Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Distributions to Shareholders 9
Independent Auditors' Report 10
Portfolio of Investments 11
Notes to Portfolio of Investments 20
Statement of Assets and Liabilities 21
Statement of Operations 22
Statements of Changes in Net Assets 23
Notes to Financial Statements 24
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 Very high $3,000
First Start Growth Moderate to high $3,000
Gold Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International Moderate to high $3,000
S&P 500(Registered Trademark) Index Moderate $3,000
Science & Technology Very high $3,000
Small Cap Stock Very high $3,000
World Growth Moderate to high $3,000
- --------------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------------------------------------------------
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate $3,000
Growth and Tax Strategy Moderate $3,000
Growth Strategy Moderate to high $3,000
Income Strategy Low to moderate $3,000
- --------------------------------------------------------------------------------
INCOME - TAXABLE
- --------------------------------------------------------------------------------
GNMA Low to moderate $3,000
High-Yield
Opportunities High $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Intermediate-Term
Bond Low to moderate $3,000
Short-Term Bond Low $3,000
- --------------------------------------------------------------------------------
INCOME - TAX EXEMPT
- --------------------------------------------------------------------------------
Long-Term Moderate $3,000
Intermediate-Term Low to moderate $3,000
Short-Term Low $3,000
State Bond Income Moderate $3,000
- --------------------------------------------------------------------------------
MONEY MARKET
- --------------------------------------------------------------------------------
Money Market Very low $3,000
Tax Exempt
Money Market Very low $3,000
Treasury Money
Market Trust Very low $3,000
State Money Market Very low $3,000
- --------------------------------------------------------------------------------
Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
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.
Some income may be subject to state or local taxes or the federal alternative
minimum tax.
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.
The Science & Technology 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, 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
Year 2000 Readiness Disclosure
[Photograph of the President and Vice Chairman of the Board, Michael J. C.
Roth, CFA, appears here]
As we rapidly approach the year 2000, an interesting market picture is emerging.
Many of our shareholders have had questions about the "year 2000 problem," and
we have spent a lot of time, energy, and money on it. We believe that we -- and
your funds -- are in good shape because we have treated the problem seriously.
We also believe that we -- and your funds -- are not alone in that effort. I
always like to look at what the market tells us about such things.
Many dire predictions have been around for years now. Last summer, I asked some
business associates for the names of some systems people at major financial
firms to whom I could speak about Y2K. One of these was the head of the effort
at a major credit card institution. He was more dire in his outlook than anyone
else I spoke to. One prediction was, "By the second quarter of 1999, the federal
government will intervene in the financial markets and the banking system
because of the spreading panic." It is mid-September. The financial markets are
choppy because Fed Chairman Greenspan keeps talking about inflation, but so far,
no panic. Not even a hint. As for other predictions, we find that the Y2K
problem is being taken very seriously by firms with which we do business or with
whom we invest. We cannot assure that nothing will go wrong,but we are quite
sure that these firms have made a serious effort to confront it, just as we
have. As an added safeguard, we've developed, and continue to test, contingency
plans designed to help ensure continuous service in the event of a Y2K problem.
Early January will be very interesting. I have cancelled all employee vacations
from mid-December through mid-January. We will be here for you. Because our
computers will be doing the normal year-end processing on Saturday, January 1,
2000, we probably won't be able to give you year-end figures for your accounts
until sometime that afternoon. We plan to have some employees in from noon until
6 p.m. CST on New Year's Day, and Sunday, January 2, we will be in the office
from 8 a.m. until 8 p.m. CST. With patience, because we expect heavy phone
traffic in general, you should be able to reach us. We will also have our voice
response system (VRS) and Web site up. There may be some problems, but I expect
we will be able to wish you a "Happy New Year."
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call for a prospectus. Read it carefully before investing.
Investment Review
USAA AGGRESSIVE GROWTH FUND
OBJECTIVE: Capital appreciation.
TYPES OF INVESTMENTS: Invests principally in equity securities of companies with
the prospect of rapidly growing earnings.
- --------------------------------------------------------------------------------
7/31/98 7/31/99
================================================================================
Net Assets $736.5 Million $1,029.3 Million
Net Asset Value Per Share $31.62 $38.23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 7/31/99
================================================================================
1 Year 5 Years 10 Years
43.14% 26.53% 15.41%
- --------------------------------------------------------------------------------
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gains distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gains 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 (Registered Trademark) Index, the S&P 500 Index, and the Lipper
Small Cap Funds Average for the period of 07/31/89 through 07/31/99. The data
points from the graph are as follows:
USAA
Aggressive Russell S&P 500 Lipper Small Cap
Growth Fund 2000 Index Index Funds Average
----------- ---------- ------- ----------------
07/31/89 $10,000 $10,000 $10,000 $10,000
01/31/90 8,938 8,917 9,667 9,260
07/31/90 9,743 9,477 10,647 10,357
01/31/91 9,769 8,579 10,476 9,833
07/31/91 11,743 10,397 12,002 11,825
01/31/92 14,303 12,421 12,848 14,382
07/31/92 12,047 11,905 13,535 13,252
01/31/93 13,662 14,065 14,206 15,802
07/31/93 13,060 14,697 14,714 16,313
01/31/94 14,977 16,680 16,031 18,607
07/31/94 12,923 15,375 15,472 16,960
01/31/95 14,159 15,678 16,116 17,830
07/31/95 19,382 19,215 19,505 22,353
01/31/96 21,790 20,374 22,339 23,628
07/31/96 23,483 20,543 22,734 24,771
01/31/97 26,652 24,235 28,221 28,927
07/31/97 28,180 27,403 34,581 32,536
01/31/98 27,651 28,614 35,812 33,224
07/31/98 29,281 28,036 41,257 33,303
01/31/99 37,310 28,710 47,455 33,925
07/31/99 41,914 30,114 49,592 36,148
Data from 7/31/89 through 7/31/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Aggressive Growth Fund to the S&P 500 Index, the broad-based Russell
2000(Registered Trademark) Index, and the Lipper Small Cap 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 in the S&P 500 Index. 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, Inc., an independent organization that
monitors the performance of mutual funds.
Message from the Managers
[Photograph of Portfolio Managers: Eric M. Efron, CFA (left) and John K. Cabell,
Jr. CFA (right), appears here]
MARKET CONDITIONS
The stock market environment during the 12-month period ended July 31, 1999, did
not vary meaningfully from the standard pattern of the past several years. For
the most part, corporate earnings were good. Additionally, the outlook for
economies around the world continued to be satisfactory in the aggregate, with
the United States and Europe strong, but possibly decelerating some, and with
Asia showing initial signs of a gradual recovery from its recent economic and
financial crises. Prospects for an Asian recovery prompted some concern in the
investment community about rising inflation and interest rates, particularly in
June and July, and helped revive interest in cyclical stocks.
Although this blend of positives and negatives led to day-to-day volatility in
stock prices, the pluses ultimately prevailed, with all major indices higher at
the end of the period than at the beginning. The S&P 500, the Dow Jones, and the
NASDAQ Composite -- all of which are large-cap centric -- with returns of
20.20%, 22.05%, and 40.92%, respectively. And once again, small-cap benchmarks,
such as the Russell 2000 and the S&P SmallCap 600, brought up the rear,
generating more modest returns of 7.41% and 4.85%, respectively. This shows
investors' continuing preference for the liquidity and perceived safety of
large-cap stocks over the better growth prospects and lower valuations of
small-cap equities.
The S&P SmallCap 600 Index is an unmanaged index representing the weighted
average performance of a group of 600 domestic stocks chosen for market size,
liquidity, and industry group representation. It is not possible to invest
directly in the S&P SmallCap 600 Index.
PERFORMANCE
For the 12 months ended July 31, 1999, the Fund had a total return of 43.14%.
For the same time period, the Fund outperformed all the major market indices
mentioned previously.
PORTFOLIO STRATEGY
We believe that change is central to existence and is inevitable. Whether it be
life forms, civilizations, governments, social institutions, economic systems,
or businesses, entities that embrace change are likely to succeed and thrive.
Those that resist change are doomed to failure, at worst, and to extremely
limited prospects, at best. With this in mind, we try to identify long-term
social and economic trends that are in their early stages and are potentially
powerful and pervasive. We then aggregate these trends into six overriding
themes (the telecommunications revolution, new computing, new products and
services, the drive for efficiency, changing lifestyles, and consolidation) and
look to invest in companies that are in a good position to benefit from the
changes that lie ahead.
In addition, we focus our investments on companies that are either growing
rapidly or have the potential to do so. We believe that rapid growth is one of
the best ways to build value over the long term. We are willing to pay premium
valuations for the companies in which we invest because we feel that the
premiums could be paid off handsomely over time. We are firm believers in the
old adage that you get what you pay for.
Our investments tend to focus on small- to mid-cap companies because this is
where most of the rapid growth and innovation we desire is to be found.
Nevertheless, we will also invest in larger companies (Microsoft, Intel, Cisco,
Dell Computers, Clear Channel Communications, and Infinity Broadcasting, for
example) that possess the attributes we are looking for.
We have overweighted our investments in the technology and communications areas.
The Internet (Network Solutions, Concentric Networks, and StarMedia Network) is
rapidly transforming how we communicate, do business, and live. At the same
time, old telecommunications monopolies worldwide are crumbling in the face of
deregulation and competition, as new companies (Global Telesystems, Global
Crossing, Qwest Communications, Level 3 Communications) arise to provide the
Internet and other new services that customers demand. Almost as rapidly as
these new companies are being established, companies within the industry are
acquiring one another (Metromedia Fiber Networks/AboveNet Communications,
VoiceStream Wireless/Omnipoint) to position themselves for dominance in the new
telecommunications age. All of this is stimulating huge demand for the
networking and data communications equipment (Cisco Systems, CIENA, Harmonic
Lightwaves) that goes into the telecommunications infrastructure and for the
semiconductors (Vitesse Semiconductor, Applied Micro Circuits, Triquint
Semiconductor, MMC Networks) and other components (JDS Uniphase) that go into
the equipment.
All the companies mentioned here are holdings or are recent sales in the Fund
and fit within the six major themes mentioned earlier. Taken together with our
other positions in the technology and communications areas, they contributed
significantly to our strong relative performance during the 12 months ended July
31,1999. It is very tempting to further overweight our investments in these
areas, but we refrain from doing so in order to limit risk. We also want to take
advantage of opportunities in other promising industries such as retailing
(Abercrombie & Fitch, 99 Cents Only Stores, Williams-Sonoma), biotechnology
(IDEC Pharmaceuticals, Immunex), health care (Express Scripts), and financial
services (Knight/Trimark Group).
OUTLOOK
On balance, conditions continue to look positive for investors. Worldwide
economies, depending on locale, appear to be good or improving, but not at an
explosive pace. The outlook for corporate earnings is encouraging. There are
some concerns about inflation and interest rates, but they do not appear strong
enough to offset the positives.
At the same time, stock valuations are very high by many conventional standards
and are subject to sharp downdrafts in the face of any negative news. Moreover,
from a geopolitical perspective, the world is not a pleasant place. Problems
abound, such as the deepening political partisanship and disenchantment in the
United States, chronic instability in Russia, the Yugoslav/Kosovo situation, the
ongoing tensions between India and Pakistan over Kashmir, the apparent chilling
of relations between the United States and China, China's debate with Taiwan
over the latter's political status, and North Korea's continuing quarrels with
its neighbors. The potential for the eruption of crises that could undermine
investor confidence is substantial.
As always, we counsel investors to expect volatility and to take it in stride.
In the event of a stock market correction, this Fund may be more volatile than
many others due to its large concentration of high-valuation and
low-market-capitalization holdings. However, the long-term fundamentals
underlying our investments appear to be very sound, and, in our opinion, have
the potential for price appreciation for patient, risk-tolerant investors.
Past performance is no guarantee of future results.
See page 11 for a complete listing of the Portfolio of Investments.
- ------------------------------------------------------------------
Top 10 Equity Holdings
(% Of Net Assets)
- ------------------------------------------------------------------
Metromedia Fiber Network 2.9
Express Scripts 2.5
Med Immune 2.2
Sandisk 2.0
Harmonic Lightwaves 1.9
Dollar Tree Stores 1.5
IDEC Pharmaceuticals 1.5
Network Solutions 1.4
Clear Channel Communications 1.4
Applied Micro Circuits 1.4
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Top 10 Industries
(% of Net Assets)
- ------------------------------------------------------------------
Telephones 10.3
Electronics-Semiconductors 8.3
Internet Services 7.0
Biotechnology 6.6
Communication Equipment 5.5
Computer Software & Service 4.4
Equipment-Semiconductors 3.4
Health Care-Specialized Services 3.2
Retail-Specialty 3.1
Broadcasting-Radio & TV 3.0
- ------------------------------------------------------------------
See page 11 for a complete listing of the Portfolio of Investments.
Distributions to Shareholders
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended July 31, 1999. These figures are
provided for information purposes only and should not be used for reporting to
federal or state revenue agencies. Distributions for the calendar year will be
reported to you on Form 1099-DIV in January 2000.
Ordinary income $ .6821*
Long term capital gains 3.3096
-------
Total $3.9917
=======
*Includes distribution of short-term capital gains, if any, which are taxable as
ordinary income.
Independent Auditors' Report
KPMG
The Shareholders and Board of Directors
USAA AGGRESSIVE GROWTH FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA Aggressive Growth Fund, a series of
USAA Mutual Fund, Inc., as of July 31, 1999, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and financial highlights,
presented in note 8 to the financial statements, for each of the years in the
five-year period then ended. 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 audits.
We conducted our audits 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. Our procedures included confirmation of securities owned as of July
31, 1999, 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 audits provide 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 Aggressive Growth Fund as of July 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
San Antonio, Texas
September 3, 1999
USAA AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
July 31, 1999
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.2%)
Aerospace/Defense (2.5%)
425,000 AAR Corp. $ 8,952
200,000 Aviation Sales Co.* 7,775
100,000 HEICO Corp. "A" 2,106
200,000 TriStar Aerospace Co.* 1,488
200,000 Triumph Group, Inc.* 5,162
---------
25,483
---------
Air Freight (0.5%)
130,000 Eagle USA Airfreight, Inc.* 4,729
---------
Airlines (0.7%)
100,000 Atlantic Coast Airlines, Inc.* 2,031
155,000 Midwest Express Holdings, Inc.* 5,154
---------
7,185
---------
Auto Parts (0.3%)
120,000 Copart, Inc.* 2,880
---------
Banks - Major Regional (0.9%)
100,000 Bank United Corp. "A" 3,850
157,500 Columbia Banking Systems, Inc.* 2,294
130,000 Hamilton Bancorp, Inc.* 3,510
---------
9,654
---------
Beverages - Alcoholic (0.8%)
100,000 Beringer Wine Estates Holdings, Inc. "B"* 3,825
100,000 Golden State Vintners, Inc.* 613
100,000 Robert Mondavi Corp. "A"* 3,650
---------
8,088
---------
Biotechnology (6.6%)
120,000 Genzyme Corp.* 6,788
21,481 Genzyme Surgical Products* 113
150,000 IDEC Pharmaceuticals Corp.* 14,869
100,000 Immunex Corp.* 11,287
121,000 Inhale Therapeutic Systems, Inc.* 2,980
280,000 Med Immune, Inc.* 22,365
53,000 SangStat Medical Corp.* 987
300,000 Techne Corp.* 9,000
---------
68,389
---------
Broadcasting - Radio & TV (3.0%)
210,000 Clear Channel Communications, Inc.* 14,608
66,900 Entercom Communications Corp.* 2,709
83,100 Gray Communications Systems, Inc. "B" 1,262
118,100 Infinity Broadcasting Corp.* 3,255
67,900 Insight Communications, Inc.* 2,029
45,200 Salem Communications Corp.* 1,266
85,800 Univision Communications, Inc. "A"* 5,942
---------
31,071
---------
Communication Equipment (5.5%)
127,800 Advanced Fibre Communications, Inc.* 2,125
300,000 Brightpoint, Inc.* 1,556
90,000 CIENA Corp.* 3,038
161,805 Digital Microwave Corp.* 1,921
108,500 Ditech Communications Corp.* 2,333
32,500 Efficient Networks, Inc.* 1,438
10,300 Gadzoox Networks, Inc.* 775
242,900 Harmonic Lightwaves, Inc.* 19,311
89,500 Inet Technologies, Inc.* 2,170
103,844 JDS Uniphase Corp.* 9,385
200,000 P-Com, Inc.* 909
228,200 Pairgain Technologies, Inc.* 2,154
18,100 Paradyne Networks, Inc.* 803
143,450 REMEC, Inc.* 1,802
186,900 Spectrian Corp.* 2,161
81,000 Tekelec, Inc.* 815
108,300 Terayon Communication Systems, Inc.* 4,237
---------
56,933
---------
Computer - Hardware (2.8%)
200,600 Dell Computer Corp.* 8,200
263,600 Sandisk Corp.* 20,231
---------
28,431
---------
Computer - Networking (2.2%)
350,250 3Com Corp.* 8,450
220,200 Cisco Systems, Inc.* 13,680
---------
22,130
---------
Computer Software & Service (4.4%)
49,800 Accrue Software, Inc.* 600
130,000 CBT Group plc ADR* 3,640
153,800 Digital Island, Inc.* 3,153
90,700 HNC Software, Inc.* 3,299
54,400 Liberate Technologies, Inc.* 1,040
163,200 Macrovision Corp.* 11,424
84,700 Microsoft Corp.* 7,268
31,700 Netiq Corp.* 523
9,000 Packeteer, Inc.* 266
37,100 Primus Knowledge Solutions, Inc.* 893
206,500 Rational Software Corp.* 6,892
67,700 Scientific Learning Corp.* 1,223
90,400 ShowCase Corp.* 876
112,800 Softworks, Inc.* 821
40,500 TenFold Corp.* 1,124
181,100 US SEARCH.com, Inc.* 1,969
---------
45,011
---------
Distributions - Food/Health (0.3%)
160,000 United Natural Foods, Inc.* 3,000
---------
Drugs (2.2%)
115,000 Alpharma, Inc. "A" 4,269
120,000 Elan Corp. plc ADR* 3,488
130,000 Jones Pharma, Inc. 5,643
60,000 Roberts Pharmaceutical Corp.* 1,646
100,000 Sepracor, Inc.* 7,350
---------
22,396
---------
Electrical Equipment (0.5%)
75,537 Sanmina Corp.* 4,934
---------
Electronics - Semiconductors (8.3%)
149,200 Applied Micro Circuits Corp.* 14,025
201,700 Genesis Microchip, Inc.* 4,160
100,000 Intel Corp. 6,900
103,500 Lattice Semiconductor Corp.* 5,938
17,900 Maker Communications, Inc.* 497
151,500 MIPS Technologies, Inc.* 5,605
140,400 MMC Networks, Inc.* 5,923
100,700 PLX Technology, Inc.* 2,933
71,200 Rambus, Inc.* 6,341
110,300 Ravisent Technologies, Inc.* 1,668
292,650 TranSwitch Corp.* 12,840
177,900 Triquint Semiconductor, Inc.* 7,383
179,000 Vitesse Semiconductor Corp.* 11,434
---------
85,647
---------
Engineering & Construction (0.3%)
50,000 Integrated Electrical Services, Inc.* 844
60,000 Quanta Services, Inc.* 1,864
---------
2,708
---------
Equipment - Semiconductors (3.4%)
171,600 Brooks Automation, Inc.* 4,655
115,700 Cerprobe Corp.* 788
192,400 CFM Technologies, Inc.* 1,611
181,100 Cymer, Inc.* 5,739
150,500 Electroglas, Inc.* 2,841
147,000 Etec Systems, Inc.* 5,715
193,600 MKS Instruments, Inc.* 4,126
111,400 Photronics, Inc.* 3,133
113,700 PRI Automation, Inc.* 3,517
321,179 SpeedFam-IPEC, Inc.* 3,162
---------
35,287
---------
Finance - Consumer (0.9%)
40,000 Metris Companies, Inc. 1,572
193,300 NCO Group, Inc.* 7,563
---------
9,135
---------
Finance - Diversified (0.3%)
120,000 Heller Financial, Inc. "A" 3,060
---------
Foods (1.0%)
150,000 American Italian Pasta Co. "A"* 4,294
100,000 Horizon Organic Holding Corp.* 1,237
165,000 Suiza Foods Corp.* 5,156
---------
10,687
---------
Health Care - Diversified (0.7%)
60,000 Accredo Health, Inc.* 1,913
120,000 ICON plc ADR* 2,640
100,000 Professional Detailing, Inc.* 3,100
---------
7,653
---------
Health Care - HMOs (2.5%)
375,000 Express Scripts, Inc. "A"* 26,109
---------
Health Care - Specialized Services (3.2%)
100,000 Advance Paradigm, Inc.* 6,813
50,000 MEDE America Corp.* 1,406
235,000 Omnicare, Inc. 2,526
330,000 Orthodontic Centers of America, Inc.* 5,486
131,200 PAREXEL International Corp.* 1,443
140,000 Pediatrix Medical Group, Inc.* 2,756
40,000 Priority Healthcare Corp. "B"* 1,930
225,000 Renal Care Group, Inc.* 5,049
150,000 Superior Consultant Holdings Corp.* 4,050
130,000 Total Renal Care Holdings, Inc.* 1,089
---------
32,548
---------
Home Furnishings & Appliances (1.0%)
330,000 Ethan Allen Interiors, Inc. 10,477
---------
Hospitals (0.2%)
130,000 Province Healthcare Co.* 2,194
---------
Housewares (0.2%)
100,000 Yankee Candle Company, Inc.* 2,250
---------
Insurance Brokers (0.1%)
26,400 InsWeb Corp.* 802
---------
Insurance - Life/Health (0.1%)
40,200 MONY Group, Inc. 1,236
---------
Internet Services (7.0%)
84,600 24/7 Media, Inc.* 2,644
110,000 barnesandnoble.com, Inc.* 1,987
106,100 CAIS Internet, Inc.* 1,658
35,000 CareInsite, Inc.* 1,509
25,900 Cheap Tickets, Inc.* 1,499
362,400 Concentric Network Corp.* 8,743
63,000 Digex, Inc.* 1,071
143,500 Digital River, Inc.* 3,265
85,800 drkoop.com, Inc.* 1,909
50,000 E-LOAN, Inc.* 1,947
196,800 EDGAR Online, Inc.* 1,783
95,300 Entrust Technologies, Inc.* 2,859
45,200 High Speed Access Corp.* 1,568
45,200 Hoovers, Inc.* 604
113,800 Interliant, Inc.* 2,191
50,000 iTurf, Inc. "A"* 687
90,400 JFAX.COM, Inc.* 780
17,900 Media Metrix, Inc.* 687
81,600 N2H2, Inc.* 1,061
41,100 National Information Consortium, Inc.* 673
237,800 Network Solutions, Inc. "A"* 14,803
196,800 Preview Travel, Inc.* 4,600
15,600 Priceline.com, Inc.* 1,178
48,500 StarMedia Network, Inc.* 2,091
226,200 Student Advantage, Inc.* 3,082
13,600 Talk City, Inc.* 165
199,400 USWeb Corp.* 4,175
103,900 Voyager. net, Inc.* 1,299
35,900 Ziff-Davis, Inc.* 675
107,400 ZipLink, Inc.* 1,074
---------
72,267
---------
Investment Banks/Brokerage (0.9%)
60,800 DLJdirect, Inc.* 1,311
200,000 Knight/Trimark Group, Inc.* 8,425
---------
9,736
---------
Lodging/Hotel (0.8%)
150,000 Four Seasons Hotels, Inc. 6,881
125,000 ResortQuest International, Inc.* 1,133
---------
8,014
---------
Manufacturing - Specialized (0.1%)
14,500 Creo Products, Inc.* 296
---------
Medical Products & Supplies (1.2%)
130,000 Henry Schein, Inc.* 2,860
238,050 Serologicals Corp.* 1,800
250,000 Sybron Corp.* 7,453
---------
12,113
---------
Nursing Care (0.3%)
125,000 Sunrise Assisted Living, Inc.* 3,773
---------
Oil & Gas - Drilling/Equipment (1.5%)
100,000 Carbo Ceramics, Inc. 2,300
70,000 Cooper Cameron Corp.* 2,537
200,000 Petroleum Geo-Services ADR* 4,000
75,000 Smith International, Inc.* 3,253
170,000 Varco International, Inc.* 1,806
30,000 Weatherford International, Inc.* 1,176
---------
15,072
---------
Personal Care (1.2%)
100,000 Chattem, Inc.* 2,925
200,000 Estee Lauder Companies, Inc. "A" 9,512
---------
12,437
---------
Precious Metals & Mining (0.2%)
75,000 Stillwater Mining Co.* 1,697
---------
Railroads/Shipping (0.3%)
150,000 MotivePower Industries, Inc.* 2,653
---------
Restaurants (1.6%)
125,000 Dave & Buster's, Inc.* 3,266
100,000 P. F. Chang's China Bistro, Inc.* 2,325
250,000 Papa John's International, Inc.* 10,734
---------
16,325
---------
Retail - Building Supplies (0.6%)
110,000 Fastenal Co. 6,504
---------
Retail - Discounters (1.5%)
355,000 Dollar Tree Stores, Inc.* 15,021
---------
Retail - Food (0.4%)
120,000 Wild Oats Markets, Inc.* 4,365
---------
Retail - Specialty (3.1%)
250,000 99 Cents Only Stores* 9,531
200,000 Cost Plus, Inc.* 8,800
100,000 CSK Auto Corp.* 2,538
130,000 Hibbett Sporting Goods, Inc.* 2,632
53,800 Musicmaker.com, Inc.* 699
31,600 Pantry, Inc.* 490
100,000 Tuesday Morning Corp.* 2,313
140,000 Williams-Sonoma, Inc.* 5,241
---------
32,244
---------
Retail - Specialty Apparel (1.2%)
260,000 Abercrombie & Fitch Co. "A"* 10,790
150,000 Delia's, Inc.* 1,491
---------
12,281
---------
Services - Commercial & Consumer (1.1%)
100,000 Barra, Inc.* 2,369
26,900 Heidrick & Struggles International, Inc.* 461
300,000 MSC Industrial Direct Co. "A"* 3,300
320,000 Stewart Enterprises, Inc. "A" 3,980
67,700 Tanning Technology Corp.* 1,218
---------
11,328
---------
Services - Computer Systems (0.5%)
146,600 Flextronics International Ltd.* 6,579
---------
Services - Data Processing (1.4%)
22,600 Allscripts, Inc.* 362
126,100 Checkfree Holdings Corp.* 3,728
230,000 MedQuist, Inc.* 9,976
---------
14,066
---------
Services - Facilities & Environment (0.1%)
12,500 Tetra Tech, Inc.* 198
---------
Telecommunications - Cellular/Wireless (2.0%)
122,800 Crown Castle International Corp.* 2,586
233,500 Microcell Telecommunications, Inc. "B"* 2,481
111,500 Pinnacle Holdings, Inc.* 2,753
92,300 Powertel, Inc.* 3,392
114,000 VoiceStream Wireless Corp.* 5,144
114,000 Western Wireless Corp. "A"* 3,990
---------
20,346
---------
Telecommunications - Long Distance (2.8%)
110,400 CapRock Communications Corp.* 3,698
94,000 Global Crossing Ltd.* 3,901
114,500 IDT Corp.* 2,261
249,200 ITC DeltaCom, Inc.* 6,573
63,600 IXC Communications, Inc.* 2,703
53,000 Level 3 Communications, Inc.* 2,809
45,500 Pacific Gateway Exchange, Inc.* 1,115
116,000 Qwest Communications International, Inc.* 3,422
77,000 RSL Communications Ltd. "A"* 1,319
105,800 Startec Global Communications Corp.* 1,362
---------
29,163
---------
Telephones (10.3%)
142,200 AT & T Canada, Inc. "B"* 8,967
40,600 Convergent Communications, Inc.* 650
54,300 Covad Communications Group, Inc.* 2,498
178,700 e.spire Communications, Inc.* 1,787
135,900 Electric Lightwave, Inc. "A"* 2,005
32,200 Focal Communications Corp.* 612
187,200 Global TeleSystems Group, Inc.* 5,967
208,700 GST Telecommunications, Inc.* 3,130
151,500 Hyperion Telecommunications, Inc. "A"* 3,125
64,200 ICG Communications, Inc.* 1,453
97,000 Intermedia Communications of Florida, Inc.* 2,674
92,200 McLeod, Inc.* 2,749
916,000 Metromedia Fiber Network, Inc. "A"* 29,426
135,600 Network Access Solutions Corp.* 1,856
90,400 Network Plus Corp.* 1,638
87,700 NEXTLINK Communications, Inc. "A"* 9,833
281,900 Northeast Optic Network, Inc.* 10,201
56,300 NorthPoint Communications Group, Inc.* 1,372
50,000 Rhythms NetConnections, Inc.* 2,175
96,600 Teligent, Inc. "A"* 6,967
48,500 Time Warner Telecom, Inc. "A"* 1,510
98,000 Winstar Communications, Inc.* 5,145
---------
105,740
---------
Textiles - Apparel (1.2%)
110,000 Columbia Sportswear Co.* 1,911
97,600 Cutter & Buck, Inc.* 1,641
240,000 Tommy Hilfiger Corp.* 8,865
---------
12,417
---------
Truckers (0.1%)
60,000 Forward Air Corp.* 1,406
---------
Waste Management (0.4%)
75,000 U. S. Liquids, Inc.* 1,538
100,000 Waste Connections, Inc.* 2,650
---------
4,188
Total common stocks (cost: $589,923) 1,000,336
---------
Principal
Amount
(000)
- --------------
SHORT-TERM (2.8%)
Commercial Paper
$ 29,383 PHH Corp., 5.20%, 8/02/1999 (cost: $29,374) 29,374
----------
Total investments (cost: $619,297) $1,029,710
==========
USAA AGGRESSIVE GROWTH FUND
NOTES TO PORTFOLIO OF INVESTMENTS
July 31, 1999
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 5.6% of net assets at July 31, 1999.
ADR - American Depositary Receipts are foreign shares held by a U.S. bank which
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA AGGRESSIVE GROWTH FUND
SSTATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
July 31, 1999
ASSETS
Investments in securities, at market value (identified
cost of $619,297) $1,029,710
Cash 364
Receivables:
Capital shares sold 843
Dividends 55
Securities sold 6,511
----------
Total assets 1,037,483
----------
LIABILITIES
Securities purchased 7,260
Capital shares redeemed 386
USAA Investment Management Company 329
USAA Transfer Agency Company 86
Accounts payable and accrued expenses 140
----------
Total liabilities 8,201
----------
Net assets applicable to capital shares outstanding $1,029,282
==========
REPRESENTED BY:
Paid-in capital $ 557,764
Accumulated net realized gain on investments 61,105
Net unrealized appreciation of investments 410,413
----------
Net assets applicable to capital shares outstanding $1,029,282
==========
Capital shares outstanding 26,921
==========
Authorized shares of $.01 par value 55,000
==========
Net asset value, redemption price, and offering price per share $ 38.23
==========
See accompanying notes to financial statements.
USAA AGGRESSIVE GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended July 31, 1999
Net investment loss:
Income:
Dividends (net of foreign taxes withheld of $2) $ 490
Interest 843
--------
Total income 1,333
--------
Expenses:
Management fees 3,095
Transfer agent's fees 2,148
Custodian's fees 165
Postage 307
Shareholder reporting fees 17
Directors' fees 4
Registration fees 52
Professional fees 36
Other 9
--------
Total expenses 5,833
--------
Net investment loss (4,500)
--------
Net realized and unrealized gain on investments:
Net realized gain 65,690
Change in net unrealized appreciation/depreciation 248,390
--------
Net realized and unrealized gain 314,080
--------
Increase in net assets resulting from operations $309,580
========
See accompanying notes to financial statements.
USAA AGGRESSIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended July 31,
1999 1998
--------------------------
From operations:
Net investment loss $ (4,500) $ (2,882)
Net realized gain on investments 65,690 125,534
Change in net unrealized appreciation/depreciation
of investments 248,390 (95,797)
--------------------------
Increase in net assets resulting from
operations 309,580 26,855
--------------------------
Distributions to shareholders from:
Net realized gains (91,693) (54,316)
--------------------------
From capital share transactions:
Proceeds from shares sold 321,840 221,629
Shares issued for dividends reinvested 90,620 51,253
Cost of shares redeemed (337,515) (262,955)
--------------------------
Increase in net assets from capital share
transactions 74,945 9,927
--------------------------
Net increase (decrease) in net assets 292,832 (17,534)
Net assets:
Beginning of period 736,450 753,984
--------------------------
End of period $1,029,282 $ 736,450
==========================
Change in shares outstanding:
Shares sold 10,648 6,779
Shares issued for dividends reinvested 4,176 1,690
Shares redeemed (11,190) (8,156)
--------------------------
Increase in shares outstanding 3,634 313
==========================
See accompanying notes to financial statements.
USAA AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
(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 13 separate funds.
The information presented in this annual 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. 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 undistributed net investment loss by $4.5 million, and decrease
accumulated net realized gain on investments by $4.5 million.
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 Bank of America ($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
Bank of America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. The Fund had no borrowings under any of these agreements during the year
ended July 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 year ended July 31, 1999, were $282.1 million and $315.6
million, respectively.
Gross unrealized appreciation and depreciation of investments, as of July 31,
1999, was $464.2 million and $53.8 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 (unaudited)
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 has taken steps to address this potential year 2000 problem with
respect to the computer systems that it uses 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>
Year Ended July 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 31.62 $ 32.82 $ 27.88 $ 24.49 $ 17.74
Net investment loss (.17)(a) (.12)(a) (.14)(a) (.12)(a) (.05)(a)
Net realized and
unrealized gain 10.77 1.26 5.65 5.12 8.35
Distributions of realized
capital gains (3.99) (2.34) (.57) (1.61) (1.55)
--------------------------------------------------------------------------
Net asset value at
end of period $ 38.23 $ 31.62 $ 32.82 $ 27.88 $ 24.49
==========================================================================
Total return (%) * 43.14 3.91 20.00 21.16 49.98
Net assets at
end of period(000) $1,029,282 $736,450 $753,984 $607,437 $363,390
Ratio of expenses to
average net assets (%) .72 .71 .74 .74 .86
Ratio of net investment
loss to average net
assets (%) (.55) (.38) (.47) (.42) (.28)
Portfolio turnover (%) 35.18 83.32 57.15 43.75 138.32
</TABLE>
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(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 LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Internet Access
www.usaa.com
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 ToughLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
