Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
USAA Florida Tax-Free Income Fund 4
USAA Florida Tax-Free Money Market Fund 11
Shareholder Voting Results 14
Financial Information:
Portfolios of Investments:
Categories and Definitions 15
USAA Florida Tax-Free Income Fund 16
USAA Florida Tax-Free Money Market Fund 20
Notes to Portfolios of Investments 23
Statements of Assets and Liabilities 24
Statements of Operations 25
Statements of Changes in Net Assets 26
Notes to Financial Statements 27
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
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 Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)1999, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment
--------- ---------- ----------
CAPITAL APPRECIATION
================================================================================
Aggressive Growth Very high $3,000
Emerging Markets Very high $3,000
First Start Growth Moderate to high $3,000
Gold Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International Moderate to high $3,000
S&P 500(Registered Trademark)
Index Moderate $3,000
Science & Technology Very high $3,000
Small Cap Stock Very high $3,000
World Growth Moderate to high $3,000
ASSET ALLOCATION
================================================================================
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate $3,000
Growth and Tax
Strategy Moderate $3,000
Growth Strategy Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME - TAXABLE
================================================================================
GNMA Low to moderate $3,000
High-Yield
Opportunities High $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Intermediate-Term
Bond Low to moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
================================================================================
Long-Term Moderate $3,000
Intermediate-Term Low to moderate $3,000
Short-Term Low $3,000
State Bond Income Moderate $3,000
MONEY MARKET
================================================================================
Money Market Very low $3,000
Tax Exempt
Money Market Very low $3,000
Treasury Money
Market Trust Very low $3,000
State Money Market Very low $3,000
Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
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.
Some income may be subject to state or local taxes or the federal alternative
minimum tax.
An investment in a money market fund is not insured or guaranteed by the FDIC or
any other government agency. Although the fund seeks to preserve the value of
your investment at $1 per share, it is possible to lose money by investing in
the fund.
The Science & Technology Fund may be more volatile than a fund that diversifies
across many industries.
The InveStart(Registered Trademark) program is available for investors without
the $3,000 initial investment required to open an IMCO mutual fund account. A
mutual fund account can be opened with no initial investment if you elect to
have monthly automatic investments of at least $50 from a bank account.
InveStart is not available on tax-exempt funds or the S&P 500 Index Fund. The
minimum initial investment for IRAs is $250, except for the $2,000 minimum
required for the S&P 500 Index Fund. 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.
Non-deposit investment products are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, USAA Federal Savings Bank, are subject
to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call 1-800-531-8181 for a prospectus. Read it carefully before you
invest.
Message from the President
FOR AS LONG AS I HAVE MANAGED MONEY
for customers, it has been obvious that few things puzzle or distress them as
much as a falling bond market. People generally view bonds as a risk-lowering
tool. They add bonds to a portfolio to reduce overall volatility and to create
an added buffer with the relatively high income. Some people use bond portfolios
as their sole investment. Their thinking is that they will live off the income
and not be concerned about market values because they intend to let the bonds
mature. These kinds of strategies were much easier to execute before the days of
fixed-income mutual funds.
Mutual funds did something for bond investors that had never been done before --
show investors every day what their portfolio was worth. In the process, the
funds revealed just how much bond prices can move in a day or a week. No
investor likes to see a portfolio lose market value, especially when the
investor is thinking in terms of "low risk." The latter part of 1998 and the
first three quarters of 1999 have been a period of generally rising interest
rates, which has meant falling market prices. Let me tell you how we approach
such times.
First, we believe interest-rate movements are nearly impossible to predict with
both accuracy and consistency. Second, we believe that most tax-exempt income
investors are primarily interested in a high and stable level of income. Since
the common way to preserve market value in a period of rising interest rates is
to switch to money market investments at much lower yields, the importance of
belief one is magnified. And third, we believe experience going back many years
indicates that the part of a portfolio that is invested in longer maturities may
provide returns that are superior to the money markets.
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD: MICHAEL J.C. ROTH, CFA,
APPEARS HERE]
The chart below shows the one-, five-, and ten-year average annual total returns
for our four national tax-exempt funds. Please bear in mind that there are no
guarantees here -- just as with all mutual funds.
Average Annual Total Returns as of September 30, 1999
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
USAA Tax Exempt Long-Term Fund -3.23 6.45 6.93
- --------------------------------------------------------------------------------
USAA Tax Exempt Intermediate-Term Fund -1.24 6.23 6.88
- --------------------------------------------------------------------------------
USAA Tax Exempt Short-Term Fund 2.06 4.90 5.21
- --------------------------------------------------------------------------------
USAA Tax Exempt Money Market Fund 3.10 3.39 3.67
- --------------------------------------------------------------------------------
Total return equals income plus share price change and assumes reinvestment of
all dividends and capital gains 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.
I think the best way to address volatility in bond markets is by allocating some
of your portfolio to the short-term part of the market. I believe that the
pattern of the average annual total returns shown in the chart above is viable.
So, the income part of my portfolio is concentrated in the USAA Tax Exempt
Long-Term Fund. If such a strategy leaves you uncomfortable, we have other
options. We'll be happy to help you craft a portfolio with which you are
comfortable.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call for a prospectus. Read it carefully before investing.
Some income may be subject to state or local taxes or the federal alternative
minimum tax.
Investment Review
USAA FLORIDA TAX-FREE INCOME FUND
OBJECTIVE: 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: Long-term, investment-grade Florida tax-exempt securities.
- --------------------------------------------------------------------------------
3/31/99 9/30/99
- --------------------------------------------------------------------------------
Net Assets $182.0 Million $177.5 Million
Net Asset Value Per Share $10.02 $9.28
Tax-Exempt Dividends Per Share
Last 12 Months $.498 $.494
Capital Gains Distributions Per Share
Last 12 Months - -
- --------------------------------------------------------------------------------
Six-Month Total Return and 30-Day SEC Yield* as of 9/30/99
- --------------------------------------------------------------------------------
3/31/99 to 9/30/99 30-Day SEC Yield
-4.99%+ 5.25%
- --------------------------------------------------------------------------------
* Calculated as prescribed by the Securities and Exchange Commission.
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Average Annual Compounded Returns with
Reinvestment of Dividends - Periods Ending September 30, 1999
- --------------------------------------------------------------------------------
Total Dividend Price
Return Equals Return Plus Change
- --------------------------------------------------------------------------------
Since 10/1/93 4.09% = 5.33% + -1.24%
- --------------------------------------------------------------------------------
5 Years 6.39% = 5.53% + .86%
- --------------------------------------------------------------------------------
1 Year -4.35% = 4.67% + -9.02%
- --------------------------------------------------------------------------------
Annual Total Returns and Compounded Dividend Returns
for the Six-Year Period Ended September 30, 1999
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Florida Tax-Free Income Fund
for the six-year period ended September 30, 1999.
Total Return for Years Ended:
- ----------------------------
09/30/94 -6.68% *
09/30/95 9.67%
09/30/96 7.30%
09/30/97 10.18%
09/30/98 9.89%
09/30/99 -4.35%
**Compounded Dividend Yield for Years Ended:
- -------------------------------------------
09/30/94 4.42% *
09/30/95 6.07%
09/30/96 5.78%
09/30/97 5.79%
09/30/98 5.38%
09/30/99 4.67%
Change in Share Price:
- ---------------------
09/30/94 -11.10% *
09/30/95 3.60%
09/30/96 1.52%
09/30/97 4.39%
09/30/98 4.51%
09/30/99 -9.02%
* This does not cover a twelve month period.
** Compounded Dividend yield calculation includes only income distributions.
Total return equals dividend return plus share price change and assumes
reinvestment of all dividends and capital gains distributions. Dividend return
is the income from dividends received over the period assuming reinvestment of
all dividends. Share price change is the change in net asset value over the
period adjusted for capital gains distributions. No adjustment has been made for
taxes payable by shareholders on their reinvested dividends and capital gains
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.
12-Month Dividend Yield Comparison
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Florida Tax-Free Income Fund to the 12
Month Dividend Yield of the Lipper Florida Municipal Debt Funds Average from
9/30/95 to 9/30/99.
USAA Florida Tax-Free Lipper Florida Municipal
Income Fund Yield Debt Funds Average Yield
--------------------- ------------------------
09/30/95 5.54% 5.19%
09/30/96 5.54% 5.03%
09/30/97 5.28% 4.81%
09/30/98 4.91% 4.45%
09/30/99 5.32% *
The 12-month dividend yield is computed by dividing income dividends paid during
the previous 12 months by the latest month-end net asset value adjusted for
capital gains distributions. The graph represents data for periods ending
9/30/95 to 9/30/99.
* Information from Lipper Analytical Services, Inc. was not available at press
time.
Cumulative Performance Comparison
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 Investment for the USAA Florida Tax-Free Income Fund,
Lehman Brothers Municipal Bond Index and the Lipper Florida Municipal Debt Funds
Average. The data points from the graph are as follows:
USAA Florida Tax-Free Income Fund
Year Amount
- -------- -------
10/01/93 $10,000
03/31/94 9,179
09/30/94 9,332
03/31/95 9,822
09/30/95 10,235
03/31/96 10,574
09/30/96 10,982
03/31/97 11,262
09/30/97 12,100
03/31/98 12,639
09/30/98 13,297
03/31/99 13,386
09/30/99 12,718
Lehman Brothers Municipal Bond Index
Year Amount
- -------- -------
10/01/93 $10,000
03/31/94 9,584
09/30/94 9,756
03/31/95 10,296
09/30/95 10,847
03/31/96 11,159
09/30/96 11,502
03/31/97 11,767
09/30/97 12,539
03/31/98 13,028
09/30/98 13,632
03/31/99 13,835
09/30/99 13,537
Lipper Florida Municipal Debt Funds Average
Year Amount
- -------- -------
10/01/93 $10,000
03/31/94 9,434
09/30/94 9,544
03/31/95 10,080
09/30/95 10,539
03/31/96 10,839
09/30/96 11,163
03/31/97 11,354
09/30/97 12,051
03/31/98 12,511
09/30/98 13,049
03/31/99 13,135
09/30/99 12,694
Data since inception on 10/1/93 through 9/30/99
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the long-term, investment-grade, tax-exempt
bond market. The Lipper Florida Municipal Debt Funds Average is the average
performance level of all Florida municipal debt funds, as computed by Lipper
Analytical Services, Inc., an independent organization that monitors the
performance of mutual funds. All tax-exempt bond funds will find it difficult to
outperform the Lehman Index since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF POTFOLIO MANAGER, ROBERT R. PARISEAU, CFA, APPEARS HERE]
A CHANGE IN SENTIMENT SHAKES THE MARKET
Fixed-income investors were reminded this year that the financial markets look
to the future -- not the past or even the present. Although most economic
statistics released this year suggest that inflation is well under control, the
fixed-income markets are clearly anticipating higher rates of inflation. After
all, reported inflation statistics such as the Consumer Price Index (CPI) are
historical numbers -- even though they may be only a month old. Higher inflation
causes bond prices to fall because inflation decreases the value of future
interest payments.
With a seemingly endless American economic expansion that, at times, seems to be
gaining strength, a bear market psychology has taken hold in the fixed-income
markets. Economists and investors wonder just how much longer economic growth
can continue in the United States without causing higher prices.
After falling to levels not seen in years, some inflation indicators have
increased slightly in 1999. Will inflation continue to rise or will it stabilize
at slightly higher levels than in 1998? This uncertainty has shaken the
confidence of many fixed-income investors. If inflation has stabilized, then the
rise in interest rates is probably closer to the end than the beginning -- given
current economic conditions.
The yield on the 30-year U.S. Treasury bond (the long bond) has steadily risen
from 5.625% to 6.05% from March 31 to September 30, 1999. The yield on the Bond
Buyer 40-Bond Index (BBI40) faired worse. The municipal market under-performed
the Treasury market as the BBI40 began the period at 5.23%, or 93% of the long
bond, and ended at 5.89% on September 30, or 97% of the long bond.
Municipal and U.S. Treasury Bond Yields
A chart in the form of a line graph appears here illustrating the yields of the
30-year U.S. Treasury Bond and the Bond Buyer 40-Bond Index (BBI40) from 3/31/99
to 9/30/99.
30-year Bond Buyer
U.S. 40-Bond
Treasury Index (BBI40)
-------- -------------
03/31/99 5.63% 5.23%
04/15/99 5.53% 5.21%
04/30/99 5.66% 5.28%
05/14/99 5.92% 5.38%
05/31/99 5.83% 5.37%
06/15/99 6.11% 5.53%
06/30/99 5.96% 5.55%
07/15/99 5.92% 5.50%
07/30/99 6.10% 5.59%
08/16/99 6.09% 5.88%
08/31/99 6.06% 5.78%
09/15/99 6.10% 5.86%
09/30/99 6.05% 5.89%
Note: Past performance is no guarantee of future results.
The 30-year U.S. Treasury bond is generally considered the benchmark for U.S.
long-term interest rates.
The Bond Buyer 40-Bond Index is the industry standard for the yield of
long-term, investment-grade municipal bonds.
INCOME STRATEGY
I consistently follow an income strategy for this Fund similar to that used by
other USAA tax-exempt funds. I focus primarily on generating maximum tax-exempt
income with the goal of producing the best after-tax total return over a three-
to five-year investment horizon. I remain fully invested in long-term,
investment-grade municipal bonds. My primary justifications for this strategy
are simple in concept:
- I believe that a large number of our investors own the Fund for the
tax-free income and invest for the long term -- meaning three to five
years or more.
- Although past performance is no guarantee of future results, the strategy
has worked in different kinds of markets over the years. Long-term
performance, measured by total return, has been well above the peer-group
average.
Although the Fund has behaved as expected given the increase in interest rates,
this year's total return performance has been very disappointing and
frustrating. Why does this income strategy produce such apparently contradictory
results -- weak short-term total return performance in 1999 but above-average
performance for long-term total return? Income performance is well above average
in the short and long term.
Of course, in the short run, price change can overwhelm the income distribution
to create a negative total return for a given period. I believe that an income
strategy works because, over time, the vast majority of your total return from a
fixed-income security will be from the income. Price changes tend to even out
over longer investment horizons. Please refer to the table and chart on page 4.
YOUR INVESTMENT HORIZON IS IMPORTANT!
I consistently invest the Fund in long-term, investment-grade, tax-exempt
municipal securities. Why long-term bonds? Because bonds maturing in 20 years or
longer almost always yield more than shorter bonds of the same credit quality.
However, longer-maturity bonds are more volatile in price than shorter-maturity
bonds. In regard to credit risk, I believe investment-grade bonds (rated BBB or
higher) offer the best risk/reward compared to either junk bonds or insured
bonds. That's why we encourage only those investors with a three- to five-year
investment horizon to buy our tax-exempt bond funds. These long-term investors
seeking high current income must be willing to assume moderate credit risk and
price volatility in return.
A TIME TO REFLECT
Because interest rates have risen in 1999, investors have suffered for owning
any kind of long-maturity bond -- municipals, corporates, or governments. That's
the mathematics of bond investing. An investor can mitigate, but not eliminate,
the volatility risk by investing for the long term. Although our strategy has
produced good results for our investors in the past, to guard against
complacency, we are constantly examining and analyzing our investment
strategies.
Is there a better way to invest a tax-exempt bond fund? An alternative to an
income strategy is to focus on total return. However, a total-return strategy
requires the manager to successfully time the market cycles by correctly
forecasting interest rates again and again over extended periods of time. No
person, to my knowledge, has ever done that.
Enduring a bear market like 1999 can be very unsettling. It's a good time to
review why you purchased the Fund in the first place:
- Are you most interested in receiving a high level of interest income
that is free of federal and state taxes?
- Is your investment horizon long enough to cope with the ups and downs
of the market?
- Do you need to raise cash? Do you maintain a sufficient cash reserve?
- Are you comfortable with the moderate credit risk of investment-grade
municipal bonds? (Please review the Portfolio Ratings Mix chart on
page 10.)
I view the current environment as an opportunity to increase the Fund's
distribution yield by buying bonds that offer very attractive yields at value
prices.
YOUR FUND'S PERFORMANCE * * * *
I'm pleased to say that your Fund received an Overall Star Rating of four stars
in the municipal bond fund category from Morningstar Rating(Trademark) for the
period ended September 30, 1999. Your Fund's net asset value (NAV) per share
decreased by $0.74, or -7.39%, since March 31, 1999.
While past performance is no guarantee of future results, the Fund's annualized
dividend distribution yield for the past six months was 5.29%. At press time,
Lipper yield data was not available for the same time period. The Fund's total
return was -4.99%, which lagged the Lipper Florida Municipal Debt Fund Average
total return of -3.40% for the 58 funds in the category.
Past performance is no guarantee of future results. Morningstar proprietary
ratings reflect historical risk-adjusted performance as of September 30, 1999.
The ratings are subject to change every month. Morningstar ratings are
calculated from the Fund's three- and five-year average annual returns in excess
of 90-day Treasury bill returns with appropriate fee adjustments and a risk
factor that reflects Fund performance below 90-day T-bill returns. Overall
rating is a weighted average of a fund's three-, five-, and ten-year ratings, as
applicable. The USAA Florida Tax-Free Income Fund received four stars for the
three- and five-year periods, respectively. The top 10% of the funds in a broad
asset class receive five stars, the next 22.5% receive four stars, and the next
35% receive three stars. The Fund was rated among 1,611 and 1,241 funds in the
municipal bond fund category for the three- and five-year periods, respectively.
Dividend yield is computed by dividing income dividends paid during the previous
six months by the latest month-end net asset value adjusted for capital gains
distributions and annualizing the result.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gains distributions.
THE STATE OF FLORIDA
Driven by population growth, Florida's economy continues to grow and diversify.
This year, the economic expansion has moderated, but nevertheless, the Florida
economy is expected to outperform the United States as a whole.
Estimated financial results for fiscal year 1998-99 appear to be excellent as
the state's general fund revenues grew by 5.0%. This solid performance largely
reflects strong sales tax receipts, which increased an estimated 6.6% from
fiscal 1997-98. Reserve levels are quite sound as the state transferred $100.9
million to the budget stabilization fund last fiscal year. A sufficient reserve
fund is important due to Florida's reliance upon cyclical sales tax receipts as
a disproportionate source of operating revenues. Sales tax receipts typically
fall during a recession.
The downside to Florida's expanding population base is the resulting budgetary
pressure for social programs and infrastructure needs. To fund these needs,
Florida's debt has increased in amount and complexity. Future state borrowing is
anticipated.
Reflecting strong credit fundamentals, Florida maintains high bond ratings of
Aa2, AA+, and AA from Moody's Investors Service, Standard & Poor's, and Fitch
IBCA, respectively. I discuss these general economic issues because, although
they may not directly relate to each of your Fund's holdings, they do indicate
the general financial and economic environment of the state. We will closely
monitor those specific credit issues, ballot initiatives, and litigation that
could potentially impact the value of your holdings.
TAXABLE EQUIVALENT YIELDS
The table below compares the yield of the USAA Florida Tax-Free Income Fund with
a taxable equivalent investment.
To match the USAA Florida Tax-Free Income Fund's
closing 30-day SEC yield of 5.25% and:
- --------------------------------------------------------------------------------
Assuming a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
- --------------------------------------------------------------------------------
Assuming an investor, filing jointly,
with a $300,000 in intangible assets,
a fully taxable investment must pay: 6.18% 7.30% 7.62% 8.21% 8.70%
- --------------------------------------------------------------------------------
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.
Note: Some income may be subject to the federal alternative minimum tax.
Portfolio Ratings Mix
September 30, 1999
A pie chart is shown here depicting the Portfolio Ratings Mix as of September
30, 1999 of the USAA Florida Tax-Free Income Fund to be:
AAA - 21.1%; AA - 38.2%; A - 21.8%; Cash Equivalents - 2.5%; and BBB - 16.4%.
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. This chart reflects the higher rating of
either Moody's Investors Service, Standard & Poor's Rating Group, or Fitch IBCA.
Unrated securities that have been determined by USAA IMCO to be of equivalent
investment quality to categories AAA and BBB account for 1.3% and 2.80%,
respectively, of the Fund's investments, and are included in their appropriate
category above.
See page 16 for a complete listing of the Portfolio of Investments.
Investment Review
USAA FLORIDA TAX-FREE MONEY MARKET FUND
OBJECTIVE: 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 and a further objective of 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 a money market fund is not insured or guaranteed by the FDIC
or any government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
- --------------------------------------------------------------------------------
3/31/99 9/30/99
- --------------------------------------------------------------------------------
Net Assets $98.6 Million $96.4 Million
Net Asset Value Per Share $1.00 $1.00
- --------------------------------------------------------------------------------
Average Annual Total Returns and 7-day Yield as of 9/30/99
- --------------------------------------------------------------------------------
3/31/99 Since Inception 7-Day
to 9/30/99 1 Year 5 Years on 10/1/93 Yield
1.49%+ 2.89% 3.25% 3.07% 3.44%
- --------------------------------------------------------------------------------
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income return and assumes reinvestment of all dividends and
any capital gains distributions. No adjustment has been made for taxes payable
by shareholders on their reinvested dividends and capital gains distributions.
Past performance is no guarantee of future results. Yields and returns
fluctuate. The 7-day yield quotation more closely reflects current earnings of
the Fund than the total return quotation.
7-Day Yield Comparison
A chart in the form of a line graph appears here illustrating the comparison of
the 7-day Yield of the USAA Florida Tax-Free Money Market Fund and the IBC
Financial Data, Inc. State Specific SB (Stock Broker) and GP (General Purpose)
(Tax-Free) Money Funds.
USAA Florida Tax-Free
Money Market Fund IBC Financial Data, Inc.
--------------------- ------------------------
09/29/98 3.54% 3.10%
10/27/98 2.93% 2.55%
11/24/98 3.02% 2.64%
12/29/98 3.09% 2.85%
01/26/99 2.62% 2.28%
02/22/99 2.38% 2.11%
03/29/99 2.71% 2.34%
04/26/99 3.05% 2.66%
05/31/99 2.99% 2.58%
06/28/99 3.08% 2.82%
07/26/99 2.82% 2.40%
08/30/99 2.91% 2.53%
09/27/99 3.39% 2.90%
Data represent the last Monday of each month.
Ending date 9/27/99
The graph tracks the Fund's 7-day yield against IBC Financial Data, Inc. State
Specific SB (Stock Broker) & GP (General Purpose) (Tax-Free) Money Funds, an
average of money market fund yields.
Message from the Manager
[PHOTO OF PORTFOLIO MANAGER, REGINA G. SHAFER, CFA, APPEARS HERE]
THE MARKET
Since our last shareholder report, the national economy has continued to
strengthen. Consumer confidence has been very high due, in part, to continued
strong employment. In August, national unemployment reached the lowest levels of
the decade -- 4.2%. This strong economy has caused the Federal Reserve Board to
take action in order to keep inflation in check. The Federal Open Market
Committee has raised the federal funds rate (the interest rate banks charge
other banks) twice since March -- an increase of .25% in both June and August to
bring the federal funds rate to 5.25%. During this time period, the 30-year
Treasury rate ranged from 5.4% in April to 6.3% in August. One-year municipal
note yields have also inched up over the last six months. According to the Bond
Buyer One-Year Note Index, municipal notes have risen from a low of 3.05% in
April to a high of 3.70% as of September.
STRATEGY
Instead of trying to determine where interest rates will be in the near term, we
continue to focus on finding relative value. Our credit research team
contributes to this effort by assessing the creditworthiness of each issue that
the Fund purchases. The Fund's average maturity of 28 days on September 30 is
shorter than the industry's average maturity of 57. The Fund holds approximately
80% of its assets in issues whose rates are reset daily or weekly, with the
belief that this sector represents the best value at the time. This provides us
the flexibility to selectively move to longer-term investments once those become
more attractive.
PERFORMANCE
For the 12-month period ending September 30, 1999, the USAA Florida Tax-Free
Money Market Fund ranked 8 out of 166 state-specific tax-exempt money market
funds according to IBC Financial Data, Inc., with a return of 2.89%. The average
return for the category over the same period was 2.52%. Please keep in mind that
past performance is no guarantee of future results.
The Bond Buyer One-Year Note Index is representative of yields on ten large
one-year tax-exempt notes.
IBC Financial Data, Inc. provides independent analysis of trends in the
financial services and investing industries, with particular concentration on
money market funds.
FLORIDA
Florida's economic expansion has extended well into 1999, as indicated, in part,
by strong employment. During August, the unemployment level dropped to 3.9%, the
state's lowest level of the decade. This compares favorably to the national rate
of 4.2%. Not surprisingly, the State's financial position has also benefited
from a strong economy. State revenues totaled an estimated $17.8 billion during
the 1998-1999 fiscal year -- 5.0% over the prior year. The state expects
continued, but slower, growth in the future. The adopted 1999-2000 budget, with
$18.5 billion in revenues, included considerable tax-relief measures related to
the intangibles tax.
A strong economy and solid financial performance have contributed to the
financial strength of the state. Credit ratings on the state's general
obligation debt are Aa2 by Moody's Investors Service, AA+ by Standard and
Poor's, and AA by Fitch IBCA.
Cumulative Performance of $10,000
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 Investment for the USAA Florida Tax-Free Money Market
Fund. The data is from 10/1/93 through 9/30/99. The data points from the graph
are as follows:
USAA Florida Tax-Free Money Market Fund
Year Amount
- -------- -------
10/01/93 $10,000
03/31/94 10,096
09/30/94 10,218
03/31/95 10,384
09/30/95 10,570
03/31/96 10,749
09/30/96 10,923
03/31/97 11,094
09/30/97 11,281
03/31/98 11,464
09/30/98 11,652
03/31/99 11,813
09/30/99 11,988
Data since inception on 10/1/93 through 9/30/99
Past performance is no guarantee of future results, and the value of your
investment will vary according to the Fund's performance. Some income may be
subject to federal, state, or local taxes, or to the federal alternative minimum
tax. For 7-day yield information, please refer to the Fund's Investment Review
page.
See page 20 for a complete listing of the Portfolio of Investments.
Shareholder Voting Results
On October 15, 1999, a special meeting of shareholders was held to vote on the
following proposals. All proposals were approved by the shareholders. All
shareholders of record on August 19, 1999, were entitled to vote on each
proposal. The number of votes shown below are shown for the entire USAA State
Tax-Free Trust (the Trust) for proposals 1 and 2.
1 Proposal to elect a Board of Trustees as follows:
TRUSTEES VOTES FOR VOTES WITHHELD
Robert G. Davis 76,619,692 1,854,365
Michael J.C. Roth 76,619,692 1,854,365
David G. Peebles 76,619,692 1,854,365
Robert L. Mason 76,619,692 1,854,365
Michael F. Reimherr 76,619,692 1,854,365
Richard A. Zucker 76,619,692 1,854,365
Barbara B. Dreeben 76,619,692 1,854,365
John W. Saunders, Jr. and Howard L. Freeman, Jr. did not stand for re-election
to the Board. Their term of office will terminate on December 31, 1999.
2 Proposal to ratify or reject the selection by the Board of Trustees of KPMG
LLP as auditors for the Trust for the fiscal year ending March 31, 2000.
NUMBER OF SHARES VOTING
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
76,088,944 942,988 1,442,125
CATEGORIES & DEFINITIONS
PORTFOLIOS OF INVESTMENTS
September 30, 1999
(Unaudited)
Fixed-Rate Instruments - consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the market
price of a fixed-rate instrument generally varies inversely to the movement of
interest rates.
Put Bonds - provide the right to sell the bond at face value at specific tender
dates prior to final maturity. The put feature shortens the effective maturity
of the security.
Variable-Rate Demand Notes (VRDN) - provide the right, on any business day, to
sell the security at face value on either that day or in seven days. The
interest rate is generally adjusted at a stipulated daily, weekly, or monthly
interval to a rate that reflects current market conditions. In money market
funds, the effective maturity of these instruments is deemed to be less than 397
days in accordance with regulatory requirements. In bond funds, the effective
maturity is the next put date.
Credit Enhancements - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal when due. The
enhancement may be provided by either a high-quality bank, insurance company or
other corporation, or a collateral trust.
The USAA Florida Tax-Free Money Market Fund's investments consist of securities
meeting the requirements to qualify as "eligible securities" under the
Securities and Exchange Commission (SEC) rules applicable to money market funds.
With respect to quality, "eligible securities" generally consist of securities
rated in one of the two highest categories for short-term securities, or, if not
rated, of comparable quality, at the time of purchase. The Manager also attempts
to minimize credit risk in the USAA Florida Tax-Free Money Market Fund through
rigorous internal credit research.
(PRE) Prerefunded to a date prior to maturity.
(LOC) Enhanced by a bank letter of credit.
(LIQ) Enhanced by a bank liquidity agreement.
(NBGA) Enhanced by a non-bank guarantee agreement.
(INS) Scheduled principal and interest payments are insured by:
(1)MBIA, Inc. (4) Financial Security Assurance
(2)AMBAC Financial Group, Inc. Holdings Ltd.
(3)Financial Guaranty Insurance Co. (5) Asset Guaranty Insurance Co.
(6) ACA Financial Guaranty Corp.
PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CP Commercial Paper MFH Multi-Family Housing
GO General Obligation PCRB Pollution Control Revenue Bond
IDA Industrial Development RB Revenue Bond
Authority/Agency TAN Tax Anticipation Note
IDRB Industrial Development
Revenue Bond
USAA FLORIDA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1999
(Unaudited)
Principal Coupon Final Market
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (94.3%)
Florida (87.6%)
$ 3,400 Alachua County Health Facilities
Auth. RB, Series 1996A (INS)(1) 5.80% 12/01/2026 $ 3,388
Board of Education Capital Outlay
Bonds,
3,500 Series 1995B (NBGA) 5.88 6/01/2020 3,536
4,000 Series 1997B (NBGA) 4.50 6/01/2027 3,220
3,000 Series 1998A (NBGA) 4.75 6/01/2028 2,523
Broward County Housing Finance
Auth. MFH RB,
1,100 Series 1995A 7.00 2/01/2025 1,190
1,000 Series 1997A-1 6.00 5/01/2032 1,026
2,000 Cape Canaveral Hospital District
RB, Series 1998 5.25 1/01/2028 1,692
Cape Coral Health Facilities Auth. RB,
2,000 Series 1997 (INS)(5) 5.50 10/01/2017 1,922
2,800 Series 1997 (INS)(5) 5.63 10/01/2027 2,664
1,855 Citrus County PCRB, Series 1992B 6.35 2/01/2022 1,948
1,750 Clearwater Housing Auth. RB,
Series 1997 (INS)(6) 5.35 5/01/2024 1,632
2,000 Collier County Health Facilities
Auth. RB, Series 1994 (e) 7.00 12/01/2019 2,147
2,000 Dade County Special Obligation
Bonds, Series 1995 (PRE) 6.10 4/01/2020 2,171
7,160 Department of Transportation Right
of Way GO, Series 1997B (NBGA) 5.00 7/01/2027 6,360
Duval County Housing Finance Auth.
MFH RB,
1,700 Series 1996 5.90 9/01/2016 1,727
2,510 Series 1996 6.00 3/01/2021 2,541
1,000 Escambia County Housing Finance
Agency MFH RB, Series 1985 5.63 8/01/2016 993
700 Gulf County School District Sales
Tax RB, Series 1997 (INS)(5) 5.75 6/01/2017 700
2,000 Hillsborough County IDA PCRB,
Series 1994 6.25 12/01/2034 2,116
Housing Finance Agency RB,
1,425 Series 1994A 6.35 7/01/2014 1,467
1,000 Series 1995H (NBGA) 6.50 11/01/2025 1,039
1,200 Indian River County Hospital
District RB, Series 1996 (INS)(4) 5.70 10/01/2015 1,209
8,820 Jacksonville Health Facilities
Auth. RB, Series 1997B 5.25 8/15/2027 7,990
1,000 Martin County Health Facilities
Auth. Hospital RB, Series 1997A
(INS)(1) 5.25 11/15/2017 945
1,000 Miami Beach Health Facilities
Auth. Hospital RB, Series 1992
(INS)(4) 6.25 11/15/2019 1,029
36,000 Miami Dade County Special Obligation
RB, Series 1997B (INS)(1),(a) 5.65 10/01/2031 5,293
1,000 Miramar Wastewater Improvement
Assessment Bonds,
Series 1994 (PRE) (INS)(3) 6.75 10/01/2025 1,107
5,000 North Miami Educational Facilities
RB, Series 1994A (e) 6.13 4/01/2020 5,031
2,130 North Miami Health Facilities Auth.
RB, Series 1996 (LOC) 6.00 8/15/2024 2,131
Orange County Health Facilities
Auth. RB,
5,750 Series 1995 (e) 6.75 7/01/2020 6,096
3,780 Series 1999 (INS)(5) 5.25 6/01/2029 3,367
1,000 Orange County Housing Finance Auth.
RB, Series 1994(B) 6.40 2/01/2030 1,036
3,575 Orlando and Orange County Expressway
Auth. RB, Series 1993 5.95 7/01/2023 3,581
4,000 Orlando Utilities Commission RB,
Series 1993B 5.25 10/01/2023 3,714
3,405 Palm Beach County Health Facilities
Auth. Hospital RB, Series 1993 (PRE) 6.30 10/01/2022 3,682
Palm Beach County Health Facilities
Auth. RB,
4,900 Series 1996 5.63 11/15/2020 4,584
2,500 Series 1998 5.13 11/15/2029 2,098
625 Palm Beach County Housing Finance
Auth. RB, Series 1994(B) 6.40 4/01/2014 642
1,800 Plantation Health Facilities Auth.
RB, Series 1998 5.13 12/01/2022 1,541
12,780 Seminole County Water and Sewer RB,
Series 1999 5.38 10/01/2022 12,087
6,805 St. Johns County IDA Hospital RB,
Series 1992 6.00 8/01/2022 6,676
2,000 St. Johns County IDA RB,
Series 1997A (INS)(1),(c) 5.50 3/01/2017 1,983
3,215 Sunrise Special Tax District #1 GO,
Series 1991 (LOC) 6.38 11/01/2021 3,378
1,150 Tallahassee Consolidated Utility
Systems RB, Series 1994 6.20 10/01/2019 1,183
5,000 Tampa Utilities Tax Improvement RB,
Series 1999A (INS)(4) 5.20 10/01/2019 4,687
12,000 Tampa Water and Sewer RB,
Series 1999 (d) 5.50 10/01/2029 11,549
1,300 Turtle Run Community Development
District RB, Series 1997 (PRE) 6.40 5/01/2011 1,382
Volusia County Education Facility
Auth. RB,
1,500 Series 1996A 6.13 10/15/2026 1,494
3,000 Series 1999 (INS)(2) 5.25 6/01/2029 2,785
2,000 Series 1999 5.75 10/15/2029 1,885
3,000 Volusia County Health Facilities
Auth. Hospital RB, Series 1996
(INS)(2) 5.50 11/15/2026 2,895
West Orange Healthcare District RB,
1,790 Series 1999A 5.50 2/01/2009 1,756
620 Series 1999A 5.50 2/01/2010 603
Guam (0.6%)
1,000 Government Limited Obligation
Infrastructure Improvement RB,
Series 1989A (PRE) 7.10 11/15/2009 1,024
Puerto Rico (6.1%)
Commonwealth GO,
1,000 Series 1996 5.40 7/01/2025 946
2,000 Series 1998 5.00 7/01/2027 1,764
5,150 Electric Power Auth. RB, Series 1995Z 5.25 7/01/2021 4,793
1,000 Highway and Transportation Auth. RB,
Series 1998A 5.00 7/01/2038 868
2,500 Highway Auth. RB, Series Q (PRE) 6.00 7/01/2020 2,547
- --------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $170,458) 167,363
- --------------------------------------------------------------------------------
PUT BOND (4.2%)
Florida
7,055 Duval County Housing Finance Auth. MFH
RB, Series 1995 (NBGA) (cost: $7,158) 6.75 4/01/2025 7,460
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (2.6%)
Florida
4,040 Atlantic Beach Improvement and
Refunding RB, Series 1994B (LOC) 4.05 10/01/2024 4,040
525 Hillsborough County IDA PCRB,
Series 1992 3.95 5/15/2018 525
- --------------------------------------------------------------------------------
Total variable-rate demand notes
(cost: $4,565) 4,565
- --------------------------------------------------------------------------------
Total investments (cost: $182,181) $179,388
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Hospitals 15.9%
Special Assessment/Tax/Fee 14.9
Water/Sewer Utilities - Municipal 14.0
Nursing/Continuing Care Centers 13.8
Multi-Family Housing 10.5
Escrowed Bonds 6.7
Education 6.3
Electric/Gas Utilities - Municipal 4.8
Health Care - Miscellaneous 3.5
General Obligations 3.4
Electric Utilities 2.6
Toll Roads 2.0
Single-Family Housing 1.2
Miscellaneous 1.1
Sales Tax .4
------
Total 101.1%
======
USAA FLORIDA TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1999
(Unaudited)
Principal Coupon Final
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (75.7%)
Florida
$ 3,000 Brevard County Housing Finance Auth.
MFH RB, Series 1993 (NBGA) 3.85% 7/01/2005 $ 3,000
1,305 Brevard County Mental Health
Facilities RB, Series 1994C (LOC) 3.85 1/01/2010 1,305
1,800 Broward County Education Research
and Training Auth. IDRB, Series
1997 (LOC) 3.85 8/01/2004 1,800
2,460 Broward County Housing Finance Auth.
MFH RB, Series 1990 (NBGA) 3.90 10/01/2007 2,460
Dade County Health Facilities Auth. RB,
15,735 Series 1990 (LOC) 4.40 9/01/2020 15,735
5,700 Series 1995 (LIQ) (INS)(2) 4.05 9/01/2025 5,700
760 Dade County IDA PCRB, Series 1995 3.95 4/01/2020 760
9,000 Gulf Breeze Healthcare Facilities RB,
Series 1999 (NBGA)(c) 3.92 1/01/2024 9,000
2,375 Hillsborough County IDA PCRB,
Series 1992 3.95 5/15/2018 2,375
Housing Finance Agency MFH RB,
1,515 Series 1985C (LOC) 3.85 8/01/2006 1,515
7,430 Series 1985EE (LOC) 3.90 9/01/2008 7,430
3,305 Series 1990B (NBGA) 3.90 12/01/2009 3,305
450 Series 1990D (NBGA) 3.90 12/01/2009 450
755 Orange County Health Facilities
Auth. RB, Series 1998 (LOC) 3.85 11/01/2028 755
1,890 Sarasota Educational Facilities RB,
Series 1996 (LOC) 3.80 2/01/2021 1,890
St. Petersburg Health Facilities
Auth. RB,
3,400 Series 1997 (LOC) 3.80 7/01/2027 3,400
5,000 Series 1999 (LOC) 3.88 1/01/2024 5,000
3,000 Volusia County Housing Finance Auth.
RB, Series 1985C (LOC)(b) 4.13 9/01/2005 3,000
4,150 Wauchula IDA RB, Series 1993 (LOC) 3.75 12/01/2013 4,150
- --------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $73,030) 73,030
- --------------------------------------------------------------------------------
PUT BOND (2.1%)
Florida
2,000 Indian River County Hospital RB,
Series 1990 (LOC) (cost: $2,000) 3.55 10/01/2024 2,000
- --------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (21.5%)
Florida
1,885 Dade County Health Facilities Auth.
RB, Series 1989A (PRE) 7.60 8/01/2024 1,943
250 Dade County Seaport GO,
Series 1992 (INS)(2) 5.50 10/01/1999 250
1,000 East County Water Control District
RB, Series 1994 (INS)(5) 5.10 11/01/1999 1,002
1,800 Halifax Hospital Medical Center TAN,
Series 1999 (LOC) 3.50 3/15/2000 1,804
2,500 Inland Protection Financing Corp.
Special Obligation Bonds,
Series 1997 (INS)(4) 4.50 1/01/2000 2,507
550 Jacksonville Electric Auth. RB,
Issue 2 Series 6C 6.40 10/01/2000 563
4,200 Jacksonville GO CP Notes 3.55 1/26/2000 4,200
4,000 Local Government Finance Commission
Pooled CP Notes, Series A (LOC) 3.50 2/08/2000 4,000
2,260 Orlando Utilities Commission Water
and Electric RB, Series 1989C (PRE) 7.00 10/01/2023 2,305
500 Palm Beach County Criminal Justice
Facilities RB, Series 1990 (PRE) 7.25 6/01/2011 522
500 Pinellas County Resources Recovery
RB, Series 1990A (INS)(1) 6.50 10/01/1999 500
600 Public Education Capital Outlay Bonds,
Series 1994B 5.63 6/01/2000 609
500 Sunrise Utility System RB,
Series 1996 (INS)(2) 4.38 10/01/1999 500
- --------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $20,705) 20,705
- --------------------------------------------------------------------------------
Total investments (cost: $95,735) $95,735
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Hospitals 24.3%
Multi-Family Housing 21.9
Health Care - Miscellaneous 10.7
Buildings 6.2
Community Service 5.2
Escrowed Bonds 4.9
General Obligations 4.6
Nursing/Continuing Care Centers 4.3
Finance - Municipal 4.1
Electric Utilities 3.3
Special Assessment/Tax/Fee 3.2
Education 2.0
Real Estate Tax/Free 1.9
Water/Sewer Utilities - Municipal 1.6
Electric/Gas Utilities - Municipal .6
Solid Waste Disposal .5
----
Total 99.3%
====
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 1999
(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.
SPECIFIC NOTES
(a) Zero-Coupon security. Rate represents the effective yield at date of
purchase.
(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, 1999, this security represents 3.1% of the USAA
Florida Tax-Free Money Market Fund's net assets.
(c) This security is exempt from registration under the Securities Act of 1933
and has been determined to be liquid by management. Any resale of this security
may occur in an exempt transaction in the United States to a qualified
institutional buyer as defined by Rule 144A. At September 30, 1999, these
securities represented 1.1% and 9.3% of the USAA Florida Tax-Free Income Fund's
and USAA Florida Tax-Free Money Market Fund's net assets, respectively.
(d) At September 30, 1999, the cost of securities purchased on a
delayed-delivery basis for the USAA Florida Tax-Free Income Fund was $11.6
million.
(e) At September 30, 1999, these securities were segregated to cover
delayed-delivery purchases.
See accompanying notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 1999
(Unaudited)
USAA USAA
Florida Florida Tax-Free
Tax-Free Money Market
Income Fund Fund
-----------------------------
ASSETS
Investments in securities, at market value
(identified cost of $182,181 and $95,735,
respectively) $179,388 $95,735
Cash 7 191
Receivables:
Capital shares sold 79 78
Interest 3,076 531
Securities sold 7,008 -
---------------------------
Total assets 189,558 96,535
---------------------------
LIABILITIES
Securities purchased 11,577 -
Capital shares redeemed 120 84
USAA Investment Management Company 52 15
USAA Transfer Agency Company 8 6
Accounts payable and accrued expenses 20 14
Dividends on capital shares 276 15
---------------------------
Total liabilities 12,053 134
---------------------------
Net assets applicable to capital shares
outstanding $177,505 $96,401
===========================
REPRESENTED BY:
Paid-in capital $184,235 $96,401
Accumulated net realized loss on investments (3,937) -
Net unrealized depreciation of investments (2,793) -
---------------------------
Net assets applicable to capital
shares outstanding $177,505 $96,401
===========================
Capital shares outstanding, unlimited number
of shares authorized, $.001 par value 19,118 96,401
===========================
Net asset value, redemption price, and offering
price per share $ 9.28 $ 1.00
===========================
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 1999
(Unaudited)
USAA USAA
Florida Florida Tax-Free
Tax-Free Money Market
Income Fund Fund
-----------------------------
Net investment income:
Interest income $ 5,078 $1,634
---------------------------
Expenses:
Management fees 324 167
Transfer agent's fees 45 35
Custodian's fees 32 23
Postage 3 3
Shareholder reporting fees 2 3
Trustees' fees 4 4
Registration fees 3 -
Professional fees 13 13
Other 1 2
---------------------------
Total expenses before reimbursement 427 250
Expenses reimbursed - (13)
---------------------------
Total expenses after reimbursement 427 237
---------------------------
Net investment income 4,651 1,397
---------------------------
Net realized and unrealized loss on investments:
Net realized loss (2,904) -
Change in net unrealized appreciation/
depreciation (11,081) -
---------------------------
Net realized and unrealized loss (13,985) -
---------------------------
Increase (decrease) in net assets resulting from
operations $ (9,334) $1,397
===========================
See accompanying notes to financial statements.
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 1999, and year ended March 31, 1999
(Unaudited)
<CAPTION>
USAA USAA
Florida Tax-Free Florida Tax-Free
Income Fund Money Market Fund
---------------------------------------------------------------
9/30/99 3/31/99 9/30/99 3/31/99
---------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 4,651 $ 8,125 $ 1,397 $ 2,906
Net realized gain (loss) on investments (2,904) 373 - -
Change in net unrealized appreciation/
depreciation of investments (11,081) 625 - -
---------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations (9,334) 9,123 1,397 2,906
---------------------------------------------------------------
Distributions to shareholders from:
Net investment income (4,651) (8,125) (1,397) (2,906)
---------------------------------------------------------------
From capital share transactions:
Proceeds from shares sold 25,734 61,581 40,916 182,464
Dividend reinvestments 2,995 5,417 1,311 2,699
Cost of shares redeemed (19,203) (31,953) (44,442) (176,346)
---------------------------------------------------------------
Increase (decrease) in net assets from
capital share transactions 9,526 35,045 (2,215) 8,817
---------------------------------------------------------------
Net increase (decrease) in net assets (4,459) 36,043 (2,215) 8,817
Net assets:
Beginning of period 181,964 145,921 98,616 89,799
---------------------------------------------------------------
End of period $177,505 $181,964 $ 96,401 $ 98,616
===============================================================
Change in shares outstanding:
Shares sold 2,638 6,133 40,916 182,464
Shares issued for dividends reinvested 311 538 1,311 2,699
Shares redeemed (1,991) (3,186) (44,442) (176,346)
---------------------------------------------------------------
Increase (decrease) in
shares outstanding 958 3,485 (2,215) 8,817
===============================================================
</TABLE>
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(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
USAA Florida Tax-Free Income Fund and USAA 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 USAA Florida Tax-Free Money Market Fund has a further objective of
preserving capital and maintaining liquidity.
A. Security valuation - Investments in the USAA 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 under the Investment Company Act of 1940, as amended, all
securities in the USAA 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 - 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 securities. 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 three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($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 both agreements with CAPCO, each Fund
may borrow from CAPCO an amount up to 5% of its total assets at CAPCO's
borrowing rate with no markup. Subject to availability under its agreement with
Bank of America, each Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 15% of its total assets.
The Funds had no borrowings under any of these agreements during the six-month
period ended September 30, 1999.
(3) DISTRIBUTIONS
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. 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, 1999,
the USAA Florida Tax-Free Income Fund had capital loss carryovers for federal
income tax purposes of approximately $3.9 million which, if not offset by
subsequent capital gains, will expire between 2003-2004. It is unlikely that the
Trust's Board of Trustees will authorize a distribution of capital gains
realized in the future until the capital loss carryovers have been utilized or
expire.
(4) INVESTMENT TRANSACTIONS
Costs of purchases and proceeds from sales/maturities of securities for the
six-month period ended September 30, 1999, were as follows:
USAA Florida Tax-Free USAA Florida Tax-Free
Income Fund Money Market Fund
($000) ($000)
----------------------------------------------------
Purchases $61,917 $129,562
Sales/maturities $53,088 $125,295
For the USAA Florida Tax-Free Income Fund, costs of purchases and proceeds from
sales/maturities excludes short-term securities.
Gross unrealized appreciation and depreciation of investments at September 30,
1999, was as follows:
Appreciation Depreciation Net
($000) ($000) ($000)
----------------------------------------------------
USAA Florida Tax-Free
Income Fund $3,000 ($5,793) ($2,793)
(5) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company (the Manager) carries
out each Fund's investment policies and manages each Fund's portfolio.
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 million, .40% of that portion over $50 million but not over $100
million, and .30% of that portion over $100 million. These fees are allocated on
a proportional basis to each Fund monthly based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of each Fund to
.50% of its average net assets through August 1, 2000.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Funds based on an annual charge of $28.50 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Funds' shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Funds.
(7) YEAR 2000
Like other mutual funds, the Funds could be adversely affected if the computer
systems used by the Manager and the Funds' other service providers are not able
to perform their intended functions effectively after 1999 because of the
inability of computer software to distinguish the year 2000 from the year 1900.
The Manager has taken steps to address this potential year 2000 problem with
respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds from this
problem.
<TABLE>
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
USAA FLORIDA TAX-FREE INCOME FUND
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
-----------------------------------------------------------
1999 1999 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.02 $ 9.94 $ 9.33 $ 9.26 $ 9.09 $ 8.98
Net investment income .25 .50 .51 .52 .52 .49
Net realized and
unrealized gain (loss) (.74) .08 .61 .07 .17 .11
Distributions from net
investment income (.25) (.50) (.51) (.52) (.52) (.49)
-------------------------------------------------------------------------
Net asset value at
end of period $ 9.28 $ 10.02 $ 9.94 $ 9.33 $ 9.26 $ 9.09
=========================================================================
Total return (%) * (4.99) 5.91 12.22 6.51 7.66 7.01
Net assets at end
of period (000) $177,505 $181,964 $145,921 $95,483 $69,079 $42,891
Ratio of expenses to
average net assets (%) .47(a) .47 .50 .50 .50 .50
Ratio of expenses to
average net assets
excluding
reimbursements (%) - - .51 .57 .67 .81
Ratio of net investment
income to average
net assets (%) 5.09(a) 4.96 5.21 5.57 5.52 5.59
Portfolio turnover (%) 29.74 25.28 27.48 44.75 88.20 71.76
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
</TABLE>
<TABLE>
USAA FLORIDA TAX-FREE MONEY MARKET FUND
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
-----------------------------------------------------------
1999 1999 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .01 .03 .03 .03 .03 .03
Distributions from net
investment income (.01) (.03) (.03) (.03) (.03) (.03)
-------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========================================================================
Total return (%) * 1.49 3.05 3.34 3.20 3.51 2.86
Net assets at end
of period (000) $96,401 $98,616 $89,799 $87,053 $71,224 $52,225
Ratio of expenses to
average net assets (%) .50(a) .50 .50 .50 .50 .50
Ratio of expenses to
average net assets
excluding
reimbursements (%) .53(a) .51 .52 .57 .64 .72
Ratio of net investment
income to average
net assets (%) 2.95(a) 3.00 3.28 3.15 3.45 2.97
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
</TABLE>
TRUSTEES
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
LEGAL COUNSEL
Goodwin Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
INDEPENDENT AUDITORS
KPMG LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
Internet Access
www.usaa.com
For Additional Information on Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges, or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund USAA TouchLine (Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction, or fund prices
1-800-531-8777, (in San Antonio) 498-8777
