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 9
Portfolio of Investments in Securities 10
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
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. c1996, 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 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
- ----------------------------------------
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 1/31/96
Net Assets .................. $1,408.4 Million $1,644.4 Million
Net Asset Value Per Share.... $14.96 $15.99
Average Annual Total Returns as of 1/31/96
July 31, 1995 to January 31, 1996............ 11.52% *
1 Year....................................... 28.59%
5 Years...................................... 14.24%
Since inception on May 4, 1987............... 12.26%
* 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 5/4/87 to 1/31/96, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: USAA Income Stock Fund - $27,543 and the S&P 500 Index - $28,955.]
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
- ------------------------
[A photo of Harry W. Miller, Portfolio Manager appears here]
Performance
As of January 31, 1996, your Fund had net assets of $1.644 billion, as
compared to $1.408 billion at the time of our last report on July 31, 1995.
This increase was due to capital appreciation, reinvestment of dividends
and a good net cash flow from you. In addition, the U.S. stock market
performed well during this six-month period, and your Fund benefited
accordingly.
Outstanding performers during the six-month period were: B.F. Goodrich,
Allegheny Power System, Texas Utilities, American Home Products,
Bristol-Myers Squibb, Allstate, Deere & Co., Texaco, GTE, NYNEX, and Philip
Morris Companies. Sears, Roebuck & Co. and Aetna both did very well, and
profits were taken. The real estate investment trusts (REITs) underperformed
the market, even though they appreciated. In the convertible preferred stock
area, Kaiser Aluminum, Westinghouse Electric and National Semiconductor
issues were converted to common stock and mostly sold. (At the end of this
reporting period, we still had a small position in Kaiser.)
The dividend to shareholders for calendar 1995 was $.77, compared to
$.75 in the previous year. The dividend has increased every year since
the Fund's inception in 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 .77
* From inception on May 4, 1987
Outlook
We expect the following industries to perform above the average in
1996: oils, healthcare - diversified, REITs and telephones.
Oils are a restructuring play in which the companies are dramatically
cutting costs to be competitive in a low oil price environment. Among
our favorites are Texaco and Occidental Petroleum. If oil prices
should rise, this position could be a windfall.
Health care is expected to continue its outstanding performance. For a
period of time, companies in the health care industry emphasized cost
containment, which set the stage for improved profitability.
Bristol-Myers Squibb is our favorite.
REITs are a relatively small industry which is destined to grow
rapidly as more real estate operators securitize their holdings. The
securitization allows real estate to be more marketable. Among our
favorites are: Public Storage (storage), Beacon Properties (office
buildings) and Starwood Lodging (hotels).
Telephones comprise over 10% of the portfolio. We think of them as
technology companies - not regulated utilities. As the industry
consolidates, we believe there has been an evolution as local
telephones enter long distance and vice versa. The customer has
choices as never before. Our top picks are GTE and NYNEX.
As for the economy in 1996, it does not appear that we are going into
a recession; operating corporate profits are good (but slowing down),
interest rates are low, and inflation (at less than 3%) is stable. For
the time being, we see these factors continuing.
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
Top 10 Equity Holdings Top 10 Industries
(% of Net Assets) (% of Net Assets)
- ---------------------------------------- ------------------------------------
Bristol-Myers Squibb 4.8 Real Estate Invest. Trusts 13.2
Philip Morris Companies 4.5 Electric Power 11.7
GTE 4.2 Telephones 10.3
Allegheny Power System 3.3 Tobacco 9.2
NYNEX 3.3 Healthcare - Diversified 7.3
Dow Chemical 3.2 Oil - Domestic 6.8
Occidental Petroleum 2.8 Bank Hldg. Cos. - Money Ctr 4.0
First Chicago NBD Depositary Shares 2.8 Natural Gas Dist. - Pipelines 3.3
Texaco 2.7 Chemicals 3.2
American Home Products 2.5 Oil - International 2.7
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 Income Stock 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 47,996,570 3,557,566 1,857,047
diversification restrictions to apply
to 75% of a Fund's total assets rather
than 100%.
Proposal to amend the restriction 46,259,810 4,974,894 2,176,478
relating to borrowing to allow a Fund
to borrow an amount not exceeding 33 1/3%
of its total assets (including the
amount borrowed) less liabilities (other
than borrowings) for temporary or
emergency purposes.
Proposal to amend the restriction 46,590,458 4,589,077 2,231,648
relating to lending portfolio securities
to permit a Fund to lend up to 33 1/3%
of its total assets to other parties.
(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.
Income Stock Fund
Statement of Assets and Liabilities
(In Thousands)
January 31, 1996
(Unaudited)
Assets
Investments in securities, at market value
(identified cost of $1,410,290) $1,640,561
Cash 715
Receivables:
Capital shares sold 610
Dividends and interest 4,396
Securities sold 3,214
----------
Total assets 1,649,496
----------
Liabilities
Securities purchased 3,339
Capital shares redeemed 781
USAA Investment Management Company 682
USAA Transfer Agency Company 233
Accounts payable and accrued expenses 86
----------
Total liabilities 5,121
----------
Net assets applicable to capital shares outstanding $1,644,375
==========
Represented by:
Paid-in capital $1,403,765
Accumulated undistributed net investment income 3,965
Accumulated net realized gain on investments 6,374
Net unrealized appreciation of investments 230,271
----------
Net assets applicable to capital shares outstanding $1,644,375
==========
Capital shares outstanding 102,838
==========
Net asset value, redemption price, and offering price per share $ 15.99
==========
See accompanying notes to financial statements.
Income Stock Fund
Portfolio of Investments in Securities
January 31, 1996
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Common Stocks (78.3%)
Aerospace/Defense (1.9%)
427,000 B.F. Goodrich Co. $ 31,438
---------
Aluminum (0.4%)
444,200 Kaiser Aluminum Corp.* 6,163
---------
Automobiles (1.7%)
500,000 Chrysler Corp. 28,875
---------
Bank Holding Companies - Major Regional (0.9%)
500,000 PNC Bank Corp. 15,000
---------
Bank Holding Companies - Money Center (1.2%)
300,000 Bankers Trust New York Corp. 19,463
---------
Chemicals (3.2%)
700,000 Dow Chemical Co. 52,150
---------
Electric Power (11.7%)
1,800,000 Allegheny Power System, Inc. 54,450
503,300 Central Hudson Gas & Electric Corp. 15,665
1,000,000 Houston Industries, Inc. 24,000
300,000 IES Industries, Inc. 8,550
950,700 Portland General Corp. 28,283
400,000 Public Service Co. of Colorado 14,400
445,000 Southwestern Public Service Co. 14,630
800,000 Texas Utilities Co. 32,700
---------
192,678
---------
Healthcare - Diversified (7.3%)
400,000 American Home Products Corp. 40,800
900,000 Bristol-Myers Squibb Co. 79,650
---------
120,450
---------
Insurance - Property/Casualty (1.0%)
370,814 Allstate Corp. 16,177
---------
Machinery - Diversified (1.4%)
600,000 Deere & Co. 22,500
---------
Manufacturing - Diversified Industries (1.1%)
280,000 Minnesota Mining & Manufacturing Co. 18,060
---------
Natural Gas Distribution - Pipelines (3.3%)
908,600 National Fuel Gas Co. 30,324
862,700 NICOR, Inc. 23,509
---------
53,833
---------
Oil - Domestic (5.5%)
300,000 Atlantic Richfield Co. 34,088
2,150,000 Occidental Petroleum Corp. 46,225
250,000 Pennzoil Co. 10,156
---------
90,469
---------
Oil - International (2.7%)
550,000 Texaco, Inc. 44,481
---------
Publishing (1.2%)
300,000 Dun & Bradstreet Corp. 19,500
---------
Real Estate Investment Trusts (13.2%)
400,000 Avalon Properties, Inc. 8,900
500,000 Beacon Properties Corp. 12,437
709,000 Burnham Pacific Properties, Inc. 7,090
200,000 Chelsea GCA Realty, Inc. 5,800
503,800 Developers Diversified Realty Corp. 14,484
150,000 First Industrial Realty Trust, Inc. 3,450
300,000 Gables Residential Trust 6,938
500,000 Glimcher Realty Trust 7,687
300,000 Health Care Property Investors, Inc. 10,650
400,000 HGI Realty, Inc. 8,750
250,000 Highwoods Properties, Inc. 7,625
114,000 IRT Property Co. 1,083
190,300 JDN Realty Corp. 4,377
450,000 Kimco Realty Corp. 11,700
375,000 Liberty Property Trust 8,297
520,000 Merry Land & Investment Co. 11,960
412,400 Nationwide Health Properties, Inc. 17,527
250,000 Patriot American Hospitality, Inc. 6,875
350,000 Post Properties, Inc. 10,894
600,000 Public Storage, Inc. 12,225
87,100 ROC Communities, Inc. 2,145
150,000 Shurgard Storage Centers, Inc. 4,050
124,000 South West Property Trust, Inc. 1,736
250,000 Starwood Lodging Trust 8,031
310,000 Storage USA, Inc. 9,765
100,000 Tanger Factory Outlet Centers, Inc. 2,475
200,000 Weeks Corp. 5,250
140,000 Weingarten Realty Investors, Inc. 5,390
---------
217,591
---------
Retail - General Merchandising (2.4%)
800,000 J.C. Penney Company, Inc. 39,200
---------
Savings & Loan Holding Companies (0.7%)
450,000 Great Western Financial Corp. 10,800
---------
Telephones (10.3%)
1,500,000 GTE Corp. 69,000
1,000,000 NYNEX Corp. 53,625
1,000,000 Pacific Telesis Group 29,500
500,000 U S West Communications Group 17,562
---------
169,687
---------
Tobacco (7.2%)
400,000 American Brands, Inc. 18,250
800,000 Philip Morris Companies, Inc. 74,400
800,000 RJR Nabisco Holdings Corp. 26,000
---------
118,650
---------
Total common stocks (cost: $1,068,494) 1,287,165
---------
Preferred Stocks (15.0%)
Airlines (2.1%)
600,000 Delta Air Lines, Inc. depositary shares "C", $3.50
cumulative convertible $ 34,725
---------
Aluminum (1.2%)
400,000 Reynolds Metals Co., $3.31 cumulative convertible 19,850
---------
Auto Parts (0.6%)
700,000 Mascotech, Inc., $1.20 cumulative convertible 8,750
---------
Bank Holding Companies - Money Center (2.8%)
696,500 First Chicago NBD Corp. depositary shares "B",
5.75% cumulative convertible 45,446
---------
Computer Systems (2.4%)
1,150,000 Unisys Corp. depositary shares "A",
$3.75 cumulative convertible 39,819
---------
Office Equipment & Supplies (1.1%)
230,400 Alco Standard Corp. depositary shares "BB", 6.50%
cumulative convertible 18,144
---------
Oil - Domestic (1.3%)
752,259 Sun Company, Inc. depositary shares "A",
$1.80 cumulative convertible 20,969
---------
Paper & Forest Products (1.5%)
1,000,000 James River Corp. depositary shares "P",
9.00% cumulative convertible 25,125
---------
Tobacco (2.0%)
5,000,000 RJR Nabisco Holdings Corp. depositary shares "C",
$.60 cumulative exchangeable 33,125
---------
Total preferred stocks (cost: $234,013) 245,953
---------
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
- --------- -------- ------ -------- ------
Bonds (4.2%)
$ 1,520 Atlantic Richfield Co. Exchangeable Notes 9.00% 9/15/97 $38,190
6,810 Cooper Industries, Inc. Convertible Debentures 7.05 1/01/15 7,083
19,053 Quanex Corp. Convertible Subordinated Debentures 6.88 6/30/07 18,600
5,483 Time Warner, Inc. Convertible Debentures 8.75 1/10/15 5,751
-------
Total bonds (cost: $69,964) 69,624
-------
Short-Term (2.3%)
Commercial Paper
16,823 Commercial Credit Co. 5.42 2/01/96 16,823
20,999 Prudential Funding Corp. 5.65 2/02/96 20,996
-------
Total short-term (cost: $37,819) 37,819
------
Total investments (cost: $1,410,290) $1,640,561
==========
- ------------------
*Non-income producing.
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.
Income Stock Fund
Statement of Operations
(In Thousands)
Six-month period ended January 31, 1996
(Unaudited)
Net investment income:
Income:
Dividends $ 42,322
Interest 1,902
----------
Total income 44,224
----------
Expenses:
Management fees 3,810
Transfer agent's fees 1,358
Custodian's fees 107
Postage 174
Shareholder reporting fees 54
Directors' fees 2
Registration fees 40
Audit fees 15
Legal fees 2
Other 21
----------
Total expenses 5,583
----------
Net investment income 38,641
----------
Net realized and unrealized gain on investments:
Net realized gain 12,068
Change in net unrealized appreciation/depreciation 114,985
----------
Net realized and unrealized gain 127,053
----------
Increase in net assets resulting from operations $ 165,694
==========
See accompanying notes to financial statements.
Income Stock Fund
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended January 31, 1996
and Year ended July 31, 1995
(Unaudited)
1/31/96 7/31/95
------- -------
From operations:
Net investment income $ 38,641 $ 66,825
Net realized gain on investments 12,068 23,904
Change in net unrealized
appreciation/depreciation of investments 114,985 129,417
---------- ----------
Increase in net assets resulting
from operations 165,694 220,146
---------- ----------
Distributions to shareholders from:
Net investment income (37,465) (67,497)
---------- ----------
Net realized gains (26,301) (19,454)
---------- ----------
From capital share transactions:
Shares sold 159,489 236,760
Shares issued for dividends reinvested 58,750 80,246
Shares redeemed (84,163) (231,854)
---------- ----------
Increase in net assets from capital
share transactions 134,076 85,152
---------- ----------
Net increase in net assets 236,004 218,347
Net assets:
Beginning of period 1,408,371 1,190,024
---------- ----------
End of period $1,644,375 $1,408,371
========== ==========
Undistributed net investment income
included in net assets:
Beginning of period $ 2,689 $ 3,361
========== ==========
End of period $ 3,965 $ 2,689
========== ==========
Change in shares outstanding:
Shares sold 10,362 17,039
Shares issued for dividends reinvested 3,836 5,811
Shares redeemed (5,474) (16,857)
---------- ----------
Increase in shares outstanding 8,724 5,993
========== ==========
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)
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 Income Stock Fund (the Fund). The Fund's
investment objective is current income with the prospect of increasing
dividend income and the potential for capital appreciation.
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. As a result of certain differences between book
and tax basis accounting, reclassifications have been made on the
statement of assets and liabilities to increase accumulated
undistributed net investment income and decrease accumulated net
realized gain on investments by $100.
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. 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 are made quarterly. Distributions
of 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 $386,357 and
$290,893, respectively.
Gross unrealized appreciation and depreciation of investments as of
January 31, 1996 was $257,496 and $27,225, 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.
(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 4,747 shares (4.6%) of the Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout
each period is as follows:
<TABLE>
<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 $ 14.96 $ 13.50 $ 14.95 $ 13.42 $ 12.63 $ 10.27
Net investment income .39 .74 .60 .71 .71 .69
Net realized and
unrealized gain (loss) 1.29 1.69 (1.12) 1.62 .78 2.34
Distributions from net
investment income (.38) (.75) (.74) (.71) (.70) (.67)
Distributions of realized
capital gains (.27) (.22) (.19) (.09) - -
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at
end of period $ 15.99 $ 14.96 $ 13.50 $ 14.95 $ 13.42 $ 12.63
========== ========== ========== ========== ========== ==========
Total return (%) * 11.52 18.83 (3.53) 18.05 12.14 30.45
Net assets at end
of period $1,644,375 $1,408,371 $1,190,024 $1,043,686 $ 480,733 $ 179,339
Ratio of expenses to
average net assets (%) .73(a) .75 .73(a) .70 .74 .83
Ratio of net investment
income to average
net assets (%) 5.07(a) 5.34 5.25(a) 5.43 5.99 6.30
Portfolio turnover (%) 19.61 34.94 24.82 26.98 15.79 26.65
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>
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