UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4019
Exact name of registrant as specified in charter: USAA INVESTMENT TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: 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: NOVEMBER 30, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
USAA GNMA TRUST FUND - SEMIANNUAL REPORT FOR PERIOD ENDING NOVEMBER 30, 2004
[LOGO OF USAA]
USAA(R)
USAA GNMA Trust(R)
[GRAPHIC OF USAA GNMA TRUST(R)]
S e m i a n n u a l R e p o r t
- --------------------------------------------------------------------------------
NOVEMBER 30, 2004
Table of CONTENTS
- --------------------------------------------------------------------------------
MESSAGE FROM THE PRESIDENT 2
INVESTMENT OVERVIEW & MANAGER'S COMMENTARY 5
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 17
Financial Statements 18
Notes to Financial Statements 21
EXPENSE EXAMPLE 30
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)2005, USAA. All rights reserved.
2
M E S S A G E
==============------------------------------------------------------------------
from the PRESIDENT
"
WE REMAIN COMMITTED TO DELIVERING
QUALITY USAA SERVICE AND PROVIDING YOU
[PHOTO OF CHRISTOPHER W. CLAUS] WITH A RANGE OF RESOURCES, INCLUDING OUR
MARKET-TESTED PORTFOLIO MANAGEMENT
TEAM AND NO-LOAD MUTUAL FUNDS.
"
December 2004
- --------------------------------------------------------------------------------
As I write to you in early December, the equity markets have
rallied. Several factors are responsible. First, the presidential
election is over. Investors are relieved that the uncertainty has
ended, the results are not in dispute, and no terrorist attack
occurred on U.S. soil. In addition, the U.S. economy is on sound
footing. The annual gross domestic product (GDP) - the total value
of all the goods and services produced in the country - is
expected to be up around 4%, on an inflation-adjusted basis, in
2004 and a moderate yet healthy 3.5% in 2005. In most of America,
the housing market remains strong. Inflation is also under
control, which has kept long-term interest rates in check.
The Federal Reserve Board (the Fed) is expected to continue
raising short-term interest rates at a measured pace. In fact,
the Fed has announced its intention to move toward a more
"neutral" interest-rate position, which should put short-term
rates above 3% sometime in 2005. This is good news for money
market investors, because as your yields rise, you will be paid
more on your cash positions. At the same time, however, interest
rates on credit-card debt will also increase. In the months
ahead, we expect to see a narrowing of the yield relationship
between bonds of different maturities. In other words, the yield
curve will "flatten." We do not expect a major increase in
long-term interest rates, which the bond market, not the Fed,
controls.
3
. . . C O N T I N U E D
========================--------------------------------------------------------
In 2005, the primary drivers of stock market performance will be
the growth in corporate earnings, the valuation of those earnings,
Fed policy changes, and the level of long-term interest rates.
Corporate earnings are expected to improve by about 7%. The dollar
is likely to remain weak relative to foreign currencies, making
American products more affordable around the world and helping the
U.S. GDP. But because foreign governments finance the federal
budget deficit, the bond market may push up long-term rates to
make U.S. securities more attractive to foreign investors.
Whatever lies ahead, we remain committed to delivering quality
USAA service and providing you with a range of resources,
including our market-tested portfolio management team and no-load
mutual funds without excessive fees. 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.
Mutual fund operating expenses apply and continue throughout the
life of the fund.
Past performance is no guarantee of future results.
5
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
USAA GNMA TRUST
OBJECTIVE
- --------------------------------------------------------------------------------
High level of current income consistent with preservation of
principal.
TYPES OF INVESTMENTS
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Normally invests at least 80% of the Fund's assets in GNMA
securities backed by the full faith and credit of the U.S.
government.
- --------------------------------------------------------------------------------
11/30/04 5/31/04
- --------------------------------------------------------------------------------
Net Assets $610.6 Million $610.5 Million
Net Asset Value Per Share $9.81 $9.72
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND 30-DAY SEC YIELD* AS OF 11/30/04
- --------------------------------------------------------------------------------
5/31/04 TO 11/30/04** 1 YEAR 5 YEARS 10 YEARS 30-DAY SEC YIELD
3.33% 3.73% 6.51% 6.68% 4.27%
* CALCULATED AS PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION.
** TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THIS
SIX-MONTH RETURN IS CUMULATIVE.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO
GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR
LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, VISIT USAA.COM.
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL NET INVESTMENT INCOME DIVIDEND AND REALIZED
CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS QUOTED DO NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
6
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LEHMAN BROTHERS LIPPER GNMA LIPPER GNMA USAA GNMA
GNMA 30-YEAR INDEX FUNDS INDEX FUNDS AVERAGE FUND
------------------ ----------- ------------- ---------
11/30/1994 $10000.00 $10000.00 $10000.00 $10,000.00
12/31/1994 10114.68 10094.31 10095.31 10,081.39
1/31/1995 10325.40 10286.83 10287.67 10,251.36
2/28/1995 10598.31 10536.72 10537.86 10,474.00
3/31/1995 10648.47 10577.14 10581.46 10,497.59
4/30/1995 10807.56 10714.04 10720.01 10,614.29
5/31/1995 11136.31 11051.28 11069.96 10,966.61
6/30/1995 11214.72 11117.34 11132.98 11,042.89
7/31/1995 11237.64 11118.21 11129.02 11,020.69
8/31/1995 11354.21 11233.38 11246.92 11,196.73
9/30/1995 11467.36 11342.03 11362.76 11,305.24
10/31/1995 11560.27 11446.76 11469.63 11,429.56
11/30/1995 11694.53 11585.83 11616.14 11,596.41
12/31/1995 11845.64 11731.86 11767.41 11,770.61
1/31/1996 11927.12 11800.96 11835.15 11,839.43
2/29/1996 11837.66 11666.67 11682.75 11,597.21
3/31/1996 11807.98 11618.81 11634.42 11,485.95
4/30/1996 11777.31 11575.20 11587.40 11,440.32
5/31/1996 11736.80 11529.07 11540.55 11,366.41
6/30/1996 11892.50 11658.35 11666.89 11,510.45
7/31/1996 11937.70 11700.42 11708.71 11,536.13
8/31/1996 11941.71 11700.19 11704.75 11,578.79
9/30/1996 12142.93 11885.57 11891.85 11,754.89
10/31/1996 12390.53 12119.75 12134.41 12,001.80
11/30/1996 12573.46 12301.71 12320.23 12,189.19
12/31/1996 12505.19 12222.61 12233.46 12,116.42
1/31/1997 12602.34 12301.23 12310.55 12,209.82
2/28/1997 12648.98 12332.76 12337.06 12,254.88
3/31/1997 12522.28 12215.06 12204.59 12,128.53
4/30/1997 12729.37 12402.84 12392.63 12,296.85
5/31/1997 12861.97 12513.88 12506.72 12,415.88
6/30/1997 13015.79 12661.24 12653.55 12,589.45
7/31/1997 13250.94 12899.83 12917.46 12,823.78
8/31/1997 13223.26 12859.16 12864.22 12,754.10
9/30/1997 13399.84 13028.61 13036.74 12,933.23
10/31/1997 13538.08 13158.01 13172.31 13,091.06
11/30/1997 13581.69 13186.54 13202.97 13,115.56
12/31/1997 13704.45 13316.56 13332.04 13,268.54
1/31/1998 13838.13 13447.21 13470.99 13,454.12
2/28/1998 13868.97 13465.85 13484.48 13,419.56
3/31/1998 13927.44 13513.73 13530.52 13,507.69
4/30/1998 14008.11 13590.90 13602.84 13,591.44
5/31/1998 14104.42 13687.78 13709.73 13,738.40
6/30/1998 14163.60 13747.18 13776.76 13,869.63
7/31/1998 14243.98 13811.51 13830.71 13,902.83
8/31/1998 14355.08 13940.95 13978.28 14,123.88
9/30/1998 14525.56 14113.17 14173.55 14,441.19
10/31/1998 14512.05 14038.96 14088.56 14,159.04
11/30/1998 14594.67 14119.48 14169.20 14,318.53
12/31/1998 14654.22 14174.62 14222.83 14,364.52
1/31/1999 14758.15 14260.61 14305.31 14,474.98
2/28/1999 14709.76 14166.62 14186.09 14,145.55
3/31/1999 14798.75 14255.84 14273.39 14,294.97
4/30/1999 14869.71 14318.12 14334.37 14,328.07
5/31/1999 14793.73 14215.08 14227.27 14,168.96
6/30/1999 14733.12 14136.72 14152.49 14,065.03
7/31/1999 14636.10 14044.03 14061.86 13,796.25
8/31/1999 14630.51 14030.26 14042.24 13,646.24
9/30/1999 14867.30 14259.18 14264.35 13,908.51
10/31/1999 14956.27 14324.60 14321.30 13,922.34
11/30/1999 14962.53 14326.36 14327.58 13,931.02
12/31/1999 14931.95 14264.83 14262.40 13,845.60
1/31/2000 14797.33 14140.40 14138.56 13,777.24
2/29/2000 14988.60 14314.72 14304.61 13,976.43
3/31/2000 15228.83 14539.23 14528.22 14,147.63
4/30/2000 15213.84 14506.26 14501.45 14,073.48
5/31/2000 15271.52 14565.09 14553.06 14,207.00
6/30/2000 15552.11 14812.61 14808.34 14,489.11
7/31/2000 15633.09 14873.66 14864.70 14,559.34
8/31/2000 15869.98 15092.55 15079.56 14,798.79
9/30/2000 16017.54 15222.32 15209.91 14,896.35
10/31/2000 16138.09 15317.47 15302.01 15,017.54
11/30/2000 16364.61 15551.17 15532.95 15,276.95
12/31/2000 16596.09 15774.11 15764.77 15,530.45
1/31/2001 16867.49 16014.05 15998.80 15,764.67
2/28/2001 16941.56 16095.07 16089.52 15,881.35
3/31/2001 17042.81 16174.93 16177.47 15,995.17
4/30/2001 17070.83 16175.36 16152.44 15,952.62
5/31/2001 17214.16 16285.29 16252.62 16,038.49
6/30/2001 17265.32 16324.86 16300.81 16,059.16
7/31/2001 17561.15 16627.97 16607.79 16,374.83
8/31/2001 17689.20 16751.94 16729.07 16,521.18
9/30/2001 17927.94 16974.62 16964.90 16,756.10
10/31/2001 18166.01 17191.35 17186.70 17,005.06
11/30/2001 18013.21 17027.36 16997.84 16,789.61
12/31/2001 17959.59 16944.35 16901.22 16,640.57
1/31/2002 18141.16 17116.70 17065.82 16,811.82
2/28/2002 18326.02 17300.67 17249.01 17,019.49
3/31/2002 18152.23 17120.23 17042.94 16,774.59
4/30/2002 18471.40 17419.48 17353.67 17,124.52
5/31/2002 18592.25 17533.63 17468.27 17,294.51
6/30/2002 18741.81 17670.76 17610.11 17,419.57
7/31/2002 18959.06 17872.35 17811.83 17,612.54
8/31/2002 19091.15 18012.00 17954.90 17,793.91
9/30/2002 19249.13 18157.09 18117.90 17,938.21
10/31/2002 19308.51 18196.67 18147.22 17,969.40
11/30/2002 19326.75 18200.08 18141.24 17,968.28
12/31/2002 19518.94 18395.93 18340.74 18,177.39
1/31/2003 19568.32 18440.30 18378.95 18,221.66
2/28/2003 19666.27 18542.19 18488.63 18,313.78
3/31/2003 19680.15 18534.19 18478.41 18,311.76
4/30/2003 19725.75 18578.76 18526.68 18,373.19
5/31/2003 19726.43 18600.14 18581.44 18,414.14
6/30/2003 19786.42 18631.35 18600.90 18,430.72
7/31/2003 19459.63 18257.56 18184.18 18,047.36
8/31/2003 19587.81 18368.00 18302.16 18,158.55
9/30/2003 19870.57 18671.08 18623.34 18,450.61
10/31/2003 19818.75 18594.43 18523.95 18,380.32
11/30/2003 19887.43 18653.68 18571.94 18,411.94
12/31/2003 20073.06 18783.77 18705.61 18,543.09
1/31/2004 20173.42 18882.52 18800.51 18,636.13
2/29/2004 20305.56 18998.95 18923.42 18,745.77
3/31/2004 20388.75 19060.52 18994.34 18,821.52
4/30/2004 20067.73 18743.55 18665.70 18,543.21
5/31/2004 20026.99 18696.21 18613.87 18,483.86
6/30/2004 20208.23 18827.83 18751.95 18,636.21
7/31/2004 20371.73 18985.46 18900.82 18,769.14
8/31/2004 20654.53 19242.00 19150.00 18,992.76
9/30/2004 20698.11 19226.53 19152.69 19,027.02
10/31/2004 20861.69 19352.47 19279.99 19,140.68
11/30/2004 20814.21 19298.77 19220.21 19,099.30
[END CHART]
DATA FROM 11/30/94 THROUGH 11/30/04.
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 GNMA Trust to the following benchmarks:
o The Lehman Brothers GNMA 30-Year Index is an unmanaged index of
pass-through securities with an original maturity of 30 years.
o The Lipper GNMA Funds Index tracks the total return performance
of the 10 largest funds within the Lipper GNMA Funds category.
o The Lipper GNMA Funds Average is an unmanaged index of peer
funds, reported by Lipper Inc., an independent organization that
monitors the performance of mutual funds.
8
M A N A G E R ' S
==================--------------------------------------------------------------
COMMENTARY on the Fund
[PHOTO OF MARGARET "DIDI" WEINBLATT] MARGARET "DIDI" WEINBLATT, Ph.D., CFA
USAA Investment Management Company
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA GNMA Trust had a total return of 3.33% for the six-month
period ended November 30, 2004. This compares to a 3.22% return
for the Lipper GNMA Funds Average, 3.22% for the Lipper GNMA Funds
Index, and 3.93% for the Lehman Brothers GNMA 30-Year Index.
* * * *
THE FUND'S PERFORMANCE RECEIVED AN OVERALL MORNINGSTAR
RATING(TM) OF 4 STARS IN THE INTERMEDIATE GOVERNMENT FUNDS
CATEGORY (300 FUNDS IN CATEGORY) AS OF NOVEMBER 30, 2004.
THE OVERALL MORNINGSTAR RATING FOR A FUND IS DERIVED FROM A
WEIGHTED AVERAGE OF THE PERFORMANCE FIGURES ASSOCIATED WITH
ITS THREE-, FIVE-, AND 10-YEAR (IF APPLICABLE) MORNINGSTAR
RATING METRICS.
With respect to the intermediate government funds category, the
USAA GNMA Trust received a Morningstar Rating of 4 stars for
REFER TO PAGE 7 FOR BENCHMARK DEFINITIONS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FOR EACH FUND
WITH AT LEAST A THREE-YEAR HISTORY, MORNINGSTAR CALCULATES A
MORNINGSTAR RATING(TM) BASED ON A MORNINGSTAR RISK-ADJUSTED
RETURN MEASURE THAT ACCOUNTS FOR VARIATION IN A FUND'S MONTHLY
PERFORMANCE (INCLUDING THE EFFECTS OF SALES CHARGES, LOADS, AND
REDEMPTION FEES), PLACING MORE EMPHASIS ON DOWNWARD VARIATIONS
AND REWARDING CONSISTENT PERFORMANCE. THE TOP 10% OF THE FUNDS IN
EACH BROAD ASSET CLASS RECEIVE 5 STARS, THE NEXT 22.5% RECEIVE 4
STARS, THE NEXT 35% RECEIVE 3 STARS, THE NEXT 22.5% RECEIVE 2
STARS, AND THE BOTTOM 10% RECEIVE 1 STAR.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
the three- and five-year periods among 300 and 255 funds,
respectively, and 3 stars for the 10-year period among 159 funds
through November 30, 2004. Ratings are based on risk-adjusted
returns.
[LOGO OF LIPPER LEADER] [LOGO OF LIPPER LEADER]
---------------------- -----------------------
PRESERVATION EXPENSE
---------------------- -----------------------
The Fund is listed as a Lipper Leader for Preservation and Expense
of 3,935 fixed-income funds and 140 funds, respectively, within
the Lipper GNMA Funds category for the overall period ending
November 30, 2004.
WHAT WAS THE MARKET ENVIRONMENT DURING THE PERIOD?
Slower economic growth tends to create more favorable conditions
for bonds. Over the six-month period, the bond market focused on
employment as the key measure of the economy. When data came out
showing a weak job market, the bond market rallied. When there was
a strong jobs report, the market sold off.
LIPPER RATINGS FOR PRESERVATION REFLECT FUNDS' HISTORICAL LOSS
AVOIDANCE RELATIVE TO OTHER FUNDS WITHIN THE SAME ASSET CLASS, AS
OF NOVEMBER 30, 2004. PRESERVATION RATINGS ARE RELATIVE, RATHER
THAN ABSOLUTE, MEASURES, AND FUNDS NAMED LIPPER LEADERS FOR
PRESERVATION MAY STILL EXPERIENCE LOSSES PERIODICALLY; THOSE
LOSSES MAY BE LARGER FOR EQUITY AND MIXED EQUITY FUNDS THAN FOR
FIXED-INCOME FUNDS. THE USAA GNMA TRUST IN LIPPER'S GNMA FUNDS
CATEGORY RECEIVED A LIPPER LEADER RATING FOR PRESERVATION AMONG
3,935 AND 3,331 FIXED-INCOME FUNDS FOR THE THREE- AND FIVE-YEAR
PERIODS, RESPECTIVELY, AND A SCORE OF 2 AMONG 1,900 FIXED-INCOME
FUNDS FOR THE 10-YEAR PERIOD. LIPPER RATINGS FOR EXPENSE REFLECT
FUNDS' EXPENSE MINIMIZATION RELATIVE TO PEERS WITH SIMILAR LOAD
STRUCTURES AS OF NOVEMBER 30, 2004. THE FUND RECEIVED A LIPPER
LEADER RATING FOR EXPENSE AMONG 140, 117, AND 80 FUNDS FOR THE
THREE-, FIVE-, AND 10-YEAR PERIODS, RESPECTIVELY. RATINGS ARE
SUBJECT TO CHANGE EVERY MONTH AND ARE BASED ON AN EQUAL-WEIGHTED
AVERAGE OF PERCENTILE RANKS FOR THE PRESERVATION AND EXPENSE
METRICS OVER THREE-, FIVE-, AND 10-YEAR PERIODS (IF APPLICABLE).
THE HIGHEST 20% OF FUNDS IN EACH PEER GROUP ARE NAMED LIPPER
LEADERS, THE NEXT 20% RECEIVE A SCORE OF 2, THE MIDDLE 20% ARE
SCORED 3, THE NEXT 20% ARE SCORED 4, AND THE LOWEST 20% ARE SCORED
5. LIPPER RATINGS ARE NOT INTENDED TO PREDICT FUTURE RESULTS, AND
LIPPER DOES NOT GUARANTEE THE ACCURACY OF THIS INFORMATION. MORE
INFORMATION IS AVAILABLE AT WWW.LIPPERLEADERS.COM. LIPPER LEADER
COPYRIGHT 2004, REUTERS, ALL RIGHTS RESERVED.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
- --------------------------------------------------------------
HISTORICAL YIELD CURVE*
- --------------------------------------------------------------
[CHART OF HISTORICAL YIELD CURVE]
5/28/04 11/30/04 CHANGE
------- -------- ------
3 MONTH 1.060% 2.223% 1.1627%
6 MONTH 1.378 2.432 1.0541
2 YEAR 2.532 2.997 0.4645
3 YEAR 3.063 3.251 0.1877
5 YEAR 3.791 3.691 -0.0999
10 YEAR 4.647 4.349 -0.2976
30 YEAR 5.345 5.002 -0.3426
[END CHART]
*YIELD OF TREASURY BILLS, NOTES, AND BONDS. SOURCE: BLOOMBERG L.P.
Of course, the market also had to deal with the Federal Reserve
Board (the Fed), which in June 2004 began a tightening regimen
that took short-term rates from 1% to 2% in four moves of 0.25%
each. The net effect was that short-term rates doubled while
intermediate- and long-term rates fell.
HOW DID MORTGAGE-BACKED SECURITIES PERFORM?
Mortgage-backed securities tend to perform well in periods of
slightly rising or stable interest rates, principally because they
have higher yields and relatively short durations (a measure of
interest-rate sensitivity). Also, now that the period of plunging
interest rates has ended, so has the wave of mortgage pre-payments
that previously had such a negative impact on mortgage-backed
11
. . . C O N T I N U E D
========================--------------------------------------------------------
securities. In this environment, mortgage-backed securities
performed well.
HOW DID YOU MANAGE THE FUND?
We continued to be concerned about the possibility of rising
interest rates, so we kept the Fund's duration relatively short.
This slightly hindered performance, since longer-term bonds
outperformed shorter-term bonds. We continued to invest in
slightly higher-coupon mortgages, since they should suffer less of
a price decline should rates rise. And finally, we eliminated our
position in Treasury inflation-protected securities (TIPS), taking
profits when we thought they had fully priced in inflation
expectations.
- --------------------------------------------------------------------
COUPON RATE COMPOSITION OF MORTGAGE POOLS
- --------------------------------------------------------------------
[CHART OF COUPON RATE COMPOSITION OF MORTGAGE POOLS]
COUPON RATE % OF MKT
5.00 8.10%
5.50 26.30%
6.00 39.30%
6.50 17.50%
6.75 0.10%
7.00 5.60%
7.50 1.50%
8.00 1.50%
8.50 0.10%
9.00 0.10%
AVERAGE COUPON RATE
5.99% (NOVEMBER 2004)
- --------------------------------------------------------------------
[END CHART]
HOW DOES A GNMA DIFFER FROM A FANNIE MAE OR FREDDIE MAC?
GNMAs are backed by the full faith and credit of the U.S.
government, just like Treasury securities. Fannie Mae and
12
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
Freddie Mac are government-sponsored enterprises (GSEs), which are
not backed by the full faith and credit of the U.S. government,
but supported only by the issuing entity.
WHAT'S YOUR MARKET OUTLOOK?
Although employment reports have been inconsistent, we see signs
of continued economic growth, and expect the Fed to continue
raising short-term interest rates. Even as short-term rates rise,
however, the difference between long-term and short-term rates
seems to be enough to allow longer-term rates to remain relatively
stable, or to rise only slightly. This should be a good
environment for GNMAs. Rates are now at relatively more attractive
levels than they have been in the last two years, and we are
finding many opportunities to make investments.
If we've learned anything in 2004, it's the importance of staying
diversified. We thank you for the opportunity and privilege of
serving you.
13
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
ASSET ALLOCATION
11/30/04
[PIE CHART OF ASSET ALLOCATION]
30-Year Fixed-Rate Single-Family Mortgages* 80.7%
Collaterized Mortgage Obligations 8.6%
Repurchase Agreement 5.3%
15-Year Fixed-Rate Single-Family Mortgages* 5.1%
[END CHART]
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL
100%.
*COMBINED IN THE PORTFOLIO OF INVESTMENTS UNDER MORTGAGE-BACKED
PASS-THROUGH SECURITIES, SINGLE-FAMILY.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON
PAGES 14-16.
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL COUPON MARKET
AMOUNT SECURITY RATE MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (94.4%)(a)
MORTGAGE-BACKED PASS-THROUGH SECURITIES, SINGLE-FAMILY (85.8%)
Government National Mortgage Assn. I,
$ 8,921 Pool 604858 5.50% 12/15/2018 $ 9,290
18,615 Pool 553312 5.50 6/15/2033 18,970
48,856 Pool 604713 5.50 10/15/2033 49,787
21,009 Pool 616143 5.50 12/15/2033 21,409
9,698 Pool 615486 5.50 7/15/2034 9,878
9,463 Pool 781378 6.00 12/15/2016 9,969
4,537 Pool 780770 6.00 4/15/2028 4,715
2,194 Pool 482833 6.00 11/15/2028 2,278
3,762 Pool 492703 6.00 2/15/2029 3,902
3,155 Pool 781148 6.00 7/15/2029 3,275
5,799 Pool 584367 6.00 5/15/2032 6,006
17,862 Pool 603869 6.00 1/15/2033 18,502
4,899 Pool 553069 6.00 2/15/2033 5,074
6,842 Pool 581541 6.00 7/15/2033 7,087
5,640 Pool 615955 6.00 9/15/2033 5,842
1,414 Pool 456861 6.50 5/15/2028 1,493
1,294 Pool 472596 6.50 5/15/2028 1,367
1,410 Pool 462642 6.50 7/15/2028 1,489
1,327 Pool 464827 6.50 9/15/2028 1,401
117 Pool 467338 6.50 11/15/2028 123
3,544 Pool 490804 6.50 11/15/2028 3,742
178 Pool 434165 6.50 1/15/2029 189
217 Pool 469900 6.50 1/15/2029 229
4,369 Pool 486065 6.50 3/15/2031 4,609
4,226 Pool 485860 6.50 10/15/2031 4,458
3,307 Pool 577423 6.50 1/15/2032 3,488
1,232 Pool 581120 6.50 3/15/2032 1,300
4,553 Pool 552707 6.50 8/15/2032 4,803
20,750 Pool 781516 6.50 9/15/2032 21,889
202 Pool 474279 6.75 5/15/2028 214
437 Pool 474256 6.75 5/15/2028 463
604 Pool 440293 7.00 4/15/2027 644
72 Pool 440325 7.00 4/15/2027 77
2,568 Pool 780570 7.00 5/15/2027 2,739
265 Pool 478209 7.00 6/15/2028 282
375 Pool 458908 7.00 7/15/2028 399
753 Pool 464128 7.00 8/15/2028 802
421 Pool 486467 7.00 8/15/2028 449
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS (continued)
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL COUPON MARKET
AMOUNT SECURITY RATE MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------
Government National Mortgage Assn. I,
$ 953 Pool 464854 7.00% 9/15/2028 $ 1,015
3,754 Pool 487603 7.00 5/15/2029 3,998
3,174 Pool 487613 7.00 6/15/2029 3,380
2,109 Pool 555482 7.00 8/15/2031 2,245
1,195 Pool 781328 7.00 9/15/2031 1,273
2,364 Pool 564438 7.00 10/15/2031 2,516
1,104 Pool 563599 7.00 6/15/2032 1,174
3,065 Pool 563613 7.00 7/15/2032 3,262
1,143 Pool 780716 7.50 2/15/2028 1,233
199 Pool 781001 7.50 3/15/2029 214
458 Pool 499432 7.50 4/15/2029 493
1,009 Pool 470683 7.50 7/15/2029 1,087
1,385 Pool 510533 7.50 10/15/2029 1,491
346 Pool 518539 7.50 10/15/2029 372
579 Pool 538003 7.50 8/15/2030 623
364 Pool 443263 7.50 12/15/2030 392
202 Pool 486050 7.50 1/15/2031 217
211 Pool 530250 7.50 1/15/2031 228
604 Pool 552172 7.50 11/15/2031 650
41 Pool 178674 8.00 1/15/2022 44
650 Pool 352169 8.00 6/15/2023 713
712 Pool 442548 8.00 5/15/2027 776
777 Pool 511530 8.00 7/15/2030 845
367 Pool 520978 8.00 9/15/2030 399
196 Pool 307542 8.50 6/15/2021 216
99 Pool 329602 8.50 7/15/2022 109
279 Pool 312950 9.00 7/15/2021 314
Government National Mortgage Assn. II,
20,091 Pool 003389 5.00 5/20/2033 20,006
21,350 Pool 003414 5.00 7/20/2033 21,260
6,310 Pool 003375 5.50 4/20/2033 6,422
18,617 Pool 003530 5.50 3/20/2034 18,940
3,817 Pool 003052 6.00 3/20/2031 3,951
8,758 Pool 003273 6.00 8/20/2032 9,059
7,149 Pool 003285 6.00 9/20/2032 7,395
6,993 Pool 003460 6.00 10/20/2033 7,258
7,798 Pool 448816 6.00 12/20/2033 8,078
21,582 Pool 003517 6.00 2/20/2034 22,329
22,200 Pool 003531 6.00 3/20/2034 22,968
14,893 Pool 003611 6.00 9/20/2034 15,408
24,966 Pool 003625 6.00 10/20/2034 25,829
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS (continued)
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL COUPON MARKET
AMOUNT SECURITY RATE MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------
Government National Mortgage Assn. II,
$11,618 Pool 605742 6.00% 11/20/2034 $ 12,034
1,462 Pool 003080 6.50 5/20/2031 1,539
1,265 Pool 003107 6.50 7/20/2031 1,332
3,460 Pool 781494 6.50 8/20/2031 3,641
5,609 Pool 781427 6.50 4/20/2032 5,903
5,314 Pool 003250 6.50 6/20/2032 5,592
20,052 Pool 003599 6.50 8/20/2034 21,105
4,004 Pool 002971 7.00 9/20/2030 4,247
640 Pool 003070 7.50 4/20/2031 685
174 Pool 000563 8.00 12/20/2022 190
4,373 Pool 002958 8.00 8/20/2030 4,736
Fannie Mae(+),
2,135 Pool 598427 6.00 2/01/2017 2,238
2,198 Pool 608749 6.50 10/01/2016 2,331
6,958 Pool 618473 6.50 12/01/2016 7,381
--------
523,769
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (8.6%)
Government National Mortgage Assn. I,
10,126 Series 2003-99, Class KA 5.50 6/16/2021 10,260
15,000 Series 2003-50, Class PC 5.50 3/16/2032 15,390
10,000 Series 2002-35, Class C 5.86 10/16/2023 10,603
15,000 Series 2001-12, Class B 6.15 6/16/2021 16,030
--------
52,283
--------
Total U.S. government agency issues (cost: $568,353) 576,052
--------
REPURCHASE AGREEMENT (5.3%)(b)
32,444 UBS Securities LLC, 2.07%, acquired on
11/30/2004 and due on 12/01/2004
at $32,444 (collateralized by $32,950 of
Freddie Mac Notes(a,+), 3.625%, due 9/15/2008;
market value $32,837)(cost: $32,444) 32,444
--------
TOTAL INVESTMENTS (COST: $600,797) $608,496
========
17
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
GENERAL NOTES
- --------------------------------------------------------------------------------
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets and, in total, may not
equal 100%.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) U.S. government agency issues - mortgage-backed securities issued
by Government National Mortgage Association (GNMA) are supported by
the full faith and credit of the U.S. government. Securities issued
by government-sponsored enterprises (GSEs) indicated with "+" are
supported only by the credit of the issuing agency,
instrumentality, or corporation, and are neither issued nor
guaranteed by the U.S. government.
(b) 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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
ASSETS
Investments in securities, at market value (identified cost of $600,797) $608,496
Receivables:
Capital shares sold 208
Interest 2,768
--------
Total assets 611,472
--------
LIABILITIES
Payables:
Capital shares redeemed 301
Dividends on capital shares 485
Accrued management fees 63
Accrued transfer agent's fees 9
Other accrued expenses and payables 52
--------
Total liabilities 910
--------
Net assets applicable to capital shares outstanding $610,562
========
NET ASSETS CONSIST OF:
Paid-in capital $644,057
Overdistributed net investment income (2,268)
Accumulated net realized loss on investments (38,926)
Net unrealized appreciation of investments 7,699
--------
Net assets applicable to capital shares outstanding $610,562
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 62,243
========
Net asset value, redemption price, and offering price per share $ 9.81
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA GNMA TRUST
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2004 (UNAUDITED)
INVESTMENT INCOME
Interest income $13,570
-------
EXPENSES
Management fees 382
Administrative and servicing fees 458
Transfer agent's fees 428
Custody and accounting fees 62
Postage 39
Shareholder reporting fees 24
Trustees' fees 4
Registration fees 19
Professional fees 28
Other 10
-------
Total expenses 1,454
Expenses paid indirectly (1)
-------
Net expenses 1,453
-------
NET INVESTMENT INCOME 12,117
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 331
Change in net unrealized appreciation/depreciation 7,320
-------
Net realized and unrealized gain 7,651
-------
Increase in net assets resulting from operations $19,768
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA GNMA TRUST
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2004 (UNAUDITED),
AND YEAR ENDED MAY 31, 2004
11/30/2004 5/31/2004
----------------------------
FROM OPERATIONS
Net investment income $ 12,117 $ 24,101
Net realized gain (loss) on investments 331 (266)
Change in net unrealized appreciation/depreciation
of investments 7,320 (21,536)
----------------------------
Increase in net assets resulting from operations 19,768 2,299
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,385) (32,030)
----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 36,810 108,530
Reinvested dividends 11,326 25,261
Cost of shares redeemed (53,445) (245,366)
----------------------------
Decrease in net assets from capital share
transactions (5,309) (111,575)
----------------------------
Net increase (decrease) in net assets 74 (141,306)
NET ASSETS
Beginning of period 610,488 751,794
----------------------------
End of period $ 610,562 $ 610,488
============================
Overdistribution of net investment income
End of period $ (2,268) $ -
============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,749 10,878
Shares issued for dividends reinvested 1,153 2,543
Shares redeemed (5,452) (24,641)
----------------------------
Decrease in shares outstanding (550) (11,220)
============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
(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
semiannual report pertains only to the USAA GNMA Trust (the Fund). The
Fund's investment objective is to provide a high level of current
income consistent with preservation of principal.
A. SECURITY VALUATION - The value of each security is determined (as
of the close of trading on the New York Stock Exchange on each
business day the exchange is open) as set forth below:
1. Debt securities are valued each business day by a pricing
service (the Service) approved by the Trust's Board of
Trustees. The Service uses the mean between quoted bid and
asked prices or the last sales price to price securities when,
in the Service's judgment, these prices are readily available
and are representative of the securities' market values. For
many securities, such prices are not readily available. The
Service generally prices these securities based on methods
that include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications
as to values from dealers in securities; and general market
conditions.
2. Securities purchased with original maturities of 60 days or
less are stated at amortized cost, which approximates market
value. Repurchase agreements are valued at cost.
3. 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
22
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
USAA Investment Management Company (the Manager), an affiliate
of the Fund, under valuation procedures approved by the
Trust's Board of Trustees. Valuing securities at fair value is
intended to cause the Fund's net asset value (NAV) to be more
reliable than it otherwise would be.
B. FEDERAL TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
income to its shareholders. Therefore, no federal income tax
provision is required.
C. INVESTMENTS IN SECURITIES - Security transactions are accounted
for on the date the securities are purchased or sold (trade date).
Gain or loss from sales of investment securities is computed on
the identified cost basis. Interest income is recorded on the
accrual basis. Discounts and premiums are amortized over the life
of the respective securities, using the effective yield method for
long-term securities and the straight-line method for short-term
securities.
D. REPURCHASE AGREEMENTS - The Fund may enter into repurchase
agreements with commercial banks or recognized security dealers.
These agreements are collateralized by obligations issued or
guaranteed as to both principal and interest by the U.S.
government, its agencies, or its instrumentalities. Government-
sponsored enterprises (GSEs), such as 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
23
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
repurchase agreement. The Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into
repurchase agreements.
E. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS - Delivery and payment
for securities that have been purchased by the Fund on a when-
issued basis can take place a month or more after the trade date.
During the period prior to settlement, these securities do not
earn interest, are subject to market fluctuation, and may
increase or decrease in value prior to their delivery. The Fund
maintains segregated assets with a market value equal to or
greater than the amount of its purchase commitments. The purchase
of securities on a when-issued basis may increase the volatility
of the Fund's NAV to the extent that the Fund makes such
purchases while remaining substantially fully invested. The Fund
had no when-issued commitments as of November 30, 2004.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's
custodian and other banks utilized by the Fund for cash
management purposes, realized credits, if any, generated from
cash balances in the Fund's bank accounts are used to reduce the
Fund's expenses. For the six-month period ended November 30,
2004, these custodian and other bank credits reduced the Fund's
expenses by $1,000.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liability
arising out of the performance of their duties to the Trust. In
addition, in the normal course of business the Trust enters into
contracts that contain a variety of representations and
warranties that provide general indemnifications. The Trust's
maximum exposure under these arrangements is unknown, as this
would involve future claims that may be made against the Trust
that have not yet occurred. However, the Trust expects the risk
of loss to be remote.
24
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
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 a
rate per annum equal to the rate at which CAPCO obtains funding in the
capital markets, 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.
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
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
fees are allocated among the funds based on their respective average
net assets for the period. For the six-month period ended November 30,
2004, the Fund paid CAPCO facility fees of $3,000. The Fund had no
borrowings under either of these agreements during the six-month period
ended November 30, 2004.
On November 17, 2004, the Trust's Board of Trustees approved, effective
January 6, 2005, the termination of the $100 million line of credit
with Bank of America and State Street and the renewal of the line of
credit with CAPCO at a reduced amount of $300 million.
(3) DISTRIBUTIONS
- --------------------------------------------------------------------------------
The tax basis of distributions and accumulated undistributed net
investment income will be determined based upon the Fund's tax year-end
of May 31, 2005, in accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security
transactions not offset by capital losses are made annually in the
succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes. At May 31, 2004, the Fund had capital loss carryovers of
$36,018,000 for federal income tax purposes, which if not offset by
subsequent capital gains, will expire between 2005 and 2012, as shown
below. It is unlikely that the Trust's Board of Trustees will authorize
a distribution of capital gains realized in the future until the
capital loss carryovers have been utilized or expire.
CAPITAL LOSS CARRYOVERS BALANCE EXPIRES
- --------------------------------------------------------------------------------
$ 3,500,000 2005
8,011,000 2008
13,754,000 2009
1,176,000 2010
9,577,000 2012
-----------
Total $36,018,000
===========
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales/maturities of securities,
excluding short-term securities, for the six-month period ended
November 30, 2004, were $95,322,000 and $114,221,000, respectively.
As of November 30, 2004, the cost of securities, for federal income
tax purposes, was approximately the same as that reported in the
financial statements.
Gross unrealized appreciation and depreciation of investments as of
November 30, 2004, were $8,995,000 and $1,296,000, respectively,
resulting in net unrealized appreciation of $7,699,000.
(5) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund, through its securities-lending agent, Metropolitan West
Securities LLC (MetWest), may lend its securities to qualified
financial institutions, such as certain broker-dealers, to earn
additional income. The borrowers are required to secure their loans
continuously with cash collateral in an amount at least equal to the
fair value of the securities loaned, initially in an amount at least
equal to 102% of the fair value of domestic securities loaned and 105%
of the fair value of international securities loaned. Cash collateral
is invested in high-quality short-term investments. The Fund and
MetWest retain 80% and 20%, respectively, of the income earned from the
investment of cash received as collateral. MetWest receives no other
fees from the Fund for its services as securities-lending agent. Risks
to the Fund in securities-lending transactions are that the borrower
may not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments
will be less than the amount of cash collateral required to be returned
to the borrower. The Fund had no securities-lending transactions during
the six-month period ended November 30, 2004.
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
(6) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager carries out the Fund's investment
policies and manages the Fund's portfolio. 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 GNMA Funds Index, which tracks the total
return performance of the 10 largest funds in the Lipper GNMA
Funds category. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.125% of its 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 consists
of the current month plus the previous 35 months.
The annual performance adjustment rate is multiplied by the
average net assets of the Fund over the entire performance period,
which is then multiplied by a fraction, the numerator of which is
the number of days in the month and the denominator of which is
365 (366 in leap years). The resulting amount is then added to (in
the case of overperformance) or subtracted from (in the case of
underperformance) the base fee, as referenced in the following
chart:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
+/-0.20% to 0.50% +/-0.04%
+/-0.51% to 1.00% +/-0.05%
+/-1.01% and greater +/-0.06%
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest 0.01%.
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
Under the performance fee arrangement, the Fund will pay a
positive performance fee adjustment for a performance period
whenever the Fund outperforms the Lipper GNMA Funds Index over
that period, even if the Fund had overall negative returns during
the performance period.
For the six-month period ended November 30, 2004, the Fund
incurred total management fees, paid or payable to the Manager, of
$382,000, which included no performance adjustment.
B. 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 six-month period ended November 30, 2004, the
Fund incurred administrative and servicing fees, paid or payable
to the Manager, of $458,000.
C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager,
provides transfer agent services to the Fund based on an annual
charge of $25.50 per shareholder account plus out-of-pocket
expenses. For the six-month period ended November 30, 2004, the
Fund incurred transfer agent's fees, paid or payable to USAA
Transfer Agency Company, of $428,000.
D. 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.
(7) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors, officers,
and/or employees of the Manager. None of the affiliated trustees or
Fund officers received any compensation from the Fund.
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
(8) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
--------------------------------------------------------------------------------
2004 2004 2003 2002 2001 2000
--------------------------------------------------------------------------------
Net asset value at beginning of period $ 9.72 $ 10.16 $ 10.08 $ 9.89 $ 9.37 $ 10.00
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .48 .56 .57(c) .66 .64
Net realized and unrealized gain (loss) .13 (.44) .08 .19(c) .52 (.63)
--------------------------------------------------------------------------------
Total from investment operations .32 .04 .64 .76 1.18 .01
Less distributions:
From net investment income (.23) (.48) (.56) (.57) (.66) (.64)
--------------------------------------------------------------------------------
Net asset value at end of period $ 9.81 $ 9.72 $ 10.16 $ 10.08 $ 9.89 $ 9.37
================================================================================
Total return (%)* 3.33 .39 6.49 7.83 12.91 .21
Net assets at end of period (000) $610,562 $610,488 $751,794 $589,157 $476,641 $414,435
Ratio of expenses to average
net assets (%)** .48(a,b) .47(b) .46(b) .41(b) .32(b) .32(b)
Ratio of net investment income to
average net assets (%)** 3.97(a) 3.62 4.43 5.62(c) 6.74 6.77
Portfolio turnover (%) 16.89 58.53 74.64 44.77 94.72 80.06
* Assumes reinvestment of all net investment income distributions during the period.
** For the six-month period ended November 30, 2004, average net assets were $609,416,000.
(a) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(b) Reflects total operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses
paid indirectly did not affect the Fund's expense ratios.
(c) In 2001, a change in amortization method was made as required by a recently issued accounting pronouncement.
Without that change, these amounts would have been:
Net investment income $ .57
Net realized and unrealized gain $ .19
Ratio of net investment income to average net assets 5.63%
30
E X P E N S E
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EXAMPLE
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: direct
costs, such as wire fees, redemption fees, and low balance fees; and
indirect costs, including management fees, transfer agency fees, and
other Fund operating expenses. This Example is intended to help you
understand your indirect costs, also referred to as "ongoing costs,"
(in dollars) of investing in the Fund and to compare these costs with
the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire six-month period of
June 1, 2004, through November 30, 2004.
ACTUAL EXPENSES
- --------------------------------------------------------------------------------
The first line of the table on the next page provides information about
actual account values and actual expenses. You may use the information
in this line, together with the amount you invested at the beginning of
the period, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
- --------------------------------------------------------------------------------
The second line of the table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may
31
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2004 (UNAUDITED)
use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example
with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any direct costs, such as
wire fees, redemption fees, or low balance fees. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different
funds. In addition, if these direct costs were included, your costs
would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2004 -
JUNE 1, 2004 NOVEMBER 30, 2004 NOVEMBER 30, 2004
---------------------------------------------------------------
Actual $1,000.00 $1,033.30 $2.42
Hypothetical
(5% return before expenses) 1,000.00 1,022.68 2.41
*Expenses are equal to the Fund's annualized expense ratio of 0.48%,
which is net of any expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/365 days (to
reflect the one-half year period). The Fund's ending account value on
the first line in the table is based on its actual total return of
3.33% for the six-month period of June 1, 2004, through November 30,
2004.
32
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TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Michael F. Reimherr
Laura T. Starks, Ph.D.
Richard A. Zucker
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, San Antonio, Texas 78265-9825
AND DISTRIBUTOR
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN 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 (800) 531-8181
INFORMATION ABOUT For account servicing, exchanges,
MUTUAL FUNDS or redemptions
(800) 531-8448
RECORDED MUTUAL 24-hour service (from any phone)
FUND PRICE QUOTES (800) 531-8066
MUTUAL FUND (from touch-tone phones only)
USAA TOUCHLINE For account balance, last transaction, fund
prices, or to exchange or redeem fund shares
(800) 531-8777
INTERNET ACCESS USAA.COM
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.
AS A RESULT OF RULES RECENTLY ADOPTED BY THE SEC, THE FUND FILES ITS COMPLETE
SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FIRST AND THIRD QUARTERS OF
EACH FISCAL YEAR ON FORM N-Q. THESE FORM N-QS ARE AVAILABLE (I) BY CALLING (800)
531-8448; (II) AT USAA.COM; AND (III) ON THE SEC'S WEB SITE AT
HTTP://WWW.SEC.GOV. THESE FORM N-QS ALSO MAY BE REVIEWED AND COPIED AT THE SEC'S
PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE
PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330.
[LOGO OF RECYCLED PAPER]
Recycled
Paper
- --------------------------------------------------------------------------------
[LOGO OF USAA] 9800 Fredericksburg Road -------------
USAA(R) San Antonio, Texas 78288 PRSRT STD
U.S.
Postage
P A I D
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Receive this document
and others electronically.
Sign up at USAA.COM.
- --------------------------------------------------------------------------------
[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
23414-0105 (C)2005, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 10. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA
Investment Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
In October 2004, certain changes were made to the policies and procedures to
address the reporting of audit and non-audit fees required in annual reports on
Form N-CSR. None of these changes are relevant to this semi-annual 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). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA INVESTMENT TRUST
By:* /s/ EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: 01/25/05
------------------------------
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: 01/25/05
------------------------------
By:* /s/ DAVID HOLMES
--------------------------------------------
Signature and Title: David Holmes/Treasurer
Date: 01/25/05
------------------------------
*Print the name and title of each signing officer under his or her signature.