TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments in Securities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Notes to Financial Statements 19
=======================================================================
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than 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)1997, USAA. All rights reserved.
<TABLE>
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 December 31, 1996.
<CAPTION>
Average Annual Total Return*
Investment Inception Since
Objective Date 1 yr 5 yrs 10 yrs Inception
========================================================================================================
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Aggressive Growth 10/19/81 16.47 11.45 13.12 -
Emerging Markets(1) 11/7/94 16.59 - - 4.84
Gold(1) 8/15/84 0.00 6.57 .93 -
Growth 4/5/71 17.80 13.69 13.24 -
Growth & Income 6/1/93 23.04 - - 16.24
International(1) 7/11/88 19.15 13.09 - 10.60
S&P 500 Index(4) 5/1/96 - - - 16.83+
World Growth(1) 10/1/92 19.08 - - 13.66
Asset Allocation
Balanced Strategy 9/1/95 13.45 - - 12.49
Cornerstone Strategy(1) 8/15/84 17.87 12.69 10.70 -
Growth and Tax Strategy(2)** 1/11/89 11.12 9.64 - 9.97
Growth Strategy(1) 9/1/95 22.13 - - 21.47
Income Strategy 9/1/95 3.00 - - 9.72
Income - Taxable
GNMA 2/1/91 2.94 6.43 - 7.66
Income 3/4/74 1.33 7.33 9.25 -
Income Stock 5/4/87 18.70 12.76 - 12.78
Short-Term Bond 6/1/93 6.31 - - 5.60
Income - Tax Exempt
Long-Term(2)** 3/19/82 4.47 6.87 7.37 -
Intermediate-Term(2)** 3/19/82 4.49 6.89 7.09 -
Short-Term(2)** 3/19/82 4.44 4.94 5.45 -
California Bond(2) 8/1/89 5.39 7.29 - 7.65
Florida Tax-Free Income(2)** 10/1/93 4.38 - - 3.69
New York Bond(2)** 10/15/90 3.73 6.61 - 8.35
Texas Tax-Free Income(2)** 8/1/94 5.25 - - 9.44
Virginia Bond(2)** 10/15/90 5.06 7.09
Money Market
Money Market(3) 2/2/81 5.24 4.37 5.84 -
Tax Exempt Money Market(2,3)** 2/6/84 3.34 3.04 4.21 -
Treasury Money Market Trust(3) 2/1/91 5.10 4.16 - 4.32
California Money Market(2,3)** 8/1/89 3.27 2.93 - 3.64
Florida Tax-Free Money Market(2,3)** 10/1/93 3.24 - - 3.01
New York Money Market(2,3)** 10/15/90 3.20 2.79 - 3.07
Texas Tax-Free Money Market(2,3)** 8/1/94 3.25 - - 3.32
Virginia Money Market(2,3)** 10/15/90 3.17 2.87 - 3.20
</TABLE>
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
including possible loss of the principal amount invested.
For more complete information about the mutual funds managed and dis-
tributed by USAA IMCO, including charges and expenses, please call
1-800-531-8181 for a prospectus. Read it carefully before you invest.
(1) Foreign investing is subject to additional risks, which are discussed
in the funds' prospectuses.
(2) Some income may be subject to state or local taxes or the federal alter-
native minimum tax.
(3) 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.
(4) 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.
+ Cumulative total return since inception.
MESSAGE FROM THE PRESIDENT
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." --
May 31, 1995 Annual Report
In the May 31, 1995, annual report, my message centered on regular,
systematic investing, and I told you I was going to practice something
I had preached for many years. I introduced you to my grandson, Karl
Joseph, and told you I had set up an InveStart(Registered Trademark) account
for his college expenses. This is a progress report.
By the time you read this message, Karl Joseph will be 24 months old -- a good
time for an update. As you might expect me to say, Karl Joseph is a very bright
guy. He is one of the few people whom our wire-haired dachshund, Brunhilde,
will tolerate. We have found that Bruni is a discerning judge of people!
One of Karl's favorite things is watching me toss grapes and catch them in my
mouth. He loves stuffed animals, swimming, and his grandmother's cooking. I'm
very pleased to say that his progress is just as I expected.
I'm also pleased to let you know that his education fund is progressing well
too. I opened an InveStart account for Karl on June 2, 1995, in the Income Stock
Fund. The NAV then was $14.77, and at this writing it is well over $16.00. In
addition to my $100 initial investment, there have now been 17 electronic
transfers of $50 into the account. That totals $950, and an interesting thing
has happened. The account is worth much more than $950 because, in addition to
dividends and appreciation, it has attracted other money. This is a college
account and a great cause. Karl is surprisingly well on his way.
There is a lesson here. Funding a college education is a challenge, but starting
early with an account like this is an excellent step. It provides a place for a
few extra dollars that show up on special occasions.
"Secure" may be an exaggeration, but I did decide to practice one thing I have
preached for many years ... I opened an InveStart (Registered Trademark)
account for Karl Joseph.
-- May 31, 1995 Annual Report
We originally 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.
-- May 31, 1995 Annual Report
I do practice what I preach. Systematic investing makes sense, and InveStart has
an expanded lineup of available funds. I encourage you to look at your
investment as you study the information in this report, and if you are not
investing regularly, please consider if it may be appropriate for you.
If you have any questions about our systematic investment plans or any of our
other mutual funds, please call. Your team of account representatives will be
glad to assist you with any questions you may have.
Sincerely,
Michael J.C. Roth
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
[Photograph of Michael J.C. Roth, President and Vice Chairman
of the Board appears here.]
A systematic plan, such as InveStart, does not assure a profit or protect
against loss in declining markets. Since such a plan involves continuous
investment in securities regardless of fluctuating price levels, you should
consider your financial ability to continue purchases through periods of
low and high price levels.
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.
The performance data quoted represents past performance and is no guarantee of
future results. 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.
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.
5/31/96 11/30/96
Net Assets........................ $51.3 Million $55.7 Million
Net Asset Value Per Share..............$11.13 $10.14
Average Annual Total Returns as of 11/30/96
May 31, 1996 to November 30, 1996........................-4.41%+
1 Year...................................................17.60%
Since inception on November 7, 1994...................... 4.32%
+Total returns for periods of less than one year are not annualized.
This six-month return is cumulative.
[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 11/30/96, with dividends
and capital gains reinvested. The ending value of each item graphed is as
follows: USAA Emerging Markets Fund - $10,921, the IFC Global Composite
Index - $8,409 and the Lipper Emerging Markets Fund Index - $9,192.]
The graph illustrates a $10,000 hypothetical 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 Portfolio Manager, W. Travis Selmier, II, appears here]
Fund Overview
Emerging markets have been flat over the last six months, with weakness in most
Asian markets offsetting strength in selected Latin American markets. Though
past performance is no guarantee of future results, the accompanying graph shows
that your Fund continued to perform well for the period ended November 30, 1996.
Latin American Markets
Economic recovery in Argentina and Mexico fueled market recoveries this fall
while the Brazilian market continues to perform well, justifying our emphasis on
these markets. Chile, Peru, and Colombia proved disappointing as economic growth
slowed and the Peruvian and Colombian political climates became more cloudy. We
have increased our exposure in Venezuela as policy management and economy appear
to be improving.
Asian Markets
A slowdown in the global electronics cycle, a stronger U.S. dollar, and a
slowdown in regional trade manifested negative effects on Asian economies.
Overweighting Hong Kong and China proved fruitful, as these markets performed
quite well on a global basis. But corrections in Thailand, Korea, and India,
while not totally unexpected, were more severe than we had anticipated.
Central and Eastern European Markets
Strong performance into the fall in the "Visegrad 4" markets has justified our
overweighting of Poland, Czech Republic, and Hungary. We began taking profits
last fall as outperformance began to slow, but remain positive for the longer
term. Although Russian elections in June went well, investment options remain
limited.
Other Markets
Although South Africa has proved a rocky market in 1996, we continue to look
toward a better year in 1997. We have increased our positions in Israel as
corporate results have improved. Positive developments in the Egyptian economy
and stock markets have led to our increased participation in the Cairo market.
Outlook
Spring rallies of most emerging markets ran out of steam during the summer, with
the exceptions of Hong Kong, China, Taiwan, Brazil, and Hungary. Moderate global
economic growth plus continued foreign direct investment and expanding
international trade should lead to some recovery in Asian markets and help
underpin Latin American and Eastern European markets next year.
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 foreign markets.
Top 10 Industries
(% of Net Assets)
Banks 8.3
Telecommunications 7.8
Building Materials 7.4
Engineering & Construction 6.5
Real Estate 6.1
Drugs 5.5
Retail 5.2
Electronics 3.6
Foods 3.5
Steel 3.4
See page 9 for a complete listing of the Portfolio of Investments in
Securities.
[A pie chart is shown here depicting the Asset Allocation as of
November 30, 1996 of the USAA Emerging Markets Fund to be: South
Africa - 5.6%, Singapore - 4.5%, Poland - 4.5%, Hong Kong - 7.1%,
Mexico - 6.8%, Thailand - 4.2%, Indonesia - 6.0%, Israel - 5.7%,
Philippines - 4.5%, Brazil - 6.8%, and Other - 42.3%(countries with
less that 4.2% of the portfolio and U.S. government & agency issues.]
Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
<TABLE>
Emerging Markets Fund
Statement of Assets and Liabilities
(In Thousands)
<CAPTION>
November 30, 1996
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value (identified cost of $52,902) $ 54,540
Cash 39
Cash denominated in foreign currencies (identified cost of $223) 223
Receivables:
Capital shares sold 1,001
Dividends 92
Securities sold 453
--------
Total assets 56,348
--------
Liabilities
Securities purchased 520
Capital shares redeemed 39
USAA Investment Management Company 45
USAA Transfer Agency Company 20
Accounts payable and accrued expenses 47
--------
Total liabilities 671
--------
Net assets applicable to capital shares outstanding $ 55,677
========
Represented by:
Paid-in capital $53,909
Accumulated net investment loss (149)
Accumulated net realized gain on investments 279
Net unrealized appreciation of investments 1,638
--------
Net assets applicable to capital shares outstanding $ 55,677
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 5,491
========
Net asset value, redemption price, and offering price per share $ 10.14
========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Fund
Portfolio of Investments in Securities
November 30, 1996
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
<S> <C> <C>
Common Stocks (89.1%)
Argentina (3.6%)
25,500 Disco S.A. ADS * $ 641
8,500 IRSA Inversiones y Representaciones S.A. GDS 264
202,275 Juan Minetti, S.A. 718
22,000 Quilmes Industrial (Quinsa) S.A. ADS 228
6,000 Telefonica de Argentina S.A. ADR 153
- -----------------------------------------------------------------------------------------------------
2,004
- -----------------------------------------------------------------------------------------------------
Brazil (3.2%)
32,000 Brazil Reality S.A. GDS * 580
9,500 Celesc-Centrais Electricas De Santa Catarina S.A. GDS * 785
23,000 Globex Utilidades S.A. * 396
- -----------------------------------------------------------------------------------------------------
1,761
- -----------------------------------------------------------------------------------------------------
Chile (1.9%)
11,500 Madeco S.A. ADS 273
28,000 Maderas y Sinteticos S.A. ADS 382
8,000 Sociedad Quimica y Minera de Chile S.A. ADS 416
- -----------------------------------------------------------------------------------------------------
1,071
- -----------------------------------------------------------------------------------------------------
China (1.3%)
240,000 New World Infrastructure Ltd. * 714
- -----------------------------------------------------------------------------------------------------
Colombia (1.0%)
35,000 Banco de Colombia GDS 271
100,000 Compania Colombiana de Tabaco S.A. 302
- -----------------------------------------------------------------------------------------------------
573
- -----------------------------------------------------------------------------------------------------
Czech Republic (1.7%)
9,400 Komercni Banka A.S. GDR 239
6,000 SPT Telecom A.S. * 678
- -----------------------------------------------------------------------------------------------------
917
- -----------------------------------------------------------------------------------------------------
Egypt (2.6%)
63,150 Commercial International Bank (Egypt) S.A.E. GDS * 947
31,400 Suez Cement Co. S.A.E. GDS * 504
- -----------------------------------------------------------------------------------------------------
1,451
- -----------------------------------------------------------------------------------------------------
Hong Kong (7.1%)
500,000 Amoy Properties Ltd. 698
18,000 Asia Satellite Telecommunications Holdings Ltd. ADR * 457
900,000 CDL Hotels International Ltd. 463
110,000 Cheung Kong Holdings 968
332,400 Hong Kong Telecommunications Ltd. 576
1,404,000 Manhattan Card Co., Ltd. 726
46,000 Varitronix International Ltd. 85
- -----------------------------------------------------------------------------------------------------
3,973
- -----------------------------------------------------------------------------------------------------
Hungary (2.3%)
12,000 Egis Gyogyszergyar Reszventarsaasag 657
24,000 Mol Magyar Olay Es Gazipari GDS 275
11,620 Pannonplast 363
- -----------------------------------------------------------------------------------------------------
1,295
- -----------------------------------------------------------------------------------------------------
India (2.1%)
90,000 Arvind Mills Ltd. GDS 347
19,500 Hindalco Industries Ltd. GDR 398
29,000 Larsen & Toubro Ltd. GDR 420
- -----------------------------------------------------------------------------------------------------
1,165
- -----------------------------------------------------------------------------------------------------
Indonesia (6.0%)
700,000 PT Asahimas Flat Glass Co. Ltd. 470
508,500 PT Bank Dagang Nasional Indonesia 504
148,000 PT HM Sampoerna 754
275,000 PT Indofood Sukses Makmur * 575
200,000 PT Jaya Real Property 256
680,000 PT Kalbe Farma 797
- -----------------------------------------------------------------------------------------------------
3,356
- -----------------------------------------------------------------------------------------------------
Israel (5.7%)
38,200 Blue Square - Israel Ltd. ADS * 540
75,000 Electric Fuel Corp. * 459
12,000 Koor Industries Ltd. ADS 209
25,000 Matav-Cable Systems Media Ltd. ADR * 441
21,000 Tadiran Telecommunications Ltd. * 451
23,100 Teva Pharmaceutical Industries Ltd. ADS 1,068
- -----------------------------------------------------------------------------------------------------
3,168
- -----------------------------------------------------------------------------------------------------
Korea (2.3%)
12,000 Korea Electric Power Corp. 384
19,300 LG Construction Co. Ltd. 392
6,005 Samsung Electronics Co. Ltd. 453
783 Samsung Electronics Co. Ltd. (New) * 57
46 Samsung Electronics Co. Ltd. GDR * 2
- -----------------------------------------------------------------------------------------------------
1,288
- -----------------------------------------------------------------------------------------------------
Malaysia (2.9%)
55,000 Edaran Otomobil Nasional Bhd 542
210,000 IOI Properties Bhd 690
42,000 Telekom Malaysia Bhd 382
- -----------------------------------------------------------------------------------------------------
1,614
- -----------------------------------------------------------------------------------------------------
Mexico (6.8%)
405,000 Controladora Comercial Mexicana, S.A. de C.V. * 365
6,000 Controladora Comercial Mexicana, S.A. de C.V. GDR * 108
36,772 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADS * 795
39,800 Empresas Ica Sociedad Controladora, S.A. de C.V. ADR 572
18,000 Panamerican Beverages, Inc. "A" 841
81,000 Tubos de Acero de Mexico, S.A. ADS * 1,104
- -----------------------------------------------------------------------------------------------------
3,785
- -----------------------------------------------------------------------------------------------------
Pakistan (0.6%)
5,000 Pakistan Telecommunication Co. Ltd. GDR 330
- -----------------------------------------------------------------------------------------------------
Peru (2.1%)
34,000 Compania de Minas Buenaventura ADR * 557
30,000 Minsur S.A. 253
17,600 Telefonica del Peru S.A. "B" ADS 341
- -----------------------------------------------------------------------------------------------------
1,151
- -----------------------------------------------------------------------------------------------------
Philippines (4.5%)
2,200,000 Belle Corp. * 586
1,200,000 Fortune Cement Corp. * 582
750,000 Ionics Circuits, Inc. * 542
1,000,000 Megaworld Properties * 390
16,525 Metropolitan Bank and Trust Co. 383
- -----------------------------------------------------------------------------------------------------
2,483
- -----------------------------------------------------------------------------------------------------
Poland (4.5%)
4,000 Bank Rozwoju Eksportu S.A. 130
75,000 Elektrim S.A. 684
38,000 Jelfa S.A. * 556
25,641 Jutrzenka S.A. 503
73,191 Mostostal - Export S.A. 173
86,328 Polifarb-Cieszyn S.A. 436
- -----------------------------------------------------------------------------------------------------
2,482
- -----------------------------------------------------------------------------------------------------
Portugal (2.7%)
21,500 Banco Totta E Acores S.A. * 379
30,700 Cimentos de Portugal * 641
18,700 Portugal Telecom, S.A. ADS * 496
- -----------------------------------------------------------------------------------------------------
1,516
- -----------------------------------------------------------------------------------------------------
Russia (1.4%)
41,500 RAO Gazprom ADR * 749
- -----------------------------------------------------------------------------------------------------
Singapore (4.5%)
88,000 Elec & Eltek International Co. Ltd. 305
600,000 Kay Hian James Capel Holdings Ltd. 548
40,000 Keppel Corp. Ltd. 311
100,000 Overseas Union Bank Ltd. 734
110,000 Singapore Land Ltd. 631
- -----------------------------------------------------------------------------------------------------
2,529
- -----------------------------------------------------------------------------------------------------
South Africa (5.6%)
125,500 Gencor Ltd. 447
154,400 Malbak Ltd. 737
378,200 Meikles Africa Ltd. * 548
105,000 Murray and Roberts Holdings Ltd. 285
13,375 Nedcor Ltd. GDR 197
455,000 Reunion Mining plc * 612
11,700 South African Breweries Ltd. 295
- -----------------------------------------------------------------------------------------------------
3,121
- -----------------------------------------------------------------------------------------------------
Taiwan (3.4%)
563,750 China Steel Corp. 519
643,686 Far East Department Store * 857
328,000 Microtek International, Inc. * 540
- -----------------------------------------------------------------------------------------------------
1,916
- -----------------------------------------------------------------------------------------------------
Thailand (4.2%)
126,200 Finance One Public Co. 361
63,700 KR Precision Company plc * 416
165,000 Krung Thai Bank 472
216,000 Property Perfect Plc 338
55,000 Thai Engine Manufacturing Co. Ltd. 444
86,400 Thai Theparos Food Co. Ltd. 316
- -----------------------------------------------------------------------------------------------------
2,347
- -----------------------------------------------------------------------------------------------------
Turkey (2.3%)
2,400,000 Alarko Holding A.S. 393
1,545,000 Erciyas Biracilik Ve Malt Sanayi A.S. 181
3,107,000 Olmuksa Mukavva Sanayi Ve Ticaret A.S. 372
13,808,700 Yapi Ve Kredi Bankasi A.S. 351
- -----------------------------------------------------------------------------------------------------
1,297
- -----------------------------------------------------------------------------------------------------
Venezuela (2.8%)
8,500 Compania Anonima Nacional Telefonos de Venezuela ADS * 216
160,000 Corimon C.A. S.A.C.A ADS * 120 (a)
1,775,500 Mavesa S.A. 552
400,000 Siderurgica Venezolana "Sivensa" 285
2,887,200 Sudamtex de Venezuela, C.A. S.A.C.A. 369
- -----------------------------------------------------------------------------------------------------
1,542
- -----------------------------------------------------------------------------------------------------
Total common stocks (cost: $48,362) 49,598
- -----------------------------------------------------------------------------------------------------
Preferred Stocks (3.8%)
Brazil (3.6%)
20,600,000 Companhia Energetica de Minas Gerais (Cemig) 655
35,000 Multicanal Participacoes S.A. ADS 494
4,100,000 Petroleo Brasileiro S.A. 561
3,700,000 Telebras PN 280
- -----------------------------------------------------------------------------------------------------
1,990
- -----------------------------------------------------------------------------------------------------
Korea (0.2%)
1,141 Samsung Electronics Co. Ltd. GDR 26
3,786 Samsung Electronics Co. Ltd. GDS 97
- -----------------------------------------------------------------------------------------------------
123
- -----------------------------------------------------------------------------------------------------
Total preferred stocks (cost: $1,711) 2,113
- -----------------------------------------------------------------------------------------------------
Principal
Amount
(000)
-----
U.S. Government & Agency Issue (5.1%)
$ 2,830 Federal Home Loan Mortgage Corp., 5.70%, 12/02/96 (cost: $2,829) 2,829
- -----------------------------------------------------------------------------------------------------
Total investments (cost: $52,902) $ 54,540
=====================================================================================================
- -----------------------
*Non-income producing.
</TABLE>
Portfolio Summary By Industry
-----------------------------
Banks 8.3%
Telecommunications 7.8
Building Materials 7.4
Engineering & Construction 6.5
Real Estate 6.1
Drugs 5.5
Retail 5.2
U.S. Government & Agency Issue 5.1
Electronics 3.6
Foods 3.5
Steel 3.4
Electric Power 3.3
Conglomerates 3.2
Metals - Miscellaneous 3.1
Oil 2.8
Auto Parts 2.3
Tobacco 1.9
Homebuilding 1.8
Broadcasters 1.7
Brokerage Firms 1.6
Beverages - Soft Drinks 1.5
Finance - Consumer 1.3
Textiles 1.3
Beverages - Alcoholic 1.3
Gaming Companies 1.1
Gold Mining 1.0
Automobiles 1.0
Computer Systems 1.0
Other 4.4
----
98.0%
====
Emerging Markets Fund
Notes to Portfolio of Investments in Securities
November 30, 1996
(Unaudited)
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.
ADS/ADR -- American Depositary Shares/Receipts are foreign shares held by a U.S.
bank which issues a receipt evidencing ownership. Dividends are paid in U.S.
dollars.
GDS/GDR -- Global Depositary Shares/Receipts are foreign shares held by
a non-U.S. bank which issues a receipt evidencing ownership. Dividends are paid
in U.S. dollars.
Specific Notes
(a) Illiquid security valued using methods determined by the Manager under the
general supervision of the Board of Trustees. At November 30, 1996, this
security represented .22% of the Fund's net assets.
See accompanying notes to financial statements.
Emerging Markets Fund
Statement of Operations
(In Thousands)
Six-month period ended November 30, 1996
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $51):
Dividends $ 318
Interest 62
--------
Total income 380
Expenses: --------
Management fees 269
Transfer agent's fees 111
Custodian's fees 56
Postage 12
Shareholder reporting fees 5
Trustees' fees 2
Registration fees 32
Audit fees 12
Legal fees 4
Other 7
--------
Total expenses 510
--------
Net investment loss (130)
--------
Net realized and unrealized loss on investments and foreign currency:
Net realized gain (loss) on:
Investments 275
Foreign currency transactions (8)
Change in net unrealized appreciation/depreciation of:
Investments (2,411)
Translation of assets and liabilities in foreign currencies 1
-------
Net realized and unrealized loss (2,143)
-------
Decrease in net assets resulting from operations $(2,273)
=======
See accompanying notes to financial statements.
<TABLE>
Emerging Markets Fund
Statements of Changes in Net Assets
(In Thousands)
<CAPTION>
Six-month period ended November 30, 1996
and Year ended May 31, 1996
(Unaudited)
11/30/96 5/31/96
-------- -------
<S> <C> <C>
From operations:
Net investment loss $ (130) $ (25)
Net realized gain on investments 275 2,968
Net realized loss on foreign currency transactions (8) (11)
Change in net unrealized appreciation/depreciation of:
Investments (2,411) 2,873
Foreign currency translations 1 (1)
------- -------
Increase (decrease) in net assets resulting
from operations (2,273) 5,804
------- -------
Distributions to shareholders from:
Net investment income - (28)
------- -------
Net realized gains (2,391) (549)
------- -------
From capital share transactions:
Proceeds from shares sold 22,329 56,100
Shares issued for dividends reinvested 2,349 504
Cost of shares redeemed (15,652) (33,430)
------- -------
Increase in net assets from capital share
transactions 9,026 23,174
------- -------
Net increase in net assets 4,362 28,401
Net assets:
Beginning of period 51,315 22,914
------- -------
End of period $ 55,677 $ 51,315
======= =======
Accumulated net investment income (loss) included
in net assets:
Beginning of period $ (11) $ 28
======= =======
End of period $ (149) $ (11)
======= =======
Change in shares outstanding:
Shares sold 2,182 5,503
Shares issued for dividends reinvested 230 57
Shares redeemed (1,529) (3,296)
------- -------
Increase in shares outstanding 883 2,264
======= =======
See accompanying notes to financial statements.
</TABLE>
Emerging Markets Fund
Notes to Financial Statements
November 30, 1996
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eleven separate
funds. The information presented in this semiannual 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
were made to the statement of assets and liabilities at May 31, 1996 to
decrease accumulated net investment loss by $25,021 and to decrease
accumulated net realized gain on investments by $25,021.
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 (CAPCO), an affiliate of the Manager ($750 million
uncommitted), and one with an unaffiliated bank ($100 million committed). The
purpose of the 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, of which only 5%
may be borrowed from CAPCO, at the lending institution's borrowing rate plus a
markup. The Fund had no borrowings under either of these agreements during the
six-month period ended November 30, 1996.
(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 or as otherwise required to avoid the payment of federal taxes.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the
six-month period ended November 30, 1996 were $26,390,643 and $21,440,879,
respectively.
Gross unrealized appreciation and depreciation of investments as of November
30, 1996 was $5,811,530 and $4,173,309, 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 November 30, 1996, the terms of open foreign currency contracts were as
follows (in thousands):
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar Unrealized
Exchange Currency to be Value as of Currency to be Value as of Appreciation
Date Delivered 11/30/96 Received 11/30/96 (Depreciation)
---- --------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
12/03/96 369 Hong Kong Dollar $ 48 48 U.S. Dollar $ 48 -
12/03/96 611 Philippine Peso 23 23 U.S. Dollar 23 -
12/03/96 47 Singapore Dollar 34 34 U.S. Dollar 34 -
12/03/96 11 U.S. Dollar 11 290 Thailand Baht 11 -
12/04/96 8 Philippine Peso 25 25 U.S. Dollar 25 -
------- ----- ---
$ 141 $ 141 $ -
======= ===== ===
</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 services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no fee or other remuneration for such services.
(7) Financial highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month Seven-month
Period Ended Year Ended Period Ended
November 30, May 31, May 31,
1996 1996 1995*
---- ---- ----
<S> <C> <C> <C>
Net asset value at
beginning of period $ 11.13 $ 9.77 $ 10.00
Net investment income (loss) (.03 )(b) (.01)(b) .03(b)
Net realized and
unrealized gain (loss) (.46) 1.60 (.26)
Distributions from net
investment income - (.01) -
Distributions of realized
capital gains (.50) (.22) -
------- ------- -------
Net asset value at
end of period $ 10.14 $ 11.13 $ 9.77
======= ======= =======
Total return (%)** (4.41) 16.93 (2.30)
Net assets at end
of period (000) $55,677 $ 51,315 $22,914
Ratio of expenses to
average net assets (%) 1.94(a) 2.27 2.50(a)(c)
Ratio of net investment
income (loss) to average
net assets (%) (.49)(a) (.08) .53(a)(c)
Portfolio turnover (%) 42.97 87.98 34.87
Average commission rate
paid per share+ $ .0045 $ .0012
</TABLE>
* Fund commenced operations November 7, 1994.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
+ Calculated by aggregating all commissions paid on the purchase and
sale of securities and dividing by the actual number of shares
purchased or sold for which commissions were charged.
(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)
