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 8
Independent Auditors' Report 9
Statement of Assets and Liabilities 10
Portfolio of Investments in Securities 11
Notes to Portfolio of Investments 17
Statement of Operations 18
Statements of Changes in Net Assets 19
Notes to Financial Statements 20
Important Information:
Effective September 5, 1995, the name of the Balanced Portfolio Fund will
be changed to the Growth & Tax Strategy Fund. The name is being changed to
describe more adequately the Fund's specific investment strategy.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Balanced
Portfolio 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>
Average Annual Total Return**
<CAPTION>
Investment Inception Since 7-Day 30-Day***
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION % % % % % % %
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 -
* 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.
</TABLE>
MESSAGE FROM THE PRESIDENT
(Photo of the President, Michael J.C. Roth 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.
"....I did decide to practice one thing
I have preached for many years."
[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.
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
Balanced Portfolio Fund
OBJECTIVE: 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.
5/31/95
Net Assets $134.5 Million
Net Asset Value Per Share $12.82
Average Annual Total Return as of 5/31/95
1 Year 10.73%
5 Years 8.57%
Since inception on January 11, 1989 9.04%
[A graph is shown here which is a comparison of the change in value of a
$10,000 investment, for the period of 1/11/89 to 5/31/95, with dividends
and capital gains reinvested. The ending value of each item graphed
is as follows: USAA Balanced Portfolio Fund - $17,450 and the Lehman
Brothers Muni. Bond Index - $16,971.]
The graph depicts how the USAA Balanced Portfolio Fund closely tracks 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. 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 income
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.
[Photos of Kenneth E. Willmann, Harry W. Miller and Clifford A. Gladson,
Portfolio Managers appear here]
[A pie chart is shown here depicting the Portfolio Mix as of
May 31, 1995 of the USAA Balanced Portfolio Fund to be: Basic
Value Stocks - 40.8%*, Tax-Exempt Short-Term- 25.3%* and Tax-
Exempt Long- Term = 32.8%.*]
*Percentage of Net Assets within each sector
General Discussion on Tax-Exempt Securities
As we observed in our November 30, 1994, semiannual report, the odds were
that long-term interest rates were near their peak. Hindsight shows us that
the peak was actually reached on November 7, 1994. The ensuing strong bull
bond market has retraced 80% of the 1994 bear bond market price declines.
This demonstrates again the importance of being fully invested in the market
when these powerful moves occur.
The portfolio mix as of May 31, 1995, was 25.3% short-term tax-exempt, 32.8%
long-term tax-exempt, and 40.8% basic value stocks. Effective May 1, 1995,
the allowable ranges for the short-term and long-term tax-exempt investment
categories were changed to 20-40% from 27-33% to allow additional flexibility.
Short-Term Tax-Exempt Securities
During the last year, municipal yields for two-year maturities increased
.5% while municipal money market interest rates rose a full 1%. In the
short-term portfolio, we strived to capture the increase in yields and
enhance overall portfolio price stability by investing in variable rate
municipal short-term put bonds.(1) Because the interest paid on these bonds
is reset on a daily or weekly basis, yields are very responsive to movement
in interest rates, and the bonds do not fluctuate much in price. The
average weighted maturity of the short-term portfolio was reduced from 248
days on May 31, 1994, to 66 days on May 31, 1995.
Long-Term Tax-Exempt Securities
Long-term tax-exempt bond yields rose about 1% from May 31, 1994, to
November 22, 1994. In this period, we replaced lower coupon bonds with
higher coupon bonds. This increased the yield somewhat. The maturity
remained long, averaging almost 25 years. From the peak last November,
yields fell approximately 1.25% by May 31, 1995. As expected, prices on
bonds in the portfolio rose while income remained relatively stable. We
continue to manage this category to maximize current tax-exempt income
while investing exclusively in investment grade bonds.
Outlook: Tax-Exempt Securities
Just as no one accurately predicted the magnitude of interest rate
increases in the bear bond market of 1994, the rapid decline in long-term
interest rates this year has also surprised market forecasters. Long-term
interest rates have declined as the result of a perception that the economy
is slowing and that the Federal Reserve will not foster further increases
in short-term interest rates. Although a change in this perception could
cause a temporary bond market reversal, we believe that the trend toward
lower long-term interest rates could continue.
Basic Value Securities
During 1994, the concern was that the economy was growing too fast, which
led to higher interest rates and 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 to lower long-term
interest rates. The lower interest rate environment has been a positive for
the stock market, as corporate earnings remain strong. Over the six-month
period ending May 31, 1995, the best performing groups in the basic value
category were aerospace, insurance, computer systems, and machinery.
Basic value stocks that underperformed the S&P 500 over the past six months
include auto parts/automobiles, retail, engineering & construction, and
transportation.
(1)A put bond allows its holder to redeem the issue at specified intervals
before maturity and receive full face value. The bondholders may be allowed
to put bonds back to the issuer either only once during the lifetime of the
issue or far more frequently. In return for this privilege, a bond buyer
sacrifices some yield when choosing a put bond over a fixed-rate bond,
which cannot be redeemed before maturity. (Source: Dictionary of Finance
and Investment Terms, 3rd Ed. by John Downs and Jordan Elliot Goodman.
(copyright)1991 by Barron's Educational Series, Inc., Hauppauge, NY,
11788.)
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 Trades (GATT) and the lower
dollar relative to the Japanese yen and Deutsche mark should improve the
earnings of companies with international exposure. Significant holdings
that were impacted include: Boeing (2.2% of net assets), Deere (1.6%),
Ford (1.6%), Universal Corp. (1.0%), and American President Companies (.7%).
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
Tax Exempt Securities
Top 5 Holdings
(% of Net Assets)
---------------------
New York State Medical Care Facilities Ser 95A 4.6
Rhode Island Housing & Mortgage Ser 15-A 4.1
Farmington (NM) Pcrb Series 1994A 3.9
Fifth Avenue (IN) Housing Development Ser 93A 3.9
State of Maine Housing Authority Ser 1994C-1 3.9
Basic Value Stocks
Top 5 Holdings
(% of Net Assets)
------------------
Boeing Co. 2.2
Deere & Co. 1.6
Ford Motor Co. 1.6
Dow Chemical Co. 1.5
B.F. Goodrich Co. 1.5
Top 10 Industries
(% of Net Assets)
------------------
Single-Family Mortgage Revenue 11.8
Hospitals 10.8
Multi-family Mortgage Revenue 10.4
Aerospace/Defense 5.8
Electric Power 5.4
General Obligations 5.2
Telephones 4.5
Chemicals 4.3
Tobacco 4.2
Gas Utilities 3.6
Distributions to Shareholders
USAA Balanced Portfolio 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 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.
For the year ended May 31, 1995, the Fund qualified, pursuant to Section
852(b)(5) of the Code, to pay exempt dividends to its shareholders.
Dividend income - domestic (qualifying) $ .1274
Interest income - nontaxable .2526
Long-term capital gain .3032
------------
TOTAL DISTRIBUTIONS $ .6832
============
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 Balanced Portfolio 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 Balanced Portfolio 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
Balanced Portfolio Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1995
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $120,985) $133,049
Cash 13
Receivables:
Capital shares sold 58
Dividends and interest 1,308
Securities sold 9,220
-------
Total assets 143,648
-------
Liabilities
Securities purchased 8,910
Capital shares redeemed 71
USAA Investment Management Company 57
USAA Transfer Agency Company 21
Accounts payable and accrued expenses 51
----------
Total liabilities 9,110
---------
Net assets applicable to capital shares outstanding $134,538
==========
Represented By:
Paid-in capital $121,549
Accumulated undistributed net investment income 1,007
Accumulated net realized loss on investments (82)
Net unrealized appreciation of investments 12,064
----------
Net assets applicable to capital shares outstanding $134,538
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 10,497
========
Net asset value, redemption price, and offering price per share $ 12.82
========
See accompanying notes to financial statements.
</TABLE>
Balanced Portfolio Fund
Portfolio of Investments in Securities
May 31, 1995
<TABLE>
Basic Value Stocks (40.8%)
<CAPTION>
Market
Number Value
of Shares Security (000)
--------- ----------- -------
<C> <S> <C>
Aerospace/Defense (5.8%)
40,000 B.F. Goodrich Co. $ 1,985
50,000 Boeing Co. 2,944
80,000 EG & G, Inc. 1,450
31,000 Rockwell International Corp. 1,414
--------
7,793
--------
Auto Parts (1.0%)
56,000 Arvin Industries, Inc. 1,281
---------
Automobiles (1.6%)
72,000 Ford Motor Co. 2,106
---------
Bank Holding Companies - Money Center (0.3%)
6,000 Bankers Trust New York Corp. 377
-------
Chemicals (4.3%)
27,000 Dow Chemical Co. 1,981
21,000 Monsanto Co. 1,749
18,000 Olin Corp. 972
37,000 Union Carbide Corp. 1,082
------
5,784
------
Containers - Metals & Glass (1.0%)
40,000 Ball Corp. 1,330
------
Distribution & Pipelines (0.7%)
36,000 NICOR, Inc. 959
------
Drugs (0.5%)
18,000 Upjohn Co. 655
------
Electric Power (1.4%)
17,200 Houston Industries, Inc. 742
32,000 Texas Utilities Co. 1,156
------
1,898
------
Finance - Business/Commercial (0.2%)
7,784 Travelers Corp. 329
------
Healthcare - Diversified (1.5%)
5,000 American Home Products Corp. 368
25,000 Bristol-Myers Squibb Co. 1,659
-------
2,027
-------
Insurance - Multi/Line Companies (0.8%)
19,000 Aetna Life & Casualty Co. 1,133
-------
Insurance - Property/Casualty (0.6%)
19,000 Hartford Steam Boiler Inspection & Insurance 838
-------
Machinery - Diversified (1.6%)
25,000 Deere & Co. 2,162
-------
Manufacturing - Diversified Industries (1.1%)
24,000 Minnesota Mining & Manufacturing Co. 1,437
-------
Office Equipment & Supplies (1.3%)
16,000 Xerox Corp. 1,814
-------
Oil - Domestic (3.3%)
20,000 Amerada Hess Corp. 1,015
70,000 Occidental Petroleum Corp. 1,610
23,000 Pennzoil Co. 1,136
20,000 Sun Co., Inc. 630
--------
4,391
--------
Oil - International (2.2%)
10,000 Chevron Corp. 491
11,000 Mobil Corp. 1,104
20,000 Texaco, Inc. 1,370
--------
2,965
--------
Paper & Forest Products (1.3%)
65,000 James River Corp. 1,755
--------
Railroads (0.8%)
15,000 Norfolk Southern Corp. 1,027
--------
Retail Stores - General Merchandising (2.3%)
25,000 J.C. Penney Company, Inc. 1,178
58,000 Kmart Corp. 740
22,000 Sears, Roebuck & Co. 1,240
--------
3,158
--------
Telephones (2.3%)
38,000 GTE Corp. 1,268
44,000 NYNEX Corp. 1,837
--------
3,105
--------
Tobacco (4.2%)
43,000 American Brands, Inc. 1,736
15,000 Philip Morris Companies, Inc. 1,093
50,000 RJR Nabisco Holdings Corp. 1,425
60,000 Universal Corp. 1,395
-------
5,649
-------
Transportation - Miscellaneous (0.7%)
40,000 American President Companies, Ltd. 970
-------
Total basic value stocks (cost: $44,654) 54,943
--------
Tax Exempt Securities (58.1%)
Short-Term Tax Exempt Securities (25.3%)
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
<C> <S> <C> <C> <C>
Alaska (2.2%)
$3,000 Anchorage Telephone Utility RB, Series
1994A, (CRE) 3.10% 12/01/95 $ 2,977
California (6.3%)
5,200 Orange County Housing Auth. MFH RB,
Series 1984C, (CRE) 4.35 8/01/08(a) 5,200
3,200 Tustin Assessment Improvement Bonds,
District #86-2, (CRE) 4.75 9/02/13(b) 3,200
Colorado (0.4%)
500 Arapahoe County Industrial Development
RB, Series 1982 9.25 9/01/22(b) 501
Florida (0.7%)
900 Dade County Health Facilities Auth. RB,
Series 1990, (CRE) 4.20 9/01/20(a) 900
Hawaii (2.2%)
3,000 GO, Series 1993CF 3.30 7/01/95 2,997
Indiana (2.3%)
3,100 Health Facility Finance Auth. Hospital RB,
Series 1993 3.90 11/01/95 3,101
Massachusetts (2.2%)
3,000 GO, Series 1994A 4.00 1/01/96 2,995
New Mexico (3.9%)
5,300 Farmington PCRB, Series 1994A, (CRE) 4.25 11/01/13(a) 5,300
New York (0.8%)
$ 1,000 New York City GO, Series F 3.60% 8/01/95 $ 999
Oklahoma (1.1%)
1,450 Tulsa's Port of Catoosa Facilities RB,
Series 1982 8.63 12/01/12(b) 1,481
Texas (3.2%)
4,300 Nueces River Auth. PCRB, Series 1985,
(CRE) 4.20 12/01/99(a) 4,300
-------
Total short-term tax exempt securities
(cost: $33,959) 33,951
-------
Long-Term Tax Exempt Securities (32.8%)
Florida (2.7%)
3,555 Duval County MFH RB, Series 1995, (CRE) 6.75 4/01/25(b) 3,585
Indiana (3.9%)
5,005 Fifth Avenue Housing Development Corp.
MFH RB, Series 1993A 7.25 7/01/25 5,229
Maine (3.9%)
5,000 Housing Auth. SFH RB, Series 1994C-1 6.50 11/15/11 5,212
New York (4.6%)
6,000 Medical Care Facilities Finance Agency RB,
Series 1995A 6.85 2/15/17 6,184
Pennsylvania (3.5%)
4,785 Philadelphia Gas Works RB,
Fourteenth Series 6.38 7/01/26 4,775
Rhode Island (4.1%)
5,200 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/24 5,476
Texas (3.2%)
4,260 Harris County Health Facilities RB,
Series 1994 A 6.63 6/01/24 4,382
U. S. Virgin Islands (3.0%)
3,355 Public Finance Auth. RB, Series 1989A 7.30 10/01/18 4,117
Wisconsin (3.9%)
4,940 Wisconsin Housing and Economic Development
Authority SFH RB, Series 1992 A 7.10 3/01/23 5,195
--------
Total long-term tax exempt securities
(cost: $42,372) 44,155
--------
Total tax exempt securities (cost: $76,331) 78,106
--------
Total investments (cost: $120,985) $133,049
=========
</TABLE>
Balanced Portfolio 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.
Short-term securities have a maturity of two years or less; long-term
securities have a maturity of ten years or more.
Portfolio Description Abbreviations
GO General Obligation
MFH Multi-Family Housing
PCRB Pollution Control Revenue Bond
RB Revenue Bond
SFH Single-Family Housing
CRE - CREDIT ENHANCEMENT - adds the financial strength of the provider to
support the underlying obligor's debt service obligations and/or the put
option. The enhancement may be provided by either a high quality bank,
insurance company or other corporation, or a collateral trust. Typically,
the rating agencies evaluate the security based upon the credit standing of
the credit enhancement.
Specific Notes
(a) VARIABLE RATE DEMAND NOTES (VRDN) - provide the right, on any
business day, to demand, or put, the security for redemption at face
value on either that day or in seven days. The interest rate is adjusted
at the stipulated daily, weekly, or monthly interval to a rate that
reflects current market conditions. The effective maturity is the next
put date. Most VRDNs possess a credit enhancement.
(b) PUT BONDS - provide the right to tender, or put, the bond for
redemption at face value at specific tender dates prior to
final maturity. The put feature shortens the effective maturity to the
next tender date. Between tender dates, the price of a put bond generally
varies inversely to the movement of interest rates.
See accompanying notes to financial statements.
Balanced Portfolio Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1995
Net investment income:
Income:
Dividends $ 2,138
Interest 4,093
--------
Total income 6,231
--------
Expenses:
Management fees 647
Transfer agent's fees 184
Custodian's fees 73
Postage 27
Shareholder reporting fees 18
Trustees' fees 3
Registration fees 35
Audit fees 25
Legal fees 8
Other 18
---------
Total expenses 1,038
---------
Net investment income 5,193
---------
Net realized and unrealized gain on investments:
Net realized gain 358
Change in net unrealized appreciation/depreciation 7,560
---------
Net realized and unrealized gain 7,918
------
Increase in net assets resulting from operations $ 13,111
=======
See accompanying notes to financial statements.
Balanced Portfolio Fund
Statements of Changes in Net Assets
(In Thousands)
<TABLE>
Year ended May 31, 1995
and Eight-month period ended May 31, 1994
<CAPTION>
1995 1994
---- -----
<S> <C> <C>
From operations:
Net investment income $ 5,193 $ 3,005
Net realized gain on investments 358 2,997
Change in net unrealized appreciation/depreciation of investments 7,560 (6,113)
------ -------
Increase (decrease) in net assets resulting from operations 13,111 (111)
------- -------
Distributions to shareholders from:
Net investment income (5,050) (3,241)
------- -------
Net realized gains (2,862) (3,472)
------- -------
From capital share transactions:
Shares sold 17,723 26,253
Shares issued for dividends reinvested 7,168 6,138
Shares redeemed (23,629) (16,022)
------- ----------
Increase in net assets from capital share transactions 1,262 16,369
------- ----------
Net increase in net assets 6,461 9,545
Net assets:
Beginning of period 128,077 118,532
-------- ---------
End of period $ 134,538 $ 128,077
========== ===========
Undistributed net investment income included in net assets:
Beginning of period $ 864 $ 1,100
========= ==========
End of period $1,007 $ 864
========= ==========
Change in shares outstanding:
Shares sold 1,449 2,069
Shares issued for dividends reinvested 599 487
Shares redeemed (1,945) (1,279)
-------- -----------
Increase in shares outstanding 103 1,277
======== ==========
See accompanying notes to financial statements.
</TABLE>
Balanced Portfolio 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
Balanced Portfolio 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 Fund'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 asets, are valued in good faith at fair value, using methods
determined by the Manager under the general supervision of the Board of
Trustees.
B. Federal taxes - The Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its income to its shareholders.
Therefore, no federal income or excise tax provision is required.
C. Investments in securities - 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 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.
(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. Borrowings under the Agreement 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 are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are
made in the succeeding fiscal year. A distribution of net investment income
of $.13 per share, declared and paid in June 1995, and a long-term capital
gain of $.0332 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 $402,232 and $434,056,
respectively.
Gross unrealized appreciation and depreciation of investments at May 31,
1995 was $12,795 and $731, respectively.
(5) 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 .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. 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.
(6) Transactions with Affiliates
USAA Investment Management Company is wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At May 31, 1995, the Association and its affiliates
owned 14 shares (.1%) of the Fund.
<TABLE>
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<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 $ 12.32 $ 13.00 $ 12.00 $ 11.51 $ 10.59
Net investment income .49 .29 .46 .48 .53
Net realized and
unrealized gain (loss) .76 (.27) 1.01 .50 .93
Distributions from net
investment income (.48) (.33) (.46) (.49) (.54)
Distributions of realized
capital gains (.27) (.37) (.01) - -
-------- -------- -------- ------- -------
Net asset value at
end of period $ 12.82 $ 12.32 $ 13.00 $ 12.00 $ 11.51
======= ======== ======= ========= =========
Total return (%) * 10.73 .13 12.57 8.74 14.19
Net assets at end of
period (000) $134,538 $128,077 $118,532 $ 82,840 $ 53,535
Ratio of expenses to
average net assets (%) .80 .84(a) .86 .92 1.00 (c)
Ratio of net investment
income to average net
assets (%) 4.02 3.56(a) 3.81 4.31 4.91(c)
Portfolio turnover (%) 314.57(b) 171.35(b) 98.83 106.83 81.22
* 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) The Fund may simultaneously purchase and sell the same securities.
These transactions can be high in volume and dissimilar to other trade
activity within the Fund. If these transactions were excluded from the
calculation, the portfolio turnover rate would be as follows:
Eight-month
Year ended period ended
May 31, 1995 May 31, 1994
-------------- ------------
Portfolio turnover (%) 131.28 93.56
Purchases and sales of this type are as follows:
Purchases (000) $234,367 $98,639
Sales (000) $234,669 $98,761
(c) The information contained in the above table is based on actual
expenses for the period, after giving effect to reimbursements of expenses
by the Manager. Absent such reimbursements the Fund's ratios would have
been:
Year ended
September 30,
1991
------
Ratio of expenses to average net assets (%) 1.06
Ratio of net investment income to average net assets (%) 4.85
</TABLE>
