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 GNMA TRUST - SEMIANNUAL REPORT FOR PERIOD ENDING NOVEMBER 30, 2005
[LOGO OF USAA]
USAA(R)
USAA GNMA Trust(R)
[GRAPHIC OF USAA GNMA TRUST]
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
MANAGER'S COMMENTARY 4
FUND RECOGNITION 8
INVESTMENT OVERVIEW 9
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 17
Financial Statements 18
Notes to Financial Statements 21
EXPENSE EXAMPLE 31
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
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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 MARGARET "DIDI" WEINBLATT] MARGARET "DIDI" WEINBLATT, Ph.D., CFA
USAA Investment Management Company
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HOW DID THE FUND PERFORM?
The USAA GNMA Trust had a total return of 0.01% for the six
months ended November 30, 2005. This compares to a -0.20%
return for the Lipper GNMA Funds Average, -0.09% for the Lipper
GNMA Funds Index, and 0.11% for the Lehman Brothers GNMA
30-Year Index.
WHAT WAS THE MARKET ENVIRONMENT DURING THE PERIOD?
The Federal Reserve Board (the Fed) continued to raise
short-term interest rates, by November taking the federal funds
rate to 4% from a low of 1% in June 2004. Interest rates moved
higher across the yield curve, with shorter-term rates
increasing more than longer-term rates. The spike in oil prices
after the hurricanes further roiled the bond market, sparking
fears of inflation which, of course, generally erodes the value
of bonds. Since interest rates and bond prices move in opposite
directions, the period was negative for bond prices. Income
from the Fund's bonds was enough to offset the price erosion,
keeping your total return in positive territory for the period.
HOW DID MORTGAGE-BACKED SECURITIES PERFORM?
Mortgage-backed securities did relatively well during the
period because they have interest-rate sensitivity closer to
that of short- or intermediate-term bonds. Even though
mortgages may have
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 12 FOR BENCHMARK DEFINITIONS.
5
. . . C O N T I N U E D
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TREASURY YIELDS AND FED FUNDS RATE
[CHART OF TREASURY YIELDS AND FED FUNDS RATE]
FEDERAL FUNDS RATE 2-YEAR YIELD 10-YEAR YIELD 30-YEAR YIELD
5/31/2005 3% 5/31/2005 3.578% 5/31/2005 3.983% 5/31/2005 4.321%
6/1/2005 3 6/1/2005 3.479 6/1/2005 3.886 6/1/2005 4.237
6/2/2005 3 6/2/2005 3.529 6/2/2005 3.905 6/2/2005 4.241
6/3/2005 3 6/3/2005 3.561 6/3/2005 3.975 6/3/2005 4.282
6/6/2005 3 6/6/2005 3.578 6/6/2005 3.954 6/6/2005 4.244
6/7/2005 3 6/7/2005 3.562 6/7/2005 3.903 6/7/2005 4.192
6/8/2005 3 6/8/2005 3.603 6/8/2005 3.935 6/8/2005 4.221
6/9/2005 3 6/9/2005 3.62 6/9/2005 3.95 6/9/2005 4.232
6/10/2005 3 6/10/2005 3.695 6/10/2005 4.053 6/10/2005 4.325
6/13/2005 3 6/13/2005 3.695 6/13/2005 4.094 6/13/2005 4.374
6/14/2005 3 6/14/2005 3.687 6/14/2005 4.109 6/14/2005 4.415
6/15/2005 3 6/15/2005 3.712 6/15/2005 4.101 6/15/2005 4.402
6/16/2005 3 6/16/2005 3.671 6/16/2005 4.069 6/16/2005 4.368
6/17/2005 3 6/17/2005 3.705 6/17/2005 4.072 6/17/2005 4.362
6/20/2005 3 6/20/2005 3.714 6/20/2005 4.111 6/20/2005 4.388
6/21/2005 3 6/21/2005 3.689 6/21/2005 4.042 6/21/2005 4.326
6/22/2005 3 6/22/2005 3.604 6/22/2005 3.942 6/22/2005 4.243
6/23/2005 3 6/23/2005 3.613 6/23/2005 3.953 6/23/2005 4.253
6/24/2005 3 6/24/2005 3.579 6/24/2005 3.919 6/24/2005 4.222
6/27/2005 3 6/27/2005 3.579 6/27/2005 3.904 6/27/2005 4.192
6/28/2005 3 6/28/2005 3.648 6/28/2005 3.972 6/28/2005 4.248
6/29/2005 3 6/29/2005 3.656 6/29/2005 3.98 6/29/2005 4.261
6/30/2005 3.25 6/30/2005 3.637 6/30/2005 3.915 6/30/2005 4.192
7/1/2005 3.25 7/1/2005 3.744 7/1/2005 4.051 7/1/2005 4.295
7/4/2005 3.25 7/4/2005 3.736 7/4/2005 4.039 7/4/2005 4.3
7/5/2005 3.25 7/5/2005 3.786 7/5/2005 4.107 7/5/2005 4.363
7/6/2005 3.25 7/6/2005 3.769 7/6/2005 4.07 7/6/2005 4.328
7/7/2005 3.25 7/7/2005 3.72 7/7/2005 4.062 7/7/2005 4.319
7/8/2005 3.25 7/8/2005 3.77 7/8/2005 4.093 7/8/2005 4.342
7/11/2005 3.25 7/11/2005 3.787 7/11/2005 4.095 7/11/2005 4.34
7/12/2005 3.25 7/12/2005 3.837 7/12/2005 4.144 7/12/2005 4.386
7/13/2005 3.25 7/13/2005 3.829 7/13/2005 4.158 7/13/2005 4.396
7/14/2005 3.25 7/14/2005 3.837 7/14/2005 4.175 7/14/2005 4.415
7/15/2005 3.25 7/15/2005 3.863 7/15/2005 4.165 7/15/2005 4.397
7/18/2005 3.25 7/18/2005 3.889 7/18/2005 4.222 7/18/2005 4.465
7/19/2005 3.25 7/19/2005 3.855 7/19/2005 4.181 7/19/2005 4.424
7/20/2005 3.25 7/20/2005 3.873 7/20/2005 4.16 7/20/2005 4.394
7/21/2005 3.25 7/21/2005 3.941 7/21/2005 4.278 7/21/2005 4.501
7/22/2005 3.25 7/22/2005 3.908 7/22/2005 4.221 7/22/2005 4.441
7/25/2005 3.25 7/25/2005 3.942 7/25/2005 4.246 7/25/2005 4.467
7/26/2005 3.25 7/26/2005 3.934 7/26/2005 4.226 7/26/2005 4.448
7/27/2005 3.25 7/27/2005 3.986 7/27/2005 4.256 7/27/2005 4.47
7/28/2005 3.25 7/28/2005 3.945 7/28/2005 4.191 7/28/2005 4.399
7/29/2005 3.25 7/29/2005 4.019 7/29/2005 4.278 7/29/2005 4.472
8/1/2005 3.25 8/1/2005 4.035 8/1/2005 4.312 8/1/2005 4.509
8/2/2005 3.25 8/2/2005 4.044 8/2/2005 4.336 8/2/2005 4.545
8/3/2005 3.25 8/3/2005 4.011 8/3/2005 4.294 8/3/2005 4.501
8/4/2005 3.25 8/4/2005 4.036 8/4/2005 4.314 8/4/2005 4.522
8/5/2005 3.25 8/5/2005 4.103 8/5/2005 4.388 8/5/2005 4.583
8/8/2005 3.25 8/8/2005 4.153 8/8/2005 4.42 8/8/2005 4.6
8/9/2005 3.5 8/9/2005 4.112 8/9/2005 4.39 8/9/2005 4.573
8/10/2005 3.5 8/10/2005 4.12 8/10/2005 4.392 8/10/2005 4.578
8/11/2005 3.5 8/11/2005 4.07 8/11/2005 4.322 8/11/2005 4.515
8/12/2005 3.5 8/12/2005 4.038 8/12/2005 4.244 8/12/2005 4.449
8/15/2005 3.5 8/15/2005 4.063 8/15/2005 4.283 8/15/2005 4.481
8/16/2005 3.5 8/16/2005 4.004 8/16/2005 4.207 8/16/2005 4.419
8/17/2005 3.5 8/17/2005 4.046 8/17/2005 4.269 8/17/2005 4.476
8/18/2005 3.5 8/18/2005 3.988 8/18/2005 4.2 8/18/2005 4.419
8/19/2005 3.5 8/19/2005 4.022 8/19/2005 4.207 8/19/2005 4.42
8/22/2005 3.5 8/22/2005 4.014 8/22/2005 4.209 8/22/2005 4.428
8/23/2005 3.5 8/23/2005 3.98 8/23/2005 4.18 8/23/2005 4.399
8/24/2005 3.5 8/24/2005 3.971 8/24/2005 4.167 8/24/2005 4.39
8/25/2005 3.5 8/25/2005 4.004 8/25/2005 4.157 8/25/2005 4.366
8/26/2005 3.5 8/26/2005 4.07 8/26/2005 4.188 8/26/2005 4.373
8/29/2005 3.5 8/29/2005 4.053 8/29/2005 4.169 8/29/2005 4.36
8/30/2005 3.5 8/30/2005 3.938 8/30/2005 4.092 8/30/2005 4.312
8/31/2005 3.5 8/31/2005 3.815 8/31/2005 4.016 8/31/2005 4.255
9/1/2005 3.5 9/1/2005 3.725 9/1/2005 4.033 9/1/2005 4.311
9/2/2005 3.5 9/2/2005 3.756 9/2/2005 4.038 9/2/2005 4.297
9/5/2005 3.5 9/5/2005 3.74 9/5/2005 4.03 9/5/2005 4.298
9/6/2005 3.5 9/6/2005 3.805 9/6/2005 4.097 9/6/2005 4.359
9/7/2005 3.5 9/7/2005 3.846 9/7/2005 4.139 9/7/2005 4.423
9/8/2005 3.5 9/8/2005 3.871 9/8/2005 4.147 9/8/2005 4.433
9/9/2005 3.5 9/9/2005 3.87 9/9/2005 4.12 9/9/2005 4.4
9/12/2005 3.5 9/12/2005 3.912 9/12/2005 4.172 9/12/2005 4.448
9/13/2005 3.5 9/13/2005 3.862 9/13/2005 4.128 9/13/2005 4.416
9/14/2005 3.5 9/14/2005 3.878 9/14/2005 4.166 9/14/2005 4.449
9/15/2005 3.5 9/15/2005 3.894 9/15/2005 4.213 9/15/2005 4.516
9/16/2005 3.5 9/16/2005 3.978 9/16/2005 4.273 9/16/2005 4.566
9/19/2005 3.5 9/19/2005 3.919 9/19/2005 4.248 9/19/2005 4.547
9/20/2005 3.75 9/20/2005 3.978 9/20/2005 4.244 9/20/2005 4.525
9/21/2005 3.75 9/21/2005 3.919 9/21/2005 4.168 9/21/2005 4.458
9/22/2005 3.75 9/22/2005 3.944 9/22/2005 4.181 9/22/2005 4.463
9/23/2005 3.75 9/23/2005 4.02 9/23/2005 4.248 9/23/2005 4.52
9/26/2005 3.75 9/26/2005 4.054 9/26/2005 4.293 9/26/2005 4.56
9/27/2005 3.75 9/27/2005 4.071 9/27/2005 4.283 9/27/2005 4.539
9/28/2005 3.75 9/28/2005 4.08 9/28/2005 4.255 9/28/2005 4.504
9/29/2005 3.75 9/29/2005 4.127 9/29/2005 4.296 9/29/2005 4.546
9/30/2005 3.75 9/30/2005 4.169 9/30/2005 4.326 9/30/2005 4.568
10/3/2005 3.75 10/3/2005 4.211 10/3/2005 4.385 10/3/2005 4.622
10/4/2005 3.75 10/4/2005 4.211 10/4/2005 4.369 10/4/2005 4.602
10/5/2005 3.75 10/5/2005 4.178 10/5/2005 4.342 10/5/2005 4.566
10/6/2005 3.75 10/6/2005 4.195 10/6/2005 4.389 10/6/2005 4.613
10/7/2005 3.75 10/7/2005 4.187 10/7/2005 4.374 10/7/2005 4.565
10/10/2005 3.75 10/10/2005 4.187 10/10/2005 4.358 10/10/2005 4.568
10/11/2005 3.75 10/11/2005 4.221 10/11/2005 4.393 10/11/2005 4.598
10/12/2005 3.75 10/12/2005 4.23 10/12/2005 4.441 10/12/2005 4.661
10/13/2005 3.75 10/13/2005 4.23 10/13/2005 4.463 10/13/2005 4.693
10/14/2005 3.75 10/14/2005 4.256 10/14/2005 4.481 10/14/2005 4.703
10/17/2005 3.75 10/17/2005 4.282 10/17/2005 4.495 10/17/2005 4.715
10/18/2005 3.75 10/18/2005 4.248 10/18/2005 4.471 10/18/2005 4.694
10/19/2005 3.75 10/19/2005 4.24 10/19/2005 4.461 10/19/2005 4.69
10/20/2005 3.75 10/20/2005 4.223 10/20/2005 4.431 10/20/2005 4.663
10/21/2005 3.75 10/21/2005 4.207 10/21/2005 4.386 10/21/2005 4.603
10/24/2005 3.75 10/24/2005 4.25 10/24/2005 4.446 10/24/2005 4.662
10/25/2005 3.75 10/25/2005 4.336 10/25/2005 4.536 10/25/2005 4.736
10/26/2005 3.75 10/26/2005 4.37 10/26/2005 4.585 10/26/2005 4.794
10/27/2005 3.75 10/27/2005 4.345 10/27/2005 4.548 10/27/2005 4.767
10/28/2005 3.75 10/28/2005 4.386 10/28/2005 4.567 10/28/2005 4.773
10/31/2005 3.75 10/31/2005 4.378 10/31/2005 4.553 10/31/2005 4.755
11/1/2005 4 11/1/2005 4.403 11/1/2005 4.565 11/1/2005 4.76
11/2/2005 4 11/2/2005 4.428 11/2/2005 4.606 11/2/2005 4.8
11/3/2005 4 11/3/2005 4.461 11/3/2005 4.649 11/3/2005 4.845
11/4/2005 4 11/4/2005 4.47 11/4/2005 4.661 11/4/2005 4.858
11/7/2005 4 11/7/2005 4.454 11/7/2005 4.624 11/7/2005 4.816
11/8/2005 4 11/8/2005 4.412 11/8/2005 4.553 11/8/2005 4.759
11/9/2005 4 11/9/2005 4.488 11/9/2005 4.641 11/9/2005 4.839
11/10/2005 4 11/10/2005 4.43 11/10/2005 4.556 11/10/2005 4.738
11/11/2005 4 11/11/2005 4.43 11/11/2005 4.567 11/11/2005 4.742
11/14/2005 4 11/14/2005 4.489 11/14/2005 4.606 11/14/2005 4.797
11/15/2005 4 11/15/2005 4.464 11/15/2005 4.559 11/15/2005 4.749
11/16/2005 4 11/16/2005 4.397 11/16/2005 4.473 11/16/2005 4.664
11/17/2005 4 11/17/2005 4.371 11/17/2005 4.459 11/17/2005 4.65
11/18/2005 4 11/18/2005 4.389 11/18/2005 4.49 11/18/2005 4.684
11/21/2005 4 11/21/2005 4.372 11/21/2005 4.461 11/21/2005 4.66
11/22/2005 4 11/22/2005 4.304 11/22/2005 4.428 11/22/2005 4.655
11/23/2005 4 11/23/2005 4.347 11/23/2005 4.488 11/23/2005 4.702
11/24/2005 4 11/24/2005 4.347 11/24/2005 4.472 11/24/2005 4.701
11/25/2005 4 11/25/2005 4.353 11/25/2005 4.429 11/25/2005 4.659
11/28/2005 4 11/28/2005 4.32 11/28/2005 4.406 11/28/2005 4.62
11/29/2005 4 11/29/2005 4.394 11/29/2005 4.476 11/29/2005 4.692
11/30/2005 4 11/30/2005 4.411 11/30/2005 4.486 11/30/2005 4.694
SOURCE: BLOOMBERG L.P.
[END CHART]
15- or 30-year final maturities, the bonds are paid off when a
mortgage is refinanced or a house is sold, giving mortgages a
weighted average life that is substantially less than the final
maturity. During the period, higher interest rates on new
mortgages reduced refinancing activity and prepayments, with
the net effect of a slight lengthening of the weighted average
lives of mortgages.
Also supporting GNMA securities (GNMAs) was an influx of buying
from foreign purchasers, who are attracted by the fact that
GNMAs, unlike bonds issued by Fannie Mae and Freddie Mac, are
backed by the full faith and credit of the U.S. government. By
the end of the period, GNMA prices were trading at historically
high levels relative to mortgage-backed securities issued by
Fannie Mae and Freddie Mac.
6
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COMMENTARY on the Fund
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We had a slight bias toward higher-coupon mortgages, which have
less interest-rate sensitivity and therefore do better in a
rising-interest-rate environment than lower-coupon mortgages.
But near the end of the period, when we thought interest rates
had moved up sufficiently, we did purchase some lower-coupon
bonds.
COUPON RATE COMPOSITION
OF MORTGAGE POOLS
[CHART OF COUPON RATE COMPOSITION OF MORTGAGE POOLS]
COUPON RATE % PERCENTAGE
5.00 15.4
5.50 38.2
5.88 1.8
6.00 26.0
6.15 2.7
6.50 11.2
6.75 0.1
7.00 3.0
7.50 0.8
8.00 0.8
AVERAGE COUPON RATE 5.77 (NOV 2005)
[END CHART]
SHOULD INVESTORS IN THE FUND BE CONCERNED ABOUT A POSSIBLE "BUBBLE" IN THE
HOUSING MARKET?
It's important to understand that GNMAs are backed by the full
faith and credit of the U.S. government, and the Government
National Mortgage Association guarantees the payment of
principal and interest. Regardless of housing prices, GNMAs are
as safe from a credit-risk perspective as U.S. Treasury
securities. None of the securities in your Fund contain any of
the exotic mortgages such as option-pay adjustable-rate
mortgages (ARMs) or
THE USAA GNMA TRUST IS NOT INDIVIDUALLY BACKED BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT.
7
. . . C O N T I N U E D
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interest-only mortgages. In short, we believe you should have
no concerns about a housing bubble with respect to your
investment in this Fund.
WHAT'S YOUR OUTLOOK?
Our view is that the Fed is nearing the end of its work raising
short-term interest rates. There's a lag between when the Fed
raises rates and when the economy responds by slowing down, but
we are seeing some signs of a slowdown. Additionally, we
believe still-high fuel prices, especially for home heating
oil, are likely to act as a drag on the economy. Recent fears
of higher inflation have passed, and we think bonds are
attractive at current levels. Of course, for investors in the
Fund, it's all about earning income. While the net asset value
of a price of a share will fluctuate, long-term investors
should focus on total return and the steady income. We thank
you for your investment in the Fund.
8
F U N D
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RECOGNITION
USAA GNMA TRUST
[LOGO OF [LOGO OF
LIPPER LEADER] LIPPER LEADER]
PRESERVATION EXPENSE
The Fund is listed as a Lipper Leader for Preservation and Expense among 4,093
fixed-income funds and 144 funds, respectively, within the Lipper GNMA Funds
category for the overall period ending November 30, 2005.
LIPPER RATINGS FOR PRESERVATION REFLECT FUNDS' HISTORICAL LOSS AVOIDANCE
RELATIVE TO OTHER FUNDS WITHIN THE SAME ASSET CLASS AS OF NOVEMBER 30, 2005.
PRESERVATION RATINGS ARE RELATIVE, RATHER THAN ABSOLUTE, MEASURES, AND FUNDS
NAMED LIPPER LEADERS FOR PRESERVATION MAY STILL EXPERIENCE LOSSES PERIODICALLY;
THOSE LOSSES MAY BE LARGER FOR EQUITY AND MIXED EQUITY FUNDS THAN FOR
FIXED-INCOME FUNDS. THE FUND RECEIVED A LIPPER LEADER RATING FOR PRESERVATION
AMONG 4,093 AND 3,385 FIXED-INCOME FUNDS FOR THE THREE- AND FIVE-YEAR PERIODS,
RESPECTIVELY, AND A SCORE OF 2 AMONG 2,090 FIXED-INCOME FUNDS IN LIPPER'S GNMA
FUNDS CATEGORY FOR THE 10-YEAR PERIOD. LIPPER RATINGS FOR EXPENSE REFLECT FUNDS'
EXPENSE MINIMIZATION RELATIVE TO PEERS WITH SIMILAR LOAD STRUCTURES AS OF
NOVEMBER 30, 2005. THE FUND RECEIVED A LIPPER LEADER RATING FOR EXPENSE AMONG
144, 124, AND 79 FUNDS FOR THE THREE-, FIVE-, AND 10-YEAR PERIODS, RESPECTIVELY.
RATINGS ARE SUBJECT TO CHANGE EVERY MONTH AND ARE BASED ON AN EQUAL-WEIGHTED
AVERAGE OF PERCENTILE RANKS FOR THE PRESERVATION AND EXPENSE METRICS OVER
THREE-, FIVE-, AND 10-YEAR PERIODS (IF APPLICABLE). THE HIGHEST 20% OF FUNDS IN
EACH PEER GROUP ARE NAMED LIPPER LEADERS, THE NEXT 20% RECEIVE A SCORE OF 2, THE
MIDDLE 20% ARE SCORED 3, THE NEXT 20% ARE SCORED 4, AND THE LOWEST 20% ARE
SCORED 5. LIPPER RATINGS ARE NOT INTENDED TO PREDICT FUTURE RESULTS, AND LIPPER
DOES NOT GUARANTEE THE ACCURACY OF THIS INFORMATION. MORE INFORMATION IS
AVAILABLE AT WWW.LIPPERLEADERS.COM. LIPPER LEADER COPYRIGHT 2006, REUTERS, ALL
RIGHTS RESERVED.
9
I N V E S T M E N T
====================------------------------------------------------------------
OVERVIEW
USAA GNMA TRUST
OBJECTIVE
- --------------------------------------------------------------------------------
High level of current income consistent with preservation of
principal.
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
Normally invests at least 80% of the Fund's assets in GNMA
securities backed by the full faith and credit of the U.S.
government.
- --------------------------------------------------------------------------------
11/30/05 5/31/05
- --------------------------------------------------------------------------------
Net Assets $563.5 Million $594.2 Million
Net Asset Value Per Share $9.52 $9.76
- --------------------------------------------------------------------------------
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
0.01% 1.94% 4.97% 5.31% 4.57%
*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.
10
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS--PERIODS ENDING
NOVEMBER 30, 2005
- --------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
- --------------------------------------------------------------------------------
10 YEARS 5.31% = 6.09% + (0.78%)
5 YEARS 4.97% = 5.41% + (0.44%)
1 YEAR 1.94% = 4.90% + (2.96%)
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.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE 10-YEAR PERIOD
ENDING NOVEMBER 30, 2005
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
11/30/1996 5.11% 6.95% -1.84%
11/30/1997 7.60% 7.01% 0.59%
11/30/1998 9.17% 6.71% 2.46%
11/30/1999 -2.71% 6.02% -8.73%
11/30/2000 9.66% 7.35% 2.31%
11/30/2001 9.90% 6.61% 3.29%
11/30/2002 7.02% 5.73% 1.29%
11/30/2003 2.47% 5.02% -2.55%
11/30/2004 3.73% 4.84% -1.11%
11/30/2005 1.94% 4.90% -2.96%
[END CHART]
TOTAL RETURN EQUALS DIVIDEND RETURN PLUS SHARE PRICE CHANGE AND
ASSUMES REINVESTMENT OF ALL NET INVESTMENT INCOME AND REALIZED
CAPITAL GAIN DISTRIBUTIONS. DIVIDEND RETURN IS THE NET
INVESTMENT INCOME FROM DIVIDENDS RECEIVED OVER THE PERIOD,
ASSUMING REINVESTMENT OF ALL DIVIDENDS. SHARE PRICE CHANGE IS
THE CHANGE IN NET ASSET VALUE OVER THE PERIOD ADJUSTED FOR
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.
11
. . . C O N T I N U E D
========================--------------------------------------------------------
12-MONTH DIVIDEND YIELD COMPARISON
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER GNMA
USAA GNMA TRUST FUNDS AVERAGE
11/30/1996 6.78% 6.31%
11/30/1997 6.66 6.19
11/30/1998 6.32 5.98
11/30/1999 6.63 6.00
11/30/2000 6.78 6.05
11/30/2001 6.15 5.52
11/30/2002 5.48 4.66
11/30/2003 5.14 4.02
11/30/2004 4.81 4.02
11/30/2005 5.02 4.09
[END CHART]
THE 12-MONTH DIVIDEND YIELD IS COMPUTED BY DIVIDING NET
INVESTMENT INCOME DIVIDENDS PAID DURING THE PREVIOUS 12 MONTHS
BY THE LATEST MONTH-END NET ASSET VALUE ADJUSTED FOR REALIZED
CAPITAL GAIN DISTRIBUTIONS. THE GRAPH REPRESENTS DATA FOR
PERIODS ENDING 11/30/96 TO 11/30/05.
12
. . . C O N T I N U E D
========================--------------------------------------------------------
OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LEHMAN BROTHERS LIPPER GNMA LIPPER GNMA
GNMA 30-YEAR INDEX FUNDS INDEX USAA GNMA TRUST FUNDS AVERAGE
11/30/95 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/95 10,129.21 10,126.04 10,150.22 10,128.33
01/31/96 10,198.89 10,185.68 10,209.57 10,186.93
02/29/96 10,122.39 10,069.77 10,000.69 10,058.87
03/31/96 10,097.01 10,028.46 9,904.75 10,017.37
04/30/96 10,070.79 9,990.82 9,865.40 9,976.02
05/31/96 10,036.14 9,951.00 9,801.67 9,936.60
06/30/96 10,169.28 10,062.59 9,925.88 10,043.68
07/31/96 10,207.94 10,098.90 9,948.02 10,079.06
08/31/96 10,211.37 10,098.70 9,984.81 10,075.15
09/30/96 10,383.43 10,258.71 10,136.67 10,234.05
10/31/96 10,595.15 10,460.83 10,349.58 10,439.44
11/30/96 10,751.57 10,617.89 10,511.18 10,596.92
12/31/96 10,693.19 10,549.61 10,448.43 10,523.64
01/31/97 10,776.27 10,617.47 10,528.97 10,590.61
02/28/97 10,816.15 10,644.68 10,567.82 10,612.02
03/31/97 10,707.81 10,543.10 10,458.87 10,502.34
04/30/97 10,884.89 10,705.17 10,604.02 10,661.53
05/31/97 10,998.28 10,801.02 10,706.66 10,758.00
06/30/97 11,129.82 10,928.21 10,856.34 10,881.60
07/31/97 11,330.89 11,134.14 11,058.40 11,104.61
08/31/97 11,307.22 11,099.04 10,998.32 11,060.93
09/30/97 11,458.21 11,245.29 11,152.79 11,205.71
10/31/97 11,576.42 11,356.98 11,288.89 11,319.18
11/30/97 11,613.71 11,381.60 11,310.02 11,346.22
12/31/97 11,718.68 11,493.83 11,441.94 11,455.49
01/31/98 11,833.00 11,606.59 11,601.97 11,573.18
02/28/98 11,859.36 11,622.68 11,572.17 11,584.82
03/31/98 11,909.37 11,664.01 11,648.17 11,624.17
04/30/98 11,978.35 11,730.62 11,720.39 11,685.99
05/31/98 12,060.70 11,814.24 11,847.12 11,776.04
06/30/98 12,111.31 11,865.51 11,960.28 11,831.40
07/31/98 12,180.04 11,921.03 11,988.91 11,876.91
08/31/98 12,275.04 12,032.75 12,179.53 11,999.05
09/30/98 12,420.82 12,181.40 12,453.16 12,164.80
10/31/98 12,409.26 12,117.35 12,209.85 12,093.93
11/30/98 12,479.91 12,186.85 12,347.38 12,162.61
12/31/98 12,530.84 12,234.44 12,387.05 12,207.36
01/31/99 12,619.70 12,308.66 12,482.29 12,277.39
02/28/99 12,578.33 12,227.53 12,198.21 12,177.47
03/31/99 12,654.42 12,304.54 12,327.07 12,250.54
04/30/99 12,715.10 12,358.30 12,355.61 12,302.84
05/31/99 12,650.13 12,269.36 12,218.41 12,211.50
06/30/99 12,598.30 12,201.73 12,128.78 12,147.61
07/31/99 12,515.33 12,121.72 11,897.00 12,069.54
08/31/99 12,510.56 12,109.84 11,767.64 12,053.17
09/30/99 12,713.04 12,307.43 11,993.81 12,242.06
10/31/99 12,789.12 12,363.89 12,005.73 12,290.30
11/30/99 12,794.47 12,365.41 12,013.22 12,295.01
12/31/99 12,768.32 12,312.30 11,939.56 12,237.39
01/31/00 12,653.20 12,204.90 11,880.61 12,130.19
02/29/00 12,816.77 12,355.36 12,052.38 12,271.00
03/31/00 13,022.18 12,549.14 12,200.01 12,460.85
04/30/00 13,009.37 12,520.68 12,136.07 12,438.62
05/31/00 13,058.69 12,571.46 12,251.21 12,481.09
06/30/00 13,298.62 12,785.10 12,494.48 12,698.51
07/31/00 13,367.86 12,837.80 12,555.04 12,745.19
08/31/00 13,570.43 13,026.72 12,761.53 12,927.82
09/30/00 13,696.61 13,138.73 12,845.66 13,037.96
10/31/00 13,799.69 13,220.86 12,950.17 13,116.32
11/30/00 13,993.39 13,422.57 13,173.86 13,313.96
12/31/00 14,191.33 13,615.00 13,392.46 13,509.30
01/31/01 14,423.40 13,822.09 13,594.45 13,708.83
02/28/01 14,486.74 13,892.02 13,695.06 13,784.43
03/31/01 14,573.32 13,960.95 13,793.21 13,859.79
04/30/01 14,597.28 13,961.32 13,756.52 13,836.85
05/31/01 14,719.84 14,056.21 13,830.57 13,921.27
06/30/01 14,763.59 14,090.36 13,848.39 13,963.34
07/31/01 15,016.55 14,351.98 14,120.61 14,223.39
08/31/01 15,126.04 14,458.99 14,246.81 14,325.61
09/30/01 15,330.19 14,651.19 14,449.39 14,526.87
10/31/01 15,533.77 14,838.25 14,664.08 14,714.12
11/30/01 15,403.11 14,696.71 14,478.28 14,555.24
12/31/01 15,357.25 14,625.05 14,349.76 14,472.78
01/31/02 15,512.51 14,773.81 14,497.44 14,611.84
02/28/02 15,670.59 14,932.60 14,676.52 14,767.03
03/31/02 15,521.99 14,776.86 14,465.33 14,591.60
04/30/02 15,794.91 15,035.15 14,767.09 14,854.54
05/31/02 15,898.24 15,133.67 14,913.68 14,951.05
06/30/02 16,026.13 15,252.04 15,021.53 15,070.83
07/31/02 16,211.90 15,426.04 15,187.92 15,240.02
08/31/02 16,324.86 15,546.57 15,344.33 15,360.49
09/30/02 16,459.95 15,671.80 15,468.76 15,498.50
10/31/02 16,510.72 15,705.96 15,495.66 15,521.90
11/30/02 16,526.32 15,708.91 15,494.69 15,516.81
12/31/02 16,690.66 15,877.95 15,675.02 15,685.24
01/31/03 16,732.88 15,916.25 15,713.19 15,717.04
02/28/03 16,816.64 16,004.19 15,792.63 15,807.89
03/31/03 16,828.51 15,997.29 15,790.89 15,797.02
04/30/03 16,867.50 16,035.75 15,843.86 15,837.23
05/31/03 16,868.09 16,054.21 15,879.17 15,876.41
06/30/03 16,919.38 16,081.15 15,893.47 15,895.63
07/31/03 16,639.95 15,758.51 15,562.88 15,551.54
08/31/03 16,749.55 15,853.84 15,658.77 15,651.62
09/30/03 16,991.34 16,115.44 15,910.62 15,919.76
10/31/03 16,947.03 16,049.28 15,850.01 15,836.05
11/30/03 17,005.75 16,100.42 15,877.28 15,878.77
12/31/03 17,164.48 16,212.70 15,990.38 15,991.78
01/31/04 17,250.30 16,297.93 16,070.60 16,070.27
02/29/04 17,363.30 16,398.43 16,165.15 16,174.32
03/31/04 17,434.44 16,451.57 16,230.47 16,232.10
04/30/04 17,159.93 16,177.99 15,990.47 15,952.63
05/31/04 17,125.09 16,137.13 15,939.30 15,908.25
06/30/04 17,280.07 16,250.74 16,070.67 16,027.79
07/31/04 17,419.88 16,386.79 16,185.30 16,152.68
08/31/04 17,661.70 16,608.21 16,378.14 16,364.11
09/30/04 17,698.96 16,594.86 16,407.69 16,364.29
10/31/04 17,838.84 16,703.56 16,505.70 16,471.23
11/30/04 17,798.25 16,657.21 16,470.02 16,421.49
12/31/04 17,913.94 16,746.68 16,539.81 16,508.52
01/31/05 18,017.84 16,843.90 16,618.68 16,601.67
02/28/05 17,961.98 16,783.11 16,566.68 16,537.04
03/31/05 17,927.85 16,748.89 16,531.63 16,498.40
04/30/05 18,108.93 16,908.13 16,687.15 16,652.34
05/31/05 18,239.31 17,017.77 16,788.08 16,750.76
06/30/05 18,357.87 17,054.69 16,822.62 16,787.05
07/31/05 18,464.34 16,986.06 16,770.81 16,716.99
08/31/05 18,407.10 17,127.64 16,909.71 16,849.71
09/30/05 18,372.13 17,038.54 16,827.11 16,760.02
10/31/05 18,557.69 16,954.70 16,753.49 16,674.92
11/30/05 18,691.30 17,002.09 16,789.56 16,715.94
[END CHART]
DATA FROM 11/30/95 THROUGH 11/30/05.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA GNMA Trust to the following benchmarks:
THE LEHMAN BROTHERS GNMA 30-YEAR INDEX IS AN UNMANAGED INDEX OF
PASS-THROUGH SECURITIES WITH AN ORIGINAL MATURITY OF 30 YEARS.
THE LIPPER GNMA FUNDS INDEX TRACKS THE TOTAL RETURN PERFORMANCE
OF THE 10 LARGEST FUNDS WITHIN THE LIPPER GNMA FUNDS CATEGORY.
THE LIPPER GNMA FUNDS AVERAGE IS AN AVERAGE PERFORMANCE LEVEL
OF ALL GNMA FUNDS, REPORTED BY LIPPER INC., AN INDEPENDENT
ORGANIZATION THAT MONITORS THE PERFORMANCE OF MUTUAL FUNDS.
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.
13
. . . C O N T I N U E D
========================--------------------------------------------------------
ASSET ALLOCATION
11/30/05
[PIE CHART OF ASSET ALLOCATION]
30-Year Fixed-Rate Single-Family Mortgages* 88.2%
Collateralized Mortgage Obligations 7.1%
15-Year Fixed-Rate Single-Family Mortgages* 4.0%
Repurchase Agreements 3.0%
[END CHART]
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
*COMBINED IN THE PORTFOLIO OF INVESTMENTS UNDER MORTGAGE-BACKED PASS-THROUGH
SECURITIES, SINGLE-FAMILY.
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES 14-16.
14
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL COUPON MARKET
AMOUNT SECURITY RATE MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (99.3%)(a)
MORTGAGE-BACKED PASS-THROUGH SECURITIES, SINGLE-FAMILY (92.2%)
Government National Mortgage Assn. I,
$ 6,923 Pool 604858 5.50% 12/15/2018 $ 7,015
35,567 Pool 604713 5.50 10/15/2033 35,503
16,151 Pool 616143 5.50 12/15/2033 16,122
7,704 Pool 615486 5.50 7/15/2034 7,684
6,975 Pool 781378 6.00 12/15/2016 7,160
3,343 Pool 780770 6.00 4/15/2028 3,402
1,345 Pool 482833 6.00 11/15/2028 1,368
3,411 Pool 492703 6.00 2/15/2029 3,468
2,278 Pool 781148 6.00 7/15/2029 2,316
3,740 Pool 584367 6.00 5/15/2032 3,801
11,306 Pool 603869 6.00 1/15/2033 11,489
3,230 Pool 553069 6.00 2/15/2033 3,283
4,617 Pool 581541 6.00 7/15/2033 4,692
2,966 Pool 615955 6.00 9/15/2033 3,014
1,178 Pool 456861 6.50 5/15/2028 1,227
904 Pool 472596 6.50 5/15/2028 942
943 Pool 462642 6.50 7/15/2028 982
864 Pool 464827 6.50 9/15/2028 900
30 Pool 467338 6.50 11/15/2028 31
2,463 Pool 490804 6.50 11/15/2028 2,566
114 Pool 434165 6.50 1/15/2029 118
114 Pool 469900 6.50 1/15/2029 119
3,130 Pool 486065 6.50 3/15/2031 3,254
2,361 Pool 485860 6.50 10/15/2031 2,455
2,036 Pool 577423 6.50 1/15/2032 2,116
1,001 Pool 581120 6.50 3/15/2032 1,040
2,686 Pool 552707 6.50 8/15/2032 2,792
12,891 Pool 781516 6.50 9/15/2032 13,402
103 Pool 474279 6.75 5/15/2028 108
256 Pool 474256 6.75 5/15/2028 267
431 Pool 440293 7.00 4/15/2027 454
1,662 Pool 780570 7.00 5/15/2027 1,749
174 Pool 478209 7.00 6/15/2028 182
138 Pool 458908 7.00 7/15/2028 145
496 Pool 464128 7.00 8/15/2028 522
314 Pool 486467 7.00 8/15/2028 330
558 Pool 464854 7.00 9/15/2028 587
15
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS (continued)
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL COUPON MARKET
AMOUNT SECURITY RATE MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn. I,
$ 2,699 Pool 487603 7.00% 5/15/2029 $ 2,837
2,134 Pool 487613 7.00 6/15/2029 2,243
1,030 Pool 555482 7.00 8/15/2031 1,082
734 Pool 781328 7.00 9/15/2031 771
1,127 Pool 564438 7.00 10/15/2031 1,184
410 Pool 563599 7.00 6/15/2032 431
1,484 Pool 563613 7.00 7/15/2032 1,558
719 Pool 780716 7.50 2/15/2028 761
129 Pool 781001 7.50 3/15/2029 136
289 Pool 499432 7.50 4/15/2029 305
484 Pool 470683 7.50 7/15/2029 512
1,024 Pool 510533 7.50 10/15/2029 1,082
230 Pool 518539 7.50 10/15/2029 243
142 Pool 538003 7.50 8/15/2030 150
263 Pool 443263 7.50 12/15/2030 277
171 Pool 486050 7.50 1/15/2031 180
107 Pool 530250 7.50 1/15/2031 113
237 Pool 552172 7.50 11/15/2031 251
19 Pool 178674 8.00 1/15/2022 20
421 Pool 352169 8.00 6/15/2023 450
441 Pool 442548 8.00 5/15/2027 472
420 Pool 511530 8.00 7/15/2030 449
199 Pool 520978 8.00 9/15/2030 214
135 Pool 307542 8.50 6/15/2021 147
38 Pool 329602 8.50 7/15/2022 41
161 Pool 312950 9.00 7/15/2021 176
Government National Mortgage Assn. II,
15,659 Pool 003389 5.00 5/20/2033 15,285
17,099 Pool 003414 5.00 7/20/2033 16,692
11,065 Pool 003568 5.00 6/20/2034 10,797
29,880 Pool 003759 5.00 9/20/2035 29,137
4,316 Pool 003375 5.50 4/20/2033 4,295
14,098 Pool 003530 5.50 3/20/2034 14,018
45,308 Pool 003678 5.50 2/20/2035 45,045
44,873 Pool 003702 5.50 4/20/2035 44,612
24,531 Pool 003736 5.50 7/20/2035 24,389
2,586 Pool 003052 6.00 3/20/2031 2,619
5,809 Pool 003273 6.00 8/20/2032 5,884
4,642 Pool 003285 6.00 9/20/2032 4,702
4,644 Pool 003460 6.00 10/20/2033 4,719
4,719 Pool 448816 6.00 12/20/2033 4,772
16
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS (continued)
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
PRINCIPAL COUPON MARKET
AMOUNT SECURITY RATE MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn. II,
$14,483 Pool 003517 6.00% 2/20/2034 $ 14,668
14,698 Pool 003531 6.00 3/20/2034 14,886
11,418 Pool 003611 6.00 9/20/2034 11,564
27,177 Pool 003625 6.00 10/20/2034 27,526
8,367 Pool 605742 6.00 11/20/2034 8,462
896 Pool 003080 6.50 5/20/2031 926
783 Pool 003107 6.50 7/20/2031 809
2,137 Pool 781494 6.50 8/20/2031 2,209
3,443 Pool 781427 6.50 4/20/2032 3,557
3,187 Pool 003250 6.50 6/20/2032 3,292
12,730 Pool 003599 6.50 8/20/2034 13,152
2,659 Pool 002971 7.00 9/20/2030 2,780
390 Pool 003070 7.50 4/20/2031 410
120 Pool 000563 8.00 12/20/2022 128
2,638 Pool 002958 8.00 8/20/2030 2,808
Fannie Mae(+),
15,000 Pool 846573 5.00 12/01/2035 14,433
1,545 Pool 598427 6.00 2/01/2017 1,579
1,545 Pool 608749 6.50 10/01/2016 1,593
5,033 Pool 618473 6.50 12/01/2016 5,192
--------
519,630
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (7.1%)
Government National Mortgage Assn. I,
15,000 Series 2003-50, Class PC 5.50 3/16/2032 14,886
10,000 Series 2002-35, Class C 5.88 10/16/2023 10,235
14,693 Series 2001-12, Class B 6.15 6/16/2021 15,035
--------
40,156
--------
Total U.S. government agency issues (cost: $565,836) 559,786
--------
REPURCHASE AGREEMENTS (3.0%)(b)
16,879 UBS Securities LLC, 4.01%, acquired on
11/30/2005 and due on 12/01/2005 at
$16,879 (collateralized by $17,365 of
Freddie Mac Notes(a,+), 5.25%, due 11/05/2012;
market value $17,217) (cost: $16,879) 16,879
--------
TOTAL INVESTMENTS (COST: $582,715) $576,665
========
17
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA GNMA TRUST
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%.
SPECIFIC NOTES
- --------------------------------------------------------------------------------
(a) U.S. government agency issues - mortgage-backed securities
issued by Government National Mortgage Association (GNMA)
are supported by the full faith and credit of the U.S.
government. Securities issued by government-sponsored
enterprises (GSEs) indicated with "+" are supported only by
the credit of the issuing agency, instrumentality, or
corporation, and are neither issued nor guaranteed by the
U.S. government.
(b) Collateral on repurchase agreements is received by the Fund
upon entering into the repurchase agreement. The collateral
is marked-to-market daily to ensure its market value is
equal to or in excess of the repurchase agreement price
plus accrued interest.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
ASSETS
Investments in securities, at market value
(identified cost of $582,715) $576,665
Cash 1
Receivables:
Capital shares sold 391
Interest 2,638
--------
Total assets 579,695
--------
LIABILITIES
Payables:
Securities purchased 14,588
Capital shares redeemed 966
Dividends on capital shares 467
Accrued management fees 58
Accrued transfer agent's fees 48
Other accrued expenses and payables 33
--------
Total liabilities 16,160
--------
Net assets applicable to capital shares outstanding $563,535
========
NET ASSETS CONSIST OF:
Paid-in capital $611,118
Overdistributed net investment income (2,071)
Accumulated net realized loss on investments (39,462)
Net unrealized depreciation of investments (6,050)
--------
Net assets applicable to capital shares outstanding $563,535
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 59,195
========
Net asset value, redemption price, and offering price per share $ 9.52
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA GNMA TRUST
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2005 (UNAUDITED)
INVESTMENT INCOME
Interest income $ 13,936
--------
EXPENSES
Management fees 366
Administration and servicing fees 439
Transfer agent's fees 469
Custody and accounting fees 57
Postage 25
Shareholder reporting fees 13
Trustees' fees 4
Registration fees 19
Professional fees 25
Other 12
--------
Total expenses 1,429
Expenses paid indirectly (1)
--------
Net expenses 1,428
--------
NET INVESTMENT INCOME 12,508
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Change in net unrealized appreciation/depreciation (12,221)
--------
Net realized and unrealized loss (12,221)
--------
Increase in net assets resulting from operations $ 287
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA GNMA TRUST
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2005 (UNAUDITED),
AND YEAR ENDED MAY 31, 2005
11/30/2005 5/31/2005
-----------------------
FROM OPERATIONS
Net investment income $ 12,508 $ 24,552
Net realized gain on investments - 686
Change in net unrealized appreciation/depreciation of investments (12,221) 5,792
---------------------
Increase in net assets resulting from operations 287 31,030
---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,579) (28,942)
---------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 34,484 79,152
Reinvested dividends 11,690 22,918
Cost of shares redeemed (62,558) (120,435)
---------------------
Decrease in net assets from
capital share transactions (16,384) (18,365)
---------------------
Net decrease in net assets (30,676) (16,277)
NET ASSETS
Beginning of period 594,211 610,488
---------------------
End of period $563,535 $ 594,211
=====================
Overdistribution of net investment income
End of period $ (2,071) $ -
=====================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,569 8,082
Shares issued for dividends reinvested 1,213 2,341
Shares redeemed (6,494) (12,309)
---------------------
Decrease in shares outstanding (1,712) (1,886)
=====================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA GNMA TRUST
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 GNMA Trust (the Fund),
which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide a high level of current income
consistent with preservation of principal.
A. SECURITY VALUATION - The value of each security is determined
(as of the close of trading on the New York Stock Exchange on
each business day the exchange is open) as set forth below:
1. Debt securities are valued each business day by a pricing
service (the Service) approved by the Trust's Board of
Trustees. The Service uses the mean between quoted bid and
asked prices or the last sales price to price securities
when, in the Service's judgment, these prices are readily
available and are representative of the securities' market
values. For many securities, such prices are not readily
available. The Service generally prices these securities
based on methods that include consideration of yields or
prices of securities of comparable quality, coupon, maturity,
and type; indications as to values from dealers in
securities; and general market conditions.
2. Securities purchased with original maturities of 60 days or
less are valued at amortized cost, which approximates market
value. Repurchase agreements are valued at cost.
3. Securities for which market quotations are not readily
available or are considered unreliable, or whose values have
been materially affected by events occurring after the close
of their
22
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
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. 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 net
asset value (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.
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. 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.
23
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
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.
E. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS - Delivery and
payment for securities that have been purchased by the Fund on a
when-issued basis can take place a month or more after the trade
date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may
increase or decrease in value prior to their delivery. The Fund
maintains segregated assets with a market value equal to or
greater than the amount of its purchase commitments. The
purchase of securities on a when-issued basis may increase the
volatility of the Fund's NAV to the extent that the Fund makes
such purchases while remaining substantially fully invested. The
Fund had no when-issued commitments as of November 30, 2005.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's
custodian and other banks utilized by the Fund for cash
management purposes, realized credits, if any, generated from
cash balances in the Fund's bank accounts are used to reduce
24
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
the Fund's expenses. For the six-month period ended November 30,
2005, these custodian and other bank credits reduced the Fund's
expenses by $1,000.
G. INDEMNIFICATIONS - Under the Trust's organizational documents,
its officers and trustees are indemnified against certain
liabilities arising out of the performance of their duties to
the Trust. In addition, in the normal course of business the
Trust enters into contracts that contain a variety of
representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these
arrangements is unknown, as this would involve future claims
that may be made against the Trust that have not yet occurred.
However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that may
affect the reported amounts in the financial statements.
(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
25
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
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 $1,000, which represents 1.9% 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.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security
transactions not offset by capital losses are made annually in the
succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes. At May 31, 2005, the Fund had capital loss carryovers of
$37,333,000, for federal income tax purposes, which if not offset by
subsequent capital gains, will expire between 2008 and 2013, as shown
below. It is unlikely that the Trust's Board of Trustees will authorize
a distribution of capital gains realized in the future until the
capital loss carryovers have been used or expire.
CAPITAL LOSS CARRYOVERS
--------------------------------------
EXPIRES BALANCE
------- -----------
2008 $ 8,011,000
2009 13,754,000
2010 1,177,000
2012 9,577,000
2013 4,814,000
-----------
Total $37,333,000
===========
26
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
(4) INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Cost of purchases and proceeds from sales/maturities of securities,
excluding short-term securities, for the six-month period ended
November 30, 2005, were $84,177,000 and $87,802,000, 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 $3,347,000 and $9,397,000, respectively,
resulting in net unrealized depreciation of $6,050,000.
(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.
Cash collateral is invested in high-quality short-term investments. The
Fund and MetWest retain 80% and 20%, respectively, of the income earned
from the investment of cash received as collateral. MetWest receives no
other fees from the Fund for its services as securities-lending agent.
Risks to the Fund in securities-lending transactions are that the
borrower may not provide additional collateral when required or return
the securities when due, and that the value of the short-term
investments will be less than the amount of cash collateral required to
be returned to the borrower. The Fund had no securities-lending
transactions during the six-month period ended November 30, 2005.
27
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
(6) TRANSACTIONS WITH MANAGER
- --------------------------------------------------------------------------------
A. MANAGEMENT FEES - The Manager carries out the Fund's investment
policies and manages the Fund's portfolio. The investment
management fee for the Fund is composed of a base fee and a
performance adjustment that increases or decreases the base fee
depending upon the performance of the Fund relative to the
performance of the Lipper GNMA Funds Index, which tracks the
total return performance of the 10 largest funds in the Lipper
GNMA Funds category. The Fund's base fee is accrued daily and
paid monthly at an annualized rate of 0.125% of its average net
assets for the fiscal year.
The performance adjustment is calculated monthly by comparing
the Fund's performance to that of the Lipper index over the
performance period. The performance period for the Fund consists
of the current month plus the previous 35 months.
The annual performance adjustment rate is multiplied by the
average net assets of the Fund over the entire performance
period, which is then multiplied by a fraction, the numerator of
which is the number of days in the month and the denominator of
which is 365 (366 in leap years). The resulting amount is then
added to (in the case of overperformance) or subtracted from (in
the case of underperformance) the base fee, as referenced in the
following chart:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest 0.01%.
28
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
Under the performance fee arrangement, the Fund will pay a
positive performance fee adjustment for a performance period
whenever the Fund outperforms the Lipper GNMA Funds Index over
that period, even if the Fund had overall negative returns
during the performance period.
For the six-month period ended November 30, 2005, the Fund
incurred total management fees, paid or payable to the Manager,
of $366,000, which included no performance adjustment.
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 six-month period ended November 30,
2005, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $439,000.
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 period
ended November 30, 2005, the Fund reimbursed the Manager $10,000
for these legal and tax services. These expenses are included in
the professional fees expenses on the Fund's statement of
operations.
C. 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
29
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
NOVEMBER 30, 2005 (UNAUDITED)
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 $469,000.
D. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors, officers,
and/or employees of the Manager. None of the affiliated trustees or
Fund officers received any compensation from the Fund.
30
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA GNMA TRUST
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 $ 9.76 $ 9.72 $ 10.16 $ 10.08 $ 9.89 $ 9.37
----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20 .47 .48 .56 .57(c) .66
Net realized and unrealized
gain (loss) (.20) .04 (.44) .08 .19(c) .52
----------------------------------------------------------------------------------------
Total from investment operations .00(d) .51 .04 .64 .76 1.18
Less distributions:
From net investment income (.24) (.47) (.48) (.56) (.57) (.66)
----------------------------------------------------------------------------------------
Net asset value at end of period $ 9.52 $ 9.76 $ 9.72 $ 10.16 $ 10.08 $ 9.89
========================================================================================
Total return (%)* .01 5.33 .39 6.49 7.83 12.91
Net assets at end of period (000) $563,535 $594,211 $610,488 $751,794 $589,157 $476,641
Ratio of expenses to average
net assets (%)**(b) .49(a) .48 .47 .46 .41 .32
Ratio of net investment income to
average net assets (%)** 4.28(a) 4.06 3.62 4.43 5.62(c) 6.74
Portfolio turnover (%) 14.73 37.29 58.53 74.64 44.77 94.72
* Assumes reinvestment of all net investment income distributions during the
period.
** For the six-month period ended November 30, 2005, average net assets
were $583,344,000.
(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 by less than 0.01%.
(c) In 2001, a change in amortization method was made as required by an
accounting pronouncement. Without that change, these amounts would have
been:
Net investment income $ .57
Net realized and unrealized gain $ .19
Ratio of net investment income to average net assets 5.63%
(d) Represents less than $0.01 per share.
31
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
USAA GNMA TRUST
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
32
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE
(Continued)
USAA GNMA TRUST
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 $1,000.10 $2.45
Hypothetical
(5% return before expenses) 1,000.00 1,022.62 2.48
*Expenses are equal to the Fund's annualized expense ratio of 0.49%,
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
0.01% for the six-month period of June 1, 2005, through November 30,
2005.
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
THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE
FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THESE FORMS N-Q ARE
AVAILABLE (I) BY CALLING (800) 531-8448; (II) AT USAA.COM; AND (III) ON THE
SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. THESE FORMS N-Q ALSO MAY BE REVIEWED AND
COPIED AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE
OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800)
SEC-0330.
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- --------------------------------------------------------------------------------
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INSURANCE o MEMBER SERVICES
23414-0106 (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
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Signature and Title: Eileen M. Smiley, Assistant Secretary
Date: January 18, 2006
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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
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By:* /s/ DEBRA K. DUNN
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Signature and Title: Debra K. Dunn/Treasurer
Date: January 24, 2006
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*Print the name and title of each signing officer under his or her signature.