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 8
Notes to Portfolio of Investments 13
Statement of Assets and Liabilities 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Growth &
Income Fund, managed by USAA Investment Management Company (IMCO). It may be
used as sales literature only when preceded or accompanied by a current
prospectus which gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)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 the 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 educaation. 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 fulctuate 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 & INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMENTS: Primarily dividend-paying equity securities.
- --------------------------------------------------------------------------------
7/31/98 1/31/99
- --------------------------------------------------------------------------------
Net Assets $1,078.6 Million $1,058.0 Million
Net Asset Value Per Share $18.88 $18.73
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/99
- --------------------------------------------------------------------------------
7/31/98 to 1/31/99 1 Year 5 Years Since Inception on 6/1/93
5.54%(+) 10.46% 16.87% 16.44%
- --------------------------------------------------------------------------------
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Growth & Income Fund, the S&P 500
Index, and the Lipper Growth & Income Funds Average for the period of 06/01/93
through 01/31/99. The data points from the graph are as follows:
USAA Growth Lipper Growth &
& Income Fund S&P 500 Index Income Funds Average
------------- ------------- --------------------
06/01/93 $10,000 $10,000 $10,000
07/93 9,930 9,989 10,034
01/94 10,865 10,883 10,981
07/94 10,566 10,503 10,575
01/95 10,751 10,940 10,727
07/95 12,711 13,242 12,739
01/96 14,290 15,165 14,242
07/96 14,576 15,433 14,481
01/97 17,895 19,158 17,524
07/97 21,382 23,476 20,927
01/98 21,449 24,312 21,452
07/98 22,449 28,008 23,413
01/99 23,693 32,215 25,184
Data from 6/1/93 through 1/31/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund to the S&P 500 Index and the Lipper Growth & Income
Funds Average. The S&P 500 Index is an unmanaged index representing the 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. The Lipper Growth & Income
Funds Average is an average of all growth & income funds, as reported by Lipper
Analytical Services, Inc., an independent organization that monitors the
performance of mutual funds.
Message from the Manager
[Photograph of the Portfolio Manager, R. David Ullom, CFA, appears here.]
The markets have been gripped by the fear of a global economic collapse. Much of
this fear is based on Russia's cracked economy and Brazil's devalued currency.
There are also growing concerns regarding the Chinese economy. Yet the U.S.
economy remains robust, exceeding all expectations with a 6.1% growth in the
fourth quarter. This economic confusion has led to a "flight to quality." As a
result, the top 50 names of the S&P 500 Index dominated performance over the
last six months.
We had made several modifications since September of last year. The market
correction in the fall presented many large cap investment opportunities in the
stocks of companies that had attractive valuations and sound fundamentals.
Funding for the purchase of these stocks came from the sale of small and mid
capitalization companies. We also used the correction as an opportunity to
improve diversification. We increased the weighting in technology and consumer
staples and lowered the weighting in capital goods and consumer cyclicals.
PERFORMANCE
Our Fund had been positioned for the strong economic growth, but that strength
did not translate into cyclical performance. For the six months ended January
31, 1999, your Fund's total return was 5.54% versus the Lipper Growth & Income
Average of 5.30%.(1) Many of the cyclical/commodity issues owned in the fund are
at least partially dependent on global economic growth, which proved to be weak
over the latest six months as opposed to the strength in the U.S. economy. Also,
currency translations had a negative impact on reported earnings for many of
these companies.
Since our last report of July 31, 1998, the best performance occurred in
technology, healthcare, and basic materials. The stocks of technology and
healthcare companies performed well as they continued to show strong earnings
growth. Selected holdings in Weyerhaeuser and Alcoa did well as reported
earnings exceeded most expectations. Finally, communications services helped the
Fund's performance as these companies also reported better than expected
earnings growth.
Underperformance occurred in capital goods, consumer cyclicals, and energy. To
some degree, these areas are represented by companies that have various degrees
of exposure to cyclical and or commodity oriented products. Pricing for most
commodities continued to decline over the latest six months.
(1) Refer to page 4 for the Lipper Average definition.
OUTLOOK AND PERSPECTIVE
Strong economic growth in the U.S. and at least some recovery in certain
Southeast Asian countries appear to be ahead in 1999. Also, the implementation
of a common currency in Europe seems to have been accomplished with few
problems. Thus, the outlook for 1999 is for reasonable economic growth in both
the U.S. and Europe, with the potential for some recovery in the economies of
Southeast Asia. Latin America and in particular Brazil, remain a question mark.
We have positioned the Fund to benefit from the expectation of economic growth
in the U.S. and some recovery in growth in the emerging market economies. As we
have discussed in previous shareholder reports, we continue to select stocks
demonstrating sound management, attractive valuation, and a strong outlook for
earnings and cash flow growth.
Past performance is no guarantee of future results.
- -------------------------------- ---------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
- --------------------------------- ---------------------------------
Microsoft 2.7 Drugs 6.1
Morgan Stanley, Dean Witter, Healthcare-Diversified 4.7
Discover & Co. 2.6 Telephones 4.0
Pharmacia & Upjohn 2.6 Banks-Money Center 3.9
Bell Atlantic 2.3 Computer Software & Services 3.5
Intel 2.3 Finance-Diversified 3.3
American Home Products 2.2 Retail-General Merchandising 3.2
Applied Materials 2.1 Household Products 3.0
Merck & Co. 2.1 Electrical Equipment 3.0
Bausch & Lomb 2.1 Electric Utilities 2.6
Cisco Systems 2.0 ---------------------------------
- ---------------------------------
PORTFOLIO INVESTMENT DIVERSIFICATION
JANUARY 31, 1999
A pie chart is shown here illustrating the Portfolio Investment Diversification
as of January 31, 1999 for the USAA Growth & Income Fund:
Financial - 15.5%*; Technology - 14.7%*; Healthcare - 14.0%*; Consumer Cyclicals
- - 12.9%*; Capital Goods - 11.7%*; Consumer Staples - 8.9%*; Communication
Services - 6.9%*; Basic Materials - 6.4%*; Energy - 4.9%*; Utilities - 2.6%*;
and Transportation - 1.5%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
See page 8 for a complete listing of the Portfolio of Investments.
USAA GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
January 31, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (98.0%)
Aerospace/Defense (1.1%)
345,000 Boeing Co. $ 11,924
- --------------------------------------------------------------------------------
Aluminum (1.9%)
240,000 Alcoa, Inc. 20,070
- --------------------------------------------------------------------------------
Automobiles (1.8%)
305,000 Ford Motor Co. 18,738
- --------------------------------------------------------------------------------
Auto Parts (2.0%)
250,000 Intermet Corp. 3,406
440,000 Lear Corp.* 17,325
- --------------------------------------------------------------------------------
20,731
- --------------------------------------------------------------------------------
Banks - Major Regional (0.4%)
115,000 SouthTrust Corp. 4,269
- --------------------------------------------------------------------------------
Banks - Money Center (3.9%)
215,004 BankAmerica Corp. 14,378
190,000 Chase Manhattan Corp. 14,618
220,000 Citigroup, Inc. 12,334
- --------------------------------------------------------------------------------
41,330
- --------------------------------------------------------------------------------
Beverages - Alcoholic (1.8%)
270,000 Anheuser-Busch Companies, Inc. 19,086
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (0.9%)
150,000 Coca-Cola Co. 9,816
- --------------------------------------------------------------------------------
Chemicals (0.9%)
562,700 Millennium Chemicals, Inc. 9,707
- --------------------------------------------------------------------------------
Chemicals - Diversified (2.1%)
420,000 B.F. Goodrich Co. 14,280
145,000 FMC Corp. 7,839
- --------------------------------------------------------------------------------
22,119
- --------------------------------------------------------------------------------
Communication Equipment (1.6%)
152,612 Lucent Technologies, Inc. 17,178
- --------------------------------------------------------------------------------
Computer - Hardware (2.1%)
85,000 Hewlett-Packard Co. 6,662
83,000 IBM Corp. 15,210
- --------------------------------------------------------------------------------
21,872
- --------------------------------------------------------------------------------
Computer - Networking (2.0%)
187,500 Cisco Systems, Inc. 20,918
- --------------------------------------------------------------------------------
Computer Software & Service (3.5%)
165,000 Microsoft Corp.* 28,875
142,500 Oracle Corp.* 7,891
- --------------------------------------------------------------------------------
36,766
- --------------------------------------------------------------------------------
Consumer Jewelry and Novelties - Miscellaneous (1.3%)
352,500 American Greetings Corp. "A" 13,924
- --------------------------------------------------------------------------------
Containers - Metals & Glass (1.9%)
174,800 APTARGroup, Inc. 4,774
338,000 Ball Corp. 15,210
- --------------------------------------------------------------------------------
19,984
- --------------------------------------------------------------------------------
Drugs (6.1%)
152,000 Merck & Co., Inc. 22,306
115,000 Pfizer, Inc. 14,792
475,000 Pharmacia & Upjohn, Inc. 27,312
- --------------------------------------------------------------------------------
64,410
- --------------------------------------------------------------------------------
Electric Utilities (2.6%)
460,000 Houston Industries, Inc. 13,972
435,000 Pacific Gas & Electric Co. 13,893
- --------------------------------------------------------------------------------
27,865
- --------------------------------------------------------------------------------
Electrical Equipment (3.0%)
190,000 General Electric Co. 19,926
266,000 Rockwell International Corp. 11,555
- --------------------------------------------------------------------------------
31,481
- --------------------------------------------------------------------------------
Electronics - Semiconductors (2.3%)
175,000 Intel Corp. 24,664
- --------------------------------------------------------------------------------
Engineering & Construction (0.5%)
151,000 Fluor Corp. 5,757
- --------------------------------------------------------------------------------
Entertainment (0.8%)
250,000 Walt Disney Co. 8,250
- --------------------------------------------------------------------------------
Equipment - Semiconductors (2.1%)
355,000 Applied Materials, Inc.* 22,431
- --------------------------------------------------------------------------------
Finance - Consumer (1.5%)
390,788 Associates First Capital Corp. "A" 15,851
- --------------------------------------------------------------------------------
Finance - Diversified (3.3%)
315,000 Morgan Stanley, Dean Witter, Discover & Co. 27,346
180,000 PMI Group, Inc. 7,717
- --------------------------------------------------------------------------------
35,063
- --------------------------------------------------------------------------------
Foods (1.2%)
474,600 Ralston Purina Group 12,992
- --------------------------------------------------------------------------------
Healthcare - Diversified (4.7%)
388,000 American Home Products Corp. 22,771
115,000 Bristol-Myers Squibb Co. 14,741
145,000 Johnson & Johnson, Inc. 12,325
- --------------------------------------------------------------------------------
49,837
- --------------------------------------------------------------------------------
Healthcare - HMOs (1.2%)
191,000 Pacificare Health Systems, Inc. "A"* 12,248
- --------------------------------------------------------------------------------
Heavy Duty Trucks & Parts (0.9%)
285,000 Aeroquip-Vickers, Inc. 10,046
- --------------------------------------------------------------------------------
Homebuilding (0.6%)
395,100 Walter Industries, Inc.* 5,976
- --------------------------------------------------------------------------------
Household Products (3.0%)
409,000 Kimberly-Clark Corp. 20,373
125,000 Procter & Gamble Co. 11,360
- --------------------------------------------------------------------------------
31,733
- --------------------------------------------------------------------------------
Insurance - Life/Health (1.6%)
192,000 Aetna, Inc. 17,304
- --------------------------------------------------------------------------------
Insurance - Multi-Line Companies (1.8%)
180,000 American International Group, Inc. 18,529
- --------------------------------------------------------------------------------
Insurance - Property/Casualty (0.9%)
286,500 Everest Reinsurance Holdings, Inc. 9,634
- --------------------------------------------------------------------------------
Leisure Time (1.5%)
625,000 Brunswick Corp. 15,430
- --------------------------------------------------------------------------------
Machinery - Diversified (1.3%)
313,000 Deere & Co. 10,192
204,304 Flowserve Corp. 3,435
- --------------------------------------------------------------------------------
13,627
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries (1.2%)
273,000 Hillenbrand Industries, Inc. 12,831
- --------------------------------------------------------------------------------
Manufacturing - Specialized (1.7%)
360,000 Avery Dennison Corp. 17,797
- --------------------------------------------------------------------------------
Medical Products & Supplies (2.1%)
355,000 Bausch & Lomb, Inc. 21,788
- --------------------------------------------------------------------------------
Oil - Domestic Integrated (0.9%)
650,000 Occidental Petroleum Corp. 9,791
- --------------------------------------------------------------------------------
Oil - International Integrated (2.4%)
240,000 Exxon Corp. 16,905
206,000 Royal Dutch Petroleum Co. 8,253
- --------------------------------------------------------------------------------
25,158
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.8%)
500,000 Helmerich & Payne, Inc. 8,781
- --------------------------------------------------------------------------------
Oil & Gas - Exploration & Production (0.8%)
420,000 Apache Corp. 8,085
- --------------------------------------------------------------------------------
Paper & Forest Products (1.5%)
300,000 Weyerhaeuser Co. 16,238
- --------------------------------------------------------------------------------
Photography - Imaging (1.6%)
134,000 Xerox Corp. 16,616
- --------------------------------------------------------------------------------
Railroads/Shipping (1.5%)
580,000 Norfolk Southern Corp. 15,986
- --------------------------------------------------------------------------------
Retail - Department Stores (1.0%)
270,000 J.C. Penney Company, Inc. 10,581
- --------------------------------------------------------------------------------
Retail - General Merchandising (3.2%)
450,000 Sears, Roebuck & Co. 18,056
190,000 Wal-Mart Stores, Inc. 16,340
- --------------------------------------------------------------------------------
34,396
- --------------------------------------------------------------------------------
Services - Data Processing (1.1%)
300,000 First Data Corp. 11,494
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (0.3%)
107,500 Sprint PCS* 3,427
- --------------------------------------------------------------------------------
Telecommunications - Long Distance (2.6%)
115,000 AT&T Corp. 10,436
205,900 Sprint Corp. 17,270
- --------------------------------------------------------------------------------
27,706
- --------------------------------------------------------------------------------
Telephones (4.0%)
413,000 Bell Atlantic Corp. 24,780
260,000 GTE Corp. 17,550
- --------------------------------------------------------------------------------
42,330
- --------------------------------------------------------------------------------
Tobacco (1.2%)
260,000 Philip Morris Cos., Inc. 12,220
- --------------------------------------------------------------------------------
Total common stocks (cost: $787,612) 1,036,785
- --------------------------------------------------------------------------------
Principal
Amount
(000)
---------
SHORT-TERM (2.0%)
Commercial Paper
$21,559 General Electric Capital Corp., 4.81%, 2/01/1999
(cost: $21,553) 21,553
- --------------------------------------------------------------------------------
Total investments (cost: $809,165) $1,058,338
================================================================================
USAA GROWTH & INCOME 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.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 1999
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $809,165) $ 1,058,338
Cash 277
Receivables:
Capital shares sold 478
Dividends 1,061
Securities sold 2,195
-----------
Total assets 1,062,349
-----------
LIABILITIES
Securities purchased 2,128
Capital shares redeemed 1,403
USAA Investment Management Company 534
USAA Transfer Agency Company 224
Accounts payable and accrued expenses 47
-----------
Total liabilities 4,336
-----------
Net assets applicable to capital shares outstanding $ 1,058,013
===========
REPRESENTED BY:
Paid-in capital $ 805,854
Accumulated undistributed net investment income 176
Accumulated net realized gain on investments 2,810
Net unrealized appreciation of investments 249,173
-----------
Net assets applicable to capital shares outstanding $ 1,058,013
===========
Capital shares outstanding 56,487
===========
Authorized shares of $.01 par value 110,000
===========
Net asset value, redemption price, and offering price per share $ 18.73
===========
See accompanying notes to financial statements.
USAA GROWTH & INCOME 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 $45) $ 8,741
Interest 661
---------
Total income 9,402
---------
Expenses:
Management fees 3,020
Transfer agent's fees 1,183
Custodian's fees 88
Postage 113
Shareholder reporting fees 31
Directors' fees 2
Registration fees 37
Professional fees 18
Other 10
---------
Total expenses 4,502
---------
Net investment income 4,900
---------
Net realized and unrealized gain on investments:
Net realized gain 5,216
Change in net unrealized appreciation/depreciation 42,906
---------
Net realized and unrealized gain 48,122
---------
Increase in net assets resulting from operations $ 53,022
=========
See accompanying notes to financial statements.
USAA GROWTH & INCOME 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 $ 4,900 $ 10,648
Net realized gain on investments 5,216 61,498
Change in net unrealized appreciation/depreciation
of investments 42,906 (29,399)
--------------------------
Increase in net assets resulting from operations 53,022 42,747
--------------------------
Distributions to shareholders from:
Net investment income (5,207) (10,736)
--------------------------
Net realized gains (51,105) (31,222)
--------------------------
From capital share transactions:
Proceeds from shares sold 112,429 394,483
Shares issued for dividends reinvested 55,134 41,090
Cost of shares redeemed (184,849) (182,865)
--------------------------
Increase (decrease) in net assets from
capital share transactions (17,286) 252,708
--------------------------
Net increase (decrease) in net assets (20,576) 253,497
Net assets:
Beginning of period 1,078,589 825,092
--------------------------
End of period $ 1,058,013 $ 1,078,589
==========================
Undistributed net investment income included in
net assets:
End of period $ 176 $ 483
==========================
Change in shares outstanding:
Shares sold 6,492 20,627
Shares issued for dividends reinvested 3,501 2,240
Shares redeemed (10,644) (9,507)
--------------------------
Increase (decrease) in shares outstanding (651) 13,360
==========================
See accompanying notes to financial statements.
USAA GROWTH & INCOME 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 & Income Fund (the Fund). The Fund's investment objective is capital
growth and current income. USAA Investment Management Company (the Manager)
seeks to achieve the Fund's objective by investing its assets primarily in
dividend paying equity securities.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Securities which cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Directors.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities. Amortization of market discounts on long-term
securities is recognized as interest income upon disposition of the security to
the extent there is a gain on disposition.
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 are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
in the succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended January 31, 1999 were $143.4 million
and $203.0 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
1999 was $296.3 million and $47.1 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 .60% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $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 $38,000.
(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 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 $ 18.88 $ 18.85 $ 13.46 $ 12.07 $ 10.36 $ 10.23
Net investment income .08 .21 .23 .24(a) .24(a) .17(a)
Net realized and
unrealized gain .77 .69 5.84 1.51 1.81 .16
Distributions from net
investment income (.09) (.21) (.23) (.23) (.23) (.18)
Distributions of realized
capital gains (.91) (.66) (.45) (.13) (.11) (.02)
----------------------------------------------------------------------------------
Net asset value at
end of period $ 18.73 $ 18.88 $ 18.85 $ 13.46 $ 12.07 $ 10.36
==================================================================================
Total return (%) * 5.54 4.99 46.69 14.68 20.30 3.28
Net assets at
end of period (000) $1,058,013 $1,078,589 $ 825,092 $ 371,801 $ 208,490 $ 134,622
Ratio of expenses to
average net assets (%) .89(b) .85 .89 .95 1.01 1.12(b)
Ratio of net investment
income to average
net assets (%) .97(b) 1.07 1.50 1.84 2.21 1.95(b)
Portfolio turnover (%) 14.68 29.38 14.67 16.13 19.45 13.90
</TABLE>
* 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.
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
