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 - USAA WORLD GROWTH FUND - ANNUAL REPORT FOR PERIOD ENDING
MAY 31, 2004
[LOGO OF USAA]
USAA(R)
USAA WORLD GROWTH Fund
[GRAPHIC OF USAA WORLD GROWTH FUND]
A n n u a l R e p o r t
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MAY 31, 2004
Table of CONTENTS
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MESSAGE FROM THE PRESIDENT 2
INVESTMENT OVERVIEW & MANAGER'S COMMENTARY 5
FINANCIAL INFORMATION
Distributions to Shareholders 13
Report of Independent Registered Public Accounting Firm 14
Portfolio of Investments 15
Notes to Portfolio of Investments 22
Financial Statements 23
Notes to Financial Statements 26
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
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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
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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
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OVERVIEW
USAA WORLD GROWTH FUND
OBJECTIVE
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Capital appreciation.
TYPES OF INVESTMENTS
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Invests principally in a mix of foreign (including emerging
market) and domestic equity securities.
5/31/04 5/31/03
Net Assets $288.6 Million $231.3 Million
Net Asset Value Per Share $16.09 $13.02
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/04
1 YEAR 5 YEARS 10 YEARS
23.87% 0.39% 6.05%
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
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OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER GLOBAL MSCI WORLD LIPPER GLOBAL USAA WORLD
FUNDS AVERAGE INDEX FUNDS INDEX GROWTH FUND
5/31/1994 $10,000.00 $10,000.00 $10,000.00 $10,000.00
6/30/1994 9,803.79 9,969.94 9,763.11 9,850.51
7/31/1994 10,090.76 10,157.20 10,086.62 10,089.05
8/31/1994 10,449.92 10,460.77 10,503.89 10,577.49
9/30/1994 10,274.59 10,183.61 10,317.71 10,449.38
10/31/1994 10,438.82 10,470.94 10,481.45 10,569.49
11/30/1994 10,008.41 10,014.49 9,989.44 10,087.79
12/31/1994 9,932.28 10,109.12 9,872.44 10,055.61
1/31/1995 9,691.59 9,954.95 9,546.28 9,516.63
2/28/1995 9,860.18 10,097.66 9,654.83 9,524.67
3/31/1995 10,103.97 10,581.91 9,855.28 9,766.01
4/30/1995 10,408.21 10,948.25 10,176.68 10,119.96
5/31/1995 10,636.11 11,039.42 10,397.99 10,425.65
6/30/1995 10,815.54 11,033.55 10,595.27 10,626.77
7/31/1995 11,341.26 11,583.12 11,114.75 11,157.73
8/31/1995 11,214.39 11,322.57 10,979.80 11,004.33
9/30/1995 11,441.75 11,649.91 11,183.68 11,125.44
10/31/1995 11,216.54 11,463.98 10,915.36 10,867.08
11/30/1995 11,419.45 11,859.53 11,097.85 11,049.80
12/31/1995 11,662.34 12,203.76 11,313.88 11,347.35
1/31/1996 12,004.08 12,422.00 11,647.70 11,668.50
2/29/1996 12,132.42 12,495.10 11,770.24 11,874.37
3/31/1996 12,323.53 12,700.44 11,950.78 12,137.88
4/30/1996 12,729.66 12,996.47 12,346.97 12,648.43
5/31/1996 12,863.30 13,005.11 12,457.45 12,763.71
6/30/1996 12,873.74 13,068.26 12,424.45 12,763.71
7/31/1996 12,328.75 12,603.79 11,884.67 12,086.78
8/31/1996 12,613.22 12,746.04 12,189.35 12,454.34
9/30/1996 13,001.17 13,242.45 12,532.75 12,770.61
10/31/1996 13,039.12 13,332.28 12,535.87 12,727.87
11/30/1996 13,691.70 14,076.77 13,128.68 13,443.70
12/31/1996 13,684.15 13,848.68 13,149.58 13,512.80
1/31/1997 14,038.56 14,012.99 13,443.91 14,025.05
2/28/1997 14,129.66 14,171.53 13,525.98 14,025.05
3/31/1997 13,922.34 13,888.57 13,364.16 13,883.74
4/30/1997 14,159.12 14,339.90 13,533.75 14,060.37
5/31/1997 15,002.57 15,222.40 14,360.90 14,872.91
6/30/1997 15,674.00 15,979.00 14,977.36 15,552.96
7/31/1997 16,456.97 16,712.34 15,725.61 16,261.57
8/31/1997 15,535.36 15,591.73 14,854.78 15,468.99
9/30/1997 16,504.67 16,436.15 15,776.81 16,398.22
10/31/1997 15,512.95 15,568.44 14,784.10 15,414.33
11/30/1997 15,627.60 15,841.29 14,815.00 15,095.47
12/31/1997 15,900.40 16,031.70 14,988.66 15,251.34
1/31/1998 16,105.14 16,475.81 15,156.87 15,270.18
2/28/1998 17,208.17 17,587.64 16,180.00 16,419.45
3/31/1998 18,124.46 18,327.60 16,994.25 17,342.63
4/30/1998 18,383.86 18,503.95 17,241.86 17,634.66
5/31/1998 18,233.02 18,269.29 17,094.09 17,295.53
6/30/1998 18,406.43 18,700.09 17,147.28 17,220.17
7/31/1998 18,452.38 18,667.32 17,154.56 16,949.68
8/31/1998 15,716.17 16,175.18 14,656.02 14,064.63
9/30/1998 15,796.99 16,458.47 14,664.50 13,957.41
10/31/1998 16,754.05 17,943.49 15,635.27 15,117.28
11/30/1998 17,719.24 19,007.77 16,496.58 15,799.56
12/31/1998 18,643.92 19,933.50 17,181.93 16,832.72
1/31/1999 19,229.51 20,367.09 17,540.88 17,368.79
2/28/1999 18,627.78 19,822.40 17,034.93 16,793.73
3/31/1999 19,252.05 20,644.83 17,619.69 17,505.25
4/30/1999 20,103.11 21,455.78 18,419.05 18,119.29
5/31/1999 19,585.00 20,668.88 17,877.49 17,651.45
6/30/1999 20,635.79 21,630.00 18,778.27 18,645.62
7/31/1999 20,666.72 21,562.20 18,828.74 18,832.01
8/31/1999 20,661.09 21,520.94 18,809.07 18,943.69
9/30/1999 20,551.94 21,309.34 18,645.80 18,659.43
10/31/1999 21,438.16 22,414.07 19,371.38 19,227.94
11/30/1999 23,167.45 23,041.73 20,672.37 20,232.99
12/31/1999 26,125.14 24,903.90 22,969.46 22,005.97
1/31/2000 25,081.35 23,474.88 22,072.22 21,082.06
2/29/2000 27,118.46 23,535.37 23,437.24 22,005.97
3/31/2000 27,508.98 25,159.19 24,020.91 22,908.89
4/30/2000 25,847.07 24,092.51 22,822.34 22,152.96
5/31/2000 24,965.79 23,479.69 22,143.92 21,638.51
6/30/2000 26,057.71 24,267.39 23,020.71 22,562.42
7/31/2000 25,378.30 23,581.34 22,554.22 21,805.19
8/31/2000 26,453.15 24,345.48 23,469.97 22,622.61
9/30/2000 24,986.80 23,048.11 22,222.39 21,120.33
10/31/2000 24,260.34 22,659.11 21,681.11 20,302.91
11/30/2000 22,748.02 21,280.53 20,417.49 18,844.81
12/31/2000 23,397.77 21,621.97 21,016.42 19,540.72
1/31/2001 23,832.62 22,038.34 21,364.44 20,081.99
2/28/2001 21,996.66 20,173.40 19,798.90 18,038.44
3/31/2001 20,418.35 18,844.96 18,423.65 16,547.20
4/30/2001 21,904.83 20,234.10 19,686.34 18,005.30
5/31/2001 21,719.61 19,970.43 19,566.40 17,563.45
6/30/2001 21,083.74 19,341.92 19,016.41 17,022.19
7/31/2001 20,551.98 19,083.39 18,544.95 16,746.03
8/31/2001 19,693.18 18,164.59 17,808.41 16,127.45
9/30/2001 17,785.37 16,561.58 16,144.79 14,525.75
10/31/2001 18,272.03 16,877.82 16,546.87 15,022.83
11/30/2001 19,329.70 17,873.75 17,449.32 15,917.57
12/31/2001 19,639.36 17,984.30 17,703.20 16,120.23
1/31/2002 19,043.26 17,437.63 17,166.75 15,642.51
2/28/2002 18,925.74 17,284.26 17,065.38 15,620.29
3/31/2002 19,823.49 18,080.26 17,873.83 16,409.08
4/30/2002 19,356.78 17,432.27 17,440.30 15,975.80
5/31/2002 19,327.31 17,461.34 17,479.81 16,020.24
6/30/2002 18,166.06 16,398.87 16,464.69 15,075.91
7/31/2002 16,537.55 15,015.17 15,008.63 13,676.09
8/31/2002 16,624.74 15,040.81 15,077.70 13,809.40
9/30/2002 14,976.02 13,384.81 13,578.97 12,720.65
10/31/2002 15,832.84 14,371.06 14,354.72 13,442.78
11/30/2002 16,638.22 15,143.70 15,057.35 13,898.28
12/31/2002 15,907.01 14,407.93 14,401.08 13,545.64
1/31/2003 15,386.01 13,968.86 13,939.39 13,021.22
2/28/2003 15,005.90 13,724.38 13,596.37 12,641.85
3/31/2003 14,853.69 13,679.08 13,446.12 12,686.48
4/30/2003 16,121.18 14,891.30 14,600.45 13,791.11
5/31/2003 17,157.81 15,739.12 15,499.65 14,527.53
6/30/2003 17,468.57 16,009.53 15,797.26 14,694.90
7/31/2003 17,881.23 16,332.76 16,131.18 14,851.11
8/31/2003 18,345.02 16,683.63 16,558.22 15,007.32
9/30/2003 18,427.73 16,784.04 16,648.72 15,174.69
10/31/2003 19,472.74 17,778.36 17,595.62 15,933.42
11/30/2003 19,818.85 18,047.07 17,922.23 16,323.95
12/31/2003 20,986.57 19,177.90 19,003.40 17,302.20
1/31/2004 21,370.87 19,485.63 19,402.13 17,615.37
2/29/2004 21,763.14 19,811.92 19,816.44 18,040.37
3/31/2004 21,658.07 19,680.46 19,731.75 17,973.27
4/30/2004 21,116.73 19,277.38 19,221.67 17,850.24
5/31/2004 21,170.07 19,438.23 19,286.74 17,995.63
[END CHART]
DATA FROM 5/31/94 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 World Growth Fund to the following
benchmarks:
o The Lipper Global Funds Average, an average performance
level of all global funds, reported by Lipper Inc., an
independent organization that monitors the performance of
mutual funds.
o The Morgan Stanley Capital International (MSCI) World Index,
an unmanaged index that reflects the movements of world
stock markets by representing a broad selection of
domestically listed companies within each market.
o The Lipper Global Funds Index, which tracks the total return
performance of the 30 largest funds within the Lipper Global
Funds category.
8
M A N A G E R ' S
==================--------------------------------------------------------------
COMMENTARY on the Fund
DAVID R. MANNHEIM
MFS Investment Management
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA World Growth Fund had a total return of 23.87% for
the year ended May 31, 2004. This compares to a 23.39% return
for the Lipper Global Funds Average, 24.44% for the Lipper
Global Funds Index, and 23.50% for the Morgan Stanley Capital
International (MSCI) World Index for the period.
HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT?
Through the end of 2003, lower-quality stocks with a high
degree of leverage to the economic recovery led the market
higher, causing the Fund--with its focus on higher-quality
companies-- to lag. As the period progressed, investors
focused increasingly on individual company fundamentals, and
this shift helped the Fund outperform its peers and the MSCI
World Index in the second half of the reporting year.
HOW WAS THE FUND'S STOCK SELECTION?
Overall, our stock selection contributed positively to
performance, while our sector allocations were slightly
negative. Our stock selection was particularly good in health
care. We owned Synthes, Inc. (Switzerland), a medical device
company that specializes in orthopedics, which was up 70% over
the period. Other medical equipment and supply companies that
performed
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 7 FOR BENCHMARK DEFINITIONS.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 15-21.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
strongly were Fisher Scientific International, Inc. (U.S.),
Thermo Electron Corp. (U.S.), and Waters Corp. (U.S.). Among
the pharmaceutical companies, the fact that we did not own
Merck (U.S.) helped performance, as did our holding Roche
Holdings AG (Switzerland), which benefited from its high
growth rate and positive news about its oncology products.
Stock selection contributed positively in other sectors,
including retail and financial services. The stock of retailer
Esprit Holdings Ltd. (Hong Kong) was up more than 100%. And we
benefited from our avoidance of Wal-Mart Stores, Inc. (U.S.).
Two of our bank holdings, Erste Bank der oesterreichischen
Sparkassen AG (Austria) and OTP Bank Ltd. (Hungary), benefited
from their exposure to growth in Eastern Europe.
WHAT AREAS DETRACTED FROM PERFORMANCE?
In the basic materials sector, one of our top holdings, L'Air
Liquide S.A. (France), lagged other stocks in its group.
Although the company continues to deliver solid earnings
growth, it is less economically sensitive than other stocks in
the sector. In the transportation sector, our inclusion of
Union Pacific Corp. (U.S.) was detrimental to performance.
Investors were concerned about downward revisions in earnings
expectations due to rising fuel costs and servicing issues. We
believe these concerns are more than adequately reflected in
the price of shares. The industrial goods sector, where our
underweight stance hurt us even though our stock selection was
positive, also detracted from performance.
HOW WAS THE FUND POSITIONED AT THE END OF THE PERIOD?
On a sector level, our biggest overweight position was in
health care, where many medical equipment and supply companies
continue to look attractive relative to their earnings growth
prospects. Our biggest underweight position was in financial
stocks, where we find fewer compelling opportunities.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
By country, we ended the period with a significant underweight
position in the United States, given that, in our opinion,
many stocks outside the country, especially in Europe, offer
better risk/return opportunities. We had a benchmark weight in
Japan and significant overweight positions in both Great
Britain and continental Europe.
We appreciate your trust and will continue to work hard on
your behalf.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
11
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
Reckitt Benckiser plc 3.6%
L'Air Liquide S.A. 2.4%
Johnson & Johnson, Inc. 2.0%
KDDI Corp. 1.9%
American Express Co. 1.8%
Roche Holdings AG 1.7%
Sandvik AB 1.7%
Time Warner, Inc. 1.7%
Accenture Ltd. "A" 1.6%
Sanofi-Synthelabo S.A. 1.6%
TOP 10 INDUSTRIES
(% OF NET ASSETS)
Pharmaceuticals 9.6%
Diversified Banks 7.1%
Integrated Telecommunication Services 5.0%
Movies & Entertainment 4.4%
Apparel Retail 4.3%
Industrial Gases 4.3%
Electronic Equipment Manufacturers 3.8%
Household Products 3.6%
Consumer Finance 2.9%
Industrial Machinery 2.8%
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 15-21.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
HIGHLIGHTS
ASSET ALLOCATION
5/31/04
[PIE CHART OF ASSET ALLOCATION]
United States 37.9%
United Kingdom 16.0%
Japan 9.3%
France 8.6%
Switzerland 7.6%
Sweden 4.9%
Spain 3.5%
Other* 17.5%
[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%.
13
D I S T R I B U T I O N S
==========================------------------------------------------------------
to SHAREHOLDERS (unaudited)
USAA WORLD GROWTH 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 are
$4,542,000 and $539,000, respectively.
69.92% of ordinary income distributions qualifies for the
dividends-received deductions eligible to corporations.
14
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 WORLD GROWTH FUND:
We have audited the accompanying statement of assets and
liabilities of the USAA World Growth 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 World Growth 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
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA WORLD GROWTH FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ----------------------------------------------------------------------------------------
INTERNATIONAL STOCKS (67.4%)
AUSTRALIA (2.3%)
390,272 News Corp. Ltd. (Movies & Entertainment) $ 3,582
352,489 QBE Insurance Group Ltd. (Property & Casualty Insurance) 3,147
-------
6,729
-------
AUSTRIA (0.9%)
16,700 Erste Bank der oesterreichischen Sparkassen AG (Regional Banks) 2,581
-------
BERMUDA (1.6%)
188,500 Accenture Ltd. "A" (IT Consulting & Other Services)* 4,639
-------
BRAZIL (0.4%)
36,600 Brasil Telecom Participacoes S.A. ADR (Preferred)
(Integrated Telecommunication Services) 1,054
-------
CANADA (1.8%)
70,500 BCE, Inc. (Integrated Telecommunication Services) 1,402
43,588 Canadian National Railway Co. (Railroads) 1,721
53,100 Encana Corp. (Integrated Oil & Gas) 2,079
-------
5,202
-------
FRANCE (8.6%)
183,000 AXA S.A. (Multi-Line Insurance) 3,756
39,700 L'Air Liquide S.A. (Industrial Gases) 6,965
70,300 Sanofi-Synthelabo S.A. (Pharmaceuticals)(a) 4,646
32,212 Schneider Electric S.A. (Electrical Components & Equipment)(a) 2,168
8,700 Total S.A. (Integrated Oil & Gas)(a) 1,634
28,474 Total S.A. ADR (Integrated Oil & Gas) 2,679
106,500 Veolia Environnement (Multi-Utilities & Unregulated Power)(a) 2,849
-------
24,697
-------
GERMANY (1.9%)
69,400 Bayerische Motoren Werke AG (Automobile Manufacturers) 2,942
44,700 Schering AG (Pharmaceuticals) 2,438
-------
5,380
-------
HONG KONG (0.8%)
518,000 Esprit Holdings Ltd. (Apparel Retail) 2,273
-------
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ----------------------------------------------------------------------------------------
HUNGARY (0.7%)
53,200 OTP Bank Ltd. GDR (Regional Banks)* $ 2,151
-------
IRELAND (0.7%)
128,600 Irish Life & Permanent plc (Other Diversified Financial Services) 1,956
-------
ITALY (0.8%)
120,800 RAS S.p.A. (Multi-Line Insurance) 2,168
-------
JAPAN (9.3%)
152,000 Bridgestone Corp. (Tires & Rubber) 2,545
91,000 Canon, Inc. (Electronic Equipment Manufacturers) 4,500
198,000 Chugai Pharmaceutical Co. Ltd. (Pharmaceuticals) 3,009
226,000 Citizen Watch Co. (Apparel, Accessories, & Luxury Goods) 2,371
953 KDDI Corp. (Integrated Telecommunication Services) 5,569
34,900 Seiko Epson Corp. (Office Electronics) 1,200
97,300 Tokyo Broadcasting System, Inc. (Broadcasting & Cable TV) 1,734
409,000 Tokyo Gas Co. Ltd. (Gas Utilities) 1,444
81,300 Toyota Motor Corp. (Automobile Manufacturers) 2,951
107,200 Yamaha Corp. (Consumer Electronics) 1,628
-------
26,951
-------
KOREA (2.4%)
9,800 Samsung Electronics Co. Ltd. (Semiconductors) 4,376
23,030 Samsung SDI Co. Ltd. (Computer Storage & Peripherals) 2,541
-------
6,917
-------
NETHERLANDS (1.0%)
211,600 Reed Elsevier N.V. (Publishing) 2,955
-------
NORWAY (0.0%)(g)
10,880 DNB Holdings ASA (Diversified Banks) 69
-------
SINGAPORE (2.2%)
296,000 DBS Group Holdings Ltd. (Diversified Banks) 2,456
1,594,000 Singapore Telecommunications Ltd. (Integrated
Telecommunication Services) 2,055
231,400 United Overseas Bank Ltd. (Diversified Banks) 1,771
-------
6,282
-------
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ----------------------------------------------------------------------------------------
SPAIN (3.5%)
222,800 Banco Bilbao Vizcaya Argentaria S.A. (Diversified Banks) $ 2,950
146,300 Iberdrola S.A. (Electric Utilities) 2,953
290,912 Telefonica S.A. (Integrated Telecommunication Services)(a) 4,222
-------
10,125
-------
SWEDEN (4.9%)
86,200 Atlas Copco AB "A" (Industrial Machinery) 3,182
841,500 Ericsson LM "B" (Communications Equipment)* 2,349
157,500 Hennes & Mauritz AB "B" (Apparel Retail)(a) 3,901
140,400 Sandvik AB (Industrial Machinery) 4,768
-------
14,200
-------
SWITZERLAND (7.6%)
99,200 Credit Suisse Group (Diversified Banks)* 3,407
13,575 Nestle S.A. (Packaged Foods & Meat) 3,531
64,600 Novartis AG (Pharmaceuticals) 2,897
45,400 Roche Holdings AG (Pharmaceuticals) 4,781
18,722 Syngenta AG (Specialty Chemicals)* 1,489
10,600 Synthes, Inc. (Health Care Equipment) 1,248
63,166 UBS AG (Diversified Banks) 4,531
-------
21,884
-------
UNITED KINGDOM (16.0%)
473,000 Amvescap plc (Investment Banking & Brokerage) 3,171
94,400 AstraZeneca plc (Pharmaceuticals) 4,396
208,900 BOC Group plc (Diversified Chemicals) 3,408
327,251 BP plc (Oil & Gas Exploration & Production) 2,865
201,500 British Sky Broadcasting Group plc (Broadcasting & Cable TV) 2,266
59,900 Capital Radio plc (Broadcasting & Cable TV) 499
322,900 Diageo plc (Distillers & Vintners) 4,285
727,445 Kingfisher plc (Home Improvement Retail) 3,813
87,200 Next plc (Apparel Retail) 2,215
385,800 Reckitt Benckiser plc (Household Products) 10,451
72,054 Royal Bank Scotland Group plc (Diversified Banks) 2,175
1,487,100 Vodafone Group plc (Wireless Telecommunication Services) 3,496
327,900 William Hill plc (Casinos & Gaming) 3,251
-------
46,291
-------
Total international stocks (cost: $155,862) 194,504
-------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ----------------------------------------------------------------------------------------
U.S. STOCKS (31.2%)
APPAREL RETAIL (1.4%)
162,200 TJX Companies, Inc. $ 4,040
-------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
142,100 Janus Capital Group, Inc. 2,326
-------
BIOTECHNOLOGY (1.0%)
69,600 Genzyme Corp.* 3,033
-------
COMPUTER HARDWARE (1.5%)
126,800 Dell, Inc.* 4,461
-------
CONSUMER FINANCE (2.9%)
105,300 American Express Co. 5,339
117,600 MBNA Corp. 2,987
-------
8,326
-------
DIVERSIFIED BANKS (1.0%)
36,200 Bank of America Corp. 3,009
-------
DIVERSIFIED COMMERCIAL SERVICES (0.8%)
79,800 ARAMARK Corp. "B" 2,194
-------
ELECTRONIC EQUIPMENT MANUFACTURERS (2.2%)
113,800 Thermo Electron Corp.* 3,503
61,400 Waters Corp.* 2,829
-------
6,332
-------
HEALTH CARE EQUIPMENT (1.0%)
33,400 DENTSPLY International, Inc. 1,650
24,500 Medtronic, Inc. 1,174
-------
2,824
-------
HEALTH CARE SERVICES (1.5%)
81,898 Caremark Rx, Inc.* 2,555
49,700 Lincare Holdings, Inc.* 1,671
-------
4,226
-------
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ----------------------------------------------------------------------------------------
HEALTH CARE SUPPLIES (1.4%)
68,500 Fisher Scientific International, Inc.* $ 3,933
-------
HOME IMPROVEMENT RETAIL (0.7%)
59,500 Home Depot, Inc. 2,137
-------
INDUSTRIAL GASES (1.9%)
51,100 Air Products & Chemicals, Inc. 2,553
81,100 Praxair, Inc. 3,000
-------
5,553
-------
MOVIES & ENTERTAINMENT (2.9%)
289,700 Time Warner, Inc.* 4,937
96,800 Viacom, Inc. "B" 3,571
-------
8,508
-------
OIL & GAS DRILLING (1.0%)
83,000 Noble Corp.* 2,860
-------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
21,400 EOG Resources, Inc. 1,143
-------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.5%)
91,000 Citigroup, Inc. 4,225
-------
PACKAGED FOODS & MEAT (0.4%)
23,000 J.M. Smucker Co. 1,125
-------
PHARMACEUTICALS (2.0%)
101,300 Johnson & Johnson, Inc. 5,643
-------
RAILROADS (1.4%)
66,500 Burlington Northern Santa Fe Corp. 2,191
30,100 Union Pacific Corp. 1,755
-------
3,946
-------
REGIONAL BANKS (0.8%)
68,400 SouthTrust Corp. 2,317
-------
20
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ----------------------------------------------------------------------------------------
SOFT DRINKS (0.7%)
40,100 PepsiCo, Inc. $ 2,140
-------
SYSTEMS SOFTWARE (2.0%)
115,400 Microsoft Corp. 3,041
94,560 Network Associates, Inc.* 1,574
24,300 Symantec Corp.* 1,113
-------
5,728
-------
Total U.S. stocks (cost: $79,660) 90,029
-------
MONEY MARKET INSTRUMENTS (6.7%)
MONEY MARKET FUNDS (1.0%)
1,254,841 AIM Short-Term Investment Co. Liquid Assets Portfolio, 1.01%(b,d) 1,255
1,608,735 Merrill Lynch Premier Institutional Fund, 0.99%(b,d) 1,609
-------
2,864
-------
PRINCIPAL
AMOUNT
(000)
- ---------
REPURCHASE AGREEMENTS (4.6%)
$4,000 Banc One Capital Markets, Inc., 1.02%, acquired on 5/28/2004
and due 6/01/2004 at $4,000 (collateralized by $3,925 of
Fannie Mae Notes(f), 4.25%, due 7/15/2007;
market value $4,084)(b,c) 4,000
4,000 Bear Stearns & Co., Inc., 1.00%, acquired on 5/28/2004 and due
6/01/2004 at $4,000 (collateralized by $4,150 of Freddie
Mac Notes(f), 6.00%, due 8/27/2018; market value $4,232)(b,c) 4,000
1,000 CS First Boston LLC, 1.03%, acquired on 5/28/2004 and due
6/01/2004 at $1,000 (collateralized by $3,390 of U.S. Treasury
STRIPS, 5.75%(e), due 8/15/2025; market value $1,020)(b,c) 1,000
500 Deutsche Bank Securities, Inc., 1.00%, acquired on 5/28/2004 and
due 6/01/2004 at $500 (collateralized by $543 of Fannie Mae
Notes(f), 5.00%, due 11/25/2032; market value $510)(b,c) 500
4,000 Lehman Brothers, Inc., 1.01%, acquired on 5/28/2004 and due
6/01/2004 at $4,000 (collateralized by $8,775 of FICO STRIPS,
5.80%(e), due 11/30/2017; market value $4,082)(b,c) 4,000
-------
13,500
-------
21
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
- ----------------------------------------------------------------------------------------
DISCOUNT NOTE (1.1%)
$3,146 Federal Home Loan Bank(f), 0.81%, 6/01/2004 $ 3,146
--------
Total money market instruments (cost: $19,510) 19,510
--------
TOTAL INVESTMENTS (COST: $255,032) $304,043
========
22
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA WORLD GROWTH 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) 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.
(d) Rate represents the money market fund annualized seven-day yield at
May 31, 2004.
(e) Zero-coupon security. Rate represents the effective yield at date
of purchase.
(f) 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.
(g) Represents less than 0.1% of net assets.
* Non-income-producing security for the year ended May 31, 2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA WORLD GROWTH FUND
MAY 31, 2004
ASSETS
Investments in securities, at market value (including securities
on loan of $15,519) (identified cost of $255,032) $304,043
Cash 31
Cash denominated in foreign currencies (identified cost of $492) 497
Receivables:
Capital shares sold 35
USAA Transfer Agency Company 2
Dividends and interest 694
Securities sold 192
Other 56
--------
Total assets 305,550
--------
LIABILITIES
Payables:
Upon return of securities loaned 16,364
Securities purchased 56
Capital shares redeemed 240
Unrealized depreciation on foreign currency contracts held, at value 1
Accrued management fees 197
Accrued transfer agent's fees 1
Other accrued expenses and payables 62
--------
Total liabilities 16,921
--------
Net assets applicable to capital shares outstanding $288,629
========
NET ASSETS CONSIST OF:
Paid-in capital $240,546
Accumulated undistributed net investment income 1,467
Accumulated net realized loss on investments (2,409)
Net unrealized appreciation of investments 49,011
Net unrealized appreciation on foreign currency translations 14
--------
Net assets applicable to capital shares outstanding $288,629
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 17,933
========
Net asset value, redemption price, and offering price per share $ 16.09
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA WORLD GROWTH FUND
YEAR ENDED MAY 31, 2004
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $539) $ 4,793
Interest 55
Securities lending 91
-------
Total income 4,939
-------
EXPENSES
Management fees 1,985
Administrative and servicing fees 392
Transfer agent's fees 711
Custody and accounting fees 211
Postage 38
Shareholder reporting fees 10
Trustees' fees 6
Registration fees 31
Professional fees 48
Other 7
-------
Total expenses 3,439
Expenses paid indirectly (50)
-------
Net expenses 3,389
-------
NET INVESTMENT INCOME 1,550
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 19,797
Foreign currency transactions (60)
Change in net unrealized appreciation/depreciation of:
Investments 33,580
Foreign currency translations (22)
-------
Net realized and unrealized gain 53,295
-------
Increase in net assets resulting from operations $54,845
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA WORLD GROWTH FUND
YEARS ENDED MAY 31,
2004 2003
--------------------------
FROM OPERATIONS
Net investment income (loss) $ 1,550 $ 785
Net realized gain (loss) on investments 19,797 (10,373)
Net realized loss on foreign currency transactions (60) (82)
Change in net unrealized appreciation/depreciation of:
Investments 33,580 (17,387)
Foreign currency translations (22) 7
--------------------------
Increase (decrease) in net assets resulting
from operations 54,845 (27,050)
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (642) (960)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 47,561 42,899
Reinvested dividends 628 939
Cost of shares redeemed (45,100) (60,510)
--------------------------
Increase (decrease) in net assets from capital
share transactions 3,089 (16,672)
--------------------------
Net increase (decrease) in net assets 57,292 (44,682)
NET ASSETS
Beginning of period 231,337 276,019
--------------------------
End of period $288,629 $231,337
==========================
Accumulated undistributed net investment income:
End of period $ 1,467 $ 616
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,234 3,550
Shares issued for dividends reinvested 41 77
Shares redeemed (3,107) (5,004)
--------------------------
Increase (decrease) in shares outstanding 168 (1,377)
==========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA WORLD GROWTH 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 World Growth Fund (the Fund).
The Fund's investment objective is capital appreciation.
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
price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average
of the bid and asked prices is generally used.
2. Securities trading in various foreign markets may take
place on days when the NYSE is closed. Further, when the NYSE
is open, the foreign markets may be closed. Therefore, the
calculation of the Fund's net asset value (NAV) may not take
place at the same time the prices of certain foreign
securities held by the Fund are determined. In most cases,
events affecting the values of foreign securities that occur
between the time of their last quoted sales or official
closing prices and 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
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
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
investment companies and to distribute substantially all of its
income to its shareholders. Therefore, no federal income tax
provision is required.
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
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 in
U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
1. Purchases and sales of securities, income, and expenses at
the rate of exchange obtained from an independent pricing
service on the respective dates of such transactions.
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 May 31,
2004, these fee-offset arrangements reduced the Fund's expenses by
$50,000.
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
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
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.
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
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 $1,000. 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 other
security transactions 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 $57,000. This reclassification has no
effect on net assets.
The tax character of distributions paid during the years ended May 31,
2004, and 2003, was as follows:
2004 2003
---------------------------
Ordinary income* $642,000 $960,000
*Includes distribution of short-term realized capital gains,
if any, which are taxable as ordinary income.
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
For the fiscal year ended May 31, 2004, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by
the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the
distributions paid during the fiscal year, the maximum amount that may
be considered qualified dividend income is $642,000. The information
and distributions reported herein may differ from the information and
distributions reported to shareholders for the calendar year ending
December 31, 2004, which will be reported in conjunction with the 2004
Form 1099-DIV.
As of May 31, 2004, the components of net assets representing
distributable earnings on a tax basis were as follows:
Undistributed ordinary income $ 1,515,000
Accumulated capital and other losses (2,294,000)
Unrealized appreciation of investments 48,848,000
Unrealized appreciation on foreign currency translations 14,000
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 $12,404,000 to offset capital gains. At May
31, 2004, the Fund had a current post-October deferred currency loss of
$49,000 and capital loss carryovers of $2,245,000, for federal income
tax purposes. The post-October loss will be recognized on the first day
of the following fiscal year. If not offset by subsequent capital
gains, the capital loss carryovers will expire in 2011. It is
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
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.
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the year ended May 31, 2004, were
$149,365,000 and $143,242,000, respectively.
The cost of securities at May 31, 2004, for federal income tax
purposes, was $255,195,000.
Gross unrealized appreciation and depreciation of investments as of May
31, 2004, for federal income tax purposes, were $51,999,000 and
$3,151,000, respectively, resulting in net unrealized appreciation of
$48,848,000.
(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.
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
At May 31, 2004, the terms of open foreign currency contracts were as
follows (in thousands):
FOREIGN CURRENCY CONTRACTS TO SELL
- ---------------------------------------------------------------------------------------------------
U.S. DOLLAR IN EXCHANGE UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF FOR U.S. APPRECIATION
DATE DELIVER 5/31/2004 DOLLAR (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
6/01/2004 239 $175 $175 $ -
Canadian Dollar
6/01/2004 14 26 26 -
Pound Sterling
6/01/2004 283 42 41 (1)
Norwegian Krone
6/03/2004 213 32 32 -
Norwegian Krone
- ---------------------------------------------------------------------------------------------------
$275 $274 $(1)
- ---------------------------------------------------------------------------------------------------
(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 value
of approximately $15,519,000 and received cash collateral of
$16,364,000 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
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
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 Global Funds Index, which tracks the
total return performance of the 30 largest funds in the Lipper
Global Funds category. The Fund's base fee is accrued daily and
paid monthly at an annualized rate of 0.75% of the Fund's average
net assets.
The performance adjustment is calculated monthly by comparing the
Fund's performance to that of the Lipper index over the
performance period. The performance period for the Fund 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 (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%.
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
For the year ended May 31, 2004, the Fund incurred total
management fees, paid or payable to the Manager, of $1,985,000,
which included a performance adjustment of $25,000 that increased
the base management fee of 0.75% by 0.01%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with MFS Investment
Management (MFS), under which MFS directs the investment
and reinvestment of the Fund's assets (as allocated from time to
time by the Manager). The Manager (not the Fund) pays MFS a
subadvisory fee.
C. ADMINISTRATIVE AND SERVICING FEES - The Manager provides certain
administrative and shareholder servicing functions for the Fund.
For such services, the Manager receives a fee accrued daily and
paid monthly at an annualized rate of 0.15% of the Fund's
average net assets. For the year ended May 31, 2004, the Fund
incurred administrative and servicing fees, paid or payable to the
Manager, of $392,000.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services, an affiliate of the Manager,
provides transfer agent services to the Fund based on an annual
charge of $23 per shareholder account plus out-of-pocket
expenses. For the year ended May 31, 2004, the Fund incurred
transfer agent's fees, paid or payable to USAA Transfer Agency
Company, of $711,000. Additionally, the Fund recorded a
receivable from USAA Transfer Agency Company of $2,000 at
May 31, 2004.
E. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2004
(8) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors, officers,
and/or employees of the Manager. None of the affiliated trustees or Fund
officers received any compensation from the Fund.
(9) 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 $ 13.02 $ 14.42 $ 15.90 $ 20.61 $ 18.11
---------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .08 .04 .03 .07 .05
Net realized and unrealized gain (loss) 3.03 (1.39) (1.43) (3.70) 3.94
---------------------------------------------------------------
Total from investment operations 3.11 (1.35) (1.40) (3.63) 3.99
---------------------------------------------------------------
Less distributions:
From net investment income (.04) (.05) (.07) (.07) (.06)
From realized capital gains - - (.01) (1.01) (1.43)
---------------------------------------------------------------
Total distributions (.04) (.05) (.08) (1.08) (1.49)
---------------------------------------------------------------
Net asset value at end of period $ 16.09 $ 13.02 $ 14.42 $ 15.90 $ 20.61
===============================================================
Total return (%)* 23.87 (9.32) (8.79) (18.83) 22.59
Net assets at end of period (000) $288,629 $231,337 $276,019 $320,269 $414,470
Ratio of expenses to average
net assets (%)** 1.32(a) 1.53(a) 1.40(a) 1.14(a) 1.12
Ratio of net investment income to average
net assets (%)** .59 .35 .21 .41 .39
Portfolio turnover (%) 56.13 138.42 51.18 38.30 39.20
* Assumes reinvestment of all net investment income and realized capital gain distributions during the period.
** For the year ended May 31, 2004, average net assets were $261,520,000.
(a) Reflects total expenses, excluding any expenses paid indirectly, which decreased the Fund's expense ratios
as follows:
(.02%) - - - 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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INSURANCE o MEMBER SERVICES
23411-0704 (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.