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 8
Portfolio of Investments in Securities 9
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 December 31, 1996.
<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 16.47 11.45 13.12 -
Emerging Markets(1) 11/7/94 16.59 - - 4.84
Gold(1) 8/15/84 0.00 6.57 .93 -
Growth 4/5/71 17.80 13.69 13.24 -
Growth & Income 6/1/93 23.04 - - 16.24
International(1) 7/11/88 19.15 13.09 - 10.60
S&P 500 Index(4) 5/1/96 - - - 16.83+
World Growth(1) 10/1/92 19.08 - - 13.66
Asset Allocation
Balanced Strategy 9/1/95 13.45 - - 12.49
Cornerstone Strategy(1) 8/15/84 17.87 12.69 10.70 -
Growth and Tax Strategy(2)** 1/11/89 11.12 9.64 - 9.97
Growth Strategy(1) 9/1/95 22.13 - - 21.47
Income Strategy 9/1/95 3.00 - - 9.72
Income - Taxable
GNMA 2/1/91 2.94 6.43 - 7.66
Income 3/4/74 1.33 7.33 9.25 -
Income Stock 5/4/87 18.70 12.76 - 12.78
Short-Term Bond 6/1/93 6.31 - - 5.60
Income - Tax Exempt
Long-Term(2)** 3/19/82 4.47 6.87 7.37 -
Intermediate-Term(2)** 3/19/82 4.49 6.89 7.09 -
Short-Term(2)** 3/19/82 4.44 4.94 5.45 -
California Bond(2)** 8/1/89 5.39 7.29 - 7.65
Florida Tax-Free Income(2)** 10/1/93 4.38 - - 3.69
New York Bond(2)** 10/15/90 3.73 6.61 - 8.35
Texas Tax-Free Income(2)** 8/1/94 5.25 - - 9.44
Virginia Bond(2)** 10/15/90 5.06 7.09
Money Market
Money Market(3) 2/2/81 5.24 4.37 5.84 -
Tax Exempt Money Market(2,3)** 2/6/84 3.34 3.04 4.21 -
Treasury Money Market Trust(3) 2/1/91 5.10 4.16 - 4.32
California Money Market(2,3)** 8/1/89 3.27 2.93 - 3.64
Florida Tax-Free Money Market(2,3)** 10/1/93 3.24 - - 3.01
New York Money Market(2,3)** 10/15/90 3.20 2.79 - 3.07
Texas Tax-Free Money Market(2,3)** 8/1/94 3.25 - - 3.32
Virginia Money Market(2,3)** 10/15/90 3.17 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 dis-
tributed 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 alter-
native 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 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 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.
+ Cumulative total return since inception.
MESSAGE FROM THE PRESIDENT
On January 29, 1995, my wife and I became grandparents. Karl Joseph Marbach
was born to Alexandra, my wife's daughter, and her husband Keith Marbach.
When my wife learned of the name Alexandra and Keith had chosen, she smiled.
She noted that my middle names are Joseph Carl, and she said, "I think this
kid's college education is secure."
-- May 31, 1995 Annual Report
In the May 31, 1995, annual report, my message centered on regular,
systematic investing, and I told you I was going to practice something
I had preached for many years. I introduced you to my grandson, Karl
Joseph, and told you I had set up an InveStart(Registered Trademark) account
for his college expenses. This is a progress report.
By the time you read this message, Karl Joseph will be 24 months old -- a good
time for an update. As you might expect me to say, Karl Joseph is a very bright
guy. He is one of the few people whom our wire-haired dachshund, Brunhilde,
will tolerate. We have found that Bruni is a discerning judge of people!
One of Karl's favorite things is watching me toss grapes and catch them in my
mouth. He loves stuffed animals, swimming, and his grandmother's cooking. I'm
very pleased to say that his progress is just as I expected.
I'm also pleased to let you know that his education fund is progressing well
too. I opened an InveStart account for Karl on June 2, 1995, in the Income Stock
Fund. The NAV then was $14.77, and at this writing it is well over $16.00. In
addition to my $100 initial investment, there have now been 17 electronic
transfers of $50 into the account. That totals $950, and an interesting thing
has happened. The account is worth much more than $950 because, in addition to
dividends and appreciation, it has attracted other money. This is a college
account and a great cause. Karl is surprisingly well on his way.
There is a lesson here. Funding a college education is a challenge, but starting
early with an account like this is an excellent step. It provides a place for a
few extra dollars that show up on special occasions.
"Secure" may be an exaggeration, but I did decide to practice one thing I have
preached for many years ... I opened an InveStart (Registered Trademark)
account for Karl Joseph.
-- May 31, 1995 Annual Report
We originally intended it for young USAA members as a good way to start
investing. We found, however, that many grandparents were using it as I just
did.
-- May 31, 1995 Annual Report
I do practice what I preach. Systematic investing makes sense, and InveStart has
an expanded lineup of available funds. I encourage you to look at your
investment as you study the information in this report, and if you are not
investing regularly, please consider if it may be appropriate for you.
If you have any questions about our systematic investment plans or any of our
other mutual funds, please call. Your team of account representatives will be
glad to assist you with any questions you may have.
Sincerely,
Michael J.C. Roth
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
[Photograph of Michael J.C. Roth, President and Vice Chairman
of the Board appears here.]
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.
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.
The performance data quoted represents past performance and is no guarantee of
future results. 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.
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.
5/31/96 11/30/96
Net Assets.....................$19.3 MILLION $25.3 MILLION
Net Asset Value Per Share...... $10.49 $11.37
Average Annual Total Returns as of 11/30/96
May 31, 1996 to November 30, 1996................. 10.31%+
1 Year............................................ 16.64%
Since inception on September 1, 1995.............. 13.51%
+ Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
[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 11/30/96, with dividends and
capital gains reinvested. The ending value of each item graphed is as follows:
USAA Balanced Strategy Fund - $11,734, Lehman Brothers Aggregate Bond Index -
$11,012, S&P 500 Index - $13,858 and the Lipper Balanced Funds Average -
$12,239.]
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
[A photo of Portfolio Managers, R. David Ullom (Allocation Manager, Stocks),
Pamela K. Bledsoe (Money Market Instruments), and Paul H. Lundmark (Bonds),
appears here.]
Fund Overview
As indicated on the previous page, your Fund has provided a total return of
13.51% since its inception on September 1, 1995. We have maintained an
allocation strategy of 55-60% stocks, 37-41% bonds, and 0-3% money market
instruments. We felt that such an allocation was appropriate for our investment
objective of maximizing returns with reduced risks.
During the six-month period ended November 30, 1996, we have maintained an
approximate asset allocation of 58-60% stocks and 37-40% bonds. The cumulative
return generated over this period (10.31%) was the result of appreciation in the
stock allocation of the Fund, and the appreciation and income generated by the
bond allocation.
Recent indicators continue to evidence a moderate growth economy with low
inflation. Although the equity markets remain near their all time highs, we
continue to believe that an asset allocation of approximately 60% stocks and 40%
bonds is the best way to meet the objective of the Balanced Strategy Fund.
Stocks
The last six months proved to be lucrative for the stock market. During this
period, the S&P 500 Index (1) appreciated over 13%. Most of the reported rise
was in the month of November alone. We have continued to adhere to our
strategy of purchasing stocks that meet our criteria for value. Such criteria
include comparisons to the S&P 500 of price-to-earnings, price-to-cash-flows,
and price-to-book-value ratios, and dividend yields.
Contributors to performance in the Fund's stock allocation included holdings in
Household Products (Procter & Gamble and Sunbeam*), Energy (Schlumberger,
Apache, Texaco and Gulf Canada Resources), Property & Casualty Insurance
(Allstate, American International Group and Everest Reinsurance Holdings),
Natural Gas Distributors (NICOR and Sonat), and Aerospace (Boeing and B.F.
Goodrich).
Although the Fund's investments in the telephone industry proved to be a drag on
performance during the same period, our investments in this group continue to
meet our value criteria. In particular, these companies should continue to
generate earnings, cash flow, and dividend growth. Likewise, the Fund's chemical
investments represent attractive values as they offer above-average yields.
* Sold prior to end of reporting period.
(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.
[A pie chart is shown here depicting the Asset Allocation as of November 30,
1996 for the USAA Balanced Strategy Fund to be: Stocks - 58.7%, Bonds - 37.5%,
and Money Market Instruments 2.9%.]
*Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
Bonds
We have shortened maturity and modified duration (2) of the bond sector to 8.00
years and 4.90, respectively. This was accomplished by selling the 30-year
treasury position and reallocating our investments in mortgage pass-throughs. We
believe this change will better stabilize returns and provide a potential for
more income.
Over the past six months, the value of the fixed-income sector increased as
interest rates declined. Contributors to the performance of the Fund's bond
allocation included holdings in Caremark (3), Corporacion Andina De Fomento,
Great Atlantic & Pacific Tea, and Health Care Property Investors. Recent
firming in the bond market supports the widening opinion that the Federal
Reserve will not increase rates due to a slowing economy and the containment of
inflation. In this environment, we feel that the fixed-income sector is well
positioned to pursue stable income and total return.
Money Market Instruments
Money market instruments are included as part of the portfolio for liquidity and
as a temporary investment of cash prior to transitioning into 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 2.9% of the Fund's net assets.
(2) Duration measures a bond fund's sensitivity to interest rate increases
and decreases.
(3) Caremark was tendered prior to end of reporting period.
Top 10 Equity Holdings
(% of Net Assets)
B.F. Goodrich 1.6
Boeing 1.6
Kimberly-Clark 1.2
Brunswick 1.1
Lucent Technologies 1.1
Schlumberger 1.1
National Semiconductor 1.1
Associates First Capital 1.1
Avery Dennison 1.1
Dean Witter, Discover & Co. 1.1
See page 9 for a complete listing of the Portfolio of Investments in
Securities.
Balanced Strategy Fund
Statement of Assets and Liabilities
(In Thousands)
November 30, 1996
(Unaudited)
Assets
Investments in securities, at market value
(identified cost of $22,630) $ 25,040
Cash 14
Receivables:
Capital shares sold 58
Dividends and interest 220
Securities sold 48
-----------
Total assets 25,380
-----------
Liabilities
Securities purchased 46
USAA Investment Management Company 31
USAA Transfer Agency Company 4
Accounts payable and accrued expenses 31
-----------
Total liabilities 112
-----------
Net assets applicable to capital
shares outstanding $ 25,268
===========
Represented by:
Paid-in capital $ 22,664
Accumulated undistributed net investment income 139
Accumulated net realized gain on investments 55
Net unrealized appreciation of investments 2,410
-----------
Net assets applicable to capital
shares outstanding $ 25,268
===========
Capital shares outstanding, unlimited
number of shares authorized, no par value 2,222
===========
Net asset value, redemption price,
and offering price per share $ 11.37
===========
See accompanying notes to financial statements.
Balanced Strategy Fund
Portfolio of Investments in Securities
November 30, 1996
(Unaudited)
Market
Number Value
of Shares Security (000)
Stocks (58.7%)
Aerospace/Defense (4.0%)
9,000 B.F. Goodrich Co. $ 404
4,000 Boeing Co. 398
3,400 Rockwell International Corp. 218
----------
1,020
----------
Aluminum (0.9%)
3,700 Aluminum Co. of America 235
----------
Auto Parts (0.9%)
6,000 Lear Corp.* 215
----------
Automobiles (0.7%)
5,000 Ford Motor Co. 164
----------
Bank Holding Companies - Major Regional (1.0%)
6,100 PNC Bank Corp. 241
----------
Bank Holding Companies - Money Center (1.0%)
3,000 Bankers Trust New York Corp. 261
----------
Brokerage Firms (1.1%)
4,000 Dean Witter, Discover & Co. 274
----------
Chemicals (2.0%)
3,900 Avery Dennison Corp. 275
2,800 Dow Chemical Co. 235
----------
510
----------
Chemicals - Specialty (0.6%)
1,071 Millenium Chemicals, Inc. 22
3,000 Morton International, Inc. 121
----------
143
----------
Communication - Equipment Manufacturers (1.1%)
5,507 Lucent Technologies, Inc. 282
----------
Containers - Metals & Glass (0.8%)
8,000 Ball Corp. 196
----------
Distribution & Pipelines (2.0%)
7,200 NICOR, Inc. 266
4,700 Sonat, Inc. 243
----------
509
----------
Electric Power (1.3%)
5,000 Houston Industries, Inc. 110
9,500 Pacific Gas & Electric Co. 229
----------
339
----------
Electronics - Semiconductors (2.6%)
6,000 Applied Materials, Inc.* 228
11,300 National Semiconductor Corp.* 277
7,000 Silicon Valley Group, Inc.* 149
----------
654
----------
Finance - Consumer (1.1%)
5,700 Associates First Capital Corp. 276
----------
Foods (0.7%)
6,700 Dean Foods Co. 187
----------
Healthcare - HMOs (0.8%)
10,500 Humana, Inc.* 198
----------
Heavy Duty Trucks & Parts (1.0%)
6,600 Trinova Corp. 241
----------
Household Products (0.9%)
2,200 Procter & Gamble Co. 239
----------
Insurance - Multi-Line Companies (1.0%)
3,600 Aetna, Inc. 260
----------
Insurance - Property/Casualty (3.5%)
4,500 Allstate Corp. 271
1,900 American International Group, Inc. 219
8,400 Everest Reinsurance Holdings, Inc. 236
8,500 Highlands Insurance Group, Inc.* 167
----------
893
----------
Leisure Time (1.1%)
11,300 Brunswick Corp. 288
----------
Machinery - Diversified (1.6%)
11,600 BW/IP, Inc. 177
5,100 Deere & Co. 228
----------
405
----------
Manufacturing - Diversified Industries (0.7%)
5,100 Hillenbrand Industries, Inc. 188
----------
Medical Products & Supplies (0.6%)
5,400 C.R. Bard, Inc. 151
----------
Metals - Miscellaneous (1.4%)
5,000 Inco Ltd. 175
5,500 Titanium Metals Corp.* 184
----------
359
----------
Office Equipment & Supplies (0.6%)
3,200 Xerox Corp. 157
----------
Oil - Domestic (1.0%)
10,500 Occidental Petroleum Corp. 252
----------
Oil - Exploration & Production (2.0%)
7,000 Apache Corp. 255
37,000 Gulf Canada Resources, Ltd.* 240
----------
495
----------
Oil - International (1.1%)
2,700 Texaco, Inc. 268
----------
Oil Well Equipment & Service (1.1%)
2,700 Schlumberger Ltd. 281
----------
Paper & Forest Products (3.0%)
15,500 Jefferson Smurfit Corp.* 209
3,100 Kimberly-Clark Corp. 303
5,500 Weyerhaeuser Co. 253
----------
765
----------
Pollution Control (1.0%)
6,900 WMX Technologies, Inc. 248
----------
Publishing (2.5%)
6,800 American Greetings Corp. 192
3,200 Cognizant Corp.* 110
4,900 Dun & Bradstreet Corp. 111
4,000 Houghton Mifflin Co. 210
----------
623
----------
Railroads (1.0%)
2,700 Norfolk Southern Corp. 243
----------
Real Estate Investment Trusts (1.4%)
6,800 Kimco Realty Corp. 198
6,400 Public Storage, Inc. 162
----------
360
----------
Restaurants (0.6%)
8,000 Brinker International, Inc.* 148
----------
Retail - General Merchandising (1.7%)
3,800 J.C. Penney Company, Inc. 204
4,300 Sears, Roebuck & Co. 214
----------
418
----------
Retail - Specialty (0.7%)
13,500 Phillips-Van Heusen Corp. 174
----------
Savings & Loan Holding Companies (1.0%)
8,000 Great Western Financial Corp. 249
----------
Specialty Printing (0.6%)
5,000 Deluxe Corp. 155
----------
Telephones (3.2%)
4,300 AT&T 169
4,500 GTE Corp. 202
5,000 NYNEX Corp. 232
5,000 Sprint Corp. 209
----------
812
----------
Tobacco (1.8%)
6,000 RJR Nabisco Holdings Corp. 192
8,900 Universal Corp. 256
----------
448
----------
Total common stocks (cost: $12,410) 14,824
----------
Principal
Amount Coupon
(000) Rate Maturity
Bonds (37.5%)
$ 1,000 Capital One Bank 7.35% 6/20/00 1,028
1,000 Corporacion Andina De Fomento (Venezuela) 7.38 7/21/00 1,029
1,000 Great Atlantic & Pacific Tea, Inc. 7.70 1/15/04 1,027
1,000 Health Care Property Investors, Inc. 6.50 2/15/06 973
900 Kmart Corp. 7.95 2/01/23 714
1,000 Merita Bank Ltd. (Finland) 6.50 1/15/06 975
1,000 Washington Real Estate Investment Trust 7.25 8/13/06 1,013
994 Government National Mortgage Association 7.00 6/20/26 987
498 Government National Mortgage Association 8.00 9/20/26 512
1,199 Government National Mortgage Association 7.50 10/20/26 1,213
--------
Total bonds (cost: $9,475) 9,471
--------
Money Market Instrument (2.9%)
745 Federal Home Loan
Mortgage Corp. (cost: $745) 5.70 12/02/96 745
-----------
Total investments (cost: $22,630) $ 25,040
===========
- ------------------------
*Non-income producing.
Balanced Strategy Fund
Notes to Portfolio of Investments in Securities
November 30, 1996
(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.
Investments in foreign securities were 9.6% of net assets at November 30, 1996.
See accompanying notes to financial statements.
Balanced Strategy Fund
Statement of Operations
(In Thousands)
Six-month period ended November 30, 1996
(Unaudited)
Net investment income:
Income:
Dividends $ 150
Interest 331
----------
Total income 481
----------
Expenses:
Management fees 82
Transfer agent's fees 20
Custodian's fees 27
Postage 1
Shareholder reporting fees 1
Trustees' fees 2
Registration fees 23
Audit fees 12
Legal fees 2
Other 2
----------
Total expenses before reimbursement 172
Expenses reimbursed (37)
----------
Total expenses after reimbursement 135
----------
Net investment income 346
----------
Net realized and unrealized gain on investments:
Net realized gain on investments 81
Change in net unrealized appreciation/
depreciation of investments 1,889
----------
Net realized and unrealized gain 1,970
----------
Increase in net assets resulting from operations $2,316
==========
See accompanying notes to financial statements.
Balanced Strategy Fund
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended November 30, 1996
and Nine-month period ended May 31, 1996
(Unaudited)
11/30/96 5/31/96*
---------- ----------
From operations:
Net investment income $ 346 $ 290
Net realized gain on investments 81 32
Change in net unrealized appreciation/
depreciation of investments 1,889 521
---------- -----------
2,316 843
---------- -----------
Distributions to shareholders from:
Net investment income (318) (179)
---------- ------------
Net realized gains (58) -
---------- ------------
From capital share transactions:
Proceeds from shares sold 5,367 19,957
Shares issued for dividends reinvested 276 104
Cost of shares redeemed (1,573) (1,467)
---------- -----------
Increase in net assets from capital
share transactions 4,070 18,594
---------- -----------
Net increase in net assets 6,010 19,258
Net assets:
Beginning of period 19,958 -
---------- -----------
End of period $25,268 $19,258
========== ===========
Undistributed net investment income
included in net assets:
Beginning of period $ 111 $ -
========== ===========
End of period $ 139 $ 111
========== ===========
Change in shares outstanding:
Shares sold 508 1,969
Shares issued for dividends reinvested 26 10
Shares redeemed (149) (142)
----------- ----------
Increase in shares outstanding 385 1,837
=========== ==========
*Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
Balanced Strategy Fund
Notes to Financial Statements
November 30, 1996
(Unaudited)
(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 semiannual 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 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 trades. 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
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 accural 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 14, 1997, 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
six-month period ended November 30, 1996.
(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.
(4) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term securities,
for the six-month period ended November 30, 1996 were $8,334,961 and
$5,110,822, respectively.
Gross unrealized appreciation and depreciation of investments as of November
30, 1996 was $2,748,863 and $339,049, 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. Shareholder accounting service fees are 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 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, 1996, the Association and its affiliates
owned 500,000 shares (22.5%) of the Fund.
<TABLE>
Balanced Strategy Fund
Notes to Financial Statements (continued)
<CAPTION>
November 30, 1996
(Unaudited)
(7) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
Six-month Nine-month
Period Ended Period Ended
November 30, May 31,
1996 1996
-------------- --------------
<S> <C> <C>
Net asset value at
beginning of period $ 10.49 $ 10.00
Net investment income .17(b) .26(b)
Net realized and
unrealized gain .90 .37
Distributions from net
investment income (.16) (.14)
Distributions of realized
capital gains (.03) -
------------ -------------
Net asset value at
end of period $ 11.37 $ 10.49
============ =============
Total return (%) ** 10.31 6.37
Net assets at end of period (000) $ 25,268 $ 19,258
Ratio of expenses to average
net assets (%) 1.25(a)(c) 1.25(a)(c)
Ratio of net investment income
to average net assets (%) 3.17(a)(c) 3.31(a)(c)
Portfolio turnover (%) 23.95 26.53
Average commission rate
paid per share+ $ .0478 $ .0489
</TABLE>
* 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 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:
Six-month Nine-month
Period Ended Period Ended
November 30, May 31,
1996 1996
------------- -------------
Ratio of expenses to average
net assets (%) 1.58(a) 2.00(a)
Ratio of net investment income
to average net assets (%) 2.84(a) 2.56(a)
