Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Manager 5
Shareholder Voting Results 8
Financial Information
Portfolio of Investments 9
Notes to Portfolio of Investments 11
Statement of Assets and Liabilities 12
Statement of Operations 13
Statements of Changes in Net Assets 14
Notes to Financial Statements 15
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Gold Fund,
managed by USAA Investment Management Company (IMCO). It may be used as sales
literature only when preceded or accompanied by a current prospectus which gives
further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)2000, 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
Small Cap Stock 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
High-Yield
Opportunities High $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Intermediate-Term
Bond Low to 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, which are discussed in the
funds' prospectuses.
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.
Nondeposit 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]
As I write this message, I am also in the process of preparing to lead a panel
on personal finance at the Greater San Antonio Chamber of Commerce's annual
conference on economic development. As we enter 2000, I have asked my fellow
panelists to look back to what they consider to be the key lessons they have
learned in careers that all span at least 25 years in investments.
The incident and the person I have chosen is the visit of a well-known equity
strategist from one of the major investment bankers to San Antonio in the spring
of 1982. I should remind you what the spring of 1982 was like. The market had
not yet shaken off the effects of repeated, arbitrary increases in the price of
oil; the roaring inflation which followed; and the highest U.S. interest rates
since the Civil War. Stocks and bonds had not yet come off their worst
performance since World War II. Against this backdrop, that well-known equity
strategist delivered a magnificent after-dinner presentation. He plucked facts
and figures from a wide variety of sources and wove them into a compelling
argument. His conclusion was clear: "Stay out of this market!" He was brilliant.
He was dead wrong. That summer saw the beginning of the greatest bull market for
both stocks and bonds in U.S. history.
This incident has greatly influenced my thinking and my career. It taught me
these things:
- It is best to base investment strategy on something other than a
forecast of the market.
- If you insist on forecasting the market, it doesn't help to make
the little calls. You absolutely must be right at times like spring
of 1982.
- If you use an asset allocation approach to investing, your chances
of being in at a major turning point are 100%.
That is why I believe in the asset allocation approach of our strategy funds.
Sincerely,
Michael J.C. Roth, CFA
President and
Vice Chairman of the Board
Past performance is no guarantee of future results.
For more complete information about the mutual funds managed and distributed by
USAA Investment Management Company, including charges and operating expenses,
please call for a prospectus. Read it carefully before investing.
Investment Review
USAA GOLD FUND
OBJECTIVE: Long-term capital appreciation and to protect the purchasing power of
shareholders' capital against inflation; secondary objective of current income.
TYPES OF INVESTMENTS: Invests principally in equity securities of domestic and
foreign gold exploration, mining, or processing companies.
- --------------------------------------------------------------------------------
11/30/99 5/31/99
================================================================================
Net Assets $86.8 Million $82.5 Million
Net Asset Value Per Share $5.83 $5.33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 11/30/99
================================================================================
5/31/99 to 11/30/99(+) 1 Year 5 Years 10 Years
9.38% 5.05% -6.60% -4.73%
- --------------------------------------------------------------------------------
(+) 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 gains distributions. No adjustment has
been made for taxes payable by shareholders on their reinvested income dividends
and capital gains distributions. The performance data quoted represent past
performance and are not an indication of future results. Investment return and
principal value of an investment will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
CUMULATIVE PERFORMANCE COMPARISON
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA Gold Fund, the S&P 500 Index, the
Philadelphia Gold & Silver Index, and the London Gold for the period of 11/30/89
through 11/30/99. The data points from the graph are as follows:
USAA Gold S&P 500 Philadelphia London Gold
Fund Index (XAU) Index Bullion
----------- ----------- ------------ -----------
11/30/89 $10,000 $10,000 $10,000 $10,000
05/31/90 8,117 10,627 8,995 8,895
11/30/90 6,682 9,653 7,141 9,429
05/31/91 6,689 11,877 6,897 8,830
11/30/91 7,062 11,612 7,048 8,975
05/31/92 6,479 13,045 6,285 8,269
11/30/92 6,015 13,753 5,514 8,188
05/31/93 9,586 14,557 9,309 9,248
11/30/93 9,186 15,139 9,946 9,087
05/31/94 9,312 15,175 10,080 9,497
11/30/94 8,668 15,297 8,604 9,386
05/31/95 9,502 18,234 10,054 9,416
11/30/95 9,228 20,947 10,147 9,501
05/31/96 11,750 23,415 12,474 9,569
11/30/96 9,478 26,779 10,070 9,097
05/31/97 8,548 30,308 8,739 8,467
11/30/97 5,547 34,412 5,933 7,272
05/31/98 6,203 39,599 6,259 7,193
11/30/98 5,864 42,562 5,945 7,245
05/31/99 5,632 47,927 5,100 6,581
11/30/99 6,160 51,455 5,617 7,138
Data from 11/30/89 through 11/30/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Gold Fund; the S&P 500 Index, which is an unmanaged index representing the
weighted average performance of a group of 500 widely held, publicly traded
stocks (it is not possible to invest directly in the S&P 500 Index); the
Philadelphia Gold & Silver Index, representing nine holdings in the gold &
silver sector, typically referred to as the XAU; and London Gold, a traditional
gold bullion index.
Message from the Manager
[PHOTOGRAPH OF PORTFOLIO MANAGER: MARK JOHNSON, CFA, APPEARS HERE]
THE GOLD MARKET
Gold prices were unusually volatile during the six months ending November 30,
1999. The range was $252.80 per ounce -- a 20-year low -- on July 20 to $325.50
per ounce on October 5. Prices ended the period at $291.35 versus $268.60 on May
31, 1999 -- an increase of 8.5%. At the beginning of the period psychology was
dismal and short sellers built ever larger positions, driving gold prices down
in the process. By September the borrowing requirements of short-sellers had
driven one-month gold lease rates above 4%, versus a more normal level of 1%,
leaving the market in a strained and tenuous position. Psychology, meanwhile,
became more favorable in the wake of a well-received auction of United Kingdom
gold and the abandonment of the International Monetary Fund's (IMF) gold sales
plan. This resulted in the price recovering to $270.00 by September 24 from
$255.10 on September 17.
This was the backdrop of the market on September 26, when 15 European central
banks -- including Switzerland and the United Kingdom -- issued their stunning
joint communique. Together they pledged to restrict future combined sales to 400
metric tonnes per year for the next five years and, more importantly, agreed to
cap their gold lending books at current levels. What followed was a classic
short-seller squeeze! Prices jumped $55.50 in just seven trading sessions, and
the one-month lease rates exceeded 10% on September 29. In the end, the squeeze,
which was already running out of steam, was broken when Kuwait agreed to lend
out its entire 79-tonne reserve on October 19. Prices then eroded back to the
$295 level as more mundane matters like end-user demand -- which was damaged by
the price volatility -- versus mine supply came to prominence. Unfortunately,
the November 29 quarterly United Kingdom gold auction was poorly received.
Attitudes once again became negative, and as November ended, short-sellers were
again active.
The announcement to cap gold lending was a watershed event -- rare in any type
of market! You may recall that in our last annual report we quoted Alan
Greenspan. At that time, he said that the problem with the gold market was that
"... central banks stand ready to lease gold in increasing quantities should the
price rise." The significance of the September 26 communique is that European
central banks, which between them control 52% of all central bank gold, no
longer "stand ready" to do so. Moreover, if you add in the holdings of the
United States and Japan, suddenly 81% of all central bank gold is unavailable
for incremental lending. The single most important impediment to rising gold
prices has suddenly been removed. Mr. Greenspan's observation is no longer
applicable -- at least to the same degree. In the future, fundamental supply and
end-user demand variables -- which favor higher rather than lower long-term
prices -- may dominate. Recent end-user fabrication demand of roughly 3,700
metric tonnes per year -- plus about 200 tonnes normally consumed by gold-bar
hoarding -- exceeds mine supply (2,550 tonnes) and normal levels of scrap
recovery (650 tonnes) by 700 tonnes per year. Even with 400 tonnes per year
still coming out of Europe, the market is short 300 tonnes.
FUND PERFORMANCE AND STRATEGY
The cumulative return of the USAA Gold Fund for the six months ending November
30, 1999, was 9.4%. This was in line with the 8.5% rise in the gold price. This
constitutes a very disappointing return. Gold stocks generally are more volatile
than the gold price with the rule of thumb being an almost 3-to-1 leverage
factor. That this did not happen this time around reflects two factors. First,
gold stocks did a good job of holding their value during the price decline
experienced in our May 31, 1999, fiscal year. They did not give up as much on
the way down as would normally be expected and hence had less room to advance in
the subsequent rally. Second, a number of producers had entered into various
hedging agreements in an effort to guarantee survival should gold continue to
decline. These contracts were entered into both voluntarily and at the behest of
bankers as a financing requirement. Those hedge books took away some of the
upside when gold rallied. Worse, in two notable cases -- Ashanti Goldfields (a
Fund holding) and Cambior (not a Fund holding) -- the hedge books went into loss
positions exposing both firms to margin calls that they could not meet. The
subsequent liquidity crises, which we do not believe threatens the survivability
of the firms, caused the stocks to lose significant value.
The top-performing stock for the six months was Rio Narcea Gold Mines at +75.9%.
Operations improved, and they reported interesting exploration results. Acacia
Resources at +68.5% was the subject of a tender offer. Anglo American Platinum
(+62.8%) and Impala Platinum (+51.9%) benefited from higher platinum prices.
Gold Fields Limited (+43.5%), Agnico-Eagle Mines (+39.1%), Newmont Mining
(+33.0%), and Harmony Gold Mining (+32.7%) all did well by virtue of being
largely unhedged. The worst-performing stock was, of course, Ashanti Goldfields
(-57.5%). The small positions in Resolute (-50.7%) and Geomaque Explorations
(-46.0%) also did poorly.
Although the Fund as of November 30 had a significant opportunistic exposure to
diamonds, silver, and platinum group metals (15.8%), the main thrust of the Fund
remained in gold at over 80% of Fund net assets. Our strategic focus also
remains unchanged: to emphasize well-managed and prudently financed low-cost
producers with good production or reserve growth potential that sell at
reasonable valuations on a risk-adjusted basis.
Finally, the USAA Gold Fund was highlighted favorably in the August 23, 1999,
issue of Forbes Magazine as one of four precious metals funds for the five-year
period ending June 30, 1999.
Past performance is no guarantee of future results.
Top 10 Equity Holdings
(% of Net Assets)
------------------------------------------
Franco-Nevada Mining 7.9
Barrick Gold 7.3
Agnico-Eagle Mines 6.5
Gold Fields Ltd. 5.7
Goldcorp "A" 5.6
Harmony Gold Mining Co., Ltd. 5.6
Meridian Gold, Inc. 5.3
Stillwater Mining 4.9
Acacia Resources 4.8
Co De Minas Buenaventura SA ADR 4.7
Foreign and gold investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability.
See page 9 for a complete listing of the portfolio of investments.
Shareholder Voting Results
On October 15, 1999, a special meeting of shareholders was held to vote on the
following proposals. All proposals were approved by the shareholders. All
shareholders of record on August 19, 1999, were entitled to vote on each
proposal. The number of votes shown below are for the entire series of the USAA
Investment Trust (the Trust) for proposals 1 and 2.
1 Proposal to elect Trustees as follows:
TRUSTEES VOTES FOR VOTES WITHHELD
Robert G. Davis 181,888,787 2,690,901
Michael J.C. Roth 181,881,641 2,698,047
David G. Peebles 181,888,787 2,690,901
Robert L. Mason 181,888,787 2,690,901
Michael F. Reimherr 181,883,427 2,696,261
Richard A. Zucker 181,875,813 2,696,966
Barbara B. Dreeben 181,883,427 2,696,261
John W. Saunders, Jr. and Howard L. Freeman, Jr. did not stand for re-election
to the Board. Their term of office will terminate on December 31, 1999.
2 Proposal to ratify the selection by the Board of Trustees of KPMG LLP as
auditors for the Trust for the fiscal year ending May 31, 2000.
NUMBER OF SHARES VOTING
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
179,181,697 2,930,888 2,467,103
USAA GOLD FUND
PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (98.5%)
African Gold Companies (14.7%)
550,000 Ashanti Goldfields Co. Ltd. GDR $ 1,753
1,100,000 Gold Fields Ltd. 4,940
750,000 Harmony Gold Mining Co. Ltd. 4,856
350,000 Randgold Resources, Ltd. GDR * (a) 1,225
- --------------------------------------------------------------------------------
12,774
- --------------------------------------------------------------------------------
Australian Gold Companies (14.5%)
2,300,000 Acacia Resources Ltd. 4,149
1,500,000 Delta Gold NL 2,501
200,000 Kingsgate Consolidated NL * 100
3,400,000 Lihir Gold Ltd. * 2,640
300,000 Newcrest Mining Ltd. 957
950,000 Ranger Minerals NL * 1,633
2,000,000 Resolute Ltd. 592
- --------------------------------------------------------------------------------
12,572
- --------------------------------------------------------------------------------
North American Gold Companies (48.8%)
750,000 Agnico-Eagle Mines Ltd. 5,672
350,000 Barrick Gold Corp. 6,300
250,000 Cumberland Resources Ltd. * 297
150,000 Francisco Gold Corp. * 688
375,000 Franco-Nevada Mining Corp. Ltd. 6,880
250,000 Freeport-McMoRan Copper & Gold, Inc. "A" * 3,391
500,000 Geomaque Explorations Ltd. * 183
700,000 Glamis Gold Ltd. * 1,269
900,000 Goldcorp, Inc. "A" * 4,892
250,000 Manhattan Minerals Corp. * 798
750,000 Meridian Gold, Inc. * 4,641
100,000 Newmont Mining Corp. 2,369
200,000 Pangea Goldfields Inc. * 533
300,000 Placer Dome, Inc. 3,412
800,000 Rio Narcea Gold Mines Ltd. * 908
250,000 Romarco Minerals Inc. * 170
- --------------------------------------------------------------------------------
42,403
- --------------------------------------------------------------------------------
South American Gold Companies (4.7%)
250,000 Compania de Minas Buenaventura S.A. ADR 4,109
- --------------------------------------------------------------------------------
Precious Metals And Minerals Companies (15.8%)
300,000 Aber Resources Ltd. * 1,661
80,000 Anglo American Platinum Corp. 2,396
75,000 Apex Silver Mines Ltd. * 891
37,500 Apex Silver Mines Ltd. Warrants * 0
150,000 Dia Met Minerals Ltd. "A" * 1,962
70,000 Impala Platinum Holdings Ltd. 2,549
175,000 Stillwater Mining Co. * 4,244
- --------------------------------------------------------------------------------
13,703
- --------------------------------------------------------------------------------
Total common stocks (cost: $102,808) 85,561
- --------------------------------------------------------------------------------
Principal
Amount
(000)
---------
U.S. GOVERNMENT & AGENCY ISSUES (2.0%)
Discount Note (2.0%)
$ 1,726 Federal Home Loan Mortgage Corp., 5.61%, 12/01/1999
(cost: $1,726) 1,726
- --------------------------------------------------------------------------------
Total investments (cost: $104,534) $87,287
================================================================================
USAA GOLD FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in note 1 to the financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADR - American Depositary Receipts are receipts issued by a U.S. bank evidencing
ownership of foreign shares. Dividends are paid in U.S. dollars.
GDR - Global Depositary Receipts are receipts issued by a U.S. or foreign bank
evidencing ownership of foreign shares. Dividends are paid in U.S. dollars.
SPECIFIC NOTES
(a) Illiquid security valued using methods determined by the Manager under the
general supervision of the Board of Trustees. At November 30, 1999, these
securities represented 1.4% of the Fund's net assets.
* Non-income producing securities.
See accompanying notes to financial statements.
<TABLE>
USAA GOLD FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1999
(Unaudited)
<S> <C>
ASSETS
Investments in securities, at market value (identified cost of $102,808) $ 87,287
Cash 30
Receivables:
Capital shares sold 28
Dividends and interest 53
Securities sold 49
--------
Total assets 87,447
--------
LIABILITIES
Securities purchased 381
Capital shares redeemed 72
USAA Investment Management Company 59
USAA Transfer Agency Company 43
Accounts payable and accrued expenses 52
--------
Total liabilities 607
--------
Net assets applicable to capital shares outstanding $ 86,840
========
REPRESENTED BY:
Paid-in capital $153,941
Accumulated net investment loss (192)
Accumulated net realized loss on investments (49,662)
Net unrealized depreciation of investments (17,247)
--------
Net assets applicable to capital shares outstanding $ 86,840
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 14,900
========
Net asset value, redemption price, and offering price per share $ 5.83
========
See accompanying notes to financial statements.
</TABLE>
USAA GOLD FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 1999
(Unaudited)
Net investment income:
Income:
Dividends (net of foreign taxes withheld of $8) $ 421
Interest 53
------
Total income 474
------
Expenses:
Management fees 323
Transfer agent's fees 237
Custodian's fees 30
Postage 19
Shareholder reporting fees 10
Trustees' fees 2
Registration fees 25
Professional fees 17
Other 1
------
Total expenses 664
------
Net investment loss (190)
------
Net realized and unrealized gain (loss) on investments and
foreign currency:
Net realized gain on investments 3,883
Change in net unrealized appreciation/depreciation of:
Investments 4,911
Foreign currency translations (1)
------
Net realized and unrealized gain 8,793
------
Increase in net assets resulting from operations $8,603
======
See accompanying notes to financial statements.
<TABLE>
USAA GOLD FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1999,
and year ended May 31, 1999
(Unaudited)
<CAPTION>
11/30/99 5/31/99
-------------------------
<S> <C> <C>
From operations:
Net investment loss $ (190) $ (118)
Net realized gain (loss) on investments 3,883 (14,856)
Net realized loss on foreign currency transactions - (14)
Change in net unrealized appreciation/depreciation of:
Investments 4,911 8,015
Foreign currency translations (1) 5
-------------------------
Increase (decrease) in net assets
resulting from operations 8,603 (6,968)
-------------------------
From capital share transactions:
Proceeds from shares sold 40,824 66,230
Cost of shares redeemed (45,078) (69,997)
-------------------------
Decrease in net assets from capital share
transactions (4,254) (3,767)
-------------------------
Net increase (decrease) in net assets 4,349 (10,735)
Net assets:
Beginning of period 82,491 93,226
-------------------------
End of period $ 86,840 $ 82,491
=========================
Undistributed net investment loss included in net assets:
End of period $ (192) $ (2)
=========================
Change in shares outstanding:
Shares sold 7,279 12,316
Shares redeemed (7,854) (12,712)
-------------------------
Decrease in shares outstanding (575) (396)
=========================
See accompanying notes to financial statements.
</TABLE>
USAA GOLD FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1999
(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
Gold Fund (the Fund). The Fund's primary investment objective is to seek
long-term capital appreciation and to protect the purchasing power of
shareholders' capital against inflation. Current income is a secondary
objective. USAA Investment Management Company (the Manager) seeks to achieve
this objective by investing the great majority of the Fund's assets in equity
securities of domestic and foreign gold exploration, mining, or processing
companies. The Fund concentrates its investments in securities of companies
principally engaged in gold exploration, mining, or processing and therefore may
be exposed to more risk than portfolios with a broader industry diversification.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the last quoted sale price, or the most recently
determined closing price calculated according to local market convention
available at the time the Fund is valued. If no sale is reported, the average of
the bid and asked prices is generally used.
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 that 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.
C. Investments in securities - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from sales
of investment securities is computed on the identified cost basis. Dividend
income, less foreign taxes, if any, is recorded on the ex-dividend date. If the
ex-dividend date has passed, certain dividends from foreign securities are
recorded upon notification. Interest income is recorded on the accrual basis.
Discounts and premiums on short-term securities are amortized over the life of
the respective securities.
D. Foreign currency translations - The assets of the Fund may be invested in
the securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean
between the bid and asked translation rates of such currencies against U.S.
dollars on a daily basis.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates of
such transactions.
Net realized and unrealized foreign currency gains/losses occurring during the
holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign currency,
currency gains/losses realized between the trade and settlement dates on
security transactions, and the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received. Net realized foreign currency
gains/losses have been reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets and
liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities other than investments in
securities resulting from changes in the exchange rate.
E. Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the financial
statements.
(2) LINES OF CREDIT
The Fund participates with other USAA funds in three joint short-term revolving
loan agreements totaling $850 million, two with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($250 million committed and $500 million
uncommitted), and one with Bank of America ($100 million committed). The purpose
of the agreements is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely disposition of
securities. Subject to availability under both agreements with CAPCO, the Fund
may borrow from CAPCO an amount up to 5% of the Fund's total assets at CAPCO's
borrowing rate with no markup. Subject to availability under its agreement with
Bank of America, the Fund may borrow from Bank of America, at Bank of America's
borrowing rate plus a markup, an amount which, when added to outstanding
borrowings under the CAPCO agreements, does not exceed 25% of the Fund's total
assets. For the six-month period ended November 30, 1999, the Fund had three
borrowings, averaging $2,141,667 with an average length of two days, and
incurred $1,008 in interest expense.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes. At November 30,
1999, the Fund had capital loss carryovers for federal income tax purposes of
approximately $42.9 million which will expire in 2000 - 2008. It is unlikely
that the Trust's Board of Trustees will authorize a distribution of capital
gains realized in the future until the capital loss carryovers have been
utilized or expire.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the period ended November 30, 1999, were $10.6 million and $14.6
million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1999, were $8.8 million and $26.0 million, respectively.
(5) FOREIGN CURRENCY CONTRACTS
A forward currency contract (currency contract) is a commitment to purchase or
sell a foreign currency at a specified date, at a negotiated price. The Fund
currently enters into currency contracts only in connection with the purchase or
sale of a security denominated in a foreign currency. These contracts allow the
Fund to "lock in" the U.S. dollar price of the security. Currency contracts are
valued on a daily basis using foreign currency exchange rates obtained from an
independent pricing service. Risks of entering into currency contracts include
the potential inability of the counterparty to meet the terms of the contract
and the Fund giving up the opportunity for potential profit.
At November 30, 1999, the terms of open foreign currency contracts were as
follows (in thousands):
<TABLE>
<CAPTION>
Foreign Currency Contracts to Buy:
- -------------------------------------------------------------------------------------------
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Receive 11/30/99 for U.S. Dollar Appreciation Depreciation
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
12/03/99 81 Australian Dollar $ 52 $ 52 $ - $ -
12/03/99 517 Australian Dollar 329 330 - 1
- -------------------------------------------------------------------------------------------
$381 $382 $ - $ 1
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Contracts to Sell:
- -------------------------------------------------------------------------------------------
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Deliver 11/30/99 for U.S. Dollar Appreciation Depreciation
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
12/03/99 8 Canadian Dollar $ 5 $ 5 $ - $ -
- -------------------------------------------------------------------------------------------
$ 5 $ 5 $ - $ -
===========================================================================================
</TABLE>
(6) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at .75% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. The
Manager receives no commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) YEAR 2000
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 has taken steps to address this potential year 2000 problem with
respect to the computer systems that they use and to obtain satisfactory
assurances that the comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund from this
problem.
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
Six-month
Period Ended
November 30, Year Ended May 31,
---------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 5.33 $ 5.87 $ 8.09 $ 11.12 $ 9.00 $ 8.83
Net investment
income (loss) (.01)(a) (.01)(a) (.03)(a) (.01)(a) (.02) .01
Net realized and
unrealized
gain (loss) .51 (.53) (2.19) (3.02) 2.15 .17
Distributions from net
investment income - - - - (.01) (.01)
---------------------------------------------------------------------
Net asset value at
end of period $ 5.83 $ 5.33 $ 5.87 $ 8.09 $ 11.12 $ 9.00
=====================================================================
Total return (%) * 9.38 (9.20) (27.44) (27.25) 23.66 2.05
Net assets at end of
period (000) $ 86,840 $ 82,491 $ 93,226 $121,169 $167,067 $160,223
Ratio of expenses to
average
net assets (%) 1.53(b) 1.52 1.46 1.31 1.33 1.28
Ratio of net investment
income (loss)
to average net
assets (%) (.43)(b) (.13) (.42) (.11) (.14) .10
Portfolio turnover (%) 12.39 33.48 19.62 26.40 16.48 34.76
* Assumes reinvestment of all dividend income and capital gains distributions
during the period.
(a) Calculated using weighted average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
</TABLE>
TRUSTEES
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
INVESTMENT ADVISER, UNDERWRITER, AND DISTRIBUTOR
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
TRANSFER AGENT
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
KPMG LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
Sundays 11:30 a.m. to 8:00 p.m.
Internet Access
usaa.com(Service Mark)
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 touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777, (in San Antonio) 498-8777
