Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Shareholder Voting Results 8
Financial Information
Portfolio of Investments 9
Notes to Portfolio of Investments 14
Statement of Assets and Liabilities 15
Statement of Operations 16
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
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)2000, 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 Very high $3,000
First Start Growth Moderate to high $3,000
Gold Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International Moderate to high $3,000
S&P 500(Registered
Trademark) Index Moderate $3,000
Science & Technology Very high $3,000
Small Cap Stock Very high $3,000
World Growth Moderate to high $3,000
- -----------------------------------------------------------
ASSET ALLOCATION
- -----------------------------------------------------------
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate $3,000
Growth and Tax
Strategy Moderate $3,000
Growth Strategy Moderate to high $3,000
Income Strategy Low to moderate $3,000
- -----------------------------------------------------------
INCOME - TAXABLE
- -----------------------------------------------------------
GNMA Low to moderate $3,000
High-Yield
Opportunities High $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Intermediate-Term
Bond Low to moderate $3,000
Short-Term Bond Low $3,000
- -----------------------------------------------------------
INCOME - TAX EXEMPT
- -----------------------------------------------------------
Long-Term Moderate $3,000
Intermediate-Term Low to moderate $3,000
Short-Term Low $3,000
State Bond Income Moderate $3,000
- -----------------------------------------------------------
MONEY MARKET
- -----------------------------------------------------------
Money Market Very low $3,000
Tax Exempt
Money Market Very low $3,000
Treasury Money
Market Trust Very low $3,000
State Money Market Very low $3,000
- -----------------------------------------------------------
Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
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.
Some income may be subject to state or local taxes or the federal alternative
minimum tax.
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.
The Science & Technology 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.
Nondeposit investment products are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, USAA Federal Savings Bank, are subject
to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating 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.]
As I write this message, I am also in the process of preparing to lead a panel
on personal finance at the Greater San Antonio Chamber of Commerce's annual
conference on economic development. As we enter 2000, I have asked my fellow
panelists to look back to what they consider to be the key lessons they have
learned in careers that all span at least 25 years in investments.
The incident and the person I have chosen is the visit of a well-known equity
strategist from one of the major investment bankers to San Antonio in the spring
of 1982. I should remind you what the spring of 1982 was like. The market had
not yet shaken off the effects of repeated, arbitrary increases in the price of
oil; the roaring inflation which followed; and the highest U.S. interest rates
since the Civil War. Stocks and bonds had not yet come off their worst
performance since World War II. Against this backdrop, that well-known equity
strategist delivered a magnificent after-dinner presentation. He plucked facts
and figures from a wide variety of sources and wove them into a compelling
argument. His conclusion was clear: "Stay out of this market!" He was brilliant.
He was dead wrong. That summer saw the beginning of the greatest bull market for
both stocks and bonds in U.S. history.
This incident has greatly influenced my thinking and my career. It taught me
these things:
- It is best to base investment strategy on something other than a
forecast of the market.
- If you insist on forecasting the market, it doesn't help to make the
little calls. You absolutely must be right at times like spring of
1982.
- If you use an asset allocation approach to investing, your chances of
being in at a major turning point are 100%.
That is why I believe in the asset allocation approach of our strategy funds.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Past performance is no guarantee of future results.
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call for a prospectus. Read it carefully before investing.
Investment Review
USAA BALANCED STRATEGY FUND
OBJECTIVE: 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.
TYPES OF INVESTMENTS: Invests principally in stocks, bonds, and money market
instruments.
- --------------------------------------------------------------------------------
11/30/99 5/31/99
- --------------------------------------------------------------------------------
Net Assets $116.5 Million $95.8 Million
Net Asset Value Per Share $15.01 $14.02
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 11/30/99
- --------------------------------------------------------------------------------
5/31/99 to 11/30/99(+) 1 Year Since Inception on 9/1/95
7.97% 18.38% 13.64%
- --------------------------------------------------------------------------------
(+) 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 gains distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gains 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 11/30/99. 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 10,514 10,382
05/31/96 10,637 12,117 11,186 10,262
11/30/96 11,734 13,858 12,264 11,012
05/31/97 12,686 15,684 13,032 11,115
11/30/97 13,823 17,809 14,355 11,844
05/31/98 14,820 20,493 15,629 12,328
11/30/98 14,548 22,026 16,066 12,963
05/31/99 15,950 24,803 17,112 12,865
11/30/99 17,222 26,628 17,479 12,958
Data since inception on 09/01/95 through 11/30/99
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 weighted 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, Pamela Bledsoe Noble, CFA, (Money Market
Instruments); Patrick O'Hare, CFA, (Allocation Manager and Stocks); and Paul H.
Lundmark, CFA, (Bonds); appears here.}
FUND OVERVIEW
Strength in the domestic economy -- as well as a recovery in overseas economies
- -- prompted the Federal Reserve (the Fed) to raise interest rates three times
during the six-month period ending November 30, 1999. These rate hikes erased
the cuts the Fed had made in 1998 when the financial markets were in turmoil.
During the same period, we decreased the amount invested in equities and
increased the amount of cash. As of November 30, 1999, the percentage invested
in stocks was 62.8% compared to 67.2% at the start of the six-month period. Cash
was 5.2% of the Fund as of November 30, 1999, compared to 1.7% at the beginning
of the period.
There were two primary reasons to increase the amount invested in money market
instruments. First, the Fed was raising interest rates. We felt that higher
interest rates would cause financial markets to become more volatile and that
cash would cushion any downdraft. Second, as we approached the end of the year,
we wanted to be prepared for any increase in redemptions resulting from Y2K
concerns.
STOCKS
With the backdrop of higher rates, most stocks had a difficult time during the
six-month period ending November 30, 1999. In fact, only the technology and
communications sectors outperformed the S&P 500 during the period. Seven of the
11 sectors comprising the S&P 500 actually had negative returns during the
period.
The equity portion of the portfolio performed well as a result of being
overweighted in technology. In particular, the Fund was helped by owning Oracle,
Applied Materials, Texas Instruments, Cisco Systems, BMC Software, Intel,
America Online, Dell Computer, and Microsoft. Selected health care names
performed well, especially Bristol-Myers Squibb, Medtronic, and Schering-Plough.
The Fund also benefited from owning Home Depot, Wal-Mart, and Dayton Hudson. The
Fund's position in Sprint Corporation performed well as the company agreed to be
purchased by MCI Worldcom. Other stocks performing well during the period were
Morgan Stanley Dean Witter & Co., Citigroup, and General Electric.
The Fund was hurt by its position in energy stocks -- in particular, Unocal,
Schlumberger, and Texaco. Several capital goods stocks also performed poorly
including Caterpillar, Tyco International, Emerson Electric, United
Technologies, and Boeing. Certain financial stocks performed poorly in reaction
to the Fed raising rates -- in particular, Freddie Mac and Bank of America.
Other stocks that hurt the Fund were Lear, Ford, CVS Corp., Time Warner, and Du
Pont.
MONEY MARKET INSTRUMENTS
Money market instruments are used in the Fund 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.
BONDS
We manage the bond sector so that income is the primary component of total
return. Since the last report, interest rates have continued to rise. Investors
fear that the economy is growing too fast to contain inflation. The Fed has
raised the federal funds rate by 0.75% since May, trying to slow the economy.
However, investors feel that more increases may be necessary. Because of our
income orientation, we have favored investments in higher-yielding instruments
- -- such as corporate bonds and mortgage- and asset-backed securities rather than
Treasury securities. This investment style resulted in the bond sector
outperforming intermediate- and long-term Treasuries since the last report.
Within the Fund's bond portion, the best-performing holdings, as a sector, were
the collateralized mortgage obligations (CMOs). The types of CMOs we own are
defensive in nature and will usually outperform most other debt securities in a
rising interest rate environment. Other good performers were AT&T Capital
Corporation and Corporacion Andina DeFomento. Our investments in Great Atlantic
& Pacific Tea, Waste Management, Macsaver Financial Services, and Nationwide
Health Properties underperformed. We continue to hold these securities because
they are turning around their operations and potentially have a good outlook.
OUTLOOK
Until it is clear that the Fed has stopped raising rates, we believe that the
markets will continue to trade in a narrow range. The potential for higher
interest rates combined with the possibility of redemptions from investors
nervous about Y2K makes for a particularly volatile environment. Given these
conditions, we believe having cash on hand is a prudent choice. Once we are
convinced that the change of century will not be greeted with cash outflows, and
when it seems clear that the Fed will hold interest rates steady, we will put
the cash to work.
During periods of high volatility, owning the right stocks is increasingly
important. We continue to favor technology stocks that are benefiting from
strong industry fundamentals. In particular, we believe that companies exposed
to the Internet infrastructure and to wireless communications may continue to do
well. We also continue to favor the health care area, despite the uncertainty
surrounding Medicare reform and the potential for a prescription drug benefit
for Medicare recipients. We also like stocks that could benefit from a recovery
in the global economy.
Despite the potential for higher rates, we feel that the economy is likely to
remain strong, resulting in corporate bonds and mortgage- and asset-backed
securities increasing in value relative to Treasury securities. We also believe
that trying to guess where interest rates are going is a losing bet. Rather, our
continued emphasis is on finding fixed-income securities that represent good
risk/reward characteristics.
See page 9 for a complete listing of the portfolio of investments.
- -----------------------------------
Top 10 Equity Holdings
(% of Net Assets)
- -----------------------------------
Microsoft 3.1
Oracle Corp. 2.9
General Electric 2.5
Cisco Systems 2.3
Intel 1.9
Pfizer 1.9
American International Group 1.9
Coca-Cola 1.9
Freddie Mac 1.5
Sprint Corp. 1.4
- -----------------------------------
ASSET ALLOCATION
11/30/99
A pie chart is shown here depicting the Asset Allocation as of November 30, 1999
of the USAA Balanced Strategy Fund to be:
Stocks - 62.8%; Bonds - 31.4%; and Money Market Instruments - 5.2%.
Percentages are of the net assets in the portfolio and may or may not equal
100%.
See page 9 for a complete listing of the portfolio of investments.
Shareholder Voting Results
On October 15, 1999, a special meeting of shareholders was held to vote on the
following proposals. All proposals were approved by the shareholders. All
shareholders of record on August 19, 1999, were entitled to vote on each
proposal. The number of votes shown below are for the entire series of the USAA
Investment Trust (the Trust) for proposals 1 and 2.
1 Proposal to elect Trustees as follows:
TRUSTEES VOTES FOR VOTES WITHHELD
Robert G. Davis 181,888,787 2,690,901
Michael J.C. Roth 181,881,641 2,698,047
David G. Peebles 181,888,787 2,690,901
Robert L. Mason 181,888,787 2,690,901
Michael F. Reimherr 181,883,427 2,696,261
Richard A. Zucker 181,875,813 2,696,966
Barbara B. Dreeben 181,883,427 2,696,261
John W. Saunders, Jr. and Howard L. Freeman, Jr. did not stand for reelection to
the Board. Their term of office will terminate on December 31, 1999.
2 Proposal to ratify the selection by the Board of Trustees of KPMG LLP as
auditors for the Trust for the fiscal year ending May 31, 2000.
NUMBER OF SHARES VOTING
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
179,181,697 2,930,888 2,467,103
USAA BALANCED STRATEGY FUND
PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (62.8%)
Advertising/Marketing (1.1%)
14,000 Omnicom Group, Inc. $ 1,234
- --------------------------------------------------------------------------------
Aerospace/Defense (0.5%)
13,200 Boeing Co. 539
- --------------------------------------------------------------------------------
Automobiles (0.6%)
13,500 Ford Motor Co. 682
- --------------------------------------------------------------------------------
Auto Parts (0.4%)
14,600 Lear Corp.* 483
- --------------------------------------------------------------------------------
Banks - Major Regional (1.7%)
20,100 Mellon Financial Corp. 732
17,500 State Street Corp. 1,285
- --------------------------------------------------------------------------------
2,017
- --------------------------------------------------------------------------------
Banks - Money Center (1.1%)
11,513 Bank of America Corp. 674
5,000 J. P. Morgan & Co., Inc. 657
- --------------------------------------------------------------------------------
1,331
- --------------------------------------------------------------------------------
Beverages - Alcoholic (0.5%)
7,500 Anheuser-Busch Companies, Inc. 561
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (2.1%)
32,000 Coca-Cola Co. 2,154
8,700 PepsiCo, Inc. 301
- --------------------------------------------------------------------------------
2,455
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV (0.8%)
17,400 CBS Corp.* 905
- --------------------------------------------------------------------------------
Chemicals (1.5%)
6,100 Dow Chemical Co. 715
17,400 Du Pont (E. I.) De Nemours & Co. 1,034
- --------------------------------------------------------------------------------
1,749
- --------------------------------------------------------------------------------
Communication Equipment (1.3%)
20,928 Lucent Technologies, Inc. 1,529
- --------------------------------------------------------------------------------
Computer - Hardware (3.1%)
27,900 Dell Computer Corp.* 1,200
8,400 Hewlett-Packard Co. 797
11,500 IBM Corp. 1,185
3,300 Sun Microsystems, Inc.* 436
- --------------------------------------------------------------------------------
3,618
- --------------------------------------------------------------------------------
Computer - Networking (2.3%)
30,000 Cisco Systems, Inc.* 2,676
- --------------------------------------------------------------------------------
Computer - Peripherals (0.3%)
4,700 EMC Corp.* 393
- --------------------------------------------------------------------------------
Computer Software & Service (7.4%)
13,400 America Online, Inc.* 974
10,800 BMC Software, Inc.* 786
39,000 Microsoft Corp.* 3,551
49,200 Oracle Corp.* 3,337
- --------------------------------------------------------------------------------
8,648
- --------------------------------------------------------------------------------
Drugs (3.1%)
60,300 Pfizer, Inc. 2,182
28,700 Schering-Plough Corp. 1,467
- --------------------------------------------------------------------------------
3,649
- --------------------------------------------------------------------------------
Electrical Equipment (3.0%)
10,800 Emerson Electric Co. 616
22,000 General Electric Co. 2,860
- --------------------------------------------------------------------------------
3,476
- --------------------------------------------------------------------------------
Electronics - Semiconductors (2.9%)
28,700 Intel Corp. 2,201
12,800 Texas Instruments, Inc. 1,229
- --------------------------------------------------------------------------------
3,430
- --------------------------------------------------------------------------------
Entertainment (1.1%)
21,200 Time Warner, Inc. 1,308
- --------------------------------------------------------------------------------
Equipment - Semiconductors (0.2%)
1,900 Applied Materials, Inc.* 185
- --------------------------------------------------------------------------------
Finance - Diversified (4.5%)
5,500 American Express Co. 832
24,000 Citigroup, Inc. 1,293
34,700 Freddie Mac 1,713
11,200 Morgan Stanley Dean Witter & Co.* 1,351
- --------------------------------------------------------------------------------
5,189
- --------------------------------------------------------------------------------
Foods (0.4%)
13,800 Nabisco Holdings Corp. 460
- --------------------------------------------------------------------------------
Health Care - Diversified (2.6%)
20,400 Bristol-Myers Squibb Co. 1,490
14,900 Johnson & Johnson, Inc. 1,546
- --------------------------------------------------------------------------------
3,036
- --------------------------------------------------------------------------------
Household Products (2.0%)
24,800 Colgate-Palmolive Co. 1,361
8,500 Procter & Gamble Co. 918
- --------------------------------------------------------------------------------
2,279
- --------------------------------------------------------------------------------
Insurance - Multi-Line Companies (1.9%)
21,000 American International Group, Inc. 2,168
- --------------------------------------------------------------------------------
Machinery - Diversified (0.2%)
5,400 Caterpillar, Inc. 250
- --------------------------------------------------------------------------------
Manufacturing - Diversified Industries (1.3%)
18,600 Tyco International Ltd. 745
13,200 United Technologies Corp. 746
- --------------------------------------------------------------------------------
1,491
- --------------------------------------------------------------------------------
Medical Products & Supplies (1.8%)
26,700 Becton, Dickinson & Co. 728
13,300 Guidant Corp. * 665
18,200 Medtronic, Inc. 707
- --------------------------------------------------------------------------------
2,100
- --------------------------------------------------------------------------------
Oil - International Integrated (2.7%)
13,500 Exxon Corp. 1,071
6,300 Mobil Corp. 657
12,500 Royal Dutch Petroleum Co. 725
12,000 Texaco, Inc. 731
- --------------------------------------------------------------------------------
3,184
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.6%)
12,000 Schlumberger Ltd. 721
- --------------------------------------------------------------------------------
Oil & Gas - Exploration & Production (0.3%)
8,800 Unocal Corp. 292
- --------------------------------------------------------------------------------
Paper & Forest Products (0.3%)
6,800 International Paper Co. 355
- --------------------------------------------------------------------------------
Retail - Building Supplies (0.8%)
11,100 Home Depot, Inc. 878
- --------------------------------------------------------------------------------
Retail - Drugs (0.5%)
15,400 CVS Corp. 611
- --------------------------------------------------------------------------------
Retail - General Merchandising (2.7%)
21,300 Dayton Hudson Corp. 1,503
28,200 Wal-Mart Stores, Inc. 1,625
- --------------------------------------------------------------------------------
3,128
- --------------------------------------------------------------------------------
Retail - Specialty Apparel (0.3%)
9,000 Gap, Inc. 364
- --------------------------------------------------------------------------------
Telecommunications - Long Distance (2.9%)
18,800 AT&T Corp. 1,051
8,700 MCI WorldCom, Inc.* 719
23,700 Sprint Corp. 1,644
- --------------------------------------------------------------------------------
3,414
- --------------------------------------------------------------------------------
Telephones (2.0%)
15,900 Bell Atlantic Corp. 1,007
25,517 SBC Communications Corp. 1,325
- --------------------------------------------------------------------------------
2,332
- --------------------------------------------------------------------------------
Total common stocks (cost: $52,307) 73,120
- --------------------------------------------------------------------------------
Principal
Amount Coupon
(000) Rate Maturity
- -----------------------------------------------------------------------
BONDS (31.4%)
$1,000 AT & T Capital Corp. 6.88% 1/16/2001 1,002
1,000 Capital One Financial Corp. 7.25 5/01/2006 960
1,000 Corporacion Andina De Fomento
(Venezuela) (b) 7.38 7/21/2000 1,005
1,000 Cummins Engine Co., Inc. 6.45 3/01/2005 946
1,000 Empire District Electric Co. 7.70 11/15/2004 999
2,000 First Union Commercial Mortgage Trust II 6.60 5/18/2007 1,935
1,000 First Union Corp. 6.82 8/01/2026 975
1,000 FirstPlus Home Loan Owner Trust,
Series 1998-1, Class A-5 6.25 11/10/2016 989
1,000 Glenborough Property, L.P. 7.63 3/15/2005 889
1,000 Great Atlantic & Pacific Tea, Inc. (b) 7.70 1/15/2004 955
1,000 Heller Financial, Inc. 6.00 3/19/2004 957
1,000 HRPT Properties Trust 6.70 2/23/2005 925
1,000 Imperial Bank 8.50 4/01/2009 948
1,000 J. P. Morgan & Co., Inc. 5.75 2/25/2004 958
900 Kmart Corp. 7.95 2/01/2023 797
1,000 MacSaver Financial Services, Inc. 7.40 2/15/2002 680
1,000 MCI Communications Corp. 6.95 8/15/2006 991
1,000 Merita Bank Ltd. (Finland) 6.50 1/15/2006 950
1,000 Merrill Lynch & Co., Inc. 6.50 7/15/2018 893
1,000 Nationwide Health Property, Inc. (b) 7.25 4/01/2002 953
1,000 Osprey Trust, Osprey I, Inc. (c) 8.31 1/15/2003 997
1,000 Popular North America, Inc. 6.63 10/27/2002 983
1,000 Reckson Operating Partnership 7.75 3/15/2009 939
1,000 Sovereign Bancorp, Inc. 10.25 5/15/2004 1,006
1,000 TriNet Corporate Realty Trust, Inc. 6.75 3/01/2013 911
1,000 Union Planters Bank National Assn. 6.50 3/15/2018 896
1,000 Washington Real Estate Investment Trust 7.25 8/13/2006 970
1,000 Waste Management, Inc. (b) 6.38 12/01/2003 883
1,000 Federal Home Loan Bank 5.43 9/24/2008 912
728 Federal Home Loan Mortgage Corp.,
Series 1998-7 H 9.00 3/18/2025 765
493 Federal National Mortgage Assn.,
Series 1997-72 CA 9.50 9/18/2023 514
448 Federal National Mortgage Assn.,
Series 1997-72 CB 9.00 9/18/2023 463
1,136 Federal National Mortgage Assn.,
Series 1997-79 U 9.00 11/18/2024 1,186
595 Federal National Mortgage Assn.,
Series 1997-89 N 9.50 12/20/2022 623
2,000 Federal National Mortgage Assn.,
Series 99-25 VB 6.00 4/25/2016 1,788
1,276 Government National Mortgage Assn.I (a) 6.63 11/15/2000 1,172
1,000 Government National Mortgage Assn.,
Series 99-14 VD 6.00 3/20/2014 917
1,000 U.S. Treasury Bonds 6.25 8/15/2023 967
- --------------------------------------------------------------------------------
Total bonds (cost: $38,247) 36,599
- --------------------------------------------------------------------------------
MONEY MARKET INSTRUMENT (5.2%)
6,006 Federal Home Loan Mortgage Corp. 5.61 12/01/1999
(cost: $6,006) 6,006
- --------------------------------------------------------------------------------
Total investments (cost: $96,560) $115,725
================================================================================
USAA BALANCED STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1999
(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 2.9% of net assets at November 30, 1999.
SPECIFIC NOTES
(a) At November 30, 1999, the cost of securities purchased on a delayed-delivery
basis was $0.09 million.
(b) At November 30, 1999, these securities were segregated to cover
delayed-delivery purchases.
(c) These securities are exempt from registration under the Securities Act of
1933 and have been determined to be liquid by management. Any resale of these
securities may occur in an exempt transaction in the United States to a
qualified institutional buyer as defined by Rule 144A. These securities
represented 0.86% of net assets.
* Non-income producing securities.
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1999
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $96,560) $115,725
Cash 42
Receivables:
Capital shares sold 337
Dividends and interest 638
--------
Total assets 116,742
--------
LIABILITIES
Securities purchased 93
Capital shares redeemed 43
USAA Investment Management Company 71
USAA Transfer Agency Company 30
Accounts payable and accrued expenses 39
--------
Total liabilities 276
--------
Net assets applicable to capital shares outstanding $116,466
========
REPRESENTED BY:
Paid-in capital $ 96,374
Accumulated undistributed net investment income 359
Accumulated net realized gain on investments 568
Net unrealized appreciation of investments 19,165
--------
Net assets applicable to capital shares outstanding $116,466
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 7,758
========
Net asset value, redemption price, and offering price per share $ 15.01
========
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1999
(Unaudited)
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $8) $ 360
Interest 1,258
--------
Total income 1,618
--------
Expenses:
Management fees 397
Transfer agent's fees 169
Custodian's fees 33
Postage 25
Shareholder reporting fees 2
Trustees' fees 2
Registration fees 25
Professional fees 16
Other 3
--------
Total expenses 672
--------
Net investment income 946
--------
Net realized and unrealized gain on investments:
Net realized gain on investments 2,068
Change in net unrealized appreciation/depreciation of investments 5,084
--------
Net realized and unrealized gain 7,152
--------
Increase in net assets resulting from operations $ 8,098
========
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1999,
and year ended May 31, 1999
(Unaudited)
11/30/99 5/31/99
-----------------------
From operations:
Net investment income $ 946 $ 1,473
Net realized gain (loss) on investments 2,068 (1,495)
Change in net unrealized appreciation/depreciation
of investments 5,084 6,006
-----------------------
Increase in net assets resulting from operations 8,098 5,984
-----------------------
Distributions to shareholders from:
Net investment income (867) (1,530)
-----------------------
Net realized gains - (905)
-----------------------
From capital share transactions:
Proceeds from shares sold 23,426 43,457
Shares issued for dividends reinvested 849 2,383
Cost of shares redeemed (10,795) (23,680)
-----------------------
Increase in net assets from capital
share transactions 13,480 22,160
-----------------------
Net increase in net assets 20,711 25,709
Net assets:
Beginning of period 95,755 70,046
-----------------------
End of period $116,466 $ 95,755
=======================
Undistributed net investment income included
in net assets:
End of period $ 359 $ 280
=======================
Change in shares outstanding:
Shares sold 1,618 3,261
Shares issued for dividends reinvested 60 182
Shares redeemed (748) (1,820)
-----------------------
Increase in shares outstanding 930 1,623
=======================
See accompanying notes to financial statements.
USAA BALANCED STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1999
(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 last quoted sale price, or the most recently
determined closing price calculated according to local market convention
available at the time the Fund is valued. If no sale is reported, the average of
the bid and asked prices is generally used.
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 that 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 three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($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 both agreements 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
Bank of America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. The Fund had no borrowings under either of these agreements during the
six-month period ended November 30, 1999.
(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. At May 31, 1999, the Fund had capital loss carryovers for federal
income tax purposes of approximately $1.4 million which, if not offset by
subsequent capital gains, will expire in 2007. It is unlikely that the Trust's
Board of Trustees will authorize a distribution of capital gains realized in the
future until the capital loss carryovers have been utilized or expire.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the period ended November 30, 1999, were $36.5
million and $27.8 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1999, were $21.3 million and $2.1 million, 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, 2000.
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 $26 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.
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, 1999, was $5,247.
(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) YEAR 2000
Like other mutual funds, the Fund could be adversely affected if the computer
systems used by the Manager and the Fund's other service providers are not able
to perform their intended functions effectively after 1999 because of the
inability of computer software to distinguish the year 2000 from the year 1900.
The Manager has taken steps to address this potential year 2000 problem with
respect to the computer systems that they use and to obtain satisfactory
assurances that the comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund from this
problem.
(8) 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,
------------------------------------------------------------
1999 1999 1998 1997 1996*
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 14.02 $ 13.46 $ 12.11 $ 10.49 $ 10.00
Net investment income .19 .25 .35 .33 .26(b)
Net realized and
unrealized gain .92 .74 1.64 1.65 .37
Distributions from net
investment income (.12) (.27) (.35) (.33) (.14)
Distributions of realized
capital gains - (.16) (.29) (.03) -
------------------------------------------------------------
Net asset value at
end of period $ 15.01 $ 14.02 $ 13.46 $ 12.11 $ 10.49
============================================================
Total return (%) ** 18.38 7.63 16.82 19.26 6.37
Net assets at end of
period (000) $116,466 $ 95,755 $ 70,046 $ 34,601 $ 19,258
Ratio of expenses to
average net assets (%) 1.25(a) 1.25 1.25 1.25 1.25(a)
Ratio of expenses to
average net assets
excluding
reimbursements (%) - 1.31 1.31 1.39 2.00(a)
Ratio of net investment
income to average net
assets (%) 1.78(a) 1.88 2.85 3.16 3.31(a)
Portfolio turnover (%) 27.12 63.39 22.18 28.06 26.53
</TABLE>
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income and capital gains 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
Legal Counsel
Goodwin Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Independent Auditors
KPMG LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
Internet Access
usaa.com(Service Mark)
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 USAA TouchLine (Registered Trademark)
(from touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777, (in San Antonio) 498-8777
