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 9
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 in Securities 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)1996, USAA. All rights reserved.
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 33
funds by investment objective as of September 30, 1996.
<TABLE>
______________________________________________________________________________________________
Average Annual Total Return*
______________________________________________________________________________________________
<CAPTION>
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 33.19 16.98 14.08 -
Emerging Markets(1) 11/7/94 10.41 - - 4.96
Gold(1) 8/15/84 1.19 7.93 2.40 -
Growth 4/5/71 14.86 13.79 12.67 -
Growth & Income 6/1/93 18.80 - - 14.61
International(1) 7/11/88 15.03 12.73 - 10.21
S&P 500 Index(4) 5/1/96 - - - 7.76 ++
World Growth(1) 10/1/92 14.79 - - 13.01
______________________________________________________________________________________________
Asset Allocation
Balanced Strategy 9/1/95 9.32 - - 8.97
Cornerstone Strategy(1) 8/15/84 14.28 12.30 10.57 -
Growth and Tax Strategy(2)** 1/11/89 12.63 9.89 - 9.77
Growth Strategy(1) 9/1/95 25.37 - - 23.43
Income Strategy 9/1/95 5.08 - - 6.13
______________________________________________________________________________________________
Income - Taxable
GNMA 2/1/91 3.98 6.92 - 7.43
Income 3/4/74 3.26 7.76 9.17 -
Income Stock 5/4/87 12.73 12.41 - 12.03
Short-Term Bond 6/1/93 5.60 - - 5.29
_______________________________________________________________________________________________
Income - Tax Exempt
Long-Term(2)** 3/19/82 6.91 7.06 7.52 -
Intermediate-Term(2)** 3/19/82 5.43 7.02 7.12 -
Short-Term(2)** 3/19/82 4.51 5.04 5.49 -
California Bond(2)** 8/1/89 8.34 7.34 - 7.52
Florida Tax-Free Income(2)** 10/1/93 7.30 - - 3.17
New York Bond(2)** 10/15/90 6.34 6.80 - 8.29
Texas Tax-Free Income(2)** 8/1/94 8.56 - - 9.23
Virginia Bond(2)** 10/15/90 6.98 7.34 - 8.15
_______________________________________________________________________________________________
Money Market
Money Market(3) 2/2/81 5.33 4.38 5.85 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.45 3.09 4.23 -
Treasury Money Market Trust(3) 2/1/91 5.18 4.16 - 4.28
California Money Market(2),(3)** 8/1/89 3.37 2.98 - 3.65
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.34 - - 2.99
New York Money Market(2),(3)** 10/15/90 3.35 2.82 - 3.06
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.32
Virginia Money Market(2),(3)** 10/15/90 3.24 2.91 - 3.20
_________________________________________________________________________________________
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
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.
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(3) 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.
(4) 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.
* 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 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.
** IRAs are not available for tax-exempt funds. The Growth and Tax
Strategy Fund is not available as an investment for your IRA because the
majority of its income is tax-exempt. California, Florida, New York,
Texas, and Virginia funds available to residents only.
++ Cumulative total return since inception.
(A photo of Michael J.C. Roth, President and Vice Chairman of the Board,
appears here)
I am writing this message in late October and every day it seems someone
asks what effect the election will have on the financial markets. My frank
answer is that I don't know. What I prefer to talk about are things that
concern me about the markets and things that give me hope.
My greatest concern is the promises we as a nation have made to our citizens
coupled with our unwillingness to face the cost of those promises. Some of
these promises are highly noble. We have tried to provide decent housing
for those in our midst who cannot afford it. With a decent and safe home
most people would have the opportunity to seek the education and work that
could lift families out of poverty. But effective solutions are very difficult
to achieve, and too often we succeed only in creating generations mired in
hopeless dependency. We have promised medical care to the poor and the
elderly, but the cost of that care runs away from the tax revenues we have
dedicated to it. We have promised a safety net, social security, to our
elderly, and we did take decisive steps to raise the tax revenue to fund that.
But the excess of social security taxes over benefits, which should
have built a meaningful trust fund, has been systematically borrowed by the
treasury and spent on other current needs. That trust fund consists solely of
promises by the federal government which will have to be funded somehow in
the future. And then we have quite properly promised our citizens a strong
national defense. These are decent and noble promises but they translate to a
debt burden whose service requires a large and growing part of what we produce
as a nation.
But there is much we are prone to overlook. We forgot in the 80s that the
Japanese borrowed heavily from American knowledge and American methods
to work their economic miracle. We forget that the freedom of our society,
both political and intellectual, draws bright people from all over the world
and allows them and our own citizens the opportunity to take risks and reap
the rewards. We are a vibrant nation in the forefront of change that is
shaping the world. From IMCO's standpoint this means that there are great
opportunities for investors.
We tend, at times, to dwell on the problems. USAA, as a citizen of San Antonio
and the other great cities in which we have a presence, has confronted these.
Hundreds of our employees are mentors in schools. They and others in our
company devote their skills and their money to bettering the lives of people
in our communities. But while we in the Investment Management Company
participate in these endeavors, our attention is focused on the opportunities
that abound in the U.S. and other countries. We see, perhaps more clearly than
most people, that those opportunities offer great hope to very many people and
that great hope offers great opportunity to our investors.
This election is a small step on a long journey.
Sincerely,
Michael J.C. Roth
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.
3/31/96 9/30/96
Net Assets $54.0 Million $55.5 Million
Net Asset Value Per Share $10.95 $10.98
Average Annual Total Returns as of 9/30/96
March 31, 1996 to September 30, 1996 3.28%#
1 Year 6.34%
5 Years 6.80%
Since inception on October 15, 1990 8.29%
# 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, 1996 5.58%*
* 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 9/30/96, with dividends
and capital gains reinvested. The ending values for the items graphed are:
Lehman Brothers Muni. Bond Index $16,150
USAA New York Bond Fund 16,125]
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 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.
Message from the Manager
[Photograph of Kenneth E. Willmann, CFA, Portfolio Manager, appears here.]
A Trading Range
In the six months ended September 30, 1996, interest rates stayed in a narrow
trading range. By that I mean, interest rates have changed sharply from day to
day, yet over the entire period they changed only marginally. The graph below
illustrates this very well.
[A graph is located here which shows Municipal and U.S. Treasury Bond Yields
from 3/29/96 to 9/30/96. The vertical axis shows the yield and the horizontal
axis shows the time period. The ending value on 9/30/96 for the 30 year U.S.
Treasury is 6.92% and the ending value for the Bond Buyer 40-Bond Index (BBI40)
is 5.89%]
Note: Past performance is no guarantee of future results. The results of the
comparison reflect current conditions as regards to tax laws, inflationary
trends, and general corporate policies and practices. Investors are encouraged
to closely monitor changes in any factor which may affect their investments.
Please note that the top line is the yield of the active 30-year U. S.
Treasury Bond, or the "Long Bond" as it is known. This is generally considered
the benchmark for long-term interest rates in the U.S. The bottom line in the
graph represents the yield of the Bond Buyer 40-bond Index (BBI40), which is
the industry standard for the yield of long-term, investment-grade municipal
bonds.
Neither of the lines changes very much from beginning to end during the
six-month period. The Long Bond yield stood at 6.67% on March 29, 1996,
and ended at 6.92% on September 30, 1996. The total difference in yields
between those two dates was only .25%. This indication reflects much
day-to-day volatility, but nothing too dramatic. Instead, the volatility
was both up and down and retraced a similar path several times. For the
period, the Long Bond yield fell to its low of 6.60% on April 2, 1996,
then peaked twice at its high yield of 7.19%, on June 12, 1996 and again on
July 5, 1996. It oscillated several times around 7.00%, but always within that
range.
The yield of the BBI40 shows even less difference. It started the six-month
period at 5.96% and dropped to 5.89%, a difference of only .07%! The high
yield of 6.22% was reached on June 10, 1996, and the low yield of 5.80% was
recorded twice, on August 9, 1996, and again on August 12, 1996. It oscillated
several times around 6.00%, but always within that range.
New York Bond Fund
As you would expect, the performance of the New York Bond Fund approximated
that of the BBI40. The 30-day SEC Yield was 5.49% on March 31, 1996, and
ended the six-month period at 5.58% on September 30, 1996. The high 30-day
yield of 5.82% was reached on July 5 and July 8, 1996, and the low of 5.46%
was reached on August 12, 1996. The net asset value per share, which moves
in the opposite direction from theyield, began this period at $10.95 and
ended at $10.98. Its low level of $10.67 fell on June 10 and June 11, 1996,
and it rose to $11.10 on August 9 and August 12, 1996. Just like the
indices, the Fund experienced short-term volatility. But when you step back
and look at the entire six-month period, the volatility all but disappears.
Essentially, the income earned in the period was the total return for the
period.
Current Economy
The primary cause of the trading range scenario painted above is the
uncertainty about the economy which the securities markets are experiencing.
The economic statistics coming out of Washington, D.C., are giving a mixed
picture of the economic environment. There is a seemingly endless debate
going on among professional investors and economists about whether the economy
is speeding up or slowing down. Morespecifically, the debate focuses on whether
inflation (which is currently at the lowest level in years) is rising or
falling. Inflation is one of the primary drivers of interest rates.
As I write this in mid-October, the upcoming elections also add to the
uncertainty in the marketplace. The Congressional races loom just as large as
the Presidential race. The relationship between the Congress and the
Administration is extremely important to formulating, passing and implementing
new legislation. Of special interest to investors in tax-exempt municipal
bonds and funds is the fact that tax policy originates and is passed within
Congress. We will not know the fate of tax reform until after the new Congress
meets and sets its priorities.
New York Outlook
While the state finished fiscal 1996 on a positive note, the year was most
notable for the longest budget delay in state history. General obligation and
lease-backed debt was not affected, however, as appropriation for debt service
was enacted prior to the beginning of the fiscal year. The budget is likely to
remain contentious going forward as the state addresses significant budget
gaps in future years due in part to the enactment of large multi-year tax
cuts that will reduce available state resources for spending.
The state's economy, while broad and diverse, has been relatively weak when
compared to the nation as a whole. This is evidenced by July 1996 unemployment
rates (seasonally adjusted) of 6.5% for New York state, 8.8% for New York City
and 5.4% for the country as a whole.
The ability of the Pataki Administration to pass and implement a timely and
structurally sound budget, combined with ongoing economic performance, will
continue to be key components of future financial health. I will be closely
monitoring these and other issues going forward and their potential impact on
credit quality.
[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 9/31/91 to 9/30/96. The vertical axis shows the yield and the horizontal
axis shows the yield and the horizontal axis shows the time period. The values
are:
USAA New York Bond Fund 6.06 5.90 5.26 5.66 5.77 5.82
Lipper New York Muni.
Debt Funds Average 6.36 6.05 5.31 5.57 5.22 4.95]
The Lipper New York Municipal Debt Funds average is computed by Lipper
Analytical Services, an independent organization that monitors the
performance of mutual funds. 12-month dividend yield is computed by
dividing income dividends paid during the previous 12 months by the
latest month-end net asset value adjusted for capital gains distributions.
The graph represents data from 9/30/91 to 9/30/96.
Strategy
I will continue to follow the strategy of favoring tax-exempt income over
capital gains while maintaining a quality portfolio. That strategy certainly
paid off for the six months ended September 30, 1996. The annualized dividend
yield(1) on the Fund was 5.85%, well ahead of Lipper's New York State Municipal
Debt Funds(2) average of 4.88% for the 101 funds in the category.
(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) Lipper Analytical Services is an independent organization that monitors
the performance of mutual funds.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of September
30, 1996 for the New York Bond Fund to be: AAA - 17%, AA - 39%, A - 26%,
BBB - 17% 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.
Note: Income may be suject to federal, state or local taxes, or the alternative
minimum tax.
See page 15 for a complete listing of the Portfolio of Investments in
Securities.
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.
3/31/96 9/30/96
Net Assets $45.6 Million $47.6 Million
Net Asset Value Per Share $1.00 $1.00
Average Annual Total Returns as of 9/30/96
March 31, 1996 to September 30, 1996 1.59%#
1 Year 3.35%
5 Years 2.82%
Since inception on October 15, 1990 3.06%
# 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, 1996 3.32%
[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 & GP
(Tax-Free): New York from 9/95 to 9/96. The vertical axis shows the
yield and the horizontal axis shows the time period. The ending value,
on 9/30/96, for the USAA New York Money Market Fund is 3.32% and the
ending value for the IBC Donoghue's State Specific SB & GP (Tax-Free):
New York is 3.05%.]
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
[A photograph of Portfolio Manager,John C. Bonnell, CFA, appears here.]
Interest Rates
When 1996 began, interest rates were falling. The Federal Reserve (Fed)
lowered the Federal Funds rate (the rate banks charge other banks for
overnight loans) by .25% at the end of January. This move proved to be the
only action taken so far this year by the Fed. Not long after the Fed's
action, however, economic indicators and statistics came out reflecting much
stronger growth than expected, sending short-term interest rates higher. With
investors trying to anticipate interest rate actions by the Fed and reacting
to each economic indicator released, short-term interest rates remained very
volatile throughout 1996. Many investors were caught off guard after expecting
the Fed to raise the rate .25% to .50% following their September 24th meeting.
When the Fed left the Federal Funds rate unchanged, market interest rates fell
significantly. Clearly, the true magnitude of economic growth taking place
remains elusive. This illustrates why we do not forecast interest rates.
It is difficult, if not impossible, for anyone to consistently predict future
interest rate movements. Your money market fund strives to meet its objective
in any prevailing interest rate environment.
Strategy
Your Fund's success stems from two major advantages. First is the expense
ratio. Your Fund's expense ratio was .50%, net of reimbursements, versus an
industry average of .66%.* The lower a fund's expense ratio (everything else
being equal), the higher the potential return is to you. The second major
advantage your fund has is the quality of research provided by our internal
research department. Our credit research team, which includes four full-time
money market analysts, not only pores over financial statements, but also
interrogates the appropriate individuals (often including on-site tours/
visits) responsible for repayment of the debt we are considering purchasing
for the portfolio. This type of analysis helps avoid problems such as the
Orange County, California, bankruptcy and helps us identify opportunities
to enhance performance without taking risks inappropriate for a money market
fund. Credit quality and preservation of capital remain top priorities of
the Fund.
Our conservative approach to managing the Fund includes strict limits we place
on the portfolio regarding diversification. These limits go beyond the rules
governing money market funds set forth by the Securities and Exchange
Commission (SEC) which are intended to protect the safety and quality of money
market funds.
* Source: IBC/Donoghue's State Specific SB & GP (Tax-Free): New York
[A graph is here showing the growth of $10,000, from 10/15/90 to 9/30/96,
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 $11,986.]
Past performance is no guarantee of future results and the value of your
investment may vary according to the fund's performance. Income may be
subject to federal, state or local taxes, or to the alternative minimum
tax.
Performance
While past performance is no guarantee of future results, for the 12 months
ending 9/30/96 your fund ranked 2 out of 34 New York Money Market Funds
according to IBC/Donoghue, Inc. with a yield of 3.33%. The average for the
category over the same time period was 2.92%.
New York
While the state finished fiscal 1996 on a positive note, the year was most
notable for the longest budget delay in state history. The state's debt
payments were not affected, as appropriation for debt service was enacted
prior to the beginning of the fiscal year. However, many local governments
and school districts dependent on state aid were forced to issue short-term
notes to carry them until the state budget was passed. The state's budget
is likely to remain contentious as the state addresses significant budget
gaps in future years.
New York's economy, while broad and diverse, has been relatively weak compared
to the nation as a whole. This is evidenced by July 1996 unemployment rates
(seasonally adjusted) of 6.5% for the state and 8.8% for New York City,
compared to a national rate of 5.4%. We continue to analyze each issue on a
case by case basis and remain very selective when investing fund assets.
An investment in any money market 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.
See page 17 for a complete listing of the Portfolio of Investments of
Securities.
Statements of Assets and Liabilities
(In Thousands)
September 30, 1996
(Unaudited)
New York
New York Money Market
Bond Fund Fund
Assets
Investments in securities, at market value
(identified cost of $52,494 and
$47,201, respectively) $ 54,799 $ 47,201
Cash 61 533
Receivables:
Capital shares sold 4 20
Interest 844 224
-------- --------
Total assets 55,708 47,978
-------- --------
Liabilities
Capital shares redeemed 20 275
USAA Investment Management Company 75 56
USAA Transfer Agency Company 4 3
Accounts payable and accrued expenses 21 18
Dividends on capital shares 65 4
-------- --------
Total liabilities 185 356
-------- --------
Net assets applicable to
capital shares outstanding $ 55,523 $ 47,622
======== ========
Represented by:
Paid-in capital $ 56,558 $ 47,622
Accumulated net realized loss on
investments (3,340) -
Net unrealized appreciation of investments 2,305 -
-------- --------
Net assets applicable to
capital shares outstanding $ 55,523 $ 47,622
======== ========
Capital shares outstanding 5,059 47,622
======== ========
Net asset value, redemption price, and
offering price per share $ 10.98 $ 1.00
======== ========
See accompanying notes to financial statements.
Categories & Definitions
September 30, 1996
(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 a stipulated daily,
weekly, or monthly interval to a rate that reflects current market conditions.
In money market funds, the effective maturity is equal to either the date on
which the underlying principal amount may be recovered through demand or the
next rate adjustment date consistent with applicable regulatory requirements.
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.
<TABLE>
<CAPTION>
New York Bond Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
Principal Coupon Final Market
Amount Security Rate Maturity Value
<S> <C> <C> <C> <C>
Fixed Rate Instruments (98.3%)
New York
Dormitory Auth. RB,
$ 1,750 Series 1990A (Devereux Foundation)(CRE) 7.40% 7/01/15(a) $ 1,946
2,000 Series 1992 (Manhattan College) (CRE) 6.50 7/01/19 2,081
2,000 Series 1994 (Gurwin Geriatric Center) 7.35 8/01/29 2,227
2,500 Series 1994B (State Univ. System) 6.25 5/15/20 2,529
2,500 Series 1996 (St. John's Health Care) 6.25 2/01/36 2,559
2,550 Series 1996-2 (City Univ. System) 6.00 7/01/26 2,508
1,650 Environmental Facilities Corp. PCRB,
Series 1990B 7.50 3/15/11 1,789
1,980 Groton Community Health Care Facilities RB,
Series 1994A 7.45 7/15/21 2,200
Housing Finance Agency,
1,910 MFH RB, Series 1992E 6.75 8/15/25 1,979
2,450 MFH RB, Series 1996A (CRE) 6.13 11/01/20 2,453
2,525 Service Contract RB, Series 1996A 6.00 3/15/26 2,463
Medical Care Facilities Finance Agency RB,
2,500 Series 1994A (Community General Hospital
of Sullivan County) 6.25 2/15/24 2,426
2,000 Series 1994A (Hospital and Nursing Home
Facilities) 6.50 2/15/34 2,058
2,000 Series 1994A (New York Hospital) (CRE) 6.90 8/15/34 2,200
2,000 Series 1994E (Mental Health Services) 6.50 8/15/24 2,045
2,500 Series 1995A (Brookdale Hospital) 6.85 2/15/17 2,592
2,500 Series 1995A (Health Center Projects) 6.38 1/15/19 2,595
6,250 Mortgage Agency RB, Series EE-3 7.75 4/01/16 6,639
2,235 New York City Capital Improvement Bonds
34th St. Partnership, Series 1993 5.50 1/01/14 2,116
New York City GO,
3,000 Series 1995B 7.25 8/15/19 3,220
1,560 Series 1996J 6.00 2/15/24 1,497
2,500 New York City Municipal Water Finance RB,
Series 1996B 5.88 6/15/26 2,477
------
Total fixed rate instruments (cost: $52,294) 54,599
------
Variable Rate Demand Note (0.4%)
New York
200 St. Lawrence County IDA PCRB,
Series 1985 (CRE) (cost: $200) 3.95 12/01/07 200
-------
Total investments (cost: $52,494) $54,799
=======
</TABLE>
Portfolio Summary By Industry
Nursing Care 16.3%
Hospitals 13.0
Education 12.8
Multi-Family Housing 12.4
Single-Family Housing 11.9
General Obligations 8.5
Healthcare - Miscellaneous 8.4
Water/Sewer 4.5
Special Assessment/Tax/Fee 3.8
Escrowed Securities 3.5
Water Utilities 3.2
Aluminum .4
----
Total 98.7%
====
<TABLE>
<CAPTION>
New York Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1996
(Unaudited)
Principal Coupon Final
Amount Security Rate Maturity Value
Variable Rate Demand Notes (80.5%)
<S> <C> <C> <C> <C>
New York (77.1%)
$ 2,200 Chautauqua County IDA IDRB,
Series 1984A (CRE) 4.38% 1/01/00 $ 2,200
Dormitory Auth. RB,
3,200 Series 1994A (CRE) 3.85 7/01/24 3,200
1,500 Series 1995 (CRE) 3.85 7/01/25 1,500
1,810 Series 1996 (CRE) 3.70 7/01/25 1,810
1,150 Glens Falls IDA RB, Series 1985 (CRE) 3.70 8/01/05 1,150
Job Development Auth. RB,
355 Series 1984 D1-D9 (CRE) 3.60 3/01/99 355
300 Series 1985 A1-A9 (CRE) 3.75 3/01/00 300
515 Series 1985 C1-C34 (CRE) 3.75 3/01/00 515
2,200 Local Government Assistance Corp. RB,
Series 1995G (CRE) 3.65 4/01/25 2,200
550 Monroe County IDA RB, Series 1985 (CRE)3.55 12/01/00 550
1,000 Nassau County IDA RB, Series 1984 (CRE)3.80 12/01/99 1,000
7,600 New York City Housing Development Corp. RB,
Series 1984A (CRE) 4.20 12/01/16 7,600
New York City IDA RB,
2,100 Series 1985 (CRE) 3.85 12/01/15 2,100
600 Series 1990 (CRE) 3.65 5/01/20 600
1,300 Series 1993 (CRE) 3.75 6/30/23 1,300
1,200 Niagara County IDA RB, Series 1994A 4.00 11/15/24 1,200
300 North Hempstead Solid Waste Management
Auth. RB, Series 1993A (CRE) 3.75 2/01/12 300
2,300 Oswego County IDA PCRB, Series 1992 3.80 12/01/08 2,300
1,000 Rotterdam IDA RB, Series 1993A (CRE) 3.60 11/01/09 1,000
2,300 St. Lawrence County IDA PCRB,
Series 1985 (CRE) 3.95 12/01/07 2,300
Suffolk County IDA RB,
1,250 Series 1984 (CRE) 3.85 9/01/14 1,250
2,000 Series 1992 (CRE) 3.60 12/01/12 2,000
Puerto Rico (3.4%)
1,600 Industrial, Tourist, Educational, Medical
and Environmental Control Facilities
Financing Auth. RB, Series 1995A
(CRE) 4.00 1/01/15 1,600
-------
Total variable rate demand notes (cost: $38,330) 38,330
-------
Put Bonds (8.1%)
New York
Energy Research and Development Auth. PCRB,
800 Series 1985A (CRE) 3.30 3/15/15 800
1,800 Series 1985A (CRE) 3.25 3/01/16 1,800
1,000 Series 1985B (CRE) 3.85 10/15/15 1,000
270 Hudson IDA RB, Series 1985 (CRE) 4.25 12/15/00 270
-------
Total put bonds (cost: $3,870) 3,870
-------
Fixed Rate Instruments (10.5%)
New York
1,000 Beacon School District GO, Series
1996 (CRE) 5.00 7/15/97 1,009
697 Dormitory Auth. Revenue Notes CP,
Series 1989A (CRE) 3.60 10/18/96 697
1,000 Erie County RAN, Series 1996A (CRE) 4.25 4/17/97 1,003
700 Huntington GO Public Improvement Bonds,
Series 1996 (CRE) 4.80 7/15/97 704
1,360 Rockland County GO, Series 1994B (CRE) 5.90 11/15/96 1,364
220 Seaford Union Free School District GO,
Series 1996 (CRE) 6.50 6/15/97 224
-------
Total fixed rate instruments (cost: $5,001) 5,001
-------
Total investments (cost: $47,201) $47,201
=======
</TABLE>
Portfolio Summary By Industry
Multi-Family Housing 16.0%
Education 9.9
Nursing Care 9.9
General Obligations 8.9
Electric Power 8.7
Buildings 6.6
Aluminum 4.8
Tobacco 4.8
Publishing/Newspapers 4.6
Sales Tax Obligations 4.6
Hotel/Motel 4.4
Community Service 4.2
Publishing 3.8
Electronics - Instrumentation 2.6
Finance - Municipal 1.5
Chemicals - Specialty 1.3
Pollution Control 1.3
Manufacturing - Diversified Industries .6
Resource Recovery .6
----
Total 99.1%
====
Notes to Portfolios of Investments in securities
September 30, 1996
(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.
Portfolio Description Abbreviations
CP Commercial Paper
CRE Credit Enhanced
GO General Obligation
IDA Industrial Development Authority/Agency
IDRB Industrial Development Revenue Bond
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RAN Revenue Anticipation Notes
RB Revenue Bond
Specific Notes
(a) Prerefunded to various dates prior to maturity at the call price.
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1996
(Unaudited)
New York
New York Money Market
Bond Fund Fund
Net investment income:
Interest income $ 1,750 $ 829
-------- ------
Expenses:
Management fees 123 102
Transfer agent's fees 22 17
Custodian's fees 20 21
Postage 2 2
Shareholder reporting fees 1 2
Directors' fees 2 2
Registration fees 1 1
Audit fees 8 8
Legal fees 4 4
Other 2 2
------- ------
Total expenses before
reimbursement 185 161
Expenses reimbursed (47) (47)
------- ------
Total expenses after
reimbursement 138 114
------- ------
Net investment income 1,612 715
------- ------
Net realized and unrealized gain (loss)
on investments:
Net realized loss (599) -
Change in net unrealized
appreciation/depreciation 721 -
------- ------
Net realized and
unrealized gain 122 -
------- ------
Increase in net assets resulting from
operations $ 1,734 $ 715
======= ======
See accompanying notes to financial statements.
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended September 30, 1996 and Year ended March 31, 1996
(Unaudited)
New York New York
Bond Fund Money Market Fund
9/30/96 3/31/96 9/30/96 3/31/96
From operations:
Net investment income $ 1,612 $ 3,049 $ 715 $ 1,170
Net realized gain (loss)
on investments (599) 658 - -
Change in net unrealized
appreciation/depreciation
of investments 721 190 - -
------- ------- ------ -------
Increase in net assets
resulting from
operations 1,734 3,897 715 1,170
------- ------- ------ -------
Distributions to shareholders from:
Net investment income (1,612) (3,049) (715) (1,170)
------- ------- ------ -------
From capital share transactions:
Proceeds from shares sold 5,467 14,008 25,952 51,173
Shares issued for dividends
reinvested 1,242 2,362 684 1,120
Cost of shares redeemed (5,295) (13,738) (24,568) (34,264)
------- ------- ------- -------
Increase in net assets
from capital share
transactions 1,414 2,632 2,068 18,029
------- ------- ------ -------
Net increase in net assets 1,536 3,480 2,068 18,029
Net assets:
Beginning of period 53,987 50,507 45,554 27,525
------- ------- ------- -------
End of period $55,523 $53,987 $47,622 $45,554
======= ======= ======= =======
Change in shares outstanding:
Shares sold 503 1,269 25,952 51,173
Shares issued for dividends
reinvested 114 214 684 1,120
Shares redeemed (487) (1,244) (24,568) (34,264)
------- ------ ------- -------
Increase in shares
outstanding 130 239 2,068 18,029
======= ====== ======= =======
Authorized shares of $.01 par
value 25,000 25,000 100,000 100,000
======= ====== ======= =======
See accompanying notes to financial statements.
Notes to Financial Statements
September 30, 1996
(Unaudited)
(1) Summary of Significant Accounting Policies USAA Tax Exempt Fund, Inc.
(the Company), registered under the Investment Company Act of 1940, as
amended, is a diversified, open-end management investment company incorporated
under the laws of Maryland consisting of ten separate funds. The information
presented in this semiannual report pertains only to the New York Bond Fund
and New York Money Market Fund (the Funds). The Funds have a common objective
of providing New York investors with a high level of current interest income
that is exempt from federal, New York state, and New York City personal income
taxes. The New York Money Market Fund has a further objective of preserving
capital and maintaining liquidity.
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 saleprice 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 Investment Company Act of 1940, as
amended, 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.
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 two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank, ($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 these agreements,
each Fund may borrow up to a maximum of 15% of its total assets, of which
only 5% may be borrowed from CAPCO, at the lending institution's borrowing
rate plus a markup. The Funds had no borrowings under either of these agreements
during the six-month period ended September 30, 1996.
(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, 1996.
Distributions of realized gains from security transactions not offset by
capital losses are made in the succeeding fiscal year or as otherwise required
to avoid the payment of federal taxes. At September 30, 1996, the New York
Bond Fund had capital loss carryovers for federal income tax purposes of
approximately $3,340,000 which, if not offset by subsequent capital gains will
expire between 2003-2004. 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 carryovers have been utilized or expire.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the six-month period ended September 30, 1996 for the New York Bond Fund
were $16,102,983 and $15,786,346, respectively. Purchases and sales/maturities
of securities for the six-month period ended September 30, 1996 for the New
York Money Market Fund were $49,812,273 and $48,056,000, respectively.
Gross unrealized appreciation and depreciation of investments at September 30,
1996 for the New York Bond Fund was $2,431,213 and $126,373, respectively.
(5) Transactions with Manager
A. Management fees - The investment policies 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 $50,000,000, .40% of that portion over $50,000,000
but not over $100,000,000, and .30% of that portion over $100,000,000. 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.
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
New York Bond Fund
September 30, 1996 Six-Month
(Unaudited) Period Ended Year Ended March 31,
September 30, --------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.95 $ 10.77 $ 10.83 $ 11.62 $ 10.94 $ 10.50
Net investment income .32 .63 .62 .62 .65 .69
Net realized and
unrealized gain (loss) .03 .18 (.06) (.50) .80 .44
Distributions from net
investment income (.32) (.63) (.62) (.62) (.65) (.69)
Distributions of realized
capital gains - - - (.29) (.12) -
Net asset value at -------- -------- -------- -------- -------- --------
end of period $ 10.98 $ 10.95 $ 10.77 $ 10.83 $ 11.62 $ 10.94
======== ======== ======== ======== ======== ========
Total return (%) * 3.28 7.67 5.42 .68 13.74 11.00
Net assets at end
of period ($000) $ 55,523 $ 53,987 $ 50,507 $ 56,912 $ 48,925 $ 28,022
Ratio of expenses to
average net assets (%) .50(a)(b) .50(a) .50(a) .50(a) .50(a) .50(a)
Ratio of net investment
income to average
net assets (%) 5.91(a)(b)5.75(a) 5.83(a) 5.24(a) 5.79(a) 6.32(a)
Portfolio turnover (%) 29.45 74.80 74.74 124.40 107.12 110.77
</TABLE>
(a) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the Manager.
Absent such reimbursements the Fund's ratios would have been:
<TABLE>
<CAPTION>
<S>
Ratio of expenses to <C> <C> <C> <C> <C> <C>
average net assets(%) .68(b) .69 .71 .69 .80 1.07
Ratio of net investment
income to average
net assets (%) 5.73(b) 5.56 5.62 5.05 5.49 5.75
</TABLE>
(b) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
* Assumes reinvestment of all dividend income and capital gains
distributions during the period.
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
New York Money Market Fund
Six-Month
September 30, 1996 Period Ended Year Ended March 31,
(Unaudited) September 30, --------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<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 .04 .03 .02 .03 .04
Distributions from net
investment income (.02) (.04) (.03) (.02) (.03) (.04)
------- ------- ------- ------- ------ -------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return (%) * 1.59 3.56 2.76 2.00 2.51 3.72
Net assets at end
of period ($000) $47,622 $45,554 $27,525 $24,513 $19,428 $16,788
Ratio of expenses to
average net assets (%) .50(a)(b).50(a) .50(a) .50(a) .50(a) .50(a)
Ratio of net investment
income to average
net assets (%) 3.15(a)(b) 3.47(a) 2.74(a) 1.98(a) 2.46(a) 3.61(a)
</TABLE>
(a) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the Manager.
Absent such reimbursements the Fund's ratios would have been:
Ratio of expenses to
average net assets (%) .71(b) .78 .85 .98 1.06 1.26
Ratio of net investment
income to average
net assets (%) 2.94(b) 3.19 2.39 1.50 1.90 2.85
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during
the period.
