Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Independent Auditors' Report 8
Portfolio of Investments 9
Notes to Portfolio of Investments 11
Statement of Assets and Liabilities 12
Statement of Operations 13
Statements of Changes in Net Assets 14
Notes to Financial Statements 15
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 Gold 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 GOLD FUND
OBJECTIVE: Long-term capital appreciation and to protect the purchasing power of
your capital against inflation, with a secondary objective of current income.
TYPES OF INVESTMENTS: Invests primarily in equity securities of domestic and
foreign gold exploration, mining, or processing companies.
- --------------------------------------------------------------------------------
5/31/99 5/31/98
================================================================================
Net Assets $82.5 Million $93.2 Million
Net Asset Value Per Share $5.33 $5.87
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/99
================================================================================
1 Year 5 Years 10 Years
-9.20% -9.57% -3.30%
- --------------------------------------------------------------------------------
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 Gold Fund, the S&P 500 Index, the
Philadelphia Gold & Silver Index, and the London Gold for the period of 05/31/89
through 05/31/99. The data points from the graph are as follows:
USAA Gold S&P 500 Gold
Fund Index Philadelphia Bullion
----------- ----------- ------------ -----------
05/31/89 $10,000 $10,000 $10,000 $10,000
11/30/89 12,690 10,970 13,808 11,281
05/31/90 10,300 11,658 12,421 10,035
11/30/90 8,479 10,589 9,861 10,637
05/31/91 8,489 13,029 9,523 9,961
11/30/91 8,962 12,738 9,733 10,124
05/31/92 8,222 14,310 8,679 9,328
11/30/92 7,633 15,087 7,613 9,237
05/31/93 12,165 15,969 12,854 10,433
11/30/93 11,657 16,608 13,733 10,252
05/31/94 11,816 16,647 13,919 10,713
11/30/94 11,000 16,781 11,881 10,589
05/31/95 12,058 20,003 13,882 10,622
11/30/95 11,710 22,978 14,011 10,719
05/31/96 14,911 25,686 17,225 10,795
11/30/96 12,028 29,377 13,904 10,263
05/31/97 10,848 33,248 12,067 9,552
11/30/97 7,040 37,750 8,193 8,203
05/31/98 7,871 43,440 8,643 8,115
11/30/98 7,442 46,691 8,209 8,173
05/31/99 7,147 52,576 7,042 7,424
Data from 05/31/89 through 05/31/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Gold Fund; the S&P 500 Index, which 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 directly in the S&P 500 Index); the
Philadelphia Gold & Silver Index, representing nine holdings in the gold &
silver sector, typically referred to as the XAU; and London Gold, a traditional
Gold Bullion index that is readily available.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER: MARK W. JOHNSON, CFA, APPEARS HERE.]
THE GOLD MARKET
For the fiscal year ending May 31, 1999, gold prices began at $293.60 and ended
at $268.60, a decline of 8.5%. Prices hit a 20-year low of $268.25 on May 27.
Major factors behind the decline were the U.K. Treasury's announcement of intent
to sell 58% of its gold reserves throughout the next three to five years, the
approval by Swiss voters of a constitutional revision severing the link between
gold and the Swiss franc, the endorsement by several governments of the sale of
International Monetary Fund gold reserves (though this would require approval of
the U.S. Congress for actual execution), and continued U.S. dollar strength.
Meanwhile, consumption of gold by jewelers and others has been quite strong.
Indeed, in calendar year 1998, global fabrication demand equaled 3,709 metric
tonnes versus mine supply of 2,555 tonnes. Most of the 1,154 tonne difference
was made up by a record level of scrap recovery as a result of Asians converting
gold to cash during their financial crisis in early 1998.
Most observers expect higher demand, flattish production, and much lower levels
of scrap recovery in 1999. Barring higher levels of central bank selling and
lending, producer hedging, or speculative short selling to fill the gap, the
gold price should, if anything, rise from current levels. However, there has
been concerted short selling so far in 1999, especially after the U.K.
Treasury's announcement. Moreover, even if the short sellers were forced to
cover, we do not believe that the gold price would rise significantly. Alan
Greenspan rather neatly summarized the gold market's predicament on July 30,
1998, when he noted that "private counterparties in oil contracts have virtually
no ability to restrict worldwide supply of this commodity. Nor can private
counterparties restrict supplies of gold, another commodity whose derivatives
are often traded over-the-counter, where central banks stand ready to lease gold
in increasing quantities should the price rise." However, as the end of the
millennium approaches, the willingness of central banks to accept Y2K
counterparty risk at current low lease rates may erode, leading to a year-end
price spike.
Psychology in the gold markets is dismal with most observers bearish. Some have
turned bearish to the point of paranoia with much talk of an alleged conspiracy
between central banks, bullion banks, and (everybody's favorite whipping boy)
hedge funds to keep the gold price low. We do not subscribe to conspiracy
theories but do note that the despair that is manifest in these theories is
characteristic of market bottoms. Nor do we believe that central banks will keep
selling until every last ounce of gold is gone. Again, Alan Greenspan on May 20,
1999, in response to a question during congressional testimony on whether the
U.S. should sell some of its 8,138 tonnes of gold, responded, "This was debated
in the U.S. in 1976. The conclusion was we should hold our gold. Gold still
represents the ultimate form of payment in the world. Germany in 1944 could buy
materials during the war only with gold. Fiat money in extremis is accepted by
nobody. Gold is always accepted."
FUND PERFORMANCE AND STRATEGY
Total return for the Gold Fund was -9.20% for the fiscal year ending May 31,
1999. Prices of gold mining common stocks suffered a more dramatic fall than the
gold price itself because of the high degree of operating leverage at the mining
companies. Although the absolute performance of the Fund has been disappointing,
Lipper Analytical Services, Inc. ranked the USAA Gold Fund in the top 25%--or
9th out of 44 funds--for total return in the Gold Oriented category for the
1-year period ending May 31, 1999, and in the top 25%--or 7th out of 28
funds--for the 5-year period. (1)
Seven stocks performed particularly well during the fiscal year. Stillwater
Mining (+97.6%), Euro-Nevada Mining (+55.7%), and Franco-Nevada Mining (+45.1%)
were held throughout the year. Stillwater, the only U.S. producer of platinum
and palladium, benefited from favorable demand and supply factors in the
palladium market. The stock was also rewarded because of significant initiatives
undertaken by management to expand production and enhance the economics of its
mine. Euro-Nevada and Franco-Nevada reported significant reserve increases
at--and a successful start-up of--a jointly owned mine in Nevada. The Fund also
benefited from merger activity, with Getchell Gold (+43.5%) and Samax Gold
(+36.3%) being bought out. Finally, two more recent purchases took off shortly
after we acquired them. These were Impala Platinum (+103.7%), aided by better
metal prices and the settlement of outstanding litigation, and Randgold
Resources (+85.2%), where a major development project was successfully advanced.
Five stocks performed particularly poorly. These were Dayton Mining, Greenstone
Resources, Rio Narcea Gold Mines, TVX Gold, and Vengold. All have been sold
except for Rio Narcea because we think the problems may be transitory rather
than structural.
Our strategy is to emphasize well-managed and prudently financed low-cost
producers with good production or reserve growth potential which sell at
reasonable valuations on a risk-adjusted basis. We endeavor to improve the
Fund's quality and growth prospects by redeploying assets from stocks that no
longer meet the above criteria to ones that do. In that regard, twelve positions
were exited either by sale or because of merger activity in the course of the
fiscal year and ten new positions were established.
----------------------------------------------------------------
Sold Purchased
----------------------------------------------------------------
Dayton Mining Corp. Anglo American Platinum Corp.
Gencor Ltd. Delta Gold
Gold Fields of South Africa Francisco Gold
Greenstone Resources Geomacque Explorations
Homestake Mining Co. Harmony Gold Mining
Repadre Capital Impala Platinum Holdings, Ltd.
TVX Gold, Inc. Randgold Resources, Ltd. GDR
Vengold, Inc. Resolute Ltd.
----------------------------------------------------------------
Acquired Pursuant to Tender
Tendered or other Corporate Action
----------------------------------------------------------------
Getchell Gold Corp. Gold Fields Ltd.
Golden Knight Resources, Inc. Repadre Capital
Newmont Gold Corp.
Samax Gold
----------------------------------------------------------------
------------------------------------------
TOP 10 EQUITY HOLDINGS*
(% OF NET ASSETS)
------------------------------------------
Placer Dome, Inc. 7.4
Stillwater Mining Co. 7.4
Barrick Gold Corp. 7.3
Goldcorp, Inc. "A" 6.4
Freeport-McMoRan Copper &
Gold, Inc. "A" 6.4
Agnico-Eagle Mines Ltd. 5.9
Compania de Minas Buena
Ventura S.A. ADR 5.2
Franco-Nevada Mining Corp. Ltd. 4.3
Ashanti Goldfields Co. Ltd. GDR 4.3
Meridian Gold, Inc. 4.2
-----------------------------------------
*As of May 31, 1999
(1) Lipper Analytical Services, Inc. is an independent organization that
monitors the performance of mutual funds. Fund rankings awarded by Lipper
are based on total returns. The Fund's ranking in the Gold Oriented
category for the 10-year period ended May 31, 1999, was 13 out of 22.
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
Foreign, gold, and real estate investing are subject to additional risks which
are discussed in the Fund's prospectus.
See page 9 for a complete listing of the Portfolio of Investments.
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 Gold 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 Gold 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 GOLD FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.9%)
African Gold Companies (13.6%)
475,000 Ashanti Goldfields Co. Ltd. GDR $ 3,562
1,000,000 Gold Fields Ltd. 3,129
550,000 Harmony Gold Mining Co. Ltd. 2,683
400,000 Randgold Resources, Ltd. GDR *, (a) 1,852
- --------------------------------------------------------------------------------
11,226
- --------------------------------------------------------------------------------
Australian Gold Companies (12.0%)
2,500,000 Acacia Resources Ltd. 2,677
1,700,000 Delta Gold N.L. 2,331
2,000,000 Lihir Gold Ltd. * 1,436
1,000,000 Ranger Minerals NL * 1,632
3,000,000 Resolute Ltd. 1,802
- --------------------------------------------------------------------------------
9,878
- --------------------------------------------------------------------------------
North American Gold Companies (49.6%)
900,000 Agnico-Eagle Mines Ltd. 4,894
350,000 Barrick Gold Corp. 6,037
275,000 Euro-Nevada Mining Corp. Ltd. 3,417
125,000 Francisco Gold Corp. 891
225,000 Franco-Nevada Mining Corp. Ltd. 3,574
400,000 Freeport-McMoRan Copper & Gold, Inc. "A" 5,250
300,000 Geomaque Explorations Ltd. * 204
1,000,000 Goldcorp, Inc. "A" * 5,262
700,000 Meridian Gold, Inc. * 3,456
75,000 Newmont Mining Corp. 1,336
550,000 Placer Dome, Inc. 6,119
800,000 Rio Narcea Gold Mines Ltd. * 516
- --------------------------------------------------------------------------------
40,956
- --------------------------------------------------------------------------------
South American Gold Companies (5.2%)
300,000 Compania de Minas Buenaventura S.A. ADR 4,256
- --------------------------------------------------------------------------------
Precious Metals and Minerals Companies (17.5%)
300,000 Aber Resources Ltd. * 2,168
100,000 Anglo American Platinum Corp. 1,839
150,000 Dia Met Minerals Ltd. "A" * 1,935
100,000 Impala Platinum Holdings Ltd. 2,397
190,000 Stillwater Mining Co. * 6,068
- --------------------------------------------------------------------------------
14,407
- --------------------------------------------------------------------------------
Total common stocks (cost: $102,881) 80,723
- --------------------------------------------------------------------------------
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY ISSUE (2.5%)
Discount Note
$2,074 Federal Home Loan Mortgage Corp.
(Cost: $2,073) 4.72% 6/01/1999 $ 2,073
- --------------------------------------------------------------------------------
Total investments (cost $104,954) $82,796
================================================================================
USAA GOLD FUND
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 1999
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) Illiquid security valued using methods determined by the Manager under the
general supervision of the Board of Trustees. At May 31, 1999, this security
represented 2.2% of the Fund's net assets.
* Non-income producing security.
See accompanying notes to financial statements.
<TABLE>
USAA GOLD FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1999
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $104,954) $ 82,796
Cash 22
Cash denominated in foreign currencies (identified cost of $168) 169
Receivables:
Capital shares sold 53
Dividends and interest 74
Unrealized appreciation on foreign currency contracts held, at value 1
--------
Total assets 83,115
--------
LIABILITIES
Securities purchased 447
Capital shares redeemed 20
USAA Investment Management Company 57
USAA Transfer Agency Company 13
Accounts payable and accrued expenses 87
--------
Total liabilities 624
--------
Net assets applicable to capital shares outstanding $ 82,491
========
REPRESENTED BY:
Paid-in capital $158,195
Accumulated undistributed net investment loss (2)
Accumulated net realized loss on investments (53,545)
Net unrealized depreciation of investments (22,158)
Net unrealized appreciation on foreign currency translations 1
--------
Net assets applicable to capital shares outstanding $ 82,491
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 15,475
========
Net asset value, redemption price, and offering price per share $ 5.33
========
See accompanying notes to financial statements.
</TABLE>
USAA GOLD FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1999
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $48) $ 1,112
Interest 136
--------
Total income 1,248
--------
Expenses:
Management fees 672
Transfer agent's fees 461
Custodian's fees 84
Postage 37
Shareholder reporting fees 19
Trustees' fees 4
Registration fees 45
Professional fees 34
Other 10
--------
Total expenses 1,366
--------
Net investment loss (118)
--------
Netrealized and unrealized gain (loss) on investments and
foreign currency:
Net realized loss on:
Investments (14,856)
Foreign currency transactions (14)
Change in net unrealized appreciation/depreciation of:
Investments 8,015
Foreign currency translations 5
--------
Net realized and unrealized loss (6,850)
--------
Decrease in net assets resulting from operations $(6,968)
========
See accompanying notes to financial statements.
USAA GOLD FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
1999 1998
--------------------
From operations:
Net investment loss $ (118) $ (418)
Net realized loss on investments (14,856) (4,994)
Net realized loss on foreign currency transactions (14) (3)
Change in net unrealized appreciation/depreciation of:
Investments 8,015 (27,241)
Foreign currency translations 5 (4)
-------------------
Decrease in net assets resulting from operations (6,968) (32,660)
-------------------
From capital share transactions:
Proceeds from shares sold 66,230 91,011
Cost of shares redeemed (69,997) (86,294)
-------------------
Increase (decrease) in net assets from capital share
transactions (3,767) 4,717
-------------------
Net decrease in net assets (10,735) (27,943)
Net assets:
Beginning of period 93,226 121,169
-------------------
End of period $ 82,491 $ 93,226
===================
Accumulated undistributed net investment loss:
End of period $ (2) $ (4)
===================
Change in shares outstanding:
Shares sold 12,316 14,007
Shares redeemed (12,712) (13,118)
-------------------
Increase (decrease) in shares outstanding (396) 889
===================
See accompanying notes to financial statements.
USAA GOLD 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 Gold
Fund (the Fund). The Fund's primary investment objective is to seek long-term
capital appreciation and to protect the purchasing power of shareholders'
capital against inflation. Current income is a secondary objective. USAA
Investment Management Company (the Manager) seeks to achieve this objective by
investing the great majority of the Fund's assets in equity securities of
domestic and foreign gold exploration, mining, or processing companies. The Fund
concentrates its investments in securities of companies principally engaged in
gold exploration, mining, or processing and therefore may be exposed to more
risk than portfolios with a broader industry diversification.
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 $178,000, to decrease accumulated
undistributed net investment loss by $134,000, and to decrease accumulated net
realized loss on investments by $44,000.
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 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 7 borrowings, averaging $676,316 with an average length of
1 day, and incurred $821 in interest expense.
(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 May 31, 1999,
the Fund had capital loss carryovers for federal income tax purposes of
approximately $52.9 million which will expire in 2000-2008. 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 period ended May 31, 1999, were $28.6 million and $30.1
million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1999,
was $6.8 million and $29.0 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):
Foreign Currency Contracts to Sell:
<TABLE>
- -------------------------------------------------------------------------------------------
<CAPTION>
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Deliver 5/31/99 for U.S. Dollar Appreciation Depreciation
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
6/01/99 177 $28 $29 $1 $ -
South African Rand
===========================================================================================
</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.
<TABLE>
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<CAPTION>
Year Ended May 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 5.87 $ 8.09 $ 11.12 $ 9.00 $ 8.83
Net investment
income (loss) (.01)(a) (.03)(a) (.01)(a) (.02) .01
Net realized and
unrealized gain (loss) (.53) (2.19) (3.02) 2.15 .17
Distributions from net
investment income - - - (.01) (.01)
----------------------------------------------------------
Net asset value at
end of period $ 5.33 $ 5.87 $ 8.09 $ 11.12 $ 9.00
==========================================================
Total return (%) * (9.20) (27.44) (27.25) 23.66 2.05
Net assets at end of
period (000) $82,491 $93,226 $121,169 $167,067 $160,223
Ratio of expenses to
average net assets (%) 1.52 1.46 1.31 1.33 1.28
Ratio of net investment
income (loss) to
average net assets (%) (.13) (.42) (.11) (.14) .10
Portfolio turnover (%) 33.48 19.62 26.40 16.48 34.76
* Assumes reinvestment of all dividend income distributions during the period.
(a) Calculated using weighted average shares.
</TABLE>
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
