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 INTERNATIONAL FUND - SEMIANNUAL REPORT FOR PERIOD ENDING
NOVEMBER 30, 2004
[LOGO OF USAA]
USAA(R)
USAA INTERNATIONAL Fund
[GRAPHIC OF USAA INTERNATIONAL FUND]
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 & MANAGERS' COMMENTARY 5
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 18
Financial Statements 20
Notes to Financial Statements 23
EXPENSE EXAMPLE 37
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 INTERNATIONAL FUND
OBJECTIVE
- --------------------------------------------------------------------------------
Capital appreciation with current income as a secondary
objective.
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
Invests at least 80% of the Fund's assets in equity securities
of foreign (including emerging market) companies.
- --------------------------------------------------------------------------------
11/30/04 5/31/04
- --------------------------------------------------------------------------------
Net Assets $552.4 Million $479.5 Million
Net Asset Value Per Share $22.49 $20.45
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/04
- --------------------------------------------------------------------------------
5/31/04 TO 11/30/04* 1 YEAR 5 YEARS 10 YEARS
10.03% 22.13% 2.36% 6.80%
*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]
USAA LIPPER LIPPER
INTERNATIONAL INTERNATIONAL INTERNATIONAL MSCI-EAFE
FUND FUNDS INDEX FUNDS AVERAGE INDEX
------------- ------------- -------------- ---------
11/30/1994 $10000.00 $10000.00 $10000.00 $10000.00
12/31/1994 9885.64 9866.59 9911.29 10062.62
1/31/1995 9212.20 9377.10 9469.82 9676.06
2/28/1995 9116.90 9374.68 9511.09 9648.29
3/31/1995 9371.03 9621.29 9802.08 10250.06
4/30/1995 9764.93 9974.94 10126.25 10635.55
5/31/1995 10025.41 10073.19 10240.73 10508.77
6/30/1995 10101.65 10111.44 10270.21 10324.48
7/31/1995 10620.43 10667.30 10820.59 10967.25
8/31/1995 10371.67 10487.06 10592.75 10548.88
9/30/1995 10492.86 10662.46 10775.42 10754.91
10/31/1995 10295.12 10440.47 10571.34 10465.81
11/30/1995 10378.34 10549.49 10684.09 10757.01
12/31/1995 10705.47 10855.44 10993.80 11190.42
1/31/1996 11058.26 11111.94 11233.98 11236.36
2/29/1996 11250.69 11159.64 11297.98 11274.34
3/31/1996 11455.94 11333.98 11490.02 11513.76
4/30/1996 11962.67 11703.23 11850.83 11848.51
5/31/1996 12001.16 11690.12 11839.59 11630.47
6/30/1996 12084.55 11796.62 11923.87 11695.93
7/31/1996 11505.93 11398.73 11497.22 11354.09
8/31/1996 11853.60 11547.39 11658.59 11378.97
9/30/1996 12070.07 11805.54 11920.20 11681.26
10/31/1996 12024.16 11758.65 11879.24 11561.72
11/30/1996 12666.39 12311.77 12422.29 12021.75
12/31/1996 12755.04 12421.69 12492.63 11867.10
1/31/1997 13161.34 12437.71 12482.76 11451.78
2/28/1997 13227.94 12662.24 12650.31 11639.09
3/31/1997 13247.93 12729.32 12688.39 11681.23
4/30/1997 13334.51 12784.73 12718.36 11743.22
5/31/1997 14007.23 13505.59 13475.93 12507.39
6/30/1997 14719.92 14154.17 14106.84 13197.14
7/31/1997 15189.62 14608.61 14535.55 13410.64
8/31/1997 14377.86 13555.33 13505.95 12409.08
9/30/1997 15327.21 14425.29 14368.02 13104.22
10/31/1997 14267.79 13330.30 13309.79 12096.97
11/30/1997 13799.99 13218.45 13210.57 11973.65
12/31/1997 13908.26 13321.99 13332.89 12078.09
1/31/1998 13908.26 13644.20 13658.34 12630.46
2/28/1998 14819.57 14510.37 14572.52 13440.90
3/31/1998 15738.11 15298.39 15346.52 13854.77
4/30/1998 16106.97 15533.51 15577.02 13964.43
5/31/1998 15868.29 15564.39 15609.75 13896.65
6/30/1998 15513.90 15428.30 15488.33 14001.86
7/31/1998 15438.27 15664.99 15716.01 14143.81
8/31/1998 12825.30 13411.56 13447.54 12391.55
9/30/1998 12376.07 12994.11 13001.51 12011.64
10/31/1998 13521.59 13949.58 13982.86 13263.74
11/30/1998 13910.92 14648.31 14704.82 13943.27
12/31/1998 14457.47 15008.77 15151.60 14493.32
1/31/1999 14659.62 15099.83 15296.23 14450.53
2/28/1999 14135.53 14711.39 14897.17 14106.13
3/31/1999 14442.50 15201.04 15422.17 14694.95
4/30/1999 15221.15 15909.54 16147.21 15290.37
5/31/1999 14816.85 15318.36 15486.93 14502.93
6/30/1999 15393.35 16044.79 16279.90 15068.36
7/31/1999 15944.78 16403.12 16680.12 15516.25
8/31/1999 16112.14 16532.70 16825.32 15572.91
9/30/1999 16112.14 16585.79 16882.37 15729.66
10/31/1999 16249.07 17164.63 17514.17 16318.83
11/30/1999 17177.15 18423.55 18791.54 16885.82
12/31/1999 18599.04 20687.15 21050.02 18401.35
1/31/2000 17869.36 19476.25 19885.24 17232.15
2/29/2000 18583.18 20761.46 21131.36 17696.04
3/31/2000 19066.99 20814.96 21204.68 18382.00
4/30/2000 18139.02 19494.66 19839.05 17414.68
5/31/2000 17671.07 18959.00 19206.82 16989.35
6/30/2000 18543.52 19836.77 20054.21 17653.78
7/31/2000 17915.26 19193.80 19376.58 16913.65
8/31/2000 18190.88 19518.18 19698.63 17060.46
9/30/2000 17247.10 18381.08 18561.55 16229.76
10/31/2000 16537.17 17756.90 17906.56 15846.38
11/30/2000 15860.65 17007.29 17172.95 15252.13
12/31/2000 16587.28 17642.35 17813.74 15794.25
1/31/2001 16862.90 17746.26 17904.81 15786.10
2/28/2001 15668.55 16501.04 16624.28 14602.66
3/31/2001 14541.01 15340.90 15399.24 13629.23
4/30/2001 15660.20 16273.95 16402.89 14576.35
5/31/2001 15225.89 15879.73 15979.19 14061.90
6/30/2001 14683.00 15431.23 15432.18 13486.83
7/31/2001 14591.13 15030.11 15033.47 13241.44
8/31/2001 14465.85 14728.71 14666.55 12905.88
9/30/2001 12954.11 13123.94 13090.58 11598.68
10/31/2001 13296.55 13479.40 13424.16 11895.75
11/30/2001 13822.73 13982.69 13944.95 12334.26
12/31/2001 14169.56 14232.10 14145.04 12407.54
1/31/2002 13679.79 13657.66 13566.84 11748.27
2/28/2002 13933.12 13849.10 13661.19 11830.68
3/31/2002 14693.11 14581.67 14383.43 12528.08
4/30/2002 14743.77 14683.97 14457.25 12553.27
5/31/2002 14887.33 14893.91 14628.77 12712.33
6/30/2002 14414.45 14306.00 14056.88 12206.30
7/31/2002 12953.58 12877.78 12663.68 11001.30
8/31/2002 13029.58 12888.05 12636.72 10976.32
9/30/2002 12058.48 11500.02 11298.52 9797.54
10/31/2002 12776.25 12096.88 11833.81 10324.11
11/30/2002 13012.69 12669.57 12357.06 10792.67
12/31/2002 12883.48 12264.15 11951.24 10429.78
1/31/2003 12338.51 11814.98 11486.44 9994.36
2/28/2003 12040.48 11465.14 11211.94 9764.99
3/31/2003 11929.78 11184.36 10979.41 9573.13
4/30/2003 13070.82 12291.64 11992.42 10511.41
5/31/2003 13743.52 13081.17 12721.15 11148.32
6/30/2003 13939.37 13390.24 13009.83 11417.73
7/31/2003 14084.13 13765.69 13327.31 11694.12
8/31/2003 14245.92 14162.89 13669.50 11976.52
9/30/2003 14612.07 14447.11 13956.52 12345.71
10/31/2003 15301.80 15308.43 14797.71 13115.21
11/30/2003 15804.20 15615.92 15090.83 13406.79
12/31/2003 16993.65 16678.63 16163.80 14454.19
1/31/2004 17259.71 17037.04 16449.87 14658.58
2/29/2004 17731.75 17426.57 16810.20 14996.96
3/31/2004 17611.60 17511.50 16868.85 15081.35
4/30/2004 17397.03 16989.57 16362.43 14740.19
5/31/2004 17542.94 16979.93 16374.12 14771.36
6/30/2004 17809.00 17322.00 16695.24 15113.80
7/31/2004 17233.96 16754.73 16145.57 14623.31
8/31/2004 17276.87 16843.85 16239.15 14687.89
9/30/2004 17757.50 17292.44 16711.50 15071.76
10/31/2004 18298.21 17840.73 17243.90 15585.71
11/30/2004 19302.38 18985.20 18337.11 16650.42
[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 International Fund to the following
benchmarks:
o The Lipper International Funds Index tracks the total
return performance of the 30 largest funds within the
Lipper International Funds category.
o The Lipper International Funds Average is an average
performance level of all international funds, reported by
Lipper Inc., an independent organization that monitors the
performance of mutual funds.
o The Morgan Stanley Capital International Europe, Australia
and Far East (MSCI-EAFE) Index is an unmanaged index that
reflects the movements of stock markets in Europe,
Australia, and the Far East by representing a broad
selection of domestically listed companies within each
market.
8
M A N A G E R S '
==================--------------------------------------------------------------
COMMENTARY on the Fund
DAVID R. MANNHEIM MARCUS L. SMITH
MFS Investment Management MFS Investment Management
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
The USAA International Fund had a total return of 10.03% for
the six-month period ended November 30, 2004. This compares to
a 5.91% return for the Lipper International Funds Average,
6.62% for the Lipper International Funds Index, and 12.72% for
the Morgan Stanley Capital International Europe, Australia and
Far East (MSCI-EAFE) Index.
* * * * *
THE FUND'S PERFORMANCE RECEIVED AN OVERALL MORNINGSTAR
RATING(TM) OF 5 STARS IN THE FOREIGN LARGE GROWTH FUNDS
CATEGORY (175 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 foreign large growth funds category, the
USAA International Fund received a Morningstar Rating of 5
stars for the three- and five-year periods among 175 and 130
funds, respectively, and 4 stars for the 10-year period among
46 funds through November 30, 2004. Ratings are based on
risk-adjusted returns.
REFER TO PAGE 7 FOR BENCHMARK DEFINITIONS.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FOR EACH
FUND WITH AT LEAST A THREE-YEAR HISTORY, MORNINGSTAR
CALCULATES A MORNINGSTAR RATING(TM) BASED ON A MORNINGSTAR
RISK-ADJUSTED RETURN MEASURE THAT ACCOUNTS FOR VARIATION IN A
FUND'S MONTHLY PERFORMANCE (INCLUDING THE EFFECTS OF SALES
CHARGES, LOADS, AND REDEMPTION FEES), PLACING MORE EMPHASIS ON
DOWNWARD VARIATIONS AND REWARDING CONSISTENT PERFORMANCE. THE
TOP 10% OF THE FUNDS IN EACH BROAD ASSET CLASS RECEIVE 5
STARS, THE NEXT 22.5% RECEIVE 4 STARS, THE NEXT 35% RECEIVE 3
STARS, THE NEXT 22.5% RECEIVE 2 STARS, AND THE BOTTOM 10%
RECEIVE 1 STAR.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
WHAT WAS THE MARKET ENVIRONMENT DURING THE PERIOD?
It was a volatile period, highlighted by an escalation of
geopolitical risk, dramatically rising oil prices, and
uncertainty surrounding the U.S. presidential election. For
U.S. investors in this Fund, the depreciation of the U.S.
dollar was helpful as returns from overseas markets (with
stronger currencies) were translated back into dollars.
WHAT WERE THE SPECIFIC HOLDINGS OR SECTORS THAT GREATLY DETRACTED FROM OR
POSITIVELY AFFECTED PERFORMANCE?
Stock selection in leisure companies was a primary detractor
of performance over the six-month period. One holding, British
Sky Broadcasting Group plc (U.K.), fell sharply when it
announced slower revenue growth and a capital expenditure plan
that would further postpone margin improvement. We sold our
entire position in August 2004. We also suffered when the
Australia-based News Corp., Inc. "B" announced shareholder
approval of a change in its country of domicile to the United
States. Since News Corp., Inc. "B" would then no longer be an
"international" stock, many international funds began to sell.
The stock of NOK Corp. (Japan), which among other businesses
makes the flexible printed circuits used in mobile phones,
fell when management lowered forecasts due to slower growth in
the mobile phone business and the rising cost of raw materials.
Our view is that this is a short-term problem, and we remain
confident in the stock. Our cash position also held us back.
As a U.S.-based mutual fund, we had an average cash balance
of 3% of assets in U.S. dollars during the period to handle
the normal cash flow needs of any mutual fund. With higher
stock prices overseas and the fall of the dollar, even this
small 3% cash position had an impact on the Fund's total
return.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-17.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
There were positive impacts on performance from the
transportation sector, specifically from Canadian National
Railway Co. (Canada). The stock gained sharply when the
company reported better-than-expected third-quarter profits
due to higher shipments, price increases, and the rebounding
Canadian economy.
We also benefited from several holdings in the retail sector.
Hennes & Mauritz AB "B" (Sweden), better known to U.S.
shoppers as H&M, had better-than-expected sales thanks to good
strategic placement of new stores. Esprit Holdings Ltd. (Hong
Kong) and Next plc (U.K.) were two other strong retail stocks.
WERE THERE ANY NEW PURCHASES OF NOTE?
We bought Japanese bank, Shinsei Bank Ltd., which came out of
the temporary nationalization of the Long Term Credit Bank.
Shinsei Bank Ltd. has cleaned up its balance sheet and is
heavily capitalized. Also in Japan, we bought Nintendo Co.,
because we expect the new Nintendo DS (a Game Boy replacement)
to do well.
WHAT'S YOUR OUTLOOK?
We believe the market as a whole can achieve earnings in the
8% to 10% range, and we're looking to invest in companies that
we believe can reach the 11% to 12% range or better. We are
focused on transparent companies with strong fundamentals, and
believe a volatile market will favor money managers, such as
MFS, who are good stock-pickers.
On behalf of everyone at USAA, we thank you for your continued
support.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-17.
11
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
TOP 10 INDUSTRIES
(% of Net Assets)
Pharmaceuticals 8.8%
Diversified Banks 8.1%
Regional Banks 5.2%
Integrated Telecommunication
Services 5.1%
Wireless Telecommunication
Services 4.1%
Industrial Machinery 4.0%
Household Products 3.8%
Apparel Retail 3.5%
Multi-Line Insurance 3.4%
Electrical Components &
Equipment 3.1%
TOP 10 EQUITY HOLDINGS
(% of Net Assets)
Reckitt Benckiser plc 3.8%
L'Air Liquide S.A. 2.6%
Vodafone Group plc 2.6%
Roche Holdings AG 2.2%
Sandvik AB 2.2%
Schneider Electric S.A. 2.2%
Total S.A. ADR 2.2%
UBS AG 2.2%
Diageo plc 2.1%
Erste Bank der oesterreichischen
Sparkassen AG 2.0%
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES 13-17.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
HIGHLIGHTS
ASSET ALLOCATION
11/30/04
[PIE CHART OF ASSET ALLOCATION]
United Kingdom 19.9%
Japan 17.6%
France 13.9%
Switzerland 7.7%
Sweden 7.4%
Spain 4.8%
Canada 3.6%
Other* 32.4%
[END CHART]
*INCLUDES COUNTRIES WITH LESS THAN 3% OF THE PORTFOLIO, MONEY
MARKET INSTRUMENTS, (4.2%), AND SHORT-TERM INVESTMENTS
PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED (5.2%).
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL
100%.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-17.
13
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
STOCKS (97.9%)
AUSTRALIA (1.1%)
592,715 QBE Insurance Group Ltd. (Property & Casualty Insurance) $ 6,388
--------
AUSTRIA (2.0%)
220,260 Erste Bank der oesterreichischen Sparkassen AG (Regional Banks) 11,182
--------
BRAZIL (1.5%)
85,550 Brasil Telecom Participacoes S.A. ADR (Preferred)
(Integrated Telecommunication Services) 3,190
193,060 Companhia Vale Do Rio Doce ADR (Diversified Metals & Mining) 4,792
--------
7,982
--------
CANADA (3.6%)
146,110 BCE, Inc. (Integrated Telecommunication Services) 3,541
139,071 Canadian National Railway Co. (Railroads) 8,062
148,240 Encana Corp. (Oil & Gas Exploration & Production) 8,444
--------
20,047
--------
CAYMAN ISLANDS (0.8%)
5,362,000 Hutchison Telecommunications International Ltd. (Wireless
Telecommunication Services)* 4,378
--------
FRANCE (13.9%)
459,700 AXA S.A. (Multi-Line Insurance) 10,739
132,660 Business Objects S.A. (Application Software)* 3,101
294,460 Credit Agricole S.A. (Regional Banks)(a) 8,698
83,334 L'Air Liquide S.A. (Industrial Gases) 14,375
78,210 Sanofi-Synthelabo S.A. (Pharmaceuticals)(a) 5,874
177,881 Schneider Electric S.A. (Electrical Components & Equipment) 12,323
83,135 Societe Television Francaise 1 (Broadcasting & Cable TV) 2,641
112,683 Total S.A. ADR (Integrated Oil & Gas)(a) 12,350
220,110 Veolia Environnement S.A. (Multi-Utilities & Unregulated Power) 6,925
--------
77,026
--------
GERMANY (2.7%)
184,310 Bayerische Motoren Werke AG (Automobile Manufacturers) 7,766
102,670 Schering AG (Pharmaceuticals) 7,289
--------
15,055
--------
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
HONG KONG (1.4%)
6,532,500 CNOOC Ltd. (Oil & Gas Exploration & Production) $ 3,717
776,500 Esprit Holdings Ltd. (Apparel Retail) 4,254
--------
7,971
--------
HUNGARY (1.3%)
121,000 OTP Bank Ltd. GDR (Regional Banks) 6,957
--------
IRELAND (1.9%)
370,520 Depfa Bank plc (Specialized Finance) 6,042
2,473,710 Irish Life & Permanent plc (Other Diversified Financial Services) 4,199
--------
10,241
--------
ITALY (1.5%)
380,160 RAS S.p.A. (Multi-Line Insurance) 8,216
--------
JAPAN (17.6%)
310,000 Bridgestone Corp. (Tires & Rubber) 5,611
223,000 Canon, Inc. (Electronic Equipment Manufacturers) 11,167
422,300 Chugai Pharmaceutical Co. Ltd. (Pharmaceuticals) 6,619
903 KDDI Corp. (Integrated Telecommunication Services) 4,452
81,900 Kyocera Corp. (Electronic Equipment Manufacturers) 5,762
95,300 Murata Manufacturing Co. Ltd. (Electrical Components & Equipment) 4,976
146,000 NOK Corp. (Auto Parts & Equipment) 4,229
81,700 Nintendo Co. (Leisure Products) 9,816
146,200 Nitto Denko Corp. (Specialty Chemicals) 7,605
57,400 Seiko Epson Corp. (Office Electronics) 2,345
843,000 Sekisui Chemical Co. Ltd. (Homebuilding) 5,530
1,063,000 Shinsei Bank Ltd. (Diversified Banks)(a) 7,097
46,500 Tokyo Broadcasting System, Inc. (Broadcasting & Cable TV) 736
2,115,000 Tokyo Gas Co. Ltd. (Gas Utilities) 8,477
1,150,000 Toray Industries, Inc. (Textiles) 5,055
201,100 Toyota Motor Corp. (Automobile Manufacturers) 7,533
--------
97,010
--------
KOREA (1.5%)
20,000 Samsung Electronics Co. Ltd. (Semiconductors) 8,288
--------
MEXICO (2.0%)
86,430 America Movil S.A. de C.V. ADR "L" (Wireless Telecommunication Services) 4,037
115,560 Grupo Televisa S.A. de C.V. ADR (Broadcasting & Cable TV) 7,196
--------
11,233
--------
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
NETHERLANDS (1.0%)
412,540 Reed Elsevier N.V. (Publishing) $ 5,513
--------
POLAND (0.3%)
232,410 Powszechna Kasa Oszczednosci Bank Polski S.A. (Regional Banks)* 1,840
--------
SINGAPORE (2.4%)
491,000 DBS Group Holdings Ltd. (Diversified Banks) 4,733
4,117,000 Singapore Telecommunications Ltd.
(Integrated Telecommunication Services) 5,954
294,000 United Overseas Bank Ltd. (Diversified Banks) 2,440
--------
13,127
--------
SPAIN (4.8%)
573,540 Banco Bilbao Vizcaya Argentaria S.A. (Diversified Banks)(a) 9,414
256,280 Iberdrola S.A. (Electric Utilities) 6,008
609,011 Telefonica S.A. (Integrated Telecommunication Services) 10,675
11,543 Telefonica S.A. ADR (Integrated Telecommunication Services) 606
--------
26,703
--------
SWEDEN (7.4%)
218,600 Atlas Copco AB "A" (Industrial Machinery) 9,602
3,020,730 Ericsson LM "B" (Communications Equipment)* 10,041
278,980 Hennes & Mauritz AB "B" (Apparel Retail) 8,942
306,210 Sandvik AB (Industrial Machinery) 12,360
--------
40,945
--------
SWITZERLAND (7.7%)
22,640 Credit Suisse Group (Diversified Banks) 881
135,520 Novartis AG (Pharmaceuticals) 6,477
115,370 Roche Holdings AG (Pharmaceuticals) 12,118
13,460 Straumann AG (Health Care Supplies) 2,934
27,612 Syngenta AG (Specialty Chemicals) 2,912
44,030 Synthes, Inc. (Health Care Equipment)* 4,756
153,669 UBS AG (Diversified Banks) 12,388
--------
42,466
--------
TAIWAN (0.3%)
1,671,687 Compal Electronics, Inc. (Computer Hardware) 1,603
--------
UNITED KINGDOM (19.9%)
1,057,320 Amvescap plc (Investment Banking & Brokerage) 6,468
259,190 AstraZeneca plc (Pharmaceuticals) 10,109
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------------
339,690 BG Group plc (Oil & Gas Exploration & Production) $ 2,352
226,650 BOC Group plc (Diversified Chemicals) 4,046
332,380 Bunzl plc (Diversified Commercial Services) 2,830
831,510 Diageo plc (Distillers & Vintners) 11,608
2,014,230 Kingfisher plc (Home Improvement Retail) 11,064
203,420 Next plc (Apparel Retail) 6,223
709,490 Reckitt Benckiser plc (Household Products) 20,879
249,075 Royal Bank Scotland Group plc (Diversified Banks) 7,639
5,276,850 Vodafone Group plc (Wireless Telecommunication Services) 14,291
902,450 William Hill plc (Casinos & Gaming) 8,950
424,120 Yell Group plc (Publishing) 3,500
--------
109,959
--------
UNITED STATES (1.3%)
390,022 News Corp., Inc. "B" (Movies & Entertainment) 7,000
--------
Total stocks (cost: $424,945) 541,130
--------
PRINCIPAL
AMOUNT
(000)
- ----------
MONEY MARKET INSTRUMENTS (4.2%)
DISCOUNT NOTE
$23,179 Federal Home Loan Bank(d), 1.90%(e), 12/01/2004 (cost: $23,179) 23,179
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (5.2%)
REPURCHASE AGREEMENTS (5.2%)(c)
13,000 CS First Boston LLC, 2.06%, acquired on 11/30/2004 and due
12/01/2004 at $13,000 (collateralized by $13,290 of Freddie Mac
Discount Notes(d), 2.29%(g), due 1/03/2005; market value $13,262) 13,000
9,500 Deutsche Bank Securities, Inc., 2.05%, acquired on 11/30/2004 and
due 12/01/2004 at $9,500 (collateralized by $10,635 of Fannie Mae
Notes(d), 5.47%(f), due 4/25/2017; and $176,891 of Freddie Mac
Notes(d), 5.09%-5.51%(f), due 2/15/2022-11/15/2032; combined
market value $9,690) 9,500
1,000 Lehman Brothers, Inc., 2.05%, acquired on 11/30/2004 and due
12/01/2004 at $1,000 (collateralized by $1,025 of Fannie Mae
Discount Notes(d), 2.24%(g), due 2/09/2005; market value $1,020) 1,000
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
- ---------------------------------------------------------------------------------------------------
$ 3,500 Merrill Lynch Government Securities, Inc., 2.04%, acquired
on 11/30/2004 and due 12/01/2004 at $3,500 (collateralized
by $3,580 of Federal Home Loan Bank Bonds(d), 3.70%, due
7/28/2009; market value $3,575) $ 3,500
1,500 Morgan Stanley & Co., Inc., 2.05%, acquired on 11/30/2004
and due 12/01/2004 at $1,500 (collateralized by $1,535 of
Fannie Mae Discount Notes(d), 2.16%(g), due 1/12/2005;
market value $1,531) 1,500
--------
28,500
--------
NUMBER
OF SHARES
- ----------
MONEY MARKET FUNDS (0.0%)(b,h)
18,894 AIM Short-Term Investment Co. Liquid Assets Portfolio, 1.93% 19
38,859 Merrill Lynch Premier Institutional Fund, 1.90% 39
--------
58
--------
Total short-term investments purchased with cash collateral
from securities loaned (cost: $28,558) 28,558
--------
TOTAL INVESTMENTS (COST: $476,682) $592,867
========
18
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA INTERNATIONAL FUND
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%.
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 November
30, 2004.
(b) Rate represents the money market fund annualized seven-day yield at
November 30, 2004.
(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) 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.
(e) Rate represents the discount rate at the purchase date.
19
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
(f) Variable- or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the current
rate at November 30, 2004.
(g) Zero-coupon security. Rate represents the effective yield at date
of purchase.
(h) Represents less than 0.1% of net assets.
* Non-income-producing security for the 12 months preceding
November 30, 2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
ASSETS
Investments in securities, at market value (including securities on loan
of $27,289) (identified cost of $476,682) $592,867
Cash 1
Cash denominated in foreign currencies (identified cost of $308) 323
Receivables:
Capital shares sold 571
Foreign currency sold 775
Dividends and interest 1,025
Securities sold 3,658
Other 6
Unrealized appreciation on foreign currency contracts held, at value 24
--------
Total assets 599,250
--------
LIABILITIES
Payables:
Upon return of securities loaned 28,558
Securities purchased 16,824
Capital shares redeemed 275
Upon settlement of delayed trades 775
Unrealized depreciation on foreign currency contracts held, at value 17
Accrued management fees 357
Accrued transfer agent's fees 9
Other accrued expenses and payables 43
--------
Total liabilities 46,858
--------
Net assets applicable to capital shares outstanding $552,392
========
NET ASSETS CONSIST OF:
Paid-in capital $393,411
Accumulated undistributed net investment income 3,795
Accumulated net realized gain on investments 38,941
Net unrealized appreciation of investments 116,185
Net unrealized appreciation on foreign currency translations 60
--------
Net assets applicable to capital shares outstanding $552,392
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 24,561
========
Net asset value, redemption price, and offering price per share $ 22.49
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA INTERNATIONAL FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2004 (UNAUDITED)
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $364) $ 3,145
Interest 110
Securities lending 69
-------
Total income 3,324
-------
EXPENSES
Management fees 1,932
Administrative and servicing fees 371
Transfer agent's fees 525
Custody and accounting fees 162
Postage 38
Shareholder reporting fees 14
Trustees' fees 3
Registration fees 22
Professional fees 28
Other 7
-------
Total expenses 3,102
Expenses paid indirectly (27)
-------
Net expenses 3,075
-------
NET INVESTMENT INCOME 249
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 13,269
Foreign currency transactions (9)
Change in net unrealized appreciation/depreciation of:
Investments 35,654
Foreign currency translations 12
-------
Net realized and unrealized gain 48,926
-------
Increase in net assets resulting from operations $49,175
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA INTERNATIONAL FUND
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 $ 249 $ 3,764
Net realized gain on investments 13,269 37,376
Net realized loss on foreign currency transactions (9) (153)
Change in net unrealized appreciation/depreciation of:
Investments 35,654 55,707
Foreign currency translations 12 (33)
-----------------------
Increase in net assets resulting from operations 49,175 96,661
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (2,281)
Net realized gains - (1,058)
-----------------------
Distributions to shareholders - (3,339)
-----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 55,106 167,465
Reinvested dividends - 3,186
Cost of shares redeemed (31,366) (132,039)
-----------------------
Increase in net assets from capital
share transactions 23,740 38,612
-----------------------
Net increase in net assets 72,915 131,934
NET ASSETS
Beginning of period 479,477 347,543
-----------------------
End of period $ 552,392 $ 479,477
=======================
Accumulated undistributed net investment income:
End of period $ 3,795 $ 3,546
=======================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,634 9,100
Shares issued for dividends reinvested - 164
Shares redeemed (1,519) (7,344)
-----------------------
Increase in shares outstanding 1,115 1,920
=======================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA INTERNATIONAL FUND
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 International Fund (the
Fund). The Fund's primary investment objective is capital appreciation
with current income as a secondary objective.
A. SECURITY VALUATION - The value of each security is
determined (as of the close of trading on the New York Stock
Exchange (NYSE) on each business day the exchange is open)
as set forth below:
1. Equity 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. Equity securities
traded primarily on foreign securities exchanges or
markets are valued at the last quoted sales price, or
the most recently determined official closing price
calculated according to local market convention,
available at the time the Fund is valued. If no last
sale or official closing price is reported or available,
the average of the bid and asked prices is generally
used.
2. Securities trading in various foreign markets may take
place on days when the NYSE is closed. Further, when the
NYSE is open, the foreign markets may be closed.
Therefore, the calculation of the Fund's net asset value
(NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are
determined. In most cases, events affecting the values
of foreign securities that occur between the 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
24
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
NAV is calculated will not be reflected in the value of
the Fund's foreign securities. However, USAA Investment
Management Company (the Manager), an affiliate of the
Fund, and the Fund's subadviser, if applicable, will
monitor for events that would materially affect the
value of the Fund's foreign securities and, if
necessary, the Manager will value the foreign securities
in good faith, considering such available information
that the Manager deems relevant, under valuation
procedures approved by the Trust's Board of Trustees. In
addition, the Fund may use information from an external
vendor or other sources to adjust the foreign market
closing prices of foreign equity securities to reflect
what the Fund believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation
of affected foreign equity securities may occur
frequently based on an assessment that events that occur
on a fairly regular basis (such as U.S. market movements)
are significant.
3. Investments in open-end investment companies, other than
exchange-traded funds, are valued at their NAV at the end
of each business day.
4. Debt 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.
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. Valuing securities at fair value is
intended to cause the Fund's NAV to be more reliable
than it otherwise would be.
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
B. FEDERAL TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute
substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
C. INVESTMENTS IN SECURITIES - Security transactions are
accounted for on the date the securities are purchased or
sold (trade date). Gain or loss from sales of investment
securities is computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on
the ex-dividend date. If the ex-dividend date has passed,
certain dividends from foreign securities are recorded upon
notification. Interest income is recorded on the accrual
basis. Discounts and premiums on short-term securities are
amortized on a straight-line basis over the life of the
respective securities.
D. 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.
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
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:
1. Purchases and sales of securities, income, and expenses
at the exchange rate obtained from an independent pricing
service on the respective dates of such transactions.
2. Market value of securities, other assets, and liabilities
at the exchange rate obtained from an independent pricing
service on a daily basis.
The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may
arise from sales of foreign currency, currency gains/losses
realized between the trade and settlement dates on security
transactions, and from the difference between amounts of
dividends, interest, and foreign withholding taxes recorded
on the Fund's books and the U.S. dollar equivalent of the
amounts received. At the Fund's tax year-end of May 31,
2005, net realized foreign currency gains/losses will be
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
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
Fund's expenses. In addition, 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, brokerage commission
reimbursements and custodian and other bank credits reduced
the Fund's expenses by $26,000 and $1,000, respectively,
resulting in a total reduction in Fund expenses of $27,000.
G. INDEMNIFICATIONS - Under the Trust's organizational
documents, its officers and trustees are indemnified
against certain liability arising out of the performance of
their duties to the Trust. In addition, in the normal
course of business the Trust enters into contracts that
contain a variety of representations and warranties that
provide general indemnifications. The Trust's maximum
exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust
that have not yet occurred. However, the Trust expects the
risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements
in conformity with U.S. generally accepted accounting
principles requires management to make estimates and
assumptions that may affect the reported amounts in the
financial statements.
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
The Fund participates with other USAA funds in two joint, short-term,
revolving, committed loan agreements totaling $500 million: $400
million with USAA Capital Corporation (CAPCO), an affiliate of the
Manager, and $100 million with Bank of America and State Street Bank
and Trust Company (State Street), under which Bank of America and
State Street have each committed $50 million. The purpose of the
agreements is to meet temporary or emergency cash needs, including
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
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 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 $2,000. 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.
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
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.
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the six-month period ended November 30,
2004, were $129,391,000 and $99,852,000, respectively.
The cost of securities at November 30, 2004, 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 $122,158,000 and $5,973,000, respectively,
resulting in net unrealized appreciation of $116,185,000.
(5) FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
A forward currency contract (currency contract) is a commitment to
purchase or sell a foreign currency at a specified date, at a
negotiated price. The Fund may enter into currency contracts in
connection with the purchase or sale of a security denominated in a
foreign currency. These contracts allow the Fund to "lock in" the
U.S. dollar price of the security. The Fund may also enter into
currency contracts to hedge against foreign currency exchange risks on
the non-U.S. dollar denominated securities held in the Fund's
portfolio. Currency contracts are valued on a daily basis using
foreign currency exchange rates obtained from an independent pricing
service. Risks of entering into currency contracts include the
potential inability of the counterparty to meet the terms of the
contract and the Fund's giving up the opportunity for potential profit.
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
At November 30, 2004, the terms of open foreign currency contracts
were as follows (in thousands):
FOREIGN CURRENCY CONTRACTS TO BUY
- -----------------------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE RECEIVE 11/30/2004 FOR U.S. DOLLAR (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------
12/03/2004 226 $ 174 $ 174 $ -
Australian Dollar
12/02/2004 385 325 324 (1)
Canadian Dollar
12/02/2004 479 419 419 -
Swiss Franc
12/01/2004 435 578 577 (1)
Euro
12/02/2004 2,553 3,390 3,385 (5)
Euro
12/03/2004 318 423 422 (1)
Euro
12/02/2004 1,580 2,991 3,012 21
Pound Sterling
12/02/2004 2,698 347 347 -
Hong Kong Dollar
12/01/2004 11,898 116 115 (1)
Japanese Yen
12/03/2004 325,894 3,166 3,162 (4)
Japanese Yen
12/01/2004 2,553 775 775 -
Polish Zloty
12/03/2004 1,103 350 349 (1)
Polish Zloty
12/02/2004 589 187 187 -
Polish Zloty
12/02/2004 5,687 847 844 (3)
Swedish Krona
12/03/2004 579 354 354 -
Singapore Dollar
- -----------------------------------------------------------------------------------------------------------
$14,442 $14,446 $ 4
- -----------------------------------------------------------------------------------------------------------
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
FOREIGN CURRENCY CONTRACTS TO SELL
- -----------------------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE DELIVER 11/30/2004 FOR U.S. DOLLAR (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------
12/03/2004 1,322 $1,160 $1,158 $2
Swiss Franc
12/02/2004 49,776 484 483 1
Japanese Yen
- -----------------------------------------------------------------------------------------------------------
$1,644 $1,641 $3
- -----------------------------------------------------------------------------------------------------------
(6) 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. For the six-month period ended
November 30, 2004, the Fund received securities-lending income of
$69,000, which is net of the 20% income retained by MetWest. As of
November 30, 2004, the Fund loaned securities having a fair market
value of approximately $27,289,000 and received cash collateral of
$28,558,000 for the loans. The cash collateral was invested in
short-term investments, as noted in the Fund's portfolio of
investments.
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
(7) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager provides investment
management services to the Fund pursuant to an Investment
Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the
Fund, subject to the authority of and supervision by the
Trust's Board of Trustees. The Fund is authorized to select
(with approval of the Trust's Board of Trustees) one or
more subadvisers to manage the actual day-to-day investment
of the Fund's assets. The Manager monitors each
subadviser's performance through quantitative and
qualitative analysis, and periodically reports to the
Trust's Board of Trustees as to whether each subadviser's
agreement should be renewed, terminated, or modified. The
Manager also is responsible for allocating assets to the
subadvisers. The allocation for each subadviser can range
from 0% to 100% of the Fund's assets, and the Manager can
change the allocations without shareholder approval.
The investment management fee for the Fund is composed of a
base fee and a performance adjustment that increases or
decreases the base fee depending upon the performance of
the Fund relative to the performance of the Lipper
International Funds Index, which tracks the total return
performance of the 30 largest funds in the Lipper
International Funds category. The Fund's base fee is
accrued daily and paid monthly at an annualized rate of
0.75% of the Fund's average net assets.
The performance adjustment is calculated monthly by
comparing the Fund's performance to that of the Lipper
index over the performance period. 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
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
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%.
Under the performance fee arrangement, the Fund will pay a
positive performance fee adjustment for a performance
period whenever the Fund outperforms the Lipper
International 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 $1,932,000, which included a performance
adjustment of $76,000 that increased the base management
fee of 0.75% by 0.03%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with MFS Investment
Management (MFSIM), under which MFSIM 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 MFSIM a subadvisory fee in the annual amount of 0.335%
of the first $350 million of the aggregate average net
assets of the USAA International Fund, the USAA World Growth
Fund, the USAA Life Investment Trust World Growth Fund, and
the portion of the
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
USAA Cornerstone Strategy Fund that MFSIM manages (MFSIM
Funds), plus 0.225% of the aggregate average net assets of
the MFSIM Funds over $350 million but not over $1 billion,
and 0.220% of the aggregate average net assets of the MFSIM
Funds over $1 billion. Prior to August 1, 2004, the Manager
(not the Fund) paid MFSIM a subadvisory fee in the annual
amount of 0.335% of the first $350 million of the aggregate
average net assets of the MFSIM Funds, plus 0.225% of the
aggregate average net assets of the MFSIM Funds over $350
million. For the six-month period ended November 30, 2004,
the Manager paid MFSIM subadvisory fees of $1,542,000 for
the MFSIM Funds in total, of which $629,000 was based on
the average net assets of the USAA International Fund.
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 six-month
period ended November 30, 2004, the Fund incurred
administrative and servicing fees, paid or payable to the
Manager, of $371,000.
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 six-month period ended
November 30, 2004, the Fund incurred transfer agent's fees,
paid or payable to USAA Transfer Agency Company, of
$525,000.
E. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
(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.
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
(9) 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 $ 20.45 $ 16.15 $ 17.63 $ 18.23 $ 22.28 $ 19.79
------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .00(c) .15 .11 .14 .16 .11
Net realized and unrealized
gain (loss) 2.04 4.30 (1.46) (.56) (3.01) 3.70
------------------------------------------------------------------------------------------
Total from investment operations 2.04 4.45 (1.35) (.42) (2.85) 3.81
------------------------------------------------------------------------------------------
Less distributions:
From net investment income - (.10) (.13) (.18) (.11) (.18)
From realized capital gains - (.05) - - (1.09) (1.14)
------------------------------------------------------------------------------------------
Total distributions - (.15) (.13) (.18) (1.20) (1.32)
------------------------------------------------------------------------------------------
Net asset value at end of period $ 22.49 $ 20.45 $ 16.15 $ 17.63 $ 18.23 $ 22.28
==========================================================================================
Total return (%)* 9.98 27.63 (7.63) (2.22) (13.84) 19.26
Net assets at end of period (000) $552,392 $479,477 $347,543 $382,459 $419,236 $533,305
Ratio of expenses to
average net assets (%)** 1.25(a,b) 1.31(b) 1.42(b) 1.32(b) 1.14(b) 1.11(b)
Ratio of net investment
income to average
net assets (%)** .10(a) .91 .79 .78 .84 .73
Portfolio turnover (%) 20.63 58.70 148.14 35.63 32.75 39.75
* Assumes reinvestment of all net investment income and realized capital gain distributions during the period. Calculated
using net assets adjusted for last day trades and could differ from the Lipper reported return.
** For the six-month period ended November 30, 2004, average net assets were $494,472,000.
(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 decreased the expense ratios as follows:
(.01%) (.01%) (.01%) - - -
(c) Represents less than $0.01 per share.
37
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
USAA INTERNATIONAL FUND
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
use this information to compare the ongoing costs of investing in the
38
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(continued)
USAA INTERNATIONAL FUND
NOVEMBER 30, 2004 (UNAUDITED)
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 $1,099.80 $6.53
Hypothetical
(5% return before expenses) 1,000.00 1,018.85 6.28
*Expenses are equal to the Fund's annualized expense ratio of 1.24%,
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 9.98% for the six-month period of June 1, 2004, through
November 30, 2004.
39
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
40
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
41
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
42
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
43
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
44
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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.
COPIES OF THE MANAGER'S PROXY VOTING POLICIES AND PROCEDURES, APPROVED BY THE
TRUST'S BOARD OF TRUSTEES FOR USE IN VOTING PROXIES ON BEHALF OF THE FUND, ARE
AVAILABLE WITHOUT CHARGE (I) BY CALLING (800) 531-8448; (II) AT USAA.COM; AND
(III) ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. INFORMATION REGARDING HOW
THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT
12-MONTH PERIOD ENDED JUNE 30, IS AVAILABLE (I) AT USAA.COM; AND (II) ON THE
SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.
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
USAA
-------------
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
23410-0105 (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.