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<PAGE> PAGE 11
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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<PAGE> PAGE 26
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<PAGE> PAGE 27
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 33
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<PAGE> PAGE 34
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<PAGE> PAGE 35
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<PAGE> PAGE 36
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<PAGE> PAGE 37
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<PAGE> PAGE 38
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<PAGE> PAGE 39
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<PAGE> PAGE 40
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<PAGE> PAGE 44
SIGNATURE ALEX M. CICCONE
TITLE ASSISTANT SECRETARY
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</TABLE>
<TABLE> <S> <C>
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<NAME> USAA TAX EXEMPT FUND, INC.
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<NAME> VIRGINIA BOND FUND
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<S> <C>
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<INTEREST-INCOME> 18,840
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</TABLE>
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, TX 78205-1585
INDEPENDENT AUDITORS' REPORT
ON INTERNAL CONTROL
The Shareholders and the Board of Directors
USAA Tax Exempt Fund, Inc.:
In planning and performing our audits of the financial statements of the USAA
Long-Term, USAA Intermediate-Term, USAA Short-Term, USAA Tax Exempt Money
Market, USAA California Bond, USAA California Money Market, USAA Virginia
Bond, USAA Virginia Money Market, USAA New York Bond and USAA New York
Money Market Funds, separate funds of USAA Tax Exempt Fund, Inc., for the year
ended March 31, 1998, we considered internal control, including procedures
for safeguarding securities, in order to determine our auditing procedures for
the purpose of expressing our opinions on the financial statements and to comply
with the requirements of Form N-SAR, not to provide assurance on the internal
control.
The management of USAA Tax Exempt Fund, Inc. is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of internal control policies and procedures. Two of the objectives of
internal control are to provide management with reasonable, but not absolute,
assurance that assets are safeguarded against loss from unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and recorded properly to permit preparation of financial
statements in conformity with generally accepted accounting principles.
Because of inherent limitations in internal control, errors or irregularities
may occur and may not be detected. Also, projection of any evaluation of
internal control to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the effectiveness of the
design and operation may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of the
specific internal control elements does not reduce to a relatively low level the
risk that errors or irregularities in amounts that would be material in relation
to the financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. However, we noted no matters involving internal control,
including procedures for safeguarding securities, that we consider to be
material weaknesses as defined above as of March 31, 1998.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
KPMG Peat Marwick LLP
May 8, 1998
