Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Distributions to Shareholders 9
Independent Auditors' Report 10
Portfolio of Investments 11
Notes to Portfolio of Investments 31
Statement of Assets and Liabilities 32
Statement of Operations 33
Statements of Changes in Net Assets 34
Notes to Financial Statements 35
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)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
--------- ---------- ----------
CAPITAL APPRECIATION
===============================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
USAA First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 Index(2) Moderate $3,000
Science & Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
ASSET ALLOCATION
===============================================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME - TAXABLE
===============================================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
===============================================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
MONEY MARKET
===============================================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) 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.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by
the U.S. Government, and there is no assurance that any of the funds will
be able to maintain a stable net asset value of $1 per share.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart (Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. IRAs are not available
for tax-exempt funds. The Growth and Tax Strategy Fund is not available as
an investment for your IRA because the majority of its income is tax
exempt.
** California, Florida, New York, Texas, and Virginia funds available to
residents only.
Non-deposit investment products 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, and may lose value.
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.
Message from the President
A year ago my message to you sent a cautionary note about a market that had
risen very high for a long time:
"It would not be unusual if the market were to finish 1997 with a
return well below that of '95 and '96."
Of course, 1997's stock market did not perform poorly, and we are still
pondering when a correction might come. This situation is tailor-made for a
discussion of risk.
There has long been a difference between what most investors perceive as risk
and what academics mean by risk. To the individual investor risk means losing
money. To the student risk means variability of returns, both up and down. The
difference can be quite important.
To a person who perceives risk as only the possibility of loss, timing becomes a
rather attractive proposition. You know with certainty when the market has
provided an exceptional return for a given period. If your chief goal is to
avoid a loss, then a movement to safety following such a period could make
sense. But look at the experience of 1995, 1996 and 1997. Even 1998 is testimony
to the frailty of forecasting and also to an academic definition of risk.
If market risk means variability of return, and if that risk is describable in
scope but not in direction or timing of movement, then timing becomes dangerous.
That is because the variability of returns may help you as well as hurt you. To
put this plainly, a person who got out of the market in 1995 or 1996 is still
looking for a chance to come back in.
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA,
APPEARS HERE]
The Asset Strategy funds of the Investment Trust show a good way to confront
this real risk. They offer various asset allocations which are attuned to
different risk tolerances. And we keep those allocations for you. You will be
exposed to risk in a way that, hopefully, is tolerable and that exposure will be
there if the risk takes you down, or up.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
Investment Review
USAA 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.
- --------------------------------------------------------------------------------
5/31/98 5/31/97
================================================================================
Net Assets $249.4 Million $193.9 Million
Net Asset Value Per Share $14.30 $13.10
================================================================================
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/98
================================================================================
1 Year Since Inception on 9/1/95
12.12% 16.99%
================================================================================
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Growth Strategy Fund to the S&P
500 Index for the period of 9/1/95 to 05/31/98. The data points from the graph
are as follows:
USAA Growth S&P 500
Strategy Fund Index
------------- -----
9/1/95 10,000 10,000
12/95 10,650 11,049
06/96 12,385 12,163
12/96 13,007 13,584
06/97 14,289 16,382
12/97 14,191 18,114
05/98 15,432 20,493
Data since inception on 9/1/95 through 5/31/98
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth Strategy Fund 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.
Message from the managers
[PHOTOGRAPH OF THE FOLLOWING PORTFOLIO MANAGERS APPEARS HERE:
Standing L to R:
John K. Cabell, Jr., CFA (Small Cap Stocks),
Paul H. Lundmark, CFA (Bonds),
Pamela K. Bledsoe, CFA (Money Market Instruments),
Eric M. Efron, CFA (Small Cap Stocks) and
Albert C. Sebastian, CFA (International Stocks);
Seated L to R:
David G. Peebles, CFA (International Stocks),
W. Travis Selmier, II, CFA (International Stocks)
and David G. Parsons, CFA (Allocation Manager, Large Cap Stocks)]
FUND OVERVIEW
Through an asset allocation strategy encompassing domestic and international
stocks as well as bonds, the Growth Strategy Fund seeks to remove the growth
investor's asset allocation burden.
LARGE CAPITALIZATION STOCKS
For the 12-month period ending May 31, 1998, the performance of this section of
the Fund was poor versus the S&P 500 Index and other growth funds. The fallout
from Asia severely affected our large weightings in technology, medical
products, and biotechnology in the last four months of 1997. This experience
caused a reevaluation of the manner in which we manage this sector. Our major
change is to recognize that at times it may be difficult to find a sufficiently
varied group of out-of-favor growth stocks. In such cases we will invest a
portion of the Fund's net assets in a diversified group of large capitalization
growth stocks. This change has two potential benefits. It allows us to greatly
diversify this section of the Fund and provides an effective investment of funds
as we await and research compelling out-of-favor ideas.
The large capitalization sector of the Fund still has substantial exposure to
healthcare and technology, but to a lesser extent than at the time of our last
report to you. These two areas and this sector of the Fund overall have shown a
marked improvement in performance over the first five months of 1998. Because of
our change in investment procedure, this sector of the Fund now has exposure to
a broad array of growth sectors and companies. Large capitalization stocks
comprised 29.8% of the Fund's net assets on May 31, 1998.
SMALL CAPITALIZATION STOCKS
The small capitalization sector of the Fund invests mostly in companies with
market capitalizations below $1 billion. We believe that the stocks of
successful, well-run smaller companies have superior appreciation potential
because their revenues and earnings often are growing more rapidly than those of
larger companies. Small companies often have focus, progressive management, and
flexibility, which collectively enable them to respond quickly to social and
economic change and to take early advantage of emerging trends. Our small
capitalization investments are concentrated primarily in the technology,
communications, healthcare, energy, and retailing industries.
Although small capitalization equities have excellent appreciation potential,
they are also risky. Small companies tend to have more volatile earnings, and
their success can attract competition from better-financed, larger companies.
Furthermore, they are more difficult to trade than stocks of larger companies.
For the year ended May 31, 1998, the small capitalization sector of the Fund
provided good returns relative to the Russell 2000(Registered Trademark)Index,
(1) but below that of the S&P 500 Index. During this period, investors showed
a strong preference for more liquid larger capitalization equities. At the
end of the investment period, small capitalization stocks accounted for
27.4% of the Fund's net assets.
INTERNATIONAL STOCKS
The international sector of the Fund produced a good return versus international
indices, but below that of the S&P. Over the course of the year we overweighted
Europe and underweighted Japan. Both of these were good moves. European markets
produced strong returns due mainly to an improvement in economic growth and
continued mergers and acquisitions. The Japanese equity market, on the other
hand, was down. The Asian currency crisis compounded severe preexisting problems
within the banking system, which pushed Japan to the brink of a recession.
The principal weakness for the year was our overweighted position in the
emerging markets in Asia and Latin America. Asia's economic problems have led to
a weakening of the prices of most commodities, from which many emerging markets'
countries derive significant export earnings. Further, higher interest rates on
emerging countries' debt have raised companies' financing costs. While we are
confident of the long-term future of emerging markets, we are concerned about
their continued turbulence. We have therefore reduced our exposure to these
markets. At the end of the reporting period, international stocks made up 20% of
the Fund's net assets.
BONDS
The Fund's bond sector is included to lower volatility and provide current
income. There has been no dramatic change in the maturity of the Fund since the
last report. We believe that trying to predict where interest rates are going is
a futile effort. The emphasis remains on finding bonds that represent value in
terms of risk and reward.
Since the last report, we have increased the percentage of AAA-rated securities
that we believe will potentially perform well if interest rates remain unchanged
or go higher. These instruments are defensive in nature and balance the other
bonds in the portfolio that should do well in a decreasing interest rate
environment.
(1) The Russell 2000(Registered Trademark) Index is a widely recognized
unmanaged small cap index consisting of the 2,000 smallest companies within
the Russell 3000(Registered Trademark) Index.
The best performing holdings were Health Care Property Investors, Giddings &
Lewis, Kmart, and Waste Management. Our investments in MacSaver Financial and
Great Atlantic & Pacific underperformed because of weakness in their operations.
However, we continue to hold these bonds because they are addressing their
financial problems and have a potentially bright outlook. At the end of the
reporting period, bonds comprised 20.9% of the Fund's net assets.
MONEY MARKET INSTRUMENTS
As a percentage of the Fund's net assets on May 31, 1998, money market
instruments totalled 2.2%, comprised of U.S. Government agency discount notes.
These holdings are to provide liquidity to meet redemptions or fund the movement
into other stock or bond holdings.
PERFORMANCE
During the 12 months ended May 31, 1998, the Fund returned 12.12%. The main
problem existed in the large capitalization sector, which was up only marginally
in a strong bull market year. The other sectors produced relatively good
returns,(2) yet were below that of the S&P 500 Index.
We believe we have addressed the problem of the large capitalization sector of
the Fund. Although we cannot predict the future course of the market or this
Fund, we are in the opinion that this diversified portfolio has the potential to
generate attractive returns with less volatility than an average growth fund.
(2) Past performance is no guarantee of future results and the value of
your investment may vary according to the Fund's performance.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of May 31, 1998 of
the USAA Growth Strategy Fund to be:
International Stocks 20.0%*, Money Market Instruments 2.2%*, Large Cap Stocks
29.8%*, Small Cap Stocks 27.4%*, and Bonds 20.9%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
=========================================
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
Pharmacia & Upjohn 1.8
AAR 1.6
General Electric 1.1
Ascend Communications .9
Amgen .7
Hibbett Sporting Goods .7
PepsiCo .7
Superior Consultant Holdings .7
Triumph Group .7
Wal-Mart Stores .7
=========================================
============================================
TOP 10 INDUSTRIES
(% OF NET ASSETS)
Banks - Major Regional 5.9
Real Estate Investment Trusts 4.6
Telephones 4.2
Drugs 3.4
Asset Backed Financings 3.3
Aerospace/Defense 3.1
Medical Products & Supplies 2.7
Electronics - Semiconductors 2.6
Retail - Specialty 2.6
Telecommunications 2.5
=============================================
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.
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
Distributions to Shareholders
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended May 31, 1998. These figures are
provided for information purposes only and should not be used for reporting to
federal or state revenue agencies. Distributions for the calendar year will be
reported to you on Form 1099-DIV in January 1999.
Ordinary income $ .21*
Long-term capital gains - 20% .08
Long-term capital gains - 28% .07
-----
Total $ .36
=====
8.98% of ordinary income distributions qualify for deduction by corporations.
* Includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
Independent Auditors' Report
The Shareholders and Board of Trustees
USAA GROWTH STRATEGY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA Growth Strategy Fund, a series of the
USAA Investment Trust, as of May 31, 1998 and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and financial highlights,
presented in note 8 to the financial statements, for each of the years or
periods in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Growth Strategy Fund as of May 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
or periods in the three-year period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Antonio, Texas
July 2, 1998
USAA GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
Market
Number Value
of Shares Security (000)
- -------------------------------------------------------------------------------
INTERNATIONAL STOCKS (20.0%)
Argentina (0.2%)
7,900 Banco Rio de La Plata S.A. ADR $ 95
3,800 Disco S.A. ADR * 131
3,540 IRSA Inversiones y Representaciones S.A. GDR 125
3,000 Telefonica de Argentina S.A. ADR 98
---------
449
---------
Australia (0.2%)
30,000 CSL Ltd. 202
17,300 Smith (Howard) Ltd. 113
145,000 Telstra Corp. 341
---------
656
---------
Austria (0.6%)
4,487 Boehler Uddeholm AG 347
713 Creditanstalt AG (Preferred) 86
3,951 VA Flughafen Wien AG 212
8,657 VA Stahl AG 370
3,000 VA Technologie AG 406
---------
1,421
---------
Belgium (0.1%)
3,200 Union Miniere S.A. 218
--------
Brazil (0.4%)
3,830,400 Companhia Energetica de Minas Gerais (Cemig) (Preferred) 126
10,500 Panamerican Beverages, Inc. "A" 355
750,000 Petroleo Brasileiro S.A. (Preferred) 145
2,600,000 Telebras PN S.A. (Preferred) 276
---------
902
---------
Canada (1.3%)
42,600 Anderson Exploration Ltd.* 465
9,600 Canadian National Railway Co. 568
30,600 Canadian Occidental Petroleum Ltd. 641
41,200 National Bank of Canada 840
12,000 OSF, Inc.* 119
18,000 Suncor, Inc. 639
---------
3,272
---------
Chile (0.1%)
3,390 Compania de Telefonos de Chile ADR 75
5,900 Distribucion y Servicio D & S S.A. ADR 93
3,000 Sociedad Quimica y Minera de Chile S.A. ADR 104
---------
272
---------
China (0.1%)
454,000 Jiangsu Expressway Co. Ltd. 117
55,000 New World Infrastructure Ltd.* 97
---------
214
---------
Czech Republic (0.1%)
900 SPT Telecom A.S.* 116
---------
Denmark (1.0%)
6,200 Carli Gry International A/S 488
8,000 ISS International Service System A/S "B" 412
18,200 SAS Danmark A/S 337
14,400 Tele Danmark A/S ADR 668
6,100 Unidanmark A/S 493
---------
2,398
---------
Egypt (0.1%)
4,400 Suez Cement Co. S.A.E. GDR 86
---------
Finland (0.8%)
71,000 Merita plc "A" 447
13,000 Nokia Corp. ADR 844
1,420 Raision Tehtaat 266
16,600 Rauma OYJ 343
1,300 sponda OY* 8
----------
1,908
---------
France (1.9%)
1,300 Accor S.A. 357
6,000 Bouygues Offshore S.A. ADR 150
10,800 Coflexip ADR 800
15,000 Elf Aquitaine ADR 1,028
3,800 Eramet Group 182
1,050 Essilor International 447
3,000 ISIS S.A. 428
4,400 Louis Dreyfus Citrus 164
8,200 Renault S.A.* 429
5,428 SEITA 236
3,000 Simco S.A. 260
4,400 Valeo S.A. 415
---------
4,896
---------
Germany (1.0%)
11,600 Continental AG 352
11,300 Hoechst AG 564
5,900 Leica Camera AG 92
1,200 SAP AG 620
550 SAP AG (Preferred) 305
9,340 Veba AG 613
---------
2,546
---------
Greece (0.1%)
2,000 National Bank of Greece S.A. GDR* 57
---------
Hong Kong (0.1%)
67,500 Amoy Properties Ltd. 43
7,000 Asia Satellite Telecommunications Holdings Ltd. ADR 111
22,000 CITIC Pacific Ltd. 53
23,000 Hutchison Whampoa Ltd. 120
18,000 Swire Pacific Ltd. "A" 67
---------
394
---------
Hungary (0.2%)
7,000 Magyar Tavkozlesi RT. (MATAV) ADR* 196
10,000 Mol Magyar Olaj-Es Gazipari GDR 230
2,600 OTP Bank GDR 108
---------
534
---------
India (0.1%)
7,250 Hindalco Industries Ltd. GDR 102
5,500 Larsen & Toubro Ltd. GDR 70
9,300 Videsh Sanchar Nigam Ltd. GDR 110
---------
282
---------
Indonesia (0.1%)
21,000 PT HM Sampoerna 7
---------
Israel (0.1%)
5,100 Blue Square - Israel Ltd. ADR 74
5,000 ECI Telecommunications Ltd. 160
3,800 Teva Pharmaceutical Industries Ltd. ADR 156
---------
390
---------
Italy (0.9%)
8,200 ENI S.p.A. ADR 579
43,000 Erg S.p.A. 183
7,300 Gucci Group N.V. 331
70,000 Italgas S.p.A. 323
135,000 Telecom Italia S.p.A. 728
---------
2,144
---------
Japan (2.1%)
13,000 Bridgestone Corp. 297
16,000 Daibiru Corp. 104
36,000 Hitachi Ltd. 237
25,000 Hosiden Corp.* 304
7,000 Ito-Yokado Co. Ltd. 349
6,000 Justsystem Corp. 26
12,900 Laox Co. Ltd. 88
240,000 Long-Term Credit Bank of Japan, Ltd. 348
40,000 Minebea Co. Ltd. 411
40,000 Mitsubishi Heavy Industries Ltd. 139
13,000 Namco 289
1,730 Nichiei Co. Ltd. 116
24,000 Nomura Securities Co. Ltd. 262
12 NTT Data Communications Systems Corp. 482
24,000 Sanwa Bank Ltd. 210
34,000 Sekisui Chemical Co. Ltd. 171
5,500 Sony Corp. 465
24,000 Terumo Corp. 363
48,000 Toko, Inc. 303
12,000 Yamada Denki Co. 156
MBL International Finance (Bermuda) Trust,
Convertible Notes, $200,000 par,
3.00%, 11/30/02 191
---------
5,311
---------
Korea (0.1%)
19,290 Samsung Heavy Industries* 116
---------
Malaysia (0.1%)
58,600 Genting Bhd 153
109,400 Technology Resources Industries Bhd 79
---------
232
---------
Mexico (0.1%)
8,599 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 195
8,700 Empresas Ica Sociedad Controladora, S.A. de C.V. ADR 90
7,200 Tubos de Acero de Mexico, S.A. ADR 107
---------
392
---------
Netherlands (1.3%)
4,200 Akzo Nobel N.V. 878
5,200 Benckiser N.V. "B" ADR* 294
3,940 EVC International N.V. 74
11,500 ING Group N.V. 790
2,600 Koninklijke Pakhoed N.V. (Certificates) 93
9,200 Oce-van der Grinten N.V. 387
5,500 Philips Electronics N.V. 523
1,360 Simac Techniek N.V. 279
7,500 Verenigd Besit VNU 257
---------
3,575
---------
Norway (0.5%)
126,000 Christiania Bank og Kreditkasse 540
14,700 Schibsted ASA 238
37,500 Storebrand ASA* 349
18,300 Tandberg Data ASA* 131
---------
1,258
---------
Philippines (0.1%)
600,000 SM Prime Holdings, Inc. 106
---------
Poland (0.1%)
17,000 Elektrim S.A. 224
17,404 Polifarb Cieszyn-Wroclaw S.A. 52
---------
276
---------
Portugal (0.5%)
7,000 Banco Totta E Acores S.A. 259
13,200 Cimentos de Portugal S.A. 505
9,000 Portugal Telecom S.A. ADR 475
---------
1,239
---------
Russia (0.2%)
4,100 LUKoil ADR 177
16,500 Mosenergo ADR a 112
791,000 Unified Energy Systems* 139
---------
428
---------
Singapore (0.1%)
56,000 Keppel Corp. Ltd. 112
53,600 Overseas Union Bank Ltd. 163
30,000 Singapore Land Ltd. 63
---------
338
---------
South Africa (0.1%)
4,600 South African Breweries Ltd. 130
---------
Spain (0.6%)
5,153 Corporacion Bancaria de Espana S.A.* 439
10,400 Corporacion Mapfre 401
5,500 Telefonica de Espana S.A. ADR 740
---------
1,580
---------
Sweden (0.6%)
22,620 Autoliv, Inc. SDR 706
81,000 Swedish Match AB 285
18,000 Volvo AB 575
---------
1,566
---------
Switzerland (1.0%)
446 Novartis AG 755
1,900 Selecta Group AG 387
257 SGS Group AG 499
809 Sulzer AG P.C. 692
800 Tag Heuer International S.A. 100
24,200 Tag Heuer International S.A. ADR* 293
---------
2,726
---------
Taiwan (0.1%)
225,500 China Steel Corp. 136
301,000 Far Eastern Department Store, Ltd. 263
---------
399
---------
Turkey (0.1%)
681,000 Akbank T.A.S. 20
1,974,000 Akbank T.A.S. Receipts*, b 58
2,031,527 Yapi Ve Kredi Bankasi A.S. 39
792,295 Yapi Ve Kredi Bankasi Receipts*, b 16
---------
133
---------
United Kingdom (2.6%)
136,900 Billiton plc 344
23,100 Cadbury Schweppes plc 353
220,000 Cookson Group plc 915
97,700 Corporate Services Group plc 367
4,000 Doncasters plc ADR* 131
35,800 EMI Group plc 303
21,000 Laporte plc 293
140,000 LucasVarity plc 617
139,000 Medeva plc 399
31,800 National Westminster Bank plc 581
34,760 Reuters Group plc 399
98,000 Safeway plc 596
20,000 Thomson Travel Group plc* 59
120,000 Tomkins plc 693
97,641 WPP Group plc 625
---------
6,675
---------
Venezuela (0.1%)
3,000 Compania Anonima Nacional Telefonos de Venezuela ADR 92
---------
Other Holdings (0.1%)
32,100 Central European Growth Fund plc* 28
---------
Total international stocks (cost: $39,932) 49,762
---------
SMALL CAP STOCKS (27.4%)
Aerospace/Defense (2.8%)
150,000 AAR Corp. 3,965
30,000 Aviation Sales Co.* 1,146
6,000 TriStar Aerospace Co. 97
35,000 Triumph Group, Inc.* 1,715
---------
6,923
---------
Air Freight (0.3%)
24,000 Eagle USA Airfreight, Inc.* 782
---------
Airlines (0.2%)
15,000 Midwest Express Holdings, Inc.* 430
---------
Banks - Major Regional (1.2%)
60,000 Columbia Banking Systems, Inc.* 1,530
43,100 Hamilton Bancorp, Inc.* 1,385
---------
2,915
---------
Beverages - Alcoholic (0.7%)
25,000 Beringer Wine Estates Holdings, Inc.* 1,066
20,000 Robert Mondavi Corp.* 712
---------
1,778
---------
Biotechnology (0.7%)
30,000 CN Biosciences, Inc.* 690
20,000 IDEC Pharmaceuticals Corp.* 630
5,900 Med Immune, Inc.* 294
7,000 SangStat Medical Corp.* 184
---------
1,798
---------
Broadcasting - Radio & TV (0.1%)
9,100 Gray Communications Systems, Inc. "B" 270
---------
Communication Equipment (1.0%)
26,874 Brightpoint, Inc.* 425
20,000 Datum, Inc.* 294
6,100 First Virtual Corp.* 77
24,000 Harmonic Lightwaves, Inc.* 417
29,900 Innova Corp.* 258
20,000 Ortel Corp.* 293
11,600 P-Com, Inc.* 174
19,300 REMEC, Inc.* 277
18,000 Spectrian Corp.* 295
---------
2,510
---------
Computer - Hardware (0.3%)
34,000 Sandisk Corp.* 549
3,600 SCM Microsystems, Inc.* 207
---------
756
---------
Computer - Networking (0.4%)
18,500 International Network Services* 580
15,000 Xylan Corp.* 362
---------
942
---------
Computer - Peripherals (0.3%)
33,500 HMT Technology Corp.* 389
18,300 Komag, Inc.* 181
23,000 Read-Rite Corp.* 203
---------
773
---------
Computer Software & Service (0.6%)
15,600 Dset Corp.* 236
24,750 Harbinger Corp.* 576
30,000 Macrovision Corp.* 653
2,000 Security Dynamics Technologies, Inc.* 42
---------
1,507
---------
Drugs (0.1%)
13,000 Jones Medical Industries, Inc. 400
---------
Electronics - Semiconductors (1.4%)
14,000 Applied Micro Circuits Corp.* 315
10,900 Aspec Technology, Inc.* 133
5,000 Lattice Semiconductor Corp.* 193
19,000 Rambus, Inc.* 734
54,200 TranSwitch Corp.* 745
12,000 Triquint Semiconductor, Inc.* 272
38,000 VLSI Technology, Inc.* 589
40,900 Zoran Corp.* 473
---------
3,454
---------
Equipment - Semiconductors (1.4%)
16,000 Brooks Automation, Inc.* 206
13,000 Cerprobe Corp.* 171
45,000 CFM Technologies, Inc.* 512
20,000 Cymer, Inc.* 381
15,200 Electroglas, Inc.* 207
11,500 Etec Systems, Inc.* 421
45,000 Integrated Process Equipment Corp.* 624
22,000 Photronics, Inc.* 580
19,300 Speedfam International, Inc.* 376
---------
3,478
---------
Finance - Consumer (0.4%)
42,750 NCO Group, Inc.* 954
---------
Finance - Diversified (0.1%)
6,600 Heller Financial, Inc.* 184
---------
Foods (0.3%)
10,000 American Italian Pasta Co. 359
5,000 Suiza Foods Corp.* 292
---------
651
---------
Healthcare - Diversified (1.0%)
19,000 PAREXEL International Corp.* 570
8,900 Professional Detailing, Inc.* 187
40,100 Superior Consultant Holdings Corp.* 1,684
---------
2,441
---------
Healthcare - Specialized Services (1.3%)
5,000 Atria Communities, Inc.* 88
25,000 MedQuist, Inc.* 1,097
25,000 Pediatrix Medical Group, Inc.* 905
30,000 Renal Care Group, Inc.* 1,087
---------
3,177
---------
Home Furnishings & Appliances (0.2%)
10,000 Ethan Allen Interiors, Inc. 503
---------
Internet Services (1.0%)
15,100 Concentric Network Corp.* 334
13,900 Network Solutions, Inc. "A"* 514
18,000 Preview Travel, Inc.* 511
17,200 Sportsline USA, Inc.* 467
37,400 USWeb Corp.* 790
---------
2,616
---------
Investment Companies (0.5%)
50,000 Sirrom Capital Corp. 1,331
---------
Lodging/Hotel (0.1%)
13,000 ResortQuest International, Inc.* 197
---------
Medical Products & Supplies (0.6%)
6,000 Henry Schein, Inc.* 231
41,500 Ocular Sciences, Inc.* 1,219
---------
1,450
---------
Nursing Care (0.6%)
46,500 Sunrise Assisted Living, Inc.* 1,401
---------
Oil & Gas - Drilling/Equipment (1.3%)
3,800 Cal Dive International, Inc.* 129
15,000 Carbo Ceramics, Inc.* 513
3,900 Cliffs Drilling Co.* 161
20,100 Friede Goldman International, Inc.* 669
22,800 Halter Marine Group, Inc.* 428
13,600 National-Oilwell, Inc.* 475
12,000 R & B Falcon Corp.* 344
10,100 UNIFAB International, Inc.* 193
9,000 Veritas DGC, Inc.* 466
---------
3,378
---------
Restaurants (0.2%)
13,300 Papa John's International, Inc.* 554
---------
Retail - Food (0.5%)
30,000 Dominick's Supermarkets, Inc.* 1,294
---------
Retail - Specialty (2.1%)
40,000 99 Cents Only Stores* 1,525
4,500 Abercrombie & Fitch Co.* 190
3,000 Alrenco, Inc.* 53
6,400 Cost Plus, Inc.* 189
50,000 Hibbett Sporting Goods, Inc.* 1,700
4,500 Neff Corp.* 51
28,050 Party City Corp.* 824
30,000 Rental Service Corp.* 778
---------
5,310
---------
Retail - Specialty Apparel (0.3%)
30,000 Delia's, Inc.* 705
---------
Services - Commercial & Consumer (1.0%)
24,000 Altron, Inc.* 266
1,100 AnswerThink Consulting Group, Inc.* 17
10,900 Carreker-Antinori, Inc.* 119
2,400 Cultural Access World Wide, Inc.* 26
50,000 International Total Services, Inc.* 1,050
20,000 Learning Tree International, Inc.* 320
24,000 MSC Industrial Direct Co.* 640
---------
2,438
---------
Services - Data Processing (0.1%)
15,600 Checkfree Holdings Corp.* 354
---------
Services - Facilities & Environment (0.2%)
34,000 Computer Learning Centers, Inc.* 582
---------
Telecommunications - Cellular/Wireless (0.3%)
11,800 Omnipoint Corp.* 243
38,500 Powertel, Inc.* 702
---------
945
---------
Telecommunications - Long Distance (0.9%)
25,500 ITC DeltaCom, Inc.* 921
4,500 Pacific Gateway Exchange, Inc.* 192
12,000 Premiere Technologies, Inc.* 287
17,000 SmarTalk TeleServices, Inc.* 312
15,170 STAR Telecommunications, Inc.* 359
9,300 Startec Global Communications Corp.* 152
---------
2,223
---------
Telephones (1.7%)
31,900 e.Spire Communications, Inc.* 514
34,700 Electric Lightware, Inc. "A"* 473
35,200 GST Telecommunications, Inc.* 440
14,200 Hyperion Telecommunications, Inc. 223
18,000 ICG Communications, Inc.* 544
8,000 Intermedia Communications of Florida, Inc.* 593
20,400 Metromedia Fiber Network, Inc. "A"* 834
4,800 MGC Communications, Inc.* 82
14,300 Winstar Communications, Inc.* 536
---------
4,239
---------
Textiles - Apparel (0.6%)
20,000 Columbia Sportswear Co.* 419
40,000 North Face, Inc.* 992
---------
1,411
---------
Truckers (0.1%)
4,000 United Road Services, Inc.* 64
---------
Waste Management (0.5%)
30,000 American Disposal Services, Inc.* 1,175
---------
Total small cap stocks (cost: $59,747) 68,293
---------
LARGE CAP STOCKS (29.8%)
Advertising/Marketing (0.1%)
2,000 Cognizant Corp. 107
---------
Aerospace/Defense (0.3%)
18,600 Boeing Co. 886
---------
Agricultural Products (0.1%)
4,500 Pioneer Hi-Bred International, Inc. 171
---------
Air Freight (0.4%)
15,000 FDX Corp.* 962
---------
Airlines (0.2%)
21,000 Southwest Airlines Co. 560
---------
Banks - Major Regional (1.1%)
11,040 Banc One Corp. 609
3,700 Fleet Financial Group, Inc. 303
6,700 National City Corp. 454
12,600 Norwest Corp. 490
4,300 PNC Bank Corp. 248
1,500 Wells Fargo & Co. 542
---------
2,646
---------
Banks - Money Center (1.5%)
12,100 BankAmerica Corp. 1,000
7,800 Citicorp 1,163
8,400 First Union Corp. 465
13,000 NationsBank Corp. 985
---------
3,613
---------
Beverages - Alcoholic (0.2%)
11,600 Anheuser-Busch Companies, Inc. 533
---------
Beverages - Nonalcoholic (0.7%)
42,900 PepsiCo, Inc. 1,751
---------
Biotechnology (1.2%)
28,000 Amgen, Inc.* 1,694
12,000 Biogen, Inc.* 528
11,000 Centocor, Inc.* 429
6,600 Chiron Corp.* 119
11,000 Genzyme Corp.* 301
---------
3,071
---------
Broadcasting - Radio & TV (0.1%)
8,400 CBS Corp. 267
1,000 Clear Channel Communications, Inc.* 96
---------
363
---------
Chemicals (0.1%)
4,200 Monsanto Co. 233
---------
Communication Equipment (0.1%)
10,000 Pairgain Technologies, Inc.* 156
---------
Computer - Hardware (0.2%)
15,000 Compaq Computer Corp. 410
13,700 Micron Electronics, Inc.* 145
---------
555
---------
Computer - Networking (1.7%)
31,000 3Com Corp.* 787
51,900 Ascend Communications, Inc.* 2,241
26,200 Cabletron Systems, Inc.* 337
11,500 Cisco Systems, Inc.* 870
---------
4,235
---------
Computer - Peripherals (0.6%)
29,000 Quantum Corp.* 634
24,900 Seagate Technology, Inc.* 576
16,200 Western Digital Corp.* 276
---------
1,486
---------
Computer Software & Service (0.5%)
12,700 Intuit, Inc.* 602
15,000 Synopsys, Inc.* 644
---------
1,246
---------
Distributions - Food/Health (0.1%)
2,000 Cardinal Health, Inc. 178
---------
Drugs (2.7%)
5,000 Eli Lilly & Co. 307
15,000 Ivax Corp.* 138
5,000 Merck & Co., Inc. 586
23,000 Mylan Laboratories, Inc. 690
5,000 Pfizer, Inc. 524
98,700 Pharmacia & Upjohn, Inc. 4,361
---------
6,606
---------
Electrical Equipment (1.1%)
33,300 General Electric Co. 2,776
---------
Electronics - Instrumentation (0.1%)
6,500 KLA Instruments Corp.* 219
---------
Electronics - Semiconductors (1.0%)
20,000 Advanced Micro Devices, Inc.* 390
17,500 Intel Corp. 1,250
20,400 Micron Technology, Inc.* 481
9,300 Texas Instruments, Inc. 478
---------
2,599
---------
Entertainment (0.4%)
4,700 Time Warner, Inc. 366
5,600 Walt Disney Co. 633
---------
999
---------
Equipment - Semiconductors (0.8%)
19,600 Applied Materials, Inc.* 627
22,900 Lam Research Corp.* 545
13,900 Novellus Systems, Inc.* 526
10,100 Teradyne, Inc.* 311
---------
2,009
---------
Finance - Consumer (0.2%)
10,560 Advanta Corp. 222
2,800 Associates First Capital Corp. "A" 209
4,800 MBNA Corp. 152
---------
583
---------
Finance - Diversified (0.9%)
6,100 American Express Co. 626
3,100 American General Corp. 208
13,900 Federal National Mortgage Assn. 832
7,800 Morgan Stanley, Dean Witter, Discover & Co. 609
---------
2,275
---------
Foods (0.9%)
9,700 Campbell Soup Co. 529
10,000 ConAgra, Inc. 292
3,500 General Mills, Inc. 239
13,800 Kellogg Co. 570
10,600 Sara Lee Corp. 624
970 Vlasic Foods International, Inc* 21
---------
2,275
---------
Gaming Companies (0.1%)
9,200 International Game Technology, Inc. 227
---------
Healthcare - Diversified (1.5%)
3,000 Abbott Laboratories 223
32,000 American Home Products Corp. 1,546
5,000 Bristol-Myers Squibb Co. 538
6,300 Johnson & Johnson, Inc. 435
15,300 Warner-Lambert Co. 976
---------
3,718
---------
Healthcare - HMOs (0.9%)
19,600 Pacificare Health Systems, Inc.* 1,580
9,500 United Healthcare Corp. 608
---------
2,188
---------
Healthcare - Specialized Services (0.2%)
25,000 PhyCor, Inc.* 422
---------
Household Products (0.8%)
1,700 Colgate-Palmolive Co. 148
15,600 Kimberly-Clark Corp. 773
12,800 Procter & Gamble Co. 1,075
---------
1,996
---------
Housewares (0.1%)
2,100 Newell Co. 101
---------
Insurance Brokers (0.1%)
2,400 Marsh & McLennan Companies, Inc. 210
---------
Insurance - Life/Health (0.4%)
14,500 Aetna, Inc. 1,134
---------
Insurance - Multi-Line Companies (0.6%)
7,100 American International Group, Inc. 879
10,800 Travelers Corp. 659
---------
1,538
---------
Insurance - Property/Casualty (0.3%)
6,400 Allstate Corp. 602
1,000 Progressive Corp. 138
---------
740
---------
Investment Banks / Brokerage (0.1%)
3,800 Merrill Lynch & Co., Inc. 340
---------
Leisure Time (0.1%)
2,800 Mattel, Inc. 106
---------
Lodging/Hotel (0.1%)
2,500 Marriott International, Inc. "A" 87
---------
Manufacturing - Diversified Industries (0.4%)
18,700 Hillenbrand Industries, Inc. 1,155
---------
Medical Products & Supplies (1.7%)
20,100 Bausch & Lomb, Inc. 1,001
25,000 Boston Scientific Corp.* 1,594
20,000 St. Jude Medical, Inc.* 715
30,000 United States Surgical Corp. 1,193
---------
4,503
---------
Oil & Gas - Drilling/Equipment (0.2%)
5,000 Ensco International, Inc.* 127
5,000 Halliburton Co. 237
5,000 Transocean Offshore, Inc. 246
---------
610
---------
Personal Care (0.2%)
4,900 Gillette Co. 574
---------
Photography - Imaging (0.1%)
2,700 Xerox Corp. 277
---------
Restaurants (0.1%)
7,000 Lone Star Steakhouse & Saloon, Inc.* 118
6,400 Outback Steakhouse, Inc.* 236
---------
354
---------
Retail - Building Supplies (0.3%)
9,300 Home Depot, Inc. 731
---------
Retail - Drug (0.2%)
11,500 Walgreen Co. 405
---------
Retail - General Merchandising (0.7%)
5,700 Dayton Hudson Corp. 264
30,200 Wal-Mart Stores, Inc. 1,667
---------
1,931
---------
Retail - Specialty Apparel (0.1%)
4,000 Gap, Inc. 216
---------
Savings & Loan Holding Co. (0.1%)
3,500 Washington Mutual, Inc. 247
---------
Services - Commercial & Consumer (0.1%)
2,500 Service Corp. International 102
---------
Services - Data Processing (0.3%)
24,800 First Data Corp. 825
---------
Shoes (0.3%)
15,000 Nike, Inc. "B" 690
---------
Telecommunications - Cellular/Wireless (0.1%)
3,600 Airtouch Communications, Inc.* 171
---------
Telecommunications - Long Distance (0.6%)
32,200 WorldCom, Inc.* 1,465
---------
Telephones (1.1%)
10,700 Bell Atlantic Corp. 980
13,100 BellSouth Corp. 845
24,000 SBC Communications Corp. 933
---------
2,758
---------
Tobacco (0.4%)
25,600 Philip Morris Companies, Inc. 957
---------
Truckers (0.2%)
11,200 CNF Transportation, Inc. 460
---------
Total large cap stocks (cost: $67,769) 74,331
---------
Principal
Amount Coupon
(000) Rate Maturity
- ---------------------------------------------------------------------
BONDS (20.9%)
$ 2,000 Capital One Financial Corp. 7.25% 12/01/03 2,041
1,000 Comcast Cable Communications, Inc. 8.13 5/01/04 1,085
2,000 Corporacion Andina de Fomento,
(Venezuela) 7.10 2/01/03 2,047
2,000 EOP Operating, L.P. a 6.38 2/15/12 2,005
1,000 First Industrial LP 7.60 5/15/07 1,068
2,000 First Union Commercial Mortgage
Trust II 6.60 11/18/29 2,050
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1997-3, Class A-6 7.08 7/10/17 2,053
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1997-4, Class A-5 6.62 9/10/15 2,024
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1998-1, Class A-5 6.25 11/10/16 2,001
1,000 Franchise Finance Corp. of America 7.00 11/30/00 1,013
2,000 Giddings & Lewis, Inc. 7.50 10/01/05 2,114
2,000 Glenborough Realty Trust, Inc. a 7.63 3/15/05 2,008
1,000 Great Atlantic & Pacific Tea, Inc. 7.70 1/15/04 1,017
2,000 Health and Retirement Properties
Trust a 6.75 12/18/02 2,013
1,000 Health Care Property Investors,
Inc. 6.50 2/15/06 1,002
2,000 HUBCO, Inc. 8.20 9/15/06 2,177
1,000 Kmart Corp. 7.95 2/01/23 1,017
2,000 MacSaver Financial Services, Inc. 7.40 2/15/02 1,946
1,000 Merita Bank Ltd., (Finland) 6.50 1/15/06 1,006
1,000 Pulte Corp. 7.00 12/15/03 1,026
1,000 Security Capital Pacific Trust 7.15 10/15/03 1,036
2,000 Tele-Communications, Inc. 8.25 1/15/03 2,153
1,000 Time Warner, Inc. 7.48 1/15/08 1,069
1,000 Washington Real Estate Investment
Trust 7.25 8/13/06 1,040
2,000 Waste Management, Inc. 6.38 12/01/03 2,002
2,000 WorldCom, Inc. 7.55 4/01/04 2,121
1,963 Federal Home Loan Mortgage Corp.,
Series 1998-7 H 9.00 3/18/25 2,110
2,837 Federal National Mortgage Assn.,
Series 1997-72 CA 9.50 9/18/23 3,017
2,829 Federal National Mortgage Assn.,
Series 1997-79 U 9.00 11/18/24 2,977
1,984 Government National Mortgage
Association 6.50 10/20/25 1,972
---------
Total bonds (cost: $51,028) 52,210
---------
MONEY MARKET INSTRUMENTS (2.2%)
5,446 Federal Home Loan Bank, 5.38%, 6/01/98
(cost: $5,444) 5,444
---------
Total investments (cost: $223,920) $ 250,040
=========
- ---------------------
*Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
- -------------------------------------------------------------
U.S. Government & Agency Issues 8.4 %
Banks - Major Regional 5.9
Real Estate Investment Trusts 4.6
Telephones 4.2
Drugs 3.4
Aerospace/Defense 3.1
Medical Products & Supplies 2.7
Electronics - Semiconductors 2.6
Retail - Specialty 2.6
Healthcare - Diversified 2.5
Telecommunications -
Long Distance 2.5
Equipment - Semiconductors 2.2
Oil & Gas - Drilling/Equipment 2.2
Computer - Networking 2.1
Biotechnology 2.0
Banks - Money Center 1.9
Computer Software & Service 1.9
Broadcasting - Radio & TV 1.6
Communication Equipment 1.5
Services - Commercial & Consumer 1.5
Finance - Consumer 1.4
Healthcare - Specialized Services 1.4
Electrical Equipment 1.3
Foods 1.3
Retail - Food 1.3
Waste Management 1.3
Auto Parts 1.2
Insurance - Multi-Line Companies 1.2
Retail - General Merchandising 1.2
Manufacturing -
Diversified Industries 1.2
Asset Backed Securities 1.1
Beverages - Nonalcoholic 1.1
Computer - Peripherals 1.1
Beverages - Alcoholic 1.0
Entertainment 1.0
Finance - Diversified 1.0
Home Furnishings & Appliances 1.0
Internet Services 1.0
Manufacturing - Specialized 1.0
Other 18.8
-----
100.3%
=====
USAA GROWTH STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 1998
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 Stocks category consists of investments in common stocks of
companies with market capitalizations of $1 billion or more at the time of
purchase. Small Cap Stocks have market capitalizations of less than $1 billion
at the time of purchase.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
GDR - Global Depositary Receipts are receipts issued by a non-U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Fund's investment 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.
(b) Illiquid security valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Trustees. At May 31, 1998,
these securities represented .03% of the Fund's net assets.
See accompanying notes to financial statements.
USAA GROWTH STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1998
ASSETS
Investments in securities, at market value (identified
cost of $223,920) $250,040
Cash 121
Cash denominated in foreign currencies (identified cost of $345) 321
Receivables:
Capital shares sold 131
Dividends and interest 1,064
Securities sold 767
--------
Total assets 252,444
--------
LIABILITIES
Securities purchased 2,625
Unrealized depreciation on foreign currency contracts
held, at value 1
Capital shares redeemed 134
USAA Investment Management Company 161
USAA Transfer Agency Company 46
Accounts payable and accrued expenses 65
--------
Total liabilities 3,032
--------
Net assets applicable to capital shares outstanding $249,412
========
REPRESENTED BY:
Paid-in capital $ 210,001
Accumulated undistributed net investment income 1,347
Accumulated net realized gain on investments 11,971
Net unrealized appreciation of investments 26,120
Net unrealized depreciation on foreign currency translations (27)
---------
Net assets applicable to capital shares outstanding $ 249,412
=========
Capital shares outstanding, unlimited number of shares authorized,
no par value 17,440
=========
Net asset value, redemption price, and offering price per share $ 14.30
=========
See accompanying notes to financial statements.
USAA GROWTH STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1998
Net investment income:
Income (net of foreign taxes withheld of $101):
Dividends $ 1,565
Interest 3,623
-------
Total income 5,188
-------
Expenses:
Management fees 1,755
Transfer agent's fees 678
Custodian's fees 219
Postage 90
Shareholder reporting fees 47
Trustees' fees 4
Registration fees 87
Professional fees 33
Other 18
-------
Total expenses 2,931
-------
Net investment income 2,257
-------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 17,480
Foreign currency transactions (40)
Change in net unrealized appreciation/depreciation of:
Investments 4,132
Foreign currency translations (25)
--------
Net realized and unrealized gain 21,547
--------
Increase in net assets resulting from operations $23,804
========
See accompanying notes to financial statements.
<TABLE>
USAA GROWTH STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
From operations:
Net investment income $ 2,257 $ 1,927
Net realized gain on investments 17,480 955
Net realized loss on foreign currency transactions (40) (4)
Change in net unrealized appreciation/depreciation of:
Investments 4,132 11,018
Foreign currency translations (25) (2)
-------------------------
Increase in net assets resulting from operations 23,804 13,894
-------------------------
Distributions to shareholders from:
Net investment income (2,021) (1,215)
-------------------------
Net realized gains (3,845) (3,874)
-------------------------
From capital share transactions:
Proceeds from shares sold 94,367 138,121
Shares issued for dividends reinvested 5,843 4,982
Cost of shares redeemed (62,657) (45,175)
-------------------------
Increase in net assets from capital share transactions 37,553 97,928
-------------------------
Net increase in net assets 55,491 106,733
Net assets:
Beginning of period 193,921 87,188
-------------------------
End of period $249,412 $ 193,921
=========================
Undistributed net investment income included in net assets:
Beginning of period $ 1,057 $ 338
=========================
End of period $ 1,347 $ 1,057
=========================
Change in shares outstanding:
Shares sold 6,653 11,224
Shares issued for dividends reinvested 448 412
Shares redeemed (4,461) (3,679)
------------------------
Increase in shares outstanding 2,640 7,957
========================
</TABLE>
See accompanying notes to financial statements.
USAA GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1998
(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 annual report pertains only to the USAA 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 average of the bid and asked
prices is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. 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 USAA Investment Management Company (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, reclassifications
were made to the statement of assets and liabilities at May 31, 1998 to increase
accumulated undistributed net investment income and to decrease accumulated net
realized gain on investments by $93.5 thousand. A similar reclassification was
made in 1997 in the amount of $10.8 thousand.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on securities are amortized over the life of the
respective securities.
D. Foreign currency translations -The assets of the Fund may be invested in the
securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean between
the bid and asked translation rates of such currencies against U.S. dollars on a
daily basis.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates of
such transactions.
Net realized and unrealized foreign currency gains/losses occurring during the
holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign currency,
currency gains/losses realized between the trade and settlement dates on
security transactions, and from the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. Net realized foreign currency
gains/losses 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, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($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 its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing rate
with no markup. Subject to availability under its agreement with NationsBank,
the Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's total
assets at NationsBank's borrowing rate plus a markup. The Fund had no borrowings
under either of these agreements during the year ended May 31, 1998.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the year ended May 31, 1998 were $185.7 million and
$155.7 million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1998
was $37.1 million and $11.0 million, 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.
<TABLE>
At May 31, 1998, the terms of open foreign currency contracts were as follows (in thousands):
<CAPTION>
- ----------------------------------------------------------------------------------------------------
U.S. Dollar U.S. Dollar Unrealized
Exchange Currency to be Value as of Currency to be Value as of Appreciation
Date Delivered 5/31/98 Received 5/31/98 (Depreciation)
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <S> <C> <C>
6/1/98 4 $ 7 7 $ 7 $ -
British Pound U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/1/98 17 17 95 17 -
U.S. Dollar Finnish Markka
- ----------------------------------------------------------------------------------------------------
6/1/98 4 4 15 4 -
U.S. Dollar Malaysian Ringgit
- ----------------------------------------------------------------------------------------------------
6/1/98 1 1 4 1 -
U.S. Dollar Malaysian Ringgit
- ----------------------------------------------------------------------------------------------------
6/2/98 4 6 6 6 -
British Pound U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/2/98 36 36 448 35 (1)
U.S. Dollar Austrian Schilling
- ----------------------------------------------------------------------------------------------------
6/2/98 63 63 127 63 -
U.S. Dollar Netherlands Guilder
- ----------------------------------------------------------------------------------------------------
6/3/98 54 10 10 10 -
Finnish Markka U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/3/98 45 6 6 6 -
Hong Kong Dollar U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/3/98 141 18 18 18 -
Hong Kong Dollar U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/3/98 146 19 19 19 -
Hong Kong Dollar U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/3/98 5,531 40 40 40 -
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/3/98 34 34 425 34 -
U.S. Dollar Austrian Schilling
- ----------------------------------------------------------------------------------------------------
6/3/98 6 6 23 6 -
U.S. Dollar Malaysian Ringgit
- ----------------------------------------------------------------------------------------------------
6/3/98 18 18 35 18 -
U.S. Dollar Netherlands Guilder
- ----------------------------------------------------------------------------------------------------
6/4/98 4 6 6 6 -
British Pound U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/4/98 27,083 2 2 2 -
Indonesian Rupiah U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/4/98 5 5 19 5 -
U.S. Dollar Malaysian Ringgit
- ----------------------------------------------------------------------------------------------------
6/4/98 11 11 21 11 -
U.S. Dollar Netherlands Guilder
- ----------------------------------------------------------------------------------------------------
6/5/98 21 34 34 34 -
British Pound U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/5/98 7 12 12 12 -
British Pound U.S. Dollar
- ----------------------------------------------------------------------------------------------------
6/5/98 11 11 41 11 -
U.S. Dollar Malaysian Ringgit
- ----------------------------------------------------------------------------------------------------
6/5/98 4 4 16 4 -
U.S. Dollar Malaysian Ringgit
- ----------------------------------------------------------------------------------------------------
$ 370 $ 369 $(1)
====================================================================================================
</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
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 based on an annual charge of $23.50 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year ended May
31, 1998 was $9.0 thousand.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
Nine-month
Period Ended
Year Ended May 31, May 31,
- --------------------------------------------------------------------------------
1998 1997 1996*
- --------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.10 $ 12.74 $ 10.00
Net investment income .13 .15 .11(b)
Net realized and
unrealized gain 1.43 .77 2.66
Distributions from net
investment income (.13) (.12) (.03)
Distributions of realized
capital gains (.23) (.44) -
------------------------------------------
Net asset value at
end of period $ 14.30 $ 13.10 $ 12.74
==========================================
Total return (%) ** 12.12 7.73 27.76
Net assets at end of
period (000) $249,412 $193,921 $ 87,188
Ratio of expenses to
average net assets (%) 1.25 1.31 1.66(a)
Ratio of net investment
income to average net
assets (%) .97 1.46 1.34(a)
Portfolio turnover (%) 69.42 62.50 40.21
Average commission rate
paid per share (+) $ .0117 $ .0197 $ .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.
(b) Calculated using weighted average shares.
Trustees
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Independent Auditors
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
