UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4019
Exact name of registrant as specified in charter: USAA INVESTMENT TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: MARK S. HOWARD
USAA INVESTMENT TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31, 2003
Date of reporting period: MAY 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
USAA INTERNATIONAL FUND - MAY 31, 2003
[LOGO OF USAA]
USAA(R)
USAA INTERNATIONAL Fund
[GRAPHIC OF USAA INTERNATIONAL FUND]
A n n u a l R e p o r t
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MAY 31, 2003
Table of CONTENTS
- --------------------------------------------------------------------------------
MESSAGE FROM THE PRESIDENT 2
INVESTMENT OVERVIEW & MANAGERS' COMMENTARY 5
FINANCIAL INFORMATION
Distributions to Shareholders 13
Independent Auditors' Report 14
Portfolio of Investments 15
Notes to Portfolio of Investments 20
Financial Statements 21
Notes to Financial Statements 24
DIRECTORS' INFORMATION 36
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2003, USAA. All rights reserved.
2
M E S S A G E
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from the PRESIDENT
"
... ADHERE TO YOUR ASSET ALLOCATION
[PHOTO OF CHRISTOPHER W. CLAUS] AND DIVERSIFICATION STRATEGY - AND
WORK WITH SKILLED PROFESSIONALS
WHO CAN HELP ....
"
- --------------------------------------------------------------------------------
Lowest interest rates in decades. New tax cuts. Jobless
recovery. Dow breaks 9000.
Headlines such as these are designed to grab our attention. But
sometimes the hype can make it easy to forget the investing
lessons we've learned over the last few years.
That's why it's so important to have a plan. It can keep you
from making emotional decisions and help you ride out the
inevitable ups and downs of the markets. An asset allocation
and diversification strategy based on your goals, needs, and
appetite for risk should be at the heart of your plan. After
all, you don't want to take on more risk than you can
tolerate. Do you want to try to get more return on your
principal, or do you want to be assured of the return of your
principal? It is a classic question of risk versus reward.
Investors seem to be trading where there is price momentum
rather than on fundamental valuations. This is a rotation of
investment styles called "momentum investing" in which people
put money into whatever is going up, hoping to make a profit,
and then move on to the next opportunity.
While stock and bond market performance improved dramatically
during the spring, it is important to remember that the markets
3
. . . C O N T I N U E D
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tend to overreact in the short term, reverting to the mean
over the long term. Right now, stock prices are high by
historical standards. For prices to stay high, interest rates
need to remain low and corporate profits must show consistent
strength. In the bond market, investors have been moving from
sector to sector, looking for ways to make money. Recently,
they piled in, then out of, longer-term Treasuries.
A more prudent approach is to adhere to your asset allocation
and diversification strategy, and call on our team of skilled
professionals who can help you develop and stick to your plan.
At USAA, we remain committed to providing you with outstanding
resources - a market-tested portfolio management team,
world-class service, and pure no-load mutual funds, without
excessive fees, sales loads, or contractual plans, and with
competitive expense ratios. Once again, and on behalf of the
entire team at USAA Investment Management Company, I would
like to thank you for your business.
Sincerely,
/s/ Christopher W. Claus
Christopher W. Claus
President and Vice Chairman of the Board
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FOR MORE COMPLETE INFORMATION ABOUT USAA MUTUAL FUNDS,
INCLUDING CHARGES AND OPERATING EXPENSES, REQUEST A PROSPECTUS
FROM USAA INVESTMENT MANAGEMENT COMPANY (USAA). READ IT
CAREFULLY BEFORE YOU INVEST.
MUTUAL FUND OPERATING EXPENSES APPLY AND CONTINUE THROUGHOUT
THE LIFE OF THE FUND.
5
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
USAA INTERNATIONAL FUND
OBJECTIVE
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Capital appreciation with current income as a secondary
objective.
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
Invests at least 80% of the Fund's assets in equity securities
of foreign (including emerging market) companies.
- --------------------------------------------------------------------------------
5/31/03 5/31/02
- --------------------------------------------------------------------------------
Net Assets $347.5 Million $382.5 Million
Net Asset Value Per Share $16.15 $17.63
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/03
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-7.68% -2.83% 5.46%
TOTAL RETURN EQUALS INCOME YIELD PLUS SHARE PRICE CHANGE AND
ASSUMES REINVESTMENT OF ALL DIVIDENDS AND REALIZED CAPITAL
GAIN DISTRIBUTIONS. NO ADJUSTMENT HAS BEEN MADE FOR TAXES
PAYABLE BY SHAREHOLDERS ON THEIR REINVESTED INCOME DIVIDENDS
AND REALIZED CAPITAL GAIN DISTRIBUTIONS. THE PERFORMANCE DATA
QUOTED REPRESENT PAST PERFORMANCE AND ARE NOT AN INDICATION OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE, AND AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
6
. . . C O N T I N U E D
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OVERVIEW
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CUMULATIVE PERFORMANCE COMPARISON
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[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA LIPPER LIPPER
INTERNATIONAL INTERNATIONAL INTERNATIONAL MSCI-EAFE
DATE FUND FUNDS INDEX FUNDS AVERAGE INDEX
---- ------------- ------------- ------------- ---------
5/31/1993 $10000.00 $10000.00 $10000.00 $10000.00
6/30/1993 9667.39 9803.22 9804.26 9843.98
7/31/1993 9884.30 10113.54 10089.00 10188.57
8/31/1993 10506.15 10783.42 10716.30 10738.58
9/30/1993 10469.99 10743.11 10650.78 10496.86
10/31/1993 11033.98 11274.17 11133.65 10820.35
11/30/1993 10763.70 10827.14 10728.64 9874.54
12/31/1993 11918.53 11912.70 11729.21 10587.55
1/31/1994 12621.80 12654.76 12420.98 11482.68
2/28/1994 12407.12 12349.98 12137.44 11450.87
3/31/1994 11763.08 11784.94 11602.17 10957.67
4/30/1994 12051.79 12096.83 11904.25 11422.59
5/31/1994 12111.01 12078.66 11851.81 11357.01
6/30/1994 11999.97 11888.20 11698.52 11517.51
7/31/1994 12291.68 12254.62 12042.62 11628.27
8/31/1994 12859.23 12678.20 12402.35 11903.57
9/30/1994 12789.26 12351.04 12086.05 11528.66
10/31/1994 12936.98 12571.52 12326.32 11912.57
11/30/1994 12381.14 11984.88 11758.26 11340.05
12/31/1994 12239.55 11824.98 11650.88 11411.05
1/31/1995 11405.75 11238.34 11131.55 10972.69
2/28/1995 11287.76 11235.45 11181.34 10941.20
3/31/1995 11602.40 11531.00 11531.83 11623.62
4/30/1995 12090.10 11954.85 11918.52 12060.77
5/31/1995 12412.60 12072.60 12048.16 11917.00
6/30/1995 12507.00 12118.43 12079.75 11708.01
7/31/1995 13149.31 12784.63 12729.46 12436.91
8/31/1995 12841.30 12568.62 12470.55 11962.48
9/30/1995 12991.36 12778.83 12692.41 12196.11
10/31/1995 12746.53 12512.77 12451.74 11868.28
11/30/1995 12849.57 12643.43 12596.87 12198.50
12/31/1995 13254.59 13010.11 12961.95 12689.98
1/31/1996 13691.38 13317.53 13227.08 12742.08
2/29/1996 13929.63 13374.69 13299.86 12785.15
3/31/1996 14183.76 13583.63 13526.36 13056.66
4/30/1996 14811.15 14026.17 13951.50 13436.26
5/31/1996 14858.80 14010.46 13923.08 13189.01
6/30/1996 14962.04 14138.11 14016.76 13263.24
7/31/1996 14245.65 13661.24 13526.82 12875.59
8/31/1996 14676.11 13839.41 13703.74 12903.80
9/30/1996 14944.13 14148.79 14014.80 13246.60
10/31/1996 14887.28 14092.60 13967.29 13111.05
11/30/1996 15682.44 14755.50 14604.36 13632.71
12/31/1996 15792.20 14887.24 14681.29 13457.34
1/31/1997 16295.24 14906.44 14617.37 12986.37
2/28/1997 16377.70 15175.53 14829.75 13198.78
3/31/1997 16402.44 15255.93 14880.99 13246.57
4/30/1997 16509.65 15322.34 14932.58 13316.86
5/31/1997 17342.55 16186.29 15820.25 14183.44
6/30/1997 18224.94 16963.60 16574.96 14965.62
7/31/1997 18806.48 17508.24 17075.08 15207.73
8/31/1997 17801.43 16245.90 15856.95 14071.95
9/30/1997 18976.83 17288.53 16900.68 14860.24
10/31/1997 17665.15 15976.20 15647.12 13718.01
11/30/1997 17085.96 15842.15 15536.61 13578.17
12/31/1997 17220.01 15966.24 15700.90 13696.60
1/31/1998 17220.01 16352.41 16109.73 14323.00
2/28/1998 18348.32 17390.50 17169.57 15242.04
3/31/1998 19485.57 18334.93 18063.65 15711.37
4/30/1998 19942.26 18616.72 18325.12 15835.73
5/31/1998 19646.76 18653.73 18368.71 15758.87
6/30/1998 19207.97 18490.62 18246.76 15878.17
7/31/1998 19114.34 18774.29 18505.11 16039.15
8/31/1998 15879.18 16073.58 15902.65 14052.07
9/30/1998 15322.99 15573.28 15361.80 13621.26
10/31/1998 16741.27 16718.40 16496.79 15041.15
11/30/1998 17223.30 17555.82 17330.07 15811.73
12/31/1998 17900.00 17987.83 17864.72 16435.49
1/31/1999 18150.28 18096.95 18021.68 16386.96
2/28/1999 17501.39 17631.42 17540.07 15996.42
3/31/1999 17881.46 18218.26 18112.76 16664.14
4/30/1999 18845.52 19067.39 18934.02 17339.35
5/31/1999 18344.95 18358.86 18156.68 16446.39
6/30/1999 19058.72 19229.48 19061.30 17087.59
7/31/1999 19741.45 19658.93 19529.96 17595.49
8/31/1999 19948.66 19814.23 19708.96 17659.75
9/30/1999 19948.66 19877.86 19778.87 17837.50
10/31/1999 20118.20 20571.59 20539.88 18505.62
11/30/1999 21267.27 22080.40 22074.81 19148.59
12/31/1999 23027.73 24793.29 24765.77 20867.21
1/31/2000 22124.30 23342.05 23310.32 19541.33
2/29/2000 23008.09 24882.35 24769.83 20067.38
3/31/2000 23607.11 24946.47 24883.77 20845.27
4/30/2000 22458.18 23364.10 23282.04 19748.33
5/31/2000 21878.80 22722.13 22539.27 19266.00
6/30/2000 22958.99 23774.13 23512.12 20019.46
7/31/2000 22181.14 23003.54 22715.21 19180.15
8/31/2000 22522.39 23392.29 23070.83 19346.64
9/30/2000 21353.87 22029.50 21778.07 18404.62
10/31/2000 20474.90 21281.43 21020.15 17969.87
11/30/2000 19637.29 20383.03 20165.44 17295.99
12/31/2000 20536.94 21144.13 20938.89 17910.75
1/31/2001 20878.19 21268.67 21027.60 17901.51
2/28/2001 19399.45 19776.29 19502.68 16559.48
3/31/2001 18003.43 18385.87 18046.09 15455.61
4/30/2001 19389.11 19504.13 19217.28 16529.65
5/31/2001 18851.38 19031.66 18700.98 15946.25
6/30/2001 18179.23 18494.14 18049.52 15294.12
7/31/2001 18065.48 18013.40 17584.57 15015.85
8/31/2001 17910.37 17652.18 17164.62 14635.32
9/30/2001 16038.67 15728.88 15305.03 13152.96
10/31/2001 16462.65 16154.90 15701.07 13489.83
11/30/2001 17114.12 16758.08 16304.83 13987.10
12/31/2001 17543.53 17056.99 16541.19 14070.21
1/31/2002 16937.14 16368.54 15844.20 13322.59
2/28/2002 17250.79 16597.97 15968.99 13416.04
3/31/2002 18191.74 17475.95 16808.57 14206.89
4/30/2002 18254.47 17598.55 16903.87 14235.46
5/31/2002 18432.21 17850.16 17096.62 14415.84
6/30/2002 17846.73 17145.57 16441.83 13842.00
7/31/2002 16038.01 15433.86 14791.73 12475.52
8/31/2002 16132.10 15446.17 14752.57 12447.20
9/30/2002 14929.78 13782.63 13170.31 11110.45
10/31/2002 15818.45 14497.96 13815.67 11707.59
11/30/2002 16111.19 15184.33 14419.78 12238.94
12/31/2002 15818.45 14698.43 13933.63 11827.41
1/31/2003 15149.33 14160.11 13377.27 11333.65
2/28/2003 14783.41 13740.83 13055.21 11073.54
3/31/2003 14647.49 13404.32 12783.58 10855.97
4/30/2003 16048.46 14731.38 13964.39 11919.98
5/31/2003 17016.04 15677.63 14807.62 12642.24
[END CHART]
DATA FROM 5/31/93 THROUGH 5/31/03.
NO ADJUSTMENT HAS BEEN MADE FOR TAXES PAYABLE BY SHAREHOLDERS
ON THEIR REINVESTED INCOME DIVIDENDS AND REALIZED CAPITAL GAIN
DISTRIBUTIONS.
7
. . . C O N T I N U E D
========================--------------------------------------------------------
The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA International Fund to the following
benchmarks:
o The Lipper International Funds Index, which tracks the total
return performance of the 30 largest funds within the Lipper
International Funds category.
o The Lipper International Funds Average, an average
performance level of all international funds, reported by
Lipper Inc., an independent organization that monitors the
performance of mutual funds.
o The Morgan Stanley Capital International Europe, Australia
and Far East (MSCI-EAFE) Index, an unmanaged index that
reflects the movements of stock markets in Europe,
Australia, and the Far East by representing a broad
selection of domestically listed companies within each
market.
8
M A N A G E R ' S
==================--------------------------------------------------------------
COMMENTARY on the Fund
DAVID R. MANNHEIM MARCUS L. SMITH
MFS Investment Management MFS Investment Management
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA International Fund had a total return of -7.68% for
the year ended May 31, 2003. This compares to an average
return of -13.62% for the Lipper International Funds category
and a -12.30% return for the Morgan Stanley Capital
International Europe, Australia and Far East (MSCI-EAFE) Index.
[LOGO OF LIPPER LEADER] [LOGO OF LIPPER LEADER]
TOTAL RETURN CONSISTENT RETURN
Lipper named the Fund a Lipper Leader for total return and
consistent return within the Lipper International Funds
category for the three-year period ending May 31, 2003.
REFER TO PAGE 7 FOR THE LIPPER AVERAGE AND MSCI-EAFE INDEX
DEFINITIONS.
LIPPER RATINGS FOR TOTAL RETURN REFLECT FUNDS' HISTORICAL
TOTAL RETURN PERFORMANCE RELATIVE TO PEERS AS OF MAY 31, 2003.
LIPPER RATINGS FOR CONSISTENT RETURN REFLECT FUNDS' HISTORICAL
RISK-ADJUSTED RETURNS, ADJUSTED FOR VOLATILITY, RELATIVE TO
PEERS AS OF MAY 31, 2003. THE RATINGS ARE SUBJECT TO CHANGE
EVERY MONTH AND ARE BASED ON AN EQUAL-WEIGHTED AVERAGE OF
PERCENTILE RANKS FOR THE TOTAL RETURN AND CONSISTENT RETURN
METRICS OVER THREE-, FIVE-, AND 10-YEAR PERIODS (IF
APPLICABLE). THE HIGHEST 20% OF FUNDS IN EACH PEER GROUP ARE
NAMED LIPPER LEADERS, THE NEXT 20% RECEIVE A SCORE OF 2, THE
MIDDLE 20% ARE SCORED 3, THE NEXT 20% ARE SCORED 4, AND THE
LOWEST 20% ARE SCORED 5.
THE USAA INTERNATIONAL FUND IN LIPPER'S INTERNATIONAL FUNDS
CATEGORY WAS RATED FOR 3 YEARS AMONG 617 FUNDS, FOR 5 YEARS
AMONG 461 FUNDS, AND FOR 10 YEARS AMONG 101 FUNDS FOR TOTAL
RETURN; FOR 3 YEARS AMONG 581 FUNDS, FOR 5 YEARS AMONG 431
FUNDS, AND FOR 10 YEARS AMONG 63 FUNDS FOR CONSISTENT RETURN.
LIPPER RATINGS ARE NOT INTENDED TO PREDICT FUTURE RESULTS, AND
LIPPER DOES NOT GUARANTEE THE ACCURACY OF THIS INFORMATION.
MORE INFORMATION IS AVAILABLE AT WWW.LIPPERLEADERS.COM.
LIPPER LEADER COPYRIGHT 2003, REUTERS, ALL RIGHTS RESERVED.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
* * * *
THE FUND'S PERFORMANCE RECEIVED AN OVERALL MORNINGSTAR
RATING(TM) OF 4 STARS IN THE FOREIGN STOCK FUNDS CATEGORY (683
FUNDS IN CATEGORY) FOR THE PERIOD ENDING MAY 31, 2003.
WHAT LED TO THE FUND'S STRONG PERFORMANCE RELATIVE TO ITS PEER GROUP?
Stock selection was key to the Fund's performance. In the
financial sector, QBE Insurance Group Ltd. (Australia) and UBS
AG (Switzerland) performed well. QBE has a strong management
team and attractive valuation when compared to other global
insurance companies, and UBS continues to be priced
attractively relative to its long-term growth prospects.
Several media stocks also performed well, in part because of
improved advertising spending in the United States and
expectations for a better advertising spending environment in
Europe. These included Granada plc (U.K.), Societe Television
Francaise 1 (France), and News Corp. Ltd. (Australia). Stock
selection in technology also contributed to performance.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
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. THE OVERALL MORNINGSTAR RATING FOR A FUND IS
DERIVED FROM A WEIGHTED AVERAGE OF THE PERFORMANCE FIGURES
ASSOCIATED WITH ITS THREE-, FIVE-, AND 10-YEAR (IF APPLICABLE)
MORNINGSTAR RATING METRICS. THE USAA INTERNATIONAL FUND WAS
RATED AGAINST THE FOLLOWING NUMBER OF FOREIGN STOCK FUNDS OVER
THE FOLLOWING TIME PERIODS ENDING 5/31/03: 683 FUNDS IN THE
LAST THREE YEARS, 525 FUNDS IN THE LAST FIVE YEARS, AND 108
FUNDS IN THE LAST 10 YEARS. WITH RESPECT TO THE FOREIGN STOCK
FUNDS, THE USAA INTERNATIONAL FUND RECEIVED A MORNINGSTAR
RATING OF 4 STARS FOR EACH OF THE THREE-, FIVE-, AND 10-YEAR
PERIODS.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 15-19.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
WHAT POSITIONS DETRACTED FROM PERFORMANCE?
An overweight position in basic materials hurt performance as
the sector lagged, and our stock selections within materials
also underperformed. While we have reduced exposure to several
of these companies in favor of potentially more attractive
opportunities elsewhere, we intend to continue to maintain
exposure to the sector through several industrial gas
companies that we believe are poised to build earnings faster
than those of the overall market.
WHERE ARE YOU IDENTIFYING OPPORTUNITIES AS WE MOVE INTO THE NEW REPORTING YEAR?
We have added selected retailers to the portfolio, including
Hennes & Mauritz (Sweden), a fast growing apparel retailer
that is poised to continue to grow over the next several
years, and Esprit Holdings Ltd. (Hong Kong), which has
demonstrated good growth in Germany despite the weak economy
there. We have also added Kingfisher plc (U.K.), which owns
home improvement stores in the United Kingdom and Europe that
are benefiting from an increased interest in home improvement.
Other new investments include France Telecom S.A., which
should benefit from restructuring, and Singapore
Telecommunications Ltd., which has a good regulatory
environment and strong growth prospects.
It's important to note that we do not expect future earnings
growth to match the pace of the late 1990s. Our investment
process enables us to find companies with good growth
prospects despite anemic global economic growth. We intend to
continue to use the volatility in global stock markets as a
buying opportunity, investing in companies with compelling
long-term fundamentals. We thank you, the Fund's shareholders,
for the confidence you've placed in us.
HENNES & MAURITZ WAS PURCHASED AFTER MAY 31, 2003.
11
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
- ------------------------------------------------------------------------
TOP 10 INDUSTRIES
(% of Net Assets)
- ------------------------------------------------------------------------
Pharmaceuticals 11.8%
Diversified Banks 6.6%
Integrated Telecommunication Svcs. 6.4%
Broadcasting & Cable TV 4.9%
Automobile Manufacturers 4.7%
Property & Casualty Insurance 4.5%
Packaged Foods & Meat 4.0%
Oil & Gas Exploration & Production 3.9%
Publishing 3.6%
Industrial Gases 3.5%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS
(% of Net Assets)
- ------------------------------------------------------------------------
Reed Elsevier N.V. 3.7%
L'Air Liquide S.A. 3.5%
Reckitt Benckiser plc 2.8%
BOC Group plc 2.7%
Novartis AG 2.7%
Syngenta AG 2.7%
Vodafone Group plc 2.7%
QBE Insurance Group Ltd. 2.6%
Carrefour S.A. 2.5%
Unilever N.V. ADR 2.5%
- ------------------------------------------------------------------------
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES 15-19.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
HIGHLIGHTS
ASSET ALLOCATION
5/31/03
[PIE CHART OF ASSET ALLOCATION]
United Kingdom 24.9%
France 17.5%
Other* 13.8%
Japan 13.4%
Switzerland 11.9%
Netherlands 7.5%
Canada 4.8%
Spain 4.3%
Australia 3.7%
[END PIE CHART]
* INCLUDES COUNTRIES WITH LESS THAN 3% OF THE PORTFOLIO, REPURCHASE
AGREEMENTS, AND MONEY MARKET INSTRUMENTS.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES
15-19.
13
D I S T R I B U T I O N S
==========================------------------------------------------------------
to SHAREHOLDERS
USAA INTERNATIONAL FUND
The following federal tax information related to the Fund's
fiscal year ended May 31, 2003, is provided for information
purposes only and should not be used for reporting to federal
or state revenue agencies. Federal tax information for the
calendar year will be reported to you on Form 1099-DIV in
January 2004.
The Fund has elected under Section 853 of the Internal Revenue
Code to pass through the credit for taxes paid in foreign
countries. The gross income derived from foreign sources and
foreign taxes paid during the fiscal year by the Fund are
$7,849,000 and $921,000, respectively.
14
I N D E P E N D E N T
======================----------------------------------------------------------
AUDITORS' Report
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
USAA INTERNATIONAL FUND:
We have audited the accompanying statement of assets and
liabilities of USAA International Fund (a portfolio of USAA
Investment Trust), including the portfolio of investments, as
of May 31, 2003, and the related statement of operations,
statement of changes in net assets, and financial highlights
for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year
ended May 31, 2002, and the financial highlights for each of
the periods presented through May 31, 2002, were audited by
other auditors, whose report dated July 5, 2002, expressed an
unqualified opinion on the statement and financial highlights.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of May
31, 2003, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2003 financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of USAA International Fund at
May 31, 2003, the results of its operations, changes in its
net assets, and financial highlights for the year then ended
in conformity with accounting principles generally accepted in
the United States.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
July 11, 2003
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA INTERNATIONAL FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ------------------------------------------------------------------------
STOCKS (96.7%)
AUSTRALIA (3.7%)
515,668 News Corp. Ltd. $ 3,907
1,538,729 QBE Insurance Group Ltd. 9,008
--------
12,915
--------
AUSTRIA (0.8%)
31,500 Erste Bank der oesterreichischen Sparkassen AG 2,668
--------
CANADA (4.8%)
307,970 BCE, Inc. 6,770
52,694 Canadian National Railway Co. 2,659
95,680 Canadian Natural Resources Ltd. 3,714
98,920 Encana Corp. 3,616
--------
16,759
--------
FRANCE (17.5%)
83,942 Aventis S.A. 4,382
110,190 Bouygues S.A. 2,937
83,680 Cap Gemini S.A. * 2,907
192,510 Carrefour S.A. 8,621
203,200 France Telecom S.A. 5,022
79,740 L'Air Liquide S.A. 12,175
113,820 Sanofi-Synthelabo S.A. 7,277
64,821 Schneider Electric S.A. 2,964
98,894 Societe Television Francaise 1 2,924
27,200 Total S.A. 3,983
102,833 Total S.A. ADR 7,563
--------
60,755
--------
GERMANY (1.6%)
157,650 Bayerische Motoren Werke AG 5,446
--------
HONG KONG (0.5%)
892,000 Esprit Holdings Ltd. 1,893
--------
IRELAND (0.7%)
208,580 Irish Life & Permanent plc 2,576
--------
ITALY (0.9%)
768,080 Snam Rete Gas S.p.A. 2,973
--------
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ------------------------------------------------------------------------
JAPAN (13.4%)
570,000 Brother Industries Ltd. $ 3,745
190,000 Canon, Inc. 7,951
437,000 Chugai Pharmaceutical Co. Ltd. 4,926
223,000 Credit Saison Co. Ltd. 3,919
591 Fuji Television Network, Inc. 1,855
167,000 Honda Motor Co. Ltd. 6,024
596,200 Nissan Motor Co. Ltd. 4,705
76,000 Ono Pharmaceutical Co. Ltd. 2,322
394,000 Shiseido Co. Ltd. 4,280
121,600 Takeda Chemical Industries Ltd. 4,773
202,000 Tokyo Broadcasting System Ltd. 2,134
--------
46,634
--------
MEXICO (0.7%)
124,600 America Movil S.A. de C.V. ADR "L" 2,275
--------
NETHERLANDS (7.5%)
1,062,580 Reed Elsevier N.V. 12,687
212,080 STMicroelectronics N.V. 4,802
147,440 Unilever N.V. ADR 8,620
--------
26,109
--------
NORWAY (0.6%)
177,000 DNB Holdings ASA 963
24,300 Gjensidige NOR ASA 944
--------
1,907
--------
SINGAPORE (2.9%)
753,000 DBS Group Holdings Ltd. 4,254
9,607 Haw Par Corp. Ltd. 21
4,036,000 Singapore Telecommunications Ltd. 3,444
380,000 United Overseas Bank Ltd. 2,432
--------
10,151
--------
SPAIN (4.3%)
48,580 Gas Natural SDG S.A. 990
390,440 Iberdrola S.A. 6,825
603,911 Telefonica S.A. * 6,784
10,443 Telefonica S.A. ADR * 356
--------
14,955
--------
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ------------------------------------------------------------------------
SWITZERLAND (11.9%)
25,638 Nestle S.A. $ 5,374
243,200 Novartis AG 9,532
18,000 Straumann AG 1,645
186,622 Syngenta AG 9,528
10,430 Synthes-Stratec, Inc. 7,127
150,705 UBS AG 8,122
--------
41,328
--------
UNITED KINGDOM (24.9%)
127,800 ACE Ltd. 4,665
94,400 AstraZeneca Group plc 3,827
731,130 BOC Group plc 9,217
857,778 BP plc 5,878
425,520 British Sky Broadcasting Group plc * 4,625
140,670 Capital Radio plc 1,124
762,640 Diageo plc 8,189
183,780 GlaxoSmithKline plc 3,630
5,700 GlaxoSmithKline plc ADR 228
3,735,490 Granada plc 5,419
1,075,300 Kingfisher plc 4,508
334,580 Next plc 5,293
495,060 Reckitt Benckiser plc 9,649
282,170 Royal Bank Scotland Group plc 7,332
4,267,650 Vodafone Group plc 9,270
375,400 William Hill plc 1,661
23,620 XL Capital Ltd. "A" 2,056
--------
86,571
--------
Total stocks (cost: $311,091) 335,915
--------
PRINCIPAL
AMOUNT
(000)
- ---------
REPURCHASE AGREEMENT (1.2%)
$4,000 CS First Boston LLC, 1.32%, acquired 5/30/2003
and due 6/02/2003 at $4,000 (collateralized
by a $4,025 U.S. Treasury Note, due 5/15/2006;
market value of $4,078) (b,c) (cost: $4,000) 4,000
--------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.9%)
MONEY MARKET FUNDS (0.9%)
1,017,368 AIM Short-Term Investment Co., 1.25% (a,b) $ 1,018
2,207,252 Merrill Lynch Premier Institutional Fund,
1.23% (a,b) 2,207
--------
Total money market funds (cost: $3,225) 3,225
--------
PRINCIPAL
AMOUNT
(000)
- ---------
OTHER (3.0%)
$10,487 Fannie Mae Discount Note, 1.20%, 6/02/2003
(cost: $10,487) 10,487
--------
Total money market instruments (cost: $13,712) 13,712
--------
TOTAL INVESTMENTS (COST: $328,803) $353,627
========
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
% OF
PORTFOLIO SUMMARY BY CONCENTRATION NET ASSETS
- --------------------------------------------------------------------------------
Pharmaceuticals 11.8%
Diversified Banks 6.6
Integrated Telecommunication Services 6.4
Broadcasting & Cable TV 4.9
Automobile Manufacturers 4.7
Property & Casualty Insurance 4.5
U.S. Government* 4.2
Packaged Foods & Meat 4.0
Oil & Gas Exploration & Production 3.9
Publishing 3.6
Industrial Gases 3.5
Wireless Telecommunication Services 3.3
Integrated Oil & Gas 3.2
Household Products 2.8
Diversified Chemicals 2.7
Specialty Chemicals 2.7
Food Retail 2.5
Distillers & Vintners 2.4
Electronic Equipment Manufacturers 2.3
Apparel Retail 2.1
Other Diversified Financial Services 2.1
Electric Utilities 2.0
Health Care Equipment 2.0
Movies & Entertainment 1.4
Semiconductors 1.4
Home Improvement Retail 1.3
Personal Products 1.2
Office Electronics 1.1
Other 7.2
-----
Total 101.8%
=====
* INCLUDES REPURCHASE AGREEMENTS.
20
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA INTERNATIONAL FUND
MAY 31, 2003
GENERAL NOTES
- --------------------------------------------------------------------------------
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The percentages shown represent the percentages of the investments to
net assets and, in total, may not equal 100%.
ADR - American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) Rate represents the money market fund annualized seven-day yield
at May 31, 2003.
(b) Investment was purchased with the cash collateral proceeds
received from securities loaned.
(c) 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 at least 102%
of the resale price of the repurchase agreement.
* Non-income-producing security for the year ended May 31, 2003.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA INTERNATIONAL FUND
MAY 31, 2003
ASSETS
Investments in securities, at market value (including securities
on loan of $7,095) (identified cost of $328,803) $353,627
Cash 610
Cash denominated in foreign currencies (identified cost of $56) 56
Receivables:
Capital shares sold 227
Dividends and interest 1,771
Other 16
--------
Total assets 356,307
--------
LIABILITIES
Payable upon return of securities loaned 7,225
Securities purchased 987
Unrealized depreciation on foreign currency contracts held, at value 5
Capital shares redeemed 135
USAA Investment Management Company 241
USAA Transfer Agency Company 63
Accounts payable and accrued expenses 108
--------
Total liabilities 8,764
--------
Net assets applicable to capital shares outstanding $347,543
========
NET ASSETS CONSIST OF:
Paid-in capital $329,934
Accumulated undistributed net investment income 2,211
Accumulated net realized loss on investments (9,507)
Net unrealized appreciation of investments 24,824
Net unrealized appreciation on foreign currency translations 81
--------
Net assets applicable to capital shares outstanding $347,543
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 21,526
========
Net asset value, redemption price, and offering price per share $ 16.15
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA INTERNATIONAL FUND
YEAR ENDED MAY 31, 2003
NET INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $921) $ 6,925
Interest 143
Fee from securities loaned 67
--------
Total income 7,135
--------
Expenses:
Management fees 2,579
Administrative and servicing fees 485
Transfer agent's fees 865
Custodian's fees 330
Postage 80
Shareholder reporting fees 131
Trustees' fees 8
Registration fees 35
Professional fees 68
Other 7
--------
Total expenses 4,588
Expenses paid indirectly (23)
--------
Net expenses 4,565
--------
Net investment income 2,570
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 7,960
Foreign currency transactions (260)
Change in net unrealized appreciation/depreciation of:
Investments (39,257)
Foreign currency translations 25
--------
Net realized and unrealized loss (31,532)
--------
Decrease in net assets resulting from operations $(28,962)
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA INTERNATIONAL FUND
YEARS ENDED MAY 31,
2003 2002
----------------------
FROM OPERATIONS
Net investment income $ 2,570 $ 2,937
Net realized gain (loss) on investments 7,960 (3,946)
Net realized loss on foreign currency transactions (260) (181)
Change in net unrealized appreciation/depreciation of:
Investments (39,257) (9,372)
Foreign currency translations 25 147
----------------------
Decrease in net assets resulting from operations (28,962) (10,415)
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,667) (3,952)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 180,895 139,341
Reinvested dividends 2,536 3,716
Cost of shares redeemed (186,718) (165,467)
----------------------
Decrease in net assets from capital
share transactions (3,287) (22,410)
----------------------
Net decrease in net assets (34,916) (36,777)
NET ASSETS
Beginning of period 382,459 419,236
----------------------
End of period $ 347,543 $ 382,459
======================
Accumulated undistributed net investment income:
End of period $ 2,211 $ 2,568
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 12,111 8,241
Shares issued for dividends reinvested 169 227
Shares redeemed (12,443) (9,778)
----------------------
Decrease in shares outstanding (163) (1,310)
======================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA INTERNATIONAL FUND
MAY 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
USAA INVESTMENT TRUST (the Trust), registered under the Investment
Company Act of 1940, as amended, is a diversified, open-end
management investment company organized as a Massachusetts business
trust consisting of nine separate funds. The information presented in
this annual report pertains only to the USAA International Fund (the
Fund). The Fund's primary investment objective is capital appreciation
with current income as a secondary objective.
A. SECURITY VALUATION - The value of each security is determined
(as of the close of trading on the New York Stock Exchange on
each business day the exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange are valued at
the last sales price on that exchange. Portfolio securities
traded primarily on foreign securities exchanges are
generally valued at the closing values of such securities on
the exchange where primarily traded. If no sale is reported,
the average of the bid and asked prices is generally used
depending upon local custom or regulation.
2. Over-the-counter securities are generally priced using the
Nasdaq Official Closing Price (NOCP) or, if not available,
the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are
stated at amortized cost, which approximates market value.
4. Securities that cannot be valued by the methods set forth
above, and all other assets, are valued in good faith at
fair value, using methods determined by the USAA Investment
Management Company (the Manager), an affiliate of the Fund,
in consultation with the Fund's subadviser, under valuation
procedures approved by the Trust's Board of Trustees.
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
B. FEDERAL TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially
all of its income to its shareholders. Therefore, no federal
income tax provision is required.
C. INVESTMENTS IN SECURITIES - Security transactions are accounted
for on the date the securities are purchased or sold (trade
date). Gain or loss from sales of investment securities is
computed on the identified cost basis. Dividend income, less
foreign taxes, if any, is recorded on the ex-dividend date. If
the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is
recorded on the accrual basis. Discounts and premiums on
short-term securities are amortized on a straight-line basis
over the life of the respective securities.
D. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be
invested in the securities of foreign issuers. Since the Fund's
accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the
following basis:
1. Market value of securities, other assets, and liabilities at
the mean between the bid and asked translation rates of such
currencies against U.S. dollars on a daily basis.
2. Purchases and sales of securities, income, and expenses at
the rate of exchange obtained from an independent pricing
service on the respective dates of such transactions.
Net realized and unrealized foreign currency gains/losses
occurring during the holding period of investments are a
component of realized gain/loss on investments and
unrealized appreciation/depreciation on investments,
respectively.
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
Net realized foreign currency gains/losses 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. Net realized
foreign currency gains/losses have been 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.
E. EXPENSES PAID INDIRECTLY - A portion of the brokerage
commissions that the Fund pays may be reimbursed and used to
reduce the Fund's expenses. In addition, through other
fee-offset arrangements with certain of the Fund's service
providers, realized credits, if any, are used to reduce the
Fund's expenses. For the year ended May 31, 2003, these
fee-offset arrangements reduced the Fund's expenses by $23,000.
F. USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States requires management to make estimates and
assumptions that may affect the reported amounts in the
financial statements.
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
The Fund participates with other USAA funds in two joint, short-term,
revolving, committed loan agreements totaling $500 million: $400
million with USAA Capital Corporation (CAPCO), an affiliate of the
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
Manager, and $100 million with Bank of America. The purpose of the
agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely
disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may
borrow from CAPCO an amount up to 5% of the Fund's total assets at
CAPCO's borrowing rate with no markup. Subject to availability under
its agreement with Bank of America, the Fund may borrow from Bank of
America, at Bank of America's borrowing rate plus a markup, an amount
which, when added to outstanding borrowings under the CAPCO agreement,
does not exceed 25% of the Fund's total assets.
The USAA funds that are party to the loan agreements are assessed
facility fees in aggregate by Bank of America in an annual amount
equal to 0.09% of the $100 million loan agreement, whether used or
not, and by CAPCO based on the funds' assessed proportionate share of
CAPCO's operating expenses related to obtaining and maintaining
CAPCO's funding programs in total (in no event to exceed 0.09%
annually of the $400 million loan agreement). The facility fees are
allocated among the funds based on their respective average net assets
for the period. The Fund had no borrowings under either of these
agreements during the year ended May 31, 2003.
(3) DISTRIBUTIONS
- --------------------------------------------------------------------------------
The character of distributions made during the year from net
investment income or net realized gains is determined in accordance
with federal tax regulations and may differ from those determined in
accordance with accounting principles generally accepted in the United
States. Also, due to the timing of distributions, the fiscal year in
which amounts are distributed may differ from the year that the income
or realized gains were recorded by the Fund.
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
During the current fiscal year, permanent differences between book
and tax basis accounting resulted in reclassifications made to the
statement of assets and liabilities to decrease accumulated
undistributed net investment income by $260,000, and decrease
accumulated net realized loss on investments by $260,000. This
reclassification has no effect on net assets.
The tax character of distributions paid during the years ended May
31, 2003 and 2002, was as follows:
2003 2002
--------------------------------
Ordinary income* $2,667,000 $ 3,952,000
* INCLUDES DISTRIBUTION OF SHORT-TERM REALIZED CAPITAL GAINS, IF ANY,
WHICH ARE TAXABLE AS ORDINARY INCOME.
As of May 31, 2003, the components of net assets representing
distributable earnings on a tax basis were as follows:
Undistributed ordinary income $ 2,279,000
Accumulated capital and other losses (7,794,000)
Unrealized appreciation of investments 23,038,000
Unrealized appreciation on foreign currency translations 86,000
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. At May 31, 2003, the Fund had a current
post-October deferred currency loss of $72,000 and capital loss
carryovers of $7,723,000 for federal income tax purposes. The post-
October loss will be recognized on the first day of the following
fiscal year. If not offset by subsequent capital gains, the capital
loss carryovers will expire in 2010. It is unlikely that the Trust's
Board of Trustees will authorize a distribution of capital gains
realized in the future until the capital loss carryovers have been
used or expire.
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales/maturities of securities,
excluding short-term securities, for the year ended May 31, 2003, were
$469,679,000 and $473,894,000, respectively.
The cost of securities at May 31, 2003, for federal income tax
purposes, was $330,589,000.
Gross unrealized appreciation and depreciation of investments as of
May 31, 2003, for federal income tax purposes, were $38,861,000 and
$13,823,000, respectively, resulting in net unrealized appreciation of
$23,038,000.
(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.
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
At May 31, 2003, the terms of open foreign currency contracts were as
follows (in thousands):
FOREIGN CURRENCY CONTRACTS TO BUY
- -----------------------------------------------------------------------------------------------------------
U.S. DOLLAR
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE UNREALIZED UNREALIZED
DATE RECEIVE 5/31/03 FOR U.S. DOLLAR APPRECIATION DEPRECIATION
- -----------------------------------------------------------------------------------------------------------
06/02/03 111 $131 $132 $ - $(1)
Euro Currency
06/02/03 3,695 552 556 - (4)
Norwegian Krone
06/03/03 44 52 52 - -
Euro Currency
06/03/03 533 80 80 - -
Norwegian Krone
06/04/03 55 65 65 - -
Euro Currency
06/04/03 717 107 107 - -
Norwegian Krone
- -----------------------------------------------------------------------------------------------------------
$987 $992 $ - $(5)
- -----------------------------------------------------------------------------------------------------------
(6) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund may lend its securities to qualified financial institutions,
such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash
collateral in an amount at least equal, at all times, to the fair
value of the securities loaned. Cash collateral is invested in
high-quality short-term investments. The Fund retains a portion of
income from the investment of cash received as collateral. Risks to
the Fund in securities-lending transactions are that the borrower may
not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments
will be less than the amount of cash collateral required to be
returned to the borrower. As of May 31, 2003, the Fund loaned
securities having a fair market value of approximately $7,095,000 and
received cash collateral of $7,225,000
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
for the loans. The cash collateral was invested in securities, as
noted in the Fund's portfolio of investments.
(7) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager carries out the Fund's investment
policies and provides portfolio management oversight of the
Fund's assets managed by a subadviser. Beginning with the
month ended July 31, 2002, 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 International Funds Index, which tracks the
total return performance of the 30 largest funds in the Lipper
International Funds category. The Fund's base fee is accrued
daily and paid monthly at an annualized rate of 0.75% of the
Fund's average net assets.
The performance adjustment is calculated monthly by comparing
the Fund's performance to that of the Lipper index over the
performance period. For the month ended May 31, 2003, the
performance period consisted of the previous 22-month period.
A new month is added to the performance period each month
thereafter until the performance period consists of the
previous 36 months. Thereafter, the performance period will
consist 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
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
(in the case of underperformance) the base fee, as referenced
in the following chart:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS
-----------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the
Fund and its relevant index, rounded to the nearest 0.01%
For the year ended May 31, 2003, the Fund incurred total
management fees, paid or payable to the Manager, of
$2,579,000, which included a performance adjustment of
$153,000.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with MFS Investment
Management (MFS), under which MFS directs the investment and
reinvestment of the Fund's assets (as allocated from time to
time by the Manager). The Manager (not the Fund) pays MFS a
subadvisory fee.
C. ADMINISTRATIVE AND SERVICING FEES - The Manager provides
certain administrative and shareholder servicing functions for
the Fund. For such services, the Manager receives a fee
accrued daily and paid monthly at an annualized rate of 0.15%
of the Fund's average net assets. For the year ended
May 31, 2003, the Fund incurred administrative and servicing
fees, paid or payable to the Manager, of $485,000.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services, an affiliate of the
Manager, provides transfer agent services to the Fund based on
an annual charge of $23 per shareholder account plus
out-of-pocket expenses. For the year ended May 31, 2003, the
Fund
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
incurred transfer agent's fees, paid or payable to USAA
Transfer Agency Company, of $865,000.
E. 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.
(9) REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
The Fund may enter into repurchase agreements with commercial banks or
recognized security dealers. These agreements are secured by
obligations backed by the full faith and credit of the U.S.
government. Obligations pledged as collateral are required to
maintain a value equal to or in excess of the resale price of the
repurchase agreement and are held by the Fund, either through its
regular custodian or through a special "tri-party" custodian that
maintains separate accounts for both the Fund and its counterparty,
until maturity of the repurchase agreement. The Fund's Manager
monitors the creditworthiness of sellers with which the Fund may enter
into repurchase agreements.
34
N O T E S
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to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
(10) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED MAY 31,
-------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------
Net asset value at beginning of period $ 17.63 $ 18.23 $ 22.28 $ 19.79 $ 21.94
-------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 .14 .16 .11 .21
Net realized and unrealized gain (loss) (1.46) (.56) (3.01) 3.70 (1.62)
-------------------------------------------------------------------------
Total from investment operations (1.35) (.42) (2.85) 3.81 (1.41)
-------------------------------------------------------------------------
Less distributions:
From net investment income (.13) (.18) (.11) (.18) (.19)
From realized capital gains - - (1.09) (1.14) (.55)
-------------------------------------------------------------------------
Total distributions (.13) (.18) (1.20) (1.32) (.74)
-------------------------------------------------------------------------
Net asset value at end of period $ 16.15 $ 17.63 $ 18.23 $ 22.28 $ 19.79
=========================================================================
Total return (%)* (7.63) (2.22) (13.84) 19.26 (6.63)
Net assets at end of period (000) $347,543 $382,459 $419,236 $533,305 $499,882
Ratio of expenses to
average net assets (%)** 1.42(a) 1.32(a) 1.14(a) 1.11 1.12
Ratio of net investment income to
average net assets (%)** .79 .78 .84 .73 .98
Portfolio turnover (%) 148.14 35.63 32.75 39.75 37.69
* Assumes reinvestment of all dividend income and realized capital gain distributions during the period. Calculated
using net assets adjusted for last day trades and could differ from the Lipper reported return.
** For the year ended May 31, 2003, average net assets were $323,511,000.
(a) Reflects total expenses excluding any fee-offset arrangements, which decreased these ratios as follows:
(.01%) - - N/A N/A
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
MAY 31, 2003
(11) CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)
- --------------------------------------------------------------------------------
On May 29, 2002, based on the recommendation of the Trust's Audit
Committee, the Trust's Board of Trustees determined not to retain KPMG
LLP (KPMG) as the Fund's independent auditors and voted to appoint
Ernst & Young LLP for the fiscal year ended May 31, 2003. KPMG served
as the Fund's independent auditors since the Fund's inception on July
11, 1988. From that date through the fiscal year ended May 31, 2002,
KPMG's audit reports contained no adverse opinion or disclaimer of
opinion; nor were KPMG's reports qualified or modified as to
uncertainty, audit scope, or accounting principle. Further, through
May 29, 2002, there were no disagreements between the Fund and KPMG on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
36
D I R E C T O R S '
====================------------------------------------------------------------
INFORMATION
DIRECTORS* AND OFFICERS OF THE COMPANY
- --------------------------------------------------------------------------------
The Board of Directors of the Company consists of seven Directors.
These Directors and the Company's Officers supervise the business
affairs of the USAA family of funds. The Board of Directors is
responsible for the general oversight of the Funds' business and for
assuring that the Funds are managed in the best interests of each
Fund's respective shareholders. The Board of Directors periodically
reviews the Funds' investment performance as well as the quality of
other services provided to the Funds and their shareholders by each of
the Fund's service providers, including USAA Investment Management
Company (IMCO) and its affiliates. The term of office for each
Director shall be fifteen (15) years or until the Director reaches age
70. All members of the Board of Directors shall be presented to
shareholders for election or reelection, as the case may be, at least
once every five years. Vacancies on the Board of Directors can be
filled by the action of a majority of the Directors, provided that at
least two-thirds of the Directors have been elected by the
shareholders.
Set forth below are the Directors and Officers of the Company, their
respective offices and principal occupations during the last five
years, length of time served, and information relating to any other
directorships held. Each serves on the Board of Directors of the USAA
family of funds consisting of four registered investment companies
offering 39 individual Funds as of May 31, 2003. Unless otherwise
indicated, the business address of each is 9800 Fredericksburg Road,
San Antonio, TX 78288.
If you would like more information about the Funds' Directors, you may
call 1-800-531-8181 to request a free copy of the Funds' statement of
additional information (SAI).
* FOR SIMPLICITY THROUGHOUT THIS SECTION, THE BOARDS OF DIRECTORS AND
BOARDS OF TRUSTEES OF THE FOUR LEGAL ENTITIES THAT COMPRISE THE USAA
FAMILY OF FUNDS WILL BE IDENTIFIED AS THE BOARD OF DIRECTORS, AND
THE TRUST WILL BE IDENTIFIED AS THE COMPANY.
37
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
INTERESTED DIRECTORS(1)
- --------------------------------------------------------------------------------
ROBERT G. DAVIS (2)
Director and Chairman of the Board of Directors
Born: November 1946
Year of Election or Appointment: 1996
Chairman, Chief Executive Officer, and President of United Services
Automobile Association (USAA) (10/02-present); President and Chief
Executive Officer of USAA (4/00-10/02); President and Chief Operating
Officer of USAA (6/99-3/00); Director of USAA (2/99-present); Deputy
Chief Executive Officer for Capital Management of USAA (6/98-5/99);
President, Chief Executive Officer, Director, and Chairman of the
Board of Directors of USAA Capital Corporation (CAPCO) and several of
its subsidiaries and affiliates (1/97-present); and President, Chief
Executive Officer, Director, and Chairman of the Board of Directors of
USAA Financial Planning Services (1/97-present). Mr. Davis serves as a
Director/Trustee and Chairman of the Boards of Directors/Trustees of
the USAA family of funds. He also serves as a Director and Chairman of
the Boards of Directors of USAA Investment Management Company, USAA
Life Insurance Company, USAA Federal Savings Bank, and USAA Real
Estate Company (RealCo).
CHRISTOPHER W. CLAUS (2)
Director, President, and Vice Chairman of the Board of Directors
Born: December 1960
Year of Election or Appointment: 2001
President and Chief Executive Officer, Director, and Vice Chairman of
the Board of Directors, IMCO (2/01-present). Senior Vice President of
Investment Sales and Service, IMCO (7/00-2/01); Vice President,
Investment Sales and Service, IMCO (12/94-7/00). Mr. Claus serves as
President, Director/Trustee, and Vice Chairman of the Boards of
Directors/Trustees of the USAA family of funds. He also serves as
President, Director, and Chairman of the Board of Directors of USAA
Shareholder Account Services. He also holds the Officer position of
Senior Vice President of USAA Life Investment Trust, a registered
investment company offering five individual funds.
38
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
BARBARA B. DREEBEN (3,4,5,6)
Director
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a postal mail list
management service. Mrs. Dreeben serves as Director/Trustee of the
USAA family of funds. Mrs. Dreeben holds no other directorships of any
publicly held corporations or other investment companies outside the
USAA family of funds.
ROBERT L. MASON, PH.D. (3,4,5,6)
Director
Born: July 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present); Staff
Analyst, Southwest Research Institute (9/98-3/02); Manager,
Statistical Analysis Section, Southwest Research Institute
(8/75-9/98), which focuses on the fields of technological research.
Dr. Mason serves as a Director/Trustee of the USAA family of funds.
Dr. Mason holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of
funds.
MICHAEL F. REIMHERR (3,4,5,6)
Director
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an
organization that performs business valuations of large companies to
include the development of annual business plans, budgets, and
internal financial reporting. Mr. Reimherr serves as a
Director/Trustee of the USAA family of funds. Mr. Reimherr holds no
other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
39
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
LAURA T. STARKS, PH.D. (3,4,5,6)
Director
Born: February 1950
Year of Election or Appointment: 2000
Charles E. and Sarah M. Seay Regents Chair Professor of Finance,
University of Texas at Austin (9/96-present); Sarah Meadows Seay
Regents Professor of Finance, University of Texas of Austin
(9/94-9/96). Dr. Starks serves as a Director/Trustee of the USAA
family of funds. Dr. Starks holds no other directorships of any
publicly held corporations or other investment companies outside the
USAA family of funds.
RICHARD A. ZUCKER (2,3,4,5,6)
Director
Born: July 1943
Year of Election or Appointment: 1992
Vice President, Beldon Roofing and Remodeling (7/85-present).
Mr. Zucker serves as a Director/Trustee of the USAA family of funds.
Mr. Zucker holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of
funds.
(1) INDICATES THOSE DIRECTORS WHO ARE EMPLOYEES OF USAA INVESTMENT
MANAGEMENT COMPANY OR AFFILIATED COMPANIES AND ARE CONSIDERED
"INTERESTED PERSONS" UNDER THE INVESTMENT COMPANY ACT OF 1940.
(2) MEMBER OF EXECUTIVE COMMITTEE
(3) MEMBER OF AUDIT COMMITTEE
(4) MEMBER OF PRICING AND INVESTMENT COMMITTEE
(5) MEMBER OF CORPORATE GOVERNANCE COMMITTEE
(6) THE ADDRESS FOR ALL NON-INTERESTED DIRECTORS IS THAT OF THE USAA
FUNDS, P.O. BOX 659430, SAN ANTONIO, TX 78265-9430.
40
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
INTERESTED OFFICERS(1)
- --------------------------------------------------------------------------------
CLIFFORD A. GLADSON
Vice President
Born: November 1950
Year of Appointment: 2002
Senior Vice President, Fixed Income Investments, IMCO (9/02-present);
Vice President, Fixed Income Investments, IMCO (5/02-9/02); Vice
President, Mutual Fund Portfolios, IMCO (12/99-5/02); Assistant Vice
President, Fixed Income Investments, IMCO (11/94-12/99). Mr. Gladson
also holds the Officer position of Vice President of USAA Life
Investment Trust, a registered investment company offering five
individual funds.
STUART WESTER
Vice President
Born: June 1947
Year of Appointment: 2002
Vice President, Equity Investments, IMCO (1/99-present); Vice
President, Investment Strategy and Analysis, CAPCO (6/96-1/99).
Mr. Wester also holds the Officer position of Vice President of USAA
Life Investment Trust, a registered investment company offering five
individual funds.
MARK S. HOWARD
Secretary
Born: October 1963
Year of Appointment: 2002
Senior Vice President, Securities Counsel, USAA (12/02-present);
Senior Vice President, Securities Counsel & Compliance, IMCO
(1/02-12/02); Vice President, Securities Counsel & Compliance, IMCO
(7/00-1/02); and Assistant Vice President, Securities Counsel, USAA
(2/98-7/00). Mr. Howard also holds the Officer positions of Senior
Vice President, Secretary and Counsel for IMCO and USAA Shareholder
Account Services; and Assistant Secretary for USAA Financial Planning
Services and for USAA Life Investment Trust, a registered investment
company offering five individual funds.
EILEEN M. SMILEY
Assistant Secretary
Born: November 1959
Year of Appointment: 2003
Assistant Vice President, Securities Counsel, USAA (1/03-present);
Attorney, Morrision & Foerster, LLP (1/99-1/03); Senior Counsel,
41
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
Division of Investment Management, U.S. Securities and Exchange
Commission (2/96-12/98). Ms. Smiley also holds the Officer position of
Assistant Secretary of USAA Life Investment Trust, a registered
investment company offering five individual funds.
DAVID M. HOLMES
Treasurer
Born: June 1960
Year of Appointment: 2001
Senior Vice President, Life/IMCO/Financial Planning Services Senior
Financial Officer, USAA (12/02-present); Senior Vice President, Senior
Financial Officer, IMCO (6/01-12/02); Vice President, Senior Financial
Officer, RealCo (12/97-5/01); Assistant Vice President, Capital
Markets, RealCo (1/96-12/97). Mr. Holmes is a Director of USAA Life
Insurance Company and also holds the Officer positions of Treasurer of
USAA Life Investment Trust, a registered investment company offering
five individual funds, and Senior Vice President, Senior Financial
Officer of USAA Life Insurance Company and USAA Shareholder Account
Services.
ROBERTO GALINDO, JR.
Assistant Treasurer
Born: November 1960
Year of Appointment: 2000
Assistant Vice President, Portfolio Accounting/Financial
Administration, USAA (12/02-present); Assistant Vice President, Mutual
Fund Analysis & Support, IMCO (10/01-12/02); Executive Director,
Mutual Fund Analysis & Support, IMCO (6/00-10/01); Director, Mutual
Fund Analysis, IMCO (9/99-6/00); Vice President, Portfolio
Administration, Founders Asset Management LLC (7/98-8/99); Assistant
Vice President, Director of Fund & Private Client Accounting, Founders
Asset Management LLC (7/93-7/98). Mr. Galindo also holds the Officer
position of Assistant Treasurer of USAA Life Investment Trust, a
registered investment company offering five individual funds.
(1) INDICATES THOSE OFFICERS WHO ARE EMPLOYEES OF USAA INVESTMENT
MANAGEMENT COMPANY OR AFFILIATED COMPANIES AND ARE CONSIDERED
"INTERESTED PERSONS" UNDER THE INVESTMENT COMPANY ACT OF 1940.
42
N O T E S
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TRUSTEES Robert G. Davis, CHAIRMAN OF THE BOARD
Christopher W. Claus, VICE CHAIRMAN OF THE BOARD
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Michael F. Reimherr
Laura T. Starks, Ph.D.
Richard A. Zucker
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, San Antonio, Texas 78265-9825
AND DISTRIBUTOR
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
INDEPENDENT AUDITORS Ernst & Young LLP
100 West Houston St., Suite 1900
San Antonio, Texas 78205
TELEPHONE Call toll free - Central time
ASSISTANCE HOURS Monday - Friday, 7 a.m. to 10 p.m.
Saturday, 8:30 a.m. to 5 p.m.
Sunday, 10:30 a.m. to 7 p.m.
FOR ADDITIONAL 1-800-531-8181, in San Antonio 456-7200
INFORMATION ABOUT For account servicing, exchanges,
MUTUAL FUNDS or redemptions
1-800-531-8448, in San Antonio 456-7202
RECORDED MUTUAL 24-hour service (from any phone)
FUND PRICE QUOTES 1-800-531-8066, in San Antonio 498-8066
MUTUAL FUND (from touch-tone phones only)
USAA TOUCHLINE(R) For account balance, last transaction, fund
prices, or to exchange or redeem fund shares
1-800-531-8777, in San Antonio 498-8777
INTERNET ACCESS USAA.COM
THROUGH OUR ONGOING EFFORTS TO REDUCE EXPENSES, YOUR REPORT MAILINGS ARE
STREAMLINED. WE DEVELOP MAILING LISTS USING CRITERIA SUCH AS ADDRESS, MEMBER
NUMBER, AND SURNAME TO SEND ONE REPORT TO EACH HOUSEHOLD INSTEAD OF SENDING A
REPORT TO EVERY REGISTERED OWNER. THIS PRACTICE IS DESIGNED TO REDUCE DUPLICATE
COPIES AND SAVE PAPER AND POSTAGE COSTS TO THE FUND. IF YOU PREFER NOT TO
PARTICIPATE IN STREAMLINING AND WOULD LIKE TO CONTINUE RECEIVING ONE REPORT PER
REGISTERED ACCOUNT OWNER, PLEASE CALL US AND WE WILL BEGIN YOUR INDIVIDUAL
DELIVERY WITHIN 30 DAYS OF YOUR REQUEST.
[LOGO OF RECYCLED PAPER]
Recycled
Paper
- --------------------------------------------------------------------------------
[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
23409-0703 (C)2003, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
Item not required because Registrant's fiscal year ended May 31, 2003. Initial
compliance with this disclosure item is required in annual reports for fiscal
years ending on or after July 15, 2003
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Item not yet required because Registrant's fiscal year ended on May 31, 2003.
Initial compliance with this disclosure item is required in annual reports for
fiscal years ending on or after July 15, 2003.
ITEM 4-8. (RESERVED)
ITEM 9. CONTROLS AND PROCEDURES
The chief executive officer and chief financial officer of USAA Investment Trust
(Trust) have concluded that the Trust's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the Trust in
this Form N-CSR was recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
based upon such officers' evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.