Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 7
Financial Information
Portfolio of Investments 9
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 Short-Term
Bond 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)Trust 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, Texas, 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.]
What an exciting time this is!
The way we do business, the way we communicate with each other, the way we live
our lives is all changing with breathtaking speed. It is fascinating and
sometimes scary. And it creates new investment ideas every day.
As we begin 2000, a challenging investment picture is out there. In the last
half of 1999, especially, investors in growth or technology stocks had wonderful
returns. These came on the heels of four previous years of returns that were
well above average. Those returns in 1999 were the product of the actions of
investors who think on the leading edge: technology, Internet, electronics. For
investors who included bonds or value-based stocks in their portfolios, 1999 was
disappointing. The returns there were largely driven by the Federal Reserve,
which is much more concerned with inflation than with leading-edge thinking. I
do not mean that as a put-down; that's just how it is.
And one last piece of the puzzle: the returns for growth and technology stocks
are coupled with price/earnings ratios that are so far above any common standard
that people are only guessing at what they mean.
So, in a nutshell, 1999 was huge returns on growth and tech stocks coupled with
valuations that were stratospheric and paltry returns on everything else. And,
oh yes, the economy continues to grow in a way that has some economists talking
about eliminating the national debt in just over a decade.
Great opportunities coupled with very interesting risks is a picture that for
many of you will continue to argue for the approach we have counseled. Create a
portfolio that pursues your goals within a level of risk which you can tolerate.
That portfolio can be much more exciting than it was a few years ago. We'd love
to help you create it.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Past performance is no guarantee of future results.
Investment Review
USAA SHORT-TERM BOND FUND
OBJECTIVE: High current income consistent with preservation of principal.
TYPES OF INVESTMENTS: Invests principally in a broad range of investment-grade
debt securities with a dollar-weighted average portfolio maturity of three years
or less.
- --------------------------------------------------------------------------------
7/31/99 1/31/00
- --------------------------------------------------------------------------------
Net Assets $241.2 Million $256.7 Million
Net Asset Value Per Share $9.75 $9.66
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 1/31/00
- --------------------------------------------------------------------------------
7/31/99 to 1/31/00 1 Year 5 Years Since Inception on 6/1/93
2.28%+ 3.96% 6.63% 5.53%
- --------------------------------------------------------------------------------
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gains distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gains distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Short-Term Bond Fund, the Lehman
Brothers 1-3 Year Government/Corporate Index, and the Lipper Short Investment
Grade Debt Funds Average, for the period of 06/01/93 through 01/31/2000. The
data points from the graph are as follows:
USAA Short- Lehman 1-3 Lipper Short Inv
Term Bond Fund Govt/Corp Index Grade Debt Average
-------------- --------------- ----------------------
06/01/93 $10,000 $10,000 $10,000
07/93 10,087 10,099 10,125
01/94 10,372 10,351 10,398
07/94 10,259 10,329 10,314
01/95 10,388 10,483 10,423
07/95 11,070 11,077 10,999
01/96 11,501 11,574 11,513
07/96 11,692 11,690 11,584
01/97 12,234 12,124 12,025
07/97 12,741 12,554 12,452
01/98 13,162 12,994 12,856
07/98 13,494 13,321 13,164
01/99 13,775 13,824 13,546
07/99 14,001 13,980 13,651
01/00 14,320 14,199 13,870
Data since inception on 6/1/93 through 1/31/00
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Short-Term Bond Fund to the broad-based Lehman Brothers 1-3 Year
Government/Corporate Index and the Lipper Short Investment Grade Debt Funds
Average. The Lehman Index is an unmanaged index made up of government, agency,
and corporate bonds longer than one year and less than three years. The Lipper
Average is the average performance level of all Short Investment Grade Debt
Funds, as reported by Lipper Analytical Services, Inc., an independent
organization that monitors the performance of mutual funds.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER, PAUL LUNDMARK, CFA, APPEARS HERE.]
THE MARKET
Interest rates have risen dramatically since our last report. Investors fear
that the economy is growing too fast to contain inflation. In an effort to slow
down the economy, the Federal Reserve (the Fed) has raised the fed funds rate by
1% since May of 1999. However, investors feel that more increases may be
necessary.
MANAGEMENT PHILOSOPHY
My philosophy in managing the Fund is as follows: no one can consistently
predict the course of interest rates over time. However, interest rate forecasts
can be used to determine how an investment may perform, especially under extreme
scenarios. As a result, you will see no dramatic change in the maturity and
duration of the portfolio in an effort to time the market. Instead, the emphasis
is looking for bonds that represent value in terms of risk and total return.
PERFORMANCE
Because of my risk/reward orientation, I have favored investments in
higher-yielding instruments, such as corporate bonds and mortgage- and
asset-backed securities, rather than Treasuries. This investment style resulted
in the Fund outperforming most of its peers over the past year. For the one-year
period ending January 31, 2000, the USAA Short-Term Bond Fund's total return of
3.96% ranked 7 out of 113, by Lipper in the Short Investment Grade Debt Funds
category. The dividend yield is also very attractive. As of January 31, 2000,
the 12-month dividend yield was 6.17% versus the average of 5.66% for other
funds in the same Lipper category.
The best performing holdings were AT&T Capital Corporation and Glenborough
Properties. AT&T Capital was acquired by CIT (a higher-rated entity), and the
price of Glenborough's debt increased due to the desire of Glenborough to buy
back its debt in the open market. MacSaver Financial and Waste Management have
underperformed, but we continue to hold these bonds because they are turning
around their operations and have a potentially good outlook.
OUTLOOK
Looking to the future, I feel that the economy will continue to be strong. This
should result in corporate bonds and mortgage- and asset-backed securities
increasing in relative value. Our continued emphasis will be on finding
securities that represent good risk/reward characteristics. The Fund's long-term
ranking versus its peers shows that for the three- and five-year periods ending
January 31, 2000, your Fund's annualized total return of 5.38% and 6.63% ranked
10 out of 101 funds and six out of 72 funds, respectively, by Lipper in the
Short Investment Grade Debt Funds category.
Respectfully submitted on February 4, 2000.
Past performance is no guarantee of future results.
See page 9 for a complete listing of the portfolio of investments.
PORTFOLIO MIX
JANUARY 31, 2000
A pie chart is shown here depicting the Portfolio Mix as of January 31, 2000 of
the USAA Short-Term Bond Fund to be:
Corporate Bonds - 68.1%; Asset-Backed Securities - 15.2%; Collateralized
Mortgage Obligations - 12.0%; Variable-Rate Demand Notes - 2.6%; and Cash
Equivalents - 0.2%.
Percentages are of the net assets in the portfolio and may or may not equal
100%.
Shareholder Voting Results
On October 15, 1999, a special meeting of shareholders was held to vote on the
following proposals. All proposals were approved by the shareholders. All
shareholders of record on August 19, 1999, were entitled to vote on each
proposal. The number of votes shown below are for the entire series of the USAA
Mutual Fund, Inc. (the Company) for proposals 1 and 2.
1 Proposal to elect Directors as follows:
DIRECTORS VOTES FOR VOTES WITHHELD
Robert G. Davis 1,769,441,834 27,742,867
Michael J.C. Roth 1,769,442,078 27,742,623
Barbara B. Dreeben 1,769,442,172 27,742,529
Robert L. Mason 1,769,442,172 27,742,529
David G. Peebles 1,769,442,078 27,742,623
Michael F. Reimherr 1,769,441,328 27,743,373
Richard A. Zucker 1,769,444,074 27,740,627
John W. Saunders, Jr. and Howard L. Freeman, Jr. did not stand for re-election
to the Board. Their term of office terminated on December 31, 1999.
2 Proposal to ratify the selection by the Board of Directors of KPMG LLP as
auditors for the Company.
NUMBER OF SHARES VOTING
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1,664,427,712 19,027,937 27,873,822
USAA SHORT-TERM BOND FUND
CATEGORIES AND DEFINITIONS
PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
Corporate bonds - debt securities issued by corporations as a method of raising
capital. Interest rates are constant to maturity. Prior to maturity, the market
price of a corporate bond generally varies inversely to the movement of interest
rates.
Collateralized mortage obligations and asset-backed securities - these
securities represent ownership in a pool of mortgage loans. They differ from
conventional bonds in that principal is paid back to the investor or payments
are made on the underlying mortgages in the pool. Like other fixed income
securities, when interest rates rise, the value of an asset-backed security
generally will decline, however, when interest rates are declining, the value of
asset-backed securities with prepayment features may not increase as much as
other fixed income securities.
Variable-rate demand notes (VRDN) - provide the right, on any business day, to
sell the security at face value on either that day or within 30 days. The
interest rate is adjusted at a stipulated daily, weekly, or monthly interval to
a rate that reflects current market conditions. The effective maturity is the
next put date.
Cash equivalents - consist of short-term obligations issued by banks,
corporations, and U.S. Government Agencies. The interest rate is constant to
maturity.
PORTFOLIO DESCRIPTION ABBREVIATIONS
IDB Industrial Development Board
LLC Limited Liability Company
MTN Medium-Term Note
RB Revenue Bond
Credit enhancements - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal when due. The
enhancement may be provided by either a high quality bank, insurance company, or
other corporation, or a collateral trust.
(LOC) Enhanced by a bank letter of credit.
(NBGA) Enhanced by a non-bank guarantee agreement.
USAA SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
January 31, 2000
(Unaudited)
Principal Coupon Market
Amount Security Rate Maturity Value
- --------------------------------------------------------------------------------
CORPORATE BONDS (68.1%)
Banks - Major Regional
$ 4,000 Corporacion Andina De Fomento,
Global Bonds (Venezuela) 7.10% 2/01/2003 $ 3,900
6,000 Popular North America, Inc., MTN 6.88 6/15/2001 5,945
5,000 Popular, Inc., Senior MTN 6.20 4/30/2001 4,918
- --------------------------------------------------------------------------------
14,763
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV
7,000 Cox Communications Inc., Notes 7.00 8/15/2001 6,955
- --------------------------------------------------------------------------------
Computer - Hardware
9,000 Sun Microsystems, Inc., Senior Notes 7.00 8/15/2002 8,893
- --------------------------------------------------------------------------------
Finance - Consumer
6,000 Capital One Bank, Bank Notes 5.95 2/15/2001 5,913
3,000 Capital One Bank, Bank Notes 6.15 6/01/2001 2,948
2,800 Capital One Bank, Bank Notes 6.57 1/27/2003 2,705
- --------------------------------------------------------------------------------
11,566
- --------------------------------------------------------------------------------
Finance - Diversified
7,000 AT&T Capital Corp., MTN 7.50 11/15/2000 7,028
- --------------------------------------------------------------------------------
Investment Banks/Brokerage
5,000 Merrill Lynch & Co., Inc., Notes 6.00 2/12/2003 4,788
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries
10,000 EdperBrascan Corp., Notes 7.13 12/16/2003 9,583
- --------------------------------------------------------------------------------
Natural Gas Utilities
11,900 Osprey Trust, Osprey I, Inc., Senior
Notes (a) 8.31 1/15/2003 11,832
- --------------------------------------------------------------------------------
Real Estate Investment Trusts
4,000 Developers Diversified Realty Corp.,
Senior Notes 7.63 5/15/2000 4,001
7,000 Equity Operating L.P., Notes 6.38 2/15/2012 6,799
11,410 Franchise Finance Corp. of America,
Senior Notes 7.00 11/30/2000 11,321
8,075 HRPT Properties Trust, Senior Notes 6.70 2/23/2005 7,312
3,000 Nationwide Health Properties, Inc., MTN 8.61 3/01/2002 2,961
7,890 Nationwide Health Properties, Inc., MTN 6.59 7/07/2038 7,227
5,000 Oasis Residential, Inc., Notes 6.75 11/15/2001 4,879
8,080 TriNet Corporate Realty Trust, Inc., Notes 7.30 5/15/2001 7,766
- --------------------------------------------------------------------------------
52,266
- --------------------------------------------------------------------------------
Retail - General Merchandising
2,000 Kmart Corp., MTN 7.72 6/25/2002 1,948
2,000 Kmart Corp., MTN 7.76 7/01/2002 1,949
- --------------------------------------------------------------------------------
3,897
- --------------------------------------------------------------------------------
Retail - Specialty
3,000 MacSaver Financial Services, Inc., Notes 7.40 2/15/2002 1,995
- --------------------------------------------------------------------------------
Savings & Loan Holding Co.
5,835 Sovereign Bancorp, Inc., Senior Notes 6.75 7/01/2000 5,795
6,000 Sovereign Bancorp, Inc., Senior Notes 6.63 3/15/2001 5,842
6,000 Webster Financial Corp., Senior Notes 8.75 6/30/2000 6,037
- --------------------------------------------------------------------------------
17,674
- --------------------------------------------------------------------------------
Telecommunications - Long-Distance
7,000 WorldCom, Inc., Senior Notes 6.13 8/15/2001 6,896
4,000 WorldCom, Inc., Senior Notes 7.55 4/01/2004 4,001
- --------------------------------------------------------------------------------
10,897
- --------------------------------------------------------------------------------
Waste Management
5,535 Waste Management, Inc., Notes 6.13 7/15/2001 5,304
8,065 Waste Management, Inc., Notes 6.38 12/01/2003 7,322
- --------------------------------------------------------------------------------
12,626
- --------------------------------------------------------------------------------
Total corporate bonds (cost: $179,215) 174,763
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (15.2%)
10,000 AESOP Funding II L.L.C., Series 1997-1,
Rental Car Asset-Backed Notes, Class
A-2 (a) 6.40 10/20/2003 9,771
11,000 ARG Funding Corp., Series 1999-1, Rental
Car Asset-Backed Notes, Class A-2 (a) 5.88 5/20/2003 10,714
4,000 Firstplus Home Loan Owner Trust, Series
1998-2, Class A-4 6.54 4/10/2015 3,958
5,000 Firstplus Home Loan Owner Trust, Series
1998-4, Class A-3 6.24 5/11/2015 4,951
5,000 Rental Car Finance Corp., Series 1999-1,
Rental Car Asset-Backed Notes, Class
A (a) 5.90 2/25/2007 4,725
5,000 Team Fleet Financing Corp., Series 1999-3,
Rental Car Asset-Backed Notes, Class
A (a) 6.70 6/25/2003 4,865
- --------------------------------------------------------------------------------
Total asset-backed securities (cost: $39,940) 38,984
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (12.0%)
3,313 Federal National Mortgage Assn.,
Series 1997-72 CA 9.50 9/18/2023 3,450
2,275 Federal National Mortgage Assn.,
Series 1997-79 U 9.00 11/18/2024 2,354
3,436 Federal National Mortgage Assn.,
Series 1997-89 N 9.50 12/20/2022 3,564
3,397 Federal National Mortgage Assn.,
Series 1998-1 H 9.00 8/18/2024 3,499
3,977 Federal National Mortgage Assn.,
Series 1998-11 M 9.00 2/18/2024 4,121
1,843 Federal National Mortgage Assn.,
Series 1998-2 GA 8.50 4/18/2025 1,879
4,982 Federal National Mortgage Assn.,
Series 1998-7 H 9.00 3/18/2025 5,156
7,000 Federal National Mortgage Assn.,
Series 2000-1 VA 7.00 8/18/2010 6,865
- --------------------------------------------------------------------------------
Total collateralized mortgage obligations (cost: $31,925) 30,888
- --------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (2.6%)
Buildings
1,405 Scottsboro, AL, IDB RB, Series 1995 (LOC) 5.85 10/01/2010 1,405
- --------------------------------------------------------------------------------
Manufacturing - Specialized
2,250 Florence, AL IDB RB, Series 1999B (LOC) 6.04 11/01/2008 2,250
- --------------------------------------------------------------------------------
Real Estate - Other
1,650 Wynrose, Inc., Notes, Series 1995A (LOC) 5.85 11/01/2005 1,650
- --------------------------------------------------------------------------------
Miscellaneous
1,305 Ontario Redevelopment Agency, CA, RB,
Series B (NBGA) 5.95 9/01/2027 1,305
- --------------------------------------------------------------------------------
Total variable-rate demand notes (cost: $6,610) 6,610
- --------------------------------------------------------------------------------
CASH EQUIVALENTS (0.2%)
Commercial Paper
621 Raytheon Co. (b) (cost: $621) 6.10 2/01/2000 621
- --------------------------------------------------------------------------------
Total investments (cost: $258,311) $251,866
================================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Real Estate Investment Trusts 20.4%
Asset-Backed Securities 15.2
Collateralized Mortgage Obligations 12.0
Savings & Loan Holding Co. 6.9
Banks - Major Regional 5.8
Waste Management 4.9
Natural Gas Utilities 4.6
Finance - Consumer 4.5
Telecommunications - Long-Distance 4.2
Manufacturing - Diversified Industries 3.7
Computer - Hardware 3.5
Finance - Diversified 2.7
Broadcasting - Radio & TV 2.7
Investment Banks/Brokerage 1.9
Retail - General Merchandising 1.5
Other 3.6
----
Total 98.1%
====
USAA SHORT-TERM BOND FUND
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Fund's investment manager. Any resale of
this security in the United States may occur in an exempt transaction to a
qualified institutional buyer as defined by the Rule 144A.
(b) Security is restricted as to disposition under Section 4(2) of the
Securities Act of 1933 (the Act). Any resale of Section 4(2) commercial paper
must be effected in a transaction exempt from registration under the Act.
See accompanying notes to financial statements.
USAA SHORT-TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2000
(Unaudited)
ASSETS
Investments in securities,
at market value (identified cost of $258,311) $251,866
Cash 274
Receivables:
Capital shares sold 77
Interest 3,581
Securities sold 16,823
---------
Total assets 272,621
---------
LIABILITIES
Securities purchased 14,813
Capital shares redeemed 787
USAA Investment Management Company 52
USAA Transfer Agency Company 33
Accounts payable and accrued expenses 44
Dividends on capital shares 180
---------
Total liabilities 15,909
---------
Net assets applicable to capital shares outstanding $256,712
=========
REPRESENTED BY:
Paid-in capital $263,373
Accumulated net realized loss on investments (216)
Net unrealized depreciation of investments (6,445)
---------
Net assets applicable to capital shares outstanding $256,712
=========
Capital shares outstanding 26,580
=========
Authorized shares of $.01 par value 120,000
=========
Net asset value, redemption price, and offering price per share $ 9.66
=========
See accompanying notes to financial statements.
USAA SHORT-TERM BOND FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2000
(Unaudited)
Net investment income:
Interest income $ 8,487
---------
Expenses:
Management fees 298
Transfer agent's fees 195
Custodian's fees 48
Postage 26
Shareholder reporting fees 10
Directors' fees 3
Registration fees 22
Professional fees 15
Other 3
---------
Total expenses 620
---------
Net investment income 7,867
---------
Net realized and unrealized loss on investments:
Net realized loss (172)
Change in net unrealized appreciation/depreciation (2,085)
---------
Net realized and unrealized loss (2,257)
---------
Increase in net assets resulting from operations $ 5,610
=========
See accompanying notes to financial statements.
USAA SHORT-TERM BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2000,
and year ended July 31, 1999
(Unaudited)
1/31/00 7/31/99
-------------------------
From operations:
Net investment income $ 7,867 $ 12,587
Net realized loss on investments (172) (13)
Change in net unrealized appreciation/depreciation
of investments (2,085) (4,849)
-------------------------
Increase in net assets resulting from operations 5,610 7,725
-------------------------
Distributions to shareholders from:
Net investment income (7,867) (12,587)
-------------------------
Net realized gains - (465)
-------------------------
From capital share transactions:
Proceeds from shares sold 78,624 159,576
Shares issued for dividends reinvested 6,860 11,667
Cost of shares redeemed (67,762) (105,840)
-------------------------
Increase in net assets from capital share
transactions 17,722 65,403
-------------------------
Net increase in net assets 15,465 60,076
Net assets:
Beginning of period 241,247 181,171
-------------------------
End of period $ 256,712 $ 241,247
=========================
Change in shares outstanding:
Shares sold 8,113 16,163
Shares issued for dividends reinvested 708 1,182
Shares redeemed (6,991) (10,726)
-------------------------
Increase in shares outstanding 1,830 6,619
=========================
See accompanying notes to financial statements.
USAA SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS
January 31, 2000
(Unaudited)
(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 semiannual report pertains only to the USAA
Short-Term Bond Fund (the Fund). The Fund's investment objective is high current
income consistent with preservation of principal. USAA Investment Management
Company (the Manager) seeks to achieve this objective by investing the Fund's
assets principally in a broad range of investment-grade debt securities with a
dollar-weighted average portfolio maturity of three years or less.
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. Debt and government securities are valued each business day by a pricing
service (the Service) approved by the Fund's Board of Directors. The Service
uses the mean between quoted bid and asked prices or the last sale price to
price securities when, in the Service's judgement, these prices are readily
available and are representative of the securities' market values. For many
securities, such prices are not readily available. The Service generally prices
these securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity and type,
indications as to values from dealers in securities, and general market
conditions.
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. Interest
income is recorded on the accrual basis. Discounts and premiums on 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. Each committed line of credit is also subject to a facility fee. CAPCO
charges an annual facility fee of up to .08% of the committed facility, and Bank
of America charges an annual facility fee of .09% of the committed facility. The
Fund had no borrowings under any of these agreements during the six-month period
ended January 31, 2000.
(3) DISTRIBUTIONS
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made in the succeeding fiscal year or as
otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended January 31, 2000, were $59.4 million
and $33.6 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
2000, were $36 thousand and $6.5 million, respectively.
(5) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at .24% of its annual average net assets.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
.50% 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 $28.50 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 Fund did
not utilize these services during the six-month period ended January 31, 2000.
(6) TRANSACTIONS WITH AFFILIATES
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At January 31, 2000, the Association and its affiliates
owned .9 million shares (3.5%) of the Fund.
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>
Six-month
Period Ended
January 31, Year Ended July 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.75 $ 9.99 $ 10.03 $ 9.79 $ 9.87 $ 9.74
Net investment income .31 .58 .62 .61 .62 .61
Net realized and
unrealized gain (loss) (.09) (.22) (.04) .25 (.08) .13
Distributions from
net investment income (.31) (.58) (.62) (.61) (.62) (.61)
Distributions of realized
capital gains - (.02) - (.01) - -
-------------------------------------------------------------------------
Net asset value at
end of period $ 9.66 $ 9.75 $ 9.99 $ 10.03 $ 9.79 $ 9.87
=========================================================================
Total return (%) * 2.28 3.76 5.91 8.97 5.62 7.90
Net assets at
end of period (000) $256,712 $241,247 $181,171 $133,746 $101,032 $ 76,190
Ratio of expenses to
average net assets (%) .50(a) .50 .50 .50 .50 .50
Ratio of expenses to average
net assets excluding
reimbursement (%) - .52 .56 .61 .66 .74
Ratio of net investment
income to average
net assets (%) 6.34(a) 5.89 6.16 6.14 6.29 6.34
Portfolio turnover (%) 14.43 11.53 48.24 27.85 66.81 103.02
</TABLE>
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
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
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 7:00 a.m. to 9:00 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) 456-7211
For account servicing, exchanges, or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-hour service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund USAA TouchLine(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
