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 18
Statement of Assets and Liabilities 19
Statement of Operations 20
Statements of Changes in Net Assets 21
Notes to Financial Statements 22
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)2000, 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 Very high 3,000
First Start Growth
(Registered Trademark) Moderate to high 3,000
Gold Very high 3,000
Growth Moderate to high 3,000
Growth & Income Moderate 3,000
International Moderate to high 3,000
S&P 500(Registered
Trademark)Index Moderate 3,000
Science & Technology Very high 3,000
Small Cap Stock Very high 3,000
World Growth Moderate to high 3,000
-------------------------------------------------------------
ASSET ALLOCATION
-------------------------------------------------------------
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate 3,000
Growth and Tax
Strategy Moderate 3,000
Growth Strategy Moderate to high 3,000
Income Strategy Low to moderate 3,000
-------------------------------------------------------------
INCOME - TAXABLE
-------------------------------------------------------------
GNMA(Registered
Trademark) Low to moderate $3,000
High-Yield
Opportunities High 3,000
Income Moderate 3,000
Income Stock Moderate 3,000
Intermediate-Term
Bond Low to moderate 3,000
Short-Term Bond Low 3,000
-------------------------------------------------------------
INCOME -TAX EXEMPT
-------------------------------------------------------------
Long-Term Moderate $3,000
Intermediate-Term Low to moderate 3,000
Short-Term Low 3,000
State Bond Income Moderate 3,000
-------------------------------------------------------------
MONEY MARKET
-------------------------------------------------------------
Money Market Very low $3,000
Tax Exempt
Money Market Very low 3,000
Treasury Money
Market Trust
(Registered Trademark) Very low 3,000
State Money Market Very low 3,000
-------------------------------------------------------------
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, WHICH ARE DISCUSSED IN THE
FUNDS' PROSPECTUSES.
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.
SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES OR THE FEDERAL ALTERNATIVE
MINIMUM TAX.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
THE SCIENCE & TECHNOLOGY 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, AND VIRGINIA FUNDS AVAILABLE TO RESIDENTS ONLY.
NONDEPOSIT INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, USAA FEDERAL SAVINGS BANK, ARE SUBJECT
TO INVESTMENT RISKS, AND MAY LOSE VALUE.
FOR MORE COMPLETE INFORMATION ABOUT THE MUTUAL FUNDS MANAGED AND DISTRIBUTED BY
USAA INVESTMENT MANAGEMENT COMPANY, INCLUDING CHARGES AND OPERATING 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]
-------------------------------------------------------------
SO FAR 2000 HAS BEEN AN UNINSPIRING INVESTMENT YEAR. LOOKING
AT VARIOUS MARKET AVERAGES, AN INVESTOR SEES MARKETS THAT ARE
CLOSE TO ZERO RETURN, SLIGHTLY DOWN OR SLIGHTLY UP.
-------------------------------------------------------------
The biggest attention-grabber among indices is the Dow Jones Utilities. As
reported August 20 in THE NEW YORK TIMES, for the 2000 calendar year it is up
27.53%! If anyone predicted that, I missed it.
Years like this for the broad averages are, in a way, predictable. We know that
the S&P 500 Index, for instance, is not likely to take a sudden quantum leap and
begin to average 30% return per year. I believe it possibly will return
somewhere around 12%. (Please note I am surmising, not guaranteeing.) Another
interesting thing about the year 2000 is the number of actively managed funds
that are outperforming index funds.
Markets must take breathers like this. Such a pause allows the valuations of
securities to become more normal. That means that the relationship of, for
instance, a company's earnings per share to the price of a share becomes less
extreme. This, in turn, could ultimately allow the expected returns on stocks to
resume.
A family of mutual funds has the potential to make this kind of a period easier.
Ideally, you can build an asset allocation to express your risk tolerance. Many
fixed-income fund returns look very good in a year like this. And even if you
don't build such a portfolio, a fund family makes it easy to retreat to safety
because of the availability of bond and money market funds.
As you probably know, I am a strong proponent of asset allocation to build a
portfolio you can live with. That's because somewhere down the road this market
will ignite, and when it does you want to be sure you are there.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
THE S&P 500 INDEX IS AN UNMANAGED INDEX REPRESENTING THE WEIGHTED AVERAGE
PERFORMANCE OF A GROUP OF 500 WIDELY HELD, PUBLICLY TRADED STOCKS. IT IS NOT
POSSIBLE TO INVEST IN THE S&P 500 INDEX.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FOR MORE COMPLETE INFORMATION ABOUT THE MUTUAL FUNDS MANAGED AND DISTRIBUTED BY
USAA INVESTMENT MANAGEMENT COMPANY, INCLUDING CHARGES AND OPERATING 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 the
maintenance of liquidity.
TYPES OF INVESTMENTS: Invests principally in high-quality, U.S. dollar-
denominated, short-term debt instruments that present minimal credit risk and
comply with strict SEC guidelines applicable to money market funds.
--------------------------------------------------------------------------------
7/31/99 7/31/00
--------------------------------------------------------------------------------
Net Assets $3,011.0 Million $3,427.8 Million
Net Asset Value Per Share $1.00 $1.00
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/00
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 7-DAY YIELD
5.66% 5.35% 5.04% 6.25%
--------------------------------------------------------------------------------
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 A MONEY MARKET FUND IS NOT
INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE
FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. THE SEVEN-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 iMoneyNet, Inc. Money Fund
Averages(Trademark)/First Tier for the period 07/27/1999 through 07/25/2000. The
data points from the graph are as follows:
USAA MONEY IMONEYNET
MARKET FUND AVERAGE
----------- ---------
07/27/99 4.78% 4.38%
08/31/99 4.88% 4.55%
09/28/99 4.98% 4.65%
10/26/99 5.08% 4.76%
11/30/99 5.29% 4.97%
12/28/99 5.68% 5.15%
01/25/00 5.41% 5.10%
02/29/00 5.58% 5.19%
03/28/00 5.64% 5.29%
04/25/00 5.75% 5.39%
05/30/00 6.03% 5.69%
06/27/00 6.23% 5.85%
07/25/00 6.25% 5.90%
DATA REPRESENT THE LAST TUESDAY OF EACH MONTH
ENDING DATE 7/25/00
THE GRAPH TRACKS THE USAA MONEY MARKET FUND'S SEVEN-DAY YIELD AGAINST IMONEYNET,
INC. 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 BLEDSOE NOBLE, CFA, APPEARS HERE]
CURRENT MARKET CONDITIONS
We have experienced six interest-rate increases since June 1999 as the Federal
Reserve (the Fed) has tried to slow the economy to noninflationary growth
levels. One of the primary drivers of the strong economic growth was household
spending, which has begun to slow. Many believe that the domestic economy can
grow at a rate of 3.5% to 4% without posing an inflationary threat. The current
forecast for growth is 3.5% to 3.75% for 2000 and 2001. So long as our economy
grows within this range, most economists feel the Fed will delay making any
further changes in the federal funds rate.
The rising-interest-rate environment had a positive impact on the USAA Money
Market Fund yield. Since our report to you one year ago, the seven-day yield has
increased from 4.77% to 6.25%. Since money market funds invest in short-term
debt instruments, they are well positioned to take advantage of rising interest
rates.
STRATEGY
The USAA Money Market Fund is managed to provide the highest degree of liquidity
and safety while maintaining a stable net asset value. Money market funds are an
integral part of one's investment portfolio with respect to short-term and cash
needs. We invest in commercial paper, variable-rate demand notes, and other
short-term debt instruments. The mix among these investment vehicles varies
based on product availability, cash flows of the Fund, and market conditions.
PERFORMANCE
According to iMoneyNet, Inc., the USAA Money Market Fund was ranked 24 out of
287 when comparing retail money funds for the 12 months ended July 31, 2000. The
total return for the Fund was 5.66% compared to an industry average of 5.29%.
Past performance is no guarantee of future results.
PORTFOLIO MIX
07/31/00
A pie chart is shown here depicting the Portfolio Mix as of July 31, 2000 of the
USAA Money Market Fund to be:
Bonds/Notes - 38.0%; Variable-Rate Demand Notes - 24.9%; Commercial Paper -
24.3%; and CDs - 12.5%.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
YOU WILL FIND A LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES 9-16.
CUMULATIVE PERFORMANCE OF $10,000
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
07/31/1990 through 07/31/2000. The data points from the graph are as follows:
USAA MONEY
MARKET FUND
-----------
07/31/90 $10,000
01/31/91 10,385
07/31/91 10,703
01/31/92 10,990
07/31/92 11,208
01/31/93 11,390
07/31/93 11,562
01/31/94 11,733
07/31/94 11,938
01/31/95 12,240
07/31/95 12,594
01/31/96 12,945
07/31/96 13,272
01/31/97 13,616
07/31/97 13,973
01/31/98 14,355
07/31/98 14,734
01/31/99 15,114
07/31/99 15,470
01/31/00 15,878
07/30/00 16,346
DATA FROM 7/31/90 THROUGH 7/31/00
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 A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND. FOR SEVEN-DAY YIELD INFORMATION, PLEASE REFER TO THE FUND'S INVESTMENT
REVIEW PAGE.
INDEPENDENT AUDITORS' REPORT
KPMG
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 series of the
USAA Mutual Fund, Inc., as of July 31, 2000, 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 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 auditing standards generally accepted
in the United States of America. 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. Our procedures included confirmation of
securities owned as of July 31, 2000, 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, 2000, 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
in the five-year period then ended, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
San Antonio, Texas
September 1, 2000
USAA MONEY MARKET FUND
CATEGORIES AND DEFINITIONS
PORTFOLIO OF INVESTMENTS
JULY 31, 2000
FIXED-RATE INSTRUMENTS - consist of bonds and notes. The yield is constant to
maturity. Prior to maturity, the market price of a fixed-rate instrument
generally varies inversely to the movement of interest rates.
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
of the security.
VARIABLE-RATE DEMAND NOTES (VRDN) - provide the right, on any business day, to
sell the security at face value on either that day or within 30 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 for these
instruments is deemed to be less than 397 days in accordance with detailed
regulatory requirements.
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.
PORTFOLIO DESCRIPTION ABBREVIATIONS
CD Certificate of Deposit IDB Industrial Development Board
COP Certificate of Participation MTN Medium-Term Note
CP Commercial Paper RB Revenue Bond
IDA Industrial Development
Authority/Agency
CREDIT ENHANCEMENTS - add 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.
(LOC) Enhanced by a bank letter of credit.
(NBGA) Enhanced by a nonbank guarantee agreement.
<TABLE>
USAA MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
JULY 31, 2000
<CAPTION>
COUPON
PRINCIPAL OR DISCOUNT
AMOUNT SECURITY RATE MATURITY VALUE
------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED-RATE INSTRUMENTS (41.1%)
ASSET-BACKED SECURITIES
$25,000 Windmill Funding Corp., CP (LOC) (a),(b) 6.52% 9/21/2000 $ 24,769
------------------------------------------------------------------------------------------
AUTOMOBILES
20,600 Chrysler Financial Corp., MTN 5.25 5/04/2001 20,369
------------------------------------------------------------------------------------------
BANKS - MAJOR REGIONAL
30,000 Bank One N.A., IL, MTN 6.20 10/18/2000 29,997
35,000 First Union National Bank, CD 6.81 8/29/2000 35,000
25,000 Household Bank, Notes 6.66 10/24/2000 25,000
45,000 Long Lane Master Trust IV, CP (a),(b),(c) 6.68 9/06/2000 44,700
20,000 Marshall & Isley Bank Fox Valley, WI, MTN 6.36 10/26/2000 19,999
25,000 MBNA America Bank, N.A., CD 6.62 8/03/2000 25,000
35,000 MBNA America Bank, N.A., CD 6.71 8/14/2000 35,000
25,000 Mercantile Safe Deposit & Trust, CD 7.10 8/01/2001 25,000
50,000 Monogram Credit Card Bank of GA, CD
(NBGA) 6.66 10/23/2000 50,000
50,000 National Bank of Canada, CD 7.09 7/20/2001 49,991
20,000 Zions Bancorp, CP 6.68 8/29/2000 19,896
35,000 Zions Bancorp, CP 6.75 8/30/2000 34,810
30,000 Zions Bancorp, CP 6.69 9/13/2000 29,760
------------------------------------------------------------------------------------------
424,153
------------------------------------------------------------------------------------------
BANKS - MONEY CENTER
50,000 Deutsche Bank AG, CD 6.72 2/09/2001 49,990
25,000 UBS, Yankee CD 7.23 6/12/2001 24,994
25,000 Westpac Banking Corp., Notes 6.02 9/15/2000 24,998
------------------------------------------------------------------------------------------
99,982
------------------------------------------------------------------------------------------
COMPUTER - HARDWARE
10,650 IBM Corp., MTN 6.04 8/07/2000 10,650
------------------------------------------------------------------------------------------
ELECTRIC UTILITIES
25,000 National Rural Utilities Corp., CP 6.07 9/19/2000 24,794
22,500 National Rural Utilities Corp., CP 6.07 9/20/2000 22,310
25,000 National Rural Utilities Corp., CP 6.20 10/02/2000 24,733
------------------------------------------------------------------------------------------
71,837
------------------------------------------------------------------------------------------
ELECTRIC/GAS UTILITIES - MUNICIPAL
17,880 Nebraska State Public Power District,
Series B, CP 6.75 8/09/2000 17,880
------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT
31,800 Allied-Signal, Inc., Notes 6.75 8/15/2000 31,809
------------------------------------------------------------------------------------------
FINANCE - CONSUMER
41,510 Associates Corp. of North America,
Senior Notes 5.85 1/15/2001 41,384
55,874 Countrywide Home Loans, Inc., CP 6.55 8/01/2000 55,874
45,749 Countrywide Home Loans, Inc., CP 6.66 8/01/2000 45,749
14,000 Ford Motor Credit Co., Notes 6.85 8/15/2000 14,006
13,000 Ford Motor Credit Co., Global Notes 6.25 11/08/2000 12,998
30,000 Ford Motor Credit, MTN 7.06 6/06/2001 30,022
24,500 Washington Mutual Finance., CP 6.69 8/08/2000 24,468
25,000 Washington Mutual Finance., CP 6.71 8/09/2000 24,963
20,000 Washington Mutual Finance., CP 6.74 8/10/2000 19,966
------------------------------------------------------------------------------------------
269,430
------------------------------------------------------------------------------------------
FINANCE - DIVERSIFIED
25,000 General Electric Capital Corp., MTN,
Series A 7.38 5/23/2001 25,000
45,000 Heller Financial, Inc., CP 6.63 9/14/2000 44,635
45,000 Heller Financial, Inc., CP 6.60 9/28/2000 44,522
------------------------------------------------------------------------------------------
114,157
------------------------------------------------------------------------------------------
HEALTH CARE - HMOS
42,258 Trigon Healthcare, Inc., CP (a),(b) 6.67 8/16/2000 42,141
17,466 Trigon Healthcare, Inc., CP (a),(b) 6.59 9/14/2000 17,325
------------------------------------------------------------------------------------------
59,466
------------------------------------------------------------------------------------------
LEASING
50,000 PHH Corp., CP 6.71 8/03/2000 49,981
28,800 PHH Corp., CP 6.66 8/16/2000 28,720
25,000 PHH Corp., CP 6.66 8/17/2000 24,926
40,000 Wheels, Inc., CP (a),(b) 6.71 8/08/2000 39,948
------------------------------------------------------------------------------------------
143,575
------------------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED
6,000 Caterpillar Financial Services, MTN,
Series E 6.95 11/01/2000 6,005
20,000 Caterpillar Financial Services, MTN,
Series F 6.66 11/15/2000 20,003
------------------------------------------------------------------------------------------
26,008
------------------------------------------------------------------------------------------
SERVICES - COMPUTER SYSTEMS
46,100 Computer Sciences Corp., CP (a),(b) 6.65 8/02/2000 46,091
------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE
25,000 AT&T Capital Corp., CP (a),(b) 7.09 7/13/2001 25,000
------------------------------------------------------------------------------------------
TELEPHONES
21,955 GTE Corp., Debentures 9.38 12/01/2000 22,148
------------------------------------------------------------------------------------------
Total fixed-rate instruments (cost: $1,407,324) 1,407,324
------------------------------------------------------------------------------------------
PUT BONDS (12.3%)
ELECTRIC UTILITIES
69,700 IDA of New Hampshire, Pollution Control RB,
Series E (LOC) 6.75 5/01/2021 69,700
65,000 IDB of Columbia, AL, RB, Series 1997
(NBGA)(b) 6.69 11/01/2021 65,000
------------------------------------------------------------------------------------------
134,700
------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT
24,375 Allied-Signal, Inc.,
Dealer Remarketable Notes (NBGA) 5.75 3/15/2011 24,216
------------------------------------------------------------------------------------------
HOSPITALS
16,250 Metrocrest, TX, Hospital Auth., RB,
Series 1989B (LOC) 6.66 8/01/2008 16,247
------------------------------------------------------------------------------------------
NURSING/CONTINUING CARE CENTERS
10,000 Colorado Health Facilities Auth., RB,
Series 1996C (LOC) 6.55 11/01/2026 10,000
------------------------------------------------------------------------------------------
OIL - DOMESTIC INTEGRATED
40,000 IDA of California, Pollution Control RB,
Series 1996 (NBGA)(b) 6.61 9/13/2000 40,000
------------------------------------------------------------------------------------------
OIL & GAS - REFINING/MANUFACTURING
25,000 IDA of Gulf Coast, RB, Series 1998 (LOC) 6.67 8/01/2028 25,000
26,000 IDA of Gulf Coast, RB, Series 1998 (LOC) 6.68 8/01/2028 26,000
45,000 IDB of the Parish of Calcasieu, LA, Inc.,
Environmental RB, Series 1996 (LOC) 6.71 9/12/2000 45,000
30,215 Port Arthur, TX Navigation District, RB,
Series 1998 (NBGA)(b) 6.80 6/01/2018 30,215
------------------------------------------------------------------------------------------
126,215
------------------------------------------------------------------------------------------
SPECIAL ASSESSMENT/TAX/FEE
70,200 Anaheim, CA, COP (LOC) 6.63 12/01/2022 70,200
------------------------------------------------------------------------------------------
Total put bonds (cost: $421,578) 421,578
------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (24.9%)
ASSET-BACKED SECURITIES
13,409 Capital One Funding Corp., Notes,
Series 1995C (LOC) 6.70 10/01/2015 13,409
22,457 Capital One Funding Corp., Notes,
Series 1996E (LOC) 6.70 7/02/2018 22,457
19,000 Cornerstone Funding Corp. I,
Series 2000A (LOC) 6.65 4/01/2020 19,000
------------------------------------------------------------------------------------------
54,866
------------------------------------------------------------------------------------------
AUTOMOBILES
8,110 Columbus, GA, Development Auth., RB (LOC) 6.70 9/01/2013 8,110
------------------------------------------------------------------------------------------
AUTO PARTS
14,400 Alabama IDA, RB (Rehau Project) (LOC) 6.78 10/01/2019 14,400
9,255 Bardstown, KY, RB, Series 1994 (LOC) 6.67 6/01/2024 9,255
11,275 Bardstown, KY, RB, Series 1995 (LOC) 6.67 3/01/2025 11,275
------------------------------------------------------------------------------------------
34,930
------------------------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC
10,390 J. J. Taylor Co., Inc., Bonds,
Series 1997 (LOC) 6.70 8/02/2004 10,390
------------------------------------------------------------------------------------------
BEVERAGES - NONALCOHOLIC
20,000 T3 Holdings, Inc., Bonds (LOC) 6.62 5/01/2008 20,000
------------------------------------------------------------------------------------------
BROADCASTING - RADIO & TV
41,300 New Jersey Economic Development Auth.,
RB (NBGA) (b) 6.62 10/01/2021 41,300
------------------------------------------------------------------------------------------
BUILDINGS
7,300 San Bernardino County, CA, COP (LOC) 6.82 11/01/2025 7,300
------------------------------------------------------------------------------------------
ELECTRIC UTILITIES
23,050 Sempra Energy Employee Stock Trust,
Senior Notes (NBGA) (b) 6.72 11/01/2014 23,050
------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT
14,000 Mississippi Business Finance Corp., RB,
Series 1998 (NBGA) (b) 6.62 2/01/2023 14,000
------------------------------------------------------------------------------------------
FINANCE - DIVERSIFIED
16,525 KBL Capital Fund, Inc., Installment #1,
Notes, Series A (LOC) 6.67 5/01/2027 16,525
------------------------------------------------------------------------------------------
GAMING COMPANIES
21,000 Detroit, MI, Economic Development Corp.,
RB, Series 1999A (LOC) 6.67 5/01/2009 21,000
41,830 Detroit, MI, Economic Development Corp.,
RB, Series 1999C (LOC) 6.69 5/01/2009 41,830
------------------------------------------------------------------------------------------
62,830
------------------------------------------------------------------------------------------
GENERAL OBLIGATIONS
15,245 San Bernardino County, CA, COP, (Glen
Helen Project), Series 1995D (LOC) 6.62 3/01/2024 15,245
------------------------------------------------------------------------------------------
HEALTH CARE - SPECIALIZED SERVICES
13,545 American Health Care Centers, Inc.,
Notes (LOC) 6.73 2/01/2019 13,545
6,100 Mason City Clinic, P.C., IA, Bonds,
Series 1992 (LOC) 6.68 9/01/2022 6,100
7,915 Navigator Ventures, L.L.C., Notes,
Series 1997 (LOC) 6.67 5/01/2027 7,915
------------------------------------------------------------------------------------------
27,560
------------------------------------------------------------------------------------------
HOME FURNISHINGS & APPLIANCES
16,200 Mississippi Business Finance Corp.,
RB (LOC) 6.69 6/01/2015 16,200
------------------------------------------------------------------------------------------
HOSPITALS
19,500 Crouse Health Hospital, Inc., RB,
Series 1996 (LOC) 6.70 7/01/2017 19,500
15,300 Dome Corp., Bonds, Series 1991 (LOC) 6.70 8/31/2016 15,300
11,700 Indiana Health Facility Financing Auth.,
RB (LOC) 6.67 1/01/2019 11,700
15,000 Infirmary Health Systems Special Care,
RB (LOC) 6.70 1/01/2024 15,000
------------------------------------------------------------------------------------------
61,500
------------------------------------------------------------------------------------------
LEISURE TIME
8,870 Fox Valley Ice Arena, IL, RB,
Series 1997 (LOC) 6.67 7/01/2027 8,870
13,910 Greenville, SC, Memorial Auditorium
District Public Facilities COP,
Series 1996C (LOC) 6.70 9/01/2014 13,910
------------------------------------------------------------------------------------------
22,780
------------------------------------------------------------------------------------------
LODGING/HOTEL
16,275 Central Michigan Inns, RB,
Series 1998A (LOC) 6.65 11/01/2028 16,275
------------------------------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED INDUSTRIES
12,500 HHH Investment Co., RB, Series 1999 (LOC) 6.70 7/01/2029 12,500
------------------------------------------------------------------------------------------
MANUFACTURING - SPECIALIZED
14,104 Loma Co. L.L.C. Floating Rate,
Option Notes (LOC) 6.70 12/01/2008 14,104
12,250 Savannah, GA, Economic Development
Auth., RB, Series 1998 (LOC) 6.71 6/01/2018 12,250
9,340 Southland Tube, Inc., Notes,
Series 1999 (LOC) 6.69 6/01/2010 9,340
------------------------------------------------------------------------------------------
35,694
------------------------------------------------------------------------------------------
MULTIFAMILY HOUSING
11,920 Arbor Station IV, L.L.C., Notes,
Series 1999A (LOC) 6.65 2/01/2024 11,920
------------------------------------------------------------------------------------------
NURSING/CONTINUING CARE CENTERS
22,115 Chestnut Partnership, Bonds (LOC) 6.68 1/01/2029 22,115
28,855 Lincolnwood Funding Corp., RB,
Series 1995A (LOC) 6.70 8/01/2015 28,855
9,975 Missouri Health and Educational
Facilities Auth., RB, Series 1996B (LOC) 6.68 12/01/2016 9,975
------------------------------------------------------------------------------------------
60,945
------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS
14,240 Bancroft Bag, Inc., Notes,
Series 1998 (LOC) 6.70 11/01/2008 14,240
13,205 Mac Papers, Inc., Demand Bonds (LOC) 6.70 8/03/2015 13,205
9,400 Tim-Bar Corp., RB, Series 1998 (LOC) 6.75 9/01/2010 9,400
9,900 Willacoochie, GA, Development Auth., RB,
Series 1997 (LOC) 6.62 5/01/2027 9,900
------------------------------------------------------------------------------------------
46,745
------------------------------------------------------------------------------------------
REAL ESTATE - OTHER
14,715 First Illinois Funding Corp. Project,
RB, Series 1996 (LOC) 6.67 9/01/2026 14,715
14,220 HGR-1, L.L.C., Notes, Series 1996 (LOC) 6.65 9/15/2046 14,220
10,925 Houston County, GA, IDA, RB (LOC) 6.74 8/01/2012 10,925
12,000 JPV Capital L.L.C., Notes (LOC) 6.65 12/01/2039 12,000
33,900 LAM Funding L.L.C., Notes, Series A (LOC) 6.67 12/15/2027 33,900
24,510 Mayfair At Great Neck, NY, Bonds,
Series 1997 (LOC) 6.85 1/01/2023 24,510
6,650 Physicians Real Estate, L.L.P., Notes,
Series 1998 (LOC) 6.68 2/01/2018 6,650
10,085 Pierce Memorial Baptist Home, Inc., Bonds,
Series 1999 (LOC) 6.68 10/01/2028 10,085
11,400 PRA at Glenwood Hills Corporate Centre,
L.L.C., Notes, Series 1997 (LOC) 6.67 8/01/2027 11,400
13,710 Sbar Piperno Co., RB, Series 1998 (LOC) 6.70 9/01/2012 13,710
7,960 Shepherd Capital, L.L.C., Notes,
Series 1997 (LOC) 6.65 7/15/2047 7,960
------------------------------------------------------------------------------------------
160,075
------------------------------------------------------------------------------------------
RETAIL - DEPARTMENT STORES
15,310 Belk, Inc., RB, Series 1998 (LOC) 6.70 7/01/2008 15,310
------------------------------------------------------------------------------------------
SPECIAL ASSESSMENT/TAX/FEE
18,900 County of Cuyahoga, OH, RB,
Series 1992B (LOC) 6.70 6/01/2022 18,900
------------------------------------------------------------------------------------------
TEXTILES - HOME FURNISHINGS
10,000 Alabama IDA, RB (Fieldcrest Project)
(LOC) 6.65 7/01/2021 10,000
------------------------------------------------------------------------------------------
WASTE MANAGEMENT
12,000 Texas Disposal Systems, Inc., Notes (LOC) 6.67 5/01/2012 12,000
------------------------------------------------------------------------------------------
WATER/SEWER UTILITIES - MUNICIPAL
18,040 Hesperia, CA, Public Financing Auth., RB,
Series 1998A (LOC) 6.77 6/01/2026 18,040
------------------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $854,990) 854,990
------------------------------------------------------------------------------------------
ADJUSTABLE-RATE NOTES (21.4%)
AGRICULTURAL PRODUCTS
25,000 Cargill, Inc., MTN (b) 6.82 3/12/2001 25,008
------------------------------------------------------------------------------------------
BANKS - MAJOR REGIONAL
30,000 American Express Centurion Bank, Notes 6.58 3/29/2001 29,998
30,000 Comerica Bank N.A., Notes 6.56 4/20/2001 29,992
30,000 Comerica Bank N.A., Notes 6.58 6/07/2001 29,990
40,000 Key Bank N.A., MTN 6.58 6/05/2001 39,983
50,000 National Bank of Commerce, CD 6.97 9/05/2000 50,002
25,000 National Bank of Commerce, CD 6.83 9/18/2000 25,000
20,000 National Bank of Commerce, CD 6.73 7/20/2001 20,009
25,000 Southtrust Bank N.A., Notes 6.64 11/08/2000 24,997
34,000 Zions Bancorp Senior Notes (b) 6.97 10/27/2000 34,000
------------------------------------------------------------------------------------------
283,971
------------------------------------------------------------------------------------------
BANKS - MONEY CENTER
40,000 Societe Generale, CD 6.61 11/09/2000 39,991
------------------------------------------------------------------------------------------
ELECTRIC UTILITIES
15,000 National Rural Utilities Corp., MTN,
Series C 6.65 8/02/2000 15,000
------------------------------------------------------------------------------------------
FINANCE - CONSUMER
35,000 American Honda Finance Corp., MTN (b) 6.62 2/08/2001 34,998
25,000 American Honda Finance Corp., MTN (b) 6.80 6/12/2001 25,000
15,000 American Honda Finance Corp., MTN (b) 6.78 6/19/2001 15,000
30,000 Associates Corp. of North America, Notes 6.53 3/16/2001 29,989
30,000 Ford Motor Credit Co., MTN 6.77 10/02/2000 29,997
25,000 Household Finance Corp., MTN 6.86 8/14/2000 25,000
25,000 Household Finance Corp., MTN 6.75 3/29/2001 25,000
25,000 Household Finance Corp., MTN 6.72 7/20/2001 24,984
------------------------------------------------------------------------------------------
209,968
------------------------------------------------------------------------------------------
NATURAL GAS UTILITIES
25,000 Northern Illinois Gas Co. Senior Notes (b) 6.78 1/29/2001 25,000
------------------------------------------------------------------------------------------
OIL - INTERNATIONAL INTEGRATED
30,000 Texaco Capital, Inc., MTN, Series 1999 6.65 2/12/2001 29,986
------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE
30,000 AT&T Corp., CP Notes (a),(b) 6.57 3/08/2001 29,997
25,000 AT&T Corp., CP Notes (a),(b) 6.75 7/13/2001 25,000
------------------------------------------------------------------------------------------
54,997
------------------------------------------------------------------------------------------
TELEPHONES
50,000 GTE Corp., Debentures 6.76 1/05/2001 49,983
------------------------------------------------------------------------------------------
Total adjustable-rate notes (cost: $733,904) 733,904
------------------------------------------------------------------------------------------
Total investments (cost: $3,417,796) $3,417,796
==========================================================================================
</TABLE>
PORTFOLIO SUMMARY BY CONCENTRATION
----------------------------------
Banks - Major Regional 20.7%
Finance - Consumer 14.0
Electric Utilities 7.1
Real Estate - Other 4.7
Leasing 4.2
Banks - Money Center 4.1
Finance - Diversified 3.8
Oil & Gas - Refining/Manufacturing 3.7
Special Assessment/Tax/Fee 2.6
Asset-Backed Securities 2.3
Hospitals 2.3
Telecommunications - Long Distance 2.3
Nursing/Continuing Care Centers 2.1
Telephones 2.1
Electrical Equipment 2.0
Gaming Companies 1.8
Health Care - HMOs 1.7
Paper & Forest Products 1.4
Services - Computer Systems 1.3
Broadcasting - Radio & TV 1.2
Oil - Domestic Integrated 1.2
Auto Parts 1.0
Manufacturing - Specialized 1.0
Other 11.1
----
Total 99.7%
====
USAA MONEY MARKET FUND
NOTES TO PORTFOLIO OF INVESTMENTS
JULY 31, 2000
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.
SPECIFIC NOTES
(a) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act of 1933. Unless
this commercial paper is subsequently registered, a resale of this commercial
paper in the United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(2) commercial paper is
normally resold to other investors through or with the assistance of the issuer
or an investment dealer who makes a market in this security, and as such is
generally deemed by the Manager to be liquid under guidelines established by the
Board of Directors.
(b) Security is not registered under the Securities Act of 1933. A 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, and as such is
generally deemed by the Manager to be liquid under guidelines established by the
Board of Directors.
(c) Illiquid security valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Directors. At July 31,
2000, this security represented 1.3% of the Fund's net assets.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
JULY 31, 2000
ASSETS
Investments in securities $3,417,796
Cash 26,857
Receivables:
Capital shares sold 6,322
Interest 24,085
----------
Total assets 3,475,060
----------
LIABILITIES
Securities purchased 25,000
Capital shares redeemed 20,505
USAA Investment Management Company 552
USAA Transfer Agency Company 483
Accounts payable and accrued expenses 292
Dividends on capital shares 408
----------
Total liabilities 47,240
----------
Net assets applicable to capital shares outstanding $3,427,820
==========
REPRESENTED BY:
Paid-in capital $3,427,820
==========
Capital shares outstanding 3,427,820
==========
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, 2000
Net investment income:
Interest income $194,292
--------
Expenses:
Management fees 7,744
Transfer agent's fees 5,473
Custodian's fees 834
Postage 698
Shareholder reporting fees 296
Directors' fees 4
Registration fees 169
Professional fees 87
Other 52
--------
Total expenses before reimbursement 15,357
Expenses reimbursed (586)
--------
Total expenses after reimbursement 14,771
--------
Net investment income $179,521
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED JULY 31,
2000 1999
------------------------------
From operations:
Net investment income $ 179,521 $ 134,940
------------------------------
Distributions to shareholders from:
Net investment income (179,521) (134,940)
------------------------------
From capital share transactions:
Proceeds from shares sold 5,546,163 4,461,879
Reinvested dividends 173,763 130,534
Cost of shares redeemed (5,303,119) (4,072,873)
------------------------------
Increase in net assets from capital share
transactions 416,807 519,540
------------------------------
Net increase in net assets 416,807 519,540
Net assets:
Beginning of period 3,011,013 2,491,473
------------------------------
End of period $ 3,427,820 $ 3,011,013
==============================
Change in shares outstanding:
Shares sold 5,546,163 4,461,879
Shares issued for dividends reinvested 173,763 130,534
Shares redeemed (5,303,119) (4,072,873)
------------------------------
Increase in shares outstanding 416,807 519,540
=============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
(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 13 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) attempts to achieve this objective
by investing the Fund's assets in high-quality, U.S. dollar-denominated,
short-term debt instruments that present minimal credit risk and comply with
strict Securities and Exchange Commission (SEC) guidelines applicable to money
market funds.
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 that 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 three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($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 both agreements 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 Bank of
America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. The Fund had no borrowings under any of these agreements during the year
ended July 31, 2000.
(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 annually 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, 2000, were $20,248,350,000 and $19,865,498,000, respectively.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. 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
.46% of its annual average net assets through December 1, 2000, and accordingly
has waived a portion of its management fee. Prior to December 1, 1999, the
limitation was .45% of the Fund's 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 of $28.50 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, 2000, the Association and its affiliates owned
1,639,000 shares (.05%) 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>
YEAR ENDED JULY 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
<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 .05
Distributions from net
investment income (.05) (.05) (.05) (.05) (.05)
---------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===============================================================
Total return (%) * 5.66 4.95 5.45 5.28 5.41
Net assets at end
of period (000) $3,427,820 $3,011,013 $2,491,473 $2,161,691 $1,828,749
Ratio of expenses to
average net assets (%) .46(a) .45 .45 .45 .45
Ratio of expenses to average
net assets, excluding
reimbursements (%) .48 .48 .48 .49 .51
Ratio of net investment
income to average
net assets (%) 5.56 4.83 5.32 5.16 5.27
* ASSUMES REINVESTMENT OF ALL DIVIDEND INCOME DISTRIBUTIONS DURING THE PERIOD.
(a) EFFECTIVE DECEMBER 1, 1999, THE MANAGER VOLUNTARILY AGREED TO LIMIT THE
FUND'S EXPENSE RATIO TO .46% OF THE FUND'S AVERAGE ANNUAL NET ASSETS.
</TABLE>
DIRECTORS
Robert G. Davis, CHAIRMAN OF THE BOARD
Michael J.C. Roth, VICE CHAIRMAN OF THE BOARD
Barbara B. Dreeben
Robert L. Mason
David G. Peebles
Michael F. Reimherr
Laura T. Starks
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER, AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT LEGAL COUNSEL
USAA Shareholder Account Services Goodwin, Procter & Hoar LLP
9800 Fredericksburg Road Exchange Place
San Antonio, Texas 78288 Boston, Massachusetts 02109
CUSTODIAN INDEPENDENT AUDITORS
State Street Bank and Trust Company KPMG LLP
P.O. Box 1713 112 East Pecan, Suite 2400
Boston, Massachusetts 02105 San Antonio, Texas 78205
TELEPHONE ASSISTANCE HOURS INTERNET ACCESS
Call toll free - Central Time usaa.com(Service Mark)
Monday - Friday 6:00 a.m. to 10:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
FOR ADDITIONAL INFORMATION ON MUTUAL FUNDS
1-800-531-8181, (in San Antonio) 456-7200
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 USAA TOUCHLINE(REGISTERED TRADEMARK)
(from touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777, (in San Antonio) 498-8777
