TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review:
Long-Term Fund 4
Intermediate-Term Fund 8
Short-Term Fund 13
Tax Exempt Money Market Fund 18
Financial Information:
Statements of Assets and Liabilities 22
Portfolios of Investments in Securities:
Long-Term Fund 25
Intermediate-Term Fund 32
Short-Term Fund 44
Tax Exempt Money Market Fund 52
Notes to Portfolios of Investments in Securities 62
Statements of Operations 63
Statements of Changes in Net Assets 64
Notes to Financial Statements 66
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Funds.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Tax Exempt
Fund, Inc., 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)1997, 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 35
funds by investment objective as of September 30, 1997.
<TABLE>
<CAPTION>
Investment Inception Average Annual Total Return(%)*
Objective Date 1 year 5 years 10 years Since Inception
<S> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION
Aggressive Growth 10/19/81 12.97 22.01 12.58 -
Emerging Markets(1) 11/7/94 17.80 - - 9.18
First Start Growth 8/1/97 - - - -0.70
Gold(1) 8/15/84 -15.16 3.76 -6.42 -
Growth 4/5/71 34.93 18.50 12.42 -
Growth & Income 6/1/93 37.04 - - 19.40
International(1) 7/11/88 26.99 17.03 - 11.90
S&P 500 Index(4)+ 5/1/96 40.33 - - 32.89
Science & Technology(5) 8/1/97 - - - -2.00
World Growth(1) 10/1/92 28.41 15.94 - 15.94
ASSET ALLOCATION
Balanced Strategy(1) 9/1/95 26.23 - - 16.92
Cornerstone Strategy(1) 8/15/84 26.15 15.31 9.33 -
Growth and Tax Strategy(2)** 1/11/89 18.12 11.73 - 10.69
Growth Strategy(1) 9/1/95 26.54 - - 24.91
Income Strategy 9/1/95 18.42 - - 11.85
INCOME--TAXABLE
GNMA 2/1/91 10.02 6.70 - 7.81
Income 3/4/74 11.55 7.35 10.31 -
Income Stock 5/4/87 31.46 16.04 13.55 -
Short-Term Bond 6/1/93 8.07 - - 5.92
INCOME--TAX EXEMPT
Long-Term(2)** 3/19/82 10.02 6.87 8.85 -
Intermediate-Term(2)** 3/19/82 9.07 6.89 8.05 -
Short-Term(2)** 3/19/82 5.95 4.89 5.81 -
California Bond(2)** 8/1/89 9.85 7.43 - 7.81
Florida Tax-Free Income(2)** 10/1/93 10.18 - - 4.88
New York Bond(2)** 10/15/90 9.69 6.58 - 8.49
Texas Tax-Free Income(2)** 8/1/94 10.30 - - 9.56
Virginia Bond(2)** 10/15/90 8.92 7.12 - 8.26
MONEY MARKET
Money Market(3) 2/2/81 5.32 4.58 5.77 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.39 3.06 4.13 -
Treasury Money Market Trust(3) 2/1/91 5.16 4.38 - 4.41
California Money Market(2),(3)** 8/1/89 3.30 2.98 - 3.61
Florida Tax-Free Money
Market(2),(3)** 10/1/93 3.28 - - 3.06
New York Money Market(2),(3)** 10/15/90 3.22 2.85 - 3.09
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.36 - - 3.33
Virginia Money Market(2),(3)** 10/15/90 3.26 2.90 - 3.21
</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.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* Total return equals income return 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.
+ Includes the $10 annual account maintenance fee through December 31, 1996.
MESSAGE FROM THE PRESIDENT
We recently received a bit of good news.
It is that all eight of the tax-exempt bond funds which we offer, the Long-Term,
Intermediate-Term and Short-Term Funds, plus our five state-specific bond funds,
have been awarded five-star ratings by Morningstar for the one-year period ended
September 30, 1997.* We are pleased with this achievement, mainly because of
what it confirms. To understand that, let's talk about what these ratings mean.
<TABLE>
EIGHT IS GREAT!
USAA's eight Tax-Exempt Bond Funds
all receive Morningstar's 5 star rating
in the municipal bond funds category for the year ended 9-30-97.*
<CAPTION>
FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USAA Tax Exempt Intermediate-Term Fund ***** 5* 5* 5*
USAA Tax Exempt Short-Term Fund ***** 5* 5* 5*
USAA Virginia Bond Fund** ***** 5* 5*
USAA Tax Exempt Long-Term Fund ***** 5* 4* 4*
USAA California Bond Fund** ***** 5* 4*
USAA New York Bond Fund** ***** 5* 3*
USAA Texas Tax-Free Income Fund** ***** 5*
USAA Florida Tax-Free Income Fund** ***** 4*
Total Funds rated: 1,760 1,374 668 326
</TABLE>
Past performance is no guarantee of future results.
* Morningstar proprietary ratings reflect historical risk-adjusted performance
through 9/30/97. The ratings are subject to change monthly. Morningstar
ratings are calculated from the Fund's 3-, 5-, and 10-year average annual
total returns (with fee adjustments) in excess of 90-day Treasury bill
returns, and a risk factor that reflects fund performance below 90-day
Treasury bill returns. There is a three-year minimum performance requirement
before a fund is rated. The one-year rating is calculated using the same
methodology, but is not a component of the overall rating. Overall rating is
a weighted average of a fund's 3-, 5-, and 10-year ratings, when applicable.
Among 1,374 municipal bond funds, the USAA Tax Exempt Intermediate-Term,
Short-Term, Texas Tax-Free Income, and Virginia Bond Funds received overall
ratings of 5 stars. The USAA Tax Exempt Long-Term, California Bond, New York
Bond, and Florida Tax-Free Income Funds received overall ratings of 4 stars.
The top ten percent of the funds in a rating category receive five stars and
the next 22.5% receive four stars.
** These funds are only available for residents in these states.
(Photograph of the President, Michael J. C. Roth, appears here.)
There are some standard words which you will see commonly published along with
any reference to Morningstar ratings. They are what we call a legend and they
include this; "Morningstar proprietary ratings reflect historical risk-adjusted
performance through [date]. The ratings are subject to change monthly..." At
many conferences I have attended, I have heard Morningstar executives emphasize
the point that their ratings are historically based and that they are not
predictive. In other words they tell you who did well, but they do not purport
to tell you who will do well.
Having said all that, we are pleased with these ratings because they are an
affirmation of one of our basic beliefs. We believe investors in tax-exempt bond
funds want, and will benefit most from tax-exempt income. That seems obvious
when you put it on paper, but it is something which is easily obscured. The
performance and the relative ratings of these funds are based upon their total
returns, which means both interest income and price change. We have chosen very
deliberately to manage our funds for consistently high yields, and we believe
that over time this will be beneficial to our investors both in terms of income
and total return. The Morningstar ratings indicate that in the recent past we
have been correct in these beliefs.
And besides, it's nice to have someone say you're "five-star."
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
INVESTMENT REVIEW
LONG-TERM FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax.
TYPES OF INVESTMENTS: Invests primarily in investment grade tax-exempt
securities of varying maturities. The average weighted portfolio maturity is 10
years or more.
3/31/97 9/30/97
Net Assets..................... $1,822.4 MILLION $1,981.6 MILLION
Net Asset Value Per Share...... $13.22 $13.77
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
March 31, 1997 to September 30, 1997............................ 7.19%+
1 Year.......................................................... 10.02%
5 Years......................................................... 6.87%
10 Years........................................................ 8.85%
+ 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, 1997......................... 5.07%
*Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return 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.
- ---------------------------------
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 Long-Term Fund, Lehman Brothers
Municipal Bond Index and the Lipper General Municipal Debt Funds Average. The
data points from the graph are as follows:
USAA Long-Term Fund
Year Amount
- -------- -------
09/30/87 $10,000
12/31/87 $10,493
03/31/88 $10,807
09/30/88 $11,451
03/31/89 $11,857
09/30/89 $12,638
03/31/90 $13,096
09/30/90 $13,356
03/31/91 $14,203
09/30/91 $15,095
03/31/92 $15,678
09/30/92 $16,753
03/31/93 $17,630
09/30/93 $18,891
03/31/94 $18,047
09/30/94 $18,074
03/31/95 $18,961
09/30/95 $19,852
03/31/96 $20,454
09/30/96 $21,224
03/31/97 $21,785
09/30/97 $23,351
Lehman Brothers Municipal Bond Index
Year Amount
- -------- -------
09/30/87 $10,000
12/31/87 $10,446
03/31/88 $10,806
09/30/88 $11,298
03/31/89 $11,585
09/30/89 $12,279
03/31/90 $12,807
09/30/90 $13,113
03/31/91 $13,988
09/30/91 $14,843
03/31/92 $15,386
09/30/92 $16,394
03/31/93 $17,312
09/30/93 $18,483
03/31/94 $17,714
09/30/94 $18,032
03/31/95 $19,030
09/30/95 $20,048
03/31/96 $20,625
09/30/96 $21,259
03/31/97 $21,749
09/30/97 $23,176
Lipper General Municipal Debt Funds Average
Year Amount
- -------- -------
09/30/87 $10,000
12/31/87 $10,480
03/31/88 $10,791
09/30/88 $11,377
03/31/89 $11,757
09/30/89 $12,384
03/31/90 $12,799
09/30/90 $13,031
03/31/91 $13,878
09/30/91 $14,746
03/31/92 $15,267
09/30/92 $16,280
03/31/93 $17,249
09/30/93 $18,442
03/31/94 $17,582
09/30/94 $17,751
03/31/95 $18,701
09/30/95 $19,528
03/31/96 $20,079
09/30/96 $20,668
03/31/97 $21,088
09/30/97 $22,509
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the investment grade tax-exempt bond market.
The Lipper General Municipal Debt Funds Average is the average performance
level of all general municipal debt funds, as computed by Lipper Analytical
Services, an independent organization that monitors the performance of mutual
funds. All tax-exempt bond funds will find it difficult to outperform the Lehman
Index, since funds have expenses.
MESSAGE FROM THE MANAGER
(Photograph of Portfolio Manager, Kenneth E. Willmann, CFA, appears here.)
Interest Rate-Markets
Interest rates generally declined in the six months ended September 30, 1997.
While they certainly did not move in a straight line, the trend is unmistakable.
The graph below illustrates this well.
A chart in the form of a line graph appears here illustrating the yields of the
30-year U.S. Treasury Bond and the Bond Buyer 40-Bond Index (BBI40) from 3/31/97
to 9/30/97.
30 Year Treasury Bond Buyer 40 Bond Index (BBI40)
03/31 7.1% 5.95%
04/15 7.09% 5.97%
04/30 6.96% 5.89%
05/15 6.87% 5.78%
05/30 6.91% 5.74%
06/16 6.7% 5.59%
06/30 6.78% 5.69%
07/15 6.54% 5.54%
07/31 6.3% 5.4%
08/15 6.55% 5.56%
08/29 6.61% 5.55%
09/15 6.57% 5.48%
09/30 6.40% 5.47%
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.
The BBI40 yield is lower because it is tax-exempt; investors must pay income
taxes on the Long Bond.
The lines stay relatively parallel, though the Long Bond was typically more
volatile day-to-day. Municipal bonds tend to be a little more sedate than
Treasury bonds. Market activity is diffused among thousands of municipal issues,
where Treasury trading is concentrated in one or a few issues. Municipal trading
takes place almost exclusively in the U.S., while Treasuries are traded
worldwide by many investors with different regulations and motivations.
Baby Bear's Porridge
In the famous children's story "Goldilocks and the Three Bears," Goldilocks, the
little girl, stumbles across the bears' house in the forest. Upon entering, she
finds the breakfast table set with three bowls of porridge. She tries Papa
Bear's bowl, and it is too hot. Next is Mama Bear's which is too cold. Then she
finds Baby Bear's porridge to be just right.
The parallels between this story and the economy are striking. Currently, the
economy is neither "too hot" (a period of strong economic growth causing
inflation) nor "too cold" (a period of recession). It is just right. Gross
Domestic Product and employment are growing moderately and steadily, but not
fast enough to cause inflation to accelerate. In fact, inflation is
decelerating. The securities markets are declaring this mix to be just right.
The stock market is strong, and interest rates, which are very sensitive to
inflation, are falling.
We all realize that the economy is a dynamic system. It changes constantly.
Someday it will start to get "too hot" or become "too cold." Unlike Goldilocks,
we have no intention of falling into a satisfied sleep. But for now, just right
is pretty nice.
The Long-Term Fund
Your Fund benefited from this positive environment. The net asset value per
share rose to $13.77 on September 30, 1997, from $13.22 on March 31, 1997. By
carefully managing your Fund for income, we have provided an annualized dividend
yield(1) for the past six months of 5.64%, well above the 4.64% of the Lipper
General Municipal Debt Funds Average.
- ----------------------------------
COMPARISON-12 MONTH DIVIDEND YIELD
- ----------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Long-Term Fund and the Lipper General
Municipal Debt Funds Average from 9/30/88 to 9/30/97.
USAA Long-Term Lipper General Municipal
Fund Yield Debt Funds Average Yield
9/30/88 7.55% 7.15%
9/30/89 7.29% 6.97%
9/30/90 7.38% 6.93%
9/30/91 6.93% 6.46%
9/30/92 6.45% 6.02%
9/30/93 5.83% 5.33%
9/30/94 6.01% 5.48%
9/30/95 6.13% 5.22%
9/30/96 5.95% 5%
9/30/97 5.67% 4.76%
The Lipper General 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 9/30/88 to
9/30/97.
(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.
We are pleased to report that this combination of income and price appreciation
has earned your Fund's performance 5-star ratings from Morningstar for the 1-
and 3-year periods.(2)
Philosophy
Our philosophy of favoring tax-exempt income over taxable capital gains is
working. We intend to stay with it for the foreseeable future. One thing we
know is that the world changes, so we constantly question and probe that
philosophy to determine if it is still relevant and appropriate. My job is to
relieve you of the burden of dealing with economic changes that affect your
investment in the Fund.
PORTFOLIO RATINGS/MIX
SEPTEMBER 30, 1997
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1997
of the USAA Long-Term Fund to be:
AA - 27%, A - 25%, Cash Equivalents - 1%, AAA - 17%, BBB - 30%
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group, or Fitch Investors Service. Unrated securities
that have been determined by USAA IMCO to be of equivalent investment quality to
category AAA account for .5% of the Fund's investments.
Past performance is no guarantee of future results.
(2) The Fund was awarded a five-star rating for its overall risk-adjusted
performance by Morningstar as of September 30, 1997. It was rated 5 stars
overall and among 1760 and 1374 municipal bond funds for the 1- and 3-year
periods and 4 stars overall and among 668 and 326 municipal bond funds for
the 5- and 10-year periods. Morningstar proprietary ratings reflect
historical risk-adjusted performance through September 30, 1997. The ratings
are subject to change monthly. Morningstar ratings are calculated from the
Fund's 3-, 5-, and 10-year average annual total returns (with fee
adjustments) in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns. There is
a 3-year minimum performance requirement before a fund is rated. The 1-year
rating is calculated using the same methodology, but is not a component of
the overall rating. Overall rating is a weighted average of a fund's 3-,
5-, and 10-year ratings, when applicable. The top ten percent of the funds
in a rating category receive five stars and the next 22.5% receive four
stars.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 25 for a complete listing of the Portfolio of Investments in
Securities.
INVESTMENT REVIEW
INTERMEDIATE-TERM FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax.
TYPES OF INVESTMENTS: Invests primarily in investment grade tax-exempt
securities of varying maturities. The average weighted portfolio maturity is
between 3 and 10 years.
3/31/97 9/30/97
Net Assets.......................... $1,725.7 MILLION $1,870.9 MILLION
Net Asset Value Per Share........... $12.77 $13.20
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
March 31, 1997 to September 30, 1997............................. 6.24%+
1 Year........................................................... 9.07%
5 Years.......................................................... 6.89%
10 Years......................................................... 8.05%
+ 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, 1997.......................... 4.81%
*Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return 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.
- ---------------------------------
Cumulative Performance Comparison
- ---------------------------------
A chart in the form of a line graph appears here comparing the cumulative
performance of a $10,000 Investment of the USAA Intermediate-Term Fund, the
Lehman Brothers Municipal Bond Index and the Lipper Intermediate Municipal Debt
Funds Average. The data is from 9/30/87 through 9/30/97. The data points from
the graph are as follows:
USAA Intermediate-Term Fund
- ---------------------------
09/87 $10,000
12/87 $10,362
03/88 $10,700
09/88 $11,075
03/89 $11,347
09/89 $11,948
03/90 $12,401
09/90 $12,749
03/91 $13,431
09/91 $14,161
03/92 $14,672
09/92 $15,539
03/93 $16,328
09/93 $17,382
03/94 $16,828
09/94 $17,180
03/95 $17,866
09/95 $18,856
03/96 $19,289
09/96 $19,879
03/97 $20,408
09/97 $21,682
Lehman Brothers Municipal Bond Index
- ------------------------------------
09/87 $10,000
12/87 $10,447
03/88 $10,806
09/88 $11,298
03/89 $11,585
09/89 $12,279
03/90 $12,807
09/90 $13,113
03/91 $13,988
09/91 $14,843
03/92 $15,386
09/92 $16,394
03/93 $17,312
09/93 $18,483
03/94 $17,714
09/94 $18,031
03/95 $19,030
09/95 $20,049
03/96 $20,625
09/96 $21,260
03/97 $21,749
09/97 $23,176
Lipper Intermediate Municipal Debt Funds Average
- ------------------------------------------------
09/87 $10,000
12/87 $10,401
03/88 $10,674
09/88 $11,034
03/89 $11,259
09/89 $11,793
03/90 $12,203
09/90 $12,515
03/91 $13,221
09/91 $13,903
03/92 $14,357
09/92 $15,211
03/93 $15,955
09/93 $16,881
03/94 $16,390
09/94 $16,644
03/95 $17,289
09/95 $18,106
03/96 $18,498
09/96 $18,895
03/97 $19,298
09/97 $20,320
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the investment grade tax-exempt bond market.
The Lipper Intermediate Municipal Debt Funds Average is the average performance
level of all intermediate municipal debt funds, as computed by Lipper Analytical
Services, an independent organization that monitors the performance of mutual
funds. All tax-exempt bond funds will find it difficult to outperform the Lehman
Index, since funds have expenses.
MESSAGE FROM THE MANAGER
(Photograph of Portfolio Manager, Clifford A. Gladson, CFA, appears here.)
Credit Market Review
Since our report of March 31, 1997, the bond market exhibited some volatility as
market participants tried to anticipate the reaction of the Federal Reserve
Board to robust economic growth during a period of low inflation. Between March
31, 1997 and September 30, 1997, the yield on 10-year "AA" rated municipal bonds
ranged from a high of 5.22% on April 14, 1997, down to 4.61% on July 30, 1997.
Fund Performance
While past performance is no guarantee of future results, for the first six
months of the fiscal year, your Fund had a positive performance both in dividend
yield and total return. From March 31, 1997 to September 30, 1997, the Fund's
annualized dividend yield(1) of 5.42% is well above the 4.29% average dividend
yield for the 142 funds in the Lipper Intermediate Municipal Debt Funds
average.(2) For the same period and category, your Fund's six-month total
return(3) of 6.24% compares quite favorably to the Lipper average of 5.06%.
Since March 31, 1997, the Fund's share price increased $.43 to $13.20.
Your Fund's performance for the 1-, 3-, 5-, and 10-year periods continue to earn
5-star ratings from Morningstar.(4)
(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.
(3) Total return equals income return plus share price change and assumes
reinvestment of dividends and capital gains distributions.
Past performance is no guarantee of future results.
(4) The Fund was awarded a five-star rating for its overall risk-adjusted
performance by Morningstar as of September 30, 1997. It was rated overall
and among 1760, 1374, 668, and 326 municipal bond funds for the 1-, 3-, 5-,
and 10-year periods. Morningstar proprietary ratings reflect historical
risk-adjusted performance through September 30, 1997. The ratings are
subject to change monthly. Morningstar ratings are calculated from the
Fund's 3-, 5-, and 10-year average annual total returns (with fee
adjustments) in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns. There is
a 3-year minimum performance requirement before a fund is rated. The 1-year
rating is calculated using the same methodology, but is not a component of
the overall rating. Overall rating is a weighted average of a fund's 3-,
5-, and 10-year ratings, when applicable. The top ten percent of the funds
in a rating category receive five stars and the next 22.5% receive four
stars.
- ----------------------------------
COMPARISON-12 MONTH DIVIDEND YIELD
- ----------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Intermediate-Term Fund and the Lipper
Intermediate Municipal Debt Funds Average from 9/88 to 9/97.
USAA Intermediate-Term Fund Lipper Intermediate Municipal
Debt Funds Average
9/88 7.14% 6.33%
9/89 7.01% 6.42%
9/90 6.98% 6.33%
9/91 6.67% 5.96%
9/92 6.07% 5.46%
9/93 5.35% 4.69%
9/94 5.55% 4.73%
9/95 5.5% 4.53%
9/96 5.63% 4.45%
9/97 5.44% 4.32%
The Lipper Intermediate 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
9/30/88 to 9/30/97.
Check Point
During the summer bond rally, I received a phone call from a local shareholder.
Although happy that falling interest rates had pushed up the Fund's share price,
he was concerned that the monthly dividend check would go down. This shareholder
had a firm understanding of the mathematics for an individual fixed-coupon bond
with a fixed maturity: as the price rises, the yield to maturity declines.
However, a mutual fund's dividend distribution yield flows out of a portfolio of
bonds that possesses neither a single fixed coupon nor a single fixed maturity.
The fund manager can position the fund's weighted average coupon or weighted
average maturity to help offset a decline in yields on dividend distribution.
I assured the shareholder that the number one objective of the Fund was to
provide the highest level of tax-exempt income possible. Over the years, you as
shareholders, have made it clear that you value the tax-exempt dividend
distributions over capital gains distributions or an increase in share price.
Consequently, I manage your Fund with a tax-exempt income orientation. I do not
ignore short-term total return, but it is subordinate to the maximization of
the tax-exempt dividend. The following narrative for the USAA Short-Term Fund
on page 14 explains why I am so firmly committed to this portfolio management
strategy.
The table and graphs below show how, over the long-term, income orientation pays
off. The table examines the Fund's sources of total return over the last 1, 5,
and 10 years. Notice that the tax-exempt dividend return is the dominant
component of long-term total return. The three bar graphs further illustrate how
the dividend return and yearly share-price appreciation combine to produce total
return. Besides dominating long-term total return, income distributions smooth
out the volatility in the annualized total return.
Average Annual Compounded Returns with
Reinvestment of Dividends - Periods Ending September 30, 1997
TOTAL DIVIDEND PRICE
RETURN EQUALS RETURN PLUS CHANGE
--------------------------------------------------------------
10 YEARS 8.05% = 6.46% + 1.59%
--------------------------------------------------------------
5 YEARS 6.89% = 5.76% + 1.13%
--------------------------------------------------------------
1 YEAR 9.07% = 5.86% + 3.21%
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Intermediate-Term Fund for
the 10-year period ended September 30, 1997.
Total Return for years **Compounded Dividend
ended: Yield for years ended:
- ----------------------- ------------------------------
9/30/88 10.75% 9/30/88 7.59%
9/30/89 7.88% 9/30/89 7.29%
9/30/90 6.71% 9/30/90 7.13%
9/30/91 11.08% 9/30/91 7.26%
9/30/92 9.73% 9/30/92 6.54%
9/30/93 11.87% 9/30/93 6.01%
9/30/94 -1.17% 9/30/94 5.16%
9/30/95 9.76% 9/30/95 6.04%
9/30/96 5.43% 9/30/96 5.74%
9/30/97 9.07% 9/30/97 5.86%
Change in Share Price
- -------------------------
9/30/88 3.16%
9/30/89 0.59%
9/30/90 -0.42%
9/30/91 3.82%
9/30/92 3.19%
9/30/93 5.86%
9/30/94 -6.33%
9/30/95 3.72%
9/30/96 -0.31%
9/30/97 3.21%
**Compounded Dividend yield calculation includes only income distributions.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Dividend return is
the income 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.
Current Market Conditions
As commodity prices and wage increases stay subdued, inflation should remain
well behaved. Given these economic conditions continue, your Fund stands ready
to take advantage of any rise in interest rates that may potentially improve the
dividend distribution yield.
PORTFOLIO RATINGS/MIX
SEPTEMBER 30, 1997
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1997
of the USAA Intermediate-Term Fund to be:
AA - 13%, A - 35%, Cash Equivalents - 3%, AAA - 20%, BB - 3% and BBB - 26%
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group, or Fitch Investors Service. Unrated securities
that have been determined by USAA IMCO to be of equivalent investment quality to
categories AAA and BBB account for .3% and .8%, respectively, of the Fund's
investments.
Note: Income may be subject to federal, state or local taxes, or to the
alternative minimum tax.
See page 32 for a complete listing of the Portfolio of Investments in
Securities.
INVESTMENT REVIEW
SHORT-TERM FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax.
TYPES OF INVESTMENTS: Invests primarily in investment grade tax-exempt
securities of varying maturities. The average weighted portfolio maturity is 3
years or less.
3/31/97 9/30/97
Net Assets............................... $804.9 MILLION $862.0 MILLION
Net Asset Value Per Share................ $10.57 $10.70
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
March 31, 1997 to September 30, 1997............................ 3.59%+
1 Year.......................................................... 5.95%
5 Years......................................................... 4.89%
10 Years........................................................ 5.81%
+ 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, 1997......................... 4.18%
*Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return 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.
- ---------------------------------
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 Short-Term Fund, Lehman
Brothers Municipal Bond Index and the Lipper Short-Term Municipal Debt Funds
Average. The data points from the graph are as follows:
USAA Short-Term Fund
09/87 $10,000
03/88 $10,419
09/88 $10,682
03/89 $10,917
09/89 $11,416
03/90 $11,780
09/90 $12,071
03/91 $12,518
09/91 $12,988
03/92 $13,406
09/92 $13,860
03/93 $14,261
09/93 $14,685
03/94 $14,670
09/94 $14,936
03/95 $15,332
09/95 $15,894
03/96 $16,226
09/96 $16,610
03/97 $16,988
09/97 $17,598
Lehman Brothers Municipal Bond Index
09/87 $10,000
03/88 $10,806
09/88 $11,298
03/89 $11,585
09/89 $12,279
03/90 $12,807
09/90 $13,113
03/91 $13,988
09/91 $14,873
03/92 $15,386
09/92 $16,394
03/93 $17,312
09/93 $18,483
03/94 $17,714
09/94 $18,032
03/95 $19,030
09/95 $20,048
03/96 $20,625
09/96 $21,259
03/97 $21,749
09/97 $23,176
Lipper Short-Term Municipal Debt Funds Average
09/87 $10,000
03/88 $10,400
09/88 $10,652
03/89 $10,874
09/89 $11,313
03/90 $11,677
09/90 $12,020
03/91 $12,470
09/91 $13,893
03/92 $13,277
09/92 $13,728
03/93 $14,085
09/93 $14,405
03/94 $14,485
09/94 $14,697
03/95 $15,013
09/95 $15,466
03/96 $15,802
09/96 $16,116
03/97 $16,416
09/97 $16,878
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index
that tracks total return performance for the investment grade tax-exempt bond
market. The Lipper Short-Term Municipal Debt Funds Average is the average
performance level of all short-term municipal debt funds, as computed by Lipper
Analytical Services, an independent organization that monitors the performance
of mutual funds. All tax-exempt bond funds will find it difficult to outperform
the Lehman Index, since funds have expenses.
MESSAGE FROM THE MANAGER
(Photo of Portfolio Manager, Clifford A. Gladson, CFA, appears here.)
Credit Market Review
For the first six months of the Fund's fiscal year, March 31,1997 to September
30, 1997, interest rates for 3-year "AA" rated municipal bonds fell .36% to
4.11%. However, seemingly contradictory economic statistics, low inflation with
a rising gross domestic product (GDP) and low unemployment, resulted in a
jittery bond market. The yield on 3-year "AA" rated municipal bonds during this
period rose as high as 4.54% on April 23, 1997, and dropped as low as 4.02% on
July 30, 1997.
Fund Performance
While past performance is no guarantee of future results, from March 31, 1997 to
September 30, 1997, the Fund provided an annualized dividend yield(1) of 4.58%.
This is .56% above the 4.02% average dividend yield for the 29 funds in the
Lipper Short-Term Municipal Debt Funds average.(2) Your Fund's total return(3)
for the last six months was 3.59%. This compares quite favorably to the Lipper
average of 2.98%. During this period, the Fund's share price increased $.13 to
$10.70.
Your Fund's performance for the 1-, 3-, 5-, and 10-year periods continue to earn
5-star ratings from Morningstar.(4)
(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.
(3) Total return equals income return plus share price change and assumes
reinvestment of dividends and capital gains distributions.
Past performance is no guarantee of future results.
(4) The Fund was awarded a five-star rating for its overall risk-adjusted
performance by Morningstar as of September 30, 1997. It was rated overall
and among 1760, 1374, 668, and 326 municipal bond funds for the 1-, 3-, 5-,
and 10-year periods. Morningstar proprietary ratings reflect historical
risk-adjusted performance through September 30, 1997. The ratings are
subject to change monthly. Morningstar ratings are calculated from the
Fund's 3-, 5-, and 10-year average annual total returns (with fee
adjustments) in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns. There is
a 3-year minimum performance requirement before a fund is rated. The 1-year
rating is calculated using the same methodology, but is not a component of
the overall rating. Overall rating is a weighted average of a fund's 3-,
5-, and 10-year ratings, when applicable. The top ten percent of the funds
in a rating category receive five stars and the next 22.5% receive four
stars.
- ------------------------------------
COMPARISON - 12 MONTH DIVIDEND YIELD
- ------------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Short-Term Fund and the Lipper Short-
Term Municipal Debt Funds Average from 9/88 to 9/97.
USAA Short-Term Fund Lipper Short-Term Municipal
Debt Funds Average
9/88 5.96% 5.63%
9/89 6.35% 6.04%
9/90 6.51% 6.2%
9/91 6.14% 5.8%
9/92 5.15% 4.92%
9/93 4.44% 4.11%
9/94 4.3% 3.76%
9/95 4.65% 4.15%
9/96 4.71% 4.09%
9/97 4.54% 4.08%
The Lipper Short-Term 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
9/30/88 to 9/30/97.
Reality Check
Within the investment community, portfolio managers are usually evaluated based
on gross total return. However, for a shareholder account that is subject to
income tax, after-tax return is what really matters. The narrative for the USAA
Intermediate-Term Fund on page 9 looks at the investment logic behind my
adopting a tax-exempt income orientation. Now I want to tell you why I feel it
is a business necessity that each USAA tax-exempt fund employ an income
orientation strategy.
TRUST is USAA's core product. USAA has a long tradition of service that has led
you as shareholders to entrust USAA with the stewardship over your hard earned
savings. You expect and deserve to have your interests placed ahead of both the
company or myself as your portfolio manager.
USAA has hired me to serve you. But USAA's and my own commitment to honoring
your trust goes beyond monetary consideration. Printed after my name is the
Chartered Financial Analyst (CFA) professional designation.(6) It is not added
as an effort to promote my investment prowess, but to emphasize the high ethical
standards demanded of me and every CFA. The president and each portfolio manager
at USAA Investment Management Company is a CFA. Every CFA is responsible to
advise their employer of their obligation to comply with the Code of Ethics and
Standards of Professional Conduct adopted by the Association for Investment
Management and Research (AIMR) and is subject to sanctions for code violations.
Sections III and IV of the Code emphasize the CFA's duty is first to the
shareholder whose interests must be placed ahead of the firm, the firm's
employees, and the CFA. Given USAA's 75 years of putting the member first, the
Code is very compatible with our commitment to you and usual business practices
as well as USAA's internal code of ethics.
(6) The Chartered Financial Analyst designation is awarded by the Institute of
Chartered Financial Analysts (IFCA) to qualified financial analysts who pass
examinations in economics, financial accounting, portfolio management,
security analysis, and standards of conduct.
The table and graphs below illustrate the after-tax benefits of income
orientation. The table examines the sources of total return over the last 1, 5,
and 10 years. Notice that the tax-exempt dividend return is the dominant
component of long-term total return. The three bar graphs further illustrate how
the dividend return and yearly share-price appreciation combine to produce total
return.
Average Annual Compounded Returns with
Reinvestment of Dividends - Periods Ending September 30, 1997
TOTAL DIVIDEND PRICE
RETURN EQUALS RETURN PLUS CHANGE
--------------------------------------------------------------
10 YEARS 5.81% = 5.43% + .38%
--------------------------------------------------------------
5 YEARS 4.89% = 4.65% + .24%
--------------------------------------------------------------
1 YEAR 5.95% = 4.72% + 1.23%
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Short-Term Fund for the
10-year period ended September 30, 1997.
Total Return for years **Compounded Dividend
ended: Yield for years ended:
- ----------------------- ------------------------------
9/30/88 6.82% 9/30/88 6.14%
9/30/89 6.87% 9/30/89 6.58%
9/30/90 5.74% 9/30/90 6.61%
9/30/91 7.60% 9/30/91 6.44%
9/30/92 6.71% 9/30/92 5.37%
9/30/93 5.95% 9/30/93 4.63%
9/30/94 1.70% 9/30/94 4.22%
9/30/95 6.41% 9/30/95 4.88%
9/30/96 4.51% 9/30/96 4.79%
9/30/97 5.95% 9/30/97 4.72%
Change in Share Price
- ----------------------------
9/30/88 0.68%
9/30/89 0.29%
9/30/90 -0.87%
9/30/91 1.16%
9/30/92 1.34%
9/30/93 1.32%
9/30/94 -2.52%
9/30/95 1.53%
9/30/96 -0.28%
9/30/97 1.23%
**Compounded Dividend yield calculation includes only income distributions.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Dividend return
is the income 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.
Current Market Conditions
Despite robust economic growth, inflation remains well below 3%. I am inclined
to agree with Federal Reserve Board Chairman Alan Greenspan's analysis that
government statistics are having difficulty measuring increased productivity
within the service sector of the economy. Your Fund continues to employ 18% of
its assets in variable rate bonds with a demand feature of 7 days or less.(7)
These securities provide liquidity, help stabilize the portfolio, and quickly
benefit from a rise in short-term rates. The balance of the portfolio is
invested in short-term municipal bonds that help enhance the Fund's dividend
distribution yield.
(7) Variable rate demand notes represent borrowings that are payable on demand
and that bear interest tied to a money market.
PORTFOLIO RATINGS/MIX
SEPTEMBER 30, 1997
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1997
of the USAA Short-Term Fund to be:
AA - 8%, A - 32%, Cash Equivalents - 20%, AAA - 15%, BB - 2% and BBB - 23%
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group, or Fitch Investors Service. Unrated securities
that have been determined by USAA IMCO to be of equivalent investment quality to
categories A and BBB account for .7% and 1.7%, respectively, of the Fund's
investments.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 44 for a complete listing of the Portfolio of Investments in
Securities.
INVESTMENT REVIEW
TAX EXEMPT MONEY MARKET FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax while preserving capital and maintaining liquidity.
TYPES OF INVESTMENTS: High quality 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 maintain a stable
net asset value of $1.00 per share.
3/31/97 9/30/97
Net Assets....................... $1,565.6 MILLION $1,507.2 MILLION
Net Asset Value Per Share........ $1.00 $1.00
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
March 31, 1997 to September 30, 1997..............................1.75%+
1 Year............................................................3.39%
5 Years...........................................................3.06%
10 Years..........................................................4.13%
+ 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, 1997..........................3.67%
Total return equals income return and assumes reinvestment of all dividends and
any 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.
- ----------------------
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 Tax Exempt Money Market Fund and the IBC/Donoghue SB
(Stock Broker) and GP (General Purpose) (Tax - Free) Money Funds.
USAA TAX EXEMPT IBC/Donoghue
MONEY MARKET FUND ------------
-----------------
09/24/96 3.47% 3.13%
10/29/96 3.28% 2.96%
11/26/96 3.28% 2.93%
12/31/96 3.57% 3.27%
01/28/97 3.18% 2.87%
02/25/97 3.27% 2.8%
03/25/97 3.09% 2.75%
04/29/97 3.76% 3.51%
05/27/97 3.6% 3.25%
06/24/97 3.68% 3.29%
07/29/97 3.44% 3.06%
08/26/97 3.23% 2.86%
09/29/97 3.65%* 3.29%*
The graph tracks the Fund's 7-day simple yield against IBC/Donoghue's SB (Stock
Broker) and GP (General Purpose) (Tax-Free) Money Funds, an average of all major
money market fund yields.
Data represent the last Monday of each month.
*Ending date 9/29/97
MESSAGE FROM THE MANAGER
(Photograph of Portfolio Manager, Thomas G. Ramos, CFA, appears here.)
Credit Market Review
After briefly trading above 6.00% in April 1997, one-year Treasury bills
steadily moved downward and have been trading in a range of 5.60% to 5.40% since
August 1997. One-year tax-exempt notes, on the other hand, moved from 3.40% at
the beginning of the year to 3.80% in March 1997, essentially trading between
3.80% and 3.90% since the first quarter of the year. Currently, yields on
tax-exempt notes are about 70% of Treasuries, or 3.80%. Although the Federal
Reserve Board appears to have a bias toward raising short-term rates, economic
indicators are sending mixed signals, and the rates remain unchanged.
Strategy
With the market undecided as to where interest rates are heading, we believe it
is an appropriate time to restate our strategy. While other fund complexes make
buy and sell decisions based on what they believe interest rates will do in the
future, we focus on buying individual issues based on their relative value in
the market. One might ask, "What does this mean?" Basically, we make purchase
decisions after considering the various sectors in our market. Short term, we
look at instruments where we have an option to put back the security in one to
seven days. For the intermediate-term, 30 to 120 days, we look at tax-exempt
commercial paper. And finally, our third option is to purchase notes where
maturities are generally one year. We purchase securities that are attractive
compared to other sectors in the market. We also take into account the
attractiveness of the issue relative to similarly maturing Treasuries. This
gives us an indication at what tax rate shareholders benefit by owning the
security. All things being equal, a security that is attractive at the 28% tax
rate would be a better value than a security that is attractive at the 39% tax
rate. On top of this analysis, we always strive to reduce risk to the
shareholder. Consequently, the issues we focus on have strong credit
characteristics. Overall, we maintain a strategy that provides competitive
tax-exempt dividends to the shareholder, while at the same time reducing risk.
The Portfolio
As of this writing, the maturity of the portfolio is about 59 days. We have
selectively purchased longer maturing instruments that increased the average
maturity of the portfolio four days since our last shareholder report.
Significantly though, 58% of the portfolio is made up of variable rate
instruments.(1) Their one to seven day puts provide both liquidity and market
flexibility and represent excellent value.
(1) Variable rate demand notes represent borrowings that are payable on demand
and that bear interest tied to a money market rate.
- ---------------------------------
CUMULATIVE PERFORMANCE OF $10,000
- ---------------------------------
A chart in the form of a line graph appears illustrating the cumulative
performance of a $10,000 investment from 9/30/87 to 9/30/97. The data points
from the graph are as follows:
9/87 $10,000
3/88 $10,243
9/88 $10,504
3/89 $10,814
9/89 $11,155
3/90 $11,488
9/90 $11,829
3/91 $12,171
9/91 $12,454
3/92 $12,694
9/92 $12,892
3/93 $13,061
9/93 $13,215
3/94 $13,363
9/94 $13,533
3/95 $13,761
9/95 $14,016
3/96 $14,263
9/96 $14,499
3/97 $14,734
9/97 $14,992
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.
An investment in this Fund is neither insured nor guaranteed by the U.S.
government and there is no assurance that the Fund will maintain a stable net
asset value of $1 per share.
See page 52 for a complete listing of the Portfolio of Investments in
Securities.
Statements of Assets and Liabilities
(In Thousands)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Tax Exempt
Long-Term Intermediate- Short-Term Money Market
Fund Term Fund Fund Fund
---- --------- ---- ----
<S> <C> <C> <C> <C>
Assets
Investments in securities, at market value
(identified cost of $1,815,489, $1,745,508,
$829,189, and $1,492,755, respectively) $1,976,040 $1,857,428 $ 844,883 $1,492,755
Cash 381 1,055 7,269 9,566
Receivables:
Capital shares sold 76 79 554 1,122
Interest 32,135 27,715 10,977 11,071
Securities sold - - - 3,000
---------- ---------- ---------- ----------
Total assets 2,008,632 1,886,277 863,683 1,517,514
---------- ---------- ---------- ----------
Liabilities
Securities purchased 22,922 12,329 - 4,245
Capital shares redeemed 472 382 741 5,314
USAA Investment Management Company 451 427 195 353
USAA Transfer Agency Company 84 86 50 78
Accounts payable and accrued expenses 181 179 124 174
Dividends on capital shares 2,909 2,014 557 185
---------- ---------- ---------- ----------
Total liabilities 27,019 15,417 1,667 10,349
---------- ---------- ---------- ----------
Net assets applicable to capital shares outstanding $1,981,613 $1,870,860 $ 862,016 $1,507,165
========== ========== ========== ==========
Represented by:
Paid-in capital $1,866,048 $1,761,724 $ 849,915 $1,507,165
Accumulated net realized loss on investments (44,986) (2,784) (3,593) -
Net unrealized appreciation of investments 160,551 111,920 15,694 -
---------- ---------- ---------- ----------
Net assets applicable to capital shares outstanding $1,981,613 $1,870,860 $ 862,016 $1,507,165
========== ========== ========== ==========
Capital shares outstanding 143,871 141,721 80,590 1,507,165
========== ========== ========== ==========
Net asset value, redemption price, and offering price per share $ 13.77 $ 13.20 $ 10.70 $ 1.00
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
Categories & Definitions
Portfolios of Investments in Securities
September 30, 1997
(Unaudited)
Fixed-Rate Instruments -- consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the 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
to the next tender date.
Variable Rate Demand Notes (VRDN) -- provide the right, on any business day,
to sell the security 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 the date on which the underlying principal amount may be
recovered or the next rate adjustment date consistent with 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 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, or
other corporation, or a collateral trust. Typically, the rating agencies
evaluate the security based upon the credit standing of the provider of the
credit enhancement, rather than the credit standing of the issuer.
Portfolio Description Abbreviations
BAN Bond Anticipation Note IDRB Industrial Development
COP Certificate of Participation Revenue Bond
CP Commercial Paper ISD Independent School District
CRE Credit Enhanced MFH Multi-Family Housing
GO General Obligation PCRB Pollution Control
IDA Industrial Development Revenue Bond
Authority/Agency RB Revenue Bond
IDB Industrial Development Board SFH Single-Family Housing
IDC Industrial Development TAN Tax Anticipation Note
Corporation TRAN Tax Revenue Anticipation Note
Long-Term Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Fixed Rate Instruments (98.9%)
<C> <S> <C> <C> <C>
Alabama (0.6%)
$ 3,750 Baldwin County Health Care RB, Series 1996 6.75% 4/01/21 $ 4,033
8,000 Courtland IDRB, Series 1994 5.90 2/01/17 8,168
Alaska (6.4%)
Housing Finance Corp. Collateralized RB
8,670 1991 Second Series 6.90 6/01/32 9,203
15,705 1993 First Series 5.88 12/01/35 16,107
10,000 1994 First Series 6.70 12/01/19 10,703
15,195 1995 First Series 6.55 12/01/37 16,178
Valdez Marine Terminal RB
21,175 Series 1985A 7.00 12/01/25 23,338
50,850 Series 1993C 5.65 12/01/28 51,142
Arizona (1.1%)
4,500 Maricopa County Hospital RB, Series 1997 6.13 4/01/18 4,679
16,745 Salt River Project Agriculture and Power
District Electric System RB, Series 1987E 7.25 1/01/17(a) 16,888
California (6.8%)
11,350 Central Valley Finance Auth. RB, Series 1993 6.20 7/01/20 11,844
11,500 Los Angeles Regional Airport Improvement
Corp. Refunding RB 6.35 11/01/25 12,371
17,000 Sacramento Cogeneration Auth. RB, Series 1995 6.50 7/01/21 18,254
70,000 San Joaquin Hills Transportation Corridor
Agency RB, Series 1997A (CRE) 5.67(b) 1/15/34 9,337(c)
74,000 San Joaquin Hills Transportation Corridor
Agency Senior Lien RB 6.75 1/01/32 83,534
Colorado (1.5%)
14,200 Health Facilities Auth. Hospital RB, Series 1993 6.63 2/01/13 15,099
11,480 Summit County Sports Facilities RB, Series 1990 7.88 9/01/08 13,894
Connecticut (1.3%)
4,000 Health and Educational Facilities Auth. RB,
Series 1996C 6.63 7/01/26 4,224
21,500 Mashantucket (Western) Pequot Tribe RB,
Series 1997B 5.75 9/01/27 21,341
District of Columbia (1.1%)
11,980 Health Facilities Mortgage RB, Series 1985 7.75 8/01/29 12,329
8,000 Hospital RB, Series 1992B 7.00 8/15/15 8,949
Georgia (0.5%)
10,000 Savannah Economic Development Auth. PCRB,
Series 1995 6.15 3/01/17 11,009
Hawaii (0.2%)
5,000 Housing Finance and Development Corp. RB,
Series 1997B 5.45 7/01/17 5,004
Idaho (1.2%)
23,400 Nez Perce County PCRB, Series 1996 6.00 10/01/24 24,414
Illinois (6.4%)
Chicago Gas Supply RB
13,500 Series 1985B 7.50 3/01/15 14,615
7,500 Series 1985C 7.50 3/01/15 8,119
24,250 Series 1995A 6.10 6/01/25 25,420
13,725 Chicago-O'Hare International Airport RB,
Series 1994 8.20 12/01/24 16,377
6,700 Development Finance Auth. RB, Series 1996B (CRE) 6.40 9/01/31 7,116
Health Facilities Auth. RB
3,240 Series 1988 8.10 12/01/03 3,264
17,775 Series 1992 7.00 1/01/15 19,221
19,600 Quincy Hospital RB, Series 1993 6.00 11/15/18 19,900
10,980 Regional Transport Auth. GO, Series 1994C (CRE) 7.10 6/01/25 12,558
Indiana (4.0%)
10,945 Development Finance Auth. Environmental RB,
Series 1996 6.15 7/15/22 11,267
5,420 Fifth Avenue Housing Development Corp. RB,
Series 1992C 7.25 7/01/25 5,743
100,675 Health Facility Financing Auth. RB, Series 1992C 7.89(b) 7/01/23 17,453
41,750 Indianapolis Airport Facility RB 6.80 4/01/17 45,539
Kansas (0.5%)
60,245 Sedgwick County Mortgage Loan RB,
Senior Series 1991A 7.11(b) 12/01/22 9,494
Kentucky (2.0%)
39,595 Louisville and Jefferson County Metro Sewer
District RB, Series 1997B (CRE) 5.20 5/15/25 38,857
Louisiana (1.5%)
25,730 Lake Charles Harbor and Terminal District
Port Facilities RB 7.75 8/15/22 29,394
Maryland (1.0%)
18,455 Community Development Administration SFH RB,
Series 1996A 5.95 7/01/23 19,206
Massachusetts (1.4%)
24,000 GO, Series 1991A 7.63 6/01/08(a) 27,199
Michigan (2.9%)
9,900 Battle Creek Downtown Development Auth.
Development Bonds, Series 1994 7.60 5/01/16 11,598
13,005 Dickinson County Economic Development Corp. PCRB,
Series 1993 5.85 10/01/18 13,261
Hospital Finance Auth. RB
15,500 Series 1994A 7.50 10/01/27 17,516
7,250 Series 1995 6.70 1/01/26 7,788
6,500 Job Development Auth. RB, Series 1990A (CRE) 8.00 12/01/13 7,158
Minnesota (2.7%)
50,690 St. Paul Housing and Redevelopment Auth.
Hospital RB, Series 1993A 6.63 11/01/17 53,487
Mississippi (1.7%)
Lafayette County Hospital RB
2,940 Series 1991A 7.95 3/01/16 3,258
15,175 Series 1991B 7.95 3/01/16 16,573
Union County Hospital RB
4,450 Series 1991A 7.95 3/01/16 4,860
8,350 Series 1991B 7.95 3/01/16 9,251
Missouri (0.3%)
5,000 Health and Educational Facilities RB, Series 1996A 6.38 2/01/27 5,272
Montana (0.8%)
14,545 Board of Housing RB, Series 1997A-1 6.05 12/01/37 15,124
Nevada (0.9%)
15,650 Humboldt County PCRB, Series 1984 8.30 12/01/14 18,704
New Hampshire (2.2%)
10,785 Higher Educational and Health Facilities Auth. RB,
Series 1993 6.38 7/01/23 11,133
31,085 Single-Family Mortgage Finance Auth. RB,
Series 1993B 6.05 7/01/25 31,990
New Jersey (0.8%)
15,000 Camden County Improvement Authority RB,
Series 1997 6.00 2/15/27 15,221
New Mexico (2.5%)
16,000 Chaves County Hospital RB 7.25 12/01/22 17,303
30,100 Lordsburg PCRB 6.50 4/01/13 32,433
New York (14.8%)
Dormitory Auth. RB
21,500 Series 1996B (Mental Health Services) 6.00 8/15/16 23,146
25,000 Series 1997A (Mental Health Services) 5.75 8/15/22 25,457
75,000 Housing New York Corp. RB, Series 1993 5.00 11/01/18 70,618
Medical Care Facilities Finance Agency RB
36,275 Series 1994A (New York Hospital) (CRE) 6.90 8/15/34 41,028
13,900 Series 1995A (Brookdale Hospital) 6.85 2/15/17 15,139
New York City GO
33,415 Series 1995B 7.25 8/15/19(a) 39,208
16,585 Series 1995B 7.25 8/15/19 18,653
5,890 Series 1997I 6.25 4/15/17 6,227
31,050 Series 1997I 6.25 4/15/27 32,849
17,985 Series 1998B 5.25 8/01/17 17,319
3,300 New York City IDA RB, Series 1990
(Nightingale - Bamford School) 5.85 1/15/20 3,348
North Carolina (1.0%)
18,445 Housing Finance Agency RB, Series R 6.95 9/01/23 19,784
Oklahoma (2.2%)
41,550 Tulsa Municipal Airport Transportation RB,
Series 1995 6.25 6/01/20 43,667
Pennsylvania (2.3%)
Montgomery County IDA RB
7,500 Series 1996A 5.88 11/15/22 7,631
10,000 Series 1996B 5.75 11/15/17 10,156
27,470 Philadelphia Gas Works RB, 14th Series 6.38 7/01/26 28,737
Puerto Rico (3.4%)
18,000 Commonwealth Linked GO Bonds (CRE) 5.83 7/01/20 18,607
Electric Power Auth. RB
21,175 Series T 6.38 7/01/24 22,810
25,450 Series X 6.13 7/01/21 26,989
Rhode Island (1.4%)
25,000 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/24 27,045
Texas (5.9%)
19,500 Bell County Health Facilities Development Corp. RB,
Series 1989 6.50 7/01/19 22,470
6,580 Department of Housing and Community Affairs RB,
Series 1991A 6.95 7/01/23 7,015
16,705 Fort Bend ISD GO, Series 1997 (CRE) 4.75 8/15/22 15,334
12,500 Harris County Health Facilities RB, Series 1992 7.13 6/01/15(a) 14,040
19,300 Harris County IDC RB, Series 1992 6.95 2/01/22 21,019
San Antonio Electric and Gas RB
14,100 Series 1989A 6.00 2/01/14(a) 14,664
6,955 Series 1989A 6.00 2/01/14 7,119
Tyler Health Facilities Development Corp. RB
4,700 Series 1993A 6.75 11/01/25 4,962
10,300 Series 1993B 6.75 11/01/25 10,876
Utah (1.1%)
25,400 Murray City Hospital RB (CRE) 4.75 5/15/20 22,920
Vermont (0.1%)
3,000 Education and Health Buildings Finance Agency RB,
Series 1992 6.00 11/01/22 3,077
Virginia (2.5%)
8,700 Henrico County IDA Hospital RB, Series 1985C 7.50 9/01/11(a) 9,611
15,000 Housing Development Auth. Commonwealth
Mortgage RB, Series 1990B, Subseries B5 6.90 7/01/13 15,708
21,950 Peninsula Ports Auth. RB, Series 1992 (CRE) 7.38 6/01/20 24,084
Washington (8.3%)
14,000 Chelan County Development Corp. PCRB,
Series 1995 5.85 12/01/31 14,598
3,500 Housing Finance Commission RB,
Series 1996A (CRE) 6.85 7/01/21 3,687
66,485 King County GO, Series 1994A 6.25 1/01/34 70,730
73,500 Seattle Metropolitan Sewer RB, Series V 6.20 1/01/32 75,984(g)
West Virginia (0.7%)
12,500 Water Development Auth. RB, Series 1991A (CRE) 7.00 11/01/25 13,611
Wisconsin (1.1%)
21,000 Wisconsin Center District Tax RB, Series 1996B 5.75 12/15/27 21,322
Wyoming (1.8%)
33,735 Community Development Auth. SFH RB,
Series 1993A 6.10 6/01/33 34,877
----------
Total fixed rate instruments (cost: $1,800,289) 1,960,840
----------
Variable Rate Demand Notes (0.8%)
Arkansas (0.1%)
1,400 Fayetteville Public Facilities Board RB,
Series 1997 (CRE) 3.85 9/01/27 1,400
California (0.1%)
1,300 Irvine Ranch Water District RB, Series 1993 (CRE) 3.65 4/01/33 1,300
1,500 Statewide Communities Development Auth. COP,
Series 1996 (CRE) 3.65 6/01/26 1,500
Louisiana (0.4%)
6,900 Public Facilities Auth. MFH RB, Series 1991 (CRE) 4.00 7/01/09 6,900
Minnesota (0.1%)
1,700 Cohasset RB, Series 1997A (CRE) 3.85 6/01/20 1,700
Texas (0.1%)
2,400 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 3.95 5/01/03 2,400
----------
Total variable rate demand notes (cost: $15,200) 15,200
----------
Total investments (cost: $1,815,489) $1,976,040
==========
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 16.8%
Housing - Single-Family 12.0
General Obligations 9.1
Escrowed Securities 7.3
Sewer 5.8
Electric Power 5.4
Toll Roads 4.7
Gas Utilities 3.9
Oil - International 3.9
Airlines 3.6
Buildings 3.6
Paper & Forest Products 2.9
Healthcare - Miscellaneous 2.4
Air Freight 2.3
Special Assessment/Tax/Fee 1.7
Metals - Miscellaneous 1.6
Distribution & Pipelines 1.5
Nursing Care 1.2
Ports/Wharfs 1.2
Retirement Homes 1.2
Education 1.1
Gaming Companies 1.1
Leasing 1.1
Other 4.3
----
Total 99.7%
====
Portfolio Summary By State
--------------------------
Alabama .6% Alaska 6.4% Arizona 1.1 %
Arkansas .1 California 6.9 Colorado 1.5
Connecticut 1.3 District of Columbia 1.1 Georgia .5
Hawaii .2 Idaho 1.2 Illinois 6.4
Indiana 4.0 Kansas .5 Kentucky 2.0
Louisiana 1.9 Maryland 1.0 Massachusetts 1.4
Michigan 2.9 Minnesota 2.8 Mississippi 1.7
Missouri .3 Montana .8 Nevada .9
New Hampshire 2.2 New Jersey .8 New Mexico 2.5
New York 14.8 North Carolina 1.0 Oklahoma 2.2
Pennsylvania 2.3 Puerto Rico 3.4 Rhode Island 1.4
Texas 6.0 Utah 1.1 Vermont .1
Virginia 2.5 Washington 8.3 West Virginia .7
Wisconsin 1.1 Wyoming 1.8 ----
Total 99.7 %
====
Intermediate-Term Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Fixed Rate Instruments (90.0%)
<C> <S> <C> <C> <C>
Alabama (0.1%)
$ 2,000 Baldwin County Health Care Auth. Hospital RB,
Series 1996 6.75% 4/01/15 $ 2,159
Alaska (0.5%)
8,400 Housing Finance Corp. Mortgage RB,
Series 1996A (CRE) 6.00 12/01/15 8,748
Arizona (0.2%)
4,000 Educational Loan Marketing Corp. RB,
Series 1992A 6.70 3/01/00 4,195
Arkansas (1.0%)
7,520 Mississippi County Hospital RB, Series 1992B 6.85 11/01/02 8,043
8,635 St. Francis County Hospital RB, Series 1985 6.50 2/01/05 9,025
1,865 Student Loan RB, Series 1991 7.15 6/01/02 2,007
California (6.5%)
7,100 Central Valley Financing Auth. RB 6.10 7/01/13 7,410
10,500 Contra Costa Transportation Auth. RB,
Series 1991A (CRE) 6.30(b) 3/01/03 8,253
Foothill/Eastern Transportation Corridor Agency RB
10,000 Series 1995A 6.87(b) 1/01/10 7,121
15,000 Series 1995A 7.10(b) 1/01/11 10,749
9,085 Series 1995A 6.82(b) 1/01/13 6,560
5,655 Housing Finance Agency RB, Series 1996A (CRE) 5.70 8/01/10 5,958
22,640 Pleasanton Joint Powers Financing Auth. RB,
Series 1993A 6.00 9/02/05 24,304
Sacramento Cogeneration Auth. RB
3,300 Series 1995 6.38 7/01/10 3,576
9,100 Series 1995 5.88 7/01/15 9,373
San Joaquin Hills Transportation Corridor
Agency Senior Lien RB
3,525 Series 1993 7.05(b) 1/01/05 3,134
8,305 Series 1993 7.87(b) 1/01/06 7,529
5,000 Series 1993 7.50(b) 1/01/07 4,606
16,795 Series 1993 7.71(b) 1/01/08 15,652
Southern California Public Power Auth. RB
6,410 Series 1992 6.10(b) 7/01/04 4,726
6,285 Series 1992 6.10(b) 7/01/04 4,508
Colorado (1.4%)
5,200 Arapahoe County IDA RB, Series 1991 7.00 2/01/01 5,599
10,000 Health Facilities Auth. Hospital RB, Series 1993 6.63 2/01/13 10,633
10,310 Student Obligations RB, Series 1991A-2 6.90 9/01/02 10,822
Connecticut (1.1%)
Mashantucket (Western) Pequot Tribe RB
10,000 Series 1996A 6.40 9/01/11 10,773(e)
1,000 Series 1997B 5.60 9/01/09 1,024
2,400 Series 1997B 5.70 9/01/12 2,446
6,000 Series 1997B 5.75 9/01/18 6,009
District of Columbia (3.6%)
GO
27,750 Series 1993A 5.80 6/01/04 29,089
7,500 Series 1994A-3 5.50 6/01/06 7,707
11,780 Series E 5.75 6/01/05 12,298
12,000 Series E 5.75 6/01/06 12,488
6,250 Hospital RB, Series 1992B 6.75 8/15/07 6,653
Florida (1.9%)
Dade County RB
7,410 Series 1996B (CRE) 5.90(b) 10/01/10 3,769
8,255 Series 1996B (CRE) 6.00(b) 10/01/11 3,959
8,610 Series 1996B (CRE) 6.10(b) 10/01/12 3,833
8,760 Series 1996B (CRE) 6.20(b) 10/01/13 3,667
5,000 Housing Finance Agency MFH RB, Series 1984C 6.25 12/01/06 5,293
2,805 Miami Health Facilities Auth. RB, Series 1988A 7.75 8/01/00 2,924
5,935 Nassau County PCRB, Series 1989 7.65 6/01/06 6,277
5,000 North Miami Educational Facilities RB 6.10 4/01/13 5,153
1,280 Pensacola Health Facilities RB, Series 1988 7.50 1/01/98 1,292
Georgia (1.3%)
7,300 Gwinnett County MFH RB, Series 1985B (CRE) 7.50 6/01/98 7,441
8,760 Metropolitan Atlanta Rapid Transit RB, Series M 6.25 7/01/03 9,478
6,500 Municipal Electric Auth. RB, Series Q 7.75 1/01/00(a) 6,691
Illinois (4.5%)
2,880 Bedford Park Tax Increment RB, Series 1993 7.38 12/01/04 3,368
6,375 Chicago Water RB, Series 1997 (CRE) 5.53(b) 11/01/13 2,711
21,235 Chicago-O'Hare International Airport RB,
Series 1994A (CRE) 6.20 1/01/07 23,418(g)
10,110 Development Finance Auth. RB, Series 1995 7.00 3/01/07 10,783
7,460 Forest Preserve District of Cook County GO,
Series 1996 (CRE) 5.80 11/01/16 7,763
Health Facilities Auth. RB
2,010 Series 1989 7.75 5/15/00(a) 2,165
6,700 Series 1992 7.00 1/01/07 7,205
8,000 Series 1993B (CRE) 5.75 8/15/14 8,147
3,150 Series 1996 6.00 1/01/06 3,268
7,815 Series 1996 6.38 1/01/15 8,182
5,000 Series 1996A 6.00 11/15/15 5,151
1,070 Independent Higher Education Loan Auth. RB,
Series 1985 (CRE) 7.50 12/01/99 1,074
Indiana (3.2%)
Health Facility Financing Auth. RB
205 Series 1991 8.50 9/01/98 209
205 Series 1991 8.50 9/01/99 210
5,900 Series 1993 5.90 11/01/09 6,055
16,800 Series 1994 6.20 7/01/09 17,482
6,000 Indianapolis Economic Development RB, Series 1996 6.05 1/15/10 6,302
Marion County Hospital Auth. RB
8,400 Series 1992 6.10 10/01/03 8,879
6,500 Series 1992 6.55 10/01/08 6,887
Pike Township School Building Corp. RB
4,600 Series 1992A 6.00 2/01/06 4,929
4,700 Series 1992A 6.00 8/01/06 5,036
3,150 Scottsburg Economic Development RB, Series 1990 7.13 3/01/99 3,242
Iowa (0.8%)
3,280 Higher Education Loan Auth. RB (CRE) 6.13 10/01/16 3,456
10,000 Student Loan Liquidity Corp. RB, Series 1992A 6.45 3/01/02 10,669(g)
Louisiana (1.4%)
Orleans Levee District RB
7,840 Series 1986 (CRE) 5.95 11/01/14 8,353
7,865 Series 1986 (CRE) 5.95 11/01/15 8,346
7,015 Series A (CRE) 5.95 11/01/10 7,610
1,400 Public Facilities Auth. RB, Series 1997B 5.63 8/01/17 1,415
Maine (2.3%)
41,400 Bucksport Solid Waste Disposal RB 6.25 5/01/10 43,441
Maryland (1.8%)
Community Development Administration RB
2,260 1987 Second Series 7.60 4/01/99 2,328
22,250 1997 First Series 5.60 4/01/18 22,703
8,000 Series 1996A 5.88 7/01/16 8,337
Massachusetts (1.5%)
15,000 GO, Series 1991D 6.63 7/01/03 16,340(g)
3,640 Housing Finance Agency RB, Series 1992C 6.35 11/15/03 3,932
8,400 Industrial Finance Agency RB, Series 1989A 7.10 8/01/99 8,707
Michigan (2.5%)
8,000 Detroit Building Auth. RB, Series 1996A (CRE) 6.15 2/01/11 8,303
4,450 Detroit GO, Series 1996B (CRE) 5.50 4/01/14 4,528
23,330 Dickinson County Economic Development Corp. RB,
Series 1989 6.55 3/01/07 24,757
Hospital Finance Auth. RB
5,000 Series 1995A 7.50 10/01/07 5,680
325 Series 1996 5.90 10/01/04 337
100 Series 1996 6.00 10/01/05 104
150 Series 1996 6.10 10/01/06 157
160 Series 1996 6.20 10/01/07 168
2,600 Series 1996 6.25 10/01/16 2,700
Minnesota (1.5%)
4,205 Maplewood Health Care Facility RB, Series 1996 5.95 11/15/06 4,337
South St. Paul Housing and Redevelopment Auth.
Hospital Facility RB
13,500 Series 1994 6.50 11/01/04 14,461
9,095 Series 1994 6.75 11/01/09 9,872
Mississippi (0.6%)
Lafayette County Hospital RB
640 Series 1991A 7.70 3/01/03 705
3,305 Series 1991B 7.70 3/01/03 3,639
3,720 Prentiss County Hospital RB, Series 1985 6.50 2/01/05 3,813
Union County Hospital RB
975 Series 1991A 7.70 3/01/03 1,069
1,815 Series 1991B 7.70 3/01/03 1,991
Missouri (0.1%)
2,000 State Health and Educational Facilities Auth. RB,
Series 1997 5.75 2/01/17 2,021
Montana (0.3%)
5,000 Montana Health Facility Auth. Hospital RB,
Series 1997 5.50 6/01/11 5,071
Nevada (0.8%)
16,640 Clark County School District GO, Series 1991B (CRE) 6.24(b) 3/01/04 12,509
3,000 Housing Division SFH RB, Series 1995D-1 5.90 10/01/14 3,129
New Hampshire (0.6%)
Higher Educational and Health Facilities Auth. RB
1,410 Series 1985A (CRE) 7.50 12/01/00 1,412
1,775 Series 1990 8.50 12/01/01 1,847
3,000 Series 1997 (CRE) 5.80 10/01/12 3,013
5,055 Series 1997 (CRE) 5.90 10/01/18 5,077
New Jersey (3.1%)
6,150 Camden County Improvement Auth. RB,
Series 1997 5.88 2/15/15 6,239
Economic Development Auth. RB
15,000 Series 1994A (CRE) 5.88 7/01/11 16,007
2,000 Series 1997A 5.75 12/01/16 2,019
31,260 Turnpike Auth. RB, Series 1991A 6.50 1/01/03 33,845
New Mexico (0.4%)
6,345 Chaves County Hospital RB, Series 1992 7.25 12/01/10 6,862
New York (19.3%)
Dormitory Auth. Mental Health Services
Facilities Improvement RB
2,055 Series 1997A 5.75 2/15/10 2,137
2,000 Series 1997A 5.75 2/15/11 2,054
2,000 Series 1997A 5.75 2/15/12 2,062
2,460 Series 1997B 5.75 2/15/10 2,558
4,050 Series 1997B 5.75 2/15/12 4,193
4,675 Series 1997B 5.50 8/15/17 4,652
Dormitory Auth. RB
7,625 Series 1993A 5.88 5/15/11 8,169
10,300 Series 1993A 5.63 5/15/13 10,378
2,725 Series 1994B 5.90 5/15/06 2,897
2,500 Series 1994B 6.00 5/15/07 2,662
1,000 Series 1995A 5.88 5/15/07 1,061
2,000 Series 1995A 5.90 5/15/08 2,120
3,500 Series 1995A 6.00 5/15/09 3,701
2,250 Series 1995A 6.00 5/15/10 2,376
2,175 Series 1995A 6.00 5/15/11 2,305
5,000 Series 1996 5.50 7/01/09 5,073
3,495 Series 1996B 6.50 8/15/10 3,910
4,065 Dormitory Auth. RB, Lutheran Center at Poughkeepsie,
Series 1997 (CRE) 6.00 7/01/14 4,221
Dormitory Auth. RB, New York City University
5,000 1996 Series 2 6.00 7/01/09 5,287
1,760 1996 Series 2 6.00 7/01/10 1,863
5,500 Series 1993A 5.75 7/01/13 5,804
2,680 Dormitory Auth. RB, Nyack Hospital, Series 1996 6.00 7/01/06 2,817
Dormitory Auth. State University Educational
Facilites RB
14,120 Series 1996 5.75 5/15/13 14,618
7,000 Series 1996 5.75 5/15/16 7,145
6,550 Environmental Facilities Corp. PCRB,
Series 1991E 6.40 6/15/03 7,132
Housing Finance Agency Service Contract RB
2,275 Series 1995A 6.25 9/15/10 2,444
4,420 Series 1996A 6.00 9/15/16 4,567
Medical Care Facilities Finance Agency RB
5,000 Series 1994A (CRE) 6.40 2/15/07 5,575
5,000 Series 1994A (CRE) 6.50 2/15/08 5,589
10,000 Series 1994A 6.13 8/15/13 10,292
2,675 Series 1995A 6.70 2/15/05 2,921
2,750 Series 1995A 6.70 8/15/05 2,999
2,860 Series 1995A 6.75 2/15/06 3,131
2,940 Series 1995A 6.75 8/15/06 3,231
3,045 Series 1995A 6.80 2/15/07 3,346
3,130 Series 1995A 6.80 8/15/07 3,439
7,725 Series 1995A 6.00 11/15/10 8,150
5,700 Series 1995A 6.80 8/15/12 6,191
22,230 Metropolitan Transportation Auth. Service
Contract RB, Series P 5.75 7/01/15 22,518
1,625 Mortgage Agency RB, Series EE-1 7.75 10/01/00 1,678
3,235 New York City Capital Improvement Bonds 34th
St. Partnership, Series 1993 5.50 1/01/14 3,258
New York City GO
1,375 Series 1991D 8.00 8/01/99 1,470
10,160 Series 1991D 8.00 8/01/99 10,835
615 Series 1992H 6.88 2/01/04(a) 685
12,165 Series 1992H 6.88 2/01/04 13,269
17,000 Series 1993B 6.75 10/01/04 18,626
9,000 Series 1993C 6.50 8/01/04 9,743
15,000 Series 1994A 6.25 8/01/08 16,106
10,000 Series 1996G 5.75 2/01/10 10,362
5,000 Series 1997I 6.00 4/15/12 5,255
13,000 New York City Municipal Assistance Corp. RB,
Series 67 7.30 7/01/00 13,950
New York City Municipal Water Finance RB
3,295 Series 1992A 6.70 6/15/03 3,580
3,345 Series 1992A 6.70 6/15/03(a) 3,661
Thruway Auth. RB
7,500 Series 1995 6.00 4/01/09 7,968
2,150 Series 1995 6.10 4/01/10 2,292
Urban Development Corp. RB
20,955 Series 1993 5.75 1/01/13 21,287
21,700 Series 1993 5.50 1/01/15 21,711
North Carolina (0.3%)
6,000 Municipal Power Agency #1 RB, Series 1992 6.00 1/01/04 6,367
Ohio (0.6%)
6,750 Dayton Special Facilities RB, Series 1988C 6.05 10/01/09 7,211
4,000 IDA RB, Series 1992 5.75 12/01/02 4,252
Oklahoma (0.9%)
Holdenville Industrial Auth. RB
1,650 Series 1995 6.60 7/01/10 1,781
3,250 Series 1995 6.70 7/01/15 3,433
Industries Auth. Health Facilities RB
2,350 Series 1989A 7.30 6/01/01(a) 2,518
2,045 Series 1989A 7.30 6/01/01 2,184
2,355 Tulsa County Home Finance Auth. RB,
Series 1990 (CRE) 7.10 5/01/02 2,588
4,500 Valley View Hospital Auth. RB, Series 1996 5.75 8/15/06 4,518
Oregon (0.1%)
1,250 Clackamas County Hospital Facility Auth. RB,
Series 1997 6.10 11/01/12 1,281
Pennsylvania (4.6%)
35,000 Finance Auth. RB 6.60 11/01/09 38,032
9,440 GO, Second Series 1992 6.11(b) 7/01/04 6,883
8,000 Harrisburg Water Auth. RB, Series 1993 (CRE) 5.88 6/18/15 8,389
3,565 Housing Finance Agency RB, Series 1992 5.90 7/01/04 3,780
6,000 Montgomery County IDA RB, Series 1996B 5.63 11/15/12 6,036
17,500 Philadelphia Water and Wastewater RB,
Series 1993 (CRE) 5.65 6/15/12 18,060
5,000 York County IDA RB, Series 1992 6.25 7/01/02 5,372
Puerto Rico (4.8%)
Electric Power Auth. RB
5,000 Series S 7.00 7/01/06 5,808
4,420 Series X 5.80 7/01/09 4,641
4,500 Series X 5.90 7/01/10 4,742
4,000 Series X 6.00 7/01/11 4,248
4,220 Series Z 5.50 7/01/12 4,286
22,200 Housing Bank and Finance Agency RB 7.50 12/01/06 25,970
8,005 Municipal Finance Agency RB, Series 1992A 5.80 7/01/04 8,470
14,060 Public Building Auth. GO, Series K 6.50 7/01/03 15,400
Public Improvement GO
7,500 Series 1994 6.10 7/01/06 8,187
7,825 Series 1994 6.20 7/01/07 8,497
Rhode Island (1.6%)
Health and Educational Building Corp. RB
3,385 Series 1996 (CRE) 5.50 5/15/12 3,484
7,600 Series 1996 (CRE) 5.50 5/15/16 7,691
Housing and Mortgage Finance Corp. RB
6,180 Series 15-B 6.30 10/01/07 6,612
7,600 Series 1995A (CRE) 5.70 7/01/07 8,090
3,870 Rhode Island Housing and Mortgage Finance
Corp. RB, Series 25A 5.60 10/01/17 3,900
South Carolina (0.2%)
3,000 Marion County Hospital District RB (CRE) 5.50 11/01/15 2,996
South Dakota (0.3%)
5,400 Rapid City IDA RB, Series 1990 7.25 11/01/00 5,832
Tennessee (0.8%)
3,000 Health, Educational and Housing Facilities Board
of the County of Knox RB, Series 1996 (CRE) 5.50 4/15/11 3,067
24,540 Housing Development Agency RB, Issue 97-3B 5.73(b) 7/01/16 8,529(c)
3,325 Memphis Shelby County Airport Auth. Special
Facilities RB, Series 1997 5.35 9/01/12 3,335
Texas (5.8%)
Bastrop ISD GO
1,855 Series 1997 (CRE) 5.55(b) 2/15/14 788
3,030 Series 1997 (CRE) 5.55(b) 2/15/15 1,211
3,055 Series 1997 (CRE) 5.60(b) 2/15/16 1,159
3,155 Series 1997 (CRE) 5.60(b) 2/15/17 1,124
12,000 Bexar County Health Facilities Development Corp. RB,
Series 1993 (CRE) 5.88 11/15/10 12,649
2,340 Brazos County Health Facilities RB, Series 1989B 7.50 1/01/01(a) 2,430
Fort Worth Higher Education Finance Corp. RB
515 Series 1997A 5.50 10/01/06 523
545 Series 1997A 5.50 10/01/07 551
575 Series 1997A 5.63 10/01/08 584
2,670 Series 1997A 6.00 10/01/12 2,732
15,400 Gulf Coast Waste Disposal Auth. PCRB, Series 1992 6.13 11/01/04 16,756
6,200 Gulf Coast Waste Disposal Auth. RB, Series 1994 5.70 5/01/06 6,570
Houston Water and Sewer Systems RB
175 Series 1992B 6.00 12/01/04(a) 191
4,825 Series 1992B 6.00 12/01/04 5,238
11,700 Lower Colorado River Auth. RB, Series 1992 (CRE) 6.45(b) 1/01/03 9,222
8,565 Municipal Power Agency RB, Series 1987 5.50 9/01/13 8,566
11,790 Public Finance Auth. RB (CRE) 6.06(b) 2/01/04 8,793
San Antonio Electric and Gas Systems RB
3,005 Series 1989 7.00 2/01/01(a) 3,164
1,185 Series 1989 7.00 2/01/01 1,246
10,000 Series 1991B (CRE) 6.38(b) 2/01/04 7,457
4,000 Trinity River IDA RB 7.25 2/01/04 4,559
6,075 Tyler Health Facilities Development Corp.
Hospital RB, Series 1993B 6.63 11/01/11 6,406
5,435 Water Resources Finance Auth. RB, Series 1989 7.25 2/15/01 5,645
Utah (2.4%)
550 Housing Finance Agency RB, Series 1985B 5.30 7/01/07 559
Intermountain Power Agency RB
8,105 Series 1987A (CRE) 5.00 7/01/12 7,866
16,430 Series 1988B (CRE) 6.48(b) 7/01/03 12,659
21,895 Series 1988B (CRE) 6.18(b) 7/01/04 16,016
7,000 Juab County PCRB, Series 1991 6.00(d) 8/01/11 7,003
Virginia (0.9%)
11,100 Housing Development Auth. Commonwealth
Mortgage RB, Series 1990B, Subseries B5 6.90 7/01/13 11,624
5,000 Isle of Wight County IDA PCRB, Series 1994 5.80 5/01/04 5,239
Washington (2.0%)
12,115 GO, Series 1997E 5.00 7/01/14 12,087
15,800 GO, Series R-1989B 7.20 9/01/00 16,266
3,255 Health Care Facilities Auth. RB, Series 1997A (CRE) 5.13 8/15/17 3,162
5,500 King County GO, Series 1993A 5.90 12/01/07 5,855
West Virginia (1.0%)
16,940 School Building Auth. RB, Series 1994 6.25 7/01/04 18,421
Wisconsin (1.3%)
Health and Educational Facilities Auth. RB
11,500 Series 1993 (CRE) 5.25 8/15/12 11,476
4,130 Series 1995A (CRE) 5.25 8/15/12 4,121
Professional Baseball Park District RB
1,500 Series 1996 (CRE) 5.50 12/15/13 1,541
2,540 Series 1996 (CRE) 5.55 12/15/14 2,609
2,275 Series 1996 (CRE) 5.60 12/15/15 2,336
2,750 Series 1996 (CRE) 5.65 12/15/16 2,824
Wyoming (0.1%)
306 Farm Loan Board COP, Series 1989 (CRE) 6.50 12/01/99 307
----------
Total fixed rate instruments (cost: $1,577,664) 1,684,058
----------
Put Bonds (6.7%)
Alabama (0.2%)
4,000 Housing Finance Auth. MFH RB, Series 1992C (CRE) 5.90 8/01/07 4,066
California (0.2%)
3,535 Woodland MFH RB, Series 1994A 6.05 12/01/24 3,717
Florida (1.0%)
9,880 Broward County Housing Finance Auth. MFH RB,
Series 1991 (CRE) 7.20 5/01/07 10,186
Housing Finance Agency MFH RB
4,300 Series 1996R-1 (CRE) 5.65 12/01/26 4,520
4,500 Series 1996S-1 (CRE) 5.65 12/01/26 4,731
Illinois (1.6%)
13,420 Arlington Heights MFH RB, Series 1991 (CRE) 7.25 5/01/11 13,834
14,295 Hoffman Estates MFH RB, Series 1996 5.75 6/01/21 15,035
Kansas (0.4%)
6,590 Merriam MFH RB, Series 1991A (CRE) 7.25 4/01/21 6,861
Louisiana (0.3%)
4,360 Shreveport Home Mortgage Auth. RB,
Series 1995A (CRE) 6.40 9/01/25 4,585
New Mexico (0.6%)
Bernalillo County MFH RB
7,700 Series 1994A (CRE) 6.50 10/01/19 8,077
3,320 Series 1995 (CRE) 5.80 11/01/25 3,526
Ohio (0.3%)
5,500 Montgomery County IDA RB, Series 1992 (CRE) 6.50 2/01/07 5,922
Pennsylvania (0.4%)
Philadelphia IDA RB
3,500 Series 1997A 6.50 10/01/27 3,627
4,000 Series 1997B 6.50 10/01/27 4,146
Texas (0.1%)
2,500 Gregg County Housing Finance Corp. RB,
Series 1995A (CRE) 6.40 9/01/25 2,659
Utah (0.9%)
Salt Lake County MFH RB
10,240 Series 1995A-1 (CRE) 5.70 10/01/25 10,633
6,500 Series 1995B-1 (CRE) 5.70 10/01/25 6,749
Washington (0.7%)
Chelan County Public Utility District #1 RB
5,650 Series E 5.70 7/01/68 5,806
6,845 Series E 5.70 7/01/68 6,990
----------
Total put bonds (cost: $120,144) 125,670
----------
Variable Rate Demand Notes (2.6%)
California (0.1%)
600 Irvine Ranch Water District RB, Series 1993A (CRE) 3.65 5/01/09 600
Colorado (0.1%)
1,200 Denver City and County MFH RB, Series 1985 (CRE) 4.00 12/01/09 1,200
District of Columbia (0.1%)
1,900 GO, Series 1991B-1 (CRE) 3.95 6/01/03 1,900
Florida (0.3%)
4,900 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 3.95 10/01/24 4,900
800 Volusia County Health Facilities Auth. RB,
Series 1995 (CRE) 3.85 9/01/20 800
Illinois (0.3%)
5,800 Housing Development Auth. RB, Series 1985U (CRE) 4.30 1/01/08 5,800
Louisiana (0.1%)
700 Public Facilities Auth. MFH RB, Series 1991 (CRE) 4.00 7/01/09 700
New York (0.7%)
13,900 New York City Housing Development Corp. RB,
Series 1984A (CRE) 4.65 12/01/16 13,900
Oregon (0.2%)
3,800 Medford Hospital Facilities Auth. RB,
Series 1985 (CRE) 4.25 12/01/15 3,800
Virginia (0.7%)
10,900 Henrico County IDA RB, Series 1994 (CRE) 3.95 5/01/24 10,900
3,200 Loudoun County IDA Residential Care Facility RB,
Series 1994B (CRE) 4.35 11/01/24 3,200
----------
Total variable rate demand notes (cost: $47,700) 47,700
----------
Total investments (cost: $1,745,508) $1,857,428
==========
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 16.4%
General Obligations 13.4
Housing - Multi-Family 9.6
Special Assessment/Tax/Fee 8.2
Electric Power 7.0
Toll Roads 5.3
Housing - Single-Family 4.7
Paper & Forest Products 4.7
Education 4.3
Finance - Municipal 2.5
Buildings 2.3
Escrowed Securities 2.3
Retirement Homes 1.8
Transportation - Miscellaneous 1.8
Student Loan 1.7
Healthcare - Miscellaneous 1.6
Water/Sewer 1.4
Airports 1.3
Nursing Care 1.3
Sales Tax Obligations 1.3
Water Utilities 1.3
Gaming Companies 1.1
Other 4.0
----
Total 99.3%
====
Portfolio Summary By State
--------------------------
Alabama .3% Alaska .5% Arizona .2%
Arkansas 1.0 California 6.8 Colorado 1.5
Connecticut 1.1 District of Columbia 3.7 Florida 3.2
Georgia 1.3 Illinois 6.4 Indiana 3.2
Iowa .8 Kansas .4 Louisiana 1.8
Maine 2.3 Maryland 1.8 Massachusetts 1.5
Michigan 2.5 Minnesota 1.5 Mississippi .6
Missouri .1 Montana .3 Nevada .8
New Hampshire .6 New Jersey 3.1 New Mexico 1.0
New York 20.0 North Carolina .3 Ohio .9
Oklahoma .9 Oregon .3 Pennsylvania 5.0
Puerto Rico 4.8 Rhode Island 1.6 South Carolina .2
South Dakota .3 Tennessee .8 Texas 5.9
Utah 3.3 Virginia 1.6 Washington 2.7
West Virginia 1.0 Wisconsin 1.3 Wyoming .1
----
Total 99.3%
====
Short-Term Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Fixed Rate Instruments (67.7%)
<C> <S> <C> <C> <C>
Alaska (1.0%)
North Slope Borough GO
$ 7,000 Series 1988G (CRE) 8.35% 6/30/98 $ 7,223
1,250 Series 1995A (CRE) 4.85(b) 6/30/99 1,159
Arizona (2.0%)
1,750 Educational Loan Marketing Corp. RB, Series 1992A 6.70 3/01/00 1,835
Maricopa County Hospital RB
2,545 Series 1997 4.75 4/01/99 2,561
2,665 Series 1997 5.00 4/01/00 2,692
2,525 Series 1997 5.10 4/01/01 2,560
2,260 Series 1997 5.25 4/01/02 2,299
3,045 Series 1997 5.35 4/01/03 3,107
2,180 Series 1997 5.35 4/01/04 2,219
Arkansas (0.1%)
815 St. Francis County Hospital RB, Series 1985 5.40 12/01/97 817
California (3.5%)
2,550 Central Valley Cogeneration RB, Series 1993 5.40 7/01/00 2,614
4,710 Pleasanton Joint Powers Financing Auth. RB,
Series 1993A 5.20 9/02/98 4,766
Sacramento Cogeneration Auth. RB
1,000 Series 1995 5.70 7/01/00 1,033
1,000 Series 1995 5.80 7/01/01 1,044
900 Series 1995 5.90 7/01/02 949
900 Series 1995 6.00 7/01/03 958
12,615 San Joaquin Hills Transportation Corridor
Agency Senior Lien RB 7.10(b) 1/01/00 11,486
3,500 San Joaquin Hills Transportation Corridor
Agency Senior Lien RB 7.16(b) 1/01/01 3,042
1,500 Statewide Communities Development Auth. COP 4.80 1/01/00 1,507
1,500 Statewide Communities Development Auth. COP 5.00 1/01/01 1,507
1,000 Statewide Communities Development Auth. COP 5.10 1/01/02 1,005
Connecticut (1.2%)
Mashantucket (Western) Pequot Tribe RB
2,000 Series 1996A 6.25 9/01/01 2,105(e)
2,500 Series 1996A 6.25 9/01/02 2,664(e)
3,000 Series 1996A 6.25 9/01/03 3,223(e)
2,500 Series 1996A 6.50 9/01/06 2,759(e)
District of Columbia (2.7%)
18,790 GO, Series 1994A-3 4.70 6/01/99 18,911
Hospital RB
1,450 Series 1996A (CRE) 5.00 8/15/02 1,482
1,530 Series 1996A (CRE) 5.50 8/15/03 1,602
1,610 Series 1996A (CRE) 5.50 8/15/04 1,687
Florida (0.3%)
1,470 Nassau County PCRB 5.60 6/01/00 1,510
1,115 Orange County Health Facilities Auth. RB,
Series 1995 5.63 7/01/01 1,127
Georgia (0.5%)
4,000 Camden County Development Auth. PCRB,
Series 1997 5.25 4/01/02 4,077
Guam (4.6%)
GO
18,310 Series 1994A 5.75 8/15/99 18,688
2,000 Series 1994A 5.25 9/01/99 2,018
5,000 Series 1995A 5.38 9/01/00 5,040
10,000 Series 1995A 5.50 9/01/01 10,083
Power Auth. RB
1,640 Series 1994A 5.50 10/01/99 1,665
1,725 Series 1994A 5.60 10/01/00 1,764
Illinois (3.5%)
16,265 Chicago Water RB (CRE) 5.00(b) 11/01/05 11,105
9,000 Cook County GO (CRE) 7.38 11/01/08(a) 9,759
Development Finance Auth. RB
1,215 Series 1995 6.13 3/01/98 1,221
1,285 Series 1995 6.25 3/01/99 1,307
2,490 Health Facilities Auth. RB, Series 1996 5.60 1/01/02 2,553
4,310 Hodgkins Tax Increment RB, Series 1995A 6.90 12/01/01 4,533
Indiana (4.4%)
6,745 Development Finance IDA RB, Series 1996 4.80 6/01/00 6,844
Health Facility Financing Auth. RB
20,300 Series 1993 5.40 11/01/05 21,083
8,400 Series 1994 5.38 7/01/01 8,670
1,400 Marion County Hospital Auth. RB, Series 1992 5.25 10/01/97 1,400
Louisiana (4.1%)
11,310 De Soto Parish PCRB, Series 1993A 5.05 12/01/02 11,619
Offshore Terminal Auth. RB
7,920 Series 1992B 6.00 9/01/01 8,347
5,000 Series 1992B 6.20 9/01/03 5,389
5,830 Series 1994B 5.85 9/01/00 6,060
3,440 St. Charles Parish PCRB 7.63 6/01/03 3,601
Maine (1.6%)
Jay PCRB
5,500 Series 1994A 4.65 9/01/02 5,526
8,305 Series 1994B 4.70 6/01/02 8,360
Massachusetts (2.7%)
New England Education Loan Marketing Corp. RB
17,000 Series 1985A 5.80 3/01/02 17,861
5,000 Series 1992A 6.13 9/01/99 5,182
Michigan (1.7%)
Hospital Finance Auth. RB
3,500 Series 1995 7.00 10/01/01 3,740
3,500 Series 1995A 6.80 10/01/00 3,675
210 Series 1996 4.70 10/01/98 211
245 Series 1996 5.00 10/01/99 248
255 Series 1996 5.30 10/01/00 259
130 Series 1996 5.50 10/01/01 133
275 Series 1996 5.70 10/01/02 283
285 Series 1996 5.80 10/01/03 294
5,800 Monroe Economic Development Corp. PCRB,
Series 1997 5.00 2/01/03 5,881
Minnesota (0.7%)
5,850 Minneapolis Temporary Parking Ramp RB,
Series 1997A 4.75 6/01/00 5,849
New Jersey (0.1%)
1,050 Camden County Improvement Auth. RB, Series 1997 4.75 2/15/00 1,053
New York (15.9%)
Dormitory Auth. RB
1,285 Series 1994B 5.10 5/15/99 1,304
2,190 Series 1994B 5.30 5/15/00 2,243
6,450 Series 1995A 5.10 5/15/00 6,573
6,350 Series 1995A 5.25 5/15/01 6,530
7,500 Series 1995A 5.40 5/15/02 7,750
705 Series 1996 5.10 7/01/98 708
1,160 Series 1996 5.35 7/01/99 1,174
1,170 Series 1996 5.65 7/01/01 1,198
3,245 Series 1996-2 5.00 7/01/00 3,301
1,285 Series 1996-2 5.10 7/01/01 1,316
Dormitory Auth. University Educational
Facilities RB
1,000 Series 1996 4.90 5/15/00 1,015
1,350 Series 1996 5.00 5/15/01 1,377
1,000 Series 1996 5.10 5/15/02 1,021
1,250 Dormitory Department of Health RB, Series 1996 4.75 7/01/01 1,265
25,805 Environmental Facilities Corp. PCRB, Series 1994A 5.50 6/15/99 26,386
5,325 Medical Care Facilities Finance Agency RB,
Series 1994A (CRE) 5.80 2/15/01 5,588
New York City GO
10,000 Series 1994D 6.00 8/15/99 10,323
35 Series 1994H 5.30 8/01/99 36
7,965 Series 1994H 5.30 8/01/99 8,120
5,000 Series 1995A 5.40 8/01/00 5,147
5,000 Series 1995D 6.50 2/01/02 5,365
1,385 Series 1996K 5.50 4/01/01 1,444
1,940 Series 1996K 5.50 4/01/01 2,007
4,010 State COP 4.90 2/01/02 4,058
4,040 State COP 4.90 8/01/02 4,094
2,035 State COP 5.00 2/01/03 2,069
11,165 The City University of New York COP 5.75 8/15/03 11,794
7,880 Thruway Auth. RB, Series 1995 5.10 4/01/01 8,041
Urban Development Corp. RB
4,400 Series 1993 5.25 1/01/03 4,523
1,715 Series 7 4.75 1/01/02 1,726
North Carolina (1.3%)
11,000 Eastern Municipal Power Agency RB, Series 1996A 5.10 1/01/00 11,132
Oklahoma (0.5%)
Holdenville Industrial Auth. RB
1,115 Series 1995 5.45 7/01/00 1,139
1,380 Series 1995 6.15 7/01/04 1,470
510 Series 1995 6.35 7/01/06 548
990 Valley View Hospital Auth. RB, Series 1996 5.00 8/15/98 993
Pennsylvania (6.5%)
Beaver County Finance Auth. RB
18,175 Series 1986A (CRE) 8.00 11/01/09(a) 19,067
8,545 Series 1986B (CRE) 8.00 11/01/09(a) 8,964
4,875 Delaware IDA Refunding RB, Series 1997A 5.50 1/01/00 4,977
4,435 East Hempfield Township IDA RB, Series 1996 5.00 8/01/01 4,527
17,290 Higher Education Assistance Agency Student Loan RB,
Series 1985A (CRE) 6.80 12/01/00 18,464
Puerto Rico (3.3%)
9,431 Centro de Recaudaciones de Ingresos Municipales COP 6.85 10/17/03 9,876(e)
Electric Power Auth. RB
5,000 Series 1997AA 5.00 7/01/03 5,145
5,000 Series 1997AA 5.00 7/01/04 5,138
4,365 Series S 6.00 7/01/99 4,505
3,600 Series T 6.00 7/01/99 3,719
Tennessee (0.3%)
2,500 Shelby County Hospital RB, Series 1993 5.10 11/01/03 2,502
Texas (2.9%)
Abilene Higher Education Facilities Corp. RB
1,335 Series 1995 5.30 10/01/99 1,355
1,280 Series 1995 5.40 10/01/00 1,313
1,480 Series 1995 5.50 10/01/01 1,527
1,000 Series 1995 5.60 10/01/02 1,034
6,000 Calhoun County Navigation IDA PCRB, Series 1995 4.65 6/01/01 6,054
1,450 Houston Water and Sewer System RB, Series 1992B 4.90 12/01/97 1,453
2,500 Lampasas County IDC RB, Series 1997 5.20 12/01/01 2,537
Northeast Hospital Auth. RB
1,230 Series 1997 5.10 5/15/00 1,241
1,285 Series 1997 5.25 5/15/01 1,303
2,870 Series 1997 5.40 5/15/03 2,921
4,090 Pasadena GO, Series 1994 5.75 2/15/99 4,182
West Virginia (2.3%)
6,000 Kanawha County PCRB, Series 1997 5.25 4/01/02 6,115
13,480 School Building Auth. Capital Improvement RB,
Series 1994 6.00 7/01/00 14,102
----------
Total fixed rate instruments (cost: $569,279) 583,633
----------
Put Bonds (12.1%)
California (3.0%)
3,450 Brentwood Infrastructure Financing Auth.
Capital Improvement RB, Series 1996 (CRE) 5.25 6/01/26 3,506
7,325 Redwood MFH RB, Series 1985B (CRE) 5.20 10/01/08 7,370
4,000 Santa Rosa Housing Auth. MFH RB,
Series 1995E (CRE) 4.85 9/01/07 4,001
6,335 South Gate Public Financing Auth. Tax
Allocation Bonds, Series 1997 (CRE) 4.75 9/01/19 6,489
4,695 Vallejo Housing Auth. MFH RB, Series 1985A (CRE) 5.00 6/01/07 4,700
Florida (2.9%)
Housing Finance Agency MFH RB
5,000 Series 1983F (CRE) 5.35 12/01/05 5,085
4,000 Series 1983G (CRE) 5.35 12/01/05 4,068
5,000 Series 1987 (CRE) 4.85 2/01/08 5,078
5,200 Series 1995D (CRE) 5.10 4/01/13 5,259
5,630 Series 1995K (CRE) 4.85 12/01/05 5,669
Louisiana (2.4%)
20,000 Public Facilities Auth. RB, Series 1985B-1 (CRE) 5.00 12/01/15 20,348
Minnesota (0.9%)
7,500 Minneapolis and St. Paul Housing and
Redevelopment RB, Series 1996A (CRE) 5.13 6/01/32 7,506
Pennsylvania (0.5%)
3,800 Armstrong County Hospital Auth. RB,
Series 1992A (CRE) 5.25 11/01/12 3,921
Texas (1.6%)
7,990 Lewisville Contract Revenue and Special
Assessment Bonds, Series 1996 (CRE) 5.00 5/01/21 8,119
6,000 Tarrant County Housing Finance Corp. MFH RB,
Series 1985 (CRE) 4.90 9/01/06 6,000
Wyoming (0.8%)
6,725 Community Development Auth. Housing RB,
Series 1997-3 5.25 6/01/17 6,871
----------
Total put bonds (cost: $102,650) 103,990
----------
Variable Rate Demand Notes (18.2%)
California (2.3%)
100 Azusa MFH RB, Series 1994 (CRE) 4.15 7/15/15 100
700 Covina Redevelopment Agency MFH RB,
Series 1994A (CRE) 4.15 12/01/15 700
17,100 Fontana COP, Series 1991 (CRE) 4.30 7/01/21 17,100
1,890 Sacramento County MFH RB, Series 1988B (CRE) 4.85 12/01/98 1,890
310 Statewide Communities Development Auth. RB,
Series 1995D (CRE) 4.00 12/01/22 310
Florida (1.4%)
490 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 3.95 10/01/24 490
2,200 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 4.15 7/01/05 2,200
3,300 Housing Finance Agency MFH RB,
Series 1985GGG (CRE) 4.20 12/01/08 3,300
5,950 Orange County Housing Finance Auth. MFH RB,
Series 1991A (CRE) 4.10 10/01/10 5,950
Illinois (1.1%)
9,145 Housing Development Auth. RB, Series 1985U (CRE) 4.30 1/01/08 9,145
815 West Frankfort Commercial Redevelopment RB 6.59 4/01/07 815
Kansas (0.5%)
3,240 Kansas City PCRB, Series 1985 3.85 11/01/07 3,240
1,100 Wichita Health Systems RB, Series 1985XXV (CRE) 4.25 10/01/11 1,100
Louisiana (0.8%)
5,000 Public Facilities Auth. MFH RB, Series 1991 (CRE) 4.00 7/01/09 5,000
2,280 Public Facilities IDA RB, Series 1985 (CRE) 3.85 12/01/15 2,280
Minnesota (0.6%)
400 Cohasset RB, Series 1997A (CRE) 3.85 6/01/20 400
4,600 St. Louis Park IDRB, Series 1984 (CRE) 4.10 8/01/14 4,600
New Jersey (0.7%)
4,550 Economic Development Auth. RB, Series 1989 (CRE) 4.25 12/01/19 4,550
1,970 Newark Healthcare Facility RB, Series A (CRE) 4.15 6/01/30 1,970
New Mexico (0.1%)
100 Farmington PCRB, Series 1994A (CRE) 4.15 11/01/13 100
New York (6.1%)
3,700 Chautauqua County IDA IDRB, Series 1984A (CRE) 4.55 1/01/00 3,700
New York City Housing Development Corp. RB
34,290 Series 1984A (CRE) 4.65 12/01/16 34,290
12,475 Series 1985A (CRE) 4.65 12/01/09 12,475
1,800 St. Lawrence County IDA PCRB, Series 1985 (CRE) 3.85 12/01/07 1,800
Oregon (0.3%)
3,000 Medford Hospital Facilities Auth. RB,
Series 1991 (CRE) 4.25 5/01/21 3,000
South Carolina (0.3%)
2,400 Sumter County IDRB, Series 1982 (CRE) 4.43 12/01/02 2,400
Texas (3.4%)
19,600 Amarillo Health Facilities Corp. RB,
Series 1985 (CRE) 4.25 5/31/25 19,600
2,955 Boatmen's St. Louis Grantor Trust #1 COP,
Series 1996A (CRE) 4.20 6/30/01 2,955
7,200 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 3.95 5/01/03 7,200
Virginia (0.5%)
3,700 Henrico County IDA RB, Series 1994 (CRE) 3.95 5/01/24 3,700
300 Loudoun County IDA Residential Care Facility RB,
Series 1994B (CRE) 4.35 11/01/24 300
Washington (0.1%)
600 Port of Vancouver RB, Series 1984A (CRE) 4.25 12/01/09 600
----------
Total variable rate demand notes (cost: $157,260) 157,260
----------
Total investments (cost: $829,189) $ 844,883
==========
</TABLE>
Portfolio Summary By Industry
-----------------------------
Housing - Multi-Family 14.2%
General Obligations 11.4
Hospitals 11.0
Special Assessment/Tax/Fee 7.5
Education 5.7
Finance - Municipal 5.6
Student Loan 5.0
Electric Power 4.6
Paper & Forest Products 3.1
Water Utilities 3.1
Buildings 2.7
Toll Roads 2.6
Healthcare - Miscellaneous 2.4
Ports/Wharfs 2.4
Water/Sewer 1.9
Housing - Single-Family 1.7
Chemicals 1.6
Conglomerates 1.5
Retirement Homes 1.4
Escrowed Securities 1.3
Gaming Companies 1.2
Other 6.1
----
Total 98.0%
====
Portfolio Summary By State
--------------------------
Alaska 1.0% Arizona 2.0% Arkansas .1%
California 8.8 Connecticut 1.2 District of Columbia 2.7
Florida 4.6 Georgia .5 Guam 4.6
Illinois 4.6 Indiana 4.4 Kansas .5
Louisiana 7.3 Maine 1.6 Massachusetts 2.7
Michigan 1.7 Minnesota 2.2 New Jersey .8
New Mexico .1 New York 22.0 North Carolina 1.3
Oklahoma .5 Oregon .3 Pennsylvania 7.0
Puerto Rico 3.3 South Carolina .3 Tennessee .3
Texas 7.9 Virginia .5 Washington .1
West Virginia 2.3 Wyoming .8 ----
Total 98.0%
====
Tax Exempt Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Variable Rate Demand Notes (58.0%)
<C> <S> <C> <C> <C>
Alabama (0.8%)
$ 9,500 Evergreen Board IDRB, Series 1985 (CRE) 3.75% 12/01/04 $ 9,500
2,650 Phenix City IDB Enviromental Improvement RB,
Series 1990B (CRE) 3.95 10/01/25 2,650
Arizona (3.7%)
Maricopa County PCRB
2,200 Series 1984E (CRE) 4.15 12/01/14 2,200
28,235 Series 1985A (CRE) 4.15 8/01/15 28,235
24,800 Series 1994A (CRE) 4.15 7/01/14 24,800
Arkansas (0.6%)
8,400 Univ. of Arkansas RB, Series 1994 (CRE) 4.35 12/01/19 8,400
California (1.0%)
3,000 Covina Redevelopment Agency MFH RB,
Series 1994A (CRE) 4.15 12/01/15 3,000
1,100 Foothill/Eastern Transportation Corridor Agency RB,
Series 1995D (CRE) 4.00 1/02/35 1,100
3,615 Los Angeles County Housing Auth. MFH RB,
Series 1994B (CRE) 4.15 9/01/18 3,615
7,900 San Diego MFH RB, Series 1993A (CRE) 4.25 12/01/15 7,900
Colorado (0.9%)
6,860 Commerce City Golf Enterprise RB,
Series 1994 (CRE) 4.20 11/01/21 6,860
6,320 Denver City and County MFH RB, Series 1985 (CRE) 4.00 12/01/09 6,320
Florida (5.7%)
1,900 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 3.95 10/01/24 1,900
665 Broward County Housing Finance Auth. MFH RB,
Series 1990 (CRE) 4.25 10/01/07 665
5,400 City of Gulf Breeze RB, Series 1995A (CRE) 4.15 3/31/21 5,400
700 Dade County Aviation Facilities RB,
Series 1984A (CRE) 4.30 10/01/09 700
3,145 Dade County MFH RB, Series 1993-1 (CRE) 4.35 2/01/28 3,145
Housing Finance Agency MFH RB
12,000 Series 1985 EE (CRE) 4.35 9/01/08 12,000
400 Series 1985GGG (CRE) 4.20 12/01/08 400
9,000 Series 1985MM (CRE) 4.15 11/01/07 9,000
17,200 Series 1985U (CRE) 4.35 7/01/08 17,200
7,710 Series 1990D (CRE) 4.25 12/01/09 7,710
2,500 Jacksonville Hospital RB, Series 1988 (CRE) 4.25 2/01/18 2,500
11,900 Laurel Club COP, Series 1996A (CRE) 4.20 6/01/25 11,900
11,000 Palm Beach County Housing Finance Auth. MFH RB,
Series 1988D (CRE) 4.20 11/01/07 11,000
500 Palm Beach County IDRB, Series 1990 (CRE) 4.15 5/01/02 500
600 Southeast Volusia Hospital RB, Series 1995 (CRE) 4.10 5/01/22 600
1,300 St. Johns County IDA RB, Series 1997 (CRE) 4.15 5/01/09 1,300
Georgia (2.1%)
4,000 Atlanta Urban Residential Finance Auth. MFH RB,
Series 1988A (CRE) 4.20 12/01/08 4,000
6,655 Clayton County MFH RB, Series 1989 (CRE) 4.15 11/01/06 6,655
Fulton County Housing Auth. MFH RB
4,470 Series 1994B (CRE) 4.25 10/01/25 4,470
3,600 Series 1996 (CRE) 4.20 8/01/26 3,600
Marietta Housing Auth. MFH RB
3,000 Series 1993 (CRE) 4.20 10/01/26 3,000
6,425 Series 1994 (CRE) 4.20 7/01/24 6,425
3,235 Peachtree Development Auth. RB, Series 1988 (CRE) 4.30 7/01/10 3,235
Illinois (3.9%)
2,820 Arlington Heights MFH RB, Series 1997 (CRE) 4.65 5/01/24 2,820(f)
5,930 Chicago RB, Series 1997 (CRE) 4.10 4/01/27 5,930
2,500 Chicago Tax Increment Allocation RB,
Series 1996B (CRE) 4.10 12/01/14 2,500
6,775 Des Plaines IDRB, Series 1997A (CRE) 4.15 11/01/15 6,775
Development Finance Auth. MFH RB
7,400 Series 1991 (CRE) 4.65 10/01/25 7,400
14,700 Series 1993 (CRE) 4.25 12/01/13 14,700
18,500 Village of Lisle MFH RB (CRE) 4.10 12/15/25 18,500
Indiana (0.3%)
4,750 Indianapolis Economic Development RB,
Series 1997 (CRE) 4.25 5/01/18 4,750
Kansas (0.1%)
2,200 Wichita Health Systems RB, Series 1985XXV (CRE) 4.25 10/01/11 2,200
Kentucky (4.5%)
4,000 Fulton Hospital RB, Series 1985 (CRE) 4.20 5/01/10 4,000
9,490 Hancock County Industrial Building RB,
Series 1991 (CRE) 4.30 7/01/11 9,490
9,100 Jefferson County MFH RB, Series 1996 (CRE) 4.15 12/01/26 9,100
Ohio County PCRB
19,000 Series 1983 (CRE) 4.35 6/01/13 19,000
26,000 Series 1985 (CRE) 4.65 10/01/15 26,000
Louisiana (3.7%)
1,400 Delhi Industrial Development Refunding RB,
Series 1996 4.15 12/01/12 1,400
Housing Finance Agency MFH RB
7,010 Series 1988A (CRE) 4.35 1/01/26 7,010
9,150 Series 1988B (CRE) 4.35 12/01/25 9,150
24,385 Orleans Levee District Capital Recovery Funding RB,
Series 1988A (CRE) 4.35 10/01/17 24,385
5,000 Public Facilities Auth. IDRB, Series 1996 (CRE) 4.30 12/01/14 5,000
8,700 Public Facilities Auth. MFH RB, Series 1988 (CRE) 4.25 12/01/13 8,700
Maryland (0.4%)
6,000 Baltimore IDA RB, Series 1986 (CRE) 4.30 8/01/16 6,000
Massachusetts (0.4%)
5,815 Industrial Finance Agency RB, Series 1997 (CRE) 3.93 5/01/27 5,815
Michigan (0.6%)
2,900 Detroit Downtown Development Auth. RB (CRE) 4.25 12/01/10 2,900
5,300 Grand Rapids IDRB (CRE) 4.10 1/01/10 5,300
1,200 Jackson County Economic Development Corp. RB,
Series 1984 (CRE) 4.18 10/01/14 1,200
Minnesota (0.5%)
4,200 Hastings Hospital RB, Series 1988 (CRE) 4.20 11/01/13 4,200
4,005 St. Cloud Minnesota Housing and Redevelopment
Auth. RB, Series 1997 (CRE) 4.35 3/01/22 4,005
Mississippi (0.3%)
4,765 Hinds County Urban Renewal RN, Series 1991 (CRE) 4.30 1/01/07 4,765
Missouri (1.8%)
Clayton IDA RB
5,925 Series 1994A (CRE) 4.30 12/01/06 5,925
5,975 Series 1994B (CRE) 4.30 2/01/07 5,975
8,275 Series 1995C (CRE) 4.30 5/01/05 8,275
2,700 St. Louis IDA RB, Series 1997 (CRE) 4.40 8/30/99 2,700
5,000 St. Louis County MFH RB, Series 1986 (CRE) 4.10 12/01/25 5,000
New Hampshire (0.1%)
1,085 Housing Finance Auth. MFH RB, Series 1990 (CRE) 4.25 7/01/06 1,085
New Mexico (1.8%)
19,900 Farmington PCRB, Series 1994A (CRE) 4.15 11/01/13 19,900
7,441 Finance Auth. Administrative Fee RB,
Series 1997A (CRE) 4.10 1/01/07 7,441
Ohio (0.7%)
6,000 Clark County IDA RB (CRE) 4.36 12/01/10 6,000
4,800 Stark County IDRB, Series 1984 (CRE) 4.25 9/01/01 4,800
Oklahoma (1.7%)
20,000 Muskogee Industrial Trust PCRB, Series 1997A 4.20 6/01/27 20,000
Muskogee Industrial Trust RB
2,960 Series 1985, Muskogee Mall Project (CRE) 4.25 12/01/15 2,960
2,600 Series 1985, Warmack-Muskogee Project (CRE) 4.25 12/01/15 2,600
Oregon (3.5%)
Medford Hospital Facilities Auth. RB
11,200 Series 1985 (CRE) 4.25 12/01/15 11,200
13,550 Series 1991 (CRE) 4.25 5/01/21 13,550
27,555 Series 1997 (CRE) 4.25 5/15/27 27,555
Pennsylvania (7.8%)
6,250 East Hempfield Township IDA RB, Series 1997 (CRE) 4.20 8/15/17 6,250
75,100 Harrisburg Auth. RB, Series 1996 (CRE) 4.15 7/01/21 75,100(f)
35,500 Northeastern Hospital and Education Auth. RB,
Series 1996 (CRE) 4.15 7/01/26 35,500
Tennessee (1.1%)
1,800 Maryville IDB Education RB, Series 1997B (CRE) 4.35 8/01/02 1,800
14,205 Nashville and Davidson County Industrial
Development Board RB, Series 1995 (CRE) 4.35 11/01/12 14,205
Texas (4.2%)
100 Amarillo Health Facilities Corp. RB,
Series 1996A (CRE) 4.15 8/15/06 100
Bexar County Housing Finance Corp. MFH RB
1,100 Series 1988A (CRE) 4.20 8/01/06 1,100
300 Series 1988B (CRE) 4.20 6/01/05 300
14,200 Comal County Health Facilities Development Corp. RB,
Series 1997 (CRE) 4.20 2/01/27 14,200
100 Desoto IDA RB, Series 1989 (CRE) 4.05 12/01/16 100
100 Euless IDA RB, Series 1985 (CRE) 4.15 12/01/15 100
7,100 Georgetown Health Facilities Development Corp. RB,
Series 1997B (CRE) 4.20 7/01/22 7,100
3,400 Harris County Housing Finance Corp. MFH RB,
Series 1988A (CRE) 4.15 6/01/05 3,400
4,500 Matagorda County Hospital District RB,
Series 1988 (CRE) 4.35 8/01/18 4,500
2,500 Metropolitan Higher Education Auth. RB,
Series 1984 (CRE) 4.35 12/01/04 2,500
70 North Central Health Facilities Development
Corp. RB, Series 1989 (CRE) 4.15 12/01/98 70
2,600 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 3.95 5/01/03 2,600
Tarrant County Housing Finance Corp. MFH RB
8,200 Series 1985 (CRE) 4.25 12/01/25 8,200
13,600 Series 1994 (CRE) 4.25 11/01/07 13,600
2,775 Travis County Housing Finance Corp. MFH RB,
Series 1985 (CRE) 4.20 12/01/07 2,775
100 Trinity River IDA RB, Series 1994 (CRE) 4.18 11/01/14 100
2,800 Victoria Health Facilities Development Corp. RB,
Series 1997 (CRE) 4.20 9/01/27 2,800
Utah (0.8%)
340 Ogden City IDRB, Series 1984 (CRE) 4.15 12/01/14 340
8,000 Ogden City Industrial Development Refunding Bonds,
Series 1986 (CRE) 4.00 9/01/13 8,000
3,800 Provo Housing MFH RB, Series 1987A (CRE) 4.30 12/01/10 3,800
Vermont (1.0%)
15,645 Educational and Health Buildings Financing
Agency RB, Series 1997-2 (CRE) 4.15 12/01/27 15,645
Virginia (1.4%)
2,365 Henrico County IDA RB, Series 1986C 4.10 7/15/16 2,365
18,400 Loudoun County IDA Residential Care Facility RB,
Series 1994B (CRE) 4.35 11/01/24 18,400
700 Prince William County IDA RB, Series 1988 (CRE) 4.17 6/30/04 700
15 Richmond Redevelopment and Housing Auth. RB,
Series 1995 (CRE) 4.05 4/01/29 15
Washington (2.5%)
6,800 Housing Finance Commission MFH RB,
Series 1988 (CRE) 4.10 1/01/10 6,800
2,025 Port of Benton Economic Development Corp. RB,
Series 1989 (CRE) 4.35 11/01/05 2,025
3,500 Port of Vancouver RB, Series 1984A (CRE) 4.25 12/01/09 3,500
1,873 Seattle IDA RB, Series 1989-I, Lot 1 (CRE) 4.55 8/01/04 1,873
23,600 Student Loan Finance Association RB,
Series 1985-2nd (CRE) 4.05 1/01/01 23,600
West Virginia (0.1%)
1,400 Marshall County Refunding RB, Series 1997 4.00 3/01/09 1,400
----------
Total variable rate demand notes (cost: $874,709) 874,709
----------
Put Bonds (20.6%)
Arkansas (0.2%)
3,000 Development Finance Auth. SFH RB, Series 1996G 3.70 7/01/17 3,000
California (3.9%)
Higher Education Loan Auth. RB
20,825 Series 1987A (CRE) 3.95 6/01/01 20,825
7,750 Series 1987B (CRE) 4.00 7/01/02 7,750
5,000 Series 1992D (CRE) 3.80 4/01/00 5,000
25,000 Student Education Loan Marketing Corp. RB,
Series 1993A (CRE) 3.85 11/01/02 25,000
Connecticut (0.2%)
3,000 Development Auth. Airport Facility RB,
Series 1993A (CRE) 5.80 10/01/25 3,000
District of Columbia (0.5%)
7,000 District of Columbia RB, Series 1985 (CRE) 4.10 7/01/04 7,005
Florida (2.2%)
St. Lucie County PCRB
17,000 Series 1992 3.75 5/01/27 17,000
17,000 Series 1994B 3.75 5/01/27 17,000
Illinois (4.1%)
5,000 Decatur Water RB, Series 1985 (CRE) 3.65 5/01/15 5,000
Health Facilities Auth. RB
7,000 Series 1985B 3.75 8/15/15 7,000
8,000 Series 1990A (CRE) 3.80 2/01/19 8,000
14,000 Series 1992 3.70 1/01/26 14,000
20,000 Series 1995 4.00 6/01/30 20,000
8,000 Series 1996 3.90 8/15/30 8,000
Kentucky (0.4%)
5,500 Lexington-Fayette Urban County RB,
Series 1987 (CRE) 3.90 4/01/15 5,500
Massachusetts (1.3%)
19,600 Boston Univ. Health and Educational
Facilities Auth. RB, Series 1985H (CRE) 3.80 12/01/29 19,600
Minnesota (0.4%)
6,405 State Housing Finance Agency, Series 1995K 3.60 1/01/17 6,405
Montana (0.7%)
10,000 Board of Investments Municipal Finance
Consolidation Act Bonds, Series 1997 3.65 3/01/17 10,000
New Hampshire (0.5%)
7,205 IDA Resources Recovery RB, Series 1985 (CRE) 3.90 7/01/07 7,205
New Mexico (0.5%)
7,095 Mortgage Finance Auth. RB, Series 1997D 3.88 7/01/28 7,095
North Carolina (0.6%)
Wake County Industrial Facilities PCRB
2,000 Series 1990B (CRE) 3.85 6/15/14 2,000
6,900 Series 1990B (CRE) 3.70 6/15/14 6,900
Pennsylvania (2.8%)
6,360 Ferguson Industrial and Commercial
Development Auth. RB, Series 1981 4.00 11/01/06 6,360
34,600 Philadelphia GO CP, Series 1990 (CRE) 3.75 8/01/20 34,600
840 Philadelphia IDA IDRB, Series 1981 4.00 11/01/06 840
1,010 Philadelphia IDA PCRB, Series 1981 4.00 11/01/06 1,010
Virginia (0.5%)
7,800 Fairfax County Hospital IDA RB, Series 1993B 3.70 8/15/25 7,800
West Virginia (1.3%)
19,500 Grant County PCRB, Series 1994 3.65 9/01/24 19,500
Wisconsin (0.4%)
6,500 Health and Educational Facilities Auth. RB,
Series 1988A (CRE) 3.70 3/01/17 6,500
Wyoming (0.1%)
2,225 Rock Springs IDRB, Series 1992 (CRE) 3.80 3/02/02 2,225
----------
Total put bonds (cost: $311,120) 311,120
----------
Fixed Rate Instruments (20.4%)
California (2.6%)
10,900 Antioch Unified School District GO TRAN,
Series 1997 4.25 6/30/98 10,929
8,940 East Side Union High School District GO 4.25 7/01/98 8,964
10,000 Long Beach GO TRAN, Series 1996-97 4.75 10/09/97 10,001
3,330 Rocklin Unified School District GO TRAN 4.45 9/10/98 3,347
2,210 Santa Barbara County GO TRAN, Series 1996A 4.75 10/01/97 2,210
4,130 Tahoe Truckee Unified School District GO TRAN,
Series 1997 4.45 9/10/98 4,150
District of Columbia (0.6%)
9,000 District of Columbia GO, Series 1997A (CRE) 3.98 9/30/98 9,000
Georgia (0.5%)
5,500 Burke County Development Auth. PCRB,
Series 1997A (CRE) 3.60 12/01/97 5,500
1,870 Municipal Electric Auth. RB, Series A (CRE) 5.50 1/01/98 1,878
Iowa (1.0%)
15,000 State School Cash Anticipation Program Warrants,
Series B (CRE) 4.25 1/30/98 15,015
Kansas (0.7%)
10,880 Development Finance Auth. RB, Series 1996K-1 3.85 10/01/97 10,880
Maine (0.4%)
6,000 Cumberland County GO TAN 4.25 12/31/97 6,008
Massachusetts (4.6%)
3,780 Fall River GO BAN (CRE) 4.25 8/14/98 3,791
15,000 Gloucester BAN 4.00 8/07/98 15,015
Massachusetts Bay Transportation Auth. Notes
4,850 Series 1997A 4.25 2/27/98 4,856
15,000 Series 1997B 4.50 9/04/98 15,083
5,000 Methuen GO BAN 4.00 12/18/97 5,003
2,600 New Bedford RAN (CRE) 4.30 6/30/98 2,607
7,500 Springfield GO BAN (CRE) 4.30 11/07/97 7,504
5,000 Springfield GO BAN (CRE) 4.10 11/21/97 5,003
3,000 Springfield GO BAN (CRE) 4.40 6/26/98 3,009
7,000 Springfield GO BAN (CRE) 4.40 9/04/98 7,031
Minnesota (0.4%)
2,105 Fridley ISD Number 014 GO, Series 1997 (CRE) 3.85 2/07/98 2,107
3,900 School District Tax and Aid TAN, Series 1987A (CRE) 3.75 2/13/98 3,901
Missouri (0.8%)
11,000 State Health and Educational Facilities
Auth. School District Notes, Series 1997 4.50 9/14/98 11,060
New Jersey (1.3%)
10,000 Jersey City BAN 4.38 9/18/98 10,045
10,000 Jersey City School Promissory Notes 4.13 3/06/98 10,016
New York (0.9%)
2,500 New Rochelle City School District GO TAN,
Series 1997 4.25 6/30/98 2,507
1,975 Sullivan County GO BAN, 2nd Series 1997C (CRE) 4.25 3/19/98 1,980
9,500 Sullivan County GO TAN, 2nd Series 1997B (CRE) 4.00 3/19/98 9,512
North Carolina (0.3%)
4,000 High Point BAN, Series 1997A 3.90 3/11/98 4,000
Ohio (0.6%)
5,350 Dublin School District GO, Series 1997 4.33 5/13/98 5,360
4,180 Mason City School District GO BAN, Series 1997A 4.15 3/20/98 4,186
Oregon (0.7%)
10,935 Klamath Falls Electric RB, Series 1986B 4.50 5/01/23(a) 10,974
Pennsylvania (1.1%)
3,500 Berks County GO TRAN, Series 1997 (CRE) 4.38 12/31/97 3,506
12,500 Philadelphia School District TRAN,
Series 1997-1998 (CRE) 4.50 6/30/98 12,548
South Carolina (0.4%)
2,910 Piedmont Municipal Power Agency RB,
Series B (CRE) 5.00 1/01/98 2,919
3,500 Spartanburg County School District #6 GO (CRE) 4.75 4/01/98 3,516
Texas (1.0%)
15,000 Houston Water and Sewer Systems RB, Series A 3.65 10/01/97 15,000
Utah (1.5%)
22,500 GO Highway CP Notes 3.80 10/07/97 22,500
Washington (0.6%)
6,500 King County Sewer CP, Series 1996A 3.80 10/08/97 6,500
2,000 Seattle GO, Series 1996E 3.60 10/01/97 2,000
Wisconsin (0.4%)
6,000 Kaukauna Area School District GO BAN 4.35 2/26/98 6,005
----------
Total fixed rate instruments (cost: $306,926) 306,926
----------
Total investments (cost: $1,492,755) $1,492,755
==========
</TABLE>
Portfolio Summary By Industry
-----------------------------
Housing - Multi-Family 18.5%
General Obligations 14.9
Electric Power 14.3
Hospitals 9.7
Education 6.0
Retirement Homes 5.2
Student Loan 4.4
Finance - Municipal 4.1
Special Assessment/Tax/Fee 2.1
Hotel/Motel 1.7
Buildings 1.5
Manufacturing - Diversified Industries 1.3
Transportation - Miscellaneous 1.3
Housing - Single-Family 1.1
Water/Sewer 1.0
Other 11.9
----
Total 99.0%
====
Portfolio Summary By State
--------------------------
Alabama .8% Arizona 3.7% Arkansas .8%
California 7.5 Colorado .9 Connecticut .2
District of Columbia 1.1 Florida 8.0 Georgia 2.6
Illinois 8.0 Indiana .3 Iowa 1.0
Kansas .9 Kentucky 4.8 Louisiana 3.7
Maine .4 Maryland .4 Massachusetts 6.3
Michigan .6 Minnesota 1.4 Mississippi .3
Missouri 2.6 Montana .7 New Hampshire .5
New Jersey 1.3 New Mexico 2.3 New York .9
North Carolina .8 Ohio 1.3 Oklahoma 1.7
Oregon 4.2 Pennsylvania 11.7 South Carolina .4
Tennessee 1.1 Texas 5.2 Utah 2.3
Vermont 1.0 Virginia 1.9 Washington 3.1
West Virginia 1.4 Wisconsin .8 Wyoming .1
----
Total 99.0%
====
Notes to Portfolios of Investments in Securities
September 30, 1997
(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) Prerefunded to various dates prior to maturity at the call price.
(b) Zero Coupon security. Rate represents the effective yield at date of
purchase. For the Long-Term, Intermediate-Term, and Short-Term Funds, these
securities represented 1.8%, 9.5%, and 3.1% of the Funds' net assets,
respectively.
(c) At September 30, 1997, the cost of securities purchased on a delayed
delivery basis for the Long-Term and Intermediate-Term Funds was $9,231,600
and $8,526,423, respectively.
(d) Rate changes periodically and is subject to a floor of 6% and a ceiling of
12%.
(e) Illiquid securities valued using methods determined by a pricing service
under general supervision of the Board of Directors. These securities
represented .6% and 2.4% of the Intermediate-Term and Short-Term Funds' net
assets, respectively.
(f) These securities were purchased within the terms of a private placement
memorandum and are subject to a seven day demand feature. Under procedures
adopted by the Board of Directors, the adviser has determined that these
securities are liquid. At September 30, 1997, these securities represents
5.2% of the Tax Exempt Money Market Fund's net assets.
(g) At September 30, 1997, these securities were segregated to cover delayed
delivery purchases.
See accompanying notes to financial statements.
Statements of Operations
(In Thousands)
Six-month period ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Tax Exempt
Long-Term Intermediate- Short-Term Money Market
Fund Term Fund Fund Fund
---- --------- ---- ----
<S> <C> <C> <C> <C>
Net investment income:
Interest income $ 58,528 $ 52,768 $ 20,707 $ 29,463
---------- ---------- --------- ---------
Expenses:
Management fees 2,683 2,519 1,159 2,143
Transfer agent's fees 494 506 293 463
Custodian's fees 117 129 85 183
Postage 46 42 30 48
Shareholder reporting fees 19 21 19 39
Directors' fees 2 2 2 2
Registration fees 66 58 30 31
Professional fees 16 16 16 16
Other 30 20 14 22
---------- ---------- --------- ---------
Total expenses 3,473 3,313 1,648 2,947
---------- ---------- --------- ---------
Net investment income 55,055 49,455 19,059 26,516
---------- ---------- --------- ---------
Net realized and unrealized gain on
investments:
Net realized gain 2,139 245 15 -
Change in net unrealized
appreciation/depreciation 76,797 59,227 9,975 -
---------- ---------- --------- ---------
Net realized and
unrealized gain 78,936 59,472 9,990 -
---------- ---------- --------- ---------
Increase in net assets resulting
from operations $ 133,991 $ 108,927 $ 29,049 $ 26,516
========== ========== ========= =========
See accompanying notes to financial statements.
</TABLE>
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended September 30, 1997 and Year ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Long-Term Intermediate-Term Short-Term Tax Exempt
Fund Fund Fund Money Market Fund
---- ---- ---- -----------------
9/30/97 3/31/97 9/30/97 3/31/97 9/30/97 3/31/97 9/30/97 3/31/97
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income $ 55,055 $ 109,721 $ 49,455 $ 95,423 $ 19,059 $ 35,963 $ 26,516 $ 48,817
Net realized gain (loss) on
investments 2,139 4,215 245 3,806 15 (208) - -
Change in net unrealized
appreciation/depreciation
of investments 76,797 3,331 59,227 (4,710) 9,975 (453) - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase in net assets
resulting from operations 133,991 117,267 108,927 94,519 29,049 35,302 26,516 48,817
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Distributions to shareholders
from:
Net investment income (55,055) (109,721) (49,455) (95,423) (19,059) (35,963) (26,516) (48,817)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
From capital share transactions:
Proceeds from shares sold 314,311 683,750 161,461 236,450 181,143 274,306 813,785 1,866,489
Shares issued for dividends
reinvested 38,539 77,355 38,035 73,396 15,879 29,997 25,194 45,985
Cost of shares redeemed (272,609) (750,331) (113,792) (243,297) (149,893) (272,765) (897,448) (1,876,016)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets from capital share
transactions 80,241 10,774 85,704 66,549 47,129 31,538 (58,469) 36,458
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets 159,177 18,320 145,176 65,645 57,119 30,877 (58,469) 36,458
Net assets:
Beginning of period 1,822,436 1,804,116 1,725,684 1,660,039 804,897 774,020 1,565,634 1,529,176
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
End of period $1,981,613 $1,822,436 $1,870,860 $1,725,684 $ 862,016 $ 804,897 $1,507,165 $1,565,634
========== ========== ========== ========== ========== ========== ========== ==========
Change in shares outstanding:
Shares sold 23,290 51,727 12,414 18,461 17,022 25,924 813,785 1,866,489
Shares issued for dividends
reinvested 2,841 5,837 2,916 5,731 1,491 2,835 25,194 45,985
Shares redeemed (20,155) (56,684) (8,759) (19,015) (14,094) (25,787) (897,448) (1,876,016)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in
shares outstanding 5,976 880 6,571 5,177 4,419 2,972 (58,469) 36,458
========== ========== ========== ========== ========== ========== ========== ==========
Authorized shares of $.01 par
value 175,000 175,000 170,000 170,000 135,000 135,000 2,600,000 2,600,000
========== ========== ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
September 30, 1997
(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 Long-Term Fund, Intermediate-Term Fund, Short-Term Fund, and Tax
Exempt Money Market Fund (the Funds). The Funds have a common objective of
providing investors with interest income that is exempt from federal income tax.
The Tax Exempt Money Market Fund has a further objective of preserving capital
and maintaining liquidity.
A. Security valuation -- Investments in the Long-Term, Intermediate-Term, and
Short-Term Funds 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 Investment Company Act of
1940, as amended, all securities in the Tax Exempt 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.
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, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($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 its agreement 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 NationsBank, each
Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 15% of its total assets at
NationsBank's borrowing rate plus a markup. During the six-month period ended
September 30, 1997, the Long-Term Fund had six borrowings, averaging $5.6
million with an average length of two days, and incurred $8,719 in interest
expense. The Intermediate-Term, Short-Term, and Tax Exempt Money Market Funds
had no borrowings under either of these agreements during the period.
(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, 1997.
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, 1997, the Long-Term,
Intermediate-Term, and Short-Term Funds had capital loss carryovers for federal
income tax purposes of approximately $44,986,000, $2,784,000, and $3,593,000,
respectively, which, if not offset by subsequent capital gains will expire
between 2000-2005. 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, 1997 were as follows:
Long-Term Intermediate- Short-Term
Fund Term Fund Fund
---- --------- ----
Purchases $393,886,744 $154,813,988 $92,248,831
Sales $319,808,436 $ 94,123,250 $42,518,181
Purchases and sales/maturities of securities for the six-month period ended
September 30, 1997 for the Tax Exempt Money Market Fund were $2,771,135,912 and
$2,832,437,700, respectively.
Gross unrealized appreciation and depreciation of investments at September 30,
1997 was as follows:
Long-Term Intermediate- Short-Term
Fund Term Fund Fund
---- --------- ----
Appreciation $161,194,475 $111,920,637 $15,694,825
Depreciation (643,831) (145) (936)
------------ ------------ -----------
Net $160,550,644 $111,920,492 $15,693,889
============ ============ ===========
(5) Transactions with Manager
A. Management fees -- The investment policies of the Funds and the management of
the Funds' portfolios are carried out by USAA Investment Management Company (the
Manager). Management fees are computed at .28% of the average annual net assets
of each Fund.
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 $26 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
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At September 30, 1997, the Association and its affiliates
owned 4,749,309 shares (3.4%) of the Intermediate-Term Fund.
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.
Notes to Financial Statements (continued)
Long-Term Fund
September 30, 1997
(Unaudited)
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
-----------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 13.22 $ 13.17 $ 12.96 $ 13.20 $ 14.21 $ 13.54
Net investment
income .39 .79 .79 .79 .81 .88
Net realized
and unrealized
gain (loss) .55 .05 .21 (.16) (.44) .75
Distributions from
net investment
income (.39) (.79) (.79) (.78) (.82) (.88)
Distributions
of realized
capital gains - - - (.09) (.56) (.08)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at
end of period $ 13.77 $ 13.22 $ 13.17 $ 12.96 $ 13.20 $ 14.21
============ ============ ============ ============ ============ ============
Total return (%) * 7.19 6.51 7.88 5.07 2.36 12.46
Net assets
at end of
period (000) $ 1,981,613 $ 1,822,436 $ 1,804,116 $ 1,774,643 $ 1,831,693 $ 1,882,882
Ratio of expenses
to average
net assets (%) .36(a) .37 .37 .38 .38 .39
Ratio of net
investment
income to
average net
assets (%) 5.75(a) 5.95 5.99 6.23 5.69 6.35
Portfolio
turnover (%) 17.02 40.78 53.25 64.72 109.28 88.27
</TABLE>
(a) 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)
Intermediate-Term Fund
September 30, 1997
(Unaudited)
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 12.77 $ 12.77 $ 12.50 $ 12.48 $ 12.90 $ 12.29
Net investment
income .36 .72 .71 .69 .69 .74
Net realized
and unrealized
gain (loss) .43 - .27 .05 (.29) .61
Distributions from
net investment
income (.36) (.72) (.71) (.69) (.69) (.74)
Distributions
of realized
capital gains - - - (.03) (.13) -
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at
end of period $ 13.20 $ 12.77 $ 12.77 $ 12.50 $ 12.48 $ 12.90
============ ============ ============ ============ ============ ============
Total return (%) * 6.24 5.80 7.97 6.16 3.06 11.29
Net assets
at end of
period (000) $ 1,870,860 $ 1,725,684 $ 1,660,039 $ 1,529,750 $ 1,559,183 $ 1,374,159
Ratio of expenses
to average
net assets (%) .37(a) .37 .38 .40 .40 .42
Ratio of net
investment
income to
average net
assets (%) 5.50(a) 5.65 5.54 5.63 5.30 5.85
Portfolio
turnover (%) 5.39 23.05 27.51 27.26 69.45 74.02
</TABLE>
(a) 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)
Short-Term Fund
September 30, 1997
(Unaudited)
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 10.57 $ 10.57 $ 10.47 $ 10.48 $ 10.63 $ 10.48
Net investment
income .25 .49 .50 .47 .45 .50
Net realized
and unrealized
gain (loss) .13 - .10 (.01) (.15) .15
Distributions from
net investment
income (.25) (.49) (.50) (.47) (.45) (.50)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at
end of period $ 10.70 $ 10.57 $ 10.57 $ 10.47 $ 10.48 $ 10.63
========== ========== ========== ========== ========== ==========
Total return (%) * 3.59 4.70 5.83 4.51 2.87 6.37
Net assets
at end of
period (000) $ 862,016 $ 804,897 $ 774,020 $ 801,157 $ 995,624 $ 862,182
Ratio of expenses
to average
net assets (%) .40(a) .41 .42 .42 .43 .43
Ratio of net
investment
income to
average net
assets (%) 4.61(a) 4.60 4.73 4.50 4.25 4.75
Portfolio
turnover (%) 6.39 27.67 35.99 32.61 101.67 138.20
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
Notes to Financial Statements (continued)
Tax Exempt Money Market Fund
September 30, 1997
(Unaudited)
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
-----------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<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 .04 .03 .02 .03
Distributions from
net investment
income (.02) (.03) (.04) (.03) (.02) (.03)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============ ============
Total return (%) * 1.75 3.30 3.65 2.98 2.31 2.89
Net assets
at end of
period (000) $ 1,507,165 $ 1,565,634 $ 1,529,176 $ 1,456,747 $ 1,569,760 $ 1,501,098
Ratio of expenses
to average
net assets (%) .39(a) .39 .40 .39 .40 .40
Ratio of net
investment
income to
average net
assets (%) 3.46(a) 3.25 3.59 2.93 2.29 2.85
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income distributions during the period.
