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: MAY 31
Date of reporting period: NOVEMBER 30, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
USAA GROWTH AND TAX STRATEGY FUND - SEMIANNUAL REPORT FOR PERIOD ENDING
NOVEMBER 30, 2005
[LOGO OF USAA]
USAA(R)
USAA GROWTH and
TAX STRATEGY Fund
[GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND]
S e m i a n n u a l R e p o r t
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NOVEMBER 30, 2005
Table of CONTENTS
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MESSAGE FROM THE PRESIDENT 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 20
Financial Statements 22
Notes to Financial Statements 25
EXPENSE EXAMPLE 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2006, USAA. All rights reserved.
2
M E S S A G E
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from the PRESIDENT
"
WE WILL CONTINUE TO LOOK FOR VALUE
[PHOTO OF CHRISTOPHER W. CLAUS] IN OUR INVESTMENTS, EXAMINE THE RISKS,
AND MAINTAIN OUR INVESTMENT DISCIPLINE.
"
December 2005
- --------------------------------------------------------------------------------
As I write to you during the final weeks of 2005, I am watching
some interesting dynamics that could affect all of us in the
new year.
In 2006, we expect the Federal Reserve Board (the Fed) to stop
tightening short-term interest rates. After raising rates to
4.25% in December 2005, Fed governors, we believe, are likely
to hike rates at least one more time on January 31, 2006. If
the Fed keeps tightening, there is the possibility that
short-term interest rates could eventually be higher than
long-term rates, resulting in what is called an inverted yield
curve. In some cases, an inverted yield curve has been the
precursor of an economic downturn.
For the moment, however, the U.S. economy appears to be on
solid footing, with estimates for gross domestic product (GDP)
growth of about 3% for 2006. While the country is not
experiencing an economic boom, we can expect moderate growth in
the months ahead, which should translate into gains in
corporate earnings in the mid-single digits. Whether earnings
will be robust enough to support current stock market
valuations, however, remains uncertain. Beyond our shores,
international stocks outperformed U.S. equities during 2005. We
believe we could see a repeat of this in 2006.
In the gold market, prices have continued to rise, fueled by
high oil prices, strong investor demand, and an increase in
consumer purchases of jewelry. We expect these conditions to
persist during 2006.
I believe the housing market is at or near the peak in the
number of units sold. Inventory has grown, mortgage rates are
inching
3
. . . C O N T I N U E D
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upward, and some institutions have tightened their lending
standards. If housing prices fall, the first to feel the pain
could be investors who are "flipping" properties using
interest-only or adjustable-rate mortgages (ARMs). The dramatic
increase in short-term rates would be particularly painful for
housing investors also, especially those with ARMs and
interest-only mortgages.
Among the biggest stories of 2005 was the resiliency of
long-term interest rates. Instead of spiking higher, they were
range bound most of the year. In 2006, both short- and
long-term rates will continue to be a key market indicator. If
rates rise, bond prices will fall - hurting the bond market.
Going forward, two factors will have great influence on
long-term rates. One is inflation, which appears to be under
control at present. The second is the purchase of U.S. debt by
foreign investors, which helps us support our budget deficit.
With interest rates in other countries significantly lower, it
seems likely that foreign demand will remain strong, buoying
U.S. bonds. We believe that long-term rates will not spike
dramatically but continue to drift upward in a manageable
fashion.
In this environment, our central concern is that we are paid
for the risk we take in all our portfolios. It makes sense to
be cautious; there is some risk in the market, but risk
premiums are very low.
We will continue to look for value in our investments, examine
the risks, and maintain our investment discipline. From all of
us at USAA Investment Management Company, 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
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
M A N A G E R S '
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COMMENTARY on the Fund
[PHOTO OF CLIFFORD A. GLADSON] CLIFFORD A. GLADSON, CFA
USAA Investment Management Company
[PHOTO OF PAMELA N. CZEKANSKI] PAMELA N. CZEKANSKI, CFA
Loomis, Sayles & Company, L.P.
[PHOTO OF MARK B. BARIBEAU] MARK B. BARIBEAU, CFA
Loomis, Sayles & Company, L.P.
[PHOTO OF RICHARD D. SKAGGS] RICHARD D. SKAGGS, CFA
Loomis, Sayles & Company, L.P.
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HOW DID THE FUND PERFORM?
The USAA Growth and Tax Strategy Fund had a total return of
5.54% for the six months ended November 30, 2005. This compares
to a 4.27% return for the Lipper Balanced Funds Average, 4.51%
for the Lipper Balanced Funds Index, 7.05% for the Russell 1000
Growth Index, and 0.36% for the Lehman Brothers Municipal Bond
Index.
Your Fund's Board of Trustees has approved proposals by USAA
Investment Management Company (IMCO) to terminate its
subadvisory agreement with Loomis, Sayles & Company L.P.
(Loomis Sayles) for the U.S. equity portion of the Fund and
enter into a new subadvisory agreement with Northern Trust
Investments, N.A. (NTI). This change took effect on December 1,
2005, and was made to increase the Fund's tax efficiency as
well as the diversification of the Fund's U.S. equity portion.
WHY DID THE FUND'S BOARD REPLACE LOOMIS SAYLES WITH NTI?
Loomis Sayles is an outstanding manager of growth stocks, and
will continue to subadvise other USAA mutual funds. However,
given the Fund's commitment to tax efficiency, the Fund's Board
determined that shareholders would be better served by changing
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 10 FOR BENCHMARK DEFINITIONS.
5
. . . C O N T I N U E D
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the blue chip stocks category of the Fund to the tax-
advantaged S&P 500 Index style utilized by NTI.
In addition to the natural tax efficiency that comes from index
investing, NTI overlays an innovative tax management strategy
to reduce capital gains. By replacing the previous growth-only
style with a blue chip index approach that incorporates both
the value and growth styles, the Fund will become more
diversified.
On behalf of your Fund's management team, we look forward to
providing you with a fully integrated tax-efficient strategy to
help you achieve your goals. We thank Loomis Sayles for its
work on the Fund; we welcome NTI as a new subadviser; and, most
importantly, we thank you for the confidence you have placed in
us.
HOW WERE THE FUND'S ASSETS ALLOCATED BETWEEN STOCKS AND TAX-EXEMPT SECURITIES?
The structure of your Fund is unique. Under the Internal
Revenue Code, it must have at least 50% of its assets invested
in tax-exempt securities at the end of each fiscal quarter in
order to pass tax-exempt income to you. Due to uncertainty in
the equity markets, we cut back the Fund's weighting in U.S.
stocks in November, and ended the period with 59% of net assets
invested in tax-exempt securities and 43% in U.S. equities.
HOW DID THE FUND'S TAX-EXEMPT SECURITIES PERFORM DURING THE PERIOD?
The yield on the Bond Buyer 40-Bond Index, an industry standard
for long-term investment-grade municipal bonds, rose
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.
THE BOND BUYER 40-BOND INDEX IS REPRESENTATIVE OF YIELDS OF 40
LARGE ONE-YEAR, TAX-EXEMPT NOTES.
6
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COMMENTARY on the Fund
from 4.70% on May 31, 2005, to 4.85% on November 30, 2005.
Bonds traded in a narrow range throughout the period, and we
were able to pass along competitive levels of tax-exempt income
to shareholders. Early in the period, we focused our purchases
on bonds with 15- to 25-year maturities. As the period
progressed, however, we began to believe that 25- to 30-year
maturities offered the best balance of risk and return, and
therefore started to buy bonds with longer maturities.
WHAT'S YOUR OUTLOOK FOR TAX-EXEMPT SECURITIES?
Based on recent statements and the testimony of the incoming
chairman of the Federal Reserve Board (the Fed), Benjamin
Bernanke, we expect the federal funds rate to rise gradually to
about 4.5%. So long as the credit markets have confidence in
the Fed's willingness to keep inflation under control, we think
longer-term interest rates will remain within a fairly narrow
trading range, probably moving a bit higher over the short term
and perhaps falling later next year. We think tax- exempt bonds
as a whole are fairly priced in the current environment.
HOW DID THE FUND'S EQUITY PORTION PERFORM?
The equity portion outperformed the Russell 1000 Growth Index,
with strong performance across all key industry sectors. The
Fund was overweight in the financial services sector, and
benefited as several key holdings continued to deliver strong
gains. These included Legg Mason, Inc., the asset management
firm that concluded a major deal with Citigroup; Moody's Corp.,
which continued to show strong earnings and expanded its stock
buyback program; and Chicago Mercantile Exchange Holdings,
Inc., which benefited as investors increasingly recognized the
value of publicly traded securities and commodities exchanges.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS
ON PAGES 13-19.
7
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Other key sectors that led performance were consumer
discretionary, led by Google, Inc. "A," the Internet search
giant, and Chico's FAS, Inc., the women's apparel retailer, and
technology, led by Apple Computer, Inc. and Motorola, Inc.
Apple Computer, Inc. continued to gain on the strength of
outstanding iPod sales, while Motorola, Inc. benefited from
strong consumer demand for its RAZR mobile phones.
Three stocks that underperformed rather significantly -
American Eagle Outfitters, Inc., Dell, Inc., and Stryker Corp.
- were sold before the end of the period.
8
I N V E S T M E N T
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OVERVIEW
USAA GROWTH AND TAX STRATEGY FUND
OBJECTIVE
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Conservative balance for the investor between income, the
majority of which is exempt from federal income tax, and the
potential for long-term growth of capital to preserve
purchasing power.
TYPES OF INVESTMENTS
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Invests principally in tax-exempt bonds and money market
instruments and the remainder in blue chip stocks.
- --------------------------------------------------------------------------------
11/30/05 5/31/05
- --------------------------------------------------------------------------------
Net Assets $193.6 Million $188.5 Million
Net Asset Value Per Share $15.30 $14.65
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND 30-DAY SEC YIELD* AS OF 11/30/05
- --------------------------------------------------------------------------------
5/31/05 TO 11/30/05** 1 YEAR 5 YEARS 10 YEARS 30-DAY SEC YIELD
5.54% 9.33% 2.51% 6.02% 1.92%
*CALCULATED AS PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION.
**TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THIS
SIX-MONTH RETURN IS CUMULATIVE.
The performance data quoted represents past performance and is
no guarantee of future results. Current performance may be
higher or lower than the performance data quoted. The return
and principal value of an investment will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less
than their original cost. For performance data current to the
most recent month-end, visit usaa.com.
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL NET INVESTMENT INCOME DIVIDEND AND REALIZED
CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS QUOTED DO NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
9
. . . C O N T I N U E D
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CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA GROWTH LEHMAN BROTHERS
LIPPER BALANCED LIPPER BALANCED RUSSELL 1000 AND TAX MUNICIPAL BOND
FUNDS INDEX FUNDS AVERAGE GROWTH INDEX STRATEGY FUND INDEX
--------------- --------------- ------------ ------------- ---------------
11/30/95 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/95 10,157.39 10,142.44 10,057.33 10,213.07 10,095.98
01/31/96 10,340.75 10,337.19 10,393.74 10,369.62 10,172.27
02/29/96 10,345.73 10,374.59 10,583.83 10,414.35 10,103.56
03/31/96 10,384.75 10,414.59 10,597.41 10,503.61 9,974.49
04/30/96 10,453.49 10,518.98 10,876.24 10,503.61 9,946.20
05/31/96 10,560.62 10,655.84 11,256.28 10,608.87 9,942.41
06/30/96 10,595.45 10,665.57 11,271.56 10,684.62 10,050.77
07/31/96 10,322.77 10,363.52 10,611.17 10,541.09 10,141.70
08/31/96 10,485.78 10,555.44 10,885.05 10,642.30 10,139.43
09/30/96 10,874.72 10,955.55 11,677.67 10,930.35 10,281.13
10/31/96 11,104.81 11,156.00 11,748.04 11,087.51 10,397.32
11/30/96 11,622.33 11,662.75 12,630.10 11,456.83 10,587.77
12/31/96 11,483.13 11,547.65 12,382.83 11,348.93 10,543.07
01/31/97 11,838.24 11,898.66 13,251.33 11,578.92 10,563.02
02/28/97 11,882.17 11,905.68 13,161.61 11,666.16 10,660.01
03/31/97 11,536.82 11,555.06 12,449.36 11,403.66 10,517.81
04/30/97 11,883.64 11,891.64 13,276.04 11,635.73 10,605.96
05/31/97 12,370.28 12,425.65 14,234.11 12,115.89 10,765.60
06/30/97 12,780.33 12,800.72 14,803.78 12,363.97 10,880.27
07/31/97 13,508.30 13,542.80 16,113.05 12,835.78 11,181.61
08/31/97 13,080.11 13,181.57 15,169.95 12,545.94 11,076.79
09/30/97 13,601.47 13,703.56 15,916.45 12,910.76 11,208.13
10/31/97 13,353.81 13,472.75 15,328.17 12,869.04 11,280.37
11/30/97 13,599.10 13,692.89 15,979.23 13,035.95 11,346.80
12/31/97 13,813.95 13,887.84 16,158.23 13,182.98 11,512.25
01/31/98 13,912.11 13,975.76 16,641.40 13,276.48 11,630.97
02/28/98 14,464.45 14,576.40 17,893.20 13,684.47 11,634.50
03/31/98 14,906.74 15,008.06 18,606.50 14,058.33 11,644.86
04/30/98 15,011.15 15,121.21 18,863.98 14,032.64 11,592.32
05/31/98 14,859.38 14,952.07 18,328.70 13,964.15 11,775.70
06/30/98 15,133.40 15,182.85 19,451.25 14,092.70 11,822.18
07/31/98 14,956.11 14,990.59 19,322.50 13,897.02 11,851.73
08/31/98 13,667.63 13,637.92 16,422.66 13,034.45 12,034.86
09/30/98 14,257.54 14,227.50 17,684.20 13,547.20 12,184.90
10/31/98 14,790.94 14,839.50 19,105.51 13,828.34 12,184.64
11/30/98 15,332.34 15,411.73 20,558.77 14,329.11 12,227.33
12/31/98 15,897.98 15,993.25 22,412.55 14,708.65 12,258.15
01/31/99 16,152.21 16,300.73 23,728.57 15,172.28 12,403.89
02/28/99 15,763.96 15,858.86 22,644.58 14,854.10 12,349.84
03/31/99 16,153.07 16,268.69 23,837.18 15,289.70 12,366.76
04/30/99 16,682.17 16,759.20 23,867.66 15,518.31 12,397.58
05/31/99 16,424.94 16,510.72 23,134.14 15,234.83 12,325.84
06/30/99 16,879.06 16,992.63 24,754.57 15,666.74 12,148.52
07/31/99 16,563.37 16,663.59 23,967.83 15,467.46 12,192.73
08/31/99 16,389.59 16,456.41 24,359.45 15,347.77 12,094.97
09/30/99 16,179.60 16,237.46 23,847.74 15,126.53 12,100.03
10/31/99 16,648.07 16,709.20 25,648.66 15,664.45 11,968.93
11/30/99 16,827.20 16,926.13 27,032.51 15,794.29 12,096.24
12/31/99 17,325.10 17,477.10 29,844.10 16,072.26 12,006.06
01/31/00 16,889.86 17,007.17 28,444.75 15,754.74 11,953.78
02/29/00 16,849.17 17,041.81 29,835.29 15,978.87 12,092.70
03/31/00 17,841.23 18,011.36 31,970.78 17,043.20 12,356.91
04/30/00 17,514.28 17,674.85 30,449.46 16,638.98 12,283.91
05/31/00 17,349.48 17,464.97 28,916.14 16,244.16 12,220.00
06/30/00 17,626.40 17,804.33 31,107.64 16,610.97 12,543.82
07/31/00 17,578.36 17,769.46 29,810.84 16,487.93 12,718.36
08/31/00 18,363.00 18,604.84 32,510.02 17,055.82 12,914.37
09/30/00 17,976.55 18,191.38 29,434.74 16,194.98 12,847.18
10/31/00 17,960.64 18,127.37 28,041.95 16,357.03 12,987.37
11/30/00 17,308.68 17,403.29 23,908.38 15,851.83 13,085.63
12/31/00 17,738.88 17,871.52 23,151.88 15,965.73 13,408.94
01/31/01 18,115.36 18,320.70 24,751.34 16,109.74 13,541.80
02/28/01 17,412.18 17,524.32 20,549.26 15,332.10 13,584.74
03/31/01 16,849.87 16,911.22 18,313.13 14,756.14 13,706.49
04/30/01 17,557.02 17,664.36 20,629.25 15,278.65 13,557.97
05/31/01 17,713.39 17,814.84 20,325.65 15,356.06 13,703.96
06/30/01 17,441.98 17,575.21 19,854.93 15,172.59 13,795.65
07/31/01 17,429.36 17,555.09 19,358.71 15,270.10 14,000.00
08/31/01 16,933.34 17,024.15 17,775.66 14,675.29 14,230.61
09/30/01 16,119.59 16,080.48 16,000.92 13,926.39 14,182.87
10/31/01 16,389.38 16,421.20 16,840.39 14,221.44 14,351.86
11/30/01 17,041.89 17,105.86 18,458.18 14,782.04 14,230.87
12/31/01 17,164.80 17,228.90 18,423.49 14,638.97 14,096.24
01/31/02 17,014.25 17,052.02 18,098.02 14,688.53 14,340.74
02/28/02 16,898.64 16,883.62 17,346.96 14,500.21 14,513.51
03/31/02 17,268.12 17,266.27 17,946.96 14,728.66 14,229.10
04/30/02 16,853.73 16,868.94 16,482.21 14,220.09 14,507.20
05/31/02 16,845.87 16,796.80 16,083.46 14,190.17 14,595.35
06/30/02 16,127.21 16,023.74 14,595.67 13,582.40 14,749.68
07/31/02 15,300.63 15,220.94 13,793.26 13,371.43 14,939.38
08/31/02 15,457.61 15,386.52 13,834.50 13,491.98 15,118.97
09/30/02 14,534.73 14,477.91 12,399.46 13,073.04 15,450.11
10/31/02 15,140.60 15,038.63 13,536.88 13,467.66 15,193.99
11/30/02 15,754.83 15,621.23 14,272.14 13,629.56 15,130.84
12/31/02 15,330.15 15,199.20 13,286.27 13,420.80 15,450.11
01/31/03 15,100.51 14,972.47 12,963.88 13,226.59 15,410.96
02/28/03 14,987.26 14,866.16 12,904.35 13,287.92 15,626.42
03/31/03 15,048.42 14,933.55 13,144.51 13,501.94 15,635.77
04/30/03 15,862.78 15,727.58 14,116.38 13,985.63 15,739.07
05/31/03 16,564.38 16,455.39 14,820.99 14,397.27 16,107.60
06/30/03 16,689.98 16,589.32 15,025.07 14,468.90 16,039.15
07/31/03 16,728.66 16,612.27 15,398.95 14,292.95 15,477.90
08/31/03 17,011.07 16,895.51 15,781.94 14,437.85 15,593.33
09/30/03 17,032.65 16,899.28 15,612.98 14,613.79 16,051.78
10/31/03 17,594.60 17,441.59 16,489.93 14,915.86 15,970.95
11/30/03 17,750.38 17,608.13 16,662.57 15,040.85 16,137.41
12/31/03 18,386.39 18,208.42 17,238.82 15,454.68 16,271.03
01/31/04 18,660.93 18,461.39 17,590.87 15,590.89 16,364.23
02/29/04 18,915.27 18,698.32 17,702.63 15,748.05 16,610.51
03/31/04 18,825.04 18,610.09 17,374.24 15,589.04 16,552.66
04/30/04 18,429.42 18,192.63 17,172.27 15,283.37 16,160.64
05/31/04 18,510.79 18,277.96 17,492.33 15,399.32 16,102.04
06/30/04 18,800.20 18,565.67 17,710.92 15,546.47 16,160.64
07/31/04 18,446.27 18,176.56 16,709.68 15,143.49 16,373.32
08/31/04 18,558.48 18,270.26 16,627.16 15,228.33 16,701.44
09/30/04 18,834.18 18,495.86 16,785.30 15,622.18 16,790.09
10/31/04 19,037.86 18,690.47 17,047.09 15,984.74 16,934.57
11/30/04 19,550.68 19,210.80 17,633.48 16,411.28 16,794.89
12/31/04 20,038.71 19,687.88 18,324.86 16,897.46 16,999.99
01/31/05 19,780.57 19,421.64 17,713.76 16,631.99 17,158.87
02/28/05 20,060.41 19,687.51 17,902.28 16,758.96 17,101.79
03/31/05 19,784.22 19,420.27 17,576.11 16,479.18 16,993.93
04/30/05 19,546.48 19,162.04 17,241.40 16,421.15 17,261.93
05/31/05 19,994.69 19,613.52 18,075.58 17,001.41 17,383.93
06/30/05 20,138.38 19,753.64 18,008.95 17,270.32 17,491.78
07/31/05 20,585.88 20,181.78 18,889.14 17,632.07 17,412.72
08/31/05 20,645.43 20,190.03 18,645.87 17,573.72 17,588.53
09/30/05 20,727.28 20,256.30 18,731.73 17,720.40 17,470.06
10/31/05 20,401.83 19,920.98 18,549.66 17,521.03 17,363.97
11/30/05 20,897.14 20,409.78 19,349.99 17,943.23 17,447.33
[END CHART]
DATA FROM 11/30/95 THROUGH 11/30/05.
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
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OVERVIEW
The graph on page 9 illustrates the comparison of a $10,000
hypothetical investment in the USAA Growth and Tax Strategy
Fund to the following benchmarks:
o The Lipper Balanced Funds Index tracks the total return
performance of the 30 largest funds within the Lipper
Balanced Funds category.
o The Lipper Balanced Funds Average is an average performance
level of all balanced funds, reported by Lipper Inc., an
independent organization that monitors the performance of
mutual funds.
o The Russell 1000 Growth Index measures the performance of
those Russell 1000 companies with higher price-to-book ratios
and higher forecasted growth values.
o The Lehman Brothers Municipal Bond Index is an unmanaged
benchmark of total return performance for the long-term,
investment-grade, tax-exempt bond market.
11
. . . C O N T I N U E D
========================--------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES
TOP 5 HOLDINGS
(% of Net Assets)
- --------------------------------------------------------------------------------
Wisconsin - Univ. of Wisconsin Hospitals and Clinics Auth. RB, Series 2000 3.5%
Connecticut - Mashantucket (Western) Pequot Tribe RB, Series 1997B 3.2%
Texas - Lewisville RB, Series 1998B 3.2%
Texas - Northwest ISD GO 2.9%
Georgia - Atlanta Airport RB, Series 2000A 2.5%
- --------------------------------------------------------------------------------
- ----------------------------------------
TOP 10 INDUSTRIES
(% of Net Assets)
- ----------------------------------------
Escrowed Bonds 15.9%
Hospital 9.7%
Water/Sewer Utility 6.2%
General Obligation Bonds 6.0%
Education 4.3%
Communications Equipment 3.5%
Internet Software & Services 3.4%
Managed Health Care 3.4%
Asset Management & Custody Banks 3.3%
Real Estate Tax/Fee Bonds 3.2%
- ----------------------------------------
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES 13-19.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
- ----------------------------------------
TOP 5 EQUITY HOLDINGS
(% of Net Assets)
- ----------------------------------------
Google, Inc. "A" 2.0%
Apple Computer, Inc. 1.7%
UnitedHealth Group, Inc. 1.5%
Franklin Resources, Inc. 1.4%
Legg Mason, Inc. 1.4%
- ----------------------------------------
ASSET ALLOCATION
11/30/05
[PIE CHART OF ASSET ALLOCATION]
Tax-Exempt Bonds 56.8%
Blue Chip Stocks 42.5%
Tax-Exempt Money Market Instruments 2.5%
[END CHART]
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.
13
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -------------------------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (59.3%)
TAX-EXEMPT BONDS (56.8%)
ARIZONA (2.8%)
$3,000 Maricopa County School District GO (INS) 5.00% 7/01/2017 $ 3,254
2,250 Univ. Medical Center Corp. Hospital RB 5.00 7/01/2035 2,226
ARKANSAS (1.4%)
2,500 Conway Health Facilities Board Hospital RB, Series 1999A 6.40 8/01/2029 2,670
CALIFORNIA (1.6%)
2,000 Public Works Board RB (MLO), Series 2004F 5.00 11/01/2029 2,050
4,435 West Contra Costa USD GO, Series D (INS) 5.05(a) 8/01/2034 1,042
CONNECTICUT (3.2%)
6,000 Mashantucket (Western) Pequot Tribe RB, Series 1997B(b) 5.75 9/01/2027 6,163
GEORGIA (2.5%)
4,500 Atlanta Airport RB, Series 2000A (INS)(PRE)(f) 5.60 1/01/2030 4,902
HAWAII (1.1%)
2,000 State GO, Series 2003DA (INS) 5.25 9/01/2019 2,157
LOUISIANA (0.7%)
1,225 Local Government Environmental Facilities and Community
Development Auth. RB, Series 2000 (INS) 6.55 9/01/2025 1,359
MAINE (1.7%)
3,000 Health and Higher Educational Facilities Auth. RB,
Series 2000C (INS) 5.75 7/01/2030 3,265
MASSACHUSETTS (1.3%)
2,455 Water Pollution Abatement Trust RB, Series 11 4.50 8/01/2035 2,390
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -------------------------------------------------------------------------------------------------------------
MICHIGAN (6.0%)
$4,000 Detroit Sewage Disposal RB, Series 1999A (INS)(PRE)(f) 5.75% 7/01/2026 $ 4,379
4,000 Hospital Finance Auth. RB, Series 1996 6.25 10/01/2027 4,066
3,000 Hospital Finance Auth. RB, Series 2005 (INS) 5.00 11/15/2026 3,100
MISSOURI (0.8%)
1,500 Health and Educational Facility Auth. RB, Series 2005A 5.38 2/01/2035 1,542
MONTANA (0.5%)
1,000 Facility Finance Auth. RB, Series 2002
(Providence Services) (INS) 4.75 12/01/2021 1,020
NEW JERSEY (0.5%)
1,000 Middlesex County Improvement Auth. RB, Series 2004A 5.00 8/15/2023 1,022
NEW YORK (13.4%)
1,000 Dormitory Auth. RB (INS) 4.50 8/15/2025 989
3,000 Dormitory Auth. RB (INS) 4.80 8/15/2025 3,041
2,000 Housing Finance Agency RB, Series 2005A (INS) 5.00 9/15/2034 2,059
4,000 Metropolitan Transportation Auth. RB, Series 2000A (PRE) 6.00 4/01/2030 4,405
3,000 Metropolitan Transportation Auth. RB, Series F(e) 5.00 11/15/2030 3,074
2,395 New York City GO, Series 2000A (PRE) 6.00 5/15/2020 2,665
295 New York City GO, Series 2000A 6.00 5/15/2020 322
1,500 New York City Housing Development Corp. RB,
Series 2005A (Capital Funding Project) (INS) 5.00 7/01/2025 1,569
2,000 New York City IDA Civic Facility RB,
Series 2005B-2 (Ethical Culture School) (INS) 4.50 6/01/2035 1,938
3,000 New York City Municipal Water Finance Auth. RB,
Series 2005D 5.00 6/15/2037 3,080
1,000 State Environmental Facilities Corp. RB, Series 2004E 5.00 6/15/2025 1,049
1,500 Urban Development Corp. RB, Series 2002C-1 (PRE) 5.00 3/15/2025 1,623
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -------------------------------------------------------------------------------------------------------------
NORTH CAROLINA (0.8%)
$ 1,500 Charlotte Mecklenberg Hospital Auth. RB, Series A(e) 4.88% 1/15/2032 $ 1,501
OHIO (1.9%)
1,000 Municipal Electric Generation Agency RB, Joint
Venture 5 (INS) 5.00 2/15/2023 1,042
2,470 State Univ. General Receipt Bonds, Series 2003B 5.25 6/01/2017 2,667
RHODE ISLAND (0.1%)
205 Housing and Mortgage Finance Corp. SFH RB, Series 15-A 6.85 10/01/2024 206
TEXAS (11.5%)
4,000 Houston Utility Systems RB, Series 2004A (INS) 5.13 5/15/2028 4,166
5,675 Lewisville RB, Series 1998B (INS) 5.80 9/01/2025 6,280
27,940 Northwest ISD GO (NBGA)(PRE) 6.38(a) 8/15/2032 5,629
2,330 Northwest ISD GO (NBGA) 6.38(a) 8/15/2032 459
2,000 Pflugerville GO, Series 2003A (INS) 5.00 8/01/2028 2,057
3,420 San Antonio Water System RB, Series 2002A (INS) 5.50 5/15/2018 3,718
WASHINGTON (1.3%)
1,500 Economic Development Finance Auth. RB (MLO)(INS) 5.00 6/01/2038 1,527
1,000 Vancouver Downtown Redevelopment Auth. RB,
Series 2003A (INS) 5.00 1/01/2023 1,007
WISCONSIN (3.7%)
500 Muskego Norway School District GO (INS)(PRE) 5.00 4/01/2022 537
6,030 Univ. of Wisconsin Hospitals and Clinics Auth. RB,
Series 2000 (INS)(PRE) 6.13 4/01/2021 6,686
--------
Total tax-exempt bonds (cost: $103,910) 109,903
--------
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
- -------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (2.5%)
VARIABLE-RATE DEMAND NOTES (2.0%)(c)
------------------------------------
FLORIDA (0.1%)
$ 200 Lee Memorial Health System Hospital RB, Series 1995A 3.02% 4/01/2025 $ 200
ILLINOIS (0.1%)
100 Educational Facilities Auth. RB, Series 2001
(LOC - Harris Trust & Savings Bank) 3.03 10/01/2031 100
PENNSYLVANIA (1.8%)
3,575 Schuylkill County IDA RB, Series 2001 3.02 4/01/2021 3,575
--------
3,875
--------
NUMBER
OF SHARES
- ---------
MONEY MARKET FUNDS (0.5%)
-------------------------
965,539 SSgA Tax Free Money Market Fund 2.45(d) - 966
--------
Total tax-exempt money market instruments
(cost: $4,841) 4,841
--------
Total tax-exempt securities (cost: $108,751) 114,744
--------
BLUE CHIP STOCKS (42.5%)
APPAREL & ACCESSORIES & LUXURY GOODS (1.1%)
64,025 Coach, Inc.* 2,204
--------
APPAREL RETAIL (1.4%)
30,250 Chico's FAS, Inc.* 1,334
46,925 Urban Outfitters, Inc.* 1,448
--------
2,782
--------
ASSET MANAGEMENT & CUSTODY BANKS (3.3%)
30,100 Franklin Resources, Inc. 2,796
21,912 Legg Mason, Inc. 2,687
12,225 T. Rowe Price Group, Inc. 880
--------
6,363
--------
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------
BIOTECHNOLOGY (2.9%)
24,050 Amgen, Inc.* $ 1,946
25,800 Genentech, Inc.* 2,467
23,375 Gilead Sciences, Inc.* 1,185
--------
5,598
--------
COMMUNICATIONS EQUIPMENT (3.5%)
83,950 Corning, Inc.* 1,700
41,700 Juniper Networks, Inc.* 938
82,175 Motorola, Inc. 1,979
45,875 QUALCOMM, Inc. 2,086
--------
6,703
--------
COMPUTER HARDWARE (2.7%)
49,425 Apple Computer, Inc.* 3,352
64,775 Hewlett-Packard Co. 1,922
--------
5,274
--------
CONSUMER FINANCE (0.4%)
16,425 American Express Co. 845
--------
DATA PROCESSING & OUTSOURCED SERVICES (0.7%)
32,425 Paychex, Inc. 1,375
--------
FOOD RETAIL (0.8%)
10,500 Whole Foods Market, Inc. 1,546
--------
GENERAL MERCHANDISE STORES (0.6%)
21,075 Target Corp. 1,128
--------
HEALTH CARE EQUIPMENT (2.0%)
40,500 Medtronic, Inc. 2,251
35,550 St. Jude Medical, Inc.* 1,698
--------
3,949
--------
HEALTH CARE SERVICES (1.3%)
48,850 Caremark Rx, Inc.* 2,510
--------
HOME IMPROVEMENT RETAIL (1.1%)
30,950 Lowe's Companies, Inc. 2,088
--------
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.4%)
14,550 Procter & Gamble Co. $ 832
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%)
26,375 Monster Worldwide, Inc.* 1,026
--------
INDUSTRIAL CONGLOMERATES (0.9%)
47,400 General Electric Co. 1,693
--------
INTERNET RETAIL (0.8%)
34,050 eBay, Inc.* 1,526
--------
INTERNET SOFTWARE & SERVICES (3.4%)
9,750 Google, Inc. "A"* 3,949
64,975 Yahoo!, Inc.* 2,614
--------
6,563
--------
INVESTMENT BANKING & BROKERAGE (2.4%)
48,425 Ameritrade Holding Corp.* 1,131
9,450 Bear Stearns Companies, Inc. 1,049
12,925 Goldman Sachs Group, Inc. 1,667
6,975 Lehman Brothers Holdings, Inc. 879
--------
4,726
--------
IT CONSULTING & OTHER SERVICES (0.6%)
22,225 Cognizant Technology Solutions Corp. "A"* 1,080
--------
LIFE & HEALTH INSURANCE (0.5%)
11,625 Prudential Financial, Inc. 900
--------
MANAGED HEALTH CARE (3.4%)
21,325 Aetna, Inc. 1,972
49,625 UnitedHealth Group, Inc. 2,970
20,625 WellPoint, Inc.* 1,585
--------
6,527
--------
OIL & GAS EXPLORATION & PRODUCTION (0.8%)
23,450 Southwestern Energy Co.* 799
19,058 XTO Energy, Inc. 775
--------
1,574
--------
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
- --------------------------------------------------------------------------------------------
PUBLISHING (0.8%)
16,175 Getty Images, Inc.* $ 1,477
--------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.6%)
20,750 CB Richard Ellis Group, Inc. "A"* 1,152
--------
RESTAURANTS (0.7%)
41,925 Starbucks Corp.* 1,277
--------
SEMICONDUCTORS (0.4%)
31,925 Intel Corp. 852
--------
SOFT DRINKS (0.9%)
30,000 PepsiCo, Inc. 1,776
--------
SPECIALIZED FINANCE (2.1%)
4,100 Chicago Mercantile Exchange Holdings, Inc. 1,452
41,650 Moody's Corp. 2,505
--------
3,957
--------
SYSTEMS SOFTWARE (1.5%)
41,025 Adobe Systems, Inc. 1,338
59,300 Microsoft Corp. 1,643
--------
2,981
--------
Total blue chip stocks (cost: $65,003) 82,284
--------
TOTAL INVESTMENTS (COST: $173,754) $197,028
========
20
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 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%.
PORTFOLIO DESCRIPTION ABBREVIATIONS
GO General Obligation
IDA Industrial Development Authority/Agency
ISD Independent School District
MLO Municipal Lease Obligation
PRE Prerefunded to a date prior to maturity
RB Revenue Bond
SFH Single-Family Housing
USD Unified School District
CREDIT ENHANCEMENTS - add the financial strength of the provider of
the enhancement to support the issuer's ability to repay the principal
and interest payments when due. A high-quality bank, insurance company
or other corporation, or a collateral trust may provide the
enhancement.
(LOC) Principal and interest payments are guaranteed by a bank letter
of credit.
(NBGA) Principal and interest payments are guaranteed by a non-bank
guarantee agreement from Texas Permanent School Fund.
(INS) Principal and interest payments are insured by one of the
following companies: ACA Financial Guaranty Corp., AMBAC
Assurance Corp., Federal Housing Administration, Financial
Guaranty Insurance Co., Financial Security
21
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
Assurance Holdings Ltd., MBIA Insurance Corp., or XL Capital
Assurance. The insurance does not guarantee the market value
of the security.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) Zero-coupon security. Rate represents the effective yield at date
of purchase.
(b) Restricted security that is not registered under the Securities
Act of 1933. A resale of this security in the United States may
occur in an exempt transaction to a qualified institutional buyer
as defined by Rule 144A, and as such, has been deemed liquid by
USAA Investment Management Company (the Manager) under liquidity
guidelines approved by the Board of Trustees, unless otherwise
noted as illiquid.
(c) Variable-rate demand notes (VRDNs) - provide the right to sell the
security at face value on either that day or within the rate-reset
period. The interest rate is adjusted at a stipulated daily,
weekly, monthly, quarterly, or other specified time interval to a
rate that reflects current market conditions. VRDNs will normally
trade as if the maturity is the earlier put date, even though
stated maturity is longer.
(d) Rate represents the money market fund annualized seven-day yield
at November 30, 2005.
(e) At November 30, 2005, the aggregate market value of securities
purchased on a when-issued basis was $4,575,000.
(f) At November 30, 2005, portions of these securities were segregated
to cover when-issued purchases.
* Non-income-producing security for the 12 months preceding November
30, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
ASSETS
Investments in securities, at market value (identified cost of $173,754) $197,028
Cash 76
Receivables:
Capital shares sold 32
Dividends and interest 1,254
--------
Total assets 198,390
--------
LIABILITIES
Payables:
Securities purchased (when issued of $4,539) 4,539
Capital shares redeemed 153
Accrued management fees 73
Other accrued expenses and payables 30
--------
Total liabilities 4,795
--------
Net assets applicable to capital shares outstanding $193,595
========
NET ASSETS CONSIST OF:
Paid-in capital $157,527
Accumulated undistributed net investment income 680
Accumulated net realized gain on investments 12,114
Net unrealized appreciation of investments 23,274
--------
Net assets applicable to capital shares outstanding $193,595
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 12,651
========
Net asset value, redemption price, and offering price per share $ 15.30
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA GROWTH AND TAX STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2005 (UNAUDITED)
INVESTMENT INCOME
Dividends $ 210
Interest 2,527
-------
Total income 2,737
-------
EXPENSES
Management fees 447
Administration and servicing fees 144
Transfer agent's fees 94
Custody and accounting fees 40
Postage 12
Shareholder reporting fees 8
Trustees' fees 4
Registration fees 21
Professional fees 18
Other 5
-------
Total expenses 793
Expenses paid indirectly (17)
-------
Net expenses 776
-------
NET INVESTMENT INCOME 1,961
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 3,922
Change in net unrealized appreciation/depreciation 4,461
-------
Net realized and unrealized gain 8,383
-------
Increase in net assets resulting from operations $10,344
=======
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 GROWTH AND TAX STRATEGY FUND
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2005 (UNAUDITED),
AND YEAR ENDED MAY 31, 2005
11/30/2005 5/31/2005
------------------------
FROM OPERATIONS
Net investment income $ 1,961 $ 4,427
Net realized gain on investments 3,922 17,876
Change in net unrealized appreciation/depreciation of
investments 4,461 (3,838)
----------------------
Increase in net assets resulting from operations 10,344 18,465
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,006) (4,465)
Net realized gains - (13,663)
----------------------
Distributions to shareholders (2,006) (18,128)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 3,513 6,987
Shares issued for dividends reinvested 1,810 16,551
Cost of shares redeemed (8,535) (22,165)
----------------------
Increase (decrease) in net assets from capital
share transactions (3,212) 1,373
----------------------
Net increase in net assets 5,126 1,710
NET ASSETS
Beginning of period 188,469 186,759
----------------------
End of period $193,595 $188,469
======================
Accumulated undistributed net investment income:
End of period $ 680 $ 725
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 234 478
Shares issued for dividends reinvested 121 1,129
Shares redeemed (569) (1,522)
----------------------
Increase (decrease) in shares outstanding (214) 85
======================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 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 Growth and Tax
Strategy Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is to seek a conservative
balance between income, the majority of which is exempt from federal
income tax, and the potential for long-term growth of capital to
preserve purchasing power.
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 exchange-traded funds (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.
Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales
price, or the most recently determined official closing
price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average
of the bid and asked prices is generally used.
2. 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
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
securities held by the Fund are determined. In most cases,
events affecting the values of foreign securities that occur
between the time of their last quoted sales or official
closing prices and the close of normal trading on the NYSE
on a day the Fund's NAV is calculated will not be reflected
in the value of the Fund's foreign securities. However, USAA
Investment Management 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
ETFs, 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 valued at amortized cost, which
approximates market value. Repurchase agreements are valued
at cost.
5. 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
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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.
6. 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. The effect of
fair value pricing is that securities may not be priced on
the basis of quotations from the primary market in which
they are traded, and the actual price realized from the sale
of a security may differ materially from the fair value
price. 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
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.
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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 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. The Fund did not invest in any
repurchase agreements as of November 30, 2005.
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
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
in U.S. dollars, foreign currency amounts are translated into
U.S. dollars on the following basis:
1. Purchases and sales of securities, income, and expenses at
the exchange rate obtained from an independent pricing
service on the respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at
the exchange rate obtained from an independent pricing
service on a daily basis.
The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from
investments.
Separately, net realized foreign currency gains/losses may
arise from sales of foreign currency, currency gains/losses
realized between the trade and settlement dates on security
transactions, and from the difference between amounts of
dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts
received. At the Fund's tax year-end of May 31, 2006, net
realized foreign currency gains/losses will be reclassified
from accumulated net realized gain/loss to accumulated
undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary
income/loss for tax purposes. Net unrealized foreign currency
exchange gains/losses arise from changes in the value of assets
and liabilities, other than investments in securities,
resulting from changes in the exchange rate.
F. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS - Delivery and
payment for securities that have been purchased by the Fund on
a when-issued basis can take place a month or more after the
trade date. During the period prior to settlement, these
securities
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
do not earn interest, are subject to market fluctuation, and
may increase or decrease in value prior to their delivery. The
Fund maintains segregated assets with a market value equal to
or greater than the amount of its purchase commitments. The
purchase of securities on a when-issued basis may increase the
volatility of the Fund's NAV to the extent that the Fund makes
such purchases while remaining substantially fully invested. As
of November 30, 2005, the outstanding when-issued commitments,
including interest purchased, for the Fund were $4,539,000.
G. 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 directly 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 six-month period
ended November 30, 2005, brokerage commission recapture credits
and custodian and other bank credits reduced the Fund's
expenses by $15,000 and $2,000, respectively, resulting in a
total reduction in Fund expenses of $17,000.
H. 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.
I. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
31
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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 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 six-month period ended November 30, 2005, the Fund paid CAPCO
facility fees of less than $500, which represents 0.6% of total fees
paid to CAPCO by the USAA funds. The Fund had no borrowings under this
agreement during the six-month period ended November 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 May 31, 2006, in accordance with applicable tax law.
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
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/maturities of securities,
excluding short-term securities, for the six-month period ended
November 30, 2005, were $82,299,000 and $84,580,000, respectively.
As of November 30, 2005, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the
same as that reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of
November 30, 2005, were $23,724,000 and $450,000, respectively,
resulting in net unrealized appreciation of $23,274,000.
(5) 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
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
the short-term investments will be less than the amount of cash
collateral required to be returned to the borrower. The Fund had no
securities-lending transactions during the six-month period ended
November 30, 2005.
(6) 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 and for directly
managing the day-to-day investment of a portion of the Fund's
assets, subject to the authority of and supervision by the
Trust's Board of Trustees. The Manager is also authorized to
select (with approval of the Trust's Board of Trustees) one or
more subadvisers to manage the day-to-day investment of a
portion 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 Balanced Funds
Index, which tracks the total return performance of the 30
largest funds in the Lipper Balanced Funds category. The Fund's
base fee is accrued daily and paid monthly at an annualized
rate of 0.50% of the Fund's average net assets for the fiscal
year.
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
The performance adjustment is calculated monthly by comparing
the Fund's performance to that of the Lipper index over the
performance period. The performance period for the Fund
consists of the current month plus the previous 35 months.
The annual performance adjustment rate is multiplied by the
average net assets of the Fund over the entire performance
period, which is then multiplied by a fraction, the numerator
of which is the number of days in the month and the denominator
of which is 365 (366 in leap years). The resulting amount is
then added to (in the case of overperformance) or subtracted
from (in the case of underperformance) the base fee, as
referenced in the following chart:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest 0.01%.
Under the performance fee arrangement, the Fund will pay a
positive performance fee adjustment for a performance period
whenever the Fund outperforms the Lipper Balanced Funds Index
over that period, even if the Fund had overall negative returns
during the performance period.
For the six-month period ended November 30, 2005, the Fund
incurred total management fees, paid or payable to the Manager,
of $447,000, which is net of a performance adjustment of
$(33,000) that decreased the base management fee of 0.50% by
0.03%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with Loomis, Sayles &
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
Company, L.P. (Loomis Sayles), under which Loomis Sayles
directs the investment and reinvestment of the portion of the
Fund's assets invested in blue chip stocks (as allocated from
time to time by the Manager). The Manager (not the Fund) pays
Loomis Sayles a subadvisory fee in the annual amount of 0.20%
of the portion of the Fund's average net assets that Loomis
Sayles manages. For the six-month period ended November 30,
2005, the Manager incurred subadvisory fees, paid or payable to
Loomis Sayles, of $91,000.
Effective December 1, 2005, the Manager will terminate the
investment subadvisory agreement with Loomis Sayles and will
enter into an investment subadvisory agreement with Northern
Trust Investments, N.A. (NTI), under which NTI will direct the
investment and reinvestment of the portion of the Fund's assets
invested in blue chip stocks (as allocated from time to time by
the Manager). The Manager (not the Fund) will pay NTI a
subadvisory fee equal to the greater of a minimum annual fee of
$100,000 or a fee at an annual amount of 0.25% on the first $40
million of assets and 0.10% on assets over $40 million of the
portion of the Fund's average daily net assets that NTI
manages.
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 six-month period ended
November 30, 2005, the Fund incurred administration and
servicing fees, paid or payable to the Manager, of $144,000.
In addition to the services provided under its Administration
and Servicing Agreement with the Fund, the Manager also
provides certain legal and tax services for the benefit of the
Fund. The Trust's Board of Trustees has approved the
reimbursement of these expenses incurred by the Manager. For
the six-month
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
period ended November 30, 2005, the Fund reimbursed the Manager
$6,000 for these legal and tax services. These expenses are
included in the professional fees expenses on the Fund's
statement of operations.
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 $25.50 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 six-month period ended
November 30, 2005, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $94,000.
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.
(7) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors,
officers, and/or employees of the Manager. None of the affiliated
trustees or Fund officers received any compensation from the Fund.
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
(8) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2005 2005 2004 2003 2002 2001
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.65 $ 14.61 $ 13.99 $ 14.23 $ 15.87 $ 17.28
----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16 .34 .35 .35 .41 .49
Net realized and unrealized
gain (loss) .65 1.15 .62 (.17) (1.60) (1.42)
----------------------------------------------------------------------------------------
Total from investment operations .81 1.49 .97 .18 (1.19) (.93)
----------------------------------------------------------------------------------------
Less distributions:
From net investment income (.16) (.35) (.34) (.37) (.45) (.48)
From realized capital gains - (1.10) (.01) (.05) - -
----------------------------------------------------------------------------------------
Total distributions (.16) (1.45) (.35) (.42) (.45) (.48)
----------------------------------------------------------------------------------------
Net asset value at end of period $ 15.30 $ 14.65 $ 14.61 $ 13.99 $ 14.23 $ 15.87
========================================================================================
Total return (%)* 5.54 10.40 6.96 1.46 (7.59) (5.47)
Net assets at end of period (000) $193,595 $188,469 $186,759 $186,929 $205,108 $238,813
Ratio of expenses to average
net assets (%)**(b) .83(a) .81 .80 .91 .83 .70
Ratio of net investment income
to average net assets (%)** 2.04(a) 2.37 2.41 2.67 2.75 2.91
Portfolio turnover (%) 43.78 119.99 43.22 52.38 31.81 35.69
* Assumes reinvestment of all net investment income and realized capital gain
distributions during the period.
** For the six-month period ended November 30, 2005, average net assets were
$191,700,000.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios as follows:
(.02%) (.03%) (.01%) (.00%)(+) (.02%) (.01%)
(+) Represents less than 0.01% of average net assets.
38
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 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 six-month period of
June 1, 2005, through November 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
39
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(continued)
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2005 (UNAUDITED)
use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example
with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any direct costs,
such as wire fees, redemption fees, or low balance fees. Therefore,
the second line of the table is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of
owning different funds. In addition, if these direct costs were
included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2005 -
JUNE 1, 2005 NOVEMBER 30, 2005 NOVEMBER 30, 2005
------------------------------------------------------------
Actual $1,000.00 $1,055.40 $4.16
Hypothetical
(5% return before expenses) 1,000.00 1,021.02 4.09
*Expenses are equal to the Fund's annualized expense ratio of 0.81%,
which is net of any expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365
days (to reflect the one-half year period). The Fund's ending account
value on the first line in the table is based on its actual total
return of 5.54% for the six-month period of June 1, 2005, through
November 30, 2005.
40
N O T E S
==========----------------------------------------------------------------------
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TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Michael F. Reimherr
Laura T. Starks, Ph.D.
Richard A. Zucker
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, San Antonio, Texas 78265-9825
AND DISTRIBUTOR
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN 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 1800
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
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.
[LOGO OF RECYCLED PAPER]
Recycled
Paper
- --------------------------------------------------------------------------------
[LOGO OF USAA] 9800 Fredericksburg Road -------------
USAA(R) San Antonio, Texas 78288 PRSRT STD
U.S.
Postage
P A I D
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-------------
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and others electronically.
Sign up at USAA.COM.
- --------------------------------------------------------------------------------
[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
27801-0106 (C)2006, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 10. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA
Investment Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
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 material 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 (except for the Total Return Strategy Fund)
By:* /s/ EILEEN M. SMILEY
-----------------------------------------------------------
Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: January 18, 2006
------------------------------
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: January 25, 2006
------------------------------
By:* /s/ DEBRA K. DUNN
---------------------------------------------
Signature and Title: Debra K. Dunn/Treasurer
Date: January 24, 2006
------------------------------
*Print the name and title of each signing officer under his or her signature.