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 7
Portfolio of Investments in Securities 8
Notes to Portfolio of Investments in Securities 13
Statement of Operations 14
Statements of Changes in Net Assets 15
Notes to Financial Statements 16
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 Short-Term
Bond 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
SHORT-TERM BOND FUND
OBJECTIVE: High current income consistent with preservation of principal.
TYPES OF INVESTMENTS: A broad range of investment-grade debt securities.
7/31/96 1/31/97
Net Assets............................... $101.0 MILLION 115.5 MILLION
Net Asset Value Per Share................ $9.79 $9.93
The 30-Day SEC Yield, calculated as prescribed by the Securities and
Exchange Commission, was 6.21% based on the January 31, 1997 offering
price. On that date, the weighted average maturity of the portfolio was
2.4 years.
Average Annual Total Returns as of 1/31/97
July 31, 1996 to January 31, 1997....................................4.63%+
1 Year...............................................................6.37%
Since inception on June 1, 1993......................................5.64%
+ 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: Lehman
Brothers 1-3 Yr. Govt./Corp. Index - $12,124, USAA Short-Term Bond Fund -
$12,234 and the Lipper Short Investment Grade Debt Avg. - $11,993.]
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Short-Term Bond Fund to the broad-based Lehman Brothers 1-3 Year
Government/Corporate Index and the Lipper Short Investment Grade Debt Funds
Average. The Lehman Index is an unmanaged index made up of government, agency,
and corporate bonds longer than one year and less than three years. The Lipper
Average is the average performance level of all Short Investment Grade Debt
Funds, as reported by Lipper Analytical Services, an independent organization
that monitors the performance of mutual funds.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No
adjustment has been made for taxes payable by shareholders on
their reinvested income dividends and capital gain distributions.
The performance data quoted represent past performance and are not an
indication of future results. Investment return and principal value of an
investment will fluctuate, and an investor's shares, when redeemed, may be worth
more or less than their original cost.
Message from the Manager
[Photograph of Paul H. Lundmark, CFA, appears here]
The Last Six Months
Since the last report on July 31, 1996, interest rates fell as investors became
more comfortable with the economic environment of low inflation and moderate
growth. This scenario lessened the perceived need for the Federal Reserve to
raise overnight rates.(1)
Portfolio Strategies
No significant changes have been made to the maturity of the Fund. My focus
remains on investments that will provide attractive yields and returns. I
continue to hold a significant position in BBB-rated bonds. Investor demand is
still strong for these securities because of their higher yields, so there
remains potential for them to perform relatively well. I also continue to hold a
significant position in variable rate demand notes(2) for their price stability.
Performance
While past performance is no guarantee of future results, for the twelve months
ending January 31, 1997, your Fund's total return of 6.37% ranked 4 out of 94
funds in the Lipper Short Investment Grade Debt Funds category.(3) Positive
developments at Caremark, Kmart, Corporacion Andina De Fomento, and
Franchise Finance contributed to the good relative performance. However, be
assured that I do not rest on my laurels and continue to look for and hold
securities which I believe will perform well.
Outlook
I want to reiterate from previous reports that it is impossible to predict the
future course of interest rates. No one, over time, has demonstrated consistent
prediction of the direction of interest rates. Instead, the Fund attempts
to provideattractive yields balanced with minimal price volatility.
(1) The overnight rate is the federal funds rate, or the rate banks charge each
for overnight loans.
(2) A variable rate demand note represents borrowings payable on demand and
bearing interest tied to a money market fund.
(3) Lipper Analytical Services is an independent organization that monitors
performance of mutual funds.
[A pie chart is shown here depicting the Portfolio Mix as of January 31, 1997
of the USAA Short-Term Bond Fund to be: Variable Rate Demand Notes - 33.8%,
U.S. Government Issues - 3.1%, Bonds/Notes - 60.8% and Commercial Paper -
1.1%]
Percentages are of Net Assets and may or may not be equal to 100%.
See page 9 for a complete listing of the Portfolio of Investments in Securities.
<TABLE>
<CAPTION>
Short-Term Bond Fund
Statement of Assets and Liabilities
(In Thousands)
January 31, 1997
<S> <C>
Assets
Investments in securities, at market value (identified cost of $114,010) $ 114,054
Cash 55
Receivables:
Capital shares sold 160
Interest 1,571
- - -------------------------------------------------------------------------------------------------------
Total assets 115,840
- - -------------------------------------------------------------------------------------------------------
Liabilities
Capital shares redeemed 184
USAA Investment Management Company 65
USAA Transfer Agency Company 21
Accounts payable and accrued expenses 31
Dividends on capital shares 80
- - -------------------------------------------------------------------------------------------------------
Total liabilities 381
- - -------------------------------------------------------------------------------------------------------
Net assets applicable to capital shares outstanding $ 115,459
=======================================================================================================
Represented by:
Paid-in capital $ 115,393
Accumulated net realized gain on investments 22
Net unrealized appreciation of investments 44
- - -------------------------------------------------------------------------------------------------------
Net assets applicable to capital shares outstanding $ 115,459
=======================================================================================================
Capital shares outstanding 11,630
=======================================================================================================
Net asset value, redemption price, and offering price per share $ 9.93
=======================================================================================================
See accompanying notes to financial statements.
</TABLE>
Short-Term Bond Fund
Categories and Definitions
Portfolio of Investments in Securities
January 31, 1997
(Unaudited)
Fixed Rate Instruments -- consist of bonds and notes. The interest rate is
constant to maturity. Prior to maturity, the price of a fixed-rate instrument
generally varies inversely to the movement of interest rates.
Variable Rate Demand Notes (VRDN) -- provide the right, on any business
day, to sell the security for face value on either that day or within 30 days.
The interest rate is adjusted at a stipulated daily, weekly, or monthly interval
to a rate that reflects current market conditions. The VRDN's effective maturity
is the next put date. Most VRDNs possess a credit enhancement.
U.S. Government Issues -- consist of negotiable debt obligations of the U.S.
government, secured by its full faith and credit.
Cash Equivalents -- consist of short-term obligations issued by banks,
corporations, and U.S. Government Agencies. The interest rate is constant to
maturity.
Credit Enhancement (CRE) -- adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal when due. The
enhancement may be provided by either a high quality bank, insurance company, or
other corporation, or a collateral trust. Typically, the rating agencies
evaluate the security based upon the credit standing of the provider of the
credit enhancement, rather than the credit standing of the issuer.
<TABLE>
Short-Term Bond Fund
Portfolio of Investments in Securities
(In Thousands)
<CAPTION>
Prinicpal Coupon Market
Amount Security Rate Maturity Value
-------- -------- ---- -------- -----
Fixed Rate Instruments (60.8%)
<S> <C> <C> <C> <C> <C>
Bank Holding Companies - Other Major
$ 4,000 Provident Bank, Bank Notes 6.13% 12/15/00 $ 3,918
- - -----------------------------------------------------------------------------------------------------
Banks
- - -----------------------------------------------------------------------------------------------------
4,000 Advanta National Bank, Bank Notes 6.45 10/30/00 3,947
5,000 Capital One Bank, Bank Notes 5.95 2/15/01 4,854
4,500 Corporacion Andina De Fomento,
Global Bonds 7.38 7/21/00 4,608
- - -----------------------------------------------------------------------------------------------------
13,409
- - -----------------------------------------------------------------------------------------------------
Broadcasters
- - -----------------------------------------------------------------------------------------------------
5,000 Tele-Communications, Inc., Senior Notes 7.38 2/15/00 5,056
- - -----------------------------------------------------------------------------------------------------
Electronics - Instrumentation
- - -----------------------------------------------------------------------------------------------------
4,000 Tektronix, Inc., Notes 7.63 8/15/02 4,108
- - -----------------------------------------------------------------------------------------------------
Entertainment
- - -----------------------------------------------------------------------------------------------------
4,500 Time Warner, Inc., Global Notes 7.45 2/01/98 4,559
- - -----------------------------------------------------------------------------------------------------
Finance - Business/Commercial
- - -----------------------------------------------------------------------------------------------------
3,500 Great Lakes Power, Inc., Notes 8.90 12/01/99 3,695
- - -----------------------------------------------------------------------------------------------------
Real Estate Investment Trusts
- - -----------------------------------------------------------------------------------------------------
3,000 Developers Diversified Realty Corp.,
Senior Notes 7.63 5/15/00 3,069
4,500 Franchise Finance Corp. of America,
Senior Notes 7.00 11/30/00 4,498
3,000 Nationwide Health Properties, Inc., MTN 8.61 3/01/02 3,186
5,000 Oasis Residential, Inc., Notes 6.75 11/15/01 4,943
4,500 TriNet Corporate Realty Trust, Inc., Notes 7.30 5/15/01 4,553
- - -----------------------------------------------------------------------------------------------------
20,249
- - -----------------------------------------------------------------------------------------------------
Retail - General Merchandising
- - -----------------------------------------------------------------------------------------------------
2,000 Kmart Corp., MTN 7.72 6/25/02 1,900
2,000 Kmart Corp., MTN 7.76 7/01/02 1,903
- - -----------------------------------------------------------------------------------------------------
3,803
- - -----------------------------------------------------------------------------------------------------
Special Assessment/Tax/Fee
- - -----------------------------------------------------------------------------------------------------
5,000 New York, Dormitory Auth. Bonds,
Series 1996 6.63% 10/01/00 5,015
- - -----------------------------------------------------------------------------------------------------
Tobacco
- - -----------------------------------------------------------------------------------------------------
1,300 Empresas La Moderna S.A. de C.V., Notes 10.25 11/12/97 1,332 (a)
5,000 RJR Nabisco, Inc., Notes 8.00 7/15/01 5,030
- - -----------------------------------------------------------------------------------------------------
6,362
- - -----------------------------------------------------------------------------------------------------
Total fixed rate instruments (cost: $70,138) 70,174
- - -----------------------------------------------------------------------------------------------------
Variable Rate Demand Notes (33.8%)
- - -----------------------------------------------------------------------------------------------------
Automobiles
3,000 Alabama IDA RB, Series 1994 (CRE) 5.73 11/01/14 3,000 (a)
- - -----------------------------------------------------------------------------------------------------
Buildings
- - -----------------------------------------------------------------------------------------------------
2,710 Erie Funding I, Notes (CRE) 5.70 11/01/16 2,710
2,490 Montgomery, AL, Industrial Development
Board RB, Series 1996C (CRE) 5.85 7/01/16 2,490
675 New Jersey Economic Development Auth.
Bonds, Series 1996A2 (CRE) 5.85 11/01/16 675
600 New Jersey Economic Development Auth.
Bonds, Series 1996D2 (CRE) 5.85 11/01/06 600
1,625 Scottsboro, AL, Industrial Development
Board RB, Series 1995 (CRE) 5.85 10/01/10 1,625
- - -----------------------------------------------------------------------------------------------------
8,100
- - -----------------------------------------------------------------------------------------------------
Chemicals
- - -----------------------------------------------------------------------------------------------------
2,595 Upper Illinois River Valley Development
Auth. RB, Series 1996B (CRE) 5.70 12/01/21 2,595
- - -----------------------------------------------------------------------------------------------------
Electrical Equipment
- - -----------------------------------------------------------------------------------------------------
950 APSCO, Inc., Notes, Series 1996 (CRE) 5.75 9/01/03 950
- - -----------------------------------------------------------------------------------------------------
Entertainment
- - -----------------------------------------------------------------------------------------------------
3,880 Denver, CO, Urban Renewal Auth. Tax
Increment RB, Series 1992B (CRE) 5.70 9/01/11 3,880
- - -----------------------------------------------------------------------------------------------------
Heavy Duty Trucks & Parts
- - -----------------------------------------------------------------------------------------------------
3,110 Missouri Economic Development Export
IDA RB, Series 1993B (CRE) 6.05 6/01/08 3,110
- - -----------------------------------------------------------------------------------------------------
Hospitals
- - -----------------------------------------------------------------------------------------------------
4,000 Tolfree Memorial Hospital Corp., RB,
Series 1996C (CRE) 5.64 9/15/18 4,000
- - -----------------------------------------------------------------------------------------------------
Hotel/Motel
- - -----------------------------------------------------------------------------------------------------
2,640 Birmingham, AL, Historical Preservation
Auth. Taxable RB, Series 1993 (CRE) 6.10 5/01/18 2,640
3,270 Rockside Road Properties, Notes,
Series 1995 (CRE) 5.70 7/01/10 3,270
- - -----------------------------------------------------------------------------------------------------
5,910
- - -----------------------------------------------------------------------------------------------------
Multi-Family Housing
- - -----------------------------------------------------------------------------------------------------
640 Bartlett, IL, MFH RB, Series 1995 (CRE) 6.10 3/01/25 640
4,400 Continental Valorem Corp., DEB,
Series 1988 (CRE) 5.95 6/01/13 4,400
- - -----------------------------------------------------------------------------------------------------
5,040
- - -----------------------------------------------------------------------------------------------------
Real Estate
- - -----------------------------------------------------------------------------------------------------
2,475 Wynrose, Inc., Notes, Series 1995A (CRE) 5.85 11/01/05 2,475
- - -----------------------------------------------------------------------------------------------------
Total variable rate demand notes (cost: $39,060) 39,060
- - -----------------------------------------------------------------------------------------------------
U.S. Government Issues (3.1%)
- - -----------------------------------------------------------------------------------------------------
U.S. Treasury
3,500 U.S. Treasury Notes (cost: $3,570) 7.00 4/15/99 3,578
- - -----------------------------------------------------------------------------------------------------
Cash Equivalents (1.1%)
- - -----------------------------------------------------------------------------------------------------
Commercial Paper
1,243 MCN Investment Corp. (cost: $1,242) 5.57 2/03/97 1,242 (a)
- - -----------------------------------------------------------------------------------------------------
Total investments (cost: $114,010) $ 114,054
=====================================================================================================
</TABLE>
Portfolio Summary By Industry
Real Estate Investment Trusts 17.5%
Banks 11.6
Entertainment 7.3
Buildings 7.0
Tobacco 5.5
Hotel/Motel 5.1
Broadcasters 4.4
Multi-Family Housing 4.4
Special Assessment/Tax/Fee 4.3
Electronics - Instrumentation 3.6
Hospitals 3.5
Bank Holding Companies - Other Major 3.4
Retail - General Merchandising 3.3
Finance - Business/Commercial 3.2
U.S. Treasury 3.1
Heavy Duty Trucks & Parts 2.7
Automobiles 2.6
Chemicals 2.3
Real Estate 2.1
Commercial Paper 1.1
Electrical Equipment .8
----
Total 98.8%
====
Short-Term Bond 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 8.3% of net assets at January 31, 1997.
Portfolio Description Abbreviations
CRE Credit Enhanced
DEB Debentures
IDA Industrial Development Authority/Agency
MFH Multi-Family Housing
MTN Medium-Term Note
RB Revenue Bond
Specific Notes
(a) Security is exempt from registration by Rule 144A under the Securities Act
of 1933 and has been determined to be liquid by management. Any resale of this
security in the United States may occur in an exempt transaction to a qualified
institutional buyer as defined by the Rule.
See accompanying notes to financial statements.
Short-Term Bond Fund
Statement of Operations
(In Thousands)
Six-month period ended January 31, 1997
(Unaudited)
Net investment income:
Interest income $ 3,563
-------
Expenses:
Management fees 130
Transfer agent's fees 121
Custodian's fees 29
Postage 9
Shareholder reporting fees 6
Directors' fees 2
Registration fees 19
Audit fees 14
Legal fees 2
Other 3
-------
Total expenses before reimbursement 335
Expenses reimbursed (65)
-------
Total expenses after reimbursement 270
-------
Net investment income 3,293
-------
Net realized and unrealized gain on investments:
Net realized gain 451
Change in net unrealized appreciation/depreciation 1,083
-------
Net realized and unrealized gain 1,534
-------
Increase in net assets resulting from operations $ 4,827
=======
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Short-Term Bond 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 $ 3,293 $ 5,732
Net realized gain on investments 451 180
Change in net unrealized appreciation/depreciation of
investments 1,083 (1,033)
--------- ----------
Increase in net assets resulting from operations 4,827 4,879
--------- ----------
Distributions to shareholders from:
Net investment income (3,293) (5,732)
--------- ----------
Net realized gains (52) -
--------- ----------
From capital share transactions:
Proceeds from shares sold 33,817 70,903
Shares issued for dividends reinvested 2,861 4,971
Cost of shares redeemed (23,733) (50,179)
--------- ----------
Increase in net assets from capital share transactions 12,945 25,695
--------- ----------
Net increase in net assets 14,427 24,842
Net assets:
Beginning of period 101,032 76,190
-------- ---------
End of period $ 115,459 $ 101,032
======== =========
Change in shares outstanding:
Shares sold 3,419 7,189
Shares issued for dividends reinvested 289 505
Shares redeemed (2,401) (5,093)
-------- ---------
Increase in shares outstanding 1,307 2,601
======== =========
Authorized shares of $.01 par value 25,000 25,000
======== =========
See accompanying notes to financial statements.
</TABLE>
Short-Term Bond 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 Short-Term
Bond Fund (the Fund). The Fund's investment objective is high current income
consistent with preservation 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. Debt and government securities are valued each business day by a pricing
service (the Service) approved by the Fund's Board of Directors. The Service
uses the mean between quoted bid and asked prices or the last sale price to
price securities when, in the Service's judgement, these prices are readily
available and are representative of the securities' market values. For many
securities, such prices are not readily available. The Service generally prices
these securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity and type,
indications as to values from dealers in securities, and general market
conditions.
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. Interest income is recorded on the accrual basis.
Discounts and premiums on 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 which only 5%
may be borrowed from CAPCO, of its total assets at the lending institution's
borrowing rate plus a markup. The Fund had no borrowings under either of
these agreements during the six-month period ended January 31, 1997.
(3) Distributions
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. All net investment income available for distribution was
distributed at January 31, 1997. 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 $21,084,636 and $13,039,347,
respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1997 was $575,090 and $531,068, 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 .24% of its annual average
net assets.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
.50% 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.
(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 $ 9.79 $ 9.87 $ 9.74 $ 10.08 $ 10.00
Net investment income .30 .62 .61 .37 .14
Net realized and
unrealized gain (loss) .15 (.08) .13 (.33) .08
Distributions from
net investment income (.30) (.62) (.61) (.37) (.14)
Distributions of
realized capital gains (.01) - - (.01) -
---------- ---------- -------- -------- ---------
Net asset value
at end of period $ 9.93 $ 9.79 $ 9.87 $ 9.74 $ 10.08
========== ========== ======== ======== =========
Total return (%) * 4.63 5.62 7.90 .39 2.19
Net assets at end
of period (000) $ 115,459 $ 101,032 $ 76,190 $ 48,228 $ 25,679
Ratio of expenses to
average net assets (%) .50(a,b) .50(b) .50(b) .50(a,b) .50(a,b)
Ratio of net investment
income to average
net assets (%) 6.10(a,b) 6.29(b) 6.34(b) 4.51(a,b) 4.21(a,b)
Portfolio turnover (%) 19.39 66.81 103.02 142.08 32.49
(a) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(b) The information contained in the above table is based on actual expenses
for the period, after giving effect to reimbursement of expenses by the
Manager. Absent such reimbursement the Fund's ratios would have been:
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
---- ---- ---- ---- ----
Ratio of expenses to
average net assets (%) .62(a) .66 .74 .87(a) 1.57(a)
Ratio of net investment
income to average
net assets (%) 5.98(a) 6.13 6.10 4.14(a) 3.14(a)
* Assumes reinvestment of all dividend income and capital gain distributions during the period.
** Fund commenced operations June 1, 1993.
</TABLE>
