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 14
Statement of Assets and Liabilities 15
Statement of Operations 16
Statements of Changes in Net Assets 17
Notes to Financial Statements 18
Important Information
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are streamlined. One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a mutual fund representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA Emerging
Markets Fund, managed by USAA Investment Management Company (IMCO). It may be
used as sales literature only when preceded or accompanied by a current
prospectus which gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)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 EMERGING MARKETS FUND
OBJECTIVE: Capital appreciation.
TYPES OF INVESTMENTS: Invests principally in equity securities of emerging
market companies.
- --------------------------------------------------------------------------------
11/30/99 5/31/99
- --------------------------------------------------------------------------------
Net Assets $284.7 Million $276.3 Million
Net Asset Value Per Share $9.48 $8.49
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 11/30/99
- --------------------------------------------------------------------------------
5/31/99 to 11/30/99(+) 1 Year 5 Years Since Inception on 11/7/94
12.48% 33.37% 1.97% 1.02%
- --------------------------------------------------------------------------------
(+) 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 Emerging Markets Fund, the
International Financial Corporation (IFC) Global Composite Index, and the Lipper
Emerging Markets Funds Average for the period of 11/07/94 through 11/30/99. The
data points from the graph are as follows:
USAA Emerging IFC Lipper
Markets Fund Index Average
------------- ------- ---------
11/07/94 $10,000 $10,000 $10,000
11/30/94 9,550 9,327 9,654
05/31/95 9,770 8,097 8,744
11/30/95 9,286 7,508 8,347
05/31/96 11,424 8,641 9,810
11/30/96 10,921 8,409 9,574
05/31/97 12,418 9,285 11,208
11/30/97 10,393 7,097 9,430
05/31/98 9,814 6,680 8,869
11/30/98 7,893 5,718 7,071
05/31/99 9,360 6,903 8,417
11/30/99 10,528 8,148 10,079
Data since inception on 11/07/94 through 11/30/99
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund to the International Financial Corporation (IFC)
Global Composite Index, an unmanaged broad-based index of emerging markets based
on the World Bank GNP per capita definition, and the Lipper Emerging Markets
Funds Average, an unmanaged average of emerging markets funds, as reported by
Lipper Analytical Services, Inc., an independent organization that monitors the
performance of mutual funds.
Message from the Manager
[Photograph of Kevin P. Moore, portfolio manager, appears here]
FUND OVERVIEW
Most of the emerging market regions suffered a pullback in the midsummer months,
and all, except for some Eastern 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 Eastern 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 as concerns about
presidential elections in Mexico and economic concerns in Brazil have receded.
ASIAN MARKETS
The Asian markets continued their strong recovery on the back of strong export
growth and increasing signs of domestic demand. Additionally, countries such as
Korea, Taiwan, and Hong Kong have significant numbers of technology companies
whose share-price performance has also pushed those stock markets higher. We
have increased our weighting in the region by increasing our exposure in Korea,
Taiwan, Hong Kong, and China.
CENTRAL AND EAST EUROPEAN MARKETS
The Russian equity market continued its strong performance despite political and
economic concerns due primarily to higher oil prices. The Greek equity market
continued its strong run based on the expectation that the country will formally
enter the European Monetary Union in 2001. The Turkish market rebounded
strongly, despite the earthquakes, due to expectations of political and economic
reforms being enacted.
The Polish market suffered from economic and political concerns, and the
Hungarian market's return was somewhat restrained by its weakening currency.
Falling interest rates and increased economic activity in 2000 could provide an
underpinning of support for the Israeli market.
LATIN AMERICAN MARKETS
The Latin markets performed well due to decreasing concerns, about Brazil's
economic situation following their January 1999 currency devaluation and
decreasing concerns about the political situation in Mexico. While we have
reduced our exposure to the region, we have kept our significant weightings in
both Brazil and Mexico.
OUTLOOK
We believe that a rebound in domestic demand - combined with significant numbers
of technology stocks and continued corporate restructuring - supports a positive
view of Asian markets. Improving regional economic growth and a stable political
environment in Mexico could provide a positive backdrop for the Latin markets.
European convergence continues to dominate investors' thoughts in the Eastern
European markets and could continue to force restructuring in those markets.
Looking forward, we believe that a stable U.S. economy, a rebounding Japanese
economy, and stable commodity prices have the potential to provide a positive
environment for emerging markets in 2000.
Top 10 Industries
(% of Net Assets)
--------------------------------------------
Telephones 9.6
Banks - Money Centered 9.0
Banks - Major Regional 6.7
Beverages - Alcoholic 5.8
Iron & Steel 4.4
Telecommunications - Long Distance 3.5
Electronics - Semiconductor 3.0
Engineering & Construction 2.8
Gold 2.8
Telecommunications - Cell 2.8
See page 9 for a complete listing of the portfolio of investments.
ASSET ALLOCATION
11/30/99
A pie chart is shown here depicting the Asset Allocation as of November 30, 1999
of the USAA Emerging Markets Fund to be:
Other - 21.9% (Countries with less than 3.0% of the portfolio and U.S.
Government & Agency Issue); Mexico - 10.9%; Korea - 9.3%; Taiwan - 8.5%; Brazil
- - 8.1%; South Africa - 8.7%; India - 6.0%; Singapore - 5.6%; Hong Kong - 4.8%;
China - 4.4%; Malaysia - 4.2%; Greece - 4.0%; and Turkey - 3.6%.
Percentages are of the net assets in the portfolio and may or may not equal
100%.
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 EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
November 30, 1999
(Unaudited)
Market
Number Value
of Shares Security (000)
- --------------------------------------------------------------------------------
STOCKS (95.1%)
Argentina (1.2%)
35,140 Banco de Galicia y Bueno Aires S.A. de C.V. ADR $ 718
86,400 IRSA Inversiones y Representaciones S.A. GDR 2,760
--------
3,478
--------
Brazil (8.1%)
105,000,000 Banco do Estado de Sao Paulo S.A. (Preferred) * 3,414
180,600 Companhia Brasileira de Distribuicao Grupo Pao
de Acucar ADR 4,820
129,500 Panamerican Beverages, Inc. "A" 2,428
23,000,000 Petroleo Brasileiro S.A. (Preferred) 4,649
149,500 Tele Norte Leste Participacoes S.A. ADR 2,663
27,000 Telecomunicacoes Brasileiras S.A. ADR (Preferred) 2,450
621,200 Usiminas Siderurgicas de Minas Gerais S.A.
(Preferred) "A" 2,631
--------
23,055
--------
Chile (0.9%)
5,013 Sociedad Quimica y Minera de Chile S.A. ADR "A" 140
86,700 Sociedad Quimica y Minera de Chile S.A. ADR "B" 2,466
--------
2,606
--------
China (4.4%)
468,300 China Telecom Ltd. * 2,503
3,475,000 Cosco Pacific Ltd. 2,841
2,350,000 Great Wall Technology Co. "H" * 1,982
2,439,400 New World Infrastructure Ltd. * 2,748
7,800,000 Yanzhou Coal Mining Co., Ltd. ADR * 2,385
--------
12,459
--------
Egypt (1.6%)
240,000 Al Ahram Beverages Co. S.A.E. GDR * 3,852
49,000 Suez Cement Co. S.A.E. GDR 791
--------
4,643
--------
Finland (1.1%)
240,000 Oy Hartwall AB 3,028
--------
Greece (4.0%)
100,000 Bank of Piraeus 2,477
130,300 Hellenic Telecommunications Organization S.A. (OTE) 2,793
206,820 National Bank of Greece S.A. GDR 2,895
160,000 STET Hellas Telecommunications S.A. ADR * 3,160
--------
11,325
--------
Hong Kong (4.8%)
1,300,000 Bank of East Asia, Ltd. 3,130
604,000 Henderson Land Development Co. Ltd. 3,266
345,000 Hutchison Whampoa Ltd. 4,254
3,000,000 Peregrine Investments Holdings Ltd. *, (a),(b) 0
1,200,000 Yue Yuen Industrial Holdings Ltd. 3,013
--------
13,663
--------
Hungary (2.1%)
120,400 Magyar Tavkozlesi RT. (MATAV) ADR 3,635
50,000 OTP Bank GDR 2,360
--------
5,995
--------
India (6.0%)
180,100 Grasim Industries Ltd. GDR * 2,837
102,000 Hindalco Industries Ltd. GDR 2,422
300,000 Indian Hotels Co. GDR 2,557
220,000 Mahindra & Mahindra Ltd. GDR 2,118
177,800 Morgan Stanley India Investment Fund * 2,400
205,000 Videsh Sanchar Nigam Ltd. GDR 4,715
--------
17,049
--------
Israel (2.5%)
2,000,000 Bank Hapoalim Ltd. 5,280
143,369 Blue Square Chain Investments and Properties Ltd. 1,971
--------
7,251
--------
Korea (9.3%)
35,700 Cheil Jedang Corp. 2,753
227,108 Hansol Paper Co., Ltd. 3,330
60,790 Hansol Paper Co., Ltd. Rights * 223
106,040 Korea Telecom Corp. ADR * 5,620
85,800 LG Chemical Ltd. 2,561
17,132 S1 Corp. 3,421
144,500 Samsung Corp. * 3,004
14,392 Samsung Electronics Co. Ltd. 2,980
228,000 Shinhan Bank 2,655
--------
26,547
--------
Malaysia (4.2%)
1,279,900 Genting Bhd 4,446
2,850,000 Malaysia International Shipping Corp. Bhd 4,237
1,000,000 Telekom Malaysia Bhd 3,158
--------
11,841
--------
Mexico (10.9%)
657,000 Corporacion GEO, S.A. de C.V. "B" * 2,232
84,000 Fomento Economico Mexicano, S.A. de C.V. ADR 3,181
286,000 Grupo Bimbo, S.A. de C.V. "A" 600
500,000 Grupo Financiero Bancomer, S.A. de C.V. "O" * 1,685
785,000 Kimberly-Clark de Mexico, S.A. de C.V. "A" 2,946
375,000 Nuevo Grupo Iusacell, S.A. de C.V. ADR "V" * 4,687
699,000 Organizacion Soriana, S.A. de C.V. "B" 3,228
78,800 Telefonos de Mexico, S.A. de C.V. ADR 7,294
402,000 Tubos de Acero de Mexico, S.A. ADR 5,050
--------
30,903
--------
Peru (1.2%)
207,000 Compania de Minas Buenaventura S.A. ADR 3,403
--------
Philippines (1.9%)
800,000 Manila Electric Co. "B" 2,049
125,800 Philippine Long Distance Telephone Co. 2,577
5,025,000 SM Prime Holdings, Inc. 797
--------
5,423
--------
Poland (0.8%)
140,000 Agora S.A. GDR * 1,425
34,024 Softbank S.A. 987
--------
2,412
--------
Russia (1.6%)
72,000 GAZ Auto Plant *, (a) 2,088
75,200 LUKoil ADR 2,557
--------
4,645
--------
Singapore (5.6%)
4,552,000 Allgreen Properties Ltd. 4,253
697,800 DBS Group Holdings, Ltd. 9,052
825,000 DelGro Corp. Ltd. 2,577
--------
15,882
--------
South Africa (8.7%)
571,320 Gencor Ltd. 2,182
550,000 Gold Fields Ltd. 2,470
4,266,600 Metro Cash & Carry Ltd. 4,019
3,404,600 Profurn Ltd. 3,361
704,954 South African Breweries plc 6,587
1,400,000 Standard Bank Investment Corp. Ltd. 4,895
632,000 Theta Group Ltd. * 1,217
--------
24,731
--------
Taiwan (8.5%)
6,083,150 Bank Sinopac 3,535
3,192,131 China Steel Corp. 2,268
1,240,350 Compal Electronics, Inc. 3,956
1,240,350 Compal Electronics, Inc. Rights * 1
802,100 Compeq Manufacturing Co., Ltd. * 3,952
1,400,000 Formosa Plastics Corp. 2,609
500,000 Hon Hai Precision Industry Co., Ltd. * 3,569
456,000 Ritek, Inc. * 2,736
100,000 Winbond Electronics Corp. * 1,727
--------
24,353
--------
Thailand (1.0%)
450,000 PTT Exploration and Production Co. Ltd. * 2,770
--------
Turkey (3.6%)
100,857,144 Akbank T.A.S. 1,596
18,500,000 Enka Holding Yatrim A.S. 5,357
89,100,000 Eregli Demir Ve Celik Fabrikalari T.A.S. * 2,494
51,382,057 Yapi Ve Kredi Bankasi A.S. 942
--------
10,389
--------
United Kingdom (0.9%)
1,135,000 Old Mutual plc * 2,475
--------
United States (0.2%)
21,500 ICN Pharmaceuticals, Inc. 523
--------
Total stocks (cost: $242,048) 270,849
--------
Principal
Amount
(000)
- ------------
U.S. GOVERNMENT & AGENCY ISSUE (4.9%)
Discount Note
$ 13,986 Federal Home Loan Mortgage Corp., 5.61%, 12/01/99
(cost: $13,986) 13,986
--------
Total investments (cost: $256,034) $284,835
========
PORTFOLIO SUMMARY BY INDUSTRY
-----------------------------
Telephones 9.6%
Banks - Money Center 9.0
Banks - Major Regional 6.7
Beverages - Alcoholic 5.8
U.S. Government 4.9
Iron & Steel 4.4
Telecommunications - Long Distance 3.5
Electronics - Semiconductors 3.0
Engineering & Construction 2.8
Gold 2.8
Telecommunications - Cellular/Wireless 2.8
Real Estate - Other 2.6
Retail - General Merchandising 2.5
Oil - International Integrated 2.5
Retail - Food 2.4
Services - Commercial & Consumer 2.3
Computer - Peripherals 2.2
Computer - Hardware 2.1
Truckers 1.9
Metals/Mining 1.8
Gaming Companies 1.6
Foreign Conglomerate 1.5
Railroads/Shipping 1.5
Automobiles 1.5
Real Estate Investment Trusts 1.2
Paper & Forest Products 1.2
Home Furnishings & Appliances 1.2
Foods 1.2
Shoes 1.1
Household Products 1.0
Construction - Cement & Aggregates 1.0
Oil & Gas - Exploration & Production 1.0
Other 9.4
-----
Total 100.0%
=====
USAA EMERGING MARKETS 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 .73% of the Fund's net assets.
(b) On January 12, 1998, the company filed for liquidation. Trading of the
security has ceased on the local exchange, accordingly the Manager has
determined to value the security at $0 and to record the full amount of the
loss.
* Non-income producing securities.
See accompanying notes to financial statements.
USAA EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 1999
(Unaudited)
ASSETS
Investments in securities, at market value (identified cost
of $256,034) $284,835
Cash 12
Cash denominated in foreign currencies (identified cost of $2,126) 2,053
Receivables:
Capital shares sold 446
Dividends 279
Securities sold 4,139
--------
Total assets 291,764
--------
LIABILITIES
Securities purchased 3,466
Capital shares redeemed 3,245
USAA Investment Management Company 230
USAA Transfer Agency Company 44
Accounts payable and accrued expenses 55
--------
Total liabilities 7,040
--------
Net assets applicable to capital shares outstanding $284,724
========
REPRESENTED BY:
Paid-in capital $332,453
Accumulated net investment loss (516)
Accumulated net realized loss on investments (75,893)
Net unrealized appreciation of investments 28,801
Net unrealized depreciation on foreign currency translations (121)
--------
Net assets applicable to capital shares outstanding $284,724
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 30,030
========
Net asset value, redemption price, and offering price per share $ 9.48
========
See accompanying notes to financial statements.
USAA EMERGING MARKETS 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 $250) $ 1,525
Interest 224
-------
Total income 1,749
-------
Expenses:
Management fees 1,404
Transfer agent's fees 147
Custodian's fees 178
Postage 13
Shareholder reporting fees 9
Trustees' fees 2
Registration fees 29
Professional fees 16
Other 2
-------
Total expenses 1,800
-------
Net investment loss (51)
-------
Net realized and unrealized gain (loss) on investments and
foreign currency:
Net realized loss on:
Investments (1,324)
Foreign currency transactions (466)
Change in net unrealized appreciation/depreciation of:
Investments 36,068
Foreign currency translations 27
-------
Net realized and unrealized gain 34,305
-------
Increase in net assets resulting from operations $34,254
=======
See accompanying notes to financial statements.
USAA EMERGING MARKETS 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 (loss) $ (51) $ 2,356
Net realized loss on investments (1,324) (46,281)
Net realized loss on foreign currency transactions (466) (249)
Change in net unrealized appreciation/depreciation
of:
Investments 36,068 29,895
Foreign currency translations 27 (49)
-------------------------
Increase (decrease) in net assets
resulting from operations 34,254 (14,328)
-------------------------
Distributions to shareholders from:
Net investment income (2,271) (2,363)
-------------------------
From capital share transactions:
Proceeds from shares sold 32,916 42,836
Shares issued for dividends reinvested 472 416
Cost of shares redeemed (56,987) (45,109)
-------------------------
Decrease in net assets from
capital share transactions (23,599) (1,857)
-------------------------
Net increase (decrease) in net assets 8,384 (18,548)
Net assets:
Beginning of period 276,340 294,888
-------------------------
End of period $284,724 $276,340
=========================
Accumulated net investment income (loss)
included in net assets:
End of period $ (516) $ 2,273
=========================
Change in shares outstanding:
Shares sold 3,625 5,714
Shares issued for dividends reinvested 49 51
Shares redeemed (6,204) (6,061)
-------------------------
Decrease in shares outstanding (2,530) (296)
=========================
See accompanying notes to financial statements.
USAA EMERGING MARKETS 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
Emerging Markets Fund (the Fund). The Fund's investment objective is capital
appreciation. USAA Investment Management Company (the Manager) seeks to achieve
this objective by investing the Fund's assets primarily in equity securities of
emerging market companies. The Fund concentrates its investments in securities
of companies in emerging market countries, which may have limited or developing
capital markets. Such investments may involve greater risks than investments in
developed markets, and political, social, or economic changes in these markets
may cause the prices of such investments to be volatile.
A. Security valuation - The value of each security is determined (as of the
close of trading on the New York Stock Exchange on each business day the
Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the 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 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. At November 30,
1999, the Fund had capital loss carryovers for federal income tax purposes of
approximately $75.9 million which, if not offset by subsequent capital gains,
will expire between 2006-2008. It is unlikely that the Trust's Board of Trustees
will authorize a distribution of capital gains realized in the future until the
capital loss carryovers have been utilized or expire.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, for the six-month period ended November 30, 1999, were $133.5
million and $170.6 million, respectively.
Gross unrealized appreciation and depreciation of investments at November 30,
1999, were $48.0 million and $19.2 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:
- --------------------------------------------------------------------------------
U.S. Dollar
Exchange Contracts to Value as of In Exchange Unrealized Unrealized
Date Deliver 11/30/99 for U.S. Dollar Appreciation Depreciation
- --------------------------------------------------------------------------------
12/03/99 7,858,276 $1,012 $1,012 $ - $ -
Hong Kong Dollar
- --------------------------------------------------------------------------------
$1,012 $1,012 $ - $ -
================================================================================
(6) TRANSACTIONS WITH MANAGER
A. Management fees - USAA Investment Management Company carries out the Fund's
investment policies and manages the Fund's portfolio. The Fund's management fees
are computed at 1% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services, an affiliate of the Manager, provides transfer agent services
to the Fund based on an annual charge of $26 per shareholder account plus
out-of-pocket expenses.
C. Underwriting services - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. The
Manager receives no commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At November 30, 1999, the Association and its affiliates
owned 23.2 million shares (77.3%) of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) YEAR 2000
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
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 8.49 $ 8.98 $ 11.53 $ 11.13 $ 9.77
Net investment
income (loss) (.07)(b) .08 .07 .01 (.01)(b)
Net realized and
unrealized gain (loss) 1.06 (.50) (2.44) .89 1.60
Distributions from net
investment income - (.07) - - (.01)
Distributions of realized
capital gains - - (.18) (.50) (.22)
-----------------------------------------------------------------
Net asset value at
end of period $ 9.48 $ 8.49 $ 8.98 $ 11.53 $ 11.13
=================================================================
Total return (%)* 12.48 (4.63) (20.97) 8.69 16.93
Net assets at end of
period (000) $284,724 $276,340 $294,888 $95,644 $51,315
Ratio of expenses to
average net assets (%) 1.28(a) 1.27 1.31 1.81 2.27
Ratio of net investment
income (loss) to average
net assets (%) (.04)(a) .98 .88 .03 (.08)
Portfolio turnover (%) 49.78 83.84 41.23 61.21 87.98
</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.
(b) Calculated using weighted average shares.
Trustees
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
Investment Adviser, Underwriter, and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Independent Auditors
KPMG LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205
Telephone Assistance 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
