UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
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, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
USAA BALANCED STRATEGY FUND - SEMIANNUAL REPORT FOR PERIOD ENDING
NOVEMBER 30, 2004
[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
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NOVEMBER 30, 2004
Table of CONTENTS
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MESSAGE FROM THE PRESIDENT 2
INVESTMENT OVERVIEW & MANAGERS' COMMENTARY 5
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 30
Financial Statements 35
Notes to Financial Statements 38
EXPENSE EXAMPLE 51
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)2005, USAA. All rights reserved.
2
M E S S A G E
==============------------------------------------------------------------------
from the PRESIDENT
"
WE REMAIN COMMITTED TO DELIVERING
[PHOTO OF CHRISTOPHER W. CLAUS] QUALITY USAA SERVICE AND PROVIDING YOU
WITH A RANGE OF RESOURCES, INCLUDING OUR
MARKET-TESTED PORTFOLIO MANAGEMENT
TEAM AND NO-LOAD MUTUAL FUNDS.
"
December 2004
- --------------------------------------------------------------------------------
As I write to you in early December, the equity markets have
rallied. Several factors are responsible. First, the
presidential election is over. Investors are relieved that the
uncertainty has ended, the results are not in dispute, and no
terrorist attack occurred on U.S. soil. In addition, the U.S.
economy is on sound footing. The annual gross domestic product
(GDP) - the total value of all the goods and services produced
in the country - is expected to be up around 4%, on an
inflation-adjusted basis, in 2004 and a moderate yet healthy
3.5% in 2005. In most of America, the housing market remains
strong. Inflation is also under control, which has kept
long-term interest rates in check.
The Federal Reserve Board (the Fed) is expected to continue
raising short-term interest rates at a measured pace. In fact,
the Fed has announced its intention to move toward a more
"neutral" interest-rate position, which should put short-term
rates above 3% sometime in 2005. This is good news for money
market investors, because as your yields rise, you will be
paid more on your cash positions. At the same time, however,
interest rates on credit-card debt will also increase. In the
months ahead, we expect to see a narrowing of the yield
relationship between bonds of different maturities. In other
words, the yield curve will "flatten." We do not expect a
major increase in long-term interest rates, which the bond
market, not the Fed, controls.
3
. . . C O N T I N U E D
========================--------------------------------------------------------
In 2005, the primary drivers of stock market performance will
be the growth in corporate earnings, the valuation of those
earnings, Fed policy changes, and the level of long-term
interest rates. Corporate earnings are expected to improve by
about 7%. The dollar is likely to remain weak relative to
foreign currencies, making American products more affordable
around the world and helping the U.S. GDP. But because foreign
governments finance the federal budget deficit, the bond
market may push up long-term rates to make U.S. securities
more attractive to foreign investors.
Whatever lies ahead, we remain committed to delivering quality
USAA service and providing you with a range of resources,
including our market-tested portfolio management team and
no-load mutual funds without excessive fees. On behalf of
everyone at USAA, thank you for your business.
Sincerely,
/S/ CHRISTOPHER W. CLAUS
Christopher W. Claus
President and Vice Chairman of the Board
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND
EXPENSES OF THE USAA MUTUAL FUNDS CAREFULLY BEFORE INVESTING.
CONTACT US FOR A PROSPECTUS CONTAINING THIS AND OTHER
INFORMATION ABOUT THE FUNDS FROM USAA INVESTMENT MANAGEMENT
COMPANY, DISTRIBUTOR. READ IT CAREFULLY BEFORE INVESTING.
Mutual fund operating expenses apply and continue throughout
the life of the fund.
Past performance is no guarantee of future results.
5
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
USAA BALANCED STRATEGY FUND
OBJECTIVE
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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
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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.
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11/30/04 5/31/04
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Net Assets $572.8 Million $523.0 Million
Net Asset Value Per Share $15.27 $14.70
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/04
- --------------------------------------------------------------------------------
5/31/04 TO 11/30/04* 1 YEAR 5 YEARS SINCE INCEPTION ON 9/1/95
4.58% 8.09% 4.58% 8.65%
*TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THIS
SIX-MONTH RETURN IS CUMULATIVE.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS
NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN
AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END, VISIT USAA.COM.
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL NET INVESTMENT INCOME DIVIDEND AND
REALIZED CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS QUOTED
DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD
PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
6
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LEHMAN BROTHERS
RUSSELL 3000 USAA BALANCED LIPPER BALANCED LIPPER BALANCED U.S. AGGREGATE
INDEX STRATEGY FUND FUNDS INDEX FUNDS AVERAGE BOND INDEX
------------ ------------- --------------- --------------- ---------------
09/01/95 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
09/30/95 10,387.49 10,040.00 10,238.83 10,232.06 10,097.29
10/31/95 10,297.79 9,870.00 10,212.88 10,216.43 10,228.60
11/30/95 10,754.50 10,060.00 10,530.28 10,533.61 10,381.87
12/31/95 10,930.17 10,324.29 10,696.02 10,684.96 10,527.57
01/31/96 11,247.42 10,334.38 10,889.09 10,885.76 10,597.48
02/29/96 11,413.33 10,304.13 10,894.34 10,915.42 10,413.27
03/31/96 11,528.06 10,515.68 10,935.43 10,949.67 10,340.89
04/30/96 11,746.65 10,586.67 11,007.82 11,049.10 10,282.73
05/31/96 12,047.26 10,637.37 11,120.63 11,193.86 10,261.85
06/30/96 12,008.36 10,648.38 11,157.30 11,208.54 10,399.66
07/31/96 11,379.75 10,300.92 10,870.17 10,891.02 10,428.12
08/31/96 11,724.97 10,546.18 11,041.82 11,088.04 10,410.64
09/30/96 12,363.10 10,975.62 11,451.38 11,512.70 10,592.07
10/31/96 12,589.10 11,233.02 11,693.67 11,730.28 10,826.70
11/30/96 13,477.10 11,734.44 12,238.63 12,269.36 11,012.14
12/31/96 13,314.78 11,713.31 12,092.06 12,134.61 10,909.75
01/31/97 14,051.60 12,004.58 12,465.99 12,504.74 10,943.16
02/28/97 14,066.96 12,077.40 12,512.26 12,513.27 10,970.38
03/31/97 13,430.42 11,868.62 12,148.59 12,139.82 10,848.81
04/30/97 14,091.98 12,120.03 12,513.80 12,501.74 11,011.21
05/31/97 15,054.44 12,685.70 13,026.25 13,054.06 11,115.31
06/30/97 15,680.29 13,031.61 13,458.04 13,454.09 11,247.24
07/31/97 16,909.54 13,705.37 14,224.61 14,237.30 11,550.54
08/31/97 16,223.71 13,417.40 13,773.71 13,846.39 11,452.02
09/30/97 17,143.65 13,854.99 14,322.73 14,396.57 11,620.91
10/31/97 16,567.81 13,575.74 14,061.93 14,161.68 11,789.50
11/30/97 17,202.16 13,822.77 14,320.23 14,405.80 11,843.79
12/31/97 17,546.73 13,944.80 14,546.47 14,621.46 11,963.04
01/31/98 17,637.67 13,922.91 14,649.84 14,709.55 12,116.62
02/28/98 18,899.38 14,481.14 15,231.47 15,335.15 12,107.49
03/31/98 19,836.05 14,919.09 15,697.21 15,778.73 12,149.10
04/30/98 20,031.08 14,985.15 15,807.16 15,894.48 12,212.51
05/31/98 19,536.77 14,820.00 15,647.34 15,720.07 12,328.36
06/30/98 20,197.37 14,828.06 15,935.89 15,977.46 12,432.91
07/31/98 19,830.64 14,304.70 15,749.20 15,773.59 12,459.36
08/31/98 16,792.85 12,902.28 14,392.39 14,356.41 12,662.13
09/30/98 17,938.37 13,113.85 15,013.59 14,975.30 12,958.63
10/31/98 19,300.01 13,836.75 15,575.27 15,616.53 12,890.11
11/30/98 20,480.43 14,548.35 16,145.37 16,234.86 12,963.27
12/31/98 21,782.13 15,156.72 16,741.02 16,835.58 13,002.24
01/31/99 22,522.11 15,701.28 17,008.72 17,150.69 13,095.04
02/28/99 21,724.36 15,349.59 16,599.88 16,683.37 12,866.45
03/31/99 22,521.48 16,052.52 17,009.63 17,100.21 12,937.75
04/30/99 23,538.06 16,291.43 17,566.78 17,598.90 12,978.73
05/31/99 23,090.70 15,950.13 17,295.91 17,338.43 12,865.05
06/30/99 24,257.61 16,725.61 17,774.11 17,849.56 12,824.07
07/31/99 23,522.07 16,417.15 17,441.69 17,497.47 12,769.47
08/31/99 23,254.61 16,382.88 17,258.68 17,289.76 12,762.97
09/30/99 22,660.24 16,120.26 17,037.56 17,067.11 12,911.14
10/31/99 24,081.63 16,854.56 17,530.87 17,582.54 12,958.78
11/30/99 24,755.59 17,221.71 17,719.50 17,826.66 12,957.85
12/31/99 26,335.19 18,021.46 18,243.80 18,424.04 12,895.37
01/31/00 25,302.82 17,549.03 17,785.48 17,921.49 12,853.14
02/29/00 25,537.35 17,514.47 17,742.64 17,992.78 13,008.59
03/31/00 27,537.91 18,493.42 18,787.31 19,005.90 13,179.96
04/30/00 26,567.46 17,961.40 18,443.01 18,620.64 13,142.22
05/31/00 25,821.27 17,649.13 18,269.48 18,360.39 13,136.18
06/30/00 26,585.78 18,042.66 18,561.08 18,743.91 13,409.48
07/31/00 26,115.87 17,826.03 18,510.50 18,692.08 13,531.20
08/31/00 28,052.68 18,523.41 19,336.74 19,588.72 13,727.32
09/30/00 26,782.52 17,900.05 18,929.79 19,092.71 13,813.63
10/31/00 26,401.18 17,715.51 18,913.05 19,010.62 13,905.04
11/30/00 23,967.74 16,891.25 18,226.52 18,225.19 14,132.40
12/31/00 24,370.52 17,211.05 18,679.53 18,671.67 14,394.56
01/31/01 25,204.21 18,484.57 19,075.97 19,112.59 14,629.96
02/28/01 22,901.35 18,051.82 18,335.50 18,236.39 14,757.41
03/31/01 21,408.50 17,755.71 17,743.38 17,575.94 14,831.49
04/30/01 23,125.36 18,502.27 18,488.02 18,355.08 14,769.93
05/31/01 23,311.09 18,950.20 18,652.69 18,497.31 14,859.02
06/30/01 22,881.26 18,777.43 18,366.88 18,242.01 14,915.17
07/31/01 22,504.16 19,040.49 18,353.59 18,209.44 15,248.63
08/31/01 21,175.60 18,652.17 17,831.27 17,636.87 15,423.25
09/30/01 19,307.38 17,464.73 16,974.37 16,662.10 15,602.97
10/31/01 19,756.59 17,817.56 17,258.46 17,022.34 15,929.47
11/30/01 21,278.30 18,876.02 17,945.58 17,734.22 15,709.85
12/31/01 21,578.22 19,097.83 18,075.00 17,844.72 15,610.09
01/31/02 21,307.64 18,925.42 17,916.47 17,660.17 15,736.45
02/28/02 20,871.92 18,567.34 17,794.73 17,472.35 15,888.95
03/31/02 21,787.05 19,098.35 18,183.81 17,853.34 15,624.62
04/30/02 20,644.01 18,791.60 17,747.44 17,416.25 15,927.62
05/31/02 20,404.83 18,938.31 17,739.16 17,334.71 16,062.95
06/30/02 18,936.00 17,872.18 16,982.39 16,532.36 16,201.84
07/31/02 17,430.53 16,999.38 16,111.99 15,721.64 16,397.34
08/31/02 17,512.87 17,173.94 16,277.29 15,881.35 16,674.20
09/30/02 15,672.78 16,406.97 15,305.47 14,939.37 16,944.24
10/31/02 16,920.75 16,947.12 15,943.47 15,520.93 16,867.06
11/30/02 17,944.65 17,689.82 16,590.27 16,104.16 16,862.58
12/31/02 16,930.14 17,167.90 16,143.07 15,656.23 17,210.89
01/31/03 16,515.88 16,852.01 15,901.25 15,422.98 17,225.58
02/28/03 16,244.16 16,783.34 15,782.00 15,314.60 17,463.93
03/31/03 16,414.98 16,837.28 15,846.41 15,383.51 17,450.47
04/30/03 17,755.40 17,651.54 16,703.95 16,200.23 17,594.46
05/31/03 18,827.19 18,424.40 17,442.75 16,937.79 17,922.51
06/30/03 19,081.26 18,636.35 17,575.01 17,065.55 17,886.94
07/31/03 19,518.98 18,733.41 17,615.74 17,083.46 17,285.59
08/31/03 19,951.53 18,996.87 17,913.13 17,376.02 17,400.36
09/30/03 19,734.92 18,987.33 17,935.86 17,377.04 17,860.96
10/31/03 20,929.26 19,725.10 18,527.60 17,935.89 17,694.38
11/30/03 21,217.54 19,933.91 18,691.64 18,107.84 17,736.76
12/31/03 22,188.03 20,496.24 19,361.38 18,719.01 17,917.25
01/31/04 22,650.89 20,719.78 19,650.48 18,978.20 18,061.40
02/29/04 22,956.03 20,999.21 19,918.30 19,221.63 18,256.90
03/31/04 22,683.54 20,840.24 19,823.28 19,127.05 18,393.63
04/30/04 22,214.53 20,461.84 19,406.69 18,689.68 17,915.09
05/31/04 22,537.38 20,601.99 19,492.37 18,781.26 17,843.32
06/30/04 22,985.30 21,006.07 19,797.13 19,073.00 17,944.17
07/31/04 22,116.11 20,485.84 19,424.43 18,670.26 18,122.04
08/31/04 22,207.18 20,513.96 19,542.59 18,763.50 18,467.72
09/30/04 22,548.55 20,756.05 19,832.91 18,993.08 18,517.83
10/31/04 22,918.90 20,939.48 20,047.39 19,189.78 18,673.11
11/30/04 23,984.30 21,546.22 20,587.40 19,722.39 18,524.17
[END CHART]
DATA SINCE INCEPTION ON 9/01/95 THROUGH 11/30/04.
THE PERFORMANCE OF THE LIPPER BALANCED FUNDS AVERAGE AND
INDEX, THE LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX, AND THE
RUSSELL 3000 INDEX IS CALCULATED FROM THE END OF THE MONTH OF
AUGUST 31, 1995, WHILE THE FUND'S INCEPTION DATE IS SEPTEMBER
1, 1995. THERE MAY BE A SLIGHT VARIATION OF THE PERFORMANCE
NUMBERS BECAUSE OF THIS DIFFERENCE.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE
CUMULATIVE PERFORMANCE QUOTED DOES NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR
THE REDEMPTION OF FUND SHARES.
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 tracks the total return
performance of the 30 largest funds within the Lipper
Balanced Funds category.
o The Lipper Balanced Funds Average is 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)
ARNOLD J. ESPE, CFA
USAA Investment Management Company
(Bonds)
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA Balanced Strategy Fund had a total return of 4.58%
for the six-month period ended November 30, 2004. This
compares to a 5.05% return for the Lipper Balanced Funds
Average, 5.62% for the Lipper Balanced Funds Index, 6.42% for
the Russell 3000 Index, and 3.82% for the Lehman Brothers U.S.
Aggregate Bond Index.
* * * *
THE FUND'S PERFORMANCE RECEIVED AN OVERALL MORNINGSTAR
RATING(TM) OF 4 STARS IN THE MODERATE ALLOCATION CATEGORY (653
FUNDS IN CATEGORY) AS OF NOVEMBER 30, 2004. 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 category, the USAA
Balanced Strategy Fund received a Morningstar Rating of 3
stars for the three-year period among 653 funds and 4 stars
for the five-year period among 513 funds through November 30,
2004. Ratings are based on risk-adjusted returns.
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
========================--------------------------------------------------------
HOW WERE THE FUND'S ASSETS ALLOCATED BETWEEN STOCKS AND BONDS?
The Fund began the period with 65% of net assets in stocks and
35% in bonds and money market investments. We allowed the Fund
to maintain this pro-equity tilt given our favorable outlook
on the stock market. The Fund ended the six-month period with
64% in stocks and 36% in bonds and money market instruments.
We expect to maintain the current asset mix until our outlook
on the stock market changes.
HOW DID THE FUND'S EQUITY PORTION PERFORM?
The equity portion gained slightly less than the Russell 3000
Index. Although individual stock selection was positive, it
was not enough to offset unfavorable sector positioning.
The best-performing areas of the market included the energy
sector, driven by the rise in oil prices, as well as the
materials and industrials sectors, which benefited from the
strength of the U.S. economic recovery. The Fund also
benefited from its cyclical tilt that favored these sectors.
Exxon Mobil Corp., General Electric Co., and Precision
Castparts Corp. were among the leading contributors to
performance.
Overweight positions in the weaker sectors of the market,
including health care and information technology, limited
performance in the equity portion. Regulatory and pricing
concerns dragged down large pharmaceutical companies, and Eli
Lilly & Co. and Pfizer, Inc. were the greatest detractors from
the Fund's performance. Within information technology,
weakness in the semiconductor market weighed on holdings Intel
Corp. and Applied Materials, Inc., but strong performance from
VeriSign, Inc. and Microsoft Corp. partially offset these
losses. Lastly, an underweight position in the strong
performing utilities sector detracted from performance
relative to the benchmark.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-29.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
WHAT'S YOUR OUTLOOK FOR THE EQUITY PORTION?
The equity portion remains positioned with a cyclical tilt,
emphasizing the industrial economy over consumer cyclicals.
This reflects our belief that while higher energy costs and
decelerating economic growth will continue to weigh on
consumer spending and challenge corporations' efforts to
improve margins, earnings will continue at a slower, but still
above-average, pace.
WHAT ABOUT THE BOND PORTION OF THE FUND?
Slower economic growth tends to create more favorable
conditions for bonds. Over the six-month period, the bond
market focused on employment as the key measure of the
economy. When data came out showing a weak job market, the
bond market rallied. When there was a strong jobs report, the
bond market sold off. The market also had to deal with the
Federal Reserve Board (the Fed), which in June 2004 began a
tightening regimen that took short-term rates from 1% to 2% in
four moves of 0.25% each. The net effect was that short-term
rates increased while intermediate- and long-term rates fell.
HOW DID YOU MANAGE THE BOND PORTION OF THE FUND?
We continued to be concerned about the possibility of rising
interest rates, so we kept the Fund's duration relatively
short. This held back performance since longer-term bonds
outperformed shorter-term bonds. We were heavily invested in
investment-grade corporate bonds, which proved beneficial to
performance as the yield spread between investment-grade
corporate and Treasury bonds narrowed. We also held
floating-rate bonds among shorter maturities, which did not
suffer the price erosion of fixed-rate short-term assets as
the Fed raised rates.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
11
. . . C O N T I N U E D
========================--------------------------------------------------------
WHAT'S YOUR BOND MARKET OUTLOOK?
Although employment reports have been inconsistent, we see
signs of continued economic growth, and expect the Fed to
continue raising short-term interest rates. We also expect
long-term rates to increase, but at a more measured pace.
Rates are now at relatively more attractive levels than they
have been in the last two years, and we are finding many
opportunities to make investments.
We thank you for the opportunity and privilege of serving you.
HISTORICAL YIELD CURVE*
[CHART OF HISTORICAL YIELD CURVE]
5/28/04 11/30/04 CHANGE
------- -------- ------
3 MONTH 1.060 2.223 1.1627
6 MONTH 1.378 2.432 1.0541
2 YEAR 2.532 2.997 0.4645
3 YEAR 3.063 3.251 0.1877
5 YEAR 3.791 3.691 -0.0999
10 YEAR 4.647 4.349 -0.2976
30 YEAR 5.345 5.002 -0.3426
[END CHART]
*YIELD OF TREASURY BILLS, NOTES, AND BONDS. SOURCE: BLOOMBERG
L.P.
12
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HIGHLIGHTS
- ---------------------------------------------
TOP 5 EQUITY HOLDINGS
(% of Net Assets)
- ---------------------------------------------
Microsoft Corp. 2.1%
Bank of America Corp. 1.9%
Citigroup, Inc. 1.6%
General Electric Co. 1.6%
Time Warner, Inc. 1.4%
- ---------------------------------------------
- ---------------------------------------------
TOP 5 FIXED-INCOME HOLDINGS
(% of Net Assets)
- ---------------------------------------------
U.S. Treasury Notes, 4.00% 2.0%
U.S. Treasury Inflation-Indexed
Note, 3.50% 1.1%
U.S. Treasury Notes, 4.75% 0.9%
Consumer Funding, LLC 0.7%
Freddie Mac, Series 2389
VH, 6.00% 0.7%
- ---------------------------------------------
ASSET ALLOCATION
11/30/04
[PIE CHART OF ASSET ALLOCATION]
Equity Securities 63.8%
Bonds 32.9%
Other* 8.1%
[END CHART]
*INCLUDES MONEY MARKET INSTRUMENTS AND SHORT-TERM INVESTMENTS
PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED.
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 13-29.
13
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of INVESTMENTS
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (63.8%)
STOCKS (62.3%)
ADVERTISING (0.4%)
51,200 Lamar Advertising Co.* $ 2,019
--------
AEROSPACE & DEFENSE (3.0%)
40,100 Engineered Support Systems, Inc. 2,205
34,700 General Dynamics Corp. 3,760
51,600 Precision Castparts Corp. 3,346
65,300 Rockwell Collins, Inc. 2,603
51,800 United Technologies Corp. 5,055
--------
16,969
--------
AIR FREIGHT & LOGISTICS (0.6%)
35,200 FedEx Corp. 3,345
--------
ALUMINUM (0.7%)
117,100 Alcoa, Inc. 3,979
--------
APPAREL, ACCESSORIES, & LUXURY GOODS (0.6%)
34,900 Columbia Sportswear Co.* 1,986
31,400 Liz Claiborne, Inc. 1,289
--------
3,275
--------
APPAREL RETAIL (1.0%)
17,100 Chico's FAS, Inc.* 660
19,000 Christopher & Banks Corp. 375
115,600 Gap, Inc. 2,526
85,250 Pacific Sunwear of California, Inc.* 1,893
--------
5,454
--------
APPLICATION SOFTWARE (0.1%)
60,330 Cadence Design Systems, Inc.* 829
--------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
69,900 Federated Investors, Inc. "B" 2,056
40,600 Franklin Resources, Inc. 2,665
--------
4,721
--------
AUTO PARTS & EQUIPMENT (0.1%)
11,900 Lear Corp. 690
--------
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY (0.7%)
43,800 Genzyme Corp.* $ 2,453
38,500 Gilead Sciences, Inc.* 1,327
--------
3,780
--------
CASINOS & GAMING (0.2%)
18,100 Harrah's Entertainment, Inc. 1,111
--------
COMMUNICATIONS EQUIPMENT (1.6%)
224,900 Cisco Systems, Inc.* 4,208
128,200 Motorola, Inc. 2,469
112,000 Polycom, Inc.* 2,558
--------
9,235
--------
COMPUTER HARDWARE (0.8%)
117,800 Dell, Inc.* 4,773
--------
COMPUTER STORAGE & PERIPHERALS (0.2%)
44,500 SanDisk Corp.* 1,005
--------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.3%)
19,000 Caterpillar, Inc. 1,739
2,000 Oshkosh Truck Corp. 126
--------
1,865
--------
CONSUMER FINANCE (0.4%)
40,300 American Express Co. 2,245
--------
DATA PROCESSING & OUTSOURCED SERVICES (1.0%)
15,900 DST Systems, Inc.* 775
114,500 First Data Corp. 4,705
--------
5,480
--------
DISTILLERS & VINTNERS (0.2%)
20,700 Constellation Brands, Inc. "A"* 925
--------
DIVERSIFIED BANKS (1.9%)
234,300 Bank of America Corp. 10,841
--------
DIVERSIFIED CHEMICALS (0.7%)
93,100 Du Pont (E.I.) De Nemours & Co. 4,219
--------
15
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES (1.1%)
134,800 ARAMARK Corp. "B" $ 3,527
19,900 Career Education Corp.* 774
45,700 ITT Educational Services, Inc.* 2,181
--------
6,482
--------
ELECTRIC UTILITIES (0.6%)
97,700 Southern Co. 3,204
--------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
16,000 Benchmark Electronics, Inc.* 561
--------
ENVIRONMENTAL SERVICES (0.2%)
32,300 Waste Connections, Inc.* 1,100
--------
GOLD (0.2%)
33,000 Freeport-McMoRan Copper & Gold, Inc. "B" 1,291
--------
HEALTH CARE EQUIPMENT (1.6%)
40,800 Diagnostic Products Corp. 1,975
34,700 Fisher Scientific International, Inc.* 1,962
99,500 Medtronic, Inc. 4,781
11,900 Waters Corp.* 555
--------
9,273
--------
HEALTH CARE FACILITIES (0.5%)
114,400 Odyssey Healthcare, Inc.* 1,527
40,700 Triad Hospitals, Inc.* 1,494
--------
3,021
--------
HEALTH CARE SERVICES (0.1%)
35,900 Dendrite International, Inc.* 613
--------
HEALTH CARE SUPPLIES (0.3%)
11,700 Cooper Companies, Inc. 814
28,000 Edwards Lifesciences Corp.* 1,053
--------
1,867
--------
HOME ENTERTAINMENT SOFTWARE (0.2%)
22,000 Electronic Arts, Inc.* 1,076
--------
16
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (0.9%)
96,300 Lowe's Companies, Inc. $ 5,328
--------
HOMEBUILDING (0.4%)
69,150 D.R. Horton, Inc. 2,435
--------
HOUSEHOLD PRODUCTS (0.5%)
55,100 Procter & Gamble Co. 2,947
--------
HOUSEWARES & SPECIALTIES (0.2%)
39,200 Yankee Candle Co., Inc.* 1,194
--------
HYPERMARKETS & SUPER CENTERS (0.5%)
54,800 Wal-Mart Stores, Inc. 2,853
--------
INDUSTRIAL CONGLOMERATES (2.6%)
264,200 General Electric Co. 9,342
166,600 Tyco International Ltd. (Bermuda) 5,660
--------
15,002
--------
INDUSTRIAL GASES (0.9%)
88,300 Air Products & Chemicals, Inc. 5,055
--------
INDUSTRIAL MACHINERY (1.0%)
76,000 Ingersoll-Rand Co. Ltd. "A" 5,656
--------
INSURANCE BROKERS (0.4%)
80,300 Arthur J. Gallagher & Co. 2,461
--------
INTEGRATED OIL & GAS (2.4%)
57,800 ConocoPhillips 5,259
148,400 Exxon Mobil Corp. 7,606
15,100 Petro-Canada (Canada) 862
--------
13,727
--------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
158,300 Sprint Corp. - FON Group 3,611
--------
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES (1.0%)
75,000 VeriSign, Inc.* $ 2,467
89,200 Yahoo!, Inc.* 3,356
--------
5,823
--------
INVESTMENT BANKING & BROKERAGE (1.4%)
204,500 E-Trade Group, Inc.* 2,834
97,700 Merrill Lynch & Co., Inc. 5,443
--------
8,277
--------
MANAGED HEALTH CARE (0.7%)
30,900 Coventry Health Care, Inc.* 1,534
28,800 Health Net, Inc.* 784
31,000 Pacificare Health Systems, Inc. "A"* 1,500
--------
3,818
--------
METAL & GLASS CONTAINERS (0.8%)
192,100 Pactiv Corp.* 4,774
--------
MOVIES & ENTERTAINMENT (1.4%)
460,200 Time Warner, Inc.* 8,150
--------
MULTI-LINE INSURANCE (1.1%)
96,900 American International Group, Inc. 6,139
--------
OIL & GAS DRILLING (0.7%)
53,400 Ensco International, Inc. 1,672
81,700 GlobalSantaFe Corp. (Cayman Islands) 2,565
--------
4,237
--------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
64,200 Schlumberger Ltd. (Netherlands) 4,213
--------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
174,600 Chesapeake Energy Corp. 3,143
74,700 Noble Energy, Inc. 4,765
28,500 XTO Energy, Inc. 1,036
--------
8,944
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (2.1%)
203,239 Citigroup, Inc. 9,095
73,900 Principal Financial Group, Inc. 2,785
--------
11,880
--------
18
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEAT (0.2%)
65,900 Hain Celestial Group, Inc.* $ 1,280
--------
PAPER PRODUCTS (0.4%)
61,200 International Paper Co. 2,541
--------
PERSONAL PRODUCTS (0.8%)
101,200 Gillette Co. 4,401
--------
PHARMACEUTICALS (4.4%)
109,600 Abbott Laboratories 4,599
79,700 Biovail Corp. (Canada)* 1,200
21,900 Elan Corp. plc ADR (Ireland)*(h) 578
50,800 Eli Lilly & Co. 2,709
58,800 King Pharmaceuticals, Inc.* 732
251,500 Pfizer, Inc. 6,984
223,100 Schering-Plough Corp. 3,982
19,800 Watson Pharmaceuticals, Inc.* 575
102,900 Wyeth 4,103
--------
25,462
--------
PROPERTY & CASUALTY INSURANCE (0.9%)
21,000 Ambac Financial Group, Inc. 1,708
97,687 St. Paul Travelers Companies, Inc. 3,564
--------
5,272
--------
RAILROADS (1.0%)
147,600 CSX Corp. 5,628
--------
REGIONAL BANKS (0.6%)
47,300 Zions Bancorp. 3,145
--------
RESTAURANTS (0.2%)
33,400 CBRL Group, Inc. 1,362
--------
SEMICONDUCTOR EQUIPMENT (0.9%)
118,700 Applied Materials, Inc.* 1,975
38,700 Lam Research Corp.* 1,007
55,800 Varian Semiconductor Equipment Associates, Inc.* 1,982
--------
4,964
--------
19
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (1.6%)
57,800 Analog Devices, Inc. $ 2,136
56,900 Fairchild Semiconductor International, Inc. "A"* 871
115,900 Intel Corp. 2,590
21,400 International Rectifier Corp.* 906
114,400 Texas Instruments, Inc. 2,766
--------
9,269
--------
SOFT DRINKS (0.8%)
85,600 PepsiCo, Inc. 4,272
--------
SPECIALTY STORES (2.3%)
11,000 Guitar Center, Inc.* 532
146,200 Michaels Stores, Inc. 3,995
41,900 O'Reilly Automotive, Inc.* 1,824
58,400 Petco Animal Supplies, Inc.* 2,112
48,400 PETsMART, Inc. 1,659
91,500 Staples, Inc. 2,920
--------
13,042
--------
SYSTEMS SOFTWARE (2.7%)
114,700 Computer Associates International, Inc. 3,502
444,300 Microsoft Corp. 11,912
--------
15,414
--------
TECHNOLOGY DISTRIBUTORS (0.4%)
31,600 CDW Corp. 2,077
--------
THRIFTS & MORTGAGE FINANCE (0.6%)
23,800 Fannie Mae 1,635
12,900 Golden West Financial Corp. 1,538
--------
3,173
--------
TOBACCO (0.8%)
79,100 Altria Group, Inc. 4,547
--------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
26,400 Fastenal Co. 1,615
--------
TRUCKING (0.3%)
34,000 Yellow Roadway Corp.* 1,797
--------
20
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.0%)
200,800 Nextel Communications, Inc. "A"* $ 5,715
--------
Total stocks (cost: $324,987) 356,748
--------
EXCHANGE-TRADED FUNDS (1.5%)
73,600 iShares Russell 2000 Growth Index Fund(h) 4,799
31,300 MidCap SPDR Trust Series 1(h) 3,659
--------
Total exchange-traded funds (cost: $7,998) 8,458
--------
Total equity securities (cost: $332,985) 365,206
--------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
- ---------- ------ --------
BONDS (32.9%)
CORPORATE OBLIGATIONS (15.3%)
AEROSPACE & DEFENSE (0.2%)
$ 1,000 Boeing Capital Corp., Senior Notes 5.40% 11/30/2009 1,052
--------
APPAREL, ACCESSORIES, & LUXURY GOODS (0.2%)
1,000 Kellwood Co., Senior Notes 7.88 7/15/2009 1,107
--------
BREWERS (0.2%)
1,000 Miller Brewing Co., Guaranteed Notes(a) 4.25 8/15/2008 1,006
--------
BROADCASTING & CABLE TV (0.5%)
1,000 Comcast Cable Communications, Inc.,
Senior Notes 6.88 6/15/2009 1,108
1,000 Continental Cablevision, Inc., Debentures 9.50 8/01/2013 1,088
1,000 Cox Communications, Inc., Notes(h) 4.63 6/01/2013 933
--------
3,129
--------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.2%)
1,000 John Deere Capital Corp., MTN,
Senior Notes 2.64(d) 5/20/2005 1,001
--------
CONSUMER FINANCE (1.4%)
1,000 American Honda Finance Corp., MTN(a) 2.38(d) 5/11/2007 1,001
1,000 Ford Motor Credit Corp., Global Notes 7.60 8/01/2005 1,027
21
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
$ 1,000 General Motors Acceptance Corp., Notes(h) 3.33%(d) 10/20/2005 $ 1,004
1,000 General Motors Acceptance Corp., Notes 6.75 12/01/2014 988
2,000 Household Finance Corp., Notes 6.38 10/15/2011 2,201
2,000 SLM Corp., Notes 5.38 1/15/2013 2,037
--------
8,258
--------
DATA PROCESSING & OUTSOURCED SERVICES (0.2%)
1,000 Fiserv, Inc., Notes 4.00 4/15/2008 1,002
--------
DIVERSIFIED BANKS (0.6%)
2,050 First Union Corp., Bond 6.82 8/01/2026(c) 2,497
909 U.S. Central Credit Union, Senior Notes 2.70 9/30/2009 881
--------
3,378
--------
ELECTRIC UTILITIES (2.1%)
2,000 El Paso Electric Co., First Mortgage Bond,
Series E 9.40 5/01/2011 2,224
1,000 Entergy Mississippi, Inc., First Mortgage Bonds 5.15 2/01/2013 995
1,000 FirstEnergy Corp., Notes, Series B 6.45 11/15/2011 1,075
1,000 Northern States Power Co.,
First Mortgage Bonds 2.88 8/01/2006 993
977 Oglethorpe Power Corp., Secured Series
Facility Bonds 6.97 6/30/2011 1,040
2,000 Power Contract Financing, Senior Notes(a) 6.26 2/01/2010 2,083
1,000 PPL Capital Funding, Inc., Guaranteed Notes,
Series A 4.33 3/01/2009 986
1,000 Public Service Electric & Gas Co.,
First Mortgage Bond, Series A 2.06(d) 6/23/2006 1,000
1,000 Sempra Energy ESOP, Series 1999 (NBGA)(a) 4.21 11/01/2014(c) 1,005
800 Teco Energy, Inc., Senior Notes 10.50 12/01/2007 930
--------
12,331
--------
ENVIRONMENTAL SERVICES (0.2%)
1,000 WMX Technologies, Inc., Senior Notes 7.38 8/01/2010 1,143
--------
FOOD RETAIL (0.2%)
1,000 Safeway Inc., Notes 5.80 8/15/2012 1,041
--------
GAS UTILITIES (1.1%)
1,000 Kinder Morgan Energy Partners, LP,
Senior Notes 5.13 11/15/2014 989
1,000 Noram Energy Corp., Debentures 6.50 2/01/2008 1,073
22
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
$ 1,000 Peoples Energy Corp., Notes 6.90% 1/15/2011 $ 1,108
2,000 Texas Gas Transmission Corp., LLC, Notes 4.60 6/01/2015 1,898
1,000 Valero Logistics Operations, LP, Senior Notes 6.05 3/15/2013 1,049
--------
6,117
--------
HEALTH CARE FACILITIES (0.2%)
1,000 HCA, Inc., Notes 5.25 11/06/2008 1,003
--------
HOUSEWARES & SPECIALTIES (0.2%)
1,380 Newell Rubermaid, Inc., MTN, Series A 6.35 7/15/2008 1,461
--------
INTEGRATED OIL & GAS (0.2%)
1,000 Occidental Petroleum Corp., Senior Notes 5.88 1/15/2007 1,047
--------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
1,000 Citizens Communications Co., Notes 8.50 5/15/2006 1,076
--------
LIFE & HEALTH INSURANCE (0.3%)
2,000 Phoenix Home Life Mutual Insurance, Notes(a) 6.95 12/01/2006 2,096
--------
MANAGED HEALTH CARE (0.4%)
2,000 Highmark, Inc., Senior Notes(a) 6.80 8/15/2013 2,151
--------
METAL & GLASS CONTAINERS (0.2%)
1,000 Pactiv Corp., Notes 7.20 12/15/2005 1,038
--------
MOVIES & ENTERTAINMENT (0.4%)
1,000 AOL Time Warner, Inc., Notes 5.63 5/01/2005 1,012
1,000 AOL Time Warner, Inc., Notes 6.88 5/01/2012 1,125
--------
2,137
--------
MULTI-LINE INSURANCE (0.2%)
1,000 American General Finance Corp., Notes 2.00(d) 3/29/2006 999
--------
MULTI-UTILITIES & UNREGULATED POWER (0.2%)
1,000 Duke Capital Corp., Senior Notes 5.50 3/01/2014 1,012
--------
23
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
$ 1,000 Enterprise Products Operating, LP,
Senior Notes(a) 5.60% 10/15/2014 $ 999
1,000 Halliburton Co., Senior Notes(a) 2.85(d) 1/26/2007 1,001
--------
2,000
--------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
1,000 Devon Financing Corp., ULC, Notes 6.88 9/30/2011 1,128
--------
OIL & GAS REFINING & MARKETING & TRANSPORTATION (0.2%)
1,000 Magellan Midstream Partners, LP, Notes 6.45 6/01/2014 1,076
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
1,000 Citigroup, Inc., Global Notes 4.25 7/29/2009 1,007
1,000 Textron Financial Corp., Notes 2.75 6/01/2006 990
--------
1,997
--------
PACKAGED FOODS & MEAT (0.2%)
1,000 General Mills, Inc., Notes 2.63 10/24/2006 983
--------
PAPER PRODUCTS (0.2%)
1,000 MeadWestVaco Corp., Notes 2.37(d) 12/01/2005 1,000
--------
PROPERTY & CASUALTY INSURANCE (0.7%)
1,000 21st Century Insurance Group, Senior Notes 5.90 12/15/2013 1,005
1,000 ACE INA Holdings, Inc., Senior Notes 5.88 6/15/2014 1,006
1,000 AXIS Capital Holdings Ltd., Senior Notes 5.75 12/01/2014 993
1,000 Ohio Casualty Corp., Notes 7.30 6/15/2014 1,047
--------
4,051
--------
RAILROADS (0.3%)
2,000 Union Pacific Railroad Corp., Pass-Through
Certificates, Series 2004-2(a) 5.21 9/30/2014 1,987
--------
REAL ESTATE INVESTMENT TRUSTS (1.8%)
1,000 Duke Realty, LP, Notes 5.40 8/15/2014 1,009
1,000 EOP Operating, LP, Guaranteed Notes 4.75 3/15/2014 958
2,000 ERP Operating, LP, Notes 5.25 9/15/2014 1,995
1,000 iStar Financial, Inc., Senior Notes, Series B 5.13 4/01/2011 1,000
1,000 Liberty Property, LP, Senior Notes 5.65 8/15/2014 1,016
24
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of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
$ 1,000 Nationwide Health Properties, Inc., MTN,
Series B 7.60% 5/10/2007 $ 1,069
2,000 Pan Pacific Retail Properties, Inc., Notes 7.95 4/15/2011 2,282
1,000 Union Dominion Realty Trust, Senior Notes 5.25 1/15/2015 982
--------
10,311
--------
REGIONAL BANKS (0.6%)
1,000 Bank of Hawaii, Notes 6.88 3/01/2009 1,098
1,000 Imperial Bank, Subordinated Capital Notes 8.50 4/01/2009 1,157
1,000 Union Planters Bank, N.A., Subordinated Notes 6.50 3/15/2018(c) 1,066
--------
3,321
--------
REINSURANCE (0.2%)
1,000 Montpelier Re Holdings Ltd., Senior Notes 6.13 8/15/2013 1,021
--------
SPECIALTY CHEMICALS (0.2%)
1,000 Lubrizol Corp., Senior Notes 5.50 10/01/2014 988
--------
THRIFTS & MORTGAGE FINANCE (0.5%)
1,000 Independence Community Bank Corp., Notes(l) 3.50 6/20/2013 961
2,000 Washington Mutual Bank, Subordinated Notes 5.65 8/15/2014 2,047
--------
3,008
--------
Total corporate obligations (cost: $85,388) 87,456
--------
EURODOLLAR AND YANKEE OBLIGATIONS (1.4%)(n)
DIVERSIFIED BANKS (0.3%)
1,000 Bayerische Landesbank, MTN (Germany) 2.60 10/16/2006 986
1,000 Nordea Bank AB, Subordinated Notes
(Sweden)(a) 5.25 11/30/2012 1,027
--------
2,013
--------
DIVERSIFIED METALS & MINING (0.6%)
2,000 Brascan Corp., Notes (Canada) 8.13 12/15/2008 2,266
1,000 Glencore Funding, LLC, Notes (Switzerland)(a) 6.00 4/15/2014 951
--------
3,217
--------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
1,000 Deutsche Telekom International Finance B.V.,
Notes (Germany) 8.25 6/15/2005 1,029
--------
25
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
$ 2,000 Westfield Capital Corp., Senior Notes
(Australia)(a) 5.13% 11/15/2014 $ 1,958
--------
Total Eurodollar and Yankee obligations
(cost: $7,999) 8,217
--------
ASSET-BACKED SECURITIES (4.2%)
AIRLINES (0.7%)
950 Airplanes Pass-Through Trust,
Pass-Through Certificates,
Series 1R, Class A8 2.21(d) 3/15/2019 826
665 America West Airlines, Inc.,
Pass-Through Certificates,
Series 1996-1, Class A, EETC 6.85 7/02/2009 656
852 American Airlines, Pass-Through Certificates,
Series 2002-1, Class G, EETC (INS) 2.55(d) 9/23/2007 857
1,000 Delta Air Lines, Inc., Pass-Through Certificates,
Series 2001-1, Class A-2, EETC(h) 7.11 9/18/2011 965
854 Northwest Airlines Corp.,
Pass-Through Certificates,
Series 1999-2A, EETC(h) 7.58 3/01/2019 876
--------
4,180
--------
ASSET-BACKED FINANCING (3.5%)
1,000 AESOP Funding II, LLC, Series 2004-2A,
Class A1(a) 2.76 4/20/2008 985
2,000 Bank One Issuance Trust, Notes,
Series 2003-A2, Class A2 2.15(d) 10/15/2008 2,002
1,000 Capital One Multi-Asset Execution Trust,
Notes, Series 2003-C2, Class C2 4.32 4/15/2009 1,012
2,000 Citibank Credit Card Issuance Trust,
Series 2001-A8, Class A8 4.10 12/07/2006 2,002
4,000 Consumers Funding, LLC,
Series 2001-1, Class A5 5.43 4/20/2015 4,211
1,000 DaimlerChrysler Auto Trust,
Series 2003-A , Class A3 2.12 11/08/2006 997
1,000 Detroit Edison Securitization Funding, LLC,
Series 2001-1, Class A5 6.42 3/01/2015 1,114
1,000 Honda Auto Receivables Owner Trust,
Series 2003-3, Class A3 2.14 4/23/2007 995
26
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
$ 2,010 MBNA Credit Card Master Note Trust,
Series 2002-A6, Class A6 3.90% 11/15/2007 $ 2,024
781 Oncor Electric Delivery Transition Bond Co.,
Bonds, Series 2003-1, Class A1 2.26 2/15/2009 775
2,000 SLM Student Loan Trust, Series 2004-8,
Class A2 2.12(d) 7/25/2013 2,001
2,000 Whole Auto Loan Trust, Series 2003-1,
Class A3B(a) 1.99 5/15/2007 1,984
--------
20,102
--------
Total asset-backed securities (cost: $23,845) 24,282
--------
COMMERCIAL MORTGAGE SECURITIES (0.7%)
COMMERICAL MORTGAGE-BACKED SECURITIES (0.5%)
1,000 Credit Suisse First Boston Mortgage
Securities Corp., Series 1998-C1, Class D 7.17 5/17/2040 1,109
453 LB Commercial Conduit Mortgage Trust,
Series 1995-C2, Class C 7.78 9/25/2025 454
1,250 Merrill Lynch Mortgage Investors, Inc.,
Series 1998-C1, Class A2 6.48 11/15/2026 1,332
--------
2,895
--------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.2%)(g)
10,000 Greenwich Capital Commercial Funding Corp.,
Series 2002-C1, Class XP
(acquired 8/13/2003; cost $1,026)(a,b) 2.29 1/11/2035 808
--------
Total commercial mortgage securities (cost: $3,696) 3,703
--------
U.S. GOVERNMENT AGENCY ISSUES (6.6%)(j)
DEBENTURES (1.3%)
Fannie Mae,(+)
2,000 CPI Floating Rate Note 3.79(d) 12/17/2009 2,022
2,000 Subordinate Note 5.25 8/01/2012 2,059
3,000 Benchmark Note 5.38 11/15/2011 3,180
--------
7,261
--------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.1%)
1,825 Freddie Mac, Pool C79394(+) 5.50 4/01/2033 1,850
Government National Mortgage Assn. I,
3,163 Pool 603868 5.50 1/15/2033 3,223
357 Pool 587184 7.00 4/15/2032 380
27
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
$ 865 Government National Mortgage Assn. II,
Pool 781494 6.50% 8/20/2031 $ 911
--------
6,364
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.9%)
Fannie Mae,(+)
1,000 Series 2001-25 D 6.00 2/25/2014 1,006
1,673 Series 1999-25 VB 6.00 4/25/2016 1,690
1,843 Series 2001-20 VB 6.00 9/25/2017 1,869
2,000 Series 2001-29 VB 6.50 8/25/2016 2,028
Freddie Mac,(+)
2,449 Series 2435 VG 6.00 2/15/2013 2,556
4,000 Series 2389 VH 6.00 12/01/2031 4,121
4,000 Series 2427 VL 6.50 11/15/2017 4,097
2,000 Series 2445 VD 6.50 4/15/2018 2,065
Government National Mortgage Assn. I,
1,000 Series 1999-14 VD 6.00 3/20/2014 1,040
61 Series 1999-11 VC 6.50 5/20/2014 61
2,000 Series 2001-49 VB 7.00 11/16/2016 2,079
--------
22,612
--------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.3%)
1,714 Rowan Companies, Inc., Guaranteed Bond,
Title XI 2.80 10/20/2013 1,627
--------
Total U.S. government agency issues (cost: $36,865) 37,864
--------
U.S. TREASURY SECURITIES (4.0%)
INFLATION-INDEXED NOTE (1.1%)(f)
5,455 3.50%, 1/15/2011 6,198
--------
NOTES (2.9%)
12,000 4.00%, 2/15/2014(h) 11,704
5,000 4.75%, 5/15/2014(h) 5,155
--------
16,859
--------
Total U.S. Treasury securities (cost: $22,458) 23,057
--------
MUNICIPAL BONDS (0.7%)
COMMUNITY SERVICE (0.1%)
1,000 Jicarilla Apache Nation, NM, RB 2.95 12/01/2006 989
--------
28
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (0.2%)
$ 1,000 Ohio Edison Co., Water Development Auth.
PCRB, Series 1999A 2.25% 6/01/2033(c) $ 992
--------
ENVIRONMENTAL SERVICES (0.2%)
1,000 California State Financing Auth. PCRB,
(Republic Services, Inc.) 2.00 12/01/2033(c) 1,000
--------
SPECIAL ASSESSMENT/TAX/FEE (0.2%)
1,000 Short Pump Town Center Community
Development Auth., VA, RB(a) 4.85 2/01/2006 990
--------
Total municipal bonds (cost: $4,000) 3,971
--------
Total bonds (cost: $184,251) 188,550
--------
MONEY MARKET INSTRUMENTS (2.9%)
VARIABLE-RATE DEMAND NOTES (1.3%)(e)
------------------------------------
ELECTRIC UTILITIES (0.1%)
600 Sempra Energy ESOP, Series 1999A (NBGA)(a) 2.78 11/01/2014 600
--------
HEALTH CARE FACILITIES (0.5%)
3,145 Vista Funding Corp., Notes,
Series 2000A (LOC - Sky Bank) 3.18 6/01/2025 3,145
--------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.7%)
1,860 145 Associates Ltd., Notes,
Series 2000 (LOC - Sky Bank) 3.18 10/01/2020 1,860
1,890 CAH Holdings, Inc.
(LOC - First Commercial Bank) 2.38 8/01/2028 1,890
--------
3,750
--------
7,495
--------
COMMERCIAL PAPER (0.2%)
-----------------------
OTHER DIVERSIFIED FINANCIAL SERVICES
993 Wheels, Inc.(a,k) 2.10 12/01/2004 993
--------
29
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER COUPON VALUE
OF SHARES SECURITY RATE MATURITY (000)
- --------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND (1.4%)(i)
---------------------------
8,426,669 SSgA Prime Money Market Fund 1.82% - $ 8,427
--------
Total money market instruments (cost: $16,915) 16,915
--------
PRINCIPAL
AMOUNT
(000)
- -----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (5.2%)
CORPORATE OBLIGATIONS (0.9%)
----------------------------
LIFE AND HEALTH INSURANCE
$ 5,000 Monumental Global Funding II, Notes(a) 2.35(d) 5/02/2005 5,005
--------
REPURCHASE AGREEMENTS (4.3%)(m)
-------------------------------
19,500 CS First Boston LLC, 2.06%, acquired on
11/30/2004 and due 12/01/2004 at $19,500
(collateralized by $66,100 of U.S. Treasury
STRIPS, 6.13%(o), due 11/15/2027; market
value $19,890) 19,500
5,000 Merrill Lynch Government Securities, Inc.,
2.04%, acquired on 11/30/2004 and due
12/01/2004 at $5,000 (collateralized by
$5,100 of Federal Home Loan Bank
Bonds, 6.00%, due 4/26/2024;
market value $5,134) 5,000
--------
24,500
--------
NUMBER
OF SHARES
- ----------
MONEY MARKET FUNDS (0.0%)(i,p)
------------------------------
94,971 AIM Short-Term Investment Co. Liquid
Assets Portfolio 1.93 - 95
27,125 Merrill Lynch Premier Institutional Fund 1.90 - 27
--------
122
--------
Total short-term investments purchased with cash collateral
from securities loaned (cost: $29,627) 29,627
--------
TOTAL INVESTMENTS (COST: $563,778) $600,298
========
30
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
GENERAL NOTES
- --------------------------------------------------------------------------------
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets and, in total, may not
equal 100%.
ISHARES - exchange-traded funds, managed by Barclays Global Fund
Advisors, that represent a portfolio of stocks designed to closely
track a specific market index. iShares funds are traded on various
stock exchanges.
SPDR - Standard & Poor's depositary receipt, or "Spider," is an
exchange-traded fund based on either the S&P 500 Index or the S&P
MidCap 400 Index, and is traded on the American Stock Exchange
(AMEX).
PORTFOLIO DESCRIPTION ABBREVIATIONS
CPI Consumer Price Index
EETC Enhanced Equipment Trust Certificate
ESOP Employee Stock Ownership Plan
MTN Medium-Term Note
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 and
interest payments when due. A high-quality bank, insurance company or
other corporation, or a collateral trust may provide the enhancement.
(LOC) Principal and interest payments are guaranteed by a bank letter
of credit.
31
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
(NBGA) Principal and interest payments are guaranteed by a non-bank
guarantee agreement from Sempra Energy.
(INS) Principal and interest payments are insured by MBIA Insurance
Corp. The insurance does not guarantee the market value of the
security.
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 liquidity
guidelines approved by the Board of Trustees, unless otherwise
noted as illiquid.
(b) Security deemed illiquid by the Manager, under liquidity
guidelines approved by the Board of Trustees, and valued using
methods determined by a pricing service, under valuation procedures
approved by the Board of Trustees. The market value of this
security at November 30, 2004, was $808,000, which represented 0.1%
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 may
shorten the effective maturity of the security.
(d) Variable-rate or floating-rate security - interest rate is
adjusted periodically. The interest rate disclosed represents the
current rate at November 30, 2004.
(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,
32
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
weekly, monthly, or quarterly 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 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 securities (IO CMBSs)
- represent the right to receive only the interest payments on an
underlying pool of commercial mortgage loans. 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. The principal
amount represents the notional amount of the underlying pool on
which the current interest rate is calculated. IO CMBSs are backed
by loans that have various forms of prepayment protection, which
include lock-out provisions, yield maintenance provisions, and
prepayment penalties. This serves to moderate their prepayment
risk. IO CMBSs are subject to recessionary default-related
prepayments that may have a negative impact on yield.
(h) The security or a portion thereof was out on loan as of
November 30, 2004.
(i) Rate represents the money market fund annualized seven-day
yield at November 30, 2004.
(j) U.S. government agency issues - mortgage-backed securities
issued by Government National Mortgage Association (GNMA)
33
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
and certain other U.S. government agencies are supported by the
full faith and credit of the U.S. government. Securities issued 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.
(k) 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 or an investment dealer who makes
a market in this security, and as such has been deemed liquid by
the Manager under liquidity guidelines approved by the Board of
Trustees, unless otherwise noted as illiquid.
(l) Callable security expected to be called prior to maturity due
to a scheduled change from a fixed to a floating interest rate,
which is likely to be uneconomical to the issuer.
(m) Collateral on repurchase agreements is received by the Fund
upon entering into the repurchase agreement. The collateral is
marked- to-market daily to ensure its market value is equal to or
in excess of the repurchase agreement price plus accrued interest.
(n) Eurodollar and Yankee obligations are dollar-denominated
instruments that are issued outside the U.S. capital markets by
foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions
(Eurodollar obligations) as well as dollar-denominated instruments
that are issued by foreign issuers in the U.S. capital markets
(Yankee obligations).
34
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
(o) Zero-coupon security. Rate represents the effective yield at
November 30, 2004.
(p) Represents less than 0.1% of net assets.
* Non-income-producing security for the 12 months preceding
November 30, 2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
ASSETS
Investments in securities, at market value (including securities
on loan of $28,809) (identified cost of $563,778) $600,298
Cash 1
Receivables:
Capital shares sold 502
USAA Investment Management Company 548
Dividends and interest 3,856
Securities sold 3,425
Other 7
--------
Total assets 608,637
--------
LIABILITIES
Payables:
Upon return of securities loaned 29,627
Securities purchased 5,479
Capital shares redeemed 315
Accrued management fees 350
Accrued transfer agent's fees 6
Other accrued expenses and payables 36
--------
Total liabilities 35,813
--------
Net assets applicable to capital shares outstanding $572,824
========
NET ASSETS CONSIST OF:
Paid-in capital $523,690
Accumulated undistributed net investment income 2,679
Accumulated net realized gain on investments 9,935
Net unrealized appreciation of investments 36,520
--------
Net assets applicable to capital shares outstanding $572,824
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 37,501
========
Net asset value, redemption price, and offering price per share $ 15.27
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA BALANCED STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2004 (UNAUDITED)
INVESTMENT INCOME
Dividends $ 3,411
Interest 4,386
Securities lending 44
-------
Total income 7,841
-------
EXPENSES
Management fees 2,034
Administrative and servicing fees 407
Transfer agent's fees 816
Custody and accounting fees 100
Postage 67
Shareholder reporting fees 31
Trustees' fees 3
Registration fees 20
Professional fees 22
Other 7
-------
Total expenses 3,507
Expenses reimbursed (795)
Expenses paid indirectly (29)
-------
Net expenses 2,683
-------
NET INVESTMENT INCOME 5,158
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 14,271
Change in net unrealized appreciation/depreciation 5,744
-------
Net realized and unrealized gain 20,015
-------
Increase in net assets resulting from operations $25,173
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37
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, 2004 (UNAUDITED),
AND YEAR ENDED MAY 31, 2004
11/30/2004 5/31/2004
----------------------
FROM OPERATIONS
Net investment income $ 5,158 $ 6,054
Net realized gain on investments 14,271 24,841
Change in net unrealized appreciation/depreciation
of investments 5,744 14,033
----------------------
Increase in net assets resulting
from operations 25,173 44,928
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,641) (6,463)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 61,685 188,486
Shares issued for dividends reinvested 3,597 6,381
Cost of shares redeemed (36,941) (61,223)
----------------------
Increase in net assets from capital
share transactions 28,341 133,644
----------------------
Net increase in net assets 49,873 172,109
NET ASSETS
Beginning of period 522,951 350,842
----------------------
End of period $ 572,824 $ 522,951
======================
Accumulated undistributed net investment income:
End of period $ 2,679 $ 1,162
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,178 13,103
Shares issued for dividends reinvested 244 452
Shares redeemed (2,502) (4,262)
----------------------
Increase in shares outstanding 1,920 9,293
======================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (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 (NYSE) on
each business day the exchange is open) as set forth below:
1. Equity 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. Equity 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. Securities trading in various foreign markets may take
place on days when the NYSE is closed. Further, when the NYSE
is open, the foreign markets may be closed. Therefore, the
calculation of the Fund's net asset value (NAV) may not take
place at the same time the prices of certain foreign
securities held by the Fund are determined. In most cases,
events affecting the values of foreign securities that occur
between the time of their last quoted sales or official
closing prices and
39
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
the close of normal trading on the NYSE on a day the Fund's
NAV is calculated will not be reflected in the value of the
Fund's foreign securities. However, USAA Investment Management
Company (the Manager), an affiliate of the Fund, and the
Fund's subadviser, if applicable, will monitor for events that
would materially affect the value of the Fund's foreign
securities and, if necessary, the Manager will value the
foreign securities in good faith, considering such available
information that the Manager deems relevant, under valuation
procedures approved by the Trust's Board of Trustees. In
addition, the Fund may use information from an external vendor
or other sources to adjust the foreign market closing prices
of foreign equity securities to reflect what the Fund believes
to be the fair value of the securities as of the close of the
NYSE. Fair valuation of affected foreign equity securities may
occur frequently based on an assessment that events that occur
on a fairly regular basis (such as U.S. market movements) are
significant.
3. Investments in open-end investment companies, other than
exchange-traded funds, are valued at their NAV at the end of
each business day.
4. Debt securities purchased with original maturities of 60
days or less are stated at amortized cost, which approximates
market value. Repurchase agreements are valued at cost.
5. Other debt 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 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
40
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
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.
6. 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 in consultation with the Fund's
subadviser if applicable, under valuation procedures approved
by the Trust's Board of Trustees. Valuing securities at fair
value is intended to cause the Fund's NAV to be more reliable
than it otherwise would be.
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 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.
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
41
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
U.S. government, its agencies, or its instrumentalities.
Government-sponsored enterprises (GSEs), such as Federal National
Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation (Freddie Mac), are supported only by the credit of
the issuing U.S. government agency, and are neither issued nor
guaranteed by the U.S. government. Obligations pledged as
collateral are required to maintain a value equal to or in excess
of the repurchase agreement price plus accrued interest 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 exchange rate 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.
42
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
Separately, net realized foreign currency gains/losses may arise
from sales of foreign currency, currency gains/losses realized
between 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, 2005, 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 NAV to the extent that the Fund makes such
purchases while remaining substantially fully invested. The Fund
had no when-issued commitments as of November 30, 2004.
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 arrangements
with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts are used to reduce
the
43
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
Fund's expenses. For the six-month period ended November 30,
2004, brokerage commission reimbursements and custodian and other
bank credits reduced the Fund's expenses by $28,000 and $1,000,
respectively, resulting in a total reduction in Fund expenses of
$29,000.
H. INDEMNIFICATIONS - Under the Trust's organizational documents,
its officers and trustees are indemnified against certain
liability arising out of the performance of their duties to the
Trust. In addition, in the normal course of business the Trust
enters into contracts that contain a variety of representations
and warranties that provide general indemnifications. The Trust's
maximum exposure under these arrangements is unknown, as this
would involve future claims that may be made against the Trust
that have not yet occurred. However, the Trust expects the risk
of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that may
affect the reported amounts in the financial statements.
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
The Fund participates with other USAA funds in two joint, short-term,
revolving, 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 and State Street Bank
and Trust Company (State Street), under which Bank of America and
State Street have each committed $50 million. 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
44
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
assets at a rate per annum equal to the rate at which CAPCO obtains
funding in the capital markets, with no markup. Subject to
availability under its agreement with Bank of America and State
Street, the Fund may borrow from Bank of America and State Street, at
the federal funds 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 and State Street 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. For the six-month period ended
November 30, 2004, the Fund paid CAPCO facility fees of $2,000. The
Fund had no borrowings under either of these agreements during the
six-month period ended November 30, 2004.
On November 17, 2004, the Trust's Board of Trustees approved,
effective January 6, 2005, the termination of the $100 million line of
credit with Bank of America and State Street and the renewal of the
line of credit with CAPCO at a reduced amount of $300 million.
(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, 2005, 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, 2004, the Fund had
45
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
capital loss carryovers of $4,191,000 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, 2004, were $168,582,000 and $142,955,000, respectively.
As of November 30, 2004, the cost of securities, 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, 2004, were $43,770,000 and $7,250,000, respectively,
resulting in net unrealized appreciation of $36,520,000.
(5) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund, through its securities-lending agent, Metropolitan West
Securities LLC (MetWest), 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 to the
fair value of the securities loaned, initially in an amount at least
equal to 102% of the fair value of domestic securities loaned and 105%
of the fair value of international securities loaned. Cash collateral
is invested in high-quality short-term investments. The Fund and
MetWest retain 80% and 20%, respectively, of the income earned from
the investment of cash received as collateral. MetWest receives no
other fees from the Fund for its services as securities-lending agent.
Risks to the Fund in securities-lending transactions are that the
borrower may not provide additional collateral
46
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
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. For the six-month
period ended November 30, 2004, the Fund received securities-lending
income of $44,000, which is net of the 20% income retained by MetWest.
As of November 30, 2004, the Fund loaned securities having a fair
market value of approximately $28,809,000 and received cash collateral
of $29,627,000 for the loans. The cash collateral was invested in
short-term investments as noted in the Fund's portfolio of investments.
(6) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager provides investment management
services to the Fund pursuant to an Investment Advisory
Agreement. Under this agreement, the Manager is responsible for
managing the business and affairs of the Fund and for directly
managing the day-to-day investment of a portion of the Fund's
assets, subject to the authority of and supervision by the
Trust's Board of Trustees. The Fund is also authorized to select
(with approval of the Trust's Board of Trustees) one or more
subadvisers to manage the day-to-day investment of a portion of
the Fund's assets. The Manager monitors each subadviser's
performance through quantitative and qualitative analysis, and
periodically reports to the Trust's Board of Trustees as to
whether each subadviser's agreement should be renewed,
terminated, or modified. The Manager also is responsible for
allocating assets to the subadvisers. The allocation for each
subadviser can range from 0% to 100% of the Fund's assets, and
the Manager can change the allocations without shareholder
approval.
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
47
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
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 consists
of the current month plus the previous 35 months.
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%.
Under the performance fee arrangement, the Fund will pay a
positive performance fee adjustment for a performance period
whenever the Fund outperforms the Lipper Balanced Funds Index
over that period, even if the Fund had overall negative returns
during the performance period.
For the six-month period ended November 30, 2004, the Fund
incurred total management fees, paid or payable to the Manager,
of $2,034,000, which included no performance adjustment.
48
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
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 in the annual amount
of 0.20% of the portion of the Fund's average net assets that
Wellington Management manages. For the six-month period ended
November 30, 2004, the Manager paid Wellington Management
subadvisory fees of $315,000.
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, 2004, the Fund incurred administrative and servicing
fees, paid or payable to the Manager, of $407,000.
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 expenses paid
indirectly, 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, 2004, the Fund incurred reimbursable expenses of $795,000.
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, 2004, the
Fund incurred transfer agent's fees, paid or payable to USAA
Transfer Agency Company, of $816,000.
49
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
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.
50
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (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,
--------------------------------------------------------------------------------------
2004 2004 2003 2002 2001 2000
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.70 $ 13.35 $ 14.20 $ 15.25 $ 15.26 $ 14.02
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .20 .28 .35(a,d) .33 .27
Net realized and
unrealized gain (loss) .53 1.37 (.70) (.40)(a,d) .77 1.22
--------------------------------------------------------------------------------------
Total from investment operations .67 1.57 (.42) (.05)(a,d) 1.10 1.49
--------------------------------------------------------------------------------------
Less distributions:
From net investment income (.10) (.22) (.29) (.34) (.32) (.25)
From realized capital gains - (.14) (.66) (.79) -
--------------------------------------------------------------------------------------
Total distributions (.10) (.22) (.43) (1.00) (1.11) (.25)
--------------------------------------------------------------------------------------
Net asset value at end of period $ 15.27 $ 14.70 $ 13.35 $ 14.20 $ 15.25 $ 15.26
======================================================================================
Total return (%)* 4.58 11.82 (2.71) (.06) 7.37 10.65
Net assets at end of period (000) $572,824 $522,951 $350,842 $327,563 $184,977 $148,153
Ratio of expenses to
average net assets (%)** 1.00(b,c,e) 1.00(c,e) 1.00(c,e) 1.02(c,e) 1.23(c,e) 1.25(c,e)
Ratio of expenses to average net
assets, excluding
reimbursements (%)** 1.29(b,e) 1.33(e) 1.47(e) 1.35(e) - 1.26(e)
Ratio of net investment
income to average
net assets (%)** 1.90(b) 1.38 2.19 2.41(d) 2.30 1.92
Portfolio turnover (%) 27.31 55.26 113.80 42.34 80.60 87.11
* Assumes reinvestment of all net investment income and realized capital gain distributions during the period.
** For the six-month period ended November 30, 2004, average net assets were $541,242,000.
(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 operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses
paid indirectly decreased the expense ratios as follows:
(.01%) (.02%) (.01%) - - -
51
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: direct
costs, such as wire fees, redemption fees, and low balance fees; and
indirect costs, including management fees, transfer agency fees, and
other Fund operating expenses. This Example is intended to help you
understand your indirect costs, also referred to as "ongoing costs,"
(in dollars) of investing in the Fund and to compare these costs with
the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire six-month period of
June 1, 2004, through November 30, 2004.
ACTUAL EXPENSES
- --------------------------------------------------------------------------------
The first line of the table on the next page provides information
about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the
beginning of the period, to estimate the expenses that you paid over
the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first line under the heading "Expenses
Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
- --------------------------------------------------------------------------------
The second line of the table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the
52
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(continued)
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2004 (UNAUDITED)
Fund and other funds. To do so, compare this 5% hypothetical example
with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any direct costs,
such as wire fees, redemption fees, or low balance fees. Therefore,
the second line of the table is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of
owning different funds. In addition, if these direct costs were
included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2004-
JUNE 1, 2004 NOVEMBER 30, 2004 NOVEMBER 30, 2004
--------------------------------------------------------
Actual $1,000.00 $1,045.80 $5.07
Hypothetical
(5% return before expenses) 1,000.00 1,020.11 5.01
*Expenses are equal to the Fund's annualized expense ratio of 0.99%,
which is net of reimbursements and any expenses paid indirectly,
multiplied by the average account value over the period, multiplied by
183 days/365 days (to reflect the one-half year period). The Fund's
ending account value on the first line in the table is based on its
actual total return of 4.58% for the six-month period of June 1, 2004,
through November 30, 2004.
TRUSTEES Christopher W. Claus
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 Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1900
ACCOUNTING FIRM 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 (800) 531-8181
INFORMATION ABOUT For account servicing, exchanges,
MUTUAL FUNDS or redemptions
(800) 531-8448
RECORDED MUTUAL 24-hour service (from any phone)
FUND PRICE QUOTES (800) 531-8066
MUTUAL FUND (from touch-tone phones only)
USAA TOUCHLINE For account balance, last transaction, fund
prices, or to exchange or redeem fund shares
(800) 531-8777
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, APPROVED BY THE
TRUST'S BOARD OF TRUSTEES FOR USE IN VOTING PROXIES ON BEHALF OF THE FUND, ARE
AVAILABLE WITHOUT CHARGE (I) BY CALLING (800) 531-8448; (II) AT USAA.COM; AND
(III) ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. INFORMATION REGARDING HOW THE
FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT
12-MONTH PERIOD ENDED JUNE 30, IS AVAILABLE (I) AT USAA.COM; AND (II) ON THE
SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.
AS A RESULT OF RULES RECENTLY ADOPTED BY THE SEC, THE FUND FILES ITS COMPLETE
SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FIRST AND THIRD QUARTERS OF
EACH FISCAL YEAR ON FORM N-Q. THESE FORM N-QS ARE AVAILABLE (I) BY CALLING (800)
531-8448; (II) AT USAA.COM; AND (III) ON THE SEC'S WEB SITE AT
HTTP://WWW.SEC.GOV. THESE FORM N-QS ALSO MAY BE REVIEWED AND COPIED AT THE SEC'S
PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE
PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330.
[LOGO OF RECYCLED PAPER]
Recycled
Paper
- --------------------------------------------------------------------------------
[LOGO OF USAA] 9800 Fredericksburg Road -------------
USAA(R) San Antonio, Texas 78288 PRSRT STD
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and others electronically.
Sign up at USAA.COM.
- --------------------------------------------------------------------------------
[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
27804-0105 (C)2005, 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.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 10. CONTROLS AND PROCEDURES
The principal executive officer and principal 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.
In October 2004, certain changes were made to the policies and procedures to
address the reporting of audit and non-audit fees required in annual reports on
Form N-CSR. None of these changes are relevant to this semi-annual 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.
ITEM 11. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA INVESTMENT TRUST
By:* /s/ EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: 01/25/05
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /s/ CHRISTOPHER W. CLAUS
----------------------------------------------------
Signature and Title: Christopher W. Claus/President
Date: 01/25/05
------------------------------
By:* /s/ DAVID HOLMES
--------------------------------------------
Signature and Title: David Holmes/Treasurer
Date: 01/25/05
------------------------------
*Print the name and title of each signing officer under his or her signature.