Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Independent Auditors' Report 8
Statement of Assets and Liabilities 9
Portfolio of Investments in Securities 10
Notes to Portfolio of Investments in Securities 18
Statement of Operations 19
Statements of Changes in Net Assets 20
Notes to Financial Statements 21
Important Information:
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are now "streamlined."
One copy of each report will be sent to each address, instead of our previous
practice of sending one report 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 Money Market
Fund, 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) 1996, USAA. All rights reserved.
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the performance
of our other funds. This summary is a snapshot of the performance of all 33
funds by investment objective as of June 30, 1996.
<TABLE>
<CAPTION>
Average Annual Total Return*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 54.74 19.89 11.69 -
Emerging Markets(1) 11/7/94 13.17 - - 7.33
Gold(1) 8/15/84 7.30 7.62 6.05 -
Growth 4/5/71 22.12 15.53 11.13 -
Growth & Income 6/1/93 23.95 - - 14.68
International(1) 7/11/88 19.63 14.36 - 10.57
S&P 500 Index(4) 5/1/96 - - - 4.58
World Growth(1) 10/1/92 20.11 - - 13.87
Asset Allocation
Balanced Strategy 9/1/95 - - - 6.48
Cornerstone Strategy(1) 8/15/84 17.19 12.44 11.56 -
Growth and Tax Strategy(2)** 1/11/89 15.43 10.31 - 9.77
Growth Strategy(1) 9/1/95 - - - 23.85
Income Strategy 9/1/95 - - - 4.68
Income - Taxable
GNMA 2/1/91 4.23 7.63 - 7.36
Income 3/4/74 6.13 8.92 9.42 -
Income Stock 5/4/87 19.22 13.77 - 12.26
Short-Term Bond 6/1/93 5.51 - - 5.05
Income - Tax Exempt
Long-Term(2)** 3/19/82 6.74 7.36 7.74 -
Intermediate-Term(2)** 3/19/82 6.19 7.25 7.29 -
Short-Term(2)** 3/19/82 5.19 5.18 5.55 -
California Bond(2)** 8/1/89 8.36 7.59 - 7.39
Florida Tax-Free Income(2)** 10/1/93 6.48 - - 2.37
New York Bond(2)** 10/15/90 6.19 7.40 - 8.22
Texas Tax-Free Income(2)** 8/1/94 8.20 - - 8.65
Virginia Bond(2)** 10/15/90 6.55 7.65 - 8.00
Money Market
Money Market(3) 2/2/81 5.43 4.41 5.88 -
Tax Exempt Money Market(2,3)** 2/6/84 3.53 3.16 4.26 -
Treasury Money Market Trust(3) 2/1/91 5.27 4.17 - 4.24
California Money Market(2,3)** 8/1/89 3.45 3.04 - 3.67
Florida Tax-Free Money Market(2,3)** 10/1/93 3.39 - - 2.96
New York Money Market(2,3)** 10/15/90 3.44 2.87 - 3.06
Texas Tax-Free Money Market(2,3)** 8/1/94 3.35 - - 3.34
Virginia Money Market(2,3)** 10/15/90 3.29 2.98 - 3.20
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
For more complete information about the mutual funds managed and distributed
by USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
1 Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
2 Some income may be subject to state or local taxes or the federal
alternative minimum tax.
3 An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will be
able to maintain a stable net asset value of $1 per share.
4 S&P 500(registered trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
* Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested dividends
and capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares,
when redeemed, may be worth more or less than their original cost.
** IRAs are not available for tax-exempt funds. The Growth and Tax Strategy
Fund is not available as an investment for your IRA because the majority of
its income is tax exempt. California, Florida, New York, Texas, and Virginia
funds available to residents only.
Message from the President
"You are the master of your portfolio.
Tailor it to yourself."
In preparing this letter, I looked back at a "Letter to Shareholders" in an
annual report from the last presidential election season in 1992. At that
time, I was addressing themes that are still familiar - the state of the
economy, the budget deficit and the national debt, and inflation. These are
still current. But there are some interesting updates.
I noted then a mantra of politicians: Unless we balance the budget, the debt
burden will rise, interest rates will soar, and the economy will be weakened.
I also noted that during the '80s, our budget was heavily out of balance, our
debt did soar, but interest rates actually plummeted and the economy expanded
strongly. Now, to borrow from the venerable Paul Harvey, we have "the rest of
the story."
The 1992 letter noted that, "Interest rates are now lower than people can
believe. The 1991 year-end short-term interest rates of 3.5% represented
a 27-year low!" The election yielded a president who was not nearly as
conservative as his two predecessors. The result was a hefty tax hike, a
budget deficit cut in half in one term, a national debt that has quit growing
as a percentage of gross domestic product, and uh-oh, higher interest rates.
The short-term market rose from 3.5% at the end of `91 to over 5% now,
and the 3-year treasury bond's yield is about where it was in `91.
What does all this mean? It means, as I have noted often, the economy and
the markets are never explained simply. Getting the federal budget in balance
is a worthy goal, but it may not bring interest rates down, and it may not
strengthen the economy.
In the '92 letter, I posed a question that was on many minds, "Is a bear
market imminent?" My guidance, in answer to that question, is the same now as
it was then: Structure your portfolio at all times in a way that suits your
own desire for reward and tolerance for risk. For the vast majority of people,
that means a mixture of stocks, bonds and money market investments.
It is my belief that such a mixture would have taken an investor through the
good markets of 1993, the turbulence of 1994, and the super year of 1995.
And it still applies. You are the master of your portfolio. Tailor it to
yourself.
[A photo of Michael J.C. Roth appears here]
Sincerely,
Michael J.C. Roth
President and
Vice Chairman of the Board
INVESTMENT REVIEW
MONEY MARKET FUND
OBJECTIVE: Highest income consistent with preservation of capital and
maintenance of liquidity.
TYPES OF INVESTMENTS: High-quality debt instruments with maturities of 397
days or less.
7/31/96
Net Assets $1,828.7 Million
Net Asset Value Per Share $1.00
Average Annual Total Return as of 7/31/96
1 Year 5.41%
5 Years 4.40%
10 Years 5.87%
7-Day Simple Yield on July 31, 1996 5.03%
[A graph is shown here which is a comparison of the 7-day yield of the
USAA Money Market Fund to the 7-Day Yield of the IBC/Donoghue's Money
Market Fund Averages/First Tier from 7/95 to 7/96. The horizontal axis
shows the time period. The 7-day yield as of 7/30/96 for the USAA Money
Market Fund is 5.03% and 7-day yield as of 7/30/96 for the IBC/Donoghue's
Money Fund Averages/First Tier is 4.74%.]
The graph tracks the Fund's yield for one year compared to a benchmark:
IBC/Donoghue's Money Fund Averages(Trademark)/First Tier, an average of
first-tier major money market fund yields. While past performance is no
guarantee of future results, the Fund consistently outperformed the
benchmark.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends. An investment in this Fund is neither insured
nor guaranteed by the U.S. government, and there can be no assurance that the
Fund will maintain a stable net asset value of $1.00 per share.
Message from the Manager
[A photo of Portfolio Manager, Pamela K. Bledsoe appears here]
Since Our Last Update
In an effort to stimulate economic growth, the Federal Open Market Committee
(Fed) lowered the Federal Funds rate (the rate banks charge each other for
overnight borrowing) three times between July 1995 and February 1996. In the
last half of the fiscal year, which ended July 31, 1996, economic activity has
strongly increased in most areas of the country. A surprisingly strong
employment report in February prompted market forces to push interest rates
higher, and most economic statistics released in the spring continued to
support rising rates. Although rising interest rates are great for money
market investors, they tend to have the opposite impact on many facets of the
economy, including consumer debt and mortgage rates. As credit card or home
mortgage interest rates increase, pressure is put on consumer spending and the
housing market. This pressure will eventually lead to slower economic growth.
Economic statistics reported in late summer are beginning to show signs that
the economy is, in fact, slowing down.
Currently, there is much speculation in the marketplace regarding the level of
economic activity and whether it is strong enough to cause inflation. The Fed
has kept a watchful eye on inflationary pressures, and we feel they will
continue to keep economic growth in balance. Market forces can exert influence
on the general level of interest rates to keep growth moderate and inflation
under control without intervention from the Fed.
Fund Performance
While past performance is not a guarantee of future results, the Money Market
Fund provided a total return for the one-year reporting period ending July 31,
1996 of 5.41% and ranked 19th out of 270 First Tier non-institutional money
market funds according to IBC/Donoghue's Money Fund Averages/First Tier(1).
Regardless of the economic outlook, forecast for interest rates, or action by
the Fed, our strategy is to maintain a portfolio of high quality securities that
provide a reasonable yield. While we continue to monitor economic events very
closely, all of our holdings must meet regulatory as well as stringent internal
guidelines for liquidity, credit quality, and maturity.
1 Source: IBC/Donoghue's Money Fund Vision Report.
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
[A pie chart is shown here depicting the Portfolio Mix as of January 31, 1996
of the USAA Money Market Fund to be: Bonds/Notes - 29.6%, Demand Notes - 19.8%,
Commercial Paper - 34.0% and CDs - 16.9%.]
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
[A graph is shown here depicting the growth of $10,000, from 7/31/86 to
7/31/96, invested in the USAA Money Market Fund. The vertical axis shows the
dollar amount, and the horizontal axis shows the time period. The ending value
is $17,688.]
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance. Income may be subject
to federal, state, or local taxes or to the alternative minimum tax.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
USAA MUTUAL FUND, INC.:
We have audited the accompanying statement of assets and liabilities and
portfolio of investments in securities of the Money Market Fund of USAA Mutual
Fund, Inc. as of July 31, 1996, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights information
presented in note 7 to the financial statements for each of the periods in the
five-year period then ended. These financial statements and the financial
highlights information are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights information are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of July 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
information referred to above present fairly, in all material respects, the
financial position of the Money Market Fund of USAA Mutual Fund, Inc. as of
July 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the years in the two-year period then
ended, and the financial highlights information for each of the periods in
the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
September 6, 1996
Money Market Fund
Statement of Assets and Liabilities
(In Thousands)
July 31, 1996
Assets
Investments in securities $1,834,056
Cash 7,664
Receivables:
Capital shares sold 1,607
Interest 14,395
-----------
Total assets 1,857,722
-----------
Liabilities
Securities purchased 19,992
Capital shares redeemed 7,554
USAA Investment Management Company 631
USAA Transfer Agency Company 271
Accounts payable and accrued expenses 299
Dividends on capital shares 226
-----------
Total liabilities 28,973
-----------
Net assets applicable to capital shares outstanding $1,828,749
===========
Represented by:
Paid-in capital $1,828,749
===========
Capital shares outstanding 1,828,749
===========
Net asset value, redemption price, and offering price per share $ 1.00
===========
See accompanying notes to financial statements.
Money Market Fund
Categories & Definitions
Portfolio of Investments in Securities
July 31, 1996
Fixed Rate Instruments - consist of commercial paper, certificates of deposit,
banker's acceptances, and notes. The coupon rate is constant to maturity. At
maturity, the security pays face value.
Variable Rate Demand Notes (VRDN) - provide the right, on any business day, to
demand, or put, the security for redemption 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. The
VRDN's effective maturity is equal to either the date on which the underlying
principal amount may be recovered through demand or the next rate adjustment
date consistent with applicable regulatory requirements. Most VRDNs possess a
credit enhancement.
Put Bonds - provide the right to tender, or put, the bond for redemption 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 Notes - similar to VRDNs in the fact that the interest rate is
adjusted to reflect current market conditions. However, these securities do
not offer the put feature of VRDNs. At maturity, the security pays face value.
Credit Enhancement (CRE) - adds the financial strength of the provider to
support the underlying obligor's debt service obligations and/or the put
option. 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 credit enhancement.
<TABLE>
Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
<CAPTION>
July 31, 1996
Principal Coupon
Amount Security Rate Maturity Value
<C> <S> <C> <C> <C>
Fixed Rate Instruments (63.8%)
Bank Holding Companies - Major Regional
$10,000 Barnett Banks, Inc., CP 5.31% 8/15/96 $ 9,979
-----------
Bank Holding Companies - Money Center
20,000 NationsBank Corp., Notes 7.50 2/15/97 20,251
-----------
Bank Holding Companies - Other Major
20,000 Banco Nacional de Comercio, CP (CRE) 5.57 12/04/96 19,613
20,000 Banco Nacional de Comercio, CP (CRE) 5.57 12/10/96 19,595
20,000 Bayerische Landesbank, Bank Notes 5.51 11/20/96 20,016
10,200 Credit Suisse Financial Services, Inc., CP 4.76 10/25/96 10,085
17,075 UBS Finance, Inc., CP 5.66 8/01/96 17,075
25,000 Unibanco-Uniao de Bancos Brasilieros
S.A. (Grand Cayman), CP (CRE) 5.42 8/02/96 24,996
22,000 Unibanco-Uniao de Bancos Brasilieros
S.A. (Grand Cayman), CP (CRE) 5.42 8/05/96 21,987
20,000 Unifunding Inc., CP 4.87 8/12/96 19,970
25,685 Unifunding Inc., CP 4.94 8/20/96 25,618
-----------
178,955
-----------
Banks
18,000 ABN Amro Holding N.V., CD 4.99 8/09/96 18,000
10,000 Bank Of Tokyo-Mitsubishi, CD 5.56 9/24/96 10,000
20,000 Bank Of Tokyo-Mitsubishi, CD 5.70 10/11/96 20,000
20,000 Bank Of Tokyo-Mitsubishi, CD 5.87 1/21/97 20,000
20,000 Bank One, Dayton, N. A., Bank Notes 5.56 3/25/97 20,001
20,000 Banque Nationale de Paris, CD 5.27 3/03/97 20,001
20,000 Banque Nationale de Paris, CD 5.40 3/17/97 20,000
30,000 Dai-Ichi Kangyo Bank LTD., CD 5.55 8/28/96 30,001
20,000 Deutsche Bank, A.G., CD 5.06 8/05/96 20,000
20,000 FCC National Bank, Bank Notes 5.90 8/21/96 19,999
20,000 FCC National Bank, Bank Notes 5.64 4/17/97 19,998
20,000 First of America Bank-Indianapolis,
Bank Notes 5.08 12/20/96 19,968
25,000 Industrial Bank of Japan, Ltd., CD 5.52 8/02/96 25,000
25,000 NBD Bank, Bank Notes 5.05 8/01/96 25,000
25,000 Northern Trust Co., Bank Notes 4.93 2/28/97 24,993
18,000 Providian National Bank, Bank Notes 5.46 8/08/96 18,000
15,000 Providian National Bank, Bank Notes 5.39 8/14/96 15,000
13,000 Providian National Bank, Bank Notes 5.46 9/09/96 13,000
20,000 Providian National Bank, Bank Notes 5.60 10/07/96 20,000
35,200 Sanwa Bank Ltd, CD 5.49 8/15/96 35,200
20,000 Societe Generale, CD 5.40 3/04/97 20,000
21,000 Sumitomo Bank, CD 5.55 8/05/96 21,000
10,000 Wachovia Bank of North Carolina, N.A.,
Bank Notes 6.85 10/18/96 10,030
25,000 Westpac Banking Corp., CD 5.56 4/03/97 24,991
-----------
490,182
-----------
Chemicals
11,965 Monsanto Co., CP 4.87 8/19/96 11,936
-----------
Conglomerates
10,000 Louis Dreyfus Corp., CP (CRE) 5.38 8/08/96 9,990
-----------
Electric Power
8,000 AES Shady Point Inc., CP (CRE) 5.45 8/13/96 7,986
7,500 AES Shady Point Inc., CP (CRE) 5.43 8/14/96 7,485
15,000 Lower Colorado River Auth., Notes 7.38 1/01/97 15,099
-----------
30,570
-----------
Finance - Business/Commercial
40,000 Heller Financial, Inc., CP 5.48 8/06/96 39,970
28,000 Heller Financial, Inc., CP 5.46 8/07/96 27,974
14,000 Heller International, Inc., CP (CRE) 5.39 8/01/96 14,000
14,000 Heller International, Inc., CP (CRE) 5.45 8/02/96 13,998
7,500 Heller International, Inc., CP (CRE) 5.44 8/05/96 7,495
17,500 Heller International, Inc., CP (CRE) 5.39 8/06/96 17,487
11,000 Heller International, Inc., CP (CRE) 5.49 8/07/96 10,990
23,000 Sanwa Business Credit Corp., CP 5.45 8/13/96 22,958
20,000 Sanwa Business Credit Corp., CP 5.40 8/16/96 19,955
35,000 Sanwa Business Credit Corp., CP 5.35 8/26/96 34,870
-----------
209,697
-----------
Finance - Consumer
25,000 Aristar Inc., CP 5.45 8/12/96 24,958
25,000 Aristar Inc., CP 5.37 8/22/96 24,922
17,410 Aristar Inc., CP 5.38 8/23/96 17,353
17,000 Aristar Inc., CP 5.38 8/28/96 16,931
25,000 General Motors Acceptance Corp., CP 5.36 8/09/96 24,970
15,000 General Motors Acceptance Corp., CP 5.54 10/25/96 14,804
12,025 Transamerica Finance Corp., CP 4.84 8/12/96 12,007
25,000 Transamerica Finance Corp., CP 5.39 9/12/96 24,843
-----------
160,788
-----------
Hospitals
15,000 El Camino Healthcare Systems, CA, CP (CRE) 5.70 9/30/96 15,000
11,355 Medical Building Funding V LLC, CP,
Series 1994 (CRE) 5.55 9/04/96 11,296
-----------
26,296
-----------
Tobacco
17,978 Philip Morris Companies, Inc., CP 5.38 8/01/96 17,978
-----------
Total fixed rate instruments (cost: $1,166,622) 1,166,622
-----------
Variable Rate Demand Notes (19.8%)
Auto Parts
14,800 Alabama IDA RB (Rehau Project) (CRE) 5.60 10/01/19 14,800
7,940 Bardstown, KY, RB, Series 1994 (CRE) 5.56 6/01/24 7,940
11,000 Bardstown, KY, RB, Series 1995 (CRE) 5.56 3/01/25 11,000
-----------
33,740
-----------
Building Materials
8,855 Sarasota County, FL, IDA RB,
Series 1994 (CRE) 5.50 9/01/14 8,855
-----------
Buildings
12,810 Downtown Marietta Development Auth., GA,
RB (CRE) 5.53 7/01/21 12,810
-----------
Community Service
10,000 San Jose, CA, Financing Auth. RB,
Taxable Series A (CRE) 5.75 12/01/25 10,000
-----------
Education
13,600 Dome Corp. Demand Bonds,
Series 1991 (CRE) 5.58 8/31/16 13,600
-----------
Entertainment
10,000 Kerasotes Theatres, Inc., Notes,
Series 1996A (CRE) 5.45 3/01/26 10,000
-----------
Finance - Receivables
10,167 Capital One Funding Corp., Notes,
Series 1993A (CRE) 5.51 6/02/08 10,167
21,430 Capital One Funding Corp., Notes,
Series 1995C (CRE) 5.51 10/01/15 21,430
25,410 Capital One Funding Corp., Notes,
Series 1996E (CRE) 5.51 7/02/18 25,410
-----------
57,007
-----------
General Obligations
30,000 Detroit, MI, GO, Series 1995B (CRE) 5.50 5/01/05 30,000
-----------
Healthcare - Diversified
15,575 Wenatchee Valley Clinic, P. S., WA,
Taxable Bonds, Series 1995 (CRE) 5.55 1/15/15 15,575
-----------
Healthcare - Miscellaneous
7,700 Mason City Clinic, P.C., IA,
Demand Bonds, Series 1992 (CRE) 5.55 9/01/22 7,700
-----------
Hotel/Motel
8,650 Howard County, MD, Taxable RB,
Series 1994 (CRE) 5.47 10/01/09 8,650
-----------
Multi-Family Housing
15,000 Palm Desert Redevelopment Agency, CA,
RB (CRE) 5.77 8/01/22 15,000
-----------
Leisure Time
10,000 Greenville Memorial Auditorium District
Public Facilities, COP, Series
1996C (CRE) 5.60 9/01/14 10,000
-----------
Machinery - Diversified
22,200 DSL Funding Corp., Notes (CRE) 5.55 12/01/09 22,200
-----------
Nursing Care
33,900 Lincolnwood Funding Corp. RB,
Series 1995A (CRE) 5.55 8/01/15 33,900
-----------
Real Estate
14,900 H/M Partners, LLC, Bonds (CRE) 5.90 10/01/20 14,900
-----------
Special Assessment/Tax/Fee
10,000 City of Gardena, CA, COP, Series
1995 (CRE) 5.90 7/01/25 10,000
21,500 County of Cuyahoga, OH, Demand RB,
Series 1992B (CRE) 5.62 6/01/22 21,500
16,285 San Bernardino County, CA, COP,
Glen Helen Project, Series D (CRE) 5.69 3/01/24 16,285
-----------
47,785
-----------
Textiles
10,000 Alabama IDA RB (Fieldcrest Project) (CRE) 5.90 7/01/21 10,000
-----------
Total variable rate demand notes (cost: $361,722) 361,722
-----------
Put Bonds (12.3%)
Electric Power
20,000 Brazos River Auth., TX, RB,
Series 1991D (CRE) 5.52 6/01/21 20,000
54,700 IDA of the State of New Hampshire, DEB,
Series E (CRE) 5.45 5/01/21 54,700
-----------
74,700
-----------
General Obligations
29,600 Cleveland, OH, Taxable Notes,
Series 1994 (CRE) 5.59 5/15/24 29,600
19,000 DeKalb County, GA, IDA RB, Series 1994B 5.55 10/01/24 19,000
10,450 New York City GO, Fiscal 1994
Series H-7 (CRE) 5.20 8/01/13 10,450
-----------
59,050
-----------
Multi-Family Housing
20,900 New York City, NY, Housing Development
Corp., RB, 1995 Series B (CRE) 5.44 11/01/30 20,900
-----------
Leisure Time
12,000 Sault Ste. Marie Tribe Building Auth., RB,
Series 1996B (CRE) 6.19 6/01/03 12,000
-----------
Oil - International
24,060 Lower Neches Valley Auth., TX, RB,
Series 1995A (CRE) 5.39 5/01/30 24,060
-----------
Paper & Forest Products
20,000 IDA of Bedford County, VA, RB,
Series 1995B (CRE) 5.60 12/01/25 20,000
15,000 IDA of Bedford County, VA, RB,
Series 1995C (CRE) 5.60 12/01/25 15,000
-----------
35,000
-----------
Total put bonds (cost: $225,710) 225,710
-----------
Variable Rate Notes (4.4%)
Banks
15,000 Fleet National Bank, Bank Notes 5.75 10/30/96 15,000
25,000 Mercantile Safe Deposit & Trust Co., CD 5.70 1/02/97 25,010
-----------
40,010
-----------
Finance - Consumer
20,000 American Honda Finance Corp., Notes 5.56 2/07/97 20,000(a)
20,000 American Honda Finance Corp., Notes 5.69 8/01/97 19,992(a,b)
-----------
39,992
-----------
Total variable rate notes (cost: $80,002) 80,002
-----------
Total investments (cost: $1,834,056) $1,834,056
===========
</TABLE>
Money Market Fund
Portfolio of Investments in Securities (continued)
July 31, 1996
Portfolio Summary By Industry
Banks 29.0%
Finance - Business/Commercial 11.5
Finance - Consumer 11.0
Bank Holding Companies - Other Major 9.8
Electric Power 5.8
General Obligations 4.9
Finance - Receivables 3.1
Special Assessment/Tax/Fee 2.6
Multi-Family Housing 2.0
Paper & Forest Products 1.9
Nursing Care 1.9
Auto Parts 1.8
Hospitals 1.4
Oil - International 1.3
Leisure Time 1.2
Machinery - Diversified 1.2
Bank Holding Companies - Money Center 1.1
Tobacco 1.0
Other 7.8
--------
Total 100.3%
========
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. Investments in U.S. dollar denominated securities issued by domestic
branches or subsidiaries of foreign banks or companies were 25.3% of net
assets at July 31, 1996.
Portfolio Description Abbreviations
CD Certificate of Deposit
COP Certificate of Participation
CP Commercial Paper
CRE Credit Enhanced
DEB Debentures
GO General Obligation
IDA Industrial Development Authority/Agency
RB Revenue Bond
Specific Notes
(a) Security is exempt from registration by Rule 144A under the Securities Act
of 1933 and has been determined to be liquid by management. Any resale of this
security in the United States may occur in an exempt transaction to a
qualified institutional buyer as defined by the Rule.
(b) At July 31, 1996, the cost of securities purchased on a delayed delivery
basis was $19,992,000.
See accompanying notes to financial statements.
Money Market Fund
Statement of Operations
(In Thousands)
Year ended July 31, 1996
Net investment income:
Interest income $95,899
---------
Expenses:
Management fees 4,027
Transfer agent's fees 3,141
Custodian's fees 508
Postage 397
Shareholder reporting fees 218
Directors' fees 5
Registration fees 179
Audit fees 28
Legal fees 6
Other 44
---------
Total expenses before reimbursement 8,553
Expenses reimbursed (1,003)
---------
Total expenses after reimbursement 7,550
---------
Net investment income $88,349
=========
See accompanying notes to financial statements.
<TABLE>
Money Market Fund
Statements of Changes in Net Assets
(In Thousands)
<CAPTION>
Years ended July 31,
1996 1995
<S> <C> <C>
From operations:
Net investment income $ 88,349 $ 69,050
------------- -------------
Distributions to shareholders from:
Net investment income (88,349) (69,050)
------------- --------------
From capital share transactions:
Proceeds from shares sold 2,351,553 2,059,833
Shares issued for dividends reinvested 85,179 66,406
Cost of shares redeemed (2,148,038) (1,592,204)
------------- --------------
Increase in net assets from capital share transactions 288,694 534,035
-------------- --------------
Net increase in net assets 288,694 534,035
Net assets:
Beginning of period 1,540,055 1,006,020
-------------- --------------
End of period $1,828,749 $1,540,055
============== ==============
Change in shares outstanding:
Shares sold 2,351,553 2,059,833
Shares issued for dividends reinvested 85,179 66,406
Shares redeemed (2,148,038) (1,592,204)
-------------- --------------
Increase in shares outstanding 288,694 534,035
============== ===============
Authorized shares of $.01 par value 2,250,000 2,250,000
============== ===============
</TABLE>
See accompanying notes to financial statements.
Money Market Fund
Notes to Financial Statements
July 31, 1996
(1) Summary of Significant Accounting Policies
USAA MUTUAL 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 eight separate
funds. The information presented in this annual report pertains only to the
Money Market Fund (the Fund). The Fund's investment objective is the highest
income consistent with preservation of capital and maintenance of liquidity.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Pursuant to Rule 2a-7 of the Investment Company Act of 1940, as amended,
securities in the Fund are stated at amortized cost which approximates market
value. Repurchase agreements are valued at cost.
2. Securities which cannot be valued by the methods set forth above, 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.
B. Federal taxes - The 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 - As is common in the industry, 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 on the
accrual basis. Discounts and premiums on securities are amortized over the
life of the respective 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 Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation, an affiliate of the Manager ($750 million uncommitted),
and one with an unaffiliated bank ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability under these agreements, the Fund may borrow up to a
maximum of 25% of its total assets at the lending institution's borrowing rate
plus a markup. The Fund had no borrowings under either of these agreements
during the year ended July 31, 1996.
(3) Distributions
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. All net investment income available for distribution was
distributed at July 31, 1996 and was entirely derived from taxable interest
income. 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.
(4) Investment Transactions
Purchases and sales/maturities of securities for the year ended July 31, 1996
were $12,754,450,410 and $12,476,213,645, respectively.
(5) Transactions with Manager
A. Management fees - The investment policies of the Fund and management of the
Fund's portfolio are carried out by USAA Investment Management Company (the
Manager). The Fund's management fees are computed at .24% of its annual
average net assets.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
.45% of its annual average net assets.
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 Fund. Shareholder accounting service fees are based on
an annual charge per shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Company has an agreement with the Manager for
exclusive underwriting and distribution of the Fund's shares on a continuing
best efforts basis. This agreement provides that the Manager will receive no
fee or other remuneration for such services.
(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 July 31, 1996, the Association and its
affiliates (including related employee benefit plans) owned 3,571,830 shares
(.2%) of the Fund.
<TABLE>
Money Market Fund
Notes to Financial Statements (Continued)
<CAPTION>
July 31, 1996
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
Ten-Month
Period Ended
Year Ended July 31, July 31, Year Ended September 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .05 .05 .03 .03 .04
Distributions from net
investment income (.05) (.05) (.03) (.03) (.04)
------------ ------------ ------------ ------------ -------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ =============
Total return (%) * 5.41 5.49 2.74 3.09 4.32
Net assets at
end of period (000) $1,828,749 $1,540,055 $1,006,020 $ 813,784 $ 900,312
Ratio of expenses to
average net assets (%) .45(b) .45(b) .46(a) .48 .48
Ratio of net investment
income to average
net assets (%) 5.27(b) 5.44(b) 3.28(a) 3.05 4.25
</TABLE>
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) The information contained in the above table is based on actual expenses
for the period, after giving effect to reimbursement of expenses by the
Manager. Absent such reimbursement the Fund's ratios would have been:
Year Ended July 31,
1996 1995
Ratio of expenses to
average net assets (%) .51 .46
Ratio of net investment
income to average
net assets (%) 5.21 5.43
