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 7
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments in Securities 17
Statement of Operations 18
Statements of Changes in Net Assets 19
Notes to Financial Statements 20
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
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, 1997.
<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 -1.72 18.38 10.88 -
Emerging Markets(1) 11/7/94 15.35 - - 10.25
Gold(1) 8/15/84 -22.26 3.54 -4.75 -
Growth 4/5/71 21.60 16.94 11.97 -
Growth & Income 6/1/93 31.29 - - 18.53
International(1) 7/11/88 21.81 15.39 - 11.77
S&P 500 Index(4)+ 5/1/96 34.59 - - 33.24
World Growth(1) 10/1/92 21.85 - - 15.50
Asset Allocation
=========================================================================================================
Balanced Strategy(1) 9/1/95 22.38 - - 15.48
Cornerstone Strategy(1) 8/15/84 20.45 14.33 9.22 -
Growth and Tax Strategy(2)** 1/11/89 15.72 11.23 - 10.45
Growth Strategy(1) 9/1/95 15.37 - - 21.37
Income Strategy 9/1/95 14.48 - - 10.36
Income - Taxable
=========================================================================================================
GNMA 2/1/91 9.37 6.85 - 7.67
Income 3/4/74 8.21 7.44 9.45 -
Income Stock 5/4/87 20.77 14.21 12.89 -
Short-Term Bond 6/1/93 7.71 - - 5.69
Income - Tax Exempt
=========================================================================================================
Long-Term(2)** 3/19/82 9.22 6.71 8.09 -
Intermediate-Term(2)** 3/19/82 8.20 6.76 7.54 -
Short-Term(2)** 3/19/82 5.50 4.80 5.59 -
California Bond(2)** 8/1/89 8.90 7.13 - 7.58
Florida Tax-Free Income(2)** 10/1/93 9.79 - - 4.29
New York Bond(2)** 10/15/90 8.86 6.46 - 8.31
Texas Tax-Free Income(2)** 8/1/94 10.37 - - 9.24
Virginia Bond(2)** 10/15/90 8.50 6.93 - 8.08
Money Market
=========================================================================================================
Money Market(3) 2/2/81 5.28 4.48 5.80 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.36 3.04 4.15 -
Treasury Money Market Trust(3) 2/1/91 5.13 4.28 - 4.38
California Money Market(2),(3)** 8/1/89 3.29 2.94 - 3.62
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.26 - - 3.04
New York Money Market(2),(3)** 10/15/90 3.21 2.82 - 3.08
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.33
Virginia Money Market(2),(3)** 10/15/90 3.22 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 return plus share price change and
assumes reinvestment of all dividends and capital gain distributions. No
adjustment has been made for taxes payable by shareholders on their
reinvested dividends and capital gain distributions. The performance data
quoted represent past performance and are not an indication of future
results. Investment return and principal value of an investment will
fluctuate, and an investor's shares, when redeemed, may be worth more or
less than their original cost.
** 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.
+ Includes the $10 annual account maintenance fee through December 31, 1996.
MESSAGE FROM THE PRESIDENT
[PHOTOGRAPH OF PRESIDENT, MICHAEL J.C. ROTH APPEARS HERE]
The last two and one-half
years have been a remarkable
time in the stock market.
These 30 months have witnessed an over 100%(1) rise in the value of equity
indices which has translated into greatly increased wealth for many
investors.(2) But now it is easy to sense that investors are looking over their
shoulders.
This rise in the prices of stocks has had solid underpinnings. The economy has
grown, and continues to grow at a robust, but not excessive rate. Inflation has
remained well in check, even as employment has risen strongly. Interest rates
have remained below the levels they reached in 1994, and, compared to the rate
of inflation are probably still a bit high. Perhaps most surprising of all is
the fact that we are coming quite close to balancing the federal budget.
Many commentators look at these factors and conclude that the stock market looks
reasonable. But others note simply that the market is at or near all-time record
levels and is therefore "too high."
The numbers which define the level of the Dow Jones Industrial Average or the
S&P 500 Stock Index are not particularly meaningful by themselves. What is
meaningful is the relationship of those numbers to numbers which describe the
companies in those averages; such as earnings, dividends and growth rates. These
relationships are the things that help investors decide whether a stock is cheap
or expensive. Only one thing can make the price of a stock go up. The next buyer
must make a decision that paying more for a share of that company than did the
previous buyer makes sense. Such a decision can be made if a buyer believes that
the relationship of price to earnings or growth rate is reasonable. That next
buyer is not obligated either. He or she has options. The money could go to
bonds, to the money markets, to real estate or to pay off debt.
Invariably, investors will begin to make those alternative decisions. We can be
very certain that the stock market will not rise 100% in the next 30 months.
That does not mean it will crash. It does mean that the market will find a way
to return closer to its historic valuation. It last did that in 1994 when it was
essentially flat for a year while corporate earnings grew substantially.
I have been telling investors not to extrapolate 100% every 30 months. Enjoy
it, but remember your risk tolerance and your asset allocation. Those are the
things that will guide you well through all kinds of markets.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
(1) Source: Lipper Analytical Services, Inc.
(2) Past performance is no guarantee of future results. Yields and returns will
fluctuate.
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 7/31/97
Net Assets............................ $1,828.7 MILLION $2,161.7 MILLION
Net Asset Value Per Share............. $1.00 $1.00
Average Annual Total Returns as of 7/31/97
1 Year.................................................... 5.28%
5 Years................................................... 4.51%
10 Years.................................................. 5.79%
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. The performance data quoted represent past performance and are
not an indication of future results. 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.
A chart in the form of a line graph appears here illustrating the 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 7/96 to 7/97.
7-Day Yield Comparison
USAA Money Market Yield IBC/Donoghue
7/30/96 5.0300 4.7400
8/27/96 5.0600 4.7300
9/24/96 5.1000 4.7500
10/29/96 5.0600 4.7500
11/26/96 5.0900 4.7500
12/31/96 5.2000 4.8200
01/28/97 5.0700 4.7500
02/25/97 5.1300 4.7300
03/25/97 5.1200 4.7400
04/29/97 5.2500 4.8900
05/27/97 5.3000 4.9300
06/24/97 5.3400 4.9400
07/29/97 5.3100 4.9300
The graph tracks the USAA Money Market 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
[PHOTOGRAPH OF PORTFOLIO MANAGER, PAMELA K. BLEDSOE, CFA IS HERE]
Strategy
In his book, On War, Carl von Clausewitz wrote of a phenomenon termed "friction
in war." Friction, as described by Clausewitz, results from a variety of unknown
and unforeseen factors. Given this, the friction phenomenon could be adapted to
explain the uncertainty and irrationality that pervades the financial markets.
At any given time, a portfolio manager must make investing decisions without
complete information since the economic environment is constantly changing. Will
interest rates remain stable? . . . or move up? . . . or move down? Will money
invested today provide as good a return as the opportunities available tomorrow?
As an investment professional, one must understand and prepare for the influence
this friction can have on the portfolios under management.
Current Market Conditions
At the policy meeting on March 25, the Federal Open Market Committee (Fed)
raised short-term interest rates 25 basis points to 5.50%. This widely
anticipated action was taken in response to a persistently strong economy that
was viewed as "increasing the risk of inflation." Since the March rate increase,
economic statistics have shown steady growth without signs of inflation. As a
result, we've seen the stock market reach record highs and bond yields reach
recent lows. The marketplace seems to have accepted the prospect of stable Fed
policy until sometime in 1998. However, back-to-school retail activity,
housing-related purchases, and the important holiday shopping season could
prompt the Fed to act sooner rather than later.
Performance
The Money Market Fund is managed to reduce the impact that unforeseen market
forces may have on performance. My goal is to provide a reasonable return
without undue risks, regardless of economic activity. This goal is achieved
through extensive credit analysis and skillful negotiation of each purchase. We
strive to maintain a high degree of liquidity to take advantage of rising rates
while anchoring the balance of the Fund in longer-dated maturities to provide
stability and downside protection in the event interest rates decline. As of
July 31, 1997, the Fund's weighted average maturity was 57 days. For the 12
months ended July 31, 1997, the Fund's yield or return ranked 20 out of 270
funds in the U.S. Money Market category according to IBC Donoghue's Money Fund
Vision Report.
A pie chart is shown here depicting the Portfolio Mix as of July 31, 1997 of the
USAA Money Market Fund to be: Bonds/Notes - 41.1%*, CDs - 19.9%*, Commercial
Paper - 19.5%*, Variable Rate Demand Notes 21.8%*.
* Percentages are of Net Assets and may or may not be equal to 100%.
- ----------------------------------
CUMULATIVE PERFORMANCE OF $10,000
- ----------------------------------
A chart in the form of a line graph appears here, illustrating the cumulative
performance of $10,000 invested in the USAA Money Market Fund.
7/87 10,000
7/88 10,668
7/89 11,606
7/90 12,600
7/91 13,445
7/92 14,079
7/93 14,525
7/94 14,997
7/95 15,821
7/96 16,676
7/97 17,557
Past performance is no guarantee of future results and the value of your
investment may vary according to the USAA Money Market 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.
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
USAA Mutual Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments in securities of the Money Market Fund, a portfolio
of USAA Mutual Fund, Inc. as of July 31, 1997, and 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 presented in note 7 to the financial statements for each of the years
or periods in the ten-year period then ended. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Fund, a portfolio of USAA Mutual Fund, Inc. as of July 31, 1997,
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 for each of the years or periods in the ten-year period
then ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick, LLP
San Antonio, Texas
September 3, 1997
<TABLE>
Money Market Fund
Statement of Assets and Liabilities
(In Thousands)
July 31, 1997
<S> <C>
Assets
Investments in securities $ 2,210,997
Cash 9,154
Receivables:
Capital shares sold 2,766
Interest 15,490
------------
Total assets 2,238,407
------------
Liabilities
Securities purchased 65,000
Capital shares redeemed 10,369
USAA Investment Management Company 414
USAA Transfer Agency Company 307
Accounts payable and accrued expenses 372
Dividends on capital shares 254
------------
Total liabilities 76,716
------------
Net assets applicable to capital shares outstanding $ 2,161,691
============
Represented by:
Paid-in capital $ 2,161,691
============
Capital shares outstanding 2,161,691
============
Net asset value, redemption price, and offering price per share $ 1.00
============
See accompanying notes to financial statements.
</TABLE>
Money Market Fund
Categories & Definitions
Portfolio of Investments in Securities
July 31, 1997
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 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)
July 31, 1997
<CAPTION>
Principal Coupon
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
<C> <S> <C> <C> <C>
Fixed Rate Instruments (47.1%)
Bank Holding Companies - Other Major
$ 14,000 Banco Rio de la Plata S.A., CP (CRE) 5.37% 10/27/97 $ 13,818
22,000 Unibanco-Uniao de Bancos Brasilieros
S.A. (Grand Cayman), CP (CRE) 5.60 9/16/97 21,843
18,000 Unifunding, Inc., CP 5.52 10/10/97 17,807
- -----------------------------------------------------------------------------------------------------
53,468
- -----------------------------------------------------------------------------------------------------
Banks
25,000 Bank Of Tokyo-Mitsubishi, CD 5.97 10/01/97 25,000
25,000 Bank Of Tokyo-Mitsubishi, CD 5.89 12/26/97 25,000
25,000 Bank Of Tokyo-Mitsubishi, CD 5.85 1/14/98 25,000
20,000 Bankers Trust Co., CD 5.50 12/10/97 19,988
25,000 Bankers Trust Co., CD 5.75 1/08/98 24,996
20,000 Bankers Trust Co., CD 6.16 6/02/98 19,994
25,000 Banque Nationale de Paris, CD 5.75 2/26/98 24,993
25,000 Barclays Bank PLC, CD 5.94 6/30/98 24,983
25,000 Canadian Imperial Bank of Commerce, CD 5.69 3/02/98 24,997
25,000 Dai-Ichi Kangyo Bank Ltd., CD 5.65 10/06/97 25,000
15,000 FCC National Bank, Bank Notes 5.70 10/30/97 15,002
20,000 First National Bank of Boston, Bank Notes 6.28 4/08/98 20,000
25,000 First National Bank of Boston, Bank Notes 6.04 7/17/98 25,000
15,000 First of America Bank-Indianapolis, Bank Notes 5.75 8/12/97 15,000
25,000 Fuji Bank Ltd., CD 5.79 8/01/97 25,000
25,000 Industrial Bank of Japan Ltd., CD 5.73 8/19/97 25,000
25,000 Industrial Bank of Japan Ltd., CD 5.69 9/09/97 25,000
23,000 Mellon Bank, PA, N.A., Bank Notes 6.25 12/16/97 23,054
25,000 National Bank of Canada, CD 6.00 3/06/98 25,002
15,000 National Bank of Canada, CD 5.99 3/16/98 15,001
25,000 Sumitomo Bank Ltd., CD 5.75 8/06/97 25,000
25,000 Sumitomo Bank Ltd., CD 5.64 8/19/97 25,000
25,000 Sumitomo Bank Ltd., CD 5.75 8/20/97 25,000
- -----------------------------------------------------------------------------------------------------
528,010
- -----------------------------------------------------------------------------------------------------
Buildings
45,000 75 State Street Capital Corp., CP (CRE) 5.57 8/26/97 44,826
- -----------------------------------------------------------------------------------------------------
Electric Power
19,418 Cogentrix of Richmond, Inc., CP (CRE) 5.58 8/26/97 19,343
8,000 Florida Power & Light Co., MTN, Series 1993B 5.50 3/11/98 7,989
9,446 South Western Electricity PLC, CP 5.62 8/07/97 9,437(a)
55,692 South Western Electricity PLC, CP 5.60 8/14/97 55,579(a)
- -----------------------------------------------------------------------------------------------------
92,348
- -----------------------------------------------------------------------------------------------------
Escrowed Securities
11,385 Palmdale, CA, Community Redevelopment
Agency RB, Series 1992 6.75 11/15/97 11,414
- -----------------------------------------------------------------------------------------------------
Finance - Business/Commercial
25,000 Heller Financial, Inc., CP 5.67 8/01/97 25,000
37,300 Kubota Finance (USA), Inc., CP (CRE) 5.63 8/26/97 37,154
25,000 Sanwa Business Credit Corp., CP 5.69 8/26/97 24,901
- -----------------------------------------------------------------------------------------------------
87,055
- -----------------------------------------------------------------------------------------------------
Finance - Consumer
9,025 American General Finance Corp., Senior Notes 8.25 1/15/98 9,121
25,000 Aristar, Inc., CP 5.65 8/05/97 24,984
20,500 Aristar, Inc., CP 5.63 8/08/97 20,478
25,000 Aristar, Inc., CP 5.67 8/14/97 24,949
16,320 Commercial Credit Corp., Senior Notes 8.50 2/15/98 16,541
28,486 Ford Credit Europe PLC, CP 5.86 8/01/97 28,486
15,000 Yamaha Motor Finance, CP (CRE) 5.61 8/12/97 14,974
- -----------------------------------------------------------------------------------------------------
139,533
- -----------------------------------------------------------------------------------------------------
General Obligations
12,585 Alameda County, CA, Taxable Pension
Obligation Bond, Series 1995A (CRE) 7.05 12/01/97 12,642
10,000 Ridgefield, CT, Taxable Bond
Anticipation Notes 5.90 11/07/97 10,003
- -----------------------------------------------------------------------------------------------------
22,645
- -----------------------------------------------------------------------------------------------------
Hospitals
27,449 El Camino Healthcare Systems, CA, CP (CRE) 5.91 8/05/97 27,449
10,300 Medical Building Funding V LLC, CP,
Series 1994 (CRE) 5.88 8/11/97 10,283
- -----------------------------------------------------------------------------------------------------
37,732
- -----------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $1,017,031) 1,017,031
- -----------------------------------------------------------------------------------------------------
Put Bonds (14.9%)
Communication - Equipment Manufacturers
30,100 New Jersey Economic Development Auth. RB (CRE) 5.69 10/01/21 30,100(a)
- -----------------------------------------------------------------------------------------------------
Electric Power
54,700 IDA of the State of New Hampshire, DEB,
Series E (CRE) 5.73 5/01/21 54,700
- -----------------------------------------------------------------------------------------------------
General Obligations
29,200 Cleveland, OH, Taxable Notes, Series 1994 (CRE) 5.63 5/15/24 29,200
24,935 DeKalb County, GA, IDA RB, Series 1994B 5.72 10/01/24 24,935
19,000 DeKalb County, GA, IDA RB, Series 1994B 5.77 10/01/24 19,000
- -----------------------------------------------------------------------------------------------------
73,135
- -----------------------------------------------------------------------------------------------------
Healthcare - Miscellaneous
25,350 Central Plains Clinic Ltd. RB (CRE) 5.62 9/01/17 25,350
- -----------------------------------------------------------------------------------------------------
Housing - Single-Family
24,500 Virginia Housing Development Auth.
Mortgage Bonds, Series 1997A 5.80 7/01/17 24,495
- -----------------------------------------------------------------------------------------------------
Leisure Time
10,260 Sault Ste. Marie Tribe Building Auth., RB,
Series 1996B (CRE) 6.40 6/01/03 10,260
- -----------------------------------------------------------------------------------------------------
Oil - International
48,000 IDB of the Parish of Calcasieu, LA, Inc.
Environmental RB, Series 1996 (CRE) 5.65 7/01/26 48,000
24,060 Lower Neches Valley Auth., TX, RB,
Series 1995A 5.70 5/01/30 24,060
- -----------------------------------------------------------------------------------------------------
72,060
- -----------------------------------------------------------------------------------------------------
Paper & Forest Products
10,000 IDA of Bedford County, VA, RB,
Series 1995B (CRE) 5.83 12/01/25 10,000
15,000 IDA of Bedford County, VA, RB,
Series 1995C (CRE) 5.83 12/01/25 15,000
- -----------------------------------------------------------------------------------------------------
25,000
- -----------------------------------------------------------------------------------------------------
Retirement Homes
7,000 Bexar County, TX, Health Facilities
Development RB (CRE) 5.98 2/01/22 7,000
- -----------------------------------------------------------------------------------------------------
Total put bonds (cost: $322,100) 322,100
- -----------------------------------------------------------------------------------------------------
Variable Rate Demand Notes (21.8%)
Auto Parts
14,800 Alabama IDA RB (Rehau Project) (CRE) 5.72 10/01/19 14,800
9,255 Bardstown, KY, RB, Series 1994 (CRE) 5.67 6/01/24 9,255
11,000 Bardstown, KY, RB, Series 1995 (CRE) 5.67 3/01/25 11,000
- -----------------------------------------------------------------------------------------------------
35,055
- -----------------------------------------------------------------------------------------------------
Building Materials
8,195 Sarasota County, FL, IDA RB, Series 1994 (CRE) 5.60 9/01/14 8,195
- -----------------------------------------------------------------------------------------------------
Buildings
12,010 Downtown Marietta Development Auth.,
GA, RB (CRE) 5.65 7/01/21 12,010
16,275 First Illinois Funding Corp. Project, RB,
Series 1996 (CRE) 5.80 9/01/26 16,275
7,000 PRA at Glenwood Hills Corporate Centre,
LLC, Notes, Series 1997 (CRE) 5.64 8/01/27 7,000
- -----------------------------------------------------------------------------------------------------
35,285
- -----------------------------------------------------------------------------------------------------
Chemicals
9,735 Wyckoff Chemical Company, Inc.,
Demand Notes, Series 1997 (CRE) 5.64 2/01/27 9,735
- -----------------------------------------------------------------------------------------------------
Community Service
10,000 San Jose, CA, Financing Auth. RB,
Taxable Series A (CRE) 5.85 12/01/25 10,000
- -----------------------------------------------------------------------------------------------------
Education
16,300 Dome Corp., Demand Bonds, Series 1991 (CRE) 5.67 8/31/16 16,300
- -----------------------------------------------------------------------------------------------------
Finance - Receivables
9,333 Capital One Funding Corp., Notes,
Series 1993A (CRE) 5.57 6/02/08 9,333
20,446 Capital One Funding Corp., Notes,
Series 1995C (CRE) 5.57 10/01/15 20,446
22,898 Capital One Funding Corp., Notes,
Series 1996E (CRE) 5.57 7/02/18 22,898
21,800 KBL Capital Fund, Inc., Installment #1 Notes,
Series A (CRE) 5.64 5/01/27 21,800
- -----------------------------------------------------------------------------------------------------
74,477
- -----------------------------------------------------------------------------------------------------
Healthcare - Diversified
25,750 Wenatchee Valley Clinic, P.S., WA,
Taxable Bonds, Series 1996 (CRE) 5.69 11/12/17 25,750
- -----------------------------------------------------------------------------------------------------
Healthcare - Miscellaneous
7,600 Mason City Clinic, P.C., IA, Demand Bonds,
Series 1992 (CRE) 5.75 9/01/22 7,600
10,680 Missouri Health and Educational
Facilities Auth. RB, Series 1996B (CRE) 5.75 12/01/16 10,680
9,260 Navigator Ventures, LLC, Series 1997 (CRE) 5.64 5/01/27 9,260
- -----------------------------------------------------------------------------------------------------
27,540
- -----------------------------------------------------------------------------------------------------
Hotel/Motel
8,050 Howard County, MD, Taxable RB,
Series 1994 (CRE) 5.60 10/01/09 8,050
- -----------------------------------------------------------------------------------------------------
Housing - Multi-Family
7,300 Arbor Properties, Inc., Notes (CRE) 5.65 11/01/21 7,300
6,225 Arbor Properties, Inc., Notes (CRE) 5.65 6/01/22 6,225
- -----------------------------------------------------------------------------------------------------
13,525
- -----------------------------------------------------------------------------------------------------
Leisure Time
11,000 BSL Golf of California, Inc. (CRE) 5.78 1/01/23 11,000
9,500 Fox Valley Ice Arena Taxable Demand RB, IL,
Series 1997 (CRE) 5.80 7/01/27 9,500
14,390 Greenville Memorial Auditorium District
Public Facilities, SC, COP, Series 1996C (CRE)5.85 9/01/14 14,390
- -----------------------------------------------------------------------------------------------------
34,890
- -----------------------------------------------------------------------------------------------------
Machinery - Diversified
22,300 DSL Funding Corp., Notes (CRE) 5.72 12/01/09 22,300
- -----------------------------------------------------------------------------------------------------
Nursing Care
33,000 Lincolnwood Funding Corp. RB,
Series 1995A (CRE) 5.73 8/01/15 33,000
- -----------------------------------------------------------------------------------------------------
Real Estate
13,500 H/M Partners, LLC, Bonds (CRE) 5.65 10/01/20 13,500
13,945 HGR-1, LLC, Notes, Series 1996 (CRE) 5.65 9/15/46 13,945
9,260 Shepherd Capital, LLC, Taxable Notes,
Series 1997 (CRE) 5.61 7/15/47 9,260
- -----------------------------------------------------------------------------------------------------
36,705
- -----------------------------------------------------------------------------------------------------
Retail - Drug Stores
14,320 Harco, Inc., Corporate Notes,
Series 1994 (CRE) 5.65 4/01/24 14,320
- -----------------------------------------------------------------------------------------------------
Special Assessment/Tax/Fee
10,000 City of Gardena, CA, COP, Series 1995 (CRE) 5.90 7/01/25 10,000
9,135 City of Gardena, CA, COP, Series 1996 (CRE) 5.90 11/01/19 9,135
21,500 County of Cuyahoga, OH, Demand RB,
Series 1992B (CRE) 5.60 6/01/22 21,500
16,045 San Bernardino County, CA, COP,
Glen Helen Project, Series D (CRE) 5.88 3/01/24 16,045
- -----------------------------------------------------------------------------------------------------
56,680
- -----------------------------------------------------------------------------------------------------
Textiles
10,000 Alabama IDA RB (Fieldcrest Project) (CRE) 5.65 7/01/21 10,000
- ----------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $471,807) 471,807
- ----------------------------------------------------------------------------------------------------
Variable Rate Notes (18.5%)
Banks
25,000 Boatmen's Credit Card Bank, Bank Notes 5.67 8/08/97 25,000
10,000 First USA Bank, MTN 5.95 1/15/98 10,011
15,000 Mercantile Safe Deposit & Trust, CD 5.89 2/03/98 15,000
15,000 SouthTrust Bank, NC, Bank Notes 5.69 9/12/97 15,000
25,000 SouthTrust Bank, NC, Bank Notes 5.69 10/06/97 25,000
- ----------------------------------------------------------------------------------------------------
90,011
- ----------------------------------------------------------------------------------------------------
Finance - Consumer
20,000 American Honda Finance Corp., MTN 5.86 8/01/97 20,000(a)
30,000 American Honda Finance Corp., MTN 5.79 4/06/98 29,996(a)
40,000 American Honda Finance Corp., MTN 5.72 8/01/98 40,000(a,b)
25,000 Chrysler Financial Corp., MTN 6.03 1/16/98 25,025
25,000 Chrysler Financial Corp., MTN 6.00 2/02/98 25,033
50,000 General Motors Acceptance Corp., MTN 5.70 10/17/97 49,999
25,000 Household Finance Corp., MTN 5.69 6/03/98 25,000
- ----------------------------------------------------------------------------------------------------
215,053
- ----------------------------------------------------------------------------------------------------
Leasing
30,000 PHH Corp., MTN 5.68 1/15/98 30,000
20,000 PHH Corp., MTN 5.62 1/27/98 19,997
25,000 PHH Corp., MTN 5.68 6/11/98 24,998
20,000 PHH Corp., MTN 5.63 7/27/98 20,000
- ----------------------------------------------------------------------------------------------------
94,995
- ----------------------------------------------------------------------------------------------------
Total variable rate notes (cost: $400,059) 400,059
- ----------------------------------------------------------------------------------------------------
Total investments (cost: $2,210,997) $2,210,997
=====================================================================================================
</TABLE>
Portfolio Summary By Industry
Banks 28.6%
Finance - Consumer 16.4
Electric Power 6.8
General Obligations 4.4
Leasing 4.4
Finance - Business/Commercial 4.0
Buildings 3.7
Finance - Receivables 3.4
Oil - International 3.3
Special Assessment/Tax/Fee 2.6
Bank Holding Companies - Other Major 2.5
Healthcare - Miscellaneous 2.4
Leisure Time 2.1
Hospitals 1.7
Real Estate 1.7
Auto Parts 1.6
Nursing Care 1.5
Communication - Equipment Manufacturers 1.4
Healthcare - Diversified 1.2
Paper & Forest Products 1.2
Housing - Single-Family 1.1
Machinery - Diversified 1.0
Other 5.3
-----
Total 102.3%
=====
Money Market Fund
Notes to Portfolio of Investments in Securities
July 31, 1997
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 20.5% of net assets at July 31,
1997.
Portfolio Description Abbreviation
CD Certificate of Deposit
COP Certificate of Participation
CP Commercial Paper
CRE Credit Enhanced
DEB Debentures
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
MTN Medium-Term Note
RB Revenue Bond
Specific Notes
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by management. Any resale of this security may
occur in an exempt transaction in the United States to a qualified institutional
buyer as defined by Rule 144A.
(b) At July 31, 1997, the cost of securities purchased on a delayed delivery
basis was $40,000,000.
See accompanying notes to financial statements.
Money Market Fund
Statement of Operations
(In Thousands)
Year ended July 31, 1997
Net investment income:
Interest income $ 112,145
----------
Expenses:
Management fees 4,798
Transfer agent's fees 3,515
Custodian's fees 539
Postage 438
Shareholder reporting fees 202
Directors' fees 5
Registration fees 198
Audit fees 29
Legal fees 3
Other 77
----------
Total expenses before reimbursement 9,804
Expenses reimbursed (815)
----------
Total expenses after reimbursement 8,989
----------
Net investment income $ 103,156
==========
See accompanying notes to financial statements.
<TABLE>
Money Market Fund
Statements of Changes in Net Assets
(In Thousands)
Years ended July 31,
1997 1996
---- ----
<S> <C> <C>
From operations:
Net investment income $ 103,156 $ 88,349
----------- ------------
Distributions to shareholders from:
Net investment income (103,156) (88,349)
----------- ------------
From capital share transactions:
Proceeds from shares sold 2,797,676 2,351,553
Shares issued for dividends reinvested 99,655 85,179
Cost of shares redeemed (2,564,389) (2,148,038)
----------- ------------
Increase in net assets from capital share transactions 332,942 288,694
----------- ------------
Net increase in net assets 332,942 288,694
Net assets:
Beginning of period 1,828,749 1,540,055
----------- ------------
End of period $ 2,161,691 $ 1,828,749
=========== ============
Change in shares outstanding:
Shares sold 2,797,676 2,351,553
Shares issued for dividends reinvested 99,655 85,179
Shares redeemed (2,564,389) (2,148,038)
----------- ------------
Increase in shares outstanding 332,942 288,694
=========== ============
Authorized shares of $.01 par value 3,000,000 2,250,000
=========== ============
See accompanying notes to financial statements.
</TABLE>
Money Market Fund
Notes to Financial Statements
July 31, 1997
(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 ten 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 -- 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 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, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total
assets at CAPCO's borrowing rate with no markup. Subject to availability under
its agreement with NationsBank, the Fund may borrow from NationsBank an amount
which, when added to outstanding borrowings under the CAPCO agreement, does not
exceed 25% of the Fund's total assets at NationsBank's borrowing rate plus a
markup. The Fund had no borrowings under either of these agreements during the
year ended July 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 July 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 year ended July 31, 1997
were $18,858,808,233 and $18,509,745,260, 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 July 31, 1997, the Association and its affiliates
(including related employee benefit plans) owned 13,676,495 shares (.6%) 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.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Ten-Month Year Ended
Year Ended July 31, Period Ended September 30,
------------------------------------------ July 31, -------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<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 .05 .03 .03
Distributions from net
investment income (.05) (.05) (.05) (.03) (.03)
---------- ---------- ---------- ---------- --------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========
Total return (%)* 5.28 5.41 5.49 2.74 3.09
Net assets at end
of period (000) $2,161,691 $1,828,749 $1,540,055 $1,006,020 $813,784
Ratio of expenses to
average net assets (%) .45(b) .45(b) .45(b) .46(a) .48
Ratio of net investment
income to average
net assets (%) 5.16(b) 5.27(b) 5.44(b) 3.28(a) 3.05
Year Ended September 30,
-------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .04 .07 .08 .09 .07
Distributions from ne
investment income (.04) (.07) (.08) (.09) (.07)
---------- ---------- ---------- ---------- --------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========
Total return (%)* 4.32 6.71 8.12 8.87 6.94
Net assets at end
of period (000) $ 900,312 $ 984,404 $ 980,917 $ 882,694 $679,979
Ratio of expenses to
average net assets (%) .48 .54 .62 .68 .72
Ratio of net investment
income to average
net assets (%) 4.25 6.52 7.86 8.55 6.75
</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,
------------------------------------------
1997 1996 1995
---- ---- ----
Ratio of expenses to
average net assets (%) .49 .51 .46
Ratio of net investment
income to average
net assets (%) 5.12 5.21 5.43
