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 in Securities 14
Statement of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than 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)1997, 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 33
funds by investment objective as of June 30, 1997.
<CAPTION>
Average Annual Total Return(%)*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
--------- ---- ---- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
Capital Appreciation
====================
Aggressive Growth 10/19/81 -1.72 18.38 10.88 -
Emerging Markets(1) 11/7/94 15.35 - - 10.25
Gold(1) 8/15/84 -22.26 3.54 -4.75 -
Growth 4/5/71 21.60 16.94 11.97 -
Growth & Income 6/1/93 31.29 - - 18.53
International(1) 7/11/88 21.81 15.39 - 11.77
S&P 500 Index(4)(+) 5/1/96 34.59 - - 33.24
World Growth(1) 10/1/92 21.85 - - 15.50
Asset Allocation
=================
Balanced Strategy(1) 9/1/95 22.38 - - 15.48
Cornerstone Strategy(1) 8/15/84 20.45 14.33 9.22 -
Growth and Tax Strategy(2)** 1/11/89 15.72 11.23 - 10.45
Growth Strategy(1) 9/1/95 15.37 - - 21.37
Income Strategy 9/1/95 14.48 - - 10.36
Income - Taxable
================
GNMA 2/1/91 9.37 6.85 - 7.67
Income 3/4/74 8.21 7.44 9.45 -
Income Stock 5/4/87 20.77 14.21 12.89 -
Short-Term Bond 6/1/93 7.71 - - 5.69
Income - Tax Exempt
===================
Long-Term(2)** 3/19/82 9.22 6.71 8.09 -
Intermediate-Term(2)** 3/19/82 8.20 6.76 7.54 -
Short-Term(2)** 3/19/82 5.50 4.80 5.59 -
California Bond(2)** 8/1/89 8.90 7.13 - 7.58
Florida Tax-Free Income(2)** 10/1/93 9.79 - - 4.29
New York Bond(2)** 10/15/90 8.86 6.46 - 8.31
Texas Tax-Free Income(2)** 8/1/94 10.37 - - 9.24
Virginia Bond(2)** 10/15/90 8.50 6.93 - 8.08
Money Market
============
Money Market(3) 2/2/81 5.28 4.48 5.80 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.36 3.04 4.15 -
Treasury Money Market Trust(3) 2/1/91 5.13 4.28 - 4.38
California Money Market(2),(3)** 8/1/89 3.29 2.94 - 3.62
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.26 - - 3.04
New York Money Market(2),(3)** 10/15/90 3.21 2.82 - 3.08
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.33
Virginia Money Market(2),(3)** 10/15/90 3.22 2.87 - 3.20
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
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.
1 Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
2 Some income may be subject to state or local taxes or the federal
alternative minimum tax.
3 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.
4 S&P 500(Registered Trademark) is a trademark of The McGraw-Hill Companies,
Inc., and has been licensed for use. The product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
* Total return equals income return 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 represent past
performance and are 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, Florida, New York, Texas, and Virginia
funds available to residents only.
+ Includes account maintenance fee through December 31, 1996.
MESSAGE FROM THE PRESIDENT
(PHOTOGRAPH OF THE PRESIDENT, MICHAEL J. C. ROTH, APPEARS HERE.)
I HAVE A FEELING
THAT WE WILL REMEMBER 1997
The year began with an atmosphere of looking over your shoulder. The market had
risen about 61% in two years and all history told us that was unusual. Then it
advanced another 10% in January and February, before it encountered a loss of
confidence. By April it had lost all of the advance for this year(1) and it felt
so shaky that I sent shareholders a letter encouraging them to remember how
important we think asset allocation is in establishing your level of risk. But
by the time that letter arrived in early May the market was again setting record
highs. Indeed, one shareholder wrote me asking, "Why did you send this letter?"
The market has now driven upward to a return of 20% for the year, but
as I write this, it has fallen 192 points on the Dow; its second worst one-day
decline in points.
It would not be unusual if the market were to finish 1997 with a return well
below that of '95 and '96. We believe that the long-term return on the stock
market is around 10% to 12%.(2) Years such as '95 and '96 are necessary to
achieve such a long-term record, but by themselves they are exceptional. It is
important that investors have a position in stocks, but the risk that such a
position carries should, for most people, be offset by holding some different
assets including fixed income securities. Most of the funds in the USAA
Investment Trust are structured like that.
The Roth family will remember 1997 for another reason. We have a new
granddaughter, Katharine Sophia Broyles, who was born on January 3. She now has
an InveStart(Registered Trademark) account in the Cornerstone Strategy Fund,
our oldest asset strategy fund. I am confident that our monthly additions to
that account has the potential to build a meaningful college fund for her,
regardless of what 1997 serves up.
Sincerely,
Michael J.C. Roth
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
Past performance is no guarantee of future results.
A systematic plan, such as InveStart, does not assure a profit or protect
against loss in declining markets. Since such a plan involves continuous
investment in securities regardless of fluctuating price levels, you should
consider your financial ability to continue purchases through periods of low and
high price levels.
1 S&P 500 Index is an unmanaged index representing the average performance of a
group of 500 widely held publicly traded stocks. It is not possible to invest
directly in the S&P 500 Index.
2 Source: (Copyright) Computed using data from Stocks, Bonds, Bills & Inflation
1997 Yearbook(TM), Ibbotson Associates, Chicago (annually updates work by
Roger G. Ibbotson and Rex Sinquefield). Used with permission. All rights
reserved.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses please call for a prospectus. Read it
carefully before you invest.
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.
5/31/97 5/31/96
Net Assets................................ $ 34.6 MILLION $19.3 MILLION
Net Asset Value Per Share................. $12.11 $10.49
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/97
1 Year.......................................................... 19.26%
Since inception on September 1, 1995............................ 14.45%
[A graph is shown here which is a comparison of the change in value of a $10,000
investment, for the period of 9/1/95 to 5/31/97, with dividends and capital
gains reinvested. The ending value of each item graphed is as follows: USAA
Balanced Strategy Fund - $12,686, Lehman Brothers Aggregate Bond Index -
$11,115, S&P 500 Index - $15,684 and the Lipper Balanced Funds Average -
$12,986.]
The graph compares a $10,000 hypothetical investment in the USAA Balanced
Strategy Fund to the S&P 500 Index, the Lipper Balanced Funds Average, and
the Lehman Brothers Aggregate Bond Index. The S&P 500 Index is an unmanaged
index representing the average performance of a group of 500
widely held publicly traded stocks. It is not possible to invest directly in the
S&P 500 Index. The Lipper Balanced Funds Average is the average of all balanced
funds, as reported by Lipper Analytical Services, an independent organization
that monitors the performance of mutual funds. The Lehman Brothers Aggregate
Bond Index is an unmanaged index made up of the government/corporate index, the
mortgage-backed securities index, and the asset-backed securities 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 represent past
performance and are 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 MANAGERS
[PHOTOGRAPH OF PORTFOLIO MANAGERS APPEARS HERE:
LEFT TO RIGHT: PAMELA K. BLEDSOE, CFA (MONEY MARKET INSTRUMENTS), R. DAVID
ULLOM, CFA (ALLOCATION MANAGER, STOCKS), AND PAUL H. LUNDMARK, CFA (BONDS).]
Fund Overview
Since the inception of the Balanced Strategy Fund (September 1, 1995), we have
consistently maintained an asset allocation strategy of 56% - 60% equities and
37% - 40% bonds with a minimal allocation to cash. Although we have the ability
to vary the stock and bond ranges, we have felt that the current allocation can
best meet our stated objective. The Fund's objective is to seek high total
return, with reduced risk over time. The allocation to stocks is meant to
provide the high return with some dividend income. In turn, the allocation to
bonds reduces the overall risk profile of the Fund while providing higher
current income.
Our allocation strategy as compared to our peers has shown strong results over
the latest six months and the fiscal year ended May 31, 1997. The Fund has
generated returns in excess of 8% and 19%, respectively, over these periods.
These returns have been generated by continuing to focus on our strategy for
each of the asset categories. For stocks this means continuing to purchase
stocks that fit our value oriented criteria, while for bonds this means
structuring the bond maturities such that there is not a major bet on the
direction of interest rates.
A further detailed discussion of our allocation strategy follows.
Stocks
Over the last six months, the stock market, as measured by the S&P 500 Index,(1)
has continued to appreciate beyond our expectations. Within the Fund's equity
portion, performance was aided by the weightings in Healthcare (Aetna and
Humana), Tobacco (Philip Morris and Universal Corp.), Machinery (BW/IP and Deere
& Co.), Manufacturing (Hillenbrand Industries), Truckers (Aeroquip Vickers), and
selected positions in Technology. More specifically for this period, the Fund's
investments in Communication
1 The S&P 500 Index is an unmanaged index representing the average performance
of a group of 500 widely held publicly traded stocks. It is not possible to
invest directly in the S&P 500 Index.
Equipment (Lucent Technologies) and Semiconductor Equipment (Applied Materials
and Silicon Valley Group) have shown strong appreciation. We continue to believe
that these sectors offer attractive values, particularly selected areas of
Healthcare.
Investments that had a detrimental impact on performance included Chemicals (Dow
Chemical and Union Carbide), Metals (Inco and Titanium Metals), Pollution
Control (Waste Management), Electric Utilities (Houston Industries and Pacific
Gas & Electric), and Retail Department Stores (J.C. Penney). Within these
groups, we have already reduced our exposure to Chemicals (Union Carbide).
We have increased our positions in Foods (Ralston Purina), Healthcare (Pharmacia
& Upjohn and Bausch & Lomb), and Real Estate Investment Trusts (REITs) (Storage
USA). Although REITs have been relatively poor performing stocks, they have the
potential to provide high income (yields of 5% plus) and share price stability
in times of volatile markets.
As stated in previous communications, we continue to adhere to our value
strategy for the equity allocation of the Fund. This value strategy is based
on purchasing stocks that meet our criteria of low relative price to earnings
ratios, low relative price-to-cash flow ratios, low relative price-to-book value
ratios, and low price-to-normalized earnings ratios. All of our current stock
holdings meet at least one of these criteria.
Bonds
The bond component of the Fund is included to lower volatility and provide
current income. Our philosophy towards buying bonds is as follows: no one can
consistently predict whether interest rates are heading up or down over time. As
a result, you will not see us dramatically change the maturity of the portfolio
from one reporting period to the next. Instead, we earn our management fee by
constantly looking for bonds that represent good value in terms of income and
total return no matter where interest rates are headed. At the present time, our
bond holdings consist primarily of mortgage-backed securities and BBB-rated
corporates.
Within the Fund's bond portion, the best performing holdings were: Kmart,
Caremark,2 and Great Atlantic & Pacific. Our investments in treasuries had a
detrimental impact on performance and have subsequently been eliminated from the
portfolio.
We wish we had a crystal ball to foretell where interest rates were headed.
Since we don't, the best way we can provide value to you is by continuing with
our strategy of buying securities that may provide attractive yields and returns
over a long time horizon.
(2) Sold out prior to end of the reporting period.
Money Market
Money market instruments are included as part of the portfolio for liquidity and
as a temporary investment of cash prior to transitioning into more permanent
investments in stocks or bonds. We purchase short-term notes issued by U.S.
Government Agencies that are liquid and provide minimal credit risk. At the end
of the reporting period, money market instruments comprised 3.9% of the Fund's
net assets.
[A pie chart is shown here depicting the Asset Allocation as of May 31, 1997 for
the USAA Balanced Strategy Fund to be: Stocks - 59.5%*, Bonds - 39.4%*, and
Money Market Instruments 3.9%*.]
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
Boeing 1.3
Avery Dennison 1.2
B.F. Goodrich 1.2
Lucent Technologies 1.2
Aetna 1.1
Jefferson Smurfit 1.1
National Semiconductor 1.1
Brunswick 1.0
Gulf Canada Resources 1.0
Occidential Petroleum 1.0
Foreign investing is subject to additional risks, which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate with
risk, investors should be aware of the potential volatility associated with
foreign markets.
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
DISTRIBUTIONS TO SHAREHOLDERS
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended May 31, 1997. These figures are
provided for information purposes only and should not be used for reporting to
federal or state revenue agencies. Distributions for the calendar year will be
reported to you on Form 1099-DIV in January 1998.
Ordinary income $.36 *
====
30.54% of ordinary income distributions qualify for deduction by corporations.
* Includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
INDEPENDENT AUDITORS' REPORT
The Shareholders and the 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 Strategy Fund of USAA
Investment Trust as of May 31, 1997, the related statement of operations for the
year then ended, the statements of changes in net assets for the year ended
May 31, 1997 and the nine-month period ended May 31, 1996, and the financial
highlights information presented in note 7 to the financial statements for the
year ended May 31, 1997 and the nine-month period ended May 31, 1996. 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, 1997, 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 Strategy Fund of USAA Investment Trust as of
May 31, 1997, the results of its operations for the year then ended, the changes
in its net assets for the year ended May 31, 1997 and the nine-month period
ended May 31, 1996, and the financial highlights information for the year ended
May 31, 1997 and the nine-month period ended May 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 9, 1997
Balanced Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1997
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $31,486) $ 35,532
Cash 17
Receivables:
Capital shares sold 35
Dividends and interest 304
---------
Total assets 35,888
---------
Liabilities
Securities purchased 1,196
Capital shares redeemed 16
USAA Investment Management Company 35
USAA Transfer Agency Company 3
Accounts payable and accrued expenses 37
---------
Total liabilities 1,287
---------
Net assets applicable to capital shares outstanding $ 34,601
=========
Represented by:
Paid-in capital $ 29,992
Accumulated undistributed net investment income 184
Accumulated net realized gain on investments 379
Net unrealized appreciation of investments 4,046
---------
Net assets applicable to capital shares outstanding $ 34,601
=========
Capital shares outstanding, unlimited number of shares authorized,
no par value 2,857
=========
Net asset value, redemption price, and offering price per share $ 12.11
=========
</TABLE>
See accompanying notes to financial statements.
Balanced Strategy Fund
Portfolio of Investments in Securities
May 31, 1997
Market
Number Value
of Shares Security (000)
--------- -------- -----
Stocks (59.5%)
Aerospace/Defense (2.5%)
9,800 B.F. Goodrich Co. $ 421
4,142 Boeing Co. 436
--------
857
--------
Airlines (0.9%)
3,000 AMR Corp.* 298
--------
Aluminum (0.9%)
4,200 Aluminum Co. of America 309
--------
Auto Parts (0.8%)
7,500 Lear Corp.* 287
--------
Automobiles (0.8%)
7,000 Ford Motor Co. 263
--------
Bank Holding Companies -
Major Regional (0.7%)
6,100 PNC Bank Corp. 255
--------
Bank Holding Companies -
Money Center (0.9%)
3,700 Bankers Trust New York Corp. 313
--------
Bank Holding Companies -
Other Major (0.5%)
1,500 BankAmerica Corp. 175
--------
Brokerage Firms (1.0%)
8,000 Dean Witter, Discover & Co. 330
--------
Chemicals (2.9%)
10,800 Avery Dennison Corp. 406
3,800 Dow Chemical Co. 317
14,500 Millennium Chemicals, Inc. 279
--------
1,002
--------
Communication - Equipment
Manufacturers (1.8%)
3,000 Cisco Systems, Inc.* 203
6,507 Lucent Technologies, Inc. 414
--------
617
--------
Containers - Metals & Glass (0.9%)
11,000 Ball Corp. 320
--------
Distribution & Pipelines (1.6%)
7,200 NICOR, Inc. 247
5,600 Sonat, Inc. 322
--------
569
--------
Drugs (1.0%)
9,500 Pharmacia & Upjohn, Inc. 329
--------
Electric Power (1.3%)
10,000 Houston Industries, Inc. 208
11,000 PG & E Corp. 254
--------
462
--------
Electrical Equipment (0.8%)
4,400 Rockwell International Corp. 284
--------
Electronics - Semiconductors (2.4%)
4,600 Applied Materials, Inc.* 300
13,300 National Semiconductor Corp.* 374
7,000 Silicon Valley Group, Inc.* 168
--------
842
--------
Finance - Consumer (0.9%)
6,700 Associates First Capital Corp. 317
--------
Finance - Real Estate (0.4%)
2,800 PMI Group, Inc. 154
--------
Foods (1.6%)
6,700 Dean Foods Co. 255
3,500 Ralston Purina Group 298
--------
553
--------
Healthcare-- HMOs (0.7%)
10,500 Humana, Inc.* 238
--------
Household Products (0.9%)
2,200 Procter & Gamble Co. 303
--------
Insurance - Multi-Line
Companies (1.1%)
3,600 Aetna, Inc. 364
--------
Insurance -
Property/Casualty (3.1%)
4,500 Allstate Corp. 330
2,100 American International Group, Inc. 284
8,400 Everest Reinsurance Holdings, Inc. 286
9,000 Highlands Insurance Group, Inc.* 180
--------
1,080
--------
Leisure Time (1.0%)
11,300 Brunswick Corp. 345
--------
Machinery - Diversified (1.6%)
14,600 BW/IP, Inc. 279
5,100 Deere & Co. 261
--------
540
--------
Manufacturing - Diversified
Industries (0.8%)
6,100 Hillenbrand Industries, Inc. 287
--------
Medical Products &
Supplies (0.9%)
7,900 Bausch & Lomb, Inc. 318
--------
Metals - Miscellaneous (1.4%)
8,000 Inco Ltd. 264
7,000 Titanium Metals Corp.* 213
--------
477
--------
Office Equipment &
Supplies (0.8%)
4,300 Xerox Corp. 291
--------
Oil - Domestic (1.0%)
14,500 Occidental Petroleum Corp. 337
--------
Oil - Exploration &
Production (1.8%)
8,000 Apache Corp. 274
37,000 Gulf Canada Resources Ltd.* 335
--------
609
--------
Oil - International (0.9%)
2,700 Texaco, Inc. 295
--------
Oil Well Equipment &
Service (0.9%)
2,700 Schlumberger Ltd. 322
--------
Paper & Forest Products (2.8%)
21,500 Jefferson Smurfit Corp.* 387
6,200 Kimberly-Clark Corp. 311
5,500 Weyerhaeuser Co. 274
--------
972
--------
Pollution Control (0.9%)
9,400 Waste Management, Inc. 298
--------
Publishing (2.3%)
9,000 American Greetings Corp. 308
9,400 Dun & Bradstreet Corp. 246
4,000 Houghton Mifflin Co. 237
--------
791
--------
Railroads (0.9%)
3,200 Norfolk Southern Corp. 311
--------
Real Estate Investment
Trusts (1.6%)
4,000 Highwoods Properties, Inc. 121
6,800 Kimco Realty Corp. 214
5,500 Storage USA, Inc. 210
--------
545
--------
Restaurants (0.3%)
8,000 Brinker International, Inc.* 111
--------
Retail - General
Merchandising (1.5%)
5,500 J.C. Penney Company, Inc. 283
4,500 Sears, Roebuck & Co. 221
--------
504
--------
Retail - Specialty (0.5%)
13,500 Phillips-Van Heusen Corp. 189
--------
Specialty Printing (0.8%)
8,400 Deluxe Corp. 273
--------
Telephones (3.5%)
8,700 AT&T 321
6,900 GTE Corp. 304
5,000 NYNEX Corp. 269
6,200 Sprint Corp. 303
--------
1,197
--------
Tobacco (2.1%)
4,800 Philip Morris Co., Inc. 211
7,400 RJR Nabisco Holdings Corp. 240
8,000 Universal Corp. 291
--------
742
--------
Truckers (0.8%)
6,600 Aeroquip Vickers, Inc. 286
--------
Total stocks (cost: $16,399) 20,561
--------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
----- ---- --------
<C> <C> <C>
Bonds (39.4%)
$1,000 Capital One Bank 7.35% 6/20/00 1,012
1,000 Corporacion Andina De Fomento (Venezuela) 7.38 7/21/00 1,014
1,000 Great Atlantic & Pacific Tea, Inc. 7.70 1/15/04 1,006
1,000 Health Care Property Investors, Inc. 6.50 2/15/06 936
1,000 Hilton Hotels Corporation 7.38 6/01/02 1,002
900 Kmart Corp. 7.95 2/01/23 793
1,000 MacSaver Financial Services, Inc. 7.40 2/15/02 990
1,000 Merita Bank Ltd. (Finland) 6.50 1/15/06 947
1,000 Tele-Communications, Inc. 8.25 1/15/03 1,018
1,000 Washington Real Estate Investment Trust 7.25 8/13/06 989
1,000 WorldCom, Inc. 7.55 4/01/04 1,006
983 Government National Mortgage Association 7.00 6/20/26 953
1,962 Government National Mortgage Association 7.50 10/20/26 1,950
--------
Total bonds (cost: $13,732) 13,616
--------
Money Market Instrument (3.9%)
1,355 Federal National Mortgage Assn. (cost: $1,355) 5.52 6/02/97 1,355
--------
Total investments (cost: $31,486) $ 35,532
========
</TABLE>
- ----------------------
*Non-income producing.
Balanced Strategy Fund
Notes to Portfolio of Investments in Securities
May 31, 1997
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.
Investments in foreign securities were 8.3% of net assets at May 31, 1997.
See accompanying notes to financial statements.
Balanced Strategy Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1997
<TABLE>
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $2):
Dividends $ 340
Interest 782
-------
Total income 1,122
-------
Expenses:
Management fees 190
Transfer agent's fees 47
Custodian's fees 53
Postage 3
Shareholder reporting fees 2
Trustees' fees 4
Registration fees 32
Audit fees 20
Legal fees 2
Other 1
-------
Total expenses before reimbursement 354
Expenses reimbursed (38)
-------
Total expenses after reimbursement 316
-------
Net investment income 806
-------
Net realized and unrealized gain on investments:
Net realized gain on investments 405
Change in net unrealized appreciation/depreciation of investments 3,525
-------
Net realized and unrealized gain 3,930
-------
Increase in net assets resulting from operations $ 4,736
=======
</TABLE>
See accompanying notes to financial statements.
Balanced Strategy Fund
Statements of Changes in Net Assets
(In Thousands)
Year ended May 31, 1997
and Nine-month period ended May 31, 1996*
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
From operations:
Net investment income $ 806 $ 290
Net realized gain on investments 405 32
Change in net unrealized appreciation/depreciation of investments 3,525 521
--------- ---------
Increase in net assets resulting from operations 4,736 843
--------- ---------
Distributions to shareholders from:
Net investment income (733) (179)
--------- ---------
Net realized gains (58) -
--------- ---------
From capital share transactions:
Proceeds from shares sold 14,680 19,957
Shares issued for dividends reinvested 596 104
Cost of shares redeemed (3,878) (1,467)
--------- ---------
Increase in net assets from capital share transactions 11,398 18,594
--------- ---------
Net increase in net assets 15,343 19,258
Net assets:
Beginning of period 19,258 -
--------- ---------
End of period $ 34,601 $ 19,258
========= =========
Undistributed net investment income included in net assets:
Beginning of period $ 111 $ -
========= =========
End of period $ 184 $ 111
========= =========
Change in shares outstanding:
Shares sold 1,316 1,969
Shares issued for dividends reinvested 54 10
Shares redeemed (350) (142)
--------- ---------
Increase in shares outstanding 1,020 1,837
========= =========
*Fund commenced operations September 1, 1995.
</TABLE>
See accompanying notes to financial statements.
Balanced Strategy Fund
Notes to Financial Statements
May 31, 1997
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eleven separate funds.
The information presented in this annual report pertains only to the Balanced
Strategy Fund (the Fund). The Fund's investment objective is to seek a 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 -- 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.
D. Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the financial
statements.
(2) Lines of Credit
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 13, 1998, one with USAA
Capital Corporation (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank ($100 million committed). The
purpose of the agreements is to meet temporary or emergency cash needs,
including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under these agreements, the
Fund may borrow up to a maximum of 25% of its total assets, of which only 5% may
be borrowed from CAPCO, at the lending institution's borrowing rate plus a
markup. The Fund had no borrowings under either of these agreements during the
year ended May 31, 1997.
(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 or as otherwise required to avoid the payment of
federal taxes. Distributions of net investment income of $.09 per share,
declared and paid in June 1997, and short-term capital gains of $.0547 per share
and long-term capital gains of $.0808 per share, declared and paid in July 1997,
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, 1997 were $18,144,959 and $7,001,680, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1997
was $4,297,902 and $251,187, respectively.
(5) Transactions with Manager
A. Management fees -- The investment policies of the Fund and management of the
Fund's portfolio are 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 based on an annual charge per shareholder account plus out-of-pocket
expenses.
C. Underwriting services -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(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 May 31, 1997, the Association and its affiliates owned
500,000 shares (17.5%) of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Nine-month
Year Ended Period Ended
May 31, May 31,
1997 1996*
---- ----
<S> <C> <C>
Net asset value at
beginning of period $ 10.49 $ 10.00
Net investment income .33 .26(b)
Net realized and
unrealized gain 1.65 .37
Distributions from net
investment income (.33) (.14)
Distributions of realized
capital gains (.03) -
-------- --------
Net asset value at
end of period $ 12.11 $ 10.49
======== ========
Total return (%) ** 19.26 6.37
Net assets at end of
period (000) $ 34,601 $ 19,258
Ratio of expenses to
average net assets (%) 1.25(c) 1.25(a,c)
Ratio of net investment
income to average
net assets (%) 3.16(c) 3.31(a,c)
Portfolio turnover (%) 28.06 26.53
Average commission rate
paid per share + $ .0486 $ .0489
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
+ Calculated by aggregating all commissions paid on the purchase and sale of
securities and dividing by the actual number of shares purchased or sold for
which commissions were charged.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
(c)The information contained in the preceding 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:
</TABLE>
<TABLE>
<CAPTION>
Nine-month
Year Ended Period Ended
May 31, May 31,
1997 1996*
---- ----
<S> <C> <C>
Ratio of expenses to average net assets (%) 1.39 2.00(a)
Ratio of net investment income to average
net assets (%) 3.02 2.56(a)
</TABLE>
