USAA GROWTH AND TAX STRATEGY FUND
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA Growth and Tax Strategy Fund (the Fund) is one of
eleven no-load mutual funds offered by USAA Investment
Trust (the Trust). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek a conservative
balance for the investor between income, the majority of
which is exempt from federal income tax, and the potential
for long-term growth of capital to preserve purchasing power.
This objective is to be achieved through an asset allocation
strategy. Page 10.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or in certain instances, by telephone. Page 14.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 16.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA Growth and Tax Strategy Fund are not
deposits or other obligations of, or guaranteed by the
USAA Federal Savings Bank, are not insured by the FDIC or
any other Government Agency, and are subject to market
risks.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Asset Allocation Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 10
SHAREHOLDER INFORMATION
Purchase of Shares 14
Redemption of Shares 16
Conditions of Purchase and Redemption 17
Exchanges 18
Other Services 19
Share Price Calculation 20
Dividends, Distributions and Taxes 20
Management of the Trust 22
Description of Shares 23
Service Providers 24
Telephone Assistance Numbers 24
FEES AND EXPENSES
The following summary is provided to assist you in understanding
the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .50%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .14%
Custodian Fees .06%
All Other Expenses .10%
---
Total Other Expenses .30%
---
Total Fund Operating Expenses .80%
===
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of
Shares - Bank Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI, page 19.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown.
1 year - $ 8
3 years - $ 26
5 years - $ 44
10 years - $ 99
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the seven year period ended May 31, 1995,
has been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements and
related notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon
request without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992
Net asset value at
beginning of period $ 12.32 $ 13.00 $ 12.00 $ 11.51
Net investment income .49 .29 .46 .48
Net realized and
unrealized gain (loss) .76 (.27) 1.01 .50
Distributions from net
investment income (.48) (.33) (.46) (.49)
Distributions of realized
capital gains (.27) (.37) (.01) -
-------- ------- ------- --------
Net asset value at
end of period $ 12.82 $ 12.32 $ 13.00 $ 12.00
======== ======== ======== ========
Total return (%)** 10.73 .13 12.57 8.74
Net assets at end of
period (000) $134,538 $128,077 $118,532 $ 82,840
Ratio of expenses to
average net assets (%) .80 .84(a) .86 .92
Ratio of net investment
income to average net
assets (%) 4.02 3.56(a) 3.81 4.31
Portfolio turnover (%) 314.57(b) 171.35(b) 98.83 106.83
YEAR ENDED SEPTEMBER 30,
1991 1990 1989*
Net asset value at
beginning of period $ 10.59 $ 11.08 $ 10.00
Net investment income .53 .52 .27
Net realized and
unrealized gain (loss) .93 (.49) .96
Distributions from net
investment income (.54) (.50) (.15)
Distributions of realized
capital gains - (.02) -
-------- -------- --------
Net asset value at
end of period $ 11.51 $ 10.59 $ 11.08
======== ======== ========
Total return (%)** 14.19 .19 12.38
Net assets at end of
period (000) $ 53,535 $ 37,599 $ 23,823
Ratio of expenses to
average net assets (%) 1.00(c) 1.00(c) 1.29(a)(c)
Ratio of net investment
income to average net
assets (%) 4.91(c) 5.05(c) 4.90(a)(c)
Portfolio turnover (%) 81.22 105.78 119.76
- --------------
* Fund commenced operations January 11, 1989.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) The Fund may simultaneously purchase and sell the same securities.
These transactions can be high in volume and dissimilar to other trade
activity within the Fund. If these transactions were excluded from
the calculation, the portfolio turnover rate would be as follows:
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, 1995 MAY 31, 1994
------------ ------------
Portfolio turnover(%) 131.28 93.56
Purchases and sales of this type are as follows:
Purchases (000) $234,367 $98,639
Sales (000) $234,669 $98,761
(c) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
YEAR ENDED SEPTEMBER 30,
1991 1990 1989*
---- ---- ----
Ratio of expenses to average net assets (%) 1.06 1.24 1.48(a)
Ratio of net investment income to average
net assets (%) 4.85 4.81 4.71(a)
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be
considered as representative of the future performance of
the Fund.
The Trust may quote the Fund's yield or total return in
advertisements and reports to shareholders or prospective
investors. The Fund's performance may also be compared
to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return and yield results reported by the Fund do not take
into account recurring and nonrecurring charges for
optional services which only certain shareholders elect
and which involve nominal fees, such as the $10 fee for a
delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by
determining the average annual compounded rate of return
for a specified period which, when applied to a
hypothetical $1,000 investment in the Fund at the
beginning of the period, would produce the redeemable
value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions
during the period.
The Fund may advertise performance in terms of a 30-day
yield quotation. The yield quotation is computed by
dividing the net investment income per share earned
during the period by the offering price per share on the
last day of the period. This income is then annualized.
Further information concerning the Fund's yield and
total return is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a
good investment, is it a wise idea to use your entire
savings to buy one stock? Most people wouldn't - it
would be fortunate if it works, but this strategy holds a
great deal of risk. Surprising news could be reported
tomorrow on your stock, and its price could soar or plummet.
Careful investors understand this concept of risk and
lower that risk by diversifying their holdings among a
number of securities. That way bad news for one security
may be counterbalanced by good news regarding other
securities. But there is still a question of risk here.
History tells us that stocks are generally more volatile
than bonds and that long-term bonds are generally more
volatile than short-term bonds. History also tells us
that over many years investments having higher risks tend
to have higher returns than investments that carry lower
risks. And past performance doesn't necessarily
guarantee future results. From these observations comes
the idea of asset allocation.
Asset allocation is a straightforward concept that
involves dividing your money among several different
types of investments - for example, stocks, bonds and
short-term investments such as money market instruments -
and keeping that allocation until your objectives or the
financial markets significantly change. That way you're
not pinning all your financial success on the fortunes of
one kind of investment. Money spread across different
investment categories can help you reduce market risk and
likely will provide more stability to your total return.
Asset allocation can work because different kinds of
investments generally follow different up-and-down cycles.
With a variety of investments in your portfolio, some are
probably doing well, even when others are struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification,
but asset allocation goes beyond diversifying your
portfolio; it's much more of an active process. You must
evaluate your lifestyle, finances, circumstances, long-
and short-term financial goals and tolerance for
investment risk. Once you have structured your
allocation, you'll need to review it regularly since your
objectives will change over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset
Strategy Funds, are designed for the long-term investor
and are in line with the Manager's investment philosophy
for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown
on the next page, each of USAA's Asset Strategy Funds has
its own different mix of assets and objectives.
Fund Investment Objective Invests In
- ----------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ----------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ----------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ----------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ----------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large
Strategy risk over time, through an asset cap stocks, bonds,
Fund allocation strategy which emphasizes and international
capital appreciation and gives stocks
secondary emphasis to income.
- ----------------------------------------------------------------------------
An important feature of USAA's Asset Strategy Funds is
the quarterly rebalancing of each portfolio. In this
asset allocation technique, the Funds' Managers buy or
sell securities each quarter so that the investment
categories of each Fund are brought within their target
ranges. For example, if a portfolio holds 65% of its
securities in stocks, 30% in bonds, and 5% in money
market instruments at the beginning of a quarter, then
due to market returns holds 75% of its securities in
stocks, 20% in bonds, and 5% in money market instruments
at the end of a quarter, the Manager would rebalance the
portfolio by reducing its holdings of stocks and
increasing its holdings of bonds to return the
portfolio's investments in stocks and bonds into the
target ranges. See Investment Objective and Policies -
Investment Policies and Techniques for further
information on the Fund's target ranges.
For more complete information about the other USAA Asset
Strategy Funds, including charges and expenses, call the
Manager for a Prospectus. Be sure to read it carefully
before you invest or send money.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a
conservative balance for the investor between income, the
majority of which is exempt from federal income tax, and
the potential for long-term growth of capital to preserve
purchasing power. This objective is to be achieved
through an asset allocation strategy.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies, restrictions
and risks is provided in the SAI.
INVESTMENT POLICIES AND
TECHNIQUES
The Fund provides a professionally managed diversified
investment program within one mutual fund. The Manager
seeks to attain the objective by allocating the Fund's
assets in each of the following investment categories
within the indicated ranges:
Percentage
Target Range
Investment Category of Net Assets
- ------------------- -------------
Short-Term Tax-Exempt Securities
(Maturities two years or less) 20 - 40%
Long-Term Tax-Exempt Securities
(Maturities ten years or more) 20 - 40%
Basic Value Stocks 36 - 44%
The target ranges may be revised by the Board of
Trustees upon 60 days' prior written notice to
shareholders. However, the Manager reserves the right,
without shareholder approval, to revise the ranges on a
temporary defensive basis when, in its opinion, such
changes are believed to be in the best interest of the
Fund and its shareholders.
The ranges allow for a variance in each investment
category. Should market action cause investment
categories to move outside the ranges, the Manager will
make adjustments to rebalance the portfolio. In general,
the Manager will rebalance the portfolio at least once
during each calendar quarter to bring each category
within its range. These portfolio adjustments may cause
the Fund to sell securities in investment categories
which have appreciated in value and to buy securities in
investment categories which have depreciated in value.
Such adjustments may also cause the Fund to incur a
higher proportion of short-term capital gains than a fund
that does not have a similar policy.
The investment categories and their weightings have
been specifically selected to provide investors with a
diversified investment in a single mutual fund. Short
and long-term tax-exempt securities provide income exempt
from federal income tax. The short-term category seeks
to add stability of net asset value while the long-term
category seeks higher income. The Basic Value Stocks
have been selected for their potential to provide long-
term capital growth.
It is a fundamental policy of the Fund that during
normal market conditions the Fund's assets will be
invested so that at least 50% of the Fund's annual income
will be exempt from federal personal income tax and
excluded from the calculation of federal alternative
minimum taxes for individual taxpayers.
Long-Term and Short-Term Tax-Exempt Securities - In
general, interest rates for long-term tax-exempt
securities have exceeded those for short-term tax-exempt
securities. By investing in short-term tax-exempt
securities (maturities of two years or less) and in long-
term tax-exempt securities (maturities of ten years or
longer), the Manager believes that price volatility will
be lower than that of a portfolio of all long-term
maturities. Portfolio yields will generally be lower
under this investment policy than they would be in a
portfolio comprised of all long-term maturities. The
Manager believes that the trade-off in yield, if any, for
expected lower volatility is in the best interest of
shareholders.
Tax-exempt securities include general obligation bonds,
which are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and
interest; revenue bonds, which are payable from the
revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source, but
not from the general taxing power; and certain types of
industrial development bonds issued by or on behalf of
public authorities to obtain funds for privately-operated
facilities, provided that the interest paid on such
securities qualifies as exempt from federal income taxes.
Under normal market conditions, the Manager will invest
the combined assets of the Long-Term and Short-Term Tax-
Exempt Securities categories so that approximately 75% of
the total market value of the tax-exempt securities is
rated within the three highest long-term rating
categories (at least A) by Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), or
Fitch Investors Service, Inc. (Fitch), in the highest
short-term rating category by Moody's, S&P, or Fitch, or,
if a security is not rated by those rating agencies, it
must be of equivalent investment quality as determined by
the Manager.
The Manager will not purchase a security if, as a
result of such purchase, more than 25% of the combined
total market value of the tax-exempt securities of both
categories would be invested in securities which do not
meet these quality standards. In no event will a security
be purchased in the tax-exempt securities categories unless
it is rated at least investment grade; i.e., rated by
Moody's, S&P, or Fitch at least in the fourth highest
rating category for long-term securities, in the second
highest rating category for short-term securities, or, if
not rated by those rating agencies, determined by the
Manager to be of equivalent investment quality.
Securities rated in the lowest level of investment grade
have some speculative characteristics since adverse
economic conditions and changing circumstances are more
likely to have an adverse impact on such securities.
If the rating of a security is downgraded, the Manager
will determine whether it is in the best interest of the
Fund's shareholders to continue to hold such security in
the Fund's portfolio. For a more complete description of
tax-exempt securities and their ratings, see Appendix A
to the SAI.
Within the Short-Term Tax-Exempt Securities investment
category (maturities two years or less), the Fund may, on
a temporary basis due to market or other conditions,
invest in short-term securities which are not exempt from
federal income tax. These securities may consist of
obligations of the U.S. Government and its agencies or
instrumentalities, and repurchase agreements secured by
such instruments; certificates of deposit of domestic
banks having capital, surplus and undivided profits in
excess of $100 million; banker's acceptances of similar
banks; commercial paper; and other corporate debt
obligations.
Basic Value Stocks - Approximately 40% of the Fund's
assets will be invested in common stocks for their long-
term potential to increase in value. Within this
category, investments will consist of common stocks,
preferred stocks or securities which are convertible into
or which carry the right to buy common stocks of U.S.
companies which the Manager believes are undervalued in
relation to such factors as the company's assets and
current or prospective earnings. In most cases, these
securities will be listed on the New York Stock Exchange.
The Basic Value Stocks category will include common
stocks of companies with one or more of the following
characteristics when purchased: (1) the price earnings
ratio is lower than the price earnings ratio of the S&P
500; (2) the price per share is lower than the book value
per share; (3) the dividend yield is higher than the
dividend yield of the S&P 500; or (4) the company has
assets with a perceived market value in excess of book
value. Loss of these characteristics will not
necessarily result in the sale of securities in this
investment category. The Manager believes that these
common stock investments in Basic Value Stocks will
provide an investor in the Fund the potential for long-
term increases in capital. Such potential does not
generally exist in a portfolio which is invested totally
in fixed income securities.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are collateralized by obligations backed
by the full faith and credit of the U.S. Government or by
its agencies or instrumentalities. A repurchase
agreement is a transaction in which a security is
purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on
an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or
maturity of the purchased security. The obligation of
the seller to pay the agreed upon price is in effect
secured by the value of the underlying security. In
these transactions, the securities purchased by the Fund
will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security declines,
the Fund may incur a loss and may incur expenses in selling
the collateral. If the seller seeks relief under the
bankruptcy laws, the disposition of the collateral may be
delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Variable Rate Securities - The Fund may invest in
securities that bear interest at rates (coupons) which
are adjusted periodically to market rates. These
interest rate adjustments can both raise and lower the
income generated by such securities. These changes will
have the same effect on the income earned by a Fund
depending on the proportion of such securities held.
The market value of fixed coupon securities fluctuates
with changes in prevailing interest rates, increasing in
value when interest rates decline and decreasing in value
when interest rates rise. The value of variable rate
securities, however, is less affected by changes in
prevailing interest rates because of the periodic
adjustment of their coupons to a market rate. The
shorter the period between adjustments, the smaller the
impact of interest rate fluctuations on the value of
these securities. The market value of variable rate
securities usually tends toward par (100% of face value)
at interest rate adjustment time.
Put Bonds - The Fund may invest in tax-exempt securities
(including securities with variable interest rates) which
may be redeemed or sold back (put) to the issuer of the
security or other guarantor not affiliated with the
issuer at face value prior to stated maturity (Put
Bonds). Such securities will normally trade as if
maturity is the earlier put date, even though stated
maturity is longer. Under the Fund's portfolio
allocation procedure, maturity for put bonds is deemed to
be the date on which the put becomes exercisable.
Municipal Lease Obligations - The Fund may invest in a
variety of instruments commonly referred to as municipal
lease obligations, including leases, installment purchase
contracts and certificates of participation in such
leases and contracts. In evaluating a potential
investment in a municipal lease obligation, the Manager
will consider: (1) the credit quality of the obligor,
(2) whether the underlying property is essential to a
governmental function, and (3) whether the lease
obligation contains covenants prohibiting the obligor
from substituting similar property if the obligor fails
to make appropriations for the lease obligation. For
a description of the risks associated with these
obligations, see Investment Policies - Municipal Lease
Obligations in the SAI.
Liquidity - The Fund may not invest more than 15% of the
market value of its total assets in securities which are
illiquid or not readily marketable.
Municipal Lease Obligations, Rule 144A Securities and
certain Put Bonds that are subject to restrictions on
transfer may be determined to be liquid in accordance
with guidelines established by the Board of Trustees for
purposes of complying with the Fund's investment
restriction applicable to investments in illiquid
securities.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund may not invest more than 25% of its total
assets in one industry.
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3% of
its total assets (including the amount borrowed) less
liabilities (other than borrowings).
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide
the Trust with a social security number or tax identification
number to avoid possible withholding requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next determined
after the Fund receives your request in proper form.
If the Fund receives your request prior to the close of
the New York Stock Exchange on a day on which the Exchange
is open, your purchase price will be the NAV per share
determined for that day. If the Fund receives your request
after the time at which the NAV per share is calculated, the
purchase will be effective on the next business day. A check
drawn on a foreign bank will not be deemed received for the
purchase of shares until such time as the check has cleared
and the Manager has received good funds, which may take up to
4 to 6 weeks. Furthermore, a bank charge may be assessed
in the clearing process, which will be deducted from the
amount of the purchase. To avoid a delay in the
effectiveness of your purchase, the Manager suggests that
you convert your foreign check to U.S. dollars prior to
investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $3,000
After January 31, 1996 $3,000 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50
Initial Purchase - IRA: Not Available
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest by
Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing investment
Electronic or from a USAA money market account. Sign up for these
Funds services when opening an account or call 1-800-531-8448
Transfer to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
Bank Wire * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston,
MA 02101
ABA#011000028
Attn: USAA Growth and Tax Strategy Fund
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number______________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases can
be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If
you are considering redeeming shares soon after purchase,
you should purchase by bank wire or certified check to
avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a
telegraph to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited
to your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered
Redemption shareholder(s) will be mailed to the
address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases, redemptions,
or changes in account information. The section Additional
Information Regarding Redemption of Shares in the SAI
contains information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. Effective January 31, 1996,
with this program you can make initial investments as low
as $100 and automatic monthly additions of $50 to the
account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in
your account except:
i) a reinvested dividend, or
ii) a payment you make after January 31, 1996 under
the InvesTronic(registered trademark), Direct
Purchase Service, Automatic Purchase Plan, or
Directed Dividends investment plans, or
iii) a redemption you make after January 31, 1996 under
the Systematic Withdrawal Plan.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions concerning
any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Portfolio securities, except as otherwise
noted, traded primarily on a domestic securities exchange
are valued at the last sales price on that exchange. If
no sale is reported, the latest bid price is generally used.
Over-the-counter securities are generally priced at the
last sales price or, if not available, at the average of
the bid and asked prices.
Debt securities purchased with maturities of 60 days or
less are stated at amortized cost which approximates
market value. Other debt securities are valued each
business day at their current market value as determined
by a pricing service approved by the Board of Trustees.
Securities which cannot be valued by the methods set
forth above, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders
quarterly. Any net capital gain generally will be
distributed at least annually. The Fund intends to make
such additional distributions as may be necessary to
avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-
dividend date. Any income dividend or capital gain
distributions paid by the Fund will reduce the per share
net asset value by the amount of the dividend or distribution.
An investor should consider carefully the effects of purchasing
shares of the Fund shortly before any dividend or
distribution. Although in effect a return of capital,
these distributions are subject to taxes.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. A
portion of these dividends may qualify for the 70%
dividends received deduction available to corporations.
Distributions of net long-term capital gains are taxable
as long-term capital gains whether received in cash or
reinvested in additional shares, and regardless of the
length of time the investor has held the shares of the Fund.
Distributions to shareholders derived from tax-exempt
interest received by the Fund will be excluded from a
shareholder's gross income for federal income tax
purposes, provided the Fund meets certain requirements.
Tax-exempt interest from private activity bonds (for
example, industrial development revenue bonds) issued
after August 7, 1986, although otherwise exempt from
federal tax, is treated as a tax preference item for
purposes of the alternative minimum tax. For
corporations, all tax-exempt interest will be considered
in calculating the alternative minimum tax as part of
the adjusted current earnings. Distributions of
tax-exempt income are taken into consideration in
computing the portion, if any, of Social Security and
railroad retirement benefits subject to federal and, in
some cases, state taxes.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - The Fund will report annually to their
shareholders the federal tax status of dividends and
distributions paid or declared by the Fund during the
preceding calendar year including the portion of the
dividends constituting interest on private activity
bonds, and the percentage and source, on a state-by-state
basis, of interest income earned on tax-exempt securities,
if any, held by the Fund during the preceding year.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the
Investment Company Institute and comply with Securities
and Exchange Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory Agreement.
Under the Advisory Agreement, the Manager is responsible for
the management of the Funds, business affairs, and placement
of brokerage orders, subject to the authority of and
supervision by the Board of Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA),
accrued daily and paid monthly. The Fund's management
fees were computed and paid at one-half of one percent
(.50%) of ANA for the fiscal year ended May 31, 1995.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the total
operating expenses for the Fund as a percentage of the
Fund's ANA equaled .80%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's
portfolio may be accomplished through USAA Brokerage
Services, a discount brokerage service of the Manager.
The Board of Trustees has adopted procedures to ensure
that any commissions paid to USAA Brokerage Services are
reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Fund.
John W. Saunders, Jr., Senior Vice President of Fixed
Income Investments since October of 1985, has been the
Fund's asset allocation manager since its inception in
January 1989. He has 26 years investment management
experience and has worked for IMCO 26 years. Mr.
Saunders earned the Chartered Financial Analyst (CFA)
designation in 1976 and is a member of the Association
for Investment Management and Research (AIMR) and the San
Antonio Financial Analysts Society, Inc. (SAFAS). He
holds a BS from Portland State University, Oregon.
Harry W. Miller, Senior Vice President of Equity
Investments since October of 1987, has managed the Basic
Value Stocks investment category since February 1995.
Mr. Miller has 38 years of experience in investment
management and has worked for IMCO 21 years. Mr. Miller
earned the CFA designation in 1968 and is a member of the
AIMR and SAFAS. He holds an MBA from the University of
Southern California and a BS from Rider College, New
Jersey.
Kenneth E. Willmann, Vice President of Fixed Income
Investments since December of 1986, has managed the Long-
Term Tax-Exempt Securities investment category since its
inception in January 1989. He has 21 years investment
management experience and has worked for IMCO 19 years.
Mr. Willmann earned the CFA designation in 1978 and is a
member of the AIMR, SAFAS and the National Federation of
Municipal Analysts (NFMA). He holds an MBA and a BA from
the University of Texas.
Clifford A. Gladson, Assistant Vice President of Fixed
Income Investments since November of 1994, has managed
the Short-Term Tax-Exempt investment category since April
1994. He has eight years investment management
experience and has worked for IMCO five years where he
has held various positions in Fixed Income Investments.
Mr. Gladson earned the CFA designation in 1990 and is a
member of the AIMR, SAFAS and NFMA. He holds an MS from
the University of Wisconsin, Milwaukee and a BS from
Marquette University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for
fractional shares) irrespective of the relative net asset
value of the shares. For matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a
meeting of shareholders at any time for the purpose of
voting to remove one or more of the Trustees, and the
Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement
provides for indemnification out of the Trust's property
for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus,
the possibility of a shareholder incurring financial loss
on account of shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
USAA CORNERSTONE STRATEGY FUND
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA Cornerstone Strategy Fund (the Fund) is one of
eleven no-load mutual funds offered by USAA Investment
Trust (the Trust). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
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 purchasing
power of shareholders' capital. This objective is to be
achieved through an asset allocation strategy. Inflation
is measured by the Consumer Price Index. Page 10.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or in certain instances, by telephone. Page 15.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 17.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA Cornerstone Strategy Fund are not
deposits or other obligations of, or guaranteed by the
USAA Federal Savings Bank, are not insured by the FDIC or
any other Government Agency, and are subject to market
risks. Because this Fund invests in foreign securities,
it involves a higher degree of risk and may not be
appropriate for some investors. See Special Risk
Considerations, page 14.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg Rd.,
San Antonio, TX 78288, or by calling 1-800-531-8181. The SAI
has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Asset Allocation Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 10
SHAREHOLDER INFORMATION
Purchase of Shares 15
Redemption of Shares 17
Conditions of Purchase and Redemption 18
Exchanges 19
Other Services 20
Share Price Calculation 21
Dividends, Distributions and Taxes 22
Management of the Trust 23
Description of Shares 24
Service Providers 25
Telephone Assistance Numbers 25
FEES AND EXPENSES
The following summary is provided to assist you in understanding the
expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .25%
Custodian Fees .06%
All Other Expenses .07%
---
Total Other Expenses .38%
----
Total Fund Operating Expenses 1.13%
====
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of Shares - Bank
Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI, page 19.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown.
1 year - $ 11
3 years - $ 36
5 years - $ 62
10 years - $137
The above example should not be considered a representation of past
or future expenses and actual expenses may be greater or less than
those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the ten-year period ended May 31, 1995,
has been derived from financial statements audited by KPMG Peat Marwick
LLP. This table should be read in conjunction with the financial
statements and related notes that appear in the Fund's Annual Report.
Further performance information is contained in the Annual Report and is
available upon request without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
Net asset value at
beginning of period $ 23.24 $ 23.43 $ 19.94 $ 18.62 $ 17.19
Net investment income .68 .40 .60 .65 .65
Net realized and
unrealized gain (loss) .67 .29 3.52 1.26 1.43
Distributions from net
investment income (.58) (.59) (.63) (.59) (.65)
Distributions of realized
capital gains (1.38) (.29) - - -
-------- -------- -------- -------- --------
Net asset value at
end of period $ 22.63 $ 23.24 $ 23.43 $ 19.94 $ 18.62
======== ======== ======== ======== ========
Total return (%)* 6.43 3.00 21.35 10.53 12.61
Net assets at end of
period (000) $874,587 $814,869 $707,795 $567,212 $580,088
Ratio of expenses to
average net assets (%) 1.13 1.11(a) 1.18 1.18 1.18
Ratio of net investment
income to average net
assets (%) 3.16 2.68(a) 2.92 3.25 3.58
Portfolio turnover (%) 33.17 30.87 45.18 32.71 28.02
YEAR ENDED SEPTEMBER 30,
1990 1989 1988 1987 1986
Net asset value at
beginning of period $ 19.31 $ 16.71 $ 19.76 $ 14.49 $ 10.58
Net investment income .63 .69 .59 .60 .45
Net realized and
unrealized gain (loss) (2.04) 2.57 (3.26) 5.18 3.83
Distributions from net
investment income (.71) (.66) (.36) (.30) (.32)
Distributions of realized
capital gains - - (.02) (.21) (.05)
-------- -------- -------- -------- --------
Net asset value at
end of period $ 17.19 $ 19.31 $ 16.71 $ 19.76 $ 14.49
======== ======== ======== ======== ========
Total return (%)* (7.64) 20.17 (13.39) 41.26 41.77
Net assets at end of
period (000) $535,308 $522,031 $544,118 $822,748 $ 28,947
Ratio of expenses to
average net assets (%) 1.21 1.21 1.21 1.07 1.50
Ratio of net investment
income to average net
assets (%) 3.50 3.57 3.54 3.41 3.68
Portfolio turnover (%) 40.89 33.19 27.78 14.86 70.06
- --------------
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is reported.
Historical performance should not be considered as representative
of the future performance of the Fund.
The Trust may quote the Fund's total return in
advertisements and reports to shareholders or prospective
investors. The Fund's performance may also be compared
to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return results reported by the Fund do not take into
account recurring and nonrecurring charges for optional
services which only certain shareholders elect and which
involve nominal fees, such as the $10 fee for a delivery
of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by
determining the average annual compounded rate of return
for a specified period which, when applied to a
hypothetical $1,000 investment in the Fund at the
beginning of the period, would produce the redeemable
value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions
during the period.
Further information concerning the Fund's total return
is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a
good investment, is it a wise idea to use your entire
savings to buy one stock? Most people wouldn't - it
would be fortunate if it works, but this strategy holds a
great deal of risk. Surprising news could be reported
tomorrow on your stock, and its price could soar or plummet.
Careful investors understand this concept of risk and
lower that risk by diversifying their holdings among a
number of securities. That way bad news for one security
may be counterbalanced by good news regarding other
securities. But there is still a question of risk here.
History tells us that stocks are generally more volatile
than bonds and that long-term bonds are generally more
volatile than short-term bonds. History also tells us
that over many years investments having higher risks tend
to have higher returns than investments that carry lower
risks. And past performance doesn't necessarily
guarantee future results. From these observations comes
the idea of asset allocation.
Asset allocation is a straightforward concept that
involves dividing your money among several different
types of investments - for example, stocks, bonds and
short-term investments such as money market instruments -
and keeping that allocation until your objectives or the
financial markets significantly change. That way you're
not pinning all your financial success on the fortunes of
one kind of investment. Money spread across different
investment categories can help you reduce market risk and
likely will provide more stability to your total return.
Asset allocation can work because different kinds of
investments generally follow different up-and-down
cycles. With a variety of investments in your portfolio,
some are probably doing well, even when others are struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification,
but asset allocation goes beyond diversifying your
portfolio; it's much more of an active process. You must
evaluate your lifestyle, finances, circumstances, long-
and short-term financial goals and tolerance for investment
risk. Once you have structured your allocation, you'll need
to review it regularly since your objectives will change
over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset
Strategy Funds, are designed for the long-term investor
and are in line with the Manager's investment philosophy
for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown
on the next page, each of USAA's Asset Strategy Funds has
its own different mix of assets and objectives.
Fund Investment Objective Invests In
- ----------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ----------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ----------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ----------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ----------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large
Strategy risk over time, through an asset cap stocks, bonds,
Fund allocation strategy which emphasizes and international
capital appreciation and gives stocks
secondary emphasis to income.
- ----------------------------------------------------------------------------
An important feature of USAA's Asset Strategy Funds is
the quarterly rebalancing of each portfolio. In this
asset allocation technique, the Funds' Managers buy or
sell securities each quarter so that the investment
categories of each Fund are brought within their target
ranges. For example, if a portfolio holds 65% of its
securities in stocks, 30% in bonds, and 5% in money
market instruments at the beginning of a quarter, then
due to market returns holds 75% of its securities in
stocks, 20% in bonds, and 5% in money market instruments
at the end of a quarter, the Manager would rebalance the
portfolio by reducing its holdings of stocks and
increasing its holdings of bonds to return the
portfolio's investments in stocks and bonds into the
target ranges. See Investment Objective and Policies -
Investment Policies, Techniques and Risk Factors for
further information on the Fund's target ranges.
For more complete information about the other USAA Asset
Strategy Funds, including charges and expenses, call the
Manager for a Prospectus. Be sure to read it carefully
before you invest or send money.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
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 purchasing power
of shareholders' capital. This objective is to be
achieved through an asset allocation strategy. Inflation
is measured by the Consumer Price Index.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies, restrictions
and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Fund provides a professionally managed diversified
investment program within one mutual fund. The Manager
seeks to attain the objective by allocating the Fund's
assets in each of the following investment categories
within the indicated ranges:
Percentage
Target Range
Investment Category of Net Assets
- ------------------- -------------
Basic Value Stocks 22 - 28%
U.S. Government Securities 22 - 28%
Foreign Stocks 22 - 28%
Real Estate Stocks 22 - 28%
Gold Stocks 0 - 10%
The target ranges may be revised by the Board of
Trustees upon 60 days' prior written notice to
shareholders. However, the Manager reserves the right,
without shareholder notification, to revise the ranges on
a temporary defensive basis when, in its opinion, such
changes are believed to be in the best interest of the
Fund and its shareholders.
The ranges allow for a variance in each investment
category. Should market action cause investment
categories to move outside the ranges, the Manager will
make adjustments to rebalance the portfolio. In general,
the Manager will rebalance the portfolio at least once
during each calendar quarter to bring each category
within its range. These portfolio adjustments may cause
the Fund to sell securities in investment categories
which have appreciated in value and to buy securities in
investment categories which have depreciated in value.
Such adjustments may also cause the Fund to incur a
higher proportion of short-term capital gains than a fund
that does not have a similar policy.
The Basic Value Stocks category was selected to provide
appreciation during rising stock market conditions and to
stabilize the value of the Fund during adverse market
conditions. The U.S. Government Securities category was
selected to provide safety of principal in periods of
deflation. The Foreign Stocks category was selected to
provide the potential for appreciation during periods of
adverse economic and market conditions in the United
States. The Real Estate and Gold Stocks categories were
selected to provide a positive total return during
inflationary periods.
Characteristics and associated risks of each investment
category are as follows:
Basic Value Stocks - In this category, investments will
consist of common stocks, preferred stocks or securities
which are convertible into or which carry the right to
buy common stocks of U.S. companies which the Manager
believes are undervalued in relation to such factors as
the company's assets and current or prospective earnings.
In most cases, these securities will be listed on the New
York Stock Exchange.
The Basic Value Stocks category will include common
stocks of companies with one or more of the following
characteristics when purchased: (1) the price earnings
ratio is lower than the price earnings ratio of the S&P
500; (2) the price per share is lower than the book value
per share; (3) the dividend yield is higher than the
dividend yield of the S&P 500; or (4) the company has
assets with a perceived market value in excess of book
value. Loss of these characteristics will not necessarily
result in the sale of securities in this investment category.
U.S. Government Securities - In this category, investments
will consist of securities, without specific maturity
requirements or limits, issued or guaranteed as to both
principal and interest by the U.S. Government or by its
agencies or instrumentalities. Examples of these securities
are Treasury bills, notes and bonds, and securities issued
by the Federal Farm Credit Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, and
Government National Mortgage Association.
Within this investment category, the Fund may also
invest in repurchase agreements secured by securities of
the U.S. Government or by its agencies or instrumentalities.
The U.S. Government Securities investment category is
intended to provide both liquidity and interest income
with limited risk. Changes in interest rates may affect
the value of investments within this category. In
periods of rising interest rates, fixed coupon securities
will generally decline in market value. To minimize such
changes in value, the Manager may shorten maturities in
periods of rising interest rates, although there is no
assurance that this action will totally protect principal
from erosion. Conversely, the Manager may extend
maturities in periods of declining interest rates to
capitalize on the resulting impact on principal.
Foreign Stocks - In this category, investments will
consist of common stocks, preferred stocks or securities
which are convertible into or which carry the right to
buy common stocks of companies organized and operating
principally outside the United States, other than companies
whose principal business is gold exploration, mining, or
processing. A company is deemed to be operating principally
outside the United States if at least 50% of its revenues
are derived from operations outside the United States or if
its primary production or operating facilities are located
outside the United States.
The Manager believes that international diversification
may have a balancing impact with regard to investments in
the United States. For a discussion of the risks
associated with investments in foreign issuers, see
Special Risk Considerations.
Real Estate Stocks - In this category, investments will
consist of common stocks, preferred stocks or securities
which are convertible into or which carry the right to
buy common stocks of U.S. Real Estate Investment Trusts
(REITs) and U.S. companies which operate as real estate
corporations or which have a significant portion of their
assets in real estate. The Manager will evaluate the
nature of a company's real estate holdings in determining
whether the Fund's investment in the company's common
stock will be included in this category. The Fund's
investments in REITs may subject the Fund to many of the
same risks associated with the direct ownership of real
estate. In addition, REITs are dependent upon the
capabilities of the REIT manager(s) and have limited
diversification. The Fund will not acquire any direct
ownership of real estate.
The Manager believes that diversified investments
linked to real estate are a good hedge during an
inflationary environment.
Gold Stocks - In this category, at least 80% of the
investments will consist of common stocks, preferred
stocks or securities which are convertible into or which
carry the right to buy common stocks of companies
principally engaged in gold exploration, mining, or
processing. The remaining investments in this category
will consist of common stocks, preferred stocks or
securities which are convertible into or which carry the
right to buy common stocks of companies similarly engaged
in other precious metals and minerals. Gold stocks have
been selected for their perceived potential to increase
in value during inflationary periods. For a discussion
of risks associated with investments in this category,
see Special Risk Considerations.
Forward Currency Contracts - The Fund may hold securities
denominated in foreign currencies. As a result, the
value of the securities will be affected by changes in
the exchange rate between the dollar and foreign
currencies. In managing the currency exposure, the Fund
may enter into forward currency contracts. A forward
currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or
over a specified time period at a price set at the time
of the contract.
The Fund may enter into forward currency contracts
under two circumstances. First, when the Fund enters into
a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when
management of the Fund believes that the currency of a
specific country may deteriorate relative to the U.S.
dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a
particular currency for an amount greater than the
aggregate market value (determined at the time of making
any sale of forward currency) of the securities held in
its portfolio denominated or quoted in, or bearing a
substantial correlation to, such currency.
The use of forward currency contracts to protect the
value of a Fund's assets against a decline in the value
of a currency does not eliminate fluctuations in the
value of the Fund's underlying security holdings. In
addition, although the use of forward currency contracts
can minimize the risk of loss due to a decline in value
of the foreign currency, the use of such contracts will
tend to limit any potential gain resulting from an
increase in the relative value of the foreign currency to
the U.S. dollar. Under certain circumstances, a fund
that has entered into forward currency contracts to hedge
its currency risks may be in a less favorable position
than a fund that had not entered into such contracts.
The projection of short-term currency market movements is
extremely difficult and successful execution of a short-
term hedging strategy is highly uncertain.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are collateralized by obligations backed
by the full faith and credit of the U.S. Government or by
its agencies or instrumentalities. A repurchase
agreement is a transaction in which a security is
purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on
an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or
maturity of the purchased security. The obligation of
the seller to pay the agreed upon price is in effect
secured by the value of the underlying security. In
these transactions, the securities purchased by the Fund
will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security
declines, the Fund may incur a loss and may incur
expenses in selling the collateral. If the seller seeks
relief under the bankruptcy laws, the disposition of the
collateral may be delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Variable Rate Securities - The Fund may invest in
securities that bear interest at rates (coupons) which
are adjusted periodically to market rates. These
interest rate adjustments can both raise and lower the
income generated by such securities. These changes will
have the same effect on the income earned by a Fund
depending on the proportion of such securities held.
The market value of fixed coupon securities fluctuates
with changes in prevailing interest rates, increasing in
value when interest rates decline and decreasing in value
when interest rates rise. The value of variable rate
securities, however, is less affected by changes in
prevailing interest rates because of the periodic
adjustment of their coupons to a market rate. The
shorter the period between adjustments, the smaller the
impact of interest rate fluctuations on the value of these
securities. The market value of variable rate securities
usually tends toward par (100% of face value) at interest
rate adjustment time.
Liquidity - The Fund may not invest more than 15% of the
market value of its total assets in securities which are
illiquid or not readily marketable. Rule 144A Securities
may be determined to be liquid in accordance with guidelines
established by the Board of Trustees for purposes of
complying with the Fund's investment restriction applicable
to investments in illiquid securities.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund may not invest more than 25% of its total
assets in one industry. The Foreign Stocks, U.S.
Government Securities, and Basic Value Stocks
investment categories are not considered industries
for this purpose.
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3% of
its total assets (including the amount borrowed) less
liabilities (other than borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase
foreign securities in foreign or U.S. markets or it may
purchase American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with
a depositary. Investing in foreign securities presents
certain risks not present in domestic investments. Such
risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility,
exchange control regulations, different accounting,
reporting and disclosure requirements, political or social
instability, and difficulties in obtaining judgments or
effecting collections thereon. Brokerage commissions and
custodial services may be more costly, and stock trade
settlements may be more lengthy, more costly and more
difficult than in domestic markets. These investments may
be subject to foreign withholding taxes which may reduce
the effective rates of return. The Fund values its
securities and other assets in U.S. dollars.
Information which may impact the market value of
securities of a foreign issuer may not be available to
the Manager on a timely basis. The Manager will endeavor
to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value
will be deemed to have occurred upon authentication by
the Manager.
A developing country can be considered to be a country
which is in the initial stages of its industrialization
cycle. Investments in developing countries involve
exposure to economic structures that are generally less
diverse and mature than in the United States, and to
political systems which may be less stable. Due to
illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge
the currency risk in these markets. In the past, markets
of developing countries have been more volatile than the
markets of developed countries.
Political risk includes a greater potential for coup
d'etats, insurrections and expropriation by governmental
organizations. For example, the Fund may invest in
Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent
States). These countries were under communist systems
which had nationalized private industry. There is no
guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which
case the Fund may lose all or part of its investment in
that country's issuers.
Volatility of Mining Stocks - Gold mining stocks involve
additional risk because of gold's price volatility and
the increased impact such volatility has on the
profitability of gold mining companies. However, since
the market action of such securities has tended to move
independently of the broader financial markets, the
addition of gold mining stocks to an investor's portfolio
may reduce overall fluctuations in portfolio value.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If the Fund receives your request prior to the
close of the New York Stock Exchange on a day on which the
Exchange is open, your purchase price will be the NAV per
share determined for that day. If the Fund receives your
request after the time at which the NAV per share is
calculated, the purchase will be effective on the next
business day. A check drawn on a foreign bank will not be
deemed received for the purchase of shares until such time
as the check has cleared and the Manager has received good
funds, which may take up to 4 to 6 weeks. Furthermore, a
bank charge may be assessed in the clearing process, which
will be deducted from the amount of the purchase. To avoid
a delay in the effectiveness of your purchase, the Manager
suggests that you convert your foreign check to U.S. dollars
prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $3,000 or minimum $100 with a minimum $50
monthly electronic investment
Initial Purchase - IRA: $1,000 or minimum $100 with a minimum $50
monthly electronic investment $250 for
spousal account
After January 31, 1996 $250 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest by
Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing investment
Electronic or from a USAA money market account. Sign up for these
Funds services when opening an account or call 1-800-531-8448
Transfer to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
Bank Wire * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Cornerstone Strategy Fund
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number_______________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days after
the effective date of redemption. Payment for redemption
of shares purchased by check or electronic funds transfer
will not be disbursed until the purchase check or electronic
funds transfer has cleared, which could take up to 15 days
from the purchase date. If you are considering redeeming
shares soon after purchase, you should purchase by bank wire
or certified check to avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a
telegraph to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited
to your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered
Redemption shareholder(s) will be mailed to the
address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases,
redemptions, or changes in account information.
The section Additional Information Regarding
Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. With this program you can
make initial investments as low as $100 and automatic
monthly additions of $50 to the account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Retirement Plans - plans are available for IRA
(including SEP/IRA) and 403(b)(7) accounts. Federal
taxes on current income may be deferred if an investor
qualifies.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in
your account except:
i) a payment you make after January 31, 1996 under
the InvesTronic(registered trademark), Automatic
Purchase Plan, or Direct Purchase Service
investment plans, or
ii) a redemption you make after January 31, 1996 under
the Systematic Withdrawal Plan.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions concerning
any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Portfolio securities, except as otherwise
noted, traded primarily on a domestic securities exchange
are valued at the last sales price on that exchange.
Portfolio securities traded primarily on foreign
securities exchanges are generally valued at the closing
values of such securities on the exchange where primarily
traded. If no sale is reported, the latest bid price is
generally used.
Over-the-counter securities are generally priced at the
last sales price or, if not available, at the average of
the bid and asked prices.
Debt securities purchased with maturities of 60 days or
less are stated at amortized cost which approximates
market value. Other debt securities are valued each
business day at their current market value as determined
by a pricing service approved by the Board of Trustees.
Securities which cannot be valued by the methods set
forth above, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders
annually. Any net capital gain generally will be
distributed at least annually. The Fund intends to make
such additional distributions as may be necessary to
avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-dividend
date. Any income dividend or capital gain distributions
paid by the Fund will reduce the per share net asset value
by the amount of the dividend or distribution. An investor
should consider carefully the effects of purchasing shares
of the Fund shortly before any dividend or distribution.
Although in effect a return of capital, these distributions
are subject to taxes.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. A
portion of these dividends may qualify for the 70%
dividends received deduction available to corporations.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
the Fund.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - Information concerning the status of
dividends and distributions for federal income tax
purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the
Investment Company Institute and comply with Securities
and Exchange Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory
Agreement. Under the Advisory Agreement, the Manager is
responsible for the management of the Funds, business affairs,
and placement of brokerage orders, subject to the authority
of and supervision by the Board of Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA), accrued
daily and paid monthly. The Fund's management fees were
computed and paid at three-fourths of one percent (.75%) of
ANA for the fiscal year ended May 31, 1995. This fee is
higher than that charged to most other mutual funds, but is
comparable to fees charged to other mutual funds with similar
investment objectives and policies.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the total
operating expenses for the Fund as a percentage of the
Fund's ANA equaled 1.13%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's
portfolio may be accomplished through USAA Brokerage
Services, a discount brokerage service of the Manager.
The Board of Trustees has adopted procedures to ensure
that any commissions paid to USAA Brokerage Services are
reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Fund.
Harry W. Miller, Senior Vice President of Equity
Investments since October of 1987, is the asset
allocation manager for the Fund. He has been the
portfolio manager for the Basic Value Stocks investment
category since February 1995. Mr. Miller has 38 years of
experience in investment management and has worked for
IMCO 21 years. Mr. Miller earned the Chartered Financial
Analyst (CFA) designation in 1968 and is a member of the
Association for Investment Management and Research (AIMR)
and the San Antonio Financial Analysts Society, Inc.
(SAFAS). He holds an MBA from the University of Southern
California and a BS from Rider College, New Jersey.
John W. Saunders, Jr., Senior Vice President of Fixed
Income Investments since October of 1985, has managed the
U.S. Government Securities investment category since
October 1985. Mr. Saunders has 26 years investment
management experience and has worked for IMCO 26 years.
Mr. Saunders earned the CFA designation in 1976 and is a
member of the AIMR and SAFAS. He holds a BS from
Portland State University, Oregon.
David G. Peebles, Vice President of Equity Investments
since February of 1988, has managed the Foreign Stocks
investment category since December 1994. He has 30 years
investment management experience and has worked for IMCO
12 years. Mr. Peebles earned the CFA designation in 1971
and is a member of the AIMR and SAFAS. He holds an MBA
and BS from Texas Christian University.
Mark W. Johnson, Assistant Vice President of Equity
Investments since March of 1995, has managed the Gold
Stocks and Real Estate Stocks investment categories since
January 1994. He has 21 years investment management
experience and has worked for IMCO seven years. Mr.
Johnson earned the CFA designation in 1978 and is a
member of the AIMR and SAFAS. He holds an MBA and a BBA
from the University of Michigan.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the
shares. For matters affecting an individual Fund, a separate
vote of the shareholders of that Fund is required.
Shareholders holding an aggregate of at least 10% of the
outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to
remove one or more of the Trustees, and the Trust will
assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement
provides for indemnification out of the Trust's property
for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring
financial loss on account of shareholder liability is
remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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USAA GOLD FUND
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA Gold Fund (the Fund) is one of eleven no-load mutual
funds offered by USAA Investment Trust (the Trust). The
Fund is managed by USAA Investment Management Company
(the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's primary investment objective is to seek long-
term capital appreciation and to protect the purchasing
power of shareholders' capital against inflation.
Current income is a secondary objective. Page 9.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or in certain instances, by telephone. Page 12.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 14.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA Gold Fund are not deposits or other
obligations of, or guaranteed by the USAA Federal Savings
Bank, are not insured by the FDIC or any other Government
Agency, and are subject to market risks. Because this
Fund invests in foreign securities, it involves a higher
degree of risk and may not be appropriate for some
investors. See Special Risk Considerations, page 11.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 18
Management of the Trust 20
Description of Shares 21
Service Providers 22
Telephone Assistance Numbers 22
FEES AND EXPENSES
The following summary is provided to assist you in understanding the
expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .36%
Custodian Fees .05%
All Other Expenses .12%
----
Total Other Expenses .53%
----
Total Fund Operating Expenses 1.28%
====
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of Shares -
Bank Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI, page 19.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 13
3 years - $ 41
5 years - $ 70
10 years - $155
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the ten-year period ended May 31, 1995,
has been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements and
related notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
Net asset value at
beginning of period $ 8.83 $ 7.95 $ 6.53 $ 6.40 $ 8.08
Net investment income .01 .01 .02 .07 .10
Net realized and
unrealized gain (loss) .17 .88 1.44 .14 (1.72)
Distributions from net
investment income (.01) (.01) (.04) (.08) (.06)
Distributions of realized
capital gains - - - - -
-------- -------- -------- -------- --------
Net asset value at
end of period $ 9.00 $ 8.83 $ 7.95 $ 6.53 $ 6.40
======== ======== ======== ======== ========
Total return (%)* 2.05 11.19 22.53 3.30 (20.10)
Net assets at end of
period (000) $160,223 $176,527 $150,793 $114,073 $121,204
Ratio of expenses to
average net assets (%) 1.28 1.26(a) 1.41 1.43 1.45
Ratio of net investment
income to average net
assets (%) .10 .15(a) .25 1.02 1.55
Portfolio turnover (%) 34.76 34.75 81.08 19.01 13.38
YEAR ENDED SEPTEMBER 30,
1990 1989 1988 1987 1986
Net asset value at
beginning of period $ 8.84 $ 8.21 $ 17.07 $ 8.27 $ 6.83
Net investment income .08 .17 .05 .10 .10
Net realized and
unrealized gain (loss) (.69) .59 (8.35) 8.80 1.46
Distributions from net
investment income (.15) (.13) (.05) (.10) (.12)
Distributions of realized
capital gains - - (.51) - -
-------- -------- ------- -------- --------
Net asset value at
end of period $ 8.08 $ 8.84 $ 8.21 $ 17.07 $ 8.27
======== ======== ======== ======== ========
Total return (%)* (7.16) 9.37 (48.89) 108.77 23.53
Net assets at end of
period (000) $156,573 $165,026 $174,380 $309,931 $ 29,486
Ratio of expenses to
average net assets (%) 1.43 1.34 1.42 1.14 1.50
Ratio of net investment
income to average net
assets (%) .93 1.92 .50 .73 1.49
Portfolio turnover (%) 41.91 17.49 26.83 53.56 62.11
- --------------
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be
considered as representative of the future performance of
the Fund.
The Trust may quote the Fund's total return in
advertisements and reports to shareholders or prospective
investors. The Fund's performance may also be compared
to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return results reported by the Fund do not take into
account recurring and nonrecurring charges for optional
services which only certain shareholders elect and which
involve nominal fees, such as the $10 fee for a delivery
of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by
determining the average annual compounded rate of return
for a specified period which, when applied to a
hypothetical $1,000 investment in the Fund at the
beginning of the period, would produce the redeemable
value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions
during the period.
Further information concerning the Fund's total return
is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT
PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the
responsibility for an equally important decision. This
decision includes determining a portfolio of mutual funds
that balances the investor's investment goals with his or
her tolerance for risk. It is likely that this decision
may involve the use of more than one fund of the USAA
Family of Funds.
For example, assume a shareholder wishes to diversify
internationally. He or she could do this by adding
positions in the Emerging Markets, Gold, International,
or World Growth Funds to holdings in domestic funds.
This would give the investor exposure to the opportunities
of investment in many foreign countries and to currency
changes. This is just one example of how an individual
could combine funds to create a portfolio tailored to
his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
asset strategy funds, the Income Strategy, Growth and Tax
Strategy, Balanced Strategy, Cornerstone Strategy, and
Growth Strategy Funds. These unique mutual funds provide
a professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use an asset strategy fund, the USAA Family of
Funds provides a broad range of choices covering just
about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's primary investment objective is to seek long-
term capital appreciation and to protect the purchasing
power of shareholders' capital against inflation.
Current income is a secondary objective.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies, restrictions
and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue the objective by investing under
normal circumstances at least 80% of the Fund's assets in
common stocks, preferred stocks or securities which are
convertible into or which carry the right to buy common
stocks of companies principally engaged in gold
exploration, mining, or processing.
The remainder of the Fund's assets may be invested in
common stocks, preferred stocks or securities which are
convertible into or which carry the right to buy common
stocks of companies similarly engaged in other precious
metals and minerals and in marketable debt securities
having maturities of less than one year issued or
guaranteed as to both principal and interest by the U.S.
Government or by its agencies or instrumentalities and in
repurchase agreements collateralized by such securities.
If the Manager believes the outlook for gold is
unattractive, the Fund may on a temporary defensive basis
invest its assets without limitation in marketable
securities having remaining maturities of less than one
year issued or guaranteed as to both principal and
interest by the U.S. Government or by its agencies or
instrumentalities and in repurchase agreements
collateralized by such securities.
Since the Fund will normally maintain at least 80%
of its total assets in securities of companies principally
engaged in gold exploration, mining, or processing, the
Fund may be subject to greater risks and greater market
fluctuations than other funds with a portfolio of securities
representing a broader range of investment objectives.
An investment in the Fund, by itself, should not be
considered a balanced investment program. See Special
Risk Considerations.
Forward Currency Contracts - The Fund may hold securities
denominated in foreign currencies. As a result, the
value of the securities will be affected by changes in
the exchange rate between the dollar and foreign
currencies. In managing the currency exposure, the Fund
may enter into forward currency contracts. A forward
currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or
over a specified time period at a price set at the time
of the contract.
The Fund may enter into forward currency contracts
under two circumstances. First, when the Fund enters into
a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when
management of the Fund believes that the currency of a
specific country may deteriorate relative to the U.S.
dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a
particular currency for an amount greater than the
aggregate market value (determined at the time of making
any sale of forward currency) of the securities held in
its portfolio denominated or quoted in, or bearing a
substantial correlation to, such currency.
The use of forward currency contracts to protect the
value of a Fund's assets against a decline in the value
of a currency does not eliminate fluctuations in the
value of the Fund's underlying security holdings. In
addition, although the use of forward currency contracts
can minimize the risk of loss due to a decline in value
of the foreign currency, the use of such contracts will
tend to limit any potential gain resulting from an
increase in the relative value of the foreign currency to
the U.S. dollar. Under certain circumstances, a fund
that has entered into forward currency contracts to hedge
its currency risks may be in a less favorable position
than a fund that had not entered into such contracts.
The projection of short-term currency market movements is
extremely difficult and successful execution of a short-
term hedging strategy is highly uncertain.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are collateralized by obligations backed
by the full faith and credit of the U.S. Government or by
its agencies or instrumentalities. A repurchase
agreement is a transaction in which a security is
purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on
an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or
maturity of the purchased security. The obligation of
the seller to pay the agreed upon price is in effect
secured by the value of the underlying security. In
these transactions, the securities purchased by the Fund
will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security declines,
the Fund may incur a loss and may incur expenses in
selling the collateral. If the seller seeks relief under
the bankruptcy laws, the disposition of the collateral
may be delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Liquidity - The Fund may not invest more than 15% of the
market value of its total assets in securities which are
illiquid or not readily marketable. Rule 144A Securities
may be determined to be liquid in accordance with
guidelines established by the Board of Trustees for
purposes of complying with the Fund's investment
restriction applicable to investments in illiquid
securities.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund may not invest more than 25% of its total
assets in one industry, except that the Fund will
concentrate at least 80% of its investments in
gold mining securities.
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3%
of its total assets (including the amount borrowed)
less liabilities (other than borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase
foreign securities in foreign or U.S. markets or it may
purchase American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with
a depositary. Investing in foreign securities presents
certain risks not present in domestic investments. Such
risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility,
exchange control regulations, different accounting,
reporting and disclosure requirements, political or
social instability, and difficulties in obtaining
judgments or effecting collections thereon. Brokerage
commissions and custodial services may be more costly,
and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets.
These investments may be subject to foreign withholding
taxes which may reduce the effective rates of return.
The Fund values its securities and other assets in
U.S. dollars.
Information which may impact the market value of
securities of a foreign issuer may not be available to
the Manager on a timely basis. The Manager will endeavor
to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value
will be deemed to have occurred upon authentication by
the Manager.
A developing country can be considered to be a country
which is in the initial stages of its industrialization
cycle. Investments in developing countries involve
exposure to economic structures that are generally less
diverse and mature than in the United States, and to
political systems which may be less stable. Due to
illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge
the currency risk in these markets. In the past, markets
of developing countries have been more volatile than the
markets of developed countries.
Political risk includes a greater potential for coup
d'etats, insurrections and expropriation by governmental
organizations. For example, the Fund may invest in
Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent
States). These countries were under communist systems
which had nationalized private industry. There is no
guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which
case the Fund may lose all or part of its investment in
that country's issuers.
The Fund may invest in the securities of South African
issuers. The market prices of these securities and the
ability of the Fund to hold such investments in the future
could be affected by the unstable political and social
conditions in South Africa and its neighboring countries.
Volatility of Mining Stocks - Gold mining stocks involve
additional risk because of gold's price volatility and
the increased impact such volatility has on the
profit-ability of gold mining companies. However, since
the market action of such securities has tended to move
independently of the broader financial markets, the
addition of gold mining stocks to an investor's portfolio
may reduce overall fluctuations in portfolio value.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If the Fund receives your request prior to the
close of the New York Stock Exchange on a day on which the
Exchange is open, your purchase price will be the NAV per
share determined for that day. If the Fund receives your
request after the time at which the NAV per share is
calculated, the purchase will be effective on the next
business day. A check drawn on a foreign bank will not
be deemed received for the purchase of shares until such
time as the check has cleared and the Manager has received
good funds, which may take up to 4 to 6 weeks. Furthermore,
a bank charge may be assessed in the clearing process, which
will be deducted from the amount of the purchase. To avoid
a delay in the effectiveness of your purchase, the Manager
suggests that you convert your foreign check to U.S. dollars
prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $1,000
After January 31, 1996 $3,000 or minimum $100 with a minimum $50
monthly electronic investment
Initial Purchase - IRA: $1,000
$250 for spousal account
After January 31, 1996 $250 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest
by Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing investment
Electronic or from a USAA money market account. Sign up for these
Funds services when opening an account or call 1-800-531-8448 to
Transfer add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
Bank Wire * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Gold Fund
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number___________________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If
you are considering redeeming shares soon after purchase,
you should purchase by bank wire or certified check
to avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a
telegraph to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited
to your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered shareholder(s)
Redemption will be mailed to the address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases,
redemptions, or changes in account information.
The section Additional Information Regarding
Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. Effective January 31, 1996,
with this program you can make initial investments as low
as $100 and automatic monthly additions of $50 to the
account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Retirement Plans - plans are available for IRA
(including SEP/IRA) and 403(b)(7) accounts. Federal
taxes on current income may be deferred if an investor
qualifies.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in
your account except:
i) a payment you make after January 31, 1996 under
the InvesTronic(registered trademark), Automatic
Purchase Plan, or Direct Purchase Service
investment plans, or
ii) a redemption you make after January 31, 1996 under
the Systematic Withdrawal Plan.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions concerning
any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Portfolio securities, except as otherwise
noted, traded primarily on a domestic securities exchange
are valued at the last sales price on that exchange.
Portfolio securities traded primarily on foreign securities
exchanges are generally valued at the closing values of such
securities on the exchange where primarily traded. If no
sale is reported, the latest bid price is generally used.
Over-the-counter securities are generally priced at the
last sales price or, if not available, at the average of
the bid and asked prices.
Debt securities purchased with maturities of 60 days or
less are stated at amortized cost which approximates
market value. Other debt securities are valued each
business day at their current market value as determined
by a pricing service approved by the Board of Trustees.
Securities which cannot be valued by the methods set
forth above, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders
annually. Any net capital gain generally will be
distributed at least annually. The Fund intends to make
such additional distributions as may be necessary to
avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-dividend
date. Any income dividend or capital gain distributions
paid by the Fund will reduce the per share net asset value
by the amount of the dividend or distribution. An investor
should consider carefully the effects of purchasing shares
of the Fund shortly before any dividend or distribution.
Although in effect a return of capital, these distributions
are subject to taxes.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. A
portion of these dividends may qualify for the 70%
dividends received deduction available to corporations.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
the Fund.
Foreign Taxes - The Fund may be subject to foreign
withholding or other taxes. If more than 50% of the
value of the Fund's total assets at the close of any
taxable year consists of securities of foreign
corporations, the Fund may file an election with the
Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a
deduction) for foreign income taxes paid by the Fund.
If the Foreign Election is made, shareholders would
include in their gross income both dividends received
from the Fund and foreign income taxes paid by the Fund.
Shareholders of the Fund would be entitled to treat the
foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations
set forth in the Code with respect to the foreign tax
credit generally. Alternatively, shareholders could,
if to their advantage, treat the foreign income taxes
withheld as an itemized deduction in computing taxable
income rather than as a tax credit. Shareholders will
not be entitled to a foreign tax credit for taxes paid
to certain countries; however, if the Fund otherwise
qualifies for the Foreign Election, a deduction for such
taxes will be available to shareholders of the Fund. It
is anticipated that the Fund will make the Foreign Election.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - Information concerning the status of
dividends and distributions for federal income tax
purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code of
Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the Investment
Company Institute and comply with Securities and Exchange
Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory Agreement.
Under the Advisory Agreement, the Manager is responsible for
the management of the Funds, business affairs, and placement
of brokerage orders, subject to the authority of and
supervision by the Board of Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA),
accrued daily and paid monthly. The Fund's management
fees were computed and paid at three-fourths of one
percent (.75%) of ANA for the fiscal year ended May 31,
1995. This fee is higher than that charged to most other
mutual funds, but is comparable to fees charged to other
mutual funds with similar investment objectives and
policies.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the total
operating expenses for the Fund as a percentage of the
Fund's ANA equaled 1.28%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's
portfolio may be accomplished through USAA Brokerage
Services, a discount brokerage service of the Manager.
The Board of Trustees has adopted procedures to ensure
that any commissions paid to USAA Brokerage Services are
reasonable and fair.
PORTFOLIO MANAGER
The following individual is primarily responsible for
managing the Fund.
Mark W. Johnson, Assistant Vice President of Equity
Investments since March of 1995, has managed the Fund
since January 1994. He has 22 years investment
management experience and has worked for IMCO seven
years. Mr. Johnson earned the Chartered Financial
Analyst designation in 1978 and is a member of the
Association for Investment Management and Research and
the San Antonio Financial Analysts Society, Inc. He
holds an MBA and a BBA from the University of Michigan.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for
fractional shares) irrespective of the relative net asset
value of the shares. For matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a
meeting of shareholders at any time for the purpose of
voting to remove one or more of the Trustees, and the
Trust will assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all
losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the
possibility of a shareholder incurring financial loss on
account of shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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USAA INTERNATIONAL FUND
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA International Fund (the Fund) is one of eleven no-
load mutual funds offered by USAA Investment Trust (the
Trust). The Fund is managed by USAA Investment
Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's primary investment objective is capital
appreciation. Current income is a secondary objective.
Page 9.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or in certain instances, by telephone. Page 12.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 14.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA International Fund are not deposits
or other obligations of, or guaranteed by the USAA
Federal Savings Bank, are not insured by the FDIC or any
other Government Agency, and are subject to market risks.
Because this Fund invests in foreign securities, it
involves a higher degree of risk and may not be
appropriate for some investors. See Special Risk
Considerations, page 11.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 18
Management of the Trust 20
Description of Shares 21
Service Providers 22
Telephone Assistance Numbers 22
FEES AND EXPENSES
The following summary is provided to assist you in understanding
the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .19%
Custodian Fees .14%
All Other Expenses .09%
---
Total Other Expenses .42%
----
Total Fund Operating Expenses 1.17%
====
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of Shares -
Bank Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI, page 19.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown.
1 year - $ 12
3 years - $ 37
5 years - $ 64
10 years - $142
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the eight-year period ended May 31, 1995,
has been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements
and related notes that appear in the Fund's Annual Report. Further
performance information is contained in the Annual Report and is available
upon request without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
Net asset value at
beginning of period $ 16.36 $ 14.48 $ 12.09 $ 11.57 $ 9.89
Net investment income .10 - .07 .10 .13
Net realized and
unrealized gain (loss) .29 2.23 2.45 .51 1.66
Distributions from net
investment income - - (.13) (.09) (.06)
Distributions of realized
capital gains (.97) (.35) - - (.05)
-------- -------- -------- -------- --------
Net asset value at
end of period $ 15.78 $ 16.36 $ 14.48 $ 12.09 $ 11.57
======== ======== ======== ======== ========
Total return (%)** 2.49 15.67 21.11 5.30 18.21
Net assets at end of
period (000) $346,033 $184,792 $ 88,757 $ 42,868 $ 28,931
Ratio of expenses to
average net assets (%) 1.17 1.31(a) 1.50 1.69 1.82
Ratio of net investment
income to average net
assets (%) .81 .04(a) .72 1.05 1.26
Portfolio turnover (%) 64.30 44.39 52.52 34.27 63.56
YEAR ENDED SEPTEMBER 30,
1990 1989 1988*
Net asset value at
beginning of period $ 11.74 $ 9.64 $ 10.00
Net investment income .07 .04 .07
Net realized and
unrealized gain (loss) (1.45) 2.11 (.43)
Distributions from net
investment income (.02) (.05) -
Distributions of realized
capital gains (.45) - -
-------- ------- -------
Net asset value at
end of period $ 9.89 $ 11.74 $ 9.64
======== ======= =======
Total return (%)** (12.09) 22.38 (3.60)
Net assets at end of
period (000) $ 21,451 $13,111 $ 4,084
Ratio of expenses to
average net assets 2.09 2.30 2.14(a)
Ratio of net investment
income to average net
assets (%) .81 .48 3.16(a)
Portfolio turnover (%) 69.95 94.99 -
- -----------------
* Fund commenced operations July 11, 1988.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12
months of operations.
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be considered
as representative of the future performance of the Fund.
The Trust may quote the Fund's total return in
advertisements and reports to shareholders or prospective
investors. The Fund's performance may also be compared
to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return results reported by the Fund do not take into
account recurring and nonrecurring charges for optional
services which only certain shareholders elect and which
involve nominal fees, such as the $10 fee for a delivery
of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by
determining the average annual compounded rate of return
for a specified period which, when applied to a
hypothetical $1,000 investment in the Fund at the
beginning of the period, would produce the redeemable
value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions
during the period.
Further information concerning the Fund's total return
is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT
PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the
responsibility for an equally important decision. This
decision includes determining a portfolio of mutual funds
that balances the investor's investment goals with his or
her tolerance for risk. It is likely that this decision
may involve the use of more than one fund of the USAA
Family of Funds.
For example, assume a shareholder wishes to diversify
internationally. He or she could do this by adding
positions in the Emerging Markets, Gold, International,
or World Growth Funds to holdings in domestic funds.
This would give the investor exposure to the
opportunities of investment in many foreign countries and
to currency changes. This is just one example of how an
individual could combine funds to create a portfolio
tailored to his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
asset strategy funds, the Income Strategy, Growth and Tax
Strategy, Balanced Strategy, Cornerstone Strategy, and
Growth Strategy Funds. These unique mutual funds provide
a professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use an asset strategy fund, the USAA Family of
Funds provides a broad range of choices covering just
about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's primary investment objective is capital
appreciation with current income as a secondary objective.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies, restrictions
and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue the objective by investing at
least 80% of the Fund's assets in common stocks,
preferred stocks or securities which are convertible into
or which carry the right to buy common stocks of
companies organized and operating principally outside the
United States. A company is deemed to be operating
principally outside of the United States if at least 50%
of its revenues are derived from operations outside the
United States or if its primary production or operating
facilities are located outside the United States. These
investments will be diversified in four or more
countries. There are no restrictions as to the types of
businesses or operations of companies in which the Fund
may invest. The remainder of the Fund's assets may be
invested in marketable securities having remaining
maturities of less than one year issued or guaranteed as
to both principal and interest by the U.S. Government or
by its agencies or instrumentalities and in repurchase
agreements collateralized by such securities. However,
the Fund may on a temporary defensive basis invest its
assets without limitation in such securities.
The Manager believes that attractive investment
opportunities exist in several nations of the world, and
that investing internationally can improve overall
results at moderate risk. The Fund combines the
advantages of investment in diversified international
markets with the convenience and liquidity of a mutual
fund based in the United States. For a discussion of
risks associated with investments in foreign issuers, see
Special Risk Considerations.
Forward Currency Contracts - The Fund may hold securities
denominated in foreign currencies. As a result, the
value of the securities will be affected by changes in
the exchange rate between the dollar and foreign
currencies. In managing the currency exposure, the Fund
may enter into forward currency contracts. A forward
currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or
over a specified time period at a price set at the time
of the contract.
The Fund may enter into forward currency contracts
under two circumstances. First, when the Fund enters
into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when
management of the Fund believes that the currency of a
specific country may deteriorate relative to the U.S.
dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a
particular currency for an amount greater than the
aggregate market value (determined at the time of making
any sale of forward currency) of the securities held in
its portfolio denominated or quoted in, or bearing a
substantial correlation to, such currency.
The use of forward currency contracts to protect the
value of a Fund's assets against a decline in the value
of a currency does not eliminate fluctuations in the
value of the Fund's underlying security holdings. In
addition, although the use of forward currency contracts
can minimize the risk of loss due to a decline in value
of the foreign currency, the use of such contracts will
tend to limit any potential gain resulting from an
increase in the relative value of the foreign currency to
the U.S. dollar. Under certain circumstances, a fund
that has entered into forward currency contracts to hedge
its currency risks may be in a less favorable position
than a fund that had not entered into such contracts.
The projection of short-term currency market movements is
extremely difficult and successful execution of a short-
term hedging strategy is highly uncertain.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are collateralized by obligations backed
by the full faith and credit of the U.S. Government or by
its agencies or instrumentalities. A repurchase
agreement is a transaction in which a security is
purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on
an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or
maturity of the purchased security. The obligation of
the seller to pay the agreed upon price is in effect
secured by the value of the underlying security. In
these transactions, the securities purchased by the Fund
will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security declines,
the Fund may incur a loss and may incur expenses in selling
the collateral. If the seller seeks relief under the
bankruptcy laws, the disposition of the collateral may be
delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Liquidity - The Fund may not invest more than 15% of the
market value of its total assets in securities which are
illiquid or not readily marketable. Rule 144A Securities
may be determined to be liquid in accordance with
guidelines established by the Board of Trustees for
purposes of complying with the Fund's investment
restriction applicable to investments in illiquid
securities.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund may not invest more than 25% of its total
assets in one industry.
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3%
of its total assets (including the amount borrowed) less
liabilities (other than borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase
foreign securities in foreign or U.S. markets or it may
purchase American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with
a depositary. Investing in foreign securities presents
certain risks not present in domestic investments. Such
risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility,
exchange control regulations, different accounting,
reporting and disclosure requirements, political or
social instability, and difficulties in obtaining
judgments or effecting collections thereon. Brokerage
commissions and custodial services may be more costly,
and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets.
These investments may be subject to foreign withholding
taxes which may reduce the effective rates of return.
The Fund values its securities and other assets in
U.S. dollars.
Information which may impact the market value of
securities of a foreign issuer may not be available to
the Manager on a timely basis. The Manager will endeavor
to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value
will be deemed to have occurred upon authentication by
the Manager.
A developing country can be considered to be a country
which is in the initial stages of its industrialization
cycle. Investments in developing countries involve
exposure to economic structures that are generally less
diverse and mature than in the United States, and to
political systems which may be less stable. Due to
illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge
the currency risk in these markets. In the past, markets
of developing countries have been more volatile than the
markets of developed countries.
Political risk includes a greater potential for coup
d'etats, insurrections and expropriation by governmental
organizations. For example, the Fund may invest in
Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent
States). These countries were under communist systems
which had nationalized private industry. There is no
guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which
case the Fund may lose all or part of its investment in
that country's issuers.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If the Fund receives your request prior to the close
of the New York Stock Exchange on a day on which the
Exchange is open, your purchase price will be the NAV per
share determined for that day. If the Fund receives your
request after the time at which the NAV per share is
calculated, the purchase will be effective on the next
business day. A check drawn on a foreign bank will not be
deemed received for the purchase of shares until such time
as the check has cleared and the Manager has received good
funds, which may take up to 4 to 6 weeks. Furthermore, a
bank charge may be assessed in the clearing process, which
will be deducted from the amount of the purchase. To avoid
a delay in the effectiveness of your purchase, the Manager
suggests that you convert your foreign check to U.S. dollars
prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $1,000
After January 31, 1996 $3,000 or minimum $100 with a minimum
$50 monthly electronic investment
Initial Purchase - IRA: $1,000
$250 for spousal account
After January 31, 1996 $250 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest
by Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing
Electronic investment or from a USAA money market account. Sign up
Funds for these services when opening an account or call
Transfer 1-800-531-8448 to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
Bank Wire * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA International Fund
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number___________________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If you
are considering redeeming shares soon after purchase, you
should purchase by bank wire or certified check to
avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a telegraph
to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited
to your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered shareholder(s)
Redemption will be mailed to the address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases,
redemptions, or changes in account information.
The section Additional Information Regarding
Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. Effective January 31, 1996,
with this program you can make initial investments as low
as $100 and automatic monthly additions of $50 to the
account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Retirement Plans - plans are available for IRA
(including SEP/IRA) and 403(b)(7) accounts. Federal
taxes on current income may be deferred if an investor
qualifies.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in
your account except:
i) a payment you make after January 31, 1996 under
the InvesTronic(registered trademark), Automatic
Purchase Plan, or Direct Purchase Service
investment plans, or
ii) a redemption you make after January 31, 1996 under
the Systematic Withdrawal Plan.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions concerning
any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Portfolio securities, except as otherwise
noted, traded primarily on a domestic securities exchange
are valued at the last sales price on that exchange.
Portfolio securities traded primarily on foreign securities
exchanges are generally valued at the closing values of such
securities on the exchange where primarily traded. If no
sale is reported, the latest bid price is generally used.
Over-the-counter securities are generally priced at the
last sales price or, if not available, at the average of
the bid and asked prices.
Debt securities purchased with maturities of 60 days or
less are stated at amortized cost which approximates
market value. Other debt securities are valued each
business day at their current market value as determined
by a pricing service approved by the Board of Trustees.
Securities which cannot be valued by the methods set
forth above, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders
annually. Any net capital gain generally will be
distributed at least annually. The Fund intends to make
such additional distributions as may be necessary to
avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-
dividend date. Any income dividend or capital gain
distributions paid by the Fund will reduce the per share
net asset value by the amount of the dividend or
distribution. An investor should consider carefully the
effects of purchasing shares of the Fund shortly before
any dividend or distribution. Although in effect a
return of capital, these distributions are subject to
taxes.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. It
is not expected that the dividends of the Fund will
qualify for the 70% corporate dividends received
deduction.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
the Fund.
Foreign Taxes - The Fund may be subject to foreign
withholding or other taxes. If more than 50% of the
value of the Fund's total assets at the close of any
taxable year consists of securities of foreign
corporations, the Fund may file an election with the
Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a
deduction) for foreign income taxes paid by the Fund.
If the Foreign Election is made, shareholders would
include in their gross income both dividends received
from the Fund and foreign income taxes paid by the Fund.
Shareholders of the Fund would be entitled to treat the
foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations
set forth in the Code with respect to the foreign tax
credit generally. Alternatively, shareholders could,
if to their advantage, treat the foreign income taxes
withheld as an itemized deduction in computing taxable
income rather than as a tax credit. Shareholders
will not be entitled to a foreign tax credit for taxes
paid to certain countries; however, if the Fund
otherwise qualifies for the Foreign Election, a
deduction for such taxes will be available to
shareholders of the Fund. It is anticipated that
the Fund will make the Foreign Election.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - Information concerning the status of
dividends and distributions for federal income tax
purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the Investment
Company Institute and comply with Securities and Exchange
Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory Agreement.
Under the Advisory Agreement, the Manager is responsible for
the management of the Funds, business affairs, and placement
of brokerage orders, subject to the authority of and
supervision by the Board of Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA),
accrued daily and paid monthly. The Fund's management
fees were computed and paid at three-fourths of one
percent (.75%) of ANA for the fiscal year ended May 31,
1995. This fee is higher than that charged to most other
mutual funds, but is comparable to fees charged to other
mutual funds with similar investment objectives and
policies.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the total
operating expenses for the Fund as a percentage of the
Fund's ANA equaled 1.17%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's
portfolio may be accomplished through USAA Brokerage
Services, a discount brokerage service of the Manager.
The Board of Trustees has adopted procedures to ensure
that any commissions paid to USAA Brokerage Services are
reasonable and fair.
PORTFOLIO MANAGER
The following individual is primarily responsible for
managing the Fund.
David G. Peebles, Vice President of Equity Investments
since February of 1988, has managed the Fund since its
inception in July 1988. He has 30 years investment
management experience and has worked for IMCO 12 years.
Mr. Peebles earned the Chartered Financial Analyst
designation in 1971 and is a member of the Association
for Investment Management and Research and the San
Antonio Financial Analysts Society, Inc. He holds an MBA
and a BS from Texas Christian University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for
fractional shares) irrespective of the relative net asset
value of the shares. For matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a
meeting of shareholders at any time for the purpose of
voting to remove one or more of the Trustees, and the Trust
will assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all
losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the
possibility of a shareholder incurring financial loss
on account of shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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USAA WORLD GROWTH FUND
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA World Growth Fund (the Fund) is one of eleven no-
load mutual funds offered by USAA Investment Trust (the
Trust). The Fund is managed by USAA Investment
Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is capital appreciation.
Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or in certain instances, by telephone. Page 11.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 13.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA World Growth Fund are not deposits
or other obligations of, or guaranteed by the USAA
Federal Savings Bank, are not insured by the FDIC or any
other Government Agency, and are subject to market risks.
Because this Fund invests in foreign securities, it
involves a higher degree of risk and may not be
appropriate for some investors. See Special Risk
Considerations, page 10.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 6
Using Mutual Funds in an Investment Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 8
SHAREHOLDER INFORMATION
Purchase of Shares 11
Redemption of Shares 13
Conditions of Purchase and Redemption 14
Exchanges 15
Other Services 16
Share Price Calculation 17
Dividends, Distributions and Taxes 17
Management of the Trust 19
Description of Shares 20
Service Providers 21
Telephone Assistance Numbers 21
FEES AND EXPENSES
The following summary is provided to assist you in understanding
the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .26%
Custodian Fees .14%
All Other Expenses .13%
---
Total Other Expenses .53%
----
Total Fund Operating Expenses 1.28%
====
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of Shares -
Bank Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI, page 19.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown.
1 year - $ 13
3 years - $ 41
5 years - $ 70
10 years - $155
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share
outstanding throughout each of the periods in the three-
year period ended May 31, 1995, has been derived from
financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the
financial statements and related notes that appear in the
Fund's Annual Report. Further performance information is
contained in the Annual Report and is available upon
request without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
MAY 31, MAY 31, SEPTEMBER 30,
1995 1994 1993
Net asset value at
beginning of period $ 12.71 $ 11.80 $ 10.00
Net investment income .07 .04(b) .05
Net realized and
unrealized gain .46 .93 1.75
Distributions from net
investment income - (.01) -
Distributions of realized
capital gains (.28) (.05) -
-------- -------- --------
Net asset value at
end of period $ 12.96 $ 12.71 $ 11.80
======== ======== ========
Total return (%)* 4.26 8.25 18.00
Net assets at end of
period (000) $200,745 $143,367 $ 68,818
Ratio of expenses to
average net assets (%) 1.28 1.28(a) 1.70
Ratio of net investment
income to average net
assets (%) .69 .42(a) .75
Portfolio turnover (%) 58.88 37.64 45.57
- --------------
* Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be
considered as representative of the future performance of
the Fund.
The Trust may quote the Fund's total return in
advertisements and reports to shareholders or prospective
investors. The Fund's performance may also be compared
to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return results reported by the Fund do not take into
account recurring and nonrecurring charges for optional
services which only certain shareholders elect and which
involve nominal fees, such as the $10 fee for a delivery
of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by
determining the average annual compounded rate of return
for a specified period which, when applied to a
hypothetical $1,000 investment in the Fund at the
beginning of the period, would produce the redeemable
value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions
during the period.
Further information concerning the Fund's total return
is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT
PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the
responsibility for an equally important decision. This
decision includes determining a portfolio of mutual funds
that balances the investor's investment goals with his or
her tolerance for risk. It is likely that this decision
may involve the use of more than one fund of the USAA
Family of Funds.
For example, assume a shareholder wishes to diversify
internationally. He or she could do this by adding
positions in the Emerging Markets, Gold, International,
or World Growth Funds to holdings in domestic funds.
This would give the investor exposure to the
opportunities of investment in many foreign countries and
to currency changes. This is just one example of how an
individual could combine funds to create a portfolio
tailored to his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
asset strategy funds, the Income Strategy, Growth and Tax
Strategy, Balanced Strategy, Cornerstone Strategy, and
Growth Strategy Funds. These unique mutual funds provide
a professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use an asset strategy fund, the USAA Family of
Funds provides a broad range of choices covering just
about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies, restrictions
and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue this objective by investing at
least 65% of the Fund's assets in common stocks,
preferred stocks and other equity securities of both
foreign and domestic issuers, including securities which
are convertible into or which carry the right to buy
common stocks and U.S. Real Estate Investment Trusts
(REITs).
Under normal conditions investments will be made in at
least three countries. There are no restrictions as to
the types of businesses or operations of companies in
which the Fund may invest. The Fund's investments in
REITs may subject the Fund to many of the same risks
associated with the direct ownership of real estate. In
addition, REITs are dependent upon the capabilities of
the REIT manager(s) and have limited diversification.
The remainder of the Fund's assets may be invested in
marketable securities having remaining maturities of less
than one year issued or guaranteed as to both principal
and interest by the U.S. Government or by its agencies
or instrumentalities and in repurchase agreements
collateralized by such securities. The Fund may on a
temporary defensive basis invest its assets without
limitation in such securities. For a discussion of risks
associated with investments in foreign issuers, see
Special Risk Considerations.
Forward Currency Contracts - The Fund may hold securities
denominated in foreign currencies. As a result, the
value of the securities will be affected by changes in
the exchange rate between the dollar and foreign
currencies. In managing the currency exposure, the Fund
may enter into forward currency contracts. A forward
currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or
over a specified time period at a price set at the time
of the contract.
The Fund may enter into forward currency contracts
under two circumstances. First, when the Fund enters into
a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when
management of the Fund believes that the currency of a
specific country may deteriorate relative to the U.S.
dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a
particular currency for an amount greater than the
aggregate market value (determined at the time of making
any sale of forward currency) of the securities held in
its portfolio denominated or quoted in, or bearing a
substantial correlation to, such currency.
The use of forward currency contracts to protect the
value of a Fund's assets against a decline in the value
of a currency does not eliminate fluctuations in the
value of the Fund's underlying security holdings. In
addition, although the use of forward currency contracts
can minimize the risk of loss due to a decline in value of
the foreign currency, the use of such contracts will tend
to limit any potential gain resulting from an increase in
the relative value of the foreign currency to the U.S.
dollar. Under certain circumstances, a fund that has
entered into forward currency contracts to hedge its
currency risks may be in a less favorable position than a
fund that had not entered into such contracts. The
projection of short-term currency market movements is
extremely difficult and successful execution of a short-
term hedging strategy is uncertain.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are collateralized by obligations backed
by the full faith and credit of the U.S. Government or by
its agencies or instrumentalities. A repurchase
agreement is a transaction in which a security is
purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on
an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or
maturity of the purchased security. The obligation of
the seller to pay the agreed upon price is in effect
secured by the value of the underlying security. In
these transactions, the securities purchased by the Fund
will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security
declines, the Fund may incur a loss and may incur
expenses in selling the collateral. If the seller seeks
relief under the bankruptcy laws, the disposition of the
collateral may be delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Liquidity - The Fund may not invest more than 15% of the
market value of its total assets in securities which are
illiquid or not readily marketable. Rule 144A Securities
may be determined to be liquid in accordance with
guidelines established by the Board of Trustees for
purposes of complying with the Fund's investment
restriction applicable to investments in illiquid
securities.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund may not invest more than 25% of its total
assets in one industry.
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3% of
its total assets (including the amount borrowed) less
liabilities (other than borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase
foreign securities in foreign or U.S. markets or it may
purchase American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with
a depositary. Investing in foreign securities presents
certain risks not present in domestic investments. Such
risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility,
exchange control regulations, different accounting,
reporting and disclosure requirements, political or
social instability, and difficulties in obtaining
judgments or effecting collections thereon. Brokerage
commissions and custodial services may be more costly,
and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets. These
investments may be subject to foreign withholding taxes
which may reduce the effective rates of return. The Fund
values its securities and other assets in U.S. dollars.
Information which may impact the market value of
securities of a foreign issuer may not be available to
the Manager on a timely basis. The Manager will endeavor
to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value
will be deemed to have occurred upon authentication by
the Manager.
A developing country can be considered to be a country
which is in the initial stages of its industrialization
cycle. Investments in developing countries involve
exposure to economic structures that are generally less
diverse and mature than in the United States, and to
political systems which may be less stable. Due to
illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge
the currency risk in these markets. In the past, markets
of developing countries have been more volatile than the
markets of developed countries.
Political risk includes a greater potential for coup
d'etats, insurrections and expropriation by governmental
organizations. For example, the Fund may invest in
Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent
States). These countries were under communist systems
which had nationalized private industry. There is no
guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which
case the Fund may lose all or part of its investment in
that country's issuers.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If the Fund receives your request prior to the
close of the New York Stock Exchange on a day on which
the Exchange is open, your purchase price will be the NAV
per share determined for that day. If the Fund receives
your request after the time at which the NAV per share is
calculated, the purchase will be effective on the next
business day. A check drawn on a foreign bank will not be
deemed received for the purchase of shares until such time
as the check has cleared and the Manager has received good
funds, which may take up to 4 to 6 weeks. Furthermore, a
bank charge may be assessed in the clearing process, which
will be deducted from the amount of the purchase. To avoid
a delay in the effectiveness of your purchase, the Manager
suggests that you convert your foreign check to U.S. dollars
prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $1,000
After January 31, 1996 $3,000 or minimum $100 with a minimum
$50 monthly electronic investment
Initial Purchase - IRA: $1,000
$250 for spousal account
After January 31, 1996 $250 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest
by Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing investment
Electronic or from a USAA money market account. Sign up for these
Funds services when opening an account or call 1-800-531-8448
Transfer to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
Bank Wire * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA World Growth Fund
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number___________________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If
you are considering redeeming shares soon after purchase,
you should purchase by bank wire or certified check to
avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a telegraph
to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited
to your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered shareholder(s)
Redemption will be mailed to the address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases,
redemptions, or changes in account information.
The section Additional Information Regarding
Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. Effective January 31, 1996,
with this program you can make initial investments as low
as $100 and automatic monthly additions of $50 to the
account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Retirement Plans - plans are available for IRA
(including SEP/IRA) and 403(b)(7) accounts. Federal
taxes on current income may be deferred if an investor
qualifies.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in
your account except:
i) a payment you make after January 31, 1996 under
the InvesTronic(registered trademark), Automatic
Purchase Plan, or Direct Purchase Service
investment plans, or
ii) a redemption you make after January 31, 1996 under
the Systematic Withdrawal Plan.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions concerning
any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Portfolio securities, except as otherwise
noted, traded primarily on a domestic securities exchange
are valued at the last sales price on that exchange.
Portfolio securities traded primarily on foreign securities
exchanges are generally valued at the closing values of such
securities on the exchange where primarily traded. If no
sale is reported, the latest bid price is generally used.
Over-the-counter securities are generally priced at the
last sales price or, if not available, at the average of
the bid and asked prices.
Debt securities purchased with maturities of 60 days or
less are stated at amortized cost which approximates
market value. Other debt securities are valued each
business day at their current market value as determined
by a pricing service approved by the Board of Trustees.
Securities which cannot be valued by the methods set
forth above, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders
annually. Any net capital gain generally will be
distributed at least annually. The Fund intends to make
such additional distributions as may be necessary to
avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-
dividend date. Any income dividend or capital gain
distributions paid by the Fund will reduce the per share
net asset value by the amount of the dividend or
distribution. An investor should consider carefully the
effects of purchasing shares of the Fund shortly before
any dividend or distribution. Although in effect a
return of capital, these distributions are subject to
taxes.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. A
portion of these dividends may qualify for the 70%
dividends received deduction available to corporations.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
the Fund.
Foreign Taxes - The Fund may be subject to foreign
withholding or other taxes. If more than 50% of the
value of the Fund's total assets at the close of any
taxable year consists of securities of foreign
corporations, the Fund may file an election with the
Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a
deduction) for foreign income taxes paid by the Fund.
If the Foreign Election is made, shareholders would
include in their gross income both dividends received
from the Fund and foreign income taxes paid by the Fund.
Shareholders of the Fund would be entitled to treat the
foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations
set forth in the Code with respect to the foreign tax
credit generally. Alternatively, shareholders could,
if to their advantage, treat the foreign income taxes
withheld as an itemized deduction in computing
taxable income rather than as a tax credit. Shareholders
will not be entitled to a foreign tax credit for taxes
paid to certain countries; however, if the Fund otherwise
qualifies for the Foreign Election, a deduction for such
taxes will be available to shareholders of the Fund.
It is anticipated that the Fund will make the Foreign
Election.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - Information concerning the status of
dividends and distributions for federal income tax
purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code of
Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the Investment
Company Institute and comply with Securities and Exchange
Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory
Agreement. Under the Advisory Agreement, the Manager is
responsible for the management of the Funds, business
affairs, and placement of brokerage orders, subject to
the authority of and supervision by the Board of
Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA),
accrued daily and paid monthly. The Fund's management
fees were computed and paid at three-fourths of one
percent (.75%) of ANA for the fiscal year ended May 31,
1995. This fee is higher than that charged to most other
mutual funds, but is comparable to fees charged to other
mutual funds with similar investment objectives and
policies.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the total
operating expenses for the Fund as a percentage of the
Fund's ANA equaled 1.28%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's
portfolio may be accomplished through USAA Brokerage
Services, a discount brokerage service of the Manager.
The Board of Trustees has adopted procedures to ensure
that any commissions paid to USAA Brokerage Services are
reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Fund.
David G. Peebles, Vice President of Equity Investments
since February of 1988, is the asset allocation manager
for the Fund. He has been the portfolio manager for the
Foreign Stocks investment category since its inception in
October 1992. He has 30 years investment management
experience and has worked for IMCO 12 years. Mr. Peebles
earned the Chartered Financial Analyst (CFA) designation
in 1971 and is a member of the Association for Investment
Management and Research (AIMR) and the San Antonio
Financial Analysts Society, Inc. (SAFAS). He holds an
MBA and BS from Texas Christian University.
R. David Ullom, Assistant Vice President of Equity
Investments since September of 1994, has managed the
Domestic Stocks investment category since February 1995.
Mr. Ullom has 21 years investment management experience
and has worked for IMCO ten years where he has held
various positions in Equity Investments. Mr. Ullom
earned the CFA designation in 1980 and is a member of the
AIMR and SAFAS. He holds an MBA from Washington
University, Missouri and a BS from Oklahoma State
University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for
fractional shares) irrespective of the relative net asset
value of the shares. For matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a
meeting of shareholders at any time for the purpose of
voting to remove one or more of the Trustees, and the
Trust will assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all
losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the
possibility of a shareholder incurring financial loss on
account of shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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USAA GNMA TRUST
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA GNMA Trust (the Fund) is one of eleven no-load
mutual funds offered by USAA Investment Trust (the
Trust). The Fund is managed by USAA Investment
Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investors a
high level of current income consistent with preservation
of principal by investing in securities backed by the full
faith and credit of the U.S. Government. Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or certain instances, by telephone. Page 11.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 13.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA GNMA Trust are not deposits or other
obligations of, or guaranteed by the USAA Federal Savings
Bank, are not insured by the FDIC or any other Government
Agency, and are subject to market risks.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 6
Using Mutual Funds in an Investment Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 8
SHAREHOLDER INFORMATION
Purchase of Shares 11
Redemption of Shares 13
Conditions of Purchase and Redemption 14
Exchanges 15
Other Services 16
Share Price Calculation 17
Dividends, Distributions and Taxes 18
Management of the Trust 19
Description of Shares 20
Service Providers 21
Telephone Assistance Numbers 21
FEES AND EXPENSES
The following summary is provided to assist you in understanding
the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .125%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .091%
Custodian Fees .045%
All Other Expenses .060%
----
Total Other Expenses .196%
----
Total Fund Operating Expenses .321%
====
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of Shares -
Bank Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI, page 19.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown.
1 year - $ 3
3 years - $ 10
5 years - $ 18
10 years - $ 41
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the five-year period ended May 31, 1995,
has been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements and
related notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon
request without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991*
Net asset value at
beginning of period $ 9.82 $ 10.37 $ 10.47 $ 10.19 $ 10.00
Net investment income .72 .49 .79 .82 .53
Net realized and
unrealized gain (loss) .27 (.55) (.10) .28 .19
Distributions from net
investment income (.72) (.49) (.79) (.82) (.53)
-------- -------- -------- -------- --------
Net asset value at
end of period $ 10.09 $ 9.82 $ 10.37 $ 10.47 $ 10.19
======== ======== ======== ======== ========
Total return (%)** 10.54 (.66) 6.79 11.18 7.48
Net assets at end of
period (000) $265,571 $261,251 $288,879 $218,544 $ 69,431
Ratio of expenses to
average net assets (%) .32 .31(a) .32 .375(b) .375(a)(b)
Ratio of net investment
income to average net
assets (%) 7.34 7.20(a) 7.53 7.92(b) 8.35(a)(b)
Portfolio turnover (%) 93.78 90.05 81.44 36.11 5.39
- --------------
* Fund commenced operations February 1, 1991.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
YEAR ENDED SEPTEMBER 30,
1992 1991*
---- -----
Ratio of expenses to average net assets (%) .40 .91(a)
Ratio of net investment income to average net assets (%) 7.89 7.82(a)
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be
considered as representative of the future performance of
the Fund.
The Trust may quote the Fund's yield or total return in
advertisements and reports to shareholders or prospective
investors. The Fund's performance may also be compared
to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return and yield results reported by the Fund do not take
into account recurring and nonrecurring charges for
optional services which only certain shareholders elect
and which involve nominal fees, such as the $10 fee for a
delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by
determining the average annual compounded rate of return
for a specified period which, when applied to a
hypothetical $1,000 investment in the Fund at the
beginning of the period, would produce the redeemable
value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions
during the period.
The Fund may advertise performance in terms of a 30-day
yield quotation. The yield quotation is computed by
dividing the net investment income per share earned
during the period by the offering price per share on the
last day of the period. This income is then annualized.
Further information concerning the Fund's yield and
total return is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT
PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the
responsibility for an equally important decision. This
decision includes determining a portfolio of mutual funds
that balances the investor's investment goals with his or
her tolerance for risk. It is likely that this decision
may involve the use of more than one fund of the USAA
Family of Funds.
For example, assume a shareholder wishes to diversify
internationally. He or she could do this by adding
positions in the Emerging Markets, Gold, International,
or World Growth Funds to holdings in domestic funds.
This would give the investor exposure to the
opportunities of investment in many foreign countries and
to currency changes. This is just one example of how an
individual could combine funds to create a portfolio
tailored to his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
asset strategy funds, the Income Strategy, Growth and Tax
Strategy, Balanced Strategy, Cornerstone Strategy, and
Growth Strategy Funds. These unique mutual funds provide
a professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use an asset strategy fund, the USAA Family of
Funds provides a broad range of choices covering just
about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide investors a
high level of current income consistent with preservation
of principal by investing in securities backed by the
full faith and credit of the U.S. Government.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies and restrictions
is provided in the SAI.
INVESTMENT POLICIES AND
TECHNIQUES
The Manager will pursue this objective by investing at
least 65% of the Fund's total assets in Government
National Mortgage Association (GNMA) pass through
certificates. GNMA certificates represent ownership in a
pool of mortgage loans or a single mortgage loan. Each
mortgage loan is either insured by the Federal Housing
Administration or guaranteed by the Veterans
Administration. Once approved by GNMA, each mortgage or
pool of mortgages is additionally guaranteed by GNMA as
to the timely payment of principal and interest
(regardless of whether the mortgagors actually make their
payments). The guarantee represents a general obligation
of the U.S. Treasury. Securities which are backed by the
full faith and credit of the U.S. Government (payment of
principal and interest is guaranteed by the U.S.
Treasury) are considered to be of the highest credit
quality available.
GNMA securities differ from conventional bonds in that
principal is paid back to the certificate holders over
the life of the loan rather than at maturity. As a
result, the Fund will receive monthly scheduled payments
of principal and interest. In addition, the Fund may
receive unscheduled principal payments representing
prepayments on the underlying mortgages. Because the
Fund will reinvest these scheduled and unscheduled
principal payments at a time when prevailing interest
rates may be higher or lower than the Fund's current
yield, an investment in the Fund may not be an effective
means of "locking in" long-term interest rates.
GNMA certificates evidence interests in a pool of
underlying mortgages which generally have maximum lives
of either 15, 20, or 30 years. However, due to both
scheduled and unscheduled principal payments, GNMA
certificates have a shorter average life and, therefore,
less principal volatility than a bond of comparable
maturity. Since prepayment rates vary widely, it is not
possible to accurately predict the average life of a
particular GNMA pool. However, it is standard industry
practice to treat new issues of GNMA certificates as 30-
year mortgage-backed securities having an average life of
no greater than 12 years. Because the expected average
life is a better indicator of the maturity
characteristics of GNMA certificates, principal
volatility and yield may be more comparable to 10-year
Treasury bonds.
The Manager may invest up to 35% of the Fund's total
assets in other obligations backed by the full faith and
credit of the U.S. Government, including U.S. Treasury
bills, notes and bonds and securities issued by the
Federal Housing Administration, the Department of Housing
and Urban Development, the Export-Import Bank, the
Farmer's Home Administration, the General Services
Administration, the Maritime Administration, and the
Small Business Administration. The Fund will not invest
in the securities of any U.S. Government agencies which
do not carry the full faith and credit of the U.S.
Government, such as Fannie Mae (FNMA) or Freddie Mac
(FHLMC) securities.
The Fund may invest up to 35% of its total assets in
repurchase agreements which must be collateralized by
U.S. Treasury securities or by obligations backed by the
full faith and credit of the U.S. Government.
The types of securities to be purchased in the GNMA
Trust have historically involved little credit risk.
However, the market value of these securities is not
guaranteed and will fluctuate inversely with changes in
prevailing interest rates, increasing in value when interest
rates decline and decreasing in value when interest rates rise.
The Manager may, however, on a temporary defensive
basis, invest the Fund's assets without limitation in
short-term securities backed by the full faith and credit
of the U.S. Government, including repurchase agreements
collateralized by such obligations.
The portfolio turnover rate for the Fund is not
expected to exceed 100%, however, it will not be a
limiting factor when the Manager deems changes in the
Fund's portfolio appropriate in view of its investment
objective.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are exclusively collateralized by
obligations backed by the full faith and credit of the
U.S. Government. A repurchase agreement is a transaction
in which a security is purchased with a simultaneous
commitment to sell the security back to the seller (a
commercial bank or recognized securities dealer) at an
agreed upon price on an agreed upon date, usually not
more than seven days from the date of purchase. The
resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the
coupon rate or maturity of the purchased security. The
obligation of the seller to pay the agreed upon price is
in effect secured by the value of the underlying security.
In these transactions, the securities purchased by a Fund
will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security
declines, the Fund may incur a loss and may incur
expenses in selling the collateral. If the seller seeks
relief under the bankruptcy laws, the disposition of the
collateral may be delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Variable Rate Securities - The Fund may invest in
securities that bear interest at rates (coupons) which
are adjusted periodically to market rates. These
interest rate adjustments can both raise and lower the
income generated by such securities. These changes will
have the same effect on the income earned by a Fund
depending on the proportion of such securities held.
The market value of fixed coupon securities fluctuates
with changes in prevailing interest rates, increasing in
value when interest rates decline and decreasing in value
when interest rates rise. The value of variable rate
securities, however, is less affected by changes in
prevailing interest rates because of the periodic
adjustment of their coupons to a market rate. The
shorter the period between adjustments, the smaller the
impact of interest rate fluctuations on the value of
these securities. The market value of variable rate
securities usually tends toward par (100% of face value)
at interest rate adjustment time.
Liquidity - The Fund may not invest more than 15% of the
value of its net assets in securities which are illiquid
or not readily marketable.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund will not purchase any security if
immediately after the purchase 25% or more of the
value of its total assets will be invested in
securities of issuers principally engaged in a
particular industry (except that such limitation
does not apply to obligations issued or guaranteed
by the U.S. Government or its agencies or
instrumentalities).
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3% of
its total assets (including the amount borrowed) less
liabilities (other than borrowings).
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If the Fund receives your request prior to the close
of the New York Stock Exchange on a day on which the Exchange
is open, your purchase price will be the NAV per share
determined for that day. If the Fund receives your request
after the time at which the NAV per share is calculated, the
purchase will be effective on the next business day. A check
drawn on a foreign bank will not be deemed received for the
purchase of shares until such time as the check has cleared
and the Manager has received good funds, which may take up to
4 to 6 weeks. Furthermore, a bank charge may be assessed
in the clearing process, which will be deducted from the
amount of the purchase. To avoid a delay in the effectiveness
of your purchase, the Manager suggests that you convert your
foreign check to U.S. dollars prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $3,000
After January 31, 1996 $3,000 or minimum $100 with a minimum $50
monthly electronic investment
Initial Purchase - IRA: $1,000
$250 for spousal account
After January 31, 1996 $250 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest
by Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing
Electronic investment or from a USAA money market account. Sign up
Funds for these services when opening an account or call
Transfer 1-800-531-8448 to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each
pay period with no initial investment) can be made by
any employee of USAA, its subsidiaries or affiliated
companies.
Bank Wire * To add to an account, instruct your bank (which may
charge a fee for the service) to wire the specified
amount to the Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA GNMA Trust
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number___________________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If you
are considering redeeming shares soon after purchase,
you should purchase by bank wire or certified check to
avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a telegraph
to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited
to your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered shareholder(s)
Redemption will be mailed to the address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases,
redemptions, or changes in account information.
The section Additional Information Regarding
Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. Effective January 31, 1996,
with this program you can make initial investments as low
as $100 and automatic monthly additions of $50 to the
account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Retirement Plans - plans are available for IRA
(including SEP/IRA) and 403(b)(7) accounts. Federal
taxes on current income may be deferred if an investor
qualifies.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in
your account except:
i) a reinvested dividend, or
ii) a payment you make after January 31, 1996 under
the InvesTronic(registered trademark), Direct
Purchase Service, Automatic Purchase Plan, or
Directed Dividends investment plans, or
iii) a redemption you make after January 31, 1996 under
the Systematic Withdrawal Plan.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions
concerning any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Portfolio securities are valued each
business day at their current market value as determined
by a pricing service approved by the Board of Trustees.
Securities purchased with maturities of 60 days or less
are stated at amortized cost which approximates market
value. Securities which cannot be valued by the methods
set forth above, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income is accrued daily and is paid on the
last business day of each month. Any net capital gain
generally will be distributed at least annually. The
Fund intends to make such additional distributions as may
be necessary to avoid the imposition of any federal
income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-
dividend date. Any capital gain distribution paid by the
Fund will reduce the per share net asset value by the
amount of the distribution. An investor should consider
carefully the effects of purchasing shares of the Fund
shortly before any distribution which would decrease the
Fund's net asset value per share. Although in effect a
return of capital, these distributions are subject to
taxes.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
the Fund.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - The Fund will report annually to its
shareholders the federal tax status of dividends and
distributions paid or declared by the Fund during the
preceding calendar year.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the
Investment Company Institute and comply with Securities
and Exchange Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory
Agreement. Under the Advisory Agreement, the Manager is
responsible for the management of the Funds, business
affairs, and placement of brokerage orders, subject to
the authority of and supervision by the Board of
Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA),
accrued daily and paid monthly. The Fund's management
fees were computed and paid at one-eighth of one percent
(.125%) of ANA for the fiscal year ended May 31, 1995.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the total
operating expenses for the Fund as a percentage of the
Fund's ANA equaled .321%.
PORTFOLIO MANAGER
The following individual is primarily responsible for
managing the Fund.
Kenneth E. Willmann, Vice President of Fixed Income
Investments since December of 1986, has managed the Fund
since February 1995. He has 21 years investment
management experience and has worked for IMCO 19 years.
Mr. Willmann earned the Chartered Financial Analyst
designation in 1978 and is a member of the Association
for Investment Management and Research, San Antonio
Financial Analysts Society, Inc. and the National
Federation of Municipal Analysts. He holds an MBA and a
BA from the University of Texas.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for
fractional shares) irrespective of the relative net asset
value of the shares. For matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a
meeting of shareholders at any time for the purpose of
voting to remove one or more of the Trustees, and the Trust
will assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all
losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the
possibility of a shareholder incurring financial loss
on account of shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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USAA TREASURY MONEY MARKET TRUST
October 1, 1995 PROSPECTUS
As Supplemented November 1, 1995
USAA Treasury Money Market Trust (the Fund) is one of
eleven no-load mutual funds offered by USAA Investment
Trust (the Trust). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investors
maximum current income while maintaining the highest degree
of safety and liquidity. Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net
asset value per share without a sales charge. Make your
initial investment directly with the Manager by mail, in
person, or in certain instances, by telephone. Page 10.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or
telegraph on any day that the net asset value is
calculated. Page 12.
This Prospectus, which should be read and retained for
future reference, provides information regarding the
Trust and the Fund that you should know before investing.
Shares of the USAA Treasury Money Market Trust are not
deposits or other obligations of, or guaranteed by the
USAA Federal Savings Bank, are not insured by the FDIC or
any other Government Agency, and are subject to market
risks.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Trust, dated October
1, 1995, is available upon request and without charge by
writing to USAA INVESTMENT TRUST, 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 6
Using Mutual Funds in an Investment Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 8
SHAREHOLDER INFORMATION
Purchase of Shares 10
Redemption of Shares 12
Conditions of Purchase and Redemption 14
Exchanges 15
Other Services 15
Share Price Calculation 16
Dividends, Distributions and Taxes 17
Management of the Trust 18
Description of Shares 19
Service Providers 20
Telephone Assistance Numbers 20
FEES AND EXPENSES
The following summary is provided to assist you in understanding
the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets (ANA))
Management Fees, net of reimbursements .012%
12b-1 Fees None
Other Expenses, net of reimbursements
Transfer Agent Fees** .038%
Custodian Fees .083%
All Other Expenses .242%
----
Total Other Expenses .363%
----
Total Fund Operating Expenses, net of reimbursements .375%
====
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of Shares -
Bank Wire.
** The Fund pays USAA Shareholder Account Services an annual fixed fee per
account for its services. See Transfer Agent in the SAI, page 19.
During the year, the Manager voluntarily limited the annual expenses of
the Fund to .375% of its ANA and reimbursed the Fund for all expenses in
excess of this limitation. The Management Fees, Other Expenses, and
Total Fund Operating Expenses reflect all such expense reimbursements by
the Manager. Absent such reimbursements, the amount of the Management Fees,
Other Expenses, and Total Fund Operating Expenses as a percentage of ANA
would have been .125%, .363%, and .488%, respectively. The Manager has
voluntarily agreed to continue to limit the Fund's annual expenses until
October 1, 1996, to .375% of its ANA and will reimburse the Fund for all
expenses in excess of such limitation.
Example of Effect of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown.
1 year - $ 4
3 years - $ 12
5 years - $ 21
10 years - $ 47
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the five-year period ended May 31, 1995,
has been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements and
related notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991*
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .05 .02 .03 .04 .04
Distributions from net
investment income (.05) (.02) (.03) (.04) (.04)
------- ------- ------- ------- -------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return (%)** 4.88 1.96 2.84 4.05 3.51
Net assets at end of
period (000) $67,876 $37,984 $30,448 $25,393 $13,409
Ratio of expenses to
average net assets (%) .375(b) .375(a)(b) .375(b) .375(b) .375(a)(b)
Ratio of net investment
income to average net
assets (%) 4.91(b) 2.94(a)(b) 2.81(b) 3.89(b) 5.27(a)(b)
- --------------
* Fund commenced operations February 1, 1991.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
EIGHT-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991*
---- ---- ---- ---- ----
Ratio of expenses to average
net assets (%) .49 .62(a) .54 .72 1.31(a)
Ratio of net investment income
to average net assets (%) 4.80 2.69(a) 2.65 3.55 4.33(a)
PERFORMANCE INFORMATION
Performance information should be considered in light of
the Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be considered
as representative of the future performance of the Fund.
The Trust may quote the Fund's yield in advertisements
and reports to shareholders or prospective investors.
The Fund's performance may also be compared to that of
other mutual funds with a similar investment objective
and to stock or relevant indexes that are referenced in
Appendix B to the SAI. Yield results reported by the
Fund do not take into account recurring and nonrecurring
charges for optional services which only certain
shareholders elect and which involve nominal fees, such
as the $10 fee for a delivery of redemption proceeds by
wire transfer.
The Fund may advertise its yield and effective yield.
The yield of the Fund refers to the income generated by
an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This
income is then annualized, that is, the amount of
income generated by the investment during the week is
assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment.
The effective yield is calculated similarly, but when
annualized, the income earned by an investment in the
Fund is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
Further information concerning the Fund's yield is
included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT
PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the
responsibility for an equally important decision. This
decision includes determining a portfolio of mutual funds
that balances the investor's investment goals with his or
her tolerance for risk. It is likely that this decision
may involve the use of more than one fund of the USAA
Family of Funds.
For example, assume a shareholder wishes to diversify
internationally. He or she could do this by adding
positions in the Emerging Markets, Gold, International,
or World Growth Funds to holdings in domestic funds.
This would give the investor exposure to the
opportunities of investment in many foreign countries and
to currency changes. This is just one example of how an
individual could combine funds to create a portfolio
tailored to his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
asset strategy funds, the Income Strategy, Growth and Tax
Strategy, Balanced Strategy, Cornerstone Strategy, and
Growth Strategy Funds. These unique mutual funds provide
a professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use an asset strategy fund, the USAA Family of
Funds provides a broad range of choices covering just
about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide investors
maximum current income while maintaining the highest
degree of safety and liquidity.
The investment objective of the Fund cannot be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that this objective will be achieved.
The investment policies and techniques used to pursue
the Fund's objective may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Fund's investment policies and restrictions
is provided in the SAI.
INVESTMENT POLICIES AND
TECHNIQUES
The Manager will pursue the objective by investing the
Fund's assets exclusively in securities with maturities
of 397 days or less that are backed by the full faith and
credit of the U.S. Government and repurchase agreements
collateralized by such securities. The Fund will under
normal circumstances invest at least 65% of its total
assets in U.S. Treasury bills, notes, and bonds and
repurchase agreements collateralized by such obligations.
Up to 35% of the Fund's total assets may be invested in
other obligations backed by the full faith and credit of
the U.S. Government, including securities issued by the
General Services Administration, Government National
Mortgage Association, Rural Electrification
Administration, Small Business Administration, Federal
Financing Bank and repurchase agreements collateralized
by such obligations.
Consistent with regulatory requirements, the Fund will
maintain a dollar-weighted average portfolio maturity of
90 days or less and will endeavor to maintain a constant
net asset value of $1.00 per share, although there is no
assurance that it will be able to do so.
Under federal law, the income derived from obligations
issued by the U.S. Government and certain of its agencies
and instrumentalities is exempt from state personal
income taxes. Many states that tax personal income
permit mutual funds to pass-through this tax exemption to
shareholders. It is anticipated that a substantial
portion of the dividends paid to shareholders of the Fund
residing in these states will qualify for this exemption
from state taxation.
Repurchase Agreements - The Fund may invest in repurchase
agreements which are exclusively collateralized by
obligations backed by the full faith and credit of the
U.S. Government. A repurchase agreement is a transaction
in which a security is purchased with a simultaneous
commitment to sell the security back to the seller (a
commercial bank or recognized securities dealer) at an
agreed upon price on an agreed upon date, usually not
more than seven days from the date of purchase. The
resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the
coupon rate or maturity of the purchased security. The
obligation of the seller to pay the agreed upon price is
in effect secured by the value of the underlying
security. In these transactions, the securities
purchased by the Fund will have a total value equal to or
in excess of the amount of the repurchase obligation and
will be held by the Fund's custodian until repurchased.
If the seller defaults and the value of the underlying
security declines, the Fund may incur a loss and may
incur expenses in selling the collateral. If the seller
seeks relief under the bankruptcy laws, the disposition
of the collateral may be delayed or limited.
When-Issued Securities - The Fund may invest in new
issues of debt securities offered on a when-issued basis;
that is, delivery and payment take place after the date
of the commitment to purchase, normally within 45 days.
Both price and interest rate are fixed at the time of
commitment. The Fund does not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Variable Rate Securities - The Fund may invest in
securities that bear interest at rates (coupons) which
are adjusted periodically to market rates. These
interest rate adjustments can both raise and lower the
income generated by such securities. These changes will
have the same effect on the income earned by a Fund
depending on the proportion of such securities held.
The market value of fixed coupon securities fluctuates
with changes in prevailing interest rates, increasing in
value when interest rates decline and decreasing in value
when interest rates rise. The value of variable rate
securities, however, is less affected by changes in
prevailing interest rates because of the periodic
adjustment of their coupons to a market rate. The
shorter the period between adjustments, the smaller
the impact of interest rate fluctuations on the value of
these securities. The market value of variable rate
securities usually tends toward par (100% of face value)
at interest rate adjustment time.
Liquidity - The Fund may not invest more than 10% of the
value of its net assets in securities which are illiquid
or not readily marketable.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. The Fund will not purchase any security if
immediately after the purchase 25% or more of the
value of its total assets will be invested in
securities of issuers principally engaged in a
particular industry (except that such limitation
does not apply to obligations issued or guaranteed
by the U.S. Government or its agencies or
instrumentalities).
b. The Fund may not, with respect to 75% of its total assets,
purchase the securities of any issuer (except U.S.
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
c. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3% of
its total assets (including the amount borrowed) less
liabilities (other than borrowings).
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the following methods. A complete, signed application is
required together with a check for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If the Fund receives your request prior to the
close of the New York Stock Exchange on a day on which
the Exchange is open, your purchase price will be the NAV
per share determined for that day. If the Fund receives
your request after the time at which the NAV per share
is calculated, the purchase will be effective on the next
business day. A check drawn on a foreign bank will not be
deemed received for the purchase of shares until such time
as the check has cleared and the Manager has received good
funds, which may take up to 4 to 6 weeks. Furthermore, a
bank charge may be assessed in the clearing process, which
will be deducted from the amount of the purchase. To avoid
a delay in the effectiveness of your purchase, the Manager
suggests that you convert your foreign check to U.S. dollars
prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $3,000
After January 31, 1996 $3,000 or minimum $100 with a minimum $50
monthly electronic investment
Initial Purchase - IRA: $1,000
$250 for spousal account
After January 31, 1996 $250 or minimum $100 with a minimum $50
monthly electronic investment
Additional Purchases: $50 - (Except transfers from brokerage accounts).
How to Purchase:
Mail * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest by
Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
In Person * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
Automatically * Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing investment
Electronic or from a USAA money market account. Sign up for these
Funds services when opening an account or call 1-800-531-8448
Transfer to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
Bank Wire * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Treasury Money Market Trust
USAA AC-69384998
Shareholder(s) Name(s)_________________
Shareholder(s) Account Number___________________
Phone * If you have an existing USAA account and would like to open
a new account, call 1-800-531-8448. New accounts by phone
must have the same registration as your existing account.
* To exchange to another USAA fund, call 1-800-531-8448. The
new account must have the same registration as the account
from which you are exchanging.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call 1-800-531-8448.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following
methods on any day the NAV per share is calculated.
Redemptions will be effective on the day on which
instructions are received in accordance with the
requirements set forth below. However, if instructions
are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If
you are considering redeeming shares soon after purchase,
you should purchase by bank wire or certified check to
avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
How to Redeem:
Written, * Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 210-498-2889, or send a telegraph
to USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and
stock certificate (if issued), specifying the Fund and
the number of shares or dollar amount to be redeemed;
(2) signatures of all owners of the shares exactly as
their names appear on the account; (3) other supporting
legal documents, if required, as in the case of estates,
trusts, guardianships, custodianships, partnerships,
corporations, and pension and profit-sharing plans; and
(4) method of payment.
Phone * Call toll free 1-800-531-8448, in San Antonio,
210-456-7202.
The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine,
and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Information
is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the
name(s) on the account registration, and (3) social
security number or tax identification number for the
account registration. In addition, all telephone
communications with a shareholder are recorded.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
Through a * Call USAA Brokerage Services at 1-800-531-8343
USAA AMA for more information.
Methods of Payment:
Bank Wire * Allows redemptions to be sent directly to your
bank account.
Establish this service when you apply for your account,
or later upon request. If your account is at a savings
bank, savings and loan association, or credit union,
please obtain precise wiring instructions from your
institution. Specifically, include the name of the
correspondent bank and your institution's account number
at that bank. The Transfer Agent deducts a wire fee from
the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company and
the Transfer Agent for their services in connection with
the wire redemption. Your bank may also charge a fee for
receiving funds by wire.
Automatically * Systematic (regular) or intermittent
via EFT (as-needed) redemptions can be credited to
your bank account.
Establish any of our electronic investing services when
you apply for your account, or later upon request.
Check * A check payable to the registered shareholder(s)
Redemption will be mailed to the address of record.
This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
Checkwriting * Checks can be issued for your Treasury Money
Market Trust account.
To establish your checkwriting privilege (CWP),
complete the signature card which accompanies the
application form or Shareholder Services Guide, or
request and complete the signature card separately. A
one-time $5 checkwriting fee is charged to each account
by the Transfer Agent for the establishment of the
privilege. There is no charge for the use of checks nor
for subsequent reorders. This privilege is subject to
SSB's rules and regulations governing checking accounts.
Checks must be written for an amount of at least $250.
Checks written for less than $250 will be returned.
Checkwriting may not be used to close an account because
the value of the account changes daily as dividends are
accrued.
When a check is presented to the Transfer Agent for
payment, a sufficient number of full and fractional
shares in the investor's account will be redeemed to
cover the amount of the check. Checks will be returned
if there are insufficient shares to cover the amount of
the check. Presently, there is a $15 processing fee
assessed against an account for any redemption check not
honored by a clearing or paying agent. A check paid
during the month will be returned to the shareholder by
separate mail. Checkwriting fees are subject to change
at any time. The Trust, the Transfer Agent and SSB each
reserve the right to change or suspend the checkwriting
privilege upon 30 days' written notice to participating
shareholders. See the SAI for further information.
You may request that the Transfer Agent stop payment on
a check. The Transfer Agent will use its best efforts to
execute stop payment instructions, but does not guarantee
that such efforts will be effective. A $10 charge will
be made for each stop payment requested by a shareholder.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all
registered owners and supporting documents to change an
account registration due to events such as divorce,
marriage, or death. If a new account needs to be
established, an application must be completed and
returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with less than $900, subject to certain
limitations described in Additional Information Regarding
Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the
best interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) require a signature guarantee when deemed
appropriate by the Manager for purchases,
redemptions, or changes in account information.
The section Additional Information Regarding
Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among Funds in the USAA Family of Funds, provided you do
not hold these shares in stock certificate form and that
the shares to be acquired are offered in your state of
residence. Exchange redemptions and purchases will be
processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between Funds is
a taxable event. Accordingly, a capital gain or loss may
be realized.
The Fund has undertaken certain procedures regarding
telephone transactions. See Redemption of Shares -
Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their
shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any Fund
in the USAA Family of Funds are limited for each account
to six per calendar year except that there is no
limitation on exchanges out of the Tax Exempt Short-Term
Fund, Short-Term Bond Fund, or any of the money market
funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
InveStart(registered trademark) - an investment program
for beginning or first-time investors. Like more
experienced investors, InveStart(registered trademark)
customers may choose to establish a systematic investment
plan for their portfolio.
Systematic Investment Plans - you may establish a
systematic investment plan by completing the appropriate
forms. At the time you sign up for any of the following
investment plans that utilize the electronic funds
transfer service, you will choose the day of the month
(the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the
last business day before the effective date. Call the
Manager to obtain instructions. More information about
these preauthorized plans is contained in the SAI.
* InvesTronic(registered trademark) - an automatic
investment program for the purchase of additional shares
through electronic funds transfer. The investor selects
the day(s) each month that money is transferred from a
checking or savings account. Effective January 31, 1996,
with this program you can make initial investments as low
as $100 and automatic monthly additions of $50 to the
account.
* Direct Purchase Service - the periodic purchase of
shares through electronic funds transfer from a non-
governmental employer, an income-producing investment, or
an account with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of
funds from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
* Retirement Plans - plans are available for IRA
(including SEP/IRA) and 403(b)(7) accounts. Federal
taxes on current income may be deferred if an investor
qualifies.
* Directed Dividends - If you own shares in more than one
of the Funds in the USAA Family of Funds, you may direct
that dividends and/or capital gain distributions earned
in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation for purchases or
redemptions by check and exchanges. If your account had
activity other than reinvested dividends, such as wire
purchases or redemptions or purchases under the
InvesTronic(registered trademark), Direct Purchase
Service, Automatic Purchase Plan or Directed Dividends
investment plans, you will receive a monthly statement
that will reflect quarter-to-date account activity.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions
concerning any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close
of the regular trading session of the New York Stock
Exchange, which is usually 4:00 p.m. Eastern time. You
may buy and sell Fund shares at the NAV per share without
a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in the Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Securities are stated at amortized cost
which approximates market value.
For additional information, see Valuation of Securities
in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income is accrued daily and is paid on the
last business day of each month. Any net capital gain
generally will be distributed at least annually. The
Fund intends to make such additional distributions as may
be necessary to avoid the imposition of any federal
income or excise tax.
All income dividends and capital gain distributions are
automatically reinvested, unless the shareholder specifies
otherwise. The share price will be the net asset value of
the Fund shares computed on the ex-dividend date.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The following discussion relates only to generally
applicable federal income tax provisions in effect as of
the date of this Prospectus. Therefore, shareholders are
urged to consult their own tax advisers about the status
of distributions from the Fund in their own states and
localities.
Fund - The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the
Fund will not be subject to federal income tax on its net
investment income and net capital gains (capital gains in
excess of capital losses) distributed to shareholders.
Shareholder - Dividends from taxable net investment
income and distributions of net short-term capital gains
are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
the Fund.
Withholding - The Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - The Fund will report annually to its
shareholders the federal tax status of dividends and
distributions paid or declared by the Fund during the
preceding calendar year.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company (IMCO),
was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
Officers and employees of the Manager are permitted to
engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the
Investment Company Institute and comply with Securities
and Exchange Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory
Agreement. Under the Advisory Agreement, the Manager is
responsible for the management of the Funds, business
affairs, and placement of brokerage orders, subject to
the authority of and supervision by the Board of
Trustees.
For its services under the Advisory Agreement, the Fund
pays the Manager an annual fee which is computed as a
percentage of the Fund's average net assets (ANA),
accrued daily and paid monthly. The Fund's management
fees are computed at one-eighth of one percent (.125%) of
ANA. For the fiscal year ended May 31, 1995, the fees
paid to the Manager, net of the reimbursement, were .012%
of ANA.
OPERATING EXPENSES
For the fiscal year ended May 31, 1995, the Manager
limited total operating expenses to .375% of the Fund's
ANA. The Manager reimbursed the Fund $54,428 for
expenses in excess of the limitation. The Manager has
voluntarily agreed to continue to limit the Fund's annual
expenses until October 1, 1996, to .375% of its ANA and
will reimburse the Fund for all expenses in excess of the
limitation.
PORTFOLIO MANAGER
The following individual is primarily responsible for
managing the Fund.
J. Eric Thorderson, Executive Director of Fixed Income
Investments since March of 1994, has managed the Fund
since March 1994. Mr. Thorderson has eight years
investment management experience and has worked for IMCO
five years where he has held various positions in Fixed
Income Investments since May 1991. Mr. Thorderson earned
the Chartered Financial Analyst designation in 1989 and
is a member of the Association for Investment Management
and Research and the San Antonio Financial Analysts
Society, Inc. He holds an MBA from the University of
Illinois and a BA from Wayne State University of
Michigan.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company
established as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to the First
Amended and Restated Master Trust Agreement (Master Trust
Agreement) dated June 2, 1995, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or Funds, without
par value. The Fund described in this Prospectus is
being offered to the public. The Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Trustees are authorized to create new
Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual or regular
meeting of shareholders is required. Ordinarily, no
shareholder meeting will be held unless required by the
1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after
such action at least two-thirds of the Trustees have been
elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for
fractional shares) irrespective of the relative net asset
value of the shares. For matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a
meeting of shareholders at any time for the purpose of
voting to remove one or more of the Trustees, and the
Trust will assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any Fund
could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the Trustees. The Master Trust Agreement
provides for indemnification out of the Trust's property
for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus,
the possibility of a shareholder incurring financial loss
on account of shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
(Picture of USAA STATEMENT OF
the USAA INVESTMENT ADDITIONAL INFORMATION
Logo is TRUST October 1, 1995
here) As Supplemented November 1, 1995
- -------------------------------------------------------------------
USAA INVESTMENT TRUST
USAA INVESTMENT TRUST (the Trust) is a registered investment
company offering shares of eleven no-load mutual funds, eight of
which are described in this Statement of Additional Information
(SAI): the Growth and Tax Strategy Fund, Cornerstone Strategy
Fund, Emerging Markets Fund, Gold Fund, International Fund, World
Growth Fund, GNMA Trust, and Treasury Money Market Trust
(collectively, the Funds). Each Fund is classified as a
diversified investment company and has its own investment
objective designed to meet different investment goals.
A Prospectus for each Fund dated October 1, 1995, which provides
the basic information you should know before investing in the
Funds, may be obtained without charge upon written request to
USAA Investment Trust, 9800 Fredericksburg Rd., San Antonio, TX
78288, or by calling toll free 1-800-531-8181. This SAI is not a
Prospectus and contains information in addition to and more
detailed than that set forth in each Fund's Prospectus. It is
intended to provide you with additional information regarding the
activities and operations of the Trust and the Funds, and should
be read in conjunction with each Fund's Prospectus.
- -------------------------------------------------------------------
TABLE OF CONTENTS
Page
2 Valuation of Securities
3 Additional Information Regarding Redemption of Shares
4 Investment Plans
5 Investment Policies
8 Special Risk Considerations
8 Investment Restrictions
11 Portfolio Transactions
13 Further Description of Shares
13 Tax Considerations
15 Trustees and Officers of the Trust
18 The Trust's Manager
19 General Information
20 Calculation of Performance Data
21 Appendix A - Tax-Exempt Securities and Their Ratings
24 Appendix B - Comparison of Portfolio Performance
28 Appendix C - Dollar-Cost Averaging
VALUATION OF SECURITIES
Shares of each Fund are offered on a continuing best efforts
basis through USAA Investment Management Company (IMCO or the
Manager). The offering price for shares of each Fund is equal to
the current net asset value (NAV) per share. The net asset value
per share of each Fund is calculated by adding the value of all
its portfolio securities and other assets, deducting its
liabilities, and dividing by the number of shares outstanding.
A Fund's NAV per share is calculated each day, Monday
through Friday, except days on which the New York Stock Exchange
(NYSE) is closed. The NYSE is currently scheduled to be closed
on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas, and on
the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday, respectively.
The value of securities of the Growth and Tax Strategy,
Cornerstone Strategy, Emerging Markets, Gold, International, and
World Growth Funds and the GNMA Trust is determined by one or
more of the following methods:
(1) Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange are valued at
the last sales price on that exchange. Portfolio securities
traded primarily on foreign securities exchanges are
generally valued at the closing values of such securities on
the exchange where primarily traded. If no sale is
reported, the latest bid price is generally used depending
upon local custom or regulation.
(2) Over-the-counter securities are priced at the last sales
price or, if not available, at the average of the bid and
asked prices at the time trading closes on the NYSE.
(3) Debt securities purchased with maturities of 60 days or less
are stated at amortized cost which approximates market
value. Repurchase agreements are valued at cost.
(4) Other debt and government securities are valued each
business day by a pricing service (the Service) approved by
the Board of Trustees. The Service uses the mean between
quoted bid and asked prices or the last sales price to price
securities when, in the Service's judgment, 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 those
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 which cannot be valued by the methods set forth
above, and all other assets, are valued in good faith at
fair value using methods determined by the Manager under the
general supervision of the Board of Trustees.
Securities trading in foreign markets may not take place on all
days on which the NYSE is open. Further, trading takes place in
various foreign markets on days on which the NYSE is not open.
The calculation of a Fund's net asset value therefore may not
take place contemporaneously with the determination of the prices
of securities held by a Fund. Events affecting the values of
portfolio securities that occur between the time their prices are
determined and the close of normal trading on the NYSE on a day a
Fund's NAV is calculated will not be reflected in a Fund's NAV,
unless the Manager determines that the particular event would
materially affect NAV. In such a case, the Fund's Manager, under
the supervision of the Board of Trustees, will use all relevant
available information to determine a fair value for the affected
portfolio securities.
The value of the Treasury Money Market Trust's securities is
stated at amortized cost which approximates market value. This
involves valuing a security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates. While
this method provides certainty in valuation, it may result in
periods during which the value of an instrument, as determined by
amortized cost, is higher or lower than the price the Trust would
receive upon the sale of the instrument.
The valuation of the Treasury Money Market Trust's portfolio
instruments based upon their amortized cost is subject to the
Fund's adherence to certain procedures and conditions.
Consistent with regulatory requirements, the Manager will
purchase securities with remaining maturities of 397 days or less
and will maintain a dollar-weighted average portfolio maturity of
no more than 90 days. The Manager will invest only in securities
that have been determined to present minimal credit risk and that
satisfy the quality and diversification requirements of
applicable rules and regulations of the Securities and Exchange
Commission (SEC).
The Board of Trustees has established procedures designed to
stabilize the Treasury Money Market Trust's price per share, as
computed for the purpose of sales and redemptions, at $1.00.
There can be no assurance, however, that the Fund will at all times
be able to maintain a constant $1.00 NAV per share. Such procedures
include review of the Fund's holdings at such intervals as is deemed
appropriate to determine whether the Fund's NAV calculated by
using available market quotations deviates from $1.00 per share
and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the
event that it is determined that such a deviation exists, the
Board of Trustees will take such corrective action as it regards
as necessary and appropriate. Such action may include selling
portfolio instruments prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding
dividends, or establishing a NAV per share by using available
market quotations.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of a shareholder's investment at the time of redemption
may be more or less than the cost at purchase, depending on the
value of the securities held in each Fund's portfolio. Requests
for redemption which are subject to any special conditions, or
which specify an effective date other than as provided herein,
cannot be accepted. A gain or loss for tax purposes may be
realized on the sale of shares, depending upon the price when
redeemed.
The Board of Trustees may cause the redemption of an account
with a balance of less than $900, provided that (1) the value of
such account has been reduced below the minimum initial
investment required in such Fund at the time of the establishment
of the account to less than $900 entirely for reasons other than
market action, (2) the account has remained below the minimum
initial investment for six months, and (3) 60 days' prior written
notice of the proposed redemption has been sent to the
shareholder. Shares will be redeemed at the NAV on the date
fixed for redemption by the Board of Trustees. Prompt payment
will be made by mail to the last known address of the
shareholder.
The Trust reserves the right to suspend the right of
redemption or postpone the date of payment (1) for any periods
during which the NYSE is closed, (2) when trading in the markets
the Trust normally utilizes is restricted, or an emergency exists
as determined by the SEC so that disposal of the Trust's
investments or determination of its net asset value is not
reasonably practicable, or (3) for such other periods as the SEC
by order may permit for protection of the Trust's shareholders.
For the mutual protection of the investor and the Funds, a
guarantee of signature may be required by the Trust. If
required, each signature on the account registration must be
guaranteed. Signature guarantees are acceptable from FDIC member
banks, brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, government
securities brokers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. A signature guarantee for active duty military
personnel stationed abroad may be provided by an officer of the
United States Embassy or Consulate, a staff officer of the Judge
Advocate General, or an individual's commanding officer.
Redemption By Check
Shareholders in the Treasury Money Market Trust may request that
checks be issued for their accounts. A one-time $5 checkwriting
fee is charged to each account by the Transfer Agent for the use
of the privilege. Checks must be written in the amount of at
least $250.
Checks issued to shareholders of the Treasury Money Market
Trust will be sent only to the person in whose name the account
is registered and only to the address of record. The checks must
be manually signed by the registered owner(s) exactly as the
account is registered. For joint accounts the signature of
either or both joint owners will be required on the check,
according to the election made on the signature card. Dividends
will continue to be earned by the shareholder until the shares
are redeemed by the presentation of a check.
When a check is presented to the Transfer Agent for payment,
a sufficient number of full and fractional shares in the
investor's account will be redeemed to cover the amount of a
check. If an investor's account is not adequate to cover the
amount of a check, the check will be returned unpaid. Because
the value of the account changes as dividends are accrued on a
daily basis, checks may not be used to close an account.
After clearance, checks paid during the month will be
returned to the shareholder by separate mail. The checkwriting
privilege will be subject to the customary rules and regulations
of State Street Bank and Trust Company (State Street Bank or the
Custodian) governing checking accounts. Other than the initial
one-time fee, there is no charge to the shareholder for the use
of the checks or for subsequent reorders of checks.
The Trust reserves the right to assess a processing fee
against a shareholder's account for any redemption check not
honored by a clearing or paying agent. Currently, this fee is
$15 and is subject to
Additional Information Regarding Redemption of Shares, cont.
change at any time. Some examples of such dishonor are improper
endorsement, checks written for an amount less than the minimum
check amount, and insufficient or uncollectible funds.
The Trust, the Transfer Agent, and State Street Bank each
reserve the right to change or suspend the checkwriting privilege
upon 30 days' written notice to participating shareholders.
INVESTMENT PLANS
The following investment plans are made available by the Trust to
shareholders of all the Funds. At the time you sign up for any
of the following investment plans that utilize the electronic
funds transfer service, you will choose the day of the month (the
effective date) on which you would like to regularly purchase
shares. When this day falls on a weekend or holiday, the
electronic transfer will take place on the last business day
before the effective date. You may terminate your participation
in a plan at any time. Please call the Manager for details and
necessary forms or applications.
Systematic Purchase of Shares
InvesTronic(registered trademark) - an automatic investment
program for the purchase of additional shares through electronic
funds transfer. The investor selects the day(s) each month that
money is transferred from a checking or savings account.
Direct Purchase Service - the periodic purchase of shares through
electronic funds transfer from a non-governmental employer, an
income-producing investment, or an account with a participating
financial institution.
Automatic Purchase Plan - the periodic transfer of funds from a
USAA money market fund to purchase shares in another non-money
market USAA mutual fund. There is a minimum investment required
for this program of $5,000, with a monthly transaction minimum of
$50. The minimum initial investment requirement for the other
USAA mutual fund must be satisfied before the first transfer.
Buy/Sell Service - the intermittent purchase or redemption of
shares through electronic funds transfer to or from a checking or
savings account.
Participation in these systematic purchase plans will permit
a shareholder to engage in dollar-cost averaging. For additional
information concerning the benefits of dollar-cost averaging, see
Appendix C.
Systematic Withdrawal Plan
If a shareholder in a single investment account (accounts in
different Funds cannot be aggregated for this purpose) owns
shares having a net asset value of $5,000 or more, the
shareholder may request that enough shares to produce a fixed
amount of money be liquidated from the account monthly or
quarterly. The amount of each withdrawal must be at least $50.
Using the electronic funds transfer service, shareholders may
choose to have withdrawals electronically deposited at their bank
or other financial institution. They may also elect to have
checks mailed to a designated address.
Such a plan may be initiated by depositing shares worth at
least $5,000 with the Transfer Agent and by completing a
Systematic Withdrawal Plan application, which may be requested
from the Manager. The shareholder may terminate participation in
the plan at any time. There is no charge to the shareholder for
withdrawals under the Systematic Withdrawal Plan. The Trust will
not bear any expenses in administering the plan beyond the
regular transfer agent and custodian costs of issuing and
redeeming shares. Any additional expenses of administering the
plan will be borne by the Manager.
Withdrawals will be made by redeeming full and fractional
shares on the date selected by the shareholder at the time the
plan is established. Withdrawal payments made under this plan
may exceed dividends and distributions and, to this extent, will
involve the use of principal and could reduce the dollar value of
a shareholder's investment and eventually exhaust the account.
Reinvesting dividends and distributions helps replenish the
account. Because share values and net investment income can
fluctuate, shareholders should not expect withdrawals to be
offset by rising income or share value gains.
Each redemption of shares may result in a gain or loss,
which must be reported on the shareholder's income tax return.
Therefore, a shareholder should keep an accurate record of any
gain or loss on each withdrawal.
Tax-Deferred Retirement Plans (not available in the Growth and
Tax Strategy Fund)
Federal taxes on current income may be deferred if an investor
qualifies for certain types of retirement programs. For the
convenience of the investor, the following plans are made
available by the Manager: IRA (including SEP/IRA) and 403(b)(7)
accounts. The minimum initial investment in each of these plans
is $1,000 for each Fund with the exception of spousal IRAs for
which the minimum investment is $250. Subsequent investments of
$50 or more per account may be made at any time. Effective after
January 31, 1996, the minimum initial investment for these plans
will decrease to $250 or minimum $100 with a minimum $50 monthly
electronic investment. Investments may be made in one or any
combination of the portfolios described in the Prospectus of each
Fund of USAA Investment Trust and USAA Mutual Fund, Inc.
Retirement plan applications for the IRA and 403(b)(7)
programs should be sent directly to USAA Shareholder Account
Services, 9800 Fredericksburg Rd., San Antonio, TX 78288. State
Street Bank serves as Custodian of these tax-deferred retirement
plans under the programs made available by the Manager.
Applications for these retirement plans received by the Manager
will be forwarded to the Custodian for acceptance.
An administrative fee of $20 is deducted from the proceeds
of a distribution closing an account. Exceptions to the fee are:
partial distributions, total transfer within USAA, and
distributions due to disability or death. This charge is subject
to change as provided in the various agreements. There may be
additional charges, as mutually agreed upon between the investor
and the Custodian, for further services requested of the
Custodian.
Each employer or individual establishing a tax-deferred
retirement plan is advised to consult with a tax adviser before
establishing the plan. Detailed information about the plans may
be obtained from the Manager.
INVESTMENT POLICIES
The section captioned Investment Objective and Policies in each
Fund's Prospectus describes the fundamental investment objective
and the investment policies applicable to each Fund and the
following is provided as additional information.
Rule 144A Securities
Each Fund, except the GNMA Trust and the Treasury Money Market
Trust, may purchase restricted securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933 (Rule 144A Securities). Rule 144A
provides a non-exclusive safe harbor from the registration
requirements of the Securities Act of 1933 for resales of certain
securities to institutional investors.
Municipal Lease Obligations
The Growth and Tax Strategy Fund may invest in municipal lease
obligations, installment purchase contract obligations, and
certificates of participation in such obligations (collectively,
lease obligations). A lease obligation does not constitute a
general obligation of the municipality for which the
municipality's taxing power is pledged, although the lease
obligation is ordinarily backed by the municipality's covenant to
budget for the payments due under the lease obligation.
Certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to
make lease obligation payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure
might prove difficult.
Liquidity Determinations
The Board of Trustees has established guidelines pursuant to
which municipal lease obligations, Rule 144A Securities, and
certain restricted debt securities that are subject to
unconditional put or demand features exercisable within seven
days (Restricted Put Bonds) may be determined to be liquid for
purposes of complying with the Funds' investment restriction
applicable to investments in illiquid securities. In determining
the liquidity of municipal lease obligations and Rule 144A
Securities, the Manager will consider the following factors,
among others, established by the Board of Trustees: (1) the
frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings
to make a market in the security, and (4) the nature of the
security and the nature of the marketplace trades, including
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer. Additional
factors considered by the Manager in determining the liquidity of
a municipal lease obligation are: (1) whether the lease
obligation is of a size that will be attractive to institutional
investors, (2) whether the lease obligation contains a non-
appropriation clause and the likelihood that the obligor will
fail to make an appropriation therefor, and (3) such other
factors as the Manager may determine to be relevant to such
determination. In determining the liquidity
Investment Policies, cont.
of Restricted Put Bonds, the Manager will evaluate the credit
quality of the party (the Put Provider) issuing (or
unconditionally guaranteeing performance on) the unconditional
put or demand feature of the Restricted Put Bond. In evaluating
the credit quality of the Put Provider, the Manager will consider
all factors that it deems indicative of the capacity of the Put
Provider to meet its obligations under the Restricted Put Bond
based upon a review of the Put Provider's outstanding debt and
financial statements and general economic conditions.
Certain foreign securities may be eligible for resale
pursuant to Rule 144A in the United States and may also trade
without restriction in one or more foreign markets. Such
securities may be determined to be liquid based upon these
foreign markets without regard to their eligibility for resale
pursuant to Rule 144A. In such cases, these securities will not
be treated as Rule 144A securities for purposes of the liquidity
guidelines established by the Board of Trustees and will not be
considered "restricted securities" for purposes of a Fund's
investment restriction.
Calculation of Maturity for Fixed Income Securities
A fixed income security's maturity is typically determined on a
stated final maturity basis, although there are some exceptions
to the rule.
If the issuer of the security has committed to take
advantage of a maturity shortening device, such as a call,
refunding, or redemption provision, the date on which the
instrument will be called, refunded, or redeemed will be
considered to be its maturity date. Maturities of securities
subject to sinking fund arrangements are determined on a weighted
average life basis, which is the average time for principal to be
repaid. The weighted average lives of these securities will be
shorter than their stated final maturities. A security will be
treated as having a maturity earlier than its stated maturity
date if the security has technical features, such as a put or
demand feature which, in the judgement of the Manager, will
result in the security being valued in the market as though it
has the earlier maturity.
Lending of Securities
Each Fund may lend its securities. A lending policy may be
authorized by the Trust's Board of Trustees and implemented by
the Manager, but securities may be loaned only to qualified
broker-dealers or institutional investors that agree to maintain
cash collateral with the Trust equal at all times to at least
100% of the value of the loaned securities. The Trustees will
establish procedures and monitor the creditworthiness of any
institution or broker-dealer during such times as any loan is
outstanding. The Trust will continue to receive interest on the
loaned securities and will invest the cash collateral in short-
term obligations of the U.S. Government or of its agencies or
instrumentalities or in repurchase agreements, thereby earning
additional interest.
No loan of securities will be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of a
Fund's total assets. The Trust may terminate such loans at
any time.
Forward Currency Contracts
The Cornerstone Strategy, Emerging Markets, Gold, International,
and World Growth Funds may enter into forward currency contracts
in order to protect against uncertainty in the level of future
foreign exchange rates.
A forward contract involves an agreement to purchase or sell
a specific currency at a specified future date or over a
specified time period at a price set at the time of the contract.
These contracts are usually traded directly between currency
traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirements, and no
commissions are charged.
The Funds may enter into forward currency contracts under
two circumstances. First, when a Fund enters into a contract for
the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into such a contract, a Fund will be able
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
the foreign currency from the date the security is purchased or
sold to the date on which payment is made or received. Second,
when management of a Fund believes that the currency of a
specific country may deteriorate relative to the U.S. dollar, it
may enter into a forward contract to sell that currency. A Fund
may not hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time
of making any sale of forward currency) of the securities held in
its portfolio denominated or quoted in, or bearing a substantial
correlation to, such currency.
The use of forward contracts involves certain risks. The
precise matching of contract amounts and the value of securities
involved generally will not be possible since the future value of
such securities in currencies more than likely will change
between the date the contract is entered into and the date it
matures. The projection of short-term currency market movements
is extremely difficult and successful execution of a short-term
hedging strategy is uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be
incorporated into the longer term investment strategies. The
Manager believes it is important, however, to have the
flexibility to enter into such contracts when it determines it is
in the best interest of the Funds to do so. It is impossible to
forecast what the market value of portfolio securities will be at
the expiration of a contract. Accordingly, it may be necessary
for a Fund to purchase additional currency (and bear the expense
of such purchase) if the market value of the security is less
than the amount of currency the Funds are obligated to deliver,
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell some of
the foreign currency received on the sale of the portfolio
security if its market value exceeds the amount of currency the
Funds are obligated to deliver.
The Funds are not required to enter into such transactions
and will not do so unless deemed appropriate by the Manager.
Although the Funds value their assets each business day in
terms of U.S. dollars, they do not intend to convert their
foreign currencies into U.S. dollars on a daily basis. They will
do so from time to time, and shareholders should be aware of
currency conversion costs. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based
on the difference (spread) between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
When-Issued Securities
Each Fund may invest in new issues of debt securities offered on
a when-issued basis; that is, delivery of and payment for the
securities take place after the date of the commitment to
purchase, normally within 45 days. The payment obligation and
the interest rate that will be received on the securities are
each fixed at the time the buyer enters into the commitment. A
Fund may sell these securities before the settlement date if it
is deemed advisable.
Debt securities purchased on a when-issued basis are subject
to changes in value in the same way that other debt securities
held in the Funds' portfolios are; that is, both experience
appreciation when interest rates decline and depreciation when
interest rates rise. The value of such securities will also be
affected by the public's perception of the creditworthiness of
the issuer and anticipated changes in the level of interest
rates. Purchasing securities on a when-issued basis involves a
risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the
transaction itself. Cash or high quality liquid debt securities
equal to the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities are
valued at market, and daily adjustments are made to keep the
value of the cash and segregated securities at least equal to the
amount of such commitments by the Fund.
On the settlement date of the when-issued securities, the
Fund will meet its obligations from then available cash, sale of
segregated securities, sale of other securities, or from sale of
the when-issued securities themselves (which may have a value
greater or less than the Trust's payment obligations). Sale of
securities to meet such obligations carries with it a greater
potential for the realization of capital gains.
Investments in Real Estate Investment Trusts (REITs)
Because the Cornerstone Strategy and World Growth Funds may
invest a substantial portion of their assets in REITs, the Funds
may also be subject to certain risks associated with direct
investments in REITs. REITs may be affected by changes in the
value of their underlying properties and by defaults by borrowers
or tenants. Furthermore, REITs are dependent upon specialized
management skills of their managers and may have limited geographic
diversification, thereby, subjecting them to risks inherent in
financing a limited number of projects. REITs depend generally
on their ability to generate cash flow to make distributions to
shareholders, and certain REITs have self-liquidation provisions
by which mortgages held may be paid in full and distributions of
capital returns may be made at any time.
Put and Call Options, Financial Futures Contracts, Options on
Financial Futures Contracts
Although the GNMA Trust and Emerging Markets Fund are permitted
to purchase and sell these contracts or options, the Funds have
no current intention of doing so in the coming year and will not
engage in such transactions without first notifying shareholders
and supplying further information in each Fund's Prospectus.
SPECIAL RISK CONSIDERATIONS
Currency Exchange Rate Fluctuations
Significant portions of the Cornerstone Strategy, Emerging
Markets, Gold, International, and World Growth Funds' assets may
be invested in securities of foreign issuers. Any such
investments will be made in compliance with U.S. and foreign
currency restrictions, tax laws, and laws limiting the amount and
types of foreign investments. Pursuit of the Funds' investment
objectives will involve currencies of the United States and of
foreign countries. Consequently, changes in exchange rates,
currency convertibility, and repatriation requirements may
favorably or adversely affect the Funds.
Unpredictable Political, Economic and Social Conditions
For the Cornerstone Strategy, Emerging Markets, Gold,
International, and World Growth Funds, investing in securities of
foreign issuers presents certain other risks not present in
domestic investments, including different accounting, reporting,
and disclosure requirements for foreign issuers, possible
political or social instability, including policies of foreign
governments which may affect their respective equity markets, and
foreign taxation requirements including withholding taxes.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the
Trust for and are applicable to each Fund as stated. These
restrictions may not be changed for any given Fund without
approval by the lesser of (1) 67% or more of the voting
securities present at a meeting of the Fund if more than 50% of
the outstanding voting securities of the Fund are present or
represented by proxy or (2) more than 50% of that Fund's
outstanding voting securities. The investment restrictions of
one Fund may thus be changed without affecting those of any other
Fund.
Under the restrictions, each of the Growth and Tax Strategy,
Cornerstone Strategy, Gold, International, and World Growth Funds
may not:
(1) With respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities,
as such term is defined in the 1940 Act) if, as a result,
the Fund would own more than 10% of the outstanding voting
securities of such issuer or the Fund would have more than 5%
of the value of its total assets invested in the securities
of such issuer.
(2) Borrow money, except for temporary or emergency purposes in an
amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings).
(3) Lend any securities or make any loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties,
except that this limitation does not apply to purchases of debt
securities or to repurchase agreements.
(4) Underwrite securities of other issuers, except to the extent
that it may be deemed to act as a statutory underwriter in
the distribution of any restricted securities or not readily
marketable securities.
(5) Purchase securities on margin or sell securities short,
except that it may obtain such short-term credits as are
necessary for the clearance of securities transactions.
(6) Invest in put, call, straddle, or spread options or interests
in oil, gas or other mineral exploration or development programs,
except that it may purchase securities of issuers whose principal
business activities fall within such areas in accordance with its
investment objectives and policies.
(7) Invest more than 2% of the market value of its total assets
in marketable warrants to purchase common stock. Warrants
initially attached to securities and acquired by a Fund upon
original issuance thereof shall be deemed to be without value.
(8) Purchase or sell real estate or partnership interests
therein, except that the Cornerstone Strategy Fund may
purchase securities secured by real estate interests or
interests therein, or issued by companies or investment
trusts which invest in real estate or interests therein.
(9) Purchase or sell commodities or commodity contracts.
(10) Purchase securities of other open-end investment companies,
except a Fund may invest up to 10% of the market value of
its total assets in such securities through purchases in the
open market involving only customary broker's commissions or
in connection with a merger, consolidation, reorganization,
or acquisition of assets approved by the shareholders.
(11) Invest more than 5% of the market value of its total assets
in any closed-end investment company and will not hold more
than 3% of the outstanding voting stock of any closed-end
investment company.
(12) Change the nature of its business so as to cease to be an
investment company.
(13) Issue senior securities as defined in the Investment Company
Act of 1940, as amended (the 1940 Act), except as permitted
by Section 18(f)(2) and rules thereunder.
In addition, the Cornerstone Strategy Fund may not concentrate
investments in any one industry, although it may invest up to 25%
of the value of its total assets in one industry; the Basic Value
Stocks, Foreign Stocks, and U.S. Government Securities investment
categories are not considered industries for this purpose.
For purposes of restriction 9 above, interests in publicly
traded Real Estate Investment Trusts (REITs) are not deemed to be
real estate or partnership interests therein.
Each of the GNMA and Treasury Money Market Trusts may not:
(1) With respect to 75% of its total assets, purchase the securities
of any issuer (except U.S. Government Securities, as such term
is defined in the 1940 Act) if, as a result, the Fund would own
more than 10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its total
assets invested in the securities of such issuer.
(2) Borrow money, except for temporary or emergency purposes in an
amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings).
(3) Lend any securities or make any loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties,
except that this limitation does not apply to purchases of debt
securities or to repurchase agreements.
(4) Underwrite securities of other issuers, except to the extent
that it may be deemed to act as a statutory underwriter in
the distribution of any restricted securities or not readily
marketable securities.
(5) Change the nature of its business so as to cease to be an
investment company.
(6) Issue senior securities as defined in the Investment Company
Act of 1940, as amended (the 1940 Act), except as permitted
by Section 18(f)(2) and rules thereunder.
(7) Purchase or sell real estate, commodities or commodity
contracts, except that the GNMA Trust may invest in
financial futures contracts and options thereon.
(8) Purchase any security if immediately after the purchase 25%
or more of the value of its total assets will be invested in
securities of issuers principally engaged in a particular
industry (except that such limitation does not apply to
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities).
The Emerging Markets Fund may not:
(1) With respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities,
as such term is defined in the Investment Company Act of
1940, as amended (1940 Act)) if, as a result, it would own
more than 10% of the outstanding voting securities of such
issuer or it would have more than 5% of the value of its
total assets invested in the securities of such issuer.
(2) Borrow money, except that it may borrow money for temporary
or emergency purposes in an amount not exceeding 33 1/3% of
its total assets (including the amount borrowed) less
liabilities (other than borrowings), nor will it purchase
securities when its borrowings exceed 5% of its total assets.
(3) Concentrate its investments in any one industry although it
may invest up to 25% of the value of its total assets in any
one industry; provided, this limitation does not apply to
securities issued or guaranteed by the U.S. Government or
its corporate instrumentalities.
(4) Issue senior securities, except as permitted under the 1940 Act.
(5) Underwrite securities of other issuers, except to the extent
that it may be deemed to act as a statutory underwriter in
the distribution of any restricted securities or not readily
marketable securities.
(6) Lend any securities or make any loan if, as a result, more
than 33 1/3% of its total assets would be lent to other
parties, except that this limitation does not apply to
purchases of debt securities or to repurchase agreements.
Additional Restrictions
The following restrictions are not considered to be fundamental
policies of the Funds. Nevertheless, the Trust and each Fund
will comply with them as long as they are required by any state
where the Funds' shares are offered for sale. These additional
restrictions may be changed by the Board of Trustees of the Trust
without notice to or approval by the shareholders.
Under the additional restrictions, each of the Growth and
Tax Strategy, Cornerstone Strategy, Gold, International, and
World Growth Funds may not:
(1) Invest more than 5% of the market value of its total assets
in securities of any issuer which, together with its
predecessors, has a record of less than three years'
continuous operation.
(2) Purchase or retain the securities of any issuer if any
officer of the Manager or officer or Trustee of the Trust
own individually more than 1/2 of 1% of the outstanding
securities of such issuer, and together beneficially own
more than 5% of such outstanding securities.
Investment Restrictions, cont.
(3) Pledge, mortgage, or hypothecate its assets to any extent
greater than 10% of the market value of its total assets.
(4) Invest more than 15% of the market value of its total assets
in securities which are illiquid or not readily marketable
(including repurchase agreements maturing in more than seven
days).
(5) Invest in issuers for the purpose of exercising control or
management, except in connection with a merger,
consolidation, acquisition, or reorganization.
(6) Participate on a joint or joint and several basis in any
trading account in securities.
(7) Purchase any security while borrowings representing more than
5% of the Fund's total assets are outstanding.
Each of the GNMA and Treasury Money Market Trusts may not:
(1) Purchase securities on margin or sell securities short,
except that it may obtain such short-term credits as are
necessary for the clearance of securities transactions.
(2) Invest in put, call, straddle, or spread options or
interests in oil, gas or other mineral exploration or
development programs, except that the GNMA Trust may write
covered call and put options and purchase call and put
options.
(3) Invest more than 2% of the market value of its total assets
in marketable warrants to purchase common stock. Warrants
initially attached to securities and acquired by a Trust
upon original issuance thereof shall be deemed to be without
value.
(4) Purchase securities of other open-end investment companies,
except a Trust may invest up to 10% of the market value of
its total assets in such securities through purchases in the
open market involving only customary broker's commissions or
in connection with a merger, consolidation, reorganization,
or acquisition of assets approved by the shareholders.
(5) Invest more than 5% of the market value of its total assets
in any closed-end investment company and will not hold more
than 3% of the outstanding voting stock of any closed-end
investment company.
(6) Purchase or retain the securities of any issuer if any
officer of the Manager or officer or Trustee of the Trust
own individually more than 1/2 of 1% of the outstanding
securities of such issuer, and together beneficially own
more than 5% of such outstanding securities.
(7) Pledge, mortgage or hypothecate its assets to any extent
greater than 10% of the market value of its total assets. A
security covered by a call is not considered pledged.
(8) Invest more than 15% (10% with respect to the Treasury Money
Market Trust) of the market value of its net assets in
securities which are illiquid or not readily marketable
(including repurchase agreements maturing in more than seven
days).
(9) Invest in issuers for the purpose of exercising control or
management, except in connection with a merger,
consolidation, acquisition, or reorganization.
(10) Purchase any security while borrowings representing more than 5%
of the Fund's total assets are outstanding.
The Emerging Markets Fund may not:
(1) Pledge, mortgage or hypothecate its assets to any extent
greater than 33 1/3% of the value of its total assets.
(2) Purchase or retain securities of any issuer if any officer
or Trustee of the Trust or its Manager owns individually
more than one-half of one percent ( 1/2%) of the securities
of that issuer, and collectively the officers and Trustees
of the Trust and Manager together own more than 5% of the
securities of that issuer.
(3) Invest more than 15% of the value of its net assets in
illiquid securities (including repurchase agreements
maturing in more than seven days).
(4) Purchase securities on margin or sell securities short
except that it may obtain short-term credits necessary for
the clearance of securities transactions and make short
sales against the box; for purposes of the restriction the
deposit or repayment of initial or variation margin in
connection with financial futures contracts or related
options will not be deemed to be a purchase of securities on
margin by a Fund.
(5) Purchase securities of other investment companies except to
the extent permitted by applicable law.
(6) Purchase or sell puts, calls, straddles or spreads or any
combination thereof, except to the extent permitted by
applicable law.
(7) Purchase interests in oil, gas, or other mineral exploration
or development programs, except that it may purchase
securities of issuers whose principal business activities
fall within such areas.
(8) Purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's net assets or more than 2% of its net
assets in warrants that are not listed on the New York or
American Stock Exchanges (for this purpose, warrants
attached to securities will be deemed to have no value).
(9) Invest more than 5% of the value of its assets in securities
of companies having a record of less than three years'
continuous operations except (a) securities guaranteed or
backed by an affiliate of the issuer with three years of
continuous operations, (b) securities issued or guaranteed
as to principal or interest by the U.S. Government, or its
agencies or instrumentalities, or a mixed-ownership
Government corporation and (c) securities issued by a
holding company with at least 50% of its assets invested in
companies with three years of continuous operations
including predecessors.
(10) Purchase or sell commodities or commodity contracts, except
that the Fund may invest in financial futures contracts,
options thereon and similar instruments.
(11) Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent investments in securities secured by real estate
or interests therein).
(12) Invest more than 15% of its total assets in restricted
securities of all types (including not more than 5% of its
total assets in restricted securities which are not eligible
for resale pursuant to Rule 144A).
(13) Invest, at the time of acquisition, more than 10% of the
value of its assets in debt or fixed income securities in
default of the timely payment of interest or repayment of
principal.
PORTFOLIO TRANSACTIONS
The Manager, pursuant to the Advisory Agreement dated September
21, 1990 and subject to the general control of the Trust's Board
of Trustees, places all orders for the purchase and sale of Fund
securities. In executing portfolio transactions and selecting
brokers and dealers, it is the Trust's policy to seek the best
overall terms available. The Manager shall consider such factors
as it deems relevant, including the breadth of the market in the
security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any,
for the specific transaction or on a continuing basis. Securities
purchased or sold in the over-the-counter market will be executed
through principal market makers, except when, in the opinion of the
Manager, better prices and execution are available elsewhere.
In the allocation of brokerage business used to purchase
securities for the Growth and Tax Strategy, Cornerstone Strategy,
Emerging Markets, Gold, International, and World Growth Funds,
preference may be given to those broker-dealers who provide
research or other services to the Manager as long as there is no
sacrifice in obtaining the best overall terms available. Such
research and other services may include, for example: advice
concerning the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of
securities or the purchasers or sellers of securities; analyses
and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and performance of
accounts; and various functions incidental to effecting
securities transactions, such as clearance and settlement. The
Manager continuously reviews the performance of the broker-
dealers with whom it places orders for transactions. The receipt
of research from broker-dealers that execute transactions on
behalf of the Trust may be useful to the Manager in rendering
investment management services to other clients (including
affiliates of the Manager), and conversely, such research
provided by broker-dealers who have executed transaction orders
on behalf of other clients may be useful to the Manager in
carrying out its obligations to the Trust. While such research
is available to and may be used by the Manager in providing
investment advice to all its clients (including affiliates of the
Manager), not all of such research may be used by the Manager for
the benefit of the Trust. Such research and services will be in
addition to and not in lieu of research and services provided by
the Manager, and the expenses of the Manager will not necessarily
be reduced by the receipt of such supplemental research. See The
Trust's Manager.
Securities of the same issuer may be purchased, held, or
sold at the same time by the Trust for any or all of its Funds,
or other accounts or companies for which the Manager acts as the
investment adviser (including affiliates of the Manager). On
occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Trust, as well as the
Manager's other clients, the Manager, to the extent permitted by
applicable laws and regulations, may aggregate such securities to
be sold or purchased for the Trust with those to be sold or
purchased for other customers in order to obtain best execution
and lower brokerage commissions, if any. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager
in the manner it considers to be most equitable and consistent
with its fiduciary obligations to all such customers, including
the Trust. In some instances, this procedure may impact the
price and size of the position obtainable for the Trust. The
Trust pays no brokerage commissions as such for debt securities.
The market for such securities is typically a "dealer" market in
which investment dealers buy and sell the securities for their
own accounts, rather than for customers, and the price may
reflect a dealer's mark-up or mark-down. In addition, some
securities may be purchased directly from issuers.
Portfolio Transactions, cont.
Brokerage Commissions
During the last three fiscal years, the Funds paid the following
brokerage fees:
FUND 1993 1994* 1995
---- ---- ---- ----
Growth and Tax Strategy $ 45,668 $ 39,132 $ 30,774**
Cornerstone Strategy $ 999,350 $1,109,515 $1,278,398**
Emerging Markets - - $ 140,877
Gold $ 638,604 $ 300,325 $ 299,874
International $ 241,871 $ 497,303 $1,422,707
World Growth $ 206,374 $ 301,922 $ 599,043**
- ---------
* For the eight-month period ended May 31, 1994.
** Includes $1,400, $2,120, and $7,576 paid by the Growth and Tax
Strategy, Cornerstone Strategy and World Growth Funds, respectively,
to USAA Brokerage Services, a discount brokerage service of the
Manager. These amounts are 4.55%, .17%, and 1.26% of brokerage fees
paid by the Funds, respectively.
The Manager directed a portion of the Funds' brokerage
transactions to certain broker-dealers that provided the Manager
with research, statistical and other information. Such
transactions amounted to $4,617,429, $23,338,337, $217,347,
$8,778,555, and $18,928,582, and the related brokerage
commissions were $8,225, $44,688, $650, $17,478, and $27,708 for
the Growth and Tax Strategy, Cornerstone Strategy, Emerging
Markets, International and World Growth Funds, respectively.
Portfolio Turnover Rates
The rate of portfolio turnover in any of the Funds (other than
the Treasury Money Market Trust) will not be a limiting factor
when the Manager deems changes in a Fund's portfolio appropriate
in view of its investment objective. Although no Fund (other
than the Growth and Tax Strategy Fund) will purchase or sell
securities solely to achieve short-term trading profits, a Fund
may sell portfolio securities without regard to the length of
time held if consistent with the Fund's investment objective.
The Growth and Tax Strategy Fund may engage in riskless principal
and similar transactions for the purchase and sale of tax-exempt
debt securities. A higher degree of equity portfolio activity
will increase brokerage costs to a Fund. The Growth and Tax
Strategy Fund may experience a portfolio turnover rate in excess
of 100%. It is not anticipated however, that the portfolio
turnover rates of the Cornerstone Strategy, Emerging Markets,
Gold, International, and World Growth Funds or the GNMA Trust
will exceed 100%.
The portfolio turnover rate is computed by dividing the
dollar amount of securities purchased or sold (whichever is
smaller) by the average value of securities owned during the
year. Short-term investments such as commercial paper and short-
term U.S. Government securities are not considered when computing
the turnover rate.
For the last two fiscal years, the Funds' portfolio turnover
rates were as follows:
FUND 1994* 1995
---- ---- ----
Growth and Tax Strategy1 171.35% 314.57
Cornerstone Strategy 30.87% 33.17
Emerging Markets - 34.87**
Gold 34.75% 34.76
International 44.39% 64.30
World Growth 37.64% 58.88
GNMA Trust 90.05% 93.78
- ---------
* For the eight-month period ended May 31, 1994.
** For the seven-month period ended May 31, 1995.
1 The Fund may simultaneously purchase and sell the same securities.
These transactions can be high in volume and dissimilar to other
trade activity within the Fund. If these transactions were
excluded from the calculation, the portfolio turnover rate would
be as follows:
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
MAY 31, 1994 MAY 31, 1995
------------ ------------
Portfolio turnover(%) 93.56 131.28
Purchases and sales of this type are as follows:
Purchases (000) $98,639 $234,367
Sales (000) $98,761 $234,669
FURTHER DESCRIPTION OF SHARES
The Trust is authorized to issue shares of beneficial interest in
separate series or Funds. Eleven such Funds have been
established, eight of which are described in this SAI. Under the
First Amended and Restated Master Trust Agreement (Master Trust
Agreement), dated June 2, 1995, as amended, the Board of Trustees
is authorized to create new Funds in addition to those already
existing without the approval of the shareholders of the Trust.
The Cornerstone Strategy and Gold Funds were established May 9,
1984 by the Board of Trustees and commenced public offering of
their shares on August 15, 1984. The International Fund,
established on November 4, 1987, commenced public offering of its
shares on July 11, 1988. The Growth and Tax Strategy Fund was
established on November 3, 1988, and commenced public offering of
its shares on January 11, 1989. On November 7, 1990, the Board
of Trustees established the GNMA Trust and Treasury Money Market
Trust and commenced public offering of their shares on February
1, 1991. The World Growth Fund was established on July 21, 1992,
and commenced public offering of its shares on October 1, 1992.
The Emerging Markets Fund was established on September 7, 1994
and commenced public offering of its shares on November 7, 1994.
The assets of each Fund, and all income, earnings, profits
and proceeds thereof, subject only to the rights of creditors,
are specifically allocated to each Fund. They constitute the
underlying assets of each Fund, are required to be segregated on
the books of account, and are to be charged with the expenses of
such Fund. Any general expenses of the Trust not readily
identifiable as belonging to a particular Fund are allocated on
the basis of the Funds' relative net assets during the fiscal
year or in such other manner as the Trustees determine to be fair
and equitable. Each share of each Fund represents an equal
proportionate interest in that Fund with every other share and is
entitled to such dividends and distributions out of the net
income and capital gains belonging to that Fund when declared by
the Trustees. Upon liquidation of that Fund, shareholders are
entitled to share pro rata in the net assets belonging to such
Fund available for distribution.
Under the Trust's Master Trust Agreement, no annual or
regular meeting of shareholders is required. Thus, there will
ordinarily be no shareholder meeting unless otherwise required by
the 1940 Act. Under certain circumstances, however, shareholders
may apply to the Trustees for shareholder information in order to
obtain signatures to request a shareholder meeting. Moreover,
pursuant to the Master Trust Agreement, any Trustee may be
removed by the vote of two-thirds of the outstanding Trust shares
and holders of 10% or more of the outstanding shares of the Trust
can require Trustees to call a meeting of shareholders for the
purpose of voting on the removal of one or more Trustees. On any
matter submitted to the shareholders, the holder of any share is
entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset values of
the Funds' shares. However, on matters affecting an individual
Fund, a separate vote of the shareholders of that Fund is
required. For example, the Advisory Agreement must be approved
separately by each Fund and only becomes effective with respect
to a Fund when a majority of the outstanding voting securities of
that Fund approves it. Shareholders of a Fund are not entitled
to vote on any matter which does not affect that Fund but which
requires a separate vote of another Fund. For example, a
proposed change in the investment objectives of a particular Fund
would require the affirmative vote of a majority of the
outstanding voting securities of only that Fund.
Shares do not have cumulative voting rights, which means
that in situations in which shareholders elect Trustees, holders
of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Board of Trustees, and the holders
of less than 50% of the shares voting for the election of
Trustees will not be able to elect any person as a Trustee.
When issued, each portfolio's shares are fully paid and
nonassessable by the Trust, have no preemptive or subscription
rights, and are fully transferable. There are no conversion
rights.
TAX CONSIDERATIONS
Taxation of the Funds
Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the Code). Accordingly, each Fund will not be liable
for federal income taxes on its taxable net investment income and
net capital gains (capital gains in excess of capital losses)
that are distributed to shareholders, provided that each Fund
distributes at least 90% of its net investment income and net
short-term capital gain for the taxable year.
To qualify as a regulated investment company, a Fund must,
among other things, (1) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such
stock, securities, or currencies (the 90% test); (2)
Tax Considerations, cont.
derive in each taxable year less than 30% of its gross income
from the sale or other disposition of stock or securities, and
certain options, futures contracts, forward contracts, and
foreign currencies held for less than three months (the 30%
test); and (3) satisfy certain diversification requirements, at
the close of each quarter of the Fund's taxable year. In the
case of the Growth and Tax Strategy Fund, in order to be entitled
to pay exempt-interest dividends to shareholders, at the close of
each quarter of its taxable year, at least 50% of the value of
the Fund's total assets must consist of obligations the interest
of which is exempt from federal income tax. The Growth and Tax
Strategy Fund intends to satisfy this requirement.
The Code imposes a nondeductible 4% excise tax on a
regulated investment company that fails to distribute during each
calendar year an amount at least equal to the sum of (1) 98% of
its taxable net investment income for the calendar year, (2) 98%
of its capital gain net income for the twelve month period ending
on October 31, and (3) any prior amounts not distributed. Each
Fund intends to make such distributions as are necessary to avoid
imposition of excise tax.
The Cornerstone Strategy, Emerging Markets, Gold,
International, and World Growth Funds' ability to make certain
investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's
income for purposes of the 90% test, the 30% test, and the
distribution requirements of the Code, and by provisions of the
Code that characterize certain income or loss as ordinary income
or loss rather than capital gain or loss. Such recognition,
characterization and timing rules generally apply to investments
in certain forward currency contracts, foreign currencies and
debt securities denominated in foreign currencies, as well as
certain other investments.
If the Cornerstone Strategy, Emerging Markets, Gold,
International, or World Growth Funds invest in an entity that is
classified as a "passive foreign investment company" (PFIC) for
federal income tax purposes, the application of certain
provisions of the Code applying to PFICs could result in the
imposition of certain federal income taxes on the Fund. It is
anticipated that any taxes on a Fund with respect to investments
in PFICs would be insignificant.
Taxation of the Shareholders
Taxable distributions are generally included in a shareholder's
gross income for the taxable year in which they are received.
Dividends declared in October, November, or December and made
payable to shareholders of record in such a month will be deemed
to have been received on December 31, if a Fund pays the dividend
during the following January. If a shareholder of a Fund
receives a distribution taxable as long-term capital gain with
respect to shares of a Fund and redeems or exchanges the shares
before he has held them for more than six months, any loss on the
redemption or exchange that is less than or equal to the amount
of the distribution will be treated as long-term capital loss,
except as noted below.
In the case of the Growth and Tax Strategy Fund, if a
shareholder receives an exempt-interest dividend with respect to
any share and such share has been held for six months or less,
any loss on the sale or exchange of such share will be disallowed
to the extent of such exempt-interest dividend. Shareholders who
are recipients of Social Security benefits should be aware that
exempt-interest dividends received from the Growth and Tax
Strategy Fund are includible in their "modified adjusted gross
income" for purposes of determining the amount of such Social
Security benefits, if any, that are required to be included in
their gross income.
The Growth and Tax Strategy Fund may invest in private
activity bonds. Interest on certain private activity bonds
issued after August 7, 1986, is an item of tax preference for
purposes of the federal Alternative Minimum Tax (AMT), although
the interest continues to be excludable from gross income for
other purposes. AMT is a supplemental tax designed to ensure
that taxpayers pay at least a minimum amount of tax on their
income, even if they make substantial use of certain tax
deductions and exclusions (referred to as tax preference items).
Interest from private activity bonds is one of the tax preference
items that is added to income from other sources for the purposes
of determining whether a taxpayer is subject to AMT and the
amount of any tax to be paid.
Opinions relating to the validity of the tax-exempt
securities purchased for the Growth and Tax Strategy Fund and the
exemption of interest thereon from federal income tax are
rendered by recognized bond counsel to the issuers. Neither the
Manager's nor the Fund's counsel makes any review of proceedings
relating to the issuance of tax-exempt securities or the basis of
such opinions.
The exemption of interest income for federal income tax
purposes does not necessarily result in exemption under the
income or other tax laws of any state or local taxing authority.
Shareholders of a Fund may be exempt from state and local taxes
on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in
which they are a resident, but generally are subject to tax on
income derived from obligations of other jurisdictions.
Shareholders should consult their tax advisers about the status
of distributions from a Fund in their own states and localities.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust consists of eight Trustees.
Set forth below are the Trustees and officers of the Trust, and
their respective offices and principal occupations during the
last five years. Unless otherwise indicated, the business
address of each is 9800 Fredericksburg Rd., San Antonio, TX 78288.
Hansford T. Johnson 1, 2
Trustee and Chairman of the Board of Trustees
Age: 59
Director, Vice Chairman and Deputy Attorney-in-Fact, United
Services Automobile Association (USAA) and President, Chief
Executive Officer, Director and Vice Chairman of the Board of
Directors of USAA Capital Corporation and of its various
subsidiaries and affiliates (9/93-present); Chief of Staff, USAA
(1/93-8/93); Executive Vice President, USAA (10/92-12/92);
Commander-in-Chief, CINCTRANS, Department of Defense -Pentagon
(9/89-9/92). Mr. Johnson currently serves as a Trustee and
Chairman of the Board of Trustees of USAA State Tax-Free Trust
and as Director and Chairman of the Boards of Directors of USAA
Investment Management Company (IMCO), USAA Mutual Fund, Inc.,
USAA Tax Exempt Fund, Inc., USAA Shareholder Account Services,
USAA Federal Savings Bank and USAA Real Estate Company.
Michael J. C. Roth 1, 2
Trustee, President and Vice Chairman of the Board of Trustees
Age: 54
Chief Executive Officer, IMCO (10/93-present); President,
Director and Vice Chairman of the Board of Directors, IMCO (1/90-
present); Director, USAA Federal Savings Bank (12/83-8/91). Mr.
Roth currently serves as President, Trustee and Vice Chairman of
the Board of Trustees of USAA State Tax-Free Trust, as President,
Director and Vice Chairman of the Boards of Directors of USAA
Mutual Fund, Inc., USAA Tax Exempt Fund, Inc. and USAA Shareholder
Account Services, as Director of USAA Life Insurance Company and as
Trustee and Vice Chairman of USAA Life Investment Trust.
John W. Saunders, Jr. 1, 2, 4
Trustee and Vice President
Age: 60
Senior Vice President, Investments, IMCO (10/85-present);
Director, BHC Financial, Inc. and BHC Securities, Inc. (1/87-
present). Mr. Saunders currently serves as a Trustee and Vice
President of USAA State Tax-Free Trust, as a Director of IMCO,
Director and Vice President of USAA Mutual Fund, Inc., and USAA
Tax Exempt Fund, Inc., as Senior Vice President of USAA
Shareholder Account Services, and as Vice President of USAA Life
Investment Trust.
C. Dale Briscoe 4, 5
7829 Timber Top Drive
Boerne, TX 78006
Trustee
Age: 74
Retired. Mr. Briscoe currently serves as a Trustee of USAA State
Tax-Free Trust and as a Director of USAA Mutual Fund, Inc. and
USAA Tax Exempt Fund, Inc.
George E. Brown 3, 4, 5
5829 Northgap Drive
San Antonio, TX 78239
Trustee
Age: 77
Retired. Mr. Brown currently serves as a Trustee of USAA State
Tax-Free Trust and as a Director of USAA Mutual Fund, Inc. and
USAA Tax Exempt Fund, Inc.
Howard L. Freeman, Jr. 2, 3, 5
2710 Hopeton
San Antonio, TX 78230
Trustee
Age: 60
Assistant General Manager for Finance, San Antonio City Public
Service Board (1976-present). Mr. Freeman currently serves as a
Trustee of USAA State Tax-Free Trust and as a Director of USAA
Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
Trustees and Officers of the Trust, cont.
Richard A. Zucker 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Trustee
Age: 52
Vice President, Beldon Roofing and Remodeling (1985-present).
Mr. Zucker currently serves as a Trustee of USAA State Tax-Free
Trust and as a Director of USAA Mutual Fund, Inc. and USAA Tax
Exempt Fund, Inc.
Barbara B. Dreeben 3, 5
200 Patterson #1008
San Antonio, TX 78209
Trustee
Age: 50
President, Postal Addvantage (7/92-present); Consultant, Nancy
Harkins Stationer (8/91-present); Merchandise Manager, Nancy
Harkins Stationer (7/82-8/91). Mrs. Dreeben currently serves as
a Trustee of USAA State Tax-Free Trust and as a Director of USAA
Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
Michael D. Wagner 1
Secretary
Age: 47
Vice President, Corporate Counsel, USAA (1982-present). Mr.
Wagner has held various positions in the legal department of USAA
since 1970 and currently serves as Vice President, Secretary and
Counsel, IMCO and USAA Shareholder Account Services; Secretary,
USAA State Tax-Free Trust, USAA Mutual Fund, Inc., and USAA Tax
Exempt Fund, Inc.; and as Vice President, Corporate Counsel, for
various other USAA subsidiaries and affiliates.
Alex M. Ciccone 1
Assistant Secretary
Age: 45
Vice President, Compliance, IMCO (12/94-present); Vice President
and Chief Operating Officer, Commonwealth Shareholder Services
(6/94-11/94); Vice President, Compliance, IMCO (12/91-5/94); Vice
President, Compliance, Fund Management Co. (10/89-11/91); and
Vice President, Compliance, AIM Distributors, Inc. (4/82-11/91).
Mr. Ciccone currently serves as Assistant Secretary of USAA State
Tax-Free Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
Sherron A. Kirk 1
Treasurer
Age: 50
Vice President, Controller, IMCO (10/92-present); Vice President,
Corporate Financial Analysis, USAA (9/92-10/92); Assistant Vice
President, Financial Plans and Support, USAA (8/91-9/92);
Assistant Vice President, Real Estate Accounting, USAA Real
Estate Company (5/90-7/91). Mrs. Kirk currently serves as
Treasurer of USAA State Tax-Free Trust, USAA Mutual Fund, Inc.,
and USAA Tax Exempt Fund, Inc., and as Vice President, Controller
of USAA Shareholder Account Services.
Dean R. Pantzar 1
Assistant Treasurer
Age: 36
Director, Mutual Fund Accounting, IMCO (12/94-present); Senior
Manager, KPMG Peat Marwick LLP (7/88-12/94). Mr. Pantzar
currently serves as Assistant Treasurer of USAA Mutual Fund,
Inc., USAA State Tax-Free Trust, and USAA Tax Exempt Fund, Inc.
- -------
1 Indicates those Trustees and officers who are employees of
the Manager or affiliated companies and are considered
"interested persons" under the 1940 Act.
2 Member of Executive Committee
3 Member of Audit Committee
4 Member of Pricing and Investment Committee
5 Member of Corporate Governance Committee
Between the meetings of the Board of Trustees and while the
Board is not in session, the Executive Committee of the Board of
Trustees has all the powers and may exercise all the duties of
the Board of Trustees in the management of the business of the
Trust which may be delegated to it by the Board. The Pricing and
Investment Committee of the Board of Trustees acts upon various
investment-related issues and other matters which have been
delegated to it by the Board. The Audit Committee of the Board
of Trustees reviews the financial statements and the auditor's
reports and undertakes certain studies and analyses as directed
by the Board. The Corporate Governance Committee of the Board of
Trustees maintains oversight of the organization, performance,
and effectiveness of the Board and independent Trustees.
In addition to the previously listed Trustees and/or
officers of the Trust who also serve as Directors and/or officers
of the Manager, the following individuals are Directors and/or
executive officers of the Manager: Josue Robles, Jr., Senior
Vice President, Chief Financial Officer/Controller, USAA; William
McCrae, Senior Vice President, General Counsel and Secretary,
USAA; Harry W. Miller, Senior Vice President, Investments (Equity);
and John J. Dallahan, Senior Vice President, Investment Services.
There are no family relationships among the Trustees, officers and
managerial level employees of the Trust or its Manager.
The following table sets forth information describing the
compensation of the current Trustees of the Trust for their
services as Trustees for the fiscal year ended May 31, 1995.
Name Aggregate Total Compensation
of Compensation from the USAA
Trustee from the Trust Family of Funds (c)
- ------- -------------- -------------------
C. Dale Briscoe $4,660 $18,500
George E. Brown (a) 4,660 18,500
Barbara B. Dreeben 4,660 18,500
Howard L. Freeman, Jr. 4,660 18,500
Hansford T. Johnson None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 4,660 18,500
- ----------------
(a) The USAA Family of Funds has accrued deferred compensation
for Mr. Brown in an amount (plus earnings thereon) of
$20,395. The compensation was deferred by Mr. Brown
pursuant to a non-qualified Deferred Compensation Plan,
under which deferred amounts accumulate interest quarterly
based on the annualized U.S. Treasury Bill rate in effect on
the last day of the quarter. Amounts deferred and
accumulated earnings thereon are not funded and are general
unsecured liabilities of the USAA Funds until paid. The
Deferred Compensation Plan was terminated in 1988 and no
compensation has been deferred by any Trustee/Director of
the USAA Family of Funds since the Plan was terminated.
(b) Hansford T. Johnson, Michael J.C. Roth, and John W.
Saunders, Jr. are affiliated with the Trust's investment
adviser, IMCO, and, accordingly, receive no remuneration
from the Trust or any other Fund of the USAA Family of Funds.
(c) At May 31, 1995, the USAA Family of Funds consisted of 4
registered investment companies offering 29 individual
funds. Each Trustee presently serves as a Trustee or
Director of each investment company in the USAA Family of
Funds. In addition, Michael J.C. Roth presently serves as a
Trustee of USAA Life Investment Trust, a registered
investment company advised by IMCO, consisting of five funds
offered to investors in a fixed and variable annuity
contract with USAA Life Insurance Company. Mr. Roth receives
no compensation as Trustee of USAA Life Investment Trust.
All of the above Trustees are also Trustees/Directors of the
other funds for which IMCO serves as investment adviser. No
compensation is paid by any fund to any Trustee/Director who is a
director, officer, or employee of IMCO or its affiliates. No
pension or retirement benefits are accrued as part of fund
expenses. The Trust also reimburses certain expenses of the
Trustees who are not affiliated with the investment adviser. As
of August 31, 1995, the officers and Trustees of the Trust and
their families as a group owned beneficially or of record less
than 1% of the outstanding shares of the Trust.
As of August 23, 1995, USAA and its affiliates (including
related employee benefit plans) owned 13,786 shares (.1%) of the
Growth and Tax Strategy Fund, 407 shares (.0%) of the Cornerstone
Strategy Fund, 401,616 shares (16%) of the Emerging Markets Fund,
5,962,356 shares (27.7%) of the International Fund, 1,053,585
shares (6.7%) of the World Growth Fund, and 346,318 shares (1.3%)
of the GNMA Trust, for an aggregate total of 7,778,068 shares
(3.8%) of the Funds.
The following table identifies all other persons known to
hold of record or own beneficially more than 5% of the voting
stock of any Fund's shares as of August 23, 1995.
Name and address
Title of Class of beneficial owner Percent of Class
-------------- ------------------- ----------------
Treasury Money Lana Dena Corporation 6.7%
Market Trust 5088 Granada CT
Alta Loma, CA 91737
THE TRUST'S MANAGER
As described in each Fund's Prospectus, USAA Investment
Management Company is the Manager and investment adviser,
providing the services under the Advisory Agreement. The
Manager, organized in May 1970, has served as investment adviser
and underwriter for USAA Investment Trust from its inception.
In addition to managing the Trust's assets, the Manager
advises and manages the investments for USAA and its affiliated
companies as well as those of USAA Mutual Fund, Inc., USAA Tax
Exempt Fund, Inc., USAA State Tax-Free Trust, and USAA Life
Investment Trust. As of the date of this SAI, total assets under
management by the Manager were approximately $27 billion, of
which approximately $15 billion were in mutual fund portfolios.
Advisory Agreement
Under the Advisory Agreement, the Manager provides an investment
program, carries out the investment policy and manages the
portfolio assets for each Fund. The Manager is authorized,
subject to the control of the Board of Trustees of the Trust, to
determine the selection, amount, and time to buy or sell
securities for each Fund. In addition to providing investment
services, the Manager pays for office space, facilities, business
equipment, and accounting services (in addition to those provided
by the Custodian) for the Trust. The Manager compensates all
personnel, officers, and Trustees of the Trust if such persons
are also employees of the Manager or its affiliates. For these
services under the Advisory Agreement, each Fund has agreed to
pay the Manager a fee computed as described under Management of
the Trust in its Prospectus. Management fees are computed and
accrued daily and are payable monthly.
Except for the services and facilities provided by the
Manager, the Funds pay all other expenses incurred in their
operations. Expenses for which the Funds are responsible include
taxes (if any), brokerage commissions on portfolio transactions,
expenses of issuance and redemption of shares, charges of
transfer agents, custodians and dividend disbursing agents, costs
of preparing and distributing proxy material, costs of printing
and engraving stock certificates, auditing and legal expenses,
certain expenses of registering and qualifying shares for sale,
fees of Trustees who are not interested (not affiliated) persons
of the Manager, costs of typesetting, printing and mailing the
Prospectus, SAI and periodic reports to existing shareholders,
and any other charges or fees not specifically enumerated. The
Manager pays the cost of printing and mailing copies of the
Prospectus, the SAI and reports to prospective shareholders.
The Advisory Agreement will remain in effect until June 30,
1996 for each Fund and will continue in effect from year to year
thereafter for each Fund as long as it is approved at least
annually by a vote of the outstanding voting securities of such
Fund (as defined by the 1940 Act) or by the Board of Trustees (on
behalf of such Fund) including a majority of the Trustees who are
not interested persons of the Manager or (otherwise than as
Trustees) of the Trust, at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be
terminated at any time by either the Trust or the Manager on 60
days' written notice. It will automatically terminate in the
event of its assignment (as defined by the 1940 Act).
Under the terms of the Advisory Agreement, the Manager is
required to reimburse each Fund in the event that the total
annual expenses, inclusive of the management fees, but exclusive
of the interest, taxes, brokerage fees, excess custodian costs
attributable to investments in foreign securities, and extraordinary
items, incurred by that Fund exceeds any applicable state expense
limitation. At the current time, the most restrictive expense
limitation is 2.5% of the first $30,000,000 of average net assets
(ANA), 2% of the next $70,000,000 ANA, and 1.5% of the remaining ANA.
From time to time the Manager may, without prior notice to
shareholders, waive all or any portion of fees or agree to
reimburse expenses incurred by a Fund. The Manager has
voluntarily agreed to continue to limit the annual expenses of
the Treasury Money Market Trust to .375% of its ANA until October
1, 1996 and will reimburse the Fund for all expenses in excess of
such limitation. After October 1, 1996, any such waiver or
reimbursement may be terminated by the Manager at any time
without prior notice to the shareholders.
For the last three fiscal years, management fees were as follows:
FUND 1993 1994* 1995
Growth and Tax Strategy $ 502,560 $ 422,542 $ 646,528
Cornerstone Strategy $4,653,046 $3,858,194 $6,268,976
Emerging Markets - - $ 80,503**
Gold $1,038,150 $ 863,578 $1,224,603
International $ 412,122 723,783 $2,171,329
World Growth $ 266,991 $ 539,899 $1,310,951
GNMA Trust $ 325,767 $ 229,184 $ 318,921
Treasury Money Market Trust $ 34,915 $ 26,970 $ 59,980
As a result of the Funds' actual expenses exceeding an expense
limitation, the Manager did not receive fees to which it would
have been entitled as follows:
FUND 1993 1994* 1995
---- ---- ---- ----
Emerging Markets - - $ 8,091**
Treasury Money Market Trust $ 34,915 $ 26,970 $ 54,428
- ---------
* For the eight-month period ended May 31, 1994.
** For the seven-month period ended May 31, 1995.
Underwriter
The Trust has an agreement with the Manager for exclusive
underwriting and distribution of the Funds' shares on a
continuing best efforts basis. This agreement provides that the
Manager will receive no fee or other compensation for such
distribution services.
Transfer Agent
USAA Shareholder Account Services performs transfer agent
services for the Trust under a Transfer Agency Agreement.
Services include maintenance of shareholder account records,
handling of communications with shareholders, distribution of
Fund dividends, and production of reports with respect to account
activity for shareholders and the Trust. For its services under
the Transfer Agency Agreement, USAA Shareholder Account Services
is paid an annual fixed fee per account ranging from $23.50 to
$26.00 by each Fund. This fee is subject to change at any time.
The fee to the Transfer Agent includes processing of all
transactions and correspondence. Fees are billed on a monthly
basis at the rate of one-twelfth of the annual fee. In addition,
the Funds pay all out-of-pocket expenses of the Transfer Agent
and other expenses which are incurred at the specific direction
of the Trust.
GENERAL INFORMATION
Custodian
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA
02105, is the Trust's Custodian. The Custodian is responsible
for, among other things, safeguarding and controlling the Trust's
cash and securities, handling the receipt and delivery of
securities, and collecting interest on the Trust's investments.
In addition, assets of the Cornerstone Strategy, Emerging
Markets, Gold, International, and World Growth Funds may be held
by certain foreign banks and foreign securities depositories as
agents of the Custodian in accordance with the rules and
regulations established by the SEC.
Counsel
Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109, will
review certain legal matters for the Trust in connection with the
shares offered by the Prospectus.
Independent Auditors
KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio,
TX 78205, is the Trust's independent auditor. In this capacity,
the firm is responsible for auditing the annual financial
statements of the Funds and reporting thereon.
Financial Statements
The financial statements for each of the Funds of USAA Investment
Trust and the Independent Auditors' Reports thereon for the
fiscal year ended May 31, 1995, are included in the Annual
Reports to Shareholders of that date and are incorporated herein
by reference. A copy of the Fund's Annual Report will be
delivered free of charge with each SAI requested from the Manager
at the address set forth on page 1 of this statement.
CALCULATION OF PERFORMANCE DATA
Information regarding the total return and yield of each Fund is
provided under Performance Information in its Prospectus. See
Valuation of Securities herein for a discussion of the manner in
which each Fund's price per share is calculated.
Yield - Treasury Money Market Trust
When the Treasury Money Market Trust quotes a "current
annualized" yield, it is based on a specified recent seven-
calendar-day period. It is computed by (1) determining the net
change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one share at
the beginning of the period, (2) dividing the net change in
account value by the value of the account at the beginning of the
base period to obtain the base return, then (3) multiplying the
base period by 52.14 (365 divided by 7). The resulting yield
figure is carried to the nearest hundredth of one percent.
The calculation includes (1) the value of additional shares
purchased with dividends on the original share, and dividends
declared on both the original share and any such additional
shares, and (2) any fees charged to all shareholder accounts, in
proportion to the length of the base period and the Trust's
average account size.
The capital changes excluded from the calculation are
realized capital gains and losses from the sale of securities and
unrealized appreciation and depreciation. The Trust's effective
(compounded) yield will be computed by dividing the seven-day
annualized yield as defined above by 365, adding 1 to the
quotient, raising the sum to the 365th power, and subtracting 1
from the result.
Current and effective yields fluctuate daily and will vary
with factors such as interest rates and the quality, length of
maturities, and type of investments in the portfolio.
Yield For 7-day Period ended 5/31/95 . . . . . 5.61%
Effective Yield For 7-day Period ended 5/31/95 . . . . . 5.77%
Yield - Growth and Tax Strategy Fund and GNMA Trust
These Funds may advertise performance in terms of 30-day yield
quotation. The 30-day yield quotation is computed by dividing
the net investment income per share earned during the period by
the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2((((a - b)/(cd) + 1)^6) - 1)
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last
day of the period
The 30-day yields for the period ended May 31, 1995 for the Growth
and Tax Strategy Fund and GNMA Trust were 4.14% and 6.78%, respectively.
Total Return
The Funds, other than the Treasury Money Market Trust, may each
advertise performance in terms of average annual total return for
1, 5 and 10 year periods, or for such lesser periods as any of
such Funds have been in existence. Average annual total return
is computed by finding the average annual compounded rates of
return over the periods that would equate the initial amount
invested to the ending redeemable value, according to the
following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the year or period
The calculation assumes any charges are deducted from the initial
$1,000 payment and assumes all dividends and distributions by
such Fund are reinvested at the price stated in the Prospectus on
the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
Average Annual Total Returns
For Periods Ended 5/31/95
1 5 10 From
Fund year years years Inception*
---- ------ ----- ----- ----------
Growth and Tax Strategy 10.73% 8.57% - 9.04%
Cornerstone Strategy 6.43% 8.82% 11.94% -
Emerging Markets - - - (2.30%)
Gold 2.05% 3.20% 2.49% -
International 2.49% 8.11% - 9.32%
World Growth 4.26% - - 11.27%
GNMA Trust 10.54% - - 8.09%
* Data from inception is shown for Funds that are less than five
or ten years old. Growth and Tax Strategy Fund commenced
operations on January 11, 1989. Emerging Markets Fund commenced
operations on November 7, 1994. International Fund commenced
operations on July 11, 1988. World Growth Fund commenced
operations on October 1, 1992. GNMA Trust commenced operations
on February 1, 1991.
APPENDIX A - TAX-EXEMPT SECURITIES AND THEIR RATINGS
Tax-Exempt Securities
Tax-exempt securities generally include debt obligations issued
by states and their political subdivisions, and duly constituted
authorities and corporations, to obtain funds to construct,
repair, or improve various public facilities such as airports,
bridges, highways, hospitals, housing, schools, streets, and
water and sewer works. Tax-exempt securities may also be issued
to refinance outstanding obligations as well as to obtain funds
for general operating expenses and for loans to other public
institutions and facilities.
The two principal classifications of tax-exempt securities
are "general obligations" and "revenue" or "special tax" bonds.
General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of
principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a
special excise or other tax, but not from general tax revenues.
The Funds may also invest in tax-exempt private activity bonds,
which in most cases are revenue bonds and generally do not have
the pledge of the credit of the issuer. The payment of the
principal and interest on such industrial revenue bonds is
dependent solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. There are, of course, many variations
in the terms of, and the security underlying tax-exempt
securities. Short-term obligations issued by states, cities,
municipalities or municipal agencies, include Tax Anticipation
Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Construction Loan Notes, and Short-Term Discount Notes.
The yields of tax-exempt securities depend on, among other
things, general money market conditions, conditions of the Tax-
Exempt Bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The
ratings of Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Ratings Group (S&P), Fitch Investors Service, Inc.
(Fitch), and Duff & Phelps Inc. represent their opinions of the
quality of the securities rated by them. It should be emphasized
that such ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity,
coupon, and rating may have different yields, while securities of
the same maturity and coupon but with different ratings may have
the same yield. It will be the responsibility of the Manager to
appraise independently the fundamental quality of the tax-exempt
securities included in a Fund's portfolio.
Appendix A, cont.
Ratings
Excerpts from Moody's Bond (Tax-Exempt Securities) Ratings:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Note: Those bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, and Baa1.
A description of ratings Ba and below assigned to debt
obligations by Moody's is included in Appendix A of the Emerging
Markets Fund Prospectus.
Excerpts of Moody's Ratings of Short-Term Loans (State and Tax-
Exempt Notes):
Moody's ratings for state and tax-exempt notes and other short-
term obligations are designated Moody's Investment Grade (MIG).
Symbols used will be as follows:
MIG-1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated broadbased
access to the market for refinancing.
MIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
Excerpts of Moody's Rating of Commercial Paper:
Prime-1 Issuers have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following
characteristics:
* Leading market positions in well-established industries.
* High rates of return on funds employed.
* Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
* Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
* Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2 Issuers have a strong ability for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still
appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Excerpts from S&P's Bond Ratings:
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues
only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Plus (+) or Minus (-): The ratings from AA to BBB may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A description of ratings BB and below assigned to debt
obligations by S&P is included in Appendix A of the Emerging
Markets Fund Prospectus.
Excerpts of S&P's Ratings of Tax-Exempt Notes:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given
a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes
over the term of the notes.
Excerpts of S&P's Rating of Commercial Paper:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated A-1.
Excerpts of Fitch's Ratings of Bonds:
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is
generally rated F-1+.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and
therefore, impair timely payment.
Plus (+) and Minus (-): Plus and Minus signs are used with a
rating symbol to indicate the relative position of a credit
within the rating category. Plus and minus signs, however, are
not used in the AAA category.
Excerpts of Fitch's Ratings to Commercial Paper, Certificates of
Deposit, and Tax-Exempt Notes:
F-1+ Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payments, but
the margin of safety is not as great as the F-1+ and F-1
ratings.
Appendix A, cont.
Excerpts from Duff & Phelps Long-Term Rating Scale:
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA but may vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors
A are variable and greater in periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
Excerpts from Duff & Phelps Commercial Paper Rating Scale:
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
ready access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small.
APPENDIX B - COMPARISON OF PORTFOLIO PERFORMANCE
Occasionally, we may make comparisons in advertising and sales
literature between the Funds contained in this SAI and other
Funds in the USAA Family of Funds. These comparisons may include
such topics as risk and reward, investment objectives, investment
strategies, and performance.
Fund performance may be compared to the performance of broad
groups of mutual funds with similar investment goals or unmanaged
indexes of comparable securities. Evaluations of Fund
performance made by independent sources may also be used in
advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund. The Fund
or its performance may also be compared to products and services
not constituting securities subject to registration under the
Securities Act of 1933 such as, but not limited to, certificates
of deposit and money market accounts. Sources for performance
information and articles about the Fund may include the
following:
AAII Journal, a monthly association magazine for members of the
American Association of Individual Investors.
Arizona Republic, a newspaper which may cover financial and
investment news.
Austin American-Statesman, a newspaper which may cover financial news.
Barron's, a Dow Jones and Company, Inc. business and financial
weekly that periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically
reports the performance rankings and ratings of a variety of
mutual funds.
Chicago Tribune, a newspaper which may cover financial news.
Consumer Reports, a monthly magazine which from time to time
reports on companies in the mutual fund industry.
Dallas Morning News, a newspaper which may cover financial news.
Denver Post, a newspaper which may quote financial news.
Financial Services Week, a weekly newspaper which covers
financial news.
Financial Planning, a monthly magazine that periodically features
companies in the mutual fund industry.
Financial World, a monthly magazine which may periodically review
mutual fund companies.
Forbes, a national business publication that periodically reports
the performance of companies in the mutual fund industry.
Fortune, a national business publication that periodically rates
the performance of a variety of mutual funds.
Fund Action, a mutual fund news report.
Houston Chronicle, a newspaper which may cover financial news.
Houston Post, a newspaper which may cover financial news.
IBC/Donoghue's Moneyletter, a biweekly newsletter which covers
financial news and from time to time rates specific mutual funds.
Income and Safety, a monthly newsletter that rates mutual funds.
InvesTech, a bimonthly investment newsletter.
Investment Advisor, a monthly publication directed primarily to
the advisor community; includes ranking of mutual funds using a
proprietary methodology.
Investment Company Institute, the national association of the
American investment company industry.
Investor's Business Daily, a newspaper which covers financial
news.
Kiplinger's Personal Finance Magazine, a monthly investment
advisory publication that periodically features the performance
of a variety of securities.
Lipper Analytical Services, Inc.'s Fixed Income Fund Performance
Analysis, a monthly publication of industry-wide mutual fund
performance averages by type of fund.
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, a weekly and quarterly publication of industry-wide
mutual fund performance averages by type of fund.
Los Angeles Times, a newspaper which may cover financial news.
Louis Rukeyser's Wall Street, a publication for investors.
Medical Economics, a monthly magazine providing information to
the medical profession.
Money, a monthly magazine that features the performance of both
specific funds and the mutual fund industry as a whole.
Morningstar 5 Star Investor, a monthly newsletter by Morningstar,
Inc. which covers financial news and rates mutual funds.
Mutual Fund Forecaster, a monthly newsletter that ranks mutual
funds.
Mutual Fund Investing, a newsletter covering mutual funds.
Mutual Fund Performance Report, a monthly publication of mutual
fund performance and rankings, produced by Morningstar, Inc.
Mutual Funds Magazine, a monthly publication reporting on mutual
fund investing.
Mutual Fund Source Book, an annual publication produced by
Morningstar, Inc. which describes and rates mutual funds.
Mutual Fund Values, a biweekly guidebook to mutual funds,
produced by Morningstar, Inc. (a data service which tracks open-
end mutual funds).
Appendix B, cont.
Newsweek, a national business weekly.
New York Times, a newspaper which may cover financial news.
No Load Fund Investor, a newsletter covering companies in the
mutual fund industry.
Personal Investor, a monthly magazine which from time to time
features mutual fund companies and the mutual fund industry.
San Antonio Business Journal, a weekly newspaper that periodically
covers mutual fund companies as well as financial news.
San Antonio Express-News, a newspaper which may cover financial news.
San Francisco Chronicle, a newspaper which may cover financial news.
Smart Money, a monthly magazine featuring news and articles on
investing and mutual funds.
USA Today, a newspaper which may cover financial news.
U.S. News and World Report, a national business weekly that
periodically reports on mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper
which covers financial news.
Washington Post, a newspaper which may cover financial news.
Weisenberger Mutual Funds Investment Report, a monthly newsletter
that reports on both specific mutual fund companies and the
mutual fund industry as a whole.
World Monitor, The Christian Science Monitor Monthly.
Worth, a magazine which covers financial and investment subjects
including mutual funds.
Your Money, a monthly magazine directed toward the novice
investor.
In addition, the Cornerstone Strategy, Emerging Markets,
Gold, International, and World Growth Funds may be cited for
performance information and articles in International Reports,
a publication providing insights on world financial markets
and economics.
The GNMA and Treasury Money Market Trusts may be cited in:
The Bond Buyer, a daily newspaper which covers bond market news.
IBC/Donoghue's Money Fund Report, a weekly publication of the
Donoghue Organization, Inc., reporting on the performance of the
nation's money market funds, summarizing money market fund
activity, and including certain averages as performance
benchmarks, specifically "Donoghue's Taxable 100% U.S. Treasury
Money Fund Average."
IBC's Money Market Insight, a monthly money market industry
analysis prepared by IBC USA, Inc.
Among the organizations cited above, Lipper Analytical
Services, Inc.'s tracking results may be used. A Fund will be
compared to Lipper's appropriate fund category according to
objective and portfolio holdings. The Cornerstone Strategy Fund
will be compared to funds in Lipper's global flexible portfolio fund
category, the Gold Fund to funds in Lipper's gold oriented fund
category, the International Fund to Lipper's international fund
category, the Growth and Tax Strategy Fund to Lipper's balanced
fund category, the World Growth Fund to Lipper's global fund
category, the Treasury Money Market Trust to Lipper's short-term
U.S. Government funds category, the GNMA Trust to Lipper's GNMA
funds category, and the Emerging Markets Fund to Lipper's
emerging markets fund category. Footnotes in advertisements and
other sales literature will include the time period applicable
for any rankings used.
For comparative purposes, unmanaged indexes of comparable
securities or economic data may be cited. Examples include the
following:
- Bond Buyer Indices, indices of debt of varying maturities
including revenue bonds, general obligation bonds, and U.S.
Treasury bonds which can be found in The Bond Buyer.
- Consumer Price Index, a measure of U.S. inflation in prices
on consumer goods.
- Financial Times Gold Mines Index, an index that includes
gold mining companies if they: a) have sustainable, attributable
gold production of at least 300,000 ounces a year; b) draw at
least 75% of revenue from mined gold sales; and c) have at least
10% of their capital available to the investing public.
- Ibbotson Associates, Inc., Stocks, Bonds, Bills, and
Inflation Yearbook.
- IFC Investable Index (IFCI) and IFC Global Index (IFCG),
premier benchmarks for international investors. Both index
series cover 25 discrete markets, regional indexes, and a
composite index, providing the most accurate representation of
the emerging markets universe available.
- Lehman Brothers Inc. GNMA 30 Year Index.
- Lehman Brothers Municipal Bond Index, a total return
performance benchmark for the long-term investment grade tax-
exempt bond market.
- London Gold, a traditional index that prices London gold.
- London Gold PM Fix Price, the evening gold prices as set by
London dealers.
- Morgan Stanley Capital Index (MSCI) - EAFE, an unmanaged
index which reflects the movements of stock markets in Europe,
Australia, and the Far East by representing a broad selection of
domestically listed companies within each market.
- Morgan Stanley Capital Index (MSCI) - World, an unmanaged
index which reflects the movements of world stock markets by
representing a broad selection of domestically listed companies
within each market.
- NAREIT Equity Index (National Association of Real Estate
Investment Trusts, Inc.), a broad based listing of all tax-
qualified REITs (only common shares issued by the REIT) listed on
the NYSE, American Stock Exchange and NASDAQ.
- Philadelphia Gold/Silver Index (XAU), an index representing
nine holdings in the gold and silver sector.
- S&P 500 Index, a broadbased composite unmanaged index that
represents the average performance of a group of 500 widely held,
publicly traded stocks.
- Shearson Lehman Hutton Bond Indices - indices of fixed-rate
debt issues rated investment grade or higher which can be found
in the Bond Market Report.
Other sources for total return and other performance data
which may be used by a Fund or by those publications listed
previously are Morningstar, Inc., Schabaker Investment
Management, and Investment Company Data, Inc. These are services
that collect and compile data on mutual fund companies.
APPENDIX C - DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method which can
be used by investors as a disciplined technique for investing. A
fixed amount of money is invested in a security (such as a stock
or mutual fund) on a regular basis over a period of time,
regardless of whether securities markets are moving up or down.
This practice reduces average share costs to the investor
who acquires more shares in periods of lower securities prices
and fewer shares in periods of higher prices.
While dollar-cost averaging does not assure a profit or
protect against loss in declining markets, this investment
strategy is an effective way to help calm the effect of
fluctuations in the financial markets. Systematic investing
involves continuous investment in securities regardless of
fluctuating price levels of such securities. Investors should
consider their financial ability to continue purchases through
periods of low and high price levels.
As the following chart illustrates, dollar-cost averaging
tends to keep the overall cost of shares lower. This example is
for illustration only, and different trends would result in
different average costs.
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
---------------------------------------------------------------
Down Up Mixed
------------------- ------------------ -----------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
------------------- ------------------ -----------------
$100 10 10 6 16.67 10 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
--- -- ----- -- ----- -- -----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $7.97 *Avg. Cost: $7.54 *Avg. Cost: $9.14
----- ----- -----
**Avg. Price: $8.20 **Avg. Price: $7.80 **Avg. Price: $9.20
----- ----- -----
* Average Cost is the total amount invested divided by
shares purchased.
** Average Price is the sum of the prices paid divided by number
of purchases.
*** Cumulative total of share prices used to compute average prices.
06088-1195
