Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Distribution to Shareholders 7
Independent Auditors' Report 8
Statement of Assets and Liabilities 9
Portfolio of Investments in Securities 10
Notes to Portfolio of Investments 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
Important Information:
Through our ongoing efforts to reduce expenses and respond to
shareholder requests, your annual and semiannual report mailings are now
"streamlined." One copy of each report will be sent to each address,
instead of our previous practice of sending one report 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
Growth 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)1995, USAA. All rights reserved.
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the performance
of our other funds. This summary is a snapshot of the performance of all 29
funds by investment objective as of June 30, 1995. If you're interested in
more information, please call us at 1-800-531-1087 for a prospectus. Please
read the prospectus carefully before investing.
<TABLE>
Average Annual Total Return**
<CAPTION>
Investment Inception Since 7-Day 30-Day***
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION
Aggressive Growth 10/19/81 39.72 11.12 9.78 - - -
Emerging Markets 11/7/94 - - - (.50) - -
Gold 8/15/84 6.88 4.66 2.86 - - -
Growth 4/5/71 26.34 12.37 11.75 - - -
Growth & Income 6/1/93 21.19 - - 10.49 - -
International 7/11/88 4.23 7.89 - 9.33 - -
World Growth 10/1/92 7.88 - - 11.71 - -
ASSET ALLOCATION
Growth and Tax Strategy++ 1/11/89 11.09 8.59 - 8.93 - 4.06
Cornerstone Strategy++ 8/15/84 9.25 9.24 12.00 - - -
INCOME - TAXABLE
GNMA 2/1/91 11.00 - - 8.08 - 6.79
Income 3/4/74 15.07 10.00 10.04 - - 6.87
Income Stock 5/4/87 19.52 12.26 - 11.44 - -
Short-Term Bond 6/1/93 8.40 - - 4.83 - 6.77
INCOME- TAX EXEMPT
Long-Term 3/19/82 7.28 7.66 8.60 - - 5.79
Interediate-Term 3/19/82 7.60 7.71 7.82 - - 5.22
Short-Term 3/19/82 5.23 5.52 5.76 - - 4.36
California Bond* 8/1/89 8.96 7.66 - 7.23 - 5.79
Florida Tax-Free Income* 10/1/93 7.82 - - .09 - 5.71
New York Bond* 10/15/90 7.36 - - 8.65 - 5.60
Texas Tax-Free Income* 8/1/94 - - - 8.40 - 5.63
Virginia Bond* 10/15/90 8.79 - - 8.31 - 5.78
MONEY MARKET
Money Market 2/2/81 5.33 4.76 6.06 - 5.75 -
Tax Exempt Money Market 2/6/84 3.34 3.57 4.45 - 3.82 -
Treasury Money Market Trust 2/1/91 5.06 - - 4.01 5.69 -
California Money Market* 8/1/89 3.31 3.36 - 3.71 3.74 -
Florida Tax-Free Money Market* 10/1/93 3.23 - - 2.72 3.74 -
New York Money Market* 10/15/90 3.15 - - 2.98 3.69 -
Texas Tax-Free Money Market* 8/1/94 - - - 3.06 3.72 -
Virginia Money Market* 10/15/90 3.25 - - 3.18 3.61 -
* Shares of the state funds are authorized for sale only to residents of the states listed above.
** Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No
adjustment has been made for taxes payable by shareholders on their
reinvested dividends and capital gain distributions. The performance
data quoted represents past performance and is not an indication of
future results. Investment return and principal value of an investment
will fluctuate, and an investor's shares, when redeemed, may be worth
more or less than their original cost.
An investment in any money market fund is neither insured nor guaranteed
by the U.S. government and there is no assurance that any of the funds
will maintain a stable net asset value of $1 per share.
Some tax-exempt income may be subject to state or local taxes or the
federal alternative minimum tax.
Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
*** Calculated as prescribed by the Securities and Exchange Commission.
++ Formerly known as Balanced Portfolio Fund and Cornerstone Fund,
respectively.
</TABLE>
Message from the President
" . . . I did decide to practice one
thing I have preached for many years."
Most of these messages look back at events. This one looks forward.
On January 29, 1995, my wife and I became grandparents. Karl Joseph
Marbach was born to Alexandra, my wife's daughter, and her husband Keith
Marbach. When my wife learned of the name Alexandra and Keith had chosen,
she smiled. She noted that my middle names are Joseph Carl, and she said,
"I think this kid's college education is secure."
"Secure" may be an exaggeration, but I did decide to practice one thing
I have preached for many years. I told Alexandra to get the little fellow
a social security number, and as soon as she furnished that to me (well,
almost as soon), I opened an InveStart((registered trademark)) account for
Karl Joseph. This account, in the USAA Income Stock Fund, was opened for
$100, and will have $50 per month added to it by an electronic funds
transfer from my checking account.
InveStart is a program that we have offered for many years. For now it
is available for use with the Income Stock Fund, Cornerstone Strategy
Fund and Money Market Fund.(1) That lineup will soon expand. We
originally intended it for young USAA members as a good way to start
investing. We found, however, that many grandparents were using it as I
just did.
The effect for Karl Joseph can be quite powerful. It is well documented
that the stock market, as measured by the S&P 500 stock index, has
produced a total return of 10% for the last 18 years ended July 31, 1995
(Source: Lipper Analytical Services, Inc.).(2)
(Photo of the President, Michael J.C. Roth, appears here)
The chart on the next page shows the growth of an account with a $100
initial investment and $50 subsequent monthly investments for 18 years
at an 8% return - a hypothetical figure based upon and more conservative
than historical results. It is for illustrative purposes only and should
not be considered an indication of fund performance by any of the USAA
Family of Funds.
A systematic plan like this doesn't assure a profit or protect against loss
in declining markets. Since such a plan involves continuous investment in
securities regardless of fluctuating price levels of such securities, you
should consider your financial ability to continue purchases through periods
of low and high price levels.
[A graph is shown here which shows the growth of an account with a $100
initial investment and $50 subsequent monthly investments for 18 years
at an 8% return - a hypothetical figure based upon and more conservative
than historical results. The horizontal axis shows the years, and the
vertical axis shows the dollar amount. The beginning value is $100 and
the ending value is $24,209.]
In 18 years, college will cost more than it does now. This sum today would
go a long way toward an education in an in-state public university. In 18
years it will not buy as much education as it does today, but it will be
quite meaningful. If we add to the cash flow on birthdays, or if other
relatives kick in, it will be even more meaningful. And it is relatively
painless.
I promise to keep you posted on the progress of Karl Joseph's education
fund. This is not theoretical; it is real.
Sincerely,
Michael Joseph Carl Roth
President and
Vice Chairman of the Board
(1)An investment in a money market 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. Please
read the prospectus carefully before you invest or send money.
(2)Past performance is no guarantee of future results.
Investment Review
Growth Fund
OBJECTIVE: Long-term growth of capital with secondary objectives of
regular income and conservation of capital.
Types of Investments: Primarily common stocks.
7/31/95
Net Assets $922.8 Million
Net Asset Value Per Share $19.06
Average Annual Total Return as of 7/31/95
1 Year 26.46%
5 Years 13.03%
10 Years 12.15%
[A graph is shown here which is a comparison of the change in value of
a $10,000 investment, for the period of 7/31/85 to 7/31/95, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: the S&P 500 Index- $40,605 and the USAA Growth Fund - $31,482.]
The S&P 500 Index is an unmanaged index representing the average
performance of a group of 500 widely held publicly traded stocks. It is
not possible to invest directly in the S&P 500 Index.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested income
dividends and capital gain distributions. The performance data quoted
represents past performance and is not an indication of future results.
Investment return and principal value of an investment will fluctuate, and
an investor's shares, when redeemed, may be worth more or less than their
original cost.
Message from the Manager
(Photo of David G. Parsons, Portfolio Manager, appears here)
Strategy
The USAA Growth Fund is a contrarian fund which emphasizes out-of-favor
growth companies at time of purchase. At times, a substantial portion of
the Fund's assets may be placed in out-of-favor, non-growth companies
presenting extremely compelling values.
In accordance with this strategy, within the past seven months, the Fund
has taken major positions in oil, airlines, autos and trucking
companies. Net cash flow and proceeds from the elimination of retail,
apparel, food, beverage and technology companies have been used to pay for
these additions. The Fund remains significantly overweighted in tobacco and
healthcare.
Fund Performance
For the 12-month period ending July 31, 1995, the Fund performed well.
Healthcare, airlines and trucking (since time of purchase) greatly
outperformed the market. Tobacco performed in line with the market,
whereas oil-related stocks underperformed. Further, the Fund realized
net losses from the sale of retail and apparel stocks.
Method of Procedure
I do not make market predictions. I buy companies that: (1) have a
future, (2) have scarcity value (a shortage of companies in that
industry) and (3) sell at washed out prices due to a thorough
dissemination of their actual and potential problems. I sold the retail
and apparel stocks because I came to believe they had no scarcity value.
Typically, I sell stocks when they again become popular with the
investment community. This is now the case with the healthcare companies.
Consequently, they are slowly being sold.
Indeed, the strategy of the Fund is to take advantage of these swings in
sentiment. I intend to continue this approach of purchasing growth
companies while they are out of favor.
Top 10 Equity Holdings
(% of Net Assets)
Student Loan Mktg Assn 4.7
RJR Nabisco 4.7
Philip Morris Cos. 4.6
Delta Air Lines 4.3
Amr Corp. 4.1
General Motors 3.4
Southwest Airlines 3.1
UST, Inc. 3.0
Schlumberger 2.9
Royal Dutch Petroleum 2.8
Percentages of the net assets in the portfolio of the investments
referenced in the Message from the Manager are as follows: oil-related
25.5% (includes oil-domestic, oil-exploration & production,
oil-international, oil-equipment & service, and oil & gas drilling);
airlines 12.8%; autos 7.1%; trucking 8.1%; tobacco 18.0%; and
healthcare-related 12.5% (includes biotechnology, drugs,
healthcare-diversified, and medical products & supplies).
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
Distributions to Shareholders
USAA Growth Fund completed its fiscal year on July 31, 1995. As required
by Federal Law (Internal Revenue Code of 1986, as amended, and the
Regulations thereunder), the following sets forth per share data
concerning the portions of the dividend distributions which represent
domestic dividend income qualifying for the dividends received
deduction, and short-term and long-term capital gains for the year ended
July 31, 1995.
The per share data on this schedule reflects distributions related to
earnings for the fiscal year ended July 31, 1995, including any
distributions subsequent to year end which relate to those earnings.
Therefore, the per share data on this table may not agree with other
disclosures concerning distributions which occurred during the fiscal
year.
Dividend income -
domestic (qualifying) $ .2600
Short-term capital gain -
(treated as ordinary income) .5030
Long-term capital gain .5048
--------
TOTAL DISTRIBUTIONS $1.2678
========
Independent Auditors' Report
The Shareholders and Board of Directors
USAA Mutual Fund, Inc.:
We have audited the accompanying statement of assets and liabilities and
portfolio of investments in securities of the Growth Fund of USAA Mutual
Fund, Inc. as of July 31, 1995, the related statement of operations for
the year ended July 31, 1995, the statements of changes in net assets
for the year ended July 31, 1995 and the ten-month period ended July 31,
1994, and the financial highlights information presented in note 7 to
the financial statements for each of the periods in the five-year period
ended July 31, 1995. These financial statements and the financial
highlights information are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights information based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
the financial highlights information 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, 1995, 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 the financial highlights
information referred to above present fairly, in all material respects,
the financial position of the Growth Fund of USAA Mutual Fund, Inc. as
of July 31, 1995, the results of its operations for the year ended July
31, 1995, the changes in its net assets for the year ended July 31, 1995
and the ten-month period ended July 31, 1994, and the financial
highlights information for each of the periods in the five-year period
ended July 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
September 5, 1995
Growth Fund
Statement of Assets and Liabilities
(In Thousands)
July 31, 1995
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of
$812,182) $ 921,892
Cash 655
Receivables:
Capital shares sold 475
Dividends 1,105
----------
Total assets 924,127
---------
Liabilities
Capital shares redeemed 399
USAA Investment Management Company 581
USAA Transfer Agency Company 162
Accounts payable and accrued expenses 164
----------
Total liabilities 1,306
----------
Net assets applicable to capital shares outstanding $ 922,821
==========
Represented by:
Paid-in capital $ 769,679
Accumulated undistributed net investment income 7,433
Accumulated net realized gain on investments 35,999
Net unrealized appreiation of investments 109,710
----------
Net assets applicable to capital shares outstanding $ 922,821
==========
Capital shares outstanding 48,416
==========
Net asset value, redemption price, and offering price per share $ 19.06
==========
See accompanying notes to financial statements.
</TABLE>
Growth Fund
Portfolio of Investments in Securities
July 31, 1995
Market
Number Value
of Shares Security (000)
--------- --------- -------
Common Stocks (98.1%)
Airlines (12.8%)
500,000 AMR Corp.* $ 37,500
500,000 Delta Air Lines, Inc. 39,625
1,000,000 Southwest Airlines Co. 28,750
1,300,000 USAir Group, Inc.* 12,350
---------
118,225
---------
Automobiles (7.1%)
400,000 Chrysler Corp. 19,500
500,000 Ford Motor Co. 14,438
650,000 General Motors Corp. 31,687
---------
65,625
---------
Biotechnology (1.2%)
50,000 Amgen, Inc.* 4,256
135,000 Genzyme Corp.* 6,649
31,725 Genzyme Tissue Repair* 365
--------
11,270
--------
Chemicals - Specialty (1.2%)
225,000 Sigma-Aldrich Corp. 11,306
--------
Drugs (2.8%)
250,000 ALZA Corp.* 6,438
500,000 Upjohn Co. 19,250
--------
25,688
--------
Finance - Business/Commercial (4.7%)
800,000 Student Loan Marketing Assn. 43,100
--------
Gaming Companies (2.4%)
150,000 Harrah's Entertainment, Inc.* 4,031
950,000 International Game Technology 13,775
150,000 Mirage Resorts, Inc.* 4,669
--------
22,475
--------
Healthcare - Diversified (2.7%)
300,000 Warner-Lambert Co. 25,200
--------
Hotel/Motel (0.2%)
75,000 Promus Hotel Corp.* 1,847
--------
Insurance - Property/Casualty (0.2%)
30,000 Hartford Steam Boiler Inspection & Insurance Co. 1,335
--------
Manufacturing - Diversified Industries (1.3%)
400,000 Hillenbrand Industries, Inc. 11,900
--------
Medical Products & Supplies (5.8%)
482,000 Bausch & Lomb, Inc. 20,485
200,000 Biomet, Inc.* 3,050
200,000 C.R. Bard, Inc. 6,300
1,000,000 United States Surgical Corp. 24,000
--------
53,835
--------
Oil - Domestic (6.3%)
200,000 Amerada Hess Corp. 9,550
185,000 Atlantic Richfield Co. 21,321
400,000 Occidental Petroleum Corp. 9,000
150,000 Pennzoil Co. 7,031
400,000 Unocal Corp. 11,250
-------
58,152
-------
Oil - Exploration & Production (3.1%)
400,000 Apache Corp. 10,950
300,000 Burlington Resources, Inc. 11,663
285,000 Union Texas Petroleum Holdings, Inc. 5,771
-------
28,384
-------
Oil - International (7.6%)
200,000 British Petroleum Company plc ADR 18,150
275,000 Chevron Corp. 13,578
200,000 Royal Dutch Petroleum Co. 25,400
200,000 Texaco, Inc. 13,300
-------
70,428
-------
Oil & Gas Drilling (1.8%)
1,300,000 Global Marine, Inc.* 7,475
261,200 Sonat Offshore Drilling, Inc. 8,750
------
16,225
------
Oil Well Equipment & Service (6.7%)
500,000 Baker Hughes, Inc. 11,063
400,000 Halliburton Co. 16,250
400,000 Schlumberger Ltd. 26,800
282,500 Tidewater, Inc. 7,133
------
61,246
------
Pollution Control (2.3%)
50,000 Browning-Ferris Industries, Inc. 1,931
200,000 Safety-Kleen Corp. 3,125
525,000 WMX Technologies, Inc. 16,407
-------
21,463
-------
Tobacco (18.0%)
400,000 American Brands, Inc. 15,950
1,150,550 Dimon, Inc. 19,415
590,000 Philip Morris Companies, Inc. 42,259
1,558,292 RJR Nabisco Holdings Corp. 43,048
844,200 Universal Corp. 18,150
1,000,000 UST, Inc. 27,250
--------
166,072
--------
Transportation - Miscellaneous (1.8%)
250,000 Federal Express Corp.* 16,875
--------
Truckers (8.1%)
250,000 American Freightways Corp.* 5,375
250,000 Arnold Industries, Inc. 4,563
500,000 Consolidated Freightways, Inc. 11,937
100,000 Heartland Express, Inc.* 3,025
250,000 J.B. Hunt Transport Services, Inc. 4,313
250,000 Landstar Systems, Inc.* 7,500
300,000 M.S. Carriers, Inc.* 6,150
225,000 Roadway Services, Inc. 11,362
187,500 Swift Transportation Co., Inc.* 3,633
250,000 TNT Freightways Corp. 5,500
250,000 Werner Enterprises, Inc. 4,937
400,000 Yellow Corp.* 6,050
---------
74,345
---------
Total common stocks (cost: $795,286) 904,996
---------
<TABLE>
Short-Term (1.8%)
<C> <S> <C> <C> <C>
Principal
Amount Coupon
(000) Rate Maturity
--------- ------- ----------
Commercial Paper
$16,896 General Motors Acceptance Corp.
(cost: $16,896) 5.95% 8/01/95 16,896
-----------
Total investments (cost: $812,182) $ 921,892
===========
*Non-income producing.
</TABLE>
Growth Fund
Notes to Portfolio of Investments
July 31, 1995
General Notes
Market 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.
See accompanying notes to financial statements.
Growth Fund
Statement of Operations
(In Thousands)
Year ended July 31, 1995
Net investment income:
Income:
Dividends $ 18,465
Interest 1,595
--------
Total income 20,060
--------
Expenses:
Management fees 5,642
Transfer agent's fees 1,582
Custodian's fees 134
Postage 209
Shareholder reporting fees 63
Directors' fees 3
Registration fees 115
Audit fees 30
Legal fees 5
Other 32
--------
Total expenses 7,815
--------
Net investment income 12,245
--------
Net realized and unrealized gain on investments:
Net realized gain 48,004
Change in net unrealized appreciation/depreciation 118,291
--------
Net realized and unrealized gain 166,295
--------
Increase in net assets resulting from operations $ 178,540
=========
See accompanying notes to financial statements.
Growth Fund
Statements of Changes in Net Assets
(In Thousands)
Year ended July 31, 1995
and Ten-month period ended July 31, 1994
<TABLE>
<CAPTION>
1995 1994
---- -----
<S> <C> <C>
From operations:
Net investment income $ 12,245 $ 6,723
Net realized gain on investments 48,004 81,961
Change in net unrealized appreciation/depreciation of
investments 118,291 (86,783)
------- --------
Increase in net assets resulting from operations 178,540 1,901
-------- --------
Distributions to shareholders from:
Net investment income (10,408) ( 5,099)
-------- --------
Net realized gains (90,772) (61,438)
--------- ---------
From capital share transactions:
Shares sold 235,002 103,052
Shares issued for dividends reinvested 99,768 65,792
Shares redeemed (107,994) (90,980)
--------- ---------
Increase in net assets from capital share transactions 226,776 77,864
--------- ---------
Net increase in net assets 304,136 13,228
Net assets:
Beginning of period 618,685 605,457
--------- ---------
End of period $ 922,821 $ 618,685
========= =========
Undistributed net investment income included in net assets:
Beginning of period $ 5,596 $ 3,972
========== ==========
End of period $ 7,433 $ 5,596
========== ==========
Change in shares outstanding:
Shares sold 13,617 5,842
Shares issued for dividends reinvested 5,967 3,795
Shares redeemed (6,269) (5,171)
----------- -----------
Increase in shares outstanding 13,315 4,466
=========== ==========
Authorized shares of $.01 par value 75,000 50,000
=========== ==========
See accompanying notes to financial statements.
</TABLE>
Growth Fund
Notes to Financial Statements
(In Thousands)
July 31, 1995
(1) Summary of Significant Accounting Policies
USAA MUTUAL FUND, INC. (the Company), registered under the Investment
Company Act of 1940, is a diversified, open end management investment company
incorporated under the laws of Maryland consisting of seven separate funds.
The information presented in this annual report pertains only to the Growth
Fund (the Fund).
On November 8, 1993, the Board of Directors of the Company voted to
change the Fund's fiscal year end from September 30 to July 31. The financial
information for the ten-month period ended July 31, 1994 reflects this change.
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. Portfolio securities, except as otherwise noted, traded primarily on
a domestic securities exchange are valued at the last sales price on
that exchange.
2. Over-the-counter securities are priced at the last sales price or, if
not available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Securities which cannot be valued by the methods set forth above, and
all other assets, are valued in good faith at fair value, using methods
determined by the Manager under the general supervision of the Board of
Directors.
B. Federal taxes - The Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its income to its
shareholders. Therefore, no federal income or excise tax provision is
required.
C. Investments in securities - As is common in the industry, security
transactions are accounted for on the date the securities are purchased
or sold (trade date). Gain or loss from sales of investment securities is
computed on the identified cost basis. Dividend income, less foreign taxes,
if any, is recorded on the ex dividend date. If the ex dividend date has
passed, certain dividends from foreign securities are recorded upon
notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short term securities are amortized over the
life of the respective securities.
(2) Line of Credit
The Fund participates with other USAA funds in a joint $150 million
short-term revolving loan agreement (the Agreement) through January 15,
1996, for temporary or emergency purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities. Subject to availability under this Agreement, the Fund may
borrow up to 5% of the market value of its assets or 10% of the Fund's
assets taken at cost at the time of the borrowing, whichever amount is
less. Borrowings under this Agreement willbear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank of New
York or at .125% over the London Interbank Offered Rate. The Fund had no
borrowings under this Agreement during the year ended July 31, 1995.
(3) Distributions
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding
fiscal year. Distributions of net investment income of $.15 per share,
a short-term capital gain of $.223 per share, and a long-term capital
gain of $.5048 per share, declared and paid in September 1995, are not
reflected in the accompanying financial statements.
(4) Investment Transactions
Purchases and sales of securities, excluding short term securities, for
the year ended July 31, 1995 were $635,795 and $511,038, respectively.
Gross unrealized appreciation and depreciation of investments as of July
31, 1995 was $119,469 and $9,759, respectively.
(5) Transactions with Manager
A. Management fees - The investment policy of the Fund and the
management of the Fund's portfolio is carried out by USAA Investment
Management Company (the Manager). The Fund's management fees are
computed at .75% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides
transfer agent services to the Fund. Shareholder accounting service fees
are based on an annual charge per shareholder account plus out of pocket
expenses.
C. Underwriting agreement - The Company has an agreement with the
Manager for exclusive underwriting and distribution of the Fund's shares
on a continuing best efforts basis. This agreement provides that the
Manager will receive no fee or other remuneration for such services.
D. Brokerage services - USAA Brokerage Services, a discount brokerage
service of the Manager, may execute portfolio transactions for the Fund.
The amount of brokerage commissions paid to USAA Brokerage Services
during the year ended July 3, 1995 was $110.
(6) Transactions with Affiliates
USAA Investment Management Company is wholly owned by United Services
Automobile Association (the Association), a large diversified financial
services institution. At July 31, 1995, the Association and its
affiliates owned 609 shares (1.3%) of the Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
Ten-Month
Year Ended Period Ended
July 31, July 31, Year Ended September 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 17.63 $ 19.76 $ 17.49 $ 16.28 $ 13.25
Net investment income .26 .19 .19 .36 .46
Net realized and
unrealized gain (loss) 3.95 (.17) 2.67 1.26 3.03
Distributions from net
investment income (.27) (.16) (.32) (.41) (.46 )
Distributions of realized
capital gains (2.51) (1.99) (.27) _ _
---------- --------- ---------- --------- ----------
Net asset value at
end of period $ 19.06 $ 17.63 $ 19.76 $ 17.49 $ 16.28
========== ======== ========= ======== =======
Total return (%) * 26.46 .31 16.77 10.17 27.12
Net assets at
end of period (000) $ 922,821 $618,685 $ 605,457 $432,125 $318,846
Ratio of expenses to
average net assets %) 1.04 1.04(a) 1.07 1.07 1.11
Ratio of net investment
income to average net
assets (%) 1.63 1.33(a) 1.07 2.27 3.18
Portfolio turnover (%) 69.64 117.80 96.19 39.39 36.99
(a) Annualized. The ratio is not necessarily indicative of 12 months of operations.
* Assumes reinvestment of all dividend income and capital gain distributions during the period.
</TABLE>
