Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Distributions to Shareholders 8
Independent Auditors' Report 9
Portfolio of Investments 10
Notes to Portfolio of Investments 20
Statement of Assets and Liabilities 21
Statement of Operations 22
Statements of Changes in Net Assets 23
Notes to Financial Statements 24
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 World Growth
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 WORLD GROWTH FUND
OBJECTIVE: Capital appreciation.
TYPES OF INVESTMENTS: Invests primarily in a mix of foreign and domestic equity
securities.
- --------------------------------------------------------------------------------
5/31/99 5/31/98
- --------------------------------------------------------------------------------
Net Assets $326.7 Million $356.9 Million
Net Asset Value Per Share $18.11 $18.36
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years Since Inception on 10/1/92
2.06% 12.04% 12.97%
- --------------------------------------------------------------------------------
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 World Growth Fund, the Morgan
Stanley Capital Index (MSCI)-World, and the Lipper Global Funds Average for the
period of 10/01/92 through 05/31/99. The data points from the graph are as
follows:
USAA World MSCI Lipper
Growth Fund Index Average
------------- ----------- -----------
10/01/92 $10,000 $10,000 $10,000
11/30/92 10,140 9,897 10,094
05/31/93 11,260 11,586 11,469
11/30/93 11,859 11,651 12,501
05/31/94 12,773 12,700 13,387
11/30/94 12,885 12,718 13,361
05/31/95 13,317 14,020 14,168
11/30/95 14,114 15,061 15,132
05/31/96 16,303 16,516 16,884
11/30/96 17,172 17,877 17,817
05/31/97 18,998 19,332 19,408
11/30/97 19,282 20,118 19,883
05/31/98 22,092 23,202 23,052
11/30/98 20,181 24,139 22,092
05/31/99 22,547 26,249 23,564
Data since inception on 10/01/92 through 05/31/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund to its benchmark, the Morgan Stanley Capital Index
(MSCI)-World, an unmanaged index which reflects the movements of world stock
markets by representing a broad selection of domestically listed companies
within each market, and the Lipper Global Funds Average, an average performance
level of all global funds, as reported by Lipper Analytical Services, Inc., an
independent organization that monitors the performance of mutual funds.
Message from the Managers
[PHOTOGRAPH OF PORTFOLIO MANAGERS APPEARS HERE: From L to R: Curt Rohrman, CFA
(Domestic Securities), W. Travis Selmier, II, CFA (Foreign Securities), Albert
C. Sebastian, CFA (Foreign Securities), and David G. Peebles, CFA (Allocation
Manager, Foreign Securities).]
MARKET CONDITIONS
For the 12-month period ended May 31, 1999, your Fund's total return was 2.06%,
which compares unfavorably with the Lipper Global Funds Average return of 5.21%
and the MSCI World Index return of 11.74%.(1) The Fund's improved performance
during the last six months was not enough to offset the weak performance in the
first six months.
EUROPE
Most European equity markets rebounded from last year's declines, but returns
were negatively impacted in 1999 by weak European currencies despite the
introduction of the Euro. Central banks in Europe cut interest rates as economic
growth forecasts were revised downward, primarily because of weakness in the
German and Italian economies. After last year's sell-off, cyclical and resource
stocks rebounded, based on stronger global economic forecasts and higher energy
prices. In general, the larger European equity market (for example, United
Kingdom) outperformed the smaller ones (for example, Portugal, Belgium)
throughout the period.
EMERGING MARKETS
Emerging markets went through a rough summer but have since recovered. Asian
equities' strong recovery has been driven by good export growth, signs of
reflation in many economies, and capital flows into the stock market and into
acquisitions of Asian companies. Although Russia's economic and political
problems and the conflict in Kosovo will influence Central European and many
Mediterranean markets, these markets look more to the European Community for
their political and economic cues. Greece is the best performer in the region.
Israel's and South Africa's economic recovery, export strength, and improving
political prospects have validated our overweight position in those markets.
With the exception of a strong Mexican market, our lower weighting in Latin
markets throughout the last six months was validated by Brazil's forced
devaluation of its currency, the Real, in January.
JAPAN
Since the election last summer, Japanese politics has solidified, more progress
has been seen on Japan's banking crisis, and a raft of corporate restructuring
announcements has pushed the market up over the last eight months. While
constructive, we will need to see follow-through on the corporate restructuring
coupled with stimulatory economic policy to push the market higher. Our
technology, telecommunications, and financial holdings helped us outperform the
market throughout the period.
CANADA & AUSTRALIA
Although we have preferred Canadian to Australian equities, both markets have
rebounded from last year's declines. Our positions in Canada benefited from
higher energy prices, a swing back to cyclical stocks, and a stronger Canadian
dollar. These same factors had negatively impacted the performance of the Fund
in the second half of 1998.
UNITED STATES
Troubled international economies influenced U.S. equity markets throughout the
year. During the first half, investors expected recessionary conditions in Asia
and Latin America to depress U.S. economic growth and U.S. corporate
profitability. Stocks in the basic materials, capital goods, energy, and
financial sectors were particularly hard-hit. Following a series of three
Federal Reserve interest rate cuts, investor focus shifted in early October from
concern about declining earnings to enthusiasm for an acceleration in earnings
growth. Sectors in the Fund posting the best returns for the year included
technology, communications services, and health care.
Effective October 1, 1998, management of the domestic portion of the World
Growth Fund changed, as have many of the stocks in the Fund. Sectors with
increased weightings include technology, health care, consumer staples, and
consumer cyclicals. Weightings have been reduced in areas offering prospects for
slower growth--namely basic materials, capital goods, energy, and utilities.
OUTLOOK
U.S.-based corporations should experience rising profits through 1999 as
worldwide economies recover. However, valuations are unlikely to expand
materially because the best inflation news is probably behind us. We continue to
view Europe positively but have slightly reduced our over-weight position in
favor of other markets. European valuations still look attractive, and Europe
should continue to benefit from merger and acquisition activity. Canada will
benefit from higher commodity prices and strong U.S. economic growth. The
Japanese market is likely to be a mixed bag with some sectors doing well. Given
a reflating global economy, we believe that emerging markets should continue to
perform well.
(1) Refer to the bottom of page 4 for the Lipper Average and MSCI definitions.
Past performance is no guarantee of future results and the value of your
investment may vary according to the Fund's performance.
ASSET ALLOCATION
A pie chart is shown here depicting the Asset Allocation as of May 31, 1999 of
the USAA World Growth Fund to be:
United States - 36.4%*; Other - 21.8%* (Countries with less than 3.0% of the
portfolio and U.S. Government & Agency Issue); United Kingdom - 10.0%*;
Netherlands - 6.0%*; France - 5.7%*; Japan - 5.6%*; Canada - 4.5%*; Italy -
3.1%*; Finland - 3.1%*; and Switzerland - 3.0%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
- --------------------------------------- -------------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
- --------------------------------------- -------------------------------------
America Online, Inc. 1.7 Banks - Major Regional 6.6
Cisco Systems, Inc. 1.4 Telephones 6.5
Microsoft Corp. 1.4 Drugs 5.9
Texas Instruments, Inc. 1.3 Electronics - Semiconductors 4.1
Elf Aquitaine ADR 1.3 Computer Software & Service 3.5
Nokia Corp. ADR 1.3 Insurance - Multi-Line Companies 3.5
Hewlett-Packard Co. 1.3 Communication Equipment 2.9
Clear Channel Communications, Inc. 1.2 Beverages - Nonalcoholic 2.7
Avon Products, Inc. 1.2 Auto Parts 2.6
American International Group, Inc. 1.2 Oil - International Integrated 2.6
- --------------------------------------- -------------------------------------
Foreign investing is subject to additional risks, which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate with
risk, investors should be aware of the potential volatility associated with
foreign markets.
See page 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 $.23
and $.03, respectively.
Ordinary income * $ .10
Long-term capital gains .52
------
Total $ .62
======
22.9% of ordinary income distributions qualify for deduction by corporations.
* 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 World Growth 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 World Growth 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 WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
FOREIGN SECURITIES (59.9%)
FOREIGN STOCKS (59.7%)
Argentina (0.1%)
14,920 IRSA Inversiones y Representaciones S.A. GDR $ 431
- --------------------------------------------------------------------------------
Australia (0.2%)
124,500 Cable & Wireless Optus Ltd.* 238
70,100 CSL Ltd. 586
- --------------------------------------------------------------------------------
824
- --------------------------------------------------------------------------------
Austria (1.5%)
9,000 Bank Austria AG 460
28,200 Boehler Uddeholm AG 1,377
40,200 VA Flughafen Wien AG 1,707
15,500 VA Technologie AG 1,301
- --------------------------------------------------------------------------------
4,845
- --------------------------------------------------------------------------------
Brazil (0.5%)
19,600 Companhia Brasileira de Distribuicao Grupo Pao
de Acucar ADR 355
38,000 Panamerican Beverages, Inc. "A" 881
3,200,000 Petroleo Brasileiro S.A. (Preferred) 453
- --------------------------------------------------------------------------------
1,689
- --------------------------------------------------------------------------------
Canada (4.5%)
153,200 Anderson Exploration Ltd.* 1,857
31,000 Canadian Imperial Bank of Commerce 758
51,900 Canadian National Railway Co. 3,322
139,100 Canadian Occidental Petroleum Ltd. 1,860
102,300 National Bank of Canada 1,524
28,300 Nortel Networks Corp. 2,122
61,500 Suncor Energy, Inc. 2,322
19,700 Toronto-Dominion Bank 1,040
- --------------------------------------------------------------------------------
14,805
- --------------------------------------------------------------------------------
Chile (0.1%)
636 Sociedad Quimica y Minera de Chile S.A. ADR "A" 22
11,000 Sociedad Quimica y Minera de Chile S.A. ADR "B" 384
- --------------------------------------------------------------------------------
406
- --------------------------------------------------------------------------------
China (0.3%)
659,000 Cosco Pacific Ltd. 389
306,000 New World Infrastructure Ltd.* 491
- --------------------------------------------------------------------------------
880
- --------------------------------------------------------------------------------
Denmark (2.1%)
18,200 ISS International Service System A/S "B"* 914
86,600 SAS Danmark A/S 990
24,000 Tele Danmark A/S "B" 2,452
34,900 Unidanmark A/S 2,448
- --------------------------------------------------------------------------------
6,804
- --------------------------------------------------------------------------------
Egypt (0.1%)
27,100 Suez Cement Co. S.A.E. GDR 402
- --------------------------------------------------------------------------------
Finland (3.1%)
527,200 Merita plc "A" 3,122
57,400 Nokia Corp. ADR 4,075
89,200 Raisio Group plc 975
65,500 Rauma OYJ 724
41,800 Sampo Insurance Co. "A" 1,264
- --------------------------------------------------------------------------------
10,160
- --------------------------------------------------------------------------------
France (5.7%)
7,600 Accor S.A. 1,863
28,805 CNP Assurances 723
44,700 Coflexip ADR 1,833
61,300 Elf Aquitaine ADR 4,352
19,000 Eramet Group 743
4,700 Essilor International 1,646
13,130 ISIS S.A. 869
18,500 Louis Dreyfus Citrus 386
38,000 Renault S.A. 1,476
31,200 Rhone Poulenc S.A. 1,480
33,140 SEITA 2,009
17,000 Valeo S.A. 1,388
- --------------------------------------------------------------------------------
18,768
- --------------------------------------------------------------------------------
Germany (2.4%)
49,800 Continental AG 1,153
52,400 Hoechst AG 2,333
44,200 Merck KGaA 1,518
52,250 Veba AG 2,979
- --------------------------------------------------------------------------------
7,983
- --------------------------------------------------------------------------------
Greece (0.4%)
41,900 Hellenic Telecommunications Organization S.A. (OTE) 907
37,970 National Bank of Greece S.A. GDR * 526
- --------------------------------------------------------------------------------
1,433
- --------------------------------------------------------------------------------
Hong Kong (0.2%)
25,000 Asia Satellite Telecommunications Holdings Ltd. ADR 516
- --------------------------------------------------------------------------------
Hungary (0.5%)
17,000 Magyar Tavkozlesi RT. (MATAV) ADR 476
42,900 Mol Magyar Olaj-Es Gazipari GDR 1,040
- --------------------------------------------------------------------------------
1,516
- --------------------------------------------------------------------------------
India (0.3%)
33,000 Hindalco Industries Ltd. GDR 470
44,900 Videsh Sanchar Nigam Ltd. GDR 511
- --------------------------------------------------------------------------------
981
- --------------------------------------------------------------------------------
Israel (0.2%)
158,872 Bank Hapoalim Ltd. 402
24,300 Blue Square - Israel Ltd. ADR 371
- --------------------------------------------------------------------------------
773
- --------------------------------------------------------------------------------
Italy (3.1%)
37,400 ENI S.p.A. ADR 2,354
123,000 Erg S.p.A. 370
24,500 Gucci Group N.V. 1,620
439,000 Italgas S.p.A. 1,881
99,800 Telecom Italia S.p.A. Ordinary 1,028
548,100 Telecom Italia S.p.A. Savings 2,977
- --------------------------------------------------------------------------------
10,230
- --------------------------------------------------------------------------------
Japan (5.4%)
45,000 Bridgestone Corp. 1,180
63,000 Daibiru Corp. 495
75,000 Fujitsu Ltd. 1,254
22,000 Ito-Yokado Co. Ltd. 1,312
162,000 Nikko Securities Co. Ltd. 708
766,000 Nippon Steel Corp. 1,610
126 Nippon Telegraph & Telephone Corp. (NTT) 1,230
10 NTT Mobile Communication Network, Inc. 547
35,000 Ono Pharmaceutical Co. Ltd. 1,260
86,000 Sankyo Co. Ltd. 2,024
208,000 Sharp Corp. 2,309
10,500 Sony Corp. 987
120,000 Sumitomo Electric Industries, Ltd. 1,344
210,000 Toshiba Corp. 1,298
- --------------------------------------------------------------------------------
17,558
- --------------------------------------------------------------------------------
Korea (0.5%)
13,650 Dongwon Securities Co. 295
19,643 Korea Telecom Corp. ADR* 625
10,000 Samsung Electronics Co. Ltd. 696
818 Samsung Electronics Co. Ltd. Rights* 9
- --------------------------------------------------------------------------------
1,625
- --------------------------------------------------------------------------------
Malaysia (0.4%)
306,000 Genting Bhd (a) 870
249,000 Malaysia International Shipping Corp. Bhd (a) 348
- --------------------------------------------------------------------------------
1,218
- --------------------------------------------------------------------------------
Mexico (0.4%)
32,014 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 716
67,000 Tubos de Acero de Mexico, S.A. ADR 620
- --------------------------------------------------------------------------------
1,336
- --------------------------------------------------------------------------------
Netherlands (6.0%)
76,400 Akzo Nobel N.V. 3,170
49,500 Benckiser N.V. "B" 2,673
21,000 EVC International N.V. 153
38,000 Fortis NL N.V. 1,234
56,550 ING Group N.V. 3,022
54,200 Koninklijke KPN N.V. 2,616
63,100 Koninklijke Pakhoed N.V. (Certificates) 1,454
29,800 Koninklijke Philips Electronics N.V. 2,563
43,600 Oce-van der Grinten N.V. 1,200
39,600 VNU N.V. 1,680
- --------------------------------------------------------------------------------
19,765
- --------------------------------------------------------------------------------
Norway (1.7%)
604,800 Christiania Bank og Kreditkasse 2,441
64,300 Schibsted ASA 741
230,000 Storebrand ASA * 1,542
169,600 Tandberg Data ASA * 858
- --------------------------------------------------------------------------------
5,582
- --------------------------------------------------------------------------------
Philippines (0.2%)
2,300,000 SM Prime Holdings, Inc. 502
- --------------------------------------------------------------------------------
Poland (0.3%)
74,200 Elektrim S.A. 866
- --------------------------------------------------------------------------------
Portugal (1.5%)
88,456 Banco Pinto & Sotto Mayor S.A. 1,752
24,500 Brisa-Auto Estradas de Portugal S.A. 1,108
45,900 Portugal Telecom S.A. ADR 2,077
- --------------------------------------------------------------------------------
4,937
- --------------------------------------------------------------------------------
Russia (0.1%)
6,600 LUKoil ADR 241
- --------------------------------------------------------------------------------
Singapore (0.2%)
113,500 Overseas Union Bank Ltd. 583
- --------------------------------------------------------------------------------
South Africa (0.4%)
415,700 Sanlam Ltd. * 400
34,462 South African Breweries plc 277
164,000 Standard Bank Investment Corp. Ltd. 504
- --------------------------------------------------------------------------------
1,181
- --------------------------------------------------------------------------------
Spain (1.7%)
103,016 Argentaria, Caja Postal y Banco Hipotecario
de Espana, S.A. 2,308
22,264 Telefonica de Espana S.A. ADR* 3,211
- --------------------------------------------------------------------------------
5,519
- --------------------------------------------------------------------------------
Sweden (2.0%)
86,000 Autoliv, Inc. GDR 2,726
44,400 Skandinaviska Enskilda Banken "A" 537
582,800 Swedish Match AB 2,121
46,100 Volvo AB 1,169
- --------------------------------------------------------------------------------
6,553
- --------------------------------------------------------------------------------
Switzerland (3.0%)
2,384 Novartis AG 3,457
5,300 Selecta Group AG 2,098
1,980 Sulzer AG P.C. * 1,157
5,040 Swisscom AG 1,814
13,111 Tag Heuer International S.A. 1,214
- --------------------------------------------------------------------------------
9,740
- --------------------------------------------------------------------------------
Taiwan (0.5%)
1,424,201 China Steel Corp. 975
224,100 Compal Electronics, Inc. 600
- --------------------------------------------------------------------------------
1,575
- --------------------------------------------------------------------------------
Turkey (0.1%)
7,760,652 Yapi Ve Kredi Bankasi A.S. 99
11,088,521 Yapi Ve Kredi Bankasi A.S. Receipts*,(a) 142
- --------------------------------------------------------------------------------
241
- --------------------------------------------------------------------------------
United Kingdom (10.0%)
36,500 AstraZeneca Group plc 1,451
164,300 Bank of Scotland 2,283
679,900 Billiton plc 2,124
50,000 BOC Group plc 855
86,600 British Telecommunications plc 1,435
108,000 Cable & Wireless plc 1,329
236,000 Cadbury Schweppes 1,604
133,600 CGU plc 1,952
975,000 Cookson Group plc 2,823
510,000 Corporate Services Group plc 609
25,400 Glaxo Wellcome plc ADR 1,429
121,000 Laporte plc 1,425
617,000 Medeva plc 1,078
140,000 National Westminster Bank plc 3,176
36,800 Powergen plc 399
162,386 Reuters Group plc 2,232
385,000 Safeway plc 1,598
590,000 Tomkins plc 2,120
339,722 WPP Group plc 2,749
- --------------------------------------------------------------------------------
32,671
- --------------------------------------------------------------------------------
Total foreign stocks (cost: $155,063) 195,139
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -----------
FOREIGN BOND(0.2%)
Japan (0.2%)
$ 400 MBL International Finance (Bermuda) Trust,
Convertible Notes, 3.00%,11/30/2002 (cost: $400) 444
- --------------------------------------------------------------------------------
Total foreign securities (cost: $155,463) 195,583
- --------------------------------------------------------------------------------
Number
of Shares
- -----------
DOMESTIC STOCKS (36.4%)
Aluminum (0.7%)
44,000 Alcoa, Inc. 2,420
- --------------------------------------------------------------------------------
Banks - Major Regional (0.6%)
52,000 Mellon Bank Corp. 1,856
- --------------------------------------------------------------------------------
Beverages - Nonalcoholic (1.8%)
137,000 Pepsi Bottling Group, Inc. 3,176
76,000 PepsiCo, Inc. 2,722
- --------------------------------------------------------------------------------
5,898
- --------------------------------------------------------------------------------
Biotechnology (0.5%)
28,000 Amgen, Inc.* 1,771
- --------------------------------------------------------------------------------
Broadcasting - Radio & TV (1.2%)
60,000 Clear Channel Communications, Inc.* 3,964
- --------------------------------------------------------------------------------
Chemicals (0.5%)
38,000 Monsanto Co. 1,577
- --------------------------------------------------------------------------------
Communication Equipment (1.0%)
56,532 Lucent Technologies, Inc. 3,215
- --------------------------------------------------------------------------------
Computer - Hardware (1.2%)
43,000 Hewlett-Packard Co. 4,055
- --------------------------------------------------------------------------------
Computer - Networking (1.4%)
41,500 Cisco Systems, Inc.* 4,523
- --------------------------------------------------------------------------------
Computer Software & Service (3.4%)
46,000 America Online, Inc.* 5,491
56,000 Microsoft Corp.* 4,518
60,000 Oracle Corp.* 1,489
- --------------------------------------------------------------------------------
11,498
- --------------------------------------------------------------------------------
Drugs (1.5%)
25,000 Pfizer, Inc. 2,675
48,000 Schering-Plough Corp. 2,163
- --------------------------------------------------------------------------------
4,838
- --------------------------------------------------------------------------------
Electrical Equipment (1.1%)
36,000 General Electric Co. 3,661
- --------------------------------------------------------------------------------
Electronics - Semiconductors (3.1%)
84,400 Analog Devices, Inc.* 3,244
48,000 Intel Corp. 2,595
40,000 Texas Instruments, Inc. 4,375
- --------------------------------------------------------------------------------
10,214
- --------------------------------------------------------------------------------
Entertainment (0.7%)
80,000 Walt Disney Co. 2,330
- --------------------------------------------------------------------------------
Equipment - Semiconductors (0.8%)
48,000 Applied Materials, Inc.* 2,640
- --------------------------------------------------------------------------------
Finance - Diversified (1.3%)
18,000 Freddie Mac 1,050
31,900 Morgan Stanley, Dean Witter, Discover & Co. 3,078
- --------------------------------------------------------------------------------
4,128
- --------------------------------------------------------------------------------
Foods (1.3%)
30,000 Hershey Foods Corp. 1,628
75,000 Keebler Foods Co.* 2,512
- --------------------------------------------------------------------------------
4,140
- --------------------------------------------------------------------------------
Health Care - Diversified (1.7%)
36,000 Bristol-Myers Squibb Co. 2,470
32,000 Johnson & Johnson, Inc. 2,964
- --------------------------------------------------------------------------------
5,434
- --------------------------------------------------------------------------------
Hospitals (0.1%)
6,500 Lifepoint Hospitals, Inc.* 65
- --------------------------------------------------------------------------------
Household Products (1.0%)
34,000 Procter & Gamble Co. 3,175
- --------------------------------------------------------------------------------
Housewares (0.8%)
63,000 Newell Rubbermaid, Inc. 2,552
- --------------------------------------------------------------------------------
Insurance - Multi-Line Companies (1.2%)
33,750 American International Group, Inc. 3,858
- --------------------------------------------------------------------------------
Leisure Time (0.6%)
79,000 Mattel, Inc. 2,089
- --------------------------------------------------------------------------------
Manufacturing - Specialized (0.8%)
44,000 Avery Dennison Corp. 2,635
- --------------------------------------------------------------------------------
Medical Products & Supplies (0.8%)
38,000 Medtronic, Inc. 2,698
- --------------------------------------------------------------------------------
Oil & Gas - Drilling/Equipment (0.5%)
41,000 Halliburton Co. 1,696
- --------------------------------------------------------------------------------
Personal Care (1.2%)
80,000 Avon Products, Inc. 3,955
- --------------------------------------------------------------------------------
Retail - Drugs (1.2%)
58,000 CVS Corp. 2,668
40,000 Duane Reade, Inc.* 1,275
- --------------------------------------------------------------------------------
3,943
- --------------------------------------------------------------------------------
Retail - General Merchandising (1.2%)
60,000 Dayton Hudson Corp. 3,780
- --------------------------------------------------------------------------------
Retail - Specialty Apparel (1.2%)
61,500 Gap, Inc. 3,848
- --------------------------------------------------------------------------------
Services - Data Processing (0.9%)
68,000 First Data Corp. 3,056
- --------------------------------------------------------------------------------
Telecommunications - Long Distance (1.1%)
40,000 MCI Worldcom, Inc.* 3,455
- --------------------------------------------------------------------------------
Total domestic stocks (cost: $69,077) 118,967
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- --------------
U.S. GOVERNMENT & AGENCY ISSUE (2.9%)
Discount Note
$ 9,391 Federal Home Loan Mortgage Corp., 4.72%,
6/01/1999 (cost: $9,387) 9,387
- --------------------------------------------------------------------------------
Total investments (cost: $233,927) $323,937
================================================================================
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Banks - Major Regional 6.6%
Telephones 6.5
Drugs 5.9
Electronics - Semiconductors 4.1
Computer Software & Service 3.5
Insurance - Multi-Line Companies 3.5
Communication Equipment 2.9
U.S. Government & Agency Issues 2.9
Beverages - Nonalcoholic 2.7
Auto Parts 2.6
Oil - International Integrated 2.6
Electrical Equipment 2.3
Household Products 1.8
Health Care - Diversified 1.7
Finance - Diversified 1.6
Services - Data Processing 1.6
Railroads/Shipping 1.6
Foods 1.6
Manufacturing - Specialized 1.5
Telecommunications - Long Distance 1.5
Computer - Hardware 1.4
Retail - Specialty 1.4
Chemicals - Specialty 1.4
Iron & Steel 1.4
Computer - Networking 1.4
Oil & Gas - Drilling/Equipment 1.3
Medical Products & Supplies 1.3
Tobacco 1.3
Manufacturing - Diversified Industries 1.2
Broadcasting - Radio & TV 1.2
Personal Care 1.2
Banks - Money Center 1.2
Retail - Drugs 1.2
Retail - Specialty Apparel 1.2
Retail - General Merchandising 1.2
Oil & Gas - Exploration & Production 1.1
Electric Utilities 1.0
Metals/Mining 1.0
Other 17.8
-----
99.2%
=====
USAA WORLD GROWTH 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 Fund's investment
manager under the general supervision of the Board of Trustees. At May 31, 1999,
these securities represented .42% of the Fund's net assets.
* Non-income producing security.
See accompanying notes to financial statements.
USAA WORLD GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 1999
ASSETS
Investments in securities, at market value
(identified cost of $233,926) $ 323,937
Cash 2
Cash denominated in foreign currencies (identified cost of $579) 563
Receivables:
Capital shares sold 2,566
Dividends and interest 988
Securities sold 93
Unrealized appreciation of foreign currency contracts held,
at value 1
-----------
Total assets 328,150
-----------
LIABILITIES
Securities purchased 579
Unrealized depreciation on foreign currency contracts
held, at value 2
Capital shares redeemed 526
USAA Investment Management Company 212
USAA Transfer Agency Company 39
Accounts payable and accrued expenses 90
-----------
Total liabilities 1,448
-----------
Net assets applicable to capital shares outstanding $ 326,702
===========
REPRESENTED BY:
Paid-in capital $ 222,813
Accumulated undistributed net investment income 1,104
Accumulated net realized gain on investments 12,806
Net unrealized appreciation of investments 90,011
Net unrealized depreciation on foreign currency translations (32)
-----------
Net assets applicable to capital shares outstanding $ 326,702
===========
Capital shares outstanding, unlimited number of shares
authorized, no par value 18,038
===========
Net asset value, redemption price, and offering price per share $ 18.11
===========
See accompanying notes to financial statements.
USAA WORLD GROWTH FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 1999
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $536) $ 4,924
Interest 584
-----------
Total income 5,508
-----------
Expenses:
Management fees 2,421
Transfer agent's fees 811
Custodian's fees 297
Postage 107
Shareholder reporting fees 31
Trustees' fees 4
Registration fees 33
Professional fees 32
Other 8
-----------
Total expenses 3,744
-----------
Net investment income 1,764
-----------
Net realized and unrealized gain (loss) on investments
and foreign currency:
Net realized gain (loss) on:
Investments 12,989
Foreign currency transactions (206)
Change in net unrealized appreciation/depreciation of:
Investments (10,486)
Foreign currency translations 212
-----------
Net realized and unrealized gain 2,509
-----------
Increase in net assets resulting from operations $ 4,273
===========
See accompanying notes to financial statements.
USAA WORLD GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
1999 1998
----------------------
From operations:
Net investment income $ 1,764 $ 2,137
Net realized gain on investments 12,989 20,147
Net realized loss on foreign currency transactions (206) (201)
Change in net unrealized appreciation/depreciation of:
Investments (10,486) 28,234
Foreign currency translations 212 (228)
----------------------
Increase in net assets resulting from operations 4,273 50,089
----------------------
Distributions to shareholders from:
Net investment income (1,995) (1,436)
----------------------
Net realized gains (10,052) (19,161)
----------------------
From capital share transactions:
Proceeds from shares sold 125,901 98,870
Shares issued for dividends reinvested 11,871 20,347
Cost of shares redeemed (160,176) (98,628)
----------------------
Increase (decrease) in net assets from
capital share transactions (22,404) 20,589
----------------------
Net increase (decrease) in net assets (30,178) 50,081
Net assets:
Beginning of period 356,880 306,799
----------------------
End of period $326,702 $356,880
======================
Accumulated undistributed net investment income:
End of period $ 1,104 $ 1,828
======================
Change in shares outstanding:
Shares sold 7,368 5,678
Shares issued for dividends reinvested 664 1,220
Shares redeemed (9,429) (5,684)
----------------------
Increase (decrease) in shares outstanding (1,397) 1,214
======================
See accompanying notes to financial statements.
USAA WORLD GROWTH 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 World
Growth 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 a mix of foreign and domestic equity
securities.
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 $7,000, to decrease accumulated undistributed net investment income by
$287,000, and to increase accumulated net realized gain on investments by
$294,000.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities.
D. Foreign currency translations - The assets of the Fund may be invested in the
securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean between
the bid and asked translation rates of such currencies against U.S. dollars on a
daily basis.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates of
such transactions.
Net realized and unrealized foreign currency gains/losses occurring during the
holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign currency,
currency gains/losses realized between the trade and settlement dates on
security transactions, and from the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. Net realized foreign currency
gains/losses have been reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets and
liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities other than investments in
securities resulting from changes in the exchange rate.
E. Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($100 million committed). The purpose
of the agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely disposition of
securities. Subject to availability under both agreements with CAPCO, the Fund
may borrow from CAPCO an amount up to 5% of the Fund's total assets at CAPCO's
borrowing rate with no markup. Subject to availability under its agreement with
Bank of America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. The Fund had no borrowings under either of these agreements during the
year ended May 31, 1999.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the period ended May 31, 1999, were $159.5 million and $189.5
million, respectively.
Gross unrealized appreciation and depreciation of investments at May 31, 1999,
was $104.1 million and $14.1 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 In Exchange
Exchange Contracts to Value as of for U.S. Unrealized Unrealized
Date Receive 5/31/99 Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------
6/01/99 235 $ 38 $ 38 $ - $ -
South African Rand
- --------------------------------------------------------------------------------
6/01/99 56 9 9 - -
South African Rand
- --------------------------------------------------------------------------------
6/02/99 112 179 179 - -
Pound Sterling
- --------------------------------------------------------------------------------
6/02/99 87 140 140 - -
Pound Sterling
- --------------------------------------------------------------------------------
$ 366 $ 366 $ - $ -
================================================================================
Foreign Currency Contracts to Sell:
- --------------------------------------------------------------------------------
U.S. Dollar In Exchange
Exchange Contracts to Value as of for U.S. Unrealized Unrealized
Date Deliver 5/31/99 Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------
6/01/99 51 $ 53 $ 54 $ 1 $ -
Euro Currency
- --------------------------------------------------------------------------------
6/01/99 14 15 15 - -
Euro Currency
- --------------------------------------------------------------------------------
6/01/99 27,998 232 230 - (2)
Japanese Yen
- --------------------------------------------------------------------------------
6/02/99 37 39 39 - -
Euro Currency
- --------------------------------------------------------------------------------
$ 339 $ 338 $ 1 $ (2)
================================================================================
(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.
D. Brokerage services - USAA Brokerage Services, a discount brokerage service
of the Manager, may execute portfolio transactions for the Fund. The amount of
brokerage commissions paid to USAA Brokerage Services during the period ended
May 31, 1999, was $18,000.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) YEAR 2000 (UNAUDITED)
Like other mutual funds, the Fund could be adversely affected if the computer
systems used by the Manager and the Fund's other service providers are not able
to perform their intended functions effectively after 1999 because of the
inability of computer software to distinguish the year 2000 from the year 1900.
The Manager is taking steps to address this potential year 2000 problem with
respect to the computer systems that they use and to obtain satisfactory
assurances that the comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund from this
problem.
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
Year Ended May 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------
Net asset value at
beginning of period $ 18.36 $ 16.84 $ 15.50 $ 12.96 $ 12.71
Net investment income .10 .11 .11 .12 .07
Net realized and
unrealized gain .27 2.51 2.28 2.73 .46
Distributions from net
investment income (.10) (.08) (.14) (.08) -
Distributions of realized
capital gains (.52) (1.02) (.91) (.23) (.28)
-----------------------------------------------------
Net asset value at
end of period $ 18.11 $ 18.36 $ 16.84 $ 15.50 $ 12.96
=====================================================
Total return (%) * 2.06 16.29 16.52 22.43 4.26
Net assets at end of
period (000) $326,702 $356,880 $306,799 $267,192 $200,745
Ratio of expenses to
average net assets (%) 1.16 1.13 1.20 1.27 1.28
Ratio of net investment
income to average net
assets (%) .55 .64 .63 .96 .69
Portfolio turnover (%) 51.19 45.04 50.02 60.97 58.88
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
TRUSTEES
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
KPMG LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance
Call toll free - Central Time
Monday - Friday 7:30 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund USAA TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
