Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
USAA New York Bond Fund 4
USAA New York Money Market Fund 10
Shareholder Voting Results 13
Financial Information:
Portfolios of Investments:
Categories and Definitions 14
USAA New York Bond Fund 15
USAA New York Money Market Fund 17
Notes to Portfolios of Investments 20
Statements of Assets and Liabilities 21
Statements of Operations 22
Statements of Changes in Net Assets 23
Notes to Financial Statements 24
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 New York
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
[Photograph of the President and Vice Chairman of the Board, Michael J.C. Roth,
CFA, appears here.]
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.
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 pas 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 NEW YORK BOND FUND
OBJECTIVE: High level of current interest income that is exempt from federal
income tax and New York state and New York City personal income taxes.
TYPES OF INVESTMENTS: Invests primarily in long-term investment-grade New York
tax-exempt securities.
- --------------------------------------------------------------------------------
3/31/99 9/30/99
- --------------------------------------------------------------------------------
Net Assets $88.5 Million $91.7 Million
Net Asset Value Per Share $11.66 $10.95
Tax-Exempt Dividends Per Share Last 12 Months $.614 $.606
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
-3.55%+ 5.00%
- --------------------------------------------------------------------------------
* 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 Return Equals Dividend Return Plus Price Change
- --------------------------------------------------------------------------------
Since 10/15/90 7.43% = 5.92% + 1.42%
- --------------------------------------------------------------------------------
5 Years 6.48% = 6.46% + .02%
- --------------------------------------------------------------------------------
1 Year -2.85% = 4.98% + -7.83%
- --------------------------------------------------------------------------------
Annual Total Returns and Compounded Dividend Returns
for the Nine-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 New York Bond Fund for the
nine-year period ended September 30, 1999.
Total Return for Years Ended:
- ----------------------------
09/30/91 16.05%
09/30/92 10.81%
09/30/93 13.40%
09/30/94 -5.23%
09/30/95 9.71%
09/30/96 6.34%
09/30/97 9.69%
09/30/98 10.12%
09/30/99 -2.85%
**Compounded Dividend Yield for Years Ended:
- -------------------------------------------
09/30/91 7.05%
09/30/92 6.49%
09/30/93 6.09%
09/30/94 4.79%
09/30/95 6.31%
09/30/96 5.97%
09/30/97 6.05%
09/30/98 5.73%
09/30/99 4.98%
Change in Share Price:
- ---------------------
09/30/91 9.00%
09/30/92 4.32%
09/30/93 7.31%
09/30/94 -10.02%
09/30/95 3.40%
09/30/96 0.37%
09/30/97 3.64%
09/30/98 4.39%
09/30/99 -7.83%
** 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 New York Bond Fund to the 12 Month
Dividend Yield of the Lipper New York Municipal Debt Funds Average from 9/30/92
to 9/30/99.
USAA New York Lipper New York Municipal
Bond Fund Yield Debt Funds Average Yield
--------------- ------------------------
9/30/92 5.90% 6.07%
9/30/93 5.26% 5.29%
9/30/94 5.66% 5.54%
9/30/95 5.77% 5.18%
9/30/96 5.82% 5.01%
9/30/97 5.58% 4.77%
9/30/98 5.24% 4.52%
9/30/99 5.53% *
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
9/30/92 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 New York Bond Fund, Lehman
Brothers Municipal Bond Index and the Lipper New York Municipal Debt Funds
Average. The data is from 10/15/90 through 9/30/99. The data points from the
graph are as follows:
USAA New York Bond Fund
Year Amount
---- ------
10/15/90 $10,000
03/31/91 10,822
09/30/91 11,605
03/31/92 12,012
09/30/92 12,860
03/31/93 13,663
09/30/93 14,583
03/31/94 13,755
09/30/94 13,821
03/31/95 14,501
09/30/95 15,163
03/31/96 15,613
09/30/96 16,124
03/31/97 16,532
09/30/97 17,688
03/31/98 18,555
09/30/98 19,477
03/31/99 19,618
09/30/99 18,921
Lehman Brothers Municipal Bond Index
Year Amount
---- ------
10/15/90 $10,000
03/31/91 10,574
09/30/91 11,220
03/31/92 11,632
09/30/92 12,395
03/31/93 13,089
09/30/93 13,974
03/31/94 13,392
09/30/94 13,633
03/31/95 14,387
09/30/95 15,159
03/31/96 15,593
09/30/96 16,073
03/31/97 16,444
09/30/97 17,526
03/31/98 18,208
09/30/98 19,053
03/31/99 19,338
09/30/99 18,919
Lipper New York Municipal Debt Funds Average
Year Amount
---- ------
10/15/90 $10,000
03/31/91 10,560
09/30/91 11,327
03/31/92 11,701
09/30/92 12,557
03/31/93 13,352
09/30/93 14,284
03/31/94 13,598
09/30/94 13,665
03/31/95 14,276
09/30/95 14,880
03/31/96 15,260
09/30/96 15,710
03/31/97 15,996
09/30/97 17,038
03/31/98 17,679
09/30/98 18,476
03/31/99 18,596
09/30/99 17,887
Data since inception on 10/15/90 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 New York Municipal Debt Funds Average is the average
performance level of all New York 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 the Portfolio Manager, Kenneth E. Willmann, CFA, appears here.]
INTEREST RATE MARKETS
Interest rates on September 30, 1999, were sharply higher than on March 31,
1999. The graph below illustrates this well.
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.
Please note that the top line on the chart above is the yield of the active
30-year U.S. Treasury bond, or the "long bond" as it is known. This is generally
considered the benchmark for long-term interest rates in the United States. The
bottom line in the graph represents the yield of the Bond Buyer 40-Bond Index
(BBI40), which is the industry standard for the yield of long-term,
investment-grade municipal bonds.
This rise is based on the continued robustness of the U.S. economy. The
unemployment rate of 4.2% in August was lower than it had been in years.
Consumer confidence and spending both continue to be very strong. The strength
of the economy has made many people nervous that the inflation rate may begin to
go up. The price of crude oil rose over 50% from March 31 to September 30, 1999.
So far, this has not been passed through to other prices, as the Consumer Price
Index has remained tame. In response to this, the Federal Reserve Open Market
Committee raised short-term rates by 0.25% twice, in June and again in August.
If the domestic economy does not begin to slow soon, more interest-rate
increases may be necessary.
Much of the precipitous fall in Treasury bond rates in 1998 resulted from severe
economic problems in much of the developing world -especially in Asia. While
Japan continues to languish, most of the rest of Asia has recovered nicely in
1999. International economic strength also contributes to inflation fears and,
hence, to rising interest rates.
One of the most noticeable things in the graph on the previous page is the
narrowing of the gap between the long bond and the BBI40. Municipal yields
usually are less volatile than those of U.S. Treasuries -- which are among the
most volatile bonds in the world. This six-month period was different. There are
two reasons: There was a very large issuance of municipal bonds early in the
period, and municipal bond prices caught up with earlier declines in Treasury
bond prices. Tax-exempt municipal bonds are very attractive compared to U.S.
Treasuries on an after-tax basis.
NEW YORK ECONOMY
New York derives strength from a diverse and substantial economic base. At
approximately 120% of the U.S. norm, the state's per capita income indicates a
high degree of wealth. Although the state's economic growth continues to be
positive, it has lagged national trends. A major economic strength for the state
has been a profitable Wall Street. As of August, the state's unemployment rate
of 5.1% compares favorably to past levels, but remains above the national rate
of 4.2%.
The state's financial performance continues to be sound, as a substantial
general fund surplus was recorded during the fiscal year ending March 31, 1999.
Following a lengthy delay, a budget for the current fiscal year was enacted.
Overall, the adopted budget seems to be comfortably balanced and includes
significant reserves.
FUND PERFORMANCE
While past performance is no guarantee of future results, the Fund's annualized
dividend distribution yield for the past six months was 5.49%. At press time,
Lipper yield data was not available for the same time period. The Fund's total
return was -3.55%.
Your Fund's performance received an Overall Star Rating of five stars in the
municipal bond fund category from Morningstar Rating(Trademark) for the period
ended September 30, 1999.
* * * * *
TAX EQUIVALENT YIELDS
The table below compares the yield of the USAA New York Bond Fund with a taxable
equivalent investment.
To match the USAA New York Bond Fund's closing 30-day SEC yield of 5.00% and:
- --------------------------------------------------------------------------------
Assuming a New York state tax rate of 6.85%
and a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
- --------------------------------------------------------------------------------
A fully taxable investment must pay: 6.31% 7.46% 7.78% 8.39% 8.89%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Assuming a New York state and city tax rate of 10.68%
and a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
- --------------------------------------------------------------------------------
A fully taxable investment must pay: 6.59% 7.77% 8.11% 8.75% 9.27%
- --------------------------------------------------------------------------------
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 federal, state, or local taxes, or the
federal alternative minimum tax.
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.
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 New York Bond Fund received five 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.
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 New York Bond Fund to be:
AAA - 36.2%; AA - 33%; A - 20.8%; BBB - 8.8%; and Cash Equivalents - 1.2%.
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 category AAA account for 2.0% of the Fund's investments,
and is included in its appropriate category above.
See page 15 for a complete listing of the Portfolio of Investments.
Investment Review
USAA NEW YORK MONEY MARKET FUND
OBJECTIVE: High level of current interest income that is exempt from federal
income tax and New York state and New York City personal income taxes and a
further objective of preserving capital and maintaining liquidity.
TYPES OF INVESTMENTS: High-quality New York 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 $68.8 Million $73.9 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 10/15/90 Yield
1.42%+ 2.76% 3.19% 3.06% 3.23%
- --------------------------------------------------------------------------------
+ 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 New York Money Market Fund and the IBC Financial
Data, Inc. State Specific SB (Stock Broker) and GP (General Purpose) (Tax-Free):
New York Money Funds.
USAA New York
Money Market Fund IBC Financial Data, Inc.
----------------- ------------------------
09/29/98 3.40% 3.11%
10/27/98 2.69% 2.56%
11/24/98 2.85% 2.64%
12/29/98 3.08% 2.86%
01/26/99 2.51% 2.30%
02/22/99 2.38% 2.15%
03/29/99 2.60% 2.37%
04/26/99 2.98% 2.69%
05/31/99 2.88% 2.59%
06/28/99 3.08% 2.86%
07/26/99 2.62% 2.44%
08/30/99 2.80% 2.58%
09/27/99 3.15% 2.97%
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): New York Money
Funds, an average of money market fund yields.
Message from the Manager
[Photograph of the Portfolio Manager, Thomas G. Ramos, CFA, appears here.]
OVERVIEW
Since our last shareholder report, interest rates have trended upward. Long-term
U.S. Treasury bond yields have moved from 5.60% at the end of March to 6.10% in
early October. One-year Treasury bill yields have moved from 4.70% in March to
5.20% in October. One-year tax-exempt yields have moved from 3.05% in March to
3.73% in October.
The upward movement in U.S. Treasury yields is a result of a modestly growing
domestic economy and the Federal Reserve's increase of the federal funds rate
from 4.75% to 5.00% in June and from 5.00% to 5.25% in August.
STRATEGY
We continue to apply a relative value strategy in managing the portfolio. The
Fund's average maturity of 53 days primarily reflects the large exposure in
variable-rate demand notes (VRDNs). These securities represent 72% of the Fund's
assets. We continue to believe that these securities are the best value in the
short-term, tax-exempt market. Our shareholders will recall that these
securities have a demand feature which provides the owner the option to sell the
bonds back to the issuer at par (100% of face value) with a notice of seven days
or less. Additionally, the interest that these securities pay is reset on a
seven-day basis. In the current environment, these securities compare well with
fixed-rate instruments.
PERFORMANCE
While past performance is no guarantee of future results, for the 12 months
ending September 30, 1999, your Fund ranked 7 out of 44 New York money market
funds, according to IBC Financial Data, Inc., with a yield of 2.76%. The average
yield for the New York money market category over the same period was 2.54%.
NEW YORK
New York continues to enjoy a diverse economic base. The state's per capita
income is approximately 20% above the U.S. average. Although the state's economy
continues to show positive growth, it has lagged national numbers. A major
source of economic strength for New York has been a profitable Wall Street. As
of August, the state's unemployment rate was 5.1%, which compares favorably to
historical numbers but is above the national rate of 4.2%.
Reflecting a sound economy, the state's general fund recorded a surplus for the
fiscal year ending March 31, 1999. New York's budget for the current fiscal year
was enacted after a substantial delay. Overall, the state's adopted budget seems
to be balanced and includes significant reserves.
Cumulative Performance of $10,000
A chart in the form of a line graph appears here illustrating the cumulative
performance of a $10,000 investment of the USAA New York Money Market Fund. The
data is from 10/15/90 to 9/30/99. The data points from the graph are as follows:
USAA New York Money Market Fund
Year Amount
---- ------
10/15/90 $10,000
03/31/91 10,223
09/30/91 10,428
03/31/92 10,603
09/30/92 10,753
03/31/93 10,869
09/30/93 10,979
03/31/94 11,086
09/30/94 11,214
03/31/95 11,392
09/30/95 11,597
03/31/96 11,797
09/30/96 11,985
03/31/97 12,170
09/30/97 12,371
03/31/98 12,570
09/30/98 12,766
03/31/99 12,935
09/30/99 13,119
Data since inception on 10/15/90 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 the 7-day yield information, please refer to the Fund's Investment
Review page.
See page 17 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 Tax
Exempt Fund, Inc. (the Company) for proposals 1 and 2.
1 Proposal to elect a Board of Directors as follows:
DIRECTORS VOTES FOR VOTES WITHHELD
Robert G. Davis 1,653,325,550 19,504,676
Michael J.C. Roth 1,653,325,550 19,504,676
David G. Peebles 1,653,325,550 19,504,676
Robert L. Mason 1,653,325,550 19,504,676
Michael F. Reimherr 1,653,325,550 19,504,676
Richard A. Zucker 1,653,325,550 19,504,676
Barbara B. Dreeben 1,653,325,550 19,504,676
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 Directors of KPMG
LLP as auditors for the Company for the fiscal year ending March 31, 2000.
NUMBER OF SHARES VOTING
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1,631,286,201 19,197,037 22,346,988
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 New York 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 New York Money Market Fund through rigorous
internal credit research.
(PRE) Prerefunded to a date prior to maturity.
(LOC) Enhanced by a bank letter of credit.
(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.
PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
BAN Bond Anticipation Note IDA Industrial Development
COP Certificate of Participation Authority/Agency
CP Commercial Paper MFH Multi-Family Housing
CSD Central School District PCRB Pollution Control Revenue Bond
GO General Obligation RAN Revenue Anticipation Note
RB Revenue Bond
USAA NEW YORK BOND FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1999
(Unaudited)
Principal Coupon Final Market
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (97.4%)
New York
$3,150 Buffalo Municipal Water Finance Auth. RB,
Series 1998A (INS)(3) 5.00% 7/01/2028 $ 2,769
Dormitory Auth. RB,
1,750 Series 1990A (Devereux Foundation) (PRE) 7.40 7/01/2015 1,832
2,000 Series 1992 (Manhattan College) (INS)(5) 6.50 7/01/2019 2,109
2,000 Series 1994 (Gurwin Geriatric Center) 7.35 8/01/2029 2,205
2,500 Series 1994B (State Univ. System) (PRE) 6.25 5/15/2020 2,730
1,785 Series 1996-2 (City Univ. System) (PRE) 6.00 7/01/2026 1,938
765 Series 1996-2 (City Univ. System) 6.00 7/01/2026 768
2,800 Series 1997 (Lutheran Center) (LOC) 6.05 7/01/2026 2,819
1,750 Series 1999 (Long Island University)
(INS)(5) 5.13 9/01/2023 1,566
4,500 Series 1999A (Catholic Health Services
of Long Island) (INS)(1) 5.50 7/01/2024 4,332
4,500 Series 1999A (Upstate Community Colleges) 5.00 7/01/2028 3,928
1,750 Series 1999B (University of Rochester) 5.63 7/01/2024 1,698
3,000 Energy, Research and Development Auth. PCRB,
Series 1999A (INS)(2) 5.45 8/01/2027 2,860
1,650 Environmental Facilities Corp. PCRB,
Series 1990B 7.50 3/15/2011 1,688
1,920 Groton Community Health Care Facilities RB,
Series 1994A 7.45 7/15/2021 2,140
Housing Finance Agency MFH RB,
1,835 Series 1992E (Secured Mortgage Program) 6.75 8/15/2025 1,924
2,440 Series 1996A (Housing Project) (INS)(4) 6.13 11/01/2020 2,533
4,500 Long Island Power Auth. RB, Series 1998A 5.25 12/01/2026 4,092
Medical Care Facilities Finance Agency RB,
2,500 Series 1994A (Community General
Hospital of Sullivan County) 6.25 2/15/2024 2,487
1,870 Series 1994A (Hospital and Nursing Home
Facilities) 6.50 2/15/2034 1,974
2,000 Series 1994A (New York Hospital) (PRE) 6.90 8/15/2034 2,249
1,965 Series 1994E (Mental Health Services)
(PRE) 6.50 8/15/2024 2,164
2,500 Series 1995A (Brookdale Hospital) (PRE) 6.85 2/15/2017 2,801
2,395 Series 1995A (Health Center Projects) 6.38 11/15/2019 2,528
3,250 Monroe County IDA RB, Series 1998 5.20 12/20/2039 2,881
6,250 Mortgage Agency RB, Series EE-3 7.75 4/01/2016 6,433
New York City GO,
3,000 Series 1995B (PRE) 7.25 8/15/2019 3,386
180 Series 1997I (PRE) 6.25 4/15/2017 198
2,820 Series 1997I 6.25 4/15/2017 2,927
2,500 New York City IDA RB, Series 1997 5.80 8/01/2016 2,451
22,090 New York City Municipal Water Finance
Auth. RB, Series 1998D(a) 5.11 6/15/2020 6,626
3,300 Niagara Falls City School District COP,
Series 1998 5.38 6/15/2028 3,008
3,450 Ulster County Civic Facility IDA RB,
Series 1999 (NBGA) 5.65 11/15/2024 3,271
- --------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $89,195) 89,315
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTE (1.3%)
New York
1,190 St. Lawrence County IDA PCRB,
Series 1985 (LOC) (cost: $1,190) 3.95 12/01/2007 1,190
- --------------------------------------------------------------------------------
Total investments (cost: $90,385) $90,505
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Escrowed Bonds 18.8%
Hospitals 13.1
Water/Sewer Utilities - Municipal 12.1
Nursing/Continuing Care Centers 10.9
Appropriated Debt 7.6
Single-Family Housing 7.0
Education 6.7
Multi-Family Housing 4.9
Electric/Gas Utilities - Municipal 4.5
General Obligations 3.2
Electric Utilities 3.1
Health Care - Miscellaneous 2.8
Community Service 2.7
Aluminum 1.3
----
Total 98.7%
====
USAA NEW YORK MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1999
(Unaudited)
Principal Coupon Final
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (72.2%)
New York
$6,115 Dormitory Auth. RB, Series 1993 (LOC) 4.00% 7/01/2023 $ 6,115
3,275 Dutchess County IDA RB, Series 1997 (LOC) 3.80 9/01/2017 3,275
775 Erie County IDA RB, Series 1998B (LOC) 3.75 2/01/2005 775
5,070 Long Island Power Auth. Electric Systems RB,
Series 5 (LOC) 3.75 5/01/2033 5,070
500 Monroe County IDA RB, Series 1995D (LOC) 3.80 6/15/2016 500
1,000 Nassau County IDA RB, Series 1984 (LOC) 3.75 12/01/1999 1,000
2,600 New York City GO Fiscal 1996, Series J-2
(LOC) 3.65 2/15/2016 2,600
New York City IDA Civic Facility RB,
2,900 Series 1989 (LOC) 3.85 12/01/2014 2,900
2,500 Series 1998 (LOC) 3.90 12/01/2013 2,500
2,000 New York City Trust for Cultural Resources
RB, Series 1990B (LOC) 3.85 12/01/2015 2,000
11,485 Ramapo Housing Auth. RB, Series 1998
(LOC)(c) 3.98 12/01/2029 11,485
5,500 Rockland County IDA RB, Series 1999 (LOC) 3.98 2/01/2029 5,500
3,535 St. Lawrence County IDA PCRB, Series 1985
(LOC) 3.95 12/01/2007 3,535
850 Suffolk County IDA RB, Series 1992 (LOC) 3.90 12/01/2012 850
2,300 Syracuse IDA Civic Facility RB, Series 1993
(LOC) 3.90 3/01/2023 2,300
2,950 Westchester County IDA RB, Series 1998
(LOC) 3.90 10/01/2028 2,950
- --------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $53,355) 53,355
- --------------------------------------------------------------------------------
PUT BONDS (0.5%)
New York
Hudson IDA RB,
290 Series 1985 (Emsig Project) (LOC) 3.75 12/15/2000 290
90 Series 1985 (Rual Project) (LOC) 3.75 12/15/2000 90
- --------------------------------------------------------------------------------
Total put bonds (cost: $380) 380
- --------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (28.0%)
New York
150 Albany GO Refunding Bonds, Series 1993
(INS)(2) 4.55 1/15/2000 150
152 Belleville Henderson CSD GO, Series 1999
(INS)(4) 4.60 6/15/2000 153
110 Bellmore Union Free School District GO,
Series 1999 (INS)(1) 4.75 8/01/2000 111
650 Campbell Savona CSD GO, Series 1999
(INS)(2) 4.63 6/15/2000 655
215 Chili GO Public Improvement Bonds,
Series 1998 (INS)(3) 4.00 12/15/1999 215
1,000 Dormitory Auth. RB, Series 1997 (INS)(1) 5.00 5/01/2000 1,010
500 Franklinville CSD GO, Series 1999 (INS)(2) 4.00 6/01/2000 502
144 Glen Cove Public Improvement Bonds,
Series 1999 (INS)(1) 6.00 7/15/2000 146
230 Indian River CSD GO, Series 1999 (INS)(2) 4.13 1/15/2000 231
Kingston Public Improvement Bonds,
112 Series 1999A (INS)(3),(b) 5.35 1/15/2000 112
86 Series 1999B (INS)(1),(b) 5.35 3/01/2000 87
710 Massena CSD GO, Series 1999 (INS)(3) 4.70 6/15/2000 716
225 Medford Fire District GO, Series 1998
(INS)(1) 4.25 12/15/1999 225
445 Monroe County IDA Civic Facility RB,
Series 1999 (INS)(5) 4.50 6/01/2000 448
174 Moriah CSD GO, Series 1999 (INS)(1) 5.25 6/15/2000 176
227 Mount Vernon GO, Series 1998 (INS)(4) 4.00 12/01/1999 227
3,600 Municipal Water Finance Auth. CP,
Series 1 (LOC) 3.45 12/23/1999 3,600
3,000 Nassau County BAN, Series 1999C (LOC) 4.25 5/16/2000 3,012
175 Nassau County GO, Series S (INS)(2) 5.00 3/01/2000 176
3,000 New York City IDA Civic Facility RB,
Series 1990 (PRE) 9.63 6/01/2015 3,203
310 Newfane CSD GO, Series 1999 (INS)(4) 4.70 6/01/2000 313
2,500 Niagara Falls City School District GO
RAN, 1999 Lot 2 (INS)(2) 3.50 1/07/2000 2,500
250 Palmyra Macedon CSD GO, Series 1999
(INS)(4) 3.50 6/15/2000 250
225 Salem CSD GO, Series 1999 (INS)(3),(b) 5.00 6/15/2000 227
265 Schenectady Public Improvements Bonds,
Series 1999 (INS)(2) 4.70 4/01/2000 267
625 Sharon Springs CSD GO, Series 1999
(INS)(3),(b) 4.63 6/15/2000 629
201 Spring Valley GO, Series 1998 (INS)(2) 3.90 12/15/1999 201
500 Utica City School District GO,
Series 1990A (INS)(1) 6.80 2/01/2000 506
291 Valley Stream Public Improvements Bonds,
Series 1999 (INS)(1) 6.25 3/15/2000 295
175 Westfield GO, Series 1998 (INS)(4) 4.25 11/15/1999 175
189 Williston Park Public Improvement Bonds,
Series 1999 (INS)(1) 7.00 7/15/2000 194
- --------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $20,712) 20,712
- --------------------------------------------------------------------------------
Total investments (cost: $74,447) $74,447
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Nursing/Continuing Care Centers 24.0%
General Obligations 20.4
Community Service 12.3
Publishing 8.3
Electric/Gas Utilities - Municipal 6.9
Water/Sewer Utilities - Municipal 4.9
Aluminum 4.8
Hospitals 4.7
Escrowed Bonds 4.3
Miscellaneous 3.9
Education 3.7
Buildings 2.0
Manufacturing - Diversified Industries .5
-----
Total 100.7%
=====
NOTES TO PORTFOLIOS 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. For the USAA New York Bond Fund these securities represented 7.2% of
the Fund's net assets.
(b) At September 30, 1999, the cost of securities purchased on a
delayed-delivery basis for the USAA New York Money Market Fund was $1.1 million.
(c) At September 30, 1999, this security was 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 New York
New York Money Market
Bond Fund Fund
--------------------------
ASSETS
Investments in securities, at market value
(identified cost of $90,385 and $74,447,
respectively) $ 90,505 $ 74,447
Cash 137 119
Receivables:
Capital shares sold 6 40
Interest 1,368 458
--------------------------
Total assets 92,016 75,064
--------------------------
LIABILITIES
Securities purchased - 1,055
Capital shares redeemed 148 86
USAA Transfer Agency Company 5 -
Accounts payable and accrued expenses 20 14
Dividends on capital shares 108 7
--------------------------
Total liabilities 281 1,162
--------------------------
Net assets applicable to capital shares
outstanding $ 91,735 $ 73,902
==========================
REPRESENTED BY:
Paid-in capital $ 94,847 $ 73,902
Accumulated net realized loss on investments (3,232) -
Net unrealized appreciation of investments 120 -
--------------------------
Net assets applicable to capital shares
outstanding $ 91,735 $ 73,902
==========================
Capital shares outstanding 8,379 73,902
==========================
Authorized shares of $.01 par value 100,000 1,060,000
==========================
Net asset value, redemption price, and offering
price per share $ 10.95 $ 1.00
==========================
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 1999
(Unaudited)
USAA
USAA New York
New York Money Market
Bond Fund Fund
------------------------
Net investment income:
Interest income $ 2,630 $ 1,138
------------------------
Expenses:
Management fees 178 135
Transfer agent's fees 29 21
Custodian's fees 23 21
Postage 2 2
Shareholder reporting fees 2 2
Directors' fees 2 2
Registration fees 3 1
Professional fees 15 14
Other 2 1
------------------------
Total expenses before reimbursement 256 199
Expenses reimbursed (30) (28)
------------------------
Total expenses after reimbursement 226 171
------------------------
Net investment income 2,404 967
------------------------
Net realized and unrealized loss on investments:
Net realized loss (581) -
Change in net unrealized appreciation/depreciation (5,155) -
------------------------
Net realized and unrealized loss (5,736) -
------------------------
Increase (decrease) in net assets resulting from
operations $(3,332) $ 967
========================
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 1999, and year ended March 31, 1999
(Unaudited)
USAA USAA
New York New York
Bond Fund Money Market Fund
---------------------------------------
9/30/99 3/31/99 9/30/99 3/31/99
---------------------------------------
From operations:
Net investment income $ 2,404 $ 4,098 $ 967 $ 1,796
Net realized gain (loss) on
investments (581) 125 - -
Change in net unrealized appreciation/
depreciation of investments (5,155) 21 - -
---------------------------------------
Increase (decrease) in net assets
resulting from operations (3,332) 4,244 967 1,796
---------------------------------------
Distributions to shareholders from:
Net investment income (2,404) (4,098) (967) (1,796)
---------------------------------------
From capital share transactions:
Proceeds from shares sold 16,986 24,751 33,344 69,814
Dividend reinvestments 1,800 3,049 927 1,708
Cost of shares redeemed (9,795) (10,077) (29,203) (64,914)
---------------------------------------
Increase in net assets from
capital share transactions 8,991 17,723 5,068 6,608
---------------------------------------
Net increase in net assets 3,255 17,869 5,068 6,608
Net assets:
Beginning of period 88,480 70,611 68,834 62,226
---------------------------------------
End of period $ 91,735 $ 88,480 $ 73,902 $ 68,834
=======================================
Change in shares outstanding:
Shares sold 1,500 2,111 33,344 69,814
Shares issued for dividends reinvested 160 260 927 1,708
Shares redeemed (867) (861) (29,203) (64,914)
---------------------------------------
Increase in shares outstanding 793 1,510 5,068 6,608
=======================================
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA Tax Exempt Fund, Inc. (the Company), registered under the Investment
Company Act of 1940, as amended, is a diversified, open-end management
investment company incorporated under the laws of Maryland consisting of ten
separate funds. The information presented in this semiannual report pertains
only to the USAA New York Bond Fund and USAA New York Money Market Fund (the
Funds). The Funds have a common objective of providing New York investors with a
high level of current interest income that is exempt from federal, New York
state, and New York City personal income taxes. The USAA New York Money Market
Fund has a further objective of preserving capital and maintaining liquidity.
A. Security valuation - Investments in the USAA New York Bond Fund are valued
each business day by a pricing service (the Service) approved by the Company's
Board of Directors. 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
Directors. 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 New York 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 New York 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 New York Bond Fund had capital loss carryovers for federal income tax
purposes of approximately $3.2 million which, if not offset by subsequent
capital gains will expire between 2003-2005. It is unlikely that the Company's
Board of Directors 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 New York Bond Fund USAA New York Money Market Fund
($000) ($000)
----------------------------------------------------------
Purchases $20,063 $132,832
Sales/maturities $12,348 $129,444
For the USAA New York Bond 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 New York Bond Fund $3,232 ($3,112) $120
(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 annual 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 directors and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated directors 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.
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
NEW YORK BOND FUND
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 $ 11.66 $ 11.62 $ 10.94 $ 10.95 $ 10.77 $ 10.83
Net investment income .30 .61 .63 .64 .63 .62
Net realized and
unrealized gain (loss) (.71) .04 .68 (.01) .18 (.06)
Distributions from net
investment income (.30) (.61) (.63) (.64) (.63) (.62)
---------------------------------------------------------------------
Net asset value at
end of period $ 10.95 $ 11.66 $ 11.62 $ 10.94 $ 10.95 $ 10.77
=====================================================================
Total return (%) * (3.55) 5.73 12.24 5.89 7.67 5.42
Net assets at end
of period (000) $ 91,735 $ 88,480 $ 70,611 $ 58,035 $ 53,987 $ 50,507
Ratio of expenses to
average net assets (%) .50(a) .50 .50 .50 .50 .50
Ratio of expenses to
average net assets
excluding
reimbursements (%) .57(a) .58 .61 .66 .69 .71
Ratio of net investment
income to average
net assets (%) 5.33(a) 5.24 5.54 5.83 5.75 5.83
Portfolio turnover (%) 13.91 27.64 49.49 41.42 74.80 74.74
</TABLE>
(a)Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
<TABLE>
<CAPTION>
USAA NEW YORK MONEY MARKET FUND
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 .04 .03
Distributions from net
investment income (.01) (.03) (.03) (.03) (.04) (.03)
---------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================
Total return (%) * 1.42 2.90 3.29 3.16 3.56 2.76
Net assets at end
of period (000) $ 73,902 $ 68,834 $ 62,226 $ 49,996 $ 45,554 $ 27,525
Ratio of expenses to
average net assets (%) .50(a) .50 .50 .50 .50 .50
Ratio of expenses to
average net assets
excluding
reimbursements (%) .58(a) .60 .63 .69 .78 .85
Ratio of net investment
income to average
net assets (%) 2.83(a) 2.86 3.23 3.12 3.47 2.74
</TABLE>
(a)Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
DIRECTORS
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
