Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Shareholder Voting Results 8
Financial Information:
Statement of Assets and Liabilities 9
Portfolio of Investments in Securities 10
Notes to Portfolio of Investments in Securities 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 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.
c1995, USAA. All rights reserved.
<TABLE>
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 32 funds by investment objective as of December 31,
1995. 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.
Average Annual Total Return*
<CAPTION> 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 50.42 20.44 12.02 - - -
Emerging Markets(2) 11/7/94 3.65 - - (4.26) - -
Gold(2) 8/15/84 4.04 5.60 5.46 - - -
Growth 4/5/71 32.06 15.56 12.47 - - -
Growth & Income 6/1/93 31.57 - - 13.74 - -
International(2) 7/11/88 8.29 11.98 - 9.51 - -
World Growth(2) 10/1/92 12.85 - - 12.06 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - 3.24 - -
Cornerstone Strategy(2)# 8/15/84 18.40 12.37 12.68 - - -
Growth and Tax Strategy(3)**# 1/11/89 22.70 10.33 - 9.81 - 3.61
Growth Strategy(2) 9/1/95 - - - 6.50 - -
Income Strategy 9/1/95 - - - 9.94 - 4.47
Income - Taxable
GNMA 2/1/91 16.76 - - 8.64 - 6.64
Income 3/4/74 24.47 10.91 10.43 - - 6.25
Income Stock 5/4/87 28.62 14.35 - 12.12 - -
Short-Term Bond 6/1/93 11.18 - - 5.33 - 6.43
Income - Tax Exempt
Long-Term(3)** 3/19/82 18.58 8.44 8.62 - - 5.40
Intermediate-Term(3)** 3/19/82 15.07 8.22 7.95 - - 4.93
Short-Term(3)** 3/19/82 8.11 5.59 5.87 - - 4.36
California Bond(3)** 8/1/89 21.85 8.39 - 8.01 - 5.23
Florida Tax-Free Income(3)** 10/1/93 18.90 - - 3.39 - 5.35
New York Bond(3)** 10/15/90 18.07 8.60 - 9.25 - 5.31
Texas Tax-Free Income(3)** 8/1/94 22.22 - - 12.43 - 5.18
Virginia Bond(3)** 10/15/90 17.08 8.42 - 8.79 - 5.22
Money Market
Money Market(4) 2/2/81 5.80 4.54 5.97 - 5.48 -
Tax Exempt Money Market(3),(4)** 2/6/84 3.70 3.32 4.36 - 4.33 -
Treasury Money Market Trust(4) 2/1/91 5.59 - - 4.17 5.26 -
California Money Market(3),(4)** 8/1/89 3.64 3.15 - 3.70 4.14 -
Florida Tax-Free Money
Market(3),(4)** 10/1/93 3.57 - - 2.90 4.28 -
New York Money Market(3),(4)** 10/15/90 3.59 2.98 - 3.04 4.27 -
Texas Tax-Free Money Market(3),(4)** 8/1/94 3.56 - - 3.36 4.08 -
Virginia Money Market(3),(4)** 10/15/90 3.52 3.13 - 3.21 4.07 -
(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.
* 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 represents past performance and is 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, New York, Virginia,
Florida, and Texas funds available to residents only.
# Formerly known as Cornerstone Fund and Balanced Portfolio Fund,
respectively.
</TABLE>
Message From the President
[Photoghraph of Michael J.C. Roth, CFA, President and Vice
Chairman of the Board appears here]
Even though the new USAA Asset Strategy Funds have only been in
existence since September 1, 1995, our shareholders have invested
over $27 million in them.(1) Given that these funds are not the
embodiment of some exciting investment story, but rather of a
fundamental method of matching risk and potential reward, it certainly
appears that we have tapped into an area of need and interest for our
customers.
These funds are an embodiment of things we believe
about money management:
Your quest for reward must be within your tolerance
for risk
The events of risk will come as surprises
Therefore, your asset allocation is your main "defense"
against and "definition" of risk
With the Asset Strategy Funds, we take care of the asset allocation.
Let me stress here that I realize not everyone agrees with this philosophy,
and that fact truly does not bother me. Such disagreement is necessary if
the stock market is to have the great liquidity that all investors enjoy.
For those of you who are active traders, we have an excellent brokerage
service offering one of the finest Asset Management Accounts available.
In addition, our family of mutual funds covers a very wide spectrum.
Your options for access to our funds and Brokerage Service will soon be
expanded significantly, both by personal computer and telephone.
And for those of you who are comfortable with our philosophy, the Asset
Strategy Funds will prove a great long-term investment vehicle.
"... your asset allocation is your main "defense" against and "definition"
of risk."
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
(1)The Cornerstone Strategy and Growth and Tax Strategy Funds were
formerly known as the Cornerstone Fund (Inception 8/15/84) and the Balanced
Portfolio Fund (Inception 1/11/89), respectively. These two funds make up
approximately $6.4 million of the investments made by shareholders in the
Asset Strategy Funds.
For more complete information about any mutual fund managed by USAA
Investment Management Company, including charges and expenses, please call
for a prospectus. Please read the prospectus carefully before you invest or
send money.
USAA Brokerage Services is a discount brokerage service of USAA
Investment Management Company, a member of the NASD and SIPC.
Investment Review
Growth and Tax Strategy Fund (formerly known as the Balanced Portfolio
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 11/30/95
Net Assets $134.5 Million $145.5 Million
Net Asset Value Per Share $12.82 $13.55
Average Annual Total Returns as of 11/30/95
May 31, 1995 to November 30, 1995 8.03%*
1 Year 21.07%
5 Years 10.23%
Since inception on January 11, 1989 9.59%
* Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
[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 11/30/95, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: USAA Growth and Tax Strategy Fund - $18,852 and the Lehman Brothers
Muni. Bond Index - $17,850.]
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
represents past performance and is 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
[A photo of Clifford Gladson (Tax-Exempt Short-Term), Jack Saunders
(Allocation Manager), Harry Miller (Basic Value Stocks), Ken Willmann
(Tax-Exempt Long-Term), portfolio managers appears here.]
Fund Overview
The Growth and Tax Strategy Fund is classified as a balanced fund; however,
it is not cast in the traditional mold. Most balanced funds are 60% common
stocks and 40% bonds. In this fund, we have switched the emphasis to 60%
bonds and 40% stocks. For additional appeal to conservative tax-conscious
investors, we use tax-exempt bonds. The Fund was unique when started in
1989. We know of only one other balanced fund which now uses tax-exempt
bonds.
Earlier this year, we broadened the prescribed ranges for bonds to 20-40%
in each of the categories, short-term and long-term, to provide more
flexibility. In this reporting period, we have utilized that flexibility to
increase the long-term sector, reduce the short-term sector, and increase
the common stocks. This strategy was utilized to take advantage of the
strong bond and stock markets. We have seen the stock market move to new
record highs, and the bond market has moved to new highs (interest rate
lows) for 1995 as well.
The current portfolio mix as of November 30, 1995 was 13.9% short-term tax
exempt, 41.9% long-term tax exempt and 48.1% basic value stocks. The
portfolio will be rebalanced within the prescribed ranges during the next
quarter.
Short-Term Tax-Exempt Securities
Over the last six months, we have coordinated an orderly reduction in the
short-term segment of the portfolio from 25.3% of total assets on May 31,
1995 to 13.9% by November 30, 1995. First, we liquidated variable rate
demand notes (VRDNs)1 _ both to exploit the rise in short-term interest
rates and to stabilize the portfolio. Then, as short-term bonds matured,
the proceeds were placed in money market instruments that could quickly be
converted to cash. These actions have extended the weighted average
maturity of the short-term portfolio from 66 days on May 31, 1995 to 340
days on November 30, 1995.
[A pie chart is shown here depicting the Asset Allocation as of
November 30, 1995 of the USAA Growth and Tax Strategy Fund to be: Basic
Value Stocks - 48.1%, Tax-Exempt Short-Term 13.9%, and Tax-Exempt Long-
Term - 41.9%]
Long-Term Tax-Exempt Securities
The bull market which began in November 1994 continued throughout this
reporting period. Interest rates on long-term tax-exempt securities (as
measured by the yield on the Bond Buyer 40-Bond Index) declined to 5.74%
from 6.10% during the reporting period of May 31, 1995 to November 30,
1995. We retained a long average maturity of about 25 years during this
period. Prices on the bonds in the portfolio rose in response to falling
rates, while income remained relatively stable. We continue to invest
exclusively in investment-grade bonds while maximizing tax-exempt income.
Basic Value Securities
This has been a surprisingly good year for the U.S. stock market, and this
category has benefited accordingly since our last report on May 31, 1995.
The increase in profitability during 1995 has been very good for U. S.
companies, although it appears to be slowing down. Also, we have benefited
from low inflation and lower interest rates. All of these factors have
resulted in strong performance.
Industries and the companies whose stock we own which were particularly
strong during the reporting period were Aerospace/Defense (B.F. Goodrich and
Boeing), Healthcare (American Home Products and Bristol-Myers Squibb),
Insurance (Aetna), Telephone (GTE and NYNEX) and Chemicals (Monsanto and
Union Carbide). Holdings in retailing (K-Mart* and J. C. Penney) were
disappointing. However, Sears, Roebuck* did very well with its spin-off of
Allstate.
*Sold prior to end of reporting period.
1 Variable rate demand note (VRDN): A note representing borrowings that is
payable on demand and that bears interest tied to a money market rate.
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
Tax-Exempt Securities
Top 5 Holdings
(% of Net Assets)
New York State Medical Care Facilities Ser 95A 4.4
Puerto Rico Electric Power Ser Z 4.3
Rhode Island Housing and Mortgage Ser 15-A 3.8
Washington Motor Fuel Tax Ser B 3.7
Maine State Housing Authority Ser 94 C-1 3.7
Top 10 Industries
(% of Net Assets)
Hospitals 15.2
Housing - Single/Family 11.9
Housing - Multi/family 10.1
Electric Power 8.0
Aerospace/Defense 6.5
Telephones 5.0
Chemicals 4.9
Tobacco 4.4
General Obligations 3.9
Machinery - Diversified 3.4
Basic Value Stocks
Top 5 Holdings
(% of Net Assets)
Boeing 2.5
Minnesota Mining & Mfg 2.3
B.F. Goodrich 1.9
Deere & Co. 1.7
Caterpillar 1.7
Shareholder Voting Results
On October 13, 1995, 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 17, 1995 were entitled to vote on each
proposal. The number of votes shown below are shown for the Growth and Tax
Strategy Trust only for proposal (2) and in the aggregate for the entire
USAA Investment Trust (the Trust) for proposals (1) and (3).
(1) Proposal to elect a Board of Trustees as follows:
Votes Votes
Trustee For Withheld
-------- ----- ----------
Hansford T. Johnson* 112,569,933 2,138,930
Michael J.C. Roth 111,522,559 3,186,304
John W. Saunders, Jr. 112,598,635 2,110,228
George E. Brown 111,259,788 3,449,075
Howard L. Freeman, Jr. 112,481,010 2,227,853
Richard A. Zucker 112,225,587 2,483,276
Barbara B. Dreeben 111,409,531 3,299,332
Mr. C. Dale Briscoe did not stand for re-election to the Board. His term of
office terminated on December 31, 1995.
* On December 4, 1995, Hansford T. Johnson announced his departure from the
Board effective December 31, 1995. The Board elected M. Staser Holcomb to
succeed Mr. Johnson.
(2) Proposals to amend certain investment restrictions as follows:
<TABLE>
<CAPTION>
Number of Shares Voting
For Against Abstain
----- -------- --------
<S> <C> <C> <C>
Proposal to amend the 5% and 10% issuer 6,072,638 367,960 203,513
diversification restrictions to apply to 75%
of a Fund's total assets rather than 100%.
Proposal to amend the restriction relating 5,861,645 541,900 240,567
to borrowing to allow a Fund to borrow an
amount not exceeding 33 1/3% of its total
assets (including the amount borrowed)
less liabilities (other than borrowings) for
temporary or emergency purposes.
Proposal to amend the restriction relating 5,855,838 538,345 249,929
to lending portfolio securities to permit a
Fund to lend up to 1/3 of its total assets to
other parties.
(3) Proposal to ratify or reject the selection 107,284,373 2,323,184 5,101,298
by the Board of Trustees of KPMG Peat
Marwick LLP as auditors for the Trust for
the fiscal year ending May 31, 1996.
</TABLE>
<TABLE>
<CAPTION>
Growth and Tax Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
November 30, 1995
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value (identified cost of $131,886) $151,118
Cash 81
Receivables:
Capital shares sold 27
Dividends and interest 1,365
Securities sold 5,790
---------
Total assets 158,381
----------
Liabilities
Securities purchased 12,727
Capital shares redeemed 43
USAA Investment Management Company 58
USAA Transfer Agency Company 21
Accounts payable and accrued expenses 49
---------
Total liabilities 12,898
---------
Net assets applicable to capital shares outstanding $145,483
=========
Represented By:
Paid-in capital $124,735
Accumulated undistributed net investment income 1,104
Accumulated net realized gain on investments 412
Net unrealized appreciation of investments 19,232
---------
Net assets applicable to capital shares outstanding $145,483
=========
Capital shares outstanding, unlimited number of shares authorized,
no par value 10,737
=========
Net asset value, redemption price, and offering price per share $ 13.55
=========
See accompanying notes to financial statements.
</TABLE>
Growth and Tax Strategy Fund
Portfolio of Investments in Securities
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
Basic Value Stocks (48.1%)
Aerospace/Defense (6.5%)
40,000 B.F. Goodrich Co. $2,805
50,000 Boeing Co. 3,644
80,000 EG & G, Inc. 1,540
31,000 Rockwell International Corp. 1,519
-------
9,508
-------
Auto Parts (0.4%)
33,500 Arvin Industries, Inc. 590
-------
Bank Holding Companies - Money Center (0.8%)
18,000 Bankers Trust New York Corp. 1,168
--------
Chemicals (4.9%)
27,000 Dow Chemical Co. 1,914
21,000 Monsanto Co. 2,404
18,000 Olin Corp. 1,368
37,000 Union Carbide Corp. 1,466
-------
7,152
-------
Containers - Metals & Glass (0.8%)
40,000 Ball Corp. 1,145
-------
Distribution & Pipelines (0.6%)
36,000 NICOR, Inc. 914
-------
Drugs (0.6%)
26,100 Pharmacia & Upjohn, Inc. 936
--------
Electric Power (0.9%)
30,000 Houston Industries, Inc. 1,373
--------
Healthcare - Diversified (2.6%)
20,000 American Home Products Corp. 1,825
25,000 Bristol-Myers Squibb Co. 2,006
-------
3,831
-------
Insurance - Multi-Line Companies (1.0%)
19,000 Aetna Life & Casualty Co. 1,394
-------
Insurance - Property/Casualty (2.0%)
50,000 Allstate Corp. 2,050
19,000 Hartford Steam Boiler Inspection & Insurance Co. 876
-------
2,926
--------
Machinery - Diversified (3.4%)
40,000 Caterpillar, Inc. 2,455
75,000 Deere & Co. 2,466
-------
4,921
-------
Manufacturing - Diversified Industries (2.3%)
50,000 Minnesota Mining & Manufacturing Co. 3,275
-------
Office Equipment & Supplies (1.5%)
16,000 Xerox Corp. 2,194
-------
Oil - Domestic (2.3%)
20,000 Amerada Hess Corp. 950
70,000 Occidental Petroleum Corp. 1,549
23,000 Pennzoil Co. 911
-------
3,410
--------
Oil - International (2.8%)
10,000 Chevron Corp. 494
20,000 Mobil Corp. 2,087
20,000 Texaco, Inc. 1,480
-------
4,061
-------
Oil Well Equipment & Service (1.5%)
50,000 Halliburton Co. 2,169
-------
Paper & Forest Products (1.4%)
65,000 James River Corp. 2,048
-------
Publishing (1.1%)
25,000 Dun & Bradstreet Corp. 1,559
-------
Railroads (1.3%)
23,000 Norfolk Southern Corp. 1,811
-------
Retail - General Merchandising (1.3%)
40,000 J.C. Penney Company, Inc. $ 1,875
----------
Telephones (3.0%)
50,000 GTE Corp. 2,131
44,000 NYNEX Corp. 2,184
----------
4,315
----------
Tobacco (4.4%)
43,000 American Brands, Inc. 1,795
20,000 Philip Morris Companies, Inc. 1,755
50,000 RJR Nabisco Holdings Corp. 1,456
60,000 Universal Corp. 1,425
----------
6,431
----------
Transportation - Miscellaneous (0.7%)
40,000 American President Companies, Ltd. 1,000
----------
Total basic value stocks (cost: $53,373) 70,006
----------
<TABLE>
<CAPTION>
Principal
Amount Coupon
(000) Rate Maturity
<C> <S> <C> <C> <C>
Tax Exempt Securities (55.8%)
Short-Term Tax Exempt Securities (13.9%)
Alaska (2.1%)
$3,000 Anchorage Telephone Utility RB,
Series 1994A (CRE) 3.10% 12/01/95 3,000
California (3.4%)
5,000 Santa Rosa Housing Auth. MFH RB,
Series 1995E (CRE) 4.88 9/01/07(b) 5,026
Florida (0.2%)
240 Orange County Health Facilities
Auth. RB, Series 1995 4.75 7/01/97 240
Michigan (2.5%)
3,655 Hospital Finance Auth. RB,
Series 1993A 4.75 5/15/97 3,677
North Dakota (2.8%)
4,000 Oliver County PCRB, Series 1995B 4.50 9/01/07(b) 4,019
Pennsylvania (0.8%)
1,200 Schuylkill County IDA RB,
Series 1985 (CRE) 4.00 11/01/09(a) 1,200
Texas (0.6%)
500 Lone Star Airport Improvement
Auth. RB, Series B-4 (CRE) 3.85 12/01/14(a) 500
400 Port Arthur Navigation District
IDC PCRB, Series 1985 (CRE) 4.00 5/01/03(a) 400
Virginia (0.6%)
900 Loudoun County IDA RB, Series
1985 (CRE) 4.00 9/01/15(a) 900
Wisconsin (0.9%)
1,250 Housing and Economic Development
Auth. RB, Series 1992A 5.20 11/01/96 1,259
---------
Total short-term tax exempt securities (cost: $20,151) 20,221
---------
Long-Term Tax Exempt Securities (41.9%)
Florida (3.0%)
4,255 Duval County MFH RB, Series
1995 (CRE) 6.75 4/01/25(b) 4,343
Indiana (5.2%)
4,985 Fifth Avenue Housing Development
Corp. MFH RB, Series 1993A 7.25 7/01/25 5,253
2,500 LaPorte County Hospital Auth. RB 6.00 3/01/23 2,282
Maine (3.7%)
5,000 Housing Auth. SFH RB, Series
1994C-1 6.50 11/15/11 5,316
New York (4.5%)
6,000 Medical Care Facilities Finance
Agency RB, Series 1995A 6.85 2/15/17 6,341
250 Urban Development Corp. RB,
Series 1995 5.70 4/01/20 249
Pennsylvania (5.1%)
2,500 Monroeville Hospital Auth. RB,
Series 1995 6.25 10/01/15 2,527
4,785 Philadelphia Gas Works RB,
Fourteenth Series 6.38 7/01/26 4,893
Puerto Rico (4.3%)
6,500 Electric Power Auth. RB, Series Z 5.25 7/01/21 6,184
Rhode Island (3.8%)
5,200 Housing and Mortgage Finance Corp.
SFH RB, Series 15-A 6.85 10/01/24 5,540
South Carolina (1.9%)
3,000 Marion County Hospital District RB,
Series 1995 5.38 11/01/25 2,812
Texas (3.1%)
4,260 Harris County Health Facilities RB,
Series 1994A 6.63 6/01/24 4,489
Washington (3.7%)
5,500 Motor Vehicle Fuel Tax GO,
Series B 5.50 6/01/20 5,420
Wisconsin (3.6%)
4,940 Housing and Economic Development
Auth. SFH RB, Series 1992A 7.10 3/01/23 5,242
---------
Total long-term tax exempt securities (cost:$58,362) 60,891
--------
Total tax exempt securities (cost: $78,513) 81,112
--------
Total investments (cost: $131,886) $151,118
==========
</TABLE>
Growth and Tax Strategy Fund
Notes to Portfolio of Investments in Securities
November 30, 1995
(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.
Portfolio Description Abbreviations
GO General Obligation
IDA Industrial Development Authority/Agency
IDC Industrial Development Corporation
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 NOTES (VRDN) - provide 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 BONDS - provide 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)
Six-month period ended November 30, 1995
(Unaudited)
Net investment income:
Income:
Dividends $ 1,137
Interest 2,130
-----------
Total income 3,267
-----------
Expenses:
Management fees 343
Transfer agent's fees 126
Custodian's fees 35
Postage 9
Shareholder reporting fees 4
Trustees' fees 1
Registration fees 18
Audit fees 14
Legal fees 5
Other 5
-----------
Total expenses 560
-----------
Net investment income 2,707
-----------
Net realized and unrealized gain on investments:
Net realized gain 844
Change in net unrealized appreciation/depreciation 7,168
-----------
Net realized and unrealized gain 8,012
-----------
Increase in net assets resulting from operations $ 10,719
===========
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Growth and Tax Strategy Fund
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended November 30, 1995
and Year ended May 31, 1995
(Unaudited)
<S> <C> <C>
11/30/95 5/31/95
From operations:
Net investment income $ 2,707 $ 5,193
Net realized gain on investments 844 358
Change in net unrealized appreciation/
depreciation of investments 7,168 7,560
----------- -----------
Increase in net assets resulting from operations 10,719 13,111
----------- ------------
Distributions to shareholders from:
Net investment income (2,610) (5,050)
----------- -------------
Net realized gains (350) (2,862)
----------- -------------
From capital share transactions:
Shares sold 12,333 17,723
Shares issued for dividends reinvested 2,656 7,168
Shares redeemed (11,803) (23,629)
------------ -------------
Increase in net assets from capital share transactions 3,186 1,262
Net increase in net assets 10,945 6,461
Net assets:
Beginning of period 134,538 128,077
------------ ------------
End of period $ 145,483 $ 134,538
============ ============
Undistributed net investment income included in net assets:
Beginning of period $ 1,007 $ 864
============ ============
End of period $ 1,104 $ 1,007
============ ============
Change in shares outstanding:
Shares sold 943 1,449
Shares issued for dividends reinvested 206 599
Shares redeemed (909) (1,945)
------------ ------------
Increase in shares outstanding 240 103
============ ============
See accompanying notes to financial statements.
</TABLE>
Growth and Tax Strategy Fund
Notes to Financial Statements
(In Thousands)
November 30, 1995
(Unaudited)
(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 semiannual 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 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.
(2) Line of Credit
The Fund participates with other USAA funds in a joint $150 million
short-term revolving loan agreement (the Agreement) through January 15,
1996, for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition
of securities. Subject to availability under this Agreement, the Fund may
borrow up to 5% of the market value of its assets at the time of the
borrowing. Borrowings under the Agreement bear interest at .125% over the
Federal Funds Rate as published by the Federal Reserve Bank of New York or
at .125% over the London Interbank Offered Rate. The Fund had no borrowings
under this Agreement during the six-month period ended November 30, 1995.
(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.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the six-month period ended November 30, 1995 were $172,561
and $146,590, respectively.
Gross unrealized appreciation and depreciation of investments as of
November 30, 1995 was $19,838 and $606, respectively.
(5) Transactions with Manager
A. Management fees - The investment policy of the Fund and the management
of the Fund's portfolio is 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.
(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 November 30, 1995, the Association and
its affiliates owned 14 shares (.1%) of the Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
Six-month Year Eight-month
Period ended ended Period ended
November 30, May 31, May 31, Year ended September 30,
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 12.82 $ 12.32 $ 13.00 $ 12.00 $11.51 $10.59
Net investment income .26 .49 .29 .46 .48 .53
Net realized and
unrealized gain (loss) .75 .76 (.27) 1.01 .50 .93
Distributions from net
investment income (.25) (.48) (.33) (.46) (.49) (.54)
Distributions of realized
capital gains (.03) (.27) (.37) (.01) _ _
------------ ----------- ---------- ----------- -------- ----------
Net asset value at
end of period $ 13.55 $ 12.82 $ 12.32 $ 13.00 $12.00 $ 11.51
============ =========== =========== =========== ========= ===========
Total return (%) * 8.03 10.73 .13 12.57 8.74 14.19
Net assets at
end of period (000) $ 145,483 $ 134,538 $128,077 $118,532 $ 82,840 $53,535
Ratio of expenses to
average net assets (%) .82(a) .80 .84(a) .86 .92 1.00
Ratio of net investment
income to average net
assets (%) 3.95(a) 4.02 3.56(a) 3.81 4.31 4.91
Portfolio turnover (%) 114.23(b)(c) 314.57(b) 171.35(b) 98.83 106.83 81.22
Average commission
rate paid per share .0515
</TABLE>
(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>
<CAPTION>
Six-month Eight-month
Period ended Year ended Period ended
November 30, May 31, May 31,
1995 1995 1994
<S> <C> <C> <C>
Portfolio turnover (%) 21.44 131.28 93.56
Purchases and sales
of this type are as follows:
Purchases (000) $118,914 $234,367 $98,639
Sales (000) $119,076 $234,669 $98,761
</TABLE>
(c) Effective November 30, 1995, portfolio turnover rates have been
calculated excluding short-term variable rate securities, which are those
with put date intervals of less than one year. Had these securities been
excluded for May 31, 1995, the portfolio turnover rate for the Fund would
have been 265.52%
