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 12
Statement of Operations 13
Statements of Changes in Net Assets 14
Notes to Financial Statements 15
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)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
--------- ---------- ----------
CAPITAL APPRECIATION
=============================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 Index(2) Moderate $3,000
Science
& Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
ASSET ALLOCATION
=============================================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME - TAXABLE
============================================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
============================================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
MONEY MARKET
==========================================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) 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.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) 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.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart(Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. 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.
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,
and may lose value.
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.
Message from the President
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH,
CFA, APPEARS HERE]
"We are now ready to
move to another plateau."
Back in 1980 we began to craft a family of mutual funds that would allow an
investor to create a diversified portfolio suited to an individual's appetite
for risk. In 1984 we started a brokerage service because we thought some members
might want that. The two have grown beyond our dreams. Our fund family now
offers 35 investment choices and our Brokerage Service has become a very
significant presence in its industry. We are now ready to move to another
plateau.
As I write this message, the USAA Investment Management Company is in the
process of ending our long and mutually rewarding relationship with BHC
Securities, and taking on all of the responsibilities of running our Brokerage
Service. The term for this is "self-clearing." It includes our own seat on the
Chicago Stock Exchange. Shortly after we achieve self-clearing, we shall also
move our mutual fund accounts off of an internal system and onto the facilities
of DST Systems, a Kansas City company that processes very much of the mutual
fund industry's transactions. These two moves will greatly improve our ability
to offer you better service.
Our goal is to give you a single investment account which can hold, track and
report to you on almost any type of investment you wish to make. It will offer
features such as low-cost loans based upon your investments,(1) easy movement of
funds,(2) and a single statement. It will also be tied to other USAA services
such as banking, fixed and variable annuities and property and casualty and life
insurance. We will make this the only investment account you will need. You'll
be hearing more on this in coming months.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company (IMCO), including charges and expenses,
please call for a prospectus. Read it carefully before you invest.
USAA Brokerage Services is a discount brokerage service of USAA IMCO, a member
of the NASD.
(1) Margin borrowing allows you to buy securities using funds that we will loan
you for payment. It can serve as a low-interest loan which can be used for
any purpose. Not all securities can be margined, however. Margin borrowing
involves additional risks.
(2) An investor should consider the fluctuating values of securities.
Investment Review
GROWTH & INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMENTS: Primarily dividend-paying common stocks.
- -------------------------------------------------------------------------------
7/31/97 1/31/98
===============================================================================
Net Assets $825.1 Million $950.7 Million
Net Asset Value Per Share $18.85 $18.13
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/98
===============================================================================
7/31/97 to 1/31/98 1 Year Since Inception on 6/1/93
.31%(+) 19.86% 17.68%
- -------------------------------------------------------------------------------
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
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 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 from 06/1/93 to 01/31/98.
The data points from the graph are as follows:
USAA GROWTH & S&P 500 LIPPER GROWTH &
INCOME FUND Index INCOME FUNDS AVERAGE
---------- -------- --------------------
06/1/93 10,000 10,000 10,000
12/93 10,481 10,526 10,641
06/94 10,158 10,170 10,285
12/94 10,616 10,664 10,561
06/95 12,311 12,817 12,328
12/95 13,967 14,667 13,863
06/96 15,259 16,146 15,109
12/96 17,186 18,032 16,744
06/97 20,032 21,746 19,451
12/97 21,662 24,046 21,402
1/31/98 21,449 24,312 21,427
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]
ECONOMIC OUTLOOK
The first six months of the current fiscal year have proven to be a period of
dramatic change in the overall economic and investment outlook. The most
prominent economic event was the financial crisis in Southeast Asia. This crisis
was brought about by a combination of over-borrowing by many Southeast Asian
companies and investments by various companies and countries in uneconomic
projects. Most Southeast Asian currencies underwent significant declines. This
has now resulted in a shift of economic focus away from inflation concerns
towards concerns with deflation.
As a result of the aforementioned financial crisis, the U.S. investment market
has shifted to focusing on companies with primarily domestic earnings and
earnings growth, while the focus has turned away from commodity oriented
companies and ones with significant business in Southeast Asia. Our response to
the shift in investment themes is to use the value approach to our advantage.
Thus we have added investments in selected commodity oriented stocks (oil & gas
and metals), the stocks of aerospace-related companies, and the shares of
selected companies where the market has overreacted to Southeast Asian concerns.
We have also reduced our exposure to selected companies and industries where we
believe the market is overpaying for domestic earnings.
FUND PERFORMANCE
Fund performance of the Growth & Income Fund over the latest six months was
hindered by exposure to the aerospace industry (Boeing), chemicals (B.F.
Goodrich), commodity metals and energy (Alcoa, Titanium Metals, Exxon, Unocal,
Apache Corp., Halliburton, and Helmerich and Payne), Health Maintenance
Organizations (Humana and Pacificare), and insurance (Aetna). The problems
associated with aerospace and commodities were previously mentioned, while HMO's
experienced cost control problems. In most all cases, the Fund's holdings in
these areas continue to represent good values and thus we look to retain or add
to our positions.
Fund performance benefited most from those holdings where the revenue and
earnings were primarily in the U.S. Such companies and industries included Ford
Motor, American Greetings, Dun & Bradstreet, specialty chemicals (Millennium
Chemicals), banks (PNC Bank and Bankers Trust), insurance and diversified
financials (Allstate, Highlands Insurance, Morgan Stanley Dean Witter, and PMI
Group), and pharmaceuticals (Smithkline Beecham). Although we continue to see
value in selected financial, pharmaceutical, and specialty chemical companies,
the valuations on certain insurance and bank stocks appear high.
===============================================================================
TOP 10 EQUITY HOLDINGS
(% 0F NET ASSETS)
Boeing 2.3
Morgan Stanley, Dean Witter,
Discover & Co. 2.1
B.F. Goodrich 2.0
Lear 2.0
PMI Group 1.8
Pharmacia & Upjohn 1.8
Sears 1.8
SmithKline Beecham plc ADR 1.8
GTE 1.7
Kimberly-Clark 1.7
===============================================================================
===============================================================================
TOP 10 INDUSTRIES
(% OF NET ASSETS)
Insurance - Property/Casualty 5.3
Finance - Diversified 4.0
Insurance - Multi/Line
Companies 3.8
Drugs 3.6
Telecommunications -
Long Distance 3.2
Telephones 3.2
Chemicals 2.8
Oil - Domestic/Integrated 2.8
Banks - Money Center 2.7
Machinery - Diversified 2.6
===============================================================================
See page 9 for a complete listing of the Portfolio of Investments in Securities.
<TABLE>
GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 1998
(Unaudited)
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $751,633) $957,123
Cash 437
Receivables:
Capital shares sold 1,663
Dividends 937
--------
Total assets 960,160
--------
LIABILITIES
Securities purchased 7,592
Capital shares redeemed 1,189
USAA Investment Management Company 471
USAA Transfer Agency Company 147
Accounts payable and accrued expenses 69
--------
Total liabilities 9,468
--------
Net assets applicable to capital shares outstanding $950,692
========
REPRESENTED BY:
Paid-in capital $728,859
Accumulated undistributed net investment income 575
Accumulated net realized gain on investments 15,768
Net unrealized appreciation of investments 205,490
--------
Net assets applicable to capital shares outstanding $950,692
========
Capital shares outstanding 52,437
========
Net asset value, redemption price, and offering price per share $ 18.13
========
</TABLE>
See accompanying notes to financial statements.
GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
January 31, 1998
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------- -------- -----
COMMON STOCKS (97.1%)
Aerospace/Defense (2.3%)
455,000 Boeing Co. $21,641
- ------------------------------------------------
Airlines (1.3%)
95,000 AMR Corp.* 11,994
- ------------------------------------------------
Aluminum (1.6%)
193,000 Aluminum Co. of America 14,740
- ------------------------------------------------
Automobiles (1.5%)
285,000 Ford Motor Co. 14,535
- ------------------------------------------------
Auto Parts (2.4%)
250,000 Intermet Corp. 4,156
382,000 Lear Corp.* 18,981
- ------------------------------------------------
23,137
- ------------------------------------------------
Banks - Major Regional (1.3%)
232,000 PNC Bank Corp. 11,962
- ------------------------------------------------
Banks - Money Center (2.7%)
190,000 BankAmerica Corp. 13,502
120,000 Bankers Trust
New York Corp. 12,517
- ------------------------------------------------
26,019
- ------------------------------------------------
Chemicals (2.8%)
150,000 Dow Chemical Co. 13,500
562,700 Millennium Chemicals, Inc. 13,153
- ------------------------------------------------
26,653
- ------------------------------------------------
Chemicals - Diversified (2.0%)
450,000 B.F. Goodrich Co. 18,872
- ------------------------------------------------
Communication
Equipment (1.5%)
164,306 Lucent Technologies, Inc. 14,541
- ------------------------------------------------
Computer - Networking (1.6%)
240,000 Cisco Systems, Inc.* 15,135
- ------------------------------------------------
Consumer Jewelry and Novelties
- Miscelleneous (1.6%)
352,500 American Greetings Corp. 15,268
- ------------------------------------------------
Containers - Metals
& Glass (1.1%)
334,000 Ball Corp. 10,855
- ------------------------------------------------
Drugs (3.6%)
435,000 Pharmacia & Upjohn, Inc. 16,721
276,000 SmithKline Beecham
plc ADR "A" 17,405
- ------------------------------------------------
34,126
- ------------------------------------------------
Electric (2.6%)
431,400 Houston Industries, Inc. 11,270
435,000 Pacific Gas & Electric Co. 12,969
- ------------------------------------------------
24,239
- ------------------------------------------------
Electrical Equipment (1.4%)
242,000 Rockwell International
Corp. 13,522
- ------------------------------------------------
Electronics -
Semiconductors (1.3%)
440,300 National Semiconductor
Corp.* 12,383
- ------------------------------------------------
Engineering &
Construction (0.9%)
231,500 Fluor Corp. 8,725
- ------------------------------------------------
Equipment -
Semiconductors (1.3%)
375,000 Applied Materials, Inc.* 12,305
- ------------------------------------------------
Finance - Consumer (1.1%)
154,300 Associates First
Capital Corp. 10,492
- ------------------------------------------------
Finance - Diversified (4.0%)
350,000 Morgan Stanley, Dean
Witter, Discover & Co. 20,431
255,000 PMI Group, Inc. 17,292
- ------------------------------------------------
37,723
- ------------------------------------------------
Foods (1.4%)
145,000 Ralston Purina Group 13,612
- ------------------------------------------------
Healthcare - HMOs (2.2%)
500,000 Humana, Inc.* 10,031
191,000 Pacificare Health
Systems, Inc.* 10,720
- ------------------------------------------------
20,751
- ------------------------------------------------
Heavy Duty Trucks
& Parts (1.5%)
285,000 Aeroquip-Vickers, Inc. 14,250
- ------------------------------------------------
Household Products (1.7%)
314,000 Kimberly-Clark Corp. 16,387
- ------------------------------------------------
Insurance - Life/Health (1.3%)
169,000 Aetna, Inc. 12,421
- ------------------------------------------------
Insurance - Multi-Line
Companies (1.4%)
120,000 American International
Group, Inc. 13,237
- ------------------------------------------------
Insurance -
Property/Casualty (5.3%)
155,000 Allstate Corp. 13,718
356,500 Everest Reinsurance
Holdings, Inc. 13,502
330,200 Highlands Insurance
Group, Inc.* 8,585
360,000 Travelers Property
Casualty Corp. 15,030
- ------------------------------------------------
50,835
- ------------------------------------------------
Leisure Time (1.2%)
390,000 Brunswick Corp. 11,749
- ------------------------------------------------
Machinery - Diversified (2.6%)
243,000 Deere & Co. 12,818
445,204 Flowserve Corp. 11,909
- ------------------------------------------------
24,727
- ------------------------------------------------
Manufacturing - Diversified
Industries (1.5%)
273,000 Hillenbrand Industries, Inc. 13,991
- ------------------------------------------------
Manufacturing -
Specialized (1.7%)
360,000 Avery Dennison Corp. 16,155
- ------------------------------------------------
Medical Products
& Supplies (1.6%)
355,000 Bausch & Lomb, Inc. 15,221
- ------------------------------------------------
Metals/Mining (1.5%)
440,000 Inco Ltd. 7,810
250,000 Titanium Metals Corp.* 6,641
- ------------------------------------------------
14,451
- ------------------------------------------------
Natural Gas (1.8%)
120,000 NICOR, Inc. 4,830
270,000 Sonat, Inc. 11,796
- ------------------------------------------------
16,626
- ------------------------------------------------
Oil - Domestic
Integrated (2.8%)
542,000 Occidental Petroleum Corp. 13,821
360,000 Unocal Corp. 12,375
- ------------------------------------------------
26,196
- ------------------------------------------------
Oil - International
Integrated (1.3%)
200,000 Exxon Corp. 11,863
- ------------------------------------------------
Oil & Gas -
Drilling/Equipment (1.8%)
180,000 Halliburton Co. 8,089
370,000 Helmerich & Payne, Inc. 9,458
- ------------------------------------------------
17,547
- ------------------------------------------------
Oil & Gas - Exploration
& Production (1.3%)
385,000 Apache Corp. 12,753
- ------------------------------------------------
Paper & Forest Products (1.7%)
94,000 Jefferson Smurfit Corp.* 1,422
290,000 Weyerhaeuser Co. 14,445
- ------------------------------------------------
15,867
- ------------------------------------------------
Photography - Imaging (0.8%)
97,000 Xerox Corp. 7,796
- ------------------------------------------------
Publishing (1.1%)
373,200 Houghton Mifflin Co. 10,100
- ------------------------------------------------
Railroads / Shipping (1.3%)
401,000 Norfolk Southern Corp. 12,657
- ------------------------------------------------
Real Estate Investment
Trusts (2.1%)
262,000 Felcor Suite Hotels, Inc. 9,776
268,000 Highwoods Properties, Inc. 9,698
- ------------------------------------------------
19,474
- ------------------------------------------------
Retail - Department
Stores (2.4%)
200,000 J.C. Penney Company, Inc. 13,475
180,000 May Department Stores Co. 9,461
- ------------------------------------------------
22,936
- ------------------------------------------------
Retail - General
Merchandising (1.8%)
365,000 Sears, Roebuck & Co. 16,813
- ------------------------------------------------
Services - Commercial
& Consumer (1.3%)
391,900 Dun & Bradstreet Corp. 12,492
- ------------------------------------------------
Specialty Printing (1.2%)
355,000 Deluxe Corp. 11,715
- ------------------------------------------------
Telecommunications -
Long Distance (3.2%)
250,000 AT&T Corp. 15,656
247,000 Sprint Corp. 14,666
- ------------------------------------------------
30,322
- ------------------------------------------------
Telephones (3.2%)
149,760 Bell Atlantic Corp. 13,862
300,000 GTE Corp. 16,369
- ------------------------------------------------
30,231
- ------------------------------------------------
Tobacco (2.2%)
299,000 Philip Morris
Companies, Inc. 12,408
226,500 Universal Corp. 8,763
- ------------------------------------------------
21,171
- ------------------------------------------------
Waste Management (1.0%)
410,000 Waste Management, Inc. 9,635
- ------------------------------------------------
Total common stocks
(cost: $717,358) 922,848
- ------------------------------------------------
Principal
Amount
(000)
-----
SHORT-TERM (3.6%)
Commercial Paper
$22,569 Prudential Funding Corp.,
5.51%, 2/02/98 22,562
- -----------------------------------------------
11,718 General Motors
Acceptance Corp.,
5.45%, 2/03/98 11,713
- -----------------------------------------------
Total short-term (cost: $34,275) 34,275
- -----------------------------------------------
Total investments (cost: $751,633) $ 957,123
===============================================
GROWTH & INCOME FUND
NOTES TO PORTFOLIO OF INVESTMENTS IN SECURITIES
January 31, 1998
(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.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing
See accompanying notes to financial statements.
GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 1998
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $23):
Dividends $ 8,069
Interest 768
---------
Total income 8,837
---------
Expenses:
Management fees 2,633
Transfer agent's fees 799
Custodian's fees 72
Postage 96
Shareholder reporting fees 27
Directors' fees 2
Registration fees 98
Professional fees 26
Other 8
---------
Total expenses 3,761
---------
Net investment income 5,076
---------
Net realized and unrealized gain (loss) on investments:
Net realized gain 28,567
Change in net unrealized appreciation/depreciation (30,176)
---------
Net realized and unrealized loss (1,609)
---------
Increase in net assets resulting from operations $ 3,467
=========
See accompanying notes to financial statements.
<TABLE>
GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 1998
and Year ended July 31, 1997
(Unaudited)
<CAPTION>
1/31/98 7/31/97
------- -------
<S> <C> <C>
From operations:
Net investment income $ 5,076 $ 8,448
Net realized gain on investments 28,567 21,558
Change in net unrealized appreciation/depreciation
of investments (30,176) 190,518
-------- --------
Increase in net assets resulting from operations 3,467 220,524
-------- --------
Distributions to shareholders from:
Net investment income (5,072) (8,309)
-------- --------
Net realized gains (31,222) (13,135)
-------- --------
From capital share transactions:
Proceeds from shares sold 193,593 320,646
Dividend reinvestments 35,574 20,964
Cost of shares redeemed (70,740) (87,399)
-------- --------
Increase in net assets from capital share transactions 158,427 254,211
-------- --------
Net increase in net assets 125,600 453,291
Net assets:
Beginning of period 825,092 371,801
-------- --------
End of period $950,692 $825,092
======== ========
Undistributed net investment income included in net assets:
End of period $ 575 $ 571
======== ========
Change in shares outstanding:
Shares sold 10,569 20,226
Shares issued for dividends reinvested 1,966 1,432
Shares redeemed (3,876) (5,508)
-------- --------
Increase in shares outstanding 8,659 16,150
======== ========
Authorized shares of $.01 par value 75,000 75,000
======== ========
</TABLE>
See accompanying notes to financial statements.
GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
January 31, 1998
(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 ten separate
funds. The information presented in this semiannual report pertains only to the
Growth & Income Fund (the Fund). The Fund's investment objective is capital
growth and current income. USAA Investment Management Company (the Manager)
seeks to achieve this objective by investing the Fund's assets primarily in
dividend paying equity securities.
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.
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, 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 six-month period ended January 31,
1998.
(3) DISTRIBUTIONS
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
in the succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes.
(4) INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term securities, for the
six-month period ended January 31, 1998 were $211,670,930 and $85,578,596,
respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1998 was $220,045,177 and $14,555,053, 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
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 of $23.50 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, 1998 was $9,200.
(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.
<TABLE>
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Six-Month
Period Ended Year Ended July 31,
January 31, ------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 18.85 $ 13.46 $ 12.07 $ 10.36
Net investment income .11 .23 .24(a) .24(a)
Net realized and
unrealized gain (loss) (.06) 5.84 1.51 1.81
Distributions from net
investment income (.11) (.23) (.23) (.23)
Distributions of realized
capital gains (.66) (.45) (.13) (.11)
-------- -------- -------- --------
Net asset value at
end of period $ 18.13 $ 18.85 $ 13.46 $ 12.07
======== ======== ======== ========
Total return (%) * .31 46.69 14.68 20.30
Net assets at
end of period (000) $950,692 $825,092 $371,801 $208,490
Ratio of expenses to
average net assets (%) .84(b) .89 .95 1.01
Ratio of net investment
income to average
net assets (%) 1.14(b) 1.50 1.84 2.21
Portfolio turnover (%) 9.99 14.67 16.13 19.45
Average commission
rate paid per share+ $ .0497 $ .0494 $ .0493
Ten-Month Four-Month
Period Ended Period Ended
July 31, September 30,
1994 1993**
---- ----
Net asset value at
beginning of period $ 10.23 $ 10.00
Net investment income .17(a) .03
Net realized and
unrealized gain (loss) .16 .20
Distributions from net
investment income (.18) -
Distributions of realized
capital gains (.02) -
-------- -------
Net asset value at
end of period $ 10.36 $ 10.23
======== =======
Total return (%) * 3.28 2.30
Net assets at
end of period (000) $134,622 $69,606
Ratio of expenses to
average net assets (%) 1.12(b) 1.63(b)
Ratio of net investment
income to average
net assets (%) 1.95(b) 1.87(b)
Portfolio turnover (%) 13.90 10.68
Average commission
rate paid per share+
</TABLE>
* 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.
(a) Calculated using weighted average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
===============================================================================
Directors
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Independent Auditors
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund Touchline(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
================================================================================
