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 15
Statement of Assets and Liabilities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Notes to Financial Statements 19
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE USAA GROWTH &
INCOME FUND, MANAGED BY USAA INVESTMENT MANAGEMENT COMPANY (IMCO). IT MAY BE
USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT
PROSPECTUS, WHICH GIVES FURTHER DETAILS ABOUT THE FUND.
USAA WITH THE EAGLE IS REGISTERED IN THE U.S. PATENT & TRADEMARK OFFICE.
(COPYRIGHT)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 THE 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 GROWTH & INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMENTS: Invests principally in dividend-paying equity securities.
--------------------------------------------------------------------------------
7/31/99 7/31/00
--------------------------------------------------------------------------------
Net Assets $1,136.3 Million $1,098.5 Million
Net Asset Value Per Share $20.43 $19.79
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/00
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION ON 6/1/93
0.99% 15.56% 14.38%
--------------------------------------------------------------------------------
TOTAL RETURN EQUALS INCOME YIELD PLUS SHARE PRICE CHANGE AND ASSUMES
REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. NO ADJUSTMENT HAS
BEEN MADE FOR TAXES PAYABLE BY SHAREHOLDERS ON THEIR REINVESTED INCOME DIVIDENDS
AND CAPITAL GAIN DISTRIBUTIONS. THE PERFORMANCE DATA QUOTED REPRESENT PAST
PERFORMANCE AND ARE NOT AN INDICATION OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, AND AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Growth & Income Fund, the S&P 500
Index, and the Lipper Growth & Income Funds Average for the period of 06/01/1993
through 07/31/2000. The data points from the graph are as follows:
USAA GROWTH LIPPER GROWTH &
& INCOME FUND S&P 500 INDEX INCOME FUNDS AVERAGE
------------- ------------- --------------------
06/01/93 $10,000 $10,000 $10,000
07/31/93 9,930 9,989 10,035
01/31/94 10,865 10,883 10,976
07/31/94 10,566 10,503 10,564
01/31/95 10,751 10,940 10,723
07/31/95 12,711 13,242 12,740
01/31/96 14,290 15,165 14,255
07/31/96 14,576 15,433 14,497
01/31/97 17,895 19,158 17,565
07/31/97 21,382 23,476 20,988
01/31/98 21,449 24,311 21,526
07/31/98 22,449 28,008 23,545
01/31/99 23,693 32,215 25,391
07/31/99 25,935 33,666 26,831
01/31/00 25,312 35,546 27,061
07/31/00 26,192 36,685 27,969
DATA SINCE INCEPTION ON 6/1/93 THROUGH 7/31/00
THE GRAPH ILLUSTRATES THE COMPARISON OF A $10,000 HYPOTHETICAL INVESTMENT IN THE
USAA GROWTH & INCOME FUND TO THE S&P 500 INDEX AND THE LIPPER GROWTH & INCOME
FUNDS AVERAGE. THE S&P 500 INDEX IS AN UNMANAGED INDEX REPRESENTING THE WEIGHTED
AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY HELD, PUBLICLY TRADED STOCKS. IT IS
NOT POSSIBLE TO INVEST DIRECTLY IN THE S&P 500 INDEX. THE LIPPER GROWTH & INCOME
FUNDS AVERAGE IS AN AVERAGE OF ALL GROWTH AND INCOME FUNDS, AS REPORTED BY
LIPPER ANALYTICAL SERVICES, INC., AN INDEPENDENT ORGANIZATION THAT MONITORS THE
PERFORMANCE OF MUTUAL FUNDS.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, R. DAVID ULLOM, CFA, APPEARS HERE.]
INTRODUCTION
For the latest fiscal year ended July 31, 2000, the USAA Growth & Income Fund
annual total return was 0.99%, while the S&P 500 Index total return was 8.97%.
All of the underperformance, relative to the S&P 500, occurred in the period
from July 31, 1999, through January 30, 2000. Since the end of January, the Fund
is actually up some 3.48%, whereas the S&P 500 is up 3.20%. The subdued
performance of the S&P 500 is at least partially the result of earnings
disappointments and valuation concerns with the technology sector of the market.
Also, many OLD ECONOMY companies have respectable quarterly earnings growth,
thus attracting the attention of some investors who are exiting technology.
As discussed in previous reports to shareholders, our strategy for the USAA
Growth & Income Fund is to select the stocks of companies that have demonstrated
sound management, offer an attractive valuation, and have a strong prospect for
earnings and revenue growth.
PERFORMANCE
Over the course of the latest 12 months, volatility has increased for the market
overall and for stocks in particular. At least a part of the increased
volatility in individual stocks comes from the rise in prominence of NEW ECONOMY
stocks (primarily technology companies). In this regard, the USAA Growth &
Income Fund has benefited in that the Fund's weighting in the technology sector
is less than that of the S&P 500. However, the benefit of the lower volatility
was more than offset by the fact that technology stocks did well over the
12-month period. The consumer-cyclicals area also hindered performance. Although
this sector did not perform particularly well (relative to the S&P 500),
performance of the Fund's holdings have done worse.
Holdings in consumer staples and financials helped the Fund most. In consumer
staples, Philip Morris' proposed acquisition of Nabisco helped performance,
while our holdings in Morgan Stanley Dean Witter, PMI Group, and American
International Group accounted for the majority of the performance in our
financial holdings.
OUTLOOK
One of the greatest concerns for the next six to 12 months relates to the
market's expectations for earnings growth. These expectations appear to be
optimistic given the recent series of interest-rate increases by the Federal
Reserve Board. Also, the majority of earnings growth through the end of July has
come from two sectors: technology and energy. Although earning gains could
continue for most energy companies for the remainder of this year, gains for
technology and other sectors of the market could prove more difficult.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO THE BOTTOM OF PAGE 4 FOR THE S&P 500 INDEX DEFINITION.
-------------------------------------- --------------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
-------------------------------------- --------------------------------------
Intel Corp. 3.1 Finance - Diversified 6.9
Cisco Systems, Inc. 2.9 Health Care - Diversified 4.9
Verizon Communications 2.9 Computer Software & Service 4.7
American International Group, Inc. 2.7 Drugs 4.6
Oracle Corp. 2.7 Computer - Hardware 3.8
General Electric Co. 2.5 Finance - Consumer 3.8
IBM Corp. 2.4 Telephones 3.7
Morgan Stanley Dean Witter 2.2 Aerospace/Defense 3.5
Alcoa, Inc. 2.2 Electrical Equipment 3.2
Merck & Co. 2.0 Electronics - Semiconductors 3.1
-------------------------------------- --------------------------------------
YOU WILL FIND A COMPLETE LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES
10-14.
PORTFOLIO INVESTMENT DIVERSIFICATION
7/31/00
A pie chart is shown here illustrating the Portfolio Investment Diversification
as of July 31, 2000 for the USAA Growth & Income Fund to be:
Basic Materials - 3.8%; Capital Goods - 11.8%; Consumer Cyclicals - 8.4%;
Consumer Staples - 7.9%; Energy - 7.8%; Financial - 22.1%; Health Care - 11.3%;
Technology - 18.4%; Transportation - 0.8%; Communication Services - 5.6%; and
Utilities - 2.3%.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
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 $ .2789 *
Long-term capital gains .5186
-------
Total $ .7975
=======
100% 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 GROWTH & INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Growth & Income 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 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 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 Growth & Income 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 five-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 GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2000
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
COMMON STOCKS (96.1%)
AEROSPACE/DEFENSE (3.5%)
500,000 B.F. Goodrich Co. $ 17,844
410,000 Boeing Co. 20,090
--------------------------------------------------------------------------------
37,934
--------------------------------------------------------------------------------
ALUMINUM (2.2%)
780,000 Alcoa, Inc. 23,595
--------------------------------------------------------------------------------
AUTOMOBILES (1.2%)
285,000 Ford Motor Co. 13,270
--------------------------------------------------------------------------------
AUTO PARTS (1.1%)
480,000 Lear Corp.* 11,190
37,315 Visteon Corp. 522
--------------------------------------------------------------------------------
11,712
--------------------------------------------------------------------------------
BANKS - MAJOR REGIONAL (2.6%)
180,000 Bank One Corp. 5,726
363,068 Fleet Boston Financial Corp. 13,002
60,000 PNC Financial Services Group 3,053
270,000 SouthTrust Corp. 6,649
--------------------------------------------------------------------------------
28,430
--------------------------------------------------------------------------------
BANKS - MONEY CENTER (3.0%)
320,004 Bank of America Corp. 15,160
300,000 Chase Manhattan Corp. 14,906
120,000 First Union Corp. 3,098
--------------------------------------------------------------------------------
33,164
--------------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC (0.4%)
60,000 Anheuser-Busch Cos., Inc. 4,830
--------------------------------------------------------------------------------
BEVERAGES - NONALCOHOLIC (1.4%)
500,000 Pepsi Bottling Group, Inc. 15,281
--------------------------------------------------------------------------------
CHEMICALS (0.7%)
550,000 Lyondell Petrochemical Co. 7,700
--------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (1.7%)
330,224 Lucent Technologies, Inc. 14,447
65,000 QualComm, Inc.* 4,221
--------------------------------------------------------------------------------
18,668
--------------------------------------------------------------------------------
COMPUTER - HARDWARE (3.8%)
150,000 Hewlett-Packard Co. 16,378
230,000 IBM Corp. 25,861
--------------------------------------------------------------------------------
42,239
--------------------------------------------------------------------------------
COMPUTER - NETWORKING (2.9%)
493,300 Cisco Systems, Inc.* 32,280
--------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (4.7%)
74,000 Computer Associates International, Inc. 1,836
280,000 Microsoft Corp.* 19,548
395,000 Oracle Corp.* 29,699
--------------------------------------------------------------------------------
51,083
--------------------------------------------------------------------------------
CONSUMER JEWELRY AND NOVELTIES - MISCELLANEOUS (0.6%)
367,500 American Greetings Corp. "A" 6,247
--------------------------------------------------------------------------------
CONTAINERS - METALS & GLASS (0.3%)
103,000 Ball Corp. 3,573
--------------------------------------------------------------------------------
DRUGS (4.6%)
314,000 Merck & Co., Inc. 22,510
291,950 Pharmacia Corp. 15,984
225,000 Watson Pharmaceuticals, Inc.* 12,431
--------------------------------------------------------------------------------
50,925
--------------------------------------------------------------------------------
ELECTRIC UTILITIES (0.8%)
260,000 Reliant Energy, Inc. 8,710
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (3.2%)
528,000 General Electric Co. 27,159
235,000 Honeywell International, Inc. 7,902
--------------------------------------------------------------------------------
35,061
--------------------------------------------------------------------------------
ELECTRONICS - INSTRUMENTATION (0.2%)
57,210 Agilent Technologies, Inc.* 2,331
--------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (3.1%)
512,000 Intel Corp. 34,176
--------------------------------------------------------------------------------
ENTERTAINMENT (1.0%)
290,000 Walt Disney Co. 11,219
--------------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (1.0%)
151,000 Applied Materials, Inc.* 11,457
--------------------------------------------------------------------------------
FINANCE - CONSUMER (1.4%)
245,000 PMI Group, Inc. 15,343
--------------------------------------------------------------------------------
FINANCE - DIVERSIFIED (5.2%)
460,788 Associates First Capital "A" 12,067
295,000 Citigroup, Inc. 20,816
270,000 Morgan Stanley Dean Witter & Co. 24,637
--------------------------------------------------------------------------------
57,520
--------------------------------------------------------------------------------
FOODS (2.4%)
271,800 Nabisco Holdings Corp. "A" 14,371
584,600 Ralston Purina Group 11,802
--------------------------------------------------------------------------------
26,173
--------------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (4.9%)
220,000 Abbott Laboratories 9,158
300,000 American Home Products Corp. 15,919
342,700 Bristol-Myers Squibb Co. 17,006
125,000 Johnson & Johnson, Inc. 11,633
--------------------------------------------------------------------------------
53,716
--------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (2.3%)
329,000 Kimberly-Clark Corp. 18,897
115,000 Procter & Gamble Co. 6,541
--------------------------------------------------------------------------------
25,438
--------------------------------------------------------------------------------
INSURANCE - LIFE/HEALTH (0.9%)
212,000 MetLife, Inc.* 4,452
160,000 Stancorp Financial Group, Inc. 5,520
--------------------------------------------------------------------------------
9,972
--------------------------------------------------------------------------------
INSURANCE - MULTILINE COMPANIES (2.7%)
337,500 American International Group, Inc. 29,595
--------------------------------------------------------------------------------
INSURANCE - PROPERTY/CASUALTY (1.1%)
316,500 Everest RE Group Ltd. 12,561
--------------------------------------------------------------------------------
LEISURE TIME (0.8%)
475,000 Brunswick Corp. 8,936
--------------------------------------------------------------------------------
LODGING/HOTEL (0.8%)
250,000 Starwood Hotels & Resorts Worldwide, Inc. 8,531
--------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED (1.1%)
313,000 Deere & Co. 12,070
--------------------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED INDUSTRIES (1.5%)
240,000 Eaton Corp. 16,275
--------------------------------------------------------------------------------
MANUFACTURING - SPECIALIZED (2.2%)
360,000 Avery Dennison Corp. 19,530
194,866 Energizer Holdings., Inc.* 4,701
--------------------------------------------------------------------------------
24,231
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (1.8%)
320,000 Bausch & Lomb, Inc. 19,900
--------------------------------------------------------------------------------
NATURAL GAS UTILITIES (1.5%)
275,000 Coastal Corp. 15,881
--------------------------------------------------------------------------------
OIL - DOMESTIC INTEGRATED (2.0%)
350,000 Conoco, Inc. "A" 7,831
690,000 Occidental Petroleum Corp. 13,973
--------------------------------------------------------------------------------
21,804
--------------------------------------------------------------------------------
OIL - INTERNATIONAL INTEGRATED (3.1%)
240,000 Exxon Mobil Corp. 19,200
250,000 Royal Dutch Petroleum ADR 14,562
--------------------------------------------------------------------------------
33,762
--------------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (1.3%)
428,300 Helmerich & Payne, Inc. 13,706
--------------------------------------------------------------------------------
OIL & GAS - EXPLORATION & PRODUCTION (1.4%)
68,250 Anadarko Petroleum Corp. 3,263
245,000 Apache Corp. 12,189
--------------------------------------------------------------------------------
15,452
--------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (0.9%)
113,600 Jefferson Smurfit Group plc ADR 2,102
160,000 Weyerhaeuser Co. 7,310
--------------------------------------------------------------------------------
9,412
--------------------------------------------------------------------------------
PHOTOGRAPHY - IMAGING (0.3%)
250,000 Xerox Corp. 3,719
--------------------------------------------------------------------------------
RAILROADS/SHIPPING (0.8%)
480,000 Norfolk Southern Corp. 8,940
--------------------------------------------------------------------------------
RESTAURANTS (0.4%)
245,000 Wendy's International, Inc. 4,150
--------------------------------------------------------------------------------
RETAIL - GENERAL MERCHANDISING (3.0%)
400,000 Sears, Roebuck & Co. 11,950
380,000 Wal-Mart Stores, Inc. 20,876
--------------------------------------------------------------------------------
32,826
--------------------------------------------------------------------------------
SAVINGS & LOAN HOLDING CO. (1.1%)
385,000 Washington Mutual, Inc. 12,368
--------------------------------------------------------------------------------
SERVICES - COMMERCIAL & CONSUMER (0.9%)
320,000 Hertz Corp. "A" 10,060
--------------------------------------------------------------------------------
SERVICES - DATA PROCESSING (0.7%)
175,000 First Data Corp. 8,061
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (1.9%)
225,000 WorldCom, Inc.* 8,789
75,000 AT&T Corp. 2,321
282,000 Sprint Corp. 10,046
--------------------------------------------------------------------------------
21,156
--------------------------------------------------------------------------------
TELEPHONES (3.7%)
210,000 SBC Communications, Inc. 8,938
670,200 Verizon Communications 31,500
--------------------------------------------------------------------------------
40,438
--------------------------------------------------------------------------------
Total common stocks (cost: $763,125) 1,055,881
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------
MONEY MARKET INSTRUMENTS (4.1%)
COMMERCIAL PAPER
$ 26,008 Household Finance Corp., 6.45%, 8/01/2000 26,008
18,285 General Electric Capital Corp., 6.46%, 8/02/2000 18,282
--------------------------------------------------------------------------------
Total money market instruments (cost: $44,290) 44,290
--------------------------------------------------------------------------------
Total investments (cost: $807,415) $1,100,171
================================================================================
USAA GROWTH & INCOME 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 $808,993,000.
The percentages shown represent the percentage of the investments to net assets.
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 GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
JULY 31, 2000
ASSETS
Investments in securities, at market value (identified
cost of $807,415) $ 1,100,171
Cash 308
Receivables:
Capital shares sold 128
Dividends 831
-----------
Total assets 1,101,438
-----------
LIABILITIES
Securities purchased 1,142
Capital shares redeemed 977
USAA Investment Management Company 572
USAA Transfer Agency Company 176
Accounts payable and accrued expenses 97
-----------
Total liabilities 2,964
-----------
Net assets applicable to capital shares outstanding $ 1,098,474
===========
REPRESENTED BY:
Paid-in capital $ 787,824
Accumulated undistributed net investment income 394
Accumulated net realized gain on investments 17,500
Net unrealized appreciation of investments 292,756
-----------
Net assets applicable to capital shares outstanding $ 1,098,474
===========
Capital shares outstanding 55,498
===========
Authorized shares of $.01 par value 110,000
===========
Net asset value, redemption price, and
offering price per share $ 19.79
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED JULY 31, 2000
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $71) $ 16,437
Interest 2,373
----------
Total income 18,810
----------
Expenses:
Management fees 6,706
Transfer agent's fees 2,557
Custodian's fees 173
Postage 391
Shareholder reporting fees 99
Directors' fees 4
Registration fees 54
Professional fees 51
Other 21
----------
Total expenses 10,056
----------
Net investment income 8,754
----------
Net realized and unrealized gain (loss) on investments:
Net realized gain 22,463
Change in net unrealized appreciation/depreciation (21,044)
----------
Net realized and unrealized gain 1,419
----------
Increase in net assets resulting from operations $ 10,173
==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED JULY 31,
2000 1999
--------------------------
From operations:
Net investment income $ 8,754 $ 8,953
Net realized gain on investments 22,463 33,577
Change in net unrealized appreciation/depreciation
of investments (21,044) 107,533
--------------------------
Increase in net assets resulting from
operations 10,173 150,063
--------------------------
Distributions to shareholders from:
Net investment income (8,731) (9,064)
--------------------------
Net realized gains (36,134) (51,105)
--------------------------
From capital share transactions:
Proceeds from shares sold 192,429 224,323
Reinvested dividends 43,813 58,888
Cost of shares redeemed (239,415) (315,355)
--------------------------
Decrease in net assets from
capital share transactions (3,173) (32,144)
--------------------------
Net increase (decrease) in net assets (37,865) 57,750
Net assets:
Beginning of period 1,136,339 1,078,589
--------------------------
End of period $1,098,474 $1,136,339
==========================
Accumulated undistributed net investment income:
End of period $ 394 $ 371
==========================
Change in shares outstanding:
Shares sold 9,786 12,107
Shares issued for dividends reinvested 2,321 3,690
Shares redeemed (12,225) (17,319)
--------------------------
Decrease in shares outstanding (118) (1,522)
==========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH & INCOME 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 Growth
& Income Fund (the Fund). The Fund's investment objectives are capital growth
and current income. USAA Investment Management Company (the Manager) attempts to
achieve these objectives by investing the Fund's assets primarily in
dividend-paying equity securities.
A. SECURITY VALUATION - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value.
4. Securities 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.
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 are made quarterly. Distributions of
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.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the year ended July 31, 2000, were $245,100,000 and
$286,533,000, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
2000, were $346,996,000 and $54,240,000, respectively, and for tax purposes,
$346,263,000 and $55,085,000, 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 .60% of its annual average net assets.
B. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. UNDERWRITING SERVICES - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. The
Manager receives no commissions or fees for this service.
D. BROKERAGE SERVICES - USAA Brokerage Services, a discount brokerage service
of the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year ended July
31, 2000, was $4,000.
(6) TRANSACTIONS WITH AFFILIATES
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 20.43 $ 18.88 $ 18.85 $ 13.46 $ 12.07
Net investment income .16 .16 .21 .23 .24(a)
Net realized and
unrealized gain - 2.46 .69 5.84 1.51
Distributions from net
investment income (.16) (.16) (.21) (.23) (.23)
Distributions of realized
capital gains (.64) (.91) (.66) (.45) (.13)
----------------------------------------------------------
Net asset value at
end of period $ 19.79 $ 20.43 $ 18.88 $ 18.85 $ 13.46
==========================================================
Total return (%)* .99 15.53 4.99 46.69 14.68
Net assets at
end of period (000) $1,098,474 $1,136,339 $1,078,589 $ 825,092 $ 371,801
Ratio of expenses to
average net assets (%) .90 .89 .85 .89 .95
Ratio of net investment
income to average
net assets (%) .78 .85 1.07 1.50 1.84
Portfolio turnover (%) 22.90 24.53 29.38 14.67 16.13
</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, 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
