Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Financial Information:
Distributions to Shareholders 8
Independent Auditors' Report 9
Portfolio of Investments 10
Notes to Portfolio of Investments 16
Statement of Assets and Liabilities 17
Statement of Operations 18
Statements of Changes in Net Assets 19
Notes to Financial Statements 20
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 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
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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
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INCOME - TAXABLE
- --------------------------------------------------------------------------------
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
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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
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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
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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 THE 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 EMERGING MARKETS FUND
OBJECTIVE: Capital appreciation.
TYPES OF INVESTMENTS: Invests primarily in equity securities of emerging market
companies.
- --------------------------------------------------------------------------------
5/31/99 5/31/98
- --------------------------------------------------------------------------------
Net Assets $276.3 Million $294.9 Million
Net Asset Value Per Share $8.49 $8.98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/99
- --------------------------------------------------------------------------------
1 Year Since Inception on 11/7/94
-4.63% -1.43%
- --------------------------------------------------------------------------------
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) Global Composite Index, and the Lipper
Emerging Markets Fund Average for the period of 11/07/94 through 5/31/99. 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 9,655
05/31/95 9,770 8,097 8,731
11/30/95 9,286 7,508 8,334
05/31/96 11,424 8,641 9,795
11/30/96 10,921 8,409 9,560
05/31/97 12,418 9,285 11,188
11/30/97 10,393 7,097 9,413
05/31/98 9,814 6,683 8,858
11/30/98 7,893 5,718 7,065
05/31/99 9,360 6,903 8,427
Data since inception on 11/07/94 through 05/31/99
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 THE PORTFOLIO MANAGER, W. TRAVIS SELMIER, II, CFA, APPEARS HERE.]
FUND OVERVIEW
Over the past year, emerging markets experienced the worst and best of times--in
that order. Set off by crises in Asia and Russia, concerns for the Brazilian
economy, and the collapse of Long Term Capital Management (a U.S. hedge fund),
the summer was a rough time. Your Fund dropped some 35% from the end of May
until mid-September. Led by strong Asian and EMEA (emerging Europe, Middle East,
and Africa) markets, in combination with a mixed performance in Latin markets,
your Fund has rallied to recoup much of this decline.
Your Fund continues to outperform the average of other emerging markets funds as
the graph on the previous page shows. During the last year, Asia's economies
continued to recover because of stronger exports and evidence of increasing
domestic demand. As the effects of Russia's problems recede, there are signs of
bottoming in EMEA economies as well as firming commodity prices which have
propelled the Fund's price upward.
ASIAN MARKETS
Asian equities' strong recovery since September has been driven by good export
growth, signs of reflation in many economies, and a return of capital flows into
the stock market and into acquisitions of Asian companies. We've maintained our
positive stance on the region and have added to positions in Korea, India, and
Malaysia throughout the last six months.
CENTRAL AND EASTERN EUROPEAN MARKETS
Russia's economic and political problems notwithstanding, its equity market has
doubled since last October as oil and commodity prices have recovered. The theme
of convergence with Europe has pushed Greece above all other markets in this
region in anticipation of its entry into the European Monetary Union, which is
expected in early 2001. Turkey has also been quite strong since the end of 1998
because of a better economic and political outlook. Meanwhile, concerns about
Hungary's currency, the Florint, have caused that market to lag its peers.
Although the Russian situation and the conflict in Kosovo will influence these
markets, Central European and many Mediterranean markets will look more to the
European Community for their political and economic cues.
We view Israel's economic recovery, export strength, and recent election as
positives, validating our overweight position in that market. For these same
reasons, we believe South Africa also looks attractive.
LATIN AMERICAN MARKETS
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.
Although Latin America has been the poorest performer of the three regions
(Asia, EMEA, and Latin America), Mexico has been quite strong due to a good
economic picture, excellent exports to the United States, and a start on a more
open presidential election campaign in 2000. While we expect generally flat
economic growth for the region in the first half 1999, the second half of the
year should see some recovery.
OUTLOOK
Looking forward we expect Asian economies to continue their broad-based recovery
as greater domestic demand adds fuel to a fire already stoked by restructuring
efforts and increased investment flows. Latin markets will see slower economic
growth and some political pressures as 1999 progresses. As we've suggested in
previous reports, European convergence should offset foreseeable problems for
many Central European and Mediterranean economies during 1999. The combination
of a strong U.S. economy coupled with resurgence in Japanese and European
countries' economies should provide an underpinning for emerging markets
throughout the rest of 1999.
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
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 May 31, 1999 of
the USAA Emerging Markets Fund to be:
Other - 23.3%*; Brazil - 9.8%*; South Africa - 9.4%*; Korea - 8.4%*; Mexico -
7.7%*; China - 6.4%*; Greece - 6.2%*; Israel - 5.2%*; United States - 5.8%*;
Malaysia - 4.0%*; Turkey - 3.8%*; India - 3.7%*; Singapore - 3.1%*; and Taiwan -
3.0%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
----------------------------------
TOP 10 INDUSTRIES
(% OF NET ASSETS)
----------------------------------
Telephones 10.7
Banks-Money Centered 7.7
Banks-Major Regional 6.4
Beverages-Alcoholic 5.4
Drugs 5.4
Iron & Steel 4.7
Retail-Food 3.4
Home Furnishings & Appliances 2.8
Beverages-Non-alcoholic 2.6
Oil-International Integrated 2.5
----------------------------------
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 $.15
and $.02, respectively.
Ordinary income * $ .07
======
* 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 Emerging Markets 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 or
periods 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 Emerging Markets 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
or periods in the five-year period then ended, in conformity with generally
accepted accounting principles.
KPMG LLP
San Antonio, Texas
July 2, 1999
USAA EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (98.9%)
Argentina (2.1%)
80,000 Banco de Galicia y Buenos Aires S.A. de C.V. ADR $ 1,675
85,410 IRSA Inversiones y Representaciones S.A. GDR 2,466
40,000 YPF Sociedad Anonima S.A. ADR "D" 1,685
- --------------------------------------------------------------------------------
5,826
- --------------------------------------------------------------------------------
Brazil (9.8%)
497,200,000 Banco Bradesco S.A. (Preferred) 2,639
105,000,000 Banco do Estado de Sao Paulo S.A. (Preferred) 4,478
165,100 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar ADR 2,992
175,700,000 Companhia Siderurgica Nacional (CIA) 3,325
91,814,062 Empresa Brasileira de Aeronatica S.A. (Preferred) 954
150,000 Panamerican Beverages, Inc. "A" 3,478
11,000,000 Petroleo Brasileiro S.A. (Preferred) 1,555
27,000 Telecomunicacoes Brasileiras S.A. ADR (Preferred) 2,255
125,000,000 Telecomunicacoes do Rio de Janeiro S.A.
(Telerj) (Preferred) 2,488
23,043,973 Telesp Telephone Sao Paulo (Preferred) 2,806
- --------------------------------------------------------------------------------
26,970
- --------------------------------------------------------------------------------
Chile (1.8%)
77,000 Compania de Telefonos de Chile ADR 1,675
5,013 Sociedad Quimica y Minera de Chile S.A. ADR "A" 175
86,700 Sociedad Quimica y Minera de Chile S.A. ADR "B" 3,024
- --------------------------------------------------------------------------------
4,874
- --------------------------------------------------------------------------------
China (6.4%)
16,472,000 Anhui Conch Cement Co. Ltd. "H" 1,976
11,476,000 Cosco Pacific Ltd. 6,770
4,515,000 Guangdong Kelon Electrical Holdings Co. Ltd. 3,464
13,088,000 Jiangsu Expressway Co. Ltd. "H" 2,211
1,984,000 New World Infrastructure Ltd. * 3,185
- --------------------------------------------------------------------------------
17,606
- --------------------------------------------------------------------------------
Croatia (0.6%)
100,000 Pliva d.d. GDR 1,625
- --------------------------------------------------------------------------------
Egypt (1.6%)
120,000 Al-Ahram Beverages Co. S.A.E. GDR * 3,612
20,000 MISR International Bank S.A.E. GDR 214
49,000 Suez Cement Co. S.A.E. GDR 728
- --------------------------------------------------------------------------------
4,554
- --------------------------------------------------------------------------------
Finland (1.0%)
200,000 Oy Hartwall AB 2,877
- --------------------------------------------------------------------------------
Ghana (0.8%)
300,000 Ashanti Goldfields Co. Ltd. GDR 2,250
- --------------------------------------------------------------------------------
Greece (6.2%)
91,000 Hellenic Bottling Co. S.A. 2,656
180,300 Hellenic Telecommunications Organization S.A. (OTE) 3,904
108,000 Minoan Lines 3,101
308,620 National Bank of Greece S.A. GDR * 4,274
140,000 STET Hellas Telecommunications S.A. ADR * 3,185
- --------------------------------------------------------------------------------
17,120
- --------------------------------------------------------------------------------
Hong Kong (2.5%)
80,000 Asia Satellite Telecommunications Holdings Ltd. ADR 1,650
3,000,000 Peregrine Investments Holdings Ltd. *, (a), (b) 0
850,000 VTech Holdings Ltd. 2,477
1,200,000 Yue Yuen Industrial Holdings Ltd. 2,693
- --------------------------------------------------------------------------------
6,820
- --------------------------------------------------------------------------------
Hungary (2.7%)
49,000 Egis Gyogyszergyar Reszventarsaasag 1,022
91,400 Magyar Tavkozlesi RT. (MATAV) ADR 2,559
71,800 Mol Magyar Olaj-Es Gazipari GDR 1,741
50,000 OTP Bank GDR 2,187
- --------------------------------------------------------------------------------
7,509
- --------------------------------------------------------------------------------
India (3.7%)
138,800 Hindalco Industries Ltd. GDR 1,978
35,000 Infosys Technologies Ltd. ADR 1,741
227,900 Morgan Stanley India Investment Fund * 1,923
180,000 Ranbaxy Laboratories Ltd. GDR 2,385
205,000 Videsh Sanchar Nigam Ltd. GDR 2,332
- --------------------------------------------------------------------------------
10,359
- --------------------------------------------------------------------------------
Israel (5.2%)
2,000,000 Bank Hapoalim Ltd. 5,067
236,507 Blue Square Chain Investments and Properties Ltd. * 3,777
145,000 Dor Energy (1988) Ltd. GDR 518
100,500 Teva Pharmaceutical Industries Ltd. ADR 4,937
- --------------------------------------------------------------------------------
14,299
- --------------------------------------------------------------------------------
Korea (8.4%)
132,640 Dongwon Securities Co. 2,869
337,108 Hansol Paper Co., Ltd. 4,804
137,040 Korea Telecom Corp. ADR * 4,360
95,000 Korea Zinc 2,884
22,334 S1 Corp. 4,671
50,000 Samsung Electronics Co. Ltd. 3,479
4,092 Samsung Electronics Co. Ltd. Rights * 43
- --------------------------------------------------------------------------------
23,110
- --------------------------------------------------------------------------------
Malaysia (4.0%)
1,399,900 Genting Bhd (a) 3,979
2,264,000 Malaysia International Shipping Corp. Bhd (a) 3,170
1,400,000 Telekom Malaysia Bhd (a) 3,831
- --------------------------------------------------------------------------------
10,980
- --------------------------------------------------------------------------------
Mexico (7.7%)
2,688,000 Controladora Comercial Mexicana, S.A. de C.V. 2,582
657,000 Corporacion GEO, S.A. de C.V. "B" * 2,484
129,139 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 2,889
84,000 Fomento Economico Mexicano ADR 2,804
498,000 Grupo Mexico S.A. "B" 1,685
785,000 Kimberly-Clark de Mexico, S.A. de C.V. "A" 2,567
719,000 Organizacion Soriana S.A. de C.V. "B" 2,693
402,000 Tubos de Acero de Mexico, S.A. ADR 3,719
- --------------------------------------------------------------------------------
21,423
- --------------------------------------------------------------------------------
Peru (1.1%)
207,000 Compania de Minas Buenaventura S.A. ADR 2,937
- --------------------------------------------------------------------------------
Philippines (1.6%)
800,000 Manila Electric Co. "B" 2,754
7,525,000 SM Prime Holdings, Inc. 1,642
- --------------------------------------------------------------------------------
4,396
- --------------------------------------------------------------------------------
Poland (2.8%)
140,000 Agora S.A. GDR * 1,519
205,000 Bank Handlowy W Warszawie S.A. 2,409
325,200 Elektrim S.A. 3,796
- --------------------------------------------------------------------------------
7,724
- --------------------------------------------------------------------------------
Russia (2.5%)
72,000 GAZ Auto Plant *, (a) 1,863
116,000 Kubanelectrosvyas *, (a) 986
54,200 LUKoil ADR 1,978
60,000 Severstal Cherepovets Metal *, (a) 267
17,960,000 Unified Energy Systems * 1,051
42,600 Vimpel-Communications Open Joint Stock, Co. ADR * 900
- --------------------------------------------------------------------------------
7,045
- --------------------------------------------------------------------------------
Singapore (3.1%)
300,000 Allgreen Properties Ltd. * 286
500,000 Development Bank of Singapore Ltd. 5,165
600,000 Overseas Union Bank Ltd. 3,082
- --------------------------------------------------------------------------------
8,533
- --------------------------------------------------------------------------------
South Africa (9.4%)
70,000 Anglo American plc 3,174
800,000 Dimension Data Holdings Ltd. * 3,209
571,320 Gencor Ltd. 1,458
112,000 Liberty Life Association of Africa Ltd. 1,510
3,404,600 Profurn Ltd. 2,103
2,772,000 Sanlam Ltd. * 2,669
704,954 South African Breweries plc 5,664
1,400,000 Standard Bank Investment Corp. Ltd. 4,302
632,000 Theta Group Ltd. * 1,927
- --------------------------------------------------------------------------------
26,016
- --------------------------------------------------------------------------------
Taiwan (3.0%)
3,192,131 China Steel Corp. 2,187
1,240,350 Compal Electronics, Inc. 3,319
617,000 Compeq Manufacturing Co., Ltd. * 2,924
- --------------------------------------------------------------------------------
8,430
- --------------------------------------------------------------------------------
Thailand (2.0%)
3,400,000 Cogeneration Public Co., Ltd. * 2,566
370,000 PTT Exploration and Production Co. Ltd. * 3,012
- --------------------------------------------------------------------------------
5,578
- --------------------------------------------------------------------------------
Turkey (3.8%)
75,428,572 Akbank Non Tradeable Receipts * 1,241
75,428,572 Akbank T.A.S. (a) 1,241
91,500,000 Efes Sinai Yatirim A.S. "B" * 1,168
184,100,000 Eregli Demir Ve Celik Fabrikalari T.A.S. * 3,525
19,732,170 Vestel Electronic A.S. 2,253
35,327,572 Yapi Ve Kredi Bankasi A.S. 451
51,382,057 Yapi Ve Kredi Bankasi A.S. Receipts *, (a) 656
- --------------------------------------------------------------------------------
10,535
- --------------------------------------------------------------------------------
United Kingdom (0.2%)
140,900 Billiton plc 440
- --------------------------------------------------------------------------------
United States (4.9%)
111,600 Global TeleSystems Group, Inc. * 8,482
150,000 ICN Pharmaceuticals, Inc. 4,931
- --------------------------------------------------------------------------------
13,413
- --------------------------------------------------------------------------------
Total stocks (cost: $280,516) 273,249
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -------------
U.S. GOVERNMENT & AGENCY ISSUE (0.9%)
Discount Note
$ 2,423 Federal Home Loan Mortgage Corp., 4.72%,
6/01/99 (cost: $2,422) 2,422
- --------------------------------------------------------------------------------
Total investments (cost: $282,938) $275,671
================================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Telephones 10.7%
Banks - Money Center 7.7
Banks - Major Regional 6.4
Beverages - Alcoholic 5.4
Drugs 5.4
Iron & Steel 4.7
Retail - Food 3.4
Home Furnishings & Appliances 2.8
Beverages - Non-alcoholic 2.6
Oil - International Integrated 2.5
Truckers 2.5
Foreign Conglomerate 2.4
Gold 2.4
Metals/Mining 2.4
Electronics - Semiconductors 2.3
Electric Utilities 2.3
Railroads/Shipping 2.3
Telecommunications - Long Distance 2.3
Telecommunications - Cellular/Wireless 2.1
Engineering & Construction 2.0
Precious Metals & Mining 1.8
Paper & Forest Products 1.7
Services - Commercial & Consumer 1.7
Real Estate Investment Trusts 1.5
Gaming Companies 1.4
Computer - Hardware 1.2
Computer - Networking 1.2
Oil & Gas - Exploration & Production 1.1
Investment Banks/Brokerage 1.0
Building Material Group 1.0
Retail - General Merchandising 1.0
Shoes 1.0
Insurance - Multi-Line Companies 1.0
Other 8.6
----
99.8%
====
USAA EMERGING MARKETS 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.
Investments in foreign securities were 3.9% of net assets at May 31, 1999.
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, these securities
represented 5.8% of the Fund's net assets.
(b) 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.
* Non-income producing security.
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1999
ASSETS
Investments in securities, at market value
(identified cost of $282,938) $ 275,671
Cash 19
Cash denominated in foreign currencies (identified cost of $398) 288
Receivables:
Capital shares sold 14
Dividends 1,341
Securities sold 1,084
-----------
Total assets 278,417
-----------
LIABILITIES
Securities purchased 1,774
Unrealized depreciation on foreign currency contracts held,
at value 2
USAA Investment Management Company 242
USAA Transfer Agency Company 9
Accounts payable and accrued expenses 50
-----------
Total liabilities 2,077
-----------
Net assets applicable to capital shares outstanding $ 276,340
===========
REPRESENTED BY:
Paid-in capital $ 356,051
Accumulated undistributed net investment income 2,273
Accumulated net realized loss on investments (74,569)
Net unrealized depreciation of investments (7,267)
Net unrealized depreciation on foreign currency translations (148)
-----------
Net assets applicable to capital shares outstanding $ 276,340
===========
Capital shares outstanding, unlimited number of shares authorized,
no par value 32,560
===========
Net asset value, redemption price, and offering price per share $ 8.49
===========
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1999
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $502) $ 4,786
Interest 634
----------
Total income 5,420
----------
Expenses:
Management fees 2,409
Transfer agent's fees 282
Custodian's fees 247
Postage 26
Shareholder reporting fees 13
Trustees' fees 4
Registration fees 33
Professional fees 38
Other 12
----------
Total expenses 3,064
----------
Net investment income 2,356
----------
Net realized and unrealized gain (loss) on investments
and foreign currency:
Net realized loss on:
Investments (46,281)
Foreign currency transactions (249)
Change in net unrealized appreciation/depreciation of:
Investments 29,895
Foreign currency translations (49)
----------
Net realized and unrealized loss (16,684)
----------
Decrease in net assets resulting from operations $ (14,328)
==========
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
1999 1998
-----------------------
From operations:
Net investment income $ 2,356 $ 2,298
Net realized loss on investments (46,281) (27,398)
Net realized gain (loss) on foreign currency
transactions (249) 87
Change in net unrealized appreciation/depreciation of:
Investments 29,895 (45,886)
Foreign currency translations (49) (93)
-----------------------
Decrease in net assets resulting from operations (14,328) (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 42,836 306,644
Shares issued for dividends reinvested 416 1,180
Cost of shares redeemed (45,109) (35,327)
-----------------------
Increase (decrease) in net assets from
capital share transactions (1,857) 272,497
-----------------------
Net increase (decrease) in net assets (18,548) 199,244
Net assets:
Beginning of period 294,888 95,644
-----------------------
End of period $ 276,340 $ 294,888
=======================
Accumulated undistributed net investment income:
End of period $ 2,273 $ 2,374
=======================
Change in shares outstanding:
Shares sold 5,714 27,820
Shares issued for dividends reinvested 51 97
Shares redeemed (6,061) (3,358)
-----------------------
Increase (decrease) in shares outstanding (296) 24,559
=======================
See accompanying notes to financial statements.
USAA EMERGING MARKETS 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
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 the Fund's assets mostly in equity securities 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 increase accumulated
undistributed net investment income by $155,000, to increase accumulated net
realized loss on investments by $161,000, 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 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. At May 31, 1999,
the Fund had capital loss carryovers for federal income tax purposes of
approximately $73.4 million which, if not offset by subsequent capital gains,
will expire between 2006-2008. 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 $201.6 million and $192.0
million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1999,
was $33.5 million and $40.8 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 Buy:
- --------------------------------------------------------------------------------
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Receive 5/31/99 for U.S. Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------
6/01/99 467 $ 75 $ 75 $ - $ -
South African Rand
- --------------------------------------------------------------------------------
6/01/99 2,011 323 323 - -
South African Rand
- --------------------------------------------------------------------------------
$398 $398 $ - $ -
================================================================================
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
- --------------------------------------------------------------------------------
6/01/99 240,607,373 $591 $589 $ - $ (2)
Turkish Lira
================================================================================
(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 $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
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At May 31, 1999, the Association and its affiliates owned
26.4 million shares (81.0%) 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) 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:
<TABLE>
<CAPTION>
Seven-month
Period Ended
Year Ended May 31, May 31,
----------------------------------------------------------
1999 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) .08 .07 .01 (.01)(b) .03(b)
Net realized and unrealized
gain (loss) (.50) (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 $ 8.49 $ 8.98 $ 11.53 $ 11.13 $ 9.77
===========================================================
Total return (%)** (4.63) (20.97) 8.69 16.93 (2.30)
Net assets at end
of period (000) $276,340 $294,888 $ 95,644 $ 51,315 $ 22,914
Ratio of expenses to
average net assets (%) 1.27 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 (%) .98 .88 .03 (.08) .53(a)
Portfolio turnover (%) 83.84 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 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
