Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Distributions to Shareholders 7
Independent Auditors' Report 8
Statement of Assets and Liabilities 9
Portfolio of Investments in Securities 10
Notes to Portfolio of Investments 15
Statement of Operations 16
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
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 Income
Stock 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>
<CAPTION>
Average Annual Total Return**
Investment Inception Since 7-Day 30-Day***
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
Capital Appreciation
<S> <C> <C> <C> <C> <C> <C> <C>
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 -
</TABLE>
* 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.
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)
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.
[Photograph of Michael J. C. Roth, President and Chairman of the Board
appears here]
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.
Hypothetical Illustration:
Investment Review
Income Stock Fund
OBJECTIVE: Current income with the prospect of increasing dividend income
and the potential for capital appreciation.
Types of Investments: Common stocks of well-established, large companies
with above-average dividend yields.
7/31/95
Net Assets $1,408.4 Million
Net Asset Value Per Share $14.96
Average Annual Total Return as of 7/31/95
1 Year 18.83%
5 Years 12.77%
Since inception on May 4, 1987 11.57%
[A graph is shown here which is a comparison of the change in value of a
$10,000 investment, for the period of 5/4/87 to 7/31/95, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: USAA Income Stock Fund - $24,699 and the S&P 500 Index - $25,282.]
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
[Photograph of Harry W. Miller, Portfolio Manager appears here]
Fund Performance
We are pleased with the performance of common stocks since the last
reporting period. The rise has been broad - not centering on just one or
two industry sectors. Corporate earnings have been steadily increasing;
however, companies have not been increasing their dividends in direct
proportion. Instead, they have been purchasing their own stock (a positive
sign) and restructuring to lower costs. We expect these trends to continue.
For the past 12 months, the Income Stock Fund is rated in the top third of its
Lipper Analytical ratings.(1) Areas that did particularly well relative to
the market were healthcare, aerospace/defense, machinery, paper & forest
products (convertibles), computer systems (convertibles), semi-conductors
(convertibles) and tobacco. Areas that hurt us relative to the market were
electric power and real estate investment trusts. Even though they had
positive returns for the period, they did not keep up with the S&P 500 index.
Some outstanding individual performers for the year were: Deere,
Bristol-Myers Squibb, Sears, Roebuck, & Co., Sprint, B.F. Goodrich, Philip
Morris, James River, Delta Airlines, National Semiconductor, First Chicago
and Unisys. The last five mentioned are convertibles. The total of all
convertibles, as of 7/31/95, makes up 21.4% of the portfolio. We have been
very successful in this area and have taken capital gains. Convertible
securities provide a high-dividend yield, a chance for appreciation with
the underlying common stock, and a diversification into industries and
companies that we sometimes could not achieve using common stock because of
a low-dividend yield. Recently added convertibles to the portfolio are
Mascotech and Alco Standard. One disappointment was Morrison Knudson,
which has been sold.
(1) According to Lipper Analytical Services, Inc., which ranked the USAA
Income Stock Fund #32 out of 111 and #16 out of 55 equity income funds
based on the total returns for the 1- and 5-year periods ended 7/31/95,
respectively. Past Performance is no guarantee of future results.
Outlook
We will continue pursuing the increasing dividend trend for the calendar
year ending December 31, 1995, as we have every year since the inception of
the Fund (May 4, 1987).
Increasing Dividends
Annual Income
Calendar Dividend per
Year Share
---- -----
1987 $.19*
1988 .48
1989 .57
1990 .65
1991 .68
1992 .70
1993 .71
1994 .75
1995 .39**
* From inception on May 4, 1987
** Through June 30, 1995
The stock market has produced outstanding results so far this year because
of lower interest rates, higher corporate earnings, and low inflation. We
do not see these factors changing much in the near future. Therefore, it's
my opinion that owning equities, even though there may be a correction in
the market, is a good place to be for the investor.
Top 10 Equity Holdings
(% of Net Assets)
Bristol-Myers Squibb 4.4
Philip Morris Cos. 4.1
Dow Chemical 3.7
Occidental Petroleum 3.4
Unisys Corp Pfd "A" 3.3
GTE 3.3
Allegheny Power System 3.1
First Chicago Pfd "B" 3.0
Bankers Trust New York 2.8
Delta Air Lines Pfd "C" 2.6
Top 10 Industries
(% of Net Assets)
Electric Power 13.4
Real Estate Invest Trusts 12.8
Tobacco 9.2
Oil - Domestic 8.9
Healthcare - Diversified 6.7
Telephones 5.8
Bank Hldg Cos - Money Ctr 5.8
Chemicals 5.4
Computer Systems 3.3
Natural Gas Distribution-Pipelines 3.0
Percentages of the net assets in the portfolio of the investments referenced
in the Message from Manager are as follows: healthcare-diversified 6.7%;
aerospace/defense 1.6%, machinery 1.9%, paper & forest products 2.1%;
computer systems 3.3%; electronics - semi-conductors 1.0%, tobacco 9.2%;
electric power 13.4%; real estate investment trusts 12.8%; Deere 1.9%,
Bristol-Meyers Squibb 4.4%; Sears, Roebuck & Co. .9%; Sprint .5%;
B.F. Goodrich 1.6%; Philip Morris 4.1%; James River 2.1%; Delta Airlines 2.6%;
National Semiconductor 1.0%; First Chicago 3.0%, Unisys 3.3%; Mascotech .3%;
Alco Standard 1.0%.
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
Distributions to Shareholders
USAA Income Stock 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
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) $ .7500
Long-term capital gain .2470
----------
TOTAL DISTRIBUTIONS $ .9970
==========
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 Income Stock 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 positionof the Income Stock 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
Income Stock Fund
Statement of Assets and Liabilities
(In Thousands)
July 31, 1995
Assets
Investments in securities, at market value
(identified cost of $1,284,528) $ 1,399,814
Cash 621
Receivables:
Capital shares sold 604
Dividends and interest 3,874
Securities sold 5,786
-------------
Total assets 1,410,699
-------------
Liabilities
Securities purchased 661
Capital shares redeemed 681
USAA Investment Management Company 593
USAA Transfer Agency Company 215
Accounts payable and accrued expenses 178
-------------
Total liabilities 2,328
-------------
Net assets applicable to capital shares
outstanding $ 1,408,371
==============
Represented by:
Paid-in capital $ 1,269,689
Accumulated undistributed net investment income 2,689
Accumulated net realized gain on investments 20,707
Net unrealized appreciation of investments 115,286
--------------
Net assets applicable to capital shares outstanding $ 1,408,371
==============
Capital shares outstanding 94,114
==============
Net asset value, redemption price, and offering
price per share $ 14.96
==============
See accompanying notes to financial statements.
Income Stock Fund
Portfolio of Investments in Securities
July 31, 1995
Market
Number Value
of Shares Security (000)
--------- -------- -----
Common Stocks (76.6%)
Aerospace/Defense (1.6%)
427,000 B.F. Goodrich Co. $ 23,165
--------
Automobiles (1.0%)
500,000 Ford Motor Co. 14,438
--------
Bank Holding Companies - Money Center (2.8%)
600,000 Bankers Trust New York Corp. 38,700
--------
Chemicals (5.4%)
700,000 Dow Chemical Co. 51,887
666,200 Lyondell Petrochemical Co. 18,320
100,000 Olin Corp. 5,788
--------
75,995
--------
Electric Power (13.4%)
1,800,000 Allegheny Power System, Inc. 43,200
503,300 Central Hudson Gas & Electric Corp. 13,337
700,000 CINergy Corp. 18,200
500,000 Houston Industries, Inc. 21,875
65,100 IES Industries, Inc. 1,424
950,700 Portland General Corp. 21,866
400,000 Public Service Co. of Colorado 12,650
1,050,000 Public Service Enterprise Group, Inc. 29,138
445,000 Southwestern Public Service Co. 13,072
400,000 Texas Utilities Co. 13,550
-------
188,312
Healthcare - Diversified (6.7%)
400,000 American Home Products Corp. 31,600
900,000 Bristol-Myers Squibb Co. 62,325
-------
93,925
-------
Insurance - Multi/Line Companies (1.6%)
357,600 Aetna Life & Casualty Co. 22,127
-------
Insurance - Property/Casualty (0.8%)
370,814 Allstate Corp. 11,588
-------
Machinery - Diversified (1.9%)
300,000 Deere & Co. 26,962
-------
Natural Gas Distribution - Pipelines (3.0%)
908,600 National Fuel Gas Co. 25,441
662,700 NICOR, Inc. 16,816
-------
42,257
-------
Oil - Domestic (8.9%)
300,000 Atlantic Richfield Co. 34,575
2,150,000 Occidental Petroleum Corp. 48,375
250,000 Pennzoil Co. 11,719
1,000,000 Sun Co., Inc. 30,125
-------
124,794
-------
Oil - International (2.0%)
424,800 Texaco, Inc. 28,249
-------
Real Estate Investment Trusts (12.8%)
200,000 Beacon Properties Corp. 4,225
709,000 Burnham Pacific Properties, Inc. 10,103
65,000 Camden Property Trust 1,357
42,100 Chateau Properties, Inc. 900
200,000 Chelsea GCA Realty, Inc. 5,550
70,000 Colonial Properties Trust 1,698
100,000 Columbus Realty Trust 1,925
504,800 Developers Diversified Realty Corp. 15,333
397,500 Equity Residential Properties Trust 11,726
500,000 Glimcher Realty Trust 10,687
300,000 Health Care Property Investors, Inc. 9,712
300,000 HGI Realty, Inc. 7,462
100,000 Highwood Properties, Inc. 2,525
191,600 IRT Property Co. 1,940
200,000 JDN Realty Corp. 4,350
375,000 Liberty Property Trust 7,500
420,000 Manufactured Home Communities, Inc. 6,668
520,000 Merry Land & Investment Co. 11,180
500,000 Nationwide Health Properties, Inc. 19,812
100,000 Paragon Group, Inc. 1,888
200,000 Post Properties, Inc. 6,075
150,000 Shurgard Storage Centers, Inc. 3,544
124,000 South West Property Trust, Inc. 1,488
250,000 Starwood Lodging Trust* 6,500
270,000 Storage USA, Inc. 7,762
100,000 Tanger Factory Outlet Centers, Inc. 2,700
75,000 Weeks Corp. 1,744
140,000 Weingarten Realty Investors, Inc. 4,988
375,000 Wellsford Residential Property Trust 8,344
--------
179,686
--------
Retail Stores - General Merchandising (0.9%)
400,000 Sears, Roebuck & Co. 13,050
--------
Savings & Loan Holding Companies (0.9%)
600,000 Great Western Financial Corp. 12,825
--------
Telephones (5.8%)
1,300,000 GTE Corp. 46,150
700,000 NYNEX Corp. 28,875
200,000 Sprint Corp. 6,850
--------
81,875
----------
Tobacco (7.1%)
800,000 American Brands, Inc. 31,900
800,000 Philip Morris Companies, Inc. 57,300
400,000 RJR Nabisco Holdings Corp. 11,050
----------
100,250
----------
Total common stocks (cost: $991,874) 1,078,198
---------
Preferred Stocks (17.8%)
Airlines (2.6%)
600,000 Delta Air Lines, Inc. depositary shares
"C", $3.50 convertible 37,125
---------
Aluminum (1.6%)
2,100,400 Kaiser Aluminum Corp. depositary shares "A",
$.65 mandatory conversion premium 22,579
---------
Auto Parts (0.3%)
300,000 Mascotech, Inc., $1.20 cumulative
convertible 4,238
---------
Bank Holding Companies - Money Center (3.0%)
719,000 First Chicago Corp. depositary shares "B",
5.75% cumulative convertible 42,061
---------
Computer Systems (3.3%)
1,150,000 Unisys Corp. depositary shares "A", $3.75
convertible 46,719
---------
Electrical Equipment (0.8%)
800,000 Westinghouse Electric Corp. depositary
shares "B", $1.53 convertible 11,400
---------
Electronics - Semi-Conductors (1.0%)
150,000 National Semiconductor Corp.
depositary shares, $3.25 convertible 14,700
---------
Office Equipment & Supplies (1.0%)
167,000 Alco Standard Corp. depository shares "BB",
6.50% cumulative convertible 13,590
---------
Paper & Forest Products (2.1%)
1,000,000 James River Corp. depositary shares "P",
9.00% cumulative convertible 29,250
---------
Tobacco (2.1%)
5,000,000 RJR Nabisco Holdings Corp. depositary shares "C",
$.60 cumulative exchangeable 29,375
---------
Total preferred stocks (cost: $223,584) 251,037
<TABLE>
<CAPTION>
---------
Principal Coupon Market
Amount Security Rate Maturity Value
------ -------- ---- -------- -----
Bonds (3.6%)
<S> <C> <C> <C>
$ 505 Atlantic Richfield Co. Exchangeable Notes 9.00% 9/15/97 $ 13,761
6,810 Cooper Industries, Inc. Convertible Debentures 7.05 1/01/15 6,946
20,303 Quanex Corp. Convertible Subordinated
Debentures 6.88 6/30/07 19,846
10,000 Time Warner, Inc. Convertible Debentures 8.75 1/10/15 10,437
--------
Total bonds (cost: $49,481) 50,990
--------
Short-Term (1.4%)
Commercial Paper
19,589 General Motors Acceptance Corp. (cost: $19,589) 5.95 8/01/95 19,589
--------
Total investments (cost: $1,284,528) $1,399,814
===========
</TABLE>
*Non-income producing.
Income Stock 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 netassets.
See accompanying notes to financial statements.
Income Stock Fund
Statement of Operations
(In Thousands)
Year ended July 31, 1995
Net investment income:
Income:
Dividends $ 73,845
Interest 2,337
---------
Total income 76,182
---------
Expenses:
Management fees 6,262
Transfer agent's fees 2,333
Custodian's fees 190
Postage 300
Shareholder reporting fees 102
Directors' fees 3
Registration fees 90
Audit fees 30
Legal fees 5
Other 42
----------
Total expenses 9,357
----------
Net investment income 66,825
----------
Net realized and unrealized gain on investments:
Net realized gain 23,904
Change in net unrealized appreciation/depreciation 129,417
----------
Net realized and unrealized gain 153,321
----------
Increase in net assets resulting from operations $ 220,146
==========
See accompanying notes to financial statements.
Income Stock Fund
Statements of Changes in Net Assets
(In Thousands)
Year ended July 31, 1995
and Ten-month period ended July 31, 1994
1995 1994
---- ----
From operations:
Net investment income $ 66,825 $ 50,039
Net realized gain on investments 23,904 17,070
Change in net unrealized appreciation
/depreciation of investments 129,417 (108,293)
--------- ---------
Increase (decrease) in net assets
resulting from operations 220,146 (41,184)
--------- ---------
Distributions to shareholders from:
Net investment income (67,497) (59,302)
--------- ---------
Net realized gains (19,454) (14,117)
--------- ---------
From capital share transactions:
Shares sold 236,760 382,685
Shares issued for dividends reinvested 80,246 67,939
Shares redeemed (231,854) (189,683)
--------- ---------
Increase in net assets from capital
share transactions 85,152 260,941
--------- ---------
Net increase in net assets 218,347 146,338
Net assets:
Beginning of period 1,190,024 1,043,686
--------- ---------
End of period $ 1,408,371 $ 1,190,024
=========== ===========
Undistributed net investment income
included in net assets:
Beginning of period $ 3,361 $ 12,624
=========== ===========
End of period $ 2,689 $ 3,361
=========== ===========
Change in shares outstanding:
Shares sold 17,039 27,062
Shares issued for dividends reinvested 5,811 4,875
Shares redeemed (16,857) (13,616)
----------- -----------
Increase in shares outstanding 5,993 18,321
=========== ===========
Authorized shares of $.01 par value 135,000 135,000
=========== ===========
See accompanying notes to financial statements.
Income Stock 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 Income Stock 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 is recorded
on the ex-dividend date; 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 will bear 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 ended July 31, 1995.
(3) Distributions
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are
made in the succeeding fiscal year. A long-term capital gain distribution
of $.217 per share, declared and paid in September 1995, is 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 $511,921 and $430,784, respectively.
Gross unrealized appreciation and depreciation of investments as of July
31, 1995 was $142,974 and $27,688, 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 .50% 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 31,1995 was $33.
(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 2,293 shares (2.4%) 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 $ 13.50 $ 14.95 $ 13.42 $ 12.63 $ 10.27
Net investment income .74 .60 .71 .71 .69
Net realized and
unrealized gain (loss) 1.69 (1.12) 1.62 .78 2.34
Distributions from net
investment income (.75) (.74) (.71) (.70) (.67)
Distributions of realized
capital gains (.22) (.19) (.09) _ _
-------- -------- -------- -------- --------
Net asset value at
end of period $ 14.96 $ 13.50 $ 14.95 $ 13.42 $ 12.63
======== ======== ======== ======== =======
Total return (%) * 18.83 (3.53) 18.05 12.14 30.45
Net assets at
end of period (000) $1,408,371 $1,190,024 $1,043,686 $ 480,733 $ 179,339
Ratio of expenses to
average net assets (%) .75 .73(a) .70 .74 .83
Ratio of net investment
income to average net
assets (% 5.34 5.25(a) 5.43 5.99 6.30
Portfolio turnover (%) 34.94 24.82 26.98 15.79 26.65
</TABLE>
(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.
