Table of Contents
USAA Family of Funds 1
Message from the President 2
Investment Review 4
Message from the Managers 5
Shareholder Voting Results 9
Financial Information
Portfolio of Investments 10
Notes to Portfolio of Investments 23
Statement of Assets and Liabilities 24
Statement of Operations 25
Statements of Changes in Net Assets 26
Notes to Financial Statements 27
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 Cornerstone
Strategy 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 the 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 CORNERSTONE STRATEGY FUND
OBJECTIVE: Achieve a positive, inflation-adjusted rate of return and a
reasonably stable value of Fund shares, thereby preserving purchasing power of
shareholders' capital.
TYPES OF INVESTMENTS: Invests principally in U.S. stocks, international stocks,
U.S. government securities, real estate securities, and gold securities.
- --------------------------------------------------------------------------------
11/30/99 5/31/99
- --------------------------------------------------------------------------------
Net Assets $1,169.4 Million $1,257.8 Million
Net Asset Value Per Share $25.92 $27.29
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 11/30/99
- --------------------------------------------------------------------------------
5/31/99 to 11/30/99(+) 1 Year 5 Years 10 Years
0.31% 5.42% 11.88% 9.11%
- --------------------------------------------------------------------------------
(+) 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 Cornerstone Strategy Fund, the S&P
500 Index, and the Lipper Global Flexible Portfolio Funds Average for the period
of 11/30/89 through 11/30/99. The data points from the graph are as follows:
USAA Cornerstone S&P 500 Lipper
Strategy Fund Index Average
------------- ------- -------
11/30/89 $10,000 $10,000 $10,000
05/31/90 9,758 10,627 10,156
11/30/90 8,987 9,653 9,743
05/31/91 10,030 11,877 10,998
11/30/91 10,085 11,612 11,157
05/31/92 10,948 13,045 12,014
11/30/92 11,116 13,753 12,260
05/31/93 12,941 14,557 13,701
11/30/93 13,508 15,139 14,437
05/31/94 13,992 15,175 14,673
11/30/94 13,646 15,297 14,388
05/31/95 14,892 18,234 15,537
11/30/95 15,958 20,947 16,632
05/31/96 17,541 23,415 18,036
11/30/96 19,153 26,779 19,381
05/31/97 20,512 30,308 20,521
11/30/97 22,325 34,412 21,452
05/31/98 24,029 39,599 23,506
11/30/98 22,693 42,562 23,217
05/31/99 23,850 47,927 24,537
11/30/99 23,924 51,455 26,802
Data from 11/30/89 through 11/30/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Cornerstone Strategy Fund to the S&P 500 Index and the Lipper Global
Flexible Portfolio Funds Average, an average performance level of all global
flexible portfolio funds, as reported by Lipper Analytical Services, Inc., an
independent organization that monitors the performance of mutual funds. 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
directly in the S&P 500 Index.
Message from the Managers
[Photograph of portfolio managers: Kevin P. Moore (International Stocks); David
G. Peebles, CFA (International Stocks); Albert C. Sebastian, CFA (International
Stocks); R. David Ullom, CFA (Allocation Manager and U.S. Stocks); Mark W.
Johnson, CFA (Gold and Real Estate Securities); and John W. Saunders, Jr., CFA
(U.S. Government Securities) appears here.]
FUND OVERVIEW
As discussed in our 1999 annual report, we have made several changes to the
asset allocation profile of the USAA Cornerstone Strategy Fund. The allocation
range for U.S. stocks was increased from 22-28% to a level of 25-55%. The
international allocation was also raised from 22-28% to 25-35%. The increases in
allocations to these two categories were offset by decreases in the allocations
to U.S. government securities and real estate securities.
For the first half of the current fiscal year, the USAA Cornerstone Strategy
Fund's total return was 0.31%. Performance of the Fund did not keep pace with
the major averages. Three of the four sectors of the Fund (real estate
securities, U.S. government securities, and U.S. stocks) were down for the
period.
As we have reported, the objective of the USAA Cornerstone Strategy Fund is to
generate a positive real rate of return. Given that inflation has been subdued
over the recent past, we have made alterations to the sector allocations of the
Fund to increase the potential for improved returns. At the same time, we have
tried to maintain some exposure to investments that offer inflation protection
to investors.
UNITED STATES
The first half of the current fiscal year proved to be a difficult period for
the performance of the U.S. stock sector of the Fund. Although the weighting in
technology was increased during the period (to over 17%), the strong performance
of this group was not enough to offset the poor relative performance of other
sectors. The allocation to U.S. stocks was particularly hurt by weightings in
the areas of capital goods - B.F. Goodrich, Ball Corporation, Caterpillar, and
Eaton - and consumer cyclicals - Meritor, Lear Corporation, J.C. Penney, May
Department Stores Company, and Sears Roebuck.
In addition to the technology sector, another area that contributed positively
to performance was communication services - Sprint Corporation, GTE, and SBC
Communications. Although this industry is becoming increasingly competitive, the
rapid growth in data and video transmission could allow continued revenue and
earnings growth for most participants. We are becoming increasingly concerned
with the valuation levels in the technology sector. The energy and financial
sectors are two areas where we continue to believe that the valuations are
overly pessimistic regarding the fundamentals for these two industries.
INTERNATIONAL
Developed Markets - In Europe, rising interest rates as well as weak currencies
negatively impacted equity returns. An improved profit outlook and stronger
economic growth positively impacted performance. Telecommunications and
technology stocks were the best-performing issues, with media and mining stocks
also performing well. However, auto-related and interest-rate-sensitive stocks
performed poorly for the period.
Canada - Canada was a mixed bag, with telecommunications and technology
performing well, while financial stocks were relatively weak. Energy stocks were
also mixed despite higher energy prices.
Japan - The market continued to be very strong during the last six months due
mainly to global popularity of telecommunications and technology stocks. Growth
stocks continued to outperform value stocks due to the secular transformation of
the Japanese economy - from manufacturing to service. The other focus of the
market this year has been corporate restructuring, which we would expect to
continue next year. Consolidation of the banking sector should continue which
would, in turn, bring more efficient credit usage. The yen turned around after
the middle of the year with the expectation of a stronger Japanese economic
recovery. The Organization for Economic Cooperation and Development (OECD)
recently revised this year's and next year's gross domestic product (GDP) growth
from -0.9% to +1.4%, and from 0% to +1.4%, respectively. The current Obuchi
administration appears to be very solid, and we expect no political turmoil to
take place in the next six months. Our overweighting in the technology and
telecommunications sectors positively impacted our performance this year.
Emerging Markets - Most of the emerging market regions suffered a pullback in
the midsummer months, and all, except for some East European markets,
experienced strong rallies beginning in late September. Over the past six
months, emerging markets have retained or added to most of the gains they
experienced since the lows during the Russian and Asian crises of late 1998.
Expectations for the Asian economies continued to rise during the last six
months while concerns lingered regarding East European economies. Commodity
price increases and interest-rate declines continue to support a rebound in the
South African economy. The Latin markets have also rebounded since concerns
about presidential elections in Mexico and economic concerns in Brazil have
receded.
U.S. GOVERNMENT
Following the highly volatile period from August to November last year, the bond
market stabilized through January 1999. Since then, interest rates have moved
upward, depressing bond prices again.
Economic strength continued through November 1999, renewing inflation fears and
the specter of higher interest rates. This fear continues even though the
Federal Reserve raised interest rates by 0.25% three times in the six-month
period: in June, August, and November. Yields on the 30-year Treasury bond have
moved from 5.83% on May 28, 1999, to 6.29% for November 30, 1999, the end of
this reporting period. With yields on the long Treasury bond over 6%, this rise
in interest rates may be about over.
Investments in this portfolio segment on November 30, 1999, were 6% short-term
U.S. government agency securities, 56% GNMA mortgage pass-through securities,
and 38% U.S. Treasury bonds.
REAL ESTATE
Real estate securities performed poorly during the six months ended November 30,
1999. Shares of real estate investment trusts (REITs), as measured by the
National Association of Real Estate Investment Trusts (NAREIT) equity index,
declined 13.19% on a total-return basis. This was well below the 6.69% return on
the S&P 500 Index. These poor results occurred in spite of a continued favorable
property cycle in which most of the companies are meeting or exceeding earnings
expectations.
Performance has been so poor that most REITs are now selling well below net
asset value with very high dividend yields - 8.77% on average, according to
NAREIT - and at low earnings multiples, especially relative to the S&P 500. We
attribute the poor performance of real estate securities to the fact that they
are small-capitalization, high-yield value stocks. The stock market is currently
focused on technology and large-capitalization growth stocks. The further away a
stock class is from those groups, the more out of favor the class is. Real
estate securities are, for all practical purposes, an abandoned sector. The
history of sectors that are out of favor in extremis - despite solid economic
fundamentals - however, is that they have exhibited strong rebounds.
GOLD
Gold prices rose 8.5% from $268.60 to $291.35 per ounce during the six months
ending November 30, 1999. The common stocks of gold mining companies performed
similarly. The Fund had no exposure to gold stocks during this period.
Past performance is no guarantee of future results.
See page 10 for a complete listing of the portfolio of investments.
Top 3 Holdings
Top 10 Industries in Each Sector
(% of Net Assets) (% of Net Assets)
- ------------------------------------- -----------------------------------------
Real Estate Investment Trusts 12.3 International
Telephones 5.4 -------------
Banks - Major Regional 4.4 Nokia ADR 0.8
Health Care - Drugs 2.8 Total Fina SA-ADR 0.6
Oil - International Integrated 2.6 Northern Telecom-Nortel Networks Co. 0.6
Insurance - Multiline 2.4
Communications Equipment 2.2 Real Estate
Health Care - Diversified 1.9 -----------
Computers - Software & Service 1.8 Simon Property Group 0.7
Banks - Money Centered 1.7 AvalonBay Communities 0.6
Duke-Weeks Realty Corp. 0.6
U.S. Government
---------------
U.S. Treasury Bond @ 5.25% 7.0
GNMA @ 6.50% 4.4
GNMA @ 6.00% 3.4
U.S. Stocks
-----------
Bristol-Myers Squibb 1.3
Intel Corp. 1.3
General Electric Co. 1.0
ASSET ALLOCATION
11/30/99
A pie chart is shown here depicting the Asset Allocation as of November 30, 1999
of the USAA Cornerstone Strategy Fund to be:
U.S. Stocks - 37.1%; International Stocks - 28.3%; U.S. Government Securities -
21.1%; and Real Estate Securities - 13.0%.
Percentages are of the net assets in the portfolio and may or may not equal
100%.
See page 10 for a complete listing of the portfolio of investments.
Foreign investing is subject to additional risks, such as currency fluctuations,
market illiquidity, and political instability.
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 CORNERSTONE STRATEGY FUND
PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
INTERNATIONAL SECURITIES (28.3%)
INTERNATIONAL STOCKS (28.2%)
Argentina (0.1%)
28,019 IRSA Inversiones y Representaciones S.A. GDR $ 895
----------
Austria (0.5%)
15,300 Bank Austria AG 810
41,200 Boehler Uddeholm AG 1,727
48,300 VA Flughafen Wien AG 1,679
24,900 VA Technologie AG 1,527
----------
5,743
----------
Brazil (0.3%)
31,400 Companhia Brasileira de Distribuicao Grupo Pao
de Acucar ADR 838
54,400 Panamerican Beverages, Inc. "A" 1,020
5,600,000 Petroleo Brasileiro S.A. (Preferred) 1,132
----------
2,990
----------
Canada (2.2%)
245,300 Anderson Exploration Ltd. * 2,733
60,000 Canadian Imperial Bank of Commerce 1,335
151,000 Canadian National Railway Co. 4,521
170,800 Canadian Occidental Petroleum Ltd. 3,299
142,200 Manulife Financial Corp. * 1,840
90,000 Nortel Networks Corp. 6,660
87,900 Suncor Energy, Inc. 3,318
104,100 Toronto-Dominion Bank 2,511
----------
26,217
----------
Chile (0.1%)
1,434 Sociedad Quimica y Minera de Chile S.A. ADR "A" 40
24,800 Sociedad Quimica y Minera de Chile S.A. ADR "B" 705
----------
745
----------
China (0.2%)
67,000 China Telecom Ltd. * 358
1,050,000 Cosco Pacific Ltd. 858
597,000 New World Infrastructure Ltd. * 673
----------
1,889
----------
Denmark (1.0%)
30,200 ISS International Service System A/S "B" * 1,759
111,200 SAS Danmark A/S 1,145
67,000 Tele Danmark A/S "B" 4,320
58,500 Unidanmark A/S 4,437
----------
11,661
----------
Egypt (0.1%)
39,300 Suez Cement Co. S.A.E. GDR 635
----------
Finland (1.5%)
863,900 Merita plc "A" 5,206
129,502 Metso OYJ * 1,403
68,800 Nokia Corp. ADR 9,507
62,800 Sampo Insurance Co. "A" 2,057
----------
18,173
----------
France (2.4%)
10,400 Accor S.A. 2,362
47,217 CNP Assurances 1,546
72,400 Coflexip ADR 2,923
34,000 Eramet Group 1,885
18,970 ISIS S.A. 1,145
50,200 Renault S.A. 2,207
45,000 Rhodia 821
50,000 Rhone Poulenc S.A. 3,099
50,839 SEITA 2,613
109,174 Total Fina S.A. 7,219
26,400 Valeo S.A. 1,769
----------
27,589
----------
Germany (1.0%)
86,800 Continental AG 1,732
76,500 Hoechst AG 3,770
75,400 Merck KGaA 2,203
89,000 Veba AG 4,350
----------
12,055
----------
Greece (0.2%)
53,400 Hellenic Telecommunications Organization S.A. (OTE) 1,145
62,655 National Bank of Greece S.A. GDR 877
----------
2,022
----------
Hong Kong (0.1%)
90,000 Hutchison Whampoa Ltd. 1,110
----------
Hungary (0.1%)
21,100 Magyar Tavkozlesi RT. (MATAV) ADR 637
----------
India (0.1%)
63,300 Videsh Sanchar Nigam Ltd. GDR 1,456
----------
Israel (0.1%)
260,218 Bank Hapoalim Ltd. 687
46,800 Blue Square - Israel Ltd. ADR 573
----------
1,260
----------
Italy (1.3%)
62,700 ENI S.p.A. ADR 3,394
38,500 Gucci Group N.V. 3,205
630,000 Italgas S.p.A. 2,476
153,000 Telecom Italia S.p.A. Ordinary 1,687
841,700 Telecom Italia S.p.A. Savings 4,538
----------
15,300
----------
Japan (3.6%)
95,000 Daibiru Corp. 664
259 East Japan Railway Co. 1,527
6,500 Internet Initiative Japan, Inc. ADR * 621
29,000 Ito-Yokado Co. Ltd. 3,134
210,000 Kikkoman Corp. 1,621
3,500 Nichii Gakkan Co. 722
260,000 Nikko Securities Co. Ltd. 3,244
891,000 Nippon Steel Corp. 2,013
195 Nippon Telegraph & Telephone Corp. (NTT) 3,506
90 NTT Mobile Communication Network, Inc. 3,165
48,000 Paris Miki, Inc. 4,352
30,200 Sanix Inc. 3,352
213,000 Sharp Corp. 4,363
3,200 Softbank Corp. 2,317
22,200 Sony Corp. 4,122
340,000 Toshiba Corp. 2,508
20,500 Toyota Motor Corp. 1,393
----------
42,624
----------
Korea (0.3%)
32,661 Korea Telecom Corp. ADR * 1,731
39,800 Samsung Corp. * 828
3,991 Samsung Electronics Co. Ltd. 826
----------
3,385
----------
Malaysia (0.2%)
417,400 Genting Bhd 1,450
520,000 Malaysia International Shipping Corp. Bhd 773
----------
2,223
----------
Mexico (0.2%)
11,600 Telefonos de Mexico, S.A. de C.V. ADR 1,074
117,400 Tubos de Acero de Mexico, S.A. ADR 1,475
----------
2,549
----------
Netherlands (2.9%)
115,600 Akzo Nobel N.V. 4,951
78,800 Benckiser N.V. "B" 4,804
33,000 EVC International N.V. * 354
66,700 Fortis NL N.V. 2,287
86,580 ING Group N.V. 4,873
62,500 Koninklijke KPN N.V. 3,483
41,068 Koninklijke Philips Electronics N.V. ADR 4,908
75,600 Oce-van der Grinten N.V. 1,318
87,200 Versatel Telecom * 2,461
61,700 VNU N.V. 2,447
104,200 Vopak Kon * 2,746
----------
34,632
----------
Norway (0.8%)
1,056,000 Christiania Bank og Kreditkasse 4,874
84,300 Schibsted ASA 1,286
401,500 Storebrand ASA * 2,815
139,400 Tandberg Data ASA * 344
----------
9,319
----------
Philippines (0.1%)
2,500,000 SM Prime Holdings, Inc. 396
----------
Portugal (0.7%)
147,100 Banco Pinto & Sotto Mayor S.A. 3,158
187,000 Brisa-Auto Estradas de Portugal S.A. 1,383
76,600 Portugal Telecom S.A. ADR 3,677
----------
8,218
----------
Russia (0.1%)
15,000 LUKoil ADR 510
----------
South Africa (0.1%)
60,876 South African Breweries plc 571
270,000 Standard Bank Investment Corp. Ltd. 944
----------
1,515
----------
Spain (1.0%)
164,600 Argentaria, Caja Postal y Banco Hipotecario de
Espana, S.A. 3,765
99,750 Repsol S.A. 2,181
104,716 Telefonica de Espana S.A. ADR * 6,506
----------
12,452
----------
Sweden (0.8%)
123,600 Autoliv, Inc. GDR 3,704
73,600 Skandinaviska Enskilda Bank Rights * 80
73,600 Skandinaviska Enskilda Banken "A" 701
833,000 Swedish Match AB 2,976
64,600 Volvo AB * 1,568
----------
9,029
----------
Switzerland (0.9%)
2,960 Novartis AG 4,615
7,800 Selecta Group AG 2,649
3,538 Sulzer AG P.C. * 2,205
4,280 Swisscom AG 1,454
----------
10,923
----------
Taiwan (0.2%)
2,367,750 China Steel Corp. 1,683
394,200 Compal Electronics, Inc. 1,256
394,200 Compal Electronics, Inc. Rights * 1
----------
2,940
----------
Turkey (0.1%)
3,500,000 Enka Holding Yatrim A.S. 1,013
25,220,804 Yapi Ve Kredi Bankasi A.S. 463
----------
1,476
----------
United Kingdom (4.9%)
62,300 AstraZeneca Group plc 2,776
270,000 Bank of Scotland 3,197
891,200 Billiton plc 4,310
83,800 BOC Group plc 1,729
139,200 British Telecommunications plc 2,792
302,300 British-Borneo Oil & Gas plc * 897
179,000 Cable & Wireless plc 2,274
400,000 Cadbury Schweppes 2,539
213,200 CGU plc 3,216
1,428,000 Cookson Group plc 5,693
910,000 Corporate Services Group plc * 1,712
36,400 Glaxo Wellcome plc ADR 2,164
166,000 Laporte plc 1,545
1,494,000 Laporte plc "B" * 12
950,000 Medeva plc 2,590
214,000 National Westminster Bank plc 4,924
700,000 Old Mutual plc * 1,526
62,300 Powergen plc 539
282,866 Reuters Group plc 3,160
436,000 Safeway plc 1,286
865,100 Tomkins plc 3,000
413,197 WPP Group plc 6,118
----------
57,999
----------
Total international stocks (cost: $229,189) 330,567
----------
Principal
Amount
(000)
---------
INTERNATIONAL BONDS (0.1%)
Japan (0.1%)
$ 600 MBL International Finance (Bermuda) Trust,
Convertible Notes, 3.00%, 11/30/2002 (cost: $600) 687
----------
Total international securities (cost: $229,789) 331,254
----------
Number
of Shares
-----------
REAL ESTATE SECURITIES (13.0%)
Leisure Time (0.3%)
180,000 Vail Resorts Inc. * 3,094
----------
Lodging/Hotel (0.6%)
340,000 Starwood Hotels & Resorts Worldwide, Inc. 7,586
----------
Real Estate Investment Trusts (12.1%)
170,000 Alexandria Real Estate Equities, Inc. 4,983
220,000 AvalonBay Communities, Inc. 7,123
230,000 Boston Properties, Inc. 6,512
250,000 Brandywine Realty Trust 4,203
160,000 Chelsea GCA Realty, Inc. 4,950
320,000 Correctional Properties Trust 4,100
370,000 Duke-Weeks Realty Corp. 6,845
330,000 Entertainment Properties Trust 4,331
120,000 Felcor Lodging Trust, Inc. 2,040
190,000 First Industrial Realty Trust, Inc. 4,845
260,000 Franchise Finance Corp. of America 5,785
190,000 Gables Residential Trust 4,513
250,000 Golf Trust of America, Inc. 4,250
270,000 Highwoods Properties, Inc. 5,940
720,000 Host Marriott Corp. 6,705
270,000 Liberty Property Trust 6,159
230,000 Mack Cali Realty Corp. 5,678
270,000 Mills Corp. 4,556
250,000 Pan Pacific Retail Properties, Inc. 4,250
300,000 Philips International Realty Corp. 4,913
170,000 Post Properties, Inc. 6,481
280,000 Prentiss Properties Trust 5,670
100,000 Prime Group Realty Trust 1,406
220,000 Reckson Associates Realty Corp. "B" 4,593
200,000 Shurgard Storage Centers, Inc. 4,463
360,000 Simon Property Group, Inc. 8,392
120,000 Storage USA, Inc. 3,240
150,000 Sun Communities, Inc. 4,556
----------
141,482
----------
Total real estate securities (cost: $165,003) 152,162
----------
U.S. STOCKS (37.1%)
Aerospace/Defense (1.0%)
275,000 B.F. Goodrich Co. 6,205
131,060 Boeing Co. 5,349
----------
11,554
----------
Aluminum (0.8%)
145,000 Alcoa, Inc. 9,497
----------
Automobiles (0.4%)
100,000 Ford Motor Co. 5,050
----------
Auto Parts (0.7%)
140,000 Lear Corp. * 4,629
176,700 Meritor Automotive, Inc. 3,026
----------
7,655
----------
Banks - Major Regional (1.8%)
230,000 Fleet Boston Financial Corp. 8,697
125,000 PNC Bank Corp. 6,968
150,000 SouthTrust Corp. 5,822
----------
21,487
----------
Banks - Money Center (1.2%)
60,000 Bank of America Corp. 3,510
136,000 Chase Manhattan Corp. 10,506
----------
14,016
----------
Beverages - Alcoholic (0.5%)
72,000 Anheuser-Busch Companies, Inc. 5,386
----------
Beverages - Nonalcoholic (0.7%)
60,000 Coca-Cola Co. 4,039
230,000 Pepsi Bottling Group, Inc. 4,025
----------
8,064
----------
Chemicals (0.4%)
148,600 Lyondell Petrochemical Co. 2,080
113,000 Millennium Chemicals, Inc. 2,211
----------
4,291
----------
Chemicals - Diversified (0.1%)
72,600 Olin Corp. 1,302
----------
Communication Equipment (0.8%)
130,000 Lucent Technologies, Inc. 9,498
----------
Computer - Hardware (1.1%)
77,000 Hewlett-Packard Co. 7,305
55,000 IBM Corp. 5,669
----------
12,974
----------
Computer Software & Service (1.8%)
115,000 Microsoft Corp. * 10,470
100,050 Oracle Corp. * 6,785
45,000 Parametric Technology Corp. * 1,021
108,800 Unisys Corp. 3,128
----------
21,404
----------
Consumer Jewelry and Novelties - Miscellaneous (0.2%)
120,000 American Greetings Corp. "A" 2,828
----------
Containers - Metals & Glass (0.2%)
59,300 Ball Corp. 2,205
----------
Drugs (1.4%)
90,000 Merck & Co., Inc. 7,065
160,000 Pharmacia & Upjohn, Inc. 8,750
----------
15,815
----------
Electric Utilities (0.4%)
170,000 Reliant Energy, Inc. 4,218
----------
Electrical Equipment (1.0%)
90,000 General Electric Co. 11,700
----------
Electronics - Semiconductors (1.2%)
190,000 Intel Corp. 14,571
----------
Entertainment (0.4%)
160,000 Walt Disney Co. 4,460
----------
Equipment - Semiconductors (0.5%)
60,000 Applied Materials, Inc. * 5,846
----------
Finance - Consumer (0.2%)
37,500 PMI Group, Inc. 1,873
----------
Finance - Diversified (1.2%)
134,816 Associates First Capital Corp. "A" 4,483
82,000 Morgan Stanley Dean Witter & Co. * 9,891
----------
14,374
----------
Foods (0.9%)
70,000 Nabisco Group Holding Corp. 810
89,700 Nabisco Holdings Corp. 2,988
220,000 Ralston Purina Group 6,531
----------
10,329
----------
Health Care - Diversified (1.8%)
155,000 American Home Products Corp. 8,060
200,000 Bristol-Myers Squibb Co. 14,612
----------
22,672
----------
Health Care - HMOs (0.1%)
7,300 Aetna, Inc. 399
----------
Household Products (1.2%)
120,000 Kimberly-Clark Corp. 7,665
60,000 Procter & Gamble Co. 6,480
----------
14,145
----------
Insurance - Life/Health (0.1%)
47,000 Stancorp Financial Group, Inc. * 1,298
----------
Insurance - Multiline Companies (1.1%)
66,250 American International Group, Inc. 6,840
70,000 CIGNA Corp. 5,758
----------
12,598
----------
Insurance - Property/Casualty (0.3%)
130,000 Allstate Corp. 3,404
----------
Leisure Time (0.4%)
235,000 Brunswick Corp. 5,126
----------
Machinery - Diversified (1.1%)
100,000 Caterpillar, Inc. 4,637
180,000 Deere & Co. 7,729
----------
12,366
----------
Manufacturing - Diversified Industries (0.5%)
80,500 Eaton Corp. 6,234
----------
Manufacturing - Specialized (0.7%)
135,000 Avery Dennison Corp. 8,016
----------
Medical Products & Supplies (0.7%)
150,000 Bausch & Lomb, Inc. 8,222
----------
Natural Gas Utilities (0.3%)
90,000 NICOR, Inc. 3,122
----------
Oil - Domestic Integrated (0.8%)
155,000 Conoco, Inc. "A" 4,078
260,000 Occidental Petroleum Corp. 5,704
----------
9,782
----------
Oil - International Integrated (1.4%)
70,000 Chevron Corp. 6,200
30,000 Mobil Corp. 3,129
110,000 Texaco, Inc. 6,703
----------
16,032
----------
Oil & Gas - Drilling/Equipment (0.3%)
151,500 Helmerich & Payne, Inc. 3,428
----------
Oil & Gas - Exploration & Production (0.2%)
180,000 Union Pacific Resources Group, Inc. 2,351
----------
Paper & Forest Products (0.3%)
200,000 Smurfit-Stone Container Corp. * 3,837
----------
Photography - Imaging (0.4%)
165,000 Xerox Corp. 4,465
----------
Railroads/Shipping (0.5%)
255,000 Norfolk Southern Corp. 5,451
----------
Retail - Department Stores (0.4%)
39,300 J.C. Penney Company, Inc. 877
105,000 May Department Stores Co. 3,531
----------
4,408
----------
Retail - General Merchandising (0.9%)
90,000 Sears, Roebuck & Co. 3,077
120,000 Wal-Mart Stores, Inc. 6,915
----------
9,992
----------
Savings & Loan Holding Co. (0.3%)
135,000 Washington Mutual, Inc. 3,915
----------
Services - Commercial & Consumer (0.4%)
120,000 Hertz Corp. "A" 5,077
----------
Services - Data Processing (0.4%)
120,000 First Data Corp. 5,190
----------
Telecommunications - Cellular/Wireless (0.2%)
30,000 Sprint PCS * 2,753
----------
Telecommunications - Long Distance (1.4%)
63,000 MCI WorldCom, Inc. * 5,209
151,800 Sprint Corp. 10,531
----------
15,740
----------
Telephones (2.0%)
120,000 Bell Atlantic Corp. 7,597
120,000 GTE Corp. 8,760
136,000 SBC Communications Corp. 7,064
----------
23,421
----------
Total U.S. stocks (cost: $327,681) 433,841
----------
Principal
Amount
(000)
- ---------
U.S. GOVERNMENT SECURITIES (21.1%)
Government National Mortgage Assoc. (11.7%)
$ 43,513 6.00%, 4/15/2028 - 9/15/2028 40,191
53,891 6.50%, 5/15/2023 - 3/15/2026 51,592
38,272 7.00%, 8/15/2023 - 5/15/2026 37,504
1,551 7.50%, 3/15/2017 1,557
1,390 8.00%, 6/15/2016 - 3/15/2017 1,432
1,919 8.50%, 9/15/2009 - 2/15/2017 2,000
149 9.00%, 6/15/2016 - 10/15/2016 157
1,889 9.50%, 6/15/2009 - 8/15/2017 2,019
376 10.00%, 11/15/2009 - 4/15/2016 406
28 11.50%, 3/15/2013 31
----------
136,889
----------
U.S. Treasury (8.1%)
96,744 U.S. Treasury Bonds, 5.25%, 11/15/2028 81,718
10,943 U.S. Treasury Bonds, 7.88%, 2/15/2021 12,523
----------
94,241
----------
Discount Note (1.3%)
15,706 Federal Home Loan Mortgage Corp.,
5.61%, 12/01/1999 15,706
----------
Total U.S. government securities (cost: $262,798) 246,836
----------
Total investments (cost: $985,271) $1,164,093
==========
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
U.S. Government 21.1%
Real Estate Investment Trusts 12.3
Telephones 5.4
Banks - Major Regional 4.4
Drugs 2.8
Oil - International Integrated 2.6
Insurance - Multiline Companies 2.4
Communication Equipment 2.2
Health Care - Diversified 1.9
Computer Software & Service 1.8
Banks - Money Center 1.7
Household Products 1.6
Telecommunications - Long Distance 1.6
Electronics - Semiconductors 1.5
Auto Parts 1.5
Finance - Diversified 1.4
Electrical Equipment 1.4
Railroads/Shipping 1.3
Computer - Hardware 1.2
Manufacturing - Diversified Industries 1.2
Machinery - Diversified 1.2
Oil - Domestic Integrated 1.1
Manufacturing - Specialized 1.1
Leisure Time 1.1
Foods 1.0
Beverages - Nonalcoholic 1.0
Aerospace/Defense 1.0
Other 20.7
----
Total 99.5%
====
USAA CORNERSTONE STRATEGY 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.
* Non-income producing securities.
See accompanying notes to financial statements.
USAA CORNERSTONE STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1999
(Unaudited)
ASSETS
Investments in securities, at market value (identified
cost of $985,271) $1,164,093
Cash 58
Cash denominated in foreign currencies (identified cost
of $1,270) 1,261
Receivables:
Capital shares sold 224
Dividends and interest 2,652
Securities sold 6,042
Miscellaneous 88
Unrealized appreciation on foreign currency contracts held,
at value 1
----------
Total assets 1,174,419
----------
LIABILITIES
Securities purchased 3,188
Unrealized depreciation on foreign currency contracts held,
at value 16
Capital shares redeemed 888
USAA Investment Management Company 728
USAA Transfer Agency Company 236
----------
Total liabilities 5,056
----------
Net assets applicable to capital shares outstanding $1,169,363
==========
REPRESENTED BY:
Paid-in capital $ 949,765
Accumulated undistributed net investment income 16,549
Accumulated net realized gain on investments 24,260
Net unrealized appreciation of investments 178,822
Net unrealized depreciation on foreign currency translations (33)
----------
Net assets applicable to capital shares outstanding $1,169,363
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 45,123
==========
Net asset value, redemption price, and offering price per share $ 25.92
==========
See accompanying notes to financial statements.
USAA CORNERSTONE STRATEGY 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 $367) $ 13,798
Interest 9,186
----------
Total income 22,984
----------
Expenses:
Management fees 4,549
Transfer agent's fees 1,419
Custodian's fees 259
Postage 93
Shareholder reporting fees 14
Trustees' fees 1
Registration fees 12
Professional fees 7
Other 1
----------
Total expenses 6,355
----------
Net investment income 16,629
----------
Net realized and unrealized gain (loss) on investments and foreign
currency:
Net realized gain (loss) on:
Investments 24,256
Foreign currency transactions (40)
Change in net unrealized appreciation/depreciation of:
Investments (37,286)
Foreign currency translations 4
----------
Net realized and unrealized loss (13,066)
----------
Increase in net assets resulting from operations $ 3,563
==========
See accompanying notes to financial statements.
USAA CORNERSTONE STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 1999,
and year ended May 31, 1999
(Unaudited)
11/30/99 5/31/99
------------------------
From operations:
Net investment income $ 16,629 $ 41,937
Net realized gain on investments 24,256 88,403
Net realized loss on foreign currency transactions (40) (311)
Change in net unrealized appreciation/depreciation of:
Investments (37,286) (151,418)
Foreign currency translations 4 345
------------------------
Increase (decrease) in net assets resulting
from operations 3,563 (21,044)
------------------------
Distributions to shareholders from:
Net investment income (15,183) (40,396)
------------------------
Net realized gains (52,282) (76,343)
------------------------
From capital share transactions:
Proceeds from shares sold 36,831 151,031
Shares issued for dividends reinvested 65,836 114,177
Cost of shares redeemed (127,219) (369,866)
------------------------
Decrease in net assets from capital
share transactions (24,552) (104,658)
------------------------
Net decrease in net assets (88,454) (242,441)
Net assets:
Beginning of period 1,257,817 1,500,258
------------------------
End of period $1,169,363 $1,257,817
========================
Undistributed net investment income included in net
assets:
End of period $ 16,549 $ 15,143
========================
Change in shares outstanding:
Shares sold 1,404 5,602
Shares issued for dividends reinvested 2,488 4,163
Shares redeemed (4,853) (13,876)
------------------------
Decrease in shares outstanding (961) (4,111)
========================
See accompanying notes to financial statements.
USAA CORNERSTONE STRATEGY 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
Cornerstone Strategy Fund (the Fund). The Fund's investment objective is to
achieve a positive, inflation-adjusted rate of return and a reasonably stable
value of Fund shares, thereby preserving the purchasing power of shareholders'
capital.
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. Other debt and government securities are valued each business day by a
pricing service (the Service) approved by the Trust's Board of Trustees. The
Service uses the mean between quoted bid and asked prices or the last sale price
to price securities when, in the Service's judgement, these prices are readily
available and are representative of the securities' market values. For many
securities, such prices are not readily available. The Service generally prices
these securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions.
5. 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 USAA Investment Management Company (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. Amortization of market discounts on long-term
securities is recognized as interest income upon disposition of the security to
the extent there is a gain on disposition.
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
six-month period ended November 30, 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/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 1999, were
$214.5 million and $275.4 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1999, were $250.3 million and $71.5 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):
Foreign Currency Contracts to Sell:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
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> <C> <S> <C> <C> <C> <C>
12/03/99 122,208 Japanese Yen $1,201 $1,197 - $ (4)
12/03/99 173,602 Japanese Yen 1,705 1,700 - (5)
12/03/99 219,513 Japanese Yen 2,157 2,150 - (7)
12/07/99 197 British Pound 315 315 - -
12/30/99 233 Euro Currency 235 235 - -
12/30/99 213 Euro Currency 214 215 1 -
- -------------------------------------------------------------------------------------------------------
$5,827 $5,812 $1 $(16)
=======================================================================================================
</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.
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 six-month
period ended November 30, 1999, was $12,363.
(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 $ 27.29 $ 29.89 $ 27.96 $ 25.47 $ 22.63 $ 23.24
Net investment income .35 .88 .77 .74 .73 .68
Net realized and
unrealized
gain (loss) (.24) (1.14) 3.78 3.37 3.18 .67
Distributions from net
investment income (.33) (.81) (.72) (.78) (.74) (.58)
Distributions of realized
capital gains (1.15) (1.53) (1.90) (.84) (.33) (1.38)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 25.92 $ 27.29 $ 29.89 $ 27.96 $ 25.47 $ 22.63
=========================================================================================
Total return (%) * .31 (.74) 17.15 16.94 17.79 6.43
Net assets at end of
period (000) $1,169,363 $1,257,817 $1,500,258 $1,263,355 $1,035,844 $874,587
Ratio of expenses to
average net
assets (%) 1.05(a) 1.05 1.01 1.06 1.15 1.13
Ratio of net investment
income to average
net assets (%) 2.74(a) 3.12 2.64 2.88 3.06 3.16
Portfolio turnover (%) 18.10 46.27 32.73 35.14 36.15 33.17
</TABLE>
* Assumes reinvestment of all dividend income and capital gains 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 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
