UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4019
Exact name of registrant as specified in charter: USAA INVESTMENT TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: 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: DECEMBER 31
Date of reporting period: JUNE 30, 2005
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA TOTAL RETURN STRATEGY FUND - SEMI-ANNUAL REPORT FOR PERIOD ENDED
JUNE 30, 2005
[LOGO OF USAA]
USAA(R)
USAA TOTAL RETURN
STRATEGY Fund(SM)
[GRAPHIC OF USAA TOTAL RETURN STRATEGY FUND]
S e m i a n n u a l R e p o r t
- --------------------------------------------------------------------------------
JUNE 30, 2005
Table of CONTENTS
- --------------------------------------------------------------------------------
MESSAGE FROM THE PRESIDENT 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 13
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 26
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2005, USAA. All rights reserved.
2
M E S S A G E
==============------------------------------------------------------------------
from the PRESIDENT
"
AS WE MOVE INTO THE SECOND HALF
[PHOTO OF CHRISTOPHER W. CLAUS] OF THE YEAR, 2005 SEEMS MORE
AND MORE LIKE 2004.
"
July 2005
- --------------------------------------------------------------------------------
As we move into the second half of the year, 2005 seems more
and more like 2004. For 10 months last year, the equity markets
remained relatively flat as investors worried about job
creation, earnings growth, and potential terrorist attacks
during the Olympics, the Democratic and Republican national
conventions, and the presidential election itself. Only after
the cloud of uncertainty was lifted did the markets rally in
the final two months of the year.
In 2005, uncertainty has once again kept equity performance in
check. The issue at hand is the Federal Reserve Board's (the
Fed's) policy on short-term interest rates. Stockholders may
not see a significant increase in equity prices until a clearer
picture of the Fed's intentions emerges. In our opinion, the
Fed will continue its program of measured rate increases until
near year-end.
Another element of uncertainty is the price of oil. If oil
prices stay above $60 a barrel, they are likely to slow the
global economy and undermine corporate earnings. Currently the
U.S. economy is on solid footing, although the manufacturing
sector has shown some weakness. We expect to see gradual job
growth. Corporate earnings should remain in line with or above
market expectations, though slower in our year-over-year
comparisons. We also believe inflation is under control -
except at the gas pump.
Long-term interest rates will influence what happens in the
stock market and dictate what happens in the bond market.
Although the Fed sets short-term rates, market sentiment
controls longer - term rates. Bond investors have kept rates
low because they seem
3
. . . C O N T I N U E D
========================--------------------------------------------------------
to think the Fed is approaching the end of its tightening cycle
and that it can keep a lid on inflation.
For investors in index funds whose returns are based on the
performance of the overall market or a particular sector, the
current uncertainty demands the same patience they exhibited in
2004. Those who waited for the stock market to come to them
received most of their gains in November and December.
For investors looking for a unique approach to asset
diversification, USAA has created the USAA Total Return
Strategy Fund(SM). With strict risk parameters assigned to each
asset class, this Fund complements almost any portfolio. Its
goal is to be fully invested in either the stock market or bond
market only when one of these markets appears to offer a
compelling risk/reward opportunity. Otherwise, the Fund will
be invested in money market instruments. As a result, it can
limit exposure to the stock and bond markets during severe
market corrections.
At USAA, we are proud to continue offering valuable investment
options to shareholders. From all of us here, 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
THE USAA TOTAL RETURN STRATEGY FUND MAY CHANGE THE ALLOCATION
OF ITS PORTFOLIO HOLDINGS REGULARLY WHICH MAY RESULT IN A
HIGHER PROPORTION OF CAPITAL GAINS AND A LOWER RETURN. THE FUND
UTILIZES A FOCUSED INVESTMENT STRATEGY WHICH MAY INCREASE THE
VOLATILITY OF THE FUND'S INVESTMENT RESULTS. THERE IS NO
ASSURANCE THAT THE FUND'S OBJECTIVES WILL BE ACHIEVED. O AT ANY
GIVEN TIME, SUBSTANTIALLY ALL OF THE USAA TOTAL RETURN STRATEGY
FUND'S ASSETS WILL BE INVESTED IN EITHER (1) STOCK-BASED
EXCHANGE-TRADED FUNDS (ETFS); (2) INVESTMENT-GRADE BONDS
THROUGH ETFS OR DIRECT INVESTMENT; OR (3) CASH EQUIVALENTS
THROUGH DIRECT INVESTMENT IN MONEY MARKET INSTRUMENTS OR A
MONEY MARKET FUND.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
M A N A G E R S '
==================--------------------------------------------------------------
COMMENTARY on the Fund
[PHOTO OF STUART H. WESTER] [PHOTO OF PAMELA BLEDSOE NOBLE]
STUART H. WESTER, CFA PAMELA BLEDSOE NOBLE, CFA
USAA Investment Management Company USAA Investment Management Company
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
From its inception date on January 24, 2005, through June 30,
2005, the USAA Total Return Strategy Fund had a total return of
-0.75%. This compares to a total return of 3.21% for the S&P
500 Index and a 2.53% return for the Lipper Flexible Portfolio
Funds Index for the period of January 24, 2005, through
June 30, 2005.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The objective is to seek a positive return every calendar year
and to achieve returns greater than the S&P 500 Index, with
less risk, over the long term. "Long term" is defined as five
years or more, since this period of time usually encompasses a
full market cycle. A full market cycle includes both a bull
and a bear market.
HOW DOES THE FUND EXPECT TO ACHIEVE ITS INVESTMENT OBJECTIVE?
The strategy is to shift the Fund's assets among stock-based
exchange-traded funds, investment-grade bonds or cash
equivalents so that, at any given time, virtually all of the
Fund's assets will be invested in one of these three asset
classes. It is important to note that the Fund will invest in
the stock or bond markets only when these markets appear to
offer a compelling risk/reward opportunity. Otherwise, the
Fund will be invested in money market instruments.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 10 FOR BENCHMARK DEFINITIONS
THIS FUND MAY CHANGE THE ALLOCATION OF ITS PORTFOLIO HOLDINGS
REGULARLY, WHICH MAY RESULT IN A HIGHER PROPORTION OF CAPITAL
GAINS AND A LOWER RETURN. THE FUND UTILIZES A FOCUSED
INVESTMENT STRATEGY, WHICH MAY INCREASE THE VOLATILITY OF THE
FUND'S INVESTMENT RESULTS. THERE IS NO ASSURANCE THAT THE
FUND'S OBJECTIVES WILL BE ACHIEVED.
5
. . . C O N T I N U E D
========================--------------------------------------------------------
HOW WAS THE FUND INVESTED DURING THE PERIOD?
Approximately 35% of the time, the Fund was invested in stock-
based exchange-traded funds, and 65% of the time in money
market instruments. It was not invested in bonds during the
period.
WHAT PURPOSE DOES THE FUND SERVE FOR THE AVERAGE INVESTOR?
If you look at the history of the stock market back to 1900,
you will see that there have been three distinct periods, each
lasting well over a decade, when stocks went up and down in
broad cycles but made little progress, essentially moving
sideways. Together, these periods represent 49 of the 105
years since 1900, or almost half the time, as shown in the
chart below. These periods produced sub-par returns.
[PHOTO OF DOW JONES INDUSTRIAL AVERAGE
MONTHLY DATA 1/31/1900-6/30/2005 (LOG SCALE)]
SOURCE: NED DAVIS RESEARCH GROUP
THE DOW JONES INDUSTRIAL AVERAGE IS A PRICE-WEIGHTED AVERAGE OF 30 ACTIVELY
TRADED BLUE CHIP STOCKS, PRIMARILY INDUSTRIALS.
6
. . . C O N T I N U E D
========================--------------------------------------------------------
COMMENTARY on the Fund
If you look at the market so far this decade, it is possible we
have entered another one of these extended sideways movements.
Therefore, we wanted to create a fund that had the potential to
produce attractive returns in such an environment. At the same
time, the strategy also needed to provide the potential to
deliver attractive returns if we experience an extended bull
market like that of the 1990s. In effect, the Fund seeks to
produce an attractive return regardless of the investment
environment.
The Fund may also enhance diversification of an investor's
total portfolio. The essence of diversification is to own
assets that generally behave differently in a given investment
environment. The Fund is expected to behave differently than
other asset classes such as stocks or bonds. By including the
Fund in your portfolio, the diversification of your total
portfolio may be enhanced.
Finally, because the Fund makes the decisions of when to invest
in the stock and bond markets, it takes that burden off an
investor who wants a more active investment approach.
WHAT ARE YOUR THOUGHTS ON THE FUND'S PERFORMANCE COMPARED TO THE S&P 500 INDEX
DURING THE REPORTING PERIOD?
The Fund was not designed to outperform the S&P 500 Index every
reporting period. The focus is on outperforming it over a full
market cycle, which encompasses both a bull and a bear market.
ARE THERE ANY OTHER IMPORTANT ISSUES SHAREHOLDERS SHOULD UNDERSTAND ABOUT THE
FUND?
Yes. One is that there will be times when the Fund is not
invested in either stocks or bonds, even when these markets are
rising. That's because there may be significant risk associated
with those rising markets, and we do not want to commit
7
. . . C O N T I N U E D
========================--------------------------------------------------------
shareholders' money when the risk exceeds the potential reward.
In baseball, hitters often look for the "fat pitch," one that's
easier to hit. That's what we're trying to do in the stock and
bond markets, hit the fat pitch.
Second, the Fund is designed to avoid or reduce big losses,
which is one of the keys to investing successfully over the
long term. Since World War II, the median decline of a bear
market, as measured by the S&P 500 Index, is 27%. If you lose
27% of your money, you have to then earn 37% just to get back
to even. So the Fund is very sensitive to losing money, and
therefore particular about the conditions required before we
will invest.
Third, investors in the Fund need to have a long-term
investment time horizon and be willing to be patient and
maintain their investment at least through a full market cycle.
Because the Fund is designed to reduce big losses while still
participating to a significant degree in strong upward moves,
it will probably take a full market cycle for the full
potential of the Fund to be evident.
DO YOU EXPECT TO BE IN STOCKS DURING THE SECOND HALF OF 2005?
We were in money market instruments at the end of the reporting
period. If our proprietary indicators give us a buy signal, we
will move into stock-based exchange-traded funds. We don't
want to speculate on whether a buy signal will occur.
We thank you, our shareholders, for investing in this
innovative mutual fund. We are very confident in the Fund's
strategy and believe it responds to a very specific and
critical need in today's market.
8
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
USAA TOTAL RETURN STRATEGY FUND
OBJECTIVE
- --------------------------------------------------------------------------------
Seeks a positive return every calendar year and over the long
term (five years and more) to achieve returns greater than the
S&P 500 Index with less risk.
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
Shifts the Fund's assets among stocks, investment-grade bonds,
or cash equivalents. Generally invests at any given time
substantially all of the Fund's assets in either (1) stocks
through the use of stock-based exchange-traded funds (ETFs),
(2) investment-grade bonds through either ETFs or direct
investment, or (3) cash equivalents through direct investment
in short-term, high-quality money market instruments or money
market funds.
- ----------------------------------------------------------------------------
6/30/05
- ----------------------------------------------------------------------------
Net Assets $154.6 Million
Net Asset Value Per Share $9.86
- ----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/05
- ----------------------------------------------------------------------------
SINCE INCEPTION ON 1/24/05* -0.75%
*TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THIS RETURN
IS CUMULATIVE.
The performance data quoted represents past performance and is
no guarantee of future results. Current performance may be
higher or lower than the performance data quoted. The return
and principal value of an investment will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less
than their original cost. For performance data current to the
most recent month-end, visit usaa.com.
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL NET INVESTMENT INCOME 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.
9
. . . C O N T I N U E D
========================--------------------------------------------------------
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER FLEXIBLE USAA TOTAL
PORTFOLIO RETURN
S&P 500 INDEX FUNDS INDEX STRATEGY FUND
------------- --------------- -------------
1/24/05 $10,000.00 $10,000.00 $10,000.00
1/31/05 10,152.39 10,126.44 10,000.00
2/28/05 10,365.92 10,317.34 10,020.00
3/31/05 10,182.55 10,134.26 9,854.00
4/30/05 9,989.52 9,949.08 9,874.07
5/31/05 10,307.10 10,178.67 9,884.10
6/30/05 10,321.87 10,253.39 9,925.25
[END CHART]
DATA SINCE FUND INCEPTION ON 1/24/05 THROUGH 6/30/05.
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.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
The graph on page 9 illustrates the comparison of a $10,000
hypothetical investment in the USAA Total Return Strategy Fund
to the following benchmarks:
o The S&P 500 Index is an unmanaged index representing the
weighted average performance of a group of 500 widely held,
publicly traded stocks. It is not possible to invest directly
in the S&P 500 Index.
o The Lipper Flexible Portfolio Funds Index tracks the
performance of the 30 largest funds within the Lipper
Flexible Funds category. This category allocates its
investments across various asset classes, including domestic
common stocks, bonds, and money market instruments with a
focus on total return.
11
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
PERCENTAGE OF TIME INVESTED
IN ASSET CLASSES
[PIE CHART OF ASSET CLASSES]
Stock-Based Exchange-Traded Funds 35%
Money Market Instruments 65%
[END PIE CHART]
DATA SINCE FUND INCEPTION ON 1/24/05 THROUGH 6/30/05.
THE PERCENTAGE OF TIME INVESTED IN ASSET CLASSES IS CALCULATED
BY DIVIDING THE NUMBER OF MARKET DAYS (INCLUDING DAYS WHEN THE
MARKET WAS CLOSED DUE TO HOLIDAY) IN THE PERIOD THAT THE FUND
HELD THE PARTICULAR ASSET CLASS AS OF THE CLOSE OF THE MARKET
DAY, BY THE TOTAL NUMBER OF MARKET DAYS IN THE PERIOD, WHICH
CONSISTED OF 114 DAYS FROM 1/24/05 THROUGH 6/30/05.
12
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (99.7%)(a)
$25,000 Bear Stearns & Co., Inc., 3.25%, acquired on 6/30/2005 and
due 7/01/2005 at $25,000 (collateralized by $25,000 of
Federal Home Loan Bank Bonds(b), 5.75%, due 6/30/2025; and
$420 of U.S. Treasury Notes, 2.38%, due 8/15/2006; combined
market value $25,504) $ 25,000
69,119 UBS Securities LLC, 3.35%, acquired on 6/30/2005 and
due 7/01/2005 at $69,119 (collateralized by $65,340 of Fannie
Mae Notes(b), 4.63%-6.25%, due 2/01/2011-5/01/2013; market
value $70,506) 69,119
60,000 Wachovia Securities, Inc., 3.28%, acquired on 6/30/2005 and
due 7/01/2005 at $60,000 (collateralized by $61,055 of
Federal Home Loan Bank Bonds(b), 3.00%-6.33%, due 7/01/2005-
11/15/2024; market value $61,201) 60,000
--------
154,119
--------
TOTAL INVESTMENTS (COST: $154,119) $154,119
========
13
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
GENERAL NOTES
- --------------------------------------------------------------------------------
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets and, in total, may not
equal 100%.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) 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.
(b) 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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
ASSETS
Repurchase agreements $154,119
Receivables:
Capital shares sold 531
Dividends and interest 14
USAA Investment Management Company (Note 5C) 112
Prepaid expenses 28
--------
Total assets 154,804
--------
LIABILITIES
Payables:
Capital shares redeemed 52
Accrued management fees 79
Accrued transfer agent's fees 5
Other accrued expenses and payables 28
--------
Total liabilities 164
--------
Net assets applicable to capital shares outstanding $154,640
========
NET ASSETS CONSIST OF:
Paid-in capital $156,080
Accumulated undistributed net investment income 14
Accumulated net realized loss on investments (1,454)
--------
Net assets applicable to capital shares outstanding $154,640
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 15,689
========
Net asset value, redemption price, and offering price per share $ 9.86
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA TOTAL RETURN STRATEGY FUND
PERIOD ENDED JUNE 30, 2005* (UNAUDITED)
INVESTMENT INCOME
Dividends $ 371
Interest 942
-------
Total income 1,313
-------
EXPENSES
Management fees 300
Administration and servicing fees 69
Transfer agent's fees 105
Custody and accounting fees 18
Postage 7
Shareholder reporting fees 3
Trustees' fees 3
Registration fees 53
Professional fees 19
Other 2
-------
Total expenses 579
Expenses paid indirectly (1)
Expenses reimbursed (112)
-------
Net expenses 466
-------
NET INVESTMENT INCOME 847
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss $(1,454)
-------
Decrease in net assets resulting from operations $ (607)
=======
* FUND COMMENCED OPERATIONS ON JANUARY 24, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
S T A T E M E N T
==================--------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA TOTAL RETURN STRATEGY FUND
PERIOD ENDED JUNE 30, 2005* (UNAUDITED)
FROM OPERATIONS
Net investment income $ 847
Net realized loss on investments (1,454)
--------
Decrease in net assets resulting from operations (607)
--------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (833)
--------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 162,477
Shares issued for dividends reinvested 654
Cost of shares redeemed (7,051)
--------
Increase in net assets from capital share transactions 156,080
--------
Net increase in net assets 154,640
NET ASSETS
End of period $154,640
========
Accumulated undistributed net investment income
End of period $ 14
========
CHANGE IN SHARES OUTSTANDING
Shares sold 16,337
Shares issued for dividends reinvested 66
Shares redeemed (714)
--------
Increase in shares outstanding 15,689
========
* FUND COMMENCED OPERATIONS ON JANUARY 24, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
(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 semiannual report pertains only to the USAA Total Return Strategy
Fund (the Fund), which is classified as non-diversified under the 1940
Act. The Fund's investment objective is to seek a positive return every
calendar year and over the long term (five years and more) to achieve
returns greater than the S&P 500 Index with less risk. The Fund
commenced operations on January 24, 2005.
As a non-diversified fund, the Fund may invest a greater percentage of
its assets in a single issuer, such as a single stock-based or
bond-based exchange-traded fund (ETF) or a single money market
instrument. Because a relatively high percentage of the Fund's total
assets may be invested in the securities of a single issuer or a
limited number of issuers, the securities of the Fund may be more
sensitive to changes in the market value of a single issuer, a limited
number of issuers, or large companies generally. Such a focused
investment strategy may increase the volatility of the Fund's
investment results because this Fund may be more susceptible to risks
associated with a single economic, political, or regulatory event than
a diversified fund.
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, including ETFs, 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. If no last sale or official
closing price is reported or available, the average of the
bid and asked prices is generally used.
18
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
2. Investments in open-end investment companies, other than
ETFs, are valued at their net asset value (NAV) at the end of
each business day.
3. 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.
4. Other debt securities are valued each business day by a
pricing service (the Service) approved by the Trust's Board
of Trustees. The Service uses the mean between quoted bid and
asked prices or the last sales price to price securities
when, in the Service's judgment, these prices are readily
available and are representative of the securities' market
values. For many securities, such prices are not readily
available. The Service generally prices these securities
based on methods that include consideration of yields or
prices of securities of comparable quality, coupon, maturity,
and type; indications as to values from dealers in
securities; and general market conditions.
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 USAA Investment Management Company (the
Manager), an affiliate of the Fund, 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.
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
19
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
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 are
amortized over the life of the respective securities, using the
effective yield method for long-term securities and the
straight-line method for short-term securities.
D. REPURCHASE AGREEMENTS - The Fund may enter into repurchase
agreements with commercial banks or recognized security dealers.
These agreements are collateralized by obligations issued or
guaranteed as to both principal and interest by the U.S.
government, its agencies, or its instrumentalities. Government-
sponsored enterprises (GSEs), such as Fannie Mae and Freddie
Mac, are supported only by the credit of the issuing U.S.
government agency, and are neither issued nor guaranteed by the
U.S. government. Obligations pledged as collateral are required
to maintain a value equal to or in excess of the repurchase
agreement price plus accrued interest and are held by the Fund,
either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for
20
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
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. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's
custodian and other banks utilized by the Fund for cash
management purposes, realized credits, if any, generated from
cash balances in the Fund's bank accounts are used to reduce the
Fund's expenses. For the period ended June 30, 2005, these
custodian and other bank credits reduced the Fund's expenses by
$1,000.
F. 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.
G. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that may
affect the reported amounts in the financial statements.
(2) LINES OF CREDIT
- --------------------------------------------------------------------------------
The Fund participates 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
21
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
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.
For the period ended June 30, 2005, the Fund paid CAPCO facility fees
of less than $500, which represents 0.1% of total fees paid to CAPCO by
the USAA funds. The Fund had no borrowings under this agreement during
the period ended June 30, 2005.
(3) DISTRIBUTIONS
- --------------------------------------------------------------------------------
The tax basis of distributions and accumulated undistributed net
investment income will be determined based upon the Fund's tax year-end
of December 31, 2005, in accordance with applicable tax law.
Distributions of net investment income are made quarterly.
Distributions of realized gains from security transactions not offset
by capital losses are made annually in the succeeding fiscal year or as
otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the period ended June 30, 2005, were
$239,370,000 and $237,917,000, respectively.
22
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
The cost of securities, including short-term securities, at June 30,
2005, for federal income tax purposes, was approximately the same as
that reported in the financial statements.
(5) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager carries out the Fund's investment
policies and manages the Fund's portfolio. The Fund's management
fees are accrued daily and paid monthly at an annualized rate of
0.65% of the Fund's average net assets. For the period ended
June 30, 2005, the Fund incurred total management fees, paid or
payable to the Manager, of $300,000.
Beginning with the month ending February 28, 2006, the
investment management fee for the Fund will be 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 Flexible
Portfolio Funds Index, which tracks the performance of the 30
largest funds within the Lipper Flexible Funds category. The
base fee for the Fund will be computed as referenced above. The
performance adjustment will be calculated monthly by comparing
the Fund's performance to that of the Lipper index over the
performance period. For the month ended February 28, 2006, the
performance period will consist of the previous 12-month period.
A new month will be added to the performance period each month
thereafter until the performance period consists of the previous
36 months. Thereafter, the performance period for the Fund will
consist of the current month plus the previous 35 months.
The annual performance adjustment rate is multiplied by the
average net assets of the Fund over the entire performance
period, which is then multiplied by a fraction, the numerator of
which is the number of days in the month and the denominator
23
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
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%.
B. 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 period ended June 30, 2005, the Fund
incurred administration and servicing fees, paid or payable to
the Manager, of $69,000.
C. EXPENSE LIMITATION - The Manager has voluntarily agreed to limit
the annual expenses of the Fund to 1.00% of its average annual
net assets, before reductions of any expenses paid indirectly,
and will reimburse the Fund for all expenses in excess of that
amount. This agreement may be modified or terminated at any
time. Up to January 7, 2008, the Manager may recover from the
Fund all or a portion of expenses waived or reimbursed, provided
that the additional amount paid by the Fund, together with all
other expenses of the Fund, in aggregate, would not cause the
Fund's expense ratio in any period up to January 7, 2008, to
exceed 1.00% of the Fund's average net assets. For the period
ended June 30, 2005, the Fund incurred reimbursable expenses of
$112,000.
24
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
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 the
administration and servicing of accounts that are traded on an
omnibus basis. For the period ended June 30, 2005, the Fund
incurred transfer agent's fees, paid or payable to SAS, of
$105,000.
E. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
USAA Investment Management Company is an indirectly wholly owned
subsidiary of United Services Automobile Association (the
Association), a large, diversified financial services
institution. At June 30, 2005, the Association and its
affiliates owned 2,500,000 shares (15.9%) of the Fund.
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.
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
(7) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout the period is
as follows:
PERIOD ENDED
JUNE 30,
2005*
------------
Net asset value at beginning of period $ 10.00
--------
Income (loss) from investment operations:
Net investment income(a) .09
Net realized and unrealized loss (.16)
--------
Total from investment operations (.07)
--------
Less distributions:
From net investment income (.07)
--------
Net asset value at end of period $ 9.86
========
Total return (%)** (.75)
Net assets at end of period (000) $154,640
Ratio of expenses to average net assets (%)***(b,c,d) 1.00
Ratio of expenses to average net assets, excluding reimbursements (%)***(b,c) 1.24
Ratio of net investment income to average net assets (%)***(b) 1.82
Portfolio turnover (%) 217.92
* Fund commenced operations on January 24, 2005.
** Assumes reinvestment of all net investment income distributions during the
period.
*** For the period ended June 30, 2005, average net assets were $107,785,000.
(a) Calculated using average shares. For the period ended June 30, 2005, average
shares were 9,762,000.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Effective January 24, 2005, the Manager voluntarily agreed to limit the
annual expenses of the Fund to 1.00% of the Fund's average net assets.
26
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: direct
costs, such as wire fees, redemption fees, and low balance fees; and
indirect costs, including management fees, transfer agency fees, and
other Fund operating expenses. This example is intended to help you
understand your indirect costs, also referred to as "ongoing costs,"
(in dollars) of investing in the Fund and to compare these costs with
the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period of January 24,
2005, through June 30, 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
27
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(continued)
USAA TOTAL RETURN STRATEGY FUND
JUNE 30, 2005 (UNAUDITED)
Fund and other funds. To do so, compare this 5% hypothetical example
with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any direct costs, such as
wire fees, redemption fees, or low balance fees. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different
funds. In addition, if these direct costs were included, your costs
would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 24, 2005 -
JANUARY 24, 2005 JUNE 30, 2005 JUNE 30, 2005
-----------------------------------------------------------
Actual $1,000.00 $ 992.50 $4.30
Hypothetical
(5% return before expenses) 1,000.00 1,017.32 4.36
*Expenses are equal to the Fund's annualized expense ratio of 1.00%,
which is net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by
158 days/365 days (to reflect the current period). The Fund's ending
account value on the first line in the table is based on its actual
total return of (0.75%) since the Fund's inception date of January 24,
2005, through June 30, 2005.
28
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
29
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
30
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
31
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
32
N O T E S
==========----------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Michael F. Reimherr
Laura T. Starks, Ph.D.
Richard A. Zucker
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, San Antonio, Texas 78265-9825
AND DISTRIBUTOR
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN 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
COMPANY'S BOARD OF DIRECTORS 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.
[LOGO OF RECYCLED PAPER]
Recycled
Paper
- --------------------------------------------------------------------------------
[LOGO OF USAA] 9800 Fredericksburg Road -------------
USAA(R) San Antonio, Texas 78288 PRSRT STD
U.S.
Postage
P A I D
USAA
-------------
Receive this document
and others electronically.
Sign up at USAA.COM.
- --------------------------------------------------------------------------------
[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
48704-0805 (C)2005, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 10. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA
Investment Trust (Trust) have concluded that the Fund'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. The only change to the
procedures was to document the annual disclosure controls and procedures
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). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA INVESTMENT TRUST, Total Return Strategy Fund
By:* EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: AUGUST 24, 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:* CHRISTOPHER W. CLAUS
----------------------------------------------------
Signature and Title: Christopher W. Claus/President
Date: AUGUST 29, 2005
------------------------------
By:* DEBRA K. DUNN
--------------------------------------------
Signature and Title: Debra K. Dunn/Treasurer
Date: AUGUST 29, 2005
------------------------------
*Print the name and title of each signing officer under his or her signature.