Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Portfolio of Investments 9
Notes to Portfolio of Investments 29
Statement of Assets and Liabilities 30
Statement of Operations 31
Statements of Changes in Net Assets 32
Notes to Financial Statements 33
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)1999, 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
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 (Registered
Trademark) 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 not insured or guaranteed by the
FDIC or any other government agency. Although the fund seeks to preserve
the value of your investment at $1 per share, it is possible to lose
money by investing in the fund.
(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
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA
APPEARS HERE]
Since my last message to Investment Trust shareholders, the stock market has
reminded us that intense emotions are part of the investment process. In August,
the unraveling of markets around the world was downright scary. Huge daily
drops, the rampage into treasury bonds while other income markets dried up, and
the antics of huge hedge funds made for confusion and fear. At such times, it
becomes very hard for people to remember the long-term plans they have made for
their portfolios.
A scant three months later, stock markets have recouped losses and bond markets
have settled down. August looks like a momentary aberration. With the retreat of
fear, we are now seeing something the financial press has tagged "Internet
stocks." These are various companies, going public for the first time, whose
business is closely tied to Internet commerce. Some have soared to prices ten
times their initial offering, even though they have little or no earnings and
traditional analysts can detect little to support such lofty prices. In the
1600s, investors got the idea that tulip bulbs, which Dutch traders brought home
on their voyages, were highly valuable and bid their prices to incredible
levels. Those prices collapsed and the word "tulip" took on a special meaning
for investment professionals. The tulip craze became a classic example of
irrational investor behavior. When I watch the Internet IPOs, I think "Tulip."
This tells me that emotions can run both ways, from panic to euphoria, and make
people forget their long-term investment plans. But, you need those plans most
of all when the emotions are rampant. Trading in calm markets prepares you to
avoid trading during raging markets.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about mutual funds managed and distributed by USAA
IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before investing.
Although none of the investments mentioned are guaranteed or insured, government
bonds are backed by the full faith and credit of the U.S. Government. Common
stocks are considered to have the most risk, followed by corporate bonds and
government bonds. All of these vehicles are subject to tax. If held to maturity,
bonds offer a fixed rate of return and fixed principal value. Return and
principal value of an investment in stocks will fluctuate.
Past performance is no guarantee of future results.
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.
- --------------------------------------------------------------------------------
11/30/98 5/31/98
- --------------------------------------------------------------------------------
Net Assets $242.5 Million $249.4 Million
Net Asset Value Per Share $13.48 $14.30
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/98
- --------------------------------------------------------------------------------
5/31/98 to 11/30/98 (+) 1 Year Since Inception on 9/1/95
-0.54% 6.73% 14.09%
- --------------------------------------------------------------------------------
(+)Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital 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 09/01/95 through 11/30/98. The data points from the
graph are as follows:
USAA Growth S&P 500
Strategy Fund Index
------------- -------
09/01/95 $10,000 $10,000
11/30/95 10,330 10,840
05/31/96 12,776 12,117
11/30/96 12,999 13,858
05/31/97 13,764 15,684
11/30/97 14,381 17,809
05/31/98 15,432 20,493
11/30/98 15,349 22,026
Data since inception on 09/01/95 through 11/30/98
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 PORTFOLIO MANAGERS APPEARS HERE: Standing L to R: John K. Cabell,
Jr., CFA (Small Cap Stocks), David G. Parsons, CFA (Allocation Manager, Large
Cap Stocks), W. Travis Selmier, II, CFA (International Stocks), Paul H.
Lundmark, CFA (Bonds), Eric M. Efron, CFA (Small Cap Stocks), Pamela K. Bledsoe,
CFA (Money Market Instruments), and Albert C. Sebastian, CFA (International
Stocks); Seated: David G. Peebles, CFA (International Stocks).]
FUND OVERVIEW
The USAA Growth Strategy Fund is an asset allocation fund encompassing large and
small capitalization domestic stocks, international stocks, and bonds. Through
the employment of this diverse group of assets, the Fund seeks to remove the
growth investor's asset allocation burden.
LARGE CAPITALIZATION STOCKS
The two areas which were particularly strong, over the course of the six-month
reporting period ending November 30, 1998, were healthcare and technology. The
area of weakness was financial stocks. The Large Capitalization Stock sector of
the Fund, while still overweighted in technology and healthcare, is broadly
diversified with exposure to virtually all growth industries represented in the
S&P 500 Index.
Our investment strategy in this sector has been to purchase out-of-favor and
undervalued growth stocks: companies which were out-of-favor versus the market
or their industry at the time of purchase. In light of this strategy, we took
advantage of the sell-off in financials in the second and third quarters to
increase our exposure to this area. A portion of the portfolio is also made up
of a variety of growth stocks which were not out-of-favor at time of purchase.
As stated to you in our last report, these companies are included to diversify
the portfolio and to provide an effective investment of funds as we seek out and
research compelling out-of-favor ideas. As of November 30, 1998, 32.2% of the
Fund's net assets were in large capitalization stocks.
SMALL CAPITALIZATION STOCKS
The small capitalization category of the Fund invests in companies with market
capitalizations below $1 billion. Our best performing sectors for the period
were healthcare, technology, and business services. The worst performing were
energy, financial, and food companies. Small stocks are often more volatile than
their large capitalization counterparts. This volatility has certainly been
borne out in 1998. Weak Asian economies combined with worries about a U.S.
credit crunch caused small capitalization stocks to underperform large
capitalization stocks for most of 1998. This trend was reversed somewhat in
October and November as the Federal Reserve reduced interest rates. This
signaled that the Fed would not allow the economy to slip into a recession
because of tight credit policies.
Small capitalization stocks accounted for 29.5% of the Fund's net assets at the
end of the reporting period.
BONDS
The Fund's bond category is included to lower volatility and provide current
income. Over the six-month period, this category was concentrated in
intermediate-term corporate bonds and mortgage- and asset-backed securities:
instruments which offered higher yields and less interest-rate risk than
long-term Treasuries. When Russia defaulted on its external debt, the above
securities, as well as virtually all domestic bonds other than U.S. Treasuries,
were greatly affected.
Since September, our securities have recovered following the Federal Reserve
Board's cuts in interest rates. We believe our strategy is sound and will serve
you well in the future, despite the inevitability of panics from time to time.
At the end of the reporting period, bonds made up 19.1% of the Fund's net
assets.
INTERNATIONAL STOCKS
Over the past six months, the category was overweighted in Europe, underweighted
in Japan, and market-weighted in the emerging markets. This strategy did not
work well for the period. Europe was down and Japan was up. However, in the
emerging markets, gains in the Far East more than offset losses in Latin
America.
In 1999, we believe Europe still offers the best chance for economic and
earnings growth. The introduction to the Euro, which is the common currency of
the European Monetary Union, on January 1, 1999, will further financial and
economic integration as well as spur merger and acquisition activity. The
critical factor affecting the Japanese market is the extent and speed of bank
restructuring. We are monitoring this situation closely to determine if further
commitments to this market are warranted.
International stocks accounted for 19% of the Fund's net assets on November 30,
1998.
MONEY MARKET INSTRUMENTS
Money market instruments are used to provide liquidity for withdrawals or to
provide a temporary investment until stock or bond purchases are made. U.S.
Government discount notes are the most common instruments used for these
purposes. At the end of November, money market investments totaled .6% of net
assets.
PERFORMANCE
For the six-month reporting period, the Fund returned -0.54%. That trailed the
7.5% return of the S&P 500 Index and the 1.83% return of the growth funds
average, according to Lipper Analytical Services, Inc.(1) The Fund's unfavorable
performance relative to its peer group was caused by the international, small
stock, and bond sectors.
Although, we cannot predict the future course of the market or this Fund, we are
of the opinion that this diversified portfolio has the potential to generate
attractive returns with less volatility than an average growth fund.
(1)Lipper Analytical Services, Inc. is an independent organization that monitors
the performance of mutual funds.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of November 30, 1998
of the USAA Growth Strategy Fund to be:
Large Cap Stocks - 32.2%*; Small Cap Stocks - 29.5%*; Bonds - 19.1%*;
International Stocks - 19.0%*; and Money Market Instruments - 6%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
- --------------------------------------
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
- --------------------------------------
AAR 1.6
Pharmacia & Upjohn 1.2
Sunrise Assisted Living 1.1
Merck & Co 1.0
General Electric .9
99 Cents Only Stores .9
PepsiCo .9
Metromedia Fiber Network "A" .9
Amgen .9
NCO Group .8
- --------------------------------------
- --------------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
- --------------------------------------
Banks - Major Regional 6.0
Telephones 4.8
Real Estate Investment Trusts 4.6
Drugs 4.1
Electronics - Semiconductors 3.9
Retail - Specialty 3.8
Asset Backed Financings 3.4
Aerospace / Defense 3.0
Computer Software & Service 2.9
Healthcare - Specialized 2.7
- --------------------------------------
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 9 for a complete listing of the Portfolio of Investments.
USAA GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
(Unaudited)
Market
Number Value
of Shares Security (000)
- -------------------------------------------------------------------------------
INTERNATIONAL STOCKS (19.0%)
Argentina (0.1%)
3,540 IRSA Inversiones y Representaciones S.A. GDR $ 99
3,000 Telefonica de Argentina S.A. ADR 97
------------
196
------------
Australia (0.2%)
29,250 Cable & Wireless Optus Ltd. * 55
30,000 CSL Ltd. 234
81,400 HIH Insurance Ltd. 61
17,300 Smith (Howard) Ltd. 112
------------
462
------------
Austria (0.5%)
950 Bank Austria AG 49
7,307 Boehler Uddeholm AG 341
10,700 VA Flughafen Wien AG 476
3,800 VA Technologie AG 319
------------
1,185
------------
Brazil (0.2%)
4,400 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar ADR 88
3,830,400 Companhia Energetica de Minas Gerais (Cemig)
(Preferred) 97
12,000 Panamerican Beverages, Inc. "A" 277
750,000 Petroleo Brasileiro S.A. (Preferred) 107
------------
569
------------
Canada (1.1%)
42,600 Anderson Exploration Ltd. * 377
12,400 Canadian National Railway Co. 670
30,600 Canadian Occidental Petroleum Ltd. 407
37,200 National Bank of Canada 582
4,200 Northern Telecom Ltd. 196
12,000 OSF, Inc. * 89
18,000 Suncor, Inc. 549
------------
2,870
------------
Chile (0.1%)
3,000 Sociedad Quimica y Minera de Chile S.A. ADR 116
------------
China (0.1%)
55,000 New World Infrastructure Ltd. * 82
------------
Denmark (1.0%)
6,200 Carli Gry International A/S 327
6,000 ISS International Service System A/S "B" 396
18,200 SAS Danmark A/S 220
14,400 Tele Danmark A/S ADR 798
7,700 Unidanmark A/S 628
------------
2,369
------------
Egypt (0.1%)
4,400 Suez Cement Co. S.A.E. GDR 63
------------
Finland (1.0%)
147,000 Merita plc "A" 855
11,800 Nokia Corp. ADR 1,156
16,200 Raisio Group plc 210
16,600 Rauma OYJ 233
------------
2,454
------------
France (1.8%)
1,900 Accor S.A. 417
600 Bouygues Offshore S.A. ADR 8
6,603 CNP Assurances * 200
10,800 Coflexip ADR 394
14,200 Elf Aquitaine ADR 884
3,800 Eramet Group 120
1,250 Essilor International 487
3,000 ISIS S.A. 217
4,400 Louis Dreyfus Citrus 123
9,400 Renault S.A. 436
5,600 Rhone Poulenc S.A. 279
7,228 SEITA 419
3,500 Simco S.A. 310
4,400 Valeo S.A. 377
------------
4,671
------------
Germany (1.1%)
15,500 Continental AG 380
16,800 Hoechst AG 721
10,800 Merck KGaA 439
1,022 SAP AG 463
445 SAP AG (Preferred) 232
13,040 Veba AG 722
------------
2,957
------------
Greece (0.2%)
10,500 Hellenic Telecommunications Organization S.A. (OTE) 262
2,720 National Bank of Greece S.A. GDR * 98
200 Panafon Hellenic Telecommunications Co. S.A. * 3
------------
363
------------
Hong Kong (0.1%)
5,600 Asia Satellite Telecommunications Holdings Ltd. ADR 89
23,000 Hutchison Whampoa Ltd. 164
------------
253
------------
Hungary (0.2%)
5,600 Magyar Tavkozlesi RT. (MATAV) ADR 153
10,000 Mol Magyar Olaj-Es Gazipari GDR 231
------------
384
------------
India (0.1%)
7,250 Hindalco Industries Ltd. GDR 83
5,500 Larsen & Toubro Ltd. GDR 37
9,300 Videsh Sanchar Nigam Ltd. GDR 95
------------
215
------------
Israel (0.1%)
5,100 Blue Square - Israel Ltd. ADR 62
------------
Italy (1.2%)
7,300 ENI S.p.A. ADR 446
77,000 Erg S.p.A. 266
7,300 Gucci Group N.V. 329
144,000 Italgas S.p.A. 712
168,500 Telecom Italia S.p.A. 1,052
------------
2,805
------------
Japan (1.4%)
14,000 Bridgestone Corp. 327
16,000 Daibiru Corp. 108
1,000 Honda Motor Co. Ltd. 36
5,000 Ito-Yokado Co. Ltd. 305
2,700 Justsystem Corp. 13
7,900 Laox Co. Ltd. 51
11,000 Namco 214
2,000 Nomura Securities Co. Ltd. 19
120 NTT Data Corp. 524
4 NTT Mobile Communication Network, Inc. 153
9,000 Sankyo Co. Ltd. 205
20,000 Sanwa Bank Ltd. 181
19,000 Sharp Corp. 168
4,500 Sony Corp. 329
2,000 Terumo Corp. 44
48,000 Toko, Inc. 193
86,000 Toshiba Corp. 482
MBL International Finance (Bermuda) Trust,
Convertible Notes, $200,000 par, 3.00%, 11/30/2002 200
------------
3,552
------------
Korea (0.1%)
29,086 Samsung Heavy Industries * 161
13,558 Samsung Heavy Industries Rights * 21
------------
182
------------
Malaysia (0.1%)
64,400 Genting Bhd (a) 96
------------
Mexico (0.1%)
8,599 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 162
8,700 Empresas ICA Sociedad Controladora, S.A. de C.V. ADR 42
11,300 Tubos de Acero de Mexico, S.A. ADR 80
------------
284
------------
Netherlands (1.8%)
18,800 Akzo Nobel N.V. 771
10,800 Benckiser N.V. "B" 638
3,940 EVC International N.V. 31
13,000 ING Group N.V. 744
18,000 Koninklijke KPN N.V. 776
14,800 Koninklijke Pakhoed N.V. (Certificates) 364
9,700 Oce-van der Grinten N.V. 341
6,500 Philips Electronics N.V. 412
1,360 Simac Techniek N.V. 174
10,000 VNU N.V. 343
------------
4,594
------------
Norway (0.4%)
126,000 Christiania Bank og Kreditkasse 463
14,700 Schibsted ASA 169
58,700 Storebrand ASA * 435
36,600 Tandberg Data ASA * 112
------------
1,179
------------
Philippines (0.1%)
600,000 SM Prime Holdings, Inc. 113
------------
Poland (0.1%)
17,000 Elektrim S.A. 143
17,404 Polifarb Cieszyn-Wroclaw S.A. 23
------------
166
------------
Portugal (0.5%)
15,320 Banco Pinto & Sotto Mayor S.A. 279
3,000 Brisa-Auto Estradas de Portugal S.A. 162
10,922 Cimentos de Portugal S.A. 345
11,000 Portugal Telecom S.A. ADR 485
------------
1,271
------------
Russia (0.1%)
4,100 LUKoil ADR 84
------------
Singapore (0.1%)
14,000 Keppel Corp. Ltd. 37
53,600 Overseas Union Bank Ltd. 216
------------
253
------------
South Africa (0.1%)
70,000 Sanlam Ltd. * 74
4,600 South African Breweries Ltd. 78
------------
152
------------
Spain (0.6%)
23,612 Argentaria, Caja Postal y Banco Hipotecario
de Espana, S.A. 550
10,400 Corporacion Mapfre 288
5,500 Telefonica de Espana S.A. ADR 766
------------
1,604
------------
Sweden (0.8%)
28,020 Autoliv, Inc. SDR 1,011
138,000 Swedish Match AB 466
16,000 Volvo AB 372
------------
1,849
------------
Switzerland (0.9%)
550 Novartis AG 1,032
1,900 Selecta Group AG 487
599 Sulzer AG P.C. 339
1,110 Swisscom AG * 374
800 Tag Heuer International S.A. 55
24,200 Tag Heuer International S.A. ADR 169
------------
2,456
------------
Taiwan (0.1%)
225,500 China Steel Corp. 147
------------
Turkey (0.1%)
2,390,000 Akbank T.A.S. 49
2,823,822 Yapi Ve Kredi Bankasi A.S. 34
677,717 Yapi Ve Kredi Bankasi Receipts *, (a) 8
------------
91
------------
United Kingdom (2.4%)
136,900 Billiton plc 299
16,300 British Telecommunications plc * 223
9,300 Cable & Wireless plc * 118
26,100 Cadbury Schweppes plc 392
220,000 Cookson Group plc 483
131,700 Corporate Services Group plc 319
4,000 Doncasters plc ADR * 66
35,800 EMI Group plc 213
41,000 Laporte plc 347
126,000 LucasVarity plc 432
154,000 Medeva plc 262
31,800 National Westminster Bank plc 580
41,760 Reuters Group plc 403
98,000 Safeway plc 483
136,800 Tomkins plc 634
107,641 WPP Group plc 593
4,009 Zeneca Group plc * 167
------------
6,014
------------
Total international stocks (cost: $41,075) 46,163
------------
SMALL CAP STOCKS (29.5%)
Aerospace/Defense (2.7%)
150,000 AAR Corp. 3,787
40,000 Aviation Sales Co. * 1,480
10,000 TriStar Aerospace Co. 74
35,000 Triumph Group, Inc. * 1,177
------------
6,518
------------
Air Freight (0.2%)
21,000 Eagle USA Airfreight, Inc. * 399
------------
Airlines (0.5%)
17,500 Atlantic Coast Airlines, Inc. * 444
25,000 Midwest Express Holdings, Inc. * 694
------------
1,138
------------
Banks - Major Regional (0.9%)
60,000 Columbia Banking Systems, Inc.* 1,174
43,100 Hamilton Bancorp, Inc. * 1,088
------------
2,262
------------
Beverages - Alcoholic (0.7%)
25,000 Beringer Wine Estates Holdings, Inc. "B" * 916
10,000 Golden State Vintners, Inc. * 111
20,000 Robert Mondavi Corp. "A" * 732
------------
1,759
------------
Biotechnology (0.6%)
23,000 IDEC Pharmaceuticals Corp. * 773
5,900 Med Immune, Inc. * 395
7,000 SangStat Medical Corp. * 168
------------
1,336
------------
Broadcasting - Radio & TV (0.2%)
24,900 Cumulus Media, Inc. "A" * 339
13,650 Gray Communications Systems, Inc. "B" 186
------------
525
------------
Communication Equipment (0.9%)
29,900 Brightpoint, Inc. * 448
20,000 Datum, Inc. * 149
54,395 Digital Microwave Corp. * 320
24,000 Harmonic Lightwaves, Inc. * 303
20,000 Ortel Corp. * 220
11,600 P-Com, Inc. * 43
19,300 REMEC, Inc. * 268
18,000 Spectrian Corp. * 232
9,800 Terayon Communication Sys * 300
------------
2,283
------------
Computer - Hardware (0.2%)
34,000 Sandisk Corp. * 404
------------
Computer - Networking (0.1%)
15,000 Xylan Corp. * 272
------------
Computer - Peripherals (0.6%)
33,500 HMT Technology Corp. * 381
19,800 Maxtor Corp * 274
51,500 Read-Rite Corp. * 692
------------
1,347
------------
Computer Software & Service (0.7%)
15,600 DSET Corp. * 215
30,000 Macrovision Corp. * 1,091
9,200 Microstrategy, Inc. * 207
10,300 Softworks, Inc. * 63
------------
1,576
------------
Distributions - Food/Health (0.3%)
30,000 United Natural Foods, Inc. * 731
------------
Drugs (0.2%)
16,450 Jones Pharma, Inc. 592
------------
Electronics - Semiconductors (2.3%)
28,500 Applied Micro Circuits Corp. * 955
11,000 Lattice Semiconductor Corp. * 406
13,600 MIPS Technologies, Inc. * 329
19,000 Rambus, Inc. * 1,683
54,200 TranSwitch Corp. * 1,511
12,000 Triquint Semiconductor, Inc. * 232
38,000 VLSI Technology, Inc. * 434
------------
5,550
------------
Equipment - Semiconductors (1.6%)
16,000 Brooks Automation, Inc. * 256
21,000 Cerprobe Corp. * 307
45,000 CFM Technologies, Inc. * 394
42,900 Cymer, Inc. * 644
15,200 Electroglas, Inc. * 220
11,500 Etec Systems, Inc. * 378
48,000 Integrated Process Equipment Corp. * 501
22,000 Photronics, Inc. * 440
13,200 PRI Automation, Inc. * 317
20,300 Speedfam International, Inc. * 308
------------
3,765
------------
Finance - Consumer (0.8%)
55,750 NCO Group, Inc. * 2,056
------------
Finance - Diversified (0.1%)
6,600 Heller Financial, Inc. "A" * 173
------------
Foods (0.4%)
20,000 American Italian Pasta Co. "A" 505
15,000 Horizon Organic Holding Corp. * 242
4,400 Suiza Foods Corp. * 208
------------
955
------------
Healthcare - Diversified (0.3%)
19,000 PAREXEL International Corp. * 495
14,000 Professional Detailing, Inc. * 326
------------
821
------------
Healthcare - Specialized Services (2.6%)
50,000 MedQuist, Inc. * 1,519
27,275 Pediatrix Medical Group, Inc. * 1,464
15,000 Quadramed Corp. * 360
45,000 Renal Care Group, Inc. 1,209
50,000 Superior Consultant Holdings Corp. * 1,825
------------
6,377
------------
Home Furnishings & Appliances (0.2%)
15,000 Ethan Allen Interiors, Inc. 592
------------
Hospitals (0.3%)
25,000 Province Healthcare Co. * 800
------------
Internet Services (1.5%)
8,300 24 / 7 Media, Inc. * 230
15,100 Concentric Network Corp. * 429
26,100 Digital River, Inc. * 597
8,800 Entrust Technologies, Inc. * 187
7,900 NetGravity, Inc. * 168
13,900 Network Solutions, Inc. "A" * 912
18,000 Preview Travel, Inc. * 342
37,400 USWeb Corp. * 851
------------
3,716
------------
Investment Banks/Brokerage (0.1%)
10,000 Knight/Trimark Group, Inc. * 158
------------
Lodging/Hotel (0.2%)
31,000 Resort Quest International, Inc. * 407
------------
Medical Products & Supplies (0.5%)
6,000 Henry Schein, Inc. * 213
41,500 Ocular Sciences, Inc. * 934
------------
1,147
------------
Nursing Care (1.3%)
30,000 American Retirement Corp. * 471
60,000 Sunrise Assisted Living, Inc. * 2,587
------------
3,058
------------
Oil & Gas - Drilling/Equipment (0.3%)
15,000 Carbo Ceramics, Inc. 313
15,700 Friede Goldman International, Inc. * 196
16,200 Halter Marine Group, Inc. * 113
10,000 National-Oilwell, Inc. * 99
------------
721
------------
Personal Care (0.1%)
10,000 Revlon, Inc. "A" * 206
------------
Precious Metals & Mining (0.2%)
15,000 Stillwater Mining Co. * 548
------------
Railroads/Shipping (0.2%)
19,000 MotivePower Industries, Inc. * 578
------------
Restaurants (0.4%)
20,600 Papa John's International, Inc. * 864
------------
Retail - Food (0.2%)
17,000 Wild Oats Markets, Inc. * 485
------------
Retail - Specialty (2.7%)
50,000 99 Cents Only Stores * 2,150
4,500 Abercrombie & Fitch Co. "A" * 252
30,000 Cost Plus, Inc. * 990
50,000 Hibbett Sporting Goods, Inc. * 1,541
28,050 Party City Corp. * 468
39,300 Rental Service Corp. * 833
10,000 Restoration Hardware, Inc. * 279
------------
6,513
------------
Retail - Specialty Apparel (0.1%)
40,000 Delia's, Inc. * 328
------------
Services - Commercial & Consumer (0.8%)
24,000 Altron, Inc. * 537
25,000 Barra, Inc. * 650
26,900 Carreker-Antinori, Inc. * 148
24,000 MSC Industrial Direct Co. "A" * 571
------------
1,906
------------
Services - Data Processing (0.1%)
15,600 Checkfree Holdings Corp. * 254
------------
Telecommunications - Cellular/Wireless (0.3%)
11,800 Omnipoint Corp. * 104
38,500 Powertel, Inc. * 520
------------
624
------------
Telecommunications - Long Distance (0.6%)
51,000 ITC DeltaCom, Inc. * 800
10,400 Pacific Gateway Exchange, Inc. * 465
15,170 STAR Telecommunications, Inc. * 205
9,300 Startec Global Communications Corp. * 100
------------
1,570
------------
Telephones (1.9%)
31,900 e.spire Communications, Inc. * 257
34,700 Electric Lightwave, Inc. "A" * 213
35,200 GST Telecommunications, Inc. * 244
39,200 Hyperion Telecommunications, Inc. "A" * 426
18,000 ICG Communications, Inc. * 414
16,000 Intermedia Communications of Florida, Inc. * 276
40,800 Metromedia Fiber Network, Inc. "A" * 2,116
25,700 Northeast Optic Network, Inc. * 273
14,300 Winstar Communications, Inc. * 399
------------
4,618
------------
Textiles - Apparel (0.4%)
20,000 Columbia Sportswear Co. * 445
40,000 North Face, Inc. * 505
------------
950
------------
Truckers (0.2%)
20,000 Coach USA, Inc. * 567
------------
Total small cap stocks (cost: $63,353) 71,449
------------
LARGE CAP STOCKS (32.2%)
Aerospace/Defense (0.3%)
18,600 Boeing Co. 756
------------
Agricultural Products (0.1%)
4,500 Pioneer Hi-Bred International, Inc. 135
------------
Air Freight (0.2%)
7,000 FDX Corp. * 454
------------
Airlines (0.3%)
31,500 Southwest Airlines Co. 677
------------
Aluminum (0.1%)
4,300 Aluminum Co. of America 319
------------
Auto Parts (0.1%)
3,800 Dana Corp. 148
------------
Banks - Major Regional (1.3%)
6,500 Bank of Boston Corp. 271
4,000 Bank of New York Co., Inc. 137
11,540 Bank One Corp. 592
9,000 Fleet Financial Group, Inc. 375
6,700 National City Corp. 451
6,000 PNC Bank Corp. 309
4,000 U.S. Bancorp 147
24,100 Wells Fargo Co. 868
------------
3,150
------------
Banks - Money Center (0.7%)
15,360 BankAmerica Corp. 1,001
10,400 First Union Corp. 632
------------
1,633
------------
Beverages - Alcoholic (0.4%)
16,600 Anheuser-Busch Companies, Inc. 1,006
------------
Beverages - Nonalcoholic (0.9%)
55,000 PepsiCo, Inc. 2,128
------------
Biotechnology (1.2%)
28,000 Amgen, Inc. * 2,107
6,500 Biogen, Inc. * 493
4,000 Centocor, Inc. * 162
2,700 Genzyme Corp. * 114
291 Genzyme-Molecular Oncology 1
------------
2,877
------------
Broadcasting - Radio & TV (0.2%)
16,400 CBS Corp. * 489
2,000 Clear Channel Communications, Inc. * 93
------------
582
------------
Chemicals (0.4%)
6,500 Air Products & Chemicals, Inc. 248
10,000 Du Pont (E. I.) De Nemours & Co. 587
3,500 Praxair, Inc. 134
------------
969
------------
Chemicals - Diversified (0.1%)
3,000 PPG Industries, Inc. 184
------------
Computer - Hardware (1.5%)
28,500 Compaq Computer Corp. 926
11,000 Hewlett-Packard Co. 690
11,000 IBM Corp. 1,815
8,700 Micron Electronics, Inc. * 198
------------
3,629
------------
Computer - Networking (1.6%)
20,500 3Com Corp. * 793
32,000 Ascend Communications, Inc. * 1,798
4,000 Cabletron Systems, Inc. * 56
16,500 Cisco Systems, Inc. * 1,244
------------
3,891
------------
Computer - Peripherals (0.3%)
15,600 Quantum Corp. * 345
11,800 Seagate Technology, Inc. * 348
------------
693
------------
Computer Software & Service (1.5%)
11,200 Computer Associates International, Inc. 495
7,500 Intuit, Inc. * 434
9,000 Microsoft Corp. * 1,098
22,000 Oracle Corp. * 753
3,800 Parametic Technology Corp. 65
5,000 PeopleSoft, Inc. * 103
16,500 Synopsys, Inc. * 782
------------
3,730
------------
Containers - Paper (0.1%)
3,500 Bemis, Inc. 132
------------
Distributions - Food/Health (0.1%)
3,000 Cardinal Health, Inc. 206
------------
Drugs (2.8%)
5,000 Eli Lilly & Co. 448
15,000 Ivax Corp. * 143
15,000 Merck & Co., Inc. 2,323
15,000 Mylan Laboratories, Inc. 498
5,000 Pfizer, Inc. 558
54,900 Pharmacia & Upjohn, Inc. 2,858
------------
6,828
------------
Electrical Equipment (0.9%)
24,300 General Electric Co. 2,199
------------
Electronics - Semiconductors (1.4%)
5,000 Advanced Micro Devices, Inc. * 138
17,500 Intel Corp. 1,883
12,900 Micron Technology, Inc. * 533
9,800 Texas Instruments, Inc. 749
------------
3,303
------------
Entertainment (0.4%)
4,200 Time Warner, Inc. 444
15,300 Walt Disney Co. 493
------------
937
------------
Equipment - Semiconductors (0.6%)
11,800 Applied Materials, Inc. * 457
5,000 KLA-Tencor Corp. * 171
8,000 Lam Research Corp. * 143
7,900 Novellus Systems, Inc. * 392
8,300 Teradyne, Inc. * 266
------------
1,429
------------
Finance - Consumer (0.4%)
4,800 Associates First Capital Corp. "A" 374
3,700 Countrywide Credit Industries, Inc. 183
3,500 Household International, Inc. 137
7,200 MBNA Corp. 163
------------
857
------------
Finance - Diversified (1.9%)
5,400 American Express Co. 540
3,100 American General Corp. 218
27,800 Citigroup, Inc. 1,395
10,900 Fannie Mae 793
5,000 Federal Home Loan Mortgage Corp. 303
2,000 MBIA, Inc. 130
2,000 MGIC Investment Corp. 88
10,300 Morgan Stanley, Dean Witter, Discover & Co. 718
9,700 SLM Holding Corp. 427
------------
4,612
------------
Foods (0.9%)
5,700 Campbell Soup Co. 326
11,000 ConAgra, Inc. 346
8,500 General Mills, Inc. 642
12,000 Kellogg Co. 439
8,600 Sara Lee Corp. 502
------------
2,255
------------
Gaming Companies (0.1%)
5,200 International Game Technology 120
3,500 Mirage Resorts, Inc. * 52
------------
172
------------
Healthcare - Diversified (1.2%)
6,000 Abbott Laboratories 288
18,500 American Home Products Corp. 985
5,000 Bristol-Myers Squibb Co. 613
8,800 Johnson & Johnson, Inc. 715
8,800 Warner-Lambert Co. 664
------------
3,265
------------
Healthcare - HMOs (0.5%)
12,200 Pacificare Health Systems, Inc. "A" * 849
9,500 United Healthcare Corp. 429
------------
1,278
------------
Healthcare - Specialized Services (0.1%)
2,000 IMS Healthcare, Inc. 133
25,000 PhyCor, Inc. * 153
------------
286
------------
Household Products (0.8%)
1,700 Colgate-Palmolive Co. 145
18,300 Kimberly-Clark Corp. 963
8,600 Procter & Gamble Co. 754
------------
1,862
------------
Housewares (0.1%)
2,100 Newell Co. 93
------------
Insurance Brokers (0.1%)
3,600 Marsh & McLennan Cos., Inc. 210
------------
Insurance - Life/Health (0.3%)
7,500 Aetna, Inc. 580
3,000 Conseco, Inc. 99
------------
679
------------
Insurance - Multi-Line Companies (0.3%)
8,650 American International Group, Inc. 813
------------
Insurance - Property/Casualty (0.2%)
10,800 Allstate Corp. 440
1,000 Progressive Corp. 149
------------
589
------------
Investment Banks / Brokerage (0.4%)
14,100 Merrill Lynch & Co., Inc. 1,058
------------
Investment Management (0.2%)
11,700 Franklin Resources, Inc. 500
------------
Leisure Time (0.1%)
2,800 Mattel, Inc. 97
------------
Lodging/Hotel (0.1%)
5,000 Marriott International, Inc. "A" 147
------------
Machinery - Diversified (0.2%)
3,500 Case Corp. 85
9,500 Deere & Co. 332
3,500 Dover Corp. 124
------------
541
------------
Manufacturing - Diversified Industries (0.9%)
9,500 Allied Signal, Inc. 418
12,200 Hillenbrand Industries, Inc. 693
6,000 Minnesota Mining & Manufacturing Co. 482
11,917 Tyco International Ltd. 784
------------
2,377
------------
Manufacturing - Specialized (0.1%)
3,500 Parker Hannifin Corp. 122
------------
Medical Products & Supplies (0.4%)
11,600 Bausch & Lomb, Inc. 644
5,200 Boston Scientific Corp. * 257
4,000 St. Jude Medical, Inc. * 407
------------
1,308
------------
Oil & Gas - Drilling/Equipment (0.1%)
2,500 Halliburton Co. 73
5,000 Transocean Offshore, Inc. 124
------------
197
------------
Personal Care (0.2%)
8,800 Gillette Co. 404
------------
Photography - Imaging (0.3%)
5,000 Eastman Kodak Co. 363
2,700 Xerox Corp. 290
------------
653
------------
Publishing/Newspapers (0.1%)
2,500 Gannett Inc. 161
------------
Restaurants (0.1%)
3,000 Outback Steakhouse, Inc. * 107
------------
Retail - Building Supplies (0.3%)
11,700 Home Depot, Inc. 582
2,500 Sherwin-Williams Co. 71
------------
653
------------
Retail - Drugs (0.1%)
6,500 Walgreen Co. 349
------------
Retail - General Merchandising (0.5%)
5,700 Dayton Hudson Corp. 256
16,500 Wal-Mart Stores, Inc. 1,243
------------
1,499
------------
Retail - Specialty Apparel (0.1%)
4,000 Gap, Inc. 294
------------
Savings & Loan Holding Co. (0.1%)
7,750 Washington Mutual, Inc. 300
------------
Services - Commercial & Consumer (0.1%)
14,500 Cendant Corp. * 276
2,500 Service Corp. International 93
------------
369
------------
Services - Data Processing (0.3%)
24,800 First Data Corp. 662
------------
Shoes (0.2%)
11,500 Nike, Inc. "B" 460
------------
Telecommunications - Cellular/Wireless (0.1%)
3,600 Airtouch Communications, Inc.* 206
------------
Telecommunications - Long Distance (0.9%)
18,000 AT&T Corp. 1,121
18,200 MCI Worldcom, Inc. * 1,074
------------
2,195
------------
Telephones (0.9%)
12,500 Bell Atlantic Corp. 695
7,800 BellSouth Corp. 681
17,500 SBC Communications Corp. 839
------------
2,215
------------
Tobacco (0.9%)
33,100 Philip Morris Companies, Inc. 1,852
7,500 RJR Nabisco Holdings Corp. 216
------------
2,068
------------
Truckers (0.1%)
6,000 CNF Transportation, Inc. 214
------------
Total large cap stocks (cost: $64,917) 78,122
------------
Principal
Amount Coupon
(000) Rate Maturity
- --------------------------------------------------------------------------------
BONDS (19.1%)
$ 2,000 Capital One Financial Corp. 7.25% 12/01/2003 1,967
2,000 Corporacion Andina de Fomento
(Venezuela) 7.10 2/01/2003 1,976
2,000 EOP Operating LP 6.38 2/15/2012 1,992
1,000 First Industrial LP 7.60 5/15/2007 1,002
2,000 First Union Commercial Mortgage
Trust II 6.60 5/18/2007 2,050
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1997-3, Class A-6 7.08 7/10/2017 2,058
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1997-4, Class A-5 6.62 9/10/2015 2,020
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1998-1, Class A-5 6.25 11/10/2016 2,012
1,000 Franchise Finance Corp. of America 7.00 11/30/2000 996
2,000 Giddings & Lewis, Inc. 7.50 10/01/2005 2,182
2,000 Glenborough Property, L.P. (b) 7.63 3/15/2005 1,966
1,000 Great Atlantic & Pacific Tea, Inc. 7.70 1/15/2004 994
1,000 Health Care Property Investors,
Inc. 6.50 2/15/2006 933
2,000 HRPT Properties Trust 6.75 12/18/2002 1,939
2,000 HUBCO, Inc. 8.20 9/15/2006 2,165
1,000 Kmart Corp. 7.95 2/01/2023 1,016
2,000 MacSaver Financial Services, Inc. 7.40 2/15/2002 1,732
1,000 Merita Bank Ltd., (Finland) 6.50 1/15/2006 1,020
1,000 Merrill Lynch & Co., Inc. 6.50 7/15/2018 1,008
1,000 Pulte Corp. 7.00 12/15/2003 1,003
1,000 Security Capital Pacific Trust 7.15 10/15/2003 988
1,000 Time Warner, Inc. 7.48 1/15/2008 1,117
1,000 Washington Real Estate
Investment Trust 7.25 8/13/2006 1,006
2,000 Waste Management, Inc. 6.38 12/01/2003 2,035
2,000 Government National Mortgage
Assn. I 6.63 1/15/2040 1,994
1,813 Federal Home Loan Mortgage Corp.,
Series 1998-7 H 9.00 3/18/2025 1,924
2,357 Federal National Mortgage Assn.,
Series 1997-72 CA 9.50 9/18/2023 2,443
2,477 Federal National Mortgage Assn.,
Series 1997-79 U 9.00 11/18/2024 2,575
-----------
Total bonds (cost: $46,004) 46,113
-----------
MONEY MARKET INSTRUMENTS (0.6%)
1,573 Federal Home Loan Mortgage Corp., 5.10%,
12/01/1998 (cost: $1,573) 1,573
-----------
Total investments (cost: $216,922) $243,420
===========
- -----------------------
* Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Banks - Major Regional 6.0 %
Telephones 4.8
Real Estate Investment Trusts 4.6
Drugs 4.1
Electronics - Semiconductors 3.9
Retail - Specialty 3.8
U.S. Government & Agency Issues 3.5
Asset Backed Securities 3.4
Aerospace / Defense 3.0
Computer Software & Service 2.9
Healthcare - Specialized Services 2.7
Equipment - Semiconductors 2.1
Finance - Consumer 2.0
Finance - Diversified 2.0
Biotechnology 1.7
Computer - Hardware 1.7
Computer - Networking 1.7
Healthcare - Diversified 1.7
Telecommunications - Long Distance 1.7
Communication Equipment 1.5
Internet Services 1.5
Auto Parts 1.4
Foods 1.4
Manufacturing - Diversified
Industries 1.4
Nursing Care 1.3
Beverages - Alcoholic 1.2
Beverages - Nonalcoholic 1.2
Medical Products & Supplies 1.2
Services - Commercial & Consumer 1.2
Tobacco 1.2
Electrical Equipment 1.1
Insurance - Multi-Line Companies 1.1
Banks - Money Centered 1.0
Household Products 1.0
Retail - General Merchandising 1.0
Other 23.4
-------
100.4 %
=======
USAA GROWTH STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1998
(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 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 U.S. or foreign bank
evidencing ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
(a) Illiquid security valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Trustees. At November 30,
1998, these securities represented .04% 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 USAA Investment Management Company (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.
USAA GROWTH STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1998
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $216,922) $ 243,420
Cash 141
Cash denominated in foreign currencies
(identified cost of $133) 138
Receivables:
Capital shares sold 143
Dividends and interest 904
Securities sold 1,070
-------------
Total assets 245,816
-------------
LIABILITIES
Securities purchased 2,618
Unrealized depreciation on foreign currency contracts held,
at value 2
Capital shares redeemed 404
USAA Investment Management Company 147
USAA Transfer Agency Company 70
Accounts payable and accrued expenses 31
-------------
Total liabilities 3,272
-------------
Net assets applicable to capital shares outstanding $ 242,544
=============
REPRESENTED BY:
Paid-in capital $ 218,382
Accumulated undistributed net investment income 1,051
Accumulated net realized loss on investments (3,394)
Net unrealized appreciation of investments 26,498
Net unrealized appreciation on foreign currency translations 7
-------------
Net assets applicable to capital shares outstanding $ 242,544
=============
Capital shares outstanding, unlimited number of shares
authorized, no par value 17,988
=============
Net asset value, redemption price, and offering price
per share $ 13.48
=============
See accompanying notes to financial statements.
USAA GROWTH STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1998
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $47):
Dividends $ 799
Interest 1,829
-------------
Total income 2,628
-------------
Expenses:
Management fees 857
Transfer agent's fees 408
Custodian's fees 101
Postage 69
Shareholder reporting fees 19
Trustees' fees 2
Registration fees 36
Professional fees 14
Other 9
-------------
Total expenses 1,515
-------------
Net investment income 1,113
-------------
Net realized and unrealized loss on investments and foreign
currency:
Net realized loss on:
Investments (3,246)
Foreign currency transactions (32)
Change in net unrealized appreciation/depreciation of:
Investments 378
Foreign currency translations 34
-------------
Net realized and unrealized loss (2,866)
-------------
Decrease in net assets resulting from operations $ (1,753)
=============
See accompanying notes to financial statements.
USAA GROWTH STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1998
and Year ended May 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
11/30/98 5/31/98
---------------------------------------
<S> <C> <C>
From operations:
Net investment income $ 1,113 $ 2,257
Net realized gain (loss) on investments (3,246) 17,480
Net realized loss on foreign currency transactions (32) (40)
Change in net unrealized appreciation/depreciation of:
Investments 378 4,132
Foreign currency translations 34 (25)
---------------------------------------
Increase (decrease) in net assets resulting
from operations (1,753) 23,804
---------------------------------------
Distributions to shareholders from:
Net investment income (1,377) (2,021)
---------------------------------------
Net realized gains (12,119) (3,845)
---------------------------------------
From capital share transactions:
Proceeds from shares sold 32,614 94,367
Shares issued for dividends reinvested 13,446 5,843
Cost of shares redeemed (37,679) (62,657)
---------------------------------------
Increase in net assets from capital
share transactions 8,381 37,553
---------------------------------------
Net increase (decrease) in net assets (6,868) 55,491
Net assets:
Beginning of period 249,412 193,921
---------------------------------------
End of period $242,544 $249,412
=======================================
Undistributed net investment income included in net assets:
End of period $ 1,051 $ 1,347
=======================================
Change in shares outstanding:
Shares sold 2,491 6,653
Shares issued for dividends reinvested 964 448
Shares redeemed (2,907) (4,461)
---------------------------------------
Increase in shares outstanding 548 2,640
=======================================
</TABLE>
See accompanying notes to financial statements.
USAA GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
(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 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.
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.
F. Euro Conversion Risk - On January 1, 1999, countries participating in the
European Monetary Union will begin converting their currencies into a new
currency unit called the euro. The countries initially participating in the
conversion are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, Netherlands, Portugal, and Spain. Conversion to the euro may present
certain risks to investments of the Fund held in one of the currencies being
replaced. The conversion is not expected to have a material impact on the Fund's
investments.
(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 six-month period ended November 30,
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 period ended November 30, 1998 were $48.7 million
and $48.5 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1998 was $40.5 million and $14.0 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.
At November 30, 1998, the terms of open foreign currency contracts were as
follows (in thousands):
Foreign Currency Contracts to Buy:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
U.S. Dollar In Exchange
Exchange Value as of for U.S. Unrealized Unrealized
Date Contracts to Receive 11/30/98 Dollar Appreciation Depreciation
- ----------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
12/01/98 1,020 Greek Drachma $ 4 $ 4 $ - $ -
12/04/98 140 British Pound 231 232 - (1)
12/07/98 5 British Pound 9 9 - -
12/07/98 420 South African Rand 74 74 - -
12/30/98 200 French Franc 35 35 - -
- ----------------------------------------------------------------------------------------------
$353 $354 $ - $ (1)
==============================================================================================
</TABLE>
Foreign Currency Contracts to Sell:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
U.S. Dollar In Exchange
Exchange Value as of for U.S. Unrealized Unrealized
Date Contracts to Deliver 11/30/98 Dollar Appreciation Depreciation
- ----------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
12/01/98 2,394 Japanese Yen $ 19 $ 19 $ - $ -
12/02/98 28 British Pound 47 47 - -
12/02/98 2,433 Japanese Yen 20 20 - -
12/02/98 56 Swiss Franc 40 39 - (1)
12/07/98 9 Singapore Dollar 5 5 - -
- ----------------------------------------------------------------------------------------------
$131 $130 $ - $ (1)
==============================================================================================
</TABLE>
(6) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at .75% of its annual average net assets.
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. Effective January 1, 1999, the annual charge will be
$26.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the six-month
period ended November 30, 1998 was $6,000.
(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:
<TABLE>
<CAPTION>
Six-month Nine-month
Period Ended Period Ended
November 30, Year Ended May 31, May 31,
----------------------------------------------------------------
1998 1998 1997 1996*
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 14.30 $ 13.10 $ 12.74 $ 10.00
Net investment income .08 .13 .15 .11(b)
Net realized and
unrealized gain (.13) 1.43 .77 2.66
Distributions from net
investment income (.08) (.13) (.12) (.03)
Distributions of realized
capital gains (.69) (.23) (.44) -
----------------------------------------------------------------
Net asset value at
end of period $ 13.48 $ 14.30 $ 13.10 $ 12.74
================================================================
Total return (%) ** (.54) 12.12 7.73 27.76
Net assets at end
of period (000) $242,544 $249,412 $193,921 $ 87,188
Ratio of expenses
to average net assets (%) 1.29(a) 1.25 1.31 1.66(a)
Ratio of net investment income
to average net assets (%) .95(a) .97 1.46 1.34(a)
Portfolio turnover (%) 20.97 69.42 62.50 40.21
</TABLE>
* Fund commenced operations September 1, 1995
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(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 7:30 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
