Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Portfolio of Investments 8
Notes to Portfolio of Investments 13
Statement of Assets and Liabilities 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)1999, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
--------- ---------- ----------
CAPITAL APPRECIATION
===============================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 (Registered
Trademark) Index(2) Moderate $3,000
Science & Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
ASSET ALLOCATION
===============================================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME - TAXABLE
===============================================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
===============================================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
MONEY MARKET
===============================================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) 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.
(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 not insured or guaranteed by the
FDIC or any other government agency. Although the fund seeks to preserve
the value of your investment at $1 per share, it is possible to lose
money by investing in the fund.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart (Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. 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.
Non-deposit investment products 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, and may lose value.
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.
Message from the President
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA,
APPEARS HERE]
Since my last message to Investment Trust shareholders, the stock market has
reminded us that intense emotions are part of the investment process. In August,
the unraveling of markets around the world was downright scary. Huge daily
drops, the rampage into treasury bonds while other income markets dried up, and
the antics of huge hedge funds made for confusion and fear. At such times, it
becomes very hard for people to remember the long-term plans they have made for
their portfolios.
A scant three months later, stock markets have recouped losses and bond markets
have settled down. August looks like a momentary aberration. With the retreat of
fear, we are now seeing something the financial press has tagged "Internet
stocks." These are various companies, going public for the first time, whose
business is closely tied to Internet commerce. Some have soared to prices ten
times their initial offering, even though they have little or no earnings and
traditional analysts can detect little to support such lofty prices. In the
1600s, investors got the idea that tulip bulbs, which Dutch traders brought home
on their voyages, were highly valuable and bid their prices to incredible
levels. Those prices collapsed and the word "tulip" took on a special meaning
for investment professionals. The tulip craze became a classic example of
irrational investor behavior. When I watch the Internet IPOs, I think "Tulip."
This tells me that emotions can run both ways, from panic to euphoria, and make
people forget their long-term investment plans. But, you need those plans most
of all when the emotions are rampant. Trading in calm markets prepares you to
avoid trading during raging markets.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about mutual funds managed and distributed by USAA
IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before investing.
Although none of the investments mentioned are guaranteed or insured, government
bonds are backed by the full faith and credit of the U.S. Government. Common
stocks are considered to have the most risk, followed by corporate bonds and
government bonds. All of these vehicles are subject to tax. If held to maturity,
bonds offer a fixed rate of return and fixed principal value. Return and
principal value of an investment in stocks will fluctuate.
Past performance is no guarantee of future results.
Investment Review
USAA BALANCED STRATEGY FUND
OBJECTIVE: To seek high total return, with reduced risk over time, through an
asset allocation strategy which seeks a combination of long-term growth of
capital and current income.
- --------------------------------------------------------------------------------
11/30/98 5/31/98
- --------------------------------------------------------------------------------
Net Assets $75.3 Million $70.0 Million
Net Asset Value Per Share $12.88 $13.46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/98
- --------------------------------------------------------------------------------
5/31/98 to 11/30/98(+) 1 Year Since Inception on 9/1/95
-1.83% 5.25% 12.23%
- --------------------------------------------------------------------------------
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
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.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Balanced Strategy Fund, the S&P
500 Index, the Lipper Balanced Funds Average, and the Lehman Brothers Aggregate
Bond Index for the period of 09/01/95 through 11/30/98. The data points from the
graph are as follows:
USAA Balanced S&P 500 Lipper Lehman
Strategy Fund Index Average Index
------------- ------- ------- ------
09/01/95 $10,000 $10,000 $10,000 $10,000
11/30/95 10,060 10,840 10,509 10,382
05/31/96 10,637 12,117 11,187 10,262
11/30/96 11,734 13,858 12,252 11,012
05/31/97 12,686 15,684 13,009 11,115
11/30/97 13,823 17,809 14,322 11,844
05/31/98 14,820 20,493 15,585 12,328
11/30/98 14,548 22,026 15,996 12,963
Data since inception on 09/01/95 through 11/30/98
The graph illustrates the comparison of 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, Inc., 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.
Message from the Managers
[PHOTOGRAPH OF PORTFOLIO MANAGERS APPEARS HERE: Pamela K. Bledsoe, CFA (Money
Market Instruments) Patrick O'Hare, CFA (Allocation Manager, Stocks), and Paul
H. Lundmark, CFA (Bonds).]
FUND OVERVIEW
During the summer, a number of events lowered investors' confidence in the
financial markets. The Asian crisis spread to Russia causing it to default on
its debts. Seemingly overnight, investors fled to the safety of the most liquid
U.S. Treasury securities, selling their stocks and all other bonds.
With the markets in turmoil, we continued to purchase bonds at excellent values,
and increased our exposure to equities. We began the six-month period with 60.3%
of the Fund invested in equities. As of November 30, 1998, we had increased the
equity exposure to 64.5%.
STOCKS
Concerns that the turmoil overseas would cause the U.S. to go into a recession
took a heavy toll on stocks during the summer. Since reaching lows in August,
stocks have rebounded sharply to set new highs in November. Leading the recovery
were the sectors hardest hit in the sell-off, the financial and the technology
sectors.
On October 1, 1998, the portfolio manager of the equity portion of the Fund
changed, and a number of stocks were sold and replaced. We reduced the
weightings in traditional value sectors such as basic materials, capital goods,
consumer cyclicals, and utilities. The weightings in faster growing sectors such
as consumer staples and technology were increased. We also increased the
weighting in the financial sector as we felt that the summer sell-off was
overdone.
BONDS
We manage the bond category so that income is the primary component of total
return. Since the beginning of the year, the difference between short- and
long-term Treasury rates has been minimal. On account of this factor, we
invested in intermediate-term corporate bonds and mortgage- and asset-backed
securities rather than Treasuries because they offered higher yields. In
addition, we could get these higher yields without taking on as much interest
rate risk as investing in long-term Treasuries. This management style worked
well until the recent market turmoil. The months of August and September saw a
"flight to quality" as investors dumped investments that had any element of
credit risk and then scrambled to buy Treasuries at inflated prices. Further
disrupting the market was the sell-off of mortgage and corporate securities by
hedge funds.(1) All of this market turmoil resulted in the bond sector of your
Fund underperforming Treasuries.
This negative market sentiment became overdone which provided buying
opportunities. We were able to purchase securities that had excellent
risk/reward characteristics. Since the end of September, the Federal Reserve has
been cutting overnight rates, which brought some stability back to the market.
Investors have begun buying corporate bonds and mortgage securities again. The
fear of the market economy heading into a recession has been diminished.
(1) A private investment pool for wealthy investors that, unlike a mutual fund,
is exempt from SEC regulation.
MONEY MARKET INSTRUMENTS
Money market instruments are used to provide liquidity for withdrawals or to
provide a temporary investment until stock or bond purchases are made. U.S.
government discount notes are the most common instruments used for these
purposes. At the end of November, money market investments totaled 2.8% of net
assets.
OUTLOOK
We believe that Federal Reserve Chairman, Alan Greenspan, is determined to keep
the U.S. economy growing and will continue to cut interest rates to achieve this
result. Consequently, we feel that market conditions will continue to improve.
This should result in corporate bonds, mortgage- and asset-backed securities
increasing in value relative to Treasuries. The bond category of your Fund is
well positioned to benefit from this improvement. We believe that our stocks
will benefit from a continued expansion of the U.S. economy and a recovery in
overseas markets. Based on our current outlook we will continue to gradually
increase the equity portion of the Fund.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of November 30, 1998
of the USAA Balanced Strategy Fund to be:
Stocks - 64.5%*; Bonds - 33.7%*; and Money Market Instruments - 2.8%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
- ----------------------------------------
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
- ----------------------------------------
Microsoft 2.8
Cisco Systems 2.7
Texas Instruments 2.5
Merck & Co 2.3
General Electric 2.2
Intel 2.1
American International Group 2.0
Pfizer 2.0
American Home Products 1.7
Exxon 1.4
- -----------------------------------------
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 8 for a complete listing of the Portfolio of Investments.
USAA BALANCED STRATEGY FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
Stocks (64.5%)
Advertising/Marketing (0.3%)
4,700 Omnicom Group, Inc. $ 251
-----------
Aerospace/Defense (0.3%)
6,300 Boeing Co. 256
-----------
Aluminum (0.3%)
2,900 Aluminum Co. of America 215
-----------
Automobiles (1.0%)
13,500 Ford Motor Co. 746
-----------
Auto Parts (0.8%)
14,600 Lear Corp.* 564
-----------
Banks - Major Regional (2.3%)
11,400 Fleet Financial Group, Inc. 475
7,700 Mellon Bank Corp. 485
5,100 PNC Bank Corp. 263
7,800 State Street Corp. 535
-----------
1,758
-----------
Banks - Money Center (1.7%)
11,513 BankAmerica Corp. 751
5,000 J. P. Morgan & Co., Inc. 534
-----------
1,285
-----------
Beverages - Alcoholic (0.6%)
7,500 Anheuser-Busch Companies, Inc. 455
-----------
Beverages - Nonalcoholic (1.8%)
11,800 Coca-Cola Co. 827
6,600 Coca-Cola Enterprises, Inc. 249
6,700 PepsiCo, Inc. 259
-----------
1,335
-----------
Broadcasting - Radio & TV (0.7%)
17,400 CBS Corp.* 519
-----------
Chemicals (1.5%)
3,600 Dow Chemical Co. 350
13,700 Du Pont (E. I.) De Nemours & Co. 805
-----------
1,155
-----------
Communication Equipment (0.7%)
6,414 Lucent Technologies, Inc. 552
-----------
Computer - Hardware (0.9%)
4,300 IBM Corp. 709
-----------
Computer - Networking (2.7%)
27,350 Cisco Systems, Inc.* 2,061
-----------
Computer Software & Service (2.8%)
17,300 Microsoft Corp.* 2,111
-----------
Drugs (4.9%)
11,200 Merck & Co., Inc. 1,735
13,200 Pfizer, Inc. 1,473
4,800 Schering-Plough Corp. 511
-----------
3,719
-----------
Electrical Equipment (2.8%)
7,000 Emerson Electric Co. 455
18,600 General Electric Co. 1,683
-----------
2,138
-----------
Electronics - Semiconductors (4.6%)
14,800 Intel Corp. 1,593
24,000 Texas Instruments, Inc. 1,833
-----------
3,426
-----------
Entertainment (0.5%)
3,700 Time Warner, Inc. 391
-----------
Equipment - Semiconductors (1.6%)
23,000 Applied Materials, Inc.* 891
10,000 Teradyne, Inc.* 321
-----------
1,212
-----------
Finance - Diversified (4.5%)
5,500 American Express Co. 551
16,000 Citigroup, Inc. 803
20,500 Federal Home Loan Mortgage Corp. 1,240
11,200 Morgan Stanley, Dean Witter, Discover & Co. 781
-----------
3,375
-----------
Foods (1.6%)
11,800 Nabisco Holdings Corp. 470
13,700 Ralston Purina Group 477
3,100 Unilever N.V. - New York Shares 240
-----------
1,187
-----------
Healthcare - Diversified (3.6%)
24,100 American Home Products Corp. 1,283
5,000 Bristol-Myers Squibb Co. 613
10,300 Johnson & Johnson, Inc. 837
-----------
2,733
-----------
Hospitals (0.3%)
7,400 Tenet Healthcare Corp.* 219
-----------
Household Products (1.6%)
5,200 Colgate-Palmolive Co. 445
8,500 Procter & Gamble Co. 745
-----------
1,190
-----------
Housewares (0.6%)
10,500 Newell Co. 465
-----------
Insurance - Multi-LineCompanies (2.0%)
15,900 American International Group, Inc. 1,495
-----------
Insurance - Property/Casualty (0.6%)
10,200 Allstate Corp. 416
-----------
Investment Banks / Brokerage (0.5%)
4,500 Merrill Lynch & Co., Inc. 337
-----------
Machinery - Diversified (0.3%)
5,000 Caterpillar, Inc. 247
-----------
Manufacturing - Diversified Industries (1.4%)
5,700 Minnesota Mining & Manufacturing Co. 458
5,500 United Technologies Corp. 589
-----------
1,047
-----------
Medical Products & Supplies (0.7%)
7,300 Medtronic, Inc. 494
-----------
Oil - Domestic Integrated (0.3%)
2,900 Atlantic Richfield Co. 193
-----------
Oil - International Integrated (3.1%)
13,500 Exxon Corp. 1,013
12,500 Royal Dutch Petroleum Co. 588
12,000 Texaco, Inc. 691
-----------
2,292
-----------
Oil & Gas - Drilling/Equipment (0.5%)
8,300 Schlumberger Ltd. 371
-----------
Paper & Forest Products (0.3%)
5,200 International Paper Co. 226
-----------
Retail - Building Supplies (0.7%)
10,700 Home Depot, Inc. 532
-----------
Retail - Drugs (0.3%)
5,200 CVS Corp. 257
-----------
Retail - General Merchandising (1.9%)
11,800 Dayton Hudson Corp. 531
11,500 Wal-Mart Stores, Inc. 866
-----------
1,397
-----------
Retail - Specialty Apparel (0.4%)
4,000 Gap, Inc. 294
-----------
Services - Commercial & Consumer (0.7%)
13,300 Service Corp. International 497
-----------
Services - Data Processing (0.4%)
12,000 First Data Corp. 320
-----------
Telecommunications - Long Distance (1.6%)
8,700 MCI Worldcom, Inc.* 513
9,700 Sprint Corp. 706
-----------
1,219
-----------
Telephones (2.5%)
12,000 Bell Atlantic Corp. 667
4,500 BellSouth Corp. 393
16,700 SBC Communications Corp. 801
-----------
1,861
-----------
Tobacco (1.3%)
17,900 Philip Morris Companies, Inc. 1,001
-----------
Total stocks (cost: $39,327) 48,523
-----------
Principal Market
Amount Value
(000) Security (000)
- --------------------------------------------------------------------------------
BONDS (33.7%)
$1,000 Corporacion Andina DeFomento (Venezuela), 7.38%,
7/21/2000 (c) $ 1,007
2,000 First Union Commercial Mortgage Trust II, 6.60%, 5/18/2007 2,050
1,000 FirstPlus Home Loan Owner Trust, Series 1997-4, ClassA-5,
6.62%, 9/10/2015 1,010
1,000 FirstPlus Home Loan Owner Trust, Series 1998-1, Class A-5,
6.25%, 11/10/2016 1,006
1,000 Glenborough Property, L.P., 7.63%, 3/15/2005 (a) 983
1,000 Great Atlantic & Pacific Tea, Inc., 7.70%, 1/15/2004 (c) 994
1,000 Health Care Property Investors, Inc., 6.50%, 2/15/2006 934
1,000 HRPT Property Trust, 6.70%, 2/23/2005 943
900 Kmart Corp., 7.95%, 2/01/2023 914
1,000 MacSaver Financial Services, Inc., 7.40%, 2/15/2002 866
1,000 Merita Bank Ltd. (Finland), 6.50%, 1/15/2006 1,020
1,000 Merrill Lynch & Co., Inc.,6.50%, 7/15/2018 1,008
1,000 Nationwide Health Property Inc., 7.25%, 4/01/2002 1,004
1,000 Tele-Communications, Inc., 8.25%, 1/15/2003 1,099
1,000 Union Planters Bank National Assn., 6.50%, 3/15/2018 1,013
1,000 Washington Real Estate Investment Trust, 7.25%, 8/13/2006 1,006
1,000 Waste Management, Inc., 6.38%, 12/01/2003 1,017
1,000 Federal Home Loan Bank, 5.43%, 9/24/2008 1,009
907 Federal Home Loan Mortgage Corp., Series 1998-7 H,
9.00%, 3/18/2025 962
836 Federal National Mortgage Assn., Series 1997-72 CA,
9.50%, 9/18/2023 867
760 Federal National Mortgage Assn., Series 1997-72 CB,
9.00%, 9/18/2023 785
1,651 Federal National Mortgage Assn., Series 1997-79 U,
9.00%, 11/18/2024 1,717
867 Federal National Mortgage Assn., Series 1997-89 N,
9.50%, 12/20/2022 909
1,276 Government National Mortgage Assn. I, 6.63%, 1/15/2040 (b) 1,272
-----------
Total bonds (cost: $25,488) 25,395
-----------
MONEY MARKET INSTRUMENTS (2.8%)
2,102 Federal Home Loan Mortgage Corp., 5.10%, 12/01/1998
(cost: $2,102) 2,102
-----------
Total investments (cost: $66,917) $ 76,020
===========
- ------------------------
* Non-income producing.
USAA BALANCED STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1998
(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 3.4% of net assets at November 30, 1998.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Fund's investment manager. Any resale of
this security may occur in an exempt transaction in the United States to a
qualified institutional buyer as defined by Rule 144A.
(b) At November 30, 1998, the cost of securities purchased on a delayed delivery
basis was $1.2 million.
(c) At November 30, 1998, these securities were segregated to cover delayed
delivery purchases.
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1998
(Unaudited)
ASSETS
Investments in securities, at market value
(identified cost of $66,917) $ 76,020
Cash 70
Receivables:
Capital shares sold 34
Dividends and interest 449
-----------
Total assets 76,573
-----------
LIABILITIES
Securities purchased 1,203
Capital shares redeemed 49
USAA Investment Management Company 23
USAA Transfer Agency Company 19
Accounts payable and accrued expenses 16
-----------
Total liabilities 1,310
-----------
Net assets applicable to capital shares outstanding $ 75,263
===========
REPRESENTED BY:
Paid-in capital $ 69,084
Accumulated undistributed net investment income 247
Accumulated net realized loss on investments (3,171)
Net unrealized appreciation of investments 9,103
-----------
Net assets applicable to capital shares outstanding $ 75,263
===========
Capital shares outstanding, unlimited number of shares
authorized, no par value 5,844
===========
Net asset value, redemption price, and offering price per share $ 12.88
===========
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1998
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $2):
Dividends $ 367
Interest 922
-----------
Total income 1,289
-----------
Expenses:
Management fees 266
Transfer agent's fees 110
Custodian's fees 32
Postage 6
Shareholder reporting fees 3
Trustees' fees 2
Registration fees 36
Professional fees 12
Other 4
-----------
Total expenses before reimbursement 471
Expenses reimbursed (23)
-----------
Total expenses after reimbursement 448
-----------
Net investment income 841
-----------
Net realized and unrealized gain (loss) on investments:
Net realized loss on investments (3,166)
Change in net unrealized appreciation/depreciation
of investments 1,028
-----------
Net realized and unrealized loss (2,138)
-----------
Decrease in net assets resulting from operations $(1,297)
============
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1998
and Year ended May 31, 1998
(Unaudited)
11/30/98 5/31/98
------------------------
From operations:
Net investment income $ 841 $ 1,370
Net realized gain (loss) on investments (3,166) 1,470
Change in net unrealized appreciation/
depreciation of investments 1,028 4,029
------------------------
Increase (decrease) in net assets resulting
from operations (1,297) 6,869
------------------------
Distributions to shareholders from:
Net investment income (931) (1,217)
------------------------
Net realized gains (905) (949)
------------------------
From capital share transactions:
Proceeds from shares sold 19,054 44,462
Shares issued for dividends reinvested 1,794 2,019
Cost of shares redeemed (12,498) (15,739)
------------------------
Increase in net assets from capital share
transactions 8,350 30,742
------------------------
Net increase in net assets 5,217 35,445
Net assets:
Beginning of period 70,046 34,601
------------------------
End of period $75,263 $70,046
========================
Undistributed net investment income included in
net assets:
End of period $ 247 $ 337
========================
Change in shares outstanding:
Shares sold 1,509 3,408
Shares issued for dividends reinvested 139 159
Shares redeemed (1,009) (1,219)
------------------------
Increase in shares outstanding 639 2,348
========================
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
(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 USAA
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 average of the bid and asked
prices 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 Trust'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 USAA Investment Management Company (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, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($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 its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing rate
with no markup. Subject to availability under its agreement with NationsBank,
the Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's total
assets at NationsBank's borrowing rate plus a markup. The Fund had no borrowings
under either of these agreements during the six-month period ended November 30,
1998.
(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
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 1998 were
$44.9 million and $36.3 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1998, was $9.7 million and $633,000, respectively.
(5) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. 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 through October 1, 1999, and accordingly
has waived a portion of its management fees.
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 of $23.50 per shareholder account plus
out-of-pocket expenses. Effective January 1, 1999, the annual charge will be
$26.
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.
D. Brokerage Services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the six-month
period ended November 30, 1998 was $6,500.
(6) TRANSACTIONS WITH AFFILIATES
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>
Six-month Nine-month
Period Ended Period Ended
November 30, Year Ended May 31, May 31,
---------------------------------------------------------
1998 1998 1997 1996*
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 13.46 $ 12.11 $ 10.49 $ 10.00
Net investment income .15 .35 .33 .26(b)
Net realized and
unrealized gain (loss) (.40) 1.64 1.65 .37
Distributions from net
investment income (.17) (.35) (.33) (.14)
Distributions of realized
capital gains (.16) (.29) (.03) -
---------------------------------------------------------
Net asset value at
end of period $ 12.88 $ 13.46 $ 12.11 $ 10.49
=========================================================
Total return (%) ** (1.83) 16.82 19.26 6.37
Net assets at end
of period (000) $75,263 $70,046 $34,601 $19,258
Ratio of expenses to
average net assets (%) 1.25(a) 1.25 1.25 1.25(a)
Ratio of expenses to
average net assets
excluding reimbursements (%) 1.33(a) 1.31 1.39 2.00(a)
Ratio of net investment income
to average net assets (%) 2.37(a) 2.85 3.16 3.31(a)
Portfolio turnover (%) 52.63 22.18 28.06 26.53
</TABLE>
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
TRUSTEES
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:30 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
