Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Distributions to Shareholders 8
Independent Auditors' Report 9
Statement of Assets and Liabilities 10
Portfolio of Investments in Securities 11
Notes toPortfolio of Investments in Securities 18
Statement of Operations 19
Statements of Changes in Net Assets 20
Notes to Financial Statements 21
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)1996, 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 33
funds by investment objective as of June 30, 1996. For more complete informa-
tion about the mutual funds managed and distributed by USAA IMCO, including
charges and expenses, please call 1-800-531-8181 for a prospectus. Read it
carefully before you invest.
<TABLE>
<CAPTION>
Average Annual Total Return* Yield
Investment Inception Since 7-Day 30-Day(1)
Objective Date 1 yr 5 yrs 10 yrs Inception Simple SEC
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 54.74 19.89 11.69 - - -
Emerging Markets(2) 11/7/94 13.17 - - 7.33 - -
Gold(2) 8/15/84 7.30 7.62 6.05 - - -
Growth 4/5/71 22.12 15.53 11.13 - - -
Growth & Income 6/1/93 23.95 - - 14.68 - -
International(2) 7/11/88 19.63 14.36 - 10.57 - -
S&P 500 Index(5) 5/1/96 - - - 4.58 - -
World Growth(2) 10/1/92 20.11 - - 13.87 - -
Asset Allocation
Balanced Strategy 9/1/95 - - - 6.48 - -
Cornerstone Strategy(2) 8/15/84 17.19 12.44 11.56 - - -
Growth and Tax Strategy(3)** 1/11/89 15.43 10.31 - 9.77 - 3.88
Growth Strategy(2) 9/1/95 - - - 23.85 - -
Income Strategy 9/1/95 - - - 4.68 - 5.31
Income - Taxable
GNMA 2/1/91 4.23 7.63 - 7.36 - 6.98
Income 3/4/74 6.13 8.92 9.42 - - 6.84
Income Stock 5/4/87 19.22 13.77 - 12.26 - -
Short-Term Bond 6/1/93 5.51 - - 5.05 - 6.64
Income - Tax Exempt
Long-Term(3)** 3/19/82 6.74 7.36 7.74 - - 5.86
Intermediate-Term(3)** 3/19/82 6.19 7.25 7.29 - - 5.40
Short-Term(3)** 3/19/82 5.19 5.18 5.55 - - 4.53
California Bond(3)** 8/1/89 8.36 7.59 - 7.39 - 5.64
Florida Tax-Free Income(3)** 10/1/93 6.48 - - 2.37 - 5.76
New York Bond(3)** 10/15/90 6.19 7.40 - 8.22 - 5.73
Texas Tax-Free Income(3)** 8/1/94 8.20 - - 8.65 - 5.56
Virginia Bond(3)** 10/15/90 6.55 7.65 - 8.00 - 5.60
Money Market
Money Market(4) 2/2/81 5.43 4.41 5.88 - 5.01 -
Tax Exempt Money Market(3,4)** 2/6/84 3.53 3.16 4.26 - 3.24 -
Treasury Money Market Trust(4) 2/1/91 5.27 4.17 - 4.24 4.86 -
California Money Market(3,4)** 8/1/89 3.45 3.04 - 3.67 3.12 -
Florida Tax-Free Money
Market(3,4)** 10/1/93 3.39 - - 2.96 3.18 -
New York Money Market(3,4)** 10/15/90 3.44 2.87 - 3.06 3.11 -
Texas Tax-Free Money Market(3,4)**8/1/94 3.35 - - 3.34 3.13 -
Virginia Money Market(3,4)** 10/15/90 3.29 2.98 - 3.20 3.06 -
(1) Calculated as prescribed by the Securities and Exchange Commission.
(2) Foreign investing is subject to additional risks, which are discussed in the
funds' prospectuses.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by
the U.S. government and there is no assurance that any of the funds will be
able to maintain a stable net asset value of $1 per share.
(5) S&P 500(registered trademark) is a trademark of The McGraw-Hill Companies, Inc.,
and has been licensed for use. The product is not sponsored, sold or promoted by
Standard & Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in the product.
* 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 represent past
performance and are 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.
** IRAs are not available for tax-exempt funds. The Growth and Tax Strategy
Fund is not available as an investment for your IRA because the majority of
its income is tax exempt. California, Florida, New York, Texas, and Virginia
funds available to residents only.
</TABLE>
Message from the President
Last August I sent investors a letter which began with a question I was
regularly hearing: "Should I get out of the Market?" My response reiterated
many of our basic beliefs:
* Get your emotions in check.
* Look at history.
* Acknowledge that no one forecasts markets very well.
* Build a portfolio that will help you pursue your goals,
but also allow you to sleep at night.
At that time we knew we were looking at a pretty good year in the market. We
can now look back and see it was better than pretty good; it was excellent.
That has raised a new concern for us. The predominant investor sentiment
seems to have shifted from, "Should I get out of the Market?" to "Should I put
everything in stocks?" I want to comment on this shift.
Financial markets are not bank accounts. No other investor is interested in,
much less willing to insure, your return. While past performance is no guaran-
tee of future results, if you invest in stocks, history tells us that you can
expect a better return than that of any fixed-income instrument, from a long-
term bond to a bank account, over time.(1) The return from stocks comes from
two sources: dividends and price changes. Dividends are the more predictable
of the two. Financial analysis can give a good indication of a company's
ability to pay, or raise, its dividend. However, price change is another
thing. For a stock to appreciate, someone must come along who is willing to
pay more for shares of your stock than you did. Again, history tells us that
if a business is prospering, that will likely happen. But history also tells
us that investors do not always eliminate their emotions. They can become
over-exuberant and bid up the price to the point that the next buyer thinks
the stock is expensive and refuses to pay the higher price. That new buyer
doesn't know and doesn't care what you paid. Then the price will fall. This
is where you must understand why you purchased that stock and not become
overwrought with emotion.
Many people today are mesmerized by the exceptional returns of the recent past.
Our Aggressive Growth Fund is an excellent example. Over the last 18 months
ending June 30, 1996, its return was 84.66%. *Unfortunately the financial
press unceasingly trumpets these kinds of returns until people lose sight
of the fact that they are extraordinary. One statement that makes me quiver
these days is, "So much money is coming into stocks from retirement accounts
that the stock market cannot go down." When the market gets too expensive,
all the retirement money in the world will not hold it up. Things could get
scary for a while.
I have come across only a few people whose tolerance for risk will allow them
to be 100% in stocks. If they could do that for twenty years, I am confident
they would realize exceptional returns. But they would have to endure times
like the 1973-74 market, and that would take exceptional courage.
The better course for most people is to allocate their assets among stocks
and fixed-income investments. The return will be less, but so will the
fluctuations.
I believe that in twenty years, when, my wife, Jutta and I are retired, we
will be happy that our portfolio has held both a large position in stocks, and
also in other investments that have been a counterbalance.
With this in mind, the old bond market adage, "Never stretch for yield," is a
good one for all investors. You are the master of your portfolio. Recognize the
nature of various investments and always invest in ways with which you are
comfortable. Helping you do that is our greatest goal.
One of the ways we can assist is with one of our five Asset Strategy Funds.
Each can be applied to an individual situation, an investment goal and a
tolerance for risk. They combine different asset classes in ways that affect
return and risk, and we do the job of keeping those assets in balance. They
are a way for you to pursue a complex goal with great ease. After speaking
with our sales representatives, we can guide you to a single fund that will
provide an asset allocation that suits your situation well. From there,
we do all the work.
[Photograph of Michael J.C. Roth, CFA, President appears here]
Sincerely,
Michael J.C. Roth, CFA
President
(1)Bank accounts are FDIC insured and provide a fixed-rate of return. The
other investment instruments mentioned do not. Government bonds are backed
by the full faith and credit of the U.S. government. Of these vehicles,
stocks are considered to have the most risk. Government bonds are exempt
from state taxes; otherwise, these vehicles are subject to tax. The
comparisons reflect changing conditions in regard to tax laws, inflationary
trends and general corporate policies and practices. Investors are
encouraged to closely monitor changes in any factor which may affect
their investments.
* Average annual total returns of the USAA Aggressive Growth Fund as of June
30, 1996, are 1 year - 54.74%; 5 years - 19.89%; and 10 years - 11.69%. The
performance data quoted represents past performance; the investment 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 more complete information about the mutual funds managed and distributed
by USAA IMCO, including charges and expenses, please call for a prospectus.
Read it carefully before you invest.
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 5/31/96
Net Assets $22.9 Million $51.3 Million
Net Asset Value Per Share $9.77 $11.13
Average Annual Total Returns as of 5/31/96
1 Year 16.93%
Since inception on November 7, 1994 8.73%
[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 5/31/96, with
dividends and capital gains reinvested. The ending value of each item
graphed is as follows: USAA Emerging Markets Fund - $11,424, the IFC
Global Composite Index - $8,641 and the Lipper Emerging Markets Fund
Index - $9,408.]
The graph illustrates a hypothetical $10,000 investment in the USAA
Emerging Markets Fund compared to the International Financial
Corporation (IFC) Global Composite Index, an unmanaged broad-based index
of emerging markets per the World Bank GNP per capita definition, and
the Lipper Emerging Markets Fund Index an unmanaged index of emerging
markets funds.
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 represent past performance and are 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
[Photograph of W. Travis Selmier, II, Portfolio Manager, appears here]
Fund Overview
Emerging markets have rebounded dramatically over the last six months, ending
a first full fiscal year for your fund with a bang. Fund performance for the
fiscal year ending May 31, 1996, was 16.93%. Though past performance is no
guarantee of future results, your fund outperformed the Lipper(1) Emerging
Markets Fund Index as evidenced by the graph on page 4.
(1) Lipper Analytical Services ia an independent organization that monitors
the performance of mutual funds.
Latin American Markets
Economic recovery is beginning to show in Argentina and continues in Brazil,
while Mexico appears to have hit bottom. While still cautious on the region,
our overweighting of Argentina at the end of last year has paid off, and we
see 1996 as a morepositive year economically and politically in Latin America.
Continued foreign direct investment in mining and industry throughout the
region, particularly in Peru, Argentina, Brazil and Chile, should make for
a brighter economic outlook.
Asian Markets
Although political turmoil continues to surround China, concerns about
financing economic growth for other Southeast and Northeast Asian countries
have faded. We expect good economic growth throughout the region, including
the Indian subcontinent, to underpin healthy stock market activity. Increasing
consumer wealth and intraregional trade mean rapid development even during
periods of moderate global economic growth. Overweighting smaller markets,
including the Phillippines, Indonesia, and Thailand, has enhanced the Fund's
performance for the 12 months ending May 31, 1996.
Central and Eastern European Markets
As these economies are well-positioned between Western Europe and the Former
Confederation of Independent States for trade and industrial production, we
have overweighted them since last fall, particularly regarding "Visegrad 4"
markets - Poland, Czech Republic, Hungary and Slovakia. In the last half of
the fiscal year, we have been focusing analytic attention on the mineral
wealth and potential economic power of Russia.
Other Markets
Taking profits in South Africa last fall proved a wise move, and now that many
are worried about post-Mandela politics, we think the time has come to
reinvest. We have used weakness to add to positions in Turkey and Israel as we
continue to be positive on the region. Turmoil is, unfortunately, a way of
life in many of these countries, but business people and politicians have
learned to live and indeed thrive in such conditions. Good investments are
still to be found.
Outlook
After two rough years, emerging markets have begun to recover. We continue to
see a benign interest rate environment, less turbulent currency markets and
some recovery in global economic growth throughout this year, and we do
anticipate steady gains in most emerging markets.
Foreign investing is subject to additional risks such as currency
fluctuations, market illiquidity and political instability, 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 foreign markets.
See page 11 for a complete listing of the Portfolio of Investments in
Securities.
Top 10 Industries
(% of Net Assets)
Banks 13.6
Telecommunications 7.7
Engineering & Construction 7.0
Building Materials Group 5.9
Foods 4.2
Machinery-Diversified 3.7
Retail 3.1
Homebuilding 3.0
Electronics 2.9
Tobacco 2.9
[A pie chart is shown here depicting the Asset Allocation as of
May 31, 1996 of the USAA Emerging Markets Fund to be: Argentina -
5.8%, Korea - 4.7%, Singapore - 4.5%, Poland - 5.5%, Hong Kong -
6.2%, Mexico - 4.7%, Thailand - 8.3%, Indonesia - 4.7%, China -
4.6%, Philippines - 5.8%, Brazil - 4.6%, Malaysia 5.9%, and
Other - 35.4%. Percentages are of the Net Assets in the Portfolio
and may not equal 100%.]
Distributions to Shareholders
USAA Emerging Markets Fund completed its fiscal year on May 31, 1996.
As required by Federal Law (Internal Revenue Code of 1986, as amended, and the
Regulations thereunder), the following sets forth per share data concerning
the portions of the dividend distributions which represent foreign dividend
income, and short-term capital gains for the year ended May 31, 1996.
The per share data on this schedule reflects distributions related to earnings
for the fiscal year ended May 31, 1996, including any distributions subsequent
to year end which relate to those earnings. Therefore, the per share data on
this table may not agree with other disclosures concerning distributions which
occurred during the fiscal year.
Short-term capital gains
(treated as ordinary income) $ .7232
=======
Independent Auditors' Report
The Shareholders and the 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, 1996, the related statement of operations
for the year then ended, the statements of changes in net assets for the
year ended May 31, 1996 and the seven-month period ended May 31, 1995, and
the financial highlights information presented in note 8 to the financial
statements for the year ended May 31, 1996 and 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 audits.
We conducted our audits 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, 1996, 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 audits provide 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, 1996, the results of its operations for the year then ended, the
changes in its net assets for the year ended May 31, 1996 and the seven-month
period ended May 31, 1995, and the financial highlights information for
the year ended May 31, 1996 and the seven-month period ended May 31, 1995,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 10, 1996
Emerging Markets Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1996
Assets
Investments in securities, at market value
(identified cost of $47,647) $ 51,696
Cash 65
Cash denominated in foreign currencies (identified cost of $10) 10
Receivables:
Capital shares sold 201
Dividends 160
Securities sold 7
---------
Total assets 52,139
---------
Liabilities
Securities purchased 682
Capital shares redeemed 27
USAA Investment Management Company 41
USAA Transfer Agency Company 11
Accounts payable and accrued expenses 63
---------
Total liabilities 824
---------
Net assets applicable to capital shares
outstanding $ 51,315
=========
Represented by:
Paid-in capital $ 44,883
Accumulated net investment loss (11)
Accumulated net realized gain on investments 2,395
Net unrealized appreciation of investments 4,049
Net unrealized depreciation on foreign currency translations (1)
Net assets applicable to capital shares ---------
outstanding $ 51,315
=========
Capital shares outstanding, unlimited number of shares
authorized, no par value 4,608
=========
Net asset value, redemption price, and offering price
per share $ 11.13
=========
See accompanying notes to financial statements.
Emerging Markets Fund
Portfolio of Investments in Securities
May 31, 1996
Market
Number Value
of Shares Security (000)
--------- -------- ------
Common Stocks (90.4%)
Argentina (5.8%)
33,700 Disco S.A. ADS * $ 682
12,958 IRSA Inversiones y Representaciones S.A. GDS 423
105,000 Juan Minetti, S.A. 459
31,565 Molinos Rio de la Plata S.A. 360
40,000 Quilmes Industrial (Quinsa) S.A. ADS * 490
19,600 Telefonica de Argentina S.A. ADR 571
--------
2,985
--------
Chile (2.7%)
29,000 Banco Osorno y La Union S.A. ADR 406
9,400 Madeco S.A. ADS 251
28,000 Maderas y Sinteticos S.A. ADS 455
5,400 Sociedad Quimica y Minera de Chile S.A. ADS 280
--------
1,392
--------
China (4.6%)
1,660,000 Chengdu Telecom 232
38,400 China Yuchai International Ltd. 317
4,500,000 Maanshan Iron and Steel Co. Ltd. 762
240,000 New World Infrastructure Ltd. * 505
447,000 Shanghai Industrial Holdings Ltd. * 543
--------
2,359
--------
Colombia (1.5%)
52,000 Banco de Colombia GDS 455
100,000 Compania Colombiana de Tabaco S.A. 298
--------
753
--------
Czech Republic (2.4%)
19,400 Komercni Banka, A.S. * 529
6,000 SPT Telecom A.S. * 723
--------
1,252
--------
Hong Kong (6.2%)
400,000 Amoy Properties Ltd. 496
900,000 CDL Hotels International Ltd. 512
610,000 Cosco Pacific Ltd. 418
1,100,000 Oriental Press Group 526
120,000 Varitronix International Ltd. 241
3,600,000 World Houseware Holdings Ltd. 410
2,300,000 Yue Yuen Industrial Holdings 562
--------
3,165
--------
Hungary (2.4%)
12,000 Egis Gyogyszergyar Reszventarsaasag * 600
24,000 Mol Magyar Olay Es Gazipari GDS * 286
11,620 Pannonplast Rt. 322
--------
1,208
--------
India (3.2%)
11,500 Hindalco Industries Ltd. GDR 512
10,000 Indian Rayon & Industries Ltd. GDR 150
29,000 Larsen & Toubro Ltd. GDR 580
90,000 The Arvind Mills Ltd. GDS 423
--------
1,665
--------
Indonesia (4.7%)
200,000 PT Asahimas Flat Glass Co., Ltd. 232
508,500 PT Bank Dagang Nasional Indonesia 501
525,000 PT Barito Pacific Timber 450
50,000 PT HM Sampoerna 621
100,000 PT Jaya Real Property 330
130,000 PT Matahari Putra Prima 286
--------
2,420
--------
Israel (3.3%)
75,000 Electric Fuel Corp. * 487
27,600 Koor Industries Ltd. ADS 497
40,000 Tadiran Telecommunications Ltd. * 720
--------
1,704
--------
Korea (4.4%)
40,000 Cho Hung Bank 461
12,000 Korea Electric Power Corp. ADS 529
8,400 LG Chemical Ltd. 159
25,000 LG Electronics, Inc. * 688
4,683 Samsung Electronics Co. Ltd. * 410
46 Samsung Electronics Co. Ltd. GDR * 2
--------
2,249
--------
Malaysia (5.9%)
320,000 Bolton Properties BHD * 526
150,000 Hong Leong Bank BHD 424
210,000 IOI Properties BHD 660
160,000 Land and General BHD 378
110,000 Resorts World BHD 634
42,000 Telekom Malaysia BHD 384
--------
3,006
--------
Mexico (4.7%)
28,072 Desc, Soceidad de Fomento Industrial, S.A.
de C.V. ADS* 600
39,800 Empresas Ica Sociedad Controladora, S.A.
de C.V. ADR 572
1,400,000 Grupo Financiero Bancomer "B" * 621
15,000 Panamerican Beverages, Inc. "A" 630
--------
2,423
--------
Netherlands (1.2%)
14,500 Ceteco Holding NV 617
--------
Pakistan (1.1%)
5,000 Pakistan Telecommunication Co. Ltd. GDR * 585
--------
Peru (3.4%)
90,000 Banco Wiese Ltd. ADR 596
9,217 Compania de Minas Buenaventura * 75
34,000 Compania de Minas Buenaventura ADR * 663
36,000 Compania Nacional De Cerveza S.A. * 132
30,000 Minsur S.A. 267
--------
1,733
--------
Philippines (5.8%)
1,200,000 Fortune Cement Corp. * 722
725,000 Megaworld Properties * 685
18,500 Metropolitan Bank and Trust Co. 555
2,700,000 Steniel Manufacturing Corp. 382
1,113,800 Universal Robina Corp. 627
--------
2,971
--------
Poland (5.5%)
19,000 Bank Rozwoju Eksportu S.A. 464
75,000 Elektrim S.A. 503
38,000 Jelfa * 436
25,641 Jutrzenka 478
132,050 Mostostal - Export plc * 399
73,000 Polifarb-Cieszyn S.A. 378
26,000 Rafako * 184
--------
2,842
--------
Singapore (4.5%)
110,000 Jurong Shipyard Ltd. 625
600,000 Kay Hian James Capel Holdings 630
40,000 Keppel Corp. Ltd. 335
100,000 Overseas Union Bank Ltd. 710
--------
2,300
--------
South Africa (2.5%)
29,400 Malbak Ltd. 138
105,000 Murray and Roberts Holdings Ltd. 464
13,280 Nedcor Ltd. GDR * 184
800 Nedcor Ltd. Warrants * 2
455,000 Reunion Mining plc * 515
--------
1,303
--------
Taiwan (1.8%)
42,000 Acer, Inc. * 442
20,000 China Steel Corp. GDS 454
--------
896
--------
Thailand (8.3%)
140,000 Krung Thai Bank 713
110,000 Property Perfect Plc 508
33,000 PTT Exploration and Production Co. Ltd. 493
83,100 Sahaviriya Steel Industries Public Co., Ltd. * 71
128,400 Thai Engine Manufacturing Co. Ltd. 1,065
300,000 Thai Telephone and Communication Co. Ltd. * 734
130,000 Thai Theparos Food Co. Ltd. 685
--------
4,269
--------
Turkey (3.1%)
1,680,000 Alarko Holding A.S. 337
1,200,000 Alarko Holding A.S. Rights * 231
515,000 Erciyas Biracilik ve Malt Sanayi A.S. 269
2,795,000 Olmuksa Mukavva Sanayi Ve Ticaret A.S. 391
14,684,700 Yapi Ve Kredi Bankasi A.S. 355
--------
1,583
--------
Venezuela (0.2%)
160,000 Corimon C.A. S.A.C.A ADS * 120(a)
--------
Other Holdings (1.2%)
48,000 Foreign & Colonial Emerging Middle East Fund * 600
--------
Total common stocks (cost: $43,032) 46,400
--------
Preferred Stocks (4.9%)
Brazil (4.6%)
813,793 Brahma (Cia Cervejaria) PN 485
22,100,000 Companhia Energetica de Minas Gerais (Cemig) 586
950,000 Coteminas P N 411
5,165,000 Petroleo Brasileiro S.A. 623
3,700,000 Telebras PN 239
--------
2,344
--------
Korea (0.3%)
1,141 Samsung Electronics Co. Ltd. GDR * 33
3,786 Samsung Electronics Co. Ltd. GDS 120
--------
153
--------
Total preferred stocks (cost: $1,816) 2,497
--------
Principal
Amount
(000)
---------
U.S. Government & Agency Issues (5.4%)
Discount Note
2,800 Federal Home Loan Mortgage Corp., 5.30%,
6/03/96 (cost: $2,799) 2,799
---------
Total investments (cost: $47,647) $ 51,696
=========
*Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
Banks 13.6%
Telecommunications 7.7
Engineering & Construction 7.0
Building Materials Group 5.9
U.S. Government & Agency Issues 5.4
Foods 4.2
Machinery - Diversified 3.7
Retail 3.1
Homebuilding 3.0
Electronics 2.9
Tobacco 2.9
Conglomerates 2.8
Auto Parts 2.7
Beverages - Alcoholic 2.7
Oil 2.7
Steel 2.5
Real Estate 2.4
Electric Power 2.2
Metals - Miscellaneous 2.2
Healthcare 2.0
Textiles 1.6
Transportation - Miscellaneous 1.5
Gold Mining 1.3
Manufacturing - Diversified Industries 1.3
Real Estate Investment Trusts 1.3
Beverages - Soft Drinks 1.2
Brokerage Firms 1.2
Closed End Funds 1.2
Leisure Time 1.2
Shoes 1.1
Aluminum 1.0
Hotel / Motel 1.0
Publishing - Newspapers 1.0
Other 3.2
------
Total 100.7%
======
Emerging Markets Fund
Notes to Portfolio of Investments in Securities
May 31, 1996
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) Illiquid security valued using methods determined by the Manager under
the general supervision of the Board of Trustees. At May 31, 1996, this
security represented .23% of the Fund's net assets.
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Emerging Markets Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1996
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $55):
Dividends $ 563
Interest 113
--------
Total income 676
--------
Expenses:
Management fees 309
Transfer agent's fees 137
Custodian's fees 129
Postage 18
Shareholder reporting fees 10
Trustees' fees 3
Registration fees 36
Audit fees 32
Legal fees 11
Other 16
--------
Total expenses 701
--------
Net investment loss (25)
Net realized and unrealized gain on investments and foreign currency: --------
Net realized gain (loss) on:
Investments 2,968
Foreign currency transactions (11)
Change in net unrealized appreciation/depreciation of:
Investments 2,873
Translation of assets and liabilities in foreign currencies (1)
--------
Net realized and unrealized gain 5,829
--------
Increase in net assets resulting from operations $ 5,804
========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Fund
Statements of Changes in Net Assets
(In Thousands)
Year ended May 31, 1996
and Seven-month period ended May 31, 1995*
1996 1995
<S> <C> <C>
From operations:
Net investment income (loss) $ (25) $ 43
Net realized gain on investments 2,968 1
Net realized loss on foreign currency transactions (11) (15)
Change in net unrealized appreciation/depreciation of:
Investments 2,873 1,176
Foreign currency translations (1) -
-------- -------
Increase in net assets resulting from operations 5,804 1,205
-------- -------
Distributions to shareholders from:
Net investment income (28) -
-------- -------
Net realized gains (549) -
-------- -------
From capital share transactions:
Shares sold 56,100 25,967
Shares issued for dividends reinvested 504 -
Shares redeemed (33,430) (4,258)
-------- -------
Increase in net assets from capital share
transactions 23,174 21,709
-------- -------
Net increase in net assets 28,401 22,914
Net assets:
Beginning of period 22,914 -
-------- --------
End of period $ 51,315 $ 22,914
======== ========
Accumulated net investment income (loss) included in net assets:
Beginning of period $ 28 $ -
======== ========
End of period $ (11) $ 28
======== ========
Change in shares outstanding:
Shares sold 5,503 2,812
Shares issued for dividends reinvested 57 -
Shares redeemed (3,296) (468)
-------- --------
Increase in shares outstanding 2,264 2,344
======== ========
</TABLE>
* Fund commenced operations November 7, 1994.
See accompanying notes to financial statements.
Emerging Markets Fund
Notes to Financial Statements
(In Thousands)
May 31, 1996
(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 eleven separate funds. The
information presented in this annual report pertains only to the Emerging
Markets Fund (the Fund). The Fund's investment objective is capital
appreciation.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange 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. 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 or excise tax provision is required. As a result
of certain permanent differences between book and tax basis accounting,
reclassifications have been made on the statement of assets and liabilities to
decrease accumulated net investment loss by $25 and to decrease accumulated
net realized gain on investments by $25.
C. 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. The Fund concentrates its investments in securities
of companies in emerging market countries, which may have limited or
developing capital markets. Such investments may involve greater risks
than investments in developed markets, and political, social, or economic
changes in these markets may cause the prices of such investments to
be volatile.
D. 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 from the difference between amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received. 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.
E. Use of estimates - The preparation of financial statements in conformity
with 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 with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation, an affiliate of the Manager ($750 million uncommitted),
and one with an unaffiliated bank ($100 million committed). The purpose of
he agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely disposition
of securities. Subject to availability under these agreements, the Fund
may borrow up to a maximum of 25% of its total assets at the lending
institution's borrowing rate plus a markup. During the year ended
May 31, 1996, the Fund had no borrowings under either of these agreements.
(3) Distributions
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding
fiscal year. A distribution of a short-term capital gain of $.5032 per
share, declared and paid in July 1996, is not reflected in the accompanying
financial statements.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the
year ended May 31, 1996 were $46,591 and $25,897, respectively.
Gross unrealized appreciation and depreciation of investments as of May 31,
1996 was $6,546 and $2,497, 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 giving up the opportunity for potential
profit.
At May 31, 1996, the terms of open foreign currency contracts were as follows:
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar
Value Value Unrealized
Exchange Currency to be as of Currency to be as of Appreciation
Date Delivered 5/31/96 Received 5/31/96 (Depreciation)
---- --------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
6/03/96 601 U.S. Dollar $601 847 Singapore Dollar $601 $ -
==== ==== ====
</TABLE>
(6) Transactions with Manager
A. Management fees - The investment policies of the Fund and management of the
Fund's portfolio are carried out by USAA Investment Management Company (the
Manager). The Fund's management fees are computed at 1% of its annual average
net assets.
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 indirectly wholly owned by United
Services Automobile Association (the Association), a large, diversified
financial services institution. At May 31, 1996, the Association and its
affiliates owned 67 shares (1.5%) of the Fund.
(8) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
Seven-Month Period
Year Ended May 31, Ended May 31,
1996 1995*
Net asset value at beginning of period $ 9.77 $ 10.00
Net investment income (loss) (.01)(b) .03(b)
Net realized and unrealized gain (loss) 1.60 (.26)
Distributions from net investment income (.01) -
Distributions of realized capital gains (.22) -
--------- ---------
Net asset value at end of period $ 11.13 $ 9.77
========= =========
Total return (%)** 16.93 (2.30)
Net assets at end of period (000) $ 51,315 $ 22,914
Ratio of expenses to average net assets (%) 2.27 2.50(a)(c)
Ratio of net investment income (loss) to
average net assets (%) (.08) .53(a)(c)
Portfolio turnover (%) 87.98 34.87
Average commission rate paid per share $ .0012
* Fund commenced operations November 7, 1994.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(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 reimbursement of expenses
by the Manager. Absent such reimbursement 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)
