Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
USAA Long-Term Fund 4
USAA Intermediate-Term Fund 9
USAA Short-Term Fund 13
USAA Tax Exempt Money Market Fund 19
Financial Information:
Independent Auditors' Report 22
Statements of Assets and Liabilities 23
Portfolios of Investments in Securities:
USAA Long-Term Fund 27
USAA Intermediate-Term Fund 35
USAA Short-Term Fund 53
USAA Tax Exempt Money Market Fund 66
Notes to Portfolios of Investments in Securities 79
Statements of Operations 80
Statements of Changes in Net Assets 82
Notes to Financial Statements 86
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)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
- -------------------------------------------------------------------
CAPITAL APPRECIATION
===================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
USAA First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 Index(2) Moderate $3,000
Science & Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
ASSET ALLOCATION
====================================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME -TAXABLE
====================================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
====================================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
MONEY MARKET
====================================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) 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.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by
the U.S. Government, and there is no assurance that any of the funds will
be able to maintain a stable net asset value of $1 per share.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart(Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. 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.
Non-deposit investment products 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, and may lose value.
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.
Message from the President
In the last few years I have turned my attention more and more to the
subject of tax-efficient investing. Though a few fund companies
are beginning to write about this subject, it remains off the beaten
track of mutual fund investing. But I believe it is of great importance.
[PHOTOGRAPH OF PRESIDENT: MICHAEL J.C. ROTH, CFA APPEARS HERE]
Just recently a close friend whom I have advised for years asked me, "Will my
tax bracket be lower when I retire?" I told him, "No. I will not permit that." I
believe that much financial planning makes an invalid assumption that a
retiree's tax bracket will fall substantially when retirement comes. But it is
quite possible for a person whose income is in a high tax bracket to build an
estate that will sustain that bracket upon retirement. If that occurs,
tax-efficient investing can be very important.
For a mutual fund investor that means maximizing potential tax-exempt income and
long-term capital gains. Unfortunately all of the distributions from IRAs,
401(k)s, and variable annuities will be taxed as ordinary income. But a
non-sheltered portfolio of index funds or efficiently run equity portfolios can
be harvested principally as long-term capital gains at a 20% tax rate. And an
accompanying investment in tax-exempt funds may provide the fixed-income buffer
to stock market risk along with the potential for significant tax-exempt
returns. Such a non-sheltered portfolio may be a valuable addition to an
individual's investment plan and may provide valuable assistance while you live
through your retirement.
Much of the attention of financial planners is concentrated on preparing for
retirement. You must not overlook the fact that you have a good possibility of
enjoying decades of reward for your good planning after you retire.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
Investment Review
USAA LONG-TERM FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax.
TYPES OF INVESTMENTS: Invests primarily in investment grade tax-exempt
securities of varying maturities. The average weighted portfolio maturity is 10
years or more.
================================================================================
3/31/97 3/31/98
Net Assets $1,822.4 Million $2,042.5 Million
Net Asset Value Per Share $13.22 $14.00
================================================================================
AVERAGE ANNUAL TOTAL RETURNS AND 30-DAY SEC YIELD* AS OF 3/31/98
1 Year 5 Years 10 Years 30-day SEC Yield
12.04% 6.72% 8.49% 4.73%
================================================================================
* Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested dividends and
capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
- ---------------------------------
CUMULATIVE PERFORMANCE COMPARISON
- ---------------------------------
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 Investment for the USAA Long-Term Fund, Lehman Brothers
Municipal Bond Index and the Lipper General Municipal Debt Funds Average. The
data points from the graph are as follows:
USAA Long-Term Fund
Year Amount
- -------- ------
03/31/88 $10,000
09/30/88 $10,596
03/31/89 $10,972
09/30/89 $11,694
03/31/90 $12,118
09/30/90 $12,359
03/31/91 $13,142
09/30/91 $13,967
03/31/92 $14,507
09/30/92 $15,502
03/31/93 $16,314
09/30/93 $17,482
03/31/94 $16,700
09/30/94 $16,725
03/31/95 $17,546
09/30/95 $18,370
03/31/96 $18,928
09/30/96 $19,640
03/31/97 $20,160
09/30/97 $21,609
03/31/98 $22,586
Lehman Brothers Municipal Bond Index
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,455
03/31/89 $10,721
09/30/89 $11,363
03/31/90 $11,852
09/30/90 $12,135
03/31/91 $12,945
09/30/91 $13,736
03/31/92 $14,239
09/30/92 $15,171
03/31/93 $16,021
09/30/93 $17,105
03/31/94 $16,393
09/30/94 $16,687
03/31/95 $17,611
09/30/95 $18,553
03/31/96 $19,087
09/30/96 $19,674
03/31/97 $20,127
09/30/97 $21,448
03/31/98 $22,283
Lipper General Municipal Debt Funds Average
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,545
03/31/89 $10,902
09/30/89 $11,489
03/31/90 $11,874
09/30/90 $12,095
03/31/91 $12,882
09/30/91 $13,687
03/31/92 $14,175
09/30/92 $15,115
03/31/93 $16,019
09/30/93 $17,130
03/31/94 $16,334
09/30/94 $16,495
03/31/95 $17,374
09/30/95 $18,144
03/31/96 $18,653
09/30/96 $19,199
03/31/97 $19,591
09/30/97 $20,910
03/31/98 $21,722
Data from 3/31/88 through 3/31/98
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the investment grade tax-exempt bond market.
The Lipper General Municipal Debt Funds Average is the average performance level
of all general municipal debt funds, as computed by Lipper Analytical Services,
an independent organization that monitors the performance of mutual funds. All
tax-exempt bond funds will find it difficult to outperform the Lehman Index,
since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, KENNETH E. WILLMANN, CFA APPEARS HERE.]
THE "PEACE DIVIDEND"?
With the fall of Communism and the end of the Cold War in the late 1980s, it was
widely expected that the Free World would enjoy a "peace dividend." This was to
be a period of general prosperity and economic well-being resulting from turning
our attention from negative to positive pursuits. It didn't materialize within
six months of the destruction of the Berlin Wall, so the media and markets seem
to have forgotten it. At any rate, I haven't heard much about it in the last few
years.
We are now in an unprecedented seventh year of economic expansion in the U.S.
Each year the stock market has been making new highs. Interest rates have fallen
to levels not seen since the 1970s. Inflation is lower than it's been in well
over ten years.
Explanations for this prosperity include increased productivity related to
technological innovation, excellent monetary policy as practiced by the Federal
Reserve Board in this country, and rapid internationalization of the business
world. All of these undoubtedly figure in the picture. But doesn't the current
economic environment sound like the "peace dividend" expected ten years ago?
Maybe all these sweeping political, economic, and social changes take time to
work through the fabric of society.
INTEREST RATE MARKETS
As I have said several times in previous Annual and Semiannual Reports, a
primary (and probably the most important) determinant of the general level of
interest rates is inflation. The current inflation rate largely determines
short-term interest rates, but long-term rates are mostly dependent on the
outlook for future inflation. The general level of interest rates peaked in
1980, and so did inflation as measured by the Consumer Price Index (CPI).
Inflation has generally declined ever since, and so have interest rates. Neither
the decline in inflation nor interest rates has been in a straight line, but the
long-term trend in both has been down.
This pattern continued in the twelve months ended March 31, 1997. Interest rates
declined sharply until mid January 1998, then stabilized through March 1998.
This pattern is quite apparent in the graph below.
MUNI & U.S. TREASURY BOND YIELDS
A chart in the form of a line graph appears here illustrating the yields of the
30-year U.S. Treasury Bond and the Bond Buyer 40-Bond Index (BBI40) from 3/31/97
to 3/31/98.
30-year U.S. Treasury Bond Buyer 40-Bond Index (BBI40)
--------------------- --------------------------------
03/31 7.10% 5.95%
04/14 7.17% 6.01%
04/30 6.96% 5.89%
05/15 6.87% 5.78%
05/30 6.91% 5.74%
06/13 6.72% 5.60%
06/30 6.78% 5.69%
07/15 6.54% 5.54%
07/31 6.30% 5.40%
08/15 6.55% 5.56%
08/29 6.61% 5.55%
09/15 6.57% 5.48%
09/30 6.40% 5.47%
10/15 6.40% 5.50%
10/31 6.15% 5.40%
11/17 6.07% 5.41%
11/28 6.05% 5.36%
12/15 5.97% 5.27%
12/31 5.92% 5.26%
01/15 5.74% 5.10%
01/30 5.80% 5.19%
02/17 5.80% 5.15%
02/27 5.92% 5.24%
03/16 5.86% 5.24%
03/31 5.93% 5.27%
Note: Past perfomance is no guarantee of future results. The results of the
comparison reflect current conditions as regards to tax laws, inflationary
trends, and general corporate policies and practices. Investors are encouraged
to closely monitor changes in any factor which may affect their investments.
Please note that the top line is the yield of the active 30-year U.S. Treasury
Bond, or the "Long Bond", as it is known. This is generally considered the
benchmark for long-term interest rates in the U.S. The bottom line in the graph
represents the yield of the Bond Buyer 40-Bond Index (BBI40), which is the
industry standard for the yield of long-term, investment-grade municipal bonds.
The yield on the Long Bond began the period at 7.10%, fell sharply to 5.69% on
January 12, 1998, and settled at 5.93% on March 31, 1998. The BBI40 showed a
similar pattern. It began the period at 5.95%, fell to 5.10% on January 13,
1998, and ended the period at 5.27%.
LONG-TERM FUND PERFORMANCE
While past performance is no guarantee of future results, from April 1, 1997, to
March 31, 1998, your Fund paid a dividend distribution yield(1) of 5.55% versus
an average dividend distribution yield of 4.64% for the Lipper General Municipal
Debt Funds Average.(2) During the Fund's fiscal year, the share price rose $.78
to $14.00. Over this period, the Fund provided a total return(3) of 12.04%, well
above the Lipper average total return of 10.61%.
(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) Refer to page 4 for the Lipper Average definition.
(3) Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
Your Fund's performance earned 5-star ratings from Morningstar for the overall,
3-, and 5-year periods ended March 31, 1998, overall and among 1,525 and
782 funds, respectively, in the municipal bond fund category.(4)
- ------------------------------------
COMPARISON - 12 MONTH DIVIDEND YIELD
- ------------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Long-Term Fund and the Lipper General
Municipal Debt Funds Average from 3/31/89 to 3/31/98.
USAA Long-Term Lipper General Municipal
Fund Debt Funds Average*
-------------- ------------------------
03/31/89 7.57% 7.1%
03/31/90 7.29% 6.93%
03/31/91 7.15% 6.73%
03/31/92 6.78% 6.39%
03/31/93 6.21% 5.73%
03/31/94 6.1% 5.57%
03/31/95 6.01% 5.35%
03/31/96 6.03% 5.11%
03/31/97 5.95% 5.04%
03/31/98 5.55% 4.64%
The graph represents data from 3/31/89 to 3/31/98.
SEARCH FOR VALUE
When I am asked to describe the strategy I employ when managing the Fund, my
response is that I try to buy value. I simply don't make bets on the direction
of interest rates. Rather, I search for securities that represent value at the
time given current market conditions. The other side of that search is selling
securities from the portfolio that no longer represent value.
When I am further asked to explain what value is, or how it is determined, I
must respond that there are no hard rules. Value is a combination of yield,
credit quality, structure (maturity, coupon, redemption features, etc.), and
liquidity. The ability to recognize value is the ability to simultaneously
analyze the interaction of these four factors. It comes mostly from lots of
experience and market awareness. It is more art than science. Determining value
in the tax-exempt bond market is a full-time job and is almost impossible to do
single-handed. We have an excellent team of portfolio managers, analysts, and
traders who give input from slightly different perspectives.
* Refer to page 4 for the Lipper Average definition.
Past performance is no guarantee of future results.
(4) The Fund was also awarded a 4-star rating for the 10-year period ended March
31, 1998, among 345 funds in the municipal bond fund category. Morningstar
proprietary ratings reflect historical risk-adjusted performance through March
31, 1998. The ratings are subject to change monthly. Morningstar ratings are
calculated from the Fund's 3-, 5-, and 10-year average annual total returns, as
applicable, in excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects fund performance below 90-day
Treasury bill returns. There is a 3-year minimum performance requirement before
a fund is rated. Overall rating is a weighted average of a fund's 3-, 5-, and
10-year ratings, as applicable. The top ten percent of the funds in a rating
category receive five stars and the next 22.5% receive four stars.
TAX THOUGHTS
An interesting thing falls out of this value discipline. If you only purchase
securities when they represent value, and only sell them when they don't
represent value, you don't do many transactions. Real value is not constantly
available and neither is real overvaluation. In short, we only trade when a
compelling reason exists.
This fits right into my philosophy - as much as possible of the return from this
Fund should be free of taxation. When there is relatively low trading in a fund,
there tends to be low taxable capital gains distributions. I prefer to keep
capital gains in the Fund and let you decide when to realize them.
I further believe that tax-exempt income is now and always will be the biggest
part of any potential returns from a municipal bond fund. My aim is to pursue a
high level of income. I also believe that income should be tax-exempt to
everyone. Consequently, since its inception, neither this Fund nor any other
USAA tax-exempt fund has ever distributed income that was subject to the
Alternative Minimum Tax (AMT) for individuals. I have no intention of changing
that in the future. Of course, I would certainly advise our shareholders if
there is a change in the Federal Tax Code which compels us to reconsider our
position.
PORTFOLIO RATINGS/MIX
A pie chart is shown here depicting the Portfolio Mix as of March 31, 1998 of
the USAA Long-Term Fund to be:
AA - 25%, A - 18%, BBB - 30%, AAA - 27%
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 2.8% of the Fund's investments.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 27 for a complete listing of the Portfolio of Investments in
Securities.
Investment Review
USAA INTERMEDIATE-TERM FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax.
TYPES OF INVESTMENTS: Invests primarily in investment grade tax-exempt
securities of varying maturities. The average weighted portfolio maturity is
between 3 and 10 years.
================================================================================
3/31/97 3/31/98
Net Assets $1,725.7 Million $2,039.5 Million
Net Asset Value Per Share $12.77 $13.38
================================================================================
AVERAGE ANNUAL TOTAL RETURNS AND 30-DAY SEC YIELD* AS OF 3/31/98
1 Year 5 Years 10 Years 30-day SEC Yield
10.59% 6.69% 7.75% 4.52%
================================================================================
* Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested dividends and
capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
- ---------------------------------
CUMULATIVE PERFORMANCE COMPARISON
- ---------------------------------
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 Investment for the USAA Intermediate-Term Fund, Lehman
Brothers Municipal Bond Index and the Lipper Intermediate Municipal Debt Funds
Average. The data points from the graph are as follows:
USAA Intermediate-Term Fund
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,350
03/31/89 $10,604
09/30/89 $11,166
03/31/90 $11,589
09/30/90 $11,914
03/31/91 $12,552
09/30/91 $13,234
03/31/92 $13,711
09/30/92 $14,521
03/31/93 $15,259
09/30/93 $16,244
03/31/94 $15,726
09/30/94 $16,055
03/31/95 $16,696
09/30/95 $17,621
03/31/96 $18,027
09/30/96 $18,578
03/31/97 $19,072
09/30/97 $20,262
03/31/98 $21,092
Lehman Brothers Municipal Bond Index
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,455
03/31/89 $10,721
09/30/89 $11,363
03/31/90 $11,852
09/30/90 $12,135
03/31/91 $12,945
09/30/91 $13,736
03/31/92 $14,239
09/30/92 $15,171
03/31/93 $16,021
09/30/93 $17,105
03/31/94 $16,393
09/30/94 $16,687
03/31/95 $17,611
09/30/95 $18,553
03/31/96 $19,087
09/30/96 $19,674
03/31/97 $20,127
09/30/97 $21,448
03/31/98 $22,283
Lipper Intermediate Municipal Debt Funds Average
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,344
03/31/89 $10,552
09/30/89 $11,057
03/31/90 $11,443
09/30/90 $11,735
03/31/91 $12,408
09/30/91 $13,042
03/31/92 $13,467
09/30/92 $14,258
03/31/93 $14,940
09/30/93 $15,798
03/31/94 $15,354
09/30/94 $15,596
03/31/95 $16,205
09/30/95 $16,971
03/31/96 $17,338
09/30/96 $17,711
03/31/97 $18,086
09/30/97 $19,037
03/31/98 $19,615
Data from 3/31/88 through 3/31/98
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the investment grade tax-exempt bond market.
The Lipper Intermediate Municipal Debt Funds Average is the average performance
level of all intermediate municipal debt funds, as computed by Lipper Analytical
Services, an independent organization that monitors the performance of mutual
funds. All tax-exempt bond funds will find it difficult to outperform the
Lehman Index, since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, CLIFFORD A. GLADSON, CFA, APPEARS HERE.]
CREDIT MARKET REVIEW
During the Fund's fiscal year, April 1, 1997, to March 31, 1998, the yield on
10-year "AA" rated municipal bonds fell .62%. The credit market discounted the
hearty domestic economy and concentrated on long-term factors that appear to be
holding inflation under 2%.
FUND PERFORMANCE
While past performance is no guarantee of future results, from April 1, 1997, to
March 31, 1998, your Fund paid a dividend distribution yield(1) of 5.33% versus
an average dividend distribution yield of 4.26% for the Lipper Intermediate
Municipal Debt Funds Average.(2) Also during the fiscal year, the Fund's share
price rose $.61 to $13.38. Over this period, the Fund provided a total
return(3) of 10.59%, well above the Lipper average total return of 8.22%.
Your Fund's performance continues to earn 5-star ratings from Morningstar for
the overall, 3-, 5-, and 10-year periods ended March 31, 1998, overall and among
1,525, 782, and 345 funds, respectively, in the municipal bond fund category.(4)
(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) Refer to page 9 for the Lipper Average definition.
(3) Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
Past performance is no guarantee of future results.
(4) Morningstar proprietary ratings reflect historical risk-adjusted performance
through March 31, 1998. The ratings are subject to change monthly. Morningstar
ratings are calculated from the Fund's 3-, 5-, and 10-year average annual total
returns, as applicable, in excess of 90-day Treasury bill returns with
appropriate fee adjustments, and a risk factor that reflects fund performance
below 90-day Treasury bill returns. There is a 3-year minimum performance
requirement before a fund is rated. Overall rating is a weighted average of a
fund's 3-, 5-, and 10-year ratings, as applicable. The top ten percent of the
funds in a rating category receive five stars and the next 22.5% receive four
stars.
- ------------------------------------
COMPARISON - 12 MONTH DIVIDEND YIELD
- ------------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Intermediate-Term Fund and the Lipper
Intermediate Municipal Debt Funds Average from 3/31/89 to 3/31/98.
USAA Intermediate-Term Lipper Intermediate Municipal
Fund Debt Funds Average*
--------------------- -----------------------------
03/31/89 7.17% 6.57%
03/31/90 6.98% 6.42%
03/31/91 6.84% 6.22%
03/31/92 6.43% 5.84%
03/31/93 5.75% 5.17%
03/31/94 5.53% 4.8%
03/31/95 5.55% 4.68%
03/31/96 5.57% 4.54%
03/31/97 5.67% 4.48%
03/31/98 5.34% 4.26%
The graph represents data from 3/31/89 to 3/31/98.
TAXIDERMY
In February, we received a phone call from a shareholder of a competitor's
tax-exempt fund. She was disturbed that she received tax-exempt income subject
to the Federal Alternative Minimum Tax (AMT) plus a taxable capital gain
distribution. The manager told her to expect similar distributions in the
future. She asked how USAA tax-exempt funds addressed these issues.
While gross total return may gain media notoriety and attract assets, USAA
tax-exempt funds focus on the net income to the shareholder. We are dedicated to
shielding our shareholders both from any unexpected exposure to Federal income
tax and from the AMT. The narrative for the USAA Tax Exempt Short-Term Fund on
page 14 explains why we believe that an income orientation benefits the
tax-exempt shareholder. However, in this narrative I wish to share our response
to this specific investor's inquiry.
Our Position on the Federal Alternative Minimum Tax
Our shareholders have made it very clear that they do not want the income from
their USAA tax-exempt funds to be subject to the AMT. Consequently, since their
inception, no USAA tax-exempt fund has ever distributed income that was subject
to the AMT for individuals.
Looking ahead, we have no intention to purchase municipal bonds that are subject
to the AMT for individuals in any of the USAA tax-exempt funds. Of course, we
would certainly advise our shareholders if a change occurs in the Federal Tax
Code that would compel us to reconsider our position.
* Refer to page 9 for the Lipper Average definition.
USAA Tax-Exempt Funds' Philosophy for Capital Gains Distributions
Capital gains represent successful investment decisions. However, there are two
facets to capital gains. There are taxable capital gain distributions that are
periodically paid out to shareholders and there are unrealized capital gains
that are reflected in the share price.
USAA tax exempt-funds strive to minimize taxable capital gain distributions and
let the shareholders decide when it is in their best interest to realize a
taxable gain. The narrative for the USAA Tax Exempt Long-Term Fund on page 5
provides a description of value investing and explains how, when combined with
our income orientation, this helps to reduce the USAA tax-exempt fund
shareholders' exposure to taxable capital gain distributions.
We can't guarantee that a USAA tax-exempt fund will never be compelled to make a
taxable capital gains distribution, but we are committed to making these events
the exception rather than the rule.
In short, the above average performance of USAA tax-exempt funds has not been
achieved at the expense of the shareholder.
CURRENT MARKET CONDITIONS
It is difficult to put my finger on why inflation remains so tame. I feel it is
a combination of tight monetary policy, foreign competition, rising
productivity, and stable commodity prices. Even if the troubles in Asia fail to
moderate the growth in the domestic economy, the Chairman of the Federal Reserve
has made it clear that he thinks only minor revisions to monetary policy should
be necessary if there is an acceleration of the rate of inflation.
PORTFOLIO RATINGS/MIX
A pie chart is shown here depicting the Portfolio Mix as of March 31, 1998 of
the USAA Intermediate-Term Fund to be:
AA - 15%, A - 33%, BBB - 25%, AAA - 23%, BB - 3%, 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, A, and BBB account for .6%, .1%, and 1.0%, respectively,
of the Fund's investments.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 35 for a complete listing of the Portfolio of Investments in
Securities.
Investment Review
USAA SHORT-TERM FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax.
TYPES OF INVESTMENTS: Invests primarily in investment grade tax-exempt
securities of varying maturities. The average weighted portfolio maturity is 3
years or less.
================================================================================
3/31/97 3/31/98
Net Assets $804.9 Million $970.8 Million
Net Asset Value Per Share $10.57 $10.74
================================================================================
AVERAGE ANNUAL TOTAL RETURNS AND 30-DAY SEC YIELD* AS OF 3/31/98
1 Year 5 Years 10 Years 30-day SEC Yield
6.35% 4.84% 5.66% 3.85%
================================================================================
* Calculated as prescribed by the Securities and Exchange Commission.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested dividends and
capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
- ---------------------------------
CUMULATIVE PERFORMANCE COMPARISON
- ---------------------------------
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 Investment for the USAA Short-Term Fund, Lehman
Brothers Municipal Bond Index and the Lipper Short-Term Municipal Debt Funds
Average. The data points from the graph are as follows:
USAA Short-Term Fund
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,252
03/31/89 $10,478
09/30/89 $10,957
03/31/90 $11,306
09/30/90 $11,586
03/31/91 $12,015
09/30/91 $12,466
03/31/92 $12,867
09/30/92 $13,303
03/31/93 $13,687
09/30/93 $14,094
03/31/94 $14,079
09/30/94 $14,335
03/31/95 $14,715
09/30/95 $15,254
03/31/96 $15,573
09/30/96 $15,941
03/31/97 $16,305
09/30/97 $16,890
03/31/98 $17,340
Lehman Brothers Municipal Bond Index
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,455
03/31/89 $10,721
09/30/89 $11,363
03/31/90 $11,852
09/30/90 $12,135
03/31/91 $12,945
09/30/91 $13,736
03/31/92 $14,239
09/30/92 $15,171
03/31/93 $16,021
09/30/93 $17,105
03/31/94 $16,393
09/30/94 $16,687
03/31/95 $17,611
09/30/95 $18,553
03/31/96 $19,087
09/30/96 $19,674
03/31/97 $20,127
09/30/97 $21,448
03/31/98 $22,283
Lipper Short-Term Municipal Debt Funds Average
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,242
03/31/89 $10,456
09/30/89 $10,877
03/31/90 $11,228
09/30/90 $11,557
03/31/91 $11,990
09/30/91 $12,397
03/31/92 $12,766
09/30/92 $13,200
03/31/93 $13,543
09/30/93 $13,851
03/31/94 $13,928
09/30/94 $14,131
03/31/95 $14,435
09/30/95 $14,871
03/31/96 $15,194
09/30/96 $15,495
03/31/97 $15,784
09/30/97 $16,228
03/31/98 $16,594
Data from 3/31/88 through 3/31/98
The broad-based Lehman Brothers Municipal Bond Index is an unmanaged index that
tracks total return performance for the investment grade tax-exempt bond market.
The Lipper Short-Term Municipal Debt Funds Average is the average performance
level of all short-term municipal debt funds, as computed by Lipper
Analytical Services, an independent organization that monitors the performance
of mutual funds. All tax-exempt bond funds will find it difficult to outperform
the Lehman Index, since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, CLIFFORD A. GLADSON, CFA, APPEARS HERE.]
CREDIT MARKET REVIEW
Since our last annual report on March 31, 1997, to the end of the USAA
Short-Term Fund's fiscal year on March 31, 1998, yields on five-year "AA" rated
municipal bonds fell .53%. This reflects the credit markets' acknowledgement
that despite robust domestic economic growth, inflation was under control.
FUND PERFORMANCE
While past performance is no guarantee of future results, your Fund paid a
dividend distribution yield(1) for the fiscal year ended March 31, 1998, of
4.55% versus an average dividend distribution yield of 4.01% for the Lipper
Short-Term Municipal Debt Funds Average.(2) During the same period, the Fund's
share price rose $.17 to $10.74. Over the year, the Fund provided a total
return(3) of 6.35%, well above the Lipper average total return of 5.09%.
It is my pleasure to report as of March 31, 1998, the USAA Short-Term Fund is
ranked #1 by Lipper Analytical Services, Inc. in the Short-Term Municipal Debt
Funds category over the 5-, 10-, and 15-year time horizons, among 10, 6, and 5
funds, respectively.(4)
(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) Refer to page 13 for the Lipper Average definition.
(3) Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions.
(4) The Fund ranked #3 out of 29 funds for the 1-year period ended March 31,
1998. Lipper rankings are based on cumulative total returns.
- ------------------------------------
COMPARISON - 12 MONTH DIVIDEND YIELD
- ------------------------------------
A chart in the form of a bar graph appears here illustrating the comparison of
the 12 Month Dividend Yield of the USAA Short-Term Fund and the Lipper Short-
Term Municipal Debt Funds Average from 3/31/89 to 3/31/98.
USAA Short-Term Lipper Short-Term Municipal
Fund Debt Funds Average*
--------------- --------------------------
03/31/89 6.19% 5.85%
03/31/90 6.47% 6.18%
03/31/91 6.47% 6.07%
03/31/92 5.59% 5.41%
03/31/93 4.75% 4.47%
03/31/94 4.33% 3.74%
03/31/95 4.51% 4.04%
03/31/96 4.73% 4.13%
03/31/97 4.6% 4.15%
03/31/98 4.55% 4.01%
The graph represents data from 3/31/89 to 3/31/98.
Your Fund's performance continues to earn 5-star ratings from Morningstar for
the overall, 3-, 5-, and 10-year periods ended March 31, 1998, overall and among
1,525, 782, and 345 funds, respectively, in the municipal bond fund category.(5)
INCOMING
The primary objective of each USAA tax-exempt bond fund is to provide our
investors a potential high level of tax-exempt dividends. Each tax-exempt fund
is designed to promote tax-free income accumulation rather than taxable capital
gain distribution. Our income orientation reflects the mathematical nature of
bonds, the Federal Income Tax Code, and the behavior of the fixed income market.
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. Any tax-exempt income that is
earned depends on the bond's coupon yield at the time of purchase.
* Refer to page 13 for the Lipper Average definition.
Past performance is no guarantee of future results.
(5) Morningstar proprietary ratings reflect historical risk-adjusted performance
through March 31, 1998. 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,
as applicable, in excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects fund performance below 90-day
Treasury bill returns. There is a 3-year minimum performance requirement before
a fund is rated. Overall rating is a weighted average of a fund's 3-, 5-, and
10-year ratings, as applicable. The top ten percent of the funds in a rating
category receive five stars and the next 22.5% receive four stars.
Common sense dictates that taxpayers value tax-exempt income over taxable
capital gain distributions. The table below shows the sources of total return
for the USAA Short-Term Fund 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, tax-exempt income distributions help smooth
out the annualized total return.
Average Annual Compounded Returns with
Reinvestment of Dividends - Periods Ending March 31, 1998
TOTAL DIVIDEND PRICE
RETURN EQUALS RETURN PLUS CHANGE
- --------------------------------------------------------------------------------
10 Years 5.66% = 5.36% + .30%
- --------------------------------------------------------------------------------
5 Years 4.84% = 4.63% + .21%
- --------------------------------------------------------------------------------
1 Year 6.35% = 4.74% + 1.61%
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Short-Term Fund for the 10-
year period ended March 31, 1998.
Total Return for years ended: **Compounded Dividend Yield for years ending:
- ----------------------------- ---------------------------------------------
3/31/88 3.57% 3/31/88 5.81%
3/31/89 4.78% 3/31/89 6.22%
3/31/90 7.91% 3/31/90 6.74%
3/31/91 6.27% 3/31/91 6.65%
3/31/92 7.09% 3/31/92 5.83%
3/31/93 6.37% 3/31/93 4.94%
3/31/94 2.87% 3/31/94 4.28%
3/31/95 4.51% 3/31/95 4.61%
3/31/96 5.83% 3/31/96 4.87%
3/31/97 4.70% 3/31/97 4.70%
3/31/98 6.35% 3/31/98 4.74%
Change in Share Price
- ---------------------
3/31/88 -2.24%
3/31/89 -1.44%
3/31/90 1.17%
3/31/91 -0.38%
3/31/92 1.26%
3/31/93 1.43%
3/31/94 -1.41%
3/31/95 -0.10%
3/31/96 0.96%
3/31/97 0.00%
3/31/98 1.61%
** Compounded Dividend yield calculation includes only income distribution
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 makes market timing a losing proposition. Consequently, USAA tax-
exempt funds tend to remain fully invested and do not try to time the market.
When we trade bonds, it is to take advantage of interest rate movements that can
increase a fund's dividend distribution yield. We carefully manage trading
activity to minimize taxable capital gains distributions. The narrative of the
USAA Intermediate-Term Fund on page 10 discusses the USAA tax-exempt funds'
philosophy on capital gains distributions.
The second market factor that influences portfolio strategy is that yields for
municipal bonds tend to increase as bond maturity lengthens. In order to earn a
potential high level of income, this means the Fund's weighted average maturity
will usually be near its upper limit.
We believe that, over time, managing the USAA tax-exempt funds employing an
income-oriented approach has the potential to produce a superior net long-term
total return to the shareholder.
CURRENT MARKET CONDITIONS
The Federal Reserve anticipates some moderation in rate of growth in the
domestic economy. However, even if the economy continues at its current pace,
increases in productivity, favorable trends in commodity prices, and the
pressures of foreign competition seem to have the ability to keep inflation in
check. Given this dynamic tension between growth and inflation, I do not
anticipate any radical change in the level of short-term rates.
PORTFOLIO RATINGS/MIX
A pie chart is shown here depicting the Portfolio Mix as of March 31, 1998 of
the USAA Short-Term Fund to be:
AA - 12%, A - 29%, BBB - 21%, AAA - 18%, BB - 2%, Cash Equivalents - 18%
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 .6% and 2.7%, respectively, of the Fund's
investments.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 53 for a complete listing of the Portfolio of Investments in
Securities.
Investment Review
USAA TAX EXEMPT MONEY MARKET FUND
OBJECTIVE: Provide investors with interest income that is exempt from federal
income tax while preserving capital and maintaining liquidity.
TYPES OF INVESTMENTS: High quality tax-exempt securities with maturities of 397
days or less. The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less and will endeavor to maintain a constant net asset
value per share of $1.00.*
* An investment in this Fund is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Fund will maintain a stable
net asset value of $1.00 per share.
================================================================================
3/31/97 3/31/98
Net Assets $1,565.6 Million $1,631.8 Million
Net Asset Value Per Share $1.00 $1.00
================================================================================
AVERAGE ANNUAL TOTAL RETURNS AND CURRENT YIELD AS OF 3/31/98
1 Year 5 Years 10 Years 7-day Yield
3.48% 3.14% 4.06% 3.43%
================================================================================
Total return equals income return and assumes reinvestment of all dividends and
capital gain distributions. No adjustment has been made for taxes payable by
shareholders on their reinvested dividends and capital gain distributions. Past
performance is no guarantee of future results. Yields and returns fluctuate. The
7-day yield quotation more closely reflects current earnings of the Fund than
the total return quotation.
7-DAY YIELD COMPARISON
A chart in the form of a line graph appears here illustrating the comparison of
the 7-day Yield of the USAA Tax Exempt Money Market Fund and the IBC Financial
Data, Inc. SB (Stock Broker) and GP (General Purpose) (Tax-Free) Money Funds.
USAA Tax Exempt
Money Market Fund IBC Financial Data, Inc.
03/25/97 3.09% 2.75%
04/29/97 3.76% 3.51%
05/27/97 3.6% 3.25%
06/24/97 3.68% 3.29%
07/29/97 3.44% 3.06%
08/26/97 3.23% 2.86%
09/30/97 3.65% 3.29%
10/28/97 3.4% 3.09%
11/25/97 3.63% 3.24%
12/30/97 3.76% 3.34%
01/27/98 3.27% 2.92%
02/24/98 3.26% 2.79%
03/30/98 3.41%* 3.03%*
Data represent the last Monday of each month.
*Ending date 3/30/98
The graph tracks the Fund's 7-day simple yield against IBC Financial Data,
Inc. SB (Stock Broker) and GP (General Purpose) (Tax-Free) Money Funds, an
average of money market fund yields.
Message from the Manager
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, THOMAS G. RAMOS, CFA, APPEARS HERE.]
CREDIT MARKET REVIEW
In the last quarter of 1997 one-year Treasury Bills traded in a range of 5.20%
to 5.60%. With concerns about Far Eastern economies, a flight to quality began
the year, and one-year Treasury Bills moved down briefly to 5.07%. Since then,
these one-year securities have steadily moved up to around 5.38%. One-year
tax-exempt notes have essentially mirrored the movement of Treasury Bills.
Currently, yields on tax-exempt notes are about 3.60% or 67% of Treasury Bills.
Given steady domestic growth and concerns with Far East economies, it does not
appear that the Federal Reserve is anxious to raise short-term rates.
STRATEGY
According to IBC Financial Data Inc., assets in national tax-exempt money market
funds have grown 12.6% over the twelve months ending February 1998. Total assets
in tax-exempt money market funds amounted to $81.1 billion. This increase in
assets coupled with the lack of new issuance of tax-exempt paper has resulted in
demand outstripping supply and consequently lower rates. In this environment, we
remain committed to finding the best relative value in our market. We have been
very selective in buying one-year notes. As new money has come into the Fund and
as issues have matured, we have deployed these monies in variable rate
instruments(1) and short-term tax-exempt commercial paper. Variable rate demand
notes provide the owner with the ability to put back these securities with a one
to seven day notice. These instruments provide the Fund flexibility and allow me
the ability to purchase longer maturities should these securities become
attractive. We have also incrementally increased our exposure to tax-exempt
commercial paper. These securities are written to a specific maturity, and we
have generally purchased these issues with maturities between forty to sixty
days. Commercial paper written to these maturities has been more attractive
than comparable fixed rate notes.
(1) Variable rate demand notes represent borrowings that are payable on demand
and that bear interest tied to a money market rate.
REGULATORY ENVIRONMENT
In December 1997, the Securities and Exchange Commission (SEC) adopted
amendments to Rule 2a-7. Rule 2a-7 puts forth the rules and regulations which
govern the operation of money market funds. The rule was originally adopted in
1983 and has gone through several revisions with the latest occurring last
year. The new amendments will become effective in July 1998. USAA Investment
Management Company's money market portfolio managers and research, compliance
and legal teams have kept abreast of the amendments, and we will be sure that
our portfolios comply with SEC rules.
PORTFOLIO
As of this writing, the maturity of the portfolio is about 47 days.
Historically, this is relatively short for the Fund. Currently, the Fund's
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.
- ---------------------------------
CUMULATIVE PERFORMANCE COMPARISON
- ---------------------------------
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 investment of the USAA Tax Exempt Money Market Fund.
The data is from 3/31/88 to 3/31/98. The data points from the graph are as
follows:
USAA Tax Exempt Money Market Fund
Year Amount
- ---- ------
03/31/88 $10,000
09/30/88 $10,255
03/31/89 $10,557
09/30/89 $10,890
03/31/90 $11,216
09/30/90 $11,549
03/31/91 $11,882
09/30/91 $12,159
03/31/92 $12,392
09/30/92 $12,586
03/31/93 $12,751
09/30/93 $12,902
03/31/94 $13,046
09/30/94 $13,212
03/31/95 $13,434
09/30/95 $13,683
03/31/96 $13,925
09/30/96 $14,155
03/31/97 $14,384
09/30/97 $14,636
03/31/98 $14,884
Data from 3/31/88 through 3/31/98
Past performance is no guarantee of future results and the value of your
investment will vary according to the Fund's performance. Income may be subject
to federal, state or local taxes, or to the alternative minimum tax. For 7-day
yield information, please refer to the Fund's Investment Review page.
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 66 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, including
the portfolios of investments in securities, of the USAA Long-Term, USAA
Intermediate-Term, USAA Short-Term, and USAA Tax Exempt Money Market Funds,
portfolios of the USAA Tax Exempt Fund, Inc. as of March 31, 1998, and 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 financial highlights presented in note 7 to the financial statements for
each of the years in the five-year period then ended. These financial statements
and financial highlights are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights 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 are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1998, 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 referred to
above present fairly, in all material respects, the financial position of the
USAA Long-Term, USAA Intermediate-Term, USAA Short-Term, and USAA Tax Exempt
Money Market Funds, portfolios of the USAA Tax Exempt Fund, Inc. as of March 31,
1998, 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 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 8, 1998
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
March 31, 1998
USAA USAA
Long-Term Intermediate-Term
Fund Fund
------------------------------
ASSETS
Investments in securities, at market value
(identified cost of $1,864,063 and
$1,895,769, respectively) $2,045,025 $ 2,032,980
Cash 247 606
Receivables:
Capital shares sold 1,488 999
Interest 30,892 29,566
---------- -----------
Total assets 2,077,652 2,064,151
---------- -----------
LIABILITIES
Securities purchased 30,728 21,422
Capital shares redeemed 894 419
USAA Investment Management Company 487 483
USAA Transfer Agency Company 69 81
Accounts payable and accrued expenses 121 159
Dividends on capital shares 2,828 2,082
---------- ----------
Total liabilities 35,127 24,646
---------- ----------
Net assets applicable to
capital shares outstanding $2,042,525 $2,039,505
========== ==========
REPRESENTED BY:
Paid-in capital $1,894,420 $1,904,769
Accumulated net realized loss on investments (32,857) (2,475)
Net unrealized appreciation of investments 180,962 137,211
---------- ----------
Net assets applicable to
capital shares outstanding $2,042,525 $2,039,505
========== ==========
Capital shares outstanding 145,921 152,420
========== ==========
Authorized shares of $.01 par value 175,000 170,000
========== ==========
Net asset value, redemption price,
and offering price per share $ 14.00 $ 13.38
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
(IN THOUSANDS)
March 31, 1998
USAA USAA Tax Exempt
Short-Term Money Market
Fund Fund
-----------------------------
ASSETS
Investments in securities, at market value
(identified cost of $947,328 and $1,599,813,
respectively) $ 966,255 $1,599,813
Cash 680 4,786
Receivables:
Capital shares sold 642 1,359
Interest 12,157 12,702
Securities sold - 27,260
---------- ----------
Total assets 979,734 1,645,920
---------- ----------
LIABILITIES
Securities purchased 7,350 6,675
Capital shares redeemed 651 6,689
USAA Investment Management Company 230 382
USAA Transfer Agency Company 45 73
Accounts payable and accrued expenses 105 105
Dividends on capital shares 548 211
---------- ----------
Total liabilities 8,929 14,135
---------- ----------
Net assets applicable to
capital shares outstanding $ 970,805 $1,631,785
========== ==========
REPRESENTED BY:
Paid-in capital $ 955,481 $1,631,785
Accumulated net realized loss on investments (3,603) -
Net unrealized appreciation of investments 18,927 -
---------- ----------
Net assets applicable to
capital shares outstanding $ 970,805 $1,631,785
========== ==========
Capital shares outstanding 90,431 1,631,785
========== ==========
Authorized shares of $.01 par value 135,000 2,600,000
========== ==========
Net asset value, redemption price,
and offering price per share $ 10.74 $ 1.00
========== ==========
See accompanying notes to financial statements.
CATEGORIES AND DEFINITIONS
PORTFOLIOS OF INVESTMENTS IN SECURITIES
March 31, 1998
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. If the
securities are enhanced by a bond insurer, scheduled principal and interest
payments are insured by:
(1) Municipal Bond Insurance Association. (9) College Construction Loan
(2) AMBAC Indemnity Corp. Insurance Association.
(3) Financial Guaranty Insurance Co. (10) Continental Casualty Co.
(4) Financial Security Assurance, Inc. (11) Continental General Corp.
(5) Asset Guaranty Reinsurance Co. (12) Connecticut General Life
(6) AXA Reinsurance Group. Insurance Co.
(7) American Capital Access. (13) Texas Permanent School Fund.
(8) TRYGG-HANSA Insurance (14) Metropolitan Life Insurance Co.
Company Ltd. (15) Provident Mutual Life Insurance
Co.
The insurance does not guarantee the market value of the municipal bonds.
PORTFOLIO DESCRIPTION ABBREVIATIONS
BAN Bond Anticipation Note ISD Independent School District
COP Certificate of Participation MFH Multi-Family Housing
CP Commercial Paper PCRB Pollution Control Revenue Bond
CRE Credit Enhanced RB Revenue Bond
GO General Obligation RN Revenue Note
IDA Industrial Development RAN Revenue Anticipation Note
Authority/Agency SFH Single-Family Housing
IDB Industrial Development Board TAN Tax Anticipation Note
IDC Industrial Development Corporation TRAN Tax Revenue Anticipation Note
IDRB Industrial Development Revenue Bond
USAA LONG-TERM FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
(IN THOUSANDS)
March 31, 1998
Principal Coupon Final Market
Amount Security Rate Maturity Value
- -------------------------------------------------------------------------------
FIXED RATE INSTRUMENTS (99.9%)
Alabama (0.6%)
$ 3,750 Baldwin County Health Care RB,
Series 1996 6.75% 4/01/21 $ 4,098
8,000 Courtland IDRB, Series 1994 5.90 2/01/17 8,445
Alaska (2.9%)
Housing Finance Corp.
Collateralized RB,
8,030 1991 Second Series 6.90 6/01/32 8,541
9,785 1994 First Series 6.70 12/01/19 10,455
15,195 1995 First Series (CRE) 6.55 12/01/37 16,229
21,175 Valdez Marine Terminal RB, Series
1985A 7.00 12/01/25 23,352
California (8.7%)
11,350 Central Valley Finance Auth. RB,
Series 1993 6.20 7/01/20 12,027
11,500 Los Angeles Regional Airport
Improvement Corp. Refunding RB,
Series 1996 6.35 11/01/25 12,632
17,000 Sacramento Cogeneration Auth. RB,
Series 1995 6.50 7/01/21 18,575
San Joaquin Hills Transportation
Corridor Agency RB,
74,000 Senior Lien a 6.75 1/01/32 83,652
64,335 Series 1997A (CRE) (1), (b) 5.66 1/15/26 15,118
140,000 Series 1997A (CRE) (1), (b) 5.65 1/15/34 21,547
100,000 Series 1997A (CRE) (1), (b) 5.59 1/15/35 14,586
Colorado (1.5%)
14,200 Health Facilities Auth. Hospital RB,
Series 1993 6.63 2/01/13 15,288
11,480 Summit County Sports Facilities RB,
Series 1990 7.88 9/01/08 14,346
Connecticut (2.3%)
4,000 Health and Educational Facilities
Auth. RB, Series 1996C 6.63 7/01/26 4,362
41,200 Mashantucket (Western) Pequot Tribe
RB, Series 1997B (h) 5.75 9/01/27 42,203
District of Columbia (1.0%)
11,930 Health Facilities Mortgage RB,
Series 1985 7.75 8/01/29 12,193
8,000 Hospital RB, Series 1992B (a) 7.00 8/15/15 8,983
Georgia (0.5%)
10,000 Savannah Economic Development Auth.
PCRB, Series 1995 6.15 3/01/17 11,251
Hawaii (0.1%)
1,500 Department of Budget & Finance RB,
Series 1988 (c) 5.50 7/01/28 1,505
Idaho (1.2%)
23,400 Nez Perce County PCRB, Series 1996 6.00 10/01/24 24,803
Illinois (6.1%)
Chicago Gas Supply RB,
13,500 Series 1985B 7.50 3/01/15 14,532
7,500 Series 1985C 7.50 3/01/15 8,074
24,250 Series 1995A 6.10 6/01/25 25,969
13,725 Chicago-O'Hare International Airport
RB, Series 1994 8.20 12/01/24 16,807
6,700 Development Finance Auth. RB,
Series 1996B (CRE) 6.40 9/01/31 7,382
17,775 Health Facilities Auth. RB, Series
1992 7.00 1/01/15 19,012
19,600 Quincy Hospital RB, Series 1993 6.00 11/15/18 20,067
10,980 Regional Transport Auth. GO,
Series 1994C (CRE) (3) 7.10 6/01/25 12,649
Indiana (3.9%)
10,945 Development Finance Auth.
Environmental RB, Series 1996 6.15 7/15/22 11,757
5,385 Fifth Avenue Housing Development
Corp. RB, Series 1992C 7.25 7/01/25 5,681
100,675 Health Facility Financing Auth. RB,
Series 1992C (b) 7.89 7/01/23 15,198
41,750 Indianapolis Airport Facility RB 6.80 4/01/17 46,268
Iowa (0.2%)
5,250 Finance Auth. Hospital Facilities RB,
Series 1998 A (CRE) (1), (c) 5.13 1/01/28 5,060
Kansas (0.5%)
60,245 Sedgwick County Mortgage Loan RB,
Senior Series 1991A (b) 7.11 12/01/22 10,191
Kentucky (1.9%)
39,595 Louisville and Jefferson County
Metro Sewer District RB, Series
1997B (CRE) (1) 5.20 5/15/25 39,308
Louisiana (1.5%)
25,730 Lake Charles Harbor and Terminal
District Port Facilities RB,
Series 1995A 7.75 8/15/22 29,682
Maryland (0.7%)
13,735 Community Development Administration
SFH RB, Series 1996A 5.95 7/01/23 14,504
Massachusetts (2.3%)
24,000 State GO, Series 1991A (a) 7.63 6/01/08 26,932
Turnpike Auth. RB,
7,100 Series 1993A (CRE) (1) 5.00 1/01/20 7,142
60,730 Series 1997A (CRE) (1), (b) 5.48 1/01/29 12,482
Michigan (2.9%)
9,900 Battle Creek Downtown Development
Auth. Development Bonds, Series
1994 (a) 7.60 5/01/16 11,747
13,005 Dickinson County Economic
Development Corp. PCRB, Series
1993 5.85 10/01/18 13,684
Hospital Finance Auth. RB,
7,250 Series 1995 6.70 1/01/26 8,038
15,500 Series 1995A (a) 7.50 10/01/27 18,558
6,500 Job Development Auth. RB,
Series 1990A (CRE) 8.00 12/01/13 7,127
800 Strategic Fund RB, Series 1998 5.38 7/01/28 789
Minnesota (3.4%)
International Falls PCRB,
5,000 Series 1997 5.65 12/01/22 5,162
9,750 Series 1998 (c) 5.50 4/01/23 9,777
50,690 St. Paul Housing and Redevelopment
Auth. Hospital RB, Series 1993A 6.63 11/01/17 54,577
Mississippi (1.7%)
Lafayette County Hospital RB,
2,940 Series 1991A (a) 7.95 3/01/16 3,294
15,175 Series 1991B (a) 7.95 3/01/16 17,001
Union County Hospital RB,
4,450 Series 1991A (a) 7.95 3/01/16 4,985
8,350 Series 1991B (a) 7.95 3/01/16 9,355
Missouri (0.3%)
5,000 Health and Educational Facilities RB,
Series 1996A 6.38 2/01/27 5,286
Montana (1.1%)
14,545 Board of Housing RB, Series 1997A-1 6.05 12/01/37 15,217
7,660 Lewis and Clark County Environmental
RB, Series 1998 5.60 1/01/27 7,842
Nevada (0.8%)
15,650 Humboldt County PCRB, Series 1984 8.30 12/01/14 18,725
New Hampshire (2.4%)
Higher Educational and Health
Facilities Auth. RB,
10,785 Series 1993 6.38 7/01/23 11,382
4,500 Series 1998 (CRE) (7) 5.30 10/01/28 4,446
31,085 Single-Family Mortgage Finance Auth.
RB, Series 1993B 6.05 7/01/25 32,300
New Jersey (0.8%)
15,000 Camden County Improvement Authority
RB, Series 1997 6.00 2/15/27 15,700
New Mexico (2.5%)
16,000 Chaves County Hospital RB 7.25 12/01/22 17,678
30,100 Lordsburg PCRB 6.50 4/01/13 33,036
New York (14.9%)
21,500 Dormitory Auth. RB, Series 1996B
(Mental Health Services) 6.00 8/15/16 23,953
74,245 Housing New York Corp. RB, Series
1993 5.00 11/01/18 71,112
14,000 Local Government Assistance Corp.
RB, Series 1993E 5.00 4/01/21 13,849
Medical Care Facilities Finance
Agency RB,
36,275 Series 1994A (New York Hospital)
(CRE) (2), (a) 6.90 8/15/34 42,287
13,900 Series 1995A (Brookdale
Hospital) (a) 6.85 2/15/17 16,121
New York City GO,
49,950 Series 1995B (a) 7.25 8/15/19 58,663
50 Series 1995B 7.25 8/15/19 57
5,890 Series 1997I 6.25 4/15/17 6,395
31,050 Series 1997I 6.25 4/15/27 33,642
42,000 New York City Municipal Water Finance
Auth. RB, Series 1998D (b) 5.08 6/15/20 13,375
14,625 Port Auth. of New York and New
Jersey RB, Eighty-Fifth Series 5.38 3/01/28 15,400
8,600 Urban Development Corp. RB, Series
1995 5.70 4/01/20 9,160
North Carolina (0.9%)
17,255 Housing Finance Agency RB, Series R 6.95 9/01/23 18,492
Oklahoma (2.2%)
41,550 Tulsa Municipal Airport
Transportation RB, Series 1995 6.25 6/01/20 44,617
Pennsylvania (2.3%)
Montgomery County IDA RB,
7,500 Series 1996A 5.88 11/15/22 7,791
10,000 Series 1996B 5.75 11/15/17 10,304
27,470 Philadelphia Gas Works RB, 14th
Series 6.38 7/01/26 29,471
Puerto Rico (5.2%)
Electric Power Auth. RB,
15,000 Series DD (c) 5.00 7/01/28 14,346
21,175 Series T 6.38 7/01/24 24,109
25,450 Series X 6.13 7/01/21 27,771
43,120 Highway and Transportation Auth. RB,
Series 1998A 4.75 7/01/38 39,926
Rhode Island (1.3%)
25,000 Housing and Mortgage Finance Corp.
SFH RB, Series 15-A 6.85 10/01/24 26,854
South Carolina (1.1%)
Connector 2000 Association Toll
Road RB,
12,700 Series 1998B (b) 5.78 1/01/22 3,293
13,000 Series 1998B (b) 5.80 1/01/23 3,169
13,500 Series 1998B (b) 5.80 1/01/24 3,107
16,200 Series 1998B (b) 5.80 1/01/25 3,522
17,100 Series 1998B (b) 5.83 1/01/27 3,288
17,500 Series 1998B (b) 5.83 1/01/28 3,177
20,500 Series 1998B (b) 5.83 1/01/29 3,514
Texas (6.5%)
19,500 Bell County Health Facilities
Development Corp. RB, Series 1989 6.50 7/01/19 22,803
16,705 Fort Bend ISD GO, Series 1997
(CRE) (13) 4.75 8/15/22 15,738
12,500 Harris County Health Facilities RB,
Series 1992 (a) 7.13 6/01/15 14,137
19,300 Harris County IDC RB, Series 1992 6.95 2/01/22 20,992
21,000 Port of Corpus Christi IDC PCRB,
Series 1997A 5.45 4/01/27 21,085
San Antonio Electric and Gas RB,
14,100 Series 1989A (a) 6.00 2/01/14 14,580
6,955 Series 1989A 6.00 2/01/14 7,169
Tyler Health Facilities Development
Corp. RB,
4,700 Series 1993A 6.75 11/01/25 5,049
10,300 Series 1993B 6.75 11/01/25 11,066
Utah (1.4%)
30,400 Murray City Hospital RB,
Series 1996 (CRE) (1) 4.75 5/15/20 28,423
Virginia (2.4%)
8,700 Henrico County IDA Hospital RB,
Series 1985C (a) 7.50 9/01/11 9,504
15,000 Housing Development Auth.
Commonwealth Mortgage RB,
Series 1990B, Subseries B5 6.90 7/01/13 15,584
21,950 Peninsula Ports Auth. RB,
Series 1992 (CRE) 7.38 6/01/20 24,298
Washington (7.5%)
3,500 Housing Finance Commission RB,
Series 1996A (CRE) 6.85 7/01/21 3,684
66,485 King County GO, Series 1994A 6.25 1/01/34 72,884
73,500 Seattle Metropolitan Sewer RB,
Series V (g) 6.20 1/01/32 76,957
West Virginia (0.7%)
12,500 Water Development Auth. RB,
Series 1991A (CRE) (4) 7.00 11/01/25 13,789
Wyoming (1.7%)
33,735 Community Development Auth. SFH RB,
Series 1993A 6.10 6/01/33 35,039
- -------------------------------------------------------------------------------
Total fixed rate instruments
(cost: $1,861,178) 2,042,140
- -------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (0.2%)
California (0.1%)
2,115 Statewide Communities Development
Auth. COP, Series 1996 (CRE) 3.75 6/01/26 2,115
District of Columbia (0.1%)
770 GO, Series 1991B-1 (CRE) 3.85 6/01/03 770
- -------------------------------------------------------------------------------
Total variable rate demand notes
(cost: $2,885) 2,885
- -------------------------------------------------------------------------------
Total investments (cost: $1,864,063) $2,045,025
===============================================================================
PORTFOLIO SUMMARY BY INDUSTRY PORTFOLIO SUMMARY BY STATE
----------------------------- --------------------------
Escrowed Bonds 18.1% Alabama .6%
Hospitals 10.8 Alaska 2.9
Single-Family Housing 10.0 California 8.8
Water/Sewer Utilities-Municipal 7.0 Colorado 1.5
Electric/Gas Utilities-Municipal 6.5 Connecticut 2.3
General Obligations 6.3 District of Columbia 1.1
Toll Roads 4.3 Georgia .5
Natural Gas Utilities 3.8 Hawaii .1
Airlines 3.6 Idaho 1.2
Buildings 3.5 Illinois 6.1
Paper & Forest Products 3.0 Indiana 3.9
Special Assessment/Tax/Fee 2.6 Iowa .2
Nursing/Continuing Care Centers 2.4 Kansas .5
Air Freight 2.3 Kentucky 1.9
Gaming Companies 2.1 Louisiana 1.5
Metals/Mining 2.0 Maryland .7
Airport/Port 1.9 Massachusetts 2.3
Healthcare-Miscellaneous 1.2 Michigan 2.9
Oil-International Integrated 1.1 Minnesota 3.4
Education 1.0 Mississippi 1.7
Leasing 1.0 Missouri .3
Oil & Gas-Refining/Manufacturing 1.0 Montana 1.1
Other 4.6 Nevada .8
----- New Hampshire 2.4
Total 100.1% New Jersey .8
===== New Mexico 2.5
New York 14.9
North Carolina .9
Oklahoma 2.2
Pennsylvania 2.3
Puerto Rico 5.2
Rhode Island 1.3
South Carolina 1.1
Texas 6.5
Utah 1.4
Virginia 2.4
Washington 7.5
West Virginia .7
Wyoming 1.7
-----
Total 100.1%
=====
USAA INTERMEDIATE-TERM FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
(IN THOUSANDS)
March 31, 1998
Principal Coupon Final Market
Amount Security Rate Maturity Value
- -------------------------------------------------------------------------------
FIXED RATE INSTRUMENTS (92.1%)
Alabama (0.1%)
$ 2,000 Baldwin County Health Care Auth.
Hospital RB, Series 1996 6.75% 4/01/15 $ 2,187
Alaska (0.6%)
Housing Finance Corp. Mortgage RB,
8,400 Series 1996A (CRE) (1) 6.00 12/01/15 8,891
4,000 Series 1997A-1 5.50 12/01/17 4,086
Arizona (0.4%)
4,000 Educational Loan Marketing Corp. RB,
Series 1992A 6.70 3/01/00 4,168
4,500 Maricopa County Hospital RB,
Series 1997 6.13 4/01/18 4,793
Arkansas (0.9%)
6,945 Mississippi County Hospital RB,
Series 1992B 6.85 11/01/02 7,369
8,635 St. Francis County Hospital RB,
Series 1985 6.50 2/01/05 8,990
1,865 Student Loan RB, Series 1991 7.15 6/01/02 1,970
California (6.2%)
7,100 Central Valley Financing Auth. RB 6.10 7/01/13 7,525
10,500 Contra Costa Transportation Auth.
RB, Series 1991A (CRE) (3), (b) 6.30 3/01/03 8,492
Foothill/Eastern Transportation
Corridor Agency RB,
10,000 Series 1995A (b) 6.87 1/01/10 7,743
15,000 Series 1995A (b) 7.10 1/01/11 11,732
9,085 Series 1995A (b) 6.82 1/01/13 7,125
5,635 Housing Finance Agency RB,
Series 1996A (CRE) (1) 5.70 8/01/10 5,935
22,020 Pleasanton Joint Powers Financing
Auth. RB, Series 1993A 6.00 9/02/05 23,621
Sacramento Cogeneration Auth. RB,
3,300 Series 1995 6.38 7/01/10 3,632
9,100 Series 1995 5.88 7/01/15 9,545
San Joaquin Hills Transportation
Corridor Agency Senior Lien RB,
3,525 Series 1993 (b) 7.05 1/01/05 3,233
8,305 Series 1993 (b) 7.87 1/01/06 7,750
5,000 Series 1993 (b) 7.50 1/01/07 4,741
16,795 Series 1993 (b) 7.71 1/01/08 16,269
Southern California Public Power
Auth. RB,
6,410 Series 1992 (b) 6.10 7/01/04 4,870
6,285 Series 1992 (b) 6.10 7/01/04 4,788
Colorado (1.5%)
5,200 Arapahoe County IDA RB, Series 1991 7.00 2/01/01 5,562
10,000 Health Facilities Auth. Hospital RB,
Series 1993 6.63 2/01/13 10,766
2,500 Housing and Finance Auth. MFH RB,
Series 1997C-3 5.65 10/01/15 2,565
10,310 Student Obligations RB, Series
1991A-2 6.90 9/01/02 10,822
Connecticut (1.3%)
Mashantucket (Western) Pequot
Tribe RB,
4,960 Series 1996A (a), (h) 6.40 9/01/11 5,699
5,040 Series 1996A (h) 6.40 9/01/11 5,610
1,000 Series 1997B (h) 5.60 9/01/09 1,047
2,400 Series 1997B (h) 5.70 9/01/12 2,500
10,800 Series 1997B (h) 5.75 9/01/18 11,081
District of Columbia (3.4%)
GO,
27,750 Series 1993A 5.80 6/01/04 29,427
7,500 Series 1994A-3 5.50 6/01/06 7,846
11,780 Series E 5.75 6/01/05 12,480
12,000 Series E 5.75 6/01/06 12,676
6,250 Hospital RB, Series 1992B (a) 6.75 8/15/07 6,749
Florida (1.8%)
Dade County RB,
7,410 Series 1996B (CRE) (2), (b) 5.90 10/01/10 4,100
8,255 Series 1996B (CRE) (2), (b) 6.00 10/01/11 4,289
8,610 Series 1996B (CRE) (2), (b) 6.10 10/01/12 4,188
8,760 Series 1996B (CRE) (2), (a), (b) 6.20 10/01/13 4,158
5,000 Housing Finance Agency MFH RB,
Series 1984C 6.25 12/01/06 5,231
2,805 Miami Health Facilities Auth. RB,
Series 1988A 7.75 8/01/00 2,893
5,935 Nassau County PCRB, Series 1989 7.65 6/01/06 6,203
5,000 North Miami Educational Facilities
RB 6.10 4/01/13 5,245
Georgia (0.8%)
7,300 Gwinnett County MFH RB,
Series 1985B (CRE) 7.50 6/01/98 7,331
8,760 Metropolitan Atlanta Rapid Transit
RB, Series M 6.25 7/01/03 9,439
Hawaii (0.3%)
Department of Budget and Finance RB,
1,100 Series 1998 (c) 5.25 7/01/13 1,093
700 Series 1998 (c) 5.35 7/01/18 695
5,000 Housing Finance and Development
Corp. RB, Series 1997B 5.45 7/01/17 5,092
Illinois (4.3%)
2,770 Bedford Park Tax Increment RB,
Series 1993 7.38 12/01/04 3,248
4,880 Boone, McHenry and Dekalb Counties
Community Unit School District GO,
Series 1997 (CRE) (4), (b) 5.30 12/01/13 2,177
21,235 Chicago-O'Hare International Airport
RB, Series 1994A (CRE) (1), (g) 6.20 1/01/07 23,590
7,460 Cook County Forest Preserve District
GO, Series 1996 (CRE) (1) 5.80 11/01/16 7,863
10,110 Development Finance Auth. RB,
Series 1995 7.00 3/01/07 11,332
Health Facilities Auth. RB,
2,010 Series 1989 (a) 7.75 5/15/00 2,138
6,700 Series 1992 7.00 1/01/07 7,290
8,000 Series 1993B (CRE) (1) 5.75 8/15/14 8,385
3,150 Series 1996 6.00 1/01/06 3,411
7,815 Series 1996 6.38 1/01/15 8,478
5,000 Series 1996A 6.00 11/15/15 5,292
1,015 Independent Higher Education Loan
Auth. RB, Series 1985 (CRE) 7.50 12/01/99 1,024
10,000 Will County Community School
District GO, Series B
(CRE) (4), (b) 5.50 11/01/14 4,289
Indiana (3.0%)
Health Facility Financing Auth. RB,
5,900 Series 1993 (a) 5.90 11/01/09 6,054
16,800 Series 1994 (a) 6.20 7/01/09 17,536
1,400 Series 1998 (c) 5.25 2/15/18 1,375
6,000 Indianapolis Economic Development RB,
Series 1996 6.05 1/15/10 6,436
Marion County Hospital Auth. RB,
8,400 Series 1992 (a) 6.10 10/01/03 8,784
6,500 Series 1992 (a) 6.55 10/01/08 7,038
Pike Township School Building
Corp. RB,
4,600 Series 1992A 6.00 2/01/06 4,930
4,700 Series 1992A 6.00 8/01/06 5,038
3,150 Scottsburg Economic Development RB,
Series 1990 7.13 3/01/99 3,241
1,150 St. Joseph County Economic
Development RB, Series 1997 5.45 2/15/17 1,152
Iowa (1.0%)
6,000 Finance Auth. RB, Series 1998A
(CRE) (1), (c) 5.25 7/01/15 6,020
3,280 Higher Education Loan Auth. RB (CRE) 6.13 10/01/16 3,580
10,000 Student Loan Liquidity Corp. RB,
Series 1992A (g) 6.45 3/01/02 10,630
Louisiana (1.3%)
Orleans Levee District RB,
7,620 Series 1986 (CRE) (4) 5.95 11/01/14 8,296
7,655 Series 1986 (CRE) (4) 5.95 11/01/15 8,257
7,015 Series A (CRE) (4) 5.95 11/01/10 7,738
1,400 Public Facilities Auth. RB, Series
1997B 5.63 8/01/17 1,441
Maine (2.2%)
41,400 Bucksport Solid Waste Disposal RB 6.25 5/01/10 44,024
Maryland (1.5%)
Community Development
Administration RB,
22,250 1997 First Series 5.60 4/01/18 23,064
8,000 Series 1996A 5.88 7/01/16 8,433
Massachusetts (1.7%)
15,000 State GO, Series 1991D (g) 6.63 7/01/03 16,336
3,640 Housing Finance Agency RB,
Series 1992C 6.35 11/15/03 3,906
8,400 Industrial Finance Agency RB,
Series 1989A 7.10 8/01/99 8,750
5,000 Municipal Wholesale Electric Co.
Power Supply Systems RB, Series
1993 (CRE) (2) 5.45 7/01/18 5,090
Michigan (2.6%)
8,000 Detroit Building Auth. RB,
Series 1996A (CRE) 6.15 2/01/11 8,547
4,450 Detroit GO, Series 1996B (CRE) (3) 5.50 4/01/14 4,585
23,330 Dickinson County Economic
Development Corp. RB, Series 1989 6.55 3/01/07 24,848
Higher Education Facilities Auth. RB,
2,390 Series 1998 5.35 6/01/13 2,409
1,550 Series 1998 5.55 6/01/17 1,562
Hospital Finance Auth. RB,
5,000 Series 1995A (a) 7.50 10/01/07 6,059
325 Series 1996 5.90 10/01/04 347
100 Series 1996 6.00 10/01/05 108
150 Series 1996 6.10 10/01/06 163
160 Series 1996 6.20 10/01/07 176
2,600 Series 1996 6.25 10/01/16 2,793
2,000 Series 1998A 5.38 10/01/13 2,001
400 Strategic Fund Limited Obligation RB,
Series 1998 5.30 7/01/18 396
Minnesota (1.7%)
4,205 Maplewood Health Care Facility RB,
Series 1996 5.95 11/15/06 4,433
South St. Paul Housing and Redevelopment
Auth. Hospital Facility RB,
13,500 Series 1994 6.50 11/01/04 14,545
9,095 Series 1994 6.75 11/01/09 9,906
St. Paul Housing and Redevelopment
Auth. Hospital RB,
4,000 Series 1997A 5.70 11/01/15 4,090
1,000 Series 1997B 5.85 11/01/17 1,027
Mississippi (1.9%)
1,000 Jones County Hospital RB, Series
1997 5.50 12/01/17 1,001
Lafayette County Hospital RB,
550 Series 1991A (a) 7.70 3/01/03 597
2,850 Series 1991B (a) 7.70 3/01/03 3,091
15,885 Series 1997 5.50 3/01/09 16,299
3,720 Prentiss County Hospital RB, Series
1985 6.50 2/01/05 3,807
Union County Hospital RB,
840 Series 1991A (a) 7.70 3/01/03 913
1,565 Series 1991B (a) 7.70 3/01/03 1,700
11,170 Series 1997 5.50 3/01/09 11,461
Missouri (0.1%)
2,000 State Health and Educational
Facilities Auth. RB, Series 1997 5.75 2/01/17 2,064
Montana (0.3%)
5,000 Montana Health Facility Auth.
Hospital RB, Series 1997 5.50 6/01/11 5,191
Nebraska (0.4%)
Cass County School District 001 GO,
2,800 Series 1998 (CRE) (2) 5.00 12/15/14 2,747
2,000 Series 1998 (CRE) (2) 5.00 12/15/19 1,948
Investment Finance Auth. Hospital RB,
870 Series 1997 (CRE) (5) 5.30 11/15/12 879
2,000 Series 1997 (CRE) (5) 5.45 11/15/17 2,013
Nevada (0.9%)
16,640 Clark County School District GO,
Series 1991B (CRE) (3), (b) 6.24 3/01/04 12,840
3,000 Housing Division SFH RB, Series
1995D-1 5.90 10/01/14 3,115
2,000 Reno Hospital RB, Series 1998
(CRE) (1) 5.00 5/15/18 1,938
New Hampshire (0.6%)
Higher Educational and Health Facilities
Auth. RB,
915 Series 1985A (CRE) (3) 7.50 12/01/00 918
1,775 Series 1990 8.50 12/01/01 1,838
3,000 Series 1997 (CRE) 5.80 10/01/12 3,078
5,055 Series 1997 (CRE) 5.90 10/01/18 5,187
700 Series 1998 5.25 10/01/18 694
New Jersey (2.9%)
6,150 Camden County Improvement Auth. RB,
Series 1997 5.88 2/15/15 6,400
Economic Development Auth. RB,
15,000 Series 1994A (CRE) (1) 5.88 7/01/11 16,083
2,000 Series 1997A 5.75 12/01/16 2,058
31,260 Turnpike Auth. RB, Series 1991A 6.50 1/01/03 34,107
New Mexico (0.3%)
6,200 Chaves County Hospital RB, Series
1992 7.25 12/01/10 6,814
New York (20.2%)
Dormitory Auth. Mental Health
Services Facilities Improvement RB,
2,055 Series 1997A 5.75 2/15/10 2,194
2,000 Series 1997A 5.75 2/15/11 2,124
2,000 Series 1997A 5.75 2/15/12 2,115
2,460 Series 1997B 5.75 2/15/10 2,627
4,050 Series 1997B 5.75 2/15/12 4,283
4,675 Series 1997B 5.50 8/15/17 4,790
Dormitory Auth. RB,
7,625 Series 1993A 5.88 5/15/11 8,357
10,300 Series 1993A 5.63 5/15/13 10,557
2,725 Series 1994B 5.90 5/15/06 2,960
2,500 Series 1994B (a) 6.00 5/15/07 2,766
1,000 Series 1995A 5.88 5/15/07 1,089
2,000 Series 1995A 5.90 5/15/08 2,172
3,500 Series 1995A 6.00 5/15/09 3,795
2,250 Series 1995A 6.00 5/15/10 2,446
2,175 Series 1995A 6.00 5/15/11 2,358
5,000 Series 1996 5.50 7/01/09 5,231
3,495 Series 1996B 6.50 8/15/10 4,032
13,730 Series 1997-1 5.25 7/01/14 13,669
3,560 Series 1998G 5.30 2/15/19 3,538
5,000 Series 1998J 5.20 2/15/15 4,941
4,000 Series 1998J 5.20 2/15/16 3,946
1,760 Series 1998J 5.30 2/15/17 1,756
4,065 Dormitory Auth. RB , Lutheran Center
at Poughkeepsie, Series 1997 (CRE) 6.00 7/01/14 4,382
Dormitory Auth. RB, New York City
University,
5,000 1996 Series 2 6.00 7/01/09 5,425
1,760 1996 Series 2 6.00 7/01/10 1,910
5,500 Series 1993A 5.75 7/01/13 5,885
2,680 Dormitory Auth. RB, Nyack Hospital,
Series 1996 6.00 7/01/06 2,894
Dormitory Auth. State University
Educational Facilities RB,
14,120 Series 1996 5.75 5/15/13 14,878
7,000 Series 1996 5.75 5/15/16 7,344
Environmental Facilities Corp. PCRB,
5,135 Series 1991E (a) 6.40 6/15/03 5,583
1,415 Series 1991E 6.40 6/15/03 1,533
Housing Finance Agency Service
Contract RB,
2,275 Series 1995A 6.25 9/15/10 2,482
4,420 Series 1996A 6.00 9/15/16 4,717
Medical Care Facilities Finance
Agency RB,
5,000 Series 1994A (CRE) (2), (a) 6.40 2/15/07 5,673
5,000 Series 1994A (CRE) (2), (a) 6.50 2/15/08 5,702
10,000 Series 1994A 6.13 8/15/13 10,617
2,675 Series 1995A 6.70 2/15/05 3,040
2,750 Series 1995A (a) 6.70 8/15/05 3,167
2,860 Series 1995A (a) 6.75 2/15/06 3,302
2,940 Series 1995A (a) 6.75 8/15/06 3,394
3,045 Series 1995A (a) 6.80 2/15/07 3,523
3,130 Series 1995A (a) 6.80 8/15/07 3,622
7,670 Series 1995A 6.00 11/15/10 8,389
5,700 Series 1995A (a) 6.80 8/15/12 6,596
22,230 Metropolitan Transportation Auth.
Service Contract RB, Series P 5.75 7/01/15 22,959
1,420 Mortgage Agency RB, Series EE-1 7.75 10/01/00 1,472
3,235 New York City Capital Improvement
Bonds 34th St. Partnership, Series
1993 5.50 1/01/14 3,291
New York City GO,
1,375 Series 1991D 8.00 8/01/99 1,450
10,160 Series 1991D 8.00 8/01/99 10,703
11,245 Series 1992H (a) 6.88 2/01/04 12,487
1,535 Series 1992H 6.88 2/01/04 1,679
16,045 Series 1993B (a) 6.75 10/01/04 17,931
955 Series 1993B 6.75 10/01/04 1,050
1,700 Series 1993C (a) 6.50 8/01/04 1,877
7,300 Series 1993C 6.50 8/01/04 7,935
15,000 Series 1994A 6.25 8/01/08 16,350
10,000 Series 1996G 5.75 2/01/10 10,584
5,000 Series 1997I 6.00 4/15/12 5,358
9,000 Series 1998F 5.25 8/01/12 9,046
10,000 Series 1998G 5.00 8/01/15 9,706
13,000 New York City Municipal Assistance
Corp. RB, Series 67 (a) 7.30 7/01/00 13,813
New York City Municipal Water
Finance RB,
3,295 Series 1992A 6.70 6/15/03 3,541
3,345 Series 1992A (a) 6.70 6/15/03 3,632
Thruway Auth. RB,
7,500 Series 1995 6.00 4/01/09 8,091
2,150 Series 1995 6.10 4/01/10 2,322
Urban Development Corp. RB,
20,955 Series 1993 5.75 1/01/13 21,614
21,700 Series 1993 5.50 1/01/15 21,930
North Carolina (0.9%)
Municipal Power Agency RB,
6,000 Series 1992 6.00 1/01/04 6,432
12,360 Series 1998A (CRE) (1), (c) 5.13 1/01/17 12,264
Ohio (0.7%)
6,750 Dayton Special Facilities RB,
Series 1988C 6.05 10/01/09 7,358
2,650 Franklin County Health Care
Facilities RB, Series 1997 5.50 7/01/17 2,630
4,000 IDA RB, Series 1992 5.75 2/01/02 4,292
Oklahoma (0.9%)
Holdenville Industrial Auth. RB,
1,650 Series 1995 (a) 6.60 7/01/10 1,925
3,250 Series 1995 (a) 6.70 7/01/15 3,814
Industries Auth. Health
Facilities RB,
2,350 Series 1989A (a) 7.30 6/01/01 2,491
2,045 Series 1989A 7.30 6/01/01 2,163
2,355 Tulsa County Home Finance Auth. RB,
Series 1990 (CRE) (2) 7.10 5/01/02 2,617
4,500 Valley View Hospital Auth. RB,
Series 1996 5.75 8/15/06 4,728
Oregon (0.1%)
1,250 Clackamas County Hospital Facility
Auth. RB, Series 1997 6.10 11/01/12 1,310
Pennsylvania (3.9%)
35,000 Finance Auth. RB 6.60 11/01/09 38,880
9,440 State GO, Second Series 1992 (b) 6.11 7/01/04 7,194
3,565 Housing Finance Agency RB,
Series 1992 5.90 7/01/04 3,785
6,000 Montgomery County IDA RB,
Series 1996B 5.63 11/15/12 6,181
17,500 Philadelphia Water and Wastewater RB,
Series 1993 (CRE) (3) 5.65 6/15/12 18,265
5,000 York County IDA RB, Series 1992 6.25 7/01/02 5,380
Puerto Rico (4.5%)
Electric Power Auth. RB,
5,000 Series S 7.00 7/01/06 5,840
4,420 Series X 5.80 7/01/09 4,762
4,500 Series X 5.90 7/01/10 4,860
4,000 Series X 6.00 7/01/11 4,331
4,220 Series Z 5.50 7/01/12 4,363
22,200 Housing Bank and Finance Agency RB 7.50 12/01/06 25,925
8,005 Municipal Finance Agency RB,
Series 1992A 5.80 7/01/04 8,576
14,060 Public Building Auth. GO, Series K 6.50 7/01/03 15,427
Public Improvement GO,
7,500 Series 1994 6.10 7/01/06 8,230
7,825 Series 1994 6.20 7/01/07 8,606
Rhode Island (1.5%)
Health and Educational Building
Corp. RB,
3,385 Series 1996 (CRE) (1) 5.50 5/15/12 3,522
7,600 Series 1996 (CRE) (1) 5.50 5/15/16 7,816
Housing and Mortgage Finance
Corp. RB,
6,180 Series 15-B 6.30 10/01/07 6,571
7,600 Series 1995A (CRE) (2) 5.70 7/01/07 8,070
3,870 Series 25A 5.60 10/01/17 3,976
South Carolina (0.7%)
Connector 2000 Association Inc.
Toll Road RB,
6,400 Series 1998B (b) 5.73 1/01/16 2,356
8,800 Series 1998B (b) 5.73 1/01/17 3,061
9,100 Series 1998B (b) 5.75 1/01/18 2,981
9,400 Series 1998B (b) 5.75 1/01/19 2,909
3,000 Marion County Hospital District
RB (CRE) (9) 5.50 11/01/15 3,064
South Dakota (0.3%)
5,400 Rapid City IDA RB, Series 1990 7.25 11/01/00 5,823
Tennessee (0.8%)
24,540 Housing Development Agency RB,
Issue 97-3B (b) 5.73 7/01/16 8,916
3,000 Knox County Health, Educational and
Housing Facilities Board RB,
Series 1996 (CRE) (9) 5.50 4/15/11 3,125
4,325 Memphis Shelby County Airport Auth.
Special Facilities RB, Series 1997 5.35 9/01/12 4,430
Texas (6.7%)
Bastrop ISD GO,
1,855 Series 1997 (CRE) (13), (b) 5.55 2/15/14 822
3,030 Series 1997 (CRE) (13), (b) 5.55 2/15/15 1,266
3,055 Series 1997 (CRE) (13), (b) 5.60 2/15/16 1,208
3,155 Series 1997 (CRE) (13), (b) 5.60 2/15/17 1,178
12,000 Bexar County Health Facilities
Development Corp. RB,
Series 1993 (CRE) (4) 5.88 11/15/10 12,965
1,695 Brazos County Health Facilities RB,
Series 1989B (a) 7.50 1/01/01 1,761
4,365 Cass County IDC PCRB, Series 1997B 5.35 4/01/12 4,511
Fort Worth Higher Education Finance
Corp. RB,
515 Series 1997A 5.50 10/01/06 544
545 Series 1997A 5.50 10/01/07 576
575 Series 1997A 5.63 10/01/08 610
2,670 Series 1997A 6.00 10/01/12 2,845
15,400 Gulf Coast Waste Disposal Auth. PCRB,
Series 1992 6.13 11/01/04 16,899
6,200 Gulf Coast Waste Disposal Auth. RB,
Series 1994 5.70 5/01/06 6,658
2,070 Harrison County Health Facilities
Development Corp. RB,
Series 1998 (CRE) (7) 5.50 1/01/18 2,090
Houston Water and Sewer Systems RB,
175 1992B (a) 6.00 12/01/04 191
4,825 1992B 6.00 12/01/04 5,198
11,700 Lower Colorado River Auth. RB,
Series 1992 (CRE) (2), (b) 6.45 1/01/03 9,511
8,565 Municipal Power Agency RB,
Series 1987 5.50 9/01/13 8,572
21,050 Port Corpus Christi IDC RB,
Series 1997B 5.40 4/01/18 21,122
11,790 Public Finance Auth. RB
(CRE) (1), (b) 6.06 2/01/04 9,110
San Antonio Electric and Gas
Systems RB,
3,005 Series 1989 (a) 7.00 2/01/01 3,131
1,185 Series 1989 7.00 2/01/01 1,233
10,000 Series 1991B (CRE) (3), (b) 6.38 2/01/04 7,727
4,000 Trinity River IDA RB 7.25 2/01/04 4,548
5,825 Tyler Health Facilities Development
Corp. Hospital RB, Series 1993B 6.63 11/01/11 6,224
1,000 Tyler Health Facilities Development
Corp. RB, Series 1997A 5.63 7/01/13 1,007
5,435 Water Resources Finance Auth. RB,
Series 1989 7.25 2/15/01 5,616
Utah (2.2%)
510 Housing Finance Agency RB,
Series 1985B 5.30 7/01/07 511
Intermountain Power Agency RB,
8,105 Series 1987A (CRE) (1) 5.00 7/01/12 8,104
16,430 Series 1988B (CRE) (1), (b) 6.48 7/01/03 13,054
21,895 Series 1988B (CRE) (1), (b) 6.18 7/01/04 16,599
7,000 Juab County PCRB, Series 1991 (d) 6.00 8/01/11 6,982
Virginia (0.8%)
11,100 Housing Development Auth.
Commonwealth Mortgage RB,
Series 1990B, Subseries B5 6.90 7/01/13 11,532
5,000 Isle of Wight County IDA PCRB,
Series 1994 5.80 5/01/04 5,212
Washington (1.5%)
15,800 GO, Series R-1989B 7.20 9/01/00 16,022
3,255 Health Care Facilities Auth. RB,
Series 1997A (CRE) (1) 5.13 8/15/17 3,206
5,500 King County GO, Series 1993A 5.90 12/01/07 5,895
State Health Care Facilities
Auth. RB,
2,500 Series 1998 (CRE) (5) 5.25 8/15/17 2,474
2,500 Series 1998 (CRE) (5) 5.30 8/15/18 2,500
West Virginia (0.9%)
16,940 School Building Auth. RB,
Series 1994 6.25 7/01/04 18,581
Wisconsin (1.4%)
Health and Educational Facilities
Auth. RB,
11,500 Series 1993 (CRE) (1) 5.25 8/15/12 11,580
4,130 Series 1995A (CRE) (2) 5.25 8/15/12 4,186
5,000 Series 1998A (CRE) (2) 5.13 8/15/20 4,879
Professional Baseball Park
District RB,
2,540 Series 1996 (CRE) (1) 5.55 12/15/14 2,664
2,275 Series 1996 (CRE) (1) 5.60 12/15/15 2,392
2,750 Series 1996 (CRE) (1) 5.65 12/15/16 2,899
Wyoming (0.1%)
210 Farm Loan Board COP,
Series 1989 (CRE) (14) 6.50 12/01/99 211
- ------------------------------------------------------------------------------
Total fixed rate instruments
(cost: $1,746,649) 1,877,164
- ------------------------------------------------------------------------------
PUT BONDS (6.2%)
Alabama (0.2%)
4,000 Housing Finance Auth. MFH RB,
Series 1992C (CRE) (6) 5.90 8/01/07 4,086
California (0.2%)
3,535 Woodland MFH RB, Series 1994A 6.05 12/01/24 3,724
Florida (1.0%)
9,880 Broward County Housing Finance Auth.
MFH RB, Series 1991 (CRE) (8) 7.20 5/01/07 10,154
Housing Finance Agency MFH RB,
4,290 Series 1996R-1 (CRE) (6) 5.65 12/01/26 4,494
4,500 Series 1996S-1 (CRE) (6) 5.65 12/01/26 4,713
Illinois (1.4%)
13,420 Arlington Heights MFH RB,
Series 1991 (CRE) (8) 7.25 5/01/11 13,805
14,295 Hoffman Estates MFH RB, Series 1996 5.75 6/01/21 15,074
Kansas (0.3%)
6,590 Merriam MFH RB, Series 1991A
(CRE) (8) 7.25 4/01/21 6,888
Louisiana (0.2%)
4,360 Shreveport Home Mortgage Auth. RB,
Series 1995A (CRE) (6) 6.40 9/01/25 4,655
New Mexico (0.6%)
Bernalillo County MFH RB,
7,700 Series 1994A (CRE) (6) 6.50 10/01/19 8,192
3,320 Series 1995 (CRE) (6) 5.80 11/01/25 3,477
Ohio (0.3%)
5,500 Montgomery County IDA RB,
Series 1992 (CRE) 6.50 2/01/07 6,050
Pennsylvania (0.4%)
Philadelphia IDA RB,
3,500 Series 1997A 6.50 10/01/27 3,772
4,000 Series 1997B 6.50 10/01/27 4,311
Texas (0.1%)
2,500 Gregg County Housing Finance Corp.
RB, Series 1995A (CRE) (6) 6.40 9/01/25 2,673
Utah (0.9%)
Salt Lake County MFH RB,
10,240 Series 1995A-1 (CRE) (5) 5.70 10/01/25 10,775
6,500 Series 1995B-1 (CRE) (5) 5.70 10/01/25 6,840
Washington (0.6%)
Chelan County Public Utility
District #1 RB,
5,650 Series E 5.70 7/01/68 5,945
6,845 Series E 5.70 7/01/68 7,203
- ------------------------------------------------------------------------------
Total put bonds (cost: $120,135) 126,831
- ------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (1.4%)
California (0.2%)
3,000 Chula Vista MFH RB, Series
1992A (CRE) 3.30 3/01/05 3,000
1,600 Statewide Communities Development
Auth. COP, Series 1996 (CRE) 3.75 6/01/26 1,600
Connecticut (0.2%)
3,600 Health and Educational Facilities
Auth. RB, Series 1997B (CRE) 3.60 7/01/04 3,600
District of Columbia (0.1%)
1,075 GO, Series 1991B-1 (CRE) 3.85 6/01/03 1,075
Illinois (0.3%)
6,600 Housing Development Auth. RB,
Series 1985U (CRE) 4.40 1/01/08 6,600
Texas (0.6%)
13,110 Port Arthur Navigation District
IDC PCRB, Series 1985 (CRE) 4.00 5/01/03 13,110
- ------------------------------------------------------------------------------
Total variable rate demand notes
(cost: $28,985) 28,985
- ------------------------------------------------------------------------------
Total investments (cost: $1,895,769) $2,032,980
==============================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Hospitals 15.3%
General Obligations 12.2
Escrowed Bonds 10.6
Multi-Family Housing 8.5
Electric/Gas Utilities - Municipal 7.4
Single-Family Housing 4.5
Education 4.3
Paper & Forest Products 4.3
Appropriated Debt 3.8
Toll Roads 3.5
Special Assessment/Tax/Fee 2.9
Real Estate Tax/Free 2.4
Finance - Municipal 2.3
Buildings 2.1
Nursing/Continuing Care Centers 2.1
Water/Sewer Utilities - Municipal 1.7
Healthcare - Miscellaneous 1.6
Student Loans 1.5
Airport/Port 1.2
Gaming Companies 1.0
Oil & Gas - Refining/Manufacturing 1.0
Other 5.5
-----
Total 99.7%
=====
PORTFOLIO SUMMARY BY STATE
--------------------------
Alabama .3%
Alaska .6
Arizona .4
Arkansas .9
California 6.6
Colorado 1.5
Connecticut 1.5
District of Columbia 3.5
Florida 2.8
Georgia .8
Hawaii .3
Illinois 6.0
Indiana 3.0
Iowa 1.0
Kansas .3
Louisiana 1.5
Maine 2.2
Maryland 1.5
Massachusetts 1.7
Michigan 2.6
Minnesota 1.7
Mississippi 1.9
Missouri .1
Montana .3
Nebraska .4
Nevada .9
New Hampshire .6
New Jersey 2.9
New Mexico .9
New York 20.2
North Carolina .9
Ohio 1.0
Oklahoma .9
Oregon .1
Pennsylvania 4.3
Puerto Rico 4.5
Rhode Island 1.5
South Carolina .7
South Dakota .3
Tennessee .8
Texas 7.4
Utah 3.1
Virginia .8
Washington 2.1
West Virginia .9
Wisconsin 1.4
Wyoming .1
----
Total 99.7%
====
USAA SHORT-TERM FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
(IN THOUSANDS)
March 31, 1998
Principal Coupon Final Market
Amount Security Rate Maturity Value
- -------------------------------------------------------------------------------
FIXED RATE INSTRUMENTS (69.6%)
Alaska (0.8%)
North Slope Borough GO,
$ 7,000 Series 1988G 8.35% 6/30/98 $ 7,078
1,250 Series 1995A (CRE) (1), (b) 4.85 6/30/99 1,191
Arizona (1.8%)
1,750 Educational Loan Marketing Corp. RB,
Series 1992A 6.70 3/01/00 1,823
Maricopa County Hospital RB,
2,545 Series 1997 4.75 4/01/99 2,564
2,665 Series 1997 5.00 4/01/00 2,701
2,525 Series 1997 5.10 4/01/01 2,572
2,260 Series 1997 5.25 4/01/02 2,320
3,045 Series 1997 5.35 4/01/03 3,144
2,180 Series 1997 5.35 4/01/04 2,256
California (3.1%)
2,550 Central Valley Cogeneration RB,
Series 1993 5.40 7/01/00 2,620
4,600 Pleasanton Joint Powers Financing
Auth. RB, Series 1993A 5.20 9/02/98 4,622
Sacramento Cogeneration Auth. RB,
1,000 Series 1995 5.70 7/01/00 1,033
1,000 Series 1995 5.80 7/01/01 1,045
900 Series 1995 5.90 7/01/02 952
900 Series 1995 6.00 7/01/03 963
12,615 San Joaquin Hills Transportation
Corridor Agency Senior Lien RB (b) 7.10 1/01/00 11,769
3,500 San Joaquin Hills Transportation
Corridor Agency Senior Lien RB (b) 7.16 1/01/01 3,130
1,500 Statewide Communities Development
Auth. COP 4.80 1/01/00 1,508
1,500 Statewide Communities Development
Auth. COP 5.00 1/01/01 1,508
1,000 Statewide Communities Development
Auth. COP 5.10 1/01/02 1,006
Connecticut (1.1%)
Mashantucket (Western) Pequot Tribe
RB,
1,000 Series 1996A (h) 6.25 9/01/01 1,066
1,000 Series 1996A (h) 6.25 9/01/01 1,062
1,250 Series 1996A (h) 6.25 9/01/02 1,352
1,250 Series 1996A (h) 6.25 9/01/02 1,344
1,480 Series 1996A (h) 6.25 9/01/03 1,620
1,520 Series 1996A (h) 6.25 9/01/03 1,649
1,235 Series 1996A (h) 6.50 9/01/06 1,410
1,265 Series 1996A (h) 6.50 9/01/06 1,421
District of Columbia (2.4%)
18,790 GO, Series 1994A-3 (g) 4.70 6/01/99 18,932
Hospital RB,
1,450 Series 1996A (CRE) (1) 5.00 8/15/02 1,493
1,530 Series 1996A (CRE) (1) 5.50 8/15/03 1,616
1,610 Series 1996A (CRE) (1) 5.50 8/15/04 1,709
Florida (0.5%)
1,470 Nassau County PCRB, Series 1992 5.60 6/01/00 1,505
1,115 Orange County Health Facilities Auth.
RB, Series 1995 5.63 7/01/01 1,148
Palm Beach County Health Facilities
Auth. RB,
395 Series 1997 4.80 10/01/02 398
315 Series 1997 5.00 10/01/03 319
435 Series 1997 5.00 10/01/04 440
460 Series 1997 5.10 10/01/05 466
480 Series 1997 5.20 10/01/06 488
345 Series 1997 5.30 10/01/07 351
Georgia (0.4%)
4,000 Camden County Development Auth. PCRB,
Series 1997 5.25 4/01/02 4,128
Guam (4.1%)
GO,
18,310 Series 1994A 5.75 8/15/99 18,733
2,000 Series 1994A 5.25 9/01/99 2,024
5,000 Series 1995A 5.38 9/01/00 5,055
10,000 Series 1995A 5.50 9/01/01 10,109
Power Auth. RB,
1,640 Series 1994A 5.50 10/01/99 1,678
1,725 Series 1994A 5.60 10/01/00 1,786
Illinois (3.0%)
16,265 Chicago Water RB, Series 1997
(CRE) (3), (b) 5.00 11/01/05 11,572
9,000 Cook County GO, Series 1989
(CRE) (1), (a) 7.38 11/01/08 9,673
1,285 Development Finance Auth. RB,
Series 1995 6.25 3/01/99 1,312
2,045 Health Facilities Auth. RB,
Series 1996 5.60 1/01/02 2,131
4,015 Hodgkins Tax Increment RB,
Series 1995A 6.90 12/01/01 4,181
Indiana (3.8%)
6,745 Development Finance IDA RB,
Series 1996 4.80 6/01/00 6,844
Health Facility Financing Auth. RB,
20,300 Series 1993 (a) 5.40 11/01/05 21,074
8,400 Series 1994 (a) 5.38 7/01/01 8,595
Louisiana (4.7%)
11,310 De Soto Parish PCRB, Series 1993A 5.05 12/01/02 11,681
Jefferson Parish School Board Sales
and Use Tax RB,
3,170 Series 1998 (CRE) (4), (b), (c) 4.80 9/01/07 2,041
2,090 Series 1998 (CRE) (4), (b), (c) 4.90 3/01/08 1,307
6,581 New Orleans Master Lease Agreement,
#2300-1 (e) 7.99 2/01/02 6,915
Offshore Terminal Auth. RB,
7,920 Series 1992B 6.00 9/01/01 8,334
5,000 Series 1992B 6.20 9/01/03 5,401
5,830 Series 1994B 5.85 9/01/00 6,047
3,440 St. Charles Parish PCRB 7.63 6/01/03 3,559
Maine (1.4%)
Jay PCRB,
5,500 Series 1994A 4.65 9/01/02 5,601
8,305 Series 1994B 4.70 6/01/02 8,466
Massachusetts (2.4%)
New England Education Loan Marketing
Corp. RB,
17,000 Series 1985A 5.80 3/01/02 17,915
5,000 Series 1992A 6.13 9/01/99 5,154
Michigan (2.1%)
Hospital Finance Auth. RB,
3,500 Series 1995 7.00 10/01/01 3,775
3,500 Series 1995A 6.80 10/01/00 3,697
210 Series 1996 4.70 10/01/98 211
245 Series 1996 5.00 10/01/99 248
255 Series 1996 5.30 10/01/00 261
130 Series 1996 5.50 10/01/01 135
275 Series 1996 5.70 10/01/02 288
285 Series 1996 5.80 10/01/03 302
2,500 Series 1998A 5.50 10/01/06 2,601
1,500 Series 1998A 5.50 10/01/07 1,561
1,000 Series 1998A 5.50 10/01/08 1,039
5,800 Monroe Economic Development Corp.
PCRB, Series 1997 5.00 2/01/03 5,956
Minnesota (1.3%)
5,850 Minneapolis Temporary Parking Ramp
RB, Series 1997A 4.75 6/01/00 5,864
St. Paul Housing and Redevelopment
Auth. Hospital RB,
675 Series 1997A 5.00 11/01/03 683
1,410 Series 1997A 5.10 11/01/04 1,433
1,485 Series 1997A 5.20 11/01/05 1,515
1,560 Series 1997A 5.30 11/01/06 1,601
1,645 Series 1997A 5.35 11/01/07 1,692
Mississippi (1.6%)
Jones County Hospital RB,
1,000 Series 1997 5.00 12/01/05 1,020
1,105 Series 1997 5.10 12/01/07 1,132
1,155 Series 1997 5.20 12/01/08 1,184
6,810 Lafayette County Hospital RB,
Series 1997 5.00 3/01/02 6,893
4,785 Union County Hospital RB,
Series 1997 5.00 3/01/02 4,858
Nebraska (0.2%)
Investment Finance Auth. Hospital RB,
465 Series 1997 (CRE) (5) 4.90 11/15/05 475
440 Series 1997 (CRE) (5) 5.00 11/15/06 452
410 Series 1997 (CRE) (5) 5.00 11/15/07 421
505 Series 1997 (CRE) (5) 5.05 11/15/08 517
New Jersey (0.1%)
1,050 Camden County Improvement Auth. RB,
Series 1997 4.75 2/15/00 1,056
New York (15.9%)
Dormitory Auth. RB,
1,285 Series 1994B 5.10 5/15/99 1,304
2,190 Series 1994B 5.30 5/15/00 2,248
6,450 Series 1995A 5.10 5/15/00 6,596
6,350 Series 1995A 5.25 5/15/01 6,555
7,500 Series 1995A 5.40 5/15/02 7,831
705 Series 1996 5.10 7/01/98 707
1,160 Series 1996 5.35 7/01/99 1,175
1,170 Series 1996 5.65 7/01/01 1,205
3,245 Series 1996-2 5.00 7/01/00 3,310
1,285 Series 1996-2 5.10 7/01/01 1,319
5,000 Series 1998A (CRE) (5) 5.50 7/01/09 5,277
Dormitory Auth. University Educational
Facilities RB,
1,000 Series 1996 4.90 5/15/00 1,018
1,350 Series 1996 5.00 5/15/01 1,384
1,000 Series 1996 5.10 5/15/02 1,033
1,250 Dormitory Department of Health RB,
Series 1996 4.75 7/01/01 1,270
25,805 Environmental Facilities Corp. PCRB,
Series 1994A 5.50 6/15/99 26,337
5,325 Medical Care Facilities Finance
Agency RB, Series 1994A (CRE) (2) 5.80 2/15/01 5,573
New York City GO,
600 Series 1994D 6.00 8/15/99 618
9,400 Series 1994D 6.00 8/15/99 9,670
155 Series 1994H 5.30 8/01/99 158
7,845 Series 1994H 5.30 8/01/99 7,994
5,000 Series 1995A 5.40 8/01/00 5,151
5,000 Series 1995D 6.50 2/01/02 5,377
1,385 Series 1996K 5.50 4/01/01 1,441
1,940 Series 1996K 5.50 4/01/01 2,011
4,900 Series 1998F 5.50 8/01/06 5,174
6,420 Series 1998F 5.50 8/01/07 6,789
4,010 State COP 4.90 2/01/02 4,084
4,040 State COP 4.90 8/01/02 4,124
2,035 State COP 5.00 2/01/03 2,081
11,165 The City University of New York COP 5.75 8/15/03 11,846
7,880 Thruway Auth. RB, Series 1995 5.10 4/01/01 8,080
Urban Development Corp. RB,
4,400 Series 1993 5.25 1/01/03 4,545
1,715 Series 7 4.75 1/01/02 1,737
North Carolina (1.1%)
11,000 Eastern Municipal Power Agency RB,
Series 1996A 5.10 1/01/00 11,170
Ohio (0.6%)
Franklin County Health Care
Facilities RB,
1,000 Series 1997 4.70 7/01/02 1,002
1,000 Series 1997 4.80 7/01/03 1,002
500 Series 1997 5.00 7/01/04 505
1,425 Series 1997 5.00 7/01/05 1,436
1,000 Series 1997 5.10 7/01/06 1,012
475 Series 1997 5.15 7/01/07 481
600 Series 1997 5.25 7/01/08 610
Oklahoma (2.0%)
Holdenville Industrial Auth. RB,
1,115 Series 1995 5.45 7/01/00 1,152
1,380 Series 1995 6.15 7/01/04 1,522
510 Series 1995 6.35 7/01/06 579
15,000 Housing Development Auth. RB,
Series 1997A 4.75 12/01/02 15,011
990 Valley View Hospital Auth. RB,
Series 1996 5.00 8/15/98 994
Pennsylvania (5.7%)
Beaver County Finance Auth. RB,
17,480 Series 1986A (CRE) (1), (a) 8.00 11/01/09 18,271
8,545 Series 1986B (CRE) (1), (a) 8.00 11/01/09 8,932
4,875 Delaware IDA Refunding RB,
Series 1997A 5.50 1/01/00 4,984
4,435 East Hempfield Township IDA RB,
Series 1996 5.00 8/01/01 4,540
17,290 Higher Education Assistance Agency
Student Loan RB, Series 1985A
(CRE) (3) 6.80 12/01/00 18,462
Puerto Rico (2.9%)
8,843 Centro de Recaudaciones de Ingresos
Municipales COP (e) 6.85 10/17/03 9,196
Electric Power Auth. RB,
5,000 Series 1997AA 5.00 7/01/03 5,173
5,000 Series 1997AA 5.00 7/01/04 5,180
4,365 Series S 6.00 7/01/99 4,489
3,600 Series T 6.00 7/01/99 3,702
Tennessee (0.3%)
Shelby County Hospital RB,
500 Series 1993 4.50 11/01/98 502
2,500 Series 1993 5.10 11/01/03 2,541
Texas (3.8%)
Abilene Higher Education Facilities
Corp. RB,
1,335 Series 1995 5.30 10/01/99 1,363
1,280 Series 1995 5.40 10/01/00 1,321
1,480 Series 1995 5.50 10/01/01 1,542
1,000 Series 1995 5.60 10/01/02 1,053
6,000 Calhoun County Navigation IDA PCRB,
Series 1995 4.65 6/01/01 6,129
Harrison County Health Facilities
Development Corp. RB,
1,010 Series 1998 (CRE) (7) 4.80 1/01/06 1,007
1,055 Series 1998 (CRE) (7) 4.80 1/01/07 1,048
1,110 Series 1998 (CRE) (7) 4.90 1/01/08 1,104
2,500 Lampasas County IDC RB, Series 1997 5.20 12/01/01 2,575
Northeast Hospital Auth. RB,
1,230 Series 1997 5.10 5/15/00 1,254
1,285 Series 1997 5.25 5/15/01 1,321
2,870 Series 1997 5.40 5/15/03 2,991
4,090 Pasadena GO, Series 1994 5.75 2/15/99 4,164
Tyler Health Facilities Development
Corp. RB,
2,700 Series 1997A 5.00 7/01/03 2,724
3,120 Series 1997A 5.00 7/01/04 3,140
1,625 Series 1997A 5.13 7/01/05 1,639
1,100 Series 1997A 5.20 7/01/06 1,111
1,125 Series 1997A 5.30 7/01/07 1,138
Virginia (0.2%)
Halifax County IDA Hospital RB,
1,100 Series 1998 4.50 9/01/05 1,092
600 Series 1998 4.65 9/01/07 596
500 Series 1998 4.75 9/01/08 497
West Virginia (2.1%)
6,000 Kanawha County PCRB, Series 1997 5.25 4/01/02 6,170
13,480 School Building Auth. Capital
Improvement RB, Series 1994 (g) 6.00 7/01/00 14,037
Wisconsin (0.2%)
Health and Educational Facilities
Auth. RB,
410 Series 1997 5.10 12/15/05 415
430 Series 1997 5.20 12/15/06 436
455 Series 1997 5.25 12/15/07 461
475 Series 1997 5.30 12/15/08 484
- ------------------------------------------------------------------------------
Total fixed rate instruments (cost: $658,788) 676,062
- ------------------------------------------------------------------------------
PUT BONDS (11.5%)
California (3.4%)
3,450 Brentwood Infrastructure Financing
Auth. Capital Improvement RB,
Series 1996 (CRE) 5.25 6/01/26 3,569
7,000 Fresno MFH RB, Series 1997A 4.88 1/01/28 7,084
7,255 Redwood MFH RB, Series 1985B
(CRE) (10) 5.20 10/01/08 7,334
4,000 Santa Rosa Housing Auth. MFH RB,
Series 1995E (CRE) (11) 4.85 9/01/07 4,003
6,335 South Gate Public Financing Auth.
Tax Allocation Bonds, Series 1997
(CRE) 4.75 9/01/19 6,476
4,695 Vallejo Housing Auth. MFH RB,
Series 1985A (CRE) (10) 5.00 6/01/07 4,698
Florida (3.0%)
Housing Finance Agency MFH RB,
5,000 Series 1983F (CRE) (12) 5.35 12/01/05 5,058
4,000 Series 1983G (CRE) (12) 5.35 12/01/05 4,047
5,000 Series 1987 (CRE) (11) 4.85 2/01/08 5,045
5,200 Series 1995D (CRE) 5.10 4/01/13 5,307
9,630 Series 1995K (CRE) (12) 4.85 12/01/05 9,684
Louisiana (2.1%)
20,000 Public Facilities Auth. RB,
Series 1985B-1 (CRE) (2), (g) 5.00 12/01/15 20,451
Minnesota (0.8%)
7,500 Minneapolis and St. Paul Housing and
Redevelopment RB, Series 1996A
(CRE) (3) 5.13 6/01/32 7,530
Texas (1.5%)
7,990 Lewisville Contract Revenue and
Special Assessment Bonds, Series
1996 (CRE) 5.00 5/01/21 8,219
6,000 Tarrant County Housing Finance Corp.
MFH RB, Series 1985 (CRE) (15) 4.90 9/01/06 6,016
Wyoming (0.7%)
6,725 Community Development Auth.
Housing RB, Series 1997-3 5.25 6/01/17 6,932
- ------------------------------------------------------------------------------
Total put bonds (cost: $109,800) 111,453
- ------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (18.4%)
California (6.4%)
500 Chula Vista MFH RB, Series 1992A
(CRE) 3.30 3/01/05 500
17,100 Fontana COP, Series 1991 (CRE) 4.60 7/01/21 17,100
1,650 Grand Terrace MFH RB,
Series 1985A (CRE) 4.25 12/01/11 1,650
9,900 Los Angeles Community Redevelopment
Agency MFH RB, Series 1985 (CRE) 4.05 12/01/05 9,900
1,720 Los Angeles County Housing Auth.
MFH RB, Series 1991B (CRE) 4.40 12/01/15 1,720
Sacramento County MFH RB,
6,800 Series 1985A (CRE) 4.30 4/15/07 6,800
7,000 Series 1985C (CRE) 4.30 4/15/07 7,000
3,100 Series 1996C (CRE) 4.35 12/01/21 3,100
6,000 Series 1996D (CRE) 4.35 12/01/21 6,000
8,590 Union City MFH RB, Series 1989B
(CRE) 4.30 11/01/07 8,590
District of Columbia (0.2%)
1,900 Catholic University of America RB,
Series 1989A (CRE) 4.40 12/01/09 1,900
Florida (0.5%)
2,100 Hillsborough County IDA PCRB,
Series 1990 3.75 9/01/25 2,100
Jacksonville Hospital RB,
700 Series 1988 (CRE) 4.20 2/01/18 700
1,500 Series 1989 (CRE) 4.20 2/01/19 1,500
Hawaii (0.6%)
2,000 State Department of Budget and
Finance Special Purpose Mortgage RB,
Series 1988 (CRE) 4.70 7/01/18 2,000
3,400 State Housing Finance and Development
Corp. RB, Series 1990A (CRE) 4.30 1/01/25 3,400
Illinois (1.9%)
Development Finance Auth. MFH RB,
880 Series 1991 (CRE) 4.05 10/01/05 880
7,400 Series 1991 (CRE) 4.05 10/01/25 7,400
9,245 Housing Development Auth. RB,
Series 1985U (CRE) 4.40 1/01/08 9,245
815 West Frankfort Commercial
Redevelopment RB 6.59 4/01/07 815
Kentucky (0.4%)
4,000 Jefferson County MFH RB,
Series 1996 (CRE) 3.80 12/01/26 4,000
Louisiana (0.7%)
4,600 Ascension Parish PCRB, Series 1985
(CRE) 3.80 12/01/05 4,600
2,480 St. Tammany Public Trust Financing
Auth. RB, Series 1995B (CRE) 3.85 6/01/05 2,480
Maryland (2.1%)
13,950 Baltimore IDA RB, Series 1986 (CRE) 4.40 8/01/16 13,950
6,200 Montgomery County MFH RB,
Issue I (CRE) 4.30 11/01/20 6,200
Michigan (0.1%)
1,500 Detroit Downtown Development
Auth. RB (CRE) 4.40 12/01/10 1,500
Minnesota (0.5%)
4,600 St. Louis Park IDRB, Series 1984
(CRE) 3.80 8/01/14 4,600
New Jersey (0.2%)
1,970 Newark Healthcare Facility RB,
Series A (CRE) 4.10 6/01/30 1,970
New York (0.3%)
2,660 St. Lawrence County IDA PCRB,
Series 1985 (CRE) 3.85 12/01/07 2,660
Oregon (0.6%)
Medford Hospital Facilities Auth. RB,
4,100 Series 1985 (CRE) 3.85 12/01/15 4,100
1,500 Series 1991 (CRE) 3.85 5/01/21 1,500
South Carolina (0.2%)
2,400 Sumter County IDRB, Series 1982
(CRE) 4.03 12/01/02 2,400
Texas (2.2%)
19,540 Amarillo Health Facilities Corp. RB,
Series 1985 (CRE) 3.85 5/31/25 19,540
2,300 Health Facilities Development Corp.
Hospital RB, Series 1985A (CRE) 3.95 5/31/25 2,300
Utah (0.4%)
3,900 Ogden City IDRB, Series 1984 (CRE) 4.45 12/01/14 3,900
Virginia (1.1%)
3,940 Henrico County IDA RB,
Series 1994 (CRE) 4.00 5/01/24 3,940
6,800 Housing Development Auth. RB,
Series 1987A (CRE) 4.10 9/01/17 6,800
- ------------------------------------------------------------------------------
Total variable rate demand notes
(cost: $178,740) 178,740
- ------------------------------------------------------------------------------
Total investments (cost: $947,328) $ 966,255
==============================================================================
PORTFOLIO SUMMARY BY INDUSTRY PORTFOLIO SUMMARY BY STATE
----------------------------- --------------------------
Multi-Family Housing 13.9% Alaska .8%
General Obligations 11.3 Arizona 1.8
Hospitals 11.3 California 12.9
Escrowed Bonds 6.7 Connecticut 1.1
Education 5.3 District of Columbia 2.6
Finance - Municipal 4.9 Florida 4.0
Student Loans 4.5 Georgia .4
Buildings 4.4 Guam 4.1
Water/Sewer Utilities - Municipal 4.3 Hawaii .6
Appropriated Debt 4.2 Illinois 4.9
Electric/Gas Utilities - Municipal 4.1 Indiana 3.8
Single-Family Housing 3.7 Kentucky .4
Nursing/Continuing Care Centers 2.9 Louisiana 7.5
Paper & Forest Products 2.8 Maine 1.4
Healthcare - Miscellaneous 2.6 Maryland 2.1
Real Estate Tax/Free 2.4 Massachusetts 2.4
Airport/Port 2.0 Michigan 2.2
Chemicals 1.9 Minnesota 2.6
Special Assessment/Tax/Fee 1.4 Mississippi 1.6
Agricultural Products 1.3 Nebraska .2
Other 3.6 New Jersey .3
---- New York 16.2
Total 99.5% North Carolina 1.1
==== Ohio .6
Oklahoma 2.0
Oregon .6
Pennsylvania 5.7
Puerto Rico 2.9
South Carolina .2
Tennessee .3
Texas 7.5
Utah .4
Virginia 1.3
West Virginia 2.1
Wisconsin .2
Wyoming .7
----
Total 99.5
====
USAA TAX EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
(IN THOUSANDS)
March 31, 1998
Principal Coupon Final
Amount Security Rate Maturity Value
- ------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (61.0%)
Alabama (0.6%)
$ 9,500 Evergreen Board IDRB, Series 1985
(CRE) 3.75% 12/01/04 $ 9,500
California (5.2%)
7,485 Grand Terrace MFH RB,
Series 1985A (CRE) 3.80 12/01/11 7,485
8,600 Los Angeles Community Redevelopment
Agency MFH RB, Series 1985 (CRE) 4.05 12/01/05 8,600
Los Angeles County Housing Auth.
MFH RB,
9,900 Series 1984C (CRE) 4.25 10/01/14 9,900
12,500 Series 1985H (CRE) 4.25 12/01/07 12,500
2,080 Series 1991B (CRE) 4.40 12/01/15 2,080
2,965 Series 1994B (CRE) 3.80 9/01/18 2,965
8,000 Monterey County Financing Auth. RB,
Series 1995A (CRE) 4.30 9/01/36 8,000
7,900 San Diego MFH RB, Series 1993A (CRE) 3.95 12/01/15 7,900
San Francisco City and County MFH RB,
16,100 Series 1985A, Issue D (CRE) 3.95 12/01/05 16,100
1,900 Series 1985B, Issue D (CRE) 3.95 12/01/05 1,900
7,500 Simi Valley MFH RB, Series 1990
(CRE) 4.40 6/01/10 7,500
Colorado (1.4%)
6,780 Commerce City Golf Enterprise RB,
Series 1994 (CRE) 3.75 11/01/21 6,780
2,325 Denver City and County MFH RB,
Series 1985 (CRE) 3.85 12/01/09 2,325
1,340 Englewood IDRB, Series 1985 (CRE) 4.05 12/01/10 1,340
10,000 Fort Morgan Water Works RB,
Series 1997 (CRE) 3.75 12/01/17 10,000
1,940 Health Facilities Auth. RB,
Series 1996A (CRE) 3.75 12/01/16 1,940
Connecticut (0.1%)
2,325 Development Auth. IDRB,
Series 1984 (CRE) 3.75 12/01/04 2,325
District of Columbia (1.2%)
5,700 Catholic University of America RB,
Series 1989A (CRE) 4.40 12/01/09 5,700
13,105 GO, Series 1991B-1 (CRE) 3.85 6/01/03 13,105
Florida (6.3%)
2,750 Atlantic Beach Improvement and
Refunding RB, Series 1994B (CRE) 4.00 10/01/24 2,750
Broward County Housing Finance Auth.
MFH RB,
2,855 Series 1990 (CRE) 3.85 10/01/07 2,855
5,400 Series 1995B (CRE) 3.70 12/01/25 5,400
3,500 Series 1997 (CRE) 3.70 9/01/22 3,500
12,050 Dade County Health Facilities Auth.
RB, Series 1990 (CRE) 3.90 9/01/20 12,050
2,800 Hillsborough County IDA PCRB,
Series 1990 3.75 9/01/25 2,800
Housing Finance Agency MFH RB,
14,700 Series 1985 EE (CRE) 3.90 9/01/08 14,700
17,200 Series 1985U (CRE) 3.90 7/01/08 17,200
7,740 Series 1990D (CRE) 3.85 12/01/09 7,740
11,900 Laurel Club COP, Series 1996A (CRE) 3.85 6/01/25 11,900
13,800 Pinellas County Health Facilities
Auth. RB, Series 1985 (CRE) 3.70 12/01/15 13,800
4,940 St. Johns County IDA RB,
Series 1997 (CRE) 3.75 5/01/09 4,940
2,475 St. Petersburg RB, Series 1997A
(CRE) 3.75 10/01/17 2,475
800 Volusia County Health Facilities
Auth. RB,
Series 1995 (CRE) 3.90 9/01/20 800
Georgia (1.7%)
2,500 Brooks County Development Auth. RB,
Series 1998 (CRE) 3.85 3/01/18 2,500
8,000 Burke County Development Auth. PCRB,
Series 1995 3.80 9/01/25 8,000
8,330 Clayton County MFH RB,
Series 1989 (CRE) 3.70 11/01/06 8,330
Fulton County Housing Auth. MFH RB,
4,470 Series 1994B (CRE) 3.85 10/01/25 4,470
2,000 Series 1996 (CRE) 3.85 6/01/23 2,000
3,235 Peachtree Development Auth. RB,
Series 1988 (CRE) 3.90 7/01/10 3,235
Hawaii (0.1%)
1,000 State Housing Finance and Development
Corp. RB, Series 1990A (CRE) 4.30 1/01/25 1,000
Illinois (2.5%)
2,500 Chicago Tax Increment Allocation RB,
Series 1996B (CRE) (2) 3.75 12/01/14 2,500
6,775 Des Plaines IDRB, Series 1997A (CRE) 3.70 11/01/15 6,775
7,250 Development Finance Auth. IDRB,
Series 1985 (CRE) 4.40 12/01/05 7,250
14,700 Development Finance Auth. MFH RB,
Series 1993 (CRE) 3.90 12/01/13 14,700
7,200 Development Finance Auth. RB,
Series 1997-98B (CRE) 3.75 6/30/98 7,200
1,675 Evanston IDRB, Series 1985 (CRE) 3.85 1/01/15 1,675
Indiana (0.4%)
1,300 Huntington Industrial Economic
Development RB, Series 1990 3.85 6/26/14 1,300
4,750 Indianapolis Economic Development RB,
Series 1997 (CRE) 3.85 5/01/18 4,750
Kansas (0.4%)
3,240 Kansas City PCRB, Series 1985 3.75 11/01/07 3,240
3,300 Wichita Health Systems RB,
Series 1985XXV (CRE) 4.30 10/01/11 3,300
Kentucky (3.8%)
2,000 Frankfort Economic Development RB,
Series 1990 3.85 5/07/14 2,000
9,490 Hancock County Industrial Building RB,
Series 1991 (CRE) 3.90 7/01/11 9,490
5,100 Jefferson County MFH RB,
Series 1996 (CRE) 3.80 12/01/26 5,100
Ohio County PCRB,
19,000 Series 1983 (CRE) 4.30 6/01/13 19,000
26,000 Series 1985 (CRE) 4.30 10/01/15 26,000
Louisiana (2.7%)
1,550 Ascension Parish PCRB, Series 1990 3.85 9/01/10 1,550
8,500 Delhi Industrial Development Refunding
RB, Series 1996 3.75 12/01/12 8,500
Housing Finance Agency MFH RB,
6,970 Series 1988A (CRE) 4.80 1/01/26 6,970
9,095 Series 1988B (CRE) 4.80 12/01/25 9,095
Public Facilities Auth. IDA RB,
3,300 Series 1985 (CRE) 3.85 12/01/15 3,300
8,700 Series 1988 (CRE) 3.90 12/01/13 8,700
6,200 Series 1996 (CRE) 3.90 12/01/14 6,200
Maryland (1.4%)
23,050 Baltimore IDA RB, Series 1986 (CRE) 4.40 8/01/16 23,050
Massachusetts (0.4%)
5,815 Industrial Finance Agency RB,
Series 1997 (CRE) 3.63 5/01/27 5,815
Michigan (3.1%)
21,700 Detroit Downtown Development
Auth. RB (CRE) 4.40 12/01/10 21,700
5,300 Grand Rapids IDRB (CRE) 3.80 1/01/10 5,300
12,700 Hospital Finance Auth. Equipment Loan
Program Bonds, Series A (CRE) 3.75 12/01/23 12,700
1,200 Jackson County Economic Development
Corp. RB, Series 1984 (CRE) 3.78 10/01/14 1,200
3,000 Job Development Auth. PCRB,
Series 1996 (CRE) 4.08 10/01/08 3,000
6,500 State Hospital Finance Auth. RB,
Series A (CRE) 3.75 12/01/23 6,500
Minnesota (0.2%)
4,100 Hastings Hospital RB, Series 1988
(CRE) 3.80 11/01/13 4,100
Mississippi (0.3%)
4,610 Hinds County Urban Renewal RN,
Series 1991 (CRE) 3.90 1/01/07 4,610
Missouri (1.4%)
2,755 Boatmen's St. Louis Grantor Trust COP,
Series 1996A (CRE) 3.90 6/30/01 2,755
Clayton IDA RB,
5,700 Series 1994A (CRE) 4.45 12/01/06 5,700
5,750 Series 1994B (CRE) 4.45 2/01/07 5,750
8,275 Series 1995C (CRE) 4.45 5/01/05 8,275
2,700 St. Louis IDA RB, Series 1997 (CRE) 4.05 8/30/99 2,700
New Hampshire (0.9%)
2,900 Housing Finance Auth. MFH RB,
Series 1990 (CRE) 3.85 7/01/06 2,900
12,505 Manchester Housing Auth. MFH RB,
Series 1990A (CRE) 3.80 6/15/15 12,505
New Mexico (0.6%)
10,000 Santa Fe RB, Series 1997B (CRE) 3.70 6/01/22 10,000
New York (0.1%)
340 Dutchess County IDA RB,
Series 1997 (CRE) 3.70 9/01/17 340
North Carolina (0.2%)
3,300 Buncombe County Industrial Facilities
Financing Auth. IDRB, Series 1996 3.85 11/01/06 3,300
100 Medical Care Commission Health Care
Facilities RB, Series 1991 (CRE) 3.85 4/01/21 100
Ohio (1.0%)
6,000 Clark County IDA RB (CRE) 3.95 12/01/10 6,000
5,000 Environmental Improvement RB,
Series 1986 (CRE) 4.25 5/01/11 5,000
4,800 Stark County IDRB, Series 1984 (CRE) 3.90 9/01/01 4,800
Oklahoma (2.1%)
20,000 Muskogee Industrial Trust PCRB,
Series 1997A 3.80 6/01/27 20,000
Muskogee Industrial Trust RB,
2,960 Series 1985, Muskogee Mall
Project (CRE) 3.95 12/01/15 2,960
2,500 Series 1985, Warmack-Muskogee
Project (CRE) 3.95 12/01/15 2,500
8,500 Oklahoma City Industrial and Cultural
Facilities Trust RB, Series 1985
(CRE) 4.28 8/01/15 8,500
Oregon (5.6%)
Medford Hospital Facilities Auth. RB,
10,900 Series 1985 (CRE) 3.85 12/01/15 10,900
15,050 Series 1991 (CRE) 3.85 5/01/21 15,050
27,555 Series 1997 (CRE) 3.85 5/15/27 27,555
38,100 Port of Portland Public Grain
Elevator RB,
Series 1984 (CRE) 4.28 12/01/14 38,100
Pennsylvania (5.2%)
6,250 East Hempfield Township IDA RB,
Series 1997 (CRE) 3.80 8/15/17 6,250
78,300 Harrisburg Auth. RB, Series 1996
(CRE) (f) 3.80 7/01/21 78,300
Tennessee (1.6%)
1,800 Maryville IDB Education RB,
Series 1997B (CRE) 3.95 8/01/02 1,800
9,320 Memphis Health, Education and
Housing Facility Board MFH RB,
Series 1990 (CRE) 3.75 1/01/20 9,320
14,205 Nashville and Davidson County IDB RB,
Series 1995 (CRE) 3.90 11/01/12 14,205
Texas (5.0%)
6,130 Arlington IDC RB, Series 1985 (CRE) 3.95 10/01/20 6,130
Bexar County Housing Finance Corp.
MFH RB,
1,200 Series 1988A (CRE) 3.85 8/01/06 1,200
300 Series 1988B (CRE) 3.85 6/01/05 300
13,600 Comal County Health Facilities
Development Corp. RB,
Series 1997 (CRE) 3.70 2/01/27 13,600
5,800 Georgetown Health Facilities
Development Corp. RB, Series
1997B (CRE) 3.70 7/01/22 5,800
5,000 Gulf Coast Waste Disposal Auth. PCRB,
Series 1992 3.75 10/01/17 5,000
3,400 Harris County Housing Finance Corp.
MFH RB, Series 1988A (CRE) 3.80 6/01/05 3,400
4,440 Matagorda County Hospital District
RB, Series 1988 (CRE) 3.95 8/01/18 4,440
2,440 Metropolitan Higher Education Auth.
RB, Series 1984 (CRE) 4.25 12/01/04 2,440
1,310 North Central IDA RB, Series 1983 3.95 10/01/13 1,310
1,620 Nueces River Auth. PCRB,
Series 1985 (CRE) 3.90 12/01/99 1,620
12,700 Sherman Higher Education Finance
Corp. RB, Series 1997 (CRE) 3.75 1/01/18 12,700
Tarrant County Housing Finance Corp.
MFH RB,
8,080 Series 1985 (CRE) 3.75 12/01/25 8,080
13,600 Series 1994 (CRE) 3.90 11/01/07 13,600
2,800 Victoria Health Facilities
Development Corp. RB, Series
1997 (CRE) 3.70 9/01/27 2,800
Utah (0.7%)
7,800 Ogden City Industrial Development
Refunding Bonds, Series 1986 (CRE) 3.80 9/01/13 7,800
3,700 Provo Housing MFH RB,
Series 1987A (CRE) 4.90 12/01/10 3,700
Virginia (2.3%)
11,755 Henrico County IDA RB, Series
1994 (CRE) 4.00 5/01/24 11,755
20,420 Loudoun County IDA Residential Care
Facility RB, Series 1994B (CRE) 4.30 11/01/24 20,420
700 Prince William County IDA RB,
Series 1988 (CRE) 3.79 6/30/04 700
4,525 Roanoke IDA RB, Series 1994 3.85 12/01/13 4,525
Washington (2.3%)
1,873 Seattle IDA RB, Series 1989-I (CRE) 4.05 8/01/04 1,873
36,000 Student Loan Finance Association RB,
Series 1985-2nd (CRE) 4.20 1/01/01 36,000
Wyoming (0.2%)
3,500 Lincoln County PCRB, Series 1984A 3.85 11/01/14 3,500
- ------------------------------------------------------------------------------
Total variable rate demand notes
(cost: $995,218) 995,218
- ------------------------------------------------------------------------------
PUT BONDS (13.6%)
California (3.6%)
Higher Education Loan Auth. RB,
20,825 Series 1987A (CRE) 3.95 6/01/01 20,825
7,750 Series 1987B (CRE) 4.00 7/01/02 7,750
5,000 Series 1992D (CRE) 3.80 4/01/00 5,000
25,000 Student Education Loan Marketing
Corp. RB, Series 1993A (CRE) 3.85 11/01/02 25,000
Florida (0.3%)
1,750 Housing Finance Agency MFH RB,
Series C (CRE) 3.85 11/01/07 1,750
1,000 Jacksonville PCRB, Series 1992 3.55 9/01/24 1,000
1,825 Tampa Guaranteed Entitlement RB,
Series 1988B 8.50 10/01/18 1,868
Illinois (3.5%)
Health Facilities Auth. RB,
11,000 Series 1985B 3.60 8/15/15 11,000
10,000 Series 1988 3.70 8/15/10 10,000
8,000 Series 1990A (CRE) 3.50 2/01/19 8,000
20,000 Series 1995 4.00 6/01/30 20,000
8,000 Series 1996 3.90 8/15/30 8,000
Kentucky (0.3%)
5,500 Lexington-Fayette Urban County RB,
Series 1987 (CRE) 3.90 4/01/15 5,500
Louisiana (1.5%)
24,200 East Baton Rouge Mortgage Finance
Auth. RB, Series 1997C-4 4.50 10/01/30 24,239
Montana (1.2%)
Board of Investments Municipal
Finance Consolidation Act Bonds,
2,875 Series 1992 3.60 3/01/05 2,875
6,795 Series 1995 3.60 3/01/10 6,795
9,930 Series 1997 3.60 3/01/17 9,930
New Hampshire (0.4%)
7,205 IDA Resources Recovery RB,
Series 1985 (CRE) (1) 3.90 7/01/07 7,205
Oregon (0.7%)
10,935 Klamath Falls Electric RB, Series
1986B 4.50 5/01/23 10,941
Pennsylvania (0.5%)
6,360 Ferguson Industrial and Commercial
Development Auth. RB, Series 1981 4.05 11/01/06 6,360
840 Philadelphia IDA IDRB, Series 1981 4.05 11/01/06 840
1,010 Philadelphia IDA PCRB, Series 1981 4.05 11/01/06 1,010
Virginia (0.3%)
4,000 Fairfax County Hospital IDA RB,
Series 1993B 3.45 8/15/25 4,000
West Virginia (1.2%)
19,500 Grant County PCRB, Series 1994 3.80 9/01/24 19,500
Wyoming (0.1%)
2,100 Rock Springs IDRB, Series 1992 (CRE) 3.65 3/01/02 2,100
- ------------------------------------------------------------------------------
Total put bonds (cost: $221,488) 221,488
- ------------------------------------------------------------------------------
FIXED RATE INSTRUMENTS (23.4%)
California (2.5%)
10,900 Antioch Unified School District GO
TRAN, Series 1997 4.25 6/30/98 10,909
8,940 East Side Union High School District
GO TRAN 4.25 7/01/98 8,948
3,330 Rocklin Unified School District GO
TRAN 4.45 9/10/98 3,338
10,000 San Bernardino County GO TRAN,
Series 1997-98A 4.50 6/30/98 10,019
4,000 School Cash Reserve Program Auth. RB,
Series 1997A (CRE) (2) 4.75 7/02/98 4,009
4,130 Tahoe Truckee Unified School District
GO TRAN, Series 1997 4.45 9/10/98 4,140
Florida (1.4%)
3,000 Jacksonville Electric Auth. RB,
Series D-3 3.55 4/15/98 3,000
20,700 Jacksonville GO CP Notes 3.40 5/08/98 20,700
Kentucky (0.4%)
7,000 Jefferson County Board Education RAN,
Series 1997N 3.86 6/30/98 7,004
Louisiana (0.2%)
3,185 Public Facilities Auth. IDA RB,
Series A 4.40 10/29/98 3,194
Massachusetts (3.2%)
5,000 Everett City BAN (CRE) 4.00 3/18/99 5,019
3,780 Fall River GO BAN (CRE) 4.25 8/14/98 3,785
15,000 Gloucester BAN 4.00 8/07/98 15,006
15,000 Massachusetts Bay Transportation
Auth. Notes, Series 1997B 4.50 9/04/98 15,039
2,600 New Bedford RAN (CRE) 4.30 6/30/98 2,602
3,000 Springfield GO BAN (CRE) 4.40 6/26/98 3,003
7,000 Springfield GO BAN (CRE) 4.40 9/04/98 7,014
Missouri (0.8%)
11,000 State Health and Educational
Facilities Auth. School District
Notes, Series 1997 4.50 9/14/98 11,029
New Jersey (3.8%)
4,000 Essex County BAN, Series 1997A 4.25 8/07/98 4,005
10,000 Jersey City BAN, Series 1997 4.38 9/18/98 10,021
State Transit Auth. CP Notes,
27,000 Series 1998A 3.50 6/08/98 27,000
4,000 Series 1998A 3.70 6/15/98 4,000
17,000 Series 1998A 3.45 6/15/98 17,000
New Mexico (0.4%)
6,000 State TRAN, Series 1997 4.50 6/30/98 6,013
New York (.9%)
2,500 New Rochelle City School District
GO TAN, Series 1997 4.25 6/30/98 2,502
8,000 New York City GO RAN, Series A (CRE) 4.50 6/30/98 8,015
5,900 New York City Municipal Water Finance
Auth. CP Notes, Series 1994C (CRE) 3.70 6/25/98 5,900
North Carolina (0.4%)
7,298 Municipal Power Agency CP Notes,
Series A (CRE) 3.50 6/12/98 7,298
Ohio (0.9%)
10,000 Barberton City School District GO
TAN, Series 1997B 4.48 6/01/98 10,010
5,350 Dublin School District GO, Series
1997 4.33 5/13/98 5,352
Pennsylvania (0.8%)
12,500 Philadelphia School District TRAN,
Series 1997-1998 (CRE) 4.50 6/30/98 12,516
South Carolina (0.2%)
3,500 Spartanburg County School District
#6 GO, Series 1997 (CRE) (2) 4.75 4/01/98 3,500
Texas (6.3%)
9,411 Austin Combined Utility Systems CP
Notes, Series A (CRE) 3.65 5/11/98 9,411
15,000 Houston Water and Sewer System CP
Notes, Series A 3.50 5/21/98 15,000
310 Perryton ISD GO, Series 1997 (CRE) 6.50 8/15/98 312
15,600 Public Financing Auth. CP Notes,
Series B 3.55 7/14/98 15,600
11,900 San Antonio Electric and Gas CP,
Series 1996A 3.45 7/09/98 11,900
10,000 San Antonio Water Systems CP,
Series 1995 3.45 5/14/98 10,000
State TRAN,
20,000 Series 1995B 3.45 8/11/98 20,000
19,900 Series 1997A 4.75 8/31/98 19,994
Virginia (1.2%)
20,000 Norfolk IDA RAN 3.65 9/11/98 20,000
- ------------------------------------------------------------------------------
Total fixed rate instruments
(cost: $383,107) 383,107
- ------------------------------------------------------------------------------
Total investments (cost: $1,599,813) $1,599,813
==============================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Multi-Family Housing 17.9%
General Obligations 17.2
Hospitals 8.8
Finance - Municipal 7.2
Nursing/Continuing Care Centers 6.4
Electric/Gas Utilities - Municipal 5.4
Buildings 4.9
Education 4.6
Student Loans 3.6
Electric Utilities 3.1
Water/Sewer Utilities - Municipal 3.0
Agriculatural Products 2.3
Manufacturing - Diversified Industries 2.1
Single-Family Housing 1.5
Lodging/Hotel 1.3
Community Service 1.2
Appropriated Debt 1.0
Other 6.5
----
Total 98.0%
====
PORTFOLIO SUMMARY BY STATE
--------------------------
Alabama .6%
California 11.3
Colorado 1.4
Connecticut .1
District of Columbia 1.2
Florida 8.0
Georgia 1.7
Hawaii .1
Illinois 6.0
Indiana .4
Kansas .4
Kentucky 4.5
Louisiana 4.4
Maryland 1.4
Massachusetts 3.6
Michigan 3.1
Minnesota .2
Mississippi .3
Missouri 2.2
Montana 1.2
New Hampshire 1.3
New Jersey 3.8
New Mexico 1.0
New York 1.0
North Carolina .6
Ohio 1.9
Oklahoma 2.1
Oregon 6.3
Pennsylvania 6.5
South Carolina .2
Tennessee 1.6
Texas 11.3
Utah .7
Virginia 3.8
Washington 2.3
West Virginia 1.2
Wyoming .3
----
Total 98.0%
====
NOTES TO PORTFOLIOS OF INVESTMENTS IN SECURITIES
March 31, 1998
GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
SPECIFIC NOTES
(a) Prerefunded to various dates prior to maturity at the call price.
(b) Zero Coupon security. Rate represents the effective yield at date of
purchase. For the USAA Long-Term, USAA Intermediate-Term, and USAA Short-Term
Funds, these securities represented 6.1%, 9.8%, and 3.2% of the Funds' net
assets, respectively.
(c) At March 31, 1998, the cost of securities purchased on a delayed delivery
basis for the USAA Long-Term, USAA Intermediate-Term, and USAA Short-Term Funds,
was $30,647, $21,422, and $3,330 respectively, in thousands.
(d) Adjustable rate security. Interest 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 1.7% of the USAA Short-Term Fund's net assets.
(f) These securities were purchased within the terms of a private placement
memorandum and are subject to a seven day demand feature. Under procedures
adopted by the Board of Directors, the adviser has determined that these
securities are liquid. At March 31, 1998, these securities represents 4.8% of
the USAA Tax Exempt Money Market Fund's net assets.
(g) At March 31, 1998, these securities were segregated to cover delayed
delivery purchases.
(h) These securities are exempt from registration under the Securities Act of
1933 and have been determined to be liquid by management. Any resale of these
securities may occur in an exempt transaction in the United States to a
qualified institutional buyer as defined by Rule 144A. These securities
represented 2.1%, 1.3%, 1.1% of the USAA Long-Term, USAA Intermediate-Term,
and USAA Short-Term Funds' net assets, respectively.
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Year ended March 31, 1998
USAA USAA
Long-Term Intermediate-Term
Fund Fund
--------------------------------
Net investment income:
Interest income $118,098 $108,304
-------- --------
Expenses:
Management fees 5,498 5,239
Transfer agent's fees 989 1,023
Custodian's fees 236 261
Postage 74 77
Shareholder reporting fees 40 42
Directors' fees 4 4
Registration fees 114 135
Professional fees 32 32
Other 57 47
-------- --------
Total expenses 7,044 6,860
-------- --------
Net investment income 111,054 101,444
-------- --------
Net realized and unrealized gain on investments:
Net realized gain 14,265 550
Change in net unrealized
appreciation/depreciation 97,208 84,518
-------- --------
Net realized and unrealized gain 111,473 85,068
-------- --------
Increase in net assets resulting from operations $222,527 $186,512
======== ========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
Year ended March 31, 1998
USAA USAA Tax Exempt
Short-Term Money Market
Fund Fund
--------------------------------
Net investment income:
Interest income $ 43,299 $ 58,329
-------- --------
Expenses:
Management fees 2,442 4,292
Transfer agent's fees 589 925
Custodian's fees 180 343
Postage 46 98
Shareholder reporting fees 31 65
Directors' fees 4 4
Registration fees 76 84
Professional fees 32 38
Other 21 38
-------- --------
Total expenses 3,421 5,887
-------- --------
Net investment income 39,878 52,442
-------- --------
Net realized and unrealized gain on investments:
Net realized gain 5 -
Change in net unrealized
appreciation/depreciation 13,208 -
-------- --------
Net realized and unrealized gain 13,213 -
-------- --------
Increase in net assets resulting from operations $ 53,091 $ 52,442
======== ========
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
USAA LONG-TERM FUND
(IN THOUSANDS)
Years ended March 31,
1998 1997
------------------------
From operations:
Net investment income $ 111,054 $ 109,721
Net realized gain on investments 14,265 4,215
Change in net unrealized appreciation/depreciation
of investments 97,208 3,331
---------- ---------
Increase in net assets resulting from operations 222,527 117,267
---------- ---------
Distributions to shareholders from:
Net investment income (111,054) (109,721)
---------- ---------
From capital share transactions:
Proceeds from shares sold 573,375 683,750
Dividend reinvestments 77,758 77,355
Cost of shares redeemed (542,517) (750,331)
---------- ---------
Increase in net assets from capital share
transactions 108,616 10,774
---------- ---------
Net increase in net assets 220,089 18,320
Net assets:
Beginning of period 1,822,436 1,804,116
---------- ---------
End of period $2,042,525 $1,822,436
========== ==========
Change in shares outstanding:
Shares sold 41,889 51,727
Shares issued for dividends reinvested 5,652 5,837
Shares redeemed (39,515) (56,684)
---------- ----------
Increase in shares outstanding 8,026 880
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
USAA INTERMEDIATE-TERM FUND
(IN THOUSANDS)
Years ended March 31,
1998 1997
------------------------
From operations:
Net investment income $ 101,444 $ 95,423
Net realized gain on investments 550 3,806
Change in net unrealized appreciation/depreciation
of investments 84,518 (4,710)
---------- ---------
Increase in net assets resulting from operations 186,512 94,519
---------- ---------
Distributions to shareholders from:
Net investment income (101,444) (95,423)
---------- ---------
From capital share transactions:
Proceeds from shares sold 372,339 236,450
Dividend reinvestments 78,233 73,396
Cost of shares redeemed (221,819) (243,297)
---------- ---------
Increase in net assets from capital share
transactions 228,753 66,549
---------- ---------
Net increase in net assets 313,821 65,645
Net assets:
Beginning of period 1,725,684 1,660,039
---------- ---------
End of period $2,039,505 $1,725,684
========== ==========
Change in shares outstanding:
Shares sold 28,210 18,461
Shares issued for dividends reinvested 5,927 5,731
Shares redeemed (16,867) (19,015)
---------- ----------
Increase in shares outstanding 17,270 5,177
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
USAA SHORT-TERM FUND
(IN THOUSANDS)
Years ended March 31,
1998 1997
---------------------------
From operations:
Net investment income $ 39,878 $ 35,963
Net realized gain (loss) on investments 5 (208)
Change in net unrealized appreciation/depreciation
of investments 13,208 (453)
---------- ---------
Increase in net assets resulting from operations 53,091 35,302
---------- ---------
Distributions to shareholders from:
Net investment income (39,878) (35,963)
---------- ---------
From capital share transactions:
Proceeds from shares sold 437,289 274,306
Dividend reinvestments 33,473 29,997
Cost of shares redeemed (318,067) (272,765)
---------- ---------
Increase in net assets from capital share
transactions 152,695 31,538
---------- ---------
Net increase in net assets 165,908 30,877
Net assets:
Beginning of period 804,897 774,020
---------- ---------
End of period $ 970,805 $ 804,897
========== =========
Change in shares outstanding:
Shares sold 40,893 25,924
Shares issued for dividends reinvested 3,130 2,835
Shares redeemed (29,763) (25,787)
---------- ---------
Increase in shares outstanding 14,260 2,972
========= =========
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
USAA TAX EXEMPT MONEY MARKET FUND
(IN THOUSANDS)
Years ended March 31,
1998 1997
---------------------------
From operations:
Net investment income $ 52,442 $ 48,817
---------- ---------
Distributions to shareholders from:
Net investment income (52,442) (48,817)
---------- ---------
From capital share transactions:
Proceeds from shares sold 1,717,592 1,866,489
Dividend reinvestments 49,796 45,985
Cost of shares redeemed (1,701,237) (1,876,016)
---------- ---------
Increase in net assets from capital share
transactions 66,151 36,458
---------- ---------
Net increase in net assets 66,151 36,458
Net assets:
Beginning of period 1,565,634 1,529,176
---------- ---------
End of period $1,631,785 $1,565,634
========== ==========
Change in shares outstanding:
Shares sold 1,717,592 1,866,489
Shares issued for dividends reinvested 49,796 45,985
Shares redeemed (1,701,237) (1,876,016)
---------- ----------
Increase in shares outstanding 66,151 36,458
========== ==========
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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 USAA Long-Term Fund, USAA Intermediate-Term Fund, USAA Short-Term Fund, and
USAA 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 USAA Tax Exempt Money Market Fund has a further
objective of preserving capital and maintaining liquidity.
A. Security valuation - Investments in the USAA Long-Term, USAA Intermediate-
Term, and USAA 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 USAA Tax
Exempt Money Market Fund, are stated at amortized cost which approximates market
value.
B. Federal taxes - Each Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Interest
income is recorded daily on the accrual basis. Premiums and original issue
discounts are amortized over the life of the respective securities. Market
discounts are not amortized. Any ordinary income related to market discounts is
recognized upon disposition of the securities.
D. Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Funds participate with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability under its agreement with CAPCO, each Fund may borrow
from CAPCO an amount up to 5% of its total assets at CAPCO's borrowing rate with
no markup. Subject to availability under its agreement with NationsBank, each
Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 15% of its total assets at
NationsBank's borrowing rate plus a markup. During the year ended March 31,
1998, the Long-Term Fund had six borrowings, averaging $5.6 million with an
average length of two days, and incurred $9 thousand in interest expense. The
USAA Intermediate-Term, USAA Short-Term, and USAA Tax Exempt Money Market
Funds had no borrowings under either of these agreements during the period.
(3) DISTRIBUTIONS
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. 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, 1998, the
USAA Long-Term, USAA Intermediate-Term, and USAA Short-Term Funds had capital
loss carryovers for federal income tax purposes of approximately (in thousands)
$32,857, $2,475 and $3,603, respectively which, if not offset by subsequent
capital gains will expire between 2000-2005. It is unlikely that the Company's
Board of Directors 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, 1998. 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, 1998.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities for the year
ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
USAA USAA USAA USAA Tax Exempt
Long-Term Fund Intermediate-Term Fund Short-Term Fund Money Market Fund
($000) ($000) ($000) ($000)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases $801,988 $367,884 $201,780 $5,418,156
Sales/maturities $681,888 $143,646 $ 55,700 $5,371,867
</TABLE>
For the USAA Long-Term, USAA Intermediate-Term, and USAA Short-Term Funds, cost
of purchases and proceeds from sales/maturities excludes short-term securities.
Gross unrealized appreciation and depreciation of investments at March 31, 1998
was as follows:
USAA USAA USAA
Long-Term Fund Intermediate-Term Fund Short-Term Fund
($000) ($000) ($000)
-------------------------------------------------------
Appreciation $182,415 $137,298 $ 18,996
Depreciation (1,453) (87) (69)
-------- -------- --------
Net $180,962 $137,211 $ 18,927
======== ======== ========
(5) TRANSACTIONS WITH MANAGER
A. Management fees - The investment policies of the Funds and the management of
the Funds' portfolios are carried out by USAA Investment Management Company (the
Manager). Management fees are computed at .28% of the average annual net assets
of each Fund.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Funds based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Funds' shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At March 31, 1998, the Association and its affiliates
owned 4.9 million shares (3.2%) of the USAA Intermediate-Term Fund.
Certain directors and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Funds.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA LONG-TERM FUND
March 31, 1998
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
Year Ended March 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
Net asset value at
beginning of period $ 13.22 $ 13.17 $ 12.96 $ 13.20 $ 14.21
Net investment income .78 .79 .79 .79 .81
Net realized and
unrealized gain (loss) .78 .05 .21 (.16) (.44)
Distributions from net
investment income (.78) (.79) (.79) (.78) (.82)
Distributions of realized
capital gains - - - (.09) (.56)
--------- --------- --------- --------- ---------
Net asset value at
end of period $ 14.00 $ 13.22 $ 13.17 $ 12.96 $ 13.20
========= ========= ========= ========= =========
Total return (%) * 12.04 6.51 7.88 5.07 2.36
Net assets at end
of period (000) $2,042,525 $1,822,436 $1,804,116 $1,774,643 $1,831,693
Ratio of expenses to
average net assets (%) .36 .37 .37 .38 .38
Ratio of net investment
income to average
net assets (%) 5.65 5.95 5.99 6.23 5.69
Portfolio turnover (%) 35.20 40.78 53.25 64.72 109.28
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA INTERMEDIATE-TERM FUND
March 31, 1998
Year Ended March 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
Net asset value at
beginning of period $ 12.77 $ 12.77 $ 12.50 $ 12.48 $ 12.90
Net investment income .71 .72 .71 .69 .69
Net realized and
unrealized gain (loss) .61 - .27 .05 (.29)
Distributions from net
investment income (.71) (.72) (.71) (.69) (.69)
Distributions of realized
capital gains - - - (.03) (.13)
--------- --------- --------- --------- ----------
Net asset value at
end of period $ 13.38 $ 12.77 $ 12.77 $ 12.50 $ 12.48
========= ========= ========= ========= =========
Total return (%) * 10.59 5.80 7.97 6.16 3.06
Net assets at end
of period (000) $2,039,505 $1,725,684 $1,660,039 $1,529,750 $1,559,183
Ratio of expenses to
average net assets (%) .37 .37 .38 .40 .40
Ratio of net investment
income to average
net assets (%) 5.42 5.65 5.54 5.63 5.30
Portfolio turnover (%) 7.87 23.05 27.51 27.26 69.45
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA SHORT-TERM FUND
March 31, 1998
Year Ended March 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
Net asset value at
beginning of period $ 10.57 $ 10.57 $ 10.47 $ 10.48 $ 10.63
Net investment income .49 .49 .50 .47 .45
Net realized and
unrealized gain (loss) .17 - .10 (.01) (.15)
Distributions from net
investment income (.49) (.49) (.50) (.47) (.45)
--------- --------- --------- --------- ---------
Net asset value at
end of period $ 10.74 $ 10.57 $ 10.57 $ 10.47 $ 10.48
========= ========= ========= ========= =========
Total return (%) * 6.35 4.70 5.83 4.51 2.87
Net assets at end
of period (000) $ 970,805 $ 804,897 $ 774,020 $ 801,157 $ 995,624
Ratio of expenses to
average net assets (%) .39 .41 .42 .42 .43
Ratio of net investment
income to average
net assets (%) 4.57 4.60 4.73 4.50 4.25
Portfolio turnover (%) 7.91 27.67 35.99 32.61 101.67
* Assumes reinvestment of all dividend income distributions during the period.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA TAX EXEMPT MONEY MARKET FUND
March 31, 1998
Year Ended March 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .03 .03 .04 .03 .02
Distributions from net
investment income (.03) (.03) (.04) (.03) (.02)
--------- -------- --------- --------- ---------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return (%) * 3.48 3.30 3.65 2.98 2.31
Net assets at end
of period (000) $1,631,785 $1,565,634 $1,529,176 $1,456,747 $1,569,760
Ratio of expenses to
average net assets (%) .38 .39 .40 .39 .40
Ratio of net investment
income to average
net assets (%) 3.42 3.25 3.59 2.93 2.29
* Assumes reinvestment of all dividend income distributions during the period.
===============================================================================
Directors
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Independent Auditors
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund Touchline(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
================================================================================
