Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Statement of Assets and Liabilities 7
Portfolio of Investments in Securities 8
Notes to Portfolio of Investments in Securities 12
Statement of Operations 13
Statement of Changes in Net Assets 14
Notes to Financial Statements 15
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
Income Strategy Fund, managed by USAA Investment Management Company
(IMCO). It may be used as sales literature only when preceded or
accompanied by a current prospectus which gives further details about
the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(copyright)1995, USAA. All rights reserved.
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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.
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MESSAGE FROM THE PRESIDENT
(Photograph of Michael J.C. Roth, CFA, President and Vice Chairman of the
Board, appears here)
Even though the new USAA Asset Strategy Funds have only been in existence
since September 1, 1995, our shareholders have invested over $27 million
in them. (1) Given that these funds are not the embodiment of some exciting
investment story, but rather of a fundamental method of matching risk and
potential reward, it certainly appears that we have tapped into an area of
need and interest for our customers.
These funds are an embodiment of things we believe about money management:
Your quest for reward must be within your tolerance for risk
The events of risk will come as surprises
Therefore, your asset allocation is your main "defense"
against and "definition" of risk
With the Asset Strategy Funds, we take care of the asset allocation.
Let me stress here that I realize not everyone agrees with this philosophy,
and that fact truly does not bother me. Such disagreement is necessary if
the stock market is to have the great liquidity that all investors enjoy.
For those of you who are active traders, we have an excellent brokerage
service offering one of the finest Asset Management Accounts available.
In addition, our family of mutual funds covers a very wide spectrum.
Your options for access to our funds and Brokerage Service will soon be
expanded significantly, both by personal computer and telephone.
And for those of you who are comfortable with our philosophy, the Asset
Strategy Funds will prove a great long-term investment vehicle.
"Your asset allocation is your main 'defense' against and 'definition' of
risk."
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
(1) The Cornerstone Strategy and Growth and Tax Strategy Funds were formerly
known as the Cornerstone Fund (Inception 8/15/84) and the Balanced Portfolio
Fund (Inception 1/11/89), respectively. These two funds make up approximately
$6.4 million of the investments made by shareholders in the Asset Strategy
Funds.
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.
USAA Brokerage Services is a discount brokerage service of USAA
Investment Management Company, a member of the NASD and SIPC.
Investment Review
INCOME STRATEGY FUND
OBJECTIVE: To seek high current return, with reduced risk over time,
through an asset allocation strategy which emphasizes income and gives
secondary emphasis to long-term growth of capital.
11/30/95
Net Assets $8.6 Million
Net Asset Value Per Share $10.66
Average Annual Total Return as of 11/30/95
September 1, 1995 to November 30, 1995 7.11% *
* Total returns for periods of less than one year are not annualized.
This three-month return is cumulative.
[A pie chart is shown here depicting the Asset Allocation as of November
30, 1995 for the USAA Income Strategy Fund to be:
Equities - 19.2% and Long-Term Bonds - 78.5%]
Message from the Managers
(Photo of Portfolio Managers appears here)
Seated: John W. Saunders, Jr.
(Allocation Manager, Bonds);
Standing L to R: Eric Thorderson
(Money Market Instruments),
David Ullom (Stocks).
Fund Overview
This report, the first to shareholders, covers the initial three months
of operations for the Income Strategy Fund ending November 30, 1995.
The Fund is primarily a bond fund with approximately 80% in bonds. The
addition of approximately 20% in growth & income common stocks is
designed to provide minimum equity exposure for this new asset strategy
fund. This fund is suitable for the conservative investor who wants a
good quarterly income stream with moderate risk, plus some protection
from capital erosion due to inflation.
Bond and stock markets, as well as this fund, have been in an uptrend
since the Fund started on September 1, 1995. The stock market has moved
to new record highs as measured by the popular averages, Dow Jones
Industrials and S&P 500. The bond market has resumed its strong uptrend
as long-term interest rates have continued their decline to the lowest
levels for 1995.
Bonds (75-85% of the portfolio)
In order to gain maximum benefit from the rising bond market while
interest rates are declining, we invested this segment entirely in
long-term U. S. Treasury bonds. These bonds are non-callable, extremely
liquid, and settle on a cash basis (you can buy and pay for them or sell
and receive payment for them on the same day).
Inflation, the scourge of interest rates, has been 3% or lower for the
past four years. Real interest rates (net of inflation) are still high
and can continue to move lower in an economic environment which is beginning
to show signs of slowing. We will continue to maintain our current portfolio
structure in this environment.
Stocks (15-25% of the portfolio)
Our approach to investing the stock allocation of the Fund focuses on a
value-oriented investment philosophy. This philosophy places emphasis on
selecting securities based on earnings, cash flow, dividends, asset
values and our assessment of a particular company's management. We place
importance on being patient investors and viewing the investment process
over an extended period of time.
Within the stock segment, investment emphasis has been placed on
industries such as chemicals, paper and forest products, insurance and
retailing. These industries fit well with our value approach to
investing, and we believe that, given our investment time horizon, these
investments should outperform the major stock market averages.
Money Market Instruments (0-10% of the portfolio)
This segment is used for liquidity and temporary investment of cash
pending settlement of bond and stock purchases. We accelerated
investment of the initial portfolio in the bond and stock segments and
have minimized the short-term holdings. Our money market purchases have
consisted of federal agency discount notes. These are the most common
short-term securities issued by government-sponsored entities and have
been assigned the highest ratings by rating agencies due to the implied
credit support of the federal government.
See page 8 for a complete listing of the Portfolio of Investments in
Securities.
Income Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
November 30, 1995
(Unaudited)
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<S> <C>
Assets
Investments in securities, at market value (identified cost of $8,062) $8,410
Cash 108
Receivables:
Capital shares sold 56
Dividends 134
-------
Total Assets 8,708
-------
Liablities
Securities purchased 91
Accounts payable and accrued expenses 10
-------
Total Liabilities 101
-------
Net Assets applicable to capital shares outstanding $8,607
=======
Represented by:
Paid-in capital $8,189
Accumulated undistributed net investment income 70
Net unrealized appreciation of investments 348
--------
Net assets applicable to capital shares outstanding $8,607
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 807
========
Net asset value, redemption price, and offering price per share $10.66
========
See accompanying notes to financial statements.
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Income Strategy Fund
Portfolio of Investments in Securities
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- ---------- --------
Common Stocks (18.9%)
Aerospace/Defense (1.3%)
500 B.F. Goodrich Co. $ 35
700 Boeing Co. 51
600 Rockwell International Corp. 30
------
116
------
Aluminum (0.3%)
500 Aluminum Co. of America 29
------
Automobiles (0.4%)
1,100 Ford Motor Co. 31
------
Bank Holding Companies - Money Center (0.4%)
500 Bankers Trust New York Corp. 32
------
Chemicals (0.7%)
600 Avery Dennison Corp. 29
500 Dow Chemical Co. 35
------
64
------
Chemicals - Specialty (0.3%)
800 Morton International, Inc. 28
------
Computer Software & Service (0.3%)
1,500 Novell, Inc.* 25
------
Containers - Metals & Glass (0.3%)
1,000 Ball Corp. 29
------
Distribution & Pipelines (0.7%)
1,100 NICOR, Inc. 28
900 Sonat, Inc. 29
------
57
------
Electric Power (0.3%)
600 Houston Industries, Inc. 27
------
Entertainment (0.4%)
800 Time Warner, Inc. 32
------
Foods (0.4%)
1,200 Dean Foods Co. 34
------
Healthcare - Diversified (0.6%)
300 American Home Products Corp. 27
300 Johnson & Johnson 26
------
53
------
Healthcare - HMO (0.5%)
1,500 Humana, Inc.* 42
------
Healthcare - Miscellaneous (0.2%)
800 Caremark International, Inc. 16
------
Household Products (0.7%)
300 Procter & Gamble Co. 26
2,000 Sunbeam Corp. 32
------
58
------
Insurance - Property/Casualty (1.1%)
700 Allstate Corp. 29
350 American International Group, Inc. 32
1,600 Prudential Reinsurance Holdings, Inc. 33
-------
94
-------
Leisure Time (0.4%)
1,600 Brunswick Corp. 34
-------
Machinery - Diversified (0.8%)
1,700 BW/IP, Inc. 26
1,200 Deere & Co. 40
-------
66
-------
Manufacturing - Diversified Industries (0.4%)
1,000 Hillenbrand Industries, Inc. 33
-------
Medical Products & Supplies (0.4%)
1,200 C.R. Bard, Inc. 35
--------
Metals - Miscellaneous (0.3%)
800 Inco Ltd. 29
---------
Office Equipment & Supplies (0.4%)
250 Xerox Corp. 34
-------
Oil - Domestic (0.4%)
1,600 Occidental Petroleum Corp. 35
-------
Oil - Exploration & Production (0.4%)
1,200 Apache Corp. 32
-------
Oil - International (0.4%)
500 Texaco, Inc. 37
-------
Oil Well Equipment & Service (0.4%)
500 Schlumberger Ltd. 32
-------
Paper & Forest Products (0.8%)
1,700 Fort Howard Corp.* 34
700 Weyerhaeuser Co. 31
-------
65
-------
Pollution Control (0.4%)
1,200 WMX Technologies, Inc. 35
-------
Publishing (0.4%)
500 Dun & Bradstreet Corp. 31
-------
Railroads (0.4%)
400 Norfolk Southern Corp. 32
-------
Real Estate Investment Trusts (0.4%)
1,800 Public Storage, Inc. 32
-------
Restaurants (0.3%)
1,900 Brinker International, Inc.* 29
--------
Retail - General Merchandising (0.8%)
800 J.C. Penney Company, Inc. 37
800 Sears, Roebuck & Co. 32
-------
69
-------
Retail - Specialty (0.4%)
1,500 Borders Group, Inc.* 27
1,100 Phillips-Van Heusen Corp. 11
-------
38
-------
Telephones (1.1%)
500 American Telephone & Telegraph Co. 33
800 GTE Corp. 34
800 Sprint Corp. 32
-------
99
-------
Tobacco (0.7%)
1,100 RJR Nabisco Holdings Corp. 32
1,300 Universal Corp. 31
-------
63
-------
Total common stocks (cost: $1,555) 1,627
-------
Preferred Stocks (0.3%)
300 National Semiconductor Corp. depositary shares,
$3.25 convertible (cost: $27) 24
--------
U.S. Government & Agency Issues (78.5%)
Principal
Amount Coupon
(000) Rate Maturity
- ---------- ------ ---------
$ 5,295 U.S. Treasury Bond 7.88% 2/15/21 6,374
350 U.S. Treasury Bond 6.88 8/15/25 385
--------
Total U.S. government & agency issues (cost: $6,480) 6,759
--------
Total investments (cost: $8,062) $8,410
========
*Non-income producing.
Income Strategy Fund
Notes to Portfolio of Investments in Securities
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.
Income Strategy Fund
Statement of Operations
(in Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
Net investment income:
Income:
Dividends $ 7
Interest 78
-------
Total income 85
-------
Expenses:
Management fees 8
Transfer agent's fees 2
Custodian's fees 12
Postage 1
Shareholder reporting fees 1
Trustees' fees 1
Registration fees 3
Audit fees 8
Legal fees 1
Other 1
-------
Total expenses before reimbursement 38
Expenses reimbursed (23)
-------
Total expenses after reimbursement 15
-------
Net investment income 70
-------
Net realized and unrealized gain on investments:
Net realized gain on investments 35
Change in net unrealized appreciation/depreciation of
investments 348
-------
Net realized and unrealized gain 383
-------
Increase in net assets resulting from operations $ 453
=======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
Income Strategy Fund
Statement of Changes in Net Assets
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
From operations:
Net investment income $ 70
Net realized gain on investments 35
Change in net unrealized appreciation/depreciation of investments 348
------
Increase in net assets resulting from operations 453
------
Distributions to shareholders from:
Net realized gains (35)
-------
From capital share transactions:
Shares sold 8,226
Shares issued for dividends reinvested 35
Shares redeemed (72)
-------
Increase in net assets from capital share transactions 8,189
-------
Net increase in net assets 8,607
Net assets:
Beginning of period -
-------
End of period $ 8,607
=======
Undistributed net investment income included in net assets:
Beginning of period $ -
=======
End of period $ 70
=======
Change in shares outstanding:
Shares sold 811
Shares issued for dividends reinvested 3
Shares redeemed (7)
-------
Increase in shares outstanding 807
=======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
Income Strategy Fund
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 Income Strategy Fund (the Fund), which commenced
operations on September 1, 1995. The Fund's investment objective is to
seek high current return, with reduced risk over time, through an asset
allocation strategy which emphasizes income and gives secondary emphasis
to long-term growth of capital.
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 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. Dividend income is recorded on
the ex-dividend date; interest income is recorded on the accrual basis.
Discounts and premiums on securities are amortized over the life of the
respective securities.
(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 10% of the market value of its assets at the
time of such 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
three-month period ended November 30, 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.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for
the three-month period ended November 30, 1995 were $11,694 and $3,664,
respectively.
Gross unrealized appreciation and depreciation of investments as of
November 30, 1995 was $383 and $35, 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.
The Manager has voluntarily agreed to limit the annual expenses of the
Fund to 1% 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 Company 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 502 shares (62.2%) of the Fund.
Income Strategy Fund
Notes to Financial Statements (continued)
November 30, 1995
(Unaudited)
(7) Financial Highlights
Per share operating performance for a share outstanding throughout the
period is as follows:
Three-month
Period Ended
November 30,
1995*
-------
Net asset value at
beginning of period $ 10.00
Net investment income .09
Net realized and
unrealized gain .62
Distributions of realized
capital gains ( .05)
--------
Net asset value at
end of period $ 10.66
=======
Total return (%) ** 7.11
Net assets at end of period (000) $ 8,607
Ratio of expenses to
average net assets (%) 1.00 (a)(b)
Ratio of net investment
income to average net
assets (%) 4.72 (a)(b)
Portfolio turnover (%) 68.79
Average commission rate paid per share .0495
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all capital gain distributions 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 reimbursement of
expenses by the Manager. Absent such reimbursement the Fund's ratios
would have been:
Ratio of expenses to average net assets (%) 2.53 (a)
Ratio of net investment income to average
net assets (%) 3.19 (a)
