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 16
Statement of Assets and Liabilities 18
Statement of Operations 19
Statements of Changes in Net Assets 20
Notes to Financial Statements 21
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 AND TAX
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)2000, 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 Very high 3,000
First Start Growth(Registered
Trademark) Moderate to high 3,000
Gold Very high 3,000
Growth Moderate to high 3,000
Growth & Income Moderate 3,000
International Moderate to high 3,000
S&P 500(Registered Trademark)
Index Moderate 3,000
Science & Technology Very high 3,000
Small Cap Stock Very high 3,000
World Growth Moderate to high 3,000
ASSET ALLOCATION
===============================================================================
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate 3,000
Growth and Tax
Strategy Moderate 3,000
Growth Strategy Moderate to high 3,000
Income Strategy Low to moderate 3,000
INCOME - TAXABLE
===============================================================================
GNMA(Registered Trademark) Low to moderate $3,000
High-Yield Opportunities High 3,000
Income Moderate 3,000
Income Stock Moderate 3,000
Intermediate-Term Bond Low to moderate 3,000
Short-Term Bond Low 3,000
INCOME - TAX EXEMPT
===============================================================================
Long-Term Moderate $3,000
Intermediate-Term Low to moderate 3,000
Short-Term Low 3,000
State Bond Income Moderate 3,000
MONEY MARKET
===============================================================================
Money Market Very low $3,000
Tax Exempt
Money Market Very low 3,000
Treasury Money
Market Trust(Registered
Trademark) Very low 3,000
State Money Market Very low 3,000
-------------------------------------------------------------------------------
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, WHICH ARE DISCUSSED IN THE
FUNDS' PROSPECTUSES.
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.
SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES OR THE FEDERAL ALTERNATIVE
MINIMUM TAX.
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.
THE SCIENCE & TECHNOLOGY 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.
NONDEPOSIT INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, USAA FEDERAL SAVINGS BANK, ARE SUBJECT
TO INVESTMENT RISKS, AND MAY LOSE VALUE.
FOR MORE COMPLETE INFORMATION ABOUT THE MUTUAL FUNDS MANAGED AND DISTRIBUTED BY
USAA INVESTMENT MANAGEMENT COMPANY, INCLUDING CHARGES AND OPERATING EXPENSES,
PLEASE CALL 1-800-531-8181 FOR A PROSPECTUS. READ IT CAREFULLY BEFORE YOU
INVEST.
MESSAGE FROM THE PRESIDENT
[PHOTOHGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH,
CFA, APPEARS HERE]
--------------------------------------------------------------------------------
THE FIRST FIVE MONTHS OF 2000 WERE AS FASCINATING AND CHALLENGING A PERIOD AS
INVESTORS HAVE SEEN IN A LONG TIME. IT WAS FRAMED BY TWO EVENTS THAT WERE
STUNNINGLY OPPOSITE TO ONE ANOTHER.
--------------------------------------------------------------------------------
The more notable of the two was the precipitous drop of the NASDAQ Index. This
market gauge is dominated by the tech stocks which created the stupendous
returns of 1999. Many mutual funds could boast triple-digit returns for 12-month
periods, and the valuation of tech stocks in general reached undreamt-of levels.
More traditional investors struggled with the triple-digit price/earnings ratios
of the techs, and the retort was that this was the new economy. Then, about
three months into 2000, the trend cracked. The NASDAQ began falling, and it fell
hard. There were numerous drops of 5% or more in a day, very severe for an
entire index.
The second event was at the opposite end of the investment spectrum. Most people
were highly aware that the Federal Reserve (the Fed) was getting serious about
inflation and was raising interest rates. Therefore, bonds were a bad
investment? Wrong!
The Fed indeed raised short-term rates more than once. But something else was
happening. The federal government continued to run a budget surplus, and that
surplus has begun to be applied to the national debt. The Treasury began to
retire its 30-year bond. The effect was that by early June the six-month
Treasury bill yielded over 6.30%, but the 30-year bond, which had long been the
benchmark for the entire bond market, had a yield of 5.91%. Not only could you
get a higher rate of interest investing for 180 days instead of 30 years, but if
you happened to already own the 30-year bond, you received the benefit of a
run-up in its price.
In May THE WALL STREET JOURNAL reported that one of the world's foremost hedge
funds had suspected that tech stocks would drop, but missed the opportunity to
get out ahead of the event.
And there was no forewarning of what happened in the bond market. Once again, at
a pair of major market turns most investors were surprised. And that is why we
continue to believe that a well-allocated portfolio, set up before the fact, is
an excellent way to approach investing.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
FOR MORE COMPLETE INFORMATION ABOUT THE MUTUAL FUNDS MANAGED AND DISTRIBUTED BY
USAA INVESTMENT MANAGEMENT COMPANY, INCLUDING CHARGES AND OPERATING EXPENSES,
PLEASE CALL FOR A PROSPECTUS. READ IT CAREFULLY BEFORE INVESTING.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INVESTMENT REVIEW
USAA GROWTH AND TAX STRATEGY FUND
OBJECTIVE: Conservative balance for the investor between income, the majority of
which is exempt from federal income tax, and the potential for long-term growth
of capital to preserve purchasing power.
TYPES OF INVESTMENTS: Invests principally in tax-exempt bonds and money market
instruments and the remainder in blue chip stocks.
--------------------------------------------------------------------------------
5/31/00 5/31/99
--------------------------------------------------------------------------------
Net Assets $263.6 Million $252.4 Million
Net Asset Value Per Share $17.28 $16.66
--------------------------------------------------------------------------------
Average Annual Total Returns and 30-Day SEC Yield* as of 5/31/00
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 30-DAY SEC YIELD
6.62% 11.90% 10.22% 4.51%
--------------------------------------------------------------------------------
* CALCULATED AS PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION.
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 and Tax Strategy Fund to
the Lehman Brothers Municipal Bond Index for the period of 5/31/90 through
5/31/00. The data points from the graph are as follows:
USAA Growth & Tax Lehman
Strategy Fund Index
------------- -------
05/31/90 $10,000 $10,000
11/30/90 10,012 10,484
05/31/91 10,891 11,008
11/30/91 11,134 11,559
05/31/92 11,775 12,089
11/30/92 12,086 12,719
05/31/93 13,136 13,535
11/30/93 13,701 14,128
05/31/94 13,623 13,870
11/30/94 13,461 13,386
05/31/95 15,085 15,133
11/30/95 16,297 15,916
05/31/96 17,289 15,825
11/30/96 18,671 16,852
05/31/97 19,745 17,135
11/30/97 21,245 18,060
05/31/98 22,757 18,742
11/30/98 23,352 19,461
05/31/99 24,828 19,618
11/30/99 25,740 19,253
05/31/00 26,472 19,450
DATA FROM 5/31/90 THROUGH 5/31/00.
THE GRAPH ILLUSTRATES HOW A $10,000 HYPOTHETICAL INVESTMENT IN THE USAA GROWTH
AND TAX STRATEGY FUND OUTPERFORMS ITS BENCHMARK, THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX. THIS INDEX IS AN UNMANAGED BENCHMARK OF TOTAL RETURN PERFORMANCE FOR
THE LONG-TERM, INVESTMENT-GRADE, TAX-EXEMPT BOND MARKET.
MESSAGE FROM THE MANAGERS
[PHOTOGRAPH OF PORTFOLIO MANAGERS FROM LEFT TO RIGHT: PATRICK O'HARE, CFA (BLUE
CHIP STOCKS) AND CLIFFORD A. GLADSON, CFA (ALLOCATION MANAGER, TAX-EXEMPT BONDS,
AND TAX-EXEMPT MONEY MARKET INSTRUMENTS) APPEARS HERE.]
FUND OVERVIEW
The USAA Growth and Tax Strategy Fund was the first mutual fund to combine
tax-exempt securities with common stocks in a balanced format. John W. Saunders
Jr., who acted as the allocation manager since the Fund's inception on January
11, 1989, retired on January 31, 2000. Beginning February 1, 2000, Clifford A.
Gladson, the Fund's manager of tax-exempt bonds and tax-exempt money market
instruments, has been given the privilege of also serving as the Fund's
allocation manager.
The Fund is designed to be a complete but conservative investment for
shareholders seeking a good level of tax-exempt income with exposure to common
stocks. The stock component provides the potential for capital appreciation that
can help offset the impact of inflation on fixed-income assets and income. The
tax-exempt bond component offers the potential for tax-free income accumulation.
We coordinate the management of the asset classes with a goal of enhancing the
tax efficiency of the Fund.
Under the Internal Revenue Code, the Fund must have at least 50% of its assets
invested in tax-exempt securities at the end of each fiscal quarter in order to
pass the tax-exempt income through to its shareholders. This means the Fund will
not have the traditional 60% common stocks, 40% bonds investment mix normally
associated with a BALANCED fund. The Fund's common stock target range is 41-49%
with the remainder of assets invested in tax-exempt securities.
While past performance is no guarantee of future results, the Fund's diversified
asset mix has helped offset the volatility in both the bond and stock markets
over the last year. The Fund's long-term results are depicted in the 10-year
cumulative performance chart on page 4.
The Fund's allocation of net assets on May 31, 2000, the end of this reporting
period, was: 48.7% in tax-exempt bonds, 48.4% in blue chip stocks, and 5.6% in
tax-exempt money market instruments.
TAX-EXEMPT BONDS
Over the last year, interest rates for municipal bonds rose sharply. The yield
of the Bond Buyer 40-Bond Index, the industry standard for long-term investment
grade municipal bonds, went from 5.42% on June 1, 1999, up to 6.13% on May
31,2000. While this increase in rates caused bond prices to decline, it also
provided an opportunity to purchase bonds that improved the tax-exempt
distribution yield of the portfolio. The rise in municipal yields reflected the
credit market's concern that the domestic economy was growing at a rate that
could lead to price inflation. In addition, the Federal Reserve (the Fed),
concerned that tight labor markets might produce wage inflation, raised
short-term interest rates six times since the beginning of the fiscal year. As
of May 31, 2000, the growth in the domestic economy remained rather strong, and
price inflation has increased to around 3%. The credit market continues to
assess when the actions of the Fed will slow the pace of growth in the domestic
economy and keep inflation in check.
EQUITIES
With the backdrop of the Fed's raising of interest rates, most stocks had a
difficult time. In fact, only the technology and capital goods sectors
outperformed the S&P 500 Index during the 12-month period. Six of the 11 sectors
comprising the S&P 500 Index actually had negative returns during the period.
The equity portion of your Fund performed well as a result of being overweighted
in technology. In particular, the Fund was helped by owning Applied Materials,
Texas Instruments, Cisco Systems, and Intel -- each of which was up more than
100% during the period. As a result of its ongoing litigation with the
government, Microsoft was the Fund's only technology holding that did poorly in
the period.
In the capital goods sector, General Electric continues to be a standout
performer. In the financial sector, the portfolio benefited from its positions
in Citigroup, State Street, and American Express. Tyco International and Bank
One negatively impacted the Fund. Both were sold to offset capital gains
generated during rebalancing of the Fund.
Other standout performers were Medtronic, Monsanto (which merged with
Pharmacia), Merck, Wal-Mart, Home Depot, CBS (which merged with Viacom), and
Halliburton.
Weak performers were Bristol-Myers, Johnson & Johnson, Ford, SBC Communications,
and MCI WorldCom.
OUTLOOK FOR EQUITIES
Until it is clear that the Fed has stopped raising interest rates, we believe
that the markets will continue to trade in a narrow range. This will make owning
the right stocks increasingly important. We continue to favor technology stocks
that are benefiting from strong industry fundamentals. In particular, we believe
that companies exposed to building out the Internet infrastructure and companies
with exposure to wireless communications will continue to do well. We also
continue to favor the health care area, despite the uncertainty surrounding
Medicare reform and the potential of a prescription drug benefit for Medicare
recipients.
THE S&P 500 INDEX IS AN UNMANAGED INDEX REPRESENTING THE WEIGHTED 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.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
---------------------------------------------------------------------------
Tax-Exempt Securities
Top 5 Holdings
(% of Net Assets)
---------------------------------------------------------------------------
New York - NYC Transitional Finance Auth. RB, Series 1999A 4.2
Michigan - Hospital Finance Auth. RB, Series 1999A 3.4
New York - Medical Care Facilities Finance Agency RB, Series 1995A 2.4
Wisconsin - University Hospital Auth. RB, Series 2000 2.3
Texas - Port Arthur Navigation District PCRB 2.0
---------------------------------------------------------------------------
-------------------------------- --------------------------------------
Blue Chip Stocks Top 10 Industries
Top 5 Holdings (% of Net Assets)
(% of Net Assets)
-------------------------------- --------------------------------------
Cisco Systems, Inc. 5.2 Hospital 14.1
Texas Instruments, Inc. 4.2 Electronics - Semiconductors 8.0
Intel Corp. 3.8 Nursing/CCRC 6.5
General Electric Co. 2.3 Special Assessment/Tax 6.2
Microsoft Corp. 2.1 Computer - Networking 5.2
-------------------------------- Finance - Diversified 3.8
General Obligation 3.2
Electric/Gas Utility 3.0
Escrowed Bonds 3.0
Single - Family Housing 3.0
--------------------------------------
SEE PAGE 11 FOR A COMPLETE LISTING OF THE PORTFOLIO OF INVESTMENTS.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of May 31, 2000 of
the USAA Growth and Tax Strategy Fund to be:
Tax-Exempt Bonds - 48.7%; Blue Chip Stocks - 48.4% and Tax-Exempt Money Market
Instruments - 5.6%.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY OR MAY NOT EQUAL 100%.
INCOME MAY BE SUBJECT TO FEDERAL, STATE, OR LOCAL TAXES, OR TO THE ALTERNATIVE
MINIMUM TAX.
DISTRIBUTIONS TO SHAREHOLDERS
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended May 31, 2000. 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 2001.
Tax-exempt income $.405
Ordinary income * .065
Long-term capital gains .004
-----
Total $.474
=====
100% 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
KPMG
The Shareholders and Board of Trustees
USAA GROWTH AND TAX STRATEGY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Growth and Tax Strategy Fund, a series
of the USAA Investment Trust, as of May 31, 2000, 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 the financial
highlights, presented in note 7 to the financial statements, for each of the
years in the five-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 auditing standards generally accepted
in the United States of America. 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. Our procedures included confirmation of
securities owned as of May 31, 2000, 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 and Tax Strategy Fund as of May 31, 2000, 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 in the five-year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
San Antonio, Texas
July 7, 2000
USAA GROWTH AND TAX STRATEGY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 2000
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
BLUE CHIP STOCKS (48.4%)
ADVERTISING/MARKETING (0.6%)
19,600 Omnicom Group, Inc. $ 1,645
--------------------------------------------------------------------------------
AEROSPACE/DEFENSE (0.6%)
43,000 Boeing Co. 1,680
--------------------------------------------------------------------------------
AUTOMOBILES (0.5%)
26,400 Ford Motor Co. 1,282
--------------------------------------------------------------------------------
BANKS - MAJOR REGIONAL (1.4%)
32,300 State Street Corp. 3,601
--------------------------------------------------------------------------------
BANKS - MONEY CENTER (0.5%)
11,200 J. P. Morgan & Co., Inc. 1,442
--------------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC (0.5%)
17,400 Anheuser-Busch Companies, Inc. 1,348
--------------------------------------------------------------------------------
BEVERAGES - NONALCOHOLIC (0.9%)
60,500 PepsiCo, Inc. 2,462
--------------------------------------------------------------------------------
CHEMICALS (0.8%)
18,800 Dow Chemical Co. 2,013
--------------------------------------------------------------------------------
COMPUTER - HARDWARE (0.6%)
35,000 Dell Computer Corp. * 1,509
--------------------------------------------------------------------------------
COMPUTER - NETWORKING (5.2%)
238,400 Cisco Systems, Inc. * 13,574
--------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (2.1%)
90,400 Microsoft Corp. * 5,656
--------------------------------------------------------------------------------
DRUGS (2.8%)
42,800 Merck & Co., Inc. 3,194
80,000 Pharmacia Corp. 4,155
--------------------------------------------------------------------------------
7,349
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (2.3%)
114,600 General Electric Co. 6,031
--------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (8.0%)
80,000 Intel Corp. 9,975
154,000 Texas Instruments, Inc. 11,126
--------------------------------------------------------------------------------
21,101
--------------------------------------------------------------------------------
ENTERTAINMENT (2.2%)
26,600 Time Warner, Inc. 2,100
40,579 Viacom, Inc. * 2,516
27,700 Walt Disney Co. 1,168
--------------------------------------------------------------------------------
5,784
--------------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (0.6%)
19,200 Applied Materials, Inc. * 1,603
--------------------------------------------------------------------------------
FINANCE - DIVERSIFIED (3.8%)
34,800 American Express Co. 1,873
79,125 Citigroup, Inc. 4,920
43,800 Morgan Stanley Dean Witter & Co. 3,151
--------------------------------------------------------------------------------
9,944
--------------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (2.4%)
40,000 American Home Products Corp. 2,155
73,600 Bristol-Myers Squibb Co. 4,053
--------------------------------------------------------------------------------
6,208
--------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.6%)
28,400 Colgate-Palmolive Co. 1,494
--------------------------------------------------------------------------------
INSURANCE - PROPERTY/CASUALTY (0.8%)
82,000 Allstate Corp. 2,173
--------------------------------------------------------------------------------
INVESTMENT BANKS/BROKERAGE (0.2%)
14,332 Bear Stearns Cos., Inc. 564
--------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED (0.3%)
21,200 Caterpillar, Inc. 811
--------------------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED INDUSTRIES (0.5%)
20,600 United Technologies Corp. 1,245
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (0.7%)
34,200 Medtronic, Inc. 1,766
--------------------------------------------------------------------------------
OIL - INTERNATIONAL INTEGRATED (2.1%)
39,604 Exxon Mobil Corp. 3,300
40,000 Texaco, Inc. 2,297
--------------------------------------------------------------------------------
5,597
--------------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (1.1%)
55,100 Halliburton Co. 2,810
--------------------------------------------------------------------------------
RETAIL - BUILDING SUPPLIES (0.7%)
37,200 Home Depot, Inc. 1,816
--------------------------------------------------------------------------------
RETAIL - GENERAL MERCHANDISING (2.1%)
25,700 Target Corp. 1,611
66,500 Wal-Mart Stores, Inc. 3,832
--------------------------------------------------------------------------------
5,443
--------------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL (0.2%)
18,675 Gap, Inc. 655
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (1.9%)
83,400 Sprint Corp. 5,046
--------------------------------------------------------------------------------
TELEPHONES (1.4%)
86,500 SBC Communications Corp. 3,779
--------------------------------------------------------------------------------
Total Blue Chip Stocks (cost: $53,128) 127,431
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-----------------------------------------------------------------------
TAX-EXEMPT SECURITIES (54.3%)
TAX-EXEMPT BONDS (48.7%)
ALABAMA (1.4%)
$ 4,700 Baldwin County Health Care Auth. RB,
Series 1998 5.75% 4/01/2027 3,735
ARKANSAS (1.3%)
2,500 Conway Health Facilities Board Hospital RB,
Series 1999A 6.40 8/01/2029 2,226
1,300 Little Rock Capital Improvement RB,
Series 1998A 5.80 1/01/2023 1,175
CONNECTICUT (2.8%)
2,500 Development Auth. First Mortgage RB,
Series 1997 5.80 4/01/2021 2,058
6,000 Mashantucket (Western) Pequot Tribe RB,
Series 1997B(e) 5.75 9/01/2027 5,265
GEORGIA (1.8%)
5,000 Atlanta Georgia Airport RB,
Series 2000A (INS)(3) 5.60 1/01/2030 4,692
ILLINOIS (1.9%)
5,500 Health Facilities Auth. RB,
Series 1996 (Mercy Hospital) 6.38 1/01/2015 5,022
INDIANA (2.7%)
4,745 Fifth Avenue Housing Development
Corp. MFH RB, Series 1993A 7.25 7/01/2025 4,931
2,500 LaPorte County Hospital Auth. RB 6.00 3/01/2023 2,116
MAINE (0.2%)
500 Housing Auth. SFH RB, Series 1994C-1(d) 6.50 11/15/2011 504
MASSACHUSETTS (1.4%)
4,500 Industrial Finance Agency RB,
Series 1997B (LOC) 5.50 5/15/2027 3,811
MICHIGAN (6.2%)
4,000 Detroit Sewage Disposal RB,
Series 1999A (INS)(3) 5.75 7/01/2026 3,856
4,000 Hospital Finance Auth. RB, Series 1996 6.25 10/01/2027 3,368
9,500 Hospital Finance Auth. RB, Series 1999A 6.13 11/15/2026 9,029
MISSOURI (1.0%)
3,000 Health and Educational Facilities Auth.
RB, Series 1997 5.88 2/01/2023 2,665
MONTANA (1.2%)
3,600 Health Facilities Auth. RB, Series 1996 6.38 6/01/2018 3,208
NEW JERSEY (1.2%)
3,750 Economic Development Auth. RB,
Series 1997A 5.88 12/01/2026 3,122
NEW YORK (11.0%)
3,000 Dormitory Auth. RB, (INS)(1) 6.00 7/01/2020 2,950
4,690 GO, Series 2000A(c) 6.00 5/15/2020 4,649
5,850 Medical Care Facilities Finance Agency
RB, Series 1995A (PRE)(d) 6.85 2/15/2017 6,366
4,000 Metropolitan Transportation Auth. RB,
Tax Fund 6.00 4/01/2030 3,986
11,500 Transitional Finance Auth. RB,
Series 1999A 5.75 8/15/2024 11,070
OKLAHOMA (0.9%)
2,695 Valley View Hospital Auth. RB,
Series 1996 6.00 8/15/2014 2,393
OREGON (1.2%)
3,420 Clackamas County Hospital Facility Auth.
RB, Series 1997 6.30 11/01/2021 3,034
PENNSYLVANIA (1.8%)
3,240 Philadelphia Gas Works RB, 14th Series 6.38 7/01/2026 3,195
1,545 Philadelphia Gas Works RB, 14th
Series (PRE) 6.38 7/01/2026 1,622
RHODE ISLAND (2.0%)
5,200 Housing and Mortgage Finance Corp. SFH
RB, Series 15-A(d) 6.85 10/01/2024 5,302
TEXAS (4.8%)
3,410 Fort Worth Higher Education Finance
Corp. RB, Series 1997A 6.00 10/01/2016 3,241
5,675 Lewisville RB, Series 1998 (INS)(2) 5.80 9/01/2025 5,383
30,270 Northwest Independent School District
GO, Series 1997 (NBGA)(b) 6.38 8/15/2032 3,887
WISCONSIN (3.9%)
3,000 Health and Educational Facilities Auth.
RB, Series 1998 5.75 7/01/2028 2,347
1,965 Housing and Economic Development Auth.
SFH RB, Series 1992A(d) 7.10 3/01/2023 2,011
6,030 University Wisconsin Hospitals And
Clinics Auth. RB, Series 2000 (INS)(4) 6.13 4/01/2021 6,043
-------------------------------------------------------------------------------
Total Tax-exempt Bonds (cost: $133,759) 128,262
-------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (5.6%)
FLORIDA (0.9%)
1,800 Hillsborough County IDA PCRB,
Series 1992(a) 4.45 5/15/2018 1,800
700 St. Lucie County PCRB, Series 1995(a) 4.45 3/01/2027 700
NEW YORK (1.8%)
4,800 Long Island Power Auth. Electric Systems
RB, Series 6(a) 4.30 5/01/2033 4,800
TEXAS (2.9%)
2,000 Angelina and Neches River Auth. IDC RB,
Series 1984C (LOC)(a) 4.35 5/01/2014 2,000
5,600 Port Arthur Navigation District IDC PCRB,
Series 1985 (LOC)(a) 4.50 5/01/2003 5,600
-------------------------------------------------------------------------------
Total Tax-exempt Money Market Instruments (cost: $14,900) 14,900
-------------------------------------------------------------------------------
Total Tax-exempt Securities (cost: $148,659) 143,162
-------------------------------------------------------------------------------
Total Investments (cost: $201,787) $270,593
===============================================================================
USAA GROWTH AND TAX STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
MAY 31, 2000
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
PORTFOLIO DESCRIPTION ABBREVIATIONS
IDA Industrial Development Authority/Agency GO General Obligation
IDC Industrial Development Corporation MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond RB Revenue Bond
SFH Single-Family Housing
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal when due. The
enhancement may be provided by either a high-quality bank, insurance company or
other corporation, or a collateral trust.
(PRE) Prerefunded to a date prior to maturity.
(LOC) Enhanced by a bank letter of credit.
(NBGA) Enhanced by a non-bank guarantee agreement.
(INS) Scheduled principal and interest payments are insured by:
(1) Asset Guaranty Insurance Co.
(2) ACA Financial Guaranty Corp.
(3) Financial Guaranty Insurance Co.
(4) Financial Security Assurance Holdings Ltd.
SPECIFIC NOTES
(a) Variable-rate demand notes (VRDN) - provide the right, on any business day,
to sell the security at face value on either that day or within seven days. The
interest rate is generally adjusted at a stipulated daily, weekly, or monthly
interval to a rate that reflects current market conditions. In money market
funds, the effective maturity of these instruments is deemed to be less than 397
days, in accordance with regulatory requirements. The effective maturity is the
next put date.
(b) Zero-coupon security - the rate represents the effective yield at date of
purchase. These securities represented 1.5% of the Fund's net assets.
(c) At May 31, 2000, the cost of securities purchased on a delayed delivery
basis was $4.6 million.
(d) At May 31, 2000, these securities were segregated to cover delayed-delivery
purchases.
(e) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by management. 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. This security represented 2% of net assets.
*Non-income producing security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH AND TAX STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
MAY 31, 2000
ASSETS
Investments in securities, at market value (identified cost
of $201,787) $270,593
Cash 95
Receivables:
Capital shares sold 38
Dividends and interest 2,514
--------
Total assets 273,240
--------
LIABILITIES
Securities purchased 9,341
Capital shares redeemed 124
USAA Investment Management Company 111
USAA Transfer Agency Company 23
Accounts payable and accrued expenses 49
--------
Total liabilities 9,648
--------
Net assets applicable to capital shares outstanding $263,592
========
REPRESENTED BY:
Paid-in capital $193,536
Accumulated undistributed net investment income 1,375
Accumulated net realized loss on investments (125)
Net unrealized appreciation of investments 68,806
--------
Net assets applicable to capital shares outstanding $263,592
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 15,250
========
Net asset value, redemption price, and offering price per share $ 17.28
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH AND TAX STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED MAY 31, 2000
Net investment income:
Income:
Dividends $ 1,257
Interest 7,884
-------
Total income 9,141
-------
Expenses:
Management fees 1,304
Transfer agent's fees 289
Custodian's fees 77
Postage 72
Shareholder reporting fees 14
Trustees' fees 3
Registration fees 42
Professional fees 35
Other 4
-------
Total expenses 1,840
-------
Net investment income 7,301
-------
Net realized and unrealized gain (loss) on investments:
Net realized loss on investments (125)
Change in net unrealized appreciation/depreciation of
investments 9,653
-------
Net realized and unrealized gain 9,528
-------
Increase in net assets resulting from operations $16,829
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH AND TAX STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED MAY 31,
2000 1999
---------------------
From operations:
Net investment income $ 7,301 $ 6,832
Net realized (loss) gain on investments (125) 6,275
Change in net unrealized appreciation of investments 9,653 7,365
---------------------
Increase in net assets resulting from operations 16,829 20,472
---------------------
Distributions to shareholders from:
Net investment income (7,160) (6,836)
---------------------
Net realized gains (55) (8,587)
---------------------
From capital share transactions:
Proceeds from shares sold 27,666 31,150
Reinvested dividends 6,491 14,143
Cost of shares redeemed (32,621) (27,304)
---------------------
Increase in net assets from capital share
transactions 1,536 17,989
---------------------
Net increase in net assets 11,150 23,038
Net assets:
Beginning of period 252,442 229,404
---------------------
End of period $263,592 $252,442
=====================
Accumulated undistributed net investment income:
End of period $ 1,375 $ 1,234
=====================
Change in shares outstanding:
Shares sold 1,624 1,906
Shares issued for dividends reinvested 380 871
Shares redeemed (1,908) (1,689)
---------------------
Increase in shares outstanding 96 1,088
=====================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH AND TAX STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000
(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 11 separate funds. The
information presented in this annual report pertains only to the USAA Growth and
Tax Strategy Fund (the Fund). The Fund's investment objective is to seek a
conservative balance for the investor between income, the majority of which is
exempt from federal income tax, and the potential for long-term growth of
capital to preserve purchasing power. Using preset target ranges, USAA
Investment Management Company (the Manager) will invest a majority of the Fund's
assets in tax-exempt bonds and money market instruments and the remainder in
blue chip stocks. We manage the Fund with the goal of minimizing the impact of
federal income taxes to shareholders.
A. SECURITY VALUATION - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Other debt and government securities are valued each business day by a
pricing service (the Service) approved by the Trust's Board of Trustees. The
Service uses the mean between quoted bid and asked prices or the last sale price
to price securities when, in the Service's judgement, these prices are readily
available and are representative of the securities' market values. For many
securities, such prices are not readily available. The Service generally prices
these securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions.
5. Securities which cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Trustees.
B. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
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 is recorded on the ex-dividend date; interest income is recorded on the
accrual basis. Discounts and premiums on short-term taxable securities, original
issue discounts on all securities, and premiums on long-term tax exempt
securities are amortized over the life of the respective securities.
Amortization of market discounts on long-term securities is recognized as
interest income upon disposition of the security to the extent there is a gain
on disposition.
D. USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($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 both agreements 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
Bank of America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. The Fund had no borrowings under either of these agreements during the
year ended May 31, 2000.
(3) DISTRIBUTIONS
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal taxes. At May 31, 2000, the Fund had capital loss carryovers
for federal income tax purposes of approximately $125,000 which will expire in
2008. It is unlikely that the Trust's Board of Trustees will authorize a
distribution of capital gains realized in the future until the capital loss
carryover has been utilized or expired.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the year ended May 31, 2000, were $169,689,000 and
$167,159,000, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 2000,
was $75,515,000 and $6,709,000, respectively.
(5) 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 .50% of its annual average net assets.
B. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $28.50 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 period ended
May 31, 2000, was $8,000.
(6) 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.
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED MAY 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------
Net asset value at
beginning of period $ 16.66 $ 16.31 $ 15.14 $ 14.11 $ 12.82
Net investment income .48 .47 .50 .52 .51
Net realized and
unrealized gain .61 .96 1.72 1.39 1.32
Distributions from net
investment income (.47) (.48) (.51) (.52) (.51)
Distributions of realized
capital gains - (.60) (.54) (.36) (.03)
-----------------------------------------------------
Net asset value at
end of period $ 17.28 $ 16.66 $ 16.31 $ 15.14 $ 14.11
=====================================================
Total return (%) * 6.62 9.10 15.26 14.21 14.61
Net assets at end of
period (000) $263,592 $252,442 $229,404 $185,504 $160,390
Ratio of expenses to
average net assets (%) .71 .69 .71 .74 .82
Ratio of net investment
income to average net
assets (%) 2.80 2.89 3.22 3.66 3.79
Portfolio turnover (%) 66.43 63.42 65.58 194.21 202.55
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
TRUSTEES
Robert G. Davis, CHAIRMAN OF THE BOARD
Michael J.C. Roth, VICE CHAIRMAN OF THE BOARD
Barbara B. Dreeben
Robert L. Mason
David G. Peebles
Michael F. Reimherr
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 LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
TELEPHONE ASSISTANCE HOURS
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
INTERNET ACCESS
USAA.COM(Service Mark)
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 USAA TOUCHLINE(REGISTERED TRADEMARK)
(from touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777, (in San Antonio) 498-8777
