Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 7
Financial Information:
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments in Securities 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
Important Information:
Through our ongoing efforts to reduce expenses and respond to
shareholder requests, your annual and semiannual report mailings are
now "streamlined." One copy of each report will be sent to each
address, instead of our previous practice of sending one report to
every registered owner. For many shareholders and their families, this
eliminates duplicate copies, saving paper and postage costs to the
Fund.
If you are the primary shareholder on at least one account, prefer not
to participate in streamlining, and would like to continue receiving
one report per registered account owner, you may request this in
writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during
business hours.
This report is for the information of the shareholders and others who
have received a copy of the currently effective prospectus of the USAA
Growth & Income 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 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 AND INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMNETS: Primarily dividend-paying common stocks.
7/31/95 1/31/96
Net Assets $208.5 Million $289.1 Million
Net Asset Value Per Share $12.07 $13.30
Average Annual Total Returns as of 1/31/96
July 31, 1995 to January 31, 1996 12.42%*
1 Year 32.91%
Since inception on June 1, 1993 14.22%
* 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 6/1/93 to 1/31/96, with
dividends and capital gains reinvested. The ending value of each item
graphed is as follows: S&P 500 Index - $15,172 and the USAA Growth and
Income Fund - $14,290.]
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
Portfolio Manager
[A photo of R. David Ullom, Portfolio Manager appears here.]
Fund Performance
The initial six-month period of the current fiscal year for the USAA
Growth & Income Fund was one of significant capital appreciation. (See
total return chart and graph on preceding page.) However, the price
appreciation of the Fund was disappointing, in that returns did not
keep pace with the major market indices. Although appreciation was not
as strong as in the previous six months, the returns generated by both
the Fund and the market were particularly high in light of the fact
that earnings growth for many companies is slowing. In some cases, we
have seen an absolute decline in reported earnings.
Our investments in industries and/or companies where income growth has
held up produced the best returns. Such investments include those in
healthcare-related (American Home Products, Humana, Johnson & Johnson
and SmithKline Beecham), telephones (AT&T, GTE, NYNEX and Sprint), and
aerospace (Boeing, B.F. Goodrich and Rockwell International). Continued
concerns regarding a slowdown or decline in economic growth had a negative
impact on the shares of several cyclical/commodity-oriented companies
owned in the Fund. Thus, investments in such industries as chemicals
(Dow Chemical), containers (Ball Corp.), oils (Apache Corp., Occidental
Petroleum and Unocal) and paper and forest products (Jefferson Smurfit and
Weyerhaeuser) hampered performance.
Purchases and Sales
At least partially due to strong performance, we reduced our
investment weighting in healthcare and utilities. Also, in adherence
to our value-oriented investment philosophy, we added to various
investments in chemicals, aerospace and selected retailing sectors.
The purchases and sales over this period continued to comply with our
investment philosophy of focusing on value, as defined by earnings,
cash flow, book value and yield. Our investments are not based on a
forecast of the economy or the equities markets, but rather on a
long-term investing perspective.
See page 9 for a complete listing of the Portfolio of Investments in
Securities.
Portfolio Investment Diversification
January 31, 1996
[A pie chart is shown here depicting the Portfolio Investment Diversification
as of January 31, 1996 of the USAA Growth & Income Fund to be: Intermediate
Goods & Services - 27.7%, Consumer Staples - 19.5%, Capital Goods - 10.0%,
Consumer Cyclicals - 14.2% and the Credit Sensitive - 28.6%.]
Top 10 Holdings
(% of Net Assets)
B.F. Goodrich 2.8
Boeing 2.7
Occidental Petroleum 1.8
Universal Corp. 1.8
Xerox 1.8
SmithKline Beecham plc ADR 1.6
Dow Chemical 1.6
Rockwell International 1.6
Ball Corp. 1.6
Avery Dennison Corp. 1.6
Top 10 Industries
(% of Net Assets)
Aerospace/Defense 7.1
Chemicals 5.9
Telephones 5.4
Tobacco 4.5
Insurance - Property/Casualty 4.2
Paper & Forest Products 3.6
Real Estate Invest. Trusts 3.3
Oil - Domestic 3.1
Healthcare - Diversified 2.9
Retail - Gen. Merchandising 2.8
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 & Income 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% 8,854,372 514,732 338,693
issuer diversification restrictions
to apply to 75% of a Fund's total
assets rather than 100%.
Proposal to amend the restriction 8,560,390 761,576 385,831
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 8,626,417 676,466 404,914
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 919,046,882 22,848,992 39,100,482
the 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 & Income Fund
Statement of Assets and Liabilities
(In Thousands)
<TABLE>
<CAPTION>
January 31, 1996
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value (identified cost of $237,968) $290,562
Cash 219
Receivables:
Capital shares sold 284
Dividends 453
Securities sold 1,169
----------
Total assets 292,687
----------
Liabilities
Securities purchased 3,220
Capital shares redeemed 111
USAA Investment Management Company 140
USAA Transfer Agency Company 57
Accounts payable and accrued expenses 13
----------
Total liabilities 3,541
----------
Net assets applicable to capital shares outstanding $289,146
==========
Represented by:
Paid-in capital $234,795
Accumulated undistributed net investment income 264
Accumulated net realized gain on investments 1,493
Net unrealized appreciation of investments 52,594
----------
Net assets applicable to capital shares outstanding $289,146
==========
Capital shares outstanding 21,737
==========
Net asset value, redemption price, and offering price per share $ 13.30
==========
See accompanying notes to financial statements.
</TABLE>
Growth & Income Fund
Portfolio of Investments in Securities
January 31, 1996
(Unaudited)
Market
Number Value
of Shares Security (000)
Common Stocks (94.1%)
Aerospace/Defense (7.1%)
107,000 B.F. Goodrich Co. $ 7,879
101,000 Boeing Co. 7,840
80,000 Rockwell International Corp. 4,690
---------
20,409
---------
Aluminum (1.4%)
75,000 Aluminum Co. of America 4,162
---------
Automobiles (2.1%)
34,000 Chrysler Corp. 1,963
134,000 Ford Motor Co. 3,970
---------
5,933
---------
Bank Holding Companies - Money Center (1.3%)
59,000 Bankers Trust New York Corp. 3,828
---------
Bank Holding Companies - Other Major (1.5%)
63,000 BankAmerica Corp. 4,245
---------
Beverages - Soft Drink (1.2%)
59,000 PepsiCo, Inc. 3,518
---------
Brokerage Firms (1.4%)
76,000 Dean Witter, Discover & Co. 4,113
---------
Chemicals (5.9%)
85,000 Avery Dennison Corp. 4,537
63,000 Dow Chemical Co. 4,694
49,000 Olin Corp. 4,036
87,000 Union Carbide Corp. 3,665
---------
16,932
---------
Chemicals - Specialty (1.4%)
112,000 Morton International, Inc. 4,144
---------
Computer Software & Service (0.3%)
60,000 Novell, Inc.* 810
---------
Conglomerates (1.4%)
260,000 Hanson plc ADR 4,030
---------
Containers - Metals & Glass (1.6%)
160,000 Ball Corp. 4,540
---------
Drugs (1.6%)
84,000 SmithKline Beecham plc ADR Units 4,725
---------
Electric Power (1.3%)
159,000 Houston Industries, Inc. 3,816
---------
Electronics - Semi-Conductors (0.9%)
151,400 National Semiconductor Corp. 2,612
---------
Entertainment (1.3%)
90,000 Time Warner, Inc. 3,735
---------
Foods (2.5%)
133,000 Dean Foods Co. 3,541
56,000 Ralston-Ralston Purina Group 3,605
---------
7,146
---------
Healthcare - Diversified (2.9%)
40,000 American Home Products Corp. 4,080
44,000 Johnson & Johnson 4,224
---------
8,304
---------
Healthcare - HMO (1.4%)
150,000 Humana, Inc.* 4,144
---------
Homebuilding (1.1%)
100,000 Centex Corp. 3,225
----------
Household Products (2.7%)
47,000 Procter & Gamble Co. 3,948
245,000 Sunbeam Corp. 3,920
---------
7,868
---------
Insurance - Multi-Line Companies (1.2%)
48,100 Aetna Life & Casualty Co. 3,583
---------
Insurance - Property/Casualty (4.2%)
99,000 Allstate Corp. 4,319
41,750 American International Group, Inc. 4,045
8,200 Highlands Insurance Group, Inc.* 157
168,300 Prudential Reinsurance Holdings, Inc. 3,660
---------
12,181
---------
Leisure Time (1.4%)
175,000 Brunswick Corp. 3,959
---------
Machinery - Diversified (2.6%)
216,000 BW/IP, Inc. 3,132
120,000 Deere & Co. 4,500
---------
7,632
---------
Manufacturing - Diversified Industries (1.3%)
110,000 Hillenbrand Industries, Inc. 3,657
---------
Medical Products & Supplies (1.5%)
124,000 C.R. Bard, Inc. 4,340
---------
Metals - Miscellaneous (1.3%)
110,000 Inco Ltd. 3,850
---------
Natural Gas Distribution - Pipelines (2.7%)
139,000 NICOR, Inc. 3,788
117,000 Sonat, Inc. 4,036
---------
7,824
---------
Office Equipment & Supplies (1.8%)
42,000 Xerox Corp. 5,192
---------
Oil - Domestic (3.1%)
247,000 Occidental Petroleum Corp. 5,311
125,000 Unocal Corp. 3,734
---------
9,045
---------
Oil - Exploration & Production (1.2%)
132,000 Apache Corp. 3,548
---------
Oil - International (1.3%)
45,000 Exxon Corp. 3,611
---------
Oil Well Equipment & Service (1.5%)
82,000 Halliburton Co. 4,233
---------
Paper & Forest Products (3.6%)
140,300 Fort Howard Corp.* 3,069
287,000 Jefferson Smurfit Corp.* 3,408
86,000 Weyerhaeuser Co. 3,967
---------
10,444
---------
Pollution Control (1.5%)
146,000 WMX Technologies, Inc. 4,362
---------
Publishing (1.3%)
57,000 Dun & Bradstreet Corp. 3,705
---------
Railroads (1.4%)
52,000 Norfolk Southern Corp. 4,101
---------
Real Estate Investment Trusts (3.3%)
119,000 Developers Diversified Realty Corp. 3,421
80,000 Kimco Realty Corp. 2,080
200,000 Public Storage, Inc. 4,075
---------
9,576
---------
Retail - Department Stores (1.1%)
73,000 May Department Stores Co. 3,249
---------
Retail - General Merchandising (2.8%)
80,000 J.C. Penney Company, Inc. 3,920
100,000 Sears, Roebuck & Co. 4,150
---------
8,070
---------
Retail - Specialty (1.8%)
129,200 Borders Group, Inc.* 2,729
235,000 Phillips-Van Heusen Corp. 2,468
---------
5,197
---------
Telephones (5.4%)
66,000 American Telephone & Telegraph Co. 4,414
92,000 GTE Corp. 4,232
53,000 NYNEX Corp. 2,842
95,000 Sprint Corp. 4,097
---------
15,585
---------
Tobacco (4.5%)
42,000 Philip Morris Companies, Inc. 3,906
116,000 RJR Nabisco Holdings Corp. 3,770
224,000 Universal Corp. 5,236
---------
12,912
---------
Total common stocks (cost: $219,501) 272,095
---------
Short-Term (6.4%)
Principal
Amount Coupon
(000) Rate Maturity
Commercial Paper
$ 6,740 American General Finance Corp. 5.30% 2/05/96 6,736
4,153 Commercial Credit Co. 5.40 2/01/96 4,153
3,178 Heller Financial, Inc. 5.55 2/06/96 3,176
4,403 Prudential Funding Corp. 5.43 2/02/96 4,402
---------
Total short-term (cost: $18,467) 18,467
----------
Total investments (cost: $237,968) $290,562
----------
*Non-income producing.
Growth & Income 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 & Income Fund
Statement of Operations
(In Thousands)
Six-month period ended January 31, 1996
(Unaudited)
Net investment income:
Income:
Dividends $ 3,202
Interest 348
-----------
Total income 3,550
-----------
Expenses:
Management fees 732
Transfer agent's fees 308
Custodian's fees 42
Postage 35
Shareholder reporting fees 9
Directors' fees 2
Registration fees 15
Audit fees 15
Legal fees 2
Other 4
-----------
Total expenses 1,164
-----------
Net investment income 2,386
-----------
Net realized and unrealized gain on investments:
Net realized gain 2,350
Change in net unrealized appreciation/depreciation 24,405
-----------
Net realized and unrealized gain 26,755
-----------
Increase in net assets resulting from operations $ 29,141
===========
See accompanying notes to financial statements.
Growth & Income 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>
<S> <C> <C>
1/31/96 7/31/95
From operations:
Net investment income $ 2,386 $ 3,592
Net realized gain on investments 2,350 3,109
Change in net unrealized appreciation/
depreciation of investments 24,405 25,689
------------ -------------
Increase in net assets resulting from
operations 29,141 32,390
------------- -------------
Distributions to shareholders from:
Net investment income (2,358) (3,472)
------------- -------------
Net realized gains (2,449) (1,568)
------------- -------------
From capital share transactions:
Shares sold 69,507 75,855
Shares issued for dividends reinvested 4,677 4,882
Shares redeemed (17,862) (34,219)
--------------- -------------
Increase in net assets from capital share
transactions 56,322 46,518
--------------- -------------
Net increase in net assets 80,656 73,868
Net assets:
Beginning of period 208,490 134,622
-------------- ------------
End of period $ 289,146 $ 208,490
============== ============
Undistributed net investment income
included in net assets:
Beginning of period $ 236 $ 116
============== ============
End of period $ 264 $ 236
============== ============
Change in shares outstanding:
Shares sold 5,514 6,987
Shares issued for dividends reinvested 372 461
Shares redeemed (1,420) (3,176)
-------------- -------------
Increase in shares outstanding 4,466 4,272
============== ==============
Authorized shares of $.01 par value 50,000 25,000
============== ==============
</TABLE>
See accompanying notes to financial statements.
GROWTH AND INCOME 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 & Income Fund (the Fund). The Fund's
investment objective is capital growth and current income.
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 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 $63,367 and
$19,593, respectively.
Gross unrealized appreciation and depreciation of investments as of
January 31, 1996 was $55,495 and $2,901, 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 .60% 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) Financial highlights
Per share operating performance for a share outstanding throughout
each period is as follows:
<TABLE>
<CAPTION>
Six-month Ten-Month Four-Month
Period ended Year Ended Period Ended Period Ended
January 31, July 31, July 31, September 30,
1996 1995 1994 1993**
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.07 $ 10.36 $ 10.23 $ 10.00
Net investment income .12(b) .24(b) .17(b) .03
Net realized and unrealized gain 1.36 1.81 .16 .20
Distributions from net investment income (.12) (.23) (.18) -
Distributions of realized capital gains (.13) (.11) (.02) -
----------- ------------- ------------- -----------
Net asset value at end of period $ 13.30 $ 12.07 $ 10.36 $ 10.23
=========== ============= ============= ===========
Total return (%) * 12.42 20.30 3.28 2.30
Net assets at end of period (000) $289,146 $208,490 $134,622 $ 69,606
Ratio of expenses to average net assets (%) .95(a) 1.01 1.12(a) 1.63(a)
Ratio of net investment income to
average net assets (%) 1.95(a) 2.21 1.95(a) 1.87(a)
Portfolio turnover (%) 8.43 19.45 13.90 10.68
Average commission
rate paid per share $ .050
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) Calculated using weighted average shares.
* Assumes reinvestment of all dividend income and capital gain
distributions during the period.
** Fund commenced operations June 1, 1993.
