UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4019
Exact name of registrant as specified in charter: USAA INVESTMENT TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: MARK S. HOWARD
USAA INVESTMENT TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
USAA BALANCED STRATEGY FUND - SEMIANNUAL REPORT FOR PERIOD ENDING
NOVEMBER 30, 2003
[LOGO OF USAA]
USAA(R)
USAA BALANCED
STRATEGY Fund
[GRAPHIC OF USAA BALANCED STRATEGY FUND]
S e m i a n n u a l R e p o r t
- --------------------------------------------------------------------------------
NOVEMBER 30, 2003
(C)2004, USAA. All rights reserved.
Table of CONTENTS
- --------------------------------------------------------------------------------
MESSAGE FROM THE PRESIDENT 2
INVESTMENT OVERVIEW & MANAGERS' COMMENTARY 5
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 29
Financial Statements 33
Notes to Financial Statements 36
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2004, USAA. All rights reserved.
2
M E S S A G E
==============------------------------------------------------------------------
from the PRESIDENT
"
WE MAY NOT HAVE REACHED THE PEAK
OF THE CURRENT CYCLICAL BULL MARKET,
[PHOTO OF CHRISTOPHER W. CLAUS] BUT WE HAVE SEEN A REMARKABLE
RUN-UP IN STOCK PRICES.
"
- --------------------------------------------------------------------------------
Economic reports confirm that the U.S. and global economies
began a robust expansion early in the autumn of 2003. We are
finally seeing the results of the fiscal and monetary policies
that were implemented to stimulate economic growth. The economy
is benefiting from the lowest short-term interest rates in
decades, reduced marginal tax rates, and increased government
spending. Productivity has increased to its highest level in
20 years, and corporate America is starting once again to
invest in capital goods and to add employees to its payrolls.
Finally, American goods and services are more competitive in
global markets because foreign currencies have gained strength
over the U.S. dollar.
All of these positive developments have translated into the
growth of the gross domestic product (GDP) and improved
corporate profitability, both of which have significantly
driven up stock prices. So we're left with the obvious
question: Can the economy keep growing fast enough and long
enough to support existing equity valuations and to provide for
higher stock prices?
While no one can predict what will happen, we do believe that
market volatility will remain the norm rather than the
exception. We may not have reached the peak of the current
cyclical bull market, but we have seen a remarkable run-up in
stock prices. Consequently, we would not be surprised to see
some form of
3
. . . C O N T I N U E D
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consolidation before stocks try to break through resistance
levels - assuming, of course, that the economy keeps growing,
more new jobs are created, corporate profitability continues to
improve, and short-term rates (which are expected to increase
in 2004) do not spike dramatically.
Whatever happens, the most effective strategy in any market
cycle is a well-thought-out investment plan that incorporates
asset allocation, diversification, and a true understanding of
your personal tolerance for risk - all matched to your
investment goals.
At USAA, we remain committed to helping you with your goals.
We will continue to provide you with outstanding resources - a
market-tested portfolio management team, world-class service,
and no-load mutual funds without excessive fees, sales loads,
or contractual plans.
For all of us here at USAA, I would like to thank you for your
business.
Sincerely,
/s/ Christopher W. Claus
Christopher W. Claus
President and Vice Chairman of the Board
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FOR MORE COMPLETE INFORMATION ABOUT USAA MUTUAL FUNDS,
INCLUDING CHARGES AND OPERATING EXPENSES, REQUEST A PROSPECTUS
FROM USAA INVESTMENT MANAGEMENT COMPANY (USAA). READ IT
CAREFULLY BEFORE YOU INVEST.
MUTUAL FUND OPERATING EXPENSES APPLY AND CONTINUE THROUGHOUT
THE LIFE OF THE FUND.
5
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
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
- --------------------------------------------------------------------------------
Using preset target ranges, the Fund's strategy is to invest
its assets in a combination of stocks on the one hand and bonds
and money market instruments on the other.
- --------------------------------------------------------------------------------
11/30/03 5/31/03
- --------------------------------------------------------------------------------
Net Assets $433.3 Million $350.8 Million
Net Asset Value Per Share $14.32 $13.35
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/03
- --------------------------------------------------------------------------------
5/31/03 TO 11/30/03* 1 YEAR 5 YEARS SINCE INCEPTION ON 9/1/95
8.19% 12.69% 6.50% 8.72%
* TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THIS
SIX-MONTH RETURN IS CUMULATIVE.
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL NET INVESTMENT INCOME DIVIDEND AND CAPITAL
GAIN DISTRIBUTIONS. NO ADJUSTMENT HAS BEEN MADE FOR TAXES
PAYABLE BY SHAREHOLDERS ON THEIR REINVESTED NET INVESTMENT
INCOME DIVIDENDS AND REALIZED 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.
6
. . . C O N T I N U E D
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OVERVIEW
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CUMULATIVE PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA
RUSSELL 3000 BALANCED LIPPER BALANCED LIPPER BALANCED LEHMAN BROTHERS U.S.
INDEX STRATEGY FUND FUNDS INDEX FUNDS AVERAGE AGGREGATE BOND INDEX
------------ ------------- --------------- --------------- --------------------
09/01/95 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
09/30/95 10387.49 10040.00 10238.83 10229.98 10097.29
10/31/95 10297.79 9870.00 10212.88 10216.12 10228.60
11/30/95 10754.50 10060.00 10530.28 10532.97 10381.87
12/31/95 10930.17 10324.29 10696.02 10687.82 10527.57
01/31/96 11247.42 10334.38 10889.09 10887.67 10597.48
02/29/96 11413.33 10304.13 10894.34 10912.91 10413.27
03/31/96 11528.06 10515.68 10935.43 10948.47 10340.89
04/30/96 11746.65 10586.67 11007.82 11044.71 10282.73
05/31/96 12047.26 10637.37 11120.63 11187.90 10261.85
06/30/96 12008.36 10648.38 11157.30 11206.19 10399.66
07/31/96 11379.75 10300.92 10870.17 10897.85 10428.12
08/31/96 11724.97 10546.18 11041.82 11088.89 10410.64
09/30/96 12363.10 10975.62 11451.38 11508.38 10592.07
10/31/96 12589.10 11233.02 11693.67 11731.88 10826.70
11/30/96 13477.10 11734.44 12238.63 12267.07 11012.14
12/31/96 13314.78 11713.31 12092.06 12132.62 10909.75
01/31/97 14051.60 12004.58 12465.99 12499.24 10943.16
02/28/97 14066.96 12077.40 12512.26 12514.83 10970.38
03/31/97 13430.42 11868.62 12148.59 12145.44 10848.81
04/30/97 14091.98 12120.03 12513.80 12508.31 11011.21
05/31/97 15054.44 12685.70 13026.25 13055.55 11115.31
06/30/97 15680.29 13031.61 13458.04 13454.61 11247.24
07/31/97 16909.54 13705.37 14224.61 14231.02 11550.54
08/31/97 16223.71 13417.40 13773.71 13842.44 11452.02
09/30/97 17143.65 13854.99 14322.73 14388.42 11620.91
10/31/97 16567.81 13575.74 14061.93 14158.63 11789.50
11/30/97 17202.16 13822.77 14320.23 14412.62 11843.79
12/31/97 17546.73 13944.80 14546.47 14628.28 11963.04
01/31/98 17637.67 13922.91 14649.84 14722.20 12116.62
02/28/98 18899.38 14481.14 15231.47 15341.03 12107.49
03/31/98 19836.05 14919.09 15697.21 15780.96 12149.10
04/30/98 20031.08 14985.15 15807.16 15893.52 12212.51
05/31/98 19536.77 14820.00 15647.34 15718.73 12328.36
06/30/98 20197.37 14828.06 15935.89 15975.66 12432.91
07/31/98 19830.64 14304.70 15749.20 15768.39 12459.36
08/31/98 16792.85 12902.28 14392.39 14376.41 12662.13
09/30/98 17938.37 13113.85 15013.59 14997.42 12958.63
10/31/98 19300.01 13836.75 15575.27 15630.54 12890.11
11/30/98 20480.43 14548.35 16145.37 16241.04 12963.27
12/31/98 21782.13 15156.72 16741.02 16836.02 13002.24
01/31/99 22522.11 15701.28 17008.72 17137.15 13095.04
02/28/99 21724.36 15349.59 16599.88 16673.65 12866.45
03/31/99 22521.48 16052.52 17009.63 17088.08 12937.75
04/30/99 23538.06 16291.43 17566.78 17592.99 12978.73
05/31/99 23090.70 15950.13 17295.91 17340.05 12865.05
06/30/99 24257.61 16725.61 17774.11 17844.86 12824.07
07/31/99 23522.07 16417.15 17441.69 17491.25 12769.47
08/31/99 23254.61 16382.88 17258.68 17274.02 12762.97
09/30/99 22660.24 16120.26 17037.56 17050.48 12911.14
10/31/99 24081.63 16854.56 17530.87 17564.21 12958.78
11/30/99 24755.59 17221.71 17719.50 17795.83 12957.85
12/31/99 26335.19 18021.46 18243.80 18375.60 12895.37
01/31/00 25302.82 17549.03 17785.48 17877.76 12853.14
02/29/00 25537.35 17514.47 17742.64 17928.89 13008.59
03/31/00 27537.91 18493.42 18787.31 18936.60 13179.96
04/30/00 26567.46 17961.40 18443.01 18562.91 13142.22
05/31/00 25821.27 17649.13 18269.48 18310.80 13136.18
06/30/00 26585.78 18042.66 18561.08 18686.51 13409.48
07/31/00 26115.87 17826.03 18510.50 18634.82 13531.20
08/31/00 28052.68 18523.41 19336.74 19524.57 13727.32
09/30/00 26782.52 17900.05 18929.79 19036.03 13813.63
10/31/00 26401.18 17715.51 18913.05 18963.07 13905.04
11/30/00 23967.74 16891.25 18226.52 18187.87 14132.40
12/31/00 24370.52 17211.05 18679.53 18632.08 14394.56
01/31/01 25204.21 18484.57 19075.97 19072.00 14629.96
02/28/01 22901.35 18051.82 18335.50 18206.11 14757.41
03/31/01 21408.50 17755.71 17743.38 17553.25 14831.49
04/30/01 23125.36 18502.27 18488.02 18325.46 14769.93
05/31/01 23311.09 18950.20 18652.69 18466.44 14859.02
06/30/01 22881.26 18777.43 18366.88 18209.74 14915.17
07/31/01 22504.16 19040.49 18353.59 18183.12 15248.63
08/31/01 21175.60 18652.17 17831.27 17622.91 15423.25
09/30/01 19307.38 17464.73 16974.37 16667.39 15602.97
10/31/01 19756.59 17817.56 17258.46 17024.12 15929.47
11/30/01 21278.30 18876.02 17945.58 17728.80 15709.85
12/31/01 21578.22 19097.83 18075.00 17837.59 15610.09
01/31/02 21307.64 18925.42 17916.47 17656.14 15736.45
02/28/02 20871.92 18567.34 17794.73 17466.84 15888.95
03/31/02 21787.05 19098.35 18183.81 17846.43 15624.62
04/30/02 20644.01 18791.60 17747.44 17411.45 15927.62
05/31/02 20404.83 18938.31 17739.16 17332.04 16062.95
06/30/02 18936.00 17872.18 16982.39 16536.45 16201.84
07/31/02 17430.53 16999.38 16111.99 15733.64 16397.34
08/31/02 17512.87 17173.94 16277.29 15894.45 16674.20
09/30/02 15672.78 16406.97 15305.47 14951.59 16944.24
10/31/02 16920.75 16947.12 15943.47 15530.77 16867.06
11/30/02 17944.65 17689.82 16590.27 16112.32 16862.58
12/31/02 16930.14 17167.90 16143.07 15660.50 17210.89
01/31/03 16515.88 16852.01 15901.25 15428.12 17225.58
02/28/03 16244.16 16783.34 15782.00 15320.74 17463.93
03/31/03 16414.98 16837.28 15846.41 15384.13 17450.47
04/30/03 17755.40 17651.54 16703.95 16200.29 17594.46
05/31/03 18827.19 18424.40 17442.75 16933.49 17922.51
06/30/03 19081.26 18636.35 17575.01 17059.46 17886.94
07/31/03 19518.98 18733.41 17615.74 17071.99 17285.59
08/31/03 19951.53 18996.87 17913.13 17362.21 17400.36
09/30/03 19734.92 18987.33 17935.86 17361.69 17860.96
10/31/03 20929.26 19725.11 18527.60 17917.68 17694.38
11/30/03 21217.54 19933.91 18691.64 18088.05 17736.76
[END CHART]
DATA SINCE INCEPTION ON 9/1/95 THROUGH 11/30/03.
NO ADJUSTMENT HAS BEEN MADE FOR TAXES PAYABLE BY SHAREHOLDERS
ON THEIR REINVESTED NET INVESTMENT INCOME DIVIDENDS AND
REALIZED CAPITAL GAIN DISTRIBUTIONS.
7
. . . C O N T I N U E D
========================--------------------------------------------------------
The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA Balanced Strategy Fund to the following
benchmarks:
o The Russell 3000 Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization,
which represents approximately 98% of the investable U.S.
equity market.
o The Lipper Balanced Funds Index, which tracks the total
return performance of the 30 largest funds within the Lipper
Balanced Funds category.
o The Lipper Balanced Funds Average, an average of all
balanced funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
o The Lehman Brothers U.S. Aggregate Bond Index covers the
U.S. investment-grade fixed-rate bond market, including
government and credit securities, agency mortgage pass-
through securities, asset-backed securities, and commercial
mortgage-backed securities that have remaining maturities of
more than one year.
8
M A N A G E R S '
==================--------------------------------------------------------------
COMMENTARY on the Fund
MATTHEW E. MEGARGEL, CFA MARGARET "DIDI" WEINBLATT, Ph.D., CFA
Wellington Management Company, LLP USAA Investment Management Company
(Stocks) (Bonds)
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA Balanced Strategy Fund had a total return of 8.19% for
the six-month period ended November 30, 2003. This compares to
a 6.90% return for the Lipper Balanced Funds Average, 7.16% for
the Lipper Balanced Funds Index, 12.70% for the Russell 3000
Index, and (1.04)% for the Lehman Brothers U.S. Aggregate Bond
Index. Both the equity and fixed-income portions of the Fund
outperformed their respective benchmarks.
* * * * *
THE FUND'S PERFORMANCE RECEIVED AN OVERALL MORNINGSTAR
RATING(TM) OF 5 STARS IN THE MODERATE ALLOCATION FUNDS CATEGORY
(619 FUNDS IN CATEGORY) AS OF NOVEMBER 30, 2003. THE OVERALL
MORNINGSTAR RATING FOR A FUND IS DERIVED FROM A WEIGHTED
AVERAGE OF THE PERFORMANCE FIGURES ASSOCIATED WITH ITS THREE-,
FIVE-, AND 10-YEAR (IF APPLICABLE) MORNINGSTAR RATING METRICS.
With respect to the moderate allocation funds, the USAA
Balanced Strategy Fund received a Morningstar Rating of 5 stars
for the three- and five-year periods among 619 and 497 funds,
REFER TO PAGE 7 FOR BENCHMARK DEFINITIONS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FOR EACH
FUND WITH AT LEAST A THREE-YEAR HISTORY, MORNINGSTAR CALCULATES
A MORNINGSTAR RATING(TM) BASED ON A MORNINGSTAR RISK-ADJUSTED
RETURN MEASURE THAT ACCOUNTS FOR VARIATION IN A FUND'S MONTHLY
PERFORMANCE (INCLUDING THE EFFECTS OF SALES CHARGES, LOADS, AND
REDEMPTION FEES), PLACING MORE EMPHASIS ON DOWNWARD VARIATIONS
AND REWARDING CONSISTENT PERFORMANCE. THE TOP 10% OF THE FUNDS
IN EACH BROAD ASSET CLASS RECEIVE 5 STARS, THE NEXT 22.5%
RECEIVE 4 STARS, THE NEXT 35% RECEIVE 3 STARS, THE NEXT 22.5%
RECEIVE 2 STARS, AND THE BOTTOM 10% RECEIVE 1 STAR.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
respectively, through November 30, 2003. Ratings are based on
risk-adjusted returns.
The Fund also is listed as a Lipper Leader for total return
among 418 funds within the Lipper Balanced Funds category for
the three-year period ending November 30, 2003. The Fund was
rated among 355 and 114 funds in the Balanced Funds category
for the five- and 10-year periods, respectively, ending
November 30, 2003. Ratings are based on an equal-weighted
average of percentile ranks for the Total Return metrics over
three-, five-, and 10-year periods (if applicable).
[LOGO OF LIPPER LEADER]
TOTAL RETURN
HOW WERE THE FUND'S ASSETS ALLOCATED BETWEEN STOCKS AND BONDS?
The Fund began the period with 60% of net assets in stocks and
34% in bonds. We did not make any allocation shifts during the
period, but as a result of market movements, the Fund ended the
period with 64% of net assets in stocks and 31% in bonds.
WHAT FACTORS LED TO THE SOLID PERFORMANCE OF THE EQUITY PORTION?
Strong stock selection and favorable sector allocations drove
relative performance. In terms of sector allocation, the Fund
LIPPER RATINGS FOR TOTAL RETURN REFLECT FUNDS' HISTORICAL TOTAL
RETURN PERFORMANCE RELATIVE TO PEERS AS OF NOVEMBER 30, 2003.
THE RATINGS ARE SUBJECT TO CHANGE EVERY MONTH. THE HIGHEST 20%
OF FUNDS IN EACH PEER GROUP ARE NAMED LIPPER LEADERS, THE NEXT
20% RECEIVE A SCORE OF 2, THE MIDDLE 20% ARE SCORED 3, THE NEXT
20% ARE SCORED 4, AND THE LOWEST 20% ARE SCORED 5. LIPPER
RATINGS ARE NOT INTENDED TO PREDICT FUTURE RESULTS, AND LIPPER
DOES NOT GUARANTEE THE ACCURACY OF THIS INFORMATION. MORE
INFORMATION IS AVAILABLE AT WWW.LIPPERLEADERS.COM. LIPPER
LEADER COPYRIGHT 2003, REUTERS, ALL RIGHTS RESERVED.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
benefited from being overweight relative to the benchmark in
the best performing sector, information technology, and
underweight in two of the poorest performing sectors,
telecommunications and utilities.
The Fund's strongest stock selection was in information
technology, because two of the top contributors to performance,
Intel Corp. and International Rectifier Corp., benefited from
the rally in semiconductor stocks. The Fund also had good stock
selection within the financials sector, with both Citigroup,
Inc. and Merrill Lynch & Co., Inc. among the top contributors.
The Fund was held back by relatively weak stock selection in
the industrials and materials sector. On an absolute basis, the
major detractors from performance were SBC Communications, Inc.
and Wyeth. At the end of the period, the Fund continued to own
SBC Communications, Inc. based on our relatively positive view
of fundamentals and valuation, and Wyeth based on its improving
drug pipeline.
HOW WAS THE EQUITY PORTION POSITIONED AT THE END OF THE REPORTING PERIOD?
It appears that investor optimism surrounding the economy and
the equity markets has begun to consolidate. Tax cuts, a weaker
dollar, sustained productivity, and healthier balance sheets
should bode well for corporate profits. In this environment, we
have continued to enhance our cyclical posture, most notably by
adding to our overweight position in the materials sector. At
the end of the period, the largest overweights relative to the
benchmark in the equity portion of the Fund were in the
consumer discretionary, information technology, and industrials
sectors. The Fund was underweight in consumer staples,
utilities, and financials.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 14-28.
11
. . . C O N T I N U E D
========================--------------------------------------------------------
WHAT ABOUT THE BOND PORTION OF THE FUND?
While we outperformed our peer group, returns for investment-
grade bonds in general were disappointing. The yield on the
10-year Treasury reached a low of 3.1% in mid-June 2003, but
these levels proved unsustainable in light of stronger economic
data, and for the six-month period, yields on 10-year
Treasuries rose about 1%. Since bond prices fall when yields
rise, most sectors of the bond market posted negative returns
for the period.
The graph below shows the Treasury yield curve (the plot of
Treasury interest rates versus maturity) for the beginning and
end of the period.
- --------------------------------------------------------------------------------
HISTORICAL YIELD CURVE*
- --------------------------------------------------------------------------------
[CHART OF HISTORICAL YIELD CURVE*]
5/30/03 11/28/03 CHANGE
------- -------- -------
3 MONTH 1.098 0.927 -0.1707
6 MONTH 1.083 1.032 -0.0514
2 YEAR 1.322 2.044 0.7220
3 YEAR 1.565 2.547 0.9826
5 YEAR 2.289 3.354 1.0648
10 YEAR 3.370 4.332 0.9618
30 YEAR 4.376 5.131 0.7549
[END CHART]
* YIELD OF TREASURY BILLS, NOTES, AND BONDS. SOURCE:
BLOOMBERG L.P.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
HOW DID YOU MANAGE THE BOND PORTION IN THIS RISING-RATE ENVIRONMENT?
We kept the Fund's interest-rate sensitivity (or duration)
lower than that of the market, which was helpful in the
rising-rate environment. Sector allocations also proved
beneficial, with the Fund maintaining an overweight position in
corporate bonds, which posted record returns relative to
Treasury bonds. Our investments in Treasury inflation-protected
securities (TIPS) performed well given fears that economic
growth could cause inflation to rise.
WHAT WAS YOUR VIEW OF THE BOND MARKET AT THE END OF THE REPORTING PERIOD?
Interest rates on intermediate- and longer-term securities
ended the period at their highest levels of the past year,
indicating the bond market has already priced in an economic
recovery. With interest rates higher, bonds have become a much
better buy. However, since interest rates tend to rise in a
recovery, we expect to continue to keep the Fund's
interest-rate sensitivity relatively low and to look for the
best opportunities to invest in securities with defensive
characteristics. We thank you for your confidence and for the
opportunity to serve you.
13
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------
TOP 10 EQUITY HOLDINGS
(% of Net Assets)
- -------------------------------------------------
Citigroup, Inc. 2.1%
Microsoft Corp. 2.1%
Pfizer, Inc. 1.9%
General Electric Co. 1.5%
American International Group, Inc. 1.3%
Intel Corp. 1.3%
Exxon Mobil Corp. 1.2%
Merrill Lynch & Co., Inc. 1.1%
Time Warner, Inc. 1.1%
Cisco Systems, Inc. 1.0%
- -------------------------------------------------
ASSET ALLOCATION
11/30/03
[PIE CHART OF ASSET ALLOCATION]
Stocks 63.7%
Bonds 30.8%
Money Market Instruments 6.3%
[END CHART]
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON
PAGES 14-28.
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
STOCKS (63.7%)
ADVERTISING (0.9%)
51,900 Lamar Advertising Co. * $ 1,827
28,600 Omnicom Group, Inc. 2,278
--------
4,105
--------
AEROSPACE & DEFENSE (1.6%)
26,000 General Dynamics Corp. 2,103
46,700 Lockheed Martin Corp. 2,145
33,200 United Technologies Corp. 2,845
--------
7,093
--------
AIR FREIGHT & LOGISTICS (0.8%)
49,700 EGL, Inc. * 913
34,900 FedEx Corp. 2,537
--------
3,450
--------
AIRLINES (0.1%)
6,300 JetBlue Airways Corp. * 230
--------
ALUMINUM (0.8%)
108,300 Alcoa, Inc. 3,553
--------
APPAREL, ACCESSORIES, & LUXURY GOODS (0.5%)
16,200 Coach, Inc. * 645
7,500 Columbia Sportswear Co. * 445
31,800 Liz Claiborne, Inc. 1,113
--------
2,203
--------
APPAREL RETAIL (1.2%)
26,700 American Eagle Outfitters, Inc. * 492
22,300 Chico's FAS, Inc. * 856
110,800 Gap, Inc. 2,382
58,250 Pacific Sunwear of California, Inc. * 1,326
--------
5,056
--------
APPLICATION SOFTWARE (0.4%)
42,830 Cadence Design Systems, Inc. * 717
13,800 Manhattan Associates, Inc. * 420
40,300 Siebel Systems, Inc. * 531
--------
1,668
--------
15
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.9%)
31,400 Federated Investors, Inc. "B" $ 903
37,400 Legg Mason, Inc. 2,981
--------
3,884
--------
AUTO PARTS & EQUIPMENT (0.2%)
17,300 Lear Corp. 1,023
--------
BIOTECHNOLOGY (0.7%)
72,300 Albany Molecular Research, Inc. * 1,019
10,400 Genzyme Corp. * 486
97,000 Millennium Pharmaceuticals, Inc. * 1,530
--------
3,035
--------
BROADCASTING & CABLE TV (1.2%)
106,100 Comcast Corp. "A" * 3,199
59,100 EchoStar Communications Corp. "A" * 2,038
--------
5,237
--------
BUILDING PRODUCTS (0.5%)
79,000 Masco Corp. 2,149
--------
CASINOS & GAMING (0.2%)
27,000 International Game Technology, Inc. 937
--------
COMMUNICATIONS EQUIPMENT (2.5%)
41,200 Andrew Corp. * 485
99,600 Brocade Communications Systems, Inc. * 607
193,200 Cisco Systems, Inc. * 4,378
27,900 Comverse Technology, Inc. * 536
139,400 Corning, Inc. * 1,597
63,700 Motorola, Inc. 894
73,900 Polycom, Inc. * 1,465
58,500 Tekelec, Inc. * 977
--------
10,939
--------
COMPUTER HARDWARE (1.9%)
35,700 Dell, Inc. * 1,232
164,300 Hewlett-Packard Co. 3,564
39,300 IBM Corp. 3,558
--------
8,354
--------
16
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS (0.1%)
44,400 Western Digital Corp. * $ 552
--------
CONSUMER FINANCE (0.4%)
28,600 American Express Co. 1,307
38,200 Providian Financial Corp. * 432
--------
1,739
--------
DATA PROCESSING & OUTSOURCED SERVICES (0.8%)
17,300 CheckFree Corp. * 478
26,400 First Data Corp. 999
79,700 SunGard Data Systems, Inc. * 2,154
--------
3,631
--------
DEPARTMENT STORES (0.3%)
25,300 Federated Department Stores, Inc. 1,242
--------
DISTILLERS & VINTNERS (0.2%)
30,200 Constellation Brands, Inc. "A" * 1,042
--------
DIVERSIFIED BANKS (2.5%)
49,600 Bank of America Corp. 3,741
88,100 Bank One Corp. 3,820
67,100 Wachovia Corp. 3,070
--------
10,631
--------
DIVERSIFIED CHEMICALS (0.5%)
49,900 Du Pont (E.I.) De Nemours & Co. 2,069
--------
DIVERSIFIED COMMERCIAL SERVICES (0.7%)
37,400 ARAMARK Corp. "B" 1,015
48,500 ChoicePoint, Inc. * 1,855
4,500 University of Phoenix Online * 339
--------
3,209
--------
ELECTRIC UTILITIES (0.7%)
43,000 Black Hills Corp. 1,387
24,100 Exelon Corp. 1,490
--------
2,877
--------
17
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.5%)
99,600 American Power Conversion Corp. $ 2,177
--------
ELECTRONIC EQUIPMENT MANUFACTURERS (0.4%)
48,000 Waters Corp. * 1,535
--------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
65,900 Sanmina-SCI Corp. * 803
--------
ENVIRONMENTAL SERVICES (0.6%)
81,000 Waste Management, Inc. 2,382
--------
EXCHANGE-TRADED FUND (0.7%)
28,300 MidCap SPDR Trust Series 1 h 2,950
--------
GENERAL MERCHANDISE STORES (0.4%)
40,200 Target Corp. 1,557
--------
GOLD (0.1%)
11,600 Freeport-McMoRan Copper & Gold, Inc. "B" 505
--------
HEALTH CARE DISTRIBUTORS (0.5%)
35,400 Cardinal Health, Inc. 2,164
--------
HEALTH CARE EQUIPMENT (0.6%)
39,500 Diagnostic Products Corp. 1,787
17,200 Guidant Corp. 976
--------
2,763
--------
HEALTH CARE FACILITIES (0.3%)
43,000 Triad Hospitals, Inc. * 1,488
--------
HEALTH CARE SERVICES (0.9%)
23,800 Caremark Rx, Inc. * 635
25,000 Dendrite International, Inc. * 428
57,900 IMS Health, Inc. 1,333
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
13,200 Laboratory Corp. of America Holdings * $ 477
30,100 Medco Health Solutions, Inc. * 1,097
--------
3,970
--------
HEALTH CARE SUPPLIES (0.9%)
21,400 Cooper Companies, Inc. 977
53,900 Edwards Lifesciences Corp. * 1,623
28,900 Fisher Scientific International, Inc. * 1,164
--------
3,764
--------
HOME IMPROVEMENT RETAIL (1.0%)
71,800 Lowe's Companies, Inc. 4,186
--------
HOMEBUILDING (0.4%)
38,000 D.R. Horton, Inc. 1,661
--------
HOUSEHOLD PRODUCTS (0.6%)
25,400 Procter & Gamble Co. 2,444
--------
HYPERMARKETS & SUPER CENTERS (0.9%)
73,500 Wal-Mart Stores, Inc. 4,090
--------
INDUSTRIAL CONGLOMERATES (2.0%)
27,300 3M Co. 2,158
230,900 General Electric Co. 6,620
--------
8,778
--------
INSURANCE BROKERS (0.9%)
62,900 Arthur J. Gallagher & Co. 1,969
43,900 Marsh & McLennan Companies, Inc. 1,951
--------
3,920
--------
INTEGRATED OIL & GAS (1.9%)
39,712 ChevronTexaco Corp. 2,982
140,500 Exxon Mobil Corp. 5,082
--------
8,064
--------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
116,400 SBC Communications, Inc. 2,710
--------
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (1.6%)
88,800 E-Trade Group, Inc. * $ 962
12,600 Goldman Sachs Group, Inc. 1,211
83,900 Merrill Lynch & Co., Inc. 4,761
--------
6,934
--------
IT CONSULTING & OTHER SERVICES (0.5%)
88,600 Accenture Ltd. "A" (Bermuda) * 2,206
--------
MANAGED HEALTH CARE (0.5%)
9,600 Coventry Health Care, Inc. * 575
19,600 Oxford Health Plans, Inc. 859
9,200 Wellpoint Health Networks, Inc. * 860
--------
2,294
--------
METAL & GLASS CONTAINERS (0.9%)
170,700 Pactiv Corp. * 3,830
--------
MOVIES & ENTERTAINMENT (1.1%)
298,300 Time Warner, Inc. * 4,856
--------
MULTI-LINE INSURANCE (1.3%)
100,600 American International Group, Inc. 5,830
--------
OIL & GAS DRILLING (0.0%)(n)
2,800 GlobalSantaFe Corp. (Cayman Islands) 60
--------
OIL & GAS EQUIPMENT & SERVICES (0.6%)
51,600 Schlumberger Ltd. (Netherlands) 2,421
--------
OIL & GAS EXPLORATION & PRODUCTION (0.9%)
132,200 Chesapeake Energy Corp. 1,613
35,400 EOG Resources, Inc. 1,484
61,500 Swift Energy Co. * 873
--------
3,970
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (2.1%)
196,839 Citigroup, Inc. 9,259
--------
20
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEAT (0.2%)
39,100 Hain Celestial Group, Inc. * $ 902
--------
PAPER PRODUCTS (0.5%)
53,000 International Paper Co. 1,972
--------
PERSONAL PRODUCTS (0.5%)
70,300 Gillette Co. 2,371
--------
PHARMACEUTICALS (5.0%)
96,700 Abbott Laboratories 4,274
22,100 Biovail Corp. (Canada) * 414
51,500 Eli Lilly & Co. 3,531
57,900 King Pharmaceuticals, Inc. * 748
247,300 Pfizer, Inc. 8,297
11,631 Watson Pharmaceuticals, Inc. * 548
93,300 Wyeth 3,676
--------
21,488
--------
PROPERTY & CASUALTY INSURANCE (0.7%)
19,000 Ambac Financial Group, Inc. 1,306
117,100 Travelers Property Casualty Corp. "B" 1,827
--------
3,133
--------
PUBLISHING (0.5%)
24,500 Gannett Co., Inc. 2,122
--------
RAILROADS (0.7%)
46,700 CSX Corp. 1,583
64,000 Norfolk Southern Corp. 1,370
--------
2,953
--------
REGIONAL BANKS (0.2%)
18,500 Bank Hawaii Corp. 765
--------
RESTAURANTS (0.1%)
9,800 Krispy Kreme Doughnuts, Inc. * 405
--------
21
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (0.7%)
87,800 Applied Materials, Inc. * $ 2,134
7,200 Cabot Microelectronics Corp. * 382
16,200 Novellus Systems, Inc. * 709
--------
3,225
--------
SEMICONDUCTORS (3.2%)
1 Agere Systems, Inc. "B" * -
41,600 Analog Devices, Inc. 2,070
42,500 Fairchild Semiconductor International, Inc. "A" * 1,105
7,900 Integrated Circuit Systems, Inc. * 235
171,600 Intel Corp. 5,736
52,100 International Rectifier Corp. * 2,846
62,300 Texas Instruments, Inc. 1,854
--------
13,846
--------
SOFT DRINKS (1.9%)
76,600 Coca-Cola Co. 3,562
105,100 Coca-Cola Enterprises, Inc. 2,170
48,200 PepsiCo, Inc. 2,320
--------
8,052
--------
SPECIALTY STORES (1.4%)
73,400 Michaels Stores, Inc. 3,468
31,700 O'Reilly Automotive, Inc. * 1,380
43,500 PETsMART, Inc. 1,051
--------
5,899
--------
SYSTEMS SOFTWARE (2.1%)
347,200 Microsoft Corp. 8,923
--------
TECHNOLOGY DISTRIBUTORS (0.1%)
10,600 CDW Corp. 633
--------
THRIFTS & MORTGAGE FINANCE (0.7%)
29,400 Countrywide Credit Financial Corp. 3,105
--------
TOBACCO (0.7%)
54,800 Altria Group, Inc. 2,850
--------
Total stocks (cost: $243,326) 276,123
--------
22
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
BONDS (30.8%)
CORPORATE OBLIGATIONS (10.8%)
AEROSPACE & DEFENSE (0.3%)
$ 1,000 Boeing Capital Corp. 5.40% 11/30/2009 $ 1,036
----------
BREWERS (0.2%)
1,000 Miller Brewing Co. a 4.25 8/15/2008 1,007
----------
BROADCASTING & CABLE TV (0.5%)
1,000 Comcast Cable Communications, Inc. 6.88 6/15/2009 1,120
1,000 Cox Communications, Inc. 4.63 6/01/2013 958
----------
2,078
----------
CONSTRUCTION & FARM MACHINERY &
HEAVY TRUCKS (0.2%)
1,000 John Deere Capital Corp. 1.47(d) 5/20/2005 1,001
----------
CONSUMER FINANCE (1.9%)
2,000 American Express Credit Corp. 1.26(d) 9/19/2006 2,002
1,000 Ford Motor Credit Corp. 7.60 8/01/2005 1,065
1,000 General Motors Acceptance Corp. 2.41(d) 10/20/2005 1,003
2,000 Household Finance Corp. 6.38 10/15/2011 2,194
2,000 SLM Corp. 5.38 1/15/2013 2,047
----------
8,311
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.2%)
1,000 Fiserv, Inc. 4.00 4/15/2008 991
----------
DIVERSIFIED BANKS (0.8%)
2,050 First Union Corp. 6.82 8/01/2026 2,439
1,000 Imperial Bank 8.50 4/01/2009 1,194
----------
3,633
----------
ELECTRIC UTILITIES (1.9%)
2,000 El Paso Electric Co. 9.40 5/01/2011 2,334
1,000 Entergy Mississippi, Inc., First
Mortgage Bonds 5.15 2/01/2013 976
1,000 Northern States Power Co., First
Mortgage Bonds 2.88 8/01/2006 996
1,000 Pepco Holdings, Inc. 4.00 5/15/2010 960
23
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
$ 2,000 Pinnacle One Partners, L.P.(a) 8.83% 8/15/2004 $ 2,080
800 Teco Energy, Inc., Senior Notes 10.50 12/01/2007 935
----------
8,281
----------
ENVIRONMENTAL SERVICES (0.5%)
1,000 Waste Management, Inc. 6.50 11/15/2008 1,099
1,000 WMX Technologies, Inc. 7.38 8/01/2010 1,154
----------
2,253
----------
GAS UTILITIES (1.2%)
1,000 Enbridge Energy Partners, L.P. 4.75 6/01/2013 965
1,000 Entergy-Koch, L.P.(a) 3.65 8/20/2006 1,001
1,000 Peoples Energy Corp. 6.90 1/15/2011 1,141
2,000 Texas Gas Transmission Corp., LLC 4.60 6/01/2015 1,873
----------
4,980
----------
INTEGRATED OIL & GAS (0.3%)
1,000 Occidental Petroleum Corp. 5.88 1/15/2007 1,079
----------
METAL & GLASS CONTAINERS (0.3%)
1,000 Pactiv Corp. 7.20 12/15/2005 1,085
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
1,000 Devon Financing Corp., ULC 6.88 9/30/2011 1,128
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
1,000 Textron Financial Corp. 2.75 6/01/2006 991
----------
PACKAGED FOODS & MEAT (0.5%)
1,000 General Mills, Inc. 2.63 10/24/2006 986
1,000 Tyson Foods, Inc. 8.25 10/01/2011 1,196
----------
2,182
----------
PAPER PRODUCTS (0.2%)
1,000 MeadWestvaco Corp.(k) 1.75(d) 12/01/2005 1,000
----------
REAL ESTATE INVESTMENT TRUSTS (0.8%)
1,000 Nationwide Health Properties, Inc. 7.60 5/10/2007 1,092
2,000 Pan Pacific Retail Properties, Inc. 7.95 4/15/2011 2,363
----------
3,455
----------
24
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.3%)
$ 1,000 Union Planters Bank, N.A. 6.50% 3/15/2018 $ 1,076
----------
SOFT DRINKS (0.2%)
1,000 Coca-Cola HBC Finance B.V.(a) 5.13 9/17/2013 998
----------
Total corporate obligations (cost: $44,007) 46,565
----------
EURODOLLAR AND YANKEE OBLIGATIONS (1.7%)
AEROSPACE & DEFENSE (0.2%)
1,000 Bombardier, Inc.(a) 6.75 5/01/2012 1,085
----------
DIVERSIFIED BANKS (0.5%)
1,000 Bayerische Landesbank 2.60 10/16/2006 995
1,000 Nordea Bank Sweden A B(a) 5.25 11/30/2012 1,022
----------
2,017
----------
DIVERSIFIED METALS & MINING (0.5%)
2,000 Brascan Corp. 8.13 12/15/2008 2,330
----------
INDUSTRIAL CONGLOMERATES (0.2%)
1,000 Hutchison Whampoa International(a) 6.50 2/13/2013 1,027
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
1,000 Deutsche Telekom International Finance B.V. 8.25 6/15/2005 1,087
----------
Total eurodollar and yankee obligations
(cost: $6,974) 7,546
----------
ASSET-BACKED SECURITIES (4.0%)
AIRLINES (0.2%)
948 American Airlines, Pass-Through Certificates,
Series 2002-1, Class G, EETC 1.76(d) 9/23/2007 950
----------
ASSET-BACKED FINANCING (3.8%)
1,000 Capital One Bank 4.32 4/15/2009 1,017
2,000 Citibank Credit Card Issuance Trust 4.10 12/07/2006 2,051
4,000 Consumers Funding, LLC 5.43 4/20/2015 4,213
25
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
$ 1,000 DaimlerChrysler Auto Trust 2.12% 11/08/2006 $ 1,002
1,000 Detroit Edison Securitization Funding, LLC 6.42 3/01/2015 1,122
1,000 Honda Auto Receivables Owner Trust 2.14 4/23/2007 999
1,000 Oncor Electric Delivery Transition Bond Co. 2.26 2/15/2009 1,001
1,000 SLM Student Loan Trust 1.18(d) 12/15/2009 1,001
2,000 Toyota Auto Receivables Owner Trust 1.43 2/15/2006 1,999
2,000 Whole Auto Loan Trust(a) 1.99 5/15/2007 1,993
----------
16,398
----------
Total asset-backed securities (cost: $16,825) 17,348
----------
U.S. GOVERNMENT AGENCY ISSUES (11.2%)(m)
FANNIE MAE COLLATERALIZED MORTGAGE
OBLIGATIONS (1.7%) +
5,000 6.00%, 2/25/2014 - 9/25/2017 5,206
2,000 6.50%, 8/25/2016 2,100
----------
7,306
----------
FANNIE MAE DEBENTURES (1.7%) +
2,000 5.25%, 8/01/2012 2,038
5,000 5.38%, 11/15/2011 5,304
----------
7,342
----------
FREDDIE MAC COLLATERALIZED MORTGAGE
OBLIGATIONS (4.1%) +
6,673 6.00%, 2/15/2013 - 12/01/2031 7,001
10,402 6.50%, 11/15/2012 - 4/15/2018 10,770
----------
17,771
----------
FREDDIE MAC MORTGAGE-BACKED PASS-
THROUGH SECURITIES (0.6%) +
2,574 5.50%, 4/01/2033 2,591
----------
GOVERNMENT NATIONAL MORTGAGE ASSN.
COLLATERALIZED MORTGAGE OBLIGATIONS (1.1%)
1,000 6.00%, 3/20/2014 1,039
1,579 6.50%, 5/20/2014 1,611
2,000 7.00%, 11/16/2016 2,119
----------
4,769
----------
26
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSN. MORTGAGE-BACKED
PASS-THROUGH SECURITIES (1.6%)
$ 4,316 5.50%, 1/15/2033 $ 4,367
1,659 6.50%, 8/20/2031 1,745
861 7.00%, 4/15/2032 916
----------
7,028
----------
OTHER U.S. GOVERNMENT AGENCIES (0.4%)
1,905 Rowan Companies, Inc., Guaranteed Bond,
Title XI 2.80% 10/20/2013 1,813
----------
Total U.S. government agency issues
(cost: $46,976) 48,620
----------
U.S. TREASURY SECURITY (1.7%)
INFLATION-INDEXED NOTE(f)
6,383 3.50%, 1/15/2011 (cost: $6,517) 7,132
----------
OTHER MORTGAGE-BACKED SECURITIES (0.5%)
COMMERICAL MORTGAGE-BACKED SECURITIES
1,000 Credit Suisse First Boston Mortgage
Securities Corp. 7.17 5/17/2040 1,055
981 LB Commercial Conduit Mortgage Trust 7.68 9/25/2025 1,026
----------
Total other mortgage securities (cost: $2,122) 2,081
----------
INTEREST-ONLY COMMERCIAL
MORTGAGE-BACKED SECURITY (0.2%)(g)
COMMERICAL MORTGAGE-BACKED SECURITY
10,000 Greenwich Capital Commercial Funding
Corp. (a,b) (cost: $974) 2.29 1/11/2035 991
----------
MUNICIPAL BONDS (0.7%)
ELECTRIC UTILITIES (0.3%)
1,000 Ohio Edison Co., Water
Development Auth. RB (c) 2.25 6/01/2033 1,001
----------
ENVIRONMENTAL SERVICES (0.2%)
1,000 California State Financing Auth. PCRB(c,k) 2.00 12/01/2033 1,000
----------
27
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
SPECIAL ASSESSMENT/TAX/FEE (0.2%)
$ 1,000 Virginia Short Pump Town Center Community
Development Auth. RB(a) 4.85% 2/01/2006 $ 994
----------
Total municipal bonds (cost: $3,000) 2,995
----------
Total bonds (cost: $127,395) 133,278
----------
NUMBER
OF SHARES
- ----------
MONEY MARKET INSTRUMENTS (6.3%)
MONEY MARKET FUNDS (1.8%)
-------------------------
1,331,780 AIM Short-Term Investment Co.
Liquid Assets Portfolio(i) 1.02(j) 1,332
1,423,488 Merrill Lynch Premier Institutional Fund(i) 1.04(j) 1,424
38,315 SSgA Money Market Fund .72(j) 38
4,838,934 SSgA Prime Money Market Fund .92(j) 4,839
----------
7,633
----------
PRINCIPAL
AMOUNT
(000)
- ----------
VARIABLE-RATE DEMAND NOTES (2.1%)(e)
---------------------------------
HEALTH CARE FACILITIES (0.7%)
$ 3,215 Vista Funding Corp. (LOC) 2.12 6/01/2025 3,215
----------
PACKAGED FOODS & MEAT (0.5%)
2,000 Atlanta Bread Co. International, Inc. (LOC) 1.17 9/01/2023 2,000
----------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.9%)
1,925 145 Associates Ltd., Series 2000 (LOC) 2.12 10/01/2020 1,925
2,000 CAH Holdings, Inc. (LOC) 1.32 8/01/2028 2,000
----------
3,925
----------
9,140
----------
28
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (2.4%)
-----------------------
DIVERSIFIED BANKS (0.9%)
$4,072 UBS Finance, Inc. 1.01% 12/01/2003 $ 4,072
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.5%)
6,349 Wheels, Inc.(a,l) 1.20 12/01/2003 6,349
----------
10,421
----------
Total money market instruments (cost: $27,194) 27,194
----------
TOTAL INVESTMENTS (COST: $397,915) $ 436,595
==========
29
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
GENERAL NOTES
- --------------------------------------------------------------------------------
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The percentages shown represent the percentages of the investments to
net assets and, in total, may not equal 100%. Investments in foreign
securities were 2.9% of net assets as of November 30, 2003.
ADR - American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
PORTFOLIO DESCRIPTION ABBREVIATIONS
EETC Enhanced Equipment Trust Certificate
PCRB Pollution Control Revenue Bond
RB Revenue Bond
CREDIT ENHANCEMENTS - add the financial strength of the provider of
the enhancement to support the issuer's ability to repay the principal
when due. A high-quality bank, insurance company, or other
corporation, or a collateral trust may provide the enhancement.
(LOC) Enhanced by a bank letter of credit
30
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur
in an exempt transaction to a qualified institutional buyer as
defined by Rule 144A, and as such, has been deemed liquid by USAA
Investment Management Company (the Manager) under guidelines
approved by the Board of Trustees, unless otherwise noted as
illiquid.
(b) Illiquid security valued using methods determined by a pricing
service, under valuation procedures approved by the Board of
Trustees, and deemed illiquid by the Manager, under liquidity
guidelines approved by the Board of Trustees. The aggregate market
value of these securities at November 30, 2003, was $991,000, which
represented 0.2% of the Fund's net assets.
(c) Put bond - provides the right to sell the bond at face value at
specific tender dates prior to final maturity. The put feature
shortens the effective maturity of the security.
(d) Variable- or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the current
rate at November 30, 2003.
(e) Variable-rate demand notes (VRDNs) - provide the right, on any
business day, to sell the security at face value on either that day
or in seven days. The interest rate is adjusted at a stipulated
daily, weekly, or monthly interval to a rate that reflects current
market conditions. VRDNs will normally trade as if the maturity is
the earlier put date, even though stated maturity is longer.
(f) U.S. Treasury inflation-indexed notes - designed to provide a real
rate of return after being adjusted over time to reflect the impact
of inflation. Their principal value periodically adjusts to the
rate of inflation. They trade at the prevailing real, or
after-inflation, interest rates. The U.S. Treasury guarantees
repayment of these
31
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
securities of at least their face value in the event of sustained
deflation or a drop in prices. Inflation adjustments to the face
value of these securities are included in interest income.
(g) Interest-only commercial mortgage-backed security - represents the
right to receive only the interest payments on an underlying pool
of commercial mortgage loans. The principal amount represents the
notional amount of the underlying pool on which current interest is
calculated. The yield to maturity is extremely sensitive to the
rate of principal payments (including prepayments) on the related
underlying mortgage assets. A rapid (slow) rate of principal
payments may have a material adverse (positive) effect on the yield
to maturity of these securities. The interest rate disclosed is the
purchase yield, which reflects an anticipated yield based upon
interest rates at the time of purchase and the estimated timing and
amount of future cash flows.
(h) The security or a portion thereof was out on loan as of November
30, 2003.
(i) Investment was purchased with the cash collateral proceeds received
from securities loaned.
(j) Rate represents the money market fund annualized seven-day yield
at November 30, 2003.
(k) At November 30, 2003, the cost of securities purchased on a when-
issued basis was $2,000,000.
(l) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Unless this commercial paper is
subsequently registered, a resale of this commercial paper in the
United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(2)
commercial paper is normally resold to other investors through or
with the assistance of the issuer
32
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
or an investment dealer who makes a market in this security, and as
such has been deemed liquid by the Manager under guidelines
approved by the Board of Trustees, unless otherwise noted as
illiquid.
(m) U.S. government agency issues mortgage-backed securities issued
by Government National Mortgage Association (GNMA) and certain
other U.S. government agencies are supported by the full faith and
credit of the U.S. government. Securities issues by
government-sponsored enterprises (GSEs) indicated with "+" are
supported only by the credit of the issuing agency,
instrumentality, or corporation, and are neither issued nor
guaranteed by the U.S. government.
(n) Represents less than 0.1% of net assets.
* Non-income-producing security for the 12 months preceding November
30, 2003.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
ASSETS
Investments in securities, at market value (including securities
on loan of $2,701) (identified cost of $397,915) $436,595
Cash 222
Receivables:
Capital shares sold 227
Dividends and interest 1,665
Securities sold 1,579
USAA Investment Management Company 623
--------
Total assets 440,911
--------
LIABILITIES
Payables:
Payable upon return of securities loaned 2,755
Securities purchased (when-issued of $2,000) 4,220
Capital shares redeemed 149
Accrued management fees 281
Accrued transfer agent's fees 107
Other accrued expenses and payables 97
--------
Total liabilities 7,609
--------
Net assets applicable to capital shares outstanding $433,302
========
NET ASSETS CONSIST OF:
Paid-in capital $416,603
Accumulated undistributed net investment income 1,060
Accumulated net realized loss on investments (23,041)
Net unrealized appreciation of investments 38,680
--------
Net assets applicable to capital shares outstanding $433,302
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 30,267
========
Net asset value, redemption price, and offering price per share $ 14.32
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA BALANCED STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2003 (UNAUDITED)
INVESTMENT INCOME
Dividends $ 1,696
Interest 3,244
Securities lending 2
--------
Total income 4,942
--------
EXPENSES
Management fees 1,505
Administrative and servicing fees 291
Transfer agent's fees 623
Custodian's fees 84
Postage 47
Shareholder reporting fees 77
Trustees' fees 3
Registration fees 32
Professional fees 30
Other 1
--------
Total expenses 2,693
Expenses reimbursed (743)
Expenses paid indirectly (44)
--------
Net expenses 1,906
--------
NET INVESTMENT INCOME 3,036
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 5,818
Change in net unrealized appreciation/depreciation 21,937
--------
Net realized and unrealized gain 27,755
--------
Increase in net assets resulting from operations $ 30,791
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA BALANCED STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2003 (UNAUDITED),
AND YEAR ENDED MAY 31, 2003
11/30/2003 5/31/2003
-------------------------
FROM OPERATIONS
Net investment income $ 3,036 $ 6,725
Net realized gain (loss) on investments 5,818 (27,490)
Change in net unrealized appreciation/depreciation
of investments 21,937 13,168
-------------------------
Increase (decrease) in net assets resulting
from operations 30,791 (7,579)
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,229) (7,028)
Net realized gains - (3,389)
-------------------------
Distributions to shareholders (3,229) (10,417)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 74,901 96,568
Shares issued for dividends reinvested 3,188 10,283
Cost of shares redeemed (23,191) (65,576)
-------------------------
Increase in net assets from capital
share transactions 54,898 41,275
-------------------------
Net increase in net assets 82,460 23,279
NET ASSETS
Beginning of period 350,842 327,563
-------------------------
End of period $ 433,302 $ 350,842
=========================
Accumulated undistributed net investment income:
End of period $ 1,060 $ 1,253
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 5,427 7,605
Shares issued for dividends reinvested 235 813
Shares redeemed (1,683) (5,197)
-------------------------
Increase in shares outstanding 3,979 3,221
=========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (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 nine 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 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 or the Nasdaq
over-the-counter markets are valued at the last sales price
or the official closing price on the exchange or primary
market on which they trade. Portfolio securities traded
primarily on foreign securities exchanges or markets are
valued at the last quoted sales price, or the most recently
determined official closing price calculated according to
local market convention, available at the time the Fund is
valued. If no last sale or official closing price is
reported or available, the average of the bid and asked
prices is generally used.
2. Investments in open-end investment companies are valued at
their net asset value at the end of each business day.
3. Debt securities purchased with maturities of 60 days or less
are stated at amortized cost, which approximates market
value. Repurchase agreements are valued at cost.
4. Other debt securities are valued each business day by a
pricing service (the Service) approved by the Trust's Board
of Trustees.
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
The Service uses the mean between quoted bid and asked
prices or the last sales price to price securities when, in
the Service's judgment, 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
that 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 for which market quotations are not readily
available or are considered unreliable, or whose values have
been materially affected by events occurring after the close
of their primary markets but before the pricing of the Fund,
are valued in good faith at fair value, using methods
determined by the Manager, an affiliate of the Fund, in
consultation with the Fund's subadviser if applicable, under
valuation procedures approved by the Trust's 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 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, less
foreign taxes, if any, is recorded on the ex-dividend date. If
the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is
recorded on the accrual basis. Discounts and premiums on
securities are amortized over the life of the respective
securities, using the effective yield method for long-term
securities and the straight-line method for short-term
securities.
38
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
D. REPURCHASE AGREEMENTS - The Fund may enter into repurchase
agreements with commercial banks or recognized security
dealers. These agreements are collateralized by obligations
issued or guaranteed as to both principal and interest by the
U.S. government, its agencies, or its instrumentalities.
Obligations pledged as collateral are required to maintain a
value equal to or in excess of the resale price of the
repurchase agreement and are held by the Fund, either through
its regular custodian or through a special "tri-party"
custodian that maintains separate accounts for both the Fund
and its counterparty, until maturity of the repurchase
agreement. The Fund's Manager monitors the creditworthiness of
sellers with which the Fund may enter into repurchase
agreements.
E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be
invested in the securities of foreign issuers and may be traded
in foreign currency. Since the Fund's accounting records are
maintained in U.S. dollars, foreign currency amounts are
translated into U.S. dollars on the following basis:
1. Purchases and sales of securities, income, and expenses at
the rate of exchange obtained from an independent pricing
service on the respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at
the exchange rate obtained from an independent pricing
service on a daily basis.
The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from
investments.
Separately, net realized foreign currency gains/losses arise
from sales of foreign currency, currency gains/losses realized
between
39
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
the trade and settlement dates on security transactions, and
from the difference between amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. At the Fund's
tax year-end of May 31, 2004, net realized foreign currency
gains/losses will be reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income on
the statement of assets and liabilities as such amounts are
treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities other than
investments in securities resulting from changes in the
exchange rate.
F. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS - Delivery and
payment for securities that have been purchased by the Fund on
a when-issued basis can take place a month or more after the
trade date. During the period prior to settlement, these
securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to
their delivery. The Fund maintains segregated assets with a
market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a
when-issued basis may increase the volatility of the Fund's net
asset value to the extent that the Fund makes such purchases
while remaining substantially fully invested. As of November
30, 2003, the cost of outstanding when-issued commitments for
the Fund was $2,000,000.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage
commissions that the Fund pays may be reimbursed and used to
reduce the Fund's expenses. In addition, through other
fee-offset arrangements with certain of the Fund's service
providers, realized credits, if any, are used to reduce the
Fund's expenses. For the six-month period ended November 30,
2003, these fee-offset arrangements reduced the Fund's expenses
by $44,000.
40
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
H. USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States 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, committed loan agreements totaling $500 million: $400
million with USAA Capital Corporation (CAPCO), an affiliate of the
Manager, and $100 million with Bank of America. 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 Bank of America, the Fund may borrow from Bank of
America, at Bank of America's borrowing rate plus a 0.50% markup, an
amount which, when added to outstanding borrowings under the CAPCO
agreement, does not exceed 25% of the Fund's total assets.
The USAA funds that are party to the loan agreements are assessed
facility fees in aggregate by Bank of America in an annual amount equal
to 0.09% of the $100 million loan agreement, whether used or not, and
by CAPCO based on the funds' assessed proportionate share of CAPCO's
operating expenses related to obtaining and maintaining CAPCO's funding
programs in total (in no event to exceed 0.09% annually of the $400
million loan agreement). The facility fees are allocated among the
funds based on their respective average net assets for the period. The
Fund had no borrowings under either of these agreements during the
six-month period ended November 30, 2003.
41
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
(3) DISTRIBUTIONS
- --------------------------------------------------------------------------------
The tax basis of distributions and accumulated undistributed net
investment income will be determined based upon the Fund's tax year-
end of May 31, 2004, in accordance with applicable tax law.
Distributions of net investment income are made quarterly.
Distributions of realized gains from security transactions not offset
by capital losses are made annually in the succeeding fiscal year or as
otherwise required to avoid the payment of federal taxes. At May 31,
2003, the Fund had capital loss carryovers of $28,399,000 for federal
income tax purposes, which, if not offset by subsequent capital gains,
will expire in 2011. 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 six-month period ended
November 30, 2003, were $137,603,000 and $86,477,000, respectively.
The cost of securities at November 30, 2003, for federal income tax
purposes, was approximately the same as that reported in the financial
statements.
Gross unrealized appreciation and depreciation of investments as of
November 30, 2003, were $43,003,000 and $4,323,000, respectively,
resulting in net unrealized appreciation of $38,680,000.
(5) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund may lend its securities to qualified financial institutions,
such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash
collateral in an amount at least equal, at all times, to the fair value
of
42
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
the securities loaned. Cash collateral is invested in high-quality
short-term investments. The Fund retains a portion of income from the
investment of cash received as collateral. Risks to the Fund in
securities-lending transactions are that the borrower may not provide
additional collateral when required or return the securities when due,
and that the value of the short-term investments will be less than the
amount of cash collateral required to be returned to the borrower. As
of November 30, 2003, the Fund loaned securities having a fair market
value of approximately $2,701,000 and received cash collateral of
$2,755,000 for the loans. The cash collateral was invested in money
market instruments, as noted in the Fund's portfolio of investments.
6) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager carries out the Fund's investment
policies, directly manages a portion of the Fund's portfolio,
and provides portfolio management oversight of the Fund's
assets managed by a subadviser. The investment management fee
for the Fund is composed of a base fee and a performance
adjustment that increases or decreases the base fee depending
upon the performance of the Fund relative to the performance of
the Lipper Balanced Funds Index, which tracks the total return
performance of the 30 largest funds in the Lipper Balanced
Funds category. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.75% of the Fund's average
net assets.
The performance adjustment is calculated monthly by comparing
the Fund's performance to that of the Lipper index over the
performance period. The performance period for the Fund
commenced on August 1, 2001, and will consist of the current
month through that date until a period of 36 months is included
in the performance period. Thereafter, the performance period
will consist of the current month plus the previous 35 months.
43
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
The annual performance adjustment rate is multiplied by the
average net assets of the Fund over the entire performance
period, which is then multiplied by a fraction, the numerator
of which is the number of days in the month and the denominator
of which is 365 (366 in leap years). The resulting amount is
then added to (in the case of overperformance) or subtracted
from (in the case of underperformance) the base fee, as
referenced in the following chart:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS
- -----------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest 0.01%.
For the six-month period ended November 30, 2003, the Fund
incurred total management fees, paid or payable to the Manager,
of $1,505,000, which included a performance adjustment of
$49,000.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with Wellington Management
Company, LLP (Wellington Management), under which Wellington
Management directs the investment and reinvestment of the
portion of the Fund's assets invested in equity securities (as
allocated from time to time by the Manager). The Manager (not
the Fund) pays Wellington Management a subadvisory fee.
44
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
C. ADMINISTRATIVE AND SERVICING FEES - The Manager provides
certain administrative and shareholder servicing functions for
the Fund. For such services, the Manager receives a fee accrued
daily and paid monthly at an annualized rate of 0.15% of the
Fund's average net assets. For the six-month period ended
November 30, 2003, the Fund incurred administrative and
servicing fees, paid or payable to the Manager, of $291,000.
D. EXPENSE LIMITATION - The Manager has voluntarily agreed to
limit the annual expenses of the Fund to 1.00% of its average
annual net assets, excluding the effect of any fee-offset
arrangements, and will reimburse the Fund for all expenses in
excess of that amount. This arrangement may be modified or
terminated at any time. For the six-month period ended November
30, 2003, the Fund incurred reimbursable expenses of $743,000.
E. 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 per shareholder account plus out-of-pocket
expenses. For the six-month period ended November 30, 2003, the
Fund incurred transfer agent's fees, paid or payable to USAA
Transfer Agency Company, of $623,000.
F. 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.
(7) 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.
45
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2003 (UNAUDITED)
(8) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2003 2003 2002 2001 2000 1999
----------------------------------------------------------------------------------------
Net asset value at beginning of
period $ 13.35 $ 14.20 $ 15.25 $ 15.26 $ 14.02 $ 13.46
----------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .10 .28 .35(a,d) .33 .27 .25
Net realized and unrealized
gain (loss) .99 (.70) (.40)(a,d) .77 1.22 .74
----------------------------------------------------------------------------------------
Total from investment operations 1.09 (.42) (.05)(a,d) 1.10 1.49 .99
----------------------------------------------------------------------------------------
Less distributions:
From net investment income (.12) (.29) (.34) (.32) (.25) (.27)
From realized capital gains - (.14) (.66) (.79) - (.16)
----------------------------------------------------------------------------------------
Total distributions (.12) (.43) (1.00) (1.11) (.25) (.43)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 14.32 $ 13.35 $ 14.20 $ 15.25 $ 15.26 $ 14.02
========================================================================================
Total return (%)* 8.19 (2.71) (.06) 7.37 10.65 7.63
Net assets at end of period (000)$ 433,302 $ 350,842 $ 327,563 $ 184,977 $ 148,153 $ 95,755
Ratio of expenses to
average net assets (%)** 1.00(b,c,e) 1.00(c,e) 1.02(c,e) 1.23(c,e) 1.25(c) 1.25(c)
Ratio of expenses to
average net assets, excluding
reimbursements (%)** 1.38(b,e) 1.47(e) 1.35(e) N/A 1.26 1.31
Ratio of net investment
income to average
net assets (%)** 1.56(b) 2.19 2.41(d) 2.30 1.92 1.88
Portfolio turnover (%) 23.65 113.80 42.34 80.60 87.11 63.39
* Assumes reinvestment of all net investment income and realized capital gain distributions during the period.
** For the six-month period ended November 30, 2003, average net assets were $388,950,000.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(c) Effective August 1, 2001, the Manager voluntarily agreed to limit the Fund's expense ratio to 1.00% of the Fund's
average annual net assets. Prior to this date, the voluntary expense ratio limit was 1.25% of the Fund's average annual
net assets.
(d) In 2001, a change in amortization method was made as required by an accounting pronouncement. This change had no effect
on these amounts.
(e) Reflects total expenses, excluding any fee-offset arrangements, which decreased the Fund's expense ratios as follows:
(.02%) (.01%) - - N/A N/A
46
N O T E S
==========----------------------------------------------------------------------
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TRUSTEES Robert G. Davis, CHAIRMAN OF THE BOARD
Christopher W. Claus, VICE CHAIRMAN OF THE BOARD
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Michael F. Reimherr
Laura T. Starks, Ph.D.
Richard A. Zucker
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, San Antonio, Texas 78265-9825
AND DISTRIBUTOR
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
INDEPENDENT AUDITOR Ernst & Young LLP
100 West Houston St., Suite 1900
San Antonio, Texas 78205
TELEPHONE Call toll free - Central time
ASSISTANCE HOURS Monday - Friday, 7 a.m. to 10 p.m.
Saturday, 8:30 a.m. to 5 p.m.
Sunday, 10:30 a.m. to 7 p.m.
FOR ADDITIONAL 1-800-531-8181, in San Antonio 456-7200
INFORMATION ABOUT For account servicing, exchanges,
MUTUAL FUNDS or redemptions
1-800-531-8448, in San Antonio 456-7202
RECORDED MUTUAL 24-hour service (from any phone)
FUND PRICE QUOTES 1-800-531-8066, in San Antonio 498-8066
MUTUAL FUND (from touch-tone phones only)
USAA TOUCHLINE For account balance, last transaction, fund
prices, or to exchange or redeem fund shares
1-800-531-8777, in San Antonio 498-8777
INTERNET ACCESS USAA.COM
THROUGH OUR ONGOING EFFORTS TO REDUCE EXPENSES, YOUR REPORT MAILINGS ARE
STREAMLINED. WE DEVELOP MAILING LISTS USING CRITERIA SUCH AS ADDRESS, MEMBER
NUMBER, AND SURNAME TO SEND ONE REPORT TO EACH HOUSEHOLD INSTEAD OF SENDING A
REPORT TO EVERY REGISTERED OWNER. THIS PRACTICE IS DESIGNED TO REDUCE DUPLICATE
COPIES AND SAVE PAPER AND POSTAGE COSTS TO THE FUND. IF YOU PREFER NOT TO
PARTICIPATE IN STREAMLINING AND WOULD LIKE TO CONTINUE RECEIVING ONE REPORT PER
REGISTERED ACCOUNT OWNER, PLEASE CALL US AND WE WILL BEGIN YOUR INDIVIDUAL
DELIVERY WITHIN 30 DAYS OF YOUR REQUEST.
COPIES OF THE MANAGER'S PROXY VOTING POLICIES AND PROCEDURES ARE AVAILABLE
WITHOUT CHARGE (I) BY CALLING 1-800-531-8448; (II) AT USAA.COM; AND (III) ON THE
SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.
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[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
27804-0104 (C)2004, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports with fiscal
years on or after December 15, 2003.
ITEM 5-6. (RESERVED)
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
NOT APPLICABLE.
ITEM 8. (RESERVED)
ITEM 9. CONTROLS AND PROCEDURES
The chief executive officer and chief financial officer of USAA Investment Trust
(Trust) have concluded that the Trust's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the Trust in
this Form N-CSR was recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
based upon such officers' evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.