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 17
Statement of Assets and Liabilities 18
Statement of Operations 19
Statements of Changes in Net Assets 20
Notes to Financial Statements 21
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA International
Fund, managed by USAA Investment Management Company (IMCO). It may be used as
sales literature only when preceded or accompanied by a current prospectus which
gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)1999, 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 Very high $3,000
First Start Growth Moderate to high $3,000
Gold Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International Moderate to high $3,000
S&P 500 (Registered Trademark)
Index Moderate $3,000
Science & Technology Very high $3,000
World Growth Moderate to high $3,000
ASSET ALLOCATION
===============================================================================
Balanced Strategy Moderate $3,000
Cornerstone Strategy Moderate $3,000
Growth and Tax
Strategy Moderate $3,000
Growth Strategy 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 Moderate $3,000
Intermediate-Term Low to moderate $3,000
Short-Term Low $3,000
State Bond Income Moderate $3,000
MONEY MARKET
===============================================================================
Money Market Very low $3,000
Tax Exempt
Money Market Very low $3,000
Treasury Money
Market Trust Very low $3,000
State Money Market Very low $3,000
Foreign investing is subject to additional risks, such as currency fluctuations,
market illiquidity, and political instability.
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.
Some income may be subject to state or local taxes or the federal alternative
minimum tax.
An investment in a money market fund is not insured or guaranteed by the FDIC or
any other government agency. Although the fund seeks to preserve the value of
your investment at $1 per share, it is possible to lose money by investing in
the fund.
The Science & Technology 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, are subject
to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call 1-800-531-8181 for a prospectus. Read it carefully before you
invest.
Message from the President
[PHOTOGRAPH OF PRESIDENT AND VICE CHAIRMAN OF THE BOARD, MICHAEL J.C. ROTH, CFA,
APPEARS HERE.]
When I was a second lieutenant in pilot training at Williams AFB, I read the
book THIS KIND OF WAR by T. R. Fehrenbach. More than 30 years later I met Ted
Fehrenbach here in San Antonio where he resides and had a chance to tell him
that I think he is a brilliant man. I recall reading that LBJ declared THIS KIND
OF WAR required reading for people in his administration. Ted writes a regular
Sunday column for the San Antonio Express News, and he continues to delight me.
Last year he wrote a piece around Columbus Day, which included this observation:
"Spain was clearly disappointed with her admiral. While he
had spent much money charting islands with mosquitoes
and a miserable climate (from the Euro standpoint)...the
Portuguese had reached the real India and returned with
fabulous profits. Of course, Columbus had opened up to
Spain a vast empire, filled with treasures of every kind,
but then few investors take the long view."
As I read this passage, I thought that Ted's understanding of markets is as
sharp as his grasp of history. At the beginning of 1999, there indeed seemed to
be few investors with the long view. There were many people declaring the
absolute superiority of the S&P 500 and growth stocks, especially tech stocks,
while proclaiming that strategies such as value investing and asset allocation
were no longer relevant.
The S&P 500 and its index funds have had a wondrous four years, but here we are
five-and-a-half months into 1999, and what a difference we're seeing: The Dow
Jones Industrial Average is up more than twice as much as the S&P 500 so far
this year.
The S&P 500 Index is heavily influenced by companies like America Online, Cisco
Systems, Intel, IBM, Lucent, MCI, and Microsoft. The Dow also includes IBM, but
its impetus is coming from companies such as J.P. Morgan, Alcoa, Caterpillar,
Disney, General Motors, and Union Carbide. The upshot of this is that you can
afford to take the long view. Value investing or asset allocation are just
different from a growth philosophy. My view, throughout the last 27 years, is
that these methods go through cycles of in-favor and out-of-favor. But they do
cycle. And just about the time you begin to read that one of them is no longer
viable, you can bet the market will change. A good discipline practiced well
will give you a very good chance of prospering in the long run.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
The S&P 500 Index is an unmanaged index representing the weighted average
performance of a group of 500 widely held, publicly traded stocks. It is not
possible to invest in the S&P 500 Index.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30
actively traded blue chip stocks.
Past performance is no guarantee of future results.
Investment Review
USAA INTERNATIONAL FUND
OBJECTIVE: Capital appreciation with current income as a secondary objective.
TYPES OF INVESTMENTS: Invests principally in equity securities of foreign
companies.
- --------------------------------------------------------------------------------
5/31/99 5/31/98
================================================================================
Net Assets $499.9 Million $628.7 Million
Net Asset Value Per Share $19.79 $21.94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/99
================================================================================
1 Year 5 Years 10 years
-6.63% 8.66% 10.05%
- --------------------------------------------------------------------------------
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
- ---------------------------------
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA International Fund, the Morgan
Stanley Capital Index (MSCI)-EAFE, and the Lipper International Funds Average
for the period of 05/31/89 through 05/31/99. The data points from the graph are
as follows:
USAA
International MSCI-EAFE Lipper
Fund Index Average
------------- --------- -------
05/31/89 $10,000 $ 9,623 $10,396
11/30/89 11,203 11,139 11,173
05/31/90 11,942 10,242 11,843
11/30/90 10,604 8,701 10,479
05/31/91 11,391 9,693 11,479
11/30/91 11,479 9,427 11,288
05/31/92 12,830 9,367 12,466
11/30/92 11,997 8,663 11,241
05/31/93 14,206 10,902 13,240
11/30/93 15,291 10,765 14,445
05/31/94 17,205 12,382 16,023
11/30/94 17,588 12,363 15,987
05/31/95 17,633 12,992 16,333
11/30/95 18,254 13,299 17,063
05/31/96 21,108 14,379 18,745
11/30/96 22,278 14,863 19,739
05/31/97 24,636 15,463 21,409
11/30/97 24,272 14,803 20,969
05/31/98 27,910 17,181 24,678
11/30/98 24,467 17,238 23,085
05/31/99 26,060 17,930 23,942
Data from 05/31/89 through 05/31/99
The graph illustrates how a $10,000 hypothetical investment in the USAA
International Fund outperformed its benchmark, the Morgan Stanley Capital Index
(MSCI)-EAFE, an unmanaged index which reflects the movements of stock markets in
Europe, Australia, and the Far East by representing a broad selection of
domestically listed companies within each market, and the Lipper International
Funds Average, an average performance level of all international funds, as
reported by Lipper Analytical Services, Inc., an independent organization that
monitors the performance of mutual funds.
Message from the Managers
[PHOTOGRAPH OF PORTFOLIO MANAGERS: FROM L TO R: ALBERT C. SEBASTIAN, CFA, DAVID
G. PEEBLES, CFA, AND W. TRAVIS SELMIER, II, CFA, APPEARS HERE.]
MARKET CONDITIONS
For the 12-month period ended May 31, 1999, your Fund's total return was -6.63%
which compares unfavorably with the Lipper International Funds Average return of
- -1.23% and the Morgan Stanley Capital Index (MSCI)-EAFE return of 2.81%.(1)
Although the Fund's performance improved the last six months of the fiscal year,
it was not enough to offset the weak performance in the first six months.
(1) Refer to the bottom of page 4 for the Lipper Average and the EAFE
definition.
Past performance is no guarantee of future results, and the value of your
investment may vary according to the Fund's performance.
EUROPE
Most European equity markets rebounded from last year's declines, but returns
were negatively impacted in 1999 by weak European currencies despite the
introduction of the Euro. Central banks in Europe cut interest rates as economic
growth forecasts were revised downward, primarily because of weakness in the
German and Italian economies. After last year's sell-off, cyclical and resource
stocks rebounded based on stronger global economic forecasts and higher energy
prices. In general, the larger European equity market (for example, United
Kingdom) out-performed the smaller ones (for example, Portugal, Belgium)
throughout the period.
CANADA & AUSTRALIA
While we have preferred Canadian to Australian equities, both markets have
rebounded from last year's declines. Our positions in Canada benefited from
higher energy prices, a swingback to cyclical stocks, and a stronger Canadian
dollar. These same factors had negatively impacted the performance of the Fund
in the second half of 1998.
EMERGING MARKETS
Emerging markets went through a rough summer, but have since recovered. Asian
equities' strong recovery has been driven by good export growth, signs of
reflation in many economies, and capital flows into the stock market and
acquisitions of Asian companies. Although Russia's economic and political
problems and the conflict in Kosovo will influence Central European and many
Mediterranean markets, these markets look more to the European Community for
their political and economic cues. Greece is the best performer in the region.
Israel's and South Africa's economic recovery, export strength, and improving
political prospects have validated our overweight position in those markets.
With the exception of a strong Mexican market, our lower weighting in Latin
markets throughout the last six months was validated by Brazil's forced
devaluation of its currency, the Real, in January.
JAPAN
Since the election last summer, the Japanese political situation has solidified,
more progress has been seen on Japan's banking crisis, and a raft of corporate
restructuring announcements has pushed the market up over the last eight months.
While constructive, we will need to see follow-through on the corporate
restructuring coupled with stimulatory economic policy to push the market
higher. Our technology, telecommunications, and financial holdings helped us
outperform the market throughout the period.
OUTLOOK
We continue to view Europe positively but have slightly reduced our overweight
position there in favor of other markets. European valuations still look
attractive, and Europe should continue to benefit from merger and acquisition
activity as well as economic recovery in the second half of 1999. Canada will
benefit from higher commodity prices and strong U.S. economic growth. The
Japanese market is likely to be a mixed bag with some sectors doing well. Given
a reflating global economy, we believe that emerging markets should continue to
perform well.
ASSET ALLOCATION
- ----------------
A pie chart is shown here depicting the Asset Allocation as of May 31, 1999 of
the USAA International Fund to be:
Other - 22.3%* (Countries with less than 3.0% of the portfolio and U.S.
Government & Agency Issue); United Kingdom - 15.9%*; Netherlands - 10.0%*;
France - 9.1%*; Japan - 9.0%*; Canada - 7.4%*; Italy - 5.0%*; Switzerland -
4.9%*; Finland - 4.9%*; Germany 3.9%*; Denmark - 3.4%*; and Sweden - 3.3%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
------------------------------------ --------------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
------------------------------------ --------------------------------------
Elf Aquitaine ADR 2.1 Telephones 10.5
Nokia Corp. ADR 2.0 Banks - Major Regional 9.7
Novartis AG 1.8 Drugs 7.1
Canadian National Railway Co. 1.7 Auto Parts 4.2
Akzo Nobel N.V. 1.6 Oil - International Integrated 4.1
Telefonica de Espana S.A. ADR 1.6 Insurance - Multi-Line Companies 3.9
National Westminster Bank plc 1.6 Communication Equipment 3.1
Merita plc "A" 1.6 Railroads/Shipping 2.6
Veba AG 1.5 Iron & Steel 2.4
ING Group N.V. 1.5 Chemicals - Specialty 2.3
------------------------------------ --------------------------------------
Foreign investing is subject to additional risks, which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate with
risk, investors should be aware of the potential volatility associated with
foreign securities.
See page 10 for a complete listing of the Portfolio of Investments.
Distributions to Shareholders
The following per share information describes the federal tax treatment of
distributions made during the fiscal year ended May 31, 1999. 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 2000.
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 $.41
and $.06, respectively.
Ordinary income * $ .19
Long-term capital gains .55
------
Total $ .74
======
* Includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
Independent Auditors' Report
KPMG
The Shareholders and Board of Trustees
USAA INVESTMENT TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of the USAA International Fund, a series of the
USAA Investment Trust, as of May 31, 1999, 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 9 to the financial statements, for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Company'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. Our procedures included confirmation of securities owned as of May
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA International Fund as of May 31, 1999, 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
in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
San Antonio, Texas
July 2, 1999
USAA INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (97.0%)
Argentina (0.2%)
37,945 IRSA Inversiones y Representaciones S.A. GDR $ 1,096
- --------------------------------------------------------------------------------
Australia (0.4%)
328,500 Cable & Wireless Optus Ltd. * 628
172,700 CSL Ltd. 1,443
- --------------------------------------------------------------------------------
2,071
- --------------------------------------------------------------------------------
Austria (2.5%)
22,200 Bank Austria AG 1,136
70,600 Boehler Uddeholm AG 3,447
98,300 VA Flughafen Wien AG 4,174
42,000 VA Technologie AG 3,525
- --------------------------------------------------------------------------------
12,282
- --------------------------------------------------------------------------------
Brazil (0.8%)
54,200 Grupo Pao de Acucar ADR 983
90,000 Panamerican Beverages, Inc. "A" 2,087
7,500,000 Petroleo Brasileiro S.A. (Preferred) 1,060
- --------------------------------------------------------------------------------
4,130
- --------------------------------------------------------------------------------
Canada (7.4%)
389,300 Anderson Exploration Ltd. * 4,718
75,800 Canadian Imperial Bank of Commerce 1,853
130,100 Canadian National Railway Co. 8,326
331,700 Canadian Occidental Petroleum Ltd. 4,436
246,500 National Bank of Canada 3,673
75,000 Nortel Networks Corp. 5,625
151,300 Suncor Energy, Inc. 5,712
48,500 Toronto-Dominion Bank 2,562
- --------------------------------------------------------------------------------
36,905
- --------------------------------------------------------------------------------
Chile (0.2%)
1,561 Sociedad Quimica y Minera de Chile S.A. ADR "A" 55
27,000 Sociedad Quimica y Minera de Chile S.A. ADR "B" 941
- --------------------------------------------------------------------------------
996
- --------------------------------------------------------------------------------
China (0.4%)
1,632,000 Cosco Pacific Ltd. 963
796,000 New World Infrastructure Ltd. * 1,278
- --------------------------------------------------------------------------------
2,241
- --------------------------------------------------------------------------------
Denmark (3.4%)
43,900 ISS International Service System A/S "B" * 2,205
224,200 SAS Danmark A/S 2,564
58,800 Tele Danmark A/S "B" 6,005
88,900 Unidanmark A/S 6,236
- --------------------------------------------------------------------------------
17,010
- --------------------------------------------------------------------------------
Egypt (0.2%)
74,300 Suez Cement Co. S.A.E. GDR 1,103
- --------------------------------------------------------------------------------
Finland (4.9%)
1,305,800 Merita plc "A" 7,732
141,320 Nokia Corp. ADR 10,034
177,700 Raisio Group plc 1,943
179,200 Rauma OYJ 1,980
92,700 Sampo Insurance Co. "A" 2,803
- --------------------------------------------------------------------------------
24,492
- --------------------------------------------------------------------------------
France (9.1%)
18,900 Accor S.A. 4,634
77,186 CNP Assurances 1,938
105,000 Coflexip ADR 4,305
150,700 Elf Aquitaine ADR 10,700
48,100 Eramet Group 1,881
11,100 Essilor International 3,888
27,200 ISIS S.A. 1,801
39,800 Louis Dreyfus Citrus 829
89,600 Renault S.A. 3,479
73,300 Rhone Poulenc S.A. 3,477
79,980 SEITA 4,849
42,800 Valeo S.A. 3,494
- --------------------------------------------------------------------------------
45,275
- --------------------------------------------------------------------------------
Germany (3.9%)
125,800 Continental AG 2,911
123,900 Hoechst AG 5,515
102,700 Merck KGaA 3,528
134,460 Veba AG 7,668
- --------------------------------------------------------------------------------
19,622
- --------------------------------------------------------------------------------
Greece (0.7%)
116,900 Hellenic Telecommunications Organization S.A. (OTE) 2,531
88,530 National Bank of Greece S.A. GDR * 1,226
- --------------------------------------------------------------------------------
3,757
- --------------------------------------------------------------------------------
Hong Kong (0.3%)
65,000 Asia Satellite Telecommunications Holdings Ltd. ADR 1,341
- --------------------------------------------------------------------------------
Hungary (0.8%)
41,700 Magyar Tavkozlesi RT. (MATAV) ADR 1,167
106,800 Mol Magyar Olaj-Es Gazipari GDR 2,590
- --------------------------------------------------------------------------------
3,757
- --------------------------------------------------------------------------------
India (0.5%)
83,800 Hindalco Industries Ltd. GDR 1,194
118,600 Videsh Sanchar Nigam Ltd. GDR 1,349
- --------------------------------------------------------------------------------
2,543
- --------------------------------------------------------------------------------
Israel (0.4%)
356,565 Bank Hapoalim Ltd. 903
63,000 Blue Square - Israel Ltd. ADR 961
- --------------------------------------------------------------------------------
1,864
- --------------------------------------------------------------------------------
Italy (5.0%)
90,300 ENI S.p.A. ADR 5,683
317,000 Erg S.p.A. 955
61,000 Gucci Group N.V. 4,034
1,087,000 Italgas S.p.A. 4,657
221,000 Telecom Italia Ords 2,276
1,325,000 Telecom Italia S.p.A. Savings 7,197
- --------------------------------------------------------------------------------
24,802
- --------------------------------------------------------------------------------
Japan (8.8%)
105,000 Bridgestone Corp. 2,754
160,000 Daibiru Corp. 1,257
195,000 Fujitsu Ltd. 3,259
55,000 Ito-Yokado Co. Ltd. 3,281
398,000 Nikko Securities Co. Ltd. 1,739
1,890,000 Nippon Steel Corp. 3,972
314 Nippon Telegraph & Telephone Corp. (NTT) 3,065
26 NTT Mobile Communication Network, Inc. 1,422
90,000 Ono Pharmaceutical Co. Ltd. 3,239
225,000 Sankyo Co. Ltd. 5,296
544,000 Sharp Corp. 6,040
25,500 Sony Corp. 2,397
280,000 Sumitomo Electric Industries, Ltd. 3,136
500,000 Toshiba Corp. 3,090
- --------------------------------------------------------------------------------
43,947
- --------------------------------------------------------------------------------
Korea (0.8%)
34,110 Dongwon Securities Co. 738
47,964 Korea Telecom Corp. ADR * 1,526
24,000 Samsung Electronics Co. Ltd. 1,669
1,964 Samsung Electronics Co. Ltd. (Rights) * 21
- --------------------------------------------------------------------------------
3,954
- --------------------------------------------------------------------------------
Malaysia (0.6%)
793,500 Genting Bhd (a) 2,255
589,000 Malaysia International Shipping Corp. Bhd (a) 825
- --------------------------------------------------------------------------------
3,080
- --------------------------------------------------------------------------------
Mexico (0.8%)
80,230 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 1,795
226,000 Tubos de Acero de Mexico, S.A. ADR 2,091
- --------------------------------------------------------------------------------
3,886
- --------------------------------------------------------------------------------
Netherlands (10.0%)
193,800 Akzo Nobel N.V. 8,041
122,500 Benckiser N.V. "B" 6,615
56,060 EVC International N.V. 409
90,400 Fortis NL N.V. 2,936
142,302 ING Group N.V. 7,603
134,200 Koninklijke KPN N.V. 6,478
168,600 Koninklijke Pakhoed N.V. (Certificates) 3,884
75,600 Koninklijke Philips Electronics N.V. 6,502
115,400 Oce-van der Grinten N.V. 3,176
101,700 VNU N.V. 4,315
- --------------------------------------------------------------------------------
49,959
- --------------------------------------------------------------------------------
Norway (2.8%)
1,506,700 Christiania Bank og Kreditkasse 6,081
159,500 Schibsted ASA 1,836
605,100 Storebrand ASA * 4,057
448,200 Tandberg Data ASA * 2,268
- --------------------------------------------------------------------------------
14,242
- --------------------------------------------------------------------------------
Philippines (0.3%)
6,000,000 SM Prime Holdings, Inc. 1,309
- --------------------------------------------------------------------------------
Poland (0.5%)
203,300 Elektrim S.A. 2,373
- --------------------------------------------------------------------------------
Portugal (2.6%)
225,820 Banco Pinto & Sotto Mayor S.A. 4,473
62,200 Brisa-Auto Estradas de Portugal S.A. 2,814
123,700 Portugal Telecom S.A. ADR 5,597
- --------------------------------------------------------------------------------
12,884
- --------------------------------------------------------------------------------
Russia (0.1%)
15,000 LUKoil ADR 547
- --------------------------------------------------------------------------------
Singapore (0.3%)
291,000 Overseas Union Bank Ltd. 1,495
- --------------------------------------------------------------------------------
South Africa (0.6%)
1,251,100 Sanlam Ltd. * 1,205
87,497 South African Breweries plc 703
400,000 Standard Bank Investment Corp. Ltd. 1,229
- --------------------------------------------------------------------------------
3,137
- --------------------------------------------------------------------------------
Spain (2.7%)
255,600 Caja Postal y Banco Hipotecario de Espana, S.A. 5,726
55,122 Telefonica de Espana S.A. ADR * 7,952
- --------------------------------------------------------------------------------
13,678
- --------------------------------------------------------------------------------
Sweden (3.3%)
211,980 Autoliv, Inc. GDR 6,718
107,400 Skandinaviska Enskilda Banken "A" 1,299
1,433,000 Swedish Match AB 5,217
122,700 Volvo AB 3,111
- --------------------------------------------------------------------------------
16,345
- --------------------------------------------------------------------------------
Switzerland (4.9%)
6,164 Novartis AG 8,938
12,200 Selecta Group AG 4,830
5,237 Sulzer AG P.C. * 3,060
12,470 Swisscom AG 4,488
33,636 Tag Heuer International S.A. 3,114
- --------------------------------------------------------------------------------
24,430
- --------------------------------------------------------------------------------
Taiwan (0.8%)
3,551,625 China Steel Corp. 2,433
619,650 Compal Electronics, Inc. 1,658
- --------------------------------------------------------------------------------
4,091
- --------------------------------------------------------------------------------
Turkey (0.1%)
18,742,108 Yapi Ve Kredi Bankasi A.S. 239
26,993,686 Yapi Ve Kredi Bankasi A.S. Receipts *,(a) 345
- --------------------------------------------------------------------------------
584
- --------------------------------------------------------------------------------
United Kingdom (15.9%)
86,700 AstraZeneca Group plc 3,447
400,000 Bank of Scotland 5,557
1,639,900 Billiton plc 5,124
122,200 BOC Group plc 2,089
207,000 British Telecommunications plc 3,430
270,000 Cable & Wireless plc 3,323
530,000 Cadbury Schweppes 3,603
320,100 CGU plc 4,678
2,335,000 Cookson Group plc 6,761
1,314,400 Corporate Services Group plc 1,569
64,200 Glaxo Wellcome plc ADR 3,611
279,000 Laporte plc 3,286
1,523,000 Medeva plc 2,660
348,000 National Westminster Bank plc 7,896
91,800 Powergen plc 994
417,933 Reuters Group plc 5,746
940,000 Safeway plc 3,901
1,419,500 Tomkins plc 5,101
838,058 WPP Group plc 6,781
- --------------------------------------------------------------------------------
79,557
- --------------------------------------------------------------------------------
Total stocks (cost: $386,820) 484,785
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- ----------- BOND (0.2%)
Japan
$ 1,000 MBL International Finance (Bermuda) Trust, Convertible
Notes, 3.00%, 11/30/2002 (cost: $1,000) 1,110
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY ISSUE (1.9%)
Discount Note
9,559 Federal Home Loan Mortgage Corp., 4.72%, 6/01/1999
(cost: $9,555) 9,555
- --------------------------------------------------------------------------------
Total investments (cost: $397,375) $495,450
================================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Telephones 10.5%
Banks - Major Regional 9.7
Drugs 7.1
Auto Parts 4.2
Oil - International Integrated 4.1
Insurance - Multi-Line Companies 3.9
Communication Equipment 3.1
Railroads/Shipping 2.6
Iron & Steel 2.4
Chemicals - Specialty 2.3
Retail - Specialty 2.2
Tobacco 2.0
Manufacturing - Diversified Industries 2.0
Electrical Equipment 1.9
Banks - Money Center 1.9
Government National Mortgage Assoc. 1.9
Oil & Gas - Exploration & Production 1.8
Electric Utilities 1.7
Electronics - Semiconductors 1.6
Metals/Mining 1.6
Services - Facilities & Environment 1.4
Advertising/Marketing 1.4
Household Products 1.3
Automobiles 1.3
Beverages - Nonalcoholic 1.3
Oil & Gas - Drilling/Equipment 1.2
Manufacturing - Specialized 1.2
Chemicals 1.2
Retail - Food 1.2
Services - Data Processing 1.1
Oil - Domestic Integrated 1.1
Investment Banks/Brokerage 1.0
Engineering & Construction 1.0
Other 14.9
----
Total 99.1%
====
USAA INTERNATIONAL FUND
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 1999
GENERAL NOTES
Market value of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
GDR - Global Depositary Receipts are receipts issued by a U.S. or foreign bank
evidencing ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
(a) Illiquid security valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Trustees. At May 31, 1999,
these securities represented .69% of the Fund's net assets.
* Non-income producing security.
See accompanying notes to financial statements.
<TABLE>
USAA INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1999
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $397,375) $495,450
Cash 155
Cash denominated in foreign currencies (identified cost of $2,180) 2,079
Receivables:
Capital shares sold 1,232
Dividends and interest 2,338
Securities sold 209
Unrealized appreciation on foreign currency contracts held, at value 2
--------
Total assets 501,465
--------
LIABILITIES
Securities purchased 877
Unrealized depreciation on foreign currency contracts held, at value 3
Capital shares redeemed 216
USAA Investment Management Company 329
USAA Transfer Agency Company 73
Accounts payable and accrued expenses 85
--------
Total liabilities 1,583
--------
Net assets applicable to capital shares outstanding $499,882
========
REPRESENTED BY:
Paid-in capital $393,822
Accumulated undistributed net investment income 3,172
Accumulated net realized gain on investments 4,949
Net unrealized appreciation of investments 98,075
Net unrealized depreciation on foreign currency translations (136)
--------
Net assets applicable to capital shares outstanding $499,882
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 25,258
========
Net asset value, redemption price, and offering price per share $ 19.79
========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
USAA INTERNATIONAL FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1999
<S> <C>
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $1,375) $ 10,073
Interest 1,047
--------
Total income 11,120
--------
Expenses:
Management fees 3,990
Transfer agent's fees 1,111
Custodian's fees 589
Postage 128
Shareholder reporting fees 26
Trustees' fees 4
Registration fees 37
Professional fees 31
Other 13
--------
Total expenses 5,929
--------
Net investment income 5,191
--------
Net realized and unrealized gain (loss) on investments and foreign currency:
Net realized gain (loss) on:
Investments 5,304
Foreign currency transactions (695)
Change in net unrealized appreciation/depreciation on:
Investments (55,849)
Foreign currency translations 726
--------
Net realized and unrealized loss (50,514)
--------
Decrease in net assets resulting from operations $(45,323)
========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
USAA INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
<CAPTION>
1999 1998
----------------------
<S> <C> <C>
From operations:
Net investment income $ 5,191 $ 5,358
Net realized gain on investments 5,304 43,490
Net realized loss on foreign currency transactions (695) (529)
Change in net unrealized appreciation/depreciation on:
Investments (55,849) 27,231
Foreign currency translations 726 (812)
---------------------
Increase (decrease) in net assets
resulting from operations (45,323) 74,738
---------------------
Distributions to shareholders from:
Net investment income (5,475) (3,617)
---------------------
Net realized gains (15,641) (45,161)
---------------------
From capital share transactions:
Proceeds from shares sold 221,748 250,050
Shares issued for dividends reinvested 19,949 41,622
Cost of shares redeemed (304,031) (305,553)
---------------------
Decrease in net assets from capital share transactions (62,334) (13,881)
---------------------
Net increase (decrease) in net assets (128,773) 12,079
Net assets:
Beginning of period 628,655 616,576
---------------------
End of period $499,882 $628,655
=====================
Accumulated undistributed net investment income:
End of period $ 3,172 $ 5,039
=====================
Change in shares outstanding:
Shares sold 11,569 11,792
Shares issued for dividends reinvested 952 2,072
Shares redeemed (15,912) (14,535)
---------------------
Decrease in shares outstanding (3,391) (671)
=====================
See accompanying notes to financial statements.
</TABLE>
USAA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eleven separate funds.
The information presented in this annual report pertains only to the USAA
International Fund (the Fund). The Fund's primary investment objective is
capital appreciation. Current income is a secondary objective. USAA Investment
Management Company (the Manager) seeks to achieve this objective by investing a
great majority of the Fund's assets in equity securities of foreign companies.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the average of the bid and asked
prices is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Securities which cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Trustees.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required. As a result of certain
permanent differences between book and tax basis accounting, reclassifications
were made to the statement of assets and liabilities to decrease paid-in capital
by $31,000, decrease accumulated undistributed net investment income by
$888,000, and increase accumulated net realized gain on investments by $919,000.
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 three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($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 both agreements 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
Bank of America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. The Fund had no borrowings under either of these agreements during the
year ended May 31, 1999.
(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 period ended May 31, 1999, were $192.5 million and $241.6
million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1999,
was $129.7 million and $31.6 million, respectively.
(5) FOREIGN CURRENCY CONTRACTS
A forward currency contract (currency contract) is a commitment to purchase or
sell a foreign currency at a specified date, at a negotiated price. The Fund
currently enters into currency contracts only in connection with the purchase or
sale of a security denominated in a foreign currency. These contracts allow the
fund to "lock in" the U.S. dollar price of the security. Currency contracts are
valued on a daily basis using foreign currency exchange rates obtained from an
independent pricing service. Risks of entering into currency contracts include
the potential inability of the counterparty to meet the terms of the contract
and the Fund giving up the opportunity for potential profit.
At May 31, 1999, the terms of open foreign currency contracts were as follows
(in thousands):
<TABLE>
Foreign Currency Contracts to Buy:
- --------------------------------------------------------------------------------------------
<CAPTION>
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Receive 5/31/99 for U.S. Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
6/01/99 133 $ 21 $ 21 $ - $ -
South African Rand
- --------------------------------------------------------------------------------------------
6/01/99 576 93 93 - -
South African Rand
- --------------------------------------------------------------------------------------------
6/02/99 252 403 403 - -
British Pound
- --------------------------------------------------------------------------------------------
$517 $517 $ - $ -
============================================================================================
Foreign Currency Contracts to Sell:
- -------------------------------------------------------------------------------------------
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Deliver 5/31/99 for U.S. Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------------------
6/01/99 28 $ 30 $ 30 $ - $ -
Euro Currency
- --------------------------------------------------------------------------------------------
6/01/99 106 110 112 2 -
Euro Currency
- --------------------------------------------------------------------------------------------
6/01/99 48,996 405 402 - (3)
Japanese Yen
- --------------------------------------------------------------------------------------------
6/02/99 77 81 81 - -
Euro Currency
- --------------------------------------------------------------------------------------------
$626 $625 $ 2 $ (3)
============================================================================================
</TABLE>
(6) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. 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 $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) YEAR 2000 (UNAUDITED)
Like other mutual funds, the Fund could be adversely affected if the computer
systems used by the Manager and the Fund's other service providers are not able
to perform their intended functions effectively after 1999 because of the
inability of computer software to distinguish the year 2000 from the year 1900.
The Manager is taking steps to address this potential year 2000 problem with
respect to the computer systems that they use and to obtain satisfactory
assurances that the comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund from this
problem.
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
Year Ended May 31,
----------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------
Net asset value at
beginning of period $ 21.94 $ 21.03 $ 18.71 $ 15.78 $ 16.36
Net investment income .21 .19 .15 .17 .10
Net realized and
unrealized gain (loss) (1.62) 2.41 2.87 2.92 .29
Distributions from net
investment income (.19) (.12) (.20) (.07) -
Distributions of realized
capital gains (.55) (1.57) (.50) (.09) (.97)
----------------------------------------------------
Net asset value at
end of period $ 19.79 $ 21.94 $ 21.03 $ 18.71 $ 15.78
====================================================
Total return (%) * (6.63) 13.29 16.72 19.71 2.49
Net assets at end of
period (000) $499,882 $628,655 $616,576 $417,995 $346,033
Ratio of expenses to
average net assets (%) 1.12 1.05 1.09 1.19 1.17
Ratio of net investment
income to average net
assets (%) .98 .87 .79 1.04 .81
Portfolio turnover (%) 37.69 42.97 46.03 70.01 64.30
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
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 LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance
Call toll free - Central Time
Monday - Friday 7:30 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 USAA TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
