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 22
Statement of Assets and Liabilities 23
Statement of Operations 24
Statements of Changes in Net Assets 25
Notes to Financial Statements 26
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 World Growth
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.
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.
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA,
APPEARS HERE]
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 WORLD GROWTH FUND
OBJECTIVE: Capital appreciation.
TYPES OF INVESTMENTS: At least 65% of the Fund's assets are invested in common
stocks and other equity securities of both foreign and domestic issuers,
including securities which are convertible into common stocks and Real Estate
Investment Trust (REITs). The remainder of the Fund's assets may be invested in
U.S. Government guaranteed securities which mature in less than one year and in
repurchase agreements collateralized by such securities.
- ------------------------------------------------------------------------------
5/31/98 5/31/97
==============================================================================
Net Assets $356.9 Million $306.8 Million
Net Asset Value Per Share $18.36 $16.84
==============================================================================
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/98
==============================================================================
1 Year 5 Years Since Inception on 10/1/92
16.29% 14.43% 14.96%
==============================================================================
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 World Growth Fund, Morgan Stanley
Capital Index (MSCI)-World and the Lipper Global Funds Average for the period of
10/1/92 to 05/31/98. The data points from the graph are as follows:
USAA World MSCI-Index Lipper Global
Growth Fund World Funds Average
------------ --------- -------------
10/1/92 10,000 10,000 10,000
12/92 10,290 9,974 10,245
06/93 11,050 11,485 11,314
12/93 12,763 12,218 13,509
06/94 12,582 12,662 13,099
12/94 12,844 12,838 13,150
06/95 13,574 14,012 14,262
12/95 14,494 15,498 15,251
06/96 16,303 16,596 16,669
12/96 17,260 17,587 17,665
06/97 19,866 20,293 20,001
12/97 19,481 20,360 19,867
05/98 22,092 23,202 22,745
Data since inception on 10/1/92 through 5/31/98
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund to its benchmark, the Morgan Stanley Capital Index
(MSCI)-World, an unmanaged index which reflects the movements of world stock
markets by representing a broad selection of domestically listed companies
within each market, and the Lipper Global Funds Average, an average performance
level of all global funds, as reported by Lipper Analytical Services, an
independent organization that monitors the performance of mutual funds.
Message from the Managers
[PHOTOGRAPH OF THE FOLLOWING PORTFOLIO MANAGERS APPEARS HERE:
From L to R: R. David Ullom, CFA (Domestic Stocks),
David G. Peebles, CFA (Allocation Manager, Foreign Stocks),
Albert C. Sebastian, CFA (Foreign Stocks), and
W. Travis Selmier, II, CFA (Foreign Stocks).]
MARKET CONDITIONS
For the fiscal year ended May 31, 1998, your Fund's total return was 16.29%
which underperformed the Lipper(1) Global Funds Average return of 18.99%.(2) The
European and United States markets have produced excellent returns over the last
twelve months and significantly outperformed 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.
(1) Refer to page 4 for the Lipper Average definition.
(2) Past performance is no guarantee of future results and the value of
your investment may vary according to the Fund's performance.
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.
UNITED STATES
Over the six months from November 30, 1997 to May 31, 1998, the Fund's
allocation to U.S. equities has risen from 25.7% as of November 30, 1997, to
32.1% currently. A wide variety of our domestic company stock holdings have
outperformed the major U.S. averages, because they have only minor exposure to
the economic problems of Southeast Asia. Such industries include retailing,
financials, and healthcare. Perhaps surprisingly, several of our technology
holdings have also outperformed the major averages. Performance in domestic
equities was hampered by investments in household products, energy and oil
services, and semiconductors.
OUTLOOK
In the international markets 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. Although we
are concerned about a slowdown in earnings growth in the United States, the
fundamentals of the economy are positive and the U.S. market is viewed as a safe
haven.
============================================
TOP 10 EQUITY HOLDINGS
(% OF NET ASSETS)
Cookson Group PLC 1.3
Elf Aquitaine ADS 1.2
Akzo Nobel 1.1
Nokia ADR 1.1
Coflexip ADR 1.0
Lucas Varity PLC 1.0
Telefonica De Espana ADR 1.0
Novartis AG 1.0
Autoliv SDR 1.0
Telecom Italia S.p.A. 1.0
=============================================
================================================
TOP 10 INDUSTRIES
(% OF NET ASSETS)
Banks - Major Regional 5.5
Auto Parts 4.9
Telephones 4.4
Computer Software & Service 3.4
Oil - International Integrated 2.8
Banks - Money Centered 2.7
Insurance - Multi/Lines 2.6
Manufacturing - Diversified Industry 2.3
Communication Equipment 2.3
Oil & Gas - Drilling & Equipment 2.2
=================================================
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of May 31, 1998 of
the USAA World Growth Fund to be:
United Kingdom 9.1%*, Japan 6.9%*, France 5.7%*, Netherlands 4.5%*, Canada
4.2%*, Switzerland 3.4%*, Germany 3.2%*, Denmark 3.0%*, U.S.A. 32.1%*, and Other
(Countries with less than 3.0% of the portfolio and U.S. Government & Agency
Issue) 27.1%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
Foreign investing is subject to additional risks, which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate with
risk, investors should be aware of the potential volatility associated with
foreign markets.
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, 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 $.36
and $.03, respectively.
Ordinary income $ .46 *
Long-term capital gains - 20% .31
Long-term capital gains - 28% .33
------
Total $1.10
======
31.97% of ordinary income distributions qualify for deduction by corporations.
* 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 WORLD GROWTH FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA World Growth 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 World Growth 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.
KPMG Peat Marwick LLP
San Antonio, Texas
July 2, 1998
USAA WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
FOREIGN SECURITIES (63.8%)
FOREIGN STOCKS (63.5%)
Argentina (0.5%)
34,900 Banco Rio de La Plata S.A. ADR $ 419
11,000 Disco S.A. ADR * 381
15,052 IRSA Inversiones y Representaciones S.A. GDR 532
15,500 Telefonica de Argentina S.A. ADR 505
- --------------------------------------------------------------------------------
1,837
- --------------------------------------------------------------------------------
Australia (0.8%)
163,600 CSL Ltd. 1,101
75,000 Smith (Howard) Ltd. 489
649,000 Telstra Corp. 1,528
- --------------------------------------------------------------------------------
3,118
- --------------------------------------------------------------------------------
Austria (1.9%)
20,310 Boehler Uddeholm AG 1,567
3,662 Creditanstalt AG (Preferred) 440
19,165 VA Flughafen Wien AG 1,029
42,197 VA Stahl AG 1,805
14,000 VA Technologie AG 1,896
- --------------------------------------------------------------------------------
6,737
- --------------------------------------------------------------------------------
Belgium (0.3%)
13,300 Union Miniere S.A. 906
- --------------------------------------------------------------------------------
Brazil (1.1%)
18,332,074 Companhia Energetica de Minas Gerais (Cemig) (Preferred) 606
46,000 Panamerican Beverages, Inc. "A" 1,555
3,200,000 Petroleo Brasileiro S.A. (Preferred) 618
10,600,000 Telebras PN S.A. (Preferred) 1,124
- --------------------------------------------------------------------------------
3,903
- --------------------------------------------------------------------------------
Canada (4.2%)
190,200 Anderson Exploration Ltd. * 2,076
48,000 Canadian National Railway Co. 2,838
139,100 Canadian Occidental Petroleum Ltd. 2,912
150,000 National Bank of Canada 3,058
76,000 OSF, Inc. * 756
89,600 Suncor, Inc. 3,181
- --------------------------------------------------------------------------------
14,821
- --------------------------------------------------------------------------------
Chile (0.3%)
15,300 Compania de Telefonos de Chile ADR 339
26,000 Distribucion y Servicio D & S S.A. ADR 411
11,000 Sociedad Quimica y Minera de Chile S.A. ADR 379
- --------------------------------------------------------------------------------
1,129
- --------------------------------------------------------------------------------
China (0.2%)
1,600,000 Jiangsu Expressway Co. Ltd. 413
200,000 New World Infrastructure Ltd. * 354
- --------------------------------------------------------------------------------
767
- --------------------------------------------------------------------------------
Czech Republic (0.1%)
4,000 SPT Telecom A.S. * 513
- --------------------------------------------------------------------------------
Denmark (3.0%)
26,100 Carli Gry International A/S 2,054
36,000 ISS International Service System A/S "B" 1,853
86,600 SAS Danmark A/S 1,605
11,250 Tele Danmark A/S "B" 1,053
37,000 Tele Danmark A/S ADR 1,716
30,000 Unidanmark A/S 2,423
- --------------------------------------------------------------------------------
10,704
- --------------------------------------------------------------------------------
Egypt (0.2%)
27,100 Suez Cement Co. S.A.E. GDR 532
- --------------------------------------------------------------------------------
Finland (2.4%)
346,000 Merita plc "A" 2,176
59,000 Nokia Corp. ADR 3,831
5,960 Raision Tehtaat 1,116
72,800 Rauma OYJ 1,503
6,200 Sponda OYJ * 40
- --------------------------------------------------------------------------------
8,666
- --------------------------------------------------------------------------------
France (5.7%)
6,600 Accor S.A. 1,810
25,000 Bouygues Offshore S.A. ADR 623
49,700 Coflexip ADR 3,684
60,300 Elf Aquitaine ADR 4,134
15,000 Eramet Group 717
4,700 Essilor International 2,003
9,130 ISIS S.A. 1,303
18,500 Louis Dreyfus Citrus 690
33,000 Renault S.A. * 1,726
27,640 SEITA * 1,201
10,969 Simco S.A. * 952
17,000 Valeo S.A. 1,603
- --------------------------------------------------------------------------------
20,446
- --------------------------------------------------------------------------------
Germany (3.2%)
55,000 Continental AG * 1,671
52,700 Hoechst AG 2,629
27,000 Leica Camera AG 419
4,200 SAP AG 2,170
2,600 SAP AG (Preferred) 1,442
47,250 Veba AG 3,104
- --------------------------------------------------------------------------------
11,435
- --------------------------------------------------------------------------------
Greece (0.1%)
9,400 National Bank of Greece S.A. GDR * 267
- --------------------------------------------------------------------------------
Hong Kong (0.5%)
274,000 Amoy Properties Ltd. 176
32,000 Asia Satellite Telecommunications Holdings Ltd. ADR 506
106,000 CITIC Pacific Ltd. 258
120,000 Hutchison Whampoa Ltd. 627
86,000 Swire Pacific Ltd. "A" 318
- --------------------------------------------------------------------------------
1,885
- --------------------------------------------------------------------------------
Hungary (0.8%)
31,600 Magyar Tavkozlesi RT. (MATAV) ADR * 885
60,000 Mol Magyar Olaj-Es Gazipari GDR 1,377
11,700 OTP Bank GDR 487
- --------------------------------------------------------------------------------
2,749
- --------------------------------------------------------------------------------
India (0.5%)
33,000 Hindalco Industries Ltd. GDR 462
56,800 Larsen & Toubro Ltd. GDR 723
44,900 Videsh Sanchar Nigam Ltd. GDR 533
- --------------------------------------------------------------------------------
1,718
- --------------------------------------------------------------------------------
Indonesia (0.1%)
87,000 PT HM Sampoerna 29
- --------------------------------------------------------------------------------
Israel (0.5%)
24,300 Blue Square - Israel Ltd. ADR 352
22,000 ECI Telecommunications Ltd. 707
17,600 Teva Pharmaceutical Industries Ltd. ADR 722
- --------------------------------------------------------------------------------
1,781
- --------------------------------------------------------------------------------
Italy (2.7%)
37,400 ENI S.p.A. ADR 2,642
176,000 Erg S.p.A. 751
33,500 Gucci Group N.V. 1,520
259,000 Italgas S.p.A. 1,193
632,000 Telecom Italia S.p.A. 3,408
- --------------------------------------------------------------------------------
9,514
- --------------------------------------------------------------------------------
Japan (6.6%)
65,000 Bridgestone Corp. 1,483
63,000 Daibiru Corp. 410
180,000 Hitachi Ltd. 1,187
112,000 Hosiden Corp. * 1,363
30,000 Ito-Yokado Co. Ltd. 1,495
34,000 Justsystem Corp. * 147
78,600 Laox Co. Ltd. 539
1,175,000 Long-Term Credit Bank of Japan, Ltd. * 1,705
179,000 Minebea Co. Ltd. 1,837
200,000 Mitsubishi Heavy Industries Ltd. 696
57,000 Namco 1,268
8,050 Nichiei Co. Ltd. 541
110,000 Nomura Securities Co. Ltd. 1,199
53 NTT Data Communications Systems Corp. 2,128
120,000 Sanwa Bank Ltd. 1,052
176,000 Sekisui Chemical Co. Ltd. 884
23,000 Sony Corp. 1,943
97,000 Terumo Corp. 1,467
250,000 Toko, Inc. 1,579
58,000 Yamada Denki Co. 754
- --------------------------------------------------------------------------------
23,677
- --------------------------------------------------------------------------------
Korea (0.2%)
96,451 Samsung Heavy Industries * 580
- --------------------------------------------------------------------------------
Malaysia (0.3%)
278,600 Genting Bhd * 725
509,200 Technology Resources Industries Bhd * 369
- --------------------------------------------------------------------------------
1,094
- --------------------------------------------------------------------------------
Mexico (0.3%)
32,014 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 724
32,600 Tubos de Acero de Mexico, S.A. ADR 487
- --------------------------------------------------------------------------------
1,211
- --------------------------------------------------------------------------------
Netherlands (4.5%)
19,100 Akzo Nobel N.V. 3,991
25,500 Benckiser N.V. "B" ADR * 1,442
21,000 EVC International N.V. 397
48,650 ING Group N.V. 3,341
12,200 Koninklijke Pakhoed N.V. (Certificates) * 437
43,600 Oce-van der Grinten N.V. * 1,832
25,000 Philips Electronics N.V. 2,378
5,460 Simac Techniek N.V. 1,120
34,600 Verenigd Besit VNU 1,187
- --------------------------------------------------------------------------------
16,125
- --------------------------------------------------------------------------------
Norway (1.4%)
463,000 Christiania Bank og Kreditkasse 1,985
64,300 Schibsted ASA 1,041
135,000 Storebrand ASA * 1,254
84,800 Tandberg Data ASA * 608
- --------------------------------------------------------------------------------
4,888
- --------------------------------------------------------------------------------
Philippines (0.1%)
3,500,000 SM Prime Holdings, Inc. 618
- --------------------------------------------------------------------------------
Poland (0.4%)
80,000 Elektrim S.A. 1,052
153,404 Polifarb Cieszyn-Wroclaw S.A. 461
- --------------------------------------------------------------------------------
1,513
- --------------------------------------------------------------------------------
Portugal (1.6%)
34,600 Banco Totta E Acores S.A. 1,281
62,000 Cimentos de Portugal S.A. 2,374
41,900 Portugal Telecom S.A. ADR 2,210
- --------------------------------------------------------------------------------
5,865
- --------------------------------------------------------------------------------
Russia (0.6%)
17,600 LUKoil ADR 761
90,000 Mosenergo ADR a 608
3,808,000 Unified Energy Systems * 670
- --------------------------------------------------------------------------------
2,039
- --------------------------------------------------------------------------------
Singapore (0.4%)
265,000 Keppel Corp. Ltd. * 529
216,000 Overseas Union Bank Ltd. 658
150,000 Singapore Land Ltd. 313
- --------------------------------------------------------------------------------
1,500
- --------------------------------------------------------------------------------
South Africa (0.1%)
16,700 South African Breweries Ltd. 471
- --------------------------------------------------------------------------------
Spain (2.1%)
25,754 Corporacion Bancaria de Espana S.A. 2,194
44,200 Corporacion Mapfre 1,706
26,200 Telefonica de Espana S.A. ADR 3,524
- --------------------------------------------------------------------------------
7,424
- --------------------------------------------------------------------------------
Sweden (2.2%)
111,000 Autoliv, Inc. SDR 3,463
386,200 Swedish Match AB 1,360
89,300 Volvo AB 2,854
- --------------------------------------------------------------------------------
7,677
- --------------------------------------------------------------------------------
Switzerland (3.4%)
2,064 Novartis AG 3,494
7,300 Selecta Group AG 1,488
1,281 SGS Group AG 2,486
3,539 Sulzer AG P.C. 3,027
7,121 Tag Heuer International S.A. 889
59,900 Tag Heuer International S.A. ADR * 726
- --------------------------------------------------------------------------------
12,110
- --------------------------------------------------------------------------------
Taiwan (0.6%)
1,356,382 China Steel Corp. 818
1,501,589 Far Eastern Department Store, Ltd. 1,313
- --------------------------------------------------------------------------------
2,131
- --------------------------------------------------------------------------------
Turkey (0.3%)
2,438,000 Akbank T.A.S. 72
9,873,000 Akbank T.A.S. Receipts *, b 290
20,085,085 Yapi Ve Kredi Bankasi A.S. 389
7,833,183 Yapi Ve Kredi Bankasi Receipts *, b 152
- --------------------------------------------------------------------------------
903
- --------------------------------------------------------------------------------
United Kingdom (9.1%)
849,900 Billiton plc 2,138
107,000 Cadbury Schweppes plc 1,637
1,085,000 Cookson Group plc 4,510
490,000 Corporate Services Group plc 1,841
24,200 Doncasters plc ADR * 790
145,400 EMI Group plc 1,230
97,000 Laporte plc 1,353
800,000 LucasVarity plc 3,528
617,000 Medeva plc 1,771
140,000 National Westminster Bank plc 2,559
162,386 Reuters Group plc 1,863
475,000 Safeway plc 2,888
98,200 Thomson Travel Group plc * 289
590,000 Tomkins plc 3,406
429,722 WPP Group plc 2,751
- --------------------------------------------------------------------------------
32,554
- --------------------------------------------------------------------------------
Venezuela (0.1%)
13,000 Compania Anonima Nacional Telefonos de Venezuela ADR 401
- --------------------------------------------------------------------------------
Other Holdings (0.1%)
189,800 Central European Growth Fund plc * 167
- --------------------------------------------------------------------------------
Total foreign stocks (cost: $167,403) 226,405
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- ---------------
FOREIGN BONDS (0.3%)
Japan (0.3%)
$ 1,200 MBL International Finance (Bermuda) Trust, Convertible
Notes, 3.00%, 11/30/02 (cost: $1,224) 1,143
- --------------------------------------------------------------------------------
Total foreign securities (cost: $168,627) 227,548
- --------------------------------------------------------------------------------
Number
of Shares
- ---------------
DOMESTIC STOCKS (32.1%)
Aerospace/Defense (1.3%)
52,000 Boeing Co. 2,476
35,000 Precision Castparts Corp. 2,017
- --------------------------------------------------------------------------------
4,493
- --------------------------------------------------------------------------------
Aluminum (0.4%)
22,000 Aluminum Co. of America 1,526
- --------------------------------------------------------------------------------
Automobiles (0.4%)
25,000 Ford Motor Co. 1,297
- --------------------------------------------------------------------------------
Auto Parts (0.7%)
46,000 Lear Corp. * 2,455
- --------------------------------------------------------------------------------
Banks - Major Regional (0.6%)
54,000 SouthTrust Corp. 2,190
- --------------------------------------------------------------------------------
Banks - Money Center (1.2%)
16,800 Bankers Trust Corp. 2,075
16,000 Chase Manhattan Corp. * 2,175
- --------------------------------------------------------------------------------
4,250
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (0.6%)
55,000 PepsiCo, Inc. 2,245
- --------------------------------------------------------------------------------
Biotechnology (0.6%)
34,000 Amgen, Inc. * 2,057
- --------------------------------------------------------------------------------
Chemicals (0.7%)
42,000 Monsanto Co. 2,326
- --------------------------------------------------------------------------------
Chemicals - Diversified (0.6%)
45,000 B.F. Goodrich Co. 2,306
- --------------------------------------------------------------------------------
Communication Equipment (1.0%)
40,266 Lucent Technologies, Inc. 2,857
13,000 Motorola, Inc. 688
- --------------------------------------------------------------------------------
3,545
- --------------------------------------------------------------------------------
Computer - Networking (0.7%)
34,000 Cisco Systems, Inc. * 2,571
- --------------------------------------------------------------------------------
Computer Software & Service (1.1%)
28,000 Microsoft Corp. * 2,375
39,000 Sterling Commerce, Inc. * 1,548
- --------------------------------------------------------------------------------
3,923
- --------------------------------------------------------------------------------
Consumer Jewelry and Novelties - Miscelleneous (0.8%)
57,000 American Greetings Corp. 2,708
- --------------------------------------------------------------------------------
Containers - Metals & Glass (0.8%)
45,000 APTARGroup, Inc 2,917
- --------------------------------------------------------------------------------
Electric Utilities (0.5%)
67,000 Houston Industries, Inc. 1,914
- --------------------------------------------------------------------------------
Electrical Equipment (0.6%)
37,000 Rockwell International Corp. 2,035
- --------------------------------------------------------------------------------
Electronics - Semiconductors (0.8%)
27,000 Intel Corp. 1,929
59,000 National Semiconductor Corp. * 959
- --------------------------------------------------------------------------------
2,888
- --------------------------------------------------------------------------------
Engineering & Construction (0.5%)
39,000 Fluor Corp. 1,860
- --------------------------------------------------------------------------------
Equipment - Semiconductors (0.5%)
60,000 Applied Materials, Inc. * 1,920
- --------------------------------------------------------------------------------
Finance - Consumer (0.7%)
31,552 Associates First Capital Corp. "A" 2,360
- --------------------------------------------------------------------------------
Finance - Diversified (1.3%)
41,000 Morgan Stanley, Dean Witter, Discover & Co. 3,201
21,500 PMI Group, Inc. 1,616
- --------------------------------------------------------------------------------
4,817
- --------------------------------------------------------------------------------
Foods (1.1%)
34,700 Authentic Specialty Foods, Inc. * 580
30,000 Bestfoods 1,693
3,750 Corn Products International, Inc. * 129
50,000 Keebler Foods Co. * 1,453
- --------------------------------------------------------------------------------
3,855
- --------------------------------------------------------------------------------
Healthcare - Diversified (1.7%)
46,000 American Home Products Corp. 2,222
18,000 Bristol-Myers Squibb Co. 1,935
29,000 Johnson & Johnson, Inc. 2,003
- --------------------------------------------------------------------------------
6,160
- --------------------------------------------------------------------------------
Healthcare - HMOs (1.1%)
23,000 Pacificare Health Systems, Inc. * 1,854
30,000 United Healthcare Corp. 1,920
- --------------------------------------------------------------------------------
3,774
- --------------------------------------------------------------------------------
Healthcare - Specialized Services (0.6%)
65,800 COHR, Inc. * 473
53,833 Total Renal Care Holdings, Inc. * 1,652
- --------------------------------------------------------------------------------
2,125
- --------------------------------------------------------------------------------
Household Products (1.3%)
40,000 Kimberly-Clark Corp. 1,982
32,000 Procter & Gamble Co. 2,686
- --------------------------------------------------------------------------------
4,668
- --------------------------------------------------------------------------------
Insurance - Multi-Line Companies (0.8%)
22,500 American International Group, Inc. 2,786
- --------------------------------------------------------------------------------
Insurance - Property/Casualty (0.4%)
32,000 Travelers Property Casualty Corp. 1,330
- --------------------------------------------------------------------------------
Machinery - Diversified (1.0%)
36,000 Deere & Co. 1,868
60,808 Flowserve Corp. 1,763
- --------------------------------------------------------------------------------
3,631
- --------------------------------------------------------------------------------
Manufacturing - Specialized (0.8%)
56,000 Avery Dennison Corp. 2,901
- --------------------------------------------------------------------------------
Medical Products & Supplies (1.0%)
32,000 Medtronic, Inc. 1,780
54,000 St. Jude Medical, Inc. * 1,930
- --------------------------------------------------------------------------------
3,710
- --------------------------------------------------------------------------------
Oil - Domestic Integrated (0.5%)
47,000 Unocal Corp. 1,674
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.6%)
15,000 Halliburton Co. 711
30,000 Transocean Offshore, Inc. 1,479
- --------------------------------------------------------------------------------
2,190
- --------------------------------------------------------------------------------
Oil & Gas - Exploration & Production (0.5%)
50,000 Apache Corp. 1,709
- --------------------------------------------------------------------------------
Photography - Imaging (0.6%)
19,100 Xerox Corp. 1,963
- --------------------------------------------------------------------------------
Retail - General Merchandising (1.3%)
67,658 Dollar General Corp. 2,580
36,000 Sears, Roebuck & Co. 2,225
- --------------------------------------------------------------------------------
4,805
- --------------------------------------------------------------------------------
Retail - Specialty (0.4%)
30,000 Abercrombie & Fitch Co. * 1,268
- --------------------------------------------------------------------------------
Telecommunications - Cellular/Wireless (0.6%)
80,000 360 Communications Co. * 2,285
- --------------------------------------------------------------------------------
Telecommunications - Long Distance (0.7%)
37,000 Sprint Corp. 2,655
- --------------------------------------------------------------------------------
Tobacco (0.4%)
39,000 Philip Morris Companies, Inc. 1,458
- --------------------------------------------------------------------------------
Waste Management (0.3%)
16,000 Browning-Ferris Industries, Inc. 569
12,000 Waste Management, Inc. 390
- --------------------------------------------------------------------------------
959
- --------------------------------------------------------------------------------
Total domestic stocks (cost: $72,933) 114,509
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- --------------
U.S. GOVERNMENT & AGENCY ISSUES (3.3%)
Discount Note
$ 11,834 Federal Home Loan Bank, 5.38%, 6/01/98 (cost: $11,834) 11,834
- --------------------------------------------------------------------------------
Total investments (cost: $253,394) $353,891
================================================================================
- -----------------------
*Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Banks - Major Regional 5.5%
Auto Parts 4.9
Telephones 4.4
Computer Software & Service 3.4
U.S. Government & Agency Issues 3.3
Oil - International Integrated 2.8
Banks - Money Center 2.7
Insurance - Multi-Line Companies 2.5
Manufacturing - Diversified Industries 2.3
Communication Equipment 2.3
Oil & Gas - Drilling/Equipment 2.2
Machinery - Diversified 2.0
Medical Products & Supplies 2.0
Drugs 2.0
Electric Utilities 1.9
Oil & Gas - Exploration & Production 1.9
Retail - Specialty 1.9
Chemicals 1.7
Services - Commercial & Consumer 1.7
Healthcare - Diversified 1.7
Beverages - Nonalcoholic 1.7
Household Products 1.7
Automobiles 1.6
Electronics - Semiconductors 1.6
Finance - Diversified 1.5
Chemicals - Specialty 1.5
Engineering & Construction 1.5
Foods 1.5
Retail - General Merchandising 1.3
Manufacturing - Specialized 1.3
Telecommunications - Long Distance 1.3
Iron & Steel 1.3
Aerospace/Defense 1.3
Electrical Equipment 1.2
Oil - Domestic Integrated 1.2
Metals/Mining 1.2
Tobacco 1.1
Retail - Food 1.1
Healthcare - HMOs 1.1
Foreign Conglomerate 1.0
Other 19.2
-----
99.2%
=====
USAA WORLD GROWTH FUND
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 1998
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADR - American Depositary Receipts are 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 .12% of the Fund's net assets.
See accompanying notes to financial statements.
<TABLE>
USAA WORLD GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1998
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $253,394) $353,891
Cash 78
Cash denominated in foreign currencies (identified cost of $1,659) 1,430
Receivables:
Capital shares sold 95
Dividends and interest 871
Securities sold 2,191
Unrealized appreciation on foreign currency contracts held, at value 1
--------
Total assets 358,557
--------
LIABILITIES
Securities purchased 1,192
Unrealized depreciation on foreign currency contracts held, at value 4
Capital shares redeemed 108
USAA Investment Management Company 225
USAA Transfer Agency Company 49
Accounts payable and accrued expenses 99
---------
Total liabilities 1,677
---------
Net assets applicable to capital shares outstanding $356,880
=========
REPRESENTED BY:
Paid-in capital $245,224
Accumulated undistributed net investment income 1,828
Accumulated net realized gain on investments 9,575
Net unrealized appreciation of investments 100,497
Net unrealized depreciation on foreign currency translations (244)
---------
Net assets applicable to capital shares outstanding $356,880
=========
Capital shares outstanding, unlimited number of shares authorized,
no par value 19,435
=========
Net asset value, redemption price, and offering price per share $ 18.36
=========
See accompanying notes to financial statements.
</TABLE>
USAA WORLD GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1998
Net investment income:
Income (net of foreign taxes withheld of $489):
Dividends $ 5,234
Interest 690
-------
Total income 5,924
-------
Expenses:
Management fees 2,524
Transfer agent's fees 749
Custodian's fees 311
Postage 72
Shareholder reporting fees 35
Trustees' fees 4
Registration fees 55
Professional fees 29
Other 8
-------
Total expenses 3,787
-------
Net investment income 2,137
-------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments 20,147
Foreign currency transactions (201)
Change in net unrealized appreciation/depreciation of:
Investments 28,234
Foreign currency translations (228)
-------
Net realized and unrealized gain 47,952
-------
Increase in net assets resulting from operations $50,089
=======
See accompanying notes to financial statements.
<TABLE>
USAA WORLD GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
<CAPTION>
1998 1997
------------------------
<S> <C> <C>
From operations:
Net investment income $ 2,137 $ 1,674
Net realized gain on investments 20,147 16,932
Net realized loss on foreign currency transactions (201) (44)
Change in net unrealized appreciation/depreciation of:
Investments 28,234 23,641
Foreign currency translations (228) (14)
------------------------
Increase in net assets resulting from operations 50,089 42,189
------------------------
Distributions to shareholders from:
Net investment income (1,436) (2,331)
------------------------
Net realized gains (19,161) (15,223)
------------------------
From capital share transactions:
Proceeds from shares sold 98,870 79,486
Shares issued for dividends reinvested 20,347 17,378
Cost of shares redeemed (98,628) (81,892)
------------------------
Increase in net assets from capital share transactions 20,589 14,972
------------------------
Net increase in net assets 50,081 39,607
Net assets:
Beginning of period 306,799 267,192
------------------------
End of period $356,880 $306,799
========================
Undistributed net investment income included in net assets:
Beginning of period $ 1,048 $ 1,639
========================
End of period $ 1,828 $ 1,048
========================
Change in shares outstanding:
Shares sold 5,678 5,168
Shares issued for dividends reinvested 1,220 1,176
Shares redeemed (5,684) (5,363)
------------------------
Increase in shares outstanding 1,214 981
========================
</TABLE>
See accompanying notes to financial statements.
USAA WORLD GROWTH 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 World
Growth Fund (the Fund). The Fund's investment objective is capital appreciation.
USAA Investment Management Company (the Manager) seeks to achieve this objective
by investing at least 65% of the Fund's assets in common stocks, preferred
stocks and other equity securities of both foreign and domestic issuers.
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 $280.3 thousand, to decrease
paid-in capital by $8.0 thousand and to decrease accumulated net realized gain
on investments by $272.3 thousand. A similar reclassification was made in 1997
to increase accumulated undistributed net investment income by $110.7 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 $144.7 million and $147.0
million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1998
was $117.8 million and $17.3 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.
<TABLE>
At May 31, 1998, the terms of open foreign currency contracts were as follows
(in thousands):
<CAPTION>
- ------------------------------------------------------------------------------------------------------
U.S. Dollar U.S. Dollar Unrealized
Exchange Currency to be Value as of Currency to be Value as of Appreciation
Date Delivered 5/31/98 Received 5/31/98 (Depreciation)
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <S> <C> <C>
6/01/98 24 $ 39 39 $ 39 $ -
British Pound U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/01/98 85 85 462 85 -
U.S. Dollar Finnish Markka
- -----------------------------------------------------------------------------------------------------
6/01/98 19 19 71 19 -
U.S. Dollar Malaysian Ringgit
- -----------------------------------------------------------------------------------------------------
6/01/98 6 6 21 6 -
U.S. Dollar Malaysian Ringgit
- -----------------------------------------------------------------------------------------------------
6/02/98 23 38 38 38 -
British Pound U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/02/98 182 182 2,278 181 (1)
U.S. Dollar Austrian Schilling
- -----------------------------------------------------------------------------------------------------
6/02/98 298 298 599 297 (1)
U.S. Dollar Netherlands Guilder
- -----------------------------------------------------------------------------------------------------
6/03/98 272 50 50 50 -
Finnish Markka U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/03/98 713 92 92 92 -
Hong Kong Dollar U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/03/98 184 24 24 24 -
Hong Kong Dollar U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/03/98 676 87 87 87 -
Hong Kong Dollar U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/03/98 23,970 173 173 173 -
Japanese Yen U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/03/98 173 173 2,157 172 (1)
U.S. Dollar Austrian Schilling
- -----------------------------------------------------------------------------------------------------
6/03/98 27 27 105 27 -
U.S. Dollar Malaysian Ringitt
- -----------------------------------------------------------------------------------------------------
6/03/98 88 88 176 88 -
U.S. Dollar Netherlands Guilder
- -----------------------------------------------------------------------------------------------------
6/04/98 22 36 36 36 -
British Pound U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/04/98 116,072 10 11 11 1
Indonesian Rupiah U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/04/98 1 1 2 1 -
U.S. Dollar Malaysian Ringgit
- -----------------------------------------------------------------------------------------------------
6/04/98 24 24 91 24 -
U.S. Dollar Malaysian Ringgit
- -----------------------------------------------------------------------------------------------------
6/04/98 42 42 85 42 -
U.S. Dollar Netherlands Guilder
- -----------------------------------------------------------------------------------------------------
6/05/98 101 165 164 164 (1)
British Pound U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/05/98 44 71 71 71 -
British Pound U.S. Dollar
- -----------------------------------------------------------------------------------------------------
6/05/98 50 50 192 50 -
U.S. Dollar Malaysian Ringgit
- -----------------------------------------------------------------------------------------------------
6/05/98 19 19 73 19 -
U.S. Dollar Malaysian Ringgit
- -----------------------------------------------------------------------------------------------------
$1,799 $1,796 $(3)
=====================================================================================================
</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
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.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service of
the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the year May 31,
1998 was $2.8 thousand.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
<TABLE>
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Eight-month
Period Ended
Year Ended May 31, May 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 16.84 $ 15.50 $ 12.96 $ 12.71 $ 11.80
Net investment income .11 .11 .12 .07 .04(b)
Net realized and
unrealized gain 2.51 2.28 2.73 .46 .93
Distributions from net
investment income (.08) (.14) (.08) - (.01)
Distributions of realized
capital gains (1.02) (.91) (.23) (.28) (.05)
------------------------------------------------------------------
Net asset value at
end of period $ 18.36 $ 16.84 $ 15.50 $ 12.96 $ 12.71
==================================================================
Total return (%) * 16.29 16.52 22.43 4.26 8.25
Net assets at end of
period (000) $356,880 $306,799 $267,192 $200,745 $ 143,367
Ratio of expenses to
average net assets (%) 1.13 1.20 1.27 1.28 1.28(a)
Ratio of net investment
income to average net
assets (%) .64 .63 .96 .69 .42(a)
Portfolio turnover (%) 45.04 50.02 60.97 58.88 37.64
Average commission rate
paid per share (+) $ .0069 $ .0088 $ .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.
(b) Calculated using weighted average shares.
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
