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 10
Financial Information
Distributions to Shareholders 14
Independent Auditors' Report 15
Portfolios of Investments:
Categories and Definitions 16
USAA Florida Tax-Free Income Fund 17
USAA Florida Tax-Free Money Market Fund 21
Notes to Portfolios of Investments 24
Statements of Assets and Liabilities 25
Statements of Operations 26
Statements of Changes in Net Assets 27
Notes to Financial Statements 28
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)2000, 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
(Registered Trademark) 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(Registered
Trademark) 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
(Registered Trademark) 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, and Virginia funds available to residents only.
Nondeposit 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
[PHOTOGRAPH OF THE PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J. C. ROTH,
CFA, APPEARS HERE.]
From the vantage point of March 2000, we can all look at the tax-exempt bond
market and breathe just a little more easily. It has been a long time since we
have been able to do that.
At USAA Investments we believe that many investors are, in truth, more
comfortable with some of their assets allocated to bonds. Bonds are less
volatile than stocks over long periods, and they can lessen the turmoil in a
portfolio. Many times I hear people ask, "Why would anyone invest in bonds when
stocks have such higher returns?" My answer is that I have known few people who
have the fortitude to have all of their money in stocks. That doesn't mean that
a person who allocates some of a portfolio to bonds is weak. That's simply the
way we are. When stocks drop precipitously, I am convinced that opportunities
are created. But only a calm, calculating person can take advantage of them.
That usually means a person who is properly allocated all the time. Those
precipitous drops tend to surprise everyone.
Another key belief of ours is that income is the basis of most of the potential
returns on bonds and that by maximizing income we may produce very good results
over time.
This emphasis on income can hurt in a year like 1999, but when you consider
periods of just a few years you get a clearer picture of what we mean.
-----------------------------------------------------------------------
Total Return for Periods Ending 12/31/99
-----------------------------------------------------------------------
1 Year 5 Years 10 Years
------ ------- --------
USAA Tax Exempt Long-Term Fund -5.04% 6.59% 6.37%
USAA Tax Exempt Intermediate-Term Fund -2.61% 6.37% 6.49%
USAA Tax Exempt Short-Term Fund 1.64% 4.98% 5.06%
USAA Tax Exempt Money Market Fund 3.15% 3.40% 3.60%
-----------------------------------------------------------------------
Total return equals income plus share price change and assumes
reinvestment of all 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.
The key thing about this chart is that all of these returns include the bad
market of 1999. One poor year has not overturned the good returns of many years.
Markets will always move, but we believe that a sound and consistent strategy
will pay off.
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 (USAA Investments), 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: Invests principally in long-term, investment-grade Florida
tax-exempt securities.
- --------------------------------------------------------------------------------
3/31/99 3/31/00
- --------------------------------------------------------------------------------
Net Assets $182.0 Million $170.2 Million
Net Asset Value Per Share $10.02 $9.14
Tax-Exempt Dividends Per Share Last 12 Months $ .498 $.491
Capital Gain Distributions Per Share Last 12 Months - -
- --------------------------------------------------------------------------------
30-Day SEC Yield* as of 3/31/00
- --------------------------------------------------------------------------------
30-Day SEC Yield 5.40%
- --------------------------------------------------------------------------------
* Calculated as prescribed by the Securities and Exchange Commission.
Average Annual Compounded Returns with
Reinvestment of Dividends - Periods Ending March 31, 2000
================================================================================
Total Return Equals Dividend Return Plus Price Change
- --------------------------------------------------------------------------------
Since 10/1/93 3.96% = 5.33% + -1.37%
- --------------------------------------------------------------------------------
5 Years 5.56% = 5.45% + 0.11%
- --------------------------------------------------------------------------------
1 Year -3.85% = 4.93% + -8.78%
================================================================================
Annual Total Returns and Compounded Dividend Returns
for the Six-Year Period Ended March 31, 2000
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 March 31, 2000.
Total Return for Years Ended:
- ----------------------------
03/31/95 7.01%
03/31/96 7.66%
03/31/97 6.51%
03/31/98 12.22%
03/31/99 5.91%
03/31/00 -3.85%
**Compounded Dividend Yield for Years Ended:
- -------------------------------------------
03/31/95 5.79%
03/31/96 5.79%
03/31/97 5.75%
03/31/98 5.68%
03/31/99 5.11%
03/31/00 4.93%
Change in Share Price:
- ---------------------
03/31/95 1.22%
03/31/96 1.87%
03/31/97 0.76%
03/31/98 6.54%
03/31/99 0.80%
03/31/00 -8.78%
** 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 gain 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 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.
Comparison - 12 Month Dividend Yield
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
3/31/95 to 3/31/00.
USAA Florida Tax-Free Lipper Florida Municipal
Income Fund Yield Debt Funds Average Yield
--------------------- ------------------------
03/31/95 5.44% 5.36%
03/31/96 5.57% 5.11%
03/31/97 5.57% 5.05%
03/31/98 5.11% 4.67%
03/31/99 4.96% 4.45%
03/31/00 5.37% 4.75%
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 gain distributions. The graph represents data for periods ending 3/31/95
to 3/31/00.
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
03/31/00 $12,871
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
03/31/00 $13,824
Lipper Florida Municipal Debt Funds Average
Year Amount
- -------- -------
10/01/93 $10,000
03/31/94 $ 9,437
09/30/94 $ 9,547
03/31/95 $10,085
09/30/95 $10,543
03/31/96 $10,842
09/30/96 $11,166
03/31/97 $11,352
09/30/97 $12,054
03/31/98 $12,517
09/30/98 $13,056
03/31/99 $13,143
09/30/99 $12,698
03/31/00 $12,858
Data since inception on 10/1/93 through 3/31/00.
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 PORTFOLIO MANAGER, ROBERT R. PARISEAU, CFA, APPEARS HERE.]
THE MUNICIPAL BOND MARKET
You just can't keep a strong economy down. Apparently, not even the Federal
Reserve Board can do it. After raising the federal funds target rate five times
since last June, the U.S. economy still grew by 7.35% in the fourth quarter of
1999. Thankfully, inflation has remained under control -- although it's been
creeping up since early 1998. Last year, the fixed-income markets suffered a
crisis in confidence fearing that inflation would most certainly increase. In
response, bond prices fell as interest rates rose for most of 1999.
However, the virtuous cycle of robust noninflationary growth described by
Chairman Alan Greenspan continues as technological innovation allows industry to
use raw materials and labor more efficiently. Add a volatile stock market to
continued low inflation, and we have the ingredients for a bond-market rally
that began in late January of this year. Of course, that ignores Chairman
Greenspan's warning that the economy is growing well in excess of its
sustainable, noninflationary rate.
The yield on the Bond Buyer 40-Bond Index (BBI40) steadily increased by 1.1%
from March 1999 until January 2000. Since late January, the yield has fallen
roughly 0.4%, closing at 5.97% on March 31, 2000. The 30-year U.S. Treasury bond
(the long bond) ended the period at 5.83%. Investor redemptions last fall and a
reduction in future issuance of the long bond were major reasons why the
municipal market has underperformed the U.S. government long-bond market.
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 3/31/00.
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%
10/15/99 6.26% 6.06%
10/29/99 6.16% 6.08%
11/15/99 6.02% 5.99%
11/30/99 6.29% 6.11%
12/15/99 6.33% 6.11%
12/31/99 6.48% 6.22%
01/14/00 6.70% 6.29%
01/31/00 6.49% 6.31%
02/15/00 6.25% 6.24%
02/29/00 6.14% 6.17%
03/15/00 6.08% 6.09%
03/31/00 5.83% 5.97%
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.
STRATEGY
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. My rationale for this strategy is:
- I believe that a large number of our investors own the Fund for the
tax-free income and invest for the long term.
- 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.
The Fund remains fully invested in long-term, investment-grade municipal bonds.
Municipal 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. That's why we encourage only
those investors with an investment horizon of four or more years to buy our
tax-exempt bond funds. In regard to credit risk, I believe investment-grade
bonds (rated BBB or higher by a rating agency) offer the best risk/reward
compared to junk bonds.
Our shareholders have made it very clear that they do not want the income from
their USAA tax-exempt funds to be subject to the federal alternative minimum tax
(AMT) for individuals. Consequently, since their inception, no USAA tax-exempt
fund has ever distributed income that was subject to the AMT for individuals.
Looking ahead, we have no intention of purchasing municipal bonds that are
subject to the AMT for individuals in any of the USAA tax-exempt funds. Of
course we would certainly advise our shareholders if a change occurs in the
federal tax code that would compel us to reconsider our position.
FUND PERFORMANCE
While past performance is no guarantee of future results, from March 31, 1999,
to March 31, 2000, your Fund paid a dividend distribution yield of 5.37% versus
an average dividend distribution yield of 4.75% for the Lipper Florida Municipal
Debt Funds Average. During the fiscal year, the Fund's share price decreased by
$0.88 to $9.14. During this period, the Fund's total return was -3.85% compared
to the Lipper Average of -2.37%.
* * * *
I'm pleased to say that your Fund received an Overall Star Rating of 4 stars in
the municipal bond fund category from Morningstar Rating(TradeMark) for the
period ended March 31, 2000.
THE STATE OF FLORIDA
Driven by population growth, Florida's economy continues to grow and diversify.
Florida is outperforming the nation in terms of employment and personal income
growth. The state's general fund reserve levels remain sound. These reserve
levels are important due to Florida's disproportionate reliance upon cyclical
sales tax receipts as a source of operating revenues. Reflecting strong credit
fundamentals, Florida maintains 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 indicate the financial and economic
environment of the state. We will closely monitor those specific credit issues
and litigation that could potentially impact the value of your holdings.
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 gain distributions.
Refer to the bottom of page 5 for the Lipper Average definition.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
Past performance is no guarantee of future results. Morningstar proprietary
ratings on U.S.-domiciled funds reflect historical risk-adjusted performance as
of March 31, 2000. The ratings are subject to change every month. Morningstar
ratings on U.S.-domiciled funds are calculated from the fund's three-, five-,
and 10-year average annual returns in excess of 90-day U.S. Treasury bill
returns with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day U.S. T-bill returns. The USAA Florida Tax-Free Income
Fund received 3 stars and 4 stars for the three- and five-year periods,
respectively. The top 10% of the funds in a broad asset class receive 5 stars,
the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5%
receive 2 stars, and the bottom 10% receive 1 star. The Fund was rated
exclusively against U.S.-domiciled funds. The Fund was rated among 1,682 and
1,394 funds in the municipal bond fund category for the three- and five-year
periods, respectively.
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
5.40% and:
Assuming a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
and assuming an investor, filing jointly,
with $300,000 in intangible assets,
A fully taxable investment must pay: 6.36% 7.51% 7.83% 8.45% 8.95%
- --------------------------------------------------------------------------------
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.
Some income may be subject to the federal alternative minimum tax.
Portfolio Ratings Mix
March 31, 2000
A pie chart is shown here depicting the Portfolio Mix as of March 31, 2000 of
the USAA Florida Tax-Free Income Fund to be:
AAA - 29%; AA - 38%; A - 17%; and BBB - 16%.
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 Services, 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 0.8% and
2.9%, respectively, of the Fund's investments, and are included in their
appropriate category above.
See page 17 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: Invests principally in 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 3/31/00
- --------------------------------------------------------------------------------
Net Assets $98.6 Million $111.8 Million
Net Asset Value Per Share $1.00 $1.00
- --------------------------------------------------------------------------------
Average Annual Total Returns and 7-Day Yield as of 3/31/00
- --------------------------------------------------------------------------------
Since Inception 7-Day
1 Year 5 Years on 10/1/93 Yield
3.14% 3.25% 3.08% 3.43%
- --------------------------------------------------------------------------------
Total return equals income return and assumes reinvestment of all dividends and
any 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. Yields and returns fluctuate. The
seven-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
iMoneynet, Inc. (formerly IBC Financial Data) SB (Stock Broker) and GP (General
Purpose) (Tax-Free) Money Funds.
USAA Florida Tax-Free
Money Market Fund iMoneyNet, Inc.
--------------------- ---------------
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%
10/25/99 3.02% 2.65%
11/29/99 3.45% 3.03%
12/27/99 3.80% 3.40%
01/31/00 2.94% 2.61%
02/28/00 3.50% 2.90%
03/27/00 3.38% 2.94%
Data represent the last Monday of each month.
Ending date 3/27/00.
The graph tracks the Fund's seven-day yield against iMoneyNet, Inc. (formerly
IBC Financial Data) State Specific SB (Stock Broker) & GP (General Purpose)
(Tax-Free) Money Funds, an average of money market fund yields.
Message from the Manager
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, REGINA G. SHAFER, CFA, APPEARS HERE.]
MARKET SUMMARY
Since our last shareholder report, the national economy has continued to
strengthen. In response, the Federal Reserve has increased the federal funds
rate (the interest rate banks charge other banks) three times since September in
order to curb inflation. Normally, the raising of the federal funds rate causes
interest rates to rise. However, the Treasury market has instead been reacting
to the news that there will be a reduction in the issuance of long-term Treasury
bonds, and thus the yields for 30-year Treasuries have declined.
Rates have increased in the short-term, tax-exempt market. According to the Bond
Buyer One-Year Note Index, municipal notes have increased to 4.08% at the end of
March, up from 3.73% last September -- an increase of 0.35%.
STRATEGY
We continue to believe that variable-rate demand notes (VRDNs) provide the best
value for the USAA Florida Tax-Free Money Market Fund. VRDNs provide the owner
the option to sell the security back to the issuer with a notice of seven days
or less at a price of par (100% of face value) plus accrued interest. The
interest rates on these securities also reset at least every seven days. The
VRDNs are particularly attractive now as they allow the Fund to participate in
rising rates as well as provide the needed flexibility to extend into
longer-term securities as they become more attractive. In addition, our team of
analysts continues to research each security before it is purchased to ensure it
meets our high credit standards.
The Bond Buyer One-Year Note Index is representative of yields on 10 large
one-year, tax-exempt notes.
THE FUND
As you can see in the chart below, daily and weekly VRDNs represent 83% of the
Fund's assets on March 31, 2000. In addition, the Fund has positions in
tax-exempt commercial paper, put bonds, and bonds/notes. These securities have
the potential to provide the Fund with some stability when the VRDN rates fall
- -- as they do seasonally when there is a shortage of supply in the market.
The Fund's average maturity was 42 days on March 31, 2000. This is slightly
longer than the average state-specific tax-exempt money market fund, according
to iMoneyNet, Inc. (formerly IBC Financial Data).
Portfolio Mix
March 31, 2000
A pie chart is shown here depicting the Portfolio Mix as of March 31, 2000 of
the USAA Florida Tax-Free Money Market Fund to be:
VRDNs - 83%; Bonds/Notes - 10%; Commercial Paper - 4%; and Put Bonds - 3%.
See page 21 for a complete listing of the portfolio of investments.
FUND PERFORMANCE
For the 12 months ending March 31, 2000, your Fund ranked 7 out of 172
state-specific tax-exempt money market funds, according to iMoneyNet, Inc., with
a return of 3.14%. The average for the category over the same period was 2.72%.
Please keep in mind that past performance is no guarantee of future results.
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 Money Market
Fund. The data is from 10/1/93 through 3/31/00. 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
03/31/00 $12,183
Data since inception on 10/1/93 through 3/31/00.
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 seven-day yield information, please refer to the Fund's Investment
Review.
See page 21 for a complete listing of the portfolio of investments.
Distributions to Shareholders
The Funds completed their fiscal year on March 31, 2000. Federal law (Internal
Revenue Code of 1986, as amended, and the regulations thereunder) requires each
Fund to notify its shareholders after the close of its taxable year of what
portion of its earnings was exempt from federal taxation and dividends which
represent long-term gains. The net investment income earned and distributed by
each of the Funds was 100% tax exempt for federal income tax purposes. There
were no long-term capital gain distributions for the year ended March 31, 2000.
Independent Auditors' Report
KPMG
The Shareholders and Board of Trustees
USAA STATE TAX-FREE TRUST:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the USAA Florida Tax-Free Income and USAA
Florida Tax-Free Money Market Funds, series of the USAA State Tax-Free Trust, as
of March 31, 2000, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights, presented in note 7 to
the financial statements, for each of the years in the five-year period then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Florida Tax-Free Income and USAA Florida Tax-Free Money Market Funds as of
March 31, 2000, the results of their operations for the year then ended, the
changes in their net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
San Antonio, Texas
May 5, 2000
CATEGORIES AND DEFINITIONS
PORTFOLIOS OF INVESTMENTS
March 31, 2000
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 (VRDNs) - provide the right, on any business day, to
sell the security at face value on either that day or within 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.
(ETM) Escrowed to final maturity.
(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 Guranty Insurance Co.
(6)ACA Financial Guaranty Corp.
PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
COP Certificate of Participation IDRB Industrial Development
CP Commercial Paper Revenue Bond
GO General Obligation MFH Multi-Family Housing
IDA Industrial Development PCRB Pollution Control Revenue Bond
Authority/Agency RB Revenue Bond
USAA FLORIDA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
March 31, 2000
Principal Coupon Final Market
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (94.1%)
Florida (89.2%)
$ 3,400 Alachua County Health Facilities Auth. RB,
Series 1996A (INS)(1) 5.80% 12/01/2026 $ 3,397
7,900 Bay County Water Systems RB,
Series 2000 (INS)(2),(d) 5.70 9/01/2025 7,882
Board of Education Capital Outlay Bonds,
3,500 Series 1995B (NBGA) 5.88 6/01/2020 3,540
3,000 Series 1999C (NBGA) 5.75 6/01/2029 3,001
5,500 Series 2000D (NBGA) 5.75 6/01/2022 5,524
Broward County Housing Finance Auth. MFH RB,
1,100 Series 1995A 7.00 2/01/2025 1,175
1,000 Series 1997A-1 6.00 5/01/2032 996
2,000 Cape Canaveral Hospital District RB,
Series 1998 5.25 1/01/2028 1,504
Cape Coral Health Facilities Auth. RB,
2,000 Series 1997 (INS)(5) 5.50 10/01/2017 1,935
2,800 Series 1997 (INS)(5) 5.63 10/01/2027 2,635
1,855 Citrus County PCRB, Series 1992B 6.35 2/01/2022 1,889
1,750 Clearwater Housing Auth. RB, Series 1997
(INS)(6) 5.35 5/01/2024 1,557
2,000 Collier County Health Facilities Auth. RB,
Series 1994 (e) 7.00 12/01/2019 2,055
Duval County Housing Finance Auth. MFH RB,
1,700 Series 1996 5.90 9/01/2016 1,675
2,510 Series 1996 6.00 3/01/2021 2,469
8,000 Escambia County Health Facilities Auth. RB,
Series 1999A-2 6.00 11/15/2031 8,066
1,000 Escambia County Housing Finance
Agency MFH RB, Series 1985 5.63 8/01/2016 970
700 Gulf County School District Sales Tax RB,
Series 1997 (INS)(5) 5.75 6/01/2017 697
2,000 Hillsborough County IDA PCRB, Series 1994 6.25 12/01/2034 2,061
Housing Finance Agency RB,
1,345 Series 1994A 6.35 7/01/2014 1,369
1,000 Series 1995H (NBGA) 6.50 11/01/2025 1,005
1,200 Indian River County Hospital District RB,
Series 1996 (INS)(4) 5.70 10/01/2015 1,218
1,000 Miami Beach Health Facilities Auth.
Hospital RB, Series 1992 (INS)(4) 6.25 11/15/2019 1,025
4,400 Miami-Dade County Aviation RB,
Series 2000B (INS)(3) 5.75 10/01/2024 4,410
3,000 Miami-Dade County Expressway Auth. RB,
Series 2000 (INS)(3) 6.00 7/01/2020 3,105
1,000 Miramar Wastewater Improvement
Assessment Bonds, Series 1994 (PRE) 6.75 10/01/2025 1,084
5,000 North Miami Educational Facilities RB,
Series 1994A (e) 6.13 4/01/2020 4,991
2,130 North Miami Health Facilities Auth. RB,
Series 1996 (LOC) 6.00 8/15/2024 2,144
Orange County Health Facilities Auth. RB,
5,750 Series 1995 (e) 6.75 7/01/2020 5,562
3,780 Series 1999 (INS)(5) 5.25 6/01/2029 3,342
1,000 Orange County Housing Finance Auth. RB,
Series 1994B 6.40 2/01/2030 1,023
3,405 Palm Beach County Health Facilities
Auth. Hospital RB, Series 1993 (PRE) 6.30 10/01/2022 3,626
Palm Beach County Health Facilities Auth.
RB,
4,900 Series 1996 5.63 11/15/2020 4,343
2,500 Series 1998 5.13 11/15/2029 1,926
625 Palm Beach County Housing Finance Auth. RB,
Series 1994B 6.40 4/01/2014 635
7,875 Palm Beach County School Board COP,
Series 2000A (INS)(3) 5.88 8/01/2021 8,011
1,800 Plantation Health Facilities Auth. RB,
Series 1998 5.13 12/01/2022 1,453
12,780 Seminole County Water and Sewer RB,
Series 1999 5.38 10/01/2022 12,203
6,805 St. Johns County IDA Hospital RB,
Series 1992 6.00 8/01/2022 6,503
2,000 St. Johns County IDA RB, Series 1997A
(INS)(1),(c) 5.50 3/01/2017 1,981
3,215 Sunrise Special Tax District #1 GO,
Series 1991 (LOC) 6.38 11/01/2021 3,262
1,150 Tallahassee Consolidated Utility Systems RB,
Series 1994 6.20 10/01/2019 1,185
5,000 Tampa Utilities Tax Improvement RB,
Series 1999A (INS)(4) 5.20 10/01/2019 4,743
12,000 Tampa Water and Sewer RB, Series 1999 5.50 10/01/2029 11,618
1,300 Turtle Run Community Development
District RB, Series 1997 (PRE) 6.40 5/01/2011 1,356
Volusia County Education Facility Auth. RB,
1,500 Series 1996A 6.13 10/15/2026 1,492
2,000 Series 1999A 5.75 10/15/2029 1,867
West Orange Healthcare District RB,
1,790 Series 1999A 5.50 2/01/2009 1,745
620 Series 1999A 5.50 2/01/2010 598
Puerto Rico (4.9%)
1,000 Commonwealth GO, Series 1996 5.40 7/01/2025 948
5,150 Electric Power Auth. RB, Series 1995Z 5.25 7/01/2021 4,827
2,500 Highway Auth. RB, Series Q (PRE) 6.00 7/01/2020 2,513
- --------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $161,393) 160,141
- --------------------------------------------------------------------------------
PUT BOND (4.3%)
Florida
7,055 Duval County Housing Finance Auth. MFH RB,
Series 1995 (NBGA)(e) (cost: $7,157) 6.75 4/01/2025 7,367
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (4.3%)
Florida
500 Gulf Breeze Healthcare Facilities RB,
Series 1999 (NBGA)(c) 4.00 1/01/2024 500
5,700 Hillsborough County IDA PCRB, Series 1992 4.05 5/15/2018 5,700
1,000 St. Lucie County PCRB, Series 1995 4.05 3/01/2027 1,000
- --------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $7,200) 7,200
- --------------------------------------------------------------------------------
Total investments (cost: $175,750) $174,708
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Water/Sewer Utilities - Municipal 19.3%
Hospitals 14.1
Nursing/Continuing Care Centers 11.7
Multi-Family Housing 10.7
Special Assessment/Tax/Fee 9.9
Electric Utilities 6.3
Escrowed Bonds 5.0
Education 4.9
Appropriated Debt 4.7
Health Care - Miscellaneous 3.6
Electric/Gas Utilities - Municipal 2.8
Airport/Port 2.6
General Obligations 2.5
Toll Roads 1.8
Miscellaneous 1.2
Single-Family Housing 1.2
Sales Tax 0.4
-----
Total 102.7%
=====
USAA FLORIDA TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
March 31, 2000
Principal Coupon Final
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (83.1%)
Florida
$ 1,220 Brevard County Mental Health Facilities RB,
Series 1994C (LOC) 3.95% 1/01/2010 $ 1,220
1,700 Broward County Education Research and
Training Auth. IDRB, Series 1997 (LOC) 4.05 8/01/2004 1,700
Broward County Housing Finance Auth. MFH RB,
2,460 Series 1990 (NBGA) 4.00 10/01/2007 2,460
1,200 Series 1999 (LOC) 3.90 11/01/2007 1,200
9,200 Capital Trust Agency MFH RB,
Series 1999A (NBGA)(c) 4.00 12/01/2032 9,200
845 Dade County Aviation Facilities RB,
Series 1984A (LOC) 3.85 10/01/2009 845
Dade County Health Facilities Auth. RB,
9,835 Series 1990 (LOC) 4.55 9/01/2020 9,835
6,900 Series 1995 (LIQ) (INS)(2) 4.10 9/01/2025 6,900
10,950 Gulf Breeze Healthcare Facilities RB,
Series 1999 (NBGA)(c) 4.00 1/01/2024 10,950
2,800 Halifax Hospital Medical Center RB,
Series 1998 (LOC) 3.90 12/01/2013 2,800
5,400 Hillsborough County IDA PCRB, Series 1992 4.05 5/15/2018 5,400
Housing Finance Agency MFH RB,
6,230 Series 1985EE (LOC) 4.00 9/01/2008 6,230
5,270 Series 1990B (NBGA) 4.00 12/01/2009 5,270
450 Series 1990D (NBGA) 4.00 12/01/2009 450
6,840 Jacksonville PCRB, Series 1995 4.05 5/01/2029 6,840
1,500 Miami Dade County IDA IDRB, Series
1999 (LOC) 3.95 6/01/2019 1,500
755 Orange County Health Facilities Auth. RB,
Series 1998 (LOC) 4.05 11/01/2028 755
3,000 Orange County IDA RB, Series 1998 (LOC) 3.95 10/01/2018 3,000
4,320 Palm Beach County Health Facilities
Auth. RB, Series 1999B 3.95 12/10/2014 4,320
4,850 St. Petersburg Health Facilities Auth. RB,
Series 1999 (LOC) 3.96 1/01/2024 4,850
3,000 Volusia County Housing Finance Auth. RB,
Series 1985C (LOC)(b) 3.90 9/01/2005 3,000
4,150 Wauchula IDA RB, Series 1993 (LOC) 3.90 12/01/2013 4,150
- --------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $92,875) 92,875
- --------------------------------------------------------------------------------
PUT BOND (3.2%)
Florida
3,630 Housing Finance Corp. Homeowner
Mortgage RB, 2000 Series 8 (cost: $3,630) 4.20 3/01/2017 3,630
- --------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (13.3%)
Florida
300 Broward County Airport System RB,
Series 1993C (INS)(2) 4.40 10/01/2000 301
1,000 Duval County School District GO,
Series 1992 (INS)(2) 5.63 8/01/2000 1,005
500 Homestead Special Insurance Assessment RB,
Series 1993 (ETM) 5.00 3/01/2001 504
400 Jacksonville Beach Utilities RB,
Series 1993 (INS)(1) 5.00 10/01/2000 402
Jacksonville Electric Auth. RB,
1,250 Issue 2, Series 16 4.00 10/01/2000 1,250
1,200 Issue 2, Series 6C 6.40 10/01/2000 1,215
4,200 Jacksonville GO CP Notes 3.90 8/21/2000 4,200
2,500 Lee County Hospital Board of Directors RB,
Series 1991A (PRE) 6.60 4/01/2020 2,604
225 Miami-Dade County GO, Series 1998 (INS)(3) 5.75 11/01/2000 227
235 Orange County Tourist Development Tax RB,
Series 1998A (INS)(2) 4.00 10/01/2000 235
500 Palm Beach County Criminal Justice
Facilities RB, Series 1990 (PRE) 7.25 6/01/2011 513
200 Pinellas County Health Facilities Auth. RB,
Series 1993 (INS)(1) 4.70 11/15/2000 201
600 Public Education Capital Outlay Bonds,
Series 1994B 5.63 6/01/2000 602
300 Sarasota County RB, Series 1993 (INS)(1) 4.40 10/01/2000 301
1,070 Sunrise Utility Systems RB,
Series 1996A (INS)(2),(a) 4.12 10/01/2000 1,048
250 Tampa Health Systems RB, Series 1998A-1
(INS)(1) 4.50 11/15/2000 251
- --------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $14,859) 14,859
- --------------------------------------------------------------------------------
Total investments (cost: $111,364) $111,364
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Multi-Family Housing 24.9%
Hospitals 19.2
Health Care - Miscellaneous 13.4
Electric Utilities 11.0
Buildings 5.2
General Obligations 4.9
Community Service 4.3
Education 4.0
Single-Family Housing 3.2
Escrowed Bonds 2.8
Electric/Gas Utilities - Municipal 2.6
Airport/Port 1.0
Special Assessment/Tax/Fee 1.0
Water/Sewer Utilities - Municipal 0.9
Nursing/Continuing Care Centers 0.7
Sales Tax 0.5
----
Total 99.6%
====
NOTES TO PORTFOLIOS OF INVESTMENTS
March 31, 2000
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 March 31, 2000, this security represents 2.7% 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 March 31, 2000, these securities
represented 1.5% and 18.0% of the USAA Florida Tax-Free Income Fund's and USAA
Florida Tax-Free Money Market Fund's net assets, respectively.
(d) At March 31, 2000, the cost of securities purchased on a delayed-delivery
basis for the USAA Florida Tax-Free Income Fund was $7.8 million.
(e) At March 31, 2000, these securities were segregated to cover
delayed-delivery purchases.
See accompanying notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
March 31, 2000
USAA USAA
Florida Florida Tax-Free
Tax-Free Money Market
Income Fund Fund
------------------------------
ASSETS
Investments in securities, at market value
(identified cost of $175,750 and $111,364,
respectively) $ 174,708 $ 111,364
Cash 57 349
Receivables:
Capital shares sold 241 81
Interest 3,362 488
------------------------------
Total assets 178,368 112,282
------------------------------
LIABILITIES
Securities purchased 7,807 -
Capital shares redeemed 43 394
USAA Investment Management Company 50 45
USAA Transfer Agency Company 1 6
Accounts payable and accrued expenses 23 26
Dividends on capital shares 282 16
------------------------------
Total liabilities 8,206 487
------------------------------
Net assets applicable to capital
shares outstanding $ 170,162 $ 111,795
==============================
REPRESENTED BY:
Paid-in capital $ 179,719 $ 111,795
Accumulated net realized loss on investments (8,515) -
Net unrealized depreciation of investments (1,042) -
------------------------------
Net assets applicable to capital
shares outstanding $ 170,162 $ 111,795
==============================
Capital shares outstanding, unlimited number
of shares authorized, $.001 par value 18,613 111,795
==============================
Net asset value, redemption price, and
offering price per share $ 9.14 $ 1.00
==============================
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Year ended March 31, 2000
USAA USAA
Florida Florida Tax-Free
Tax-Free Money Market
Income Fund Fund
------------------------------
Net investment income:
Interest income $ 10,079 $ 3,813
------------------------------
Expenses:
Management fees 622 371
Transfer agent's fees 90 71
Custodian's fees 66 52
Postage 12 10
Shareholder reporting fees 6 9
Trustees' fees 5 5
Registration fees 1 3
Professional fees 32 32
Other 3 2
------------------------------
Total expenses before reimbursement 837 555
Expenses reimbursed - (30)
------------------------------
Total expenses after reimbursement 837 525
------------------------------
Net investment income 9,242 3,288
------------------------------
Net realized and unrealized loss on investments:
Net realized loss (7,482) -
Change in net unrealized
appreciation/depreciation (9,330) -
------------------------------
Net realized and unrealized loss (16,812) -
------------------------------
Increase (decrease) in net assets resulting from
operations $ (7,570) $ 3,288
==============================
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended March 31,
<TABLE>
<CAPTION>
USAA USAA
Florida Tax-Free Florida Tax-Free
Income Fund Money Market Fund
------------------------------------------
2000 1999 2000 1999
------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 9,242 $ 8,125 $ 3,288 $ 2,906
Net realized gain (loss) on investments (7,482) 373 - -
Change in net unrealized appreciation/
depreciation of investments (9,330) 625 - -
------------------------------------------
Increase (decrease) in net assets
resulting from operations (7,570) 9,123 3,288 2,906
------------------------------------------
Distributions to shareholders from:
Net investment income (9,242) (8,125) (3,288) (2,906)
------------------------------------------
From capital share transactions:
Proceeds from shares sold 50,035 61,581 214,681 182,464
Dividend reinvestments 5,910 5,417 3,044 2,699
Cost of shares redeemed (50,935) (31,953) (204,546) (176,346)
------------------------------------------
Increase in net assets from
capital share transactions 5,010 35,045 13,179 8,817
------------------------------------------
Net increase (decrease) in net assets (11,802) 36,043 13,179 8,817
Net assets:
Beginning of period 181,964 145,921 98,616 89,799
------------------------------------------
End of period $ 170,162 $ 181,964 $ 111,795 $ 98,616
==========================================
Change in shares outstanding:
Shares sold 5,333 6,133 214,681 182,464
Shares issued for dividends reinvested 635 538 3,044 2,699
Shares redeemed (5,515) (3,186) (204,546) (176,346)
------------------------------------------
Increase in shares outstanding 453 3,485 13,179 8,817
==========================================
</TABLE>
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(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 annual 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
judgment, 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 tax-exempt securities of comparable
quality, coupon, maturity, and type, indications as to values from dealers in
securities, and general market conditions. Securities that cannot be 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 tax-exempt 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 year ended
March 31, 2000.
(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 March 31, 2000, the
USAA Florida Tax-Free Income Fund had capital loss carryovers for federal income
tax purposes of approximately $8.5 million which, if not offset by subsequent
capital gains will expire between 2003-2009. 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
Cost of purchases and proceeds from sales/maturities of securities for the year
ended March 31, 2000, were as follows:
USAA Florida Tax-Free USAA Florida Tax-Free
Income Fund Money Market Fund
($000) ($000)
----------------------------------------------
Purchases $110,791 $401,691
Sales/maturities $106,489 $381,726
For the USAA Florida Tax-Free Income Fund, cost of purchases and proceeds from
sales/maturities excludes short-term securities.
Gross unrealized appreciation and depreciation of investments at March 31, 2000,
was as follows:
Appreciation Depreciation Net
($000) ($000) ($000)
-----------------------------------------
USAA Florida Tax-Free
Income Fund $2,598 ($3,640) ($1,042)
(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, 2001.
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) FINANCIAL HIGHLIGHTS - USAA FLORIDA TAX-FREE INCOME FUND
Per share operating performance for a share outstanding throughout each period
is as follows:
Year Ended March 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------
Net asset value at
beginning of period $ 10.02 $ 9.94 $ 9.33 $ 9.26 $ 9.09
Net investment income .49 .50 .51 .52 .52
Net realized and
unrealized gain (loss) (.88) .08 .61 .07 .17
Distributions from net
investment income (.49) (.50) (.51) (.52) (.52)
------------------------------------------------------
Net asset value at
end of period $ 9.14 $ 10.02 $ 9.94 $ 9.33 $ 9.26
======================================================
Total return (%) * (3.85) 5.91 12.22 6.51 7.66
Net assets at end
of period (000) $170,162 $181,964 $145,921 $ 95,483 $ 69,079
Ratio of expenses to
average net assets (%) .48 .47 .50 .50 .50
Ratio of expenses to
average net assets
excluding
reimbursements (%) n/a n/a .51 .57 .67
Ratio of net investment
income to average
net assets (%) 5.25 4.96 5.21 5.57 5.52
Portfolio turnover (%) 62.32 25.28 27.48 44.75 88.20
* Assumes reinvestment of all dividend income distributions during the period.
(7) FINANCIAL HIGHLIGHTS - USAA FLORIDA TAX-FREE MONEY MARKET FUND
Per share operating performance for a share outstanding throughout each period
is as follows:
Year Ended March 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .03 .03 .03 .03 .03
Distributions from net
investment income (.03) (.03) (.03) (.03) (.03)
------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================================================
Total return (%) * 3.14 3.05 3.34 3.20 3.51
Net assets at end
of period (000) $111,795 $ 98,616 $ 89,799 $ 87,053 $ 71,224
Ratio of expenses to
average net assets (%) .50 .50 .50 .50 .50
Ratio of expenses to
average net assets
excluding
reimbursements (%) .53 .51 .52 .57 .64
Ratio of net investment
income to average
net assets (%) 3.13 3.00 3.28 3.15 3.45
* Assumes reinvestment of all dividend income distributions during the period.
Trustees
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, Vice Chairman of the Board
Barbara B. Dreeben
Robert L. Mason
David G. Peebles
Michael F. Reimherr
Richard A. Zucker
Investment Adviser, Underwriter, and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent Legal Counsel
USAA Shareholder Account Services Goodwin, Procter & Hoar LLP
9800 Fredericksburg Road Exchange Place
San Antonio, Texas 78288 Boston, Massachusetts 02109
Custodian Independent Auditors
State Street Bank and Trust Company KPMG LLP
P.O. Box 1713 112 East Pecan, Suite 2400
Boston, Massachusetts 02105 San Antonio, Texas 78205
Telephone Assistance Hours Internet Access
Call toll free - Central Time usaa.com(ServiceMark)
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.
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 touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777, (in San Antonio) 498-8777
