As filed with the Securities and Exchange Commission on January 26, 1996.
1933 Act File No. 2-91069
1940 Act File No. 811-4019
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 22
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 24
USAA INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
9800 Fredericksburg Rd., San Antonio, TX 78288
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (210) 498-0600
Michael D. Wagner, Secretary
USAA INVESTMENT TRUST
9800 Fredericksburg Rd.
San Antonio, TX 78288-0227
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485
immediately upon filing pursuant to paragraph (b)
X on February 1, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has heretofore registered an indefinite number of
shares of the 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, and Treasury Money Market
Trust pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Registrant filed its Rule 24f-2 notice for the Growth
and Tax Strategy Fund, Cornerstone Strategy Fund, Gold Fund,
International Fund, World Growth Fund, GNMA Trust, and Treasury
Money Market Trust for the fiscal year ended May 31, 1995 on July
19, 1995.
Exhibit Index on Page 154-155
Page 1 of 182
USAA INVESTMENT TRUST
CROSS REFERENCE SHEET
Part A
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Cover Page Same
2. Synopsis. Fees and Expenses
3. Condensed Financial
Information Financial Highlights
Performance Information
4. General Description
of Registrant Investment Objective and Policies
Description of Shares
5. Management of the Fund Management of the Trust
Service Providers
6. Capital Stock and Other
Securities Dividends, Distributions and Taxes
Description of Shares
7. Purchase of Securities
Being Offered Purchase of Shares
Conditions of Purchase and Redemption
Exchanges
Other Services
Share Price Calculation
8. Redemption or Repurchase Redemption of Shares
Conditions of Purchase and Redemption
Exchanges
Other Services
9. Legal Proceedings Not Applicable
USAA INVESTMENT TRUST
CROSS REFERENCE SHEET
Part B
FORM N-1A ITEM NO. SECTION IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Same
11. Table of Contents Same
12. General Information and
History Not Applicable
13. Investment Objectives
and Policies Investment Policies
Special Risk Considerations
Investment Restrictions
Portfolio Transactions
14. Management of the
Registrant Trustees and Officers of the Trust
15. Control Persons and
Principal Holders
of Securities Trustees and Officers of the Trust
16. Investment Advisory and
Other Services Trustees and Officers of the Trust
The Trust's Manager
General Information
17. Brokerage Allocation and
Other Practices Portfolio Transactions
18. Capital Stock and Other
Securities Further Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered Valuation of Securities
Additional Information Regarding
Redemption of Shares
Investment Plans
20. Tax Status Tax Considerations
21. Underwriters The Trust's Manager
22. Calculation of Performance
Data Calculation of Performance Data
23. Financial Statements General Information
Part A
Prospectuses for the
Balanced Strategy, Growth Strategy and Income Strategy Funds
are included herein
Not included in this Post-Effective Amendment
are the Prospectuses for the
Growth and Tax Strategy, Cornerstone Strategy, Emerging Markets,
Gold, International, and World Growth Funds,
GNMA Trust and Treasury Money Market Trust
Part A
Prospectus for the
Balanced Strategy Fund
is included herein
USAA BALANCED STRATEGY FUND
February 1, 1996 PROSPECTUS
USAA Balanced 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 high total
return, with reduced risk over time, through an asset
allocation strategy that seeks a combination of long-term
growth of capital and current income. 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 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 Balanced 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
investment risks, including possible loss of the
principal amount invested. Because this Fund may invest
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 Fund, dated February
1, 1996, 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 Asset Allocation Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
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 (ANA))
- ----------------------------------------------------------------------------
Management Fees, net of reimbursements .00%
12b-1 Fees None
Other Expenses, net of reimbursements (estimated)
Transfer Agent Fees** .31%
Custodian Fees .48%
All Other Expenses .46%
---
Total Other Expenses 1.25%
----
Total Fund Operating Expenses, net of reimbursements 1.25%
====
- ----------------------------------------------------------------------------
* 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 15.
The Manager has voluntarily agreed to limit the Fund's
annual expenses until October 1, 1996, to 1.25% of its
ANA and will reimburse the Fund for all expenses in
excess of the 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 the Fund's ANA would be .75%, 1.47%, and
2.22%, respectively.
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 - $ 40
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 three-month period ended
November 30, 1995, has been derived from unaudited
financial statements which appear in the SAI. This table
should be read in conjunction with the unaudited financial
statements and related notes that appear in the SAI.
THREE-MONTH
PERIOD ENDED
NOVEMBER 30,
1995*
----
Net asset value at
beginning of period $ 10.00
Net investment income .06
--------
Net asset value at
end of period $ 10.06
========
Total return (%) .60
Net assets at end of
period (000) $ 9,534
Ratio of expenses to
average net assets (%) 1.25(a)(b)
Ratio of net investment
income to average net
assets (%) 3.65(a)(b)
Portfolio turnover (%) -
Average commission rate
paid per share .0493
- --------------
* Fund commenced operations September 1, 1995.
(a) Annualized. The ratio is not necessarily
indicative of 12 months of operations.
(b) The information contained in the above table is
based on actual expenses for the period, after
giving effect to reimbursement of expenses by the
Manager. Absent such reimbursement the Fund's
ratios would have been:
THREE-MONTH
PERIOD ENDED
NOVEMBER 30,
1995*
----
Ratio of expenses to average net assets (%) 2.81(a)
Ratio of net investment income to average net assets (%) 2.09(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 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
Strategy
Fund Seek high current return, with Bonds and stocks
reduced risk over time, through an
asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- -------------------------------------------------------------------
Growth and Tax
Strategy Fund Seek a conservative balance between Short- and long-term
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
Strategy
Fund Seek high total return, with reduced Stocks and bonds
risk over time, through an asset
allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- --------------------------------------------------------------------
Cornerstone
Strategy
Fund Achieve a positive inflation-adjusted Foreign & basic
rate of return and a reasonably stable value stocks,
value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ---------------------------------------------------------------------
Growth
Strategy
Fund Seek high total return, with reduced Small & large
risk over time, through an asset cap stocks, bonds,
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 seek high total
return, with reduced risk over time, through an asset
allocation strategy that seeks a combination of long-term
growth of capital and current income.
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
- ------------------- -------------
Stocks 50 - 70%
Bonds 30 - 50%
Money Market Instruments 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.
As a temporary defensive measure, the Manager may
invest up to 100% of the Fund's assets in high quality,
short-term debt instruments.
The Fund's portfolio turnover rate 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.
Characteristics and associated risks of each investment
category are as follows:
Stocks - In this category, investments will consist
primarily of common stocks or securities convertible into
common stocks or securities which carry the right to buy
common stocks. Investments may also include foreign
securities. For a discussion of the risks associated
with investments in foreign issuers, see Special Risk
Considerations.
The Fund may also invest in U.S. Real Estate Investment
Trusts (REITs). 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.
Bonds - In this category, investments will consist of
U.S. dollar-denominated securities selected for their
high yields relative to the risk involved. Consistent
with this policy, in periods of rising interest rates, a
greater portion of the portfolio may be invested in
securities the value of which is believed to be less
sensitive to interest rate changes.
Investments in this category may consist of obligations
of the U.S. Government, its agencies and
instrumentalities; mortgage-backed securities; corporate
debt securities such as notes and bonds; obligations of
state and local governments and their agencies and
instrumentalities; asset-backed securities; master demand
notes; eurodollar obligations; yankee obligations; and
other debt securities.
The debt securities in the Fund must be investment
grade at the time of purchase. Investment grade
securities are those issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, those
rated at least Baa by Moody's Investors Service
(Moody's), BBB by Standard & Poor's Ratings Group (S&P),
BBB by Fitch Investors Service (Fitch), or BBB by Duff
and Phelps (D&P), or those judged to be of equivalent
quality by the Manager if not rated. 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 below investment grade, 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. Unless otherwise
directed by the Board of Trustees, if downgrades result
in more than 5% of the Fund's net assets being invested
in securities that are less than investment grade
quality, the Manager will take immediate action to reduce
the Fund's holdings in such securities to 5% or less of
the Fund's net assets. For a more complete description
of debt ratings, see Appendix A to the SAI.
Money Market Instruments - In this category, investments
will consist of high quality U.S. dollar-denominated debt
securities that have remaining maturities of one year or
less. Such securities may include U.S. government
obligations, commercial paper and other short-term
corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial
institution obligations. These securities may carry
fixed or variable interest rates.
Convertible Securities - As stated earlier, the Fund may
invest in convertible securities. Convertible securities
are bonds, preferred stocks, and other securities that
pay interest or dividends and offer the buyer the option
of converting the security into common stock. The value
of convertible securities depends partially on interest
rate changes and the credit quality of the issuer.
Because a convertible security affords an investor the
opportunity, through its conversion feature, to
participate in the capital appreciation of the underlying
common stock, the value of convertible securities may
also change based on the price of the common stock.
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 the 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 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.
Mortgage-Backed and Asset-Backed Securities - The Fund
may invest in mortgage-backed and asset-backed
securities. Mortgage-backed securities include, but are
not limited to, securities issued by the Government
National Mortgage Association (Ginnie Mae), the Federal
National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac).
These securities represent ownership in a pool of
mortgage loans. They differ from conventional bonds in
that principal is paid back to the investor as payments
are made on the underlying mortgages in the pool.
Accordingly, the Fund receives monthly scheduled payments
of principal and interest along with any unscheduled
principal prepayments on the underlying mortgages.
Because these scheduled and unscheduled principal
payments must be reinvested at prevailing interest rates,
mortgage-backed securities do not provide an effective
means of locking in long-term interest rates
for the investor. Like other fixed income securities,
when interest rates rise, the value of a mortgage-backed
security generally will decline; however, when interest
rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as
much as other fixed income securities.
Mortgage-backed securities also include collateralized
mortgage obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-
related securities. CMOs are divided into pieces
(tranches) with varying maturities. The cash flow from
the underlying mortgages is used to pay off each tranche
separately. CMOs are designed to provide investors with
more predictable maturities than regular mortgage
securities, but such maturities can be difficult to
predict because of the effect of prepayments. Failure to
accurately predict prepayments can adversely affect the
Fund's return on these investments. CMOs may also be
less marketable than other securities.
Asset-backed securities represent a participation in,
or are secured by and payable from, a stream of payments
generated by particular assets, such as credit card,
motor vehicle, or trade receivables. They may be pass-
through certificates, which have characteristics very
similar to mortgage-backed securities, discussed above.
They may also be in the form of asset-backed commercial
paper, which is issued by a special purpose entity,
organized solely to issue the commercial paper and to
purchase interests in the assets. The credit quality of
these securities depends primarily upon the quality of
the underlying assets and the level of credit support and
enhancement provided.
The weighted average life of such securities is likely
to be substantially shorter than their stated final
maturity as a result of scheduled principal payments and
unscheduled principal prepayments.
Master Demand Notes - The Fund may invest in variable
rate master demand notes (master demand notes). Master
demand notes are obligations that permit the investment
of fluctuating amounts by the Fund, at varying rates of
interest using direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The Fund has the right
to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Frequently,
such obligations are secured by letters of credit or
other credit support arrangements provided by banks.
Because master demand notes are direct lending
arrangements between the lender and borrower, these
instruments generally will not be traded, and there
generally is no secondary market for these notes,
although they are redeemable (and immediately repayable
by the borrower) at face value, plus accrued interest, at
any time. Therefore, where master demand notes are not
secured by bank letters of credit or other credit support
arrangements, the Fund's right to redeem depends on the
ability of the borrower to pay principal and interest on
demand. In connection with master demand note
arrangements, the Fund will continuously monitor the
earning power, cash flow, and other liquidity ratios of
the issuer, and the borrower's ability to pay principal
and interest on demand. Master demand notes, as such,
are not typically rated by credit rating agencies. The
Fund will invest in master demand notes only if the Board
of Trustees or its delegate has determined that they are
of credit quality comparable to the debt securities in
which the Fund generally may invest.
Eurodollar and Yankee Obligations - The Fund may invest
in Eurodollar and Yankee Obligations. Eurodollar
obligations are dollar-denominated instruments issued
outside the U.S. capital markets by foreign corporations
and financial institutions and by foreign branches of
U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments issued by
foreign issuers in the U.S. capital markets. While
investments in Eurodollar and Yankee obligations are
intended to reduce risk by providing further
diversification, such investments involve sovereign risk
in addition to credit and market risk. Sovereign risk
includes local political or economic developments,
potential nationalization, and withholding taxes on
dividend or interest payments.
In addition, the Fund may invest in Eurodollar and
Yankee obligations of investment grade emerging market
countries. An emerging market country can be considered
to be a country which is in the initial stages of its
industrial cycle. Investments in emerging market
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. In the past, markets of emerging market
countries have been more volatile than the markets of
developed countries. See Special Risk Considerations for
a discussion of other risks associated with foreign investments.
Put Bonds - The Fund may invest in securities (including
securities with variable interest rates) which may be
redeemed or sold back (put) to the issuer of the security
or a third party 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.
Liquidity - The Fund may not invest more than 15% of the
market value of its net assets in securities which are
illiquid or not readily marketable. Commercial paper and
certain Put Bonds that are subject to restrictions on
transfer and other securities that may be resold pursuant
to Rule 144A under the Securities Act of 1933 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. With respect to 75% of its total assets, the Fund
may not purchase 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.
b. 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).
c. The Fund may not 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 and its agencies or instrumentalities.
d. The Fund may not 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.
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
interests 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.
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
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.
Because of the more lengthy clearing process and the need
to convert foreign currency, 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
Additional Purchases: $50
Initial Purchase - IRA: $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 Balanced 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
1-800-531-8448 a new account or if you would like to exchange to another
USAA fund, call for instructions. The new account must
have the same registration as your existing account.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call for instructions.
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 for
USAA AMA 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 (as-needed)
via EFT 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. Should you wish to redeem shares within
the 15 days following a telephone address change, you may
do so by providing written instructions by mail or facsimile.
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 may 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 for purchases,
redemptions, or changes in account information in
those instances where the appropriateness of a
signature authorization is in question. 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 reinvested dividend, or
ii) a payment you make under the
InvesTronic(registered trademark), Direct Purchase
Service, Automatic Purchase Plan, or Directed
Dividends investment plans, or
iii) a redemption you make 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 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
quarterly. Net capital gain, if any, 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 NAV per
share 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 NAV per
share. 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 NAV per share.
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
$29 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 and paid at three-fourths of one
percent (.75%) of ANA. This fee is higher than that
charged to most other mutual funds, but in the opinion of
the Manager is comparable to fees charged to other mutual
funds with similar investment objectives and policies.
OPERATING EXPENSES
In addition to the fees paid pursuant to the Advisory
Agreement, operating expenses for the Fund generally
consist of expenses for the issuance and redemption of
shares, charges of the transfer agent and custodian,
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, and costs of typesetting, printing and
mailing the Prospectus, SAI and periodic reports to
existing shareholders.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Fund.
R. David Ullom, Assistant Vice President of Equity
Investments since September of 1994, is the asset
allocation manager for the Fund and has managed the
Stocks investment category since September of 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
Chartered Financial Analyst (CFA) designation in 1980 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
Washington University, Missouri and a BS from Oklahoma
State University.
Paul H. Lundmark, Executive Director of Fixed Income
Investments since November of 1994, has managed the Bonds
investment category since September of 1995. Mr.
Lundmark has nine years investment management experience
and has worked for IMCO four years. He has held various
positions in Fixed Income Investments since January 1992.
From May 1990 to July 1991 he was employed as an
Associate with Raymond James & Associates, Inc., St.
Petersburg, Florida. Mr. Lundmark earned the CFA
designation in 1989 and also is a member of the AIMR and
SAFAS. He holds an MBA and BSB from the University of Minnesota.
J. Eric Thorderson, Executive Director of Fixed Income
Investments since March of 1994, has managed the Money
Market Instruments investment category since September of
1995. 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. Mr. Thorderson earned the CFA designation
in 1989 and is a member of the AIMR and SAFAS. He holds
an MBA from the University of Illinois and a BA from Wayne
State University of Michigan.
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.
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
Part A
Prospectus for the
Growth Strategy Fund
is included herein
USAA GROWTH STRATEGY FUND
February 1, 1996 PROSPECTUS
USAA Growth 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 high total
return, with reduced risk over time, through an asset
allocation strategy which emphasizes capital appreciation
and gives secondary emphasis to income. 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 16.
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 18.
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 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
investment risks, including possible loss of the
principal amount invested. 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 15.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Fund, dated February
1, 1996, 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 Asset Allocation Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 16
Redemption of Shares 18
Conditions of Purchase and Redemption 19
Exchanges 20
Other Services 21
Share Price Calculation 22
Dividends, Distributions and Taxes 23
Management of the Trust 24
Description of Shares 26
Service Providers 27
Telephone Assistance Numbers 27
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 .75%
12b-1 Fees None
Other Expenses (estimated)
Transfer Agent Fees** .23%
Custodian Fees .34%
All Other Expenses .33%
---
Total Other Expenses .90%
----
Total Fund Operating Expenses 1.65%
====
- ----------------------------------------------------------------------------
* 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 15.
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 - $ 17 3 years - $ 52
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 three-month period ended
November 30, 1995, has been derived from unaudited
financial statements which appear in the SAI. This table
should be read in conjunction with the unaudited
financial statements and related notes that appear in the
SAI.
THREE-MONTH
PERIOD ENDED
NOVEMBER 30,
1995*
----
Net asset value at
beginning of period $ 10.00
Net investment income .02
Net realized and
unrealized gain .31
-------
Net asset value at
end of period $ 10.33
=======
Total return (%) 3.30
Net assets at end of
period (000) $24,595
Ratio of expenses to
average net assets (%) 2.01(a)
Ratio of net investment
income to average net
assets (%) 1.33(a)
Portfolio turnover (%) 24.79
Average commission rate
paid per share .0287
- --------------
* Fund commenced operations September 1, 1995.
(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
Strategy
Fund Seek high current return, with Bonds and stocks
reduced risk over time, through an
asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- -------------------------------------------------------------------
Growth and Tax
Strategy Fund Seek a conservative balance between Short- and long-term
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
Strategy
Fund Seek high total return, with reduced Stocks and bonds
risk over time, through an asset
allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- --------------------------------------------------------------------
Cornerstone
Strategy
Fund Achieve a positive inflation-adjusted Foreign & basic
rate of return and a reasonably stable value stocks,
value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ---------------------------------------------------------------------
Growth
Strategy
Fund Seek high total return, with reduced Small & large
risk over time, through an asset cap stocks, bonds,
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 seek high total
return, with reduced risk over time, through an asset
allocation strategy which emphasizes capital appreciation
and gives secondary emphasis to income.
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
- ------------------- -------------
Large Cap Stocks 25 - 35%
Small Cap Stocks 25 - 35%
International Stocks 15 - 25%
Bonds 15 - 25%
Money Market Instruments 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.
As a temporary defensive measure, the Manager may
invest up to 100% of the Fund's assets in high quality,
short-term debt instruments.
The Fund's portfolio turnover rate 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.
Characteristics and associated risks of each investment
category are as follows:
Large Cap Stocks - In this category, investments will
consist of common stocks of companies that have market
capitalizations of $1 billion or more, at the time of
purchase. Investments may also include securities
convertible into common stocks or securities which carry
the right to buy common stocks.
The Fund may continue to hold securities in the
Large Cap Stocks investment category that qualified when
purchased as Large Cap Stocks, but whose market
capitalizations have subsequently declined below $1 billion.
Small Cap Stocks - In this category, investments will
consist of common stocks of companies that have market
capitalizations of less than $1 billion, at the time of
purchase. Investments may also include securities
convertible into common stocks or securities which carry
the right to buy common stocks.
The Fund may continue to hold securities in the Small
Cap Stocks investment category that qualified when
purchased as Small Cap Stocks, but whose market
capitalizations have subsequently increased above $1
billion.
Investing in smaller companies, especially those that
have a narrow product line or are thinly traded, often
involves greater risk than investing in established
companies with proven track records. These securities
may be subject to more price volatility than securities
of larger companies.
International Stocks - In this category, investments will
consist of common 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 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.
Bonds - In this category, investments will consist of
U.S. dollar-denominated securities selected for their
high yields relative to the risk involved. Consistent
with this policy, in periods of rising interest rates,
a greater portion of the portfolio may be invested in
securities the value of which is believed to be less
sensitive to interest rate changes.
Investments in this category may consist of obligations
of the U.S. Government, its agencies and
instrumentalities; mortgage-backed securities; corporate
debt securities such as notes and bonds; obligations of
state and local governments and their agencies and
instrumentalities; asset-backed securities; master demand
notes; eurodollar obligations; yankee obligations; and
other debt securities.
The debt securities in the Fund must be investment
grade at the time of purchase. Investment grade
securities are those issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, those
rated at least Baa by Moody's Investors Service
(Moody's), BBB by Standard & Poor's Ratings Group (S&P),
BBB by Fitch Investors Service (Fitch), or BBB by Duff
and Phelps (D&P), or those judged to be of equivalent
quality by the Manager if not rated. 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 below investment grade, 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. Unless otherwise
directed by the Board of Trustees, if downgrades result
in more than 5% of the Fund's net assets being invested
in securities that are less than investment grade
quality, the Manager will take immediate action to reduce
the Fund's holdings in such securities to 5% or less of
the Fund's net assets. For a more complete description
of debt ratings, see Appendix A to the SAI.
Money Market Instruments - In this category, investments
will consist of high quality U.S. dollar-denominated debt
securities that have remaining maturities of one year or
less. Such securities may include U.S. government
obligations, commercial paper and other short-term
corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial
institution obligations. These securities may carry
fixed or variable interest rates.
Convertible Securities - As stated earlier, the Fund may
invest in convertible securities. Convertible securities
are bonds, preferred stocks, and other securities that
pay interest or dividends and offer the buyer the option
of converting the security into common stock. The value
of convertible securities depends partially on interest
rate changes and the credit quality of the issuer.
Because a convertible security affords an investor the
opportunity, through its conversion feature, to
participate in the capital appreciation of the underlying
common stock, the value of convertible securities may
also change based on the price of the common stock.
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 the 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 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.
Mortgage-Backed and Asset-Backed Securities - The Fund
may invest in mortgage-backed and asset-backed
securities. Mortgage-backed securities include, but are
not limited to, securities issued by the Government
National Mortgage Association (Ginnie Mae), the Federal
National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac).
These securities represent ownership in a pool of mortgage
loans. They differ from conventional bonds in that
principal is paid back to the investor as payments are
made on the underlying mortgages in the pool. Accordingly,
the Fund receives monthly scheduled payments of principal
and interest along with any unscheduled principal
prepayments on the underlying mortgages. Because these
scheduled and unscheduled principal payments must be
reinvested at prevailing interest rates, mortgage-backed
securities do not provide an effective means of locking in
long-term interest rates for the investor. Like other
fixed income securities, when interest rates rise, the
value of a mortgage-backed security generally will decline;
however, when interest rates are declining, the value of
mortgage-backed securities with prepayment features may not
increase as much as other fixed income securities.
Mortgage-backed securities also include collateralized
mortgage obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-
related securities. CMOs are divided into pieces
(tranches) with varying maturities. The cash flow from
the underlying mortgages is used to pay off each tranche
separately. CMOs are designed to provide investors with
more predictable maturities than regular mortgage
securities, but such maturities can be difficult to
predict because of the effect of prepayments. Failure to
accurately predict prepayments can adversely affect the
Fund's return on these investments. CMOs may also be
less marketable than other securities.
Asset-backed securities represent a participation in,
or are secured by and payable from, a stream of payments
generated by particular assets, such as credit card,
motor vehicle, or trade receivables. They may be pass-
through certificates, which have characteristics very
similar to mortgage-backed securities, discussed above.
They may also be in the form of asset-backed commercial
paper, which is issued by a special purpose entity,
organized solely to issue the commercial paper and to
purchase interests in the assets. The credit quality of
these securities depends primarily upon the quality of
the underlying assets and the level of credit support and
enhancement provided.
The weighted average life of such securities is likely
to be substantially shorter than their stated final
maturity as a result of scheduled principal payments and
unscheduled principal prepayments.
Master Demand Notes - The Fund may invest in variable
rate master demand notes (master demand notes). Master
demand notes are obligations that permit the investment
of fluctuating amounts by the Fund, at varying rates of
interest using direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The Fund has the right
to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Frequently,
such obligations are secured by letters of credit or
other credit support arrangements provided by banks.
Because master demand notes are direct lending
arrangements between the lender and borrower, these
instruments generally will not be traded, and there
generally is no secondary market for these notes,
although they are redeemable (and immediately repayable
by the borrower) at face value, plus accrued interest, at
any time. Therefore, where master demand notes are not
secured by bank letters of credit or other credit support
arrangements, the Fund's right to redeem depends on the
ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements,
the Fund will continuously monitor the earning power, cash
flow, and other liquidity ratios of the issuer, and the
borrower's ability to pay principal and interest on demand.
Master demand notes, as such, are not typically rated by
credit rating agencies. The Fund will invest in master
demand notes only if the Board of Trustees or its delegate
has determined that they are of credit quality comparable to
the debt securities in which the Fund generally may invest.
Eurodollar and Yankee Obligations - The Fund may invest
in Eurodollar and Yankee obligations. Eurodollar
obligations are dollar-denominated instruments issued
outside the U.S. capital markets by foreign corporations
and financial institutions and by foreign branches of
U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments issued by
foreign issuers in the U.S. capital markets. While
investments in Eurodollar and Yankee obligations are
intended to reduce risk by providing further
diversification, such investments involve sovereign risk
in addition to credit and market risk. Sovereign risk
includes local political or economic developments,
potential nationalization, and withholding taxes on
dividend or interest payments.
In addition, the Fund may invest in Eurodollar and
Yankee obligations of investment grade emerging market
countries. See Special Risk Considerations for a
discussion of other risks associated with foreign
investments.
Put Bonds - The Fund may invest in securities (including
securities with variable interest rates) which may be
redeemed or sold back (put) to the issuer of the security
or a third party 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.
Liquidity - The Fund may not invest more than 15% of the
market value of its net assets in securities which are
illiquid or not readily marketable. Commercial paper and
certain Put Bonds that are subject to restrictions on
transfer and other securities that may be resold pursuant
to Rule 144A under the Securities Act of 1933 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. With respect to 75% of its total assets, the Fund
may not purchase 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.
b. 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).
c. The Fund may not 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 and its agencies or instrumentalities.
d. The Fund may not 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.
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
interests 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
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.
Because of the more lengthy clearing process and the need
to convert foreign currency, 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
Additional Purchases: $50
Initial Purchase - IRA: $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 Growth 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
1-800-531-8448 a new account or if you would like to exchange to another
USAA fund, call for instructions. The new account must
have the same registration as your existing account.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call for instructions.
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. Should you wish to redeem shares within
the 15 days following a telephone address change, you may
do so by providing written instructions by mail or facsimile.
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 may 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 for purchases,
redemptions, or changes in account information in
those instances where the appropriateness of a
signature authorization is in question. 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 under the
InvesTronic(registered trademark), Automatic
Purchase Plan, or Direct Purchase Service
investment plans, or
ii) a redemption you make 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 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. Net capital gain, if any, 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 NAV per
share 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 NAV per
share. 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 NAV per share.
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
$29 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 and paid at three-fourths of one
percent (.75%) of ANA. This fee is higher than that
charged to most other mutual funds, but in the opinion of
the Manager is comparable to fees charged to other mutual
funds with similar investment objectives and policies.
OPERATING EXPENSES
In addition to the fees paid pursuant to the Advisory
Agreement, operating expenses for the Fund generally
consist of expenses for the issuance and redemption of
shares, charges of the transfer agent and custodian,
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, and costs of typesetting, printing and
mailing the Prospectus, SAI and periodic reports to
existing shareholders.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Fund.
David G. Parsons, Assistant Vice President of Equity
Investments since March of 1995, is the asset allocation
manager of the Fund and has managed the Large Cap Stocks
investment category since September of 1995. Mr. Parsons
has 12 years investment management experience working for
IMCO where he has held various positions in Equity
Investments. Mr. Parsons earned the Chartered Financial
Analyst (CFA) designation in 1986 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 Texas,
an MA from Southern Illinois University and a BA from
Austin College, Texas.
John K. Cabell, Jr. and Eric M. Efron, Executive
Directors of Equity Investments since October of 1995,
have managed the Small Cap Stocks investment category
since September of 1995. Mr. Cabell has 17 years
investment management experience and has worked six years
as a Senior Securities Analyst in Equity Investments for
IMCO. His business experience during the past five
years also included the following positions: Chief
Economist for Retirement Systems of Alabama from March
1991 to March 1994 and Senior Investment Analyst for
Seidler Amdec from October 1990 to February 1991. Mr.
Cabell earned the CFA designation in 1982 and is a member
of the AIMR and SAFAS. He holds an MA and BS from the
University of Alabama. Mr. Efron has 20 years investment
management experience and has worked four years as a
Senior Securities Analyst in Equity Investments for IMCO.
Prior to joining IMCO, he held various investment
positions with C&S/Sovran Bank of Atlanta, Georgia from
September 1984 to December 1991. Mr. Efron earned the
CFA designation in 1983 and is also a member of the AIMR
and SAFAS. He holds an MBA from New York University, an
MA from the University of Michigan, and a BA from Oberlin
College, Ohio.
Albert C. Sebastian, Executive Director of Equity
Investments since October of 1995, has managed the
International Stocks investment category since September
of 1995. Mr. Sebastian has eleven years investment
management experience and has worked four years as a
Senior Securities Analyst in Equity Investments for IMCO.
Prior to joining IMCO, he was President of Prospect
Investment Advisors. Mr. Sebastian earned the CFA
designation in 1989 and is a member of the AIMR, SAFAS
and the International Society of Financial Analysts. He
holds an MBA from the University of Michigan and a BA
from Holy Cross College, Massachusetts.
Paul H. Lundmark, Executive Director of Fixed Income
Investments since November of 1994, has managed the Bonds
investment category since September of 1995. Mr.
Lundmark has nine years investment management experience
and has worked for IMCO four years. He has held various
positions in Fixed Income Investments since January 1992.
From May 1990 to July 1991 he was employed as an Associate
with Raymond James & Associates, Inc., St. Petersburg,
Florida. Mr. Lundmark earned the CFA designation in 1989
and is a member of the AIMR and SAFAS. He holds an MBA and
BSB from the University of Minnesota.
J. Eric Thorderson, Executive Director of Fixed Income
Investments since March of 1994, has managed the Money
Market Instruments investment category since September of
1995. 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. Mr. Thorderson earned the CFA designation
in 1989 and is a member of the AIMR and SAFAS. He holds
an MBA from the University of Illinois and a BA from
Wayne State University of Michigan.
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.
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
[THIS PAGE LEFT BLANK INTENTIONALLY]
Part A
Prospectus for the
Income Strategy Fund
is included herein
USAA INCOME STRATEGY FUND
February 1, 1996 PROSPECTUS
USAA Income 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 high current
return, with reduced risk over time, through an asset
allocation strategy which emphasizes income and gives
secondary emphasis to long-term growth of capital. 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 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 Income 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
investment risks, including possible loss of the
principal amount invested.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Fund, dated February
1, 1996, 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 Asset Allocation Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
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 (ANA))
- ----------------------------------------------------------------------------
Management Fees, net of reimbursements .00%
12b-1 Fees None
Other Expenses, net of reimbursements (estimated)
Transfer Agent Fees** .30%
Custodian Fees .42%
All Other Expenses .28%
---
Total Other Expenses 1.00%
----
Total Fund Operating Expenses, net of reimbursements 1.00%
====
- ----------------------------------------------------------------------------
* 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 15.
The Manager has voluntarily agreed to limit the Fund's
annual expenses until October 1, 1996, to 1.00% of its
ANA and will reimburse the Fund for all expenses in
excess of the 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 the Fund's ANA would be .50%, 1.23%, and
1.73%, respectively.
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 - $ 10 3 years - $ 32
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 three-month period ended
November 30, 1995, has been derived from unaudited
financial statements which appear in the SAI. This table
should be read in conjunction with the unaudited
financial statements and related notes that appear in the
SAI.
THREE-MONTH
PERIOD ENDED
NOVEMBER 30,
1995*
----
Net asset value at
beginning of period $ 10.00
Net investment income .09
Net realized and
unrealized gain .62
Distributions of realized
capital gains (.05)
-------
Net asset value at
end of period $ 10.66
=======
Total return (%)** 7.11
Net assets at end of
period (000) $ 8,607
Ratio of expenses to
average net assets (%) 1.00(a)(b)
Ratio of net investment
income to average net
assets (%) 4.72(a)(b)
Portfolio turnover (%) 68.79
Average commission rate
paid per share .0495
- --------------
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily
indicative of 12 months of operations.
(b) The information contained in the above table is
based on actual expenses for the period, after
giving effect to reimbursement of expenses by the
Manager. Absent such reimbursement the Fund's
ratios would have been:
THREE-MONTH
PERIOD ENDED
NOVEMBER 30,
1995*
----
Ratio of expenses to average net assets (%) 2.53(a)
Ratio of net investment income to average net assets (%) 3.19(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 total return or 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. 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 specific 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
Strategy
Fund Seek high current return, with Bonds and stocks
reduced risk over time, through an
asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- -------------------------------------------------------------------
Growth and Tax
Strategy Fund Seek a conservative balance between Short- and long-term
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
Strategy
Fund Seek high total return, with reduced Stocks and bonds
risk over time, through an asset
allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- --------------------------------------------------------------------
Cornerstone
Strategy
Fund Achieve a positive inflation-adjusted Foreign & basic
rate of return and a reasonably stable value stocks,
value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ---------------------------------------------------------------------
Growth
Strategy
Fund Seek high total return, with reduced Small & large
risk over time, through an asset cap stocks, bonds,
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 seek high current
return, with reduced risk over time, through an asset
allocation strategy which emphasizes income and gives
secondary emphasis to long-term growth of capital.
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 investing the Fund's
assets in each of the following investment categories
within the indicated ranges:
Percentage
Target Range
Investment Category of Net Assets
- ------------------- -------------
Bonds 75 - 85%
Stocks 15 - 25%
Money Market Instruments 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.
As a temporary defensive measure, the Manager may
invest up to 100% of the Fund's assets in high quality,
short-term debt instruments.
The Fund's portfolio turnover rate 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.
Characteristics and associated risks of each investment
category are as follows:
Bonds - In this category, investments will consist of
U.S. dollar-denominated securities selected for their
high yields relative to the risk involved. Consistent
with this policy, in periods of rising interest rates, a
greater portion of the portfolio may be invested in
securities the value of which is believed to be less
sensitive to interest rate changes. Generally, the
longer a bond's maturity, the higher the yield and the
greater the price volatility due to increased interest
rate risk.
Investments in this category may consist of obligations
of the U.S. Government, its agencies and
instrumentalities; mortgage-backed securities; corporate debt
securities such as notes and bonds; obligations of state and
local governments and their agencies and instrumentalities;
asset-backed securities; master demand notes; eurodollar
obligations; yankee obligations; and other debt securities.
The debt securities in the Fund must be investment
grade at the time of purchase. Investment grade
securities are those issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, those
rated at least Baa by Moody's Investors Service
(Moody's), BBB by Standard & Poor's Ratings Group (S&P),
BBB by Fitch Investors Service (Fitch), or BBB by Duff
and Phelps (D&P), or those judged to be of equivalent
quality by the Manager if not rated. 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 below investment grade, 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. Unless otherwise
directed by the Board of Trustees, if downgrades result
in more than 5% of the Fund's net assets being invested
in securities that are less than investment grade
quality, the Manager will take immediate action to reduce
the Fund's holdings in such securities to 5% or less of
the Fund's net assets. For a more complete description
of debt ratings, see Appendix A to the SAI.
Stocks - In this category, investments will consist
primarily of dividend paying common stocks or securities
convertible into common stocks or securities which carry
the right to buy common stocks. Investments may also
include foreign securities. For a discussion of the
risks associated with investments in foreign issuers, see
Special Risk Considerations.
The Fund may also invest in U.S. Real Estate Investment
Trusts (REITs). 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.
Money Market Instruments - In this category, investments
will consist of high quality U.S. dollar-denominated debt
securities that have remaining maturities of one year or
less. Such securities may include U.S. government
obligations, commercial paper and other short-term
corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial
institution obligations. These securities may carry
fixed or variable interest rates.
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 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 the 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.
Mortgage-Backed and Asset-Backed Securities - The Fund
may invest in mortgage-backed and asset-backed
securities. Mortgage-backed securities include, but are
not limited to, securities issued by the Government
National Mortgage Association (Ginnie Mae), the Federal
National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac).
These securities represent ownership in a pool of
mortgage loans. They differ from conventional bonds in
that principal is paid back to the investor as payments
are made on the underlying mortgages in the pool.
Accordingly, the Fund receives monthly scheduled payments
of principal and interest along with any unscheduled
principal prepayments on the underlying mortgages.
Because these scheduled and unscheduled principal
payments must be reinvested at prevailing interest rates,
mortgage-backed securities do not provide an effective
means of locking in long-term interest rates for the
investor. Like other fixed income securities, when
interest rates rise, the value of a mortgage-backed
security generally will decline; however, when interest
rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as
much as other fixed income securities.
Mortgage-backed securities also include collateralized
mortgage obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-
related securities. CMOs are divided into pieces (tranches)
with varying maturities. The cash flow from the underlying
mortgages is used to pay off each tranche separately.
CMOs are designed to provide investors with more
predictable maturities than regular mortgage securities,
but such maturities can be difficult to predict because
of the effect of prepayments. Failure to accurately
predict prepayments can adversely affect the Fund's
return on these investments. CMOs may also be less
marketable than other securities.
Asset-backed securities represent a participation in,
or are secured by and payable from, a stream of payments
generated by particular assets, such as credit card,
motor vehicle, or trade receivables. They may be pass-
through certificates, which have characteristics very
similar to mortgage-backed securities, discussed above.
They may also be in the form of asset-backed commercial
paper, which is issued by a special purpose entity,
organized solely to issue the commercial paper and to
purchase interests in the assets. The credit quality of
these securities depends primarily upon the quality of
the underlying assets and the level of credit support and
enhancement provided.
The weighted average life of such securities is likely
to be substantially shorter than their stated final
maturity as a result of scheduled principal payments and
unscheduled principal prepayments.
Master Demand Notes - The Fund may invest in variable
rate master demand notes (master demand notes). Master
demand notes are obligations that permit the investment
of fluctuating amounts by the Fund, at varying rates of
interest using direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The Fund has the right
to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Frequently,
such obligations are secured by letters of credit or other
credit support arrangements provided by banks. Because
master demand notes are direct lending arrangements between
the lender and borrower, these instruments generally will
not be traded, and there generally is no secondary market
for these notes, although they are redeemable (and immediately
repayable by the borrower) at face value, plus accrued
interest, at any time. Therefore, where master demand
notes are not secured by bank letters of credit or other
credit support arrangements, the Fund's right to redeem
depends on the ability of the borrower to pay principal
and interest on demand. In connection with master demand
note arrangements, the Fund will continuously monitor the
earning power, cash flow, and other liquidity ratios of
the issuer, and the borrower's ability to pay principal
and interest on demand. Master demand notes, as such,
are not typically rated by credit rating agencies. The
Fund will invest in master demand notes only if the Board
of Trustees or its delegate has determined that they are
of credit quality comparable to the debt securities in
which the Fund generally may invest.
Eurodollar and Yankee Obligations - The Fund may invest
in Eurodollar and Yankee obligations. Eurodollar
obligations are dollar-denominated instruments issued
outside the U.S. capital markets by foreign corporations
and financial institutions and by foreign branches of
U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments issued by
foreign issuers in the U.S. capital markets. While
investments in Eurodollar and Yankee obligations are
intended to reduce risk by providing further
diversification, such investments involve sovereign risk
in addition to credit and market risk. Sovereign risk
includes local political or economic developments,
potential nationalization, and withholding taxes on
dividend or interest payments.
In addition, the Fund may invest in Eurodollar and
Yankee obligations of investment grade emerging market
countries. An emerging market country can be considered
to be a country which is in the initial stages of its
industrial cycle. Investments in emerging market
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. In the past, markets of emerging market
countries have been more volatile than the markets of
developed countries. See Special Risk Considerations for
a discussion of other risks associated with foreign
investments.
Put Bonds - The Fund may invest in securities (including
securities with variable interest rates) which may be
redeemed or sold back (put) to the issuer of the security
or a third party 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.
Convertible Securities - As stated earlier, the Fund may
invest in convertible securities. Convertible securities
are bonds, preferred stocks, and other securities that
pay interest or dividends and offer the buyer the option
of converting the security into common stock. The value
of convertible securities depends partially on interest
rate changes and the credit quality of the issuer.
Because a convertible security affords an investor the
opportunity, through its conversion feature, to
participate in the capital appreciation of the underlying
common stock, the value of convertible securities may
also change based on the price of the common stock.
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 the 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.
Liquidity - The Fund may not invest more than 15% of the
market value of its net assets in securities which are
illiquid or not readily marketable. Commercial paper and
certain Put Bonds that are subject to restrictions on
transfer and other securities that may be resold pursuant
to Rule 144A under the Securities Act of 1933 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. With respect to 75% of its total assets, the Fund
may not purchase 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.
b. 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).
c. The Fund may not 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 and its agencies or instrumentalities.
d. The Fund may not 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.
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
interests 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.
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
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.
Because of the more lengthy clearing process and the need
to convert foreign currency, 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
Additional Purchases: $50
Initial Purchase - IRA: $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 Income 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
1-800-531-8448 a new account or if you would like to exchange to another
USAA fund, call for instructions. The new account must
have the same registration as your existing account.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call for instructions.
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 (as-needed)
via EFT 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. Should you wish to redeem shares within
the 15 days following a telephone address change, you may
do so by providing written instructions by mail or facsimile.
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 may 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 for purchases,
redemptions, or changes in account information in
those instances where the appropriateness of a
signature authorization is in question. 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 reinvested dividend, or
ii) a payment you make under the
InvesTronic(registered trademark), Direct Purchase
Service, Automatic Purchase Plan, or Directed
Dividends investment plans, or
iii) a redemption you make 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 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
quarterly. Net capital gain, if any, 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 NAV per
share 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 NAV per
share. 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 NAV per share.
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
$29 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 and paid at one-
half of one percent (.50%) of ANA.
OPERATING EXPENSES
In addition to the fees paid pursuant to the Advisory
Agreement, operating expenses for the Fund generally
consist of expenses for the issuance and redemption of
shares, charges of the transfer agent and custodian,
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, and costs of typesetting, printing and
mailing the Prospectus, SAI and periodic reports to
existing shareholders.
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, is the asset
allocation manager of the Fund and has managed the Bonds
investment category since September of 1995. Mr.
Saunders has 27 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.
R. David Ullom, Assistant Vice President of Equity
Investments since September of 1994, has managed the
Stocks investment category since September of 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 also is a member of the AIMR
and SAFAS. He holds an MBA from Washington University,
Missouri and a BS from Oklahoma State University.
J. Eric Thorderson, Executive Director of Fixed Income
Investments since March of 1994, has managed the Money
Market Instruments investment category since September of
1995. 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. Mr. Thorderson earned the CFA designation
in 1989 and is a member of the AIMR and SAFAS. He holds
an MBA from the University of Illinois and a BA from
Wayne State University of Michigan.
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.
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
Part B
Statement of Additional Information for the
Balanced Strategy, Growth Strategy and Income Strategy Funds
is included herein
Not included in this Post-Effective Amendment
is the Statement of Additional Information for the
Growth and Tax Strategy, Cornerstone Strategy, Emerging Markets,
Gold, International, and World Growth Funds,
GNMA Trust and Treasury Money Market Trust
[A picture USAA STATEMENT OF
of the USAA INVESTMENT ADDITIONAL INFORMATION
logo is here] TRUST February 1, 1996
- -------------------------------------------------------------------
USAA INCOME STRATEGY FUND
USAA BALANCED STRATEGY FUND
USAA GROWTH STRATEGY FUND
USAA INVESTMENT TRUST (the Trust) is a registered investment
company offering shares of eleven no-load mutual funds, three of
which are described in this Statement of Additional Information
(SAI): the Income Strategy Fund, Balanced Strategy Fund, and
Growth Strategy Fund (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 February 1, 1996, 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
2 Additional Information Regarding Redemption of Shares
3 Investment Plans
4 Investment Policies
6 Special Risk Considerations
7 Investment Restrictions
8 Portfolio Transactions
9 Further Description of Shares
10 Tax Considerations
11 Trustees and Officers of the Trust
14 The Trust's Manager
15 General Information
15 Calculation of Performance Data
16 Appendix A - Long-Term and Short-Term Debt Ratings
19 Appendix B - Comparison of Portfolio Performance
22 Appendix C - Dollar-Cost Averaging
Unaudited Financial Statements
23 Income Strategy Fund
33 Balanced Strategy Fund
43 Growth Strategy Fund
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 NAV 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 each Fund 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 NAV 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.
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 Securities and Exchange Commission (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.
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 days(s) each month that
money is transferred from a checking or savings account. By
completing an application, which may be obtained from the
Manager, you invest a specific amount each month ($50 minimum) in
any of your accounts.
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.
Investment Plans, cont.
Tax-Deferred Retirement Plans
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 $250 or minimum $100 with a minimum $50 monthly electronic
investment. Subsequent investments of $50 or more per account
may be made at any time. Investments may be made in one or any
combination of the Funds described in the Prospectus of each Fund
of USAA Mutual Fund, Inc. and USAA Investment Trust (not
available in the Growth and Tax Strategy Fund).
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.
Section 4(2) Commercial Paper and Rule 144A Securities
Each Fund may invest in commercial paper issued in reliance on
the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 (Section 4(2)
Commercial Paper). Section 4(2) Commercial Paper is restricted
as to disposition under the federal securities laws; therefore,
any resale of Section 4(2) Commercial Paper must be effected in a
transaction exempt from registration under the Securities Act of
1933. Section 4(2) Commercial Paper is normally resold to other
investors through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) Commercial
Paper, thus providing liquidity.
Each Fund may also 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.
Liquidity Determinations
The Board of Trustees has established guidelines pursuant to
which Section 4(2) Commercial Paper, 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 restrictions
applicable to investments in illiquid securities. In determining
the liquidity of Section 4(2) Commercial Paper 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. In determining the
liquidity 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 (including Eurodollar
obligations) 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.
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
Each Fund 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.
Investment Policies, cont.
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
generally 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)
Certain risks are 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 Funds 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 the Prospectus.
SPECIAL RISK CONSIDERATIONS
Currency Exchange Rate Fluctuations
A portion of each 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
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 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 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) 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 and its agencies or 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 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, valued at the lower of cost or market
value, in excess of 5% of the Fund's net assets.
Included in that amount, but not to exceed 2% of the
Fund's net assets, may be 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).
Investment Restrictions, cont.
(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) Purchase any security while borrowings representing more
than 5% of the Fund's total assets are outstanding.
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 Funds, preference may be given to those
broker-dealers who provide research or other services to the
Manager. 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. In return for such services, a Fund
may pay to a broker a higher commission than may be charged
by other brokers, provided that the Manager determines in good
faith that such commission is reasonable in relation to the value
of the brokerage and research services provided by such broker,
viewed in terms of either that particular transaction or of the
overall responsibility of the Manager to the Funds and its other
clients. 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 Turnover Rates
The rate of portfolio turnover in any of the Funds 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 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. A higher degree
of equity portfolio activity will increase brokerage costs to a
Fund. It is not anticipated however, that the portfolio turnover
rates of the Funds 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.
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, three 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 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 NAVs 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 Fund'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) 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.
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 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 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.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust consists of seven 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.
M. Staser Holcomb 1, 2
Trustee and Chairman of the Board of Trustees
Age: 63
President, Chief Executive Officer, Director and Vice Chairman of
the Board of Directors of USAA Capital Corporation and several of
its subsidiaries and affiliates (1/96-present); Executive Vice
President, Chief Information Officer, United Services Automobile
Association (USAA) (2/94-12/95); Executive Vice President, Chief
Financial Officer, USAA and President, Director and Vice Chairman
of the Board of Directors, USAA Capital Corporation (9/91-1/94);
and Executive Vice President, Property & Casualty Operations,
USAA (1/90-8/91). Mr. Holcomb also will serve as a Trustee and
Chairman of the Board of Trustees of USAA State Tax-Free Trust
and as a 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: 61
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.
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.
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.
Trustees and Officers of the Trust, cont.
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: 46
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
Executive Director, Mutual Fund Accounting, IMCO (10/95-present);
Director, Mutual Fund Accounting, IMCO (12/94-10/95); 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;
Bradford W. Rich, 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
- ----------------
* Effective January 1, 1996, M. Staser Holcomb
replaced Hansford T. Johnson as Trustee and
Chairman of the Board of Trustees and C. Dale
Briscoe retired from the Board of Trustees.
(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 December 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 December 31, 1995, USAA and its affiliates
(including related employee benefit plans) owned 502,387 shares
(58.8%) of the Income Strategy Fund, 500,000 shares (48.2%) of
the Balanced Strategy Fund, 1,000,000 shares (34.9%) of the
Growth Strategy Fund, 302,694 shares (11.1%) of the Emerging
Markets Fund, 5,949,998 shares (28.2%) of the International Fund,
1,479,566 shares (9.1%) of the World Growth Fund, and 356,369
shares (1.2%) of the GNMA Trust, for an aggregate total of
10,091,013 shares (4.6%) of the Trust.
The Trust knows of no other persons who, as of December
31, 1995, held of record or owned beneficially 5% or more of the
Income Strategy, Balanced Strategy or Growth Strategy Funds'
shares.
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 $29 billion, of
which approximately $16.5 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, 1997 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 limit the annual expenses of the Income
Strategy and Balanced Strategy Funds to 1.00% and 1.25%,
respectively, of each Fund's ANA until October 1, 1996 and will
reimburse each 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.
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 of $23.50 by the Balanced
Strategy and Growth Strategy Funds and $26.00 by the Income
Strategy 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 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
Unaudited Financial Statements for the Funds, as of November 30,
1995, are set forth on pages 23 to 60 of this SAI.
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 - Income Strategy Fund
This Fund may advertise performance in terms of a 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:
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 Fund's 30-day yield for the period ended November 30,
1995 was 4.60%.
Calculation of Performance Data, cont.
Total Return
The Funds 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.
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS
Long-Term Debt Ratings
Moody's:
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.
S&P:
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.
Fitch:
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.
Duff & Phelps:
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 but may vary slightly from time to time
because of economic conditions.
A Protection factors are average but adequate. However, risk
factors are variable and greater in periods of economic stress.
BBB Below average protection factors but still considered
sufficient for prudent investment. Considerable
variability in risk during economic cycles.
Short-Term Debt Ratings
Moody's Corporate and Government
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.
Prime-3 Issuers (or supporting institutions) have an acceptable
capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and
market composition may be more pronounced. Variability
in earnings and profitability may result in changes in
the level of debt protection measurements and the
requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.
Appendix A, cont.
Moody's Municipal
MIG 1/VMIG 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/VMIG 2 This designation denotes high quality. Margins
of protection are ample although not so large as
in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All
security elements are accounted for but there is
lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may
be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality.
Protection commonly regarded as required of an
investment security is present and although not
distinctly or predominantly speculative, there is
specific risk.
S&P Corporate and Government
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.
A-3 Designation indicates a satisfactory capacity for timely
payment. Issues with this designation, however, are
somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the
higher designations.
S&P Municipal
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.
Fitch
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 for 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.
F-3 Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance
for timely payment is adequate, however, near-term
adverse change is likely to cause these securities to be
rated below investment grade.
Duff & Phelps Inc.
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.
Duff 3 Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless,
timely payment is expected.
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 Planning, a monthly magazine that periodically features
companies in the mutual fund industry.
Financial Services Week, a weekly newspaper which covers
financial news.
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.
Appendix B, cont.
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 which covers
financial news and rates mutual funds produced by Morningstar, Inc.
(a data service which tracks open-end 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.
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 towards the novice
investor.
In addition, the Growth Strategy Fund may be cited for
performance information and articles in International Reports, a
publication providing insights on world financial markets and
economics.
In addition to the sources above, performance of our Funds
may also be tracked by Lipper Analytical Services, Inc. and
Morningstar, Inc. A Fund will be compared to Lipper's or Morningstar's
appropriate fund category according to its objective and
portfolio holdings. The Balanced Strategy Fund will be compared
to funds in Lipper's and Morningstar's balanced fund categories,
the Growth Strategy Fund to Lipper's flexible portfolio fund
category and to Morningstar's asset allocation fund category, and
the Income Strategy Fund to Lipper's Corporate Debt Funds BBB
Rated category and to Morningstar's asset allocation 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.
- 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.
- 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.
- 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 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.
INCOME STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(In Thousands)
November 30, 1995
(Unaudited)
Assets
Investments in securities, at market value (identified
cost of $8,062) $ 8,410
Cash 108
Receivables:
Capital shares sold 56
Dividends 134
-------
Total assets 8,708
-------
Liabilities
Securities purchased 91
Accounts payable and accrued expenses 10
-------
Total liabilities 101
-------
Net assets applicable to capital shares
outstanding $ 8,607
=======
Represented by:
Paid-in capital $ 8,189
Accumulated undistributed net investment income 70
Net unrealized appreciation of investments 348
-------
Net assets applicable to capital shares
outstanding $ 8,607
=======
Capital shares outstanding, unlimited number of shares
authorized, no par value 807
=======
Net asset value, redemption price, and offering price
per share $ 10.66
=======
See accompanying notes to financial statements.
INCOME STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1995
(Unaudited)
Common Stocks (18.9%)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Aerospace/Defense (1.3%)
500 B.F. Goodrich Co. $ 35
700 Boeing Co. 51
600 Rockwell International Corp. 30
-------
116
-------
Aluminum (0.3%)
500 Aluminum Co. of America 29
-------
Automobiles (0.4%)
1,100 Ford Motor Co. 31
-------
Bank Holding Companies - Money Center (0.4%)
500 Bankers Trust New York Corp. 32
--------
Chemicals (0.7%)
600 Avery Dennison Corp. 29
500 Dow Chemical Co. 35
--------
64
--------
Chemicals - Specialty (0.3%)
800 Morton International, Inc. 28
--------
Computer Software & Service (0.3%)
1,500 Novell, Inc.* 25
--------
Containers - Metals & Glass (0.3%)
1,000 Ball Corp. 29
--------
Distribution & Pipelines (0.7%)
1,100 NICOR, Inc. 28
900 Sonat, Inc. 29
--------
57
--------
Electric Power (0.3%)
600 Houston Industries, Inc. 27
--------
Entertainment (0.4%)
800 Time Warner, Inc. 32
--------
Foods (0.4%)
1,200 Dean Foods Co. 34
--------
Healthcare - Diversified (0.6%)
300 American Home Products Corp. 27
300 Johnson & Johnson 26
--------
53
--------
Healthcare - HMO (0.5%)
1,500 Humana, Inc.* 42
--------
Healthcare - Miscellaneous (0.2%)
800 Caremark International, Inc. 16
--------
INCOME STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Household Products (0.7%)
300 Procter & Gamble Co. $ 26
2,000 Sunbeam Corp. 32
--------
58
--------
Insurance - Property/Casualty (1.1%)
700 Allstate Corp. 29
350 American International Group, Inc. 32
1,600 Prudential Reinsurance Holdings, Inc. 33
--------
94
--------
Leisure Time (0.4%)
1,600 Brunswick Corp. 34
--------
Machinery - Diversified (0.8%)
1,700 BW/IP, Inc. 26
1,200 Deere & Co. 40
--------
66
--------
Manufacturing - Diversified Industries (0.4%)
1,000 Hillenbrand Industries, Inc. 33
--------
Medical Products & Supplies (0.4%)
1,200 C.R. Bard, Inc. 35
--------
Metals - Miscellaneous (0.3%)
800 Inco Ltd. 29
--------
Office Equipment & Supplies (0.4%)
250 Xerox Corp. 34
--------
Oil - Domestic (0.4%)
1,600 Occidental Petroleum Corp. 35
--------
Oil - Exploration & Production (0.4%)
1,200 Apache Corp. 32
--------
Oil - International (0.4%)
500 Texaco, Inc. 37
--------
Oil Well Equipment & Service (0.4%)
500 Schlumberger Ltd. 32
--------
Paper & Forest Products (0.8%)
1,700 Fort Howard Corp.* 34
700 Weyerhaeuser Co. 31
--------
65
--------
Pollution Control (0.4%)
1,200 WMX Technologies, Inc. 35
--------
Publishing (0.4%)
500 Dun & Bradstreet Corp. 31
--------
Railroads (0.4%)
400 Norfolk Southern Corp. 32
--------
Real Estate Investment Trusts (0.4%)
1,800 Public Storage, Inc. 32
--------
INCOME STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Restaurants (0.3%)
1,900 Brinker International, Inc.* $ 29
--------
Retail - General Merchandising (0.8%)
800 J.C. Penney Company, Inc. 37
800 Sears, Roebuck & Co. 32
--------
69
--------
Retail - Specialty (0.4%)
1,500 Borders Group, Inc.* 27
1,100 Phillips-Van Heusen Corp. 11
--------
38
--------
Telephones (1.1%)
500 American Telephone & Telegraph Co. 33
800 GTE Corp. 34
800 Sprint Corp. 32
--------
99
--------
Tobacco (0.7%)
1,100 RJR Nabisco Holdings Corp. 32
1,300 Universal Corp. 31
--------
63
--------
Total common stocks (cost: $1,555) 1,627
--------
Preferred Stocks (0.3%)
300 National Semiconductor Corp. depositary
shares, $3.25 convertible (cost: $27) 24
--------
U.S. Government & Agency Issues (78.5%)
Principal
Amount Coupon
(000) Rate Maturity
----- ---- --------
$ 5,295 U.S. Treasury Bond 7.88% 2/15/21 6,374
350 U.S. Treasury Bond 6.88 8/15/25 385
--------
Total U.S. government & agency issues
(cost: $6,480) 6,759
--------
Total investments (cost: $8,062) $ 8,410
========
- ----------------
*Non-income producing.
INCOME STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1995
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and
practices discussed in note 1 to the financial statements.
The cost of securities for federal income tax purposes is
approximately the same as that reported in the financial
statements.
The percentages shown represent the percentage of the investments
to net assets.
See accompanying notes to financial statements.
INCOME STRATEGY FUND
STATEMENT OF OPERATIONS
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
Net investment income:
Income:
Dividends $ 7
Interest 78
------
Total income 85
------
Expenses:
Management fees 8
Transfer agent's fees 2
Custodian's fees 12
Postage 1
Shareholder reporting fees 1
Trustees' fees 1
Registration fees 3
Audit fees 8
Legal fees 1
Other 1
------
Total expenses before reimbursement 38
Expenses reimbursed (23)
------
Total expenses after reimbursement 15
------
Net investment income 70
------
Net realized and unrealized gain on investments:
Net realized gain on investments 35
Change in net unrealized appreciation/
depreciation of investments 348
------
Net realized and unrealized gain 383
------
Increase in net assets resulting from operations $ 453
======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
INCOME STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
From operations:
Net investment income $ 70
Net realized gain on investments 35
Change in net unrealized appreciation/depreciation
of investments 348
-------
Increase in net assets resulting from operations 453
-------
Distributions to shareholders from:
Net realized gains (35)
-------
From capital share transactions:
Shares sold 8,226
Shares issued for dividends reinvested 35
Shares redeemed (72)
-------
Increase in net assets from capital share transactions 8,189
-------
Net increase in net assets 8,607
Net assets:
Beginning of period -
-------
End of period $ 8,607
=======
Undistributed net investment income included in net assets:
Beginning of period $ -
=======
End of period $ 70
=======
Change in shares outstanding:
Shares sold 811
Shares issued for dividends reinvested 3
Shares redeemed (7)
-------
Increase in shares outstanding 807
=======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
INCOME STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
November 30, 1995
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the
Investment Company Act of 1940, is a diversified, open-end
management investment company organized as a Massachusetts
business trust consisting of eleven separate funds. The
information presented in this semiannual report pertains only to
the Income Strategy Fund (the Fund), which commenced operations
on September 1, 1995. The Fund's investment objective is to seek
high current return, with reduced risk over time, through an
asset allocation strategy which emphasizes income and gives
secondary emphasis to long-term growth of capital.
A. Security valuation - The value of each security is determined
(as of the close of trading on the New York Stock Exchange on
each business day the Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange are valued at the
last sales price on that exchange. Portfolio securities traded
primarily on foreign securities exchanges are generally valued at
the 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.
3. Securities purchased with maturities of 60 days or less are
stated at amortized cost which approximates market value.
4. Other debt and government securities are valued each business
day by a pricing service (the Service) approved by the Fund's
Board of Trustees. The Service uses the mean between quoted bid
and asked prices or the last sale price to price securities when,
in the Service's judgement, these prices are readily available
and are representative of the securities' market values. For
many securities, such prices are not readily available. The
Service generally prices these securities based on methods which
include consideration of yields or prices of securities of
comparable quality, coupon, maturity and type, indications as to
values from dealers in securities, and general market conditions.
5. Securities 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.
B. Federal taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
income to its shareholders. Therefore, no federal income or
excise tax provision is required.
C. Investments in securities - As is common in the industry,
security transactions are accounted for on the date the
securities are purchased or sold (trade date). Gain or loss from
sales of investment securities is computed on the identified cost
basis. Dividend income is recorded on the ex-dividend date;
interest income is recorded on the accrual basis. Discounts and
premiums on securities are amortized over the life of the
respective securities.
INCOME STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
(In Thousands)
November 30, 1995
(Unaudited)
(2) Line of Credit
The Fund participates with other USAA funds in a joint $150
million short-term revolving loan agreement (the Agreement)
through January 15, 1996, for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Subject to
availability under this Agreement, the Fund may borrow up to 10%
of the market value of its assets at the time of such borrowing.
Borrowings under this Agreement will bear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank
of New York or at .125% over the London Interbank Offered Rate.
The Fund had no borrowings under this Agreement during the three-
month period ended November 30, 1995.
(3) Distributions
Distributions of net investment income are made quarterly.
Distributions of realized gains from security transactions not
offset by capital losses are made in the succeeding fiscal year.
(4) Investment Transactions
Purchases and sales of securities, excluding short-term
securities, for the three-month period ended November 30, 1995
were $11,694 and $3,664, respectively.
Gross unrealized appreciation and depreciation of investments as
of November 30, 1995 was $383 and $35, respectively.
(5) Transactions with Manager
A. Management fees - The investment policy of the Fund and the
management of the Fund's portfolio is carried out by USAA
Investment Management Company (the Manager). The Fund's
management fees are computed at .50% of its annual average net
assets.
The Manager has voluntarily agreed to limit the annual expenses
of the Fund to 1% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services, an affiliate of the Manager,
provides transfer agent services to the Fund. Shareholder
accounting service fees are based on an annual charge per
shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Company has an agreement with
the Manager for exclusive underwriting and distribution of the
Fund's shares on a continuing best efforts basis. This agreement
provides that the Manager will receive no fee or other
remuneration for such services.
(6) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by
United Services Automobile Association (the Association), a
large, diversified financial services institution. At November
30, 1995, the Association and its affiliates owned 502 shares
(62.2%) of the Fund.
INCOME STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 1995
(Unaudited)
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding
throughout the period is as follows:
Three-Month
Period Ended
November 30,
1995 *
------
Net asset value at
beginning of period $ 10.00
Net investment income .09
Net realized and
unrealized gain .62
Distributions of realized
capital gains (.05)
--------
Net asset value at
end of period $ 10.66
========
Total return (%) ** 7.11
Net assets at end of period (000) $ 8,607
Ratio of expenses to
average net assets (%) 1.00(a)(b)
Ratio of net investment
income to average net
assets (%) 4.72(a)(b)
Portfolio turnover (%) 68.79
Average commission rate
paid per share .0495
- ------------
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all capital gain distributions
during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) The information contained in the above table is based on actual
expenses for the period, after giving effect to reimbursement of
expenses by the Manager. Absent such reimbursement the Fund's
ratios would have been:
Three-Month
Period Ended
November 30,
1995 *
------
Ratio of expenses to average net assets (%) 2.53(a)
Ratio of net investment income to average net assets (%) 3.19(a)
BALANCED STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(In Thousands)
November 30, 1995
(Unaudited)
Assets
Investments in securities, at market value (identified
cost of $9,554) $ 9,586
Cash 11
Receivables:
Capital shares sold 84
Dividends and interest 89
-------
Total assets 9,770
-------
Liabilities
Securities purchased 221
Accounts payable and accrued expenses 15
-------
Total liabilities 236
-------
Net assets applicable to capital shares outstanding $ 9,534
=======
Represented by:
Paid-in capital $ 9,443
Accumulated undistributed net investment income 59
Net unrealized appreciation of investments 32
-------
Net assets applicable to capital shares outstanding $ 9,534
=======
Capital shares outstanding, unlimited number of shares
authorized, no par value 948
=======
Net asset value, redemption price, and offering price per share $ 10.06
=======
See accompanying notes to financial statements.
BALANCED STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1995
(Unaudited)
Common Stocks (52.9%)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Aerospace/Defense (3.7%)
1,500 B.F. Goodrich Co. $ 105
2,100 Boeing Co. 153
1,900 Rockwell International Corp. 93
--------
351
--------
Aluminum (1.0%)
1,600 Aluminum Co. of America 94
--------
Automobiles (0.9%)
3,200 Ford Motor Co. 90
--------
Bank Holding Companies - Money Center (1.1%)
1,600 Bankers Trust New York Corp. 104
--------
Chemicals (2.0%)
1,800 Avery Dennison Corp. 86
1,500 Dow Chemical Co. 106
--------
192
--------
Chemicals - Specialty (0.9%)
2,600 Morton International, Inc. 90
--------
Computer Software & Service (0.8%)
4,700 Novell, Inc.* 79
--------
Containers - Metals & Glass (1.0%)
3,500 Ball Corp. 100
--------
Distribution & Pipelines (1.8%)
3,300 NICOR, Inc. 84
2,700 Sonat, Inc. 87
--------
171
--------
Electric Power (1.0%)
2,000 Houston Industries, Inc. 92
--------
Entertainment (1.1%)
2,600 Time Warner, Inc. 104
--------
Foods (1.1%)
3,600 Dean Foods Co. 101
--------
Healthcare - Diversified (1.7%)
900 American Home Products Corp. 82
900 Johnson & Johnson 78
--------
160
--------
Healthcare - HMO (1.3%)
4,500 Humana, Inc.* 126
--------
Healthcare - Miscellaneous (0.7%)
3,600 Caremark International, Inc. 71
--------
BALANCED STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Household Products (1.9%)
900 Procter & Gamble Co. $ 78
6,100 Sunbeam Corp. 99
--------
177
--------
Insurance - Property/Casualty (3.0%)
2,100 Allstate Corp. 86
1,000 American International Group, Inc. 90
5,200 Prudential Reinsurance Holdings, Inc. 108
--------
284
--------
Leisure Time (1.2%)
5,200 Brunswick Corp. 111
--------
Machinery - Diversified (1.9%)
5,000 BW/IP, Inc. 77
3,300 Deere & Co. 108
--------
185
--------
Manufacturing - Diversified Industries (1.0%)
3,000 Hillenbrand Industries, Inc. 98
--------
Medical Products & Supplies (1.1%)
3,700 C.R. Bard, Inc. 107
--------
Metals - Miscellaneous (1.0%)
2,700 Inco Ltd. 96
--------
Office Equipment & Supplies (0.9%)
600 Xerox Corp. 82
--------
Oil - Domestic (1.2%)
5,000 Occidental Petroleum Corp. 111
--------
Oil - Exploration & Production (1.0%)
3,700 Apache Corp. 99
--------
Oil - International (1.2%)
1,500 Texaco, Inc. 111
--------
Oil Well Equipment & Service (1.0%)
1,500 Schlumberger Ltd. 95
--------
Paper & Forest Products (2.3%)
5,800 Fort Howard Corp.* 115
2,200 Weyerhaeuser Co. 100
--------
215
--------
Pollution Control (1.2%)
3,800 WMX Technologies, Inc. 112
--------
Publishing (1.0%)
1,500 Dun & Bradstreet Corp. 94
--------
Railroads (1.1%)
1,400 Norfolk Southern Corp. 110
--------
Real Estate Investment Trusts (1.0%)
5,500 Public Storage, Inc. 99
--------
BALANCED STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Restaurants (1.0%)
6,000 Brinker International, Inc.* $ 92
--------
Retail - General Merchandising (2.2%)
2,300 J.C. Penney Company, Inc. 108
2,500 Sears, Roebuck & Co. 98
--------
206
--------
Retail - Specialty (1.4%)
5,000 Borders Group, Inc.* 88
4,700 Phillips-Van Heusen Corp. 49
--------
137
--------
Telephones (3.2%)
1,600 American Telephone & Telegraph Co. 106
2,400 GTE Corp. 102
2,400 Sprint Corp. 96
--------
304
--------
Tobacco (2.0%)
3,500 RJR Nabisco Holdings Corp. 102
3,900 Universal Corp. 93
--------
195
--------
Total common stocks (cost: $4,820) 5,045
--------
Preferred Stocks (0.9%)
1,100 National Semiconductor Corp. depositary
shares, $3.25 convertible (cost: $99) 87
--------
Bonds (7.4%)
Principal
Amount Coupon
(000) Rate Maturity
----- ---- --------
$ 1,000 Kmart Corp. (cost: $974) 7.95% 2/01/23 707
--------
U.S. Government & Agency Issues (39.3%)
U.S. Treasury (29.0%)
1,250 U.S. Treasury Bonds 6.25 8/15/23 1,251
1,500 U.S. Treasury Notes 5.88 2/15/04 1,511
--------
2,762
--------
Discount Note (10.3%)
985 Federal Home Loan Mortgage
Corp. 5.80 12/01/95 985
--------
Total U.S. government & agency issues
(cost: $3,661) 3,747
--------
Total investments (cost: $9,554) $ 9,586
========
- ---------------
*Non-income producing.
BALANCED STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1995
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and
practices discussed in note 1 to the financial statements.
The cost of securities for federal income tax purposes is
approximately the same as that reported in the financial statements.
The percentages shown represent the percentage of the investments
to net assets.
See accompanying notes to financial statements.
BALANCED STRATEGY FUND
STATEMENT OF OPERATIONS
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
Net investment income:
Income:
Dividends $ 22
Interest 57
------
Total income 79
------
Expenses:
Management fees 13
Transfer agent's fees 1
Custodian's fees 13
Postage 2
Shareholder reporting fees 1
Trustees' fees 1
Registration fees 3
Audit fees 8
Legal fees 2
Other 1
------
Total expenses before reimbursement 45
Expenses reimbursed (25)
------
Total expenses after reimbursement 20
------
Net investment income 59
Change in net unrealized appreciation/depreciation of investments 32
------
Increase in net assets resulting from operations $ 91
======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
BALANCED STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
From operations:
Net investment income $ 59
Change in net unrealized appreciation/depreciation of investments 32
--------
Increase in net assets resulting from operations 91
--------
From capital share transactions:
Shares sold 9,462
Shares redeemed (19)
--------
Increase in net assets from capital share transactions 9,443
--------
Net increase in net assets 9,534
Net assets:
Beginning of period -
--------
End of period $ 9,534
========
Undistributed net investment income included in net assets:
Beginning of period $ -
========
End of period $ 59
========
Change in shares outstanding:
Shares sold 950
Shares redeemed (2)
--------
Increase in shares outstanding 948
========
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
BALANCED STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
November 30, 1995
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA INVESTMENT TRUST (the Trust), registered under the
Investment Company Act of 1940, is a diversified, open-end
management investment company organized as a Massachusetts
business trust consisting of eleven separate funds. The
information presented in this semiannual report pertains only to
the Balanced Strategy Fund (the Fund), which commenced operations
on September 1, 1995. The Fund's investment objective is to seek
high total return, with reduced risk over time, through an asset
allocation strategy that seeks a combination of long-term growth
of capital and current income.
A. Security valuation - The value of each security is determined
(as of the close of trading on the New York Stock Exchange on
each business day the Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange are valued at the
last sales price on that exchange. Portfolio securities traded
primarily on foreign securities exchanges are generally valued at
the 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.
3. Securities purchased with maturities of 60 days or less are
stated at amortized cost which approximates market value.
4. Other debt and government securities are valued each business
day by a pricing service (the Service) approved by the Fund's
Board of Trustees. The Service uses the mean between quoted bid
and asked prices or the last sale price to price securities when,
in the Service's judgement, these prices are readily available
and are representative of the securities' market values. For
many securities, such prices are not readily available. The
Service generally prices these securities based on methods which
include consideration of yields or prices of securities of
comparable quality, coupon, maturity and type, indications as to
values from dealers in securities, and general market conditions.
5. Securities 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.
B. Federal taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
income to its shareholders. Therefore, no federal income or
excise tax provision is required.
C. Investments in securities - As is common in the industry,
security transactions are accounted for on the date the
securities are purchased or sold (trade date). Gain or loss from
sales of investment securities is computed on the identified cost
basis. Dividend income is recorded on the ex-dividend date;
interest income is recorded on the accrual basis. Discounts and
premiums on securities are amortized over the life of the
respective securities.
BALANCED STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
(In Thousands)
November 30, 1995
(Unaudited)
(2) Line of Credit
The Fund participates with other USAA funds in a joint $150
million short-term revolving loan agreement (the Agreement)
through January 15, 1996, for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Subject to
availability under this Agreement, the Fund may borrow up to 10%
of the market value of its assets at the time of such borrowing.
Borrowings under this Agreement will bear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank
of New York or at .125% over the London Interbank Offered Rate.
The Fund had no borrowings under this Agreement during the three-
month period ended November 30, 1995.
(3) Distributions
Distributions of net investment income are made quarterly.
Distributions of realized gains from security transactions not
offset by capital losses are made in the succeeding fiscal year.
(4) Investment Transactions
Purchases of securities, excluding short-term securities, for the
three-month period ended November 30, 1995 were $8,569.
Gross unrealized appreciation and depreciation of investments as
of November 30, 1995 was $406 and $374, respectively.
(5) Transactions with Manager
A. Management fees - The investment policy of the Fund and the
management of the Fund's portfolio is carried out by USAA
Investment Management Company (the Manager). The Fund's
management fees are computed at .75% of its annual average net
assets.
The Manager has voluntarily agreed to limit the annual expenses
of the Fund to 1.25% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services, an affiliate of the Manager,
provides transfer agent services to the Fund. Shareholder
accounting service fees are based on an annual charge per
shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Company has an agreement with
the Manager for exclusive underwriting and distribution of the
Fund's shares on a continuing best efforts basis. This agreement
provides that the Manager will receive no fee or other
remuneration for such services.
(6) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by
United Services Automobile Association (the Association), a
large, diversified financial services institution. At November
30, 1995, the Association and its affiliates owned 500 shares
(52.8%) of the Fund.
BALANCED STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 1995
(Unaudited)
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the
period is as follows:
Three-Month
Period Ended
November 30,
1995*
-----
Net asset value at
beginning of period $ 10.00
Net investment income .06
--------
Net asset value at
end of period $ 10.06
========
Total return (%) .60
Net assets at end of
period (000) $ 9,534
Ratio of expenses to
average net assets (%) 1.25(a)(b)
Ratio of net investment
income to average net
assets (%) 3.65(a)(b)
Portfolio turnover (%) -
Average commission rate
paid per share .0493
- ------------
* Fund commenced operations September 1, 1995.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) The information contained in the above table is based on actual
expenses for the period, after giving effect to reimbursement of
expenses by the Manager. Absent such reimbursement the Fund's
ratios would have been:
Three-Month
Period Ended
November 30,
1995*
-----
Ratio of expenses to average net assets (%) 2.81(a)
Ratio of net investment income to average
net assets (%) 2.09(a)
GROWTH STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
(In Thousands)
November 30, 1995
(Unaudited)
Assets
Investments in securities, at market value (identified cost
of $24,260) $ 25,016
Cash 119
Cash denominated in foreign currencies (identified cost of $1) 1
Receivables:
Capital shares sold 94
Dividends and interest 111
Securities sold 301
Foreign currency contracts held, at value 135
--------
Total assets 25,777
--------
Liabilities
Securities purchased 997
Foreign currency contracts held, at value 136
USAA Investment Management Company 13
USAA Transfer Agency Company 2
Accounts payable and accrued expenses 34
--------
Total liabilities 1,182
--------
Net assets applicable to capital shares outstanding $ 24,595
========
Represented by:
Paid-in capital $ 23,814
Accumulated undistributed net investment income 51
Accumulated net realized loss on investments (26)
Net unrealized appreciation of investments 756
--------
Net assets applicable to capital shares outstanding $ 24,595
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 2,382
========
Net asset value, redemption price, and offering price per share $ 10.33
========
See accompanying notes to financial statements.
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1995
(Unaudited)
Foreign Securities (18.4%)
Foreign Common Stocks (18.0%)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Argentina (0.2%)
2,159 IRSA Inversiones y Representaciones S.A. GDS $ 47
-------
Australia (0.8%)
25,000 CSL Ltd. 66
55,000 David Jones Ltd. 82
6,000 Rothmans Holdings Ltd. 23
8,400 Seven Network Ltd. 22
-------
193
-------
Austria (0.3%)
550 VA Technologie AG 63
-------
Belgium (0.4%)
420 Colruyt S.A. 108
-------
Bermuda (0.5%)
5,000 Central European Media Enterprises Ltd. 110
-------
Brazil (0.1%)
2,700 Rhodia-Ster S.A. GDS 27
-------
Canada (0.7%)
1,500 Alliance Forest Products, Inc. * 30
13,000 Beau Canada Exploration Ltd. * 13
1,500 Canadian National Railway Co. * 22
2,000 Canadian Occidental Petroleum Ltd. 70
1,500 Suncor, Inc. 46
-------
181
-------
Chile (0.3%)
4,000 Banco Osorno y La Union S.A. ADR 50
2,000 Maderas y Sinteticos S.A. ADS 33
-------
83
-------
Denmark (0.6%)
330 Novo Nordisk A/S "B" 42
2,500 Tele Danmark A/S ADS 70
600 Unidanmark A/S 29
-------
141
-------
France (0.8%)
2,000 Coflexip ADS 31
2,000 Elf Aquitaine ADS 70
750 Eramet Group 50
230 Essilor International 43
-------
194
-------
Germany (0.9%)
1,400 Adidas AG * 74
1,000 Praktiker Bau - Und Heimwerkermarkte * 31
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
80 Siemens AG $ 42
1,540 Veba AG 63
-------
210
-------
Hong Kong (1.2%)
900 China Yuchai International Ltd. 8
60,000 Florens Group Ltd. 35
3,000 Gemstar International Group Ltd. 102
7,000 Hutchison Whampoa Ltd. 40
21,000 New World Infrastructure Ltd. * 36
200,000 Regal Hotels International Holdings 44
18,000 Varitronix International Ltd. 34
-------
299
-------
Hungary (0.2%)
6,000 Mol Magyar Olay Es Gazipari GDS * 50
-------
India (0.3%)
1,500 Hindalco Industries Ltd. GDR 42
2,000 Larsen & Toubro Ltd. GDR 31
-------
73
-------
Indonesia (0.3%)
20,000 PT Asahimas Flat Glass Co. Ltd. * 21
1,000 PT Bank Dagang Nasional Indonesia 1
3,000 PT HM Sampoerna 30
13,000 PT Matahari Putra Prima 24
-------
76
-------
Israel (0.2%)
2,400 Koor Industries Ltd. ADS * 43
-------
Italy (0.5%)
3,500 Arnoldo Mondadori Editore 27
2,500 De Rigo S.p.A. 53
400 Gucci Group N. V. * 14
16,000 STET 32
--------
126
--------
Japan (3.7%)
4,000 77 Bank Ltd. 36
4,000 Bridgestone Corp. 59
3,000 Canon, Inc. 53
3,000 Daibiru Corp. 33
4,000 Higo Bank 30
5,000 Hitachi Ltd. 51
4,000 Honda Motor Co. Ltd. 72
1,000 Hoya Corp. 30
1,000 Ito-Yokado Co. Ltd. 55
1,000 Kyocera Corp. 79
3,000 Laox Co. Ltd. 63
7,000 Minebea Co. Ltd. 58
7,000 Mitsubishi Heavy Industries Ltd. 56
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
15,000 NKK Corp. $ 41
3,000 Nomura Securities Co. Ltd. 59
2,000 Shimamura Co. Ltd. 76
2,000 Tostem Corp. 61
-------
912
-------
Malaysia (0.3%)
11,250 Malaysian Assurance Alliance BHD 44
10,000 Technology Resources Industries BHD * 28
-------
72
-------
Mexico (0.6%)
5,000 Desc, Soceidad de Fomento Industrial,
S.A. de C.V. ADS * 66
1,400 Grupo Televisa, S.A. de C.V. ADS 31
1,400 Panamerican Beverages, Inc. "A" 45
-------
142
-------
Netherlands (1.0%)
1,940 EVC International N.V. 52
260 Heineken N.V. 46
1,100 Internationale Nederlanden Groep N.V. 72
1,050 Vendex International N.V. 30
330 Verenigd Bezit VNU 47
-------
247
-------
Norway (0.2%)
20,000 Christiania Bank og Kreditkasse 45
-------
Philippines (0.1%)
3,800 Philippine Commercial International Bank 32
-------
Portugal (0.2%)
3,000 Portugal Telecom, S.A. ADS * 56
-------
Singapore (0.1%)
5,500 Overseas Union Bank Ltd. 35
-------
South Africa (0.1%)
2,370 Murray and Roberts Holdings Ltd. 16
-------
Spain (0.4%)
600 Corporacion Mapfre 34
1,500 Telefonica de Espana, S.A. ADR 62
-------
96
-------
Sweden (0.8%)
450 Asea AB 44
1,160 Autoliv AB 69
3,000 Nordbanken AB * 51
1,900 Volvo AB 39
-------
203
-------
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Switzerland (0.6%)
56 Ciba Geigy AG $ 50
5 SGS Group 9
150 Sulzer AG P.C. 83
-------
142
-------
Taiwan (0.2%)
2,500 Acer, Inc. * 32
1,400 China Steel Corp. GDS 23
-------
55
-------
Thailand (0.1%)
1,800 Finance One Public Co. 11
-------
United Kingdom (1.2%)
14,000 Amstrad plc 57
1,000 British Gas plc 37
5,100 Cadbury Schweppes plc 44
6,500 Northern Ireland Electricity plc 44
3,000 Refuge Group plc 21
20,500 Tomkins plc 83
16,000 WPP Group plc 39
-------
325
-------
Venzuela (0.1%)
4,800 Corimon C A S A C A ADS * 18
-------
Total foreign common stocks (cost: $4,301) 4,431
-------
Foreign Preferred Stocks (0.2%)
Australia (0.1%)
15,000 Village Roadshow Ltd. 48
-------
Finland (0.1%)
300 Nokia Corp. ADS 16
-------
Total foreign preferred stocks (cost: $63) 64
-------
Foreign Bonds (0.2%)
Principal
Amount
(000)
----- Japan (0.2%)
$ 40 MBL International Finance (Bermuda) Trust,
Convertible Notes, 3.00%, 11/30/02 (cost: $42) 44
-------
Total foreign securities (cost: $4,406) 4,539
-------
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Domestic Securities (72.4%)
Small Cap Stocks (28.1%)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Air Freight (0.2%)
3,500 Atlas Air, Inc. * $ 53
-------
Airlines (0.5%)
4,000 Midwest Express Holdings, Inc. * 118
-------
Beverages - Alcoholic (0.8%)
3,900 Boston Beer Company, Inc. 100
1,100 Petes Brewing Co. 27
3,000 Redhook Ale Brewery, Inc. * 76
-------
203
-------
Biotechnology (0.3%)
3,200 Neurogen Corp. * 67
-------
Broadcasters (1.6%)
3,100 American Radio Systems Corp. * 71
5,000 Argyle Television, Inc. * 80
3,900 EchoStar Communications Corp. * 59
2,800 Evergreen Media Corp. * 68
2,000 Infinity Broadcasting Corp. 64
2,400 Sinclair Broadcast Group, Inc. * 47
-------
389
-------
Chemicals - Specialty (0.2%)
4,000 Zoltek Companies, Inc. * 56
-------
Communication - Equipment Manufacturers (0.7%)
1,000 Secure Computing Corp. 57
3,500 Spectrian Corp. * 81
800 Sync Research, Inc. 41
-------
179
-------
Computer Software & Service (6.4%)
3,500 7th Level, Inc. * 61
2,500 Advent Software, Inc. 53
3,300 Applied Microsystems Corp. 30
5,000 Carnegie Group, Inc. 47
5,000 Catalyst International, Inc. 65
1,600 Clarify, Inc. 44
4,000 Computron Software, Inc. 61
5,000 Cooper & Chyan Technology, Inc. 69
5,000 DataWorks Corp. 68
2,000 Fractal Design Corp. 29
1,200 Insignia Solutions plc 24
10,000 Intersolv, Inc. * 109
3,000 Logic Works, Inc. * 44
1,100 Meta-Software, Inc. 19
1,000 Netcom On-line Communication * 73
5,000 Novadigm, Inc. * 115
4,000 Open Environment Corp. * 40
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
5,000 PLATINUM Technology, Inc. * $ 84
3,500 Premenos Technology Corp. * 149
4,000 Rational Software Corp. * 70
1,150 Scopus Technology, Inc. 27
6,000 Smith Micro Software, Inc. * 59
5,000 Software 2000, Inc. 46
2,300 Verity, Inc. * 114
2,300 Visio Corp. 62
-------
1,562
-------
Computer Systems (0.4%)
1,500 Network Appliance, Inc. 45
5,000 RadiSys Corp. * 63
-------
108
-------
Cosmetics (0.7%)
4,800 The Estee Lauder Companies, Inc. 175
-------
Electrical Equipment (0.3%)
3,000 Charter Power Systems, Inc. 75
-------
Electronics - Instrumentation (2.2%)
3,700 3D Systems Corp. * 75
5,000 ADE Corp. * 81
3,000 Computational Systems, Inc. 45
5,000 Etec Systems, Inc. 58
15,000 Intevac, Inc. 103
5,000 OnTrak Systems, Inc. 84
2,500 Photon Dynamics, Inc. 24
5,000 Speedfam International, Inc. * 80
-------
550
-------
Electronics - Semi-Conductors (1.9%)
3,000 Ess Technology, Inc. 99
5,000 Sheldahl, Inc. 97
3,000 Sierra Semiconductor Corp. 56
6,000 Silicon Storage Technology, Inc. 81
5,000 SMART Modular Technologies, Inc. 55
5,200 TranSwitch Corp. * 66
-------
454
-------
Entertainment (0.3%)
4,000 Moovies, Inc. * 64
-------
Finance - Business/Commercial (0.4%)
5,000 Sirrom Capital Corp. 88
-------
Foods (0.4%)
5,500 Odwalla, Inc. 105
-------
Healthcare - HMO (0.1%)
700 First Commonwealth, Inc. 15
-------
Healthcare - Miscellaneous (3.2%)
10,000 AHI Healthcare Systems, Inc. * 117
6,000 ARV Assisted Living, Inc. * 61
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
1,100 Enterprise Systems, Inc. $ 34
3,500 HPR Inc. * 102
2,300 IDX Systems Corp. 63
3,000 Orthodontic Centers of America, Inc. * 95
700 PAREXEL International Corp. 16
3,000 Pediatrix Medical Group, Inc. * 62
2,000 Physician Reliance Network, Inc. * 71
3,000 Physicians Resource Group, Inc. * 65
3,700 Sterling Healthcare Group Corp. * 41
2,500 Total Renal Care Holdings, Inc. 67
-------
794
-------
Household Products (0.6%)
5,300 USA Detergents, Inc. * 138
-------
Insurance - Property/Casualty (0.3%)
1,800 HCC Insurance Holdings, Inc. * 60
-------
Leisure Time (0.3%)
3,500 Ride, Inc. * 75
-------
Manufacturing - Diversified Industries (0.4%)
4,600 United States Filter Corp. * 101
-------
Medical Products & Supplies (1.1%)
3,100 Henry Schein, Inc. 78
2,500 Omnicare, Inc. 94
5,000 Serologicals Corp. * 88
-------
260
-------
Oil & Gas Drilling (0.3%)
6,000 Falcon Drilling Company, Inc. * 77
-------
Pollution Control (0.2%)
3,000 Continental Waste Industries, Inc. 55
-------
Retail - General Merchandising (0.2%)
1,900 Dollar Tree Stores, Inc. 53
-------
Retail - Specialty (1.1%)
4,000 Borders Group, Inc. * 70
1,900 Creative Computers, Inc. * 51
4,500 Just For Feet, Inc. * 154
-------
275
-------
Shoes (0.5%)
6,100 Eastbay, Inc. 133
-------
Specialized Services (1.4%)
1,300 APAC TeleServices, Inc. * 41
5,600 Computer Learning Centers, Inc. * 50
2,200 COREStaff, Inc. 70
4,500 DST Systems, Inc. 130
5,000 Personnel Group Of America, Inc. * 61
-------
352
-------
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Telecommunications (0.5%)
2,200 Metrocall, Inc. * $ 53
4,000 MIDCOM Communications, Inc. * 71
-------
124
-------
Telephones (0.3%)
4,500 Brightpoint, Inc. 81
-------
Textiles - Apparel Manufacturers (0.3%)
10,000 Cutter & Buck, Inc. 73
-------
Total small cap stocks (cost: $6,286) 6,912
-------
Large Cap Stocks (29.0%)
Airlines (2.8%)
3,500 AMR Corp. * 268
3,300 Delta Air Lines, Inc. 256
6,900 Southwest Airlines Co. 173
-------
697
-------
Automobiles (2.0%)
3,000 Chrysler Corp. 156
3,800 Ford Motor Co. 107
4,800 General Motors Corp. 233
-------
496
-------
Drugs (0.7%)
4,785 Pharmacia & Upjohn, Inc. 172
-------
Finance - Business/Commercial (2.0%)
7,000 Student Loan Marketing Assn. 491
-------
Gaming Companies (0.5%)
800 Harrah's Entertainment, Inc. * 20
6,300 International Game Technology 78
800 Mirage Resorts, Inc. * 27
-------
125
-------
Healthcare - Diversified (0.9%)
2,500 Warner-Lambert Co. 223
-------
Medical Products & Supplies (1.5%)
4,400 Bausch & Lomb, Inc. 159
8,300 United States Surgical Corp. 208
-------
367
-------
Oil - Domestic (2.6%)
2,300 Atlantic Richfield Co. 249
5,000 Occidental Petroleum Corp. 111
3,300 Pennzoil Co. 131
5,000 Unocal Corp. 134
-------
625
-------
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
Market
Number Value
of Shares Security (000)
--------- -------- -----
Oil - Exploration & Production (1.4%)
4,900 Apache Corp. $ 131
3,700 Burlington Resources, Inc. 142
4,100 Union Texas Petroleum Holdings, Inc. 79
-------
352
-------
Oil - International (1.6%)
2,500 Chevron Corp. 123
3,700 Texaco, Inc. 274
-------
397
-------
Oil & Gas Drilling (0.9%)
3,800 Diamond Offshore Drilling, Inc. 110
16,200 Global Marine, Inc. * 109
-------
219
-------
Oil Well Equipment & Service (1.3%)
5,000 Halliburton Co. 217
3,100 Tidewater, Inc. 89
-------
306
-------
Pollution Control (0.6%)
5,300 WMX Technologies, Inc. 156
-------
Restaurants (0.4%)
6,000 Brinker International, Inc. * 92
-------
Tobacco (6.7%)
6,900 Philip Morris Companies, Inc. 605
18,400 RJR Nabisco Holdings Corp. 536
15,200 UST, Inc. 496
-------
1,637
-------
Transportation - Miscellaneous (0.6%)
2,100 Federal Express Corp. * 157
-------
Truckers (2.5%)
5,600 Consolidated Freightways, Inc. 147
3,800 Roadway Services, Inc. 191
11,800 Ryder System, Inc. 282
-------
620
-------
Total large cap stocks (cost: $6,925) 7,132
-------
Bonds (15.3%)
Principal
Amount Coupon
(000) Rate Maturity
----- ---- --------
$ 1,000 First Tennessee National Corp. 6.75% 11/15/05 1,009
1,000 Giddings + Lewis, Inc. 7.50 10/01/05 1,033
1,000 Great Atlantic & Pacific Tea, Inc. 7.70 1/15/04 1,004
1,000 Kmart Corp. 7.95 2/01/23 707
-------
Total bonds (cost: $3,975) 3,753
-------
Total domestic securities (cost: $17,186) 17,797
-------
GROWTH STRATEGY FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued)
November 30, 1995
(Unaudited)
U.S. Government & Agency Issues (10.9%)
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
----- -------- ---- -------- -----
Discount Note (6.8%)
$ 1,680 Federal Home Loan Mortgage Corp. 5.80 12/01/95 $ 1,680
-------
U.S. Treasury Bonds (4.1%)
1,000 U.S. Treasury Bond 6.25 8/15/23 1,000
-------
Total U.S. government & agency issues (cost:$2,668) 2,680
-------
Total investments (cost: $24,260) $25,016
=======
- ---------------
*Non-income producing.
Portfolio Summary By Industry
-----------------------------
Retail 11.1 %
U.S. Government & Agency Issues 10.9
Oil 9.2
Healthcare 8.5
Tobacco 6.9
Computer Software & Service 6.8
Banks 5.5
Electronics 4.3
Machine - Tools 4.2
Airlines 3.3
Truckers 2.5
Automobiles 2.5
Finance - Business/Commercial 2.4
Telecommunications 2.0
Broadcasters 2.0
Specialized Services 1.5
Manufacturing - Diversified Industries 1.0
Beverages - Alcoholic 1.0
Other 16.1
------
101.7 %
======
GROWTH STRATEGY FUND
NOTES TO PORTFOLIO OF INVESTMENTS IN SECURITIES
November 30, 1995
(Unaudited)
GENERAL NOTES
Market values of securities are determined by procedures and
practices discussed in note 1 to the financial statements.
The cost of securities for federal income tax purposes is
approximately the same as that reported in the financial statements.
The percentages shown represent the percentage of the investments
to net assets.
The Large Cap category consists of investments in common stocks
of companies with market capitalizations of $1 billion or more.
Small Cap stocks have market capitalizations of less than $1
billion.
See accompanying notes to financial statements.
GROWTH STRATEGY FUND
STATEMENT OF OPERATIONS
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
Net investment income:
Income:
Dividends $ 33
Interest 93
------
Total income 126
------
Expenses:
Management fees 29
Transfer agent's fees 5
Custodian's fees 12
Postage 7
Shareholder reporting fees 2
Trustees' fees 1
Registration fees 8
Audit fees 8
Legal fees 2
Other 1
------
Total expenses 75
------
Net investment income 51
------
Net realized and unrealized gain on investments:
Net realized loss on investments (26)
Change in net unrealized appreciation/depreciation of investments 756
------
Net realized and unrealized gain 730
------
Increase in net assets resulting from operations $ 781
======
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
GROWTH STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
Three-month period ended November 30, 1995*
(Unaudited)
From operations:
Net investment income $ 51
Net realized loss on investments (26)
Change in net unrealized appreciation/depreciation of investments 756
--------
Increase in net assets resulting from operations 781
--------
From capital share transactions:
Shares sold 24,069
Shares redeemed (255)
--------
Increase in net assets from capital share transactions 23,814
--------
Net increase in net assets 24,595
Net assets:
Beginning of period -
--------
End of period $ 24,595
========
Undistributed net investment income included in net assets:
Beginning of period $ -
========
End of period $ 51
========
Change in shares outstanding:
Shares sold 2,408
Shares redeemed (26)
--------
Increase in shares outstanding 2,382
========
* Fund commenced operations September 1, 1995.
See accompanying notes to financial statements.
GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
November 30, 1995
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA INVESTMENT TRUST (the Trust), registered under the
Investment Company Act of 1940, is a diversified, open-end
management investment company organized as a Massachusetts
business trust consisting of eleven separate funds. The
information presented in this semiannual report pertains only to
the Growth Strategy Fund (the Fund), which commenced operations
on September 1, 1995. The Fund's investment objective is to seek
high total return, with reduced risk over time, through an asset
allocation strategy which emphasizes capital appreciation and
gives secondary emphasis to income.
A. Security valuation - The value of each security is determined
(as of the close of trading on the New York Stock Exchange on
each business day the Exchange is open) as set forth below:
1. Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange are valued at the
last sales price on that exchange. Portfolio securities traded
primarily on foreign securities exchanges are generally valued at
the 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.
3. Securities purchased with maturities of 60 days or less are
stated at amortized cost which approximates market value.
4. Other debt and government securities are valued each business
day by a pricing service (the Service) approved by the Trust's
Board of Trustees. The Service uses the mean between quoted bid
and asked prices or the last sale price to price securities when,
in the Service's judgement, these prices are readily available
and are representative of the securities' market values. For
many securities, such prices are not readily available. The
Service generally prices these securities based on methods which
include consideration of yields or prices of securities of
comparable quality, coupon, maturity and type, indications as to
values from dealers in securities, and general market conditions.
5. Securities 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.
B. Federal taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
income to its shareholders. Therefore, no federal income or
excise tax provision is required.
C. Investments in securities - As is common in the industry,
security transactions are accounted for on the date the
securities are purchased or sold (trade date). Gain or loss from
sales of investment securities is computed on the identified cost
basis. Dividend income, less foreign taxes, if any, are recorded
on the ex-dividend date. If the ex-dividend date has passed,
certain dividends from foreign securities are recorded upon
notification. Interest income is recorded on the accrual basis.
Discounts and premiums on securities are amortized over the life
of the respective securities.
D. Foreign currency translations - The assets of the Fund may be
invested in the securities of foreign issuers. Since the
accounting records of the Fund are maintained in U.S. dollars,
foreign currency amounts are translated into U.S. dollars on the
following basis:
GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
(In Thousands)
November 30, 1995
(Unaudited)
1. Market value of securities, other assets, and liabilities at
the mean between the bid and asked translation rates of such
currencies against U.S. dollars.
2. Purchases and sales of securities, income, and expenses at
the rate of exchange obtained from an independent pricing service
on the respective dates of such transactions.
Net realized and unrealized foreign currency gains/losses
occurring during the holding period of investments are a
component of realized gain/loss on investments and unrealized
appreciation/depreciation on investments, respectively.
Net realized foreign currency gains/losses arise from sales of
foreign currency, currency gains/losses realized between the
trade and settlement dates on security transactions, and from the
difference between amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent of the amounts received. Net realized foreign
currency gains/losses are reclassified from accumulated net
realized gain/loss to accumulated undistributed net investment
income on the statement of assets and liabilities as such amounts
are treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities other than investments
in securities resulting from changes in the exchange rate.
(2) LINE OF CREDIT
The Fund participates with other USAA funds in a joint $150
million short-term revolving loan agreement (the Agreement)
through January 15, 1996, for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Subject to
availability under this Agreement, the Fund may borrow up to 10%
of the market value of its assets at the time of such borrowing.
Borrowings under this Agreement will bear interest at .125% over
the Federal Funds Rate as published by the Federal Reserve Bank
of New York or at .125% over the London Interbank Offered Rate.
The Fund had no borrowings under this Agreement during the three-
month period ended November 30, 1995.
(3) DISTRIBUTIONS
Distributions of net investment income and realized gains from
security transactions not offset by capital losses are made in
the succeeding fiscal year.
(4) INVESTMENT TRANSACTIONS
Purchases and sales/maturities of securities, excluding
short-term securities, for the three-month period ended November
30, 1995 were $25,957 and $3,352, respectively.
Gross unrealized appreciation and depreciation of investments as
of November 30, 1995 was $1,642 and $886, respectively.
GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
(In Thousands)
November 30, 1995
(Unaudited)
(5) FOREIGN CURRENCY CONTRACTS
A forward currency contract (currency contract) is a commitment
to purchase or sell a foreign currency at a specified date, at a
negotiated price. The Fund currently enters into currency
contracts only in connection with the purchase or sale of a
security denominated in a foreign currency. These contracts
allow the Fund to "lock in" the U.S. dollar price of the
security. Currency contracts are valued on a daily basis using
foreign currency exchange rates obtained from an independent
pricing service. Risks of entering into currency contracts
include the potential inability of the counterparty to meet the
terms of the contract and the Fund giving up the opportunity for
potential profit.
At November 30, 1995, the terms of open foreign currency
contracts were as follows:
U.S. Dollar U.S. Dollar
Value Value
Exchange Currency to be as of Currency to be as of
Date Delivered 11/30/95 Received 11/30/95
---- --------- -------- -------- --------
12/01/95 61 U.S. Dollar $ 61 82 Australian Dollar $ 61
12/01/95 10 U.S. Dollar 10 78 Hong Kong Dollar 10
12/04/95 1 U.S. Dollar 1 1,694 Indonesian Rupiah 1
12/06/95 21 U.S. Dollar 21 13 British Pound 21
12/11/95 22 U.S. Dollar 22 227 Austrian Schilling 22
12/12/95 21 U.S. Dollar 21 28 Australian Dollar 20
----- -----
$ 136 $ 135
===== =====
(6) TRANSACTIONS WITH MANAGER
A. Management fees - The investment policy of the Fund and the
management of the Fund's portfolio is carried out by USAA
Investment Management Company (the Manager). The Fund's management
fees are computed at .75% of its annual average net assets.
B. Transfer agent's fees - USAA Transfer Agency Company, d/b/a
USAA Shareholder Account Services, an affiliate of the Manager,
provides transfer agent services to the Fund. Shareholder
accounting service fees are based on an annual charge per
shareholder account plus out-of-pocket expenses.
C. Underwriting agreement - The Trust has an agreement with the
Manager for exclusive underwriting and distribution of the Fund's
shares on a continuing best efforts basis. This agreement
provides that the Manager will receive no fee or other
remuneration for such services.
(7) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by
United Services Automobile Association (the Association), a
large, diversified financial services institution. At November
30, 1995, the Association and its affiliates owned 1,000 shares
(42.0%) of the Fund.
GROWTH STRATEGY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 1995
(Unaudited)
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding
throughout the period is as follows:
Three-Month
Period Ended
November 30,
1995*
-----
Net asset value at
beginning of period $ 10.00
Net investment income .02
Net realized and
unrealized gain .31
--------
Net asset value at
end of period $ 10.33
========
Total return (%) 3.30
Net assets at end of
period (000) $ 24,595
Ratio of expenses to
average net assets (%) 2.01(a)
Ratio of net investment
income to average net
assets (%) 1.33(a)
Portfolio turnover (%) 24.79
Average commission rate
paid per share .0287
- ------------
* Fund commenced operations September 1, 1995.
(a) Annualized. The ratio is not necessarily indicative of 12
months of operations.
26533-0296
USAA INVESTMENT TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements included in Parts A and B
(Prospectuses and Statement of Additional Information)
of this Registration Statement:
Financial Statements and Independent Auditors' Reports
are incorporated by reference to the USAA Growth and
Tax Strategy (formerly named Balanced Portfolio),
Cornerstone Strategy (formerly named Cornerstone),
Emerging Markets, Gold, International, and World Growth
Funds', and GNMA and Treasury Money Market Trusts'
Annual Reports to Shareholders for the fiscal year
ended May 31, 1995.
Unaudited Financial Statements for the Balanced
Strategy, Growth Strategy, and Income Strategy Funds of
USAA INVESTMENT TRUST as of November 30, 1995 are on
page 23 of the Statement of Additional Information.
(b) Exhibits:
Exhibit No. Description of Exhibits
- ---------- -----------------------
1(a) First Amended and Restated Master Trust Agreement,
June 2, 1995 (1)
(b) Amendment No. 1 dated July 12, 1995 (2)
2 By-laws, as amended January 18, 1994 (1)
3 Voting trust agreement - Not Applicable
4 Specimen certificates for shares of
(a) Cornerstone Strategy Fund (2)
(b) Gold Fund (2)
(c) International Fund (2)
(d) Growth and Tax Strategy Fund (2)
(e) GNMA Trust (2)
(f) Treasury Money Market Trust (2)
(g) World Growth Fund (2)
(h) Emerging Markets Fund (2)
(i) Balanced Strategy Fund (2)
(j) Growth Strategy Fund (2)
(k) Income Strategy Fund (2)
5(a) Advisory Agreement dated September 21, 1990 (1)
(b) Letter Agreement dated January 24, 1991 adding GNMA Trust
and Treasury Money Market Trust (1)
(c) Letter Agreement dated July 21, 1992 adding World Growth
Fund (1)
(d) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (1)
(e) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
6(a) Underwriting Agreement dated July 9, 1990 (2)
(b) Letter Agreement dated January 24, 1991 adding GNMA Trust
and Treasury Money Market Trust (2)
(c) Letter Agreement dated July 21, 1992 adding World Growth
Fund (2)
(d) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (2)
(e) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
7 Not Applicable
8(a) Custodian Agreement dated July 27, 1984 (2)
(b) Amendment to Custodian Contract dated May 13, 1985 (2)
(c) Amendment to Custodian Contract dated May 1, 1986 (2)
(d) Amendment to Amendment to Custodian Contract dated
May 1, 1986 (2)
Exhibit No. Description of Exhibits
- ---------- -----------------------
(e) Amendment to the Custodian Agreement dated November 3, 1988 (2)
(f) Letter Agreement dated May 26, 1988 adding International
Fund (2)
(g) Letter Agreement dated January 3, 1989 adding Growth and Tax
Strategy Fund (formerly Balanced Portfolio Fund) (2)
(h) Letter Agreement dated January 24, 1991 adding GNMA Trust
and Treasury Money Market Trust (2)
(i) Letter Agreement dated July 21, 1992 adding World Growth
Fund (2)
(j) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (2)
(k) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
9(a) Transfer Agency Agreement dated January 23, 1992 (2)
(b) Letter Agreement dated July 21, 1992 adding World Growth
Fund (2)
(c) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (2)
(d) Amendments dated May 3, 1995 to the Transfer Agency Agreement
Fee Schedules for Gold Fund, Cornerstone Strategy Fund
(formerly Cornerstone Fund), International Fund, Growth and
Tax Strategy Fund (formerly Balanced Portfolio Fund), GNMA
Trust, Treasury Money Market Trust, World Growth Fund, and
Emerging Markets Fund (2)
(e) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
(f) Amendment No. 1 to Transfer Agency Agreement dated
November 14, 1995 (filed herewith)
10(a) Opinion of Counsel with respect to the Balanced Strategy, Growth
Strategy and Income Strategy Funds (1)
(b) Opinion and Consent of Counsel with respect to the Growth and
Tax Strategy Fund, Cornerstone Strategy Fund, Emerging Markets
Funds Gold Fund, International Fund, World Growth Fund, GNMA
Trust, and Treasury Money Market Trust (2)
(c) Consent of Counsel with respect to the Balanced Strategy, Growth
Strategy and Income Strategy Funds (filed herewith)
11 Independent Auditors' Consent - Not Applicable
12 Financial statements omitted from prospectus - Not Applicable
13 Subscriptions and Investment Letters
(a) GNMA Trust and Treasury Money Market Trust (2)
(b) World Growth Fund (2)
(c) Emerging Markets Fund (2)
(d) Growth Strategy Fund, Income Strategy Fund, and Balanced
Strategy Fund (2)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Handbook (2)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Handbook (2)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Handbook (2)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (2)
17 Financial Data Schedules
(a) Cornerstone Strategy Fund (formerly Cornerstone Fund)
(filed herewith)
(b) Gold Fund (filed herewith)
(c) International Fund (filed herewith)
(d) Growth and Tax Strategy Fund (formerly Balanced Portfolio
Fund) (filed herewith)
(e) GNMA Trust (filed herewith)
(f) Treasury Money Market Trust (filed herewith)
(g) World Growth Fund (filed herewith)
(h) Emerging Markets Fund (filed herewith)
(i) Income Strategy Fund (filed herewith)
(j) Balanced Strategy Fund (filed herewith)
(k) Growth Strategy Fund (filed herewith)
18 Plan Adopting Multiple Classes of Shares - Not Applicable
Exhibit No. Description of Exhibits
- ---------- -----------------------
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron A. Kirk,
John W. Saunders, Jr., George E. Brown, Howard L. Freeman, Jr.,
and Richard A. Zucker dated January 21, 1994 (2)
(b) Power of Attorney for Barbara B. Dreeben (1)
- ---------------------
(1) Previously filed with Post-Effective Amendment No. 20
of the Registrant (No. 2-91069) filed with the
Securities and Exchange Commission on June 15, 1995.
(2) Previously filed with Post-Effective Amendment No. 21
of the Registrant (No. 2-91069) filed with the
Securities and Exchange Commission on September 26, 1995.
Item 25. Persons Controlled by or Under Common Control with Registrant
Information pertaining to persons controlled by or under
common control with Registrant is hereby incorporated by
reference to the section captioned "Management of the Trust"
in the Prospectus and the section captioned "Trustees and
Officers of the Trust" in the Statement of Additional Information.
Item 26. Number of Holders of Securities
Set forth below are the number of record holders, as of
December 31, 1995, of each class of securities of the Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Growth and Tax Strategy Fund 8,734
Cornerstone Strategy Fund 96,529
Emerging Markets Fund 4,699
Gold Fund 22,570
International Fund 26,952
World Growth Fund 24,666
GNMA Trust 11,591
Treasury Money Market Trust 2,551
Balanced Strategy Fund 503
Growth Strategy Fund 2,162
Income Strategy Fund 218
Item 27. Indemnification
Protection for the liability of the adviser and underwriter
and for the officers and trustees of the Registrant is
provided by two methods:
(a) The Director and Officer Liability Policy. This policy
covers all losses incurred by the Registrant, its
adviser and its underwriter from any claim made against
those entities or persons during the policy period by
any shareholder or former shareholder of any Fund by
reason of any alleged negligent act, error or omission
committed in connection with the administration of the
investments of said Registrant or in connection with
the sale or redemption of shares issued by said
Registrant. The Trust will not pay for such insurance
to the extent that payment therefor is in violation of
the Investment Company Act of 1940 or the Securities
Act of 1933.
(b) Indemnification Provisions under Agreement and Declaration
of Trust. Under Article VI of the Registrant's Agreement
and Declaration of Trust, each of its trustees and officers
or any person serving at the Registrant's request as a
director, officer or trustee of another entity in which
the Registrant has any interest as a shareholder,
creditor or otherwise ("Covered Person") shall be
indemnified against all liabilities, including but not
limited to amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court
or administrative or legislative body, in which such
person may be or may have been threatened, while in
office or thereafter, by reason of being or having been
such an officer, director or trustee, except with
respect to any matter as to which it has been
determined that such Covered Person (i) did not act in
good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best
interests of the Trust or (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct
described in (i) and (ii) being referred to hereafter
as "Disabling Conduct"). A determination that the
Covered Person is entitled to indemnification may be
made by (i) a final decision on the merits by a court
or other body before whom the proceeding was brought
that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court
action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct,
or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by
reason of Disabling Conduct by (a) a vote of a majority
of a quorum of trustees who are neither "interested persons"
of the Registrant as defined in section 2(a)(19) of
the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
Expenses, including accountants and counsel fees so
incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from
time to time by the Fund of the Registrant in question
in advance of the final disposition of any such action,
suit or proceeding, provided that the covered person
shall have undertaken to repay the amounts so paid to
the Fund of Registrant in question if it is ultimately
determined that indemnification of such expenses is not
authorized under Article VI of the Agreement and
Declaration of Trust and (i) the Covered Person shall
have provided security for such undertaking, (ii) the
Registrant shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a
quorum of the disinterested trustees who are not a
party to the proceeding, or an independent legal
counsel in a written opinion, shall have determined,
based on a review of readily available facts (as
opposed to full trial-type inquiry), that there is
reason to believe that the Covered Person ultimately
will be found entitled to indemnification. As to any
matter disposed of by a compromise payment by any such
Covered Person pursuant to a consent decree or
otherwise, no such indemnification either for said
payment or for any other expenses shall be provided
unless such indemnification shall be approved (a) by a
majority of the disinterested trustees of the
Registrant who are not a party to the proceeding or (b)
by an independent legal counsel in a written opinion.
Approval by the trustees pursuant to clause (a) or by
independent legal counsel pursuant to clause (b) shall
not prevent the recovery form any Covered Person of any
amount paid to such Covered Person in accordance with
any of such clauses as indemnification if such Covered
Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's
action was in or not opposed to the best interests of
the Registrant or to have been liable to the Registrant
or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered
Person's office.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the Registrant's Agreement and
Declaration of the Trust or otherwise, the Registrant
has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of
the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the
securities being registered, then the Registrant will,
unless in the opinion of its counsel the matter has
been settled by a controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether indemnification by it is against public policy
as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to business and other connections of
the Registrant's investment adviser is hereby incorporated
by reference to the section of the Prospectus captioned
"Management of the Trust" and to the section of the
Statement of Additional Information captioned "Trustees and
Officers of the Trust".
Item 29. Principal Underwriters
(a) USAA Investment Management Company (the "Adviser") acts
as principal underwriter and distributor of the
Registrant's shares on a best-efforts basis and
receives no fee or commission for its underwriting
services. The Adviser, wholly-owned by United Services
Automobile Association, also serves as principal
underwriter for USAA Tax Exempt Fund, Inc., USAA Mutual
Fund, Inc., and USAA State Tax-Free Trust.
(b) Set forth below is information concerning each director
and executive officer of USAA Investment Management Company.
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with Registrant
- ----------------- --------------------- --------------------
M. Staser Holcomb Director and Chairman Trustee and
9800 Fredericksburg Rd. of the Board of Directors Chairman of the
San Antonio, TX 78288 Board of Trustees
Michael J.C. Roth Chief Executive Officer, President, Trustee
9800 Fredericksburg Rd. President, Director, and and Vice Chairman of
San Antonio, TX 78288 Vice Chairman of the the Board of Trustees
Board of Directors
John W. Saunders, Jr. Senior Vice President, Vice President and
9800 Fredericksburg Rd. Fixed Income Investments, Trustee
San Antonio, TX 78288 and Director
Harry W. Miller Senior Vice President None
9800 Fredericksburg Rd. Equity Investments,
San Antonio, TX 78288 and Director
Bradford W. Rich Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
Josue Robles, Jr. Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
John J. Dallahan Senior Vice President, None
9800 Fredericksburg Rd. Investment Services
San Antonio, TX 78288
Michael D. Wagner Vice President, Secretary Secretary
9800 Fredericksburg Rd. and Counsel
San Antonio, TX 78288
Sherron A. Kirk Vice President and Treasurer
9800 Fredericksburg Rd. Controller
San Antonio, TX 78288
Alex M. Ciccone Vice President, Assistant
9800 Fredericksburg Rd. Compliance Secretary
San Antonio, TX 78288
(c) Not Applicable.
Item 30. Location of Accounts and Records
The following entities prepare, maintain and preserve
the records required by Section 31(a) of the Investment
Company Act of 1940 (the "1940 Act") for the
Registrant. These services are provided to the
Registrant through written agreements between the
parties to the effect that such services will be
provided to the Registrant for such periods prescribed
by the Rules and Regulations of the Securities and
Exchange Commission under the 1940 Act and such records
are the property of the entity required to maintain and
preserve such records and will be surrendered promptly
on request.
USAA Investment Management Company
9800 Fredericksburg Rd.
San Antonio, Texas 78288
USAA Shareholder Account Services
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Item 31. Management Services
Not Applicable.
Item 32. Undertaking
The Registrant hereby undertakes to provide each person to
whom a prospectus is delivered a copy of the Registrant's
latest annual report(s) to shareholders upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San
Antonio and State of Texas on the 26th day of January, 1996.
USAA INVESTMENT TRUST
*
---------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to its Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.
(Signature) (Title) (Date)
- ---------------------- Chairman of the
M. Staser Holcomb Board of Trustees
* Vice Chairman of the Board January 26, 1996
- ---------------------- of Trustees and President
Michael J.C. Roth (Principal Executive Officer)
* Treasurer (Principal January 26, 1996
- ---------------------- Financial and
Sherron A. Kirk Accounting Officer)
* Trustee January 26, 1996
- ----------------------
John W. Saunders, Jr.
* Trustee January 26, 1996
- ----------------------
George E. Brown
* Trustee January 26, 1996
- ----------------------
Howard L. Freeman, Jr.
* Trustee January 26, 1996
- ----------------------
Richard A. Zucker
* Trustee January 26, 1996
- ----------------------
Barbara B. Dreeben
* By:/s/Michael D. Wagner
--------------------
Michael D. Wagner, Attorney-in-Fact, under Powers of
Attorney dated January 21, 1994 and June 2, 1995,
incorporated by reference to Post-Effective Amendment No.
21, filed with the Securities and Exchange Commission on
September 26, 1995 and Post-Effective Amendment No. 20,
filed with the Securities and Exchange Commission on June
15, 1995, respectively .
Exhibit Index
Exhibit Item Page No. *
1 (a) First Amended and Restated Master Trust Agreement,
June 2, 1995 (1)
(b) Amendment No. 1 dated July 12, 1995 (2)
2 By-laws, as amended January 18, 1994 (1)
3 Voting trust agreement - Not Applicable
4 Specimen certificates for shares of
(a) Cornerstone Strategy Fund (2)
(b) Gold Fund (2)
(c) International Fund (2)
(d) Growth and Tax Strategy Fund (2)
(e) GNMA Trust (2)
(f) Treasury Money Market Trust (2)
(g) World Growth Fund (2)
(h) Emerging Markets Fund (2)
(i) Balanced Strategy Fund (2)
(j) Growth Strategy Fund (2)
(k) Income Strategy Fund (2)
5 (a) Advisory Agreement dated September 21, 1990 (1)
(b) Letter Agreement dated January 24, 1991 adding GNMA
Trust and Treasury Money Market Trust (1)
(c) Letter Agreement dated July 21, 1992 adding World Growth
Fund (1)
(d) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (1)
(e) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
6 (a) Underwriting Agreement dated July 9, 1990 (2)
(b) Letter Agreement dated January 24, 1991 adding GNMA Trust
and Treasury Money Market Trust (2)
(c) Letter Agreement dated July 21, 1992 adding World Growth
Fund (2)
(d) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (2)
(e) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
7 Not Applicable
8 (a) Custodian Agreement dated July 27, 1984 (2)
(b) Amendment to Custodian Contract dated May 13, 1985 (2)
(c) Amendment to Custodian Contract dated May 1, 1986 (2)
(d) Amendment to Amendment to Custodian Contract dated
May 1, 1986 (2)
(e) Amendment to the Custodian Agreement dated November 3,
1988 (2)
(f) Letter Agreement dated May 26, 1988 adding International
Fund (2)
(g) Letter Agreement dated January 3, 1989 adding Growth and
Tax Strategy Fund (formerly Balanced Portfolio Fund) (2)
(h) Letter Agreement dated January 24, 1991 adding GNMA Trust
and Treasury Money Market Trust (2)
(i) Letter Agreement dated July 21, 1992 adding World Growth
Fund (2)
(j) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (2)
(k) Letter Agreement dated September 1, 1995 adding Balanced
Strategy, Growth Strategy and Income Strategy Funds (2)
9 (a) Transfer Agency Agreement dated January 23, 1992 (2)
(b) Letter Agreement dated July 21, 1992 adding World Growth
Fund (2)
(c) Letter Agreement dated September 7, 1994 adding Emerging
Markets Fund (2)
Exhibit Index, cont.
Exhibit Item Page No. *
(d) Amendments dated May 3, 1995 to the Transfer
Agency Agreement Fee Schedules for Gold Fund,
Cornerstone Strategy Fund (formerly Cornerstone
Fund), International Fund, Growth and Tax Strategy
Fund (formerly Balanced Portfolio Fund), GNMA Trust,
Treasury Money Market Trust, World Growth Fund, and
Emerging Markets Fund (2)
(e) Letter Agreement dated September 1, 1995 adding
Balanced Strategy, Growth Strategy and Income Strategy
Funds (2)
(f) Amendment No. 1 to Transfer Agency Agreement dated
November 14, 1995 (filed herewith) 156
10 (a) Opinion of Counsel with respect to the Balanced
Strategy, Growth Strategy and Income Strategy Funds (1)
(b) Opinion and Consent of Counsel with respect to the
Growth and Tax Strategy Fund, Cornerstone Strategy Fund,
Emerging Markets Funds Gold Fund, International Fund,
World Growth Fund, GNMA Trust, and Treasury Money Market
Trust (2)
(c) Consent of Counsel with respect to the Balanced Strategy,
Growth Strategy, and Income Strategy Funds (filed
herewith) 159
11 Independent Auditors' Consent - Not Applicable
12 Financial statements omitted from prospectus
- Not Applicable
13 Subscriptions and Investment Letters
(a) GNMA Trust and Treasury Money Market Trust (2)
(b) World Growth Fund (2)
(c) Emerging Markets Fund (2)
(d) Growth Strategy Fund, Income Strategy Fund, and Balanced
Strategy Fund (2)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Handbook (2)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Handbook (2)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Handbook (2)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (2)
17 Financial Data Schedules
(a) Cornerstone Strategy Fund (formerly Cornerstone Fund)
(filed herewith) 161
(b) Gold Fund (filed herewith) 163
(c) International Fund (filed herewith) 165
(d) Growth and Tax Strategy Fund (formerly Balanced
Portfolio Fund) (filed herewith) 167
(e) GNMA Trust (filed herewith) 169
(f) Treasury Money Market Trust (filed herewith) 171
(g) World Growth Fund (filed herewith) 173
(h) Emerging Markets Fund (filed herewith) 175
(i) Income Strategy Fund (filed herewith) 177
(j) Balanced Strategy Fund (filed herewith) 179
(k) Growth Strategy Fund (filed herewith) 181
18 Plan Adopting Multiple Classes of Shares - Not Applicable
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron
A. Kirk, John W. Saunders, Jr., George E. Brown,
Howard L. Freeman, Jr., and Richard A. Zucker dated
January 21, 1994 (2)
(b) Power of Attorney for Barbara B. Dreeben (1)
- ---------------------
(1) Previously filed with Post-Effective Amendment No. 20
of the Registrant (No. 2-91069) filed with the
Securities and Exchange Commission on June 15, 1995.
(2) Previously filed with Post-Effective Amendment No. 21
of the Registrant (No. 2-91069) filed with the
Securities and Exchange Commission on September 26, 1995.
- ---------------------
* Refers to sequentially numbered pages
EXHIBIT 9(f)
USAA INVESTMENT TRUST
AMENDMENT NO. 1
TO
TRANSFER AGENCY AGREEMENT
AMENDMENT No. 1 to the Transfer Agency Agreement between
USAA Investment Trust and USAA Transfer Agency Company ("SAS")
dated January 23, 1992 (the "Agreement"), made as of the 14th day
of November, 1995.
WITNESSETH:
WHEREAS, Paragraph 27 of the Agreement provides that the
Agreement may be amended at any time by mutual agreement between
the parties thereto; and
WHEREAS, A majority of the Trustees desire to amend the
Agreement by adding a Paragraph 29 to (1) authorize SAS to enter
into subtransfer agency relationships with one or more third
parties and (2) permit SAS to collect from the Funds an amount
equal to the lesser of the subtransfer agent's fees payable by
SAS and the savings realized by the Funds from such subtransfer
agency arrangements.
NOW, THEREFORE, The Agreement is hereby amended by adding
Paragraph 29 as follows:
29. SUB-TRANSFER AGENCY RELATIONSHIPS.
USAA Transfer Agency may, from time to time,
enter into arrangements with one or more third
parties (each, a "Sub-Transfer Agent") to perform
certain functions for the Trust and USAA Transfer
Agency. In those instances the Trust shall pay
USAA Transfer Agency the lesser of (i) the amount
payable by USAA Transfer Agency to the Sub-
Transfer Agent for performing such functions and
(ii) the amount of the Transfer Agency Savings.
As used herein, the term "Transfer Agency Savings"
means the amount that would have been paid by the
Trust to USAA Transfer Agency if all accounts
maintained by the Sub-Transfer Agent had been
maintained directly by USAA Transfer Agency, as
determined based upon the per account charge under
the Transfer Agency Agreement, increased by out-
of-pocket charges that would have been incurred
with respect to such accounts.
This Amendment and the changes to the Agreement effected
hereby shall be effective November 14, 1995.
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
/s/ Michael J. C. Roth /s/ Joseph H. L. Jimenez
________________________ ___________________________
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
ATTEST: ATTEST:
/s/ Michael D. Wagner /s/ Michael D. Wagner
_______________________ ________________________
Michael D. Wagner Michael D. Wagner
Secretary Secretary
EXHIBIT 10(c)
GOODWIN, PROCTER & HOAR
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
CABLE.GOODPROCT, BOSTON
January 19, 1996
USAA Investment Trust
USAA Building
9800 Fredericksburg Road
San Antonio, Texas 78288
Ladies and Gentlemen:
We hereby consent to the reference in Post-Effective
Amendment No. 22 (the "Amendment") to the Registration Statement
(No. 2-91069) on Form N-1A of USAA Investment Trust (the
"Registrant"), a Massachusetts business trust, to our opinion
with respect to the legality of the shares of the Registrant
representing interests in 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 series of the Registrant, which opinion was
filed with Post-Effective Amendment No. 21 to the Registration
Statement, and to the reference in the Amendment to our opinion
with respect to the legality of the shares of the Registrant
representing interests in the Balanced Strategy Fund, Growth
Strategy Fund and Income Strategy Fund series of the Registrant,
which opinion was filed with Post-Effective Amendment No. 20 to
the Registration Statement.
We also hereby consent to the reference to this firm in the
Prospectuses under the heading "Legal Counsel" and in the
Statement of Additional Information under the heading "General
Information--Counsel" which form a part of the Amendment and to
the filing of this consent as an exhibit to the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
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<CIK> 0000745903
<NAME> USAA INVESTMENT TRUST
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<NAME> TREASURY MONEY MARKET TRUST
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<CIK> 0000745903
<NAME> USAA INVESTMENT TRUST
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<NAME> WORLD GROWTH FUND
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<CIK> 0000745903
<NAME> USAA INVESTMENT TRUST
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<NAME> EMERGING MARKETS FUND
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<CIK> 0000745903
<NAME> USAA INVESTMENT TRUST
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<CIK> 0000745903
<NAME> USAA INVESTMENT TRUST
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<NAME> USAA INVESTMENT TRUST
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<PER-SHARE-NAV-END> 10.33
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
