Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
New York Bond Fund 4
New York Money Market Fund 8
Shareholder Voting Results 11
Financial Information:
Statements of Assets and Liabilities 13
Portfolios of Investments in Securities:
New York Bond Fund 15
New York Money Market Fund 17
Notes to Portfolios of Investments 20
Statements of Operations 21
Statements of Changes in Net Assets 22
Notes to Financial Statements 23
Important Information:
Through our ongoing efforts to reduce expenses and respond to
shareholder requests, your annual and semiannual report mailings are now
"streamlined." One copy of each report will be sent to each address,
instead of our previous practice of sending one report to every registered
owner. For many shareholders and their families, this eliminates
duplicate copies, saving paper and postage costs to the Funds.
If you are the primary shareholder on at least one account, prefer not
to participate in streamlining, and would like to continue receiving one
report per registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who
have received a copy of the currently effective prospectus of the USAA
New York Funds, managed by USAA Investment Management Company (IMCO). It
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)1995, USAA. All rights reserved.
<TABLE>
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the performance of our other funds.
This summary is a snapshot of the performance of all 32 funds by investment objective as of September 30,
1995. For more complete information about the mutual funds managed and distributed by USAA IMCO, including
charges and expenses, please call 1-800-531-8181 for a prospectus. Read it carefully before you invest.
Average Annual Total Return*
<CAPTION>
Investment Inception Since 7-Day 30-Day(1)
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 46.21 22.58 12.68 - - -
Emerging Markets(2) 11/7/94 - - - (.60) - -
Gold(2) 8/15/84 (9.21) 2.95 4.46 - - -
Growth 4/5/71 18.48 16.12 13.22 - - -
Growth & Income 6/1/93 23.46 - - 12.88 - -
International(2) 7/11/88 1.58 13.34 - 9.56 - -
World Growth(2) 10/1/92 6.47 - - 12.43 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - .40
Cornerstone Strategy(2)# 8/15/84 10.89 11.97 12.98 - - -
Growth and Tax Strategy**# 1/11/89 13.86 10.20 - 9.35 - 3.75
Growth Strategy(2) 9/1/95 - - - .30 - -
Income Strategy 9/1/95 - - - 1.50 -
Income - Taxable
GNMA 2/1/91 12.56 - - 8.18 - 6.82
Income 3/4/74 18.64 10.98 10.47 - - 6.61
Income Stock 5/4/87 20.54 15.74 - 11.95 - -
Short-Term Bond 6/1/93 9.37 - - 5.15 - 6.58
Income - Tax Exempt
Long-Term(3)** 3/19/82 9.83 8.25 8.92 - - 5.73
Intermediate-Term(3)** 3/19/82 9.76 8.14 8.23 - - 5.15
Short-Term(3)** 3/19/82 6.41 5.65 5.94 - - 4.33
California Bond(3)** 8/1/89 11.24 8.28 - 7.39 - 5.75
Florida Tax-Free Income(3)** 10/1/93 9.67 - - 1.17 - 5.71
New York Bond(3)** 10/15/90 9.71 - - 8.68 - 5.65
Texas Tax-Free Income(3)** 8/1/94 13.26 - - 9.80 - 5.61
Virginia Bond(3)** 10/15/90 10.51 - - 8.38 - 5.72
Money Market
Money Market(4) 2/2/81 5.67 4.65 6.01 - 5.56 -
Tax Exempt Money Market(3),(4)** 2/6/84 3.57 3.45 4.40 - 3.89 -
Treasury Money Market Trust(4) 2/1/91 5.42 - - 4.09 5.35 -
California Money Market(3),(4)** 8/1/89 3.53 3.27 - 3.70 3.79 -
Florida Tax-Free Money Market(3),(4)** 10/1/93 3.45 - - 2.81 3.67 -
New York Money Market(3),(4)** 10/15/90 3.42 - - 3.01 3.89 -
Texas Tax-Free Money Market(3),(4)** 8/1/94 3.46 - - 3.33 3.57 -
Virginia Money Market(3),(4)** 10/15/90 3.44 - - 3.19 3.62 -
(1) Calculated as prescribed by the Securities and Exchange Commission.
(2) Foreign investing is subject to additional risks, which are discussed in the funds' prospectuses.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by the U.S. government and there is no
assurance that any of the funds will be able to maintain a stable net asset value of $1 per share.
* Total return equals income yield plus share price change 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. The performance data quoted represents past performance and is 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.
** 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, New York, Virginia, Florida, and Texas funds available
to residents only.
# Formerly known as Cornerstone Fund and Balanced Portfolio Fund,
respectively.
</TABLE>
MESSAGE FROM THE PRESIDENT
(Photo of Michael J.C. Roth, CFA, President and Vice Chairman of the Board,
appears here)
In September I attended an Investment Company Institute conference for
mutual fund directors. It was in Washington D.C., and the speakers included a
current member of the House and a former senator. Both delivered similar
messages: Expect a reform of the tax system.
This news is not a surprise to tax-exempt fund investors. As
I pointed out in a letter earlier this year, the tax-exempt bond market
has spent much of 1995 adjusting to the expectation of lower tax rates.
It has done this by narrowing the difference in yields between taxable
and tax-exempt bonds. This adjustment has been well masked by the very
handsome total returns in tax-exempt bonds this year. The portfolio
managers will give you details in their reports.
"We will always remember that you are the
reason we are in business."
I wish I could give you simple guidance on where to go from here, but I
cannot. In fact, one of the most difficult questions in reforming the
tax system will be how to approach the tax-exempt bond market. It is not
only important to you, the investor, but also to the state and local
entities that borrow your money through these bonds.
Do we suddenly, in one fell swoop, dramatically raise their cost of
borrowing? If we do, current owners of bonds will be hurt, but so will
everyone who pays taxes in states and cities. Those borrowers will need
more revenue to pay interest on their bonds. Therefore, a radical reform
might lower federal taxes, but raise state and local taxes. I do not think
this is a desirable or desired outcome. It certainly is not a simple problem
to solve.
I do not believe that any major change will take place until after the
next national election. At this uncertain time I will make this pledge
to you:
We will watch the tax reform situation very closely.
Our guidance to you will keep your interests uppermost.
We will always remember that you are the reason we are in business.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Investment Review
NEW YORK BOND FUND
OBJECTIVE: Provide New York investors with a high level of current interest
income that is exempt from federal income taxes and New York State and New York
City personal income taxes.
Types of Investments: Invests primarily in long-term investment grade
New York tax-exempt securities.
3/31/95 9/30/95
Net Assets $50.5 Million $52.9 Million
Net Asset Value Per Share $10.77 $10.94
Average Annual Total Returns as of 9/30/95
March 31, 1995 to September 30, 1995 4.57% +++
1 Year 9.71%
Since inception on October 15, 1990 8.68%
+++ Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
30-Day SEC Yield on September 30, 1995 5.65%*
* Calculated as prescribed by the Securities and Exchange Commission.
A graph is shown here which is a comparison of the change in value of a
$10,000 investment for the period of 10/15/90 to 9/30/95, with dividends
and capital gains reinvested. The ending values for the items graphed are:
Lehman Brothers Muni. Bond Index $15,230
USAA New York Bond Fund 15,163
The Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the long-term investment grade
tax-exempt bond market. All tax-exempt bond funds will find it difficult
to outperform such an index, since funds have expenses.
Total return equals income yield plus share price change 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. The performance data quoted represents past
performance and is 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.
Message from the Manager
(Photo of Kenneth E. Willmann, CFA, Portfolio Manager, appears here)
New York Bond Fund
The six-month period ended September 30, 1995, witnessed the
continuation of the bull market in bonds which began in November 1994.
The standard for bond interest rates, the active 30-year U. S. Treasury
bond (the long bond), fell from a yield of 7.43% on March 31, 1995, to
6.53% on September 30, 1995. This resulted in a 10.2% rise in price.
Tax-exempt bonds also benefited, but to a lesser degree. The Bond Buyer
40-Bond Index (BBI40) is an industry benchmark for long-term municipal
bonds. Its yield declined from 6.37% on March 31, 1995, to 6.07% on
September 30, 1995. The resultant price rise was a modest 1.6%. The New
York Bond Fund's performance mirrored the index. The net asset value
(NAV) per share rose 1.5% from March 31, 1995, to September 30, 1995.
The 30-Day SEC yield was still an attractive 5.65% at the end of that
period.
What Happened
Why did tax-exempt bonds respond in this relatively subdued fashion? The
clue is in the difference in yield decline between the long bond and the
BBI40. Tax-exempt bonds typically yield less than taxable bonds because
the market gives them credit for the tax exemption. On March 31, 1995,
the BBI40 yield was 85.8% of the yield of the long bond. By September 30,
1995, that ratio had risen to 93.4%. The reason is all the rhetoric about
tax reform emanating from the federal government. The market for tax-exempt
bonds, in its collective wisdom, reduced the credit given for tax exemption.
In short, the market was nervous. See the "Message from the President" on
page two for a discussion of the tax reform debate.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of
September 30, 1995 for the New York Bond Fund to be: AAA- 13%,
AA - 41%, A - 24%, BBB -21% and Cash Equivalents - 1%.]
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group or Fitch Investors Service.
New York Economy
The state incurred a small general fund operating deficit in fiscal
1994-95. Significant reductions in state spending prevented this deficit
from being much higher. The state's budget for the 1995-96 fiscal year
is the first to be enacted in the administration of Governor George
Pataki. It was passed by the Legislature on June 7, 1995, more than
two months after the start of the fiscal year. Of note is the fact that
it is the first enacted budget in over 50 years which projects an
absolute year-to-year decline in general fund disbursements. The budget
also includes the first phase of the Governor's income tax reduction
plan. However, these two factors also contributed to the budget's late
passage.
New York's economic recovery remains slow in comparison to national and
regional performance. The seasonally adjusted unemployment rate was 7.1%
for August 1995 - compared to 5.6% for the nation. While the state's
economy remains sluggish, the unemployment rate has improved from the
peak levels of 8.5% in 1992. Debt levels,
while high, remain manageable.
Outlook
I believe the U.S. economy is slowly decelerating. This gradual slowdown
should keep inflationary pressures in check, which has the further
effect of keeping interest rates from rising. In fact, I believe
interest rates are more likely to decline than to rise over the next few
months.
I will continue to follow a strategy of favoring tax-exempt income over
capital gains while maintaining a high-quality portfolio. For the six
months ended September 30, 1995, the annualized dividend yield(1) on the
New York Bond Fund was 5.79%, well ahead of Lipper's New York State
Municipal Debt Funds average of 5.12%.(2) I believe such a strategy is
preferable for tax-sensitive investors in the upper income tax brackets.
(1) Dividend yield is computed by dividing income dividends paid during
the previous 6 months by the latest month-end net asset value adjusted
for capital gains distributions and annualizing the result.
(2) Source: Lipper Analytical Services, an independent organization that
monitors the performance of mutual funds.
See page 15 for a complete listing of the Portfolio of Investments in
Securities.
Note: Income may be subject to federal, state or local taxes, or the
alternative minimum tax.
[A graph is shown here comparing the 12-month dividend yield of the USAA
New York Bond Fund and the Lipper New York Municipal Debt Funds Average
from 9/30/92 to 9/30/95. The vertical axis shows the yield and the
horizontal axis shows the time period. The values are:
USAA NEW YORK
BOND FUND 5.90 5.26 5.66 5.77
LIPPER. NEW YORK
MUNI. DEBT
FUNDS AVG. 6.08 5.33 5.57 5.21
The Lipper New York Municipal Debt Funds average is computed
by Lipper Analytical Services, an independent organization that monitors
the performance of mutual funds. Lipper calculations do not include the
effects of sales charges. The graph represents data from 9/30/92 to 9/30/95.
Investment Review
New York Money Market Fund
OBJECTIVE: Provide New York investors with a high level of current
interest income that is exempt from federal income taxes and New York
State and New York City personal income taxes, while preserving capital
and maintaining liquidity.
Types of Investments: High quality New York tax-exempt securities
with maturities of 397 days or less. The Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less and will endeavor to maintain a
constant net asset value per share of $1.00.*
* An investment in this Fund is neither insured nor guaranteed by the
U.S. government, and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
3/31/95 9/30/95
Net Assets $27.5 Million $33.6 Million
Net Asset Value Per Share $1.00 $ 1.00
Average Annual Total Returns as of 9/30/95
March 31, 1995 to September 30, 1995 1.80% +
1 Year 3.42%
Since inception on October 15, 1990 3.01%
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
7-Day Simple Yield on September 30, 1995 3.89%
[A graph is shown here comparing the 7-day yield of the USAA New York Money
Market Fund and the IBC/Donoghue's State Specific SB & GB (Tax-Free): New York
from 9/94 to 9/95. The vertical axis shows the yield and the horizontal axis
shows the time period. The ending value, on 9/25/95, for the USAA New York
Money Market Fund is 3.80% and the ending value for the IBC Donoghue's State
Specific SB & GP (Tax-Free): New York is 3.26%. ]
Total return equals income yield plus share price change 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 and the value of your investment may vary
according to the Fund's performance. The graph tracks the Fund's 7-day
simple yield against IBC/Donoghue's State Specific SB (Stock Broker) & GP
(General Purpose) (Tax-Free): New York Money Funds, an average of all
major money market fund yields.
Message from the Manager
(Photo of Pamela K. Bledsoe, CFA, Portfolio Manager, appears here)
Economic Volatility in the Market
Contrary to the long-term bond market, the money market continues to
experience a roller-coaster ride. Since March, the yield on the Tax
Exempt Note Rate (TENR)(1) has traded from a high of 4.75% in May to a
low of 2.65% in early June. These ups and downs have been driven by
mixed economic data, supply and demand factors and credit risk. The
Federal Reserve (Fed) uses economic data such as unemployment levels,
retail sales and new housing starts to make interest rate decisions. On
July 6, 1995, the Fed reduced interest rates .25% after raising interest
rates seven times during 1994 and 1995. This reduction was spurred by
easing inflationary pressures and the Fed's desire to keep the economy
strong enough to avoid a recession. In anticipation of this activity, I
extended the Fund's maturity to lock in the higher rates and will try to
continue to do so as I expect rates to be in a generally downward trend.
Economic volatility is intensified by the short-term market's sensitivity
to supply and demand factors, especially during the months of January, April,
May, June, July, and December. Yields on variable-rate money market
instruments typically rise in April and May as the need to cover tax payments
creates an excess of bonds in the market. This situation reverses itself in
the first weeks of June, July, December, and January since excess cash that
needs to be invested creates a shortage of bonds leading to a sharp decline
in yields. To minimize the impact of this phenomenon, I aggressively manage
our variable rate demand notes (VRDNs)(2) to pursue top performance in this
segment of the portfolio.
Credit risk, the relationship between market value and the likelihood of
receiving payment at maturity, has also added to the volatility in the
municipal note market. Our own research staff has proven invaluable in
making credit-quality determinations. We'll continue to carefully
evaluate credit risk to determine if a security is appropriate for this
fund.
Outlook
The state of New York continues to face economic hardship as cutbacks in
defense spending, a contraction in the financial services industry, and
an overbuilt real estate market have reduced economic growth and have
kept unemployment levels above the national average. For the first time
in 50 years, the state budget includes a decline in the level of funding
for various state programs and a reduction in spending for state operations.
Further cuts and cost containment measures will be needed to close a
continuing budget gap. However, to stimulate the state's economy and reduce
the burden of taxation, the budget includes a three-year, 20% reduction in
the New York state personal income tax.
While we feel that the state is taking positive steps to improve its
financial condition, we believe New York will continue to face budget
deficits in future years. Therefore, the primary focus of our holdings
in the Fund will continue to be credit-enhanced issues, although we will
selectively purchase stand-alone issues which meet our value and quality
criteria.
(1) Tax Exempt Note Rate (TENR): A general market "AAA" weekly index as
determined by Bankers Trust.
(2) Variable rate demand note (VRDN): A note representing borrowings
that is payable on demand and that bears interest tied to a money market
rate.
An investment in any money market fund is neither insured nor guaranteed
by the U.S. government and there is no assurance that any of the funds
will be able to maintain a stable net asset value of $1 per share.
See page 17 for a complete listing of the Portfolio of Investments in
Securities.
[A graph is shown here showing the growth of $10,000, from 10/15/90 to
9/30/95, invested in the USAA New York Money Market Fund. The vertical axis
shows the dollar amount and the horizontal axis shows the time period. The
ending value is $11,597.]
Shareholder Voting Results
On October 13, 1995, a special meeting of shareholders was held to vote
on the following proposals. All proposals were approved by the shareholders.
All shareholders of record on August 17, 1995 were entitled to vote on each
proposal. The number of votes shown below are shown by Fund for proposal (2)
and by aggregate for the entire USAA Tax Exempt Fund, Inc. (the Company) for
proposals (1) and (3).
(1) Proposal to elect a Board of Directors as follows:
Votes Votes
Director For Withheld
Hansford T. Johnson 1,263,957,222 40,330,706
Michael J.C. Roth 1,262,975,844 41,312,084
John W. Saunders, Jr. 1,263,409,381 40,878,547
George E. Brown 1,250,233,665 54,054,263
Howard L. Freeman, Jr. 1,259,213,299 45,074,629
Richard A. Zucker 1,252,694,421 51,593,507
Barbara B. Dreeben 1,242,417,451 61,870,477
Mr. C. Dale Briscoe did not stand for re-election to the Board. His term
of office will terminate on December 31, 1995.
(2) Proposals to reclassify, amend or eliminate certain investment
restrictions as follows:
Proposal to reclassify the investment restriction on illiquid securities
from fundamental to non-fundamental and amend the restriction to permit
investments in illiquid securities, including repurchase agreements
maturing in more than seven days, to no more than the following:
Number of Shares Voting
For Against Abstain
---------------------------------------
15% of the value of the New York Bond
Fund's net assets 2,572,278 184,544 125,669
10% of the value of the New York Money
Market Fund's net assets 13,880,475 1,435,807 1,922,279
Proposal to amend the restriction that a Fund may not underwrite any
issue of securities to state that a Fund may be deemed to act as a
statutory underwriter in the distribution of any restricted securities
or not readily marketable securities.
New York Bond Fund 2,628,839 125,621 128,031
New York Money Market Fund 13,853,298 1,284,053 2,101,210
Proposal to amend the restriction relating to borrowing to allow a Fund
to borrow an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than borrowings)
for temporary or emergency purposes.
New York Bond Fund 2,550,207 230,053 102,231
New York Money Market Fund 13,789,544 1,518,018 1,930,998
Proposal to amend the restriction relating to lending portfolio securities
to permit a Fund to lend up to 1/3% of its total assets to other parties.
New York Bond Fund 2,554,783 232,535 95,173
New York Money Market Fund 13,582,177 1,592,737 2,063,646
(3) Proposal to ratify or reject the selection by the Board of Directors
of KPMG Peat Marwick LLP as auditors for the Company for the fiscal year
ending March 31, 1996.
1,220,377,387 32,420,032 51,490,499
Statements of Assets and Liabilities
(In Thousands)
September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
New York
New York Money Market
Bond Fund Fund
---------- -------------
<S> <C> <C>
Assets
Investments in securities, at market value
(identified cost of $50,064 and $33,437, respectively) $52,168 $33,437
Cash 70 116
Receivables:
Capital shares sold 14 25
Interest 777 166
-------- --------
Total assets 53,029 33,744
-------- --------
Liabilities
Capital shares redeemed 34 101
USAA Investment Management Company 67 17
USAA Transfer Agency Company 4 3
Accounts payable and accrued expenses 23 20
Dividends on capital shares 54 4
-------- ------
Total Liablities 182 145
-------- ------
Net assets applicable to capital shares outstanding $52,847 $33,599
======== ========
Represented by:
Paid-in capital $54,056 $33,599
Accumulated net realized loss on investments (3,313) _
Net unrealized appreciation of investments 2,104 _
-------- --------
Net assets applicable to capital shares
outstanding $52,847 $33,599
======== =========
Capital shares outstanding 4,832 33,599
======== =========
Net asset value, redemption price, and offering price per
share $10.94 $1.00
======== =========
See accompanying notes to financial statements.
</TABLE>
Categories & Definitions
Portfolios of Investments in Securities
September 30, 1995
(Unaudited)
Fixed Rate Instruments - consist of municipal bonds, notes, and
commercial paper. The coupon rate is constant to maturity. Prior to
maturity, the price of a fixed rate instrument generally varies inversely to
the movement of interest rates. At maturity, the security pays face value.
Put Bonds - provide the right to tender, or put, the bond for redemption
at face value at specific tender dates prior to final maturity. The put
feature shortens the effective maturity to the next tender date. Between
tender dates, the price of a put bond generally varies inversely to the
movement of interest rates.
Variable Rate Demand Notes (VRDN) - provide the right, on any business
day, to demand, or put, the security for redemption at face value on
either that day or in seven days. The interest rate is adjusted at the
stipulated daily, weekly, or monthly interval to a rate that reflects
current market conditions. In money market funds, the VRDN's effective
maturity is the longer of the next put date or the interest reset date
rather than the final maturity. In bond funds, the effective maturity
is the next put date. Most VRDNs possess a credit enhancement.
Credit Enhancement (CRE) - adds the financial strength of the provider
to support the underlying obligor's debt service obligations and/or the put
option. The enhancement may be provided by either a high quality bank,
insurance company or other corporation, or a collateral trust. Typically,
the rating agencies evaluate the security based upon the credit standing
of the credit enhancement.
New York Bond Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
- --------- -------- ------ -------- ------
Fixed Rate Instruments (98.1%)
<C> <S> <C> <C> <C>
New York
Dormitory Auth. RB,
$1,750 Series 1990A (CRE) 7.40% 7/01/15 $1,894
2,000 Series 1992 (CRE) 6.50 7/01/19 2,046
2,000 Series 1994 7.35 8/01/29 2,233
2,500 Series 1994B 6.25 5/15/20 2,481
2,500 Energy Research and Development
RB, Series 1995A 6.10 8/15/20 2,487
1,650 Environmental Facilities Corp.
PCRB, Series 1990B 7.50 3/15/11 1,824
1,995 Groton Community Health Care
Facilities RB, Series 1994A 7.45 7/15/21 2,218
1,930 Housing Finance Agency MFH RB,
Series 1992E 6.75 8/15/25 1,987
2,500 Housing New York Corp. MFH RB 5.00 11/01/18 2,178
Medical Care Facilities Finance Agency RB,
2,500 Series 1994A 6.25 2/15/24 2,398
2,000 Series 1994A 6.50 2/15/34 2,059
2,000 Series 1994A (CRE) 6.90 8/15/34 2,145
2,000 Series 1994E 6.50 8/15/24 2,037
2,350 Series 1995A 6.85 2/15/17 2,413
2,500 Series 1995A 6.38 11/15/19 2,541
6,250 Mortgage Agency RB, Series EE-3 7.75 4/01/16 6,699
3,000 New York City GO, Series 1995B 7.25 8/15/19 3,179
2,500 New York City Municipal Water
Finance Auth. RB 5.50 6/15/23 2,310
2,275 Thruway Auth. RB, Series 1992A 5.75 1/01/19 2,215
2,000 Thruway Auth. Services Contract RB,
Series 1995 6.45 4/01/15 2,037
2,500 Urban Development Corp. RB,
Series 1995-5 6.25 1/01/20 2,487
------
Total fixed rate instruments
(cost: $49,764) 51,868
--------
Variable Rate Demand Notes (0.6%)
New York
100 New York City Trust for Cultural
Resources RB, Series 1990B (CRE) 4.85 12/01/15 100
200 Oswego County IDA PCRB, Series 1992 4.30 12/01/08 200
-----
Total variable rate demand notes
(cost: $300) 300
------
Total investments (cost: $50,064) $52,168
========
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 13.2%
Single-Family Housing 12.7
Nursing Care 12.3
Education 12.1
General Obligations 10.7
Healthcare - Miscellaneous 8.7
Toll Roads 8.0
Electric Power 4.7
Water/Sewer 4.4
Buildings 4.1
Multi-Family Housing 3.8
Water Utilities 3.4
Other .6
------
Total 98.7%
======
New York Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final
Amount Security Rate Maturity Value
- --------- --------- ------ -------- ---------
Variable Rate Demand Notes (70.3%)
<C> <S> <C> <C> <C>
New York
$1,400 Chautauqua County IDA RB, Series 1984A (CRE) 4.25% 1/01/00 $1,400
1,300 Dormitory Auth. RB, Series 1994A (CRE) 4.20 7/01/24 1,300
1,250 Geneva IDA RB, Series 1993A (CRE) 4.35 3/01/08 1,250
Job Development Auth. RB,
400 Series 1984D1-D9 (CRE) 3.70 3/01/99 400
565 Series 1985C1-C34 (CRE) 3.65 3/01/00 565
1,200 Local Government Assistance Corp. RB,
Series 1995D (CRE) 4.40 4/01/25 1,200
700 Monroe County IDA RB, Series 1985 (CRE) 3.70 12/01/00 700
New York City GO,
200 Series 1994E-2 (CRE) 4.85 8/01/20 200
100 Series 1994E-5 (CRE) 4.85 8/01/15 100
1,200 Series 1995B-8 (CRE) 4.35 8/15/24 1,200
New York City Housing Development Corp. RB,
5,800 Series 1984A (CRE) 5.70 12/01/16 5,800
2,000 Series 1985A (CRE) 5.70 12/01/09 2,000
1,000 New York City IDA RB, Series 1990 (CRE) 4.20 5/01/20 1,000
1,000 New York City Trust for Cultural Resources RB,
Series 1990B (CRE) 4.85 12/01/15 1,000
1,200 Niagara County IDA RB, Series 1994A 4.35 11/15/24 1,200
800 North Hempstead Solid Waste Management Auth.
RB, Series 1993A (CRE) 4.00 2/01/12 800
1,300 Oswego County IDA PCRB, Series 1992 4.30 12/01/08 1,300
800 Rotterdam IDA RB, Series 1993A (CRE) 4.15 11/01/09 800
1,400 Suffolk County IDA RB, Series 1992 (CRE) 4.00 12/01/12 1,400
-------
Total variable rate demand notes (cost:$23,615) 23,615
-------
Put Bonds (14.6%)
New York
330 City of Hudson IDA RB, Series 1985 (CRE) 5.20 12/15/00 330
Dormitory Auth. RB,
878 Series 1989A (CRE) 3.70 10/04/95 878
1,200 Series 1989A (CRE) 3.75 7/01/19 1,200
Energy Research and Development Auth. PCRB,
300 Series 1985A (CRE) 4.65 3/15/15 300
1,200 Series 1985A (CRE) 4.70 3/01/16 1,200
1,000 Series 1985B (CRE) 4.10 10/15/15 1,000
-------
Total put bonds (cost: $4,908) 4,908
-------
Fixed Rate Instruments (14.6%)
New York
500 Copiague Union Free School District TAN 4.50 6/28/96 502
1,200 Half Hollow Hills Central School District TAN 4.25 6/28/96 1,205
500 Monroe County BAN, Series 1995A 4.50 6/07/96 502
1,200 New York City Municipal Water Finance Auth.
CP Notes, Series 3 (CRE) 3.50 10/04/95 1,200
500 Patchogue Medford Union Free School
District TAN 4.38 6/27/96 502
1,000 Sayville Union Free School District TAN 4.25 6/27/96 1,003
-------
Total fixed rate instruments (cost: $4,914) 4,914
-------
Total investments (cost: $33,437) $33,437
========
</TABLE>
Portfolio Summary By Industry
------------------------------
Multi-Family Housing 23.2%
Education 16.2
Electric Power 9.5
General Obligations 8.8
Community Service 7.1
Publishing/Newspapers 4.1
Nursing Care 3.9
Tobacco 3.9
Hospitals 3.6
Pollution Control 3.6
Sales Tax Obligations 3.6
Water/Sewer 3.6
Finance - Municipal 2.6
Buildings 2.4
Resource Recovery 2.4
Manufacturing - Diversified Industries 1.0
----
Total 99.5%
=====
Notes to Portfolios of Investments
September 30, 1995
(Unaudited)
General Notes
Market 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.
Portfolio Description Abbreviations
BAN Bond Anticipation Notes
CP Commercial Paper
CRE Credit Enhanced
GO General Obligation
IDA Industrial Development Authority/Agency
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
TAN Tax Anticipation Note
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
New York
New York Money Market
Bond Fund Fund
---------- -------------
<S> <C> <C>
Net investment income:
Interest income $1,631 $576
------- ------
Expenses:
Management fees 120 66
Transfer agent's fees 22 16
Custodian's fees 19 19
Postage 3 2
Shareholder reporting fees 2 2
Directors' fees 1 1
Audit fees 8 8
Legal fees 3 3
Other 3 2
-------- -------
Total expenses before reimbursement 181 119
Expenses Reimbursed (53) (48)
-------- -------
Total expenses after reimbursement 128 71
-------- -------
Net investment income 1,503 505
-------- -------
Net realized and unrealized gain on investments:
Net realized gain 86 --
Change in net unrealized appreciation/depreciation 710 --
------- --------
Net realized and unrealized gain 796 --
------- -------
Increase in net assets resulting from operations $2,299 $505
======== =======
See accompanying notes to financial statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(In Thousands)
Six-month period ended September 30, 1995 and Year ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
New York
New York Money Market
Bond Fund Fund
----------- ------------
9/30/95 3/31/95 9/30/95 3/31/95
-------- ------- ------- --------
<S> <C> <C> <C> <C>
From operations:
Net investment income $1,503 $ 3,007 $505 $ 733
Net realized gain (loss) on investments 86 (3,353) - -
Change in net unrealized appreciation/
depreciation of investments 710 2,716 - -
------- -------- ------ -----
Increase in net assets resulting from
operations 2,299 2,370 505 733
------- -------- ------ ------
Distributions to shareholders from:
Net investment income (1,503) (3,007) (505) (733)
-------- ------- ------ ------
From capital share transactions:
Shares sold 7,750 16,488 20,399 31,532
Shares issued for dividends reinvested 1,167 2,357 478 691
Shares redeemed (7,373) (24,613) (14,803) (29,211)
--------- -------- --------- --------
Increase (decrease) in net assets from
capital share transactions 1,544 (5,768) 6,074 3,012
--------- -------- --------- --------
Net increase (decrease) in net assets 2,340 (6,405) 6,074 3,012
Net assets:
Beginning of period 50,507 56,912 27,525 24,513
---------- -------- -------- --------
End of period $52,847 $50,507 $33,599 $27,525
========== ======== ========= =========
Change in shares outstanding:
Shares sold 710 1,569 20,399 31,532
Shares issued for dividends reinvested 107 223 478 691
Shares redeemed (675) (2,358) (14,803) (29,211)
--------- -------- -------- ---------
Increase (decrease) in shares
outstanding 142 (566) 6,074 3,012
========= ========= ======== =======
Authorized shares of $.01 par value 25,000 25,000 100,000 100,000
========= ========= ========= ========
See accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
(In Thousands)
September 30, 1995
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA Tax Exempt Fund, Inc. (the Company), registered under the
Investment Company Act of 1940, is a diversified, open-end management
investment company incorporated under the laws of Maryland consisting of ten
separate funds. The information presented in this semiannual report pertains
only to the New York Bond Fund and New York Money Market Fund (the Funds).
A. Security valuation - Investments in the New York Bond Fund are valued
each business day by a pricing service (the Service) approved by the Company's
Board of Directors. The Service uses the mean between quoted bid and asked
prices or the last sale price to price securities when, in the Service's
judgement, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are not
readily available. The Service generally prices these securities based
on methods which include consideration of yields or prices of municipal
securities of comparable quality, coupon, maturity and type, indications as to
values from dealers in securities, and general market conditions.
Securities which are not valued by the Service, and all other assets,
are valued in good faith at fair value using methods determined by the
Manager under the general supervision of the Board of Directors.
Securities purchased with maturities of 60 days or less and, pursuant to
Rule 2a-7 of the Securities and Exchange Commission, all securities in
the New York Money Market Fund are stated at amortized cost which
approximates market value.
B. Federal taxes - Each Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders. Therefore,
no federal income or excise tax provision is required.
C. Investments in securities - As is common in the industry, 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
bonds. The Funds concentrate their investments in New York municipal securities
and therefore may be exposed to more credit risk than portfolios with a broader
geographical diversification.
(2) Line of Credit
The Funds participate with other USAA funds in a joint $150 million
short-term revolving loan agreement (the Agreement) through January 15,
1996 for temporary or emergency purposes, including the meeting of
redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under this Agreement,
each Fund may borrow amounts not to exceed 10% of the value of its total
assets. All borrowings must be repaid before additional investments are
made. Borrowings under this Agreement will bear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank of New
York or at .125% over the London Interbank Offered Rate. The Funds had
no borrowings under this Agreement during the six-month period ended
September 30, 1995.
(3) Distributions
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. All net investment income available for
distribution was distributed at September 30, 1995.
Distributions of realized gains from security transactions not offset by
capital losses are generally made in the succeeding fiscal year. At
September 30, 1995, the New York Bond Fund had a capital
loss carryover of approximately $3,313 which will expire in or before
2004. It is unlikely that the Board of Directors of the Company will
authorize a distribution of capital gains realized in the future until
the capital loss carryover has been utilized or expires.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the six-month period ended September 30, 1995 for the
New York Bond Fund were $19,331 and $17,093, respectively. Purchases and
sales/maturities of securities for the six-month period ended September
30, 1995 for the New York Money Market Fund were $34,652 and $28,334,
respectively.
Gross unrealized appreciation and depreciation of investments at
September 30, 1995 for the New York Bond Fund was $2,126 and $22,
respectively.
(5) Transactions with Manager
A. Management fees - The investment policy of the Funds and the
management of the Funds' portfolios is carried out by USAA Investment
Management Company (the Manager). Management fees are computed as a
percentage of aggregate average net assets (ANA) of both Funds combined,
which on an annual basis is equal to .50% of the first $50,000, .40% of
that portion over $50,000 but not over $100,000, and .30% of that portion
over $100,000. These fees are allocated on a proportional basis to each
Fund monthly based upon ANA.
The Manager has voluntarily agreed to limit the annual expenses of each
Fund to .50% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides
transfer agent services to the Company. Shareholder accounting service
fees are based on an annual charge per shareholder account plus
out-of-pocket expenses.
C. Underwriting agreement - The Company has an agreement with the
Manager for exclusive underwriting and distribution of the Funds' shares
on a continuing best efforts basis. The agreement provides that the
Manager will receive no fee or other remuneration for such services.
(6) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
Net Asset Net Realized Distributions
Fiscal Value at Net and from Net Distribution
Year Beginning Investment Unrealized Investment of Realized
Ended of Period Income Gain (Loss) Income Capital Gains
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NEW YORK BOND FUND:
March 31, 1991* 10.00 .32 .50 (.32) --
1992 10.50 .69 .44 (.69) --
1993 10.94 .65 .80 (.65) (.12)
1994 11.62 .62 (.50) (.62) (.29)
1995 10.83 .62 (.06) (.62) --
1996** 10.77 .32 .17 (.32) --
NEW YORK MONEY MARKET FUND:
March 31, 1991* 1.00 .02 -- (.02) --
1992 1.00 .04 -- (.04) --
1993 1.00 .03 -- (.03) --
1994 1.00 .02 -- (.02) --
1995 1.00 .03 -- (.03) --
1996** 1.00 .02 -- (.02) --
</TABLE>
<TABLE>
<CAPTION> Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets Expenses Income
End Total at End to Average to Average Portfolio
of Period Return of Period Net Assets Net Assets Turnover
($) (%) ($000) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
NEW YORK BOND FUND:
March 31, 1991* 10.50 8.22 11,635 .50(a)(b) 6.73(a)(b) 128.04
1992 10.94 11.00 28,022 .50(a) 6.32(a) 110.77
1993 11.62 13.74 48,925 .50(a) 5.79(a) 107.12
1994 10.83 .68 56,912 .50(a) 5.24(a) 124.40
1995 10.77 5.42 50,507 .50(a) 5.83(a) 142.19
1996** 10.94 4.57 52,847 .50(a)(b) 5.81(a)(b) 33.96(c)
NEW YORK MONEY MARKET FUND:
March 31, 1991* 1.00 2.23 12,684 .50(a)(b) 4.75(a)(b) --
1992 1.00 3.72 16,788 .50(a) 3.61(a) --
1993 1.00 2.51 19,428 .50(a) 2.46(a) --
1994 1.00 2.00 24,513 .50(a) 1.98(a) --
1995 1.00 2.76 27,525 .50(a) 2.74(a) --
1996** 1.00 1.80 33,599 .50(a)(b) 3.56(a)(b) --
(a) The information contained in this table is based on actual expenses for the period, after giving
effect to reimbursement of expenses by the Manager. Absent such reimbursements the Funds' ratios
would have been:
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Expenses Investment Income
to Average to Average
Net Assets Net Assets
(%) (%)
<S> <C> <C>
NEW YORK BOND FUND:
March 31, 1991* 1.73(b) 5.50(b)
1992 1.07 5.75
1993 .80 5.49
1994 .69 5.05
1995 .71 5.62
1996** .70(b) 5.61(b)
NEW YORK MONEY MARKET FUND:
March 31, 1991* 1.65(b) 3.60(b)
1992 1.26 2.86
1993 1.06 1.90
1994 .98 1.50
1995 .85 2.39
1996** .84(b) 3.22(b)
(b) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(c) Effective September 30, 1995, the portfolio turnover rate has been calculated excluding short-term
variable rate securities, which are those with put date intervals of less than one year. Had
these securities been excluded for March 31, 1995, the portfolio turnover rate for the New York Bond Fund would have
been 74.74%.
* Funds commenced operations October 15, 1990.
** For the six-month period ended September 30, 1995.
Total return assumes reinvestment of all dividend income and capital gains distributions during the period.
</TABLE>
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