TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Independent Auditors' Report 7
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments in Securities 10
Statement of Operations 11
Statements of Changes in Net Assets 12
Notes to Financial Statements 13
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 Gold 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
GOLD FUND
OBJECTIVE: Long-term capital appreciation for the purpose of protecting the
purchasing power of capital from inflation. Current income is a secondary
objective.
TYPES OF INVESTMENTS: At least 80 percent of the Fund's assets are invested in
gold stocks. The remainder may be invested in common stocks of companies engaged
in other precious metal and mineral mining.
5/31/97 5/31/96
Net Assets................................$121.2 Million $167.1 Million
Net Asset Value Per Share................. $8.09 $11.12
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/97
1 Year.......................................................... -27.25%
5 Years......................................................... 5.70%
10 Years........................................................ -4.95%
[A graph is shown here which is a comparison of the change in value of a $10,000
investment, for the period of 5/31/87 to 5/31/97, with dividends and capital
gains reinvested. The ending value of each item graphed is as follows: S&P 500
Index - $39,399, Philadelphia Gold & Silver Index (XAU) - $7,561, USAA Gold Fund
- - $6,016 and Gold Bullion-London Gold - $7,663.]
The graph illustrates a $10,000 hypothetical investment in the USAA Gold Fund;
the S&P 500 Index, which 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); the Philadelphia Gold &
Silver Index, representing nine holdings in the gold & silver sector, typically
referred to as the XAU; and London Gold, a traditional Gold Bullion index that
is readily available.
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 THE PORTFOLIO MANAGER, MARK W. JOHNSON, CFA, APPEARS HERE.)
The Gold Market
Gold prices peaked on the very first day of the fiscal year June 1, 1996,
at $390.70, then declined relentlessly through the year. Initially, the decline
was slow and choppy in nature with gold hovering at $383.60 on November 13.
However, the decline soon became a rout, and on February 12 gold hit a low of
$337.70. Two primary events caused this precipitous decline. First, the already
strong U.S. dollar experienced accelerating strength as the yen/dollar ratio
moved from 111.35 on November 13 to 124.03 on February 12. Second, significant
European central bank sales, especially by the Dutch, hit the market. Gold
subsequently rebounded as high as $362.15 on March 3 on short covering, strong
physical demand, and what proved to be transitory dollar weakness. The Swiss
announcement March 5 to monetize some of its gold, as part of its Swiss
Foundation for Solidarity plan, precipitated yet another round of selling
pressure. Add in the effects of renewed dollar strength, weak silver prices, and
reduced physical demand from the Far East and the recipe for gold's return to
$339.25 by April 29 was written. Since then gold has traded in a range of
$339.25 to $349.10, closing the fiscal year May 31 at $345.60, down 11.54% for
the year.
Fund Performance and Strategy
Total return for the Gold Fund was -27.25% for fiscal 1997. Throughout the year
prices of gold mining common stocks suffered a more dramatic fall than the gold
price itself because of the high degree of operating leverage at the mining
companies. This leverage cuts both ways. For example, in fiscal 1996 the Fund
had a total return of 23.66%(1) on a 1.6% increase in the gold price.(2)
As discussed at length in the November 30, 1996, semiannual report, we are
concerned about the outlook for gold. On a longer term basis, this concern is
based on the attitude of central bankers toward gold which appears to range
between indifference and hostility. Given the large supply overhang contained in
central bank vaults it is clearly within the power of the central bankers to cap
any and all gold rallies for many years to come. On an intermediate-term basis,
mine supply is likely to be up nearly 4%, both this year and next year. On a
short-term basis, the absence of a dramatic price rebound in May, given a
significant weakening of the U.S. dollar from 126.78 yen on April 29 to 116.45
on May 30, is especially discouraging and indicative of a weak trading
pattern. The only bright spot is that gold twice held firm at the $337 to $339
level.
Our strategy is to emphasize low-cost producers with good production or reserve
growth potential that sell at reasonable valuations on a risk-adjusted basis. We
endeavor to improve the Fund's quality and potential growth prospects by
redeploying assets from stocks that no longer meet the above criteria to ones
that do. In that regard, three positions(3) were sold in the course of the
fiscal year. One was sold when it became apparent that the resources were
non-existent. The second was sold because of rising operating costs and
negligible growth prospects. The third was sold for valuation reasons. In
addition, because of a difficult operating environment, the gold mining industry
has entered the consolidation phase. Consequently, four more Fund holdings(4)
were closed out via acquisition by other companies. Lindsey Falconer, the Fund's
senior security analyst, identified nine new stocks(5) that met our criteria for
the Fund to acquire. With the exception of one restructuring play, all of the
new purchases have major exploration or development projects under way which, if
successfully completed, could lead to superior stock price performance.
(1) Average Annual Total Returns as of 5/31/97 and 6/30/97 were: 1 year . . .
-27.25% and -22.26%; 5 years . . . 5.70% and 3.54%; 10 years . . . -4.95%
and -4.75%, respectively.
(2) Past performance is no guarantee of future results and the value of
your investment may vary according to the Fund's performance.
(3) Bresea Resources, Western Deep Levels, and Battle Mountain Gold.
(4) Hemlo Gold Mines, Loki Gold, Santa Fe Pacific Gold, and Wharf Resources.
(5) Dia Met Minerals, Euro Nevada Mining, Franco Nevada Mining, Greenstone
Resources, Resolute Limited, Rio Narcea Gold Mines, SAMAX Gold,
Southvaal Holdings, and Vengold.
Foreign investing is subject to additional risks which are discussed in the
Fund's prospectus. Gold mining stocks involve additional risk because of gold's
price volatility.
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
Barrick Gold 7.3
Freeport-McMoRan
Copper & Gold "A" 6.9
Newmont Mining 6.5
Placer Dome 5.3
Pioneer Group 5.2
TVX Gold 4.9
Gold Fields of South Africa 4.8
Stillwater Mining 4.8
Agnico-Eagle Mines 4.6
Franco Nevada Mining 4.4
See page 9 for a complete listing of the Portfolio of Investments in Securities.
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 Gold 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 five-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 Gold 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 five-year period
then ended, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 9, 1997
Gold Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1997
<TABLE>
<S> <C>
Assets
Investments in securities, at market value (identified cost of $125,113) $ 122,181
Cash 13
Receivables:
Capital shares sold 33
Dividends and interest 71
Securities sold 88
----------
Total assets 122,386
----------
Liabilities
Securities purchased 95
Capital shares redeemed 949
USAA Investment Management Company 78
USAA Transfer Agency Company 26
Accounts payable and accrued expenses 69
----------
Total liabilities 1,217
----------
Net assets applicable to capital shares outstanding $ 121,169
==========
Represented by:
Paid-in capital $ 199,152
Accumulated undistributed net investment income 256
Accumulated net realized loss on investments (75,307)
Net unrealized depreciation of investments (2,932)
----------
Net assets applicable to capital shares outstanding $ 121,169
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 14,982
==========
Net asset value, redemption price, and offering price per share $ 8.09
==========
</TABLE>
See accompanying notes to financial statements.
Gold Fund
Portfolio of Investments in Securities
May 31, 1997
Market
Number Value
of Shares Security (000)
--------- -------- -----
Common Stocks (98.3%)
African Gold Companies (10.1%)
400,000 Ashanti Goldfields Co.Ltd.GDS $ 5,200
225,000 Gold Fields of South Africa Ltd.
ADR 5,752
50,000 Southvaal Holdings 1,287
-------
12,239
-------
Australian Gold Companies (13.1%)
2,600,000 Acacia Resources Ltd. * 3,822
1,350,000 Newcrest Mining Ltd. 3,362
1,000,000 Plutonic Resources Ltd. 3,664
975,000 Ranger Minerals NL * 3,030
1,000,000 Resolute Ltd. 2,026
-------
15,904
-------
North American
Gold Companies (64.6%)
525,000 Agnico-Eagle Mines Ltd. 5,578
350,000 Barrick Gold Corp. 8,838
350,000 Dayton Mining Corp. * 1,531
150,000 Euro Nevada Mining Corp. Ltd. 4,424
100,000 Franco Nevada Mining Corp. Ltd. 5,265
300,000 Freeport-McMoRan
Copper & Gold, Inc. "A" 8,325
125,000 Getchell Gold Corp. * 4,984
400,000 Goldcorp, Inc. "A" * 2,953
500,000 Golden Knight Resources, Inc. * 1,220
75,000 Greenstone Resources Ltd. * 706
100,000 Newmont Gold Co. 3,975
200,000 Newmont Mining Corp. 7,825
250,000 Pioneer Group, Inc. 6,281
350,000 Placer Dome, Inc. 6,371
200,000 Rio Narcea Gold Mines Ltd. * 688
350,000 SAMAX Gold, Inc. * 1,621
925,000 TVX Gold, Inc. * 5,958
525,000 Vengold, Inc. * 809
250,000 Viceroy Resource Corp. * 914
-------
78,266
-------
North American Precious Metals
and Minerals Companies (6.6%)
125,000 Dia Met Minerals Ltd. "A" * 2,126
250,000 Stillwater Mining Co. * 5,812
-------
7,938
-------
South American Gold Companies (3.9%)
200,000 Compania de Minas
Buenaventura ADR 4,725
-------
Total common stocks
(cost: $122,004) 119,072
-------
PRINCIPAL
AMOUNT
(000)
-----
U.S. Government & Agency Issue
Discount Note (2.5%)
$3,110 Federal National Mortgage Assn.,
5.52%, 6/02/97 (cost: $3,109) 3,109
---------
Total investments
(cost: $125,113) $ 122,181
=========
- ----------------------
*Non-income producing.
Gold 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.
ADR -- American Depositary Receipts are foreign shares held by a U.S. bank which
issues a receipt evidencing ownership. Dividends are paid in U.S. dollars.
GDS -- Global Depositary Shares 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.
Gold Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1997
<TABLE>
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $94):
Dividends $ 1,384
Interest 208
----------
Total income 1,592
----------
Expenses:
Management fees 997
Transfer agent's fees 548
Custodian's fees 80
Postage 29
Shareholder reporting fees 19
Trustees' fees 4
Registration fees 37
Audit fees 20
Legal fees 4
Other 4
----------
Total expenses 1,742
----------
Net investment loss (150)
----------
Net realized and unrealized loss on investments and foreign currency:
Net realized loss on:
Investments (8,394)
Foreign currency transactions (5)
Change in net unrealized appreciation/depreciation of investments (35,962)
----------
Net realized and unrealized loss (44,361)
----------
Decrease in net assets resulting from operations $ (44,511)
==========
</TABLE>
See accompanying notes to financial statements.
Gold Fund
Statements of Changes in Net Assets
(In Thousands)
Years ended May 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
From operations:
Net investment loss $ (150) $ (211)
Net realized gain (loss) on investments (8,394) 12,882
Net realized loss on foreign currency transactions (5) (2)
Change in net unrealized appreciation/depreciation of investments (35,962) 21,735
---------- ----------
Increase (decrease) in net assets resulting from operations (44,511) 34,404
---------- ----------
Distributions to shareholders from:
Net investment income - (117)
---------- ----------
From capital share transactions:
Proceeds from shares sold 95,026 129,783
Shares issued for dividends reinvested - 112
Cost of shares redeemed (96,413) (157,338)
---------- ----------
Decrease in net assets from capital share
transactions (1,387) (27,443)
---------- ----------
Net increase (decrease) in net assets (45,898) 6,844
Net assets:
Beginning of period 167,067 160,223
---------- ----------
End of period $ 121,169 $ 167,067
========== ==========
Undistributed net investment income (loss) included in net assets:
Beginning of period $ (5) $ 110
========== ==========
End of period $ 256 $ (5)
========== ==========
Change in shares outstanding:
Shares sold 10,594 13,066
Shares issued for dividends reinvested - 13
Shares redeemed (10,630) (15,870)
---------- ----------
Decrease in shares outstanding (36) (2,791)
========== ==========
</TABLE>
See accompanying notes to financial statements.
Gold 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 Gold Fund
(the Fund). The Fund's primary investment objective is to seek long-term capital
appreciation and to protect the purchasing power of shareholders' capital
against inflation. Current income is a secondary objective.
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
differences between book and tax basis accounting, reclassifications were made
to the statement of assets and liabilities at May 31, 1997 to decrease
accumulated undistributed net investment loss by $416,401 and to increase
accumulated net realized loss on investments by $416,401. A similar
reclassification was made in 1996 to decrease accumulated net investment loss by
$214,733, to decrease paid-in capital by $61,000, and to increase accumulated
net realized loss on investments by $153,733. Additionally, a reclass has been
made for $7,492,356 to reflect the expiration of capital loss carryovers at May
31, 1997 - see note 3.
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 principally engaged in gold exploration, mining, or processing and
therefore may be exposed to more risk than portfolios with a broader industry
diversification.
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 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. At May 31, 1997,
the Fund had capital loss carryovers for federal income tax purposes of
approximately $75,307,000 which will expire in 1998 - 2005. It is unlikely that
the Fund's Board of Trustees will authorize a distribution of capital gains
realized in the future until the capital loss carryovers have been utilized or
expire. Capital loss carryovers of $7,492,356 expired on May 31, 1997, and have
been charged against paid-in capital on the accompanying statement of assets and
liabilities. Additionally, approximately $41,000,000 of capital loss carryovers
will expire on May 31, 1998 if not offset by capital gains.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term securities, for the year
ended May 31, 1997 were $35,362,904 and $34,257,973, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1997
was $13,662,935 and $16,594,928, 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>
6/02/97 115 Australian Dollar $ 88 88 U.S. Dollar $ 88 $--
==== ==== ===
</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 .75% 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
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>
Eight-month
Period Ended Year Ended
Year Ended May 31, May 31, September 30,
------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 11.12 $ 9.00 $ 8.83 $ 7.95 $ 6.53
Net investment income (loss) (.01)(b) (.02) .01 .01 .02
Net realized and
unrealized gain (loss) (3.02) 2.15 .17 .88 1.44
Distributions from net
investment income - (.01) (.01) (.01) (.04)
---------- ---------- ---------- ---------- ----------
Net asset value at
end of period $ 8.09 $ 11.12 $ 9.00 $ 8.83 $ 7.95
========== ========== ========== ========== ==========
Total return (%) * (27.25) 23.66 2.05 11.19 22.53
Net assets at end of
period (000) $ 121,169 $ 167,067 $ 160,223 $ 176,527 $ 150,793
Ratio of expenses to
average net assets (%) 1.31 1.33 1.28 1.26(a) 1.41
Ratio of net investment
income (loss) to average
net assets (%) (.11) (.14) .10 .15(a) .25
Portfolio turnover (%) 26.40 16.48 34.76 34.75 81.08
Average commission rate
paid per share + $ .0195 $ .0292
* Assumes reinvestment of all dividend income 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.
</TABLE>
