TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 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 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 International
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
I HAVE A FEELING
THAT WE WILL REMEMBER 1997
[Photograph of President, Michael J.C. Roth appears here]
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
INTERNATIONAL FUND
OBJECTIVE: Primary objective is capital appreciation. Current income is a
secondary objective.
TYPES OF INVESTMENTS: At least 80 percent of the Fund's assets are invested in
common stocks of companies organized and operating principally outside the
United States. The remainder of the Fund's assets may be invested in U.S.
government securities that mature in less than one year and in repurchase
agreements collateralized by such securities.
5/31/97 5/31/96
Net Assets................... $616.6 Million $418.0 MILLION
Net Asset Value Per Share.... $21.03 $18.71
Average Annual Total Returns as of 5/31/97
1 Year................................................... 16.72%
5 Years.................................................. 13.94%
Since inception on July 11, 1988......................... 11.25%
[A graph is shown here which is a comparison of the change in value of a $10,000
investment, for the period of 7/11/88 to 5/31/97, with dividends and capital
gains reinvested. The ending value of each item graphed is as follows: USAA
International Fund - $25,895; the Morgan Stanley Capital Index (MSCI-EAFE) -
$16,971 and Lipper International - $22,563.]
The graph illustrates how a $10,000 hypothetical investment in the USAA
International Fund outperformed its benchmark, the Morgan Stanley Capital
Index (MSCI)-EAFE, an unmanaged index which reflects the movements of
stock markets in Europe, Australia, and the Far East by representing a broad
selection of domestically listed companies within each market, and the Lipper
International Funds Average, an average performance level of all international
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 MANAGERS
[Photograph of Portfolio Managers From L to R: W. Travis Selmier, II, CFA,
Albert C. Sebastian, CFA, and David G. Peebles, CFA]
Market Conditions
Your Fund's total return of 16.72% has outperformed the Lipper International
Fund Index(1) return of 15.56% for the fiscal year ended May 31, 1997.(2) The
performance in most emerging markets and Europe has been favorable while the
Japanese equity market has continued to underperform.
Europe
The European markets provided favorable returns over the period reflecting
accelerating earnings growth and further corporate restructuring. We increased
our exposure to stocks which benefit from stronger economic growth as well as
from increased export opportunities due to a stronger U.S. dollar. Our holdings
in Spain, Portugal, the Netherlands, and Switzerland made significant
contributions to our European performance.
Japan
Since our last report, some political stability has returned and economic growth
has picked up. However, continued problems in the banking system, rising
interest rates, and higher equity valuation levels vis-a-vis other developed
markets lead us to maintain an underweighted position. We continue to hold large
capitalization stocks with an emphasis on export-related companies.
Emerging Markets
Emerging markets have shown some rebound since the beginning of the year, with
Latin American and East European markets showing stronger performance than Asian
markets. Economic recovery in Argentina and Mexico and economic structural
reform in Brazil continue to support those markets. While concerns about the
Asian growth miracle have caused worries, we continue to believe that Asian
growth prospects are still bright. Hong Kong, China, Taiwan, and Indonesia have
remained strong performers, while Thailand, the Philippines, and Korea have
suffered because of concerns over currency weakness.
(1) Lipper Analytical Services is an independent organization that monitors
the performance of mutual funds.
(2) Past performance is no guarantee of future results and the value of
your investment may vary according to the Fund's performance.
Outlook
For the balance of 1997, we expect continuing economic improvement with
accelerating earnings growth in Europe. Japan is still a market with selective
opportunities. The continuation of low inflation and good economic growth
provides a favorable backdrop for most emerging markets. The portfolio continues
to be overweighted in emerging markets, Europe, and other developed markets at
the expense of Japan.
[A pie chart is shown here depicting the Asset Allocation as of May 31, 1997 of
the USAA International Fund to be: Japan 13.8%*, United Kingdom - 8.1%*, Canada
6.2%*, France 5.7%*, Switzerland 5.3%*, Denmark 4.1%*, Netherlands 4.0%* and
Other 52.5%* (Countries with less than 4.0% of the Portfolio and U.S. Government
and Agency Issue).]
*Percentages are of the Net Assets in the Portfolio and may or may not equal
100%
Top 10 Equity Holdings
(% of Net Assets)
Elf Aquitaine ADS 1.6
Novartis AG 1.6
Nokia ADS 1.4
Telefonica de Espana S.A. ADR 1.4
Autoliv SDR 1.3
Canadian Occidential 1.2
Canon 1.2
Sulzer AG P.C. 1.2
Terumo 1.2
WPP Group plc 1.2
Top 10 Industries
(% of Net Assets)
Bank Related 9.0
Oil Related 8.7
Telecommunications Related 8.3
Healthcare Related 7.3
Retail Related 5.5
Steel 3.4
Specialized Services 3.3
Auto Parts 3.2
Conglomerates 2.7
Computer Software & Service 2.6
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 securities.
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 $.32
and $.04, respectively.
Ordinary income $.28*
Long-term capital gains .42
----
Total $.70
====
* 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 International 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 International 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
<TABLE>
International Fund
Statement of Assets and Liabilities
(In Thousands)
May 31, 1997
<S> <C>
Assets
Investments in securities, at market value (identified cost of $488,302) $ 614,995
Cash 436
Cash denominated in foreign currencies (identified cost of $4,179) 4,136
Receivables:
Capital shares sold 1,568
Dividends and interest 1,857
Securities sold 2,510
Unrealized appreciation on foreign currency contracts held, at value 8
----------
Total assets 625,510
----------
Liabilities
Securities purchased 7,947
Unrealized depreciation on foreign currency contracts held, at value 17
Capital shares redeemed 339
USAA Investment Management Company 389
USAA Transfer Agency Company 58
Accounts payable and accrued expenses 184
----------
Total liabilities 8,934
----------
Net assets applicable to capital shares outstanding $ 616,576
==========
Represented by:
Paid-in capital $ 470,089
Accumulated undistributed net investment income 3,047
Accumulated net realized gain on investments 16,797
Net unrealized appreciation of investments 126,693
Net unrealized depreciation on foreign currency translations (50)
----------
Net assets applicable to capital shares outstanding $ 616,576
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 29,320
==========
Net asset value, redemption price, and offering price per share $ 21.03
==========
</TABLE>
See accompanying notes to financial statements.
International Fund
Portfolio of Investments in Securities
May 31, 1997
Market
Number Value
of Shares Security (000)
--------- -------- -----
Stocks (95.7%)
Argentina (1.1%)
84,300 Disco S.A. ADS * $ 2,845
45,800 IRSA Inversiones y
Representaciones S.A. GDS 1,792
210,000 Quilmes Industrial (Quinsa)
S.A. ADS 2,441
---------
7,078
---------
Australia (2.5%)
335,000 Broken Hill Proprietary Co. Ltd. 4,812
624,700 CSL Ltd. 3,830
750,000 Pasminco Ltd. 1,525
602,300 Village Roadshow Ltd.
(Preferred) 1,537
406,200 Woodside Petroleum Ltd. 3,430
---------
15,134
---------
Austria (3.0%)
8,700 Austria Mikro Systeme
International AG 677
65,500 Boehler Uddeholm AG 4,956
124,431 VA Stahl AG 5,612
40,000 VA Technologie AG 7,069
---------
18,314
---------
Belgium (1.3%)
8,392 Colruyt S.A. 3,377
60,000 Union Miniere S.A. * 4,828
---------
8,205
---------
Brazil (3.3%)
96,600,000 Companhia Energetica de Minas
Gerais (Cemig) (Preferred) 4,422
180,000 Multicanal Participacoes S.A.
ADS (Preferred) * 2,104
18,000,000 Petroleo Brasileiro S.A.
(Preferred) 4,304
39,000,000 Telebras PN (Preferred) 5,381
122,700 Uniao de Bancos Brasileiros
S.A. (Unibanco) GDR * 4,233
---------
20,444
---------
Canada (6.2%)
109,000 Alliance Forest Products, Inc. * 2,623
247,000 Anderson Exploration Ltd. * 3,271
1,000,000 Beau Canada Exploration Ltd. * 2,475
156,300 Canadian National Railway Co. 6,526
316,300 Canadian Occidental
Petroleum Ltd. 7,154
328,000 Gulf Canada Resources Ltd. * 2,967
450,000 National Bank of Canada 5,292
196,000 OSF, Inc. * 1,766
49,600 St. Laurent Paperboard, Inc. * 797
205,600 Suncor, Inc. 5,097
--------
37,968
--------
Chile (0.9%)
38,000 Madeco S.A. ADS 974
120,800 Maderas y Sinteticos S.A. ADS 1,872
39,000 Sociedad Quimica y Minera de
Chile S.A. ADS 2,535
-------
5,381
-------
China (0.4%)
690,000 New World Infrastructure Ltd. * 2,151
Colombia (0.2%)
218,500 Banco de Colombia GDS 1,311
Czech Republic (0.4%)
53,500 Komercni Banka A.S. GDR 1,298
14,300 SPT Telecom A.S. * 1,317
-------
2,615
-------
Denmark (4.1%)
83,200 Carli Gry International A/S 4,985
106,000 ISS International Service
System A/S "B" * 3,517
37,440 Novo Nordisk A/S "B" 4,009
247,500 SAS Danmark A/S 2,529
61,350 Tele Danmark A/S "B" 3,016
124,600 Tele Danmark A/S ADS 3,084
75,000 Unidanmark A/S 3,917
-------
25,057
-------
Egypt (0.5%)
80,000 Commercial International Bank
(Egypt) S.A.E GDS * 1,576
74,300 Suez Cement Co. S.A.E. GDS * 1,363
-------
2,939
-------
Finland (1.8%)
132,430 Nokia Corp. ADS 8,740
30,600 Raision Tehtaat 2,496
-------
11,236
-------
France (5.7%)
22,500 Accor S.A. 3,117
99,000 Bouygues Offshore S.A. ADR * 1,238
173,000 Coflexip ADS * 4,920
186,300 Elf Aquitaine ADS 9,711
53,100 Eramet Group 2,657
18,500 Essilor International 4,690
49,800 Louis Dreyfus Citrus * 1,802
12,530 Pathe S.A. * 2,886
69,200 Valeo S.A. 4,107
-------
35,128
-------
Germany (3.1%)
69,800 Leica Camera AG * 1,879
109,400 Pfeiffer Vacuum Technology
AG ADS * 2,475
184,700 Rofin-Sinar Technologies, Inc. * 2,863
11,700 SAP AG 2,086
19,500 SAP AG (Preferred) 3,548
114,960 Veba AG 6,498
-------
19,349
-------
Hong Kong (1.4%)
2,900,000 Amoy Properties Ltd. 3,293
130,000 Asia Satellite Telecommunications
Holdings Ltd. ADR 3,591
1,407,000 Cosco Pacific Ltd. 2,016
-------
8,900
-------
Hungary (0.4%)
145,000 Mol Magyar Olay
Es Gazipari GDS 2,708
India (1.2%)
85,000 Hindalco Industries Ltd. GDR 2,805
185,000 Larsen & Toubro Ltd. GDR 2,447
118,600 Videsh Sanchar Nigam Ltd.
GDR * 2,443
-------
7,695
-------
Indonesia (1.5%)
460,000 PT Astra International, Inc. 1,759
3,254,250 PT Bank Dagang Nasional
Indonesia 3,512
582,750 PT Bank Dagang Nasional
Indonesia Warrants * 237
430,000 PT HM Sampoerna 1,737
800,000 PT Jaya Real Property 1,118
293,000 PT Modern Photo Film 1,066
-------
9,429
-------
Israel (1.7%)
85,000 Blue Square - Israel Ltd. ADS * 1,477
108,200 ECI Telecommunications Ltd. 2,502
22,600 Koor Industries Ltd. ADS 396
100,700 Teva Pharmaceutical Industries
Ltd. ADR 6,042
-------
10,417
-------
Italy (2.6%)
90,200 Eni S.p.A. ADS 4,578
39,200 Fila Holdings S.p.A. ADS 1,671
152,418 Instituto Bancario San Paulo
di Torino S.p.A. 959
150,200 Instrumentation Laboratory
S.p.A. ADS * 591
68,700 SAES Getters S.p.A. ADR 618
2,724,000 SEAT S.p.A. * 810
2,724,000 SEAT S.p.A. Savings * 524
1,562,000 STET S.p.A. 6,130
-------
15,881
-------
Japan (13.3%)
163,000 Bridgestone Corp. 3,681
280,000 Canon, Inc. 7,093
176,000 Daibiru Corp. 2,161
400,000 Hitachi Ltd. 4,259
150,000 Honda Motor Co. Ltd. 4,405
110,000 Hoya Corp. 4,997
82,000 Ito-Yokado Co. Ltd. 4,676
40,000 Kyocera Corp. 2,882
210,800 Laox Co. Ltd. 3,150
525,000 Minebea Co. Ltd. 5,140
540,000 Mitsubishi Heavy Industries Ltd. 3,886
160,000 Namco 5,606
10,000 Nippon Television Network 3,993
1,553,000 NKK Corp. 3,054
337,000 Nomura Securities Co. Ltd. 3,994
110 NTT Data Communications
Systems Corp. 4,034
420,000 Shiseido Co. Ltd. 6,131
407,000 Terumo Corp. 7,165
75,000 Tostem Corp. 2,003
-------
82,310
-------
Korea (0.8%)
84,820 Korea Electric Power Corp. 2,616
21,882 Samsung Electronics Co. Ltd. 2,138
-------
4,754
-------
Malaysia (0.8%)
310,000 Edaran Otomobil Nasional Bhd 2,702
270,000 Telekom Malaysia Bhd 1,999
-------
4,701
-------
Mexico (2.7%)
1,922,000 Controladora Comercial
Mexicana, S.A. de C.V. 1,526
38,800 Controladora Comercial
Mexicana, S.A. de C.V. GDR 616
162,230 Desc, Sociedad de Fomento
Industrial, S.A. de C.V. ADS 4,319
210,000 Panamerican Beverages, Inc. "A" 6,090
226,000 Tubos de Acero de Mexico,
S.A. ADS * 3,955
-------
16,506
-------
Netherlands (4.0%)
48,500 Akzo Nobel N.V. 6,451
56,060 EVC International N.V. 1,575
125,802 ING Group N.V. 5,555
27,600 Oce-van der Grinten N.V. 3,596
62,500 Philips Electronics N.V. 3,500
185,600 Verenigd Besit VNU 4,190
-------
24,867
-------
Norway (1.9%)
1,442,000 Christiania Bank og
Kreditkasse 4,959
272,000 Nycomed ASA 3,723
149,400 Schibsted ASA 2,789
-------
11,471
-------
Peru (0.4%)
101,200 Telefonica del Peru S.A. "B"
ADS 2,568
-------
Philippines (0.4%)
55,850 Metropolitan Bank and
Trust Co. 1,260
4,600,000 SM Prime Holdings, Inc. 1,308
-------
2,568
-------
Poland (0.6%)
225,000 Elektrim S.A. 2,007
300,000 Polifarb-Cieszyn S.A. 1,694
-------
3,701
-------
Portugal (2.5%)
230,000 Banco Totta E Acores S.A. 3,277
218,900 Cimentos de Portugal S.A. 4,807
182,700 Portugal Telecom S.A. ADS 7,034
-------
15,118
-------
Russia (0.3%)
101,200 RAO Gazprom ADR 1,822
-------
Singapore (0.9%)
465,000 Overseas Union Bank Ltd. 3,186
465,000 Singapore Land Ltd. 2,373
-------
5,559
-------
South Africa (1.6%)
69,847 Ellerine Holdings Ltd. 450
56,158 Foodcorp Ltd. 424
466,200 Gencor Ltd. 2,045
500,700 Malbak Ltd. 733
123,553 Nedcor Ltd. GDR 2,440
189,079 New Clicks Holdings Ltd. 212
100,000 South African Breweries Ltd. 2,809
82,565 South African Druggists Ltd. 621
-------
9,734
-------
Spain (3.2%)
166,994 Autopistas del Mare
Nostrum S.A. 2,414
92,100 Corporacion Bancaria
de Espana S.A. 4,587
28,000 Corporacion Mapfre 1,499
100,000 Telefonica de Espana S.A. ADR 8,738
95,651 Vallehermoso S.A. 2,415
-------
19,653
-------
Sweden (2.8%)
208,280 Autoliv, Inc. SDR * 7,886
215,200 NK Cityfastigheter AB * 1,485
58,100 Nordbanken AB 1,799
228,800 Volvo AB 6,332
-------
17,502
-------
Switzerland (5.3%)
1,000 Ares-Serono Group S.A. 1,359
7,466 Novartis AG 10,121
35,800 Oerlikon Buhrle AG * 4,145
12,200 Selecta Group * 1,934
2,700 SGS Group AG 5,976
9,525 Sulzer AG P.C. 7,491
137,600 Tag Heuer International
S.A. ADR * 1,961
-------
32,987
-------
Taiwan (1.5%)
3,075,000 China Steel Corp. 3,244
2,023,450 Far East Department Store * 2,977
1,150,000 Microtek International, Inc. * 3,074
-------
9,295
-------
Thailand (0.1%)
142,600 Bank Of Ayudhya
Public Co. Ltd. 302
350,000 Finance One Public Co. * 96
-------
398
-------
Turkey (0.3%)
18,025,000 Olmuksa Mukavva Sanayi Ve
Ticaret A.S. 523
48,836,800 Yapi Ve Kredi Bankasi A.S. 1,159
-------
1,682
-------
United Kingdom (8.1%)
1,604,000 Avis Europe plc * 3,437
350,000 Cadbury Schweppes plc 3,138
965,000 Cookson Group plc 3,710
1,204,400 Corporate Services Group plc 3,556
184,200 DFS Furniture Co. plc 1,808
67,300 Doncasters plc ADS * 1,498
32,700 Dr. Solomon's Group plc ADR * 662
181,000 Harvey Nichols plc 838
635,000 Medeva plc 2,846
575,000 National Westminster Bank plc 7,026
153,500 Northern Ireland Electricity plc 1,017
332,000 Reuters Holdings plc 3,726
484,000 Safeway plc 2,858
1,279,500 Tomkins plc 5,557
18,200 Vodafone Group plc ADR 812
1,856,000 WPP Group plc 7,272
-------
49,761
-------
Venezuela (0.4%)
63,600 Compania Anonima Nacional
Telefonos De Venezuela ADS * 2,361
-------
Other Holdings (0.5%)
2,908,000 Central European Growth
Fund plc 3,187
-------
Total stocks (cost: $463,252) 589,845
-------
<TABLE>
<CAPTION>
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
----- -------- ---- -------- -----
<C> <S> <C> <C> <C>
Bond (0.5%)
Japan
$ 3,250 MBL International Finance (Bermuda) Trust,
Convertible Notes (cost: $3,317) 3.00% 11/30/02 $ 3,417
---------
U.S. Government & Agency Issue (3.5%)
21,740 Federal National Mortgage Assn. (cost: $21,733) 5.52 6/02/97 21,733
---------
Total investments (cost: $488,302) $ 614,995
=========
</TABLE>
- ----------------------
*Non-income producing.
Portfolio Summary By Industry
-----------------------------
Bank Related 9.0 %
Oil Related 8.7
Telecommunications Related 8.3
Healthcare Related 7.3
Retail Related 5.5
U.S. Government & Agency Issues 3.5
Steel 3.4
Specialized Services 3.3
Auto Parts 3.2
Conglomerates 2.7
Computer Software & Service 2.6
Automobiles 2.4
Electric Power 2.4
Electronics Related 2.3
Engineering & Construction 2.2
Metals - Miscellaneous 2.2
Real Estate 2.2
Manufacturing - Diversified 2.1
Building Materials 1.9
Beverages - Soft Drinks 1.8
Broadcasters 1.5
Machinery - Diversified 1.5
Publishing 1.5
Electrical Equipment 1.4
Chemicals Related 1.3
Computer Systems 1.3
Insurance - Multi/Line Companies 1.1
Office Equipment & Supplies 1.1
Railroads 1.1
Other 10.9
----
99.7%
====
International Fund
Notes to Portfolio of Investments in Securities
May 31, 1997
General Notes
Market value 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.
<TABLE>
International Fund
Statement of Operations
(In Thousands)
Year ended May 31, 1997
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $1,213):
Dividends $ 8,178
Interest 1,342
-------
Total income 9,520
-------
Expenses:
Management fees 3,806
Transfer agent's fees 817
Custodian's fees 634
Postage 66
Shareholder reporting fees 44
Trustees' fees 4
Registration fees 99
Audit fees 24
Legal fees 5
Other 33
-------
Total expenses 5,532
-------
Net investment income 3,988
-------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 24,420
Foreign currency transactions (68)
Change in net unrealized appreciation/depreciation on:
Investments 55,975
Translation of assets and liabilities in foreign currencies (41)
-------
Net realized and unrealized gain 80,286
-------
Increase in net assets resulitng from operations $84,274
=======
</TABLE>
See accompanying notes to financial statements.
<TABLE>
Statements of Changes in Net Assets
(In Thousands)
Years ended May 31,
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
From operations:
Net investment income $ 3,988 $ 3,788
Net realized gain on investments 24,420 12,740
Net realized loss on foreign currency transactions (68) (42)
Change in net unrealized appreciation/depreciation on:
Investments 55,975 50,087
Foreign currency translations (41) (27)
---------- ----------
Increase in net assets resulting from operations 84,274 66,546
---------- ----------
Distributions to shareholders from:
Net investment income (4,778) (1,456)
---------- ----------
Net realized gains (12,464) (1,877)
---------- ----------
From capital share transactions:
Proceeds from shares sold 246,759 118,613
Shares issued for dividends reinvested 12,603 2,733
Cost of shares redeemed (127,813) (112,597)
---------- ----------
Increase in net assets from capital share transactions 131,549 8,749
---------- ----------
Net increase in net assets 198,581 71,962
Net assets:
Beginning of period 417,995 346,033
---------- ----------
End of period $ 616,576 $ 417,995
========== ==========
Undistributed net investment income included in net assets:
Beginning of period $ 3,646 $ 526
=-======== ==========
End of period $ 3,047 $ 3,646
========== ==========
Change in shares outstanding:
Shares sold 12,893 6,946
Shares issued for dividends reinvested 685 168
Shares redeemed (6,597) (6,707)
---------- ----------
Increase in shares outstanding 6,981 407
========== ==========
</TABLE>
See accompanying notes to financial statements.
International 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 diversifed, open-end management investment company
organized as a Massachusetts business trust consisting of eleven funds. The
information presented in this annual report pertains only to the International
Fund (the Fund). The Fund's primary investment objective is capital
appreciation. 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 approximated 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 for investments in
passive foreign investment companies, reclassifications were made to the
statement of assets and liabilities at May 31, 1997 to increase accumulated
undistributed net investment income by $259,468 and to decrease accumulated net
realized gain on investments by $259,468. A similar reclassification was made in
1996 in the amount of $829,896.
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.
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 comformity 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 borrowing 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 $.1069 per share, short-term capital gains of $.3721
per share, and long-term capital gains of $.2462 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 $336,423,018 and $222,444,700, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1997
was $147,018,952 and $20,326,476, 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 60,740 Japanese Yen $ 522 526 U.S. Dollar $ 526 $ 4
6/02/97 1,115 U.S. Dollar 1,115 682 British Pound 1,115 -
6/03/97 39,986 Japanese Yen 343 344 U.S. Dollar 344 1
6/03/97 476 U.S. Dollar 476 799,546 Italian Lira 472 (4)
6/03/97 489 U.S. Dollar 489 820,657 Italian Lira 484 (5)
6/03/97 95 U.S. Dollar 95 58 British Pound 95 -
6/03/97 1,414 U.S. Dollar 1,414 865 British Pound 1,415 1
6/03/97 535 U.S. Dollar 535 327 British Pound 535 -
6/04/97 96,458 Japanese Yen 828 828 U.S. Dollar 828 -
6/04/97 1,419 U.S. Dollar 1,419 866 British Pound 1,416 (3)
6/04/97 95 U.S. Dollar 95 58 British Pound 95 -
6/06/97 804 U.S. Dollar 804 490 British Pound 802 (2)
6/06/97 99 U.S. Dollar 99 60 British Pound 99 -
6/09/97 69,957 Indonesian Rupiah 29 29 U.S. Dollar 29 -
6/09/97 273 U.S. Dollar 273 3,277 Austrian Schilling 274 1
6/09/97 102 U.S. Dollar 102 1,214 Austrian Schilling 101 (1)
6/09/97 160 U.S. Dollar 160 1,922 Austrian Schilling 160 -
6/09/97 161 U.S. Dollar 161 1,935 Austrian Schilling 162 1
6/30/97 581 U.S. Dollar 581 3,342 French Franc 579 (2)
------ ------ ---
$9,540 $9,531 $(9)
====== ====== ===
</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 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 6,585,112 shares (22.5%) 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.
<TABLE>
(8) Financial Highlights
Per share operating performance for a share outstanding throughout each
period is as follows:
<CAPTION>
Eight-month
Year Ended May 31, Period Ended Year Ended
------------------ May 31, September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 18.71 $ 15.78 $ 16.36 $ 14.48 $ 12.09
Net investment income .15 .17 .10 - .07
Net realized and
unrealized gain 2.87 2.92 .29 2.23 2.45
Distributions from net
investment income (.20) (.07) - - (.13)
Distributions of realized
capital gains (.50) (.09) (.97) (.35) -
---------- ---------- --------- --------- ----------
Net asset value at
end of period $ 21.03 $ 18.71 $ 15.78 $ 16.36 $ 14.48
========== ========== ========= ========= ==========
Total return (%) * 16.72 19.71 2.49 15.67 21.11
Net assets at end of
period (000) $ 616,576 $ 417,995 $ 346,033 $ 184,792 $ 88,757
Ratio of expenses to
average net assets (%) 1.09 1.19 1.17 1.31(a) 1.50
Ratio of net investment
income to average net
assets (%) .79 1.04 .81 .04(a) .72
Portfolio turnover (%) 46.03 70.01 64.30 44.39 52.52
Average commission
rate paid per share + $ .0110 $ .0006
</TABLE>
* 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.
