Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Portfolio of Investments 8
Notes to Portfolio of Investments 16
Statement of Assets and Liabilities 17
Statement of Operations 18
Statements of Changes in Net Assets 19
Notes to Financial Statements 20
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 Aggressive
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 wil 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 AGGRESSIVE GROWTH FUND
OBJECTIVE: Appreciation of capital.
TYPES OF INVESTMENTS: Equity securities of companies with prospects of rapidly
growing earnings.
- -------------------------------------------------------------------------------
7/31/98 1/31/99
===============================================================================
Net Assets $736.5 Million $913.6 Million
Net Asset Value Per Share $31.62 $34.03
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/99
===============================================================================
7/31/98 to 1/31/99 1 Year 5 Years 10 Years
27.42%(+) 34.93% 20.03% 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 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 Aggressive Growth Fund, the
Russell 2000 Index, and the Lipper Small Cap Funds Average for the period of
01/31/89 through 01/31/99. The data points from the graph are as follows:
USAA Aggressive Russell 2000 Lipper Small
Growth Fund Index Cap Funds Average
---------------- ------------- ------------------
01/89 $10,000 $10,000 $10,000
07/89 11,484 11,391 11,609
01/90 10,264 10,157 10,735
07/90 11,188 10,795 12,052
01/91 11,218 9,772 11,454
07/91 13,486 11,843 13,806
01/92 16,425 14,148 16,866
07/92 13,835 13,561 15,445
01/93 15,689 16,022 18,420
07/93 14,998 16,742 18,995
01/94 17,199 19,001 21,658
07/94 14,840 17,514 19,675
01/95 16,259 17,859 20,825
07/95 22,258 21,888 26,358
01/96 25,023 23,208 27,710
07/96 26,967 23,401 28,777
01/97 30,606 27,606 33,461
07/97 32,361 31,215 37,263
01/98 31,754 32,595 37,939
07/98 33,625 31,937 38,379
01/99 42,845 32,704 39,726
Data from 1/31/89 through 1/31/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Aggressive Growth Fund to the broad-based Russell 2000 (Registered
Trademark) Index and the Lipper Small Cap Funds Average. The Russell
2000 (Registered Trademark) is a widely recognized unmanaged small cap index
consisting of the 2,000 smallest companies within the Russell 3000 (Registered
Trademark) Index. The Lipper Small Cap Funds Average is an average of all the
small cap funds, as reported by Lipper Analytical Services, an independent
organization that monitors the performance of mutual funds.
Message from the Managers
[PHOTOGRAPH OF PORTFOLIO MANAGERS: ERIC M. EFRON, CFA AND JOHN K. CABELL, JR.,
CFA APPEARS HERE]
MARKET CONDITIONS
During the six-month period ending January 31, 1999, investors in small cap
equities, which constitute most of the assets in the Fund, experienced both the
dark and the bright sides of volatility. The Russell 2000 (Registered Trademark)
Index, perhaps the best known indicator of small cap stock performance,
plummeted 19.5% in August, 1998. It then rallied 11.3% between September 1 and
September 23. Between September 23 and October 8, it plunged another 15.7%
before it hit bottom for the period. A hefty 37.7% rebound through January
closed the index just below its semiannual peak level.
For the six month period, the Russell 2000 (Registered Trademark) Index eked out
a modest 1.8% total return. This vastly underperformed the robust results of
large cap stocks as represented by the following indices:
Dow Jones Industrial Average(1) +5.4%
S&P 500(2) +14.2%
NASDAQ Composite(3) +33.8%
This extended a trend set over the several previous years in which investors
have overlooked the growth prospects and modest valuations of small cap stocks
in favor of the liquidity and perceived safety of large cap equities.
(1) The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30
actively traded blue chip stocks. Prepared and published by Dow Jones & C0.
(2) 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.
(3) NYSE Composite Index - market value-weighted index which relate all NYSE
stocks to an aggregate market value as of December 31, 1965, adjusted for
capitalization changes. The base value of the Index is $50 and point
changes are expressed in dollars and cents.
PERFORMANCE
Although past performance is no guarantee of future results, your Fund's total
return was 27.4% for the six months ended January 31, 1999. We are pleased that
we were able to overcome the relative weakness of the small cap investment
environment and outperformed the Lipper Small Cap Funds Average and most major
stock market indices, with the exception of the NASDAQ, by a wide margin.
PORTFOLIO STRATEGY
We remain steadfast in our commitment to growth as the primary builder and
determinant of value. Because there appears to be a positive correlation between
growth rates and stock price appreciation over the longer term, we believe that
companies with the greatest growth potential represent the most attractive
investment opportunities. Likewise, we continue to believe that well-managed
smaller companies represent appropriate vehicles through which to pursue rapid
growth. Because they are relatively unencumbered by legacy products and
infrastructures, innovative and smaller young companies often have better
flexibility to rapidly seize upon the commercial opportunities brought about by
ongoing societal and economic change.
The Fund has also continued to invest in large capitalization companies with
rapid earnings growth potential. We believe there are many larger companies that
have retained their vigor as they have grown and that remain suitable investment
vehicles. Also, because their short-term price movements tend not to move in
lockstep with those of smaller stocks, larger stocks also have the potential to
contribute to more consistent portfolio returns for the Fund over time. With
this in mind, we have dedicated a portion of the portfolio to large cap stocks
such as:
- - Intel - Microsoft - Cisco Systems
- - Dell Computer - Ascend Communications - Home Depot
- - Infinity Broadcasting - Clear Channel Communications
Large cap stocks contributed significantly to the performance of the Fund in the
August 1998-January 1999 period, helping it rise above the disfavor into which
small cap stocks have fallen.
During the period under review, the Fund had significant investment positions in
the following:
- - Biotechnology (Immunex, Sepracor) - Healthcare (Express Scripts)
- - Telephone services (Metromedia Fiber Network) - Financial services (NCO Group)
- - Retailing (Abercrombie & Fitch, - Technology
and 99(cent) Only Stores)
Within technology, the Fund has invested in a broad range of industries
including communication equipment, semiconductors, semiconductor capital
equipment, networking, computer software and services, and Internet (Network
Solutions) services. The internet area, which has excellent growth prospects,
has provided impressive returns over the past year and, in our opinion, has
become very speculative. We have sold many of our internet holdings at
significant profits in order to limit our exposure.
See page 8 for a complete listing of the Portfolio of Investments in Securities.
OUTLOOK
Over the past year or so, U.S. equity markets have passed through a gauntlet of
economic and political crises in Asia and Russia and continued skirmishes in the
Middle East. On the domestic front, we have experienced political scandals,
hedge fund failures, as well as a punishing mid 1998 correction. Despite these
ordeals, we think U.S. equities have performed very well because of moderate
overall economic growth, low inflation and interest rates, and generally good
corporate earnings. If, as we expect, these conditions persist into 1999, the
environment would appear positive for stock market investments, particularly in
the growth area.
We are also encouraged by the narrowing of the performance gap of small cap
stocks relative to large cap equities over the past few months. Perhaps this
spells the beginning of a reversal of the chronic underperformance that has
afflicted small cap investors and portfolio managers for so long. Small cap
stocks certainly appear to have the attractive growth and valuation
characteristics to merit a return of investor confidence in them.
At the same time, we are mindful that the net asset value of the Fund has
appreciated sharply since early October. Given the historical volatility of the
Fund, we do not believe that such performance is sustainable indefinitely into
the future. With the release of many companies' annual earnings results upon us,
it would not be too surprising to see investors become nervous and stock prices
briefly give back some of their recent gains in the months that lie ahead.
- -------------------------------- ---------------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
- -------------------------------- ---------------------------------------
Network Solutions 3.1 Biotechnology 7.4
Express Scripts 2.6 Internet Services 7.1
Metromedia Fiber Network 2.3 Healthcare-Specialized Services 7.0
Dell Computer 2.1 Electronics-Semiconductors 6.9
Cisco Systems 2.0 Telephones 6.6
3Com 1.9 Retail-Specialty 4.7
Microsoft 1.8 Computer-Networking 4.6
Immunex 1.7 Computer Software & Service 4.4
Med Immune 1.6 Communication Equipment 4.1
Sepracor 1.5 Equipment-Semiconductors 3.7
- ------------------------------- ---------------------------------------
See page 8 for a complete listing of the Portfolio of Investments in Securities.
USAA AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
January 31, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- -----------------------------------------------------------------------------
COMMON STOCKS (97.7%)
Aerospace/Defense (2.6%)
425,000 AAR Corp. $ 8,234
170,000 Aviation Sales Co.* 7,650
180,000 TriStar Aerospace Co.* 1,474
200,000 Triumph Group, Inc.* 6,125
- -----------------------------------------------------------------------------
23,483
- -----------------------------------------------------------------------------
Air Freight (0.4%)
130,000 Eagle USA Airfreight, Inc.* 3,746
- -----------------------------------------------------------------------------
Airlines (0.8%)
100,000 Atlantic Coast Airlines, Inc.* 3,038
155,000 Midwest Express Holdings, Inc.* 4,514
- -----------------------------------------------------------------------------
7,552
- -----------------------------------------------------------------------------
Banks - Major Regional (1.1%)
100,000 Bank United Corp. "A" 4,000
150,000 Columbia Banking Systems, Inc.* 2,550
130,000 Hamilton Bancorp, Inc.* 3,396
- -----------------------------------------------------------------------------
9,946
- -----------------------------------------------------------------------------
Beverages - Alcoholic (1.1%)
100,000 Beringer Wine Estates Holdings, Inc. "B"* 4,500
100,000 Golden State Vintners, Inc.* 1,494
100,000 Robert Mondavi Corp. "A"* 3,975
- -----------------------------------------------------------------------------
9,969
- -----------------------------------------------------------------------------
Biotechnology (7.4%)
100,000 Centocor, Inc.* 4,206
120,000 Genzyme Corp.* 6,540
100,000 IDEC Pharmaceuticals Corp.* 5,050
100,000 Immunex Corp.* 15,613
300,000 Med Immune, Inc.* 14,850
53,000 SangStat Medical Corp.* 1,462
120,000 Sepracor, Inc.* 13,770
255,000 Techne Corp.* 6,439
- -----------------------------------------------------------------------------
67,930
- -----------------------------------------------------------------------------
Broadcasting - Radio & TV (2.8%)
210,000 Clear Channel Communications, Inc.* 12,994
162,700 Cumulus Media, Inc. "A"* 2,766
66,900 Entercom Communications Corp.* 1,505
83,100 Gray Communications Systems, Inc. "B" 1,153
118,100 Infinity Broadcasting Corp.* 3,270
85,800 Univision Communications, Inc. "A"* 3,850
- -----------------------------------------------------------------------------
25,538
- -----------------------------------------------------------------------------
Building Material Group (0.4%)
90,000 Fastenal Co. 3,471
- -----------------------------------------------------------------------------
Communication Equipment (4.1%)
127,800 Advanced Fibre Communications, Inc.* 1,510
300,000 Brightpoint, Inc.* 5,250
36,000 CIENA Corp.* 727
152,000 Datum, Inc.* 1,235
161,805 Digital Microwave Corp.* 1,537
242,900 Harmonic Lightwaves, Inc.* 5,951
102,100 JDS Fitel, Inc.* 4,565
207,000 Ortel Corp.* 2,225
200,000 P-Com, Inc.* 2,025
228,200 Pairgain Technologies, Inc.* 2,439
143,450 REMEC, Inc.* 2,869
186,900 Spectrian Corp.* 3,084
108,300 Terayon Communication Systems, Inc.* 4,386
- -----------------------------------------------------------------------------
37,803
- -----------------------------------------------------------------------------
Computer - Hardware (2.9%)
192,800 Dell Computer Corp.* 19,280
263,600 Sandisk Corp.* 7,611
- -----------------------------------------------------------------------------
26,891
- -----------------------------------------------------------------------------
Computer - Networking (4.6%)
378,250 3Com Corp.* 17,778
166,500 Cisco Systems, Inc.* 18,575
168,800 FORE Systems, Inc.* 2,838
159,600 Xylan Corp.* 3,232
- -----------------------------------------------------------------------------
42,423
- -----------------------------------------------------------------------------
Computer - Peripherals (0.9%)
283,600 HMT Technology Corp.* 3,067
286,700 Read-Rite Corp.* 4,784
- -----------------------------------------------------------------------------
7,851
- -----------------------------------------------------------------------------
Computer Software & Service (4.4%)
101,700 CBT Group Public Ltd. Co.* 1,818
60,700 Deltek Systems, Inc.* 1,093
173,600 DSET Corp.* 3,168
163,200 Macrovision Corp.* 5,059
96,400 Microsoft Corp.* 16,870
66,800 Microstrategy, Inc.* 1,937
100,000 PLATINUM Technology International, Inc.* 1,325
206,500 Rational Software Corp.* 6,827
87,300 Saville Systems plc* 1,910
112,800 Softworks, Inc.* 677
- -----------------------------------------------------------------------------
40,684
- -----------------------------------------------------------------------------
Distributions - Food/Health (0.4%)
130,000 United Natural Foods, Inc.* 3,591
- -----------------------------------------------------------------------------
Drugs (1.8%)
160,000 Elan Corp. plc ADR* 10,800
130,000 Jones Pharma, Inc.* 4,144
60,000 Roberts Pharmaceutical Corp.* 1,170
- -----------------------------------------------------------------------------
16,114
- -----------------------------------------------------------------------------
Electronics - Semiconductors (6.9%)
149,200 Applied Micro Circuits Corp.* 6,266
201,700 Genesis Microchip, Inc.* 6,631
81,900 Intel Corp. 11,543
103,500 Lattice Semiconductor Corp.* 5,667
151,500 MIPS Technologies, Inc.* 5,927
140,400 MMC Networks, Inc.* 2,115
71,200 Rambus, Inc.* 5,349
195,100 TranSwitch Corp.* 7,658
118,600 Triquint Semiconductor, Inc.* 2,876
179,000 Vitesse Semiconductor Corp.* 9,252
- -----------------------------------------------------------------------------
63,284
- -----------------------------------------------------------------------------
Engineering & Construction (0.1%)
35,800 Quanta Services, Inc.* 1,007
- -----------------------------------------------------------------------------
Equipment - Semiconductors (3.7%)
171,600 Brooks Automation, Inc.* 4,129
135,000 Cerprobe Corp.* 2,329
196,100 CFM Technologies, Inc.* 2,231
181,100 Cymer, Inc.* 5,320
150,500 Electroglas, Inc.* 2,521
80,000 Etec Systems, Inc.* 4,295
244,900 Integrated Process Equipment Corp.* 3,428
111,400 Photronics, Inc.* 2,868
113,700 PRI Automation, Inc.* 4,036
147,300 Speedfam International, Inc.* 3,075
- -----------------------------------------------------------------------------
34,232
- -----------------------------------------------------------------------------
Finance - Consumer (0.7%)
193,300 NCO Group, Inc.* 6,814
- -----------------------------------------------------------------------------
Finance - Diversified (0.4%)
120,000 Heller Financial, Inc. "A" 3,285
- -----------------------------------------------------------------------------
Foods (1.4%)
150,000 American Italian Pasta Co. "A"* 4,200
100,000 Horizon Organic Holding Corp.* 1,575
190,000 Suiza Foods Corp.* 6,757
- -----------------------------------------------------------------------------
12,532
- -----------------------------------------------------------------------------
Healthcare - Diversified (1.1%)
100,000 ICON plc ADR* 2,900
131,200 PAREXEL International Corp.* 3,411
100,000 Professional Detailing, Inc.* 3,400
- -----------------------------------------------------------------------------
9,711
- -----------------------------------------------------------------------------
Healthcare - Specialized Services (7.0%)
355,000 Express Scripts, Inc. "A"* 23,341
200,000 MedQuist, Inc.* 6,925
330,000 Orthodontic Centers of America, Inc.* 6,311
140,000 Pediatrix Medical Group, Inc.* 9,039
80,000 QuadraMed Corp.* 2,270
225,000 Renal Care Group, Inc.* 6,975
150,000 Superior Consultant Holdings Corp.* 6,244
110,000 Total Renal Care Holdings, Inc.* 2,564
- -----------------------------------------------------------------------------
63,669
- -----------------------------------------------------------------------------
Home Furnishings & Appliances (1.1%)
220,000 Ethan Allen Interiors, Inc. 10,505
- -----------------------------------------------------------------------------
Hospitals (0.2%)
100,000 Province Healthcare Co.* 2,156
- -----------------------------------------------------------------------------
Insurance - Life/Health (0.1%)
40,200 MONY Group, Inc.* 1,126
- -----------------------------------------------------------------------------
Internet Services (7.1%)
84,600 24/7 Media, Inc.* 3,183
181,200 Concentric Network Corp.* 7,882
143,500 Digital River, Inc.* 8,144
95,300 Entrust Technologies, Inc.* 3,359
86,800 NetGravity, Inc.* 1,964
118,900 Network Solutions, Inc. "A"* 28,655
196,800 Preview Travel, Inc.* 5,227
199,400 USWeb Corp.* 6,082
- -----------------------------------------------------------------------------
64,496
- -----------------------------------------------------------------------------
Investment Banks / Brokerage (0.6%)
120,000 Knight/Trimark Group, Inc.* 5,445
- -----------------------------------------------------------------------------
Lodging/Hotel (0.7%)
110,000 Four Seasons Hotels, Inc. 3,438
125,000 ResortQuest International, Inc.* 2,820
- -----------------------------------------------------------------------------
6,258
- -----------------------------------------------------------------------------
Medical Products & Supplies (3.0%)
130,000 Henry Schein, Inc.* 5,468
109,600 Ocular Sciences, Inc.* 2,534
200,000 Omnicare, Inc. 6,125
238,050 Serologicals Corp.* 6,279
250,000 Sybron Corp.* 6,750
- -----------------------------------------------------------------------------
27,156
- -----------------------------------------------------------------------------
Nursing Care (0.6%)
125,000 Sunrise Assisted Living, Inc.* 5,250
- -----------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.6%)
100,000 Carbo Ceramics, Inc. 1,600
200,000 Petroleum Geo-Services ADR* 2,700
170,000 Varco International, Inc.* 1,243
- -----------------------------------------------------------------------------
5,543
- -----------------------------------------------------------------------------
Personal Care (1.1%)
100,000 Estee Lauder Companies, Inc. "A" 8,206
130,000 Revlon, Inc. "A"* 2,137
- -----------------------------------------------------------------------------
10,343
- -----------------------------------------------------------------------------
Precious Metals & Mining (0.2%)
75,000 Stillwater Mining Co.* 1,969
- -----------------------------------------------------------------------------
Railroads/Shipping (0.3%)
100,000 MotivePower Industries, Inc.* 3,131
- -----------------------------------------------------------------------------
Restaurants (1.2%)
60,000 P. F. Chang's China Bistro, Inc.* 1,215
235,850 Papa John's International, Inc.* 9,611
- -----------------------------------------------------------------------------
10,826
- -----------------------------------------------------------------------------
Retail - Building Supplies (1.4%)
210,000 Home Depot, Inc. 12,679
- -----------------------------------------------------------------------------
Retail - Food (0.3%)
120,000 Wild Oats Markets, Inc.* 2,887
- -----------------------------------------------------------------------------
Retail - General Merchandising (1.2%)
255,000 Dollar Tree Stores, Inc.* 11,013
- -----------------------------------------------------------------------------
Retail - Specialty (4.7%)
250,000 99 Cents Only Stores* 11,094
130,000 Abercrombie & Fitch Co. "A"* 9,945
120,000 Cost Plus, Inc.* 4,260
85,000 CSK Auto Corp.* 2,869
130,000 Hibbett Sporting Goods, Inc.* 2,308
150,000 Party City Corp.* 2,700
176,900 Rental Service Corp.* 4,301
70,000 Restoration Hardware, Inc.* 1,439
120,000 Williams-Sonoma, Inc.* 4,162
- -----------------------------------------------------------------------------
43,078
- -----------------------------------------------------------------------------
Retail - Specialty Apparel (0.3%)
150,000 Delia's, Inc.* 2,475
- -----------------------------------------------------------------------------
Services - Commercial & Consumer (1.8%)
100,000 Barra, Inc.* 2,138
130,900 Carreker-Antinori, Inc.* 818
300,000 MSC Industrial Direct Co. "A"* 7,762
320,000 Stewart Enterprises, Inc. "A" 5,600
- -----------------------------------------------------------------------------
16,318
- -----------------------------------------------------------------------------
Services - Computer Systems (1.2%)
146,600 Flextronics International Ltd.* 6,212
75,537 Sanmina Corp.* 5,004
- -----------------------------------------------------------------------------
11,216
- -----------------------------------------------------------------------------
Services - Data Processing (0.6%)
126,100 Checkfree Holdings Corp.* 5,107
- -----------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (1.4%)
122,800 Crown Castle International Corp.* 2,656
114,500 IDT Corp.* 1,775
233,500 Microcell Telecommunications, Inc. "B"* 1,861
118,200 Omnipoint Corp.* 1,684
92,300 Powertel, Inc.* 1,465
114,000 Western Wireless Corp. "A"* 2,992
- -----------------------------------------------------------------------------
12,433
- -----------------------------------------------------------------------------
Telecommunications - Long Distance (2.3%)
47,000 Global Crossing Ltd.* 2,485
249,200 ITC DeltaCom, Inc.* 3,738
63,600 IXC Communications, Inc.* 2,258
53,000 Level 3 Communications, Inc.* 2,776
45,500 Pacific Gateway Exchange, Inc.* 1,507
58,000 Qwest Communications International, Inc.* 3,476
77,000 RSL Communications Ltd. "A"* 1,973
151,085 STAR Telecommunications, Inc.* 2,021
105,800 Startec Global Communications Corp.* 893
- -----------------------------------------------------------------------------
21,127
- -----------------------------------------------------------------------------
Telephones (6.6%)
36,200 Covad Communications Group, Inc.* 1,910
178,700 e.spire Communications, Inc.* 927
135,900 Electric Lightwave, Inc. "A"* 1,206
93,600 Global TeleSystems Group, Inc.* 5,862
208,700 GST Telecommunications, Inc.* 1,761
151,500 Hyperion Telecommunications, Inc. "A"* 2,007
64,200 ICG Communications, Inc.* 1,208
83,000 Intermedia Communications of Florida, Inc.* 1,152
46,100 McLeod, Inc.* 1,916
458,000 Metromedia Fiber Network, Inc. "A"* 20,982
142,200 MetroNet Communications Corp. "B"* 5,261
87,700 NEXTLINK Communications, Inc. "A"* 3,875
281,900 Northeast Optic Network, Inc.* 4,440
96,600 Teligent, Inc. "A"* 3,381
98,000 Winstar Communications, Inc.* 4,208
- -----------------------------------------------------------------------------
60,096
- -----------------------------------------------------------------------------
Textiles - Apparel (1.3%)
110,000 Columbia Sportswear Co.* 1,911
80,000 North Face, Inc.* 1,105
120,000 Tommy Hilfiger Corp.* 8,460
- -----------------------------------------------------------------------------
11,476
- -----------------------------------------------------------------------------
Truckers (0.8%)
230,000 Coach USA, Inc.* 6,886
- -----------------------------------------------------------------------------
Total common stocks (cost: $544,071) 892,521
- -----------------------------------------------------------------------------
Principal
Amount
(000)
---------
SHORT-TERM (1.1%)
Commercial Paper
$ 10,112 General Electric Capital Corp., 4.81%, 2/01/1999
(cost: $10,109) 10,109
- ----------------------------------------------------------------------------
Total investments (cost: $554,180) $902,630
============================================================================
USAA AGGRESSIVE 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 6.7% 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.
<TABLE>
USAA AGGRESSIVE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 1999
(Unaudited)
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $554,180) $902,630
Cash 157
Receivables:
Capital shares sold 526
Dividends 54
Securities sold 15,916
--------
Total assets 919,283
--------
LIABILITIES
Securities purchased 3,706
Capital shares redeemed 1,400
USAA Investment Management Company 274
USAA Transfer Agency Company 201
Accounts payable and accrued expenses 110
--------
Total liabilities 5,691
--------
Net assets applicable to capital shares outstanding $913,592
========
REPRESENTED BY:
Paid-in capital $553,917
Accumulated net investment loss (2,135)
Accumulated net realized gain on investments 13,360
Net unrealized appreciation of investments 348,450
--------
Net assets applicable to capital shares outstanding $913,592
========
Capital shares outstanding 26,843
========
Authorized shares of $.01 par value 55,000
========
Net asset value, redemption price, and offering price per share $ 34.03
========
See accompanying notes to financial statements.
</TABLE>
USAA AGGRESSIVE GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 1999
(Unaudited)
Net investment loss:
Income:
Dividends (net of foreign taxes withheld of $1) $ 231
Interest 358
--------
Total income 589
--------
Expenses:
Management fees 1,376
Transfer agent's fees 1,062
Custodian's fees 76
Postage 108
Shareholder reporting fees 26
Directors' fees 2
Registration fees 52
Professional fees 16
Other 6
--------
Total expenses 2,724
--------
Net investment loss (2,135)
Net realized and unrealized gain on investments:
Net realized gain 13,446
Change in net unrealized appreciation/depreciation 186,427
--------
Net realized and unrealized gain 199,873
--------
Increase in net assets resulting from operations $197,738
========
See accompanying notes to financial statements.
<TABLE>
USAA AGGRESSIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 1999
and Year ended July 31, 1998
(Unaudited)
<CAPTION>
1/31/99 7/31/98
- ---------------------------------------------------------------------------------------
<S> <C> <C>
From operations:
Net investment loss $ (2,135) $ (2,882)
Net realized gain on investments 13,446 125,534
Change in net unrealized appreciation/depreciation of
investments 186,427 (95,797)
------------------------
Increase in net assets resulting from operations 197,738 26,855
------------------------
Distributions to shareholders from:
Net realized gains (91,694) (54,316)
------------------------
From capital share transactions:
Proceeds from shares sold 162,001 221,629
Shares issued for dividends reinvested 90,619 51,253
Cost of shares redeemed (181,522) (262,955)
------------------------
Increase in net assets from capital share transactions 71,098 9,927
------------------------
Net increase (decrease) in net assets 177,142 (17,534)
Net assets:
Beginning of period 736,450 753,984
------------------------
End of period $913,592 $736,450
========================
Undistributed net investment loss included in net assets:
End of period $ (2,135) $ -
========================
Change in shares outstanding:
Shares sold 6,024 6,779
Shares issued for dividends reinvested 4,176 1,690
Shares redeemed (6,644) (8,156)
------------------------
Increase in shares outstanding 3,556 313
========================
See accompanying notes to financial statements.
</TABLE>
USAA AGGRESSIVE 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 Aggressive Growth Fund (the Fund). The Fund's investment objective is
appreciation of capital. USAA Investment Management Company (the Manager) seeks
to achieve this objective by investing the Fund's assets primarily in equity
securities of companies that have the prospect of rapidly growing earnings.
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 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 both agreements 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 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 $88.4 million
and $115.4 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1999 was $388.5 million and $40.0 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 as a percentage of its annual average net assets, which on an
annual basis is equal to .50% of the first $200 million, .40% of that portion
over $200 million but not over $300 million, and .33% of the portion over $300
million.
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.
(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.
<TABLE>
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<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 $ 31.62 $ 32.82 $ 27.88 $ 24.49 $ 17.74 $ 20.40
Net investment loss (.08)(a) (.12)(a) (.14)(a) (.12)(a) (.05)(a) (.02)(a)
Net realized and
unrealized gain (loss) 6.48 1.26 5.65 5.12 8.35 (1.37)
Distributions from net
investment income - - - - - (.02)
Distributions of realized
capital gains (3.99) (2.34) (.57) (1.61) (1.55) (1.25)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 34.03 $ 31.62 $ 32.82 $ 27.88 $ 24.49 $ 17.74
===============================================================================
Total return (%) * 27.42 3.91 20.00 21.16 49.98 (7.31)
Net assets at
end of period (000) $913,592 $736,450 $753,984 $607,437 $363,390 $248,953
Ratio of expenses to
average net assets (%) .77(b) .71 .74 .74 .86 .83(b)
Ratio of net investment
loss to average
net assets (%) (.60)(b) (.38) (.47) (.42) (.28) (.10)(b)
Portfolio turnover (%) 12.50 83.32 57.15 43.75 138.32 98.99
* Assumes reinvestment of all dividend income and capital gain distributions during the period.
(a) Calculated using weighted average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of operations.
</TABLE>
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
