Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 7
Financial Information:
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments in Securities 10
Statement of Operations 11
Statements of Changes in Net Assets 12
Notes to Financial Statements 13
Important Information:
Through our ongoing efforts to reduce expenses and respond to
shareholder requests, your annual and semiannual report mailings are now
"streamlined." One copy of each report will be sent to each address,
instead of our previous practice of sending one report 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
GNMA Trust, 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.
<TABLE>
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 32 funds by investment objective as of December 31,
1995. For more complete information about the mutual funds managed and
distributed by USAA IMCO, including charges and expenses, please call
1-800-531-8181 for a prospectus. Read it carefully before you invest.
Average Annual Total Return*
<CAPTION> Yield
Investment Inception Since 7-Day 30-Day(1)
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 50.42 20.44 12.02 - - -
Emerging Markets(2) 11/7/94 3.65 - - (4.26) - -
Gold(2) 8/15/84 4.04 5.60 5.46 - - -
Growth 4/5/71 32.06 15.56 12.47 - - -
Growth & Income 6/1/93 31.57 - - 13.74 - -
International(2) 7/11/88 8.29 11.98 - 9.51 - -
World Growth(2) 10/1/92 12.85 - - 12.06 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - 3.24 - -
Cornerstone Strategy(2)# 8/15/84 18.40 12.37 12.68 - - -
Growth and Tax Strategy(3)**# 1/11/89 22.70 10.33 - 9.81 - 3.61
Growth Strategy(2) 9/1/95 - - - 6.50 - -
Income Strategy 9/1/95 - - - 9.94 - 4.47
Income - Taxable
GNMA 2/1/91 16.76 - - 8.64 - 6.64
Income 3/4/74 24.47 10.91 10.43 - - 6.25
Income Stock 5/4/87 28.62 14.35 - 12.12 - -
Short-Term Bond 6/1/93 11.18 - - 5.33 - 6.43
Income - Tax Exempt
Long-Term(3)** 3/19/82 18.58 8.44 8.62 - - 5.40
Intermediate-Term(3)** 3/19/82 15.07 8.22 7.95 - - 4.93
Short-Term(3)** 3/19/82 8.11 5.59 5.87 - - 4.36
California Bond(3)** 8/1/89 21.85 8.39 - 8.01 - 5.23
Florida Tax-Free Income(3)** 10/1/93 18.90 - - 3.39 - 5.35
New York Bond(3)** 10/15/90 18.07 8.60 - 9.25 - 5.31
Texas Tax-Free Income(3)** 8/1/94 22.22 - - 12.43 - 5.18
Virginia Bond(3)** 10/15/90 17.08 8.42 - 8.79 - 5.22
Money Market
Money Market(4) 2/2/81 5.80 4.54 5.97 - 5.48 -
Tax Exempt Money Market(3),(4)** 2/6/84 3.70 3.32 4.36 - 4.33 -
Treasury Money Market Trust(4) 2/1/91 5.59 - - 4.17 5.26 -
California Money Market(3),(4)** 8/1/89 3.64 3.15 - 3.70 4.14 -
Florida Tax-Free Money
Market(3),(4)** 10/1/93 3.57 - - 2.90 4.28 -
New York Money Market(3),(4)** 10/15/90 3.59 2.98 - 3.04 4.27 -
Texas Tax-Free Money Market(3),(4)** 8/1/94 3.56 - - 3.36 4.08 -
Virginia Money Market(3),(4)** 10/15/90 3.52 3.13 - 3.21 4.07 -
(1) Calculated as prescribed by the Securities and Exchange Commission.
(2) Foreign investing is subject to additional risks, which are discussed
in the funds' prospectuses.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed
by the U.S. government and there is no assurance that any of the funds
will be able to maintain a stable net asset value of $1 per share.
* 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.
** 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, New York, Virginia,
Florida, and Texas funds available to residents only.
# Formerly known as Cornerstone Fund and Balanced Portfolio Fund,
respectively.
</TABLE>
Message from the President
A few weeks ago I attended a meeting of past presidents of one of San
Antonio's distinguished institutions. We discussed a variety of subjects
that evening, including the investment performance of the organization's
endowment. In such organizations, I usually become chairman of
the investment committee, so I reported that through twelve months our
fund had a total return of about 24%.(1) One of my fellow past presidents
observed about another fund with which he is involved, "Well - we are up
over 35%!" He stopped short of asking, "What's your problem?" This was
not that uncommon an exchange.
I attempted to expand on the subject a bit. The investment committee
which I chair set down a strategy back in 1993. We concurred that the
investment goals and the risk tolerance of our board of trustees could
be accommodated with a portfolio that was 50% in growth stocks and 50%
in long-term fixed-income vehicles. This being a committee and
my having but one vote, I am pleased to say that the USAA Income Fund
was chosen as the fixed income investment. The 50/50 balance
is re-established at the end of each fiscal year so that the risk
profile is maintained.
My colleague referred to a very different kind of investment.
His was a family affair, and their investment decision was 100%
in an aggressive growth stock fund.(2) So, which did better? There is
not a simple answer, so what I'll give is my opinion.
[Photograph of Michael J. C. Roth, CFA, President and Vice Chairman of
the Board, appears here]
I think both of us did just fine. No matter what kind of market we have
been through, you will always be able to find someone who had a higher and
a lower return than you. Is it worthwhile to shift all of your investments
to that higher return? I think not. Investment decisions are, by
necessity, forward looking. In the case of mutual funds you must rely on
two things; the company with which you have chosen to invest and on
yourself. The latter means you have invested in a way with which you are
comfortable. Then you should bear in mind that in any market someone
else is going to have a higher return.
The board of the institution whose investment committee I chair
is delighted with their investment performance, both return and
volatility. I am sure that my colleague's family is also delighted with
theirs. I do not expect that either of us will change our strategy any
time soon.
"No matter what kind of market we have been through, you
will always be able to find someone who had a higher and
a lower return than you."
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
(1) For the 12 months ending December 31, 1995.
Average Annual Total Return: 1 Year 5 Years 10 Years
--------------------------- ------ ------- --------
USAA Income Fund 24.47% 10.91% 10.43%
(2) An aggressive growth fund seeks maximum capital gains as its
investment objective. Current income is not a significant factor.
Some may invest in stocks of businesses that are somewhat out of
the mainstream, such as fledgling companies, new industries,
companies fallen on hard times, or industries temporarily
out of favor. USAA IMCO manages this type of fund.
Total return equals income yield plus share price change and
assumes reinvestment of all dividends and capital gain distributions.
The performance data quoted represents past performance; the
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
For more complete information about any mutual fund managed by USAA
Investment Management Company, including charges and expenses, please
call for a prospectus. Please read the prospectus carefully before you
invest or send money.
Investment Review
GNMA Trust
OBJECTIVE: Provide investors with a high level of current income
consistent with preservation of principal by investing in securities
backed by the full faith and credit of the U.S. government. While
the value of the Fund's shares is not insured or guaranteed by the U.S.
government, the Fund endeavors to maintain low-to-moderate fluctuations
of the share price.
TYPES OF INVESTMENTS: At least 65 percent of the Fund's total assets are
invested in Government National Mortgage Association (GNMA) pass-through
certificates. The remaining assets of the Fund are invested in other
obligations backed by the full faith and credit of the U.S. government.
5/31/95 11/30/95
Net Assets $265.6 Million $292.4 Million
Net Asset Value Per Share $10.09 $10.30
Average Annual Total Returns as of 11/30/95
May 31, 1995 to November 30, 1995 5.74%#
1 Year 15.96%
Since inception on February 1, 1991 8.47%
# Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
30-Day SEC Yield on November 30, 1995 6.62%*
*Calculated as prescribed by the Securities and Exchange Commission.
[A graph is shown here which is a comparison of the change in value
of a $10,000 investment, for the period of 2/1/91 to 11/30/95, with
dividends and capital gains reinvested. The ending value of each item
graphed is as follows: Lehman Brothers GNMA 30-Year Index - $14,917,
USAA GNMA Trust - $14,817, and the Lipper GNMA Funds Average - $14,360.]
The graph illustrates how the USAA GNMA Trust closely tracks the
broad-based unmanaged index of the Lehman Brothers Inc. GNMA 30-Year
Index and an unmanaged index of funds similar to the Trust as
represented by the Lipper GNMA Funds Average. It depicts a hypothetical
investment in the USAA GNMA Trust of $10,000 since the Trust's
inception on February 1, 1991, to November 30, 1995.
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.
Message from the Manager
[Photograph of Kenneth E. Willmann, Portfolio Manager appears here]
Market Overview
The six-month period ending November 30, 1995, witnessed the
continuation of the bull market in bonds which began in November 1994.
The yield on the 10-year U.S. Treasury note, the standard against which
most mortgage-related securities are measured, fell about half of
1% from May 31, 1995, to November 30, 1995. Prices on bonds continued
to rise commensurately. The price on GNMA 7% pass-through certificates,
for example, rose 1.74% in the same time frame.
Mortgage Refinancing
Many of you may have refinanced a home mortgage in the 1992-93 time
frame. If you did, you probably lowered your mortgage payments by paying
off an older, higher-interest-rate mortgage with the borrowings from a
new lower-interest-rate mortgage. I know I did.
When a mortgage is refinanced, the principal is paid off early. If the
mortgage is part of a pool, the owner of the pool receives these
prepayments at par value. Since the refinanced mortgage had a higher
interest rate, the pool probably had a higher interest rate, or coupon.
The market value of such a pool was most likely above par value. If the
mortgage pool holder receives prepayments at par, they may be giving up
both the higher interest rate earned on the pool and any market value
over par. The money received, if reinvested, would earn current,
probably lower, interest rates.
Strategy
As interest rates continued to fall over this summer and fall,
refinancing picked up again, though to a more modest extent than in
1993. In order to soften the negative impact of prepayments and perhaps
to benefit a bit from them, this summer I began a strategy of gradually
moving into lower-coupon pools with market values below par. These
contain lower-interest-rate mortgages. The probability of prepayment
from refinancing is much lower. If prepayments occur, we receive par
value, which is more than I paid for the pools. As of November 30, 1995,
the breakdown of the mortgage pools held by the Fund by coupon is illustrated
below:
[A graph is shown here which shows Mortgage Pool Composition by Coupon Rate
as of November 30, 1995. The vertical axis shows the coupon rate, and
the horizontal axis shows the category percentage. The values are:
Coupon Rate 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0
Category % 29.1 22.0 17.7 14.3 4.3 5.4 4.0 2.7 0.5
The graph also shows the average coupon rate to be 6.93%]
This strategy will definitely benefit from further declines in interest
rates, since lower-coupon pools have somewhat more price volatility than
higher-coupon pools. As of November 30, 1995, about 60% of the portfolio
was invested in pools which were selling at a discount to par value.
The Future
I believe the U.S. economy is slowly decelerating. This gradual slowdown
should keep inflationary pressures in check, which has the further
effect of keeping interest rates from rising. In fact, I believe
interest rates are more likely to decline than to rise over the next few
months.
In the period from May 31, 1995, to November 30, 1995, the cumulative
total return was 5.74% and the income yield was 3.48 %. Both were
attractive compared to the Lipper GNMA Fund Average of 4.73% and 3.29%,
respectively. I will continue to follow a strategy of maximizing the
total return on the portfolio, while favoring income over capital gains.
See page 9 for a complete listing of the Portfolio of Investments in
Securities.
Shareholder Voting Results
On October 13, 1995, 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 17, 1995 were
entitled to vote on each proposal. The number of votes shown below are
shown for the GNMA Trust only for proposal (2) and in the aggregate for
the entire USAA Investment Trust (the Trust) for proposals (1) and (3).
(1) Proposal to elect a Board of Trustees as follows:
Votes Votes
Trustee For Withheld
Hansford T. Johnson* 112,569,933 2,138,930
Michael J.C. Roth 111,522,559 3,186,304
John W. Saunders, Jr. 112,598,635 2,110,228
George E. Brown 111,259,788 3,449,075
Howard L. Freeman, Jr. 112,481,010 2,227,853
Richard A. Zucker 112,225,587 2,483,276
Barbara B. Dreeben 111,409,531 3,299,332
Mr. C. Dale Briscoe did not stand for re-election to the Board. His term
of office terminated on December 31, 1995.
* On December 4, 1995, Hansford T. Johnson announced his departure from
the Board effective December 31, 1995. The Board elected M. Staser
Holcomb to succeed Mr. Johnson.
(2) Proposals to amend certain investment restrictions as follows:
<TABLE>
<CAPTION>
Number of Shares Voting
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Proposal to amend the 5% and 10% issuer 13,998,100 961,884 544,429
diversification restrictions to apply to 75%
of a Fund's total assets rather than 100%.
Proposal to amend the restriction relating 13,368,008 1,510,338 626,067
to borrowing to allow a Fund to borrow an
amount not exceeding 331/3% of its total
assets (including the amount borrowed)
less liabilities (other than borrowings) for
temporary or emergency purposes.
Proposal to amend the restriction relating 13,464,756 1,340,679 698,977
to lending portfolio securities to permit a
Fund to lend up to 1/3 of its total assets
to other parties.
(3) Proposal to ratify or reject the 107,284,373 2,323,184 5,101,298
selection by the Board of Trustees of KPMG
Peat Marwick LLP as auditors for the Trust
for the fiscal year ending May 31, 1996.
</TABLE>
GNMA Trust
Statement of Assets and Liabilities
(In Thousands)
November 30, 1995
(Unaudited)
Assets
Investments in securities, at market value
(identified cost of $281,983) $ 291,048
Cash 73
Receivables:
Capital shares sold 261
Interest 1,842
------------
Total assets 293,224
------------
Liabilities
Capital shares redeemed 163
USAA Investment Management Company 30
USAA Transfer Agency Company 28
Accounts payable and accrued expenses 75
Dividends on capital shares 496
------------
Total liabilities 792
------------
Net assets applicable to capital shares
outstanding $ 292,432
============
Represented by:
Paid-in capital $ 292,039
Accumulated net realized loss on investments (8,672)
Net unrealized appreciation of investments 9,065
------------
Net assets applicable to capital shares
outstanding $ 292,432
============
Capital shares outstanding, unlimited number
of shares authorized, no par value 28,378
============
Net asset value, redemption price, and
offering price per share $ 10.30
============
See accompanying notes to financial statements.
GNMA Trust
Portfolio of Investments in Securities
(In Thousands)
November 30, 1995
(Unaudited)
Principal Market
Amount Security Value
--------- -------- ------
U.S. Government & Agency Issues (98.9%)
Government National Mortgage Assn. I (38.4%)
$ 65,951 6.00%, 12/15/23 - 1/15/24 $ 63,434
10,067 7.00%, 5/15/24 - 6/15/24 10,111
10,331 7.50%, 7/15/23 10,566
5,700 8.00%, 1/15/22 - 7/15/22 5,916
11,226 8.50%, 6/15/21 - 7/15/22 11,766
3,463 9.00%, 11/15/16 - 5/15/21 3,668
6,328 9.50%, 2/15/17 - 12/15/19 6,796
--------
112,257
--------
Government National Mortgage Assn. II (56.1%)
17,620 6.00%, 12/20/23 - 8/20/24 16,838
62,202 6.50%, 1/20/24 - 9/20/25 60,867
38,923 7.00%, 5/20/24 - 9/20/25 38,879
28,353 7.50%, 10/20/23 - 5/20/25 28,853
5,753 8.00%, 12/20/22 5,941
2,916 8.50%, 5/20/22 - 6/20/22 3,040
6,889 9.00%, 8/20/24 7,245
734 9.50%, 12/20/21 779
1,379 10.00%, 9/20/19 1,495
--------
163,937
--------
U.S. Treasury Bond (4.4%)
13,000 6.25%, 8/15/23 (cost: $12,650) 13,004
--------
Total U.S. government & agency issues
(cost: $280,133) 289,198
--------
Repurchase Agreement (0.6%)
1,850 First Chicago Corp., 5.85%, acquired on
11/30/95 and due 12/01/95 at $1,850
(collateralized by a $1,905 U.S.Treasury
Bill, due 1/11/96; market value of $1,888)
(cost: $1,850) 1,850
--------
Total investments (cost: $281,983) $291,048
========
GNMA Trust
Notes to Portfolio of Investments in Securities
(In Thousands)
November 30, 1995
(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.
See accompanying notes to financial statements.
GNMA Trust
Statement of Operations
(In Thousands)
Six-month period ended November 30, 1995
(Unaudited)
Net investment income:
Interest Income $10,222
-------
Expenses:
Management fees 173
Transfer agent's fees 161
Custodian's fees 45
Postage 17
Shareholder reporting fees 10
Trustees' fees 1
Registration fees 23
Audit fees 14
Legal fees 2
Other 6
--------
Total expenses 452
--------
Net investment income 9,770
--------
Net realized and unrealized gain on investments:
Net realized gain 573
Change in net unrealized appreciation/
depreciation 5,387
--------
Net realized and unrealized gain 5,960
--------
Increase in net assets resulting from operations $ 15,730
========
See accompanying notes to financial statements.
GNMA Trust
Statements of Changes in Net Assets
Six-month period ended November 30, 1995
and Year ended May 31,1995
(Unaudited)
11/30/95 5/31/95
-------- -------
From operations:
Net investment income $ 9,770 $ 18,716
Net realized gain (loss) on investments 573 (3,161)
Change in net unrealized appreciation/
depreciation of investments 5,387 9,950
-------- --------
Increase in net assets resulting
from operations 15,730 25,505
-------- --------
Distributions to shareholders from:
Net investment income (9,770) (18,716)
-------- --------
From capital share transactions:
Shares sold 35,207 49,044
Shares issued for dividends reinvested 6,744 12,952
Shares redeemed (21,050) (64,465)
-------- --------
Increase (decrease) in net assets
from capital share transactions 20,901 (2,469)
-------- --------
Net increase in net assets 26,861 4,320
Net assets:
Beginning of period 265,571 261,251
-------- --------
End of period $292,432 $265,571
======== ========
Change in shares outstanding:
Shares sold 3,472 5,022
Shares issued for dividends reinvested 664 1,327
Shares redeemed (2,073) (6,635)
-------- --------
Increase (decrease) in shares outstanding 2,063 (286)
======== ========
See accompanying notes to financial statements.
GNMA Trust
Notes to Financial Statements
(In Thousands)
November 30, 1995
(Unaudited)
(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 eleven
separate funds. The information presented in this semiannual report
pertains only to the GNMA Trust (the Fund). The Fund's investment
objective is to provide a high level of current income consistent with
preservation of principal by investing in securities backed by the full
faith and credit of the U.S. Government.
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. 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.
2. Securities purchased with maturities of 60 days or less are stated
at amortized cost which approximates market value. Repurchase agreements
are valued at cost.
3. Securities which cannot be valued by the methods set forth above,
and all other assets, are valued in good faith at fair value, using
methods determined by the Manager under the general supervision
of the Board of Trustees.
B. Federal taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its income
to its shareholders. Therefore, no federal income or excise tax
provision is required.
C. Investments in securities - 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. Distributions to shareholders
are recorded on the ex-dividend date. 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
the 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 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 six-month period ended
November 30, 1995.
(3) Distributions
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. All net investment income available for
distribution was distributed as of November 30, 1995. Distributions of
realized gains from security transactions not offset by capital losses
are made in the succeeding fiscal year. At November 30, 1995, the Fund
had capital loss carryovers for federal income tax purposes of
approximately $8,672 which, if not offset by subsequent capital gains,
will expire in or before 2003. It is unlikely that the Board of Trustees
of the Trust will authorize a distribution of capital gains realized in
the future until the capital loss carryovers have been utilized or expire.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for
the six-month period ended November 30, 1995 were $135,172 and $128,191,
respectively.
Gross unrealized appreciation and depreciation of investments as of
November 30, 1995 was $9,297 and $232, 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 .125% 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 indirectly wholly owned by United
Services Automobile Association (the Association), a large, diversified
financial services institution. At November 30, 1995, the Association
and its affiliates owned 355 shares (1.3%) of the Fund.
(7) Repurchase Agreements
The Fund may enter into repurchase agreements with commercial banks or
recognized security dealers. These agreements are secured by obligations
backed by the full faith and credit of the U.S. Government. Obligations
pledged as collateral are required to maintain a value equal to or in
excess of the resale price of the repurchase agreement and are held by
the Fund's custodian until maturity of the repurchase agreement. The
Fund's Manager monitors the creditworthiness of sellers with which the
Fund may enter into repurchase agreements.
(8) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
Six-month Year Eight-month
Period ended ended Period ended
November 30, May 31, May 31, Year ended September 30,
1995 1995 1994 1993 1992 1991*
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.09 $ 9.82 $ 10.37 $ 10.47 $ 10.19 $ 10.00
Net investment income .36 .72 .49 .79 .82 .53
Net realized and
unrealized gain (loss) .21 .27 (.55) (.10) .28 .19
Distributions from net
investment income (.36) (.72) (.49) (.79) (.82) (.53)
--------- ---------- -------- --------- --------- ---------
Net asset value at
end of period $ 10.30 $ 10.09 $ 9.82 $ 10.37 $ 10.47 $ 10.19
========= ========== ======== ========= ========= =========
Total return (%) ** 5.74 10.54 (.66) 6.79 11.18 7.48
Net assets at
end of period (000) $ 292,432 $ 265,571 $ 261,251 $ 288,879 $ 218,544 $ 69,431
Ratio of expenses to
average net assets (%) .33(a) .32 .31(a) .32 .375(b) .375(a)(b)
Ratio of net investment
income to average net
assets(%) 7.08(a) 7.34 7.20(a) 7.53 7.92(b) 8.35(a)(b)
Portfolio turnover (%) 46.86 93.78 90.05 81.44 36.11 5.39
* Fund commenced operations February 1, 1991.
** Assumes reinvestment of all dividend income during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) 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,
------------
1992 1991*
---- ----
Ratio of expenses to average net assets (%) .40 .91(a)
Ratio of net investment income to average net assets (%) 7.89 7.82(a)
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