TABLE OF CONTENTS
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Statement of Assets and Liabilities 8
Portfolio of Investments in Securities 9
Notes to Portfolio of Investments in Securities 14
Statement of Operations 16
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Emerging
Markets Fund, managed by USAA Investment Management Company (IMCO). It may be
used as sales literature only when preceded or accompanied by a current
prospectus which gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)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
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 offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
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
Every week I get a report which summarizes all of the feedback we have gotten,
by mail and phone, from our shareholders and brokerage customers. We get
suggestions, complaints and also some compliments each week. We look for trends
which point out problems and we are always sure to respond to every one of these
contacts. One in particular caught my eye on the report for the week of December
11, 1997. It said, "Shareholder notes that Mr. Roth established Income Stock
Fund for grandchild born in 1995; in 1997 another grandchild was born and Mr.
Roth established a Cornerstone Strategy Fund; why was investment not made in the
same fund?" Fair question.
The best answer is that I think both of these funds are great vehicles for
investing for a child's future, and I like variety.
The Income Stock Fund and the Cornerstone Strategy Fund both offer an investor
an equity product with less volatility than the stock market alone. In the case
of the Income Stock Fund, the decreased volatility comes from a heavy emphasis
on companies that pay high dividends or whose dividends tend to grow. For the
Cornerstone Strategy Fund, the decrease in volatility comes from a combination
of domestic value stocks, real estate stocks, foreign stocks and U.S. government
bonds. In any given year either of these funds could be more volatile than the
S&P 500 Index,(1) but both have long-term records(2) which indicate those will
be unusual occurrences.
This combination of risk and reward appeals to me. I have friends who argue
pursuasively that a more aggressive fund would be better for a long-term
investment like this. If you only consider return, I suspect they are correct,
but I am doing what I advise our customers to do. I am asking myself, "What are
you comfortable with?" My answer is either of these two funds is appropriate. So
far, Karl Joseph Marbach and Katharine Sophia Broyles are doing just fine. Maybe
their parents will only have to worry about the last two or three years of
college.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
[Photograph of the President, Michael J. C. Roth, CFA, appears here.]
(1)The S&P 500 Index is an unmanaged index representing the average performance
of a group of 500 widely held, publicly traded stocks. It is not possible
to invest directly in the S&P 500 Index.
(2)Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses please call for a prospectus. Read it
carefully before you invest.
INVESTMENT REVIEW
EMERGING MARKETS FUND
OBJECTIVE: Provide investors with capital appreciation.
TYPES OF INVESTMENTS: At least 65% of the Fund's assets are invested in common
stocks or securities which are convertible into or which carry the right to buy
common stocks of emerging market companies.
5/31/97 11/30/97
Net Assets.......................... $95.6 MILLION $266.8 MILLION
Net Asset Value Per Share........... $11.53 $9.51
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/97
May 31, 1997 to November 30, 1997............................. -16.31%+
1 Year........................................................ -4.83%
Since inception on November 7, 1994........................... 1.26%
+ Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
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 Emerging Markets Fund to the
International Financial Corporation (IFC) Global Composite Index and the Lipper
Emerging Markets Funds Average from 11/7/94 to 11/30/97. The data
points from the graph are as follows:
USAA LIPPER EMERGING INTERNATIONAL
EMERGING MARKETS MARKETS FUNDS FIN. CORP.
FUND AVERAGE GLOBAL COMPOSITE
INDEX
------ ------- -----
11/7/94 10,000 10,000 10,000
12/94 9,170 8,906 8,811
6/95 9,950 8,754 8,081
12/95 9,505 8,571 7,725
6/96 11,260 9,804 8,768
12/96 11,082 9,667 8,335
6/97 12,988 11,697 9,759
11/97 10,393 9,312 7,103
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund to the International Financial Corporation (IFC)
Global Composite Index, an unmanaged broad-based index of emerging markets per
the World Bank GNP per capita definition, and the Lipper Emerging Markets Funds
Average, an unmanaged average of emerging markets funds.
MESSAGE FROM THE MANAGER
[PHOTOGRAPH OF PORTFOLIO MANAGER: W. TRAVIS SELMIER, II, CFA, IS HERE]
Fund Overview
Asian currency crises have cast a long shadow over international markets in
general and over emerging markets specifically for the six months ending
November 30, 1997. Poor performances in Asian markets have had a negative
influence on other stock markets, while signs of recovery are apparent in some
Latin American and East European markets. As the accompanying graph shows, your
Fund continues to outperform the average of other emerging markets funds.(1)
Latin American Markets
While we believe the Brazilian economy will be affected most by the Asian
slowdown, Mexico continues to rebound, driven by an improving domestic economy
and stronger U.S. economic ties. Argentina and Peru continue to recover,
although slower trade with Brazil combined with the effects of El Nino may
negatively affect each economy in 1998. Colombia continues to suffer from
political concerns, while Venezuela is progressing toward economic reform.
Asian Markets
A series of currency devaluations in Asia has spared no market from turmoil.
Reduction of economic growth forecasts has resulted as political disarray
exacerbated the problems. We have maintained our underweighted exposure across
the region with low or no investments in problem countries such as Thailand,
Malaysia, and South Korea. Hong Kong, China, Singapore, and Taiwan have remained
better performers, but have suffered from currency problems in Asia.
(1) Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
Central and Eastern European Markets
Divergence in the "Visegrad 4" markets has continued with weaker Czech Republic
and Polish markets, and continued political turbulence in Slovakia, offset by a
strong Hungarian market performance. Political and economic reform has gained
momentum in Russia, and we continue to be positive about this market over the
long term.
Other Markets
South Africa's market and economy have shown resilience in the face of currency
concerns. Falling inflation and interest rates in Israel have underpinned its
market rally while the prospect of economic reform has fueled Turkey's rise. We
continue to increase our exposure in Portugal as the government's efforts to
achieve adherence to Maastrict criteria (which would allow Portugal to enter the
European Monetary Union) are proving successful.
Outlook
Divergence in performance should continue as most Asian markets remain weak
while many Latin, Eastern European, and other markets are likely to recover
sooner. The global interest rate outlook continues to look good, but currency
turmoil will probably continue in some economies.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of November 30, 1997
of the USAA Emerging Markets Fund to be:
Turkey 3.0%*, Singapore 3.2%*, Poland 3.2%*, Egypt 3.4%*, Chile 3.4%*, Argentina
3.8%*, China 4.0%*, Israel 4.1%*, South Africa 5.7%*, Hungary 5.9%*, Russia
6.3%*, Hong Kong 7.9%*, Mexico 10.2%*, Brazil 10.6%*, Other (Countries with less
than 3.0% of the portfolio and U.S. Government & Agency Issue) 27.9%*.
*Percentages are of the Net Assets in the Portfolio and may or may not
equal 100%.
Top 10 Industries
(% of Net Assets)
Telephones 7.3
Building Material Group 7.1
Foreign Conglomerate 5.7
Electric 5.4
Iron & Steel 5.1
Drugs 4.7
Oil - International Integrated 3.8
Engineering & Construction 3.6
Banks - Money Center 3.5
Banks - Major Regional 3.2
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 9 for a complete listing of the Portfolio of Investments in Securities.
<TABLE>
Emerging Markets Fund
Statement of Assets and Liabilities
(In Thousands)
November 30, 1997
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value (identified cost of $310,096) $ 273,654
Cash 15
Cash denominated in foreign currencies (identified cost of $822) 724
Receivables:
Capital shares sold 2
Dividends 191
Securities sold 448
Unrealized appreciation on foreign currency contracts held, at value 2
----------
Total assets 275,036
----------
Liabilities
Securities purchased 7,839
Unrealized depreciation on foreign currency contracts held, at value 10
Capital shares redeemed 75
USAA Investment Management Company 214
USAA Transfer Agency Company 25
Accounts payable and accrued expenses 117
----------
Total liabilities 8,280
----------
Net assets applicable to capital shares outstanding $ 266,756
==========
Represented by:
Paid-in capital $ 312,507
Accumulated undistributed net investment income 132
Accumulated net realized loss on investments (9,345)
Net unrealized depreciation of investments (36,442)
Net unrealized depreciation on foreign currency translations (96)
----------
Net assets applicable to capital shares outstanding $ 266,756
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 28,049
==========
Net asset value, redemption price, and offering price per share $ 9.51
==========
</TABLE>
See accompanying notes to financial statements.
Emerging Markets Fund
Portfolio of Investments in Securities
November 30, 1997
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Stocks (92.6%)
Argentina (3.8%)
192,000 Banco Rio de La Plata
S.A. ADR * $ 2,412
18,000 Disco S.A. ADS * 646
22,200 IRSA Inversiones y
Representaciones S.A. GDS 678
101,100 Telefonica de Argentina
S.A. ADR 3,343
90,000 YPF Sociedad Anonima
S.A. ADS "D" 3,021
- -------------------------------------------------
10,100
- -------------------------------------------------
Brazil (10.6%)
32,000 Brazil Realty S.A. GDS
(Preferred) 592
3,200,000 Centrais Electricas
Brasileiras S.A.
(Preferred) 1,569
6,858,000 Cimento Portland Itau
(Preferred) 1,289
123,000 Companhia Brasileira
de Distribuicao Grupo Pao
de Acucar ADR 1,830
6,390,397 Companhia de Saneamento
Basico de Estado de
Sao Pablo (SABESP) 1,486
58,130,000 Companhia Energetica
de Minas Gerais (Cemig)
(Preferred) 2,830
80,000 Companhia Fabricadora
de Pecas S.A. (COFAP)
(Preferred) 310
40,000,000 Duratex S.A. (Preferred) 1,442
91,814,062 Empresa Brasileira de
Aeronatica S.A.
(Preferred) * 927
47,000 Multicanal Participacoes
S.A. ADS (Preferred) * 223
157,100 Panamerican Beverages,
Inc. "A" 5,381
11,000,000 Petroleo Brasileiro S.A.
(Preferred) 2,400
78,000 Rossi Residencial S.A.
GDR * 478(b)
33,300,000 Telebras PN S.A.
(Preferred) 3,470
80,100 Uniao de Bancos Brasileiros
S.A. (Unibanco) GDR * 2,303
280,000 Usinas Siderurgicas de Minas
Gerais S.A. (Preferred) 1,792
- -------------------------------------------------
28,322
- -------------------------------------------------
Chile (3.4%)
79,680 Compania de Telefonos
de Chile ADR 2,156
141,300 Distribucion y Servicio D&S
S.A. ADS 2,464
72,000 Enersis S.A. ADR 2,151
52,300 Sociedad Quimica y Minera
de Chile S.A. ADS 2,406
- -------------------------------------------------
9,177
- -------------------------------------------------
China (4.0%)
1,000,000 China Telecom Ltd. 1,669
3,000,000 Cosco Pacific Ltd. 2,095
2,700,000 Guangdong Kelon Electrical
Holdings Ltd. 3,004
11,428,000 Jiangsu Expressway
Co. Ltd. * 2,232
815,000 New World
Infrastructure Ltd. * 1,608
- -------------------------------------------------
10,608
- -------------------------------------------------
Colombia (0.1%)
100,000 Compania Colombiana
de Tabaco S.A. 294
- -------------------------------------------------
Czech Republic (0.5%)
29,400 Komercni Banka A.S. GDR 367
9,450 SPT Telecom A.S. * 996
- -------------------------------------------------
1,363
- -------------------------------------------------
Egypt (3.4%)
85,000 Al-Ahram Beverages Co.
S.A.E. GDR * 2,529
63,150 Commercial International
Bank (Egypt) S.A.E. GDS 1,286
110,000 MISR International Bank
S.A.E. GDR * 1,664
255,000 Paints and Chemical
Industries Co. S.A.E.
GDR * 2,550
49,000 Suez Cement Co. S.A.E. GDS 991
- -------------------------------------------------
9,020
- -------------------------------------------------
Ghana (0.4%)
150,000 Ashanti Goldfields Co.
Ltd. GDS 1,078
- -------------------------------------------------
Greece (1.2%)
44,000 Intracom S.A. 2,147
50,000 OTE Greek Telecom 985
- -------------------------------------------------
3,132
- -------------------------------------------------
Hong Kong (7.9%)
1,965,000 Amoy Properties Ltd. 1,690
11,720,000 Anhui Conch Cement
Co. Ltd. * 2,077
116,000 Asia Satellite
Telecommunications
Holdings Ltd. ADR 2,458
6,016,047 CDL Hotels
International Ltd. 1,479
5,200,000 China Hong Kong Photo
Products Holdings Ltd. 1,271
693,000 CITIC Pacific Ltd. 2,761
1,200,000 Great Eagle Holdings Co. 1,801
240,000 Great Eagle Holdings Co.
Warrants * 87
343,000 Hutchison Whampoa Ltd. 2,285
3,000,000 Peregrine Investments
Holdings Ltd. 2,949(d)
5,300,000 Sa Sa International
Holdings Ltd. 1,214
2,528,000 Vanda Systems &
Communication
Holding Ltd. 973
- -------------------------------------------------
21,045
- --------------------------------------------------
Hungary (5.9%)
25,000 Borsodchem RT. 696
49,000 Egis Gyogyszergyar
Reszventarsaasag 2,151
39,000 Gedeon Richter RT.
Ltd. GDR 3,661
170,000 Graboplast RT. GDR * 1,428
140,700 Magyar Tavkozlesi RT.
(MATAV) ADS * 2,849
60,000 Mol Magyar Olaj-Es
Gazipari GDS 1,259
50,000 OTP Bank GDR * 1,556
24,748 Pannonplast RT. 1,024
125,000 Zalakeramia RT. GDR * 1,031
- -------------------------------------------------
15,655
- -------------------------------------------------
India (2.6%)
90,000 Arvind Mills Ltd. GDS * 212
517,000 Crompton Greaves Ltd. GDR * 982
70,000 Hindalco Industries Ltd. GDR 1,575
220,000 India Public Sector
Fund Ltd. * 2,200(b,c)
20,000 Larsen & Toubro Ltd. GDR 195
140,000 Videsh Sanchar Nigam
Ltd. GDR 1,855
- -------------------------------------------------
7,019
- -------------------------------------------------
Indonesia (1.3%)
1,584,000 PT Astra International, Inc. 825
118,250 PT Bank Dagang Nasional
Indonesia Warrants * 2
1,186,000 PT Darya-Varia Laboratoria 154
50,000 PT Gulf Indonesia Resources
Ltd. ADR * 1,128
1,058,000 PT HM Sampoerna 1,407
- -------------------------------------------------
3,516
- -------------------------------------------------
Israel (4.1%)
122,000 Blue Square - Israel Ltd. * 1,110
18,000 Blue Square - Israel Ltd.
ADS * 176
152,900 ECI Telecommunications Ltd. 4,157
21,000 Tadiran Telecommunications
Ltd. ADR 433
104,000 Teva Pharmaceutical
Industries Ltd. ADR 5,148
- -------------------------------------------------
11,024
- -------------------------------------------------
Korea (0.2%)
4,567 S1 Corp. 535
- -------------------------------------------------
Malaysia (0.6%)
100,000 Edaran Otomobil Nasional Bhd 231
1,100,000 Hicom Holdings Bhd 628
603,000 Malaysian Assurance
Alliance Bhd 705
- -------------------------------------------------
1,564
- -------------------------------------------------
Mexico (10.2%)
1,805,000 Controladora Comercial
Mexicana, S.A. de C.V. 1,974
300,000 Corporacion GEO,
S.A. de C.V. * 1,786
125,639 Desc, Sociedad de Fomento
Industrial, S.A. de
C.V. ADS 4,719
249,800 Empresas Ica Sociedad
Controladora, S.A. de
C.V. ADR 3,872
320,000 Fomento Economico
Mexico S.A. (FEMSA) 2,595
87,500 Grupo Accion, S.A. de
C.V. ADR * 842(a)
325,000 Grupo Carso S.A. 2,117
598,000 Grupo Mexico S.A. 1,764
275,000 Industrias CH S.A. * 1,443
272,000 Tubos de Acero de Mexico,
S.A. ADS * 6,018
- -------------------------------------------------
27,130
- -------------------------------------------------
Pakistan (1.6%)
1,850,000 Hub Power Co. Ltd. * 2,352
180,000 Pakistan State Oil Co.
Ltd. * 1,873
- -------------------------------------------------
4,225
- -------------------------------------------------
Peru (0.6%)
68,000 Compania de Minas
Buenaventura ADR 1,096
73,664 Minsur S.A. 185
17,600 Telefonica del Peru S.A.
"B" ADS 370
- -------------------------------------------------
1,651
- -------------------------------------------------
Philippines (1.9%)
7,481,000 Belle Corp. * 360
1,496,200 Belle Corp. Warrants * 4
360,000 Equitable Banking Corp. 587
1,255,000 Fortune Cement Corp. 113
159,960 Metropolitan Bank and
Trust Co. 1,304
4,950,000 Music Semiconductors
Corp. * 1,983
4,025,000 SM Prime Holdings, Inc. 633
- -------------------------------------------------
4,984
- -------------------------------------------------
Poland (3.2%)
50,000 Bank Handlowy W
Warszawie S.A. * 587
90,000 Big Bank Gdanski S.A. GDR * 1,235
225,000 Elektrim S.A. 2,163
68,000 Jelfa S.A. * 1,461
72,294 Jutrzenka S.A. 1,298
160,000 Polifarb Cieszyn-Wroclaw
S.A. 656
53,333 Polifarb Cieszyn-Wroclaw
S.A. "D" * 218
121,200 Stomil Olsztyn S.A. 884
- -------------------------------------------------
8,502
- -------------------------------------------------
Portugal (2.3%)
16,000 Banco Totta E Acores S.A. 302
6,900 Brisa-Auto Estradas
de Portugal S.A. * 212
143,700 Cimentos de Portugal S.A. 3,639
46,300 Portugal Telecom S.A. ADS * 2,124
- -------------------------------------------------
6,277
- -------------------------------------------------
Russia (6.3%)
20,000 Gorky Automotive Factory * 1,960
66,000 Kubanelectrosvyas * 1,591
39,000 Kubanenergo * 1,579
42,600 LUKoil ADR 3,432
41,000 Mosenergo ADR * 1,466(a)
90,000 Open Joint Stock, Co. Vimpel-
Communications ADR * 2,745
100,000 Severstal Cherepovets
Metal * 1,410(b)
11,260,000 Unified Energy Systems * 2,548
- -------------------------------------------------
16,731
- -------------------------------------------------
Singapore (3.2%)
650,000 DBS Land Ltd. 1,105
391,000 Elec & Eltek International
Co. Ltd. 2,874
820,000 Overseas Union Bank Ltd. 3,215
457,000 Singapore Land Ltd. 1,341
- -------------------------------------------------
8,535
- -------------------------------------------------
South Africa (5.7%)
560,098 Dimension Data
Holdings Ltd. * 2,421
299,570 Foodcorp Ltd. 1,492
571,320 Gencor Ltd. 888
1,199,830 Malbak Ltd. 1,111
200,000 Murray and Roberts
Holdings Ltd. 350
1,753,089 New Clicks Holdings Ltd. 2,039
5,750,300 Protea Furnishers Ltd. 3,042
805,000 Reunion Mining plc * 996
118,279 South African Breweries Ltd. 2,897
- -------------------------------------------------
15,236
- -------------------------------------------------
Taiwan (2.2%)
100,000 Acer, Inc. GDR * 760
2,763,750 China Steel Corp. 2,024
2,019,411 Far Eastern Department
Store, Ltd. 1,974
304,978 Hung Poo Construction
Corp. * 370
40,000 Microtek International,
Inc. * 44
36,000 Synnex Technology
International Corp. GDR * 729
- -------------------------------------------------
5,901
- -------------------------------------------------
Turkey (3.0%)
14,121,000 Akcansa Cimento A.S. 2,454
1,100,000 Ford Otomobil Sanayi A.S. 857
11,500,000 Raks Elektronik Sanayi ve
Ticaret A.S. 2,850
11,407,170 Vestel Electronic A.S. 874
32,174,271 Yapi Ve Kredi Bankasi A.S. 1,003
- -------------------------------------------------
8,038
- -------------------------------------------------
United Kingdom (0.4%)
480,900 Billiton plc * 1,186
- -------------------------------------------------
Venezuela (1.8%)
62,600 Compania Anonima
Nacional Telefonos de
Venezuela ADS 2,473
6,051,000 Mavesa S.A. 966
2,100,000 Siderurgica Venezolana
"Sivensa" 979
4,330,800 Sudamtex de Venezuela,
C.A. S.A.C.A. 264
- -------------------------------------------------
4,682
- -------------------------------------------------
Zimbabwe (0.2%)
378,200 Meikles Africa Ltd. GDR 577
- -------------------------------------------------
Total stocks
(cost: $283,549) 247,107
- -------------------------------------------------
Principal
Amount
(000)
---
U.S. Government & Agency Issue
Discount Note (10.0%)
$26,555 Federal Home Loan Bank,
5.60%, 12/01/97
(cost: $26,547) $ 26,547
- -------------------------------------------------
Total investments
(cost: $310,096) $ 273,654
=================================================
- -----------------------
*Non-income producing.
Portfolio Summary By Industry
------------------------------
U.S. Government & Agency Issues 10.0%
Telephones 7.3
Building Material Group 7.1
Foreign Conglomerate 5.7
Electric 5.4
Iron & Steel 5.1
Drugs 4.7
Oil - International Integrated 3.8
Engineering & Construction 3.6
Banks - Money Center 3.5
Banks - Major Regional 3.2
Retail - Food 3.1
Beverages - Alcoholic 3.0
Real Estate Investment Trusts 2.9
Home Furnishings and Appliances 2.6
Communication - Equipment Manufacturer 2.4
Telecommunications - Cellular/Wireless 2.1
Electronics - Semiconductors 2.1
Beverages - Nonalcoholic 2.0
Automobiles 1.8
Metals/Mining 1.8
Telecommunications - Long Distance 1.7
Investment Banks/Brokerage 1.6
Foods 1.4
Gold 1.2
Electronics - Instrumentation 1.1
Other 12.4
-----
102.6%
=====
Emerging Markets Fund
Notes to Portfolio of Investments in Securities
November 30, 1997
(Unaudited)
General Notes
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADS/ADR -- American Depositary Shares/Receipts are foreign shares held by a U.S.
bank which issues a receipt evidencing ownership. Dividends are paid in U.S.
dollars.
GDS/GDR -- Global Depositary Shares/Receipts are foreign shares held by a
non-U.S. bank which issues a receipt evidencing ownership. Dividends are paid in
U.S. dollars.
Specific Notes
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the 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 Manager under the
general supervision of the Board of Trustees. At November 30, 1997, these
securities represented 1.53% of the Fund's net assets.
(c) Security is exempt from registration under the Securities Act of 1933 (1933
Act). Any resale of this security within the United States may only occur
in a transaction exempt from the registration requirements of the 1933 Act
and in accordance with applicable state laws.
(d) On January 12, 1998, the company filed for liquidation. Trading of the
security has ceased on the local exchange, accordingly the Manager has
determined to value the security at $0 and to record the full amount of the
loss.
See accompanying notes to financial statements.
<TABLE>
Emerging Markets Fund
Statement of Operations
(In Thousands)
Six-month period ended November 30, 1997
(Unaudited)
<S> <C>
Net investment income:
Income (net of foreign taxes withheld of $86):
Dividends $ 1,111
Interest 486
---------
Total income 1,597
---------
Expenses:
Management fees 1,016
Transfer agent's fees 143
Custodian's fees 134
Postage 11
Shareholder reporting fees 6
Trustees' fees 2
Registration fees 102
Professional fees 14
Other 10
--------
Total expenses 1,438
--------
Net investment income 159
--------
Net realized and unrealized loss on investments and foreign currency:
Net realized loss on:
Investments (8,619)
Foreign currency transactions (12)
Change in net unrealized appreciation/depreciation of:
Investments (45,166)
Translation of assets and liabilities in foreign currencies (90)
---------
Net realized and unrealized loss (53,887)
---------
Decrease in net assets resulting from operations $ (53,728)
=========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
Emerging Markets Fund
Statements of Changes in Net Assets
(In Thousands)
Six-month period ended November 30, 1997
and Year ended May 31, 1997
(Unaudited)
<CAPTION>
11/30/97 5/31/97
-------- -------
<S> <C> <C>
From operations:
Net investment income $ 159 $ 18
Net realized gain (loss) on investments (8,619) 1,528
Net realized loss on foreign currency transactions (12) (24)
Change in net unrealized appreciation/depreciation of:
Investments (45,166) 4,675
Foreign currency translations (90) (5)
---------- ---------
Increase (decrease) in net assets resulting from operations (53,728) 6,192
---------- ---------
Distributions to shareholders from:
Net investment income (4) -
---------- ---------
Net realized gains (2,258) (2,391)
---------- ---------
From capital share transactions:
Proceeds from shares sold 245,512 80,607
Shares issued for dividends reinvested 1,180 2,349
Cost of shares redeemed (19,590) (42,428)
---------- ---------
Increase in net assets from capital share transactions 227,102 40,528
---------- ---------
Net increase in net assets 171,112 44,329
Net assets:
Beginning of period 95,644 51,315
---------- ---------
End of period $ 266,756 $ 95,644
========== =========
Accumulated net investment income (loss) included in net assets:
Beginning of period $ (11) $ (11)
========== =========
End of period $ 132 $ (11)
========== =========
Change in shares outstanding:
Shares sold 21,390 7,453
Shares issued for dividends reinvested 97 230
Shares redeemed (1,735) (3,994)
---------- ---------
Increase in shares outstanding 19,752 3,689
========== =========
</TABLE>
See accompanying notes to financial statements.
Emerging Markets Fund
Notes to Financial Statements
November 30, 1997
(Unaudited)
(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 semiannual report pertains only to the
Emerging Markets Fund (the Fund). The Fund's investment objective is capital
appreciation. The Fund concentrates its investments in securities of companies
in emerging market countries, which may have limited or developing capital
markets. Such investments may involve greater risks than investments in
developed markets, and political, social, or economic changes in these markets
may cause the prices of such investments to be volatile.
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, 1997 to decrease
accumulated net investment loss and to decrease paid-in capital by $6,538.
C. Investments in securities -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities.
D. Foreign currency translations -- The assets of the Fund may be invested in
the securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean between
the bid and asked translation rates of such currencies against U.S. dollars.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates of
such transactions.
Net realized and unrealized foreign currency gains/losses occurring during the
holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign currency,
currency gains/losses realized between the trade and settlement dates on
security transactions, and from the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. Net realized foreign currency
gains/losses have been reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets and
liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities other than investments in
securities resulting from changes in the exchange rate.
E. Use of estimates -- The preparation of financial statements in 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 its 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 its total assets at
NationsBank's borrowing rate plus a markup. During the six-month period ended
November 30, 1997, the Fund had no borrowings under either of these agreements.
(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 six-month period ended November 30, 1997 were $246,378,958
and $38,185,393, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1997 was $15,333,491 and $51,775,287, 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 November 30, 1997, 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 11/30/97 Received 11/30/97 (Depreciation)
---- --------- -------- -------- -------- --------------
<C> <S> <C> <C> <C> <C>
12/01/97 157,947 Indonesian Rupiah $ 43 43 U.S. Dollar $ 45 $ 2
12/01/97 90,185 Indonesian Rupiah 25 25 U.S. Dollar 25 -
12/01/97 38 U.S. Dollar 38 296 Hong Kong Dollar 38 -
12/02/97 106,810 Indonesian Rupiah 30 29 U.S. Dollar 30 -
12/02/97 2,309 Indonesian Rupiah 1 1 U.S. Dollar 1 -
12/02/97 393 Malaysian Ringgit 112 112 U.S. Dollar 112 -
12/02/97 824 U.S. Dollar 824 146,759 Portuguese Escudo 814 (10)
12/03/97 2,189 Indonesian Rupiah 1 1 U.S. Dollar 1 -
12/03/97 586 Malaysian Ringgit 167 167 U.S. Dollar 167 -
12/04/97 1,963 Indonesian Rupiah 1 1 U.S. Dollar 1 -
------- ------- -----
$ 1,242 $ 1,234 $ (8)
======= ======= =====
</TABLE>
(6) Transactions with Manager
A. Management fees -- The investment policies of the Fund and management of the
Fund's portfolio are carried out by USAA Investment Management Company (the
Manager). The Fund's management fees are computed at 1% of its annual average
net assets.
B. Transfer agent's fees -- USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge 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 November 30, 1997, the Association and its affiliates
owned 21,571,710 shares (76.9%) of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
<TABLE>
(8) Financial Highlights
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Six-month Seven-month
Period Ended Year Ended May 31, Period Ended
November 30, ------------------ May 31,
1997 1997 1996 1995*
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 11.53 $ 11.13 $ 9.77 $ 10.00
Net investment income (loss) .01 .01 (.01)(b) .03(b)
Net realized and
unrealized gain (loss) (1.85) .89 1.60 (.26)
Distributions from net
investment income - - (.01) -
Distributions of realized
capital gains (.18) (.50) (.22) -
---------- -------- --------- ---------
Net asset value at
end of period $ 9.51 $ 11.53 $ 11.13 $ 9.77
========== ======== ========= =========
Total return (%)** (16.31) 8.69 16.93 (2.30)
Net assets at end
of period (000) $ 266,756 $ 95,644 $ 51,315 $ 22,914
Ratio of expenses to
average net assets (%) 1.39(a) 1.81 2.27 2.50(a,c)
Ratio of net investment
income (loss) to average
net assets (%) .14(a) .03 (.08) .53(a,c)
Portfolio turnover (%) 20.43 61.21 87.98 34.87
Average commission rate
paid per share + $ .0029 $ .0041 $ .0012
</TABLE>
* Fund commenced operations November 7, 1994.
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
+ Calculated by aggregating all commissions paid on the purchase and sale of
securities and dividing by the actual number of shares purchased or sold for
which commissions were charged.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations
(b) Calculated using weighted average shares.
(c) The information contained in the preceding table is based on actual expenses
for the period, after giving effect to reimbursement of expenses by the
Manager. Absent such reimbursement the Fund's ratios would have been:
Seven-month
Period Ended
May 31,
1995*
----
Ratio of expenses to average net assets (%) 2.60(a)
Ratio of net investment income to average net assets (%) .43(a)
