Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Independent Auditors' Report 7
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments 15
Statement of Operations 16
Statement of Changes in Net Assets 17
Notes to Financial Statements 18
Important Information:
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are now "streamlined."
One copy of each report will be sent to each address, instead of our
previous practice of sending one report to every registered owner. For many
shareholders and their families, this eliminates duplicate copies, saving
paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one
report per registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business
hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Emerging
Markets Fund, managed by USAA Investment Management Company (IMCO). It may
be used as sales literature only when preceded or accompanied by a current
prospectus which gives further details about the fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(copyright) 1995, USAA. All rights reserved.
USAA Family of Funds Performance Summary
If you own only one or two USAA funds, you may not be aware of the
performance of our other funds. This summary is a snapshot of the
performance of all 29 funds by investment objective as of June 30, 1995. If
you're interested in more information, please call us at 1-800-531-1087 for
a prospectus. Please read the prospectus carefully before investing.
<TABLE>
<CAPTION>
Average Annual Total Return**
Investment Inception Since 7-Day 30-Day***
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<C> <S> <S> <S> <S> <S> <S> <S>
Capital Appreciation % % % % % %
Aggressive Growth 10/19/81 39.72 11.12 9.78 - - -
Emerging Markets 11/7/94 - - - (0.50) - -
Gold 8/15/84 6.88 4.66 2.86 - - -
Growth 4/5/71 26.34 12.37 11.75 - - -
Growth & Income 6/1/93 21.19 - - 10.49 - -
International 7/11/88 4.23 7.89 - 9.33 - -
World Growth 10/1/92 7.88 - - 11.71 - -
Diversified/Balanced
Balanced Portfolio 1/11/89 11.09 8.59 - 8.93 - 4.06
Cornerstone 8/15/84 9.25 9.24 12.00 - - -
Income - Taxable
GNMA 2/1/91 11.00 - - 8.08 - 6.79
Income 3/4/74 15.07 10.00 10.04 - - 6.87
Income Stock 5/4/87 19.52 12.26 - 11.44 - -
Short-Term Bond 6/1/93 8.40 - - 4.83 - 6.77
Income - Tax Exempt
Long-Term 3/19/82 7.28 7.66 8.60 - - 5.79
Intermediate-Term 3/19/82 7.60 7.71 7.82 - - 5.22
Short-Term 3/19/82 5.23 5.52 5.76 - - 4.36
California Bond* 8/1/89 8.96 7.66 - 7.23 - 5.79
Florida Tax-Free Income* 10/1/93 7.82 - - 0.09 - 5.71
New York Bond* 10/15/90 7.36 - - 8.65 - 5.60
Texas Tax-Free Income* 8/1/94 - - - 8.40 - 5.63
Virginia Bond* 10/15/90 8.79 - - 8.31 - 5.78
Money Market
Money Market 2/2/81 5.33 4.76 6.06 - 5.75 -
Tax Exempt Money Market 2/6/84 3.34 3.57 4.45 - 3.82 -
Treasury Money Market Trust 2/1/91 5.06 - - 4.01 5.69 -
California Money Market* 8/1/89 3.31 3.36 - 3.71 3.74 -
Florida Tax-Free Money
Market* 10/1/93 3.23 - - 2.72 3.74 -
New York Money Market* 10/15/90 3.15 - - 2.98 3.69 -
Texas Tax-Free Money
Market* 8/1/94 - - - 3.06 3.72 -
Virginia Money Market* 10/15/90 3.25 - - 3.18 3.61 -
* Shares of the state funds are authorized for sale only to residents of
the states listed above.
** Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested
dividends and capital gain distributions. The performance data quoted
represents past performance and is not an indication of future results.
Investment return and principal value of an investment will fluctuate, and
an investor's shares, when redeemed, may be worth more or less than their
original cost.
An investment in any money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will
maintain a stable net asset value of $1 per share.
Some tax-exempt income may be subject to state or local taxes or the
federal alternative minimum tax.
Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
***Calculated as prescribed by the Securities and Exchange Commission.
Message from the President
{Photo of the President and Vice Chairman of the Board, Michael J. C. Roth
appears here}
Most of these messages look back at events. This one looks forward.
On January 29, 1995 my wife and I became grandparents. Karl Joseph
Marbach was born to Alexandra, my wife's daughter, and her husband Keith
Marbach. When my wife learned of the name Alexandra and Keith had chosen, she
smiled. She noted that my middle names are Joseph Carl, and she said, "I
think this kid's college education is secure."
"Secure" may be an exaggeration, but I did decide to practice one thing I
have preached for many years. I told Alexandra to get the little fellow
a social security number, and as soon as she furnished that to me, (well,
almost as soon), I opened an InveStart (registered trademark) account for
Karl Joseph. This account, in the USAA Income Stock Fund, was opened for
$100, and will have $50 per month added to it by an electronic funds
transfer from my checking account.
InveStart is a program that we have offered for many years. For now it is
available for use with the Income Stock Fund, Cornerstone Fund and Money
Market Fund.(1) That lineup will soon expand. We orginally intended it for
young USAA members as a good way to start investing. We found, however,
that many grandparents were using it as I just did.
The effect for Karl Joseph can be quite powerful. It is well documented
that the stock market, as measured by the S&P 500 stock index has produced
a total return of 10% for the last 18 years ended May 31, 1995 (Source: Lipper
Analytical Services, Inc.).
The chart on the next page shows the growth of an account with a $100 initial
investment and $50 subsequent monthly investments for 18 years at an 8%
return - a hypothetical figure based upon and more conservative than historical
results. It is for illustrative purposes only and should not be considered
an indication of fund performance by any of the USAA Family of Funds.
"...I did decide to practice one thing I have preached for many years."
[A graph is shown here which shows the growth of an account with a $100
initial investment and $50 subsequent monthly investments for 18 years
at an 8% return - a hypothetical figure based upon and more conservative
than historical results. The horizontal axis shows the years, and the
vertical axis shows the dollar amount. The beginning value is $100 and
the ending value is $24,209.]
A systematic plan like this doesn't assure a profit or protect against loss
in declining markets. Since such a plan involves continuous investment in
securities regardless of fluctuating price levels of such securities, you
should consider your financial ability to continue purchases through periods
of low and high price levels.
In 18 years, college will cost more than it does now. This sum today would
go a long way toward an education in an in-state public university. In 18
years it will not buy as much education as it does today, but it will be
quite meaningful. If we add to the cash flow on birthdays, or if other
relatives kick in, it will be even more meaningful. And it is relatively
painless.
I promise to keep you posted on the progress of Karl Joseph's education fund.
This is not theoretical; it is real.
Sincerely,
Michael Joseph Carl Roth
President and
Vice Chairman of the Board
(1)An investment in a money market fund is neither insured nor guaranteed by the
U.S. government, and there can be no assurance that the fund can maintain a
stable net asset value of $1 per share.
Investment Review
Emerging Markets fund
OBJECTIVE: Provide investors with capital appreciation.
TYPES OF INVESTMENTS: At least 65% of the Fund's assets are invested in
common stocks or securities which are convertible into or which carry the
right to buy common stocks of emerging market companies.
5/31/95
Net Assets $22.9 Million
Net Asset Value Per Share $9.77
Average Annual Total Return as of 5/31/95
Since inception on November 7, 1994 -2.30%
[A graph is shown here which is a comparison of the change in value
of a $10,000 investment, for the period of 11/7/94 to 5/31/95, with
dividends and capital gains reinvested. The ending value of each item
graphed is as follows: USAA Emerging Markets Fund - $9,770, the IFC
Global Composite Index - $8,096 and the Lipper Emerging Markets Fund
Index - $8,500.]
The graph illustrates a hypothetical $10,000 investment
in the USAA Emerging Markets Fund; the International Financial Corporation
(IFC) Global Composite Index is an unmanaged broad-based index of emerging
markets per the World Bank GNP per capita definition. It is considered a
representative benchmark for emerging markets funds and an unmanaged index
of emerging markets funds represented by the Lipper Emerging Markets Fund
Index.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment
has been made for taxes payable by shareholders on their reinvested income
dividends and capital gain distributions. The performance data quoted
represents past performance and is not an indication of future results.
Investment return and principal value of an investment will fluctuate, and
an investor's shares, when redeemed, may be worth more or less than their
original cost.
Message from the Manager
{Photo of Portfolio Manager, W. Travis Selmier, II appears here}
Fund Performance
Since the Fund's inception on November 7, 1994, emerging markets have been
extremely volatile. Concerns over the Mexican peso devaluation affected
markets both inside and outside Latin America. While we have seen a rebound
since early March, other shocks may occur. We have been increasing our
exposure to mining stocks, while continuing to favor consumer and
construction/real estate stocks.
Asian Markets
Current Asian economic growth is again demonstrating how dynamic this
region can be. We think many of the questions surrounding the death of Deng
Xiaoping in China and the inevitable political realignment have been
answered. We have shifted some money out of Northeast Asia (Korea, Taiwan,
and China) into Southeast Asian and Indian subcontinent markets,
and remain positive on the Asian markets.
Latin American Markets
Latin American economies have shown they will not fall apart, although
Mexico will have a difficult year. Taking advantage of the turbulent
markets, we have added to positions on dips in all major Latin American
markets with the exception of Venezuela, which is still having problems
getting its economic house in order.
Top 10 Industries
(% of Net Assets)
Banking 9.4
Real Estate 7.9
Beverages 7.2
Engineering & Construction 6.3
Steel 6.2
Telephones 5.6
Foods 4.5
Metals 4.4
Automobiles & Auto Parts 3.4
Electric Power 3.4
Other Markets
We continue to be very positive on Poland and hold a significant weighting
there. We are also participating in the Middle East and Mediterranean
markets, particularly Turkey and Greece, although we took some profits in
Turkey in April. Africa, particularly South Africa, looks interesting, and
we have been and expect to continue increasing our weighting there.
Foreign investing is subject to additional risks which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate
with risk, investors should be aware of the potential volatility associated
with emerging markets.
See page 9 for a complete listing of the Portfolio of Investments in Securities.
[A pie chart is shown here depicting the Portfolio Mix as of May 31, 1995
of the USAA Emerging Markets Fund to be: South Africa - 5.4%, Singapore -
7.6%, Poland - 7.6%, Hong Kong - 6.7%, Mexico - 6.4%, Malaysia - 6.2%,
Thailand - 6.1%, Indonesia - 6.0%, India - 5.3%, Turkey - 5.2% and
Other - 37.8%.]
Independent Auditors' Report
The Shareholders and Board of Trustees
USAA Investment Trust:
We have audited the accompanying statement of assets and liabilities and
portfolio of investments in securities of the Emerging Markets Fund of USAA
Investment Trust as of May 31, 1995, the related statements of operations
and changes in net assets for the seven-month period ended May 31, 1995,
and the financial highlights information presented in note 8 to the financial
statements for the seven-month period ended May 31, 1995. These financial
statements and the financial highlights information are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and the financial highlights information based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
and the financial highlights information are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of May 31, 1995, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and the financial highlights
information referred to above present fairly, in all material respects, the
financial position of the Emerging Markets Fund of USAA Investment Trust as
of May 31, 1995, the results of its operations and the changes in its net
assets for the seven-month period ended May 31, 1995, and the financial
highlights information for the seven-month period ended May 31, 1995,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 7, 1995
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1995
<S> <C>
Assets
Investments in securities, at market value (identified cost of
$21,805) $ 22,981
Cash 6
Cash denominated in foreign currencies (identified cost of $4) 4
Receivables:
Capital shares sold 213
Dividends 64
Securities sold 122
Foreign currency contracts held, at value 122
----------
Total assets 23,512
----------
Liabilities
Securities purchased 393
Foreign currency contracts held, at value 122
USAA Investment Management Company 33
USAA Transfer Agency Company 3
Accounts payable and accrued expenses 47
-----------
Total liabilities 598
-----------
Net assets applicable to capital shares outstanding $ 22,914
===========
Represented by:
Paid-in capital $ 21,709
Accumulated undistributed net investment income 28
Accumulated net realized gain on investments 1
Net unrealized appreciation of investments 1,176
Net assets applicable to capital shares outstanding -----------
$ 22,914
===========
Capital shares outstanding, unlimited number of shares authorized,
no par value 2,344
===========
Net asset value, redemption price, and offering price per share
$ 9.77
===========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Fund
Portfolio of Investments in Securities
May 31, 1995
Common Stocks (95.0%)
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
Argentina (3.9%)
9,000 Banco Frances del Rio de la Plata S.A. ADS $ 175
45,000 Comercial del Plata S.A. * 109
60,000 Compania Interamericana de Automobiles S.A. * 312
7,500 IRSA Inversiones y Representaciones S.A. GDS * 179
6,000 YPF Sociedad Anonima S.A. ADS "D" 122
--------
897
--------
Brazil (1.8%)
14,000 Rhodia-Ster S.A. GDS * 213
18,000 Usinas Siderurgicas de Minas Gerais S.A.-USIMINAS ADS 203(a)
--------
416
--------
Chile (4.7%)
29,000 Banco Osorno y La Union S.A. ADR 410
8,000 Chilgener S.A. ADS 246
3,000 Compania de Telefonos de Chile S.A. 265
5,400 Madeco S.A. ADS 157
--------
1,078
--------
Colombia (0.4%)
12,000 Banco de Colombia GDS 85
--------
Greece (1.9%)
8,000 Hellenic Bottling Co. S.A. * 225
10,000 Hellenic Technodomiki * 221
--------
446
--------
Hong Kong (6.7%)
100,000 Hong Kong Land Holdings Ltd. 207
155,200 Hong Kong Telecommunications Ltd. 328
38,000 Hutchison Whampoa Ltd. 192
400,000 Peregrine Investments Holdings Ltd. 507
180,000 Varitronix International Ltd. 298
--------
1,532
--------
India (5.3%)
7,000 Hindalco Industries Ltd. GDR 208
10,000 Indian Rayon & Industries Ltd. GDR 161
15,000 Larsen & Toubro Ltd. GDR * 296
850 Tata Electric Companies GDR * 319
50,000 The Arvind Mills Ltd. GDS 234
--------
1,218
--------
Indonesia (6.0%)
128,000 PT Darya-Varia Laboratoria * 540
48,000 PT HM Sampoerna 344
150,000 PT Indah Kiat Pulp & Paper * 209
100,000 PT Jaya Real Property 287
--------
1,380
--------
Korea (2.3%)
10,000 Fidelity Advisor Korea Fund, Inc.* 104
10,000 Korea Electric Power Corp. ADS 224
2,500 Samsung Electronics Co., Ltd. GDR * 132
1,300 Samsung Electronics Co., Ltd. GDR (New) * 61
--------
521
--------
Malaysia (6.2%)
56,000 Aokam Perdana BHD 151
100,000 Hong Leong Bank BHD * 317
22,000 Malaysian Assurance Alliance BHD 78
110,000 Tanjong plc 406
18,000 Telekom Malaysia BHD 138
50,000 United Engineers BHD 331
--------
1,421
--------
Mexico (6.4%)
10,300 Bufete Industrial, S.A. de C.V. ADS 102
13,200 Desc, Soceidad de Fomento Industrial, S.A. de C.V. ADS* 167
220,000 Grupo Financiero Banorte "C" 240
25,000 Grupo Simec, S.A. de C.V. ADS * 240
800,000 Grupo Situr S.A. "B" * 316
12,000 Grupo Televisa, S.A. de C.V. ADS 195
7,500 Panamerican Beverages, Inc. "A" 204
--------
1,464
--------
Pakistan (2.5%)
5,000 Pakistan Telecommunication Co. Ltd. GDR 562
--------
Peru (3.1%)
33,883 Buenaventura 192
180,000 Enrique Ferreyros S.A. 251
23,000 Minsur S.A. * 271
--------
714
--------
Philippines (4.6%)
1,250,000 Filinvest Land, Inc. * 421
390,000 Petron Corp. GDS 321
480,000 Universal Robina Corp. 312
---------
1,054
---------
Poland (7.6%)
22,000 Debica S.A. 295
75,000 Elektrim S.A. 265
30,000 Mostostal Export * 144
14,500 Optimus S.A. 195
37,300 Polifarb-Cieszyn S.A. 163
38,000 Rafako * 357
5,000 Wedel S.A. * 312
---------
1,731
---------
Portugal (0.3%)
1,400 Companhia Portuguesa Radio Marconi, S.A. (Bearer) * 58
200 Companhia Portuguesa Radio Marconi, S.A. (Registered) * 9
---------
67
---------
Russia (1.8%)
40,000 Sun Brewing Ltd. GDR * 400
---------
Singapore (7.6%)
38,000 City Developments Ltd. 254
51,000 DBS Land Ltd. 171
30,000 Fraser & Neave Ltd. 360
140,000 Genting International plc 259
22,000 Keppel Corp. Ltd. 200
225,000 Liang Court Holdings Ltd. 220
45,000 Overseas Union Bank Ltd. 287
---------
1,751
---------
South Africa (5.4%)
232,100 Iscor Ltd. S.A. 278
15,300 Murray and Roberts Holdings Ltd. 89
6,300 Nedcor Ltd. GDR Units * 307
50,000 Vaal Reefs Exploration & Mining Ltd. ADR 316
8,000 Western Deep Levels Ltd. ADR 254
---------
1,244
---------
Taiwan (1.1%)
12,000 China Steel Corp. GDS 255
---------
Thailand (6.1%)
30,000 Finance One Public Co. 201
60,000 Sahavirya Steel Industries 158
35,000 Sri Thai Superware Co. Ltd. 271
21,000 Thai Farmers Bank Public Co., Ltd. 199
145,000 Thai Theparos Food 414
22,000 TPI Polene Public Co., Ltd. 148
---------
1,391
---------
Turkey (5.2%)
150,000 Ege Biracilik Ve Malt Sanayii A.S. 188
2,000,000 Eregli Demir Ve Celik Fabrikalari T.A.S. * 288
75,000 Migros Turk T.A.S. 252
650,000 Olmuksa 215
332,000 Petkim 247
---------
1,190
---------
Zimbabwe (2.3%)
455,000 Reunion Mining plc * 535
---------
Other Holdings (1.8%)
38,000 Foreign & Colonial Emerging Middle East Fund * 413
---------
Total common stocks (cost:$20,747) 21,765
---------
Preferred Stocks (2.6%)
Brazil
14,997,000 Bradesco PN 129
800,000 Brahma (Cia Cervejaria) PN 258
13,793 Brahma (Cia Cervejaria) PN (New) * 4
630,000 Coteminas PN 205
---------
Total preferred stocks (cost: $438) 596
---------
</TABLE>
U.S. Government & Agency Issues (2.7%)
Principal
Amount Coupon
(000) Rate Maturity
Discount Note
$ 620 Federal Home Loan Mortgage
Corp.(cost: $620) 6.10% 6/01/95 620
---------
Total investments (cost: $21,805) $ 22,981
=========
- ------------------------
*Non-income producing.
May 31, 1995
PORTFOLIO SUMMARY BY INDUSTRY
Banking 9.4%
Real Estate 7.9
Beverages 7.2
Engineering & Construction 6.3
Steel 6.2
Telephones 5.6
Foods 4.5
Metals 4.4
Automobiles & Auto Parts 3.4
Electric Power 3.4
Brokerage Firms 3.1
Oil 3.0
Gaming Companies 2.9
Machinery - Diversified 2.7
U.S. Government & Agency Issues 2.7
Gold Mining 2.5
Drugs 2.4
Mutual Funds 2.3
Electronics 2.1
Conglomerates 2.0
Textiles 1.9
Paper & Forest Products 1.6
Tobacco 1.5
Building Materials 1.4
Housewares 1.2
Homebuilding 1.1
Retail - Food Chains 1.1
Other 6.5
-----
100.3%
=====
Emerging Markets Fund
Notes to Portfolio of Investments
May 31, 1995
General Notes
Market values of securities are determined by procedures and practices
discussed in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the
same as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net
assets.
Specific Notes
(a) Securities which are exempt from registration by Rule 144A under
the Securities Act of 1933 and when purchased were determined to
be liquid. Any resale of these securities will occur in an exempt
transaction in the United States to a qualified institutional buyer.
See accompanying notes to financial statements.
Emerging Markets Fund
Statement of Operations
(In Thousands)
Seven-month period ended May 31, 1995*
Net investment income:
Income (net of foreign taxes withheld of $19):
Dividends $ 154
Interest 90
--------
Total income 244
--------
Expenses:
Management fees 80
Transfer agent's fees 34
Custodian's fees 38
Postage 7
Shareholder reporting fees 6
Trustees' fees 1
Registration fees 8
Audit fees 29
Legal fees 4
Other 2
---------
Total expenses before reimbursement 209
Expenses reimbursed (8)
---------
Total expenses after reimbursement 201
---------
Net investment income 43
---------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 1
Foreign currency transactions (15)
Change in net unrealized appreciation/depreciation of investments 1,176
----------
Net realized and unrealized gain 1,162
----------
Increase in net assets resulting from operations $ 1,205
==========
* Fund commenced operations November 7, 1994.
See accompanying notes to financial statements.
Emerging Markets Fund
Statement of Changes in Net Assets
(In Thousands)
Seven-month period ended May 31, 1995*
From operations:
Net investment income $ 43
Net realized gain on investments 1
Net realized loss on foreign currency transactions (15)
Change in net unrealized appreciation/depreciation of
investments 1,176
-------
Increase in net assets resulting from operations 1,205
-------
From capital share transactions:
Shares sold 25,967
Shares redeemed (4,258)
-------
Increase in net assets from capital share transactions 21,709
-------
Net increase in net assets 22,914
Net assets:
Beginning of period _
-------
End of period $ 22,914
=======
Accumulated net investment income included in net assets:
Beginning of period $ -
=======
End of period $ 28
=======
Change in shares outstanding:
Shares sold 2,812
Shares redeemed (468)
-------
Increase in shares outstanding 2,344
=======
* Fund commenced operations November 7, 1994.
See accompanying notes to financial statements.
Emerging Markets Fund
Notes to Financial Statements
(In Thousands)
May 31, 1995
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company
Act of 1940, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eight separate
funds. The information presented in this annual report pertains only to the
Emerging Markets Fund (the Fund), which commenced operations on November 7,
1994.
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. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities
exchanges are generally valued at the closing values of such securities on
the exchange where primarily traded. If no sale is reported, the latest bid
price is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if
not available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Securities which cannot be valued by the methods set forth above, and
all other assets, are valued in good faith at fair value, using methods
determined by the Manager under the general supervision of the Board of
Trustees.
B. Investments in securities - As is common in the industry, security
transactions are accounted for on the date the securities are purchased
or sold (trade date). Gain or loss from sales of investment securities
is computed on the identified cost basis. Dividend income, less foreign
taxes, if any, is recorded on the ex-dividend date. If the ex-dividend
date has passed, certain dividends from foreign securities are recorded
upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over
the life of the respective securities.
C. Foreign currency translations - The assets of the Fund may be invested
in the securities of foreign issuers. Since the accounting records of the
Fund are maintained in U.S. dollars, foreign currency amounts are
translated into U.S. dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean
between the bid and asked translation rates of such currencies against U.S.
dollars.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates
of such transactions.
Net realized and unrealized foreign currency gains/losses occurring during
the holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign
currency, currency gains/losses realized between the trade and settlement
dates on security transactions, and 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. Net realized
foreign currency gains/losses have been 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.
(2) Line of Credit
The Fund participates with other USAA funds in a joint $150 million
short-term revolving loan agreement (the Agreement) through January 15,
1996, for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition
of securities. Subject to availability under this Agreement, the Fund may
borrow up to 10% of the market value of its assets at the time of
such borrowing, and all borrowings must be repaid before additional
investments are made. Borrowings under this Agreement will bear
interest at .125% over the Federal Funds Rate as published by the
Federal Reserve Bank of New York or at .125% over the London
Interbank Offered Rate. The Fund had no borrowings under this
Agreement during the seven-month period ended May 31, 1995.
(3) Distributions and Federal Income Taxes
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal
year.
The Fund did not qualify as a regulated investment company for the tax year
ended May 31, 1995 as the Fund's gross realized gains on the sale of
securities held less than three months exceeded 30 percent of its gross
income. This is not an uncommon occurrence for a fund such as the
Emerging Markets Fund in its initial year of operations. The failure
to qualify as a regulated investment company will have no
adverse impact on the Fund's shareholders, as the Manager has agreed to
assume the tax liability of approximately $4 (in thousands). The Fund
intends to qualify as a regulated investment company in fiscal 1996, and if
so qualified, would not be subject to federal corporate taxes.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the
seven-month period ended May 31, 1995 were $25,144 and $3,959,
respectively.
Gross unrealized appreciation and depreciation of investments at May 31,
1995 was $2,267 and $1,091, respectively.
(5) Foreign Currency Contracts
A forward currency contract (currency contract) is a commitment to purchase
or sell a foreign currency at a specified date, at a negotiated price. The
Fund currently enters into currency contracts only in connection with the
purchase or sale of a security denominated in a foreign currency. These
contracts allow the Fund to "lock in" the U.S. dollar price of the
security. Currency contracts are valued on a daily basis using foreign
currency exchange rates obtained from an independent pricing service. Risks
of entering into currency contracts include the potential inability of the
counterparty to meet the terms of the contract and the Fund foregoing the
opportunity for potential profit.
At May 31, 1995, the terms of open foreign currency contracts were as follows:
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar
Value Value
Exchange Currency to be as of Currency to be as of
Date Delivered 5/31/95 Received 5/31/95
<S> <C> <C> <C> <C>
6/02/95 62 Singapore Dollar $ 45 45 U.S. Dollar $ 45
6/05/95 171,249 Indonesian Rupiah 77 77 U.S. Dollar 77
----- -----
$ 122 $ 122
===== =====
</TABLE>
(6) Transactions with Manager
A. Management fees - The investment policy of the Fund and the management
of the Fund's portfolio is carried out by USAA Investment Management
Company (the Manager). The Fund's management fees are computed at 1.0% of
its annual average net assets.
The Manager is required to reimburse the Fund for expenses which exceed any
applicable state expense limitation. This expense limitation is currently
2.5% of the first $30,000 of average net assets (ANA), 2% of the next
$70,000 ANA, and 1.5% of all remaining ANA.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides
transfer agent services to the Fund. Shareholder accounting service fees
are based on an annual charge per shareholder account plus out-of-pocket
expenses.
C. Underwriting agreement - The Trust has an agreement with the Manager
for exclusive underwriting and distribution of the Fund's shares on a
continuing best efforts basis. This agreement provides that the Manager
will receive no fee or other remuneration for such services.
(7) Transactions with Affiliates
USAA Investment Management Company is wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At May 31, 1995, the Association and its affiliates
owned 500 shares (21.3%) of the Fund.
(8) Financial Highlights
Per share operating performance for a share outstanding throughout the
period is as follows:
Seven-month
Period ended
May 31,
1995*
-----
Net asset value at beginning of period $ 10.00
Net investment income .03(b)
Net realized and
unrealized loss (.26)
------
Net asset value at
end of period $ 9.77
======
Total return (%) (2.30)
Net assets at end of period (000) $ 22,914
Ratio of expenses to average net assets (%) 2.50 (a)(c)
Ratio of net investment income to average net assets (%) .53 (a)(c)
Portfolio turnover (%) 34.87
* Fund commenced operations November 7, 1994.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) Calculated using weighted average shares.
(c) The information contained in the above table is based on actual
expenses for the period, after giving effect to reimbursements of
expenses by the Manager. Absent such reimbursements the Fund's
ratios would have been:
Seven-month
Period ended
May 31,
1995*
-----
Ratio of expenses to average net assets (%) 2.60(a)
Ratio of net investment income to average net assets (%) .43(a)
