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 33
Statement of Assets and Liabilities 34
Statement of Operations 35
Statements of Changes in Net Assets 36
Notes to Financial Statements 37
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)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
[PHOTOGRAPH 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 STATEGY FUND
OBJECTIVE: High total return, with reduced risk over time, through an asset
allocation strategy that emphasizes capital appreciation and gives secondary
emphasis to income.
TYPES OF INVESTMENTS: Invests principally in large-cap stocks, small-cap stocks,
international stocks, bonds, and money market instruments.
--------------------------------------------------------------------------------
5/31/00 5/31/99
--------------------------------------------------------------------------------
Net Assets $314.9 Million $258.8 Million
Net Asset Value Per Share $15.59 $14.70
--------------------------------------------------------------------------------
Average Annual Total Returns as of 5/31/00
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION ON 9/1/95
16.17% 15.03%
--------------------------------------------------------------------------------
TOTAL RETURN EQUALS INCOME YIELD PLUS SHARE PRICE CHANGE AND ASSUMES
REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. NO ADJUSTMENT HAS
BEEN MADE FOR TAXES PAYABLE BY SHAREHOLDERS ON THEIR REINVESTED INCOME DIVIDENDS
AND CAPITAL GAIN DISTRIBUTIONS. THE PERFORMANCE DATA QUOTED REPRESENT PAST
PERFORMANCE AND ARE NOT AN INDICATION OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, AND AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Growth Strategy Fund to the S&P
500 Index for the period of 9/01/95 through 5/31/00. 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
05/31/99 16,738 24,803
11/30/99 18,547 26,628
05/31/00 19,444 27,399
DATA SINCE INCEPTION ON 9/1/95 THROUGH 5/31/00.
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 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.
MESSAGE FROM THE MANAGERS
[PHOTOGRAPH OF PORTFOLIO MANAGERS FROM LEFT TO RIGHT: KEVIN P. MOORE,
(INTERNATIONAL STOCKS); JOHN K. CABELL, JR. CFA (SMALL-CAP STOCKS); ERIC M.
EFRON, CFA (SMALL-CAP STOCKS); DAVID G. PARSONS, CFA (ALLOCATION MANAGER AND
LARGE-CAP STOCKS); PAMELA BLEDSOE NOBLE, CFA (MONEY MARKET INSTRUMENTS); PAUL H.
LUNDMARK, CFA (BONDS); AND ALBERT C. SEBASTIAN, CFA (INTERNATIONAL STOCKS)
APPEARS HERE.]
FUND PERFORMANCE AND OVERVIEW
The USAA Growth Strategy Fund's total return for the one-year period ending May
31, 2000, was 16.17%, which compares favorably against the Lipper Flexible
Portfolio Fund Average of 8.43% and against the S&P 500 Index return of 10.47%.
The two best performing sectors of the Fund were large-cap U.S. stocks and
international stocks. U.S. small-cap stocks were up, in line with the S&P 600
SmallCap Index. While the bond sector performed well versus its Lipper peers,
fixed income returns generally did not keep pace with equity returns for this
period. When the year is reviewed as a whole, each of these sectors benefited
from strong economic conditions that persist worldwide.
LARGE-CAPITALIZATION STOCKS
The large-capitalization equity portion of the Fund had a good fiscal year. The
main driver of this performance was the technology sector. Our holdings in Dell,
Hewlett-Packard, Cisco, Texas Instruments, Intel, Oracle, and Applied Materials
each outperformed the market. Our weak performers in the group were Lucent,
Microsoft, and America Online. Overall, health care was also a positive
contributor to the Fund's performance. Pfizer, Pharmacia, Amgen, Medtronic, and
Merck each had a strong year, while Bristol-Myers, Guidant, and American Home
were weak. A further area of strength was the financial sector. Bank of New
York, Northern Trust, State Street, Wells & Fargo, American Express, Morgan
Stanley Dean Witter, Lehman, AIG, and Marsh & McLennan performed well. In
contrast, our weak stocks in this sector were Bank One, First Union, National
City, J.P. Morgan, Freddie Mac, Schwab, E-Trade, and Franklin Resources.
The two sectors that did not do well were basic materials and telephones. Dow,
Du Pont, International Paper, AT&T, SBC Communications, and WorldCom were all
down for the year.
As usual, the two main factors driving the stock market up and down are the
direction of interest rates and the strength of the economy. The intention of
the Federal Reserve (the Fed) at present is to raise interest rates to that
point which slows the economy to a sustainable, noninflationary rate of growth.
The danger is that the Fed will raise interest rates so high that the economy is
not only slowed but put into reverse. So far, the present chairman of the Fed
has proven himself to be a nimble manager of inflation and the economy. We
believe he will probably pull off a soft landing again. If so, the stock market
may continue to perform well.
SMALL-CAPITALIZATION STOCKS
The small-capitalization category of the Fund invests in companies with market
capitalizations equal to or lower than the largest market capitalization stock
in the Standard & Poor's 600 SmallCap Index. We believe that the companies that
we invest in have the potential for rapid earnings growth, are innovative, and
are well positioned to take advantage of long-term social and economic trends.
During the year ended May 31, 2000, the small-capitalization category benefited
from strong returns in its technology holdings, particularly in the Internet and
semiconductor industries. Other areas of strength were in telecommunications
services and biotechnology. On the other hand, weakness in retail and apparel
hurt overall results. Between March and May of 2000, performance dropped off
sharply, reflecting a steep correction in domestic stock market valuations,
particularly in the technology, communications, and biotechnology areas. For the
year as a whole, the small-capitalization category performed roughly in line
with the S&P 600 SmallCap Index.
INTERNATIONAL STOCKS
EUROPE - In 2000, the Fund has benefited from its overweighted position in
European equities. This is in spite of a weaker euro compared to the U.S.
dollar. Within Europe, the Fund has benefited from good stock selection and an
overweighted position in energy and heath care. Consumer staples and financials
have also performed well, while metal and mining stocks have performed poorly.
CANADA - The Canadian equity market has rebounded strongly this year, and the
Fund has consequently benefited from its overweighted position. Energy stocks
have been particularly strong as a result of higher oil and natural gas prices.
Technology and financial stocks have also positively contributed to performance.
JAPAN - Our overweighted position in the technology sector worked well in 1999.
Despite the recent turmoil in the technology stocks, our holdings in that sector
were the primary reason for our outperformance of the market over the last 12
months. Our underweighted position in bank stocks and other old economy stocks
has turned out to be positive. We believe that corporate restructuring is intact
and the earnings outlook continues to be favorable. However, we are still
skeptical about the Japanese government's commitment to a tighter fiscal policy
and deregulation. We will remain underweighted in this area until we see more
progress.
EMERGING MARKETS - Most emerging markets started 2000 on a strong upswing only
to be caught in the negative sentiment that gripped equity markets beginning in
March. Economic growth in most Asian emerging markets continues to rebound from
the lows of the regional crisis. Latin American markets have also rebounded on
the back of strong exports as well as improving domestic economies. The South
African economy, while suffering from currency and interest pressure, continues
to grow while economic performance in Eastern European and Middle Eastern
countries is mixed. We believe that improving domestic demand, coupled with the
potential for falling interest rates, provides a favorable backdrop for emerging
markets over the next 12 months.
BONDS
The economy is still performing much stronger than anticipated, but the fear is
that inflation will rise as a consequence. In an effort to slow the economy, the
Fed has raised overnight rates six times in the past year. At the same time,
investors are demanding higher yields on non-Treasury securities because they
are concerned that more interest rate increases by the Fed could halt the record
economic expansion. Based on our assessment of where the value is in the
marketplace, we have favored investments in higher-yielding instruments such as
corporate bonds and mortgage- and asset-backed securities. Over the past year,
the bond portion of the Fund has outperformed the Lipper average for its peer
group.
Within the Fund's bond portion, the best performing holdings as a sector were
one type of collateral mortgage obligations (CMOs). The type of CMO we own is
defensive in nature and has the potential to outperform most other debt
securities in a rising-interest-rate environment. Another good performer was
Glenborough Property. Kmart, MacSaver Financial, Finova, and Waste Management
have underperformed over the past year. We continue to hold these bonds because
they are turning around their operations and have a potentially good outlook.
Looking to the future, we feel that the economy will slow to a manageable pace,
which may result in corporate bonds and mortgage- and asset-backed securities
increasing in relative value. Our continued emphasis is on finding securities
that represent good risk/reward characteristics.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO THE BOTTOM OF PAGE 4 FOR THE LIPPER AVERAGE AND S&P 500 INDEX
DEFINITIONS.
THE S&P SMALLCAP 600 INDEX IS AN UNMANAGED MARKET-VALUE WEIGHTED INDEX
CONSISTING OF 600 DOMESTIC STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY, AND
INDUSTRY GROUP REPRESENTATION. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN THE S&P
SMALLCAP 600 INDEX.
----------------------------------- ---------------------------------
Top 10 Industries Top 10 Industries
(% of Net Assets) (% of Net Assets)
----------------------------------- ---------------------------------
Drugs 5.4 General Electric Co. 2.5
Banks-Major Regional 4.8 Intel Corp. 2.0
Communications Equipment 4.7 Lucent Technologies, Inc. 1.9
Financial - Diversified 4.5 Exxon Mobil Corp. 1.6
Electronics - Semiconductor 4.2 Microsoft Corp. 1.5
Computer Software & Service 4.1 Pfizer, Inc. 1.3
Telephones 4.1 Cisco Systems, Inc. 1.2
Computer - Hardware 3.5 Citigroup, Inc. 1.1
Electrical Equipment 3.3 Coca-Cola Co. 1.1
Oil-International Integrated 3.3 Oracle Corp. 1.1
----------------------------------- ---------------------------------
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of May 31, 2000 of
the USAA Growth Strategy Fund to be:
Large-Cap Stocks - 56.3%; Bonds - 19.1%; International Securities - 15.9%;
Small-Cap Stocks - 7.1%; and Money Market Instruments - 1.1%.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY OR MAY NOT EQUAL 100%.
SEE PAGE 11 FOR A COMPLETE LISTING OF THE PORTFOLIO OF INVESTMENTS.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS,
MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
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.
Ordinary income * $ .48
Long-term capital gains .95
------
Total $1.43
======
17.9% 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 STRATEGY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Growth Strategy Fund, a series of the
USAA Investment Trust, as of May 31, 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 8 to the financial statements, for each of the
years or periods 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 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
or periods 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 STRATEGY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 2000
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------
INTERNATIONAL SECURITIES (15.9%)
INTERNATIONAL STOCKS (15.9%)
ARGENTINA (0.0%)(a)
71,000 PC Holdings S.A. $ 112
-----------------------------------------------------------------------------
AUSTRALIA (0.0%)(a)
102,300 Pasminco Ltd. * 53
-----------------------------------------------------------------------------
AUSTRIA (0.2%)
4,600 Bank Austria AG 218
5,707 Boehler Uddeholm AG 223
2,000 VA Technologie AG 110
5,100 Vienna Airport (Flughafen Wien) 171
-----------------------------------------------------------------------------
722
-----------------------------------------------------------------------------
BRAZIL (0.1%)
4,600 Companhia Brasileira de Distribuicao Grupo Pao de
Acucar ADR 138
2,900 Companhia Cerveja Ria Brahma 42
503,000 Petroleo Brasileiro S.A. (Preferred) 115
4,200 Uniao de Bancos Brasileiros S.A. (Unibanco) GDR 102
-----------------------------------------------------------------------------
397
-----------------------------------------------------------------------------
CANADA (1.4%)
22,400 Anderson Exploration Ltd. * 413
7,300 C-MAC Industries, Inc. * 279
7,700 Canadian Imperial Bank of Commerce 207
20,000 Canadian National Railway Co. 536
18,400 Canadian Occidental Petroleum Ltd. 457
14,700 Manulife Financial Corp. 259
20,400 Nortel Networks Corp. 1,108
23,900 Sun Life Financial Services 377
24,800 Suncor Energy, Inc. 569
11,900 Toronto-Dominion Bank 298
-----------------------------------------------------------------------------
4,503
-----------------------------------------------------------------------------
CHINA (0.1%)
20,000 China Telecom Ltd. * 149
209,000 Cosco Pacific Ltd. 156
-----------------------------------------------------------------------------
305
-----------------------------------------------------------------------------
DENMARK (0.4%)
71,142 Nordic Baltic Holding * 458
15,300 SAS Danmark A/S 137
9,700 Tele Danmark A/S "B" 685
-----------------------------------------------------------------------------
1,280
-----------------------------------------------------------------------------
EGYPT (0.0%)(a)
1,800 Suez Cement Co. S.A.E. GDR 20
-----------------------------------------------------------------------------
FINLAND (0.9%)
20,426 Metso OYJ 267
38,000 Nokia Corp. ADR 1,976
7,250 Perlos Corp. 260
9,000 Sampo Insurance Co. "A" 378
-----------------------------------------------------------------------------
2,881
-----------------------------------------------------------------------------
FRANCE (1.2%)
6,500 Accor S.A. 263
8,651 Aventis S.A. 563
8,403 CNP Assurances 273
10,600 Coflexip ADR 617
3,600 Eramet Group 170
2,600 ISIS S.A. 164
5,400 Renault S.A. 254
6,600 Rhodia S.A. 110
13,507 Total Fina S.A. 1,066
3,800 Valeo S.A. 193
-----------------------------------------------------------------------------
3,673
-----------------------------------------------------------------------------
GERMANY (0.5%)
11,900 Continental AG 220
10,900 Merck KGaA 338
760 SAP AG 316
12,740 Veba AG 644
-----------------------------------------------------------------------------
1,518
-----------------------------------------------------------------------------
GREECE (0.1%)
4,500 Hellenic Telecommunications Organization S.A. (OTE) 111
8,778 National Bk Greece S.A. GDR * 80
-----------------------------------------------------------------------------
191
-----------------------------------------------------------------------------
HONG KONG (0.1%)
20,000 HSBC Holdings 221
8,800 Hutchison Whampoa Ltd. 101
83,000 Legend Hldg. 84
-----------------------------------------------------------------------------
406
-----------------------------------------------------------------------------
HUNGARY (0.0%)(a)
2,600 Magyar Tavkozlesi RT. (MATAV) ADR 89
-----------------------------------------------------------------------------
INDIA (0.0%)(a)
5,800 Videsh Sanchar Nigam Ltd. GDR 90
-----------------------------------------------------------------------------
ISRAEL (0.1%)
12,097 Bank Hapoalim Ltd. 35
5,100 Blue Square Ltd. ADR 50
500 Check Point Software Technologies Ltd. * 94
200 Teva Pharmaceutical Industries Ltd. ADR 11
-----------------------------------------------------------------------------
190
-----------------------------------------------------------------------------
ITALY (0.7%)
9,400 ENI S.p.A. ADR 511
4,900 Gucci Group N.V. 420
103,100 Italgas S.p.A. 422
19,000 Telecom Italia S.p.A. 262
89,300 Telecom Italia S.p.A. Savings 554
-----------------------------------------------------------------------------
2,169
-----------------------------------------------------------------------------
JAPAN (2.5%)
4,700 Asatsu DK 153
16,000 Daibiru Corp. 133
48 DDI Corp. 490
12,000 Fujitsu Ltd. 340
7,000 Honda Motor Co. Ltd. 231
5,000 Ito-Yokado Co. Ltd. 297
34,000 Kikkoman Corp. 238
8,000 Kirin Brewery Co. Ltd. 97
3,000 Murata Manufacturing Co. Ltd. 518
43,000 Nikko Securities Co. Ltd. 398
130,000 Nippon Steel Corp. 285
38 Nippon Telegraph & Telephone Corp. (NTT) 452
40 Nippon Television Network 27
9 NTT Mobile Communication Network, Inc. 232
6,500 Paris Miki, Inc. 431
3,000 Pasona Softbank, Inc. 72
2,500 Ryohin Keikaku Co. 364
11,000 Sailor Pen Co. Ltd. 193
5,550 Sanix, Inc. * 310
7,200 Sony Corp. * 652
40,000 Sumitomo Corp. 371
8,000 Sumitomo Electric Industries, Ltd. 117
6,000 Takeda Chemical Industries 409
55,000 Toshiba Corp. 531
500 Toys R Us * 80
49 West Japan Railway 207
6,800 Zenrin Co. 207
-----------------------------------------------------------------------------
7,835
-----------------------------------------------------------------------------
KOREA (0.2%)
13,000 Korea Electric Power Corp. ADS 203
2,825 Korea Telecom Corp. ADR 105
6,800 Samsung Corp. 55
804 Samsung Electronics Co. Ltd. 219
13,000 Shinhan Bank 97
-----------------------------------------------------------------------------
679
-----------------------------------------------------------------------------
MALAYSIA (0.1%)
23,700 Malayan Bank Berhad 101
8,700 Malaysian Pacific 98
45,000 Technology Resources Industries Bhd 54
-----------------------------------------------------------------------------
253
-----------------------------------------------------------------------------
MEXICO (0.2%)
10,400 Coca Cola Femsa S.A. ADR 158
3,500 Fomento Economico Mexicano, S.A. de C.V. ADR 133
3,000 Telefonos de Mexico, S.A. de C.V. ADR 146
7,900 Tubos de Acero de Mexico, S.A. ADR 107
-----------------------------------------------------------------------------
544
-----------------------------------------------------------------------------
NETHERLANDS (1.6%)
16,500 Akzo Nobel N.V. 630
4,940 EVC International N.V. * 48
10,200 Fortis NL N.V. 268
4,500 Getronics N.V. 75
12,300 ING Group N.V. 736
8,200 Koninklijke KPN N.V. 740
27,812 Koninklijke Philips Electronics N.V. ADR 1,229
15,200 Oce-van der Grinten N.V. 216
10,100 Versatel Telecom * 365
8,600 VNU N.V. 439
14,700 Vopak Kon 336
-----------------------------------------------------------------------------
5,082
-----------------------------------------------------------------------------
NORWAY (0.4%)
158,700 Christiania Bank og Kreditkasse 818
7,300 Schibsted ASA 142
49,300 Storebrand ASA 318
-----------------------------------------------------------------------------
1,278
-----------------------------------------------------------------------------
PORTUGAL (0.4%)
20,800 Banco Pinto & Sotto Mayor S.A. 470
28,000 Brisa-Auto Estrada de Portugal S.A. 205
49,500 Portugal Telecom S.A. ADR 538
-----------------------------------------------------------------------------
1,213
-----------------------------------------------------------------------------
RUSSIA (0.0%)(a)
2,200 Lukoil ADR 122
-----------------------------------------------------------------------------
SINGAPORE (0.1%)
16,700 Natsteel Electronics 49
16,000 Singapore Airlines 140
-----------------------------------------------------------------------------
189
-----------------------------------------------------------------------------
SOUTH AFRICA (0.0%)(a)
79,200 Firstrand Ltd. 83
9,492 South African Breweries plc 58
-----------------------------------------------------------------------------
141
-----------------------------------------------------------------------------
SPAIN (0.7%)
22,572 Altadis S.A. 331
36,353 Banco Bilbao Vizcaya Argentaria 509
17,750 Repsol S.A. 378
13,979 Telefonica de Espana S.A. ADR * 851
-----------------------------------------------------------------------------
2,069
-----------------------------------------------------------------------------
SWEDEN (0.8%)
18,320 Autoliv, Inc. GDR 505
31,600 Ericsson L M Tel Co. ADR 648
117,606 Nordic Baltic Holding * 768
21,360 Skandinaviska Enskilda Banken "A" 233
80,100 Swedish Match AB 249
80,100 Swedish Match Redemption Rights 4
-----------------------------------------------------------------------------
2,407
-----------------------------------------------------------------------------
SWITZERLAND (0.4%)
380 Novartis AG 560
910 Selecta Group AG 261
439 Sulzer AG P.C. * 296
800 Swisscom AG 281
-----------------------------------------------------------------------------
1,398
-----------------------------------------------------------------------------
TAIWAN (0.1%)
49,082 Compal Electronics, Inc. 117
40,960 Taiwan Semiconductor Manufacturing Co. 209
27,000 Winbond Electronic 81
-----------------------------------------------------------------------------
407
-----------------------------------------------------------------------------
TURKEY (0.1%)
3,000,000 Eregli Demir Ve Celik Fabrikalari T.A.S. * 139
7,027,769 Yapi Ve Kredi Bankasi A.S. 87
-----------------------------------------------------------------------------
226
-----------------------------------------------------------------------------
UNITED KINGDOM (2.5%)
12,200 AstraZeneca Group plc 515
37,800 Bank of Scotland 356
115,800 Billiton plc 393
13,000 BOC Group plc 183
250 Bookham Technology * 12
29,900 Cable & Wireless plc 499
85,800 Cadbury Schweppes 572
36,958 Celltech Group 538
28,600 CGU plc 435
201,000 Cookson Group plc 650
125,900 Corporate Services Group plc * 169
4,700 Glaxo Wellcome plc ADR 265
22,200 Laporte plc * 178
355,200 Laporte, new ordinary "B" * 4
76,600 Old Mutual plc 161
18,700 Powergen plc 123
50,000 Reckitt & Colman 549
36,360 Reuters Group plc 542
27,416 Royal Bank Scot Group 451
42,500 Safeway plc 156
123,300 Tomkins plc 353
50,541 WPP Group plc 615
-----------------------------------------------------------------------------
7,719
-----------------------------------------------------------------------------
Total International Stocks (cost: $38,268) 50,161
-----------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------
INTERNATIONAL BOND (0.0%)(a)
JAPAN (0.0%)(a)
$60 MBL International Finance (Bermuda)
Trust, Convertible Notes
(cost: $62) 3.00% 11/30/2002 $ 63
-----------------------------------------------------------------------------
Total International Securities (cost: $38,330) 50,224
-----------------------------------------------------------------------------
NUMBER
OF SHARES
----------
SMALL-CAP STOCKS (7.1%)
AEROSPACE/DEFENSE (0.2%)
10,000 AAR Corp. 139
10,000 HEICO Corp. "A" 130
15,000 Triumph Group, Inc. * 420
-----------------------------------------------------------------------------
689
-----------------------------------------------------------------------------
AIR FREIGHT (0.2%)
20,000 Egl, Inc. * 481
-----------------------------------------------------------------------------
AIRLINES (0.2%)
5,000 Atlantic Coast Airlines, Inc. * 152
25,000 Midwest Express Holdings, Inc. * 520
-----------------------------------------------------------------------------
672
-----------------------------------------------------------------------------
BANKS - MAJOR REGIONAL (0.1%)
10,000 Hamilton Bancorp, Inc. * 173
-----------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC (0.2%)
10,000 Beringer Wine Estates Holdings, Inc. "B" * 380
10,000 Robert Mondavi Corp. "A" * 314
-----------------------------------------------------------------------------
694
-----------------------------------------------------------------------------
BIOTECHNOLOGY (0.4%)
100 Aclara Biosciences, Inc. * 3
300 Diversa Corp. * 7
5,000 Inhale Therapeutic Systems, Inc. * 364
700 Luminex Corp. * 21
1,700 Maxygen, Inc. * 70
800 Sequenom, Inc. * 16
10,000 Techne Corp. * 799
2,000 Transkaryotic Therapies, Inc. * 50
-----------------------------------------------------------------------------
1,330
----------------------------------------------------------------------------
BROADCASTING - RADIO & TV (0.2%)
7,200 Entercom Communications Corp. * 328
900 Radio Unica Communications * 6
3,500 Salem Communications Corp. "A" * 35
1,600 Spanish Broadcasting Systems, Inc. "A" * 27
3,800 Wink Communications, Inc. * 82
-----------------------------------------------------------------------------
478
-----------------------------------------------------------------------------
CHEMICALS (0.0%)(a)
2,300 Symyx Technologies * 67
-----------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (0.7%)
400 Airnet Communications Corp. * 6
10,195 Digital Microwave Corp. * 285
4,500 Ditech Communications Corp. * 369
900 Efficient Networks, Inc. * 44
300 Gadzoox Networks, Inc. * 8
9,000 Harmonic, Inc. * 402
2,700 MCK Communications, Inc. * 63
2,400 Metawave Communications Corp. * 72
4,000 Netro Corp. * 119
100 New Focus, Inc. * 6
1,200 Next Level Communications, Inc. * 61
2,800 Paradyne Networks, Inc. * 79
1,500 PC Telephone, Inc. * 40
300 Sonus Networks, Inc. * 22
300 Telaxis Communications Corp. * 8
10,400 Terayon Communication Systems, Inc. * 577
100 Utstarcom, Inc. * 4
1,100 Vyyo, Inc. * 16
-----------------------------------------------------------------------------
2,181
-----------------------------------------------------------------------------
COMPUTER - HARDWARE (0.2%)
9,900 Sandisk Corp. * 575
-----------------------------------------------------------------------------
COMPUTER - NETWORKING (0.0%)(a)
600 Alteon Websystems, Inc. * 30
1,200 Finisar Corp. * 27
600 JNI Corp. * 16
-----------------------------------------------------------------------------
73
-----------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (0.2%)
1,800 Active Software, Inc. * 65
2,600 Bluestone Software, Inc. * 49
3,900 Digital Island, Inc. * 72
3,200 HNC Software, Inc. * 131
2,000 InterTrust Technologies Corp. * 35
3,800 Liberate Technologies, Inc. * 89
400 Nuance Communications * 16
400 Numerical Technologies, Inc. * 17
200 Otg Software, Inc. * 4
1,400 Primus Knowledge Solutions, Inc. * 35
4,100 Scientific Learning Corp. * 70
1,300 Sequoia Software Corp. * 9
400 Ulticom, Inc. * 10
-----------------------------------------------------------------------------
602
-----------------------------------------------------------------------------
DRUGS (0.3%)
22,012 Jones Pharma, Inc. 802
-----------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (0.0%)(a)
4,500 Ddi Corp. * 60
5,900 Viasystems Group, Inc. * 60
-----------------------------------------------------------------------------
120
-----------------------------------------------------------------------------
ELECTRONICS - INSTRUMENTATION (0.0%)(a)
800 Cabot Microelectronics Corp. * 26
-----------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (0.7%)
600 Centillium Communications, Inc. * 20
1,100 Exar Corp. * 76
1,000 Insilicon, Inc. * 7
800 Intersil Holding Corp. * 31
8,000 MMC Networks, Inc. * 261
600 Quantum Effect Devices, Inc. * 24
900 Silicon Image, Inc. * 33
100 Silicon Laboratories, Inc. * 5
15,000 TranSwitch Corp. * 939
9,000 Triquint Semiconductor, Inc. * 849
1,600 Virata Corp. * 66
-----------------------------------------------------------------------------
2,311
-----------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION (0.1%)
7,500 Quanta Services, Inc. * 367
-----------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (0.2%)
9,900 Cymer, Inc. * 313
6,600 PRI Automation, Inc. * 339
600 Stanford Microdevices, Inc. * 11
-----------------------------------------------------------------------------
663
-----------------------------------------------------------------------------
FINANCE - CONSUMER (0.3%)
41,750 NCO Group, Inc. * 997
-----------------------------------------------------------------------------
FOODS (0.1%)
5,000 American Italian Pasta Co. "A" * 123
2,000 Suiza Foods Corp. * 90
-----------------------------------------------------------------------------
213
-----------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (0.1%)
3,750 Accredo Health, Inc. * 90
5,000 Professional Detailing, Inc. * 134
-----------------------------------------------------------------------------
224
-----------------------------------------------------------------------------
HEALTH CARE - SPECIALIZED SERVICES (0.2%)
6,600 Advance Paradigm, Inc. * 102
200 Ebenx, Inc. * 3
3,000 Priority Healthcare Corp. "B" * 153
20,000 Renal Care Group, Inc. * 478
-----------------------------------------------------------------------------
736
-----------------------------------------------------------------------------
HOSPITALS (0.1%)
10,000 Province Healthcare Co. * 281
-----------------------------------------------------------------------------
HOUSEWARES (0.0%)(a)
6,900 Yankee Candle Co., Inc. * 146
-----------------------------------------------------------------------------
INTERNET SERVICES (0.3%)
1,200 Be Free, Inc. * 11
3,500 CAIS Internet, Inc. * 49
2,200 Cysive, Inc. * 56
4,800 Entrust Technologies, Inc. * 234
1,700 Gric Communications, Inc. * 18
400 High Speed Access Corp. * 2
800 I3 Mobile, Inc. * 6
2,300 Ibeam Broadcasting Corp. * 29
3,200 Interliant, Inc. * 52
1,400 Internap Network Services Corp. * 40
3,902 Internet Pictures Corp. * 39
400 Loudeye Technologies, Inc. * 6
4,473 MedicaLogic, Inc. * 35
1,500 National Information Consortium, Inc. * 22
1,000 Neoforma.com, Inc. * 7
7,700 Promotions.com, Inc. * 44
3,600 Purchasepro.com, Inc. * 77
600 Register.Com, Inc. * 23
900 Retek, Inc. * 19
100 Selectica, Inc. * 5
6,400 Tumbleweed Communications Corp. * 222
700 Valueclick, Inc. * 6
100 Versata, Inc. * 2
6,900 Viador, Inc. * 76
-----------------------------------------------------------------------------
1,080
-----------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (0.1%)
2,700 Caliper Technologies Corp. * 111
3,000 Henry Schein, Inc. * 53
900 Sciquest.com, Inc. * 7
-----------------------------------------------------------------------------
171
-----------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (0.2%)
10,000 Carbo Ceramics, Inc. * 312
5,000 Dril-Quip, Inc. * 216
5,000 Varco International, Inc. * 109
-----------------------------------------------------------------------------
637
-----------------------------------------------------------------------------
RESTAURANTS (0.2%)
400 Krispy Kreme Doughnuts, Inc. * 24
10,000 P. F. Chang's China Bistro, Inc. * 321
5,600 Papa John's International, Inc. * 140
-----------------------------------------------------------------------------
485
-----------------------------------------------------------------------------
RETAIL - DISCOUNTERS (0.1%)
5,000 Dollar Tree Stores, Inc. * 297
-----------------------------------------------------------------------------
RETAIL - FOOD (0.0%)(a)
10,250 Wild Oats Markets, Inc. * 95
-----------------------------------------------------------------------------
RETAIL - SPECIALTY (0.3%)
6,666 99 Cents Only Stores * 240
19,750 Cost Plus, Inc. * 576
5,000 Tuesday Morning Corp. * 53
-----------------------------------------------------------------------------
869
-----------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL (0.0%)(a)
1,300 Too, Inc. * 33
-----------------------------------------------------------------------------
SERVICES - COMMERCIAL & CONSUMER (0.1%)
5,000 Barra, Inc. * 220
-----------------------------------------------------------------------------
SERVICES - DATA PROCESSING (0.2%)
13,000 MedQuist, Inc. * 538
-----------------------------------------------------------------------------
TELECOMMUNICATIONS - CELLULAR/WIRELESS (0.2%)
700 Aether Systems, Inc. * 96
2,300 Alamosa Pcs Holdings, Inc. * 35
2,500 Dobson Communications Corp. * 60
800 Nextel Partners, Inc. * 14
4,800 Powertel, Inc. * 402
600 Tritel, Inc. * 14
300 Triton PCS Holdings, Inc. "A" * 12
2,600 Us Unwired, Inc. * 28
-----------------------------------------------------------------------------
661
-----------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (0.2%)
4,800 CapRock Communications Corp. * 96
1,000 Impsat Corp. * 11
9,400 ITC DeltaCom, Inc. * 171
18,300 Startec Global Communications Corp. * 209
300 Universal Access, Inc. * 5
300 Z-Tel Technologies, Inc. * 4
-----------------------------------------------------------------------------
496
-----------------------------------------------------------------------------
TELEPHONES (0.3%)
11,600 Adelphia Business Solutions * 258
4,200 Allied Riser Communcations Corp. * 46
800 Choice One Communications, Inc. * 19
1,600 Cypress Communications, Inc. * 10
1,300 Focal Communications Corp. * 35
400 Net2000 Communication, Inc. * 5
5,100 Network Access Solutions Corp. * 53
13,300 Northeast Optic Network, Inc. * 455
3,900 Pac-West Telecomm, Inc. * 57
3,000 Winstar Communications, Inc. * 85
-----------------------------------------------------------------------------
1,023
-----------------------------------------------------------------------------
TEXTILES - APPAREL (0.1%)
10,000 Columbia Sportswear Co. * 263
9,400 Cutter & Buck, Inc. * 95
-----------------------------------------------------------------------------
358
-----------------------------------------------------------------------------
TRUCKERS (0.0%)(a)
5,000 Forward Air Corp. * 159
-----------------------------------------------------------------------------
WASTE MANAGEMENT (0.1%)
10,000 Waste Connections, Inc. * 196
-----------------------------------------------------------------------------
Total Small-cap Stocks (cost: $12,728) 22,219
-----------------------------------------------------------------------------
LARGE-CAP STOCKS (56.3%)
AEROSPACE/DEFENSE (0.4%)
21,400 Boeing Co. 836
15,700 Lockheed Martin Corp. 385
-----------------------------------------------------------------------------
1,221
-----------------------------------------------------------------------------
AIR FREIGHT (0.4%)
20,600 United Parcel Service "B" 1,233
-----------------------------------------------------------------------------
AIRLINES (0.2%)
30,200 Southwest Airlines Co. 579
-----------------------------------------------------------------------------
ALUMINUM (0.3%)
17,300 Alcoa, Inc. 1,011
-----------------------------------------------------------------------------
AUTOMOBILES (0.3%)
9,300 Ford Motor Co. 451
5,716 General Motors Corp. 404
-----------------------------------------------------------------------------
855
-----------------------------------------------------------------------------
BANKS - MAJOR REGIONAL (2.1%)
16,500 Bank of New York Co., Inc. 774
12,000 Bank One Corp. 397
7,100 Fifth Third Bancorp 483
12,500 Fleet Boston Financial Corp. 472
11,300 Mellon Financial Corp. 436
16,900 National City Corp. 338
12,000 Northern Trust Corp. 790
7,300 PNC Bank Corp. 368
6,200 State Street Corp. 691
40,200 Wells & Fargo Co. 1,819
-----------------------------------------------------------------------------
6,568
-----------------------------------------------------------------------------
BANKS - MONEY CENTER (1.0%)
31,060 Bank of America Corp. 1,726
11,300 First Union Corp. 398
8,400 J. P. Morgan & Co., Inc. 1,081
-----------------------------------------------------------------------------
3,205
-----------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC (0.3%)
12,100 Anheuser-Busch Companies, Inc. 938
-----------------------------------------------------------------------------
BEVERAGES - NONALCOHOLIC (1.6%)
64,100 Coca-Cola Co. 3,421
40,000 PepsiCo, Inc. 1,628
-----------------------------------------------------------------------------
5,049
-----------------------------------------------------------------------------
BIOTECHNOLOGY (0.7%)
20,000 Amgen, Inc. * 1,272
3,000 Biogen, Inc. * 164
4,000 Genetech, Inc. * 430
5,200 Genzyme Corp. * 295
1,000 Med Immune, Inc. * 155
-----------------------------------------------------------------------------
2,316
-----------------------------------------------------------------------------
BROADCASTING - RADIO & TV (0.1%)
2,700 Clear Channel Communications, Inc. * 202
2,006 General Motors Corp. "H" * 198
-----------------------------------------------------------------------------
400
-----------------------------------------------------------------------------
CHEMICALS (0.9%)
5,900 Dow Chemical Co. 632
38,000 Du Pont (E. I.) De Nemours & Co. 1,862
9,900 Rohm & Haas Co. 338
-----------------------------------------------------------------------------
2,832
-----------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (2.8%)
101,700 Lucent Technologies, Inc. 5,835
16,000 Motorola, Inc. 1,500
25,000 Tellabs, Inc. * 1,624
-----------------------------------------------------------------------------
8,959
-----------------------------------------------------------------------------
COMPUTER - HARDWARE (3.2%)
40,600 Compaq Computer Corp. 1,066
23,100 Dell Computer Corp. * 996
9,700 Gateway 2000, Inc. * 480
21,500 Hewlett-Packard Co. 2,583
28,700 IBM Corp. 3,080
25,100 Sun Microsystems, Inc. * 1,923
-----------------------------------------------------------------------------
10,128
-----------------------------------------------------------------------------
COMPUTER - NETWORKING (1.2%)
64,900 Cisco Systems, Inc. * 3,695
-----------------------------------------------------------------------------
COMPUTER - PERIPHERALS (0.5%)
14,400 EMC Corp. * 1,675
-----------------------------------------------------------------------------
COMPUTER - SYSTEMS (0.2%)
10,100 Electronic Data Systems Corp. 650
-----------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICE (3.8%)
40,000 America Online, Inc. * 2,120
6,700 BMC Software, Inc. * 295
22,400 Computer Associates International, Inc. 1,153
77,700 Microsoft Corp. * 4,861
15,000 Novell, Inc. * 125
46,900 Oracle Corp. * 3,371
-----------------------------------------------------------------------------
11,925
-----------------------------------------------------------------------------
DISTRIBUTIONS - FOOD/HEALTH (0.2%)
15,600 Sysco Corp. 654
-----------------------------------------------------------------------------
DRUGS (4.1%)
25,300 Eli Lilly & Co. 1,926
18,900 Ivax Corp. * 711
42,200 Merck & Co., Inc. 3,149
8,500 Mylan Laboratories, Inc. 228
88,000 Pfizer, Inc. 3,922
34,116 Pharmacia Corp. 1,772
26,900 Schering-Plough Corp. 1,301
-----------------------------------------------------------------------------
13,009
-----------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (2.8%)
146,400 General Electric Co. 7,704
21,100 Honeywell International, Inc. 1,154
-----------------------------------------------------------------------------
8,858
-----------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS (3.0%)
6,600 Advanced Micro Devices, Inc. * 537
49,200 Intel Corp. 6,135
4,200 Micron Technology, Inc. * 294
32,800 Texas Instruments, Inc. 2,370
-----------------------------------------------------------------------------
9,336
-----------------------------------------------------------------------------
ENTERTAINMENT (1.2%)
11,200 Time Warner, Inc. 884
22,486 Viacom, Inc. * 1,394
37,300 Walt Disney Co. 1,574
-----------------------------------------------------------------------------
3,852
-----------------------------------------------------------------------------
EQUIPMENT - SEMICONDUCTORS (0.3%)
10,600 Applied Materials, Inc. * 885
-----------------------------------------------------------------------------
FINANCE - CONSUMER (0.2%)
8,400 Countrywide Credit Industries, Inc. 258
8,400 Household International, Inc. 395
-----------------------------------------------------------------------------
653
-----------------------------------------------------------------------------
FINANCE - DIVERSIFIED (3.1%)
21,900 American Express Co. 1,178
6,000 American General Corp. 384
15,000 Associates First Capital Corp. "A" 412
57,500 Citigroup, Inc. 3,576
24,900 Fannie Mae 1,497
10,900 Freddie Mac 485
5,100 MGIC Investment Corp. 253
21,200 Morgan Stanley Dean Witter & Co. 1,525
10,100 SLM Holding Corp. 340
-----------------------------------------------------------------------------
9,650
-----------------------------------------------------------------------------
FOODS (1.0%)
9,700 Bestfoods 625
16,900 ConAgra, Inc. 390
7,100 General Mills, Inc. 282
17,400 H.J. Heinz Co. 682
7,900 Hershey Foods Corp. 410
7,500 Quaker Oats Co. 552
9,200 Sara Lee Corp. 165
-----------------------------------------------------------------------------
3,106
-----------------------------------------------------------------------------
GAMING COMPANIES (0.0%)(a)
3,900 Mirage Resorts, Inc. * 82
-----------------------------------------------------------------------------
HEALTH CARE - DIVERSIFIED (2.9%)
23,500 Abbott Laboratories 956
51,500 American Home Products Corp. 2,775
44,900 Bristol-Myers Squibb Co. 2,472
26,589 Johnson & Johnson, Inc. 2,380
5,400 Warner-Lambert Co. 659
-----------------------------------------------------------------------------
9,242
-----------------------------------------------------------------------------
HEALTH CARE - HMOs (0.1%)
5,400 Unitedhealth Group, Inc. 403
-----------------------------------------------------------------------------
HOSPITALS (0.1%)
6,300 Tenet Healthcare Corp. * 161
-----------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (1.7%)
22,800 Colgate-Palmolive Co. 1,200
19,700 Kimberly-Clark Corp. 1,192
45,900 Procter & Gamble Co. 3,052
-----------------------------------------------------------------------------
5,444
-----------------------------------------------------------------------------
HOUSEWARES (0.1%)
10,100 Newell Rubbermaid, Inc. 265
-----------------------------------------------------------------------------
INSURANCE BROKERS (0.3%)
8,400 Marsh & McLennan Cos., Inc. 925
-----------------------------------------------------------------------------
INSURANCE - LIFE/HEALTH (0.1%)
4,200 Reliastar Financial Corp. 216
-----------------------------------------------------------------------------
INSURANCE - MULTILINE COMPANIES (0.8%)
22,900 American International Group, Inc. 2,578
-----------------------------------------------------------------------------
INTERNET SERVICES (0.1%)
7,000 Amazon.com, Inc. * 338
-----------------------------------------------------------------------------
INVESTMENT BANKS/BROKERAGE (0.7%)
19,050 Charles Schwab Corp. * 548
13,000 E-Trade Group, Inc. * 202
2,400 Goldman Sachs Group, Inc. 177
3,400 Lehman Brothers Holdings, Inc. 262
10,600 Merrill Lynch & Co., Inc. 1,045
-----------------------------------------------------------------------------
2,234
-----------------------------------------------------------------------------
INVESTMENT MANAGEMENT (0.5%)
21,400 Franklin Resources, Inc. 642
25,300 T. Rowe Price Associates, Inc. 966
-----------------------------------------------------------------------------
1,608
-----------------------------------------------------------------------------
LEISURE TIME (0.0%)(a)
3,700 Mattel, Inc. 50
-----------------------------------------------------------------------------
MACHINERY - DIVERSIFIED (0.2%)
11,900 Caterpillar, Inc. 455
4,700 Deere & Co. 196
-----------------------------------------------------------------------------
651
-----------------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED INDUSTRIES (1.1%)
6,200 Illinois Tool Works, Inc. 360
10,400 Minnesota Mining & Manufacturing Co. 892
29,700 Tyco International Ltd. 1,398
12,700 United Technologies Corp. 767
-----------------------------------------------------------------------------
3,417
-----------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES (0.4%)
7,000 Guidant Corp. * 354
16,900 Medtronic, Inc. 873
-----------------------------------------------------------------------------
1,227
-----------------------------------------------------------------------------
OIL - INTERNATIONAL INTEGRATED (2.6%)
20,900 Chevron Corp. 1,932
59,500 Exxon Mobil Corp. 4,957
24,400 Texaco, Inc. 1,402
-----------------------------------------------------------------------------
8,291
-----------------------------------------------------------------------------
OIL & GAS - DRILLING/EQUIPMENT (0.5%)
14,400 Baker Hughes, Inc. 522
18,600 Halliburton Co. 949
5,000 Transocean Sedco Forex Inc. 246
-----------------------------------------------------------------------------
1,717
-----------------------------------------------------------------------------
OIL & GAS - EXPLORATION & PRODUCTION (0.4%)
6,600 Anadarko Petroleum Corp. 350
12,500 Apache Corp. 761
-----------------------------------------------------------------------------
1,111
-----------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (0.3%)
14,200 International Paper Co. 494
9,400 Weyerhaeuser Co. 467
-----------------------------------------------------------------------------
961
-----------------------------------------------------------------------------
PERSONAL CARE (0.3%)
28,900 Gillette Co. 965
-----------------------------------------------------------------------------
PHOTOGRAPHY - IMAGING (0.4%)
42,400 Xerox Corp. 1,150
-----------------------------------------------------------------------------
PUBLISHING/NEWSPAPERS (0.2%)
6,500 Gannett, Inc. 421
2,000 Tribune Co. 77
-----------------------------------------------------------------------------
498
-----------------------------------------------------------------------------
RETAIL - BUILDING SUPPLIES (0.5%)
31,500 Home Depot, Inc. 1,538
-----------------------------------------------------------------------------
RETAIL - COMPUTERS & ELECTRONICS (0.2%)
7,500 Best Buy Co., Inc. * 480
-----------------------------------------------------------------------------
RETAIL - DEPARTMENT STORES (0.4%)
12,000 Kohls Corp. * 621
7,600 Target Corp. 476
-----------------------------------------------------------------------------
1,097
-----------------------------------------------------------------------------
RETAIL - FOOD (0.2%)
14,600 Safeway, Inc. * 673
-----------------------------------------------------------------------------
RETAIL - GENERAL MERCHANDISING (1.1%)
57,500 Wal-Mart Stores, Inc. 3,313
-----------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL (0.1%)
13,100 Gap, Inc. 459
-----------------------------------------------------------------------------
SAVINGS & LOAN HOLDING CO. (0.1%)
12,700 Washington Mutual, Inc. 365
-----------------------------------------------------------------------------
SERVICES - DATA PROCESSING (0.2%)
13,000 First Data Corp. 729
-----------------------------------------------------------------------------
TELECOMMUNICATIONS - CELLULAR/WIRELESS (0.3%)
16,300 AT&T Wireless Group * 466
5,000 NEXTEL Communications, Inc. * 463
-----------------------------------------------------------------------------
929
-----------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE (1.5%)
42,200 AT&T Corp. 1,464
17,500 Global Crossing Ltd. * 438
34,500 Qwest Communications International, Inc. * 1,460
37,800 Worldcom, Inc. * 1,422
-----------------------------------------------------------------------------
4,784
-----------------------------------------------------------------------------
TELEPHONES (2.0%)
23,800 Bell Atlantic Corp. 1,258
36,300 BellSouth Corp. 1,695
22,500 GTE Corp. 1,423
42,200 SBC Communications, Inc. 1,844
-----------------------------------------------------------------------------
6,220
-----------------------------------------------------------------------------
TOBACCO (0.0%)(a)
3,800 Philip Morris Cos., Inc. 99
-----------------------------------------------------------------------------
Total Large-cap Stocks (cost: $147,908) 177,462
-----------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------
BONDS (19.1%)
$2,000 American Health Properties, Inc. 7.50% 1/15/2007 $ 1,748
775 ARG Funding Corp., Series 1999-1,
Class A3 6.02 5/20/2005 741
2,000 Capital One Financial Corp. 7.25 12/01/2003 1,928
2,000 Corporacion Andina De Fomento
(Venezuela) 7.10 2/01/2003 1,926
1,000 Empire District Electric Co. 7.70 11/15/2004 985
1,000 Equity Operating L.P. 6.38 2/15/2002 974
2,000 Federal Home Loan Mortgage Corp.,
Series 2160 VC 6.00 8/15/2013 1,727
1,000 Federal National Mortgage Assn. 7.25 1/15/2010 985
1,239 Federal National Mortgage Assn.,
Series 1997-72 CA 9.50 9/18/2023 1,285
1,571 Federal National Mortgage Assn.,
Series 1997-79 U 9.00 11/18/2024 1,620
1,364 Federal National Mortgage Assn.,
Series 1998-7 H 9.00 3/18/2025 1,416
2,000 Federal National Mortgage Assn.,
Series 1999-25 VB 6.00 4/25/2016 1,708
2,500 Finova Capital Corp. 7.25 11/08/2004 2,108
1,000 First Industrial L.P. 7.60 5/15/2007 918
1,050 First Union Corp. 6.82 8/01/2026 1,007
2,000 FIRSTPLUS Home Loan Owner Trust,
Series 1998-1, Class A-5 6.25 11/10/2016 1,964
2,000 Ford Motor Credit Co. 7.38 10/28/2009 1,908
2,000 Giddings & Lewis, Inc. 7.50 10/01/2005 1,927
1,000 Government National Mortgage Assn.,
Series 1999-14 VD 6.00 3/20/2014 887
1,000 Great Atlantic & Pacific Tea, Inc. 7.70 1/15/2004 933
2,000 Heller Financial, Inc. (b) 7.38 11/01/2009 1,848
1,000 Household Finance Corp. 8.00 5/09/2005 993
2,000 HUBCO, Inc. 8.20 9/15/2006 1,900
2,000 Imperial Bank 8.50 4/01/2009 1,837
1,000 Kmart Corp. 7.95 2/01/2023 815
2,000 Limestone Electron Trust (b) 8.63 3/15/2003 1,999
1,000 Litton Inds, Inc. 8.00 10/15/2009 959
2,000 MacSaver Financial Services, Inc. 7.40 2/15/2002 1,470
1,000 MCI Communications Corp. 6.95 8/15/2006 957
1,000 Merita Bank Ltd., (Finland) 6.50 1/15/2006 926
1,000 Merrill Lynch & Co., Inc. 6.50 7/15/2018 822
2,000 Osprey Trust, Osprey I, Inc. (b) 8.31 1/15/2003 1,990
1,000 Phillips Petroleum Co. 8.50 5/25/2005 1,014
1,000 Pulte Corp. 7.00 12/15/2003 940
1,000 Reckson Operating Partnership, L.P. 7.75 3/15/2009 909
2,000 Safeway, Inc. 7.50 9/15/2009 1,906
1,000 Security Capital Pacific Trust 7.15 10/15/2003 956
2,000 Sovereign Bancorp, Inc. 10.25 5/15/2004 1,980
2,000 Supervalu, Inc. 7.63 9/15/2004 1,951
2,820 TriNet Corporate Realty Trust, Inc. 6.75 3/01/2013 2,545
1,000 Washington Real Estate Investment
Trust 7.25 8/13/2006 925
2,000 Waste Management, Inc. 6.38 12/01/2003 1,799
----------------------------------------------------------------------------
Total Bonds (cost: $63,254) 60,136
----------------------------------------------------------------------------
MONEY MARKET INSTRUMENT (1.1%)
3,419 Federal Home Loan Bank, Discount Note,
6.30, 6/01/2000 (cost: $3,419) 3,419
----------------------------------------------------------------------------
Total Investments (cost: $265,639) $313,460
============================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Drugs 5.4%
Banks - Major Regional 4.8
Communication Equipment 4.7
Finance - Diversified 4.5
Electronics - Semiconductors 4.2
Computer Software & Service 4.1
Telephones 4.1
Computer - Hardware 3.5
Oil - International Integrated 3.3
Electrical Equipment 3.3
U.S. Government 3.1
Health Care - Diversified 3.0
Real Estate Investment Trusts 2.9
Banks - Money Center 2.5
Telecommunications - Long Distance 2.1
Finance - Consumer 2.1
Household Products 1.9
Beverages - Nonalcoholic 1.8
Insurance - Multiline Companies 1.5
Manufacturing - Diversified Industries 1.5
Natural Gas Utilities 1.4
Retail - General Merchandising 1.3
Retail - Food 1.3
Entertainment 1.2
Retail - Specialty 1.2
Computer - Networking 1.2
Investment Banks/Brokerage 1.2
Biotechnology 1.2
Foods 1.1
Oil & GaS-Drilling/Equipment 1.0
Other 23.1
----
Total 99.5%
====
USAA GROWTH 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.
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) Represents less than 0.1% of net assets.
(b) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Fund's investment manager. Any resale of
this security in the United States may occur in an exempt transaction to a
qualified institutional buyer as defined by the Rule 144A.
* Non-income producing security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
MAY 31, 2000
ASSETS
Investments in securities, at market value
(identified cost of $265,639) $313,460
Cash 157
Cash denominated in foreign currencies (identified cost of $302) 310
Receivables:
Capital shares sold 153
Dividends and interest 1,332
Securities sold 75
--------
Total assets 315,487
--------
LIABILIITES
Securities purchased 93
Capital shares redeemed 111
USAA Investment Management Company 201
USAA Transfer Agency Company 75
Accounts payable and accrued expenses 96
Dividends on capital shares 5
--------
Total liabilities 581
--------
Net assets applicable to capital shares outstanding $314,906
========
REPRESENTED BY:
Paid-in capital $252,986
Accumulated undistributed net investment income 1,540
Accumulated net realized gain on investments 12,557
Net unrealized appreciation of investments 47,821
Net unrealized appreciation on foreign currency translations 2
--------
Net assets applicable to capital shares outstanding $314,906
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 20,200
========
Net asset value, redemption price, and offering price per
share $ 15.59
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED MAY 31, 2000
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $139) $ 2,251
Interest 4,463
-------
Total income 6,714
-------
Expenses:
Management fees 2,204
Transfer agent's fees 889
Custodian's fees 223
Postage 206
Shareholder reporting fees 34
Trustees' fees 5
Registration fees 55
Professional fees 38
Other 5
-------
Total expenses 3,659
-------
Net investment income 3,055
-------
Net realized and unrealized gain (loss) on investments and
foreign currency:
Net realized gain (loss) on:
Investments 21,931
Foreign currency transactions (25)
Change in net unrealized appreciation/depreciation of:
Investments 16,723
Foreign currency translations 5
-------
Net realized and unrealized gain 38,634
-------
Increase in net assets resulting from operations $41,689
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEARS ENDED MAY 31,
<TABLE>
<CAPTION>
2000 1999
-----------------------
<S> <C> <C>
From operations:
Net investment income $ 3,055 $ 2,065
Net realized gain on investments 21,931 13,096
Net realized loss on foreign currency transactions (25) (16)
Change in net unrealized appreciation/depreciation of:
Investments 16,723 4,978
Foreign currency translations 5 24
-----------------------
Increase in net assets resulting from operations 41,689 20,147
-----------------------
Distributions to shareholders from:
Net investment income (3,409) (1,377)
-----------------------
Net realized gains (22,422) (12,119)
-----------------------
From capital share transactions:
Proceeds from shares sold 85,489 72,653
Reinvested dividends 25,670 13,447
Cost of shares redeemed (70,864) (83,410)
-----------------------
Increase in net assets from
capital share transactions 40,295 2,690
-----------------------
Net increase in net assets 56,153 9,341
Net assets:
Beginning of period 258,753 249,412
-----------------------
End of period $314,906 $258,753
=======================
Accumulated undistributed net investment income:
End of period $ 1,540 $ 1,919
=======================
Change in shares outstanding:
Shares sold 5,521 5,267
Shares issued for dividends reinvested 1,674 964
Shares redeemed (4,593) (6,073)
-----------------------
Increase in shares outstanding 2,602 158
=======================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
USAA GROWTH 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
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.
Using preset target ranges, USAA Investment Management Company (the Manager)
will invest the Fund's assets mostly in stocks (divided into the categories of
large-cap, small-cap, and international) and to a lesser extent, bonds and money
market instruments.
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 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.
(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 and 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.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the period ended May 31, 2000, were $225,964,000 and
$200,854,000, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 2000,
were $63,469,000 and $15,648,000, 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 May 31, 2000, the terms of open foreign currency contracts were as follows
(in thousands):
<TABLE>
<CAPTION>
Foreign Currency Contracts to Buy:
------------------------------------------------------------------------------------
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Receive 5/31/00 for U.S. Dollar Appreciaion Depreciation
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
06/02/00 7 Argentine Peso $ 7 $ 7 $ - $ -
------------------------------------------------------------------------------------
06/05/00 28 Argentine Peso 27 27 - -
------------------------------------------------------------------------------------
06/05/00 16 Pound Sterling 24 24 - -
------------------------------------------------------------------------------------
$58 $58 $ - $ -
====================================================================================
</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 $26 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 $3,000.
(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:
NINE-MONTH
PERIOD ENDED
YEAR ENDED MAY 31, MAY 31,
-----------------------------------------------------
2000 1999 1998 1997 1996*
-----------------------------------------------------
Net asset value at
beginning of period $ 14.70 $ 14.30 $ 13.10 $ 12.74 $ 10.00
Net investment income .15 .12 .13 .15 .11(b)
Net realized and
unrealized gain 2.17 1.05 1.43 .77 2.66
Distributions from net
investment income (.19) (.08) (.13) (.12) (.03)
Distributions of realized
capital gains (1.24) (.69) (.23) (.44) -
-----------------------------------------------------
Net asset value at
end of period $ 15.59 $ 14.70 $ 14.30 $ 13.10 $ 12.74
=====================================================
Total return(%) ** 16.17 8.46 12.12 7.73 27.76
Net assets at end of
period (000) $314,906 $258,753 $249,412 $193,921 $87,188
Ratio of expenses to
average net assets(%) 1.24 1.28 1.25 1.31 1.66(a)
Ratio of net investment
income to average net
assets (%) 1.04 .84 .97 1.46 1.34(a)
Portfolio turnover (%) 71.54 41.65 69.42 62.50 40.21
* 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, 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
