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 7
Portfolio of Investments in Securities 8
Notes to Portfolio of Investments in Securities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Notes to Financial Statements 19
===============================================================================
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 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 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,
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]
"We are now ready to
move to another plateau."
Back in 1980 we began to craft a family of mutual funds that would allow an
investor to create a diversified portfolio suited to an individual's appetite
for risk. In 1984 we started a brokerage service because we thought some members
might want that. The two have grown beyond our dreams. Our fund family now
offers 35 investment choices and our Brokerage Service has become a very
significant presence in its industry. We are now ready to move to another
plateau.
As I write this message, the USAA Investment Management Company is in the
process of ending our long and mutually rewarding relationship with BHC
Securities, and taking on all of the responsibilities of running our Brokerage
Service. The term for this is "self-clearing." It includes our own seat on the
Chicago Stock Exchange. Shortly after we achieve self-clearing, we shall also
move our mutual fund accounts off of an internal system and onto the facilities
of DST Systems, a Kansas City company that processes very much of the mutual
fund industry's transactions. These two moves will greatly improve our ability
to offer you better service.
Our goal is to give you a single investment account which can hold, track and
report to you on almost any type of investment you wish to make. It will offer
features such as low-cost loans based upon your investments,(1) easy movement of
funds,(2) and a single statement. It will also be tied to other USAA services
such as banking, fixed and variable annuities and property and casualty and life
insurance. We will make this the only investment account you will need. You'll
be hearing more on this in coming months.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company (IMCO), including charges and expenses,
please call for a prospectus. Read it carefully before you invest.
USAA Brokerage Services is a discount brokerage service of USAA IMCO, a member
of the NASD.
(1) Margin borrowing allows you to buy securities using funds that we will loan
you for payment. It can serve as a low-interest loan which can be used for
any purpose. Not all securities can be margined, however. Margin borrowing
involves additional risks.
(2) An investor should consider the fluctuating values of securities.
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.
7/31/97 1/31/98
===============================================================================
Net Assets $2,161.7 Million $2,290.8 Million
Net Asset Value Per Share $1.00 $1.00
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS AND CURRENT YIELD AS OF 1/31/98
===============================================================================
7/31/97 to 1/31/98 1 Year 5 Years 10 Years 7-day Yield
2.72%(+) 5.41% 4.73% 5.73% 5.39%
===============================================================================
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
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 GRAPH
- -----------------------------
A chart in the form of a line graph appears here, illustrating the comparison of
a 7-day yield of the USAA Money Market Fund to the IBC/Donoghue's Money Fund
Averages(TM)/First Tier from 01/28/97 to 01/27/98.
IBC/DONOGHUE'S MONEY
USAA MONEY FUND AVERAGES(TM)/
MARKET FUND FIRST TIER
----------- ----------
2/25/97 5.13% 4.73%
3/25/97 5.12% 4.74%
4/29/97 5.25% 4.89%
5/27/97 5.30% 4.93%
6/24/97 5.34% 4.94%
7/29/97 5.31% 4.93%
8/26/97 5.28% 4.93%
9/30/97 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%
1/27/98 5.39%* 4.99%*
Data represent the last Tuesday of each month.
*Ending date 1/27/98
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]
A LOOK BACK
With the onset of the first money market fund launched in 1971, individual
investors were able to participate in higher yielding short-term instruments
previously available only to institutional investors. Over the next ten years,
money market fund assets increased more than $100 billion as inflation caused
interest rates to skyrocket to near 20% levels in the early 1980s. Cash quickly
left lower yielding bank deposits and poured into money market funds. The 1982
deregulation of the banking industry allowed banks to create money market
deposit accounts that could pay higher rates over passbook savings accounts and
therefore compete against money market mutual funds for assets. By 1990, assets
of money market funds exceeded $500 billion even as the country was in the midst
of a recession. Since then, assets have continued to grow, surpassing the $1
trillion mark in August 1997.
Regulation has changed the way money market funds are managed. In 1983, the
Securities and Exchange Commission adopted Rule 2a-7 of the Investment Company
Act of 1940 to reduce the likelihood of deviation of a money market fund's net
asset value from $1.00. The "Rule" and its amendments (adopted in 1986, 1991,
and 1998) dictate the purchase of high quality securities and limit the weighted
average maturity of a money market fund. An impact of this regulation is an
extremely competitive money market industry.
CURRENT MARKET CONDITIONS
With the Federal Reserve interest rate policy unchanged since March 1997, the
money market arena has been uneventful. Financial markets have focused on the
crises in Asia and the impact it may have on the U.S. economy. Growth in the
U.S. is expected to slow during 1998, but the economic expansion we have enjoyed
since 1991 should continue.
For the twelve months ended January 31, 1998, the USAA Money Market Fund's total
return ranked 16 out of 257 funds in the U.S. Money Market category according to
IBC/Donoghue's Money Fund Vision Report. At the close of business on January 30,
1998, the average 7-day yield for other money market funds was 4.95% compared to
the Fund's yield of 5.39%.
PORTFOLIO MIX
A pie chart appears here depicting the Portfolio Mix as of 1/31/98 of the USAA
Money Market Fund to be:
Commercial Paper - 14.9%*, CDs - 16.4%*, Variable Rate Demand Notes - 22.3%*,
Bonds/Notes - 47.6%*.
* 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 a $10,000 investment in the USAA Money Market Fund for the period
of 1/31/88 to 1/31/98. The data points from the graph are as follows:
1/31/88 10,000
6/88 10,269
12/88 10,669
06/89 11,151
12/89 11,622
06/90 12,075
12/90 12,548
6/91 12,946
12/91 13,310
06/92 13,585
12/92 13,815
06/93 14,025
12/93 14,231
6/94 14,468
12/94 14,807
6/95 15,239
12/95 15,666
6/96 16,067
12/96 16,487
06/97 16,916
12/97 17,377
1/31/98 17,454
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 in Securities.
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 1998
(Unaudited)
ASSETS
Investments in securities $2,318,656
Cash 13,709
Receivables:
Capital shares sold 6,347
Interest 21,197
----------
Total assets 2,359,909
----------
LIABILITIES
Securities purchased 57,115
Capital shares redeemed 10,328
USAA Investment Management Company 691
USAA Transfer Agency Company 337
Accounts payable and accrued expenses 316
Dividends on capital shares 278
----------
Total liabilities 69,065
----------
Net assets applicable to capital shares outstanding $2,290,844
==========
REPRESENTED BY:
Paid-in capital $2,290,844
==========
Capital shares outstanding 2,290,844
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
CATEGORIES AND DEFINITIONS
PORTFOLIO OF INVESTMENT IN SECURITIES
January 31, 1998
(Unaudited)
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 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.
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.
PORTFOLIO DESCRIPTION ABBREVIATIONS
BA Bankers Acceptance
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
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
(IN THOUSANDS)
January 31, 1998
(Unaudited)
Principal Coupon
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
FIXED RATE INSTRUMENTS (40.6%)
Auto Parts
$ 23,000 Bridgestone/Firestone Inc., CP (CRE)5.75% 2/02/98 $ 22,992
- --------------------------------------------------------------------------
Banks - Major Regional
30,000 Bank of America National Trust and
Savings Assn., Bank Notes 5.52 4/27/98 30,001
25,000 BankBoston N. A., Bank Notes 5.80 4/24/98 25,000
11,400 Barnett Bank, Inc., MTN 6.25 7/28/98 11,421
20,000 First National Bank of Boston,
Bank Notes 6.28 4/08/98 20,000
25,000 Huntington National Bank, MTN 5.80 9/22/98 24,992
25,000 National Bank of Canada, CD 6.00 3/06/98 25,000
15,000 National Bank of Canada, CD 5.99 3/16/98 15,000
17,000 Norwest Corp. MTN, Series G 6.00 10/13/98 17,008
- ---------------------------------------------------------------------------
168,422
- ---------------------------------------------------------------------------
Banks - Money Center
20,000 Bankers Trust Co., CD 6.16 6/02/98 19,998
25,000 Banque Nationale de Paris, CD 5.75 2/26/98 24,999
30,000 Banque Nationale de Paris, CD 5.89 10/15/98 29,990
25,000 Banque Paribas, CD 5.53 4/27/98 24,999
25,000 Barclays Bank PLC, CD 5.94 6/30/98 24,992
25,000 Canadian Imperial Bank of
Commerce, CD 5.69 3/02/98 25,000
25,000 Canadian Imperial Bank of
Commerce, CD 5.82 9/30/98 24,987
40,000 First Tennessee Bank, CD 5.50 4/15/98 39,996
5,600 Sanwa Bank Ltd., BA 6.11 2/17/98 5,584
15,000 Sanwa Bank Ltd., BA 6.11 2/18/98 14,954
25,000 Sanwa Bank Ltd., CD 6.18 2/18/98 25,000
25,000 Societe Generale, CD 5.88 8/07/98 24,994
30,000 Societe Generale, CD 5.95 8/28/98 29,991
15,000 Societe Generale, CD 5.90 10/20/98 14,988
25,000 Standard Charter Bank PLC, CD 5.79 4/23/98 25,001
35,000 Unifunding, Inc., CP 5.47 2/13/98 34,931
- ---------------------------------------------------------------------------
390,404
- ---------------------------------------------------------------------------
Electric
8,000 Florida Power & Light Co., MTN,
Series 1993B 5.50 3/11/98 7,998
20,500 National Rural Utilities Corp.,
MTN, Series C 6.37 12/15/98 20,581
- ---------------------------------------------------------------------------
28,579
- ---------------------------------------------------------------------------
Electric/Gas Utilities
24,418 Cogentrix of Richmond, Inc.,
CP (CRE) 5.48 2/17/98 24,355
27,291 Cogentrix of Richmond, Inc.,
CP (CRE) 5.49 2/19/98 27,212
- ---------------------------------------------------------------------------
51,567
- ---------------------------------------------------------------------------
Finance - Consumer
30,000 Aristar, Inc., CP 5.54 2/10/98 29,954
35,000 Aristar, Inc., CP 5.55 2/25/98 34,865
5,000 Chrysler Financial Corp., MTN 6.82 5/26/98 5,015
16,320 Commercial Credit Corp.,
Senior Notes 8.50 2/15/98 16,337
12,709 Ford Motor Credit Co. Global
Notes 5.63 12/15/98 12,680
35,000 General Motors Acceptance Corp.,
CP 5.50 2/05/98 34,973
25,000 Yamaha Motor Finance Corp., CP
(CRE) 5.78 2/17/98 24,932
- ---------------------------------------------------------------------------
158,756
- ---------------------------------------------------------------------------
Finance - Diversified
56,584 General Electric Capital Corp., CP 5.62 2/02/98 56,566
14,863 General Electric Capital Corp., CP 5.57 2/05/98 14,852
27,430 General Electric Capital Corp., CP 5.62 2/11/98 27,383
- ---------------------------------------------------------------------------
98,801
- ---------------------------------------------------------------------------
Healthcare - Miscellaneous
9,900 Medical Building Funding V LLC, CP,
Series 1994 (CRE) 5.85 2/05/98 9,892
- ---------------------------------------------------------------------------
Total fixed rate instruments (cost: $929,413) 929,413
- ---------------------------------------------------------------------------
PUT BONDS (18.2%)
Broadcasting - Radio & TV
28,700 New Jersey Economic Development
Auth. RB (CRE) 5.72 10/01/21 28,700(a)
- ---------------------------------------------------------------------------
Education
47,235 DeKalb County, GA, IDA RB,
Series 1994B 5.85 10/01/24 47,235
- ---------------------------------------------------------------------------
Electric
54,700 IDA of New Hampshire, Pollution Control RB,
Series E (CRE) 5.85 5/01/21 54,700
55,000 IDB of Columbia, AL, RB,
Series 1997 5.90 11/01/21 55,000(a)
- ---------------------------------------------------------------------------
109,700
- ---------------------------------------------------------------------------
General Obligations
39,200 Cleveland, OH, Taxable Notes,
Series 1994 (CRE) 5.61 5/15/24 39,200
- ---------------------------------------------------------------------------
Healthcare - Specialized Services
25,350 Central Plains Clinic Ltd. RB,
Series 1996 (CRE) 5.58 9/01/17 25,350
14,150 Central Plains Clinic Ltd. RB,
Series 1997 (CRE) 5.58 10/16/17 14,150
- ---------------------------------------------------------------------------
39,500
- ---------------------------------------------------------------------------
Leisure Time
9,360 Sault Ste. Marie Tribe Building Auth., RB,
Series 1996B (CRE) 6.31 6/01/03 9,360
- ---------------------------------------------------------------------------
Nursing / Continuing Care Centers
7,000 Bexar County, TX, Health Facilities
Development RB (CRE) 5.95 2/01/22 7,000
7,000 Bexar County, TX, Health Facilities
Development RB (CRE) 5.98 2/01/22 7,000
- ---------------------------------------------------------------------------
14,000
- ---------------------------------------------------------------------------
Oil - Domestic Integrated
45,000 Madison County, IL, RB,
Series 1997A 5.86 12/01/37 45,000(a)
- ---------------------------------------------------------------------------
Oil - International Integrated
18,660 Lower Neches Valley Auth., TX, RB,
Series 1995A 5.55 5/01/30 18,660
- ---------------------------------------------------------------------------
Oil & Gas - Refining/Manufacturing
39,000 IDB of the Parish of Calcasieu,
LA, Inc. Environmental RB,
Series 1996 (CRE) 5.86 7/01/26 39,000
- ---------------------------------------------------------------------------
Paper & Forest Products
10,000 IDA of Bedford County, VA, RB,
Series 1995B (CRE) 5.90 12/01/25 10,000
18,000 IDA of Bedford County, VA, RB,
Series 1995C (CRE) 5.90 12/01/25 18,000
- ---------------------------------------------------------------------------
28,000
- ---------------------------------------------------------------------------
Total put bonds (cost: $418,355) 418,355
- ---------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (22.3%)
Appropriated Debt
10,000 City of Gardena, CA, COP,
Series 1995 (CRE) 6.15 7/01/25 10,000
9,135 City of Gardena, CA, COP,
Series 1996 (CRE) 6.15 11/01/19 9,135
- ---------------------------------------------------------------------------
19,135
- ---------------------------------------------------------------------------
Asset Backed Securities
8,885 Capital One Funding Corp., Notes,
Series 1993A (CRE) 5.56 6/02/08 8,885
20,072 Capital One Funding Corp., Notes,
Series 1995C (CRE) 5.56 10/01/15 20,072
22,503 Capital One Funding Corp., Notes,
Series 1996E (CRE) 5.56 7/02/18 22,503
- ---------------------------------------------------------------------------
51,460
- ---------------------------------------------------------------------------
Auto Parts
14,800 Alabama IDA RB (Rehau Project) (CRE)5.64 10/01/19 14,800
9,255 Bardstown, KY, RB, Series 1994 (CRE)5.61 6/01/24 9,255
11,000 Bardstown, KY, RB, Series 1995 (CRE)5.61 3/01/25 11,000
- ---------------------------------------------------------------------------
35,055
- ---------------------------------------------------------------------------
Building Material Group
7,400 San Bernardino County, CA, COP (CRE)6.00 11/01/25 7,400
- ---------------------------------------------------------------------------
Chemicals
9,735 Wyckoff Chemical Company, Inc.,
Demand Note, Series 1997 (CRE) 5.60 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
- --------------------------------------------------------------------------
Finance - Diversified
21,800 KBL Capital Fund, Inc., Installment #1 Notes,
Series A (CRE) 5.60 5/01/27 21,800
- --------------------------------------------------------------------------
General Obligations
16,045 San Bernardino County, CA, COP,
Glen Helen Project,
Series D (CRE) 5.88 3/01/24 16,045
- --------------------------------------------------------------------------
Healthcare - Diversified
27,750 Wenatchee Valley Clinic, P.S., WA,
Taxable Bonds, Series 1996 (CRE) 5.59 11/12/17 27,750
- --------------------------------------------------------------------------
Healthcare - Specialized Services
6,900 Mason City Clinic, P.C., IA, Bonds,
Series 1992 (CRE) 5.68 9/01/22 6,900
9,260 Navigator Ventures, LLC, Notes,
Series 1997 (CRE) 5.60 5/01/27 9,260
- --------------------------------------------------------------------------
16,160
- --------------------------------------------------------------------------
Hospitals
20,000 Crouse Health Hospital, Inc. RB,
Series 1996 (CRE) 5.70 7/01/17 20,000
15,800 Dome Corp., Bonds, Series
1991 (CRE) 5.67 8/31/16 15,800
- --------------------------------------------------------------------------
35,800
- --------------------------------------------------------------------------
Leisure Time
10,500 BSL Golf of California, Inc.,
RB (CRE) 5.77 1/01/23 10,500
9,000 Fox Valley Ice Arena, IL, Taxable
RB, Series 1997 (CRE) 5.75 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
- --------------------------------------------------------------------------
33,890
- --------------------------------------------------------------------------
Machinery - Diversified
23,800 DSL Funding Corp., Notes (CRE) 5.71 12/01/09 23,800
- --------------------------------------------------------------------------
Multi-family Housing
12,155 Arbor Properties, Inc., Notes (CRE) 5.85 11/01/21 12,155
6,225 Arbor Properties, Inc., Notes (CRE) 5.85 6/01/22 6,225
- --------------------------------------------------------------------------
18,380
- --------------------------------------------------------------------------
Nursing / Continuing Care Centers
9,200 Assisted Living Funding LLC, Bonds,
Series 1997 (CRE) 5.65 10/01/17 9,200
32,600 Lincolnwood Funding Corp. RB,
Series 1995A (CRE) 5.67 8/01/15 32,600
10,575 Missouri Health and Educational
Facilities Auth. RB, Series
1996B (CRE) 5.70 12/01/16 10,575
- --------------------------------------------------------------------------
52,375
- --------------------------------------------------------------------------
Real Estate - Other
16,275 First Illinois Funding Corp. Project, RB,
Series 1996 (CRE) 5.75 9/01/26 16,275
17,200 H/M Partners, LLC, Bond (CRE) 5.85 10/01/20 17,200
13,945 HGR-1, LLC, Notes, Series 1996
(CRE) 5.59 9/15/46 13,945
12,000 Houston County, GA, Development
Authority Industrial RB (CRE) 5.68 8/01/12 12,000
25,000 LAM Funding LLC, Notes, Series A
(CRE) 5.60 12/15/27 25,000
7,000 PRA at Glenwood Hills Corporate
Centre, LLC, Notes, Series 1997
(CRE) 5.60 8/01/27 7,000
9,260 Shepherd Capital, LLC, Taxable
Notes, Series 1997 (CRE) 5.59 7/15/47 9,260
- --------------------------------------------------------------------------
100,680
- --------------------------------------------------------------------------
Special Assessment/Tax/Fee
21,500 County of Cuyahoga, OH, RB,
Series 1992B (CRE) 5.58 6/01/22 21,500
- --------------------------------------------------------------------------
Textiles - Home Furnishings
10,000 Alabama IDA RB (Fieldcrest
Project) (CRE) 5.85 7/01/21 10,000
- --------------------------------------------------------------------------
Total variable rate demand notes
(cost: $510,965) 510,965
- --------------------------------------------------------------------------
VARIABLE RATE NOTES (20.1%)
Banks - Major Regional
10,000 American Express Centurion Bank,
Bank Notes 5.66 6/25/98 10,004
40,000 American Express Centurion Bank,
Bank Notes 5.53 1/14/99 40,000
18,000 Barnett Bank, Inc., MTN 6.03 12/28/98 18,029
10,000 Household Bank, Bank Notes 5.99 6/15/98 10,003
15,000 Huntington National Bank, MTN 5.71 1/13/99 15,010
35,000 Long Lane Master Trust, Notes,
Series 1997C 5.78 11/02/98 35,000(b)
14,800 Long Lane Master Trust, Notes,
Series 1998A 5.62 1/20/99 14,800(b)
15,000 Mercantile Safe Deposit &
Trust, CD 5.82 2/03/98 15,000
17,000 SouthTrust Bank, Bank Notes 5.57 9/08/98 16,995
- ---------------------------------------------------------------------------
174,841
- ---------------------------------------------------------------------------
Finance - Consumer
30,000 American Honda Finance Corp., MTN 5.82 4/06/98 29,999(a)
40,000 American Honda Finance Corp., MTN 5.75 8/01/98 40,000(a)
25,000 American Honda Finance Corp., MTN 5.62 10/22/98 25,000(a)
15,000 American Honda Finance Corp., MTN 5.63 1/21/99 15,000(a)
25,000 Chrysler Financial Corp., MTN 6.13 2/02/98 25,000
50,000 General Motors Acceptance
Corp., MTN 5.75 1/29/99 50,084
25,000 Household Finance Corp., MTN 5.97 6/03/98 25,000
30,000 Household Finance Corp., MTN 5.58 1/21/99 30,000
- ---------------------------------------------------------------------------
240,083
- ---------------------------------------------------------------------------
Leasing
25,000 PHH Corp., MTN 5.62 6/11/98 24,999
20,000 PHH Corp., MTN 5.59 7/27/98 20,000
- ---------------------------------------------------------------------------
44,999
- ---------------------------------------------------------------------------
Total variable rate notes (cost: $459,923) 459,923
- ---------------------------------------------------------------------------
Total investments (cost: $2,318,656) $2,318,656
===========================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Finance - Consumer 17.4
Banks - Money Center 17.0
Banks - Major Regional 15.0
Electric 6.0
Finance - Diversified 5.3
Real Estate - Other 4.4
Nursing / Continuing Care Centers 2.9
Auto Parts 2.5
General Obligations 2.4
Healthcare - Specialized Services 2.4
Electric/Gas Utilities 2.3
Asset Backed Securities 2.2
Education 2.1
Leasing 2.0
Oil - Domestic Integrated 2.0
Leisure Time 1.9
Oil & Gas - Refining/Manufacturing 1.7
Hospitals 1.6
Broadcasting - Radio & TV 1.3
Healthcare - Diversified 1.2
Paper & Forest Products 1.2
Machinery - Diversified 1.0
Other 5.4
------
Total 101.2%
======
MONEY MARKET FUND
NOTES TO PORTFOLIO OF INVESTMENTS IN SECURITIES
January 31, 1998
(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 14.6% of net assets at January
31, 1998.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Manager. 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) Securities are exempt from registration under the Securities Act of 1933.
Any resale of these securities may occur in exempt transactions in the United
States to a qualified institutional buyer as defined by Rule 144A. These
securities have been determined to be illiquid by the Manager and are being
valued using methods determined by the Manager under general supervision of the
Company's Board of Directors. At January 31, 1998, these securities represented
2.2% of the Fund's net assets.
See accompanying notes to financial statements.
MONEY MARKET FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 1998
(Unaudited)
Net investment income:
Interest income $64,535
-------
Expenses:
Management fees 2,677
Transfer agent's fees 1,946
Custodian's fees 329
Postage 173
Shareholder reporting fees 97
Directors' fees 2
Registration fees 104
Professional fees 26
Other 33
-------
Total expenses before reimbursement 5,387
Expenses reimbursed (397)
-------
Total expenses after reimbursement 4,990
-------
Net investment income $59,545
=======
See accompanying notes to financial statements.
MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 1998
and Year ended July 31, 1997
(Unaudited)
1/31/98 7/31/97
------- -------
From operations:
Net investment income $ 59,545 $ 103,156
---------- ----------
Distributions to shareholders from:
Net investment income (59,545) (103,156)
---------- ----------
From capital share transactions:
Proceeds from shares sold 1,594,629 2,797,676
Dividend reinvestments 57,462 99,655
Cost of shares redeemed (1,522,938) (2,564,389)
---------- ----------
Increase in net assets from capital
share transactions 129,153 332,942
---------- ----------
Net increase in net assets 129,153 332,942
Net assets:
Beginning of period 2,161,691 1,828,749
---------- ----------
End of period $2,290,844 $2,161,691
========== ==========
Change in shares outstanding:
Shares sold 1,594,629 2,797,676
Shares issued for dividends reinvested 57,462 99,655
Shares redeemed (1,522,938) (2,564,389)
---------- ----------
Increase in shares outstanding 129,153 332,942
========== ==========
Authorized shares of $.01 par value 3,000,000 3,000,000
========== ==========
See accompanying notes to financial statements.
MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
January 31, 1998
(Unaudited)
(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 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.
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 Company's 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 six-month period ended January 31,
1998.
(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, 1998. 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 period ended
January 31, 1998 were $ 10,259,578,552 and $10,162,093,000, 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 through July 31, 1998.
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 January 31, 1998, the Association and its affiliates
(including related employee benefit plans) owned 18,081,711 shares (.8%) 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>
Six-Month
Period Ended Year Ended July 31,
January 31, ---------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .03 .05 .05 .05
Distributions from net
investment income (.03) (.05) (.05) (.05)
---------- ---------- ---------- ----------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total return (%) * 2.72 5.28 5.41 5.49
Net assets at
end of period (000) $2,290,844 $2,161,691 $1,828,749 $1,540,055
Ratio of expenses to
average net assets (%) .45(a) .45 .45 .45
Ratio of expenses to
average net assets
excluding reimbursement (%) .48(a) .49 .51 .46
Ratio of net investment
income to average
net assets (%) 5.34(a) 5.16 5.27 5.44
Ten-Month
Period Ended Year Ended
July 31, September 30,
1994 1993
---- ----
Net asset value at
beginning of period $ 1.00 $ 1.00
Net investment income .03 .03
Distributions from net
investment income (.03) (.03)
---------- ---------
Net asset value at
end of period $ 1.00 $ 1.00
========== =========
Total return (%) * 2.74 3.09
Net assets at
end of period (000) $1,006,020 $ 813,784
$813,784
Ratio of expenses to
average net assets (%) .46(a) .48
Ratio of expenses to
average net assets
excluding reimbursement (%) - -
Ratio of net investment
income to average
net assets (%) 3.28(a) 3.05
* Assumes reinvestment of all dividend income distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
</TABLE>
===============================================================================
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
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
===============================================================================
