TABLE OF CONTENTS
USAA FAMILY OF FUNDS 1
MESSAGE FROM THE PRESIDENT 2
INVESTMENT REVIEW
USAA Virginia Bond Fund 4
USAA Virginia Money Market Fund 10
FINANCIAL INFORMATION
Portfolios of Investments
Categories and Definitions 13
USAA Virginia Bond Fund 14
USAA Virginia Money Market Fund 18
Notes to Portfolios of Investments 21
Statements of Assets and Liabilities 22
Statements of Operations 23
Statements of Changes in Net Assets 24
Notes to Financial Statements 25
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 VIRGINIA
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 VIRGINIA BOND FUND
OBJECTIVE: High level of current interest income that is exempt from federal and
Virginia state income taxes.
TYPES OF INVESTMENTS: Invests principally in long-term, investment-grade
Virginia tax-exempt securities.
================================================================================
3/31/00 9/30/00
--------------------------------------------------------------------------------
Net Assets $377.2 Million $397.9 Million
Net Asset Value Per Share $10.69 $10.85
Tax-Exempt Dividends Per Share Last 12 Months $0.593 $0.591
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
4.31%(+) 5.20%
================================================================================
* 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 6.96% = 5.95% + 1.01%
--------------------------------------------------------------------------------
5 Years 5.52% = 5.63% + -0.11%
--------------------------------------------------------------------------------
1 Year 5.60% = 5.69% + -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 Virginia Bond Fund for the
nine-year period ending September 30, 2000.
TOTAL RETURN
---------------------
09/30/92 10.04%
09/30/93 13.12%
09/30/94 -3.19%
09/30/95 10.51%
09/30/96 6.98%
09/30/97 8.92%
09/30/98 8.73%
09/30/99 -2.20%
09/30/00 5.60%
DIVIDEND RETURN
---------------------
09/30/92 6.53%
09/30/93 6.23%
09/30/94 5.22%
09/30/95 6.41%
09/30/96 5.97%
09/30/97 5.93%
09/30/98 5.65%
09/30/99 4.98%
09/30/00 5.69%
CHANGE IN SHARE PRICE
---------------------
09/30/92 3.51%
09/30/93 6.89%
09/30/94 -8.41%
09/30/95 4.10%
09/30/96 1.01%
09/30/97 2.99%
09/30/98 3.08%
09/30/99 -7.18%
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 Virginia Bond Fund to the 12-Month
Dividend Yield of the Lipper Virginia Municipal Debt Funds Average from 9/30/92
to 9/30/00.
USAA VIRGINIA LIPPER VIRGINIA MUNICIPAL
BOND FUND DEBT FUNDS AVERAGE
------------- -------------------------
09/30/92 6.05% 5.91%
09/30/93 5.47% 5.25%
09/30/94 5.84% 5.29%
09/30/95 5.82% 5.04%
09/30/96 5.75% 4.86%
09/30/97 5.50% 4.73%
09/30/98 5.25% 4.46%
09/30/99 5.48% 4.64%
09/30/00 5.46% 4.71%
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 Virginia Bond Fund, Lehman
Brothers Municipal Bond Index and the Lipper Virginia 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 VIRGINIA BOND FUND
YEAR AMOUNT
-------- -------
10/15/90 $10,000
03/31/91 10,601
09/30/91 11,229
03/31/92 11,620
09/30/92 12,357
03/31/93 13,085
09/30/93 13,978
03/31/94 13,437
09/30/94 13,532
03/31/95 14,326
09/30/95 14,955
03/31/96 15,410
09/30/96 15,998
03/31/97 16,306
09/30/97 17,425
03/31/98 18,121
09/30/98 18,945
03/31/99 19,139
09/30/99 18,528
03/31/00 18,756
09/30/00 19,566
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 VIRGINIA MUNICIPAL DEBT FUNDS AVERAGE
YEAR AMOUNT
-------- -------
10/15/90 $10,000
03/31/91 10,560
09/30/91 11,161
03/31/92 11,520
09/30/92 12,260
03/31/93 12,940
09/30/93 13,853
03/31/94 13,122
09/30/94 13,194
03/31/95 13,943
09/30/95 14,567
03/31/96 14,963
09/30/96 15,417
03/31/97 15,692
09/30/97 16,699
03/31/98 17,355
09/30/98 18,081
03/31/99 18,214
09/30/99 17,681
03/31/00 17,904
09/30/00 18,535
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 VIRGINIA MUNICIPAL DEBT FUNDS AVERAGE IS THE AVERAGE
PERFORMANCE LEVEL OF ALL VIRGINIA 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, ROBERT R. PARISEAU, CFA, APPEARS HERE.]
MUNICIPAL BOND MARKET REVIEW
Yields on 20-year AAA-rated municipal bonds have declined 0.10% during the first
six months of the Fund's fiscal year, from March 31, 2000, to September 30,
2000. Bond-market investors seem to believe that the Federal Reserve Board, with
a series of six increases in short-term interest rates, has successfully slowed
the U.S. economy to a more sustainable, noninflationary rate of growth. Despite
recent increases in energy costs, inflation remains under control. Economists
give most of the credit to improved productivity as technological innovation
allows industry to use raw materials and labor more efficiently.
STRATEGY
I focus primarily on generating maximum tax-exempt income with the goal of
producing the best AFTER-TAX total return over an investment horizon of four or
more years. My rationale for this strategy is:
- I believe that a large number of our investors own the Fund for the tax-free
income and invest for the long term.
- Although past performance is no guarantee of future results, the strategy
has worked in different kinds of markets over the years. Long-term
performance, measured by total return and distribution yield, has been well
above the peer group average.
The Fund remains fully invested in long-term, investment-grade municipal bonds.
Municipal bonds that mature in 15 years or more almost always yield more than
shorter bonds of the same credit quality. However, longer-maturity bonds are
more volatile in price than shorter-maturity bonds. That's why we encourage only
those investors with an investment horizon of four or more years to buy the USAA
Virginia Bond Fund.
Like any buyer, I seek value. We define "value" at USAA as a combination of:
- STRUCTURE (coupon, maturity, call features, sinking funds, etc.)
- LIQUIDITY (ability to quickly sell the bond without substantially affecting
the price)
- CREDIT QUALITY (strength and stability of the issuer)
- YIELD (The bond may otherwise be a great fit, but if the yield is too low,
it's overpriced.)
TOTAL RETURN EQUALS INCOME RETURN PLUS SHARE PRICE CHANGE AND ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.
NO AMT BONDS
Our shareholders have made it very clear that they do not want the income from
their USAA tax-exempt funds to be subject to the federal alternative minimum tax
(AMT) for individuals. Consequently, since inception, no USAA tax-exempt fund
has ever distributed income that was subject to the AMT for individuals. Looking
ahead, we have no intention to purchase municipal bonds that are subject to the
AMT for individuals in any of the USAA tax-exempt funds. Of course, we would
certainly advise our shareholders if a change were to occur in the federal tax
code that would compel us to reconsider our position.
MARKET OUTLOOK
The municipal bond market has rallied considerably from its lows over the past
year. Recently, steeply higher energy prices have taken their toll on
bond-market sentiment. However, the energy crisis of the 1970s and early 1980s
taught valuable lessons. Many U.S. industries have steadily improved their
energy efficiency despite years of low-priced oil. At least so far, brutal price
competition has meant that many businesses have a hard time passing on the
higher energy costs to their customers. An obviously slowing U.S. economy should
also do its part in keeping a lid on inflationary pressures.
In summary, the current consensus in the bond market is that interest rates have
probably peaked for this economic cycle. And, if energy prices settle down and
the economy continues to slow, interest rates may even decline a little more.
FUND PERFORMANCE
While past performance is no guarantee of future results, from April 1, 2000, to
September 30, 2000, your USAA Virginia Bond Fund paid a dividend distribution
yield of 5.41%. During this period of declining interest rates, the Fund's share
price increased by $0.16, or 1.50%, to $10.85.
* * * * *
Your Fund's performance received 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.
THE COMMONWEALTH OF VIRGINIA
Virginia benefits from a diverse and expanding economic base. Employment growth
continues at a solid pace, and the creation of high-tech jobs is an important
driving influence. Additionally, the commonwealth's unemployment rate remains
below the national level. Per capita income compares favorably to the national
average. A sound economy in combination with the commonwealth's prudent fiscal
practices has produced a reputation of financial strength. For instance, Moody's
Investors Service, Standard & Poor's, and Fitch IBCA rate the commonwealth's
general obligation debt AAA. I discuss these general economic issues because,
although they may not directly relate to each of your Fund's holdings, they do
indicate the financial and economic environment of the state. We will closely
monitor the specific credit issues, ballot initiatives, and litigation that
could potentially affect the value of your holdings.
TAXABLE EQUIVALENT YIELDS
The table below compares the yield of the USAA Virginia Bond Fund with a taxable
equivalent investment.
--------------------------------------------------------------------------------
TO MATCH THE USAA VIRGINIA BOND FUND'S CLOSING 30-DAY SEC YIELD OF 5.20% AND:
Assuming a Virginia state tax rate of 5.75%
and a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
A FULLY TAXABLE INVESTMENT MUST PAY: 6.49% 7.67% 8.00% 8.63% 9.14%
--------------------------------------------------------------------------------
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.
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 VIRGINIA
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.
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 Virginia Bond Fund to be:
AAA - 33%; AA - 35%; A - 19%; BBB - 10%; and BB - 3%.
THE FOUR HIGHEST LONG-TERM CREDIT RATINGS, IN DESCENDING ORDER OF CREDIT
QUALITY, ARE AAA, AA, A, AND BBB. THIS CHART REFLECTS THE HIGHER RATING OF
EITHER MOODY'S INVESTORS SERVICE, STANDARD & POOR'S RATING SERVICES, OR FITCH
IBCA. UNRATED SECURITIES THAT HAVE BEEN DETERMINED BY USAA IMCO TO BE OF
EQUIVALENT INVESTMENT QUALITY TO CATEGORIES AAA AND BBB ACCOUNT FOR 2.0% AND
1.0%, RESPECTIVELY, OF THE FUND'S INVESTMENTS, AND ARE INCLUDED IN THEIR
APPROPRIATE CATEGORY ABOVE.
YOU WILL FIND A LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES 14-17.
INVESTMENT REVIEW
USAA VIRGINIA MONEY MARKET FUND
OBJECTIVE: High level of current interest income that is exempt from federal and
Virginia state income taxes and a further objective of preserving capital and
maintaining liquidity.
TYPES OF INVESTMENTS: Invests principally in high-quality Virginia 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 $157.1 Million $158.9 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
1.92%(+) 3.57% 3.22% 3.22% 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 Virginia Money Market Fund and the iMoneyNet, Inc.
(formerly IBC Financial Data) State Specific SB (Stock Broker) and GP (General
Purpose) (Tax-Free) Money Funds.
USAA VIRGINIA
MONEY MARKET FUND IMONEYNET, INC.
----------------- ---------------
09/27/99 3.15% 2.90%
10/25/99 2.90% 2.65%
11/29/99 3.34% 3.03%
12/27/99 3.81% 3.40%
01/31/00 2.94% 2.61%
02/28/00 3.44% 2.90%
03/27/00 3.32% 2.94%
04/24/00 3.79% 3.43%
05/22/00 3.99% 3.59%
06/26/00 4.00% 3.69%
07/31/00 3.75% 3.47%
08/28/00 3.76% 3.39%
09/25/00 3.91% 3.54%
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) MONEY FUNDS, AN AVERAGE OF MONEY MARKET FUND YIELDS.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF 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 Virginia 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 the Fund when
appealing opportunities arise in the longer market.
The Fund's fixed-rate purchases during the period were concentrated in put
bonds, where we were able to find value in the 60- to 90-day 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 74.6% 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 32 days on September 30, 2000, was shorter than
iMoneyNet, Inc.'s (formerly IBC Financial Data) average state-specific
tax-exempt money market fund.
FUND PERFORMANCE
For the 12 months ending September 30, 2000, your Fund ranked 14 out of 175
state-specific tax-exempt money market funds, according to iMoneyNet, Inc., with
a return of 3.57%. The average for the category over the same period was 3.18%.
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, comparing the cumulative
performance of a $10,000 investment of the USAA Virginia Money Market Fund. The
data is from 10/15/90 through 9/30/00. The data points from the graph are as
follows:
USAA VIRGINIA MONEY MARKET FUND
YEAR AMOUNT
-------- -------
10/15/90 $10,000
03/31/91 10,238
09/30/91 10,464
03/31/92 10,657
09/30/92 10,811
03/31/93 10,940
09/30/93 11,060
03/31/94 11,174
09/30/94 11,312
03/31/95 11,499
09/30/95 11,701
03/31/96 11,893
09/30/96 12,080
03/31/97 12,267
09/30/97 12,474
03/31/98 12,676
09/30/98 12,881
03/31/99 13,054
09/30/99 13,241
03/31/00 13,455
09/30/00 13,713
DATA SINCE INCEPTION ON 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 18-20.
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 Virginia 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 Virginia 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.
(6) ACA Financial Guaranty Corp.
PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
BAN Bond Anticipation Note IDRB Industrial Development
CP Commercial Paper Revenue Bond
GO General Obligation MFH Multifamily Housing
IDA Industrial Development PCRB Pollution Control Revenue Bond
Authority/Agency RB Revenue Bond
RN Revenue Note
USAA VIRGINIA BOND FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPAL COUPON FINAL MARKET
AMOUNT SECURITY RATE MATURITY VALUE
--------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (98.3%)
VIRGINIA (91.7%)
Abingdon Town IDA Hospital RB,
$ 3,305 Series 1998 5.25% 7/01/2016 $ 3,082
2,610 Series 1998 5.38 7/01/2028 2,345
2,505 Alexandria IDA Educational Facilities RB,
Series 1999 5.88 1/01/2023 2,543
Alexandria IDA RB,
5,755 Series 2000A (INS)(2) 5.90 10/01/2020 5,880
12,480 Series 2000A (INS)(2) 5.90 10/01/2030 12,629
3,280 Arlington County IDA RB, Series 1997A 5.45 7/01/2027 3,189
7,500 Augusta County IDA Hospital RB,
Series 1991 (PRE) 7.00 9/01/2021 7,823
6,260 Chesapeake Toll Road RB, Series 1999A 5.63 7/15/2032 5,988
Chesterfield County Health Center
Commission Mortgage RB,
1,500 Series 1996 5.95 12/01/2026 1,520
12,195 Series 1996 6.00 6/01/2039 12,327
College Building Auth. Educational
Facilities RB,
2,885 Series 1992 (PRE) 6.63 5/01/2013 3,034
1,390 Series 2000 5.80 4/01/2016 1,434
1,000 Series 2000 6.00 4/01/2020 1,036
2,150 Commonwealth Transportation Board RB,
Series 1999B 5.50 5/15/2022 2,130
4,500 Covington IDA RB, Series 1994 6.65 9/01/2018 4,729
3,000 Danville IDA Hospital RB,
Series 1998 (INS)(2) 5.20 10/01/2018 2,900
2,250 Emporia GO, Series 1995 5.75 7/15/2015 2,296
15,180 Fairfax County IDA RB, Series 1996 6.00 8/15/2026 15,345
2,000 Fairfax County Redevelopment and
Housing Auth. MFH RB, Series 1996A 6.00 12/15/2028 2,024
11,000 Fairfax County Sewer RB,
Series 1996 (INS)(1) 5.88 7/15/2028 11,172
Fairfax County Water Auth. RB,
4,750 Series 1992 6.00 4/01/2022 4,931
16,125 Series 1997 5.00 4/01/2029 14,575
5,235 Series 2000 5.63 4/01/2025 5,257
1,000 Series 2000 5.75 4/01/2030 1,012
8,750 Galax IDA Hospital RB,
Series 1995 (INS)(5) 5.75 9/01/2020 8,602
3,000 Gloucester County IDA Lease RB,
Series 2000 (INS)(1) 5.50 11/01/2030 2,941
1,000 Halifax County IDA Hospital RB,
Series 1998 5.25 9/01/2017 904
1,255 Hampton Redevelopment and Housing Auth.
RB, Series 1996A 6.00 1/20/2026 1,269
12,185 Hanover County IDA Hospital RB,
Series 1995 (INS)(1) 6.38 8/15/2018 13,271
5,525 Henrico County IDA Educational
Facilities RB, Series 1998 5.10 10/15/2029 4,977
Henrico County IDA Residential and
Healthcare Facility RB,
1,025 Series 1997 6.10 7/01/2020 954
2,070 Series 1997 6.15 7/01/2026 1,907
2,500 Henry County IDA Hospital RB,
Series 1997 6.00 1/01/2027 2,508
Housing Development Auth. Commonwealth
Mortgage RB,
5,440 Series 1992A 7.10 1/01/2022 5,611
10,000 Series 1992A 7.10 1/01/2025 10,305
Housing Development Auth. MFH RB,
17,355 Series 1982A (a) 7.00 11/01/2017 3,565
2,630 Series 1991F 7.10 5/01/2013 2,702
Isle of Wight County IDA RB,
4,220 Series 1990 7.38 1/01/2010 4,323
3,500 Series 2000A (b) 5.85 1/01/2018 3,487
2,000 Loudoun County IDA Hospital RB,
Series 1995 (INS)(4) 5.80 6/01/2026 2,009
1,545 Lynchburg GO Public Improvement BAN,
Series 2000 5.75 6/01/2030 1,561
7,000 Metropolitan Washington Airports Auth.
RB, Series 1997A 5.38 10/01/2023 6,749
Newport News GO,
3,170 Series 2000A 5.75 5/01/2018 3,261
6,750 Series 2000A 5.75 5/01/2020 6,907
1,850 Norfolk Redevelopment and Housing
Auth. RB, Series 1999 5.50 11/01/2019 1,838
11,000 Peninsula Ports Auth. RB,
Series 1992 (NBGA) (c) 7.38 6/01/2020 11,328
2,500 Prince William County IDA Hospital RB,
Series 1995 (PRE) 6.85 10/01/2025 2,784
4,000 Prince William County Service Auth.
Water RB, Series 1999 (INS)(3) 5.60 7/01/2024 4,001
10,585 Public School Auth. Financing Bonds,
Series 2000A 5.50 8/01/2020 10,515
4,645 Public School Auth. GO, Series 1999B 6.00 8/01/2019 4,866
1,790 Resources Auth. Clean Water RB,
Series 1999 5.63 10/01/2022 1,799
4,710 Resources Auth. Railway Transportation
RB, Series 1990 7.13 10/01/2015 4,720
Resources Auth. Water and Sewer RB,
7,210 Series 1996A 5.63 4/01/2027 7,150
1,620 Series 1997 5.30 11/01/2022 1,557
4,270 Series 1998 5.20 10/01/2028 3,975
Richmond Convention Center Auth. RB,
6,295 Series 2000 6.13 6/15/2020 6,573
14,750 Series 2000 6.13 6/15/2025 15,298
2,000 Richmond Metropolitan Auth. Expressway
RB, Series 1998 (INS)(3) 5.25 7/15/2022 1,928
12,840 Richmond RB, Series 1999A (INS)(4) 5.13 1/15/2024 11,904
1,250 Roanoke County Educational Facility IDA
RB, Series 1998 5.25 3/15/2023 1,158
4,250 Russell County IDA PCRB, Series 1990G 7.70 11/01/2007 4,341
4,050 Suffolk Redevelopment and Housing Auth.
MFH RB, Series 1998 (INS)(6) 5.35 10/01/2028 3,670
11,820 Virginia Beach Development Auth.
Hospital RB, Series 1991 (PRE) 6.30 11/01/2021 12,290
1,000 Virginia Beach Development Auth.
Residential and Health Care Facility
RB, Series 1997 6.15 7/01/2027 920
7,610 Virginia Beach GO, Series 2000 5.50 3/01/2020 7,587
10,395 Virginia Beach Water and Sewer System RB,
Series 2000 5.50 8/01/2025 10,318
12,000 West Point IDA Solid Waste Disposal RB,
Series 1994B (c) 6.25 3/01/2019 11,336
6,000 Williamsburg Hospital Facilities IDA RB,
Series 1993 (c) 5.75 10/01/2022 5,627
415 Winchester IDA Educational Facilities RB,
Series 1994 (INS)(5) 6.75 10/01/2019 447
PUERTO RICO (6.6%)
Electric Power Auth. RB,
2,025 Series 1995 5.50 7/01/2025 1,978
8,300 Series 1995Z 5.25 7/01/2021 7,960
8,000 Series HH (INS)(4) 5.25 7/01/2029 7,707
8,600 Highway and Transportation Auth. RB,
Series 1996Y 5.50 7/01/2026 8,454
--------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $387,616) 391,043
--------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (1.0%)
VIRGINIA
2,300 Alexandria Redevelopment and Housing
Auth. RB, Series 1996B (LOC) 5.55 10/01/2006 2,300
1,785 Petersburg Hospital Auth. RB,
Series 1997 (LOC) 5.55 7/01/2017 1,785
--------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $4,085) 4,085
--------------------------------------------------------------------------------
Total investments (cost: $391,701) $395,128
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Water/Sewer Utilities - Municipal 16.5%
Hospitals 14.7
General Obligations 12.3
Escrowed Bonds 6.5
Paper & Forest Products 6.0
Miscellaneous 5.8
Sales Tax 5.5
Nursing/Continuing Care Centers 5.3
Airport/Port 4.6
Electric/Gas Utilities - Municipal 4.4
Single-Family Housing 4.0
Multifamily Housing 3.0
Education 2.9
Special Assessment/Tax/Fee 2.7
Toll Roads 2.0
Appropriated Debt 1.2
Electric Utilities 1.1
Community Service 0.8
----
Total 99.3%
====
USAA VIRGINIA MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPAL COUPON FINAL
AMOUNT SECURITY RATE MATURITY VALUE
--------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (74.6%)
VIRGINIA
$ 2,850 Arlington Public Improvement RB,
Series 1984 (LOC) 5.00% 8/01/2017 $ 2,850
8,750 Chesterfield County IDA PCRB,
Series 1993 5.65 8/01/2009 8,750
5,600 Chesterfield County IDA RB,
Series 1989 (LOC) 5.70 2/01/2003 5,600
5,135 Clarke County IDA RB,
Series 2000 (LIQ)(INS)(4) 5.60 1/01/2030 5,135
5,100 Colonial Heights IDA IDRB, Series 1992 5.65 3/01/2005 5,100
4,000 Fairfax County IDA RB, Series 2000 5.50 1/01/2030 4,000
2,100 Fluvanna County IDA IDRB,
Series 1984 (LOC) 5.60 12/01/2009 2,100
2,500 Hampton Redevelopment and Housing Auth.
RB, Series 1998 (LOC) 5.50 2/01/2028 2,500
8,000 Hanover County IDA Residential Care
Facility RB, Series 1999 (LOC) 5.50 7/01/2029 8,000
10,000 Harrisonburg IDA RB, Series 2000 (LOC) 5.60 8/01/2023 10,000
7,700 Harrisonburg Redevelopment and Housing
Auth. MFH RB, Series 1991A (LOC) 5.60 3/01/2016 7,700
Henrico County IDA RB,
3,950 Series 1986C (NBGA) 5.25 7/15/2016 3,950
5,785 Series 1998 (LOC) 5.70 8/01/2023 5,785
1,000 Loudoun County IDA RB, Series 1998 (LOC) 5.50 11/01/2028 1,000
Lynchburg IDA Hospital RB,
400 Series 1985C (LIQ)(INS)(2) 5.70 12/01/2025 400
1,700 Series 1985D (LIQ)(INS)(2) 5.70 12/01/2025 1,700
2,500 Series 1985F (LIQ)(INS)(2) 5.70 12/01/2025 2,500
2,950 Newport News Redevelopment and Housing
Auth. MFH RB, Series 1984 (LOC) 5.55 11/01/2006 2,950
4,800 Norfolk IDA Hospital Facilities RB,
Series 1999 (LOC) 5.70 6/01/2020 4,800
3,485 Norfolk IDA RB, Series 1998 (LOC) 5.55 9/01/2020 3,485
Norfolk Redevelopment and Housing Auth.
RB,
1,400 Series 1999 (LOC) 5.55 9/01/2009 1,400
2,100 Series 1999 (LOC) 5.55 3/01/2021 2,100
5,455 Peninsula Ports Auth. Coal Terminal RB,
Series 1987D (LOC) 5.55 7/01/2016 5,455
Prince William County IDA RB,
6,300 Series 1988 (LOC) 5.70 6/30/2004 6,300
1,031 Series 1989D (LOC) 5.70 10/01/2000 1,031
1,700 Richmond IDA IDRB, Series 1993 5.65 10/01/2002 1,700
522 Richmond IDA RB, Series 1989A (LOC) 5.70 6/01/2002 522
1,710 Richmond Redevelopment and Housing
Auth. RB, Series 1995 (LOC) 5.45 4/01/2029 1,710
10,000 Roanoke IDA RB, Series 1994 5.65 12/01/2013 10,000
--------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $118,523) 118,523
--------------------------------------------------------------------------------
PUT BONDS (13.6%)
VIRGINIA
Chesterfield County IDA PCRB,
4,700 Series 1985 4.35 10/01/2009 4,700
2,000 Series 1985 4.25 10/01/2009 2,000
Louisa IDA PCRB,
2,000 Series 1984 4.45 12/01/2008 2,000
2,000 Series 1984 4.40 12/01/2008 2,000
3,325 Series 1985 4.40 12/01/2008 3,325
1,535 Prince William County IDA RB,
Series 1992 (LOC) 4.40 9/01/2007 1,535
3,505 Richmond IDA RB, Series 1987A (LOC) 4.45 8/15/2015 3,505
2,500 York County IDA PCRB, Series 1985MMM 4.30 7/01/2009 2,500
--------------------------------------------------------------------------------
Total put bonds (cost: $21,565) 21,565
--------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (11.4%)
VIRGINIA
1,000 Arlington County IDA Hospital RB,
Series 1991A (PRE) 6.55 9/01/2003 1,039
Augusta County IDA Hospital RB,
2,500 Series 1991 (PRE) 6.50 9/01/2008 2,596
1,000 Series 1991 (PRE) 6.63 9/01/2012 1,040
1,005 Charlottesville IDA RB,
Series 1990 (PRE) 7.38 10/01/2020 1,025
3,025 Newport News GO, Series 2000A 6.00 5/01/2001 3,047
4,000 Norfolk Airport Auth. CP, Series A (LOC) 4.35 1/16/2001 4,000
Norfolk GO Capital Improvement and
Refunding Bonds,
1,000 Series 1992A (PRE) 5.90 2/01/2006 1,025
1,000 Series 1998 (INS)(3) 4.75 7/01/2001 1,003
1,000 Norfolk IDA RN, Series 1998 4.30 11/17/2000 1,000
1,000 Richmond GO, Series 1999A 4.25 1/15/2001 1,000
1,450 Roanoke GO, Series 1999 A&B 3.70 10/01/2000 1,450
--------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $18,225) 18,225
--------------------------------------------------------------------------------
Total investments (cost: $158,313) $158,313
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Hospitals 12.3%
Electrical Equipment 11.8
Multifamily Housing 10.7
Electric Utilities 10.4
Nursing/Continuing Care Centers 9.3
Finance - Municipal 6.3
Airport/Port 5.9
Tobacco 4.3
U.S. Government 4.2
General Obligations 4.1
Buildings 4.0
Aerospace/Defense 3.9
Manufacturing - Diversified Industries 3.5
Electric/Gas Utilities - Municipal 2.5
Real Estate Investment Trusts 2.2
Metals/Mining 1.3
Education 1.0
Retail - Food 1.0
Real Estate - Other 0.9
----
Total 99.6%
====
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.
(b) At September 30, 2000, the cost of securities purchased on a
delayed-delivery basis for the USAA Virginia Bond was $3.5 million.
(c) At September 30, 2000, this security was segregated to cover
delayed-delivery purchases.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
USAA USAA VIRGINIA
VIRGINIA MONEY MARKET
BOND FUND FUND
--------------------------
ASSETS
Investments in securities, at market value
(identified cost of $391,701 and $158,313,
respectively) $ 395,128 $ 158,313
Cash 371 604
Receivables:
Capital shares sold 163 412
Interest 6,488 764
--------------------------
Total assets 402,150 160,093
--------------------------
LIABILITIES
Securities purchased 3,518 -
Capital shares redeemed 61 1,071
USAA Investment Management Company 107 43
USAA Transfer Agency Company 19 10
Accounts payable and accrued expenses 45 37
Dividends on capital shares 503 34
--------------------------
Total liabilities 4,253 1,195
--------------------------
Net assets applicable to capital
shares outstanding $ 397,897 $ 158,898
==========================
REPRESENTED BY:
Paid-in capital $ 401,343 $ 158,898
Accumulated net realized loss on investments (6,873) -
Net unrealized appreciation of investments 3,427 -
--------------------------
Net assets applicable to capital
shares outstanding $ 397,897 $ 158,898
==========================
Capital shares outstanding 36,689 158,898
==========================
Authorized shares of $.01 par value 120,000 1,125,000
==========================
Net asset value, redemption price, and offering
price per share $ 10.85 $ 1.00
==========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
USAA USAA VIRGINIA
VIRGINIA MONEY MARKET
BOND FUND FUND
------------------------
Net investment income:
Interest income $11,374 $ 3,393
------------------------
Expenses:
Management fees 630 259
Transfer agent's fees 110 57
Custodian's fees 43 36
Postage 19 10
Shareholder reporting fees 12 8
Directors' fees 3 3
Registration fees 4 -
Professional fees 16 15
Other 4 5
Total expenses 841 393
------------------------
Net investment income 10,533 3,000
------------------------
Net realized and unrealized gain on investments:
Net realized gain 2,569 -
Change in net unrealized
appreciation/depreciation 2,880 -
------------------------
Net realized and unrealized gain 5,449 -
------------------------
Increase in net assets resulting from operations $15,982 $ 3,000
========================
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
VIRGINIA VIRGINIA
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 $ 10,533 $ 21,083 $ 3,000 $ 4,375
Net realized gain (loss) on investments 2,569 (8,891) - -
Change in net unrealized appreciation/
depreciation of investments 2,880 (20,762) - -
-----------------------------------------------------
Increase (decrease) in net assets
resulting from operations 15,982 (8,570) 3,000 4,375
-----------------------------------------------------
Distributions to shareholders from:
Net investment income (10,533) (21,083) (3,000) (4,375)
-----------------------------------------------------
From capital share transactions:
Proceeds from shares sold 24,323 60,020 69,634 146,790
Dividend reinvestments 7,451 15,243 2,803 4,130
Cost of shares redeemed (16,542) (70,746) (70,593) (132,282)
-----------------------------------------------------
Increase in net assets from
capital share transactions 15,232 4,517 1,844 18,638
-----------------------------------------------------
Net increase (decrease) in net assets 20,681 (25,136) 1,844 18,638
Net assets:
Beginning of period 377,216 402,352 157,054 138,416
-----------------------------------------------------
End of period $ 397,897 $ 377,216 $ 158,898 $ 157,054
=====================================================
Change in shares outstanding:
Shares sold 2,264 5,477 69,634 146,790
Shares issued for dividends reinvested 695 1,405 2,803 4,130
Shares redeemed (1,543) (6,538) (70,593) (132,282)
-----------------------------------------------------
Increase in shares outstanding 1,416 344 1,844 18,638
=====================================================
</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 Virginia Bond Fund and USAA Virginia Money Market Fund (the
Funds). The Funds have a common objective of providing Virginia investors with a
high level of current interest income that is exempt from federal and Virginia
state income taxes. The USAA Virginia Money Market Fund has a further objective
of preserving capital and maintaining liquidity.
A. SECURITY VALUATION - Investments in the USAA Virginia 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 Virginia 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 Virginia 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 Virginia Bond Fund had capital loss carryovers for federal income
tax purposes of $6,873,000 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 VIRGINIA USAA VIRGINIA
BOND FUND MONEY MARKET FUND
--------------------------------
Purchases $82,021,000 $161,762,000
Sales/maturities $63,447,000 $155,219,000
For the USAA Virginia 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 Virginia Bond Fund $8,207,000 ($4,780,000) $3,427,000
(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 VIRGINIA 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 $ 10.69 $ 11.52 $ 11.49 $ 10.92 $ 10.93 $ 10.76
Net investment income .29 .59 .60 .62 .63 .63
Net realized and
unrealized gain (loss) .16 (.83) .03 .57 (.01) .17
Distributions from net
investment income (.29) (.59) (.60) (.62) (.63) (.63)
----------------------------------------------------------------------------
Net asset value at
end of period $ 10.85 $ 10.69 $ 11.52 $ 11.49 $ 10.92 $ 10.93
============================================================================
Total return (%)* 4.31 (2.00) 5.62 11.13 5.82 7.57
Net assets at end
of period (000) $397,897 $377,216 $402,352 $346,246 $292,914 $267,111
Ratio of expenses
to average
net assets (%) .44(a) .43 .43 .44 .46 .48
Ratio of net investment
income to average
net assets (%) 5.48(a) 5.45 5.22 5.48 5.76 5.74
Portfolio turnover (%) 16.78 24.60 10.55 14.24 26.84 27.20
(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 VIRGINIA 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 .03
Distributions from net
investment income (.02) (.03) (.03) (.03) (.03) (.03)
----------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total return (%)* 1.92 3.06 2.98 3.34 3.14 3.42
Net assets at end
of period (000) $158,898 $157,054 $138,416 $122,509 $113,330 $110,308
Ratio of expenses to
average net assets (%) .50(a) .50 .50 .50 .50 .50
Ratio of expenses
to average net
assets excluding
reimbursements (%) - - .50 .51 .53 .55
Ratio of net investment
income to average
net assets (%) 3.79(a) 3.04 2.93 3.29 3.10 3.36
(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
