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 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.
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 33
funds by investment objective as of June 30, 1996.
<TABLE>
<CAPTION>
Average Annual Total Return*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
Capital Appreciation
<S> <C> <C> <C> <C> <C>
Aggressive Growth 10/19/81 54.74 19.89 11.69 -
Emerging Markets(1) 11/7/94 13.17 - - 7.33
Gold(1) 8/15/84 7.30 7.62 6.05 -
Growth 4/5/71 22.12 15.53 11.13 -
Growth & Income 6/1/93 23.95 - - 14.68
International(1) 7/11/88 19.63 14.36 - 10.57
S&P 500 Index(4) 5/1/96 - - - 4.58
World Growth(1) 10/1/92 20.11 - - 13.87
Asset Allocation
Balanced Strategy 9/1/95 - - - 6.48
Cornerstone Strategy(1) 8/15/84 17.19 12.44 11.56 -
Growth and Tax Strategy(2)** 1/11/89 15.43 10.31 - 9.77
Growth Strategy(1) 9/1/95 - - - 23.85
Income Strategy 9/1/95 - - - 4.68
Income - Taxable
GNMA 2/1/91 4.23 7.63 - 7.36
Income 3/4/74 6.13 8.92 9.42 -
Income Stock 5/4/87 19.22 13.77 - 12.26
Short-Term Bond 6/1/93 5.51 - - 5.05
Income - Tax Exempt
Long-Term(2)** 3/19/82 6.74 7.36 7.74 -
Intermediate-Term(2)** 3/19/82 6.19 7.25 7.29 -
Short-Term(2)** 3/19/82 5.19 5.18 5.55 -
California Bond(2)** 8/1/89 8.36 7.59 - 7.39
Florida Tax-Free Income(2)** 10/1/93 6.48 - - 2.37
New York Bond(2)** 10/15/90 6.19 7.40 - 8.22
Texas Tax-Free Income(2)** 8/1/94 8.20 - - 8.65
Virginia Bond(2)** 10/15/90 6.55 7.65 - 8.00
Money Market
Money Market(3) 2/2/81 5.43 4.41 5.88 -
Tax Exempt Money Market(2,3)** 2/6/84 3.53 3.16 4.26 -
Treasury Money Market Trust(3) 2/1/91 5.27 4.17 - 4.24
California Money Market(2,3)** 8/1/89 3.45 3.04 - 3.67
Florida Tax-Free Money Market(2,3)** 10/1/93 3.39 - - 2.96
New York Money Market(2,3)** 10/15/90 3.44 2.87 - 3.06
Texas Tax-Free Money Market(2,3)** 8/1/94 3.35 - - 3.34
Virginia Money Market(2,3)** 10/15/90 3.29 2.98 - 3.20
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
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.
1 Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
2 Some income may be subject to state or local taxes or the federal
alternative minimum tax.
3 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.
4 S&P 500(registered trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
* 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 represent past
performance and are 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, Florida, New York, Texas, and Virginia
funds available to residents only.
Message from the President
"You are the master of your portfolio.
Tailor it to yourself."
In preparing this letter, I looked back at a "Letter to Shareholders" in an
annual report from the last presidential election season in 1992. At that
time, I was addressing themes that are still familiar - the state of the
economy, the budget deficit and the national debt, and inflation. These are
still current. But there are some interesting updates.
I noted then a mantra of politicians: Unless we balance the budget, the debt
burden will rise, interest rates will soar, and the economy will be weakened.
I also noted that during the '80s, our budget was heavily out of balance, our
debt did soar, but interest rates actually plummeted and the economy expanded
strongly. Now, to borrow from the venerable Paul Harvey, we have "the rest of
the story."
The 1992 letter noted that, "Interest rates are now lower than people can
believe. The 1991 year-end short-term interest rates of 3.5% represented
a 27-year low!" The election yielded a president who was not nearly as
conservative as his two predecessors. The result was a hefty tax hike, a
budget deficit cut in half in one term, a national debt that has quit growing
as a percentage of gross domestic product, and uh-oh, higher interest rates.
The short-term market rose from 3.5% at the end of `91 to over 5% now,
and the 3-year treasury bond's yield is about where it was in `91.
What does all this mean? It means, as I have noted often, the economy and
the markets are never explained simply. Getting the federal budget in balance
is a worthy goal, but it may not bring interest rates down, and it may not
strengthen the economy.
In the '92 letter, I posed a question that was on many minds, "Is a bear
market imminent?" My guidance, in answer to that question, is the same now as
it was then: Structure your portfolio at all times in a way that suits your
own desire for reward and tolerance for risk. For the vast majority of people,
that means a mixture of stocks, bonds and money market investments.
It is my belief that such a mixture would have taken an investor through the
good markets of 1993, the turbulence of 1994, and the super year of 1995.
And it still applies. You are the master of your portfolio. Tailor it to
yourself.
[A photo of Michael J.C. Roth appears here]
Sincerely,
Michael J.C. Roth
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.
7/31/96
Net Assets $1,162.3 Million
Net Asset Value Per Share $20.05
Average Annual Total Returns as of 7/31/96
1 Year 12.44%
5 Years 13.36%
10 Years 11.61%
[A graph is shown here which is a comparison of the change in value of
a $10,000 investment, for the period of 7/31/86 to 7/31/96, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: the S&P 500 Index - $36,856 and the USAA Growth Fund - $29,993.]
The chart compares the change in value of a $10,000 hypothetical investment
in the Growth Fund and the broad-based S&P 500 Index which is an unmanaged
index representing the 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
represent past performance and are 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 David G. Parsons, Portfolio Manager, appears here]
Strategy
The USAA Growth Fund continues its contrarian strategy by seeking companies
that are out-of-favor with the market. Out-of-favor companies include cyclical
stocks (companies whose stock tend to rise quickly when the economy turns up
and to fall quickly when the economy turns down), defensive stocks, and growth
stocks. We search for these companies by analyzing the future prospects of
industries that have significantly underperformed the market over the past one
to three years.
In keeping with the Fund's strategy, we have purchased electric power and
semiconductor-related stocks during the last half of the Fund's fiscal year.
Electric power stocks now comprise 18.3% of the Fund's net assets, and
technology stocks comprise 13.3%. The portfolio remains overweighted in
tobacco, oil, gold, and trucking. Sales of airline, auto, oil service,
healthcare, and tobacco stocks primarily financed the purchase of electric
power and technology.
% of Net
Industry Assets
- ------------------------------
Electric Power 18.3
Oil-related 16.8
Tobacco 16.7
Technology 13.3
Gold Mining 12.2
Truckers 6.3
Performance
According to Lipper Analytical Services, an independent organization that
monitors the performance of mutual funds, the Fund performed better than
its peer group average. For the twelve months ended July 31, 1996, the
Fund's cumulative return was 12.44% compared to 8.89% for the Lipper
Growth Fund Index(1). Tobacco, oil, and healthcare-related stocks contributed
positively to performance, while gold, technology, electric utilities, and
trucking proved a drain on performance. However, the Fund underperformed
the S&P 500 Index2 return of 16.55% for the same period. This index,
like most broad market indices, is a hypothetical portfolio which, unlike a
mutual fund, has no operating expenses or transaction costs. It assumes all
income and capital gains are reinvested.
Method of Procedure
I do not make market predictions. I buy companies that: (1) have a future, (2)
have scarcity value (a shortage of companies in that industry) and (3) sell at
washed out prices because of a thorough dissemination of their actual and
potential problems. Typically, I sell stocks when they again become popular
with the investment community. This is now or at some point was the case with
oil service, airline, auto, and healthcare companies. The Fund will act in
contrarian fashion in its sales as well as its purchases. Indeed, the strategy
of the Fund is designed to take advantage of these swings in sentiment.
(1) Lipper Analytical Services is an independent organization that monitors the
performance of mutual funds.
(2) 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. The return assumes monthly reinvestment
of capital gains and dividends.
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
Top 10 Equity Holdings
(% of Net Assets)
UST, Inc. 3.7
Philip Morris Companies 3.6
RJR Nabisco 3.1
B.A.T. Industries 2.7
Edison International 2.2
Texaco 2.2
Universal Corp. 2.0
Intel Corp. 1.9
Pacific Gas & Electric 1.9
Royal Dutch Petroleum 1.9
Distributions to Shareholders
USAA Growth Fund completed its fiscal year on July 31, 1996. As required by
Federal Law (Internal Revenue Code of 1986, as amended, and the Regulations
thereunder), the following sets forth per share data concerning the portions
of the dividend distributions which represent domestic dividend income
qualifying for the dividends received deduction, and short-term and long-term
capital gains for the year ended July 31, 1996.
The per share data on this schedule reflects distributions related to earnings
for the fiscal year ended July 31, 1996, 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) $ .3286
Short-term capital gain
(treated as ordinary income) 1.1615
Long-term capital gain 1.9573
--------
TOTAL DISTRIBUTIONS $ 3.4474
========
Independent Auditors' Report
The Shareholders and Board of Directors
USAA Mutual Fund, Inc.:
We have audited the accompanying statement of assets and liabilities and
portfolio of investments in securities of the Growth Fund of USAA Mutual
Fund, Inc. as of July 31, 1996, the related statement of operations for
the year then ended, the statements of changes in net assets for each of
the years in the two-year period then ended, and the financial highlights
information presented in note 7 to the financial statements for each of
the periods in the five-year period then ended. 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, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
information referred to above present fairly, in all material respects,
the financial position of the Growth Fund of USAA Mutual Fund, Inc. as of
July 31, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the years in the two-year period
then ended, and the financial highlights information for each of the periods
in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
September 6, 1996
Growth Fund
Statement of Assets and Liabilities
(In Thousands)
July 31, 1996
Assets
Investments in securities, at market value
(identified cost of $1,129,819) $ 1,159,592
Cash 341
Receivables:
Capital shares sold 176
Dividends and interest 2,579
Securities sold 1,200
-----------
Total assets 1,163,888
-----------
Liabilities
Capital shares redeemed 540
USAA Investment Management Company 751
USAA Transfer Agency Company 173
Accounts payable and accrued expenses 162
-----------
Total liabilities 1,626
Net assets applicable to capital -----------
shares outstanding $ 1,162,262
===========
Represented by:
Paid-in capital $ 954,445
Accumulated undistributed net investment income 10,726
Accumulated net realized gain on investments 167,318
Net unrealized appreciation of investments 29,773
Net assets applicable to capital -----------
shares outstanding $ 1,162,262
===========
Capital shares outstanding 57,972
===========
Net asset value, redemption price, and
offering price per share $ 20.05
===========
See accompanying notes to financial statements.
Growth Fund
Portfolio of Investments in Securities
July 31, 1996
Market
Number Value
of Shares Security (000)
- --------- -------- -----
Common Stocks (99.2%)
Airlines (0.9%)
400,000 Southwest Airlines Co. $ 9,900
---------
Aluminum (0.8%)
150,000 Aluminum Co. of America 8,700
---------
Computer Systems (1.0%)
300,000 Gateway 2000, Inc.* 12,037
---------
Conglomerates (1.1%)
1,000,000 Hanson plc ADR 12,750
---------
Drugs (0.3%)
150,000 ALZA Corp.* 3,712
---------
Electric Power (18.3%)
163,000 Allegheny Power System, Inc. 4,768
482,000 American Electric Power Co., Inc. 20,003
522,200 Boston Edison Co. 11,815
687,000 Consolidated Edison Co. of New York, Inc. 18,549
140,900 Delmarva Power & Light Co. 2,906
1,636,000 Edison International 25,358
738,000 Enova Corp. 15,313
57,200 Idaho Power Co. 1,709
269,000 Nevada Power Co. 5,481
24,800 New England Electric System 784
615,900 New York State Electric & Gas Corp. 13,319
2,000,000 Niagara Mohawk Power Corp.* 14,500
800,000 Northeast Utilities 9,900
1,137,000 Pacific Gas & Electric Co. 22,456
885,000 Pacificorp 18,474
400,000 Peco Energy Co. 9,400
212,500 Portland General Corp. 7,544
400,000 Public Service Enterprise Group, Inc. 10,450
----------
212,729
----------
Electronics - Instrumentation (3.1%)
520,000 KLA Instruments Corp.* 9,815
765,300 Lam Research Corp.* 17,028
700,000 Teradyne, Inc.* 9,450
----------
36,293
----------
Electronics - Semi-Conductors (8.3%)
217,900 Analog Devices, Inc.* 4,549
755,000 Applied Materials, Inc.* 18,026
300,000 Intel Corp. 22,537
180,000 LSI Logic Corp.* 3,510
800,000 Micron Technology, Inc. 15,000
100,000 Motorola, Inc. 5,400
440,000 Novellus Systems, Inc.* 15,840
275,000 Texas Instruments, Inc. 11,894
----------
96,756
----------
Gaming Companies (1.4%)
950,000 International Game Technology 16,625
----------
Gold Mining (12.2%)
806,600 Battle Mountain Canada, Inc. 7,187
1,970,000 Battle Mountain Gold Co. 17,976
1,000,000 Coeur D'Alene Mines Corp.* 15,500
850,000 Driefontein Consolidated Ltd. ADR 11,156
373,000 Freeport-McMoRan Copper & Gold, Inc. 11,050
765,000 Hecla Mining Co.* 4,781
1,200,000 Homestake Mining Co. 19,650
800,000 Kloof Gold Mining Co. Ltd. ADR 8,100
450,000 Newmont Mining Corp. 22,219
1,030,000 Vaal Reefs Exploration & Mining Ltd. ADR 8,144
434,900 Western Deep Levels Ltd. ADR 15,928
----------
141,691
----------
Healthcare - Diversified (1.2%)
250,000 Warner-Lambert Co. 13,625
----------
Manufacturing - Diversified Industries (1.1%)
391,200 Hillenbrand Industries, Inc. 13,105
----------
Medical Products & Supplies (2.3%)
382,000 Bausch & Lomb, Inc. 13,561
366,000 United States Surgical Corp. 12,535
----------
26,096
----------
Metals - Miscellaneous (1.4%)
275,000 Phelps Dodge Corp. 16,156
----------
Office Equipment & Supplies (0.9%)
200,000 Compaq Computer Corp.* 10,950
----------
Oil - Domestic (5.2%)
200,000 Amerada Hess Corp. 9,725
185,000 Atlantic Richfield Co. 21,460
400,000 Occidental Petroleum Corp. 8,950
150,000 Pennzoil Co. 7,369
400,000 Unocal Corp. 13,050
----------
60,554
----------
Oil - Exploration & Production (2.5%)
400,000 Apache Corp. 11,350
300,000 Burlington Resources, Inc. 12,825
285,000 Union Texas Petroleum Holdings, Inc. 5,344
----------
29,519
----------
Oil - International (7.4%)
200,000 British Petroleum Co. plc ADR 21,975
275,000 Chevron Corp. 15,916
150,000 Royal Dutch Petroleum Co. 22,631
300,000 Texaco, Inc. 25,500
----------
86,022
----------
Oil & Gas Drilling (0.3%)
250,000 Global Marine, Inc.* 3,344
----------
Oil Well Equipment & Service (1.4%)
100,000 Baker Hughes, Inc. 2,938
100,000 Halliburton Co. 5,212
100,000 Schlumberger Ltd. 8,000
----------
16,150
----------
Paper & Forest Products (3.0%)
250,000 Rayonier, Inc. 9,594
658,600 Schweitzer-Mauduit International, Inc. 18,852
150,000 Weyerhaeuser Co. 6,263
----------
34,709
----------
Pollution Control (1.4%)
50,000 Browning-Ferris Industries, Inc. 1,119
525,000 WMX Technologies, Inc. 15,553
----------
16,672
----------
Restaurants (0.7%)
600,000 Brinker International, Inc.* 7,875
----------
Tobacco (16.7%)
1,950,000 B.A.T. Industries plc ADR 31,200
950,550 Dimon, Inc. 17,942
400,000 Philip Morris Companies, Inc. 41,850
1,175,292 RJR Nabisco Holdings Corp. 36,140
847,600 Universal Corp. 23,521
1,300,000 UST, Inc. 43,225
----------
193,878
----------
Truckers (6.3%)
375,000 American Freightways Corp.* 3,891
250,000 Arnold Industries, Inc. 3,531
350,100 Caliber System, Inc. 6,389
600,000 Consolidated Freightways, Inc. 11,775
153,959 Heartland Express, Inc.* 4,003
350,000 J.B. Hunt Transport Services, Inc. 6,431
250,000 Landstar System, Inc.* 6,437
351,500 M.S. Carriers, Inc.* 7,381
139,800 Roadway Express, Inc. 2,045
187,500 Swift Transportation Co., Inc.* 3,563
351,300 US Freightways Corp. 6,214
255,000 Werner Enterprises, Inc. 6,471
402,000 Yellow Corp.* 5,125
----------
73,256
----------
Total common stocks (cost: $1,123,331) 1,153,104
----------
Principal Market
Amount Coupon Value
000 Rate Matrity 000
--- ---- ------- ---
Short-Term (0.6%)
Commercial Paper
$6,488 Aristar, Inc. (cost: $6,488) 5.70% 8/01/96 $ 6,488
----------
Total investments (cost: $1,129,819) $1,159,592
==========
- ----------------------
*Non-income producing.
Growth Fund
Notes to Portfolio of Investments in Securities
July 31, 1996
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. Investments in foreign securities were 12.7% of net assets at
July 31, 1996.
ADS/ADR - American Depositary Shares/Receipts are foreign shares held by a
U.S. bank which issues a receipt evidencing ownership. Dividends are paid in
U.S. dollars.
See accompanying notes to financial statements.
Growth Fund
Statement of Operations
(In Thousands)
Year ended July 31, 1996
Net investment income:
Income (net of foreign taxes withheld of $410):
Dividends $ 27,160
Interest 2,575
-----------
Total income 29,735
-----------
Expenses:
Management fees 8,232
Transfer agent's fees 2,142
Custodian's fees 178
Postage 291
Shareholder reporting fees 67
Directors' fees 5
Registration fees 129
Audit fees 29
Legal fees 5
Other 25
-----------
Total expenses 11,103
-----------
Net investment income 18,632
-----------
Net realized and unrealized gain (loss) on investments:
Net realized gain 180,403
Change in net unrealized appreciation/depreciation (79,937)
Net realized and unrealized gain 100,466
-----------
Increase in net assets resulting from operations $ 119,098
===========
See accompanying notes to financial statements.
Growth Fund
Statements of Changes in Net Assets
(In Thousands)
Years ended July 31,
1996 1995
From operations:
Net investment income $ 18,632 $ 12,245
Net realized gain on investments 180,403 48,004
Change in net unrealized appreciation/
depreciation of investments (79,937) 118,291
--------- ----------
Increase in net assets resulting
from operations 119,098 178,540
--------- ----------
Distributions to shareholders from:
Net investment income (15,339) (10,408)
--------- ---------
Net realized gains (49,084) (90,772)
--------- ---------
From capital share transactions:
Proceeds from shares sold 277,684 235,002
Shares issued for dividends reinvested 63,058 99,768
Cost of shares redeemed (155,976) (107,994)
--------- ---------
Increase in net assets from capital share
transactions 184,766 226,776
--------- ---------
Net increase in net assets 239,441 304,136
Net assets:
Beginning of period 922,821 618,685
--------- ---------
End of period $1,162,262 $ 922,821
========= =========
Undistributed net investment income included in net assets:
Beginning of period $ 7,433 $ 5,596
========= =========
End of period $ 10,726 $ 7,433
========= =========
Change in shares outstanding:
Shares sold 13,979 13,617
Shares issued for dividends reinvested 3,371 5,967
Shares redeemed (7,794) (6,269)
--------- --------
Increase in shares outstanding 9,556 13,315
========= ========
Authorized shares of $.01 par value 75,000 75,000
========= ========
See accompanying notes to financial statements.
Growth Fund
Notes to Financial Statements
July 31, 1996
(1) Summary of Significant Accounting Policies
USAA MUTUAL FUND, INC. (the Company), registered under the Investment Company
Act of 1940, as amended, is a diversified, open-end management investment
company incorporated under the laws of Maryland consisting of eight separate
funds. The information presented in this annual 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.
D. Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the
financial statements.
(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. The Fund had no borrowings
under either of these agreements during the year ended July 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 or as otherwise required to avoid the payment of federal taxes.
Distributions of net investment income of $.1842 per share, a short-term
capital gain of $.9507 per share, and a long-term capital gain of $1.9223
per share, declared and paid in September 1996, are not reflected in the
accompanying financial statements.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the
year ended July 31, 1996 were $801,351,667 and $653,685,577, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
1996 was $126,270,524 and $96,497,368, respectively.
(5) Transactions with Manager
A. Management fees - The investment policies of the Fund and management of the
Fund's portfolio are carried out by USAA Investment Management Company (the
Manager). The Fund's management fees are computed at .75% of its annual
average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides transfer
agent services to the Fund. Shareholder accounting service fees are based on
an annual charge per shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Company has an agreement with the Manager for
exclusive underwriting and distribution of the Fund's shares on a continuing
best efforts basis. This agreement provides that the Manager will receive no
fee or other remuneration for such services.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service
of the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year ended
July 31, 1996 was $21,360.
(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 July 31, 1996, the Association and its
affiliates owned 1,295,153 shares (2.2%) of the Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Ten-Month
Period Ended
Year Ended July 31, July 31, Year Ended September 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 19.06 $ 17.63 $ 19.76 $ 17.49 $ 16.28
Net investment income .33 .26 .19 .19 .36
Net realized and
unrealized gain (loss) 1.92 3.95 (.17) 2.67 1.26
Distributions from net
investment income (.29) (.27) (.16) (.32) (.41)
Distributions of realized
capital gains (.97) (2.51) (1.99) (.27) -
--------- -------- -------- ------- -------
Net asset value at
end of period $ 20.05 $ 19.06 $ 17.63 $ 19.76 $ 17.49
========= ======== ======== ======= =======
Total return (%) * 12.44 26.46 .31 16.77 10.17
Net assets at
end of period (000) $1,162,262 $ 922,821 $ 618,685 $605,457 $432,125
Ratio of expenses to
average net assets (%) 1.01 1.04 1.04(a) 1.07 1.07
Ratio of net investment
income to average
net assets (%) 1.70 1.63 1.33(a) 1.07 2.27
Portfolio turnover (%) 62.30 69.64 117.80 96.19 39.39
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>
