Table of Contents
USAA Family of Funds........................................... 1
Message from the President..................................... 2
Investment Review.............................................. 4
Message from the Managers...................................... 5
Financial Information:
Distributions to Shareholders............................. 9
Independent Auditors' Report.............................. 10
Statement of Assets and Liabilities....................... 11
Portfolio of Investments in Securities.................... 12
Notes to Portfolio of Investments in Securities........... 17
Statement of Operations................................... 18
Statements of Changes in Net Assets....................... 19
Notes to Financial Statements............................. 20
Important Information:
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are now "streamlined."
One copy of each report will be sent to each address, instead of our previous
practice of sending one report to every registered owner. For many
shareholders and their families, this eliminates duplicate copies, saving
paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report
per registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Growth and
Tax Strategy Fund (formerly known as the Balanced Portfolio 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)1996, USAA. All rights reserved.
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the performance
of our other funds. This summary is a snapshot of the performance of all 33
funds by investment objective as of June 30, 1996. For more complete information
about the mutual funds managed and distributed by USAA IMCO, including charges
and expenses, please call 1-800-531-8181 for a prospectus. Read it carefully
before you invest.
<TABLE>
<CAPTION>
Average Annual Total Return* Yield
Investment Inception Since 7-Day 30-Day(1)
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION
Aggressive Growth 10/19/81 54.74 19.89 11.69 - - -
Emerging Markets(2) 11/7/94 13.17 - - 7.33 - -
Gold(2) 8/15/84 7.30 7.62 6.05 - - -
Growth 4/5/71 22.12 15.53 11.13 - - -
Growth & Income 6/1/93 23.95 - - 14.68 - -
International(2) 7/11/88 19.63 14.36 - 10.57 - -
S&P 500 Index(5) 5/1/96 - - - 4.58 - -
World Growth(2) 10/1/92 20.11 - - 13.87 - -
___________________________________________________________________________________________________________
ASSET ALLOCATION
Balanced Strategy 9/1/95 - - - 6.48 - -
Cornerstone Strategy(2) 8/15/84 17.19 12.44 11.56 - - -
Growth and Tax Strategy(3)** 1/11/89 15.43 10.31 - 9.77 - 3.88
Growth Strategy(2) 9/1/95 - - - 23.85 - -
Income Strategy 9/1/95 - - - 4.68 - 5.31
___________________________________________________________________________________________________________
INCOME - TAXABLE
GNMA 2/1/91 4.23 7.63 - 7.36 - 6.98
Income 3/4/74 6.13 8.92 9.42 - - 6.84
Income Stock 5/4/87 19.22 13.77 - 12.26 - -
Short-Term Bond 6/1/93 5.51 - - 5.05 - 6.64
___________________________________________________________________________________________________________
INCOME - TAX EXEMPT
Long-Term(3)** 3/19/82 6.74 7.36 7.74 - - 5.86
Intermediate-Term(3)** 3/19/82 6.19 7.25 7.29 - - 5.40
Short-Term(3)** 3/19/82 5.19 5.18 5.55 - - 4.53
California Bond(3)** 8/1/89 8.36 7.59 - 7.39 - 5.64
Florida Tax-Free Income(3)** 10/1/93 6.48 - - 2.37 - 5.76
New York Bond(3)** 10/15/90 6.19 7.40 - 8.22 - 5.73
Texas Tax-Free Income(3)** 8/1/94 8.20 - - 8.65 - 5.56
Virginia Bond(3)** 10/15/90 6.55 7.65 - 8.00 - 5.60
___________________________________________________________________________________________________________
MONEY MARKET
Money Market(4) 2/2/81 5.43 4.41 5.88 - 5.01 -
Tax Exempt Money Market(3,4)** 2/6/84 3.53 3.16 4.26 - 3.24 -
Treasury Money Market Trust(4) 2/1/91 5.27 4.17 - 4.24 4.86 -
California Money Market(3,4)** 8/1/89 3.45 3.04 - 3.67 3.12 -
Florida Tax-Free Money Market(3,4)** 10/1/93 3.39 - - 2.96 3.18 -
New York Money Market(3,4)** 10/15/90 3.44 2.87 - 3.06 3.11 -
Texas Tax-Free Money Market(3,4)** 8/1/94 3.35 - - 3.34 3.13 -
Virginia Money Market(3,4)** 10/15/90 3.29 2.98 - 3.20 3.06 -
(1) Calculated as prescribed by the Securities and Exchange Commission.
(2) Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will be
able to maintain a stable net asset value of $1 per share.
(5) 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.
* 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 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.
** 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.
</TABLE>
Message from the President
Last August I sent investors a letter which began with a question I was
regularly hearing: "Should I get out of the Market?" My response reiterated
many of our basic beliefs:
* Get your emotions in check.
* Look at history.
* Acknowledge that no one forecasts markets very well.
* Build a portfolio that will help you pursue your goals,
but also allow you to sleep at night.
At that time we knew we were looking at a pretty good year in the market. We
can now look back and see it was better than pretty good; it was excellent.
That has raised a new concern for us. The predominant investor sentiment
seems to have shifted from, "Should I get out of the Market?" to "Should I put
everything in stocks?" I want to comment on this shift.
Financial markets are not bank accounts. No other investor is interested in,
much less willing to insure, your return. While past performance is no guaran-
tee of future results, if you invest in stocks, history tells us that you can
expect a better return than that of any fixed-income instrument, from a long-
term bond to a bank account, over time.(1) The return from stocks comes from
two sources: dividends and price changes. Dividends are the more predictable
of the two. Financial analysis can give a good indication of a company's
ability to pay, or raise, its dividend. However, price change is another
thing. For a stock to appreciate, someone must come along who is willing to
pay more for shares of your stock than you did. Again, history tells us that
if a business is prospering, that will likely happen. But history also tells
us that investors do not always eliminate their emotions. They can become
over-exuberant and bid up the price to the point that the next buyer thinks
the stock is expensive and refuses to pay the higher price. That new buyer
doesn't know and doesn't care what you paid. Then the price will fall. This
is where you must understand why you purchased that stock and not become
overwrought with emotion.
Many people today are mesmerized by the exceptional returns of the recent past.
Our Aggressive Growth Fund is an excellent example. Over the last 18 months
ending June 30, 1996, its return was 84.66%. *Unfortunately the financial
press unceasingly trumpets these kinds of returns until people lose sight
of the fact that they are extraordinary. One statement that makes me quiver
these days is, "So much money is coming into stocks from retirement accounts
that the stock market cannot go down." When the market gets too expensive,
all the retirement money in the world will not hold it up. Things could get
scary for a while.
I have come across only a few people whose tolerance for risk will allow them
to be 100% in stocks. If they could do that for twenty years, I am confident
they would realize exceptional returns. But they would have to endure times
like the 1973-74 market, and that would take exceptional courage.
The better course for most people is to allocate their assets among stocks
and fixed-income investments. The return will be less, but so will the
fluctuations.
I believe that in twenty years, when, my wife, Jutta and I are retired, we
will be happy that our portfolio has held both a large position in stocks, and
also in other investments that have been a counterbalance.
With this in mind, the old bond market adage, "Never stretch for yield," is a
good one for all investors. You are the master of your portfolio. Recognize the
nature of various investments and always invest in ways with which you are
comfortable. Helping you do that is our greatest goal.
One of the ways we can assist is with one of our five Asset Strategy Funds.
Each can be applied to an individual situation, an investment goal and a
tolerance for risk. They combine different asset classes in ways that affect
return and risk, and we do the job of keeping those assets in balance. They
are a way for you to pursue a complex goal with great ease. After speaking
with our sales representatives, we can guide you to a single fund that will
provide an asset allocation that suits your situation well. From there,
we do all the work.
[Photograph of Michael J.C. Roth, CFA, President appears here]
Sincerely,
Michael J.C. Roth, CFA
President
(1)Bank accounts are FDIC insured and provide a fixed-rate of return. The
other investment instruments mentioned do not. Government bonds are backed
by the full faith and credit of the U.S. government. Of these vehicles,
stocks are considered to have the most risk. Government bonds are exempt
from state taxes; otherwise, these vehicles are subject to tax. The
comparisons reflect changing conditions in regard to tax laws, inflationary
trends and general corporate policies and practices. Investors are
encouraged to closely monitor changes in any factor which may affect
their investments.
* Average annual total returns of the USAA Aggressive Growth Fund as of June
30, 1996, are 1 year - 54.74%; 5 years - 19.89%; and 10 years - 11.69%. The
performance data quoted represents past performance; the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
For more complete information about the mutual funds managed and distributed
by USAA IMCO, including charges and expenses, please call for a prospectus.
Read it carefully before you invest.
Investment Review
Growth and Tax Strategy Fund
OBJECTIVE: A conservative balance between income, the majority of which is
exempt from federal income tax, and the potential for long-term growth of
capital to preserve purchasing power.
___________________________________________________________________________
5/31/95 5/31/96
Net Assets $134.5 Million $160.4 Million
Net Asset Value Per Share $12.82 $14.11
___________________________________________________________________________
Average Annual Total Returns as of 5/31/96
1 Year 14.61%
5 Years 9.68%
Since inception on January 11, 1989 9.78%
___________________________________________________________________________
[A graph is shown here which is a comparison of the change in value of a
$10,000 investment, for the period of 1/11/89 to 5/31/96, with dividends
and capital gains reinvested. The ending value of each item graphed is
as follows: USAA Growth and Tax Strategy Fund - $20,000 and the Lehman
Brothers Muni. Bond Index - $17,747.]
The graph depicts how the USAA Growth and Tax Strategy Fund closely tracks its
benchmark, the Lehman Brothers Municipal Bond Index, an unmanaged benchmark of
total return performance for the long-term investment grade tax-exempt bond
market. The chart compares a $10,000 hypothetical investment in the Fund to
the Index.
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.
Message from the Managers
(Photo of the Portfolio Managers appears here)
Seated L to R: Clifford Gladson (Tax-Exempt Short-Term), Jack Saunders
(Allocation Manager); Standing L to R: Harry Miller (Basic Value Stocks), Ken
Willmann (Tax-Exempt Long-Term).
Fund Overview
The purpose of a balanced fund, with its mixture of stocks and bonds, is to
produce reasonable income with potential for long-term growth in capital.
Reduced volatility in share value is also expected when bond and stock markets
diverge.
We have experienced a divergence between stock and bond markets since early
February. While the stock market has continued to do well, the bond market has
been very unsettled with sharp declines following periodic indications of
economic strength and hints of potential inflation. Declines in the Fund's
bond values have been offset by gains in the stock portfolio in this period.
As far as inflation is concerned, we do not believe that it is on the rise, so
real interest rates (net of inflation) are still high. This should eventually
be recognized in the bond market once it stabilizes.
The Fund's portfolio investment categories were rebalanced within their
respective ranges at the end of March. The basic value stocks category has
since been allowed to rise while the long-term tax-exempt securities category
has been held at mid-range. Current portfolio mix as of May 31, 1996, was
20.3% short-term tax exempt, 31.0% long-term tax exempt, and 47.9% basic value
stocks.
[A pie chart is shown here depicting the Asset Allocation as of May 31, 1996
for USAA Growth and Tax Strategy Fund to be: Basic Value Stocks - 47.9%,
Tax Exempt Short-Term - 20.3% and Tax-Exempt Long-Term - 31.0%. Percentages
are of the Net Assets in the Portfolio and may or may not equal 100%.]
Short-Term Tax-Exempt Securities
Since our last report, we increased the percentage of variable rate demand
notes (VRDNs)(1) within the short-term segment of the portfolio. This helped to
stabilize the value of the portfolio by reducing the weighted average maturity
of our short-term holdings from 340 days on November 30, 1995, to 146 days on
May 31, 1996. In addition, the VRDNs' frequent rate adjustment feature, every
seven days or less, swiftly profits from any rise in short-term interest rates.
Long-Term Tax-Exempt Securities
Long-term tax-exempt bond interest rates ended the fiscal year almost
precisely where they began. The yield on the Bond Buyer 40-Bond Index, a
standard index of the long-term municipal bond market, stood at 6.10% on May
31, 1995, and ended at 6.09% on May 31, 1996. It was far from static, though.
It fell reaching a low of 5.47% on February 13, 1996. It then rose to the
fiscal year-end level. Early in the year we invested in long-term relatively
volatile bonds. When interest rates turned up in earnest, we began selling the
most volatile bonds and retained less volatile bonds. This also lowered the
Fund's exposure to long-term tax-exempt bonds. The bonds in the Fund
now have relatively high payouts. We continue to concentrate on producing high
levels of tax-exempt income while investing exclusively in investment-grade
bonds.
Note: Income may be subject to federal, state or local taxes, or to the
alternative minimum tax.
(1) Variable rate demand notes are representing borrowings that are payable
on demand and that bear interest tied to a money market rate.
Basic Value Securities
The U.S. stock market continues to do well since your last semiannual report
of November 30, 1995, despite threats of higher interest rates and a heating
up of the economy with lower unemployment numbers. Interest rates have moved
up producing a negative bond market, but the stock market seems to be holding up
due to good earnings reports and a low inflation rate. Your fund is invested
47.9% in the basic value sector.
We currently hold 35 issues versus 41 at the time of the semiannual report.
Ten issues have been eliminated, and four new names have been added: Chrysler
(Autos), SBC Communications and Sprint (Telephones), and Union Camp (Paper).
In addition, we added to Occidental Petroleum, Halliburton, and J.C. Penney.
Large profits were taken in stocks we felt were over valued such as EG&G and
Rockwell International (Aerospace/Defense), Olin Corp. (Chemicals), Aetna
(Insurance), and Chevron (Oil). Other stocks were sold because they didn't
work out or were small positions. They were Arvin Industries (Auto Parts),
Ball Corp (Containers), Hartford Steam Boiler (Insurance), Pennzoil (Oil), and
American President (Transportation).
Exceptionally good performers during this period were Xerox (Office
Equipment), Texaco, Amerada Hess, Occidental (Oil), Boeing, B.F. Goodrich
(Aerospace/Defense), Bankers Trust (Banking), Monsanto and Dow Chemical
(Chemicals), Pharmacia & Upjohn (Drugs), American Home Products (Healthcare),
Deere (Machinery), Halliburton (Oil-Well Equipment), and Philip Morris
(Tobacco). A few stocks that underperformed were Allstate Corp. (Insurance),
James River (Paper), GTE and NYNEX (Telephones).
Your fund was actively managed. We did some consolidation, as mentioned above;
however, you are diversified in 21 industries. We do not see overall inflation
getting out of control even though wages continue under pressure while
companies are still restructuring. We remain overweighted in Chemicals,
Telephones, and Aerospace/Defense.
See page 12 for a complete listing of the Portfolio of Investments in
Securities.
_________________________________________________________________
Tax Exempt Securities
Top 5 Holdings
(% of Net Assets)
_________________________________________________________________
Nueces River Auth. PCRB, Series 1985 (CRE) 4.5%
New York State Medical Care Facilities Series 1995A 3.8%
Rhode Island Housing and Mortgage Series 15-A 3.4%
Illinois Health Facilities Auth. RB, Series 1996 3.3%
Wisconsin Housing and Economic Dev. Auth. RB, Series 1992A 3.2%
___________________________________________________________________
_______________________________
Basic Value Stocks
Top 5 Holdings
(% of Net Assets)
_______________________________
SBC Communications 2.3%
J.C. Penney 2.3%
Minnesota Mining &
Manufacturing 2.1%
Boeing 2.1%
Halliburton 2.1%
_______________________________
_______________________________
Top 10 Industries
(% of Net Assets)
_______________________________
Hospitals 21.9%
Housing - Single/Family 10.6%
Housing - Multi/Family 7.1%
Telephones 6.0%
Aluminum 4.5%
Tobacco 4.3%
Aerospace/Defense 4.1%
Chemicals 3.9%
Machinery - Diversified 3.6%
Electric Power 3.3%
________________________________
Distributions to Shareholders
USAA Growth and Tax Strategy Fund completed its fiscal year on
May 31, 1996. As required by Federal Law (Internal Revenue Code of 1986, as
amended, and the Regulations thereunder), the following sets forth per share
data concerning the portions of the dividend distributions which represent
domestic dividend income qualifying for the dividends received deduction,
short-term capital gains, and long-term capital gains for the year ended May
31, 1996.
The per share data on this schedule reflects distributions related to earnings
for the fiscal year ended May 31, 1996, including any distributions subsequent
to year end which relate to those earnings. Therefore, the per share data on
this table may not agree with other disclosures concerning distributions which
occurred during the fiscal year.
For the year ended May 31, 1996, the Fund qualified, pursuant to Section
852(b)(5) of the Code, to pay exempt dividends to its shareholders.
Dividend income - domestic (qualifying) $ .1559
Interest income - nontaxable .3389
Interest income - taxable .0133
Short-term capital gain (treated as ordinary income) .0189
Long-term capital gain .3330
---------
TOTAL DISTRIBUTIONS $ .8600
=========
Independent Auditors' Report
The Shareholders and the Board of Trustees
USAA INVESTMENT TRUST:
We have audited the accompanying statement of assets and liabilities and
portfolio of investments in securities of the Growth and Tax Strategy Fund of
USAA Investment Trust as of May 31, 1996, 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
information presented in note 6 to the financial statements for each of the
periods in the five-year period then ended. These financial statements and
the financial highlights information are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights information 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 May 31, 1996, 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 the financial highlights
information referred to above present fairly, in all material respects, the
financial position of the Growth and Tax Strategy Fund of USAA Investment Trust
as of May 31, 1996, 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 information for each of the periods in the
five-year period then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 10, 1996
Growth and Tax Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1996
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $137,133) $ 159,182
Cash 75
Receivables:
Capital shares sold 123
Dividends and interest 1,330
---------
Total assets 160,710
---------
Liabilities
Capital shares redeemed 156
USAA Investment Management Company 68
USAA Transfer Agency Company 20
Accounts payable and accrued expenses 76
-----------
Total liabilities 320
-----------
Net assets applicable to capital shares outstanding $ 160,390
===========
Represented By:
Paid-in capital $ 133,414
Accumulated undistributed net investment income 1,091
Accumulated net realized gain on investments 3,836
Net unrealized appreciation of investments 22,049
------------
Net assets applicable to capital shares outstanding $ 160,390
============
Capital shares outstanding, unlimited number of shares authorized,
no par value 11,363
============
Net asset value, redemption price, and offering price per share $ 14.11
============
See accompanying notes to financial statements.
</TABLE>
Growth and Tax Strategy Fund
Portfolio of Investments in Securities
May 31, 1996
Market
Number Value
of Shares Security (000)
--------- ---------------- -------
Basic Value Stocks (47.9%)
Aerospace/Defense (4.1%)
80,000 B.F. Goodrich Co. $ 3,170
40,000 Boeing Co. 3,410
---------
6,580
---------
Automobiles (0.8%)
20,000 Chrysler Corp. 1,333
--------
Bank Holding Companies - Money Center (0.9%)
18,000 Bankers Trust New York Corp. 1,352
---------
Chemicals (3.9%)
27,000 Dow Chemical Co. 2,258
16,000 Monsanto Co. 2,430
37,000 Union Carbide Corp. 1,595
----------
6,283
----------
Distribution & Pipelines (0.6%)
36,000 NICOR, Inc. 999
----------
Drugs (0.7%)
26,100 Pharmacia & Upjohn, Inc. 1,067
----------
Electric Power (0.8%)
60,000 Houston Industries, Inc. 1,313
----------
Healthcare - Diversified (2.7%)
40,000 American Home Products Corp. 2,140
25,000 Bristol-Myers Squibb Co. 2,134
-----------
4,274
----------
Insurance - Property/Casualty (1.3%)
50,000 Allstate Corp. 2,113
----------
Machinery - Diversified (3.6%)
40,000 Caterpillar, Inc. 2,625
75,000 Deere & Co. 3,122
---------
5,747
---------
Manufacturing - Diversified Industries (2.1%)
50,000 Minnesota Mining & Manufacturing Co. 3,412
---------
Office Equipment & Supplies (1.6%)
16,000 Xerox Corp. 2,518
---------
Oil - Domestic (2.3%)
20,000 Amerada Hess Corp. 1,140
97,000 Occidental Petroleum Corp. 2,510
--------
3,650
--------
Oil - International (2.5%)
20,000 Mobil Corp. 2,257
20,000 Texaco, Inc. 1,675
--------
3,932
--------
Oil Well Equipment & Service (2.1%)
60,000 Halliburton Co. 3,338
--------
Paper & Forest Products (3.1%)
75,000 James River Corp. 1,866
60,000 Union Camp Corp. 3,157
-------
5,023
-------
Publishing (1.0%)
25,000 Dun & Bradstreet Corp. 1,597
-------
Railroads (1.2%)
23,000 Norfolk Southern Corp. 1,984
-------
Retail - General Merchandising (2.3%)
70,000 J .C. Penney Company, Inc. 3,631
-------
Telephones (6.0%)
50,000 GTE Corp. 2,137
44,000 NYNEX Corp. 2,030
75,000 SBC Communications Corp. 3,703
43,000 Sprint Corp. 1,822
-------
9,692
-------
Tobacco (4.3%)
43,000 American Brands, Inc. 1,881
19,000 Philip Morris Companies, Inc. 1,888
50,000 RJR Nabisco Holdings Corp. 1,656
60,000 Universal Corp. 1,523
-------
6,948
-------
Total basic value stocks (cost: $55,585) 76,786
-------
<TABLE>
<CAPTION>
Principal
Amount Coupon
(000) Security Rate Maturity
-------- -------- -------- ---------
Tax Exempt Securities (51.3%)
Short-Term Tax Exempt Securities (20.3%)
<C> <S> <C> <C> <C>
California (3.1%)
$ 5,000 Santa Rosa Housing Auth. MFH RB,
Series 1995E (CRE) 4.88% 9/01/07(b) 5,005
Florida (5.4%)
3,800 Dade County Health Facilities Auth. RB,
Series 1990 (CRE) 3.80 9/01/20(a) 3,800
4,700 Jacksonville Health Facilities Auth. RB,
Series 1990 (CRE) 3.75 6/01/20(a) 4,700
240 Orange County Health Facilities Auth. RB,
Series 1995 4.75 7/01/97 239
Michigan (2.4%)
3,655 Hospital Finance Auth. RB, Series 1993A 4.75 5/15/97 3,658
200 Midland County Economic Development Corp.
RB, Series 1993B 3.60 12/01/15(a) 200
North Carolina (0.5%)
900 Medical Care Commission Hospital RB,
Series 1991A (CRE) 3.75 10/01/20(a) 900
North Dakota (2.5%)
4,000 Oliver County PCRB, Series 1995B 4.50 9/01/07(b) 4,004
Oklahoma (1.1%)
790 Valley View Hospital Auth. RB, Series 1996 5.00 8/15/96 792
940 Valley View Hospital Auth. RB, Series 1996 5.00 8/15/97 938
Texas (4.5%)
7,200 Nueces River Auth. PCRB, Series 1985 (CRE) 3.80 12/01/99(a) 7,200
Wisconsin (0.8%)
1,250 Housing and Economic Development Auth. RB,
Series 1992A 5.20 11/01/96 1,253
--------
Total short-term tax exempt securities (cost: $32,684) 32,689
--------
Long-Term Tax Exempt Securities (31.0%)
Florida (1.7%)
1,200 Duval County Housing Finance Auth. MFH RB,
Series 1995 (CRE) 6.75 4/01/25(b) 1,221
1,600 North Miami Educational Facilities RB,
Series 1994A 6.13 4/01/20 1,548
Illinois (3.3%)
5,500 Health Facilities Auth. RB, Series 1996 6.38 1/01/15 5,317
Indiana (4.6%)
4,965 Fifth Avenue Housing Development Corp. MFH
RB, Series 1993A 7.25 7/01/25 5,152
2,500 LaPorte County Hospital Auth. RB 6.00 3/01/23 2,191
Maine (3.2%)
5,000 Housing Auth. SFH RB, Series 1994C-1 6.50 11/15/11 5,140
New York (4.4%)
6,000 Medical Care Facilities Finance Agency RB,
Series 1995A 6.85 2/15/17 6,104
1,000 New York City Capital Improvement Bond
34th Street Partnership, Series 1993 5.50 1/01/14 925
Pennsylvania (4.5%)
2,500 Monroeville Hospital Auth. RB, Series 1995 6.25 10/01/15 2,389
4,785 Philadelphia Gas Works RB, 14th Series 6.38 7/01/26 4,803
Rhode Island (3.4%)
5,200 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/24 5,437
Texas (2.7%)
4,260 Harris County Health Facilities RB,
Series 1994 A 6.63 6/01/24 4,323
Wisconsin (3.2%)
4,940 Housing and Economic Development Auth. SFH
RB, Series 1992 A 7.10 3/01/23 5,157
Total long-term tax exempt securities -------
(cost: $48,864) 49,707
-------
Total tax exempt securities (cost: $81,548) 82,396
-------
Total investments (cost: $137,133) $ 159,182
--------
</TABLE>
Growth and Tax Strategy Fund
Notes to Portfolio of Investments in Securities
May 31, 1996
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.
PORTFOLIO DESCRIPTION ABBREVIATIONS
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
SFH Single-Family Housing
CRE - CREDIT ENHANCEMENT - adds the financial strength of the provider to
support the underlying obligor's debt service obligations and/or the put
option. The enhancement may be provided by either a high quality bank,
insurance company or other corporation, or a collateral trust. Typically, the
rating agencies evaluate the security based upon the credit standing of the
credit enhancement.
Specific Notes
(a) VARIABLE RATE DEMAND NOTE (VRDN) - provides the right, on any business
day, to demand, or put, the security for redemption at face value on either
that day or in seven days. The interest rate is adjusted at the stipulated
daily, weekly, or monthly interval to a rate that reflects current market
conditions. The effective maturity is the next put date. Most VRDNs possess
a credit enhancement.
(b) PUT BOND - provides the right to tender, or put, the bond for redemption
at face value at specific tender dates prior to final maturity. The put
feature shortens the effective maturity to the next tender date. Between
tender dates, the price of a put bond generally varies inversely to the
movement of interest rates.
See accompanying notes to financial statements.
Growth and Tax Strategy Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1996
Net investment income:
Income:
Dividends $ 2,238
Interest 4,478
----------
Total income 6,716
----------
Expenses:
Management fees 729
Transfer agent's fees 250
Custodian's fees 72
Postage 31
Shareholder reporting fees 22
Trustees' fees 3
Registration fees 32
Audit fees 28
Legal fees 8
Other 18
----------
Total expenses 1,193
----------
Net investment income 5,523
---------
Net realized and unrealized gain on investments:
Net realized gain on investments 4,268
Change in net unrealized appreciation/depreciation of investments 9,985
-----
Net realized and unrealized gain 14,253
----------
Increase in net assets resulting from operations $ 19,776
=========
See accompanying notes to financial statements.
Growth and Tax Strategy Fund
Statements of Changes in Net Assets
(In Thousands)
Years ended May 31,
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
From operations:
Net investment income $5,523 $ 5,193
Net realized gain on investments 4,268 358
Change in net unrealized appreciation/depreciation of investments 9,985 7,560
------- -------
Increase in net assets resulting from operations 19,776 13,111
-------- --------
Distributions to shareholders from:
Net investment income (5,439) (5,050)
-------- --------
Net realized gains (350) (2,862)
------- --------
From capital share transactions:
Shares sold 28,971 17,723
Shares issued for dividends reinvested 5,210 7,168
Shares redeemed (22,316) (23,629)
--------- ---------
Increase in net assets from capital share transactions 11,865 1,262
--------- ----------
Net increase in net assets 25,852 6,461
Net assets:
Beginning of period 134,538 128,077
--------- ---------
End of period $ 160,390 $ 134,538
========= =========
Undistributed net investment income included in net assets:
Beginning of period $ 1,007 $ 864
========== =========
End of period $ 1,091 $ 1,007
========== ========
Change in shares outstanding:
Shares sold 2,140 1,449
Shares issued for dividends reinvested 391 599
Shares redeemed (1,665) (1,945)
--------- ---------
Increase in shares outstanding 866 103
========= =========
See accompanying notes to financial statements.
</TABLE>
Growth and Tax Strategy Fund
Notes to Financial Statements
(In Thousands)
May 31, 1996
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, is a diversified, open-end management investment company organized as
a Massachusetts business trust consisting of eleven separate funds. The
information presented in this annual report pertains only to the Growth and Tax
Strategy Fund (the Fund). The Fund's investment objective is to seek a
conservative balance between income, the majority of which is exempt from
federal income tax, and the potential for long-term growth of capital to
preserve purchasing power. On July 12, 1995, the Board of Trustees approved
changing the name of the Fund from the Balanced Portfolio Fund to the Growth
and Tax Strategy Fund.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Other debt and government securities are valued each business day by a
pricing service (the Service) approved by the Fund's Board of Trustees. The
Service uses the mean between quoted bid and asked prices or the last sale
price to price securities when, in the Service's judgement, these prices are
readily available and are representative of the securities' market values. For
many securities, such prices are not readily available. The Service generally
prices these securities based on methods which include consideration of yields
or prices of securities of comparable quality, coupon, maturity and type,
indications as to values from dealers in securities, and general market
conditions.
5. Securities which 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 Trustees.
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 - As is common in the industry, 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, if any, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Discounts
and premiums on short-term taxable securities, original issue discounts on all
securities, and premiums on long-term tax exempt securities are amortized over
the life of the respective securities. Amortization of market discounts on
long-term securities is recognized as interest income upon disposition of the
security to the extent there is a gain on disposition.
D. Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) Lines of Credit
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation, an affiliate of the Manager ($750 million uncommitted),
and one with an unaffiliated bank ($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 these agreements, the Fund may borrow up to a
maximum of 25% of its total assets at the lending institution's borrowing rate
plus a markup. During the year ended May 31, 1996, the Fund had no borrowings
under either of these agreements.
(3) Distributions
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
in the succeeding fiscal year. A distribution of net investment income of $.13
per share, declared and paid in June 1996, and a short-term capital gain of
$.0189 per share and a long-term capital gain of $.3330 per share, declared
and paid in July 1996, are not reflected in the accompanying financial
statements.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the year ended May 31, 1996 were $291,352 and $277,355, respectively.
Gross unrealized appreciation and depreciation of investments as of May 31,
1996 was $22,296 and $247, respectively.
(5) Transactions with Manager
A. Management fees - The investment policies of the Fund and management of
the Fund's portfolio are carried out by USAA Investment Management Company
(the Manager). The Fund's management fees are computed at .50% 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. Shareholder accounting service fees are based on
an annual charge per shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Trust has an agreement with the Manager for
exclusive underwriting and distribution of the Fund's shares on a continuing
best efforts basis. This agreement provides that the Manager will receive no
fee or other remuneration for such services.
<TABLE>
(6) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Eight-month
Year Ended Period Ended Year Ended
May 31, May 31, September 30,
1996 1995 1994 1993 1992
---- ---- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 12.82 $ 12.32 $ 13.00 $ 12.00 $ 11.51
Net investment income .51 .49 .29 .46 .48
Net realized and
unrealized gain (loss) 1.32 .76 (.27) 1.01 .50
Distributions from net
investment income (.51) (.48) (.33) (.46) (.49)
Distributions of realized
capital gains (.03) (.27) (.37) (.01) -
-------- ------- -------- --------- ---------
Net asset value at
end of period $ 14.11 $ 12.82 $ 12.32 $ 13.00 $ 12.00
======== ========= ======== ======== ========
Total return (%) * 14.61 10.73 .13 12.57 8.74
Net assets at end of
period (000) $160,390 $134,538 $128,077 $118,532 $ 82,840
Ratio of expenses to
average net assets (%) .82 .80 .84(a) .86 .92
Ratio of net investment
income to average net
assets (%) 3.79 4.02 3.56(a) 3.81 4.31
Portfolio turnover (%) 202.55(b)(c) 265.52(b)(c) 171.35(b) 98.83 106.83
Average commission
rate paid per share $0.0505
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(b) The Fund may simultaneously purchase and sell the same securities. These
transactions can be high in volume and dissimilar to other trade activity
within the Fund. If these transactions were excluded from the calculation,
the portfolio turnover rate would be as follows:
</TABLE>
<TABLE>
<CAPTION>
Eight-month
Year Ended Period Ended
May 31, May 31,
1996 1995 1994
---- ----- ----
<S> <C> <C> <C>
Portfolio turnover (%) 61.98(c) 131.28(c) 93.56
Purchases and sales of this type are as follows:
Purchases (000) $192,239 $234,367 $98,639
Sales (000) $192,490 $234,669 $98,761
(c) Effective for 1995 and 1996, portfolio turnover rates have been
calculated excluding short-term variable rate securities, which are those with
put date intervals of less than one year.
</TABLE>
