TABLE OF CONTENTS
USAA FAMILY OF FUNDS 1
MESSAGE FROM THE PRESIDENT 2
INVESTMENT REVIEW 4
MESSAGE FROM THE MANAGER 5
FINANCIAL INFORMATION
Distributions to Shareholders 8
Independent Auditors' Report 9
Portfolio of Investments 10
Notes to Portfolio of Investments 13
Statement of Assets and Liabilities 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE USAA 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)2000, 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
(Registered Trademark) 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(Registered
Trademark) 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
(Registered Trademark) 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, AND VIRGINIA FUNDS AVAILABLE TO RESIDENTS ONLY.
NONDEPOSIT 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
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA,
APPEARS HERE.]
--------------------------------------------------------------------------------
SO FAR 2000 HAS BEEN AN UNINSPIRING INVESTMENT YEAR. LOOKING AT VARIOUS MARKET
AVERAGES, AN INVESTOR SEES MARKETS THAT ARE CLOSE TO ZERO RETURN, SLIGHTLY DOWN
OR SLIGHTLY UP.
--------------------------------------------------------------------------------
The biggest attention-grabber among indices is the Dow Jones Utilities. As
reported August 20 in THE NEW YORK TIMES, for the 2000 calendar year it is up
27.53%! If anyone predicted that, I missed it.
Years like this for the broad averages are, in a way, predictable. We know that
the S&P 500 Index, for instance, is not likely to take a sudden quantum leap and
begin to average 30% return per year. I believe it possibly will return
somewhere around 12%. (Please note I am surmising, not guaranteeing.) Another
interesting thing about the year 2000 is the number of actively managed funds
that are outperforming index funds.
Markets must take breathers like this. Such a pause allows the valuations of
securities to become more normal. That means that the relationship of, for
instance, a company's earnings per share to the price of a share becomes less
extreme. This, in turn, could ultimately allow the expected returns on stocks to
resume.
A family of mutual funds has the potential to make this kind of a period easier.
Ideally, you can build an asset allocation to express your risk tolerance. Many
fixed-income fund returns look very good in a year like this. And even if you
don't build such a portfolio, a fund family makes it easy to retreat to safety
because of the availability of bond and money market funds.
As you probably know, I am a strong proponent of asset allocation to build a
portfolio you can live with. That's because somewhere down the road this market
will ignite, and when it does you want to be sure you are there.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
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.
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 $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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 SCIENCE & TECHNOLOGY FUND
OBJECTIVE: Long-term capital appreciation.
TYPES OF INVESTMENTS: Invests principally in equity securities of companies
expected to benefit from the development and use of scientific and technological
advances and improvements.
--------------------------------------------------------------------------------
7/31/99 7/31/00
--------------------------------------------------------------------------------
Net Assets $258.0 Million $624.5 Million
Net Asset Value Per Share $15.18 $21.06
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/00
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION ON 8/1/97
40.73% 28.79%
--------------------------------------------------------------------------------
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 S&P
500 Index, and the Lipper Science & Technology Funds Average for the period of
08/01/1997 through 07/31/2000. The data points from the graph are as follows:
USAA SCIENCE & S&P 500 LIPPER SCIENCE &
TECHNOLOGY FUND INDEX TECH FUNDS AVG.
--------------- ------- ----------------
08/01/97 $10,000 $10,000 $10,000
01/31/98 9,450 10,356 9,473
07/31/98 11,170 11,931 11,138
01/31/99 14,360 13,723 16,398
07/31/99 15,180 14,341 18,547
01/31/00 19,191 15,142 31,535
07/31/00 21,363 15,627 31,702
DATA SINCE INCEPTION ON 8/1/97 THROUGH 7/31/00
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 AND
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 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.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER: CURT ROHRMAN, CFA, APPEARS HERE.]
PERFORMANCE
Technology stocks dominated market performance over the past 12 months. The S&P
technology sector rose 39.3% compared with a gain of 8.97% for the S&P 500
Index. Certain segments within the technology industry performed significantly
better, including networking (up 120.4%), semiconductor equipment (up 115.3%),
and semiconductors (up 88.2%). The growth of the Internet and increased usage of
wireless communications were the most important factors behind the outstanding
performance of technology stocks. Any impact of Y2K lock-downs was more than
offset by corporate spending to Web-enable businesses.
The health-care sector posted a respectable 15.5% return for the period (as
measured by the S&P health-care sector), yet this paled in comparison to
traditional technology sectors. Hospital management and biotechnology
experienced good performance (increasing 58.3% and 52.5%, respectively). But
more sizable sectors such as drugs and medical devices each posted more modest
percentage gains of teens or less.
Your USAA Science & Technology Fund maintained its balanced investment approach.
Holdings were spread across areas as diverse as traditional computer technology,
communications, health care, biotechnology, and oil service. The result was a
very good year, with the Fund's total return reaching 40.73% for the 12-month
period ending July 31, 2000. Stocks posting gains in excess of 100% were
numerous: Analog Devices, Applied Materials, Brocade Communications, Business
Objects, Check Point Software, Cisco Systems, LM Ericsson, Extreme Networks,
GlobeSpan, Human Genome Sciences, LifePoint Hospitals, Mercury Interactive,
Micromuse, Millennium Pharmaceuticals, Nuance Communications, Oracle, Rational
Software, Siebel Systems, Veritas Software, and Wireless Facilities. Stocks with
declines of more than 25% included Anadigics, BMC Software, Compuware, Duane
Reade, Lucent Technologies, Legato Systems, Microsoft, and Priceline.com.
The Fund's performance for the 12 months was short of the Lipper average for
science and technology funds, because most funds in the category focus only on
traditional technology. However, as technology stocks have become more volatile
recently, the steadiness of our Fund's more diversified approach has been
obvious. In fact, your USAA Science & Technology Fund outperformed the Lipper
average by more than 10 percentage points since we last discussed performance
six months ago (11.32% versus 0.75% for the average).
OUTLOOK
We remain extremely bullish on the stock market as a whole. Economic growth
around the world remains strong. Computer technology is enabling sufficient
improvements in productivity to offset capacity constraints normally associated
with extended economic cycles. With global inflation rates seeming subdued,
interest rates are unlikely to rise materially. All this provides an excellent
backdrop for equities.
We are particularly bullish on technology and health-care stocks. America's
dominance in scientific and technological innovation is unmatched. This
country's track record of extraordinary financial reward for successful
innovation suggests that early and aggressive exploitation of technology will
continue to occur here first. Our bullishness applies not only to computer and
communications technology, but equally, or possibly more so, to biotechnology,
genomics, pharmaceuticals, and medical devices. In our opinion, opportunities
presented by aging demographics and the incredible potential of genomics for
personalized disease management and prevention far outweigh current concerns
regarding health-care reimbursement and the potential for pharmaceutical price
controls.
-------------------------------------------------------------------
* * * * *
Your Fund's performance received an Overall Star Rating of 5 stars
in the domestic equity fund category from Morningstar
Rating(TradeMark) for the period ending
July 31, 2000.
-------------------------------------------------------------------
REFER TO THE BOTTOM OF PAGE 4 FOR THE S&P 500 INDEX DEFINITION.
REFER TO THE BOTTOM OF PAGE 4 FOR THE LIPPER AVERAGE DEFINITION.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. MORNINGSTAR PROPRIETARY
RATINGS ON U.S.-DOMICILED FUNDS REFLECT HISTORICAL RISK-ADJUSTED PERFORMANCE AS
OF JULY 31, 2000. THE RATINGS ARE SUBJECT TO CHANGE EVERY MONTH. MORNINGSTAR
RATINGS ON U.S.-DOMICILED FUNDS ARE CALCULATED FROM THE FUND'S THREE-YEAR
AVERAGE ANNUAL RETURN IN EXCESS OF 90-DAY U.S. TREASURY BILL RETURNS WITH
APPROPRIATE FEE ADJUSTMENTS, AND A RISK FACTOR THAT REFLECTS FUND PERFORMANCE
BELOW 90-DAY U.S. T-BILL RETURNS. THE USAA SCIENCE & TECHNOLOGY FUND RECEIVED 5
STARS FOR THE THREE-YEAR PERIOD. THE TOP 10% OF THE FUNDS IN A BROAD ASSET CLASS
RECEIVE 5 STARS, THE NEXT 22.5% RECEIVE 4 STARS, THE NEXT 35% RECEIVE 3 STARS,
THE NEXT 22.5% RECEIVE 2 STARS, AND THE BOTTOM 10% RECEIVE 1 STAR. THE FUND WAS
RATED EXCLUSIVELY AGAINST U.S.-DOMICILED FUNDS. THE FUND WAS RATED AMONG 3,773
FUNDS IN THE DOMESTIC EQUITY FUND CATEGORY FOR THE THREE-YEAR PERIOD.
----------------------------------------
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
----------------------------------------
Oracle Corp. 4.7
Intel Corp. 4.3
Pfizer, Inc. 3.4
Analog Devices, Inc. 3.1
Nortel Networks Corp. 3.0
Cisco Systems, Inc. 2.9
Extreme Networks, Inc. 2.9
Micron Technology, Inc. 2.9
Pharmacia Corp. 2.9
America Online 2.8
----------------------------------------
----------------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
----------------------------------------
Computer Software & Service 23.7
Electronics - Semiconductors 16.8
Communication Equipment 11.0
Drugs 9.8
Oil & Gas - Drilling/Equipment 8.2
Computer - Networking 7.6
Computer - Hardware 6.0
Medical Products & Supplies 4.6
Biotechnology 2.5
Equipment - Semiconductors 2.4
----------------------------------------
YOU WILL FIND A COMPLETE LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES
10-12.
DISTRIBUTIONS TO SHAREHOLDERS
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended July 31, 2000. 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 2001.
Ordinary income $.1181 *
Long-term capital gains .0549
Return of capital .0806
------
Total $.2536
======
29.99% of ordinary income distributions qualify for deduction by corporations.
* 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 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 series of
the USAA Mutual Fund, Inc., as of July 31, 2000, 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 the financial
highlights, presented in note 7 to the financial statements, for each of the
years in the three-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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 Science & Technology Fund as of July 31, 2000, 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 three-year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
San Antonio, Texas
September 1, 2000
USAA SCIENCE & TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2000
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
COMMON STOCKS (99.8%)
BIOTECHNOLOGY (2.5%)
40,000 Amgen, Inc.* $ 2,597
50,000 Diversa Corp.* 1,800
25,000 Genentech, Inc.* 3,803
22,000 Human Genome Sciences, Inc.* 2,658
32,000 Incyte Genomics, Inc.* 2,426
26,000 Millennium Pharmaceuticals, Inc.* 2,503
--------------------------------------------------------------------------------
15,787
--------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (11.0%)
20,000 Avanex Corp.* 2,539
75,000 JDS Uniphase Corp.* 8,859
869,000 LM Ericsson Telephone Co. ADR 17,054
146,000 Lucent Technologies, Inc. 6,388
250,000 Nortel Networks Corp. 18,594
237,400 QualComm, Inc.* 15,416
--------------------------------------------------------------------------------
68,850
--------------------------------------------------------------------------------
COMPUTER - HARDWARE (6.0%)
389,000 Dell Computer Corp.* 17,092
98,000 Hewlett-Packard Co. 10,700
249,763 Palm, Inc.* 9,741
--------------------------------------------------------------------------------
37,533
--------------------------------------------------------------------------------
COMPUTER - NETWORKING (7.6%)
26,000 Brocade Communications Systems, Inc.* 4,644
277,000 Cisco Systems, Inc.* 18,126
129,000 Extreme Networks, Inc.* 18,014
48,000 Juniper Networks, Inc.* 6,837
--------------------------------------------------------------------------------
47,621
--------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (23.7%)
69,900 Agile Software Corp.* 3,866
330,000 America Online, Inc.* 17,593
41,000 Art Technology Group, Inc.* 3,567
90,000 BEA Systems, Inc.* 3,876
38,000 Business Objects S.A. ADR* 3,591
44,000 Check Point Software Technologies Ltd.* 5,104
55,000 Corio, Inc.* 921
34,000 Electronic Arts, Inc.* 3,007
81,000 I2 Technologies, Inc.* 10,510
65,000 Lycos, Inc.* 3,941
40,000 Mercury Interactive Corp.* 3,971
30,000 Micromuse, Inc.* 3,892
246,000 Microsoft Corp.* 17,174
60,000 Nuance Communications, Inc.* 8,422
40,000 Numerical Technologies, Inc.* 1,865
391,000 Oracle Corp.* 29,398
80,000 Rational Software Corp.* 8,140
66,000 RealNetworks, Inc.* 2,801
44,000 Siebel Systems, Inc.* 6,380
40,000 Veritas Software Corp.* 4,078
47,000 Yahoo! Inc.* 6,048
--------------------------------------------------------------------------------
148,145
--------------------------------------------------------------------------------
DRUGS (9.8%)
90,000 Eli Lilly & Co. 9,349
171,000 Merck & Co., Inc. 12,259
489,750 Pfizer, Inc. 21,120
334,000 Pharmacia Corp. 18,286
--------------------------------------------------------------------------------
61,014
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (0.2%)
20,000 Capstone Turbine Corp.* 1,100
--------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (16.8%)
285,000 Analog Devices, Inc.* 19,059
72,000 GlobeSpan, Inc.* 8,132
402,000 Intel Corp. 26,833
202,000 Linear Technology Corp. 11,161
221,000 Micron Technology, Inc.* 18,012
55,000 Quantum Effect Devices, Inc.* 4,094
62,000 Silicon Laboratories, Inc.* 3,569
242,000 Texas Instruments, Inc. 14,202
--------------------------------------------------------------------------------
105,062
--------------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (2.4%)
198,000 Applied Materials, Inc.* 15,023
--------------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (1.9%)
129,000 Johnson & Johnson, Inc. 12,005
--------------------------------------------------------------------------------
HOSPITALS (1.7%)
240,000 Health Management Associates, Inc.* 3,765
254,900 LifePoint Hospitals, Inc.* 6,819
--------------------------------------------------------------------------------
10,584
--------------------------------------------------------------------------------
INTERNET SERVICES (0.8%)
10,000 Blue Martini Software, Inc.* 594
146,000 Internet Gold-Golden Lines Ltd.* 1,058
129,000 Priceline.com, Inc.* 3,048
--------------------------------------------------------------------------------
4,700
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (4.6%)
256,000 Guidant Corp.* 14,432
274,000 Medtronic, Inc. 13,991
--------------------------------------------------------------------------------
28,423
--------------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (8.2%)
160,000 Baker Hughes, Inc. 5,540
150,000 Diamond Offshore Drilling, Inc.* 5,634
281,000 Halliburton Co. 12,961
255,000 R&B Falcon Corp.* 5,084
211,000 Schlumberger Ltd. 15,601
134,000 Transocean Sedco Forex, Inc. 6,633
--------------------------------------------------------------------------------
51,453
--------------------------------------------------------------------------------
RETAIL - DRUGS (0.6%)
163,400 Duane Reade, Inc.* 3,738
--------------------------------------------------------------------------------
SERVICES - COMMERCIAL & CONSUMER (0.4%)
43,000 Gemstar-TV Guide International, Inc.* 2,615
--------------------------------------------------------------------------------
SERVICES - COMPUTER SYSTEMS (0.5%)
100,000 SunGard Data Systems, Inc.* 3,306
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (1.1%)
96,000 Level 3 Communications, Inc.* 6,570
--------------------------------------------------------------------------------
Total common stocks (cost: $427,114) 623,529
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------
MONEY MARKET INSTRUMENT (0.8%)
$ 4,805 Federal Home Loan Mortgage,
Discount Note, 6.48%, 8/01/2000 (cost: $4,805) 4,805
--------------------------------------------------------------------------------
Total investments (cost: $431,919) $628,334
================================================================================
USAA SCIENCE & TECHNOLOGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
JULY 31, 2000
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 $433,854,000.
The percentages shown represent the percentage of the investments to net assets.
Investments in foreign securities were 9.8% of net assets at July 31, 2000.
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, 2000
ASSETS
Investments in securities, at market value (identified cost
of $431,919) $628,334
Cash 759
Receivables:
Capital shares sold 635
Dividends 67
Securities sold 2,405
--------
Total assets 632,200
--------
LIABILITIES
Securities purchased 6,685
Capital shares redeemed 381
USAA Investment Management Company 402
USAA Transfer Agency Company 96
Accounts payable and accrued expenses 108
--------
Total liabilities 7,672
--------
Net assets applicable to capital shares outstanding $624,528
========
REPRESENTED BY:
Paid-in capital $438,853
Accumulated net realized loss on investments (10,740)
Net unrealized appreciation of investments 196,415
--------
Net assets applicable to capital shares outstanding $624,528
========
Capital shares outstanding 29,650
========
Authorized shares of $.01 par value 105,000
========
Net asset value, redemption price, and offering price per share $ 21.06
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED JULY 31, 2000
Net investment loss:
Income:
Dividends (net of foreign taxes withheld of $9) $ 1,283
Interest 1,358
--------
Total income 2,641
--------
Expenses:
Management fees 3,452
Transfer agent's fees 1,545
Custodian's fees 121
Postage 247
Shareholder reporting fees 65
Directors' fees 4
Registration fees 146
Professional fees 34
Other 7
--------
Total expenses 5,621
--------
Net investment loss (2,980)
--------
Net realized and unrealized gain (loss) on investments:
Net realized loss (6,114)
Change in net unrealized appreciation/depreciation 134,532
--------
Net realized and unrealized gain 128,418
--------
Increase in net assets resulting from operations $125,438
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED JULY 31,
2000 1999
---------------------
From operations:
Net investment loss $ (2,980) $ (811)
Net realized gain (loss) on investments (6,114) 1,987
Change in net unrealized appreciation/depreciation
of investments 134,532 49,484
---------------------
Increase in net assets resulting
from operations 125,438 50,660
---------------------
Distributions to shareholders from:
Net realized gains (3,329) -
---------------------
Tax return of capital (1,714) -
---------------------
From capital share transactions:
Proceeds from shares sold 400,291 185,201
Reinvested dividends 4,991 -
Cost of shares redeemed (159,141) (89,187)
---------------------
Increase in net assets from
capital share transactions 246,141 96,014
---------------------
Net increase in net assets 366,536 146,674
Net assets:
Beginning of period 257,992 111,318
---------------------
End of period $624,528 $257,992
=====================
Change in shares outstanding:
Shares sold 20,438 13,761
Shares issued for dividends reinvested 289 -
Shares redeemed (8,074) (6,725)
---------------------
Increase in shares outstanding 12,653 7,036
=====================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA SCIENCE & TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
(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
Science & Technology Fund (the Fund). The Fund's investment objective is
long-term capital appreciation. USAA Investment Management Company (the Manager)
attempts to achieve this objective by investing the Fund's assets in equity
securities of companies 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. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the average of the bid and asked
prices is generally used depending upon local custom or regulation.
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 that 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 $2,980,000, decrease net
realized gain on investments by $1,911,000, and decrease paid-in capital by
$1,069,000.
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 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, 2000.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes. At
July 31, 2000, the Fund had a capital loss carryover for federal income tax
purposes of $8,807,000 which will expire in 2009. It is unlikely that the
Company's Board of Directors will authorize a distribution of capital gains
realized in the future until the capital loss carryover has been utilized or
expires.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the year ended July 31, 2000, were $559,368,000 and
$299,313,000, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
2000, were $211,184,000 and $14,770,000, respectively, and for tax purposes,
$210,755,000 and $16,275,000, respectively.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at .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 $26 per shareholder account plus
out-of-pocket expenses.
C. UNDERWRITING SERVICES - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
D. BROKERAGE SERVICES - USAA Brokerage Services, a discount brokerage service
of the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year ended July
31, 2000, was $10,000.
(6) TRANSACTIONS WITH AFFILIATES
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED JULY 31,
------------------------------------
2000 1999 1998**
------------------------------------
Net asset value at
beginning of period $ 15.18 $ 11.17 $ 10.00
Net investment loss (.13)(a) (.06)(a) (.07)(a)
Net realized and
unrealized gain 6.26 4.07 1.24
Distributions of realized
capital gains (.17) - -
Distribution of tax
return of capital (.08) - -
------------------------------------
Net asset value at
end of period $ 21.06 $ 15.18 $ 11.17
====================================
Total return (%)* 40.73 35.90 11.70
Net assets at
end of period (000) $624,528 $257,992 $111,318
Ratio of expenses to
average net assets (%) 1.22 1.33 1.42
Ratio of net investment
loss to average
net assets (%) (.65) (.47) (.69)
Portfolio turnover (%) 69.21 44.39 76.31
* ASSUMES REINVESTMENT OF ALL CAPITAL GAIN AND OTHER DISTRIBUTIONS DURING THE
PERIOD.
** FUND COMMENCED OPERATIONS ON AUGUST 1, 1997.
(a) CALCULATED USING WEIGHTED AVERAGE SHARES.
DIRECTORS
Robert G. Davis, CHAIRMAN OF THE BOARD
Michael J.C. Roth, VICE CHAIRMAN OF THE BOARD
Barbara B. Dreeben
Robert L. Mason
David G. Peebles
Michael F. Reimherr
Laura T. Starks
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER, AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT LEGAL COUNSEL
USAA Shareholder Account Services Goodwin, Procter & Hoar LLP
9800 Fredericksburg Road Exchange Place
San Antonio, Texas 78288 Boston, Massachusetts 02109
CUSTODIAN INDEPENDENT AUDITORS
State Street Bank and Trust Company KPMG LLP
P.O. Box 1713 112 East Pecan, Suite 2400
Boston, Massachusetts 02105 San Antonio, Texas 78205
TELEPHONE ASSISTANCE HOURS INTERNET ACCESS
Call toll free - Central Time usaa.com(Service Mark)
Monday - Friday 6:00 a.m. to 10:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
FOR ADDITIONAL INFORMATION ON MUTUAL FUNDS
1-800-531-8181, (in San Antonio) 456-7200
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(REGISTERED TRADEMARK)
(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
