USAA GROWTH FUND
PROSPECTUS
DECEMBER 1, 1999
AS SUPPLEMENTED
MARCH 1, 2000
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved of this Fund's shares or determined whether this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
TABLE OF CONTENTS
What is the Fund's Investment Objective and Main Strategy?.............. 2
Main Risks of Investing in This Fund.................................... 2
Is This Fund for You?................................................... 2
Could the Value of Your Investment in This Fund Fluctuate?.............. 3
Fees and Expenses....................................................... 4
Fund Investments........................................................ 5
Fund Management......................................................... 7
Using Mutual Funds in an Investment Program............................. 8
How to Invest........................................................... 9
Important Information About Purchases and Redemptions................... 12
Exchanges............................................................... 13
Shareholder Information................................................. 14
Financial Highlights.................................................... 17
Appendix A.............................................................. 18
Appendix B.............................................................. 19
<PAGE>
USAA Investment Management Company manages this Fund. For easier reading, USAA
Investment Management Company will be referred to as "we" or "us" throughout
the Prospectus.
WHAT IS THE FUND'S INVESTMENT
OBJECTIVE AND MAIN STRATEGY?
The Fund's primary investment objective is long-term growth of capital with
secondary objectives of regular income and conservation of principal. We will
attempt to achieve these objectives by investing the Fund's assets in equity
securities of companies that are, or have the prospect of becoming, one of the
dominant companies within its industry. We will primarily invest in companies
with above-average growth in revenues and earnings per share.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objectives will be achieved. See FUND INVESTMENTS on
page 5 for more information.
MAIN RISKS OF INVESTING IN THIS FUND
The primary risk of investing in this Fund is market risk.
* MARKET RISK involves the possibility that the value of the Fund's
investments in equity securities will decline in a down stock market,
regardless of the success or failure of any one company's operations.
Another risk of the Fund described later in the Prospectus is the risk of
foreign investing. As with other mutual funds, losing money is also a risk of
investing in this Fund.
As you consider an investment in this Fund, you should also take into account
your tolerance for the daily fluctuations of the financial markets and whether
you can afford to leave your money in the investment for long periods of time
to ride out down periods.
An investment in this Fund is not a deposit of USAA Federal Savings Bank, or
any other bank, and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
[CAUTION LIGHT GRAPHIC]
Look for this symbol throughout the Prospectus. We use it to mark more detailed
information about the risks you will face as a Fund shareholder.
IS THIS FUND FOR YOU?
This Fund might be appropriate as part of your investment portfolio if . . .
* You are looking for long-term growth.
* You are willing to accept moderate to high risk.
* You are looking for a long-term investment.
2
<PAGE>
This Fund may not be appropriate as part of your investment portfolio if . . .
* You are unwilling to take greater risk for long-term goals.
* You need an investment that provides regular income or tax-free income.
This Fund by itself does not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.
COULD THE VALUE OF YOUR INVESTMENT
IN THIS FUND FLUCTUATE?
Yes, it could. In fact, the value of your investment in this Fund will
fluctuate with the changing market values of the investments in the Fund. The
bar chart shown below illustrates the Fund's volatility and performance from
year to year over the past ten years.
Total Return
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE REINVESTMENT OF
ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
All mutual funds must use the same formula to calculate total return.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1998 32.13%
1997 3.69%
1996 17.80%
1995 32.06%
1994 3.35%
1993 7.45%
1992 9.95%
1991 27.81%
1990 -.05%
1989 27.33%
THE FUND'S TOTAL RETURN FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
1999, WAS 4.94%.
During the periods shown in the bar chart, the highest total return for a
quarter was 26.08% (quarter ending December 31, 1998) and the lowest total
return for a quarter was -16.14% (quarter ending December 31, 1997).
3
<PAGE>
The table below shows how the Fund's average annual total returns for the one-,
five-, and ten-year periods, as well as the life of the Fund, compared to those
of a broad-based securities market index. Remember, historical performance does
not necessarily indicate what will happen in the future.
===============================================================================
Average Annual
Total Returns
(for the periods ending Past Past Past Life of
December 31, 1998) 1 Year 5 Years 10 Years Fund
- -------------------------------------------------------------------------------
Growth Fund 32.13% 17.11% 15.52% 9.20%
- -------------------------------------------------------------------------------
S&P 500 Index* 28.60% 24.05% 19.19% 13.55%
===============================================================================
*THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE, UNMANAGED INDEX THAT
REPRESENTS THE WEIGHTED AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY HELD,
PUBLICLY TRADED STOCKS.
Please consider performance information in light of the Fund's investment
objectives and policies and market conditions during the reported time periods.
The value of your shares may go up or down. For the most current price and
return information for this Fund, you may call USAA TouchLine(R) at
1-800-531-8777. Press 1 for the Mutual Fund Menu, press 1 again for prices and
returns. Then, press 41# when asked for the Fund Code.
[SIDE BAR]
[TELEPHONE GRAPHIC]
TOUCHLINE(R)
1-800-831-8777
PRESS
1
THEN
1
THEN
4 1 #
You may also find the most current price of your shares in the business section
of your newspaper in the mutual fund section under the heading "USAA Group" and
the symbol "Grwth." If you prefer to obtain this information from an on-line
computer service, you can do so by using the ticker symbol "USAAX."
[SIDE BAR]
Newspaper
Symbol
Grwth
Ticker
Symbol
USAAX
FEES AND EXPENSES
This summary shows what it will cost you, directly and indirectly, to invest in
this Fund.
Shareholder Transaction Expenses-- (Direct Costs)
There are no fees or sales loads charged to your account when you buy or sell
Fund shares. However, if you sell shares and request your money by wire
transfer, there is a $10 fee. (Your bank may also charge a fee for receiving
wires.)
Annual Fund Operating Expenses-- (Indirect Costs)
Fund expenses come out of the Fund's assets and are reflected in the Fund's
share price and dividends. "Other Expenses" include expenses such as custodian
and transfer agent fees. The figures on the next page
4
<PAGE>
show actual expenses during the past fiscal year ended July 31, 1999, and are
calculated as a percentage of average net assets.
[SIDE BAR]
12b-1 Fees - SOME MUTUAL FUNDS CHARGE THESE FEES TO PAY FOR ADVERTISING COSTS
OF SELLING FUND SHARES.
-------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .22%
----
Total Annual Fund Operating Expenses .97%
====
-------------------------------------------------------
Example of Effect of Fund's Operating Expenses
This example is intended to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds. Although your actual costs
may be higher or lower, you would pay the following expenses on a $10,000
investment, assuming (1) 5% annual return, (2) the Fund's operating expenses
remain the same, and (3) you redeem all of your shares at the end of the
periods shown.
-------------------------------------------------------
1 year........... $ 99
3 years.......... 309
5 years.......... 536
10 years.......... 1,190
-------------------------------------------------------
FUND INVESTMENTS
Principal Investment Strategies and Risks
Q What is the Fund's principal investment strategy?
A The Fund's principal strategy is the investment of its assets
primarily in common stocks. We may also invest the Fund's assets in
warrants, rights, real estate investment trusts, convertible securities,
and in nonconvertible debt securities when we believe these securities
will offer a good prospect for appreciation. However, we will limit the
Fund's investment in convertible securities to 5% of the value of the
Fund's net assets at the time these securities are purchased.
As a temporary defensive measure because of market, economic, political,
or other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the
Fund not achieving its investment objective during the time it is in
this temporary defensive posture.
5
<PAGE>
[CAUTION LIGTH GRAPHIC]
MARKET RISK. Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods,
regardless of the success or failure of a company's operations. Stock markets
tend to run in cycles, with periods when stock prices generally go up, known as
"bull" markets, and periods when stock prices generally go down, referred to as
"bear" markets. Stocks tend to go up and down more than bonds.
Q May the Fund's assets be invested in securities of foreign issuers?
A Yes. We may invest up to 30% of the Fund's total assets in American
Depositary Receipts (ADRs) or similar forms of ownership interest in
securities of foreign issuers deposited with a depositary, and
securities of foreign issuers that are traded on U.S. securities
exchanges or in U.S. over-the-counter markets.
[CAUTION LIGTH GRAPHIC]
FOREIGN INVESTING RISK. Investing in securities of foreign issuers poses unique
risks: currency exchange rate fluctuations; increased price volatility;
different accounting, reporting, and disclosure requirements; and political or
social instability. In the past, equity and debt instruments of foreign issuers
have been more volatile than equity and debt instruments of U.S. issuers.
Q How are the decisions to buy and sell common stocks made?
A We generally invest in companies that are, or have the prospect of
becoming, one of the dominant companies within its industry. We will
primarily invest in companies with above-average growth in revenues and
earnings per share. We consider a number of factors such as:
* a company's strategic position in its industry,
- industry fundamentals,
- management,
* growth in sales and earnings,
* growth in cash flow,
* growth in book value, and
* growth in dividends.
We will sell a security when we perceive that our original investment
thesis no longer holds.
6
<PAGE>
For additional information about other securities in which we may invest the
Fund's assets, see APPENDIX A on page 18.
FUND MANAGEMENT
USAA Investment Management Company, serves as the manager and distributor of
this Fund. We are an affiliate of United Services Automobile Association
(USAA), a large, diversified financial services institution. As of the date of
this Prospectus, we had approximately $40 billion in total assets under
management. Our mailing address is 9800 Fredericksburg Road, San Antonio, TX
78288.
We provide management services to the Fund pursuant to an Advisory Agreement.
We are responsible for managing the Fund's portfolio (including placement of
brokerage orders) and its business affairs, subject to the authority of and
supervision by the Fund's Board of Directors. For our services, the Fund pays
us an annual fee. This fee was computed and paid at three-fourths of one
percent (.75%) of average net assets for the fiscal year ended July 31, 1999.
We also provide services related to selling the Fund's shares and receive no
compensation for those services.
Portfolio Transactions
USAA Brokerage Services, our discount brokerage service, may execute purchases
and sales of equity securities for the Fund's portfolio. The Fund's Board of
Directors has adopted procedures to ensure that any commissions paid to USAA
Brokerage Services are reasonable and fair.
Portfolio Manager
[PHOTOGRAPH PORTFOLIO MANAGER]
Patrick O'Hare
Patrick O'Hare, Vice President of Domestic Mutual Funds, has managed the Fund
since March 2000. Mr. O'Hare has six years investment management experience
working for us. He earned the Chartered Financial Analyst designation in 1996
and is a member of the Association for Investment Management and Research and
the San Antonio Financial Analysts Society, Inc. He holds an MBA from the
Wharton School, University of Pennsylvania and a BBA from the University of
Oklahoma.
7
<PAGE>
USING MUTUAL FUNDS IN
AN INVESTMENT PROGRAM
I. The Idea Behind Mutual Funds
Mutual funds provide small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment can buy part of a diversified
portfolio. That portfolio is managed by investment professionals, relieving you
of the need to make individual stock or bond selections. You also enjoy
conveniences, such as daily pricing, liquidity, and in the case of the USAA
Family of Funds, no sales charge. The portfolio, because of its size, has lower
transaction costs on its trades than most individuals would have. As a result,
you own an investment that in earlier times would have been available only to
very wealthy people.
II. Using Funds in an Investment Program
In choosing a mutual fund as an investment vehicle, you are giving up some
investment decisions, but must still make others. The decisions you don't have
to make are those involved with choosing individual securities. We will perform
that function. In addition, we will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily valuation of the Fund, as
well as other functions.
You, however, retain at least part of the responsibility for an equally
important decision. This decision involves determining a portfolio of mutual
funds that balances your investment goals with your tolerance for risk. It is
likely that this decision may include the use of more than one fund of the USAA
Family of Funds.
For example, assume you wish to invest in a widely diversified, common stock
portfolio. You could combine an investment in the Growth Fund with investments
in other mutual funds that invest in stocks of large and small companies and
high-dividend stocks. This is just one way you could combine funds to fit your
own risk and reward goals.
III. USAA's Family of Funds
We offer you another alternative with our asset strategy funds listed in
APPENDIX B under asset allocation on page 19. These unique mutual funds provide
a professionally managed, diversified investment portfolio within a mutual
fund. Designed for the individual who prefers to delegate the asset allocation
process to an investment manager, their structure achieves diversification
across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use a USAA Asset
Strategy Fund, the USAA Family of Funds provides a broad range of choices
covering just about any investor's investment objectives. Our
8
<PAGE>
member service representatives stand ready to assist you with your choices and
to help you craft a portfolio to meet your needs. Refer to APPENDIX B on page
19 for a complete list of the USAA Family of No-Load Mutual Funds.
HOW TO INVEST
Purchase of Shares
OPENING AN ACCOUNT
You may open an account and make an investment as described below by mail, in
person, bank wire, electronic funds transfer (EFT), phone, or Internet. A
complete, signed application is required to open your initial account. However,
after you open your initial account with us, you will not need to fill out
another application to invest in another Fund unless the registration is
different.
TAX ID NUMBER
Each shareholder named on the account must provide a social security number or
tax identification number to avoid possible withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value (NAV)
per share next determined after we receive your request in proper form. The
Fund's NAV is determined at the close of the regular trading session (generally
4:00 p.m. Eastern Time) of the New York Stock Exchange (NYSE) each day the NYSE
is open. If we receive your request and payment prior to that time, your
purchase price will be the NAV per share determined for that day. If we receive
your request or payment after the NAV per share is calculated, the purchase
will be effective on the next business day.
If you plan to purchase Fund shares with a foreign check, we suggest you
convert your foreign check to U.S. dollars prior to investment in the Fund.
This will avoid a potential four- to six-week delay in the effective date of
your purchase. Furthermore, a bank charge may be assessed in the clearing
process, which will be deducted from the amount of the purchase.
MINIMUM INVESTMENTS
INITIAL PURCHASE
[MONEY GRAPHIC]
* $3,000 [$500 Uniform Gifts/Transfers to Minors Act UGMA/UTMA) accounts and
$250 for IRAs] or no initial investment if you elect to have monthly
electronic investments of at least $50 each. We may periodically offer
programs that reduce the minimum amounts for monthly electronic investments.
Employees of USAA and its affiliated
9
<PAGE>
companies may open an account through payroll deduction for as little as $25
per pay period with no initial investment.
ADDITIONAL PURCHASES
* $50
HOW TO PURCHASE
MAIL
[ENVELOPE GRAPHIC]
* To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, TX 78288
* To add to your account, send your check and the "Invest by Mail" stub that
accompanies your Fund's transaction confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
IN PERSON
[HANDSHAKE GRAPHIC]
* To open an account, bring your application and check to our San Antonio
investment sales and service office at:
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
BANK WIRE
[BANK WIRE GRAPHIC]
* To open or add to your account, instruct your bank (which may charge a fee
for the service) to wire the specified amount to the Fund as follows:
State Street Bank and Trust Company
Boston, MA 02101
ABA#011000028
Attn: USAA Growth Fund
USAA Account Number: 69384998
Shareholder(s) Name(s) _______________________________________
Shareholder(s) Mutual Fund Account Number ____________________
ELECTRONIC FUNDS TRANSFER
[CALENDAR GRAPHIC]
* Additional purchases on a regular basis can be deducted from a bank
account, paycheck, income-producing investment, or USAA money market fund
account. Sign up for these services when opening an account or call
1-800-531-8448 to add these services.
10
<PAGE>
PHONE 1-800-531-8448 (IN SAN ANTONIO, 456-7202)
[TELEPHONE GRAPHIC]
* If you have an existing USAA mutual fund account and would like to open a
new account or exchange to another USAA Fund, call for instructions. To
open an account by phone, the new account must have the same registration
as your existing account.
USAA TOUCHLINE(R) 1-800-531-8777 (IN SAN ANTONIO, 498-8777)
[TOUCHLINE GRAPHIC]
* In addition to obtaining account balance information, last transactions,
current fund prices, and return information for your Fund, you can use USAA
TouchLine(R) from any touch-tone phone to access your Fund account to make
selected purchases, exchange to another USAA Fund, or make redemptions.
This service is available with an Electronic Services Agreement (ESA) and
EFT Buy/Sell authorization on file.
INTERNET ACCESS - WWW.USAA.COM
[COMPUTER GRAPHIC]
* You can use your personal computer to perform certain mutual fund
transactions by accessing our web site. To establish access to your account,
you will need to call 1-800-461-3507 to obtain a registration number and
personal identification number (PIN). Once you have established Internet
access to your account, you will be able to open a new mutual fund account
within an existing registration, exchange to another USAA Fund, make
redemptions, review account activity, check balances, and more. To place
orders by Internet, an ESA and EFT Buy/Sell authorization must be on file.
Redemption of Shares
You may redeem Fund shares by any of the methods described below on any day the
NAV per share is calculated. Redemptions are effective on the day instructions
are received in a manner as described below. However, if instructions are
received after the NAV per share calculation (generally 4:00 p.m. Eastern
Time), your redemption will be effective on the next business day.
We will send you your money within seven days after the effective date of
redemption. Payment for redemption of shares purchased by EFT or check is sent
after the EFT or check has cleared, which could take up to 15 days from the
purchase date. If you are considering redeeming shares soon after purchase, you
should purchase by bank wire or certified check to avoid delay. For federal
income tax purposes, a redemption is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on the
difference between your cost basis in the shares and the price received upon
redemption.
11
<PAGE>
In addition, the Fund may elect to suspend the redemption of shares or postpone
the date of payment in limited circumstances.
HOW TO REDEEM
MAIL, IN PERSON, FAX, TELEGRAM, TELEPHONE, OR INTERNET
[FAX GRAPHIC]
* Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
* Visit a member service representative at our San Antonio investment sales and
service office at USAA Federal Savings Bank.
* Send a signed fax to 1-800-292-8177, or send a telegram to USAA Shareholder
Account Services.
* Call toll free 1-800-531-8448 (in San Antonio, 456-7202) to speak with a
member service representative.
* Call toll free 1-800-531-8777 (in San Antonio, 498-8777) to access our
24-hour USAA TouchLine(R) service.
* Access our Internet web site at www.usaa.com.
Telephone redemption privileges are automatically established when you complete
your application. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; and if it does not, it may
be liable for any losses due to unauthorized or fraudulent instructions. Before
any discussion regarding your account, the following information is obtained:
(1) USAA number and/or account number, (2) the name(s) on the account
registration, and (3) social security/tax identification number or date of
birth of the registered account owner(s) for the account registration.
Additionally, all telephone communications with you are recorded and
confirmations of account transactions are sent to the address of record. If you
were issued stock certificates for your shares, redemption by telephone, fax,
telegram, or Internet is not available.
IMPORTANT INFORMATION ABOUT
PURCHASES AND REDEMPTIONS
Investor's Guide to USAA Mutual Fund Services
[INVESTOR GUIDE GRAPHIC]
Upon your initial investment with us, you will receive the INVESTOR'S GUIDE to
help you get the most out of your USAA mutual fund account and to assist you in
your role as an investor. In the INVESTOR'S GUIDE, you will find additional
information on purchases, redemptions, and methods of payment. You will also
find in-depth information on automatic investment plans, shareholder statements
and reports, and other useful information.
12
<PAGE>
Account Balance
USAA Shareholder Account Services (SAS), the Fund's transfer agent, may assess
annually a small balance account fee of $12 to each shareholder account with a
balance of less than $2,000 at the time of assessment. The fee will reduce
total transfer agency fees paid by the Fund to SAS. Accounts exempt from the
fee include: (1) any account regularly purchasing additional shares each month
through an automatic investment plan; (2) any account registered under the
Uniform Gifts/Transfers to Minors Act (UGMA/UTMA); (3) all (non-IRA) money
market fund accounts; (4) any account whose registered owner has an aggregate
balance of $50,000 or more invested in USAA mutual funds; and (5) all IRA
accounts (for the first year the account is open).
Fund Rights
The Fund reserves the right to:
* reject purchase or exchange orders when in the best interest of the Fund;
* limit or discontinue the offering of shares of the Fund without notice to the
shareholders;
* impose a redemption charge of up to 1% of the net asset value of shares
redeemed if circumstances indicate a charge is necessary for the protection
of remaining investors (for example, if excessive market-timing share
activity unfairly burdens long-term investors); however, this 1% charge
will not be imposed upon shareholders unless authorized by the Fund's Board
of Directors and the required notice has been given to shareholders;
* require a signature guarantee for transactions or changes in account
information in those instances where the appropriateness of a signature
authorization is in question (the Statement of Additional Information
contains information on acceptable guarantors);
* redeem an account with less than ten shares, with certain limitations.
EXCHANGES
Exchange Privilege
The exchange privilege is automatic when you complete your application. You may
exchange shares among Funds in the USAA Family of Funds, provided you do not
hold these shares in stock certificate form and the shares to be acquired are
offered in your state of residence. Exchanges made through USAA TouchLine(R)
and the Internet require an ESA and EFT Buy/Sell authorization on file. After
we receive the exchange orders, the Fund's transfer agent will simultaneously
process exchange redemptions
13
<PAGE>
and purchases at the share prices next determined. The investment minimums
applicable to share purchases also apply to exchanges. For federal income tax
purposes, an exchange between Funds is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on the
difference between your cost basis in the shares and the price received upon
exchange.
The Fund has undertaken certain procedures regarding telephone transactions as
described on page 12.
Exchange Limitations, Excessive Trading
To minimize Fund costs and to protect the Funds and their shareholders from
unfair expense burdens, the Funds restrict excessive exchanges. The limit on
exchanges out of any Fund in the USAA Family of Funds for each account is six
per calendar year (except there is no limitation on exchanges out of the Tax
Exempt Short-Term Fund, Short-Term Bond Fund, or any of the money market funds
in the USAA Family of Funds).
SHAREHOLDER INFORMATION
Share Price Calculation
[SIDE BAR]
NAV PER SHARE
EQUALS
TOTAL ASSETS
MINUS
LIABILITIES
DIVIDED BY
# OF SHARES
OUTSTANDING
The price at which you purchase and redeem Fund shares is equal to the net
asset value (NAV) per share determined on the effective date of the purchase or
redemption. You may buy and sell Fund shares at the NAV per share without a
sales charge. The Fund's NAV per share is calculated at the close of the
regular trading session of the NYSE, which is usually 4:00 p.m. Eastern Time.
Portfolio securities, except as otherwise noted, traded primarily on a
securities exchange are valued at the last sales price on that exchange. If no
sale is reported, the average of the bid and asked prices is generally used.
Over-the-counter securities are generally priced at the last sales price or, if
not available, at the average of the bid and asked prices.
Debt securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other debt securities are
valued each business day at their current market value as determined by a
pricing service approved by the Fund's Board of Directors. Securities that
cannot be valued by these methods, and all other assets, are valued in good
faith at fair value using methods we have determined under the general
supervision of the Fund's Board of Directors.
For additional information on how securities are valued, see VALUATION OF
SECURITIES in the Fund's Statement of Additional Information.
14
<PAGE>
Dividends and Distributions
The Fund pays net investment income dividends yearly. Any net capital gain
distribution usually occurs within 60 days of the July 31 fiscal year end,
which would be somewhere around the end of September. The Fund will make
additional payments to shareholders, if necessary, to avoid the imposition of
any federal income or excise tax.
We will automatically reinvest all income dividends and capital gain
distributions in the Fund unless you instruct us differently. The share price
will be the NAV of the Fund shares computed on the ex-dividend date. Any income
dividends or capital gain distributions paid by the Fund will reduce the NAV
per share by the amount of the dividend or distribution. You should consider
carefully the effects of purchasing shares of the Fund shortly before any
dividend or distribution. Some or all of these dividends and distributions are
subject to taxes.
We will invest any dividend or distribution payment returned to us in your
account at the then-current NAV per share. Dividend and distribution checks
become void six months from the date on the check. The amount of the voided
check will be invested in your account at the then-current NAV per share.
Federal Taxes
This tax information is quite general and refers to the federal income tax
provisions in effect as of the date of this Prospectus. Note that the Taxpayer
Relief Act of 1997 and the technical provisions adopted by the IRS
Restructuring and Reform Act of 1998 may affect the status and treatment of
certain distributions shareholders receive from the Fund. Because each
investor's tax circumstances are unique and because the tax laws are subject to
change, we recommend that you consult your tax adviser about your investment.
SHAREHOLDER - Dividends from taxable net investment income and distributions of
net short-term capital gains are taxable to you as ordinary income, whether
received in cash or reinvested in additional shares. A portion of these
dividends may qualify for the 70% dividends-received deduction available to
corporations.
Regardless of the length of time you have held the Fund shares, distributions
of net long-term capital gains are taxable as long-term capital gains whether
received in cash or reinvested in additional shares.
15
<PAGE>
WITHHOLDING - Federal law requires the Fund to withhold and remit to the U.S.
Treasury a portion of the income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate shareholder who:
* fails to furnish the Fund with a correct tax identification number,
* underreports dividend or interest income, or
* fails to certify that he or she is not subject to withholding.
To avoid this withholding requirement, you must certify, on your application or
on a separate Form W-9 supplied by the Fund's transfer agent, that your tax
identification number is correct and you are not currently subject to backup
withholding.
REPORTING - The Fund will report information to you annually concerning the tax
status of dividends and distributions for federal income tax purposes.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an
investment in this Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the Annual Report,
which is available upon request.
Year Ended July 31,
----------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------
Net asset value at
beginning of period $ 20.04 $ 23.66 $ 20.05 $ 19.06 $ 17.63
Net investment income .04 .01 .24 .33 .26
Net realized and
unrealized gain (loss) 4.72 (1.31) 6.92 1.92 3.95
Distributions from net
investment income (.03) (.09) (.34) (.29) (.27)
Distributions of realized
capital gains (.74) (2.23) (3.21) (.97) (2.51)
-----------------------------------------------------
Net asset value at
end of period $ 24.03 $ 20.04 $ 23.66 $ 20.05 $ 19.06
======================================================
Total return (%)* 24.92 (4.91) 42.48 12.44 26.46
Net assets at end of
period (000) $1,683,008 $1,403,573 $1,650,257 $1,162,262 $ 922,821
Ratio of expenses to
average net assets (%) .97 .96 .97 1.01 1.04
Ratio of net investment
income to average net
assets (%) .18 .04 1.28 1.70 1.63
Portfolio turnover (%) 39.60 68.93 75.41 62.30 69.64
- --------------------------
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
17
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH WE MAY
INVEST THE FUND'S ASSETS:
CONVERTIBLE SECURITIES
We may invest the Fund's assets in convertible securities, which are bonds,
preferred stocks, and other securities that pay interest or dividends and offer
the buyer the ability to convert the security into common stock. The value of
convertible securities depends partially on interest rate changes and the
credit quality of the issuer. Because a convertible security affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of the underlying common stock, the value of convertible
securities also depends on the price of the underlying common stock.
ILLIQUID SECURITIES
We may invest up to 15% of the Fund's net assets in securities that are
illiquid. Illiquid securities are those securities which cannot be disposed of
in the ordinary course of business, seven days or less, at approximately the
same value at which the Fund has valued the securities.
MONEY MARKET INSTRUMENTS
We may hold a certain portion of the Fund's assets in investment-grade, U.S.
dollar-denominated debt securities that have remaining maturities of one year
or less. Such securities may include U.S. government obligations, commercial
paper and other short-term corporate obligations, repurchase agreements
collateralized with U.S. government securities, certificates of deposit,
banker's acceptances, and other financial institution obligations. These
securities may carry fixed or variable interest rates.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
We may invest the Fund's assets in ADRs, which are foreign shares held by a
U.S. bank that issues a receipt evidencing ownership. Dividends are paid in
U.S. dollars.
18
<PAGE>
APPENDIX B
USAA Family of No-Load Mutual Funds
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed to
provide you with the opportunity to formulate your own investment program. You
may exchange any shares you hold in any one USAA Fund for shares in any other
USAA Fund. For more complete information about the mutual funds managed and
distributed by USAA Investment Management Company, including charges and
operating expenses, call us for a Prospectus. Read it carefully before you
invest. Mutual fund operating expenses apply and continue throughout the life
of the Fund.
FUND TYPE/NAME VOLATILITY
==============================================
CAPITAL APPRECIATION
----------------------------------------------
Aggressive Growth Very high
Emerging Markets Very high
First Start Growth Moderate to high
Gold Very high
Growth Moderate to high
Growth & Income Moderate
International Moderate to high
S&P 500 Index Moderate
Science & Technology Very high
Small Cap Stock Very high
World Growth Moderate to high
----------------------------------------------
ASSET ALLOCATION
----------------------------------------------
Balanced Strategy Moderate
Cornerstone Strategy Moderate
Growth and Tax Strategy Moderate
Growth Strategy Moderate to high
Income Strategy Low to moderate
----------------------------------------------
INCOME -- TAXABLE
----------------------------------------------
GNMA Low to moderate
High-Yield Opportunities High
Income Moderate
Income Stock Moderate
Intermediate-Term Bond Low to moderate
Short-Term Bond Low
----------------------------------------------
INCOME -- TAX EXEMPT
----------------------------------------------
Long-Term Moderate
Intermediate-Term Low to moderate
Short-Term Low
State Bond/Income Moderate
----------------------------------------------
MONEY MARKET
----------------------------------------------
Money Market Very low
Tax Exempt Money Market Very low
Treasury Money Market Trust Very low
State Money Market Very low
==============================================
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
S&P(R) 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.
CALIFORNIA, FLORIDA, NEW YORK, TEXAS, AND VIRGINIA FUNDS ARE OFFERED ONLY TO
RESIDENTS OF THOSE STATES.
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.
19
<PAGE>
If you would like more information about the Fund, you may call 1-800-531-8181
to request a free copy of the Fund's Statement of Additional Information (SAI),
Annual or Semiannual Report, or to ask other questions about the Fund. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this Prospectus. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
To view these documents, along with other related documents, you can visit the
EDGAR database on the SEC's Internet web site (http://www.sec.gov) or the
Commission's Public Reference Room in Washington, D.C. Information on the
operation of the public reference room can be obtained by calling
1-202-942-8090. Additionally, copies of this information can be obtained, after
paying a duplicating fee, by electronic request at the following E-mail
address: [email protected] or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
===============================================================================
INVESTMENT ADVISER, UNDERWRITER, AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
----------------------------------------------------------
TRANSFER AGENT CUSTODIAN
USAA Shareholder Account Services State Street Bank and Trust Company
9800 Fredericksburg Road P.O. Box 1713
San Antonio, Texas 78288 Boston, Massachusetts 02105
----------------------------------------------------------
TELEPHONE ASSISTANCE HOURS
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
Sunday 11:30 a.m. to 8:00 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(R)
(from touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777 (in San Antonio, 498-8777)
----------------------------------------------------------
INTERNET ACCESS
www.usaa.com
===============================================================================
Investment Company Act File No. 811-2429
20
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