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 8
Independent Auditors' Report 9
Statement of Assets and Liabilities 10
Portfolio of Investments in Securities 11
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 "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
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, 1997.
<CAPTION>
Average Annual Total Return(%)*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
<S> <C> <C> <C> <C> <C>
Capital Appreciation
==========================================================================================================
Aggressive Growth 10/19/81 -1.72 18.38 10.88 -
Emerging Markets(1) 11/7/94 15.35 - - 10.25
Gold(1) 8/15/84 -22.26 3.54 -4.75 -
Growth 4/5/71 21.60 16.94 11.97 -
Growth & Income 6/1/93 31.29 - - 18.53
International(1) 7/11/88 21.81 15.39 - 11.77
S&P 500 Index(4)+ 5/1/96 34.59 - - 33.24
World Growth(1) 10/1/92 21.85 - - 15.50
Asset Allocation
=========================================================================================================
Balanced Strategy(1) 9/1/95 22.38 - - 15.48
Cornerstone Strategy(1) 8/15/84 20.45 14.33 9.22 -
Growth and Tax Strategy(2)** 1/11/89 15.72 11.23 - 10.45
Growth Strategy(1) 9/1/95 15.37 - - 21.37
Income Strategy 9/1/95 14.48 - - 10.36
Income - Taxable
=========================================================================================================
GNMA 2/1/91 9.37 6.85 - 7.67
Income 3/4/74 8.21 7.44 9.45 -
Income Stock 5/4/87 20.77 14.21 12.89 -
Short-Term Bond 6/1/93 7.71 - - 5.69
Income - Tax Exempt
=========================================================================================================
Long-Term(2)** 3/19/82 9.22 6.71 8.09 -
Intermediate-Term(2)** 3/19/82 8.20 6.76 7.54 -
Short-Term(2)** 3/19/82 5.50 4.80 5.59 -
California Bond(2)** 8/1/89 8.90 7.13 - 7.58
Florida Tax-Free Income(2)** 10/1/93 9.79 - - 4.29
New York Bond(2)** 10/15/90 8.86 6.46 - 8.31
Texas Tax-Free Income(2)** 8/1/94 10.37 - - 9.24
Virginia Bond(2)** 10/15/90 8.50 6.93 - 8.08
Money Market
=========================================================================================================
Money Market(3) 2/2/81 5.28 4.48 5.80 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.36 3.04 4.15 -
Treasury Money Market Trust(3) 2/1/91 5.13 4.28 - 4.38
California Money Market(2),(3)** 8/1/89 3.29 2.94 - 3.62
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.26 - - 3.04
New York Money Market(2),(3)** 10/15/90 3.21 2.82 - 3.08
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.33
Virginia Money Market(2),(3)** 10/15/90 3.22 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 return 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.
+ Includes the $10 annual account maintenance fee through December 31, 1996.
MESSAGE FROM THE PRESIDENT
[PHOTOGRAPH OF PRESIDENT, MICHAEL J.C. ROTH APPEARS HERE]
The last two and one-half
years have been a remarkable
time in the stock market.
These 30 months have witnessed an over 100%(1) rise in the value of equity
indices which has translated into greatly increased wealth for many
investors.(2) But now it is easy to sense that investors are looking over their
shoulders.
This rise in the prices of stocks has had solid underpinnings. The economy has
grown, and continues to grow at a robust, but not excessive rate. Inflation has
remained well in check, even as employment has risen strongly. Interest rates
have remained below the levels they reached in 1994, and, compared to the rate
of inflation are probably still a bit high. Perhaps most surprising of all is
the fact that we are coming quite close to balancing the federal budget.
Many commentators look at these factors and conclude that the stock market looks
reasonable. But others note simply that the market is at or near all-time record
levels and is therefore "too high."
The numbers which define the level of the Dow Jones Industrial Average or the
S&P 500 Stock Index are not particularly meaningful by themselves. What is
meaningful is the relationship of those numbers to numbers which describe the
companies in those averages; such as earnings, dividends and growth rates. These
relationships are the things that help investors decide whether a stock is cheap
or expensive. Only one thing can make the price of a stock go up. The next buyer
must make a decision that paying more for a share of that company than did the
previous buyer makes sense. Such a decision can be made if a buyer believes that
the relationship of price to earnings or growth rate is reasonable. That next
buyer is not obligated either. He or she has options. The money could go to
bonds, to the money markets, to real estate or to pay off debt.
Invariably, investors will begin to make those alternative decisions. We can be
very certain that the stock market will not rise 100% in the next 30 months.
That does not mean it will crash. It does mean that the market will find a way
to return closer to its historic valuation. It last did that in 1994 when it was
essentially flat for a year while corporate earnings grew substantially.
I have been telling investors not to extrapolate 100% every 30 months. Enjoy
it, but remember your risk tolerance and your asset allocation. Those are the
things that will guide you well through all kinds of markets.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
(1) Source: Lipper Analytical Services, Inc.
(2) Past performance is no guarantee of future results. Yields and returns will
fluctuate.
INVESTMENT REVIEW
GROWTH & INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMENTS: Primarily dividend-paying common stocks.
7/31/96 7/31/97
Net Assets......................... $371.8 MILLION $825.1 MILLION
Net Asset Value Per Share ........ $13.46 $18.85
Average Annual Total Returns as of 7/31/97
1 Year................................................. 46.69%
Since inception on June 1, 1993........................ 19.92%
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.
_______________________________________________________________________________
CUMULATIVE PERFORMANCE COMPARISON
_______________________________________________________________________________
A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 Investment. The data points from the graph are as follows:
USAA Growth & Income Fund
Year Amount
- ---------------------------
06/01/93 $10,000
06/30/93 9,990
07/31/93 9,930
07/31/94 10,566
07/31/95 12,711
07/31/96 14,576
07/31/97 21,382
S&P 500 Index
Year Amount
- ----------------------------
06/01/93 $10,000
06/30/93 10,029
07/31/93 9,989
07/31/94 10,503
07/31/95 13,242
07/31/96 15,433
07/31/97 23,476
Lipper Growth & Income Funds Average
Year Amount
- ------------------------------------
06/01/93 $10,000
06/30/93 10,040
07/31/93 10,036
07/31/94 10,568
07/31/95 12,725
07/31/96 14,438
07/31/97 20,833
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund to the S&P 500 Index and the Lipper Growth & Income
Funds Average. 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. The Lipper Growth & Income
Funds Average is an average of all growth & income funds, as reported by Lipper
Analytical Services, an independent organization that monitors the performance
of mutual funds.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER, R. DAVID ULLOM, CFA IS HERE]
Fund Performance
and Strategy
It seems like years ago when Alan Greenspan, Chairman of the Federal Reserve
Board, described the rise in our equity markets in terms of "irrational
exuberance." But what seems like years was, in fact, only months ago, in
December of 1996. That was when the Dow Jones Industrial Average (the Dow)(1)
was at an approximate level of 6,400, some 1,800 points below its level at this
writing. In other words, the Dow stands some 28% above the level which prompted
Mr. Greenspan's remark. I suspect that you, as investors, would have been upset
had we reacted to his remark and reduced our stock holdings or changed our
strategy.
The guidelines we outlined in our semiannual report of not relying on economic
forecasts or market timing in our selection of stocks or management of the
portfolio are responsible for our not reacting to such comments concerning the
market. We have great respect for Mr. Greenspan, and like many other investors,
we too are concerned with the level of the market and its strong rise. However,
we have purchased and will continue to purchase stocks based on our value
criteria.
As of July 31, 1997, the Fund's total return of 46.69% was lower than the S&P
500 Index(2) return of 52.11%. Investments in the following five major
industries hindered the Fund's performance.
Tobacco
Tobacco stocks have been negatively impacted by the proposed litigation
settlement which we feel will prove to be a long-term plus for the industry.
(1) Dow Jones Industrial Average is a price weighted average based on the price
only performance of 30 blue chip stocks. The average is computed by adding
the prices of the 30 stocks and dividing by a denominator which has been
adjusted over the years for stock splits, stock dividends, and substitution
of stock.
(2) 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 into the S&P 500 Index.
Oil & Gas
Energy stocks in general have not performed well over the last year because of a
softness in the price of crude oil and natural gas. However, strength in the
U.S. economy as well as economies of many other countries throughout the world
should render higher energy demand and firmer energy prices.
Aerospace
The Fund's largest holding, Boeing, underperformed primarily as a result of its
pending acquisition of McDonnell Douglas and the resulting concerns that arose
from the European Union's (EU) review of the acquisition. These concerns have
now been alleviated, and we believe the company can generate significant
efficiencies and operating leverage with this acquisition.
Telecommunications
Our holdings of AT&T, GTE, NYNEX, and Sprint continued to be held back by stock
market concerns with deregulation of the telecommunications industry. We
continue to believe that these firms will actually prosper in this environment,
particularly NYNEX which is in the process of merging with Bell Atlantic.
Retailing
Major retail stocks held in the Fund have experienced poor relative share price
performance within the prevailing competitive retail environment. However, we
continue to feel that these companies will be able to recover and, therefore,
improve their returns.
On a more positive note, all of the Fund's holdings in the area of technology
appreciated more than the overall market. Some of the stocks in that group
include Applied Materials, Lucent Technologies, National Semiconductor, and
Silicon Valley Group. Demand for communications and personal computers has and
should continue to drive the earnings growth of these companies and result in
strong share price appreciation. There were other holdings which performed well,
but did not represent a common theme other than they represented good values
under our investment criteria. These star performers include Aeroquip-Vickers
(previously Trinova), Aetna, Associates First Capital, BankAmerica, Brunswick,
Dean Foods, Halliburton, Jefferson Smurfit, Morgan Stanley Dean Witter, and
SmithKline Beecham.
Outlook
As I began writing this report, I expressed our concerns with the strong rise in
the Dow. Of course, we are also concerned with the current valuation level of
stocks in general. We have had a particularly good environment for equities, as
demonstrated by the moderate growth in gross domestic product, low inflation,
gradually falling interest rates, and strong earnings growth from a majority of
companies. If these favorable market ingredients continue their current
direction, the equity markets should continue to rise.
A pie chart is shown here depicting the Portfolio Mix as of July 31, 1997
of the USAA Growth & Income Fund to be:
Capital Goods - 14.5%*, Consumer Cyclicals - 16.9%*, Consumer Staples - 13.6%*,
Credit Sensitive - 26.3%*, Intermediate Goods & Services - 25.4%*.
* Percentages are of Net Assets and may or may not be equal to 100%.
Top 10 Holdings
(% of Net Assets)
Boeing 2.5
Lucent Technologies 2.1
B. F. Goodrich 2.0
Avery Dennison 1.8
Lear 1.8
Applied Materials 1.7
Aeroquip-Vickers 1.6
Associates First Capital 1.6
Aetna 1.5
Allstate 1.5
Top 10 Industries
(% of Net Assets)
Telecommunications Related 8.5
Oil Related 7.3
Healthcare Related 5.7
Insurance - Property/Casualty 5.1
Aerospace/Defense 4.7
Retail Related 4.4
Electronics - Semiconductors 4.3
Bank Related 4.0
Publishing 3.9
Paper & Forest Products 3.5
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
DISTRIBUTIONS TO SHAREHOLDERS
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended July 31, 1997. These figures are
provided for information purposes only and should not be used for reporting to
federal or state revenue agencies. Distributions for the calendar year will be
reported to you on Form 1099-DIV in January 1998.
Ordinary income $ .3172*
Long-term capital gains .3606
-------
Total $ .6778
=======
78.68% of ordinary income distributions qualify for deduction by corporations.
* Includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
USAA MUTUAL FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments in securities of the Growth & Income Fund, a
portfolio of USAA Mutual Fund, Inc. as of July 31, 1997, and 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 presented in note 7 to the financial statements for each of
the years or periods in the five-year period then ended. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights 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 financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1997, 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 financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth & Income Fund, a portfolio of USAA Mutual Fund, Inc. as of July 31, 1997,
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 for each of the years or periods in the five-year period
then ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick, LLP
San Antonio, Texas
September 3, 1997
<TABLE>
Growth & Income Fund
Statement of Assets and Liabilities
(In Thousands)
July 31, 1997
<S> <C>
Assets
Investments in securities, at market value (identified cost of $591,447) $ 827,113
Cash 770
Receivables:
Capital shares sold 941
Dividends 1,000
Securities sold 3,113
----------
Total assets 832,937
----------
Liabilities
Securities purchased 6,573
Capital shares redeemed 665
USAA Investment Management Company 406
USAA Transfer Agency Company 44
Accounts payable and accrued expenses 157
----------
Total liabilities 7,845
----------
Net assets applicable to capital shares outstanding $ 825,092
==========
Represented by:
Paid-in capital $ 570,432
Accumulated undistributed net investment income 571
Accumulated net realized gain on investments 18,423
Net unrealized appreciation of investments 235,666
----------
Net assets applicable to capital shares outstanding $ 825,092
==========
Capital shares outstanding 43,778
==========
Net asset value, redemption price, and offering price per share $ 18.85
==========
See accompanying notes to financial statements.
</TABLE>
Growth & Income Fund
Portfolio of Investments in Securities
July 31, 1997
Market
Number Value
of Shares Security (000)
- --------- -------- -----
Common Stocks (96.7%)
Aerospace/Defense (4.7%)
370,000 B.F. Goodrich Co. $ 16,720
345,000 Boeing Co. 20,290
20,000 McDonnell Douglas Corp. 1,530
- -------------------------------------------------
38,540
- -------------------------------------------------
Airlines (1.5%)
115,000 AMR Corp.* 12,370
- -------------------------------------------------
Aluminum (1.5%)
140,000 Aluminum Co. of America 12,390
- -------------------------------------------------
Auto Parts (1.7%)
302,000 Lear Corp.* 14,458
- -------------------------------------------------
Automobiles (1.2%)
250,000 Ford Motor Co. 10,219
- -------------------------------------------------
Bank Holding Companies -
Major Regional (1.3%)
232,000 PNC Bank Corp. 10,614
- -------------------------------------------------
Bank Holding Companies -
Money Center (1.3%)
109,000 Bankers Trust New York Corp. 11,029
- -------------------------------------------------
Bank Holding Companies -
Other Major (1.4%)
150,000 BankAmerica Corp. 11,325
- -------------------------------------------------
Brokerage Firms (1.5%)
230,000 Morgan Stanley, Dean Witter,
Discover & Co. 12,032
- -------------------------------------------------
Chemicals (2.8%)
126,000 Dow Chemical Co. 11,970
510,000 Millennium Chemicals, Inc. 10,742
- -------------------------------------------------
22,712
- -------------------------------------------------
Communication - Equipment
Manufacturers (3.3%)
120,000 Cisco Systems, Inc.* 9,548
204,306 Lucent Technologies, Inc. 17,353
- -------------------------------------------------
26,901
- -------------------------------------------------
Containers - Metals & Glass (1.1%)
304,000 Ball Corp. 9,044
- -------------------------------------------------
Drugs (2.7%)
300,000 Pharmacia & Upjohn, Inc. 11,325
116,000 SmithKline Beecham plc
ADR "A" 11,281
- -------------------------------------------------
22,606
- -------------------------------------------------
Electric Power (1.8%)
309,000 Houston Industries, Inc. 6,470
335,000 Pacific Gas & Electric Co. 8,312
- -------------------------------------------------
14,782
- -------------------------------------------------
Electrical Equipment (1.3%)
167,000 Rockwell International Corp. 10,959
- -------------------------------------------------
Electronics - Semiconductors (4.3%)
155,000 Applied Materials, Inc.* 14,241
380,300 National Semiconductor Corp.* 11,979
305,000 Silicon Valley Group, Inc.* 9,455
- -------------------------------------------------
35,675
- -------------------------------------------------
Finance - Consumer (1.6%)
194,300 Associates First Capital
Corp. 12,812
- -------------------------------------------------
Finance - Real Estate (1.4%)
190,000 PMI Group, Inc. 11,210
- -------------------------------------------------
Foods (2.6%)
195,000 Dean Foods Co. 9,396
135,000 Ralston Purina Group 12,184
- -------------------------------------------------
21,580
- -------------------------------------------------
Healthcare - HMOs (1.5%)
370,000 Humana, Inc.* 9,019
44,500 Pacificare Health Systems,
Inc. 3,020
- -------------------------------------------------
12,039
- -------------------------------------------------
Heavy Duty Trucks & Parts (1.6%)
235,000 Aeroquip-Vickers, Inc. 12,881
- -------------------------------------------------
Household Products (1.2%)
64,000 Procter & Gamble Co. 9,736
- -------------------------------------------------
Insurance - Multi-Line
Companies (1.5%)
110,000 Aetna, Inc. 12,533
- -------------------------------------------------
Insurance - Property/Casualty (5.1%)
160,000 Allstate Corp. 12,640
97,500 American International
Group, Inc. 10,383
306,500 Everest Reinsurance
Holdings, Inc. 11,877
330,200 Highlands Insurance
Group, Inc.* 7,409
- -------------------------------------------------
42,309
- -------------------------------------------------
Leisure Time (1.3%)
330,000 Brunswick Corp. 10,643
- -------------------------------------------------
Machinery - Diversified (2.7%)
194,000 Deere & Co. 11,034
319,204 Flowserve Corp. 10,893
- -------------------------------------------------
21,927
- -------------------------------------------------
Manufacturing - Diversified
Industries (3.0%)
340,000 Avery Dennison Corp. 15,002
219,000 Hillenbrand Industries, Inc. 10,047
- -------------------------------------------------
25,049
- -------------------------------------------------
Medical Products
& Supplies (1.5%)
288,000 Bausch & Lomb, Inc. 12,258
- -------------------------------------------------
Metals - Miscellaneous (1.9%)
307,000 Inco Ltd. 9,498
200,000 Titanium Metals Corp.* 6,400
- -------------------------------------------------
15,898
- -------------------------------------------------
Natural Gas Distribution -
Pipelines (2.1%)
215,000 NICOR, Inc. 7,874
191,000 Sonat, Inc. 9,526
- -------------------------------------------------
17,400
- -------------------------------------------------
Office Equipment
& Supplies (1.0%)
97,000 Xerox Corp. 7,978
- -------------------------------------------------
Oil - Domestic (2.8%)
452,000 Occidental Petroleum Corp. 11,328
296,700 Unocal Corp. 11,868
- -------------------------------------------------
23,196
- -------------------------------------------------
Oil - Exploration & Production (2.2%)
290,000 Apache Corp. 10,222
1,083,600 Gulf Canada Resources Ltd.* 8,273
- -------------------------------------------------
18,495
- -------------------------------------------------
Oil - International (1.3%)
172,000 Exxon Corp. 11,051
- -------------------------------------------------
Oil Well Equipment & Service (1.0%)
180,000 Halliburton Co. 8,280
- -------------------------------------------------
Paper & Forest Products (3.5%)
312,000 Jefferson Smurfit Corp.* 5,850
225,000 Kimberly-Clark Corp. 11,404
183,000 Weyerhaeuser Co. 11,392
- -------------------------------------------------
28,646
- -------------------------------------------------
Pollution Control (1.3%)
340,000 Waste Management, Inc. 10,880
- -------------------------------------------------
Publishing (3.9%)
352,500 American Greetings Corp. 11,809
361,900 Dun & Bradstreet Corp. 9,771
293,200 Houghton Mifflin Co. 10,592
- -------------------------------------------------
32,172
- -------------------------------------------------
Railroads (1.4%)
108,000 Norfolk Southern Corp. 11,961
- -------------------------------------------------
Real Estate Investment Trusts (2.2%)
139,000 Developers Diversified
Realty Corp. 5,491
200,000 Highwoods Properties, Inc. 6,675
150,000 Storage USA, Inc. 6,187
- -------------------------------------------------
18,353
- -------------------------------------------------
Retail - Department Stores (1.2%)
180,000 May Department Stores Co. 10,058
- -------------------------------------------------
Retail - General
Merchandising (2.6%)
200,000 J.C. Penney Company, Inc. 11,700
150,000 Sears, Roebuck & Co. 9,497
- -------------------------------------------------
21,197
- -------------------------------------------------
Retail - Specialty (0.6%)
355,000 Phillips-Van Heusen Corp. 4,970
- -------------------------------------------------
Specialty Printing (1.2%)
305,000 Deluxe Corp. 10,160
- -------------------------------------------------
Telephones (5.2%)
- -------------------------------------------------
245,000 AT&T Corp. 9,019
230,000 GTE Corp. 10,695
195,000 NYNEX Corp. 10,810
247,000 Sprint Corp. 12,227
- -------------------------------------------------
42,751
- -------------------------------------------------
Tobacco (2.9%)
201,000 Philip Morris Companies, Inc. 9,070
226,000 RJR Nabisco Holdings Corp. 7,416
226,500 Universal Corp. 7,800
- -------------------------------------------------
24,286
- -------------------------------------------------
Total common stocks (cost: $562,699) 798,365
- -------------------------------------------------
Short-Term (3.5%)
Commercial Paper (2.0%)
16,553 Household Finance Corp.,
5.68%, 8/01/97
(cost: $16,553) 16,553
- -------------------------------------------------
Discount Note (1.5%)
12,200 Federal Home Loan Mortgage
Corp., 5.64%, 8/04/97
(cost: $12,195) 12,195
- -------------------------------------------------
Total short-term (cost: $28,748) 28,748
- -------------------------------------------------
Total investments (cost: $591,447) $827,113
=================================================
- ------------------------
*Non-income producing.
Growth & Income Fund
Notes to Portfolio of Investments in Securities
July 31, 1997
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 3.5% of net assets at July 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.
<TABLE>
Growth & Income Fund
Statement of Operations
(In Thousands)
Year ended July 31, 1997
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $59):
Dividends $ 12,283
Interest 1,170
----------
Total income 13,453
----------
Expenses:
Management fees 3,380
Transfer agent's fees 1,121
Custodian's fees 124
Postage 136
Shareholder reporting fees 33
Directors' fees 4
Registration fees 153
Audit fees 29
Legal fees 3
Other 22
----------
Total expenses 5,005
----------
Net investment income 8,448
----------
Net realized and unrealized gain on investments:
Net realized gain 21,558
Change in net unrealized appreciation/depreciation 190,518
----------
Net realized and unrealized gain 212,076
----------
Increase in net assets resulting from operations $ 220,524
==========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Growth & Income Fund
Statements of Changes in Net Assets
(In Thousands)
Years ended July 31,
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
From operations:
Net investment income $ 8,448 $ 5,394
Net realized gain on investments 21,558 10,781
Change in net unrealized appreciation/depreciation
of investments 190,518 16,959
---------- ---------
Increase in net assets resulting from operations 220,524 33,134
---------- ---------
Distributions to shareholders from:
Net investment income (8,309) (5,122)
---------- ---------
Net realized gains (13,135) (2,449)
---------- ---------
From capital share transactions:
Proceeds from shares sold 320,646 174,833
Shares issued for dividends reinvested 20,964 7,355
Cost of shares redeemed (87,399) (44,440)
---------- ---------
Increase in net assets from capital share transactions 254,211 137,748
---------- ---------
Net increase in net assets 453,291 163,311
Net assets:
Beginning of period 371,801 208,490
---------- ---------
End of period $ 825,092 $ 371,801
========== =========
Undistributed net investment income included in net assets:
Beginning of period $ 432 $ 236
========== =========
End of period $ 571 $ 432
========== =========
Change in shares outstanding:
Shares sold 20,226 13,146
Shares issued for dividends reinvested 1,432 564
Shares redeemed (5,508) (3,353)
---------- ---------
Increase in shares outstanding 16,150 10,357
========== =========
Authorized shares of $.01 par value 75,000 50,000
========== =========
See accompanying notes to financial statements.
</TABLE>
Growth & Income Fund
Notes to Financial Statements
July 31, 1997
(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 ten separate
funds. The information presented in this annual 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 -- 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 13, 1998, one with USAA
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with NationsBank of Texas, N.A. ($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 its agreement with
CAPCO, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total
assets at CAPCO's borrowing rate with no markup. Subject to availability under
its agreement with NationsBank, the Fund may borrow from NationsBank an amount
which, when added to outstanding borrowings under the CAPCO agreement, does not
exceed 25% of the Fund's total assets at NationsBank's borrowing rate plus a
markup. The Fund had no borrowings under either of these agreements during the
year ended July 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 year
ended July 31, 1997 were $307,279,679 and $79,626,612, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
1997 was $235,956,617 and $290,244, 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 July
31, 1997 was $18,044.
(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>
Ten-Month Four-Month
Year Ended July 31, Period Ended Period Ended
---------------------------------- 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 .23 .24(a) .24(a) .17(a) .03
Net realized and
unrealized gain 5.84 1.51 1.81 .16 .20
Distributions from
net investment income (.23) (.23) (.23) (.18) -
Distributions of
realized capital gains (.45) (.13) (.11) (.02) -
--------- --------- --------- --------- ---------
Net asset value at
end of period $ 18.85 $ 13.46 $ 12.07 $ 10.36 $ 10.23
========= ========= ========= ========= =========
Total return (%) * 46.69 14.68 20.30 3.28 2.30
Net assets at
end of period (000) $ 825,092 $ 371,801 $ 208,490 $ 134,622 $ 69,606
Ratio of expenses to
average net assets (%) .89 .95 1.01 1.12(b) 1.63(b)
Ratio of net investment
income to average
net assets (%) 1.50 1.84 2.21 1.95(b) 1.87(b)
Portfolio turnover (%) 14.67 16.13 19.45 13.90 10.68
Average commission
rate paid per share+ $ .0494 $ .0493
</TABLE>
(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.
