation Bonds,
Series 1995 6.10 4/01/20 2,024
2,310 Duval County Housing Finance Auth.
MFH RB 6.00 3/01/21 2,246
1,000 Florida State Univ. Family Housing RB,
Series 1994 (CRE) 6.00 5/01/23 1,016
2,000 Hillsborough County IDA PCRB 6.25 12/01/34 2,050
Housing Finance Agency RB,
1,860 Series 1994B 6.35 7/01/14 1,912
1,000 Series 1995H (CRE) 6.50 11/01/25 976
1,000 Miami Beach Health Facilities Auth.
Hospital RB, Series 1992 (CRE) 6.25 11/15/19 1,029
1,000 Miramar Wastewater Improvement Assessment
Bonds, Series 1994 (CRE) 6.75 10/01/25 1,090
3,400 North Miami Educational Facilities RB,
Series 1994A 6.13 4/01/20 3,306
5,750 Orange County Health Facilities Auth. RB,
Series 1995 6.75 7/01/20 5,715
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 2,555
2,305 Palm Beach County Health Facilities Auth.
Hospital RB, Series 1993 6.30 10/01/22 2,328
1,340 Palm Beach County Housing Finance Auth. RB,
Series 1994B 6.40 4/01/14 1,387
5,555 St. Johns County IDA RB 6.00 8/01/22 5,314
1,215 Sunrise Special Tax District #1 RB,
Series 1991 (CRE) 6.38 11/01/21 1,260
1,150 Tallahassee Consolidated Utility Systems RB,
Series 1994 6.20 10/01/19 1,186
2,750 Turnpike Auth. RB, Series 1995A (CRE) 5.50 7/01/21 2,641
1,300 Turtle Run Community Development
District RB (CRE) 6.40 5/01/11 1,342
3,000 Volusia County Education Facility Auth. RB,
Series 1996A 6.13 10/15/26 2,949(c)
Guam (1.5%)
1,000 Government Limited Obligation Infrastructure
Improvement RB, Series 1989A (CRE) 7.10 11/15/09 1,059
Puerto Rico (8.8%)
3,700 Electric Power Auth. RB, Series 1995Z 5.25 7/01/21 3,332
3,200 Highway and Transportation Auth. RB,
Series 1993X 5.00 7/01/22 2,772(c)
-------
Total fixed rate instruments (cost: $60,643) 61,322
-------
Put Bond (4.7%)
Florida
3,155 Duval County Housing Finance Auth. MFH RB,
Series 1995 (CRE) (cost: $3,165) 6.75 4/01/25 3,268
-------
Variable Rate Demand Notes (11.6%)
Florida
3,300 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 3.85 9/01/20 3,300
2,700 Jacksonville Parking System Improvement RB,
Series 1992 (CRE) 3.40 5/01/22 2,700
2,000 Manatee County PCRB, Series 1994 3.85 9/01/24 2,000
-------
Total variable rate demand notes (cost: $8,000) 8,000
-------
Total investments (cost: $71,808) $ 72,590
=======
</TABLE>
Portfolio Summary By Industry
Hospitals 17.3%
Special Assessment/Tax/Fee 14.0
Electric Power 13.5
Multi-Family Housing 12.6
Education 10.5
Healthcare - Miscellaneous 8.3
Toll Roads 7.5
Single-Family Housing 4.8
Airports 4.6
Buildings 3.9
Water/Sewer 3.3
Nursing Care 3.0
General Obligations 1.8
-----
Total 105.1%
=====
<TABLE>
<CAPTION>
Florida Tax-Free Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1996
Principal Coupon Final
Amount Security Rate Maturity Value
Variable Rate Demand Notes (57.0%)
<C> <S> <C> <C> <C>
Florida
$ 2,700 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 3.65% 7/01/05 $ 2,700
1,535 Brevard County Mental Health Facilities RB,
Series 1994C (CRE) 3.55 1/01/10 1,535
2,500 Broward County Housing Finance Auth. MFH RB,
Series 1990 (CRE) 3.70 10/01/07 2,500
600 Broward County IDA RB, Series 1992 3.55 3/01/99 600
3,300 Dade County Aviation Facilities RB,
Series 1984A (CRE) 3.90 10/01/09 3,300
2,200 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 3.85 9/01/20 2,200
2,800 Dade County IDA RB, Series 1985B
(CRE) 3.40 1/01/16 2,800
3,145 Dade County MFH RB, Series 1993-1
(CRE) 4.00 2/01/28 3,145
2,150 Greater Orlando Aviation Auth. Special
Purpose RB, Series 1990 (CRE) 3.55 12/01/14 2,150
3,100 Jacksonville Health Facilities Auth. RB,
Series 1990 (CRE) 3.95 6/01/20 3,100
3,000 Jacksonville IDA RB, Series 1993
(CRE) 3.45 7/01/13 3,000
455 Palm Beach County Health Facilities RB,
Series 1993 (CRE) 3.45 9/01/08 455
6,980 Plant City Hospital RB, Series 1993
(CRE) 3.60 3/01/13 6,980
500 Southeast Volusia Hospital RB,
Series 1995 (CRE) 3.45 5/01/22 500
3,000 Volusia County Housing Finance Auth. RB,
Series 1985C (CRE) 3.93 9/01/05 3,000(a)
2,650 Wauchula IDA RB, Series 1993 (CRE) 3.45 12/01/13 2,650
------
Total variable rate demand notes (cost: $40,615) 40,615
------
Put Bonds (11.1%)
Florida
955 Jacksonville IDA RB, Series 1989 (CRE)4.00 10/01/09 955
1,000 Jacksonville PCRB, Series 1992 3.45 5/01/27 1,000
2,160 Putnam County Development Auth. PCRB,
Series 1984H-3 (CRE) 3.25 3/15/14 2,160
1,500 St. Lucie County PCRB, Series 1992 3.20 5/01/27 1,500
2,300 West Orange Memorial Hospital RB,
Series 1991A-1 (CRE) 3.25 2/01/22 2,300
------
Total put bonds (cost: $7,915) 7,915
------
Fixed Rate Instruments (31.3%)
Florida
2,000 Altamonte Springs Health Facilities
Auth. RB (CRE) 7.90 10/01/14(b) 2,078
3,000 Broward County GO Refunding Bonds,
Series 1986 7.88 1/01/12(b) 3,092
2,000 Department of Environmental Protection RB,
Series 1995A (CRE) 5.00 7/01/96 2,006
1,600 Gainesville Utilities System CP Notes,
Series C 3.35 5/22/96 1,600
1,000 Jacksonville Electric Auth. RB, Series
1993A 3.70 10/01/96 1,000
1,500 Jacksonville Electric System CP Notes,
Series A 3.25 5/15/96 1,500
2,100 Local Government Finance Commission Pooled
CP Notes, Series 1995A (CRE) 3.55 5/16/96 2,100
1,000 Manatee County School District Sales Tax RB,
Series 1995 (CRE) 3.55 8/01/96 1,000
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 1,002
2,600 Ormond Beach Water and Sewer RB (CRE) 7.80 9/01/08(b) 2,700
1,200 Sarasota County Utility Systems RB,
Series 1996A (CRE) 4.00 10/01/96 1,205
500 St. Lucie County School District GO,
Series 1996A (CRE) 3.50 2/01/97 501
1,000 Sunshine State Governmental Financing
Commission CP Notes 3.30 6/20/96 1,000
-------
Total fixed rate instruments (cost: $22,284) 22,284
-------
Total investments (cost: $70,814) $ 70,814
=======
</TABLE>
Portfolio Summary By Industry
Hospitals 23.3%
Multi-Family Housing 15.9
Escrowed Securities 11.1
Electric Power 10.1
Airports 7.7
Education 5.6
Finance - Municipal 4.4
Hotel/Motel 4.2
Special Assessment/Tax/Fee 3.9
Water/Sewer 3.9
Buildings 3.7
Real Estate 2.8
Nursing Care 2.0
Aerospace/Defense 0.8
----
Total 99.4%
----
Notes to Portfolios of Investments
(In Thousands)
March 31, 1996
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
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, 1996, this
security represented 4.2% of the Florida Tax-Free Money Market Fund's
net assets.
(b) Prerefunded to various dates prior to maturity at the call price.
(c) At March 31, 1996, the cost of securities purchased on a delayed
delivery basis for the Florida
Tax-Free Income Fund was $3,553.
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Year ended March 31, 1996
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
Net investment income:
Interest income $ 3,356 $ 2,362
Expenses:
Management fees 240 257
Transfer agent's fees 42 39
Custodian's fees 43 39
Postage 4 4
Shareholder reporting fees 6 6
Trustees' fees 6 6
Registration fees 9 7
Audit fees 12 12
Legal fees 7 7
Other 4 5
---------- ----------
Total expenses before reimbursement 373 382
Expenses reimbursed (97) (85)
---------- ----------
Total expenses after reimbursement 276 297
---------- ----------
Net investment income 3,080 2,065
---------- ----------
Net realized and unrealized gain (loss) on investments:
Net realized loss (271) -
Change in net unrealized appreciation/
depreciation 823 -
---------- ----------
Net realized and unrealized gain 552 -
---------- ----------
Increase in net assets resulting from
operations $ 3,632 $ 2,065
========== ==========
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
(In Thousands)
Year ended March 31,
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
1996 1995 1996 1995
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 3,080 $ 1,894 $ 2,065 $ 1,202
Net realized loss on investments (271) (1,409) - -
Change in net unrealized appreciation/
depreciation of investments 823 2,180 - -
-------- -------- -------- --------
Increase in net assets resulting
from operations 3,632 2,665 2,065 1,202
-------- -------- -------- --------
Distributions to shareholders from:
Net investment income (3,080) (1,894) (2,065) (1,202)
-------- -------- -------- --------
From capital share transactions:
Shares sold 45,807 36,242 121,576 102,680
Shares issued for dividends reinvested 2,216 1,425 1,875 1,087
Shares redeemed (22,387) (20,495) (104,452) (81,419)
-------- -------- -------- --------
Increase in net assets from
capital share transactions 25,636 17,172 18,999 22,348
-------- -------- -------- --------
Net increase in net assets 26,188 17,943 18,999 22,348
Net assets:
Beginning of period 42,891 24,948 52,225 29,877
-------- -------- -------- --------
End of period $ 69,079 $ 42,891 $ 71,224 $ 52,225
======== ======== ======== ========
Change in shares outstanding:
Shares sold 4,893 4,140 121,576 102,680
Shares issued for dividends reinvested 238 161 1,875 1,087
Shares redeemed (2,386) (2,363) (104,452) (81,419)
-------- -------- -------- --------
Increase in shares outstanding 2,745 1,938 18,999 22,348
======== ======== ======== ========
See accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
(In Thousands)
March 31, 1996
(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). The Funds have a common objective of providing
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. The Florida Tax-Free Money
Market Fund has a further objective of preserving capital and
maintaining liquidity.
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.
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 14, 1997,
one with USAA CapitalCorporation, an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliatedbank ($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 at the
lending institution's borrowing rate plus a markup to cover costs. The
Funds had no borrowings under either of these agreements during the year
ended March 31, 1996.
(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, 1996.
Distributions of realized gains from security transactions not offset
by capital losses are generally made in the succeeding fiscal year. At
March 31, 1996, the Florida Tax-Free Income Fund had a capital loss
carryover of approximately $1,937 which will expire in or before 2005.
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, 1996. 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, 1996.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the year ended March 31, 1996 for the Florida Tax-Free
Income Fund were $71,387 and $46,423, respectively. Purchases and
sales/maturities of securities for the year ended March 31, 1996 for the
Florida Tax-Free Money Market Fund were $225,224 and $206,210, respectively.
Gross unrealized appreciation and depreciation of investments at March
31, 1996 for the Florida Tax-Free Income Fund was $1,068 and $286,
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 $100,000. These fees are allocated on a proportional basis to
each Fund monthly based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of
each Fund to .50% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides
transfer agent services to the Trust. Shareholder accounting service
fees are based on an annual charge per shareholder account plus
out-of-pocket expenses.
C. Underwriting agreement - The Trust has an agreement with the
Manager for exclusive underwriting and distribution of the Funds'
shares on a continuing best efforts basis. The agreement provides
that the Manager will receive no fee or other remuneration for such
services.
(6) Financial Highlights
<TABLE>
<CAPTION>
Per share operating performance for a share outstanding throughout
each period is as follows:
Net Asset Net Realized Distributions
Fiscal Value At Net and from Net
Year Beginning Investment Unrealized Investment
Ended of Period Income Gain (Loss) Income
($) ($) ($) ($)
<S> <C> <C> <C> <C>
Florida Tax-Free Income Fund:
March 31,
1994* 10.00 .21 (1.02) (.21)
1995 8.98 .49 .11 (.49)
1996 9.09 .52 .17 (.52)
Florida Tax-Free Money Market Fund:
March 31,
1994* 1.00 .01 - (.01)
1995 1.00 .03 - (.03)
1996 1.00 .03 - (.03)
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Net Asset Ratio of Investment
Distributions Value at Net Assets Expenses Income
Fiscal of Realized End Total at End to Average to Average Portfolio
Year Capital Gains of Period Return of Period Net Assets Net Assets Turnover
Ended ($) ($) ($) ($) ($) (%)
<S> <C> <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(a) 5.59(a) 71.76(c)
1996 - 9.26 7.66 69,079 .50(a) 5.52(a) 88.20(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 3.51 71,224 .50(a) 3.45(a) -
</TABLE>
<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(b) 3.80(b)
1995 .81 5.28
1996 .67 5.35
Florida Tax-Free Money Market Fund:
March 31,
1994* 1.11(b) 1.37(b)
1995 .72 2.75
1996 .64 3.31
</TABLE>
*Funds commenced operations October 1, 1993.
(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 for 1995 and 1996, portfolio turnover rates have been
calculated excluding short-term variable rate securities which are
those with put date intervals of less than one year.
Total return assumes reinvestment of all dividend income and capital
gains distributions during the period.
