TABLE OF CONTENTS
USAA FAMILY OF FUNDS 1
MESSAGE FROM THE PRESIDENT 2
INVESTMENT REVIEW
USAA California Bond Fund 4
USAA California Money Market Fund 10
FINANCIAL INFORMATION
Portfolios of Investments
Categories and Definitions 13
USAA California Bond Fund 15
USAA California Money Market Fund 20
Notes to Portfolios of Investments 25
Statements of Assets and Liabilities 26
Statements of Operations 27
Statements of Changes in Net Assets 28
Notes to Financial Statements 29
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
articipate 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 CALIFORNIA
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 CALIFORNIA BOND FUND
OBJECTIVE: High level of current interest income that is exempt from federal
and California state income taxes.
TYPES OF INVESTMENTS: Invests principally in long-term, investment-grade
California tax-exempt securities.
================================================================================
3/31/00 9/30/00
--------------------------------------------------------------------------------
Net Assets $576.7 Million $614.0 Million
Net Asset Value Per Share $10.38 $10.63
Tax-Exempt Dividends Per Share Last 12 Months $0.576 $0.572
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
5.23%(+) 4.98%
================================================================================
* 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
--------------------------------------------------------------------------------
10 Years 7.25% = 6.12% + 1.13%
--------------------------------------------------------------------------------
5 Years 6.23% = 5.66% + 0.57%
--------------------------------------------------------------------------------
1 Year 6.37% = 5.71% + 0.66%
--------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS
FOR THE 10-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 California Bond Fund for the
10-year period ending September 30, 2000.
TOTAL RETURN
---------------------
09/30/91 13.17%
09/30/92 9.38%
09/30/93 13.96%
09/30/94 -5.14%
09/30/95 11.24%
09/30/96 8.34%
09/30/97 9.85%
09/30/98 10.15%
09/30/99 -3.00%
09/30/00 6.37%
DIVIDEND RETURN
---------------------
09/30/91 7.26%
09/30/92 6.54%
09/30/93 6.35%
09/30/94 5.06%
09/30/95 6.47%
09/30/96 6.02%
09/30/97 5.97%
09/30/98 5.69%
09/30/99 4.93%
09/30/00 5.71%
CHANGE IN SHARE PRICE
---------------------
09/30/91 5.91%
09/30/92 2.84%
09/30/93 7.61%
09/30/94 -10.20%
09/30/95 4.77%
09/30/96 2.32%
09/30/97 3.88%
09/30/98 4.46%
09/30/99 -7.93%
09/30/00 0.66%
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 California Bond Fund to the 12-Month
Dividend Yield of the Lipper California Municipal Debt Funds Average from
9/30/91 to 9/30/00.
USAA CALIFORNIA LIPPER CALIFORNIA MUNICIPAL
BOND FUND DEBT FUNDS AVERAGE
--------------- ---------------------------
09/30/91 6.53% 6.42%
09/30/92 6.10% 6.08%
09/30/93 5.46% 5.38%
09/30/94 5.87% 5.81%
09/30/95 5.80% 5.36%
09/30/96 5.71% 5.11%
09/30/97 5.48% 4.86%
09/30/98 5.18% 4.54%
09/30/99 5.50% 4.71%
09/30/00 5.39% 4.69%
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 9/30/91
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 California Bond Fund, Lehman
Brothers Municipal Bond Index and the Lipper California Municipal Debt Funds
Average. The data is from 9/30/90 through 9/30/00. The data points from the
graph are as follows:
USAA CALIFORNIA BOND FUND
YEAR AMOUNT
---- ------
09/30/90 $10,000
03/31/91 10,696
09/30/91 11,317
03/31/92 11,714
09/30/92 12,378
03/31/93 13,185
09/30/93 14,107
03/31/94 13,225
09/30/94 13,381
03/31/95 14,136
09/30/95 14,886
03/31/96 15,458
09/30/96 16,127
03/31/97 16,479
09/30/97 17,716
03/31/98 18,511
09/30/98 19,514
03/31/99 19,707
09/30/99 18,928
03/31/00 19,133
09/30/00 20,134
LEHMAN BROTHERS MUNICIPAL BOND INDEX
YEAR AMOUNT
---- ------
09/30/90 $10,000
03/31/91 10,667
09/30/91 11,319
03/31/92 11,733
09/30/92 12,502
03/31/93 13,202
09/30/93 14,095
03/31/94 13,508
09/30/94 13,751
03/31/95 14,512
09/30/95 15,289
03/31/96 15,728
09/30/96 16,213
03/31/97 16,585
09/30/97 17,674
03/31/98 18,362
09/30/98 19,214
03/31/99 19,501
09/30/99 19,080
03/31/00 19,485
09/30/00 20,258
LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS AVERAGE
YEAR AMOUNT
---- ------
09/30/90 $10,000
03/31/91 10,628
09/30/91 11,273
03/31/92 11,638
09/30/92 12,342
03/31/93 13,099
09/30/93 14,035
03/31/94 13,361
09/30/94 13,458
03/31/95 14,165
09/30/95 14,784
03/31/96 15,233
09/30/96 15,771
03/31/97 16,051
09/30/97 17,187
03/31/98 17,831
09/30/98 18,721
03/31/99 18,872
09/30/99 18,170
03/31/00 18,431
09/30/00 19,291
DATA FROM 9/30/90 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 CALIFORNIA MUNICIPAL DEBT FUNDS AVERAGE IS THE AVERAGE
PERFORMANCE LEVEL OF ALL CALIFORNIA 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
California 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 California Bond Fund paid a dividend distribution
yield of 5.35%. During this period of declining interest rates, the Fund's share
price increased by $0.25, or 2.41%, to $10.63.
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.
* * * *
Your Fund's performance received an Overall Star Rating of 4 stars in the
municipal bond fund category from Morningstar Rating(TradeMark) for the period
ending September 30, 2000.
THE STATE OF CALIFORNIA
California's economy, the largest among the 50 states, continues to expand.
Strong gains in employment and personal income tax have allowed the state to
achieve favorable financial results. In recognition of these factors, Standard &
Poor's and Moody's Investors Service upgraded California's general obligation
bond rating to AA and Aa2, respectively, on September 7, 2000. Fitch IBCA
retained its AA rating. I discuss these general economic issues because,
although they may not directly relate to each of your Fund's holdings, they
indicate the financial and economic environment of the state. We will closely
monitor those specific credit issues, 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 California Bond Fund with a
taxable equivalent investment.
--------------------------------------------------------------------------------
TO MATCH THE USAA CALIFORNIA BOND FUND'S CLOSING 30-DAY SEC YIELD OF 4.98% AND:
Assuming a California state tax rate of: 8.00% 8.00% 9.30% 9.30% 9.30%
and a marginal federal tax rate of: 15% 28% 31% 36% 39.6%
A FULLY TAXABLE INVESTMENT MUST PAY: 6.37% 7.52% 7.96% 8.58% 9.09%
--------------------------------------------------------------------------------
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 CALIFORNIA
BOND FUND RECEIVED 4, 5, AND 4 STARS FOR THE THREE-, FIVE-, AND 10-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, 1,472,
AND 424 FUNDS IN THE MUNICIPAL BOND FUND CATEGORY FOR THE THREE-, FIVE-, AND
10-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 California Bond Fund to be:
AAA - 43%; AA - 32%; A - 19%; 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. UNRATED SECURITIES THAT HAVE BEEN DETERMINED BY USAA IMCO TO BE OF
EQUIVALENT INVESTMENT QUALITY TO CATEGORIES AAA, AA, AND BBB ACCOUNT FOR 3.3%,
0.9%, AND 0.4%, 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 15-19.
INVESTMENT REVIEW
USAA CALIFORNIA MONEY MARKET FUND
OBJECTIVE: High level of current interest income that is exempt from federal and
California state income taxes and a further objective of preserving capital and
maintaining liquidity.
TYPES OF INVESTMENTS: Invests principally in high-quality, California 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 $425.2 Million $430.9 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 7-DAY
TO 9/30/00 1 YEAR 5 YEARS 10 YEARS YIELD
1.74%(+) 3.22% 3.19% 3.23% 3.76%
================================================================================
(+) 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 California Money Market Fund and the iMoneyNet, Inc.
(formerly IBC Financial Data) State Specific SB (Stock Broker) and GP (General
Purpose) (Tax-Free) California Money Funds.
USAA CALIFORNIA
MONEY MARKET FUND IMONEYNET, INC.
----------------- ---------------
09/27/99 3.12% 2.75%
10/25/99 2.80% 2.51%
11/29/99 3.26% 2.96%
12/27/99 3.51% 3.24%
01/31/00 2.60% 2.34%
02/28/00 2.67% 2.30%
03/27/00 2.87% 2.62%
04/24/00 3.53% 3.25%
05/22/00 3.62% 3.38%
06/26/00 3.76% 3.52%
07/31/00 3.60% 3.37%
08/28/00 3.38% 3.16%
09/25/00 3.49% 3.17%
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) CALIFORNIA 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.
Demand is exceeding supply, which continues to affect the California market.
This has caused one-year California bonds and notes to have lower yields than
the national market.
STRATEGY
We continue to believe that variable-rate demand notes (VRDNs) provide a good
value for the USAA California 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
commercial paper, where we were able to find value in the 60- to 90-day range.
The Fund participated less in the California note market than in previous years
because one-year issuance was down. Although past performance is no guarantee of
future results, these fixed-rate purchases have performed well, and have
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 71.9% 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 39 days on September 30, 2000, was slightly
shorter than iMoneyNet, Inc.'s (formerly IBC Financial Data) average California
tax-exempt money market fund.
FUND PERFORMANCE
For the 12 months ending September 30, 2000, your Fund ranked 9 out of 54
California tax-exempt money market funds according to iMoneyNet, Inc., with a
return of 3.22%. The average for the category over the same period was 2.95%.
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 California Money Market Fund.
The data is from 9/30/90 to 9/30/00. The data points from the graph are as
follows:
USAA CALIFORNIA MONEY MARKET FUND
YEAR AMOUNT
---- ------
09/30/90 $10,000
03/31/91 10,262
09/30/91 10,483
03/31/92 10,676
09/30/92 10,829
03/31/93 10,960
09/30/93 11,086
03/31/94 11,203
09/30/94 11,343
03/31/95 11,532
09/30/95 11,743
03/31/96 11,945
09/30/96 12,139
03/31/97 12,331
09/30/97 12,540
03/31/98 12,744
09/30/98 12,952
03/31/99 13,129
09/30/99 13,313
03/31/00 13,506
09/30/00 13,741
DATA FROM 9/30/90 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 20-24.
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 California 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 California Money Market Fund through
rigorous internal credit research.
(ETM) Escrowed to final maturity.
(PRE) Prerefunded to a date prior to maturity.
(LOC) Enhanced by a bank letter of credit.
(LIQ) Enhanced by a bank liquidity agreement.
(NBGA) Enhanced by a 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) College Construction Loan Insurance Association
(6) ACA Financial Guaranty Corp.
PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CAB Capital Appreciation Bond MERLOT Municipal Exempt Receipts-
COP Certificate of Participation Liquidity Optional Tender
CP Commercial Paper MFH Multifamily Housing
GO General Obligation PCRB Pollution Control Revenue Bond
IDA Industrial Development RAN Revenue Anticipation Note
Authority/Agency RB Revenue Bond
IDRB Industrial Development TRAN Tax Revenue Anticipation Note
Revenue Bond
USAA CALIFORNIA BOND FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPAL COUPON FINAL MARKET
AMOUNT SECURITY RATE MATURITY VALUE
--------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (97.7%)
CALIFORNIA (95.2%)
$ 7,500 Antelope Valley Healthcare District RB,
Series 1997B (INS)(4) 5.20% 1/01/2027 $ 7,126
Association of Bay Area Governments
Finance Auth. COP,
2,000 Series 1998 (NBGA) 5.13 5/15/2023 1,877
21,000 Series 1999 (INS)(6) 6.20 11/01/2029 21,778
7,005 Benicia Unified School District GO,
Series 2000B (INS)(1),(a) 5.91 8/01/2024 1,799
Burbank Unified School District GO,
4,025 Series 1998B (INS)(3),(a) 5.30 8/01/2022 1,154
3,130 Series 1998B (INS)(3),(a) 5.30 8/01/2023 843
Commerce Community Development
Commission Tax Allocation Bonds,
3,740 Series 1997A, Project #1 (INS)(1),(a) 5.50 8/01/2022 1,072
3,740 Series 1997A, Project #1 (INS)(1),(a) 5.50 8/01/2023 1,008
5,000 Coronado Community Development Agency
Tax Allocation Bonds (INS)(1) 5.60 9/01/2030 5,038
5,000 Desert Hospital District COP (PRE) 6.39 7/28/2020 5,284
Educational Facilities Auth. RB,
9,500 Series 1991 (National University)
(PRE) 7.15 5/01/2021 9,871
1,775 Series 1992 (Mills College)(PRE) 6.88 9/01/2022 1,899
9,000 Series 1994 (National University)
(INS)(5) 6.20 5/01/2021 9,622
8,015 Series 1995 (Redland University) 6.00 10/01/2025 8,253
8,050 Series 1995A (California Education
Pool) 5.60 12/01/2020 8,090
1,460 Series 1997C (University of Southern
California) 5.13 10/01/2028 1,381
6,000 Series 2000 (University of the
Pacific)(INS)(1) 5.75 11/01/2030 6,145
21,000 Series N (Stanford University) 5.20 12/01/2027 20,224
3,525 Series O (Stanford University) 5.13 1/01/2031 3,338
5,945 Escondido COP, Series 2000A (INS)(3) 5.75 9/01/2030 6,093
3,360 Fallbrook Union High School District GO,
Series 1998 (INS)(3),(a) 5.40 9/01/2019 1,168
Fontana Unified School District GO,
2,500 Series 1990D (INS)(3) 5.80 5/01/2017 2,641
2,000 Series 1990D (INS)(3) 5.75 5/01/2022 2,063
1,500 Fresno Airport RB, Series 2000A
(INS)(4) 5.50 7/01/2030 1,497
2,205 Fresno COP, Series 1991 8.50 5/01/2016 2,270
1,650 Glendoora Unified School District GO,
Series A (INS)(4) 5.38 9/01/2025 1,632
1,500 Hacienda La Puente Unified School
District GO, Series 2000A (INS)(1) 5.25 8/01/2025 1,458
Health Facilities Financing Auth. RB,
8,000 Series 1990 (Sisters of Providence)
(PRE) 7.50 10/01/2010 8,162
6,500 Series 1990A (Lodi Memorial Hospital)
(NBGA) 7.70 9/01/2010 6,646
11,500 Series 1991 (Southern Presbyterian)
(PRE) 6.75 6/01/2021 11,940
3,175 Series 1992A (Scripps Memorial
Hospital)(INS)(1) 6.38 10/01/2022 3,343
3,500 Series 1993C (Kaiser Permanente) 5.60 5/01/2033 3,349
2,000 Series 1994 (St. Paul's Episcopal
Home)(NBGA) 6.50 9/01/2014 2,154
5,000 Series 1994A (Scripps Research
Institute) 6.63 7/01/2018 5,270
1,000 Series 1997A (Sunny View) (NBGA) 5.50 1/01/2019 1,005
3,595 Series 1998A (Catholic Healthcare
West) 5.00 7/01/2028 2,909
2,320 Series 1998A (Sacramento Medical)
(NBGA) 5.25 5/01/2021 2,245
5,000 Series 1998B (Kaiser Permanente) 5.00 10/01/2020 4,533
4,180 Hollister Joint Powers Financing Auth.
RB (INS)(1) 5.90 12/01/2023 4,290
Housing Finance Agency Home Mortgage RB,
10,310 Series 1991F (d) 6.85 8/01/2017 10,597
5,990 Series 1994A 6.55 8/01/2026 6,141
3,000 Housing Finance Agency MFH RB,
Series 1996A (INS)(2) 6.05 8/01/2027 3,031
5,455 Imperial Beach MFH RB, Series 1995A 6.45 9/01/2025 5,648
Infrastructure and Economic
Development RB,
3,090 Series 1999 (INS)(6) 5.75 12/01/2024 3,101
1,000 Series 2000 5.63 7/01/2020 1,017
1,250 Series 2000 5.75 7/01/2030 1,270
2,500 Mendocino County COP, Series 2000
(INS)(1) 5.25 6/01/2030 2,407
15,200 Oakland Unified School District GO,
Series 2000F (INS)(1) 5.50 8/01/2024 15,262
10,325 Pleasanton Joint Powers Financing Auth.
RB, Series 1993A 6.15 9/02/2012 10,735
5,000 Poway Redevelopment Agency Tax
Allocation RB, Series 2000 (INS)(1) 5.75 6/15/2033 5,125
13,400 Riverside County Public Financing Auth.
Tax Allocation RB, Series 1997A (d) 5.63 10/01/2033 12,625
20,225 Sacramento County Sanitation District
Finance Auth. RB, Series 2000
(INS)(2) 5.63 12/01/2030 20,457
6,000 Sacramento Power Auth. RB, Series 1995 6.00 7/01/2022 6,098
7,040 San Diego MFH RB, Series 1995A 6.45 5/01/2025 7,260
San Diego Unified School District CAB,
6,940 Series 1999A (INS)(3),(a) 5.54 7/01/2020 2,280
15,160 Series 1999A (INS)(3),(a) 5.63 7/01/2021 4,660
8,440 Series 1999A (INS)(3),(a) 5.56 7/01/2022 2,430
11,120 Series 1999A (INS)(3),(a) 5.99 7/01/2023 3,011
18,000 San Francisco Bay Area RB, Series 1999 5.50 7/01/2029 17,908
San Francisco City and County Airport
RB,
3,190 2nd Series-Issue 24B (INS)(4) 5.63 5/01/2025 3,233
8,845 2nd Series-Issue 24B (INS)(4) 5.63 5/01/2030 8,935
9,500 San Joaquin Hills Transportation
Corridor Agency RB, Series 1993 (PRE) 6.75 1/01/2032 10,204
14,000 Santa Ana Unified School District GO,
Series 2000 (INS)(3) 5.70 8/01/2029 14,272
11,215 Santa Clara Valley Water District RB,
Series 2000A 5.63 2/01/2025 11,381
12,455 Southern California Public Power Auth.
RB, Series 1989 (LOC) 6.00 7/01/2018 12,461
State GO,
22,100 Series 1998 5.00 10/01/2027 20,549
7,500 Series 1999 (INS)(1) 5.00 8/01/2024 7,038
10,000 Series 1999 5.50 9/01/2024 10,041
10,000 Series 1999 5.88 10/01/2026 10,391
8,865 Series 1999 5.75 12/01/2029 9,073
15,000 Series 2000 5.25 9/01/2026 14,495
14,715 Series 2000 5.50 6/01/2028 14,703
27,825 Series 2000 5.75 3/01/2030 28,492
Statewide Communities Development
Auth. COP,
5,420 Lutheran Homes (ETM) 5.75 11/15/2021 5,516
1,055 The Arc of San Diego (NBGA) 5.63 5/01/2021 1,064
Suisun City Public Financing Auth. RB,
17,855 Series 1998A (a) 5.37 10/01/2028 3,225
20,080 Series 1998A (a) 5.37 10/01/2033 2,672
Union Elementary School District CAB,
3,200 Series 1999A (INS)(3),(a) 6.20 9/01/2022 913
2,600 Series 1999A (INS)(3),(a) 6.21 9/01/2023 697
Univ. of California RB,
12,000 Series 1991A (PRE)(d) 6.88 9/01/2016 12,840
4,000 Series 1996 (INS)(2) 5.75 7/01/2024 4,071
18,000 Vallejo Sanitation and Flood Control
COP, Series 1993 (INS)(3) 5.00 7/01/2019 17,331
Washington Township Health Care
District RB,
7,085 Series 1999 5.13 7/01/2023 6,472
3,005 Series 1999 5.25 7/01/2029 2,741
Washington Township Hospital RB,
11,000 Series 1993 (d) 5.50 7/01/2018 10,846
7,845 Series 1993 5.25 7/01/2023 7,402
1,515 Watsonville Hospital RB, Series 1996A
(ETM) 6.20 7/01/2012 1,681
PUERTO RICO (2.5%)
10,500 Electric Power Auth. RB, Series 1995Z 5.25 7/01/2021 10,070
5,650 Highway and Transportation Auth. RB,
Series 1996Y 5.50 7/01/2036 5,565
--------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $586,439) 599,907
--------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (0.9%)
CALIFORNIA
Irvine Improvement Bonds,
600 Assessment District 87-8 (LOC) 4.75 9/02/2024 600
4,700 Assessment District 97-16 (LOC) 4.75 9/02/2022 4,700
--------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $5,300) 5,300
--------------------------------------------------------------------------------
Total investments (cost: $591,739) $605,207
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
General Obligations 27.8%
Escrowed Bonds 11.0
Hospitals 9.7
Water/Sewer Utilities - Municipal 9.7
Education 9.3
Real Estate Tax/Fee 6.7
Electric/Gas Utilities - Municipal 4.7
Nursing/Continuing Care Centers 4.4
Toll Roads 2.9
Single-Family Housing 2.7
Multifamily Housing 2.6
Airport/Port 2.2
Health Care - Miscellaneous 1.8
Special Assessment/Tax/Fee 1.8
Other 1.3
----
Total 98.6%
====
USAA CALIFORNIA MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPAL COUPON FINAL
AMOUNT SECURITY RATE MATURITY VALUE
--------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (71.9%)
CALIFORNIA (66.7%)
$ 6,960 Alameda Contra Costa Schools Financing
Auth. COP, Series 1996A (LOC) 2.55 7/01/2016 $ 6,960
2,000 Chula Vista Charter City RB (LOC) 4.35 12/01/2010 2,000
2,400 Chula Vista IDRB, Series 1996A 5.00 7/01/2021 2,400
2,100 Covina Redevelopment Agency MFH RB,
Series 1994A (NBGA) 4.50 12/01/2015 2,100
1,900 Davis Community Facilities District RB,
Series 2000 (LOC) 4.60 9/01/2024 1,900
5,000 Dublin San Ramon Services District
Sewer Revenue COP, Series 2000
(LIQ)(INS)(1) 4.60 8/01/2035 5,000
Fremont COP,
6,025 Series 1990 (LOC) 4.45 7/01/2015 6,025
4,300 Series 1991 (LOC) 4.45 8/01/2022 4,300
4,000 Hacienda Puente Unified
School District COP (LOC) 4.70 10/01/2009 4,000
1,025 Hanford 1997 COP (LOC) 4.75 3/01/2008 1,025
3,500 Hanford Sewer System RB,
Series 1996A (LOC) 4.75 4/01/2023 3,500
1,960 Hesperia Public Financing Auth. Lease RB,
Series 1998B (LOC) 4.80 6/01/2022 1,960
4,700 Huntington Beach MFH RB,
Series 1985A (LOC) 4.00 2/01/2010 4,700
2,600 Irvine IDA RB, Series 1985 (LOC) 6.10 11/01/2005 2,600
Irvine Improvement Bonds,
12,938 Assessment District 87-8 (LOC) 4.75 9/02/2024 12,938
5,455 Assessment District 89-10 (LOC) 4.75 9/02/2015 5,455
3,300 Assessment District 94-13 (LOC) 4.75 9/02/2022 3,300
965 Assessment District 97-16 (LOC) 4.75 9/02/2022 965
3,093 Assessment District 97-17 (LOC) 4.75 9/02/2023 3,093
Irvine Ranch Water District
Consolidated Bonds,
3,100 Series 1985 (LOC) 4.75 10/01/2010 3,100
6,500 Series 1995 (LOC) 5.00 1/01/2021 6,500
9,000 Lancaster MFH RB, Series 1984A (NBGA)(b) 4.40 11/01/2029 9,000
3,390 Lemoore COP, Series 1995 (LOC) 4.70 11/01/2020 3,390
9,535 Loma Linda Water RB, Series 1995 (LOC) 4.80 6/01/2025 9,535
9,800 Los Angeles Community Redevelopment
Agency COP, Series 1984 (LOC) 4.25 12/01/2014 9,800
6,500 Los Angeles MFH RB, Series 1991B (LOC) 4.35 12/01/2010 6,500
20,575 Los Angeles Senior COPs Series 2000,
MERLOT Series 2000 NN (LIQ)(INS)(2),(b) 4.95 11/01/2031 20,575
4,200 Monrovia Redevelopment Agency COP,
Series 1984 (NBGA) 4.10 12/01/2014 4,200
6,350 Monterey County Financing Auth. RB,
Series 1995A (LOC) 4.45 9/01/2036 6,350
9,890 Moreno Valley COP, Series 1997 (LOC) 4.75 6/01/2027 9,890
3,000 Oakland RB, Series 1999A, MERLOT
Series 2000M (LIQ)(INS)(2),(b) 4.75 1/01/2029 3,000
4,500 Oakland-Alameda County Coliseum Auth.
Lease RB, Series 2000C-1 (LOC)(NBGA) 2.55 2/01/2025 4,500
8,900 Ontario Industrial Development Auth. RB,
Series 1985 (LOC) 5.00 4/01/2015 8,900
Orange County Apartment Development RB,
8,100 Series 1984D (LOC) 5.63 8/01/2019 8,100
10,000 Series 1999C (NBGA) 4.30 12/01/2029 10,000
700 Orange County Sanitation District COP,
Series 1990-92A (LOC) 4.75 8/01/2015 700
9,300 Rialto Public Financing Auth. RB,
Series 1998A (LOC) 4.90 9/01/2027 9,300
8,000 San Bernardino County COP,
Series 1996 (LOC) 4.75 11/01/2025 8,000
4,650 San Bernardino IDA RB, Series 1992 (LOC) 5.75 2/01/2012 4,650
4,000 San Dimas Redevelopment Agency IDA RB,
Series 1985 (LOC) 5.75 11/01/2015 4,000
3,600 San Francisco City and County MFH RB,
Series 1985A (LOC) 3.45 12/01/2005 3,600
9,800 Santa Paula Public Financing Auth. RB,
Series 1996 (NBGA) 4.50 2/01/2026 9,800
3,030 School Facilities Financing Corp. COP,
Series 1998A (LOC) 4.65 7/01/2022 3,030
11,445 Statewide Communities Development
Auth. COP (LOC) 5.05 6/01/2026 11,445
8,200 Series 1992 (LOC) 4.45 12/01/2022 8,200
3,200 Series 1998 (LOC) 5.67 6/01/2013 3,200
21,000 Torrance Hospital RB, Series 1992
(LOC)(d) 4.40 2/01/2022 21,000
1,000 Upland Community Redevelopment Agency
MFH RB, Series 1999A (NBGA) 4.45 2/15/2030 1,000
1,900 West Hollywood Public Facilities Corp.
1998 COP (LOC) 4.75 2/01/2025 1,900
PUERTO RICO (5.2%)
10,000 Commonwealth Public Improvement Bonds
of 2000, MERLOT Series 2000EE
(LIQ)(INS)(1),(b) 4.75 7/01/2026 10,000
5,995 Highway and Transportation Auth. RB
(Series B), ROB/INs Class F Trust
Receipts; Series 14 (LIQ)(INS)(1),(b) 5.07 7/01/2035 5,995
6,700 Industrial, Medical, and Environmental
Pollution Control Facilities Financing
Auth. RB, Series 1985 (LOC) 2.80 12/01/2015 6,700
--------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $310,081) 310,081
--------------------------------------------------------------------------------
PUT BONDS (3.6%)
CALIFORNIA
2,660 Pollution Control Financing Auth. PCRB,
Series 1984 4.15 5/15/2002 2,660
12,700 Public Capital Improvement Finance
Auth. RB, Series 1988C (LOC)(d) 3.95 6/01/2028 12,700
--------------------------------------------------------------------------------
Total put bonds (cost: $15,360) 15,360
--------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (24.4%)
CALIFORNIA (23.0%)
6,070 Acalanes Union High School District
2000 TRAN 4.75 7/05/2001 6,095
2,150 Auburn Unified School District TRAN,
Series 1999 4.13 10/01/2000 2,150
4,000 Fremont Unified School District
2000-01 TRAN 5.00 7/10/2001 4,024
1,400 Intermodal Container Transfer Facility
Joint Powers Auth. RB, Series 1999A
(INS)(2) 4.00 11/01/2000 1,400
1,000 Loma Linda Hospital RB,
Series 1990B (PRE) 7.00 12/01/2022 1,025
1,060 Los Angeles Department of Water and
Power Electric Plant RB, Issue of 1994 4.50 8/15/2001 1,062
2,000 Placer County Office of Education TRAN,
Series 1999 4.13 10/01/2000 2,000
1,660 Porterville 2000 TRAN 4.45 6/29/2001 1,661
1,300 Rocklin Unified School District TRAN,
Series 1999 4.13 10/01/2000 1,300
3,035 Roseville City School District TRAN,
Series 1999 4.13 10/01/2000 3,035
2,500 San Mateo County Transit District
Limited Tax Bonds, Series 1998A
(INS)(1) 4.00 6/01/2001 2,500
15,000 San Ramon Valley Unified School
District TRAN, Series 1999-2000 3.80 12/16/2000 15,000
School Project for Utility Rate Reduction,
3,125 1999 RAN 3.86 10/06/2000 3,125
2,350 2000 RAN (c) 4.15 10/03/2001 2,350
2,500 Solano County TRAN, Series 1999-2000B 4.50 12/15/2000 2,504
15,000 State GO CP Notes 3.90 10/11/2000 15,000
7,800 State GO CP Notes 4.00 10/16/2000 7,800
2,000 State GO CP Notes 3.90 11/09/2000 2,000
3,725 Tahoe Truckee Unified School District
TRAN, Series 1999 4.25 11/23/2000 3,728
4,500 Vacaville Unified School District
2000 TRAN 5.00 7/05/2001 4,523
10,000 West Contra Costa Unified School
District 2000-01 TRAN 5.00 8/08/2001 10,065
3,800 Yuba Community College District TRAN,
Series 1999-2000 4.50 2/28/2001 3,809
2,925 Yuba County 1999-2000 TRAN 4.50 2/28/2001 2,926
PUERTO RICO (1.4%)
6,000 Government Development Bank CP 3.80 2/22/2001 6,000
--------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $105,082) 105,082
--------------------------------------------------------------------------------
Total investments (cost: $430,523) $430,523
================================================================================
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
General Obligations 22.6%
Appropriated Debt 12.1
Water/Sewer Utilities - Municipal 10.8
Multifamily Housing 8.6
Buildings 6.4
Special Assessment/Tax/Fee 6.4
Hospitals 5.6
Nursing/Continuing Care Centers 4.6
Real Estate Tax/Fee 3.6
Finance - Municipal 2.9
Electronics - Computer Distributors 2.1
Lodging/Hotel 2.0
Nursing Care 1.9
Education 1.6
Electric/Gas Utilities - Municipal 1.5
Banks - Major Regional 1.4
Other 5.8
----
Total 99.9%
====
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 California Bond Fund, these securities represented 4.4%
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. At September 30, 2000, these securities
represented 11.3% of the USAA California Money Market Fund's net assets.
(c) At September 30, 2000, the cost of securities purchased on a
delayed-delivery basis for the USAA California Money Market Fund was $2.4
million.
(d) At September 30, 2000, these securities were 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 CALIFORNIA
CALIFORNIA MONEY MARKET
BOND FUND FUND
------------------------------
ASSETS
Investments in securities, at market value
(identified cost of $591,739 and $430,523,
respectively) $ 605,207 $ 430,523
Cash 168 1,506
Receivables:
Capital shares sold 144 224
Interest 9,674 3,112
------------------------------
Total assets 615,193 435,365
------------------------------
LIABILITIES
Securities purchased - 2,350
Capital shares redeemed 58 1,854
USAA Investment Management Company 159 110
USAA Transfer Agency Company 22 18
Accounts payable and accrued expenses 54 63
Dividends on capital shares 858 60
------------------------------
Total liabilities 1,151 4,455
------------------------------
Net assets applicable to capital
shares outstanding $ 614,042 $ 430,910
==============================
REPRESENTED BY:
Paid-in capital $ 605,516 $ 430,910
Accumulated net realized loss on investments (4,942) -
Net unrealized appreciation of investments 13,468 -
------------------------------
Net assets applicable to capital
shares outstanding $ 614,042 $ 430,910
==============================
Capital shares outstanding 57,765 430,910
==============================
Authorized shares of $.01 par value 140,000 2,435,000
==============================
Net asset value, redemption price,
and offering price per share $ 10.63 $ 1.00
==============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
USAA
USAA CALIFORNIA
CALIFORNIA MONEY MARKET
BOND FUND FUND
------------------------------
Net investment income:
Interest income $ 17,308 $ 8,415
------------------------------
Expenses:
Management fees 933 687
Transfer agent's fees 129 105
Custodian's fees 51 52
Postage 26 20
Shareholder reporting fees 8 8
Directors' fees 3 3
Registration fees 6 1
Professional fees 18 17
Other 5 4
------------------------------
Total expenses 1,179 897
------------------------------
Net investment income 16,129 7,518
------------------------------
Net realized and unrealized gain on investments:
Net realized gain 5,482 -
Change in net unrealized
appreciation/depreciation 8,433 -
------------------------------
Net realized and unrealized gain 13,915 -
------------------------------
Increase in net assets resulting from operations $ 30,044 $ 7,518
==============================
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
CALIFORNIA CALIFORNIA
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 $ 16,129 $ 33,010 $ 7,518 $ 11,874
Net realized gain (loss) on investments 5,482 (10,303) - -
Change in net unrealized appreciation/
depreciation of investments 8,433 (43,032) - -
------------------------------------------------
Increase (decrease) in net assets
resulting from operations 30,044 (20,325) 7,518 11,874
------------------------------------------------
Distributions to shareholders from:
Net investment income (16,129) (33,010) (7,518) (11,874)
------------------------------------------------
From capital share transactions:
Proceeds from shares sold 44,467 88,729 259,294 455,436
Dividend reinvestments 10,938 22,730 7,098 11,176
Cost of shares redeemed (31,985) (123,070) (260,717) (480,585)
------------------------------------------------
Increase (decrease) in net assets
from capital share transactions 23,420 (11,611) 5,675 (13,973)
------------------------------------------------
Net increase (decrease) in net assets 37,335 (64,946) 5,675 (13,973)
Net assets:
Beginning of period 576,707 641,653 425,235 439,208
------------------------------------------------
End of period $ 614,042 $ 576,707 $ 430,910 $ 425,235
================================================
Change in shares outstanding:
Shares sold 4,252 8,282 259,294 455,436
Shares issued for dividends reinvested 1,045 2,155 7,098 11,176
Shares redeemed (3,068) (11,728) (260,717) (480,585)
------------------------------------------------
Increase (decrease)
in shares outstanding 2,229 (1,291) 5,675 (13,973)
================================================
</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 California Bond Fund and USAA California Money Market Fund (the
Funds). The Funds have a common objective of providing California investors with
a high level of current interest income that is exempt from federal and
California state income taxes. The USAA California Money Market Fund has a
further objective of preserving capital and maintaining liquidity.
A. SECURITY VALUATION - Investments in the USAA California 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 California 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 California 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 California Bond Fund had capital loss carryovers for federal
income tax purposes of $4,942,000 which, if not offset by subsequent capital
gains, will expire in 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 CALIFORNIA USAA CALIFORNIA
BOND FUND MONEY MARKET FUND
------------------------------------
Purchases $134,155,000 $480,921,000
Sales/maturities $141,529,000 $529,534,000
For the USAA California 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 California Bond Fund $19,111,000 ($5,644,000) $13,467,000
(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.
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 CALIFORNIA 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 $ 10.38 $ 11.29 $ 11.17 $ 10.50 $ 10.43 $ 10.10
Net investment income .29 .58 .59 .60 .61 .60
Net realized and
unrealized gain (loss) .25 (.91) .12 .67 .07 .33
Distributions from net
investment income (.29) (.58) (.59) (.60) (.61) (.60)
-----------------------------------------------------------------------------
Net asset value at
end of period $ 10.63 $ 10.38 $ 11.29 $ 11.17 $ 10.50 $ 10.43
=============================================================================
Total return (%)* 5.23 (2.91) 6.46 12.33 6.60 9.35
Net assets at end
of period (000) $614,042 $576,707 $641,653 $533,747 $440,231 $409,180
Ratio of expenses
to average
net assets (%) .40(a) .39 .39 .40 .41 .42
Ratio of net investment
income to average
net assets (%) 5.44(a) 5.43 5.21 5.47 5.74 5.74
Portfolio turnover (%) 22.93 48.46 7.20 20.16 23.72 23.09
(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 CALIFORNIA 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 (%)* 1.74 2.86 3.03 3.35 3.23 3.58
Net assets at end
of period (000) $430,910 $425,235 $439,208 $431,754 $341,128 $296,349
Ratio of expenses
to average
net assets (%) .41(a) .41 .42 .41 .45 .47
Ratio of net investment
income to average
net assets (%) 3.44(a) 2.83 2.99 3.30 3.19 3.52
(a) ANNUALIZED. THE RATIO IS NOT NECESSARILY INDICATIVE OF 12 MONTHS OF OPERATIONS.
* ASSUMES REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN 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
