USAA GNMA TRUST
SUPPLEMENT dated JUNE 15, 1995
to the November 7, 1994 PROSPECTUS
As Supplemented February 1, 1995
The ratio of expenses to average net assets (%) for the year
ended September 30, 1992 stated under "Financial Highlights" on
page 4 should read .375(b).
26741-0695
USAA GNMA TRUST
November 7, 1994 PROSPECTUS
As Supplemented February 1, 1995
USAA GNMA Trust (the Fund) is one of eight 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
or in person. Page 10.
HOW DO YOU SELL?
You may redeem shares of the Fund 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 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 of the Trust, dated November 7,
1994, 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 Statement of Additional Information 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 10
Redemption of Shares 12
Conditions of Purchase and Redemption 13
Exchanges 14
Other Services 15
Share Price Calculation 16
Dividends, Distributions and Taxes 16
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)
- ---------------------------------------------------------
Management Fee .125%
12b-1 Fee None
Other Expenses
Transfer Agent Fee*** .081%
Custodian Fee .040%
All Other Expenses .063%
-----
Total Other Expenses .184%
-----
Total Operating Expenses .309%
=====
- ---------------------------------------------------------
* A shareholder who requests delivery of
redemption proceeds by wire transfer will be
subject to a $10 fee. See Redemption of Shares
- Bank Wire Redemption.
** Based upon the eight-month period ended May 31, 1994.
*** The Fund pays USAA Shareholder Account Services
an annual fixed fee per account for its
services. See Transfer Agent in the Statement
of Additional Information, page 26.
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 - $ 17
10 years - $ 39
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 the eight-month period ended May
31, 1994 and each period in the three-year period ended
September 30, 1993, 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
PERIOD ENDED
MAY 31, YEAR ENDED SEPTEMBER 30,
1994 1993 1992 1991*
Net asset value at
beginning of period $ 10.37 $ 10.47 $ 10.19 $ 10.00
Net investment income .49 .79 .82 .53
Net realized and
unrealized gain (loss) (.55) (.10) .28 .19
Distributions from net
investment income (.49) (.79) (.82) (.53)
------ ------ ------ ------
Net asset value at
end of period $ 9.82 $ 10.37 $ 10.47 $ 10.19
======= ======= ======= =======
Total return (%)** (.66) 6.79 11.18 7.48
Net assets at end of
period ($000) $261,251 $288,879 $218,544 $69,431
Ratio of expenses to
average net assets (%) .31(a) .32 3.75(b) .375(a)(b)
Ratio of net investment
income to average net
assets (%) 7.20(a) 7.53 7.92(b) 8.35(a)(b)
Portfolio turnover (%) 90.05 81.44 36.11 5.39
- --------------
* From date of inception, 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 in the Trust's
Statement of Additional Information. 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 Trust's Statement of
Additional Information.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of portfolios, each with different objectives and
policies. In combination, these portfolios are designed
to provide investors with the opportunity to formulate
their own investment program. An investor in any one
portfolio may exchange into any other portfolio. For
more complete information about the portfolios 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
Balanced Portfolio Fund
Cornerstone 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.
That is 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 Cornerstone, 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
portfolio funds, the Balanced Portfolio and Cornerstone
Funds. Both of 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 a portfolio 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 Trust's Statement of
Additional Information.
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. Each mortgage loan in the pool
is either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. Once
approved by GNMA, each 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 with maximum lives of either 15 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 comparable 30-year bond. 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.
OTHER POLICIES
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 7 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. A repurchase
agreement involves the obligation of the seller to pay
the agreed upon price, which obligation 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 market value at the time the transaction
is completed may be more or less than the fixed purchase
price. 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 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 will not purchase securities of any one
issuer (except the United StatesGovernment, its
agencies and instrumentalities), if as a result of
such purchase more than 5% of the market value of
the total assets of the Fund would be invested in
securities of such issuer. The Fund will not
purchase more than 10% of any class of securities or
of the outstanding voting securities of any issuer.
c. The Fund will not borrow money, except from banks
for temporary or emergency purposes and then only in
an aggregate amount not in excess of 5% of the
market value of its total assets at the time of such
borrowing.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the methods described in the following table. A
complete, signed application is required together with a
check (payable to USAA Investment Trust, GNMA Trust) 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
The purchase of shares will be effective on the day on
which a completed application and check are received by
the Manager at its principal office in San Antonio, TX, if
received before the time the net asset value (NAV) per share
is calculated. If an application, check, or funds are
received in San Antonio after the time at which the NAV
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
INITIAL PURCHASES: Minimum $3,000 - (Except Individual
Retirement Accounts (IRA) at $1,000 or Spousal IRA at $250).
Mail
Send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
In Person
Bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX
Exchange
Call our telephone assistance numbers. The new account
must have the same registration as the account from which
you are exchanging.
ADDITIONAL PURCHASES: Minimum $50
Mail
Send your check and the "Invest By Mail" stub, which
accompanies your Fund's transaction confirmation, to the
Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
Bank Wire Purchase
Instruct your bank (which may charge a fee for the
service) to wire the specified amount to the Trust 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 Account Number
Electronic Funds Transfer (EFT)
You can pay for purchases electronically via electronic
funds transfer. Systematic (regular) purchases can be
deducted from your bank account, payroll, income-
producing investment, or from a USAA money market
account. Intermittent (as-needed) purchases can be
deducted from your bank account through our Buy/Sell
Service.
Establish any of our electronic investing services
when you apply for your account, or later upon request.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the methods
described in the following table on any day the NAV 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 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 upon
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, the Manager suggests you 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.
Redemption of Shares
Any of the following methods may be used to authorize the
Transfer Agent to redeem shares from your account based
on instructions received.
Written, Fax, or Telegraph
Send your written instructions to:
USAA Shareholder Account Services
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.
Telephone
Call toll free 1-800-531-8448, in San Antonio, 210-498-7290.
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 to shares represented by stock certificates.
(continued)
Methods of Payment
Any of the following methods of payment may be used with
your redemption request.
Bank Wire Redemption
The wire redemption privilege allows redemptions of
$1,000 or more 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. USAA Shareholder Account Services deducts
a wire fee from the account for the redemption by wire.
The fee as of the date of this Prospectus is $10 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.
Electronic Funds Transfer (EFT)
You can request electronic redemptions via electronic
funds transfer. Systematic (regular) or intermittent
(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 Redemption
You may request a redemption to be paid by check to the
registered shareholder(s) and 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 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 Trust's Statement of
Additional Information.
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 Trust's Statement of Additional
Information contains information on acceptable
guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among portfolios 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
portfolios 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 - Telephone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the portfolios and
their shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any
portfolio 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
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 Trust's Statement of Additional Information.
InvesTronic(registered trademark) - the periodic purchase
of shares through electronic funds transfer 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.
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. Federal taxes on current income
may be deferred if an investor qualifies.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each account
transaction except reinvested dividends. At the end of
each quarter you will receive a consolidated statement
reflecting all of your mutual fund accounts, regardless
of account activity. The fourth quarter consolidated
statement mailed to each shareholder will reflect annual
account history 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.
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.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the Trust's Statement of Additional
Information, 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
buy and sell Fund shares at NAV without a sales charge.
HOW
The NAV 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 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 Trust's Statement of Additional
Information.
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 after the end of the fiscal
year. 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.
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 to the Fund 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, 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 in excess of
$24.6 billion in total assets under management. The
Manager has offices at 9800 Fredericksburg Rd., San
Antonio, TX 78288, which is also home office of USAA and
other affiliates.
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 portfolios,
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 management fee for
the Fund was computed and paid at one-eighth of one
percent (.125%) of ANA (annualized) for the fiscal period
ended May 31, 1994.
OPERATING EXPENSES
For the fiscal period ended May 31, 1994, the total
annualized operating expenses for the Fund as a
percentage of the Fund's ANA equaled .309%.
PORTFOLIO MANAGER since 02/95
NAME Kenneth E. Willmann
EDUCATION BA, University of Texas
MBA, University of Texas
EXPERIENCE (1) 21 years, investment management
17 years, IMCO
BUSINESS 12/86-present, Vice
HISTORY President, Fixed Income
PAST FIVE Investments
YEARS
PROFESSIONAL CFA, 1978
DESIGNATIONS (1)
PROFESSIONAL AIMR
MEMBERSHIPS (1) SAFAS
NFMA
(1) Abbreviations of designations and organizations used
in the above table:
IMCO - USAA Investment Management Company (the Manager)
CFA - Chartered Financial Analyst
AIMR - Association for Investment Management and Research
SAFAS - San Antonio Financial Analysts Society, Inc.
NFMA - National Federation of Municipal Analysts
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 a Master Trust
Agreement dated May 9, 1984, as amended. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest of separate series or portfolios,
without par value. The portfolio 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 portfolios 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 portfolio, a separate vote of the shareholders
of that portfolio 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
portfolio 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, Monday-Saturday, Central Time)
For further information on mutual funds:
Office Hours: M-F 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
1-800-531-8181
In San Antonio 210-498-6505
For account servicing, exchanges or redemptions:
Office Hours: M-F 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
1-800-531-8448
In San Antonio 210-498-7290
RECORDED MUTUAL FUND PRICE QUOTES
(Accessible 24 hours from any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(Accessible 24 hours from Touchtone phones)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 210-498-8777
