Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Financial Information:
Portfolio of Investments 8
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 International
Fund, managed by USAA Investment Management Company (IMCO). It may be used as
sales literature only when preceded or accompanied by a current prospectus which
gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)1999, USAA.
All rights reserved.
USAA Family of Funds Summary
- --------------------------------------------------------------------------------
Fund Minimum
Type/Name Volatility Investment*
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION
- --------------------------------------------------------------------------------
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500(Registered
Trademark) Index(2) Moderate $3,000
Science & Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
- --------------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------------------------------------------------
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
- --------------------------------------------------------------------------------
INCOME - TAXABLE
- --------------------------------------------------------------------------------
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
- --------------------------------------------------------------------------------
INCOME - TAX EXEMPT
- --------------------------------------------------------------------------------
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
- --------------------------------------------------------------------------------
MONEY MARKET
- --------------------------------------------------------------------------------
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
- --------------------------------------------------------------------------------
(1)Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2)S&P 500(Registered Trademark) is a trademark of The McGraw-Hill Companies,
Inc. and has been licensed for use. The Product is not sponsored, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the Product.
(3)Some income may be subject to state or local taxes or the federal alternative
minimum tax.
(4)An investment in a money market fund is not insured or guaranteed by the FDIC
or any other government agency. Although the fund seeks to preserve the
value of your investment at $1 per share, it is possible to lose money
by investing in the fund.
(5)This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart(Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500 Index
Fund. The minimum initial investment for IRAs is $250, except for the $2,000
minimum required for the S&P 500 Index Fund. IRAs are not available for
tax-exempt funds. The Growth and Tax Strategy Fund is not available as an
investment for your IRA because the majority of its income is tax exempt.
** California, Florida, New York, Texas, and Virginia funds available to
residents only.
Non-deposit investment products are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, USAA Federal Savings Bank, and are
subject to investment risks, and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
Message from the President
[Photograph of the President and Vice Chairman of the Board, Michael J. C. Roth,
CFA, appears here.]
Since my last message to Investment Trust shareholders, the stock market has
reminded us that intense emotions are part of the investment process. In August,
the unraveling of markets around the world was downright scary. Huge daily
drops, the rampage into treasury bonds while other income markets dried up, and
the antics of huge hedge funds made for confusion and fear. At such times, it
becomes very hard for people to remember the long-term plans they have made for
their portfolios.
A scant three months later, stock markets have recouped losses and bond markets
have settled down. August looks like a momentary aberration. With the retreat of
fear, we are now seeing something the financial press has tagged "Internet
stocks." These are various companies, going public for the first time, whose
business is closely tied to Internet commerce. Some have soared to prices ten
times their initial offering, even though they have little or no earnings and
traditional analysts can detect little to support such lofty prices. In the
1600s, investors got the idea that tulip bulbs, which Dutch traders brought home
on their voyages, were highly valuable and bid their prices to incredible
levels. Those prices collapsed and the word "tulip" took on a special meaning
for investment professionals. The tulip craze became a classic example of
irrational investor behavior. When I watch the Internet IPOs, I think "Tulip."
This tells me that emotions can run both ways, from panic to euphoria, and make
people forget their long-term investment plans. But, you need those plans most
of all when the emotions are rampant. Trading in calm markets prepares you to
avoid trading during raging markets.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
For more complete information about mutual funds managed and distributed by USAA
IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before investing.
Although none of the investments mentioned are guaranteed or insured, government
bonds are backed by the full faith and credit of the U.S. Government. Common
stocks are considered to have the most risk, followed by corporate bonds and
government bonds. All of these vehicles are subject to tax. If held to maturity,
bonds offer a fixed rate of return and fixed principal value. Return and
principal value of an investment in stocks will fluctuate.
Past performance is no guarantee of future results.
Investment Review
USAA INTERNATIONAL FUND
OBJECTIVE: Primary objective is capital appreciation. Current income is a
secondary objective.
TYPES OF INVESTMENTS: At least 80% of the Fund's assets are invested in equity
securities of companies organized and operating principally outside the United
States. The remainder of the Fund's assets may be invested in U.S. Government
securities that mature in less than one year and in repurchase agreements
collateralized by such securities.
- --------------------------------------------------------------------------------
11/30/98 5/31/98
- --------------------------------------------------------------------------------
Net Assets $523.6 Million $628.7 Million
Net Asset Value Per Share $18.58 $21.94
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/98
- --------------------------------------------------------------------------------
5/31/98 to 11/30/98(+) 1 Year 5 Years 10 Years
-12.34% 0.80% 9.86% 9.36%
- --------------------------------------------------------------------------------
(+) Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gain distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
- ---------------------------------
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA International Fund, the Morgan
Stanley Capital Index (MSCI)-EAFE, and the Lipper International Funds Average
for the period of 11/30/88 through 11/30/98. The data points from the graph are
as follows:
USAA
International MSCI-EAFE Lipper
Fund Index Average
------------- --------- -------
11/30/88 $10,000 $10,000 $10,000
05/31/89 10,000 9,623 10,396
11/30/89 11,203 10,719 11,625
05/31/90 11,942 9,856 12,297
11/30/90 10,604 8,373 10,864
05/31/91 11,391 9,328 11,913
11/30/91 11,479 9,072 11,698
05/31/92 12,830 9,014 12,963
11/30/92 11,997 8,336 11,680
05/31/93 14,206 10,491 13,742
11/30/93 15,291 10,360 14,967
05/31/94 17,204 11,915 16,551
11/30/94 17,588 11,897 16,503
05/31/95 17,633 12,503 16,849
11/30/95 18,254 12,798 17,594
05/31/96 21,108 13,837 19,321
11/30/96 22,278 14,303 20,365
05/31/97 24,636 14,880 22,106
11/30/97 24,272 14,245 21,755
05/31/98 27,909 16,533 25,554
11/30/98 24,467 16,589 23,928
Data from 11/30/88 through 11/30/98
The graph illustrates how a $10,000 hypothetical investment in the USAA
International Fund outperformed its benchmark, the Morgan Stanley Capital Index
(MSCI)-EAFE, an unmanaged index which reflects the movements of stock markets in
Europe, Australia, and the Far East by representing a broad selection of
domestically listed companies within each market, and the Lipper International
Funds Average, an average performance level of all international funds, as
reported by Lipper Analytical Services, an independent organization that
monitors the performance of mutual funds.
Message from the Managers
[Photograph of the Portfolio Managers appears here: From L to R: Albert C.
Sebastian, CFA, David G. Peebles, CFA, and W. Travis Selmier, II, CFA.]
MARKET CONDITIONS
For the six months ended November 30, 1998, your Fund's total return was -12.33%
which compares unfavorably with the Lipper International Funds Average return of
- -5.93% and the EAFE return of .34%.(1) Along with the U.S., European equities
turned downward around mid-year while Asian markets staged a rebound on currency
strength. Latin America and Canada continued to perform poorly.
EUROPE
European markets performed poorly over the period primarily because of further
deterioration in the economic fundamentals of Russia and lower forecasted
economic growth. The financial sector, which had led the market in the first
half of 1998, sharply underperformed as many banks had to increase their credit
loss provisions on account of their emerging markets exposure. Defensive stocks,
such as utilities and consumer non-durables (e.g. tobacco, food) outperformed
the general indices. European markets rebounded sharply in October and November
as the U.S. and selected European central banks cut interest rates.
EMERGING MARKETS
The last six months have been a tale of two quarters for emerging markets; a
tumultuous summer culminating in August's massive sell-off was followed by a
strong recovery in investor sentiment. This resulted in pushing emerging markets
back up over 30% from its bottom in early September. The change in investor
sentiment has been key. Asian economies are showing signs of bottoming; Latin
markets have bounced as Brazil has begun to take the hard medicine needed to
solve its fiscal problems; and the European and Mediterranean market
participants have realized that Russia's collapse does not mean the end of the
world for these countries' economic growth.
JAPAN
A change in Prime Minister may hold the promise of progress on Japan's banking
crisis and economic slowdown, but we are still cautious with an underweighted
position. While concerned about the overall market, we have continued our
selective strategy of buying financially sound industrial and financial
companies. We have also added to our technology and telecommunications holdings
over the period.
OUTLOOK
Although forecasted economic growth for Europe has been revised downward,
European stocks may have the potential to offer the best earnings growth next
year. The introduction of the Euro, which is the common currency of the European
monetary union, on January 1, 1999, will further financial and economic
integration. Also we expect to see continued mergers and acquisition activity
and shareholder-oriented policies in Europe. As well as local dynamics, events
in mature markets - economic growth, bank restructuring (especially in Japan),
multilateral institutions' support, and interest rate policies - will prove
critical for emerging markets in 1999.
(1) Refer to page 4 for the Lipper Average and the EAFE definition.
Past performance is no guarantee of future results, and the value of your
investment may vary according to the Fund's performance.
ASSET ALLOCATION
- ----------------
A pie chart is shown here depicting the Asset Allocation as of November 30, 1998
of the USAA International Fund to be:
Other - 22.0%* (Countries with less than 3.0% of the portfolio and U.S.
Government & Agency Issue); United Kingdom - 12.6%*; Netherlands - 9.4%*; France
- - 9.4%*; Japan - 7.7%*; Canada - 6.1%*; Germany 5.7%*; Italy - 5.3%*;
Switzerland - 5.2%*; Finland - 4.9%*; Denmark - 4.8%*; Sweden - 3.7%*; and Spain
- - 3.3%*.
* Percentages are of the Net Assets in the Portfolio and may or may not equal
100%.
- ---------------------------------- ----------------------------------------
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
(% OF NET ASSETS) (% OF NET ASSETS)
- ---------------------------------- ----------------------------------------
Nokia ADR 2.4 Telephones 10.0
Telecom Italia S.p.A. 2.2 Banks - Major Regional 8.2
Novartis AG 2.2 Auto Parts 6.0
Autoliv SDR 1.9 Drugs 5.2
Elf Aquitaine ADT 1.9 Oil - International Integrated 3.9
Akzo Nobel N.V. 1.6 Insurance - Multi/Line Companies 3.7
Merita plc "A" 1.6 Computer Software & Service 3.5
Telefonica de Espana S.A. ADR 1.6 Communication Equipment 2.9
ING Group N.V. 1.5 Chemicals - Speciality 2.4
Koninklijke KPN V.N. 1.5 Manufacturing -
- ---------------------------------- Diversified Industries 2.1
----------------------------------------
Foreign investing is subject to additional risks, which are discussed in the
Fund's prospectus. Since return on any investment is generally commensurate with
risk, investors should be aware of the potential volatility associated with
foreign securities.
See page 8 for a complete listing of the Portfolio of Investments.
USAA INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (95.1%)
Argentina (0.4%)
38,264 IRSA Inversiones y Representaciones S.A. GDR $ 1,072
32,100 Telefonica de Argentina S.A. ADR 1,039
- --------------------------------------------------------------------------------
2,111
- --------------------------------------------------------------------------------
Australia (1.2%)
328,500 Cable & Wireless Optus Ltd. * 615
424,700 CSL Ltd. 3,309
1,009,800 HIH Insurance Ltd. 762
210,000 Smith (Howard) Ltd. 1,356
- --------------------------------------------------------------------------------
6,042
- --------------------------------------------------------------------------------
Austria (2.5%)
12,481 Bank Austria AG 645
80,600 Boehler Uddeholm AG 3,762
118,300 VA Flughafen Wien AG 5,264
42,000 VA Technologie AG 3,519
- --------------------------------------------------------------------------------
13,190
- --------------------------------------------------------------------------------
Brazil (1.2%)
44,000 Companhia Brasileira de Distribuicao Grupo Pao de
Acucar ADR 883
46,503,260 Companhia Energetica de Minas Gerais (Cemig) (Preferred) 1,177
135,000 Panamerican Beverages, Inc. "A" 3,113
7,500,000 Petroleo Brasileiro S.A. (Preferred) 1,068
- --------------------------------------------------------------------------------
6,241
- --------------------------------------------------------------------------------
Canada (6.1%)
429,300 Anderson Exploration Ltd. * 3,802
132,100 Canadian National Railway Co. 7,133
331,700 Canadian Occidental Petroleum Ltd. 4,416
410,000 National Bank of Canada 6,414
52,000 Northern Telecom Ltd. 2,428
196,000 OSF, Inc. * 1,446
200,200 Suncor, Inc. 6,106
- --------------------------------------------------------------------------------
31,745
- --------------------------------------------------------------------------------
Chile (0.2%)
27,000 Sociedad Quimica y Minera de Chile S.A. ADR 1,040
- --------------------------------------------------------------------------------
China (0.2%)
530,000 New World Infrastructure Ltd.* 794
- --------------------------------------------------------------------------------
Denmark (4.8%)
53,700 Carli Gry International A/S 2,831
62,000 ISS International Service System A/S "B" 4,086
224,200 SAS Danmark A/S 2,712
30,650 Tele Danmark A/S "B" 3,422
79,300 Tele Danmark A/S ADR 4,396
92,000 Unidanmark A/S 7,504
- --------------------------------------------------------------------------------
24,951
- --------------------------------------------------------------------------------
Egypt (0.2%)
74,300 Suez Cement Co. S.A.E. GDR 1,066
- --------------------------------------------------------------------------------
Finland (4.9%)
1,450,800 Merita plc "A" 8,437
127,960 Nokia Corp. ADR 12,540
179,000 Raisio Group plc 2,318
176,800 Rauma OYJ 2,485
- --------------------------------------------------------------------------------
25,780
- --------------------------------------------------------------------------------
France (9.4%)
18,900 Accor S.A. 4,153
7,420 Bouygues Offshore S.A. ADR 90
77,186 CNP Assurances * 2,334
123,000 Coflexip ADR 4,489
158,700 Elf Aquitaine ADR 9,879
48,100 Eramet Group 1,522
12,300 Essilor International 4,789
27,200 ISIS S.A. 1,965
39,800 Louis Dreyfus Citrus 1,117
99,600 Renault S.A. 4,622
56,100 Rhone Poulenc S.A. 2,795
89,980 SEITA 5,219
32,894 Simco S.A. 2,914
38,200 Valeo S.A. 3,270
- --------------------------------------------------------------------------------
49,158
- --------------------------------------------------------------------------------
Germany (5.7%)
161,000 Continental AG 3,948
173,200 Hoechst AG 7,433
68,100 Merck KGaA 2,770
9,965 SAP AG 4,511
6,970 SAP AG (Preferred) 3,628
139,460 Veba AG 7,727
- --------------------------------------------------------------------------------
30,017
- --------------------------------------------------------------------------------
Greece (0.8%)
116,900 Hellenic Telecommunications Organization S.A. (OTE) * 2,915
33,120 National Bank of Greece S.A. GDR * 1,193
2,400 Panafon Hellenic Telecommunications Co. S.A. * 43
- --------------------------------------------------------------------------------
4,151
- --------------------------------------------------------------------------------
Hong Kong (0.6%)
65,000 Asia Satellite Telecommunications Holdings Ltd. ADR 1,032
260,000 Hutchison Whampoa Ltd. 1,855
- --------------------------------------------------------------------------------
2,887
- --------------------------------------------------------------------------------
Hungary (0.8%)
66,700 Magyar Tavkozlesi RT. (MATAV) ADR 1,822
110,000 Mol Magyar Olaj-Es Gazipari GDR 2,535
- --------------------------------------------------------------------------------
4,357
- --------------------------------------------------------------------------------
India (0.6%)
85,000 Hindalco Industries Ltd. GDR 977
135,500 Larsen & Toubro Ltd. GDR 908
118,600 Videsh Sanchar Nigam Ltd. GDR 1,213
- --------------------------------------------------------------------------------
3,098
- --------------------------------------------------------------------------------
Israel (0.1%)
63,000 Blue Square - Israel Ltd. ADR 768
- --------------------------------------------------------------------------------
Italy (5.3%)
80,300 ENI S.p.A. ADR 4,908
681,000 Erg S.p.A. 2,356
74,000 Gucci Group N.V. 3,335
1,087,000 Italgas S.p.A. 5,371
1,866,000 Telecom Italia S.p.A. 11,653
- --------------------------------------------------------------------------------
27,623
- --------------------------------------------------------------------------------
Japan (7.2%)
152,000 Bridgestone Corp. 3,553
160,000 Daibiru Corp. 1,075
10,000 Honda Motor Co. Ltd. 359
59,000 Ito-Yokado Co. Ltd. 3,601
37,900 Justsystem Corp. * 183
153,800 Laox Co. Ltd. 999
126,000 Namco 2,454
36,000 Nomura Securities Co. Ltd. 350
1,310 NTT Data Corp. 5,721
36 NTT Mobile Communication Network, Inc. * 1,373
95,000 Sankyo Co. Ltd. 2,159
225,000 Sanwa Bank Ltd. 2,036
202,000 Sharp Corp. 1,781
45,000 Sony Corp. 3,291
20,000 Terumo Corp. 444
650,000 Toko, Inc. 2,617
1,000,000 Toshiba Corp. 5,601
- --------------------------------------------------------------------------------
37,597
- --------------------------------------------------------------------------------
Korea (0.4%)
298,556 Samsung Heavy Industries * 1,654
139,168 Samsung Heavy Industries Rights * 212
- --------------------------------------------------------------------------------
1,866
- --------------------------------------------------------------------------------
Malaysia (0.2%)
793,500 Genting Bhd (a) 1,176
- --------------------------------------------------------------------------------
Mexico (0.6%)
92,230 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADR 1,741
204,400 Tubos de Acero de Mexico, S.A. ADR 1,443
- --------------------------------------------------------------------------------
3,184
- --------------------------------------------------------------------------------
Netherlands (9.4%)
208,800 Akzo Nobel N.V. 8,559
113,000 Benckiser N.V. "B" 6,676
56,060 EVC International N.V. 443
139,302 ING Group N.V. 7,975
180,700 Koninklijke KPN N.V. 7,795
158,600 Koninklijke Pakhoed N.V. (Certificates) 3,897
115,400 Oce-van der Grinten N.V. 4,055
71,600 Philips Electronics N.V. 4,533
14,400 Simac Techniek N.V. 1,844
101,700 VNU N.V. 3,494
- --------------------------------------------------------------------------------
49,271
- --------------------------------------------------------------------------------
Norway (2.3%)
1,168,700 Christiania Bank og Kreditkasse 4,292
159,500 Schibsted ASA 1,832
609,100 Storebrand ASA * 4,515
448,200 Tandberg Data ASA * 1,377
- --------------------------------------------------------------------------------
12,016
- --------------------------------------------------------------------------------
Philippines (0.3%)
9,000,000 SM Prime Holdings, Inc. 1,690
- --------------------------------------------------------------------------------
Poland (0.5%)
225,000 Elektrim S.A. 1,893
400,071 Polifarb Cieszyn-Wroclaw S.A. 528
- --------------------------------------------------------------------------------
2,421
- --------------------------------------------------------------------------------
Portugal (2.8%)
173,360 Banco Pinto & Sotto Mayor S.A. 3,160
33,900 Brisa-Auto Estradas de Portugal S.A. 1,832
139,076 Cimentos de Portugal S.A. 4,398
123,700 Portugal Telecom S.A. ADR 5,450
- --------------------------------------------------------------------------------
14,840
- --------------------------------------------------------------------------------
Russia (0.2%)
45,000 LUKoil ADR 923
- --------------------------------------------------------------------------------
Singapore (0.5%)
164,000 Keppel Corp. Ltd. 431
558,000 Overseas Union Bank Ltd. 2,250
- --------------------------------------------------------------------------------
2,681
- --------------------------------------------------------------------------------
South Africa (0.3%)
810,000 Sanlam Ltd. * 854
42,400 South African Breweries Ltd. 717
- --------------------------------------------------------------------------------
1,571
- --------------------------------------------------------------------------------
Spain (3.3%)
255,600 Argentaria, Caja Postal y Banco Hipotecario de
Espana, S.A. 5,950
112,000 Corporacion Mapfre 3,104
60,000 Telefonica de Espana S.A. ADR 8,362
- --------------------------------------------------------------------------------
17,416
- --------------------------------------------------------------------------------
Sweden (3.7%)
276,980 Autoliv, Inc. SDR 9,990
1,583,000 Swedish Match AB 5,349
184,000 Volvo AB 4,273
- --------------------------------------------------------------------------------
19,612
- --------------------------------------------------------------------------------
Switzerland (5.2%)
6,164 Novartis AG 11,566
19,200 Selecta Group AG 4,923
6,537 Sulzer AG P.C. 3,694
13,470 Swisscom AG * 4,534
19,876 Tag Heuer International S.A. 1,370
137,600 Tag Heuer International S.A. ADR 963
- --------------------------------------------------------------------------------
27,050
- --------------------------------------------------------------------------------
Taiwan (0.4%)
3,382,500 China Steel Corp. 2,200
- --------------------------------------------------------------------------------
Turkey (0.2%)
26,192,500 Akbank T.A.S. 534
33,883,152 Yapi Ve Kredi Bankasi A.S. 413
8,131,956 Yapi Ve Kredi Bankasi Receipts *, (a) 99
- --------------------------------------------------------------------------------
1,046
- --------------------------------------------------------------------------------
United Kingdom (12.6%)
1,519,900 Billiton plc 3,322
187,500 British Telecommunications plc * 2,568
117,000 Cable & Wireless plc * 1,486
270,000 Cadbury Schweppes plc 4,053
2,635,000 Cookson Group plc 5,781
1,314,400 Corporate Services Group plc 3,187
67,300 Doncasters plc ADR * 1,102
352,400 EMI Group plc 2,098
482,000 Laporte plc 4,079
1,248,000 LucasVarity plc 4,282
1,693,000 Medeva plc 2,876
368,000 National Westminster Bank plc 6,713
417,933 Reuters Group plc 4,036
1,150,000 Safeway plc 5,672
1,419,500 Tomkins plc 6,579
1,168,058 WPP Group plc 6,435
46,239 Zeneca Group plc * 1,922
- --------------------------------------------------------------------------------
66,191
- --------------------------------------------------------------------------------
Total stocks (cost: $409,151) 497,770
- --------------------------------------------------------------------------------
Principal
Amount
(000)
- -------------
BONDS (0.5%)
Japan
$2,900 MBL International Finance (Bermuda) Trust,
Convertible Notes, 3.00%, 11/30/2002 (cost: $2,951) $ 2,900
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY ISSUES (4.5%)
23,426 Federal Home Loan Mortgage Corp., 5.10%,
12/01/1998 (cost: $23,426) 23,426
- --------------------------------------------------------------------------------
Total investments (cost: $435,528) $524,096
================================================================================
- -----------------------
* Non-income producing.
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Telephones 10.0%
Banks - Major Regional 8.2
Auto Parts 6.0
Drugs 5.2
U.S. Government & Agency Issues 4.5
Oil - International Integrated 3.9
Insurance - Multi-Line Companies 3.7
Computer Software & Service 3.5
Communications Equipment 2.9
Chemicals - Specialty 2.4
Manufacturing - Diversified Industries 2.1
Railroads / Shipping 2.1
Retail - Specialty 2.1
Tobacco 2.0
Automobiles 1.8
Banks - Money Center 1.8
Electric Utilities 1.7
Beverages - Nonalcoholic 1.6
Electronics - Semiconductors 1.6
Oil & Gas - Exploration & Production 1.6
Chemicals 1.5
Iron & Steel 1.4
Retail - Food 1.4
Services - Commercial & Consumer 1.4
Services - Facilities & Environment 1.4
Household Products 1.3
Oil & Gas - Drilling / Equipment 1.3
Advertising / Marketing 1.2
Building Materials Group 1.1
Foreign Conglomerate 1.1
Metals / Mining 1.1
Engineering & Construction 1.0
Machinery - Diversified 1.0
Medical Products & Supplies 1.0
Natural Gas Utilities 1.0
Other 13.2
-----
100.1%
=====
USAA INTERNATIONAL FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1998
(Unaudited)
GENERAL NOTES
Market value of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
GDR - Global Depositary Receipts are receipts issued by a U.S. or foreign bank
evidencing ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
(a) Illiquid security valued using methods determined by the Fund's investment
manager under the general supervision of the Board of Trustees. At November 30,
1998, these securities represented .24% of the Fund's net assets.
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1998
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $435,528) $524,096
Cash 194
Cash denominated in foreign currencies (identified cost of
$2,021) 2,062
Receivables:
Capital shares sold 201
Dividends and interest 1,042
Securities sold 3,038
Unrealized appreciation on foreign currency contracts held,
at value 3
--------
Total assets 530,636
--------
LIABILITIES
Securities purchased 3,732
Unrealized depreciation on foreign currency contracts held,
at value 17
Capital shares redeemed 2,826
USAA Investment Management Company 322
USAA Transfer Agency Company 90
Accounts payable and accrued expenses 67
--------
Total liabilities 7,054
--------
Net assets applicable to capital shares outstanding $523,582
========
REPRESENTED BY:
Paid-in capital $450,213
Accumulated undistributed net investment income 572
Accumulated net realized loss on investments (15,831)
Net unrealized appreciation of investments 88,568
Net unrealized appreciation on foreign currency translations 60
--------
Net assets applicable to capital shares outstanding $523,582
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 28,173
========
Net asset value, redemption price, and offering price per share $ 18.58
========
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1998
(Unaudited)
Net investment income:
Income (net of foreign taxes withheld of $549):
Dividends $ 4,111
Interest 825
----------
Total income 4,936
----------
Expenses:
Management fees 2,043
Transfer agent's fees 551
Custodian's fees 297
Postage 59
Shareholder reporting fees 26
Trustees' fees 2
Registration fees 26
Professional fees 14
Other 8
----------
Total expenses 3,026
----------
Net investment income 1,910
----------
Net realized and unrealized loss on investments and foreign currency:
Net realized loss on:
Investments (14,588)
Foreign currency transactions (902)
Change in net unrealized appreciation/depreciation on:
Investments (65,356)
Foreign currency translations 922
----------
Net realized and unrealized loss (79,924)
----------
Decrease in net assets resulting from operations $ (78,014)
==========
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1998
and Year ended May 31, 1998
(Unaudited)
11/30/98 5/31/98
-----------------------
From operations:
Net investment income $ 1,910 $ 5,358
Net realized gain (loss) on investments (14,588) 43,490
Net realized loss on foreign currency transactions (902) (529)
Change in net unrealized appreciation/depreciation on:
Investments (65,356) 27,231
Foreign currency translations 922 (812)
-----------------------
Increase (decrease) in net assets resulting
from operations (78,014) 74,738
-----------------------
Distributions to shareholders from:
Net investment income (5,475) (3,617)
-----------------------
Net realized gains (15,641) (45,161)
-----------------------
From capital share transactions:
Proceeds from shares sold 97,398 250,050
Shares issued for dividends reinvested 19,949 41,622
Cost of shares redeemed (123,290) (305,553)
-----------------------
Decrease in net assets from capital share
transactions (5,943) (13,881)
-----------------------
Net increase (decrease) in net assets (105,073) 12,079
Net assets:
Beginning of period 628,655 616,576
-----------------------
End of period $523,582 $628,655
=======================
Undistributed net investment income included in net
assets:
End of period $ 572 $ 5,039
=======================
Change in shares outstanding:
Shares sold 5,186 11,792
Shares issued for dividends reinvested 952 2,072
Shares redeemed (6,614) (14,535)
-----------------------
Decrease in shares outstanding (476) (671)
=======================
See accompanying notes to financial statements.
USAA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA INVESTMENT TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended, is a diversified, open-end management investment company
organized as a Massachusetts business trust consisting of eleven separate funds.
The information presented in this semiannual report pertains only to the USAA
International Fund (the Fund). The Fund's primary investment objective is
capital appreciation. Current income is a secondary objective. USAA Investment
Management Company (the Manager) seeks to achieve this objective by investing at
least 80% of the Fund's assets in common stocks, preferred stocks or securities
which are convertible into or which carry the right to buy common stocks of
foreign companies.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the average of the bid and asked
prices is generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value.
4. Securities which cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the Manager under the general supervision of the Board of Trustees.
B. Federal taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required. As a result of certain
permanent differences between book and tax basis accounting, reclassifications
were made to the statement of assets and liabilities to decrease paid-in capital
by $31,000 and decrease accumulated net realized loss on investments by $31,000.
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.
F. Euro Conversion Risk - On January 1, 1999, countries participating in the
European Monetary Union will begin converting their currencies into a new
currency unit called the euro. The countries initially participating in the
conversion are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, Netherlands, Portugal, and Spain. Conversion to the euro may present
certain risks to investments of the Fund held in one of the currencies being
replaced. The conversion is not expected to have a material impact on the Fund's
investments.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at CAPCO's borrowing rate
with no markup. Subject to availability under its agreement with NationsBank,
the Fund may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of the Fund's total
assets at NationsBank's borrowing rate plus a markup. The Fund had no borrowings
under either of these agreements during the six-month period ended November 30,
1998.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended November 30, 1998 were $105.7 million
and $110.7 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1998 was $139.9 million and $51.3 million, respectively.
(5) FOREIGN CURRENCY CONTRACTS
A forward currency contract (currency contract) is a commitment to purchase or
sell a foreign currency at a specified date, at a negotiated price. The Fund
currently enters into currency contracts only in connection with the purchase or
sale of a security denominated in a foreign currency. These contracts allow the
fund to "lock in" the U.S. dollar price of the security. Currency contracts are
valued on a daily basis using foreign currency exchange rates obtained from an
independent pricing service. Risks of entering into currency contracts include
the potential inability of the counterparty to meet the terms of the contract
and the Fund giving up the opportunity for potential profit.
At November 30, 1998, the terms of open foreign currency contracts were as
follows (in thousands):
Foreign Currency Contracts to Buy:
<TABLE>
- --------------------------------------------------------------------------------------
<CAPTION>
U.S. Dollar In Exchange
Exchange Value as of for U.S. Unrealized Unrealized
Date Contracts to Receive 11/30/98 Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
12/01/98 12,240 Greek Drachma $ 43 $ 43 $ - $ -
12/04/98 1,615 British Pound 2,665 2674 - (9)
12/07/98 62 British Pound 103 103 - -
12/07/98 4,860 South African Rand 853 855 - (2)
- --------------------------------------------------------------------------------------
$ 3,664 $ 3,675 $ - $ (11)
======================================================================================
</TABLE>
Foreign Currency Contracts to Sell:
<TABLE>
- -----------------------------------------------------------------------------------------
<CAPTION>
U.S. Dollar In Exchange
Exchange Value as of for U.S. Unrealized Unrealized
Date Contracts to Deliver 11/30/98 Dollar Appreciation Depreciation
- -----------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
12/01/98 26,333 Japenese Yen $ 214 $ 214 $ - $ -
12/01/98 61 Japenese Yen 1 1 - -
12/02/98 678 Swiss Franc 485 479 - (6)
12/02/98 283 British Pound 467 470 3 -
12/02/98 26,764 Japenese Yen 217 217 - -
12/02/98 61 Japenese Yen 1 1 - -
12/02/98 13,818 Japenese Yen 112 112 - -
12/03/98 13,958 Japenese Yen 113 113 - -
12/07/98 131 Singapore Dollar 79 79 - -
- -----------------------------------------------------------------------------------------
$ 1,689 $ 1,686 $ 3 $ (6)
=========================================================================================
</TABLE>
(6) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at .75% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $23.50 per shareholder account plus
out-of-pocket expenses. Effective January 1, 1999, the annual charge will be
$26.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month Eight-month
Period Ended Period Ended
November 30, Year Ended May 31, May 31,
- ---------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 21.94 $ 21.03 $ 18.71 $ 15.78 $ 16.36 $ 14.48
Net investment
income .07 .19 .15 .17 .10 -
Net realized and
unrealized gain
(loss) (2.69) 2.41 2.87 2.92 .29 2.23
Distributions from
net investment
income (.19) (.12) (.20) (.07) - -
capital gains (.55) (1.57) (.50) (.09) (.97) (.35)
- ---------------------------------------------------------------------------------------
Net asset value at
end of period $ 18.58 $ 21.94 $ 21.03 $ 18.71 $ 15.78 $ 16.36
=======================================================================================
Total return (%) * (12.34) 13.29 16.72 19.71 2.49 15.67
Net assets at end
of period (000) $523,582 $628,655 $616,576 $417,995 $346,033 $184,792
Ratio of expenses
to average
net assets (%) 1.10(a) 1.05 1.09 1.19 1.17 1.31(a)
Ratio of net
investment income
to average net
assets (%) .70(a) .87 .79 1.04 .81 .04(a)
Portfolio
turnover (%) 20.38 42.97 46.03 70.01 64.30 44.39
</TABLE>
*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.
TRUSTEES
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:30 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information On Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLine(Registered Trademark)
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
