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 Balanced
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.
<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
[Photoghraph 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
Balanced Strategy Fund
OBJECTIVE: To seek high total return, with a reduced risk over time,
through an asset allocation strategy which seeks a combination of long-term
growth of capital and current income.
11/30/95
Net Assets $9.5 Million
Net Asset Value Per Share $10.06
Average Annual Total Return as of 11/30/95
September 1, 1995 to November 30, 1995 .60%#
#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 Balanced Strategy Fund to be: Stocks - 53.8%, Bonds - 36.4%,
and Money Market Instruments 10.3%.]
Message from the Managers
[Photograph of Portfolio Managers - Paul Lundmark (Bonds), Eric
Thorderson (Money Market Instruments), and David Ullom (Allocation
Manager, Stocks)]
Fund Overview
This being our first communication with you since the inception of the
Balanced Strategy Fund, we would like to remind you of the Fund's
objectives and strategy. As stated in the Fund's prospectus, the investment
objective is to maximize total return with reduced risk. This objective is
pursued by allocating assets between stocks and bonds in such a combination
that seeks long-term growth of capital and current income.
From the onset of the Fund through November 30, 1995, we have maintained an
approximate asset allocation of 55% stocks, 40% bonds, and 5% money market
instruments. Given the current economic and investment climate, we believe
that this allocation is best suited to accomplish the Fund's objectives.
The following is a brief discussion of the strategy for each asset class of
the Fund.
Stocks
We use a value-oriented investment philosophy when investing the stock
portion of the Fund. This philosophy places an 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 allocation of the Fund, the investment emphasis has been
placed on such industries as chemicals, paper and forest products,
insurance and retailing. The investment emphasis placed on these industries
fits with our value approach to investing. Therefore, we believe that given
our investment time horizon, these investments will outperform the major
stock market averages.
Bonds
It is important to note that it is impossible to predict the course that
interest rates will take. However, the general feeling is that the Federal
Reserve Board has slowed the economy sufficiently to contain inflation.
With a continued slowdown in the economy, the result should be a further
decrease in interest rates. Given this scenario, we have invested in
intermediate- and long-term securities. As of the end of the reporting
period, the fixed-income portion of the Fund had a weighted average
maturity of 14.89 years. We have also invested in Treasuries and BBB
securities that we feel could provide high relative returns.
Money Market Instruments
Since the inception of the Fund, we have been within the specified range
for money market instruments. 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.
Outlook
The Fund remains committed to maximizing shareholder returns through an
appropriate mix of stocks and bonds. Our outlook for both the stock and
bond markets is positive. Also, we believe inflation will remain subdued
and the economy in general will continue to generate reasonable growth.
See page 8 for a complete listing of the Portfolio of Investments in
Securities.
Top 10 equity holdings
(% of Net Assets)
Boeing 1.6
Humana 1.3
Fort Howard 1.2
WMX Technologies 1.2
Brunswick 1.2
Texaco 1.2
Occidental Petroleum 1.2
Norfolk Southern 1.1
Prudential Reinsurance Hold. 1.1
Deere & Co. 1.1
Balanced Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
November 30, 1995
(Unaudited)
Assets
Investments in securities, at market value
(identified cost of $9,554) $ 9,586
Cash 11
Receivables:
Capital shares sold 84
Dividends and interest 89
----------
Total assets 9,770
----------
Liabilities
Securities purchased 221
Accounts payable and accrued expenses 15
----------
Total liabilities 236
----------
Net assets applicable to capital shares
outstanding $ 9,534
==========
Represented by:
Paid-in capital $ 9,443
Accumulated undistributed net investment income 59
Net unrealized appreciation of investments 32
----------
Net assets applicable to capital shares
outstanding $ 9,534
==========
Capital shares outstanding, unlimited
number of shares authorized, no par value 948
==========
Net asset value, redemption price, and offering
price per share $ 10.06
==========
See accompanying notes to financial statements.
Balanced Strategy Fund
Portfolio of Investments in Securities
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------- -------- ------
Common Stocks (52.9%)
Aerospace/Defense (3.7%)
1,500 B.F. Goodrich Co. $ 105
2,100 Boeing Co. 153
1,900 Rockwell International Corp. 93
--------
351
--------
Aluminum (1.0%)
1,600 Aluminum Co. of America 94
--------
Automobiles (0.9%)
3,200 Ford Motor Co. 90
--------
Bank Holding Companies - Money Center (1.1%)
1,600 Bankers Trust New York Corp. 104
--------
Chemicals (2.0%)
1,800 Avery Dennison Corp. 86
1,500 Dow Chemical Co. 106
--------
192
--------
Chemicals - Specialty (0.9%)
2,600 Morton International, Inc. 90
--------
Computer Software & Service (0.8%)
4,700 Novell, Inc.* 79
--------
Containers - Metals & Glass (1.0%)
3,500 Ball Corp. 100
--------
Distribution & Pipelines (1.8%)
3,300 NICOR, Inc. 84
2,700 Sonat, Inc. 87
--------
171
--------
Electric Power (1.0%)
2,000 Houston Industries, Inc. 92
--------
Entertainment (1.1%)
2,600 Time Warner, Inc. 104
--------
Foods (1.1%)
3,600 Dean Foods Co. 101
--------
Healthcare - Diversified (1.7%)
900 American Home Products Corp. 82
900 Johnson & Johnson 78
--------
160
--------
Healthcare - HMO (1.3%)
4,500 Humana, Inc.* 126
--------
Healthcare - Miscellaneous (0.7%)
3,600 Caremark International, Inc. 71
--------
Household Products (1.9%)
900 Procter & Gamble Co. 78
6,100 Sunbeam Corp. 99
--------
177
--------
Insurance - Property/Casualty (3.0%)
2,100 Allstate Corp. 86
1,000 American International Group, Inc. 90
5,200 Prudential Reinsurance Holdings, Inc. 108
--------
284
--------
Leisure Time (1.2%)
5,200 Brunswick Corp. 111
--------
Machinery - Diversified (1.9%)
5,000 BW/IP, Inc. 77
3,300 Deere & Co. 108
--------
185
--------
Manufacturing - Diversified Industries (1.0%)
3,000 Hillenbrand Industries, Inc. 98
--------
Medical Products & Supplies (1.1%)
3,700 C.R. Bard, Inc. 107
--------
Metals - Miscellaneous (1.0%)
2,700 Inco Ltd. 96
--------
Office Equipment & Supplies (0.9%)
600 Xerox Corp. 82
--------
Oil - Domestic (1.2%)
5,000 Occidental Petroleum Corp. 111
--------
Oil - Exploration & Production (1.0%)
3,700 Apache Corp. 99
--------
Oil - International (1.2%)
1,500 Texaco, Inc. 111
--------
Oil Well Equipment & Service (1.0%)
1,500 Schlumberger Ltd. 95
--------
Paper & Forest Products (2.3%)
5,800 Fort Howard Corp.* 115
2,200 Weyerhaeuser Co. 100
--------
215
--------
Pollution Control (1.2%)
3,800 WMX Technologies, Inc. 112
--------
Publishing (1.0%)
1,500 Dun & Bradstreet Corp. 94
--------
Railroads (1.1%)
1,400 Norfolk Southern Corp. 110
--------
Real Estate Investment Trusts (1.0%)
5,500 Public Storage, Inc. 99
--------
Restaurants (1.0%)
6,000 Brinker International, Inc.* 92
--------
Retail - General Merchandising (2.2%)
2,300 J.C. Penney Company, Inc. 108
2,500 Sears, Roebuck & Co. 98
--------
206
--------
Retail - Specialty (1.4%)
5,000 Borders Group, Inc.* 88
4,700 Phillips-Van Heusen Corp. 49
--------
137
--------
Telephones (3.2%)
1,600 American Telephone & Telegraph Co. 106
2,400 GTE Corp. 102
2,400 Sprint Corp. 96
--------
304
--------
Tobacco (2.0%)
3,500 RJR Nabisco Holdings Corp. 102
3,900 Universal Corp. 93
--------
195
--------
Total common stocks (cost: $4,820) 5,045
--------
Preferred Stocks (0.9%)
1,100 National Semiconductor Corp. depository
shares, $3.25 convertible (cost: $99) 87
--------
Principal
Amount Coupon
(000) Rate Maturity
----- ---- --------
Bonds (7.4%)
$1,000 Kmart Corp. (cost: $974) 7.95% 2/01/23 707
--------
U.S. Government & Agency Issues (39.3%)
U.S. Treasury (29.0%)
1,250 U.S. Treasury Bond 6.25 8/15/23 1,251
1,500 U.S. Treasury Note 5.88 2/15/04 1,511
--------
2,762
--------
Discount Note (10.3%)
985 Federal Home Loan Mortgage
Corp. 5.80 12/01/95 985
--------
Total U.S. government & agency issues
(cost: $3,661) 3,747
--------
Total investments (cost: $9,554) $ 9,586
========
*Non-income producing.
Balanced 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.
Balanced Strategy Fund
Statement of Operations
(in Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
Net investment income:
Dividends $ 22
Interest 57
-------
Total income 79
-------
Expenses:
Management fees 13
Transfer agent's fees 1
Custodian's fees 13
Postage 2
Shareholder reporting fees 1
Trustees' fees 1
Registration fees 3
Audit fees 8
Legal fees 2
Other 1
-------
Total expenses before reimbursement 45
Expenses reimbursed (25)
-------
Total expenses after reimbursement 20
-------
Net investment income 59
Change in net unrealized appreciation/depreciation
of investments 32
-------
Increase in net assets resulting from operations $ 91
=======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
Balanced Strategy Fund
Statement of Changes in Net Assets
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
From operations:
Net investment income $ 59
Change in net unrealized appreciation/
depreciation of investments 32
-------
Increase in net assets resulting from
operations 91
-------
From capital share transactions:
Shares sold 9,462
Shares redeemed (19)
-------
Increase in net assets from capital
share transactions 9,443
-------
Net increase in net assets 9,534
Net assets:
Beginning of period -
-------
End of period $ 9,534
=======
Undistributed net investment income included
in net assets:
Beginning of period $ -
=======
End of period $ 59
=======
Change in shares outstanding:
Shares sold 950
Shares redeemed (2)
-------
Increase in shares outstanding 948
=======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
Balanced 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 Balanced Strategy Fund (the Fund), which commenced operations on
September 1, 1995. The Fund's investment objective is to seek high total
return, with reduced risk over time, through an asset allocation strategy
that seeks a combination of long-term growth of capital and current income.
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 of securities, excluding short-term securities, for the
three-month period ended November 30, 1995 were $8,569.
Gross unrealized appreciation and depreciation of investments as of
November 30, 1995 was $406 and $374, 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 .75% of
its annual average net assets.
The Manager has voluntarily agreed to limit the annual expenses of the Fund
to 1.25% 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 500 shares (52.8%) of the Fund.
(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 .06
----------
Net asset value at
end of period $ 10.06
==========
Total return (%) .60
Net assets at end of
period (000) $ 9,534
Ratio of expenses to
average net assets (%) 1.25(a)(b)
Ratio of net investment
income to average net
assets (%) 3.65(a)(b)
Portfolio turnover (%) -
Average commission rate paid per share .0493
* Fund commenced operations September 1, 1995.
(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 (%) 2.81(a)
Ratio of net investment income to average net assets (%) 2.09(a)
