_________________________________________________________
TABLE OF CONTENTS
_________________________________________________________
USAA Family of Funds.................................1
Message from the President...........................2
Investment Review....................................4
Message from the Managers............................5
Financial Information:
Statement of Assets and Liabilities...............9
Portfolio of Investments in Securities...........10
Notes to Portfolio of Investments................40
Statement of Operations..........................41
Statements of Changes in Net Assets..............42
Notes to Financial Statements....................43
=========================================================
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 Growth
Strategy 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) 1997, 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 33
funds by investment objective as of December 31, 1996.
<CAPTION>
Average Annual Total Return*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
========================================================================================================
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 16.47 11.45 13.12 -
Emerging Markets(1) 11/7/94 16.59 - - 4.84
Gold(1) 8/15/84 0.00 6.57 .93 -
Growth 4/5/71 17.80 13.69 13.24 -
Growth & Income 6/1/93 23.04 - - 16.24
International(1) 7/11/88 19.15 13.09 - 10.60
S&P 500 Index(4) 5/1/96 - - - 16.83+
World Growth(1) 10/1/92 19.08 - - 13.66
Asset Allocation
Balanced Strategy 9/1/95 13.45 - - 12.49
Cornerstone Strategy(1) 8/15/84 17.87 12.69 10.70 -
Growth and Tax Strategy(2)** 1/11/89 11.12 9.64 - 9.97
Growth Strategy(1) 9/1/95 22.13 - - 21.47
Income Strategy 9/1/95 3.00 - - 9.72
Income - Taxable
GNMA 2/1/91 2.94 6.43 - 7.66
Income 3/4/74 1.33 7.33 9.25 -
Income Stock 5/4/87 18.70 12.76 - 12.78
Short-Term Bond 6/1/93 6.31 - - 5.60
Income - Tax Exempt
Long-Term(2)** 3/19/82 4.47 6.87 7.37 -
Intermediate-Term(2)** 3/19/82 4.49 6.89 7.09 -
Short-Term(2)** 3/19/82 4.44 4.94 5.45 -
California Bond(2)** 8/1/89 5.39 7.29 - 7.65
Florida Tax-Free Income(2)** 10/1/93 4.38 - - 3.69
New York Bond(2)** 10/15/90 3.73 6.61 - 8.35
Texas Tax-Free Income(2)** 8/1/94 5.25 - - 9.44
Virginia Bond(2)** 10/15/90 5.06 7.09
Money Market
Money Market(3) 2/2/81 5.24 4.37 5.84 -
Tax Exempt Money Market(2,3)** 2/6/84 3.34 3.04 4.21 -
Treasury Money Market Trust(3) 2/1/91 5.10 4.16 - 4.32
California Money Market(2,3)** 8/1/89 3.27 2.93 - 3.64
Florida Tax-Free Money Market(2,3)** 10/1/93 3.24 - - 3.01
New York Money Market(2,3)** 10/15/90 3.20 2.79 - 3.07
Texas Tax-Free Money Market(2,3)** 8/1/94 3.25 - - 3.32
Virginia Money Market(2,3)** 10/15/90 3.17 2.87 - 3.20
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
For more complete information about the mutual funds managed and dis-
tributed by USAA IMCO, including charges and expenses, please call
1-800-531-8181 for a prospectus. Read it carefully before you invest.
(1) Foreign investing is subject to additional risks, which are discussed
in the funds' prospectuses.
(2) Some income may be subject to state or local taxes or the federal alter-
native minimum tax.
(3) 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.
(4) 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.
+ Cumulative total return since inception.
MESSAGE FROM THE PRESIDENT
On January 29, 1995, my wife and I became grandparents. Karl Joseph Marbach
was born to Alexandra, my wife's daughter, and her husband Keith Marbach.
When my wife learned of the name Alexandra and Keith had chosen, she smiled.
She noted that my middle names are Joseph Carl, and she said, "I think this
kid's college education is secure."
-- May 31, 1995 Annual Report
In the May 31, 1995, annual report, my message centered on regular,
systematic investing, and I told you I was going to practice something
I had preached for many years. I introduced you to my grandson, Karl
Joseph, and told you I had set up an InveStart(Registered Trademark) account
for his college expenses. This is a progress report.
By the time you read this message, Karl Joseph will be 24 months old -- a good
time for an update. As you might expect me to say, Karl Joseph is a very bright
guy. He is one of the few people whom our wire-haired dachshund, Brunhilde,
will tolerate. We have found that Bruni is a discerning judge of people!
One of Karl's favorite things is watching me toss grapes and catch them in my
mouth. He loves stuffed animals, swimming, and his grandmother's cooking. I'm
very pleased to say that his progress is just as I expected.
I'm also pleased to let you know that his education fund is progressing well
too. I opened an InveStart account for Karl on June 2, 1995, in the Income Stock
Fund. The NAV then was $14.77, and at this writing it is well over $16.00. In
addition to my $100 initial investment, there have now been 17 electronic
transfers of $50 into the account. That totals $950, and an interesting thing
has happened. The account is worth much more than $950 because, in addition to
dividends and appreciation, it has attracted other money. This is a college
account and a great cause. Karl is surprisingly well on his way.
There is a lesson here. Funding a college education is a challenge, but starting
early with an account like this is an excellent step. It provides a place for a
few extra dollars that show up on special occasions.
"Secure" may be an exaggeration, but I did decide to practice one thing I have
preached for many years ... I opened an InveStart (Registered Trademark)
account for Karl Joseph.
-- May 31, 1995 Annual Report
We originally intended it for young USAA members as a good way to start
investing. We found, however, that many grandparents were using it as I just
did.
-- May 31, 1995 Annual Report
I do practice what I preach. Systematic investing makes sense, and InveStart has
an expanded lineup of available funds. I encourage you to look at your
investment as you study the information in this report, and if you are not
investing regularly, please consider if it may be appropriate for you.
If you have any questions about our systematic investment plans or any of our
other mutual funds, please call. Your team of account representatives will be
glad to assist you with any questions you may have.
Sincerely,
Michael J.C. Roth
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
[Photograph of Michael J.C. Roth, President and Vice Chairman
of the Board appears here.]
A systematic plan, such as InveStart, does not assure a profit or protect
against loss in declining markets. Since such a plan involves continuous
investment in securities regardless of fluctuating price levels, you should
consider your financial ability to continue purchases through periods of
low and high price levels.
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.
The performance data quoted represents past performance and is no guarantee of
future results. 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.
INVESTMENT REVIEW
GROWTH STRATEGY FUND
OBJECTIVE: To seek a high total return, with reduced risk over time, through an
asset allocation strategy that emphasizes capital appreciation and, secondarily,
income.
5/31/96 11/30/96
_________________________________________________________________________
Net Assets................................ $87.2 MILLION $134.4 Million
Net Asset Value Per Share................. $12.74 $12.45
__________________________________________________________________________
_____________________________________________________________________________
Average Annual Total Returns as of 11/30/96
May 31, 1996 to November 30, 1996.......................... 1.75%**
1 Year..................................................... 25.84%
Since inception on September 1, 1995....................... 22.94%
** 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 9/1/95 to 11/30/96, with dividends and capital
gains reinvested. The ending value of each item graphed is as follows: USAA
Growth Strategy Fund - $12,999 and the S&P 500 Index - $13,858.]
The graph illustrates how a $10,000 hypothetical investment in the
USAA Growth Strategy Fund compares to the S&P 500 Index, an unmanaged index
representing the average performance of a group of 500 widely held publicly
traded stocks. It is not possible to invest directly in the S&P 500 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
(A photograph of the Portfolio Managers appears here--
Seated L to R: David G. Peebles (International Stocks), W. Travis Selmier, II
(International Stocks), David G. Parsons (Allocation Manager, Large Cap Stocks),
Standing L to R: John K. Cabell, Jr. (Small Cap Stocks), Paul H. Lundmark
(Bonds), Pamela K. Bledsoe (Money Market Instruments), Eric M. Efron (Small Cap
Stocks), and Albert C. Sebastian (International Stocks).)
Fund Overview
The Growth Strategy Fund was designed to transfer the growth investor's
allocation burden to the Fund. The Fund pursues its objective through an asset
allocation strategy of investments primarily in domestic and international
growth stocks and, secondarily, in bonds.
Large Capitalization Stocks
Large capitalization stocks comprised 30.1% of the Fund's assets as of November
30, 1996. Investments which constituted this component of the Fund are
primarily in out-of-favor (at the time of purchase) growth companies and,
secondarily, of contrarian cyclical and defensive stocks. We buy growth
companies at good prices or, when this is not possible, cyclical and
defensive stocks at extremely compelling valuations. As a result of this
strategy, major commitments have been made to tobacco, semiconductors,
semiconductor equipment, trucking, electric utilities, energy, and
gold mining companies. We have added out-of-favor restaurant, retail,
and healthcare companies to the portfolio. Over the reporting period,
energy, semiconductors, and semiconductor equipment outperformed the
market.
Small Capitalization Stocks
At the end of the reporting period, 26.1% of the Fund's assets were in the small
capitalization stock component. The primary strategy of this sector is to invest
in companies whose earnings are growing very rapidly. Our holdings remain in
equities of small-to-midsized companies whose products enhance productivity or
benefit from changing demographics. Major investment commitments made in this
sector have been in the software, healthcare, specialty retail, and
telecommunications industries. Recent additions to the portfolio have been in
the energy and energy service industries.
Performance over the last six months has been negative for this portion of the
Fund. However, for the calendar year, performance is above the S&P 500.(1)
Fortunately, several million dollars of small capitalization stocks were sold in
June and July, at the height of the initial public offering boom, in order to
take profits and shift assets to the underweighted bond portion of the Fund.
International Stocks
In the international stock component of the Fund which made up 18.6% of the
Fund's assets at the end of the reporting period, we continue to overweight
emerging markets, market weight in Western Europe, and underweight Japan.
Prospects for rapid economic and earnings growth in the emerging markets cause
us to continue to overweight these markets. We have maintained a fully weighted
position in Europe due primarily to declining interest rates, a good earnings
growth outlook, and management intention to create shareholder value. The
Japanese market is underweighted due to an anemic economy, problems with the
banking system, and political uncertainty. Fortunately, each of these strategies
worked with the exception of the overweighting of the emerging markets.
Performance in this area was positive, but below that of the overall
international sector. For the period, the international stocks did well versus
the competition and international indices.
Bonds
For the reporting period, bonds made up 19.8% of the Fund's assets. The bond
component of the Fund is included to stabilize returns and provide current
income. The average maturity of the bond sector was shortened by selling long
treasuries and buying agency pass-throughs and intermediate corporates. At this
point, the manager is avoiding interest rate bets and focusing on intermediate
corporates that are favorably priced. As opposed to the first five months of the
calendar year when bonds underperformed, the bond section of the Fund generated
excellent returns over the last six months. The bond weighting of the Fund was
significantly increased in July.
(1)The S&P 500 Index is an unmanaged index representing the average performance
of a group of 500 widely held publicly traded stocks. It is not possible to
invest directly in the S&P 500 Index.
Money Market Instruments
Money market instruments are included as part of the portfolio for liquidity and
as a temporary investment of cash prior to transitioning into stocks or bonds.
We purchase short-term notes issued by U.S. Government Agencies that are liquid
and provide minimal credit risk. At the end of the reporting period, money
market instruments comprised 5.5% of the Fund's assets.
Performance and Outlook
The Fund significantly underperformed the S&P 500 Index, which has been chosen
as a comparison to measure performance. Over the period, all four sectors in the
Fund underperformed the index. For the calendar year, the Fund is now below the
S&P 500 Index, but still in the top half of its relevant competitive category.
In effect, the Fund lost ground in a booming large capitalization market. In the
future, the managers of the Fund believe this collection of asset categories and
management styles will provide an instrument for competitive returns with less
volatility than the average growth fund.
Foreign investing is subject to additional risks which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate
with risk, investors should be aware of the potential volatility associated
with foreign markets.
Top 10 Equity Holdings
(% of Net Assets)
RJR Nabisco Holdings....... 2.4
Pharmacia & Upjohn......... 2.0
Philip Morris.............. 1.7
UST........................ 1.4
Newmont Mining............. 1.3
Homestake Mining........... 1.0
Consolidated Freightways... .8
Micron Technology.......... .7
Applied Materials.......... .7
Texaco..................... .7
Top 10 Industries
(% of Net Assets)
Healthcare................ 8.4
Oil....................... 7.4
Tobacco................... 6.3
Electronics............... 6.1
Banks..................... 5.3
Electric Power............ 4.7
Retail.................... 4.6
Specialized Services...... 4.6
Telecommunications........ 3.8
Computer Software & Services 3.5
[A pie chart is shown here depicting the Asset Allocation as of
November 30, 1996 for the USAA Growth Strategy Fund to be:
Money Market Instruments - 5.5%, Bonds -19.8%, International
Stocks - 18.6%, Small Cap Stocks-26.1% and Large Cap Stocks -
30.1%.]
See page 10 for a complete listing of the Portfolio of Investments
in Securities.
Growth Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
November 30, 1996
(Unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $124,068) $ 134,443
Cash 318
Cash denominated in foreign currencies (identified cost of $111) 111
Receivables:
Capital shares sold 444
Dividends and interest 637
Securities sold 744
---------
Total assets 136,697
---------
Liabilities
Securities purchased 2,125
Unrealized depreciation on foreign currency contracts held, at value 2
Capital shares redeemed 14
USAA Investment Management Company 78
USAA Transfer Agency Company 28
Accounts payable and accrued expenses 82
---------
Total liabilities 2,329
---------
Net assets applicable to capital shares outstanding $ 134,368
============
Represented by:
Paid-in capital $ 122,332
Accumulated undistributed net investment income 682
Accumulated net realized gain on investments 979
Net unrealized appreciation of investments 10,375
------------
Net assets applicable to capital shares outstanding $ 134,368
============
Capital shares outstanding, unlimited number of shares authorized,
no par value 10,788
============
Net asset value, redemption price, and offering price per share $ 12.45
============
See accompanying notes to financial statements.
</TABLE>
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (000)
--------- -------- --------
<C> <S> <C>
International Stocks (18.6%)
Argentina (0.3%)
4,300 Disco S.A. ADS * $ 108
2,160 IRSA Inversiones y Representaciones S.A. GDS 67
11,000 Quilmes Industrial (Quinsa) S.A. ADS 114
3,700 Telefonica de Argentina S.A. ADR 94
- -------------------------------------------------------------------------------------------------------------
383
- -------------------------------------------------------------------------------------------------------------
Australia (0.5%)
10,000 Broken Hill Proprietary Co. Ltd. 147
58,930 CSL Ltd. 304
42,800 National Mutual Holdings Ltd. * 60
77,787 Village Roadshow Ltd. (Preferred) 225
- -------------------------------------------------------------------------------------------------------------
736
- -------------------------------------------------------------------------------------------------------------
Austria (0.3%)
2,250 VA Technologie AG 354
- -------------------------------------------------------------------------------------------------------------
Belgium (0.2%)
620 Colruyt S.A. 277
- -------------------------------------------------------------------------------------------------------------
Brazil (0.3%)
6,930,000 Companhia Energetica de Minas Gerais (Cemig) (Preferred) 220
1,200,000 Petroleo Brasileiro S.A. (Preferred) 164
1,300,000 Telebras PN (Preferred) 99
- -------------------------------------------------------------------------------------------------------------
483
- -------------------------------------------------------------------------------------------------------------
Canada (1.0%)
1,500 Alliance Forest Products, Inc. * 27
8,600 Anderson Exploration Ltd. * 111
23,000 Beau Canada Exploration Ltd. * 41
9,200 Canadian National Railway Co. 378
13,500 Canadian Occidental Petroleum Ltd. 240
20,000 National Bank of Canada 213
12,000 OSF, Inc. * 116
4,000 Suncor, Inc. 167
- -------------------------------------------------------------------------------------------------------------
1,293
- -------------------------------------------------------------------------------------------------------------
Chile (0.2%)
2,000 Madeco S.A. ADS 47
8,000 Maderas y Sinteticos S.A. ADS 109
2,000 Sociedad Quimica y Minera de Chile S.A. ADS 104
- -------------------------------------------------------------------------------------------------------------
260
- -------------------------------------------------------------------------------------------------------------
China (0.1%)
45,000 New World Infrastructure Ltd. * 134
- -------------------------------------------------------------------------------------------------------------
Colombia (0.1%)
7,000 Banco de Colombia GDS 54
- -------------------------------------------------------------------------------------------------------------
Czech Republic (0.1%)
2,800 Komercni Banka A.S. GDR 71
600 SPT Telecom A.S. * 68
- -------------------------------------------------------------------------------------------------------------
139
- -------------------------------------------------------------------------------------------------------------
Denmark (0.6%)
4,800 Carli Gry International A/S * 242
600 InWear Group A/S * 27
5,000 ISS International Service System A/S "B" 138
630 Novo Nordisk A/S "B" 117
3,000 Tele Danmark A/S "B" 150
6,900 Tele Danmark A/S ADS 172
2,100 Unidanmark A/S 105
- -------------------------------------------------------------------------------------------------------------
951
- -------------------------------------------------------------------------------------------------------------
Egypt (0.1%)
4,400 Suez Cement Co. S.A.E. GDS * 71
- -------------------------------------------------------------------------------------------------------------
Finland (0.4%)
7,300 Nokia Corp. ADS 410
1,820 Raision Tehtaat 107
- -------------------------------------------------------------------------------------------------------------
517
- -------------------------------------------------------------------------------------------------------------
France (1.1%)
7,300 Coflexip ADS * 196
11,000 Elf Aquitaine ADS 483
2,400 Eramet Group 127
800 Essilor International 230
2,400 Louis Dreyfus Citrus * 81
630 Pathe S.A. * 147
854 Roussel-Uclaf 224
- -------------------------------------------------------------------------------------------------------------
1,488
- -------------------------------------------------------------------------------------------------------------
Germany (0.6%)
1,600 Adidas AG 139
4,200 Deutsche Telekom AG ADR * 90
4,500 Leica Camera AG * 140
5,500 Pfeiffer Vacuum Technology AG ADS * 93
1,100 SAP AG (Preferred) 151
4,440 Veba AG 260
- -------------------------------------------------------------------------------------------------------------
873
- -------------------------------------------------------------------------------------------------------------
Hong Kong (0.3%)
135,000 Amoy Properties Ltd. 189
6,000 Asia Satellite Telecommunications Holdings Ltd. ADR * 152
80,000 Hong Kong Telecommunications Ltd. 139
6,000 Varitronix International Ltd. 11
- -------------------------------------------------------------------------------------------------------------
491
- -------------------------------------------------------------------------------------------------------------
Hungary (0.1%)
6,000 Mol Magyar Olay Es Gazipari GDS 69
- -------------------------------------------------------------------------------------------------------------
India (0.2%)
10,000 Arvind Mills Ltd. GDS 38
5,250 Hindalco Industries Ltd. GDR 107
5,500 Larsen & Toubro Ltd. GDR 80
- -------------------------------------------------------------------------------------------------------------
225
- -------------------------------------------------------------------------------------------------------------
Indonesia (0.2%)
100,000 PT Asahimas Flat Glass Co. Ltd. 67
81,000 PT Bank Dagang Nasional Indonesia 80
14,000 PT HM Sampoerna 72
24,000 PT Jaya Real Property 31
- -------------------------------------------------------------------------------------------------------------
250
- -------------------------------------------------------------------------------------------------------------
Israel (0.4%)
5,100 Blue Square - Israel Ltd. ADS * 72
17,500 Electric Fuel Corp. * 107
5,500 Koor Industries Ltd. ADS 96
5,800 Teva Pharmaceutical Industries Ltd. ADS 268
- -------------------------------------------------------------------------------------------------------------
543
- -------------------------------------------------------------------------------------------------------------
Italy (0.6%)
12,500 Arnoldo Mondadori Editore S.p.A. 105
4,800 Eni S.p.A. ADS 252
7,300 Instrumentation Laboratory S.p.A. ADS * 88
118,000 Olivetti and C., S.p.A. * 41
6,400 SAES Getters S.p.A. ADR * 68
76,000 STET S.p.A. 234
- -------------------------------------------------------------------------------------------------------------
788
- -------------------------------------------------------------------------------------------------------------
Japan (3.0%)
13,000 Bridgestone Corp. 240
11,000 Canon, Inc. 232
11,000 Daibiru Corp. 129
3,000 Higo Bank 21
20,000 Hitachi Ltd. 186
12,000 Honda Motor Co. Ltd. 354
6,000 Hoya Corp. 225
5,000 Ito-Yokado Co. Ltd. 252
4,000 Kyocera Corp. 257
8,800 Laox Co. Ltd. 135
27,000 Minebea Co. Ltd. 230
30,000 Mitsubishi Heavy Industries Ltd. 245
500 Nippon Television Network 150
55,000 NKK Corp. * 135
14,000 Nomura Securities Co. Ltd. 236
7 NTT Data Communications Systems Corp. 208
20,000 Shiseido Co. Ltd. 241
24,000 Terumo Corp. 316
3,000 Tostem Corp. 86
MBL International Finance (Bermuda) Trust, Convertible Notes,
$200,000 par, 3.00%, 11/30/02 221
- -------------------------------------------------------------------------------------------------------------
4,099
- -------------------------------------------------------------------------------------------------------------
Korea (0.2%)
2,843 Korea Electric Power Corp. 91
1,200 Samsung Electronics Co. Ltd. 90
141 Samsung Electronics Co. Ltd. (New) * 10
7 Samsung Electronics Co. Ltd. GDR * 1
241 Samsung Electronics Co. Ltd. GDR (Preferred) 6
800 Samsung Electronics Co. Ltd. GDS (Preferred) 20
- -------------------------------------------------------------------------------------------------------------
218
- -------------------------------------------------------------------------------------------------------------
Malaysia (0.2%)
18,000 Edaran Otomobil Nasional Bhd 177
9,000 Telekom Malaysia Bhd 82
- -------------------------------------------------------------------------------------------------------------
259
- -------------------------------------------------------------------------------------------------------------
Mexico (0.6%)
89,000 Controladora Comercial Mexicana, S.A. de C.V. * 80
2,000 Controladora Comercial Mexicana, S.A. de C.V. GDR * 36
7,304 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADS * 158
8,700 Empresas Ica Sociedad Controladora, S.A. de C.V. ADR 125
5,500 Panamerican Beverages, Inc. "A" 257
14,000 Tubos de Acero de Mexico, S.A. ADS * 191
- -------------------------------------------------------------------------------------------------------------
847
- -------------------------------------------------------------------------------------------------------------
Netherlands (0.9%)
1,940 EVC International N.V. 61
7,900 Forasol-Foramer N.V. * 142
8,500 ING Group N.V. 298
2,000 Oce-van der Grinten N.V. 218
2,500 Philips Electronics N.V. 101
19,300 Verenigd Besit VNU 394
- -------------------------------------------------------------------------------------------------------------
1,214
- -------------------------------------------------------------------------------------------------------------
Norway (0.3%)
76,000 Christiania Bank og Kreditkasse 233
11,000 Nycomed ASA * 161
- -------------------------------------------------------------------------------------------------------------
394
- -------------------------------------------------------------------------------------------------------------
Peru (0.1%)
4,700 Telefonica del Peru S.A. "B" ADS 91
- -------------------------------------------------------------------------------------------------------------
Philippines (0.1%)
270,000 Megaworld Properties * 105
3,600 Metropolitan Bank and Trust Co. 84
- -------------------------------------------------------------------------------------------------------------
189
- -------------------------------------------------------------------------------------------------------------
Poland (0.1%)
12,000 Elektrim S.A. 109
- -------------------------------------------------------------------------------------------------------------
Portugal (0.4%)
9,900 Banco Totta E Acores S.A. * 174
7,100 Cimentos de Portugal * 148
10,400 Portugal Telecom, S.A. ADS 276
- -------------------------------------------------------------------------------------------------------------
598
- -------------------------------------------------------------------------------------------------------------
Russia (0.1%)
6,300 RAO Gazprom ADR * 114
- -------------------------------------------------------------------------------------------------------------
Singapore (0.4%)
200,000 Kay Hian James Capel Holdings Ltd. 182
14,000 Keppel Corp. Ltd. 109
22,000 Overseas Union Bank Ltd. 162
20,000 Singapore Land Ltd. 115
- -------------------------------------------------------------------------------------------------------------
568
- -------------------------------------------------------------------------------------------------------------
South Africa (0.3%)
25,000 Gencor Ltd. 89
36,600 Malbak Ltd. 175
4,600 South African Breweries Ltd. 116
- -------------------------------------------------------------------------------------------------------------
380
- -------------------------------------------------------------------------------------------------------------
Spain (0.5%)
14,000 Autopistas del Mare Nostrum S.A. 216
1,500 Corporacion Mapfre, S.A. 80
3,500 Telefonica de Espana S.A. ADR 231
6,106 Vallehermoso S.A. 127
- -------------------------------------------------------------------------------------------------------------
654
- -------------------------------------------------------------------------------------------------------------
Sweden (0.7%)
1,900 ABB AB "A" 220
8,920 Autoliv AB 392
5,000 Nordbanken AB 142
9,900 Volvo AB 217
- -------------------------------------------------------------------------------------------------------------
971
- -------------------------------------------------------------------------------------------------------------
Switzerland (0.8%)
286 Ciba Geigy AG 354
2,700 Oerlikon Buhrle AG * 278
60 SGS Group AG 139
340 Sulzer AG P.C. 196
4,800 Tag Heuer International S.A. ADS * 67
- -------------------------------------------------------------------------------------------------------------
1,034
- -------------------------------------------------------------------------------------------------------------
Taiwan (0.4%)
205,000 China Steel Corp. 189
126,474 Far East Department Store * 168
85,000 Microtek International, Inc. * 140
- -------------------------------------------------------------------------------------------------------------
497
- -------------------------------------------------------------------------------------------------------------
Thailand (0.1%)
16,300 Finance One Public Co. 47
35,000 Krung Thai Bank 100
- -------------------------------------------------------------------------------------------------------------
147
- -------------------------------------------------------------------------------------------------------------
Turkey (0.1%)
255,000 Erciyas Biracilik Ve Malt Sanayi A.S. 30
500,000 Olmuksa Mukavva Sanayi Ve Ticaret A.S. 60
871,900 Yapi Ve Kredi Bankasi A.S. 22
- -------------------------------------------------------------------------------------------------------------
112
- -------------------------------------------------------------------------------------------------------------
United Kingdom (1.4%)
44,000 Bank of Scotland 216
10,000 Comcast UK Cable Partners Ltd. * 136
73,700 Corporate Services Group plc 208
11,300 DFS Furniture Co. plc 109
1,400 Dr. Solomon's Group plc ADR * 24
24,000 Harvey Nichols plc * 143
23,500 Northern Ireland Electricity plc 140
60,000 Thistle Hotels plc * 176
75,000 Tomkins plc 313
4,500 Vodafone Group plc ADR 195
60,000 WPP Group plc 222
- ------------------------------------------------------------------------------------------------------------
1,882
- ------------------------------------------------------------------------------------------------------------
Venezuela (0.1%)
2,500 Compania Anonima Nacional Telefonos De Venezuela ADS * 63
20,000 Corimon C.A. S.A.C.A ADS * 15 (a)
- -------------------------------------------------------------------------------------------------------------
78
- -------------------------------------------------------------------------------------------------------------
Other Holdings (0.1%)
90,000 Central European Growth Fund plc 92
- -------------------------------------------------------------------------------------------------------------
Total international stocks (cost: $22,403) 24,926
- -------------------------------------------------------------------------------------------------------------
Small Cap Stocks (26.1%)
Aerospace/Defense (0.1%)
3,100 Triumph Group, Inc. * 81
- -------------------------------------------------------------------------------------------------------------
Air Freight (0.1%)
5,000 Kitty Hawk, Inc. * 60
- -------------------------------------------------------------------------------------------------------------
Airlines (0.1%)
6,700 Aviation Sales Company * 134
3,000 Greenwich Air Services, Inc. "A" 74
3,000 Greenwich Air Services, Inc. "B" 69
- -------------------------------------------------------------------------------------------------------------
277
- -------------------------------------------------------------------------------------------------------------
Auto Parts (0.1%)
1,600 Dura Automotive Systems, Inc. 43
3,000 Tower Automotive, Inc. * 96
- -------------------------------------------------------------------------------------------------------------
139
- -------------------------------------------------------------------------------------------------------------
Bank Holding Companies - Major Regional (0.1%)
5,500 Columbia Banking Systems, Inc. 87
- -------------------------------------------------------------------------------------------------------------
Banks (0.1%)
2,500 Security First Network Bank * 29
- -------------------------------------------------------------------------------------------------------------
Beverages - Alcoholic (0.2%)
3,000 Redhook Ale Brewery, Inc. * 41
6,500 Robert Mondavi Corp. 237
- -------------------------------------------------------------------------------------------------------------
278
- -------------------------------------------------------------------------------------------------------------
Beverages - Soft Drinks (0.1%)
1,700 Coffee People, Inc. * 12
- -------------------------------------------------------------------------------------------------------------
Biotechnology (0.3%)
1,600 Affymetrix, Inc. * 31
1,600 Arqule, Inc. * 18
5,000 Biotransplant, Inc. * 28
5,000 CN Biosciences, Inc. * 81
2,500 Digene Corp. * 25
5,000 Gilead Sciences, Inc. * 128
5,000 Integra LifeSciences Corp. * 29
5,000 Med Immune, Inc. * 76
1,100 Millennium Pharmaceuticals, Inc. * 20
2,000 Neose Technologies, Inc. * 30
2,000 Neurocrine Biosciences, Inc. * 20
2,000 Onyx Pharmaceuticals, Inc. * 20
2,500 Pharmacopeia, Inc. 46
1,200 Thermo Bioanalysis Corp. 16
- -------------------------------------------------------------------------------------------------------------
568
- -------------------------------------------------------------------------------------------------------------
Broadcasters (1.0%)
3,500 Argyle Television, Inc. * 90
7,000 CellularVision USA, Inc. * 45
200 Chancellor Corp. "A" * 6
5,200 Cox Radio, Inc. 91
5,000 Digital Generation Systems, Inc. * 42
1,000 EchoStar Communications Corp. * 27
3,000 Emmis Broadcasting Corp. * 103
6,100 Gray Communications Systems, Inc. * 99
3,000 Heftel Broadcasting Corp. * 100
5,000 Lodgenet Entertainment Corp. * 74
13,725 Outdoor Systems, Inc. * 348
4,000 Pegasus Communications Corp. * 51
5,000 Source Media, Inc. 38
4,800 Univision Communications, Inc. 191
- -------------------------------------------------------------------------------------------------------------
1,305
- -------------------------------------------------------------------------------------------------------------
Brokerage Firms (0.1%)
6,600 E*Trade Group, Inc. * 72
1,900 Hambrecht & Quist Group * 47
- -------------------------------------------------------------------------------------------------------------
119
- -------------------------------------------------------------------------------------------------------------
Building Materials (0.3%)
5,500 Barnett, Inc. * 136
11,200 Diamond Home Services, Inc. * 249
6,000 Service Experts, Inc. * 149
- -------------------------------------------------------------------------------------------------------------
534
- -------------------------------------------------------------------------------------------------------------
Chemicals (0.1%)
5,300 NuCo2, Inc. * 72
- -------------------------------------------------------------------------------------------------------------
Chemicals - Specialty (0.1%)
2,600 Zoltek Companies, Inc. * 93
- -------------------------------------------------------------------------------------------------------------
Communication - Equipment Manufacturers (0.5%)
5,100 ACC Corp. * 152
1,100 Advanced Fibre Communications, Inc. * 54
4,250 AML Communications, Inc. 60
7,000 Aware, Inc. * 70
5,000 Boston Communications Group, Inc. * 44
3,000 Peerless Systems Corp. * 39
2,000 Performance Technologies, Inc. * 23
4,000 REMEC, Inc. * 76
2,000 Sawtek, Inc. * 74
6,500 Spectrian Corp. * 63
7,000 Superconductor Technologies * 30
2,000 Sync Research, Inc. 39
1,200 Tollgrade Communications, Inc. 29
2,000 Verilink Corp. * 60
- -------------------------------------------------------------------------------------------------------------
813
- -------------------------------------------------------------------------------------------------------------
Computer Software & Service (3.3%)
4,000 Ansys, Inc. * 46
4,000 Arbor Software Corp. * 116
1,400 Aspect Development, Inc. * 33
478 Avant! Corp. 14
5,000 Award Software International, Inc. * 45
1,600 AXENT Technologies, Inc. * 25
5,000 Bitstream, Inc. * 23
8,000 BroadVision, Inc. * 55
5,000 Carnegie Group, Inc. 29
2,200 CCC Information Services Group, Inc. * 34
2,800 Citrix Systems, Inc. 128
4,500 Claremont Technology Group, Inc. * 110
3,200 Clarify, Inc. 144
7,000 Connect, Inc. * 50
1,600 CyberCash, Inc. * 40
800 CyberMedia, Inc. * 16
1,500 Cylink Corp. * 18
3,000 DataWorks Corp. 65
6,500 Document Sciences Corp. * 73
1,200 Documentum, Inc. * 46
1,600 Edify Corp. * 22
3,000 Elcom International, Inc. 23
2,000 Engineering Animation, Inc. * 49
5,000 ENVOY Corp. * 186
2,500 Excite, Inc. * 24
2,100 Forte' Software, Inc. * 67
5,000 Fourth Shift Corp. * 29
1,800 Geotel Communications Corp. * 24
3,000 Geoworks 66
1,000 HNC Software, Inc. * 30
1,300 I2 Technologies, Inc. * 49
3,400 Indus Group, Inc. * 71
3,100 Infinity Financial Technology, Inc. * 53
4,000 Infoseek Corp. * 36
1,500 Integrated Systems Consulting Group, Inc. * 20
2,500 Integrated Systems, Inc. * 54
7,100 Intelligroup, Inc. * 103
10,000 Interlink Computer Sciences, Inc. * 132
2,000 ISOCOR * 12
4,000 JDA Software Group, Inc. * 107
1,500 Lycos, Inc. * 17
2,000 Mechanical Dynamics, Inc. * 29
5,000 Microware Systems Corp. * 75
2,100 Midway Games, Inc. * 48
4,500 Novadigm, Inc. * 47
4,000 Object Design, Inc. * 52
2,100 Objective Systems Integrators, Inc. 52
4,000 OneWave, Inc. * 44
1,000 Open Market, Inc. * 14
2,500 OpenVision Technologies, Inc. * 23
6,000 Optika Imaging Systems, Inc. * 37
2,500 OrCad, Inc. * 25
5,000 Peerless Group, Inc. * 36
4,000 Pegasystems Inc. * 119
4,000 Phoenix International Ltd., Inc. * 77
3,000 Rational Software Corp. * 106
700 Red Brick Systems, Inc. * 16
3,000 Restrac, Inc. * 20
1,900 Rogue Wave Software, Inc. * 24
500 Sapient Corp. * 20
2,000 Security Dynamics Technologies, Inc. * 82
2,200 Segue Software, Inc. * 28
4,000 Silicon Valley Research, Inc. * 12
5,000 Simulation Sciences, Inc. * 63
5,000 Spatial Technology, Inc. * 23
7,000 SRS Labs, Inc. 99
5,000 Summit Design, Inc. * 50
1,200 Systemsoft Corp. * 22
4,000 Talx Corp. * 32
3,100 Technology Modeling Associates, Inc. 34
7,000 Triteal Corp. 108
1,500 Trusted Information Systems, Inc. 18
2,500 USCS International, Inc. * 42
5,000 V-One Corp. * 29
1,800 Verity, Inc. * 30
7,500 Versant Object Technology Corp. * 157
3,500 Visigenic Software, Inc. 52
1,300 Visio Corp. 64
4,600 Voice Control Systems, Inc. * 36
5,000 Voxware, Inc. * 39
5,000 White Pine Software, Inc. 33
2,000 Wind River Systems, Inc. * 98
3,000 Worldtalk Communications Corp. * 30
3,900 Xionics Document Technologies, Inc. 51
- -------------------------------------------------------------------------------------------------------------
4,380
- -------------------------------------------------------------------------------------------------------------
Computer Systems (0.7%)
6,800 Aavid Thermal Technologies, Inc. * 59
7,000 CHS Electronics, Inc. * 91
6,700 Firearms Training Systems, Inc. * 93
1,500 IMNET Systems, Inc. * 27
10,000 Manchester Equipment, Inc. * 100
1,500 PC Service Source, Inc. * 9
6,600 Printrak International Inc. * 64
700 Raptor Systems, Inc. * 15
4,000 Raster Graphics, Inc. * 42
10,000 Sandisk Corp. * 137
8,000 SBS Technologies, Inc. * 215
2,100 SeaChange International, Inc. * 54
4,500 Splash Technology Holdings, Inc. 92
5,900 Storm Technology, Inc. 47
10,000 Unicomp, Inc. * 47
2,600 Viisage Technology, Inc. * 37
- -------------------------------------------------------------------------------------------------------------
1,129
- -------------------------------------------------------------------------------------------------------------
Cosmetics (0.1%)
5,000 Carson, Inc. * 70
5,000 French Fragrances, Inc. * 43
- -------------------------------------------------------------------------------------------------------------
113
- -------------------------------------------------------------------------------------------------------------
Drugs (0.1%)
2,500 Algos Pharmaceutical Corp. * 28
- -------------------------------------------------------------------------------------------------------------
Electric Power (0.1%)
4,200 Calpine Corp. * 76
- -------------------------------------------------------------------------------------------------------------
Electrical Equipment (0.1%)
4,000 Charter Power Systems, Inc. 109
- -------------------------------------------------------------------------------------------------------------
Electronics - Instrumentation (1.0%)
2,900 3D Systems Corp. * 30
10,000 Brooks Automation, Inc. * 135
4,000 Checkpoint Systems, Inc. * 90
4,000 Computational Systems, Inc. 75
1,100 Cymer 37
2,300 DuPont Photomasks, Inc. * 95
3,000 ElectroStar, Inc. 42
1,500 Etec Systems, Inc. 44
10,000 Gasonics International Corp. * 107
5,000 IKOS Systems, Inc. * 96
2,000 Integrated Measurement Systems, Inc. * 35
10,000 Mattson Technology, Inc. * 104
5,000 OnTrak Systems, Inc. 90
2,500 Photon Dynamics, Inc. 16
2,500 Photronic, Inc. * 79
8,000 Plasma & Materials Technologies, Inc. * 124
3,000 Speedfam International, Inc. * 61
6,000 Thermo Optek Corp. * 73
- -------------------------------------------------------------------------------------------------------------
1,333
- -------------------------------------------------------------------------------------------------------------
Electronics - Semiconductors (1.1%)
10,000 Alliance Semiconductor Corp. * 80
6,000 Benchmarq Microelectronics, Inc. * 107
2,000 ESS Technology, Inc. 40
4,000 Integrated Packaging Assembly Corp. * 32
10,000 Integrated Silicon Solution, Inc. * 100
5,000 Lattice Semiconductors Corp. * 224
5,000 Oak Technology, Inc. * 49
2,000 S3, Inc. * 34
2,000 Sheldahl, Inc. 38
3,000 Sierra Semiconductor Corp. 43
5,000 SIPEX Corp. * 142
3,000 SMART Modular Technologies, Inc. 69
8,000 TranSwitch Corp. * 47
6,000 Trident Microsystems, Inc. * 128
6,000 Triquint Semiconductor, Inc. * 134
3,000 Vitesse Semiconductor Corp. * 143
2,100 Zoran Corp. * 44
- -------------------------------------------------------------------------------------------------------------
1,454
- -------------------------------------------------------------------------------------------------------------
Entertainment (0.1%)
3,000 Ballantyne of Omaha, Inc. * 46
1,000 Hollywood Entertainment Corp. * 20
15,000 Video Update, Inc. 60
7,000 West Coast Entertainment Corp. * 70
- -------------------------------------------------------------------------------------------------------------
196
- -------------------------------------------------------------------------------------------------------------
Finance - Business/Commercial (0.3%)
2,000 Granite Financial, Inc. * 17
6,000 Leasing Solutions, Inc. * 173
4,500 Medallion Financial Corp. 65
3,500 Profit Recovery Group International, Inc. * 49
5,000 Sirrom Capital Corp. 182
- -------------------------------------------------------------------------------------------------------------
486
- -------------------------------------------------------------------------------------------------------------
Finance - Consumer (0.8%)
2,500 Aames Financial Corp. 107
5,800 ACC Consumer Finance Corp. * 53
7,500 Central Financial Acceptance Corp. * 142
5,000 Delta Financial Corp. * 114
5,000 First Enterprise Financial Group, Inc. * 55
4,000 NCO Group, Inc. * 69
10,000 RAC Financial Group, Inc. * 537
- -------------------------------------------------------------------------------------------------------------
1,077
- -------------------------------------------------------------------------------------------------------------
Finance - Real Estate (0.4%)
6,000 IMC Mortgage Company * 195
11,000 Southern Pacific Funding Corp. * 349
- -------------------------------------------------------------------------------------------------------------
544
- -------------------------------------------------------------------------------------------------------------
Finance - Receivables (0.1%)
2,500 Healthcare Financial Partners, Inc. * 31
- -------------------------------------------------------------------------------------------------------------
Foods (0.1%)
5,500 Odwalla, Inc. 84
12,000 UniMark Group, Inc. * 96
- -------------------------------------------------------------------------------------------------------------
180
- -------------------------------------------------------------------------------------------------------------
Gaming Companies (0.2%)
4,500 Anchor Gaming * 188
3,000 Silicon Gaming, Inc. * 42
- -------------------------------------------------------------------------------------------------------------
230
- -------------------------------------------------------------------------------------------------------------
Healthcare - Diversified (0.1%)
3,000 UroCor, Inc. * 29
- -------------------------------------------------------------------------------------------------------------
Healthcare - HMOs (0.1%)
3,700 First Commonwealth, Inc. 61
5,000 United Dental Care, Inc. 140
- -----------------------------------------------------------------------------------------------------------------
201
- -----------------------------------------------------------------------------------------------------------------
Healthcare - Miscellaneous (1.3%)
5,000 Advance Paradiam, Inc. * 61
2,500 Advanced Health Corp. * 36
7,000 APACHE Medical Systems, Inc. * 69
1,900 Applied Analytical Industries, Inc. * 40
5,000 Collaborative Clincal Research, Inc. * 59
2,500 Diagnostic Health Services, Inc. * 17
3,300 EndoVascular Technologies, Inc. * 31
1,100 Enterprise Systems, Inc. 17
5,200 Health Systems Design Corp. * 44
3,300 LanVision Systems, Inc. * 25
8,500 Medical Alliance, Inc. * 95
5,500 Medquist, Inc. * 107
10,000 Oacis Healthcare Holdings Corp. * 75
5,600 PAREXEL International Corp. 290
3,000 Pediatrix Medical Group, Inc. * 116
3,000 Pharmaceutical Product Development, Inc. * 66
6,200 Physicians Resource Group, Inc. * 129
2,500 Quadramed Corp. 32
10,000 Renal Care Group, Inc. * 317
6,700 Transition Systems, Inc. * 75
4,800 Twinlab Corp. * 58
5,000 Ultrafem, Inc. * 90
- -------------------------------------------------------------------------------------------------------------
1,849
- -------------------------------------------------------------------------------------------------------------
Hospitals (0.1%)
5,000 National Surgery Centers, Inc. 159
- -------------------------------------------------------------------------------------------------------------
Hotel/Motel (0.3%)
5,000 Doubletree Corp. * 210
5,000 Suburban Lodges of America, Inc. * 86
6,700 Wyndham Hotel Corp. * 132
- -------------------------------------------------------------------------------------------------------------
428
- -------------------------------------------------------------------------------------------------------------
Housing - Manufactured (0.1%)
9,550 Belmont Homes, Inc. * 91
- -------------------------------------------------------------------------------------------------------------
Leisure Time (0.1%)
3,500 Family Golf Centers, Inc. * 110
2,700 Morrow Snowboards, Inc. 26
5,500 RockShox, Inc. * 71
- -------------------------------------------------------------------------------------------------------------
207
- -------------------------------------------------------------------------------------------------------------
Machinery - Diversified (0.1%)
5,000 DT Industries, Inc. * 173
- -------------------------------------------------------------------------------------------------------------
Manufacturing - Diversified Industries (0.2%)
6,900 United States Filter Corp. * 236
- -------------------------------------------------------------------------------------------------------------
Medical Products & Supplies (1.4%)
1,000 Aksys Ltd. * 9
3,000 American Medserve Corp. * 49
6,000 ArthroCare Corp. * 60
8,500 Capstone Pharmacy Services, Inc. * 92
3,200 Cardiac Pathways Corp. * 34
3,100 CardioThoracic Systems, Inc. * 57
7,000 CardioVascular Dynamics, Inc. * 86
2,200 Cytyc Corp. * 56
6,000 General Surgical Innovations, Inc. * 55
7,000 Gulf South Medical Supply * 204
3,000 Heartport, Inc. * 69
6,000 Henry Schein, Inc. 244
3,400 Imagyn Medical, Inc. * 25
2,300 Innovasive Devices, Inc. * 18
1,500 Intelligent Medical Imaging, Inc. * 10
10,000 IRIDEX Corp. * 85
10,000 NCS HealthCare, Inc. * 275
3,500 Nitinol Med Technologies, Inc. 38
4,000 Perclose, Inc. 67
2,900 Seamed Corp. * 30
5,300 Suburban Ostomy Supply, Inc. 60
2,000 Trex Medical Corp. * 33
4,500 Urologix, Inc. * 68
5,000 Vitalink Pharmacy Services, Inc. * 113
5,000 Xomed Surgical Prods, Inc. 96
- -------------------------------------------------------------------------------------------------------------
1,933
- -------------------------------------------------------------------------------------------------------------
Nursing Care (0.1%)
5,000 Atria Communities, Inc. * 50
5,000 Multicare Companies, Inc. 99
- -------------------------------------------------------------------------------------------------------------
149
- -------------------------------------------------------------------------------------------------------------
Office Equipment & Supplies (0.1%)
8,800 American Pad & Paper Company * 174
- -------------------------------------------------------------------------------------------------------------
Oil - Exploration & Production (0.4%)
5,000 3-D Geophysical, Inc. * 45
4,200 Clayton Williams Energy, Inc. * 68
2,500 Monterey Resources, Inc. 41
7,100 Rutherford-Moran Oil Corp. * 216
5,000 Stone Energy Corp. * 115
- -------------------------------------------------------------------------------------------------------------
485
- -------------------------------------------------------------------------------------------------------------
Oil & Gas Drilling (0.4%)
2,000 Atwood Oceanics, Inc. * 111
1,000 Cliffs Drilling Co. * 52
6,000 Falcon Drilling Co., Inc. * 240
5,400 The Houston Exploration Co. * 96
- -------------------------------------------------------------------------------------------------------------
499
- -------------------------------------------------------------------------------------------------------------
Oil Well Equipment & Service (0.5%)
3,500 Carbo Ceramics, Inc. * 71
2,700 GeoScience Corp. * 32
3,200 Halter Marine Group, Inc. * 47
3,500 Hvide Marine, Inc. "A" * 80
3,900 National-Oilwell, Inc. * 110
10,000 Oceaneering International, Inc. * 166
4,100 Trico Marine Services, Inc. * 174
5,800 Varco International, Inc. * 133
- -------------------------------------------------------------------------------------------------------------
813
- -------------------------------------------------------------------------------------------------------------
Photography - Imaging (0.1%)
4,500 Ultrak, Inc. * 138
- -------------------------------------------------------------------------------------------------------------
Pollution Control (0.1%)
2,500 Thermo Fibergen, Inc. 31
- -------------------------------------------------------------------------------------------------------------
Publishing (0.2%)
5,000 C/NET, Inc. * 86
5,500 World Color Press, Inc. * 131
- -------------------------------------------------------------------------------------------------------------
217
- -------------------------------------------------------------------------------------------------------------
Real Estate (0.1%)
1,000 Signature Resorts, Inc. 34
- -------------------------------------------------------------------------------------------------------------
Restaurants (0.5%)
8,000 Cooker Restaurant Corp. 89
8,100 Einstein/Noah Bagel Corp. * 242
1,200 Landry's Seafood Restaurants, Inc. * 29
5,000 New York Bagel Enterprises, Inc. 34
6,300 Papa John's International, Inc. * 203
10,000 PJ America, Inc. * 187
- -------------------------------------------------------------------------------------------------------------
784
- -------------------------------------------------------------------------------------------------------------
Retail - Food Chains (0.2%)
5,000 Dominick's Supermarkets, Inc. * 105
6,000 Wild Oats Markets, Inc. * 116
- -------------------------------------------------------------------------------------------------------------
221
- -------------------------------------------------------------------------------------------------------------
Retail - Specialty (1.1%)
4,500 Abercrombie & Fitch Co. * 83
3,000 Alrenco, Inc. * 31
3,500 Cross Continent Auto Retailers 65
5,000 Eagle Hardware and Garden, Inc. * 122
10,000 Finish Line, Inc. "A" * 225
3,300 Gadzooks, Inc. 94
1,900 Garden Botanika, Inc. 17
4,000 Garden Ridge Corp. * 33
1,800 Hibbett Sporting Goods, Inc. * 28
200 Hot Topic, Inc. * 4
8,250 Just For Feet, Inc. * 195
3,600 K&G Men's Center, Inc. * 89
4,000 Linens `N Things, Inc. * 62
1,500 Loehmann's Holdings, Inc. * 45
5,000 MSC Industrial Direct Co., Inc. 187
6,000 Party City Corp. * 90
3,500 Petco Animal Supplies, Inc. * 77
2,600 United Auto Group, Inc. * 60
- -------------------------------------------------------------------------------------------------------------
1,507
- -------------------------------------------------------------------------------------------------------------
Shoes (0.2%)
6,100 Eastbay, Inc. 116
7,000 Vans, Inc. * 108
- -------------------------------------------------------------------------------------------------------------
224
- -------------------------------------------------------------------------------------------------------------
Specialized Services (4.2%)
2,000 Abacus Direct Corp. * 49
2,000 American Residential Services, Inc. * 43
1,600 APAC TeleServices, Inc. * 76
4,500 Apollo Group, Inc. * 116
3,000 Applied Graphics Technologies, Inc. * 57
2,000 Benchmark Electronics, Inc. * 59
3,300 BTG, Inc. * 66
2,400 Caribiner International, Inc. * 106
3,000 CKS Group, Inc. 62
1,500 Computer Learning Centers, Inc. * 38
3,000 COREStaff, Inc. 77
3,000 Cornell Corrections, Inc. * 30
2,500 Costilla Energy, Inc. * 31
3,800 Cotelligent Group, Inc. * 76
4,000 CSG Systems International, Inc. * 71
4,400 Data Processing Resources Corp. * 76
5,000 Donnelley Enterprise Solutions, Inc. * 126
4,000 Eagle River Interactive, Inc. * 25
5,000 Education Management Corp. * 92
5,000 Educational Medical, Inc. * 51
3,000 Electronic Fab Technology Corp. * 10
6,000 F.Y.I., Inc. * 129
2,900 FactSet Research Systems, Inc. * 68
3,000 Fine Host Corp. * 48
1,000 First USA Paymentech, Inc. * 39
1,400 Forrester Research, Inc. * 30
2,100 Information Management Resources, Inc. * 35
7,700 IntelliQuest Information Group, Inc. * 185
1,000 International Network Services * 32
3,000 International Telecommunication Data Systems, Inc. * 71
9,050 Labor Ready, Inc. * 111
4,700 Lamar Advertising Co. "A" * 109
2,600 Lason, Inc. * 51
5,000 LCC International, Inc. "A" * 80
6,300 Leap Group, Inc. * 39
2,500 Learning Tree International, Inc. 113
3,900 Lightbridge, Inc. * 36
5,700 May & Speh, Inc. * 77
1,500 META Group, Inc. 42
10,000 Metromail Corp. * 231
2,100 Metzler Group, Inc. 56
3,000 National Media Corp. * 24
4,000 National Processing, Inc. * 72
2,000 Nobel Education Dynamics, Inc. * 20
4,500 Nova Corp. * 85
6,100 Obie Media Corp. * 44
2,000 Ontrack Data International, Inc. * 23
3,000 Personnel Group of America, Inc. * 68
5,500 PIA Merchandising Services, Inc. * 50
15,000 PMT Services, Inc. * 321
2,300 Praegitzer Industries, Inc. * 22
4,700 Precision Response Corp. * 174
3,000 Prime Service, Inc. * 82
6,000 RemedyTemp, Inc. "A" * 96
5,000 Rental Service Corp. 129
3,100 RMH Teleservices, Inc. * 26
3,000 Romac International, Inc. * 73
3,000 SCB Computer Technology, Inc. * 54
3,900 Snyder Communications, Inc. * 95
2,500 Source Services Corp. * 43
3,200 Staffmark, Inc. 40
4,000 Strategic Distribution, Inc. * 28
5,800 Superior Consultant, Inc. 139
300 Sykes Enterprises, Inc. * 13
5,200 Telespectrum Worldwide, Inc. 92
4,000 Teletech Holdings, Inc. 126
3,900 Think New Ideas, Inc. * 27
2,000 Ticketmaster Group, Inc. * 29
6,400 Universal Outdoor Holdings, Inc. * 174
7,000 Vanstar Corp. * 191
700 Vincam Group, Inc. * 24
5,000 Wackenhut Corp. "B" 70
4,500 Warrantech Corp. * 65
1,500 Whittman-Hart, Inc. * 68
1,600 XLConnect Solutions, Inc. * 45
1,000 Yahoo!, Inc. * 19
5,000 Youth Services International, Inc. * 64
- -------------------------------------------------------------------------------------------------------------
5,634
- -------------------------------------------------------------------------------------------------------------
Telecommunications (0.7%)
3,000 Brooks Fiber Properties, Inc. * 94
3,100 IDT Corp. * 42
4,500 Intermedia Communications of Florida, Inc. * 134
7,000 IXC Communications, Inc. * 164
1,000 MIDCOM Communications, Inc. * 11
4,500 Pacific Gateway Exchange, Inc. * 127
7,000 SmarTalk TeleServices, Inc. * 87
5,000 Tel-Save Holdings, Inc. * 109
5,000 Telco Communications Group, Inc. 82
2,000 TresCom International, Inc. * 21
5,000 Viatel, Inc. * 50
- -------------------------------------------------------------------------------------------------------------
921
- -------------------------------------------------------------------------------------------------------------
Telephones (0.9%)
3,200 Advanced Radio Telecom Corp. * 48
5,200 American Communications Services, Inc. * 61
3,000 American Portable Telecom, Inc. * 25
4,000 Arch Communications Group, Inc. * 44
4,500 Brightpoint, Inc. 164
7,900 CellNet Data Systems, Inc. * 138
5,000 DIGEX, Inc. * 52
6,000 FaxSav, Inc. * 35
6,000 InterCel, Inc. * 90
1,500 McLeod, Inc. * 43
6,500 Metro One Telecommunications, Inc. * 54
3,800 Omnipoint Corp. * 100
5,100 PageMart Wireless, Inc. * 38
3,900 Premiere Technologies, Inc. * 91
6,000 Primus Telecommunications Group, Inc. * 66
3,300 Rural Celluar Corp. * 31
3,800 Teleport Communications Group, Inc. * 126
- -------------------------------------------------------------------------------------------------------------
1,206
- -------------------------------------------------------------------------------------------------------------
Textiles (0.3%)
5,000 Cutter & Buck, Inc. 53
11,000 Designer Holdings Ltd. * 169
5,000 Donna Karan International Inc. * 82
3,000 Mossimo, Inc. * 45
- -------------------------------------------------------------------------------------------------------------
349
- -------------------------------------------------------------------------------------------------------------
Textiles - Products (0.1%)
5,000 North Face, Inc. * 111
- ------------------------------------------------------------------------------------------------------------
Tobacco (0.1%)
3,000 Consolidated Cigar Holdings, Inc. * 73
- ------------------------------------------------------------------------------------------------------------
Truckers (0.1%)
5,000 Heartland Express, Inc. * 118
5,400 Rush Enterprises, Inc. * 68
- -------------------------------------------------------------------------------------------------------------
186
- -------------------------------------------------------------------------------------------------------------
Miscellaneous (0.1%)
5,000 Carriage Services, Inc. * 96
400 Gargoyles, Inc. * 4
- -------------------------------------------------------------------------------------------------------------
100
- -------------------------------------------------------------------------------------------------------------
Total small cap stocks (cost: $30,450) 34,995
--------------
LARGE CAP STOCKS (30.1%)
Airlines (0.4%)
23,100 Southwest Airlines Co. 572
- -------------------------------------------------------------------------------------------------------------
Aluminum (0.2%)
3,700 Aluminum Co. of America 235
- -------------------------------------------------------------------------------------------------------------
Drugs (2.5%)
3,400 ALZA Corp. * 96
15,000 Bergen Brunswig Corp. * 409
15,000 Ivax Corp. 165
70,000 Pharmacia & Upjohn, Inc. 2,704
- -------------------------------------------------------------------------------------------------------------
3,374
- -------------------------------------------------------------------------------------------------------------
Electric Power (4.1%)
9,500 Allegheny Power System, Inc. 289
5,100 American Electric Power Co., Inc. 212
12,700 Boston Edison Co. 325
19,000 Consolidated Edison Company of New York, Inc. 551
3,700 Delmarva Power & Light Co. 74
46,000 Edison International 914
20,500 Enova Corp. 459
9,700 Idaho Power Co. 299
200 New England Electric System 7
22,000 New York State Electric & Gas Corp. 476
51,600 Niagara Mohawk Power Corp. * 451
31,500 Pacific Gas & Electric Co. 760
4,800 PacifiCorp 101
10,300 PECO Energy Co. 263
11,200 Public Service Enterprise Group, Inc. 321
- -------------------------------------------------------------------------------------------------------------
5,502
- -------------------------------------------------------------------------------------------------------------
Electronics - Instrumentation (1.1%)
22,000 KLA Instruments Corp. * 781
6,000 Lam Research Corp. * 215
20,200 Teradyne, Inc. * 477
- -------------------------------------------------------------------------------------------------------------
1,473
- -------------------------------------------------------------------------------------------------------------
Electronics - Semiconductors (2.4%)
6,800 Analog Devices, Inc. * 218
26,000 Applied Materials, Inc. * 991
4,500 LSI Logic Corp. * 136
30,200 Micron Technology, Inc. 1,000
6,500 Motorola, Inc. 360
600 Novellus Systems, Inc. * 35
8,100 Texas Instruments, Inc. 516
- -------------------------------------------------------------------------------------------------------------
3,256
- -------------------------------------------------------------------------------------------------------------
Gaming Companies (0.4%)
27,200 International Game Technology 530
- -------------------------------------------------------------------------------------------------------------
Gold Mining (2.9%)
25,600 Freeport-McMoRan Copper & Gold, Inc. 806
88,800 Homestake Mining Co. 1,343
36,000 Newmont Mining Corp. 1,724
- -------------------------------------------------------------------------------------------------------------
3,873
- -------------------------------------------------------------------------------------------------------------
Healthcare - Diversified (0.4%)
7,100 Warner-Lambert Co. 508
- -------------------------------------------------------------------------------------------------------------
Manufacturing - Diversified Industries (0.5%)
18,700 Hillenbrand Industries, Inc. 690
- -------------------------------------------------------------------------------------------------------------
Medical Products & Supplies (0.4%)
13,100 Bausch & Lomb, Inc. 486
- -------------------------------------------------------------------------------------------------------------
Metals - Miscellaneous (0.3%)
6,500 Phelps Dodge Corp. 472
- -------------------------------------------------------------------------------------------------------------
Oil - Domestic (1.4%)
4,900 Amerada Hess Corp. 289
6,000 Atlantic Richfield Co. 835
13,600 Occidental Petroleum Corp. 326
7,200 Pennzoil Co. 405
- -------------------------------------------------------------------------------------------------------------
1,855
- -------------------------------------------------------------------------------------------------------------
Oil - Exploration & Production (1.2%)
21,200 Apache Corp. 771
13,100 Burlington Resources, Inc. 694
4,600 Union Texas Petroleum Holdings, Inc. 103
- -------------------------------------------------------------------------------------------------------------
1,568
- -------------------------------------------------------------------------------------------------------------
Oil - International (1.3%)
11,300 Chevron Corp. 757
9,900 Texaco, Inc. 981
- -------------------------------------------------------------------------------------------------------------
1,738
- -------------------------------------------------------------------------------------------------------------
Oil Well Equipment & Service (0.7%)
6,800 Baker Hughes, Inc. 249
11,800 Halliburton Co. 711
- -------------------------------------------------------------------------------------------------------------
960
- -------------------------------------------------------------------------------------------------------------
Paper & Forest Products (0.4%)
6,900 Rayonier, Inc. 267
4,900 Weyerhaeuser Co. 226
- -------------------------------------------------------------------------------------------------------------
493
- -------------------------------------------------------------------------------------------------------------
Pollution Control (0.8%)
8,000 Browning-Ferris Industries, Inc. 215
25,300 WMX Technologies, Inc. 911
- -------------------------------------------------------------------------------------------------------------
1,126
- -------------------------------------------------------------------------------------------------------------
Restaurants (0.8%)
11,000 Brinker International, Inc. * 204
20,000 Lone Star Steakhouse & Saloon, Inc. * 572
8,600 Outback Steakhouse, Inc. * 248
- -------------------------------------------------------------------------------------------------------------
1,024
- -------------------------------------------------------------------------------------------------------------
Retail - Department Stores (0.3%)
5,000 May Department Stores Co. 244
4,800 Nordstrom, Inc. 209
- -------------------------------------------------------------------------------------------------------------
453
- -------------------------------------------------------------------------------------------------------------
Retail - Food Chains (0.1%)
3,000 Great Atlantic & Pacific Tea, Inc. 98
- -------------------------------------------------------------------------------------------------------------
Retail - General Merchandising (0.2%)
4,000 J.C. Penney Company, Inc. 215
- -------------------------------------------------------------------------------------------------------------
Retail - Specialty (0.1%)
5,000 Tandy Corp. 211
- -------------------------------------------------------------------------------------------------------------
Tobacco (5.5%)
22,100 Philip Morris Companies, Inc. 2,279
101,600 RJR Nabisco Holdings Corp. 3,251
55,700 UST, Inc. 1,817
- -------------------------------------------------------------------------------------------------------------
7,347
- -------------------------------------------------------------------------------------------------------------
Truckers (1.7%)
16,500 Caliber System, Inc. 320
42,200 Consolidated Freightways, Inc. 1,018
2,000 Roadway Express, Inc. 33
32,400 Ryder System, Inc. 984
- -------------------------------------------------------------------------------------------------------------
2,355
- -------------------------------------------------------------------------------------------------------------
Total large cap stocks (cost: $37,572) 40,414
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Coupon
(000) Rate Maturity
-------- ------ ----------
BONDS (19.8%)
<C> <S> <C> <C> <C>
$ 1,000 Capital One Bank Note 7.35% 6/20/00 1,028
1,000 Corporacion Andina De Fomento, Bonds
(Venezuela) 7.10 2/01/03 1,019
1,000 First USA Bank Deposit, Notes 7.65 8/01/03 1,016
1,000 Franchise Finance Corp. of America,
Senior Notes 7.00 11/30/00 1,013
2,000 Giddings & Lewis, Inc., Notes 7.50 10/01/05 2,031
1,000 Great Atlantic & Pacific Tea, Inc.,
Senior Notes 7.70 1/15/04 1,027
1,000 Health Care Property Investors, Inc.,
Senior Notes 6.50 2/15/06 973
1,000 HUBCO, Inc., Subordinated Debentures 8.20 9/15/06 1,061 (b)
1,000 Kmart Corp., Debentures 7.95 2/01/23 794
1,000 Merita Bank Ltd., Subordinated Note (Finland) 6.50 1/15/06 975
1,000 Pulte Corp., Senior Notes 7.00 12/15/03 1,004
1,000 RJR Nabisco, Inc., Notes 8.00 7/15/01 1,020
1,000 Security Capital Pacific Trust, Notes 7.15 10/15/03 1,025
2,000 Tele-Communications, Inc., Senior Notes 8.25 1/15/03 2,033
1,000 Time Warner, Inc., Notes 7.48 1/15/08 1,005
1,000 Washington Real Estate Investment Trust,
Senior Notes 7.25 8/13/06 1,013
2,125 Government National Mortgage Association 6.50 10/20/25 2,062
2,486 Government National Mortgage Association 7.00 6/20/26 2,467
1,980 Government National Mortgage Association 7.50 11/20/26 2,004
997 Government National Mortgage Association 8.00 9/20/26 1,025
1,000 U.S. Treasury Notes 7.00 7/15/06 1,066
- -------------------------------------------------------------------------------------------------------------
Total bonds (cost: $26,196) 26,661
- -------------------------------------------------------------------------------------------------------------
Money Market Instrument (5.5%)
7,450 Federal Home Loan Mortgage Corp. (cost: $7,447) 5.70 12/02/96 7,447
- -------------------------------------------------------------------------------------------------------------
Total investments (cost: $124,068) $ 134,443
=============================================================================================================
_______________________
*Non-income producing.
</TABLE>
Portfolio Summary By Industry
-------------------------------
U.S. Government & Agency Issues 11.9%
Healthcare 8.4
Oil 7.4
Tobacco 6.3
Electronics 6.1
Banks 5.3
Electric Power 4.7
Retail 4.6
Specialized Services 4.6
Telecommunications 3.8
Computer Software & Service 3.5
Real Estate Investment Trusts 3.1
Gold Mining 2.9
Broadcasters 2.8
Truckers 1.9
Machine Tools 1.5
Restaurants 1.3
Computer Systems 1.1
Entertainment 1.1
Manufacturing - Diversified 1.1
Other 16.7
---------
100.1%
=========
GROWTH STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1996
(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.
The Large Cap category consists of investments in common stocks of companies
with market capitalizations of $1 billion or more at the time of the initial
purchase. Small Cap stocks have market capitalizations of less than $1 billion
at the time of the initial purchase.
ADS/ADR -- American Depositary Shares/Receipts are foreign shares held by a
U.S. bank which issues a receipt evidencing ownership. Dividends are paid in
U.S. dollars.
GDS/GDR -- Global Depositary Shares/Receipts are foreign shares held by a
non-U.S. bank which issues a receipt evidencing ownership. Dividends are
paid in U.S. dollars.
Specific Notes
(a) Illiquid security valued using methods determined by the Manager under the
general supervision of the Board of Trustees. At November 30, 1996, this
security represented .01% of the Fund's net assets.
(b) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Manager. Any resale of this security may
occur in an exempt transaction in the United States to a qualified institutional
buyer as defined by Rule 144A.
See accompanying notes to financial statements.
GROWTH STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1996
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $29):
Dividends $ 589
Interest 847
-------
Total income 1,436
-------
Expenses:
Management fees 379
Transfer agent's fees 144
Custodian's fees 120
Postage 22
Shareholder reporting fees 14
Trustees' fees 1
Registration fees 54
Audit fees 12
Legal fees 1
Other 8
------
Total expenses 755
------
Net investment income 681
------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain on:
Investments 3,493
Foreign currency transactions 2
Change in net unrealized appreciation/depreciation of investments (595)
--------
Net realized and unrealized gain 2,900
--------
Increase in net assets resulting from operations $ 3,581
========
See accompanying notes to financial statements.
GROWTH STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six month period ended November 30, 1996
and Nine-month period May 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
11/30/96 5/31/96*
-------- --------
<S> <C> <C>
From operations:
Net investment income $ 681 $ 389
Net realized gain on investments 3,493 1,393
Net realized gain (loss) on foreign currency transactions 2 (1)
Change in net unrealized appreciation/depreciation of investments (595) 10,970
--------- ----------
Increase in net assets resulting from operations 3,581 12,751
---------- ----------
Distributions to shareholders from:
Net investment income (339) (83)
---------- ----------
Net realized gains (3,874) -
---------- ----------
From capital share transactions:
Proceeds from shares sold 64,141 77,248
Shares issued for dividends reinvested 4,109 53
Cost of shares redeemed (20,438) (2,781)
---------- ----------
Increase in net assets from capital share transactions 47,812 74,520
---------- ----------
Net increase in net assets 47,180 87,188
Net assets:
Beginning of period 87,188 -
----------- ----------
End of period $ 134,368 $ 87,188
=========== ===========
Undistributed net investment income included in net assets:
Beginning of period $ 338 $ -
============ ===========
End of period $ 682 $ 338
============ ===========
Change in shares outstanding:
Shares sold 5,299 7,082
Shares issued for dividends reinvested 340 5
Shares redeemed (1,694) (244)
------------ ----------
Increase in shares outstanding 3,945 6,843
============ ==========
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
</TABLE>
GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1996
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended, 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
Strategy Fund (the Fund). The Fund's investment objective is to seek a high
total return, with reduced risk over time, through an asset allocation strategy
which emphasizes capital appreciation and gives secondary emphasis to income.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the latest bid price 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. Other debt and government securities are valued each business day by a
pricing service (the Service) approved by the Trust'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. As a result of certain
permanent differences between book and tax basis accounting for investments in
passive foreign investment companies, reclassifications were made to the
statement of assets and liabilities at May 31, 1996 to increase accumulated
undistributed net investment income by $32,948 and to decrease accumulated net
realized gain on investments by $32,948.
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, 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 securities
are amortized over the life of the respective securities.
D. Foreign currency translations - The assets of the Fund may be invested
in the securities of foreign issuers. Since the accounting records of the Fund
are maintained in U.S. dollars, foreign currency amounts are translated
into U.S. dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean
between the bid and asked translation rates of such currencies against U.S.
dollars.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates
of such transactions.
Net realized and unrealized foreign currency gains/losses occurring during
the holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign currency,
currency gains/losses realized between the trade and settlement dates on
security transactions, and from the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. Net realized foreign
currency gains/losses are reclassified from accumulated net realized gain/loss
to accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for
tax purposes. Net unrealized foreign currency exchange gains/losses
arise from changes in the value of assets and liabilities other than
investments in securities resulting from changes in the exchange rate.
E. Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in
the financial statements.
(2) Lines of Credit
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation (CAPCO), 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, of which only
5% may be borrowed from CAPCO, at the lending institution's borrowing rate plus
a markup. The Fund had no borrowings under either of these agreements during
the six-month period ended November 30, 1996.
(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
Purchases and sales/maturities of securities, excluding short-term securities,
for the six-month period ended November 30, 1996 were $76,556,632 and
$36,717,231, respectively.
Gross unrealized appreciation and depreciation of investments as of November
30, 1996 was $14,829,552 and $4,454,291, respectively.
(5) Foreign Currency Contracts
A forward currency contract (currency contract) is a commitment to purchase
or sell a foreign currency at a specified date, at a negotiated price. The
Fund currently enters into currency contracts only in connection with the
purchase or sale of a security denominated in a foreign currency. These
contracts allow the Fund to "lock in" the U.S. dollar price of the security.
Currency contracts are valued on a daily basis using foreign currency exchange
rates obtained from an independent pricing service. Risks of entering into
currency contracts include the potential inability of the counterparty
to meet the terms of the contract and the Fund giving up the opportunity for
potential profit.
At November 30, 1996, the terms of open foreign currency contracts were as
follows (in thousands):
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar Unrealized
Exchange Currency to be Value as of Currency to be Value as of Appreciation
Date Delivered 11/30/96 Received 11/30/96 (Depreciation)
----- --------- -------- -------- -------- ---------------
<C> <C> <C> <C> <C> <C>
12/02/96 426 Japanese Yen $ 4 4 U.S. Dollar $ 4 $ -
12/02/96 82 U.S. Dollar 82 425 French Franc 81 (1)
12/02/96 192 Philipino Peso 7 7 U.S. Dollar 7 -
12/03/96 8 Singapore Dollar 6 6 U.S. Dollar 6 -
12/03/96 63 U.S. Dollar 63 8,182 Spanish Peseta 63 -
12/03/96 71 Philipino Peso 3 3 U.S. Dollar 3 -
12/03/96 3 U.S. Dollar 3 5 Deutsche Mark 3 -
12/03/96 16 Australian Dollar 13 13 U.S. Dollar 13 -
12/04/96 3 British Pound 4 4 U.S. Dollar 4 -
12/04/96 77 Philipino Peso 3 3 U.S. Dollar 3 -
12/04/96 8 Singapore Dollar 6 6 U.S. Dollar 6 -
12/05/96 116 U.S. Dollar 116 156 Canadian Dollar 115 (1)
------- ------- --------
$310 $308 $(2)
======= ======= ========
</TABLE>
(6) 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 .75% of its annual
average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund. Shareholder accounting service fees are based on an annual charge
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 fee or other remuneration for such services.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month Nine-month
Period Ended Period Ended
November 30, May 31,
1996 1996*
------ -------
<S> <C> <C>
Net asset value at
beginning of period $ 12.74 $ 10.00
Net investment income .08 .11
Net realized and
unrealized gain .12 2.66
Distributions from net
investment income (.05) (.03)
Distributions of realized
capital gains (.44) -
--------- ---------
Net asset value at
end of period $ 12.45 $ 12.74
========= ========
Total return (%) ** 1.75 27.76
Net assets at end
of period (000) $ 134,368 $ 87,188
Ratio of expenses to
average net assets (%) 1.50(a) 1.66(a)
Ratio of net investment
income to average
net assets (%) 1.35(a) 1.34(a)
Portfolio turnover (%) 37.32 40.21
Average commission rate paid per share+ $ .0233 $ .0072
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
+ Calculated by aggregating all commissions paid on the purchase and sale of
securities and dividing by the actual number of shares purchased or sold for
which commissions were charged.
(a) Annualized. The ratio is not necessarily indicative of 12 months of operations.
</TABLE>
