Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
Long-Term Fund 4
Intermediate-Term Fund 9
Short-Term Fund 14
Tax Exempt Money Market Fund 18
Financial Information:
Independent Auditor's Report 21
Statements of Assets and Liabilities 22
Portfolios of Investments in Securities:
Long-Term Fund 25
Intermediate-Term Fund 32
Short-Term Fund 46
Tax Exempt Money Market Fund 55
Notes to Portfolios of Investments 68
Statements of Operations 69
Statements of Changes in Net Assets 70
Notes to Financial Statements 72
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.
<TABLE>
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the performance
of our other funds. This summary is a snapshot of the performance of all 33
funds by investment objective as of March 31, 1997.
<CAPTION>
Average Annual Total Return(%)*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
<S> <C> <C> <C> <C> <C>
Capital Appreciation
========================================================================================================
Aggressive Growth 10/19/81 -5.70 11.02 8.98 -
Emerging Markets(1) 11/7/94 12.86 - - 8.14
Gold(1) 8/15/84 -24.30 6.19 -4.11 -
Growth 4/5/71 10.96 14.37 10.98 -
Growth & Income 6/1/93 17.96 - - 15.82
International(1) 7/11/88 15.64 14.34 - 10.77
S&P 500 Index(4) 5/1/96 - - - 19.78+
World Growth(1) 10/1/92 14.38 - - 13.53
Asset Allocation
===================
Balanced Strategy(1) 9/1/95 12.87 - - 11.35
Cornerstone Strategy(1) 8/15/84 13.36 13.32 8.63 -
Growth and Tax Strategy(2)** 1/11/89 8.57 10.08 - 9.71
Growth Strategy(1) 9/1/95 11.02 - - 16.09
Income Strategy 9/1/95 7.17 - - 7.36
Income-Taxable
================
GNMA 2/1/91 5.59 6.94 - 7.35
Income 3/4/74 4.53 7.49 8.79 -
Income Stock 5/4/87 14.01 13.16 - 12.49
Short-Term Bond 6/1/93 6.73 - - 5.45
Income-Tax Exempt
===================
Long-Term(2)** 3/19/82 6.51 6.80 7.04 -
Intermediate-Term(2)** 3/19/82 5.80 6.82 6.92 -
Short-Term(2)** 3/19/82 4.70 4.85 5.38 -
California Bond(2)** 8/1/89 6.60 7.06 - 7.32
Florida Tax-Free Income(2)** 10/1/93 6.51 - - 3.45
New York Bond(2)** 10/15/90 5.89 6.60 - 8.03
Texas Tax-Free Income(2)** 8/1/94 7.06 - - 8.32
Virginia Bond(2)a** 10/15/90 5.82 7.01 - 7.80
Money Market
==============
Money Market(3) 2/2/81 5.21 4.41 5.82 -
Tax Exempt Money Market(2,3)** 2/6/84 3.30 3.03 4.18 -
Treasury Money Market Trust(3) 2/1/91 5.07 4.20 - 4.35
California Money Market(2,3)** 8/1/89 3.23 2.93 - 3.62
Florida Tax-Free Money Market(2,3)** 10/1/93 3.20 - - 3.01
New York Money Market(2,3)** 10/15/90 3.16 2.80 - 3.07
Texas Tax-Free Money Market(2,3)** 8/1/94 3.22 - - 3.30
Virginia Money Market(2,3)** 10/15/90 3.14 2.85 - 3.19
</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 alterna-
tive minimum tax.
3 An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will be
able to maintain a stable net asset value of $1 per share.
4 S&P 500(Registered Trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
* Total return equals income 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.
+ Cumulative total return since inception, including account maintenance fee
Message from the President
At the most recent USAA Strategic Planning Conference, we spent much of our
time discussing USAA's Mission and how to accomplish it in today's world. Our
Mission has three main elements:
+We want to facilitate the financial
security of those whom we serve.
+We seek to do this with highly competitive
products and services.
+In so doing, we want to be the provider of
choice to the military community.
One evening I sat down and considered each of these separately. Perhaps the most
interesting outcome was my thoughts on financial security. What does that mean
to those who make up the USAA family?
I set down these elements:
+Housing and caring for a family
+Pursuing a rewarding career
+Providing for children's educations
+Providing proper medical care
+Protecting the family against accidents and emergencies
+Providing for a comfortable retirement
+Perhaps providing comfort to aging parents
+Creating an estate plan that will serve well those who survive you
+Enjoying life
The last point struck me especially.
Financial planning almost always focuses on the very serious reasons to save and
invest. But there needs to be a balance in people's lives. Here I have learned a
valuable lesson from my wife, Jutta. She has special china and silver. However,
she has always said, "Nothing is stored away in cabinets. I use it as often as I
can. These things are meant to be enjoyed."
This philosophy meshed very well with my ideas on saving. Here too I have urged
balance. You must save for the future, but you must not strangle on that saving.
You should use plans like 401(k)s and IRAs, but you should also set something
aside for now. That means saving in accounts that are not tax-sheltered, and
that means looking at vehicles like tax-exempt bond and money market funds. They
can perform the job of controlling overall portfolio risk, just as they would in
an IRA by combining equity and taxable bond funds. In this case, they are
valuable tools in helping your after-tax return while you enjoy life, the most
pleasant outcome of financial planning.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
USAA Funds Rated 5 Stars
on Overall Performance
Five-star ratings for overall risk-adjusted performance have been awarded by
Morningstar for USAA Funds as of March 31, 1997.*
USAA Tax Exempt Intermediate-Term Fund & USAA Tax Exempt Short-Term Fund
were rated 5 Stars overall among 1,751, 1,237, 601, and 267 municipal bond
funds for the 1-,3-,5-, and 10-year periods, respectively.
USAA Growth & Income Fund was rated 5 Stars for the 3-year period and 4 Stars
for the 1-year period among 1,919 and 3,048 domestic equity funds, respectively.
USAA International Fund was rated 5 Stars for the 5-year period and 4 Stars for
the 1- and 3-year periods overall and among 219, 939, and 478 international
equity funds, respectively.
*Morningstar proprietary ratings reflect historical risk-adjusted performance
through March, 31 1997. The ratings are subject to change monthly. Past
performance is no guarantee of future results. 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 T-bill returns. The one-year
rating is calculated using the same methodology, but is not a component of the
overall rating. Ten percent of the funds in a rating category receive five
stars and the next 22.5% receive four stars.
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.
3/31/96 3/31/97
Net Assets ..................................$1,804.1 Million $1,822.4 Million
Net Asset Value Per Share ...................$13.17 $13.22
Average Annual Total Returns as of 3/31/97
1 Year.............................................................6.51%
5 Years............................................................6.80%
10 Years...........................................................7.04%
30-Day SEC Yield* on March 31, 1997................................5.62%
*Calculated as prescribed by the Securities and Exchange Commission.
[A graph is shown here which is a comparison of the change in value
of a $10,000 investment for the period of 3/31/87 to 3/31/97, with
dividends and capital gains reinvested. The vertical axis shows the
dollar amount and the horizontal axis shows the time period. The ending
values for the items graphed are:
Lehman Brothers Muni. Bond Index $20,632
USAA Long-Term Fund 19,754
Lipper General Muni. Debt Funds Average 19,450]
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.
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.
Message from the Manager
[Photograph of Kenneth E. Willmann, CFA, Portfolio Manager appears here]
Holiday Highs and Lows
It is well-known that people often experience emotional highs and lows
on holidays. We are enthusiastic about the special day and all it brings, often
remembering or reliving childhood excitement. Sometimes this reminiscing,
coupled with changes brought on by the passage of time, leads to depression.
The financial markets often mimic these mood swings. Optimistic periods lead
to falling interest rates and rising prices - often called "bull markets." When
optimism reigns, market participants look for excuses to bid up prices.
Conversely, pessimistic periods are called "bear markets." When pessimism
sets in, good news is ignored, and prices sag under the weight of emotional
depression.
The financial markets experienced these emotional swings over the twelve-month
period ended March 31, 1997. Follow me as I explain how the chart below
illustrates how holidays marked the highs and lows.
[A graph is located here which shows Municipal and U.S. Treasury Bond Yields
from 3/29/96 to 3/31/97. The vertical axis shows the yield and the horizontal
axis shows the time period. The ending value on 3/31/97 for the 30 Year U.S.
Treasury is 7.10% and the ending value for the Bond Buyer 40-Bond Index (BBI40)
is 5.95%.]
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.
Let's look at the Long Bond first. It started the period with a yield of 6.67%
on March 29, 1996. It then rose to a high of 7.19% on July 5, 1996 - the day
after Independence Day! This rise was caused by the fear that the economy
would overheat, driving up inflation. Remember, when interest rates rise,
prices of bonds fall. This is a pessimistic period, or bear market (though
not very severe). As the summer progressed, it became clear that the economy was
growing moderately, and inflation was not rising. In fact, it appeared to be
falling! The combination of economic growth and falling inflation just about
defines the best of all possible worlds for the securities markets. A bull
market of optimism began, pushing interest rates down and bond prices up. The
Long Bond yield hit its low point at 6.35% on November 29, 1996 the
day after Thanksgiving! The Federal Reserve Board (the Fed), whose job is to
fret about inflation and raise short-term interest rates when it fears
inflation may rise, began making nervous noises. This sent a shiver through the
financial markets, leading to pessimism about inflation and interest
rates. The Fed put an exclamation point on the fear by raising the Fed Funds
target rate .25% to 5.50% on March 25, 1997. The yield on the Long Bond
rose nearly to the high of Independence Day, ending the period at 7.10% on
March 31, 1997.
The yield on the BBI40 showed a similar pattern with the same holiday highs and
lows. There is one major difference, though. The yield on the BBI40 started and
ended at almost the same level: 5.96% on March 29, 1996, and 5.95% on March 31,
1997. After the November election, market participants became more and more
confident that major tax reform would not be undertaken any time soon. This
allowed the yield difference between tax-exempt and taxable bonds to spread out
and more fully reflect the average income tax rate.
Long-Term Fund
The Fund performed similarly to, and perhaps a little better than, the BBI40.
After ending the previous fiscal year at 5.72% on March 31, 1996, the 30-day SEC
Yield fell to 5.62% on March 31, 1997. This was accompanied, during the same
period, by a rise in the net asset value per share (NAV) from $13.17 to $13.22.
While it is tempting to say the period was calm and not much happened, we know
that there was much movement up and down. The Fund reached a low NAV of $12.86
on June 11, 1996, and a high of $13.54 on February 18, 1997.
These dates differ from the holiday highs and lows mentioned above, and the
performance was a bit better than the BBI40 for the simple reason that I manage
the Fund to try to be better than the Index. I don't try to emulate it.
Philosophy
My investment philosophy for tax-exempt bonds is founded on the belief that,
over time, the vast majority of the total return available from bonds comes in
the form of income. All bonds mature at face value eventually, so capital growth
must be accomplished by compounding interest. Therefore, I concentrate on above
average income. We have done this successfully for years. The graph below
illustrates this point.
I don't ignore changes in the share value in my quest for income. I try to
balance the need for income with the need for total return. For the twelve
months ended March 31, 1997, the Fund had a total return of 6.51%,(1) while the
Lipper General Municipal Debt Funds Average was 4.81%. This philosophy has
served us well for many years. I constantly question it, however. The world
changes, and I don't want the Fund to be left behind. I understand that it is
your money, and I am merely the steward.
(1) Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
[A graph is shown here comparing the 12-month dividend yield of the USAA Long-
Term Fund and the Lipper General Municipal Debt Funds Average from 3/31/88 to
3/31/97. The vertical axis shows the yield and the horizontal axis shows the
time period. The values are:
USAA Long-
Term Fund 7.70 7.60 7.30 7.20 6.80 6.20 6.10 6.00 6.00 6.00
Lipper Gen.
Muni. Debt.
Funds Avg. 7.40 7.10 6.90 6.70 6.40 5.80 5.60 5.30 5.00 5.00]
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 3/31/88 to 3/31/97.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of March 31,
1997 for the USAA Long-Term Fund to be: AAA - 15%, AA - 32%, A - 24% and
BBB - 29%]
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.
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.
3/31/96 3/31/97
Net Assets..................................$1,660.0 Million $1,725.7 Million
Net Asset Value Per Share...................$12.77 $12.77
Average Annual Total Returns as of 3/31/97
1 Year............................................................5.80%
5 Years...........................................................6.82%
10 Years..........................................................6.92%
30-Day SEC Yield* on March 31, 1997...............................5.23%
*Calculated as prescribed by the Securities and Exchange Commission
[A graph is shown here which is a comparison of the change in value of a
$10,000 investment for the period of 3/31/87 to 3/31/97, with dividends
and capital gains reinvested. The ending values for the items graphed
are:
Lehman Brothers Muni. Bond Index $20,632
USAA Intermediate-Term Fund 19,518
Lipper Intermediate Muni. Debt Funds Average 18,475]
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.
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.
Message from the Manager
[Photograph of Clifford A. Gladson, CFA, Portfolio Manager, appears here]
Credit Market Review
Over the Fund's latest fiscal year, April 1, 1996 to March 31, 1997, moderate
economic growth and a low rate of inflation resulted in a rather stable interest
rate environment. Yields for 10-year "AA" rated municipal bonds ranged between
5.02% and 5.17%.
Fund Performance
For the fiscal year ended March 31, 1997, your Fund provided a dividend
distribution yield(1) of 5.67%. While past performance is no guarantee
of future results, this yield was well above the 4.44% average dividend
distribution yield of the 139 funds in the Lipper Intermediate Municipal
Debt Fund Index.(2) The Fund's share price on both March 31, 1996, and
March 31, 1997, was $12.77.
[A graph is shown here comparing the 12-month dividend yield of the USAA
Intermediate-Term Fund and the Lipper Intermediate Municipal Debt Funds Average
from 3/31/88 to 3/31/97. The vertical axis shows the yield and the horizontal
axis shows the time period. The values are:
USAA Intermediate-
Term Fund 7.10 7.20 7.00 6.80 6.40 5.80 5.50 5.60 5.60 5.70
Lipper Intermediate
Muni. Debt. Funds
Average 6.30 6.50 6.40 6.20 5.80 5.10 4.80 4.70 4.50 4.40]
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 3/31/88 to 3/31/97.
(1) 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.
(2) Lipper Analytical Services is an independent organization that monitors
the performance of mutual funds.
Income Orientation
USAA tax-exempt funds are managed to distribute a high level of tax-exempt
dividends. This income orientation reflects the behavior of the fixed income
market and the basic mathematical nature of bonds. Interest rates fluctuate.
When interest rates rise, the price of a bond falls. When interest rates fall,
the price of a bond rises. At maturity, barring a credit disaster, a bond pays
off at face value. The only tax-exempt income that is earned depends on the
bond's coupon yield at the time of purchase.
The following table shows the sources of the Fund's 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 graphs below the table further
illustrate how the dividend return and yearly price appreciation combine to
produce annual total returns. Besides dominating long-term total return, income
distributions smooth out the annualized total return.
Average Annual Compounded Returns
with Reinvestment of Dividends - Periods Ending March 31, 1997
Total Dividend Price
Return Equals Return Plus Change
10 Years 6.92% = 6.47% + .45%
5 Years 6.82% = 5.80% + 1.02%
1 Year 5.80% = 5.80% + .00%
[A graph is located here showing the annual total returns of USAA Intermediate-
Term Fund for the 10-year period ended March 31, 1997. The values are:
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
2.34 6.04 9.29 8.30 9.24 11.29 3.06 6.16 7.97 5.80]
[A graph is located here showing the compounded dividend returns of USAA
Intermediate-Term Fund for the 10-year period ended March 31, 1997. The
values are:
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
7.02 7.23 7.31 7.20 6.82 6.33 5.31 5.76 5.81 5.80]
[A graph is located here showing the change in share price of the USAA
Intermediate-Term Fund for the 10-year period ended March 31, 1997.
The values are:
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -4.68 -1.19 1.98 1.10 2.42 4.96 -2.25 0.40 2.16 0.00]
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.
Two market factors shape our income-oriented portfolio strategy. First, to our
knowledge, no one has consistently been able to predict the movement in interest
rates. This leads us to remain fully invested and not try to time the market.
When we do trade bonds, it is to take advantage of interest rate movements that
can increase the Fund's dividend distribution yield. We carefully manage trading
activity to minimize taxable capital gain distributions. Second, yields for
municipal bonds tend to increase as maturity lengthens. This means, in order to
earn a high level of income, the Fund's weighted average maturity will usually
be near its upper limit of ten years.
I am pleased to report that the long-term benefits of our tax-exempt income
orientation has helped your Fund earn a five-star rating from Morningstar.(3)
For more on our philosophy for managing tax-exempt funds, please see page 15 for
the narrative on one of USAA's other five-star funds, the USAA Short-Term Fund.
Current Market Conditions
Even though the rate of inflation has remained around 3%, on March 25, 1997, the
Federal Reserve Board raised short-term rates to stem the possibility of wage
push inflation. We stand ready to take advantage of any sympathetic rise in
intermediate-term rates to improve your Fund's dividend distribution yield.
(3) The Fund was awarded a five-star rating for its overall risk-adjusted
performance by Morningstar as of March 31, 1997. It was rated overall and among
1751, 1237, 601, and 267 municipal bond funds for the 1-, 3-, 5-, and 10-year
periods. Morningstar proprietary ratings reflect historical risk-adjusted
performance through March 31, 1997. The ratings are subject to change monthly.
Past performance is no guarantee of future results. 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. The
one-year rating is calculated using the same methodology, but is not a component
of the overall rating. Ten percent of the funds in a rating category receive
five stars and the next 22.5% receive four stars.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of March 31,
1997 for the USAA Intermediate-Term Fund to be: AAA - 21%, AA - 11%, A - 38%,
BBB - 25%, BB - 4% and Cash Equivalents - 1%]
This chart reflects the highest rating of either Moody's Investors Service,
Standard & Poor's Rating Group, or Fitch Investors Service. 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.
3/31/96 3/31/97
Net Assets...........................$774.0 Million $804.9 Million
Net Asset Value Per Share............$10.57 $10.57
Average Annual Total Returns as of 3/31/97
1 Year.................................................4.70%
5 Years................................................4.85%
10 Years...............................................5.38%
30-Day SEC Yield* on March 31, 1997....................4.33%
*Calculated as Prescribed by the Securities and Exchange Commission.
[A graph is shown here which is a comparison of the change in
value of a $10,000 investment for the period of 3/31/87 to
3/31/97, with dividends and capital gains reinvested. The
ending values for the items graphed are:
Lehman Brothers Muni. Bond Index $20,632
USAA Short-Term Fund 16,886
Lipper Short-Term Fund Debt Funds Average 16,361]
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.
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.
Message from the Manager
[Photograph of Clifford A. Gladson, CFA, Portfolio Manager, appears here]
Credit Market Review Since our last annual report on March 31, 1996, yields
on five-year "AA" rated municipal bonds rose .24%. However, on March 25, 1997,
the Federal Reserve Board moved the short-term federal funds rate up .25%.
This contributed to a .51% rise in the yields for one-year "AA" municipal bonds.
Fund Performance
For the reporting period April 1, 1996 to
March 31, 1997, your Fund provided a dividend distribution yield(1) of 4.60%
versus the 4.15% average dividend distribution yield for the 30 funds in the
Lipper Short-Term Municipal Debt Fund Index.(2) The net asset value of $10.57
opened and closed the Fund's fiscal year.
[A graph is shown here comparing the 12-month dividend yield of the USAA
Short-Term Fund and the Lipper Short-Term Municipal Debt Funds Average
from 3/31/88 to 3/31/97. The vertical axis shows the yield and the
horizontal axis shows the time period. The values are:
USAA Short-
Term Fund 5.80 6.20 6.50 6.50 5.60 4.80 4.30 4.50 4.70 4.60
Lipper Short-
Term Muni.
Debt Funds
Average 5.40 5.90 6.20 6.10 5.40 4.50 3.60 3.90 4.10 4.20]
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 3/31/88 to 3/31/97.
(1) 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.
(2) Lipper Analytical Services is an independent organization that
monitors the performance of mutual funds.
Golden Mean Not Extremes
It is my pleasure to report as of March 31, 1997, Lipper Analytical Services(3)
ranks your Fund #1 out of 5, #1 out of 7, and #4 out of 30 in the Short
Municipal Debt Funds Category for total return(4) over both the 10-, 5- and
1-year time horizons, respectively. Before you break into applause,
Michael Roth cautions investors, "Funds that rank #1 for one-year total
return often go to extremes."
USAA tax-exempt funds purposely avoid the extremes. We do not purchase issues
rated below investment grade. We disdain the use of leverage or derivative
securities. We do not stretch for yield by producing taxable income or buy bonds
that are subject to the alternative minimum tax. In short, we believe that the
best interests of the shareholder rank #1 at USAA.
The primary objective of each USAA tax-exempt bond fund is to earn a high level
of tax-exempt income for a specified weighted average maturity. We strive to
find a golden mean between the level of tax-exempt income, the credit risk of
the issuer, and the price volatility of the bond. We believe that, over time,
this approach has the potential to produce a superior long-term total return. We
do not ignore short-term total return; it is a secondary consideration. Please
see the narrative for the Intermediate-Term Fund on page 10 for more detail on
our income orientation strategy.
If an ovation is in order for your Fund's long-term performance, I suggest you
join me in directing a good measure of your applause in the direction of Ken
Willmann. Ken managed the Fund from its inception in 1982 through 1991. He
developed the strategy of allocating Fund assets between variable rate demand
notes(5) and short-term bonds. This asset allocation produced a relatively
high level of income with low price volatility. This strategy also has helped
the Fund earn a five-star rating from Morningstar.(6)
(3) Lipper Analytical Services is an independent organization that monitors
the performance of mutual funds.
(4) Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
(5) Variable rate demand note: A note representing borrowings that is payable
on demand and that bears interest tied to a money market rate.
(6) The Fund was awarded a five-star rating for its overall risk-adjusted
performance by Morningstar as of March 31, 1997. It was rated overall and among
1751, 1237, 601, and 267 municipal bond funds for the 1-, 3-, 5-, and 10-year
periods. Morningstar proprietary ratings reflect historical risk-adjusted
performance through March 31, 1997. The ratings are subject to change monthly.
Past performance is no guarantee of future results. 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.
The one-year rating is calculated using the same methodology, but is not
a component of the overall rating. Ten percent of the funds in a rating
category receive five stars and the next 22.5% receive four stars.
Current Market Conditions
Even though the economy seems to be on a slow growth path and shows little
inflationary pressure, the Federal Reserve appears determined to keep a tight
reign on the rate of economic growth. In addition, proposed changes to the
Federal Tax Code could reduce corporate demand for short-term municipal
securities. If this causes tax-exempt short-term interest rates to increase,
your Fund is positioned to earn more tax-exempt income. The Fund holds 21% of
its assets in variable rate municipal demand notes. These bonds are very
responsive to movements in interest rates, but exhibit minimal price fluctuation
due to both a short interest reset interval and a short put notification period.
[A pie chart is shown here depicting the Portfolio Ratings/Mix as of March 31,
1997 for the USAA Short-Term Fund to be: AAA - 13%, AA - 9%, A - 34%, BBB -
20%, BB - 3% and Cash Equivalents - 21%]
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 .4% and 1.8% respectively, of the Fund's
investments.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 46 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.*
3/31/96 3/31/97
Net Assets...................................$1,529.2 Million $1,565.6 Million
Net Asset Value Per Share....................$1.00 $1.00
Average Annual Total Returns as of 3/31/97
1 Year..............................................................3.30%
5 Years.............................................................3.03%
10 Years............................................................4.18%
7-Day Simple Yield on March 31, 1997................................3.18%
[A graph is shown here comparing the 7-day yield of the USAA Tax Exempt Money
Market Fund and the IBC/Donoghue's SB &GP (Tax-Free) from 3/96 to 3/97.
The vertical axis shows the yield and the horizontal axis shows the time
period. The ending value, on 3/25/97 for the USAA Tax Exempt Money Market
Fund is 3.09% and the ending value for the IBC/Donoghue's SB & GB (Tax-Free) is
2.75%.]
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 and the value of your investment
may vary according to the Fund's performance. The graph tracks the Fund's 7-day
simple yield against IBC/Donoghue's SB (Stock Broker) and GP (General Purpose)
(Tax-Free) Money Funds, an average of all major money market fund yields.
Message from the Manager
[A photograph of Thomas G. Ramos, CFA, Portfolio Manager appears here]
Credit Market Review
After trading in a range of 5.30% to 5.60% since the beginning of October 1996,
one-year Treasury bills began moving up steadily the last week of February 1997.
The anticipation and subsequent announcement by the Federal Reserve Board
(the Fed) to increase the federal funds rate by .25% to 5.50% has resulted in
one-year Treasury bills moving above 6.00%. As of this writing, short
rates are hovering near 6.00%. One-year tax-exempt notes have essentially
mirrored the movement of Treasury bills. Currently, yields on tax-exempt notes
are about 64% of Treasuries, or 3.85%. The Fed raised the federal funds rate
based on concerns that economic growth might lead to inflationary pressures.
Economists are currently split over whether the hike was a one time event or the
beginning of a series of rate increases which the Fed will institute.
Strategy
Although the market remains unsure on what the Fed's next move will be given the
current economic environment, we are maintaining our strategy of finding the
best value in the markets we operate. There are basically four types of
securities which the Fund purchases: variable rate demand notes (VRDNs), put
bonds, tax-exempt commercial paper, and municipal notes. The securities have
features which at different times will make them attractive or unattractive to
buyers. VRDNs, representing 50 to 70 percent of the Fund, are generally
long-term bonds issued by municipal agencies. The issues we purchase typically
have direct-pay letters of credit by banks, insuring the timely payment of
principal, interest, and purchase price. A holder of these securities generally
has the option to put them back on a daily or seven-day notice. Such securities
provide essential liquidity for the Fund. At the same time though, rates usually
paid by these securities reflect short-term demand in the market, and
consequently, fluctuate significantly throughout the year. Put bonds, similar to
VRDNs, represent long-term bonds issued by municipalities or their agencies, yet
allow the holder of the bond to put it back to the issuer usually within six to
twelve months. The put bonds we hold, comprising 15 to 20 percent of the Fund,
generally have letters of credit issued by high quality banks. Although
difficult to acquire, these bonds usually offer competitive rates versus issues
of the same quality and maturity. Tax-exempt commercial paper has a maturity of
less than 270 days. The commercial paper we purchase will either have a letter
of credit or be backed by a high quality corporate concern. Depending on market
conditions, commercial paper can be priced competitively, and can be written to
mature on specific dates. This latter feature allows us the ability either to
avoid periods when weeklies or dailies are unusually depressed or to have
liquidity on dates when we know issues of interest to us will be offered.
Tax-exempt commercial paper usually represents 5 to 10 percent of the portfolio.
Finally, municipal notes make up the remainder of the Fund's assets. These notes
are issued by states, school districts, cities, counties, and municipal
utilities. Generally maturing in a year, the notes we buy are from top tier
entities. Given their maturities, we purchase these notes very selectively
making certain they represent compelling value.
Portfolio
As of this writing, the maturity of the portfolio is about 55 days.
Historically, this is relatively short for the Fund. Currently, its maturity
reflects the fact that we have not found value in longer maturities. At the same
time though, the variable rate securities we hold continue to provide an
attractive alternative. Certainly, the relatively short maturity of the Fund
provides us the flexibility to extend its maturity should market conditions
warrant.
[A graph is located here showing the growth of $10,000, from 3/31/87 to 3/31/97,
invested in the USAA Tax-Exempt Money Market Fund. The vertical axis shows the
dollar amount and the horizontal axis shows the time period. The ending value
is $15,059.
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance. Income may be subject
to federal, state or local taxes, or to the alternative minimum tax.
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 55 for a complete listing of the Portfolio of Investments in
Securities.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
USAA Tax Exempt Fund, Inc.:
We have audited the accompanying statements of assets and liabilities and
portfolios of investments in securities of the Long-Term, Intermediate-Term,
Short-Term, and Tax Exempt Money Market Funds, separate Funds of USAA Tax Exempt
Fund, Inc., as of March 31, 1997, the related statements of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights information
presented in note 7 to the financial statements for each of the years in the
five-year period then ended. These financial statements and the financial
highlights information are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and the financial highlights information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights information
referred to above present fairly, in all material respects, the financial
position of the Long-Term, Intermediate-Term, Short-Term, and Tax Exempt Money
Market Funds, separate Funds of USAA Tax Exempt Fund, Inc., as of March 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the years in the two-year period then ended,
and the financial highlights information for each of the years in the
five-year period then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
May 9, 1997
<TABLE>
Statements of Assets and Liabilities
(In Thousands)
March 31, 1997
<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 $1,728,991, $1,645,854,
$787,564, and $1,554,761, respectively) $ 1,812,745 $ 1,698,547 $793,283 $1,554,761
Cash 733 980 3,963 9,601
Receivables:
Capital shares sold 273 770 529 4,416
Interest 31,255 26,935 10,148 12,693
Securities sold 22,474 3,580 - 12,493
------------ ------------ -------- ----------
Total assets 1,867,480 1,730,812 807,923 1,593,964
------------ ------------ -------- ----------
Liabilities
Securities purchased 39,200 - 401 22,552
Capital shares redeemed 2,589 2,685 1,786 4,997
USAA Investment Management Company 438 412 191 370
USAA Transfer Agency Company 73 78 47 76
Accounts payable and accrued expenses 131 114 106 126
Dividends on capital shares 2,613 1,839 495 209
------------ ----------- -------- ----------
Total liabilities 45,044 5,128 3,026 28,330
------------ ----------- -------- ----------
Net assets applicable to capital shares outstanding $ 1,822,436 $ 1,725,684 $804,897 $1,565,634
============ =========== ======== ==========
Represented by:
Paid-in capital $ 1,785,807 $ 1,676,020 $802,786 $1,565,634
Accumulated net realized loss on investments (47,125) (3,029) (3,608) -
Net unrealized appreciation of investments 83,754 52,693 5,719 -
------------ ----------- -------- ----------
Net assets applicable to capital shares outstanding $ 1,822,436 $ 1,725,684 $804,897 $1,565,634
============ =========== ======== ==========
Capital shares outstanding 137,895 135,150 76,171 1,565,634
============ =========== ======== ==========
Net asset value, redemption price, and offering price per share $ 13.22 $ 12.77 $ 10.57 $ 1.00
============ =========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
Categories & Definitions
Portfolios of Investments in Securities
March 31, 1997
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.
<TABLE>
Long-Term Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1997
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<S> <S>
Fixed Rate Instruments (99.2%) <C> <C> <C>
Alabama
$ 3,750 Baldwin County Health Care RB, Series 1996 6.75% 4/01/21 $ 3,840
8,000 Courtland IDRB, Series 1994 5.90 2/01/17 7,710
Alaska
Housing Finance Corp. Collateralized RB,
9,255 1991 Second Series 6.90 6/01/32 9,618
16,820 1993 First Series 5.88 12/01/35 15,996
10,000 1994 First Series 6.70 12/01/19 10,359
15,195 1995 First Series 6.55 12/01/37 15,601
18,000 Housing Finance Corp. RB, Series 1997A (CRE) 6.00 12/01/36 17,810 (c)
Valdez Marine Terminal RB,
21,175 Series 1985A 7.00 12/01/25 22,684
50,000 Series 1993C 5.65 12/01/28 46,924
Arizona
16,745 Salt River Project Agriculture and Power
District Electric System RB, Series 1987E 7.25 1/01/17 (a) 17,160
California
11,500 Los Angeles Regional Airport Improvement
Corp. Refunding RB 6.35 11/01/25 11,508
17,000 Sacramento Cogeneration Auth. RB, Series 1995 6.50 7/01/21 17,316
74,000 San Joaquin Hills Transportation Corridor
Agency Senior Lien RB 6.75 1/01/32 76,925
Colorado
51,910 Colorado Springs Utilities RB, Series 1996A 5.75 11/15/25 51,047
14,200 Health Facilities Auth. Hospital RB, Series 1993 6.63 2/01/13 14,542
11,480 Summit County Sports Facilities RB, Series 1990 7.88 9/01/08 13,395
Connecticut
Health and Educational Facilities Auth. RB,
11,700 Series 1992D 6.80 7/01/22 11,588
4,000 Series 1996C 6.63 7/01/26 4,017
District of Columbia
8,145 Carnegie Endowment for International Peace RB,
Series 1996 5.75 11/15/16 7,908
12,045 Health Facilities Mortgage RB, Series 1985 7.75 8/01/29 12,352
8,000 Hospital RB, Series 1992B 7.00 8/15/15 8,249
Georgia
10,000 Savannah Economic Development Auth. PCRB,
Series 1995 6.15 3/01/17 10,349
Idaho
20,400 Nez Perce County PCRB, Series 1996 6.00 10/01/24 19,996
Illinois
Chicago Gas Supply RB,
13,500 Series 1985B 7.50 3/01/15 14,534
7,500 Series 1985C 7.50 3/01/15 8,074
24,250 Series 1995A 6.10 6/01/25 24,430
13,725 Chicago-O'Hare International Airport RB,
Series 1994 8.20 12/01/24 15,906
6,700 Development Finance Auth. RB,
Series 1996B (CRE) 6.40 9/01/31 6,737
Health Facilities Auth. RB,
3,240 Series 1988 8.10 12/01/03 3,277
17,775 Series 1992 7.00 1/01/15 18,330
19,600 Quincy Hospital RB, Series 1993 6.00 11/15/18 18,665
10,980 Regional Transport Auth. GO,
Series 1994C (CRE) 7.10 6/01/25 12,211
Indiana
10,945 Development Finance Auth. Environmental RB,
Series 1996 6.15 7/15/22 10,697
5,450 Fifth Avenue Housing Development Corp. RB,
Series 1992C 7.25 7/01/25 5,666
100,675 Health Facility Financing Auth. RB, Series 1992C 7.89(b) 7/01/23 15,204
41,750 Indianapolis Airport Facility RB 6.80 4/01/17 44,110
Kansas
60,245 Sedgwick County Mortgage Loan RB,
Senior Series 1991A 7.11(b) 12/01/22 9,107
Louisiana
25,730 Lake Charles Harbor and Terminal District
Port Facilities RB 7.75% 8/15/22 29,118
8,125 South Louisiana Port Commission RB,
Series 1997 5.85 4/01/17 8,068 (c)
Maryland
13,045 Community Development Administration SFH RB,
Series 1996A 5.95 7/01/23 12,992
Massachusetts
24,000 GO, Series 1991A 7.63 6/01/08 (a) 26,990
Michigan
9,900 Battle Creek Downtown Development Auth.
Development Bonds, Series 1994 7.60 5/01/16 11,359
13,005 Dickinson County Economic Development Corp.
PCRB, Series 1993 5.85 10/01/18 12,483
Hospital Finance Auth. RB,
15,500 Series 1994A 7.50 10/01/27 16,688
7,250 Series 1995 6.70 1/01/26 7,288
6,500 Job Development Auth. RB, Series 1990A (CRE) 8.00 12/01/13 7,088
Minnesota
50,690 St. Paul Housing and Redevelopment Auth.
Hospital RB, Series 1993A 6.63 11/01/17 51,699
22,000 University of Minnesota Regents GO,
Series 1996A 5.50 7/01/21 21,089
Mississippi
Lafayette County Hospital RB,
2,940 Series 1991A 7.95 3/01/16 3,156
15,175 Series 1991B 7.95 3/01/16 16,290
Union County Hospital RB,
4,450 Series 1991A 7.95 3/01/16 4,777
8,350 Series 1991B 7.95 3/01/16 8,963
Missouri
5,000 Health and Educational Facilities RB,
Series 1996A 6.38 2/01/27 5,005
Nevada
15,650 Humboldt County PCRB, Series 1984 8.30 12/01/14 18,257
New Hampshire
10,785 Higher Educational and Health Facilities
Auth. RB, Series 1993 6.38 7/01/23 10,483
31,085 Single-Family Mortgage Finance Auth. RB,
Series 1993B 6.05 7/01/25 31,161
New Jersey
15,000 Camden County Improvement Authority RB,
Series 1997 6.00 2/15/27 14,261
New Mexico
16,000 Chaves County Hospital RB 7.25 12/01/22 17,056
30,100 Lordsburg PCRB 6.50 4/01/13 31,393
New York
Dormitory Auth. RB,
21,500 Series 1996B (Mental Health Services) 6.00 8/15/16 21,328
25,000 Series 1997A (Mental Health Services) 5.75 8/15/22 23,418
75,745 Housing New York Corp. MFH RB 5.00 11/01/18 66,893
Medical Care Facilities Finance Agency RB,
36,275 Series 1994A (New York Hospital) (CRE) 6.90 8/15/34 39,491
13,900 Series 1995A (Brookdale Hospital) 6.85 2/15/17 14,361
50,000 New York City GO, Series 1995B 7.25 8/15/19 54,619
50,000 New York City Municipal Water Finance RB,
Series 1996B 5.88 6/15/26 48,668
North Carolina
18,820 Housing Finance Agency RB, Series R 6.95 9/01/23 19,818
Oklahoma
2,695 Valley View Hospital Auth. RB, Series 1996 6.00 8/15/14 2,505
Pennsylvania
23,000 Harrisburg Water Auth. RB, Series 1993 (CRE) 5.88 6/18/15 23,005
Montgomery County IDA RB,
7,500 Series 1996A 5.88 11/15/22 7,160
10,000 Series 1996B 5.75 11/15/17 9,558
27,470 Philadelphia Gas Works RB, 14th Series 6.38 7/01/26 27,862
Puerto Rico
Electric Power Auth. RB,
21,175 Series T 6.38 7/01/24 21,805
25,450 Series X 6.13 7/01/21 25,688
Rhode Island
25,000 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/24 26,266
Texas
19,500 Bell County Health Facilities Development
Corp. RB, Series 1989 6.50 7/01/19 21,320
6,580 Department of Housing and Community
Affairs RB, Series 1991A 6.95 7/01/23 6,877
12,500 Harris County Health Facilities RB,
Series 1992 7.13 6/01/15 (a) 13,738
19,300 Harris County IDC RB, Series 1992 6.95 2/01/22 20,324
21,055 San Antonio Electric and Gas RB, Series 1989A 6.00 2/01/14 21,184
Tyler Health Facilities Development Corp. RB,
4,700 Series 1993A 6.75 11/01/25 4,804
10,300 Series 1993B 6.75 11/01/25 10,527
Virginia
9,000 Henrico County IDA Hospital RB, Series 1985C 7.50 9/01/11 (a) 9,910
15,000 Housing Development Auth. Commonwealth
Mortgage RB, Series 1990B, Subseries B5 6.90 7/01/13 15,548
21,950 Peninsula Ports Auth. RB, Series 1992 (CRE) 7.38 6/01/20 23,200
Washington
14,000 Chelan County Development Corp. PCRB,
Series 1995 5.85 12/01/31 13,815
3,500 Housing Finance Commission RB,
Series 1996A (CRE) 6.85 7/01/21 3,546
66,485 King County GO, Series 1994A 6.25 1/01/34 68,994
73,500 Seattle Metropolitan Sewer RB, Series V 6.20 1/01/32 73,691
West Virginia
12,500 Water Development Auth. RB,
Series 1991A (CRE) 7.00 11/01/25 13,412
Wisconsin
21,000 Wisconsin Center District Tax RB,
Series 1996B 5.75 12/15/27 20,208
Wyoming
33,735 Community Development Auth. SFH RB,
Series 1993A 6.10 6/01/33 33,796
- --------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $1,723,091) 1,806,845
- --------------------------------------------------------------------------------------------------------
Variable Rate Demand Notes (0.3%)
Alabama
200 Phenix City IDB Enviromental Improvement RB,
Series 1990B (CRE) 4.00 10/01/25 200
California
100 Azusa MFH RB, Series 1994 (CRE) 3.65 7/15/15 100
600 Covina Redevelopment Agency MFH RB,
Series 1994A (CRE) 3.65 12/01/15 600
800 Statewide Communities Development Auth. RB,
Series 1995D (CRE) 3.60 12/01/22 800
Florida
4,200 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 4.00 9/01/20 4,200
- ---------------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $5,900) 5,900
- ---------------------------------------------------------------------------------------------------------
Total investments (cost: $1,728,991) $ 1,812,745
=========================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 16.4%
Single-Family Housing 12.3
Electric Power 8.5
General Obligations 6.8
Escrowed Securities 4.9
Toll Roads 4.2
Gas Utilities 4.1
Sewer 4.1
Oil - International 3.8
Buildings 3.7
Paper & Forest Products 2.8
Water/Sewer 2.7
Education 2.6
Healthcare - Miscellaneous 2.5
Air Freight 2.4
Water Utilities 2.0
Metals - Miscellaneous 1.7
Special Assessment/Tax/Fee 1.7
Distribution & Pipelines 1.6
Airlines 1.5
Nursing Care 1.5
Ports/Wharfs 1.3
Leasing 1.1
Other 5.3
----
Total 99.5%
====
<TABLE>
<CAPTION>
Portfolio Summary By State
- --------------------------------------------------------------------------------------------------------
<S> <C> <S> <C> <S> <C>
Alabama .6% Alaska 7.6% Arizona .9%
California 5.9 Colorado 4.3 Connecticut .9
District of Columbia 1.6 Florida .2 Georgia .6
Idaho 1.1 Illinois 6.7 Indiana 4.2
Kansas .5 Louisiana 2.0 Maryland .7
Massachusetts 1.5 Michigan 3.0 Minnesota 4.0
Mississippi 1.8 Missouri .3 Nevada 1.0
New Hampshire 2.3 New Jersey .8 New Mexico 2.7
New York 14.8 North Carolina 1.1 Oklahoma .1
Pennsylvania 3.7 Puerto Rico 2.6 Rhode Island 1.4
Texas 5.4 Virginia 2.7 Washington 8.8
West Virginia .7 Wisconsin 1.1 Wyoming 1.9
----
Total 99.5%
====
</TABLE>
<TABLE>
Intermediate-Term Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1997
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<C> <S>
Fixed Rate Instruments (89.1%) <C> <C> <C>
Alabama
$ 2,000 Baldwin County Health Care Auth. Hospital RB,
Series 1996 6.75% 4/01/15 $ 2,056
Alaska
8,400 Housing Finance Corp. Mortgage RB,
Series 1996A 6.00 12/01/15 8,343
Arizona
4,000 Educational Loan Marketing Corp. RB,
Series 1992A 6.70 3/01/00 4,174
Arkansas
7,520 Mississippi County Hospital RB, Series 1992B 6.85 11/01/02 7,972
8,635 St. Francis County Hospital RB, Series 1985 6.50 2/01/05 8,935
2,385 Student Loan RB, Series 1991 7.15 6/01/02 2,515
California
7,100 Central Valley Financing Auth. RB 6.10 7/01/13 7,113
10,500 Contra Costa Transportation Auth. RB,
Series 1991A (CRE) 6.30(b) 3/01/03 7,887
Foothill/Eastern Transportation Corridor
Agency RB,
10,000 Series 1995A 6.87(b) 1/01/10 6,487
15,000 Series 1995A 7.10(b) 1/01/11 9,765
9,085 Series 1995A 6.82(b) 1/01/13 5,948
Housing Finance Agency RB,
1,095 Series 1996A (CRE) 5.60 8/01/09 1,102
5,830 Series 1996A (CRE) 5.70 8/01/10 5,893
25,835 Pleasanton Joint Powers Financing Auth. RB,
Series 1993A 6.00 9/02/05 26,502
Sacramento Cogeneration Auth. RB,
3,300 Series 1995 6.38 7/01/10 3,385
9,100 Series 1995 5.88 7/01/15 8,798
San Joaquin Hills Transportation RB,
3,525 Series 1993 7.05(b) 1/01/05 2,850
8,305 Series 1993 7.87(b) 1/01/06 6,765
5,000 Series 1993 7.50(b) 1/01/07 4,088
16,795 Series 1993 7.71(b) 1/01/08 13,784
Southern California Public Power Auth. RB,
6,410 Series 1992 6.10(b) 7/01/04 4,441
6,285 Series 1992 6.10(b) 7/01/04 4,236
Colorado
5,200 Arapahoe County IDA RB, Series 1991 7.00 2/01/01 5,552
10,000 Health Facilities Auth. Hospital RB,
Series 1993 6.63 2/01/13 10,241
10,310 Student Obligations RB, Series 1991A-2 6.90 9/01/02 10,730
Connecticut
5,475 Health and Educational Facilities Auth. RB,
Series D 6.75 7/01/12 5,469
10,000 Mashantucket (Western) Pequot Tribe RB,
Series 1996A 6.40 9/01/11 10,153 (e)
District of Columbia
GO,
9,000 Series 1987A 7.40 6/01/99 9,159
27,750 Series 1993A 5.80 6/01/04 27,844
7,500 Series 1994A-3 5.50 6/01/06 7,372
11,780 Series E 5.75 6/01/05 11,787
12,000 Series E 5.75 6/01/06 11,923
6,250 Hospital RB, Series 1992B 6.75 8/15/07 6,480
Florida
Dade County RB,
7,410 Series 1996B (CRE) 5.90(b) 10/01/10 3,385
8,255 Series 1996B (CRE) 6.00(b) 10/01/11 3,529
8,610 Series 1996B (CRE) 6.10(b) 10/01/12 3,450
8,760 Series 1996B (CRE) 6.20(b) 10/01/13 3,283
5,000 Housing Finance Agency MFH RB,
Series 1984C 6.25 12/01/06 5,248
3,610 Miami Health Facilities Auth. RB,
Series 1988A 7.75 8/01/00 3,784
5,935 Nassau County PCRB, Series 1989 7.65 6/01/06 6,281
5,000 North Miami Educational Facilities RB 6.10 4/01/13 4,890
1,280 Pensacola Health Facilities RB, Series 1988 7.50 1/01/98 1,312
Georgia
7,300 Gwinnett County MFH RB, Series 1985B (CRE) 7.50 6/01/98 7,503
8,760 Metropolitan Atlanta Rapid Transit RB,
Series M 6.25 7/01/03 9,368
6,500 Municipal Electric Auth. RB, Series Q 7.75 1/01/00 (a) 6,809
Illinois
2,880 Bedford Park Tax Increment RB, Series 1993 7.38 12/01/04 3,285
21,235 Chicago-O'Hare International Airport RB,
Series 1994A (CRE) 6.20 1/01/07 22,840
10,110 Development Finance Auth. RB, Series 1995 7.00 3/01/07 10,433
7,460 Forest Preserve District of Cook County GO,
Series 1996 (CRE) 5.80 11/01/16 7,331
Health Facilities Auth. RB,
2,585 Series 1989 7.75 5/15/00 (a) 2,801
6,700 Series 1992 7.00 1/01/07 7,085
8,000 Series 1993B (CRE) 5.75 8/15/14 7,752
3,150 Series 1996 6.00 1/01/06 3,156
7,815 Series 1996 6.38 1/01/15 7,817
5,000 Series 1996A 6.00 11/15/15 4,901
1,165 Independent Higher Education Loan Auth. RB,
Series 1985 (CRE) 7.50 12/01/99 1,168
Indiana
6,000 Economic Development RB, Series 1996 6.05 1/15/10 5,900
Health Facility Financing Auth. RB,
620 Series 1991 8.50 9/01/97 625
205 Series 1991 8.50 9/01/98 209
205 Series 1991 8.50 9/01/99 209
5,900 Series 1993 5.90 11/01/09 5,916
16,800 Series 1994 6.20 7/01/09 17,129
Marion County Hospital Auth. RB,
8,400 Series 1992 6.10 10/01/03 8,737
6,500 Series 1992 6.55 10/01/08 6,806
Pike Township School Building Corp. RB,
4,600 Series 1992A 6.00 2/01/06 4,807
4,700 Series 1992A 6.00 8/01/06 4,912
3,150 Scottsburg Economic Development RB,
Series 1990 7.13 3/01/99 3,242
Iowa
3,280 Higher Education Loan Auth. RB 6.13 10/01/16 3,319
10,000 Student Loan Liquidity Corp. RB, Series 1992A 6.45 3/01/02 10,557
Louisiana
Orleans Levee District RB,
7,840 Series 1986 (CRE) 5.95 11/01/14 7,879
7,865 Series 1986 (CRE) 5.95 11/01/15 7,884
7,015 Series A (CRE) 5.95 11/01/10 7,271
Maine
40,400 Bucksport Solid Waste Disposal RB 6.25 5/01/10 41,229
Maryland
Community Development Administration RB,
2,260 1987 Second Series 7.60 4/01/99 2,307
8,000 Series 1996A 5.88 7/01/16 7,999
Massachusetts
15,000 GO, Series 1991D 6.63 7/01/03 16,296
3,640 Housing Finance Agency RB, Series 1992C 6.35 11/15/03 3,850
11,545 Industrial Finance Agency RB, Series 1989A 7.10 8/01/99 11,938
Michigan
8,000 Detroit Building Auth. RB, Series 1996A (CRE) 6.15 2/01/11 7,955
4,450 Detroit GO, Series 1996B (CRE) 5.50 4/01/14 4,298
23,330 Dickinson County Economic Development
Corp. RB, Series 1989 6.55 3/01/07 24,331
Hospital Finance Auth. RB,
5,000 Series 1995A 7.50 10/01/07 5,414
325 Series 1996 5.90 10/01/04 326
100 Series 1996 6.00 10/01/05 100
150 Series 1996 6.10 10/01/06 150
160 Series 1996 6.20 10/01/07 160
2,600 Series 1996 6.25 10/01/16 2,546
Minnesota
4,205 Maplewood Health Care Facility RB,
Series 1996 5.95 11/15/06 4,162
South St. Paul Housing and Redevelopment
Auth. Hospital Facility RB,
13,500 Series 1994 6.50 11/01/04 14,056
9,095 Series 1994 6.75 11/01/09 9,405
Mississippi
Lafayette County Hospital RB,
640 Series 1991A 7.70 3/01/03 692
3,305 Series 1991B 7.70 3/01/03 3,576
3,720 Prentiss County Hospital RB, Series 1985 6.50 2/01/05 3,771
Union County Hospital RB,
975 Series 1991A 7.70 3/01/03 1,055
1,815 Series 1991B 7.70 3/01/03 1,964
Montana
5,000 Montana Health Facility Auth. Hospital RB,
Series 1997 5.50 6/01/11 4,833
Nevada
16,640 Clark County School District GO,
Series 1991B (CRE) 6.24(b) 3/01/04 11,845
3,000 Housing Division SFH RB, Series 1995D-1 5.90 10/01/14 3,009
New Hampshire
Higher Educational and Health Facilities Auth. RB,
1,535 Series 1985A (CRE) 7.50 12/01/00 1,544
1,775 Series 1990 8.50 12/01/01 1,850
3,000 Series 1997 (CRE) 5.80 10/01/12 2,873
5,055 Series 1997 (CRE) 5.90 10/01/18 4,801
New Jersey
15,000 Economic Development Auth. RB,
Series 1994A (CRE) 5.88 7/01/11 15,304
31,260 Turnpike Auth. RB, Series 1991A 6.50 1/01/03 33,173
New Mexico
6,345 Chaves County Hospital RB, Series 1992 7.25 12/01/10 6,764
New York
Dormitory Auth. Mental Health Services
Facilities Improvement RB,
2,055 Series 1997A 5.75 2/15/10 2,004
2,000 Series 1997A 5.75 2/15/11 1,944
2,000 Series 1997A 5.75 2/15/12 1,936
2,460 Series 1997B 5.75 2/15/10 2,399
4,050 Series 1997B 5.75 2/15/12 3,920
4,675 Series 1997B 5.50 8/15/17 4,319
Dormitory Auth. RB,
7,625 Series 1993A 5.88 5/15/11 7,716
2,725 Series 1994B 5.90 5/15/06 2,790
2,500 Series 1994B 6.00 5/15/07 2,565
1,000 Series 1995A 5.88 5/15/07 1,019
2,000 Series 1995A 5.90 5/15/08 2,027
3,500 Series 1995A 6.00 5/15/09 3,546
2,250 Series 1995A 6.00 5/15/10 2,269
2,175 Series 1995A 6.00 5/15/11 2,185
5,000 Series 1996 5.50 7/01/09 4,831
3,495 Series 1996B 6.50 8/15/10 3,710
4,065 Dormitory Auth. RB, Lutheran Center at
Poughkeepsie, Series 1997 (CRE) 6.00 7/01/14 4,004
Dormitory Auth. RB, New York City University,
5,000 1996 Series 2 6.00 7/01/09 5,056
1,760 1996 Series 2 6.00 7/01/10 1,773
5,500 Series 1993A 5.75 7/01/13 5,442
2,680 Dormitory Auth. RB, Nyack Hospital,
Series 1996 6.00 7/01/06 2,699
Dormitory Auth. State University Educational
Facilites RB,
14,120 Series 1996 5.75 5/15/13 13,701
7,000 Series 1996 5.75 5/15/16 6,687
6,550 Environmental Facilities Corp. PCRB,
Series 1991E 6.40 6/15/03 7,051
Housing Finance Agency Service Contract RB,
2,275 Series 1995A 6.25 9/15/10 2,308
4,420 Series 1996A 6.00 9/15/16 4,296
Medical Care Facilities Finance Agency RB,
5,000 Series 1994A (CRE) 6.40 2/15/07 5,484
5,000 Series 1994A (CRE) 6.50 2/15/08 5,481
10,000 Series 1994A 6.13 8/15/13 9,772
2,675 Series 1995A 6.70 2/15/05 2,799
2,750 Series 1995A 6.70 8/15/05 2,866
2,860 Series 1995A 6.75 2/15/06 2,976
2,940 Series 1995A 6.75 8/15/06 3,064
3,045 Series 1995A 6.80 2/15/07 3,166
3,130 Series 1995A 6.80 8/15/07 3,255
7,780 Series 1995A 6.00 11/15/10 7,883
5,700 Series 1995A 6.80 8/15/12 5,911
1,825 Mortgage Agency RB, Series EE-1 7.75 10/01/00 1,864
New York City GO,
1,375 Series 1991D 8.00 8/01/99 1,479
10,160 Series 1991D 8.00 8/01/99 10,890
615 Series 1992H 6.88 2/01/04 (a) 676
12,165 Series 1992H 6.88 2/01/04 12,957
17,000 Series 1993B 6.75 10/01/04 18,110
9,000 Series 1993C 6.50 8/01/04 9,490
15,000 Series 1994A 6.25 8/01/08 15,317
10,000 Series 1996G 5.75 2/01/10 9,639
13,000 New York City Municipal Assistance Corp. RB,
Series 67 7.30 7/01/00 13,951
New York City Municipal Water Finance RB,
3,295 Series 1992A 6.70 6/15/03 3,586
3,345 Series 1992A 6.70 6/15/03 (a) 3,621
2,500 The City University of New York COP,
Series 1995A 6.00 8/15/06 2,545
Thruway Auth. RB,
7,500 Series 1995 6.00 4/01/09 7,511
2,150 Series 1995 6.10 4/01/10 2,164
Urban Development Corp. RB,
20,955 Series 1993 5.75 1/01/13 20,424
21,700 Series 1993 5.50 1/01/15 20,276
North Carolina
6,000 Municipal Power Agency #1 RB, Series 1992 6.00 1/01/04 6,170
Ohio
6,750 Dayton Special Facilities RB, Series 1988C 6.05 10/01/09 6,809
4,000 IDA RB, Series 1992 5.75 12/01/02 4,164
Oklahoma
Holdenville Industrial Auth. RB,
1,650 Series 1995 6.60 7/01/10 1,666
3,250 Series 1995 6.70 7/01/15 3,283
Industries Auth. Health Facilities RB,
2,350 Series 1989A 7.30 6/01/01 (a) 2,530
2,045 Series 1989A 7.30 6/01/01 2,189
2,355 Tulsa County Home Finance Auth. RB,
Series 1990 (CRE) 7.10 5/01/02 2,575
4,500 Valley View Hospital Auth. RB, Series 1996 5.75 8/15/06 4,348
Pennsylvania
35,000 Finance Auth. RB 6.60 11/01/09 37,034
9,440 GO, Second Series 1992 6.11(b) 7/01/04 6,549
3,565 Housing Finance Agency RB, Series 1992 5.90 7/01/04 3,679
6,000 Montgomery County IDA RB, Series 1996B 5.63 11/15/12 5,721
17,500 Philadelphia Water and Wastewater RB,
Series 1993 (CRE) 5.65 6/15/12 17,046
5,000 York County IDA RB, Series 1992 6.25 7/01/02 5,306
Puerto Rico
Electric Power Auth. RB,
9,000 Series N 5.00 7/01/12 8,175
5,000 Series S 7.00 7/01/06 5,583
4,420 Series X 5.80 7/01/09 4,478
4,500 Series X 5.90 7/01/10 4,576
4,000 Series X 6.00 7/01/11 4,082
4,220 Series Z 5.50 7/01/12 4,101
22,200 Housing Bank and Finance Agency RB 7.50 12/01/06 25,134
8,005 Municipal Finance Agency RB, Series 1992A 5.80 7/01/04 8,257
14,060 Public Building Auth. GO, Series K 6.50 7/01/03 15,162
Public Improvement GO,
7,500 Series 1994 6.10 7/01/06 7,911
7,825 Series 1994 6.20 7/01/07 8,252
Rhode Island
Health and Educational Building Corp. RB,
3,385 Series 1996 (CRE) 5.50 5/15/12 3,324
7,600 Series 1996 (CRE) 5.50 5/15/16 7,270
Housing and Mortgage Finance Corp. RB,
6,180 Series 15-B 6.30 10/01/07 6,399
7,600 Series 1995A (CRE) 5.70 7/01/07 7,711
South Carolina
3,000 Marion County Hospital District RB (CRE) 5.50 11/01/15 2,853
South Dakota
5,400 Rapid City IDA RB, Series 1990 7.25 11/01/00 5,797
Tennessee
3,000 Health, Educational and Housing Facilities
Board of the County of Knox RB,
Series 1996 (CRE) 5.50 4/15/11 2,931
Texas
12,000 Bexar County Health Facilities Development
Corp. RB, Series 1993 (CRE) 5.88 11/15/10 12,136
2,340 Brazos County Health Facilities RB,
Series 1989B 7.50 1/01/01 (a) 2,427
Fort Worth Higher Education Finance Corp. RB,
490 1997A 5.40 10/01/05 480
515 1997A 5.50 10/01/06 503
545 1997A 5.50 10/01/07 528
575 1997A 5.63 10/01/08 559
2,670 1997A 6.00 10/01/12 2,615
15,400 Gulf Coast Waste Disposal Auth. PCRB,
Series 1992 6.13 11/01/04 16,331
6,200 Gulf Coast Waste Disposal Auth. RB,
Series 1994 5.70 5/01/06 6,359
9,175 Harris County Toll Road RB,
Series 1995A (CRE) 5.90(b) 8/15/10 4,312
Houston Water and Sewer Systems RB,
175 1992B 6.00 12/01/04 (a) 187
4,825 1992B 6.00 12/01/04 5,131
11,700 Lower Colorado River Auth. RB,
Series 1992 (CRE) 6.45(b) 1/01/03 8,741
8,565 Municipal Power Agency RB, Series 1987 5.50 9/01/13 8,199
11,790 Public Finance Auth. RB (CRE) 6.06(b) 2/01/04 8,309
San Antonio Electric and Gas RB,
4,190 Series 1989 7.00 2/01/01 4,417
10,000 Series 1991B (CRE) 6.38(b) 2/01/04 7,044
4,000 Southwest Higher Education Auth. RB,
Series 1995 (CRE) 5.13 10/01/16 3,687
4,000 Trinity River IDA RB 7.25 2/01/04 4,463
6,075 Tyler Health Facilities Development Corp. RB,
Series 1993B 6.63 11/01/11 6,200
6,880 Water Resources Finance Auth. RB, Series 1989 7.25 2/15/01 7,290
Utah
Intermountain Power Agency RB,
8,105 Series 1987A (CRE) 5.00 7/01/12 7,431
16,430 Series 1988B (CRE) 6.48(b) 7/01/03 11,931
21,895 Series 1988B (CRE) 6.18(b) 7/01/04 14,999
7,000 Juab County PCRB, Series 1991 6.00(d) 8/01/11 6,953
Virginia
11,100 Housing Development Auth. Commonwealth
Mortgage RB, Series 1990B, Subseries B5 6.90 7/01/13 11,506
5,000 Isle of Wight County IDA PCRB, Series 1994 5.80 5/01/04 5,157
Washington
15,800 GO, Series R-1989B 7.20 9/01/00 16,389
5,500 King County GO, Series 1993A 5.90 12/01/07 5,742
West Virginia
16,940 School Building Auth. RB, Series 1994 6.25 7/01/04 17,927
Wisconsin
Health and Educational Facilities Auth. RB,
11,500 Series 1993 (CRE) 5.25 8/15/12 10,839
4,130 Series 1995A (CRE) 5.25 8/15/12 3,893
Professional Baseball Park District RB,
1,500 Series 1996 (CRE) 5.50 12/15/13 1,473
2,540 Series 1996 (CRE) 5.55 12/15/14 2,492
2,275 Series 1996 (CRE) 5.60 12/15/15 2,231
2,750 Series 1996 (CRE) 5.65 12/15/16 2,695
Wyoming
306 Farm Loan Board COP, Series 1989 (CRE) 6.50 12/01/99 305
- ------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $1,487,845) 1,538,438
- ------------------------------------------------------------------------------------------------------
Put Bonds (8.5%)
Alabama
4,000 Housing Finance Auth. MFH RB,
Series 1992C (CRE) 5.90 8/01/07 4,030
California
3,535 Woodland MFH RB, Series 1994A 6.05 12/01/24 3,642
Florida
10,055 Broward County Housing Finance Auth. MFH RB,
Series 1991 (CRE) 7.20 5/01/07 10,362
Housing Finance Agency MFH RB,
4,300 Series 1996R-1 5.65 12/01/26 4,268
4,500 Series 1996S-1 5.65 12/01/26 4,466
Illinois
13,615 Arlington Heights MFH RB, Series 1991 (CRE) 7.25 5/01/11 13,982
5,435 Glendale Heights MFH RB, Series 1996 5.65 4/01/21 5,485
14,295 Hoffman Estates MFH RB, Series 1996 5.75 6/01/21 14,303
Kansas
6,590 Merriam MFH RB, Series 1991A (CRE) 7.25 4/01/21 6,839
Louisiana
18,110 Public Facilities Auth. RB, Health and
Education Facilities, Series 1985A (CRE) 7.30 12/01/15 18,185
4,360 Shreveport Home Mortgage Auth. RB,
Series 1995A (CRE) 6.40 9/01/25 4,436
New Mexico
Bernalillo County MFH RB,
7,700 Series 1994A (CRE) 6.50 10/01/19 7,918
3,320 Series 1995 (CRE) 5.80 11/01/25 3,403
Ohio
5,500 Montgomery County IDA RB, Series 1992 (CRE) 6.50 2/01/07 5,778
Pennsylvania
Philadelphia IDA RB,
3,500 Series 1997A 6.50 10/01/27 3,400
4,000 Series 1997B 6.50 10/01/27 3,852
Texas
2,500 Gregg County Housing Finance Corp. RB,
Series 1995A (CRE) 6.40 9/01/25 2,578
Utah
550 Housing Finance Agency RB, Series 1985B 9.13 7/01/07 554
Salt Lake County MFH RB,
10,240 Series 1995A-1 (CRE) 5.70 10/01/25 10,288
6,500 Series 1995B-1 (CRE) 5.70 10/01/25 6,530
Washington
Chelan County Public Utility District #1 RB,
5,650 Series E 5.70 7/01/68 5,624
6,845 Series E 5.70 7/01/68 6,786
- -------------------------------------------------------------------------------------------------------
Total put bonds (cost: $144,609) 146,709
- -------------------------------------------------------------------------------------------------------
Variable Rate Demand Notes (0.8%)
Arizona
$ 1,300 City of Chandler IDA RB, Series 1997 (CRE) 3.50% 12/01/15 $ 1,300
Florida
500 Volusia County Health Facilities Auth. RB,
Series 1995 (CRE) 3.80 9/01/20 500
New York
4,700 St. Lawrence County IDA PCRB,
Series 1985 (CRE) 4.00 12/01/07 4,700
Texas
6,100 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 4.00 5/01/03 6,100
Virginia
800 Henrico County IDA RB, Series 1994 (CRE) 3.90 5/01/24 800
- -------------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $13,400) 13,400
- -------------------------------------------------------------------------------------------------------
Total investments (cost: $1,645,854) $ 1,698,547
=======================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
Hospitals 16.9%
General Obligations 14.2
Multi-Family Housing 9.3
Special Assessment/Tax/Fee 8.5
Electric Power 7.9
Education 6.1
Toll Roads 5.6
Paper & Forest Products 4.9
Single-Family Housing 2.9
Finance - Municipal 2.6
Escrowed Securities 2.3
Student Loan 1.9
Healthcare - Miscellaneous 1.6
Sales Tax Obligations 1.4
Airports 1.3
Nursing Care 1.3
Water/Sewer 1.3
Buildings 1.0
Water Utilities 1.0
Other 6.4
----
Total 98.4%
====
<TABLE>
Portfolio Summary By State
--------------------------
<S> <C> <S> <C> <S> <C>
Alabama .4% Alaska .5% Arizona .3%
Arkansas 1.1 California 7.1 Colorado 1.5
Connecticut .9 District of Columbia 4.3 Florida 3.2
Georgia 1.4 Illinois 6.5 Indiana 3.4
Iowa .8 Kansas .4 Louisiana 2.6
Maine 2.4 Maryland .6 Massachusetts 1.9
Michigan 2.6 Minnesota 1.6 Mississippi .6
Montana .3 Nevada .9 New Hampshire .6
New Jersey 2.8 New Mexico 1.0 New York 18.2
North Carolina .4 Ohio 1.0 Oklahoma 1.0
Pennsylvania 4.8 Puerto Rico 5.5 Rhode Island 1.4
South Carolina .2 South Dakota .3 Tennessee .2
Texas 6.9 Utah 3.4 Virginia 1.0
Washington 2.0 West Virginia 1.0 Wisconsin 1.4
Total 98.4%
</TABLE>
<TABLE>
Short-Term Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1997
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<C> <S> <C> <C> <C>
Fixed Rate Instruments (66.9%)
Alaska
North Slope Borough GO,
$ 7,000 Series 1988G (CRE) 8.35% 6/30/98 $ 7,340
1,250 Series 1995A (CRE) 4.85(b) 6/30/99 1,125
Arizona
1,750 Educational Loan Marketing Corp. RB,
Series 1992A 6.70 3/01/00 1,826
Arkansas
560 Mississippi County Hospital RB, Series 1992B 6.05 5/01/97 560
815 St. Francis County Hospital RB, Series 1985 5.40 12/01/97 821
California
2,550 Central Valley Cogeneration RB, Series 1993 5.40 7/01/00 2,571
4,710 Pleasanton Joint Powers Financing Auth. RB,
Series 1993A 5.20 9/02/98 4,761
Sacramento Cogeneration Auth. RB,
1,000 Series 1995 5.80 7/01/01 1,019
900 Series 1995 5.90 7/01/02 921
900 Series 1995 6.00 7/01/03 927
12,615 San Joaquin Hills Transportation RB 7.10(b) 1/01/00 10,996
3,500 San Joaquin Hills Transportation RB 7.16(b) 1/01/01 2,891
2,000 Statewide Communities Development Auth. COP 4.60 1/01/99 1,990
1,500 Statewide Communities Development Auth. COP 4.80 1/01/00 1,489
1,500 Statewide Communities Development Auth. COP 5.00 1/01/01 1,485
1,000 Statewide Communities Development Auth. COP 5.10 1/01/02 988
Connecticut
Mashantucket (Western) Pequot Tribe RB,
2,000 Series 1996A 6.25 9/01/01 2,069 (e)
2,500 Series 1996A 6.25 9/01/02 2,591 (e)
3,000 Series 1996A 6.25 9/01/03 3,118 (e)
2,500 Series 1996A 6.50 9/01/06 2,624 (e)
District of Columbia
18,790 GO, Series 1994A-3 4.70 6/01/99 18,659
Hospital RB,
1,450 Series 1996A (CRE) 5.00 8/15/02 1,453
1,530 Series 1996A (CRE) 5.50 8/15/03 1,570
1,610 Series 1996A (CRE) 5.50 8/15/04 1,647
Florida
1,470 Nassau County PCRB 5.60 6/01/00 1,493
1,115 Orange County Health Facilities Auth. RB,
Series 1995 5.63 7/01/01 1,112
Georgia
4,000 Camden County Development Auth. PCRB,
Series 1997 5.25 4/01/02 3,990
Guam
GO,
21,000 Series 1994A 5.75 8/15/99 21,266
2,000 Series 1994A 5.25 9/01/99 2,003
5,000 Series 1995A 5.38 9/01/00 5,009
10,000 Series 1995A 5.50 9/01/01 10,023
Power Auth. RB,
1,640 Series 1994A 5.50 10/01/99 1,653
1,725 Series 1994A 5.60 10/01/00 1,743
Idaho
3,330 Student Loan RB, Series 1992 6.00 4/01/97 3,330
Illinois
9,000 Cook County GO (CRE) 7.38 11/01/08 (a) 9,776
Development Finance Auth. RB,
1,215 Series 1995 6.13 3/01/98 1,219
1,285 Series 1995 6.25 3/01/99 1,296
2,490 Health Facilities Auth. RB, Series 1996 5.60 1/01/02 2,503
4,310 Hodgkins Tax Increment RB, Series 1995A 6.90 12/01/01 4,429
Indiana
6,745 Development Finance IDA RB, Series 1996 4.80 6/01/00 6,755
Health Facility Financing Auth. RB,
20,300 Series 1993 5.40 11/01/05 20,611
10,500 Series 1994 5.38 7/01/01 10,660
1,400 Marion County Hospital Auth. RB, Series 1992 5.25 10/01/97 1,406
Louisiana
11,310 De Soto Parish PCRB, Series 1993A 5.05 12/01/02 11,342
Offshore Terminal Auth. RB,
7,920 Series 1992B 6.00 9/01/01 8,255
5,000 Series 1992B 6.20 9/01/03 5,291
5,830 Series 1994B 5.85 9/01/00 6,026
3,440 Saint Charles Parish PCRB 7.63 6/01/03 3,623
Maine
Jay PCRB,
5,500 Series 1994A 4.65 9/01/02 5,389
8,305 Series 1994B 4.70 6/01/02 8,163
Massachusetts
New England Education Loan Marketing Corp. RB,
17,000 Series 1985A 5.80 3/01/02 17,555
5,000 Series 1992A 6.13 9/01/99 5,173
Michigan
Hospital Finance Auth. RB,
3,500 Series 1995 7.00 10/01/01 3,664
3,500 Series 1995A 6.80 10/01/00 3,626
210 Series 1996 4.70 10/01/98 210
245 Series 1996 5.00 10/01/99 245
255 Series 1996 5.30 10/01/00 255
130 Series 1996 5.50 10/01/01 130
275 Series 1996 5.70 10/01/02 275
285 Series 1996 5.80 10/01/03 286
New Jersey
1,050 Camden County Improvement Auth. RB,
Series 1997 4.75 2/15/00 1,037
New York
Dormitory Auth. RB,
1,285 Series 1994B 5.10 5/15/99 1,296
2,190 Series 1994B 5.30 5/15/00 2,217
6,450 Series 1995A 5.10 5/15/00 6,490
6,350 Series 1995A 5.25 5/15/01 6,392
7,500 Series 1995A 5.40 5/15/02 7,563
810 Series 1996 4.65 7/01/97 810
705 Series 1996 5.10 7/01/98 706
1,160 Series 1996 5.35 7/01/99 1,164
1,000 Series 1996 4.90 5/15/00 1,001
1,350 Series 1996 5.00 5/15/01 1,347
1,170 Series 1996 5.65 7/01/01 1,177
1,000 Series 1996 5.10 5/15/02 995
3,245 Series 1996-2 5.00 7/01/00 3,253
1,285 Series 1996-2 5.10 7/01/01 1,285
1,250 Dormitory Dept. of Health RB, Series 1996 4.75 7/01/01 1,237
25,805 Environmental Facilities Corp. PCRB,
Series 1994A 5.50 6/15/99 26,300
5,325 Medical Care Facilities Finance Agency RB,
Series 1994A (CRE) 5.80 2/15/01 5,511
New York City GO,
10,000 Series 1994D 6.00 8/15/99 10,287
8,000 Series 1994H 5.30 8/01/99 8,104
5,000 Series 1995A 5.40 8/01/00 5,076
5,000 Series 1995D 6.50 2/01/02 5,235
3,325 Series 1996K 5.50 4/01/01 3,372
4,010 State COP 4.90 2/01/02 3,966
4,040 State COP 4.90 8/01/02 3,988
2,035 State COP 5.00 2/01/03 2,013
11,165 The City University of New York COP 5.75 8/15/03 11,342
7,880 Thruway Auth. RB, Series 1995 5.10 4/01/01 7,843
Urban Development Corp. RB,
4,400 Series 1993 5.25 1/01/03 4,402
1,715 Series 1996-7 4.75 1/01/02 1,685
North Carolina
11,000 Eastern Municipal Power Agency RB,
Series 1996A 5.10 1/01/00 11,021
Oklahoma
Holdenville Industrial Auth. RB,
1,115 Series 1995 5.45 7/01/00 1,116
1,380 Series 1995 6.15 7/01/04 1,384
510 Series 1995 6.35 7/01/06 512
990 Valley View Hospital Auth. RB, Series 1996 5.00 8/15/98 989
Pennsylvania
Beaver County Finance Auth. RB,
18,175 Series 1986A (CRE) 8.00 11/01/09 (a) 19,059
8,545 Series 1986B (CRE) 8.00 11/01/09 (a) 8,961
4,435 East Hempfield Township IDA RB, Series 1996 5.00 8/01/01 4,445
17,290 Higher Education Assistance Agency Student
Loan RB, Series 1985A (CRE) 6.80 12/01/00 18,318
Puerto Rico
10,000 Collection Center COP 6.85 10/17/03 10,237 (e)
Electric Power Auth. RB,
4,365 Series S 6.00 7/01/99 4,481
3,600 Series T 6.00 7/01/99 3,696
5,000 Highway and Transportation Auth. RB, Series U 5.50 7/01/97 5,019
5,000 Municipal Finance Agency RB, Series 1992A 4.75 7/01/97 5,007
Tennessee
2,500 Shelby County Hospital RB, Series 1993 5.10 11/01/03 2,468
Texas
Abilene Higher Education Facilities Corp. RB,
1,335 Series 1995 5.30 10/01/99 1,345
1,280 Series 1995 5.40 10/01/00 1,296
1,480 Series 1995 5.50 10/01/01 1,500
1,000 Series 1995 5.60 10/01/02 1,011
6,000 Calhoun County Navigation IDA PCRB,
Series 1995 4.65 6/01/01 5,939
Fort Worth Higher Education Finance Auth. RB,
360 Series 1997A 4.50 10/01/99 358
380 Series 1997A 4.75 10/01/00 376
395 Series 1997A 4.90 10/01/01 390
415 Series 1997A 5.00 10/01/02 409
440 Series 1997A 5.10 10/01/03 433
460 Series 1997A 5.25 10/01/04 451
1,450 Houston Water and Sewer System RB,
Series 1992B 4.90 12/01/97 1,458
4,090 Pasadena GO, Series 1994 5.75 2/15/99 4,188
West Virginia
6,000 Kanawha County PCRB, Series 1997 5.25 4/01/02 5,984
13,480 School Building Auth. Capital Improvement RB,
Series 1994 6.00 7/01/00 13,984
- ---------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $532,544) 538,155
- ---------------------------------------------------------------------------------------------------------
Put Bonds (11.2%)
California
3,500 Brentwood Infrastructure Financing Auth.
Capital Improvement RB, Series 1996 (CRE) 5.25 6/01/26 3,500
7,385 Redwood MFH RB, Series 1985B (CRE) 5.20 10/01/08 7,260
6,500 South Gate Public Financing Auth. RB,
Series 1997 (CRE) 4.75 9/01/19 6,500
4,750 Vallejo Housing Auth. MFH RB,
Series 1985A (CRE) 5.00 6/01/07 4,765
Colorado
5,000 Denver City and County Airport System RB,
Series 1991C (CRE) 6.00 12/01/25 5,035
Florida
Housing Finance Agency MFH RB,
5,000 Series 1983F (CRE) 5.35 12/01/05 5,100
4,000 Series 1983G (CRE) 5.35 12/01/05 4,080
5,000 Series 1987 (CRE) 4.85 2/01/08 4,995
5,200 Series 1995D (CRE) 5.10 4/01/13 5,200
5,630 Series 1995K (CRE) 4.85 12/01/05 5,630
Illinois
5,000 Development Finance Auth. RB,
Series 1993A (CRE) 5.00 1/01/28 5,005
Minnesota
15,000 Minneapolis and St. Paul Housing and
Redevelopment RB, Series 1996A (CRE) 5.13 6/01/32 15,007
Pennsylvania
3,800 Armstrong County Hospital Auth. RB,
Series 1992A (CRE) 5.25 11/01/12 3,825
Texas
7,990 Lewisville Special Assessment Bonds,
Series 1996 (CRE) 5.00 5/01/21 7,961
6,000 Tarrant County Housing Finance Corp. MFH RB,
Series 1985 (CRE) 4.90 9/01/06 6,000
- --------------------------------------------------------------------------------------------------------
Total put bonds (cost: $89,755) 89,863
- --------------------------------------------------------------------------------------------------------
Variable Rate Demand Notes (20.5%)
Alabama
5,500 Phenix Enviromental Improvement RB,
Series 1985 (CRE) 4.00 10/01/25 5,500
California
1,500 Covina Redevelopment Agency MFH RB,
Series 1994A (CRE) 3.65 12/01/15 1,500
10,500 Fontana COP, Series 1991 (CRE) 4.10 7/01/21 10,500
1,890 Sacramento County MFH RB, Series 1988B (CRE) 4.35 12/01/98 1,890
Florida
3,500 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 3.90 10/01/24 3,500
300 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 3.65 7/01/05 300
100 Jacksonville Hospital RB, Series 1988 (CRE) 3.60 2/01/18 100
1,600 Orange County Housing Finance Auth. RB,
Series 1991A (CRE) 3.65 10/01/10 1,600
Illinois
15,045 Housing Development Auth. RB,
Series 1985U (CRE) 3.75 1/01/08 15,045
870 West Frankfort Commercial Redevelopment RB 6.39 4/01/07 870
Kansas
3,240 Kansas City PCRB, Series 1985 3.65 11/01/07 3,240
Minnesota
4,600 Saint Louis Park Industrial Development RB (CRE) 4.00 8/01/14 4,600
4,005 St. Cloud Housing & Redevelopment Auth. RB,
Series 1997 (CRE) 3.70 3/01/22 4,005
500 St. Paul Housing and Redevelopment Auth. RB,
Series 1982A (CRE) 3.60 12/01/12 500
New York
3,700 Chautauqua County IDA IDRB,
Series 1984A (CRE) 4.05 1/01/00 3,700
New York City Housing Development Corp. RB,
39,990 Series 1984A (CRE) 4.10 12/01/16 39,990
12,475 Series 1985A (CRE) 4.10 12/01/09 12,475
North Carolina
18,700 Medical Care Commission Hospital RB,
Series 1985 (CRE) 3.50 12/01/25 18,700
Oregon
2,550 Port St. Helens PCRB, Series 1985A (CRE) 4.00 4/01/10 2,550
South Carolina
2,400 Sumter County IDRB, Series 1982 (CRE) 3.78 12/01/02 2,400
Texas
3,000 Boatmen's St. Louis Grantor Trust #1 COP,
Series 1996A (CRE) 3.60 6/30/01 3,000
4,100 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 4.00 5/01/03 4,100
Virginia
3,400 Henrico County IDA RB, Series 1994 (CRE) 3.90 5/01/24 3,400
Washington
15,600 Student Loan Finance Association RB,
Series 1985-2nd (CRE) 3.55 1/01/01 15,600
Wyoming
3,800 Lincoln County PCRB, Project C 3.90 11/01/14 3,800
2,400 Platte County RB, Series 1984A (CRE) 4.00 7/01/14 2,400
- ----------------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $165,265) 165,265
- ----------------------------------------------------------------------------------------------------------
Total investments (cost: $787,564) $ 793,283
==========================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
Multi-Family Housing 15.0%
General Obligations 13.4
Hospitals 11.6
Education 8.2
Special Assessment/Tax/Fee 7.8
Student Loan 5.7
Electric Power 4.1
Finance - Municipal 4.1
Paper & Forest Products 4.0
Water Utilities 3.3
Toll Roads 2.7
Ports/Wharfs 2.4
Single-Family Housing 1.9
Chemicals 1.7
Buildings 1.3
Gaming Companies 1.3
Escrowed Securities 1.2
Oil - International 1.0
Other 7.9
----
Total 98.6%
====
<TABLE>
Portfolio Summary By State
--------------------------
<S> <C> <S> <C> <S> <C>
Alabama .7% Alaska 1.1% Arizona .2%
Arkansas .2 California 8.2 Colorado .6
Connecticut 1.3 District of Columbia 2.9 Florida 4.1
Georgia .5 Guam 5.2 Idaho .4
Illinois 5.0 Indiana 4.9 Kansas .4
Louisiana 4.3 Maine 1.7 Massachusetts 2.8
Michigan 1.1 Minnesota 3.0 New Jersey .1
New York 23.9 North Carolina 3.7 Oklahoma .5
Oregon .3 Pennsylvania 6.8 Puerto Rico 3.5
South Carolina .3 Tennessee .3 Texas 5.0
Virginia .4 Washington 1.9 West Virginia 2.5
Wyoming .8
----
Total 98.6%
====
</TABLE>
<TABLE>
Tax Exempt Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
March 31, 1997
Principal Coupon Final
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<C> <S> <C> <C> <C>
Variable Rate Demand Notes (51.7%)
Alabama
$ 9,500 Evergreen Board IDRB, Series 1985 (CRE) 3.65% 12/01/04 $ 9,500
Alaska
8,300 Anchorage Higher Education RB,
Series 1993 (CRE) 3.45 7/01/17 8,300
Arizona
Maricopa County PCRB,
28,235 Series 1985A (CRE) 3.60 8/01/15 28,235
24,800 Series 1994A (CRE) 3.60 7/01/14 24,800
10,200 Pinal County IDA RB, Series 1995 (CRE) 3.60 12/01/22 10,200
California
6,915 Los Angeles County Housing Auth. MFH RB,
Series 1994B (CRE) 3.65 9/01/18 6,915
7,900 San Diego MFH RB, Series 1993A (CRE) 3.55 12/01/15 7,900
Statewide Communities Development Auth. COP,
10,600 Kaiser Foundation Hospital, Series 1995 3.35 12/01/15 10,600
400 Series 1993 3.40 7/01/08 400
Colorado
6,860 Commerce City Golf Enterprise RB,
Series 1994 (CRE) 3.55 11/01/21 6,860
Denver City and County Airport System RB,
17,900 Series 1991B (CRE) 3.60 12/01/25 17,900
9,000 Series 1991C (CRE) 3.65 12/01/25 9,000
Delaware
1,650 New Castle County Economic Development RB,
Series 1993 (CRE) 3.50 8/15/20 1,650
Florida
5,800 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 3.90 10/01/24 5,800
2,000 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 3.65 7/01/05 2,000
Broward County Housing Finance Auth. MFH RB,
5,800 Series 1985 (CRE) 3.55 12/01/10 5,800
6,400 Series 1989 (CRE) 3.60 9/01/97 6,400
300 Series 1990 (CRE) 3.60 10/01/07 300
800 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 4.00 9/01/20 800
3,145 Dade County MFH RB, Series 1993-1 (CRE) 3.80 2/01/28 3,145
550 Hillsborough County IDA IDRB,
Series 1994 (CRE) 3.55 8/01/19 550
Housing Finance Agency MFH RB,
2,300 Series 1985GGG (CRE) 3.60 12/01/08 2,300
7,300 Series 1985MM (CRE) 3.60 11/01/07 7,300
7,710 Series 1990D (CRE) 3.60 12/01/09 7,710
2,800 Jacksonville Hospital RB, Series 1988 (CRE) 3.60 2/01/18 2,800
Jacksonville IDA RB,
900 Series 1993 (CRE) 3.50 7/01/13 900
2,130 Series 1996 (CRE) 3.60 1/01/15 2,130
2,285 Manatee County MFH RB, Series 1989A (CRE) 3.50 6/01/07 2,285
2,100 Miami Health Facilities Auth. RB,
Series 1992 (CRE) 3.50 3/01/12 2,100
3,900 Orange County Health Facilities Auth. RB,
Series 1992 (CRE) 3.30 11/15/14 3,900
9,600 Palm Beach County Housing Finance Auth.
MFH RB, Series 1988D (CRE) 3.55 11/01/07 9,600
300 Palm Beach County IDRB, Series 1990 (CRE) 3.50 5/01/02 300
1,600 Pinellas County Housing Finance Auth. MFH RB,
Series 1989A (CRE) 3.50 7/01/07 1,600
6,200 Sarasota County Health Facilities Auth. RB,
Series 1989 (CRE) 3.50 12/01/19 6,200
3,115 Sarasota Educational Facilities RB,
Series 1996 (CRE) 3.50 2/01/21 3,115
Georgia
6,500 Catoosa County IDA RB, Series 1991 (CRE) 3.50 12/01/06 6,500
6,655 Clayton County MFH RB, Series 1989 (CRE) 3.55 11/01/06 6,655
5,565 Columbus IDA RB, Series 1991 (CRE) 3.55 1/01/11 5,565
6,000 De Kalb Private Hospital Auth. RAN,
Series 1994B (CRE) 3.45 3/01/24 6,000
Fulton County Housing Auth. MFH RB,
12,000 Series 1996 (CRE) 3.55 6/01/23 12,000
5,100 Series 1996 (CRE) 3.55 8/01/26 5,100
Marietta Housing Auth. MFH RB,
5,000 Series 1993 (CRE) 3.55 10/01/26 5,000
4,225 Series 1996 (CRE) 3.55 2/01/26 4,225
3,370 Peachtree Development Auth. RB,
Series 1988 (CRE) 3.65 7/01/10 3,370
Illinois
Development Finance Auth. MFH RB,
7,400 Series 1991 (CRE) 3.95 10/01/25 7,400
14,700 Series 1993 (CRE) 3.70 12/01/13 14,700
2,600 Winnebago County Health Care Facility RB,
Series 1996 (CRE) 3.55 1/01/17 2,600
Kansas
3,300 Wichita Health Systems RB,
Series 1985XXV (CRE) 3.65 10/01/11 3,300
Kentucky
3,625 Economic Development Auth. RB,
Series 1996 (CRE) 3.55 7/01/16 3,625
9,490 Hancock County Industrial Building RB,
Series 1991 (CRE) 4.00 7/01/11 9,490
9,100 Jefferson County MFH RB, Series 1996 (CRE) 3.55 12/01/26 9,100
Ohio County PCRB,
19,000 Series 1983 (CRE) 4.00 6/01/13 19,000
20,000 Series 1985 (CRE) 4.00 10/01/15 20,000
Louisiana
Housing Finance Agency MFH RB,
7,010 Series 1988A (CRE) 3.85 1/01/26 7,010
9,150 Series 1988B (CRE) 3.85 12/01/25 9,150
24,385 Orleans Levee District Capital Recovery
Funding RB, Series 1988A (CRE) 3.85 10/01/17 24,385
5,000 Public Facilities Auth RB, Series 1996 (CRE) 3.65 12/01/14 5,000
8,700 Public Facilities Auth. MFH RB,
Series 1988 (CRE) 3.70 12/01/13 8,700
Maryland
6,750 Anne Arundel County RB, 1988 Issue (CRE) 3.55 6/15/11 6,750
2,000 Baltimore County Revenue Auth. Golf Systems RB,
Series 1996 (CRE) 3.45 1/01/16 2,000
6,000 Baltimore IDA RB, Series 1986 (CRE) 3.65 8/01/16 6,000
3,650 Calvert County RB, Series 1987 (CRE) 3.55 12/01/04 3,650
Michigan
1,000 State Hospital Finance Auth. RB, Series A (CRE) 3.55 12/01/23 1,000
4,500 Tolfree Memorial Hospital Corp., Series D (CRE) 3.50 9/15/18 4,500
Minnesota
4,200 Hastings Hospital RB, Series 1988 (CRE) 3.70 11/01/13 4,200
15,500 St. Paul Housing and Redevelopment Auth. RB,
Series 1982A (CRE) 3.60 12/01/12 15,500
Mississippi
4,020 Hinds County Urban Renewal RN,
Series 1991 (CRE) 3.60 1/01/07 4,020
Missouri
Clayton IDA RB,
5,925 Series 1994A (CRE) 3.70 12/01/06 5,925
5,975 Series 1994B (CRE) 3.70 2/01/07 5,975
8,525 Series 1995C (CRE) 3.70 5/01/05 8,525
5,000 Saint Louis County MFH RB, Series 1986 (CRE) 3.55 12/01/25 5,000
2,700 Saint Louis IDA RB, Series 1994 (CRE) 3.80 8/30/97 2,700
New Hampshire
1,085 Housing Finance Auth. MFH RB,
Series 1990 (CRE) 3.60 7/01/06 1,085
New Jersey
Economic Development Auth. RB,
2,190 Series 1989 (CRE) 3.57 12/01/00 2,190
4,550 Series 1989 (CRE) 3.70 12/01/19 4,550
New Mexico
20,000 Farmington PCRB, Series 1994A (CRE) 3.60 11/01/13 20,000
New York
1,195 Dormitory Auth. RB, Series 1994A (CRE) 3.45 7/01/24 1,195
2,600 Monroe County IDA RB, Series 1995D (CRE) 3.35 6/15/16 2,600
1,300 New York City IDA RB, Series 1993 (CRE) 3.30 6/30/23 1,300
300 Oswego County IDA PCRB, Series 1992 3.40 12/01/08 300
Ohio
6,000 Clark County IDA RB (CRE) 3.74 12/01/10 6,000
4,800 Stark County IDRB, Series 1984 (CRE) 3.40 9/01/01 4,800
1,800 Warren County IDRB, Series 1985 (CRE) 3.55 12/01/05 1,800
Oklahoma
8,070 Cushing Municipal Auth. Correctional Facility,
Series 1996 (CRE) 3.46 11/01/17 8,070
Muskogee Industrial Trust RB,
3,060 Series 1985, Muskogee Mall Project (CRE) 3.65 12/01/15 3,060
2,600 Series 1985, Warmack-Muskogee
Project (CRE) 3.65 12/01/15 2,600
Oregon
Medford Hospital Facilities Auth. RB,
4,000 Series 1985 (CRE) 3.60 12/01/15 4,000
6,250 Series 1991 (CRE) 3.60 5/01/21 6,250
Pennsylvania
70,000 Harrisburg Auth. RB, Series 1996 (CRE) 3.60 7/01/21 70,000(f)
20,000 Northeastern Hospital and Education Auth. RB,
Series 1996 (CRE) 3.70 7/01/26 20,000
17,000 York City General Auth. Pooled Financing RB,
Series 1996 (CRE) 3.50 9/01/26 17,000
South Carolina
4,330 Housing Finance and Development Auth. RB,
Series 1987 (CRE) 3.55 12/01/11 4,330
Jobs and Economic Development Auth. RB,
5,000 Series 1994 (CRE) 3.55 12/01/14 5,000
2,000 Series 1996 (CRE) 3.55 6/01/18 2,000
Tennessee
14,205 Nashville and Davidson County Industrial
Development Board RB, Series 1995 (CRE) 3.70 11/01/12 14,205
Texas
100 Amarillo Health Facilities Corp. RB,
Series 1996A (CRE) 3.50 8/15/06 100
100 Bexar County Health Facilities RB,
Series 1985B (CRE) 3.40 3/01/12 100
Bexar County Housing Finance Corp. MFH RB,
900 Series 1988A (CRE) 3.60 8/01/06 900
300 Series 1988B (CRE) 3.60 6/01/05 300
100 Desoto IDA RB, Series 1989 (CRE) 3.50 12/01/16 100
100 Euless IDA RB, Series 1985 (CRE) 3.50 12/01/15 100
5,300 Gulf Coast IDA RB, Series 1989 (CRE) 3.55 11/01/19 5,300
1,200 Harris County Housing Finance Corp. MFH RB,
Series 1988A (CRE) 3.60 6/01/05 1,200
2,500 Lubbock Health Facilities Development Corp. RB,
Series 1992 (CRE) 3.60 10/01/13 2,500
2,500 Metropolitan Higher Education Auth. RB,
Series 1984 (CRE) 3.70 12/01/04 2,500
170 North Central Texas Health Facilities
Development Corp. RB, Series 1989 (CRE) 3.55 12/01/98 170
100 Port Corpus Christi Auth. RB, Series 1984 (CRE) 3.35 9/01/14 100
Tarrant County Housing Finance Corp. MFH RB,
7,900 Series 1985 (CRE) 3.60 12/01/25 7,900
13,975 Series 1994 (CRE) 3.70 11/01/07 13,975
2,575 Travis County Housing Finance Corp. MFH RB,
Series 1985 (CRE) 3.60 12/01/07 2,575
Utah
8,200 Ogden City IDA RB, Series 1986 (CRE) 4.00 9/01/13 8,200
3,800 Provo Housing MFH RB, Series 1987A (CRE) 3.60 12/01/10 3,800
Virginia
350 Chesterfield County IDA PCRB, Series 1993 3.65 8/01/09 350
3,600 Chesterfield County IDA RB, Series 1989 (CRE) 3.53 2/01/03 3,600
3,955 Fairfax County American College of Radiology RB,
Series 1990 (CRE) 3.50 2/01/11 3,955
2,695 Fauquier County IDA RB, Series 1994 (CRE) 3.50 12/01/14 2,695
Henrico County IDA RB,
3,465 Series 1986C 3.45 7/15/16 3,465
100 Series 1994 (CRE) 3.90 5/01/24 100
22,100 Loudoun County IDA Residential Care Facility RB,
Series 1994B (CRE) 4.10 11/01/24 22,100
800 Prince William County IDA RB,
Series 1988 (CRE) 3.57 6/30/04 800
4,920 Richmond Redevelopment and Housing Auth. RB,
Series 1995 (CRE) 3.50 4/01/29 4,920
Washington
2,025 Port of Benton Economic Development Corp. RB,
Series 1989 (CRE) 3.75 11/01/05 2,025
5,100 Port Townsend IDC RB, Series 1988A (CRE) 3.55 3/01/09 5,100
2,073 Seattle IDA RB, Series 1989-I, Lot 1 (CRE) 3.75 8/01/04 2,073
8,000 Student Loan Finance Association RB,
Series 1985-2nd (CRE) 3.55 1/01/01 8,000
West Virginia
5,480 Cabell County Nursing and Rehabilitation
Facilities RB, Series 1993 (CRE) 3.55 10/01/10 5,480
- ------------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $809,733) 809,733
- ------------------------------------------------------------------------------------------------------
Put Bonds (21.3%)
Arkansas
3,000 Development Finance Auth. SFH RB,
Series 1996G 3.70 7/01/17 3,000
California
Higher Education Loan Auth. RB,
20,825 Series 1987A (CRE) 3.70 6/01/01 20,825
14,000 Series 1987B (CRE) 3.95 7/01/02 14,000
5,000 Series 1992D (CRE) 4.00 4/01/00 5,000
25,000 Student Education Loan Marketing Corp. RB,
Series 1993A (CRE) 3.85 11/01/02 25,000
Connecticut
3,000 Development Auth. Airport Facility RB,
Series 1993A (CRE) 5.80 10/01/25 3,023
Florida
4,200 Sarasota County Public Hospital District
Hospital RB, Series 1985C (CRE) 3.55 10/02/20 4,200
St. Lucie County PCRB,
22,000 Series 1992 3.50 5/01/27 22,000
1,500 Series 1994B 3.50 7/01/29 1,500
Illinois
3,500 Chicago GO, Series 1994C (CRE) 3.60 10/31/99 3,500
Health Facilities Auth. RB,
7,000 Series 1985B 3.75 8/15/15 7,000
8,000 Series 1990A (CRE) 3.50 2/01/19 8,000
14,000 Series 1992 3.70 1/01/26 14,000
20,000 Series 1995 3.75 6/01/30 20,000
8,000 Series 1996 3.95 8/15/30 8,000
Kentucky
5,500 Lexington-Fayette Urban County RB,
Series 1987 (CRE) 3.65 4/01/15 5,500
Massachusetts
19,600 Boston Univ. Health and Educational
Facilities Auth. RB, Series 1985H (CRE) 3.50 12/01/29 19,600
Minnesota
10,305 State Housing Finance Agency, Series 1995K 3.60 1/01/17 10,305
Missouri
Environmental Improvement and Energy
Resources Auth. PCRB,
11,000 Series 1984 (CRE) 3.65 6/01/14 11,000
5,000 Series 1984A (CRE) 3.65 6/01/14 5,000
3,645 Series 1985A (CRE) 3.35 6/01/15 3,645
Montana
10,000 Board of Investments Municipal Finance
Consolidation Act Bonds, Series 1997 3.65 3/01/17 10,000
New Hampshire
Higher Educational and Health Facilities Auth. RB,
4,965 Series 1985 3.80 6/01/25 4,965
1,000 Series 1996 3.80 6/01/19 1,000
Pennsylvania
6,360 Ferguson Industrial and Commercial
Development Auth. RB, Series 1981 4.00 11/01/06 6,360
Philadelphia GO CP,
2,500 Series 1990 (CRE) 3.50 8/01/20 2,500
48,600 Series 1990 (CRE) 3.30 8/01/20 48,600
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
Texas
4,700 Matagorda County Hospital District RB,
Series 1988 (CRE) 3.80 8/01/18 4,700
10,600 Tyler Health Facilities Development Corp.
Hospital RB, Series 1993C (CRE) 3.50 4/03/97 10,600
West Virginia
19,500 Grant County PCRB, Series 1994 3.45 9/01/24 19,500
Wisconsin
6,500 Health and Educational Facilities Auth. RB,
Series 1988A (CRE) 3.30 3/01/17 6,500
Wyoming
2,225 Rock Springs IDRB, Series 1992 (CRE) 3.60 3/01/02 2,225
- ---------------------------------------------------------------------------------------------------------
Total put bonds (cost: $332,898) 332,898
- ---------------------------------------------------------------------------------------------------------
Fixed Rate Instruments (26.3%)
California
$ 11,400 Coast Community College District TRAN,
Series 1996 4.50% 8/28/97 $ 11,428
10,000 Long Beach GO TRAN, Series 1996-97 4.75 10/09/97 10,038
15,000 Los Angeles County GO TRAN,
Series 1996A (CRE) 4.50 6/30/97 15,024
9,735 San Francisco Unified School Dist. TRAN 4.50 7/24/97 9,750
Connecticut
27,500 Mashantucket (Western) Pequot Tribe CP,
Series 1996 (CRE) 3.50 4/10/97 27,500
Florida
3,000 Department of Natural Resources Preservation RB,
Series 1992A (CRE) 5.75 7/01/97 3,016
5,000 Local Government Finance Commission Pooled
CP Notes, Series 1995A (CRE) 3.45 5/13/97 5,000
6,080 Sunshine State Government Financing
Commission CP Notes 3.50 6/12/97 6,080
7,000 Sunshine State Government Financing
Commission CP Notes 3.45 6/12/97 7,000
Georgia
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 1,894
Indiana
9,500 Metropolitan School District of Washington
Township Loan Warrants, Series 1997 4.00 6/30/97 9,510
Iowa
15,000 State School Cash Anticipation Program Warrants,
Series B (CRE) 4.25 1/30/98 15,039
Kansas
10,880 Development Finance Auth. RB, Series 1996K-1 3.85 10/01/97 10,880
Kentucky
4,200 Jefferson County Board of Education RN 3.97 6/30/97 4,201
Louisiana
4,000 Public Facilities Auth. Notes, Series 1996B 4.50 9/24/97 4,011
Maine
6,000 Cumberland County GO TAN 4.25 12/31/97 6,023
Massachusetts
5,500 Fall River GO BAN, Series 1996C (CRE) 4.50 8/15/97 5,511
17,785 Georgetown GO BAN (CRE) 3.73 6/12/97 17,785
5,000 Methuen GO BAN 4.00 12/18/97 5,009
6,000 Springfield GO BAN (CRE) 4.10 6/27/97 6,008
2,000 Springfield GO BAN (CRE) 4.60 7/11/97 2,004
5,000 Springfield GO BAN (CRE) 4.10 11/21/97 5,012
Minnesota
2,105 Fridley ISD Number 014 GO, Series 1997 (CRE) 3.85 2/07/98 2,110
3,900 School District Tax and Aid TAN,
Series 1987A (CRE) 3.75 2/13/98 3,902
Missouri
2,160 Independence School District TRAN, Series 1996 3.88 8/15/97 2,162
State Health and Educational Facilities Auth. RB,
11,600 Series 1996C 4.50 9/08/97 11,629
1,255 Series 1996G 4.50 9/08/97 1,258
3,750 Series 1996J 4.50 9/08/97 3,759
New Jersey
10,000 Jersey City School Promissory Notes 4.13 3/06/98 10,034
5,061 Orange Township GO TAN, Series 1996G (CRE) 4.97 7/01/97 5,076
New York
20,000 New York City GO RAN, Series 1997A 4.50 4/15/97 20,006
15,000 New York City Municipal Water Finance Auth.
CP Notes, Series 1994C (CRE) 3.45 4/01/97 15,000
5,000 Oneida County GO BAN, Series 1996D (CRE) 4.25 5/09/97 5,002
Ohio
16,600 Dublin School District GO, Series 1996 4.00 6/10/97 16,616
2,180 Mason City School District GO BAN,
Series 1997A 4.15 3/20/98 2,189
Pennsylvania
3,500 Berks County GO TRAN, Series 1997 (CRE) 4.38 12/31/97 3,518
14,950 Commonwealth GO TAN, Series 1996-97 4.50 6/30/97 14,977
Rhode Island
2,000 Housing and Mortgage Finance Corp. MFH RB,
Series 1995A (CRE) 4.60 7/01/97 2,004
South Carolina
2,910 Piedmont Municipal Power Agency RB,
Series B (CRE) 5.00 1/01/98 2,936
3,500 Spartanburg County School District 6 GO 4.75 4/01/98 3,531 (c)
Texas
San Antonio Electric and Gas CP,
12,000 Series 1996A 3.45 5/01/97 12,000
17,800 Series 1996A 3.50 5/22/97 17,800
27,000 State GO TRAN 4.75 8/29/97 27,088
Washington
King County Sewer CP,
10,000 Series 1996A 3.40 4/10/97 10,000
6,500 Series 1996A 3.50 6/10/97 6,500
2,000 Seattle GO, Series 1996E 3.60 10/01/97 2,000
Wisconsin
17,800 Waukesha ISD TRAN 4.15 8/22/97 17,810
- ---------------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $412,130) 412,130
- ---------------------------------------------------------------------------------------------------------
Total investments (cost: $1,554,761) $ 1,554,761
=========================================================================================================
</TABLE>
Portfolio Summary By Industry
-----------------------------
General Obligations 14.8%
Multi-Family Housing 14.7
Electric Power 13.9
Education 10.6
Hospitals 9.8
Finance - Municipal 3.5
Buildings 2.8
Retirement Homes 2.7
Student Loan 2.5
Community Service 2.2
Manufacturing - Diversified Industries 1.9
Gaming Companies 1.8
Special Assessment/Tax/Fee 1.8
Airports 1.7
Hotel/Motel 1.3
Nursing Care 1.3
Sewer 1.1
Gas Utilities 1.0
Water/Sewer 1.0
Other 8.9
----
Total 99.3%
====
<TABLE>
<CAPTION>
Portfolio Summary By State
--------------------------
<S> <C> <S> <C> <S> <C>
Alabama .6% Alaska .5% Arizona 4.0%
Arkansas .2 California 8.7 Colorado 2.2
Connecticut 1.9 Delaware .1 Florida 8.0
Georgia 3.9 Illinois 5.4 Indiana .6
Iowa 1.0 Kansas .9 Kentucky 4.5
Louisiana 3.7 Maine .4 Maryland 1.2
Massachusetts 3.9 Michigan .4 Minnesota 2.3
Mississippi .3 Missouri 4.3 Montana .6
New Hampshire .5 New Jersey 1.4 New Mexico 1.3
New York 2.9 Ohio 2.0 Oklahoma .9
Oregon .7 Pennsylvania 11.8 Rhode Island .1
South Carolina 1.1 Tennessee .9 Texas 7.0
Utah .8 Virginia 2.7 Washington 2.3
West Virginia 1.6 Wisconsin 1.6 Wyoming .1
----
Total 99.3%
====
</TABLE>
Notes to Portfolios of Investments in Securities
March 31, 1997
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.
<TABLE>
<CAPTION>
Portfolio Description Abbreviations
<S> <C> <C> <C>
BAN Bond Anticipation Notes ISD Independent School District
COP Certificate of Participation MFH Multi-Family Housing
CP Commercial Paper PCRB Pollution Control
CRE Credit Enhanced Revenue Bond
GO General Obligation RAN Revenue Anticipation Note
IDA Industrial Development RB Revenue Bond
Authority/Agency RN Revenue Notes
IDB Industrial Development Board SFH Single-Family Housing
IDC Industrial Development TAN Tax Anticipation Notes
Corporation TRAN Tax Revenue Anticipation Notes
IDRB Industrial Development Revenue Bond
</TABLE>
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 1.3%, 8.9%, and 1.9% of the Funds' net assets,
respectively.
(c) At March 31, 1997, the cost of securities purchased on a delayed delivery
basis for the Long-Term and Tax Exempt Money Market Funds was $26,112,500
and $3,530,590, 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 2.6% of the Intermediate-Term and Short-Term Funds' net
assets, respectively.
(f) This security was purchased within the terms of a private placement
memorandum and is subject to a seven day demand feature. Under procedures
adopted by the Board of Directors, the Manager has determined that this
security is liquid. At March 31, 1997, this security represented 4.5% of
the Tax Exempt Money Market Fund's net assets.
See accompanying notes to financial statements.
<TABLE>
Statements of Operations
(In Thousands)
Year ended March 31, 1997
<CAPTION>
Long-Term Intermediate- Short-Term Tax-Exempt
Fund Term-Fund Fund Fund
---- --------- ---- ----
<S> <C> <C> <C> <C>
Net investment income:
Interest income $ 116,511 $ 101,672 $ 39,145 $ 54,724
---------- --------- --------- ---------
Expenses:
Management fees 5,168 4,724 2,188 4,208
Transfer agent's fees 1,032 1,038 617 966
Custodian's fees 235 244 170 349
Postage 66 68 66 122
Shareholder reporting fees 41 39 42 78
Directors' fees 4 4 4 4
Registration fees 130 41 31 93
Audit fees 30 30 30 30
Legal fees 5 5 5 5
Other 79 56 29 52
--------- --------- --------- ---------
Total expenses 6,790 6,249 3,182 5,907
--------- --------- --------- ---------
Net investment income 109,721 95,423 35,963 48,817
--------- --------- --------- ---------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 4,215 3,806 (208) -
Change in net unrealized
appreciation/depreciation 3,331 (4,710) (453) -
--------- --------- --------- ---------
Net realized and
unrealized gain (loss) 7,546 (904) (661) -
--------- --------- --------- ---------
Increase in net assets resulting
from operations $ 117,267 $ 94,519 $ 35,302 $ 48,817
========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
Statements of Changes in Net Assets
(In Thousands)
Years ended March 31,
<CAPTION>
Long-Term Intermediate-Term
Fund Fund
---- ----
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 109,721 $ 109,524 $ 95,423 $ 89,712
Net realized gain (loss) on investments 4,215 11,015 3,806 2,066
Change in net unrealized appreciation/depreciation
of investments 3,331 18,365 (4,710) 30,639
------------ ------------ ---------- ------------
Increase in net assets resulting from operations 117,267 138,904 94,519 122,417
------------ ------------ ---------- ------------
Distributions to shareholders from:
Net investment income (109,721) (109,524) (95,423) (89,712)
------------ ------------ ---------- ------------
From capital share transactions:
Proceeds from shares sold 683,750 688,986 236,450 267,168
Shares issued for dividends reinvested 77,355 78,174 73,396 69,222
Cost of shares redeemed (750,331) (767,067) (243,297) (238,806)
------------ ------------ ---------- ------------
Increase (decrease) in net assets from
capital share transactions 10,774 93 66,549 97,584
------------ ------------ ---------- ------------
Net increase (decrease) in net assets 18,320 29,473 65,645 130,289
Net Assets:
Beginning of period 1,804,116 1,774,643 1,660,039 1,529,750
------------ ------------ ---------- ------------
End of period $ 1,822,436 $ 1,804,116 $1,725,684 $ 1,660,039
============ ============ ========== ============
Change in shares outstanding:
Shares sold 51,727 51,936 18,461 20,825
Shares issued for dividends reinvested 5,837 5,894 5,731 5,391
Shares redeemed (56,684) (57,756) (19,015) (18,618)
------------ ------------ ---------- ------------
Increase (decrease) in shares outstanding 880 74 5,177 7,598
============ ============ ========== ============
Authorized shares of $.01 par value 175,000 175,000 170,000 170,000
============ ============ ========== ============
Statements of Changes in Net Assets (Continued)
(In Thousands)
Years ended March 31,
Short-Term Tax-Exempt
Fund Money MarketFund
---- ----------------
1997 1996 1997 1996
---- ---- ---- ----
From operations:
Net investment income $ 35,963 $ 36,945 $ 48,817 $ 52,132
Net realized gain (loss) on investments (208) 205 - -
Change in net unrealized appreciation/depreciation
of investments (453) 7,788 - -
---------- ------------ ------------ -----------
Increase in net assets resulting from operations 35,302 44,938 48,817 52,132
---------- ------------ ------------ -----------
Distributions to shareholders from:
Net investment income (35,963) (36,945) (48,817) (52,132)
---------- ------------ ------------ -----------
From capital share transactions:
Proceeds from shares sold 274,306 255,280 1,866,489 1,826,253
Shares issued for dividends reinvested 29,997 31,024 45,985 49,039
Cost of Shares redeemed (272,765) (321,434) (1,876,016) (1,802,863)
---------- ------------ ------------ -----------
Increase (decrease) in net assets from
capital share transactions 31,538 (35,130) 36,458 72,429
---------- ------------ ------------ -----------
Net increase (decrease) in net assets 30,877 (27,137) 36,458 72,429
Net assets:
Beginning of period 774,020 801,157 1,529,176 1,456,747
---------- ------------ ------------ -----------
End of period $ 804,897 $ 774,020 $ 1,565,634 1,529,176
========== ============ ============ ===========
Change in shares outstanding:
Shares sold 25,924 24,121 1,866,489 1,826,253
Shares issued for dividends reinvested 2,835 2,931 45,985 49,039
Shares redeemed (25,787) (30,390) (1,876,016) (1,802,863)
---------- ------------ ------------ -----------
Increase (decrease) in shares outstanding 2,972 (3,338) 36,458 72,429
========== ============ ============ ===========
Authorized shares of $.01 par value 135,000 135,000 2,600,000 2,600,000
========== ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
March 31, 1997
(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 annual 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 bonds.
D. Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the financial
statements.
(2) Lines of Credit
The Funds participate with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 13, 1998, one with USAA
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank ($100 million committed). The
purpose of the agreements is to meet temporary or emergency cash needs,
including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under these agreements, each
Fund may borrow up to a maximum of 15% of its total assets, of which only 5% may
be borrowed from CAPCO, at the lending institution's borrowing rate plus a
markup. During the year ended March 31, 1997, the Long-Term Fund had eight
borrowings, averaging $10.6 million with an average length of two days, and
incurred $18,666 in interest expense; the Intermediate-Term Fund had one
borrowing (for one day) and incurred $194 in interest expense. The Short-Term
and Tax Exempt Money Market Funds had no borrowings under either of these
agreements during the year.
(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 March 31, 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 March 31, 1997, the Long-Term,
Intermediate-Term, and Short-Term Funds had capital loss carryovers for federal
income tax purposes of approximately $47,125,000, $3,029,000, and $3,608,000,
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.
The Funds completed their fiscal year on March 31, 1997. Federal law (Internal
Revenue Code of 1986, as amended, and the regulations thereunder) requires each
Fund to notify its shareholders after the close of its taxable year as to what
portion of its earnings was exempt from federal taxation and dividend
distributions which represent long-term capital gains. The net investment income
earned and distributed by each of the Funds was 100% tax exempt for federal
income tax purposes. There were no long-term capital gain distributions for the
year ended March 31, 1997.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the year ended March 31, 1997 were as follows:
Long-Term Intermediate- Short-Term
Fund Term Fund Fund
---- --------- ----
Purchases $758,584,872 $423,780,935 $183,037,182
Sales $738,166,478 $382,628,349 $171,750,614
Purchases and sales/maturities of securities for the year ended March 31, 1997
for the Tax Exempt Money Market Fund were $5,275,022,000 and $5,235,748,100,
respectively.
Gross unrealized appreciation and depreciation of investments at March 31, 1997
was as follows:
Long-Term Intermediate- Short-Term
Fund Term Fund Fund
---- --------- ----
Appreciation $91,669,915 $57,017,876 $6,455,277
Depreciation (7,916,365) (4,324,798) (736,228)
----------- ----------- ---------
Net $83,753,550 $52,693,078 $5,719,049
=========== =========== ==========
(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 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 March 31, 1997, the Association and its affiliates
owned 4,444,268 shares (3.3%) 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.
<TABLE>
Long-Term Fund
March 31, 1997
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 13.17 $ 12.96 $ 13.20 $ 14.21 $ 13.54
Net investment income .79 .79 .79 .81 .88
Net realized and
unrealized gain (loss) .05 .21 (.16) (.44) .75
Distributions from net
investment income (.79) (.79) (.78) (.82) (.88)
Distributions of realized
capital gains - - (.09) (.56) (.08)
----------- ------------ ------------ ----------- ------------
Net asset value at
end of period $ 13.22 $ 13.17 $ 12.96 $ 13.20 $ 14.21
=========== ============ ============ =========== ============
Total return (%) * 6.51 7.88 5.07 2.36 12.46
Net assets at end
of period (000) $ 1,822,436 $ 1,804,116 $ 1,774,643 $ 1,831,693 $ 1,882,882
Ratio of expenses to
average net assets (%) .37 .37 .38 .38 .39
Ratio of net investment
income to average
net assets (%) 5.95 5.99 6.23 5.69 6.35
Portfolio turnover (%) 40.78 53.25 64.72 109.28 88.27
</TABLE>
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
<TABLE>
Intermediate-Term Fund
March 31, 1997
(7) Financial Highlights (Continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 12.77 $ 12.50 $ 12.48 $ 12.90 $ 12.29
Net investment income .72 .71 .69 .69 .74
Net realized and
unrealized gain (loss) - .27 .05 (.29) .61
Distributions from net
investment income (.72) (.71) (.69) (.69) (.74)
Distributions of realized
capital gains - - (.03) (.13) -
----------- ------------ ------------ ----------- ------------
Net asset value at
end of period $ 12.77 $ 12.77 $ 12.50 $ 12.48 $ 12.90
=========== ============ ============ =========== ============
Total return (%) * 5.80 7.97 6.16 3.06 11.29
Net assets at end
of period (000) $ 1,725,684 $ 1,660,039 $ 1,529,750 $ 1,559,183 $ 1,374,159
Ratio of expenses to
average net assets (%) .37 .38 .40 .40 .42
Ratio of net investment
income to average
net assets (%) 5.65 5.54 5.63 5.30 5.85
Portfolio turnover (%) 23.05 27.51 27.26 69.45 74.02
</TABLE>
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
<TABLE>
Short-Term Fund
March 31, 1997
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each
period is as follows:
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.57 $ 10.47 $ 10.48 $ 10.63 $ 10.48
Net investment income .49 .50 .47 .45 .50
Net realized and
unrealized gain (loss) - .10 (.01) (.15) .15
Distributions from net
investment income (.49) (.50) (.47) (.45) (.50)
----------- ------------ ------------ ----------- ------------
Net asset value at
end of period $ 10.57 $ 10.57 $ 10.47 $ 10.48 $ 10.63
=========== ============ ============ =========== ============
Total return (%) * 4.70 5.83 4.51 2.87 6.37
Net assets at end
of period (000) $ 804,897 $ 774,020 $ 801,157 $ 995,624 $ 862,182
Ratio of expenses to
average net assets (%) .41 .42 .42 .43 .43
Ratio of net investment
income to average
net assets (%) 4.60 4.73 4.50 4.25 4.75
Portfolio turnover (%) 27.67 35.99 32.61 101.67 138.20
</TABLE>
* Assumes reinvestment of all dividend income distributions during the period.
<TABLE>
Tax Exempt Money Market Fund
March 31, 1997
(7) Financial Highlights (continued)
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .03 .04 .03 .02 .03
Distributions from net
investment income (.03) (.04) (.03) (.02) (.03)
----------- ------------ ------------ ----------- ------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============ ============ =========== ============
Total return (%) * 3.30 3.65 2.98 2.31 2.89
Net assets at end
of period (000) $ 1,565,634 $ 1,529,176 $ 1,456,747 $ 1,569,760 $ 1,501,098
Ratio of expenses to
average net assets (%) .39 .40 .39 .40 .40
Ratio of net investment
income to average
net assets (%) 3.25 3.59 2.93 2.29 2.85
</TABLE>
* Assumes reinvestment of all dividend income distributions during the
period.
