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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 19
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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<PAGE> PAGE 26
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<PAGE> PAGE 27
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 33
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<PAGE> PAGE 34
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<PAGE> PAGE 35
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<PAGE> PAGE 36
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<PAGE> PAGE 37
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<PAGE> PAGE 38
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<PAGE> PAGE 39
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<PAGE> PAGE 40
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<PAGE> PAGE 41
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<PAGE> PAGE 42
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SIGNATURE MARK S. HOWARD
TITLE ASSISTANT SECRETARY
KPMG
112 East Pecan, Suite 2400 Telephone 210 227 9272
San Antonio, TX 78205-1585 Fax 210 224 0126
210 227 4707
INDEPENDENT AUDITORS' REPORT
The Shareholders and the Board of Directors
USAA Tax Exempt Fund, Inc.:
In planning and performing our audits of the financial statements of the USAA
Long-Term Fund, USAA Intermediate-Term Fund, USAA Short-Term Fund, USAA Tax
Exempt Money Market Fund, USAA California Bond Fund, USAA California Money
Market Fund, USAA Virginia Bond Fund, USAA Virginia Money Market Fund, USAA New
York Bond Fund and USAA New York Money Market Fund, series of USAA Tax Exempt
Fund, Inc., for the year ended March 31, 2000, we considered internal control,
including control activities for safeguarding securities, in order to determine
our auditing procedures for the purpose of expressing our opinions on the
financial statements and to comply with the requirements of Form N-SAR, not to
provide assurance on internal control.
The management of USAA Tax Exempt Fund, Inc. is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of controls. Generally, controls that are relevant to an audit pertain to
the entity's objective of preparing financial statements for external purposes
that are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use, or disposition.
Because of inherent limitations in internal control, error or fraud may occur
and not be detected. Also, projection of any evaluation of internal control to
future periods is subject to the risk that it may become inadequate because of
changes in conditions or that the effectiveness of the design and operation may
deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more
of the internal control components does not reduce to a relatively low level the
risk that misstatements caused by error or fraud in amounts that would be
material in relation to the financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
internal control and its operation, including controls for safeguarding
securities, that we consider to be material weaknesses, as defined above, as of
March 31, 2000.
This report is intended solely for the information and use of management, the
Board of Directors of USAA Tax Exempt Fund, Inc., and the Securities and
Exchange Commission and is not intended to be and should not be used by anyone
other than these specified parties.
KPMG LLP
May 5, 2000
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