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 GROWTH AND TAX STRATEGY FUND - MAY 31, 2003
[LOGO OF USAA]
USAA(R)
USAA GROWTH and
TAX STRATEGY Fund
[GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND]
A n n u a l R e p o r t
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MAY 31, 2003
Table of CONTENTS
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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 23
Financial Statements 25
Notes to Financial Statements 28
DIRECTORS' INFORMATION 40
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 GROWTH AND TAX STRATEGY FUND
OBJECTIVE
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Conservative balance for the investor between income, the
majority of which is exempt from federal income tax, and the
potential for long-term growth of capital to preserve
purchasing power.
TYPES OF INVESTMENTS
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Invests principally in tax-exempt bonds and money market
instruments and the remainder in blue chip stocks.
- --------------------------------------------------------------------------------
5/31/03 5/31/02
- --------------------------------------------------------------------------------
Net Assets $186.9 Million $205.1 Million
Net Asset Value Per Share $13.99 $14.23
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND 30-DAY SEC YIELD* AS OF 5/31/03
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 30-DAY SEC YIELD
1.46% 0.61% 5.97% 1.95%
* CALCULATED AS PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION.
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
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA
S&P 500 GROWTH & TAX LEHMAN BROTHERS LIPPER BALANCED LIPPER BALANCED RUSSELL 1000
INDEX STRATEGY FUND MUNICIPAL BOND INDEX FUNDS AVERAGE FUNDS INDEX GROWTH INDEX
------- ------------- -------------------- --------------- --------------- ------------
5/31/1993 $10000 $10000 $10000 $10000 $10000 10000
6/30/1993 10029 10118 10167 10102 10106 9909
7/31/1993 9989 10182 10180 10123 10147 9732
8/31/1993 10367 10357 10392 10432 10453 10131
9/30/1993 10287 10357 10511 10451 10476 10057
10/31/1993 10500 10518 10531 10553 10584 10336
11/30/1993 10400 10430 10438 10399 10414 10267
12/31/1993 10526 10604 10658 10574 10589 10444
1/31/1994 10883 10821 10780 10829 10866 10686
2/28/1994 10588 10596 10501 10622 10653 10490
3/31/1994 10127 10236 10073 10238 10266 9983
4/30/1994 10257 10337 10159 10272 10289 10029
5/31/1994 10425 10370 10247 10313 10368 10181
6/30/1994 10170 10337 10184 10131 10188 9880
7/31/1994 10503 10515 10371 10358 10418 10217
8/31/1994 10933 10727 10407 10624 10679 10786
9/30/1994 10666 10575 10254 10422 10486 10640
10/31/1994 10905 10506 10072 10484 10519 10890
11/30/1994 10508 10247 9890 10235 10273 10541
12/31/1994 10664 10326 10108 10331 10372 10717
1/31/1995 10940 10557 10397 10478 10501 10947
2/28/1995 11366 10850 10699 10801 10807 11405
3/31/1995 11701 11054 10822 10993 10998 11738
4/30/1995 12046 11215 10835 11206 11204 11995
5/31/1995 12526 11484 11180 11588 11563 12412
6/30/1995 12817 11483 11083 11801 11768 12891
7/31/1995 13242 11667 11187 12072 12017 13427
8/31/1995 13275 11794 11329 12166 12111 13442
9/30/1995 13834 12040 11401 12455 12400 14061
10/31/1995 13785 11994 11567 12429 12368 14071
11/30/1995 14389 12406 11759 12816 12753 14618
12/31/1995 14667 12670 11872 13004 12953 14702
1/31/1996 15165 12865 11962 13242 13187 15193
2/29/1996 15306 12920 11881 13281 13194 15471
3/31/1996 15454 13031 11729 13330 13243 15491
4/30/1996 15681 13031 11696 13449 13331 15899
5/31/1996 16085 13161 11691 13620 13468 16454
6/30/1996 16146 13255 11819 13639 13512 16476
7/31/1996 15433 13077 11926 13245 13164 15511
8/31/1996 15759 13203 11923 13490 13372 15911
9/30/1996 16646 13560 12090 13990 13868 17070
10/31/1996 17105 13755 12226 14258 14162 17173
11/30/1996 18396 14213 12450 14919 14822 18462
12/31/1996 18032 14080 12398 14759 14644 18101
1/31/1997 19158 14365 12421 15202 15097 19370
2/28/1997 19308 14473 12535 15212 15153 19239
3/31/1997 18516 14147 12368 14768 14713 18198
4/30/1997 19621 14435 12471 15191 15155 19407
5/31/1997 20820 15031 12659 15873 15775 20807
6/30/1997 21746 15339 12794 16367 16298 21640
7/31/1997 23476 15924 13148 17311 17227 23554
8/31/1997 22162 15565 13025 16852 16681 22175
9/30/1997 23375 16017 13180 17536 17346 23266
10/31/1997 22595 15965 13265 17236 17030 22406
11/30/1997 23640 16172 13343 17540 17343 23358
12/31/1997 24046 16355 13537 17808 17617 23620
1/31/1998 24311 16471 13677 17900 17742 24326
2/28/1998 26064 16977 13681 18668 18446 26156
3/31/1998 27398 17441 13693 19224 19010 27198
4/30/1998 27678 17409 13631 19351 19143 27575
5/31/1998 27203 17324 13847 19115 18950 26792
6/30/1998 28307 17483 13902 19388 19299 28433
7/31/1998 28008 17241 13936 19112 19073 28245
8/31/1998 23962 16171 14152 17361 17430 24006
9/30/1998 25498 16807 14328 18142 18182 25850
10/31/1998 27569 17156 14328 18921 18862 27928
11/30/1998 29239 17777 14378 19645 19553 30052
12/31/1998 30923 18248 14414 20338 20274 32762
1/31/1999 32215 18823 14586 20672 20598 34686
2/28/1999 31214 18428 14522 20115 20103 33101
3/31/1999 32463 18969 14542 20608 20600 34845
4/30/1999 33720 19252 14578 21285 21274 34889
5/31/1999 32924 18900 14494 20993 20946 33817
6/30/1999 34747 19436 14285 21606 21525 36186
7/31/1999 33666 19189 14337 21180 21123 35036
8/31/1999 33500 19041 14222 20907 20901 35608
9/30/1999 32582 18766 14228 20602 20633 34860
10/31/1999 34643 19433 14074 21207 21231 37493
11/30/1999 35348 19595 14224 21494 21459 39515
12/31/1999 37427 19939 14118 22205 22094 43625
1/31/2000 35546 19545 14056 21612 21539 41580
2/29/2000 34874 19824 14220 21674 21487 43612
3/31/2000 38284 21144 14530 22927 22752 46734
4/30/2000 37132 20642 14445 22483 22335 44510
5/31/2000 36371 20153 14369 22227 22125 42269
6/30/2000 37267 20608 14750 22646 22478 45472
7/31/2000 36685 20455 14955 22598 22417 43577
8/31/2000 38962 21160 15186 23716 23418 47522
9/30/2000 36906 20092 15107 23176 22925 43027
10/31/2000 36749 20293 15272 23118 22905 40991
11/30/2000 33854 19666 15387 22180 22073 34949
12/31/2000 34020 19807 15767 22777 22622 33843
1/31/2001 35226 19986 15924 23337 23102 36181
2/28/2001 32016 19021 15974 22325 22205 30038
3/31/2001 29989 18307 16117 21545 21488 26770
4/30/2001 32318 18955 15943 22491 22390 30155
5/31/2001 32535 19051 16114 22674 22589 29711
6/30/2001 31743 18823 16222 22352 22243 29023
7/31/2001 31431 18944 16463 22332 22227 28298
8/31/2001 29465 18206 16734 21650 21595 25984
9/30/2001 27086 17277 16678 20447 20557 23390
10/31/2001 27603 17643 16876 20884 20901 24617
11/30/2001 29719 18339 16734 21761 21733 26982
12/31/2001 29980 18161 16576 21927 21890 26931
1/31/2002 29543 18223 16863 21720 21698 26455
2/28/2002 28973 17989 17066 21501 21550 25357
3/31/2002 30063 18272 16732 21993 22022 26234
4/30/2002 28241 17642 17059 21470 21493 24093
5/31/2002 28033 17604 17163 21382 21483 23510
6/30/2002 26037 16850 17344 20381 20567 21336
7/31/2002 24008 16589 17567 19371 19512 20163
8/31/2002 24165 16738 17778 19573 19713 20223
9/30/2002 21542 16219 18168 18377 18536 18125
10/31/2002 23436 16708 17867 19084 19308 19788
11/30/2002 24814 16909 17792 19831 20092 20863
12/31/2002 23357 16650 18168 19281 19550 19422
1/31/2003 22746 16409 18122 19006 19257 18950
2/28/2003 22404 16485 18375 18864 19113 18863
3/31/2003 22621 16637 18386 18940 19191 19214
4/30/2003 24483 17233 18507 19976 20229 20635
5/31/2003 25772 17861 18941 20910 21124 21665
[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.
THE RUSSELL 1000 GROWTH INDEX REPLACED THE S&P 500 AS THE
FUND'S COMPARABLE BROAD-BASED SECURITIES INDEX BECAUSE THE
RUSSELL 1000 GROWTH INDEX IS AN INDEX OF LARGE-CAP GROWTH
STOCKS, AND THUS, PROVIDES A MORE APPROPRIATE COMPARISON FOR
THE EQUITY PORTION OF THE FUND, WHICH FOCUSES ON LARGE-CAP
GROWTH STOCKS, THAN THE S&P 500 INDEX, WHICH IS AN INDEX OF
LARGE-CAP GROWTH AND VALUE STOCKS.
7
. . . C O N T I N U E D
========================--------------------------------------------------------
The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA Growth and Tax Strategy Fund to the
following benchmarks:
o The S&P 500 Index, 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 Russell 1000 Growth Index measures the performance of
those Russell 1000 companies with higher price-to-book
ratios and higher forecasted growth values.
o The Lipper Balanced Funds Index, which tracks the total
return performance of the 30 largest funds within the
Lipper Balanced Funds category.
o The Lipper Balanced Funds Average, an average performance
level of all balanced funds, reported by Lipper Inc., an
independent organization that monitors the performance of
mutual funds.
o The Lehman Brothers Municipal Bond Index, an unmanaged
benchmark of total return performance for the long-term,
investment-grade, tax-exempt bond market.
8
M A N A G E R S '
==================--------------------------------------------------------------
COMMENTARY on the Fund
CLIFFORD A. GLADSON, CFA SETH A. REICHER, CFA
USAA Investment Management Company Dresdner RCM Global Investors LLC
(Tax-Exempt Bonds) (Blue Chip Stocks)
JOAN L. HOWARD
Dresdner RCM Global Investors LLC
(Blue Chip Stocks)
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA Growth and Tax Strategy Fund had a total return of
1.46% for the year ended May 31, 2003. This compares to an
average of -2.28% for the funds in the Lipper Balanced Funds
category, -7.85% for the Russell 1000 Growth Index, and 10.36%
for the Lehman Brothers Municipal Bond Index. During the
period, income from your Fund's investments in municipal bonds
dampened the volatility of the stock portfolio. As required by
the federal tax code, we ended the period with a majority of
assets in tax-exempt securities and, therefore, were able to
pass the income from our municipal bond portfolio to you
tax-free.
HOW DID MUNICIPAL BONDS PERFORM?
Yields from municipal bonds declined steadily throughout the
reporting year, driving municipal bond prices higher. The
yield on the Bond Buyer 40-Bond Index, the industry standard
for long-term investment grade bonds, began the period at
5.37%, had fallen to 5.17% by November 30, 2002, and ended at
4.83% on May 31, 2003.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 7 FOR BENCHMARK DEFINITIONS. THE BOND BUYER
40-BOND INDEX IS REPRESENTATIVE OF YIELDS OF 40 LARGE
ONE-YEAR, TAX-EXEMPT NOTES.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
HOW WAS THE MUNICIPAL BOND PORTION OF THE FUND POSITIONED?
We continued to purchase solid investment-grade municipal
bonds with final maturities of between 15 years and 25 years.
This strategy reflected our view that the economy's
improvement would be slow and that inflation would remain
under control. We are optimistic that the combination of tax
cuts and stimulative monetary policy will help the economy
gain traction. However, a lack of pricing power remains, so we
still don't see inflation as a major threat; nor do we think
the Federal Reserve Board will reverse course and begin
raising rates anytime soon. Therefore, we're comfortable
maintaining our strategy and are continuing to research and
monitor carefully each bond that we own.
HOW WAS THE U.S. EQUITY PORTION OF THE FUND POSITIONED?
Since Dresdner RCM Global Investors LLC took over management
of the Fund's equity portion on June 28, 2002, we have
maintained a relatively defensive position, remaining
underweight in the more cyclical areas of the economy and
overweight in stable-growth areas. This is consistent with our
view that the economy has not been growing fast enough to help
cyclical companies generate the sustainable earnings growth
necessary to justify their valuations. Although this stance
has been slightly detrimental to recent performance, we're
confident that our focus on quality and sustainable earnings
growth is the right one for the long term.
WITH THE UNCERTAINTY OF THE WAR IN IRAQ BEHIND US, DO YOU THINK THAT THE ECONOMY
WILL STRENGTHEN IN THE MONTHS AHEAD?
We believe economic activity is going to remain somewhat
sluggish and well below the level we would expect to see in a
normal recovery. While the uncertainty of war may have held
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
back some spending on the margin, we do not envision a robust
pickup in spending. The good news is that many stocks have the
potential for solid earnings growth and price appreciation,
regardless of the strength of the recovery. We believe the
kinds of companies in which we invest, those able to build
earnings consistently and with strong financials and
management, have the potential to outperform in a challenging
environment.
CAN YOU GIVE US SOME EXAMPLES OF AREAS YOU'RE EMPHASIZING?
We are overweight in the pharmaceutical sector. The companies
we own there have continued to grow in spite of patent
expirations, delays in new product approvals, manufacturing
plant inspection problems, and pricing pressures from state
Medicaid programs and HMOs. The stocks are selling at
historically low valuations relative to the market, but their
outlook is improving: New products are addressing previously
untreated diseases; the population is aging; there is a good
chance of a prescription drug benefit in Medicare; and major
patent expirations will affect fewer companies over the next
several years. We are also focused on the more innovative
sectors of the economy that are less dependent on economic
cycles, such as biotechnology.
We will continue to work hard on your behalf and thank you for
the confidence you've placed in us.
11
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
TAX-EXEMPT SECURITIES
TOP 5 HOLDINGS
(% of Net Assets)
Michigan - Hospital Finance Auth. RB, Series 1999A
(Ascension Hospital) 4.0%
Wisconsin - Univ. of Wisconsin Hospitals and
Clinics Auth. RB, Series 2000 3.8%
Texas - Lewisville RB, Series 1998B 3.4%
Connecticut - Mashantucket (Western) Pequot
Tribe RB, Series 1997B 3.3%
Texas - Northwest Independent School
District GO, Series 1997 3.0%
TOP 10 INDUSTRIES
(% of Net Assets)
Hospitals 11.2%
Pharmaceuticals 9.3%
Water/Sewer Utility 6.3%
Escrowed Bonds 4.8%
General Obligation Bonds 4.8%
Special Assessment/Tax/Fee Bonds 4.6%
Real Estate Tax/Fee Bonds 3.4%
Casinos & Gaming 3.3%
Systems Software 3.3%
Industrial Conglomerates 2.9%
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON
PAGES 15-22.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
HIGHLIGHTS
TOP 5 EQUITY HOLDINGS
(% of Net Assets)
Pfizer, Inc. 3.8%
Microsoft Corp. 3.0%
General Electric Co. 2.5%
Johnson & Johnson, Inc. 1.9%
Wal-Mart Stores, Inc. 1.9%
ASSET ALLOCATION
5/31/03
[PIE CHART OF ASSET ALLOCATION]
Tax-Exempt Bonds 51.4%
Blue Chip Stocks 48.5%
Tax-Exempt Money Market Instruments 2.4%
[END PIE CHART]
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON
PAGES 15-22.
13
D I S T R I B U T I O N S
==========================------------------------------------------------------
to SHAREHOLDERS
USAA GROWTH AND TAX STRATEGY 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.
100% of ordinary income distributions qualifies for the
dividend-received deductions eligible to corporations.
14
I N D E P E N D E N T
======================----------------------------------------------------------
AUDITORS' Report
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
USAA GROWTH AND TAX STRATEGY FUND:
We have audited the accompanying statement of assets and
liabilities of USAA Growth and Tax Strategy 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 Growth and Tax
Strategy 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 GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (53.8%)
TAX-EXEMPT BONDS (51.4%)
ALABAMA (2.3%)
$ 4,700 Baldwin County Health Care Auth. RB,
Series 1998 5.75% 4/01/2027 $ 4,245
ARKANSAS (1.4%)
2,500 Conway Health Facilities Board Hospital RB,
Series 1999A 6.40 8/01/2029 2,687
CALIFORNIA (2.8%)
5,000 Sacramento Municipal Utility District RB,
Series 2003R (INS) (d) 5.00 8/15/2028 5,314
CONNECTICUT (3.3%)
6,000 Mashantucket (Western) Pequot Tribe RB,
Series 1997B (c) 5.75 9/01/2027 6,239
FLORIDA (0.7%)
1,200 City of Port St. Lucie Utility System RB,
Series 2003 (INS) 4.50 9/01/2028 1,214
GEORGIA (2.7%)
4,500 Atlanta Airport RB, Series 2000A (INS) 5.60 1/01/2030 4,971
ILLINOIS (1.1%)
5,500 Health Facilities Auth. RB, Series 1996
(Mercy Hospital) 6.38 1/01/2015 2,026
LOUISIANA (1.6%)
2,500 Local Government Environmental Facilities
and Community Development Auth. RB,
Series 2000 (INS) 6.55 9/01/2025 3,005
MAINE (1.8%)
3,000 Health and Higher Educational Facilities
Auth. RB, Series 2000C (INS) 5.75 7/01/2030 3,331
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------
MICHIGAN (8.6%)
$ 4,000 Detroit Sewage Disposal RB, Series 1999A (INS) 5.75% 7/01/2026 $ 4,790
4,000 Hospital Finance Auth. RB, Series 1996 6.25 10/01/2027 3,903
6,000 Hospital Finance Auth. RB, Series 1999A
(Ascension Hospital) (PRE) 6.13 11/15/2026 7,398
MONTANA (0.6%)
1,000 Facility Finance Auth. RB, Series 2002
(Providence Services) (INS) 4.75 12/01/2021 1,046
NEW YORK (7.8%)
4,000 Metropolitan Transportation Auth. RB,
Series 2000A 6.00 4/01/2030 4,854
2,690 New York City GO, Series 2000A 6.00 5/15/2020 2,971
3,000 New York City Municipal Water Finance
Auth. RB, Series 2003E 5.00 6/15/2034 3,137
2,000 Urban Development Corp. RB, Series 2002C-1 5.00 3/15/2024 2,113
1,500 Urban Development Corp. RB, Series 2002C-1 5.00 3/15/2025 1,579
PENNSYLVANIA (0.9%)
1,545 Philadelphia Gas Works RB, 14th Series (PRE) 6.38 7/01/2026 1,583
RHODE ISLAND (0.1%)
205 Housing and Mortgage Finance Corp. SFH RB,
Series 15-A 6.85 10/01/2024 212
TEXAS (11.7%)
3,410 Fort Worth Higher Education Finance Corp. RB,
Series 1997A 6.00 10/01/2016 3,447
5,675 Lewisville RB, Series 1998B (INS) 5.80 9/01/2025 6,399
30,270 Northwest Independent School District GO,
Series 1997 (NBGA) 6.38(b) 8/15/2032 5,557
3,420 San Antonio Water System RB,
Series 2002A (INS) 5.50 5/15/2018 3,904
2,500 State Turnpike Auth. RB, First Tier,
Series A (INS) 5.00 8/15/2042 2,592
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- ----------------------------------------------------------------------------------------------
WISCONSIN (4.0%)
$ 500 Muskego Norway School District GO (INS) 5.00% 4/01/2022 $ 533
6,030 Univ. of Wisconsin Hospitals and
Clinics Auth. RB, Series 2000 (INS) 6.13 4/01/2021 7,019
--------
Total tax-exempt bonds (cost: $89,971) 96,069
--------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (2.4%)
VARIABLE-RATE DEMAND NOTES (2.1%)(A)
CALIFORNIA (1.3%)
2,400 Association of Bay Area Governments
Finance Auth. RB, Series 2002 (LOC) 1.30 11/15/2031 2,400
VIRGINIA (0.8%)
1,600 Loudoun County IDA RB, Series 2003A 1.30 2/15/2038 1,600
--------
Total variable-rate demand notes (cost: $4,000) 4,000
--------
NUMBER
OF SHARES
- ----------
MONEY MARKET FUND (0.3%)
463,058 SSgA Tax Free Money Market Fund (cost: $463) 0.65(e) - 463
--------
Total tax-exempt money market instruments
(cost: $4,463) 4,463
--------
Total tax-exempt securities (cost: $94,434) 100,532
--------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------
BLUE CHIP STOCKS (48.5%)
AEROSPACE & DEFENSE (1.1%)
11,500 Lockheed Martin Corp. $ 534
23,000 United Technologies Corp. 1,570
---------
2,104
---------
AIR FREIGHT & LOGISTICS (0.6%)
18,000 United Parcel Service, Inc. "B" 1,124
---------
APPLICATION SOFTWARE (0.4%)
32,000 PeopleSoft, Inc.* 524
9,000 SAP AG ADR 256
---------
780
---------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
25,000 Franklin Resources, Inc. 934
---------
BIOTECHNOLOGY (1.7%)
35,000 Amgen, Inc.* 2,265
9,900 Genentech, Inc.* 620
5,575 IDEC Pharmaceuticals Corp.* 212
---------
3,097
---------
BREWERS (1.5%)
54,000 Anheuser-Busch Companies, Inc. 2,842
---------
COMMUNICATIONS EQUIPMENT (1.7%)
131,500 Cisco Systems, Inc.* 2,141
23,000 Nokia Corp. ADR 415
18,000 QUALCOMM, Inc. 604
---------
3,160
---------
COMPUTER HARDWARE (1.6%)
65,000 Dell Computer Corp.* 2,034
11,500 IBM Corp. 1,012
---------
3,046
---------
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
28,000 Automatic Data Processing, Inc. $ 977
---------
DEPARTMENT STORES (0.4%)
13,000 Kohls Corp.* 681
---------
DRUG RETAIL (1.0%)
60,000 Walgreen Co. 1,847
---------
FOOD DISTRIBUTORS (0.4%)
22,000 Sysco Corp. 681
---------
FOOTWEAR (0.5%)
16,150 Nike, Inc. "B" 904
---------
HEALTH CARE DISTRIBUTORS (1.2%)
11,000 AmerisourceBergen Corp. 689
28,000 Cardinal Health, Inc. 1,616
---------
2,305
---------
HEALTH CARE EQUIPMENT (1.3%)
10,600 Boston Scientific Corp.* 552
28,000 Medtronic, Inc. 1,364
6,900 Stryker Corp. 465
---------
2,381
---------
HOME ENTERTAINMENT SOFTWARE (0.6%)
16,000 Electronic Arts, Inc.* 1,097
---------
HOME IMPROVEMENT RETAIL (0.8%)
26,000 Home Depot, Inc. 845
17,500 Lowe's Companies, Inc. 739
---------
1,584
---------
HOUSEHOLD PRODUCTS (2.2%)
39,500 Colgate-Palmolive Corp. 2,355
18,500 Procter & Gamble Co. 1,699
---------
4,054
---------
20
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS (2.4%)
24,100 Costco Wholesale Corp.* $ 893
69,000 Wal-Mart Stores, Inc. 3,630
---------
4,523
---------
INDUSTRIAL CONGLOMERATES (2.9%)
6,700 3M Co. 847
160,000 General Electric Co. 4,592
---------
5,439
---------
INDUSTRIAL MACHINERY (0.1%)
2,050 Danaher Corp. 137
---------
INSURANCE BROKERS (0.6%)
20,500 Marsh & McLennan Companies, Inc. 1,028
---------
INTEGRATED OIL & GAS (0.5%)
12,000 BP plc ADR 503
10,000 Exxon Mobil Corp. 364
---------
867
---------
INVESTMENT BANKING & BROKERAGE (0.3%)
14,000 Merrill Lynch & Co., Inc. 606
---------
IT CONSULTING & OTHER SERVICES (0.3%)
33,000 Accenture Ltd. "A"* 578
---------
LEISURE PRODUCTS (0.5%)
39,000 Mattel, Inc. 839
---------
MANAGED HEALTH CARE (0.4%)
9,200 Wellpoint Health Networks, Inc.* 785
---------
MOVIES & ENTERTAINMENT (0.6%)
25,000 Viacom, Inc. "B"* 1,138
---------
21
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------
MULTI-LINE INSURANCE (0.5%)
9,100 American International Group, Inc. $ 527
9,800 Hartford Financial Services Group 457
---------
984
---------
OIL & GAS EQUIPMENT & SERVICES (0.6%)
35,000 Baker Hughes, Inc. 1,157
---------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
4,000 Anadarko Petroleum Corp. 197
9,400 Burlington Resources, Inc. 501
---------
698
---------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.5%)
22,000 Citigroup, Inc. 902
---------
PACKAGED FOODS & MEAT (0.1%)
6,050 Kraft Foods, Inc. "A" 196
---------
PERSONAL PRODUCTS (0.3%)
18,000 Gillette Co. 605
---------
PHARMACEUTICALS (9.3%)
17,000 Abbott Laboratories 757
65,000 Johnson & Johnson, Inc. 3,533
31,000 Merck & Co., Inc. 1,723
229,000 Pfizer, Inc. 7,104
22,000 Teva Pharmaceutical Industries Ltd. ADR 1,115
72,000 Wyeth 3,157
---------
17,389
---------
RESTAURANTS (0.4%)
32,000 Starbucks Corp.* 789
---------
22
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- -----------------------------------------------------------------------
SEMICONDUCTORS (1.8%)
120,000 Intel Corp. $ 2,501
24,000 Maxim Integrated Products, Inc. 941
---------
3,442
---------
SOFT DRINKS (2.6%)
30,000 Coca-Cola Co. 1,367
32,000 Coca-Cola Enterprises, Inc. 600
64,000 PepsiCo, Inc. 2,829
---------
4,796
---------
SYSTEMS SOFTWARE (3.3%)
224,600 Microsoft Corp. 5,527
24,900 VERITAS Software Corp.* 691
---------
6,218
---------
THRIFTS & MORTGAGE FINANCE (1.5%)
39,000 Fannie Mae 2,886
---------
WIRELESS TELECOMMUNICATION SERVICES (0.6%)
49,000 Vodafone Group plc ADR 1,074
---------
Total blue chip stocks (cost: $75,318) 90,674
---------
TOTAL INVESTMENTS (COST: $169,752) $ 191,206
=========
23
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA GROWTH AND TAX STRATEGY 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 percentage 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.
PORTFOLIO DESCRIPTION ABBREVIATIONS
GO General Obligation
IDA Industrial Development Authority
RB Revenue Bond
SFH Single-Family Housing
CREDIT ENHANCEMENTS - add the financial strength of the provider of
the enhancement to support the issuer's ability to repay the principal
when due. A high-quality bank, insurance company, or other
corporation, or a collateral trust may provide the enhancement.
(PRE) Prerefunded to a date prior to maturity.
(LOC) Enhanced by a bank letter of credit.
(NBGA) Enhanced by a nonbank guarantee agreement.
(INS) Scheduled principal and interest payments are insured by one
of the following companies: ACA Financial Guaranty Corp.,
AMBAC Financial Group, Inc., Financial Guaranty Insurance Co.,
Financial Security Assurance Holdings Ltd., or MBIA, Inc.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) Variable-rate demand notes (VRDNs) - provide the right, on any
business day, to sell the security at face value on either that
day or in seven days. The interest rate is adjusted at a
stipulated daily, weekly, or monthly interval to a rate that
reflects current market conditions. The effective maturity is the
next put date.
(b) Zero-coupon security - the rate represents the effective yield at
date of purchase.
(c) Restricted security - 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 is generally deemed by USAA
Investment Management Company (the Manager) to be liquid under
guidelines approved by the Board of Trustees.
(d) At May 31, 2003, the cost of securities purchased on a when-issued
basis was $5,278,000.
(e) Rate represents the money market fund annualized seven-day yield
at May 31, 2003.
* Non-income-producing security for the year ended May 31, 2003.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
ASSETS
Investments in securities, at market value (identified cost of $169,752) $191,206
Cash 79
Receivables:
Capital shares sold 65
Dividends and interest 1,221
Securities sold 294
--------
Total assets 192,865
--------
LIABILITIES
Securities purchased (when-issued of $5,278) 5,743
Capital shares redeemed 39
USAA Investment Management Company 78
USAA Transfer Agency Company 17
Accounts payable and accrued expenses 59
--------
Total liabilities 5,936
--------
Net assets applicable to capital shares outstanding $186,929
========
NET ASSETS CONSIST OF:
Paid-in capital $166,818
Accumulated undistributed net investment income 628
Accumulated net realized loss on investments (1,971)
Net unrealized appreciation of investments 21,454
--------
Net assets applicable to capital shares outstanding $186,929
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 13,358
========
Net asset value, redemption price, and offering price per share $ 13.99
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA GROWTH AND TAX STRATEGY FUND
YEAR ENDED MAY 31, 2003
NET INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $5) $ 1,004
Interest 5,572
--------
Total income 6,576
--------
Expenses:
Management fees 935
Administrative and servicing fees 276
Transfer agent's fees 222
Custodian's fees 79
Postage 24
Shareholder reporting fees 57
Trustees' fees 7
Registration fees 30
Professional fees 46
Other 3
--------
Total expenses 1,679
Expenses paid indirectly (13)
--------
Net expenses 1,666
--------
Net investment income 4,910
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 13,571
Change in net unrealized appreciation/depreciation (16,923)
--------
Net realized and unrealized loss (3,352)
--------
Increase in net assets resulting from operations $ 1,558
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA GROWTH AND TAX STRATEGY FUND
YEARS ENDED MAY 31,
2003 2002
------------------------
FROM OPERATIONS
Net investment income $ 4,910 $ 6,078
Net realized gain (loss) on investments 13,571 (9,859)
Change in net unrealized appreciation/depreciation
of investments (16,923) (13,873)
------------------------
Increase (decrease) in net assets resulting
from operations 1,558 (17,654)
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,163) (6,590)
------------------------
Net realized gains (627) -
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 6,711 9,312
Shares issued for dividends reinvested 5,175 5,881
Cost of shares redeemed (25,833) (24,654)
------------------------
Decrease in net assets from
capital share transactions (13,947) (9,461)
------------------------
Net decrease in net assets (18,179) (33,705)
NET ASSETS
Beginning of period 205,108 238,813
------------------------
End of period $ 186,929 $ 205,108
========================
Accumulated undistributed net investment income
End of period $ 628 $ 1,004
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 502 623
Shares issued for dividends reinvested 390 399
Shares redeemed (1,946) (1,657)
------------------------
Decrease in shares outstanding (1,054) (635)
========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA GROWTH AND TAX STRATEGY 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 Growth and Tax Strategy Fund
(the Fund). The Fund's investment objective is to seek a conservative
balance between income, the majority of which is exempt from federal
income tax, and the potential for long-term growth of capital to
preserve purchasing power.
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 equity 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. Other debt and government securities are valued each
business day by a pricing service (the Service) approved by
the Trust's Board of Trustees. The Service uses the mean
between quoted bid and asked prices or the last sales price
to price
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
securities when, in the Service's judgment, these prices
are readily available and are representative of the
securities' market values. For many securities, such prices
are not readily available. The Service generally prices
these securities based on methods that include
consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications
as to values from dealers in securities; and general market
conditions.
5. Securities 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 Manager, an
affiliate of the Fund, and if applicable, in consultation
with the Fund's investment subadviser, under valuation
procedures approved by the Trust's Board of Trustees.
B. FEDERAL TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially
all of its income to its shareholders. Therefore, no federal
income tax provision is required.
C. INVESTMENTS IN SECURITIES - Security transactions are
accounted for on the date the securities are purchased or sold
(trade date). Gain or loss from sales of investment securities
is computed on the identified cost basis. Dividend income,
less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification.
Interest income is recorded on the accrual basis. Discounts
and premiums 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. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be
invested in the securities of foreign issuers. Since the
Fund's accounting
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
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.
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
$13,000.
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
F. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS - Delivery and
payment for securities that have been purchased by the Fund on
a when-issued basis can take place a month or more after the
trade date. During the period prior to settlement, these
securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to
their delivery. The Fund maintains segregated assets with a
market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a
when-issued basis may increase the volatility of the Fund's
net asset value to the extent that the Fund makes such
purchases while remaining substantially fully invested. As of
May 31, 2003, net outstanding when-issued commitments for the
Fund were $5,278,000.
G. USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that may affect the reported amounts
in the financial statements.
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
The Fund participates with other USAA funds in two joint, short-term,
revolving, committed loan agreements totaling $500 million: $400
million with USAA Capital Corporation (CAPCO), an affiliate of the
Manager, and $100 million with Bank of America. The purpose of the
agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely
disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may
borrow from CAPCO an amount up to 5% of the Fund's total assets at
CAPCO's borrowing rate with no markup. Subject to availability under
its agreement with Bank of America, the Fund may borrow from Bank of
America, at Bank of America's borrowing rate
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
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.
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 increase paid-in capital by
$13,000, decrease accumulated undistributed net investment income by
$123,000, and decrease accumulated net realized loss on investments by
$110,000. This reclassification has no effect on net assets.
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
The tax character of distributions paid during the years ended May 31,
2003 and 2002, was as follows:
2003 2002
------------------------------
Ordinary income* $ 902,000 $ 1,264,000
Tax-exempt income 4,384,000 5,326,000
Long-term realized capital gains 504,000 -
* INCLUDES DISTRIBUTION OF SHORT-TERM REALIZED CAPITAL GAINS, IF ANY,
WHICH ARE TAXABLE AS ORDINARY INCOME.
For the fiscal year ended May 31, 2003, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by
the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund
intends to designate the maximum amount allowable as taxed at a
maximum rate of 15%. Complete information will be reported in
conjunction with your 2003 Form 1099-DIV.
As of May 31, 2003, the components of net assets representing
distributable earnings on a tax basis were as follows:
Undistributed tax-exempt income $ 628,000
Accumulated capital and other losses (1,935,000)
Unrealized appreciation 21,417,000
Distributions of net investment income are made quarterly.
Distributions of realized gains from security transactions not offset
by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes. At May
31, 2003, the Fund had a current post-October deferred capital loss
for federal income tax purposes of $1,935,000, which will be
recognized for tax purposes on the first day of the following fiscal
year.
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY 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
$93,469,000 and $109,712,000, respectively.
The cost of securities at May 31, 2003, for federal income tax
purposes, was $169,789,000.
Gross unrealized appreciation and depreciation of investments as of
May 31, 2003, for federal income tax purposes, were $26,620,000 and
$5,203,000, respectively, resulting in net unrealized appreciation of
$21,417,000.
(5) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund may lend its securities to qualified financial institutions,
such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash
collateral in an amount at least equal, at all times, to the fair
value of 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. The Fund had no securities on loan as of
May 31, 2003.
(6) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager carries out the Fund's
investment policies, directly manages a portion of the Fund's
portfolio, and provides portfolio management oversight of the
Fund's assets managed by a subadviser. Beginning with the
month
35
N O T E S
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to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
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 Balanced Funds Index, which tracks the total return
performance of the 30 largest funds in the Lipper Balanced
Funds category. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.50% 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 (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
- -------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% 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%
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
For the year ended May 31, 2003, the Fund incurred total
management fees, paid or payable to the Manager, of $935,000,
which included a performance adjustment of $16,000.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with Dresdner RCM Global
Investors LLC (Dresdner), under which Dresdner directs the
investment and reinvestment of the portion of the Fund's
assets invested in blue chip stocks (as allocated from time to
time by the Manager). The Manager (not the Fund) pays Dresdner
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 $276,000.
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 $25.50 per shareholder account plus
out-of-pocket expenses. For the year ended May 31, 2003, the
Fund incurred transfer agent's fees, paid or payable to USAA
Transfer Agency Company, of $222,000.
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.
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
(7) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors,
officers, and/or employees of the Manager. None of the affiliated
trustees or Fund officers received any compensation from the Fund.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
- --------------------------------------------------------------------------------
During the year ended May 31, 2003, in accordance with affiliated
transaction procedures approved by the Trust's Board of Trustees,
tax-exempt securities transactions were executed between the Fund and
the following affiliated USAA funds at the then current market price
with no brokerage commissions incurred:
NET REALIZED
COST TO GAIN
SELLER PURCHASER PURCHASER TO SELLER
----------------------------------------------------------------------------------------------
USAA Growth and Tax Strategy Fund USAA Long-Term Fund $2,079,000 $96,000
USAA Growth and Tax Strategy Fund USAA California Bond Fund 4,053,000 99,000
USAA Growth and Tax Strategy Fund USAA New York Bond Fund 2,479,000 27,000
38
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
(9) 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 $ 14.23 $ 15.87 $ 17.28 $ 16.66 $ 16.31
---------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 .41 .49 .48 .47
Net realized and unrealized gain (loss) (.17) (1.60) (1.42) .61 .96
---------------------------------------------------------------------------
Total from investment operations .18 (1.19) (.93) 1.09 1.43
---------------------------------------------------------------------------
Less distributions:
From net investment income (.37) (.45) (.48) (.47) (.48)
From realized capital gains (.05) - - - (.60)
---------------------------------------------------------------------------
Total distributions (.42) (.45) (.48) (.47) (1.08)
---------------------------------------------------------------------------
Net asset value at end of period $ 13.99 $ 14.23 $ 15.87 $ 17.28 $ 16.66
===========================================================================
Total return (%)* 1.46 (7.59) (5.47) 6.62 9.10
Net assets at end of period (000) $ 186,929 $ 205,108 $ 238,813 $ 263,592 $ 252,442
Ratio of expenses to average net assets (%)** .91(a) .83(a) .70(a) .71 .69
Ratio of net investment income to average
net assets (%)** 2.67 2.75 2.91 2.80 2.89
Portfolio turnover (%) 52.38 31.81 35.69 66.43 63.42
* Assumes reinvestment of all dividend income and realized capital gain distributions during the period.
** For the year ended May 31, 2003, average net assets were $183,748,000.
(a) Reflects total expenses excluding any fee-offset arrangements, which decreased these ratios as follows:
- (.02%) (.01%) N/A N/A
39
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
MAY 31, 2003
(10) 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
January 11, 1989. 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.
40
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.
41
. . . 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.
42
. . . 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.
43
. . . 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.
44
. . . 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,
45
. . . 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.
46
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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, or redemptions
MUTUAL FUNDS 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
23403-0703 (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.