Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 8
Financial Information
Portfolio of Investments 9
Notes to Portfolio of Investments 14
Statement of Assets and Liabilities 15
Statement of Operations 16
Statement 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 High-Yield
Opportunities 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 HIGH-YIELD OPPORTUNITIES FUND
OBJECTIVE: Provide an attractive total return primarily through high current
income and secondarily through capital appreciation.
TYPES OF INVESTMENTS: Normally at least 80% of the Fund's assets will be
invested in high-yield securities, including bonds often referred to as junk
bonds, convertible securities, or preferred stocks.
- --------------------------------------------------------------------------------
1/31/00
- --------------------------------------------------------------------------------
Net Assets $35.8 Million
Net Asset Value Per Share $10.05
- --------------------------------------------------------------------------------
Total Return as of 1/31/00
- --------------------------------------------------------------------------------
Since Inception on 8/2/99 5.17%
- --------------------------------------------------------------------------------
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 High-Yield Opportunities Fund, the
Credit Suisse First Boston (CSFB) Global High Yield Index, and the Lipper High
Current Yield Funds Average for the period of 08/02/99 through 01/31/2000. The
data points from the graph are as follows:
USAA High-Yield CSFB Global Lipper High Current
Opportunities Fund High Yield Index Yield Funds Avg.
------------------ ---------------- -------------------
08/02/99 $10,000 $10,000 $10,000
08/99 10,089 9,911 9,900
09/99 10,114 9,835 9,839
10/99 10,167 9,787 9,814
11/99 10,397 9,920 9,956
12/99 10,520 10,040 10,087
01/00 10,517 9,999 10,033
Data since inception on 8/2/99 through 1/31/00
The graph illustrates the comparison of a $10,000 hypothetical investment in the
High-Yield Opportunities Fund to the CSFB Global High Yield Index and the Lipper
High Current Yield Funds Average. The Credit Suisse First Boston (CSFB) Global
High Yield Index is an unmanaged, trader priced portfolio constructed to mirror
the high yield debt market. The Lipper Average is the average performance level
of all high current yield 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, MATTHEW FREUND, CFA, APPEARS HERE.]
PERFORMANCE
From its inception date of August 2, 1999, to January 31, 2000, your USAA
High-Yield Opportunities Fund's total return was 5.17%. Over this same period,
your Fund's total return was greater than 10-year U.S. Treasuries, which
provided a total return of -2.92%, and less than the S&P 500, which provided a
total return of 5.58%.
August was an opportune time to launch a new fund as Y2K fears and concerns over
the timing and magnitude of anticipated increases in short-term interest rates
by the Federal Open Market Committee (FOMC) unsettled the stock and bond
markets. Your Fund benefited from these conditions as hard-to-find securities
became available at attractive prices. The high-yield market soon strengthened
as Y2K fears diminished and the FOMC's 0.25% increase in November was widely
viewed as the last of the year (short-term interest rates were raised by 0.75%
in 1999; 0.25% in June, August, and November). High-yield bond prices increased
as investors scrambled to put their uninvested cash balances to work in
anticipation of a new year's rally. The last half of December was quiet as
trading slowed ahead of year end. Contrary to expectations, January proved to be
a difficult month as high-yield investors struggled with negative signals from
the U.S. Treasury and domestic stock markets -- which generally fell in price
during the month.
Over this period, your Fund benefited from its investments in the
telecommunications (telephone, long-distance, and cellular), energy, and service
sectors. Airgate PCS, Winstar Communications, Allegiance Telecom, R&B Falcon,
LifePoint Hospitals, and Avis Rent-A-Car were just a few of the names which
provided attractive returns during the period. Partially offsetting this strong
performance was weakness in the retail and real estate investment trust (REIT)
sectors. In addition, the portfolio's higher-quality names -- which trade more
in line with U.S. Treasury securities -- underperformed as interest rates rose
and their prices fell.
A WORD ABOUT RISK
The bond markets generally only offer a higher potential return for accepting a
higher level of risk. In the high-quality bond market, a higher return is
normally used to entice investors into buying longer-maturity bonds, thereby
accepting greater sensitivity to changes in interest rates -- or interest rate
risk. In contrast, high-yield securities are generally not as sensitive to
changes in interest rates as high-quality bonds. Instead, a higher return is
normally used to entice investors into buying securities with a greater risk of
default -- or credit risk. Normally, the higher the credit risk, the higher the
potential return. In effect, high-yield investors are trading a portion of the
interest rate risk inherent in higher-quality bonds for credit risk.
It is easy to say that high-yield securities can be volatile and can exhibit
characteristics of both stocks and higher-quality bonds. This explanation is
both accurate and misleading. As noted in the following table, the average
high-yield fund, as tracked by Lipper Analytical Services, Inc., has been 28%
more volatile than higher-quality bond funds over the past 20 years. Yet this
increased volatility is roughly two-thirds the level shown by the S&P 500 over
the same period. In addition, high-yield returns have not generally tracked
those of higher-quality bond funds, which move inversely with changes in
interest rates. High-yield funds have often acted differently than
higher-quality bond funds and have, over the long term, produced a higher total
return. At the same time, the volatility of high-yield funds has been notably
less than the equity market as a whole.
- --------------------------------------------------------------------------------
Average Annual Average Standard
Total Return Deviation*
Fund Category (1979 to 1999) (1979 to 1999)
- --------------------------------------------------------------------------------
A-Rated Corporate Debt Funds 9.6% 4.0%
High Current Yield Funds 10.6% 5.1%
S&P 500 Index Funds 17.6% 7.5%
- --------------------------------------------------------------------------------
Source: Lipper Analytical Services, Inc.
*Standard deviation is an accepted measure of volatility.
STRATEGY
We are committed to seeking an attractive total return primarily through high
current income -- with capital appreciation as a secondary objective. This
objective will cause us to invest the majority of the Fund's assets in
high-yield securities -- including bonds, convertible securities, and preferred
stocks -- with an emphasis on non-investment grade debt. As noted above, these
securities have a greater risk of default than high-quality bonds and require
intensive research in order to balance the risks with the reward. Simply stated,
our strategy is to find securities with the potential for an attractive total
return with acceptable risks. We are mindful of the credit risks involved and
will continue to maintain a dedication to in-depth research. In addition, we
will attempt to spread risk through a wide diversification of both companies and
industries.
OUTLOOK
The outlook for the U.S. economy remains positive. Y2K fears were exaggerated
and present no material impediments to future economic growth. Inflation fears
continue to worry the market, yet remain largely unsubstantiated. At the same
time, international markets show significant signs of economic strength.
This positive economic backdrop should provide a solid foundation for the
high-yield market. Strong capital markets should continue to provide support to
the telecommunication and technology sectors while stronger commodity prices
should continue to benefit your Fund's energy and chemical investments. That
being said, your Fund exhibits characteristics of both stocks and higher-quality
bonds. If either of these asset classes were to enter a bear market, your
high-yield fund would not be immune. I continue to believe that over the long
term, the high-yield market has the opportunity to provide an attractive total
return -- greater than high-quality bonds and with less sensitivity to interest
rates, and lower than the broad equity markets but with more predictability and
higher current income.
Respectfully submitted on February 4, 2000.
- --------------------------------------- --------------------------------------
Top Ten Holdings Top Ten Industries
(% of Net Assets) (% of Net Assets)
- --------------------------------------- --------------------------------------
GT Group Telecom, Inc. 4.1 Telephones 17.4
Hollywood Casino Corp. 3.5 Telecommunications -
Williams Communications Cellular/Wireless 5.9
Group, Inc. 2.9 Services - Commercial & Consumer 5.6
Avis Rent-A-Car, Inc. 2.9 Broadcasting - Radio & TV 5.5
LifePoint Hospitals Holdings, Inc. 2.9 Gaming Companies 5.4
Nextlink Communications, Inc. 2.8 Finance - Consumer 5.4
Riverwood Intl. Corp. 2.8 Real Estate Investment Trusts 3.7
Sovereign Bancorp, Inc. 2.8 Chemicals 3.4
Winstar Communications, Inc. 2.8 Hospitals 2.9
PSINet, Inc. 2.8 Telecommunications - Long-Distance 2.9
- --------------------------------------- --------------------------------------
See page 9 for a complete listing of the portfolio of investments.
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 HIGH-YIELD OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
Principal Market
Amount Moody's Value
(000) Security Ratings Maturity (000)
- --------------------------------------------------------------------------------
CORPORATE BONDS (92.5%)
Airlines
$ 1,000 Northwest Airlines, Inc., Notes, 8.52% Ba2 4/07/2004 $ 916
- --------------------------------------------------------------------------------
Auto Parts
750 Collins & Aikman Products Co.,
Guaranteed Senior Subordinated
Notes, 11.50% B2 4/15/2006 731
- --------------------------------------------------------------------------------
Banks - Money Center
1,000 Sovereign Bancorp, Inc., Senior
Notes, 10.50% Ba3 11/15/2006 1,012
- --------------------------------------------------------------------------------
Beverages - Alcoholic
500 Canandaigua Brands, Inc., Senior
Subordinated Notes, 8.50% B1 3/01/2009 466
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV
1,650 Charter Communications Holdings, LLC,
Senior Discount Notes, 0%/9.92% (a) B2 4/01/2011 976
500 RCN Corp., Senior Notes, 10.00% B3 10/15/2007 487
500 United Pan-Europe Communications
Senior Notes, 10.88% (b) B2 11/01/2007 495
- --------------------------------------------------------------------------------
1,958
- --------------------------------------------------------------------------------
Chemicals
750 Borden Chemical & Plastics, L.P.,
Notes, 9.50% B1 5/01/2005 709
500 Lyondell Chemical Co.,
Senior Subordinated Notes, 10.88% B2 5/01/2009 500
- --------------------------------------------------------------------------------
1,209
- --------------------------------------------------------------------------------
Containers - Paper
1,000 Riverwood International Corp.,
Senior Notes, 10.63% B3 8/01/2007 1,012
- --------------------------------------------------------------------------------
Electric Utilities
500 PSE & G Energy Holdings, Inc.,
Notes, 10.00% (b) Ba1 10/01/2009 515
- --------------------------------------------------------------------------------
Electronics - Instrumentation
500 ASAT Finance LLC Units, 12.50% (b) B1 11/01/2006 563
- --------------------------------------------------------------------------------
Finance - Consumer
1,000 Advanta Corp., Notes, 7.00% B1 5/01/2001 966
1,000 Metris Companies, Inc., Senior
Notes, 10.00% Ba3 11/01/2004 965
- --------------------------------------------------------------------------------
1,931
- --------------------------------------------------------------------------------
Foods
500 Del Monte Foods Co., Senior
Discount Note Series B, 0%/12.50% (a) Caa1 12/15/2007 403
- --------------------------------------------------------------------------------
Gaming Companies
500 Aztar Corp., Senior Subordinated
Notes, 8.88% B1 5/15/2007 465
1,210 Hollywood Casino Corp.,
Senior Secured Notes, 11.25% B3 5/01/2007 1,249
250 Mohegan Tribal Gaming Authority, Senior
Subordinated Notes, 8.75% Ba3 1/01/2009 239
- --------------------------------------------------------------------------------
1,953
- --------------------------------------------------------------------------------
Hospitals
1,000 Lifepoint Hospitals Holdings, Inc., Senior
Subordinated Notes, 10.75% B3 5/15/2009 1,035
- --------------------------------------------------------------------------------
Housewares
500 Windmere-Durable Holdings, Inc., Senior
Subordinated Notes, 10.00% B3 7/31/2008 490
- --------------------------------------------------------------------------------
Internet Services
1,000 PSI Net, Inc., Senior Notes, 10.00% B3 2/15/2005 995
- --------------------------------------------------------------------------------
Oil - International Integrated
500 Pemex Finance Ltd., Bond, 9.69% Baa1 8/15/2009 509
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment
500 RBF Finance Co., Senior Secured
Notes, 11.38% Ba3 3/15/2009 534
- --------------------------------------------------------------------------------
Oil & Gas - Exploration & Production
500 Cheasapeake Energy Corp., Senior
Notes, 9.63% B3 5/01/2005 473
- --------------------------------------------------------------------------------
Real Estate Investment Trusts
500 TriNet Corporate Realty Trust, Inc.,
Notes, 7.30% Ba2 5/15/2001 480
1,000 TriNet Corporate Realty Trust, Inc.,
Notes, 7.95% Ba2 5/15/2006 852
- --------------------------------------------------------------------------------
1,332
- --------------------------------------------------------------------------------
Retail - Discounters
500 Mattress Discounters Corp., Units,
12.63% (b) B2 7/15/2007 488
- --------------------------------------------------------------------------------
Retail - Food
750 Stater Brothers Holdings, Inc.,
Senior Notes, 10.75% B2 8/15/2006 761
- --------------------------------------------------------------------------------
Retail - Specialty
500 MacSaver Financial Services, Inc.,
Guaranteed Notes, 7.40% Ba2 2/15/2002 332
500 MacSaver Financial Services, Inc.,
Guaranteed Notes, 7.88% Ba1 8/01/2003 288
- --------------------------------------------------------------------------------
620
- --------------------------------------------------------------------------------
Services - Commercial & Consumer
1,000 Avis Rent-A-Car, Inc.,
Senior Subordinated Notes, 11.00% B2 5/01/2009 1,036
500 Kindercare Learning Center, Inc., Senior
Subordinated Notes, 9.50% B3 2/15/2009 474
500 Weight Watchers International, Inc., Senior
Subordinated Notes, 13.00% (b) B2 10/01/2009 515
- --------------------------------------------------------------------------------
2,025
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless
1,000 Airgate PCS, Inc., Senior Subordinated
Discount Notes, 0%/13.50% (a) Caa1 10/01/2009 565
1,000 Nextel Communications, Inc.,
Senior Notes, 9.38% (b) B1 11/15/2009 969
1,000 US Unwired, Inc., Senior Subordinated
Discount Notes, 0%/13.38% (b) Caa1 11/01/2009 577
- --------------------------------------------------------------------------------
2,111
- --------------------------------------------------------------------------------
Telecommunications - Long-Distance
1,000 Williams Communications Group, Inc.,
Senior Notes, 10.70% B2 10/01/2007 1,041
- --------------------------------------------------------------------------------
Telephones
1,000 Allegiance Telecom, Inc., Senior
Discount Notes, 0%/11.75% (a) B3 2/15/2008 720
2,750 GT Group Telecom, Inc., 0%/13.25% (a), (b) Caa1 2/01/2010 1,471
500 Intermedia Communications, Inc., Senior
Discount Notes, 0%/11.25% (a) B2 7/15/2007 383
500 Intermedia Communications, Inc.,
Senior Notes, 8.88% B2 11/01/2007 465
500 McLeod USA, Inc.,
Senior Discount Notes, 0%/10.50% (a) B1 3/01/2007 405
750 Metromedia Fiber Network, Inc.,
Senior Notes, 10.00% B2 12/15/2009 756
1,000 Nextlink Communications, Inc.,
Senior Notes, 10.75% B2 6/01/2009 1,017
1,000 Winstar Communications, Inc., Senior
Discount Notes, 0%/14.00% (a) Caa1 10/15/2005 1,005
- --------------------------------------------------------------------------------
6,222
- --------------------------------------------------------------------------------
Textiles - Apparel
1,000 Hartmarx Corp.,
Senior Subordinated Notes, 10.88% B3 1/15/2002 992
- --------------------------------------------------------------------------------
Waste Management
1,000 Allied Waste North America, Inc. Senior
Subordinated Notes, 10.00% (b) B2 8/01/2009 875
- --------------------------------------------------------------------------------
Total corporate bonds (cost: $33,150) 33,172
- --------------------------------------------------------------------------------
Number
of Shares
- -----------
COMMON STOCKS (1.2%)
Real Estate Investment Trusts (1.0%)
25,000 Entertainment Properties Trust 350
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (0.2%)
1,074 Airgate PCS, Inc. * 66
- --------------------------------------------------------------------------------
Total common stocks (cost: $355) 416
- --------------------------------------------------------------------------------
PREFERRED STOCKS (3.9%)
Real Estate Investment Trusts (1.2%)
26,000 Prime Group Realty Trust, 9.0% 445
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (2.7%)
958 Crown Castle International Corp., PIK, 12.75% 970
- --------------------------------------------------------------------------------
Total preferred stocks (cost: $1,493) 1,415
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -----------
SHORT-TERM (4.3%)
Commercial Paper
$ 1,531 Raytheon Co., 6.10%, 2/01/2000 (cost: $1,531) (c) 1,531
- --------------------------------------------------------------------------------
Total investments (cost: $36,529) $36,534
================================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Telephones 17.4%
Telecommunications - Cellular/Wireless 8.8
Real Estate Investment Trusts 5.9
Services - Commercial & Consumer 5.6
Broadcasting - Radio & TV 5.5
Finance - Consumer 5.4
Gaming Companies 5.4
Electronics - Defense 4.3
Chemicals 3.4
Hospitals 2.9
Telecommunications - Long-Distance 2.9
Banks - Money Center 2.8
Containers - Paper 2.8
Internet Services 2.8
Textiles - Apparel 2.8
Airlines 2.6
Waste Management 2.4
Retail - Food 2.1
Auto Parts 2.0
Retail - Specialty 1.7
Electronics - Instrumentation 1.6
Oil & Gas - Drilling/Equipment 1.5
Electric Utilities 1.4
Housewares 1.4
Oil - International Integrated 1.4
Retail - Discounters 1.4
Beverages - Alcoholic 1.3
Oil & Gas - Exploration & Production 1.3
Foods 1.1
-----
Total 101.9%
=====
Percentages are of net assets in the portfolio and may or may not equal 100%.
USAA HIGH-YIELD OPPORTUNITIES 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) Stepped coupon note initially issued in zero coupon form which converts to
coupon form at the specified rate and date. As of the end of this reporting
period, the security is in zero coupon form.
(b) 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.
(c) 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.
PORTFOLIO DESCRIPTION ABBREVIATIONS
PIK Paid in Kind
See accompanying notes to financial statements.
USAA HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2000
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $36,529) $ 36,534
Cash 31
Receivables:
Capital shares sold 23
Dividends and interest 741
Miscellaneous 5
----------
Total assets 37,334
----------
LIABILITIES
Securities purchased 1,448
Capital shares redeemed 34
Accounts payable and accrued expenses 13
USAA Transfer Agency Company 3
----------
Total liabilities 1,498
----------
Net assets applicable to capital shares outstanding $ 35,836
==========
REPRESENTED BY:
Paid-in capital $ 35,766
Accumulated undistributed net investment income 33
Accumulated net realized gain on investments 32
Net unrealized appreciation of investments 5
----------
Net assets applicable to capital shares outstanding $ 35,836
==========
Capital shares outstanding 3,564
==========
Authorized shares of $.01 par value 100,000
==========
Net asset value, redemption price, and offering price per share $ 10.05
==========
See accompanying notes to financial statements.
USAA HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2000*
(Unaudited)
Net investment income:
Income:
Dividends $ 127
Interest 1,364
----------
Total income 1,491
----------
Expenses:
Management fees 71
Transfer agent's fees 11
Custodian's fees 19
Postage 2
Shareholder reporting fees 6
Directors' fees 2
Registration fees 67
Professional fees 16
Other 1
----------
Total expenses before reimbursement 195
Expenses reimbursed (89)
----------
Total expenses after reimbursement 106
----------
Net investment income 1,385
----------
Net realized and unrealized gain on investments:
Net realized gain 32
Change in net unrealized appreciation/depreciation 5
----------
Net realized and unrealized gain 37
----------
Increase in net assets resulting from operations $ 1,422
==========
* Fund commenced operations on August 2, 1999.
See accompanying notes to financial statements.
USAA HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2000*
(Unaudited)
From operations:
Net investment income $ 1,385
Net realized gain on investments 32
Change in net unrealized appreciation/depreciation of
investments 5
--------
Increase in net assets resulting from operations 1,422
--------
Distributions to shareholders from:
Net investment income (1,352)
--------
Net realized gains -
--------
From capital share transactions:
Proceeds from shares sold 39,167
Shares issued for dividends reinvested 291
Cost of shares redeemed (3,692)
--------
Increase in net assets from capital share
transactions 35,766
--------
Net increase in net assets 35,836
Net assets:
Beginning of period -
--------
End of period $35,836
========
Undistributed net investment income included in net assets:
End of period $ 33
========
Change in shares outstanding:
Shares sold 3,900
Shares issued for dividends reinvested 29
Shares redeemed (365)
--------
Increase in shares outstanding 3,564
========
* Fund commenced operations on August 2, 1999.
See accompanying notes to financial statements.
USAA HIGH-YIELD OPPORTUNITIES 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
High-Yield Opportunities Fund (the Fund) which commenced operations on August 2,
1999. The Fund's investment objective is to provide an attractive total return
primarily through high current income and secondarily through capital
appreciation. USAA Investment Management Company (the Manager) seeks to achieve
this objective by normally investing at least 80% of the Fund's assets in
high-yield securities, including bonds often referred to as junk bonds,
convertible securities, or preferred stocks.
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
Distributions of net investment income are made 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 $39.2 million
and $4.6 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
2000, were $663.1 thousand and $658.3 thousand, 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 .50% of its annual average net assets. Because the Fund's
estimated (annualized) expenses for the six-month period ended January 31, 2000,
exceeded .75%, the Manager has absorbed a portion of the Fund's expenses.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
.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 $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 2.1 million shares (58.9%) 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 the period is
as follows:
Six-month
Period Ended
January 31,
2000*
------------
Net asset value at
beginning of period $ 10.00
Net investment income .46
Net realized and unrealized gain .05
Distributions from net investment income (.46)
Distributions of realized capital gains -
------------
Net asset value at end of period $ 10.05
============
Total return (%) ** 5.17
Net assets at end of period (000) $ 35,836
Ratio of expenses to average net assets (%) .75(a)
Ratio of expenses to average net assets
excluding reimbursement (%) 1.37(a)
Ratio of net investment income to average net assets (%) 9.76(a)
Portfolio turnover (%) 19.15
* Fund commenced operations August 2, 1999.
** 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
