Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Independent Auditors' Report 7
Portfolio of Investments 8
Notes to Portfolio of Investments 12
Statement of Assets and Liabilities 13
Statement of Operations 14
Statement of Changes in Net Assets 15
Notes to Financial Statements 16
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 Science &
Technology Fund, managed by USAA Investment Management Company (IMCO). It may be
used as sales literature only when preceded or accompanied by a current
prospectus which gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
--------- ---------- ----------
CAPITAL APPRECIATION
===============================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 (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 neither insured nor guaranteed by
the U.S. Government, and there is no assurance that any of the funds will
be able to maintain a stable net asset value of $1 per share.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart (Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. IRAs are not available
for tax-exempt funds. The Growth and Tax Strategy Fund is not available as
an investment for your IRA because the majority of its income is tax
exempt.
** California, Florida, New York, Texas, and Virginia funds available to
residents only.
Non-deposit investment products are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, USAA Federal Savings Bank, and are
subject to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
Message from the President
On June 14, 1998, my wife attended a baby shower given for her daughter, Andrea.
That evening, in addition to many nice gifts, Andrea had another surprise, a new
baby boy, James Kade Broyles. James was our fourth grandchild to receive an
Investart(Registered Trademark) account. His account is in the USAA Growth &
Income Fund. These accounts point up at this time some things I have long
believed.
[Photograph of Michael J. C. Roth, CFA, President and Vice Chairman of the Board
appears here]
Shortly after we opened James' account, the stock market began to feel the
effects of long-simmering problems. There was the Asian crisis, Russia in
turmoil, a worsening trade deficit, and very high stock valuations. Suddenly,
the mood changed. There were several days of market drops well over 100 points
on the Dow. The August 8 edition of The Economist has a picture of a bear on the
cover under the caption "Grin and bear it." So, how do we feel about the four
InveStart accounts? We feel just fine!
The reason is that we have a match between our objective and our risk tolerance.
These accounts are aimed at events 15 to 17 years from now, college for four
grandchildren. We are certain that between then and now, the market will
fluctuate. I think we're better off to keep adding to the InveStart accounts,
because I believe the risk and potential reward are in harmony.
Whatever your investment situation, I believe it is possible to achieve this
kind of match between risk and potential reward that can help you with your
investment program.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Past performance is no guarantee of future results.
A systematic plan, such as Investart, does not assure a profit or protect
against loss in declining markets.
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
Investment Review
USAA SCIENCE & TECHNOLOGY FUND
OBJECTIVE: Long-term capital appreciation.
TYPES OF INVESTMENTS: Primarily common stocks.
- --------------------------------------------------------------------------------
7/31/98
- --------------------------------------------------------------------------------
Net Assets $111.3 Million
Net Asset Value Per Share $11.17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/98
- --------------------------------------------------------------------------------
1 Year 11.70%(+)
- --------------------------------------------------------------------------------
(+) The Fund commenced operations on August 1, 1997.
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 Science & Technology Fund, the
Lipper Science & Technology Funds Average, and the S&P 500 Index for the period
of 08/01/97 through 07/31/98. The data points from the graph are as follows:
Lipper Science &
USAA Science & Technology Funds S&P 500
Technology Fund Average Index
----------------- ---------------- ----------
08/01/97 $10,000 $10,000 $10,000
08/31/97 9,380 10,040 9,440
09/30/97 9,800 10,561 9,957
10/31/97 9,200 9,562 9,625
11/30/97 9,240 9,454 10,070
12/31/97 9,070 9,126 10,243
01/31/98 9,450 9,341 10,356
02/28/98 10,540 10,414 11,102
03/31/98 10,660 10,630 11,670
04/30/98 11,020 11,051 11,790
05/31/98 10,390 10,248 11,588
06/30/98 11,170 10,993 12,058
07/31/98 11,170 10,789 11,931
Data since inception on 8/1/97 through 7/31/98
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Science & Technology Fund to the S&P 500 Index and the Lipper Science &
Technology Funds Average, an average performance level of all science &
technology 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 average performance of a group
of 500 widely held, publicly traded stocks. It is not possible to invest in the
S&P 500 Index.
Message from the Manager
[Photograph of Portfolio Manager, Curt Rohrman, CFA, appears here]
"It's different this time." Investors spend quite a bit of time contemplating
whether this economic cycle and this bull market are different from the past. We
believe everything is in fact different this time, with scientific and
technological developments at the root of the change.
STRATEGY
Your USAA Science & Technology Fund seeks to exploit these changes. We invest in
a broad spectrum of outstanding companies, each developing technologies to
ensure that life will be not just different, but better - technologies as
diverse as internet phone calls, enterprise resource planning software,
treatments for Parkinson's and Alzheimer's, agricultural biotechnology, and
multiwave array seismic surveys.
FUND PERFORMANCE
The stock market's performance during the latest six months was certainly
different from the initial six months of the USAA Science & Technology Fund. The
Fund performed well during the most recent period, with a total return of 18.2%
from January 31, 1998 to July 31, 1998, compared with a 15.2% total return for
the S&P 500 Index.(1) Technology and healthcare stocks contributed gains in
excess of the overall market, while our broad-based approach dampened the
volatility inherent in traditional technology stocks. Other technology funds, as
measured by Lipper's average,(2) increased 15.8% over the past 6 months.
(1) Your Fund's total return since inception on 8/1/97 is 11.7%. Past
performance is no guarantee of future results.
(2) See page 4 for the Lipper Average definition.
OUTLOOK
Our outlook for science and technology stocks remains bullish for the near and
long term horizons - largely because we believe technology is a critical element
sustaining this economic cycle and this bull market. Just a few examples
include: technology provides better information for accurate measurement and
management of production cycles on a micro and a macro level; technology allows
productivity enhancements sufficient to offset moderate increases in labor
costs; and technology affords lower-cost healthcare through substitution of
pharmaceuticals for hospital days.
- ------------------------------------------
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
- ------------------------------------------
Cisco Systems 3.6
Dell Computer 3.4
Medtronic 3.1
American International Group 3.0
Schering-Plough 3.0
Applied Materials 3.0
CVS 2.9
Pfizer 2.9
Lucent Technologies 2.8
Intel 2.8
- ------------------------------------------
- ------------------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
- ------------------------------------------
Drugs 9.9
Electronics-Semiconductors 9.0
Computer Software & Service 8.4
Communication Equipment 6.3
Computer-Networking 5.8
Computer-Hardware 5.5
Medical Products & Supplies 5.3
Retail-Drugs 5.0
Healthcare-Diversified 5.0
Equipment-Semiconductors 4.4
- ------------------------------------------
See page 8 for a complete listing of the Portfolio of Investments.
Independent Auditors' Report
The Shareholders and Board of Directors
USAA SCIENCE & TECHNOLOGY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA Science & Technology Fund, a portfolio
of USAA Mutual Fund, Inc., as of July 31, 1998 and the related statement of
operations, the statement of changes in net assets, and financial highlights,
presented in note 7 to the financial statements, for the period from August 1,
1997 (commencement of operations) through July 31, 1998. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of July 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Science & Technology Fund as of July 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for the
period from August 1, 1997 (commencement of operations) through July 31, 1998,
in conformity with generally accepted accounting principles.
KMPG Peat Marwick LLP
San Antonio, Texas
September 4, 1998
USAA SCIENCE & TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS
July 31, 1998
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.7%)
Advertising/Marketing (2.3%)
58,000 Snyder Communications, Inc. * $ 2,606
-----------
Chemicals (2.2%)
44,000 Monsanto Co. 2,492
-----------
Communication Equipment (6.2%)
34,000 Lucent Technologies, Inc. 3,143
104,000 Pairgain Technologies, Inc. * 1,404
32,000 Tellabs, Inc. * 2,409
-----------
6,956
-----------
Computer - Hardware (5.5%)
35,000 Dell Computer Corp. * 3,801
42,000 Hewlett-Packard Co. 2,331
-----------
6,132
-----------
Computer - Networking (5.8%)
55,000 Ascend Communications, Inc. * 2,446
42,000 Cisco Systems, Inc. * 4,021
-----------
6,467
-----------
Computer - Peripherals (1.0%)
47,000 Seagate Technology, Inc. * 1,069
-----------
Computer Software & Service (8.4%)
56,000 J.D. Edwards & Co. * 2,093
25,000 Microsoft Corp. * 2,748
49,000 Network Associates, Inc. * 2,337
57,000 Synopsys, Inc. * 2,166
-----------
9,344
-----------
Drugs (9.9%)
29,000 Pfizer, Inc. 3,190
34,000 Schering-Plough Corp. 3,289
45,000 SmithKline Beecham plc ADR "A" 2,576
50,000 Zeneca Group plc ADR 1,941
-----------
10,996
-----------
Electronics - Semiconductors(9.0%)
112,000 Analog Devices, Inc. * 2,408
37,000 Intel Corp. 3,124
33,000 Linear Technology Corp. 1,974
42,000 Texas Instruments, Inc. 2,491
-----------
9,997
-----------
Equipment - Semiconductors (4.4%)
98,000 Applied Materials, Inc. * 3,283
40,000 Tegal Corp. * 150
65,000 Teradyne, Inc. * 1,491
-----------
4,924
-----------
Finance - Diversified (1.1%)
25,000 Federal Home Loan Mortgage Corp. 1,181
-----------
Healthcare - Diversified (5.0%)
22,000 Bristol-Myers Squibb Co. 2,506
39,000 Johnson & Johnson, Inc. 3,013
-----------
5,519
-----------
Healthcare - Specialized Services (3.7%)
96,000 HBO & Co. 2,829
20,000 IMS Healthcare, Inc. 1,256
-----------
4,085
-----------
Hospitals (2.1%)
79,000 Tenet Healthcare Corp. * 2,365
-----------
Insurance - Multi-Line Companies (3.0%)
22,000 American International Group, Inc. 3,318
-----------
Internet Services (0.4%)
8,000 broadcast.com, Inc. * 437
-----------
Major Regional Banks (3.4%)
30,000 First Tennessee National Corp. 941
13,000 Fleet Financial Group, Inc. 1,117
25,000 Mellon Bank Corp. 1,685
-----------
3,743
-----------
Medical Products & Supplies(5.3%)
27,000 Boston Scientific Corp. * 2,069
55,000 Medtronic, Inc. 3,407
60,000 Nanogen, Inc. * 450
-----------
5,926
-----------
Money Center Banks (1.9%)
36,000 First Union Corp. 2,169
-----------
Oil & Gas - Drilling/Equipment (1.4%)
15,000 BJ Services Co. * 316
20,000 Schlumberger Ltd. 1,211
-----------
1,527
-----------
Retail - Drugs (5.0%)
78,000 CVS Corp. 3,198
77,000 Duane Reade, Inc. * 2,324
-----------
5,522
-----------
Services - Commercial & Consumer (2.7%)
59,000 Applied Graphics Technologies, Inc. * 3,046
-----------
Services - Data Processing (2.4%)
75,000 Sungard Data Systems, Inc. * 2,672
-----------
Telecommunications - Long Distance (3.1%)
10,000 MCI Communications Corp. 648
53,000 WorldCom, Inc. * 2,802
-----------
3,450
-----------
Telephones (2.5%)
68,000 SBC Communications Corp. 2,780
-----------
Total common stocks (cost: $96,324) 108,723
-----------
Principal
Amount
(000)
- ------------
SHORT-TERM (3.4%)
U.S. Government & Agency Issues
$3,778 Federal Home Loan Mortgage Corp.,
5.56%, 8/03/98 (cost: $3,777) 3,777
-----------
Total investments (cost: $100,101) $112,500
===========
USAA SCIENCE & TECHNOLOGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
July 31, 1998
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 5.1% of net assets at July 31, 1998.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
July 31, 1998
ASSETS
Investments in securities, at market value
(identified cost of $100,101) $ 112,500
Cash 175
Receivables:
Capital shares sold 340
USAA Transfer Agency Company 2
Dividends 55
-----------
Total assets 113,072
-----------
LIABILITIES
Securities purchased 1,336
Capital shares redeemed 273
USAA Investment Management Company 72
Accounts payable and accrued expenses 73
-----------
Total liabilities 1,754
-----------
Net assets applicable to capital shares outstanding $ 111,318
===========
REPRESENTED BY:
Paid-in capital $ 99,481
Accumulated net realized loss on investments (562)
Net unrealized appreciation of investments 12,399
-----------
Net assets applicable to capital shares outstanding $111,318
===========
Capital shares outstanding 9,961
===========
Authorized shares of $.01 par value 105,000
===========
Net asset value, redemption price, and offering price per share $ 11.17
===========
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended July 31, 1998*
Net investment loss:
Income:
Dividends $ 294
Interest 208
-----------
Total income 502
-----------
Expenses:
Management fees 522
Transfer agent's fees 249
Custodian's fees 46
Postage 32
Shareholder reporting fees 9
Directors' fees 3
Registration fees 82
Professional fees 32
Other 5
-----------
Total expenses 980
-----------
Net investment loss (478)
-----------
Net realized and unrealized gain/(loss) on investments:
Net realized loss (562)
Change in net unrealized appreciation/depreciation 12,399
-----------
Net realized and unrealized gain 11,837
-----------
Increase in net assets resulting from operations $ 11,359
===========
* Fund commenced operations August 1, 1997.
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Year ended July 31, 1998*
From operations:
Net investment loss $ (478)
Net realized loss on investments (562)
Change in net unrealized appreciation/
depreciation of investments 12,399
-----------
Increase in net assets resulting from operations 11,359
-----------
From capital share transactions:
Proceeds from shares sold 120,796
Cost of shares redeemed (20,837)
-----------
Increase in net assets from capital share transactions 99,959
-----------
Net increase in net assets 111,318
Net assets:
Beginning period --
-----------
End of period $ 111,318
===========
Change in shares outstanding:
Shares sold 11,974
Shares redeemed (2,013)
-----------
Increase in shares outstanding 9,961
===========
* Fund commenced operations August 1, 1997.
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
(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 annual report pertains only to the USAA
Science & Technology Fund (the Fund). The Fund's primary investment objective is
long-term capital appreciation. USAA Investment Management Company (the Manager)
seeks to achieve this objective by investing at least 80% of the Fund's assets
in equity securities that are expected to benefit from the development and use
of scientific and technological advances and improvements.
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. As a result of certain
permanent differences between book and tax basis accounting, reclassifications
have been made on the statement of assets and liabilities to decrease
accumulated net investment loss and decrease paid-in capital by $478,000.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities.
D. Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing rate
with no markup. Subject to availability under its agreement with NationsBank,
the Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's total
assets at NationsBank's borrowing rate plus a markup. The Fund had no borrowings
under either of these agreements during the year ended July 31, 1998.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes. At July 31,
1998, the Fund had capital loss carryovers for federal income tax purposes of
approximately $470,000 which, if not offset by subsequent capital gains, will
expire in 2006. It is unlikely that the Fund's Board of Directors will authorize
a distribution of capital gains realized in the future until the capital loss
carryovers have been utilized or expired.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the year ended July 31, 1998 were $146.2 million and $49.3
million, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
1998 was $17.2 million and $4.8 million, respectively.
(5) TRANSACTIONS WITH MANAGER
A. Management fees - The investment policies of the Fund and management of the
Fund's portfolio are carried out by USAA Investment Management Company. The
Fund's management fees are computed at .75% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $23.50 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year ended July
31, 1998 was $12,000.
(6) TRANSACTIONS WITH AFFILIATES
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At July 31, 1998, the Association and its affiliates owned
2 million shares (20.1%) of the Fund.
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the period is
as follows:
Year Ended
July 31,
1998*
--------------
Net asset value at beginning of period $ 10.00
Net investment loss (.07)(a)
Net realized and unrealized gain 1.24
--------------
Net asset value at end of period $ 11.17
==============
Total return (%) 11.70
Net assets at end of period (000) $ 111,318
Ratio of expenses to average net assets (%) 1.42
Ratio of net investment loss to average net assets (%) (.69)
Portfolio turnover (%) 76.31
* Fund commenced operations August 1, 1997.
(a)Calculated using weighted average shares.
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 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
