UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4019
Exact name of registrant as specified in charter: USAA INVESTMENT TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: MARK S. HOWARD
USAA INVESTMENT TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: MAY 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
USAA INVESTMENT TRUST, EMERGING MARKETS FUND - ANNUAL REPORT FOR PERIOD ENDING
MAY 31, 2004
[LOGO OF USAA]
USAA(R)
USAA EMERGING
MARKETS Fund
[GRAPHIC OF USAA EMERGING MARKETS FUND]
A n n u a l R e p o r t
- --------------------------------------------------------------------------------
MAY 31, 2004
Table of CONTENTS
- --------------------------------------------------------------------------------
MESSAGE FROM THE PRESIDENT 2
INVESTMENT OVERVIEW & MANAGERS' COMMENTARY 5
FINANCIAL INFORMATION
Distributions to Shareholders 12
Report of Independent Registered Public Accounting Firm 13
Portfolio of Investments 14
Notes to Portfolio of Investments 21
Financial Statements 22
Notes to Financial Statements 25
DIRECTORS' AND OFFICERS' INFORMATION 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE
ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES
FURTHER DETAILS ABOUT THE FUND.
(C)2004, USAA. All rights reserved.
2
M E S S A G E
==============------------------------------------------------------------------
from the PRESIDENT
"
FIRST-QUARTER EARNINGS WERE STRONG . . .
[PHOTO OF CHRISTOPHER W. CLAUS] SECOND-QUARTER EARNINGS SHOULD
CONTINUE TO IMPRESS.
"
- --------------------------------------------------------------------------------
As I write to you in early June, the U.S. economy continues to
improve. The country has seen job growth for nine consecutive
months, including 248,000 new jobs created in May. The gross
domestic product (GDP) is also growing at a healthy pace - up
3.9% during the first quarter - and I expect the economy to be
reasonably strong throughout 2004. First-quarter earnings were
strong, exceeding expectations by a record number. Second-
quarter earnings should continue to impress.
Despite the good news, the financial markets have been volatile
and nervous. The primary concerns are the price of oil, Iraq,
the pending presidential election, inflation, and rising
interest rates. In the case of oil, demand is outstripping
supply, with buyers now paying a "terrorist premium." A
disruption in oil production would make oil prices spike, and
if oil costs more than $40 a barrel, the price increase could
wipe out about one-half percent of world GDP.
Iraq is likely to remain a difficult situation for years to
come as democracy in the Middle East strives to take root. And
while markets tend to perform fairly well during presidential
elections - perhaps an expression of voters' optimism - no one
knows quite what to expect this time around. On the inflation
front, our expectation is that inflation will remain moderate
and under control, even though the price of oil and some foods
may rise. The Federal Reserve Board (the Fed) is expected to
raise short-term interest rates, but we believe any rate
increases in the near future
3
. . . C O N T I N U E D
========================--------------------------------------------------------
will occur at a "measured pace." If inflation does rise above
the level expected, the Fed is likely to move more quickly and
aggressively in an effort to combat long-term inflation.
Going forward, we expect stock prices to end the year higher
than they are now. Short-term interest rates should rise,
making money market funds a more attractive choice for people
holding cash. Longer-term investors will feel the initial pinch
of rate increases, but should be rewarded in time with the
potential for higher yields and the compounding of interest
payments.
Regardless of what occurs in the coming months, we remain
committed to helping you achieve your investment goals. Our
market-tested portfolio management team will continue to
provide you with a range of resources, including quality
service and no-load mutual funds that have no sales loads,
12b-1 fees, or long-term contractual plans.
On behalf of everyone at USAA, thank you for your business.
Sincerely,
/s/ Christopher W. Claus
Christopher W. Claus
President and Vice Chairman of the Board
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND
EXPENSES OF THE USAA MUTUAL FUNDS CAREFULLY BEFORE INVESTING.
CONTACT US FOR A PROSPECTUS CONTAINING THIS AND OTHER
INFORMATION ABOUT THE FUNDS FROM USAA INVESTMENT MANAGEMENT
COMPANY, DISTRIBUTOR. READ IT CAREFULLY BEFORE INVESTING.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND.
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 EMERGING MARKETS FUND
OBJECTIVE
- --------------------------------------------------------------------------------
Capital appreciation.
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
Invests at least 80% of the Fund's assets in equity securities
of emerging market companies.
- --------------------------------------------------------------------------------
5/31/04 5/31/03
- --------------------------------------------------------------------------------
Net Assets $95.1 Million $54.8 Million
Net Asset Value Per Share $10.06 $7.24
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/04
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION ON 11/7/94
39.14% 3.69% 1.21%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS
NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN
AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END, VISIT USAA.COM.
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL NET INVESTMENT INCOME DIVIDEND AND REALIZED
CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS QUOTED DO NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
6
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EMERGING USAA LIPPER EMERGING MSCI
MARKETS FUNDS EMERGING MARKETS MARKETS FUNDS EMERGING MARKETS
AVERAGE FUND INDEX INDEX
--------------- ---------------- --------------- ----------------
11/07/94 $10,000 $10,000 $10,000 $10,000
11/30/94 9,668 9,550 9,656 9,601
12/31/94 9,006 9,170 8,923 8,830
01/31/95 8,179 8,390 8,010 7,891
02/28/95 8,052 8,300 7,877 7,688
03/31/95 8,124 8,720 7,912 7,737
04/30/95 8,468 9,130 8,166 8,084
05/31/95 8,895 9,770 8,547 8,514
06/30/95 8,920 9,950 8,582 8,540
07/31/95 9,267 10,320 8,881 8,731
08/31/95 9,091 10,090 8,653 8,526
09/30/95 9,109 9,940 8,611 8,485
10/31/95 8,718 9,330 8,253 8,160
11/30/95 8,585 9,286 8,040 8,015
12/31/95 8,868 9,505 8,318 8,370
01/31/96 9,646 10,634 9,074 8,965
02/29/96 9,596 10,767 8,968 8,823
03/31/96 9,661 10,716 9,043 8,891
04/30/96 10,108 11,291 9,362 9,247
05/31/96 10,256 11,424 9,455 9,206
06/30/96 10,331 11,260 9,473 9,263
07/31/96 9,735 10,436 8,924 8,630
08/31/96 10,026 10,824 9,168 8,851
09/30/96 10,101 10,974 9,262 8,928
10/31/96 9,850 10,608 9,049 8,690
11/30/96 10,100 10,921 9,254 8,835
12/31/96 10,279 11,082 9,334 8,875
01/31/97 11,117 11,933 10,048 9,480
02/28/97 11,514 12,331 10,406 9,886
03/31/97 11,262 12,094 10,141 9,627
04/30/97 11,376 11,965 10,141 9,644
05/31/97 11,901 12,418 10,491 9,920
06/30/97 12,595 12,988 11,005 10,451
07/31/97 13,038 13,267 11,327 10,607
08/31/97 11,918 12,251 10,080 9,257
09/30/97 12,423 12,928 10,444 9,513
10/31/97 10,518 10,917 8,700 7,952
11/30/97 10,124 10,393 8,302 7,662
12/31/97 10,305 10,699 8,378 7,847
01/31/98 9,583 9,715 7,794 7,231
02/28/98 10,452 10,808 8,490 7,986
03/31/98 10,850 11,333 8,807 8,333
04/30/98 10,931 11,234 8,849 8,242
05/31/98 9,529 9,814 7,682 7,113
06/30/98 8,647 8,863 6,954 6,367
07/31/98 8,917 9,029 7,166 6,568
08/31/98 6,423 6,118 5,112 4,669
09/30/98 6,594 6,548 5,304 4,965
10/31/98 7,170 7,496 5,814 5,488
11/30/98 7,622 7,893 6,204 5,945
12/31/98 7,519 7,904 6,127 5,859
01/31/99 7,373 7,706 6,002 5,764
02/28/99 7,321 7,651 5,951 5,820
03/31/99 8,119 8,411 6,614 6,587
04/30/99 9,211 9,580 7,533 7,402
05/31/99 9,118 9,360 7,442 7,359
06/30/99 10,220 10,363 8,277 8,194
07/31/99 9,966 10,128 8,072 7,972
08/31/99 9,845 9,972 7,982 8,044
09/30/99 9,482 9,506 7,699 7,772
10/31/99 9,823 9,717 7,930 7,937
11/30/99 10,891 10,528 8,805 8,649
12/31/99 12,883 12,049 10,352 9,749
01/31/00 12,773 11,794 10,232 9,807
02/29/00 13,337 12,193 10,537 9,937
03/31/00 13,477 12,171 10,568 9,985
04/30/00 12,022 10,616 9,418 9,039
05/31/00 11,320 9,972 8,917 8,665
06/30/00 11,873 10,505 9,359 8,970
07/31/00 11,323 10,026 8,977 8,509
08/31/00 11,567 10,159 9,070 8,551
09/30/00 10,386 9,259 8,203 7,804
10/31/00 9,635 8,703 7,591 7,238
11/30/00 8,727 7,825 6,905 6,605
12/31/00 9,029 8,203 7,154 6,765
01/31/01 10,114 8,970 7,983 7,696
02/28/01 9,331 8,203 7,364 7,094
03/31/01 8,472 7,470 6,661 6,397
04/30/01 8,961 7,814 7,002 6,713
05/31/01 9,221 7,959 7,194 6,793
06/30/01 9,055 7,847 7,069 6,654
07/31/01 8,456 7,436 6,630 6,233
08/31/01 8,285 7,169 6,544 6,172
09/30/01 7,120 6,269 5,610 5,217
10/31/01 7,548 6,580 5,904 5,540
11/30/01 8,305 7,103 6,489 6,119
12/31/01 8,827 7,728 6,904 6,604
01/31/02 9,182 8,107 7,176 6,828
02/28/02 9,378 8,363 7,336 6,940
03/31/02 9,917 8,921 7,738 7,359
04/30/02 10,009 8,932 7,833 7,406
05/31/02 9,920 8,843 7,761 7,288
06/30/02 9,195 8,185 7,193 6,741
07/31/02 8,516 7,494 6,656 6,228
08/31/02 8,575 7,583 6,710 6,324
09/30/02 7,737 6,769 6,037 5,642
10/31/02 8,092 7,014 6,325 6,008
11/30/02 8,595 7,505 6,751 6,421
12/31/02 8,380 7,338 6,584 6,208
01/31/03 8,311 7,248 6,546 6,181
02/28/03 8,145 7,048 6,391 6,014
03/31/03 7,875 6,847 6,185 5,844
04/30/03 8,606 7,505 6,781 6,364
05/31/03 9,245 8,062 7,269 6,821
06/30/03 9,679 8,453 7,635 7,210
07/31/03 10,170 8,921 7,984 7,661
08/31/03 10,854 9,378 8,518 8,176
09/30/03 11,035 9,590 8,707 8,235
10/31/03 11,913 10,315 9,385 8,936
11/30/03 12,063 10,505 9,524 9,046
12/31/03 13,028 11,229 10,333 9,702
01/31/04 13,427 11,575 10,629 10,046
02/29/04 14,031 12,077 11,106 10,510
03/31/04 14,199 12,155 11,255 10,645
04/30/04 13,089 11,408 10,368 9,775
05/31/04 12,835 11,218 10,166 9,645
[END CHART]
DATA SINCE INCEPTION ON 11/7/94 THROUGH 5/31/04.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE
CUMULATIVE PERFORMANCE QUOTED DOES NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE
REDEMPTION OF FUND SHARES.
7
. . . C O N T I N U E D
========================--------------------------------------------------------
The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA Emerging Markets Fund to the following
benchmarks:
o The Lipper Emerging Markets Funds Average, an average of
emerging markets funds, reported by Lipper Inc., an
independent organization that monitors the performance of
mutual funds.
o The Lipper Emerging Markets Funds Index, which tracks
the total return performance of the 30 largest funds within
the Lipper Emerging Markets Funds category.
o The Morgan Stanley Capital International (MSCI) Emerging
Markets Index is a free-float-adjusted market capitalization
index that is designed to measure equity market performance
in the global emerging markets.
8
M A N A G E R S '
==================--------------------------------------------------------------
COMMENTARY on the Fund
D. KIRK HENRY, CFA CAROLYN M. KEDERSHA, CFA, CPA
The Boston Company Asset The Boston Company Asset
Management, LLC Management, LLC
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA Emerging Markets Fund had a total return of 39.14% for
the year ended May 31, 2004. This compares to a return of
39.85% for the Lipper Emerging Markets Funds Index, 38.82% for
the Lipper Emerging Markets Fund Average, and 41.02% for the
Morgan Stanley Capital International (MSCI) Emerging Markets
Index for the period.
WHAT LED TO THE STRONG PERFORMANCE IN EMERGING MARKETS?
Emerging markets tend to be leading indicators, performing well
when the global economy is reflating, since they are providers
of raw materials and low-cost manufacturing. Lower interest
rates and fiscal stimulation from the United States played a
role, as has the rise of local demand in many emerging market
economies, particularly in China, India, Thailand, Taiwan, and,
more recently, Mexico. Continued economic restructuring has
also been a factor, because several economies have de-linked
their currencies from the U.S. dollar, privatized state-owned
assets, and implemented banking reforms.
DID EMERGING MARKETS RALLY THROUGHOUT THE REPORTING PERIOD?
It was a strong year, but we did begin to see some stock market
corrections toward the end of the reporting period. Among the
factors that caused uncertainty were (and are) the U.S.
presidential election, high oil prices, terrorist attacks on
oil facilities, and concern over whether the Chinese economy
can have a soft landing after years of sizzling growth. As
economies reflated, there was a rising tide that lifted all
boats and led lower-quality companies to lead most emerging
stock markets higher.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 7 FOR BENCHMARK DEFINITIONS.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
Now, as the economic cycle matures, macroeconomic issues are
giving way to company-by-company fundamentals - a backdrop that
should favor our style of investing in high-quality issues.
WHICH GEOGRAPHIC REGIONS DID THE FUND EMPHASIZE?
We were heavily invested in India, but began to reduce our
overweight position in late 2003 as many of our stocks reached
their price targets. This proved beneficial because the Indian
market subsequently sold off. Two Indian companies that
contributed to performance were Reliance Industries Ltd., a
diversified industrial company with interests in oil and gas,
power generation, and telecoms; and Satyam Computer Services
Ltd., a software development firm that is benefiting from
Western outsourcing. We had strong stock selection in Taiwan,
South Korea, and Brazil, as well as in Poland, where a copper
mining company we owned, KGHM Polska Miedz S.A., performed very
well.
WHAT AREAS DETRACTED FROM PERFORMANCE?
We were overweight in Mexico, and we did not own America Movil,
a mobile telecom company there, due to valuation. However, the
Mexican stock market had shown signs of picking up as the
reporting year ended. Our underweight position in information
technology was detrimental, but our stock selection was good in
the sector overall. Our overweight position in consumer staples
also detracted from performance because investors avoided the
more defensive sectors.
WHAT'S YOUR MARKET OUTLOOK?
We believe stock selection will be much more important moving
forward. In fact, we saw this shift begin in April and May
2004. We want to own companies that can manage their profit
margins through a wide range of economic cycles.
We will continue working hard on your behalf. Thank you for the
confidence you have placed in us.
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 14-20.
10
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
- ----------------------------------------------------------
TOP 10 INDUSTRIES*
(% of Net Assets)
- ----------------------------------------------------------
Diversified Banks 12.9%
Integrated Telecommunication Services 11.0%
Integrated Oil & Gas 7.5%
Electric Utilities 4.7%
Wireless Telecommunication Services 4.7%
Industrial Conglomerates 3.5%
Semiconductors 3.5%
Computer Hardware 2.5%
Multi-Line Insurance 2.5%
Packaged Foods & Meat 2.2%
- ----------------------------------------------------------
*EXCLUDES MONEY MARKET INSTRUMENTS.
- ---------------------------------------------------------
TOP 10 EQUITY HOLDINGS
(% of Net Assets)
- ---------------------------------------------------------
Korea Electric Power Corp. 2.6%
China Mobile Ltd. 2.5%
Nedcor Ltd. 2.5%
Telefonos de Mexico S.A. de C.V. 2.2%
United Microelectronics 2.2%
Anglo American plc 2.1%
SASOL Ltd. 1.9%
Petroleo Brasileiro S.A. ADR 1.8%
KT Corp. ADR 1.7%
LUKoil Holdings ADR 1.7%
- ---------------------------------------------------------
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 14-20.
11
. . . C O N T I N U E D
========================--------------------------------------------------------
ASSET ALLOCATION
5/31/04
[PIE CHART OF ASSET ALLOCATION]
Other* 19.5%
Korea 16.5%
South Africa 12.3%
Taiwan 12.0%
Brazil 10.0%
Mexico 7.4%
India 6.8%
Hong Kong 4.4%
United Kingdom 3.6%
Malaysia 3.4%
Thailand 3.1%
[END CHART]
*INCLUDES COUNTRIES WITH LESS THAN 3% OF THE PORTFOLIO 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.
12
D I S T R I B U T I O N S
==========================------------------------------------------------------
to SHAREHOLDERS (unaudited)
USAA EMERGING MARKETS FUND
The following federal tax information related to the Fund's
fiscal year ended May 31, 2004, 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 2005.
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 is
$2,540,000 and $253,000, respectively.
13
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D
========================--------------------------------------------------------
Public ACCOUNTING Firm
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
USAA EMERGING MARKETS FUND:
We have audited the accompanying statement of assets and
liabilities of the USAA Emerging Markets Fund (a portfolio of
USAA Investment Trust), including the portfolio of investments,
as of May 31, 2004, and the related statement of operations for
the year then ended, and the statements of changes in net
assets and financial highlights for each of the two years in
the period 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 audits. 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 those
statements and financial highlights.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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, 2004, by correspondence with the
custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of USAA Emerging Markets Fund
as of May 31, 2004, the results of its operations for the year
then ended, and the changes in its net assets and financial
highlights for each of the two years in the period then ended,
in conformity with U.S. generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
July 9, 2004
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
STOCKS (96.3%)
AFRICA (0.5%)
23,060 BidBEE Ltd. (Industrial Conglomerates)* $ 132
51,000 Tongaat-Hulett Group Ltd. (Agricultural Products) 352
--------
484
--------
BERMUDA (0.3%)
396,000 Texwinca Holdings Ltd. (Textiles) 315
--------
BRAZIL (10.0%)
12,760 Banco Bradesco S.A. (Preferred) (Diversified Banks) 539
15,500 Banco Itau S.A. ADR (Preferred) (Diversified Banks) 655
10,800 Brasil Telecom Participacoes S.A. ADR (Preferred)
(Integrated Telecommunication Services) 311
13,800 Companhia Brasileira de Distribuicao Grupo Pao de Acucar GDR
(Preferred) (Hypermarkets & Super Centers) 207
57,920,000 Companhia Energetica de Minas Gerais (CEMIG) (Preferred)
(Electric Utilities) 798
14,452,900 Companhia Paranaense de Energia-Copel (Electric Utilities) 32
84,177,700 Companhia Paranaense de Energia-Copel (Preferred) (Electric
Utilities) 252
5,200 Companhia Vale Do Rio Doce ADR (Diversified Metals & Mining) 264
57,300 Companhia de Bebidas das Americas ADR (Preferred) (Brewers) 1,086
14,000,000 Companhia de Saneamento Basico de Sao Paulo (SABESP) (Water
Utilities) 539
8,400,000 Companhia de Tecidos Norte de Minas (Preferred) (Textiles) 551
13,500,000 Duratex S.A. (Preferred) (Building Products) 260
25,234 Embraer Empresa Brasileira de Aeronautica S.A. ADR
(Preferred) (Aerospace & Defense) 643
67,126 Petroleo Brasileiro S.A. ADR (Integrated Oil & Gas) 1,752
22,400 Tele Celular Sul Participacoes S.A. ADR (Preferred)
(Wireless Telecommunication Services)(a) 291
20,300 Telecomunicacoes Brasileiras S.A. ADR (Preferred)
(Integrated Telecommunication Services) 537
32,600,000 Telecomunicacoes FIA (Preferred) (Integrated
Telecommunication Services) 435
8,000,000 Telemar Norte Leste S.A. (Preferred) "A" (Integrated
Telecommunication Services) 127
103,300,000 Telemig Celular S.A. (Preferred) (Wireless Telecommunication
Services) 147
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
9,900 Ultrapar Participacoes S.A. ADR (Preferred) (Oil & Gas
Refining & Marketing & Transportation) $ 94
--------
9,520
--------
CHILE (0.4%)
13,800 Banco Santander Chile S.A. ADR (Diversified Banks) 366
--------
CHINA (2.0%)
1,331,000 China Telecom Corp. Ltd. (Integrated Telecommunication
Services) 418
1,806,000 Qingling Motors Co. Ltd. "H" (Automobile Manufacturers) 243
2,528,100 Shandong International Power Development Co. Ltd. "H"
(Electric Utilities) 811
2,463,400 Sinopec Yizheng Chemical Fibre Co. Ltd. "H" (Specialty
Chemicals) 452
--------
1,924
--------
CROATIA (0.5%)
34,900 Pliva d.d. GDR (Pharmaceuticals) 515
--------
CZECH REPUBLIC (0.4%)
26,700 Cesky Telecom A.S. (Integrated Telecommunication Services) 335
--------
EGYPT (0.6%)
80,500 Commercial International Bank S.A.E. GDR (Diversified Banks) 291
34,200 Suez Cement Co. S.A.E. GDR (Construction Materials)* 309
--------
600
--------
HONG KONG (4.4%)
35,000 Beijing Enterprises Holdings Ltd. (Packaged Foods & Meat) 39
843,600 China Mobile Ltd. (Wireless Telecommunication Services) 2,414
818,400 China Resources Enterprise Ltd. (Industrial Conglomerates) 1,013
371,900 Shanghai Industrial Holdings Ltd. (Industrial Conglomerates) 687
--------
4,153
--------
HUNGARY (2.3%)
8,636 Gedeon Richter Rt. (Pharmaceuticals) 853
14,900 MOL Magyar Olaj-es Gazipari Rt. (Integrated Oil & Gas) 572
193,700 Magyar Tavkozlesi Rt. (Integrated Telecommunication Services) 754
--------
2,179
--------
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
INDIA (6.8%)
19,800 Dr. Reddy's Laboratories Ltd. ADR (Pharmaceuticals) $ 367
30,100 Gail India Ltd. GDR (Oil & Gas Refining & Marketing &
Transportation) 608
34,500 Hindalco Industries Ltd. GDR (Aluminum) 693
61,400 ICICI Bank Ltd. ADR (Diversified Banks) 790
39,700 ITC Ltd. GDR (Tobacco) 774
175,650 Mahanagar Telephone Nigam Ltd. ADR (Integrated
Telecommunication Services)(a) 1,024
72,557 Reliance Industries Ltd. GDR (Diversified Chemicals) 1,549
10,100 Satyam Computer Services Ltd. ADR (IT Consulting
& Other Services) 197
17,400 State Bank of India Ltd. GDR (Diversified Banks) 426
--------
6,428
--------
INDONESIA (2.2%)
798,000 Astra Agro Lestari Tbk (Agricultural Products) 215
284,000 PT Gudang Garam Tbk (Tobacco) 442
7,956,000 PT Indofood Sukses Makmur Tbk (Packaged Foods & Meat) 600
320,300 PT Indonesian Satellite Corp. Tbk (Integrated
Telecommunication Services) 137
890,400 PT Telekomunikasi Tbk "B" (Integrated Telecommunication
Services) 711
--------
2,105
--------
ISRAEL (1.3%)
368,900 Bank Hapoalim Ltd. (Diversified Banks) 948
130,100 Super-Sol Ltd. (Food Retail) 296
--------
1,244
--------
KOREA (16.5%)
11,440 Cheil Jedang Corp. (Packaged Foods & Meat) 605
6,300 Hyundai Department Store Co. (Department Stores) 149
3,220 Hyundai Mobis (Auto Parts & Equipment) 131
17,050 Hyundai Motor Co. Ltd. (Automobile Manufacturers) 655
36,590 INI Steel Co. (Steel) 274
55,000 Industrial Bank of Korea (Consumer Finance) 355
93,600 KT Corp. ADR (Integrated Telecommunication Services) 1,633
72,753 Kangwon Land Inc. (Casinos & Gaming) 796
60,440 Kia Motors Corp. (Automobile Manufacturers) 517
37,900 Kookmin Bank (Diversified Banks) 1,318
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
4,300 Kookmin Bank ADR (Diversified Banks)* $ 148
155,540 Korea Electric Power Corp. (Electric Utilities) 2,518
28,869 Korea Exchange Bank (Diversified Banks)* 146
10,220 LG Household & Health Care Ltd. (Household Products) 263
10,370 POSCO (Steel) 1,282
11,600 POSCO ADR (Steel) 369
4,300 SK Telecom Co. Ltd. (Wireless Telecommunication Services) 731
8,400 SK Telecom Co. Ltd. ADR (Wireless Telecommunication
Services)(a) 175
65,600 Samsung Corp. (Trading Companies & Distributors) 825
19,450 Samsung Electro Mechanics Co. Ltd. (Communications
Equipment) 610
2,752 Samsung Electronics Co. Ltd. (Semiconductors) 1,229
14,430 Samsung Fire & Marine Insurance Co. Ltd. (Multi-Line
Insurance) 926
--------
15,655
--------
MALAYSIA (3.4%)
571,300 Gamuda Berhad (Construction & Engineering) 819
176,800 Genting Berhad (Casinos & Gaming) 721
120,000 Kuala Lumpur Kepong Berhad (Agricultural Products) 201
116,400 Malaysia International Shipping Corp. Berhad (Marine) 365
124,400 Proton Holdings Berhad (Automobile Manufacturers) 257
653,000 Sime Darby Berhad (Multi-Sector Holdings) 902
--------
3,265
--------
MEXICO (7.4%)
100,001 Cemex S.A. de C.V. (Construction Materials) 584
64,000 Coca Cola Femsa S.A. de C.V. ADR (Soft Drinks) 1,399
567,100 Controladora Comercial Mexicana S.A. de C.V.
(UBC) "B" (Food Retail) 666
1,364,833 Desc S.A. de C.V. ADR "B" (Industrial Conglomerates)* 401
310,700 Grupo Continental S.A. (Soft Drinks) 485
478,600 Kimberly-Clark de Mexico S.A. de C.V. "A" (Household Products) 1,256
31,000 Organizacion Soriana S.A. de C.V. "B" (Food Distributors) 98
63,300 Telefonos de Mexico S.A. de C.V. ADR "L" (Integrated
Telecommunication Services) 2,129
--------
7,018
--------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
PHILIPPINES (0.6%)
241,000 ABS-CBN Broadcasting Corp. PDR (Broadcasting & Cable TV)* $ 91
495,240 Bank of the Philippine Islands (Diversified Banks) 372
267,400 Manila Electric Co. "B" (Construction & Engineering)* 153
--------
616
--------
POLAND (2.8%)
1,600 Bank Polska Kasa Opieki Grupa (Diversified Banks) 52
3,600 Bank Przemyslowo-Handlowy PBK S.A. (Diversified Banks) 401
72,100 KGHM Polska Miedz S.A. (Diversified Metals & Mining)* 509
96,600 Polski Koncern Naftowy Orlen S.A. (Integrated Oil & Gas) 723
77,000 Telekomunikacja Polska S.A. GDR (Integrated
Telecommunication Services) 295
168,057 Telekomunikacja Polska S.A. (Integrated Telecommunication
Services) 651
--------
2,631
--------
RUSSIA (2.3%)
14,600 LUKoil Holdings ADR (Integrated Oil & Gas) 1,606
19,800 YUKOS ADR (Integrated Oil & Gas) 610
--------
2,216
--------
SOUTH AFRICA (12.3%)
85,100 ABSA Group Ltd. (Diversified Banks) 615
365,000 Aveng Ltd. (Building Products) 442
135,882 Bidvest Group Ltd. (Industrial Conglomerates) 1,090
203,000 Illovo Sugar Ltd. (Packaged Foods & Meat) 237
42,000 Imperial Holdings Ltd. (Trucking) 452
1,361,407 Metro Cash & Carry Ltd. (Food Distributors)* 519
541,093 Nampak Ltd. (Paper Packaging) 1,161
248,536 Nedcor Ltd. (Diversified Banks) 2,389
121,900 SASOL Ltd. (Integrated Oil & Gas) 1,853
309,000 Sanlam Ltd. (Life & Health Insurance) 421
60,800 Sappi Ltd. (Paper Products) 850
244,000 Shoprite Holdings Ltd. (Food Retail) 345
565,234 Steinhoff International Holdings Ltd. (Home Furnishings) 713
43,000 Tiger Brands Ltd. (Packaged Foods & Meat) 595
--------
11,682
--------
TAIWAN (12.0%)
462,949 Accton Technology Corp. (Communications Equipment) 297
470,375 Asustek Computer, Inc. (Computer Storage & Peripherals) 1,150
201,000 China Motor Corp., Ltd. (Automobile Manufacturers) 285
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
44,900 Chunghwa Telecom Co. Ltd. ADR (Integrated Telecommunication
Services) $ 725
15,000 Compal Electronics Inc. GDR (Computer Hardware) 92
1,130,000 Compal Electronics, Inc. (Computer Hardware) 1,390
499,200 Delta Electronics, Inc. (Electronic Equipment Manufacturers) 689
323,264 Elan Microelectronics Corp. (Semiconductor Equipment) 258
726,000 First Financial Holding Co. Ltd. (Diversified Banks)* 549
355,647 Nan Ya Plastic Corp. (Diversified Chemicals) 479
430,000 Nien Hsing Textile Co. Ltd. (Textiles) 421
20,000 President Chain Store Corp. (Food Retail) 36
394,500 Quanta Computer, Inc. (Computer Hardware) 900
2,084,821 SinoPac Holdings Co. (Diversified Banks) 1,120
721,720 Taiwan Cellular Corp. (Wireless Telecommunication Services) 685
2,386,431 United Microelectronics (Semiconductors) 2,077
581,440 Yageo Corp. (Electrical Components & Equipment)* 305
--------
11,458
--------
THAILAND (3.1%)
2,944,100 Charoen Pokphand Foods Public Co. Ltd. (Agricultural
Products) 253
270,400 Delta Electronics Public Co. Ltd. (Electrical Components &
Equipment) 162
13,000 Electricity Generating Public Co. Ltd. (Electric Utilities) 23
443,500 Kasikornbank plc (Diversified Banks)* 539
2,483,000 Krung Thai Bank Public Co. Ltd. (Regional Banks) 673
60,400 PTT Exploration & Production Public Co. Ltd. (Oil & Gas
Exploration & Production) 381
578,000 Siam Commercial Bank Public Co. Ltd. (Diversified Banks) 652
194,600 Siam Makro Public Co. Ltd. (General Merchandise Stores) 230
--------
2,913
--------
TURKEY (0.6%)
36,120,000 Hurriyet Gazetecilik ve Matbaacilik A.S. (Publishing)* 92
80,999,000 Tupras-Turkiye Petrol Rafinerileri A.S. (Oil & Gas Refining
& Marketing & Transportation) 485
--------
577
--------
UNITED KINGDOM (3.6%)
94,191 Anglo American plc (Precious Metals & Minerals) 1,975
815,100 Old Mutual plc (Multi-Line Insurance) 1,412
--------
3,387
--------
Total stocks (cost: $84,925) 91,586
--------
20
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.7%)
MONEY MARKET FUNDS (2.5%)
117,799 AIM Short-Term Investment Co. Liquid Assets Portfolio,
1.01%(b,c) $ 118
157,769 Merrill Lynch Premier Institutional Fund, 0.99%(b,c) 158
2,098,082 SSgA Prime Money Market Fund, 0.91%(c) 2,098
--------
2,374
--------
PRINCIPAL
AMOUNT
(000)
- ---------
REPURCHASE AGREEMENT (0.2%)
$200 Morgan Stanley & Co., Inc., 1.01%, acquired on 5/28/2004
and due 6/1/2004, at $200 (collateralized by $210 of Fannie
Mae Discount Notes(e), due 2/4/2005; market value $208)(b,d) 200
--------
Total money market instruments (cost: $2,574) 2,574
--------
TOTAL INVESTMENTS (COST: $87,499) $ 94,160
========
21
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA EMERGING MARKETS FUND
MAY 31, 2004
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.
GDR - Global depositary receipts are receipts issued by a U.S. or
foreign bank evidencing ownership of foreign shares. Dividends are
paid in U.S. dollars.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) The security or a portion thereof was out on loan as of May
31, 2004.
(b) Investment was purchased with the cash collateral proceeds
received from securities loaned.
(c) Rate represents the money market fund annualized seven-day
yield at May 31, 2004.
(d) Collateral on repurchase agreements is received by the Fund
upon entering into the repurchase agreement. The collateral
is marked-to-market daily to ensure its market value is
equal to or in excess of the repurchase agreement price
plus accrued interest.
(e) U.S. government agency issues. Securities issued by
government-sponsored enterprises (GSEs) are supported only
by the credit of the issuing agency, instrumentality, or
corporation, and are neither issued nor guaranteed by the
U.S. government.
* Non-income-producing security for the year ended May 31,
2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA EMERGING MARKETS FUND
MAY 31, 2004
ASSETS
Investments in securities, at market value (including securities
on loan of $440) (identified cost of $87,499) $ 94,160
Cash 34
Cash denominated in foreign currencies (identified cost of $1,422) 1,442
Receivables:
Capital shares sold 61
USAA Transfer Agency Company 1
Dividends and interest 399
Securities sold 245
--------
Total assets 96,342
--------
LIABILITIES
Payables:
Upon return of securities loaned 476
Securities purchased 498
Capital shares redeemed 69
Accrued management fees 81
Accrued transfer agent's fees 3
Other accrued expenses and payables 135
--------
Total liabilities 1,262
--------
Net assets applicable to capital shares outstanding $ 95,080
========
NET ASSETS CONSIST OF:
Paid-in capital $175,959
Accumulated undistributed net investment income 623
Accumulated net realized loss on investments (88,106)
Net unrealized appreciation of investments 6,661
Net unrealized depreciation on foreign currency translations (57)
--------
Net assets applicable to capital shares outstanding $ 95,080
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 9,455
========
Net asset value, redemption price, and offering price per share $ 10.06
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA EMERGING MARKETS FUND
YEAR ENDED MAY 31, 2004
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $253) $ 2,297
Interest 15
Securities lending 8
-------
Total income 2,320
-------
EXPENSES
Management fees 816
Administrative and servicing fees 124
Transfer agent's fees 288
Custody and accounting fees 213
Postage 25
Shareholder reporting fees 17
Trustees' fees 6
Registration fees 46
Professional fees 44
Other 4
-------
Total expenses 1,583
Expenses paid indirectly (25)
-------
Net expenses 1,558
-------
NET INVESTMENT INCOME 762
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 15,113
Foreign currency transactions (67)
Change in net unrealized appreciation/depreciation of:
Investments 5,516
Foreign currency translations (56)
-------
Net realized and unrealized gain 20,506
-------
Increase in net assets resulting from operations $21,268
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA EMERGING MARKETS FUND
YEARS ENDED MAY 31,
2004 2003
----------------------
FROM OPERATIONS
Net investment income $ 762 $ 197
Net realized gain on investments 15,113 1,999
Net realized loss on foreign currency transactions (67) (113)
Change in net unrealized appreciation/depreciation of:
Investments 5,516 (6,168)
Foreign currency translations (56) (12)
----------------------
Increase (decrease) in net assets resulting
from operations 21,268 (4,097)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 144,757 88,106
Cost of shares redeemed (125,739) (86,288)
----------------------
Increase in net assets from capital
share transactions 19,018 1,818
----------------------
Net increase (decrease) in net assets 40,286 (2,279)
NET ASSETS
Beginning of period 54,794 57,073
----------------------
End of period $ 95,080 $ 54,794
======================
Accumulated undistributed net investment income (loss):
End of period $ 623 $ (6)
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 15,944 13,344
Shares redeemed (14,059) (12,973)
----------------------
Increase in shares outstanding 1,885 371
======================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA EMERGING MARKETS FUND
MAY 31, 2004
(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 Emerging Markets Fund
(the Fund). The Fund's investment objective is capital appreciation.
The Fund concentrates its investments in securities of companies in
emerging market countries, which may have limited or developing
capital markets. Such investments may involve greater risks than
investments in developed markets, and political, social, or economic
changes in these markets may cause the prices of such investments to
be volatile.
A. SECURITY VALUATION - The value of each security is
determined (as of the close of trading on the New York Stock
Exchange (NYSE) on each business day the exchange is open)
as set forth below:
1. Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange or the Nasdaq
over-the-counter markets are valued at the last sales
price or official closing price on the exchange or
primary market on which they trade. Portfolio securities
traded primarily on foreign securities exchanges or
markets are valued at the last quoted sales price, or the
most recently determined official closing price
calculated according to local market convention,
available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the
average of the bid and asked prices is generally used.
2. Securities trading in various foreign markets may take
place on days when the NYSE is closed. Further, when the
NYSE is open, the foreign markets may be closed.
Therefore, the calculation of the Fund's net asset value
(NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are
determined. In most cases, events affecting the values of
foreign securities that occur between the
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
time of their last quoted sales or official closing
prices and the close of normal trading on the NYSE on a
day the Fund's NAV is calculated will not be reflected in
the value of the Fund's foreign securities. However, USAA
Investment Management Company (the Manager), an affiliate
of the Fund, and the Fund's subadviser, if applicable,
will monitor for events that would materially affect the
value of the Fund's foreign securities and, if necessary,
the Manager will value the foreign securities in good
faith, considering such available information that the
Manager deems relevant, under valuation procedures
approved by the Trust's Board of Trustees. In addition,
the Fund may use information from an external vendor or
other sources to adjust the foreign market closing prices
of foreign equity securities to reflect what the Fund
believes to be the fair value of the securities as of the
close of the NYSE. Fair valuation of affected foreign
equity securities may occur frequently based on an
assessment that events that occur on a fairly regular
basis (such as U.S. market movements) are significant.
3. Investments in open-end investment companies are valued
at their net asset value at the end of each business day.
4. Debt securities purchased with maturities of 60 days or
less are stated at amortized cost, which approximates
market value. Repurchase agreements are valued at cost.
5. Securities for which market quotations are not readily
available or are considered unreliable, or whose values
have been materially affected by events occurring after
the close of their primary markets but before the pricing
of the Fund, are valued in good faith at fair value,
using methods determined by the Manager, in consultation
with the Fund's subadviser if applicable, under valuation
procedures approved by the Trust's Board of Trustees.
B. FEDERAL TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to
regulated
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
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. REPURCHASE AGREEMENTS - The Fund may enter into repurchase
agreements with commercial banks or recognized security
dealers. These agreements are collateralized by obligations
issued or guaranteed as to both principal and interest by
the U.S. government, its agencies, or its instrumentalities.
Government-sponsored enterprises (GSEs), such as Federal
National Mortgage Association (Fannie Mae) and Federal Home
Loan Mortgage Corporation (Freddie Mac), are supported only
by the credit of the issuing U.S. government agency, and are
neither issued nor guaranteed by the U.S. government.
Obligations pledged as collateral are required to maintain a
value equal to or in excess of the repurchase agreement
price plus accrued interest and are held by the Fund, either
through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for
both the Fund and its counterparty, until maturity of the
repurchase agreement. The Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter
into repurchase agreements.
E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be
invested in the securities of foreign issuers and may be
traded in foreign currency. Since the Fund's accounting
records are maintained
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
in U.S. dollars, foreign currency amounts are translated
into U.S. dollars on the following basis:
1. Purchases and sales of securities, income, and expenses
at the exchange rate obtained from an independent pricing
service on the respective dates of such transactions.
2. Market value of securities, other assets, and liabilities
at the exchange rate obtained from an independent pricing
service on a daily basis.
The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may
arise from sales of foreign currency, currency gains/losses
realized between the trade and settlement dates on security
transactions, and from the difference between amounts of
dividends, interest, and foreign withholding taxes recorded
on the Fund's books and the U.S. dollar equivalent of the
amounts received. These 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.
F. 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
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
May 31, 2004, these fee-offset arrangements reduced the
Fund's expenses by $25,000.
G. INDEMNIFICATIONS - Under the Trust's organizational
documents, its officers and trustees are indemnified against
certain liability arising out of the performance of their
duties to the Trust. In addition, in the normal course of
business the Trust enters into contracts that contain a
variety of representations and warranties that provide
general indemnifications. The Trust's maximum exposure under
these arrangements is unknown, as this would involve future
claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be
remote.
H. USE OF ESTIMATES - The preparation of financial statements
in conformity with U.S. generally accepted accounting
principles requires management to make estimates and
assumptions that may affect the reported amounts in the
financial statements.
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
The Fund participates with other USAA funds in two joint, short-term,
revolving, committed loan agreements totaling $500 million: $400
million with USAA Capital Corporation (CAPCO), an affiliate of the
Manager, and $100 million with Bank of America and State Street Bank
and Trust Company (State Street), under which Bank of America and
State Street have each committed $50 million. The purpose of the
agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely
disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may
borrow from CAPCO an amount up to 5% of the Fund's total assets at
CAPCO's borrowing rate with no markup. Subject to availability under
its agreement with Bank of America and State Street, the Fund may
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
borrow from Bank of America and State Street, at the federal funds rate
plus a 0.50% markup, an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's
total assets.
The USAA funds that are party to the loan agreements are assessed
facility fees in aggregate by Bank of America and State Street in an
annual amount equal to 0.09% of the $100 million loan agreement,
whether used or not, and by CAPCO based on the funds' assessed
proportionate share of CAPCO's operating expenses related to
obtaining and maintaining CAPCO's funding programs in total (in no
event to exceed 0.09% annually of the $400 million loan agreement).
The facility fees are allocated among the funds based on their
respective average net assets for the period. For the year ended
May 31, 2004, the Fund paid CAPCO facility fees of less than $500. The
Fund had no borrowings under either of these agreements during the year
ended May 31, 2004.
(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 U.S. generally accepted accounting principles. 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 for foreign currency gains and losses and foreign
capital gains taxes resulted in reclassifications made to the
statement of assets and liabilities to decrease accumulated
undistributed net investment income and decrease accumulated net
realized loss on investments by $133,000. This reclassification has no
effect on net assets.
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
There were no distributions paid by the Fund during the years ended
May 31, 2004, and 2003.
As of May 31, 2004, the components of net assets representing
distributable earnings on a tax basis were as follows:
Undistributed ordinary income $ 697,000
Accumulated capital and other losses (88,050,000)
Unrealized appreciation of investments 6,531,000
Unrealized depreciation on foreign currency translations (57,000)
The difference between book-basis and tax-basis appreciation of
investments is due to differences in the timing of recognition of gains
and losses on investments for tax and book purposes. The Fund's
unrealized appreciation difference is attributable to the tax deferral
of losses on wash sales.
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. For the year ended May 31, 2004, the Fund
utilized capital loss carryovers of $14,555,000 to offset capital
gains. At May 31, 2004, the Fund had a current post-October currency
loss of $74,000, and capital loss carryovers of $87,976,000 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 between 2007 and
2010, as shown below. 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.
CAPITAL LOSS CARRYOVER BALANCE EXPIRES
- ---------------------------------------------------------------------
$40,625,000 2007
17,388,000 2009
29,963,000 2010
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the year ended May 31, 2004, were
$78,167,000 and $59,067,000, respectively.
The cost of securities at May 31, 2004, for federal income tax
purposes, was $87,629,000.
Gross unrealized appreciation and depreciation of investments as of
May 31, 2004, for federal income tax purposes, were $9,672,000 and
$3,141,000, respectively, resulting in net unrealized appreciation of
$6,531,000.
(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.
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
At May 31, 2004, the terms of open foreign currency contracts were as
follows (in thousands):
FOREIGN CURRENCY CONTRACTS TO BUY
- ---------------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE RECEIVE 5/31/2004 FOR U.S. DOLLAR (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
6/01/2004 210 $32 $32 $-
South African Rand
- ---------------------------------------------------------------------------------------------------
FOREIGN CURRENCY CONTRACTS TO SELL
- ---------------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE DELIVER 5/31/2004 FOR U.S. DOLLAR (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
6/01/2004 1,730 $66 $66 $-
Czech Koruna
6/01/2004 281 25 25 -
Mexican Peso
- ---------------------------------------------------------------------------------------------------
$91 $91 -
- ---------------------------------------------------------------------------------------------------
(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, 2004, the Fund loaned securities having a fair market
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
value of approximately $440,000 and received cash collateral of
$476,000 for the loans. The cash collateral was invested in money
market instruments, 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. 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 Emerging Markets
Funds Index, which tracks the total return performance of
the 30 largest funds in the Lipper Emerging Markets Funds
category. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 1.00% of the Fund's average
net assets.
The performance adjustment is calculated monthly by
comparing the Fund's performance to that of the Lipper
index over the performance period. The performance period
for the Fund commenced on August 1, 2001, and will consist
of the current month plus the preceding months through that
date until a period of 36 months is included in the
performance period. Thereafter, the performance period
will consist of the current month plus the previous 35
months.
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
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
(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, 2004, the Fund incurred total
management fees, paid or payable to the Manager, of
$816,000, which is net of a performance adjustment of
$(9,000) that decreased the base management fee of 1.00% by
0.01%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with The Boston Company
Asset Management, LLC (The Boston Company), under which The
Boston Company 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 The Boston
Company 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, 2004, the Fund incurred administrative and
servicing fees, paid or payable to the Manager, of $124,000.
D. EXPENSE LIMITATION - The Manager has voluntarily agreed to
limit the annual expenses of the Fund to 1.80% of the Fund's
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
average annual net assets, effective March 1, 2004,
excluding the effect of any expenses paid indirectly, and
will reimburse the Fund for all expenses in excess of that
amount. This agreement may be modified or terminated at any
time. Prior to March 1, 2004, the expense limitation was
2.10% of the Fund's annual average net assets. There were
no reimbursable expenses for the year ended May 31, 2004.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services, an affiliate of the
Manager, provides transfer agent services to the Fund based
on an annual charge of $23 per shareholder account plus
out-of-pocket expenses. For the year ended May 31, 2004,
the Fund incurred transfer agent's fees, paid or payable to
USAA Transfer Agency Company, of $288,000. Additionally,
the Fund recorded a receivable from USAA Transfer Agency
Company of $1,000 at May 31, 2004.
F. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
(8) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors, officers,
and/or employees of the Manager. None of the affiliated trustees or
Fund officers received any compensation from the Fund.
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA EMERGING MARKETS FUND
MAY 31, 2004
(9) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each
period is as follows:
YEAR ENDED MAY 31,
-----------------------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------------------
Net asset value at
beginning of period $ 7.24 $ 7.93 $ 7.16 $ 8.98 $ 8.49
-----------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .07 .03(a) (.02)(a) .04(a) .02
Net realized and
unrealized gain (loss) 2.75 (.72)(a) .81(a) (1.85)(a) .54
-----------------------------------------------------------------------------
Total from investment operations 2.82 (.69)(a) .79(a) (1.81)(a) .56
Less distributions:
From net investment income - - (.02) (.01) (.07)
-----------------------------------------------------------------------------
Net asset value at end of period $ 10.06 $ 7.24 $ 7.93 $ 7.16 $ 8.98
=============================================================================
Total return (%)* 38.95 (8.70) 11.11 (20.19) 6.55
Net assets at end of period (000) $95,080 $54,794 $57,073 $51,709 $234,953
Ratio of expenses to
average net assets (%)** 1.92(b) 2.33(b) 2.51(b) 1.39(b) 1.28
Ratio of net investment
income (loss) to average
net assets (%)** .92 .42 (.33) .47 .14
Portfolio turnover (%) 75.67 140.89 257.45 196.75 147.24
* Assumes reinvestment of all net investment income 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, 2004, average net assets were $82,617,000.
(a) Calculated using average shares.
(b) Reflects total expenses, excluding any expenses paid indirectly, which decreased the Fund's expense ratios as follows:
(.03%) - (.01%) (.01%) N/A
38
D I R E C T O R S ' A N D O F F I C E 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 38 individual funds as of May 31, 2004. 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 (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.
39
. . . 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 (FPS) (1/97-7/03). 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 (IMCO), USAA Life Insurance Company, USAA Federal
Savings Bank, USAA Real Estate Company (RealCo), and USAA Financial
Advisors, Inc. (FAI).
CHRISTOPHER W. CLAUS (2,4)
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.
40
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
NON-INTERESTED (INDEPENDENT) 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), which focuses in
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.
41
. . . 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). 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 Company (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.
42
. . . 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, Life/IMCO/FPS General Counsel, USAA
(10/03-present); Senior Vice President, Securities Counsel, USAA
(12/02-10/03); 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 USAA Life Insurance Company, IMCO, FAI, FPS, and USAA
Shareholder Account Services; and Secretary for 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/FPS Senior Financial Officer,
USAA (12/02-present); Senior Vice President, Senior Financial
Officer,
43
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
IMCO (6/01-12/02); Vice President, Senior Financial Officer, RealCo
(12/97-5/01). Mr. Holmes also holds the Officer positions of Senior
Vice President, Senior Financial Officer of USAA Life Insurance
Company, IMCO, USAA Shareholder Account Services, FAI, and FPS; and
Treasurer of USAA Life Investment Trust, a registered investment
company offering five individual funds.
EILEEN M. SMILEY
Assistant Secretary
Born: November 1959
Year of Appointment: 2003
Vice President, Securities Counsel, USAA (2/04-present); Assistant
Vice President, Securities Counsel, USAA (1/03-2/04); Attorney,
Morrison & Foerster, LLP (1/99-1/03). Ms. Smiley also holds the
Officer position of Vice President and Assistant Secretary of IMCO,
FAI, and FPS; and Assistant Secretary of USAA Life Investment Trust,
a registered investment company offering five individual funds.
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).
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.
44
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 Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1900
ACCOUNTING FIRM San Antonio, Texas 78205
TELEPHONE Call toll free - Central time
ASSISTANCE HOURS Monday - Friday, 7 a.m. to 10 p.m.
Saturday, 8:30 a.m. to 5 p.m.
Sunday, 10:30 a.m. to 7 p.m.
FOR ADDITIONAL 1-800-531-8181, in San Antonio 456-7200
INFORMATION ABOUT For account servicing, exchanges,
MUTUAL FUNDS or redemptions
1-800-531-8448, in San Antonio 456-7202
RECORDED MUTUAL 24-hour service (from any phone)
FUND PRICE QUOTES 1-800-531-8066, in San Antonio 498-8066
MUTUAL FUND (from touch-tone phones only)
USAA TOUCHLINE For account balance, last transaction, fund
prices, or to exchange or redeem fund shares
1-800-531-8777, in San Antonio 498-8777
INTERNET ACCESS USAA.COM
THROUGH OUR ONGOING EFFORTS TO REDUCE EXPENSES, YOUR REPORT MAILINGS ARE
STREAMLINED. WE DEVELOP MAILING LISTS USING CRITERIA SUCH AS ADDRESS, MEMBER
NUMBER, AND SURNAME TO SEND ONE REPORT TO EACH HOUSEHOLD INSTEAD OF SENDING A
REPORT TO EVERY REGISTERED OWNER. THIS PRACTICE IS DESIGNED TO REDUCE DUPLICATE
COPIES AND SAVE PAPER AND POSTAGE COSTS TO THE FUND. IF YOU PREFER NOT TO
PARTICIPATE IN STREAMLINING AND WOULD LIKE TO CONTINUE RECEIVING ONE REPORT PER
REGISTERED ACCOUNT OWNER, PLEASE CALL US AND WE WILL BEGIN YOUR INDIVIDUAL
DELIVERY WITHIN 30 DAYS OF YOUR REQUEST.
COPIES OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES ARE AVAILABLE WITHOUT
CHARGE (I) BY CALLING 1-800-531-8448; (II) AT USAA.COM; AND (III) ON THE SEC'S
WEB SITE AT HTTP://WWW.SEC.GOV.
[LOGO OF RECYCLED PAPER]
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- --------------------------------------------------------------------------------
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[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
25558-0704 (C)2004, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
On June 25, 2003, the Board of Trustees of USAA Investment Trust approved a Code
of Ethics (Sarbanes Code) applicable solely to its senior financial officers,
including its principal executive officer (President), as defined under the
Sarbanes-Oxley Act of 2002 and implementing regulations of the Securities and
Exchange Commission. A copy of the Sarbanes Code is attached as an Exhibit to
this Form N-CSR.
No amendments have been made to the Sarbanes Code since it was adopted, and no
waivers (explicit or implicit) from a provision of the Sarbanes Code have been
granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Dr. Laura T. Starks, Ph.D. has been designated as an audit committee financial
expert for USAA Investment Trust. Dr. Starks has served as a professor of
Finance at the University of Texas at Austin since 1987, and has served as the
Chair Professor of Finance since 1996. Dr. Starks also has served as a
consultant to numerous clients, including accounting firms, on a range of
finance, accounting and auditing issues. Dr. Starks is an independent director
who serves as a member of the Audit Committee, Pricing and Investment Committee
and the Corporate Governance Committee of the Board of Trustees of USAA
Investment Trust.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The Registrant, USAA Investment Trust, consists of 9 funds. The
aggregate fees accrued or paid by the Registrant to its independent auditor,
Ernst & Young LLP, for professional services rendered for the audit of the
Registrant's annual financial statements and services provided in connection
with statutory and regulatory filings by the Registrant for fiscal years ended
May 31, 2003 and 2004 were $140,400 and $154,195, respectively.
(b) AUDIT RELATED FEE. The aggregate fees accrued or paid by the Funds' transfer
agent for professional services rendered by Ernst & Young LLP for audit-related
services related to the annual study of its internal controls for fiscal years
ending May 31, 2003 and May 31, 2004 were $15,000 and $15,500, respectively.
The Registrant did not accrue or pay Ernst & Young LLP any audit-related fees.
(c) TAX FEES. The aggregate fees paid or accrued by the Registrant for
professional services rendered by Ernst & Young, LLP for tax services are
detailed in the table below:
Review of Analysis Review of
Federal, State of Passive US/UK Tax
and City Income Foreign Quarterly Treaty and
and tax returns Investment Diversification issues related
and excise tax Company Review under to grantor
calculations Status Subchapter M trust TOTAL
- ---------------------------------------------------------------------------------------------
FYE 5/31/2003 $38,395 -0- -0- -0- $38,395
FYE 5/31/2004 $39,700 $4,583 $5,400 $1,547 $51,230
- ---------------------------------------------------------------------------------------------
TOTAL $78,095 $4,583 $5,400 $1,547 $89,625
- ---------------------------------------------------------------------------------------------
All tax services were preapproved by the Audit Committee of the Registrant.
(d) ALL OTHER FEES. The Funds' investment adviser and transfer agent, USAA
Investment Management Company (IMCO) and USAA Transfer Agency Company (dba USAA
Shareholder Account Services) (SAS) paid Ernst & Young LLP aggregate fees of
$21,036 for non-audit services related to the Funds for the fiscal year ended
May 31, 2003. The services are detailed in the table below:
- --------------------------------------------------------------------------------
DESCRIPTION OF OTHER SERVICES - 5/31/2003
- --------------------------------------------------------------------------------
DESCRIPTION OF SERVICE AMOUNT PAID PARTY PAYING
- --------------------------------------------------------------------------------
Review of Corporate $ 7,960 IMCO
Governance Procedures
Review of Anti-Money $ 2,500 IMCO
Laundering Procedures
As of Review $ 4,000 SAS
Reporting and Oversight Review $ 6,576 IMCO
- --------------------------------------------------------------------------------
TOTAL $21,036
- --------------------------------------------------------------------------------
These services provided in the fiscal year ending May 31, 2003 were not
pre-approved by the Audit Committee because the engagements occurred prior to
the rule's effectiveness requiring such pre-approval. Any such other non-audit
fees to be provided to the Funds' investment adviser or transfer agent (or other
affiliated service provider to the Funds) directly related to fund operations
will be subject to the pre-approval requirement. No such fees were paid in the
fiscal year ending May 31, 2004.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY. All audit and non-audit services to
be performed for the Registrant by Ernst & Young LLP must be pre-approved by the
Audit Committee. The Audit Committee Charter also permits the Chair of the Audit
Committee to pre-approve any permissible non-audit service that must be
commenced prior to a scheduled meeting of the Audit Committee. All non-audit
services were pre-approved by the Audit Committee or its Chair, consistent with
the Audit Committee's preapproval procedures.
(2) Not applicable.
(f) Not applicable.
(g) The total aggregate non-audit fees accrued or paid to Ernst & Young for
services rendered to the Registrant, and the Registrant's investment adviser,
IMCO, and transfer agent, SAS, for the fiscal years ending May 31, 2003 and May
31, 2004 were $114,431 and $88,730, respectively.
(h) Ernst & Young LLP provided non-audit services to IMCO in 2003 and 2004 that
were not required to be pre-approved by the Registrant's Audit Committee because
the services were not directly related to the operations of the Registrant's
funds. The Board of Directors/Trustees will consider Ernst & Young LLP's
independence and will consider whether the provision of these non-audit services
to IMCO is compatible with maintaining Ernst & Young LLP's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 10. CONTROLS AND PROCEDURES
The 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.
ITEM 11. EXHIBITS.
(a)(1). Code of Ethics pursuant to Item 2 of Form N-CSR is filed hereto exactly
as set forth below:
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
USAA MUTUAL FUND, INC.
USAA TAX-EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA STATE TAX-FREE TRUST
USAA LIFE INVESTMENT TRUST
I. PURPOSE OF THE CODE OF ETHICS
USAA Mutual Fund, Inc., USAA Tax-Exempt Fund, Inc., USAA Investment
Trust, USAA State Tax-Free Trust and USAA Life Investment Trust (collectively,
the Funds, and each a Company) have adopted this code of ethics (the Code) to
comply with Section 406 of the Sarbanes-Oxley Act of 2002 (the Act) and
implementing regulations of the Securities and Exchange Commission (SEC). The
Code applies to each Company's Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer (each a Covered Officer), as detailed
in Appendix A.
The purpose of the Code is to promote:
o honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between the Covered Officers' personal
and professional relationships;
o full, fair, accurate, timely and understandable disclosure in reports
and documents that each Company files with, or submits to, the SEC and
in other public communications made by each Company;
o compliance with applicable laws and governmental rules and regulations;
o prompt internal reporting of violations of the Code to the Chief Legal
Officer of each Company, the President of each Company (if the
violation concerns the Treasurer) and the Chairman of the Board of
Directors/Trustees of each Company; and
o accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to actual and apparent conflicts of interest.
II. CONFLICTS OF INTEREST
A. DEFINITION OF A CONFLICT OF INTEREST.
A conflict of interest exists when a Covered Officer's private interest
influences, or reasonably appears to influence, the Covered Officer's judgment
or ability to act in the best interests of the Funds and their shareholders. For
example, a conflict of interest could arise if a Covered Officer, or an
immediate family member, receives personal benefits as a result of his or her
position with the Funds.
Certain conflicts of interest arise out of relationships between
Covered Officers and the Funds and are already subject to conflict of interest
provisions in the Investment Company Act of 1940 (the 1940 Act) and the
Investment Advisers Act of 1940 (the Advisers Act). For example, Covered
Officers may not individually engage in certain transactions with the Funds
because of their status as "affiliated persons" of the Funds. The USAA Funds'
and USAA Investment Management Company's (IMCO) compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside of the parameters of
this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts could arise from, or as a result of, the contractual
relationships between the Funds and IMCO of which the Covered Officers are also
officers or employees. As a result, this Code recognizes that the Covered
Officers will, in the normal course of their duties (whether formally for the
Funds or for IMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on IMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and IMCO and is consistent with the
performance by the Covered Officers of their duties as officers of the Funds.
Thus, if performed in compliance with the provisions of the 1940 Act and the
Advisers Act, such activities will be deemed to have been handled ethically. In
addition, it is recognized by each Company's Board of Directors/Trustees (each a
Board, and collectively the Boards) that the Covered Officers also may be
officers or employees of one or more other investment companies covered by this
joint USAA Funds' Code.
B. GENERAL RULE. Covered Officers Should Avoid Actual and
Apparent Conflicts of Interest.
Conflicts of interest, other than the conflicts described in the two
preceding paragraphs, are covered by the Code. The following list provides
examples of conflicts of interest under the Code, but Covered Officers should
keep in mind that these examples are not exhaustive. The overarching principle
is that the personal interest of a Covered Officer should not be placed
improperly before the interest of the Funds and their shareholders.
Each Covered Officer must not engage in conduct that constitutes an
actual conflict of interest between the Covered Officer's personal interest and
the interests of the Funds and their shareholders. Examples of actual conflicts
of interest are listed below but are not exclusive. Each Covered Officer must
not:
o use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Funds
whereby the Covered Officer would benefit personally to the detriment
of the Funds and their shareholders;
o cause the Funds to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Funds and their shareholders.
o accept gifts, gratuities, entertainment or any other benefit from any
person or entity that does business or is seeking to do business with
the Funds during contract negotiations.
o accept gifts, gratuities, entertainment or any other benefit with a
market value over $100 per person, per year, from or on behalf of any
person or entity that does, or seeks to do, business with or on behalf
of the Funds.
o EXCEPTION. Business-related entertainment such as meals, and
tickets to sporting or theatrical events, which are infrequent
and not lavish are excepted from this prohibition. Such
entertainment must be appropriate as to time and place,
reasonable and customary in nature, modest in cost and value,
incidental to the business, and not so frequent as to raise any
question of impropriety (Customary Business Entertainment).
Certain situations that could present the appearance of a conflict of
interest should be discussed with, and approved by, or reported to, an
appropriate person. Examples of these include:
o service as a director on the board or an officer of any public or
private company, other than a USAA company or a Company, must be
approved by the USAA Funds' and IMCO's Code of Ethics Committee and
reported to each affected Company.
o the receipt of any non-nominal (i.e., valued over $25) gifts from any
person or entity with which a Company has current or prospective
business dealings must be reported to the Chief Legal Officer. For
purposes of this Code, the individual holding the title of Secretary of
a Company shall be considered the Chief Legal Officer of a Company.
o the receipt of any business-related entertainment from any person or
entity with which the Funds have current or prospective business
dealings must be approved in advance by the Chief Legal Officer unless
such entertainment qualifies as Customary Business Entertainment.
o any ownership interest in, or any consulting or employment relationship
with, any of the Company's service providers, other than IMCO or any
other USAA company, must be approved by the Chairman of the Board of
the Directors/Trustees and reported to each affected Board.
o any material direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Funds for effecting
portfolio transactions or for selling or redeeming shares other than an
interest arising from the Covered Officer's employment, such as
compensation or equity ownership should be approved by the Chairman of
the Board of Directors/Trustees and reported to each affected Board.
III. DISCLOSURE AND COMPLIANCE REQUIREMENTS
o Each Covered Officer should familiarize himself with the disclosure
requirements applicable to the Funds, and the procedures and policies
implemented to promote full, fair, accurate, timely and understandable
disclosure by each Company.
o Each Covered Officer should not knowingly misrepresent, or cause others
to misrepresent, facts about the Funds to others, whether within or
outside the Funds, including to the Funds' Directors/Trustees and
auditors, and to government regulators and self-regulatory
organizations.
o Each Covered Officer should, to the extent appropriate within his area
of responsibility, consult with other officers and employees of the
Funds and IMCO with the goal of promoting full, fair, accurate, timely
and understandable disclosure in the reports and documents filed by a
Company with, or submitted to, the SEC, and in other public
communications made by the Funds.
o Each Covered Officer is responsible for promoting compliance with the
standards and restrictions imposed by applicable laws, rules and
regulations, and promoting compliance with the USAA Funds' and IMCO's
operating policies and procedures.
o A Covered Officer should not retaliate against any person who reports a
potential violation of this Code in good faith.
o A Covered Officer should notify the Chief Legal Officer promptly if he
knows of any violation of the Code. Failure to do so itself is a
violation of this Code.
IV. REPORTING AND ACCOUNTABILITY
A. INTERPRETATION OF THE CODE. The Chief Legal Officer of each
Company is responsible for applying this Code to specific
situations in which questions are presented under it and has the
authority to interpret the Code in any particular situation. The
Chief Legal Officer should consult, if appropriate, the USAA
Funds' outside counsel or counsel for the Independent
Directors/Trustees. However, any approvals or waivers sought by a
Covered Officer will be reported initially to the Chairman of the
Board of Directors/Trustees and will be considered by the Board
of Directors/Trustees.
B. REQUIRED REPORTS
o EACH COVERED OFFICER MUST:
o Upon adoption of the Code, affirm in writing to the Boards
that he has received, read and understands the Code.
o Annually thereafter affirm to the Chief Legal Officer that
he has complied with the requirements of the Code.
o THE CHIEF LEGAL OFFICER MUST:
o report to the Board about any matter or situation submitted
by a Covered Officer for interpretation under the Code, and
the advice given by the Chief Legal Officer;
o report annually to the Board and the Corporate Governance
Committee describing any issues that arose under the Code,
or informing the Board and Corporate Governance Committee
that no reportable issues occurred during the year.
C. INVESTIGATION PROCEDURES
The Funds will follow these procedures in investigating and enforcing
this Code:
o INITIAL COMPLAINT. All complaints or other inquiries concerning
potential violations of the Code must be reported to the Chief
Legal Officer. The Chief Legal Officer shall be responsible for
documenting any complaint. The Chief Legal Officer also will
report immediately to the President of the Company (if the
complaint involves the Treasurer), the Chairman of the Board (or
for the USAA Life Investment Trust (LIT) the Chairman/CEO of USAA
if the complaint involves the Chairman of the LIT Board) and the
Chairperson of the Audit Committee any material potential
violations that could have a material effect on the Funds'
financial condition or reputation. For all other complaints, the
Chief Legal Officer will report quarterly to the Board.
o INVESTIGATIONS. The Chief Legal Officer will take all appropriate
action to investigate any potential violation unless the Chairman
of the Board or the Chairperson of the Audit Committee direct
another person to undertake such investigation. The Chief Legal
Officer may utilize USAA's Office of Ethics to do a unified
investigation under this Code and USAA's Code of Conduct. The
Chairman of the Board, or the Board as a whole, may direct the
Company's outside counsel or the counsel to the Independent
Directors/Trustees (if any) to participate in any investigation
under this Code.
o STATUS REPORTS. The Chief Legal Officer will provide monthly
status reports to the Board about any alleged violation of the
Code that could have a material effect on the Funds' financial
condition or reputation, and quarterly updates regarding all
other alleged violations of the Code.
o VIOLATIONS OF THE CODE. If after investigation, the Chief Legal
Officer, or other investigating person, believes that a violation
of the Code has occurred, he will report immediately to the
Chairman of the Board (and for the USAA LIT the Chairman/CEO of
USAA if the violation involves the Chairman of the LIT Board) the
nature of the violation, and his recommendation regarding the
materiality of the violation. If, in the opinion of the
investigating person, the violation could materially affect the
Funds' financial condition or reputation, the Chief Legal Officer
also will notify the Chairperson of the Audit Committee of each
Company.
The Chief Legal Officer will inform, and make a recommendation
to, the Board, which will consider what further action is
appropriate. Appropriate action could include: (1) review of, and
modifications to, the Code or other applicable policies or
procedures; (2) notifications to appropriate personnel of IMCO or
USAA; (3) dismissal of the Covered Officer; and/or (4) other
disciplinary actions including reprimands or fines.
o The Boards of Directors/Trustees understand that Covered
Officers also are subject to USAA's Code of Business
Conduct. If a violation of this Code also violates USAA's
Code of Business Conduct, these procedures do not limit or
restrict USAA's ability to discipline such Covered Officer
under USAA's Code of Business Conduct. In that event, the
Chairman of the Board of Directors/Trustees will report to
the Boards the action taken by USAA with respect to a
Covered Officer.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Act and the implementing regulations adopted by
the SEC applicable to registered investment companies. If other policies and
procedures of a Company, IMCO, or other service providers govern or purport to
govern the behavior or activities of Covered Officers, they are superseded by
this Code to the extent that they overlap, conflict with, or are more lenient
than the provisions of this Code. The USAA Funds' and IMCO's Joint Code of
Ethics under Rule 17j-1 under the 1940 Act, and IMCO's more detailed compliance
policies and procedures (including its Insider Trading Policy) are separate
requirements applying to Covered Officers and other IMCO employees, and are not
part of this Code. Also, USAA's Code of Conduct imposes separate requirements on
Covered Officers and all employees of USAA, and also is not part of this Code.
VI. AMENDMENTS
Any amendment to this Code, other than amendments to Appendix A, must
be approved or ratified by majority vote of the Board of Directors/Trustees.
VII. CONFIDENTIALITY AND DOCUMENT RETENTION
The Chief Legal Officer shall retain material investigation documents
and reports required to be prepared under the Code for six years from the date
of the resolution of any such complaint. All reports and records prepared or
maintained pursuant to this Code will be considered confidential and shall be
maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the
appropriate Board of Directors/Trustees and counsel for the Independent
Directors/Trustees (if any), the appropriate Company and its counsel, IMCO, and
other personnel of USAA as determined by the affected Company's Chief Legal
Officer or the Chairman of the Board of Directors/Trustees.
Approved and adopted by IMCO's Code of Ethics Committee: June 12, 2003 Approved
and adopted by the Boards of Directors/Trustees of USAA Mutual Fund, Inc., USAA
Tax-Exempt Fund, Inc., USAA Investment Trust & USAA State Tax-Free Trust: June
25, 2003.
Approved and adopted by the Board of Trustees of USAA Life Investment Trust:
August 20, 2003.
APPENDIX A
COVERED OFFICERS
TITLE COMPANY
PRESIDENT USAA Mutual Fund, Inc.
USAA Tax-Exempt Fund, Inc.
USAA Investment Trust
USAA State Tax-Free Trust
USAA Life Investment Trust
TREASURER USAA Mutual Fund, Inc.
USAA Tax-Exempt Fund, Inc.
USAA Investment Trust
USAA State Tax-Free Trust
USAA Life Investment Trust
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA INVESTMENT TRUST
By:* /s/ EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: OCTOBER 22, 2004
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /s/ CHRISTOPHER W. CLAUS
----------------------------------------------------
Signature and Title: Christopher W. Claus/President
Date: OCTOBER 26, 2004
------------------------------
By:* /s/ DAVID HOLMES
--------------------------------------------
Signature and Title: David Holmes/Treasurer
Date: OCTOBER 26, 2004
------------------------------
*Print the name and title of each signing officer under his or her signature.