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
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Growth &
Income Fund, managed by USAA Investment Management Company (IMCO). It may be
used as sales literature only when preceded or accompanied by a current
prospectus, which gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)2000, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment
- ------------------------------------------------------------
CAPITAL APPRECIATION
- ------------------------------------------------------------
Aggressive Growth Very high $3,000
Emerging Markets Very high 3,000
First Start Growth
(Registered Trademark) Moderate to high 3,000
Gold Very high 3,000
Growth Moderate to high 3,000
Growth & Income Moderate 3,000
International Moderate to high 3,000
S&P 500(Registered
Trademark)Index Moderate 3,000
Science & Technology Very high 3,000
Small Cap Stock Very high 3,000
World Growth Moderate to high 3,000
- ------------------------------------------------------------
ASSET ALLOCATION
- ------------------------------------------------------------
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate 3,000
Growth and Tax
Strategy Moderate 3,000
Growth Strategy Moderate to high 3,000
Income Strategy Low to moderate 3,000
- ------------------------------------------------------------
INCOME-TAXABLE
- ------------------------------------------------------------
GNMA(Registered
Trademark)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 GROWTH & INCOME FUND
OBJECTIVE: Capital growth and current income.
TYPES OF INVESTMENTS: Invests principally in dividend-paying equity securities.
- --------------------------------------------------------------------------------
7/31/99 1/31/00
- --------------------------------------------------------------------------------
Net Assets $1,136.3 Million $1,101.2 Million
Net Asset Value Per Share $20.43 $19.20
- --------------------------------------------------------------------------------
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
-2.4%+ 6.83% 18.68% 14.95%
- --------------------------------------------------------------------------------
+ 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 Growth & Income Fund, the S&P 500
Index, and the Lipper Growth & Income Funds Average for the period of 06/01/93
through 01/31/2000. The data points from the graph are as follows:
USAA Growth Lipper Growth &
& Income Fund S&P 500 Index Income Funds Average
------------- ------------- --------------------
06/01/93 $10,000 $10,000 $10,000
07/93 9,930 9,989 10,034
01/94 10,865 10,883 10,976
07/94 10,566 10,503 10,565
01/95 10,751 10,940 10,722
07/95 12,711 13,242 12,737
01/96 14,290 15,165 14,249
07/96 14,576 15,433 14,489
01/97 17,895 19,158 17,550
07/97 21,382 23,476 20,963
01/98 21,449 24,311 21,492
07/98 22,449 28,008 23,495
01/99 23,693 32,215 25,316
07/99 25,935 33,666 26,755
01/00 25,312 35,546 26,993
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 Growth & Income Fund to the S&P 500 Index and the Lipper Growth & Income
Funds Average. The S&P 500 Index is an unmanaged index representing the weighted
average performance of a group of 500 widely held, publicly traded stocks. It is
not possible to invest directly in the S&P 500 Index. The Lipper Growth & Income
Funds Average is an average of all growth and income funds, as reported by
Lipper Analytical Services, Inc., an independent organization that monitors the
performance of mutual funds.
Message from the Manager
[PHOTOGRAPH OF THE PORTFOLIO MANAGER, R. DAVID ULLOM, CFA, APPEARS HERE.]
The past six months have been a tumultuous time for the equity markets. The
stocks of cyclical companies recovered dramatically in April and May of last
year. These stocks then proceeded to give back most of their gains in the
following six months -- June through December 1999. Market performance in the
second half of 1999 was focused on technology, and more specifically, technology
equities that are traded in the OTC market. In fact, the S&P 500 technology
sector appreciated over 75% in 1999, with most of this appreciation coming in
the second half of the year.
Our efforts to create greater balance in the USAA Growth & Income Fund helped us
in this narrow market environment. The strategy of the Fund has been to maintain
a reasonable exposure to all major sectors of the market, while emphasizing
investment in the best values of each sector. Stocks have been, and should
continue to be, selected based on quantitative parameters such as price to
earnings ratios, price to cash flow ratios, price to book value ratios, and
yield. Also, we continue to focus on relative sales and earnings growth.
PERFORMANCE
For the six-month period ending January 31, 2000, the USAA Growth & Income Fund
generated a total return of -2.40% versus a return of 5.58% for the S&P 500. As
discussed in the annual report dated July 31, 1999, the renewed economic growth
in Southeast Asia and Latin America aided the Fund's performance through the end
of June 1999. However when the Federal Reserve Board (the Fed) began raising
interest rates in July, the performance of many cyclical/basic material stocks
fell off. Thus, for the first half of the current fiscal year, the Fund's
holdings in capital goods (Goodrich, Ball Corp., and Eaton Corp.), consumer
cyclicals (Ford, Lear Corp., American Greetings, Brunswick, J.C. Penney Co.,
Sears, and Starwood), and financials (Fleet Boston, Southtrust Corp., Bank of
America, Chase Manhattan Corp., Associates First Capital, PMI Group, Everest Re,
and Washington Mutual) all underperformed, at least in part, due to this rise in
interest rates. The Fund's holdings in energy lagged the performance of the
market, even though energy prices continued to rise over the period.
Even though the first six months of the current fiscal year experienced three
interest rate increases by the Fed, the more highly valued technology and
telecommunications sectors performed well. It seems that investors had a strong
preference for owning the shares of companies where they have confidence in the
near-term earnings outlook and confidence that higher interest rates will not
dampen earnings growth. For the USAA Growth & Income Fund, shares such as
Hewlett-Packard, Oracle, Intel, Applied Materials, and Cisco all aided
performance.
STRATEGY AND OUTLOOK
The strategy for the USAA Growth & Income Fund continues to be one of focusing
on companies whose shares are selling at less than our assessment of their
intrinsic value. This assessments is determined through the use of both
objective and subjective measures of valuation, earnings growth, management, and
the outlook for particular industries. Also, we attempt to maintain a reasonable
weighting in each of the major economic sectors of the market.
Our outlook for the coming six months is one of caution. We have witnessed
increasing volatility in the markets since the spring of 1999. Further interest
rate hikes could spark even further volatility. However, financial stocks --
particularly banks -- are becoming increasingly attractive.
Respectfully submitted on February 4, 2000.
- --------------------------------------- ---------------------------------------
Top Ten Equity Holdings Top Ten Industries
(% of Net Assets) (% of Net Assets)
- --------------------------------------- ---------------------------------------
Cicso Systems, Inc. 3.1 Computer Software & Service 5.9
Intel Corp. 2.8 Drugs 5.2
Microsoft Corp. 2.5 Telephones 5.1
Alcoa, Inc. 2.5 Finance - Diversified 4.8
Morgan Stanley Dean Witter 2.4 Health Care - Diversified 3.9
Bell Atlantic Corp. 2.3 Telecommunications - Long-Distance 3.7
Merck & Co., Inc. 2.2 Computer - Hardware 3.2
Oracle Corp. 2.1 Computer - Networking 3.1
General Electric Co. 2.1 Oil - International Integrated 3.1
American International Group, Inc. 2.1 Retail - General Merchandising 3.0
- --------------------------------------- ---------------------------------------
See page 10 for a complete listing of the portfolio of investments.
PORTFOLIO INVESTMENT DIVERSIFICATION
JANUARY 31, 2000
A pie chart is shown here illustrating the Portfolio Investment Diversification
as of January 31, 2000 for the USAA Growth & Income Fund to be:
Technology - 20.2%; Financial - 17.9%; Health Care - 12.2%; Capital Goods -
10.0%; Consumer Cyclicals - 8.9%; Communication Services - 8.8%; Consumer
Staples - 8.4%; Energy - 7.1%; Basic Materials - 4.2%; Transportation - 1.0%;
and Utilities - 0.7%.
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 GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.4%)
Aerospace/Defense (2.6%)
500,000 B.F. Goodrich Co. $ 12,500
360,000 Boeing Co. 15,952
- --------------------------------------------------------------------------------
28,452
- --------------------------------------------------------------------------------
Aluminum (2.5%)
390,000 Alcoa, Inc. 27,178
- --------------------------------------------------------------------------------
Automobiles (1.4%)
305,000 Ford Motor Co. 15,174
- --------------------------------------------------------------------------------
Auto Parts (1.1%)
440,000 Lear Corp. * 12,348
- --------------------------------------------------------------------------------
Banks - Major Regional (1.5%)
328,068 Fleet Boston Financial Corp. 10,314
195,000 SouthTrust Corp. 5,935
- --------------------------------------------------------------------------------
16,249
- --------------------------------------------------------------------------------
Banks - Money Center (2.6%)
265,004 Bank of America Corp. 12,836
200,000 Chase Manhattan Corp. 16,088
- --------------------------------------------------------------------------------
28,924
- --------------------------------------------------------------------------------
Beverages - Alcoholic (0.4%)
60,000 Anheuser-Busch Companies, Inc. 4,050
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (1.9%)
170,000 Coca-Cola Co. 9,765
550,000 Pepsi Bottling Group, Inc. 11,378
- --------------------------------------------------------------------------------
21,143
- --------------------------------------------------------------------------------
Chemicals (0.8%)
440,000 Lyondell Petrochemical Co. 4,758
205,000 Millennium Chemicals, Inc. 3,741
- --------------------------------------------------------------------------------
8,499
- --------------------------------------------------------------------------------
Communication Equipment (1.6%)
310,224 Lucent Technologies, Inc. 17,140
- --------------------------------------------------------------------------------
Computer - Hardware (3.2%)
150,000 Hewlett-Packard Co. 16,238
171,000 IBM Corp. 19,184
- --------------------------------------------------------------------------------
35,422
- --------------------------------------------------------------------------------
Computer - Networking (3.1%)
310,000 Cisco Systems, Inc. * 33,945
- --------------------------------------------------------------------------------
Computer Software & Service (5.9%)
285,000 Microsoft Corp. * 27,894
470,000 Oracle Corp. * 23,478
180,000 Parametric Technology Corp. * 3,859
320,000 Unisys Corp. * 10,200
- --------------------------------------------------------------------------------
65,431
- --------------------------------------------------------------------------------
Consumer Jewelry & Novelties - Miscellaneous (0.8%)
382,500 American Greetings Corp. "A" 8,463
- --------------------------------------------------------------------------------
Containers - Metals & Glass (0.6%)
168,000 Ball Corp. 6,111
- --------------------------------------------------------------------------------
Drugs (5.2%)
314,000 Merck & Co., Inc. 24,747
145,000 Pfizer, Inc. 5,275
445,000 Pharmacia & Upjohn, Inc. 20,915
170,000 Watson Pharmaceuticals, Inc. * 6,853
- --------------------------------------------------------------------------------
57,790
- --------------------------------------------------------------------------------
Electric Utilities (0.7%)
341,800 Reliant Energy, Inc. 7,797
- --------------------------------------------------------------------------------
Electrical Equipment (2.1%)
176,000 General Electric Co. 23,474
- --------------------------------------------------------------------------------
Electronics - Semiconductors (2.8%)
316,000 Intel Corp. 31,264
- --------------------------------------------------------------------------------
Entertainment (1.1%)
330,000 Walt Disney Co. 11,983
- --------------------------------------------------------------------------------
Equipment - Semiconductors (1.7%)
135,000 Applied Materials, Inc. * 18,529
- --------------------------------------------------------------------------------
Finance - Consumer (0.9%)
245,000 PMI Group, Inc. 10,106
- --------------------------------------------------------------------------------
Finance - Diversified (4.8%)
390,788 Associates First Capital Corp. "A" 7,816
325,000 Citigroup, Inc. 18,667
400,000 Morgan Stanley Dean Witter 26,500
- --------------------------------------------------------------------------------
52,983
- --------------------------------------------------------------------------------
Foods (2.4%)
125,000 Nabisco Group Holding Corp. 1,078
281,800 Nabisco Holdings Corp. "A" 8,507
584,600 Ralston Purina Group 16,405
- --------------------------------------------------------------------------------
25,990
- --------------------------------------------------------------------------------
Health Care - Diversified (3.9%)
350,000 American Home Products Corp. 16,472
242,700 Bristol-Myers Squibb Co. 16,018
125,000 Johnson & Johnson, Inc. 10,758
- --------------------------------------------------------------------------------
43,248
- --------------------------------------------------------------------------------
Health Care - HMOs (1.0%)
212,000 Aetna, Inc. 11,289
- --------------------------------------------------------------------------------
Household Products (2.7%)
329,000 Kimberly-Clark Corp. 20,377
90,000 Procter & Gamble Co. 9,079
- --------------------------------------------------------------------------------
29,456
- --------------------------------------------------------------------------------
Insurance - Life/Health (0.4%)
160,000 Stancorp Financial Group, Inc. 3,880
- --------------------------------------------------------------------------------
Insurance - Multiline Companies (2.1%)
225,000 American International Group, Inc. 23,428
- --------------------------------------------------------------------------------
Insurance - Property/Casualty (0.7%)
316,500 Everest Reinsurance Holdings, Inc. 7,972
- --------------------------------------------------------------------------------
Leisure Time (0.8%)
475,000 Brunswick Corp. 8,995
- --------------------------------------------------------------------------------
Lodging/Hotel (0.5%)
250,000 Starwood Hotels & Resorts Worldwide, Inc. 6,000
- --------------------------------------------------------------------------------
Machinery - Diversified (1.2%)
313,000 Deere & Co. 13,674
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries (1.4%)
223,600 Eaton Corp. 15,973
- --------------------------------------------------------------------------------
Manufacturing - Specialized (2.0%)
330,000 Avery Dennison Corp. 22,357
- --------------------------------------------------------------------------------
Medical Products & Supplies (2.0%)
360,000 Bausch & Lomb, Inc. 22,320
- --------------------------------------------------------------------------------
Oil - Domestic Integrated (1.9%)
315,000 Conoco, Inc. "A" 7,343
700,000 Occidental Petroleum Corp. 13,913
- --------------------------------------------------------------------------------
21,256
- --------------------------------------------------------------------------------
Oil - International Integrated (3.1%)
240,000 Exxon Mobil Corp. 20,040
250,000 Royal Dutch Petroleum Co. ADR 13,766
- --------------------------------------------------------------------------------
33,806
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.9%)
428,300 Helmerich & Payne, Inc. 10,065
- --------------------------------------------------------------------------------
Oil & Gas - Exploration & Production (1.2%)
305,000 Apache Corp. 11,133
150,000 Union Pacific Resources, Inc. 1,650
- --------------------------------------------------------------------------------
12,783
- --------------------------------------------------------------------------------
Paper & Forest Products (1.0%)
94,500 Jefferson Smurfit Group plc ADR 2,658
144,600 Weyerhaeuser Co. 8,296
- --------------------------------------------------------------------------------
10,954
- --------------------------------------------------------------------------------
Photography - Imaging (0.8%)
405,000 Xerox Corp. 8,454
- --------------------------------------------------------------------------------
Railroads/Shipping (1.0%)
630,000 Norfolk Southern Corp. 10,710
- --------------------------------------------------------------------------------
Retail - Department Stores (0.2%)
130,000 J.C. Penney Company, Inc. 2,551
- --------------------------------------------------------------------------------
Retail - General Merchandising (3.0%)
400,000 Sears, Roebuck & Co. 12,375
380,000 Wal-Mart Stores, Inc. 20,805
- --------------------------------------------------------------------------------
33,180
- --------------------------------------------------------------------------------
Retail - Specialty (0.2%)
200,000 Office Depot, Inc. * 2,013
- --------------------------------------------------------------------------------
Savings & Loan Holding Co. (0.9%)
385,000 Washington Mutual, Inc. 9,769
- --------------------------------------------------------------------------------
Services - Commercial & Consumer (0.9%)
220,000 Hertz Corp. "A" 9,735
- --------------------------------------------------------------------------------
Services - Data Processing (1.1%)
245,000 First Data Corp. 12,020
- --------------------------------------------------------------------------------
Telecommunications - Long-Distance (3.7%)
192,500 AT&T Corp. 10,154
225,000 MCI WorldCom, Inc. * 10,336
311,800 Sprint Corp. 20,170
- --------------------------------------------------------------------------------
40,660
- --------------------------------------------------------------------------------
Telephones (5.1%)
413,000 Bell Atlantic Corp. 25,580
260,000 GTE Corp. 19,062
265,000 SBC Communications Corp. 11,428
- --------------------------------------------------------------------------------
56,070
- --------------------------------------------------------------------------------
Total common stocks (cost: $787,667) 1,051,063
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- ------------
SHORT-TERM (4.0%)
Commercial Paper
$ 20,753 Ford Motor Credit, 5.51%, 2/01/2000 20,753
23,116 Household Finance Corp., 5.60%, 2/02/2000 23,112
- --------------------------------------------------------------------------------
Total short-term (cost: $43,865) 43,865
- --------------------------------------------------------------------------------
Total investments (cost: $831,532) $1,094,928
================================================================================
USAA GROWTH & INCOME 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.
ADR - American Depositary Receipts are foreign shares held by a U.S. bank which
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
Investments in ADRs were 1.5% of net assets at January 31, 2000.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2000
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $831,532) $ 1,094,928
Cash 715
Receivables:
Capital shares sold 790
Dividends 975
Securities sold 7,752
------------
Total assets 1,105,160
------------
LIABILITIES
Securities purchased 1,508
Capital shares redeemed 1,573
USAA Investment Management Company 572
USAA Transfer Agency Company 229
Accounts payable and accrued expenses 78
------------
Total liabilities 3,960
------------
Net assets applicable to capital shares outstanding $ 1,101,200
============
REPRESENTED BY:
Paid-in capital $ 823,558
Accumulated undistributed net investment income 421
Accumulated net realized gain on investments 13,825
Net unrealized appreciation of investments 263,396
------------
Net assets applicable to capital shares outstanding $ 1,101,200
============
Capital shares outstanding 57,357
============
Authorized shares of $.01 par value 110,000
============
Net asset value, redemption price, and offering price per share $ 19.20
============
See accompanying notes to financial statements.
USAA GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2000
(Unaudited)
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $42) $ 8,336
Interest 1,082
----------
Total income 9,418
----------
Expenses:
Management fees 3,374
Transfer agent's fees 1,326
Custodian's fees 88
Postage 156
Shareholder reporting fees 32
Directors' fees 2
Registration fees 44
Professional fees 18
Other 10
----------
Total expenses 5,050
----------
Net investment income 4,368
----------
Net realized and unrealized gain (loss) on investments:
Net realized gain 18,788
Change in net unrealized appreciation/depreciation (50,404)
----------
Net realized and unrealized loss (31,616)
----------
Decrease in net assets resulting from operations $ (27,248)
==========
See accompanying notes to financial statements.
USAA GROWTH & INCOME 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 $ 4,368 $ 8,953
Net realized gain on investments 18,788 33,577
Change in net unrealized appreciation/depreciation
of investments (50,404) 107,533
--------------------------
Increase (decrease) in net assets
resulting from operations (27,248) 150,063
--------------------------
Distributions to shareholders from:
Net investment income (4,318) (9,064)
--------------------------
Net realized gains (36,134) (51,105)
--------------------------
From capital share transactions:
Proceeds from shares sold 107,319 224,323
Shares issued for dividends reinvested 39,538 58,888
Cost of shares redeemed (114,296) (315,355)
--------------------------
Increase (decrease) in net assets
from capital share transactions 32,561 (32,144)
--------------------------
Net increase (decrease) in net assets (35,139) 57,750
Net assets:
Beginning of period 1,136,339 1,078,589
--------------------------
End of period $1,101,200 $1,136,339
==========================
Undistributed net investment income included in
net assets:
End of period $ 421 $ 371
==========================
Change in shares outstanding:
Shares sold 5,475 12,107
Shares issued for dividends reinvested 2,109 3,690
Shares redeemed (5,843) (17,319)
--------------------------
Increase (decrease) in shares outstanding 1,741 (1,522)
==========================
See accompanying notes to financial statements.
USAA GROWTH & INCOME 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
Growth & Income Fund (the Fund). The Fund's investment objective is capital
growth and current income. USAA Investment Management Company (the Manager)
seeks to achieve the Fund's objective by investing its assets primarily in
dividend-paying equity securities.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Securities that cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Directors.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities. Amortization of market discounts on long-term
securities is recognized as interest income upon disposition of the security to
the extent there is a gain on disposition.
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 quarterly. 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 $126.7 million
and $140.0 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
2000, were $332.5 million and $69.1 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 .60% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. The
Manager receives no commissions or fees for this service.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service
of the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the six-month
period ended January 31, 2000, was $4,397.
(6) TRANSACTIONS WITH AFFILIATES
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
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 $ 20.43 $ 18.88 $ 18.85 $ 13.46 $ 12.07 $ 10.36
Net investment income .08 .16 .21 .23 .24(a) .24(a)
Net realized and
unrealized gain (.59) 2.46 .69 5.84 1.51 1.81
Distributions from net
investment income (.08) (.16) (.21) (.23) (.23) (.23)
Distributions of realized
capital gains (.64) (.91) (.66) (.45) (.13) (.11)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 19.20 $ 20.43 $ 18.88 $ 18.85 $ 13.46 $ 12.07
=========================================================================================
Total return (%)* (2.40) 15.53 4.99 46.69 14.68 20.30
Net assets at end
of period (000) $1,101,200 $1,136,339 $1,078,589 $ 825,092 $ 371,801 $ 208,490
Ratio of expenses
to average
net assets (%) .90(b) .89 .85 .89 .95 1.01
Ratio of net investment
income to average
net assets (%) .78(b) .85 1.07 1.50 1.84 2.21
Portfolio turnover (%) 11.80 24.53 29.38 14.67 16.13 19.45
</TABLE>
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
(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
