UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4019
Exact name of registrant as specified in charter: USAA INVESTMENT TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: EILEEN M. SMILEY
USAA INVESTMENT TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-4103
Date of fiscal year end: MAY 31
Date of reporting period: MAY 31, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
USAA WORLD GROWTH FUND - ANNUAL REPORT FOR PERIOD ENDING MAY 31, 2005
[LOGO OF USAA]
USAA(R)
USAA WORLD GROWTH Fund
[GRAPHIC OF USAA WORLD GROWTH FUND]
A n n u a l R e p o r t
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MAY 31, 2005
Table of CONTENTS
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MESSAGE FROM THE PRESIDENT 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Distributions to Shareholders 11
Report of Independent Registered Public Accounting Firm 12
Portfolio of Investments 13
Notes to Portfolio of Investments 20
Financial Statements 22
Notes to Financial Statements 25
EXPENSE EXAMPLE 40
ADVISORY AGREEMENTS 42
DIRECTORS' AND OFFICERS' INFORMATION 50
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
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from the PRESIDENT
"
IN THE CURRENT INVESTMENT
ENVIRONMENT . . . INVESTORS MAY
[PHOTO OF CHRISTOPHER W. CLAUS] FIND THAT QUALITY, DIVERSIFICATION,
SAFETY, LIQUIDITY, AND PATIENCE
ARE THE SMARTEST STRATEGIES.
"
June 2005
- --------------------------------------------------------------------------------
As I write to you, inflation - a key driver of both the stock
and bond markets - appears to be under control. The U.S.
economy is in good health, and I expect the gross domestic
product (GDP) to grow between 3% and 3.5% in 2005. Meanwhile,
the Federal Reserve Board (the Fed) shows signs of nearing the
end of its interest-rate tightening schedule; it is likely to
leave the federal funds rate near 3.5% or 3.75%. Oil prices
have moved higher, rising above $50 a barrel and continuing to
constrain economic growth.
Although U.S. equity valuations are trading at historically
high levels for a rising interest-rate environment,
international valuations appear a little more reasonable.
Remarkably, long-term interest rates have remained low, which
has helped to support the stock market. Why? The bond market
seems to believe that the economy will slow. Absent inflation
and a rising dollar, longer-term interest rates actually
declined in 2005, increasing the value of longer-term bonds.
In my opinion, longer-term rates will continue to have a
significant impact on the direction of the stock and bond
markets over the next few quarters.
The growth in the U.S. budget deficit is of some concern.
Sooner or later, the government must cut spending and/or raise
taxes to pay its bills - both would be challenging for the
U.S. economy over the long term.
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. . . C O N T I N U E D
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Consumers have their own budget deficits. Some pundits scoff
at the significance; others predict a day of reckoning. I
believe Americans have to curb their spending and start saving
more to support their eventual retirements. And while greater
savings may be a plus, a slowdown in consumer spending would
hurt economic growth.
Against this backdrop, investors may find that quality,
diversification, safety, liquidity, and patience are the
smartest strategies. For short-term investors, money markets
provide yields near 3%, with relative safety and liquidity.
Investors with longer-term horizons could see annual returns
of 4% to 5% a year in bonds, particularly if they reinvest the
interest. Stocks are likely to generate only modest gains
going forward; we see the equity markets providing
mid-single-digit returns over the next several years.
In the current investment environment, it would be prudent to
take what the market offers us and resist the urge to reach
for higher returns at dramatically greater risk. Sometimes
risk is simply risk and is not always rewarded with higher
returns. We will continue to look for value in our
investments, examine the risks, and not stray from our
investment discipline.
From everyone at USAA, thank you for your business and the
opportunity to serve your investment needs.
Sincerely,
/S/ CHRISTOPHER W. CLAUS
Christopher W. Claus
President and Vice Chairman of the Board
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
Past performance is no guarantee of future results. o As
interest rates rise, existing bond prices fall.
4
M A N A G E R S '
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COMMENTARY on the Fund
[PHOTO OF DAVID R. MANNHEIM] [PHOTO OF SIMON TODD]
David R. Mannheim Simon Todd
MFS Investment Management MFS Investment Management
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HOW DID THE FUND PERFORM?
The USAA World Growth Fund had a total return of 11.54% for
the year ended May 31, 2005. This compares to an 11.14% return
for the Lipper Global Funds Average, 11.06% for the Lipper
Global Funds Index, and 11.43% for the Morgan Stanley Capital
International (MSCI) World Index.
CAN YOU DESCRIBE THE MARKET ENVIRONMENT?
From June 2004 through December 2004, global stock markets
were fairly volatile, but generally benefited from strong
earnings growth. So far in 2005, markets have struggled while
adjusting to the fact that earnings growth is decelerating
after reaching a cyclical peak in 2004. While earnings are
still increasing, we believe the rates will be more along the
long-term trend rate of 8% to 10%.
HOW WERE THE FUND'S ASSETS ALLOCATED BETWEEN U.S. AND OVERSEAS MARKETS?
We were heavily underweight in the United States, ending the
period with 34% of net assets there, as compared to 53% for
the MSCI World Index. We were neutral in Japan and were
overweight in Europe and Asia ex-Japan.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 9 FOR BENCHMARK DEFINITIONS.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-19.
5
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WHAT SPECIFIC HOLDINGS OR SECTORS CONTRIBUTED POSITIVELY TO PERFORMANCE?
Even though the technology sector overall struggled, our stock
selection there was the most significant positive contributor
to the Fund's performance. Our holding in Samsung Electronics
Co. Ltd. (Korea) did very well given the company's world
leadership in semiconductors, LCD TV components, and flash
memory. Canon, Inc. (Japan) also performed well on a relative
basis. We were helped by the fact that we did not own IBM.
Basic materials were positive, particularly in the second half
of the reporting year, led by longtime holdings Air Liquide
S.A. (France) and BOC Group plc (U.K.), both large industrial
gas companies.
In health care, stock selection was good among the large
pharmaceuticals, because we owned some of the better
performers -- Roche Holdings AG (Switzerland) and
Sanofi-Aventis S.A. (France) -- and didn't own Pfizer (U.S.)
and Merck (U.S.), two of the poorest performers. Owning
Medtronic, Inc. (U.S.) in the medical device area and Fisher
Scientific International, Inc. (U.S.), a company that provides
supplies to laboratories and universities, also helped
performance.
We overcame an underweight position in the top-performing
energy sector through excellent stock selection. EnCana Corp.
(Canada), Noble Corp. (U.S.), and Total S.A. (France) were
among our best-performing holdings in the sector.
WHAT SECTORS OR HOLDINGS DETRACTED MOST FROM PERFORMANCE?
Within financial services, American Express Co. (U.S.)
struggled in the face of heavy competition in the credit card
business, although the company is benefiting from higher
corporate travel spending.
The Fund struggled in the leisure sector. In the first half of
the reporting year, our holdings in British Sky Broadcasting
6
. . . C O N T I N U E D
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COMMENTARY on the Fund
Group plc (U.K.) and News Corp. Ltd. (Australia) were large
detractors. The lack of robust growth in advertising spending
hurt Viacom, Inc. "B" (U.S.) and Time Warner, Inc. (U.S.).
The stock of Nintendo Co. Ltd. (Japan), the world's largest
manufacturer of handheld game machines, traded lower after
management reported that software providers had delayed the
release of games to be used in its DS system, a small,
handheld device that was introduced last fall. Our original
thesis, that Nintendo is well-positioned to build earnings
through a new game cycle, remained intact.
Among special products and services, Accenture Ltd. "A"
(U.S.), an information technology consulting firm, suffered
along with the technology sector, but we remain positive on
the stock long term. NOK Corp. (Japan), which among other
things suffered from a lagging auto seals business, was sold.
WHAT'S YOUR OUTLOOK?
We anticipate a deceleration of global earnings growth to
normalized levels, that is, 8% to 9% earnings growth over the
next three to five years. With cash balances still at high
levels, corporate activity including capital spending and
share buybacks should continue to support opportunities for
well-positioned companies. We will continue to invest on a
security-specific basis in order to capitalize on our core
competency of bottom up, fundamental research.
On behalf of everyone at USAA, we thank you for your continued
support.
BRITISH SKY BROADCASTING GROUP PLC AND NEWS CORP. LTD. WERE
SOLD OUT OF THE FUND PRIOR TO MAY 31, 2005.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
7
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
USAA WORLD GROWTH FUND
OBJECTIVE
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Capital appreciation.
TYPES OF INVESTMENTS
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Invests principally in a mix of foreign (including emerging
market) and domestic equity securities.
- -------------------------------------------------------------------------
5/31/05 5/31/04
- -------------------------------------------------------------------------
Net Assets $330.8 Million $288.6 Million
Net Asset Value Per Share $17.55 $16.09
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AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/05
- -------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
11.54% -1.49% 6.77%
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.
8
. . . C O N T I N U E D
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OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER GLOBAL LIPPER GLOBAL MSCI WORLD USAA WORLD
FUNDS AVERAGE FUNDS INDEX INDEX GROWTH FUND
------------- ------------- ---------- -----------
5/31/1995 $10,000.00 $10,000.00 $10,000.00 $10,000.00
6/30/1995 10,176.28 10,189.73 9,994.68 10,192.90
7/31/1995 10,680.66 10,689.32 10,492.50 10,702.19
8/31/1995 10,564.23 10,559.53 10,256.49 10,555.05
9/30/1995 10,765.17 10,755.61 10,553.00 10,671.21
10/31/1995 10,545.72 10,497.56 10,384.58 10,423.40
11/30/1995 10,738.99 10,673.07 10,742.88 10,598.66
12/31/1995 10,969.45 10,880.83 11,054.71 10,884.07
1/31/1996 11,305.07 11,201.87 11,252.40 11,192.11
2/29/1996 11,436.94 11,319.72 11,318.62 11,389.57
3/31/1996 11,628.66 11,493.35 11,504.62 11,642.32
4/30/1996 12,042.67 11,874.38 11,772.78 12,132.02
5/31/1996 12,181.49 11,980.63 11,780.60 12,242.60
6/30/1996 12,181.60 11,948.88 11,837.81 12,242.60
7/31/1996 11,636.69 11,429.77 11,417.08 11,593.30
8/31/1996 11,937.60 11,722.79 11,545.93 11,945.86
9/30/1996 12,316.53 12,053.05 11,995.60 12,249.22
10/31/1996 12,361.87 12,056.04 12,076.97 12,208.22
11/30/1996 12,989.07 12,626.16 12,751.36 12,894.83
12/31/1996 13,015.48 12,646.26 12,544.75 12,961.10
1/31/1997 13,375.79 12,929.33 12,693.59 13,452.44
2/28/1997 13,436.98 13,008.25 12,837.21 13,452.44
3/31/1997 13,244.93 12,852.63 12,580.88 13,316.90
4/30/1997 13,446.14 13,015.73 12,989.72 13,486.32
5/31/1997 14,276.50 13,811.22 13,789.12 14,265.68
6/30/1997 14,882.78 14,404.09 14,474.49 14,917.97
7/31/1997 15,659.30 15,123.69 15,138.78 15,597.65
8/31/1997 14,829.58 14,286.20 14,123.68 14,837.43
9/30/1997 15,807.54 15,172.94 14,888.60 15,728.72
10/31/1997 14,799.96 14,218.23 14,102.59 14,785.00
11/30/1997 14,873.86 14,247.94 14,349.75 14,479.16
12/31/1997 15,111.89 14,414.95 14,522.23 14,628.67
1/31/1998 15,262.12 14,576.72 14,924.53 14,646.74
2/28/1998 16,310.71 15,560.69 15,931.67 15,749.08
3/31/1998 17,199.24 16,343.78 16,601.96 16,634.58
4/30/1998 17,430.98 16,581.91 16,761.71 16,914.68
5/31/1998 17,246.18 16,439.80 16,549.14 16,589.40
6/30/1998 17,373.85 16,490.95 16,939.38 16,517.11
7/31/1998 17,391.40 16,497.95 16,909.69 16,257.66
8/31/1998 14,726.80 14,095.04 14,652.20 13,490.40
9/30/1998 14,787.03 14,103.20 14,908.82 13,387.56
10/31/1998 15,762.85 15,036.81 16,254.02 14,500.08
11/30/1998 16,662.36 15,865.16 17,218.08 15,154.50
12/31/1998 17,505.26 16,524.27 18,056.66 16,145.48
1/31/1999 18,042.40 16,869.49 18,449.42 16,659.66
2/28/1999 17,461.42 16,382.90 17,956.02 16,108.08
3/31/1999 18,075.11 16,945.28 18,701.01 16,790.55
4/30/1999 18,930.33 17,714.04 19,435.61 17,379.53
5/31/1999 18,415.39 17,193.22 18,722.79 16,930.78
6/30/1999 19,409.21 18,059.51 19,593.43 17,884.36
7/31/1999 19,417.30 18,108.05 19,532.00 18,063.15
8/31/1999 19,422.44 18,089.13 19,494.63 18,170.26
9/30/1999 19,302.56 17,932.11 19,302.95 17,897.61
10/31/1999 20,101.21 18,629.92 20,303.67 18,442.91
11/30/1999 21,746.45 19,881.11 20,872.23 19,406.93
12/31/1999 24,539.00 22,090.28 22,559.06 21,107.52
1/31/2000 23,486.65 21,227.38 21,264.59 20,221.33
2/29/2000 25,302.89 22,540.16 21,319.39 21,107.52
3/31/2000 25,735.53 23,101.48 22,790.31 21,973.57
4/30/2000 24,232.17 21,948.79 21,824.07 21,248.51
5/31/2000 23,407.67 21,296.34 21,268.96 20,755.06
6/30/2000 24,426.53 22,139.57 21,982.49 21,641.25
7/31/2000 23,810.04 21,690.93 21,361.03 20,914.94
8/31/2000 24,856.49 22,571.64 22,053.22 21,698.98
9/30/2000 23,391.32 21,371.81 20,878.00 20,258.03
10/31/2000 22,653.42 20,851.24 20,525.63 19,473.99
11/30/2000 21,100.76 19,635.99 19,276.86 18,075.42
12/31/2000 21,739.18 20,211.99 19,586.15 18,742.92
1/31/2001 22,076.42 20,546.70 19,963.31 19,262.09
2/28/2001 20,198.94 19,041.08 18,273.96 17,301.97
3/31/2001 18,724.05 17,718.46 17,070.61 15,871.62
4/30/2001 20,091.24 18,932.82 18,328.95 17,270.19
5/31/2001 19,878.52 18,817.47 18,090.11 16,846.38
6/30/2001 19,279.09 18,288.54 17,520.78 16,327.21
7/31/2001 18,799.10 17,835.12 17,286.59 16,062.33
8/31/2001 17,999.50 17,126.78 16,454.30 15,469.00
9/30/2001 16,234.06 15,526.84 15,002.22 13,932.70
10/31/2001 16,640.94 15,913.52 15,288.69 14,409.48
11/30/2001 17,601.78 16,781.43 16,190.85 15,267.69
12/31/2001 17,869.13 17,025.59 16,290.99 15,462.08
1/31/2002 17,331.81 16,509.67 15,795.79 15,003.86
2/28/2002 17,207.33 16,412.18 15,656.86 14,982.55
3/31/2002 18,023.69 17,189.69 16,377.91 15,739.14
4/30/2002 17,586.66 16,772.75 15,790.93 15,323.55
5/31/2002 17,577.36 16,810.75 15,817.26 15,366.17
6/30/2002 16,531.50 15,834.48 14,854.83 14,460.40
7/31/2002 15,044.91 14,434.16 13,601.41 13,117.72
8/31/2002 15,113.35 14,500.58 13,624.64 13,245.60
9/30/2002 13,630.35 13,059.22 12,124.56 12,201.30
10/31/2002 14,391.96 13,805.28 13,017.95 12,893.95
11/30/2002 15,102.17 14,481.01 13,717.85 13,330.85
12/31/2002 14,466.16 13,849.86 13,051.35 12,992.60
1/31/2003 14,018.15 13,405.84 12,653.62 12,489.60
2/28/2003 13,695.30 13,075.96 12,432.16 12,125.72
3/31/2003 13,549.87 12,931.45 12,391.13 12,168.53
4/30/2003 14,634.31 14,041.60 13,489.21 13,228.05
5/31/2003 15,550.89 14,906.38 14,257.20 13,934.41
6/30/2003 15,815.10 15,192.60 14,502.15 14,094.94
7/31/2003 16,171.06 15,513.74 14,794.95 14,244.77
8/31/2003 16,597.84 15,924.43 15,112.78 14,394.61
9/30/2003 16,664.52 16,011.47 15,203.73 14,555.14
10/31/2003 17,588.25 16,922.13 16,104.44 15,282.90
11/30/2003 17,892.84 17,236.24 16,347.84 15,657.48
12/31/2003 18,929.95 18,276.02 17,372.21 16,595.79
1/31/2004 19,264.90 18,659.49 17,650.96 16,896.17
2/29/2004 19,621.00 19,057.94 17,946.53 17,303.82
3/31/2004 19,523.06 18,976.50 17,827.44 17,239.45
4/30/2004 19,025.51 18,485.94 17,462.31 17,121.45
5/31/2004 19,102.75 18,548.52 17,608.02 17,260.91
6/30/2004 19,429.76 18,860.67 17,983.15 17,625.65
7/31/2004 18,745.91 18,155.87 17,396.01 17,067.81
8/31/2004 18,762.64 18,166.32 17,472.46 17,046.35
9/30/2004 19,239.99 18,651.90 17,803.00 17,432.55
10/31/2004 19,678.30 19,097.64 18,238.65 17,904.57
11/30/2004 20,769.77 20,162.66 19,196.75 18,837.88
12/31/2004 21,505.35 20,903.21 19,929.54 19,636.00
1/31/2005 21,059.54 20,505.82 19,480.84 19,339.81
2/28/2005 21,795.62 21,160.10 20,097.96 19,822.48
3/31/2005 21,336.69 20,719.63 19,709.52 19,449.51
4/30/2005 20,821.14 20,255.53 19,278.41 19,010.72
5/31/2005 21,234.96 20,599.57 19,620.94 19,252.05
[END CHART]
DATA FROM 5/31/95 THROUGH 5/31/05.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, 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.
9
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The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA World Growth Fund to the following
benchmarks:
o The Lipper Global Funds Average is an average performance
level of all global funds, reported by Lipper Inc., an
independent organization that monitors the performance of
mutual funds.
o The Lipper Global Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Global
Funds category.
o The Morgan Stanley Capital International (MSCI) World Index
is an unmanaged index that reflects the movements of world
stock markets by representing a broad selection of
domestically listed companies within each market.
10
. . . C O N T I N U E D
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OVERVIEW
- -------------------------------------------
TOP 10 EQUITY HOLDINGS
(% of Net Assets)
- -------------------------------------------
Reckitt Benckiser plc 3.5%
Roche Holdings AG 2.6%
Air Liquide S.A. 2.4%
American Express Co. 2.0%
Sanofi-Aventis S.A. 2.0%
Oracle Corp. 1.9%
Johnson & Johnson, Inc. 1.8%
Sandvik AB 1.8%
Dell, Inc. 1.7%
Samsung Electronics Co. Ltd. 1.7%
- -------------------------------------------
TOP 10 INDUSTRIES
(% of Net Assets)
- -------------------------------------------
Pharmaceuticals 10.0%
Investment Banking & Brokerage 5.0%
Health Care Equipment 4.9%
Movies & Entertainment 4.3%
Apparel Retail 3.7%
Industrial Gases 3.7%
Household Products 3.5%
Systems Software 3.1%
Diversified Banks 3.0%
Consumer Finance 2.8%
ASSET ALLOCATION
5/31/05
[PIE CHART OF ASSET ALLOCATION]
United States 33.7%
United Kingdom 15.4%
France 12.4%
Japan 9.3%
Switzerland 5.8%
Sweden 4.1%
Spain 3.4%
Other* 23.9%
[END CHART]
*INCLUDES COUNTRIES WITH LESS THAN 3% OF THE PORTFOLIO, MONEY
MARKET INSTRUMENTS (2.7%), AND SHORT-TERM INVESTMENTS
PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED (8.2%).
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT
EQUAL 100%.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-19.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS
CURRENCY FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL
INSTABILITY.
11
D I S T R I B U T I O N S
==========================------------------------------------------------------
to SHAREHOLDERS
USAA WORLD GROWTH FUND
The following federal tax information related to the Fund's
fiscal year ended May 31, 2005, is provided for information
purposes only and should not be used for reporting to federal
or state revenue agencies. Federal tax information for the
calendar year will be reported to you on Form 1099-DIV in
January 2006.
Certain dividends paid by the Fund may be subject to a maximum
tax rate of 15%, as provided for by the Jobs and Growth Tax
Relief Reconciliation Act of 2003. Of the distributions paid
during the fiscal year, the maximum amount that may be
considered qualified dividend income is $1,517,000.
The Fund has elected under Section 853 of the Internal Revenue
Code to pass through the credit for taxes paid in foreign
countries. The gross income derived from foreign sources and
foreign taxes paid during the fiscal year by the Fund are
$4,603,000 and $455,000, respectively.
0.49% of ordinary income distributions qualifies for
dividends-received deductions eligible to corporations.
The Fund has designated a portion of the amount paid to
redeeming shareholders, in the amount of $469,000, as a long-
term capital gain distribution for tax purposes.
12
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D
========================--------------------------------------------------------
Public ACCOUNTING Firm
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
USAA WORLD GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of the USAA
World Growth Fund (a portfolio of USAA Investment Trust) (the "Fund"), including
the portfolio of investments, as of May 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The financial highlights for each of
the periods presented through May 31, 2002, were audited by other auditors whose
report dated July 5, 2002, expressed an unqualified opinion on those statements
and financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2005, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA World Growth Fund at May 31, 2005, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
July 13, 2005
13
P O R T F O L I O
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of INVESTMENTS
USAA WORLD GROWTH FUND
May 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
INTERNATIONAL EQUITIES (63.4%)
INTERNATIONAL STOCKS (63.4%)
AUSTRALIA (0.7%)
210,257 QBE Insurance Group Ltd. (Property & Casualty
Insurance) $ 2,330
--------
AUSTRIA (1.0%)
64,300 Erste Bank der oesterreichischen Sparkassen
AG (Regional Banks) 3,163
--------
CANADA (2.2%)
58,688 Canadian National Railway Co. (Railroads) 3,596
111,000 EnCana Corp. (Oil & Gas Exploration & Production) 3,847
--------
7,443
--------
FRANCE (12.4%)
186,000 AXA S.A. (Multi-Line Insurance) 4,534
45,270 Air Liquide S.A. (Industrial Gases) 7,872
57,500 Business Objects S.A. (Application Software)*(a) 1,648
43,000 Groupe DANONE (Packaged Foods & Meat)(a) 3,955
22,400 L'Oreal S.A. (Personal Products) 1,625
56,800 LVMH Moet Hennessy Louis Vuitton S.A.
(Apparel & Accessories & Luxury Goods) 4,054
73,700 Sanofi-Aventis S.A. (Pharmaceuticals)(a) 6,648
63,582 Schneider Electric S.A. (Electrical
Components & Equipment)(a) 4,679
10,400 Total S.A. (Integrated Oil & Gas)(a) 2,297
25,174 Total S.A. ADR (Integrated Oil & Gas)(a) 2,799
25,300 Veolia Environnement S.A. (Multi-Utilities)(a) 954
--------
41,065
--------
GERMANY (0.9%)
45,400 Schering AG (Pharmaceuticals) 2,853
--------
HONG KONG (1.4%)
315,500 Esprit Holdings Ltd. (Apparel Retail) 2,261
2,492,000 Hutchison Telecommunications International Ltd.
(Wireless Telecommunication Services)* 2,354
--------
4,615
--------
HUNGARY (0.6%)
32,100 OTP Bank Ltd. GDR (Regional Banks) 1,974
--------
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
INDONESIA (0.4%)
3,179,500 PT Bank Central Asia Tbk (Diversified Banks) $ 1,161
--------
ITALY (0.7%)
113,400 RAS S.p.A. (Multi-Line Insurance)(a) 2,187
--------
JAPAN (9.3%)
323,000 Asahi Glass Co. (Building Products) 3,500
154,000 Bridgestone Corp. (Tires & Rubber) 3,044
95,000 Canon, Inc. (Electronic Equipment Manufacturers) 5,164
104,100 Chugai Pharmaceutical Co. Ltd. (Pharmaceuticals) 1,541
25,300 Nintendo Co. Ltd. (Leisure Products) 2,690
68,800 Nitto Denko Corp. (Specialty Chemicals) 3,873
237,000 Sekisui Chemical Co. Ltd. (Homebuilding) 1,649
435,000 Shinsei Bank Ltd. (Diversified Banks) 2,208
52,400 Tokyo Broadcasting System, Inc. (Broadcasting & Cable TV) 884
416,000 Tokyo Gas Co. Ltd. (Gas Utilities) 1,633
314,000 Toray Industries, Inc. (Textiles) 1,397
91,300 Toyota Motor Corp. (Automobile Manufacturers) 3,247
--------
30,830
--------
KOREA (1.7%)
11,480 Samsung Electronics Co. Ltd. (Semiconductors) 5,572
--------
MEXICO (0.4%)
321,500 Wal-Mart de Mexico S.A. (General Merchandise Stores) 1,218
--------
NETHERLANDS (0.9%)
214,900 Reed Elsevier N.V. (Publishing) 2,970
--------
POLAND (0.2%)
85,200 Powszechna Kasa Oszczednosci Bank Polski S.A. (Regional Banks)* 666
--------
SINGAPORE (1.4%)
194,000 DBS Group Holdings Ltd. (Diversified Banks) 1,618
2,020,150 Singapore Telecommunications Ltd.
(Integrated Telecommunication Services) 3,151
--------
4,769
--------
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
SPAIN (3.4%)
204,800 Banco Bilbao Vizcaya Argentaria S.A. (Diversified Banks) $ 3,211
125,100 Iberdrola S.A. (Electric Utilities) 3,194
295,612 Telefonica S.A. (Integrated Telecommunication Services) 4,951
--------
11,356
--------
SWEDEN (4.1%)
165,800 Atlas Copco AB "A" (Industrial Machinery) 2,529
65,800 Atlas Copco AB "A" Redemption Shares (Industrial Machinery)* 177
70,100 Hennes & Mauritz AB "B" (Apparel Retail) 2,478
832,600 LM Ericsson Telephone Co. "B" ADR (Communications Equipment) 2,618
150,000 Sandvik AB (Industrial Machinery) 5,916
--------
13,718
--------
SWITZERLAND (5.8%)
18,786 Nestle S.A. (Packaged Foods & Meat) 4,943
68,000 Roche Holdings AG (Pharmaceuticals) 8,573
7,000 Synthes, Inc. (Health Care Equipment) 769
64,166 UBS AG (Diversified Capital Markets) 4,947
--------
19,232
--------
THAILAND (0.5%)
618,400 Bangkok Bank Public Co. Ltd. (Diversified Banks) 1,765
--------
UNITED KINGDOM (15.4%)
480,600 Amvescap plc (Investment Banking & Brokerage) 2,816
75,300 AstraZeneca plc (Pharmaceuticals) 3,195
195,100 BOC Group plc (Diversified Chemicals) 3,566
302,551 BP plc (Oil & Gas Exploration & Production) 3,029
363,495 Diageo plc (Distillers & Vintners) 5,221
936,000 Hilton Group plc (Casinos & Gaming) 4,835
889,119 Kingfisher plc (Home Improvement Retail) 4,152
98,700 Next plc (Apparel Retail) 2,583
374,700 Reckitt Benckiser plc (Household Products) 11,439
251,100 Smith & Nephew plc (Health Care Equipment) 2,480
1,572,700 Vodafone Group plc (Wireless Telecommunication Services) 3,965
397,200 William Hill plc (Casinos & Gaming) 3,569
--------
50,850
--------
Total international stocks (cost: $162,426) 209,737
--------
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
INTERNATIONAL RIGHTS (0.0%)(f)
SWEDEN
150,000 Sandvik AB Rights (Industrial Machinery)* (cost: $0) $ 88
--------
Total international equities (cost: $162,426) 209,825
--------
U.S. STOCKS (33.7%)
APPAREL RETAIL (1.5%)
214,700 TJX Companies, Inc. 4,923
--------
BIOTECHNOLOGY (0.5%)
41,200 Gilead Sciences, Inc.* 1,681
--------
COMMUNICATIONS EQUIPMENT (0.5%)
92,100 Cisco Systems, Inc.* 1,785
--------
COMPUTER HARDWARE (1.7%)
137,400 Dell, Inc.* 5,481
--------
CONSUMER FINANCE (2.8%)
122,800 American Express Co. 6,613
119,700 MBNA Corp. 2,524
--------
9,137
--------
DATA PROCESSING & OUTSOURCED SERVICES (1.4%)
93,500 DST Systems, Inc.* 4,522
--------
HEALTH CARE EQUIPMENT (3.9%)
78,300 Fisher Scientific International, Inc.* 4,891
62,500 Medtronic, Inc. 3,359
32,200 Thermo Electron Corp.* 848
98,100 Waters Corp.* 3,811
--------
12,909
--------
HEALTH CARE SUPPLIES (0.8%)
44,400 DENTSPLY International, Inc. 2,533
--------
HOME IMPROVEMENT RETAIL (0.7%)
60,500 Home Depot, Inc. 2,381
--------
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS (0.6%)
43,900 Wal-Mart Stores, Inc. $ 2,073
--------
INDUSTRIAL GASES (1.3%)
42,500 Air Products & Chemicals, Inc. 2,560
35,900 Praxair, Inc. 1,682
--------
4,242
--------
INVESTMENT BANKING & BROKERAGE (1.4%)
48,900 Goldman Sachs Group, Inc. 4,768
--------
IT CONSULTING & OTHER SERVICES (1.5%)
220,000 Accenture Ltd. "A"* 5,122
--------
MOTORCYCLE MANUFACTURERS (0.8%)
51,100 Harley-Davidson, Inc. 2,505
--------
MOVIES & ENTERTAINMENT (4.3%)
198,712 News Corp., Inc. "B" 3,350
94,000 Time Warner, Inc.* 1,636
124,100 Viacom, Inc. "B" 4,255
180,700 Walt Disney Co. 4,958
--------
14,199
--------
OIL & GAS DRILLING (0.8%)
47,400 Noble Corp. 2,684
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.0%)
70,500 Citigroup, Inc. 3,321
--------
PERSONAL PRODUCTS (1.2%)
73,100 Gillette Co. 3,855
--------
PHARMACEUTICALS (3.1%)
71,000 Eli Lilly and Co. 4,140
89,900 Johnson & Johnson, Inc. 6,032
--------
10,172
--------
SOFT DRINKS (0.8%)
47,400 PepsiCo, Inc. 2,669
--------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (3.1%)
495,300 Oracle Corp.* $ 6,350
176,400 Symantec Corp.*(a) 3,988
--------
10,338
--------
Total U.S. stocks (cost: $101,640) 111,300
--------
PRINCIPAL
AMOUNT
(000)
- ----------
MONEY MARKET INSTRUMENTS (2.7%)
COMMERCIAL PAPER
----------------
INVESTMENT BANKING & BROKERAGE
$ 9,007 Merrill Lynch & Co., Inc., 3.04%, 6/01/2005 (cost: $9,007) 9,007
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (8.2%)
REPURCHASE AGREEMENTS (7.5%)(b)
2,000 CS First Boston, LLC, 3.05%, acquired on 5/31/2005 and due
6/01/2005 at $2,000 (collateralized by $2,035 of Freddie Mac
Notes(d), 4.13%, due 2/24/2011; market value $2,041) 2,000
11,000 Deutsche Bank Securities, Inc., 3.04%, acquired on 5/31/2005
and due 6/01/2005 at $11,000 (collateralized by $7,091 of
Fannie Mae Notes(d), 4.25%, due 7/15/2007 and $3,975 of
Federal Home Loan Bank Bonds(d), 3.50%, due 12/12/2008;
combined market value $11,221) 11,000
2,850 Lehman Brothers, Inc., 3.04%, acquired on 5/31/2005 and due
6/01/2005 at $2,850 (collateralized by $2,041 of Freddie Mac
STRIPS(d), 3.73% - 4.36%(e), due 10/15/2006 - 11/15/2012;
$1,519 of Fannie Mae STRIPS(d), 3.72% - 4.91%(e), due
7/24/2006 - 5/15/2030; and $250 of Tennessee Valley Auth.
STRIPS(d), 4.36% - 4.66(e), due 5/01/2013 - 11/01/2017; combined
market value $2,909) 2,850
9,000 Morgan Stanley & Co., Inc., 3.05%, acquired on 5/31/2005 and due
6/01/2005 at $9,000 (collateralized by $9,375 of Fannie Mae
Discount Notes(d), 3.14%(e), due 8/03/2005; market value $9,323) 9,000
--------
24,850
--------
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- ---------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.7%)
2,158,305 AIM Short-Term Investment Co. Liquid Assets Portfolio, 2.97%(c) $ 2,158
219,869 Merrill Lynch Premier Institutional Fund, 2.87%(c) 220
--------
2,378
--------
Total short-term investments purchased with cash collateral
from securities loaned (cost: $27,228) 27,228
--------
TOTAL INVESTMENTS (COST: $300,301) $357,360
========
20
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA WORLD GROWTH FUND
MAY 31, 2005
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 May 31,
2005.
(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.
(c) Rate represents the money market fund annualized seven-day yield
at May 31, 2005.
(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.
21
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
(e) Zero-coupon security. Rate represents the effective yield at date
of purchase.
(f) Represents less than 0.1% of net assets.
* Non-income-producing security for the year ended May 31, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA WORLD GROWTH FUND
MAY 31, 2005
ASSETS
Investments in securities, at market value (including securities on loan
of $25,722) (identified cost of $300,301) $357,360
Cash 47
Cash denominated in foreign currencies (identified cost of $397) 386
Receivables:
Capital shares sold 272
USAA Transfer Agency Company (Note 7D) 3
Dividends and interest 691
Securities sold 1,314
Other 84
--------
Total assets 360,157
--------
LIABILITIES
Payables:
Upon return of securities loaned 27,274
Securities purchased 1,608
Capital shares redeemed 199
Accrued management fees 210
Accrued transfer agent's fees 2
Other accrued expenses and payables 72
--------
Total liabilities 29,365
--------
Net assets applicable to capital shares outstanding $330,792
========
NET ASSETS CONSIST OF:
Paid-in capital $257,370
Accumulated undistributed net investment income 1,476
Accumulated net realized gain on investments 14,914
Net unrealized appreciation of investments 57,059
Net unrealized depreciation on foreign currency translations (27)
--------
Net assets applicable to capital shares outstanding $330,792
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 18,848
========
Net asset value, redemption price, and offering price per share $ 17.55
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA WORLD GROWTH FUND
YEAR ENDED MAY 31, 2005
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $607) $ 5,261
Interest 168
Securities lending 139
-------
Total income 5,568
-------
EXPENSES
Management fees 2,386
Administration and servicing fees 465
Transfer agent's fees 764
Custody and accounting fees 205
Postage 99
Shareholder reporting fees 23
Trustees' fees 7
Registration fees 39
Professional fees 52
Other 10
-------
Total expenses 4,050
Expenses paid indirectly (41)
-------
Net expenses 4,009
-------
NET INVESTMENT INCOME 1,559
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 23,455
Foreign currency transactions (33)
Change in net unrealized appreciation/depreciation of:
Investments 8,048
Foreign currency translations (41)
-------
Net realized and unrealized gain 31,429
-------
Increase in net assets resulting from operations $32,988
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA WORLD GROWTH FUND
YEARS ENDED MAY 31,
2005 2004
----------------------
FROM OPERATIONS
Net investment income $ 1,559 $ 1,550
Net realized gain on investments 23,455 19,797
Net realized loss on foreign currency transactions (33) (60)
Change in net unrealized appreciation/depreciation of:
Investments 8,048 33,580
Foreign currency translations (41) (22)
----------------------
Increase in net assets resulting from operations 32,988 54,845
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,517) (642)
Net realized gains (5,663) -
----------------------
Distributions to shareholders (7,180) (642)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 45,314 47,561
Reinvested dividends 7,049 628
Cost of shares redeemed (36,011) (45,100)
----------------------
Increase in net assets from capital share transactions 16,352 3,089
----------------------
Capital contribution from USAA Transfer
Agency Company (Note 7D) 3 -
----------------------
Net increase in net assets 42,163 57,292
NET ASSETS
Beginning of period 288,629 231,337
----------------------
End of period $330,792 $288,629
======================
Accumulated undistributed net investment income:
End of period $ 1,476 $ 1,467
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,626 3,234
Shares issued for dividends reinvested 398 41
Shares redeemed (2,109) (3,107)
----------------------
Increase in shares outstanding 915 168
======================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA WORLD GROWTH FUND
MAY 31, 2005
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
USAA INVESTMENT TRUST (the Trust), registered under the Investment
Company Act of 1940 (the 1940 Act), as amended, is an open-end
management investment company organized as a Massachusetts business
trust consisting of 10 separate funds. The information presented in
this annual report pertains only to the USAA World Growth Fund (the
Fund), which is classified as diversified under the 1940 Act. The
Fund's investment objective is capital appreciation.
A. SECURITY VALUATION - The value of each security is determined
(as of the close of trading on the New York Stock Exchange
(NYSE) on each business day the exchange is open) as set forth
below:
1. 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 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. Equity securities trading in various foreign markets may take
place on days when the NYSE is closed. Further, when the NYSE
is open, the foreign markets may be closed. Therefore, the
calculation of the Fund's net asset value (NAV) may not take
place at the same time the prices of certain foreign
securities held by the Fund are determined. In most cases,
events affecting the values of foreign securities that occur
between the time of their last quoted sales or official
closing prices and the close of normal trading on the NYSE on
a day the Fund's NAV is calculated will not be reflected in
the
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
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 these
securities at fair value is intended to cause the Fund's NAV
to be more reliable than it otherwise would be.
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
Fair value methods used by the Manager include, but are not
limited to, obtaining market quotations from secondary
pricing services, broker-dealers, or widely used quotation
systems. General factors considered in determining the fair
value of securities include fundamental analytical data, the
nature and duration of any restrictions on disposition of the
securities, and an evaluation of the forces that influenced
the market in which the securities are purchased and sold.
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). Gains or losses from sales of investment securities are
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
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
collateral are required to maintain a value equal to or in
excess of the repurchase agreement price plus accrued interest
and are held by the Fund, either through its regular custodian
or through a special "tri-party" custodian that maintains
separate accounts for both the Fund and its counterparty, until
maturity of the repurchase agreement. The Fund's Manager
monitors the creditworthiness of sellers with which the Fund may
enter into repurchase agreements.
E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be
invested in the securities of foreign issuers and may be traded
in foreign currency. Since the Fund's accounting records are
maintained in U.S. dollars, foreign currency amounts are
translated into U.S. dollars on the following basis:
1. Purchases and sales of securities, income, and expenses at
the rate of exchange obtained from an independent pricing
service on the respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at
the exchange rate obtained from an independent pricing
service on a daily basis.
The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market
prices of securities held. Such fluctuations are included with
the net realized and unrealized gain or loss from investments.
Separately, net realized foreign currency gains/losses may arise
from sales of foreign currency, currency gains/losses realized
between the trade and settlement dates on security transactions,
and from the difference between amounts of dividends, interest,
and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts received. These net
realized foreign currency gains/losses have been reclassified
from
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
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 recaptured as a credit
that is tracked and used by the custodian to reduce expenses
paid by the Fund. 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 year ended May 31, 2005, brokerage
commission recapture credits and custodian and other bank
credits reduced the Fund's expenses by $40,000 and $1,000,
respectively, resulting in a total reduction in Fund expenses of
$41,000.
G. INDEMNIFICATIONS - Under the Trust's organizational documents,
its officers and trustees are indemnified against certain
liabilities 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.
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
Effective January 6, 2005, the Fund participates in a joint,
short-term, revolving, committed loan agreement of $300 million with
USAA Capital Corporation (CAPCO), an affiliate of the Manager. The
purpose of the agreement is to meet temporary or emergency cash needs,
including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability under the agreement,
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.
The USAA funds that are party to the loan agreement are assessed
facility fees 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 $300 million loan agreement). The facility fees are allocated
among the funds based on their respective average net assets for the
period.
Prior to January 6, 2005, the loan agreement with CAPCO was in the
amount of $400 million, and the Fund also participated with other USAA
funds in a joint, short-term, revolving, committed loan agreement of
$100 million with Bank of America and State Street Bank and Trust
Company (State Street), under which Bank of America and State Street
both committed $50 million. Subject to availability under its agreement
with Bank of America and State Street, the Fund could 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, did not exceed 25% of the Fund's total assets. The
USAA funds that were party to the loan agreement with Bank of America
and State Street were assessed facility fees in an annual amount equal
to 0.09% of the $100 million loan agreement, whether used or not. The
facility fees were allocated among the funds based on their respective
average net assets for the period.
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
For the year ended May 31, 2005, the Fund paid CAPCO facility fees of
$2,000, which represents 1.0% of total fees paid to CAPCO by the USAA
funds. The Fund had no borrowings under any of these agreements during
the year ended May 31, 2005.
(3) DISTRIBUTIONS
- --------------------------------------------------------------------------------
The character of any distributions made during the year from net
investment income or net realized gains is determined in accordance
with federal tax regulations and may differ from those determined in
accordance with U.S. generally accepted accounting principles. Also,
due to the timing of distributions, the fiscal year in which amounts
are distributed may differ from the year that the income or realized
gains were recorded by the Fund.
During the current fiscal year, permanent differences between book-
basis and tax-basis accounting resulted in reclassifications made to
the statement of assets and liabilities to increase paid-in capital by
$469,000, decrease accumulated undistributed net investment income by
$33,000, and decrease accumulated net realized gain on investments by
$436,000. This includes differences in the accounting for foreign
currency gains and losses and the utilization of earnings and profits
distributed to shareholders on redemptions of shares as part of the
dividends-paid deduction for federal income tax purposes. This
reclassification has no effect on net assets.
The tax character of distributions paid during the years ended May 31,
2005, and 2004, was as follows:
2005 2004
------------------------------
Ordinary income* $1,517,000 $642,000
Long-term realized capital gains 5,663,000 -
*Includes distribution of short-term realized capital gains, if any, which are
taxable as ordinary income.
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
As of May 31, 2005, the components of net assets representing
distributable earnings on a tax basis were as follows:
Undistributed ordinary income $ 1,518,000
Undistributed long-term capital gains 15,005,000
Accumulated capital and other losses (41,000)
Unrealized appreciation of investments 56,968,000
Unrealized depreciation on foreign currency translations (27,000)
The difference between book-basis and tax-basis appreciation of
investments is attributable to the tax deferral of losses on wash
sales.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the
succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes. For the year ended May 31, 2005, the Fund utilized
capital loss carryovers of $2,245,000 to offset capital gains. At May
31, 2005, the Fund had a current post-October deferred currency loss of
$41,000, for federal income tax purposes, which will be recognized on
the first day of the following fiscal year.
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the year ended May 31, 2005, were
$115,525,000 and $110,270,000, respectively.
As of May 31, 2005, the cost of securities, including short-term
securities, for federal income tax purposes, was $300,392,000.
Gross unrealized appreciation and depreciation of investments as of May
31, 2005, for federal income tax purposes, were $62,076,000 and
$5,108,000, respectively, resulting in net unrealized appreciation of
$56,968,000.
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
(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.
At May 31, 2005, the terms of open foreign currency contracts were as
follows (in thousands):
FOREIGN CURRENCY CONTRACTS TO BUY
- -------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE RECEIVE 5/31/2005 FOR U.S. DOLLAR (DEPRECIATION)
- -------------------------------------------------------------------------------------------
6/01/2005 5 $ 7 $ 7 $ -
Euro
6/01/2005 102 185 185 -
Pound Sterling
6/01/2005 778,319 82 82 -
Indonesian Rupiah
6/02/2005 71 129 128 (1)
Pound Sterling
- -------------------------------------------------------------------------------------------
$403 $402 $(1)
- -------------------------------------------------------------------------------------------
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
FOREIGN CURRENCY CONTRACTS TO SELL
- -------------------------------------------------------------------------------------------
U.S. DOLLAR UNREALIZED
EXCHANGE CONTRACTS TO VALUE AS OF IN EXCHANGE APPRECIATION
DATE DELIVER 5/31/2005 FOR U.S. DOLLAR (DEPRECIATION)
- -------------------------------------------------------------------------------------------
6/01/2005 3,752 $ 34 $ 34 $-
Japanese Yen
6/01/2005 423 57 58 1
Swedish Krona
6/02/2005 4,672 43 43 -
Japanese Yen
6/03/2005 3,463 32 32 -
Japanese Yen
- -------------------------------------------------------------------------------------------
$166 $167 $1
- -------------------------------------------------------------------------------------------
(6) LENDING OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund, through its third-party 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 year ended May 31, 2005, the Fund
received securities-lending income of $139,000, which is net of the 20%
income retained by MetWest. As of May 31, 2005, the
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
Fund loaned securities having a fair market value of approximately
$25,722,000 and received cash collateral of $27,274,000 for the loans.
Of this amount, $27,228,000 was invested in short-term investments, as
noted in the Fund's portfolio of investments, and $46,000 remained in
cash.
(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 Manager 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 recommends 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 Global Funds Index, which tracks
the total return performance of the 30 largest funds in the
Lipper Global Funds category. The Fund's base fee is accrued
daily and paid monthly at an annualized rate of 0.75% of the
Fund's average net assets.
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
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
- --------------------------------------------------------------------------------
+/-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 Global Funds Index over
that period, even if the Fund had overall negative returns
during the performance period.
For the year ended May 31, 2005, the Fund incurred total
management fees, paid or payable to the Manager, of $2,386,000,
which included a performance adjustment of $60,000 that
increased the base management fee of 0.75% by 0.02%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with MFS Investment
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
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 World
Growth Fund, the USAA International Fund, the USAA Life
Investment Trust World Growth Fund, and the portion of the 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, plus 0.200% 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 year ended May 31, 2005, the
Manager incurred subadvisory fees, paid or payable to MFSIM of
$3,212,000 for the MFSIM Funds in total, of which $772,000 was
based on the average net assets of the USAA World Growth Fund.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and shareholder servicing functions for the Fund.
For such services, the Manager receives a fee accrued daily and
paid monthly at an annualized rate of 0.15% of the Fund's
average net assets. For the year ended May 31, 2005, the Fund
incurred administration and servicing fees, paid or payable to
the Manager, of $465,000.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), 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. The Fund also pays SAS fees that are related to
38
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
the administration and servicing of accounts that are traded on
an omnibus basis. For the year ended May 31, 2005, the Fund
incurred transfer agent's fees, paid or payable to SAS, of
$764,000. Additionally, the Fund recorded a receivable from SAS
of $3,000 at May 31, 2005, for adjustments related to
corrections to shareholder transactions.
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
(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.
39
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
(9) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED MAY 31,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
-----------------------------------------------------------------
Net asset value at beginning of period $ 16.09 $ 13.02 $ 14.42 $ 15.90 $ 20.61
-----------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .08 .08 .04 .03 .07
Net realized and unrealized gain (loss) 1.78 3.03 (1.39) (1.43) (3.70)
-----------------------------------------------------------------
Total from investment operations 1.86 3.11 (1.35) (1.40) (3.63)
-----------------------------------------------------------------
Less distributions:
From net investment income (.08) (.04) (.05) (.07) (.07)
From realized capital gains (.32) - - (.01) (1.01)
-----------------------------------------------------------------
Total distributions (.40) (.04) (.05) (.08) (1.08)
-----------------------------------------------------------------
Net asset value at end of period $ 17.55 $ 16.09 $ 13.02 $ 14.42 $ 15.90
=================================================================
Total return (%)* 11.54 23.87 (9.32) (8.79) (18.83)
Net assets at end of period (000) $330,792 $288,629 $231,337 $276,019 $320,269
Ratio of expenses to average net assets (%)**(a) 1.31 1.32 1.53 1.40 1.14
Ratio of net investment income to average
net assets (%)** .50 .59 .35 .21 .41
Portfolio turnover (%) 36.49 56.13 138.42 51.18 38.30
* Assumes reinvestment of all net investment income and realized capital gain distributions during the period.
** For the year ended May 31, 2005, average net assets were $310,361,000.
(a) 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%) (.02%) (.00%)+ (.00%)+ (.00%)+
+ Represents less than 0.01% of average net assets.
40
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE (unaudited)
USAA WORLD GROWTH FUND
MAY 31, 2005
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
December 1, 2004, through May 31, 2005.
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
41
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
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 DECEMBER 1, 2004 -
DECEMBER 1, 2004 MAY 31, 2005 MAY 31, 2005
-----------------------------------------------------------
Actual $1,000.00 $1,022.00 $6.36
Hypothetical
(5% return before expenses) 1,000.00 1,018.64 6.35
*Expenses are equal to the Fund's annualized expense ratio of 1.26%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 182 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 2.20% for the six-month period of December
1, 2004, through May 31, 2005.
42
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
USAA WORLD GROWTH FUND
MAY 31, 2005
At a meeting of the Board of Trustees held on April 27-28, 2005, the
Board, including the Trustees who are not "interested persons" of the
Trust (the "Independent Trustees"), approved the continuance of the
Investment Advisory Agreement between the Trust and the Manager with
respect to the Fund and the Subadvisory Agreement with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a
variety of information relating to the Investment Advisory Agreement
and Subadvisory Agreement and the Manager and the Subadviser, and were
given the opportunity to ask questions and request additional
information from management. The information provided to the Board
included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis
comparing the Fund's investment performance, expenses, and fees to
comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the
Manager's revenues and costs of providing services to the Fund and
compensation paid to affiliates of the Manager; and (iii) information
about the Manager's and Subadviser's operations and personnel. Prior
to voting, the Independent Trustees reviewed the proposed continuance
of the Investment Advisory Agreement and the Subadvisory Agreement
with management and with experienced independent counsel and received
materials from such counsel discussing the legal standards for their
consideration of the proposed continuation of the Investment Advisory
Agreement and the Subadvisory Agreement with respect to the Fund. The
Independent Trustees also reviewed the proposed continuation of the
Investment Advisory Agreement and the Subadvisory Agreement with
respect to the Fund in private sessions with their counsel at which no
representatives of management were present.
At each regularly scheduled meeting of the Board and its committees,
the Board of Trustees of the Trust receives and reviews, among other
things, information concerning the Fund's performance and related
services
43
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
provided by the Manager and by the Subadviser. At the meeting at which
the renewal of the Investment Advisory Agreement and Subadvisory
Agreement is considered, particular focus is given to information
concerning Fund performance, comparability of fees and total expenses,
and profitability. However, the Board noted that the evaluation
process with respect to the Manager and the Subadviser is an ongoing
one. In this regard, the Board's and its committees' consideration of
the Investment Advisory Agreement and Subadvisory Agreement included
certain types of information previously received at such quarterly
meetings.
INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
After full consideration of a variety of factors, the Board of
Trustees, including the Independent Trustees, voted to approve the
Investment Advisory Agreement. In approving the Investment Advisory
Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES. In considering the nature,
extent, and quality of the services provided by the Manager under the
Investment Advisory Agreement, the Board of Trustees reviewed
information provided by the Manager relating to its operations and
personnel. The Board also took into account its familiarity with the
Manager's management through Board meetings, discussions, and reports
during the preceding year. The Board considered the fees paid to the
Manager and the services provided to the Fund by the Manager under the
Investment Advisory Agreement, as well as other services provided by
the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment
advisory services provided to the Fund, the Manager and its affiliates
44
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
provide administrative services, stockholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and
regulatory requirements, and other services necessary for the
operation of the Fund and the Trust.
The Board considered the level and depth of knowledge of the Manager,
including the professional experience and qualifications of senior
personnel, as well as current staffing levels. The Board discussed the
Manager's effectiveness in monitoring the performance of the
Subadviser and its timeliness in responding to performance issues. The
allocation of the Fund's brokerage, including the Manager's process
for monitoring "best execution," was also considered. The Manager's
role in coordinating the activities of the Fund's other service
providers was also considered. The Board considered the Manager's
financial condition and that it had the financial wherewithal to
continue to provide the same scope and high quality of services under
the Investment Advisory Agreement. In reviewing the Investment
Advisory Agreement, the Board focused on the experience, resources,
and strengths of the Manager and its affiliates in managing investment
companies, including the Fund.
The Board also reviewed the compliance and administrative services
provided to the Fund by the Manager, including oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Manager
and its affiliates provide compliance and administrative services to
the Fund. The Trustees, guided also by information obtained from their
experiences as directors/trustees of the Fund and other investment
companies managed by the Manager, also focused on the quality of the
Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE. In connection with its consideration of the
Investment Advisory Agreement, the Board evaluated the Fund's advisory
fees and total expense ratio as compared to other open-end investment
companies deemed to be comparable to the Fund as determined by the
independent third party in its report. The Fund's expenses were
compared to (i) a group of investment companies chosen
45
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
by the independent third party to be comparable to the Fund based upon
certain factors, including fund type, comparability of investment
objective and classification, sales load type (in this case,
investment companies with no sales loads), asset size, and expense
components (the "expense group") and (ii) a larger group of investment
companies that includes all no-load retail open-end investment
companies in the same investment classification/objective as the Fund
regardless of asset size, excluding outliers (the "expense universe").
Among other data, the Board noted that the Fund's management fee
rate -- which includes advisory and administrative services and the
effects of any performance adjustment -- was below the median of both
its expense group and its expense universe. The data indicated that
the Fund's total expenses were below the median of both its expense
group and its expense universe. The Board took into account the
various services provided to the Fund by the Manager and its
affiliates. The Board also noted the level and method of computing
the management fee, including the performance adjustment to such fee.
The Trustees also took into account that the subadvisory fees under
the Subadvisory Agreement are paid by the Manager.
In considering the Fund's performance, the Board of Trustees noted
that the Board reviews at its regularly scheduled meetings information
about the Fund's performance results. The Trustees also reviewed
various comparative data provided to them in connection with their
consideration of the renewal of the Investment Advisory Agreement,
including, among other information, a comparison of the Fund's average
annual total return with its Lipper index and with that of other
mutual funds deemed to be in its peer group by the independent third
party in its report (the "performance universe"). The Fund's
performance universe consisted of the Fund and all retail and
institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or
primary channel of distribution. This comparison indicated that the
Fund's performance exceeded the average of its performance universe
and its Lipper index for the one- and three-year
46
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
periods ended December 31, 2004, and was comparable to the average of
its performance universe and Lipper index for the five-year period
ended December 31, 2004. The Board also noted that the Fund's
percentile performance ranking was in the top 50% of its performance
universe for the one- and three-year periods ended December 31, 2004.
COMPENSATION AND PROFITABILITY. The Board took into consideration the
level and method of computing the management fee. The information
considered by the Board included operating profit margin information
for the Manager's business as a whole. The Board also received and
considered profitability information related to the management
revenues from the Fund. This consideration included a broad review of
the methodology used in the allocation of certain costs to the Fund.
In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager pays the subadvisory fees. The
Trustees reviewed the profitability of the Manager's relationship with
the Fund before tax expenses. In reviewing the overall profitability
of the management fee to the Manager, the Board also considered the
fact that affiliates provide shareholder servicing and administrative
services to the Fund for which they receive compensation. The Board
also considered the possible direct and indirect benefits to the
Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its
association with the Fund. The Trustees recognized that the Manager
should be entitled to earn a reasonable level of profits in exchange
for the level of services it provides to the Fund and the
entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE. The Board considered whether there should be
changes in the management fee rate or structure in order to enable the
Fund to participate in any economies of scale that the Manager may
experience as a result of growth in the Fund's assets. The Board also
considered the effect of the Fund's growth and size on its performance
and fees, noting that if the Fund's assets increase over time, the
Fund may realize other economies of scale if assets increase
proportionally
47
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
more than some expenses. The Board determined that the current
investment management fee structure was reasonable.
CONCLUSIONS. The Board reached the following conclusions regarding the
Fund's Investment Advisory Agreement with the Manager, among others:
(i) the Manager has demonstrated that it possesses the capability and
resources to perform the duties required of it under the Investment
Advisory Agreement; (ii) the Manager maintains an appropriate
compliance program; (iii) the performance of the Fund is reasonable in
relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses
are reasonable in relation to those of similar funds and to the
services to be provided by the Manager; and (v) the Manager's level of
profitability from its relationship with the Fund is reasonable. Based
on their conclusions, the Board determined that continuation of the
Investment Advisory Agreement would be in the interests of the Fund
and its shareholders.
SUBADVISORY AGREEMENT
- --------------------------------------------------------------------------------
In approving the Fund's Subadvisory Agreement, the Board considered
various factors, among them: (i) the nature, extent, and quality of
services provided to the Fund, including the personnel providing
services; (ii) the Subadviser's compensation and any other benefits
derived from the subadvisory relationship; (iii) comparisons of
subadvisory fees and performance to comparable investment companies;
and (iv) the terms of the Subadvisory Agreement. The Board's analysis
of these factors is set forth below.
After full consideration of a variety of factors, the Board of
Trustees, including the Independent Trustees, voted to approve the
Subadvisory Agreement. In approving the Subadvisory Agreement, the
Trustees did not identify any single factor as controlling, and each
Trustee attributed different weights to various factors. Throughout
their deliberations, the Independent Trustees were represented and
assisted by independent counsel.
48
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT
PERSONNEL. The Trustees considered information provided to them
regarding the services provided by the Subadviser, including
information presented periodically throughout the previous year. The
Board considered the Subadviser's level of knowledge and investment
style. The Board reviewed the experience and credentials of the
investment personnel who are responsible for managing the investment
of portfolio securities with respect to the Fund and the Subadviser's
level of staffing. The Trustees noted that the materials provided to
them indicated that the method of compensating portfolio managers is
reasonable and includes appropriate mechanisms to prevent a manager
with underperformance from taking undue risks. The Trustees also noted
the Subadviser's brokerage practices. The Board also considered the
Subadviser's regulatory and compliance history. The Board noted that
the Manager's monitoring processes of the Subadviser include: (i)
regular telephonic meetings to discuss, among other matters,
investment strategies and to review portfolio performance; (ii)
monthly portfolio compliance checklists and quarterly compliance
certifications to the Board; and (iii) due diligence visits to the
Subadviser.
SUBADVISER COMPENSATION. The Board also took into consideration the
financial condition of the Subadviser. In considering the cost of
services to be provided by the Subadviser and the profitability to the
Subadviser of its relationship with the Fund, the Trustees noted the
undertakings of the Manager to maintain expense limitations for the
Fund and also noted that the fees under the Subadvisory Agreement were
paid by the Manager. The Trustees also relied on the ability of the
Manager to negotiate the Subadvisory Agreement and the fees thereunder
at arm's length. The Board also considered information relating to the
cost of services to be provided by the Subadviser, the Subadviser's
profitability with respect to the Fund, and the potential economies of
scale in the Subadviser's management of the Fund, to the extent
available. However, for the reasons noted above, this information was
less significant to the
49
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA WORLD GROWTH FUND
MAY 31, 2005
Board's consideration of the Subadvisory Agreement than the other
factors considered.
SUBADVISORY FEES AND FUND PERFORMANCE. The Board compared the
subadvisory fees for the Fund with the fees that the Subadviser
charges to comparable clients. The Board considered that the Fund pays
a management fee to the Manager and that, in turn, the Manager pays a
subadvisory fee to the Subadviser.
As noted above, the Board considered the Fund's performance during the
one-, three-, and five-year periods ended December 31, 2004, as
compared to the Fund's respective peer group and noted that the Board
reviews at its regularly scheduled meetings information about the
Fund's performance results. The Board noted the Manager's expertise
and resources in monitoring the performance, investment style and
risk-adjusted performance of the Subadviser. The Board was mindful of
the Manager's focus on the Subadviser's performance and the
explanations of management regarding the factors that contributed to
the short-term performance of the Fund. The Board also noted the
Subadviser's long-term performance record for similar accounts.
CONCLUSION. The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified
to manage the Fund's assets in accordance with its investment
objectives and policies; (ii) the Subadviser maintains an appropriate
compliance program; (iii) the performance of the Fund is reasonable in
relation to the performance of funds with similar investment
objectives and to relevant indices; and (iv) the Fund's advisory
expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based
on the Board's conclusions, the Board of Trustees determined that
approval of the Subadvisory Agreement with respect to the Fund would
be in the interests of the Fund and its shareholders.
50
D I R E C T O R S ' A N D O F F I C E R S '
====================------------------------------------------------------------
INFORMATION
DIRECTORS* AND OFFICERS OF THE COMPANY
- --------------------------------------------------------------------------------
The Board of Directors of the Company consists of six Directors.
These Directors and the Company's Officers supervise the business
affairs of the USAA family of funds. The Board of Directors is
responsible for the general oversight of the funds' business and for
assuring that the funds are managed in the best interests of each
fund's respective shareholders. The Board of Directors periodically
reviews the funds' investment performance as well as the quality of
other services provided to the funds and their shareholders by each
of the fund's service providers, including USAA Investment Management
Company (IMCO) and its affiliates. The term of office for each
Director shall be 20 years or until the Director reaches age 70. All
members of the Board of Directors shall be presented to shareholders
for election or reelection, as the case may be, at least once every
five years. Vacancies on the Board of Directors can be filled by the
action of a majority of the Directors, provided that at least
two-thirds of the Directors have been elected by the shareholders.
Set forth below are the Directors and Officers of the Company, their
respective offices and principal occupations during the last five
years, length of time served, and information relating to any other
directorships held. Each serves on the Board of Directors of the USAA
family of funds consisting of four registered investment companies
offering 39 individual funds as of May 31, 2005. Unless otherwise
indicated, the business address of each is 9800 Fredericksburg Road,
San Antonio, TX 78288.
If you would like more information about the funds' Directors, you
may call (800) 531-8181 to request a free copy of the funds'
statement of additional information (SAI).
* FOR SIMPLICITY THROUGHOUT THIS SECTION, THE BOARDS OF DIRECTORS AND
BOARDS OF TRUSTEES OF THE FOUR LEGAL ENTITIES THAT COMPRISE THE USAA
FAMILY OF FUNDS WILL BE IDENTIFIED AS THE BOARD OF DIRECTORS.
51
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
INTERESTED DIRECTOR(1)
- --------------------------------------------------------------------------------
CHRISTOPHER W. CLAUS(2,4)
Director
Born: December 1960
Year of Election or Appointment: 2001
President, Chief Executive Officer, Director, and Chairman of the
Board of Directors, IMCO (12/04-present); President and Chief
Executive Officer, Director, and Vice Chairman of the Board of
Directors, IMCO (2/01-12/04); Senior Vice President, Investment
Sales and Service, IMCO (7/00-2/01); Vice President, Investment
Sales and Service, IMCO (12/94-7/00). Mr. Claus serves as
President, Director/Trustee, and Vice Chairman of the Boards of
Director/Trustee of the USAA family of funds. He also serves as
President, Director, and Chairman of the Board of Directors of
USAA Shareholder Account Services. He also holds the Officer
position of Senior Vice President of USAA Life Investment Trust,
a registered investment company offering five individual funds.
(1) INDICATES THE DIRECTOR IS AN EMPLOYEE OF USAA INVESTMENT
MANAGEMENT COMPANY OR AFFILIATED COMPANIES AND IS CONSIDERED
AN "INTERESTED PERSON" UNDER THE INVESTMENT COMPANY ACT OF
1940.
(2) MEMBER OF EXECUTIVE COMMITTEE
(3) MEMBER OF AUDIT COMMITTEE
(4) MEMBER OF PRICING AND INVESTMENT COMMITTEE
(5) MEMBER OF CORPORATE GOVERNANCE COMMITTEE
(6) THE ADDRESS FOR ALL NON-INTERESTED DIRECTORS IS THAT OF THE
USAA FUNDS, P.O. BOX 659430, SAN ANTONIO, TX 78265-9430.
52
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
NON-INTERESTED (INDEPENDENT) DIRECTORS
- --------------------------------------------------------------------------------
BARBARA B. DREEBEN(3,4,5,6)
Director
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a postal mail list
management service. Mrs. Dreeben serves as Director/Trustee of
the USAA family of funds. Mrs. Dreeben holds no other
directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
ROBERT L. MASON, PH.D.(3,4,5,6)
Director
Born: July 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present);
Staff Analyst, Southwest Research Institute (9/98-3/02), which
focuses in the fields of technological research. Dr. Mason serves
as a Director/Trustee of the USAA family of funds. Dr. Mason
holds no other directorships of any publicly held corporations or
other investment companies outside the USAA family of funds.
MICHAEL F. REIMHERR(3,4,5,6)
Director
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an
organization that performs business valuations of large companies
to include the development of annual business plans, budgets, and
internal financial reporting. Mr. Reimherr serves as a
Director/Trustee of the USAA family of funds. Mr. Reimherr holds
no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
53
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
LAURA T. STARKS, PH.D.(3,4,5,6)
Director
Born: February 1950
Year of Election or Appointment: 2000
Charles E. and Sarah M. Seay Regents Chair Professor of Finance,
University of Texas at Austin (9/96-present). Dr. Starks serves
as a Director/Trustee of the USAA family of funds. Dr. Starks
holds no other directorships of any publicly held corporations or
other investment companies outside the USAA family of funds.
RICHARD A. ZUCKER(2,3,4,5,6)
Director and Chairman of the Board of Directors
Born: July 1943
Year of Election or Appointment: 1992(+)
Vice President, Beldon Roofing Company (7/85-present). Mr.
Zucker serves as a Director/Trustee of the USAA family of funds.
Mr. Zucker holds no other directorships of any publicly held
corporations or other investment companies outside the USAA
family of funds.
(1) INDICATES THE DIRECTOR IS AN EMPLOYEE OF USAA INVESTMENT
MANAGEMENT COMPANY OR AFFILIATED COMPANIES AND IS CONSIDERED
AN "INTERESTED PERSON" UNDER THE INVESTMENT COMPANY ACT OF
1940.
(2) MEMBER OF EXECUTIVE COMMITTEE
(3) MEMBER OF AUDIT COMMITTEE
(4) MEMBER OF PRICING AND INVESTMENT COMMITTEE
(5) MEMBER OF CORPORATE GOVERNANCE COMMITTEE
(6) THE ADDRESS FOR ALL NON-INTERESTED DIRECTORS IS THAT OF THE
USAA FUNDS, P.O. BOX 659430, SAN ANTONIO, TX 78265-9430.
(+) MR. ZUCKER WAS ELECTED AS CHAIRMAN OF THE BOARD IN 2005.
54
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
INTERESTED OFFICERS(1)
- --------------------------------------------------------------------------------
CLIFFORD A. GLADSON
Vice President
Born: November 1950
Year of Appointment: 2002
Senior Vice President, Fixed Income Investments, IMCO
(9/02-present); Vice President, Fixed Income Investments, IMCO
(5/02-9/02); Vice President, Mutual Fund Portfolios, IMCO
(12/99-5/02); Assistant Vice President, Fixed Income Investments,
IMCO (11/94-12/99). Mr. Gladson also holds the Officer position
of Vice President of USAA Life Investment Trust, a registered
investment company offering five individual funds.
STUART WESTER
Vice President
Born: June 1947
Year of Appointment: 2002
Vice President, Equity Investments, IMCO (1/99-present); Vice
President, Investment Strategy and Analysis, USAA Capital
Corporation (CAPCO) (6/96-1/99). Mr. Wester also holds the
Officer position of Vice President of USAA Life Investment Trust,
a registered investment company offering five individual funds.
MARK S. HOWARD
Secretary
Born: October 1963
Year of Appointment: 2002
Senior Vice President, Life/IMCO/USAA Financial Planning Services
(FPS) General Counsel, USAA (10/03-present); Senior Vice
President, Securities Counsel, USAA (12/02-10/03); Senior Vice
President, Securities Counsel & Compliance, IMCO (1/02-12/02);
Vice President, Securities Counsel & Compliance, IMCO
(7/00-1/02); and Assistant Vice President, Securities Counsel,
USAA (2/98-7/00). Mr. Howard also holds the Officer positions of
Senior Vice President, Secretary, and Counsel for USAA Life
Insurance Company, IMCO, USAA Financial Advisers, Inc. (FAI),
FPS, and USAA Shareholder Account Services; and Secretary for
USAA Life Investment Trust, a registered investment company
offering five individual funds.
55
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
DEBRA K. DUNN
Treasurer
Born: August 1969
Year of Appointment: 2005
Assistant Vice President, IMCO/FPS Finance, USAA (9/04-present);
Executive Director, IMCO/FPS Finance, USAA (12/03-9/04); Executive
Director, FPS Finance, USAA (2/03-12/03); Director, FPS Finance,
USAA (12/02-2/03); Director, Strategic Financial Analysis, IMCO
(1/01-12/02). Financial Business Analyst, Strategic Financial
Analysis, IMCO (3/00-1/01). Ms. Dunn also holds the officer
positions of Assistant Vice President and Treasurer for IMCO, USAA
Shareholder Account Services, FPS, and FAI.
EILEEN M. SMILEY
Assistant Secretary
Born: November 1959
Year of Appointment: 2003
Vice President, Securities Counsel, USAA (2/04-present);
Assistant Vice President, Securities Counsel, USAA (1/03-2/04);
Attorney, Morrison & Foerster, LLP (1/99-1/03). Ms. Smiley also
holds the Officer position of Vice President and Assistant
Secretary of IMCO, FAI, and FPS; and Assistant Secretary of USAA
Life Investment Trust, a registered investment company offering
five individual funds.
ROBERTO GALINDO, JR.
Assistant Treasurer
Born: November 1960
Year of Appointment: 2000
Assistant Vice President, Portfolio Accounting/Financial
Administration, USAA (12/02-present); Assistant Vice President,
Mutual Fund Analysis & Support, IMCO (10/01-12/02); Executive
Director, Mutual Fund Analysis & Support, IMCO (6/00-10/01);
Director, Mutual Fund Analysis, IMCO (9/99-6/00); Vice President,
Portfolio Administration, Founders Asset Management LLC
(7/98-8/99). Mr. Galindo also holds the Officer position of
Assistant Treasurer of USAA Life Investment Trust, a registered
investment company offering five individual funds.
56
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
JEFFREY D. HILL
Chief Compliance Officer
Born: December 1967
Year of Appointment: 2004
Assistant Vice President, Mutual Funds Compliance, USAA
(9/04-present); Assistant Vice President, Investment Management
Administration & Compliance, USAA (12/02-9/04); Assistant Vice
President, Investment Management Administration & Compliance,
IMCO (9/01-12/02); Senior Manager, Investment Management
Assurance and Advisory Services, KPMG LLP (6/98-8/01). Mr. Hill
also serves as Chief Compliance Officer of USAA Life Investment
Trust, a registered investment company offering five individual
funds.
(1) INDICATES THOSE OFFICERS WHO ARE EMPLOYEES OF USAA INVESTMENT
MANAGEMENT COMPANY OR AFFILIATED COMPANIES AND ARE CONSIDERED
"INTERESTED PERSONS" UNDER THE INVESTMENT COMPANY ACT OF 1940.
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 AND State Street Bank and Trust Company
ACCOUNTING AGENT 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.
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 FORMS N-Q 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 FORMS N-Q 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.
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- --------------------------------------------------------------------------------
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USAA(R) San Antonio, Texas 78288 PRSRT STD
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USAA ----------------------------------
INSURANCE o MEMBER SERVICES
23411-0705 (C)2005, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
On June 25, 2003, the Board of Trustees of USAA Investment Trust approved a Code
of Ethics (Sarbanes Code) applicable solely to its senior financial officers,
including its principal executive officer (President), as defined under the
Sarbanes-Oxley Act of 2002 and implementing regulations of the Securities and
Exchange Commission. A copy of the Sarbanes Code is attached as an Exhibit to
this Form N-CSR.
No amendments have been made to the Sarbanes Code since it was adopted, and no
waivers (explicit or implicit) from a provision of the Sarbanes Code have been
granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Dr. Laura T. Starks, Ph.D. has been designated as an audit committee financial
expert for USAA Investment Trust. Dr. Starks has served as a professor of
Finance at the University of Texas at Austin since 1987, and has served as the
Chair Professor of Finance since 1996. Dr. Starks also has served as a
consultant to numerous clients, including accounting firms, on a range of
finance, accounting and auditing issues. Dr. Starks is an independent director
who serves as a member of the Audit Committee, Pricing and Investment Committee
and the Corporate Governance Committee of the Board of Trustees of USAA
Investment Trust.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The Registrant, USAA Investment Trust, consists of 10 funds in
all. Only 9 funds of the Registrant (excluding the Total Return Strategy Fund)
have a fiscal year-end of May 31 and are included within this report (the
Funds). The aggregate fees billed by the Registrant's independent auditor, Ernst
& Young LLP, for professional services rendered for the audit of the Funds'
annual financial statements and services provided in connection with statutory
and regulatory filings by the Registrant for the Funds for fiscal years ended
May 31, 2005 and 2004 were $150,400 and $154,195, respectively.
(b) AUDIT RELATED FEE. The aggregate fees accrued or paid by the Funds' transfer
agent USAA Transfer Agency Company (dba USAA Shareholder Account Services) for
professional services rendered by Ernst & Young, LLP for audit related services
related to the annual study of internal controls of the transfer agent for
fiscal years ended May 31, 2005 and 2004 were $15,500 and $15,000, respectively.
All services were preapproved by the Audit Committee.
(c) TAX FEES. The aggregate fees paid or accrued by the Registrant for
professional services rendered by Ernst & Young, LLP for tax services are
detailed in the table below:
- ----------------------------------------------------------------------------------------------
Review of Federal, Review of
State and City Passive Quarterly US/UK Tax
Income and tax Foreign Diversification Treaty and issues
returns and excise Investment Review under related to grantor
tax calculations Company Subchapter M trust TOTAL
- ----------------------------------------------------------------------------------------------
FYE 5-31-2005 $41,100 $14,050 $10,993 0 $ 66,143
FYE 5-31-2004 $39,700 $ 9,167 $ 5,400 $ 1,547 $ 55,814
- ----------------------------------------------------------------------------------------------
TOTAL $80,800 $23,217 $16,393 $ 1,547 $121,957
- ----------------------------------------------------------------------------------------------
(d) ALL OTHER FEES. No such fees were billed by Ernst & Young LLP for fiscal
years ended May 31, 2005 or 2004.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY. All audit and non-audit services to
be performed for the Registrant by Ernst & Young LLP must be pre-approved by the
Audit Committee. The Audit Committee Charter also permits the Chair of the Audit
Committee to pre-approve any permissible non-audit service that must be
commenced prior to a scheduled meeting of the Audit Committee. All non-audit
services were pre-approved by the Audit Committee or its Chair, consistent with
the Audit Committee's preapproval procedures.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate non-audit fees billed by Ernst & Young LLP for services
rendered to the Registrant and the Registrant's investment adviser, IMCO, and
the Funds' transfer agent, SAS, for May 31, 2005 and 2004 were $109,143 and
$92,814, respectively.
(h) Ernst & Young LLP provided non-audit services to IMCO in 2005 and 2004 that
were not required to be pre-approved by the Registrant's Audit Committee because
the services were not directly related to the operations of the Registrant's
funds. The Board of Directors/Trustees will consider Ernst & Young LLP's
independence and will consider whether the provision of these non-audit services
to IMCO is compatible with maintaining Ernst & Young LLP's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 10. CONTROLS AND PROCEDURES
The 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.
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. Disclosure controls and
procedures were established for the new section of the shareholder reports
detailing the factors considered by the Funds' Board in approving the Funds'
advisory agreements.
ITEM 11. EXHIBITS.
(a)(1). Code of Ethics pursuant to Item 2 of Form N-CSR is filed hereto exactly
as set forth below:
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
USAA MUTUAL FUND, INC.
USAA TAX-EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA STATE TAX-FREE TRUST
USAA LIFE INVESTMENT TRUST
I. PURPOSE OF THE CODE OF ETHICS
USAA Mutual Fund, Inc., USAA Tax-Exempt Fund, Inc., USAA Investment
Trust, USAA State Tax-Free Trust and USAA Life Investment Trust (collectively,
the Funds, and each a Company) have adopted this code of ethics (the Code) to
comply with Section 406 of the Sarbanes-Oxley Act of 2002 (the Act) and
implementing regulations of the Securities and Exchange Commission (SEC). The
Code applies to each Company's Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer (each a Covered Officer), as detailed
in Appendix A.
The purpose of the Code is to promote:
o honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between the Covered Officers' personal
and professional relationships;
o full, fair, accurate, timely and understandable disclosure in reports
and documents that each Company files with, or submits to, the SEC and
in other public communications made by each Company;
o compliance with applicable laws and governmental rules and regulations;
o prompt internal reporting of violations of the Code to the Chief Legal
Officer of each Company, the President of each Company (if the
violation concerns the Treasurer) and the Chairman of the Board of
Directors/Trustees of each Company; and
o accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to actual and apparent conflicts of interest.
II. CONFLICTS OF INTEREST
A. DEFINITION OF A CONFLICT OF INTEREST.
A conflict of interest exists when a Covered Officer's private interest
influences, or reasonably appears to influence, the Covered Officer's judgment
or ability to act in the best interests of the Funds and their shareholders. For
example, a conflict of interest could arise if a Covered Officer, or an
immediate family member, receives personal benefits as a result of his or her
position with the Funds.
Certain conflicts of interest arise out of relationships between
Covered Officers and the Funds and are already subject to conflict of interest
provisions in the Investment Company Act of 1940 (the 1940 Act) and the
Investment Advisers Act of 1940 (the Advisers Act). For example, Covered
Officers may not individually engage in certain transactions with the Funds
because of their status as "affiliated persons" of the Funds. The USAA Funds'
and USAA Investment Management Company's (IMCO) compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside of the parameters of
this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts could arise from, or as a result of, the contractual
relationships between the Funds and IMCO of which the Covered Officers are also
officers or employees. As a result, this Code recognizes that the Covered
Officers will, in the normal course of their duties (whether formally for the
Funds or for IMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on IMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and IMCO and is consistent with the
performance by the Covered Officers of their duties as officers of the Funds.
Thus, if performed in compliance with the provisions of the 1940 Act and the
Advisers Act, such activities will be deemed to have been handled ethically. In
addition, it is recognized by each Company's Board of Directors/Trustees (each a
Board, and collectively the Boards) that the Covered Officers also may be
officers or employees of one or more other investment companies covered by this
joint USAA Funds' Code.
B. GENERAL RULE. Covered Officers Should Avoid Actual and
Apparent Conflicts of Interest.
Conflicts of interest, other than the conflicts described in the two
preceding paragraphs, are covered by the Code. The following list provides
examples of conflicts of interest under the Code, but Covered Officers should
keep in mind that these examples are not exhaustive. The overarching principle
is that the personal interest of a Covered Officer should not be placed
improperly before the interest of the Funds and their shareholders.
Each Covered Officer must not engage in conduct that constitutes an
actual conflict of interest between the Covered Officer's personal interest and
the interests of the Funds and their shareholders. Examples of actual conflicts
of interest are listed below but are not exclusive. Each Covered Officer must
not:
o use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Funds
whereby the Covered Officer would benefit personally to the detriment
of the Funds and their shareholders;
o cause the Funds to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Funds and their shareholders.
o accept gifts, gratuities, entertainment or any other benefit from any
person or entity that does business or is seeking to do business with
the Funds during contract negotiations.
o accept gifts, gratuities, entertainment or any other benefit with a
market value over $100 per person, per year, from or on behalf of any
person or entity that does, or seeks to do, business with or on behalf
of the Funds.
o EXCEPTION. Business-related entertainment such as meals, and
tickets to sporting or theatrical events, which are infrequent
and not lavish are excepted from this prohibition. Such
entertainment must be appropriate as to time and place,
reasonable and customary in nature, modest in cost and value,
incidental to the business, and not so frequent as to raise any
question of impropriety (Customary Business Entertainment).
Certain situations that could present the appearance of a conflict of
interest should be discussed with, and approved by, or reported to, an
appropriate person. Examples of these include:
o service as a director on the board or an officer of any public or
private company, other than a USAA company or a Company, must be
approved by the USAA Funds' and IMCO's Code of Ethics Committee and
reported to each affected Company.
o the receipt of any non-nominal (i.e., valued over $25) gifts from any
person or entity with which a Company has current or prospective
business dealings must be reported to the Chief Legal Officer. For
purposes of this Code, the individual holding the title of Secretary of
a Company shall be considered the Chief Legal Officer of a Company.
o the receipt of any business-related entertainment from any person or
entity with which the Funds have current or prospective business
dealings must be approved in advance by the Chief Legal Officer unless
such entertainment qualifies as Customary Business Entertainment.
o any ownership interest in, or any consulting or employment relationship
with, any of the Company's service providers, other than IMCO or any
other USAA company, must be approved by the Chairman of the Board of
the Directors/Trustees and reported to each affected Board.
o any material direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Funds for effecting
portfolio transactions or for selling or redeeming shares other than an
interest arising from the Covered Officer's employment, such as
compensation or equity ownership should be approved by the Chairman of
the Board of Directors/Trustees and reported to each affected Board.
III. DISCLOSURE AND COMPLIANCE REQUIREMENTS
o Each Covered Officer should familiarize himself with the disclosure
requirements applicable to the Funds, and the procedures and policies
implemented to promote full, fair, accurate, timely and understandable
disclosure by each Company.
o Each Covered Officer should not knowingly misrepresent, or cause others
to misrepresent, facts about the Funds to others, whether within or
outside the Funds, including to the Funds' Directors/Trustees and
auditors, and to government regulators and self-regulatory
organizations.
o Each Covered Officer should, to the extent appropriate within his area
of responsibility, consult with other officers and employees of the
Funds and IMCO with the goal of promoting full, fair, accurate, timely
and understandable disclosure in the reports and documents filed by a
Company with, or submitted to, the SEC, and in other public
communications made by the Funds.
o Each Covered Officer is responsible for promoting compliance with the
standards and restrictions imposed by applicable laws, rules and
regulations, and promoting compliance with the USAA Funds' and IMCO's
operating policies and procedures.
o A Covered Officer should not retaliate against any person who reports a
potential violation of this Code in good faith.
o A Covered Officer should notify the Chief Legal Officer promptly if he
knows of any violation of the Code. Failure to do so itself is a
violation of this Code.
IV. REPORTING AND ACCOUNTABILITY
A. INTERPRETATION OF THE CODE. The Chief Legal Officer of each
Company is responsible for applying this Code to specific
situations in which questions are presented under it and has the
authority to interpret the Code in any particular situation. The
Chief Legal Officer should consult, if appropriate, the USAA
Funds' outside counsel or counsel for the Independent
Directors/Trustees. However, any approvals or waivers sought by a
Covered Officer will be reported initially to the Chairman of the
Board of Directors/Trustees and will be considered by the Board
of Directors/Trustees.
B. REQUIRED REPORTS
o EACH COVERED OFFICER MUST:
o Upon adoption of the Code, affirm in writing to the Boards
that he has received, read and understands the Code.
o Annually thereafter affirm to the Chief Legal Officer that
he has complied with the requirements of the Code.
o THE CHIEF LEGAL OFFICER MUST:
o report to the Board about any matter or situation submitted
by a Covered Officer for interpretation under the Code, and
the advice given by the Chief Legal Officer;
o report annually to the Board and the Corporate Governance
Committee describing any issues that arose under the Code,
or informing the Board and Corporate Governance Committee
that no reportable issues occurred during the year.
C. INVESTIGATION PROCEDURES
The Funds will follow these procedures in investigating and enforcing
this Code:
o INITIAL COMPLAINT. All complaints or other inquiries concerning
potential violations of the Code must be reported to the Chief
Legal Officer. The Chief Legal Officer shall be responsible for
documenting any complaint. The Chief Legal Officer also will
report immediately to the President of the Company (if the
complaint involves the Treasurer), the Chairman of the Board (or
for the USAA Life Investment Trust (LIT) the Chairman/CEO of USAA
if the complaint involves the Chairman of the LIT Board) and the
Chairperson of the Audit Committee any material potential
violations that could have a material effect on the Funds'
financial condition or reputation. For all other complaints, the
Chief Legal Officer will report quarterly to the Board.
o INVESTIGATIONS. The Chief Legal Officer will take all appropriate
action to investigate any potential violation unless the Chairman
of the Board or the Chairperson of the Audit Committee direct
another person to undertake such investigation. The Chief Legal
Officer may utilize USAA's Office of Ethics to do a unified
investigation under this Code and USAA's Code of Conduct. The
Chairman of the Board, or the Board as a whole, may direct the
Company's outside counsel or the counsel to the Independent
Directors/Trustees (if any) to participate in any investigation
under this Code.
o STATUS REPORTS. The Chief Legal Officer will provide monthly
status reports to the Board about any alleged violation of the
Code that could have a material effect on the Funds' financial
condition or reputation, and quarterly updates regarding all
other alleged violations of the Code.
o VIOLATIONS OF THE CODE. If after investigation, the Chief Legal
Officer, or other investigating person, believes that a violation
of the Code has occurred, he will report immediately to the
Chairman of the Board (and for the USAA LIT the Chairman/CEO of
USAA if the violation involves the Chairman of the LIT Board) the
nature of the violation, and his recommendation regarding the
materiality of the violation. If, in the opinion of the
investigating person, the violation could materially affect the
Funds' financial condition or reputation, the Chief Legal Officer
also will notify the Chairperson of the Audit Committee of each
Company.
The Chief Legal Officer will inform, and make a recommendation
to, the Board, which will consider what further action is
appropriate. Appropriate action could include: (1) review of, and
modifications to, the Code or other applicable policies or
procedures; (2) notifications to appropriate personnel of IMCO or
USAA; (3) dismissal of the Covered Officer; and/or (4) other
disciplinary actions including reprimands or fines.
o The Boards of Directors/Trustees understand that Covered
Officers also are subject to USAA's Code of Business
Conduct. If a violation of this Code also violates USAA's
Code of Business Conduct, these procedures do not limit or
restrict USAA's ability to discipline such Covered Officer
under USAA's Code of Business Conduct. In that event, the
Chairman of the Board of Directors/Trustees will report to
the Boards the action taken by USAA with respect to a
Covered Officer.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Act and the implementing regulations adopted by
the SEC applicable to registered investment companies. If other policies and
procedures of a Company, IMCO, or other service providers govern or purport to
govern the behavior or activities of Covered Officers, they are superseded by
this Code to the extent that they overlap, conflict with, or are more lenient
than the provisions of this Code. The USAA Funds' and IMCO's Joint Code of
Ethics under Rule 17j-1 under the 1940 Act, and IMCO's more detailed compliance
policies and procedures (including its Insider Trading Policy) are separate
requirements applying to Covered Officers and other IMCO employees, and are not
part of this Code. Also, USAA's Code of Conduct imposes separate requirements on
Covered Officers and all employees of USAA, and also is not part of this Code.
VI. AMENDMENTS
Any amendment to this Code, other than amendments to Appendix A, must
be approved or ratified by majority vote of the Board of Directors/Trustees.
VII. CONFIDENTIALITY AND DOCUMENT RETENTION
The Chief Legal Officer shall retain material investigation documents
and reports required to be prepared under the Code for six years from the date
of the resolution of any such complaint. All reports and records prepared or
maintained pursuant to this Code will be considered confidential and shall be
maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the
appropriate Board of Directors/Trustees and counsel for the Independent
Directors/Trustees (if any), the appropriate Company and its counsel, IMCO, and
other personnel of USAA as determined by the affected Company's Chief Legal
Officer or the Chairman of the Board of Directors/Trustees.
Approved and adopted by IMCO's Code of Ethics Committee: June 12, 2003 Approved
and adopted by the Boards of Directors/Trustees of USAA Mutual Fund, Inc., USAA
Tax-Exempt Fund, Inc., USAA Investment Trust & USAA State Tax-Free Trust: June
25, 2003.
Approved and adopted by the Board of Trustees of USAA Life Investment Trust:
August 20, 2003.
APPENDIX A
COVERED OFFICERS
TITLE COMPANY
PRESIDENT USAA Mutual Fund, Inc.
USAA Tax-Exempt Fund, Inc.
USAA Investment Trust
USAA State Tax-Free Trust
USAA Life Investment Trust
TREASURER USAA Mutual Fund, Inc.
USAA Tax-Exempt Fund, Inc.
USAA Investment Trust
USAA State Tax-Free Trust
USAA Life Investment Trust
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA INVESTMENT TRUST (EXCEPT TOTAL RETURN STRATEGY FUND)
By:* /s/ EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: July 26, 2005
------------------------------
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: August 2, 2005
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By:* /s/ DEBRA K. DUNN
---------------------------------------------
Signature and Title: Debra K. Dunn/Treasurer
Date: August 2, 2005
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*Print the name and title of each signing officer under his or her signature.