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 7
Independent Auditors' Report 8
Statement of Assets and Liabilities 9
Portfolio of Investments in Securities 10
Notes to Portfolio of Investments in Securities 15
Statement of Operations 16
Statements 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 "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 June 30, 1997.
<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 -1.72 18.38 10.88 -
Emerging Markets(1) 11/7/94 15.35 - - 10.25
Gold(1) 8/15/84 -22.26 3.54 -4.75 -
Growth 4/5/71 21.60 16.94 11.97 -
Growth & Income 6/1/93 31.29 - - 18.53
International(1) 7/11/88 21.81 15.39 - 11.77
S&P 500 Index(4)(+) 5/1/96 34.59 - - 33.24
World Growth(1) 10/1/92 21.85 - - 15.50
Asset Allocation
=================
Balanced Strategy(1) 9/1/95 22.38 - - 15.48
Cornerstone Strategy(1) 8/15/84 20.45 14.33 9.22 -
Growth and Tax Strategy(2)** 1/11/89 15.72 11.23 - 10.45
Growth Strategy(1) 9/1/95 15.37 - - 21.37
Income Strategy 9/1/95 14.48 - - 10.36
Income - Taxable
================
GNMA 2/1/91 9.37 6.85 - 7.67
Income 3/4/74 8.21 7.44 9.45 -
Income Stock 5/4/87 20.77 14.21 12.89 -
Short-Term Bond 6/1/93 7.71 - - 5.69
Income - Tax Exempt
===================
Long-Term(2)** 3/19/82 9.22 6.71 8.09 -
Intermediate-Term(2)** 3/19/82 8.20 6.76 7.54 -
Short-Term(2)** 3/19/82 5.50 4.80 5.59 -
California Bond(2)** 8/1/89 8.90 7.13 - 7.58
Florida Tax-Free Income(2)** 10/1/93 9.79 - - 4.29
New York Bond(2)** 10/15/90 8.86 6.46 - 8.31
Texas Tax-Free Income(2)** 8/1/94 10.37 - - 9.24
Virginia Bond(2)** 10/15/90 8.50 6.93 - 8.08
Money Market
============
Money Market(3) 2/2/81 5.28 4.48 5.80 -
Tax Exempt Money Market(2),(3)** 2/6/84 3.36 3.04 4.15 -
Treasury Money Market Trust(3) 2/1/91 5.13 4.28 - 4.38
California Money Market(2),(3)** 8/1/89 3.29 2.94 - 3.62
Florida Tax-Free Money Market(2),(3)** 10/1/93 3.26 - - 3.04
New York Money Market(2),(3)** 10/15/90 3.21 2.82 - 3.08
Texas Tax-Free Money Market(2),(3)** 8/1/94 3.31 - - 3.33
Virginia Money Market(2),(3)** 10/15/90 3.22 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
distributed 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
alternative 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 return 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.
+ Includes account maintenance fee through December 31, 1996.
MESSAGE FROM THE PRESIDENT
(PHOTOGRAPH OF THE PRESIDENT, MICHAEL J. C. ROTH, APPEARS HERE.)
I HAVE A FEELING
THAT WE WILL REMEMBER 1997
The year began with an atmosphere of looking over your shoulder. The market had
risen about 61% in two years and all history told us that was unusual. Then it
advanced another 10% in January and February, before it encountered a loss of
confidence. By April it had lost all of the advance for this year(1) and it felt
so shaky that I sent shareholders a letter encouraging them to remember how
important we think asset allocation is in establishing your level of risk. But
by the time that letter arrived in early May the market was again setting record
highs. Indeed, one shareholder wrote me asking, "Why did you send this letter?"
The market has now driven upward to a return of 20% for the year, but
as I write this, it has fallen 192 points on the Dow; its second worst one-day
decline in points.
It would not be unusual if the market were to finish 1997 with a return well
below that of '95 and '96. We believe that the long-term return on the stock
market is around 10% to 12%.(2) Years such as '95 and '96 are necessary to
achieve such a long-term record, but by themselves they are exceptional. It is
important that investors have a position in stocks, but the risk that such a
position carries should, for most people, be offset by holding some different
assets including fixed income securities. Most of the funds in the USAA
Investment Trust are structured like that.
The Roth family will remember 1997 for another reason. We have a new
granddaughter, Katharine Sophia Broyles, who was born on January 3. She now has
an InveStart(Registered Trademark) account in the Cornerstone Strategy Fund,
our oldest asset strategy fund. I am confident that our monthly additions to
that account has the potential to build a meaningful college fund for her,
regardless of what 1997 serves up.
Sincerely,
Michael J.C. Roth
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
Past performance is no guarantee of future results.
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.
1 S&P 500 Index is an unmanaged index representing the average performance of a
group of 500 widely held publicly traded stocks. It is not possible to invest
directly in the S&P 500 Index.
2 Source: (Copyright) Computed using data from Stocks, Bonds, Bills & Inflation
1997 Yearbook(TM), Ibbotson Associates, Chicago (annually updates work by
Roger G. Ibbotson and Rex Sinquefield). Used with permission. All rights
reserved.
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.
5/31/97 5/31/96
Net Assets................................ $95.6 MILLION $51.3 MILLION
Net Asset Value Per Share................. $11.53 $11.13
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/97
1 Year............................................................ 8.69%
Since inception on November 7, 1994............................... 8.72%
[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 5/31/97, with dividends and capital
gains reinvested. The ending value of each item graphed is as follows: USAA
Emerging Markets Fund - $12,418, the IFC Global Composite Index - $9,285 and the
Lipper Emerging Markets Funds Index - $10,418.]
The graph illustrates how a $10,000 hypothetical investment in the USAA Emerging
Markets Fund outperformed its benchmark, 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
Funds Index, an unmanaged index of emerging markets funds, as reported by Lipper
Analytical Services, an independent organization that monitors the performance
of mutual 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, CFA, APPEARS HERE.)
Fund Overview
Emerging markets have shown some rebound since the beginning of the year, with
Latin American and East European markets showing strong performance against
mixed Asian markets. The accompanying graph shows that your Fund continued to
perform well.(1)
Latin American Markets
Economic recovery in Argentina and Mexico and economic structural reform in
Brazil continue to support those markets. Peru has weathered the hostage
crisis and shows signs of economic recovery heading into the summer, while the
Colombian political climate remains cloudy. Venezuela's progress towards
economic reform lends credence to our increased exposure there.
Asian Markets
Concerns about the Asian growth miracle have caused both international and local
investors to reassess their views of the Asian markets. We continue to believe
that, although certain governments could have managed this period of economic
turmoil better, Asian growth prospects are still bright. Hong Kong, China,
Taiwan, and Indonesia have remained strong performers, while Thailand, the
Philippines, and Korea have suffered due to currency hangover effects.
Central and Eastern European Markets
Divergence in the performance of these markets has been evident this year with a
weak Czech market, a flattish Polish market, and a very strong Hungarian market.
We have increased our Russian exposure as political reformers consolidate their
influence over the transformation of the Russian political and economic systems.
Other Markets
South Africa has weathered currency concerns and a stronger market in 1997 shows
investor confidence is beginning to return. We've increased our exposure in
Portugal as the government's efforts to achieve adherence to Maastricht criteria
(which would allow Portugal to enter the European Monetary Union) are proving
successful.
1 Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
Outlook
Divergence in performance between many poorer Asian markets versus strong
Latin, Eastern European, and other markets may be coming to an end later this
year. The global interest rate outlook continues to look good and recent U.S.
dollar strength against the yen and European currencies may have run out of
steam. The continuation of this positive macroeconomic picture provides a good
backdrop for emerging markets.
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.
[A pie chart is shown here depicting the Asset Allocation as of May 31, 1997 of
the USAA Emerging Markets Fund to be: South Africa - 4.1%*,
Russia - 4.3%*, Philippines - 4.7%*, Indonesia - 5.3%*, Israel - 5.7%*,
Mexico - 6.4%*, Hungary - 6.4%*, Hong Kong - 6.6%*, Brazil - 10.2%*, and
Other - 51.2%*.]
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
TOP 10 INDUSTRIES
(% OF NET ASSETS)
Telecommunications Related 10.5
Real Estate 7.9
Bank Related 7.3
Building Materials 6.5
Healthcare Related 6.0
Retail Related 5.2
Engineering & Construction 4.5
Oil Related 4.4
Electric Power 3.4
Electronics Related 3.1
See page 10 for a complete listing of the Portfolio of Investments in
Securities.
DISTRIBUTIONS TO SHAREHOLDERS
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended May 31, 1997. These figures are
provided for information purposes only and should not be used for reporting to
federal or state revenue agencies. Distributions for the calendar year will be
reported to you on Form 1099-DIV in January 1998.
The Fund has elected under Section 853 of the Internal Revenue Code to pass
through the credit for taxes paid in foreign countries. Per share foreign gross
income earned and foreign taxes paid during the fiscal year by the Fund are
$.11 and $.01, respectively.
Ordinary income $.50 *
====
* Includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
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, 1997, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights information
presented in note 8 to the financial statements for each of the periods in the
three-year period then ended. 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, 1997, 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, 1997, the results of its operations for the year then ended, the changes
in its net assets for each of the years in the two-year period then ended, and
the financial highlights information for each of the periods in the three-year
period then ended, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 9, 1997
Emerging Markets Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1997
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $91,630) $ 100,354
Cash 39
Cash denominated in foreign currencies (identified cost of $493) 490
Receivables:
Capital shares sold 106
Dividends 215
Securities sold 621
Unrealized appreciation on foreign currency contracts held, at value 1
----------
Total assets 101,826
----------
Liabilities
Securities purchased 5,934
Unrealized depreciation on foreign currency contracts held, at value 6
Capital shares redeemed 100
USAA Investment Management Company 67
USAA Transfer Agency Company 14
Accounts payable and accrued expenses 61
----------
Total liabilities 6,182
----------
Net assets applicable to capital shares outstanding $ 95,644
==========
Represented by:
Paid-in capital $ 85,405
Accumulated net investment loss (11)
Accumulated net realized gain on investments 1,532
Net unrealized appreciation of investments 8,724
Net unrealized depreciation on foreign currency translations (6)
----------
Net assets applicable to capital shares outstanding $ 95,644
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 8,297
==========
Net asset value, redemption price, and offering price per share $ 11.53
==========
</TABLE>
See accompanying notes to financial statements.
Emerging Markets Fund
Portfolio of Investments in Securities
May 31, 1997
Market
Number Value
of Shares Security (000)
--------- -------- -----
Stocks (96.9%)
Argentina (1.5%)
25,500 Disco S.A. ADS * $ 861
8,500 IRSA Inversiones y
Representaciones S.A. GDS 332
22,000 Quilmes Industrial (Quinsa)
S.A. ADS 256
---------
1,449
---------
Brazil (10.2%)
32,000 Brazil Reality S.A. GDS
(Preferred) 824
1,658,000 Cimento Portland Itau
(Preferred) 548
40,000 Companhia Brasileira de
Distribuicao Grupo Pao
de Acucar GDR 840
17,130,000 Companhia Energetica de Minas
Gerais (Cemig) (Preferred) 784
5,200,000 Companhia Saneamento Basico
Estado de Sao Paulo
(Sabesp) * 1,239
10,000 Globex Utilidades S.A.
(Preferred)* 149
47,000 Multicanal Participacoes S.A.
ADS (Preferred) * 549
3,500,000 Petroleo Brasileiro S.A.
(Preferred) 837
16,000,000 Telebras PN (Preferred) 2,208
51,100 Uniao de Bancos Brasileiros
S.A. (Unibanco) GDR * 1,763
---------
9,741
---------
Chile (1.3%)
11,500 Madeco S.A. ADS 295
28,000 Maderas y Sinteticos S.A. ADS 434
8,000 Sociedad Quimica y Minera
de Chile S.A. ADS 520
---------
1,249
---------
China (1.5%)
1,286,000 Beijing North Star Co. Ltd. * 809
200,000 New World Infrastructure Ltd. * 623
---------
1,432
---------
Colombia (0.6%)
35,000 Banco de Colombia GDS 210
100,000 Compania Colombiana de
Tabaco S.A. 362
---------
572
---------
Czech Republic (1.0%)
9,400 Komercni Banka A.S. GDR 228
8,300 SPT Telecom A.S. * 764
---------
992
---------
Egypt (2.4%)
10,000 Al-Ahram Beverages Co.
S.A.E. GDR * 172
63,150 Commercial International
Bank (Egypt) S.A.E GDS * 1,244
49,000 Suez Cement Co. S.A.E. GDS * 899
---------
2,315
---------
Hong Kong (6.6%)
1,300,000 Amoy Properties Ltd. 1,477
30,000 Asia Satellite Telecommunications
Holdings Ltd. ADR 829
900,000 CDL Hotels International Ltd. 404
1,057,000 Cosco Pacific Ltd. 1,514
450,000 Great Eagle Holdings Co. * 1,591
383,000 Guangdong Kelon Electrical
Holdings Ltd. 400
---------
6,215
---------
Hungary (6.4%)
25,000 Borsodchem RT. * 915
9,000 Egis Gyogyszergyar
Reszventarsaasag 541
24,000 Gedeon Richter RT. Ltd. GDR 1,992
60,000 Mol Magyar Olay Es
Gazipari GDS 1,120
11,748 Pannonplast RT. 577
125,000 Zalakeramia RT. GDR * 981
---------
6,126
---------
India (3.4%)
90,000 Arvind Mills Ltd. GDS 439
117,000 Crompton Greaves Ltd. GDR * 395
32,000 Hindalco Industries Ltd. GDR 1,056
20,000 Larsen & Toubro Ltd. GDR 264
54,300 Videsh Sanchar Nigam Ltd.
GDR * 1,119
---------
3,273
---------
Indonesia (5.3%)
295,500 PT Astra International, Inc. 1,130
619,875 PT Bank Dagang Nasional
Indonesia 669
127,125 PT Bank Dagang Nasional
Indonesia Warrants * 52
333,000 PT Darya-Varia Laboratoria 431
240,000 PT HM Sampoerna 969
330,000 PT Indofood Sukses Makmur 743
130,000 PT Jaya Real Property 181
116,000 PT Modern Photo Film 422
368,000 PT Putra Surya Multidana * 439
---------
5,036
---------
Israel (5.7%)
122,000 Blue Square - Israel Ltd. * 1,249
18,000 Blue Square - Israel Ltd. ADS * 313
50,000 ECI Telecommunications Ltd. 1,156
2,700 Koor Industries Ltd. ADS 47
25,000 Matav-Cable Systems Media
Ltd. ADR * 438
21,000 Tadiran Telecommunications Ltd. 381
31,000 Teva Pharmaceutical Industries
Ltd. ADR 1,860
---------
5,444
---------
Korea (3.8%)
70,000 Dongwon Securities Co. 919
20,000 Korea Electric Power Corp. 617
130 SK Telecom Co. Ltd. 81
19,300 LG Construction Co. Ltd. 322
4,000 S1 Corp. 1,013
4,000 S1 Corp. Rights * 52
6,788 Samsung Electronics Co. Ltd. 663
---------
3,667
---------
Malaysia (3.7%)
55,000 Edaran Otomobil Nasional Bhd 479
210,000 IOI Properties Bhd 485
1,050,000 Renong Bhd 1,504
550,000 Ta Enterprise Bhd 622
60,000 Telekom Malaysia Bhd 444
---------
3,534
---------
Mexico (6.4%)
405,000 Controladora Comercial
Mexicana, S.A. de C.V. 322
5,300 Controladora Comercial
Mexicana, S.A. de C.V. GDR 84
37,139 Desc, Sociedad de Fomento
Industrial, S.A. de C.V. ADS 989
39,800 Empresas Ica Sociedad
Controladora, S.A. de C.V. ADR 577
160,000 Fomento Economico Mexico,
S.A. (FEMSA) 850
66,000 Panamerican Beverages, Inc. "A" 1,914
81,000 Tubos de Acero de Mexico,
S.A. ADS * 1,417
---------
6,153
---------
Pakistan (0.3%)
5,000 Pakistan Telecommunication
Co. Ltd. GDR 317
---------
Peru (2.5%)
73,664 Minsur S.A. 321
17,600 Telefonica del Peru S.A. "B" ADS 447
68,000 Compania de Minas
Buenaventura ADR 1,606
---------
2,374
---------
Philippines (4.7%)
3,781,000 Belle Corp. * 1,004
60,000 Equitable Banking Corp. * 227
1,800,000 Fortune Cement Corp. 498
750,000 Ionics Circuits, Inc. 419
16,525 Metropolitan Bank and Trust Co. 373
1,700,000 Music Semiconductors Corp. * 854
4,025,000 SM Prime Holdings, Inc. 1,145
---------
4,520
---------
Poland (3.8%)
113,000 Elektrim S.A. 1,008
38,000 Jelfa S.A. * 735
25,641 Jutrzenka S.A. 544
131,323 Polifarb-Cieszyn S.A. 741
46,200 Stomil Olsztyn S.A. * 576
---------
3,604
---------
Portugal (2.8%)
32,000 Banco Totta E Acores S.A. 456
68,700 Cimentos de Portugal S.A. 1,508
18,700 Portugal Telecom S.A. ADS * 720
---------
2,684
---------
Russia (4.3%)
25,300 LUKoil Holding ADR 1,518
41,500 RAO Gazprom ADR 747
5,900,000 Unified Energy Systems * 1,876
---------
4,141
---------
Singapore (3.7%)
180,000 Elec & Eltek International
Co. Ltd. 1,062
600,000 Kay Hian James Capel
Holdings Ltd. 571
100,000 Overseas Union Bank Ltd. 685
241,000 Singapore Land Ltd. 1,230
---------
3,548
---------
South Africa (4.1%)
75,000 Ashanti Goldfields Co.
Ltd. GDS 975
17,437 Ellerine Holdings Ltd. 112
14,020 Foodcorp Ltd. 106
125,500 Gencor Ltd. 551
125,000 Malbak Ltd. 183
200,000 Murray and Roberts Holdings Ltd. 493
13,375 Nedcor Ltd. GDR 264
47,203 New Clicks Holdings Ltd. 53
37,500 South African Breweries Ltd. 1,053
20,612 South African Druggists Ltd. 155
---------
3,945
---------
Taiwan (2.4%)
563,750 China Steel Corp. 595
643,686 Far East Department Store * 947
125,000 Hung Poo Construction Corp. * 298
180,000 Microtek International, Inc. * 481
---------
2,321
---------
Thailand (0.8%)
31,700 Bank Of Ayudhya Public Co. Ltd. 67
140,000 Finance One Public Co. * 38
383,000 Property Perfect plc 127
400,000 Telecomasia Corp. * 472
56,400 Thai Theparos Food Co. Ltd. 92
---------
796
---------
Turkey (3.2%)
2,400,000 Alarko Holding A.S. 276
4,060,000 Erciyas Biracilik Ve Malt
Sanayi A.S. 296
12,235,000 Olmuksa Mukavva Sanayi
Ve Ticaret A.S. 355
1,100,000 Otosan Otomobil Sanayi A.S. 608
1,965,000 Vestel Electronic A.S. 752
32,174,271 Yapi Ve Kredi Bankasi A.S. 763
---------
3,050
---------
Venezuela (2.7%)
30,100 Compania Anonima
Nacional Telefonos De
Venezuela ADS * 1,117
5,600,000 Corimon C.A. S.A.C.A * 103
3,551,000 Mavesa S.A. 690
800,000 Siderurgica Venezolana "Sivensa" 291
4,330,800 Sudamtex de Venezuela, C.A.
S.A.C.A. 329
---------
2,530
---------
Zimbabwe (1.8%)
378,200 Meikles Africa Ltd. * 842
455,000 Reunion Mining plc * 826
---------
1,668
---------
Total stocks (cost: $83,972) 92,696
---------
PRINCIPAL MARKET
AMOUNT VALUE
(000) Security (000)
----- -------- -----
U.S. Government & Agency Issue
Discount Note (8.0%)
$7,660 Federal National Mortgage
Assn., 5.52%, 6/02/97
(cost: $7,658) $ 7,658
--------
Total investments
(cost: $91,630) $100,354
========
- ---------------------
*Non-income producing.
Portfolio Summary By Industry
-----------------------------
Telecommunications Related 10.5%
U.S. Government & Agency Issues 8.0
Real Estate 7.9
Bank Related 7.3
Building Materials 6.5
Healthcare Related 6.0
Retail Related 5.2
Engineering & Construction 4.5
Oil Related 4.4
Electric Power 3.4
Electronics Related 3.1
Conglomerates 3.0
Beverages - Alcoholic 2.8
Gold Mining 2.7
Steel 2.4
Automobiles 2.3
Brokerage Firms 2.3
Foods 2.3
Metals - Miscellaneous 2.3
Beverages - Soft Drinks 2.0
Auto Parts 1.6
Transportation 1.6
Tobacco 1.4
Home Furnishings and Appliances 1.2
Aluminum 1.1
Specialized Services 1.1
Broadcasters 1.0
Chemicals Related 1.0
Gaming Companies 1.0
Other 5.0
-----
104.9%
=====
Emerging Markets Fund
Notes to Portfolio of Investments in Securities
May 31, 1997
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.
See accompanying notes to financial statements.
Emerging Markets Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1997
<TABLE>
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $86):
Dividends $ 946
Interest 157
-------
Total income 1,103
-------
Expenses:
Management fees 600
Transfer agent's fees 235
Custodian's fees 129
Postage 22
Shareholder reporting fees 10
Trustees' fees 4
Registration fees 46
Audit fees 20
Legal fees 4
Other 15
-------
Total expenses 1,085
-------
Net investment income 18
-------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 1,528
Foreign currency transactions (24)
Change in net unrealized appreciation/depreciation of:
Investments 4,675
Translation of assets and liabilities in foreign currencies (5)
-------
Net realized and unrealized gain 6,174
-------
Increase in net assets resulting from operations $ 6,192
=======
</TABLE>
See accompanying notes to financial statements.
Emerging Markets Fund
Statements of Changes in Net Assets
(In Thousands)
Years ended May 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
From operations:
Net investment income (loss) $ 18 $ (25)
Net realized gain on investments 1,528 2,968
Net realized loss on foreign currency transactions (24) (11)
Change in net unrealized appreciation/depreciation of:
Investments 4,675 2,873
Foreign currency translations (5) (1)
--------- ---------
Increase in net assets resulting from operations 6,192 5,804
--------- ---------
Distributions to shareholders from:
Net investment income - (28)
--------- ---------
Net realized gains (2,391) (549)
--------- ---------
From capital share transactions:
Proceeds from shares sold 80,607 56,100
Shares issued for dividends reinvested 2,349 504
Cost of shares redeemed (42,428) (33,430)
--------- ---------
Increase in net assets from capital share transactions 40,528 23,174
--------- ---------
Net increase in net assets 44,329 28,401
Net assets:
Beginning of period 51,315 22,914
--------- ---------
End of period $ 95,644 $ 51,315
========= =========
Accumulated net investment income (loss) included in net assets:
Beginning of period $ (11) $ 28
========= =========
End of period $ (11) $ (11)
========= =========
Change in shares outstanding:
Shares sold 7,453 5,503
Shares issued for dividends reinvested 230 57
Shares redeemed (3,994) (3,296)
--------- ---------
Increase in shares outstanding 3,689 2,264
========= =========
</TABLE>
See accompanying notes to financial statements.
Emerging Markets Fund
Notes to Financial Statements
May 31, 1997
(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 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
were made to the statement of assets and liabilities at May 31, 1997 to decrease
accumulated net investment loss by $6,538 and to decrease paid-in capital by
$6,538. A reclassification was made 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 -- 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 13, 1998, 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
year ended May 31, 1997.
(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. Distributions of
net investment income of $.0003 per share, short-term capital gains of $.1447
per share, and long-term capital gains of $.0330 per share, declared and paid in
July 1997, are 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, 1997 were $73,562,948 and $35,966,592, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1997
was $14,941,495 and $6,218,022, 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, 1997, 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 5/31/97 Received 5/31/97 (Depreciation)
---- --------- ------- -------- ------- --------------
<C> <C> <C> <C> <C> <C>
6/02/97 281 U.S. Dollar $281 2,173 Hong Kong Dollar $281 -
6/02/97 78 U.S. Dollar 78 190,649 Indonesian Rupiah 78 -
6/02/97 19 U.S. Dollar 19 46,653 Indonesian Rupiah 19 -
6/02/97 956 U.S. Dollar 956 2,393 Malaysian Ringgit 952 (4)
6/03/97 113 U.S. Dollar 113 275,611 Indonesian Rupiah 113 -
6/03/97 193 U.S. Dollar 193 471,273 Indonesian Rupiah 194 1
6/03/97 482 U.S. Dollar 482 1,207 Malaysian Ringgit 480 (2)
6/04/97 3,106 Hong Kong Dollar 401 401 U.S. Dollar 401 -
6/04/97 1 U.S. Dollar 1 3,234 Indonesian Rupiah 1 -
6/04/97 22 U.S. Dollar 22 53,704 Indonesian Rupiah 22 -
6/05/97 252 U.S. Dollar 252 360 Singapore Dollar 252 -
6/09/97 30,606 Indonesian Rupiah 13 13 U.S. Dollar 13 -
------ ------ ---
$2,811 $2,806 $(5)
====== ====== ===
</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 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 commissions or fees for this service.
(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, 1997, the Association and its affiliates owned
1,772,858 shares (21.4%) of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Seven-Month
Period Ended
Year Ended May 31, MAY 31,
------------------ -------
1997 1996 1995*
---- ---- ----
<S> <C> <C> <C>
Net asset value at
beginning of period $ 11.13 $ 9.77 $ 10.00
Net investment income (loss) .01 (.01)(b) .03(b)
Net realized and unrealized gain (loss) .89 1.60 (.26)
Distributions from net
investment income - (.01) -
Distributions of realized
capital gains (.50 ) (.22) -
-------- -------- --------
Net asset value at
end of period $ 11.53 $ 11.13 $ 9.77
======== ======== ========
Total return (%)** 8.69 16.93 (2.30)
Net assets at end of period (000) $ 95,644 $ 51,315 $ 22,914
Ratio of expenses to
average net assets (%) 1.81 2.27 2.50(a,c)
Ratio of net investment
income (loss) to average
net assets (%) .03 (.08) .53(a,c)
Portfolio turnover (%) 61.21 87.98 34.87
Average commission rate
paid per share + $ .0041 $ .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 preceding 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)
