Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Shareholder Voting Results 8
Financial Information
Portfolio of Investments 9
Notes to Portfolio of Investments 18
Statement of Assets and Liabilities 19
Statement of Operations 20
Statement of Changes in Net Assets 21
Notes to Financial Statements 22
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 Small Cap
Stock 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 SMALL CAP STOCK FUND
OBJECTIVE: Long-term growth of capital.
TYPES OF INVESTMENTS: Invests principally in equity securities of companies with
small market capitalizations.
- --------------------------------------------------------------------------------
1/31/00
- --------------------------------------------------------------------------------
Net Assets $74.5 Million
Net Asset Value Per Share $13.46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Return as of 1/31/00
- --------------------------------------------------------------------------------
Since Inception on 8/2/99 34.60%
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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 Small Cap Stock Fund, the S&P
Small Cap 600 Index, and the Lipper Small Cap General Funds Average for the
period of 08/02/99 through 01/31/2000. The data points from the graph are as
follows:
USAA Small Cap S&P Small Cap Lipper Small Cap
Stock Fund 600 Index General Funds Avg.
--------------- ------- ------------------
08/02/99 $10,000 $10,000 $10,000
08/99 9,900 9,560 9,731
09/99 9,890 9,601 9,772
10/99 10,080 9,577 9,985
11/99 11,560 9,980 10,808
12/99 13,220 10,797 12,215
01/00 13,460 10,462 11,949
Data since inception on 8/2/99 through 1/31/00
The graph illustrates the comparison of a $10,000 hypothetical investment in the
Small Cap Stock Fund to the S&P SmallCap 600 Index and the Lipper Small Cap
General Funds Average. The S&P SmallCap 600 Index is an unmanaged market-value
weighted index consisting of 600 domestic stocks chosen for market size,
liquidity, and industry group representation. The Lipper Average is the average
performance level of all small-cap general funds, as reported by Lipper
Analytical Services, Inc., an independent organization that monitors the
performance of mutual funds.
Message from the Managers
[Photograph of Portfolio Managers: Eric M. Efron, CFA, and John K. Cabell, Jr.,
CFA, appears here]
MARKET CONDITIONS
The USAA Small Cap Stock Fund opened for business on August 2, 1999. We would be
hard pressed to find a more opportune time to have started it up. During the six
months that ended January 31, 2000, small-cap stocks began to narrow a multiyear
performance deficit relative to their large-cap counterparts. After a prolonged
period, investors finally appear to have become more willing to forego some of
the liquidity of large-cap equities in order to take advantage of the attractive
valuations and growth prospects of smaller ones. Thus, the S&P SmallCap 600
Index, a leading benchmark of small-cap stock performance, advanced 4.6% during
the six months ended January 31, 2000, virtually matching that of the S&P 500, a
major large-cap indicator, which was up by 5.6%.
In the aggregate, equity investments, propelled by generally good earnings, low
inflation, and an overall benign interest rate environment, provided positive
returns during this period, with all the major U.S. stock indices rising in
value. U.S. equity markets weakened amidst pronounced volatility brought on by
the prospect of rising interest rates in January, but this was not enough to
dictate the direction of the semiannual performance trends. Despite the rise in
the major market indices, good performance was narrowly based, with by far the
greatest appreciation coming from the technology, communications, biotechnology,
and energy services sectors.
PERFORMANCE
The USAA Small Cap Stock Fund was well positioned to take advantage of the
conditions listed earlier. Helped by its sizeable representation in these four
sectors and by its active participation in a healthy IPO (initial public
offerings) market, the Fund got off to a very good start. It provided a total
return of 34.6% during the six months ended January 31, 2000, versus 4.6% for
the S&P SmallCap 600 Index.
PORTFOLIO STRATEGY
We have been asked many times how the investment strategies differ between the
USAA Small Cap Stock Fund and the USAA Aggressive Growth Fund, which we also
manage. We thought now would be a good time to clarify the distinctions between
the two funds.
The USAA Small Cap Stock Fund diversifies according to investment style but not
according to market capitalization range. It places all its new investments in
small-capitalization stocks, but incorporates a blended style by investing in
both growth and value equities. By our definition, any stock with a market
capitalization equal to or less than the largest market capitalization stock
(currently about $5.9 billion) in the S&P 600 SmallCap Index is a small-cap
stock. In effect, the Fund lets the stock market define the size of a
small-capitalization stock. Our target is dynamic and fluid rather than static.
We have a flexible definition of "value." Value stocks can include stocks
selling at low multiples of earnings, revenues, assets, or book value relative
to the following:
* equities in general
* similar equities
* past valuations
* future growth prospects
* perceived economic value
Stocks may be deemed to be values for other reasons as well. The companies
underlying value stocks tend to be more mature and to be growing at slower rates
than their growth counterparts. By most conventional measures, value stocks tend
to be more moderately priced and less volatile than growth stocks, although
there may be exceptions. We believe that our selection of value stocks has good
appreciation potential, but in growth-dominated stock markets such as the one we
are experiencing now, it may take more time for this potential to be realized
than might be the case for growth stocks.
In contrast to the USAA Small Cap Stock Fund, the USAA Aggressive Growth Fund
diversifies according to market capitalization but not according to investment
style. It has the flexibility to invest in both tiny companies as well as giant
ones, but at the same time, it invests only in companies with rapidly growing
earnings or the prospects thereof.
Where the two funds overlap is in the area of small-cap growth stocks. Within
this sphere, the USAA Small Cap Stock Fund follows the USAA Aggressive Growth
Fund's example of investing in rapidly growing companies that are in a good
position to take advantage of changing social and economic trends, but each fund
diversifies away from this common core in a different manner. As described
earlier, the USAA Small Cap Stock Fund branches out into value stocks, and the
USAA Aggressive Growth Fund extends into the mid- and large-cap realms. The
intended design of each fund is to provide investors with exposure to parts of
the stock market that are in relative favor at all times.
OUTLOOK
The USAA Small Cap Stock Fund enjoyed very strong performance during the period
stretching from its inception through January 31, 2000. The positive conditions
that contributed so strongly to performance during the past half year remain in
place. Most signs point to moderation in terms of economic growth, corporate
earnings, inflation, and interest rates. This makes us optimistic about future
investment prospects for stocks in general and for small-cap stocks in
particular.
Nevertheless, we would be remiss not to point out that past performance is not a
guarantee of future results. As good as the fundamental outlooks of our
individual holdings might be, stocks in general, and technology issues in
particular, are selling at valuations that defy conventional investment wisdom.
This could leave them exposed to any possible negative news including political
and social disruptions, earnings disappointments, residual Y2K issues, and
rising inflation and interest rates. This Fund is likely to be volatile due to
its focus on small-cap stocks, which tend to have lower trading liquidity than
their larger counterparts.
In the event of a stock market correction, this Fund may be more vulnerable than
many others due to its large holdings of high-valuation and
low-market-capitalization equities. Should this occur, we urge investors to
maintain their long-term perspective. We believe that the companies such as the
ones comprising our portfolio have good managements as well as favorable
long-term prospects and have excellent potential over the long haul.
Respectfully submitted on February 4, 2000.
Past performance is no guarantee of future results.
- ------------------------------------- --------------------------------------
Top Ten Equity Holdings Top Ten Industries
(% of Net Assets) (% of Net Assets)
- ------------------------------------- --------------------------------------
Human Genome Sciences, Inc. 4.5 Biotechnology 15.1
Affymetrix, Inc. 3.1 Internet Services 8.3
IDEC Pharmaceuticals Corp. 2.7 Drugs 5.9
Biovail Corp. International 2.4 Communication Equipment 4.8
Sepracor, Inc. 1.9 Medical Products & Supplies 4.3
Caliper Technologies Corp. 1.9 Computer Software & Service 4.1
King Pharmaceuticals, Inc. 1.2 Telephones 3.7
Forward Air Corp. 1.1 Services - Commercial & Consumer 3.4
Techne Corp. 1.0 Oil & Gas - Drilling/Equipment 2.7
Accredo Health, Inc. 0.8 Equipment - Semiconductors 2.4
- ------------------------------------- --------------------------------------
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 SMALL CAP STOCK FUND
PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (86.0%)
Aerospace/Defense (0.3%)
9,000 AAR Corp. $ 159
5,300 Aviation Sales Co. * 46
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205
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Air Freight (0.4%)
10,000 Eagle USA Airfreight, Inc. * 327
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Airlines (0.3%)
11,200 Atlantic Coast Airlines, Inc. * 202
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Auto Parts (1.0%)
30,000 Copart, Inc. * 510
9,200 Littelfuse, Inc. * 231
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741
- --------------------------------------------------------------------------------
Banks - Major Regional (0.4%)
9,000 Bank of the Ozarks, Inc. 159
10,000 Hamilton Bancorp, Inc. * 161
- --------------------------------------------------------------------------------
320
- --------------------------------------------------------------------------------
Beverages - Alcoholic (0.5%)
9,000 Beringer Wine Estates Holdings, Inc. "B" * 396
- --------------------------------------------------------------------------------
Biotechnology (15.1%)
10,000 Affymetrix, Inc. * 2,315
11,000 Biomatrix, Inc. * 244
10,000 Chirex, Inc. * 148
34,000 Human Genome Sciences, Inc. * 3,332
16,000 IDEC Pharmaceuticals Corp. * 2,019
6,900 Inhale Therapeutic Systems, Inc. * 403
6,000 Maxygen, Inc. * 448
3,000 Millennium Pharmaceuticals, Inc. * 562
4,800 Qiagen N.V. * 475
12,000 Techne Corp. * 748
6,000 Transkaryotic Therapies, Inc. * 195
10,000 Vical, Inc. * 385
- --------------------------------------------------------------------------------
11,274
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV (0.8%)
8,000 Radio Unica Communications * 192
10,000 Regent Communications, Inc. * 118
6,400 Salem Communications Corp. "A" * 110
14,300 Sinclair Broadcast Group, Inc. "A" * 114
1,400 Spanish Broadcasting Systems, Inc. "A" * 48
200 Wink Communications, Inc. * 12
- --------------------------------------------------------------------------------
594
- --------------------------------------------------------------------------------
Building Material Group (0.8%)
4,000 Simpson Manufacturing, Inc. * 157
15,000 Trex Company, Inc. * 405
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562
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Chemicals (0.7%)
10,000 Symyx Technologies * 515
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Chemicals - Specialty (0.3%)
11,800 Polymer Group, Inc. 201
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Communication Equipment (4.8%)
8,200 Advanced Fibre Communications, Inc. * 302
3,400 Airnet Communications Corp. * 112
16,300 Altigen Communications, Inc. * 222
6,700 Ancor Communications, Inc. * 252
13,000 Digital Microwave Corp. * 416
3,900 Gadzoox Networks, Inc. * 148
3,700 Harmonic, Inc. * 356
1,700 interWAVE Communications International, Ltd. * 62
2,200 MCK Communications, Inc. * 59
700 Netro Corp. * 30
1,300 Next Level Communications, Inc. * 105
6,800 Paradyne Networks, Inc. * 184
1,100 Sonicwall, Inc. * 64
12,800 Spectrian Corp. * 262
300 Sycamore Networks, Inc. * 96
14,100 Tekelec, Inc.* 337
5,100 Terayon Communication Systems, Inc. * 546
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3,553
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Computer - Hardware (0.6%)
3,100 Sandisk Corp. * 415
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Computer - Networking (0.6%)
2,400 Alteon Websystems, Inc. * 236
300 Cobalt Networks, Inc. * 24
500 Crossroads Systems, Inc. * 36
600 Finisar Corp. * 36
400 Foundry Networks, Inc. * 54
600 JNI Corp. * 36
- --------------------------------------------------------------------------------
422
- --------------------------------------------------------------------------------
Computer Software & Service (4.1%)
1,600 ASD Systems, Inc. * 13
12,300 Avant! Corp. * 219
2,300 Bluestone Software, Inc. * 203
30,000 Condor Technology Solutions, Inc. * 41
3,200 Daleen Technologies, Inc. * 61
2,000 Digimarc Corp. * 108
2,500 Digital Island, Inc. * 211
13,400 Diversinet Corp. * 214
300 Extensity, Inc. * 17
900 InterTrust Technologies Corp. * 130
800 Metasolv Software, Inc. * 85
10,900 Network Associates, Inc. * 283
500 Ondisplay, Inc. * 40
3,200 OpenTV Corp. "A" * 319
11,700 Perot Systems Corp. "A" * 236
11,100 Scientific Learning Corp. * 279
3,200 Telemate.Net Software, Inc. * 46
10,100 Transaction Systems Architects, Inc. * 217
11,300 Wind River Systems, Inc. * 335
- --------------------------------------------------------------------------------
3,057
- --------------------------------------------------------------------------------
Drugs (5.9%)
9,000 Alpharma, Inc. "A" 306
36,000 Biovail Corp. International * 1,795
15,000 King Pharmaceuticals, Inc. * 885
10,000 Sepracor, Inc. * 1,400
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4,386
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Electrical Equipment (0.3%)
18,000 SLI, Inc. * 211
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Electronics - Computer Distributors (0.4%)
12,000 Kent Electronics Corp. * 277
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Electronics - Instrumentation (0.6%)
12,600 Methode Electronics, Inc. "A" 430
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Electronics - Semiconductors (1.8%)
16,900 3DFX Interactive, Inc. * 144
5,900 Hi/Fn, Inc. * 325
5,600 Metalink Ltd. * 124
7,700 MMC Networks, Inc. * 216
500 Netsilicon, Inc. * 11
12,100 Quicklogic Corp. * 181
2,600 Rambus, Inc. * 196
300 Silicon Image, Inc. * 22
1,800 Virata Corp. * 101
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1,320
- --------------------------------------------------------------------------------
Equipment - Semiconductors (2.4%)
7,400 Brooks Automation, Inc. * 377
5,500 Cymer, Inc. * 303
9,500 Electroglas, Inc. * 280
5,900 PRI Automation, Inc. * 414
27,600 SpeedFam-IPEC, Inc. * 416
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1,790
- --------------------------------------------------------------------------------
Finance - Consumer (1.1%)
10,000 Metris Companies, Inc. 366
20,000 NCO Group, Inc. * 461
- --------------------------------------------------------------------------------
827
- --------------------------------------------------------------------------------
Finance - Diversified (0.4%)
8,700 Heller Financial, Inc. "A" 181
3,100 Official Payments Corp. * 106
- --------------------------------------------------------------------------------
287
- --------------------------------------------------------------------------------
Foods (0.8%)
7,000 American Italian Pasta Co. "A" * 192
10,000 Suiza Foods Corp. * 411
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603
- --------------------------------------------------------------------------------
Gaming Companies (0.8%)
21,000 Isle of Capri Casinos, Inc. * 232
11,600 Mandalay Resort Group * 179
15,000 Mirage Resorts, Inc. * 187
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598
- --------------------------------------------------------------------------------
Health Care - Diversified (1.0%)
19,000 Accredo Health, Inc. * 589
5,200 Professional Detailing, Inc. * 140
- --------------------------------------------------------------------------------
729
- --------------------------------------------------------------------------------
Health Care - HMOs (0.7%)
10,000 Express Scripts, Inc. "A" * 517
- --------------------------------------------------------------------------------
Health Care - Specialized Services (1.5%)
7,200 Advance Paradigm, Inc. * 135
4,300 Ebenx, Inc. * 238
12,500 Orthodontic Centers of America, Inc. * 191
12,000 Priority Healthcare Corp. "B" * 347
10,000 Rehabcare Group, Inc. * 236
- --------------------------------------------------------------------------------
1,147
- --------------------------------------------------------------------------------
Homebuilding (0.3%)
14,000 Crossmann Communities, Inc. * 227
- --------------------------------------------------------------------------------
Housewares (0.6%)
6,600 Salton, Inc. * 303
8,000 Yankee Candle Co., Inc. * 133
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436
- --------------------------------------------------------------------------------
Internet Services (8.3%)
200 Akamai Technologies, Inc. * 50
10,500 barnesandnoble.com, Inc. * 122
900 Be Free, Inc. * 90
15,300 CAIS Internet, Inc. * 535
300 Calico Commerce, Inc. * 10
1,700 Data Return Corp. * 99
900 Digital Impact, Inc. * 43
21,800 EDGAR Online, Inc. * 199
7,900 Entrust Technologies, Inc. * 374
400 Expedia, Inc. "A" * 11
100 Freemarkets, Inc. * 23
3,000 Freeshop.com, Inc. * 90
300 Getthere.com, Inc. * 9
3,200 Gric Communications, Inc. * 147
20,000 Headhunter.Net, Inc. * 265
12,900 High Speed Access Corp. * 235
4,300 Homestore.com, Inc. * 420
15,600 Hoovers, Inc. * 144
1,000 Internap Network Services Corp. * 63
2,874 Internet Pictures Corp. * 92
2,400 L90, Inc. * 54
5,000 Media Metrix, Inc. * 167
800 Mediaplex, Inc. * 82
700 MedicaLogic, Inc. * 21
4,400 Medscape, Inc. * 49
500 Mypoints.com, Inc. * 21
6,000 N2H2, Inc. * 96
11,300 National Information Consortium, Inc. * 496
500 Navisite, Inc. * 51
5,600 Netcentives, Inc. * 382
900 Netratings, Inc. * 33
8,000 Promotions.com, Inc. * 178
750 Purchasepro.com, Inc. * 62
500 Radware Ltd. * 23
1,000 Retek, Inc. * 53
9,600 Softnet Systems, Inc. * 314
3,700 Tumbleweed Communications Corp. * 186
28,600 US SEARCH.com, Inc. * 279
6,000 Viador, Inc. * 216
3,100 Yesmail.com, Inc. * 86
17,300 ZipLink, Inc. * 311
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6,181
- --------------------------------------------------------------------------------
Investment Banks/Brokerage (0.3%)
5,000 DLJdirect, Inc. * 55
20,000 Web Street, Inc. * 136
- --------------------------------------------------------------------------------
191
- --------------------------------------------------------------------------------
Investment Management (0.3%)
14,000 Blackrock, Inc. * 245
- --------------------------------------------------------------------------------
Leisure Time (0.3%)
14,000 Steiner Leisure Ltd. * 246
- --------------------------------------------------------------------------------
Lodging/Hotel (0.8%)
12,000 Four Seasons Hotels, Inc. 588
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries (0.2%)
13,000 Amcol International Corp. 184
- --------------------------------------------------------------------------------
Manufacturing - Specialized (0.8%)
8,000 Astec Industries, Inc. * 190
6,400 Creo Products, Inc. * 244
12,100 Maxwell Technologies, Inc. * 143
- --------------------------------------------------------------------------------
577
- --------------------------------------------------------------------------------
Medical Products & Supplies (4.3%)
8,000 ArthroCare Corp. * 545
10,000 Caliper Technologies Corp. * 1,385
6,500 CONMED Corp. * 167
5,300 Neoforma.com, Inc. * 267
10,000 Sciquest.com, Inc. * 566
7,400 Varian Medical Systems, Inc. * 282
- --------------------------------------------------------------------------------
3,212
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (2.7%)
10,000 Cooper Cameron Corp. * 495
10,400 Dril-Quip, Inc. * 328
7,700 Precision Drilling Corp. * 197
10,000 Smith International, Inc. * 513
15,000 Varco International, Inc. * 152
10,500 Veritas DGC, Inc. * 165
5,000 Weatherford International, Inc. * 188
- --------------------------------------------------------------------------------
2,038
- --------------------------------------------------------------------------------
Restaurants (0.8%)
14,000 P. F. Chang's China Bistro, Inc. * 357
9,000 Papa John's International, Inc. * 224
- --------------------------------------------------------------------------------
581
- --------------------------------------------------------------------------------
Retail - Building Supplies (0.5%)
8,000 Fastenal Co. 350
- --------------------------------------------------------------------------------
Retail - Discounters (0.4%)
5,900 Dollar Tree Stores, Inc. * 260
- --------------------------------------------------------------------------------
Retail - Food (0.5%)
22,500 Wild Oats Markets, Inc. * 371
- --------------------------------------------------------------------------------
Retail - Specialty (2.3%)
16,000 99 Cents Only Stores * 560
15,000 Cost Plus, Inc. * 251
10,000 Linens N Things, Inc. * 196
17,000 Tuesday Morning Corp.* 253
15,000 Williams-Sonoma, Inc. * 476
- --------------------------------------------------------------------------------
1,736
- --------------------------------------------------------------------------------
Retail - Specialty Apparel (2.1%)
7,000 Abercrombie & Fitch Co. "A" * 150
13,000 American Eagle Outfitters, Inc. * 472
20,000 Charlotte Russe Holding, Inc. * 283
34,000 Chico's Fas, Inc. * 501
11,600 Too, Inc. * 192
- --------------------------------------------------------------------------------
1,598
- --------------------------------------------------------------------------------
Services - Commercial & Consumer (3.4%)
19,700 Armor Holdings, Inc. * 219
11,200 Heidrick & Struggles International, Inc. * 459
16,400 Innotrac Corp. * 111
15,000 Labor Ready, Inc. * 124
18,200 Merix Corp. * 255
28,100 Personnel Group of America, Inc. * 267
12,900 Profit Recovery Group International, Inc. * 350
37,200 Romac International, Inc. * 549
25,100 Staffmark, Inc. * 220
- --------------------------------------------------------------------------------
2,554
- --------------------------------------------------------------------------------
Services - Computer Systems (1.4%)
400 724 Solutions, Inc. * 27
10,800 Complete Business Solutions, Inc. * 219
27,800 Imrglobal Corp. * 250
10,100 Mastech Corp. * 246
18,600 Pomeroy Computer Resources, Inc. * 302
- --------------------------------------------------------------------------------
1,044
- --------------------------------------------------------------------------------
Services - Data Processing (1.1%)
15,000 Computer Horizons Corp. * 206
10,000 MedQuist, Inc. * 199
7,200 Resourcephoenix.com, Inc. * 141
18,000 Syntel, Inc. * 293
- --------------------------------------------------------------------------------
839
- --------------------------------------------------------------------------------
Specialty Printing (0.1%)
8,000 Consolidated Graphics, Inc. * 107
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (0.4%)
600 Aether Systems, Inc. * 74
3,600 Leap Wireless International, Inc. * 177
700 Telecorp PCS, Inc. * 30
800 Tritel, Inc. * 21
300 Triton PCS Holdings, Inc. "A" * 12
- --------------------------------------------------------------------------------
314
- --------------------------------------------------------------------------------
Telecommunications - Long-Distance (0.8%)
1,000 Ibasis, Inc. * 75
8,000 IDT Corp. * 167
8,900 Pacific Gateway Exchange, Inc. * 175
5,100 Viatel, Inc. * 188
500 Z-Tel Technologies, Inc. * 18
- --------------------------------------------------------------------------------
623
- --------------------------------------------------------------------------------
Telephones (3.7%)
9,600 Adelphia Business Solutions * 492
7,500 Allied Riser CommunIcations Corp. * 171
3,100 DSL.net, Inc. * 65
19,300 e.spire Communications, Inc. * 204
7,600 Focal Communications Corp. * 305
12,600 GST Telecommunications, Inc. * 109
8,000 Intermedia Communications, Inc. * 344
600 Ixnet, Inc. * 22
14,400 Network Access Solutions Corp. * 396
3,500 Pac-West Telecomm, Inc. * 88
8,000 Rhythms NetConnections, Inc. * 272
4,500 Winstar Communications, Inc. * 319
- --------------------------------------------------------------------------------
2,787
- --------------------------------------------------------------------------------
Truckers (1.1%)
30,000 Forward Air Corp. * 808
- --------------------------------------------------------------------------------
Waste Management (0.1%)
7,700 Waste Connections, Inc. * 94
- --------------------------------------------------------------------------------
Total common stocks (cost: $50,057) 64,097
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -----------
SHORT-TERM (13.6%)
U.S. Government & Agency Issues Discount Note
$10,116 Federal Home Loan Bank, Discount Note, 5.72%, 2/01/2000
(cost: $10,116) 10,116
- --------------------------------------------------------------------------------
Total investments (cost: $60,173) $74,213
================================================================================
USAA SMALL CAP STOCK FUND
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
Investments in foreign securities were 5.5% of net assets at January 31, 2000.
Specific Notes
* Non-income producing.
See accompanying notes to financial statements.
USAA SMALL CAP STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2000
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $60,173) $ 74,213
Cash 271
Receivables:
Capital shares sold 396
Securities sold 280
Miscellaneous 7
Dividends 2
--------
Total assets 75,169
--------
LIABILITIES
Securities purchased 440
Capital shares redeemed 86
USAA Investment Management Company 42
USAA Transfer Agency Company 13
Accounts payable and accrued expenses 48
--------
Total liabilities 629
--------
Net assets applicable to capital shares outstanding $ 74,540
========
REPRESENTED BY:
Paid-in capital $ 60,484
Accumulated net investment loss (119)
Accumulated net realized gain on investments 135
Net unrealized appreciation of investments 14,040
--------
Net assets applicable to capital shares outstanding $ 74,540
========
Capital shares outstanding 5,539
========
Authorized shares of $.01 par value 100,000
========
Net asset value, redemption price, and offering price per share $ 13.46
========
See accompanying notes to financial statements.
USAA SMALL CAP STOCK FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2000*
(Unaudited)
Net investment loss:
Income:
Dividends (net of foreign taxes withheld of $0) $ 9
Interest 162
-------
Total income 171
-------
Expenses:
Management fees 153
Transfer agent's fees 41
Custodian's fees 33
Postage 4
Shareholder reporting fees 9
Directors' fees 1
Registration fees 39
Professional fees 9
Other 1
-------
Total expenses 290
-------
Net investment loss (119)
-------
Net realized and unrealized gain on investments:
Net realized gain 135
Change in net unrealized appreciation/depreciation 14,040
-------
Net realized and unrealized gain 14,175
-------
Increase in net assets resulting from operations $14,056
=======
* Fund commenced operations on August 2, 1999.
See accompanying notes to financial statements.
USAA SMALL CAP STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2000*
(Unaudited)
From operations:
Net investment loss $ (119)
Net realized gain on investments 135
Change in net unrealized appreciation/depreciation of
investments 14,040
--------
Increase in net assets resulting from operations 14,056
--------
From capital share transactions:
Proceeds from shares sold 73,735
Shares issued for dividends reinvested -
Cost of shares redeemed (13,251)
--------
Increase in net assets from capital share transactions 60,484
--------
Net increase in net assets 74,540
Net assets:
Beginning of period -
--------
End of period $ 74,540
========
Undistributed net investment loss included in net assets:
End of period $ (119)
========
Change in shares outstanding:
Shares sold 6,628
Shares issued for dividends reinvested -
Shares redeemed (1,089)
--------
Increase in shares outstanding 5,539
========
* Fund commenced operations on August 2, 1999.
See accompanying notes to financial statements.
USAA SMALL CAP STOCK 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
Small Cap Stock Fund (the Fund), which commenced operations on August 2, 1999.
The Fund's investment objective is long-term growth of capital. USAA Investment
Management Company (the Manager) seeks to achieve this objective by investing
the Fund's assets principally in equity securities of companies with small
market capitalizations.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the average of the bid and asked
prices is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value.
4. Securities that cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Directors.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income is recorded on the ex-dividend date. If the ex-dividend date has passed,
certain dividends from foreign securities are recorded upon notification.
Interest income is recorded on the accrual basis. Discounts and premiums on
short-term securities are amortized over the life of the respective securities.
D. Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($100 million committed). The purpose
of the agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely disposition of
securities.
Subject to availability under both agreements with CAPCO, the Fund may borrow
from CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing
rate with no markup. Subject to availability under its agreement with Bank of
America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. Each committed line of credit is also subject to a facility fee. CAPCO
charges an annual facility fee of up to .08% of the committed facility, and Bank
of America charges an annual facility fee of .09% of the committed facility. The
Fund had no borrowings under any of these agreements during the six-month period
ended January 31, 2000.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended January 31, 2000, were $53.1 million
and $3.2 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
2000, were $18.7 million and $4.7 million, respectively.
(5) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at .75% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. The
Manager receives no commissions or fees for this service.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The Fund did not
utilize these services during the six-month period ended January 31, 2000.
(6) TRANSACTIONS WITH AFFILIATES
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At January 31, 2000, the Association and its affiliates
owned 2.0 million shares (36.1%) of the Fund.
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the period is
as follows:
Six-month
Period Ended
January 31,
2000*
-------------
Net asset value at beginning of period $ 10.00
Net investment loss (.04)(a)
Net realized and unrealized gain 3.50
-------------
Net asset value at end of period $ 13.46
=============
Total return (%) 34.60
Net assets at end of period (000) $74,540
Ratio of expenses to average net assets (%) 1.40(b)
Ratio of net investment loss to average net assets (%) (.58)(b)
Portfolio turnover (%) 9.24
* Fund commenced operations August 2, 1999.
(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
