TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
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 "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 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)1997, USAA. All rights reserved.
<TABLE>
USAA Family of Funds Performance Summary
<CAPTION>
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 December 31, 1996.
<S> <C> <C> <C> <C> <C>
Average Annual Total Return(%)*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
CAPITAL APPRECIATION
=========================================================================================================
Aggressive Growth 10/19/81 16.47 11.45 13.12 -
Emerging Markets (1) 11/7/94 16.59 - - 4.84
Gold (1) 8/15/84 0.00 6.57 .93 -
Growth 4/5/71 17.80 13.69 13.24 -
Growth & Income 6/1/93 23.04 - - 16.24
International1 7/11/88 19.15 13.09 - 10.60
S&P 500 Index4 5/1/96 - - - 16.83+
World Growth1 10/1/92 19.08 - - 13.66
ASSET ALLOCATION
============
Balanced Strategy 9/1/95 13.45 - - 12.49
Cornerstone Strategy (1) 8/15/84 17.87 12.69 10.70 -
Growth and Tax Strategy (2)** 1/11/89 11.12 9.64 - 9.97
Growth Strategy (1) 9/1/95 22.13 - - 21.47
Income Strategy 9/1/95 3.00 - - 9.72
INCOME TAXABLE
=========
GNMA 2/1/91 2.94 6.43 - 7.66
Income 3/4/74 1.33 7.33 9.25 -
Income Stock 5/4/87 18.70 12.76 - 12.78
Short-Term Bond 6/1/93 6.31 - - 5.60
INCOME TAX-EXEMPT
========
Long-Term (2)** 3/19/82 4.47 6.87 7.37 -
Intermediate-Term (2)** 3/19/82 4.49 6.89 7.09 -
Short-Term (2)** 3/19/82 4.44 4.94 5.45 -
California Bond (2)** 8/1/89 5.39 7.29 - 7.65
Florida Tax-Free Income (2)** 10/1/93 4.38 - - 3.69
New York Bond (2)** 10/15/90 3.73 6.61 - 8.35
Texas Tax-Free Income (2)** 8/1/94 5.25 - - 9.44
Virginia Bond (2)** 10/15/90 5.06 7.09 - 8.18
MONEY MARKET
========
Money Market (3) 2/2/81 5.24 4.37 5.84 -
Tax Exempt Money Market (2,3)** 2/6/84 3.34 3.04 4.21 -
Treasury Money Market Trust (3) 2/1/91 5.10 4.16 - 4.32
California Money Market (2,3)** 8/1/89 3.27 2.93 - 3.64
Florida Tax-Free Money Market (2,3)** 10/1/93 3.24 - - 3.01
New York Money Market (2,3)** 10/15/90 3.20 2.79 - 3.07
Texas Tax-Free Money Market (2,3)** 8/1/94 3.25 - - 3.32
Virginia Money Market (2,3)** 10/15/90 3.17 2.87 - 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.
+ Cumulative total return since inception, including account maintenance fee.
MESSAGE FROM THE PRESIDENT
I have been at USAA for 19 years. The first eight were one heck of a lot of
fun. I was a portfolio manager and I also got to do a lot of trading. Since 1986
I have been a manager of people, and sometime in the future I will write about
the relative degree of fun between those two pursuits. In my eight years as a
money manager I got to know how it feels when your fund isn't working, and I
also know how it feels to be on top of the world. By the same token, some
people wrote about me snidely and some others put nice pictures of me in
national magazines. This is all background for the following comments on
fund performance.
According to the Investment Company Institute there are now about 6,000 mutual
funds in the U.S. Why isn't there one; the one with the best performance? To
answer that question you ask questions. Best performance over one year? . . .
Three years? . . . Five years? Shouldn't we differentiate between growth funds
and money market funds?. . . Between taxable bonds and tax-exempt bonds? There
are obvious reasons to look beyond just one fund.
But then there are other questions. Was the best stock fund for the last 10
years also the best stock fund in 1996? I'd be surprised if it were. And here
is a great question. Do you know anyone who beat the best stock fund for
the past 10 years by moving money each year into the fund that would turn
into that year's best? I'd be more surprised if you did.
I think that most people choose a mutual fund company because of trust. At USAA
we give you a lot to foster that trust. The expenses of our funds are very low
compared to their competitors. We have never had any loads on our funds. The
array of features we offer, from guidance from our reps to TouchLine(Registered
Trademark) and computer access, is world class. And our funds have
established a proud tradition of performance. It is not possible to have the
top performing fund every year, but since 1986 we have been recognized 19
times by Lipper Analytical Services for having funds that were the best in
their category, both for one year and over longer periods. Four of these
were awarded in 1996. They went to the Cornerstone Strategy Fund, Tax Exempt
Short-Term Fund, and the Texas Tax-Free Income Fund.(1)
Performance, service, ease of doing business and trust. That's how I buy a
mutual fund.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
[Photograph of Michael J.C. Roth, CFA, President and Vice Chairman of the
Board appears here]
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before you invest.
Performance Achievement Certificates
(1) Fund rankings awarded by Lipper Analytical Services on cumulative total
returns:
USAA Texas Tax-Free Income Fund was ranked #1 out of 20 in the Texas Municipal
Debt Funds category for the 1-year period ended 12/31/96 in Lipper's Fixed
Income Fund Performance Analysis. Average annual total returns for the 1-year
period ended 12/31/96 and the 8/1/94 to 12/31/96 period were 5.25% and 9.44%
respectively.
USAA Tax Exempt Short-Term Fund was ranked #1 out of 5, #1 out of 7, and #4
out of 30 in the Short Municipal Debt Funds category for the 10-,5-, and
1-year periods ended 12/31/96 in Lipper's Fixed Income Fund Performance
Analysis. Average annual total returns for the 10-, 5-, and 1-year periods
ended 12/31/96 were 5.45%, 4.94%, and 4.44%, respectively.
USAA Cornerstone Strategy Fund was ranked #1 out of 5, #3 out of 13, and #5
out of 71 in the Global Flexible Portfolio Funds category for the 10-, 5-,
and 1-year periods ended 12/31/96 in Lipper's Equity Fund Performance Analysis.
Average annual total returns for the 10-, 5-, and 1-year periods ended 12/31/96
were 10.70%, 12.69%, and 17.87%, respectively.
The performance data quoted represent past performance and is no guarantee of
future results. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
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 1/31/97
Net Assets.................. $1,828.7 MILLION $2,000.2 MILLION
Net Asset Value Per Share. $1.00 $1.00
Average Annual Total Returns as of 1/31/97
July 31, 1996 to January 31, 1997..........................2.59%+
1 Year.....................................................5.18%
5 Years....................................................4.38%
10 Years...................................................5.83%
+ Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
[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 Fund Averages/
First Tier from 1/96 to 1/97. The vertical axis shows the yield and the
horizontal axis shows the time period. The 7-day yield as of 1/28/97 for the
USAA Money Market Fund is 5.07% and 7-day yield as of 1/30/97 for the IBC/
Donoghue's Money Fund Averages/First Tier is 4.75%.]
Total return equals income yield and assumes reinvestment of all dividends. No
adjustment has been made for taxes payable by shareholders on their reinvested
income 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. The graph tracks the
Fund's 7-day yield against IBC/Donoghue's Money Fund Averages(TM)/First Tier, an
average of first-tier major money market fund yields.
MESSAGE FROM THE MANAGER
[A photo of Pamela K. Bledsoe, CFA, Portfolio Manager appears here.]
Current Market Conditions
Since the beginning of last year, the yield on the one-year Treasury bill has
fluctuated from 5.13% in January to 5.77% in June and was 5.48% at year end.
This fluctuation was motivated by economic statistics that showed an ever
strengthening economy. This in turn drove market expectations of increases in
the Federal Funds rate (the rate banks charge each other for overnight loans).
As each Federal Open Market Committee meeting came and went without any change
in the Fed Funds rate, Wall Street players shifted their focus to the next
scheduled meeting. Anticipation that signs of inflation were lurking around
every corner sustained the market's volatility. This behavior continued
throughout the summer and into fall until economic statistics released in
October indicated that the economy was slowing down. Currently, it appears
the economy is still growing and there are no signs of its overheating. It
is our view that until the Fed sees inflation pressures rising, no change in
the Federal Funds rate will occur. While we expect the money markets in 1997
to behave much the same as last year, we will closely monitor economic numbers
that could change this expectation.
The memory of the Orange County, CA derivative debacle has just begun to fade
and again some money market funds have had to infuse cash from their sponsors
to protect shareholders from possible losses. This time the company is Mercury
Finance and the allegations relate to the fraudulent reporting of financial
results. The USAA Money Market Fund has never owned any securities issued by
Mercury Finance. Events such as these highlight the importance of independent
credit research. Looking beyond the SEC minimum standards as well as rating
agency opinions in assessing the appropriateness of a security for a money
market fund is a critical element of our research process. I work very closely
with our dedicated team of money market analysts in trying to avoid potentially
difficult situations. We strive to provide a reasonable return for minimal
credit risk provided by investing in high quality securities.
Strategy
Since no one can consistantly and accurately predict levels of interest rates,
we manage the USAA Money Market Fund to average out the extremes of the
marketplace. Our strategy is to maintain a slightly longer than average
maturity by purchasing both relatively short maturities (one, two, and three
months) balanced by higher yielding longer term maturities (9 months to one
year). This maturity structure assures that we spread reinvestment risk across
the money market interest rate curve and allows a continuous cash flow from
maturities that can be reinvested at current levels. For the period ended
January 31, 1997, the weighted average maturity of the Fund was 57 days while
IBC/Donoghue(1) reported the average for taxable money market funds to be 53
days as of its last reporting date on January 28, 1997.
Performance
Compared to other taxable money market funds, for the 12 months ended December
31, 1996, the Fund ranked 15 out of 247 funds based on total return.
Contributing to this strong performance is the expense ratio of .45% of average
net assets, after reimbursements. According to IBC/Donoghue, the average first
tier money market fund has an expense ratio of .57% of average net assets,
giving you a .12% advantage over the average money market fund. This means you
earn more net investment income than you would if your money was invested in a
money market fund that had an average expense ratio.
(1) Source: IBC/Donoughe's Money Fund Vision Report.
[A graph is show here depicting the growth of $10,000, from 1/31/87 to 1/31/97
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
$17,625.]
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance. 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 per share.
[A pie chart is shown here depicting the Portfolio Mix as of January 31, 1997
of the USAA Money Market Fund to be: Bonds/Notes - 35%*, CDs - 16.8%*,
Commercial Paper - 29%*, and Demand Notes - 19.9%*.]
* Percentages are of Net Assets and may or may not be equal to 100%.
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
Money Market Fund
Statement of Assets and Liabilities
(In Thousands)
January 31, 1997
(Unaudited)
Assets
Investments in securities $ 2,013,428
Cash 10,369
Receivables:
Capital shares sold 4,830
Interest 18,060
Securities sold 1,610
---------------
Total assets 2,048,297
---------------
Liabilities
Securities purchased 32,387
Capital shares redeemed 14,316
USAA Investment Management Company 655
USAA Transfer Agency Company 305
Accounts payable and accrued expenses 237
Dividends on capital shares 228
---------------
Total liabilities 48,128
---------------
Net assets applicable to capital shares outstanding $ 2,000,169
===============
Represented by:
Paid-in capital $ 2,000,169
===============
Capital shares outstanding 2,000,169
===============
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
January 31, 1997
(Unaudited)
Fixed Rate Instruments -- consist of commercial paper, certificates of deposit,
banker's acceptances, and notes. The interest rate is constant to maturity.
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. The VRDN's effective maturity is
the date on which the underlying principal amount may be recovered or the next
rate adjustment date consistent with regulatory requirements. Most VRDNs possess
a credit enhancement.
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 Notes -- similar to VRDNs in the fact that the interest rate is
adjusted periodically to reflect current market conditions. However, these
securities do not offer the right to sell the security at face value prior to
maturity.
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.
<TABLE>
Money Market Fund
Portfolio of Investments in Securities
(In Thousands)
<CAPTION>
January 31, 1997
(Unaudited)
<C> <S> <C> <C> <C>
Principal Coupon
Amount Rate Maturity Value
- --------- -------- ---------- -------
Fixed Rate Instruments (59.6%)
Bank Holding Companies - Money Center
$ 20,000 NationsBank Corp., Notes 7.50% 2/15/97 $ 20,018
--------------
Bank Holding Companies - Other Major
20,000 Banco Nacional de Comercio, CP (CRE) 5.40 6/12/97 19,607
21,877 Unibanco-Uniao de Bancos Brasilieros
S.A. (Grand Cayman), CP (CRE) 5.48 6/18/97 21,421
11,980 Unifunding Inc., CP 5.37 4/10/97 11,858
25,000 Unifunding Inc., CP 5.40 7/07/97 24,415
--------------
77,301
--------------
Banks
20,000 Bank Of Tokyo-Mitsubishi, CD 5.44 2/21/97 20,000
20,000 Bank Of Tokyo-Mitsubishi, CD 5.58 4/28/97 20,000
25,000 Bank Of Tokyo-Mitsubishi, CD 5.63 7/07/97 25,002
20,000 Bank One, Dayton, N. A., Bank Notes,
Series 1995A 5.56 3/25/97 20,000
20,000 Bankers Trust Co., CD 5.50 12/10/97 19,972
25,000 Bankers Trust Co., CD 5.75 1/08/98 24,991
20,000 Banque Nationale de Paris, CD 5.27 3/03/97 20,000
20,000 Banque Nationale de Paris, CD 5.40 3/17/97 20,000
20,000 FCC National Bank, Bank Notes 5.64 4/17/97 20,000
15,000 FCC National Bank, Bank Notes 5.70 10/30/97 15,005
20,000 First National Bank Boston, Bank Notes 5.56 3/03/97 20,000
25,000 First National Bank Boston, Bank Notes 5.47 3/31/97 25,000
20,000 First National Bank Boston, Bank Notes 5.62 7/10/97 20,000
20,000 First National Bank Boston, Bank Notes 5.95 1/20/98 20,000
15,000 First of America Bank-Indianapolis,
Bank Notes 5.75 8/12/97 14,995
25,000 Industrial Bank of Japan Ltd., CD 5.66 2/14/97 25,000
20,000 MBNA America Bank N.A., CD 5.47 5/13/97 20,000
20,000 MBNA America Bank N.A., CD 5.56 5/16/97 20,000
20,000 MBNA America Bank N.A., CD 5.50 5/20/97 20,000
23,000 Mellon Bank Pennsylvania, N.A.,
Bank Notes 6.25 12/16/97 23,126
25,000 Northern Trust Co., Bank Notes 4.93 2/28/97 24,999
15,000 Providian National Bank, CD 5.59 3/03/97 15,000
25,000 Sanwa Bank Ltd, CD 5.61 3/17/97 25,000
20,000 Societe Generale, CD 5.40 3/04/97 20,000
25,000 Westpac Banking Corp., CD 5.56 4/03/97 24,998
--------------
523,088
--------------
Buildings
10,409 75 State Street Capital Corp., CP (CRE) 5.45 2/10/97 10,395
21,967 75 State Street Capital Corp., CP (CRE) 5.40 2/19/97 21,907
25,000 75 State Street Capital Corp., CP (CRE) 5.40 2/24/97 24,914
--------------
57,216
--------------
Conglomerates
13,000 Louis Dreyfus Corp., CP (CRE) 5.33 2/13/97 12,977
--------------
Electric Power
27,291 Cogentrix of Richmond Inc., CP (CRE) 5.42 2/18/97 27,221
--------------
Engineering & Construction
22,933 Fundex Corp. CP, Series L (CRE) 5.40 2/24/97 22,854
--------------
Escrowed Securities
11,385 Palmdale, CA, Community Redevelopment
Agency RB, Series 1992 6.75 11/15/97 11,464
--------------
Finance - Business/Commercial
20,000 Heller Financial, Inc., CP 5.38 2/06/97 19,985
15,000 Heller Financial, Inc., CP 5.37 2/07/97 14,987
28,000 Heller Financial, Inc., CP 5.35 2/21/97 27,917
25,000 Heller Financial, Inc., CP 5.42 2/28/97 24,898
10,000 Heller International, Inc., CP (CRE) 5.45 2/13/97 9,982
20,000 Heller International, Inc., CP (CRE) 5.55 2/03/97 19,994
8,500 Heller International, Inc., CP (CRE) 5.42 2/14/97 8,483
10,000 Heller International, Inc., CP (CRE) 5.38 2/19/97 9,973
9,000 Heller International, Inc., CP (CRE) 5.40 2/20/97 8,974
10,000 Heller International, Inc., CP (CRE) 5.38 2/24/97 9,966
20,000 Sanwa Business Credit Corp., CP 5.36 2/11/97 19,970
12,000 Sanwa Business Credit Corp., CP 5.35 2/14/97 11,977
30,000 Sanwa Business Credit Corp., CP 5.36 2/19/97 29,919
--------------
217,025
--------------
Finance - Consumer
8,500 American General Finance Corp.,
Senior Notes 5.80 4/01/97 8,502
9,025 American General Finance Corp.,
Senior Notes 8.25 1/15/98 9,225
15,000 Aristar Inc., CP 5.38 2/13/97 14,973
11,625 Associates Corp. of North America,
Senior Notes, Series I 6.75 7/15/97 11,672
16,320 Commercial Credit Co., Senior Notes 8.50 2/15/98 16,740
54,350 Household Finance Corp., CP 5.50 2/03/97 54,333
--------------
115,445
--------------
General Obligations
10,000 Ridgefield, CT, Taxable Bond
Anticipation Notes 5.90 11/07/97 10,007
--------------
Hospitals
15,000 El Camino Healthcare Systems, CA, CP (CRE) 5.55 2/06/97 15,000
10,700 Medical Building Funding V LLC, CP,
Series 1994 (CRE) 5.50 2/11/97 10,684
--------------
25,684
--------------
Leasing
15,000 PHH Corp., CP 5.37 2/07/97 14,987
--------------
Photography - Imaging
19,700 Minolta Corp., CP (CRE) 5.38 2/20/97 19,644
--------------
Special Assessment/Tax/Fee
22,223 Sunshine State Governmental Financing
Commission, CP 5.48 3/05/97 22,115
14,650 Sunshine State Governmental Financing
Commission, CP 5.48 4/07/97 14,505
--------------
36,620
--------------
Total fixed rate instruments (cost: $1,191,551) 1,191,551
--------------
Variable Rate Demand Notes (19.9%)
Auto Parts
14,800 Alabama IDA RB (Rehau Project) (CRE) 5.68 10/01/19 14,800
8,940 Bardstown, KY, RB, Series 1994 (CRE) 5.50 6/01/24 8,940
11,000 Bardstown, KY, RB, Series 1995 (CRE) 5.50 3/01/25 11,000
--------------
34,740
--------------
Building Materials
8,525 Sarasota County, FL, IDA RB,
Series 1994 (CRE) 5.45 9/01/14 8,525
--------------
Buildings
12,400 Downtown Marietta Development Auth.,
GA, RB (CRE) 5.48 7/01/21 12,400
16,275 First Illinois Funding Corp. Project, RB,
Series 1996 (CRE) 5.70 9/01/26 16,275
--------------
28,675
--------------
Community Service
10,000 San Jose, CA, Financing Auth. RB,
Taxable Series A (CRE) 5.65 12/01/25 10,000
--------------
Education
15,200 Dome Corp., Demand Bonds,
Series 1991 (CRE) 5.58 8/31/16 15,200
--------------
Entertainment
10,000 Kerasotes Theatres, Inc., Notes,
Series 1996A (CRE) 5.45 3/01/26 10,000
--------------
Finance - Receivables
9,762 Capital One Funding Corp., Notes,
Series 1993A (CRE) 5.45 6/02/08 9,762
20,908 Capital One Funding Corp., Notes,
Series 1995C (CRE) 5.45 10/01/15 20,908
23,306 Capital One Funding Corp., Notes,
Series 1996E (CRE) 5.45 7/02/18 23,306
--------------
53,976
--------------
Healthcare - Diversified
25,750 Wenatchee Valley Clinic, P.S., WA,
Taxable Bonds, Series 1996 (CRE) 5.47 11/12/17 25,750
--------------
Healthcare - Miscellaneous
7,600 Mason City Clinic, P.C., IA, Demand Bonds,
Series 1992 (CRE) 5.60 9/01/22 7,600
10,780 Missouri Health and Educational
Facilities Auth. RB, Series 1996B (CRE) 5.60 12/01/16 10,780
--------------
18,380
--------------
Hotel/Motel
8,400 Howard County, MD, Taxable RB,
Series 1994 (CRE) 5.45 10/01/09 8,400
--------------
Multi-Family Housing
7,725 Arbor Properties, Inc., Notes (CRE) 5.75 11/01/21 7,725
--------------
Leisure Time
11,000 BSL Golf of California, Inc. (CRE) 5.58 1/01/23 11,000
14,390 Greenville Memorial Auditorium District
Public Facilities, COP, Series 1996C (CRE) 5.70 9/01/14 14,390
--------------
25,390
--------------
Machinery - Diversified
23,200 DSL Funding Corp., Notes (CRE) 5.58 12/01/09 23,200
--------------
Nursing Care
33,500 Lincolnwood Funding Corp. RB,
Series 1995A (CRE) 5.59 8/01/15 33,500
--------------
Real Estate
14,000 H/M Partners, LLC, Bonds (CRE) 5.75 10/01/20 14,000
13,945 HGR-1, LLC, Notes, Series 1996 (CRE) 5.50 9/15/46 13,945
--------------
27,945
--------------
Special Assessment/Tax/Fee
10,000 City of Gardena, CA, COP, Series 1995 (CRE) 5.75 7/01/25 10,000
9,135 City of Gardena, CA, COP, Series 1996 (CRE) 5.75 11/01/19 9,135
21,500 County of Cuyahoga, OH, Demand RB,
Series 1992B (CRE) 5.53 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
--------------
56,920
--------------
Textiles
10,000 Alabama IDA RB (Fieldcrest Project) (CRE) 5.75 7/01/21 10,000
--------------
Total variable rate demand notes (cost: $398,326) 398,326
--------------
Put Bonds (11.7%)
Electric Power
20,000 Brazos River Auth., TX, RB,
Series 1991D (CRE) 5.46 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) 5.56 5/15/24 29,600
19,000 DeKalb County, GA, IDA RB, Series 1994B 5.50 10/01/24 19,000
--------------
48,600
--------------
Healthcare - Miscellaneous
25,350 Central Plains Clinic Ltd. RB (CRE) 5.40 9/01/17 25,350
--------------
Multi-Family Housing
7,700 New York City, NY, Housing Development
Corp., RB, 1995 Series B (CRE) 5.65 11/01/30 7,700
--------------
Leisure Time
11,160 Sault Ste. Marie Tribe Building Auth., RB,
Series 1996B (CRE) 5.94 6/01/03 11,160
--------------
Oil - International
24,060 Lower Neches Valley Auth., TX, RB,
Series 1995A (CRE) 5.41 5/01/30 24,060
--------------
Paper & Forest Products
20,000 IDA of Bedford County, VA, RB,
Series 1995B (CRE) 5.50 12/01/25 20,000
15,000 IDA of Bedford County, VA, RB,
Series 1995C (CRE) 5.50 12/01/25 15,000
--------------
35,000
--------------
Retirement Homes
7,000 Bexar County, TX, Health Facilities
Development RB (CRE) 5.98 2/01/22 7,000
--------------
Total put bonds (cost: $233,570) 233,570
--------------
Variable Rate Notes (9.5%)
Banks
25,000 Boatmens Credit Card Bank, Bank Notes 5.47 8/08/97 24,997
15,000 Mercantile Safe Deposit & Trust, CD 5.64 2/03/98 15,000
15,000 SouthTrust Bank North Carolina,
Bank Notes 5.48 9/12/97 14,999
25,000 SouthTrust Bank North Carolina,
Bank Notes 5.50 10/06/97 25,000
--------------
79,996
--------------
Finance - Consumer
20,000 American Honda Finance Corp., Notes 5.58 2/07/97 20,000 (a)
20,000 American Honda Finance Corp., Notes 5.50 8/01/97 19,996 (a)
--------------
39,996
--------------
Leasing
20,000 PHH Corp., Medium-Term Notes 5.40 8/12/97 19,995
30,000 PHH Corp., Medium-Term Notes 5.48 1/15/98 30,000
20,000 PHH Corp., Medium-Term Notes 5.41 1/27/98 19,994
--------------
69,989
--------------
Total variable rate notes (cost: $189,981) 189,981
--------------
Total investments (cost: $2,013,428) $ 2,013,428
==============
</TABLE>
Portfolio Summary By Industry
Banks 30.2%
Finance - Business/Commercial 10.9
Finance - Consumer 7.8
Electric Power 5.1
Special Assessment/Tax/Fee 4.7
Buildings 4.3
Leasing 4.2
Bank Holding Companies - Other Major 3.9
General Obligations 2.9
Finance - Receivables 2.7
Healthcare - Miscellaneous 2.2
Leisure Time 1.8
Auto Parts 1.7
Nursing Care 1.7
Paper & Forest Products 1.7
Real Estate 1.4
Healthcare - Diversified 1.3
Hospitals 1.3
Machinery - Diversified 1.2
Oil - International 1.2
Engineering & Construction 1.1
Bank Holding Companies - Money Center 1.0
Photography - Imaging 1.0
Other 5.4
--------------
Total 100.7%
==============
Money Market Fund
Notes to Portfolio of Investments in Securities
January 31, 1997
(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.
Investments in U.S. dollar denominated securities issued by domestic branches or
subsidiaries of foreign banks or companies were 17% of net assets at January 31,
1997.
Portfolio Description Abbreviations
CD Certificate of Deposit
COP Certificate of Participation
CP Commercial Paper
CRE Credit Enhanced
DEB Debentures
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.
See accompanying notes to financial statements.
Money Market Fund
Statement of Operations
(In Thousands)
Six-month period ended January 31, 1997
(Unaudited)
Net investment income:
Interest income $ 53,323
----------
Expenses:
Management fees 2,312
Transfer agent's fees 1,759
Custodian's fees 253
Postage 190
Shareholder reporting fees 123
Directors' fees 2
Registration fees 145
Audit fees 14
Legal fees 2
Other 24
-----------
Total expenses before reimbursement 4,824
Expenses reimbursed (491)
-----------
Total expenses after reimbursement 4,333
-----------
Net investment income $ 48,990
============
See accompanying notes to financial statements.
<TABLE>
Money Market Fund
Statements of Changes in Net Assets
(In Thousands)
<CAPTION>
Six-month period ended January 31, 1997
and Year ended July 31, 1996
(Unaudited)
<S> <C> <C>
1/31/97 7/31/96
----------- -----------
From operations:
Net investment income $ 48,990 $ 88,349
-------------- --------------
Distributions to shareholders from:
Net investment income (48,990) (88,349)
-------------- --------------
From capital share transactions:
Proceeds from shares sold 1,309,151 2,351,553
Shares issued for dividends reinvested 47,320 85,179
Cost of shares redeemed (1,185,051) (2,148,038)
-------------- --------------
Increase in net assets from capital share transactions 171,420 288,694
-------------- --------------
Net increase in net assets 171,420 288,694
Net assets:
Beginning of period 1,828,749 1,540,055
-------------- --------------
End of period $ 2,000,169 $ 1,828,749
=============== =============
Change in shares outstanding:
Shares sold 1,309,151 2,351,553
Shares issued for dividends reinvested 47,320 85,179
Shares redeemed (1,185,051) (2,148,038)
-------------- --------------
Increase in shares outstanding 171,420 288,694
=============== ==============
Authorized shares of $.01 par value 2,250,000 2,250,000
=============== ==============
</TABLE>
See accompanying notes to financial statements.
(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 semiannual 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 under the Investment Company Act of 1940, 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 13, 1998, one with USAA
Capital Corporation (CAPCO), 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 which only 5% may be borrowed from
CAPCO, 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
six-month period ended January 31, 1997.
(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 January 31, 1997. 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 six-month ended January 31,
1997 were $8,692,426,608 and $8,527,900,627, 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 based on an annual charge per shareholder account plus out-of-pocket
expenses.
C. Underwriting services -- The Manager provides exclusive underwriting and
distribution of the Fund's 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 January 31, 1997, the Association and its affiliates
(including related employee benefit plans) owned 2,603,021 shares (.1%) of the
Fund.
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
Money Market Fund
Notes to Financial Statements (continued)
January 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<S> <C> <C> <C> <C> <C> <C>
Six-Month Ten-Month
Period Ended Period Ended Year Ended
January 31, Year Ended July 31, July 31, September 30,
1997 1996 1995 1994 1993 1992
Net asset value
at beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment
income .03 .05 .05 .03 .03 .04
Distributions from
net investment
income (.03) (.05) (.05) (.03) (.03) (.04)
-------------- -------------- ------------- ------------- -------------- -----------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============= ============= ============== ===========
Total return (%) * 2.59 5.41 5.49 2.74 3.09 4.32
Net assets at end
of period (000) $ 2,000,169 $ 1,828,749 $ 1,540,055 $ 1,006,020 $ 813,784 $ 900,312
Ratio of expenses
to average net
assets (%) .45 (a,b) .45(b) .45(b) .46(a) .48 .48
Ratio of net investment
income to average
net assets (%) 5.09 (a,b) 5.27(b) 5.44(b) 3.28(a) 3.05 4.25
</TABLE>
* Assumes reinvestment of all dividend income 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:
Six-Month
Period Ended
January 31, Year Ended July 31,
1997 1996 1995
Ratio of expenses to
average net assets (%) .50(a) .51 .46
Ratio of net investment
income to average
net assets (%) 5.04(a) 5.21 5.43
