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
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 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.
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 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 than their original cost.
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 1/31/97
Net Assets........................ $1,162.3 MILLION $1,384.7 MILLION
Net Asset Value Per Share......... $20.05 $19.76
Average Annual Total Returns as of 1/31/97
July 31, 1996 to January 31, 1997.........................18.99%+
1 Year...................................................20.19%
5 Years..................................................15.10%
10 Years..................................................12.27%
+ 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 1/31/87 to 1/31/97, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: the S&P 500 Index - $38,760 and the USAA Growth Fund - $31,827.]
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Growth 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.
MESSAGE FROM THE MANAGER
[A photo of David G. Parsons, CFA, Portfolio Manager, appears here.]
Strategy
The USAA Growth Fund is managed according to a contrarian principle of
investing. We seek companies that are out-of-favor with the market because we
believe that is generally where the best values are to be found. The Fund
primarily invests in out-of-favor growth companies and secondarily in
out-of-favor cyclical (1) and defensive companies. We seek out these stocks
by analyzing the future prospects of companies that have significantly
underperformed the market over the past one to three years.
In conformity with the above strategy, we have taken the following actions
during the past six months. Retail, restaurant, generic drug, biotechnology,
semiconductor, semiconductor equipment, and oil service companies have been
added to the portfolio. The Fund also acquired large positions in Pharmacia &
Upjohn and Cadbury Schweppes. These two companies are by far the most
out-of-favor, and we believe the best valued companies in their respective
industries - pharmaceuticals and soft drinks. Sales of some electric power and
integrated oil stocks and all of the personal computer companies, as well as
Intel, funded the above purchases.
(1) A company whose stock tends to rise quickly when the economy turns up and
to fall quickly when the economy turns down.
The Fund is heavily overweighted in semiconductor and semiconductor equipment,
tobacco, electric utility, gold mining, and trucking companies. It is somewhat
overweighted in oil and market weighted in healthcare. Almost one-half of the
healthcare weighting is in one stock, Pharmacia & Upjohn.
Top 10 Industries
(% of Net Assets)
Electronics Related 18.6
Oil Related 15.6
Tobacco 14.9
Healthcare Related 10.0
Electric Power 8.6
Gold Mining 8.1
Truckers 6.6
Retail Related 4.5
Restaurants 4.2
Beverages - Soft Drinks 2.2
Performance
The Fund did not have good performance relative to the S&P 500 Index (2) and
the Lipper Growth Fund Index (3) over the six-month reporting period ended
January 31, 1997. It underperformed both with a total return of 18.99% while
the S&P 500 and the Lipper Index returned 24.13% and 21.07%, respectively.
Most disappointing was gold mining with negative returns in a strong market.
The technology stocks had outstanding returns, far surpassing those of the
market. The other major components of the Fund generally experienced
positive, yet below market returns.
Outlook
The past six months have been a period when earnings momentum has reigned over
the market. It seems as though no price/earnings ratio has been too high to pay
for those companies with consistently high earnings growth. However, markets
change. What was once consistent becomes inconsistent and vice versa. The
Growth Fund is designed to take advantage of these swings in both the fortunes
of companies and the sentiment of the market.
(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 in the S&P 500 Index.
(3) Lipper Analytical Services is an independent organization that monitors
performance of mutual funds.
I have learned over the past year that when formerly contrarian stocks return to
the market's graces, their reception can last for several years. With this in
mind, I intend to be more patient with the winners.
Top 10 Equity Holdings
(% of Net Assets)
Pharmacia & Upjohn 4.0
RJR Nabisco 3.6
Philip Morris Companies 3.4
Micron Technology 2.8
Applied Materials 2.7
Lam Research 2.7
UST, Inc. 2.6
Novellus Systems 2.5
B.A.T. Industries 2.2
Cadbury Schweppes 2.2
See page 9 for a complete listing of the Portfolio of Investments in
Securities.
<TABLE>
Growth Fund
Statement of Assets and Liabilities
(In Thousands)
<CAPTION>
January 31, 1997
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value (identified cost of $1,217,632) $ 1,387,541
Cash 319
Receivables:
Capital shares sold 1,022
Dividends and interest 1,767
Securities sold 15,979
- ----------------------------------------------------------------------------------------------------------
Total assets 1,406,628
- ----------------------------------------------------------------------------------------------------------
Liabilities
Securities purchased 19,881
Capital shares redeemed 871
USAA Investment Management Company 867
USAA Transfer Agency Company 199
Accounts payable and accrued expenses 118
- ----------------------------------------------------------------------------------------------------------
Total liabilities 21,936
- ----------------------------------------------------------------------------------------------------------
Net assets applicable to capital shares outstanding $ 1,384,692
==========================================================================================================
Represented by:
Paid-in capital $ 1,167,532
Accumulated undistributed net investment income 710
Accumulated net realized gain on investments 46,541
Net unrealized appreciation of investments 169,909
- ----------------------------------------------------------------------------------------------------------
Net assets applicable to capital shares outstanding $ 1,384,692
==========================================================================================================
Capital shares outstanding 70,057
==========================================================================================================
Net asset value, redemption price, and offering price per share $ 19.76
==========================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Growth Fund
Portfolio of Investments in Securities
<CAPTION>
January 31, 1997
(Unaudited)
<C> <S> <C> Market
Number Value
of Shares Security (000)
Common Stocks (99.4%)
Airlines (0.6%)
400,000 Southwest Airlines Co. $ 8,800
- ---------------------------------------------------------------------------------------------------------
Beverages - Soft Drinks (2.2%)
1,000,000 Cadbury Schweppes plc ADR 30,875
- ---------------------------------------------------------------------------------------------------------
Biotechnology (1.7%)
800,000 Chiron Corp.* 14,900
300,000 Genzyme Corp.* 8,400
- ---------------------------------------------------------------------------------------------------------
23,300
- ---------------------------------------------------------------------------------------------------------
Chemicals (0.1%)
71,428 Millennium Chemicals, Inc.* 1,420
- ---------------------------------------------------------------------------------------------------------
Conglomerates (0.5%)
950,000 Hanson plc ADR 7,125
- ---------------------------------------------------------------------------------------------------------
Drugs (5.9%)
300,000 Bergen Brunswig Corp.* 8,925
800,000 Ivax Corp. 9,300
500,000 Mylan Laboratories, Inc. 8,188
1,485,000 Pharmacia & Upjohn, Inc. 55,316
- ---------------------------------------------------------------------------------------------------------
81,729
- ---------------------------------------------------------------------------------------------------------
Electric Power (8.6%)
268,900 Boston Edison Co. 7,294
407,000 Consolidated Edison Co. of New York, Inc. 12,617
1,086,000 Edison International 23,213
438,000 Enova Corp. 9,800
483,400 New York State Electric & Gas Corp. 10,998
2,000,000 Niagara Mohawk Power Corp.* 20,250
800,000 Northeast Utilities 10,500
717,000 Pacific Gas & Electric Co. 16,312
200,000 PECO Energy Co. 4,600
120,000 Public Service Enterprise Group, Inc. 3,285
- ---------------------------------------------------------------------------------------------------------
118,869
- ---------------------------------------------------------------------------------------------------------
Electronics - Instrumentation (5.8%)
510,000 KLA Instruments Corp.* 21,739
927,400 Lam Research Corp.* 37,444
700,000 Teradyne, Inc.* 21,612
- ---------------------------------------------------------------------------------------------------------
80,795
- ---------------------------------------------------------------------------------------------------------
Electronics - Semiconductors (12.8%)
500,000 Advanced Micro Devices, Inc.* 17,500
290,532 Analog Devices, Inc.* 8,389
755,000 Applied Materials, Inc.* 37,278
180,000 LSI Logic Corp.* 6,255
1,100,000 Micron Technology, Inc. 38,225
200,000 Motorola, Inc. 13,650
440,000 Novellus Systems, Inc.* 34,870
275,000 Texas Instruments, Inc. 21,553
- ---------------------------------------------------------------------------------------------------------
177,720
- ---------------------------------------------------------------------------------------------------------
Gaming Companies (1.2%)
930,000 International Game Technology 16,507
- ---------------------------------------------------------------------------------------------------------
Gold Mining (8.1%)
2,576,600 Battle Mountain Gold Co. 16,748
1,000,000 Coeur D'Alene Mines Corp.* 15,250
850,000 Driefontein Consolidated Ltd. ADR 7,729
373,000 Freeport-McMoRan Copper & Gold, Inc. 10,724
765,000 Hecla Mining Co.* 4,399
1,200,000 Homestake Mining Co. 16,950
800,000 Kloof Gold Mining Co. Ltd. ADR 5,800
350,000 Newmont Mining Corp. 13,956
1,030,000 Vaal Reefs Exploration & Mining Ltd. ADR 6,888
434,900 Western Deep Levels Ltd. ADR 13,156
- ---------------------------------------------------------------------------------------------------------
111,600
- ---------------------------------------------------------------------------------------------------------
Healthcare - Diversified (1.5%)
250,000 Warner-Lambert Co. 20,125
- ---------------------------------------------------------------------------------------------------------
Manufacturing - Diversified Industries (1.0%)
356,200 Hillenbrand Industries, Inc. 13,803
- ---------------------------------------------------------------------------------------------------------
Medical Products & Supplies (0.9%)
372,000 Bausch & Lomb, Inc. 12,602
- ---------------------------------------------------------------------------------------------------------
Oil - Domestic (5.3%)
200,000 Amerada Hess Corp. 11,800
185,000 Atlantic Richfield Co. 24,466
400,000 Occidental Petroleum Corp. 10,200
150,000 Pennzoil Co. 9,356
400,000 Unocal Corp. 16,850
- ---------------------------------------------------------------------------------------------------------
72,672
- ---------------------------------------------------------------------------------------------------------
Oil - Exploration & Production (2.7%)
105,000 3-D Geophysical, Inc.* 1,063
400,000 Apache Corp. 15,350
300,000 Burlington Resources, Inc. 14,925
285,000 Union Texas Petroleum Holdings, Inc. 6,056
- ---------------------------------------------------------------------------------------------------------
37,394
- ---------------------------------------------------------------------------------------------------------
Oil - International (3.7%)
118,548 British Petroleum Co. plc ADR 16,790
275,000 Chevron Corp. 18,253
150,000 Texaco, Inc. 15,881
- ---------------------------------------------------------------------------------------------------------
50,924
- ---------------------------------------------------------------------------------------------------------
Oil & Gas Drilling (0.5%)
50,000 Falcon Drilling Co., Inc.* 1,881
85,700 Transocean Offshore, Inc. 5,614
- ---------------------------------------------------------------------------------------------------------
7,495
- ---------------------------------------------------------------------------------------------------------
Oil Well Equipment & Service (3.4%)
100,000 Baker Hughes, Inc. 3,900
30,000 Ensco International, Inc.* 1,654
230,000 Halliburton Co. 16,646
570,000 Input/Output, Inc. 13,537
50,000 Noble Drilling Corp. 1,094
30,000 Schlumberger Ltd. 3,334
120,000 Tidewater, Inc. 5,640
20,000 Western Atlas, Inc. 1,357
- ---------------------------------------------------------------------------------------------------------
47,162
- ---------------------------------------------------------------------------------------------------------
Paper & Forest Products (1.2%)
80,000 Rayonier, Inc. 2,990
408,600 Schweitzer-Mauduit International, Inc. 13,841
- ---------------------------------------------------------------------------------------------------------
16,831
- ---------------------------------------------------------------------------------------------------------
Pollution Control (1.5%)
50,000 Browning-Ferris Industries, Inc. 1,625
510,000 WMX Technologies, Inc. 18,679
- ---------------------------------------------------------------------------------------------------------
20,304
- ---------------------------------------------------------------------------------------------------------
Restaurants (4.2%)
571,500 Apple South, Inc. 8,501
1,200,000 Brinker International, Inc.* 13,050
800,000 Lone Star Steakhouse & Saloon, Inc.* 21,100
500,000 Outback Steakhouse, Inc.* 11,438
658,000 Taco Cabana, Inc. "A"* 3,619
- ---------------------------------------------------------------------------------------------------------
57,708
- ---------------------------------------------------------------------------------------------------------
Retail - Department Stores (1.6%)
220,000 May Department Stores Co. 9,790
350,000 Nordstrom, Inc. 12,994
- ---------------------------------------------------------------------------------------------------------
22,784
- ---------------------------------------------------------------------------------------------------------
Retail - Food Chains (0.6%)
250,000 Great Atlantic & Pacific Tea Co., Inc. 7,813
- ---------------------------------------------------------------------------------------------------------
Retail - General Merchandising (1.2%)
350,000 J.C. Penney Company, Inc. 16,581
- ---------------------------------------------------------------------------------------------------------
Retail - Specialty (1.1%)
350,000 Tandy Corp. 15,837
- ---------------------------------------------------------------------------------------------------------
Tobacco (14.9%)
1,950,000 B.A.T. Industries plc ADR 30,956
714,550 Dimon, Inc. 16,971
250,000 Imperial Tobacco Group plc ADR* 3,234
390,000 Philip Morris Companies, Inc. 46,361
1,500,292 RJR Nabisco Holdings Corp. 49,135
758,300 Universal Corp. 23,507
1,185,000 UST, Inc. 36,439
- ---------------------------------------------------------------------------------------------------------
206,603
- ---------------------------------------------------------------------------------------------------------
Truckers (6.6%)
125,000 Amerco* 4,625
375,000 American Freightways Corp.* 5,016
250,000 Arnold Industries, Inc. 3,500
350,100 Caliber System, Inc. 7,702
300,000 Consolidated Freightways Corp.* 2,625
580,000 Consolidated Freightways, Inc. 14,717
255,938 Heartland Express, Inc.* 6,382
350,000 J.B. Hunt Transport Services, Inc. 4,900
250,000 Landstar System, Inc.* 5,938
351,500 M.S. Carriers, Inc.* 5,624
139,800 Roadway Express, Inc. 2,866
187,500 Swift Transportation Co., Inc.* 4,852
351,300 US Freightways Corp. 8,914
382,500 Werner Enterprises, Inc. 6,885
402,000 Yellow Corp.* 6,884
- ---------------------------------------------------------------------------------------------------------
91,430
- ---------------------------------------------------------------------------------------------------------
Total common stocks (cost: $1,206,899) 1,376,808
- ---------------------------------------------------------------------------------------------------------
Principal
Amount
(000)
Short-Term (0.8%)
Commercial Paper
$ 10,736 Household Finance Corp., 5.50%, 2/03/97 (cost: $10,733) 10,733
- ---------------------------------------------------------------------------------------------------------
Total investments (cost: $1,217,632) $ 1,387,541
=========================================================================================================
- --------------------------------
*Non-income producing.
</TABLE>
Growth 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 9.1% 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.
<TABLE>
Growth Fund
Statement of Operations
(In Thousands)
<CAPTION>
Six-month period ended January 31, 1997
(Unaudited)
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $252):
Dividends $ 17,525
Interest 445
- ---------------------------------------------------------------------------------------------------------
Total income 17,970
- ---------------------------------------------------------------------------------------------------------
Expenses:
Management fees 4,793
Transfer agent's fees 1,166
Custodian's fees 94
Postage 105
Shareholder reporting fees 45
Directors' fees 2
Registration fees 103
Audit fees 15
Legal fees 3
Other 17
- ---------------------------------------------------------------------------------------------------------
Total expenses 6,343
- ---------------------------------------------------------------------------------------------------------
Net investment income 11,627
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments:
Net realized gain 69,612
Change in net unrealized appreciation/depreciation 140,136
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 209,748
- ---------------------------------------------------------------------------------------------------------
Increase in net assets resulting from operations $ 221,375
=========================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Growth Fund
Statement of Changes in Net Assets
(In Thousands)
<CAPTION>
Six-month period ended January 31, 1997
and Year ended July 31, 1996
(Unaudited)
<S> <C>
1/31/97 7/31/96
From operations:
Net investment income $ 11,627 $ 18,632
Net realized gain on investments 69,612 180,403
Change in net unrealized appreciation/depreciation of
investments 140,136 (79,937)
------------- --------------
Increase in net assets resulting from operations 221,375 119,098
------------- --------------
Distributions to shareholders from:
Net investment income (21,643) (15,339)
------------- --------------
Net realized gains (190,389) (49,084)
------------- --------------
From capital share transactions:
Proceeds from shares sold 98,846 277,684
Shares issued for dividends reinvested 209,548 63,058
Cost of shares redeemed (95,307) (155,976)
------------- --------------
Increase in net assets from capital share transactions 213,087 184,766
------------- --------------
Net increase in net assets 222,430 239,441
Net assets:
Beginning of period 1,162,262 922,821
------------- --------------
End of period $ 1,384,692 $ 1,162,262
============= ==============
Undistributed net investment income included in net assets:
Beginning of period $ 10,726 $ 7,433
============= ==============
End of period $ 710 $ 10,726
============= ==============
Change in shares outstanding:
Shares sold 5,195 13,979
Shares issued for dividends reinvested 11,928 3,371
Shares redeemed (5,038) (7,794)
------------- ---------------
Increase in shares outstanding 12,085 9,556
============= ===============
Authorized shares of $.01 par value 100,000 75,000
============= ===============
See accompanying notes to financial statements.
</TABLE>
Growth 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 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.
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 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.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the
six-month period ended January 31, 1997 were $412,995,628 and $398,857,982,
respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1997 was $236,235,475 and $66,326,299, 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 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 six-month
period ended January 31, 1997 was $87,280.
(6) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At January 31, 1997, the Association and its affiliates
owned 1,452,929 shares (2.1%) of the Fund.
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 any compensation from the Fund.
<TABLE>
<CAPTION>
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<S> <C> <C> <C> <C> <C>
Six-Month Ten-Month
Period Ended Period Ended Year Ended
January 31, Year Ended July 31, July 31, September 30,
1997 1996 1995 1994 1993 1992
Net asset value at
beginning of period $ 20.05 $ 19.06 $ 17.63 $ 19.76 $ 17.49 $ 16.28
Net investment income .17 .33 .26 .19 .19 .36
Net realized and
unrealized
gain (loss) 3.09 1.92 3.95 (.17) 2.67 1.26
Distributions from
net investment
income (.34) (.29) (.27) (.16) (.32) (.41)
Distributions of realized
capital gains (3.21) (.97) (2.51) (1.99) (.27) -
-------------- ----------- ------------ ------------ -------- -----------
Net asset value at
end of period $ 19.76 $ 20.05 $ 19.06 $ 17.63 $ 19.76 $ 17.49
============== ============ ============ ============ =========== ===========
Total return (%) * 18.99 12.44 26.46 .31 16.77 10.17
Net assets at end
of period (000) $ 1,384,692 $ 1,162,262 $ 922,821 $ 618,685 $ 605,457 $ 432,125
Ratio of expenses
to average
net assets (%) .99(a) 1.01 1.04 1.04(a) 1.07 1.07
Ratio of net investment
income to average
net assets (%) 1.82(a) 1.70 1.63 1.33(a) 1.07 2.27
Portfolio turnover (%) 31.93 62.30 69.64 117.80 96.19 39.39
Average commission
rate paid per share+ $ .050 $ .050
</TABLE>
(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.
+ 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.
