Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review:
USAA Long-Term Fund 4
USAA Intermediate-Term Fund 10
USAA Short-Term Fund 16
USAA Tax Exempt Money Market Fund 21
Financial Information:
Portfolios of Investments:
USAA Long-Term Fund 26
USAA Intermediate-Term Fund 35
USAA Short-Term Fund 51
USAA Tax Exempt Money Market Fund 63
Notes to Portfolios of Investments 74
Statements of Assets and Liabilities 75
Statements of Operations 77
Statements of Changes in Net Assets 79
Notes to Financial Statements 83
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 Fund.
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 Fund.
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
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 (Registered Trademark)
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 not insured or guaranteed by the
FDIC or any other government agency. Although the fund seeks to preserve
the value of your investment at $1 per share, it is possible to lose
money by investing in the fund.
(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
Over the past couple of years when Ken Willmann, who heads up our tax-exempt
bond area, has gone with us to speak to shareholders, he's said, "Bonds are like
Rodney Dangerfield. They get no respect." That was because the great performance
of stocks since 1995 made any bond look pale by comparison. But what a
difference a few months make!
After 1995, I told stock fund shareholders, "It was a great year, but it would
be a stretch to expect a repeat." After 1996, I said, "That's two great years in
a row. Any more would be unusual." After 1997, I said, "You should not
extrapolate 30% a year returns." Finally, by August of this year, my caution
proved correct. (The market is often reluctant to recognize genius.) Herein lies
the case for owning bonds.
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J. C. ROTH,
CFA, APPEARS HERE]
You have probably heard me say, that in my career I've known only two people who
could really stand a portfolio that is 100% stocks. That is being proven again.
The actual fear that accompanies a severe market drop is something difficult to
imagine. That fear is now impelling people toward fixed-income investments. The
behavior of stocks and bonds this past summer reinforces such a move, because as
stocks went into turmoil, a shift of money into bonds drove their prices up. If
you owned both in your portfolio, this difference in performance of the two
classes would have, I believe, left you much calmer than if you owned stocks
alone.
The ability to keep emotion out of investing and to look instead for opportunity
is very important. To be able to do that in a time like August 1998, for most
people, requires a portfolio that is a mix of stocks and bonds. And that's
because the markets will always surprise us.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
P.S. We have some news for those USAA funds that paid capital gain distributions
during 1998! President Clinton signed the appropriations bill October 23, 1998,
that modifies the long-term (12 months) capital gains holding period rules so
that essentially all registered investment company capital gain dividends paid
to shareholders during 1998 will be taxed at a maximum of 20%.
Past performance is no guarantee of future results.
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.
Although none of the investment instruments mentioned are guaranteed or insured,
government bonds are backed by the full faith and credit of the U.S. Government.
Common stocks are considered to have the most risk, followed by corporate bonds
and government bonds. All of these vehicles are subject to tax. If held to
maturity, bonds offer a fixed rate of return and fixed principal value. Return
and principal value of an investment in stocks will fluctuate.
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.
- --------------------------------------------------------------------------------
3/31/98 9/30/98
- --------------------------------------------------------------------------------
Net Assets $2,042.5 Million $2,173.3 Million
Net Asset Value Per Share $14.00 $14.25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6-MONTH TOTAL RETURN AND 30-DAY SEC YIELD* AS OF 9/30/98
- --------------------------------------------------------------------------------
3/31/98 to 9/30/98 30-Day SEC Yield
4.59% + 4.43%
- --------------------------------------------------------------------------------
* Calculated as prescribed by the Securities and Exchange Commission.
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Average Annual Compounded Returns with
Reinvestement of Dividends - Periods Ending September 30,1998
TOTAL DIVIDEND PRICE
RETURN EQUALS RETURN PLUS CHANGE
- --------------------------------------------------------------------------------
10 YEARS 8.35% = 6.68% + 1.67%
5 YEARS 6.21% = 6.06% + 0.15%
1 YEAR 9.32% = 5.83% + 3.49%
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE 10-YEAR PERIOD
ENDED SEPTEMBER 30, 1998
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Long-Term Fund for the 10-
year period ended September 30, 1998.
Total Return for Years Ended:
- ----------------------------
9/30/89 10.37%
9/30/90 5.68%
9/30/91 13.01%
9/30/92 10.99%
9/30/93 12.77%
9/30/94 -4.32%
9/30/95 9.83%
9/30/96 6.91%
9/30/97 10.02%
9/30/98 9.32%
**Compounded Dividend Yield for Years Ended:
- -------------------------------------------
9/30/89 7.77%
9/30/90 7.37%
9/30/91 7.70%
9/30/92 7.04%
9/30/93 6.69%
9/30/94 5.16%
9/30/95 6.70%
9/30/96 6.15%
9/30/97 6.17%
9/30/98 5.83%
Change in Share Price:
- ---------------------
9/30/89 2.60%
9/30/90 -1.69%
9/30/91 5.31%
9/30/92 3.95%
9/30/93 6.08%
9/30/94 -9.48%
9/30/95 3.13%
9/30/96 0.76%
9/30/97 3.85%
9/30/98 3.49%
** Compounded Dividend yield calculation includes only income distributions.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Dividend return is
the income dividends received over the period assuming reinvestment of all
dividends. Share price change is the change in net asset value over the period
adjusted for capital gain distributions. No adjustment has been made for taxes
payable by shareholders on their reinvested dividends and capital gain
distributions. The performance data quoted represent past performance and are
not an indication of future results. Investment return and principal value of an
investment will fluctuate, and an investor's shares, when redeemed, may be worth
more or less than their original cost.
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 to the 12 Month Dividend
Yield of the Lipper General Municipal Debt Funds Average from 9/30/89 to
9/30/98.
USAA Long-Term Lipper General Municipal
Fund Yield Debt Funds Average Yield
09/30/89 7.29% 6.99%
09/30/90 7.38% 6.98%
09/30/91 6.93% 6.50%
09/30/92 6.45% 6.05%
09/30/93 5.83% 5.33%
09/30/94 6.01% 5.46%
09/30/95 6.13% 5.24%
09/30/96 5.95% 5.06%
09/30/97 5.67% 4.78%
09/30/98 5.40% 4.45%
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
gain distributions. The graph represents data for periods ending 9/30/89 to
9/30/98.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, comparing the cumulative
performance of a $10,000 investment for the USAA Long-Term Fund, Lehman Brothers
Municipal Bond Index and the Lipper General Municipal Debt Funds Average. The
data points from the graph are as follows:
USAA Long-Term Fund
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,355
09/30/89 $11,037
03/31/90 $11,436
09/30/90 $11,664
03/31/91 $12,403
09/30/91 $13,182
03/31/92 $13,691
09/30/92 $14,630
03/31/93 $15,397
09/30/93 $16,499
03/31/94 $15,761
09/30/94 $15,785
03/31/95 $16,559
09/30/95 $17,337
03/31/96 $17,863
09/30/96 $18,536
03/31/97 $19,026
09/30/97 $20,393
03/31/98 $21,316
09/30/98 $22,295
Lehman Brothers Municipal Bond Index
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,254
09/30/89 $10,868
03/31/90 $11,336
09/30/90 $11,607
03/31/91 $12,381
09/30/91 $13,138
03/31/92 $13,618
09/30/92 $14,511
03/31/93 $15,323
09/30/93 $16,360
03/31/94 $15,679
09/30/94 $15,960
03/31/95 $16,844
09/30/95 $17,745
03/31/96 $18,256
09/30/96 $18,817
03/31/97 $19,250
09/30/97 $20,514
03/31/98 $21,313
09/30/98 $22,301
Lipper General Municipal Debt Funds Average
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,335
09/30/89 $10,888
03/31/90 $11,257
09/30/90 $11,465
03/31/91 $12,211
09/30/91 $12,975
03/31/92 $13,438
09/30/92 $14,332
03/31/93 $15,191
09/30/93 $16,243
03/31/94 $15,500
09/30/94 $15,657
03/31/95 $16,492
09/30/95 $17,223
03/31/96 $17,715
09/30/96 $18,238
03/31/97 $18,613
09/30/97 $19,866
03/31/98 $20,642
09/30/98 $21,552
Data from 9/30/88 through 9/30/98
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,
Inc., an independent organization that monitors the performance of mutual funds.
All tax-exempt bond funds will find it difficult to outperform the Lehman Index,
since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER, KENNETH E. WILLMANN, CFA, APPEARS HERE]
INTEREST RATE MARKET
Interest rates generally declined in the six months ended September 30, 1998.
The graph below illustrates this well.
MUNICIPAL, CORPORATE, AND U.S. TREASURY BOND YIELDS
A chart in the form of a line graph appears here illustrating the yields of the
Lehman Brothers Investment Grade Corporate Bond Index, the 30-year U.S. Treasury
Bond, and the Bond Buyer 40-Bond Index (BBI40) from 3/31/98 to 9/30/98.
Lehman
Brothers 30-year Bond Buyer
Investment Grade U.S. 40-Bond
Corporate Bond Index Treasury Index (BBI40)
--------------------- --------- -------------
3/31/98 6.55% 5.93% 5.27%
4/15/98 6.47% 5.88% 5.29%
4/30/98 6.54% 5.95% 5.39%
5/15/98 6.57% 5.97% 5.28%
5/29/98 6.44% 5.80% 5.22%
6/15/98 6.33% 5.57% 5.16%
6/30/98 6.41% 5.63% 5.22%
7/15/98 6.44% 5.71% 5.25%
7/31/98 6.50% 5.71% 5.26%
8/14/98 6.43% 5.54% 5.20%
8/31/98 6.46% 5.27% 5.11%
9/15/98 6.30% 5.26% 5.14%
9/30/98 5.93% 4.98% 5.04%
Note: Past performance is no guarantee of future results. The results of the
comparison reflect current conditions as regards to tax laws, inflationary
trends, and general corporate policies and practices. Investors are encouraged
to closely monitor changes in any factor which may affect their investments.
Please note that the top line is the yield on the Lehman Brothers Investment
Grade Corporate Bond Index, which is a standard of interest rates on bonds
issued by corporations and other businesses. The middle 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.
Besides the fact that all three lines in the graph trend downward, the most
striking observation is how different those trends are. By far, the Long Bond
declined the most. Its yield declined .95% over the period to 4.98%. Yes, you
are reading it correctly, 4.98%! Treasury bonds hit yield levels not seen in
over thirty years!
Corporate bonds followed, but not as steeply. Their yields declined .62% over
the period to 5.93%, most of which took place in September. The BBI40 yield line
has the most gentle decline of only .23%. In fact, on September 30, the yield on
the BBI40 of 5.04% was actually higher than that on the "Long Bond." This is a
very rare occurrence! Remember, the interest on most municipal bonds is free
from federal income tax while interest from government and corporate bonds is
taxable. The yield on taxable bonds is usually higher than that on tax-free
bonds to compensate the investor for the taxes which will be owed.
CHANGING RELATIONSHIPS
What caused these yield relationships to change? Why do municipal bonds yield
more than Treasury bonds and closer than usual to corporate bonds? Let's begin
by discussing what is going on with Treasury bonds.
While the U.S. economy is currently in good shape, many of the world's economies
are not. You have probably heard of the economic collapses in Asia and Russia.
It appears that Latin America is poised to follow. These collapses have led to
business failures, declining employment and wages, credit crunches and deflation
of prices. In short, many of the world's economies look a lot like the early
1930s in the U.S.
The economies of almost all countries in the world are increasingly intertwined
by technology and the expansion of world trade. Many people believe that it's
only a matter of time, and perhaps not much time, before the U.S. and Western
Europe are dragged into this scenario. The Federal Reserve Board in the U.S.,
which has been the leader in the fight against inflation for years, has recently
turned its attention to worries about recession. On September 29, 1998, it
lowered short-term interest rates .25% to 5.25%, the first change in over a
year. The lowering of interest rates is thought to stimulate the economy. Many
investors around the world, particularly those outside of this country, view
U.S. Treasury securities as a very safe investment. Therefore, demand is very
high for Treasury bonds as a haven against future economic turmoil and deflation
brought on by severe recession. As a result, prices of these bonds soared, which
in turn, caused yields to fall very rapidly.
Municipal and corporate bonds do not offer this "ultimate safety." Both entail
some default risk, though careful selection can reduce that risk. Municipal
bonds are suffering from a high level of issuance of new bonds, as well. The
lower level of interest rates is leading to much borrowing both to refinance
older outstanding bonds and to finance new projects. Demand for new bonds has
not kept pace with this large supply, causing the more restrained decline in
yields on the BBI40.
In summary, the continued decline in inflation is lowering interest rates, while
economic fear is driving people toward buying U.S. Treasury securities.
Municipal bonds have also been affected by an oversupply of new issues.
AN OPPORTUNITY
All of the foregoing combine to make tax-free municipal bonds attractive
investments, especially relative to other bonds. If the U.S. economy slows and
inflation continues to fall, yields will continue to fall, and prices on
existing bonds will rise.
LONG-TERM FUND PERFORMANCE
While past performance is no guarantee of future results, from March 31, 1998,
to September 30, 1998, your Fund paid an annualized dividend distribution yield
(1) of 5.36% versus the Lipper General Municipal Debt Funds Average(2) of 4.39%
for the 245 funds in the category. During the six-month period, the share price
rose $.25 to $14.25. For the six months, the Fund provided a total return(3) of
4.59%, well above the Lipper average total return of 4.28%.
Your Fund's performance has earned 5-star ratings from Morningstar for the
overall, 3-, and 5- year periods and a 4-star rating for the 10-year period
ending September 30, 1998, overall and among 1,581, 943, and 359 funds,
respectively, in the municipal bond fund category.(4)
1) Dividend yield is computed by dividing income dividends paid during the
previous 6 months by the latest month-end net asset value adjusted for capital
gain distributions and annualizing the result.
2) Refer to page 5 for the Lipper Average definition.
3) Total return equals income return plus share price change and assumes
reinvestment of dividends and capital gain distributions.
Past performance is no guarantee of future results.
4) Morningstar proprietary ratings reflect historical risk-adjusted performance
through September 30, 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 adjustment, 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.
To match the USAA Long-Term Fund's closing 30-Day SEC yield of 4.43% and:
- --------------------------------------------------------------------------------
Assuming a Marginal Federal Tax Rate of: 15% 28% 31% 36% 39.6%
- --------------------------------------------------------------------------------
A fully Taxable Investment must pay: 5.21% 6.15% 6.42% 6.92% 7.34%
- --------------------------------------------------------------------------------
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA Family
of Funds.
PORTFOLIO RATINGS/MIX
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1998
of the USAA Long-Term Fund to be:
BBB - 30%; AAA - 26%; AA - 25%; A - 18%; BB - 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
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 26 for a complete listing of the Portfolio of Investments.
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.
- --------------------------------------------------------------------------------
3/31/98 9/30/98
- --------------------------------------------------------------------------------
Net Assets $2,039.5 Million $2,225.4 Million
Net Asset Value Per Share $13.38 $13.59
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6-MONTH TOTAL RETURN AND 30-DAY SEC YIELD* AS OF 9/30/98
- --------------------------------------------------------------------------------
3/31/98 to 9/30/98 30-Day SEC Yield
4.28% + 4.28%
- --------------------------------------------------------------------------------
* Calculated as prescribed by the Securities and Exchange Commission.
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Average Annual Compounded Returns with
Reinvestement of Dividends - Periods ending September 30, 1998
TOTAL DIVIDEND PRICE
RETURN EQUALS RETURN PLUS CHANGE
- --------------------------------------------------------------------------------
10 YEARS 7.83% = 6.26% + 1.57%
5 YEARS 6.25% = 5.68% + 0.57%
1 YEAR 8.55% = 5.60% + 2.92%
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE 10-YEAR PERIOD
ENDED SEPTEMBER 30, 1998
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Intermediate-Term Fund for
the 10- year period ended September 30, 1998.
Total Return for Years Ended:
- ----------------------------
9/30/89 7.88%
9/30/90 6.71%
9/30/91 11.08%
9/30/92 9.73%
9/30/93 11.87%
9/30/94 -1.17%
9/30/95 9.76%
9/30/96 5.43%
9/30/97 9.07%
9/30/98 8.55%
**Compounded Dividend Yield for Years Ended:
- -------------------------------------------
9/30/89 7.29%
9/30/90 7.13%
9/30/91 7.26%
9/30/92 6.54%
9/30/93 6.01%
9/30/94 5.16%
9/30/95 6.04%
9/30/96 5.74%
9/30/97 5.86%
9/30/98 5.60%
Change in Share Price:
- ---------------------
9/30/89 0.59%
9/30/90 -0.42%
9/30/91 3.82%
9/30/92 3.19%
9/30/93 5.86%
9/30/94 -6.33%
9/30/95 3.72%
9/30/96 -0.31%
9/30/97 3.21%
9/30/98 2.95%
** Compounded Dividend yield calculation includes only income distributions.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Dividend return is
the income dividends received over the period assuming reinvestment of all
dividends. Share price change is the change in net asset value over the period
adjusted for capital gain distributions. No adjustment has been made for taxes
payable by shareholders on their reinvested dividends and capital gain
distributions. The performance data quoted represent past performance and are
not an indication of future results. Investment return and principal value of an
investment will fluctuate, and an investor's shares, when redeemed, may be worth
more or less than their original cost.
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 to the 12 Month
Dividend Yield of the Lipper Intermediate Municipal Debt Funds Average from
9/30/89 to 9/30/98.
USAA Intermediate-Term Lipper Intermediate Municipal
Fund Yield Debt Funds Average Yield
9/30/89 7.01% 6.48%
9/30/90 6.98% 6.39%
9/30/91 6.67% 6.02%
9/30/92 6.07% 5.49%
9/30/93 5.35% 4.70%
9/30/94 5.55% 4.76%
9/30/95 5.50% 4.63%
9/30/96 5.63% 4.50%
9/30/97 5.44% 4.35%
9/30/98 5.22% 4.12%
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
gain distributions. The graph represents data for periods ending 9/30/89 to
9/30/98.
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
- -------- -------
09/30/88 $10,000
03/31/89 $10,246
09/30/89 $10,788
03/31/90 $11,197
09/30/90 $11,511
03/31/91 $12,127
09/30/91 $12,786
03/31/92 $13,248
09/30/92 $14,030
03/31/93 $14,743
09/30/93 $15,695
03/31/94 $15,195
09/30/94 $15,512
03/31/95 $16,132
09/30/95 $17,025
03/31/96 $17,417
09/30/96 $17,949
03/31/97 $18,427
09/30/97 $19,577
03/31/98 $20,378
09/30/98 $21,250
Lehman Brothers Municipal Bond Index
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,254
09/30/89 $10,868
03/31/90 $11,336
09/30/90 $11,607
03/31/91 $12,381
09/30/91 $13,138
03/31/92 $13,618
09/30/92 $14,511
03/31/93 $15,323
09/30/93 $16,360
03/31/94 $15,679
09/30/94 $15,960
03/31/95 $16,844
09/30/95 $17,745
03/31/96 $18,256
09/30/96 $18,817
03/31/97 $19,250
09/30/97 $20,514
03/31/98 $21,313
09/30/98 $22,301
Lipper Intermediate Municipal Debt Funds Average
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,199
09/30/89 $10,687
03/31/90 $11,061
09/30/90 $11,344
03/31/91 $11,990
09/30/91 $12,601
03/31/92 $13,012
09/30/92 $13,776
03/31/93 $14,435
09/30/93 $15,257
03/31/94 $14,840
09/30/94 $15,072
03/31/95 $15,652
09/30/95 $16,390
03/31/96 $16,744
09/30/96 $17,104
03/31/97 $17,466
09/30/97 $18,380
03/31/98 $18,937
09/30/98 $19,708
Data from 9/30/88 through 9/30/98
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, Inc., an independent organization that monitors the performance of
mutual funds. All tax-exempt bond funds will find it difficult to outperform the
Lehman Index, since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER, CLIFFORD A. GLADSON, CFA, APPEARS HERE]
CREDIT MARKET REVIEW
During the first half of the Fund's fiscal year, March 31,1998, to September
30,1998, the yield-to-maturity for 10-year Treasury bonds dropped 1.24%.
However, the yield for 10-year "AA" rated municipal bonds fell only .29%. The
decrease in interest rates and the increase in bond prices reflected the credit
market's opinion that the problems in the Asian and emerging market economies
would moderate growth in the domestic market and keep inflation in check. For a
discussion on the factors that influence the movements between different
segments of the credit market, please see the narrative for the USAA Short-Term
Fund on page 19.
FUND PERFORMANCE
While past performance is no guarantee of future results, from March 31, 1998,
to September 30, 1998, your Fund paid an annualized dividend distribution yield
(1) of 5.19% versus an average dividend distribution yield of 4.04% for the
Lipper Intermediate Municipal Debt Funds Average.(2) During this same period,
the Fund share price rose $.21 to $13.59. The Fund's dividend distributions and
share appreciation combined to produce a six-month total return(3) of 4.28%.
This was well above the Lipper average six-month total return of 3.92%.
Your Fund's performance has earned 5-star ratings from Morningstar for the
overall,3-, 5-, and 10-year periods ended September 30, 1998, overall and among
1,581, 943, and 359 funds, respectively, in the municipal bond fund category.(4)
1) Dividend yield is computed by dividing income dividends paid during the
previous 6 months by the latest month-end net asset value adjusted for capital
gain distributions and annualizing the result.
2) Refer to page 11 for the Lipper Average definition.
3) Total return equals income return plus share price change and assumes
reinvestment of dividends and capital gain distributions.
Past performance is no guarantee of future results.
4) Morningstar proprietary ratings reflect historical risk-adjusted performance
through September 30, 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 adjustment, 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.
FIXED INCOME INVESTMENT
I believe that the Webster definition of investment that best describes
fixed-income investment is, "a siege: to pursue persistently or diligently."
Fixed-income securities are primarily for income accumulation rather than
capital appreciation. Fixed-income investors will see an accumulation in real
wealth if the after-tax yield is greater than the rate of inflation AND they
harness the power of compounding by reinvesting interest payments.
The graph below shows the sources of return for $1.00 invested in 10-year
Treasury bonds over the last 52 years. Over this period, the principal and
compound interest would have returned $19.15. The reinvested income accounted
for $15.63 of the total investment return.
COMPONENTS OF TOTAL RETURN:
US TREASURY INTERMEDIATE GOVERNMENT BONDS
1946-1997
A chart in the form of a line graph appears here, illustrating the sources of
return for $1.00 invested in 10-year Treasury bonds over the last 52 years.
Principal Coupons Reinvested Inflation
Price Price Price Price
---------- ----------- ------------- ----------
1946 $1.00 $ .01 $ .00 $ 1.18
1949 1.01 .05 .00 1.30
1953 .99 .13 .01 1.48
1957 .97 .23 .03 1.56
1961 .94 .37 .07 1.65
1965 .90 .52 .14 1.75
1969 .79 .70 .21 2.07
1973 .86 .93 .60 2.54
1977 .84 1.17 1.10 3.41
1981 .68 1.46 1.67 5.16
1985 .83 1.81 4.62 6.01
1989 .86 2.09 7.39 6.93
1993 .99 2.34 12.29 8.01
1997 .95 2.57 15.63 8.86
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA Family
of Funds.
Compound interest amounted to 4.4 times the capital appreciation and simple
interest which totaled $3.52. Note that inflation would erode real purchasing
power without the benefit of compound interest.
TAX-EXEMPT FIXED INCOME INVESTMENT
The primary objective of each USAA tax-exempt bond fund is to distribute a high
level of tax-exempt dividends. 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. The only tax-exempt income that
is earned depends on the bond's coupon yield at the time of purchase.
Common sense dictates that taxpayers value tax-exempt income over taxable
capital gain distributions. The table on page 10 shows the sources of total
return for the USAA Intermediate-Term Fund over the last 1, 5, and 10 years.
Notice that the return from tax-exempt income is the dominant component of
long-term total return. The three graphs on page 10 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.
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 do trade bonds, it is to take advantage of interest rate
movements that may increase the Fund's dividend distribution yield. Secondly,
yields for municipal bonds tend to increase as bond maturity lengthens. This
means that in order to earn a high level of income, the Fund's weighted average
maturity will usually be near its upper limit.
We believe that our shareholders may realize a potential increase in real wealth
reflected by a rise in the purchasing power of their investments, if USAA
tax-exempt funds persistently invest using an income-oriented approach, and
shareholders diligently reinvest income to reap the benefits of compounding.
To match the USAA Intermediate-Term Fund's
closing 30-Day SEC yield of 4.28% and:
- --------------------------------------------------------------------------------
Assuming a Marginal Federal Tax Rate of: 15% 28% 31% 36% 39.6%
- --------------------------------------------------------------------------------
A fully Taxable Investment must pay: 5.04% 5.94% 6.20% 6.69% 7.09%
- --------------------------------------------------------------------------------
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA Family
of Funds.
PORTFOLIO RATINGS/MIX
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1998
of the USAA Intermediate-Term Fund to be:
A - 29%; AAA - 28%; BBB - 24%; AA - 15%; BB - 3%; Cash Equivalent - 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, AA, and BBB account for .8%, .1%, and 1.6%, 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.
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.
- --------------------------------------------------------------------------------
3/31/98 9/30/98
- --------------------------------------------------------------------------------
Net Assets $970.8 Million $991.7 Million
Net Asset Value Per Share $10.74 $10.80
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6-MONTH TOTAL RETURN AND 30-DAY SEC YIELD* AS OF 9/30/98
- --------------------------------------------------------------------------------
3/31/98 to 9/30/98 30-Day SEC Yield
2.88% + 3.75%
- --------------------------------------------------------------------------------
* Calculated as prescribed by the Securities and Exchange Commission.
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Average Annual Compounded Returns with
Reinvestement of Dividends - Periods ending September 30, 1998
TOTAL DIVIDEND PRICE
RETURN EQUALS RETURN PLUS CHANGE
- --------------------------------------------------------------------------------
10 YEARS 5.69% = 5.28% + 0.41%
5 YEARS 4.82% = 4.65% + 0.17%
1 YEAR 5.62% = 4.69% + 0.93%
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE 10-YEAR PERIOD
ENDED SEPTEMBER 30, 1998
A chart in the form of a bar graph appears here, illustrating the Annual Total
Returns and Compounded Dividend Returns of the USAA Short-Term Fund for the 10-
year period ended September 30, 1998.
Total Return for Years Ended:
- ----------------------------
9/30/89 6.87%
9/30/90 5.74%
9/30/91 7.60%
9/30/92 6.71%
9/30/93 5.95%
9/30/94 1.70%
9/30/95 6.41%
9/30/96 4.51%
9/30/97 5.95%
9/30/98 5.62%
**Compounded Dividend Yield for Years Ended:
- -------------------------------------------
9/30/89 6.58%
9/30/90 6.61%
9/30/91 6.44%
9/30/92 5.37%
9/30/93 4.63%
9/30/94 4.22%
9/30/95 4.88%
9/30/96 4.79%
9/30/97 4.72%
9/30/98 4.69%
Change in Share Price:
- ---------------------
9/30/89 0.29%
9/30/90 -0.87%
9/30/91 1.16%
9/30/92 1.34%
9/30/93 1.32%
9/30/94 -2.52%
9/30/95 1.53%
9/30/96 -0.28%
9/30/97 1.23%
9/30/98 0.93%
** Compounded Dividend yield calculation includes only income distributions.
Total return equals income return plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Dividend return is
the income dividends received over the period assuming reinvestment of all
dividends. Share price change is the change in net asset value over the period
adjusted for capital gain distributions. No adjustment has been made for taxes
payable by shareholders on their reinvested dividends and capital gain
distributions. The performance data quoted represent past performance and are
not an indication of future results. Investment return and principal value of an
investment will fluctuate, and an investor's shares, when redeemed, may be worth
more or less than their original cost.
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 to the 12 Month Dividend
Yield of the Lipper Short-Term Municipal Debt Funds Average from 9/30/89 to
9/30/98.
USAA Short-Term Lipper Short-Term Municipal
Fund Yield Debt Funds Average Yield
9/30/89 6.35% 6.04%
9/30/90 6.51% 6.20%
9/30/91 6.14% 5.80%
9/30/92 5.15% 4.92%
9/30/93 4.44% 4.11%
9/30/94 4.30% 3.84%
9/30/95 4.65% 4.18%
9/30/96 4.71% 4.09%
9/30/97 4.54% 4.07%
9/30/98 4.52% 3.85%
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
gain distributions. The graph represents data for periods ending 9/30/89 to
9/30/98.
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
- -------- -------
09/30/88 $10,000
03/31/89 $10,220
09/30/89 $10,687
03/31/90 $11,028
09/30/90 $11,301
03/31/91 $11,719
09/30/91 $12,159
03/31/92 $12,550
09/30/92 $12,975
03/31/93 $13,350
09/30/93 $13,747
03/31/94 $13,733
09/30/94 $13,982
03/31/95 $14,353
09/30/95 $14,879
03/31/96 $15,190
09/30/96 $15,549
03/31/97 $15,904
09/30/97 $16,474
03/31/98 $16,913
09/30/98 $17,399
Lehman Brothers Municipal Bond Index
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,254
09/30/89 $10,868
03/31/90 $11,336
09/30/90 $11,607
03/31/91 $12,381
09/30/91 $13,138
03/31/92 $13,618
09/30/92 $14,511
03/31/93 $15,323
09/30/93 $16,360
03/31/94 $15,679
09/30/94 $15,960
03/31/95 $16,844
09/30/95 $17,745
03/31/96 $18,256
09/30/96 $18,817
03/31/97 $19,250
09/30/97 $20,514
03/31/98 $21,313
09/30/98 $22,301
Lipper Short-Term Municipal Debt Funds Average
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,209
09/30/89 $10,620
03/31/90 $10,963
09/30/90 $11,284
03/31/91 $11,707
09/30/91 $12,104
03/31/92 $12,464
09/30/92 $12,888
03/31/93 $13,223
09/30/93 $13,524
03/31/94 $13,599
09/30/94 $13,798
03/31/95 $14,094
09/30/95 $14,520
03/31/96 $14,835
09/30/96 $15,129
03/31/97 $15,411
09/30/97 $15,845
03/31/98 $16,202
09/30/98 $16,607
Data from 9/30/88 through 9/30/98
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, Inc., an independent organization that monitors the performance of
mutual funds. All tax-exempt bond funds will find it difficult to outperform the
Lehman Index, since funds have expenses.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER, CLIFFORD A. GLADSON, CFA, APPEARS HERE]
FUND PERFORMANCE
While past performance is no guarantee of future results, from March 31, 1998,
to September 30, 1998, your Fund paid an annualized dividend distribution yield
(1) of 4.54% versus an average dividend distribution yield of 3.86% for the
Lipper Short Municipal Debt Funds Average.(2) During the first six months of the
Fund's fiscal year, the share price rose $.06 to $10.80. Over this same period,
the Fund provided a total return(3) of 2.88%, well above the Lipper average
total return of 2.52%.
Your Fund's performance has earned 5-star ratings from Morningstar for the
overall, 3-, 5-, and 10-year periods ended September 30, 1998, overall and among
1,581, 943, and 359 funds, respectively, in the municipal bond fund category.(4)
1) Dividend yield is computed by dividing income dividends paid during the
previous 6 months by the latest month-end net asset value adjusted for capital
gain distributions and annualizing the result.
2) Refer to page 17 for the Lipper Average definition.
3) Total return equals income return plus share price change and assumes
reinvestment of dividends and capital gain distributions.
Past performance is no guarantee of future results.
4) Morningstar proprietary ratings reflect historical risk-adjusted performance
through September 30, 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 adjustment, 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.
TREASURY YIELDS VS MUNICIPAL YIELDS
During the first half of the Fund's fiscal year, March 31,1998, to September
30,1998, the yield-to-maturity for 3-year Treasury bonds dropped 1.30% while the
yield for 5-year "AA" rated municipal bonds fell only .30%. The decrease in the
general level of interest rates indicates that the credit market believes that
inflation is under control, and the Federal Reserve Board is going to make a
series of cuts in short-term interest rates.
ALL YIELDS DON'T NECESSARILY MARCH IN UNISON
During a recent training session one of our shareholder representatives asked,
"Why haven't municipal yields fallen as far as treasury yields? What's wrong?" I
replied "Nothing" and continued to explain that the outlook for the vast
majority of municipal issuers was very rosy. Tax revenues were above budget
estimates, and business conditions were good. He pressed on, "So what's the rest
of the story?" I then proceeded to lay out the underpinnings of the credit
market.
While the Federal Reserve Board influences the level of short-term interest
rates, the general direction of all interest rates appears to be driven by
inflation expectations. When inflation expectations rise, interest rates rise
and the prices of bonds fall. When inflation expectations fall, interest rates
fall, and the prices of bonds tend to rise.
The difference in relative performance among the different segments within the
credit market reflects the foundation of any free market: supply and demand. The
supply of U.S. Treasury securities has been stable, and demand, particularly
from overseas, has been strong. The supply of municipal bonds has been robust,
and the demand has been rather stable. The high demand for a fixed supply bid up
the prices for U.S. Treasury securities, while the high supply and a fixed
demand limited the rise in price for municipal bonds.
MARCHING TO A DIFFERENT BEAT
Will the relationship between treasury yields and municipal yields change? Yes,
but no one has proven they can consistently predict the general movements of
interest rates, much less the duration or timing of the spreads between interest
rates within the credit market. We believe that an investment strategy based on
our income orientation better serves the shareholder than a market timing
strategy. Please see the narrative for the USAA Intermediate-Term Fund on page
14 for a discussion of our investment philosophy for tax-exempt funds.
To match the USAA Short-Term Fund's closing 30-Day SEC yield of 3.75% and:
- --------------------------------------------------------------------------------
Assuming a Marginal Federal Tax Rate of: 15% 28% 31% 36% 39.6%
- --------------------------------------------------------------------------------
A fully Taxable Investment must pay: 4.41% 5.21% 5.43% 5.86% 6.21%
- --------------------------------------------------------------------------------
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA Family
of Funds.
PORTFOLIO RATINGS/MIX
A pie chart is shown here depicting the Portfolio Mix as of September 30, 1998
of the USAA Short-Term Fund to be:
A - 30%; BBB - 21%; AAA - 19%; Cash Equivalents - 16%; AA - 12%; BB - 2%.
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 2.6%, respectively, of the Fund's
investments.
Note: Income may be subject to federal, state or local taxes, or the alternative
minimum tax.
See page 51 for a complete listing of the Portfolio of Investments.
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 a money market fund is not insured or guaranteed by the FDIC
or any other government agency. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
- --------------------------------------------------------------------------------
3/31/98 9/30/98
- --------------------------------------------------------------------------------
Net Assets $1,631.8 Million $1,592.9 Million
Net Asset Value Per Share $1.00 $1.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND 7-DAY YIELD AS OF 9/30/98
- --------------------------------------------------------------------------------
3/31/98 7-Day
to 9/30/98 1 Year 5 Years 10 Years Yield
1.72% + 3.45% 3.25% 3.97% 3.69%
- --------------------------------------------------------------------------------
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
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.
09/30/97 3.65% 3.29%
10/28/97 3.40% 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%
03/31/98 3.41% 3.03%
04/28/98 3.79% 3.42%
05/26/98 3.55% 3.14%
06/30/98 3.44% 3.03%
07/28/98 3.36% 2.99%
08/25/98 3.25% 2.82%
09/29/98 3.70%* 3.21%*
Data represent the last Monday of each month.
* Ending date 9/28/98
The graph tracks the Fund's 7-day 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 PORTFOLIO MANAGER, THOMAS G. RAMOS, CFA, APPEARS HERE]
OVERVIEW
Interest rates have continued to move lower in this reporting period ending
September 30, 1998. Long-term U.S. Treasury bond yields declined to 4.98%.
One-year Treasury bill yields were down to 4.40%. Tax-exempt securities
generally followed this downward move with one-year tax-exempt levels at 3.24%.
The downward trend in U.S. Treasury yields reflects a flight to safety as our
equity markets have moved into a tumultuous period. Additionally, some foreign
markets, particularly Russia and the Far East, have suffered historic declines.
Thus, foreign investors have also sought refuge in U.S. Treasury securities.
Turmoil in global financial markets along with some slowing in domestic economic
statistics prompted the Federal Reserve to lower the federal funds rate .25% to
5.25% on September 29, 1998. This is the interbank lending rate and is the Fed's
main signal of monetary policy. Current market expectation is that the Fed will
likely cut rates again.
STRATEGY
Regardless of the interest rate environment, we continue our strategy of
focusing on relative value. We buy those tax-exempt securities which we believe
represent the best value at the time. Currently, our focus is on variable rate
demand notes (VRDNs)(1) which represented nearly 70% of the portfolio at the end
of September 1998. Although these securities generally have maturities of 10 to
20 years, they have a demand feature that effectively shortens their maturities
to a day or seven days. The demand feature is usually guaranteed by a bank's
letter of credit which assures that principal and interest will be paid as
stated.
Given the importance of guarantors in these securities, we perform in-depth
analysis on them. This analysis is done not only by me but also by our staff of
money market analysts. Our analysts talk to management of these firms, analyze
financial statements, and visit the sites. This research assures that we hold
securities that are backed by financially healthy institutions. Analysis also
helps us differentiate between perceived risks and actual risks which allows us
to take advantage of inefficiencies in the market.
1) Variable rate demand notes represent borrowings that are payable on demand
and that bear interest tied to a money market rate.
THE PORTFOLIO
The average maturity of the portfolio was 54 days at the end of September 1998.
This reflected the relative unattractiveness of longer maturity notes compared
to variable rate demand notes and commercial paper (CP). The relatively short
maturity of VRDNs and CP also gives me flexibility in the types of securities I
will be able to buy in the future.
PERFORMANCE
While past performance is no guarantee of future results, for the 12 months
ending September 30, 1998, your Fund ranked 5 out of 137 national tax-exempt
money market funds according to IBC First Data, Inc. with a compounded dividend
yield of 3.45%. The average for the category over the same time period was 3.05%
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 9/30/88 to 9/30/98. The data points from the graph are as
follows:
USAA Tax Exempt Money Market Fund
Year Amount
- -------- -------
09/30/88 $10,000
03/31/89 $10,295
09/30/89 $10,619
03/31/90 $10,937
09/30/90 $11,261
03/31/91 $11,586
09/30/91 $11,856
03/31/92 $12,084
09/30/92 $12,273
03/31/93 $12,434
09/30/93 $12,581
03/31/94 $12,721
09/30/94 $12,884
03/31/95 $13,100
09/30/95 $13,343
03/31/96 $13,579
09/30/96 $13,803
03/31/97 $14,026
09/30/97 $14,272
03/31/98 $14,514
09/30/98 $14,765
Data from 9/30/88 through 9/30/98
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 a money market fund is not insured or guaranteed by the FDIC or
any other government agency. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
See page 63 for a complete listing of the Portfolio of Investments.
CATEGORIES AND DEFINITIONS
PORTFOLIOS OF INVESTMENTS
September 30, 1998
(Unaudited)
Fixed-Rate Instruments - consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the price
of a fixed-rate instrument generally varies inversely to the movement of
interest rates.
Put Bonds - provide the right to sell the bond at face value at specific tender
dates prior to final maturity. The put feature shortens the effective maturity
to the next tender date.
Variable Rate Demand Notes (VRDN) - provide the right, on any business day, to
sell the security at face value on either that day or in seven days. The
interest rate is adjusted at a stipulated daily, weekly, or monthly interval to
a rate that reflects current market conditions. In money market funds, the
effective maturity is the date on which the underlying principal amount may be
recovered or the next rate adjustment date consistent with regulatory
requirements. In bond funds, the effective maturity is the next put date. Most
VRDNs possess a credit enhancement.
Credit Enhancement (CRE) - adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal when due. The
enhancement may be provided by either a high quality bank, insurance company, or
other corporation, or a collateral trust. Typically, the rating agencies
evaluate the security based upon the credit standing of the provider of the
credit enhancement, rather than the credit standing of the issuer. If the
securities are enhanced by a bond insurer, scheduled principal and interest
payments are insured by:
(1) Municipal Bond Insurance Association.
(2) AMBAC Indemnity Corp.
(3) Financial Guaranty Insurance Co.
(4) Financial Security Assurance, Inc.
(5) Asset Guaranty Reinsurance Co.
(6) AXA Reinsurance Group.
(7) American Capital Access.
(8) TRYGG-HANSA Insurance Company Ltd.
(9) College Construction Loan Insurance Association.
(10) Continental Casualty Co.
(11) Continental General Corp.
(12) Connecticut General Life Insurance Co.
(13) Texas Permanent School Fund.
(14) Metropolitan Life Insurance Co.
(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
COP Certificate of Participation
CP Commercial Paper
CRE Credit Enhanced
GO General Obligation
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
IDC Industrial Development Corporation
IDRB Industrial Development Revenue Bond
ISD Independent School District
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
RN Revenue Note
RAN Revenue Anticipation Note
SFH Single-Family Housing
TRAN Tax Revenue Anticipation Note
USAA LONG-TERM FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED RATE INSTRUMENTS (98.2%)
Alabama (1.1%)
$ 3,750 Baldwin County Health Care RB, Series 1996 6.75% 4/01/21 $ 4,137
8,000 Courtland IDRB, Series 1994 5.90 2/01/17 8,400
10,250 Prattville IDB RB, Series 1998 5.30 9/01/28 10,376
Alaska (2.6%)
Housing Finance Corp. Collateralized RB,
7,330 1991 Second Series 6.90 6/01/32 7,809
9,785 1994 First Series 6.70 12/01/19 10,543
13,735 1995 First Series (CRE) 6.55 12/01/37 14,841
21,175 Valdez Marine Terminal RB, Series 1985A 7.00 12/01/25 23,441
Arizona (0.6%)
13,500 Maricopa County Hospital Facilities RB,
Series 1998 (CRE) 5.25 11/15/37 13,800
California (6.0%)
11,350 Central Valley Finance Auth. RB, Series 1993 (a) 6.20 7/01/20 12,785
11,500 Los Angeles Regional Airport Improvement Corp.
Refunding RB, Series 1996 6.35 11/01/25 12,709
17,000 Sacramento Cogeneration Auth. RB, Series 1995 (a) 6.50 7/01/21 19,990
74,000 San Joaquin Hills Transportation Corridor
Agency RB, Senior Lien (a) 6.75 1/01/32 84,493
Colorado (1.8%)
9,500 Denver Health & Hospital Auth. RB, Series 1998A 5.38 12/01/28 9,563
14,200 Health Facilities Auth. Hospital RB, Series 1993 6.63 2/01/13 15,361
11,480 Summit County Sports Facilities RB, Series 1990 7.88 9/01/08 14,656
Connecticut (2.2%)
4,000 Health and Educational Facilities Auth. RB,
Series 1996C 6.63 7/01/26 4,434
41,200 Mashantucket (Western) Pequot Tribe RB,
series 1997B (g) 5.75 9/01/27 43,366
District of Columbia (1.6%)
11,860 Health Facilities Mortgage RB, Series 1985 7.75 8/01/29 12,136
8,000 Hospital RB, Series 1992B (a) 7.00 8/15/15 9,034
15,000 Washington DC Convention Center Auth. RB,
Series 1998 (CRE) (2) 4.75 10/01/28 14,477
Georgia (0.5%)
10,000 Savannah Economic Development Auth. PCRB, Series 1995 6.15 3/01/17 11,564
Hawaii (0.4%)
7,330 State Highway RB, Series 1998 5.50 7/01/18 8,004
Idaho (1.2%)
23,400 Nez Perce County PCRB, Series 1996 6.00 10/01/24 25,205
Illinois (6.1%)
Chicago Gas Supply RB,
13,500 Series 1985B 7.50 3/01/15 14,446
7,500 Series 1985C 7.50 3/01/15 8,025
24,250 Series 1995A 6.10 6/01/25 26,727
13,725 Chicago-O'Hare International Airport RB, Series 1994 8.20 12/01/24 16,476
6,700 Development Finance Auth. RB, Series 1996B (CRE) 6.40 9/01/31 7,632
Health Facilities Auth. RB,
17,775 Series 1992 7.00 1/01/15 19,134
6,500 Series 1998 5.25 9/01/24 6,531
19,600 Quincy Hospital RB, Series 1993 6.00 11/15/18 20,564
10,980 Regional Transport Auth. GO, Series 1994C (CRE)(3) 7.10 6/01/25 12,717
Indiana (3.5%)
10,945 Development Finance Auth. Environmental RB, Series 1996 6.15 7/15/22 11,873
100,675 Health Facility Financing Auth. RB, Series 1992C (b) 7.89 7/01/23 16,665
41,750 Indianapolis Airport Facility RB 6.80 4/01/17 46,556
Kansas (0.5%)
60,245 Sedgwick County Mortgage Loan RB, Senior Series
1991A (b) 7.11 12/01/22 10,538
Kentucky (1.9%)
39,595 Louisville and Jefferson County Metro Sewer District
RB, Series 1997B (CRE)(1) 5.20 5/15/25 40,585
Louisiana (1.6%)
East Baton Rouge Mortgage Finance Auth. RB,
3,035 Series 1997F-1 5.35 10/01/30 3,037
2,005 Series 1998B-1 5.35 10/01/30 2,006
25,730 Lake Charles Harbor and Terminal District
Port Facilities RB, Series 1995A 7.75 8/15/22 29,626
Maryland (0.7%)
13,735 Community Development Administration SFH RB,
Series 1996A 5.95 7/01/23 14,668
Massachusetts (1.7%)
10,000 Health and Educational Facilities Auth. RB,
Series 1998L 4.75 6/01/31 9,669
24,000 State GO, Series 1991A (a) 7.63 6/01/08 26,836
Michigan (2.7%)
9,900 Battle Creek Downtown Development Auth. Development
Bonds, Series 1994 (a) 7.60 5/01/16 11,841
13,005 Dickinson County Economic Development Corp.
PCRB, Series 1993 5.85 10/01/18 13,592
Hospital Finance Auth. RB,
7,250 Series 1995 6.70 1/01/26 8,176
15,500 Series 1995A (a) 7.50 10/01/27 18,832
6,500 Job Development Auth. RB, Series 1990A (CRE) 8.00 12/01/13 7,080
Minnesota (3.8%)
International Falls PCRB,
5,000 Series 1997 5.65 12/01/22 5,071
9,750 Series 1998 5.50 4/01/23 9,816
50,690 St. Paul Housing and Redevelopment Auth. Hospital RB,
Series 1993A 6.63 11/01/17 54,956
13,375 Washington County Housing and Redevelopment Auth. RB,
Series 1998 5.50 11/15/27 13,415
Mississippi (1.6%)
Lafayette County Hospital RB,
2,940 Series 1991A (a) 7.95 3/01/16 3,275
15,175 Series 1991B (a) 7.95 3/01/16 16,904
Union County Hospital RB,
4,450 Series 1991A (a) 7.95 3/01/16 4,957
8,350 Series 1991B (a) 7.95 3/01/16 9,302
Missouri (0.3%)
5,000 Health and Educational Facilities RB, Series 1996A 6.38 2/01/27 5,371
Montana (1.1%)
14,545 Board of Housing RB, Series 1997A-1 6.05 12/01/37 15,485
7,660 Lewis and Clark County Environmental RB, Series 1998 5.60 1/01/27 7,905
Nevada (0.9%)
15,650 Humboldt County PCRB, Series 1984 8.30 12/01/14 18,756
New Hampshire (2.7%)
Higher Educational and Health Facilities RB,
8,580 Series 1993 (a) 6.38 7/01/23 9,637
2,205 Series 1993 6.38 7/01/23 2,375
13,500 Series 1998 (CRE)(7) 5.30 10/01/28 13,552
31,085 Single-Family Mortgage Finance Auth. RB, Series 1993B 6.05 7/01/25 32,661
New Jersey (0.7%)
15,000 Camden County Improvement Authority RB, Series 1997 6.00 2/15/27 15,902
New Mexico (2.4%)
16,000 Chaves County Hospital RB (a) 7.25 12/01/22 18,387
30,100 Lordsburg PCRB 6.50 4/01/13 33,288
New York (12.5%)
1,600 Buffalo Municipal Water Finance Auth. RB,
Series 1998A (CRE)(3) 5.00 7/01/28 1,606
21,500 Dormitory Auth. RB, Series 1996B (Mental
Health Services) 6.00 8/15/16 24,726
54,000 Housing New York Corp. RB, Series 1993 5.00 11/01/18 53,862
Medical Care Facilities Finance Agency RB,
36,275 Series 1994A (New York Hospital) (CRE)(2),(a) 6.90 8/15/34 42,973
13,900 Series 1995A (Brookdale Hospital)(a) 6.85 2/15/17 16,430
New York City GO,
50,000 Series 1995B (a) 7.25 8/15/19 59,332
5,890 Series 1997I 6.25 4/15/17 6,625
14,670 Series 1997I (a) 6.25 4/15/27 17,149
16,380 Series 1997I 6.25 4/15/27 18,228
41,000 New York City Municipal Water Finance Auth. RB,
Series 1998D (b) 5.08 6/15/20 14,064
14,625 Port Auth. of New York and New Jersey RB,
Eighty-Fifth Series 5.38 3/01/28 16,102
North Carolina (0.8%)
16,585 Housing Finance Agency RB, Series R 6.95 9/01/23 17,804
North Dakota (0.2%)
5,000 Oliver County PCRB, Series 1998A (CRE) (2) 5.30 1/01/27 5,222
Ohio (0.3%)
7,325 Lorain County Health Care Facilities RB, Series 1998A 5.25 2/01/21 7,272
Oklahoma (2.1%)
41,550 Tulsa Municipal Airport Transportation RB, Series 1995 6.25 6/01/20 44,911
Pennsylvania (2.2%)
Montgomery County IDA RB,
7,500 Series 1996A 5.88 11/15/22 8,007
10,000 Series 1996B 5.75 11/15/17 10,569
27,470 Philadelphia Gas Works RB, 14th Series 6.38 7/01/26 30,225
Puerto Rico (7.0%)
Electric Power Auth. RB,
33,120 Series EE 4.75 7/01/24 32,467
21,175 Series T (a) 6.38 7/01/24 24,314
25,450 Series X (a) 6.13 7/01/21 29,231
67,620 Highway and Transportation Auth. RB, Series 998A 4.75 7/01/38 66,370
Rhode Island (1.2%)
25,000 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/24 27,054
South Carolina (1.2%)
Connector 2000 Association Toll Road RB,
12,700 Series 1998B (b) 5.78 1/01/22 3,304
13,000 Series 1998B (b) 5.80 1/01/23 3,192
13,500 Series 1998B (b) 5.80 1/01/24 3,105
16,200 Series 1998B (b) 5.80 1/01/25 3,516
17,100 Series 1998B (b) 5.83 1/01/27 3,285
17,500 Series 1998B (b) 5.83 1/01/28 3,171
20,500 Series 1998B (b) 5.83 1/01/29 3,504
20,000 Series 1998B (b) 5.83 1/01/37 2,104
South Dakota (0.3%)
7,000 Health and Educational Facilities Auth. RB,
Series 1998 (CRE) (1) 5.00 9/01/22 6,966
Tennessee (0.3%)
7,255 Springfield Health and Educational Facilities Board
RB, Series 1998 5.38 8/01/24 7,294
Texas (7.1%)
5,000 Austin Higher Education Auth. RB, Series 1998 5.25 8/01/23 4,996
19,500 Bell County Health Facilities Development Corp. RB,
Series 1989 6.50 7/01/19 23,101
12,500 Harris County Health Facilities RB, Series 1992 (a) 7.13 6/01/15 14,122
19,300 Harris County IDC RB, Series 1992 6.95 2/01/22 20,949
5,675 Lewisville RB, Series 1998 (CRE) (7) 5.80 9/01/25 6,169
5,100 Nueces River Auth. RB, Series 1998 5.60 1/01/27 5,263
21,000 Port of Corpus Christi IDC PCRB, Series 1997A 5.45 4/01/27 21,280
San Antonio Electric and Gas RB,
14,100 Series 1989A (a) 6.00 2/01/14 14,438
6,955 Series 1989A 6.00 2/01/14 7,111
20,000 Travis County Health Facilities Development Corp. RB,
Series 1998A 5.38 11/01/28 20,719
Tyler Health Facilities Development Corp. Hospital RB,
4,700 Series 1993A (East Texas Medical Center) 6.75 11/01/25 5,085
10,300 Series 1993B (East Texas Medical Center) 6.75 11/01/25 11,145
Utah (1.4%)
30,400 Murray City Hospital RB, Series 1996 (CRE) (1) 4.75 5/15/20 29,401
Vermont (0.1%)
2,500 Educational and Health Buildings RB, Series 1998 5.50 7/01/21 2,551
Virginia (1.5%)
8,300 Henrico County IDA Hospital RB, Series 1985C (a) 7.50 9/01/11 8,995
21,950 Peninsula Ports Auth. RB, Series 1992 (CRE) 7.38 6/01/20 24,269
Washington (7.6%)
3,500 Housing Finance Commission RB, Series 1996A (CRE) 6.85 7/01/21 3,741
66,485 King County GO, Series 1994A 6.25 1/01/34 74,973
6,995 King County Housing Auth. RB, Series 1998A (CRE) (5) 5.25 7/01/28 7,058
73,500 Seattle Metropolitan Sewer RB, Series V 6.20 1/01/32 78,473
West Virginia (0.6%)
12,500 Water Development Auth. RB, Series 1991A (CRE) (4) 7.00 11/01/25 13,840
Wyoming (1.6%)
33,735 Community Development Auth. SFH RB, Series 1993A 6.10 6/01/33 35,425
-----------
Total fixed rate instruments (cost: $1,922,655) 2,133,059
-----------
VARIABLE RATE DEMAND NOTES (0.4%)
District of Columbia (0.1%)
1,800 GO, Series 1991B-1 (CRE) 4.15 6/01/03 1,800
Florida (0.1%)
1,480 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 4.20 9/01/20 1,480
2,120 Volusia County Health Facilities Auth. RB,
Series 1995 (CRE) 4.10 9/01/20 2,120
Louisiana (0.2%)
4,300 Public Facilities Auth. MFH RB, Series 1991 (CRE) 4.20 7/01/07 4,300
----------
Total variable rate demand notes (cost: $9,700) 9,700
-----------
Total investments (cost: $1,932,355) $2,142,759
===========
</TABLE>
PORTFOLIO SUMMARY BY INDUSTRY
-------------------------------
Escrowed Bonds 22.8%
Hospitals 12.9
Single-Family Housing 8.8
Water/Sewer Utilities - Municipal 6.8
General Obligations 4.7
Special Assessment/Tax/Fee 4.7
Natural Gas Utilities 3.6
Electric/Gas Utilities - Municipal 3.5
Airlines 3.4
Paper & Forest Products 2.9
Nursing/Continuing Care Centers 2.6
Buildings 2.5
Air Freight 2.1
Metals/Mining 2.1
Gaming Companies 2.0
Airport/Port 1.9
Education 1.7
Toll Roads 1.2
Healthcare - Miscellaneous 1.1
Oil - International Integrated 1.1
Containers - Paper 1.0
Oil & Gas - Refining/Manufacturing 1.0
Leasing 1.0
Other 3.2
-----
Total 98.6%
=====
PORTFOLIO SUMMARY BY STATE
- -----------------------------
Alabama 1.1%
Alaska 2.6
Arizona .6
California 6.0
Colorado 1.8
Connecticut 2.2
District of Columbia 1.7
Florida .1
Georgia .5
Hawaii .4
Idaho 1.2
Illinois 6.1
Indiana 3.5
Kansas .5
Kentucky 1.9
Louisiana 1.8
Maryland .7
Massachusetts 1.7
Michigan 2.7
Minnesota 3.8
Mississippi 1.6
Missouri .3
Montana 1.1
Nevada .9
New Hampshire 2.7
New Jersey .7
New Mexico 2.4
New York 12.5
North Carolina .8
North Dakota .2
Ohio .3
Oklahoma 2.1
Pennsylvania 2.2
Puerto Rico 7.0
Rhode Island 1.2
South Carolina 1.2
South Dakota .3
Tennessee .3
Texas 7.1
Utah 1.4
Vermont .1
Virginia 1.5
Washington 7.6
West Virginia .6
Wyoming 1.6
------
Total 98.6%
======
USAA INTERMEDIATE-TERM FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED RATE INSTRUMENTS (93.1%)
Alabama (0.3%)
$ 2,000 Baldwin County Health Care Auth. Hospital RB,
Series 1996 6.75% 4/01/15 $ 2,213
5,000 Prattville IDB PCRB, Series 1998 5.15 9/01/13 5,040
Alaska (0.6%)
Housing Finance Corp. Mortgage RB,
7,880 Series 1996A (CRE) (1) 6.00 12/01/15 8,471
4,000 Series 1997A-1 5.50 12/01/17 4,166
Arizona (0.4%)
4,000 Educational Loan Marketing Corp. RB, Series 1992A 6.70 3/01/00 4,153
4,500 Maricopa County Hospital RB, Series 1997 6.13 4/01/18 4,864
Arkansas (1.0%)
4,000 Little Rock Capital Improvement RB, Series 1998A 5.70 1/01/18 4,075
6,945 Mississippi County Hospital RB, Series 1992B 6.85 11/01/02 7,357
8,635 St. Francis County Hospital RB, Series 1985 6.50 2/01/05 8,985
1,110 Student Loan RB, Series 1991 7.15 6/01/02 1,174
California (6.3%)
7,100 Central Valley Financing Auth. RB 6.10 7/01/13 7,967
10,500 Contra Costa Transportation Auth. RB,
Series 1991A (CRE) (3),(b) 6.30 3/01/03 8,833
Foothill/Eastern Transportation Corridor Agency RB,
10,000 Series 1995A (b) 6.87 1/01/10 8,234
15,000 Series 1995A (b) 7.10 1/01/11 12,488
9,085 Series 1995A (b) 6.82 1/01/13 7,524
5,360 Housing Finance Agency RB, Series 1996A (CRE)(1) 5.70 8/01/10 5,729
20,045 Pleasanton Joint Powers Financing Auth. RB,
Series 1993A 6.00 9/02/05 21,762
3,300 Sacramento Cogeneration Auth. RB, Series 1995 6.38 7/01/10 3,784
19,300 Sacramento Power Auth. RB, Series 1995 5.88 7/01/15 20,736
San Joaquin Hills Transportation Corridor
Agency Senior Lien RB,
3,525 Series 1993 (b) 7.05 1/01/05 3,352
8,305 Series 1993 (b) 7.87 1/01/06 8,079
5,000 Series 1993 (b) 7.50 1/01/07 4,955
16,795 Series 1993 (b) 7.71 1/01/08 16,965
Southern California Public Power Auth. RB,
6,410 Series 1992 (b) 6.10 7/01/04 5,090
6,285 Series 1992 (b) 6.10 7/01/04 4,997
Colorado (1.5%)
5,200 Arapahoe County IDA RB, Series 1991 7.00 2/01/01 5,529
1,000 Series 1998A 5.20 12/01/12 1,026
635 Series 1998A 5.25 12/01/13 647
2,200 Series 1998A 5.38 12/01/18 2,228
10,000 Health Facilities Auth. Hospital RB, Series 1993 6.63 2/01/13 10,818
2,500 Housing and Finance Auth. MFH RB, Series 1997C-3 5.65 10/01/15 2,609
10,310 Student Obligations RB, Series 1991A-2 6.90 9/01/02 10,767
Connecticut (1.4%)
Mashantucket (Western) Pequot Tribe RB,
4,960 Series 1996A (a),(g) 6.40 9/01/11 5,841
5,040 Series 1996A (g) 6.40 9/01/11 5,628
1,000 Series 1997B (g) 5.60 9/01/09 1,068
2,400 Series 1997B (g) 5.70 9/01/12 2,549
14,500 Series 1997B (g) 5.75 9/01/18 15,300
District of Columbia (4.5%)
30,000 Convention Center Auth. RB, Series 1998 (CRE) (2,)(c) 5.00 10/01/18 30,040
GO,
2,035 Series 1993A 5.80 6/01/04 2,219
25,715 Series 1993A 5.80 6/01/04 27,622
370 Series 1994A-3 5.50 6/01/06 402
7,130 Series 1994A-3 5.50 6/01/06 7,602
440 Series E (a) 5.75 6/01/05 481
11,340 Series E 5.75 6/01/05 12,164
450 Series E (a) 5.75 6/01/06 492
11,550 Series E 5.75 6/01/06 12,354
6,250 Hospital RB, Series 1992B (a) 6.75 8/15/07 6,769
Florida (2.1%)
Dade County RB,
8,255 Series 1996B (CRE) (2),(b) 6.00 10/01/11 4,639
8,610 Series 1996B (CRE) (2),(b) 6.10 10/01/12 4,520
8,760 Series 1996B (CRE) (2),(a),(b) 6.20 10/01/13 4,421
5,000 Housing Finance Agency MFH RB, Series 1984C 6.25 12/01/06 5,222
1,940 Miami Health Facilities Auth. RB, Series 1988A 7.75 8/01/00 1,986
5,935 Nassau County PCRB, Series 1989 7.65 6/01/06 6,137
7,000 North Miami Educational Facilities RB 6.10 4/01/13 7,443
28,710 Palm Beach County Solid Waste Auth. RB,
Series 1998 (CRE) (2),(b) 5.00 10/01/12 15,228
Georgia (0.7%)
8,760 Metropolitan Atlanta Rapid Transit RB, Series M 6.25 7/01/03 9,461
5,000 St. Joseph's/Candler Health Systems Inc. RB,
Series 1998B (CRE) (4) 5.00 7/01/18 5,020
Hawaii (0.3%)
Department of Budget and Finance RB,
1,100 Series 1998 5.25 7/01/13 1,108
700 Series 1998 5.35 7/01/18 709
5,000 Housing Finance and Development Corp. RB, Series 1997B 5.45 7/01/17 5,189
Idaho (0.1%)
2,325 Health Facilities Auth. RB, Series 1998 5.25 5/01/14 2,382
Illinois (4.5%)
2,770 Bedford Park Tax Increment RB, Series 1993 7.38 12/01/04 3,281
4,880 Boone, McHenry and Dekalb Counties Community Unit
School District GO, Series 1997 (CRE) (4),(b) 5.30 12/01/13 2,401
21,235 Chicago-O'Hare International Airport RB,
Series 1994A (CRE) (1),(f) 6.20 1/01/07 23,922
7,460 Cook County Forest Preserve District GO,
Series 1996 (CRE) (1) 5.80 11/01/16 8,082
10,110 Development Finance Auth. RB, Series 1995 7.00 3/01/07 11,409
Health Facilities Auth. RB,
10,000 Hospital Sisters Services, Inc. (CRE) (1) 5.00 6/01/18 10,065
1,390 Series 1989 (Delnor Community Hospital) (a) 7.75 5/15/00 1,455
6,700 Series 1992 (Mercy Hospital and Medical Center) 7.00 1/01/07 7,360
8,000 Series 1993B (Univ. of Chicago Hospital) (CRE) (1) 5.75 8/15/14 8,525
3,150 Series 1996 (Mercy Hospital and Medical Center) 6.00 1/01/06 3,482
7,815 Series 1996 (Mercy Hospital and Medical Center) 6.38 1/01/15 8,659
5,000 Series 1996A (Riverside Medical Center) 6.00 11/15/15 5,423
1,000 Series 1998 (Centegra Health System) 5.25 9/01/13 1,029
1,000 Series 1998 (Centegra Health System) 5.25 9/01/14 1,024
2,500 Series 1998 (Centegra Health System) 5.25 9/01/18 2,514
1,015 Independent Higher Education Loan Auth. RB,
Series 1985 (CRE) 7.50 12/01/99 1,025
Indiana (2.8%)
Health Facility Financing Auth. RB,
5,900 Series 1993 (Sisters St. Francis Health Services) (a) 5.90 11/01/09 6,269
16,800 Series 1994 (Sisters St. Francis Health Services) (a) 6.20 7/01/09 17,828
1,400 Series 1998 (Floyd Memorial Hospital and Health Services) 5.25 2/15/18 1,421
6,000 Indianapolis Economic Development RB, Series 1996 6.05 1/15/10 6,508
Marion County Hospital Auth. RB,
8,400 Series 1992 (a) 6.10 10/01/03 8,809
6,500 Series 1992 (a) 6.55 10/01/08 7,013
Pike Township School Building Corp. RB,
4,600 Series 1992A 6.00 2/01/06 4,971
4,700 Series 1992A 6.00 8/01/06 5,079
3,150 Scottsburg Economic Development RB, Series 1990 7.13 3/01/99 3,195
1,150 St. Joseph County Economic Development RB, Series 1997 5.45 2/15/17 1,169
Iowa (0.9%)
6,000 Finance Auth. RB, Series 1998A (CRE) (1) 5.25 7/01/15 6,270
3,280 Higher Education Loan Auth. RB (CRE) (9) 6.13 10/01/16 3,665
10,000 Student Loan Liquidity Corp. RB, Series 1992A (f) 6.45 3/01/02 10,644
Louisiana (1.8%)
Jefferson Sales Tax District Special Sales Tax RB,
5,755 Series 1998 (CRE) (4),(b) 5.15 12/01/14 2,681
5,755 Series 1998 (CRE) (4),(b) 5.20 12/01/15 2,536
5,755 Series 1998 (CRE) (4),(b) 5.25 12/01/16 2,393
5,175 Offshore Terminal Auth. RB, Series 1998 5.20 10/01/18 5,241
Orleans Levee District RB,
7,620 Series 1986 (CRE) (4) 5.95 11/01/14 8,488
7,655 Series 1986 (CRE) (4) 5.95 11/01/15 8,459
7,015 Series A (CRE) (4) 5.95 11/01/10 7,901
1,400 Public Facilities Auth. RB, Series 1997B 5.63 8/01/17 1,468
Maine (2.0%)
41,400 Bucksport Solid Waste Disposal RB 6.25 5/01/10 43,945
Maryland (1.3%)
Community Development Administration RB,
19,245 1997 First Series 5.60 4/01/18 19,909
8,000 Series 1996A 5.88 7/01/16 8,576
Massachusetts (1.3%)
3,640 Housing Finance Agency RB, Series 1992C 6.35 11/15/03 3,935
4,385 Industrial Finance Agency RB, Series 1989A 7.10 8/01/99 4,514
5,000 Municipal Wholesale Electric Co. Power
Supply Systems RB, Series 1993 (CRE) (2) 5.45 7/01/18 5,211
15,000 State GO, Series 1991D (f) 6.63 7/01/03 16,355
Michigan (2.6%)
8,000 Detroit Building Auth. RB, Series 1996A (CRE) 6.15 2/01/11 8,756
4,000 Detroit Downtown Development Auth. Tax Increment Bonds,
Series 1998C (CRE)(1) 5.00 7/01/18 4,009
4,450 Detroit GO, Series 1996B (CRE) (3) 5.50 4/01/14 4,761
23,330 Dickinson County Economic Development Corp. RB,
Series 1989 6.55 3/01/07 24,645
Higher Education Facilities Auth. RB,
2,390 Series 1998 5.35 6/01/13 2,459
1,550 Series 1998 5.55 6/01/17 1,595
Hospital Finance Auth. RB,
5,000 Series 1995A (a) 7.50 10/01/07 6,151
325 Series 1996 5.90 10/01/04 354
100 Series 1996 6.00 10/01/05 110
150 Series 1996 6.10 10/01/06 167
160 Series 1996 6.20 10/01/07 181
2,600 Series 1996 6.25 10/01/16 2,854
2,000 Series 1998A 5.38 10/01/13 2,075
400 Strategic Fund Limited Obligation RB, Series 1998 5.30 7/01/18 409
Minnesota (1.8%)
4,205 Maplewood Health Care Facility RB, Series 1996 5.95 11/15/06 4,469
South St. Paul Housing and Redevelopment Auth.
Hospital Facility RB,
13,500 Series 1994 6.50 11/01/04 14,456
9,095 Series 1994 6.75 11/01/09 9,993
St. Paul Housing and Redevelopment Auth. Hospital RB,
4,000 Series 1997A 5.70 11/01/15 4,138
1,500 Series 1997B 5.85 11/01/17 1,563
5,260 Washington County Housing and Redevelopment Auth.
Hospital Facility RB, Series 1998 5.38 11/15/18 5,253
Mississippi (1.9%)
1,000 Jones County Hospital RB, Series 1997 5.50 12/01/17 1,012
Lafayette County Hospital RB,
550 Series 1991A (a) 7.70 3/01/03 593
2,850 Series 1991B (a) 7.70 3/01/03 3,072
15,885 Series 1997 5.50 3/01/09 16,669
1,500 Lincoln County Hospital RB, Series 1998B (CRE) (5) 5.50 4/01/18 1,563
3,720 Prentiss County Hospital RB, Series 1985 6.50 2/01/05 3,829
Union County Hospital RB,
840 Series 1991A (a) 7.70 3/01/03 907
1,565 Series 1991B (a) 7.70 3/01/03 1,690
11,170 Series 1997 5.50 3/01/09 11,875
Missouri (0.1%)
2,000 State Health and Educational Facilities Auth. RB,
Series 1997 5.75 2/01/17 2,119
Montana (0.2%)
5,000 Health Facility Auth. Hospital RB, Series 1997 5.50 6/01/11 5,342
Nebraska (0.4%)
Cass County School District 001 GO,
2,800 Series 1998 (CRE) (2) 5.00 12/15/14 2,840
2,000 Series 1998 (CRE) (2) 5.00 12/15/19 2,006
Investment Finance Auth. Hospital RB,
870 Series 1997 (CRE) (5) 5.30 11/15/12 914
2,000 Series 1997 (CRE) (5) 5.45 11/15/17 2,084
Nevada (0.8%)
16,640 Clark County School District GO, Series
1991B (CRE) (3),(b) 6.24 3/01/04 13,433
3,000 Housing Division SFH RB, Series 1995D-1 5.90 10/01/14 3,163
2,000 Reno Hospital RB, Series 1998 (CRE) (1) 5.00 5/15/18 2,006
New Hampshire (0.6%)
Higher Educational and Health Facilities Auth. RB,
845 Series 1985A (Student Loan Assist Foundation) (CRE) (3) 7.50 12/01/00 847
1,525 Series 1990 (Granite State Management and Resources) 8.50 12/01/01 1,562
3,000 Series 1997 (Kendal at Hanover) (CRE) 5.80 10/01/12 3,110
5,055 Series 1997 (Kendal at Hanover) (CRE) 5.90 10/01/18 5,228
1,990 Series 1998 (Franklin Pierce College) 5.25 10/01/18 2,001
New Jersey (2.7%)
6,150 Camden County Improvement Auth. RB, Series 1997 5.88 2/15/15 6,484
Economic Development Auth. RB,
15,000 Series 1994A (CRE) (1) 5.88 7/01/11 16,568
2,000 Series 1997A (Harrogate Inc.) 5.75 12/01/16 2,083
31,260 Turnpike Auth. RB, Series 1991A (f) 6.50 1/01/03 34,267
New Mexico (0.3%)
6,200 Chaves County Hospital RB, Series 1992 (a) 7.25 12/01/10 7,102
New York (20.1%)
Dormitory Auth. RB, Brookdale Hospital,
5,000 Series 1998J 5.20 2/15/15 5,141
4,000 Series 1998J 5.20 2/15/16 4,098
4,760 Series 1998J 5.30 2/15/17 4,915
10,300 Dormitory Auth. RB, Court Facilities Lease, Series 1993A 5.63 5/15/13 10,798
4,065 Dormitory Auth. RB, Lutheran Center at Poughkeepsie,
Series 1997 (CRE) 6.00 7/01/14 4,505
Dormitory Auth. RB, Mental Health Services Facilities
Improvement,
2,055 Series 1997A 5.75 2/15/10 2,274
2,000 Series 1997A 5.75 2/15/11 2,203
2,000 Series 1997A 5.75 2/15/12 2,192
2,460 Series 1997B 5.75 2/15/10 2,722
4,050 Series 1997B 5.75 2/15/12 4,439
4,675 Series 1997B 5.50 8/15/17 4,922
Dormitory Auth. RB, New York City University,
5,000 1996 Series 2 6.00 7/01/09 5,581
1,760 1996 Series 2 6.00 7/01/10 1,965
5,500 Series 1993A 5.75 7/01/13 6,156
13,730 Series 1997-1 5.25 7/01/14 14,279
14,560 Dormitory Auth. RB, Northern General Hospital,
Series 1998G 5.30 2/15/19 14,852
2,680 Dormitory Auth. RB, Nyack Hospital, Series 1996 6.00 7/01/06 2,958
Dormitory Auth. RB, State University Educational
Facilities,
7,625 Series 1993A 5.88 5/15/11 8,685
2,725 Series 1994B 5.90 5/15/06 3,015
2,500 Series 1994B (a) 6.00 5/15/07 2,809
1,000 Series 1995A 5.88 5/15/07 1,115
2,000 Series 1995A 5.90 5/15/08 2,269
3,500 Series 1995A 6.00 5/15/09 3,992
2,250 Series 1995A (a) 6.00 5/15/10 2,566
2,175 Series 1995A (a) 6.00 5/15/11 2,481
14,120 Series 1996 5.75 5/15/13 15,368
7,000 Series 1996 5.75 5/15/16 7,532
Environmental Facilities Corp. PCRB,
5,135 Series 1991E (a) 6.40 6/15/03 5,598
1,415 Series 1991E 6.40 6/15/03 1,534
Housing Finance Agency Service Contract RB,
2,275 Series 1995A 6.25 9/15/10 2,556
4,420 Series 1996A 6.00 9/15/16 4,814
18,500 Housing New York Corp. RB, Series 1993 5.00 11/01/18 18,453
Medical Care Facilities Finance Agency RB,
5,000 Series 1994A (CRE) (2),(a) 6.40 2/15/07 5,776
5,000 Series 1994A (CRE) (2),(a) 6.50 2/15/08 5,804
10,000 Series 1994A 6.13 8/15/13 10,684
7,585 Series 1995A (Adult Day Care) 6.00 11/15/10 8,516
2,675 Series 1995A (Brookdale Hospital) 6.70 2/15/05 3,098
2,750 Series 1995A (Brookdale Hospital) (a) 6.70 8/15/05 3,228
2,860 Series 1995A (Brookdale Hospital) (a) 6.75 2/15/06 3,365
2,940 Series 1995A (Brookdale Hospital) (a) 6.75 8/15/06 3,460
3,045 Series 1995A (Brookdale Hospital) (a) 6.80 2/15/07 3,591
3,130 Series 1995A (Brookdale Hospital) (a) 6.80 8/15/07 3,691
5,700 Series 1995A (Brookdale Hospital) (a) 6.80 8/15/12 6,722
22,230 Metropolitan Transportation Auth. Service Contract
RB, Series P 5.75 7/01/15 23,426
1,205 Mortgage Agency RB, Series EE-1 7.75 10/01/00 1,241
3,235 New York City Capital Improvement Bonds 34th St.
Partnership, Series 1993 5.50 1/01/14 3,346
New York City GO,
10,390 Series 1991D 8.00 8/01/99 10,788
1,145 Series 1991D 8.00 8/01/99 1,187
11,245 Series 1992H (a) 6.88 2/01/04 12,512
1,535 Series 1992H 6.88 2/01/04 1,689
16,045 Series 1993B (a) 6.75 10/01/04 18,065
955 Series 1993B 6.75 10/01/04 1,061
1,700 Series 1993C (a) 6.50 8/01/04 1,892
7,300 Series 1993C 6.50 8/01/04 8,022
15,000 Series 1994A 6.25 8/01/08 16,650
10,000 Series 1996G 5.75 2/01/10 10,911
5,000 Series 1997I 6.00 4/15/12 5,533
9,635 Series 1998J 5.00 8/01/17 9,699
13,000 New York City Municipal Assistance Corp. RB,
Series 67 (a) 7.30 7/01/00 13,638
New York City Municipal Water Finance RB,
3,295 Series 1992A 6.70 6/15/03 3,546
3,345 Series 1992A (a) 6.70 6/15/03 3,637
Thruway Auth. RB,
7,500 Series 1995 6.00 4/01/09 8,492
2,150 Series 1995 6.10 4/01/10 2,447
10,000 Series E 4.75 1/01/19 9,865
Urban Development Corp. RB,
20,955 Series 1993 5.75 1/01/13 22,182
21,700 Series 1993 5.50 1/01/15 22,416
North Carolina (0.3%)
6,000 Municipal Power Agency RB, Series 1992 6.00 1/01/04 6,530
Ohio (0.6%)
6,750 Dayton Special Facilities RB, Series 1988C 6.05 10/01/09 7,428
2,650 Franklin County Health Care Facilities RB, Series 1997 5.50 7/01/17 2,680
4,000 IDA RB, Series 1992 5.75 12/01/02 4,310
Oklahoma (0.8%)
Holdenville Industrial Auth. RB,
1,650 Series 1995 (a) 6.60 7/01/10 1,963
3,250 Series 1995 (a) 6.70 7/01/15 3,889
Industries Auth. Health Facilities RB,
2,350 Series 1989A (a) 7.30 6/01/01 2,458
1,055 Series 1989A 7.30 6/01/01 1,101
2,355 Tulsa County Home Finance Auth. RB, Series 1990 (CRE)(2) 7.10 5/01/02 2,565
4,500 Valley View Hospital Auth. RB, Series 1996 5.75 8/15/06 4,746
Oregon (0.1%)
1,250 Clackamas County Hospital Facility Auth. RB, Series 1997 6.10 11/01/12 1,325
Pennsylvania (4.3%)
35,000 Finance Auth. RB 6.60 11/01/09 39,188
3,565 Housing Finance Agency RB, Series 1992 5.90 7/01/04 3,800
10,000 Montgomery County IDA RB, Series 1996B 5.63 11/15/12 10,585
11,700 Philadelphia IDA RB, Series 1998A 5.15 3/01/19 11,651
17,500 Philadelphia Water and Wastewater RB,
Series 1993 (CRE) (3) 5.65 6/15/12 18,572
9,440 State GO, Second Series 1992 (b) 6.11 7/01/04 7,504
5,000 York County IDA RB, Series 1992 6.25 7/01/02 5,396
Puerto Rico (4.1%)
Electric Power Auth. RB,
5,000 Series S 7.00 7/01/06 5,949
4,420 Series X 5.80 7/01/09 4,872
4,500 Series X 5.90 7/01/10 4,970
4,000 Series X 6.00 7/01/11 4,426
4,220 Series Z 5.50 7/01/12 4,521
22,200 Housing Bank and Finance Agency RB 7.50 12/01/06 26,122
8,005 Municipal Finance Agency RB, Series 1992A 5.80 7/01/04 8,641
14,060 Public Building Auth. GO, Series K 6.50 7/01/03 15,483
Public Improvement GO,
7,500 Series 1994 6.10 7/01/06 8,356
7,825 Series 1994 6.20 7/01/07 8,737
Rhode Island (1.3%)
Health and Educational Building Corp. RB,
3,385 Series 1996 (CRE) (1) 5.50 5/15/12 3,661
7,600 Series 1996 (CRE) (1) 5.50 5/15/16 8,100
Housing and Mortgage Finance Corp. RB,
6,180 Series 15-B 6.30 10/01/07 6,632
5,205 Series 1995A (CRE) (2) 5.70 7/01/07 5,633
3,870 Series 25A 5.60 10/01/17 4,051
South Carolina (0.7%)
Connector 2000 Association Inc. Toll Road RB,
6,400 Series 1998B (b) 5.73 1/01/16 2,377
8,800 Series 1998B (b) 5.73 1/01/17 3,085
9,100 Series 1998B (b) 5.75 1/01/18 2,996
9,400 Series 1998B (b) 5.75 1/01/19 2,921
3,000 Marion County Hospital District RB (CRE) (9) 5.50 11/01/15 3,168
South Dakota (0.3%)
5,400 Rapid City IDA RB, Series 1990 7.25 11/01/00 5,770
Tennessee (1.2%)
24,540 Housing Development Agency RB, Issue 97-3B (b) 5.73 7/01/16 9,397
3,000 Knox County Health, Educational and Housing
Facilities Board RB, Series 1996 (CRE) (9) 5.50 4/15/11 3,244
4,325 Memphis Shelby County Airport Auth. Special
Facilities RB, Series 1997 5.35 9/01/12 4,515
Nashville and Davidson County Health and
Educational Facilities Board RB,
4,000 Series 1998 (CRE) (5) 5.10 8/01/16 4,038
1,750 Series 1998 (CRE) (5) 5.10 8/01/19 1,762
4,000 Springfield Health and Educational Facilities
Board Hospital RB, Series 1998 5.25 8/01/18 4,002
Texas (7.9%)
5,410 Austin Higher Education Auth. RB, Series 1998 5.13 8/01/16 5,428
Bastrop ISD GO,
1,855 Series 1997 (CRE) (13),(b) 5.55 2/15/14 904
3,030 Series 1997 (CRE) (13),(b) 5.55 2/15/15 1,398
3,055 Series 1997 (CRE) (13),(b) 5.60 2/15/16 1,331
3,155 Series 1997 (CRE) (13),(b) 5.60 2/15/17 1,303
12,000 Bexar County Health Facilities Development
Corp. RB, Series 1993 (CRE) (4) 5.88 11/15/10 13,236
1,695 Brazos County Health Facilities RB, Series 1989B (a) 7.50 1/01/01 1,734
4,365 Cass County IDC PCRB, Series 1997B 5.35 4/01/12 4,639
Fort Worth Higher Education Finance Corp. RB,
515 1997A 5.50 10/01/06 557
545 1997A 5.50 10/01/07 592
575 1997A 5.63 10/01/08 626
2,670 1997A 6.00 10/01/12 2,920
15,400 Gulf Coast Waste Disposal Auth. PCRB, Series 1992 6.13 11/01/04 17,112
6,200 Gulf Coast Waste Disposal Auth. RB, Series 1994 5.70 5/01/06 6,801
2,070 Harrison County Health Facilities Development Corp. RB,
Series 1998 (CRE) (7) 5.50 1/01/18 2,123
Houston ISD Public Facility Corp. RB,
3,635 Series 1998A (CRE) (2),(b) 5.35 9/15/15 1,618
2,635 Series 1998A (CRE) (2),(b) 5.38 9/15/16 1,107
3,885 Series 1998A (CRE) (2),(b) 5.40 9/15/17 1,546
4,955 Series 1998B (CRE) (2),(b) 5.35 9/15/15 2,205
6,955 Series 1998B (CRE) (2),(b) 5.38 9/15/16 2,921
Houston Water and Sewer Systems RB,
175 1992B (a) 6.00 12/01/04 193
4,825 1992B 6.00 12/01/04 5,245
Laredo ISD Public Property Finance Contractual
Obligations,
320 Series 1998A 5.06 2/01/99 321
355 Series 1998A 5.06 2/01/00 359
370 Series 1998A 5.06 2/01/01 375
390 Series 1998A 5.06 2/01/02 397
410 Series 1998A 5.06 2/01/03 418
435 Series 1998A 5.06 2/01/04 444
460 Series 1998A 5.06 2/01/05 469
480 Series 1998A 5.06 2/01/06 488
505 Series 1998A 5.06 2/01/07 513
530 Series 1998A 5.06 2/01/08 535
3,830 Lewisville Combination Contract Revenue and
Special Assessment RB, Series 1998 (CRE) (7) 5.38 9/01/15 3,921
11,700 Lower Colorado River Auth. RB, Series 1992 (CRE)(2),(b) 6.45 1/01/03 9,911
4,500 Marlin ISD Public Facility Corp. RB, Series 1998 (e) 5.85 2/15/18 4,692
8,565 Municipal Power Agency RB, Series 1987 5.50 9/01/13 8,575
24,050 Port of Corpus Christi IDC PCRB, Series 1997B 5.40 4/01/18 24,356
11,790 Public Finance Auth. RB (CRE) (1),(b) 6.06 2/01/04 9,549
San Antonio Electric and Gas Systems RB,
3,005 Series 1989 (a) 7.00 2/01/01 3,087
1,185 Series 1989 7.00 2/01/01 1,216
10,000 Series 1991B (CRE) (3),(b) 6.38 2/01/04 8,099
5,000 Travis County Health Facilities Development
Corp. Hospital RB, Series 1998A 5.13 11/01/18 5,031
4,000 Trinity River IDA RB 7.25 2/01/04 4,594
Tyler Health Facilities Development Corp. Hospital RB,
5,825 Series 1993B (East Texas Medical Center) 6.63 11/01/11 6,270
1,000 Series 1997A (Mother Frances Hospital) 5.63 7/01/13 1,013
5,435 Water Resources Finance Auth. RB, Series 1989 7.25 2/15/01 5,569
Utah (2.1%)
490 Housing Finance Agency RB, Series 1985B 5.30 7/01/07 491
Intermountain Power Agency RB,
8,105 Series 1987A (CRE) (1) 5.00 7/01/12 8,107
16,430 Series 1988B (CRE) (1),(b) 6.48 7/01/03 13,617
21,895 Series 1988B (CRE) (1),(b) 6.18 7/01/04 17,395
7,000 Juab County PCRB, Series 1991 (d) 6.00 8/01/11 7,000
Vermont (0.1%)
3,000 Educational and Health Buildings Financing Agency RB,
Series 1998 5.50 7/01/18 3,066
Virginia (0.2%)
5,000 Isle of Wight County IDA PCRB, Series 1994 5.80 5/01/04 5,209
Washington (1.6%)
3,255 Health Care Facilities Auth. RB, Series 1997A (CRE) (1) 5.13 8/15/17 3,312
6,185 Higher Education Facilities Auth. RB 5.20 10/01/17 6,323
King County GO,
780 Series 1993A (a) 5.90 12/01/07 856
4,720 Series 1993A 5.90 12/01/07 5,132
5,000 King County Housing Auth. RB, Series 1998A (CRE) (5) 5.20 7/01/18 5,038
10,000 Port of Seattle Passenger Facility Charge RB,
Series 1998A (CRE) (1) 5.00 12/01/17 10,187
State Health Care Facilities Auth. RB,
2,500 Series 1998 (CRE) (5) 5.25 8/15/17 2,568
2,500 Series 1998 (CRE) (5) 5.30 8/15/18 2,573
West Virginia (0.8%)
16,940 School Building Auth. RB, Series 1994 6.25 7/01/04 18,802
Wisconsin (1.3%)
Health and Educational Facilities Auth. RB,
11,500 Series 1993 (Aurora Health Care) (CRE) (1) 5.25 8/15/12 11,898
4,130 Series 1995A (Walkesha Memorial Hospital) (CRE) (2) 5.25 8/15/12 4,336
5,000 Series 1998A (Wausau Hospital) (CRE) (2) 5.13 8/15/20 5,026
Professional Baseball Park District RB,
2,540 Series 1996 (CRE) (1),(a) 5.55 12/15/14 2,830
2,275 Series 1996 (CRE) (1),(a) 5.60 12/15/15 2,542
2,750 Series 1996 (CRE) (1),(a) 5.65 12/15/16 3,083
Wyoming (0.1%)
210 Farm Loan Board COP, Series 1989 (CRE) (14) 6.50 12/01/99 211
----------
Total fixed rate instruments (cost: $1,907,704) 2,070,919
----------
PUT BONDS (5.0%)
Alabama (0.2%)
4,000 Housing Finance Auth. MFH RB, Series 1992C (CRE) (6) 5.90 8/01/07 4,083
California (0.5%)
7,500 Statewide Communities Development Auth. RB,
Series 1998A (g) 5.25 5/15/25 7,739
3,535 Woodland MFH RB, Series 1994A 6.05 12/01/24 3,738
Florida (0.4%)
Housing Finance Agency MFH RB,
4,275 Series 1996R-1 (CRE) (6) 5.65 12/01/26 4,530
4,500 Series 1996S-1 (CRE) (6) 5.65 12/01/26 4,769
Illinois (0.7%)
14,295 Hoffman Estates MFH RB, Series 1996 5.75 6/01/21 15,209
Kansas (0.3%)
6,590 Merriam MFH RB, Series 1991A (CRE) (8) 7.25 4/01/21 6,817
Louisiana (0.2%)
4,360 Shreveport Home Mortgage Auth. RB, Series 1995A (CRE)(6) 6.40 9/01/25 4,685
New Mexico (0.5%)
Bernalillo County MFH RB,
7,700 Series 1994A (Sun Village Apts.) (CRE) (6) 6.50 10/01/19 8,212
3,320 Series 1995 (Sunchase Apts.) (CRE) (6) 5.80 11/01/25 3,523
Ohio (0.3%)
5,500 Montgomery County IDA RB, Series 1992 (CRE) 6.50 2/01/07 6,102
Pennsylvania (0.4%)
Philadelphia IDA RB,
3,500 Series 1997A 6.50 10/01/27 3,829
4,000 Series 1997B 6.50 10/01/27 4,375
Texas (0.1%)
2,500 Gregg County Housing Finance Corp. RB,
Series 1995A (CRE) (6) 6.40 9/01/25 2,690
Utah (0.8%)
Salt Lake County MFH RB,
10,240 Series 1995A-1 (CRE) (5) 5.70 10/01/25 10,892
6,500 Series 1995B-1 (CRE) (5) 5.70 10/01/25 6,914
Washington (0.6%)
Chelan County Public Utility District #1 RB,
5,650 Series E 5.70 7/01/68 6,037
6,845 Series E 5.70 7/01/68 7,314
----------
Total put bonds (cost: $104,372) 111,458
----------
VARIABLE RATE DEMAND NOTES (1.0%)
California (0.3%)
5,665 Economic Development Financing Auth. RB,
Series 1998A (CRE) 4.00 4/01/08 5,665
Florida (0.1%)
2,975 Volusia County Health Facilities Auth. RB,
Series 1995 (CRE) 4.10 9/01/20 2,975
Louisiana (0.2%)
4,450 Public Facilities Auth. MFH RB, Series 1991 (CRE) 4.20 7/01/07 4,450
New York (0.2%)
905 Dormitory Auth. RB, Series 1993 (CRE) 4.20 7/01/23 905
4,010 St. Lawrence County IDA PCRB, Series 1985 (CRE) 4.10 12/01/07 4,010
Virginia (0.2%)
5,440 Henrico County IDA RB, Series 1994 (CRE) 4.20 5/01/24 5,440
-----------
Total variable rate demand notes (cost: $23,445) 23,445
-----------
Total investments (cost: $2,035,521) $2,205,822
===========
</TABLE>
PORTFOLIO SUMMARY BY INDUSTRY
-------------------------------
Hospitals 15.2%
Escrowed Bonds 12.1
General Obligations 9.6
Electric/Gas Utilities - Municipal 6.9
Multi-Family Housing 6.7
Education 4.6
Appropriated Debt 4.6
Paper & Forest Products 3.9
Special Assessment/Tax/Fee 3.9
Toll Roads 3.8
Single-Family Housing 3.5
Nursing/Continuing Care Centers 2.8
Buildings 2.4
Real Estate Tax/Free 2.3
Finance - Municipal 2.2
Airport/Port 1.8
Water/Sewer Utilities - Municipal 1.5
Healthcare - Miscellaneous 1.5
Student Loans 1.4
Gaming Companies 1.1
Oil & Gas - Refining/Manufacturing 1.1
Other 6.2
-----
Total 99.1%
=====
PORTFOLIO SUMMARY BY STATE
- ----------------------------
Alabama .5%
Alaska .6
Arizona .4
Arkansas 1.0
California 7.1
Colorado 1.5
Connecticut 1.4
District of Columbia 4.5
Florida 2.7
Georgia .6
Hawaii .3
Idaho .1
Illinois 5.2
Indiana 2.8
Iowa .9
Kansas .3
Louisiana 2.2
Maine 2.0
Maryland 1.3
Massachusetts 1.3
Michigan 2.6
Minnesota 1.8
Mississippi 1.9
Missouri .1
Montana .2
Nebraska .4
Nevada .8
New Hampshire .6
New Jersey 2.7
New Mexico .8
New York 20.3
North Carolina .3
Ohio .9
Oklahoma .7
Oregon .1
Pennsylvania 4.7
Puerto Rico 4.1
Rhode Island 1.3
South Carolina .7
South Dakota .3
Tennessee 1.2
Texas 8.0
Utah 2.9
Vermont .1
Virginia .5
Washington 2.2
West Virginia .8
Wisconsin 1.3
Wyoming .1
------
Total 99.1%
======
USAA SHORT-TERM FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED RATE INSTRUMENTS (70.3%)
Alabama (0.1%)
$ 1,000 Prattville Industrial Development PCRB, Series 1998 4.90% 9/01/08 $ 1,006
Alaska (0.6%)
North Slope Borough GO,
1,250 Series 1995A (CRE) (1),(b) 4.85 6/30/99 1,219
6,500 Series 1998A (CRE) (1),(b) 4.60 6/30/08 4,293
Arizona (1.8%)
1,750 Educational Loan Marketing Corp. RB, Series 1992A 6.70 3/01/00 1,817
Maricopa County Hospital RB,
2,545 Series 1997 4.75 4/01/99 2,560
2,665 Series 1997 5.00 4/01/00 2,707
2,525 Series 1997 5.10 4/01/01 2,590
2,260 Series 1997 5.25 4/01/02 2,346
3,045 Series 1997 5.35 4/01/03 3,193
2,180 Series 1997 5.35 4/01/04 2,298
California (2.2%)
2,550 Central Valley Cogeneration RB, Series 1993 5.40 7/01/00 2,625
Sacramento Cogeneration Auth. RB,
1,000 Series 1995 5.70 7/01/00 1,034
1,000 Series 1995 5.80 7/01/01 1,052
900 Series 1995 5.90 7/01/02 963
900 Series 1995 6.00 7/01/03 979
12,615 San Joaquin Hills Transportation Corridor
Agency Senior Lien RB (b) 7.10 1/01/00 12,035
3,500 San Joaquin Hills Transportation Corridor
Agency Senior Lien RB (b) 7.16 1/01/01 3,210
Colorado (0.4%)
Denver Health and Hospital Auth. RB,
1,180 Series 1998A 5.13 12/01/06 1,231
1,250 Series 1998A 5.25 12/01/07 1,314
1,250 Series 1998A 5.25 12/01/08 1,312
Connecticut (1.1%)
Mashantucket (Western) Pequot Tribe RB,
1,000 Series 1996A (g) 6.25 9/01/01 1,071
1,000 Series 1996A (g) 6.25 9/01/01 1,064
1,250 Series 1996A (g) 6.25 9/01/02 1,363
1,250 Series 1996A (g) 6.25 9/01/02 1,351
1,480 Series 1996A (g) 6.25 9/01/03 1,637
1,520 Series 1996A (g) 6.25 9/01/03 1,666
1,235 Series 1996A (g) 6.50 9/01/06 1,440
1,265 Series 1996A (g) 6.50 9/01/06 1,451
District of Columbia (2.4%)
GO,
920 Series 1994A-3 4.70 6/01/99 928
17,870 Series 1994A-3 4.70 6/01/99 17,973
Hospital RB,
1,450 Series 1996A (CRE) (1) 5.00 8/15/02 1,507
1,530 Series 1996A (CRE) (1) 5.50 8/15/03 1,634
1,610 Series 1996A (CRE) (1) 5.50 8/15/04 1,734
Florida (0.5%)
1,470 Nassau County PCRB, Series 1992 5.60 6/01/00 1,506
865 Orange County Health Facilities Auth. RB, Series 1995 5.63 7/01/01 896
Palm Beach County Health Facilities Auth. RB,
395 Series 1997 4.80 10/01/02 404
315 Series 1997 5.00 10/01/03 325
435 Series 1997 5.00 10/01/04 450
460 Series 1997 5.10 10/01/05 477
480 Series 1997 5.20 10/01/06 497
345 Series 1997 5.30 10/01/07 358
Georgia (0.4%)
4,000 Camden County Development Auth. PCRB, Series 1997 5.25 4/01/02 4,162
Guam (3.0%)
GO,
9,290 Series 1994A 5.75 8/15/99 9,462
2,000 Series 1994A 5.25 9/01/99 2,014
5,000 Series 1995A 5.38 9/01/00 5,031
10,000 Series 1995A 5.50 9/01/01 10,065
Power Auth. RB,
1,640 Series 1994A 5.50 10/01/99 1,672
1,725 Series 1994A 5.60 10/01/00 1,784
Idaho (0.4%)
Health Facilities Auth. RB,
810 Series 1998 4.65 5/01/05 825
860 Series 1998 5.38 5/01/06 913
950 Series 1998 5.38 5/01/07 1,011
1,005 Series 1998 5.38 5/01/08 1,069
Illinois (3.0%)
16,265 Chicago Water RB, Series 1997 (CRE) (3),(b) 5.00 11/01/05 12,200
9,000 Cook County GO, Series 1989 (CRE) (1),(a) 7.38 11/01/08 9,555
1,285 Development Finance Auth. RB, Series 1995 6.25 3/01/99 1,299
2,045 Health Facilities Auth. RB, Series 1996 5.60 1/01/02 2,144
4,015 Hodgkins Tax Increment RB, Series 1995A 6.90 12/01/01 4,203
Indiana (3.6%)
6,745 Development Finance IDA RB, Series 1996 4.80 6/01/00 6,862
Health Facility Financing Auth. RB,
3,000 Series 1993 4.65 11/01/98 3,004
20,300 Series 1993 (a) 5.40 11/01/05 21,145
4,200 Series 1994 (a) 5.38 7/01/01 4,315
Louisiana (4.6%)
11,310 De Soto Parish PCRB, Series 1993A 5.05 12/01/02 11,803
Jefferson Parish School Board Sales and Use Tax RB,
3,170 Series 1998 (CRE) (4),(b) 4.80 9/01/07 2,198
2,090 Series 1998 (CRE) (4),(b) 4.90 3/01/08 1,406
6,463 New Orleans Master Lease Agreement, #2300-1 (e) 7.99 2/01/02 6,804
Offshore Terminal Auth. RB,
7,920 Series 1992B 6.00 9/01/01 8,389
5,000 Series 1992B 6.20 9/01/03 5,490
5,830 Series 1994B 5.85 9/01/00 6,056
3,440 St. Charles Parish PCRB 7.63 6/01/03 3,561
Maine (1.4%)
Jay PCRB,
5,500 Series 1994A 4.65 9/01/02 5,650
8,305 Series 1994B 4.70 6/01/02 8,531
Massachusetts (3.3%)
Health and Educational Facilities Auth. RB,
3,445 Series 1998B (CRE) (7) 5.00 7/01/06 3,601
3,645 Series 1998B (CRE) (7) 5.25 7/01/07 3,875
1,640 Series 1998B (CRE) (7) 5.25 7/01/08 1,743
New England Education Loan Marketing Corp. RB,
17,000 Series 1985A 5.80 3/01/02 17,933
5,000 Series 1992A 6.13 9/01/99 5,114
Michigan (2.0%)
Hospital Finance Auth. RB, Central Michigan
Community Hospital,
210 Series 1996 4.70 10/01/98 210
245 Series 1996 5.00 10/01/99 248
255 Series 1996 5.30 10/01/00 262
130 Series 1996 5.50 10/01/01 135
275 Series 1996 5.70 10/01/02 291
285 Series 1996 5.80 10/01/03 306
Hospital Finance Auth. RB, Genesys Health
System Medical Center,
3,500 Series 1995A 6.80 10/01/00 3,685
3,500 Series 1995A 7.00 10/01/01 3,780
2,500 Series 1998A 5.50 10/01/06 2,689
1,500 Series 1998A 5.50 10/01/07 1,618
1,000 Series 1998A 5.50 10/01/08 1,078
5,800 Monroe Economic Development Corp. PCRB,
Series 1997 5.00 2/01/03 6,044
Minnesota (1.3%)
5,850 Minneapolis Temporary Parking Ramp RB, Series 1997A 4.75 6/01/00 5,853
St. Paul Housing and Redevelopment Auth.
Hospital RB,
675 Series 1997A 5.00 11/01/03 697
1,410 Series 1997A 5.10 11/01/04 1,465
1,485 Series 1997A 5.20 11/01/05 1,553
1,560 Series 1997A 5.30 11/01/06 1,642
1,645 Series 1997A 5.35 11/01/07 1,738
Mississippi (1.8%)
Jones County Hospital RB,
1,000 Series 1997 5.00 12/01/05 1,040
1,050 Series 1997 5.00 12/01/06 1,092
1,105 Series 1997 5.10 12/01/07 1,156
1,155 Series 1997 5.20 12/01/08 1,210
6,810 Lafayette County Hospital RB, Series 1997 5.00 3/01/02 6,976
1,000 Lincoln County Hospital RB, Series 1998A (CRE) (5) 5.00 4/01/04 1,038
4,785 Union County Hospital RB, Series 1997 5.00 3/01/02 4,909
Nebraska (0.2%)
Investment Finance Auth. Hospital RB,
465 Series 1997 (CRE) (5) 4.90 11/15/05 487
440 Series 1997 (CRE) (5) 5.00 11/15/06 463
410 Series 1997 (CRE) (5) 5.00 11/15/07 433
505 Series 1997 (CRE) (5) 5.05 11/15/08 533
New Jersey (0.1%)
1,050 Camden County Improvement Auth. RB, Series 1997 4.75 2/15/00 1,060
New York (15.7%)
Dormitory Auth. RB, City University System,
3,245 Series 1996-2 5.00 7/01/00 3,315
1,285 Series 1996-2 5.10 7/01/01 1,328
5,000 Dormitory Auth. RB, Good Samaritan Hospital,
Series 1998A (CRE) (5) 5.50 7/01/09 5,482
Dormitory Auth. RB, Nyack Hospital,
1,160 Series 1996 5.35 7/01/99 1,173
1,170 Series 1996 5.65 7/01/01 1,212
Dormitory Auth. RB, State University Educational
Facilities,
1,285 Series 1994B 5.10 5/15/99 1,299
2,190 Series 1994B 5.30 5/15/00 2,246
6,450 Series 1995A 5.10 5/15/00 6,596
6,350 Series 1995A 5.25 5/15/01 6,585
7,500 Series 1995A 5.40 5/15/02 7,892
1,000 Series 1996 4.90 5/15/00 1,019
1,350 Series 1996 5.00 5/15/01 1,392
1,000 Series 1996 5.10 5/15/02 1,042
1,250 Dormitory Department of Health RB, Series 1996 4.75 7/01/01 1,280
25,805 Environmental Facilities Corp. PCRB, Series 1994A 5.50 6/15/99 26,198
5,325 Medical Care Facilities Finance Agency RB,
Series 1994A (CRE) (2) 5.80 2/15/01 5,588
New York City GO,
600 Series 1994D 6.00 8/15/99 614
9,400 Series 1994D 6.00 8/15/99 9,607
155 Series 1994H 5.30 8/01/99 158
7,845 Series 1994H 5.30 8/01/99 7,966
5,000 Series 1995A 5.40 8/01/00 5,149
1,450 Series 1995D 6.50 2/01/02 1,577
3,550 Series 1995D 6.50 2/01/02 3,835
3,325 Series 1996K 5.50 4/01/01 3,475
4,900 Series 1998F 5.50 8/01/06 5,337
6,420 Series 1998F 5.50 8/01/07 7,018
4,010 State COP 4.90 2/01/02 4,130
4,040 State COP 4.90 8/01/02 4,178
2,035 State COP 5.00 2/01/03 2,115
11,165 The City University of New York COP 5.75 8/15/03 12,017
7,880 Thruway Auth. RB, Series 1995 5.10 4/01/01 8,120
Urban Development Corp. RB,
4,400 Series 1993 5.25 1/01/03 4,617
1,715 Series 7 4.75 1/01/02 1,759
North Carolina (1.1%)
11,000 Eastern Municipal Power Agency RB, Series 1996A 5.10 1/01/00 11,159
Ohio (0.6%)
Franklin County Health Care Facilities RB,
1,000 Series 1997 4.70 7/01/02 1,017
1,000 Series 1997 4.80 7/01/03 1,021
500 Series 1997 5.00 7/01/04 516
1,425 Series 1997 5.00 7/01/05 1,471
1,000 Series 1997 5.10 7/01/06 1,038
475 Series 1997 5.15 7/01/07 494
600 Series 1997 5.25 7/01/08 628
Oklahoma (1.9%)
Holdenville Industrial Auth. RB,
1,115 Series 1995 5.45 7/01/00 1,150
1,380 Series 1995 6.15 7/01/04 1,543
510 Series 1995 6.35 7/01/06 591
15,000 Housing Development Auth. RB, Series 1997A 4.75 12/01/02 15,146
Pennsylvania (5.5%)
Beaver County Finance Auth. RB,
17,480 Series 1986A (CRE) (1),(a) 8.00 11/01/09 17,954
8,545 Series 1986B (CRE) (1),(a) 8.00 11/01/09 8,776
4,875 Delaware IDA Refunding RB, Series 1997A 5.50 1/01/00 4,963
4,435 East Hempfield Township IDA RB, Series 1996 5.00 8/01/01 4,573
17,290 Higher Education Assistance Agency Student Loan RB,
Series 1985A (CRE) (3) 6.80 12/01/00 18,315
Puerto Rico (2.7%)
8,235 Centro de Recaudaciones de Ingresos Municipales COP (e) 6.85 10/17/03 8,618
Electric Power Auth. RB,
5,000 Series 1997AA 5.00 7/01/03 5,235
5,000 Series 1997AA 5.00 7/01/04 5,266
4,365 Series S 6.00 7/01/99 4,450
3,600 Series T 6.00 7/01/99 3,670
Tennessee (0.6%)
Shelby County Hospital RB,
500 Series 1993 4.50 11/01/98 500
2,500 Series 1993 5.10 11/01/03 2,552
3,000 Springfield Health and Educational Facilities
Board Hospital RB, Series 1998 4.90 8/01/08 3,036
Texas (5.6%)
Abilene Higher Education Facilities Corp. RB,
1,335 Series 1995 5.30 10/01/99 1,359
1,280 Series 1995 5.40 10/01/00 1,320
1,480 Series 1995 5.50 10/01/01 1,548
1,000 Series 1995 5.60 10/01/02 1,060
3,235 Austin Higher Education Auth. RB, Series 1998 4.80 8/01/09 3,256
6,000 Calhoun County Navigation IDA PCRB, Series 1995 4.65 6/01/01 6,137
Harrison County Health Facilities Development Corp. RB,
1,010 Series 1998 (CRE) (7) 4.80 1/01/06 1,033
1,055 Series 1998 (CRE) (7) 4.80 1/01/07 1,077
1,110 Series 1998 (CRE) (7) 4.90 1/01/08 1,137
Houston Independent School District Public Facility
Corp. Lease RB,
3,885 Series 1998A (CRE) (2),(b) 4.85 9/15/07 2,677
3,885 Series 1998A (CRE) (2),(b) 4.90 9/15/08 2,543
4,805 Series 1998B (CRE) (2),(b) 4.85 9/15/07 3,311
5,260 Series 1998B (CRE) (2),(b) 4.90 9/15/08 3,444
2,500 Lampasas County IDC RB, Series 1997 5.20 12/01/01 2,596
3,495 Lewisville Contract Revenue and Special Assessment
Bonds, Series 1998 (CRE) (7) 5.00 9/01/10 3,616
Northeast Hospital Auth. RB,
1,230 Series 1997 5.10 5/15/00 1,255
1,285 Series 1997 5.25 5/15/01 1,328
2,870 Series 1997 5.40 5/15/03 3,029
4,090 Pasadena GO, Series 1994 5.75 2/15/99 4,128
Tyler Health Facilities Development Corp. RB,
2,700 Series 1997A 5.00 7/01/03 2,763
3,120 Series 1997A 5.00 7/01/04 3,185
1,625 Series 1997A 5.13 7/01/05 1,662
1,100 Series 1997A 5.20 7/01/06 1,125
1,125 Series 1997A 5.30 7/01/07 1,152
Virginia (0.2%)
Halifax County IDA Hospital RB,
1,100 Series 1998 4.50 9/01/05 1,121
600 Series 1998 4.65 9/01/07 611
500 Series 1998 4.75 9/01/08 510
West Virginia (2.0%)
6,000 Kanawha County PCRB, Series 1997 5.25 4/01/02 6,225
13,480 School Building Auth. Capital Improvement RB,
Series 1994 6.00 7/01/00 13,988
Wisconsin (0.2%)
Health and Educational Facilities Auth. RB,
410 Series 1997 5.10 12/15/05 424
430 Series 1997 5.20 12/15/06 445
455 Series 1997 5.25 12/15/07 471
475 Series 1997 5.30 12/15/08 494
---------
Total fixed rate instruments (cost: $675,133) 697,127
---------
PUT BONDS (11.8%)
California (3.3%)
3,395 Brentwood Infrastructure Financing Auth. Capital
Improvement RB, Series 1996 (CRE) 5.25 6/01/26 3,493
6,955 Fresno MFH RB, Series 1997A 4.88 1/01/28 7,214
7,185 Redwood MFH RB, Series 1985B (CRE) (10) 5.20 10/01/08 7,264
4,000 Santa Rosa Housing Auth. MFH RB, Series 1995E (CRE)(12) 4.85 9/01/07 4,013
6,170 South Gate Public Financing Auth. Tax Allocation Bonds,
Series 1997 (CRE) 4.75 9/01/19 6,356
4,640 Vallejo Housing Auth. MFH RB, Series 1985A (CRE) (10) 5.00 6/01/07 4,646
Florida (2.4%)
Housing Finance Agency MFH RB,
5,000 Series 1983F (Horizon Place) (CRE) (11) 5.35 12/01/05 5,036
4,000 Series 1983G (Oaks at Baymeadow) (CRE) (11) 5.35 12/01/05 4,029
5,000 Series 1987 (The Crossing) (CRE) (12) 4.85 2/01/08 5,057
5,200 Series 1995D (Park Colony) (CRE) 5.10 4/01/13 5,309
4,000 Series 1995K (Oaks at Regency) (CRE) 4.85 12/01/05 4,009
Illinois (1.1%)
11,240 Health Facilities Auth. RB, Series 1998A (CRE) 4.70 7/01/31 11,461
Louisiana (2.1%)
20,000 Public Facilities Auth. RB, Series 1985B-1 (CRE) (2) 5.00 12/01/15 20,497
Minnesota (0.7%)
7,500 Minneapolis and St. Paul Housing and Redevelopment RB,
Series 1996A (CRE) (3) 5.13 6/01/32 7,543
Texas (1.5%)
7,990 Lewisville Contract Revenue and Special Assessment
Bonds, Series 1996 (CRE) 5.00 5/01/21 8,580
6,000 Tarrant County Housing Finance Corp. MFH RB,
Series 1985 (CRE) (15) 4.90 9/01/06 6,024
Wyoming (0.7%)
6,725 Community Development Auth. Housing RB, Series 1997-3 5.25 6/01/17 6,982
---------
Total put bonds (cost: $115,019) 117,513
---------
VARIABLE RATE DEMAND NOTES (16.8%)
California (12.9%)
16,800 Fontana COP, Series 1991 (CRE) 5.40 7/01/21 16,800
4,475 Gardena Financing Agency RB, Series 1991 (CRE) 4.90 9/01/11 4,475
20,860 Grand Terrace MFH RB, Series 1985A (CRE) 4.50 12/01/11 20,860
Orange County Apartment Development RB,
1,400 Issue C Series 1985-3 (CRE) 5.50 3/01/07 1,400
9,700 Series 1984J (CRE) 5.47 11/01/08 9,700
11,400 Orange County Special Financing Auth. RB,
Series 1995B (CRE) 4.80 11/01/14 11,400
Sacramento County MFH RB,
3,100 Series 1996C (CRE) 4.85 12/01/21 3,100
6,000 Series 1996D (CRE) 4.85 12/01/21 6,000
San Francisco City and County MFH RB,
27,100 Series 1985A, Issue D (CRE) 4.80 12/01/05 27,100
16,900 Series 1985B, Issue D (CRE) 4.80 12/01/05 16,900
10,000 Santa Clara County Transit District RB,
Series 1985A (CRE) 4.60 6/01/15 10,000
District of Columbia (0.2%)
1,900 Catholic University of America RB, Series 1989A (CRE) 4.65 12/01/09 1,900
Georgia (1.2%)
11,665 Bibb County Development Auth. Environmental
Improvement RB, Series 1991 IR-1 4.45 12/01/09 11,665
Hawaii (0.5%)
5,400 State Housing Finance and Development Corp. RB,
Series 1990A (CRE) 4.55 7/01/25 5,400
Illinois (0.2%)
880 Development Finance Auth. MFH RB, Series 1991 (CRE) 5.25 10/01/05 880
755 West Frankfort Commercial Redevelopment RB 6.59 4/01/07 755
Louisiana (0.1%)
1,250 Public Facilities Auth. MFH RB, Series 1991 (CRE)(12) 4.20 7/01/07 1,250
New Jersey (0.2%)
1,970 Newark Healthcare Facility RB, Series A (CRE) 5.40 6/01/30 1,970
New York (0.3%)
2,700 Chautauqua County IDA IDRB, Series 1984A (CRE) 5.03 1/01/00 2,700
Oregon (0.2%)
1,500 Medford Hospital Facilities Auth. RB, Series 1985 (CRE) 3.80 12/01/15 1,500
Tennessee (0.9%)
9,300 Carter County IDRB, Series 1983 3.70 10/01/07 9,300
Virginia (0.1%)
1,405 Henrico County IDA RB, Series 1994 (CRE) 4.20 5/01/24 1,405
---------
Total variable rate demand notes (cost: $166,460) 166,460
---------
Total investments (cost: $956,612) $981,100
=========
</TABLE>
PORTFOLIO SUMMARY BY INDUSTRY
-------------------------------
Multi-Family Housing 14.6%
Hospitals 13.0
General Obligations 9.4
Escrowed Bonds 7.5
Education 5.5
Appropriated Debt 5.2
Finance - Municipal 4.8
Student Loans 4.4
Water/Sewer Utilities - Municipal 4.2
Electric/Gas Utilities - Municipal 4.0
Single-Family Housing 3.0
Paper & Forest Products 2.8
Buildings 2.7
Special Assessment/Tax/Fee 2.6
Real Estate Tax/Free 2.3
Containers - Paper 2.2
Airport/Port 2.0
Nursing/Continuing Care Centers 1.5
Chemicals 1.4
Sales Tax 1.4
Agricultural Products 1.3
Other 3.1
------
Total 98.9%
======
PORTFOLIO SUMMARY BY STATE
- -----------------------------
Alabama .1%
Alaska .6
Arizona 1.8
California 18.4
Colorado .4
Connecticut 1.1
District of Columbia 2.6
Florida 2.9
Georgia 1.6
Guam 3.0
Hawaii .5
Idaho .4
Illinois 4.3
Indiana 3.6
Louisiana 6.8
Maine 1.4
Massachusetts 3.3
Michigan 2.0
Minnesota 2.0
Mississippi 1.8
Nebraska .2
New Jersey .3
New York 16.0
North Carolina 1.1
Ohio .6
Oklahoma 1.9
Oregon .2
Pennsylvania 5.5
Puerto Rico 2.7
Tennessee 1.5
Texas 7.1
Virginia .3
West Virginia 2.0
Wisconsin .2
Wyoming .7
-----
Total 98.9%
=====
USAA TAX EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Coupon Final Market
Amount Security Rate Maturity Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (68.8%)
Alabama (1.4%)
$ 9,500 Evergreen Board IDRB, Series 1985 (CRE) 3.65% 12/01/04 $ 9,500
12,000 Mobile IDB PCRB, Series 1993C 4.07 8/01/17 12,000
Alaska (0.2%)
3,200 Alaska IDA RB, Series 1986 (CRE) 3.70 6/01/06 3,200
Arizona (0.8%)
5,000 Maricopa County PCRB, Series 1985A (CRE) 3.60 8/01/15 5,000
7,100 Pinal County IDA RB, Series 1995 (CRE) 3.80 12/01/22 7,100
1,000 Tucson IDA MFH RB, Series 1989 (CRE) 4.75 2/01/06 1,000
California (3.9%)
2,245 Central Unified School District COP, Series 1995 (CRE) 4.10 6/01/15 2,245
4,645 Fillmore COP, Series 1997 (CRE) 4.35 5/01/29 4,645
6,950 Livermore MFH RB, Series 1990A (CRE) 4.10 5/01/20 6,950
Orange County Apartment Development RB,
1,400 Series 1984E (CRE) 5.00 11/01/08 1,400
5,100 Series 1985D (CRE) 5.00 4/01/06 5,100
Sacramento County MFH RB,
19,100 Series 1985A (CRE) 4.60 4/15/07 19,100
5,500 Series 1985B (CRE) 4.60 4/15/07 5,500
10,000 Series 1985C (CRE) 4.60 4/15/07 10,000
7,900 San Diego MFH RB, Series 1993A (CRE) 4.00 12/01/15 7,900
Colorado (1.9%)
9,000 Avon IDRB, Series 1984 (CRE) 3.85 12/15/14 9,000
9,000 Educational & Cultural Facilities RB, Series 1998 (CRE) 4.10 8/01/13 9,000
1,940 Health Facilities Auth. RB, Series 1996A (CRE) 4.10 12/01/16 1,940
Postsecondary Educational Facilities Auth. RB,
4,665 Series 1997 (CRE) 4.05 8/01/17 4,665
4,000 Series 1998 (CRE) 4.05 4/01/13 4,000
2,200 Smith Creek Metropolitan District RB, Series 1997 (CRE) 3.75 10/01/35 2,200
Connecticut (0.1%)
2,325 Development Auth. IDRB, Series 1984 (CRE) 4.25 12/01/04 2,325
District of Columbia (1.0%)
5,700 Catholic University of America RB, Series 1989A (CRE) 4.65 12/01/09 5,700
4,000 Housing Finance Agency MFH RB, Series 1985A (CRE) 4.55 12/01/05 4,000
Revenue Bonds,
3,000 Series 1985 (CRE) 3.60 3/01/06 3,000
3,000 Series 1985A (CRE) 3.60 3/01/06 3,000
Florida (6.9%)
7,385 Atlantic Beach Improvement and Refunding RB,
Series 1994B (CRE) 4.20 10/01/24 7,385
700 Brevard County Housing Finance Auth. MFH RB,
Series 1993 (CRE) 4.10 7/01/05 700
2,855 Broward County Housing Finance Auth. MFH RB,
Series 1990 (CRE) 3.70 10/01/07 2,855
10,960 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 4.20 9/01/20 10,960
1,500 Dade County IDA RB, Series 1996 (CRE) 4.05 10/01/16 1,500
Housing Finance Agency MFH RB,
14,700 Series 1985 EE (CRE) 3.65 9/01/08 14,700
5,000 Series 1985BB (CRE) 3.75 8/01/08 5,000
4,000 Series 1985C (CRE) 4.10 8/01/06 4,000
3,300 Series 1985GGG (CRE) 4.85 12/01/08 3,300
17,200 Series 1985U (CRE) 3.65 7/01/08 17,200
7,740 Series 1990D (CRE) 3.70 12/01/09 7,740
Jacksonville Hospital RB,
8,000 Series 1988 (CRE) 5.00 2/01/18 8,000
8,900 Series 1989 (CRE) 5.00 2/01/19 8,900
15,000 Orange County Health Facilities Auth. RB (CRE) 4.05 11/01/28 15,000
2,950 Palm Beach County Housing Finance Auth.
MFH RB, Series 1988D (CRE) 3.60 11/01/07 2,950
Georgia (1.5%)
8,330 Clayton County MFH RB, Series 1989 (CRE) 3.95 11/01/06 8,330
12,310 De Kalb County Development Auth. PCRB, Series 1985 3.90 11/01/03 12,310
3,090 Peachtree Development Auth. RB, Series 1988 (CRE) 3.90 7/01/10 3,090
Illinois (2.1%)
5,500 Chicago Tax Increment Allocation RB, Series 1996B (CRE) 3.65 12/01/14 5,500
14,700 Development Finance Auth. MFH RB, Series 1993 (CRE) 4.20 12/01/13 14,700
10,000 Development Finance Auth. RB, Series 1993C-1 4.10 8/15/26 10,000
1,605 Evanston IDRB, Series 1985 (CRE) 4.05 1/01/15 1,605
205 Health Facilities Auth. RB, Series 1985C (CRE) 3.95 10/01/15 205
1,990 Winnebago County Health Care Facility RB,
Series 1996 (CRE) 4.15 1/01/17 1,990
Indiana (1.0%)
7,010 Bond Bank Adjustable Rate Special Program RB,
Series 1997D (CRE) 4.05 1/01/17 7,010
1,300 Huntington Industrial Economic Development RB,
Series 1990 3.80 6/26/14 1,300
4,750 Indianapolis Economic Development RB,
Series 1997 (CRE) 4.05 5/01/18 4,750
3,500 State Development Finance Auth. RB,
Series 1996 (CRE) 3.50 7/01/26 3,500
Iowa (1.0%)
5,000 Louisa County PCRB, Series A 3.95 9/01/16 5,000
7,000 Ottumwa Purchase RB, Series 1998 (CRE) 4.00 10/01/06 7,000
4,000 Woodbury County Educational Facility RB,
Series 1996 (CRE) 4.00 11/01/16 4,000
Kansas (4.0%)
56,500 Burlington Environmental Improvement RB, Series 1998A 3.70 9/01/15 56,500
3,550 Overland Park RB, Series 1996 3.90 11/01/01 3,550
3,400 Wichita Health Systems RB, Series 1985XXV (CRE) 4.55 10/01/11 3,400
Kentucky (0.7%)
2,000 Frankfort Economic Development RB, Series 1990 3.80 5/07/14 2,000
9,490 Hancock County Industrial Building RB,
Series 1991 (CRE) 4.25 7/01/11 9,490
Louisiana (2.6%)
1,550 Ascension Parish PCRB, Series 1990 3.80 9/01/10 1,550
8,800 Delhi Industrial Development Refunding RB, Series 1996 3.65 12/01/12 8,800
Housing Finance Agency MFH RB,
7,075 Series 1988A (CRE) 5.30 1/01/26 7,075
9,095 Series 1988B (CRE) 5.30 12/01/25 9,095
6,200 Public Facilities Auth. IDRB, Series 1996 (CRE) 3.90 12/01/14 6,200
8,700 Public Facilities Auth. MFH RB, Series 1988 (CRE) 4.20 12/01/13 8,700
Maryland (2.0%)
6,000 Anne Arundel County Economic Development RB,
Series A (CRE) 4.00 12/01/15 6,000
Montgomery County MFH RB,
6,400 1985 Issue B (CRE) 3.55 8/01/15 6,400
20,200 1993 Issue I (CRE) (g) 3.63 11/01/20 20,200
Massachusetts (0.4%)
5,815 Industrial Finance Agency RB, Series 1997 (CRE) 3.93 5/01/27 5,815
Michigan (3.1%)
24,200 Detroit Downtown Development Auth. RB (CRE) 5.10 12/01/10 24,200
5,300 Grand Rapids IDRB (CRE) 4.10 1/01/10 5,300
7,300 Job Development Auth. PCRB, Series 1996 (CRE) 4.90 10/01/08 7,300
13,000 State Hospital Finance Auth. RB, Series A (CRE) 3.55 12/01/23 13,000
Minnesota (0.3%)
4,100 Hastings Hospital RB, Series 1988 (CRE) 3.70 11/01/13 4,100
Mississippi (0.3%)
4,447 Hinds County Urban Renewal RN, Series 1991 (CRE) 4.00 1/01/07 4,447
Missouri (1.8%)
Clayton IDA RB,
5,700 Series 1994A (CRE) 4.30 12/01/06 5,700
5,750 Series 1994B (CRE) 4.30 2/01/07 5,750
8,000 Series 1995C (CRE) 4.30 5/01/05 8,000
2,700 St. Louis IDA RB, Series 1997 (CRE) 4.35 8/30/99 2,700
6,000 State Health And Educational Facilities Auth. RB,
Series 1998 (CRE) 4.05 7/01/23 6,000
1,000 West Plains IDA, Series 1986 (CRE) 4.35 11/01/10 1,000
New Hampshire (1.0%)
2,900 Housing Finance Auth. MFH RB, Series 1990 (CRE) 3.70 7/01/06 2,900
12,505 Manchester Housing Auth. MFH RB, Series 1990A (CRE) 4.10 6/15/15 12,505
New Mexico (0.4%)
6,800 Farmington PCRB, Series 1994A (CRE) 3.60 11/01/13 6,800
New York (0.6%)
9,485 Ramapo Housing Auth. RB, Series 1998 (CRE) 4.01 12/01/29 9,485
North Carolina (0.2%)
3,300 Buncombe County Industrial Facilities Financing
Auth. IDRB, Series 1996 3.80 11/01/06 3,300
Ohio (2.7%)
6,000 Clark County IDA RB (CRE) 4.25 12/01/10 6,000
22,000 Clinton County Hospital RB, Series 1998 (CRE) 3.65 6/01/28 22,000
10,500 Franklin County Hospital RB, Series 1996C (CRE) 4.00 12/01/11 10,500
4,800 Stark County IDRB, Series 1984 (CRE) 4.20 9/01/01 4,800
Oklahoma (0.7%)
5,000 Muskogee Industrial Trust PCRB, Series 1995A 3.55 1/01/25 5,000
Muskogee Industrial Trust RB,
2,860 Series 1985, Muskogee Mall Project (CRE) 4.10 12/01/15 2,860
2,500 Series 1985, Warmack-Muskogee Project (CRE) 4.10 12/01/15 2,500
Oregon (5.7%)
Medford Hospital Facilities Auth. RB,
13,500 Series 1985 (CRE) 3.80 12/01/15 13,500
16,300 Series 1991 (CRE) 3.80 5/01/21 16,300
23,355 Series 1997 (CRE) 3.80 5/15/27 23,355
38,100 Port of Portland Public Grain Elevator RB,
Series 1984 (CRE) 4.63 12/01/14 38,100
Pennsylvania (9.5%)
8,000 Allegheny County Higher Education Building Auth. RB,
Series 1998B (CRE) 4.05 9/01/28 8,000
Allegheny County Hospital Development Auth. RB,
1,000 Series 1998A (CRE) 3.90 3/01/99 1,000
14,200 Series 1998B (CRE) 3.90 3/01/07 14,200
15,100 Series 1998C (CRE) 3.90 3/01/13 15,100
12,980 Series 1998D (CRE) 3.90 3/01/18 12,980
1,750 Allegheny County IDA RB, Series 1994 (CRE) 4.20 12/01/08 1,750
2,400 Chester County IDA RB, Series 1996 3.85 8/01/01 2,400
3,500 Clinton County IDA RB, Series 1985 (CRE) 3.90 9/01/05 3,500
69,000 Harrisburg Auth. RB, Series 1996 (CRE) (g) 4.08 7/01/21 69,000
23,400 Higher Educational Facilities Auth. RB,
Series 1996 (CRE) 4.35 11/15/35 23,400
South Carolina (0.6%)
3,500 Educational Facilities Auth. RB, Series 1998 (CRE) 4.05 9/01/18 3,500
3,000 Jobs Economic Development Auth. RB, Series 1998 (CRE) 4.05 9/01/16 3,000
2,400 Sumter County IDRB, Series 1982 (CRE) 4.13 12/01/02 2,400
Tennessee (1.0%)
1,500 Maryville IDB Education RB, Series 1997B (CRE) 4.30 8/01/02 1,500
14,205 Nashville and Davidson County IDB RB, Series 1995 (CRE) 3.85 11/01/12 14,205
Texas (4.1%)
10,520 Amarillo Health Facilities Corp. RB, Series 1985 (CRE) 3.70 5/31/25 10,520
5,915 Arlington IDC RB, Series 1985 (CRE) 4.40 10/01/20 5,915
4,730 Bell County Health Facilities Development Corp. RB,
Series 1998 (CRE) 4.05 5/01/23 4,730
Bexar County Housing Finance Corp. MFH RB,
1,200 Series 1988A (CRE) 3.55 8/01/06 1,200
285 Series 1988B (CRE) 3.55 6/01/05 285
3,300 Harris County Housing Finance Corp. MFH RB,
Series 1988A (CRE) 3.63 6/01/05 3,300
2,300 Health Facilities Development Corp. Hospital RB,
Series 1985A (CRE) 3.80 5/31/25 2,300
9,000 Health Facilities Development Corp. RB,
Series 1985B (CRE) 3.80 8/01/25 9,000
4,295 Matagorda County Hospital District RB,
Series 1988 (CRE) 4.30 8/01/18 4,295
2,070 Metropolitan Higher Education Auth. RB,
Series 1984 (CRE) 4.85 12/01/04 2,070
1,130 North Central IDA RB, Series 1983 3.80 10/01/13 1,130
4,050 Nueces River Auth. PCRB, Series 1985 (CRE) 4.20 12/01/99 4,050
4,600 Port Arthur Navigation District IDC PCRB,
Series 1985 (CRE) 4.20 5/01/03 4,600
6,750 Tarrant County Health Facilities Development
Auth. RB, Series 1998 (CRE) 4.05 12/01/23 6,750
4,500 Tarrant County Housing Finance Corp. MFH RB,
Series 1985 (CRE) 3.70 12/01/25 4,500
Utah (1.0%)
7,600 Ogden City Industrial Development RB, Series 1986 (CRE) 3.80 9/01/13 7,600
Provo Housing MFH RB,
3,700 Series 1987A (CRE) 5.50 12/01/10 3,700
5,000 Series 1987A (CRE) 5.50 12/15/10 5,000
Virginia (1.8%)
2,500 Chesterfield County IDA PCRB, Series 1993 3.80 8/01/09 2,500
Henrico County IDA RB,
9,985 Series 1994 (CRE) 4.20 5/01/24 9,985
4,935 Series 1994 (CRE) 4.20 8/01/24 4,935
6,800 Housing Development Auth. RB, Series 1987A (CRE) 4.25 9/01/17 6,800
3,760 Roanoke IDA RB, Series 1994 3.80 12/01/13 3,760
Washington (2.4%)
1,660 Seattle IDA RB, Series 1989-I, Lot 1 (CRE) 4.55 8/01/04 1,660
36,000 Student Loan Finance Association RB,
Series 1985-2nd (CRE) 4.65 1/01/01 36,000
Wisconsin (0.1%)
1,645 Green Bay IDRB, Series 1998 (CRE) 4.05 7/01/13 1,645
----------
Total variable rate demand notes (cost: $1,096,292) 1,096,292
----------
PUT BONDS (16.7%)
Alabama (0.9%)
15,000 Montgomery IDB PCRB, Series 1990 4.20 9/15/06 15,000
California (3.6%)
Higher Education Loan Auth. RB,
20,825 Series 1987A (CRE) 3.80 6/01/01 20,825
12,250 Series 1987B (CRE) 3.65 7/01/02 12,250
25,000 Student Education Loan Marketing Corp. RB,
Series 1993A (CRE) 3.85 11/01/02 25,000
Florida (0.9%)
1,750 Housing Finance Agency MFH RB, Series C (CRE) 3.85 11/01/07 1,750
9,900 Jacksonville PCRB, Series 1994 3.40 9/01/24 9,900
1,825 Tampa Guaranteed Entitlement RB, Series 1988B (a) 8.50 10/01/18 1,825
Illinois (4.0%)
Health Facilities Auth. RB,
11,000 Series 1985B 3.55 8/16/15 11,000
10,000 Series 1988 3.70 8/15/10 10,000
8,000 Series 1990A (CRE) 3.75 2/01/19 8,000
20,000 Series 1995 3.80 6/01/30 20,000
14,000 Series 1996 3.70 8/15/30 14,000
Kentucky (0.3%)
5,500 Lexington-Fayette Urban County RB, Series 1987 (CRE) 3.70 4/01/15 5,500
Maine (0.2%)
2,500 Housing Auth. RB, Series A-2 (CRE) 3.80 11/15/15 2,500
Montana (1.2%)
Board of Investments Municipal Finance Consolidation
Act Bonds,
2,875 Series 1992 (CRE) 3.60 3/01/05 2,875
6,795 Series 1995 (CRE) 3.60 3/01/10 6,795
9,930 Series 1997 (CRE) 3.60 3/01/17 9,930
New Hampshire (0.5%)
7,205 IDA Resources Recovery RB, Series 1985 (CRE) (1) 3.75 7/01/07 7,205
Ohio (1.4%)
Cleveland Subordinated CP Notes,
12,200 Series 1994 (CRE) 3.40 5/15/24 12,200
10,000 Series 1994 (CRE) 3.35 5/15/24 10,000
Oregon (3.1%)
Klamath Falls Electric RB,
40,880 Series 1986B 3.80 5/03/23 40,880
8,000 Series 1986E 3.80 5/03/23 8,000
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
Wyoming (0.1%)
2,100 Rock Springs IDRB, Series 1992 (CRE) 3.65 3/01/02 2,100
---------
Total put bonds (cost: $265,745) 265,745
---------
FIXED RATE INSTRUMENTS (14.5%)
Arkansas (0.1%)
2,000 Little Rock School District of Pulaski County TRAN 4.25 12/30/98 2,003
Connecticut (0.2%)
3,650 New Haven GO BAN 3.85 2/01/99 3,655
Florida (0.4%)
6,300 Jacksonville CP Notes, Series A 3.40 12/07/98 6,300
Iowa (0.5%)
Higher Education RAN,
3,500 Series 1998B (CRE) 4.25 7/07/99 3,514
3,000 Series 1998C 4.25 7/07/99 3,012
1,300 Series 1998D (CRE) 4.25 7/07/99 1,306
Kansas (0.9%)
Wyandotte County/Kansas City Municipal Temporary Notes,
2,200 Series MMM 3.70 8/01/99 2,200
1,295 Series DDD 3.70 8/01/99 1,294
690 Series EEE 3.75 8/01/99 690
1,000 Series QQQ 3.70 8/01/99 999
1,263 Series RRR 3.70 8/01/99 1,262
1,050 Series S 3.70 8/01/99 1,049
482 Series SSS 3.75 8/01/99 482
3,205 Series VV 3.70 8/01/99 3,203
2,400 Series YY 3.70 8/01/99 2,399
Louisiana (0.2%)
3,185 Public Facilities Auth. Advance Funding Notes,
Series 1997A 4.40 10/29/98 3,186
Massachusetts (0.8%)
5,000 Everett City GO BAN (CRE) 4.00 3/18/99 5,009
3,370 Springfield GO BAN (CRE) 4.00 6/25/99 3,377
4,600 Springfield GO BAN (CRE) 4.00 9/02/99 4,618
Nevada (0.2%)
3,500 Las Vegas Valley Water District CP Notes, Series A (CRE) 3.60 12/04/98 3,500
New Hampshire (0.3%)
5,500 GO BAN, Series 1998 3.65 11/10/98 5,500
New Jersey (2.8%)
44,370 Jersey City BAN 4.00 9/17/99 44,605
New York (0.9%)
3,171 Dormitory Auth RB, Series 1989A (CRE) 4.35 10/06/98 3,171
10,788 Oneida County GO BAN, Series 1998 4.00 4/23/99 10,801
North Carolina (1.1%)
18,110 Municipal Power Agency, No.1 CP, Series A (CRE) 3.60 12/04/98 18,110
Rhode Island (0.4%)
5,500 State Resource Recovery Corp. Landfill
Lease Notes, Series 1998A 4.00 7/30/99 5,513
Texas (4.2%)
2,000 Allen ISD TRAN, Series 1998 3.88 8/31/99 2,006
Dallas Area Rapid Transit CP Notes,
8,400 Series A (CRE) 3.65 12/14/98 8,400
7,750 Series B (CRE) 3.65 11/18/98 7,750
8,000 Dallas Waterworks and Sewer System CP Notes 3.55 11/23/98 8,000
5,000 Public Financing Auth. CP Notes, Series B 3.30 12/08/98 5,000
San Antonio Water Systems CP,
13,000 Series 1995 3.60 10/16/98 13,000
22,000 Series 1995 3.60 12/11/98 22,000
Virginia (1.3%)
20,000 Norfolk IDA RN, Series 1998 3.40 12/07/98 20,000
Wisconsin (0.2%)
3,425 Glendale Riverhills School District TRAN 4.00 8/20/99 3,437
-----------
Total fixed rate instruments (cost: $230,351) 230,351
-----------
Total investments (cost: $1,592,388) $1,592,388
===========
</TABLE>
PORTFOLIO SUMMARY BY INDUSTRY
-------------------------------
Multi-Family Housing 17.4%
Hospitals 15.9
General Obligations 8.0
Electric Utilities 6.9
Nursing/Continuing Care Centers 6.7
Finance - Municipal 6.2
Education 5.9
Electric/Gas Utilities - Municipal 4.2
Water/Sewer Utilities - Municipal 3.7
Student Loans 3.7
Buildings 2.4
Agricultural Products 2.4
Manufacturing - Diversified Industries 2.3
Healthcare - Miscellaneous 2.0
Automobiles 1.6
Lodging/Hotel 1.4
Sales Tax 1.0
Other 8.3
------
Total 100.0%
======
PORTFOLIO SUMMARY BY STATE
- -----------------------------
Alabama 2.3%
Alaska .2
Arizona .8
Arkansas .1
California 7.6
Colorado 1.9
Connecticut .4
District of Columbia 1.0
Florida 8.2
Georgia 1.5
Illinois 6.1
Indiana 1.0
Iowa 1.5
Kansas 4.8
Kentucky 1.1
Louisiana 2.8
Maine .2
Maryland 2.1
Massachusetts 1.2
Michigan 3.1
Minnesota .3
Mississippi .3
Missouri 1.8
Montana 1.2
Nevada .2
New Hampshire 1.8
New Jersey 2.8
New Mexico .4
New York 1.5
North Carolina 1.3
Ohio 4.1
Oklahoma .7
Oregon 8.8
Pennsylvania 10.0
Rhode Island .3
South Carolina .6
Tennessee 1.0
Texas 8.2
Utah 1.0
Virginia 3.0
Washington 2.4
Wisconsin .3
Wyoming .1
------
Total 100.0%
======
NOTES TO PORTFOLIOS OF INVESTMENTS
September 30, 1998
(Unaudited)
GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
SPECIFIC NOTES
(a) Prerefunded to various dates prior to maturity at the call price.
(b) Zero Coupon security. Rate represents the effective yield at date of
purchase. For the USAA Long-Term, USAA Intermediate-Term, and USAA Short-Term
Funds, these securities represented 3.1%, 10.5%, and 4.9% of the Funds' net
assets, respectively.
(c) At September 30, 1998, the cost of securities purchased on a delayed
delivery basis for the USAA Intermediate-Term Fund was $9.8 million.
(d) Adjustable rate security. 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. For the USAA
Intermediate-Term and USAA Short-Term Funds, these securities represented 0.2%
and 1.6% of the Funds' net assets, respectively.
(f) At September 30, 1998, these securities were segregated to cover delayed
delivery purchases.
(g) 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 2.0%, 1.7%, 1.1%, and 5.6% of the USAA Long-Term, USAA
Intermediate-Term, USAA Short-Term, and USAA Tax Exempt Money Market Funds' net
assets, respectively.
See accompanying notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
USAA USAA
LONG-TERM INTERMEDIATRE-TERM
FUND FUND
-----------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market value
(identified cost of $1,932,355 and
$2,035,521, respectively) $ 2,142,759 $ 2,205,822
Cash 269 417
Receivables:
Capital shares sold 752 1,148
Interest 33,340 31,239
-----------------------------------------
Total assets 2,177,120 2,238,626
-----------------------------------------
LIABILITIES
Securities purchased -- 9,917
Capital shares redeemed 303 506
USAA Investment Management Company 494 505
USAA Transfer Agency Company 82 88
Accounts payable and accrued expenses 78 119
Dividends on capital shares 2,841 2,119
-----------------------------------------
Total liabilities 3,798 13,254
-----------------------------------------
Net assets applicable to
capital shares outstanding $ 2,173,322 $ 2,225,372
=========================================
REPRESENTED BY:
Paid-in capital $ 1,986,333 $ 2,055,860
Accumulated net realized loss on investments (23,415) (789)
Net unrealized appreciation of investments 210,404 170,301
-----------------------------------------
Net assets applicable to
capital shares outstanding $ 2,173,322 $ 2,225,372
=========================================
Capital shares outstanding 152,484 163,691
=========================================
Authorized shares of $.01 par value 290,000 302,000
=========================================
Net asset value, redemption price,
and offering price per share $ 14.25 $ 13.59
=========================================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
USAA USAA TAX EXEMPT
SHORT-TERM MONEY MARKET
FUND FUND
-----------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market value
(identified cost of $956,612 and
$1,592,388, respectively) $ 981,100 $ 1,592,388
Cash 1,187 2,795
Receivables:
Capital shares sold 178 3,557
Interest 12,428 8,148
-----------------------------------------
Total assets 994,893 1,606,888
-----------------------------------------
LIABILITIES
Securities purchased 703 8,247
Capital shares redeemed 1,565 5,034
USAA Investment Management Company 228 367
USAA Transfer Agency Company 49 76
Accounts payable and accrued expenses 100 118
Dividends on capital shares 574 177
-----------------------------------------
Total liabilities 3,219 14,019
-----------------------------------------
Net assets applicable to
capital shares outstanding $ 991,674 $ 1,592,869
=========================================
REPRESENTED BY:
Paid-in capital $ 970,696 $ 1,592,869
Accumulated net realized loss on investments (3,510) --
Net unrealized appreciation of investments 24,488 --
-----------------------------------------
Net assets applicable to
capital shares outstanding $ 991,674 $ 1,592,869
=========================================
Capital shares outstanding 91,854 1,592,869
=========================================
Authorized shares of $.01 par value 190,000 3,235,000
=========================================
Net asset value, redemption price, and
offering price per share $ 10.80 $ 1.00
=========================================
</TABLE>
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 1998
(Unaudited)
USAA USAA
Long-Term Intermediate-Term
Fund Fund
------------------------------
Net investment income:
Interest income $ 61,003 $ 59,314
------------------------------
Expenses:
Management fees 2,940 2,951
Transfer agent's fees 487 516
Custodian's fees 122 144
Postage 34 35
Shareholder reporting fees 24 21
Directors' fees 2 2
Registration fees 102 58
Professional fees 16 16
Other 25 23
------------------------------
Total expenses 3,752 3,766
------------------------------
Net investment income 57,251 55,548
------------------------------
Net realized and unrealized gain on investments:
Net realized gain 9,442 1,686
Change in net unrealized
appreciation/depreciation 29,442 33,090
------------------------------
Net realized and unrealized gain 38,884 34,776
------------------------------
Increase in net assets resulting from operations $ 96,135 $ 90,324
==============================
See accompanying notes to financial statements.
USAA USAA Tax Exempt
Short-Term Money Market
Fund Fund
------------------------------
Net investment income:
Interest income $ 24,196 $ 30,321
------------------------------
Expenses:
Management fees 1,368 2,239
Transfer agent's fees 288 448
Custodian's fees 93 174
Postage 30 52
Shareholder reporting fees 24 44
Directors' fees 2 2
Registration fees 41 38
Professional fees 16 21
Other 11 19
------------------------------
Total expenses 1,873 3,037
------------------------------
Net investment income 22,323 27,284
------------------------------
Net realized and unrealized gain on investments:
Net realized gain 93 --
Change in net unrealized
appreciation/depreciation 5,561 --
------------------------------
Net realized and unrealized gain 5,654 --
------------------------------
Increase in net assets resulting from operations $ 27,977 $ 27,284
==============================
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
USAA LONG-TERM FUND
(IN THOUSANDS)
Six-month period ended September 30, 1998
and Year ended March 31, 1998
(Unaudited)
9/30/98 3/31/98
------------------------------
From operations:
Net investment income $ 57,251 $ 111,054
Net realized gain on investments 9,442 14,265
Change in net unrealized appreciation/
depreciation of investments 29,442 97,208
------------------------------
Increase in net assets resulting
from operations 96,135 222,527
------------------------------
Distributions to shareholders from:
Net investment income (57,251) (111,054)
------------------------------
From capital share transactions:
Proceeds from shares sold 342,528 573,375
Dividend reinvestments 40,221 77,758
Cost of shares redeemed (290,836) (542,517)
------------------------------
Increase in net assets from
capital share transactions 91,913 108,616
------------------------------
Net increase in net assets 130,797 220,089
Net assets:
Beginning of period 2,042,525 1,822,436
------------------------------
End of period $2,173,322 $2,042,525
==============================
Change in shares outstanding:
Shares sold 24,475 41,889
Shares issued for dividends reinvested 2,865 5,652
Shares redeemed (20,777) (39,515)
------------------------------
Increase in shares outstanding 6,563 8,026
==============================
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
USAA INTERMEDIATE-TERM FUND
(IN THOUSANDS)
Six-month period ended September 30, 1998
and Year ended March 31,1998
(Unaudited)
9/30/98 3/31/98
------------------------------
From operations:
Net investment income $ 55,548 $ 101,444
Net realized gain on investments 1,686 550
Change in net unrealized appreciation/
depreciation of investments 33,090 84,518
------------------------------
Increase in net assets resulting
from operations 90,324 186,512
------------------------------
Distributions to shareholders from:
Net investment income (55,548) (101,444)
------------------------------
From capital share transactions:
Proceeds from shares sold 225,902 372,339
Dividend reinvestments 42,972 78,233
Cost of shares redeemed (117,783) (221,819)
------------------------------
Increase in net assets from
capital share transactions 151,091 228,753
------------------------------
Net increase in net assets 185,867 313,821
Net assets:
Beginning of period 2,039,505 1,725,684
------------------------------
End of period $2,225,372 $2,039,505
==============================
Change in shares outstanding:
Shares sold 16,862 28,210
Shares issued for dividends reinvested 3,203 5,927
Shares redeemed (8,794) (16,867)
------------------------------
Increase in shares outstanding 11,271 17,270
==============================
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSESTS (CONTINUED)
USAA SHORT-TERM FUND
(IN THOUSANDS)
Six-month period ended September 30, 1998
and Year ended March 31, 1998
(Unaudited)
9/30/98 3/31/98
------------------------------
From operations:
Net investment income $ 22,323 $ 39,878
Net realized gain on investments 93 5
Change in net unrealized appreciation/
depreciation of investments 5,561 13,208
------------------------------
Increase in net assets resulting
from operations 27,977 53,091
------------------------------
Distributions to shareholders from:
Net investment income (22,323) (39,878)
------------------------------
From capital share transactions:
Proceeds from shares sold 186,172 437,289
Dividend reinvestments 18,862 33,473
Cost of shares redeemed (189,819) (318,067)
------------------------------
Increase in net assets from
capital share transactions 15,215 152,695
------------------------------
Net increase in net assets 20,869 165,908
Net assets:
Beginning of period 970,805 804,897
------------------------------
End of period $ 991,674 $ 970,805
==============================
Change in shares outstanding:
Shares sold 17,355 40,893
Shares issued for dividends reinvested 1,757 3,130
Shares redeemed (17,689) (29,763)
------------------------------
Increase in shares outstanding 1,423 14,260
==============================
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
USAA TAX EXEMPT MONEY MARKET FUND
(IN THOUSANDS)
Six-month period ended September 30, 1998
and Year ended March 31, 1998
(Unaudited)
9/30/98 3/31/98
------------------------------
From operations:
Net investment income $ 27,284 $52,442
------------------------------
Distributions to shareholders from:
Net investment income (27,284) (52,442)
------------------------------
From capital share transactions:
Proceeds from shares sold 880,271 1,717,592
Dividend reinvestments 25,996 49,796
Cost of shares redeemed (945,183) (1,701,237)
------------------------------
Increase (decrease) in net assets from
capital share transactions (38,916) 66,151
------------------------------
Net increase (decrease) in net assets (38,916) 66,151
Net assets:
Beginning of period 1,631,785 1,565,634
------------------------------
End of period $1,592,869 $1,631,785
==============================
Change in shares outstanding:
Shares sold 880,271 1,717,592
Shares issued for dividends reinvested 25,996 49,796
Shares redeemed (945,183) (1,701,237)
------------------------------
Increase (decrease) in shares outstanding (38,916) 66,151
==============================
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA Tax Exempt Fund, Inc. (the Company), registered under the Investment
Company Act of 1940, as amended, is a diversified, open-end management
investment company incorporated under the laws of Maryland consisting of ten
separate funds. The information presented in this semiannual report pertains
only to the 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 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 six-month period ended
September 30, 1998, the USAA Long-Term Fund had six borrowings, averaging $11.7
million with an average length of two days, and incurred $17,000 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 September 30, 1998,
the USAA Long-Term, USAA Intermediate-Term, and USAA Short-Term Funds had
capital loss carryovers for federal income tax purposes of approximately
$23,415,000, $789,000, and $3,510,000, 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.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities for the
six-month period ended September 30, 1998 were as follows:
USAA USAA USAA USAA Tax Exempt
Long-Term Intermediate-Term Short-Term Money Market
Fund Fund Fund Fund
($000) ($000) ($000) ($000)
- --------------------------------------------------------------------------------
Purchases $ 318,883 $ 272,828 $ 55,847 $ 2,908,139
Sales/maturities $ 270,030 $ 135,079 $ 37,617 $ 2,915,019
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 September 30,
1998 was as follows:
USAA USAA USAA
Long-Term Intermediate-Term Short-Term
Fund Fund Fund
($000) ($000) ($000)
- --------------------------------------------------------------------------------
Appreciation $ 211,379 $ 170,514 $ 24,497
Depreciation (975) (213) (9)
- --------------------------------------------------------------------------------
Net $ 210,404 $ 170,301 $ 24,488
================================================================================
(5) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company (the Manager) carries
out each Fund's investment policies and manages each Fund's portfolio.
Management fees are computed at .28% of the average annual net assets of each
Fund.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Funds based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Funds' shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At September 30, 1998, the Association and its affiliates
owned 5.0 million shares (3.1%) 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
September 3, 1998
(Unaudited)
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 14.00 $ 13.22 $ 13.17 $ 12.96 $ 13.20 $ 14.21
Net investment income .38 .78 .79 .79 .79 .81
Net realized and
unrealized gain (loss) .25 .78 .05 .21 (.16) (.44)
Distributions from net
investment income (.38) (.78) (.79) (.79) (.78) (.82)
Distributions of realized
capital gains -- -- -- -- (.09) (.56)
----------------------------------------------------------------------------------
Net asset value at
end of period $ 14.25 $ 14.00 $ 13.22 $ 13.17 $ 12.96 $ 13.20
==================================================================================
Total return (%) * 4.59 12.04 6.51 7.88 5.07 2.36
Net assets at end
of period (000) $2,173,322 $2,042,525 $1,822,436 $1,804,116 $1,774,643 $1,831,693
Ratio of expenses to
average net assets (%) .36(a) .36 .37 .37 .38 .38
Ratio of net investment
income to average net
assets (%) 5.45(a) 5.65 5.95 5.99 6.23 5.69
Portfolio turnover (%) 13.04 35.20 40.78 53.25 64.72 109.28
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA INTERMEDIATE-TERM FUND
September 30, 1998
(Unaudited)
(7) FINANCIAL HIGHLIGHTS (CONTINUED)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 13.38 $ 12.77 $ 12.77 $ 12.50 $ 12.48 $ 12.90
Net investment income .35 .71 .72 .71 .69 .69
Net realized and unrealized
gain (loss) .21 .61 -- .27 .05 (.29)
Distributions from net
investment income (.35) (.71) (.72) (.71) (.69) (.69)
Distributions of realized
capital gains -- -- -- -- (.03) (.13)
----------------------------------------------------------------------------------
Net asset value at
end of period $ 13.59 $ 13.38 $ 12.77 $ 12.77 $ 12.50 $ 12.48
==================================================================================
Total return (%) * 4.28 10.59 5.80 7.97 6.16 3.06
Net assets at end
of period (000) $2,225,372 $2,039,505 $1,725,684 $1,660,039 $1,529,750 $1,559,183
Ratio of expenses to
average net assets (%) .36(a) .37 .37 .38 .40 .40
Ratio of net investment
income to average
net assets (%) 5.27(a) 5.42 5.65 5.54 5.63 5.30
Portfolio turnover (%) 6.52 7.87 23.05 27.51 27.26 69.45
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA SHORT-TERM FUND
September 30, 1998
(Unaudited)
(7) FINANCIAL HIGHLIGHTS (CONTINUED)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
---------------------------------------------------------
1998 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.74 $ 10.57 $ 10.57 $ 10.47 $ 10.48 $ 10.63
Net investment income .25 .49 .49 .50 .47 .45
Net realized and
unrealized gain (loss) .06 .17 -- .10 (.01) (.15)
Distributions from net
investment income (.25) (.49) (.49) (.50) (.47) (.45)
-------------------------------------------------------------------------
Net asset value at
end of period $ 10.80 $ 10.74 $ 10.57 $ 10.57 $ 10.47 $ 10.48
=========================================================================
Total return (%) * 2.88 6.35 4.70 5.83 4.51 2.87
Net assets at end
of period (000) $991,674 $970,804 $804,897 $774,020 $801,157 $995,624
Ratio of expenses to
average net assets (%) .38(a) .39 .41 .42 .42 .43
Ratio of net investment
income to average
net assets (%) 4.57(a) 4.57 4.60 4.73 4.50 4.25
Portfolio turnover (%) 4.73 7.91 27.67 35.99 32.61 101.67
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USAA TAX EXEMPT MONEY MARKET FUND
September 30, 1998
(Unaudited)
(7) FINANCIAL HIGHLIGHTS (CONTINUED)
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
September 30, Year Ended March 31,
---------------------------------------------------------
1998 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .02 .03 .03 .04 .03 .02
Distributions from net
investment income (.02) (.03) (.03) (.04) (.03) (.02)
-------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========================================================================
Total return (%) * 1.72 3.48 3.30 3.65 2.98 2.31
Net assets at end
of period (000) $1,592,869 $1,631,785 $1,565,634 $1,529,176 $1,456,747 $1,569,760
Ratio of expenses to
average net assets (%) .38(a) .38 .39 .40 .39 .40
Ratio of net investment
income to average
net assets (%) 3.41(a) 3.42 3.25 3.59 2.93 2.29
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gain 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 Hours
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
