TABLE OF CONTENTS
USAA FAMILY OF FUNDS 1
MESSAGE FROM THE PRESIDENT 2
INVESTMENT REVIEW 4
MESSAGE FROM THE MANAGER 5
FINANCIAL INFORMATION
Distributions to Shareholders 8
Independent Auditors' Report 9
Portfolio of Investments 10
Notes to Portfolio of Investments 14
Statement of Assets and Liabilities 15
Statement of Operations 16
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE USAA FIRST START
GROWTH 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) 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, 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 PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA,
APPEARS HERE.]
---------------------------------------------------------------------
HOW LONG AND HARD CAN YOU RUN WITHOUT STOPPING TO CATCH YOUR BREATH?
---------------------------------------------------------------------
This year has been kind of boring for investments so far, but it's kind of what
we were expecting. It was time for the market to "catch its breath" after four
straight years of stock-price increases.
Market indices are like the yardstick that we use to measure your Fund's
performance against. Instead of inches and feet, we measure performance in
percentages. Various market index averages are showing returns that are close to
zero return in the year 2000 so far.
In a way, years like these are predictable. Just like you can't run at top speed
all of the time without running out of breath, markets must take breathers, too.
When you stop running, you eventually catch your breath. When the market slows,
it lets the valuations of securities become more normal. We had been seeing a
big difference between the price of the shares and the earnings that each share
generated. Now that difference is becoming smaller. This, in turn, could
ultimately allow the expected returns on stocks to resume.
Asset allocation in a family of mutual funds has the potential to make this kind
of a period easier. I am a strong proponent of asset allocation to build a
portfolio you can live with. That's because it can include bond and money market
funds, which offer relative safety in slow times. It also can include equity
funds, which allow you to potentially benefit when, somewhere down the road, the
market takes off running again.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
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 $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FOR MORE COMPLETE INFORMATION ABOUT THE MUTUAL FUNDS MANAGED AND DISTRIBUTED BY
USAA INVESTMENT MANAGEMENT COMPANY, INCLUDING CHARGES AND OPERATING EXPENSES,
PLEASE CALL FOR A PROSPECTUS. READ IT CAREFULLY BEFORE INVESTING.
INVESTMENT REVIEW
USAA FIRST START GROWTH FUND
OBJECTIVE: Long-term capital appreciation.
TYPES OF INVESTMENTS: Invests principally in equity securities of companies that
provide goods and services we believe are familiar to young people.
--------------------------------------------------------------------------------
7/31/99 7/31/00
--------------------------------------------------------------------------------
Net Assets $155.8 Million $249.0 Million
Net Asset Value Per Share $15.44 $17.17
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/00
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION ON 8/1/97
11.58% 20.19%
--------------------------------------------------------------------------------
TOTAL RETURN EQUALS INCOME YIELD PLUS SHARE PRICE CHANGE AND ASSUMES
REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. NO ADJUSTMENT HAS
BEEN MADE FOR TAXES PAYABLE BY SHAREHOLDERS ON THEIR REINVESTED INCOME DIVIDENDS
AND CAPITAL GAIN DISTRIBUTIONS. THE PERFORMANCE DATA QUOTED REPRESENT PAST
PERFORMANCE AND ARE NOT AN INDICATION OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, AND AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA First Start Growth Fund, the S&P
500 Index, and the Lipper Growth Funds Average for the period of 08/01/1997
through 07/31/2000. The data points from the graph are as follows:
USAA FIRST START S&P 500 LIPPER GROWTH
GROWTH FUND INDEX FUNDS AVERAGE
----------------- ------------- ----------------
08/01/97 $10,000 $10,000 $10,000
01/31/98 10,250 10,356 10,147
07/31/98 12,270 11,931 11,404
01/31/99 14,693 13,723 13,050
07/31/99 15,560 14,341 13,582
01/31/00 16,320 15,142 15,686
07/31/00 17,362 15,627 16,504
DATA SINCE INCEPTION ON 8/1/97 THROUGH 7/31/00
THE GRAPH ILLUSTRATES THE COMPARISON OF A $10,000 HYPOTHETICAL INVESTMENT IN THE
USAA FIRST START GROWTH FUND TO THE S&P 500 INDEX AND THE LIPPER GROWTH FUNDS
AVERAGE, AN AVERAGE PERFORMANCE LEVEL OF ALL GROWTH FUNDS, AS REPORTED BY LIPPER
ANALYTICAL SERVICES, INC., AN INDEPENDENT ORGANIZATION THAT MONITORS THE
PERFORMANCE OF MUTUAL FUNDS. THE S&P 500 INDEX IS AN UNMANAGED INDEX
REPRESENTING THE WEIGHTED AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY HELD,
PUBLICLY TRADED STOCKS. IT IS NOT POSSIBLE TO INVEST IN THE S&P 500 INDEX.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER: CURT ROHRMAN APPEARS HERE.]
Do you like to go to the beach?
My wife and I love to take my 6-year-old daughter, Sarah, to the beach. One of
Sarah's favorite things to do at the beach is to dig a hole in the sand and make
me sit in it. Then, bucket by bucket by bucket, she piles sand on me. At first,
it's hard to notice what's going on because each bucket doesn't add much sand.
But she keeps at it. Pretty soon, Daddy has no feet. She keeps at it. Then Daddy
has no legs. She keeps at it. Next, Daddy has nothing but arms, shoulders, and a
head. She keeps at it. After a while, Daddy is nothing but a huge pile of sand
with a head poking out, and everyone else on the beach thinks it's hilarious! By
the time Daddy is completely buried and can't move a single part of his body,
Sarah has worked pretty hard and is quite proud of what she has accomplished.
Investing can be a lot like my daughter burying me in sand. When you first start
out investing, your pile of money may seem pretty small. But you keep socking
money away on a regular basis, little bit by little bit, just like Sarah keeps
adding bucket after bucket of sand. Pretty soon, your pile of money begins to
take shape. So you stick to your investing plan, putting more money away. After
a few years, like when you're ready to go to college or buy your first car, your
pile could turn out to be a sizable stash of cash.
Sometimes the stock market doesn't do its part to help you build your pile of
money. That's how the market was over the past 12 months. The market (measured
by the S&P 500 Index) was up only 8.97%. That isn't too bad. But it also isn't
as good as the stock market has done in the past. In fact, over the past 73
years, stocks have increased an average of 11.3% per year.
So what should you do when the market poops out for a while? Keep adding buckets
of sand! Stick to your investing game plan. Don't let a bad stock market (or a
good one, either) knock you off your goal. And if the market goes up again,
you'll have a better chance of being covered with a pile of money with only YOUR
head poking out.
STRATEGY
The USAA First Start Growth Fund buys stocks of companies that make products or
provide services that we believe are familiar to you. We try not to buy a bunch
of companies that all make the same thing. Instead, the stocks we own are spread
across three primary areas: consumer products, technology, and health care. We
like companies that are really good at what they do and have built, or are
building, leadership positions. Companies we buy have to be growing faster than
the average company -- this means they have to sell a lot more products each and
every year.
PERFORMANCE
Two significant shifts in the stock market affected your USAA First Start Growth
Fund over the past year. First, technology stocks posted the best performance of
any sector (a particular group of stocks usually found in one industry) by a
huge amount. In fact, technology stocks went up three times more than any other
industry last year (S&P technology sector rose 39.3%; S&P health-care sector was
second, rising 15.5%). The growth of the Internet and increased usage of
wireless communications are a couple reasons for the great performance of
technology stocks.
Next, consumer stocks had a really bad year -- the S&P consumer-staples sector
(companies that make products like cosmetics, food, and soaps) dropped 6.7%,
while the S&P consumer-cyclicals (things like retail stores and toy companies)
sector fell 5.5%. Many companies in these two sectors no longer generate
sufficient sales or earnings growth to be considered for investment in your USAA
First Start Growth Fund. Unfortunately, both consumer sectors were important
areas of focus in the past.
Because consumer-oriented companies are not growing as fast as they used to, you
will find more technology holdings in your Fund than in past periods. Many of
these company names may be new to you, but you probably use their products if
you surf the Internet, send e-mails, or use a cellular phone.
Let me give you an example. Have you ever been to MTV's or Nickelodeon's
website? How about Warner Music's, Target's, or J. Crew's? Their websites are
really, really cool. They also have something in common -- they all run on
software from a company called Art Technology Group. Your Fund now has an
investment in Art.
How about another one. You've probably never heard of a company we own called
Nuance Communications. But I'll bet you or your parents have called to check on
an American Airlines or Delta flight and ended up talking to a computer rather
than a person. You may have also purchased event tickets through Cheap Tickets
without ever talking to a real person. Ever used directory assistance and just
spoken to the computer? It's software from Nuance that recognizes your voice,
understands what you want, and tells the computer what to do.
Over the past 12 months, the USAA First Start Growth Fund's total return is
11.58% compared with an 8.97% gain for the S&P 500 Index. Our technology stocks,
such as Analog Devices, Applied Materials, Cisco Systems, LM Ericsson, Intel,
Nuance Communications, Oracle, and Yahoo!, had big gains. Stocks outside of
technology that contributed positively to the Fund's performance included Walt
Disney, General Electric, Keebler Foods, LifePoint Hospitals, and Sony. Several
stocks in the consumer and health-care areas experienced material declines, most
notably CVS Drugs, Duane Reade, Hershey Foods, Gap, Lear, Mattel, and Procter &
Gamble.
OUTLOOK
We think the stock market will do well during the next several years, and our
reasons are unchanged. Companies in the United States in general are the most
competitive on the planet. We believe U.S. companies make better, more
innovative products at lower cost than companies anywhere else. People around
the world want U.S. products. Whether it's hamburgers, soapsuds, cosmetics,
beverages, Internet services, computers, or pharmaceuticals, our market-share
advantage is widening. This is important if U.S. companies are going to continue
to grow rapidly.
REFER TO THE BOTTOM OF PAGE 4 FOR THE S&P 500 INDEX DEFINITION.
USED WITH PERMISSION(COPYRIGHT)2000 IBBOTSON ASSOCIATES, INC. ALL RIGHTS
RESERVED. (CERTAIN PORTIONS OF THIS WORK WERE DERIVED FROM COPYRIGHTED WORKS OF
ROGER G. IBBOTSON AND REX SINQUEFIELD.)
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
----------------------------------------
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
----------------------------------------
Intel Corp. 3.9
Clear Channel
Communications, Inc. 3.5
General Electric Co. 3.4
Avon Products, Inc. 3.1
Oracle Corp. 3.1
Pepsi Bottling Group, Inc. 2.9
Keebler Foods Co. 2.8
Target Corp. 2.7
Cisco Systems, Inc. 2.6
Johnson & Johnson, Inc. 2.6
----------------------------------------
----------------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
----------------------------------------
Computer Software & Service 14.1
Electronics - Semiconductors 10.2
Communication Equipment 7.8
Drugs 7.1
Oil & Gas - Drilling/Equipment 6.4
Beverages - Nonalcoholic 5.4
Computer - Hardware 4.6
Retail - Specialty Apparel 4.1
Foods 3.8
Medical Products & Supplies 3.7
----------------------------------------
YOU WILL FIND A COMPLETE LIST OF THE SECURITIES THAT THE FUND OWNS ON PAGES
10-13.
DISTRIBUTIONS TO SHAREHOLDERS
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended July 31, 2000. These figures are
provided for information purposes only and should not be used for reporting to
federal or state revenue agencies. Distributions for the calendar year will be
reported to you on Form 1099-DIV in January 2001.
Ordinary income $ .0407 *
Long-term capital gains .0179
-------
Total $ .0586
=======
100% of ordinary income distributions qualify for deduction by corporations.
* INCLUDES DISTRIBUTION OF SHORT-TERM CAPITAL GAINS, IF ANY, WHICH ARE TAXABLE
AS ORDINARY INCOME.
INDEPENDENT AUDITORS' REPORT
KPMG
The Shareholders and Board of Directors
USAA FIRST START GROWTH FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA First Start Growth Fund, a series of
the USAA Mutual Fund, Inc., as of July 31, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights, presented in note 7 to the financial statements, for each of the
years in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. 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 July 31, 2000, 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 the
USAA First Start Growth Fund as of July 31, 2000, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the three-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
San Antonio, Texas
September 1, 2000
USAA FIRST START GROWTH FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2000
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
COMMON STOCKS (99.7%)
BANKS - MAJOR REGIONAL (0.8%)
35,000 Wachovia Corp. $ 1,925
--------------------------------------------------------------------------------
BEVERAGES - NONALCOHOLIC (5.4%)
240,000 Pepsi Bottling Group, Inc. 7,335
135,000 PepsiCo, Inc. 6,185
--------------------------------------------------------------------------------
13,520
--------------------------------------------------------------------------------
BIOTECHNOLOGY (0.9%)
14,000 Amgen, Inc.* 909
14,000 Diversa Corp.* 504
6,000 Genentech, Inc.* 913
--------------------------------------------------------------------------------
2,326
--------------------------------------------------------------------------------
BROADCASTING - RADIO & TV (3.5%)
114,000 Clear Channel Communications, Inc.* 8,685
--------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (7.8%)
5,000 Avanex Corp.* 635
19,000 JDS Uniphase Corp.* 2,245
189,000 LM Ericsson Telephone Co. ADR 3,709
75,000 Lucent Technologies, Inc. 3,281
75,000 Nortel Networks Corp. ADR 5,578
61,200 QualComm, Inc.* 3,974
--------------------------------------------------------------------------------
19,422
--------------------------------------------------------------------------------
COMPUTER - HARDWARE (4.6%)
133,000 Dell Computer Corp.* 5,843
36,000 Hewlett-Packard Co. 3,931
40,046 Palm, Inc.* 1,562
--------------------------------------------------------------------------------
11,336
--------------------------------------------------------------------------------
COMPUTER - NETWORKING (3.7%)
6,000 Brocade Communications Systems, Inc.* 1,072
100,000 Cisco Systems, Inc.* 6,543
11,000 Juniper Networks, Inc.* 1,567
--------------------------------------------------------------------------------
9,182
--------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (14.1%)
18,100 Agile Software Corp.* 1,001
114,000 America Online, Inc.* 6,078
11,000 Art Technology Group, Inc.* 957
26,000 BEA Systems, Inc.* 1,120
14,000 Electronic Arts, Inc.* 1,238
19,000 I2 Technologies, Inc.* 2,465
17,000 Lycos, Inc.* 1,031
9,000 Mercury Interactive Corp.* 893
7,000 Micromuse, Inc.* 908
77,000 Microsoft Corp.* 5,376
15,000 Nuance Communications, Inc.* 2,106
102,000 Oracle Corp.* 7,669
24,000 RealNetworks, Inc.* 1,018
6,000 Siebel Systems, Inc.* 870
9,000 Veritas Software Corp.* 917
12,000 Yahoo! Inc.* 1,544
--------------------------------------------------------------------------------
35,191
--------------------------------------------------------------------------------
DRUGS (7.1%)
20,000 Eli Lilly & Co. 2,077
59,000 Merck & Co., Inc. 4,230
125,000 Pfizer, Inc. 5,391
107,000 Pharmacia Corp. 5,858
--------------------------------------------------------------------------------
17,556
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (3.5%)
5,000 Capstone Turbine Corp.* 275
164,000 General Electric Co. 8,436
--------------------------------------------------------------------------------
8,711
--------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (10.2%)
69,000 Analog Devices, Inc.* 4,614
146,000 Intel Corp. 9,746
54,000 Micron Technology, Inc.* 4,401
15,000 Silicon Laboratories, Inc.* 863
96,000 Texas Instruments, Inc. 5,634
--------------------------------------------------------------------------------
25,258
--------------------------------------------------------------------------------
ENTERTAINMENT (2.4%)
157,000 Walt Disney Co. 6,074
--------------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (2.3%)
74,000 Applied Materials, Inc.* 5,615
--------------------------------------------------------------------------------
FOODS (3.8%)
156,000 Keebler Foods Co. 6,884
69,000 Tootsie Roll Industries, Inc. 2,609
--------------------------------------------------------------------------------
9,493
--------------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (2.6%)
70,000 Johnson & Johnson, Inc. 6,514
--------------------------------------------------------------------------------
HOSPITALS (1.0%)
91,600 LifePoint Hospitals, Inc.* 2,450
--------------------------------------------------------------------------------
INTERNET SERVICES (0.3%)
35,000 Priceline.com, Inc.* 827
--------------------------------------------------------------------------------
LEISURE TIME (1.6%)
70,000 Callaway Golf Co. 879
59,000 Jakks Pacific, Inc.* 974
100,000 Mattel, Inc. 1,106
12,000 Sony Corp. ADR 1,127
--------------------------------------------------------------------------------
4,086
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (3.7%)
67,000 Guidant Corp.* 3,777
108,000 Medtronic, Inc. 5,515
--------------------------------------------------------------------------------
9,292
--------------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (6.4%)
39,000 Baker Hughes, Inc. 1,350
35,000 Diamond Offshore Drilling, Inc. 1,315
90,000 Halliburton Co. 4,151
67,000 R&B Falcon Corp.* 1,336
80,000 Schlumberger Ltd. ADR 5,915
36,000 Transocean Sedco Forex, Inc. 1,782
--------------------------------------------------------------------------------
15,849
--------------------------------------------------------------------------------
PERSONAL CARE (3.1%)
197,000 Avon Products, Inc. 7,818
--------------------------------------------------------------------------------
RESTAURANTS (0.5%)
36,000 McDonald's Corp. 1,134
--------------------------------------------------------------------------------
RETAIL - BUILDING SUPPLIES (0.5%)
25,000 Home Depot, Inc. 1,294
--------------------------------------------------------------------------------
RETAIL - DRUGS (0.5%)
52,500 Duane Reade, Inc.* 1,201
--------------------------------------------------------------------------------
RETAIL - FOOD (0.5%)
30,000 Safeway, Inc.* 1,352
--------------------------------------------------------------------------------
RETAIL - GENERAL MERCHANDISING (2.7%)
227,000 Target Corp. 6,583
--------------------------------------------------------------------------------
RETAIL - SPECIALTY (0.6%)
80,000 Petco Animal Supplies, Inc.* 1,585
--------------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL (4.1%)
150,000 Buckle, Inc.* 2,044
49,000 Gap, Inc. 1,755
200,000 Genesco, Inc.* 3,050
70,000 Limited, Inc. 1,431
121,000 The Wet Seal, Inc.* 1,346
28,900 Too, Inc.* 648
--------------------------------------------------------------------------------
10,274
--------------------------------------------------------------------------------
SERVICES - COMMERCIAL & CONSUMER (0.3%)
12,000 Gemstar-TV Guide International, Inc.* 730
--------------------------------------------------------------------------------
SHOES (0.6%)
102,000 Vans, Inc.* 1,530
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (0.6%)
23,000 Level 3 Communications, Inc.* 1,574
--------------------------------------------------------------------------------
Total common stocks (cost: $190,704) 248,387
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
-------------
MONEY MARKET INSTRUMENT (0.8%)
$ 1,948 Federal Home Loan Mortgage,
Discount Note, 6.48%, 8/01/2000 (cost: $1,948) 1,948
--------------------------------------------------------------------------------
Total investments (cost: $192,652) $250,335
================================================================================
USAA FIRST START GROWTH FUND
NOTES TO PORTFOLIO OF INVESTMENTS
JULY 31, 2000
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 $193,797,000.
The percentages shown represent the percentage of the investments to net assets.
Investments in foreign securities were 6.6% of net assets at July 31, 2000.
ADR - American Depositary Receipts are foreign shares held by a U.S. bank that
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
USAA FIRST START GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
JULY 31, 2000
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $192,652) $250,335
Cash 619
Cash denominated in foreign currencies (identified cost of $3) 3
Receivables:
Capital shares sold 71
Dividends 21
Securities sold 658
--------
Total assets 251,707
--------
LIABILITIES
Securities purchased 2,247
Capital shares redeemed 74
USAA Investment Management Company 120
USAA Transfer Agency Company 187
Accounts payable and accrued expenses 89
--------
Total liabilities 2,717
--------
Net assets applicable to capital shares outstanding $248,990
========
REPRESENTED BY:
Paid-in capital $200,474
Accumulated net realized loss on investments (9,167)
Net unrealized appreciation of investments 57,683
--------
Net assets applicable to capital shares outstanding $248,990
========
Capital shares outstanding 14,503
========
Authorized shares of $.01 par value 95,000
========
Net asset value, redemption price, and offering price per share $ 17.17
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
USAA FIRST START GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED JULY 31, 2000
Net investment loss:
Income:
Dividends (net of foreign taxes withheld of $3) $ 1,073
Interest 451
-------
Total income 1,524
-------
Expenses:
Management fees 1,554
Transfer agent's fees 1,858
Custodian's fees 112
Postage 336
Shareholder reporting fees 82
Directors' fees 4
Registration fees 58
Professional fees 31
Other 5
-------
Total expenses before reimbursement 4,040
Expenses reimbursed (615)
-------
Total expenses after reimbursement 3,425
-------
Net investment loss (1,901)
-------
Net realized and unrealized gain (loss) on investments:
Net realized loss (9,156)
Change in net unrealized appreciation/depreciation 33,248
-------
Net realized and unrealized gain 24,092
-------
Increase in net assets resulting from operations $22,191
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
USAA FIRST START GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED JULY 31,
<CAPTION>
2000 1999
---------------------
<S> <C> <C>
From operations:
Net investment loss $ (1,901) $ (456)
Net realized gain (loss) on investments (9,156) 1,107
Change in net unrealized appreciation/depreciation of
investments 33,248 18,989
---------------------
Increase in net assets resulting from operations 22,191 19,640
---------------------
Distributions to shareholders from:
Net realized gains (646) (345)
---------------------
From capital share transactions:
Proceeds from shares sold 117,958 104,645
Reinvested dividends 527 179
Cost of shares redeemed (46,842) (13,661)
---------------------
Increase in net assets from capital
share transactions 71,643 91,163
---------------------
Net increase in net assets 93,188 110,458
Net assets:
Beginning of period 155,802 45,344
---------------------
End of period $248,990 $155,802
=====================
Change in shares outstanding:
Shares sold 7,209 7,343
Shares issued for dividends reinvested 36 17
Shares redeemed (2,832) (966)
---------------------
Increase in shares outstanding 4,413 6,394
=====================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
USAA FIRST START GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
(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 annual report pertains only to the USAA First
Start Growth Fund (the Fund). The Fund's investment objective is long-term
capital appreciation. USAA Investment Management Company (the Manager) attempts
to achieve this objective by investing the Fund's assets in equity securities of
companies that provide goods and services that it believes are familiar to young
people.
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. As a result of certain
permanent differences between book and tax basis accounting, reclassifications
were made to the statement of assets and liabilities to decrease paid-in capital
by $1,901,000 and to decrease accumulated undistributed net investment loss by
$1,901,000.
C. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities.
D. FOREIGN CURRENCY TRANSLATIONS - The assets of the Fund may be invested in
the securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean
between the bid and asked translation rates of such currencies against U.S.
dollars on a daily basis.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates of
such transactions.
Net realized and unrealized foreign currency gains (losses) occurring during the
holding period of investments are a component of realized gain (loss) on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains (losses) arise from sales of foreign
currency, currency gains (losses) realized between the trade and settlement
dates on security transactions, and from the difference between amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts received. Net realized foreign
currency gains (losses) have been reclassified from accumulated net realized
gain (loss) to accumulated undistributed net investment income on the statement
of assets and liabilities as such amounts are treated as ordinary income (loss)
for tax purposes. Net unrealized foreign currency exchange gains (losses) arise
from changes in the value of assets and liabilities other than investments in
securities resulting from changes in the exchange rate.
E. 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. The Fund had no borrowings under any of these agreements during the year
ended July 31, 2000.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes. At
July 31, 2000, the Fund had a capital loss carryover for federal income tax
purposes of $8,021,000 which will expire in 2008-2009. It is unlikely that the
Company's Board of Directors will authorize a distribution of capital gains
realized in the future until the capital loss carryover has been utilized or
expires.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the year ended July 31, 2000, were $185,382,000 and
$104,452,000, respectively.
Gross unrealized appreciation and depreciation of investments as of July 31,
2000, were $64,932,000 and $7,249,000, respectively, and for tax purposes,
$64,916,000 and $8,378,000, 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.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
1.65% of its average net assets through December 1, 2000, and accordingly has
waived a portion of its management fees.
B. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. UNDERWRITING SERVICES - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
D. BROKERAGE SERVICES - USAA Brokerage Services, a discount brokerage service
of the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year ended July
31, 2000, was $9,000.
(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 July 31, 2000, the Association and its affiliates owned
2,000,000 shares (13.8%) 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 each period
is as follows:
YEAR ENDED JULY 31,
------------------------------------
2000 1999 1998*
------------------------------------
Net asset value at
beginning of period $ 15.44 $ 12.27 $ 10.00
Net investment loss (.15)(a) (.07)(a) (.10)(a)
Net realized and unrealized gain 1.94 3.32 2.37
Distributions of realized
capital gains (.06) (.08) -
------------------------------------
Net asset value at
end of period $ 17.17 $ 15.44 $ 12.27
====================================
Total return (%)** 11.58 26.81 22.70
Net assets at end
of period (000) $248,990 $155,802 $ 45,344
Ratio of expenses to
average net assets (%) 1.65 1.65 1.65
Ratio of expenses to average
net assets, excluding
reimbursements (%) 1.95 1.87 -
Ratio of net investment loss
to average net assets (%) (.92) (.50) (.83)
Portfolio turnover (%) 52.58 26.64 52.11
* FUND COMMENCED OPERATIONS ON AUGUST 1, 1997.
** ASSUMES REINVESTMENT OF ALL CAPITAL GAIN DISTRIBUTIONS DURING THE PERIOD.
(a) CALCULATED USING WEIGHTED AVERAGE SHARES.
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
Laura T. Starks
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 6:00 a.m. to 10:00 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) 456-7200
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
