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 14
Statement of Assets and Liabilities 15
Statement of Operations 16
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
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 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 GROWTH FUND
OBJECTIVE: Long-term growth of capital with secondary objectives of regular
income and conservation of principal.
TYPES OF INVESTMENTS: Invests principally in equity securities of companies that
are, or have the prospect of becoming, one of the dominant companies within
their industry and that have above-average growth in revenues and earnings per
share.
--------------------------------------------------------------------------------
7/31/99 7/31/00
--------------------------------------------------------------------------------
Net Assets $1,683.0 Million $1,874.6 Million
Net Asset Value Per Share $24.03 $24.50
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/00
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
14.13% 16.78% 14.89%
--------------------------------------------------------------------------------
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 Fund, the S&P 500 Index,
and the Lipper Growth Funds Average for the period of 07/31/1990 through
07/31/2000. The data points from the graph are as follows:
USAA LIPPER GROWTH
GROWTH FUND S&P 500 INDEX FUNDS AVERAGE
----------- ------------- -------------
07/31/90 $10,000 $10,000 $10,000
01/31/91 10,075 9,839 9,910
07/31/91 11,082 11,273 11,441
01/31/92 12,218 12,068 12,811
07/31/92 12,553 12,712 12,759
01/31/93 13,836 13,343 14,052
07/31/93 13,997 13,820 14,428
01/31/94 14,902 15,057 16,074
07/31/94 14,587 14,532 15,152
01/31/95 15,814 15,136 15,415
07/31/95 18,446 18,320 18,956
01/31/96 20,534 20,982 20,641
07/31/96 20,741 21,353 20,852
01/31/97 24,681 26,506 25,372
07/31/97 29,552 32,480 30,093
01/31/98 25,283 33,636 30,530
07/31/98 28,101 38,750 33,970
01/31/99 34,256 44,571 38,292
07/31/99 35,103 46,579 39,854
01/31/00 37,559 49,180 44,579
07/31/00 40,061 50,755 46,938
DATA FROM 7/31/90 THROUGH 7/31/00
THE GRAPH ILLUSTRATES THE COMPARISON OF A $10,000 HYPOTHETICAL INVESTMENT IN THE
USAA GROWTH FUND TO THE S&P 500 INDEX AND THE LIPPER GROWTH FUNDS AVERAGE, AN
AVERAGE PERFORMANCE LEVEL OF ALL GROWTH 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 DIRECTLY IN THE S&P 500 INDEX.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER: PATRICK O'HARE, CFA, APPEARS HERE]
THE MARKET
Change has been constant over the last 12 months. We had the tremendous run-up
of the market at the end of 1999, especially in technology shares and the NASDAQ
Composite Index. Despite the hype, the Y2K bug basically was a nonevent. The
markets continued their upward march in the early part of 2000, until it became
clear that Federal Reserve Board Chairman Alan Greenspan and the Federal Reserve
Open Market Committee (FOMC) were serious about slowing the economy. Over the
past 12 months, the FOMC has raised the federal funds rate six times for a total
of 175 basis points.
As of March 1, 2000, I began to manage the USAA Growth Fund. As a result of the
change in managers, the out-of-favor and undervalued constraints were
eliminated. Future purchases will be based upon the investment merits alone and
not on whether a company is in or out of favor. We are now looking to invest in
blue chip growth companies in dynamic and rapidly growing industries.
Like most investors, we would prefer to buy these blue chip companies when they
are undervalued and unappreciated. However, in today's market, it is rare to
find such a company. Even if a company is in favor, we will possibly include it
in the portfolio to participate in the growth expected from the strong company
and industry fundamentals. The amount of money invested in a particular company
depends on our confidence in its fundamentals (such as revenue and earnings
growth).
If we have confidence that a company's fundamentals are improving, we will add
to a position. If we feel that fundamentals are deteriorating, we will reduce or
even eliminate a position.
Despite being invested primarily in out-of-favor names during the market rally
of late 1999 and early 2000 and being invested primarily in growth names during
the more recent downturn in the market, the USAA Growth Fund performed well
compared to the S&P 500. Compared to other growth funds, the Fund's performance
lagged because the out-of-favor and undervalued criteria hurt the performance of
the Fund during the first part of the fiscal year. Recall this is when the
NASDAQ, and in-favor technology names in particular, dramatically outperformed
the other market indices.
The stocks that helped the USAA Growth Fund outperform the S&P 500 for the year
were Nortel Networks, Oracle, and Sun Microsystems, each of which was up more
than 200% for the 12-month period. Other technology stocks that made significant
positive contributions to the Fund's performance included Intel, Cisco Systems,
and EMC Corp., each of which was up more than 90% for the fiscal year ending
July 31, 2000. Nontechnology stocks that positively contributed to the Fund's
performance included General Electric, Pfizer, Warner Lambert, and Amgen.
Stocks that negatively contributed to the Fund's performance were Microsoft,
QualComm, Level 3 Communications, AT&T, and GTE Corp. We continue to own
Microsoft, QualComm, and Level 3 Communications because we believe these stocks
will do well over the next 12 to 18 months.
OUTLOOK
Higher interest rates and prospects for more interest-rate increases have caused
the markets to decline (the major equity indices are down calendar year to date
through July 31, 2000). Moreover, the volatility of the markets increased to
unprecedented levels. We believe that the market will continue to trade in a
narrow range and remain extremely volatile until it is clear that the Federal
Reserve has stopped raising rates. This will make owning the right stocks
increasingly important.
We are looking at downdrafts in the stock market as opportunities to increase or
begin accumulating positions in companies with strong current fundamentals and
bright prospects for future growth. We prefer to focus on companies that are
dominating or have the potential to dominate their respective industries. The
current volatility should allow us to purchase these companies at attractive
prices as they are being sold along with lower-quality names.
We continue to favor technology stocks because many of these companies are
benefiting from strong industry fundamentals. In particular, we believe that
companies exposed to building out the Internet infrastructure and those with
exposure to wireless communications will continue to do well. We also have
substantial positions in companies that have the potential to benefit from an
upgrade cycle of the operating systems of personal computers. We continue to
favor the health-care area, despite the uncertainty surrounding Medicare reform
and the potential of a prescription-drug benefit for Medicare recipients. We
have reduced our exposure to financial stocks, but are still overweighted
compared to our peers because we feel that Greenspan and the FOMC are nearing
the end of their interest-rate increases.
THE NASDAQ COMPOSITE INDEX IS A MARKET-VALUE-WEIGHTED INDEX THAT MEASURES ALL
DOMESTIC AND NON-U.S.-BASED SECURITIES.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
---------------------------------------------
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
---------------------------------------------
Intel Corp. 5.8
General Electric Co. 5.3
Nortel Networks Corp. 4.5
Microsoft Corp. 4.1
Cisco Systems, Inc. 3.9
Dell Computer 3.3
Pfizer, Inc. 3.1
QualComm, Inc. 3.1
Coca-Cola Co. 2.7
American International Group, Inc. 2.6
---------------------------------------------
---------------------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
---------------------------------------------
Communication Equipment 12.8
Computer Software & Service 9.2
Electronics - Semiconductors 8.8
Drugs 7.6
Electrical Equipment 7.6
Computer - Hardware 7.3
Computer - Networking 5.4
Entertainment 3.8
Finance - Diversified 3.8
Retail - General Merchandising 3.8
---------------------------------------------
YOU WILL FIND A COMPLETE LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES
10-13.
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 $ .1997 *
Long-term capital gains 2.3578
-------
Total $2.5575
=======
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 FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Growth 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 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 FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2000
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
COMMON STOCKS (98.1%)
ADVERTISING/MARKETING (1.0%)
211,000 Omnicom Group, Inc. $ 17,935
--------------------------------------------------------------------------------
BANKS - MAJOR REGIONAL (2.3%)
290,000 Northern Trust Corp. 21,714
217,000 State Street Corp. 21,781
--------------------------------------------------------------------------------
43,495
--------------------------------------------------------------------------------
BANKS - MONEY CENTER (0.9%)
325,000 Chase Manhattan Corp. 16,149
--------------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC (1.0%)
240,400 Anheuser-Busch Cos., Inc. 19,352
--------------------------------------------------------------------------------
BEVERAGES - NONALCOHOLIC (3.3%)
824,000 Coca-Cola Co. 50,521
262,000 PepsiCo, Inc. 12,003
--------------------------------------------------------------------------------
62,524
--------------------------------------------------------------------------------
BIOTECHNOLOGY (0.7%)
196,000 Amgen, Inc.* 12,728
--------------------------------------------------------------------------------
BROADCASTING - RADIO & TV (0.9%)
230,000 Clear Channel Communications, Inc.* 17,523
--------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (12.8%)
88,000 CIENA Corp.* 12,507
257,000 JDS Uniphase Corp.* 30,358
776,800 Lucent Technologies, Inc. 33,985
445,000 Nokia Corp. ADR 19,719
1,145,000 Nortel Networks Corp. ADR 85,159
900,000 QualComm, Inc.* 58,444
--------------------------------------------------------------------------------
240,172
--------------------------------------------------------------------------------
COMPUTER - HARDWARE (7.3%)
1,396,400 Dell Computer Corp.* 61,354
137,000 Hewlett-Packard Co. 14,959
356,300 IBM Corp. 40,061
200,000 Sun Microsystems, Inc.* 21,088
--------------------------------------------------------------------------------
137,462
--------------------------------------------------------------------------------
COMPUTER - NETWORKING (5.4%)
100,000 Brocade Communications Systems, Inc.* 17,862
1,117,000 Cisco Systems, Inc.* 73,094
71,000 Juniper Networks, Inc.* 10,113
--------------------------------------------------------------------------------
101,069
--------------------------------------------------------------------------------
COMPUTER - PERIPHERALS (2.5%)
540,600 EMC Corp.* 46,019
--------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (9.2%)
614,000 America Online, Inc.* 32,734
1,102,800 Microsoft Corp.* 76,989
584,000 Oracle Corp.* 43,909
69,000 Siebel Systems, Inc.* 10,005
75,000 Yahoo! Inc.* 9,652
--------------------------------------------------------------------------------
173,289
--------------------------------------------------------------------------------
CONTAINERS & PACKAGING - PAPER (0.4%)
140,000 Sealed Air Corp.* 7,053
--------------------------------------------------------------------------------
DRUGS (7.6%)
149,000 Eli Lilly & Co. 15,478
540,000 Merck & Co., Inc. 38,711
1,338,000 Pfizer, Inc. 57,701
357,000 Pharmacia Corp. 19,546
250,000 Schering-Plough Corp. 10,797
--------------------------------------------------------------------------------
142,233
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (7.6%)
353,000 Flextronics International Ltd. ADR* 24,991
1,920,600 General Electric Co. 98,791
455,100 Solectron Corp.* 18,346
--------------------------------------------------------------------------------
142,128
--------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (8.8%)
60,000 Broadcom Corp. 13,455
1,640,000 Intel Corp. 109,470
51,000 PMC-Sierra, Inc.* 9,884
350,000 Texas Instruments, Inc. 20,541
148,000 Xilinx, Inc.* 11,109
--------------------------------------------------------------------------------
164,459
--------------------------------------------------------------------------------
ENTERTAINMENT (3.8%)
340,600 Time Warner, Inc. 26,120
520,583 Viacom, Inc.* 34,521
273,000 Walt Disney Co. 10,562
--------------------------------------------------------------------------------
71,203
--------------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (0.6%)
141,000 Applied Materials, Inc.* 10,698
--------------------------------------------------------------------------------
FINANCE - DIVERSIFIED (3.8%)
654,575 Citigroup, Inc. 46,188
270,000 Morgan Stanley Dean Witter & Co. 24,638
--------------------------------------------------------------------------------
70,826
--------------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (3.2%)
358,000 American Home Products Corp. 18,997
442,950 Johnson & Johnson, Inc. 41,222
--------------------------------------------------------------------------------
60,219
--------------------------------------------------------------------------------
INSURANCE - MULTILINE COMPANIES (2.6%)
562,500 American International Group, Inc. 49,324
--------------------------------------------------------------------------------
INVESTMENT BANKS/BROKERAGE (0.8%)
426,000 Charles Schwab Corp. 15,389
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (2.0%)
728,000 Medtronic, Inc. 37,174
--------------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (1.6%)
413,000 Schlumberger Ltd. ADR 30,536
--------------------------------------------------------------------------------
RETAIL - BUILDING SUPPLIES (1.3%)
462,000 Home Depot, Inc. 23,909
--------------------------------------------------------------------------------
RETAIL - DRUGS (0.5%)
250,000 CVS Corp. 9,859
--------------------------------------------------------------------------------
RETAIL - GENERAL MERCHANDISING (3.8%)
1,206,600 Target Corp. 34,991
673,200 Wal-Mart Stores, Inc. 36,984
--------------------------------------------------------------------------------
71,975
--------------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL (0.6%)
318,500 Gap, Inc. 11,406
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (1.8%)
485,000 Level 3 Communications, Inc.* 33,192
--------------------------------------------------------------------------------
Total common stocks (cost: $1,312,036) 1,839,300
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
---------
MONEY MARKET INSTRUMENT (1.8%)
COMMERCIAL PAPER
$ 32,610 General Electric Capital Corp., 6.64%, 8/01/2000
(cost: $32,610) 32,610
--------------------------------------------------------------------------------
Total investments (cost: $1,344,646) $1,871,910
================================================================================
USAA GROWTH 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 $1,347,679,000.
The percentages shown represent the percentage of the investments to net assets.
Investments in foreign securities were 8.6% of net assets at July 31, 2000.
ADR - American Depositary Receipts are foreign shares held by a U.S. bank that
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
USAA GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
JULY 31, 2000
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $1,344,646) $1,871,910
Cash 466
Receivables:
Capital shares sold 648
Dividends 85
Securities sold 17,737
-----------
Total assets 1,890,846
-----------
LIABILITIES
Securities purchased 13,673
Capital shares redeemed 1,083
USAA Investment Management Company 1,227
USAA Transfer Agency Company 170
Accounts payable and accrued expenses 123
-----------
Total liabilities 16,276
-----------
Net assets applicable to capital shares outstanding $1,874,570
===========
REPRESENTED BY:
Paid-in capital $1,311,323
Accumulated net realized gain on investments 35,983
Net unrealized appreciation of investments 527,264
-----------
Net assets applicable to capital shares outstanding $1,874,570
===========
Capital shares outstanding 76,503
===========
Authorized shares of $.01 par value 150,000
===========
Net asset value, redemption price, and offering price per share $ 24.50
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
USAA GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED JULY 31, 2000
Net investment loss:
Income:
Dividends (net of foreign taxes withheld of $41) $ 13,645
Interest 1,575
--------
Total income 15,220
--------
Expenses:
Management fees 13,498
Transfer agent's fees 2,734
Custodian's fees 231
Postage 450
Shareholder reporting fees 116
Directors' fees 4
Registration fees 91
Professional fees 88
Other 19
--------
Total expenses 17,231
--------
Net investment loss (2,011)
--------
Net realized and unrealized gain on investments:
Net realized gain 85,974
Change in net unrealized appreciation/depreciation 151,279
--------
Net realized and unrealized gain 237,253
--------
Increase in net assets resulting from operations $235,242
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED JULY 31,
2000 1999
----------------------
From operations:
Net investment income (loss) $ (2,011) $ 2,803
Net realized gain on investments 85,974 145,928
Change in net unrealized appreciation/depreciation
of investments 151,279 185,012
------------------------
Increase in net assets resulting
from operations 235,242 333,743
------------------------
Distributions to shareholders from:
Net investment income (1,522) (1,913)
------------------------
Net realized gains (181,664) (51,220)
------------------------
From capital share transactions:
Proceeds from shares sold 237,520 237,515
Reinvested dividends 179,363 52,132
Cost of shares redeemed (277,377) (290,822)
------------------------
Increase (decrease) in net assets from
capital share transactions 139,506 (1,175)
------------------------
Net increase in net assets 191,562 279,435
Net assets:
Beginning of period 1,683,008 1,403,573
------------------------
End of period $1,874,570 $1,683,008
========================
Accumulated undistributed net investment income:
End of period $ - $ 1,522
========================
Change in shares outstanding:
Shares sold 9,995 10,772
Shares issued for dividends reinvested 8,191 2,811
Shares redeemed (11,708) (13,593)
------------------------
Increase (decrease) in shares outstanding 6,478 (10)
========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH 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
Fund (the Fund). The Fund's primary investment objective is long-term growth of
capital, with secondary objectives of regular income and conservation of
principal. USAA Investment Management Company (the Manager) attempts 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 their respective industries. The Manager will primarily invest
in companies with above-average growth in revenues and earnings per share.
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. As a result of certain
permanent differences between book and tax basis accounting, reclassifications
were made to the statement of assets and liabilities to decrease accumulated net
realized gain on investments by $2,011,000 and to decrease accumulated
undistributed net investment loss by $2,011,000.
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.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the year ended July 31, 2000, were $2,351,438,000 and
$2,415,414,000, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
2000, were $544,937,000 and $17,673,000, respectively, and for tax purposes,
$541,904,000 and $17,673,000, 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 $21,000.
(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.
<TABLE>
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 24.03 $ 20.04 $ 23.66 $ 20.05 $ 19.06
Net investment
income (loss) (.03)(a) .04 .01 .24 .33
Net realized and
unrealized gain (loss) 3.06 4.72 (1.31) 6.92 1.92
Distributions from net
investment income (.02) (.03) (.09) (.34) (.29)
Distributions of realized
capital gains (2.54) (.74) (2.23) (3.21) (.97)
---------------------------------------------------------------------------
Net asset value at
end of period $ 24.50 $ 24.03 $ 20.04 $ 23.66 $ 20.05
===========================================================================
Total return (%)* 14.13 24.92 (4.91) 42.48 12.44
Net assets at
end of period (000) $1,874,570 $1,683,008 $1,403,573 $1,650,257 $1,162,262
Ratio of expenses to
average net assets (%) .96 .97 .96 .97 1.01
Ratio of net investment
income (loss) to
average net assets (%) (.11) .18 .04 1.28 1.70
Portfolio turnover (%) 133.43 39.60 68.93 75.41 62.30
* ASSUMES REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS DURING THE PERIOD.
(a) CALCULATED USING WEIGHTED AVERAGE SHARES.
</TABLE>
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
