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
Statement 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 First Start
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)1998, USAA. All rights reserved.
===============================================================================
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
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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
USAA 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
"We are now ready to move to another plateau."
[PHOTOGRAPH OF MICHAEL J.C. ROTH, CFA, PRESIDENT AND VICE CHAIRMAN OF THE BOARD]
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) Investment trading of funds may be subject to value fluctuations.
INVESTMENT REVIEW
USAA FIRST START GROWTH FUND
OBJECTIVE: Long-term capital appreciation.
TYPES OF INVESTMENTS: Primarily common stocks.
1/31/98
==========================================================================
Net Assets $23.9 Million
Net Asset Value Per Share $10.25
==========================================================================
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/98
==========================================================================
Since inception on August 1, 1997 2.50%*
* Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
The performance data quoted represents past performance and is 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 First Start Growth Fund to the S&P
500 Index, and the Lipper Growth Funds Average from 8/1/97 through 1/31/98. The
data points from the graph are as follows:
USAA
S&P 500 Lipper Growth First Start
Index Funds Average Growth Fund
08/01/97 10,000 10,000 10,000
09/97 9,956 10,196 9,930
10/97 9,624 9,809 9,590
11/97 10,069 9,974 9,860
12/97 10,243 10,070 9,980
01/98 10,355 10,118 10,250
The graph compares a $10,000 hypothetical investment in the USAA First Start
Growth Fund to the S&P 500 Index and the Lipper Growth Funds Average, an average
performance level of all growth funds, as reported by Lipper Analytical
Services, an independent organization that monitors the performance of mutual
funds. 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 in the S&P 500 Index.
MESSAGE FROM THE MANAGER
PHOTO OF PORTFOLIO MANAGER
CURT ROHRMAN APPEARS HERE
A text balloon A text balloon
appears here: appears here:
Are you jammin' to Do you own a PC or
the tunes with Clear "email" your friends?
Channel Communications? Cisco makes internet
equipment and Dell makes
personal computers.
My pants, belt & jacket You can shop 'till you
all came from the GAP, drop at stores like Target,
Banana Republic or Old Mervyns and Marshall Fields -
Navy. How many of your all owned by Dayton Hudson.
clothes came from stores
owned by GAP?
Your life is full of all kinds of really cool stuff. Did you ever wonder who
makes it all - things like CDs, movies, the internet, lipstick, potato chips,
razor blades, or batteries?
If you've invested some money in the USAA First Start Growth Fund, you actually
own "pieces" of the companies that make all of these things. In fact, we invest
your money in a bunch of different companies that make things you use every day.
Some of the companies you've probably heard of. For instance, we own Gillette.
Without Gillette, you or Mom and Dad might not be able to start the day. Besides
being the largest manufacturer in the world of razors and blades, Gillette makes
Foamy shaving cream, Oral-B toothbrushes, Soft & Dry anti- perspirant, Braun
coffee makers, Duracell batteries (for the alarm clock and your Discman), and
Parker pens.
Some of the companies we own you probably haven't heard of, but you know their
products. An example is a company called Clear Channel Communications. Clear
Channel owns a ton of radio stations across the U.S., many playing the music you
listen to. They also own about 20 TV stations and almost one-third of the
advertising billboards you see.
STRATEGY
So how do we decide what companies we want to own in your Fund? First, we buy
the stock of companies that make products or provide services that we believe
are familiar to you. Some companies, like Clear Channel, aren't so familiar
until you find out what they do. Second, we look for companies that are really
good at what they do and have built, or are building, leadership positions.
Third, companies we buy have to be growing faster than the average company,
meaning that they have to sell a lot more products each and every year. This is
really important because the faster a company grows, the better chance its stock
will become worth more than we paid for it. While we want the companies we own
to be fun, we also do our best to find companies that are good investments.
Fourth, we try not to buy a bunch of the same kind of companies that all make
the same thing. Instead, the stocks we own are spread across three primary
areas: consumer products, technology, and healthcare. This way, should any one
bad event occur, like a price war in hamburgers or a weak holiday shopping
season, it won't hurt too many of the stocks we own at once. Presently, we own a
mix of consumer, technology, and healthcare stocks.
FUND PERFORMANCE
Frankly, we started the USAA First Start Growth Fund at a lousy time. The Fund
started August 1, 1997, just as the stock market was finishing a huge increase
(the S&P 500 Index(1)(S&P) up 29% from its April 14, 1997, low) and just a
couple months before all the problems in Asia were well known. The stock market
has not made much progress since then, with the S&P up just 2.7% over the past
six months. During that time, the USAA First Start Growth Fund's total return
increased 2.5%. Why did we not do as well as the overall market? The primary
reason was technology stocks. About 35% of the Fund is currently invested in
technology stocks, such as Microsoft and Intel. Since August 1, 1997, technology
stocks (including a lot of the ones we own) actually dropped in value.
OUTLOOK
We think the stock market will do well during the next several years. Companies
in the U.S. in general are the most competitive on the planet. We believe our
companies make better, more innovative products at lower cost than companies
anywhere else. People around the world want U.S. products. Whether it's
clothing, restaurants, cosmetics, computer hardware or software, medical
products, or financial products, our market share advantage is widening. This is
important if our companies are going to continue to grow rapidly.
Our outlook for technology stocks is rather optimistic despite the recent
declines. A few trends in technology and healthcare are particularly important.
Unstoppable trends in "better, smaller, faster, cheaper" are making people want
to buy all kinds of new electronics. The internet has forever changed the way we
do homework, communicate with our friends, and shop for the things we buy. As
more people surf the net, it will need to be continually improved. Baby-boomers
(people like me and probably your mom and dad, born between 1945 and 1964) are
getting to the age when their bodies don't work as well as they used to. Admit
it or not, baby-boomers are all going to need more and more pharmaceuticals and
other medical products over the next couple decades.
(1) The S&P 500 Index is an unmanaged index representing the performance of a
group of 500 widely held, publicly traded stocks. It is not possible to
invest in the S&P 500 Index.
Past performance is no guarantee of future results. Yields and returns
fluctuate.
Top 10 Equity Holdings
(% of Net Assets)
=======================================
Cisco Systems 4.0
Gillette 3.3
Clear Channel Communications 3.2
Gap 3.2
Hershey Foods 3.2
Johnson & Johnson 3.1
Microsoft 3.1
Walt Disney 3.1
Dayton Hudson 3.0
Dell Computer 2.9
Top 10 Industries
(% of Net Assets)
=========================================
Computer Software & Service 7.9
Foods 7.7
Electronics - Semiconductors 7.0
Personal Care 6.1
Drugs 5.6
Computer - Hardware 5.4
Medical Products & Supplies 4.5
Computer - Networking 3.9
Broadcasting - Radio & TV 3.2
Retail - Specialty Apparel 3.2
You will find a complete list of the securities that the Fund owns on
pages 9-11.
<TABLE>
USAA FIRST START GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 1998
(Unaudited)
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $23,178) $ 24,320
Cash 20
Receivables:
Capital shares sold 13
Dividends 6
Securities sold 596
--------
Total assets 24,955
--------
LIABILITIES
Securities purchased 956
Capital shares redeemed 4
USAA Investment Management Company 15
USAA Transfer Agency Company 6
Accounts payable and accrued expenses 36
-------
Total liabilities 1,017
-------
Net assets applicable to capital shares outstanding $23,938
=======
REPRESENTED BY:
Paid-in capital $23,305
Accumulated net investment loss (61)
Accumulated net realized loss on investments (448)
Net unrealized appreciation of investments 1,142
-------
Net assets applicable to capital shares outstanding $23,938
=======
Capital shares outstanding 2,335
=======
Net asset value, redemption price, and offering price per share $ 10.25
=======
</TABLE>
See accompanying notes to financial statements.
USAA FIRST START GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
January 31, 1998
(Unaudited)
Market
Number Value
of Shares Security (000)
---------- -------- ------
COMMON STOCKS (98.7%)
Auto Parts (2.5%)
12,000 Lear Corp.* $ 596
--------
Beverages - Nonalcoholic (2.6%)
17,000 PepsiCo, Inc. 613
--------
Broadcasting - Radio & TV (3.2%)
10,000 Clear Channel Communications, Inc.* 770
--------
Communication Equipment (2.6%)
7,000 Lucent Technologies, Inc. 620
--------
Computer - Hardware (5.4%)
7,000 Dell Computer Corp.* 696
10,000 Hewlett-Packard Co. 600
--------
1,296
--------
Computer - Networking (3.9%)
15,000 Cisco Systems, Inc.* 946
--------
Computer Software & Service (7.9%)
5,000 Microsoft Corp.* 746
11,000 Networks Associates, Inc.* 594
15,000 Sterling Commerce, Inc.* 545
--------
1,885
--------
Drugs (5.6%)
10,000 Eli Lilly & Co. 675
8,000 Pfizer, Inc. 655
--------
1,330
--------
Electrical Equipment (2.3%)
7,000 General Electric Co. 543
--------
Electronics - Semiconductors (7.0%)
22,000 Analog Devices, Inc.* 649
8,000 Intel Corp. 648
7,000 Texas Instruments, Inc. 382
--------
1,679
--------
Entertainment (3.1%)
7,000 Walt Disney Co. 746
--------
Equipment - Semiconductors (2.1%)
15,000 Applied Materials, Inc.* 492
--------
Finance - Diversified (2.6%)
14,000 Federal Home Loan Mortgage Corp. 623
--------
Foods (7.7%)
11,000 Campbell Soup Co. 588
12,000 Hershey Foods Corp. 764
15,000 Keebler Foods Co.* 413
800 Tootsie Roll Industries, Inc. 50
500 William Wrigley Jr., Co. 37
--------
1,852
--------
Healthcare - Diversified (3.1%)
11,000 Johnson & Johnson, Inc. 736
--------
Hospitals (2.4%)
17,000 Tenet Healthcare Corp.* 587
--------
Household Products (2.6%)
8,000 Procter & Gamble Co. 627
--------
Housewares (2.6%)
15,000 Newell Co. 616
--------
Leisure Time (0.4%)
1,000 Mattel, Inc. 40
500 Sony Corp. ADR 47
--------
87
--------
Lodging/Hotel (2.0%)
28,000 Host Marriott Corp.* 490
--------
Medical Products & Supplies (4.5%)
9,000 Boston Scientific Corp.* 457
12,000 Medtronic, Inc. 613
--------
1,070
--------
Oil & Gas - Drilling/Equipment (1.5%)
5,000 Schlumberger Ltd. 368
--------
Personal Care (6.1%)
11,000 Avon Products, Inc. 660
8,000 Gillette Co. 790
--------
1,450
--------
Restaurants (0.4%)
1,000 McDonald's Corp. 47
1,700 Tricon Global Restaurants, Inc.* 46
--------
93
--------
Retail - General Merchandising (3.0%)
10,000 Dayton Hudson Corp. 719
--------
Retail - Specialty (2.7%)
27,000 Pier 1 Imports, Inc. 631
1,000 Toys 'R' Us, Inc.* 27
--------
658
--------
Retail - Specialty Apparel (3.2%)
19,500 Gap, Inc. 762
--------
Services - Commercial & Consumer (0.4%)
2,000 Corporate Family Solutions, Inc.* 50
1,000 Sylvan Learning Systems, Inc.* 40
--------
90
--------
Services - Data Processing (2.9%)
13,000 Applied Graphics Technologies, Inc.* 696
--------
Shoes (0.2%)
1,000 Timberland Co.* 58
--------
Telecommunications - Long Distance (2.2%)
15,000 Worldcom, Inc.* 537
--------
Total common stocks (cost: $22,493) 23,635
--------
Principal
Amount
(000)
-----
SHORT-TERM (2.9%)
Discount Note
$685 Federal Home Loan Mortgage Corp., 5.57%, 2/02/98
(cost: $685) 685
--------
Total investments (cost: $23,178) $ 24,320
========
USAA FIRST START GROWTH 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.
The percentages shown represent the percentage of the investments to net assets.
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.
USAA FIRST START GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 1998*
(Unaudited)
Net investment loss:
Income:
Dividends $ 59
Interest 28
------
Total income 87
------
Expenses:
Management fees 80
Transfer agent's fees 17
Custodian's fees 13
Postage 4
Shareholder reporting fees 1
Directors' fees 2
Registration fees 13
Professional fees 16
Other 2
------
Total expenses 148
------
Net investment loss (61)
------
Net realized and unrealized gain (loss) on investments:
Net realized loss (448)
Change in net unrealized appreciation/depreciation 1,142
------
Net realized and unrealized gain 694
------
Increase in net assets resulting from operations $ 633
======
* Fund commenced operations August 1, 1997.
See accompanying notes to financial statements.
USAA FIRST START GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 1998*
(Unaudited)
From operations:
Net investment loss $ (61)
Net realized loss on investments (448)
Change in net unrealized appreciation/depreciation
of investments 1,142
-------
Increase in net assets resulting from operations 633
-------
From capital share transactions:
Proceeds from shares sold 24,280
Cost of shares redeemed (975)
-------
Increase in net assets from capital share transactions 23,305
-------
Net increase in net assets 23,938
Net assets:
Beginning of period -
-------
End of period $23,938
=======
Undistributed net investment loss included in net assets:
End of period $ (61)
=======
Change in shares outstanding:
Shares sold 2,433
Shares redeemed (98)
-------
Increase in shares outstanding 2,335
=======
Authorized shares of $.01 par value 25,000
=======
* Fund commenced operations August 1, 1997.
See accompanying notes to financial statements.
USAA FIRST START GROWTH 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
USAA First Start Growth Fund (the Fund), which commenced operations on August 1,
1997. The Fund's investment objective is long-term capital appreciation. USAA
Investment Management Company (the Manager) seeks to achieve this objective by
investing the Fund's assets in equity securities of companies that provide goods
or services that the Manager believes are familiar to young people.
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 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, 1998 were $28,619,029 and $5,676,907,
respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1998 was $2,062,545 and $920,610, 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
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 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 $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, 1998, the Association and its affiliates
owned 2,000,010 shares (85.6%) 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.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the period is
as follows:
Six-month
Period Ended
January 31,
1998*
-----
Net asset value at
beginning of period $ 10.00
Net investment loss (.03 )(a)
Net realized and
unrealized gain .28
-------
Net asset value at
end of period $ 10.25
=======
Total return (%) 2.50
Net assets at
end of period (000) $23,938
Ratio of expenses to
average net assets (%) 1.39(b)
Ratio of net investment
loss to average net assets (%) (.58)(b)
Portfolio turnover (%) 30.97
Average commission
rate paid per share+ $ .0499
* Fund commenced operations August 1, 1997.
+ 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.
THIS IS THE END OF THE SEMIANNUAL REPORT.
Please flip and turn the book over to read the Prospectus.
