Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Shareholder Voting Results 9
Financial Information
Portfolio of Investments 10
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 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 Tademark) 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 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 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 the President and Vice Chairman of the Board, Michael J. C. Roth,
CFA, appears here]
As I write this message, I am also in the process of preparing to lead a panel
on personal finance at the Greater San Antonio Chamber of Commerce's annual
conference on economic development. As we enter 2000, I have asked my fellow
panelists to look back to what they consider to be the key lessons they have
learned in careers that all span at least 25 years in investments.
The incident and the person I have chosen is the visit of a well-known equity
strategist from one of the major investment bankers to San Antonio in the spring
of 1982. I should remind you what the spring of 1982 was like. The market had
not yet shaken off the effects of repeated, arbitrary increases in the price of
oil; the roaring inflation which followed; and the highest U.S. interest rates
since the Civil War. Stocks and bonds had not yet come off their worst
performance since World War II. Against this backdrop, that well-known equity
strategist delivered a magnificent after-dinner presentation. He plucked facts
and figures from a wide variety of sources and wove them into a compelling
argument. His conclusion was clear: "Stay out of this market!" He was brilliant.
He was dead wrong. That summer saw the beginning of the greatest bull market for
both stocks and bonds in U.S. history.
This incident has greatly influenced my thinking and my career. It taught me
these things:
- It is best to base investment strategy on something other than a
forecast of the market.
- If you insist on forecasting the market, it doesn't help to make the
little calls. You absolutely must be right at times like spring of
1982.
- If you use an asset allocation approach to investing, your chances of
being in at a major turning point are 100%.
That is why I believe in the asset allocation approach of our strategy funds.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Past performance is no guarantee of future results.
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.
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 blue chip stocks.
- --------------------------------------------------------------------------------
11/30/99 5/31/99
- --------------------------------------------------------------------------------
Net Assets $261.0 Million $252.4 Million
Net Asset Value Per Share $17.03 $16.66
- --------------------------------------------------------------------------------
Average Annual Total Returns and 30-Day SEC Yield* as of 11/30/99
- --------------------------------------------------------------------------------
5/31/99 30-Day
to 11/30/99(+) 1 Year 5 Years 10 Years SEC Yield
3.67% 10.22% 13.84% 10.00% 2.83%
- --------------------------------------------------------------------------------
* Calculated as prescribed by the Securities and Exchange Commission.
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gains distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gains 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 11/30/89 through
11/30/99. The data points from the graph are as follows:
USAA Growth & Tax Lehman
Strategy Fund Index
------------- -------
11/30/89 $10,000 $10,000
05/31/90 10,073 10,273
11/30/90 10,085 10,770
05/31/91 10,971 11,308
11/30/91 11,216 11,875
05/31/92 11,861 12,419
11/30/92 12,175 13,066
05/31/93 13,232 13,905
11/30/93 13,802 14,514
05/31/94 13,723 14,248
11/30/94 13,559 13,752
05/31/95 15,195 15,547
11/30/95 16,416 16,351
05/31/96 17,415 16,257
11/30/96 18,807 17,312
05/31/97 19,889 17,603
11/30/97 21,400 18,553
05/31/98 22,923 19,255
11/30/98 23,522 19,993
05/31/99 25,009 20,154
11/30/99 25,928 19,779
Data from 11/30/89 through 11/30/99
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, 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: Clifford A. Gladson, CFA (Tax-Exempt Bonds
and Tax-Exempt Money Market Instruments); John W. Saunders, Jr., CFA (Allocation
Manager); and Patrick O'Hare, CFA (Blue Chip Stocks) 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. The Fund was
first offered to investors on January 11, 1989, so it has over ten years of
history.
Under Internal Revenue Service rules, 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. Therefore, the
Fund never had the traditional 60% common stocks, 40% bonds investment mix
normally associated with a "balanced" fund. In fact, the Fund had the reverse
mix of 60% bonds, 40% common stocks until October 1997. Since then, the common
stock target has been 41-49% with the remainder in tax-exempt securities.
The Fund is intended 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 capital gains potential to offset the
impact of inflation on assets and income.
The Fund's 10-year performance record under this format (see performance chart)
gives an indication of how this combination has worked. Of course, past
performance is no guarantee of future results.
The Fund's investment categories were rebalanced within their respective ranges
in November. On November 30, 1999, the end of this reporting period, portfolio
mix as a percentage of net assets was 45.7% in tax-exempt bonds, 47.7% in blue
chip stocks, and 7.0% in tax-exempt money market instruments.
TAX-EXEMPT BONDS
Over the last six months, interest rates for municipal bonds rose sharply. The
yield of the Bond Buyer 40-Bond Index (BBI40) - the industry standard for
long-term, investment-grade municipal bonds - went from 5.35% on June 1, 1999,
up to 6.05% on November 30, 1999. While the 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 three times. Even though domestic economic growth and
employment remained rather strong, inflation continued to run below 3%. The
credit market is now trying to determine if the actions of the Fed have been
sufficient to slow the pace of growth in the domestic economy and keep inflation
in check.
NEW PORTFOLIO MANAGER
On November 1, 1999, Cliff Gladson assumed management of the tax-exempt bonds
and tax-exempt money market instruments. Cliff has a wealth of municipal
securities experience, having managed tax-exempt money market funds in the past
and currently managing the tax-exempt USAA Short-Term and Intermediate-Term
Funds. Both of those funds received an Overall Star Rating of five stars in the
tax-exempt bond fund category from Morningstar Rating(Trade Mark) for the period
ending November 30, 1999. The previous manager of your Fund, Ken Willmann, has
moved into senior management of USAA Investment Management Company.
BLUE CHIP STOCKS
With the backdrop of higher rates, most stocks had a difficult time. In fact,
only the technology and communications sectors outperformed the S&P 500 during
the period. Seven of the 11 sectors comprising the S&P 500 actually had negative
returns during the period.
The equity portion of the portfolio performed well as a result of being
overweighted in technology. In particular, the Fund was helped by owning Applied
Materials, Texas Instruments, Cisco Systems, Intel, Dell Computer, and
Microsoft. Selected health care names performed well, especially Merck,
Bristol-Myers Squibb, and Medtronic. The Fund benefited from owning Home Depot,
Wal-Mart, and Dayton Hudson. The Fund's position in Sprint Corporation performed
well as the company agreed to be purchased by MCI Worldcom. Other stocks
performing well during the period were Morgan Stanley Dean Witter & Co.,
Citigroup, and General Electric.
The Fund was hurt by its position in energy stocks, in particular, Halliburton
and Texaco. Several capital goods stocks performed poorly including Caterpillar,
Tyco International, United Technologies, and Boeing. Other stocks that hurt the
Fund were Allstate, Ford, and American Home Products.
OUTLOOK FOR EQUITIES
Until it is clear that the Fed has stopped raising 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 the Internet infrastructure and to wireless communications
may continue to do well. We also continue to favor the health care area, despite
the uncertainty surrounding Medicare reform and the potential for a prescription
drug benefit for Medicare recipients.
Past performance is no guarantee of future results. Morningstar proprietary
ratings reflect historical risk-adjusted performance as of November 30, 1999.
The ratings are subject to change every month. Morningstar ratings are
calculated from the Fund's three-, five-, and ten-year average annual returns in
excess of 90-day Treasury bill returns with appropriate fee adjustments, and a
risk factor that reflects Fund performance below 90-day T-bill returns. Overall
rating is a weighted average of a fund's three-, five-, and ten-year ratings, as
applicable. The USAA Intermediate-Term Fund and the USAA Short-Term Fund both
received five stars for the three-, five-, and ten-year periods, respectively.
The top 10% of the funds in a broad asset class receive five stars, the next
22.5% receive four stars, and the next 35% receive three stars. The Funds were
rated among 1,611, 1,241, and 375 funds in the municipal bond fund category for
the three-, five-, and ten-year periods, respectively.
- --------------------------------------------------------------------------------
Tax-Exempt Securities
Top 5 Holdings
(% of Net Assets)
- --------------------------------------------------------------------------------
Michigan - Hospital Finance Auth. RB Series 1999A 4.7
New York - Transportation Finance Auth. RB, Series 3.0
New York - Medical Care Facilities Finance Agency RB, Series 1995A 2.5
Connecticut - Mashantucket (Western) Pequot Tribe RB, Series 1977B 2.1
Texas - Lewisville RB, Series 1998B 2.1
- --------------------------------------------------------------------------------
See page 10 for a complete listing of the portfolio of investments.
- ------------------------------------
Blue Chip Stocks
Top 5 Holdings
(% of Net Assets)
- ------------------------------------
Cisco Systems 4.6
Microsoft 3.2
Texas Instruments Inc. 2.8
Intel 2.4
Bristol-Myers Squibb 2.1
- ------------------------------------
- ------------------------------------
Top 10 Industries
(% of Net Assets)
- ------------------------------------
Hospital 15.1
Nursing / CCRC 9.8
Electronics - Semiconductors 5.2
Computers - Networking 4.6
Single-Family Housing 4.3
Financial - Diversified 4.1
Special Assessment / Tax 3.4
Health Care - Diversified 3.4
Computers - Software & Service 3.2
Escrowed Bonds 3.1
- ------------------------------------
ASSET ALLOCATION
11/30/99
A pie chart is shown here depicting the Asset Allocation as of November 30, 1999
of the USAA Growth and Tax Strategy Fund to be:
Blue Chip Stocks - 47.7%; Tax-Exempt Bonds - 45.7%; and Tax-Exempt Money Market
Instruments - 7.0%.
Percentages are of the net assets in the portfolio and may or may not equal
100%.
See page 10 for a complete listing of the portfolio of investments.
Income may be subject to federal, state, or local taxes, or to the alternative
minimum tax.
Shareholder Voting Results
On October 15, 1999, a special meeting of shareholders was held to vote on the
following proposals. All proposals were approved by the shareholders. All
shareholders of record on August 19, 1999, were entitled to vote on each
proposal. The number of votes shown below are for the entire series of the USAA
Investment Trust (the Trust) for proposals 1 and 2.
1 Proposal to elect Trustees as follows:
Trustees Votes For Votes Withheld
Robert G. Davis 181,888,787 2,690,901
Michael J.C. Roth 181,881,641 2,698,047
David G. Peebles 181,888,787 2,690,901
Robert L. Mason 181,888,787 2,690,901
Michael F. Reimherr 181,883,427 2,696,261
Richard A. Zucker 181,875,813 2,696,966
Barbara B. Dreeben 181,883,427 2,696,261
John W. Saunders, Jr. and Howard L. Freeman, Jr. did not stand for re-election
to the Board. Their term of office will terminate on December 31, 1999.
2 Proposal to ratify the selection by the Board of Trustees of KPMG LLP as
auditors for the Trust for the fiscal year ending May 31, 2000.
Number of Shares Voting
- --------------------------------------------------------------------------------
For Against Abstain
179,181,697 2,930,888 2,467,103
USAA GROWTH AND TAX STRATEGY FUND
PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
BLUE CHIP STOCKS (47.7%)
Advertising/Marketing (0.7%)
19,600 Omnicom Group, Inc. $ 1,727
- --------------------------------------------------------------------------------
Aerospace/Defense (0.7%)
43,000 Boeing Co. 1,755
- --------------------------------------------------------------------------------
Automobiles (0.5%)
26,400 Ford Motor Co. 1,333
- --------------------------------------------------------------------------------
Banks - Major Regional (1.4%)
22,800 PNC Bank Corp. 1,271
32,300 State Street Corp. 2,372
- --------------------------------------------------------------------------------
3,643
- --------------------------------------------------------------------------------
Banks - Money Center (0.6%)
11,200 J. P. Morgan & Co., Inc. 1,473
- --------------------------------------------------------------------------------
Beverages - Alcoholic (0.5%)
17,400 Anheuser-Busch Companies, Inc. 1,302
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (0.9%)
33,600 Coca-Cola Co. 2,262
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV (0.7%)
37,400 CBS Corp. * 1,945
- --------------------------------------------------------------------------------
Chemicals (0.5%)
12,200 Dow Chemical Co. 1,429
- --------------------------------------------------------------------------------
Chemicals - Diversified (1.3%)
80,000 Monsanto Co. 3,375
- --------------------------------------------------------------------------------
Computer - Hardware (0.6%)
35,000 Dell Computer Corp. * 1,505
- --------------------------------------------------------------------------------
Computer - Networking (4.6%)
134,400 Cisco Systems, Inc. * 11,987
- --------------------------------------------------------------------------------
Computer Software & Service (3.2%)
90,400 Microsoft Corp. * 8,231
- --------------------------------------------------------------------------------
Drugs (1.3%)
42,800 Merck & Co., Inc. 3,360
- --------------------------------------------------------------------------------
Electrical Equipment (1.9%)
38,200 General Electric Co. 4,966
- --------------------------------------------------------------------------------
Electronics - Semiconductors (5.2%)
80,000 Intel Corp. 6,135
77,000 Texas Instruments, Inc. 7,397
- --------------------------------------------------------------------------------
13,532
- --------------------------------------------------------------------------------
Entertainment (0.6%)
26,600 Time Warner, Inc. 1,641
- --------------------------------------------------------------------------------
Equipment - Semiconductors (0.4%)
9,600 Applied Materials, Inc. * 935
- --------------------------------------------------------------------------------
Finance - Diversified (4.1%)
11,600 American Express Co. 1,755
79,125 Citigroup, Inc. 4,263
31,600 Fannie Mae 2,105
21,900 Morgan Stanley Dean Witter & Co. * 2,642
- --------------------------------------------------------------------------------
10,765
- --------------------------------------------------------------------------------
Health Care - Diversified (3.4%)
40,000 American Home Products Corp. 2,080
73,600 Bristol-Myers Squibb Co. 5,377
12,800 Johnson & Johnson, Inc. 1,328
- --------------------------------------------------------------------------------
8,785
- --------------------------------------------------------------------------------
Household Products (1.4%)
28,400 Colgate-Palmolive Co. 1,558
20,000 Procter & Gamble Co. 2,160
- --------------------------------------------------------------------------------
3,718
- --------------------------------------------------------------------------------
Insurance - Property/Casualty (0.8%)
82,000 Allstate Corp. 2,147
- --------------------------------------------------------------------------------
Investment Banks/Brokerage (0.2%)
14,332 Bear Stearns Cos., Inc. 585
- --------------------------------------------------------------------------------
Machinery - Diversified (0.4%)
21,200 Caterpillar, Inc. 983
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries (0.8%)
24,600 Tyco International Ltd. 985
20,600 United Technologies Corp. 1,164
- --------------------------------------------------------------------------------
2,149
- --------------------------------------------------------------------------------
Medical Products & Supplies (0.5%)
34,200 Medtronic, Inc. 1,330
- --------------------------------------------------------------------------------
Oil - International Integrated (2.1%)
30,000 Mobil Corp. 3,129
40,000 Texaco, Inc. 2,438
- --------------------------------------------------------------------------------
5,567
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.6%)
39,500 Halliburton Co. 1,528
- --------------------------------------------------------------------------------
Paper & Forest Products (0.2%)
11,800 International Paper Co. 616
- --------------------------------------------------------------------------------
Retail - Building Supplies (0.7%)
24,800 Home Depot, Inc. 1,961
- --------------------------------------------------------------------------------
Retail - General Merchandising (2.2%)
25,700 Dayton Hudson Corp. 1,814
66,500 Wal-Mart Stores, Inc. 3,832
- --------------------------------------------------------------------------------
5,646
- --------------------------------------------------------------------------------
Retail - Specialty Apparel (0.3%)
18,675 Gap, Inc. 756
- --------------------------------------------------------------------------------
Telecommunications - Long Distance (2.7%)
21,300 MCI WorldCom, Inc. * 1,761
75,200 Sprint Corp. 5,217
- --------------------------------------------------------------------------------
6,978
- --------------------------------------------------------------------------------
Telephones (1.7%)
86,500 SBC Communications Corp. 4,493
- --------------------------------------------------------------------------------
Total blue chip stocks (cost: $58,239) 124,408
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (52.7%)
TAX-EXEMPT BONDS (45.7%)
<C> <S> <C> <C> <C>
Alabama (1.6%)
$ 4,700 Baldwin County Health Care Auth. RB,
Series 1998 5.75% 4/01/2027 $ 4,062
Arkansas (1.4%)
2,500 Conway Health Facilities Board Hospital RB,
Series 1999A 6.40 8/01/2029 2,482
1,300 Little Rock Capital Improvement RB,
Series 1998A 5.80 1/01/2023 1,218
Connecticut (2.9%)
2,500 Development Auth. First Mortgage RB,
Series 1997 5.80 4/01/2021 2,235
6,000 Mashantucket (Western) Pequot Tribe RB,
Series 1997B(e) 5.75 9/01/2027 5,469
Illinois (2.1%)
5,500 Health Facilities Auth. RB, Series 1996 6.38 1/01/2015 5,362
Indiana (2.8%)
4,780 Fifth Avenue Housing Development Corp.
MFH RB, Series 1993A 7.25 7/01/2025 5,008
2,500 LaPorte County Hospital Auth. RB 6.00 3/01/2023 2,358
Louisiana (1.1%)
3,080 Public Facilities Auth. SFM RB,
Series 1997B 5.75 8/01/2031 2,925
Maine (0.2%)
500 Housing Auth. SFH RB, Series 1994C-1(d) 6.50 11/15/2011 510
Massachusetts (1.5%)
4,500 Industrial Finance Agency RB,
Series 1997B (LOC) 5.50 5/15/2027 3,975
Michigan (8.1%)
4,000 Hospital Finance Auth. RB, Series 1996 6.25 10/01/2027 3,753
12,500 Hospital Finance Auth. RB, Series 1999A 6.13 11/15/2026 12,289
5,460 Strategic Fund RB, Series 1997A 5.75 8/01/2019 5,209
Missouri (1.1%)
3,000 Health and Educational Facilities Auth. RB,
Series 1997 5.88 2/01/2023 2,816
Montana (1.3%)
3,600 Health Facilities Auth. RB, Series 1996 6.38 6/01/2018 3,460
New Jersey (1.3%)
3,750 Economic Development Auth. RB,
Series 1997A 5.88 12/01/2026 3,345
New York (6.6%)
3,000 Dormitory Auth. RB, (INS) (1),(c) 6.00 7/01/2020 2,967
5,850 Medical Care Facilities Finance Agency RB,
Series 1995A (PRE) (d) 6.85 2/15/2017 6,492
8,000 New York City Transitional Finance Auth. RB,
Series 1999A 5.75 8/15/2024 7,758
Oklahoma (1.0%)
2,695 Valley View Hospital Auth. RB, Series 1996 6.00 8/15/2014 2,531
Oregon (1.2%)
3,420 Clackamas County Hospital Facility Auth. RB,
Series 1997 6.30 11/01/2021 3,254
Pennsylvania (1.9%)
3,240 Philadelphia Gas Works RB, 14th Series 6.38 7/01/2026 3,211
1,545 Philadelphia Gas Works RB, 14th
Series (PRE) 6.38 7/01/2026 1,656
Rhode Island (2.1%)
5,200 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/2024 5,361
Texas (5.6%)
3,410 Fort Worth Higher Education Finance Corp. RB,
Series 1997A 6.00 10/01/2016 3,296
5,675 Lewisville RB, Series 1998 (INS) (2) 5.80 9/01/2025 5,465
2,100 North Central Health Facilities Development
Corp. RB, Series 1996 6.30 2/15/2015 2,053
30,270 Northwest Independent School District GO,
Series 1997 (NBGA) (b) 6.38 8/15/2032 3,915
Wisconsin (1.9%)
3,000 Health and Educational Facilities Auth. RB,
Series 1998 5.75 7/01/2028 2,498
2,335 Housing and Economic Development Auth. SFH
RB, Series 1992A (d) 7.10 3/01/2023 2,412
- ---------------------------------------------------------------------------------------------------
Total tax-exempt bonds (cost: $121,100) 119,345
- ---------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (7.0%)
Alabama (0.3%)
900 Phenix City IDB RB, Series 1985 (LOC) (a) 3.75 12/01/2015 900
Florida (1.1%)
2,800 St. Lucie County PCRB, Series 1995 (a) 3.80 3/01/2027 2,800
Kansas (0.9%)
2,300 Development Finance Auth. RB,
Series 1998BB (LOC) (a) 3.70 11/15/2028 2,300
Michigan (1.2%)
3,200 Jackson County Economic Development Corp.
RB, Series 1997 (LOC) (a) 3.70 6/01/2027 3,200
Minnesota (1.0%)
1,620 Cohasset RB, Series 1997A (LOC) (a) 3.70 6/01/2020 1,620
900 Duluth Economic Development Auth. Health
Facilities RB, Series 1997 (LOC) (a) 3.70 6/01/2019 900
Missouri (0.8%)
2,200 State Health and Educational Facilities
Auth. RB, Series 1996A (LOC) (a) 3.70 6/01/2026 2,200
New York (0.7%)
1,800 New York City GO, Series 1994A-4 (LOC) (a) 3.70 8/01/2021 1,800
Texas (1.0%)
600 Gulf Coast Waste Disposal Auth. PCRB,
Series 1992 (a) 3.60 10/01/2017 600
2,015 Port Arthur Navigation District IDC PCRB,
Series 1985 (LOC) (a) 3.85 5/01/2003 2,015
- ---------------------------------------------------------------------------------------------------
Total tax-exempt money market instruments (cost: $18,335) 18,335
- ---------------------------------------------------------------------------------------------------
Total tax-exempt securities (cost: $139,435) 137,680
- ---------------------------------------------------------------------------------------------------
Total investments (cost: $197,674) $262,088
===================================================================================================
</TABLE>
USAA GROWTH AND TAX STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
PORTFOLIO DESCRIPTION ABBREVIATIONS
IDB Industrial Development Board
IDC Industrial Development Corporation
GO General Obligation
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
SFH Single-Family Housing
SFM Single-Family Mortgage
CREDIT ENHANCEMENTS - adds 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.
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 in seven days. The
interest rate is 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 detailed regulatory requirements. In bond funds, 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 November 30, 1999, the cost of securities purchased on a delayed-delivery
basis was $3.0 million.
(d) At November 30, 1999, these securities were segregated to cover
delayed-delivery purchases.
(e) These securities are exempt from registration under the Securities Act of
1933 and have been determined to be liquid by management. Any resale of these
securities may occur in an exempt transaction in the United States to a
qualified institutional buyer as defined by Rule 144A. These securities
represented 2.10% of net assets.
* Non-income producing securities.
See accompanying notes to financial statements.
USAA GROWTH and TAX STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1999
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $197,674) $262,088
Cash 115
Receivables:
Capital shares sold 62
Dividends and interest 1,991
--------
Total assets 264,256
--------
LIABILITIES
Securities purchased 2,998
Capital shares redeemed 88
USAA Investment Management Company 107
USAA Transfer Agency Company 25
Accounts payable and accrued expenses 35
--------
Total liabilities 3,253
--------
Net assets applicable to capital shares outstanding $261,003
========
REPRESENTED BY:
Paid-in capital $194,751
Accumulated undistributed net investment income 1,298
Accumulated net realized gain on investments 540
Net unrealized appreciation of investments 64,414
--------
Net assets applicable to capital shares outstanding $261,003
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 15,322
========
Net asset value, redemption price, and offering price per share $ 17.03
========
See accompanying notes to financial statements.
USAA GROWTH AND TAX STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1999
(Unaudited)
Net investment income:
Income:
Dividends $ 651
Interest 3,817
------
Total income 4,468
------
Expenses:
Management fees 640
Transfer agent's fees 146
Custodian's fees 39
Postage 27
Shareholder reporting fees 9
Trustees' fees 2
Registration fees 32
Professional fees 14
Other 3
------
Total expenses 912
------
Net investment income 3,556
------
Net realized and unrealized gain on investments:
Net realized gain on investments 540
Change in net unrealized appreciation/depreciation of investments 5,261
------
Net realized and unrealized gain 5,801
------
Increase in net assets resulting from operations $9,357
======
See accompanying notes to financial statements.
USAA GROWTH AND TAX STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1999,
and year ended May 31, 1999
(Unaudited)
11/30/99 5/31/99
--------------------------
From operations:
Net investment income $ 3,556 $ 6,832
Net realized gain on investments 540 6,275
Change in net unrealized appreciation/depreciation
of investments 5,261 7,365
-------------------------
Increase in net assets resulting from operations 9,357 20,472
-------------------------
Distributions to shareholders from:
Net investment income (3,492) (6,836)
-------------------------
Net realized gains (55) (8,587)
-------------------------
From capital share transactions:
Proceeds from shares sold 13,369 31,150
Shares issued for dividends reinvested 3,199 14,143
Cost of shares redeemed (13,817) (27,304)
------------------------
Increase in net assets from capital share
transactions 2,751 17,989
------------------------
Net increase in net assets 8,561 23,038
Net assets:
Beginning of period 252,442 229,404
-------------------------
End of period $261,003 $252,442
=========================
Undistributed net investment income included in net
assets:
End of period $ 1,298 $ 1,234
=========================
Change in shares outstanding:
Shares sold 797 1,906
Shares issued for dividends reinvested 194 871
Shares redeemed (823) (1,689)
-------------------------
Increase in shares outstanding 168 1,088
=========================
See accompanying notes to financial statements.
USAA GROWTH AND TAX STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1999
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eleven separate funds.
The information presented in this semiannual report pertains only to the USAA
Growth and Tax Strategy Fund (the Fund). The Fund's investment objective is to
seek a conservative balance 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.
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 that cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by USAA Investment Management Company (the Manager) under the general
supervision of the Board of Trustees.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income 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
six-month period ended November 30, 1999.
(3) DISTRIBUTIONS
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
in the succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 1999, were
$99.5 million and $105.1 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1999, were $67.8 million and $3.4 million, 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 six-month
period ended November 30, 1999, was $7,538.
(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) YEAR 2000
Like other mutual funds, the Fund could be adversely affected if the computer
systems used by the Manager and the Fund's other service providers are not able
to perform their intended functions effectively after 1999 because of the
inability of computer software to distinguish the year 2000 from the year 1900.
The Manager has taken steps to address this potential year 2000 problem with
respect to the computer systems that they use and to obtain satisfactory
assurances that the comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund from this
problem.
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month
Period Ended
November 30, Year Ended May 31,
-------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 16.66 $ 16.31 $ 15.14 $ 14.11 $ 12.82 $ 12.32
Net investment income .23 .47 .50 .52 .51 .49
Net realized and
unrealized gain .37 .96 1.72 1.39 1.32 .76
Distributions from net
investment income (.23) (.48) (.51) (.52) (.51) (.48)
Distributions of realized
capital gains - (.60) (.54) (.36) (.03) (.27)
-------------------------------------------------------------------
Net asset value at
end of period $ 17.03 $ 16.66 $ 16.31 $ 15.14 $ 14.11 $ 12.82
==================================================================
Total return (%) * 3.67 9.10 15.26 14.21 14.61 10.73
Net assets at end of
period (000) $261,003 $252,442 $229,404 $185,504 $160,390 $134,538
Ratio of expenses to
average net assets (%) .71(a) .69 .71 .74 .82 .80
Ratio of net investment
income to average net
assets (%) 2.78(a) 2.89 3.22 3.66 3.79 4.02
Portfolio turnover (%) 40.88 63.42 65.58(b) 194.21(b) 202.55(b) 265.52(b)
</TABLE>
* 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) At times, the Fund has simultaneously purchased and sold the same
securities. These transactions sometimes were high in volume and were
dissimilar to other trade activity within the Fund. If these transactions
were excluded from the calculation, the portfolio turnover rate would have
been:
Six-Month
Period Ended
November 30, Year Ended May 31,
------------------------------------------------------------
1999 1999 1998 1997 1996 1995
------------------------------------------------------------
Portfolio turnover (%) n/a n/a 31.58 52.97 61.98 131.28
Purchases and sales
of this type are
as follows:
Purchases (000) n/a n/a $68,958 $220,402 $192,239 $234,367
Sales (000) n/a n/a $69,044 $220,683 $192,490 $234,669
Trustees
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
Investment Adviser, Underwriter, and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Independent Auditors
KPMG 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
