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: EILEEN M. SMILEY
USAA INVESTMENT TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-4103
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
USAA CORNERSTONE STRATEGY FUND - SEMIANNUAL REPORT FOR PERIOD ENDING
NOVEMBER 30, 2005
[LOGO OF USAA]
USAA(R)
USAA CORNERSTONE
STRATEGY Fund
[GRAPHIC OF USAA CORNERSTONE STRATEGY FUND]
S e m i a n n u a l R e p o r t
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NOVEMBER 30, 2005
Table of CONTENTS
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MESSAGE FROM THE PRESIDENT 2
MANAGERS' COMMENTARY 4
FUND RECOGNITION 10
INVESTMENT OVERVIEW 11
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 42
Financial Statements 47
Notes to Financial Statements 50
EXPENSE EXAMPLE 66
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)2006, USAA. All rights reserved.
2
M E S S A G E
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from the PRESIDENT
"
WE WILL CONTINUE TO LOOK FOR VALUE
[PHOTO OF CHRISTOPHER W. CLAUS] IN OUR INVESTMENTS, EXAMINE THE RISKS,
AND MAINTAIN OUR INVESTMENT DISCIPLINE.
"
December 2005
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As I write to you during the final weeks of 2005, I am watching
some interesting dynamics that could affect all of us in the
new year.
In 2006, we expect the Federal Reserve Board (the Fed) to stop
tightening short-term interest rates. After raising rates to
4.25% in December 2005, Fed governors, we believe, are likely
to hike rates at least one more time on January 31, 2006. If
the Fed keeps tightening, there is the possibility that
short-term interest rates could eventually be higher than
long-term rates, resulting in what is called an inverted yield
curve. In some cases, an inverted yield curve has been the
precursor of an economic downturn.
For the moment, however, the U.S. economy appears to be on
solid footing, with estimates for gross domestic product (GDP)
growth of about 3% for 2006. While the country is not
experiencing an economic boom, we can expect moderate growth in
the months ahead, which should translate into gains in
corporate earnings in the mid-single digits. Whether earnings
will be robust enough to support current stock market
valuations, however, remains uncertain. Beyond our shores,
international stocks outperformed U.S. equities during 2005. We
believe we could see a repeat of this in 2006.
In the gold market, prices have continued to rise, fueled by
high oil prices, strong investor demand, and an increase in
consumer purchases of jewelry. We expect these conditions to
persist during 2006.
I believe the housing market is at or near the peak in the
number of units sold. Inventory has grown, mortgage rates are
inching
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upward, and some institutions have tightened their lending
standards. If housing prices fall, the first to feel the pain
could be investors who are "flipping" properties using
interest-only or adjustable-rate mortgages (ARMs). The dramatic
increase in short-term rates would be particularly painful for
housing investors also, especially those with ARMs and
interest-only mortgages.
Among the biggest stories of 2005 was the resiliency of
long-term interest rates. Instead of spiking higher, they were
range bound most of the year. In 2006, both short- and
long-term rates will continue to be a key market indicator. If
rates rise, bond prices will fall - hurting the bond market.
Going forward, two factors will have great influence on
long-term rates. One is inflation, which appears to be under
control at present. The second is the purchase of U.S. debt by
foreign investors, which helps us support our budget deficit.
With interest rates in other countries significantly lower, it
seems likely that foreign demand will remain strong, buoying
U.S. bonds. We believe that long-term rates will not spike
dramatically but continue to drift upward in a manageable
fashion.
In this environment, our central concern is that we are paid
for the risk we take in all our portfolios. It makes sense to
be cautious; there is some risk in the market, but risk
premiums are very low.
We will continue to look for value in our investments, examine
the risks, and maintain our investment discipline. From all of
us at USAA Investment Management Company, thank you for your
business and the opportunity to serve your investment needs.
Sincerely,
/S/ CHRISTOPHER W. CLAUS
Christopher W. Claus
President and Vice Chairman of the Board
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
M A N A G E R S '
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COMMENTARY on the Fund
MARK W. JOHNSON, CFA MATTHEW E. MEGARGEL, CFA
USAA Investment Management Company Wellington Management Company, LLP
Precious Metals and Minerals Securities U.S. Stocks
MARGARET "DIDI" WEINBLATT, Ph.D., CFA JAMES P. HOFFMANN
USAA Investment Management Company Wellington Management Company, LLP
Bonds and Money Market Instruments Real Estate Securities
ARNOLD J. ESPE, CFA DAVID R. MANNHEIM
USAA Investment Management Company MFS Investment Management
Bonds and Money Market Instruments International Stocks
STUART H. WESTER, CFA MARCUS L. SMITH
USAA Investment Management Company MFS Investment Management
U.S. Stocks International Stocks
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HOW DID THE FUND PERFORM?
The USAA Cornerstone Strategy Fund had a total return of 4.52%
for the six months ended November 30, 2005. This compares to a
return of 6.19% for the Lipper Global Flexible Portfolio Funds
Average, 6.54% for the Lipper Global Flexible Funds Index, and
5.88% for the S&P 500 Index.
HOW WERE THE FUND'S ASSETS ALLOCATED AMONG THE VARIOUS ASSET CLASSES?
The Fund began the period with 52% of assets in U.S. equities,
29% in international stocks, and 19% in bonds and money market
instruments. In June 2005, and then again in October 2005, we
shifted assets from U.S. stocks and international stocks to
bonds and money market instruments, ending the six months with
39% in U.S. equities, 16% in international stocks, and 45% in
bonds and money market instruments. These moves were undertaken
given our view that stock markets have become less attractive
on a risk-reward basis looking out over the next 12 to 24
months; therefore, we thought it was prudent to reduce risk in
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 13 FOR BENCHMARK DEFINITIONS.
5
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the portfolio. This reallocation detracted from performance on
a short-term basis, as stocks subsequently did better than
bonds. We continue to carefully monitor market risks.
HOW DID THE FUND'S U.S. EQUITY PORTION PERFORM?
The Fund's U.S. equity portion outperformed the Russell 3000
Index. Favorable stock selection drove this outperformance,
with particular strength apparent in the health care, consumer
staples, financials, and energy sectors.
Good performance by health care equipment and services
companies Health Net, Inc. and Omnicare, Inc. helped offset
weaker returns from pharmaceutical and biotechnology holdings
Abbott Laboratories and Schering-Plough Corp. Our underweight
position in poorly performing Pfizer, Inc. also helped on a
relative basis. At the end of the period, health care
represented the largest sector allocation in the equity
portion, reflecting our view that valuations remain attractive
and the earnings outlook heading into 2005 is relatively
strong.
We benefited from our overweight exposure to energy, the top-
performing area of the U.S. stock market, because several
energy companies were among the largest individual contributors
to performance, particularly Schlumberger Ltd. and Chesapeake
Energy Corp.
Despite good stock selection, the Fund was hurt by its
overweight position in health care and an underweight position
in financials. Although recent returns in the financials sector
have been good, we believe banking stocks will weaken under net
interest margin pressure.
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. WELLINGTON MANAGEMENT AND USAA UTILIZE THE
RUSSELL 3000 AS A FINANCIAL MARKET PERFORMANCE BENCHMARK IN
MANAGING THE U.S. STOCK PORTION OF THE FUND.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 16-41.
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COMMENTARY on the Fund
Stock selection in information technology and materials
detracted from performance. In information technology, we were
hurt by owning Dell, Inc. whose shares fell sharply as demand
for high-end PCs appeared to weaken, as well as by not owning
several benchmark stocks that performed well. Other individual
names that detracted from performance during the period were
Kohl's Corp. in retailing and Tempur-Pedic International, Inc.
in the consumer durables sector.
WHAT'S YOUR OUTLOOK MOVING FORWARD?
During much of the period, the Fund maintained a cyclical
posture, but more recently we have begun migrating toward
stable growth stocks given that consumer confidence and
manufacturing data are moderating and inflation appears to be
contained. At the end of the period, the Fund was overweight in
the health care, consumer discretionary, and energy sectors.
Our most significant sector underweights were in financials and
utilities.
HOW DID INTERNATIONAL MARKETS PERFORM DURING THE PERIOD?
International markets performed significantly better than their
U.S. stock market counterparts. During the period, we saw
strong outperformance in Japan. The Japanese prime minister was
re-elected with a mandate to restructure and reform, and that
has led to a very strong snapback in the stocks of Japanese
banks, which have suffered for many years from non-performing
loans and other structural problems. Our substantial
underweight, as compared to the MSCI Europe, Australasia and
Far East (EAFE) Index, in Japan as a market and the big
Japanese banks specifically detracted from performance during
the six months, although it had been
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
TEMPUR-PEDIC INTERNATIONAL, INC. WAS SOLD OUT OF THE FUND PRIOR
TO NOVEMBER 30, 2005.
THE MSCI-EAFE INDEX IS AN UNMANAGED INDEX THAT REFLECTS THE
MOVEMENTS OF STOCK MARKETS IN EUROPE, AUSTRALASIA, AND THE FAR
EAST BY REPRESENTING A BROAD SELECTION OF DOMESTICALLY LISTED
COMPANIES WITHIN EACH MARKET.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 16-41.
7
. . . C O N T I N U E D
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highly beneficial in the past few years. We still don't find
the bank stocks particularly attractive, but we are finding
companies in other sectors in Japan that we like.
IN WHAT KIND OF INTERNATIONAL COMPANIES IS THE FUND INVESTING?
We conduct bottom-up fundamental research, investing company by
company. The portfolio's industry sector and geographic weights
are a result of where we are finding opportunities. If you look
at the portfolio, the type of companies we're finding
attractive are those focused on corporate spending, as opposed
to consumer spending. The consumer has done really well for a
long time, but corporations have been hesitant to spend at a
time when they have record amounts of cash on hand. Investments
that have been put off are starting to be made, benefiting
companies in industries such as machinery, heavy construction,
and mining.
We have positions in William Hill plc (U.K.) and Hilton Group
plc (U.K.), both cash-generating gaming businesses with high
returns and growing revenues from online gaming. We're
underweight in financial services, largely as a result of not
owning large commercial banks in Germany and Japan. In energy,
we're focused on companies that are increasing existing
reserves such as EnCana Corp. (Canada) and Total S.A. (France),
which have the potential to do well regardless of the direction
of the price of oil.
WHAT INTERNATIONAL HOLDINGS HAD THE BIGGEST IMPACT ON PERFORMANCE?
Our largest holding, Reckitt Benckiser plc (U.K.), was a slight
drag on relative performance as third quarter results came in
below expectations, but given management's ability to execute
its strategy over a long time period, we remain positive on the
company, while closely watching for pressure on profit margins.
Hutchison Telecommunications International Ltd. (Hong Kong) did
well during the period, supported by strong revenue
8
. . . C O N T I N U E D
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COMMENTARY on the Fund
and profit growth and particularly good news from its mobile
businesses in emerging markets. Canadian National Railway Co.
(Canada) is benefiting from increasing capital expenditures,
strong earnings, and a share buyback program. Chugai
Pharmaceutical Co. Ltd. (Japan) appreciated sharply after one
of its drugs was shown to slow the development of rheumatoid
arthritis.
WHAT'S YOUR OUTLOOK FOR INTERNATIONAL MARKETS?
We're finding opportunities in a broad range of sectors, from
consumer products companies to industrial firms that we believe
should benefit from higher capital expenditures. As always,
we're choosing to invest in what we believe to be fundamentally
solid companies, one stock at a time.
HOW DID THE FUND'S BOND PORTION PERFORM?
As evidenced by the fact that roughly 90% of our peer group
lost money during the six months, it was a tough environment in
the bond market as rates rose across all maturities on the
yield curve. Your Fund's bond portion bucked the trend, with a
positive total return as income from the bonds we own offset
the principal erosion caused by higher rates.
We benefited from a shorter-than-average duration (a measure of
interest-rate sensitivity) during the period, as well as from
our tactic of lengthening duration as rates rose and shortening
duration as rates fell. One important way we achieved our
overall short duration was by investing in floating-rate bonds,
whose income rose as the Federal Reserve Board (the Fed) raised
rates and the market drove yields higher.
Additionally, we benefited from our allocations within the
corporate bond market, because we were overweight in the
finance, real estate investment trusts (REITs), and utilities
sectors, all of which outperformed. We avoided purchase of
traditional mortgage-backed securities, but found value in
commercial mortgage-backed securities.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 16-41.
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During the period, strong security selection was our major
competitive advantage, and in this we were supported by a staff
of 17 analysts who continue to do an exceptional job of
suggesting individual bonds to the portfolio management team.
WHAT'S YOUR OUTLOOK?
We believe we're coming to the end of the Fed tightening cycle,
and further that expected Fed moves are priced into the market.
Additionally, we expect the economy to moderate and inflation
to remain under control. As such, we're modestly bullish on
long-term interest rates, and have therefore moved to a more
neutral duration. Given our positive view on inflation, we've
reduced our exposure to Treasury inflation- protected
securities (TIPS). We see a continuation of strong demand for
long-term bonds, especially from pension plans that need to
match long-term liabilities with long-term assets.
DO YOU ANTICIPATE ANY ALLOCATION CHANGES?
On December 1, 2005, Batterymarch Financial Management, Inc.
(Batterymarch) will join the Fund as a new subadviser, and we
intend to shift about 11% of assets to Batterymarch's "best
ideas" global investment strategy. Batterymarch will purchase
stocks that its stock selection model has ranked the most
attractive in the global marketplace. These stocks include
companies that are located throughout the world and are of
different sizes (small, medium, and large). Instead of being
tied to just one stock style in one country, Batterymarch can
scour the world on your behalf for what it believes are the
best investments in each economic sector.
On behalf of all of the analysts and managers working on your
Fund, we thank you for your continued confidence in us.
10
F U N D
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RECOGNITION
USAA CORNERSTONE STRATEGY FUND
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OVERALL MORNINGSTAR RATING(TM)
out of 1,470 large blend funds for the period ending November 30, 2005:
OVERALL RATING
* * * *
3-YEAR 5-YEAR 10-YEAR
* * * * * * * * * * *
out of 1,470 funds out of 1,116 funds out of 399 funds
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 Ratings metrics. Ratings are
based on risk-adjusted returns.
- --------------------------------------------------------------------------------
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. (EACH SHARE
CLASS IS COUNTED AS A FRACTION OF ONE FUND WITHIN THIS SCALE AND RATED
SEPARATELY, WHICH MAY CAUSE SLIGHT VARIATIONS IN THE DISTRIBUTION PERCENTAGES.)
11
I N V E S T M E N T
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OVERVIEW
USAA CORNERSTONE STRATEGY FUND
OBJECTIVE
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Achieve a positive, inflation-adjusted rate of return and a
reasonably stable value of Fund shares, thereby preserving
purchasing power of shareholders' capital.
TYPES OF INVESTMENTS
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Using preset target ranges, the Fund's strategy is to invest
its assets mostly in stocks (divided into the categories of
U.S., international, real estate, and precious metals and
minerals) and, to a much lesser extent, in bonds and money
market instruments.
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11/30/05 5/31/05
- --------------------------------------------------------------------------------
Net Assets $1,620.5 Million $1,543.4 Million
Net Asset Value Per Share $27.73 $26.53
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/05
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5/31/05 TO 11/30/05* 1 YEAR 5 YEARS 10 YEARS
4.52% 7.42% 5.40% 7.21%
*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.
12
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OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER GLOBAL LIPPER GLOBAL
S&P 500 FLEXIBLE PORTFOLIO FLEXIBLE FUNDS USAA CORNERSTONE
INDEX FUNDS AVERAGE INDEX STRATEGY FUND
------- ------------------ -------------- ----------------
11/30/95 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/95 10,192.63 10,235.38 10,225.96 10,370.39
01/31/96 10,539.13 10,414.33 10,475.73 10,672.48
02/29/96 10,637.18 10,449.53 10,473.16 10,728.58
03/31/96 10,739.59 10,558.02 10,555.86 10,827.84
04/30/96 10,897.78 10,772.96 10,785.04 10,888.26
05/31/96 11,178.35 10,890.79 10,853.47 10,991.84
06/30/96 11,220.97 10,899.99 10,898.43 11,056.57
07/31/96 10,725.50 10,623.80 10,632.58 10,785.57
08/31/96 10,952.08 10,839.35 10,789.45 11,027.33
09/30/96 11,567.94 11,191.93 11,092.24 11,336.26
10/31/96 11,886.87 11,285.73 11,228.97 11,501.92
11/30/96 12,784.59 11,717.70 11,706.98 12,002.12
12/31/96 12,531.33 11,723.60 11,723.57 12,223.86
01/31/97 13,313.81 11,937.58 11,940.62 12,407.75
02/28/97 13,418.33 12,041.81 12,009.55 12,467.51
03/31/97 12,868.02 11,857.13 11,813.26 12,274.43
04/30/97 13,635.54 11,937.39 11,928.77 12,347.98
05/31/97 14,469.19 12,478.67 12,430.33 12,853.67
06/30/97 15,112.43 12,884.50 12,778.57 13,317.98
07/31/97 16,314.61 13,443.60 13,304.09 13,941.84
08/31/97 15,401.32 13,030.07 12,922.33 13,526.16
09/30/97 16,244.32 13,703.28 13,472.94 14,300.18
10/31/97 15,702.41 13,185.93 12,995.21 13,932.28
11/30/97 16,428.71 13,275.00 13,035.65 13,989.62
12/31/97 16,710.65 13,383.35 13,147.47 14,135.93
01/31/98 16,895.30 13,502.21 13,179.56 14,130.90
02/28/98 18,113.16 14,074.53 13,773.78 14,624.60
03/31/98 19,039.96 14,537.41 14,235.98 15,088.07
04/30/98 19,234.93 14,659.60 14,361.54 15,143.48
05/31/98 18,904.77 14,526.45 14,238.55 15,057.84
06/30/98 19,672.11 14,557.54 14,227.40 14,972.20
07/31/98 19,464.20 14,429.16 14,088.28 14,628.26
08/31/98 16,652.08 12,790.10 12,529.45 13,111.56
09/30/98 17,719.75 13,019.58 12,730.01 13,367.83
10/31/98 19,158.87 13,658.46 13,394.72 13,822.84
11/30/98 20,319.57 14,261.56 13,994.48 14,220.32
12/31/98 21,489.72 14,673.74 14,329.56 14,419.95
01/31/99 22,388.01 14,858.59 14,499.71 14,403.52
02/28/99 21,692.32 14,449.45 14,147.08 14,014.68
03/31/99 22,559.97 14,922.80 14,607.74 14,146.12
04/30/99 23,433.59 15,614.25 15,392.49 15,055.24
05/31/99 22,880.85 15,359.55 15,147.29 14,945.70
06/30/99 24,147.21 15,940.01 15,708.78 15,197.63
07/31/99 23,396.51 16,000.33 15,697.96 15,037.92
08/31/99 23,280.68 15,985.14 15,642.76 14,875.97
09/30/99 22,643.25 15,995.29 15,557.27 14,673.54
10/31/99 24,075.52 16,358.18 15,872.69 14,858.62
11/30/99 24,564.89 16,972.55 16,429.97 14,991.65
12/31/99 26,009.70 18,215.14 17,534.76 15,592.64
01/31/00 24,703.06 17,871.96 17,176.47 15,148.50
02/29/00 24,235.93 18,757.19 18,132.09 15,016.46
03/31/00 26,605.37 18,867.58 18,044.01 15,940.74
04/30/00 25,805.21 18,250.63 17,440.07 15,802.70
05/31/00 25,276.21 17,900.45 17,166.15 15,766.69
06/30/00 25,898.72 18,607.85 17,781.48 16,090.78
07/31/00 25,494.17 18,148.22 17,561.91 15,961.65
08/31/00 27,076.84 18,781.32 18,160.88 16,296.90
09/30/00 25,647.72 18,269.62 17,625.08 15,862.31
10/31/00 25,538.76 17,896.19 17,283.51 15,719.52
11/30/00 23,526.93 17,272.20 16,615.71 15,433.94
12/31/00 23,642.35 17,880.86 17,288.33 16,020.83
01/31/01 24,480.65 18,298.28 17,511.82 16,303.22
02/28/01 22,249.90 17,430.48 16,628.73 15,694.51
03/31/01 20,841.15 16,690.68 15,808.46 15,167.39
04/30/01 22,459.43 17,417.80 16,614.54 15,914.15
05/31/01 22,610.10 17,361.46 16,487.45 15,857.67
06/30/01 22,060.00 17,209.93 16,246.49 15,612.93
07/31/01 21,842.75 16,985.81 16,016.48 15,650.59
08/31/01 20,476.73 16,666.04 15,620.94 15,286.62
09/30/01 18,823.32 15,316.75 14,591.04 14,226.09
10/31/01 19,182.47 15,753.68 14,935.83 14,364.15
11/30/01 20,653.52 16,472.10 15,475.44 15,054.43
12/31/01 20,834.56 16,755.80 15,494.50 15,264.79
01/31/02 20,530.69 16,488.37 15,394.27 15,016.69
02/28/02 20,134.66 16,407.07 15,267.98 15,101.57
03/31/02 20,892.00 17,050.33 15,692.10 15,610.83
04/30/02 19,625.92 16,902.37 15,480.68 15,401.90
05/31/02 19,481.84 16,914.76 15,662.76 15,388.85
06/30/02 18,094.63 16,319.20 15,072.91 14,840.41
07/31/02 16,684.49 15,146.03 14,180.66 13,998.17
08/31/02 16,793.72 15,255.61 14,251.21 14,109.16
09/30/02 14,970.40 14,215.10 13,374.59 13,306.10
10/31/02 16,286.59 14,756.45 13,937.66 13,795.77
11/30/02 17,244.27 15,554.86 14,496.99 14,370.32
12/31/02 16,231.72 15,088.35 14,128.27 14,004.62
01/31/03 15,807.33 14,866.23 13,904.31 13,613.35
02/28/03 15,569.80 14,690.20 13,758.84 13,424.47
03/31/03 15,720.55 14,671.49 13,744.24 13,417.72
04/30/03 17,014.85 15,658.60 14,543.49 14,267.71
05/31/03 17,910.46 16,676.09 15,321.72 14,989.53
06/30/03 18,139.25 16,843.31 15,506.99 15,205.40
07/31/03 18,459.22 16,985.25 15,628.09 15,320.08
08/31/03 18,818.51 17,388.57 15,958.01 15,643.89
09/30/03 18,619.25 17,668.12 16,202.00 15,650.63
10/31/03 19,672.00 18,401.54 16,821.87 16,372.45
11/30/03 19,844.88 18,650.73 17,091.72 16,628.80
12/31/03 20,884.91 19,467.51 17,664.26 17,325.32
01/31/04 21,268.17 19,853.10 18,063.61 17,542.99
02/29/04 21,563.69 20,185.69 18,317.58 17,855.90
03/31/04 21,238.41 20,301.49 18,399.93 17,706.25
04/30/04 20,905.45 19,733.99 17,869.30 17,400.15
05/31/04 21,191.76 19,815.82 17,951.91 17,549.79
06/30/04 21,603.71 20,132.19 18,202.05 17,896.71
07/31/04 20,888.78 19,549.18 17,738.09 17,372.94
08/31/04 20,972.48 19,580.29 17,807.74 17,379.74
09/30/04 21,199.68 20,041.57 18,235.47 17,685.84
10/31/04 21,523.55 20,475.75 18,569.91 17,944.32
11/30/04 22,394.15 21,564.46 19,429.68 18,685.77
12/31/04 23,155.96 22,215.55 19,982.79 19,319.13
01/31/05 22,591.54 21,811.09 19,628.05 18,993.40
02/28/05 23,066.70 22,284.94 20,088.69 19,442.18
03/31/05 22,658.66 21,919.57 19,714.84 19,109.22
04/30/05 22,229.13 21,676.62 19,508.41 18,819.68
05/31/05 22,935.81 22,106.52 19,882.26 19,203.32
06/30/05 22,968.67 22,312.23 20,099.03 19,268.46
07/31/05 23,822.47 22,848.73 20,578.26 19,833.05
08/31/05 23,605.23 23,025.74 20,696.54 19,970.58
09/30/05 23,796.32 23,395.50 21,077.12 20,093.63
10/31/05 23,399.41 22,937.85 20,673.57 19,652.09
11/30/05 24,283.54 23,571.91 21,183.21 20,071.92
[END CHART]
DATA FROM 11/30/95 THROUGH 11/30/05.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, 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.
13
. . . C O N T I N U E D
========================--------------------------------------------------------
The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Strategy Fund to the
following benchmarks:
o The S&P 500 Index is an unmanaged index representing the
weighted average performance of a group of 500 widely held,
publicly traded stocks. It is not possible to invest directly
in the S&P 500 Index.
o The Lipper Global Flexible Portfolio Funds Average is an
average performance level of all global flexible portfolio
funds, reported by Lipper Inc., an independent organization
that monitors the performance of mutual funds.
o The Lipper Global Flexible Funds Index tracks the total
return performance of the 10 largest funds within the Lipper
Global Flexible Portfolio Funds category.
14
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
TOP 3 HOLDINGS*
IN EACH CATEGORY
(% Of Net Assets)
- --------------------------------------------------------------------------------
INTERNATIONAL STOCKS
Reckitt Benckiser plc 0.6%
Air Liquide S.A. 0.5%
Roche Holdings AG 0.5%
BONDS
U.S. Treasury Notes, 4.13% 4.3%
U.S. Treasury Notes, 4.25% 3.4%
U.S. Treasury Bond, 5.38% 1.8%
U.S. EQUITIES
Microsoft Corp. 1.3%
Procter & Gamble Co. 1.1%
Bank of America Corp. 1.0%
- --------------------------------------------------------------------------------
*EXCLUDES MONEY MARKET INSTRUMENTS AND SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 16-41.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
15
. . . C O N T I N U E D
========================--------------------------------------------------------
ASSET ALLOCATION
11/30/05
[PIE CHART OF ASSET ALLOCATION]
Bonds 42.5%
U.S. Equities 38.8%
International Stocks 15.8%
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned 14.8%
Money Market Instruments 2.2%
[END CHART]
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL
100%.
- ---------------------------------------------------------
TOP 10 INDUSTRIES*
(% Of Net Assets)
- ---------------------------------------------------------
Commercial Mortgage-Backed Securities 7.5%
Property & Casualty Insurance 3.6%
Pharmaceuticals 2.8%
Diversified Banks 2.7%
Integrated Oil & Gas 2.7%
Electric Utilities 2.5%
Real Estate Investment Trusts 2.5%
Health Care Equipment 2.1%
Oil & Gas Exploration & Production 2.1%
Regional Banks 2.0%
- ---------------------------------------------------------
*EXCLUDES U.S. GOVERNMENT
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
U.S. EQUITIES (38.8%)
U.S. COMMON STOCKS (38.0%)
AEROSPACE & DEFENSE (1.6%)
86,300 Boeing Co. $ 5,885
51,100 General Dynamics Corp. 5,841
75,300 Precision Castparts Corp. 3,840
181,900 United Technologies Corp. 9,793
----------
25,359
----------
AIRLINES (0.1%)
56,100 Southwest Airlines Co. 926
----------
ALUMINUM (0.2%)
132,500 Alcoa, Inc. 3,632
----------
APPAREL RETAIL (0.7%)
75,300 Abercrombie & Fitch Co. "A" 4,617
30,900 Aeropostale, Inc.* 769
33,100 Chico's FAS, Inc.* 1,460
127,600 Christopher & Banks Corp. 1,924
97,200 Pacific Sunwear of California, Inc.* 2,572
----------
11,342
----------
APPLICATION SOFTWARE (0.6%)
52,000 Autodesk, Inc. 2,169
149,500 Intuit, Inc.* 8,009
----------
10,178
----------
ASSET MANAGEMENT & CUSTODY BANKS (1.0%)
53,100 Northern Trust Corp. 2,798
98,500 Nuveen Investments, Inc. "A" 4,084
150,000 State Street Corp. 8,653
----------
15,535
----------
AUTOMOTIVE RETAIL (0.2%)
115,700 O'Reilly Automotive, Inc.* 3,522
----------
BIOTECHNOLOGY (1.5%)
147,600 Amgen, Inc.* 11,945
75,000 Applera Corp.-Applied Biosystems Group 2,069
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
48,700 Charles River Laboratories International, Inc.* $ 2,219
103,000 Genzyme Corp.* 7,657
----------
23,890
----------
BREWERS (0.2%)
77,800 Anheuser-Busch Companies, Inc. 3,403
----------
BROADCASTING & CABLE TV (0.2%)
148,300 Comcast Corp. "A"* 3,862
----------
CASINOS & GAMING (0.4%)
107,000 Penn National Gaming, Inc.* 3,549
101,800 Shuffle Master, Inc.(h)* 2,852
----------
6,401
----------
COMMUNICATIONS EQUIPMENT (1.1%)
223,200 Cisco Systems, Inc.* 3,915
483,900 Corning, Inc.* 9,799
179,900 Motorola, Inc. 4,334
----------
18,048
----------
COMPUTER HARDWARE (0.2%)
119,500 Dell, Inc.* 3,604
----------
COMPUTER STORAGE & PERIPHERALS (0.2%)
59,100 QLogic Corp.* 1,954
9,700 SanDisk Corp.* 495
----------
2,449
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.4%)
67,700 Caterpillar, Inc. 3,912
68,600 Oshkosh Truck Corp. 3,082
----------
6,994
----------
CONSTRUCTION MATERIALS (0.2%)
50,700 Vulcan Materials Co. 3,382
----------
CONSUMER FINANCE (0.2%)
80,800 First Marblehead Corp.(h) 2,731
----------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.8%)
50,600 Affiliated Computer Services, Inc. "A"* $ 2,822
25,200 DST Systems, Inc.* 1,499
150,000 First Data Corp. 6,490
45,900 Paychex, Inc. 1,947
----------
12,758
----------
DEPARTMENT STORES (0.4%)
142,500 Kohl's Corp.* 6,555
----------
DISTILLERS & VINTNERS (0.1%)
96,100 Constellation Brands, Inc. "A"* 2,270
----------
DIVERSIFIED BANKS (1.0%)
361,400 Bank of America Corp. 16,585
----------
DIVERSIFIED CHEMICALS (0.4%)
148,400 Du Pont (E.I.) De Nemours & Co. 6,344
----------
EDUCATIONAL SERVICES (0.4%)
65,700 Career Education Corp.* 2,451
59,800 ITT Educational Services, Inc.* 3,670
----------
6,121
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
102,000 Waste Management, Inc. 3,051
----------
GOLD (0.4%)
15,000 Freeport-McMoRan Copper & Gold, Inc. "B" 782
138,900 Newmont Mining Corp. 6,406
----------
7,188
----------
HEALTH CARE EQUIPMENT (1.7%)
72,000 Biomet, Inc. 2,565
55,100 Diagnostic Products Corp. 2,510
95,200 Fisher Scientific International, Inc.* 6,138
53,900 Kinetic Concepts, Inc.* 2,099
232,800 Medtronic, Inc. 12,937
45,600 Waters Corp.* 1,789
----------
28,038
----------
19
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.2%)
65,600 Triad Hospitals, Inc.* $ 2,798
----------
HEALTH CARE SERVICES (0.4%)
89,200 Dendrite International, Inc.* 1,680
75,500 Omnicare, Inc. 4,300
----------
5,980
----------
HEALTH CARE SUPPLIES (0.1%)
40,400 Cooper Companies, Inc. 2,214
----------
HOME FURNISHINGS (0.1%)
12,100 Mohawk Industries, Inc.* 1,065
----------
HOME IMPROVEMENT RETAIL (0.5%)
112,100 Lowe's Companies, Inc. 7,565
----------
HOMEBUILDING (0.3%)
153,633 D.R. Horton, Inc. 5,445
----------
HOTELS, RESORTS, & CRUISE LINES (0.2%)
111,400 Hilton Hotels Corp. 2,442
----------
HOUSEHOLD PRODUCTS (1.1%)
309,800 Procter & Gamble Co. 17,717
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
36,600 TXU Corp. 3,756
----------
INDUSTRIAL CONGLOMERATES (1.0%)
443,900 General Electric Co. 15,856
----------
INDUSTRIAL MACHINERY (0.4%)
145,300 Ingersoll-Rand Co. Ltd. "A" 5,758
----------
INTEGRATED OIL & GAS (1.7%)
35,500 Chevron Corp. 2,034
144,700 ConocoPhillips 8,756
20
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
279,300 Exxon Mobil Corp. $ 16,208
----------
26,998
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
375,400 Qwest Communications International, Inc.* 1,967
----------
INTERNET SOFTWARE & SERVICES (0.8%)
301,500 Yahoo!, Inc.* 12,129
----------
INVESTMENT BANKING & BROKERAGE (1.0%)
414,500 E*TRADE Financial Corp.* 8,091
124,500 Merrill Lynch & Co., Inc. 8,269
----------
16,360
----------
LIFE & HEALTH INSURANCE (0.2%)
176,600 UnumProvident Corp.(h) 3,885
----------
MANAGED HEALTH CARE (1.2%)
70,600 Coventry Health Care, Inc.* 4,206
60,600 Health Net, Inc.* 3,092
147,300 WellPoint, Inc.* 11,317
----------
18,615
----------
MOVIES & ENTERTAINMENT (1.3%)
815,300 Time Warner, Inc. 14,659
187,700 Viacom, Inc. "B" 6,269
----------
20,928
----------
MULTI-LINE INSURANCE (0.4%)
99,200 American International Group, Inc. 6,660
----------
OIL & GAS DRILLING (0.2%)
64,100 GlobalSantaFe Corp. 2,908
----------
OIL & GAS EQUIPMENT & SERVICES (0.6%)
23,700 National-Oilwell Varco, Inc.* 1,437
87,600 Schlumberger Ltd. 8,386
----------
9,823
----------
OIL & GAS EXPLORATION & PRODUCTION (0.9%)
125,300 Chesapeake Energy Corp. 3,627
223,300 Noble Energy, Inc. 8,345
21
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
59,033 XTO Energy, Inc. $ 2,402
----------
14,374
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.8%)
280,143 Citigroup, Inc. 13,601
----------
PHARMACEUTICALS (1.2%)
164,400 Abbott Laboratories 6,200
112,900 Eli Lilly and Co. 5,701
130,100 Pfizer, Inc. 2,758
285,000 Schering-Plough Corp. 5,506
----------
20,165
----------
PROPERTY & CASUALTY INSURANCE (1.4%)
106,500 ACE Ltd. 5,911
40,700 Ambac Financial Group, Inc. 3,121
38,400 Chubb Corp. 3,718
170,123 St. Paul Travelers Companies, Inc. 7,916
39,400 W.R. Berkley Corp. 1,837
----------
22,503
----------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
62,300 Simon Property Group, Inc. 4,816
----------
REGIONAL BANKS (0.3%)
61,900 UnionBanCal Corp. 4,283
----------
RESTAURANTS (0.2%)
54,000 CBRL Group, Inc. 1,997
41,400 Outback Steakhouse, Inc. 1,668
----------
3,665
----------
SEMICONDUCTOR EQUIPMENT (0.3%)
55,700 Lam Research Corp.* 2,091
44,200 Varian Semiconductor Equipment Associates, Inc.* 1,946
----------
4,037
----------
SEMICONDUCTORS (0.8%)
230,700 Intel Corp. 6,155
16,900 International Rectifier Corp.* 599
86,400 Microchip Technology, Inc. 2,882
118,000 Texas Instruments, Inc. 3,833
----------
13,469
----------
22
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
SOFT DRINKS (0.7%)
193,400 PepsiCo, Inc. $ 11,449
----------
SPECIALTY STORES (0.5%)
232,500 Michaels Stores, Inc. 8,696
----------
SYSTEMS SOFTWARE (1.3%)
771,000 Microsoft Corp. 21,364
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
39,000 CDW Corp. 2,287
----------
THRIFTS & MORTGAGE FINANCE (0.7%)
100,800 Golden West Financial Corp.(h) 6,531
96,600 IndyMac Bancorp, Inc. 3,698
46,100 Sovereign Bancorp, Inc. 1,007
----------
11,236
----------
TOBACCO (0.8%)
175,400 Altria Group, Inc. 12,767
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
51,400 Fastenal Co. 2,041
----------
TRUCKING (0.3%)
46,300 CNF Transportation, Inc. 2,639
59,500 Yellow Roadway Corp.* 2,803
----------
5,442
----------
WIRELESS TELECOMMUNICATION SERVICES (0.9%)
181,000 Alamosa Holdings, Inc.* 3,345
435,170 Sprint Nextel Corp. 10,897
----------
14,242
----------
Total U.S. common stocks (cost: $503,385) 615,474
----------
PREFERRED SECURITIES (0.2%)
ELECTRIC UTILITIES (0.0%)(t)
10,000 Southern California Edison Co., Series A, 5.35%, perpetual 1,017
----------
23
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.2%)
$ 3,000 Farm Credit Bank of Texas, Series 1, 7.56%, perpetual(r) $ 3,248
----------
Total preferred securities (cost: $4,254) 4,265
----------
NUMBER
OF SHARES
- ----------
EXCHANGE-TRADED FUNDS (0.6%)
53,800 iShares Russell 2000 Growth Index Fund(h) 3,764
46,700 MidCap SPDR Trust Series 1 6,268
----------
Total exchange-traded funds (cost: $8,254) 10,032
----------
Total U.S. equities (cost: $515,893) 629,771
----------
INTERNATIONAL STOCKS (15.8%)
AUSTRALIA (0.2%)
232,496 QBE Insurance Group Ltd. (Property & Casualty Insurance)(r) 3,259
----------
AUSTRIA (0.3%)
88,470 Erste Bank der oesterreichischen Sparkassen AG (Regional Banks)(r) 4,701
----------
BRAZIL (0.1%)
32,030 Companhia Vale Do Rio Doce ADR (Steel) 1,389
----------
CANADA (0.5%)
64,960 Canadian National Railway Co. (Railroads) 5,188
53,550 EnCana Corp. (Oil & Gas Exploration & Production) 2,376
----------
7,564
----------
CHINA (0.3%)
6,454,500 CNOOC Ltd. (Oil & Gas Exploration & Production)(r) 4,298
----------
FRANCE (3.2%)
214,480 AXA S.A. (Multi-Line Insurance)(r) 6,432
48,123 Air Liquide S.A. (Industrial Gases)(r) 8,658
39,610 Business Objects S.A. (Application Software)(r)* 1,576
139,841 Credit Agricole S.A. (Regional Banks)(r) 4,211
20,230 Groupe DANONE (Packaged Foods & Meat)(r) 2,085
24
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
62,520 LVMH Moet Hennessy Louis Vuitton S.A. (Apparel &
Accessories & Luxury Goods)(h,r) $ 5,332
9,200 Pernod Ricard S.A. (Distillers & Vintners)(r) 1,502
60,440 Sanofi-Aventis S.A. (Pharmaceuticals)(r) 4,862
89,794 Schneider Electric S.A. (Electrical Components & Equipment)(r) 7,708
37,966 Societe Television Francaise 1 (Broadcasting & Cable TV)(r) 950
29,260 Total S.A. (Integrated Oil & Gas)(r) 7,313
49,890 Veolia Environnement S.A. (Multi-Utilities)(r) 2,137
----------
52,766
----------
GERMANY (0.4%)
34,550 E.On AG (Multi-Utilities)(r) 3,284
51,340 Schering AG (Pharmaceuticals)(r) 3,318
----------
6,602
----------
HONG KONG (0.4%)
285,000 Esprit Holdings Ltd. (Apparel Retail)(r) 2,003
2,793,000 Hutchison Telecommunications International Ltd. (Wireless
Telecommunication Services)(r)* 3,871
----------
5,874
----------
HUNGARY (0.2%)
40,920 OTP Bank Ltd. GDR (Regional Banks)(r) 2,686
----------
INDONESIA (0.1%)
4,070,000 PT Bank Central Asia Tbk (Diversified Banks)(r) 1,337
----------
IRELAND (0.1%)
96,950 Depfa Bank plc (Specialized Finance)(r) 1,455
----------
ISRAEL (0.1%)
120,200 Check Point Software Technologies Ltd. (Systems Software)* 2,559
----------
ITALY (0.3%)
35,249 FastWeb S.p.A. (Communications Equipment)(r)* 1,650
660,500 UniCredito Italiano S.p.A. (Regional Banks)(r) 4,080
----------
5,730
----------
JAPAN (2.6%)
454,000 Asahi Glass Co. Ltd. (Building Products)(h,r) 5,213
174,000 Bridgestone Corp. (Tires & Rubber)(h,r) 3,724
101,000 Canon, Inc. (Electronic Equipment Manufacturers)(h,r) 5,680
25
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
60,700 Chugai Pharmaceutical Co. Ltd. (Pharmaceuticals)(h,r) $ 1,365
142,000 Kaneka Corp. (Diversified Chemicals)(r) 1,691
29,600 Nintendo Co. Ltd. (Leisure Products)(r) 3,242
51,100 Nitto Denko Corp. (Specialty Chemicals)(r) 3,496
54,800 Omron Corp. (Electrical Components & Equipment)(r) 1,246
218,000 Ricoh Co. Ltd. (Office Electronics)(r) 3,804
545,000 Shinsei Bank Ltd. (Diversified Banks)(r) 3,048
449,000 Tokyo Gas Co. Ltd. (Gas Utilities)(r) 1,804
321,000 Toray Industries, Inc. (Textiles)(r) 2,187
117,000 Toyota Motor Corp. (Automobile Manufacturers)(r) 5,661
----------
42,161
----------
KOREA (0.5%)
13,320 Samsung Electronics Co. Ltd. (Semiconductors)(r) 7,672
----------
MEXICO (0.2%)
40,340 Grupo Televisa S.A. de C.V. ADR (Broadcasting & Cable TV) 3,203
----------
NETHERLANDS (0.2%)
40,000 Aegon N.V., 6.38% (Preferred) (Life & Health Insurance) 981
133,060 Reed Elsevier N.V. (Publishing)(r) 1,768
----------
2,749
----------
POLAND (0.1%)
121,890 Powszechna Kasa Oszczednosci Bank Polski S.A. (Regional Banks)(r) 1,023
----------
SINGAPORE (0.2%)
2,204,080 Singapore Telecommunications Ltd. (Integrated
Telecommunication Services)(r) 3,264
----------
SPAIN (0.4%)
273,730 Banco Bilbao Vizcaya Argentaria S.A. (Diversified Banks)(r) 4,825
97,530 Iberdrola S.A. (Electric Utilities)(h,r) 2,557
----------
7,382
----------
SWEDEN (0.6%)
97,220 Atlas Copco AB "A" (Industrial Machinery)(r) 1,941
623,190 LM Ericsson Telephone Co. "B" ADR (Communications Equipment)(r) 2,028
123,160 Sandvik AB (Industrial Machinery)(r) 5,811
----------
9,780
----------
26
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==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
SWITZERLAND (1.7%)
40,995 Julius Baer Holding Ltd. "B" (Diversified Banks)(r) $ 2,870
28,140 Nestle S.A. (Packaged Foods & Meat)(r) 8,289
55,910 Roche Holdings AG (Pharmaceuticals)(r) 8,367
5,900 Swiss Re (Reinsurance)(r) 434
13,300 Synthes, Inc. (Health Care Equipment)(r) 1,425
69,713 UBS AG (Diversified Capital Markets)(r) 6,397
----------
27,782
----------
THAILAND (0.1%)
592,890 Bangkok Bank Public Co. Ltd. (Diversified Banks)(r) 1,509
----------
UNITED KINGDOM (3.0%)
98,110 AstraZeneca plc (Pharmaceuticals)(r) 4,510
287,830 BG Group plc (Oil & Gas Exploration & Production)(r) 2,675
300,730 Diageo plc (Distillers & Vintners)(r) 4,330
135,020 GlaxoSmithKline plc (Pharmaceuticals)(r) 3,343
1,032,590 Hilton Group plc (Casinos & Gaming)(r) 5,938
131,720 Next plc (Apparel Retail)(r) 3,134
325,150 Reckitt Benckiser plc (Household Products)(r) 10,021
343,820 Smith & Nephew plc (Health Care Equipment)(r) 3,058
734,230 Tesco plc (Food Retail)(r) 3,841
1,247,010 Vodafone Group plc (Wireless Telecommunication Services)(r) 2,678
520,620 William Hill plc (Casinos & Gaming)(r) 4,556
127,260 Yell Group plc (Publishing)(r) 1,080
----------
49,164
----------
Total international stocks (cost: $185,508) 255,909
----------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
- ---------- ------ ----------
BONDS (42.5%)
CORPORATE OBLIGATIONS (14.5%)
APPAREL & ACCESSORIES & LUXURY GOODS (0.1%)
$ 1,000 Kellwood Co., Debentures 7.63% 10/15/2017 902
1,000 Kellwood Co., Senior Notes 7.88 7/15/2009 996
----------
1,898
----------
27
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
BROADCASTING & CABLE TV (0.4%)
$ 2,000 Cox Communications, Inc., Notes 4.63% 6/01/2013 $ 1,858
2,000 Cox Enterprises, Inc., Notes(b) 8.00 2/15/2007 2,057
1,000 Liberty Media Corp., Senior Notes(h) 5.70 5/15/2013 917
1,000 Liberty Media Corp., Senior Notes 7.88 7/15/2009 1,053
----------
5,885
----------
CASINOS & GAMING (0.1%)
1,000 Harrahs Operating Co., Inc., Bonds(b) 5.63 6/01/2015 975
----------
CONSUMER FINANCE (0.7%)
2,000 American Honda Finance Corp., MTN(b) 4.43(c) 5/11/2007 2,004
1,000 Ford Motor Credit Co., Senior Notes 4.95 1/15/2008 912
2,000 Ford Motor Credit Co., Notes(h) 7.00 10/01/2013 1,771
2,000 General Motors Acceptance Corp., Notes 6.13 8/28/2007 1,876
1,000 General Motors Acceptance Corp., Notes 6.75 12/01/2014 909
2,000 Household Finance Corp., Notes 6.38 10/15/2011 2,117
2,000 SLM Corp., MTN, CPI Floating Rate Notes 5.05(c) 6/01/2009 1,939
----------
11,528
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
2,000 Fiserv, Inc., Notes 4.00 4/15/2008 1,943
----------
DIVERSIFIED BANKS (0.4%)
2,600 Bank of America Corp., Subordinated Notes 9.38 9/15/2009 2,985
1,000 Emigrant Bancorp, Inc., Senior Notes(b) 6.25 6/15/2014 1,033
1,000 JPMorgan Chase & Co., Notes 4.50 1/15/2012 964
1,455 U.S. Central Credit Union, Senior Notes 2.70 9/30/2009 1,371
----------
6,353
----------
DIVERSIFIED CHEMICALS (0.1%)
2,000 ICI Wilmington, Inc., Notes 4.38 12/01/2008 1,951
----------
ELECTRIC UTILITIES (2.3%)
1,000 American Electric Power Co., Inc., Senior Notes 4.71 8/16/2007 994
3,843 Cedar Brakes II, LLC, Senior Notes, Series C(b) 9.88 9/01/2013 4,381
1,000 FirstEnergy Corp., Notes, Series B 6.45 11/15/2011 1,053
977 FPL Energy National Wind, LLC,
Secured Notes(b) 5.61 3/10/2024 970
5,000 Monongahela Power Co., Notes, Series A 7.36 1/15/2010 5,240
2,066 Oglethorpe Power Corp., Secured
Series Facility Bonds 6.97 6/30/2011 2,136
28
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
$ 986 Power Contract Financing, Pass-Through
Certificates(b) 5.20% 2/01/2006 $ 987
2,000 Power Contract Financing, Senior Notes(b) 6.26 2/01/2010 2,032
2,000 PPL Capital Funding, Inc., Guaranteed Notes,
Series A 4.33 3/01/2009 1,945
2,000 PPL Energy Supply, LLC, Bonds, Series A 5.70 10/15/2015 1,982
2,000 Public Service Electric & Gas Co.,
First Mortgage Bonds, Series A 4.09(c) 6/23/2006 2,000
2,000 Sempra Energy ESOP, Series 1999 (NBGA)(b) 4.21 11/01/2014(e) 1,973
3,000 Tristate General & Transport Association,
Bonds(b) 6.04 1/31/2018 3,066
2,000 TXU Electricity Ltd., Senior Notes,
Series TCRS (INS) 7.25 12/01/2016 2,317
5,000 TXU Energy Co., LLC, Senior Notes 7.00 3/15/2013 5,299
1,000 West Penn Power Co., Notes 6.63 4/15/2012 1,067
----------
37,442
----------
FOOD RETAIL (0.1%)
2,000 Safeway, Inc., Notes 5.80 8/15/2012 1,994
----------
GAS UTILITIES (0.7%)
3,000 Boardwalk Pipelines, LLC, Notes 5.50 2/01/2017 2,957
1,000 Enbridge Energy Partners, LP, Senior Notes 5.35 12/15/2014 981
2,000 Energy Transfer Partners, LP, Senior Notes 5.95 2/01/2015 1,962
2,000 Gulfstream Natural Gas Systems, LLC,
Senior Notes(b) 6.19 11/01/2025 2,014
2,000 Noram Energy Corp., Debentures 6.50 2/01/2008 2,053
1,040 Northern Border Partners, LP, Senior Notes, Series A 8.88 6/15/2010 1,185
1,000 Valero Logistics Operations, LP, Senior Notes 6.05 3/15/2013 1,034
----------
12,186
----------
HEALTH CARE EQUIPMENT (0.1%)
1,000 Baxter International, Inc., Notes 7.13 2/01/2007 1,020
----------
HEALTH CARE FACILITIES (0.1%)
2,000 HCA, Inc., Notes 5.25 11/06/2008 1,953
----------
HOUSEHOLD APPLIANCES (0.1%)
1,000 Whirlpool Corp., Debentures 7.75 7/15/2016 1,140
----------
29
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES (0.1%)
$ 2,000 Newell Rubbermaid, Inc., MTN, Series A 6.35% 7/15/2008 $ 2,050
----------
INTEGRATED OIL & GAS (0.2%)
2,690 Merey Sweeny, LP, Senior Notes(b) 8.85 12/18/2019 3,190
----------
LIFE & HEALTH INSURANCE (0.2%)
3,000 Phoenix Companies, Inc., Senior Notes 6.68 2/16/2008 3,030
----------
MANAGED HEALTH CARE (0.2%)
1,000 Coventry Health Care, Inc., Senior Notes 6.13 1/15/2015 1,019
2,135 Highmark, Inc., Senior Notes(b) 6.80 8/15/2013 2,301
----------
3,320
----------
MULTI-LINE INSURANCE (0.8%)
2,000 AIG Sunamerica Global Financing,
Senior Notes(b) 6.30 5/10/2011 2,121
2,000 American General Finance Corp., MTN, Series I 4.88 7/15/2012 1,955
4,000 American General Finance Corp., Notes 5.40 12/01/2015 3,962
1,000 ASIF Global Financing XIX, Senior Notes(b) 4.90 1/17/2013 989
4,000 Oil Casualty Insurance Ltd., Subordinated
Debentures(b) 8.00 9/15/2034 4,032
----------
13,059
----------
MULTI-SECTOR HOLDINGS (0.1%)
1,000 Leucadia National Corp., Senior Notes 7.00 8/15/2013 1,010
----------
MULTI-UTILITIES (0.2%)
2,000 Duke Capital Corp., LLC, Senior Notes 5.50 3/01/2014 1,979
2,000 PSEG Funding Trust, Notes 5.38 11/16/2007 2,007
----------
3,986
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
2,000 Cooper Cameron Corp., Senior Notes 2.65 4/15/2007 1,932
500 Seacor Holdings, Inc., Senior Notes 5.88 10/01/2012 483
2,000 Seacor Holdings, Inc., Senior Notes 7.20 9/15/2009 2,066
----------
4,481
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
1,000 Southwestern Energy Co., MTN 7.63 5/01/2027(q) 1,070
----------
30
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING (0.2%)
$ 2,000 Magellan Midstream Partners, LP, Notes 6.45% 6/01/2014 $ 2,117
500 Ultramar Diamond Shamrock Corp., Senior Notes 6.75 10/15/2037 529
----------
2,646
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
1,000 Citigroup, Inc., Global Notes 4.25 7/29/2009 978
----------
PACKAGED FOODS & MEAT (0.1%)
2,000 Kraft Foods, Inc., Notes 4.63 11/01/2006 1,994
----------
PAPER PACKAGING (0.1%)
1,000 Temple-Inland, Inc., Notes 5.00 5/17/2007 995
----------
PROPERTY & CASUALTY INSURANCE (1.9%)
2,000 21st Century Insurance Group, Senior Notes 5.90 12/15/2013 2,025
2,000 ACE INA Holdings, Inc., Senior Notes 5.88 6/15/2014 2,050
1,000 AXIS Capital Holdings Ltd., Senior Notes 5.75 12/01/2014 995
2,000 Berkshire Hathaway Finance Corp., Senior Notes 4.75 5/15/2012 1,968
5,000 Berkshire Hathaway Finance Corp., Senior Notes 4.85 1/15/2015 4,892
1,000 Fidelity National Financial, Inc., Notes 5.25 3/15/2013 929
2,000 Fidelity National Financial, Inc., Notes 7.30 8/15/2011 2,083
3,000 Fund American Companies, Inc., Notes 5.88 5/15/2013 3,010
2,000 Markel Corp., Senior Notes 6.80 2/15/2013 2,095
1,500 Markel Corp., Senior Notes 7.00 5/15/2008 1,557
1,000 Markel Corp., Notes 7.20 8/15/2007 1,031
1,000 Ohio Casualty Corp., Notes 7.30 6/15/2014 1,063
1,000 RLI Corp., Senior Notes 5.95 1/15/2014 989
3,000 St. Paul Travelers Companies, Inc., Senior Notes 5.50 12/01/2015 2,990
1,000 W.R. Berkley Corp., Senior Notes 5.60 5/15/2015 992
3,000 XL Capital Ltd., Senior Notes 6.38 11/15/2024 3,036
----------
31,705
----------
PUBLISHING (0.2%)
2,000 Knight-Ridder, Inc., Notes 5.75 9/01/2017 1,754
2,000 Scholastic Corp., Notes 5.00 4/15/2013 1,829
----------
3,583
----------
RAILROADS (0.2%)
3,000 TTX Co., Notes(b) 5.40 2/15/2016 2,988
----------
31
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (2.1%)
$ 1,000 Arden Realty, LP, Notes 5.25% 3/01/2015 $ 969
1,000 BRE Properties, Inc., Senior Notes 4.88 5/15/2010 985
2,000 EOP Operating, LP, Guaranteed Notes 4.75 3/15/2014 1,883
2,000 ERP Operating, LP, Notes 5.25 9/15/2014 1,973
3,000 Federal Realty Investment Trust, Notes 5.65 6/01/2016 2,979
1,000 Hospitality Properties Trust, Senior Notes 5.13 2/15/2015 954
3,000 HRPT Properties Trust, Notes 5.75 11/01/2015 2,991
3,000 Kimco Realty Corp., Notes 5.58 11/23/2015 3,003
2,000 Liberty Property, LP, Senior Notes 5.65 8/15/2014 2,015
2,000 Mack-Cali Realty, LP, Notes 5.05 4/15/2010 1,973
3,000 Nationwide Health Properties, Inc., Notes 6.00 5/20/2015 2,951
3,000 Pan Pacific Retail Properties, Inc., Notes 5.25 9/01/2015 2,930
1,000 Post Apartment Homes, LP, Senior Notes 5.45 6/01/2012 976
3,000 Simon Property Group, LP, Notes(b) 5.75 12/01/2015 3,024
3,000 Tanger Factory Outlets, Senior Notes 6.15 11/15/2015 3,014
2,000 Union Dominion Realty Trust, Senior Notes 5.25 1/15/2015 1,948
----------
34,568
----------
REGIONAL BANKS (0.5%)
2,000 Bank of Hawaii, Notes 6.88 3/01/2009 2,123
2,000 First Republic Bank Corp., Subordinated Notes 7.75 9/15/2012 2,230
1,000 Hudson United Bank, Subordinated Notes 7.00 5/15/2012 1,092
2,453 PNC Financial Services, Trust Preferred
Securities, Series C 8.88 3/15/2027 2,665
----------
8,110
----------
THRIFTS & MORTGAGE FINANCE (1.0%)
1,000 Countrywide Financial Corp., MTN, Series A 4.50 6/15/2010 968
1,000 Countrywide Home Loan, Guaranteed Notes,
Series MTNL 4.00 3/22/2011 941
5,000 Countrywide Home Loan, Notes, Series MTN 4.13 9/15/2009 4,810
2,000 Independence Community Bank Corp., Notes(m) 3.50 6/20/2013 1,921
3,000 Roslyn Bancorp, Inc., Senior Notes 7.50 12/01/2008 3,184
2,000 Washington Mutual Bank, Subordinated Notes 5.65 8/15/2014 2,007
2,000 World Savings Bank Federal
Savings Bank, Notes 4.13 12/15/2009 1,943
----------
15,774
----------
TOBACCO (0.4%)
1,000 Universal Corp., MTN, Series C 5.20 10/15/2013 901
2,000 Universal Corp., MTN, Series B 7.88 2/15/2008 2,079
32
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
$ 4,000 UST, Inc., Notes 6.63% 7/15/2012 $ 4,168
----------
7,148
----------
TRUCKING (0.2%)
2,750 Roadway Corp., Senior Notes 8.25 12/01/2008 2,933
----------
Total corporate obligations (cost: $238,271) 234,886
----------
EURODOLLAR AND YANKEE OBLIGATIONS (3.3%)(f)
DIVERSIFIED BANKS (0.5%)
1,500 Chuo Mitsui Trust & Banking Co.,
Subordinated Notes (Japan)(b,m) 5.51 12/29/2049 1,445
1,000 HBOS plc, Subordinated Notes (United Kingdom)(b) 6.41 10/01/2035 981
1,000 Mizuho Finance, Notes (Japan)(b) 5.79 4/15/2014 1,031
1,000 Nordea Bank AB, Subordinated Notes (Sweden)(b,m) 5.42 12/29/2049 991
1,000 Skandinaviska Enskilda Banken,
Subordinated Bonds (Sweden)(b,m) 5.47 3/29/2049 986
2,000 UFJ Finance Aruba AEC, Notes (Aruba) 8.75 11/29/2049 2,169
----------
7,603
----------
DIVERSIFIED METALS & MINING (0.1%)
2,000 Glencore Funding, LLC, Notes (Switzerland)(b) 6.00 4/15/2014 1,865
----------
FOOD RETAIL (0.2%)
3,000 Woolworths Ltd., Senior Notes (Australia)(b) 5.25 11/15/2011 3,003
----------
FOREIGN GOVERNMENT (0.1%)
2,000 Republic of Poland, Global Unsubordinated Notes (Poland) 5.25 1/15/2014 2,021
----------
INTEGRATED OIL & GAS (0.4%)
2,000 BP Capital plc, Company Guaranty Notes (United Kingdom) 2.75 12/29/2006 1,956
1,000 Pemex Finance Ltd., Senior Notes (Mexico) 8.88 11/15/2010 1,109
3,000 Pemex Project Funding Master Trust,
Senior Notes (Mexico)(b,o,r) 4.99(c) 12/03/2012 3,004
----------
6,069
----------
33
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
$ 1,000 Telecom Italia Capital, Guaranteed Senior Notes,
Series A (Luxembourg) 4.00% 11/15/2008 $ 970
----------
OIL & GAS DRILLING (0.1%)
1,873 Delek & Avner-Yam Tethys Ltd., Secured Notes
(Israel)(b) 5.33 8/01/2013 1,836
----------
OIL & GAS EXPLORATION & PRODUCTION (0.6%)
2,000 Canadian Oil Sands Ltd., Notes (Canada)(b) 5.80 8/15/2013 2,043
5,000 EOG Resources Canada, Inc., Senior Notes (Canada)(b) 4.75 3/15/2014 4,825
1,000 Nexen, Inc., Notes (Canada) 5.05 11/20/2013 981
2,000 RAS Laffan Liquefied Natural Gas Co. Ltd. II, Bonds,
Series A (Qatar)(b) 5.30 9/30/2020 1,971
----------
9,820
----------
OIL & GAS REFINING & MARKETING (0.2%)
3,000 GS Caltex Corp., Notes (Korea)(b) 5.50 10/15/2015 2,969
----------
PAPER PRODUCTS (0.0%)(t)
1,000 Domtar, Inc., Notes (Canada) 5.38 12/01/2013 830
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
1,145 Mantis Reef Ltd. II, Notes (Australia)(b) 4.80 11/03/2009 1,120
----------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
2,000 Westfield Capital Corp., Senior Notes (Australia)(b) 5.13 11/15/2014 1,965
----------
REINSURANCE (0.8%)
2,000 Endurance Specialty Holdings, Ltd.,
Senior Notes (Bermuda) 6.15 10/15/2015 2,003
7,000 Montpelier Re Holdings Ltd.,
Senior Notes (Bermuda) 6.13 8/15/2013 6,691
2,500 Platinum Underwriters Finance, Inc.,
Guaranteed Notes, Series B (Bermuda) 7.50 6/01/2017 2,467
34
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
$ 2,000 Stingray Pass-Through Trust, Pass-Through
Certificates (Bermuda)(b) 5.90% 1/12/2015 $ 1,974
----------
13,135
----------
Total Eurodollar and Yankee obligations (cost: $54,120) 53,206
----------
ASSET-BACKED SECURITIES (1.1%)
AIRLINES (0.4%)
1,525 Airport Airplanes, Pass-Through Certificates,
Series 1R, Class A8, EETC 4.50(c) 3/15/2019 1,435
America West Airlines, Inc., Pass-Through
Certificates,
1,107 Series 1996-1, Class A, EETC 6.85 7/02/2009 1,094
1,982 Series 1999-1, Class G, EETC (INS) 7.93 1/02/2019 2,109
1,657 Northwest Airlines Corp., Pass-Through
Certificates, Series 1999-2A, EETC 7.58 3/01/2019 1,657
----------
6,295
----------
ASSET-BACKED FINANCING (0.7%)
2,511 Aerco Ltd., Series 2A, Class A4(b) 4.64(c) 7/15/2025 2,416
2,000 ARG Funding Corp., Subordinated Bonds,
Series 2003-1A, Class C2 6.64 3/20/2007 1,998
2,000 Chase Credit Card Owner Trust,
Series 2002-5, Class A 4.22(c) 10/15/2009 2,004
3,000 Citibank Credit Card Issuance Trust,
Series 2005-C5, Class C5 4.95 10/25/2010 2,995
2,000 Household Affinity Credit Card Master
Note Trust I, Series 2003-2, Class B 2.51 2/15/2008 1,992
1,000 Permanent Financing plc, Notes,
Series 8, Class 1B 3.93(c) 6/10/2042 1,001
----------
12,406
----------
Total asset-backed securities (cost: $18,788) 18,701
----------
COMMERCIAL MORTGAGE SECURITIES (7.5%)
COMMERCIAL MORTGAGE-BACKED SECURITIES (7.5%)
Banc of America Commercial Mortgage Inc.,
5,000 Series 2001 PB1, Class A2 5.79 5/11/2035 5,145
3,981 Series 2000-2, Class A1 7.02 9/15/2032 4,139
35
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp.,
$ 5,000 Series 2000-2, Class A2 7.63% 7/15/2032 $ 5,511
6,565 Series 2000-1, Class A2 7.76 4/15/2032 7,066
5,000 Commerce Mortgage Pass-Through
Certificates, Series 2004-LB2A, Class A2 3.60 3/10/2039 4,799
Credit Suisse First Boston Mortgage Securities Corp.,
2,310 Series 2001-CK6, Class A2 6.10 8/15/2036 2,361
5,527 Series 2001-CK1, Class A3 6.38 12/18/2035 5,807
5,000 Series 2000-C1, Class A2 7.55 4/15/2062 5,425
DLJ Commercial Mortgage Corp.,
5,000 Series 1999-CG1, Class A1B 6.46 3/10/2032 5,209
5,000 Series 1999-CG2, Class A1B 7.30 6/10/2032 5,350
5,000 First Union National Bank Commercial
Mortgage Trust, Series 1999-C4, Class A2 7.39 12/15/2031 5,380
3,000 G-Force, LLC, Series 2005-RR2, Class A2(b) 5.16 12/25/2039 2,989
5,236 GE Capital Commercial Mortgage Corp.,
Series 2001-3, Class A1 5.56 6/10/2038 5,292
GMAC Commercial Mortgage Securities, Inc.,
8,750 Series 2003-C3, Class A2(b) 4.22 4/10/2040 8,527
7,000 Series 1999-C2, Class A2 6.95 9/15/2033 7,390
1,126 J.P. Morgan Chase Commercial Mortgage
Securities Corp., Series 2004-CBX, Class A1 3.18 1/12/2037 1,115
5,000 JP Morgan Commercial Mortgage Finance Corp.,
Series 1999-C8, Class A2 7.40 7/15/2031 5,324
LB-UBS Commercial Mortgage Trust,
5,000 Series 2003-C1, Class A3 4.10 3/15/2027 4,762
3,000 Series 2002-C4, Class A5 4.85 9/15/2031 2,941
7,006 Series 2001-C2, Class A1 6.27 6/15/2020 7,194
2,000 Merrill Lynch Mortgage Investors, Inc.,
Series 1998-C1, Class A2 6.48 11/15/2026 2,051
5,000 Morgan Stanley Dean Witter Capital I,
Series 2001-IQA, Class A3 5.72 12/18/2032 5,100
5,000 Nomura Asset Securities Corp.,
Series 1998-D6, Class A1B 6.59 3/15/2030 5,175
5,000 Paine Weber Mortgage Acceptance Corp.,
Series 1999-C1, Class A2 6.82 6/15/2032 5,230
2,000 Wachovia Bank Commercial Mortgage Trust,
Series 2005-C18, Class APB 4.81 4/15/2042 1,952
----------
121,234
----------
36
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED
SECURITIES (0.0%)(d,t)
$ 9,250 Bear Stearns Commercial Mortgage Securities, Inc.,
Series 2004-ESA, Class X1
(acquired 6/17/2004; cost $538)(b,n) 2.06% 5/14/2016 $ 568
----------
Total commercial mortgage securities (cost: $122,311) 121,802
----------
U.S. GOVERNMENT AGENCY ISSUES (4.0%)(k)
ASSET-BACKED FINANCING (0.2%)
2,655 U.S. Small Business Administration, Participation
Certificates, Series 2003-20 F 4.07 6/01/2023 2,512
----------
DEBENTURES (0.3%)
5,000 Fannie Mae, CPI Floating Rate Notes(+) 4.78(c) 2/17/2009 4,873
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.1%)(d)
43,751 Government National Mortgage Assn.,
Series 2003-59, Class XB 2.28 7/16/2010 1,813
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.5%)
4,877 Freddie Mac, Series 2389 VH(+) 6.00 10/15/2018 4,924
Government National Mortgage Assn. I,
2,000 Series 2003-50 PC 5.50 3/16/2032 1,985
803 Series 2001-49 VB 7.00 11/16/2016 810
----------
7,719
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (2.6%)
Fannie Mae(+),
6,308 Pool 706349(p) 5.00 5/01/2033 6,093
588 Pool 610989 6.50 10/01/2016 607
1,173 Pool 253180 6.50 2/01/2030 1,206
498 Pool 535164 7.00 2/01/2030 520
224 Pool 547483 7.00 8/01/2030 234
Freddie Mac(+),
4,491 Pool C79394(p) 5.50 4/01/2033 4,441
11,936 Pool C01491 6.00 2/01/2033 12,038
Government National Mortgage Assn. I,
1,818 Pool 780860 6.00 9/15/2028 1,849
1,256 Pool 603869 6.00 1/15/2033 1,277
37
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn. I,
$ 251 Pool 340945 6.50% 5/15/2023 $ 262
395 Pool 352106 6.50 8/15/2023 412
169 Pool 366762 6.50 4/15/2024 176
679 Pool 577423 6.50 1/15/2032 705
6,596 Pool 781496 6.50 9/15/2032 6,859
1,103 Pool 575469 7.00 12/15/2031 1,158
1,265 Pool 583624 7.00 6/15/2032 1,329
34 Pool 206743 7.50 3/15/2017 36
111 Pool 207904 7.50 3/15/2017 118
16 Pool 207950 7.50 3/15/2017 17
27 Pool 166093 8.00 6/15/2016 28
10 Pool 166108 8.00 6/15/2016 11
20 Pool 177786 8.00 9/15/2016 22
39 Pool 186000 8.00 11/15/2016 42
30 Pool 193968 8.00 12/15/2016 32
36 Pool 203822 8.00 3/15/2017 39
3 Pool 034140 8.50 9/15/2009 3
8 Pool 138007 8.50 6/15/2016 9
7 Pool 164021 8.50 6/15/2016 7
25 Pool 159980 8.50 7/15/2016 27
5 Pool 176311 8.50 9/15/2016 5
2 Pool 177247 8.50 9/15/2016 2
13 Pool 174005 8.50 12/15/2016 14
24 Pool 197279 8.50 12/15/2016 26
30 Pool 190671 8.50 1/15/2017 33
5 Pool 197400 8.50 1/15/2017 5
20 Pool 201986 8.50 1/15/2017 21
17 Pool 185270 8.50 2/15/2017 18
3 Pool 157116 9.00 6/15/2016 3
1 Pool 162801 9.00 7/15/2016 1
3 Pool 166282 9.00 7/15/2016 4
2 Pool 164502 9.00 8/15/2016 2
5 Pool 172663 9.00 9/15/2016 5
3 Pool 170810 9.00 10/15/2016 3
15 Pool 031433 9.50 6/15/2009 16
1 Pool 032271 9.50 6/15/2009 1
20 Pool 034679 9.50 6/15/2009 22
5 Pool 035052 9.50 9/15/2009 6
9 Pool 167971 9.50 7/15/2016 9
19 Pool 172771 9.50 9/15/2016 20
38
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn. I,
$ 3 Pool 185417 9.50% 11/15/2016 $ 3
18 Pool 186335 9.50 11/15/2016 20
4 Pool 187909 9.50 11/15/2016 5
54 Pool 189802 9.50 4/15/2017 60
24 Pool 214646 9.50 5/15/2017 27
9 Pool 225137 9.50 8/15/2017 10
21 Pool 037733 10.00 11/15/2009 22
3 Pool 037889 10.00 11/15/2009 3
16 Pool 037888 10.00 11/15/2009 17
13 Pool 036897 10.00 12/15/2009 14
4 Pool 059731 11.50 3/15/2013 5
Government National Mortgage Assn. II,
1,068 Pool 781494 6.50 8/20/2031 1,104
535 Pool 002934 7.50 6/20/2030 563
136 Pool 003070 7.50 4/20/2031 144
496 Pool 002958 8.00 8/20/2030 528
----------
42,298
----------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.3%)
1,800 Perforadora Centrale S.A. de C.V. "A",
Guaranteed Bond, Series A, Title XI 5.24 12/15/2018 1,829
3,810 Rowan Companies, Inc., Guaranteed Bond,
Title XI 2.80 10/20/2013 3,526
----------
5,355
----------
Total U.S. government agency issues (cost: $64,759) 64,570
----------
U.S. TREASURY SECURITIES (11.6%)
BOND AND NOTES (11.4%)
2,000 3.88%, 9/15/2010(h) 1,952
70,000 4.13%, 8/15/2008(h) 69,557
55,000 4.25%, 10/15/2010(h) 54,558
29,000 4.25%, 8/15/2015(h) 28,354
27,000 5.38%, 2/15/2031(h) 29,675
----------
184,096
----------
INFLATION-INDEXED NOTES (0.2%)(a)
3,425 3.50%, 1/15/2011 3,663
----------
Total U.S. Treasury securities (cost: $188,638) 187,759
----------
39
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (0.5%)
CASINOS & GAMING (0.1%)
$ 2,000 Mashantucket (Western) Pequot Tribe, CT, Bonds(b) 5.91% 9/01/2021 $ 1,965
----------
COMMUNITY SERVICE (0.1%)
1,385 Jicarilla Apache Nation, NM, RB 2.95 12/01/2006 1,373
----------
HOSPITAL (0.1%)
1,965 Rhode Island State Health & Education RB,
Series C (LOC - Citizens Bank of Rhode Island) 3.60 9/15/2033(e) 1,914
----------
MULTI-UTILITIES (0.2%)
2,074 California Maritime Infrastructure Auth. RB,
Series 1999 6.63 11/01/2009 2,121
----------
Total municipal bonds (cost: $7,487) 7,373
----------
Total bonds (cost: $694,374) 688,297
----------
MONEY MARKET INSTRUMENTS (2.2%)
VARIABLE-RATE DEMAND NOTES (0.3%)(S)
------------------------------------
HEALTH CARE FACILITIES
4,000 Louisiana Public Facilities Auth., RB,
Series 2002D (LOC - Hibernia National Bank) 4.69 7/01/2028 4,000
----------
DISCOUNT NOTE (0.2%)
--------------------
3,337 Fannie Mae(k,+) 3.91 12/01/2005 3,337
----------
NUMBER
OF SHARES
- ----------
MONEY MARKET FUNDS (1.7%)
-------------------------
28,173,908 SSgA Prime Money Market Fund 3.89(i) - 28,174
----------
Total money market instruments (cost: $35,511) 35,511
----------
40
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (14.8%)
CORPORATE OBLIGATIONS (2.6%)
----------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (2.0%)
$10,000 Premier Asset Collection, LLC, Notes,
Series MTN 4.08% 3/24/2006 $ 10,000
22,481 Tango Finance Corp., Notes, Series MTN 4.10 10/25/2006 22,492
----------
32,492
----------
REGIONAL BANKS (0.6%)
10,000 Wells Fargo & Co., Notes, Series MTNC 4.24 12/16/2005 10,001
----------
42,493
----------
COMMERCIAL PAPER (2.1%)
-----------------------
ASSET-BACKED FINANCING (1.5%)
3,474 Cullinan Finance Corp. 4.34(l) 2/14/2006 3,437
20,000 Thunder Bay Funding, LLC(g) 4.28(l) 1/06/2006 19,916
----------
23,353
----------
INVESTMENT BANKING & BROKERAGE (0.6%)
10,000 Goldman Sachs & Co. 4.06 5/25/2006 10,000
----------
33,353
----------
REPURCHASE AGREEMENTS (10.1%)(j)
--------------------------------
46,000 Credit Suisse First Boston, LLC, 4.02%, acquired on 11/30/2005
and due 12/01/2005 at $46,000 (collateralized by $47,210 of
Federal Home Loan Bank Bonds(k,+), 4.00%, due 3/10/2008;
market value $46,921) 46,000
65,000 Deutsche Bank Securities, Inc., 4.00%, acquired on 11/30/2005
and due 12/01/2005 at $65,000 (collateralized by $34,375
of Federal Home Loan Bank Bonds(k,+), 5.25%, due 6/18/2014;
and $30,249 of Fannie Mae Notes(k,+), 4.75% - 6.00%, due
4/20/2010 - 8/14/2023; combined market value $66,301) 65,000
52,235 Lehman Brothers, Inc., 3.99%, acquired on 11/30/2005 and due
12/01/2005 at $52,235 (collateralized by $53,315 of Federal
Home Loan Bank Bonds(k,+), 3.50% - 4.63%, due 7/28/2008
- 11/28/2008; combined market value $53,283) 52,235
----------
163,235
----------
41
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.0%)(t)
----------------------------
543,471 AIM Short-Term Investment Co. Liquid Assets Portfolio, 4.00%(i) $ 543
48,745 Merrill Lynch Premier Institutional Fund, 3.91%(i) 49
----------
592
----------
Total short-term investments purchased with cash collateral from
securities loaned (cost: $239,678) 239,673
----------
TOTAL INVESTMENTS (COST: $1,670,964) $1,849,161
==========
42
N O T E S
=========-----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (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%.
ADR - American depositary receipts are receipts issued by a U.S.
bank evidencing ownership of foreign shares. Dividends are paid
in U.S. dollars.
GDR - Global depositary receipts are receipts issued by a U.S. or
foreign bank evidencing ownership of foreign shares. Dividends
are paid in U.S. dollars.
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 securities 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
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,
43
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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
(NBGA) Principal and interest payments are guaranteed by a
non-bank guarantee agreement from Sempra Energy.
(INS) Scheduled principal and interest payments are insured by
AMBAC Assurance Corp. The insurance does not guarantee
the market value of the security.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) 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.
(b) 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.
(c) Variable-rate or floating-rate security - interest rate is
adjusted periodically. The interest rate disclosed represents
the current rate at November 30, 2005.
44
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(d) 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 current
interest 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.
(e) Security has a mandatory put, which shortens its effective
maturity date.
(f) 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).
(g) 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.
45
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(h) The security or a portion thereof was out on loan as of
November 30, 2005.
(i) Rate represents the money market fund annualized seven-day
yield at November 30, 2005.
(j) 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.
(k) U.S. government agency issues - mortgage-backed securities
issued by Government National Mortgage Association (GNMA) and
certain other U.S. government agencies are supported by the
full faith and credit of the U.S. government. Securities
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.
(l) Zero-coupon security. Rate represents the effective yield at
date of purchase.
(m) 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.
(n) Security deemed illiquid by the Manager, under liquidity
guidelines approved by the Board of Trustees. The aggregate
market value of these securities at November 30, 2005, was
$568,000, which represented 0.04% of the Fund's net assets.
(o) At November 30, 2005, the aggregate market value of
securities purchased on a when-issued basis was $3,004,000.
(p) At November 30, 2005, portions of these securities were
segregated to cover when-issued purchases.
46
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(q) 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.
(r) Security was fair valued at November 30, 2005, by the Manager
in accordance with valuation procedures approved by the Board
of Trustees.
(s) Variable-rate demand notes (VRDNs) - provide the right to
sell the security at face value on either that day or within
the rate-reset period. The interest rate is adjusted at a
stipulated daily, weekly, monthly, quarterly, or other
specified time 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.
(t) Represents less than 0.1% of net assets.
* Non-income-producing security for the 12 months preceding
November 30, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
47
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
ASSETS
Investments in securities, at market value (including securities
on loan of $214,360) (identified cost of $1,670,964) $1,849,161
Cash 61
Cash denominated in foreign currencies (identified cost of $1,480) 1,389
Receivables:
Capital shares sold 592
Dividends and interest 8,843
Securities sold 26,732
Other 159
----------
Total assets 1,886,937
----------
LIABILITIES
Payables:
Upon return of securities loaned 239,738
Securities purchased (when-issued of $3,000) 24,879
Capital shares redeemed 734
Unrealized depreciation on foreign currency contracts held, at value 5
Accrued management fees 949
Accrued transfer agent's fees 10
Other accrued expenses and payables 87
----------
Total liabilities 266,402
----------
Net assets applicable to capital shares outstanding $1,620,535
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,308,658
Accumulated undistributed net investment income 9,533
Accumulated net realized gain on investments 124,256
Net unrealized appreciation of investments 178,197
Net unrealized depreciation on foreign currency translations (109)
----------
Net assets applicable to capital shares outstanding $1,620,535
==========
Capital shares outstanding, unlimited number of shares
authorized, no par value 58,433
==========
Net asset value, redemption price, and offering price per share $ 27.73
==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
48
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA CORNERSTONE STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2005 (UNAUDITED)
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $128) $ 7,429
Interest 11,134
Securities lending 376
-------
Total income 18,939
-------
EXPENSES
Management fees 5,842
Administration and servicing fees 1,195
Transfer agent's fees 1,637
Custody and accounting fees 310
Postage 204
Shareholder reporting fees 51
Trustees' fees 4
Registration fees 24
Professional fees 40
Other 22
-------
Total expenses 9,329
Expenses paid indirectly (80)
-------
Net expenses 9,249
-------
NET INVESTMENT INCOME 9,690
-------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 89,888
Foreign currency transactions (199)
Change in net unrealized appreciation/depreciation of:
Investments (29,087)
Foreign currency translations (67)
-------
Net realized and unrealized gain 60,535
-------
Increase in net assets resulting from operations $70,225
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
49
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA CORNERSTONE STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2005 (UNAUDITED),
AND YEAR ENDED MAY 31, 2005
11/30/2005 5/31/2005
--------------------------
FROM OPERATIONS
Net investment income $ 9,690 $ 16,556
Net realized gain on investments 89,888 70,129
Net realized loss on foreign currency transactions (199) (248)
Change in net unrealized appreciation/depreciation of:
Investments (29,087) 41,840
Foreign currency translations (67) (70)
--------------------------
Increase in net assets resulting from operations 70,225 128,207
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (24,372)
Net realized gains - (66,035)
--------------------------
Distributions to shareholders - (90,407)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 91,689 213,808
Shares issued for dividends reinvested - 88,378
Cost of shares redeemed (84,759) (146,650)
--------------------------
Increase in net assets from capital
share transactions 6,930 155,536
--------------------------
Net increase in net assets 77,155 193,336
NET ASSETS
Beginning of period 1,543,380 1,350,044
--------------------------
End of period $1,620,535 $1,543,380
==========================
Accumulated undistributed (overdistributed) net
investment income
End of period $ 9,533 $ (157)
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,360 8,114
Shares issued for dividends reinvested - 3,311
Shares redeemed (3,105) (5,575)
--------------------------
Increase in shares outstanding 255 5,850
==========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
50
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
USAA INVESTMENT TRUST (the Trust), registered under the Investment
Company Act of 1940 (the 1940 Act), as amended, is an open-end
management investment company organized as a Massachusetts business
trust consisting of 10 separate funds. The information presented in
this semiannual report pertains only to the USAA Cornerstone Strategy
Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to achieve a positive,
inflation-adjusted rate of return and a reasonably stable value of
Fund shares, thereby preserving the purchasing power of shareholders'
capital.
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, including exchange-traded funds (ETFs),
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 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. Equity 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
51
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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 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 subadvisers, 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
ETFs, 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 valued 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
52
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
securities, such prices are not readily available. The
Service generally prices these securities based on methods
that include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and
general market conditions.
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
subadvisers, if applicable, under valuation procedures
approved by the Trust's Board of Trustees. The effect of
fair value pricing is that securities may not be priced on
the basis of quotations from the primary market in which
they are traded, and the actual price realized from the sale
of a security may differ materially from the fair value
price. Valuing these securities at fair value is intended to
cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not
limited to, obtaining market quotations from secondary
pricing services, broker-dealers, or widely used quotation
systems. General factors considered in determining the fair
value of securities include fundamental analytical data, the
nature and duration of any restrictions on disposition of
the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased
and sold.
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.
53
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
C. INVESTMENTS IN SECURITIES - Security transactions are accounted
for on the date the securities are purchased or sold (trade
date). Gains or losses from sales of investment securities are
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
U.S. government, its agencies, or its instrumentalities.
Government-sponsored enterprises (GSEs), such as Fannie Mae and
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
54
N O T E S
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to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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.
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, 2006, 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
55
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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. As
of November 30, 2005, the outstanding when-issued commitments,
including interest purchased, for the Fund were $3,000,000.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage
commissions that the Fund pays may be recaptured as a credit
that is tracked and used by the custodian to directly reduce
expenses paid by the Fund. 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 Fund's expenses. For the six-month period
ended November 30, 2005, brokerage commission recapture credits
and custodian and other bank credits reduced the Fund's
expenses by $66,000 and $14,000, respectively, resulting in a
total reduction in Fund expenses of $80,000.
H. INDEMNIFICATIONS - Under the Trust's organizational documents,
its officers and trustees are indemnified against certain
liabilities 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.
56
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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 in a joint, short-term, revolving, committed
loan agreement of $300 million with USAA Capital Corporation (CAPCO),
an affiliate of the Manager. The purpose of the agreement is to meet
temporary or emergency cash needs, including redemption requests that
might otherwise require the untimely disposition of securities.
Subject to availability under the agreement, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per
annum equal to the rate at which CAPCO obtains funding in the capital
markets, with no markup.
The USAA funds that are party to the loan agreement are assessed
facility fees 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 $300 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, 2005, the Fund paid CAPCO
facility fees of $2,000, which represents 5.1% of total fees paid to
CAPCO by the USAA funds. The Fund had no borrowings under this
agreement during the six-month period ended November 30, 2005.
(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, 2006, in accordance with applicable tax law.
57
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
Distributions of net investment income and 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.
(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, 2005, were $1,142,625,000 and $1,137,290,000,
respectively.
As of November 30, 2005, the cost of securities, including short-term
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, 2005, were $194,398,000 and $16,201,000, respectively,
resulting in net unrealized appreciation of $178,197,000.
(5) FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
A forward currency contract (currency contract) is a commitment to
purchase or sell a foreign currency at a specified date, at a
negotiated price. The Fund may enter into currency contracts in
connection with the purchase or sale of a security denominated in a
foreign currency. These contracts allow the Fund to "lock in" the U.S.
dollar price of the security. The Fund may also enter into currency
contracts to hedge against foreign currency exchange risks on the
non-U.S. dollar denominated securities held in the Fund's portfolio.
Currency contracts are valued on a daily basis using foreign currency
exchange rates obtained from an independent pricing service. Risks of
entering into currency contracts include the potential inability of
the counterparty to meet the terms of the contract and the Fund's
giving up the opportunity for potential profit.
58
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
At November 30, 2005, the terms of open foreign currency contracts
were as follows (in thousands):
FOREIGN CURRENCY CONTRACTS TO BUY
- ---------------------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE RECEIVE 11/30/2005 FOR U.S. DOLLAR (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------
12/01/2005 450 $342 $345 $(3)
Swiss Franc
12/05/2005 574 437 437 -
Swiss Franc
- ---------------------------------------------------------------------------------------------------------
$779 $782 $(3)
- ---------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY CONTRACTS TO SELL
- ---------------------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE DELIVER 11/30/2005 FOR U.S. DOLLAR (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------
12/02/2005 84 $ 72 $ 72 $ -
Canadian Dollar
12/01/2005 11 13 13 -
Euro
12/02/2005 93 110 110 -
Euro
12/01/2005 306 529 530 1
Pound Sterling
12/02/2005 211 364 362 (2)
Pound Sterling
12/05/2005 471 815 815 -
Pound Sterling
12/01/2005 2,564 22 22 -
Japanese Yen
12/05/2005 7,693 953 952 (1)
Swedish Krona
12/01/2005 24 14 14 -
Singapore Dollar
- ---------------------------------------------------------------------------------------------------------
$2,892 $2,890 $(2)
- ---------------------------------------------------------------------------------------------------------
59
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(6) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund, through its third-party 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 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, 2005, the Fund received
securities-lending income of $376,000, which is net of the 20% income
retained by MetWest. As of November 30, 2005, the Fund loaned
securities having a fair market value of approximately $214,360,000
and received cash collateral of $239,738,000 for the loans. Of this
amount, $239,678,000 was invested in short-term investments, as noted
in the Fund's portfolio of investments, and $60,000 remained in cash.
(7) 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
60
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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 Manager 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 recommends 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 Global Flexible
Funds Index, which tracks the total return performance of the
30 largest funds in the Lipper Global Flexible Portfolio 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
for the fiscal year.
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
61
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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 Global Flexible 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, 2005, the Fund
incurred total management fees, paid or payable to the Manager,
of $5,842,000, which is net of a performance adjustment of
$(132,000) that decreased the base management fee of 0.75% by
0.02%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into
investment subadvisory agreements with Wellington Management
Company, LLP (Wellington Management) and MFS Investment
Management (MFSIM), under which Wellington Management directs
the investment and reinvestment of portions of the Fund's
assets invested in U.S. stocks and real estate securities (as
allocated from time to time by the Manager), and MFSIM directs
the investment and reinvestment of the portion of the Fund's
assets invested in international stocks (as allocated from time
to time by the Manager).
62
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
The Manager (not the Fund) pays Wellington Management a
subadvisory fee in the annual amount of 0.40% of the first $50
million of the portion of the Fund's average net assets that
Wellington Management manages and invests in real estate
securities, plus 0.35% of the portion of the Fund's average net
assets over $50 million that Wellington Management manages and
invests in real estate securities, plus 0.20% of the portion of
the Fund's average net assets that Wellington Management
manages and invests in securities other than real estate
securities. Wellington Management has agreed to waive all fees
in excess of 0.18% of the portion of the Fund's average net
assets that Wellington Management manages and invests in
securities other than real estate securities through June 30,
2006. Wellington Management may terminate this waiver if the
Manager allocates less than 100% of certain USAA Funds' assets
investable in U.S. stocks to Wellington Management. The Manager
has allocated less than 100% of these Funds' assets investable
in U.S. stocks to Wellington Management, so Wellington
Management may terminate this waiver at any time. The Manager
(not the Fund) pays MFSIM a subadvisory fee in the annual
amount of 0.335% of the first $350 million of the aggregate
average net assets of the USAA World Growth Fund, the USAA
International Fund, the USAA Life Investment Trust World Growth
Fund, and the portion of the USAA Cornerstone Strategy Fund
that MFSIM manages (MFSIM Funds), plus 0.225% of the aggregate
average net assets of the MFSIM Funds over $350 million but not
over $1 billion, plus 0.200% of the aggregate average net
assets of the MFSIM Funds over $1 billion. Effective January 1,
2006, the Manager (not the Fund) will pay MFSIM a subadvisory
fee in the annual amount of 0.29% of the aggregate average net
assets of the MFSIM Funds. For the six-month period ended
November 30, 2005, the Manager incurred subadvisory fees, paid
or payable to Wellington Management, of $700,000 and incurred
subadvisory
63
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
fees, paid or payable to MFSIM, of $1,729,000 for the MFSIM
Funds in total, of which $412,000 was based on the portion of
the average net assets of the USAA Cornerstone Strategy Fund
that MFSIM manages.
Effective December 1, 2005, in addition to the investment
subadvisory agreement with Wellington Management and MFSIM, the
Manager will enter into an investment subadvisory agreement
with Batterymarch Financial Management, Inc. (Batterymarch),
under which Batterymarch will direct the investment and
reinvestment of a portion of the Fund's assets (as allocated
from time to time by the Manager). The Manager (not the Fund)
will pay Batterymarch a subadvisory fee in the annual amount of
0.25% on the first $250 million of assets; 0.21% on assets over
$250 million and up to $500 million; and 0.17% on assets over
$500 million of the Fund's average daily net assets that
Batterymarch manages.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides
certain administration 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, 2005, the Fund incurred administration and
servicing fees, paid or payable to the Manager, of $1,195,000.
In addition to the services provided under its Administration
and Servicing Agreement with the Fund, the Manager also
provides certain legal and tax services for the benefit of the
Fund. The Trust's Board of Trustees has approved the
reimbursement of these expenses incurred by the Manager. For
the six-month period ended November 30, 2005, the Fund
reimbursed the Manager $26,000 for these legal and tax
services. These expenses are included in the professional fees
expenses on the Fund's statement of operations.
64
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
D. EXPENSE LIMITATION - The Manager has voluntarily agreed to
limit the annual expenses of the Fund to 1.19% of the Fund's
average annual net assets, before reductions of any expenses
paid indirectly, and will reimburse the Fund for all expenses
in excess of that amount. This agreement may be modified or
terminated at any time. The Fund had no reimbursable expenses
as of November 30, 2005.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services (SAS), 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. The Fund also pays SAS fees that are
related to the administration and servicing of accounts that
are traded on an omnibus basis. For the six-month period ended
November 30, 2005, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $1,637,000.
F. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
(8) 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.
65
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(9) 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,
------------------------------------------------------------------------------------------
2005 2005 2004 2003 2002 2001
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.53 $ 25.80 $ 22.22 $ 23.57 $ 25.26 $ 26.27
------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .30(a) .22 .27 .39(e) .58
Net realized and unrealized
gain (loss) 1.03 2.13(a) 3.57 (.93) (1.16)(e) (.40)
------------------------------------------------------------------------------------------
Total from investment operations 1.20 2.43(a) 3.79 (.66) (.77) .18
------------------------------------------------------------------------------------------
Less distributions:
From net investment income - (.45) (.21) (.26) (.57) (.48)
From realized capital gains - (1.25) - (.43) (.35) (.71)
------------------------------------------------------------------------------------------
Total distributions - (1.70) (.21) (.69) (.92) 1.19)
------------------------------------------------------------------------------------------
Net asset value at end of period $ 27.73 $ 26.53 $ 25.80 $ 22.22 $ 23.57 $ 25.26
==========================================================================================
Total return (%)* 4.52 9.42 17.08 (2.59) (2.96) .58
Net assets at end of period (000) $1,620,535 $1,543,380 $1,350,044 $1,132,544 $1,197,131 $1,016,101
Ratio of expenses to
average net assets (%)**(c) 1.17(b,d) 1.18(d) 1.19(d) 1.19(d) 1.16(d) 1.07
Ratio of expenses to average net
assets, excluding
reimbursements (%)**(c) - - 1.20 1.27 1.17 -
Ratio of net investment income to
average net assets (%)** 1.22(b) 1.15 .81 1.34 1.69(e) 2.26
Portfolio turnover (%) 74.95 64.88 90.94 131.07 30.52 54.67
* Assumes reinvestment of all net investment income and realized capital gain
distributions during the period.
** For the six-month period ended November 30, 2005, average net assets were
$1,589,543,000.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) 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%) (.02%) (.01%) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Effective April 26, 2002, the Manager voluntarily agreed to limit the annual
expenses of the Fund to 1.19% of the Fund's average net assets.
(e) In 2001, a change in amortization method was made as required by an
accounting pronouncement. Without that change, these amounts would have
been:
Net investment income $ .39
Net realized and unrealized loss $(1.16)
Ratio of net investment income to average net assets 1.70%
66
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (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, 2005, through November 30, 2005.
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
67
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(continued)
USAA CORNERSTONE STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
use this information to compare the ongoing costs of investing in the
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, 2005 -
JUNE 1, 2005 NOVEMBER 30, 2005 NOVEMBER 30, 2005
---------------------------------------------------------
Actual $1,000.00 $1,045.20 $5.95
Hypothetical
(5% return before expenses) 1,000.00 1,019.25 5.87
*Expenses are equal to the Fund's annualized expense ratio of 1.16%,
which is net of 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 4.52% for the six-month period of June 1, 2005, through
November 30, 2005.
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72
N O T E S
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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 AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
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
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.
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 FORMS N-Q 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 FORMS N-Q 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]
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[LOGO OF USAA] 9800 Fredericksburg Road -------------
USAA(R) San Antonio, Texas 78288 PRSRT STD
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[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
27800-0106 (C)2006, 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.
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. The only material change to
the procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
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 (except for the Total Return Strategy Fund)
By:* /s/ EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: January 18, 2006
------------------------------
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: January 25, 2006
------------------------------
By:* /s/ DEBRA K. DUNN
---------------------------------------------
Signature and Title: Debra K. Dunn/Treasurer
Date: January 24, 2006
------------------------------
*Print the name and title of each signing officer under his or her signature.