Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Portfolio of Investments 8
Notes to Portfolio of Investments 14
Statement of Assets and Liabilities 15
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)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(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 (Registered Trademark)
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 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.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart (Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. IRAs are not available
for tax-exempt funds. The Growth and Tax Strategy Fund is not available as
an investment for your IRA because the majority of its income is tax
exempt.
** California, Florida, New York, Texas, and Virginia funds available to
residents only.
Non-deposit investment products are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, USAA Federal Savings Bank, and are
subject to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
Message from the President
[Photograph of President and Vice Chairman of the Board, Michael J. C. Roth, CFA
appears here.]
Since my last message to Investment Trust shareholders, the stock market has
reminded us that intense emotions are part of the investment process. In August,
the unraveling of markets around the world was downright scary. Huge daily
drops, the rampage into treasury bonds while other income markets dried up, and
the antics of huge hedge funds made for confusion and fear. At such times, it
becomes very hard for people to remember the long-term plans they have made for
their portfolios.
A scant three months later, stock markets have recouped losses and bond markets
have settled down. August looks like a momentary aberration. With the retreat of
fear, we are now seeing something the financial press has tagged "Internet
stocks." These are various companies, going public for the first time, whose
business is closely tied to Internet commerce. Some have soared to prices ten
times their initial offering, even though they have little or no earnings and
traditional analysts can detect little to support such lofty prices. In the
1600s, investors got the idea that tulip bulbs, which Dutch traders brought home
on their voyages, were highly valuable and bid their prices to incredible
levels. Those prices collapsed and the word "tulip" took on a special meaning
for investment professionals. The tulip craze became a classic example of
irrational investor behavior. When I watch the Internet IPOs, I think "Tulip."
This tells me that emotions can run both ways, from panic to euphoria, and make
people forget their long-term investment plans. But, you need those plans most
of all when the emotions are rampant. Trading in calm markets prepares you to
avoid trading during raging markets.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about mutual funds managed and distributed by USAA
IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before investing.
Although none of the investments mentioned are guaranteed or insured, government
bonds are backed by the full faith and credit of the U.S. Government. Common
stocks are considered to have the most risk, followed by corporate bonds and
government bonds. All of these vehicles are subject to tax. If held to maturity,
bonds offer a fixed rate of return and fixed principal value. Return and
principal value of an investment in stocks will fluctuate.
Past performance is no guarantee of future results.
Investment Review
USAA 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.
- --------------------------------------------------------------------------------
11/30/98 5/31/98
- --------------------------------------------------------------------------------
Net Assets $234.6 Million $294.9 Million
Net Asset Value Per Share $7.16 $8.98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/98
- --------------------------------------------------------------------------------
5/31/98 to 11/30/98(+) 1 Year Since Inception on 11/7/94
-19.57% -24.05% -5.63%
- --------------------------------------------------------------------------------
(+) 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, the
International Financial Corporation (IFC), and the Lipper Emerging Markets Fund
for the period of 11/07/94 through 11/30/98. The data points from the graph are
as follows:
USAA Emerging IFC Lipper
Markets Fund Index Average
------------- ------- ---------
11/07/94 $10,000 $10,000 $10,000
11/30/94 9,550 9,327 9,660
05/31/95 9,770 8,097 8,734
11/30/95 9,286 7,508 8,323
05/31/96 11,424 8,641 9,775
11/30/96 10,921 8,409 9,528
05/31/97 12,418 9,285 11,136
11/30/97 10,393 7,097 9,358
05/31/98 9,814 6,683 8,808
11/30/98 7,893 5,716 7,027
Data since inception on 11/07/94 through 11/30/98
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 appears here.]
FUND OVERVIEW
The last six months have been a tale of two quarters for your Fund; a tumultuous
summer culminating in August's massive sell-off, followed by a strong recovery
in investor sentiment. This resulted in pushing your Fund back up over 30% from
its bottom in early September. The change in investor sentiment has been key --
Asia's economies are showing signs of bottoming, Latin markets have bounced as
Brazil has begun to take the hard medicine needed to solve its fiscal problems,
and the Central and Eastern European and Mediterranean market participants have
realized that Russia's collapse does not mean the end of the world for these
countries' economic progress. While your Fund is not yet back to the levels seen
in May, it continues to outperform the average of other emerging markets funds
as the graph on the previous page shows.(1)
(1) Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
LATIN AMERICAN MARKETS
Latin markets were hit by concerns about a weaker U.S. economy and sliding
reserves in Brazil. Reelection of President Cardoso in Brazil followed by
progress in fiscal reform, plus evidence of a stronger U.S. economy following
rate cuts, have buoyed Latin markets recently. However, Latin economies,
especially Brazil's, are expected to slow in 1999.
ASIAN MARKETS
Many Asian economies appear to be bottoming or close to bottoming, and that,
combined with current account surpluses, has caused a rally in Asian stocks. As
mentioned in the annual report, we had begun picking up "undervalued stocks on a
selective basis in most countries" in the spring and continued this strategy
throughout the summer. When the rally started in September, the Fund appeared to
be overweighted in the region compared to other global emerging markets funds.
We anticipate rough going for many Asian economies during the first half of
1999, and so have restrained additional buying.
CENTRAL AND EASTERN EUROPEAN MARKETS
Russia's economic and political problems towards the end of summer created
turmoil in neighboring markets, particularly in Hungary. We stayed the course
with Hungary and Poland while remaining out of the Czech Republic and Slovakia,
and have seen rallies in the first two countries while the latter two remain
weak. Although the Russian scene will influence these markets, Central European
markets will look westward to the European Community for their political and
economic cues.
OTHER MARKETS
Currency and economic concerns took their toll in South Africa, Israel, and
Turkey over the period. We have been selectively adding to positions in all
three markets. Going forward, when optimism becomes "irrationally exuberant," we
expect opportunities to present themselves to lighten certain stock positions.
When pessimism is peaking, we will continue to add to the portfolio.
OUTLOOK
As we mentioned in your Fund's annual report in May, Asian economies look to be
bottoming this year while recovery will be slow and painful into 1999. Latin
economies will slow with the pain of fiscal reform in Brazil, but politics may
remain to be the positive factor. For many Central European and Mediterranean
economies, convergence with a resilient Europe should more than counterbalance
Russian problems during 1999. As well as local dynamics, events in mature
markets - health of the US, Japanese and European countries' economies, Japanese
bank restructuring, multilateral support, and interest rate policies of the G-7
- - will prove critical for emerging markets in 1999.
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.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of November 30, 1998
of the USAA Emerging Markets Fund to be:
Other - 24.8%* (Countries with less than 3.0% of the portfolio and U.S.
Government & Agency Issue.); Brazil - 9.6%*; Mexico - 8.2%*; Israel - 6.8%*;
China - 5.8%*; South Africa - 5.1%*; Chile - 4.5%*; Argentina - 4.5%*; Korea -
4.2%*; Singapore - 4.2%*; Hungary - 4.2%; Portugal - 4.1%*; United States -
3.6%*; Greece - 3.6%*; Hong Kong - 3.5%*; and Turkey - 3.2%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
- ---------------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
- ---------------------------------------
Telephones 11.1
Banks - Money Centered 4.9
Oil - International Integrated 4.9
Real Estate Investment Trust 4.8
Drugs 4.6
Retail Food 4.6
Banks - Major Regional 4.3
Foreign Conglomerate 4.3
Electronic 4.2
Building Material Group 3.7
- ---------------------------------------
See page 8 for a complete listing of the Portfolio of Investments.
USAA EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (93.2%)
Argentina (4.5%)
83,032 IRSA Inversiones y Representaciones S.A. GDR $ 2,325
90,000 Telefonica de Argentina S.A. ADR 2,914
180,000 YPF Sociedad Anonima S.A. ADR "D" 5,310
- --------------------------------------------------------------------------------
10,549
- --------------------------------------------------------------------------------
Brazil (9.6%)
55,000,000 Banco do Estado de Sao Paulo S.A. (Preferred) 2,661
32,000 Brazil Realty S.A. GDR (Preferred) (b) 376
118,900 Companhia Brasileira de Distribuicao Grupo Pao de Acucar
ADR 2,385
71,137,750 Companhia Energetica de Minas Gerais (Cemig) (Preferred) 1,801
48,848,000 Compania de Eletricida (COELBA) (Preferred) 1,790
91,814,062 Empresa Brasileira de Aeronatica S.A. (Preferred) 1,002
231,200 Panamerican Beverages, Inc. "A" 5,332
11,000,000 Petroleo Brasileiro S.A. (Preferred) 1,566
27,000 Telecomunicacoes Brasileiras S.A. ADR (Preferred) * 2,560
12,000,000 Telesp Celular S.A.(Preferred) * 844
12,563,973 Telesp Telephone Sao Paulo (Preferred) 2,134
- --------------------------------------------------------------------------------
22,451
- --------------------------------------------------------------------------------
Chile (4.5%)
147,500 Compania de Telefonos de Chile ADR 3,420
161,200 Distribucion y Servicio D & S S.A. ADR 2,237
72,000 Enersis S.A. ADR 1,683
86,700 Sociedad Quimica y Minera de Chile S.A. ADR 3,338
- --------------------------------------------------------------------------------
10,678
- --------------------------------------------------------------------------------
China (5.8%)
16,472,000 Anhui Conch Cement Co. Ltd. "H" (b) 2,000
8,831,000 Cosco Pacific Ltd. 3,992
2,700,000 Guangdong Kelon Electrical Holdings Ltd. 2,354
16,288,000 Jiangsu Expressway Co. Ltd. "H" 3,849
935,000 New World Infrastructure Ltd. * 1,401
- --------------------------------------------------------------------------------
13,596
- --------------------------------------------------------------------------------
Colombia (0.1%)
100,000 Compania Colombiana de Tabaco S.A. 195
- --------------------------------------------------------------------------------
Croatia (0.7%)
100,000 Pliva d.d. GDR 1,575
- --------------------------------------------------------------------------------
Egypt (2.5%)
85,000 Al-Ahram Beverages Co. S.A.E. GDR 2,435
110,000 MISR International Bank S.A.E. GDR * 938
255,000 Paints and Chemical Industries Co. S.A.E. GDR 1,906
49,000 Suez Cement Co. S.A.E. GDR 703
- --------------------------------------------------------------------------------
5,982
- --------------------------------------------------------------------------------
Ghana (1.1%)
300,000 Ashanti Goldfields Co. Ltd. GDR 2,606
- --------------------------------------------------------------------------------
Greece (3.6%)
140,300 Hellenic Telecommunications Organization S.A. (OTE) * 3,499
133,100 National Bank of Greece S.A. GDR * 4,792
4,600 Panafon Hellenic Telecommunications Co. S.A. * 82
- --------------------------------------------------------------------------------
8,373
- --------------------------------------------------------------------------------
Hong Kong (3.5%)
188,400 Asia Satellite Telecommunications Holdings Ltd. ADR 2,991
365,000 Hutchison Whampoa Ltd. 2,604
1,748,000 Hysan Development Co. Ltd. 2,551
3,000,000 Peregrine Investments Holdings Ltd. *,(b),(c) 0
- --------------------------------------------------------------------------------
8,146
- --------------------------------------------------------------------------------
Hungary (4.2%)
49,000 Egis Gyogyszergyar Reszventarsaasag 1,113
121,400 Magyar Tavkozlesi RT. (MATAV) ADR 3,316
135,000 Mol Magyar Olaj-Es Gazipari GDR 3,112
37,500 OTP Bank GDR 1,590
12,061 Pannonplast RT. 333
125,000 Zalakeramia RT. GDR 341
- --------------------------------------------------------------------------------
9,805
- --------------------------------------------------------------------------------
India (1.6%)
191,700 Hindalco Industries Ltd. GDR 2,205
20,000 Larsen & Toubro Ltd. GDR 134
140,000 Videsh Sanchar Nigam Ltd. GDR 1,431
- --------------------------------------------------------------------------------
3,770
- --------------------------------------------------------------------------------
Indonesia (0.5%)
130,400 PT Gulf Indonesia Resources Ltd. ADR * 1,141
- --------------------------------------------------------------------------------
Israel (6.8%)
1,400,000 Bank Hapoalim Ltd. 2,681
48,000 Blue Square - Israel Ltd. ADR 585
236,507 Blue Square Chain Investments and Properties Ltd. * 2,789
145,000 Dor Energy (1988) Ltd. GDR * 373
145,000 ECI Telecommunications Ltd. 5,184
100,500 Teva Pharmaceutical Industries Ltd. ADR 4,372
- --------------------------------------------------------------------------------
15,984
- --------------------------------------------------------------------------------
Korea (4.2%)
399,560 Hansol Paper Co., Ltd. 3,056
21,684 S1 Corp. 3,176
579,607 Samsung Heavy Industries * 3,210
270,177 Samsung Heavy Industries Rights * 412
- --------------------------------------------------------------------------------
9,854
- --------------------------------------------------------------------------------
Malaysia (0.9%)
1,399,900 Genting Bhd (b) 2,075
- --------------------------------------------------------------------------------
Mexico (8.2%)
4,293,000 Controladora Comercial Mexicana, S.A. de C.V. 2,793
657,000 Corporacion GEO, S.A. de C.V. "B" * 1,861
179,139 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 3,381
137,700 Empresas ICA Sociedad Controladora, S.A. de C.V. ADR 663
84,000 Fomento Economico Mexicano ADR 1,995
87,500 Grupo Accion, S.A. de C.V. ADR *, (a) 394
325,000 Grupo Carso S.A. 1,009
598,000 Grupo Mexico S.A. "B" 1,455
451,000 Industrias CH, S.A. "B" * 926
785,000 Kimberly-Clark de Mexico, S.A. de C.V. "A" 2,145
365,500 Tubos de Acero de Mexico, S.A. ADR 2,581
- --------------------------------------------------------------------------------
19,203
- --------------------------------------------------------------------------------
Peru (2.0%)
182,000 Compania de Minas Buenaventura ADR 2,309
169,500 Telefonica del Peru S.A. "B" ADR 2,511
- --------------------------------------------------------------------------------
4,820
- --------------------------------------------------------------------------------
Philippines (1.4%)
17,025,000 SM Prime Holdings, Inc. 3,198
- --------------------------------------------------------------------------------
Poland (1.4%)
275,000 Elektrim S.A. 2,314
56,000 Jelfa S.A. 386
71,407 Jutrzenka S.A. 266
213,404 Polifarb Cieszyn-Wroclaw S.A. 282
- --------------------------------------------------------------------------------
3,248
- --------------------------------------------------------------------------------
Portugal (4.1%)
126,160 Banco Pinto & Sotto Mayor S.A. 2,300
15,300 Brisa-Auto Estradas de Portugal S.A. 827
97,580 Cimentos de Portugal S.A. 3,085
78,300 Portugal Telecom S.A. ADR 3,450
- --------------------------------------------------------------------------------
9,662
- --------------------------------------------------------------------------------
Russia (1.9%)
32,000 GAZ Auto Plant *,(b) 784
116,000 Kubanelectrosvyas *,(b) 638
70,100 LUKoil ADR 1,437
42,600 Open Joint Stock, Co.Vimpel-Communications ADR * 772
60,000 Severstal Cherepovets Metal *,(b) 144
17,960,000 Unified Energy Systems * 754
- --------------------------------------------------------------------------------
4,529
- --------------------------------------------------------------------------------
Singapore (4.2%)
1,755,000 DBS Land Ltd. 2,500
633,000 Elec & Eltek International Co. Ltd. 3,260
295,000 Keppel Corp. Ltd. 776
820,000 Overseas Union Bank Ltd. 3,306
- --------------------------------------------------------------------------------
9,842
- --------------------------------------------------------------------------------
South Africa (5.1%)
571,320 Gencor Ltd. 1,029
112,000 Liberty Life Association Ltd. 1,916
1,000,269 New Clicks Holdings Ltd. 967
5,250,300 Profurn Ltd. 2,167
805,000 Reunion Mining plc * 671
1,170,000 Sanlam Ltd. * 1,233
232,579 South African Breweries Ltd. 3,934
- --------------------------------------------------------------------------------
11,917
- --------------------------------------------------------------------------------
Taiwan (1.2%)
3,040,125 China Steel Corp. 1,977
58,241 Synnex Technology International Corp. GDR * 962
- --------------------------------------------------------------------------------
2,939
- --------------------------------------------------------------------------------
Thailand (2.1%)
5,000,000 Cogeneration Public Co., Ltd.* 3,878
600,000 Thai Farmers Bank Public Co., Ltd. * 1,080
- --------------------------------------------------------------------------------
4,958
- --------------------------------------------------------------------------------
Turkey (3.2%)
70,842,500 Akbank T.A.S. 1,446
105,000,000 Efes Sinai Yatirim A.S. "B" * 951
26,300,000 Eregli Demir Ve Celik Fabrikalari T.A.S. * 1,407
25,682,800 Netas Northern Telekomunikasyon A.S. 490
45,000,000 Tofas Turk Otomobil Fabrikasi A.S. * 592
20,232,170 Vestel Electronic A.S. 1,965
44,722,236 Yapi Ve Kredi Bankasi A.S. 545
10,733,336 Yapi Ve Kredi Bankasi Receipts *,(b) 131
- --------------------------------------------------------------------------------
7,527
- --------------------------------------------------------------------------------
United Kingdom (0.7%)
720,900 Billiton plc 1,576
- --------------------------------------------------------------------------------
United States (3.6%)
119,100 Global TeleSystems Group, Inc. * 5,170
130,000 ICN Pharmaceuticals, Inc. 3,282
- --------------------------------------------------------------------------------
8,452
- --------------------------------------------------------------------------------
Total stocks (cost: $279,299) 218,651
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -------------
U.S. GOVERNMENT & AGENCY ISSUES (6.7%)
$ 15,616 Federal Home Loan Mortgage Corp., 5.10%, 12/01/98
(cost: $15,616) 15,616
- --------------------------------------------------------------------------------
Total investments (cost: $294,915) $234,267
================================================================================
- ------------------------
* Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Telephones 11.1%
U.S. Government & Agency Issues 6.7
Banks - Money Center 4.9
Oil - International Integrated 4.9
Real Estate Investment Trusts 4.8
Drugs 4.6
Retail - Food 4.6
Banks - Major Regional 4.3
Foreign Conglomerate 4.3
Electric Utilities 4.2
Building Materials Group 3.7
Beverages - Alcoholic 3.6
Iron & Steel 3.0
Home Furnishings & Appliances 2.8
Beverages - Nonalcoholic 2.7
Engineering & Construction 2.6
Gold 2.5
Communications Equipment 2.4
Metals / Mining 2.4
Telecommunications - Long Distance 2.1
Telecommunications - Cellular / Wireless 2.0
Electronics - Semiconductors 1.8
Truckers 1.7
Machinery - Diversified 1.5
Services - Commercial & Consumer 1.4
Paper & Forest Products 1.3
Other 8.0
-----
99.9%
=====
USAA EMERGING MARKETS FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1998
(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.
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) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the USAA Investment Management Company (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, 1998, these
securities represented 2.6% of the Fund's net assets.
(c) 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.
USAA EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1998
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $294,915) $ 234,267
Cash 45
Cash denominated in foreign currencies (identified cost of
$2,597) 2,618
Receivables:
Capital shares sold 17
Dividends 156
Securities sold 592
----------
Total assets 237,695
----------
LIABILITIES
Securities purchased 2,592
Unrealized depreciation on foreign currency contracts held, at value 3
Capital shares redeemed 258
USAA Investment Management Company 193
USAA Transfer Agency Company 24
Accounts payable and accrued expenses 74
----------
Total liabilities 3,144
----------
Net assets applicable to capital shares outstanding $ 234,551
==========
REPRESENTED BY:
Paid-in capital $ 357,250
Accumulated undistributed net investment income 443
Accumulated net realized loss on investments (62,512
Net unrealized depreciation of investments (60,648)
Net unrealized appreciation on foreign currency translations 18
----------
Net assets applicable to capital shares outstanding $ 234,551
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 32,783
==========
Net asset value, redemption price, and offering price per share $ 7.16
==========
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1998
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $254):
Dividends $ 1,830
Interest 410
----------
Total income 2,240
----------
Expenses:
Management fees 1,193
Transfer agent's fees 142
Custodian's fees 129
Postage 13
Shareholder reporting fees 7
Trustees' fee 2
Registration fees 31
Professional fees 16
Other 8
----------
Total expenses 1,541
----------
Net investment income 699
----------
Net realized and unrealized loss on investments and foreign currency:
Net realized loss on:
Investments (34,389)
Foreign currency transactions (257)
Change in net unrealized appreciation/depreciation of:
Investments (23,486)
Foreign currency translations 117
----------
Net realized and unrealized loss (58,015)
----------
Decrease in net assets resulting from operations $ (57,316)
==========
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1998
and Year ended May 31, 1998
(Unaudited)
11/30/98 5/31/98
-------------------
From operations:
Net investment income $ 699 $ 2,298
Net realized loss on investments (34,389) (27,398)
Net realized gain (loss) on foreign currency transactions (257) 87
Change in net unrealized appreciation/depreciation of:
Investments (23,486) (45,886)
Foreign currency translations 117 (93)
--------------------
Decrease in net assets resulting from operations (57,316) (70,992)
--------------------
Distributions to shareholders from:
Net investment income (2,363) (4)
--------------------
Net realized gains - (2,257)
---------------------
From capital share transactions:
Proceeds from shares sold 17,166 306,644
Shares issued for dividends reinvested 417 1,180
Cost of shares redeemed (18,241) (35,327)
---------------------
Increase (decrease) in net assets from capital
share transactions (658) 272,497
---------------------
Net increase (decrease) in net assets (60,337) 199,244
Net assets:
Beginning of period 294,888 95,644
---------------------
End of period $234,551 $294,888
=====================
Accumulated net investment income included in net assets:
End of period $ 443 $ 2,374
=====================
Change in shares outstanding:
Shares sold 2,455 27,820
Shares issued for dividends reinvested 51 97
Shares redeemed (2,579) (3,358)
---------------------
Increase (decrease) in shares outstanding (73) 24,559
=====================
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
(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 USAA
Emerging Markets Fund (the Fund). The Fund's investment objective is capital
appreciation. USAA Investment Management Company (the Manager) seeks to achieve
this objective by investing at least 65% of the Fund's total assets in common
stocks, preferred stocks or securities which are convertible into or which carry
the right to buy common stocks of emerging market companies. 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 to decrease accumulated
undistributed net investment income by $10,000, to decrease accumulated net
realized loss on investments by $4,000, and to increase paid-in capital by
$6,000.
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 debt securities are amortized over the life
of the respective securities.
D. Foreign currency translations - The assets of the Fund may be invested in the
securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean between
the bid and asked translation rates of such currencies against U.S. dollars on a
daily basis.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates of
such transactions.
Net realized and unrealized foreign currency gains/losses occurring during the
holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign currency,
currency gains/losses realized between the trade and settlement dates on
security transactions, and from the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. Net realized foreign currency
gains/losses have been reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets and
liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities other than investments in
securities resulting from changes in the exchange rate.
E. Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing rate
with no markup. Subject to availability under its agreement with NationsBank,
the Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's total
assets at NationsBank's borrowing rate plus a markup. The Fund had no borrowings
under either of these agreements during the six-month period ended November 30,
1998.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes. At November 30,
1998, the Fund had capital loss carryovers for federal income tax purposes of
approximately $62.5 million which, if not offset by subsequent capital gains,
will expire between 2006-2007. It is unlikely that the Trust's Board of Trustees
will authorize a distribution of capital gains realized in the future until the
capital loss carryovers have been utilized or expire.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended November 30, 1998 were $66.6 million
and $70.2 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1998 was $16.3 million and $76.9 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 November 30, 1998, the terms of open foreign currency contracts were as
follows (in thousands):
Foreign Currency Contracts to Buy:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
U.S. Dollar In Exchange
Exchange Value as of for U.S. Unrealized Unrealized
Date Contracts to Receive 11/30/98 Dollar Appreciation Depreciation
- -------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
12/01/98 23,460 Greek Drachma $ 82 $ 83 $ - $ (1)
12/01/98 4,620 Hong Kong Dollar 597 597 - -
12/02/98 3,522 Hong Kong Dollar 455 455 - -
12/07/98 7,020 South African Rand 1,233 1,235 - (2)
- -------------------------------------------------------------------------------------------
$2,367 $2,370 $ - $ (3)
===========================================================================================
</TABLE>
Foreign Currency Contracts to Sell:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
U.S. Dollar In Exchange
Exchange Value as of for U.S. Unrealized Unrealized
Date Contracts to Deliver 11/30/98 Dollar Appreciation Depreciation
- -------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
12/07/98 235 Singapore Dollar $ 143 $ 143 $ - $ -
- -------------------------------------------------------------------------------------------
$ 143 $ 143 $ - $ -
===========================================================================================
</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 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. Effective January 1, 1999, the annual charge will be
$26.
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, 1998, the Association and its affiliates
owned 27.0 million shares (82.2%) of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month Seven-month
Period Ended Period Ended
November 30, Year Ended May 31, May 31,
-----------------------------------------------------------------
1998 1998 1997 1996 1995*
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 8.98 $ 11.53 $ 11.13 $ 9.77 $ 10.00
Net investment
income (loss) .02 .07 .01 (0.01)(b) .03(b)
Net realized and
unrealized gain (loss) (1.77) (2.44) .89 1.60 (.26)
Distributions from net
investment income (.07) - - (.01) -
Distributions of realized
capital gains - (.18) (.50) (.22) -
-----------------------------------------------------------------
Net asset value at
end of period $ 7.16 $ 8.98 $ 11.53 $ 11.13 $ 9.77
=================================================================
Total return (%)** (19.57) (20.97) 8.69 16.93 (2.30)
Net assets at end
of period (000) $234,551 $294,888 $ 95,644 $ 51,315 $ 22,914
Ratio of expenses to
average net assets (%) 1.31(a) 1.31 1.81 2.27 2.50(a)
Ratio of expenses to average
net assets, excluding
reimbursements (%) N/A N/A N/A N/A 2.60(a)
Ratio of net investment
income (loss) to average
net assets (%) .59(a) .88 0.03 (.08) .53(a)
Portfolio turnover (%) 30.10 41.23 61.21 87.98 34.87
</TABLE>
* Fund commenced operations November 7, 1994.
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(a)Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b)Calculated using weighted average shares.
TRUSTEES
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 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 TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
