TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
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
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Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than 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)1997, USAA. All rights reserved.
<TABLE>
USAA Family of Funds Performance Summary
<CAPTION>
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 December 31, 1996.
<S> <C> <C> <C> <C> <C>
Average Annual Total Return(%)*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
=========================================================================================================
Capital Appreciation
Aggressive Growth 10/19/81 16.47 11.45 13.12 -
Emerging Markets (1) 11/7/94 16.59 - - 4.84
Gold (1) 8/15/84 0.00 6.57 .93 -
Growth 4/5/71 17.80 13.69 13.24 -
Growth & Income 6/1/93 23.04 - - 16.24
International(1) 7/11/88 19.15 13.09 - 10.60
S&P 500 Index(4) 5/1/96 - - - 16.83+
World Growth(1) 10/1/92 19.08 - - 13.66
=========
Asset Allocation
Balanced Strategy 9/1/95 13.45 - - 12.49
Cornerstone Strategy (1) 8/15/84 17.87 12.69 10.70 -
Growth and Tax Strategy (2)** 1/11/89 11.12 9.64 - 9.97
Growth Strategy (1) 9/1/95 22.13 - - 21.47
Income Strategy 9/1/95 3.00 - - 9.72
=========
Income - Taxable
GNMA 2/1/91 2.94 6.43 - 7.66
Income 3/4/74 1.33 7.33 9.25 -
Income Stock 5/4/87 18.70 12.76 - 12.78
Short-Term Bond 6/1/93 6.31 - - 5.60
=========
Income - Tax-Exempt
Long-Term (2)** 3/19/82 4.47 6.87 7.37 -
Intermediate-Term (2)** 3/19/82 4.49 6.89 7.09 -
Short-Term (2)** 3/19/82 4.44 4.94 5.45 -
California Bond (2)** 8/1/89 5.39 7.29 - 7.65
Florida Tax-Free Income (2)** 10/1/93 4.38 - - 3.69
New York Bond (2)** 10/15/90 3.73 6.61 - 8.35
Texas Tax-Free Income (2)** 8/1/94 5.25 - - 9.44
Virginia Bond (2)** 10/15/90 5.06 7.09 - 8.18
=========
Money Market
Money Market (3) 2/2/81 5.24 4.37 5.84 -
Tax Exempt Money Market (2,3)** 2/6/84 3.34 3.04 4.21 -
Treasury Money Market Trust (3) 2/1/91 5.10 4.16 - 4.32
California Money Market (2,3)** 8/1/89 3.27 2.93 - 3.64
Florida Tax-Free Money Market (2,3)** 10/1/93 3.24 - - 3.01
New York Money Market (2,3)** 10/15/90 3.20 2.79 - 3.07
Texas Tax-Free Money Market (2,3)** 8/1/94 3.25 - - 3.32
Virginia Money Market (2,3)** 10/15/90 3.17 2.87 - 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.
+ Cumulative total return since inception, including account maintenance fee.
MESSAGE FROM THE PRESIDENT
I have been at USAA for 19 years. The first eight were one heck of a lot of
fun. I was a portfolio manager and I also got to do a lot of trading. Since 1986
I have been a manager of people, and sometime in the future I will write about
the relative degree of fun between those two pursuits. In my eight years as a
money manager I got to know how it feels when your fund isn't working, and I
also know how it feels to be on top of the world. By the same token, some
people wrote about me snidely and some others put nice pictures of me in
national magazines. This is all background for the following comments on
fund performance.
According to the Investment Company Institute there are now about 6,000 mutual
funds in the U.S. Why isn't there one; the one with the best performance? To
answer that question you ask questions. Best performance over one year? . . .
Three years? . . . Five years? Shouldn't we differentiate between growth funds
and money market funds?. . . Between taxable bonds and tax-exempt bonds? There
are obvious reasons to look beyond just one fund.
But then there are other questions. Was the best stock fund for the last 10
years also the best stock fund in 1996? I'd be surprised if it were. And here
is a great question. Do you know anyone who beat the best stock fund for
the past 10 years by moving money each year into the fund that would turn
into that year's best? I'd be more surprised if you did.
I think that most people choose a mutual fund company because of trust. At USAA
we give you a lot to foster that trust. The expenses of our funds are very low
compared to their competitors. We have never had any loads on our funds. The
array of features we offer, from guidance from our reps to TouchLine(Registered
Trademark) and computer access, is world class. And our funds have established
a proud tradition of performance. It is not possible to have the top performing
fund every year, but since 1986 we have been recognized 19 times by Lipper
Analytical Services for having funds that were the best in their category,
both for one year and over longer periods. Four of these were awarded in 1996.
They went to the Cornerstone Strategy Fund, Tax Exempt Short-Term Fund,
and the Texas Tax-Free Income Fund.(1)
Performance, service, ease of doing business and trust. That's how I buy a
mutual fund.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
[Photograph of Michael J.C. Roth, CFA, President and Vice Chairman of the
Board appears here]
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before you invest.
Performance Achievement Certificates
(1) Fund rankings awarded by Lipper Analytical Services on cumulative total
returns:
USAA Texas Tax-Free Income Fund was ranked #1 out of 20 in the Texas Municipal
Debt Funds category for the 1-year period ended 12/31/96 in Lipper's Fixed
Income Fund Performance Analysis. Average annual total returns for the 1-year
period ended 12/31/96 and the 8/1/94 to 12/31/96 period were 5.25% and 9.44%
respectively.
USAA Tax Exempt Short-Term Fund was ranked #1 out of 5, #1 out of 7, and #4
out of 30 in the Short Municipal Debt Funds category for the 10-,5-, and
1-year periods ended 12/31/96 in Lipper's Fixed Income Fund Performance
Analysis. Average annual total returns for the 10-, 5-, and 1-year periods
ended 12/31/96 were 5.45%, 4.94%, and 4.44%, respectively.
USAA Cornerstone Strategy Fund was ranked #1 out of 5, #3 out of 13, and #5
out of 71 in the Global Flexible Portfolio Funds category for the 10-, 5-,
and 1-year periods ended 12/31/96 in Lipper's Equity Fund Performance Analysis.
Average annual total returns for the 10-, 5-, and 1-year periods ended 12/31/96
were 10.70%, 12.69%, and 17.87%, respectively.
The performance data quoted represent past performance and is no guarantee of
future results. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less that their original cost.
INVESTMENT REVIEW
GROWTH & INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMENTS: Primarily dividend-paying common stocks.
7/31/96 1/31/97
Net Assets.................................. $371.8 MILLION $562.6 MILLION
Net Asset Value Per Share ................. $13.46 $15.89
Average Annual Total Returns as of 1/31/97
July 31, 1996 to January 31, 1997...................................22.77%+
1 Year..............................................................25.23%
Since inception on June 1, 1993.....................................17.10%
+ 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 1/31/97, with dividends and capital
gains reinvested. The ending value of each item graphed is as follows:
S&P 500 Index - $19,158 and the USAA Growth & Income Fund - $17,895.]
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund to the S&P 500 Index, 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 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.
Fund Performance
[Photograph of R. David Ullom, CFA, Portfolio Manager appears here]
The total return for the Growth & Income Fund for the first half of the
current fiscal year paralleled the S&P 500 Index,(1) as the Fund returned
22.77% versus a total return of 24.13% for the S&P. These returns have
continued to exceed both our expectations and the long-term average
annual returns of the market in general.(2) This is not to imply that we
have altered our basic strategy for the Fund. We have and will continue
to adhere to the strategy of purchasing stocks that fit our value parameters.
(1) 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.
(2) Past performance is no guarantee of future results. Yields and returns will
fluctuate.
Our Strengths
Stocks related to energy showed the area of strongest appreciation. Some
examples of the industries and companies include oil exploration & production
(Apache Corp. and Gulf Canada Resources), domestic/international oils (Exxon,
Occidental Petroleum, and Unocal), and oil well equipment & services
(Halliburton). These companies exhibited strong earnings growth over the last
six months, primarily due to higher oil and gas prices and a greater demand
for energy services. We believe that these industries will continue to do
well as energy prices remain near their current levels and the companies
continue to report higher earnings.
A second area of strong share price appreciation was the financial sector. Banks
(Bankers Trust, BankAmerica, and PNC Bank Corp.), brokerage firms (Dean Witter,
Discover & Co.), consumer finance (Associates First Capital), property &
casualty insurance (Allstate Corp., American International Group, Highlands
Inc., and Everest Reinsurance Holdings), and savings and loans (Great Western
Financial) comprised this sector. Each company reported continued earnings
growth as a result of better loan demand, and/or continued cost cutting. Share
repurchase programs also were responsible for the reported earnings growth of
the banks and Dean Witter, Discover.
A third area which not only illustrated strong appreciation, but also where we
increased our investment emphasis was semiconductors and semiconductor
manufacturers. This group, as of the summer of 1996, was out of favor with "Wall
Street." Yet some specific stocks (National Semiconductor, Applied Materials,
and Silicon Valley Group) sold at low price-to-earnings ratios based on
normalized returns. Although shares of these three companies have appreciated by
more than 50% in the last six months, we continue to feel that substantial
appreciation potential remains.
Our Impediments
Poor performing areas in the Fund included telephones (AT&T, GTE, NYNEX, and
Sprint), chemicals (Dow and Union Carbide), and retailing (May Department
Stores, Sears, and J.C. Penney). Investors have continued to be concerned with
the impact of deregulation on both the local and long distance telephone
markets. Nevertheless, most telephone companies have generated earnings growth,
and it is our belief that deregulation will not have an adverse material impact
on their earnings potential. Therefore, they retain their investment appeal.
Commodity chemical earnings have suffered minor declines attributable to higher
feedstock costs (oil and natural gas). Disappointingly, these declines could not
be fully recovered from higher chemical prices. At current valuation levels,
these stocks have attractive yields and represent good values long term.
[A pie chart is shown here depicting the Portfolio Investment Diversification as
of January 31, 1997 of the Growth & Income Fund to be: Intermediate Goods &
Services - 26.7%, Consumer Staples - 11.8%, Capital Goods - 13.8%, Consumer
Cyclicals - 16.8% and Credit Sensitive - 31.4%.]
Percentages are of Net Assets and may or may not be equal to 100%.
Our Standards
Given the recent volatility in the stock market, it seems appropriate to present
some guidelines we follow in managing the Growth & Income Fund. We maintain
these guidelines as qualitative parameters in selecting stocks and managing the
portfolio in general.
*Stick to the Strategy: One must have an investment strategy and
adhere to it to outperform over the long term. We follow a value
strategy concurrent with the Fund's investment objective of
capital growth and current income. We will continue to do so.
*Be Patient and Focus on the Long Term: We focus on long-term returns
and therefore the portfolio has relatively low turnover.
*Trade Only When There is a Compelling Reason: All trades have
two cost components - commissions and execution costs. Although
commissions are quite low for the Fund, execution costs can be
significant.
*Don't Act on Emotion: Experience shows that emotional decisions
are seldom correct.
*Don't Rely on Market Timing: Experience has also shown that
market timing does not work over the long term. Historically,
market timers are not successful in every market cycle.
*Don't Base Decisions on Economic Forecasts: As with market
timing, history shows that relying on economic forecasts can
produce subpar returns. Economic forecasts are often incorrect
and, therefore, lead to poor investment decisions.
Top 10 Holdings
(% of Net Assets)
Boeing 2.9
B.F. Goodrich 2.2
Kimberly-Clark 1.8
Lucent Technologies 1.8
Occidental Petroleum 1.7
Gulf Canada Resources 1.7
Dean Witter, Discover 1.6
National Semiconductor 1.6
Universal Corp. 1.5
Applied Materials 1.5
Top 10 Holdings
(% of Net Assets)
Oil Related 8.3
Telecommunications Related 6.7
Aerospace/Defense 5.1
Insurance - Property/Casualty 5.0
Retail Related 4.9
Electronics - Semiconductors 4.4
Publishing 4.3
Paper & Forest Products 4.1
Bank Related 3.9
Tobacco 3.8
See page 9 for a complete listing of the Portfolio of Investments in Securities.
<TABLE>
<CAPTION>
Growth & Income Fund
Statement of Assets and Liabilities
January 31, 1997
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value (identified cost of $438,862) $ 565,423
Cash 509
Receivables:
Capital shares sold 970
Dividends 612
Securities sold 5,355
- -------------------------------------------------------------------------------------------------------
Total assets 572,869
- -------------------------------------------------------------------------------------------------------
Liabilities
Securities purchased 9,624
Capital shares redeemed 241
USAA Investment Management Company 276
USAA Transfer Agency Company 92
Accounts payable and accrued expenses 40
- -------------------------------------------------------------------------------------------------------
Total liabilities 10,273
- -------------------------------------------------------------------------------------------------------
Net assets applicable to capital shares outstanding $ 562,596
=======================================================================================================
Represented by:
Paid-in capital $ 430,298
Accumulated undistributed net investment income 405
Accumulated net realized gain on investments 5,332
Net unrealized appreciation of investments 126,561
- -------------------------------------------------------------------------------------------------------
Net assets applicable to capital shares outstanding $ 562,596
=======================================================================================================
Capital shares outstanding 35,397
=======================================================================================================
Net asset value, redemption price, and offering price per share $ 15.89
=======================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Fund
Portfolio of Investments in Securities
January 31, 1997
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------- -------- -----
Common Stocks (96.2%)
<S> <C> <C>
Aerospace/Defense (5.1%)
304,000 B.F. Goodrich Co. $ 12,464
150,000 Boeing Co. 16,069
- -------------------------------------------------------------------------------------------------------
28,533
- -------------------------------------------------------------------------------------------------------
Airlines (1.2%)
85,000 AMR Corp.* 6,843
- -------------------------------------------------------------------------------------------------------
Aluminum (1.3%)
110,000 Aluminum Co. of America 7,590
- -------------------------------------------------------------------------------------------------------
Auto Parts (1.4%)
208,000 Lear Corp.* 7,774
- -------------------------------------------------------------------------------------------------------
Automobiles (1.3%)
230,000 Ford Motor Co. 7,389
- -------------------------------------------------------------------------------------------------------
Bank Holding Companies - Major Regional (1.3%)
180,000 PNC Bank Corp. 7,155
- -------------------------------------------------------------------------------------------------------
Bank Holding Companies - Money Center (1.2%)
81,000 Bankers Trust New York Corp. 6,885
- -------------------------------------------------------------------------------------------------------
Bank Holding Companies - Other Major (1.4%)
71,000 BankAmerica Corp. 7,925
- -------------------------------------------------------------------------------------------------------
Brokerage Firms (1.6%)
230,000 Dean Witter, Discover & Co. 8,769
- -------------------------------------------------------------------------------------------------------
Chemicals (2.9%)
81,000 Dow Chemical Co. 6,247
360,000 Millennium Chemicals, Inc.* 7,155
67,000 Union Carbide Corp. 3,040
- -------------------------------------------------------------------------------------------------------
16,442
- -------------------------------------------------------------------------------------------------------
Communication - Equipment Manufacturers (1.8%)
184,306 Lucent Technologies, Inc. 9,999
- -------------------------------------------------------------------------------------------------------
Containers - Metals & Glass (1.2%)
264,000 Ball Corp. 6,765
- -------------------------------------------------------------------------------------------------------
Drugs (1.3%)
104,000 SmithKline Beecham plc ADR "A" 7,514
- -------------------------------------------------------------------------------------------------------
Electric Power (2.2%)
209,000 Houston Industries, Inc. 4,729
335,000 Pacific Gas & Electric Co. 7,621
- -------------------------------------------------------------------------------------------------------
12,350
- -------------------------------------------------------------------------------------------------------
Electrical Equipment (1.2%)
106,000 Rockwell International Corp.* 6,970
- -------------------------------------------------------------------------------------------------------
Electronics - Semiconductors (4.4%)
170,000 Applied Materials, Inc.* 8,394
315,000 National Semiconductor Corp.* 8,741
280,000 Silicon Valley Group, Inc.* 7,525
- -------------------------------------------------------------------------------------------------------
24,660
- -------------------------------------------------------------------------------------------------------
Finance - Consumer (1.2%)
139,300 Associates First Capital Corp. 6,773
- -------------------------------------------------------------------------------------------------------
Foods (2.3%)
195,000 Dean Foods Co. 6,143
85,000 Ralston Purina Group 6,683
- -------------------------------------------------------------------------------------------------------
12,826
- -------------------------------------------------------------------------------------------------------
Healthcare - HMOs (1.1%)
330,000 Humana, Inc.* 6,270
- -------------------------------------------------------------------------------------------------------
Heavy Duty Trucks & Parts (1.3%)
195,000 Trinova Corp. 7,507
- -------------------------------------------------------------------------------------------------------
Household Products (1.3%)
64,000 Procter & Gamble Co. 7,392
- -------------------------------------------------------------------------------------------------------
Insurance - Multi-Line Companies (1.3%)
90,000 Aetna, Inc. 7,110
- -------------------------------------------------------------------------------------------------------
Insurance - Property/Casualty (5.0%)
126,000 Allstate Corp. 8,284
54,000 American International Group, Inc. 6,541
266,500 Everest Reinsurance Holdings, Inc. 7,329
253,200 Highlands Insurance Group, Inc.* 5,792
- -------------------------------------------------------------------------------------------------------
27,946
- -------------------------------------------------------------------------------------------------------
Leisure Time (1.2%)
259,600 Brunswick Corp. 6,522
- -------------------------------------------------------------------------------------------------------
Machinery - Diversified (2.4%)
368,000 BW/IP, Inc. 6,210
169,000 Deere & Co. 7,225
- -------------------------------------------------------------------------------------------------------
13,435
- -------------------------------------------------------------------------------------------------------
Manufacturing - Diversified Industries (1.2%)
178,000 Hillenbrand Industries, Inc. 6,898
- -------------------------------------------------------------------------------------------------------
Manufacturing - Specialized (1.4%)
220,000 Avery Dennison Corp. 8,057
- -------------------------------------------------------------------------------------------------------
Medical Products & Supplies (0.7%)
140,000 C.R. Bard, Inc. 3,955
- -------------------------------------------------------------------------------------------------------
Metals - Miscellaneous (2.0%)
197,000 Inco Ltd. 6,673
165,000 Titanium Metals Corp.* 4,847
- -------------------------------------------------------------------------------------------------------
11,520
- -------------------------------------------------------------------------------------------------------
Natural Gas Distribution - Pipelines (2.3%)
159,000 NICOR, Inc. 5,744
132,000 Sonat, Inc. 7,029
- -------------------------------------------------------------------------------------------------------
12,773
- -------------------------------------------------------------------------------------------------------
Office Equipment & Supplies (1.3%)
125,000 Xerox Corp. 7,328
- -------------------------------------------------------------------------------------------------------
Oil - Domestic (2.8%)
367,000 Occidental Petroleum Corp. 9,359
155,000 Unocal Corp. 6,529
- -------------------------------------------------------------------------------------------------------
15,888
- -------------------------------------------------------------------------------------------------------
Oil - Exploration & Production (2.8%)
172,000 Apache Corp. 6,601
1,148,000 Gulf Canada Resources, Ltd.* 9,327
- -------------------------------------------------------------------------------------------------------
15,928
- -------------------------------------------------------------------------------------------------------
Oil - International (1.2%)
66,000 Exxon Corp. 6,839
- -------------------------------------------------------------------------------------------------------
Oil Well Equipment & Service (1.5%)
115,000 Halliburton Co. 8,323
- -------------------------------------------------------------------------------------------------------
Paper & Forest Products (4.1%)
422,000 Jefferson Smurfit Corp.* 6,594
105,000 Kimberly-Clark Corp. 10,237
143,000 Weyerhaeuser Co. 6,507
- -------------------------------------------------------------------------------------------------------
23,338
- -------------------------------------------------------------------------------------------------------
Pollution Control (1.4%)
222,000 WMX Technologies, Inc. 8,131
- -------------------------------------------------------------------------------------------------------
Publishing (4.3%)
295,000 American Greetings Corp. 8,352
94,000 Cognizant Corp. 3,020
226,900 Dun & Bradstreet Corp. 5,445
131,600 Houghton Mifflin Co. 7,123
- -------------------------------------------------------------------------------------------------------
23,940
- -------------------------------------------------------------------------------------------------------
Railroads (1.4%)
89,000 Norfolk Southern Corp. 7,888
- -------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (3.7%)
139,000 Developers Diversified Realty Corp. 4,969
150,000 Highwoods Properties, Inc. 5,250
140,000 Kimco Realty Corp. 4,585
200,000 Public Storage, Inc. 5,850
- -------------------------------------------------------------------------------------------------------
20,654
- -------------------------------------------------------------------------------------------------------
Retail - Department Stores (1.3%)
160,000 May Department Stores Co. 7,120
- -------------------------------------------------------------------------------------------------------
Retail - General Merchandising (2.7%)
170,000 J.C. Penney Company, Inc. 8,054
144,000 Sears, Roebuck & Co. 6,912
- -------------------------------------------------------------------------------------------------------
14,966
- -------------------------------------------------------------------------------------------------------
Retail - Specialty (0.9%)
355,000 Phillips-Van Heusen Corp. 4,793
- -------------------------------------------------------------------------------------------------------
Savings & Loan Holding Companies (1.2%)
207,000 Great Western Financial Corp. 6,546
- -------------------------------------------------------------------------------------------------------
Specialty Printing (1.4%)
250,000 Deluxe Corp. 7,687
- -------------------------------------------------------------------------------------------------------
Telephones (4.9%)
135,000 AT&T 5,316
152,000 GTE Corp. 7,144
145,000 NYNEX Corp. 7,340
197,000 Sprint Corp. 8,028
- -------------------------------------------------------------------------------------------------------
27,828
- -------------------------------------------------------------------------------------------------------
Tobacco (3.8%)
58,000 Philip Morris Companies, Inc. 6,895
186,000 RJR Nabisco Holdings Corp. 6,091
274,000 Universal Corp. 8,494
- -------------------------------------------------------------------------------------------------------
21,480
- -------------------------------------------------------------------------------------------------------
Total common stocks (cost: $414,663) 541,224
- -------------------------------------------------------------------------------------------------------
Short-Term (4.3%)
Principal
Amount Coupon
(000) Rate Maturity
Commercial Paper
$ 10,156 General Motors Acceptance Corp. 5.38% 2/04/97 10,151
6,027 Household Finance Corp. 5.37 2/05/97 6,023
8,027 Prudential Funding Corp. 5.34 2/03/97 8,025
- -------------------------------------------------------------------------------------------------------
Total short-term (cost: $24,199) 24,199
- -------------------------------------------------------------------------------------------------------
Total investments (cost: $438,862) $ 565,423
=======================================================================================================
- ----------------------
*Non-income producing.
</TABLE>
Growth & Income Fund
Notes to Portfolio of Investments in Securities
January 31, 1997
(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.
Investments in foreign securities were 4.2% of net assets at January 31, 1997.
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 & Income Fund
Statement of Operations
(In Thousands)
Net investment income:
Income (net of foreign taxes withheld of $26):
Dividends $ 5,113
Interest 461
- ---------------------------------------------------------------
Total income 5,574
- ---------------------------------------------------------------
Expenses:
Management fees 1,397
Transfer agent's fees 496
Custodian's fees 50
Postage 44
Shareholder reporting fees 14
Directors' fees 2
Registration fees 69
Audit fees 15
Legal fees 3
Other 6
- ---------------------------------------------------------------
Total expenses 2,096
- ---------------------------------------------------------------
Net investment income 3,478
- ---------------------------------------------------------------
Net realized and unrealized gain on investments:
Net realized gain 8,468
Change in net unrealized appreciation/depreciation 81,413
- ---------------------------------------------------------------
Net realized and unrealized gain 89,881
- ---------------------------------------------------------------
Increase in net assets resulting from operations $ 93,359
===============================================================
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Growth & Income Fund
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended January 31, 1997
and year ended July 31, 1996
(Unaudited)
1/31/97 7/31/96
------- -------
<S> <C> <C>
From operations:
Net investment income $ 3,478 $ 5,394
Net realized gain on investments 8,468 10,781
Change in net unrealized appreciation/depreciation
of investments 81,413 16,959
---------- ----------
Increase in net assets resulting from operations 93,359 33,134
---------- ----------
Distributions to shareholders from:
Net investment income (3,505) (5,122)
---------- ----------
Net realized gains (13,136) (2,449)
---------- ----------
From capital share transactions:
Proceeds from shares sold 131,549 174,833
Shares issued for dividends reinvested 16,286 7,355
Cost of shares redeemed (33,758) (44,440)
---------- ----------
Increase in net assets from capital share transactions 114,077 137,748
---------- ----------
Net increase in net assets 190,795 163,311
Net assets:
Beginning of period 371,801 208,490
---------- ----------
End of period $ 562,596 $ 371,801
========== ==========
Undistributed net investment income included in net assets:
Beginning of period $ 432 $ 236
========== ==========
End of period $ 405 $ 432
========== ==========
Change in shares outstanding:
Shares sold 8,898 13,146
Shares issued for dividends reinvested 1,151 564
Shares redeemed (2,280) (3,353)
---------- ----------
Increase in shares outstanding 7,769 10,357
========== ==========
Authorized shares of $.01 par value 50,000 50,000
========== ==========
See accompanying notes to financial statements.
</TABLE>
Growth & Income Fund
Notes to Financial Statements
January 31, 1997
(Unaudited)
(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 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.
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 13, 1998, one with USAA
Capital Corporation (CAPCO), 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, of which only 5% may
be borrowed from CAPCO, at the lending institution's borrowing rate plus a
markup. The Fund had no borrowings under either of these agreements during the
six-month period ended January 31, 1997.
(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 or as otherwise required to avoid the payment of
federal taxes.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the
six-month period ended January 31, 1997 were $130,135,941 and $37,674,621,
respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1997 was $129,212,811 and $2,651,287, respectively.
(5) Transactions with Manager
A. Management fees -- The investment policies of the Fund and 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 based on an annual charge per shareholder account plus out-of-pocket
expenses.
C. Underwriting services -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
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
January 31, 1997 was $16,204.
(6) Transactions with Affiliates
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received compensation from the Fund.
(7) 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 Period Ended Period Ended
January 31, Year Ended July 31, July 31, September 30,
1997 1996 1995 1994 1993**
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 13.46 $ 12.07 $ 10.36 $ 10.23 $ 10.00
Net investment income .11 .24(a) .24(a) .17(a) .03
Net realized and
unrealized gain 2.88 1.51 1.81 .16 .20
Distributions from
net investment income (.11) (.23) (.23) (.18) -
Distributions of
realized capital gains (.45) (.13) (.11) (.02) -
--------- --------- --------- --------- ---------
Net asset value
at end of period $ 15.89 $ 13.46 $ 12.07 $ 10.36 $ 10.23
========= ========= ========= ========= =========
Total return (%) * 22.77 14.68 20.30 3.28 2.30
Net assets at end
of period (000) $ 562,596 $ 371,801 $ 208,490 $ 134,622 $ 69,606
Ratio of expenses to
average net assets (%) .90(b) .95 1.01 1.12(b) 1.63(b)
Ratio of net investment
income to average
net assets (%) 1.50(b) 1.84 2.21 1.95(b) 1.87(b)
Portfolio turnover (%) 8.47 16.13 19.45 13.90 10.68
Average commission
rate paid per share+ $ .049 $ .050
(a) Calculated using weighted average shares.
(b) 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.
** Fund commenced operations June 1, 1993.
+ Calculated by aggregating all commissions paid on the purchase and sale of securities
and dividing by the actual number of shares purchased or sold for which commissions were charged.
</TABLE>
