Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 8
Financial Information:
Statement of Assets and Liabilities 10
Portfolio of Investments in Securities 11
Notes to Portfolio of Investments in Securities 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
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) 1996, USAA. All rights reserved.
<TABLE>
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 32 funds by investment objective as of December 31,
1995. For more complete information about the mutual funds managed and
distributed by USAA IMCO, including charges and expenses, please call
1-800-531-8181 for a prospectus. Read it carefully before you invest.
Average Annual Total Return*
<CAPTION> Yield
Investment Inception Since 7-Day 30-Day(1)
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 50.42 20.44 12.02 - - -
Emerging Markets(2) 11/7/94 3.65 - - (4.26) - -
Gold(2) 8/15/84 4.04 5.60 5.46 - - -
Growth 4/5/71 32.06 15.56 12.47 - - -
Growth & Income 6/1/93 31.57 - - 13.74 - -
International(2) 7/11/88 8.29 11.98 - 9.51 - -
World Growth(2) 10/1/92 12.85 - - 12.06 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - 3.24 - -
Cornerstone Strategy(2)# 8/15/84 18.40 12.37 12.68 - - -
Growth and Tax Strategy(3)**# 1/11/89 22.70 10.33 - 9.81 - 3.61
Growth Strategy(2) 9/1/95 - - - 6.50 - -
Income Strategy 9/1/95 - - - 9.94 - 4.47
Income - Taxable
GNMA 2/1/91 16.76 - - 8.64 - 6.64
Income 3/4/74 24.47 10.91 10.43 - - 6.25
Income Stock 5/4/87 28.62 14.35 - 12.12 - -
Short-Term Bond 6/1/93 11.18 - - 5.33 - 6.43
Income - Tax Exempt
Long-Term(3)** 3/19/82 18.58 8.44 8.62 - - 5.40
Intermediate-Term(3)** 3/19/82 15.07 8.22 7.95 - - 4.93
Short-Term(3)** 3/19/82 8.11 5.59 5.87 - - 4.36
California Bond(3)** 8/1/89 21.85 8.39 - 8.01 - 5.23
Florida Tax-Free Income(3)** 10/1/93 18.90 - - 3.39 - 5.35
New York Bond(3)** 10/15/90 18.07 8.60 - 9.25 - 5.31
Texas Tax-Free Income(3)** 8/1/94 22.22 - - 12.43 - 5.18
Virginia Bond(3)** 10/15/90 17.08 8.42 - 8.79 - 5.22
Money Market
Money Market(4) 2/2/81 5.80 4.54 5.97 - 5.48 -
Tax Exempt Money Market(3),(4)** 2/6/84 3.70 3.32 4.36 - 4.33 -
Treasury Money Market Trust(4) 2/1/91 5.59 - - 4.17 5.26 -
California Money Market(3),(4)** 8/1/89 3.64 3.15 - 3.70 4.14 -
Florida Tax-Free Money
Market(3),(4)** 10/1/93 3.57 - - 2.90 4.28 -
New York Money Market(3),(4)** 10/15/90 3.59 2.98 - 3.04 4.27 -
Texas Tax-Free Money Market(3),(4)** 8/1/94 3.56 - - 3.36 4.08 -
Virginia Money Market(3),(4)** 10/15/90 3.52 3.13 - 3.21 4.07 -
(1) Calculated as prescribed by the Securities and Exchange Commission.
(2) Foreign investing is subject to additional risks, which are discussed in the funds' prospectuses.
(3) Some income may be subject to state or local taxes or the federal alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by the U.S. government and there
is no assurance that any of the funds will be able to maintain a stable net asset value of $1 per share.
* 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.
** 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, New York, Virginia,
Florida, and Texas funds available to residents only.
# Formerly known as Cornerstone Fund and Balanced Portfolio Fund, respectively.
</TABLE>
Message from the President
[A photo of Michael J.C. Roth, President and Vice Chairman of the Board,
appears here]
We regularly get letters and phone calls from our customers commenting on the
things we do and the services we provide. We value all of these communications,
whatever their tone. They let us know what we have done wrong and what we
have done right.
There have been two events in the past couple of years that generated lots
of letters. When I say "lots," I really mean dozens, which is small in
relation to our base of over 450,000 shareholders. But, those dozens are
meaningful to us as a signal that a chord has been struck, and we pay
attention. The first event was the changes we made to our statements,
consolidating information on multiple fund accounts into a single mailing.
Some of you were uncomfortable with the fact that each fund's activity was
no longer on an individual piece of paper in the statement. We hope that by
now all of you have noted that the annual statement we sent you in January
for the previous year does have separate pages that record all of the
transactions for each fund owned. These records can easily be filed by fund.
This time last year when we held some meetings with shareholders
in ten cities around the country, we addressed the statement ourselves just
to get your feedback. At every meeting there was invariably one person who
stood up and said, "I like the new statement." However, there will be some
format changes to our statements beginning in April, which I hope all of you
will enjoy.
The second event occurred recently. In rushing to meet a deadline, we
managed to send out a piece that incorrectly described dollar-cost averaging.
In a way, it was good to know how many of you read our pieces carefully
because we sure did hear from several of you. It was terribly embarrassing
for us, but not altogether bad because we learned from it.
These events are part of a relationship with you that we enjoy.
We enjoy it, in large part, because you do not write or call only when
something is amiss. You also let us know when we have done well and helped
you. For many years, we have preserved your letters which compliment
one of our people, and present that letter to the person you have noted. We
call this a "Laurel," and it has been one of the most successful means of
recognition for individuals we have ever seen.
We look forward to hearing from you. It helps us serve you better.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
INVESTMENT REVIEW
GROWTH FUND
Objective: Long-term growth of capital with secondary objectives of regular
income and conservation of principal.
TYPES OF INVESTMENTS: Primarily common stocks.
7/31/95 1/31/96
Net Assets $922.8 Million $1,107.7 Million
Net Asset Value Per Share $19.06 $19.85
Average Annual Total Returns as of 1/31/96
July 31, 1995 to January 31, 1996 11.32%**
1 Year 29.85%
5 Years 15.30%
10 Years 12.64%
**Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
[A graph is shown here which is a comparison of the change in value of
a $10,000 investment, for the period of 1/31/86 to 1/31/96, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: the S&P 500 Index - $41,083 and the USAA Growth Fund - $32,873.]
The S&P 500 Index is an unmanaged index representing the average performance
of a group of 500 widely heldpublicly traded stocks. Is 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 managed as a contrarian fund, which means it
seeks growth companies that are out-of-favor with the market when
purchased. At times, a substantial portion of the Fund's assets may be
placed in out-of-favor cyclical(1) companies that present extremely
compelling values. The Fund seeks to buy companies in out-of-favor
industries (i.e. those that have significantly underperformed the
market over the past one to three years) in all sectors of the market.
(1) A company whose stock tends to rise quickly when the economy turns up
and to fall quickly when the economy turns down.
In accordance with the Fund's strategy, I began purchasing gold mining
stocks in December 1995. Gold companies currently comprise over 12% of
the net assets of the Fund. The Fund remains heavily overweighted in
oil, tobacco and trucking companies. The Fund is approximately market
weighted in healthcare stocks and overweighted in airlines and autos.
Partial sales of airlines, autos and other companies, as well as cash
on hand, have been used to pay for gold stocks.
% of Net
Industry Assets
---------------------------------------
Oil-related 24.1
Tobacco 21.9
Gold mining 12.2
Healthcare-related 8.8
Trucking 6.7
Airlines 5.3
Autos 4.4
Performance
For the six-month period ending January 31, 1996, the Fund did well
compared to its peers, generating a cumulative total return of 11.32%
versus 8.72% for the Lipper Growth Fund Index.(2) However, the Fund
underperformed the S&P 500.(3) Tobacco and gold greatly outperformed the
market; petroleum and autos performed in line; healthcare, airlines
and trucking significantly underperformed.
(2) Source: Lipper Analytical Services, an independent organization that
monitors the performance of mutual funds.
(3) This index, like most broadmarket indices, is a hypothetical portfolio
which, unlike a mutual fund, has no operating expenses or transaction
cost. It assumes all income and capital gains are reinvested.
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
Method of Procedure
I do not forecast the economy or the market because no one has perfect
insight into the directions they take. Instead, I identify companies
with a future and scarcity value. Because their actual and potential
problems are thoroughly disseminated, they're available at bargain
prices. Beyond identifying companies and industries that meet these
standards, one must ask what plausible changes in the future
environment will spark a turnaround. When the stocks regain the
market's graces, which almost always happens - at least to the
companies that avoid bankruptcy - they are sold. The question of when
to sell popular stocks, especially in the context of a bull market,
has a great bearing on fund performance. Nevertheless, the Fund acts
in a contrarian fashion in its sales as well as its purchases.
Top 10 Equity Holdings
(% of Net Assets)
RJR Nabisco 4.6
UST 4.6
Philip Morris Companies 4.2
B.A.T. Industries plc ADR 3.2
Student Loan Marketing Assn 3.1
Warner-Lambert 2.5
Schlumberger 2.5
Royal Dutch Petroleum 2.5
Texaco 2.2
General Motors 2.1
Shareholder Voting Results
On October 13, 1995, a special meeting of shareholders was held to
vote on the following proposals. All proposals were approved by the
shareholders. All shareholders of record on August 17, 1995 were
entitled to vote on each proposal. The number of votes shown below are
shown for the Growth Fund only for proposal (2) and in the aggregate
for the entire USAA Mutual Fund, Inc. (the Company) for proposals (1)
and (3).
(1) Proposal to elect a Board of Directors as follows:
Votes Votes
Director For Withheld
-------------------------------------------------------
Hansford T. Johnson* 958,654,342 22,342,020
Michael J.C. Roth 959,226,525 21,769,837
John W. Saunders, Jr. 958,343,963 22,652,399
George E. Brown 953,414,718 27,581,644
Howard L. Freeman, Jr. 959,776,745 21,219,617
Richard A. Zucker 947,484,789 33,511,573
Barbara B. Dreeben 945,379,515 35,616,847
Mr. C. Dale Briscoe did not stand for re-election to the Board. His
term of office terminated on December 31, 1995.
* On December 4, 1995, Hansford T. Johnson announced his departure
from the Board effective December 31, 1995. The Board elected M.
Staser Holcomb to succeed Mr. Johnson.
(2) Proposals to amend certain investment restrictions as follows:
Number of Shares Voting
For Against Abstain
---- -------- -------
Proposal to amend the 5% and 10% issuer 22,809,364 1,836,052 1,154,620
diversification restrictions to apply to 75%
of a Fund's total assets rather than 100%.
Proposal to amend the restriction relating 21,743,951 2,668,886 1,387,199
to borrowing to allow a Fund to borrow
an amount not exceeding 331/3% of its total
assets (including the amount borrowed)
less liabilities (other than borrowings)
for temporary or emergency purposes.
Proposal to amend the restriction relating 21,960,964 2,398,748 1,440,323
to lending portfolio securities to permit
a Fund to lend up to 331/3% of its total
assets to other parties.
Proposal to reclassify the investment 22,063,231 2,223,899 1,512,906
restriction on illiquid securities from
fundamental to non-fundamental and amend
the restriction to permit investments in
illiquid securities, including repurchase
agreements maturing in more than seven days,
to no more than 15% of the value of a Fund's
net assets.
Proposal to reclassify the 5% restriction 22,020,779 2,311,877 1,467,369
on investment in new issuers from fundamental
to non-fundamental. This would allow the
Board of Directors to amend or eliminate
this investment policy in the future,
without shareholder approval.
Proposal to reclassify the joint trading 22,425,289 1,868,304 1,506,442
account restriction from fundamental to
non-fundamental.
(3) Proposal to ratify or reject the 919,046,882 22,848,992 39,100,482
selection by the Board of Directors of
KPMG Peat Marwick LLP as auditors for
the Company for the fiscal year ending
July 31, 1995.
Growth Fund
Statement of Assets and Liabilities
(In Thousands)
January 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $935,946) $ 1,107,248
Cash 360
Receivables:
Capital shares sold 430
Dividends and interest 1,711
Securities sold 1,803
---------
Total assets 1,111,552
---------
Liabilities
Securities purchased 2,370
Capital shares redeemed 571
USAA Investment Management Company 686
USAA Transfer Agency Company 182
Accounts payable and accrued expenses 41
-----------
Total liabilities 3,850
-----------
Net assets applicable to capital shares outstanding $ 1,107,702
===========
Represented by:
Paid-in capital $ 908,830
Accumulated undistributed net investment income 429
Accumulated net realized gain on investments 27,141
Net unrealized appreciation of investments 171,302
-----------
Net assets applicable to capital shares outstanding $ 1,107,702
===========
Capital shares outstanding 55,813
===========
Net asset value, redemption price, and offering price per share $ 19.85
===========
See accompanying notes to financial statements.
</TABLE>
Growth Fund
Portfolio of Investments in Securities
January 31, 1996
(Unaudited)
Market
Number Value
of Shares Security (000)
----------- -------- -------
Common Stocks (97.8%)
Airlines (5.3%)
250,000 AMR Corp.* $ 19,000
250,000 Delta Air Lines, Inc. 17,094
800,000 Southwest Airlines Co. 20,800
151,900 USAir Group, Inc.* 2,278
---------
59,172
---------
Automobiles (4.4%)
250,000 Chrysler Corp. 14,438
350,000 Ford Motor Co. 10,369
450,000 General Motors Corp. 23,681
---------
48,488
---------
Chemicals - Specialty (0.7%)
150,000 Sigma-Aldrich Corp. 7,875
--------
Conglomerates (1.4%)
1,000,000 Hanson plc ADR 15,500
--------
Distribution & Pipelines (1.7%)
500,000 Enserch Corp. 7,312
261,200 Sonat Offshore Drilling, Inc. 12,048
--------
19,360
--------
Drugs (1.8%)
250,000 ALZA Corp.* 7,063
300,000 Pharmacia & Upjohn, Inc. 12,562
--------
19,625
--------
Finance - Business/Commercial (3.1%)
463,500 Student Loan Marketing Assn. 34,125
--------
Gaming Companies (1.0%)
950,000 International Game Technology 11,281
--------
Gold Mining (12.2%)
1,270,000 Battle Mountain Gold Co. 13,494
583,900 Coeur D'Alene Mines Corp.* 13,284
700,000 Driefontein Consolidated Ltd. 10,325
765,000 Hecla Mining Co.* 6,598
745,000 Hemlo Gold Mines, Inc. 9,012
1,100,000 Homestake Mining Co. 20,762
800,000 Kloof Gold Mining Co. Ltd. 10,000
400,000 Newmont Mining Corp. 22,400
950,000 Vaal Reefs Exploration & Mining Ltd. ADR 9,738
405,000 Western Deep Levels Ltd. ADR 19,389
-------
135,002
--------
Healthcare - Diversified (2.5%)
300,000 Warner-Lambert Co. 28,125
-------
Manufacturing - Diversified Industries (1.2%)
400,000 Hillenbrand Industries, Inc. 13,300
--------
Medical Products & Supplies (4.5%)
482,000 Bausch & Lomb, Inc. 18,738
200,000 C.R. Bard, Inc. 7,000
1,000,000 United States Surgical Corp. 23,625
--------
49,363
--------
Oil - Domestic (5.3%)
200,000 Amerada Hess Corp. 11,025
185,000 Atlantic Richfield Co. 21,021
400,000 Occidental Petroleum Corp. 8,600
150,000 Pennzoil Co. 6,094
400,000 Unocal Corp. 11,950
-------
58,690
-------
Oil - Exploration & Production (2.5%)
400,000 Apache Corp. 10,750
300,000 Burlington Resources, Inc. 11,250
285,000 Union Texas Petroleum Holdings, Inc. 5,201
--------
27,201
--------
Oil - International (7.7%)
200,000 British Petroleum Co. plc ADR 19,525
275,000 Chevron Corp. 14,266
200,000 Royal Dutch Petroleum Co. 27,800
300,000 Texaco, Inc. 24,262
--------
85,853
--------
Oil & Gas Drilling (2.1%)
302,000 Diamond Offshore Drilling, Inc.* 11,514
1,300,000 Global Marine, Inc.* 11,212
-------
22,726
-------
Oil Well Equipment & Service (6.5%)
500,000 Baker Hughes, Inc. 12,937
400,000 Halliburton Co. 20,650
40,000 Highlands Insurance Group, Inc.* 765
400,000 Schlumberger Ltd. 28,050
282,500 Tidewater, Inc. 9,358
-------
71,760
-------
Paper & Forest Products (1.5%)
658,600 Schweitzer-Mauduit International, Inc.* 16,383
-------
Pollution Control (1.5%)
50,000 Browning-Ferris Industries, Inc. 1,475
525,000 WMX Technologies, Inc. 15,685
-------
17,160
-------
Restaurants (0.7%)
600,000 Brinker International, Inc.* 7,725
-------
Tobacco (21.9%)
400,000 American Brands, Inc. 18,250
1,950,000 B.A.T. Industries plc ADR 35,100
1,150,550 Dimon, Inc. 21,573
500,000 Philip Morris Companies, Inc. 46,500
1,575,292 RJR Nabisco Holdings Corp. 51,197
847,600 Universal Corp. 19,813
1,500,000 UST, Inc. 50,437
---------
242,870
---------
Transportation - Miscellaneous (1.6%)
228,800 Federal Express Corp.* 17,418
---------
Truckers (6.7%)
375,000 American Freightways Corp.* 3,797
250,000 Arnold Industries, Inc. 3,641
279,600 Caliber System, Inc. 10,625
600,000 Consolidated Freightways, Inc. 13,800
153,959 Heartland Express, Inc.* 3,502
350,000 J.B. Hunt Transport Services, Inc. 5,469
250,000 Landstar Systems, Inc.* 6,250
351,500 M.S. Carriers, Inc.* 5,624
139,800 Roadway Express, Inc. 1,538
187,500 Swift Transportation Co., Inc.* 3,281
351,300 TNT Freightways Corp. 6,499
255,000 Werner Enterprises, Inc. 5,482
402,000 Yellow Corp.* 4,824
--------
74,332
----------
Total common stocks (cost: $912,032) 1,083,334
----------
Short-Term (2.2%)
Principal
Amount Coupon
(000) Rate Maturity
------ ------ --------
Commercial Paper
$ 6,661 Commercial Credit Co. 5.42% 2/01/96 6,661
17,256 Prudential Funding Corp. 5.65 2/02/96 17,253
-------
Total short-term (cost: $23,914) 23,914
-------
Total investments (cost: $935,946) $1,107,248
==========
*Non-income producing.
Growth Fund
Notes to Portfolio of Investments in Securities
January 31, 1996
(Unaudited)
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)
Six-month period ended January 31, 1996
(Unaudited)
Net investment income:
Income:
Dividends $ 12,113
Interest 1,368
------
Total income 13,481
------
Expenses:
Management fees 3,754
Transfer agent's fees 1,046
Custodian's fees 79
Postage 125
Shareholder reporting fees 48
Directors' fees 2
Registration fees 59
Audit fees 15
Legal fees 2
Other 16
------
Total expenses 5,146
------
Net investment income 8,335
------
Net realized and unrealized gain on investments:
Net realized gain 40,226
Change in net unrealized appreciation/depreciation 61,592
----------
Net realized and unrealized gain 101,818
----------
Increase in net assets resulting from operations $ 110,153
==========
See accompanying notes to financial statements.
Growth Fund
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended January 31, 1996
and Year ended July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
1/31/96 7/31/95
------- -------
<S> <C> <C>
From operations:
Net investment income $ 8,335 $ 12,245
Net realized gain on investments 40,226 48,004
Change in net unrealized appreciation/depreciation of
investments 61,592 118,291
------- --------
Increase in net assets resulting from operations 110,153 178,540
------- --------
Distributions to shareholders from:
Net investment income (15,339) (10,408)
------- --------
Net realized gains (49,084) (90,772)
-------- --------
From capital share transactions:
Shares sold 141,625 235,002
Shares issued for dividends reinvested 63,056 99,768
Shares redeemed (65,530) (107,994)
-------- ----------
Increase in net assets from capital share transactions 139,151 226,776
-------- ----------
Net increase in net assets 184,881 304,136
Net assets:
Beginning of period 922,821 618,685
-------- --------
End of period $1,107,702 $ 922,821
========== ==========
Undistributed net investment income included in net assets:
Beginning of period $ 7,433 $ 5,596
========== ==========
End of period $ 429 $ 7,433
========== ==========
Change in shares outstanding:
Shares sold 7,495 13,617
Shares issued for dividends reinvested 3,372 5,967
Shares redeemed (3,470) (6,269)
----------- ---------
Increase in shares outstanding 7,397 13,315
=========== =========
Authorized shares of $.01 par value 75,000 75,000
=========== =========
See accompanying notes to financial statements.
</TABLE>
Growth Fund
Notes to Financial Statements
(In Thousands)
January 31, 1996
(Unaudited)
(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 semiannual report pertains only to the
Growth Fund (the Fund). The Fund's primary investment objective is long-term
growth of capital, with secondary objectives of regular income and conservation
of principal.
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. Amortization of market discounts on
long-term securities is recognized as interest income upon disposition
of the security to the extent there is a gain on disposition.
(2) Lines of Credit
The Fund participates with other USAA funds in two joint short-term
revolving loan agreements totaling $850 million through January 14,
1997, one with USAA Capital Corporation, an affiliate of
the Manager ($750 million uncommitted), and one with an unaffiliated
bank ($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 these agreements, the Fund may borrow up
to a maximum of 25% of its total assets at the lending institution's
borrowing rate plus a markup to cover costs. The Fund had no
borrowings under either of these agreements during the six-month
period ended January 31, 1996.
(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.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities,
for the six-month period ended January 31, 1996 were $254,669 and
$178,126, respectively.
Gross unrealized appreciation and depreciation of investments as of
January 31, 1996 was $186,981 and $15,679, 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 six-month period ended January 31, 1996 was $20.
(6) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by
United Services Automobile Association (the Association), a large,
diversified financial services institution. At January 31, 1996, the
Association and its affiliates owned 1,306 shares (2.3%) of the Fund.
(7) Financial Highlights
<TABLE>
Per share operating performance for a share outstanding throughout
each period is as follows:
<CAPTION>
Six-month Year Ten-month
period ended ended period ended
January 31, July 31, July 31, Year ended September 30,
1996 1995 1994 1993 1992 1991
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 19.06 $ 17.63 $ 19.76 $ 17.49 $ 16.28 $ 13.25
Net investment income .15 .26 .19 .19 .36 .46
Net realized and
unrealized gain (loss) 1.90 3.95 (.17) 2.67 1.26 3.03
Distributions from net
investment income (.29) (.27) (.16) (.32) (.41 ) (.46)
Distributions of realized
capital gains (.97) (2.51) (1.99) (.27) - -
-------- -------- --------- ------- ------- --------
Net asset value at
end of period $ 19.85 $ 19.06 $ 17.63 $ 19.76 $ 17.49 $ 16.28
======== ======== ========= ========= ======= =======
Total return (%) * 11.32 26.46 .31 16.77 10.17 27.12
Net assets at
end of period (000) $1,107,702 $922,821 $ 618,685 $ 605,457 $432,125 $318,846
Ratio of expenses to
average net assets (%) 1.03(a) 1.04 1.04 (a) 1.07 1.07 1.11
Ratio of net investment
income to average
net assets (%) 1.66(a) 1.63 1.33 (a) 1.07 2.27 3.18
Portfolio turnover (%) 18.70 69.64 117.80 96.19 39.39 36.99
Average commission
rate paid per share $ .050
(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>
