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
Statement of Assets and Liabilities 11
Portfolio of Investments in Securities 12
Notes to Portfolio of Investments 26
Statement of Operations 27
Statements of Changes in Net Assets 28
Notes to Financial Statements 29
Important Information:
Effective September 5, 1995, the name of the Cornerstone Fund will be
changed to the Cornerstone Strategy Fund.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA
Cornerstone 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)1995, USAA. All rights reserved.
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the
performance of our other funds. This summary is a snapshot of the
performance of all 29 funds by investment objective as of June 30, 1995. If
you're interested in more information, please call us at 1-800-531-1087 for
a prospectus. Please read the prospectus carefully before investing.
<TABLE>
<CAPTION>
Average Annual Total Return**
Investment Inception Since 7-Day 30-Day***
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
Capital Appreciation % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 10/19/81 39.72 11.12 9.78 - - -
Emerging Markets 11/7/94 - - - (0.50) - -
Gold 8/15/84 6.88 4.66 2.86 - - -
Growth 4/5/71 26.34 12.37 11.75 - - -
Growth & Income 6/1/93 21.19 - - 10.49 - -
International 7/11/88 4.23 7.89 - 9.33 - -
World Growth 10/1/92 7.88 - - 11.71 - -
Diversified/Balanced
Balanced Portfolio 1/11/89 11.09 8.59 - 8.93 - 4.06
Cornerstone 8/15/84 9.25 9.24 12.00 - - -
Income - Taxable
GNMA 2/1/91 11.00 - - 8.08 - 6.79
Income 3/4/74 15.07 10.00 10.04 - - 6.87
Income Stock 5/4/87 19.52 12.26 - 11.44 - -
Short-Term Bond 6/1/93 8.40 - - 4.83 - 6.77
Income - Tax Exempt
Long-Term 3/19/82 7.28 7.66 8.60 - - 5.79
Intermediate-Term 3/19/82 7.60 7.71 7.82 - - 5.22
Short-Term 3/19/82 5.23 5.52 5.76 - - 4.36
California Bond* 8/1/89 8.96 7.66 - 7.23 - 5.79
Florida Tax-Free Income* 10/1/93 7.82 - - 0.09 - 5.71
New York Bond* 10/15/90 7.36 - - 8.65 - 5.60
Texas Tax-Free Income* 8/1/94 - - - 8.40 - 5.63
Virginia Bond* 10/15/90 8.79 - - 8.31 - 5.78
Money Market
Money Market 2/2/81 5.33 4.76 6.06 - 5.75 -
Tax Exempt Money Market 2/6/84 3.34 3.57 4.45 - 3.82 -
Treasury Money Market Trust 2/1/91 5.06 - - 4.01 5.69 -
California Money Market* 8/1/89 3.31 3.36 - 3.71 3.74 -
Florida Tax-Free Money Market* 10/1/93 3.23 - - 2.72 3.74 -
New York Money Market* 10/15/90 3.15 - - 2.98 3.69 -
Texas Tax-Free Money Market* 8/1/94 - - - 3.06 3.72 -
Virginia Money Market* 10/15/90 3.25 - - 3.18 3.61 -
</TABLE>
* Shares of the state funds are authorized for sale only to residents of
the states listed above.
** 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
dividends and capital gain distributions. The performance data quoted
represents past performance and is 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.
An investment in any money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will
maintain a stable net asset value of $1 per share.
Some tax-exempt income may be subject to state or local taxes or the
federal alternative minimum tax.
Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
*** Calculated as prescribed by the Securities and Exchange Commission.
Message from the President
[A photo of Michael J.C. Roth, President appears here]
Most of these messages look back at events. This one looks forward.
On January 29, 1995, my wife and I became grandparents. Karl Joseph Marbach
was born to Alexandra, my wife's daughter, and her husband Keith Marbach.
When my wife learned of the name Alexandra and Keith had chosen,
she smiled. She noted that my middle names are Joseph Carl, and she said,
"I think this kid's college education is secure."
"Secure" may be an exaggeration, but I did decide to practice one thing I
have preached for many years. I told Alexandra to get the little fellow a
social security number, and as soon as she furnished that to me, (well, almost
as soon), I opened an InveStart (registered trademark) account for Karl
Joseph. This account, in the USAA Income Stock Fund, was opened for $100,
and will have $50 per month added to it by an electronic funds transfer from
my checking account.
InveStart is a program that we have offered for many years. For now it is
available for use with the Income Stock Fund, Cornerstone Fund and Money
Market Fund.(1) That lineup will soon expand. We originally intended it for
young USAA members as a good way to start investing. We found, however,
that many grandparents were using it as I just did.
The effect for Karl Joseph can be quite powerful. It is well documented
that the stock market, as measured by the S&P 500 stock index has produced
a total return of 10% for the last 18 years ended May 31, 1995 (Source: Lipper
Analytical Services, Inc.).
The chart on the next page shows the growth of an account with a $100
initial investment and $50 subsequent monthly investments for 18 years at
an 8% return - a hypothetical figure based upon and more conservative than
historical results. It is for illustrative purposes only and should not be
considered an indication of fund performance by any of the USAA Family of
Funds.
[A graph is shown here which shows the growth of an account with a $100
initial investment and $50 subsequent monthly investments for 18 years
at an 8% return - a hypothetical figure based upon and more conservative
than historical results. The horizontal axis shows the years, and the
vertical axis shows the dollar amount. The beginning value is $100 and
the ending value is $24,209.]
A systematic plan like this doesn't assure a profit or protect against loss
in declining markets. Since such a plan involves continuous investment in
securities regardless of fluctuating price levels of such securities, you
should consider your financial ability to continue purchases through
periods of low and high price levels.
In 18 years, college will cost more than it does now. This sum today would
go a long way toward an education in an in-state public university. In 18
years it will not buy as much education as it does today, but it will be quite
meaningful. If we add to the cash flow on birthdays, or if other relatives
kick in, it will be even more meaningful. And it is relatively painless.
I promise to keep you posted on the progress of Karl Joseph's education
fund. This is not theoretical; it is real.
" . . . I did decide to practice one thing
I have preached for many years."
Sincerely,
Michael Joseph Carl Roth
President and
Vice Chairman of the Board
(1) An investment in a money market fund is neither insured nor guaranteed
by the U.S. government, and there can be no assurance that the fund can
maintain a stable net asset value of $1 per share.
Investment Review
Cornerstone Fund
OBJECTIVE: Achieve a positive, inflation-adjusted rate of return and a
reasonably stable value of Fund shares, thereby preserving purchasing power
of shareholders' capital.
5/31/95
Net Assets $874.6 Million
Net Asset Value Per Share $22.63
Average Annual Total Return as of 5/31/95
1 Year 6.43%
5 Years 8.82%
10 Years 11.94%
[A graph is shown here which is a comparison of the change in value
of a $10,000 investment, for the period of 5/31/85 to 5/31/95, with
dividends and capital gains reinvested. The ending value of each
item graphed is as follows: S&P 500 - $38,957 and the USAA Cornerstone
Fund - $30,890.]
The graph depicts how the USAA Cornerstone Fund compares to its benchmark,
the S&P 500 Index. The S&P 500 Index is an unmanaged index representing the
average performance of a group of 500 widely held, publicly traded stocks.
It is not possible to invest directly in the S&P 500 Index. The chart
compares a $10,000 hypothetical investment in the Fund to the Index.
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
dividends and capital gain distributions. The performance data quoted
represents past performance and is 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.
[A pie chart is shown here depicting the Portfolio Mix as of May 31, 1995
of the USAA Cornerstone Fund to be: Foreign - 22.9%, U.S. Government -
25.0%, Basic Value - 24.3%, Gold - 4.5%, and Real Estate - 23.4%.]
[Photos Mark W. Johnson, Portfolio Manager of the Real Estate and Gold Sector
David Peebles, Portfolio Manager of the Foreign Sector, Harry W. Miller,
Portfolio Manager of the Basic Value Sector and John W. Saunders, Jr.,
Portfolio Manager of the U.S. Government Sector appear here]
Basic Value Category
During 1994, the concern was that the economy was growing too fast. This
led the Federal Reserve to raise interest rates, which muted stock market
performance. In 1995, the concern is the impact of an economic slowdown on
corporate profitability. The immediate impact of slower economic growth has
been lower long-term interest rates. The lower interest rate environment
has been a positive for the stock market, since corporate earnings have
remained strong.
Over the six-month period ending May 31, 1995, the best performing groups
in the basic value category were aerospace/defense, insurance, and machinery.
Basic value stocks that underperformed the S&P 500 over the past six months
include auto parts/automobiles, retail, and transportation.
Outlook: Basic Value Category
The basic value category remains positioned to take advantage of what we
believe will be continued economic growth. Inflation remains subdued and
business productivity continues to exceed economists' estimates. In addition,
the passage of the General Agreement on Tariffs and Trade (GATT) and the
dollar's low value relative to the Japanese yen and Deutsche mark should
improve the earnings of companies with international exposure. Significant
holdings that were impacted include: Boeing (1.1% of net assets), Deere (1.0%),
Ford (.8%), Universal Corp. (.6%) and American President Companies (.4%).
Gold Category
The gold price moved slightly lower during the fiscal year. On May 31,
1995, it stood at $384.30 versus $387.60 on May 31, 1994, a decline of
0.85%. The range was $372.40 to $396.25.
The longer-term outlook for gold prices is moderately favorable. Mine
production actually declined slightly in 1994, the first decline in mine
output since 1975. Moreover, it is likely that production will fall even
more in 1995, driven by labor problems in the South African sector.
Meanwhile, fabrication demand in 1994 was up slightly despite a 6.8% higher
average price in calendar 1994 versus 1993. China has emerged as the second
largest consumer of gold jewelry and may very well pull ahead of the United
States in the next few years.
The so-called "global gold gap" (fabrication demand plus bar hoarding less
mine output and scrap supply) rose to 493 metric tons in 1994. In 1992, the
year prior to the fabulous 1993 bull market in gold equities, the global
gold gap stood at 700 metric tons. If there is a fly in the ointment, it is
the possibility that the International Monetary Fund may emerge as a seller
of 6% of its gold holdings, effectively eliminating the global gold gap and
capping prices at current levels. In the absence of concerted selling from the
official sector, however, we would expect gold prices to have an upward bias.
Real Estate Category
The twelve months ended May 31, 1995, was a difficult period for real
estate related securities. Rising interest rates and a flood of equity
offerings caused Real Estate Investment Trusts (REITs) to decline 10.6% in
the first half of the fiscal year as measured by the National Association
of Real Estate Investment Trusts (NAREIT) equity index.
REITs benefited in the second half of the fiscal year from falling interest
rates, although the 11.6% upward move in the NAREIT index was anemic
compared to the performance of both the S&P 500 (19.2%) and the bond market
(15.6%). As a result, the "yield gap" (the average REIT dividend yield less
the 10-year Treasury bond yield) now stands at 1.7% - a high level by
historical standards. REITs have done poorly despite improving property
fundamentals (many sectors and markets have seen increasing occupancy, rent
growth greater than expense growth, and subdued new construction). For these
reasons, we believe that REIT stocks are particularly attractive at current
levels.
During the year the real estate component of the Fund was restructured.
Significant positions in industrial, office, and self-storage REITs were
initiated. The apartment exposure was boosted slightly. The community
shopping center position was pared, as were holdings in companies lacking
product type focus.
Foreign Category
Europe
Europe provided the most attractive returns over the last six months of the
fiscal year, partly due to the local markets and partly due to European
currencies. We slightly increased our weighting in Europe from 9.5% to 9.7%
of the foreign sector in the portfolio. We have made no significant changes in
the country weightings in Europe.
Japan
As we reported in the semiannual report dated November 30, 1994, we were
concerned about the Japanese economic recovery and were reducing our
weightings. This trend has continued with further reduction from 6.9% of
the portfolio to 4.0%. When we see signs of the long-awaited recovery, we
will view this market more positively.
Emerging Markets
Concerns over the Mexican peso devaluation affected all emerging markets,
both inside and outside Latin America. While these markets have shown some
recovery in the last few months, the mature markets provided better returns.
We will continue to maintain an overweighted position as we feel these
economies will continue to grow at a rapid rate.
Outlook: Foreign Category
While we think economic growth will continue to be modest in many markets,
low inflation and low interest rates coupled with continued gains in
corporate profits, could provide attractive returns.
U.S. Government Category
We suggested in the November 30, 1994, semiannual report that long-term
interest rates were near their highs with the long-term Treasury bond yield
above 8%. In fact, the high occurred on November 7, 1994, at a yield of
8.17%. The ensuing strong bull bond market has retraced 80% of the
long-term Treasury bond's price decline in 1994.
We increased our holdings in long-term Treasury bonds and deep discount
GNMA mortgage pass-through securities to take advantage of the anticipated
decline in long-term interest rates. This strategy has been very
beneficial, and we believe that it is still appropriate at this time.
See page 12 for a complete listing of the Portfolio of Investments in
Securities.
Foreign investing is subject to additional risks which are discussed in the
Fund's prospectus. Gold mining stocks involve additional risk because of
gold's price volatility. Since return is generally commensurate with risk,
investors should be aware of the potential volatility associated with
foreign markets.
Top 10 Industries
(% of Net Assets)
Real Estate Invest. Trusts 21.1
Gold Mining 4.5
Oil 4.4
Chemicals 3.3
Aerospace/Defense 3.1
Retail Stores 2.8
Telephones 2.8
Tobacco 2.6
Paper & Forest Products 2.1
Banking 2.0
Top 3 Holdings in Each Sector
(% of Net Assets)
GOLD
Newmont Mining .5
Barrick Gold Corp. .5
Placer Dome .4
FOREIGN
Colruyt S.A. .4
Verenigd Bezit Vnu .4
Heineken N.V. .4
REAL ESTATE
Kimco Realty 1.0
Developers Diversified 1.0
Glimcher Realty Trust 1.0
U.S. GOVERNMENT
U.S. Treasury Bond @ 7.88% 6.5
U.S. Treasury Bond @ 7.63% 6.5
GNMA Pool #348947 @ 7.00% 1.6
BASIC VALUE STOCKS
Boeing Co. 1.1
Deere & Co. 1.0
Monsanto Co. 1.0
Distributions to Shareholders
USAA Cornerstone Fund completed its fiscal year on May 31, 1995. As
required by Federal Law (Internal Revenue Code of 1986, as amended, and the
Regulations thereunder), the following sets forth per share data concerning
the portions of the dividend distributions which represent domestic
dividend income qualifying for the dividends received deduction, foreign
dividend income, taxable domestic, and short-term and long-term capital
gains for the year ended May 31, 1995.
The per share data on this schedule reflects distributions related to
earnings for the fiscal year ended May 31, 1995, including any
distributions subsequent to year end which relate to those earnings.
Therefore, the per share data on this table may not agree with other
disclosures concerning distributions which occurred during the fiscal year.
Dividend income - domestic (qualifying) $ .4210
Dividend income - domestic (nonqualifying) .0508
Dividend income - foreign (net) .1077
Interest income - taxable .0405
Short-term capital gain (treated as ordinary income) .0300
Long-term capital gain .4841
--------
TOTAL DISTRIBUTIONS $1.1341
========
Independent Auditors' Report
The Shareholders and Board of Trustees
USAA Investment Trust:
We have audited the accompanying statement of assets and liabilities and
portfolio of investments in securities of the Cornerstone Fund of USAA
Investment Trust as of May 31, 1995, the related statement of operations
for the year ended May 31, 1995, the statements of changes in net assets
for the year ended May 31, 1995, and the eight-month period ended May 31,
1994, and the financial highlights information presented in note 7 to the
financial statements for each of the periods in the five-year period ended
May 31, 1995. These financial statements and the financial highlights
information are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the
financial highlights information 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, 1995, 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 the financial highlights
information referred to above present fairly, in all material respects, the
financial position of the Cornerstone Fund of USAA Investment Trust as of
May 31, 1995, the results of its operations for the year ended May 31,
1995, the changes in its net assets for the year ended May 31, 1995, and
the eight-month period ended May 31, 1994, and the financial highlights
information for each of the periods in the five-year period ended May 31,
1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 7, 1995
<TABLE>
<CAPTION>
Cornerstone Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1995
<S> <C>
Assets
Investments in securities, at market value (identified cost of $790,969) $875,493
Cash 111
Cash denominated in foreign currencies (identified cost of $202) 202
Receivables:
Capital shares sold 68
Dividends and interest 4,893
Securities sold 10,742
Foreign currency contracts held, at value 1,823
----------
Total assets 893,332
----------
Liabilities
Securities purchased 15,589
Foreign currency contracts held, at value 1,821
Capital shares redeemed 392
USAA Investment Management Company 553
USAA Transfer Agency Company 203
Accounts payable and accrued expenses 187
----------
Total liabilities 18,745
----------
Net assets applicable to capital shares outstanding $874,587
==========
Represented by:
Paid-in capital $772,620
Accumulated undistributed net investment income 10,933
Accumulated net realized gain on investments 6,494
Net unrealized appreciation of investments 84,524
Net unrealized appreciation on foreign currency translations 16
----------
Net assets applicable to capital shares outstanding $874,587
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 38,641
==========
Net asset value, redemption price, and offering price per share $ 22.63
==========
</TABLE>
See accompanying notes to financial statements.
Cornerstone Fund
Portfolio of Investments in Securities
May 31, 1995
Gold Stocks (4.5%)
Market
Number Value
of Shares Security (000)
African Gold Companies (0.6%)
65,000 Ashanti Goldfields Co. Ltd. GDS $ 1,482
85,000 Gold Fields of South Africa Ltd. ADR 2,316
50,000 Western Deep Levels Ltd. ADR 1,588
--------
5,386
--------
Australian Gold Companies (0.3%)
300,000 Acacia Resources * 528
250,000 Delta Gold N.L. * 424
425,000 Newcrest Mining Ltd. * 1,624
--------
2,576
--------
North American Gold Companies (3.5%)
65,000 Agnico-Eagle Mines Ltd. 845
165,000 Barrick Gold Corp. 4,166
175,000 Battle Mountain Gold Co. 1,794
100,000 Freeport-McMoRan Copper & Gold, Inc. "A" 2,050
60,000 Golden Knight Resources, Inc. 394
30,000 Handy & Harman 458
190,000 Hemlo Gold Mines, Inc. 2,220
60,000 Homestake Mining Co. 1,012
95,000 Kinross Gold Corp. * 685
100,000 Newmont Mining Corp. 4,175
55,000 Pioneer Group, Inc. 1,478
150,000 Placer Dome, Inc. 3,792
80,000 Prime Resources Group, Inc. * 548
80,000 Rayrock Yellowknife Resources, Inc. * 832
170,000 Santa Fe Pacific Gold Corp. 2,125
360,000 TVX Gold, Inc. * 2,760
120,000 Viceroy Resource Corp. * 635
65,000 Wharf Resources Ltd. 504
--------
30,473
--------
North American Platinum Companies (0.1%)
60,000 Stillwater Mining Co.* $ 1,346
---------
Total gold stocks (cost: $37,413) 39,781
---------
Foreign Securities (22.9%)
Foreign Common Stocks (22.0%)
Argentina (0.4%)
156,677 Banco Frances Del Rio de la Plata S.A 1,034
217,600 Compania Interamericana de Automobiles S.A. * 1,131
54,200 YPF Sociedad Anonima S.A. ADS "D" 1,098
----------
3,263
----------
Australia (0.4%)
1,000,000 CSL Ltd. 2,155
55,000 TABCORP Holdings Ltd. ADS * 1,196(a)
----------
3,351
----------
Austria (0.3%)
22,000 VA Technologie AG 2,529
----------
Belgium (0.4%)
13,825 Colruyt S.A. 3,709
----------
Brazil (0.2%)
175,000 Usinas Siderurgicas de Minas Gerais S.A.-USIMINAS ADS 1,969(a)
----------
Canada (0.7%)
105,000 Alliance Forest Products, Inc. * 1,993
60,000 Canadian Occidental Petroleum Ltd. 1,895
95,000 Suncor, Inc. 2,705
----------
6,593
----------
Chile (0.5%)
18,100 Compania de Telefonos de Chile S.A. 1,602
19,400 Madeco S.A. ADS 563
97,800 Maderas y Sinteticos S.A. ADS 1,809
----------
3,974
----------
Colombia (0.2%)
200,000 Banco de Colombia GDS 1,410
----------
Denmark (0.9%)
30,000 Novo Nordisk A/S "B" 3,185
115,000 Tele Danmark A/S ADS 3,278
25,000 Unidanmark A/S 1,214
----------
7,677
----------
France (1.2%)
23,000 Coflexip ADS 661
7,000 Credit Foncier de France 902
65,000 Elf Aquitaine ADS 2,551
20,000 Eramet Group * 1,419
13,000 Essilor International 2,295
10,425 Peugeot Citroen S.A. * 1,574
6,400 Societe Generale 752
2,300 Ugine S.A. 160
----------
10,314
----------
Germany (0.7%)
9,500 BASF AG 2,033
4,490 Deutsche Bank AG 2,199
5,000 Veba AG 1,901
----------
6,133
----------
Hong Kong (0.7%)
759,800 Hong Kong Telecommunications Ltd. 1,606
339,000 Hutchison Whampoa Ltd. 1,714
350,000 Shun Tak Holdings Ltd. 235
1,624,000 Varitronix International Ltd. 2,687
----------
6,242
----------
India (0.5%)
56,000 Hindalco Industries Ltd. GDR 1,659
60,000 Indian Rayon & Industries Ltd. GDR 967
88,000 Larsen & Toubro Ltd. GDR * 1,738
----------
4,364
----------
Indonesia (0.5%)
590,000 PT Astra International, Inc. 1,060
150,000 PT HM Sampoerna 1,075
8,900 PT Indonesian Satellite ADS 351
437,500 PT Jaya Real Property 1,258
428,600 PT Sinar Mas Agro Resources and Technology Corp. 481
----------
4,225
----------
Italy (0.5%)
270,000 Arnoldo Mondadori Editore 1,809
1,065,000 STET 2,440
----------
4,249
----------
Japan (4.0%)
95,000 77 Bank Ltd. 1,033
75,000 Bridgestone Corp. 1,099
135,000 Canon, Inc. 2,106
95,000 Daibiru Corp. 1,123
115,000 Higo Bank 1,121
60,000 Hoya Corp. 1,709
50,000 Ito-Yokado Co., Ltd. 2,647
55,000 Kissei Pharmaceutical Co., Ltd. 1,761
28,000 Kyocera Corp. 2,127
92,000 Laox Co., Ltd. 1,392
27,000 Mabuchi Motor Co. 1,758
270,000 Minebea Co., Ltd. 1,755
275,000 Mitsubishi Heavy Industries, Ltd. 1,888
295,000 Mitsubishi Paper Mills, Ltd. 1,750
90,000 Nomura Securities Co., Ltd. 1,616
85,000 Sanwa Bank Ltd. 1,818
59,000 Shimamura Co., Ltd. 2,078
84,000 Takashimaya Co., Ltd. 1,141
34,000 Tochigi Fuji Industrial Co., Ltd. 306
63,000 Tostem Corp. 2,129
52,000 Toyo Communication 1,143
52,000 Toyo Seikan Kaisha, Ltd. 1,720
----------
35,220
----------
Korea (0.3%)
93,200 Korea Electric Power Corp. ADS 2,085
13,600 Samsung Electronics Co., Ltd. GDR* 718
4,320 Samsung Electronics Co., Ltd. GDR (New) * 205
----------
3,008
----------
Malaysia (0.6%)
225,000 Aokam Perdana HD 607
211,000 Malaysian Assurance Alliance BHD 749
312,000 Tanjong plc 1,152
575,000 Technology Resources Industries BHD * 1,878
118,000 Telekom Malaysia BHD 905
----------
5,291
----------
Mexico (0.7%)
57,500 Bufete Industrial, S.A. de C.V. ADS 568
78,900 Desc, Soceidad de Fomento Industrial, S.A. de C.V. ADS* 996
113,300 Grupo Simec, S.A. de C.V. ADS * 1,091
120,000 Grupo Televisa, S.A. de C.V. ADS 1,950
69,000 Panamerican Beverages, Inc. "A" 1,880
----------
6,485
----------
Netherlands (1.7%)
20,000 DSM N.V. 1,701
35,000 EVC International N.V. * 1,584
23,625 Heineken N.V. 3,361
61,512 InternationaleNederlanden Groep N.V. 3,333
61,512 Internationale Nederlanden Groep N.V. Coupons * 83
56,200 Royal PTT Nederland N.V. 2,032
30,300 Verenigd Bezit VNU 3,599
----------
15,693
----------
Philippines (0.3%)
4,230,000 Filinvest Land, Inc. * 1,426
1,710,000 Petron Corp. GDS 1,409
----------
2,835
----------
Portugal (0.1%)
5,600 Companhia Portuguesa Radio Marconi, S.A. (Bearer)* 233
1,100 Companhia Portuguesa Radio Marconi, S.A. (Registered)* 46
----------
279
----------
Singapore (0.6%)
185,000 City Developments Ltd. 1,235
436,000 DBS Land Ltd. 1,459
141,500 Keppel Corp. Ltd. 1,290
144,000 Overseas Union Bank Ltd. 920
----------
4,904
----------
South Africa (0.5%)
1,190,000 Iscor Ltd. S.A. 1,423
135,000 Murray and Roberts Holdings Ltd. 789
38,000 Nedcor Ltd. GDR Units * 1,852
----------
4,064
----------
Spain (0.6%)
53,800 Corporacion Mapfre 2,544
20,000 Repsol S.A. 653
56,800 Telefonica de Espana, S.A. ADR 2,272
----------
5,469
----------
Sweden (1.1%)
120,000 Arjo AB 1,227
20,000 Asea AB 1,698
85,750 Astra AB "B" Free 2,460
30,000 Autoliv AB 1,462
160,000 Volvo AB 2,813
----------
9,660
----------
Switzerland (0.5%)
2,000 BBC Brown, Boveri & Co. Ltd. "A" 2,042
2,500 Ciba Geigy AG 1,775
990 Sulzer AG P.C. 636
----------
4,453
----------
Taiwan (0.2%)
97,800 China Steel Corp. ADS 2,078(a)
----------
Thailand (0.5%)
161,200 Finance One Public Co. 1,078
103,100 Pranda Jewelry Co. 273
200,000 Sri Thai Superware Co. Ltd. 1,548
126,000 Thai Farmers Bank Public Co., Ltd. 1,194
----------
4,093
----------
United Kingdom (2.0%)
250,000 Argyll Group plc 1,326
76,000 British Sky Broadcasting plc, ADR* 1,938
355,829 Cadbury Schweppes plc 2,681
250,000 National Power plc, ADS 780
400,000 Northern Ireland Electricity plc 2,230
342,000 Refuge Group plc 1,866
573,500 Tomkins plc 2,218
230,000 Welsh Water plc 2,345
988,000 WPP Group plc 1,945
----------
17,329
----------
Other Holdings (0.2%)
2,406,000 Central European Growth Fund plc 1,586
480,000 Central European Growth Fund plc Warrants * 61
----------
1,647
----------
Total foreign common stocks (cost: $174,197) 192,510
----------
Foreign Preferred Stocks (0.5%)
Australia (0.2%)
975,000 Village Roadshow Ltd. 2,066
----------
Brazil (0.1%)
74,985,000 Bradesco PN 644
----------
Finland (0.2%)
38,000 Nokia Corp. ADS 1,767
----------
Total foreign preferred stocks (cost: $3,399) 4,477
----------
Foreign Bonds (0.4%)
Taiwan (0.4%)
$1,200 U-Ming Marine Transport Corp., Convertible Notes,
1.50%, 2/07/01 1,284
1,788 Yangming Marine Transport Corp., Convertible Notes,
2.00%, 10/06/01 1,909
----------
Total foreign bonds (cost: $3,085) 3,193
----------
Total foreign securities (cost:$180,681) 200,180
----------
Real Estate Stocks (23.4%)
Hotel/Motel (1.5%)
90,000 Hilton Hotels Corp. 6,030
650,000 Host Marriott Corp.* 6,906
----------
12,936
----------
Paper & Forest Products (0.8%)
150,000 Weyerhaeuser Co. 6,581
----------
Real Estate Investment Trusts (21.1%)
287,700 Beacon Properties Corp. 5,718
250,000 Cali Reality Corp. 4,438
300,000 Camden Property Trust 6,862
200,000 Charles E. Smith Residential Realty, Inc. 4,650
250,000 Chelsea GCA Realty, Inc. 6,594
300,000 Colonial Properties Trust 6,787
125,000 Columbus Realty Trust 2,281
300,000 Developers Diversified Realty Corp. 8,475
275,000 Equity Residential Properties Trust 7,872
400,000 Glimcher Realty Trust 8,300
125,000 Health Care Property Investors, Inc. 3,969
300,000 Highwood Properties, Inc. 7,237
200,000 Horizon Outlet Centers, Inc. 4,550
250,000 JDN Realty Corp. 5,031
225,000 Kimco Realty Corp. 8,691
274,600 Liberty Property Trust 5,320
152,500 Manufactured Home Communities, Inc. 2,402
160,000 McArthur/Glen Realty Corp. 2,320
350,000 Merry Land & Investment Co. 7,394
100,000 Nationwide Health Properties, Inc. 3,725
300,000 Paragon Group, Inc. 5,250
250,000 Post Properties, Inc. 7,719
200,000 Reckson Associates Reality Corp. 4,875
300,000 ROC Communities, Inc. 6,563
550,000 South West Property Trust, Inc. 6,806
400,000 Storage Equities, Inc. 6,350
250,000 Storage USA, Inc. 7,094
350,000 Summit Properties, Inc. 5,994
550,000 United Dominion Realty Trust, Inc. 7,700
300,000 Weeks Corp. 6,975
325,000 Wellsford Residential Property Trust 6,987
----------
184,929
----------
Total real estate stocks (cost:$199,755) 204,446
----------
Basic Value Stocks (24.3%)
Aerospace/Defense (3.1%)
150,000 B.F. Goodrich Co. 7,444
160,000 Boeing Co. 9,420
300,000 EG & G, Inc. 5,437
115,000 Rockwell International Corp. 5,247
----------
27,548
----------
Auto Parts (0.5%)
208,000 Arvin Industries, Inc. 4,758
----------
Automobiles (0.8%)
230,000 Ford Motor Co. 6,727
----------
Bank Holding Companies - Money Center (0.4%)
53,000 Bankers Trust New York Corp. 3,326
----------
Chemicals (2.7%)
100,000 Dow Chemical Co. 7,337
100,000 Monsanto Co. 8,325
61,300 Olin Corp. 3,310
150,000 Union Carbide Corp. 4,388
----------
23,360
----------
Containers - Metals & Glass (0.5%)
135,000 Ball Corp. 4,489
----------
Distribution & Pipelines (0.4%)
120,000 NICOR, Inc. 3,195
----------
Drugs (0.3%)
65,000 Upjohn Co. 2,364
----------
Electric Power (1.0%)
95,000 Houston Industries, Inc. 4,097
120,000 Texas Utilities Co. 4,335
----------
8,432
----------
Finance - Business/Commercial (0.2%)
38,723 Travelers Corp. 1,636
----------
Healthcare - Diversified (1.1%)
70,000 American Home Products Corp. 5,154
70,000 Bristol-Myers Squibb Co. 4,646
----------
9,800
----------
Insurance - Multi/Line Companies (0.5%)
70,000 Aetna Life & Casualty Co. 4,174
----------
Insurance - Property/Casualty (0.3%)
68,000 Hartford Steam Boiler Inspection & Insurance Co. 3,001
----------
Machinery - Diversified (1.0%)
100,000 Deere & Co. 8,650
----------
Manufacturing - Diversified Industries (0.7%)
100,000 Minnesota Mining & Manufacturing Co. 5,987
----------
Office Equipment & Supplies (0.6%)
44,000 Xerox Corp. 4,989
----------
Oil - Domestic (1.4%)
60,000 Amerada Hess Corp. 3,045
250,000 Occidental Petroleum Corp. 5,750
65,000 Pennzoil Co. 3,209
----------
12,004
----------
Oil - International (1.9%)
70,000 Chevron Corp. 3,439
60,000 Mobil Corp. 6,022
100,000 Texaco, Inc. 6,850
----------
16,311
----------
Paper & Forest Products (0.8%)
275,000 James River Corp. 7,425
----------
Railroads (0.7%)
85,000 Norfolk Southern Corp. 5,823
----------
Retail Stores - General Merchandising (1.3%)
90,000 J.C. Penney Company, Inc. 4,241
200,000 Kmart Corp. 2,550
90,000 Sears, Roebuck & Co. 5,074
----------
11,865
----------
Telephones (1.2%)
120,000 GTE Corp. 4,005
167,000 NYNEX Corp. 6,972
----------
10,977
----------
Tobacco (2.5%)
140,000 American Brands, Inc. 5,652
80,000 Philip Morris Companies, Inc. 5,830
180,000 RJR Nabisco Holdings Corp. 5,130
220,000 Universal Corp. 5,115
----------
21,727
----------
Transportation - Miscellaneous (0.4%)
150,000 American President Companies, Ltd. 3,638
----------
Total basic value stocks (cost: $166,701) 212,206
----------
U.S. Government & Agency Issues (25.0%)
Principal
Amount
(000)
Discount Note (2.8%)
$24,290 Federal Home Loan Mortgage Corp., 6.10%, 6/01/95 24,290
----------
Government National Mortgage Assoc. (9.3%)
38,792 6.50%, 5/15/23 - 4/15/24 37,252
23,452 7.00%, 8/15/23 23,100
3,757 7.50%, 3/15/17 3,783
3,459 8.00%, 6/15/16 - 3/15/17 3,547
5,392 8.50%, 9/15/09 - 2/15/17 5,598
405 9.00%, 6/15/16 - 10/15/16 425
6,693 9.50%, 6/15/09 - 8/15/17 7,072
970 10.00%, 11/15/09 - 4/15/16 1,052
6 11.00%, 9/15/15 6
70 11.50%, 3/15/13 78
5 12.50%, 8/15/14 5
----------
81,918
----------
Principal Market
Amount Value
(000) Security (000)
U.S. Treasury Bonds (12.9%)
$50,000 7.63%, 2/15/25 $ 56,172
50,000 7.88%, 2/15/21 56,500
----------
112,672
----------
Total U.S. Government & agency issues (cost: $206,419) 218,880
----------
Total investments (cost: $790,969) $875,493
==========
*Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
U.S. Government & Agency Issues 25.0%
Real Estate Investment Trusts 21.1
Gold Mining 4.5
Oil 4.4
Chemicals 3.3
Aerospace/Defense 3.1
Retail Stores 2.8
Telephones 2.8
Tobacco 2.6
Paper & Forest Products 2.1
Banking 2.0
Electric Power 1.8
Insurance 1.8
Automobiles 1.5
Healthcare 1.5
Hotel/Motel 1.5
Drugs 1.4
Machinery - Diversified 1.2
Manufacturing - Diversified Industries 1.1
Other 14.6
-------------
100.1%
=============
Cornerstone Fund
Notes to Portfolio of Investments
May 31, 1995
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.
Specific Notes
(a) Securities which are exempt from registration by Rule 144A under
the Securities Act of 1933 and when purchased were determined to be
liquid. Any resale of these securities will occur in an exempt transaction
in the United States to a qualified institutional buyer.
See accompanying notes to financial statements.
Cornerstone Fund
Statement of Operations
(in Thousands)
Year ended May 31, 1995
Net investment income:
Income (net of foreign taxes withheld of $565):
Dividends $22,354
Interest 13,454
--------
Total income 35,808
--------
Expenses:
Management fees 6,269
Transfer agent's fees 2,096
Custodian's fees 454
Postage 324
Shareholder reporting fees 122
Trustees' fees 3
Registration fees 72
Audit fees 25
Legal fees 5
Other 35
--------
Total expenses 9,405
--------
Net investment income 26,403
--------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 18,898
Foreign currency transactions (1,997)
Change in net unrealized appreciation/depreciation on:
Investments 8,699
Translation of assets and liabilities in foreign currencies 680
--------
Net realized and unrealized gain 26,280
--------
Increase in net assets resulting from operations $52,683
========
See accompanying notes to financial statements.
Cornerstone Fund
Statements of Changes in Net Assets
(In Thousands)
<TABLE>
<CAPTION>
Year ended May 31, 1995
and Eight-month period ended May 31, 1994
1995 1994
<S> <C> <C>
From operations:
Net investment income $ 26,403 $ 13,794
Net realized gain on investments 18,898 38,531
Net realized loss on foreign currency transactions (1,997) (1,409)
Change in net unrealized appreciation/depreciation on:
Investments 8,699 (30,178)
Foreign currency translations 680 397
----------- -----------
Increase in net assets resulting from operations 52,683 21,135
----------- -----------
Distributions to shareholders from:
Net investment income (21,675) (18,322)
----------- -----------
Net realized gains (49,764) (8,901)
----------- -----------
From capital share transactions:
Shares sold 158,794 166,928
Shares issued for dividends reinvested 70,063 26,545
Shares redeemed (150,383) (80,311)
----------- -----------
Increase in net assets from capital share transactions 78,474 113,162
----------- -----------
Net increase in net assets 59,718 107,074
Net assets:
Beginning of period 814,869 707,795
----------- -----------
End of period $874,587 $814,869
=========== ===========
Undistributed net investment income included in net assets:
Beginning of period $ 8,202 $ 14,139
=========== ===========
End of period $ 10,933 $ 8,202
=========== ===========
Change in shares outstanding:
Shares sold 7,272 7,133
Shares issued for dividends reinvested 3,250 1,154
Shares redeemed (6,938) (3,444)
----------- -----------
Increase in shares outstanding 3,584 4,843
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Cornerstone Fund
Notes to Financial Statements
(In Thousands)
May 31, 1995
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company
Act of 1940, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eight separate
funds. The information presented in this annual report pertains only to
the Cornerstone Fund (the Fund).
On November 8, 1993, the Board of Trustees of the Trust voted to change the
Fund's fiscal year end from September 30 to May 31. The financial information
for the eight-month period ended May 31, 1994 reflects this change.
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 latest bid
price 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 requiremets 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 - As is common in the industry, 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, are
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 short-term
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. 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.
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 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 have been 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.
(2) Line of Credit
The Fund participates with other USAA funds in a joint $150 million
short-term revolving loan agreement (the Agreement) through January 15,
1996, for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition
of securities. Subject to availability under this Agreement, the Fund may
borrow up to 5% of the market value of its assets at the time of the
borrowing, and all borrowings must be repaid before additional investments
are made. Borrowings under this Agreement will bear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank of New York
or at .125% over the London Interbank Offered Rate. The Fund had no
borrowings under this Agreement during the year ended May 31, 1995.
(3) Distributions
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal
year. Distributions of net investment income of $.30 per share and a
long-term capital gain of $.1941 per share, declared and paid in July 1995,
are not reflected in the accompanying financial statements.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the year ended May 31, 1995 were $359,168 and $250,145,
respectively.
Gross unrealized appreciation and depreciation of investments at May 31,
1995 was $111,457 and $26,933, 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 foregoing the
opportunity for potential profit.
At May 31, 1995, the terms of open foreign currency contracts were as
follows:
U.S. Dollar U.S. Dollar
Value Value
Exchange Currency to be as of Currency to be as of
Date Delivered 5/31/95 Received 5/31/95
6/01/95 67 U.S. Dollar $ 67 5,545 Japanese Yen $ 66
6/01/95 56 U.S. Dollar 56 138 Malaysian Ringgit 56
6/01/95 282 Hong Kong Dollar 36 37 U.S. Dollar 37
6/01/95 28,575 Japanese Yen 338 344 U.S. Dollar 344
6/02/95 207 U.S. Dollar 207 17,191 Japanese Yen 203
6/02/95 3 U.S. Dollar 3 8 Malaysian Ringgit 3
6/02/95 35,302 Japanese Yen 417 426 U.S. Dollar 426
6/02/95 267 Singapore Dollar 192 192 U.S. Dollar 192
6/05/95 141 Hong Kong Dollar 18 18 U.S. Dollar 18
6/05/95 312 Singapore Dollar 224 224 U.S. Dollar 224
6/30/95 1,303 French Franc 263 254 U.S.Dollar 254
------- ------
$ 1,821 $1,823
======== =======
(6) Transactions with Manager
A. Management fees - The investment policy of the Fund and the management
of the Fund's portfolio is carried out by USAA Investment Management
Company (the Manager). 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. Shareholder accounting service fees
are based on an annual charge per shareholder account plus out-of-pocket
expenses.
C. Underwriting agreement - The Trust has an agreement with the Manager
for exclusive underwriting and distribution of the Fund's shares on a
continuing best efforts basis. This agreement provides that the Manager
will receive no fee or other remuneration for such services.
Cornerstone Fund
Notes to Financial Statements (continued)
May 31, 1995
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
Eight-month
Year Ended period ended
May 31, May 31, Year ended September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 23.24 $ 23.43 $ 19.94 $ 18.62 $ 17.19
Net investment income .68 .40 .60 .65 .65
Net realized and
unrealized gain .67 .29 3.52 1.26 1.43
Distributions from net
investment income (.58) (.59) (.63) (.59) (.65)
Distributions of realized
capital gains (1.38) (.29) - - -
----------- ------------ ------------ ------------ ------------
Net asset value at
end of period $ 22.63 $ 23.24 $ 23.43 $ 19.94 $ 18.62
=========== ============ ============== ============= ============
Total return (%) * 6.43 3.00 21.35 10.53 12.61
Net assets at end of
period (000) $ 874,587 $ 814,869 $ 707,795 $ 567,212 $ 580,088
Ratio of expenses to
average net assets (%) 1.13 1.11(a) 1.18 1.18 1.18
Ratio of net investment
income to average net
assets (%) 3.16 2.68(a) 2.92 3.25 3.58
Portfolio turnover (%) 33.17 30.87 45.18 32.71 28.02
</TABLE>
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
