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 8
Independent Auditors' Report 9
Portfolio of Investments 10
Notes to Portfolio of Investments 19
Statement of Assets and Liabilities 20
Statement of Operations 21
Statements of Changes in Net Assets 22
Notes to Financial Statements 23
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)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
--------- ---------- ----------
CAPITAL APPRECIATION
===============================================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
USAA First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 Index(2) Moderate $3,000
Science & Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
ASSET ALLOCATION
===============================================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
INCOME - TAXABLE
===============================================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
INCOME - TAX EXEMPT
===============================================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
MONEY MARKET
===============================================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) 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.
(3) Some income may be subject to state or local taxes or the federal
alternative minimum tax.
(4) An investment in a money market fund is neither insured nor guaranteed by
the U.S. Government, and there is no assurance that any of the funds will
be able to maintain a stable net asset value of $1 per share.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart (Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. 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.
Non-deposit investment products 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, and may lose value.
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.
Message from the President
A year ago my message to you sent a cautionary note about a market that had
risen very high for a long time:
"It would not be unusual if the market were to finish 1997 with a
return well below that of '95 and '96."
Of course, 1997's stock market did not perform poorly, and we are still
pondering when a correction might come. This situation is tailor-made for a
discussion of risk.
There has long been a difference between what most investors perceive as risk
and what academics mean by risk. To the individual investor risk means losing
money. To the student risk means variability of returns, both up and down. The
difference can be quite important.
To a person who perceives risk as only the possibility of loss, timing becomes a
rather attractive proposition. You know with certainty when the market has
provided an exceptional return for a given period. If your chief goal is to
avoid a loss, then a movement to safety following such a period could make
sense. But look at the experience of 1995, 1996 and 1997. Even 1998 is testimony
to the frailty of forecasting and also to an academic definition of risk.
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J. C. ROTH, CFA
APPEARS HERE]
If market risk means variability of return, and if that risk is describable in
scope but not in direction or timing of movement, then timing becomes dangerous.
That is because the variability of returns may help you as well as hurt you. To
put this plainly, a person who got out of the market in 1995 or 1996 is still
looking for a chance to come back in.
The Asset Strategy funds of the Investment Trust show a good way to confront
this real risk. They offer various asset allocations which are attuned to
different risk tolerances. And we keep those allocations for you. You will be
exposed to risk in a way that, hopefully, is tolerable and that exposure will be
there if the risk takes you down, or up.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more information about mutual funds managed and distributed by USAA IMCO,
including charges and expenses, please call for a prospectus. Read it carefully
before investing.
Investment Review
USAA INTERNATIONAL FUND
OBJECTIVE: Primary objective is capital appreciation. Current income is a
secondary objective.
TYPES OF INVESTMENTS: At least 80% 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.
================================================================================
5/31/98 5/31/97
- --------------------------------------------------------------------------------
Net Assets $628.7 Million $616.6 Million
Net Asset Value Per Share $21.94 $21.03
================================================================================
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/98
- --------------------------------------------------------------------------------
1 Year 5 Years Since Inception on 7/11/88
13.29% 14.46% 11.45%
================================================================================
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.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA International Fund, Morgan Stanley
Capital Index (MSCI)-EAFE and the Lipper International Funds Average for the
period of 7/11/88 to 05/31/98. The data points from the graph are as follows:
USAA MSCI-Index Lipper Int'l
International EAFE Funds Average
----------------- ---------------- -----------------
7/11/88 10,000 10,000 10,000
12/88 10,561 11,517 10,858
06/89 10,511 10,837 11,148
12/89 12,395 12,730 13,191
06/90 12,772 11,189 13,512
12/90 11,242 9,746 11,722
06/91 11,422 9,899 12,199
12/91 12,748 10,929 13,289
06/92 13,304 9,836 13,509
12/92 12,729 9,599 12,719
06/93 14,435 11,831 14,497
12/93 17,796 12,725 17,253
06/94 17,918 13,841 17,301
12/94 18,276 13,713 17,138
06/95 18,675 14,070 17,537
12/95 19,791 15,251 18,776
06/96 22,341 15,940 20,319
12/96 23,580 16,174 21,023
06/97 27,213 17,987 23,679
12/97 25,712 16,460 22,111
05/98 29,336 18,938 25,735
Data since inception on 7/11/88 through 5/31/98
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.
Message from the Managers
[PHOTOGRAPH OF PORTFOLIO MANAGERS APPEARS HERE: From L to R: W. Travis Selmier,
II, CFA, Albert C. Sebastian, CFA, and David G. Peebles, CFA.]
MARKET CONDITIONS
For the fiscal year ended May 31, 1998,(1) your Fund's total return was 13.29%
which compares unfavorably with the Lipper International Funds Average (2)
return of 14.17%, but outperformed the EAFE (3) return of 11.11%. European
markets continued to significantly outperform both the emerging markets and
Japan.
EUROPE
European markets provided favorable returns over the period because of an
improved outlook for economic growth and continued corporate mergers and
acquisitions. In particular, the performance of the banking and insurance
sectors benefited from acquisitions. The European markets also appreciated on
news that the European monetary union remained on track.
EMERGING MARKETS
Asia's economic problems have continued to cast a pall over most emerging
markets, with early 1998 recoveries fading by March. Weaknesses in commodity
prices, from which many emerging markets' countries derive significant export
earnings, have also taken a toll. Higher interest rates on emerging markets'
debt have raised companies' financing costs. Strength in Mediterranean, selected
Central European, and South African markets has not been enough to offset these
factors; therefore, we have lowered our emerging markets' weighting over the
year.
JAPAN
Asia's currency crisis, combined with problems within the banking system, has
continued to affect the Japanese economy and stock market. We have begun to
selectively buy quality financial companies while holding export-related stocks.
We have not changed our underweighted position awaiting more progress on the
restructuring of Japan's tax and financial system.
OUTLOOK
We continue to favor European markets because of their economic and political
stability as well as the relatively strong earnings growth. European equities
will also benefit from further economic integration and more shareholder
oriented management. We remain cautious on Japan pending further progress on
structuring and implementing policies, which would stimulate economic recovery.
Currency volatility and weakness in Asian economies will mean continued
turbulence in emerging markets with select opportunities.
(1) Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
(2) Refer to page 4 for the Lipper Average definition.
(3) Refer to page 4 for the EAFE definition.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of May 31, 1998 of
the USAA International Fund to be:
United Kingdom 12.6%*, Japan 9.9%*, France 8.7%*, Netherlands 7.1%*, Canada
5.7%*, Switzerland 4.9%*, Germany 4.8%*, Denmark 4.3%*, Italy 3.9%*, Finland
3.6%*, Sweden 3.1%*, Spain 3.0%*, and Other 27.0%* (Countries with less than
3.0% of the portfolio and U.S. Government & Agency Issue).
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
===================================== =======================================
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
- ------------------------------------- ---------------------------------------
Elf Aquitaine ADS 1.8 Banks - Major Regional 7.3
Cookson Group PLC 1.7 Telephones 6.4
ING Group 1.7 Auto Parts 6.0
Akzo Nobel 1.6 Oil - International Integrated 3.9
Nokia ADS 1.6 Computer Software & Service 3.6
Coflexip ADR 1.5 Manufacturing - Diversified
National Bank of Canada 1.5 Industries 3.3
Telefonica De Espana S.A. ADR 1.5 Insurance - Multi/Lines 3.1
Autoliv SDR 1.4 Drugs 2.7
Novartis AG 1.4 Services - Commercial & Consumer 2.5
===================================== Oil & Gas - Drilling & Equipment 2.4
=======================================
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.
Distributions to Shareholders
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended May 31, 1998. 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 1999.
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 $.85
and $.09, respectively.
Ordinary income $ .84*
Long-term capital gains - 20% .01
Long-term capital gains - 28% .84
------
Total $1.69
======
* Includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
Independent Auditors' Report
The Shareholders and Board of Trustees
USAA INTERNATIONAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA International Fund, a series of the
USAA Investment Trust, as of May 31, 1998 and 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 financial highlights,
presented in note 8 to the financial statements, for each of the years or
periods in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1998, 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 financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA International Fund as of May 31, 1998, 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 for each of the years
or periods in the five-year period then ended, in conformity with generally
accepted accounting principles.
KMPG Peat Marwick LLP
San Antonio, Texas
July 2, 1998
USAA INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (92.7%)
Argentina (0.8%)
80,500 Banco Rio de La Plata S.A. ADR $ 966
34,000 Disco S.A. ADR * 1,177
38,264 IRSA Inversiones y Representaciones S.A. GDR 1,354
41,100 Telefonica de Argentina S.A. ADR 1,338
---------
4,835
---------
Australia (1.3%)
424,700 CSL Ltd. 2,859
210,000 Smith (Howard) Ltd. 1,368
1,600,000 Telstra Corp. 3,767
---------
7,994
---------
Austria (2.7%)
50,990 Boehler Uddeholm AG 3,935
9,361 Creditanstalt AG (Preferred) 1,125
49,623 VA Flughafen Wien AG 2,664
102,131 VA Stahl AG 4,368
37,000 VA Technologie AG 5,010
---------
17,102
---------
Belgium (0.4%)
36,900 Union Miniere S.A. 2,513
---------
Brazil (1.5%)
46,503,260 Companhia Energetica de Minas Gerais (Cemig) (Preferred) 1,536
117,000 Panamerican Beverages, Inc. "A" 3,956
7,500,000 Petroleo Brasileiro S.A. (Preferred) 1,448
25,000,000 Telebras PN S.A. (Preferred) 2,652
---------
9,592
---------
Canada (5.7%)
417,000 Anderson Exploration Ltd. * 4,551
108,100 Canadian National Railway Co. 6,391
360,700 Canadian Occidental Petroleum Ltd. 7,552
450,000 National Bank of Canada 9,174
196,000 OSF, Inc. * 1,951
182,900 Suncor, Inc. 6,493
---------
36,112
---------
Chile (0.4%)
34,940 Compania de Telefonos de Chile ADR 775
59,200 Distribucion y Servicio D & S S.A. ADR 936
27,000 Sociedad Quimica y Minera de Chile S.A. ADR 930
---------
2,641
---------
China (0.3%)
3,628,000 Jiangsu Expressway Co. Ltd. 936
530,000 New World Infrastructure Ltd. * 937
---------
1,873
---------
Czech Republic (0.2%)
10,000 SPT Telecom A.S. * 1,283
---------
Denmark (4.3%)
59,700 Carli Gry International A/S 4,698
95,000 ISS International Service System A/S "B" 4,891
224,200 SAS Danmark A/S 4,156
30,650 Tele Danmark A/S "B" 2,868
99,300 Tele Danmark A/S ADR 4,605
75,000 Unidanmark A/S 6,057
---------
27,275
---------
Egypt (0.4%)
80,000 Commercial International Bank (Egypt) S.A.E GDR 1,132
74,300 Suez Cement Co. S.A.E. GDR 1,460
---------
2,592
---------
Finland (3.6%)
894,000 Merita plc "A" 5,621
153,460 Nokia Corp. ADR 9,965
17,800 Raision Tehtaat 3,332
176,800 Rauma OYJ 3,651
15,900 Sponda OYJ * 103
---------
22,672
---------
France (8.7%)
18,900 Accor S.A. 5,184
74,000 Bouygues Offshore S.A. ADR 1,845
128,000 Coflexip ADR 9,488
167,700 Elf Aquitaine ADR 11,498
48,100 Eramet Group 2,299
12,300 Essilor International 5,242
27,200 ISIS S.A. 3,883
39,800 Louis Dreyfus Citrus 1,483
86,600 Renault S.A. * 4,531
68,280 SEITA 2,967
27,124 Simco S.A. 2,353
44,200 Valeo S.A. 4,167
---------
54,940
---------
Germany (4.8%)
141,700 Continental AG 4,304
138,100 Hoechst AG 6,889
69,800 Leica Camera AG 1,084
11,700 SAP AG 6,046
8,600 SAP AG (Preferred) 4,772
114,960 Veba AG 7,551
---------
30,646
---------
Greece (0.1%)
24,200 National Bank of Greece S.A. GDR * 687
---------
Hong Kong (0.7%)
705,000 Amoy Properties Ltd. 453
77,000 Asia Satellite Telecommunications Holdings Ltd. ADR 1,217
264,000 CITIC Pacific Ltd. 642
260,000 Hutchison Whampoa Ltd. 1,359
222,000 Swire Pacific Ltd. "A" 821
---------
4,492
---------
Hungary (1.1%)
84,400 Magyar Tavkozlesi RT. (MATAV) ADR * 2,363
145,000 Mol Magyar Olaj-Es Gazipari GDR 3,328
30,300 OTP Bank GDR 1,262
---------
6,953
---------
India (0.7%)
85,000 Hindalco Industries Ltd. GDR 1,190
135,500 Larsen & Toubro Ltd. GDR 1,724
118,600 Videsh Sanchar Nigam Ltd. GDR 1,409
---------
4,323
---------
Indonesia (0.1%)
223,000 PT HM Sampoerna 75
---------
Israel (0.7%)
63,000 Blue Square - Israel Ltd. ADR 914
56,000 ECI Telecommunications Ltd. 1,799
44,000 Teva Pharmaceutical Industries Ltd. ADR 1,804
---------
4,517
---------
Italy (3.9%)
96,300 ENI S.p.A. ADR 6,801
476,000 Erg S.p.A. 2,031
82,000 Gucci Group N.V. 3,721
706,000 Italgas S.p.A. 3,253
1,562,000 Telecom Italia S.p.A. 8,423
---------
24,229
---------
Japan (9.5%)
163,000 Bridgestone Corp. 3,719
160,000 Daibiru Corp. 1,042
441,000 Hitachi Ltd. 2,907
300,000 Hosiden Corp. * 3,650
75,000 Ito-Yokado Co. Ltd. 3,737
81,000 Justsystem Corp. 351
184,800 Laox Co. Ltd. 1,266
3,000,000 Long-Term Credit Bank of Japan, Ltd. 4,354
415,000 Minebea Co. Ltd. 4,258
490,000 Mitsubishi 1,705
140,000 Namco 3,114
20,350 Nichiei Co. Ltd. 1,367
300,000 Nomura Securities Co. Ltd. 3,271
136 NTT Data Communications Systems Corp. 5,460
325,000 Sanwa Bank Ltd. 2,849
425,000 Sekisui Chemical Co. Ltd. 2,136
55,000 Sony Corp. 4,646
256,000 Terumo Corp. 3,873
650,000 Toko, Inc. 4,107
150,000 Yamada Denki Co. 1,950
---------
59,762
---------
Korea (0.2%)
241,113 Samsung Heavy Industries * 1,449
---------
Malaysia (0.4%)
722,000 Genting Bhd 1,878
1,190,200 Technology Resources Industries Bhd 863
---------
2,741
---------
Mexico (0.5%)
92,230 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 2,087
86,500 Tubos de Acero de Mexico, S.A. ADR 1,292
---------
3,379
---------
Netherlands (7.1%)
49,200 Akzo Nobel N.V. 10,280
69,000 Benckiser N.V. "B" ADR * 3,903
56,060 EVC International N.V. 1,059
150,802 ING Group N.V. 10,355
31,700 Koninklijke Pakhoed N.V. (Certificates) 1,135
110,400 Oce-van der Grinten N.V. 4,639
71,600 Philips Electronics N.V. 6,811
14,400 Simac Techniek N.V. 2,954
104,200 Verenigd Besit VNU 3,575
---------
44,711
---------
Norway (2.2%)
1,168,700 Christiania Bank og Kreditkasse 5,010
159,500 Schibsted ASA 2,582
489,100 Storebrand ASA * 4,544
224,100 Tandberg Data ASA * 1,606
---------
13,742
---------
Philippines (0.3%)
9,000,000 SM Prime Holdings, Inc. 1,588
---------
Poland (0.7%)
225,000 Elektrim S.A. 2,959
400,071 Polifarb Cieszyn-Wroclaw S.A. 1,203
---------
4,162
---------
Portugal (2.6%)
98,500 Banco Totta E Acores S.A. 3,646
168,900 Cimentos de Portugal S.A. 6,468
111,700 Portugal Telecom S.A. ADR 5,892
---------
16,006
---------
Russia (0.8%)
45,000 LUKoil ADR 1,946
248,400 Mosenergo ADR (a) 1,677
9,084,000 Unified Energy Systems * 1,599
---------
5,222
---------
Singapore (0.6%)
685,000 Keppel Corp. Ltd. 1,366
558,000 Overseas Union Bank Ltd. 1,700
370,000 Singapore Land Ltd. 773
---------
3,839
---------
South Africa (0.2%)
42,400 South African Breweries Ltd. 1,197
---------
Spain (3.0%)
63,900 Corporacion Bancaria de Espana S.A. * 5,444
112,000 Corporacion Mapfre 4,323
68,000 Telefonica de Espana S.A. ADR 9,146
---------
18,913
---------
Sweden (3.1%)
287,580 Autoliv, Inc. SDR 8,972
970,600 Swedish Match AB 3,418
228,800 Volvo AB 7,313
---------
19,703
---------
Switzerland (4.9%)
5,114 Novartis AG 8,657
19,400 Selecta Group AG 3,955
3,140 SGS Group AG 6,094
9,353 Sulzer AG P.C. 7,999
19,876 Tag Heuer International S.A. 2,482
137,600 Tag Heuer International S.A. ADR * 1,668
---------
30,855
---------
Taiwan (0.9%)
3,382,500 China Steel Corp. 2,041
3,875,851 Far Eastern Department Store, Ltd. 3,388
---------
5,429
---------
Turkey (0.4%)
5,536,000 Akbank T.A.S. 163
25,915,500 Akbank T.A.S. Receipts *, (b) 762
48,836,800 Yapi Ve Kredi Bankasi A.S. 945
19,046,352 Yapi Ve Kredi Bankasi Receipts *, (b) 369
---------
2,239
---------
United Kingdom (12.6%)
1,519,900 Billiton plc 3,823
270,000 Cadbury Schweppes plc 4,130
2,635,000 Cookson Group plc 10,954
1,204,400 Corporate Services Group plc 4,524
67,300 Doncasters plc ADR * 2,196
352,400 EMI Group plc 2,981
227,000 Laporte plc 3,166
1,950,000 LucasVarity plc 8,599
1,335,000 Medeva plc 3,832
368,000 National Westminster Bank plc 6,726
417,933 Reuters Group plc 4,795
1,150,000 Safeway plc 6,992
252,000 Thomson Travel Group plc * 741
1,419,500 Tomkins plc 8,196
1,168,058 WPP Group plc 7,479
---------
79,134
---------
Venezuela (0.2%)
29,600 Compania Anonima Nacional Telefonos de Venezuela ADR 912
---------
Other Holdings (0.1%)
497,100 Central European Growth Fund plc * 438
---------
Total stocks (cost: $428,655) 582,767
---------
Principal
Amount
(000)
- ------------
BONDS (0.4%)
Japan
$ 2,900 MBL International Finance (Bermuda) Trust, Convertible
Notes, 3.00%, 11/30/02 (cost: $2,950) $ 2,762
---------
U.S. GOVERNMENT & AGENCY ISSUES (5.5%)
34,485 Federal Home Loan Bank, 5.38%, 6/01/98 (cost:$34,475) 34,475
---------
Total investments (cost: $466,080) $620,004
=========
- -----------------------
* Non-income producing.
Portfolio Summary By Industry
-----------------------------
Banks - Major Regional 7.3%
Telephones 6.4
Auto Parts 6.0
U.S. Government & Agency Issues 5.5
Oil - International Integrated 3.9
Computer Software & Service 3.6
Manufacturing - Diversified Industries 3.3
Insurance - Multi-Line Companies 3.1
Drugs 2.7
Services - Commercial & Consumer 2.5
Oil & Gas - Drilling/Equipment 2.4
Banks - Money Center 2.4
Retail - Specialty 2.2
Chemicals - Specialty 2.1
Electric Utilities 2.0
Oil & Gas - Exploration & Production 1.9
Automobiles 1.9
Communication Equipment 1.9
Iron & Steel 1.9
Chemicals 1.6
Retail - Food 1.6
Beverages - Nonalcoholic 1.5
Metals/Mining 1.5
Foreign Conglomerate 1.5
Building Material Group 1.5
Medical Products & Supplies 1.4
Machinery - Diversified 1.4
Engineering & Construction 1.4
Railroads/Shipping 1.2
Advertising/Marketing 1.2
Electronics - Semiconductors 1.1
Electrical Equipment 1.1
Oil - Domestic Integrated 1.1
Tobacco 1.0
Other 15.5
----
98.6%
=====
USAA INTERNATIONAL FUND
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 1998
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.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
GDR - Global Depositary Receipts are receipts issued by a non-U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Fund's investment manager. Any resale of
this security may occur in an exempt transaction in the United States to a
qualified institutional buyer as defined by Rule 144A.
(b) Illiquid security valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Trustees. At May 31, 1998,
these securities represented .18% of the Fund's net assets.
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1998
ASSETS
Investments in securities, at market value
(identified cost of $466,080) $620,004
Cash 250
Cash denominated in foreign currencies (identified cost of $5,514) 4,687
Receivables:
Capital shares sold 298
Dividends and interest 1,940
Securities sold 5,699
Unrealized appreciation on foreign currency contracts held, at value 2
---------
Total assets 632,880
---------
LIABILITIES
Securities purchased 3,059
Unrealized depreciation on foreign currency contracts held, at value 12
Capital shares redeemed 539
USAA Investment Management Company 406
USAA Transfer Agency Company 80
Accounts payable and accrued expenses 129
---------
Total liabilities 4,225
---------
Net assets applicable to capital shares outstanding $628,655
=========
REPRESENTED BY:
Paid-in capital $456,187
Accumulated undistributed net investment income 5,039
Accumulated net realized gain on investments 14,367
Net unrealized appreciation of investments 153,924
Net unrealized depreciation on foreign currency translations (862)
---------
Net assets applicable to capital shares outstanding $628,655
=========
Capital shares outstanding, unlimited number of shares authorized,
no par value 28,649
=========
Net asset value, redemption price, and offering price per share $ 21.94
=========
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1998
Net investment income:
Income (net of foreign taxes withheld of $1,239):
Dividends $10,599
Interest 1,282
---------
Total income 11,881
---------
Expenses:
Management fees 4,651
Transfer agent's fees 1,008
Custodian's fees 633
Postage 83
Shareholder reporting fees 32
Trustees' fee 4
Registration fees 69
Professional fees 24
Other 19
---------
Total expenses 6,523
---------
Net investment income 5,358
---------
Netrealized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 43,490
Foreign currency transactions (529)
Change in net unrealized appreciation/depreciation on:
Investments 27,231
Foreign currency translations (812)
---------
Net realized and unrealized gain 69,380
---------
Increase in net assets resulting from operations $74,738
=========
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
1998 1997
--------------------------
From operations:
Net investment income $ 5,358 $ 3,988
Net realized gain on investments 43,490 24,420
Net realized loss on foreign currency transactions (529) (68)
Change in net unrealized appreciation/depreciation on:
Investments 27,231 55,975
Foreign currency translations (812) (41)
--------------------------
Increase in net assets resulting from operations 74,738 84,274
--------------------------
Distributions to shareholders from:
Net investment income (3,617) (4,778)
--------------------------
Net realized gains (45,161) (12,464)
--------------------------
From capital share transactions:
Proceeds from shares sold 250,050 246,759
Shares issued for dividends reinvested 41,622 12,603
Cost of shares redeemed (305,553) (127,813)
--------------------------
Increase (decrease) in net assets from
capital share transactions (13,881) 131,549
--------------------------
Net increase in net assets 12,079 198,581
--------------------------
Net assets:
Beginning of period 616,576 417,995
--------------------------
End of period $ 628,655 $616,576
==========================
Undistributed net investment income included in net assets:
Beginning of period $ 3,047 $ 3,646
==========================
End of period $ 5,039 $ 3,047
==========================
Change in shares outstanding:
Shares sold 11,792 12,893
Shares issued for dividends reinvested 2,072 685
Shares redeemed (14,535) (6,597)
--------------------------
Increase (decrease) in shares outstanding (671) 6,981
==========================
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1998
(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 USAA
International Fund (the Fund). The Fund's primary investment objective is
capital appreciation. Current income is a secondary objective. USAA Investment
Management Company (the Manager) seeks to achieve this objective by investing at
least 80% of the Fund's assets in common stocks, preferred stocks or securities
which are convertible into or which carry the right to buy common stocks of
foreign companies.
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 average of the bid and asked
prices 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, 1998 to increase
accumulated undistributed net investment income by $780.1 thousand, to decrease
accumulated net realized gain on investments by $758.7 thousand and to decrease
paid-in capital by $21.4 thousand. A similar reclassification was made in 1997
to increase accumulated undistributed net investment income and to decrease
accumulated net realized gain on investments by $259.5 thousand.
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 on a
daily basis.
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, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($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 its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing rate
with no markup. Subject to availability under its agreement with NationsBank,
the Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's total
assets at NationsBank's borrowing rate plus a markup. The Fund had no borrowings
under either of these agreements during the year ended May 31, 1998.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the year ended May 31, 1998 were $253.2 million and $331.7
million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1998
was $196.3 million and $42.4 million, 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, 1998, the terms of open foreign currency contracts were as follows
(in thousands):
- --------------------------------------------------------------------------------
U.S. Dollar U.S. Dollar Unrealized
Exchange Currency to be Value as of Currency to be Value as of Appreciation
Date Delivered 5/31/98 Received 5/31/98 (Depreciation)
- --------------------------------------------------------------------------------
5/30/98 7 $ 7 9,341 $ 7 $ -
U.S. Dollar South Korea Won
- --------------------------------------------------------------------------------
6/01/98 63 102 102 102 -
British Pound U.S. Dollar
- --------------------------------------------------------------------------------
6/01/98 221 221 1,197 220 (1)
U.S. Dollar Finnish Markka
- --------------------------------------------------------------------------------
6/01/98 44 44 168 44 -
U.S. Dollar Malaysian Ringgit
- --------------------------------------------------------------------------------
6/01/98 15 15 56 15 -
U.S. Dollar Malaysian Ringgit
- --------------------------------------------------------------------------------
6/02/98 60 99 99 99 -
British Pound U.S. Dollar
- --------------------------------------------------------------------------------
6/02/98 470 470 5,880 468 (2)
U.S. Dollar Austrian Schilling
- --------------------------------------------------------------------------------
6/02/98 775 775 1,556 774 (1)
U.S. Dollar Netherlands Guilder
- --------------------------------------------------------------------------------
6/03/98 711 131 131 131 -
Finnish Markka U.S. Dollar
- --------------------------------------------------------------------------------
6/03/98 1,756 227 227 227 -
Hong Kong Dollar U.S. Dollar
- --------------------------------------------------------------------------------
6/03/98 477 62 62 62 -
Hong Kong Dollar U.S. Dollar
- --------------------------------------------------------------------------------
6/03/98 1,775 229 229 229 -
Hong Kong Dollar U.S. Dollar
- --------------------------------------------------------------------------------
6/03/98 60,846 440 439 439 (1)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------
6/03/98 446 446 5,570 444 (2)
U.S. Dollar Austrian Schilling
- --------------------------------------------------------------------------------
6/03/98 64 64 245 64 -
U.S. Dollar Malaysian Ringgit
- --------------------------------------------------------------------------------
6/03/98 225 225 451 224 (1)
U.S. Dollar Netherlands Guilder
- --------------------------------------------------------------------------------
6/04/98 58 95 94 94 (1)
British Pound U.S. Dollar
- --------------------------------------------------------------------------------
6/04/98 294,049 26 28 28 2
Indonesian Rupiah U.S. Dollar
- --------------------------------------------------------------------------------
6/04/98 1 1 4 1 -
U.S. Dollar Malaysian Ringgit
- --------------------------------------------------------------------------------
6/04/98 55 55 212 55 -
U.S. Dollar Malaysian Ringgit
- --------------------------------------------------------------------------------
6/04/98 112 112 226 112 -
U.S. Dollar Netherlands Guilder
- --------------------------------------------------------------------------------
6/05/98 262 427 426 426 (1)
British Pound U.S. Dollar
- --------------------------------------------------------------------------------
6/05/98 115 187 187 187 -
British Pound U.S. Dollar
- --------------------------------------------------------------------------------
6/05/98 130 130 497 129 (1)
U.S. Dollar Malaysian Ringgit
- --------------------------------------------------------------------------------
6/05/98 45 45 170 44 (1)
U.S. Dollar Malaysian Ringgit
================================================================================
$4,635 $4,625 $(10)
================================================================================
(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
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 of $23.50 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, 1998, the Association and its affiliates owned
1.5 million shares (5.4%) 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:
Eight-month
Period Ended
Year Ended May 31, May 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
Net asset value at
beginning of period $ 21.03 $ 18.71 $ 15.78 $ 16.36 $ 14.48
Net investment income .19 .15 .17 .10 -
Net realized and
unrealized gain 2.41 2.87 2.92 .29 2.23
Distributions from net
investment income (.12) (.20) (.07) - -
Distributions of realized
capital gains (1.57) (0.50) (.09) (.97) (.35)
-------------------------------------------------------
Net asset value at
end of period $ 21.94 $ 21.03 $ 18.71 $ 15.78 $ 16.36
=======================================================
Total return (%) * 13.29 16.72 19.71 2.49 15.67
Net assets at end of
period (000) $628,655 $616,576 $417,995 $346,033 $184,792
Ratio of expenses to
average net assets (%) 1.05 1.09 1.19 1.17 1.31(a)
Ratio of net investment
income to average
net assets (%) .87 .79 1.04 .81 .04(a)
Portfolio turnover (%) 42.97 46.03 70.01 64.30 44.39
Average commission rate
paid per share + $ .0077 $ .0110 $.0006
* 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.
Trustees
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Independent Auditors
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio)456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLine (Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
