Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 8
Financial Information:
Portfolio of Investments 9
Notes to Portfolio of Investments 13
Statement of Assets and Liabilities 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA 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) 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 it is!
The way we do business, the way we communicate with each other, the way we live
our lives is changing with breathtaking speed. To many of you, these dramatic
changes are simply a way of life. You are the Internet generation, and it all
seems perfectly natural. But to some adults, it's fascinating and even a little
scary -- almost like starting over. Natural or scary, it still creates new
investment ideas every day.
As we begin 2000, a challenging investment picture is out there. Why? Because
before last year, stock prices had increased for four straight years at a much
faster rate than they usually do. Then in 1999, some stock prices continued to
increase at an even faster rate while most other investments declined in value.
You can think of it as if your whole class was doing really well and making good
grades and then suddenly the teacher decided to spend all his time with just a
few kids. Those few kids continued to get A's on their tests, while the rest of
the class made C's, or worse. Stocks that continued to do well last year were
mostly in the technology, Internet, electronics, and other growth industries --
those areas driving the changes around us. Just about all other investments'
returns were disappointing in 1999 as investors focused their attention on
technology and growth stocks. Rising interest rates made the situation even
worse.
What's really interesting is that the popular technology and growth stocks
attracting all the attention have now increased so much, their price/earnings
ratios are far above anything investors have ever seen. In other words,
technology and growth stocks' share prices keep going up without much of an
increase in the earnings. Some investors are wondering if price/earnings ratios
are even meaningful anymore.
Great opportunities, matched with very high price/earnings ratios. This is a
picture that screams, "Stick to your investment game plan!" Decide what your
investment objectives are, how much risk you can take, and how much you can
invest regularly.
With today's opportunities, your 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 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 1/31/00
- --------------------------------------------------------------------------------
Net Assets $155.8 Million $205.9 Million
Net Asset Value Per Share $15.44 $16.13
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 1/31/00
- --------------------------------------------------------------------------------
7/31/99 to 1/31/00 1 Year Since Inception on 8/1/97
4.88%(+) 11.07% 21.64%
- --------------------------------------------------------------------------------
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gains distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gains distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA First Start Growth Fund, the S&P
500 Index, and the Lipper Growth Funds Average for the period of 08/01/97
through 01/31/2000. 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
08/97 9,470 9,440 9,655
09/97 9,930 9,957 10,190
10/97 9,590 9,625 9,810
11/97 9,860 10,070 9,985
12/97 9,980 10,243 10,086
01/98 10,250 10,356 10,141
02/98 11,300 11,102 10,911
03/98 11,630 11,671 11,395
04/98 12,000 11,790 11,534
05/98 11,590 11,588 11,205
06/98 12,280 12,058 11,631
07/98 12,270 11,931 11,373
08/98 10,300 10,207 9,508
09/98 10,773 10,861 10,091
10/98 11,851 11,743 10,795
11/98 12,668 12,455 11,466
12/98 14,018 13,172 12,419
01/99 14,693 13,723 12,980
02/99 14,381 13,296 12,453
03/99 15,338 13,828 13,021
04/99 15,389 14,364 13,345
05/99 15,066 14,025 13,081
06/99 16,165 14,803 13,878
07/99 15,560 14,341 13,502
08/99 15,268 14,270 13,373
09/99 14,792 13,879 13,179
10/99 15,419 14,757 13,970
11/99 16,026 15,057 14,640
12/99 17,079 15,943 16,151
01/00 16,320 15,142 15,553
Data since inception on 8/1/97 through 1/31/00
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA 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 the Portfolio Manager, Curt Rohrman, appears here]
When was the last time you ate so much candy, or cookies, or ice cream that you
felt really sick and sorta' wished you hadn't eaten those last few rounds? Maybe
it was this past Halloween, when you decided you'd munch on the run rather than
carry a bag. Perhaps it was at a birthday party, where you were having so much
fun you didn't even realize you'd gobbled a large deluxe pizza with extra cheese
- -- all by yourself. I remember my worst case. It was during one hot summer when
I was about 12. I had a huge chocolate milkshake that went down so easily that I
just absolutely had to have another -- bad call, really bad call!
Every once in a while something tastes so good, we just can't stop ourselves
from having a little more, and a little more, and a little more. Even though we
know that an entire super-sized bag of Nacho Cheese Doritos(Registered
Trademark) isn't good for us, we just can't stop eating them! We've all done it.
It's important to make sure we don't make that kind of mistake when we invest.
In each of the last five years, the stock market has increased more than 20% --
that's huge. With it doing so well, right now may seem like a good time to
invest a little extra or even go crazy and invest a bunch. But remember, the
stock market doesn't usually go up this fast (since 1926, stock prices have
increased an average of 11.3% per year). So you shouldn't be surprised if it
slows down, or even goes down, for a while. The thing about eating all those
Doritos(Registered Trademark)is that a day or two later, you'll probably feel
better. But, if you go crazy at the wrong time with your investment game plan,
it might take you a few weeks, months, or possibly years to feel better.
We think you should come up with a game plan and stick to it. First decide what
you're investing for -- college, a car, or maybe even for your retirement in 60
years. Then decide how much you need and how much you can really afford to
invest -- picking the right amount reduces the chances you'll become an
"investment game plan drop-out." Also, decide how often you're going to sock the
money away -- weekly, monthly, or whatever. Now stick to your game plan. Don't
let a bad stock market scare you away or a great stock market make you drink
that second chocolate shake.
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.)
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.
FUND PERFORMANCE
Over the past six months, your USAA First Start Growth Fund total return was
4.88% compared to 5.58% for the S&P 500 Index. Our technology stocks, such as
Analog Devices, Applied Materials, Cisco Systems, Intel, Oracle, Texas
Instruments, and Yahoo! had really big gains. Unfortunately, our concerns about
the year 2000 kept us from adding more technology stocks to the portfolio.
Stocks outside of technology that contributed to the Fund's performance include
Clear Channel Communications, Walt Disney, General Electric, LifePoint
Hospitals, and Sony. Several stocks in the consumer and health care areas
experienced material declines, most notably Avon Products, CVS Drugs, Duane
Reade, Genesco, Hershey Foods, Keebler Foods, Lear, and Mattel.
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 costs than companies anywhere else. People around
the world want U.S. products. Whether it's hamburgers, soap suds, 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.
Respectfully submitted on February 4, 2000.
Past performance is no guarantee of future results.
- ------------------------------------ --------------------------------------
Top 10 Equity Holdings Top 10 Industries
(% of Net Assets) (% of Net Assets)
- ------------------------------------ --------------------------------------
Clear Channel Computer Software & Service 12.4
Communications, Inc. 3.9 Electronics-Semiconductors 8.1
Oracle Corp. 3.4 Drugs 5.4
Applied Materials, Inc. 2.9 Foods 4.7
Analog Devices, Inc. 2.9 Beverages-Nonalcoholic 4.5
Johnson & Johnson, Inc. 2.8 Retail-Speciality Apparel 4.5
General Electric Co. 2.8 Health Care-Diversified 4.3
Avon Products, Inc. 2.8 Broadcasting-TV & Radio 3.9
Intel Corp. 2.7 Computer-Hardware 3.5
Target Corp. 2.7 Entertainment 3.1
Cisco Systems, Inc. 2.6 --------------------------------------
- ------------------------------------
You will find a complete list of the securities that the Fund owns on pages
9-12.
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 FIRST START GROWTH FUND
PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.9%)
Aerospace/Defense (2.1%)
96,000 Boeing Co. $ 4,254
- --------------------------------------------------------------------------------
Airlines (0.9%)
95,000 Northwest Airlines Corp. * 1,918
- --------------------------------------------------------------------------------
Auto Parts (1.5%)
108,000 Lear Corp. * 3,031
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (4.5%)
240,000 Pepsi Bottling Group, Inc. 4,965
125,000 PepsiCo, Inc. 4,266
- --------------------------------------------------------------------------------
9,231
- --------------------------------------------------------------------------------
Biotechnology (0.4%)
14,000 Amgen, Inc. * 892
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV (3.9%)
92,000 Clear Channel Communications, Inc. * 7,946
- --------------------------------------------------------------------------------
Communication Equipment (1.4%)
53,000 Lucent Technologies, Inc. 2,928
- --------------------------------------------------------------------------------
Computer - Hardware (3.5%)
99,000 Dell Computer Corp. * 3,805
32,000 Hewlett-Packard Co. 3,464
- --------------------------------------------------------------------------------
7,269
- --------------------------------------------------------------------------------
Computer - Networking (2.6%)
50,000 Cisco Systems, Inc. * 5,475
- --------------------------------------------------------------------------------
Computer Software & Service (12.4%)
91,000 America Online, Inc. * 5,181
79,000 BMC Software, Inc. * 2,992
14,000 Electronic Arts, Inc. * 1,145
5,000 InterTrust Technologies Corp. * 722
55,000 Microsoft Corp. * 5,383
139,000 Oracle Corp. * 6,943
40,000 Pixar, Inc. * 1,428
11,000 RealNetworks, Inc. * 1,729
- --------------------------------------------------------------------------------
25,523
- --------------------------------------------------------------------------------
Drugs (5.4%)
56,000 Merck & Co., Inc. 4,413
100,000 Pfizer, Inc. 3,638
68,000 Schering-Plough Corp. 2,992
- --------------------------------------------------------------------------------
11,043
- --------------------------------------------------------------------------------
Electrical Equipment (2.8%)
43,000 General Electric Co. 5,735
- --------------------------------------------------------------------------------
Electronics - Semiconductors (8.1%)
63,000 Analog Devices, Inc. * 5,890
56,000 Intel Corp. 5,541
48,000 Texas Instruments, Inc. 5,178
- --------------------------------------------------------------------------------
16,609
- --------------------------------------------------------------------------------
Entertainment (3.1%)
100,000 AMC Entertainment, Inc. * 981
142,000 Walt Disney Co. 5,156
13,000 World Wrestling Federation Entertainment, Inc. * 201
- --------------------------------------------------------------------------------
6,338
- --------------------------------------------------------------------------------
Equipment - Semiconductors (2.9%)
43,000 Applied Materials, Inc. * 5,902
- --------------------------------------------------------------------------------
Finance - Diversified (1.1%)
46,000 Freddie Mac 2,309
- --------------------------------------------------------------------------------
Foods (4.7%)
107,000 Hershey Foods Corp. 4,548
179,000 Keebler Foods Co. * 4,083
36,000 Tootsie Roll Industries, Inc. 1,134
- --------------------------------------------------------------------------------
9,765
- --------------------------------------------------------------------------------
Health Care - Diversified (4.3%)
46,000 Bristol-Myers Squibb Co. 3,036
68,000 Johnson & Johnson, Inc. 5,852
- --------------------------------------------------------------------------------
8,888
- --------------------------------------------------------------------------------
Hospitals (0.7%)
106,500 LifePoint Hospitals, Inc. * 1,438
- --------------------------------------------------------------------------------
Household Products (2.4%)
50,000 Procter & Gamble Co. 5,044
- --------------------------------------------------------------------------------
Internet Services (2.8%)
42,000 drkoop.com, Inc. * 572
28,000 Healtheon/WebMD Corp. * 1,820
21,000 Priceline.com, Inc. * 1,218
35,000 Webvan Group, Inc. * 527
5,000 Yahoo! Inc. * 1,611
- --------------------------------------------------------------------------------
5,748
- --------------------------------------------------------------------------------
Leisure Time (2.2%)
25,000 Bandai Co., Ltd. ADR 699
55,000 Callaway Golf Co. 701
148,800 Mattel, Inc. 1,553
6,000 Sony Corp. ADR 1,524
- --------------------------------------------------------------------------------
4,477
- --------------------------------------------------------------------------------
Medical Products & Supplies (3.1%)
26,000 Guidant Corp. * 1,368
108,000 Medtronic, Inc. 4,941
- --------------------------------------------------------------------------------
6,309
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (2.1%)
71,000 Schlumberger Ltd. ADR 4,335
- --------------------------------------------------------------------------------
Personal Care (2.8%)
178,000 Avon Products, Inc. 5,663
- --------------------------------------------------------------------------------
Restaurants (1.8%)
103,000 McDonald's Corp. 3,830
- --------------------------------------------------------------------------------
Retail - Department Stores (2.7%)
83,000 Target Corp. * 5,483
- --------------------------------------------------------------------------------
Retail - Drugs (1.9%)
63,000 CVS Corp. 2,201
78,500 Duane Reade, Inc. * 1,810
- --------------------------------------------------------------------------------
4,011
- --------------------------------------------------------------------------------
Retail - Specialty (0.5%)
228,000 PETsMART, Inc. * 969
- --------------------------------------------------------------------------------
Retail - Specialty Apparel (4.5%)
71,000 Buckle, Inc. 1,114
104,000 Gap, Inc. 4,647
193,000 Genesco, Inc. * 1,689
66,000 The Wet Seal, Inc. * 825
65,000 Too, Inc. * 1,077
- --------------------------------------------------------------------------------
9,352
- --------------------------------------------------------------------------------
Services - Commercial & Consumer (2.3%)
197,000 Harte-Hanks Communications, Inc. 4,691
- --------------------------------------------------------------------------------
Shoes (1.4%)
85,000 Madden Steven, Ltd. * 1,317
112,000 Vans, Inc. * 1,554
- --------------------------------------------------------------------------------
2,871
- --------------------------------------------------------------------------------
Telecommunications - Long-Distance (1.1%)
48,000 MCI WorldCom, Inc. * 2,205
- --------------------------------------------------------------------------------
Total common stocks (cost: $166,979) 201,482
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -----------
SHORT-TERM (3.3%)
U.S. Government & Agency Issue
$6,838 Federal Home Loan Bank, Discount Note, 5.72%, 2/01/2000
(cost: $6,838) 6,838
- --------------------------------------------------------------------------------
Total investments (cost: $173,817) $208,320
================================================================================
USAA FIRST START GROWTH FUND
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2000
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADR - American Depositary Receipts are foreign shares held by a U.S. bank which
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
* Non-income producing.
See accompanying notes to financial statements.
USAA FIRST START GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2000
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $173,817) $208,320
Cash 498
Receivables:
Capital shares sold 142
Dividends 35
Securities sold 2,245
--------
Total assets 211,240
--------
LIABILITIES
Securities purchased 4,994
Capital shares redeemed 156
USAA Transfer Agency Company 156
Accounts payable and accrued expenses 74
--------
Total liabilities 5,380
--------
Net assets applicable to capital shares outstanding $205,860
========
REPRESENTED BY:
Paid-in capital $172,407
Accumulated net investment loss (645)
Accumulated net realized loss on investments (405)
Net unrealized appreciation of investments 34,503
--------
Net assets applicable to capital shares outstanding $205,860
========
Capital shares outstanding 12,764
========
Authorized shares of $.01 par value 95,000
========
Net asset value, redemption price, and offering price per share $ 16.13
========
See accompanying notes to financial statements.
USAA FIRST START GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2000
(Unaudited)
Net investment loss:
Income:
Dividends $ 472
Interest 376
-------
Total income 848
-------
Expenses:
Management fees 674
Transfer agent's fees 822
Custodian's fees 53
Postage 59
Shareholder reporting fees 14
Directors' fees 2
Registration fees 25
Professional fees 17
Other 2
-------
Total expenses before reimbursement 1,668
Expenses reimbursed (175)
-------
Total expenses after reimbursement 1,493
-------
Net investment loss (645)
-------
Net realized and unrealized gain (loss) on investments:
Net realized loss (394)
Change in net unrealized appreciation/depreciation 10,068
-------
Net realized and unrealized gain 9,674
-------
Increase in net assets resulting from operations $ 9,029
=======
See accompanying notes to financial statements.
USAA FIRST START GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2000,
and year ended July 31, 1999
(Unaudited)
1/31/00 7/31/99
----------------------
From operations:
Net investment loss $ (645) $ (456)
Net realized gain (loss) on investments (394) 1,107
Change in net unrealized appreciation/depreciation
of investments 10,068 18,989
----------------------
Increase in net assets resulting from operations 9,029 19,640
----------------------
Distributions to shareholders from:
Net realized gain (646) (345)
----------------------
From capital share transactions:
Proceeds from shares sold 60,728 104,645
Shares issued for dividends reinvested 527 179
Cost of shares redeemed (19,580) (13,661)
----------------------
Increase in net assets from capital share
transactions 41,675 91,163
----------------------
Net increase in net assets 50,058 110,458
Net assets:
Beginning of period 155,802 45,344
----------------------
End of period $205,860 $155,802
======================
Undistributed net investment loss included in
net assets:
End of period $ (645) $ -
======================
Change in shares outstanding:
Shares sold 3,880 7,343
Shares issued for dividends reinvested 36 17
Shares redeemed (1,242) (966)
----------------------
Increase in shares outstanding 2,674 6,394
======================
See accompanying notes to financial statements.
USAA FIRST START GROWTH 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
First Start Growth Fund (the Fund). The Fund's primary investment objective is
long-term capital appreciation. USAA Investment Management Company (the Manager)
seeks to achieve this objective by investing the Fund's assets principally 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 exchanges are
generally valued at the closing values of such securities on the exchange where
primarily traded. If no sale is reported, the average of the bid and asked
prices is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value.
4. Securities that cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Directors.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities.
D. Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($100 million committed). The purpose
of the agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely disposition of
securities.
Subject to availability under both agreements with CAPCO, the Fund may borrow
from CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing
rate with no markup. Subject to availability under its agreement with Bank of
America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. Each committed line of credit is also subject to a facility fee. CAPCO
charges an annual facility fee of up to .08% of the committed facility, and Bank
of America charges an annual facility fee of .09% of the committed facility. The
Fund had no borrowings under any of these agreements during the six-month period
ended January 31, 2000.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended January 31, 2000, were $67.7 million
and $19.3 million, respectively.
Gross unrealized appreciation and depreciation of investments as of January 31,
2000, were $47.1 million and $12.6 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.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
1.65% of its annual average net assets. Because the Fund's estimated
(annualized) expenses for the six-month period ended January 31, 2000, exceeded
1.65%, the Manager has absorbed a portion of the Fund's expenses to reduce the
Fund's expense ratio to 1.65%.
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 $26.00 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. The
Manager receives no commissions or fees for this service.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the six-month
period ended January 31, 2000, was $8,250.
(6) TRANSACTIONS WITH AFFILIATES
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the period is
as follows:
<TABLE>
<CAPTION>
Six-month
Period Ended
January 31, Year Ended July 31,
----------------------------------------------------------
2000 1999 1998*
----------------------------------------------------------
<S> <C> <C> <C>
Net asset value at
beginning of period $ 15.44 $ 12.27 $ 10.00
Net investment loss (.06)(a) (.07)(a) (.10)(a)
Net realized and unrealized gain .81 3.32 2.37
Distributions of realized
capital gains (.06) (.08) -
----------------------------------------------------------
Net asset value at end of period $ 16.13 $ 15.44 $ 12.27
==========================================================
Total return (%)** 4.88 26.81 22.70
Net assets at end of period (000) $205,860 $155,802 $ 45,344
Ratio of expenses to
average net assets (%) 1.65(b) 1.65 1.65
Ratio of expenses to
average net assets
excluding reimbursement (%) 1.85(b) 1.87 -
Ratio of net investment
loss to average net assets (%) (.71)(b) (.50) (.83)
Portfolio turnover (%) 11.58 26.64 52.11
</TABLE>
*Fund commenced operations August 1, 1997.
**Assumes reinvestment of all dividend income and capital gains distributions
during the period.
(a)Calculated using weighted average shares.
(b)Annualized. The ratio is not necessarily indicative of 12 months of
operations.
Directors
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, Vice Chairman of the Board
Barbara B. Dreeben
Robert L. Mason
David G. Peebles
Michael F. Reimherr
Richard A. Zucker
Investment Adviser, Underwriter, and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent Legal Counsel
USAA Shareholder Account Services Goodwin, Procter & Hoar LLP
9800 Fredericksburg Road Exchange Place
San Antonio, Texas 78288 Boston, Massachusetts 02109
Custodian Independent Auditors
State Street Bank and Trust Company KPMG LLP
P.O. Box 1713 112 East Pecan, Suite 2400
Boston, Massachusetts 02105 San Antonio, Texas 78205
Telephone Assistance Hours Internet Access
Call toll free - Central Time usaa.com(Service Mark)
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
For Additional Information on Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges, or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-hour service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund USAA TouchLine(Registered Trademark)
(from touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777, (in San Antonio) 498-8777
