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 8
Financial Information:
Statements of Assets and Liabilities 12
Portfolios of Investments in Securities:
Florida Tax-Free Income Fund 14
Florida Tax-Free Money Market Fund 17
Notes to Portfolios of Investments in Securities 20
Statements of Operations 21
Statements of Changes in Net Assets 22
Notes to Financial Statements 23
Important Information:
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are 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 33
funds by investment objective as of September 30, 1996.
<TABLE>
______________________________________________________________________________________________
Average Annual Total Return*
______________________________________________________________________________________________
<CAPTION>
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 33.19 16.98 14.08 -
Emerging Markets(1) 11/7/94 10.41 - - 4.96
Gold(1) 8/15/84 1.19 7.93 2.40 -
Growth 4/5/71 14.86 13.79 12.67 -
Growth & Income 6/1/93 18.80 - - 14.61
International(1) 7/11/88 15.03 12.73 - 10.21
S&P 500 Index(4) 5/1/96 - - - 7.76 ++
World Growth(1) 10/1/92 14.79 - - 13.01
______________________________________________________________________________________________
Asset Allocation
Balanced Strategy 9/1/95 9.32 - - 8.97
Cornerstone Strategy(1) 8/15/84 14.28 12.30 10.57 -
Growth and Tax Strategy(2)** 1/11/89 12.63 9.89 - 9.77
Growth Strategy(1) 9/1/95 25.37 - - 23.43
Income Strategy 9/1/95 5.08 - - 6.13
______________________________________________________________________________________________
Income - Taxable
GNMA 2/1/91 3.98 6.92 - 7.43
Income 3/4/74 3.26 7.76 9.17 -
Income Stock 5/4/87 12.73 12.41 - 12.03
Short-Term Bond 6/1/93 5.60 - - 5.29
_______________________________________________________________________________________________
Income - Tax Exempt
Long-Term(2)** 3/19/82 6.91 7.06 7.52 -
Intermediate-Term(2)** 3/19/82 5.43 7.02 7.12 -
Short-Term(2)** 3/19/82 4.51 5.04 5.49 -
California Bond(2)** 8/1/89 8.34 7.34 - 7.52
Florida Tax-Free Income(2)** 10/1/93 7.30 - - 3.17
New York Bond(2)** 10/15/90 6.34 6.80 - 8.29
Texas Tax-Free Income(2)** 8/1/94 8.56 - - 9.23
Virginia Bond(2)** 10/15/90 6.98 7.34 - 8.15
_______________________________________________________________________________________________
Money Market
Money Market(3) 2/2/81 5.33 4.38 5.85 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.45 3.09 4.23 -
Treasury Money Market Trust(3) 2/1/91 5.18 4.16 - 4.28
California Money Market(2),(3)** 8/1/89 3.37 2.98 - 3.65
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.34 - - 2.99
New York Money Market(2),(3)** 10/15/90 3.35 2.82 - 3.06
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.32
Virginia Money Market(2),(3)** 10/15/90 3.24 2.91 - 3.20
_________________________________________________________________________________________
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
For more complete information about the mutual funds managed and distributed
by USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(3) An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will
be able to maintain a stable net asset value of $1 per share.
(4) S&P 500(registered trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold
or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the product.
* 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.
++ Cumulative total return since inception.
(A photo of Michael J.C. Roth, President and Vice Chairman of the Board,
appears here)
I am writing this message in late October and every day it seems someone
asks what effect the election will have on the financial markets. My frank
answer is that I don't know. What I prefer to talk about are things that
concern me about the markets and things that give me hope.
My greatest concern is the promises we as a nation have made to our citizens
coupled with our unwillingness to face the cost of those promises. Some of
these promises are highly noble. We have tried to provide decent housing
for those in our midst who cannot afford it. With a decent and safe home
most people would have the opportunity to seek the education and work that
could lift families out of poverty. But effective solutions are very difficult
to achieve, and too often we succeed only in creating generations mired in
hopeless dependency. We have promised medical care to the poor and the
elderly, but the cost of that care runs away from the tax revenues we have
dedicated to it. We have promised a safety net, social security, to our
elderly, and we did take decisive steps to raise the tax revenue to fund that.
But the excess of social security taxes over benefits, which should
have built a meaningful trust fund, has been systematically borrowed by the
treasury and spent on other current needs. That trust fund consists solely of
promises by the federal government which will have to be funded somehow in
the future. And then we have quite properly promised our citizens a strong
national defense. These are decent and noble promises but they translate to a
debt burden whose service requires a large and growing part of what we produce
as a nation.
But there is much we are prone to overlook. We forgot in the 80s that the
Japanese borrowed heavily from American knowledge and American methods
to work their economic miracle. We forget that the freedom of our society,
both political and intellectual, draws bright people from all over the world
and allows them and our own citizens the opportunity to take risks and reap
the rewards. We are a vibrant nation in the forefront of change that is
shaping the world. From IMCO's standpoint this means that there are great
opportunities for investors.
We tend, at times, to dwell on the problems. USAA, as a citizen of San Antonio
and the other great cities in which we have a presence, has confronted these.
Hundreds of our employees are mentors in schools. They and others in our
company devote their skills and their money to bettering the lives of people
in our communities. But while we in the Investment Management Company
participate in these endeavors, our attention is focused on the opportunities
that abound in the U.S. and other countries. We see, perhaps more clearly than
most people, that those opportunities offer great hope to very many people and
that great hope offers great opportunity to our investors.
This election is a small step on a long journey.
Sincerely,
Michael J.C. Roth
President and
Vice Chairman of the Board
Investment Review
Florida Tax-Free Income Fund
OBJECTIVE: Provide Florida investors with a high level of current interest
income that is exempt from federal income taxes and shares that are exempt
from the Florida intangible personal property tax.
TYPES OF INVESTMENTS: Invests primarily in long-term investment grade Florida
tax-exempt securities.
3/31/96 9/30/96
Net Assets $69.1 Million $80.3 Million
Net Asset Value Per Share $9.26 $9.35
Average Annual Total Returns as of 9/30/96
March 31, 1996 to September 30, 1996 3.86%#
1 Year 7.30%
Since inception on October 1, 1993 3.17%
#Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
30-Day SEC Yield on September 30, 1996 5.62%*
*Calculated as prescribed by the Securities and Exchange Commission.
[A graph is shown here which is a comparison of the change in value of a
$10,000 investment for the period of 10/1/93 to 9/30/96, with dividends
and capital gains reinvested. The ending values for the items graphed
are:
Lehman Brothers Muni. Bond Index $11,502
USAA Florida Tax-Free Income Funds 10,983]
The Lehman Brothers Municipal Bond Index is an unmanaged index
that tracks total return performance for the long-term investment grade
tax-exempt bond market. All tax-exempt bond funds will find it difficult
to outperform such an index, since funds have expenses.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested dividends
and capital gain distributions. The performance data quoted 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
[Photograph of Portfolio Manager, Robert R. Pariseau, CFA, appears here.]
A Volatile Market
Since March, bond market investors have held passionate feelings towards the
future direction of the economy and interest rates. The problem was that
investors did not hold a particular feeling very long. Emotions ranged from
elation to depression, mixed with numbing confusion. Interest rate trends,
either up or own, lasted only weeks. The reason for such vacillation is quite
simple. The economy itself has behaved in fits and starts since late last fall.
From March 31, 1996, to September 30, 1996, the 30-year U.S. Treasury bond
(the "Long Bond") started at 6.67%, peaked at 7.19% in June and again in July,
and then ended the quarter at 6.92%. Municipal bonds outperformed the Long
Bond, as the yield on the Bond Buyer 40 Index, which is the industry standard
for the yield of long-term, investment-grade municipal bonds, declined slightly
during the same period. In volatile periods such as these, how should a single
state municipal fund fit into your investment strategy?
Why a State Municipal Fund?
In a growth-oriented portfolio, municipal bonds provide essential
diversification and respectable after-tax total return. For investors who
focus on income and are in the 28% and higher federal tax brackets, single
state funds typically generate higher tax-equivalent yields than fully taxable
funds and roughly the same as tax-exempt national municipal funds of
comparable credit quality.
The table on the next page 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 5.62%
and:
Assuming a marginal federal tax rate of:
28% 31% 36% 39.6%
Assuming an investor, filing jointly,
with $300,000 in Intangible Assets: A fully taxable investment must pay:
7.81% 8.15% 8.79% 9.31%
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.
Single state funds allow investors to invest close to home where they may be
more comfortable with regional economic and fiscal issues. Your fund consists
of over 30 different securities all thoroughly researched by experienced
credit analysts. Geographic, industry and issuer diversification mitigates the
risk of investing in a single state. Proper diversification and credit
research are critical, yet daunting tasks for the average investor to achieve
on his own with individual bonds.
Although most municipal bonds pay their interest coupons at six-month
intervals, mutual funds provide the convenience and efficiency of monthly
dividends and automatic reinvestment of interest and other proceeds. As
for liquidity, your money is available sooner than the normal 3-day
settlement with individual bonds. Convenient periodic statements and
worry-free custodial services are additional benefits.
Each business day the mutual fund is "marked to market" by an independent
pricing service to reflect fairly the market value of the fund's assets. USAA
has three full-time fixed income traders who monitor the pulse of the bond
market. Municipals are not traded in an organized exchange with posted quotes.
Instead, each trade is the result of a unique negotiation. When we enter
the market to buy or sell, our traders are in contact with dozens of market
makers, primary dealers and brokers to obtain the best price. The spread, or
markup, is the difference between the bid and the asking price. Effectively,
it is the broker's compensation for the trade. Because of its greater buying
power, the spread for an institution's $1million block is much smaller than
the individual's order for $25,000 of bonds.
Strategy & Outlook
With no real consensus over the future direction of interest rates, the bond
market is prone to volatility as investors react to the latest economic data.
I continue to pursue tax-exempt income and invest in investment-grade quality
securities. Secondarily, I will focus on total return. When pursuing tax-
exempt income, I will typically buy bonds with 20-year or longer maturities,
although their market values are more sensitive to changes in interest rates.
I do not buy exotic derivatives, hedge the portfolio with futures, or try to
time the market because no one has demonstrated that they can consistently
predict the future direction of interest rates.
Your Fund's Performance
Since municipal rates declined slightly during the same period, your Fund's
net asset value (NAV) per share increased $.09 to $9.35, or 1%, since March
31, 1996. The Fund's performance compared favorably to its peer group. While
past performance is no guarantee of future results, the Fund's annualized
dividend yield(1) for the past six months was 5.57%, as compared to Lipper's
Florida Municipal Debt Funds average of 4.89% for the 82 funds in the
category.(2) For the same period, the Fund's total return(3) was 3.86%,
compared to the Lipper average of 2.96%.
The State of Florida
A stronger, more stable economy less dependent upon tourism contributes to
Florida's strong "AA" credit rating by all three agencies - Moody's Investors
Services, Inc., Standard & Poor's Ratings Group and Fitch Investors Services,
Inc. The state needs economic growth to fund the infrastructure needs of a
population that has grown at twice the national rate since 1986. The
relentless pressures of education, prison, healthcare and welfare spending
stress budgets at all governmental levels. GovernorChiles has promised to
make education spending the #1 priority in upcoming budgets. I will monitor
closely the impact of welfare reform upon state and local finances. Our
analysts remain cautious in regard to municipal lease obligations that rely
on annual appropriations.
(1) Dividend yield is computed by dividing income dividends paid during the
previous 6 months by the latest month-end net asset value adjusted for capital
gains distributions and annualizing the result.
(2) Lipper Analytical Services is an independent organization that monitors the
performance of mutual funds.
(3) Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of
September 30, 1996 for the USAA Florida Tax-Free Income Fund to be:
AAA - 21%, AA - 15%, A - 32%, BBB - 27%, and Cash Equivalents - 5%.]
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 byUSAA IMCO to be of equivalent investment quality
to category BBB account for 4.5% of the Fund's investments.
Note: Income may be subject to federal, state or local taxes, or the
alternative minimum tax.
See page 14 for a complete listing of the Portfolio of Investments in
Securities.
Investment Review
Florida Tax-Free Money Market Fund
OBJECTIVE: Provide Florida investors with a high level of current interest
income that is exempt from federal income taxes and shares that are exempt
from the Florida intangible personal property tax, while preserving capital
and maintaining liquidity.
Types of Investments: High quality Florida tax-exempt securities with
maturities of 397 days or less. The Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less and will endeavor to maintain
a constant net asset value per share of $1.00.*
* An investment in this Fund is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
3/31/96 9/30/96
Net Assets $71.2 Million $65.6 Million
Net Asset Value Per Share $1.00 $1.00
Average Annual Total Returns as of 9/30/96
March 31, 1996 to September 30, 1996 1.62%#
1 Year 3.34%
Since Inception on October 1, 1993 2.99%
# Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
7-Day Simple Yield on September 30, 1996 3.41%
[A graph is shown here comparing the 7-day yield of the USAA Florida
Tax-Free Money Market Fund and the IBC/Donoghue's State Specific SB
& GP (Tax-Free) from 9/95 to 9/96. The vertical axis shows the yield
and the horizontal axis shows the time period. The ending value, on
9/30/96, for the USAA Florida Tax-Free Money Market Fund is 3.41% and
the ending value for the IBC Donoghue's State Specific SB & GP
(Tax-Free) is 3.09%.]
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 Portfolio Manager, John C. Bonnell, CFA, appears here.]
Interest Rates
When 1996 began, interest rates were falling. The Federal Reserve (Fed)
lowered the Federal Funds rate (the rate banks charge other banks for
overnight loans) by .25% at the end of January. This move proved to be the
only action taken so far this year by the Fed. Not long after the Fed's
action, however, economic indicators and statistics came out reflecting much
stronger growth than expected, sending short-term interest rates higher. With
investors trying to anticipate interest rate actions by the Fed and reacting
to each economic indicator released, short-term interest rates remained very
volatile throughout 1996. Many investors were caught off guard after expecting
the Fed to raise the rate .25% to .50% following their September 24th meeting.
When the Fed left the Federal Funds rate unchanged, market interest rates fell
significantly. Clearly, the true magnitude of economic growth taking place
remains elusive. This illustrates why we do not forecast interest rates. It
is difficult, if not impossible, for anyone to consistently predict future
interest rate movements. Your money market fund strives to meet its objective
in any prevailing interest rate environment.
Strategy
Your Fund's success stems from two major advantages. First is the expense
ratio. Your Fund's expense ratio was .50%, net of reimbursements, versus an
industry average of .63%.* The lower a fund's expense ratio (everything else
being equal), the higher the potential return is to you. The second major
advantage your fund has is the quality of research provided by our internal
research department. Our credit research team, which includes four full-time
money market analysts, not only pores over financial statements, but also
interrogates the appropriate individuals (often including on-site tours/
visits) responsible for repayment of the debt we are considering purchasing
for the portfolio. This type of analysis helps avoid problems such as the
Orange County, California, bankruptcy and helps us identify opportunities
to enhance performance without taking risks inappropriate for a money
market fund. Credit quality and preservation of capital remain top priorities
of the Fund.
Our conservative approach to managing the Fund includes strict limits we place
on the portfolio regarding diversification. These limits go beyond the rules
governing money market funds set forth by the Securities and Exchange
Commission (SEC) which are intended to protect the safety and quality of money
market funds.
* Source: IBC/Donoghue's State Specific SB & GP (Tax-Free)
[A graph is here showing the growth of $10,000, from 10/1/93 to 9/30/96,
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 is $10,923.]
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.
Performance
While past performance is no guarantee of future results, for the 12 months
ending 9/30/96 your fund ranked 11 out of 144 state specific Tax-Exempt Money
Market Funds according to IBC/Donoghue, Inc. with a yield of 3.32%. The
average for the category over the same time period was 2.98%.
Florida
Substantial economic resources and a moderate debt position contribute to the
State of Florida's strong credit standing. Robust population growth has
spurred economic expansion, and, as the state is highly reliant on sales tax
revenues, has contributed to solid financial performance. Reflecting these
conditions, seasonally adjusted unemployment rates dropped to 5.1% in July
1996 from 5.4% in July 1995. These rates are slightly better than the U.S.
as a whole. Along with the benefits of strong population growth comes
additional funding pressures, especially for education, corrections, and
health services. Additional sources of revenues to build and maintain the
infrastructure needed to support this growth still need to be identified.
In addition, the yet-to-be-determined impact and costs of the recently
enacted welfare reform bill presents the state with challenges regarding
the extent to which it chooses to utilize state funds to continue assisting
those no longer eligible for federal aid. We continue to analyze each
issue on a case by case basis and remain very selective when investing
fund assets.
An investment in any money market fund is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that the Fund will be able
to maintain a stable net asset value of $1.00 per share.
See page 17 for a complete listing of the Portfolio of Investments of
Securities.
Statements of Assets and Liabilities
(In Thousands)
September 30, 1996
(Unaudited)
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
Assets
Investments in securities, at market value
(identified cost of $79,202 and
$66,663, respectively) $ 80,894 $ 66,663
Cash 1,309 1,080
Receivables:
Capital shares sold 7 211
Interest 1,546 362
---------- ----------
Total assets 83,756 68,316
---------- ----------
Liabilities
Securities purchased 3,164 2,549
Capital shares redeemed 72 83
USAA Investment Management Company 91 61
USAA Transfer Agency Company 4 4
Accounts payable and accrued expenses 20 14
Dividends on capital shares 123 12
---------- ----------
Total liabilities 3,474 2,723
---------- ----------
Net assets applicable
to capital shares outstanding $ 80,282 $ 65,593
========== ==========
Represented by:
Paid-in capital $ 80,534 $ 65,593
Accumulated net realized loss on investments (1,944) -
Net unrealized appreciation of investments 1,692 -
---------- ----------
Net assets applicable to capital
shares outstanding $ 80,282 $ 65,593
========== ==========
Capital shares outstanding, unlimited
number of shares authorized,$.001 par value 8,583 65,593
========== ==========
Net asset value, redemption price, and
offering price per share $ 9.35 $ 1.00
========== ==========
See accompanying notes to financial statements.
Categories & Definitions
Portfolios of Investments in Securities
September 30, 1996
(Unaudited)
Fixed Rate Instruments - consist of municipal bonds, notes, and commercial
paper. The coupon rate is constant to maturity. Prior to maturity, the price
of a fixed-rate instrument generally varies inversely to the movement of
interest rates. At maturity, the security pays face value.
Put Bonds - provide the right to tender, or put, the bond for redemption at
face value at specific tender dates prior to final maturity. The put feature
shortens the effective maturity to the next tender date. Between tender dates,
the price of a put bond generally varies inversely to the movement of interest
rates.
Variable Rate Demand Notes (VRDN) - provide the right, on any business day, to
demand, or put, the security for redemption at face value on either that day
or in seven days. The interest rate is adjusted at a stipulated daily, weekly,
or monthly interval to a rate that reflects current market conditions. In
money market funds, the effective maturity is equal to either the date on
which the underlying principal amount may be recovered through demand or the
next rate adjustment date consistent with applicable regulatory requirements.
In bond funds, the effective maturity is the next put date. Most VRDNs
possess a credit enhancement.
Credit Enhancement (CRE) - adds the financial strength of the provider 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.
<TABLE>
<CAPTION>
Florida Tax-Free Income Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Fixed Rate Instruments (88.1%)
<S> <C> <C> <C> <C>
Florida (79.0%)
$ 3,400 Alachua County Health Facilities Auth. RB,
Series 1996A (CRE) 5.80% 12/01/26 $ 3,423
3,500 Board of Education Capital Outlay Bonds,
Series 1995B 5.88 6/01/20 3,563
1,100 Broward County Housing Finance Auth.
MFH RB, Series 1995A 7.00 2/01/25 1,171
1,855 Citrus County PCRB, Series 1992B 6.35 2/01/22 1,943
2,000 City of Venice Health Care RB,
Series 1996 (CRE) 5.63 8/15/26 1,959(c)
2,000 Collier County Health Facilities Auth. RB,
Series 1994 7.00 12/01/19 2,095
2,000 Dade County Special Obligation Bonds,
Series 1995 6.10 4/01/20 2,051
2,510 Duval County Housing Finance Auth.
MFH RB 6.00 3/01/21 2,469
2,000 Hillsborough County IDA PCRB 6.25 12/01/34 2,100
Housing Finance Agency RB,
1,835 Series 1994B 6.35 7/01/14 1,883
1,000 Series 1995H (CRE) 6.50 11/01/25 993
1,200 Indian River County Hospital District RB,
Series 1996 (CRE) 5.70 10/01/15 1,189
1,000 Miami Beach Health Facilities Auth.
Hospital RB, Series 1992 (CRE) 6.25 11/15/19 1,038
1,000 Miramar Wastewater Improvement Assessment
Bonds, Series 1994 (CRE) 6.75 10/01/25 1,097
3,700 North Miami Educational Facilities RB,
Series 1994A 6.13 4/01/20 3,617
2,130 North Miami Health Facilities Auth. RB,
Series 1996 (CRE) 6.00 8/15/24 2,110
5,750 Orange County Health Facilities Auth. RB,
Series 1995 6.75 7/01/20 5,742
1,000 Orange County Housing Finance Auth. RB 6.40 2/01/30 1,032
3,350 Orlando and Orange County Expressway
Auth. RB, Series 1993 5.95 7/01/23 3,352
3,405 Palm Beach County Health Facilities Auth.
Hospital RB, Series 1993 6.30 10/01/22 3,482
1,340 Palm Beach County Housing Finance Auth. RB,
Series 1994B 6.40 4/01/14 1,394
5,555 St. Johns County IDA RB 6.00 8/01/22 5,468
3,215 Sunrise Special Tax District #1 RB,
Series 1991 (CRE) 6.38 11/01/21 3,304
1,150 Tallahassee Consolidated Utility Systems RB,
Series 1994 6.20 10/01/19 1,199
1,300 Turtle Run Community Development
District RB (CRE) 6.40 5/01/11 1,331
1,500 Volusia County Education Facility Auth. RB,
Series 1996A 6.13 10/15/26 1,512
3,000 Volusia County Health Facilities Auth.
Hospital RB, Series 1996 (CRE) 5.50 11/15/26 2,897
Guam (1.3%)
1,000 Government Limited Obligation Infrastructure
Improvement RB, Series 1989A (CRE) 7.10 11/15/09 1,050
Puerto Rico (7.8%)
3,700 Electric Power Auth. RB, Series 1995Z 5.25 7/01/21 3,389
3,200 Highway and Transportation Auth. RB,
Series 1993X 5.00 7/01/22 2,840
---------
Total fixed rate instruments (cost: $69,073) 70,693
---------
Put Bond (7.5%)
Florida
5,855 Duval County Housing Finance Auth. MFH RB,
Series 1995 (CRE) (cost: $5,929) 6.75 4/01/25 6,001
---------
Variable Rate Demand Notes (5.2%)
Florida
1,600 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 4.10 10/01/24 1,600
2,400 Jacksonville Parking System Improvement RB,
Series 1992 (CRE) 3.85 5/01/22 2,400
200 Volusia County Health Facilities Auth. RB,
Series 1995 (CRE) 4.00 9/01/20 200
---------
Total variable rate demand notes (cost: $4,200) 4,200
---------
Total investments (cost: $79,202) $ 80,894
=========
</TABLE>
Portfolio Summary By Industry
Hospitals 24.2%
Multi-Family Housing 14.5
Special Assessment/Tax/Fee 13.5
Healthcare - Miscellaneous 9.8
Electric Power 9.2
Education 6.4
Toll Roads 4.2
General Obligations 4.1
Single-Family Housing 4.1
Buildings 3.0
Nursing Care 2.9
Water/Sewer 2.9
Retirement Homes 2.0
-----
Total 100.8%
=====
<TABLE>
<CAPTION>
Florida Tax-Free Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
Principal Coupon Final
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<S> <C> <C> <C> <C>
Variable Rate Demand Notes (68.6%)
Florida
$ 2,100 Brevard County Housing Finance Auth.
MFH RB, Series 1993 (CRE) 4.10% 7/01/05 $ 2,100
1,535 Brevard County Mental Health
Facilities RB, Series 1994C (CRE) 4.00 1/01/10 1,535
2,365 Broward County Housing Finance Auth.
MFH RB, Series 1990 (CRE) 4.20 10/01/07 2,365
Broward County IDA RB,
600 Series 1992 4.00 3/01/99 600
1,390 Series 1996B (CRE) 3.85 7/02/01 1,390
4,400 Dade County Aviation Facilities RB,
Series 1984A (CRE) 4.15 10/01/09 4,400
300 Dade County Health Facilities Auth.
RB, Series 1990 (CRE) 4.05 9/01/20 300
3,200 Dade County MFH RB, Series
1993-1(CRE) 4.30 2/01/28 3,200
2,150 Greater Orlando Aviation Auth. Special
Purpose RB, Series 1990 (CRE) 3.90 12/01/14 2,150
3,000 Jacksonville IDA RB, Series
1993 (CRE) 3.85 7/01/13 3,000
800 Jacksonville Parking System
Improvement RB,Series 1992 (CRE) 3.85 5/01/22 800
900 Miami Health Facilities Auth. RB,
Series 1992 (CRE) 3.90 3/01/12 900
3,200 Orange County Health Facilities Auth. RB,
Series 1992 (CRE) 4.10 11/15/14 3,200
450 Palm Beach County Health Facilities RB,
Series 1993 (CRE) 3.85 9/01/08 450
400 Palm Beach County IDRB, Series
1990 (CRE) 3.90 5/01/02 400
3,100 Pinellas County Housing Finance Auth.
MFH RB, Series 1989A (CRE) 4.00 7/01/07 3,100
6,100 Plant City Hospital RB, Series
1993 (CRE) 4.05 3/01/13 6,100
1,715 Sarasota Educational Facilities RB,
Series 1996 (CRE) 3.90 2/01/21 1,715
600 Southeast Volusia Hospital RB,
Series 1995 (CRE) 3.95 5/01/22 600
2,100 St. Johns County Hospital RB,
Series 1986A (CRE) 3.90 8/01/16 2,100
1,600 Volusia County Health Facilities Auth.
RB, Series 1995 (CRE) 4.00 9/01/20 1,600
3,000 Volusia County Housing Finance Auth.
RB, Series 1985 (CRE) 4.18 9/01/05 3,000(b)
-------
Total variable rate demand notes (cost: $45,005) 45,005
-------
Put Bonds (8.8%)
Florida
2,000 Indian River County Hospital RB,
Series 1988 (CRE) 3.65 10/01/17 2,000
1,500 St. Lucie County PCRB, Series 1992 3.55 5/01/27 1,500
2,300 Sunshine State Governmental Financing
Commission RB, Series 1986 (CRE) 3.50 7/01/16 2,300
-------
Total put bonds (cost: $5,800) 5,800
-------
Fixed Rate Instruments (24.2%)
Florida
2,000 Altamonte Springs Health Facilities
Auth. RB, Series 1984 (CRE) 7.90 10/01/14(a) 2,040
2,445 Dade County Public Improvement RB,
Series 1988 (CRE) 6.80 6/01/97 2,494
1,000 Jacksonville Electric Auth. RB,
Series 1993A 3.70 10/01/96 1,000
2,735 Local Government Finance Commission
Pooled CP Notes, Series 1995A (CRE)3.60 10/10/96 2,735
225 North Miami Health Facilities Auth RB,
Series 1996 (CRE) 4.10 8/15/97 225
Orange County CP Notes,
800 Series A 3.65 11/07/96 800
2,350 Series A 3.75 1/07/97 2,350
2,500 Palm Beach County School District
TAN, Series 1996 4.50 9/26/97 2,514
1,200 Sarasota County Utility Systems RB,
Series 1996A (CRE) 4.00 10/01/96 1,200
500 St. Lucie County School District GO,
Series 1996A (CRE) 3.50 2/01/97 500
-------
Total fixed rate instruments (cost: $15,858) 15,858
-------
Total investments (cost: $66,663) $66,663
=======
</TABLE>
Portfolio Summary By Industry
Hospitals 24.2%
Multi-Family Housing 21.0
General Obligations 12.1
Airports 10.0
Education 7.2
Hotel/Motel 4.6
Nursing Care 4.5
Finance - Municipal 4.2
Electric Power 3.8
Escrowed Securities 3.1
Specialty Printing 2.1
Water/Sewer 1.8
Buildings 1.2
Other 1.8
-----
Total 101.6%
=====
Notes to Portfolios of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
General Notes
Values of securities are determined by procedures and practices discussed in
note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the
same as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net
assets.
Portfolio Description Abbreviations
CP Commercial Paper
CRE Credit Enhanced
IDA Industrial Development Authority/Agency
IDRB Industrial Development Revenue Bond
GO General Obligation
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
TAN Tax Anticipation Note
Specific Notes
(a) Prerefunded to various dates prior to maturity at the call price.
(b) This security was purchased within the terms of a private placement
memorandum and is subject to a seven day demand feature. Under procedures
adopted by the Board of Trustees, the adviser has determined that this
security is liquid. At September 30, 1996, this security represented 4.6%
of the Florida Tax-Free Money Market Fund's net assets.
(c) At September 30, 1996, the cost of securities purchased on a delayed
delivery basis for the Florida Tax-Free Income Fund was $1,956.
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1996
(Unaudited)
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
Net investment income:
Interest income $ 2,288 $ 1,257
Expenses:
Management fees 151 137
Transfer agent's fees 25 22
Custodian's fees 22 22
Postage 2 2
Shareholder reporting fees 1 2
Trustees' fees 4 4
Registration fees 4 1
Audit fees 7 7
Legal fees 3 3
Other 2 2
--------- ---------
Total expenses before reimbursement 221 202
Expenses reimbursed (34) (31)
--------- ---------
Total expenses after reimbursement 187 171
--------- ---------
Net investment income 2,101 1,086
--------- ---------
Net realized and unrealized gain (loss) on investments:
Net realized loss (7) -
Change in net unrealized appreciation
/depreciation 910 -
--------- ---------
Net realized and unrealized gain 903 -
--------- ---------
Increase in net assets resulting from
operations $ 3,004 $ 1,086
========= =========
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended September 30, 1996 and Year ended March 31, 1996
(Unaudited)
Florida Florida
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
9/30/96 3/31/96 9/30/96 3/31/96
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 2,101 $ 3,080 $ 1,086 $ 2,065
Net realized loss on investments (7) (271) - -
Change in net unrealized appreciation/
depreciation of investments 910 823 - -
------- ------- ------- --------
Increase in net assets resulting from
operations 3,004 3,632 1,086 2,065
------- ------- ------- --------
Distributions to shareholders from:
Net investment income (2,101) (3,080) (1,086) (2,065)
------- ------- ------- --------
From capital share transactions:
Proceeds from shares sold 14,579 45,807 23,105 121,576
Shares issued for dividends reinvested 1,425 2,216 1,009 1,875
Cost of shares redeemed (5,704) (22,387) (29,745) (104,452)
------- ------- ------- --------
Increase (decrease) in net assets from
capital share transactions 10,300 25,636 (5,631) 18,999
------- ------- ------- --------
Net increase (decrease) in net assets 11,203 26,188 (5,631) 18,999
Net assets:
Beginning of period 69,079 42,891 71,224 52,225
------- ------- ------- --------
End of period $80,282 $69,079 $65,593 $ 71,224
======= ======= ======= ========
Change in shares outstanding:
Shares sold 1,586 4,893 23,105 121,576
Shares issued for dividends reinvested 154 238 1,009 1,875
Shares redeemed (619) (2,386) (29,745) (104,452)
------- ------- ------- --------
Increase (decrease) in shares outstanding 1,121 2,745 (5,631) 18,999
======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
September 30, 1996
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA State Tax-Free Trust (the Trust), registered under the Investment Company
Act of 1940, as amended, is a diversified, open-end management investment
company organized as a Delaware business trust consisting of four separate
funds. The information presented in this semiannual report pertains only to
the 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
Investment Company Act of 1940, as amended, 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
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank ($100 million committed).
The purpose of the agreements is to meet temporary or emergency cash needs,
including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under these agreements,
each Fund may borrow up to a maximum of 15% of its total assets, of which
only 5% may be borrowed from CAPCO, at the lending institution's borrowing
rate plus a markup. The Funds had no borrowings under either of these
agreements during the six-month period ended September 30, 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 September 30, 1996.
Distributions of realized gains from security transactions not offset by
capital losses are made in the succeeding fiscal year or as otherwise
required to avoid the payment of federal taxes. At September 30, 1996,
the Florida Tax-Free Income Fund had capital loss carryovers for federal
income tax purposes of approximately $1,944,000 which, if not offset by
subsequent capital gains will expire between 2003-2004. 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 carryovers
have been utilized or expire.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the six-month period ended September 30, 1996 for the Florida Tax-Free
Income Fund were $34,434,841 and $23,242,428, respectively. Purchases and
sales/maturities of securities for the six-month period ended September
30, 1996 for the Florida Tax-Free Money Market Fund were $89,899,716 and
$93,917,000, respectively.
Gross unrealized appreciation and depreciation of investments at
September 30,1996 for the Florida Tax-Free Income Fund was $1,762,219
and $70,271, respectively.
(5) Transactions with Manager
A. Management fees - The investment policies 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 $50,000,000, .40% of that portion over $50,000,000
but not over $100,000,000, and .30% of that portion over $100,000,000. These
fees are allocated on a proportional basis to each Fund monthly based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of each Fund
to .50% of its 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.
Notes to Financial Statements (continued)
Florida Tax-free Income Fund
September 30, 1996
(Unaudited)
(6) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is a follows:
Six-Month
Period Ended
September,30 Year Ended March 31,
---------------------------
1996 1996 1995 1994**
Net asset value at ---- ---- ---- ----
beginning of period $ 9.26 $ 9.09 $ 8.98 $ 10.00
Net investment income .26 .52 .49 .21
Net realized and
unrealized gain (loss) .09 .17 .11 (1.02)
Distributions from net
investment income (.26) (.52) (.49) (.21)
------- ------- -------- -------
Net asset value at
end of period $ 9.35 $ 9.26 $ 9.09 $ 8.98
======= ======= ======== ========
Total return (%) * 3.86 7.66 7.01 (8.22)
Net assets at end
of period ($000) $80,282 $69,079 $ 42,891 $ 24,948
Ratio of expenses to
average net assets (%) .50(a)(b) .50(a) .50(a) .50(a)(b)
Ratio of net investment
income to average
net assets (%) 5.65(a)(b) 5.52(a) 5.59(a) 4.63(a)(b)
Portfolio turnover (%) 32.48 88.20 71.76 284.11
(a)The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the Manager.
Absent such reimbursements the Fund's ratios would have been:
Ratio of expenses to
average net assets (%) .59(b) .67 .81 1.33(b)
Ratio of net investment
income to average
net assets (%) 5.56(b) 5.35 5.28 3.80(b)
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gains
distributions during the period.
** Fund commenced operations October 1, 1993.
Notes to Financial Statements (continued)
Florida Tax-Free Money Market Fund
September 30, 1996
(Unaudited)
(6) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is a follows:
Six-Month
Period Ended
September,30 Year Ended March 31,
---------------------------
1996 1996 1995 1994**
---- ---- ---- ----
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .02 .03 .03 .01
Distributions from net
investment income (.02) (.03) (.03) (.01)
------ ------ ------ ------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======
Total return (%) * 1.62 3.51 2.86 .96
Net assets at end
of period ($000) $65,593 $71,224 $52,225 $29,877
Ratio of expenses to
average net assets (%) .50(a)(b) .50(a) .50(a) .50(a)(b)
Ratio of net investment
income to average
net assets (%) 3.21(a)(b) 3.45(a) 2.97(a) 1.98(a)(b)
(a) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the Manager.
Absent such reimbursements the Fund's ratios would have been:
Ratio of expenses to
average net assets (%) .60(b) .64 .72 1.11(b)
Ratio of net investment
income to average
net assets (%) 3.11(b) 3.31 2.75 1.37(b)
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during
the period.
** Fund commenced operations October 1, 1993.
