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 13
Statement of Assets and Liabilities 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Science &
Technology Fund, managed by USAA Investment Management Company (IMCO). It may be
used as sales literature only when preceded or accompanied by a current
prospectus, which gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark
Office.(Copyright)2000, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment
--------- ---------- ----------
CAPITAL APPRECIATION
================================================================================
Aggressive Growth Very high $3,000
Emerging Markets Very high 3,000
First Start Growth(Registered
Trademark) Moderate to high 3,000
Gold Very high 3,000
Growth Moderate to high 3,000
Growth & Income Moderate 3,000
International Moderate to high 3,000
S&P 500(Registered Trademark)
Index Moderate 3,000
Science & Technology Very high 3,000
Small Cap Stock Very high 3,000
World Growth Moderate to high 3,000
ASSET ALLOCATION
================================================================================
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate 3,000
Growth and Tax
Strategy Moderate 3,000
Growth Strategy Moderate to high 3,000
Income Strategy Low to moderate 3,000
INCOME - TAXABLE
================================================================================
GNMA(Registered Trademark) 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 SCIENCE & TECHNOLOGY FUND
OBJECTIVE: Long-term capital appreciation.
TYPES OF INVESTMENTS: Invests principally in equity securities of companies
expected to benefit from the development and use of scientific and technological
advances and improvements.
- --------------------------------------------------------------------------------
7/31/99 1/31/00
- --------------------------------------------------------------------------------
Net Assets $258.0 Million $449.4 Million
Net Asset Value Per Share $15.18 $18.91
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 1/31/00
- --------------------------------------------------------------------------------
7/31/99 to 1/31/00 1 Year Since Inception on 8/1/97
26.43%(+) 33.64% 29.79%
- --------------------------------------------------------------------------------
(+) 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 Science & Technology Fund, the S&P
500 Index, and the Lipper Science & Technology Funds Average for the period of
08/01/97 through 01/31/2000. The data points from the graph are as follows:
USAA Science & S&P 500 Lipper Science &
Technology Fund Index Tech Funds Avg.
--------------- ------- ----------------
08/01/97 $10,000 $10,000 $10,000
08/97 9,380 9,440 9,990
09/97 9,800 9,957 10,502
10/97 9,200 9,625 9,587
11/97 9,240 10,070 9,496
12/97 9,070 10,243 9,261
01/98 9,450 10,356 9,468
02/98 10,540 11,102 10,537
03/98 10,660 11,671 10,852
04/98 11,020 11,790 11,271
05/98 10,390 11,588 10,481
06/98 11,170 12,058 11,335
07/98 11,170 11,931 11,138
08/98 9,240 10,207 8,895
09/98 10,100 10,861 10,046
10/98 10,870 11,743 10,668
11/98 11,660 12,455 12,086
12/98 13,300 13,172 14,075
01/99 14,360 13,723 16,334
02/99 13,550 13,296 14,887
03/99 14,340 13,828 16,606
04/99 14,450 14,364 17,188
05/99 14,320 14,025 16,862
06/99 15,740 14,803 18,847
07/99 15,180 14,341 18,465
08/99 15,390 14,270 19,279
09/99 15,238 13,879 19,846
10/99 16,608 14,757 21,942
11/99 17,929 15,057 25,593
12/99 19,557 15,943 31,939
01/00 19,191 15,142 31,387
Data since inception on 8/1/97 through 1/31/00
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Science & Technology Fund to the S&P 500 Index and the Lipper Science &
Technology Funds Average, an average performance level of all science and
technology funds, as reported by Lipper Analytical Services, Inc., an
independent organization that monitors the performance of mutual funds. The S&P
500 Index is an unmanaged index representing the weighted average performance of
a group of 500 widely held, publicly traded stocks. It is not possible to invest
in the S&P 500 Index.
Message from the Manager
[Photograph of Portfolio Manager, Curt Rohrman, CFA, appears here]
STRATEGY
We live in an age of the most widespread and profound scientific and
technological change experienced since the turn of the last century. The late
1800s and early 1900s brought us electricity, the automobile, the telephone, and
assembly-line manufacturing -- technologies that have clearly changed everything
about our world forever. Today's changes are equally widespread. Recent
technological breakthroughs include areas as diverse as the human genome
project, cardiac rhythm management, photonics, deep-submicron semiconductor
manufacturing, and shear wave technology. Today's changes are equally profound.
Respectively, these breakthroughs will enable personalized disease management
and prevention, real-time cardiac monitoring and response, virtually cost-less
communications around the globe, inventory-free manufacturing and distribution
processes, and dramatically improved oilfield reservoir economics.
Widespread and profound changes -- for these reasons, your USAA Science &
Technology Fund invests in a broad spectrum of companies benefiting from the
development and use of scientific and technological advances. Most science and
technology funds focus exclusively on traditional computer technology. In
addition to traditional computer technology, your USAA Science & Technology Fund
also invests in such sectors as biotechnology, pharmaceuticals, medical devices,
communication services, and aerospace. This is what we promised we would do.
This remains our strategy for the future.
PERFORMANCE
Excitement in the Internet and its enabling technologies vastly overshadowed
important advances in other industries during the period. This excitement was
reflected in stock price performance. Over the past six months ending January
31, 2000, your USAA Science & Technology Fund's total return was 26.43%. This
performance exceeded the S&P 500 Index's return of 5.58%, but was well below the
return of the average science and technology fund's return of 66.27%, as
measured by Lipper.
Our heavy weightings in Internet, networking, and wireless companies boosted the
Fund's performance. Returns from Analog Devices, Ask Jeeves, Checkpoint Systems,
Ericsson, InterNap, Intertrust Technologies, Mercury Interactive, Micromuse,
Oracle, Veritas Software, and Yahoo! all exceeded 100% during the period.
Another ten stocks in the portfolio posted period returns of more than 50%,
including Applied Materials, Cisco Systems, and Texas Instruments. Our exposure
to areas outside of traditional technology clearly hindered performance. Stocks
experiencing material declines include CVS Drugs, Duane Reade, MCI Worldcom, SBC
Communications, and Schering Plough. A significant decline in BMC Software is
attributable to year 2000 transition issues.
Still, long-term records suggest a portfolio combining computer technology with
health care may provide returns comparable to traditional science and technology
funds but with lower volatility. In fact, our research indicates technology
stock returns over the past 30 years ending December 31, 1999, exceeded health
care stock returns by less than one percentage point -- 12.6% versus 11.7% --
despite an enormous outperformance by technology since October 1998. Monthly
returns for the two areas show a very low correlation coefficient.
OUTLOOK
We remain extremely bullish for the long term. America's dominance in scientific
and technological innovation is unmatched. This country's track record of
extraordinary financial reward for successful innovation suggests that early and
aggressive exploitation of technology will continue to occur here and occur here
first. Our bullishness applies not only to computer and communications
technology, but equally, or possibly more so, to biotechnology, genomics,
pharmaceuticals, and medical devices. In our opinion, current concerns regarding
health care reimbursement and potential price controls will pale relative to the
opportunities presented by aging demographics and the incredible potential of
genomics for personalized disease management and prevention.
Our near-term outlook for the overall stock market remains a bit cautious.
Simply put, the market is in a tug-of-war with rising interest rates
(potentially pulling stock prices lower) on one side, and increasing earnings
(potentially driving stock prices higher) on the other. We suspect interest
rates may win in the near term, as expectations seem to incorporate very
favorable earnings, particularly among traditional technology stocks.
Respectfully submitted on February 4, 2000.
Past performance is no guarantee of future results.
Refer to the bottom of page 4 for the Lipper Average definition.
See page 9 for a complete listing of the portfolio of investments.
- -------------------------------------- ------------------------------------
Top Ten Equity Holdings Top Ten Industries
(% of Net Assets) (% of Net Assets)
- -------------------------------------- ------------------------------------
Oracle Corp. 4.6 Computer-Software & Service 21.0
LM Ericsson Telephone Co. ADR 3.3 Electronics-Semiconductors 11.6
Applied Materials, Inc. 3.2 Internet Services 9.1
Analog Devices, Inc. 3.1 Drugs 6.7
Cisco Systems, Inc. 3.1 Computer-Networking 6.1
Intel Corp. 2.9 Health Care-Diversified 5.7
Texas Instruments, Inc. 2.8 Medical Products & Supplies 5.2
Medtronic, Inc. 2.5 Communication Equipment 4.6
America Online, Inc. 2.5 Computer-Hardware 3.9
Microsoft Corp. 2.4 Biotechnology 3.2
- -------------------------------------- ------------------------------------
See page 9 for a complete listing of the portfolio of investments.
Shareholders 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 SCIENCE & TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (96.8%)
Aerospace/Defense (2.0%)
199,000 Boeing Co. $ 8,818
- --------------------------------------------------------------------------------
Biotechnology (3.2%)
9,000 Affymetrix, Inc. * 2,084
40,000 Amgen, Inc. * 2,547
20,000 Human Genome Sciences, Inc. * 1,960
16,000 Incyte Pharmaceuticals, Inc. * 1,756
13,000 Millennium Pharmaceuticals, Inc. * 2,437
10,000 PE Corp. (Celera Genomics Group) * 2,014
15,000 Qiagen N.V. * 1,483
- --------------------------------------------------------------------------------
14,281
- --------------------------------------------------------------------------------
Communication Equipment (4.6%)
200,000 LM Ericsson Telephone Co. ADR 14,912
106,000 Lucent Technologies, Inc. 5,857
- --------------------------------------------------------------------------------
20,769
- --------------------------------------------------------------------------------
Computer - Hardware (3.9%)
240,000 Dell Computer Corp. * 9,225
78,000 Hewlett-Packard Co. 8,444
- --------------------------------------------------------------------------------
17,669
- --------------------------------------------------------------------------------
Computer - Networking (6.1%)
95,000 3Com Corp. * 4,821
126,000 Cisco Systems, Inc. * 13,797
86,000 Extreme Networks, Inc. * 7,278
25,000 Visual Networks, Inc. * 1,572
- --------------------------------------------------------------------------------
27,468
- --------------------------------------------------------------------------------
Computer Software & Service (21.0%)
18,000 Agile Software Corp. * 2,655
196,000 America Online, Inc. * 11,160
185,000 BMC Software, Inc. * 7,007
28,000 Business Objects S.A. ADR * 1,885
22,000 Check Point Software Technologies Ltd. * 2,424
42,000 Concord Communications, Inc. * 1,549
29,000 Electronic Arts, Inc. * 2,371
55,000 Hyperion Solutions Corp. * 1,925
26,000 InterTrust Technologies Corp. * 3,754
60,000 IONA Technologies PLC * 2,850
63,000 Legato Systems, Inc. * 1,587
21,000 Mercury Interactive Corp. * 2,297
15,000 Micromuse, Inc. * 2,448
109,000 Microsoft Corp. * 10,668
411,400 Oracle Corp. * 20,550
160,000 Rational Software Corp. * 8,320
31,000 RealNetworks, Inc. * 4,873
34,000 Siebel Systems, Inc. * 3,117
20,000 Veritas Software Corp. * 2,917
- --------------------------------------------------------------------------------
94,357
- --------------------------------------------------------------------------------
Drugs (6.7%)
62,000 Eli Lilly & Co. 4,146
121,000 Merck & Co., Inc. 9,536
241,000 Pfizer, Inc. 8,767
175,000 Schering-Plough Corp. 7,700
- --------------------------------------------------------------------------------
30,149
- --------------------------------------------------------------------------------
Electronics - Semiconductors (11.6%)
150,000 Analog Devices, Inc. * 14,025
26,000 GlobeSpan, Inc. * 2,886
133,000 Intel Corp. 13,159
101,000 Linear Technology Corp. 9,563
116,000 Texas Instruments, Inc. 12,514
- --------------------------------------------------------------------------------
52,147
- --------------------------------------------------------------------------------
Equipment - Semiconductors (3.2%)
104,000 Applied Materials, Inc. * 14,274
- --------------------------------------------------------------------------------
Health Care - Diversified (5.7%)
50,000 American Home Products Corp. 2,353
121,000 Bristol-Myers Squibb Co. 7,986
84,000 Johnson & Johnson, Inc. 7,229
85,000 Warner-Lambert Co. 8,070
- --------------------------------------------------------------------------------
25,638
- --------------------------------------------------------------------------------
Hospitals (1.4%)
200,000 Health Management Associates, Inc. * 2,787
260,500 LifePoint Hospitals, Inc. * 3,517
- --------------------------------------------------------------------------------
6,304
- --------------------------------------------------------------------------------
Insurance - Multiline Companies (1.7%)
72,500 American International Group, Inc. 7,549
- --------------------------------------------------------------------------------
Internet Services (9.1%)
55,000 Agency.com Ltd. * 2,028
27,000 Ask Jeeves, Inc. * 2,578
50,000 C-bridge Internet Solutions, Inc. * 2,759
27,000 CareInsite, Inc. * 1,972
45,000 Digital Impact, Inc. * 2,160
51,000 Digital Insight Corp. * 2,187
84,000 drkoop.com, Inc. * 1,144
87,000 Healtheon/WebMD Corp. * 5,655
25,000 Internap Network Services Corp. * 1,566
131,000 Internet Gold - Golden Lines Ltd. * 2,571
76,000 LookSmart Ltd. * 2,494
58,000 Marimba, Inc. * 2,262
50,000 MedicaLogic, Inc. * 1,469
69,000 Priceline.com, Inc. * 4,002
172,000 Webvan Group, Inc. * 2,591
10,000 Yahoo! Inc. * 3,220
- --------------------------------------------------------------------------------
40,658
- --------------------------------------------------------------------------------
Medical Products & Supplies (5.2%)
200,000 Boston Scientific Corp. * 4,150
151,000 Guidant Corp. * 7,946
244,000 Medtronic, Inc. 11,163
- --------------------------------------------------------------------------------
23,259
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (2.1%)
158,000 Schlumberger Ltd. 9,648
- --------------------------------------------------------------------------------
Retail - Drugs (2.1%)
137,000 CVS Corp. 4,786
207,500 Duane Reade, Inc. * 4,786
- --------------------------------------------------------------------------------
9,572
- --------------------------------------------------------------------------------
Services - Computer Systems (1.0%)
35,000 Keane, Inc. * 945
114,000 SunGard Data Systems, Inc. * 3,335
- --------------------------------------------------------------------------------
4,280
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (0.9%)
35,000 VoiceStream Wireless Corp. * 4,108
- --------------------------------------------------------------------------------
Telecommunications - Long-Distance (3.1%)
80,000 Level 3 Communications, Inc. * 9,435
100,000 MCI WorldCom, Inc. * 4,594
- --------------------------------------------------------------------------------
14,029
- --------------------------------------------------------------------------------
Telephones (2.2%)
141,000 SBC Communications Corp. 6,080
55,000 Winstar Communications, Inc. * 3,895
- --------------------------------------------------------------------------------
9,975
- --------------------------------------------------------------------------------
Total common stocks (cost: $306,124) 434,952
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -----------
SHORT-TERM (4.3%)
U.S. Government & Agency Issue
$19,211 Federal Home Loan Bank, Discount Note, 5.72%, 2/01/2000
(cost: $19,211) 19,211
- --------------------------------------------------------------------------------
Total investments (cost: $325,335) $454,163
================================================================================
USAA SCIENCE & TECHNOLOGY 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.
Investments in foreign securities were 8.0% of net assets at January 31, 2000.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2000
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $325,335) $454,163
Cash 1,457
Receivables:
Securities sold 6,459
Capital shares sold 957
Miscellaneous 101
Dividends 82
--------
Total assets 463,219
--------
LIABILITIES
Securities purchased 12,906
Capital shares redeemed 482
USAA Investment Management Company 271
USAA Transfer Agency Company 128
Accounts payable and accrued expenses 57
--------
Total liabilities 13,844
--------
Net assets applicable to capital shares outstanding $449,375
========
REPRESENTED BY:
Paid-in capital $314,190
Accumulated net investment loss (622)
Accumulated net realized gain on investments 6,979
Net unrealized appreciation of investments 128,828
--------
Net assets applicable to capital shares outstanding $449,375
========
Capital shares outstanding 23,765
========
Authorized shares of $.01 par value 105,000
========
Net asset value, redemption price, and offering price per share $ 18.91
========
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2000
(Unaudited)
Net investment loss:
Income:
Dividends $ 456
Interest 1,060
-------
Total income 1,516
-------
Expenses:
Management fees 1,261
Transfer agent's fees 641
Custodian's fees 57
Postage 68
Shareholder reporting fees 16
Directors' fees 2
Registration fees 75
Professional fees 16
Other 2
-------
Total expenses 2,138
-------
Net investment loss (622)
-------
Net realized and unrealized gain on investments:
Net realized gain 11,408
Change in net unrealized appreciation/depreciation 66,945
-------
Net realized and unrealized gain 78,353
-------
Increase in net assets resulting from operations $77,731
=======
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY 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 loss $ (622) $ (811)
Net realized gain on investments 11,408 1,987
Change in net unrealized appreciation/depreciation
of investments 66,945 49,484
------------------------
Increase in net assets resulting from operations 77,731 50,660
------------------------
Distributions to shareholders from:
Net realized gains (5,043) -
------------------------
From capital share transactions:
Proceeds from shares sold 165,217 185,201
Shares issued for dividends reinvested 4,991 -
Cost of shares redeemed (51,513) (89,187)
------------------------
Increase in net assets from capital share
transactions 118,695 96,014
------------------------
Net increase in net assets 191,383 146,674
Net assets:
Beginning of period 257,992 111,318
------------------------
End of period $449,375 $257,992
========================
Undistributed net investment loss included in net
assets:
End of period $ (622) $ -
========================
Change in shares outstanding:
Shares sold 9,424 13,761
Shares issued for dividends reinvested 289 -
Shares redeemed (2,945) (6,725)
------------------------
Increase in shares outstanding 6,768 7,036
========================
See accompanying notes to financial statements.
USAA SCIENCE & TECHNOLOGY 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
Science & Technology Fund (the Fund). The Fund's primary investment objective is
long-term capital appreciation. USAA Investment Management Company (the Manager)
seeks to achieve this objective by investing principally in equity securities of
companies expected to benefit from the development and use of scientific and
technological advances and improvements.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the average of the bid and asked
prices is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value.
4. Securities that cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Directors.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
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. 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 and 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 $195.4 million
and $73.9 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
2000, were $141.9 million and $13.1 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 .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 six-month
period ended January 31, 2000, was $9,590.
(6) TRANSACTIONS WITH AFFILIATES
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the period is
as follows:
Six-month
Period Ended
January 31, Year Ended July 31,
---------------------------------------------
2000 1999 1998**
---------------------------------------------
Net asset value at
beginning of period $ 15.18 $ 11.17 $ 10.00
Net investment loss (.03)(a) (.06)(a) (.07)(a)
Net realized and unrealized gain 4.01 4.07 1.24
Distributions of realized
capital gains (.25) - -
---------------------------------------------
Net asset value at end of period $ 18.91 $ 15.18 $ 11.17
=============================================
Total return (%) * 26.43 35.90 11.70
Net assets at end of period (000) $449,375 $257,992 $111,318
Ratio of expenses to
average net assets (%) 1.26(b) 1.33 1.42
Ratio of net investment
loss to average net assets (%) (.37)(b) (.47) (.69)
Portfolio turnover (%) 24.61 44.39 76.31
*Assumes reinvestment of all capital gains distributions during the period.
**Fund commenced operations August 1, 1997.
(a)Calculated using weighted average shares.
(b)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
