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
Categories and Definitions 8
Portfolio of Investments 9
Notes to Portfolio of Investments 16
Statement of Assets and Liabilities 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)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
--------- ---------- ----------
CAPITAL APPRECIATION
===============================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500(Registered Trademark)
Index(2) Moderate $3,000
Science & Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
ASSET ALLOCATION
===============================================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME - TAXABLE
===============================================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
===============================================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
MONEY MARKET
===============================================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) S&P 500 (Registered Trademark) is a trademark of The McGraw-Hill Companies,
Inc. and has been licensed for use. The Product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the Product.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is 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.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart (Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. IRAs are not available
for tax-exempt funds. The Growth and Tax Strategy Fund is not available as
an investment for your IRA because the majority of its income is tax
exempt.
** California, Florida, New York, Texas, and Virginia funds available to
residents only.
Non-deposit investment products are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, USAA Federal Savings Bank, and are
subject to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
Message from the President
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA
APPEARS HERE]
On June 14, 1998, my wife attended a baby shower given for her daughter, Andrea.
That evening, in addition to many nice gifts, Andrea had another surprise, a new
baby boy, James Kade Broyles. James was our fourth grandchild to receive an
Investart(Registered Trademark) account. His account is in the USAA Growth &
Income Fund. These accounts point up at this time some things I have long
believed.
Shortly after we opened James' account, the stock market began to feel the
effects of long-simmering problems. There was the Asian crisis, Russia in
turmoil, a worsening trade deficit, and very high stock valuations. Suddenly,
the mood changed. There were several days of market drops well over 100 points
on the Dow. The August 8 edition of The Economist has a picture of a bear on the
cover under the caption "Grin and bear it." So, how do we feel about the four
InveStart accounts? We feel just fine!
The reason is that we have a match between our objective and our risk tolerance.
These accounts are aimed at events 15 to 17 years from now, college for four
grandchildren. We are certain that between then and now, the market will
fluctuate. I think we're better off to keep adding to the InveStart accounts,
because I believe the risk and potential reward are in harmony.
Whatever your investment situation, I believe it is possible to achieve this
kind of match between risk and potential reward that can help you with your
investment program.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Past performance is no guarantee of future results.
A systematic plan, such as Investart, does not assure a profit or protect
against loss in declining markets.
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
Investment Review
USAA 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.
- -------------------------------------------------------------------------------
7/31/97 7/31/98
===============================================================================
Net Assets $2,161.7 Million $2,491.5 Million
Net Asset Value Per Share $1.00 $1.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND CURRENT YIELD AS OF 7/31/98
===============================================================================
1 Year 5 Years 10 Years 7-day Yield
5.45% 4.97% 5.67% 5.27%
- -------------------------------------------------------------------------------
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. The
7-day yield quotation more closely reflects current earnings of the Fund than
the total return quotation.
7-DAY YIELD COMPARISON
A chart in the form of a line graph appears here illustrating the comparison of
the 7-day yield of the USAA Money Market Fund to the 7-day yield of the
IBC/Donoghue's Money Fund Averages (TradeMark)/First Tier from 7/97 to 7/98.
IBC/Donoghue Money Fund
USAA Money Averages (TradeMark)/
Market Fund First Tier
----------- ------------------------
07/29/97 5.31% 4.93%
08/26/97 5.28% 4.93%
09/30/97 5.33% 4.95%
10/28/97 5.33% 5.05%
11/25/97 5.41% 4.96%
12/30/97 5.54% 5.07%
01/27/98 5.39% 4.99%
02/24/98 5.29% 4.94%
03/31/98 5.22% 4.93%
04/28/98 5.27% 4.90%
05/26/98 5.26% 4.90%
06/30/98 5.29% 4.94%
07/28/98 5.27%* 4.92%*
Data represent the last Tuesday of each month.
*Ending date 7/28/98
The graph tracks the USAA Money Market Fund's 7-day yield against IBC/Donoghue's
Money Fund Averages(TradeMark)/First Tier, an average of first-tier major money
market fund yields.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER, PAMELA K. BLEDSOE, CFA APPEARS HERE]
THE MARKET
Political and economic unrest in countries around the world are impacting the
U.S. debt markets. Investors continue to prefer the quality and stability
offered by the U.S. treasury market as Asia, Russia, and Indonesia remain
headline news. The increased interest in the U.S. market along with the virtual
lack of any signs of inflation has helped to keep interest rates low. Inflation,
as measured by the Consumer Price Index (CPI), has been subdued as import,
commodity, and retail prices are either stable or declining. While the country
experiences one of the lowest unemployment rates in history, labor costs have
been increasing. However, productivity gains continue to offset any inflationary
impact. Until the economy shows signs of inflation, we do not expect the Federal
Reserve to make any adjustments to monetary policy.
The USAA Money Market Fund is managed to maximize current income while
maintaining a stable net asset value of $1.00. In today's environment, this has
been accomplished by selectively buying one-year securities balanced with
aggressive management of offerings with shorter maturities such as commercial
paper and variable rate demand notes.
While past performance is no guarantee of future results, for the 12 months
ending July 31, 1998, your Fund ranked 16 out of 265 retail Money Market funds
according to IBC Financial Data, Inc. with a yield of 5.45%. The average for the
category over the same time period was 5.08%.
PORTFOLIO MIX
A pie chart is shown here depicting the Portfolio Mix as of July 31, 1998 for
the USAA Money Market Fund: Bonds/Notes - 49.2%*; Variable Rate Demand Notes -
23.8%*; Commercial Paper - 9.8%*; and CDs - 16.6%*.
*Percentages are of the Net Assets and may or may not equal 100%.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating a $10,000
hypothetical investment in the USAA Money Market Fund for the period of 07/31/88
through 07/31/98. The data points from the graph are as follows:
USAA Money Market Fund
- -----------------------------------
07/88 $10,000
12/88 10,333
06/89 10,800
12/89 11,257
06/90 11,696
12/90 12,152
06/91 12,536
12/91 12,889
06/92 13,156
12/92 13,378
06/93 13,581
12/93 13,781
06/94 14,011
12/94 14,339
06/95 14,757
12/95 15,168
06/96 15,556
12/96 15,962
06/97 16,378
12/97 16,824
06/98 17,272
07/98 17,353
Data from 7/31/88 through 7/31/98
Past performance is no guarantee of future results and the value of your
investment will 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. For 7-day yield information, please refer to
the Fund's Investment Review page.
See page 9 for a complete listing of the Portfolio of Investments.
Independent Auditors' Report
The Shareholders and Board of Directors
USAA MONEY MARKET FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA Money Market Fund, a portfolio of USAA
Mutual Fund, Inc., as of July 31, 1998 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 financial highlights, presented in
note 7 to the financial statements, for each of the years or periods in the
five-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, 1998, 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
USAA Money Market Fund as of July 31, 1998, 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 five-year period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Antonio, Texas
September 4, 1998
USAA MONEY MARKET FUND
CATEGORIES AND DEFINITIONS
PORTFOLIO OF INVESTMENTS
July 31, 1998
Fixed Rate Instruments - consist of commercial paper, certificates of deposit,
banker's acceptances, and notes. The interest rate is constant to maturity.
Put Bonds - provide the right to sell the bond at face value at specific tender
dates prior to final maturity. The put feature shortens the effective maturity
to the next tender date.
Variable Rate Demand Notes (VRDN) - provide the right, on any business day, to
sell the security at face value on either that day or in seven days. The
interest rate is adjusted at a stipulated daily, weekly, or monthly interval to
a rate that reflects current market conditions. The effective maturity is the
next date the holder may sell the security back to the issuer. Most VRDNs
possess a credit enhancement.
Adjustable Rate Notes - similar to VRDNs in the fact that the interest rate is
adjusted periodically to reflect current market conditions. These interest rates
are adjusted at a given time, such as monthly or quarterly. 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,
corporation, or a collateral trust. Typically, the rating agencies evaluate the
security based upon the credit standing of the provider of the credit
enhancement, rather than the credit standing of the issuer. If the securities
are enhanced by a bond insurer, scheduled principal and interest payments are
insured by the following:
(1) MBIA, Inc.
The insurance does not guarantee the market value of the municipal bonds.
PORTFOLIO DESCRIPTION ABBREVIATIONS
CD Certificate of Deposit
COP Certificate of Participation
CP Commercial Paper
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
MTN Medium-Term Note
RB Revenue Bond
USAA MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
July 31, 1998
Principal Coupon
Amount Security Rate Maturity Value
- ------------------------------------------------------------------------------
FIXED RATE INSTRUMENTS (33.7%)
Banks - Major Regional
$40,000 BankBoston N. A., Bank Notes 5.57% 9/03/98 $ 40,000
25,000 Huntington National Bank, Bank Notes 5.80 9/22/98 24,998
25,000 MBNA America Bank, N.A., CD 5.62 8/31/98 25,000
14,500 Mercantile Safe Deposit & Trust
Co., CD 6.30 8/16/99 14,576
30,000 National Bank of Canada, CD 5.72 3/08/99 29,993
17,000 Norwest Corp. MTN, Series G 6.00 10/13/98 17,002
- ------------------------------------------------------------------------------
151,569
- ------------------------------------------------------------------------------
Banks - Money Center
25,000 Bankers Trust Co., CD 5.76 4/26/99 24,992
25,000 Bankers Trust Co., CD 5.70 7/23/99 24,988
30,000 Banque Nationale de Paris, CD 5.89 10/15/98 29,997
35,000 Banque Nationale de Paris, CD 5.52 2/18/99 34,965
25,000 Canadian Imperial Bank of Commerce, CD 5.82 9/30/98 24,997
30,000 Commerzbank AG, CD 5.52 2/02/99 29,978
30,000 Commerzbank AG, CD 5.54 2/02/99 29,985
25,000 Credit Agricole Indosuez, CD 5.73 4/16/99 24,992
30,000 Deutsche Bank AG, CD 5.70 3/30/99 29,984
30,000 Macquarie Bank Limited, CP 5.58 8/17/98 29,926
10,000 Macquarie Bank Limited, CP 5.62 8/20/98 9,970
25,000 Societe Generale, CD 5.88 8/07/98 25,000
30,000 Societe Generale, CD 5.95 8/28/98 29,999
15,000 Societe Generale, CD 5.90 10/20/98 14,997
20,000 Societe Generale, CD 5.70 8/03/99 19,988
25,000 Unibanco-Uniao de Bancos
Brasilieros S.A., CP 5.45 6/28/99 23,747
- ------------------------------------------------------------------------------
408,505
- ------------------------------------------------------------------------------
Electric Utilities
20,500 National Rural Utilities Corp.,
MTN, Series C 6.37 12/15/98 20,535
- ------------------------------------------------------------------------------
Finance - Consumer
41,084 Aristar, Inc., CP 5.63 8/06/98 41,052
50,000 Aristar, Inc., CP 5.63 8/14/98 49,898
20,040 Associates Corp. of North America,
Senior Notes 6.00 3/15/99 20,076
18,465 Associates Corp. of North America,
Senior Notes 6.25 3/15/99 18,526
30,000 Ford Credit Europe, CP 5.66 8/04/98 29,986
12,709 Ford Motor Credit Co., Global Notes 5.63 12/15/98 12,697
14,750 General Motors Acceptance Corp., MTN 5.45 3/01/99 14,724
- ------------------------------------------------------------------------------
186,959
- ------------------------------------------------------------------------------
Finance - Diversified
20,181 General Electric Capital Corp., CP 5.68 8/03/98 20,175
30,000 Heller Financial, Inc., CP 5.70 8/05/98 29,981
- ------------------------------------------------------------------------------
50,156
- ------------------------------------------------------------------------------
Healthcare - Miscellaneous
9,900 Medical Building Funding V LLC, CP,
Series 1994 (CRE) 5.74 8/04/98 9,895
- ------------------------------------------------------------------------------
Hospitals
13,145 Bergen, NJ, County Improvement Auth.,
Notes (CRE) 5.74 2/17/99 13,145
- ------------------------------------------------------------------------------
Total fixed rate instruments (cost: $840,764) 840,764
- ------------------------------------------------------------------------------
PUT BONDS (12.2%)
Electric Utilities
54,700 IDA of New Hampshire, Pollution
Control RB, Series E (CRE) 5.64 5/01/21 54,700
65,000 IDB of Columbia, AL, RB,
Series 1997 (a) 5.65 11/01/21 65,000
- ------------------------------------------------------------------------------
119,700
- ------------------------------------------------------------------------------
General Obligations
38,200 Cleveland, OH, Notes, Series 1994
(CRE) 5.62 5/15/24 38,200
- ------------------------------------------------------------------------------
Healthcare - Specialized Services
25,350 Central Plains Clinic Ltd. RB,
Series 1996 (CRE) 5.62 9/01/17 25,350
14,150 Central Plains Clinic Ltd. RB,
Series 1997 (CRE) 5.62 10/16/17 14,150
- ------------------------------------------------------------------------------
39,500
- ------------------------------------------------------------------------------
Leisure Time
8,460 Sault Ste. Marie Tribe Building Auth.,
RB, Series 1996B (CRE) 6.15 6/01/03 8,460
- ------------------------------------------------------------------------------
Nursing/Continuing Care Centers
7,000 Bexar County, TX, Health Facilities
Development RB (CRE) 5.95 2/01/22 7,000
- ------------------------------------------------------------------------------
Oil - Domestic Integrated
26,200 Madison County, IL, RB, Series
1997A (a) 5.59 12/01/37 26,200
- ------------------------------------------------------------------------------
Oil & Gas - Refining/Manufacturing
39,000 IDB of the Parish of Calcasieu,
LA, Inc. Environmental RB, Series
1996 (CRE) 5.61 7/01/26 39,000
- ------------------------------------------------------------------------------
Paper & Forest Products
10,000 IDA of Bedford County, VA, RB,
Series 1995B (CRE) 5.70 12/01/25 10,000
16,000 IDA of Bedford County, VA, RB,
Series 1995C (CRE) 5.70 12/01/25 16,000
- ------------------------------------------------------------------------------
26,000
- ------------------------------------------------------------------------------
Total put bonds (cost: $304,060) 304,060
- ------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (23.8%)
Appropriated Debt
9,950 City of Gardena, CA, COP, Series
1995 (CRE) 6.50 7/01/25 9,950
9,135 City of Gardena, CA, COP, Series
1996 (CRE) 6.50 11/01/19 9,135
- ------------------------------------------------------------------------------
19,085
- ------------------------------------------------------------------------------
Asset Backed Securities
8,515 Capital One Funding Corp., Notes,
Series 1993A (CRE) 5.62 6/02/08 8,515
19,537 Capital One Funding Corp., Notes,
Series 1995C (CRE) 5.62 10/01/15 19,537
22,104 Capital One Funding Corp., Notes,
Series 1996E (CRE) 5.62 7/02/18 22,104
- -------------------------------------------------------------------------------
50,156
- -------------------------------------------------------------------------------
Auto Parts
14,800 Alabama IDA RB (Rehau Project) (CRE) 5.67 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
- -------------------------------------------------------------------------------
Broadcasting - Radio & TV
50,300 New Jersey Economic Development
Auth. RB(CRE) (a) 5.64 10/01/21 50,300
- -------------------------------------------------------------------------------
Buildings
12,000 Fontana, CA, COP (CRE) 6.15 10/01/20 12,000
7,400 San Bernardino County, CA,
COP (CRE) 6.00 11/01/25 7,400
- -------------------------------------------------------------------------------
19,400
- -------------------------------------------------------------------------------
Chemicals
8,555 Wyckoff Chemical Company, Inc.,
Note, Series 1997 (CRE) 5.64 2/01/27 8,555
- -------------------------------------------------------------------------------
Electrical Equipment
10,000 Mississippi Business Finance Corp.,
Series 1998 (a) 5.64 2/01/23 10,000
- -------------------------------------------------------------------------------
Finance - Diversified
22,360 KBL Capital Fund, Inc., Installment
#1 Notes, Series A (CRE) 5.64 5/01/27 22,360
- -------------------------------------------------------------------------------
General Obligations
15,795 San Bernardino County, CA, COP,
Glen Helen Project, Series D (CRE) 5.91 3/01/24 15,795
- -------------------------------------------------------------------------------
Healthcare - Diversified
27,750 Wenatchee Valley Clinic, P.S., WA,
Bonds, Series 1996 (CRE) 5.67 11/12/17 27,750
- -------------------------------------------------------------------------------
Healthcare - Specialized Services
6,900 Mason City Clinic, P.C., IA, Bonds,
Series 1992 (CRE) 5.75 9/01/22 6,900
9,045 Navigator Ventures, LLC, Notes,
Series 1997 (CRE) 5.64 5/01/27 9,045
- -------------------------------------------------------------------------------
15,945
- -------------------------------------------------------------------------------
Hospitals
20,000 Crouse Health Hospital, Inc., RB,
Series 1996 (CRE) 5.75 7/01/17 20,000
15,800 Dome Corp., Bonds, Series 1991 (CRE) 5.70 8/31/16 15,800
- -------------------------------------------------------------------------------
35,800
- -------------------------------------------------------------------------------
Leisure Time
9,000 Fox Valley Ice Arena, IL, RB,
Series 1997 (CRE) 5.70 7/01/27 9,000
14,390 Greenville Memorial Auditorium
District Public Facilities, SC,
COP, Series 1996C (CRE) 5.75 9/01/14 14,390
- -------------------------------------------------------------------------------
23,390
- -------------------------------------------------------------------------------
Manufacturing - Specialized
15,000 Loma Co. L. L. C. Floating Rate,
Option Notes (CRE) 5.67 12/01/08 15,000
13,000 Savannah Economic Development
Auth., GA, RB, Series 1998 (CRE) 5.69 6/01/18 13,000
- -------------------------------------------------------------------------------
28,000
- -------------------------------------------------------------------------------
Multi-Family Housing
12,155 Arbor Properties, Inc., Notes (CRE) 5.70 11/01/21 12,155
6,150 Arbor Properties, Inc., Notes (CRE) 5.70 6/01/22 6,150
- -------------------------------------------------------------------------------
18,305
- -------------------------------------------------------------------------------
Nursing/Continuing Care Centers
9,200 Assisted Living Funding LLC, Bonds,
Series 1997 (CRE) 5.70 10/01/17 9,200
32,000 Lincolnwood Funding Corp. RB,
Series 1995A (CRE) 5.70 8/01/15 32,000
10,465 Missouri Health and Educational
Facilities Auth. RB, Series
1996B (CRE) 5.75 12/01/16 10,465
- -------------------------------------------------------------------------------
51,665
- -------------------------------------------------------------------------------
Real Estate - Other
16,275 First Illinois Funding Corp. Project,
RB, Series 1996 (CRE) 5.70 9/01/26 16,275
17,200 H/M Partners, LLC, Bond (CRE) 5.70 10/01/20 17,200
14,220 HGR-1, LLC, Notes, Series 1996 (CRE) 5.65 9/15/46 14,220
12,000 Houston County, GA, IDA,RB (CRE) 5.72 8/01/12 12,000
25,000 LAM Funding LLC, Notes, Series A
(CRE) 5.64 12/15/27 25,000
10,715 Physicians Real Estate, LLP, Notes,
Series 1998 (CRE) 5.75 2/01/18 10,715
7,000 PRA at Glenwood Hills Corporate
Centre, LLC, Notes, Series
1997 (CRE) 5.64 8/01/27 7,000
9,260 Shepherd Capital, LLC, Notes,
Series 1997 (CRE) 5.65 7/15/47 9,260
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111,670
- -------------------------------------------------------------------------------
Special Assessment/Tax/Fee
20,600 County of Cuyahoga, OH, RB,
Series 1992B (CRE) 5.67 6/01/22 20,600
- -------------------------------------------------------------------------------
Textiles - Home Furnishings
10,000 Alabama IDA RB (Fieldcrest Project)
(CRE) 5.70 7/01/21 10,000
- -------------------------------------------------------------------------------
Water/Sewer Utilities - Municipal
18,040 Hesperia Public Financing Auth.,
CA, RB, Series 1998A (CRE) 6.00 6/01/26 18,040
- -------------------------------------------------------------------------------
Total variable rate demand notes (cost: $591,871) 591,871
- -------------------------------------------------------------------------------
ADJUSTABLE RATE NOTES (29.7%)
Banks - Major Regional
40,000 American Express Centurion Bank,
Bank Notes 5.60 1/14/99 40,000
40,000 Comerica Bank, Bank Note 5.55 6/10/99 39,976
15,000 Huntington National Bank, MTN 5.74 1/13/99 15,005
35,000 Long Lane Master Trust, Notes,
Series 1997C (a), (b) 5.75 11/02/98 35,000
14,800 Long Lane Master Trust, Notes,
Series 1998A (a), (b) 5.71 1/20/99 14,800
20,290 Long Lane Master Trust, Notes,
Series 1998B (a), (b) 5.70 4/30/99 20,290
17,000 SouthTrust Bank, Bank Notes 5.56 9/08/98 16,999
- ------------------------------------------------------------------------------
182,070
- ------------------------------------------------------------------------------
Banks - Money Center
40,000 Bankers Trust, NY, Corp. Notes (a) 5.61 2/10/99 39,996
30,000 Bankers Trust, NY, Corp. Notes (a) 5.68 2/19/99 29,998
18,000 Barnett Bank, Inc., MTN, Series D 5.81 12/28/98 18,013
- ------------------------------------------------------------------------------
88,007
- ------------------------------------------------------------------------------
Finance - Consumer
40,000 American Honda Finance Corp., MTN (a) 5.72 8/03/98 40,000
25,000 American Honda Finance Corp., MTN (a) 5.68 10/22/98 25,000
15,000 American Honda Finance Corp., MTN (a) 5.69 1/21/99 15,000
30,000 American Honda Finance Corp., MTN (a) 5.66 4/09/99 30,000
50,000 Chrysler Financial Corp., MTN,
Series Q 5.66 2/03/99 50,011
60,000 General Motors Acceptance Corp.,
MTN 5.81 1/29/99 60,051
30,000 Household Finance Corp., MTN 5.63 1/21/99 30,000
25,000 Household Finance Corp., MTN 5.64 3/09/99 25,000
25,000 Household Finance Corp., MTN 5.64 4/30/99 25,000
- ------------------------------------------------------------------------------
300,062
- ------------------------------------------------------------------------------
Finance - Diversified
25,000 General Electric Capital Corp., MTN 5.56 6/08/99 24,990
50,000 Sanwa Business Credit Corp., Bonds
(CRE) 1, (a) 5.64 5/20/99 49,996
- ------------------------------------------------------------------------------
74,986
- ------------------------------------------------------------------------------
Leasing
50,000 PHH Corp., MTN 5.60 2/05/99 49,997
45,000 PHH Corp., MTN 5.73 7/12/99 44,996
- ------------------------------------------------------------------------------
94,993
- ------------------------------------------------------------------------------
Total adjustable rate notes (cost: $740,118) 740,118
- ------------------------------------------------------------------------------
Total investments (cost: $2,476,813) $2,476,813
==============================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Banks - Money Center 19.9%
Finance Consumer 19.5
Banks - Major Regional 13.4
Finance - Diversified 5.9
Electric Utilities 5.6
Real Estate - Other 4.5
Leasing 3.8
Nursing/Continuing Care Centers 2.4
Healthcare - Specialized Services 2.2
General Obligations 2.2
Broadcasting - Radio & TV 2.0
Asset Backed Securities 2.0
Hospitals 2.0
Oil & Gas - Refining / Manufacturing 1.6
Auto Parts 1.4
Leisure Time 1.3
Manufacturing - Specialized 1.1
Healthcare - Diversified 1.1
Oil - Domestic Integrated 1.1
Paper & Forest Products 1.0
Other 5.4
-----
99.4%
=====
USAA MONEY MARKET FUND
NOTES TO PORTFOLIO OF INVESTMENTS
July 31, 1998
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 17.6% of net assets at July 31,
1998.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933. 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 144A.
(b) Illiquid securities valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Directors. At July 31,
1998, these securities represented 2.8% of the net assets.
See accompanying notes to financial statements.
USAA MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
July 31, 1998
ASSETS
Investments in securities $2,476,813
Cash 11,324
Receivables:
Capital shares sold 12,111
Interest 23,760
----------
Total assets 2,524,008
----------
LIABILITIES
Securities purchased 19,989
Capital shares redeemed 11,179
USAA Investment Management Company 373
USAA Transfer Agency Company 340
Accounts payable and accrued expenses 388
Dividends on capital shares 266
-----------
Total liabilities 32,535
-----------
Net assets applicable to capital shares outstanding $ 2,491,473
===========
REPRESENTED BY:
Paid-in capital $ 2,491,473
===========
Capital shares outstanding 2,491,473
===========
Authorized shares of $.01 par value 4,700,000
===========
Net asset value, redemption price, and offering price per share $ 1.00
===========
See accompanying notes to financial statements.
USAA MONEY MARKET FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended July 31, 1998
Net investment income:
Interest income $132,399
--------
Expenses:
Management fees 5,238
Transfer agent's fees 3,893
Custodian's fees 672
Postage 420
Shareholder reporting fees 310
Directors' fees 4
Registration fees 185
Professional fees 47
Other 47
--------
Total expenses before reimbursement 10,816
Expenses reimbursed (756)
--------
Total expenses after reimbursement 10,060
--------
Net investment income $122,339
========
See accompanying notes to financial statements.
USAA MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended July 31,
1998 1997
---------------------------
From operations:
Net investment income $ 122,339 $ 103,156
---------------------------
Distributions to shareholders from:
Net investment income (122,339) (103,156)
---------------------------
From capital share transactions:
Proceeds from shares sold 3,370,264 2,797,676
Shares issued for dividends reinvested 118,246 99,655
Cost of shares redeemed (3,158,728) (2,564,389)
---------------------------
Increase in net assets from capital
share transactions 329,782 332,942
---------------------------
Net increase in net assets 329,782 332,942
Net assets:
Beginning of period 2,161,691 1,828,749
---------------------------
End of period $2,491,473 $2,161,691
===========================
Change in shares outstanding:
Shares sold 3,370,264 2,797,676
Shares issued for dividends reinvested 118,246 99,655
Shares redeemed (3,158,728) (2,564,389)
---------------------------
Increase in shares outstanding 329,782 332,942
===========================
See accompanying notes to financial statements.
USAA MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
(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 USAA
Money Market Fund (the Fund). The Fund's investment objective is the highest
income consistent with preservation of capital and maintenance of liquidity.
USAA Investment Management Company (the Manager) seeks to achieve this objective
by investing the Fund's assets in high-quality, U.S. dollar-denominated debt
securities of domestic and foreign issuers which have been determined to present
minimal credit risk.
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 Securities and Exchange Commission, 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, 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, 1998.
(3) DISTRIBUTIONS
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made in the succeeding fiscal year or as
otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities for the year
ended July 31, 1998 were $ 21.8 billion and $21.5 billion, 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
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. Because the Fund's annual expenses for
the year ended July 31, 1998 exceeded .45%, the Manager has waived a portion of
its management fee to reduce the Fund's annual expense to .45%.
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 of $26 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, 1998, the Association and its affiliates
(including related employee benefit plans) owned 3.5 million 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.
<TABLE>
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Ten-Month
Period Ended
Year ended July 31, July 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------------
<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 .05 .03
Distributions from net
investment income (.05) (.05) (.05) (.05) (.03)
--------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================
Total return (%) * 5.45 5.28 5.41 5.49 2.74
Net assets at
end of period (000) $2,491,473 $2,161,691 $1,828,749 $1,540,055 $1,006,020
Ratio of expenses to
average net assets (%) .45 .45 .45 .45 .46(a)
Ratio of expenses to
average net assets
excluding
reimbursement (%) .48 .49 .51 .46 -
Ratio of net investment
income to average net
assets (%) 5.32 5.16 5.27 5.44 3.28(a)
</TABLE>
*Assumes reinvestment of all dividend income distributions during the period.
(a)Annualized. The ratio is not necessarily indicative of 12 months of
operations.
DIRECTORS
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
TELEPHONE ASSISTANCE HOURS
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
