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 9
FINANCIAL INFORMATION
Portfolios of Investments
Categories and Definitions 12
USAA New York Bond Fund 14
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 Funds.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE USAA NEW YORK
FUNDS, MANAGED BY USAA INVESTMENT MANAGEMENT COMPANY (IMCO). THE REPORT MAY BE
USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT
PROSPECTUS, WHICH GIVES FURTHER DETAILS ABOUT THE FUNDS.
USAA WITH THE EAGLE IS REGISTERED IN THE U.S. PATENT & TRADEMARK
OFFICE.(COPYRIGHT)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 ALLLOCATION
-------------------------------------------------------------
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.]
I have noted many times in the past that our three national tax-exempt bond
funds will usually provide a textbook study of how the bond markets should work.
The USAA Long-Term Fund should have the highest return, the USAA Short-Term Fund
the lowest, and the USAA Intermediate-Term Fund should fall in between. That's
because risk is usually rewarded. A 30-year bond is more risky, for various
reasons, than a two-year bond.
THE WALL STREET JOURNAL on October 2, 2000, showed that year-to-date the
performance of these three funds lines up like this:
================================================================================
YEAR-TO-DATE TOTAL RETURNS FOR PERIOD ENDING 9/30/00
--------------------------------------------------------------------------------
USAA Tax Exempt Long-Term Fund 6.7%
USAA Tax Exempt Intermediate-Term Fund 6.0%
USAA Tax Exempt Short-Term Fund 4.0%
================================================================================
Last year the bond market declined and demonstrated that 30-year bonds are
indeed riskier than short issues:
================================================================================
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%
================================================================================
However, over the longer term, you can see that risk usually is rewarded:
================================================================================
TOTAL RETURN FOR PERIODS ENDING 9/30/00
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-----------------------------
USAA Tax Exempt Long-Term Fund 4.60% 5.41% 6.82%
USAA Tax Exempt Intermediate-Term Fund 5.14% 5.32% 6.72%
USAA Tax Exempt Short-Term Fund 4.51% 4.52% 5.09%
================================================================================
The ordering of these returns and the longer term records of these funds are in
line with theory. And the numbers for 2000 look pretty good compared to major
indices this year:
================================================================================
YEAR-TO-DATE TOTAL RETURNS FOR PERIOD ENDING 9/30/00
--------------------------------------------------------------------------------
Dow Jones Industrial Average -7.36%
S&P 500 Index -1.39%
Nasdaq Composite Index -9.74%
================================================================================
That is why a portion of my investment portfolio is composed of tax-exempt bond
funds.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
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.
DOW JONES INDUSTRIAL AVERAGE IS A PRICE-WEIGHTED AVERAGE OF 30 ACTIVELY TRADED
BLUE CHIP STOCKS, PRIMARILY INDUSTRIALS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX REPRESENTING THE WEIGHTED AVERAGE
PERFORMANCE OF A GROUP OF 500 WIDELY HELD, PUBLICLY TRADED STOCKS. IT IS NOT
POSSIBLE TO INVEST DIRECTLY IN THE S&P 500 INDEX.
NASDAQ COMPOSITE INDEX IS A MARKET-VALUE-WEIGHTED INDEX THAT MEASURES ALL
DOMESTIC AND NON-U.S. BASED SECURITIES.
SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES OR THE FEDERAL ALTERNATIVE
MINIMUM TAX.
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.
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 principally in long-term, investment-grade New
York tax-exempt securities.
================================================================================
3/31/00 9/30/00
--------------------------------------------------------------------------------
Net Assets $83.0 Million $88.8 Million
Net Asset Value Per Share $10.79 $10.96
Tax-Exempt Dividends Per Share Last 12 Months $0.606 $0.604
Capital Gain Distributions Per Share Last 12
Months - -
================================================================================
SIX-MONTH TOTAL RETURN AND 30-DAY SEC YIELD* AS OF 9/30/00
--------------------------------------------------------------------------------
3/31/00 TO 9/30/00 30-DAY SEC YIELD
4.41%(+) 5.02%
================================================================================
* 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, 2000
--------------------------------------------------------------------------------
TOTAL RETURN EQUALS DIVIDEND RETURN PLUS PRICE CHANGE
--------------------------------------------------------------------------------
Since 10/15/90 7.21% = 5.92% + 1.29%
--------------------------------------------------------------------------------
5 Years 5.73% = 5.69% + 0.04%
--------------------------------------------------------------------------------
1 Year 5.88% = 5.79% + 0.09%
--------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS
FOR THE NINE-YEAR PERIOD ENDING SEPTEMBER 30, 2000
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 ending September 30, 2000.
TOTAL RETURN
---------------------
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%
09/30/00 5.88%
DIVIDEND RETURN
---------------------
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%
09/30/00 5.79%
CHANGE IN SHARE PRICE
---------------------
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%
09/30/00 0.09%
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.
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 9/30/00.
USAA NEW YORK LIPPER NEW YORK MUNICIPAL
BOND FUND DEBT FUNDS AVERAGE
------------- -------------------------
9/30/92 5.92% 6.07%
9/30/93 5.27% 5.30%
9/30/94 5.74% 5.57%
9/30/95 5.77% 5.18%
9/30/96 5.82% 4.95%
9/30/97 5.58% 4.73%
9/30/98 5.24% 4.48%
9/30/99 5.53% 4.63%
9/30/00 5.52% 4.72%
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 9/30/92
TO 9/30/00.
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 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 9/30/00. 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
03/31/00 19,187
09/30/00 20,033
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
03/31/00 19,318
09/30/00 20,084
LIPPER NEW YORK MUNICIPAL DEBT FUNDS AVERAGE
YEAR AMOUNT
---- ------
10/15/90 $10,000
03/31/91 10,550
09/30/91 11,299
03/31/92 11,658
09/30/92 12,501
03/31/93 13,278
09/30/93 14,194
03/31/94 13,512
09/30/94 13,573
03/31/95 14,188
09/30/95 14,784
03/31/96 15,155
09/30/96 15,596
03/31/97 15,876
09/30/97 16,908
03/31/98 17,540
09/30/98 18,325
03/31/99 18,438
09/30/99 17,731
03/31/00 17,987
09/30/00 18,610
DATA SINCE INCEPTION ON 10/15/90 THROUGH 9/30/00.
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 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, BECAUSE FUNDS HAVE EXPENSES.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, CLIFFORD A. GLADSON, CFA, APPEARS HERE.]
CREDIT MARKET REVIEW
During the first six months of the USAA New York Bond Fund's fiscal year, from
March 31, 2000, to September 30, 2000, yields on 20-year AA-rated municipal
bonds declined 0.08%. The credit market seems to believe that the Federal
Reserve's (the Fed) six short-term interest rate hikes have slowed the growth in
the domestic economy to a level that will keep price inflation in check. Bonds
of New York municipal issuers outperformed the national market. This reflected
the strong downstate economy and in-state investors' heavy demand for tax-exempt
income.
FUND PERFORMANCE
While past performance is no guarantee of future results, from March 31, 2000,
to September 30, 2000, your Fund paid an annualized dividend distribution yield
of 5.45%. During this period of declining yields, the Fund's share price
increased $0.17 to $10.96.
* * * * *
Your Fund's performance continues to earn an Overall Star Rating of 5 stars in
the municipal bond fund category from Morningstar Rating(TradeMark) for the
period ending September 30, 2000.
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 GAIN
DISTRIBUTIONS AND ANNUALIZING THE RESULT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. MORNINGSTAR PROPRIETARY
RATINGS ON U.S.-DOMICILED FUNDS REFLECT HISTORICAL RISK-ADJUSTED PERFORMANCE AS
OF SEPTEMBER 30, 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 NEW YORK
BOND FUND RECEIVED 4 AND 5 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 1,720 AND
1,472 FUNDS IN THE MUNICIPAL BOND FUND CATEGORY FOR THE THREE- AND FIVE-YEAR
PERIODS, RESPECTIVELY.
SMOKE AND MIRRORS
While we use the credit ratings of three nationally recognized statistical
rating organizations (Moody's Investors Service, Standard & Poor's, and Fitch
IBCA) as guidelines, actual purchase decisions are based on our independent
credit analysis. There are a number of bonds rated A or better, some with
ratings as high as AAA, that we will NOT purchase. Credit analysis must go
beyond the numbers. For example, I am often asked why the Fund does not own
bonds backed by tobacco settlement payments (tobacco bonds). Avoidance of this
class of bonds is not a reflection of personal moral principles, but is based on
a fiduciary responsibility to our shareholders. In the interest of full
disclosure, with a family history of emphysema, I do not smoke and have used all
my persuasive powers to discourage my children from smoking. While I think that
smoking may pose a long-term health risk, I consider smoking to be a matter of
personal choice.
From a credit perspective, taxes on tobacco have been structured to provide a
predictable revenue stream that can support an investment-grade rating. The
fluctuations and trends in tobacco use can be modeled and analyzed. We can then
judge if we are taking a wise risk if we depend on this type of revenue stream
to pay back the bonds.
Tobacco bonds are not secured by taxes. The anticipated revenue stream for
tobacco bonds is predicated on an out-of-court agreement between tobacco
companies and the participating state governments. The revenue stream for the
tobacco settlement may be subject to additional legal claims from federal
government and class action lawsuits. The potential size of these actions could
be staggering, and the new legal claims may be granted a superior lien to
tobacco company revenues. The tobacco settlement is not immune to bankruptcy
risk. If the tobacco companies filed for bankruptcy protection, a judge could
modify settlement terms or reduce payments. In addition, the Internal Revenue
Service is auditing the structure of tobacco bonds to determine the tax-exempt
status of the coupon payments. In short, issuers of tobacco bonds are
transferring a significant amount of event risk to the bondholder.
It is my opinion that tobacco bonds possess a level of event risk that is not
acceptable for an investment-grade security. While USAA tax-exempt funds are
managed with an income orientation, we embrace the old adage that there is NO
return on principal without return OF principal.
CURRENT MARKET CONDITIONS
Even though it appears that the credit markets believe the threat of higher
inflation has eased, I remain vigilant for commodity-induced inflation from the
recent price increases in oil and natural gas. Once energy prices stabilize, I
will view any increase in interest rates as an opportunity to improve the
tax-exempt distribution yield of your Fund.
TAXABLE EQUIVALENT YIELDS
The tables below compare 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 5.02% 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: 6.34% 7.48% 7.81% 8.42% 8.92%
Assuming a New York state and city tax rate of 10.63%
and a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
A FULLY TAXABLE INVESTMENT MUST PAY: 6.61% 7.80% 8.14% 8.77% 9.30%
--------------------------------------------------------------------------------
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 FEDERAL, STATE, OR LOCAL TAXES OR THE FEDERAL
ALTERNATIVE MINIMUM TAX.
PORTFOLIO RATINGS MIX
9/30/00
A pie chart is shown here depicting the Portfolio Ratings Mix as of September
30, 2000 of the USAA New York Bond Fund to be:
AAA - 35%; AA - 31%; A - 28%; and BBB - 6%.
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.
YOU WILL FIND A LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES 14-16.
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: Invests principally in 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.
================================================================================
3/31/00 9/30/00
--------------------------------------------------------------------------------
Net Assets $77.9 Million $79.1 Million
Net Asset Value Per Share $1.00 $1.00
================================================================================
AVERAGE ANNUAL TOTAL RETURNS AND 7-DAY YIELD AS OF 9/30/00
--------------------------------------------------------------------------------
3/31/00 SINCE INCEPTION 7-DAY
TO 9/30/00 1 YEAR 5 YEARS ON 10/15/90 YIELD
1.88%(+) 3.50% 3.20% 3.11% 4.24%
================================================================================
(+) 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
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 New York Money Market Fund and the iMoneyNet, Inc.
(formerly IBC Financial Data) State Specific SB (Stock Broker) and GP (General
Purpose) (Tax-Free) New York Money Funds.
USAA NEW YORK
MONEY MARKET FUND IMONEYNET, INC.
----------------- ---------------
09/27/99 3.15% 2.97%
10/25/99 2.89% 2.72%
11/29/99 3.30% 3.10%
12/27/99 3.56% 3.47%
01/31/00 2.87% 2.73%
02/28/00 3.42% 2.90%
03/27/00 3.28% 3.05%
04/24/00 3.60% 3.48%
05/22/00 4.13% 3.66%
06/26/00 4.01% 3.76%
07/31/00 3.72% 3.54%
08/28/00 3.71% 3.52%
09/25/00 3.97% 3.73%
DATA REPRESENT THE LAST MONDAY OF EACH MONTH.
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) NEW YORK 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
The national economy has shown signs of cooling from the economic picture we had
seen six months ago. In May, the Federal Reserve (the Fed) increased the federal
funds rate (the interest rate banks charge to other banks) to 6.50%, its fourth
increase since September 1999. The Fed's rate increase and high energy costs
seem to have caused some reduction in construction and consumer spending.
Overall, current industry sentiment is that inflation concerns have settled and
additional Fed interest rate increases may not be necessary this year.
Rates have increased in the short-term tax-exempt market since our annual report
March 31, 2000. If you recall, average one-year rates were at 4.08% at that
time. One-year rates reached a high of 4.64% in May, according to the Bond Buyer
One-Year Note Index. Income tax payments took more money out of the market than
was coming in, so there was an extended period of modest demand for tax-exempt
securities, causing the spike in one-year rates. Since then, the average rate on
a one-year note has trended back down to 4.20%, still 0.12% higher than six
months ago.
STRATEGY
We continue to believe that variable-rate demand notes (VRDNs) provide a good
value for the USAA New York Money Market Fund. VRDNs provide the owner the
option to sell the security back to the issuer upon seven days' notice or less
at a price of par (face value) plus accrued interest. The interest rates on
these securities also reset at least every seven days. In our opinion the VRDNs
have attractive rates and provide needed flexibility to extend into longer-term
securities if appealing opportunities arise in the longer market.
The Fund's fixed-rate purchases during the period were concentrated in notes and
bonds in the nine-month to one-year maturity range. Although past performance is
no guarantee of future results, these securities have performed well, and the
fixed rates have also provided the Fund with some stability when VRDN rates fall
(as they do seasonally when demand exceeds supply in the market).
THE BOND BUYER ONE-YEAR NOTE INDEX IS REPRESENTATIVE OF YIELDS ON 10 LARGE
ONE-YEAR, TAX-EXEMPT NOTES.
THE FUND
Daily and weekly VRDNs represented 76.0% of the Fund's assets on September 30,
2000. In addition, the Fund also had positions in tax-exempt commercial paper,
put bonds, and other bonds/notes.
The Fund's average maturity of 41 days on September 30, 2000, was only slightly
shorter than the iMoneyNet, Inc.'s (formerly IBC Financial Data) average New
York tax-exempt money market fund.
FUND PERFORMANCE
For the 12 months ending September 30, 2000, your Fund ranked 8 out of 44 New
York tax-exempt money market funds according to iMoneyNet, Inc., with a return
of 3.50%. The average for the category over the same period was 3.29%. Please
keep in mind that past performance is no guarantee of future results.
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 9/30/00. 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
03/31/00 13,327
09/30/00 13,578
DATA SINCE INCEPTION 10/15/90 THROUGH 9/30/00.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THE VALUE OF YOUR
INVESTMENT WILL VARY ACCORDING TO THE FUND'S PERFORMANCE. INCOME MAY BE SUBJECT
TO FEDERAL, STATE, OR LOCAL TAXES, OR TO THE ALTERNATIVE MINIMUM TAX. FOR THE
SEVEN-DAY YIELD INFORMATION, PLEASE REFER TO THE FUND'S INVESTMENT REVIEW PAGE.
YOU WILL FIND A LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES 17-19.
CATEGORIES & DEFINITIONS
PORTFOLIOS OF INVESTMENTS
SEPTEMBER 30, 2000
(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 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,
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.
(LIQ) Enhanced by a bank liquidity agreement.
(NBGA) Enhanced by a nonbank guarantee agreement.
(INS) Scheduled principal and interest payments are insured by:
(1) MBIA, Inc.
(2) AMBAC Financial Group, Inc.
(3) Financial Guaranty Insurance Co.
(4) Financial Security Assurance Holdings Ltd.
(5) Asset Guaranty Insurance Co.
PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
BAN Bond Anticipation Note MERLOT Municipal Exempt Receipts-
COP Certificate of Participation Liquidity Optional Tender
CP Commercial Paper MFH Multifamily Housing
CSD Central School District PCRB Pollution Control Revenue Bond
GO General Obligation MTA Metropolitan Transportation
IDA Industrial Development Authority
Authority/Agency RAN Revenue Anticipation Note
RB Revenue Bond
USAA NEW YORK BOND FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPAL COUPON FINAL MARKET
AMOUNT SECURITY RATE MATURITY VALUE
--------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (97.3%)
NEW YORK
$ 3,150 Buffalo Municipal Water Finance Auth. RB,
Series 1998A (INS)(3) 5.00% 7/01/2028 $ 2,812
2,200 Dormitory Auth. Court Facilities Lease RB,
Series 1999 6.00 5/15/2039 2,239
Dormitory Auth. RB,
2,000 Series 1992 (Manhattan College)(INS)(5) 6.50 7/01/2019 2,069
2,000 Series 1994 (Gurwin Geriatric Center) 7.35 8/01/2029 2,192
2,800 Series 1997 (Lutheran Center)(LOC) 6.05 7/01/2026 2,834
1,750 Series 1999 (Long Island University)
(INS)(5) 5.13 9/01/2023 1,600
2,000 Series 1999 (Pratt Institute)(INS)(5) 6.00 7/01/2020 2,057
1,000 Series 1999 (SUNY)(INS)(3) 5.75 5/15/2024 1,007
2,500 Series 1999A (Good Samaritan
Hospital)(INS)(1) 5.50 7/01/2024 2,415
4,500 Series 1999A (Upstate Community
Colleges) 5.00 7/01/2028 3,891
1,750 Series 1999B (University of Rochester) 5.63 7/01/2024 1,718
4,065 Series 2000A (University of Rochester)
(INS)(1),(a) 6.05 7/01/2023 2,347
1,090 Dutchess County IDA Civic Facility RB,
Series 2000 5.75 8/01/2030 1,071
1,650 Environmental Facilities Corp. PCRB,
Series 1990B 7.50 3/15/2011 1,670
1,890 Groton Community Health Care Facilities
RB, Series 1994A 7.45 7/15/2021 2,092
Housing Finance Agency MFH RB,
1,805 Series 1992E (Secured Mortgage Program) 6.75 8/15/2025 1,871
2,440 Series 1996A (Housing Project)(INS)(4) 6.13 11/01/2020 2,492
4,500 Long Island Power Auth. RB, Series 1998A 5.25 12/01/2026 4,126
Medical Care Facilities Finance Agency RB,
2,500 Series 1994A (Community General
Hospital of Sullivan County) 6.25 2/15/2024 2,549
1,830 Series 1994A (Hospital and Nursing Home
Facilities) 6.50 2/15/2034 1,907
2,000 Series 1994A (New York Hospital)(PRE) 6.90 8/15/2034 2,216
1,965 Series 1994E (Mental Health Service)
(PRE) 6.50 8/15/2024 2,124
2,500 Series 1995A (Brookdale Hospital)(PRE) 6.85 2/15/2017 2,766
2,395 Series 1995A (Health Center Projects) 6.38 11/15/2019 2,518
3,250 Monroe County IDA RB, Series 1998 5.20 12/20/2039 2,907
New York City GO,
3,000 Series 1995B (PRE) 7.25 8/15/2019 3,315
180 Series 1997I (PRE) 6.25 4/15/2017 197
2,820 Series 1997I 6.25 4/15/2017 2,962
1,000 Series 2000A 6.00 5/15/2020 1,033
2,500 New York City IDA RB, Series 1997 5.80 8/01/2016 2,505
22,090 New York City Municipal Water Finance
Auth. RB, Series 1998D (a) 6.05 6/15/2020 7,123
3,650 New York City Transit Auth. MTA RB,
Series 2000A (INS)(2) 5.88 1/01/2030 3,706
New York City Transitional Finance Auth.
RB,
1,000 Series 1999A 5.75 8/15/2024 1,005
1,000 Series 1999C 5.50 5/01/2025 975
3,300 Niagara Falls City School District COP,
Series 1998 5.38 6/15/2028 2,937
3,450 Ulster County Civic Facility IDA RB,
Series 1999 (LOC) 5.65 11/15/2024 3,179
--------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $86,544) 86,427
--------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (1.4%)
NEW YORK
600 Dormitory Auth. RB,
Series 1993 (Oxford University)(LOC) 5.60 7/01/2023 600
100 New York City GO, Series 1994A-10 (LOC) 5.50 8/01/2016 100
500 St. Lawrence County IDA PCRB,
Series 1985 (LOC) 5.55 12/01/2007 500
--------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $1,200) 1,200
--------------------------------------------------------------------------------
Total investments (cost: $87,744) $87,627
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Education 13.4%
Water/Sewer Utilities - Municipal 13.1
Escrowed Bonds 12.0
Hospitals 11.3
Nursing/Continuing Care Centers 11.3
Appropriated Debt 7.7
Special Assessment/Tax/Fee 6.4
Multifamily Housing 4.9
Electric/Gas Utilities - Municipal 4.6
General Obligations 4.6
Community Service 2.8
Health Care - Miscellaneous 2.8
Buildings 2.5
Other 1.3
----
Total 98.7%
====
USAA NEW YORK MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPAL COUPON FINAL
AMOUNT SECURITY RATE MATURITY VALUE
--------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (76.0%)
NEW YORK
$ 4,000 Chautauqua County IDA RB, Series 2000A
(LOC) 5.50% 8/01/2030 $ 4,000
1,905 Dormitory Auth. RB,
Series 1993 (Oxford University)(LOC) 5.60 7/01/2023 1,905
3,275 Dutchess County IDA RB, Series 1997 (LOC) 5.50 10/01/2017 3,275
Hempstead Town IDA RB,
2,500 Series 1999 (LOC) 5.65 12/01/2010 2,500
3,500 Series 1999 (NBGA) 5.65 12/01/2010 3,500
Long Island Power Auth. Electric
Systems RB,
2,500 Series 5 (LOC) 5.50 5/01/2033 2,500
200 Series 6 (LOC) 5.45 5/01/2033 200
2,800 Metro Transportation Auth. Transport
Facility RB, Series 1999A,
MERLOT Series 2000F (LIQ)(INS)(3),(b) 5.45 7/01/2029 2,800
New York City GO,
3,115 Series 1994A-10 (LOC) 5.50 8/01/2016 3,115
600 Series 1994A-10 (LOC) 5.50 8/01/2017 600
1,200 Series 1994A-8 (LOC) 5.55 8/01/2017 1,200
New York City IDA RB,
2,400 Series 1998 (LOC) 5.60 12/01/2013 2,400
1,800 Series 2000 (LOC) 5.60 3/01/2020 1,800
11,485 Ramapo Housing Auth. RB, Series 1998
(LOC) 4.54 12/01/2029 11,485
5,500 Rockland County IDA RB, Series 1999 (LOC) 4.54 2/01/2029 5,500
4,050 St. Lawrence County IDA PCRB,
Series 1985 (LOC) 5.55 12/01/2007 4,050
1,750 Suffolk County IDA RB, Series 1992 (LOC) 5.50 12/01/2012 1,750
2,500 Tompkins County IDA RB, Series 2000 (LOC) 5.40 6/01/2025 2,500
2,500 Urban Development Corp. RB MERLOT,
Series 2000C (LIQ)(INS)(2),(b) 5.45 1/01/2029 2,500
2,605 Westchester County IDA RB, Series 1998
(LOC) 5.60 10/01/2028 2,605
--------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $60,185) 60,185
--------------------------------------------------------------------------------
PUT BONDS (2.1%)
NEW YORK
Hudson IDA RB,
95 Series 1985 (Emsig Project)(LOC) 4.75 12/15/2000 95
30 Series 1985 (Rual Project)(LOC) 4.75 12/15/2000 30
1,500 State GO, Series 2000B (LOC) 4.35 3/15/2030 1,500
--------------------------------------------------------------------------------
Total put bonds (cost: $1,625) 1,625
--------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (21.9%)
NEW YORK
2,541 Andover CSD BAN, Series 2000 4.63 1/26/2001 2,545
200 Bethlehem CSD GO, Series 1997 (INS)(3) 5.30 11/01/2000 200
500 Brentwood Union Free School District GO,
Series 2000 (INS)(4) 5.63 6/15/2001 503
450 Bridge Auth. RB, Series 1997 5.00 1/01/2001 451
299 Chatham CSD GO, Series 2000 (INS)(4) 5.30 6/15/2001 300
625 Colonie Public Improvement Bonds,
Series 2000A (INS)(1) 5.20 4/01/2001 628
550 Evans-Brant CSD GO, Series 1999 (INS)(3) 5.00 12/15/2000 551
450 Franklinville CSD GO, Series 2000
(INS)(3) 5.00 12/15/2000 451
100 Middletown CSD GO, Series 1996A (INS)(2) 4.13 11/15/2000 100
3,000 Nassau County RAN, Series 2000 D (LOC) 6.00 4/12/2001 3,023
3,000 New York City Municipal Water Finance
Auth. CP Notes, Series 1 (LOC) 4.05 11/09/2000 3,000
668 New York Mills Union Free School
District GO, Series 2000 (INS)(1) 5.30 6/15/2001 672
750 Oneida County GO BAN 4.50 4/20/2001 750
470 Oneida County IDA RB, Series 1999C
(INS)(5) 4.50 1/01/2001 470
225 Penfield Fire District GO, Series 1999
(INS)(2) 4.90 12/15/2000 225
1,000 South Seneca CSD BAN, Series 2000 4.63 3/15/2001 1,002
750 Southern Cayuga CSD GO, Series 2000
(INS)(4) 5.00 5/15/2001 753
1,000 Suffolk County IDA RB, Series 1999
(INS)(1) 4.25 2/01/2001 1,000
400 Thruway Auth. RB, Series 1994 (INS)(1) 5.10 4/01/2001 402
300 Triborough Bridge and Tunnel Auth. RB,
Series 1991T (PRE) 7.00 1/01/2006 308
--------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $17,334) 17,334
--------------------------------------------------------------------------------
Total investments (cost: $79,144) $79,144
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Nursing/Continuing Care Centers 24.6%
General Obligations 22.9
Community Service 17.0
Solid Waste Disposal 7.6
Aluminum 5.1
Special Assessment/Tax/Fee 4.8
Water/Sewer Utilities - Municipal 3.8
Appropriated Debt 3.7
Hospitals 3.6
Electric/Gas Utilities - Municipal 3.4
Publishing 2.4
Other 1.1
-----
Total 100.0%
=====
NOTES TO PORTFOLIOS OF INVESTMENTS
SEPTEMBER 30, 2000
(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 this security represented 1.0% of net
assets.
(b) These securities are not registered under the Securities Act of 1933.
Resells of these securities in the United States may occur in exempt
transactions to qualified institutional buyers as defined by Rule 144A, and as
such are generally deemed by the Manager to be liquid under guidelines
established by the Board of Directors. These securities represented 6.7% of the
USAA New York Money Market Fund's net assets.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
USAA
USAA NEW YORK
NEW YORK MONEY MARKET
BOND FUND FUND
---------------------------
ASSETS
Investments in securities, at market value
(identified cost of $87,744 and $79,144,
respectively) $ 87,627 $ 79,144
Cash 161 309
Receivables:
Capital shares sold 9 63
Interest 1,144 548
---------------------------
Total assets 88,941 80,064
---------------------------
LIABILITIES
Capital shares redeemed - 864
USAA Transfer Agency Company - 3
Accounts payable and accrued expenses 48 42
Dividends on capital shares 114 10
---------------------------
Total liabilities 162 919
---------------------------
Net assets applicable to capital
shares outstanding $ 88,779 $ 79,145
===========================
REPRESENTED BY:
Paid-in capital $ 92,011 $ 79,145
Accumulated net realized loss on investments (3,115) -
Net unrealized depreciation of investments (117) -
---------------------------
Net assets applicable to capital
shares outstanding $ 88,779 $ 79,145
===========================
Capital shares outstanding 8,101 79,145
===========================
Authorized shares of $.01 par value 100,000 1,060,000
===========================
Net asset value, redemption price, and offering
price per share $ 10.96 $ 1.00
===========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
USAA
USAA NEW YORK
NEW YORK MONEY MARKET
BOND FUND FUND
----------------------------
Net investment income:
Interest income $ 2,570 $ 1,673
----------------------------
Expenses:
Management fees 169 155
Transfer agent's fees 27 21
Custodian's fees 24 23
Postage 5 2
Shareholder reporting fees 3 3
Directors'/Trustees' fees 3 2
Registration fees 1 -
Professional fees 14 16
Other 2 2
----------------------------
Total expenses before reimbursement 248 224
Expenses reimbursed (35) (27)
----------------------------
Total expenses after reimbursement 213 197
----------------------------
Net investment income 2,357 1,476
----------------------------
Net realized and unrealized gain on investments:
Net realized gain 60 -
Change in net unrealized
appreciation/depreciation 1,301 -
----------------------------
Net realized and unrealized gain 1,361 -
----------------------------
Increase in net assets resulting from
operations $ 3,718 $ 1,476
============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2000, AND YEAR ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
USAA USAA
NEW YORK NEW YORK
BOND FUND MONEY MARKET FUND
-----------------------------------------------
9/30/2000 3/31/2000 9/30/2000 3/31/2000
-----------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 2,357 $ 4,850 $ 1,476 $ 2,169
Net realized gain (loss) on investments 60 (524) - -
Change in net unrealized appreciation/
depreciation of investments 1,301 (6,692) - -
-----------------------------------------------
Increase (decrease) in net assets
resulting from operations 3,718 (2,366) 1,476 2,169
-----------------------------------------------
Distributions to shareholders from:
Net investment income (2,357) (4,850) (1,476) (2,169)
-----------------------------------------------
From capital share transactions:
Proceeds from shares sold 7,922 24,016 37,794 75,077
Dividend reinvestments 1,652 3,572 1,411 2,071
Cost of shares redeemed (5,127) (25,881) (38,008) (68,034)
-----------------------------------------------
Increase in net assets from
capital share transactions 4,447 1,707 1,197 9,114
-----------------------------------------------
Net increase (decrease) in net assets 5,808 (5,509) 1,197 9,114
Net assets:
Beginning of period 82,971 88,480 77,948 68,834
-----------------------------------------------
End of period $ 88,779 $ 82,971 $ 79,145 $ 77,948
===============================================
Change in shares outstanding:
Shares sold 729 2,161 37,794 75,077
Shares issued for dividends reinvested 152 327 1,411 2,071
Shares redeemed (471) (2,383) (38,008) (68,034)
-----------------------------------------------
Increase in shares outstanding 410 105 1,197 9,114
===============================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 10
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 income tax and
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
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 that
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
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 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 six-month
period ended September 30, 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 annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes. At September 30,
2000, the USAA New York Bond Fund had capital loss carryovers for federal income
tax purposes of $3,115,000 which, if not offset by subsequent capital gains,
will expire between 2003-2009. 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
Cost of purchases and proceeds from sales/maturities of securities for the
six-month period ended September 30, 2000, were as follows:
USAA NEW YORK USAA NEW YORK
BOND FUND MONEY MARKET FUND
--------------------------------
Purchases $12,820,000 $103,534,000
Sales/maturities $ 9,201,000 $100,233,000
For the USAA New York Bond Fund, cost of purchases and proceeds from
sales/maturities exclude short-term securities.
Gross unrealized appreciation and depreciation of investments at September 30,
2000, were as follows:
APPRECIATION DEPRECIATION NET
------------------------------------------
USAA New York Bond Fund $2,815,000 ($2,931,000) ($116,000)
(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 0.50% of the
first $50 million, 0.40% of that portion over $50 million but not over $100
million, and 0.30% of that portion over $100 million. These fees are allocated
monthly on a proportional basis to each Fund based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of each Fund to
0.50% of its annual 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 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) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
USAA NEW YORK BOND FUND
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
---------------------------------------------------------
2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.79 $ 11.66 $ 11.62 $ 10.94 $ 10.95 $ 10.77
Net investment
income .30 .61 .61 .63 .64 .63
Net realized and
unrealized gain (loss) .17 (.87) .04 .68 (.01) .18
Distributions from net
investment income (.30) (.61) (.61) (.63) (.64) (.63)
-----------------------------------------------------------------------
Net asset value at
end of period $ 10.96 $ 10.79 $ 11.66 $ 11.62 $ 10.94 $ 10.95
=======================================================================
Total return (%)* 4.41 (2.20) 5.73 12.24 5.89 7.67
Net assets at end
of period (000) $88,779 $82,971 $88,480 $70,611 $58,035 $53,987
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) .57 .58 .61 .66 .69
Ratio of net investment
income to average
net assets (%) 5.50(a) 5.52 5.24 5.54 5.83 5.75
Portfolio turnover (%) 10.98 31.77 27.64 49.49 41.42 74.80
(a) ANNUALIZED. THE RATIO IS NOT NECESSARILY INDICATIVE OF 12 MONTHS OF OPERATIONS.
* ASSUMES REINVESTMENT OF ALL DIVIDEND INCOME DISTRIBUTIONS DURING THE PERIOD.
</TABLE>
USAA NEW YORK MONEY MARKET FUND
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
---------------------------------------------------------
2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------
<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 .02 .03 .03 .03 .03 .04
Distributions from net
investment income (.02) (.03) (.03) (.03) (.03) (.04)
-----------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=======================================================================
Total return (%)* 1.88 3.02 2.90 3.29 3.16 3.56
Net assets at end
of period (000) $79,145 $77,948 $68,834 $62,226 $49,996 $45,554
Ratio of expenses to
average net assets (%) .50(a) .50 .50 .50 .50 .50
Ratio of expenses
to average net
assets excluding
reimbursements (%) .56(a) .58 .60 .63 .69 .78
Ratio of net investment
income to average
net assets (%) 3.72(a) 3.00 2.86 3.23 3.12 3.47
(a) ANNUALIZED. THE RATIO IS NOT NECESSARILY INDICATIVE OF 12 MONTHS OF OPERATIONS.
* ASSUMES REINVESTMENT OF ALL DIVIDEND INCOME DISTRIBUTIONS DURING THE PERIOD.
</TABLE>
DIRECTORS
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
Laura T. Starks
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 6 a.m. to 10 p.m.
Saturday 8:30 a.m. to 5 p.m.
Sunday 11:30 a.m. to 8 p.m.
FOR ADDITIONAL INFORMATION ON MUTUAL FUNDS
1-800-531-8181, (in San Antonio) 456-7200
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
