Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Portfolio of Investments 7
Notes to Portfolio of Investments 15
Statement of Assets and Liabilities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Notes to Financial Statements 19
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Growth Fund,
managed by USAA Investment Management Company (IMCO). It may be used as sales
literature only when preceded or accompanied by a current prospectus which gives
further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)1999, 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 (Registered
Trademark) 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 not insured or guaranteed by the
FDIC or any other government agency. Although the fund seeks to preserve
the value of your investment at $1 per share, it is possible to lose
money by investing in the fund.
(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 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 Investment Management Company, including charges and operating 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]
Over the past four years I have written many times of our grandchildren. As of
December 4, 1998, we have five. Adam Roth Bethel was born to my daughter,
Marnie, and her husband, Jeff, in Austin, Texas. The best news is that I think
he's incredibly handsome and Jeff's mother thinks he looks like me. As do his
four cousins, Adam has an InveStart (Registered Trademark)-type account that
we've set up. His is in the USAA First Start Growth Fund. Adam is, of course,
extremely bright. I am sure that in years to come he will enjoy learning about
investments through the USAA First Start Program.
Adam's cousins' accounts with us are in four other USAA funds. The oldest of
these accounts is now over four years old and belongs to Karl Joseph Marbach.
When I last checked, its balance was over $4,600. The account is in the Income
Stock Fund and, thus, is subject to all the risks of stocks. Indeed, its value
dropped last August when the stock market declined sharply. But it nevertheless
demonstrates the positive aspects of this kind of investment plan.
My wife and I decided to help with our grandchildren's education. Our monthly
contributions have been the main driver behind Karl's account and those of his
cousins. There will no doubt be future market declines, as there will be market
advances. And Karl's parents no doubt add to this fund on occasion. But the key
thing is that we are providing a systematic plan of adding to this investment
for Karl's higher education. I'll bet such a plan will work for Adam as well.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Systematic investment plans do not assure a profit or protect against loss in
declining markets.
The USAA Income Stock Fund's average annual total returns for the 1-, 5-, and
10-year periods ending January 31, 1999, were 10.68%, 15.31%, and 14.44%,
respectively.
Past performance is no guarantee of future results; the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call for a prospectus. Read it carefully before investing.
Investment Review
USAA GROWTH FUND
OBJECTIVE: Long-term growth of capital with secondary objectives of regular
income and conservation of principal.
TYPES OF INVESTMENTS: Primarily common stocks.
- --------------------------------------------------------------------------------
7/31/98 1/31/99
- --------------------------------------------------------------------------------
Net Assets $1,403.6 Million $1,636.0 Million
Net Asset Value Per Share $20.04 $23.45
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/99
- --------------------------------------------------------------------------------
7/31/98 to 1/31/99 1 Year 5 Years 10 Years
21.90%(+) 35.49% 18.11% 15.66%
- --------------------------------------------------------------------------------
(+) 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 investors 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 Fund, the S&P 500 Index,
and the Lipper Growth Funds Average for the period of 01/31/89 through 01/31/99.
The data points from the graph are as follows:
USAA Lipper Growth
Growth Fund S&P 500 Index Funds Average
----------- -------------- -------------
01/89 $10,000 $10,000 $10,000
07/89 11,748 11,837 11,741
01/90 11,478 11,443 11,202
07/90 12,511 12,603 12,415
01/91 12,604 12,401 12,292
07/91 13,864 14,208 14,195
01/92 15,286 15,209 15,910
07/92 15,704 16,022 15,810
01/93 17,309 16,816 17,429
07/93 17,512 17,417 17,885
01/94 18,643 18,977 19,955
07/94 18,250 18,314 18,760
01/95 19,784 19,077 19,099
07/95 23,078 23,089 23,553
01/96 25,690 26,443 25,598
07/96 25,949 26,911 25,851
01/97 30,877 33,405 31,478
07/97 36,972 40,934 37,263
01/98 31,630 42,391 37,754
07/98 35,156 48,837 42,110
01/99 42,856 56,173 47,630
Data from 1/31/89 through 1/31/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA 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, Inc., an independent organization that monitors the performance of
mutual funds. The S&P 500 Index is an unmanaged index representing the weighted
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.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER, DAVID G. PARSONS, CFA, APPEARS HERE]
STRATEGY
The dominant philosophy of the Fund is to buy out-of-favor and undervalued
growth stocks. However, at certain times it may be difficult to find a
sufficient diversity of such stocks. On those occasions, a portion of the Fund's
assets will be invested in traditional large capitalization growth companies.
Generally, we are opportunistic stock buyers. We cannot create out-of-favor,
undervalued growth situations. The market has to create them for us. Our policy
is to maintain a well-diversified portfolio and simply await compelling
opportunities.
One such opportunity was presented in the fall of 1998 in the financial sector.
In the wake of Russia's de facto default on its external debt, the stock prices
of many banks, consumer finance, investment management and brokerage companies
fell sharply. We thought the market's action was overdone and purchased several
of these companies which have since generally performed well:
- Citicorp - Bank of Boston
- Merrill Lynch - Household International
- Morgan Stanley Dean Witter
In any given year, similar opportunities almost invariably arise. It is
incumbent upon us to have the patience to wait for them.
PERFORMANCE
For the six-month period ending January 31, 1999, the return of the Growth Fund
was 21.9%. This compares favorably with the returns of the S&P 500 Index and the
average of the Lipper Growth funds category,(1) which were 15.02% and 13.23%
respectively.(2) Technology, healthcare, and consumer staple stocks generally
performed well. Financials, particularly in the first half of the period, were
weak.
See page 7 for a complete listing of the Portfolio of Investments.
(1) Lipper Analytical Services, Inc. is an independent organization that
monitors the performance of mutual funds.
(2) Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
- ---------------------------------- -----------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% ON NET ASSETS)
- ---------------------------------- -----------------------------------
Amgen 3.5 Drugs 7.0
General Electric 2.7 Computer Software & Service 6.1
Merck & Co. 2.7 Healthcare-Diversified 4.9
Cadbury Schweppes plc ADR 2.6 Computer-Networking 4.8
Intel 2.5 Computer-Hardware 4.7
Microsoft 2.4 Biotechnology 4.6
Pharmacia & Upjohn 2.3 Electronics-Semiconductors 4.2
IBM 2.1 Finance-Diversified 3.8
Johnson & Johnson 2.1 Banks-Money Center 3.7
Cisco Systems 2.0 Beverages-Nonalcoholic 3.5
- ---------------------------------- -----------------------------------
See page 7 for a complete listing of the Portfolio of Investments.
USAA GROWTH FUND
PORTFOLIO OF INVESTMENTS
January 31, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.2%)
Aerospace/Defense (0.6%)
289,100 Boeing Co. $ 9,992
- --------------------------------------------------------------------------------
Agricultural Products (0.1%)
60,000 Pioneer Hi-Bred International, Inc. 1,699
- --------------------------------------------------------------------------------
Air Freight (0.5%)
97,080 FDX Corp.* 7,930
- --------------------------------------------------------------------------------
Airlines (0.9%)
550,000 Southwest Airlines Co. 14,781
- --------------------------------------------------------------------------------
Aluminum (0.3%)
65,000 Alcoa, Inc. 5,436
- --------------------------------------------------------------------------------
Auto Parts (0.2%)
75,000 Dana Corp. 3,084
- --------------------------------------------------------------------------------
Banks - Major Regional (3.3%)
80,000 Bank Of New York Co., Inc. 2,840
191,910 Bank One Corp. 10,051
125,000 BankBoston Corp. 4,617
148,000 Fleet Financial Group, Inc. 6,558
129,000 National City Corp. 9,167
86,000 PNC Bank Corp. 4,402
80,000 U.S. Bancorp 2,695
399,300 Wells Fargo & Co. 13,951
- --------------------------------------------------------------------------------
54,281
- --------------------------------------------------------------------------------
Banks - Money Center (3.7%)
301,755 BankAmerica Corp. 20,180
33,000 Bankers Trust Corp. 2,871
500,050 Citigroup, Inc. 28,034
167,000 First Union Corp. 8,788
- --------------------------------------------------------------------------------
59,873
- --------------------------------------------------------------------------------
Beverages - Alcoholic (1.3%)
293,400 Anheuser-Busch Companies, Inc. 20,740
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (3.5%)
660,704 Cadbury Schweppes plc ADR 42,202
400,000 PepsiCo, Inc. 15,625
- --------------------------------------------------------------------------------
57,827
- --------------------------------------------------------------------------------
Biotechnology (4.6%)
450,000 Amgen, Inc.* 57,516
126,000 Biogen, Inc.* 12,379
75,000 Centocor, Inc.* 3,155
50,000 Genzyme Corp.* 2,725
- --------------------------------------------------------------------------------
75,775
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV (0.8%)
318,800 CBS Corp.* 10,839
32,200 Clear Channel Communications, Inc.* 1,993
- --------------------------------------------------------------------------------
12,832
- --------------------------------------------------------------------------------
Chemicals (1.3%)
125,000 Air Products & Chemicals, Inc. 4,203
175,000 Du Pont (E. I.) De Nemours & Co. 8,958
100,000 Monsanto Co. 4,756
75,000 Praxair, Inc. 2,424
- --------------------------------------------------------------------------------
20,341
- --------------------------------------------------------------------------------
Chemicals - Diversified (0.2%)
60,000 PPG Industries, Inc. 3,225
- --------------------------------------------------------------------------------
Communication Equipment (2.0%)
75,000 Motorola, Inc. 5,419
430,000 Northern Telecom Ltd. 27,144
- --------------------------------------------------------------------------------
32,563
- --------------------------------------------------------------------------------
Computer - Hardware (4.7%)
500,000 Compaq Computer Corp. 23,813
205,000 Hewlett-Packard Co. 16,067
190,000 IBM Corp. 34,817
111,500 Micron Electronics, Inc.* 1,714
- --------------------------------------------------------------------------------
76,411
- --------------------------------------------------------------------------------
Computer - Networking (4.8%)
275,000 3Com Corp.* 12,925
360,000 Ascend Communications, Inc.* 31,432
300,000 Cisco Systems, Inc.* 33,469
- --------------------------------------------------------------------------------
77,826
- --------------------------------------------------------------------------------
Computer - Peripherals (0.8%)
183,500 Quantum Corp.* 4,392
207,500 Seagate Technology, Inc.* 8,443
- --------------------------------------------------------------------------------
12,835
- --------------------------------------------------------------------------------
Computer Software & Service (6.1%)
200,000 Computer Associates International, Inc. 10,125
50,800 Intuit, Inc.* 4,623
225,000 Microsoft Corp.* 39,375
4,000 Momentum Business Applications, Inc.* 45
400,000 Oracle Corp.* 22,150
200,000 Parametic Technology Corp.* 2,612
200,000 PeopleSoft, Inc.* 3,962
300,000 Synopsys, Inc.* 17,419
- --------------------------------------------------------------------------------
100,311
- --------------------------------------------------------------------------------
Containers - Paper (0.2%)
75,000 Bemis, Inc. 2,550
- --------------------------------------------------------------------------------
Distributions - Food/Health (0.2%)
41,550 Cardinal Health, Inc. 3,072
- --------------------------------------------------------------------------------
Drugs (7.0%)
100,000 Eli Lilly & Co. 9,369
400,000 Ivax Corp.* 5,425
300,000 Merck & Co., Inc. 44,025
200,000 Mylan Laboratories, Inc. 6,100
100,000 Pfizer, Inc. 12,863
645,000 Pharmacia & Upjohn, Inc. 37,087
- --------------------------------------------------------------------------------
114,869
- --------------------------------------------------------------------------------
Electrical Equipment (2.7%)
420,200 General Electric Co. 44,069
- --------------------------------------------------------------------------------
Electronics - Semiconductors (4.2%)
75,000 Advanced Micro Devices, Inc.* 1,720
285,000 Intel Corp. 40,167
153,400 Micron Technology, Inc.* 11,985
150,000 Texas Instruments, Inc. 14,831
- --------------------------------------------------------------------------------
68,703
- --------------------------------------------------------------------------------
Entertainment (1.0%)
132,600 Time Warner, Inc. 8,288
233,400 Walt Disney Co. 7,702
- --------------------------------------------------------------------------------
15,990
- --------------------------------------------------------------------------------
Equipment - Semiconductors (2.5%)
210,000 Applied Materials, Inc.* 13,269
100,000 KLA-Tencor Corp.* 5,775
107,400 Lam Research Corp.* 4,122
130,500 Novellus Systems, Inc.* 9,543
125,000 Teradyne, Inc.* 8,234
- --------------------------------------------------------------------------------
40,943
- --------------------------------------------------------------------------------
Finance - Consumer (1.0%)
177,400 Associates First Capital Corp. "A" 7,196
75,000 Countrywide Credit Industries, Inc. 3,563
75,000 Household International, Inc. 3,295
101,100 MBNA Corp. 2,824
- --------------------------------------------------------------------------------
16,878
- --------------------------------------------------------------------------------
Finance - Diversified (3.5%)
86,900 American Express Co. 8,940
46,300 American General Corp. 3,302
192,300 Fannie Mae 14,014
100,000 Federal Home Loan Mortgage Corp. 6,200
50,000 MBIA, Inc. 3,278
60,000 MGIC Investment Corp. 2,198
162,400 Morgan Stanley, Dean Witter, Discover & Co. 14,098
120,000 SLM Holding Corp. 5,287
- --------------------------------------------------------------------------------
57,317
- --------------------------------------------------------------------------------
Foods (2.7%)
85,000 Campbell Soup Co. 3,990
200,000 ConAgra, Inc. 6,500
170,000 General Mills, Inc. 14,269
120,000 Kellogg Co. 4,905
184,600 Sara Lee Corp. 4,707
124,000 Unilever N V 9,486
- --------------------------------------------------------------------------------
43,857
- --------------------------------------------------------------------------------
Gaming Companies (0.2%)
130,000 International Game Technology 2,608
70,000 Mirage Resorts, Inc.* 1,002
- --------------------------------------------------------------------------------
3,610
- --------------------------------------------------------------------------------
Healthcare - Diversified (4.9%)
120,000 Abbott Laboratories 5,573
300,000 American Home Products Corp. 17,606
100,000 Bristol-Myers Squibb Co. 12,819
400,000 Johnson & Johnson, Inc. 34,000
150,000 Warner-Lambert Co. 10,828
- --------------------------------------------------------------------------------
80,826
- --------------------------------------------------------------------------------
Healthcare - HMOs (1.6%)
265,300 Pacificare Health Systems, Inc. "A"* 17,012
218,000 United Healthcare Corp. 9,756
- --------------------------------------------------------------------------------
26,768
- --------------------------------------------------------------------------------
Healthcare - Specialized Services (0.3%)
82,000 IMS Healthcare, Inc. 3,003
200,000 PhyCor, Inc.* 1,225
- --------------------------------------------------------------------------------
4,228
- --------------------------------------------------------------------------------
Hospitals (0.2%)
100,000 Columbia/HCA Healthcare Corp. 1,813
75,000 Tenet Healthcare Corp.* 1,556
- --------------------------------------------------------------------------------
3,369
- --------------------------------------------------------------------------------
Household Products (2.0%)
33,600 Colgate-Palmolive Co. 2,703
325,300 Kimberly-Clark Corp. 16,204
154,600 Procter & Gamble Co. 14,049
- --------------------------------------------------------------------------------
32,956
- --------------------------------------------------------------------------------
Housewares (0.1%)
42,000 Newell Co. 1,746
- --------------------------------------------------------------------------------
Insurance Brokers (0.2%)
46,350 Marsh & McLennan Cos., Inc. 2,914
- --------------------------------------------------------------------------------
Insurance - Life/Health (0.8%)
126,700 Aetna, Inc. 11,419
75,000 Conseco, Inc. 2,320
- --------------------------------------------------------------------------------
13,739
- --------------------------------------------------------------------------------
Insurance - Multi-Line Companies (0.9%)
148,800 American International Group, Inc. 15,317
- --------------------------------------------------------------------------------
Insurance - Property/Casualty (0.5%)
181,200 Allstate Corp. 6,806
14,900 Progressive Corp. 1,862
- --------------------------------------------------------------------------------
8,668
- --------------------------------------------------------------------------------
Investment Banks / Brokerage (0.8%)
178,500 Merrill Lynch & Co., Inc. 13,566
- --------------------------------------------------------------------------------
Investment Management (0.4%)
200,000 Franklin Resources, Inc. 6,700
- --------------------------------------------------------------------------------
Leisure Time (0.2%)
105,000 Mattel, Inc. 2,382
- --------------------------------------------------------------------------------
Lodging/Hotel (0.2%)
100,000 Marriott International, Inc. "A" 3,513
- --------------------------------------------------------------------------------
Machinery - Diversified (0.6%)
75,000 Case Corp. 1,420
170,000 Deere & Co. 5,536
75,000 Dover Corp. 2,330
- --------------------------------------------------------------------------------
9,286
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries (2.4%)
175,000 AlliedSignal, Inc. 6,825
191,200 Hillenbrand Industries, Inc. 8,986
100,000 Minnesota Mining & Manufacturing Co. 7,762
212,549 Tyco International Ltd. 16,380
- --------------------------------------------------------------------------------
39,953
- --------------------------------------------------------------------------------
Manufacturing - Specialized (0.1%)
75,000 Parker Hannifin Corp. 2,306
- --------------------------------------------------------------------------------
Medical Products & Supplies (1.6%)
242,100 Bausch & Lomb, Inc. 14,859
100,000 Boston Scientific Corp.* 2,444
70,000 Medtronic, Inc. 5,578
100,800 St. Jude Medical, Inc.* 2,627
- --------------------------------------------------------------------------------
25,508
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.3%)
60,000 Halliburton Co. 1,781
75,000 Schlumberger Ltd. 3,572
- --------------------------------------------------------------------------------
5,353
- --------------------------------------------------------------------------------
Personal Care (0.5%)
132,600 Gillette Co. 7,790
- --------------------------------------------------------------------------------
Photography - Imaging (0.8%)
100,000 Eastman Kodak Co. 6,538
53,000 Xerox Corp. 6,572
- --------------------------------------------------------------------------------
13,110
- --------------------------------------------------------------------------------
Publishing/Newspapers (0.6%)
100,000 Gannett, Inc. 6,581
50,000 Tribune Co. 3,197
- --------------------------------------------------------------------------------
9,778
- --------------------------------------------------------------------------------
Restaurants (0.3%)
150,000 Brinker International, Inc.* 4,125
- --------------------------------------------------------------------------------
Retail - Building Supplies (0.8%)
200,000 Home Depot, Inc. 12,075
50,000 Sherwin-Williams Co. 1,281
- --------------------------------------------------------------------------------
13,356
- --------------------------------------------------------------------------------
Retail - Drugs (0.4%)
110,900 Walgreen Co. 6,931
- --------------------------------------------------------------------------------
Retail - General Merchandising (1.9%)
90,300 Dayton Hudson Corp. 5,757
297,600 Wal-Mart Stores, Inc. 25,593
- --------------------------------------------------------------------------------
31,350
- --------------------------------------------------------------------------------
Retail - Specialty Apparel (0.5%)
117,000 Gap, Inc. 7,510
- --------------------------------------------------------------------------------
Savings & Loan Holding Co. (0.3%)
120,350 Washington Mutual, Inc. 5,055
- --------------------------------------------------------------------------------
Services - Commercial & Consumer (0.5%)
270,000 Cendant Corp.* 5,873
140,500 Service Corp. International 2,230
- --------------------------------------------------------------------------------
8,103
- --------------------------------------------------------------------------------
Services - Data Processing (1.1%)
450,000 First Data Corp. 17,241
- --------------------------------------------------------------------------------
Shoes (0.3%)
100,000 Nike, Inc. "B" 4,575
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (0.3%)
53,100 Airtouch Communications, Inc.* 5,127
- --------------------------------------------------------------------------------
Telecommunications - Long Distance (3.2%)
310,000 AT&T Corp. 28,133
311,000 MCI WorldCom, Inc.* 24,802
- --------------------------------------------------------------------------------
52,935
- --------------------------------------------------------------------------------
Telephones (2.5%)
218,000 Bell Atlantic Corp. 13,080
267,200 BellSouth Corp. 11,924
304,900 SBC Communications Corp. 16,464
- --------------------------------------------------------------------------------
41,468
- --------------------------------------------------------------------------------
Tobacco (2.0%)
536,700 Philip Morris Cos., Inc. 25,225
150,000 RJR Nabisco Holdings Corp. 4,050
100,000 UST, Inc. 3,150
- --------------------------------------------------------------------------------
32,425
- --------------------------------------------------------------------------------
Truckers (0.2%)
75,000 CNF Transportation, Inc. 3,328
- --------------------------------------------------------------------------------
Total common stocks (cost: $1,189,128) 1,622,925
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- ------------
SHORT-TERM (0.3%)
Commercial Paper
$ 5,330 General Electric Capital Corp., 4.81%,
2/01/1999 (cost: $5,328) 5,328
- --------------------------------------------------------------------------------
Total investments (cost: $1,194,456) $1,628,253
================================================================================
USAA GROWTH FUND
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 1999
(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 5.0% of net assets at January 31, 1999.
ADR - American Depositary Receipts are foreign shares held by a U.S. bank which
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 1999
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $1,194,456) $1,628,253
Cash 224
Receivables:
Capital shares sold 517
Dividends and interest 1,195
Securities sold 12,624
-----------
Total assets 1,642,813
-----------
LIABILITIES
Securities purchased 4,699
Capital shares redeemed 784
USAA Investment Management Company 998
USAA Transfer Agency Company 239
Accounts payable and accrued expenses 112
-----------
Total liabilities 6,832
-----------
Net assets applicable to capital shares outstanding $1,635,981
===========
REPRESENTED BY:
Paid-in capital $1,165,716
Accumulated undistributed net investment income (113)
Accumulated net realized gain on investments 36,581
Net unrealized appreciation of investments 433,797
-----------
Net assets applicable to capital shares outstanding $1,635,981
===========
Capital shares outstanding 69,781
===========
Authorized shares of $.01 par value 150,000
===========
Net asset value, redemption price, and offering price per share $ 23.45
===========
See accompanying notes to financial statements.
USAA GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 1999
(Unaudited)
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $16) $ 7,844
Interest 203
-----------
Total income 8,047
-----------
Expenses:
Management fees 5,268
Transfer agent's fees 1,272
Custodian's fees 95
Postage 136
Shareholder reporting fees 36
Directors' fees 2
Registration fees 36
Professional fees 22
Other 16
-----------
Total expenses 6,883
-----------
Net investment income 1,164
-----------
Net realized and unrealized gain on investments:
Net realized gain 48,828
Change in net unrealized appreciation/depreciation 242,824
-----------
Net realized and unrealized gain 291,652
-----------
Increase in net assets resulting from operations $ 292,816
===========
See accompanying notes to financial statements.
USAA GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 1999
and Year ended July 31, 1998
(Unaudited)
1/31/99 7/31/98
---------------------------
From operations:
Net investment income $ 1,164 $ 632
Net realized gain on investments 48,828 118,346
Change in net unrealized appreciation/depreciation
of investments 242,824 (211,504)
---------------------------
Increase (decrease) in net assets resulting
from operations 292,816 (92,526)
---------------------------
Distributions to shareholders from:
Net investment income (1,913) (6,280)
---------------------------
Net realized gains (51,220) (159,478)
---------------------------
From capital share transactions:
Proceeds from shares sold 111,344 203,201
Shares issued for dividends reinvested 52,132 163,214
Cost of shares redeemed (170,751) (354,815)
---------------------------
Increase (decrease) in net assets
from capital share transactions (7,275) 11,600
---------------------------
Net increase (decrease) in net assets 232,408 (246,684)
Net assets:
Beginning of period 1,403,573 1,650,257
---------------------------
End of period $1,635,981 $1,403,573
===========================
Undistributed net investment income included in
net assets:
End of period $ (113) $ 636
===========================
Change in shares outstanding:
Shares sold 5,437 10,047
Shares issued for dividends reinvested 2,811 8,417
Shares redeemed (8,502) (18,185)
---------------------------
Increase (decrease) in shares outstanding (254) 279
===========================
See accompanying notes to financial statements.
USAA GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
January 31, 1999
(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 Growth Fund (the Fund). The Fund's primary investment objective is
long-term growth of capital, with secondary objectives of regular income and
conservation of principal. USAA Investment Management Company (the Manager)
seeks to achieve the Fund's objectives by investing its assets primarily in
common stocks or securities that are convertible into common stock.
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 three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 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 the CAPCO agreements,
the Fund may borrow from CAPCO an amount under both agreements combined of 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 agreements, does not exceed 25% of the Fund's total assets at
NationsBank's borrowing rate plus a markup. The Fund had no borrowings under any
of these agreements during the six-month period ended January 31, 1999.
(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
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended January 31, 1999 were $237.5 million
and $306.9 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1999 was $466.1 million and $32.3 million, respectively.
(5) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. 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 $26 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, 1999 was $58,000.
(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 any compensation from the Fund.
(7) YEAR 2000
Like other mutual funds, the Fund could be adversely affected if the computer
systems used by the Manager and the Fund's other service providers are not able
to perform their intended functions effectively after 1999 because of the
inability of computer software to distinguish the year 2000 from the year 1900.
The Manager is taking steps to address this potential year 2000 problem with
respect to the computer systems that they use and to obtain satisfactory
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund from this
problem.
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month Ten-month
Period Ended Period Ended
January 31, Year Ended July 31, July 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 20.04 $ 23.66 $ 20.05 $ 19.06 $ 17.63 $ 19.76
Net investment income .01 .01 .24 .33 .26 .19
Net realized and
unrealized gain (loss) 4.17 (1.31) 6.92 1.92 3.95 (.17)
Distributions from net
investment income (.03) (.09) (.34) (.29) (.27) (.16)
Distributions of realized
capital gains (.74) (2.23) (3.21) (.97) (2.51) (1.99)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 23.45 $ 20.04 $ 23.66 $ 20.05 $ 19.06 $ 17.63
====================================================================================
Total return (%) * 21.90 (4.91) 42.48 12.44 26.46 .31
Net assets at end
of period (000) $1,635,981 $1,403,573 $1,650,257 $1,162,262 $ 922,821 $ 618,685
Ratio of expenses to
average net assets (%) .98(a) .96 .97 1.01 1.04 1.04(a)
Ratio of net investment
income (loss) to
average net assets (%) .17(a) .04 1.28 1.70 1.63 1.33(a)
Portfolio turnover (%) 17.00 68.93 75.41 62.30 69.64 117.80
</TABLE>
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(a)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 Hours
Call toll free - Central Time
Monday - Friday 7:30 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 USAA TouchLine(Service Mark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
