<PAGE> 1
New USA Mutual Funds, Inc.
New USA Growth Fund
Annual Report
January 31, 1997
New USA Mutual Funds, Inc.
Directors and Officers
William J. O'Neil Chairman of the Board, Chief Executive Officer and
Director
Jerry Dackerman Director
James H. Macklin Director
Jong S. Park, M.D. Director
Fredrick M. Russo, M.D. Director
Margaret R. Harries Senior Vice President and Secretary
David Ryan Senior Vice President
Natalie D. Carter Chief Financial Officer
Investment Manager New USA Research & Management Co.
12655 Beatrice Street
Los Angeles, California 90066
Distributor New USA Mutual Funds Distributor
A Division of William O'Neil + Co. Incorporated
12655 Beatrice Street
Los Angeles, California 90066
Administrator State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Transfer Agent State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Auditors Arthur Andersen LLP
225 Franklin Street
Boston, Massachusetts 02110
Legal Counsel Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares, when redeemed, may be worth more or less than their
original cost.
Date of first use: March 15, 1997
New USA Mutual Funds, Inc.
1-800-222-2872
<PAGE> 2
CHAIRMAN'S LETTER TO SHAREHOLDERS
Dear Shareholder:
Nineteen-ninety six marked the second straight year of solid performance for the
New USA Growth Fund. With our 21% gain for the calendar year, our two-year
average now stands at a very respectable 32%. (After deduction of the maximum 5%
sales charge, the Fund's average annual total return from its inception on
4-29-92 through 12-31-96 was 14.44%, and for the twelve months ending 12-31-96
was 14.84%.)*
During 1996, we faced a much more challenging market environment than in 1995,
characterized by a widespread shift into a narrow group of large cap stocks.
This shift has invited many comparisons to the period of the "Nifty Fifty" in
the early 1970s. A similar trend has persisted in the early part of 1997.
We are often asked what we think of this market. Looking at the obvious, we see
increased volatility, the breakdown of a number of old leaders, a flight to
quality and liquidity, fear of interest rate hikes and general anxiety over the
age of the bull market. Interestingly enough, these are largely the same issues
that greeted us at the beginning of 1996.
We also see a strong U.S. economy filled with entrepreneurship, innovation and
world leadership in many categories. From within these ranks, new leaders and
groups will undoubtedly emerge as the year unfolds. The pace of technological
change almost demands such an ongoing repositioning.
While current market conditions have not been ideal for aggressive growth funds
as a group, we still believe that significant investment opportunities exist. As
we have stated in the past, we also believe that our unique database tools and
broad vision give us a flexibility lacking in many other mutual funds.
Our belief is that the next five to ten years will see continued growth and
progress in the U.S. markets, with hundreds of new issues each year. We
anticipate that the U.S. will continue to be a leader in technology and other
fields.
We foresee the economy as being positive over the long-term. We consider it
important to keep long-term goals in sight rather than being overly concerned
with short-term events. It is our continued belief that the major gain for
mutual fund shareholders is in the compounding of performance over the
long-term.
Sincerely,
William J. O'Neil
Chairman
Note to Shareholders: On March 4, 1997, the directors of New USA Mutual Funds,
Inc. approved an Agreement and Plan of Reorganization in which the assets of the
New USA Growth Fund would be combined with the assets of the MFS Emerging Growth
Fund ("MFS Fund"), a series of the MFS Series Trust II. As a result of this
transaction, the shareholders of the New USA Growth Fund would become
shareholders of the MFS Fund. Following this transaction, New USA Mutual Funds,
Inc. would cease operations. This transaction remains subject to the approval of
the shareholders of the Fund.
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that, when redeemed, an investor's shares may
be worth more or less than their original costs.
The Fund's Distributor is William O'Neil + Co. Incorporated, a member of the
NYSE, NASD and SIPC.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
LOOKING BACK AT 1996
Through May of 1996, the portfolio was ideally positioned with many of the first
half's biggest winners. In addition, we did a good job selling these stocks
(such as MRV Communications, Brooktrout Technologies and U.S. Robotics) on the
way up before a 20% correction in the NASDAQ Composite and a 10% correction in
the Dow Jones Industrial Average. Within three days of the market bottom in
July, we were back to a fully invested position. However, the market then
shifted its focus from the middle capitalization stocks (our core strength) to
the larger capitalization companies. While we were quick to sell our under
performing stocks, we did not move enough money into the larger capitalization
stocks to take full advantage of the market shift. While some other aggressive
growth funds fell hard during the last five months of the year, we finished 1996
up 21%. (After deduction of the maximum 5% sales charge, the Fund's average
annual total return from its inception on 4-29-92 through 12-31-96 was 14.44%,
and for the twelve months ending 12-31-96 was 14.84%.)*
SO FAR IN 1997
In the first two months of 1997, money continues to pour into the larger
capitalization, "nifty fifty" stocks, while the rest of the market languishes.
As a result, the Dow Jones Industrial Average has climbed 7.5%, more than double
the 3.4% gain experienced by the NASDAQ Composite. Investors are looking to the
safety and comfort of household names and not to the entrepreneurial growth
names that we focus on.
SECTOR OVERVIEW
Currently, our largest group holdings are in Oil & Gas Drilling (9.08% of net
assets), Medical -Biomedical/Genetics (8.31%), Telecommunications Equipment
(5.23%), Oil & Gas Machinery/Equipment (5.23%) and Retail Apparel/Shoes (4.56%).
Despite the recent correction in the Oil & Gas Drilling sector, we are holding
our underlying stocks because the demand and pricing for offshore rigs continues
to rise. Indeed, it has been over twenty years since the proper fundamental
backdrop existed to support a long term move in the oil group. Representative
holdings in this area include Global Marine, Ensco International and Diamond
Offshore.
In the biotechnology arena, we favor companies with promising drug candidates
testing in Phase III clinical trials or with new drugs already selling in the
market. In the Telecommunications Equipment group, we are playing the build out
of the Personal Communications Services (PCS) market, which will compete with
the cellular phone market for mobile communications.
OUTLOOK FOR THE FUTURE
Low inflation, innovation and a strong dollar are attracting investors from
around the world to our stock market, moving it higher and higher. We can never
forget, however, that this bull market is two years and 3,000 points old -
intermediate price corrections and bear markets have not become extinct.
Currently we hold about 15% cash and are looking for buying opportunities. We
continue to use a bottoms up approach to investing by researching one stock at a
time. As always, we feel that the New USA Growth Fund is an attractive way to
participate in the success of many of today's most dynamic growth companies.
Sincerely,
David Ryan
February 26, 1997
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that, when redeemed, an investor's shares may
be worth more or less than their original costs.
The Fund's Distributor is William O'Neil + Co. Incorporated, a member of the
NYSE, NASD and SIPC.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS:
INDEX COMPARISON
COMPARISON OF A HYPOTHETICAL INVESTMENT IN
NEW USA GROWTH FUND** AND THE S&P 500*
From April 29, 1992 (commencement of operations)
through January 31, 1997
[Begin Chart Data]
<TABLE>
<CAPTION>
Date New USA Growth Fund S&P 500
<S> <C> <C>
04/29/92 $ 9,500.00 $10,000.00
01/31/93 $10,451.31 $10,892.56
01/31/94 $11,383.71 $12,295.33
01/31/95 $10,278.92 $12,360.62
01/31/96 $14,874.93 $17,139.63
01/31/97 $19,250.73 $21,269.04
</TABLE>
Average Annual Total Returns**
Year Ended January 31, 1997
Past 1 year
New USA Growth Fund 29.33%
New USA Growth Fund
(inc. max. 5% front-end load) 22.88%
S&P 500 24.09%
* Performance graph for New USA Growth Fund includes deduction of the maximum 5%
front-end load. The S&P 500 return assumes no transaction costs.
** Total return is calculated including reinvestment of all income dividends and
capital gains distributions. Past performance results shown in this report
should not be considered a representation of future performance.
<PAGE> 5
- -------------------------------------------------------------------------------
NEW USA GROWTH FUND
SCHEDULE OF INVESTMENTS IN SECURITIES
JANUARY 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 89.03%
AEROSPACE/DEFENSE -- 2.75%
55,000 Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,891,875
-------------------
COMMERCIAL BANKS/
WESTERN U.S. -- 1.59%
150,000 City National Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,412,500
-------------------
BUILDING/CONSTRUCTION
PRODUCTS/MISCELLANEOUS -- 0.23%
35,000 Kevco Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,375
-------------------
CHEMICALS/FERTILIZERS -- 0.78%
20,000 Potash Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,682,500
-------------------
COMMERCIAL SERVICES/
MISCELLANEOUS -- 0.65%
47,200 Amresco Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,174,100
7,500 Billing Information Concepts
Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,125
-------------------
1,397,225
-------------------
COMMERICAL SERVICES/
SCHOOLS -- 0.47%
30,000 Apollo Group Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997,500
-------------------
COMMERICAL SERVICES/
SECURITY/SAFETY -- 1.04%
30,000 Corrections Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937,500
45,000 Ultrak Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,293,750
-------------------
2,231,250
-------------------
COMPUTER/INTEGRATED
SYSTEMS -- 0.47%
20,000 Wind River Systems Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017,500
-------------------
COMPUTER/LOCAL AREA
NETWORKS -- 1.26%
100,100 Xircom Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,702,700
-------------------
COMPUTER/MEMORY
DEVICES -- 5.60%
12,000 Advanced Digital Information + . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,000
10,000 Intevac Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000
45,000 Network Appliance Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,306,250
45,000 Storage Technology Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,205,000
97,500 Western Digital Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,068,750
-------------------
11,999,000
-------------------
COMPUTER/MINI/MICRO -- 2.77%
90,000 Dell Computer Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,951,250
-------------------
COMPUTER/PERIPHERAL
EQUIPMENT -- 1.88%
135,000 Lexmark International Group
INC.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,358,125
17,500 Splash Technology Holdings Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . 665,000
-------------------
4,023,125
-------------------
COMPUTER/SOFTWARE -- 8.64%
31,500 Credit Management Solutions
Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622,125
60,000 Electronics For Imaging Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,565,000
10,000 Keane Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,250
36,000 Manugistics Group Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,575,000
85,000 McAfee Associates Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,951,250
10,000 Pegasystems Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377,500
57,500 Peoplesoft Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,133,750
10,000 Project Software &
Development Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447,500
5,000 Scopus Technology+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,250
40,000 Simulation Sciences Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610,000
15,000 Tecnomatix Technologies Ltd.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,500
19,000 Uol Publishing Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,750
-------------------
18,516,875
-------------------
DISCOUNT/VARIETY -- 0.49%
40,000 Mazel Stores Inc.+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,000
-------------------
ELECTRONIC/LASER SYSTEMS/
COMPONENTS -- 1.20%
50,000 Cymer Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,575,000
-------------------
ELECTRONIC/MISCELLANEOUS/
COMPONENTS -- 0.61%
35,000 Sawtek Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,303,750
-------------------
ELECTRONIC PRODUCTS/
MISCELLANEOUS -- 0.27%
17,500 BMC Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573,125
-------------------
ELECTRONICS/SEMICONDUCTOR
EQUIPMENT -- 2.98%
25,000 ASM Lithography Holding NV+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,828,125
30,500 Dupont Photomasks Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,662,250
65,000 Etec Systems Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,892,500
-------------------
6,382,875
-------------------
ELECTRONICS/SEMICONDUCTOR
MANUFACTURING -- 4.01%
20,000 Anadigics Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,065,000
25,000 Intel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,056,250
5,000 Triquint Semiconductor Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,250
60,000 Vitesse Semiconductor Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,292,500
-------------------
8,595,000
-------------------
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 6
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL/CONNECTORS -- 0.10%
10,000 JPM Co.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 216,250
-------------------
ELECTRICAL/EQUIPMENT -- 0.17%
20,000 Encore Wire Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000
-------------------
ENERGY/ALTERNATIVE
SOURCES -- 0.14%
5,000 Aes Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,875
-------------------
FINANCE/MORTGAGE & REALTY
SERVICES -- 0.60%
15,000 Emergent Group Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000
48,750 Southern Pacific Funding Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,219
-------------------
1,279,219
-------------------
FINANCIAL SERVICES/
MISCELLANEOUS -- 1.61%
75,000 Sunamerica Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,459,375
-------------------
FOOD/DAIRY PRODUCTS -- 0.22%
20,000 Morningstar Group Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,000
-------------------
HOUSEHOLD/OFFICE
FURNITURE -- 2.04%
75,000 Herman Miller Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,368,750
-------------------
LEISURE/MOVIES &
RELATED -- 0.28%
30,000 Ballantyne Omaha Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
-------------------
MACHINERY/CONSTRUCTION/
MINING -- 0.48%
45,000 ASV Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035,000
-------------------
MEDICAL/BIOMED/
GENETICS -- 6.95%
32,500 Agouron Pharmaceuticals Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786,875
110,000 Bio Technology General Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,856,250
45,700 Biochem Pharmaceuticals Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,564,913
102,500 Biogen Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,791,875
5,000 Human Genome Sciences Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000
40,000 Incyte Pharmacuticals Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,660,000
-------------------
14,889,913
-------------------
MEDICAL/ETHICAL DRUGS -- 0.64%
25,000 Teva Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,368,750
-------------------
MEDICAL/OUTPATIENT/
HOME CARE -- 0.38%
25,000 Curative Technologies Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809,375
-------------------
MEDICAL/PRODUCTS -- 2.22%
30,000 Emisphere Technologies Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,500
25,000 Sabratek Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512,500
110,200 Safeskin Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,644,800
15,000 Vivus Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915,000
-------------------
4,769,800
-------------------
METAL/PROCESSING &
FABRICATION -- 0.39%
22,500 NCI Building Systems Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 832,500
-------------------
OIL & GAS/DRILLING -- 11.39%
46,000 Cliffs Drilling Co.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,139,500
67,500 Diamond Offshore Drilling Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . 4,463,437
90,000 Ensco International Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,961,250
90,600 Falcon Drilling Co., Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,408,825
220,000 Global Marine Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,922,500
20,000 Precision Drilling Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910,000
90,000 Reading & Bates Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,621,250
-------------------
24,426,762
-------------------
OIL & GAS/FIELD SERVICES -- 0.71%
32,500 Trico Marine Services Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,519,375
-------------------
OIL & GAS/MACHINERY/
EQUIPMENT -- 4.40%
80,000 Cooper Cameron Corp.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,830,000
60,000 Energy Ventures Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
-------------------
9,430,000
-------------------
OIL & GAS/U.S. EXPLORATION &
PRODUCTS -- 1.52%
50,000 Nuevo Energy Co.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,575,000
16,000 Pogo Producing Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674,000
-------------------
3,249,000
-------------------
POLLUTION CONTROL/
SERVICES -- 1.32%
10,000 Newpark Resources Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466,250
65,000 USA Waste Services Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,372,500
-------------------
2,838,750
-------------------
REAL ESTATE/OPERATIONS -- 1.53%
75,000 Fairfield Communities Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,175,000
30,000 Signature Resorts Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098,750
-------------------
3,273,750
-------------------
RETAIL/APPAREL &
SHOES -- 3.38%
10,000 Finish Line Inc.+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,000
45,000 Pacific Sunwear+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,192,500
69,600 Ross Stores Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,853,600
75,000 TJX Cos. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,981,250
-------------------
7,247,350
-------------------
RETAIL/HOME
FURNISHINGS -- 0.61%
30,000 Ethan Allen Interiors Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316,250
-------------------
RETAIL/RESTAURANTS -- 0.49%
40,000 Lone Star Steakhouse &
Saloon+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,055,000
-------------------
RETAIL/WHOLESALE
COMPUTERS -- 1.85%
125,500 Pomeroy Computer Resources+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,953,250
-------------------
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 7
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- -------------------------------------------------------------------------------
<S> <C>
SHOES/RELATED APPAREL -- 1.27%
40,000 Nike Inc. . . . . . . . . . . . . . . . . . . . . $ 2,715,000
--------------
TELECOMMUNICATIONS/
EQUIPMENT -- 5.20%
25,000 Brightpoint Inc.+ . . . . . . . . . . . . . . . . 709,375
59,500 Digital Microwave Corp.+ . . . . . . . . . . . . . 2,097,375
35,000 MRV Communications Inc.+ . . . . . . . . . . . . . 966,875
30,000 Nokia Corp. . . . . . . . . . . . . . . . . . . . 2,006,250
30,000 P Common Inc.+ . . . . . . . . . . . . . . . . . . 1,166,250
57,500 Qualcomm Inc.+ . . . . . . . . . . . . . . . . . . 3,220,000
37,500 Remec Inc.+ . . . . . . . . . . . . . . . . . . . 975,000
--------------
11,141,125
--------------
TELECOMMUNICATIONS/
SERVICES -- 0.48%
35,000 Pacific Gateway Exchange
Inc.+ . . . . . . . . . . . . . . . . . . . . . 1,041,250
--------------
TOYS/GAMES/HOBBY -- 0.40%
40,000 Action Performance Co., Inc.+ . . . . . . . . . . 850,000
--------------
TRUCKS AND PARTS/HEAVY
DUTY -- 0.57%
60,000 Miller Industries Inc.+ . . . . . . . . . . . . . 1,215,000
--------------
Total Common Stocks
(cost $166,179,257) . . . . . . . . . . . . . . 190,845,094
--------------
CONTRACT
VALUE
REPURCHASE AGREEMENT -- 10.91%
$23,396,269 Repurchase Agreement dated
1/31/97 with State Street Bank
and Trust Co., 4.900% due 2/3/97,
collaterized by United States Treasury
Bill, due 11/13/97 ( market value $23,867,397)
(repurchase proceeds $23,405,822)
(cost $23,396,269). . . . . . . . . . . . . . . . $ 23,396,269
--------------
TOTAL INVESTMENTS AND
REPURCHASE AGREEMENT --
99.94%
(cost $189,575,526) . . . . . . . . . . . . . . 214,241,363
OTHER ASSETS LESS
LIABILITIES -- 0.06% . . . . . . . . . . . . . . 133,677
--------------
NET ASSETS -- 100.00% . . . . . . . . . . . . . . $ 214,375,040
==============
</TABLE>
+ Non-income producing security
The accompanying notes are an integral part of this schedule.
<PAGE> 8
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NEW USA GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at value
(cost $166,179,257) (Note 1) . . . . . . . . . . . . . $ 190,845,094
Repurchase agreement (Note 1) . . . . . . . . . . . . . . . . . 23,396,269
--------------
Total investments and repurchase
agreement . . . . . . . . . . . . . . . . . . . . . . 214,241,363
--------------
Receivable for securities sold . . . . . . . . . . . . . . . . 5,786,132
Receivable for Fund shares sold . . . . . . . . . . . . . . . . 222,663
Dividends receivable . . . . . . . . . . . . . . . . . . . . . 25,527
Deferred organization expenses -
net (Note 1) . . . . . . . . . . . . . . . . . . . . . 16,183
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 15,986
Interest receivable . . . . . . . . . . . . . . . . . . . . . . 3,184
Other receivables . . . . . . . . . . . . . . . . . . . . . . . 6,096
--------------
Total Assets . . . . . . . . . . . . . . . . . . . . . 220,317,134
--------------
LIABILITIES:
Payable for securities purchased . . . . . . . . . . . . . . . 5,232,790
Payable for Fund shares redeemed . . . . . . . . . . . . . . . 271,809
Investment management fee
payable (Note 2) . . . . . . . . . . . . . . . . . . . 179,861
Distributor fee payable (Note 2) . . . . . . . . . . . . . . . 55,942
Administration fee payable (Note 2) . . . . . . . . . . . . . . 36,806
Other accrued expenses and
liabilities . . . . . . . . . . . . . . . . . . . . . 164,886
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . 5,942,094
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 214,375,040
==============
Net assets consist of:
Capital stock, $0.01 par value;
200,000,000 shares authorized,
15,682,188 shares issued and
outstanding (Note 4) . . . . . . . . . . . . . . . . . $ 156,822
Additional paid-in capital . . . . . . . . . . . . . . . . . . 183,073,786
Accumulated realized gain
on investments - net . . . . . . . . . . . . . . . . . 6,478,595
Unrealized appreciation on
investments - net . . . . . . . . . . . . . . . . . . 24,665,837
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 214,375,040
==============
Net asset value and redemption
price per share . . . . . . . . . . . . . . . . . . . $ 13.67
==============
Maximum offering price
per share . . . . . . . . . . . . . . . . . . . . . . $ 14.39
==============
INVESTMENT INCOME (NOTE 1):
Dividends (net of foreign withholding
tax of $8,641) . . . . . . . . . . . . . . . . . . . . $ 354,035
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 618,736
Miscellaneous income . . . . . . . . . . . . . . . . . . . . . 19,360
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . 992,131
--------------
EXPENSES:
Investment management fees (Note 2) . . . . . . . . . . . . . . 2,083,889
Distribution fees (Note 2) . . . . . . . . . . . . . . . . . . 876,879
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . 261,340
Administration fees (Note 2) . . . . . . . . . . . . . . . . . 208,196
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . 173,260
Professional fees . . . . . . . . . . . . . . . . . . . . . . . 90,983
Amortization of deferred organization
expenses (Note 1) . . . . . . . . . . . . . . . . . . 68,109
Directors' fees . . . . . . . . . . . . . . . . . . . . . . . . 44,955
Registration fees . . . . . . . . . . . . . . . . . . . . . . . 24,753
Reports to shareholders . . . . . . . . . . . . . . . . . . . . 14,069
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . 100,958
--------------
Total expenses excluding interest . . . . . . . . . . 3,947,391
Interest expense (Note 5) . . . . . . . . . . . . . . 446,375
--------------
Total expenses . . . . . . . . . . . . . . . . . . . . 4,393,766
--------------
Net investment loss . . . . . . . . . . . . . . . . . . . . . . (3,401,635)
-------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
(NOTES 1 AND 3):
Net realized gain from
securities transactions . . . . . . . . . . . . . . . 51,357,443
Change in unrealized appreciation on
investments - net . . . . . . . . . . . . . . . . . . 4,032,753
--------------
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . . . . . . 55,390,196
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . $ 51,988,561
==============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 9
NEW USA GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,401,635) $ (4,207,619)
Realized gain on securities, futures
and short sales transactions - net . . . . . . . . . . . . . . . . 51,357,443 56,852,165
Change in unrealized appreciation on investments- net . . . . . . . . 4,032,753 12,032,523
--------------- --------------
Net increase in net assets resulting from operations . . . . . . 51,988,561 64,677,069
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on securities, futures,
short sales and options transactions . . . . . . . . . . . . . . (56,185,375) (27,138,147)
-------------- --------------
FROM FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . 23,644,323 12,165,690
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . . . 50,790,344 24,126,151
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . (40,729,904) (59,079,462)
-------------- --------------
Net increase (decrease) in net assets from Fund share transactions 33,704,763 (22,787,621)
--------------- --------------
Net increase in net assets . . . . . . . . . . . . . . . . . . . . 29,507,949 14,751,301
--------------- --------------
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 184,867,091 170,115,790
-------------- --------------
End of year (Including accumulated net investment income of $0
and $469,484, respectively . . . . . . . . . . . . . . . . . . . . . $ 214,375,040 $ 184,867,091
============== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 10
NEW USA GROWTH FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . $ 971,388
Expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,335,440)
--------------
Net cash used for operating activities . . . . . . . . . . . . . . . . . . . . . (3,364,052)
--------------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Purchase of portfolio securities . . . . . . . . . . . . . . . . . . . . . . . . (892,493,891)
Sales and maturities of portfolio securities . . . . . . . . . . . . . . . . . . 933,092,698
--------------
Net cash flows provided by investing activities . . . . . . . . . . . . . . . . 40,598,807
--------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Net borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,000,000)
Dividends and distributions paid (excluding reinvestment of
dividends and distributions of $50,790,344) . . . . . . . . . . . . . . . . . . (5,395,031)
Proceeds from capital stock shares sold . . . . . . . . . . . . . . . . . . . . 23,540,502
Cost of capital stock shares redeemed . . . . . . . . . . . . . . . . . . . . . (41,380,226)
--------------
Net cash flows used for financing activities . . . . . . . . . . . . . . . . . (37,234,755)
--------------
NET DECREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . --
--------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
==============
RECONCILIATION OF NET INCREASE
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . $ 51,988,561
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (51,357,443)
Increase in unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . (4,032,753)
Accretion of discount on short-term securities . . . . . . . . . . . . . . . . . . --
Increase in interest and dividends receivable . . . . . . . . . . . . . . . . . . (20,743)
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,165
Decrease in accrued expenses and other payables . . . . . . . . . . . . . . . . . . (10,839)
--------------
Net cash used for operating activities . . . . . . . . . . . . . . . . . . . . . $ (3,364,052)
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest . . . . . . . . . . . . . . . . . . . . $ 446,375
==============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 11
NEW USA GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
APRIL 29, 1992*
THROUGH
YEAR ENDED JANUARY 31, JANUARY 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period . . . . . . . . . . . . . $ 14.39 $ 11.63 $ 12.88 $ 13.20 $12.00
--------- -------- -------- ------- ------
Income from investment operations:
Net investment loss . . . . . . . . . . . . . . . . . . . (.10) (0.37) (0.15) (0.14) (0.01)
Net realized and unrealized gain (loss) on
securities, futures, short sales, and option
transactions . . . . . . . . . . . . . . . . . . . . . . 4.15 5.54 (1.10) 1.27 1.21
--------- -------- -------- ------- ------
Total from investment operations . . . . . . . . . . . . . . . 4.05 5.17 (1.25) 1.13 1.20
Less distributions to shareholders from:
Net realized gain on securities, futures,
short sales and options transactions . . . . . . . . . . (4.77) (2.41) - (1.45) --
--------- -------- -------- ------- ------
Total distributions . . . . . . . . . . . . . . . . . . . . . . (4.77) (2.41) - (1.45) --
--------- -------- -------- ------- ------
Net asset value, end of period . . . . . . . . . . . . . . . . $ 13.67 $ 14.39 $ 11.63 $ 12.88 $13.20
========= ======== ======== ======= ======
TOTAL INVESTMENT RETURN (a) . . . . . . . . . . . . . . . . . . 29.33% 44.61% (9.70)% 8.92% 10.00% (b)
RATIOS AND SUPPLEMENTAL DATA:
Ratio of interest expense to average net assets . . . . . . . 0.22% 0.49% -- -- --
Ratio of distribution fees to average net assets . . . . . . . 0.42% 0.60% 0.61% 0.51% 0.56% (c)
Ratio of net expenses (excluding interest expense
and distribution fees) to average net assets . . . . . . . 1.47% 1.60% 1.51% 1.60% 1.65% (c)
--------- -------- -------- ------- ------
Ratio of net expenses to average net assets . . . . . . . . . 2.11% 2.69% 2.12% 2.11% 2.21% (c)(d)
========= ======== ======== ======= ======
Ratio of net investment loss to average net assets . . . . . . (1.63)% (2.32)% (0.63)% (1.02)% (0.18)%(c)(d)
Borrowings, end of period (millions) . . . . . . . . . . . . . -- $14.0 -- -- --
Average amount of borrowings outstanding
during the period (millions) . . . . . . . . . . . . . . . $14.0(e) $15.7(e) -- -- --
Average number of shares outstanding
during the period (millions) . . . . . . . . . . . . . . . 12.6(e) 12.4(e) -- -- --
Average amount of borrowings per
share during the period . . . . . . . . . . . . . . . . . $1.11(e) $1.27(e) -- -- --
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . 432.58% 525.28% 344.45% 395.15% 280.66%
Average commission rate . . . . . . . . . . . . . . . . . . . . $0.0482(f) -- -- -- --
-
Net assets, end of period (000's) . . . . . . . . . . . . . . . $214,375 $184,867 $170,116 $266,605 $295,590
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales charge. Total return would be reduced if a sales
charge were taken into account.
(b) Non-annualized.
(c) Annualized.
(d) For the period April 29, 1992 through January 31, 1993, the Manager
reimbursed expenses in the amount of $254,725. Had the Manager not
reimbursed expenses for that period the annualized ratio of net
operating expenses to average net assets and the annualized ratio of
net investment loss to average net assets would have been 2.35% and
(0.31)%, respectively.
(e) Averages computed on a weighted average daily basis.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades
on which commissions are charged.
The accompanying notes are an integral part of this statement.
<PAGE> 12
- -------------------------------------------------------------------------------
New USA Growth Fund
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Significant Accounting Policies New USA Mutual Funds, Inc. (the
"Company"), a Maryland corporation, was organized on December 30, 1991 as a
diversified, open end management investment company registered under the
Investment Company Act of 1940, as amended. The Company has established one
fund series to date: New USA Growth Fund (the "Fund") (effective May 15, 1996,
the name of the Fund was changed from The New USA Mutual Fund to New USA Growth
Fund), which commenced operations on April 29, 1992. O'Neil Data Systems, Inc.
is the parent company of William O'Neil + Co. Incorporated (WON + Co.) (the
Fund's "Distributor") and New USA Research & Management Co. (the Fund's
"Manager"). The Fund seeks capital growth by investing, under normal market
conditions, the majority of its assets in the common stock of companies that
are exhibiting accelerating earnings growth and are expected to continue to
achieve superior growth in earnings and/or revenues.
The following is a summary of significant accounting policies followed
by the Fund.
Investment Valuation: Portfolio securities listed on national securities
exchanges are valued at the last sale price on the business day as of which
such value is being determined or, lacking any sales, at the closing bid price
on such day. Portfolio securities traded in the over-the- counter market are
valued at the current or last bid price. If no bid is quoted on such day, the
security is valued by such method as the Board of Directors of the Company
shall determine in good faith to reflect the security's fair value. Index
options are valued at the last sale price or, in the absence of a sale, the
last bid price. Short-term debt securities having a maturity of 60 days or less
from the valuation date are valued at amortized cost which approximates market
value. Portfolio securities for which market quotations are not readily
available are valued as determined in good faith by or under the direction of
the Board of Directors.
Index Futures Contracts: The Fund may purchase or sell index futures contracts
for the purpose of hedging the market risk on existing portfolio holdings or
the intended purchase of securities. Futures contracts are contracts to buy or
sell units of an index at a specified date at a price agreed upon when the
contract is made. Upon entering into a contract, the Fund deposits with its
custodian or broker an amount of "initial margin" of cash and liquid assets to
guarantee delivery and payment of the futures contract. Subsequent payments to
and from the broker, called "variation margin", are made on a daily basis as
the value of the contract fluctuates. Such receipts or payments are recorded by
the Fund as unrealized gains or losses. When the contract is closed or expires,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed or expired. Risks of entering into futures contracts include the
possibility that a change in the value of the contract may not correlate with
the changes in the value of the underlying securities. As of January 31, 1997,
there were no futures contracts held.
Options on Indices: The Fund may purchase call and put options on any
securities indices for hedging purposes only. To hedge the Fund's portfolio
against a decline in value, the Fund may buy puts on stock indices; to hedge
against increases in equity price pending investment in additional equities,
the Fund may buy calls on stock indices. Upon the purchase of a call option or
a protective put option by the Fund, the premium paid is recorded as an
investment, and subsequently marked-to-market to reflect the current market
value of the option. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund will realize a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, the
Fund will realize a gain or loss, depending on whether the sale proceeds from
the closing sale transaction are greater or less than the cost of the option.
If the Fund exercises a purchased call or put option, the Fund will realize a
gain or loss based on the change in the value of the index. As of January 31,
1997, there were no options contracts held.
<PAGE> 13
Short Sales: The Fund may engage in short sale transactions. A short sale is
effected when it is believed that the price of a particular security will
decline, and involves the sale of a security which the Fund does not own in the
hope of purchasing the same security at a later date at a lower price. To make
delivery to the buyer, the Fund must borrow the security. The Fund is then
obligated to return the security to the lender, and therefore must subsequently
purchase the same security. Upon entering into a short sale, the Fund must
leave the proceeds from the short sale with the broker, and must also deposit
with the broker a certain amount of cash or U.S. Government securities to
collateralize its obligation to replace the borrowed securities which have been
sold. In addition, the Fund must deposit cash or U.S. Government securities as
collateral in a segregated account with its custodian in an amount such that
the value of both collateral deposits is at all times equal to 100% of the
current market value of the securities sold short. If the price of the
security sold short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a capital loss,
and if the price declines during this period, the Fund will realize a capital
gain. The Fund may also sell securities short "against the box" in which it
owns, or has the right to acquire at no additional cost, securities identical
to those sold short. As of January 31, 1997, there were no open short sales.
Security Transactions and Investment Income: Security transactions are recorded
on the dates the transactions are entered into (the trade dates). Realized
gains and losses on security transactions are determined on the identified cost
basis. Dividend income is recorded on the ex- dividend date. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned.
Dividends and Distributions to Shareholders: The Fund records all distributions
to shareholders from net investment income and realized gains on the
ex-dividend date. Such distributions are determined in conformity with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for losses deferred
due to wash sales and excise tax regulations.
Federal Income Taxes: It is the Fund's policy to comply with the special
provisions of Subchapter M of the Internal Revenue Code applicable to regulated
investment companies. As provided therein, in any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable income, the Fund (but
not the shareholders) will be relieved of Federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made. In order
to avoid imposition of the excise tax applicable to regulated investment
companies, it is also the Fund's intention to declare as dividends in each
calendar year at least 98% of its net investment income and 98% of its net
realized capital gains plus undistributed amounts from prior years.
Deferred Organization Expenses: Expenses of organization have been capitalized
and are being amortized on a straight-line basis over five years.
Repurchase Agreements: A repurchase agreement is an instrument under which the
purchaser acquires a security but agrees at the time of purchase to sell back
the security to the seller at an agreed-upon date, price and interest rate. It
is the policy of the Fund that the custodian takes possession of the underlying
collateral securities. Collateral is marked-to-market daily to ensure that the
market value of the underlying assets, including accrued interest is at least
equal to the value of the seller's repurchase obligation. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses. These losses would equal the contract value of the repurchase
agreement and accrued interest, net of any proceeds received in liquidation of
the underlying securities. To minimize the possibility of loss, the Fund enters
into repurchase agreements only with commercial banks and registered
broker/dealers deemed to be creditworthy by the Manager and only with respect
to obligations of the U.S. government or its agencies. Refer to the Fund's
Schedule of Investments for the contract value of
<PAGE> 14
repurchase agreements and accrued interest as of January 31, 1997.
Use of Estimates: The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities,
revenues, and expenses of the Fund.
2. Agreements with Affiliates and Other Parties Under the terms of
the Investment Management Agreement (the "Management Agreement") between the
Fund and the Manager, the Manager has agreed to provide investment management
and advisory services, subject to the policies and control of the Board of
Directors. The Management Agreement also requires the Manager to provide the
Fund with office space and certain administrative services and provide the
personnel needed by the Fund with respect to the Manager's responsibilities
under the Management Agreement with the Fund. For these services and
facilities, the Fund pays the Manager a management fee, computed and accrued
daily and paid monthly, based upon the average daily net assets of the Fund at
the following annual rates: 1% on the first $500 million of net assets and
0.75% on net assets exceeding $500 million.
Any deferrals made by the Manager in its fees and any payments by the
Distributor of Rule 12b-1 expenses are subject to recoupment or reimbursement
by the Fund within the following three fiscal years, provided the Fund is able
to effect such recoupment or reimbursement and remain in compliance with
applicable expense limitations, and provided the Manager is still at that time
serving in such capacity and provided the payment of such expenses (or the
recoupment of such fee) would not affect the Fund's tax status or otherwise
have an adverse tax impact on the Fund or its shareholders. No such amounts
were outstanding as of January 31, 1997
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to
permit the Fund to compensate the Distributor for services provided and
expenses incurred by it in promoting the sale of shares of the Fund, reducing
redemptions, or maintaining or improving services provided to shareholders by
the Distributor or dealers. The Plan provides for monthly payments by the Fund
to the Distributor, subject to the authority of the Fund's Board of Directors
to reduce the amount of payments or to suspend the Plan for such periods as
they may determine. The amount of any such reimbursement by the Fund is limited
under the Plan to 0.25% for service fees and 0.75% for all other permissible
distribution expenses of the Fund's average net assets annually, and is also
subject to state expense limitations.
The Distributor acts as the Fund's principal underwriter in a
continuous public offering of the Fund's shares. For the year ended January 31,
1997, the Distributor earned $95,264 in underwriting and broker commissions on
sales of the Fund's shares. Additionally, the Distributor earned $224,020 in
soft dollar commissions as broker on trades of portfolio securities for the
year ended January 31, 1997.
The Fund has entered into an Administration Agreement with State
Street Bank and Trust Company (the Fund's "Administrator") dated May 1, 1993.
The Administrator performs, or arranges for the performance of, certain
administrative services for the Fund, including maintaining the books and
records of the Fund, and preparing certain reports and other documents required
by federal and/or state laws and regulations. For these services, the Fund pays
the Administrator a fee at an annual rate of 0.10% of the Fund's average daily
net assets up to $125 million, 0.08% of the next $125 million, and 0.04% of
those assets in excess of $250 million.
Certain officers and/or directors of the Fund are officers and/or
directors of O'Neil Data Systems, Inc., WON + Co. and/or New USA Research &
Management Co.
3. INVESTMENT TRANSACTIONS Purchases and proceeds from sales of
investments, excluding short-term securities, for the year ended January 31,
1997, were $859,768,604 and $928,691,037, respectively.
<PAGE> 15
At January 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $23,858,085 of which $25,633,867 related to appreciated
securities and $1,775,782 related to depreciated securities. The aggregate cost
of investments at January 31, 1997 for Federal income tax purposes was
$190,383,278.
4. FUND SHARE TRANSACTIONS Proceeds and payments of Fund shares as shown
in the Statements of Changes in Net Assets are the result of the following share
transactions :
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31,
1997 1996
------------ ------------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . 1,465,248 809,986
Shares reinvested from
distributions . . . . . . . . . . . 3,853,321 1,691,876
Less shares
redeemed . . . . . . . . . . . . . . (2,478,847) (4,283,992)
------------ ------------
Net increase (decrease)
in shares
outstanding . . . . . . . . . . . . 2,839,722 (1,782,130)
============ ============
</TABLE>
5. LINE OF CREDIT The Fund established a revolving line of credit with
Wells Fargo Bank, enabling the Fund to borrow up to $30,000,000 with interest at
either the prime rate minus 2% or the bank's adjusted cost of funds rate plus
three-fourths of one percent (0.75%). This revolving line of credit expired on
November 11, 1996 and has not been renewed. The Fund was required to pay an
annual fee of 0.125% of the unused portion on a quarterly basis. The average
daily loan balance was $14,012,654, at a weighted average interest rate of
6.28%. The maximum loan outstanding during the year ended January 31, 1997 was
$26,225,000.
6. CERTAIN RECLASSIFICATIONS In accordance with Statement of Position
93-2, the Fund has reclassified $2,932,005 from accumulated realized gain on
investments-net and $146 from additional paid-in-capital to accumulated net
investment income. These reclassifications have no impact on the net asset value
of the Fund and are designed to present the Fund's capital accounts on a tax
basis.
7. SUBSEQUENT EVENT On March 4, 1997, the directors of the Company
approved an Agreement and Plan of Reorganization (the "transaction") in which
the assets of the Fund would be combined with the assets of the MFS Emerging
Growth Fund ("MFS Fund"), a series of the MFS Series Trust II. As a result of
this transaction, the shareholders of the Fund would become shareholders of the
MFS Fund. Following the transaction, the Company would cease operations. The
transaction is subject to the approval of the shareholders of the Fund at a
shareholder meeting will be held on May 28, 1997. In conjunction with this
transaction, Massachusetts Financial Service Company will purchase the Fund's
Manager.
<PAGE> 16
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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To the Shareholders and Board of Directors of New USA Growth Fund:
We have audited the accompanying statement of assets and liabilities
of New USA Growth Fund (a portfolio constituting the New USA Mutual Funds,
Inc.), including the schedule of investments, as of January 31, 1997, and the
related statement of operations for the year then ended, and the statement of
changes in net assets and the financial highlights for each of the periods
presented. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of January 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of New USA Growth Fund as of January 31, 1997, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the periods presented in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 4, 1997