As filed with the Securities and Exchange Commission on August 1, 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. 23
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 25
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)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on October 1, 1996 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 Income Strategy Fund,
Growth and Tax Strategy Fund, Balanced Strategy Fund, Cornerstone Strategy
Fund, Growth Strategy Fund, Gold Fund, International Fund, World Growth Fund,
GNMA Trust, and Treasury Money Market Trust for the fiscal year ended May 31,
1996 on July 18, 1996.
Exhibit Index on Page 331-332
Page 1 of 426
</>R
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
Income Strategy, Growth and Tax Strategy, Balanced Strategy,
Cornerstone Strategy, Growth Strategy, Emerging Markets,
Gold, International, and World Growth Funds,
GNMA Trust and Treasury Money Market Trust
are included herein
Part A
Prospectus for the
Income Strategy Fund
is included herein
USAA INCOME STRATEGY FUND
October 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 about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October 1,
1996. The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated by reference into this Prospectus (meaning it is legally a
part of the 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** .09%
Custodian Fees .52%
All Other Expenses .39%
----
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 21.
During the fiscal period ended May 31, 1996, the Manager voluntarily
limited the annualized expenses of the Fund to 1.00% of its ANA and reimbursed
the Fund for all expenses in excess of this limitation. The Management Fees,
Other Expenses, and Total Fund Operating Expenses reflect all such expense
reimbursements by the Manager. Other Expenses are estimated for the Fund's
first year of operations. 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 have been .50%, 1.28%, and 1.78%,
respectively. The Manager has voluntarily agreed to continue to limit the
Fund's annual expenses until October 1, 1997, to 1.00% of its ANA and will
reimburse the Fund for all expenses in excess of the limitation.
Example of Effect of Fund Expenses
- -------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
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 nine-month period ended May 31, 1996, has been derived from
financial statements audited by KPMG Peat Marwick LLP. This table should be
read in conjunction with the financial statements and related notes that
appear in the Fund's Annual Report. Further performance information is
contained in the Annual Report and is available upon request without charge.
NINE-MONTH
PERIOD ENDED
MAY 31, 1996*
-------------
Net asset value at
beginning of period $ 10.00
Net investment income .39(b)
Net realized and
unrealized gain (.06)
Distributions from net
investment income (.22)
Distributions of realized
capital gains (.05)
-------
Net asset value at
end of period $ 10.06
=======
Total return (%)** 3.23
Net assets at end of
period (000) $12,173
Ratio of expenses to
average net assets (%) 1.00(a)(c)
Ratio of net investment
income to average net
assets (%) 4.71(a)(c)
Portfolio turnover (%) 78.60
Average commission rate
paid per share $ .0496
- ------------------------
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
(c) The information contained in this 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:
NINE-MONTH
PERIOD ENDED
MAY 31, 1996*
-------------
Ratio of expenses to average net assets (%) 1.78(a)
Ratio of net investment income to average net assets (%) 3.93(a)
<R/>
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
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a good investment, is
it a wise idea to use your entire savings to buy one stock? Most people
wouldn't - it would be fortunate if it works, but this strategy holds a great
deal of risk. Surprising news could be reported tomorrow on your stock, and
its price could soar or plummet.
Careful investors understand this concept of risk and lower that risk by
diversifying their holdings among a number of securities. That way bad news
for one security may be counterbalanced by good news regarding other
securities. But there is still a question of risk here. History tells us
that stocks are generally more volatile than bonds and that long-term bonds
are generally more volatile than short-term bonds. History also tells us that
over many years investments having higher risks tend to have higher returns
than investments that carry lower risks. And past performance doesn't
necessarily guarantee future results. From these observations comes the idea
of asset allocation.
Asset allocation is a straightforward concept that involves dividing
your money among several different types of investments - for example, stocks,
bonds and short-term investments such as money market instruments - and
keeping that allocation until your objectives or the financial markets
significantly change. That way you're not pinning all your financial success
on the fortunes of one kind of investment. Money spread across different
investment categories can help you reduce market risk and likely will provide
more stability to your total return.
Asset allocation can work because different kinds of investments
generally follow different up-and-down cycles. With a variety of investments
in your portfolio, some are probably doing well, even when others are
struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification, but asset allocation
goes beyond diversifying your portfolio; it's much more of an active process.
You must evaluate your lifestyle, finances, circumstances, long- and
short-term financial goals and tolerance for investment risk. Once you have
structured your allocation, you'll need to review it regularly since your
objectives will change over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset Strategy Funds, are
designed for the long-term investor and are in line with the Manager's
investment philosophy for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown on the next page,
each of USAA's Asset Strategy Funds has its own different mix of assets and
objectives.
Fund Investment Objective Invests In
- ------------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ------------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ------------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ------------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ------------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large cap
Strategy risk over time, through an asset stocks, bonds, and
Fund allocation strategy which emphasizes 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.
Although the Fund's portfolio turnover rate is not expected to exceed
100%, 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, BBB by Standard & Poor's Ratings Group, BBB by
Fitch Investors Service, or BBB by Duff and Phelps, 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, repurchase
agreements collateralized with U.S. Government securities, 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 effected 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.
Municipal Lease Obligations - The Fund may invest in municipal lease
obligations and certificates of participation in such obligations
(collectively, lease obligations). A lease obligation does not constitute a
general obligation of the municipality for which the municipality's taxing
power is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due under the lease
obligation.
Certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease obligation
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. In evaluating a potential investment in such a lease
obligation, the Manager will consider: (1) the credit quality of the obligor,
(2) whether the underlying property is essential to a governmental function,
and (3) whether the lease obligation contains covenants prohibiting the
obligor from substituting similar property if the obligor fails to make
appropriations for the lease obligation.
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 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 - 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, securities that may be resold pursuant to Rule 144A under the
Securities Act of 1933, and lease obligations may be determined to be liquid
in accordance with guidelines established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) 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.
(2) 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).
(3) 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.
(4) 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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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
VIA deducted from a bank account, paycheck, income-producing
ELECTRONIC investment or from a USAA money market account. Sign up
FUNDS for these services when opening an account or call
TRANSFER 1-800-531-8448 to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA 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 newaccount 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) will be
REDEMPTION 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.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a reinvested dividend;
(2) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Direct Purchase Service, Automatic
Purchase Plan, or Directed Dividends investment plans; or
(3) 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 NYSE, 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
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 $______ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees are computed at one-half
of one percent (.50%) of ANA. For the fiscal period ended May 31, 1996, the
Manager waived the advisory fee for the Fund.
OPERATING EXPENSES
For the fiscal period ended May 31, 1996, the Manager limited total annualized
operating expenses to 1.00% of the Fund's ANA. The Manager reimbursed the Fund
$54,011 for expenses in excess of the limitation. The Manager has voluntarily
agreed to continue to limit the Fund's annual expenses until October 1, 1997,
to 1.00% of its ANA and will reimburse the Fund for all expenses in excess of
the limitation.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for managing the Fund.
John W. Saunders, Jr., Senior Vice President of Fixed Income Investments since
October 1985, is the asset allocation manager of the Fund and has managed the
Bonds investment category since September 1995. Mr. Saunders has 27 years
investment management experience and has worked for IMCO for 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
1994, has managed the Stocks investment category since September 1995. Mr.
Ullom has 21 years investment management experience and has worked for IMCO
for ten years. 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.
Pamela K. Bledsoe, Executive Director of Money Market Funds since June 1995,
has managed the Money Market Instruments investment category since May 1996.
Ms. Bledsoe has eight years investment management experience and has worked
for IMCO for five years where she has held various positions in Fixed Income
Investments. Ms. Bledsoe earned the CFA designation in 1992 and is a member
of the AIMR and SAFAS. She holds an MBA from Texas Christian University and
a BS from Louisiana Tech University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of the
Trustees, and the Trust will assist shareholders in communicating with other
shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
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 and Tax Strategy Fund
is included herein
USAA GROWTH AND TAX STRATEGY FUND
October 1, 1996 PROSPECTUS
USAA GROWTH AND TAX STRATEGY FUND (the Fund) is one of eleven no-load mutual
funds offered by USAA Investment Trust (the Trust). The Fund is managed by
USAA Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek a conservative balance for the
investor between income, the majority of which is exempt from federal income
tax, and the potential for long-term growth of capital to preserve purchasing
power. This objective is to be achieved through an asset allocation
strategy. Page 10.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 14.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 16.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA GROWTH AND TAX STRATEGY FUND ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October 1,
1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Asset Allocation Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 10
SHAREHOLDER INFORMATION
Purchase of Shares 14
Redemption of Shares 16
Conditions of Purchase and Redemption 17
Exchanges 18
Other Services 19
Share Price Calculation 20
Dividends, Distributions and Taxes 20
Management of the Trust 22
Description of Shares 23
Service Providers 24
Telephone Assistance Numbers 24
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- -------------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management Fees .50%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .17%
Custodian Fees .05%
All Other Expenses .10%
----
Total Other Expenses .32%
----
Total Fund Operating Expenses .82%
====
- -------------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- -------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 8
3 years - $ 26
5 years - $ 46
10 years - $101
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the eight-year period ended May 31, 1996,
has been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements and
related notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED MAY 31, MAY 31, SEPTEMBER 30,
1996 1995 1994 1993
---- ---- ---- ----
Net asset value at
beginning of period $ 12.82 $ 12.32 $ 13.00 $ 12.00
Net investment income .51 .49 .29 .46
Net realized and
unrealized gain (loss) 1.32 .76 (.27) 1.01
Distributions from net
investment income (.51) (.48) (.33) (.46)
Distributions of realized
capital gains (.03) (.27) (.37) (.01)
------- ------ ------- -------
Net asset value at
end of period $ 14.11 $ 12.82 $ 12.32 $ 13.00
======== ======== ======== ========
Total return (%)** 14.61 10.73 .13 12.57
Net assets at end of
period (000) $160,390 $134,538 $128,077 $118,532
Ratio of expenses to
average net assets (%) .82 .80 .84(a) .86
Ratio of net investment
income to average net
assets (%) 3.79 4.02 3.56(a) 3.81
Portfolio turnover (%) 202.55(b)(c) 265.52(b)(c) 171.35(b) 98.83
Average commission rate
paid per share $ .0505
- ----------------------------
* Fund commenced operations January 11, 1989.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) The Fund may simultaneously purchase and sell the same securities.
These transactions can be high in volume and dissimilar to other trade
activity within the Fund. If these transactions were excluded from the
calculation, the portfolio turnover rate would be as follows:
EIGHT-MONTH
YEAR ENDED MAY 31, PERIOD ENDED
1996 1995 MAY 31, 1994
---- ---- ------------
Portfolio turnover (%) 61.98(c) 131.28(c) 93.56
Purchases and sales of this type
are as follows:
Purchases (000) $192,239 $234,367 $98,639
Sales (000) $192,490 $234,669 $98,761
(c) Effective for 1995 and 1996, portfolio turnover rates have been
calculated excluding short-term variable rate securities, which are
those with put date intervals of less than one year.
FINANCIAL HIGHLIGHTS CONT.
YEAR ENDED SEPTEMBER 30,
1992 1991 1990 1989*
---- ---- ---- -----
Net asset value at
beginning of period $ 11.51 $ 10.59 $ 11.08 $ 10.00
Net investment income .48 .53 .52 .27
Net realized and
unrealized gain (loss) .50 .93 (.49) .96
Distributions from net
investment income (.49) (.54) (.50) (.15)
Distributions of realized
capital gains - - (.02) -
------- ------- ------- -------
Net asset value at
end of period $ 12.00 $ 11.51 $ 10.59 $ 11.08
======== ======== ======== ========
Total return (%) ** 8.74 14.19 .19 12.38
Net assets at end of
period (000) $82,840 $53,535 $37,599 $23,823
Ratio of expenses to
average net assets(%) .92 1.00(d) 1.00(d) 1.29(a)(d)
Ratio of net investment
income to average net
assets (%) 4.31 4.91(d) 5.05(d) 4.90(a)(d)
Portfolio turnover (%) 106.83 81.22 105.78 119.76
- ------------------
(d) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
YEAR ENDED SEPTEMBER 30,
1991 1990 1989*
---- ---- -----
Ratio of expenses to average net assets (%) 1.06 1.24 1.48(a)
Ratio of net investment income to average
net assets (%) 4.85 4.81 4.71(a)
PERFORMANCE INFORMATION
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions during the time periods for which
it is reported. Historical performance should not be considered as
representative of the future performance of the Fund.
The Trust may quote the Fund's yield or total return in advertisements
and reports to shareholders or prospective investors. The Fund's performance
may also be compared to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are referenced in APPENDIX B
to the SAI. Standard total return and yield results reported by the Fund do
not take into account recurring and nonrecurring charges for optional services
which only certain shareholders elect and which involve nominal fees, such as
the $10 fee for a delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specified period which, when
applied to a hypothetical $1,000 investment in the Fund at the beginning of
the period, would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions during
the period.
The Fund may advertise performance in terms of a 30-day yield quotation.
The yield quotation is computed by dividing the net investment income per
share earned during the period by the offering price per share on the last day
of the period. This income is then annualized.
Further information concerning the Fund's yield and total return is
included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed
to provide investors with the opportunity to formulate their own investment
program. You may exchange any shares you hold in any one USAA Fund for shares
in any other USAA Fund. For more complete information about the Funds in the
USAA Family of Funds, including charges and expenses, call the Manager for a
Prospectus. Be sure to read it carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a good investment, is
it a wise idea to use your entire savings to buy one stock? Most people
wouldn't - it would be fortunate if it works, but this strategy holds a great
deal of risk. Surprising news could be reported tomorrow on your stock, and
its price could soar or plummet.
Careful investors understand this concept of risk and lower that risk by
diversifying their holdings among a number of securities. That way bad news
for one security may be counterbalanced by good news regarding other
securities. But there is still a question of risk here. History tells us
that stocks are generally more volatile than bonds and that long-term bonds
are generally more volatile than short-term bonds. History also tells us that
over many years investments having higher risks tend to have higher returns
than investments that carry lower risks. And past performance doesn't
necessarily guarantee future results. From these observations comes the idea
of asset allocation.
Asset allocation is a straightforward concept that involves dividing
your money among several different types of investments - for example, stocks,
bonds and short-term investments such as money market instruments - and
keeping that allocation until your objectives or the financial markets
significantly change. That way you're not pinning all your financial success
on the fortunes of one kind of investment. Money spread across different
investment categories can help you reduce market risk and likely will provide
more stability to your total return.
Asset allocation can work because different kinds of investments
generally follow different up-and-down cycles. With a variety of investments
in your portfolio, some are probably doing well, even when others are
struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification, but asset allocation
goes beyond diversifying your portfolio; it's much more of an active process.
You must evaluate your lifestyle, finances, circumstances, long- and
short-term financial goals and tolerance for investment risk. Once you have
structured your allocation, you'll need to review it regularly since your
objectives will change over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset Strategy Funds, are
designed for the long-term investor and are in line with the Manager's
investment philosophy for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown on the next page,
each of USAA's Asset Strategy Funds has its own different mix of assets and
objectives.
Fund Investment Objective Invests In
- ------------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ------------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ------------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ------------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ------------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large cap
Strategy risk over time, through an asset stocks, bonds, and
Fund allocation strategy which emphasizes international
capital appreciation and gives stocks
secondary emphasis to income.
- ------------------------------------------------------------------------------
An important feature of USAA's Asset Strategy Funds is the quarterly
rebalancing of each portfolio. In this asset allocation technique, the Funds'
Managers buy or sell securities each quarter so that the investment categories
of each Fund are brought within their target ranges. For example, if a
portfolio holds 65% of its securities in stocks, 30% in bonds, and 5% in money
market instruments at the beginning of a quarter, then due to market returns
holds 75% of its securities in stocks, 20% in bonds, and 5% in money market
instruments at the end of a quarter, the Manager would rebalance the portfolio
by reducing its holdings of stocks and increasing its holdings of bonds to
return the portfolio's investments in stocks and bonds into the target ranges.
See INVESTMENT OBJECTIVE AND POLICIES - INVESTMENT POLICIES AND TECHNIQUES for
further information on the Fund's target ranges.
For more complete information about the other USAA Asset Strategy Funds,
including charges and expenses, call the Manager for a Prospectus. Be sure to
read it carefully before you invest or send money.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a conservative balance for the
investor between income, the majority of which is exempt from federal income
tax, and the potential for long-term growth of capital to preserve purchasing
power. This objective is to be achieved through an asset allocation strategy.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies,
restrictions and risks is provided in the SAI.
INVESTMENT POLICIES AND
TECHNIQUES
The Fund provides a professionally managed, diversified investment program
within one mutual fund. The Manager seeks to attain the objective by
allocating the Fund's assets in each of the following investment categories
within the indicated ranges:
Percentage
Target Range
Investment Category of Net Assets
- ------------------- -------------
Short-Term Tax-Exempt Securities
(Maturities two years or less) 20-40%
Long-Term Tax-Exempt Securities
(Maturities ten years or more) 20-40%
Basic Value Stocks 36-44%
The target ranges may be revised by the Board of Trustees upon 60 days'
prior written notice to shareholders. However, the Manager reserves the
right, without shareholder notification, to revise the ranges on a temporary
defensive basis when, in its opinion, such changes are believed to be in the
best interest of the Fund and its shareholders.
The ranges allow for a variance in each investment category. Should
market action cause investment categories to move outside the ranges, the
Manager will make adjustments to rebalance the portfolio. In general, the
Manager will rebalance the portfolio at least once during each calendar
quarter to bring each category within its range. These portfolio adjustments
may cause the Fund to sell securities in investment categories which have
appreciated in value and to buy securities in investment categories which have
depreciated in value. Such adjustments may also cause the Fund to incur a
higher proportion of short-term capital gains than a fund that does not have a
similar policy.
The investment categories and their weightings have been specifically
selected to provide investors with a diversified investment in a single mutual
fund. Short- and long-term tax-exempt securities provide income exempt from
federal income tax. The short-term category seeks to add stability of net
asset value while the long-term category seeks higher income. The Basic Value
Stocks have been selected for their potential to provide long-term capital
growth.
It is a fundamental policy of the Fund that during normal market
conditions the Fund's assets will be invested so that at least 50% of the
Fund's annual income will be exempt from federal personal income tax and
excluded from the calculation of federal alternative minimum taxes for
individual taxpayers.
Long-Term and Short-Term Tax-Exempt Securities - In general, interest rates
for long-term tax-exempt securities have exceeded those for short-term
tax-exempt securities. By investing in short-term tax-exempt securities
(maturities of two years or less) and in long-term tax-exempt securities
(maturities of ten years or longer), the Manager believes that price
volatility will be lower than that of a portfolio of all long-term maturities.
Portfolio yields will generally be lower under this investment policy than
they would be in a portfolio comprised of all long-term maturities. The
Manager believes that the trade-off in yield, if any, for expected lower
volatility is in the best interest of shareholders.
Tax-exempt securities include general obligation bonds, which are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest; revenue bonds, which are payable from the
revenue derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power; and certain types of industrial
development bonds issued by or on behalf of public authorities to obtain funds
for privately-operated facilities, provided that the interest paid on such
securities qualifies as exempt from federal income taxes.
Under normal market conditions, the Manager will invest the combined
assets of the Long-Term and Short-Term Tax-Exempt Securities categories so
that at least 50% of the total market value of the tax-exempt securities is
rated within the three highest long-term rating categories (at least A) by
Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Group
(S&P), or Fitch Investors Service, Inc. (Fitch), in the highest short-term
rating category by Moody's, S&P, or Fitch, or, if a security is not rated by
those rating agencies, it must be of equivalent investment quality as
determined by the Manager. In no event will a security be purchased in the
tax-exempt securities categories unless it is rated at least investment grade;
i.e., rated by Moody's, S&P, or Fitch at least in the fourth highest rating
category for long-term securities, in the second highest rating category for
short-term securities, or, if not rated by those rating agencies, determined
by the Manager to be of equivalent investment quality. Securities rated in
the lowest level of investment grade have some speculative characteristics
since adverse economic conditions and changing circumstances are more likely
to have an adverse impact on such securities.
If the rating of a security is downgraded, the Manager will determine
whether it is in the best interest of the Fund's shareholders to continue to
hold such security in the Fund's portfolio. 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 tax-exempt securities and their ratings, see APPENDIX
A to the SAI.
Within the Short-Term Tax-Exempt Securities investment category
(maturities two years or less), the Fund may, on a temporary basis due to
market or other conditions, invest in short-term securities which are not
exempt from federal income tax. These securities may consist of obligations
of the U.S. Government and its agencies or instrumentalities, and repurchase
agreements secured by such instruments; certificates of deposit of domestic
banks having capital, surplus and undivided profits in excess of $100 million;
banker's acceptances of similar banks; commercial paper; and other corporate
debt obligations.
Basic Value Stocks - Approximately 40% of the Fund's assets will be invested
in common stocks for their long-term potential to increase in value. Within
this category, investments will consist of common stocks, preferred stocks or
securities which are convertible into or which carry the right to buy common
stocks of U.S. companies which the Manager believes are undervalued in
relation to such factors as the company's assets and current or prospective
earnings. In most cases, these securities will be listed on the New York
Stock Exchange (NYSE).
The Basic Value Stocks category will include common stocks of companies
with one or more of the following characteristics when purchased: (1) the
price earnings ratio is lower than the price earnings ratio of the S&P 500;
(2) the price per share is lower than the book value per share; (3) the
dividend yield is higher than the dividend yield of the S&P 500; or (4) the
company has assets with a perceived market value in excess of book value.
Loss of these characteristics will not necessarily result in the sale of
securities in this investment category. The Manager believes that these
common stock investments in Basic Value Stocks will provide an investor in the
Fund the potential for long-term increases in capital. Such potential does
not generally exist in a portfolio which is invested totally in fixed income
securities.
Repurchase Agreements - The Fund may invest in repurchase agreements which are
collateralized by obligations backed by the full faith and credit of the U.S.
Government or by its agencies or instrumentalities. A repurchase agreement is
a transaction in which a security is purchased with a simultaneous commitment
to sell the security back to the seller (a commercial bank or recognized
securities dealer) at an agreed upon price on an agreed upon date, usually not
more than seven days from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or maturity of the purchased security. The obligation of
the seller to pay the agreed upon price is in effect secured by the value of
the underlying security. In these transactions, the securities purchased by
the Fund will have a total value equal to or in excess of the amount of the
repurchase obligation and will be held by the Fund's custodian until
repurchased. If the seller defaults and the value of the underlying security
declines, the Fund may incur a loss and may incur expenses in selling the
collateral. If the seller seeks relief under the bankruptcy laws, the
disposition of the collateral may be delayed or limited.
When-Issued Securities - The Fund may invest in new issues of debt securities
offered on a when-issued basis; that is, delivery and payment take place after
the date of the commitment to purchase, normally within 45 days. Both price
and interest rate are fixed at the time of commitment. The Fund does not earn
interest on the securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement. Such securities can
be sold before settlement date.
Cash or high quality liquid debt securities equal to the amount of the
when-issued commitments are segregated at the Fund's custodian bank. The
segregated securities are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at least equal to the
amount of such commitments by the Fund. On the settlement date, the Fund will
meet its obligations from then available cash, sale of segregated securities,
sale of other securities, or sale of the when-issued securities themselves.
Variable Rate Securities - The Fund may invest in securities that bear
interest at rates 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.
Put Bonds - The Fund may invest in tax-exempt securities (including securities
with variable interest rates) which may be redeemed or sold back (put) to the
issuer of the security or a third party prior to stated maturity (put bonds).
Such securities will normally trade as if maturity is the earlier put date,
even though stated maturity is longer. Under the Fund's portfolio allocation
procedure, maturity for put bonds is deemed to be the date on which the put
becomes exercisable.
Zero Coupon Bonds - The Fund may invest in zero coupon bonds. A zero coupon
bond is a security that is sold at a deep discount from its face value, makes
no periodic interest payments, and is redeemed at face value when it matures.
The lump sum payment at maturity increases the price volatility of the zero
coupon bond to changes in interest rates when compared to a bond that
distributes a semiannual coupon payment. In calculating its dividend, the
Fund records as income the daily amortization of the purchase discount.
Municipal Lease Obligations - The Fund may invest in a variety of instruments
commonly referred to as municipal lease obligations, including leases,
installment purchase contracts and certificates of participation in such
leases and contracts. In evaluating a potential investment in a
municipal lease obligation, the Manager will consider: (1) the credit quality
of the obligor, (2) whether the underlying property is essential to a
governmental function, and (3) whether the lease obligation contains covenants
prohibiting the obligor from substituting similar property if the obligor
fails to make appropriations for the lease obligation. For a description of
the risks associated with these obligations, see INVESTMENT POLICIES -
MUNICIPAL LEASE OBLIGATIONS in the SAI.
Liquidity - The Fund may not invest more than 15% of the market value of its
total assets in securities which are illiquid or not readily marketable.
Municipal Lease Obligations, Rule 144A Securities and certain put bonds
that are subject to restrictions on transfer may be determined to be liquid in
accordance with guidelines established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund may not invest more than 25% of its total assets in one
industry.
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Trust with a
social security number or tax identification number to avoid possible
withholding requirements.
EFFECTIVE DATE
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. The NAV of the Fund is determined at the close of the regular trading
session of the NYSE each day on which the Exchange is open. If the Fund
receives your request prior to that time, 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: Not Available
How to Purchase:
- ----------------
MAIL * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest by
Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
IN PERSON * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
AUTOMATICALLY * Additional purchases on a regular basis can be
VIA deducted from a bank account, paycheck, income-producing
ELECTRONIC investment or from a USAA money market account. Sign up
FUNDS for these services when opening an account or call
TRANSFER 1-800-531-8448 to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Growth and Tax Strategy Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open
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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an employer, an income-producing investment, or an account
with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of funds from a USAA money
market fund to purchase shares in another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or redemption of shares through
electronic funds transfer to or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of shares from one of
your accounts permitting you to receive a fixed amount of money monthly or
quarterly.
* Directed Dividends - If you own shares in more than one of the Funds in the
USAA Family of Funds, you may direct that dividends and/or capital gain
distributions earned in one fund be used to purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a reinvested dividend;
(2) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Direct Purchase Service, Automatic
Purchase Plan, or Directed Dividends investment plans; or
(3) 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 NYSE, which is usually 4:00 p.m. Eastern time. You may
buy and sell Fund shares at the NAV per share without a sales charge.
HOW
The NAV per share is calculated by adding the value of all securities and
other assets in the Fund, deducting liabilities, and dividing by the number of
shares outstanding. Portfolio securities, except as otherwise noted, traded
primarily on a domestic securities exchange are valued at the last sales price
on that exchange. If no sale is reported, the latest bid price is
generally used.
Over-the-counter securities are generally priced at the last sales price
or, if not available, at the average of the bid and asked prices.
Debt securities purchased with maturities of 60 days or less are stated
at amortized cost which approximates market value. Other debt securities are
valued each business day at their current market value as determined by a
pricing service approved by the Board of Trustees. Securities which cannot be
valued by the methods set forth above, and all other assets, are valued in
good faith at fair value using methods determined by the Manager under the
general supervision of the Board of Trustees.
For additional information, see VALUATION OF SECURITIES in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders quarterly. 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Distributions to shareholders derived from tax-exempt interest received
by the Fund will be excluded from a shareholder's gross income for federal
income tax purposes, provided the Fund meets certain requirements. Tax-exempt
interest from private activity bonds (for example, industrial development
revenue bonds) issued after August 7, 1986, although otherwise exempt from
federal tax, is treated as a tax preference item for purposes of the
alternative minimum tax. For corporations, all tax-exempt interest will be
considered in calculating the alternative minimum tax as part of the adjusted
current earnings. Distributions of tax-exempt income are taken into
consideration in computing the portion, if any, of Social Security and railroad
retirement benefits subject to federal and, in some cases, state taxes.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - The Fund will report annually to their shareholders the federal
tax status of dividends and distributions paid or declared by the Fund during
the preceding calendar year including the portion of the dividends
constituting interest on private activity bonds, and the percentage and
source, on a state-by-state basis, of interest income earned on tax-exempt
securities, if any, held by the Fund during the preceding year.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $____ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees were computed and paid at
one-half of one percent (.50%) of ANA for the fiscal year ended May 31, 1996.
OPERATING EXPENSES
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled .82%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for managing the Fund.
John W. Saunders, Jr., Senior Vice President of Fixed Income Investments since
October 1985, has been the Fund's asset allocation manager since its inception
in January 1989. He has 27 years investment management experience and has
worked for IMCO for 26 years. Mr. Saunders earned the Chartered Financial
Analyst (CFA) designation in 1976 and is a member of the Association for
Investment Management and Research (AIMR) and the San Antonio Financial
Analysts Society, Inc. (SAFAS). He holds a BS from Portland State University,
Oregon.
Harry W. Miller, Senior Vice President of Equity Investments since October
1987, has managed the Basic Value Stocks investment category since February
1995. Mr. Miller has 39 years of experience in investment management and has
worked for IMCO for 22 years. Mr. Miller earned the CFA designation in 1968
and is a member of the AIMR and SAFAS. He holds an MBA from the University of
Southern California and a BS from Rider College, New Jersey.
Kenneth E. Willmann, Vice President of Fixed Income Investments since December
1986, has managed the Long-Term Tax-Exempt Securities investment category
since its inception in January 1989. He has 22 years investment management
experience and has worked for IMCO for 19 years. Mr. Willmann earned the CFA
designation in 1978 and is a member of the AIMR, SAFAS and the National
Federation of Municipal Analysts (NFMA). He holds an MBA and a BA from the
University of Texas.
Clifford A. Gladson, Assistant Vice President of Fixed Income Investments
since November 1994, has managed the Short-Term Tax-Exempt investment
category since April 1994. He has nine years investment management experience
and has worked for IMCO for six years where he has held various positions in
Fixed Income Investments. Mr. Gladson earned the CFA designation in 1990 and
is a member of the AIMR, SAFAS and NFMA. He holds an MS from the University of
Wisconsin, Milwaukee and a BS from Marquette University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
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
Balanced Strategy Fund
is included herein
USAA BALANCED STRATEGY FUND
October 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 about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October 1,
1996. The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated by reference into this Prospectus (meaning it is legally a
part of the 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** .15%
Custodian Fees .44%
All Other Expenses .66%
----
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 21.
During the fiscal period ended May 31, 1996, the Manager voluntarily
limited the annualized expenses of the Fund to 1.25% of its ANA and reimbursed
the Fund for all expenses in excess of this limitation. The Management Fees,
Other Expenses, and Total Fund Operating Expenses reflect all such expense
reimbursements by the Manager. Other Expenses are estimated for the Fund's
first year of operations. 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 have been .75%, 1.25%, and 2.00%,
respectively. The Manager has voluntarily agreed to continue to limit the
Fund's annual expenses until October 1, 1997, to 1.25% of its ANA and will
reimburse the Fund for all expenses in excess of the limitation.
Example of Effect of Fund Expenses
- -------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
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 nine-month period ended May 31, 1996, has been derived from
financial statements audited by KPMG Peat Marwick LLP. This table should be
read in conjunction with the financial statements and related notes that
appear in the Fund's Annual Report. Further performance information is
contained in the Annual Report and is available upon request without charge.
NINE-MONTH
PERIOD ENDED
MAY 31, 1996*
-------------
Net asset value at
beginning of period $ 10.00
Net investment income .26(b)
Net realized and
unrealized gain .37
Distributions from net
investment income (.14)
-------
Net asset value at
end of period $ 10.49
=======
Total return (%)** 6.37
Net assets at end of
period (000) $19,258
Ratio of expenses to
average net assets (%) 1.25(a)(c)
Ratio of net investment
income to average net
assets (%) 3.31(a)(c)
Portfolio turnover (%) 26.53
Average commission rate
paid per share $ .0489
- -------------------------
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) Calculated using weighted average shares.
(c) The information contained in this 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:
NINE-MONTH
PERIOD ENDED
MAY 31, 1996*
-------------
Ratio of expenses to average net assets (%) 2.00(a)
Ratio of net investment income to average net assets (%) 2.56(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
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a good investment, is
it a wise idea to use your entire savings to buy one stock? Most people
wouldn't - it would be fortunate if it works, but this strategy holds a great
deal of risk. Surprising news could be reported tomorrow on your stock, and
its price could soar or plummet.
Careful investors understand this concept of risk and lower that risk by
diversifying their holdings among a number of securities. That way bad news
for one security may be counterbalanced by good news regarding other
securities. But there is still a question of risk here. History tells us
that stocks are generally more volatile than bonds and that long-term bonds
are generally more volatile than short-term bonds. History also tells us that
over many years investments having higher risks tend to have higher returns
than investments that carry lower risks. And past performance doesn't
necessarily guarantee future results. From these observations comes the idea
of asset allocation.
Asset allocation is a straightforward concept that involves dividing
your money among several different types of investments - for example, stocks,
bonds and short-term investments such as money market instruments - and
keeping that allocation until your objectives or the financial markets
significantly change. That way you're not pinning all your financial success
on the fortunes of one kind of investment. Money spread across different
investment categories can help you reduce market risk and likely will provide
more stability to your total return.
Asset allocation can work because different kinds of investments
generally follow different up-and-down cycles. With a variety of investments
in your portfolio, some are probably doing well, even when others are
struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification, but asset allocation
goes beyond diversifying your portfolio; it's much more of an active process.
You must evaluate your lifestyle, finances, circumstances, long- and
short-term financial goals and tolerance for investment risk. Once you have
structured your allocation, you'll need to review it regularly since your
objectives will change over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset Strategy Funds, are
designed for the long-term investor and are in line with the Manager's
investment philosophy for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown on the next page,
each of USAA's Asset Strategy Funds has its own different mix of assets and
objectives.
Fund Investment Objective Invests In
- ------------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ------------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ------------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ------------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ------------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large cap
Strategy risk over time, through an asset stocks, bonds, and
Fund allocation strategy which emphasizes 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.
Although the Fund's portfolio turnover rate is not expected to exceed
100%, 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, BBB by Standard & Poor's Ratings Group, BBB by
Fitch Investors Service, or BBB by Duff and Phelps, 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, repurchase
agreements collateralized with U.S. Government securities, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These securities may carry fixed or variable interest rates.
Convertible Securities - 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 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.
Municipal Lease Obligations - The Fund may invest in municipal lease
obligations and certificates of participation in such obligations
(collectively, lease obligations). A lease obligation does not constitute a
general obligation of the municipality for which the municipality's taxing
power is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due under the lease
obligation.
Certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease obligation
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. In evaluating a potential investment in such a lease
obligation, the Manager will consider: (1) the credit quality of the obligor,
(2) whether the underlying property is essential to a governmental function,
and (3) whether the lease obligation contains covenants prohibiting the
obligor from substituting similar property if the obligor fails to make
appropriations for the lease obligation.
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 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, securities that may be resold pursuant to Rule 144A under the
Securities Act of 1933, and lease obligations may be determined to be liquid
in accordance with guidelines established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) 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.
(2) 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).
(3) 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.
(4) 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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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
VIA deducted from a bank account, paycheck, income-producing
ELECTRONIC investment or from a USAA money market account. Sign up
FUNDS for these services when opening an account or call
TRANSFER 1-800-531-8448 to add these services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) will be
REDEMPTION 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.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000
or more invested in USAA mutual funds; and (5) all IRA accounts (for the
first year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a reinvested dividend;
(2) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Direct Purchase Service, Automatic
Purchase Plan, or Directed Dividends investment plans; or
(3) 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 NYSE, 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
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 $___ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees are computed 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. For the fiscal period ended May 31, 1996, the
Manager waived the advisory fee for the Fund.
OPERATING EXPENSES
For the fiscal period ended May 31, 1996, the Manager limited total annualized
operating expenses to 1.25% of the Fund's ANA. The Manager reimbursed the
Fund $66,536 for expenses in excess of the limitation. The Manager has
voluntarily agreed to continue to limit the Fund's annual expenses until
October 1, 1997, to 1.25% of its ANA and will reimburse the Fund for all
expenses in excess of the limitation.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for managing the Fund.
R. David Ullom, Assistant Vice President of Equity Investments since September
1994, is the asset allocation manager for the Fund and has managed the Stocks
investment category since September 1995. Mr. Ullom has 21 years investment
management experience and has worked for IMCO for ten years. 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 1994, has managed the Bonds investment category since September 1995.
Mr. Lundmark has 10 years investment management experience and has worked for
IMCO for five years where he has held various positions in Fixed Income
Investments. 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.
Pamela K. Bledsoe, Executive Director of Money Market Funds since June 1995
has managed the Money Market Instruments investment category since May 1996.
Ms. Bledsoe has eight years investment management experience and has worked for
IMCO for five years where she has held various positions in Fixed Income
Investments. Ms. Bledsoe earned the CFA designation in 1992 and is a member
of the AIMR and SAFAS. She holds an MBA from Texas Christian University and a
BS from Louisiana Tech University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
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
Cornerstone Strategy Fund
is included herein
USAA CORNERSTONE STRATEGY FUND
October 1, 1996 PROSPECTUS
USAA CORNERSTONE STRATEGY FUND (the Fund) is one of eleven no-load mutual
funds offered by USAA Investment Trust (the Trust). The Fund is managed by
USAA Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to achieve a positive, inflation-adjusted
rate of return and a reasonably stable value of Fund shares, thereby
preserving purchasing power of shareholders' capital. This objective is to
be achieved through an asset allocation strategy. Inflation is measured by
the Consumer Price Index. Page 10.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 15.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 17.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA CORNERSTONE STRATEGY FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO
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 14.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Asset Allocation Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 10
SHAREHOLDER INFORMATION
Purchase of Shares 15
Redemption of Shares 17
Conditions of Purchase and Redemption 18
Exchanges 19
Other Services 20
Share Price Calculation 21
Dividends, Distributions and Taxes 22
Management of the Trust 23
Description of Shares 25
Service Providers 26
Telephone Assistance Numbers 26
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- ----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .27%
Custodian Fees .06%
All Other Expenses .07%
----
Total Other Expenses .40%
-----
Total Fund Operating Expenses 1.15%
=====
- ----------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 12
3 years - $ 37
5 years - $ 63
10 years - $140
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the ten-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED MAY 31, MAY 31, SEPTEMBER 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net asset value at
beginning of period $ 22.63 $ 23.24 $ 23.43 $ 19.94 $ 18.62
Net investment income .73 .68 .40 .60 .65
Net realized and
unrealized gain (loss) 3.18 .67 .29 3.52 1.26
Distributions from net
investment income (.74) (.58) (.59) (.63) (.59)
Distributions of realized
capital gains (.33) (1.38) (.29) - -
------- ------- ------- ------- -------
Net asset value at
end of period $ 25.47 $ 22.63 $ 23.24 $ 23.43 $ 19.94
======= ======= ======= ======= =======
Total return (%)* 17.79 6.43 3.00 21.35 10.53
Net assets at end of
period (000) $1,035,844 $874,587 $814,869 $707,795 $567,212
Ratio of expenses to
average net assets (%) 1.15 1.13 1.11(a) 1.18 1.18
Ratio of net investment
income to average net
assets (%) 3.06 3.16 2.68(a) 2.92 3.25
Portfolio turnover (%) 36.15 33.17 30.87 45.18 32.71
Average commission rate
paid per share $ .0039
- ----------------------
* Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
FINANCIAL HIGHLIGHTS cont.
YEAR ENDED SEPTEMBER 30,
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
Net asset value at
beginning of period $ 17.19 $ 19.31 $ 16.71 $ 19.76 $ 14.49
Net investment income .65 .63 .69 .59 .60
Net realized and
unrealized gain (loss) 1.43 (2.04) 2.57 (3.26) 5.18
Distributions from net
investment income (.65) (.71) (.66) (.36) (.30)
Distributions of realized
capital gains - - - (.02) (.21)
------- ------- ------- ------- -------
Net asset value at
end of period $ 18.62 $ 17.19 $ 19.31 $ 16.71 $ 19.76
======= ======= ======= ======= =======
Total return (%)** 12.61 (7.64) 20.17 (13.39) 41.26
Net assets at end of
period (000) $580,088 $535,308 $522,031 $544,118 $822,748
Ratio of expenses to
average net assets (%) 1.18 1.21 1.21 1.21 1.07
Ratio of net investment
income to average net
assets (%) 3.58 3.50 3.57 3.54 3.41
Portfolio turnover (%) 28.02 40.89 33.19 27.78 14.86
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
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a good investment, is
it a wise idea to use your entire savings to buy one stock? Most people
wouldn't - it would be fortunate if it works, but this strategy holds a great
deal of risk. Surprising news could be reported tomorrow on your stock, and
its price could soar or plummet.
Careful investors understand this concept of risk and lower that risk by
diversifying their holdings among a number of securities. That way bad news
for one security may be counterbalanced by good news regarding other
securities. But there is still a question of risk here. History tells us
that stocks are generally more volatile than bonds and that long-term bonds
are generally more volatile than short-term bonds. History also tells us that
over many years investments having higher risks tend to have higher returns
than investments that carry lower risks. And past performance doesn't
necessarily guarantee future results. From these observations comes the idea
of asset allocation.
Asset allocation is a straightforward concept that involves dividing
your money among several different types of investments - for example, stocks,
bonds and short-term investments such as money market instruments - and
keeping that allocation until your objectives or the financial markets
significantly change. That way you're not pinning all your financial success
on the fortunes of one kind of investment. Money spread across different
investment categories can help you reduce market risk and likely will provide
more stability to your total return.
Asset allocation can work because different kinds of investments
generally follow different up-and-down cycles. With a variety of investments
in your portfolio, some are probably doing well, even when others are
struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification, but asset allocation
goes beyond diversifying your portfolio; it's much more of an active process.
You must evaluate your lifestyle, finances, circumstances, long- and
short-term financial goals and tolerance for investment risk. Once you have
structured your allocation, you'll need to review it regularly since your
objectives will change over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset Strategy Funds, are
designed for the long-term investor and are in line with the Manager's
investment philosophy for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown on the next page,
each of USAA's Asset Strategy Funds has its own different mix of assets and
objectives.
Fund Investment Objective Invests In
- ------------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ------------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ------------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ------------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ------------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large cap
Strategy risk over time, through an asset stocks, bonds, and
Fund allocation strategy which emphasizes international
capital appreciation and gives stocks
secondary emphasis to income.
- ------------------------------------------------------------------------------
An important feature of USAA's Asset Strategy Funds is the quarterly
rebalancing of each portfolio. In this asset allocation technique, the Funds'
Managers buy or sell securities each quarter so that the investment categories
of each Fund are brought within their target ranges. For example, if a
portfolio holds 65% of its securities in stocks, 30% in bonds, and 5% in money
market instruments at the beginning of a quarter, then due to market returns
holds 75% of its securities in stocks, 20% in bonds, and 5% in money market
instruments at the end of a quarter, the Manager would rebalance the portfolio
by reducing its holdings of stocks and increasing its holdings of bonds to
return the portfolio's investments in stocks and bonds into the target ranges.
See INVESTMENT OBJECTIVE AND POLICIES - INVESTMENT POLICIES, TECHNIQUES AND
RISK FACTORS for further information on the Fund's target ranges.
For more complete information about the other USAA Asset Strategy Funds,
including charges and expenses, call the Manager for a Prospectus. Be sure to
read it carefully before you invest or send money.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to achieve a positive, inflation-adjusted
rate of return and a reasonably stable value of Fund shares, thereby
preserving purchasing power of shareholders' capital. This objective is to be
achieved through an asset allocation strategy. Inflation is measured by the
Consumer Price Index.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies,
restrictions and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Fund provides a professionally managed diversified investment program
within one mutual fund. The Manager seeks to attain the objective by
allocating the Fund's assets in each of the following investment categories
within the indicated ranges:
Percentage
Target Range
Investment Category of Net Assets
------------------- -------------
Basic Value Stocks 22 - 28%
U.S. Government Securities 22 - 28%
Foreign Stocks 22 - 28%
Real Estate Stocks 22 - 28%
Gold Stocks 0 - 10%
The target ranges may be revised by the Board of Trustees upon 60 days'
prior written notice to shareholders. However, the Manager reserves the
right, without shareholder notification, to revise the ranges on a temporary
defensive basis when, in its opinion, such changes are believed to be in the
best interest of the Fund and its shareholders.
The ranges allow for a variance in each investment category. Should
market action cause investment categories to move outside the ranges, the
Manager will make adjustments to rebalance the portfolio. In general, the
Manager will rebalance the portfolio at least once during each calendar
quarter to bring each category within its range. These portfolio adjustments
may cause the Fund to sell securities in investment categories which have
appreciated in value and to buy securities in investment categories which have
depreciated in value. Such adjustments may also cause the Fund to incur a
higher proportion of short-term capital gains than a fund that does not have a
similar policy.
The Basic Value Stocks category was selected to provide appreciation
during rising stock market conditions and to stabilize the value of the Fund
during adverse market conditions. The U.S. Government Securities category was
selected to provide safety of principal in periods of deflation. The Foreign
Stocks category was selected to provide the potential for appreciation during
periods of adverse economic and market conditions in the United States. The
Real Estate and Gold Stocks categories were selected to provide a positive
total return during inflationary periods.
Characteristics and associated risks of each investment category are as
follows:
Basic Value Stocks - In this category, investments will consist of common
stocks, preferred stocks or securities which are convertible into or which
carry the right to buy common stocks of U.S. companies which the Manager
believes are undervalued in relation to such factors as the company's assets
and current or prospective earnings. In most cases, these securities will be
listed on the New York Stock Exchange (NYSE).
The Basic Value Stocks category will include common stocks of companies
with one or more of the following characteristics when purchased: (1) the
price earnings ratio is lower than the price earnings ratio of the S&P 500;
(2) the price per share is lower than the book value per share; (3) the
dividend yield is higher than the dividend yield of the S&P 500; or (4) the
company has assets with a perceived market value in excess of book value.
Loss of these characteristics will not necessarily result in the sale of
securities in this investment category.
U.S. Government Securities - In this category, investments will consist of
securities, without specific maturity requirements or limits, issued or
guaranteed as to both principal and interest by the U.S. Government or by its
agencies or instrumentalities. Examples of these securities are Treasury
bills, notes and bonds, and securities issued by the Federal Farm Credit
Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association, and Government National Mortgage Association.
Within this investment category, the Fund may also invest in repurchase
agreements collateralized by securities of the U.S. Government or by its
agencies or instrumentalities.
The U.S. Government Securities investment category is intended to
provide both liquidity and interest income with limited risk. Changes in
interest rates may affect the value of investments within this category. In
periods of rising interest rates, fixed coupon securities will generally
decline in market value. To minimize such changes in value, the Manager may
shorten maturities in periods of rising interest rates, although there is no
assurance that this action will totally protect principal from erosion.
Conversely, the Manager may extend maturities in periods of declining interest
rates to capitalize on the resulting impact on principal.
Foreign Stocks - In this category, investments will consist of common stocks,
preferred stocks or securities which are convertible into or which carry the
right to buy common stocks of foreign companies. A company is deemed to be a
foreign company if:
(1) it is organized under the laws of a foreign country; and either
(2) (a) the principal trading market for the stock is in a foreign
country; or
(b) at least 50% of its revenues or profits are derived from
operations within a foreign country; or
(c) at least 50% of its assets are located within a foreign country.
The Manager believes that international diversification may have a
balancing impact with regard to investments in the United States. For a
discussion of the risks associated with investments in foreign issuers, see
SPECIAL RISK CONSIDERATIONS.
Real Estate Stocks - In this category, investments will consist of common
stocks, preferred stocks or securities which are convertible into or which
carry the right to buy common stocks of U.S. Real Estate Investment Trusts
(REITs) and U.S. companies which operate as real estate corporations or which
have a significant portion of their assets in real estate. The Manager will
evaluate the nature of a company's real estate holdings in determining whether
the Fund's investment in the company's common stock will be included in this
category. The Fund's investments in REITs may subject the Fund to many of the
same risks associated with the direct ownership of real estate. In addition,
REITs are dependent upon the capabilities of the REIT manager(s) and have
limited diversification. The Fund will not acquire any direct ownership of
real estate.
The Manager believes that diversified investments linked to real estate
are a good hedge during an inflationary environment.
Gold Stocks - In this category, at least 80% of the investments will consist
of common stocks, preferred stocks or securities which are convertible into or
which carry the right to buy common stocks of companies principally engaged in
gold exploration, mining, or processing. The remaining investments in this
category will consist of common stocks, preferred stocks or securities which
are convertible into or which carry the right to buy common stocks of
companies similarly engaged in other precious metals and minerals. Gold
stocks have been selected for their perceived potential to increase in value
during inflationary periods. For a discussion of risks associated with
investments in this category, see SPECIAL RISK CONSIDERATIONS.
Forward Currency Contracts - The Fund may hold securities denominated in
foreign currencies. As a result, the value of the securities will be affected
by changes in the exchange rate between the dollar and foreign currencies. In
managing the currency exposure, the Fund may enter into forward currency
contracts. A forward currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or over a specified time
period at a price set at the time of the contract.
The Fund may enter into forward currency contracts under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when management of the
Fund believes that the currency of a specific country may deteriorate relative
to the U.S. dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a particular currency for an
amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or bearing a substantial correlation to, such
currency. The use of forward currency contracts to protect the value of 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 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.
Liquidity - The Fund may not invest more than 15% of the market value of its
total assets in securities which are illiquid or not readily marketable. Rule
144A Securities may be determined to be liquid in accordance with guidelines
established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund may not invest more than 25% of its total assets in one
industry. The Foreign Stocks, U.S. Government Securities, and Basic
Value Stocks investment categories are not considered industries for
this purpose.
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase foreign securities in
foreign or U.S. markets or it may purchase American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with a depositary.
Investing in foreign securities presents certain risks not present in domestic
investments. Such risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility, exchange control
regulations, different accounting, reporting and disclosure requirements,
political or social instability, and difficulties in obtaining judgments or
effecting collections thereon. Brokerage commissions and custodial services
may be more costly, and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets. These investments may be
subject to foreign withholding taxes which may reduce the effective rates of
return. The Fund values its securities and other assets in U.S. dollars.
Information which may impact the market value of securities of a foreign
issuer may not be available to the Manager on a timely basis. The Manager
will endeavor to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value will be deemed to have
occurred upon authentication by the Manager.
A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. Investments in developing
countries involve exposure to economic structures that are generally less
diverse and mature than in the United States, and to political systems which
may be less stable. Due to illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge the currency risk in
these markets. In the past, markets of developing countries have been more
volatile than the markets of developed countries.
Political risk includes a greater potential for coup d'etats,
insurrections and expropriation by governmental organizations. For example,
the Fund may invest in Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent States). These
countries were under communist systems which had nationalized private
industry. There is no guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which case the Fund may
lose all or part of its investment in that country's issuers.
Volatility of Mining Stocks - Gold mining stocks involve additional risk
because of gold's price volatility and the increased impact such volatility
has on the profitability of gold mining companies. However, since the market
action of such securities has tended to move independently of the broader
financial markets, the addition of gold mining stocks to an investor's
portfolio may reduce overall fluctuations in portfolio value.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Trust with a
social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
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. The NAV of the Fund is determined at the close of the regular trading
session of the NYSE each day on which the Exchange is open. If
the Fund receives your request prior to that time, 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any employee
of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge a
fee for the service) to wire the specified amount to the Fund
as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Cornerstone Strategy Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Automatic Purchase Plan, or Direct
Purchase Service investment plans; or
(2) 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 NYSE, 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
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 $____ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees were computed and paid at
three-fourths of one percent (.75%) of ANA for the fiscal year ended May 31,
1996. 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
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled 1.15%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for managing the Fund.
Harry W. Miller, Senior Vice President of Equity Investments since October
1987, is the asset allocation manager for the Fund. He has been the
portfolio manager for the Basic Value Stocks investment category since
February 1995. Mr. Miller has 39 years of experience in investment management
and has worked for IMCO for 22 years. Mr. Miller earned the Chartered
Financial Analyst (CFA) designation in 1968 and is a member of the Association
for Investment Management and Research (AIMR) and the San Antonio Financial
Analysts Society, Inc. (SAFAS). He holds an MBA from the University of
Southern California and a BS from Rider College, New Jersey.
John W. Saunders, Jr., Senior Vice President of Fixed Income Investments since
October 1985, has managed the U.S. Government Securities investment category
since October 1985. Mr. Saunders has 27 years investment management
experience and has worked for IMCO for 26 years. Mr. Saunders earned the CFA
designation in 1976 and is a member of the AIMR and SAFAS. He holds a BS from
Portland State University, Oregon.
David G. Peebles, Vice President of Equity Investments since February 1988,
has managed the Foreign Stocks investment category since December 1994. He
has 30 years investment management experience and has worked for IMCO 12
years. Mr. Peebles earned the CFA designation in 1971 and is a member of the
AIMR, SAFAS and the International Society of Financial Analysts (ISFA). He
holds an MBA and BS from Texas Christian University.
Effective October 1, 1996, Albert C. Sebastian and W. Travis Selmier, II, will
co-manage the Foreign Stocks investment category with Mr. Peebles. Mr.
Peebles, Vice President of Equity Investments, will coordinate the activities
of the Managers.
Albert C. Sebastian, Executive Director of Equity Investments since October
1995, has 12 years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments. Mr.
Sebastian earned the CFA designation in 1989 and is a member of the AIMR,
SAFAS and ISFA. He holds an MBA from the University of Michigan and a BA from
Holy Cross College, Massachusetts.
W. Travis Selmier, II, Executive Director of Equity Investments since March
1995, has nine years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments. Mr.
Selmier earned the CFA designation in 1990 and is a member of the AIMR, SAFS
and ISFA. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan and a BA
from the University of California at Santa Barbara.
Mark W. Johnson, Assistant Vice President of Equity Investments since March
1995, has managed the Gold Stocks and Real Estate Stocks investment categories
since January 1994. He has 22 years investment management experience and has
worked for IMCO for eight years. Mr. Johnson earned the CFA designation in
1978 and is a member of the AIMR and SAFAS. He holds an MBA and a BBA from
the University of Michigan.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE (registered trademark)
(From Touchtone phones only)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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[THIS PAGE LEFT BLANK INTENTIONALLY]
Part A
Prospectus for the
Growth Strategy Fund
is included herein
USAA GROWTH STRATEGY FUND
October 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 about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the 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 .31%
All Other Expenses .37%
----
Total Other Expenses .91%
----
Total Fund Operating Expenses 1.66%
=====
- ----------------------------------------------------------------------------
* 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 21.
Other Expenses are estimated for the Fund's first year of operations.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
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 nine-month period ended May 31, 1996, has been derived from
financial statements audited by KPMG Peat Marwick LLP. This table should be
read in conjunction with the financial statements and related notes that
appear in the Fund's Annual Report. Further performance information is
contained in the Annual Report and is available upon request without charge.
NINE-MONTH
PERIOD ENDED
May 31, 1996*
------------
Net asset value at
beginning of period $ 10.00
Net investment income .11
Net realized and
unrealized gain 2.66
Distributions from net
investment income (.03)
-------
Net asset value at
end of period $ 12.74
=======
Total return (%)** 27.76
Net assets at end of
period (000) $87,188
Ratio of expenses to
average net assets (%) 1.66(a)
Ratio of net investment
income to average net
assets (%) 1.34(a)
Portfolio turnover (%) 40.21
Average commission rate
paid per share $ .0072
- -----------------------
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
PERFORMANCE INFORMATION
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions during the time periods for which
it is reported. Historical performance should not be considered as
representative of the future performance of the Fund.
The Trust may quote the Fund's total return in advertisements and
reports to shareholders or prospective investors. The Fund's performance may
also be compared to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are referenced in APPENDIX B
to the SAI. Standard total return results reported by the Fund do not take
into account recurring and nonrecurring charges for optional services which
only certain shareholders elect and which involve nominal fees, such as the
$10 fee for a delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specified period which, when
applied to a hypothetical $1,000 investment in the Fund at the beginning of
the period, would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions during
the period.
Further information concerning the Fund's total return is included in
the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed
to provide investors with the opportunity to formulate their own investment
program. You may exchange any shares you hold in any one USAA Fund for shares
in any other USAA Fund. For more complete information about the Funds in the
USAA Family of Funds, including charges and expenses, call the Manager for a
Prospectus. Be sure to read it carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN ASSET ALLOCATION PROGRAM
I. THE IDEA BEHIND ASSET ALLOCATION
If you have money to invest and hear that stocks may be a good investment, is
it a wise idea to use your entire savings to buy one stock? Most people
wouldn't - it would be fortunate if it works, but this strategy holds a great
deal of risk. Surprising news could be reported tomorrow on your stock, and
its price could soar or plummet.
Careful investors understand this concept of risk and lower that risk by
diversifying their holdings among a number of securities. That way bad news
for one security may be counterbalanced by good news regarding other
securities. But there is still a question of risk here. History tells us
that stocks are generally more volatile than bonds and that long-term bonds
are generally more volatile than short-term bonds. History also tells us that
over many years investments having higher risks tend to have higher returns
than investments that carry lower risks. And past performance doesn't
necessarily guarantee future results. From these observations comes the idea
of asset allocation.
Asset allocation is a straightforward concept that involves dividing
your money among several different types of investments - for example, stocks,
bonds and short-term investments such as money market instruments - and
keeping that allocation until your objectives or the financial markets
significantly change. That way you're not pinning all your financial success
on the fortunes of one kind of investment. Money spread across different
investment categories can help you reduce market risk and likely will provide
more stability to your total return.
Asset allocation can work because different kinds of investments
generally follow different up-and-down cycles. With a variety of investments
in your portfolio, some are probably doing well, even when others are
struggling.
II. USING ASSET ALLOCATION IN AN INVESTMENT PROGRAM
Most investors understand the concept of diversification, but asset allocation
goes beyond diversifying your portfolio; it's much more of an active process.
You must evaluate your lifestyle, finances, circumstances, long- and
short-term financial goals and tolerance for investment risk. Once you have
structured your allocation, you'll need to review it regularly since your
objectives will change over time.
III. USAA'S SERIES OF ASSET STRATEGY FUNDS
USAA's series of asset allocation funds, our Asset Strategy Funds, are
designed for the long-term investor and are in line with the Manager's
investment philosophy for its customers, specifically "don't try to time the
market," and "buy and hold for the long-term." As shown on the next page,
each of USAA's Asset Strategy Funds has its own different mix of assets and
objectives.
Fund Investment Objective Invests In
- ------------------------------------------------------------------------------
Income Seek high current return, with Bonds and stocks
Strategy reduced risk over time, through an
Fund asset allocation strategy which
emphasizes income and gives
secondary emphasis to long-term
growth of capital.
- ------------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Short- and long-term
Strategy Fund income, the majority of which is tax exempt bonds and
tax-exempt, and the potential for basic value stocks
long-term growth of capital to
preserve purchasing power. This
objective is to be achieved through
an asset allocation strategy.
- ------------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy risk over time, through an asset
Fund allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- ------------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy rate of return and a reasonably stable value stocks,
Fund value of Fund shares. This objective government
is to be achieved through an asset securities, real
allocation strategy. estate stocks and
gold stocks
- ------------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large cap
Strategy risk over time, through an asset stocks, bonds, and
Fund allocation strategy which emphasizes 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.
Although the Fund's portfolio turnover rate is not expected to exceed
100%, 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 foreign companies. A company is deemed to be a foreign
company if:
(1) it is organized under the laws of a foreign country; and either
(2) (a) the principal trading market for the stock is in a foreign
country; or
(b) at least 50% of its revenues or profits are derived from
operations within a foreign country; or
(c) at least 50% of its assets are located within a foreign country.
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, BBB by Standard & Poor's Ratings Group, BBB by
Fitch Investors Service, or BBB by Duff and Phelps, 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, repurchase
agreements collateralized with U.S. Government securities, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These securities may carry fixed or variable interest rates.
Convertible Securities - 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 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.
Municipal Lease Obligations - The Fund may invest in municipal lease
obligations and certificates of participation in such obligations
(collectively, lease obligations). A lease obligation does not constitute a
general obligation of the municipality for which the municipality's taxing
power is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due under the lease
obligation.
Certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease obligation
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. In evaluating a potential investment in such a lease
obligation, the Manager will consider: (1) the credit quality of the obligor,
(2) whether the underlying property is essential to a governmental function,
and (3) whether the lease obligation contains covenants prohibiting the
obligor from substituting similar property if the obligor fails to make
appropriations for the lease obligation.
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 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, securities that may be resold pursuant to Rule 144A under the
Securities Act of 1933, and lease obligations may be determined to be liquid
in accordance with guidelines established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) 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.
(2) 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).
(3) 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.
(4) 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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER 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 a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Automatic Purchase Plan, or Direct
Purchase Service investment plans; or
(2) 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 NYSE, 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
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 $____ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees are computed and paid at
three-fourths of one percent (.75%) of ANA for the fiscal period ended May 31,
1996. 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
For the fiscal period ended May 31, 1996, the total annualized operating
expenses for the Fund as a percentage of the Fund's ANA equaled 1.66%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for managing the Fund.
David G. Parsons, Assistant Vice President of Equity Investments since March
1995, is the asset allocation manager of the Fund and has managed the Large
Cap Stocks investment category since September 1995. Mr. Parsons has 13 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 1995, have managed the Small Cap Stocks investment
category since September 1995. Mr. Cabell has 18 years investment management
experience and has worked seven 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 21 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
1995, has managed the International Stocks investment category since September
1995. Mr. Sebastian has 12 years investment management experience and has
worked five years for IMCO where he has held various positions in Equity
Investments. Mr. Sebastian earned the CFA designation in 1989 and is a member
of the AIMR, SAFAS and the International Society of Financial Analysts (ISFA).
He holds an MBA from the University of Michigan and a BA from Holy Cross
College, Massachusetts.
Effective October 1, 1996, David G. Peebles and W. Travis Selmier, II, will co
- -manage the International Stocks investment category with Mr. Sebastian. Mr.
Sebastian, Executive Director of Equity Investments, will coordinate the
activities of the Managers.
David G. Peebles, Vice President of Equity
Investments since February 1988, has 30 years investment management experience
and has worked for IMCO for 12 years. Mr. Peebles earned the CFA designation
in 1971 and is a member of the AIMR, SAFAS and ISFA. He holds an MBA and a BS
from Texas Christian University.
W. Travis Selmier, II, Executive Director of Equity Investments since March
1995, has nine years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments.
Mr. Selmier earned the CFA designation in 1990 and is a member of the AIMR,
SAFAS and ISFA. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan and a BA
from the University of California at Santa Barbara.
Paul H. Lundmark, Executive Director of Fixed Income Investments since
November 1994, has managed the Bonds investment category since September 1995.
Mr. Lundmark has ten years investment management experience and has worked for
IMCO for five years where he has held various positions in Fixed Income
Investments. 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.
Pamela K. Bledsoe, Executive Director of Money Market Funds since June 1995,
has managed the Money Market Instruments investment category since May of
1996. Ms. Bledsoe has eight years investment management experience and has
worked for IMCO for five years where she has held various positions in Fixed
Income Investments. Ms. Bledsoe earned the CFA designation in 1992 and is a
member of the AIMR and SAFAS. She holds an MBA from Texas Christian
University and a BS from Louisiana Tech University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
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
Emerging Markets Fund
is included herein
USAA EMERGING MARKETS FUND
October 1, 1996 PROSPECTUS
USAA EMERGING MARKETS FUND (the Fund) is one of eleven no-load mutual funds
offered by USAA Investment Trust (the Trust). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is capital appreciation. Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 13.
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 15.
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 EMERGING MARKETS 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 11.
If you would like more information about the Fund, you may call 1-800
- -531-8181 to request a free copy of the most recent financial report and/or
the Fund's Statement of Additional Information (SAI), dated October 1, 1996.
The SAI has been filed with the Securities and Exchange Commission (SEC) and
is incorporated by reference into this Prospectus (meaning it is legally a
part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 6
Using Mutual Funds in an Investment Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 8
SHAREHOLDER INFORMATION
Purchase of Shares 13
Redemption of Shares 15
Conditions of Purchase and Redemption 16
Exchanges 17
Other Services 18
Share Price Calculation 19
Dividends, Distributions and Taxes 19
Management of the Trust 21
Description of Shares 22
Service Providers 23
Telephone Assistance Numbers 23
Appendix A - Corporate Ratings 24
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets of the Fund for the year ended May 31, 1996, 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 1.00%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .44%
Custodian Fees .42%
All Other Expenses .41%
----
Total Other Expenses 1.27%
-----
Total Fund Operating Expenses 2.27%
=====
- ----------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 23
3 years - $ 70
5 years - $120
10 years - $255
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the two-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
SEVEN-MONTH
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31,
1996 1995*
---- ----
Net asset value at
beginning of period $ 9.77 $ 10.00
Net investment income (loss) (.01)(b) .03(b)
Net realized and
unrealized gain (loss) 1.60 (.26)
Distributions from net
investment income (.01) -
Distributions of realized
capital gains (.22) -
------- -------
Net asset value at
end of period $ 11.13 $ 9.77
======= =======
Total return (%)** 16.93 (2.30)
Net assets at end of
period (000) $51,315 $22,914
Ratio of expenses to
average net assets (%) 2.27 2.50(a)(c)
Ratio of net investment
income (loss) to average
net assets (%) (.08) .53(a)(c)
Portfolio turnover (%) 87.98 34.87
Average commission rate
paid per share $ .0012
- ---------------------------
* Fund commenced operations November 7, 1994.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) Calculated using weighted average shares.
(c) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
SEVEN-MONTH
PERIOD ENDED
MAY 31,
1995*
----
Ratio of expenses to average net assets (%) 2.60(a)
Ratio of net investment income to average net assets (%) .43(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
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities.
The Fund Manager will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wishes to diversify internationally.
He or she could do this by adding positions in the Emerging Markets, Gold,
International, or World Growth Funds to holdings in domestic funds. This
would give the investor exposure to the opportunities of investment in many
foreign countries and to currency changes. This is just one example of how an
individual could combine funds to create a portfolio tailored to his or her
own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies,
restrictions and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue the objective by investing at least 65% of the Fund's
total assets in common stocks, preferred stocks or securities which are
convertible into or which carry the right to buy common stocks of emerging
market companies. An issuer is deemed to be an emerging market company if:
(1) it is organized under the laws of an emerging market country (as
defined below);
(2) the principal trading market for its stock is in an emerging market
country; or
(3) at least 50% of its revenues or profits are derived from operations
within an emerging market country or at least 50% of its assets are
located within an emerging market country.
Emerging market countries are defined for the purposes of this Prospectus
as all countries of the world excluding the following, which are referred to
as the developed countries:
ASIA: Australia, Japan, New Zealand
AMERICAS: Canada, the United States
EUROPE: Austria, Belgium, Denmark, Finland, France, Germany, Holland,
Italy, Luxembourg, Norway, Spain, Sweden, Switzerland, the United
Kingdom
The economic and political systems of emerging market countries can be
described as possessing two or more of the following attributes:
(1) The countries in which these stock markets are found have a
less-developed economy than the developed countries.
(2) Economies of these countries are likely to be undergoing rapid growth or
some major structural change, such as a change in economic systems,
rapid development of an industrial or value-added economic sector, or
attainment of significantly better terms of trade for primary goods, to
name a few examples.
(3) Sustainable economic growth rates are higher, or potentially higher,
than developed countries.
(4) Economies of these countries may be benefitting from the rapid growth of
neighboring countries and/or may be significantly influenced by growth
of demand in the developed markets.
(5) Personal income levels and consumption are generally lower than those in
developed countries, but may be growing at a faster rate.
(6) The political system is likely to be or appear to be in greater flux
than the above-mentioned developed countries.
The countries in which the Fund expects to invest or may invest include,
but are not limited to:
ASIA: China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan,
Philippines, Singapore, Taiwan, Thailand
AMERICAS: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru,
Venezuela
AFRICA/MIDDLE EAST: Egypt, Ghana, Isreal, Morocco, South Africa, Turkey,
Zimbabwe
EUROPE/OTHER: Czech Republic, Greece, Hungary, Poland, Portugal, Russia,
Slovakia
The remainder of the Fund's assets may be invested in marketable debt
securities having remaining maturities of less than one year issued or
guaranteed as to both principal and interest by the U.S. Government or its
agencies or instrumentalities and in repurchase agreements collateralized by
such securities. The Fund may on a temporary defensive basis invest its
assets without limitation in such securities. The Fund may also invest part
of its cash position in short-term sovereign debt securities of emerging
market countries for the purpose of obtaining a higher yield.
In addition, the remainder may be invested in stocks of selected issuers
which have favorable growth prospects, but may not be organized or otherwise
situated in emerging markets. The Fund may also invest in public and private
sector debt and fixed income instruments of emerging market issuers, including
Brady Bonds of selected countries, which the Manager believes have the
potential for significant capital appreciation (due, for example, to the
Manager's assessment of prospects for the issuer or its domicile country),
irrespective of any interest or dividend yields payable pursuant to such
securities. These latter investments may be considered to be speculative in
nature.
There are no restrictions as to the type of businesses or operations of
companies in which the Fund may invest except that the Fund may not invest 25%
or more of its total assets in one industry. The Fund's investments will be
diversified in four or more countries.
The Manager believes that attractive investment opportunities exist in
many emerging markets, and that while investing a person's assets solely in an
emerging market fund may not be suitable, inclusion of an emerging market fund
in a well-diversified portfolio may significantly enhance returns. The Fund
combines the advantages of diversified investment in emerging markets with
the convenience and liquidity of a mutual fund based in the United States.
Risks are higher in these markets than developed international markets or the
United States. For further discussion, see SPECIAL RISK CONSIDERATIONS.
Forward Currency Contracts - The Fund may hold securities denominated in
foreign currencies. As a result, the value of the securities will be affected
by changes in the exchange rate between the dollar and foreign currencies. In
managing 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.
Brady Bonds and Emerging Market Debt and Fixed Income Instruments - The Fund
may invest in Brady Bonds and public and private sector debt and fixed income
instruments of emerging market issuers. Brady Bonds are securities created
through a restructuring plan introduced by former U.S. Treasury Secretary
Nicholas Brady. The Brady Plan made provisions whereby existing commercial
bank loans to both public and private entities in selected developing
countries are exchanged for Brady Bonds. These bonds may be denominated in
other currencies, but are usually denominated in U.S. dollars. Brady Bonds
are actively traded in over-the-counter markets. As the markets for these
securities are relatively new, however, and since they have from time to time
been subject to disruption, the Manager will monitor, on a continuous basis,
the liquidity of Brady Bonds held in the Fund's portfolio.
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. Rule
144A Securities may be determined to be liquid in accordance with guidelines
established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund may not invest 25% or more of its total assets in one industry.
(2) With respect to 75% of its assets, the Fund will 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, the Fund would own more than 10% of the outstanding
voting securities of such issuer or the Fund would have more than 5% of
the value of its total assets invested in the securities of such issuer.
(3) The Fund will 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), nor will it purchase securities when its borrowings
exceed 5% of its total assets.
SPECIAL RISK CONSIDERATIONS
The Fund will purchase securities of emerging market issuers 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, foreign ownership limits, different accounting, reporting
and disclosure requirements, 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. Some investments may be
subject to foreign withholding taxes which may reduce the effective rates of
return. In the past, equity and debt instruments of foreign markets have been
more volatile than equity and debt instruments of U.S. securities markets.
A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. Investing in emerging markets
poses additional risks beyond those noted above. Economic structures are
generally less diverse and mature than in the developed markets. Due to
illiquidity and lack of hedging instruments, it is presently difficult or in
some cases impossible to hedge the currency risk in many of the markets in
which the Fund may invest.
Political risk includes a greater potential for coup d'etats,
insurrections and expropriation by governmental organizations. For example,
the Fund may invest in Eastern Europe and former states of the Soviet
Union (also known as the CIS or the Commonwealth of Independent States).
These countries were under communist systems which had nationalized
private industry. There is no guarantee that nationalization may not occur
again in this region or others in which the Fund invests, in which case the
Fund may lose all or part of its investment in that country's issuers.
The Fund may invest in the securities of South African issuers. The
market prices of these securities and the ability of the Fund to hold such
investments in the future could be affected by the unstable political and
social conditions in South Africa and other African countries.
Information which may impact the market value of securities of an
emerging market 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.
High Yield, High Risk Securities - All or a large portion of the Fund's
investments in emerging market public and private sector debt and fixed income
instruments may be either rated below investment grade, including securities
having the lowest ratings, as determined by nationally recognized statistical
rating organizations such as Moody's Investors Service, Inc. (Moody's) or
Standard and Poor's Ratings Group (S&P), or unrated but judged by the Fund's
Manager to be of comparable (i.e., below investment grade) quality ("high
yield, high risk securities", commonly referred to as "junk bonds"). See
APPENDIX A. Such securities are deemed to be predominantly speculative
in terms of the issuer's capacity to make timely payments of interest and
principal. Securities assigned the lowest credit quality ratings, or judged
to be of comparable quality, are deemed to have extremely poor prospects of
ever obtaining any real investment standing. Such securities may include
those in default of the payment of interest or repayment of principal, or
presenting an imminent risk of default with respect to such payments, at the
time of their acquisition by the Fund. Once in default, issuers of such
securities may fail to resume principal as well as interest payments, in which
case the Fund may lose its entire investment. In light of these risks, the
Fund will limit its investments in defaulted securities, at time of
acquisition, to 10% of the value of its assets.
These securities present unique risk exposures in that their market
valuations are especially subject to adverse changes in general economic,
political or social conditions or in the industries within which their issuers
operate; to adverse changes in the overall financial condition of their
issuers; and to interest rate fluctuations. During, for example, periods of
general economic downturns or rising interest rates, issuers of such
securities may experience pronounced financial difficulties which could
adversely affect their ability to make timely interest and principal payments.
Such conditions would increase the possibility of their defaulting upon these
securities with the Fund having no adequate means of effecting collection or
other legal recourse. The Fund's ability to timely and accurately value, as
well as dispose of, these securities may also be detrimentally affected by the
entire absence, or periodic discontinuance, of liquid trading markets for such
securities.
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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER 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 Emerging Markets Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Automatic Purchase Plan, or Direct
Purchase Service investment plans; or
(2) 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 NYSE, 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. It is
not expected that the dividends of the Fund will qualify for the 70% corporate
dividends received deduction.
Distributions of net long-term capital gains are taxable as long-term
capital gains whether received in cash or reinvested in additional shares, and
regardless of the length of time the investor has held the shares of the Fund.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Foreign Taxes - The Fund may be subject to foreign withholding or other taxes.
If more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. If the Foreign Election is made, shareholders would
include in their gross income both dividends received from the Fund and
foreign income taxes paid by the Fund. Shareholders of the Fund would be
entitled to treat the foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations set forth in the Code
with respect to the foreign tax credit generally. Alternatively, shareholders
could, if to their advantage, treat the foreign income taxes withheld as an
itemized deduction in computing taxable income rather than as a tax credit.
Shareholders will not be entitled to a foreign tax credit for taxes paid to
certain countries; however, if the Fund otherwise qualifies for the Foreign
Election, a deduction for such taxes will be available to shareholders of the
Fund. It is anticipated that the Fund will make the Foreign Election.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - Information concerning the status of dividends and distributions
for federal income tax purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $_____ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees are computed and paid at
one percent (1.00%) of ANA for the fiscal year ended May 31, 1996. 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
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled 2.27%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGER
The following individual is primarily responsible for managing the Fund.
W. Travis Selmier, II, Executive Director of Equity Investments since March
1995, has managed the Fund since its inception in November 1994. Mr. Selmier
has nine years investment management experience and has worked for IMCO for
five years where he has held various positions in Equity Investments. Mr.
Selmier earned the Chartered Financial Analyst designation in 1990 and is a
member of the Association for Investment Management and Research, San Antonio
Financial Analysts Society, Inc. and the International Society of Financial
Analysts. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan and a BA
from the University of California at Santa Barbara.
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 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 portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the
shareholders of that portfolio is required. Shareholders holding an aggregate
of at least 10% of the outstanding shares of the Trust may request a meeting
of shareholders at any time for the purpose of voting to remove one or more
of the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
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
APPENDIX A - CORPORATE RATINGS
Moody's Corporate Ratings
Baa Bonds which are rated Baa are considered as medium grade
obligations. 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.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be2 considered as well assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during other good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
S&P Corporate Ratings
BBB Debt rated BBB is regarded as having 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.
BB Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. This rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. This
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, these bonds are not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B
or B- rating.
CC The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. This
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in payment default. This rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. This
rating also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from BBB to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
A description of ratings "A" or better assigned to debt obligations by Moody's
and S&P is included in APPENDIX A of the SAI.
Part A
Prospectus for the
Gold Fund
is included herein
USAA GOLD FUND
October 1, 1996 PROSPECTUS
USAA GOLD FUND (the Fund) is one of eleven no-load mutual funds offered by
USAA Investment Trust (the Trust). The Fund is managed by USAA Investment
Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's primary investment objective is to seek long-term capital
appreciation and to protect the purchasing power of shareholders' capital
against inflation. Current income is a secondary objective. Page 9.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 12.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 14.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA GOLD FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF,
OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO 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 11.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 18
Management of the Trust 20
Description of Shares 21
Service Providers 22
Telephone Assistance Numbers 22
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- ----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .40%
Custodian Fees .05%
All Other Expenses .13%
----
Total Other Expenses .58%
-----
Total Fund Operating Expenses 1.33%
=====
- ----------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 14
3 years - $ 42
5 years - $ 73
10 years - $160
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the ten-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED MAY 31, MAY 31, SEPTEMBER 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net asset value at
beginning of period $ 9.00 $ 8.83 $ 7.95 $ 6.53 $ 6.40
Net investment income (loss) (.02) .01 .01 .02 .07
Net realized and
unrealized gain (loss) 2.15 .17 .88 1.44 .14
Distributions from net
investment income (.01) (.01) (.01) (.04) (.08)
Distributions of realized
capital gains - - - - -
------ ------ ------ ------ ------
Net asset value at
end of period $11.12 $ 9.00 $ 8.83 $ 7.95 $ 6.53
====== ====== ====== ====== ======
Total return (%)* 23.66 2.05 11.19 22.53 3.30
Net assets at end of
period (000) $167,067 $160,223 $176,527 $150,793 $114,073
Ratio of expenses to
average net assets (%) 1.33 1.28 1.26(a) 1.41 1.43
Ratio of net investment
income (loss) to average
net assets (%) (.14) .10 .15(a) .25 1.02
Portfolio turnover (%) 16.48 34.76 34.75 81.08 19.01
Average commission rate
paid per share $ .0292
- ---------------------------
* Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
FINANCIAL HIGHLIGHTS cont.
YEAR ENDED SEPTEMBER 30,
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
Net asset value at
beginning of period $ 8.08 $ 8.84 $ 8.21 $17.07 $ 8.27
Net investment income (loss) .10 .08 .17 .05 .10
Net realized and
unrealized gain (loss) (1.72) (.69) .59 (8.35) 8.80
Distributions from net
investment income (.06) (.15) (.13) (.05) (.10)
Distribution of realized
capital gains - - - (.51) -
------ ------ ------ ------ ------
Net asset value at
end of period $ 6.40 $ 8.08 $ 8.84 $ 8.21 $17.07
====== ====== ====== ====== ======
Total return (%)* (20.10) (7.16) 9.37 (48.89) 108.77
Net assets at end of
period (000) $121,204 $156,573 $165,026 $174,380 $309,931
Ratio of expenses to
average net assets (%) 1.45 1.43 1.34 1.42 1.14
Ratio of net investment
income (loss) to average
net assets (%) 1.55 .93 1.92 .50 .73
Portfolio turnover (%) 13.38 41.91 17.49 26.83 53.56
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
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities.
The Fund Manager will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wishes to diversify internationally.
He or she could do this by adding positions in the Emerging Markets, Gold,
International, or World Growth Funds to holdings in domestic funds. This
would give the investor exposure to the opportunities of investment in many
foreign countries and to currency changes. This is just one example of how an
individual could combine funds to create a portfolio tailored to his or her
own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's primary investment objective is to seek long-term capital
appreciation and to protect the purchasing power of shareholders' capital
against inflation. Current income is a secondary objective.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies,
restrictions and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue the objective by investing under normal circumstances
at least 80% of the Fund's assets in common stocks, preferred stocks or
securities which are convertible into or which carry the right to buy common
stocks of companies principally engaged in gold exploration, mining, or
processing.
The remainder of the Fund's assets may be invested in common stocks,
preferred stocks or securities which are convertible into or which carry the
right to buy common stocks of companies similarly engaged in other precious
metals and minerals and in marketable debt securities having maturities of
less than one year issued or guaranteed as to both principal and interest by
the U.S. Government or by its agencies or instrumentalities and in repurchase
agreements collateralized by such securities.
If the Manager believes the outlook for gold is unattractive, the Fund
may on a temporary defensive basis invest its assets without limitation in
marketable securities having remaining maturities of less than one year issued
or guaranteed as to both principal and interest by the U.S. Government or by
its agencies or instrumentalities and in repurchase agreements collateralized
by such securities.
Since the Fund will normally maintain at least 80% of its total assets in
securities of companies principally engaged in gold exploration, mining, or
processing, the Fund may be subject to greater risks and greater market
fluctuations than other funds with a portfolio of securities representing a
broader range of investment objectives. An investment in the Fund, by itself,
should not be considered a balanced investment program. See SPECIAL RISK
CONSIDERATIONS.
Forward Currency Contracts - The Fund may hold securities denominated in
foreign currencies. As a result, the value of the securities will be affected
by changes in the exchange rate between the dollar and foreign currencies. In
managing the currency exposure, the Fund may enter into forward currency
contracts. A forward currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or over a specified time
period at a price set at the time of the contract.
The Fund may enter into forward currency contracts under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when management of the
Fund believes that the currency of a specific country may deteriorate relative
to the U.S. dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time
of making any sale of forward currency) of the securities held in its
portfolio denominated or quoted in, or bearing a substantial correlation to,
such currency.
The use of forward currency contracts to protect the value of 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.
Liquidity - The Fund may not invest more than 15% of the market value of its
total assets in securities which are illiquid or not readily marketable. Rule
144A Securities may be determined to be liquid in accordance with guidelines
established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund may not invest more than 25% of its total assets in one
industry, except that the Fund will concentrate at least 80% of its
investments in gold mining securities.
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase foreign securities in
foreign or U.S. markets or it may purchase American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with a depositary.
Investing in foreign securities presents certain risks not present in domestic
investments. Such risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility, exchange control
regulations, different accounting, reporting and disclosure requirements,
political or social instability, and difficulties in obtaining judgments or
effecting collections thereon. Brokerage commissions and custodial services
may be more costly, and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets. These investments may be
subject to foreign withholding taxes which may reduce the effective rates of
return. The Fund values its securities and other assets in U.S. dollars.
Information which may impact the market value of securities of a foreign
issuer may not be available to the Manager on a timely basis. The Manager
will endeavor to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value will be deemed to have
occurred upon authentication by the Manager.
A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. Investments in developing
countries involve exposure to economic structures that are generally less
diverse and mature than in the United States, and to political systems which
may be less stable. Due to illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge the currency risk in
these markets. In the past, markets of developing countries have been more
volatile than the markets of developed countries.
Political risk includes a greater potential for coup d'etats,
insurrections and expropriation by governmental organizations. For example,
the Fund may invest in Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent States). These
countries were under communist systems which had nationalized private
industry. There is no guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which case the Fund may
lose all or part of its investment in that country's issuers.
The Fund may invest in the securities of South African issuers. The
market prices of these securities and the ability of the Fund to hold such
investments in the future could be affected by the unstable political and
social conditions in South Africa and its neighboring countries.
Volatility of Mining Stocks - Gold mining stocks involve additional risk
because of gold's price volatility and the increased impact such volatility
has on the profitability of gold mining companies. However, since the market
action of such securities has tended to move independently of the broader
financial markets, the addition of gold mining stocks to an investor's
portfolio may reduce overall fluctuations in portfolio value.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Trust with a
social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any employee
of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge a
fee for the service) to wire the specified amount to the Fund
as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Gold Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds trandsfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Automatic Purchase Plan, or Direct
Purchase Service investment plans; or
(2) 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 NYSE, 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Foreign Taxes - The Fund may be subject to foreign withholding or other taxes.
If more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. If the Foreign Election is made, shareholders would
include in their gross income both dividends received from the Fund and
foreign income taxes paid by the Fund. Shareholders of the Fund would be
entitled to treat the foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations set forth in the Code
with respect to the foreign tax credit generally. Alternatively, shareholders
could, if to their advantage, treat the foreign income taxes withheld as an
itemized deduction in computing taxable income rather than as a tax credit.
Shareholders will not be entitled to a foreign tax credit for taxes paid to
certain countries; however, if the Fund otherwise qualifies for the Foreign
Election, a deduction for such taxes will be available to shareholders of the
Fund. It is anticipated that the Fund will make the Foreign Election.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - Information concerning the status of dividends and distributions
for federal income tax purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $____ 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 SEC 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 ANA, accrued
daily and paid monthly. The Fund's management fees were computed and paid at
three-fourths of one percent (.75%) of ANA for the fiscal year ended May 31,
1996. 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
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled 1.33%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGER
The following individual is primarily responsible for managing the Fund.
Mark W. Johnson, Assistant Vice President of Equity Investments since March
1995, has managed the Fund since January 1994. He has 22 years investment
management experience and has worked for IMCO for eight years. Mr. Johnson
earned the Chartered Financial Analyst designation in 1978 and is a member of
the Association for Investment Management and Research and the San Antonio
Financial Analysts Society, Inc. He holds an MBA and a BBA from the
University of Michigan.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE (registered trademark)
(From Touchtone phones only)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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Part A
Prospectus for the
International Fund
is included herein
USAA INTERNATIONAL FUND
October 1, 1996 PROSPECTUS
USAA INTERNATIONAL FUND (the Fund) is one of eleven no-load mutual funds
offered by USAA Investment Trust (the Trust). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's primary investment objective is capital appreciation.
Current income is a secondary objective. Page 9.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 12.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 14.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA INTERNATIONAL FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO
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 11.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 18
Management of the Trust 20
Description of Shares 21
Service Providers 22
Telephone Assistance Numbers 22
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- ----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .20%
Custodian Fees .15%
All Other Expenses .09%
----
Total Other Expenses .44%
-----
Total Fund Operating Expenses 1.19%
=====
- ----------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 12
3 years - $ 38
5 years - $ 65
10 years - $ 144
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the nine-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED MAY 31, MAY 31, SEPTEMBER 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net asset value at
beginning of period $ 15.78 $ 16.36 $ 14.48 $ 12.09 $ 11.57
Net investment income .17 .10 - .07 .10
Net realized and
unrealized gain (loss) 2.92 .29 2.23 2.45 .51
Distributions from net
investment income (.07) - - (.13) (.09)
Distributions of realized
capital gains (.09) (.97) (.35) - -
------- ------- ------- ------- -------
Net asset value at
end of period $ 18.71 $ 15.78 $ 16.36 $ 14.48 $ 12.09
======= ======= ======= ======= =======
Total return (%)** 19.71 2.49 15.67 21.11 5.30
Net assets at end of
period (000) $417,995 $346,033 $184,792 $88,757 $42,868
Ratio of expenses to
average net assets (%) 1.19 1.17 1.31(a) 1.50 1.69
Ratio of net investment
income to average net
assets (%) 1.04 .81 .04(a) .72 1.05
Portfolio turnover (%) 70.01 64.30 44.39 52.52 34.27
Average commission rate
paid per share $ .0006
- -------------------
* Fund commenced operations July 11, 1988.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
FINANCIAL HIGHLIGHTS cont.
YEAR ENDED SEPTEMBER 30,
1991 1990 1989 1988*
---- ---- ---- ----
Net asset value at
beginning of period $ 9.89 $ 11.74 $ 9.64 $ 10.00
Net investment income .13 .07 .04 .07
Net realized and
unrealized gain (loss) 1.66 (1.45) 2.11 (.43)
Distributions from net
investment income (.06) (.02) (.05) -
Distributions of realized
capital gains (.05) (.45) - -
------- ------- ------- -------
Net asset value at
end of period $ 11.57 $ 9.89 $ 11.74 $ 9.64
======= ======= ======= =======
Total return (%)** 18.21 (12.09) 22.38 (3.60)
Net assets at end of
period (000) $28,931 $21,451 $13,111 $ 4,084
Ratio of expenses to
average net assets (%) 1.82 2.09 2.30 2.14(a)
Ratio of net investment
income to average net
assets (%) 1.26 .81 .48 3.16(a)
Portfolio turnover (%) 63.56 69.95 94.99 -
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
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities.
The Fund Manager will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wishes to diversify internationally.
He or she could do this by adding positions in the Emerging Markets, Gold,
International, or World Growth Funds to holdings in domestic funds. This
would give the investor exposure to the opportunities of investment in many
foreign countries and to currency changes. This is just one example of how an
individual could combine funds to create a portfolio tailored to his or her
own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's primary investment objective is capital appreciation with current
income as a secondary objective.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies,
restrictions and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue the objective by investing at least 80% of the Fund's
assets in common stocks, preferred stocks or securities which are convertible
into or which carry the right to buy common stocks (Equity Securities) of
foreign companies. A company is deemed to be a foreign company if:
(1) it is organized under the laws of a foreign country; and either
(2) (a) the principal trading market for the stock is in a foreign
country; or
(b) at least 50% of its revenues or profits are derived from
operations within a foreign country; or
(c) at least 50% of its assets are located within a foreign country.
These investments will be diversified in four or more countries. There are no
restrictions as to the types of businesses or operations of companies in which
the Fund may invest.
The remainder of the Fund's assets may be invested in Equity Securities
of companies that meet either of the two criteria set forth above and certain
short-term instruments. These short-term instruments may include marketable
securities having remaining maturities of less than one year issued or
guaranteed as to both principal and interest by the U.S. Government or by its
agencies or instrumentalities and repurchase agreements collateralized by such
securities. However, the Fund may on a temporary defensive basis invest its
assets without limitation in such short-term instruments.
The Manager believes that attractive investment opportunities exist in
several nations of the world, and that investing internationally can improve
overall results at moderate risk. The Fund combines the advantages of
investment in diversified international markets with the convenience and
liquidity of a mutual fund based in the United States. For a discussion of
risks associated with investments in foreign issuers, see SPECIAL RISK
CONSIDERATIONS.
Forward Currency Contracts - The Fund may hold securities denominated in
foreign currencies. As a result, the value of the securities will be affected
by changes in the exchange rate between the dollar and foreign currencies. In
managing the currency exposure, the Fund may enter into forward currency
contracts. A forward currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or over a specified time
period at a price set at the time of the contract.
The Fund may enter into forward currency contracts under two
circumstances. First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may desire to
"lock in" the U.S. dollar price of the security. Second, when management of
the Fund believes that the currency of a specific country may deteriorate
relative to the U.S. dollar, it may enter into a forward contract to sell
that currency. The Fund may not hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time
of making any sale of forward currency) of the securities held in its
portfolio denominated or quoted in, or bearing a substantial correlation to,
such currency.
The use of forward currency contracts to protect the value of 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.
Liquidity - The Fund may not invest more than 15% of the market value of its
total assets in securities which are illiquid or not readily marketable. Rule
144A Securities may be determined to be liquid in accordance with guidelines
established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund may not invest more than 25% of its total assets in one
industry.
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase foreign securities in
foreign or U.S. markets or it may purchase American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with a depositary.
Investing in foreign securities presents certain risks not present in domestic
investments. Such risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility, exchange control
regulations, different accounting, reporting and disclosure requirements,
political or social instability, and difficulties in obtaining judgments or
effecting collections thereon. Brokerage commissions and custodial services
may be more costly, and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets. These investments may
be subject to foreign withholding taxes which may reduce the effective rates
of return. The Fund values its securities and other assets in U.S. dollars.
Information which may impact the market value of securities of a foreign
issuer may not be available to the Manager on a timely basis. The Manager
will endeavor to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value will be deemed to have
occurred upon authentication by the Manager.
A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. Investments in developing
countries involve exposure to economic structures that are generally less
diverse and mature than in the United States, and to political systems which
may be less stable. Due to illiquidity and lack of hedging instruments, it is
presently difficult or in some cases impossible to hedge the currency risk in
these markets. In the past, markets of developing countries have been more
volatile than the markets of developed countries.
Political risk includes a greater potential for coup d'etats,
insurrections and expropriation by governmental organizations. For example,
the Fund may invest in Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent States). These
countries were under communist systems which had nationalized private
industry. There is no guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which case the Fund may
lose all or part of its investment in that country's issuers.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Trust with a
social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
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 (NYSE) 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any employee
of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge a
fee for the service) to wire the specified amount to the Fund
as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA International Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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:
(1) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Automatic Purchase Plan, or Direct
Purchase Service investment plans; or
(2) 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 NYSE, 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. It is
not expected that the dividends of the Fund will qualify for the 70% corporate
dividends received deduction.
Distributions of net long-term capital gains are taxable as long-term
capital gains whether received in cash or reinvested in additional shares, and
regardless of the length of time the investor has held the shares of the Fund.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Foreign Taxes - The Fund may be subject to foreign withholding or other taxes.
If more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. If the Foreign Election is made, shareholders would
include in their gross income both dividends received from the Fund and
foreign income taxes paid by the Fund. Shareholders of the Fund would be
entitled to treat the foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations set forth in the Code
with respect to the foreign tax credit generally. Alternatively, shareholders
could, if to their advantage, treat the foreign income taxes withheld as an
itemized deduction in computing taxable income rather than as a tax credit.
Shareholders will not be entitled to a foreign tax credit for taxes paid to
certain countries; however, if the Fund otherwise qualifies for the Foreign
Election, a deduction for such taxes will be available to shareholders of the
Fund. It is anticipated that the Fund will make the Foreign Election.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - Information concerning the status of dividends and distributions
for federal income tax purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $____ 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 SEC 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 ANA, accrued
daily and paid monthly. The Fund's management fees were computed and paid at
three-fourths of one percent (.75%) of ANA for the fiscal year ended May 31,
1996. 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
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled 1.19%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGER
The following individuals are primarily responsible for managing the Fund.
David G. Peebles, Vice President of Equity Investments since February 1988,
has managed the Fund since its inception in July 1988. He has 30 years
investment management experience and has worked for IMCO for 12 years. Mr.
Peebles earned the Chartered Financial Analyst (CFA) designation in 1971 and
is a member of the Association for Investment Management and Research (AIMR),
the San Antonio Financial Analysts Society, Inc. (SAFAS) and the International
Society of Financial Analysts (ISFA). He holds an MBA and a BS from Texas
Christian University.
Effective October 1, 1996, Albert C. Sebastian and W. Travis Selmier, II, will
co-manage the Fund with Mr. Peebles. Mr. Peebles, Vice President of Equity
Investments, will coordinate the activities of the Managers.
Albert C. Sebastian, Executive Director of Equity Investments since October
1995, has 12 years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments. Mr.
Sebastian earned the CFA designation in 1989 and is a member of the AIMR,
SAFAS and ISFA. He holds an MBA from the University of Michigan and a BA from
Holy Cross College, Massachusetts.
W. Travis Selmier, II, Executive Director of Equity Investments since March
1995, has nine years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments. Mr.
Selmier earned the CFA designation in 1990 and is a member of the AIMR, SAFAS
and ISFA. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan and a
BA from the University of California at Santa Barbara.
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 portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE (registered trademark)
(From Touchtone phones only)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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Part A
Prospectus for the
World Growth Fund
is included herein
USAA WORLD GROWTH FUND
October 1, 1996 PROSPECTUS
USAA WORLD GROWTH FUND (the Fund) is one of eleven no-load mutual funds
offered by USAA Investment Trust (the Trust). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is capital appreciation. Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 11.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 13.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA WORLD GROWTH FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO
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 10.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 6
Using Mutual Funds in an Investment Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 8
SHAREHOLDER INFORMATION
Purchase of Shares 11
Redemption of Shares 13
Conditions of Purchase and Redemption 14
Exchanges 15
Other Services 16
Share Price Calculation 17
Dividends, Distributions and Taxes 17
Management of the Trust 19
Description of Shares 21
Service Providers 22
Telephone Assistance Numbers 22
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- ----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------
Management Fees .75%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .29%
Custodian Fees .13%
All Other Expenses .10%
----
Total Other Expenses .52%
-----
Total Fund Operating Expenses 1.27%
=====
- ----------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 13
3 years - $ 40
5 years - $ 70
10 years - $153
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the four-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED MAY 31, MAY 31, SEPTEMBER 30,
1996 1995 1994 1993
---- ---- ---- ----
Net asset value at
beginning of period $ 12.96 $ 12.71 $ 11.80 $ 10.00
Net investment income .12 .07 .04(b) .05
Net realized and
unrealized gain 2.73 .46 .93 1.75
Distributions from net
investment income (.08) - (.01) -
Distributions of realized
capital gains (.23) (.28) (.05) -
------- ------- ------- -------
Net asset value at
end of period $ 15.50 $ 12.96 $ 12.71 $ 11.80
======= ======= ======= =======
Total return (%)* 22.43 4.26 8.25 18.00
Net assets at end of
period (000) $267,192 $200,745 $143,367 $ 68,818
Ratio of expenses to
average net assets (%) 1.27 1.28 1.28(a) 1.70
Ratio of net investment
income to average net
assets (%) .96 .69 .42(a) .75
Portfolio turnover (%) 60.97 58.88 37.64 45.57
Average comission rate
paid for share $ .0006
- ---------------------
* Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) Calculated using weighted average shares.
PERFORMANCE INFORMATION
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions during the time periods for which
it is reported. Historical performance should not be considered as
representative of the future performance of the Fund.
The Trust may quote the Fund's total return in advertisements and
reports to shareholders or prospective investors. The Fund's performance may
also be compared to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are referenced in APPENDIX B
to the SAI. Standard total return results reported by the Fund do not take
into account recurring and nonrecurring charges for optional services which
only certain shareholders elect and which involve nominal fees, such as the
$10 fee for a delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specified period which, when
applied to a hypothetical $1,000 investment in the Fund at the beginning of
the period, would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions during
the period.
Further information concerning the Fund's total return is included in
the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed
to provide investors with the opportunity to formulate their own investment
program. You may exchange any shares you hold in any one USAA Fund for shares
in any other USAA Fund. For more complete information about the Funds in the
USAA Family of Funds, including charges and expenses, call the Manager for a
Prospectus. Be sure to read it carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities.
The Fund Manager will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wishes to diversify internationally.
He or she could do this by adding positions in the Emerging Markets, Gold,
International, or World Growth Funds to holdings in domestic funds. This
would give the investor exposure to the opportunities of investment in many
foreign countries and to currency changes. This is just one example of how an
individual could combine funds to create a portfolio tailored to his or her
own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies,
restrictions and risks is provided in the SAI.
INVESTMENT POLICIES,
TECHNIQUES AND RISK FACTORS
The Manager will pursue this objective by investing at least 65% of the Fund's
assets in common stocks, preferred stocks and other equity securities of both
foreign and domestic issuers, including securities which are convertible into
or which carry the right to buy common stocks and U.S. Real Estate Investment
Trusts (REITs). Under normal conditions investments will be made in at least
three countries. There are no restrictions as to the types of businesses or
operations of companies in which the Fund may invest.
The remainder of the Fund's assets may be invested in marketable
securities having remaining maturities of less than one year issued or
guaranteed as to both principal and interest by the U.S. Government or by its
agencies or instrumentalities and in repurchase agreements collateralized by
such securities. The Fund may on a temporary defensive basis invest its assets
without limitation in such securities. For a discussion of risks associated
with investments in foreign issuers, see SPECIAL RISK CONSIDERATIONS.
Forward Currency Contracts - The Fund may hold securities denominated in
foreign currencies. As a result, the value of the securities will be affected
by changes in the exchange rate between the dollar and foreign currencies. In
managing the currency exposure, the Fund may enter into forward currency
contracts. A forward currency contract involves an agreement to purchase or
sell a specified currency at a specified future date or over a specified time
period at a price set at the time of the contract.
The Fund may enter into forward currency contracts under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. Second, when management of the
Fund believes that the currency of a specific country may deteriorate relative
to the U.S. dollar, it may enter into a forward contract to sell that
currency. The Fund may not hedge with respect to a particular currency for an
amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or bearing a substantial correlation to, such
currency.
The use of forward currency contracts to protect the value of 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.
Liquidity - The Fund may not invest more than 15% of the market value of its
total assets in securities which are illiquid or not readily marketable. Rule
144A Securities may be determined to be liquid in accordance with guidelines
established by the Board of Trustees.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund may not invest more than 25% of its total assets in one
industry.
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
SPECIAL RISK CONSIDERATIONS
Investment in Foreign Securities - The Fund may purchase foreign securities in
foreign or U.S. markets or it may purchase American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs), or similar forms of ownership
interest in securities of foreign issuers deposited with a depositary.
Investing in foreign securities presents certain risks not present in domestic
investments. Such risks may include currency exchange rate fluctuations,
foreign market illiquidity, increased price volatility, exchange control
regulations, different accounting, reporting and disclosure requirements,
political or social instability, and difficulties in obtaining judgments or
effecting collections thereon. Brokerage commissions and custodial services
may be more costly, and stock trade settlements may be more lengthy, more
costly and more difficult than in domestic markets. These investments may be
subject to foreign withholding taxes which may reduce the effective rates of
return. The Fund values its securities and other assets in U.S. dollars.
Information which may impact the market value of securities of a foreign
issuer may not be available to the Manager on a timely basis. The Manager
will endeavor to ascertain such information on as timely a basis as is
practicable, however, any impact on the net asset value will be deemed to have
occurred upon authentication by the Manager. A developing country can be
considered to be a country which is in the initial stages of its
industrialization cycle. Investments in developing countries involve exposure
to economic structures that are generally less diverse and mature than in the
United States, and to political systems which may be less stable. Due to
illiquidity and lack of hedging instruments, it is presently difficult or in
some cases impossible to hedge the currency risk in these markets. In the
past, markets of developing countries have been more volatile than the markets
of developed countries.
Political risk includes a greater potential for coup d'etats,
insurrections and expropriation by governmental organizations. For example,
the Fund may invest in Eastern Europe and former states of the Soviet Union
(also known as the CIS or the Commonwealth of Independent States). These
countries were under communist systems which had nationalized private
industry. There is no guarantee that nationalization may not occur again in
this region or others in which the Fund invests, in which case the Fund may
lose all or part of its investment in that country's issuers.
Investment in 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.
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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any employee
of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge a
fee for the service) to wire the specified amount to the Fund
as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA World Growth Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Automatic Purchase Plan, or Direct
Purchase Service investment plans; or
(2) 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 NYSE, 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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Foreign Taxes - The Fund may be subject to foreign withholding or other taxes.
If more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the Foreign Election) that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. If the Foreign Election is made, shareholders would
include in their gross income both dividends received from the Fund and
foreign income taxes paid by the Fund. Shareholders of the Fund would be
entitled to treat the foreign income taxes withheld as a credit against their
U.S. federal income taxes, subject to the limitations set forth in the Code
with respect to the foreign tax credit generally. Alternatively, shareholders
could, if to their advantage, treat the foreign income taxes withheld as an
itemized deduction in computing taxable income rather than as a tax credit.
Shareholders will not be entitled to a foreign tax credit for taxes paid to
certain countries; however, if the Fund otherwise qualifies for the Foreign
Election, a deduction for such taxes will be available to shareholders of the
Fund. It is anticipated that the Fund will make the Foreign Election.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - Information concerning the status of dividends and distributions
for federal income tax purposes will be mailed to shareholders annually.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $____ 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 SEC 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 ANA, accrued
daily and paid monthly. The Fund's management fees were computed and paid at
three-fourths of one percent (.75%) of ANA for the fiscal year ended May 31,
1996. 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
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled 1.27%.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities for the Fund's portfolio may be
accomplished through USAA Brokerage Services, a discount brokerage service of
the Manager. The Board of Trustees has adopted procedures to ensure that any
commissions paid to USAA Brokerage Services are reasonable and fair.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for managing the Fund.
David G. Peebles, Vice President of Equity Investments since February 1988, is
the asset allocation manager for the Fund. He has been the portfolio manager
for the Fund's investments in foreign securities since its inception in
October 1992. He has 30 years investment management experience and has worked
for IMCO for 12 years. Mr. Peebles earned the Chartered Financial Analyst
(CFA) designation in 1971 and is a member of the Association for Investment
Management and Research (AIMR), the San Antonio Financial Analysts Society,
Inc. (SAFAS), and the International Society of Financial Analysts (ISFA). He
holds an MBA and BS from Texas Christian University.
Effective October 1, 1996, Albert C. Sebastian and W. Travis Selmier, II, will
co-manage the Fund's investments in foreign securities with Mr. Peebles. Mr.
Peebles, Vice President of Equity Investments, will coordinate the activities
of the Managers.
Albert C. Sebastian, Executive Director of Equity Investments since October
1995, has 12 years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments. Mr.
Sebastian earned the CFA designation in 1989 and is a member of the AIMR,
SAFAS and ISFA. He holds an MBA from the University of Michigan and a BA from
Holy Cross College, Massachusetts.
W. Travis Selmier, II, Executive Director of Equity Investments since March
1995, has nine years investment management experience and has worked for IMCO
for five years where he has held various positions in Equity Investments. Mr.
Selmier earned the CFA designation in 1990 and is a member of the AIMR, SAFAS
and ISFA. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan and a
BA from the University of California at Santa Barbara.
R. David Ullom, Assistant Vice President of Equity Investments since September
1994, has managed the Fund's investments in domestic stocks since February
1995. Mr. Ullom has 21 years investment management experience and has worked
for IMCO for ten years. Mr. Ullom earned the CFA designation in 1980 and is a
member of the AIMR and SAFAS. He holds an MBA from Washington University,
Missouri and a BS from Oklahoma State University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that porfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE (registered trademark)
(From Touchtone phones only)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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Part A
Prospectus for the
GNMA Trust
is included herein
USAA GNMA TRUST
October 1, 1996 PROSPECTUS
USAA GNMA TRUST (the Fund) is one of eleven no-load mutual funds offered by
USAA Investment Trust (the Trust). The Fund is managed by USAA Investment
Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investors a high level of
current income consistent with preservation of principal by
investing in securities backed by the full faith and
credit of the U.S. Government. Page 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 certain instances, by telephone. Page 12.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 14.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA GNMA TRUST ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF,
OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 18
Management of the Trust 20
Description of Shares 21
Service Providers 22
Telephone Assistance Numbers 22
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- -----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------------
Management Fees .125%
12b-1 Fees None
Other Expenses
Transfer Agent Fees** .115%
Custodian Fees .031%
All Other Expenses .053%
-----
Total Other Expenses .199%
-----
Total Fund Operating Expenses .324%
=====
- -----------------------------------------------------------------------------
* 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 21.
Example of Effect of Fund Expenses
- -----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 3
3 years - $ 10
5 years - $ 18
10 years - $ 41
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the six-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED
YEAR ENDED MAY 31, MAY 31,
1996 1995 1994
---- ---- ----
Net asset value at
beginning of period $ 10.09 $ 9.82 $ 10.37
Net investment income .70 .72 .49
Net realized and
unrealized gain (loss) (.33) .27 (.55)
Distributions from net
investment income (.70) (.72) (.49)
------- ------- -------
Net asset value at
end of period $ 9.76 $ 10.09 $ 9.82
======= ======= =======
Total return (%)** 3.65 10.54 (.66)
Net assets at end of
period (000) $301,589 $265,571 $261,251
Ratio of expenses to
average net assets (%) .32 .32 .31(a)
Ratio of net investment
income to average net
assets (%) 6.90 7.34 7.20(a)
Portfolio turnover (%) 127.77 93.78 90.05
- ----------------------
* Fund commenced operations February 1, 1991.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) The information contained in this table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by the
Manager. Absent such reimbursements the Fund's ratios would have been:
YEAR ENDED SEPTEMBER 30,
1992 1991*
---- ----
Ratio of expenses to average net assets (%) .40 .91(a)
Ratio of net investment income to average net assets (%) 7.89 7.82(a)
FINANCIAL HIGHLIGHTS cont.
YEAR ENDED SEPTEMBER 30,
1993 1992 1991*
---- ---- ----
Net asset value at
beginning of period $ 10.47 $ 10.19 $ 10.00
Net investment income .79 .82 .53
Net realized and
unrealized gain (loss) (.10) .28 (.19)
Distributions from net
investment income (.79) (.82) (.53)
------- ------- -------
Net asset value at
end of period $ 10.37 $ 10.47 $ 10.19
======= ======= =======
Total return (%)** 6.79 11.18 7.48
Net assets at end of
period (000) $288,879 $218,544 $ 69,431
Ratio of expenses to
average net assets (%) .32 .375(b) .375(a)(b)
Ratio of net investment
income to average net
assets (%) 7.53 7.92(b) 8.35(a)(b)
Portfolio turnover (%) 81.44 36.11 5.39
PERFORMANCE INFORMATION
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions during the time periods for which
it is reported. Historical performance should not be considered as
representative of the future performance of the Fund.
The Trust may quote the Fund's yield or total return in advertisements
and reports to shareholders or prospective investors. The Fund's performance
may also be compared to that of other mutual funds with a similar investment
objective and to stock or relevant indexes that are referenced in APPENDIX B
to the SAI. Standard total return and yield results reported by the Fund do
not take into account recurring and nonrecurring charges for optional services
which only certain shareholders elect and which involve nominal fees, such as
the $10 fee for a delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specified period which, when
applied to a hypothetical $1,000 investment in the Fund at the beginning of
the period, would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions during
the period.
The Fund may advertise performance in terms of a 30-day yield quotation.
The yield quotation is computed by dividing the net investment income per
share earned during the period by the offering price per share on the last day
of the period. This income is then annualized.
Further information concerning the Fund's yield and total return is
included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed
to provide investors with the opportunity to formulate their own investment
program. You may exchange any shares you hold in any one USAA Fund for shares
in any other USAA Fund. For more complete information about the Funds in the
USAA Family of Funds, including charges and expenses, call the Manager for a
Prospectus. Be sure to read it carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities.
The Fund Manager will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wishes to diversify internationally.
He or she could do this by adding positions in the Emerging Markets, Gold,
International, or World Growth Funds to holdings in domestic funds. This
would give the investor exposure to the opportunities of investment in many
foreign countries and to currency changes. This is just one example of how an
individual could combine funds to create a portfolio tailored to his or her
own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide investors a high level of
current income consistent with preservation of principal by investing in
securities backed by the full faith and credit of the U.S. Government.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies and
restrictions is provided in the SAI.
INVESTMENT POLICIES AND
TECHNIQUES
The Manager will pursue this objective by investing at least 65% of the Fund's
total assets in Government National Mortgage Association (GNMA) pass through
certificates. GNMA certificates represent ownership in a pool of mortgage
loans or a single mortgage loan. Each mortgage loan is either insured by the
Federal Housing Administration or guaranteed by the Veterans Administration.
Once approved by GNMA, each mortgage or pool of mortgages is additionally
guaranteed by GNMA as to the timely payment of principal and interest
(regardless of whether the mortgagors actually make their payments). The
guarantee represents a general obligation of the U.S. Treasury. Securities
which are backed by the full faith and credit of the U.S. Government (payment
of principal and interest is guaranteed by the U.S. Treasury) are considered
to be of the highest credit quality available.
GNMA securities differ from conventional bonds in that principal is paid
back to the certificate holders over the life of the loan rather than at
maturity. As a result, the Fund will receive monthly scheduled payments of
principal and interest. In addition, the Fund may receive unscheduled
principal payments representing prepayments on the underlying mortgages.
Because the Fund will reinvest these scheduled and unscheduled principal
payments at a time when prevailing interest rates may be higher or lower than
the Fund's current yield, an investment in the Fund may not be an effective
means of "locking in" long-term interest rates.
GNMA certificates evidence interests in a pool of underlying mortgages
(or a single mortgage) which generally have maximum lives of either 15, 20, or
30 years. However, due to both scheduled and unscheduled principal payments,
GNMA certificates have a shorter average life and, therefore, less principal
volatility than a bond of comparable maturity. Since prepayment rates vary
widely, it is not possible to accurately predict the average life of a
particular GNMA pool, though it will be shorter than the stated final
maturity. Because the expected average life is a better indicator of the
maturity characteristics of GNMA certificates, principal volatility and yield
may be more comparable to 10-year Treasury bonds.
The Manager may invest up to 35% of the Fund's total assets in other
obligations backed by the full faith and credit of the U.S. Government,
including U.S. Treasury bills, notes and bonds and securities issued by the
Federal Housing Administration, the Department of Housing and Urban
Development, the Export-Import Bank, the Farmer's Home Administration, the
General Services Administration, the Maritime Administration, and the Small
Business Administration. The Fund will not invest in the securities of any
U.S. Government agencies which do not carry the full faith and credit of the
U.S. Government, such as Fannie Mae (FNMA) or Freddie Mac (FHLMC) securities.
The Fund may invest up to 35% of its total assets in repurchase
agreements which must be collateralized by obligations backed by the full
faith and credit of the U.S. Government.
The types of securities to be purchased in the GNMA Trust have
historically involved little credit risk. However, the market value of
these securities is not guaranteed and will fluctuate inversely with changes
in prevailing interest rates, increasing in value when interest rates decline
and decreasing in value when interest rates rise.
The Manager may, however, on a temporary defensive basis, invest the
Fund's assets without limitation in short-term securities backed by the full
faith and credit of the U.S. Government, including repurchase agreements
collateralized by such obligations.
Although the portfolio turnover rate for the Fund is not expected to
exceed 100%, it will not be a limiting factor when the Manager deems changes
in the Fund's portfolio appropriate in view of its investment objective. For
the fiscal year ended May 31, 1996, the Fund's portfolio turnover rate
exceeded 100% because the assets in the portfolio were repositioned in
response to changing market conditions.
Repurchase Agreements - The Fund may invest in repurchase agreements which are
exclusively collateralized by obligations backed by the full faith and credit
of the U.S. Government. A repurchase agreement is a transaction in which a
security is purchased with a simultaneous commitment to sell the security back
to the seller (a commercial bank or recognized securities dealer) at an
agreed upon price on an agreed upon date, usually not more than seven days
from the date of purchase. The resale price reflects the purchase price plus
an agreed upon market rate of interest which is unrelated to the coupon rate
or maturity of the purchased security. The obligation of the seller to pay
the agreed upon price is in effect secured by the value of the underlying
security. In these transactions, the securities purchased by a Fund will have
a total value equal to or in excess of the amount of the repurchase obligation
and will be held by the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security declines, the Fund may incur
a loss and may incur expenses in selling the collateral. If the seller seeks
relief under the bankruptcy laws, the disposition of the collateral may be
delayed or limited.
When-Issued Securities - The Fund may invest in new issues of debt securities
offered on a when-issued basis; that is, delivery and payment take place after
the date of the commitment to purchase, normally within 45 days. Both price
and interest rate are fixed at the time of commitment. The Fund does not earn
interest on the securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement. Such securities can
be sold before settlement date.
Cash or high quality liquid debt securities equal to the amount of the
when-issued commitments are segregated at the Fund's custodian bank. The
segregated securities are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at least equal to the
amount of such commitments by the Fund. On the settlement date, the Fund will
meet its obligations from then available cash, sale of segregated securities,
sale of other securities, or sale of the when-issued securities themselves.
Variable Rate Securities - The Fund may invest in securities that bear
interest at rates 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.
Liquidity - The Fund may not invest more than 15% of the value of its net
assets in securities which are illiquid or not readily marketable.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund will not purchase any security if immediately after the
purchase 25% or more of the value of its total assets will be invested
in securities of issuers principally engaged in a particular industry
(except that such limitation does not apply to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities).
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Comany Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Trust with a
social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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 from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any employee
of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge a
fee for the service) to wire the specified amount to the Fund
as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA GNMA Trust
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. 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.
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. USAA Shareholder Account
Services (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) redemptions
VIA EFT 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) will be
REDEMPTION 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 will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a reinvested dividend;
(2) a payment you make under the InveStart (registered trademark),
InvesTronic (registered trademark), Direct Purchase Service, Automatic
Purchase Plan, or Directed Dividends investment plans; or
(3) 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 NYSE, which is usually 4:00 p.m. Eastern time. You may
buy and sell Fund shares at the NAV per share without a sales charge.
HOW
The NAV per share is calculated by adding the value of all securities and
other assets in the Fund, deducting liabilities, and dividing by the number of
shares outstanding. Portfolio securities are valued each business day at
their current market value as determined by a pricing service approved by the
Board of Trustees.
Securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value. Securities which cannot be
valued by the methods set forth above, and all other assets, are valued in
good faith at fair value using methods determined by the Manager under the
general supervision of the Board of Trustees.
For additional information, see VALUATION OF SECURITIES in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income is accrued daily and is paid on the last business day of
each month. 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 shares purchased shall begin accruing dividends on the day following
the effective date of the purchase and shall receive dividends through the
effective date of redemption.
All income dividends and capital gain distributions are automatically
reinvested, unless the shareholder specifies otherwise. The share price will
be the net asset value of the Fund shares computed on the ex-dividend date.
Any capital gain distribution paid by the Fund will reduce the NAV per share
by the amount of the distribution. An investor should consider carefully the
effects of purchasing shares of the Fund shortly before any distribution which
would decrease the Fund's NAV per share. Although in effect a return of
capital, these distributions are subject to taxes.
Any dividend or distribution payment returned to the Manager as not
deliverable will be invested in the shareholder's Fund account at the
then-current 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.
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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - The Fund will report annually to its shareholders the federal tax
status of dividends and distributions paid or declared by the Fund during the
preceding calendar year.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $____ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees were computed and paid at
one-eighth of one percent (.125%) of ANA for the fiscal year ended May 31,
1996.
OPERATING EXPENSES
For the fiscal year ended May 31, 1996, the total operating expenses for the
Fund as a percentage of the Fund's ANA equaled .324%.
PORTFOLIO MANAGER
The following individual is primarily responsible for managing the Fund.
Kenneth E. Willmann, Vice President of Fixed Income Investments since December
1986, has managed the Fund since February 1995. He has 22 years investment
management experience and has worked for IMCO for 19 years. Mr. Willmann
earned the Chartered Financial Analyst designation in 1978 and is a member of
the Association for Investment Management and Research, San Antonio Financial
Analysts Society, Inc. and the National Federation of Municipal Analysts. He
holds an MBA and a BA from the University of Texas.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE (registered trademark)
(From Touchtone phones only)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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Part A
Prospectus for the
Treasury Money Market Trust
is included herein
USAA TREASURY MONEY MARKET TRUST
October 1, 1996 PROSPECTUS
USAA TREASURY MONEY MARKET TRUST (the Fund) is one of eleven no-load mutual
funds offered by USAA Investment Trust (the Trust). The Fund is managed by
USAA Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investors maximum current income
while maintaining the highest degree of safety and liquidity. Page 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 11.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 13.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Trust and the Fund that you should know
before investing.
SHARES OF THE USAA TREASURY MONEY MARKET TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated October
1, 1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus (meaning it is
legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 9
SHAREHOLDER INFORMATION
Purchase of Shares 11
Redemption of Shares 13
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 16
Share Price Calculation 17
Dividends, Distributions and Taxes 18
Management of the Trust 19
Description of Shares 20
Service Providers 21
Telephone Assistance Numbers 21
FEES AND EXPENSES
The following summary, which is based on actual expenses and average net
assets (ANA) of the Fund for the year ended May 31, 1996, is provided to
assist you in understanding the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses
- ----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS )
- ----------------------------------------------------------------------------
Management Fees, net of reimbursements .097%
12b-1 Fees None
Other Expenses, net of reimbursements
Transfer Agent Fees** .098%
Custodian Fees .060%
All Other Expenses .120%
-----
Total Other Expenses .278%
-----
Total Fund Operating Expenses, net of reimbursements .375%
=====
- ----------------------------------------------------------------------------
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See REDEMPTION OF SHARES -
BANK WIRE.
** The Fund pays USAA Shareholder Account Services an annual fixed
fee per account for its services. See TRANSFER AGENT in the SAI,
page 21.
During the year, the Manager voluntarily limited the annual expenses of
the Fund to .375% of its ANA and reimbursed the Fund for all expenses in
excess of this limitation. The Management Fees, Other Expenses, and Total
Fund Operating Expenses reflect all such expense reimbursements by the
Manager. Absent such reimbursements, the amount of the Management Fees, Other
Expenses, and Total Fund Operating Expenses as a percentage of ANA would have
been .125%, .277%, and .402%, respectively. The Manager has voluntarily
agreed to continue to limit the Fund's annual expenses until October 1, 1997,
to .375% of its ANA and will reimburse the Fund for all expenses in excess of
such limitation.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown.
1 year - $ 4
3 years - $ 12
5 years - $ 21
10 years - $ 47
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each of the periods in the six-year period ended May 31, 1996, has
been derived from financial statements audited by KPMG Peat Marwick LLP. This
table should be read in conjunction with the financial statements and related
notes that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED
YEAR ENDED MAY 31, MAY 31,
1996 1995 1994
---- ---- ----
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income .05 .05 .02
Distributions from net
investment income (.05) (.05) (.02)
------ ------ ------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total return (%)** 5.38 4.88 1.96
Net assets at end of
period (000) $76,777 $67,876 $37,984
Ratio of expenses to
average net assets (%) .375(b) .375(b) .375(a)(b)
Ratio of net investment
income to average net
assets (%) 5.23(b) 4.91(b) 2.94(a)(b)
- --------------------------
* Fund commenced operations February 1, 1991.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) The information contained in this table is based on actual
expenses for the period, after giving effect to reimbursements of
expenses by the Manager. Absent such reimbursements the Fund's
ratios would have been:
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED MAY 31, MAY 31, SEPTEMBER 30,
1996 1995 1994 1993 1992 1991*
---- ---- ---- ---- ---- ----
Ratio of expenses to
average net assets (%) .40 .49 .62(a) .54 .72 1.31(a)
Ratio of net investment
income to average net
assets (%) 5.21 4.80 2.69(a) 2.65 3.55 4.33(a)
FINANCIAL HIGHLIGHTS cont.
YEAR ENDED SEPTEMBER 30,
1993 1992 1991*
---- ---- ----
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income .03 .04 .04
Distributions from net
investment income (.03) (.04) (.04)
------- ------- -------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return (%)** 2.84 4.05 3.51
Net assets at end of
period (000) $30,448 $25,393 $13,409
Ratio of expenses to
average net assets (%) .375(b) .375(b) .375(a)(b)
Ratio of net investment
income to average net
assets (%) 2.81(b) 3.89(b) 5.27(a)(b)
PERFORMANCE INFORMATION
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions during the time periods for which
it is reported. Historical performance should not be considered as
representative of the future performance of the Fund.
The Trust may quote the Fund's yield in advertisements and reports to
shareholders or prospective investors. The Fund's performance may also be
compared to that of other mutual funds with a similar investment objective and
to stock or relevant indexes that are referenced in APPENDIX B to the SAI.
Yield results reported by the Fund do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees, such as the $10 fee for a delivery of
redemption proceeds by wire transfer.
The Fund may advertise its yield and effective yield. The yield of the
Fund refers to the income generated by an investment in the Fund over a
seven-day period (which period will be stated in the advertisement). This
income is then annualized, that is, the amount of income generated by the
investment during the week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment.
The effective yield is calculated similarly, but when annualized, the
income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
Further information concerning the Fund's yield is included in the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed
to provide investors with the opportunity to formulate their own investment
program. You may exchange any shares you hold in any one USAA Fund for shares
in any other USAA Fund. For more complete information about the Funds in the
USAA Family of Funds, including charges and expenses, call the Manager for a
Prospectus. Be sure to read it carefully before you invest or send money.
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
S&P 500 Index 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.
** S&P is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The product is not sponsored, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities.
The Fund Manager will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wishes to diversify internationally.
He or she could do this by adding positions in the Emerging Markets, Gold,
International, or World Growth Funds to holdings in domestic funds. This
would give the investor exposure to the opportunities of investment in many
foreign countries and to currency changes. This is just one example of how an
individual could combine funds to create a portfolio tailored to his or her
own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide investors maximum current income
while maintaining the highest degree of safety and liquidity.
The investment objective of the Fund cannot be changed without
shareholder approval. In view of the risks inherent in all investments in
securities, there is no assurance that this objective will be achieved.
The investment policies and techniques used to pursue the Fund's
objective may be changed without shareholder approval, except as otherwise
noted. Further information regarding the Fund's investment policies and
restrictions is provided in the SAI.
INVESTMENT POLICIES AND
TECHNIQUES
The Manager will pursue the objective by investing the Fund's assets
exclusively in securities with maturities of 397 days or less that are backed
by the full faith and credit of the U.S. Government and repurchase agreements
collateralized by such securities. The Fund will under normal circumstances
invest at least 65% of its total assets in U.S. Treasury bills, notes, and
bonds and repurchase agreements collateralized by such obligations. Up to 35%
of the Fund's total assets may be invested in other obligations backed by the
full faith and credit of the U.S. Government, including securities issued by
the General Services Administration, Government National Mortgage Association,
Rural Electrification Administration, Small Business Administration, Federal
Financing Bank and repurchase agreements collateralized by such obligations.
Consistent with regulatory requirements, the Fund will maintain a dollar
- -weighted average portfolio maturity of 90 days or less and will endeavor to
maintain a constant net asset value of $1.00 per share, although there is no
assurance that it will be able to do so.
Under federal law, the income derived from obligations issued by the
U.S. Government and certain of its agencies and instrumentalities is exempt
from state personal income taxes. Many states that tax personal income permit
mutual funds to pass-through this tax exemption to shareholders. It is
anticipated that a portion of the dividends paid to shareholders of the Fund
residing in these states will qualify for this exemption from state taxation.
Repurchase Agreements - The Fund may invest in repurchase agreements which are
exclusively collateralized by obligations backed by the full faith and credit
of the U.S. Government. A repurchase agreement is a transaction in which a
security is purchased with a simultaneous commitment to sell the security back
to the seller (a commercial bank or recognized securities dealer) at an agreed
upon price on an agreed upon date, usually not more than seven days from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or maturity
of the purchased security. The obligation of the seller to pay the agreed
upon price is in effect secured by the value of the underlying security. In
these transactions, the securities purchased by the Fund will have a total
value equal to or in excess of the amount of the repurchase obligation and
will be held by the Fund's custodian until repurchased. If the seller
defaults and the value of the underlying security declines, the Fund may incur
a loss and may incur expenses in selling the collateral. If the seller seeks
relief under the bankruptcy laws, the disposition of the collateral may be
delayed or limited.
When-Issued Securities - The Fund may invest in new issues of debt securities
offered on a when-issued basis; that is, delivery and payment take place after
the date of the commitment to purchase, normally within 45 days. Both price
and interest rate are fixed at the time of commitment. The Fund does not earn
interest on the securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement. Such securities
can be sold before settlement date.
Cash or high quality liquid debt securities equal to the amount of the
when-issued commitments are segregated at the Fund's custodian bank. The
segregated securities are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at least equal to the
amount of such commitments by the Fund. On the settlement date, the Fund will
meet its obligations from then available cash, sale of segregated securities,
sale of other securities, or sale of the when-issued securities themselves.
Variable Rate Securities - The Fund may invest in securities that bear
interest at rates 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.
Liquidity - The Fund may not invest more than 10% of the value of its net
assets in securities which are illiquid or not readily marketable.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without shareholder approval:
(1) The Fund will not purchase any security if immediately after the
purchase 25% or more of the value of its total assets will be invested
in securities of issuers principally engaged in a particular industry
(except that such limitation does not apply to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities).
(2) The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except U.S. Government Securities, as such
term is defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer.
(3) The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Trust with a
social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
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. The NAV of the Fund is determined at the close of the regular trading
session of the New York Stock Exchange (NYSE) each day on which the Exchange
is open. If the Fund receives your request prior to that time, 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 - (Except transfers from brokerage accounts)
Initial Purchase - IRA: $250 or minimum $100 with a minimum $50 monthly
electronic investment
Additional Purchases: $50 - (Except transfers from brokerage accounts)
How to Purchase:
- ---------------
MAIL * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest by
Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
IN PERSON * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
AUTOMATICALLY * Additional purchases on a regular basis can be deducted from
VIA a bank account, paycheck, income-producing investment or from
ELECTRONIC a USAA money market account. Sign up for these services when
FUNDS opening an account or call 1-800-531-8448 to add these
TRANSFER services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no initial investment) can be made by any employee
of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge a
fee for the service) to wire the specified amount to the Fund
as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA Treasury Money Market Trust
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open a
1-800-531-8448 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.
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 NYSE 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 SEC.
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 210-292-8177, 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.
Telephone redemption is automatically established when you complete your
application. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if it does not, it may
be liable for any losses due to unauthorized or fraudulent instructions.
Information is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the name(s) on the account
registration, and (3) social security number or tax identification number for
the account registration. In addition, all telephone communications with a
shareholder are recorded.
Redemption by telephone, fax, or telegraph is not available for shares
represented by stock certificates.
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. USAA Shareholder Account
Services (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 (SSB) 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) redemptions
VIA EFT 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) will be
REDEMPTION 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 of facsimile.
CHECKWRITING * Checks can be issued for your Treasury Money Market Trust
account.
To establish your checkwriting privilege (CWP), complete the signature
card which accompanies the application form or Shareholder Services Guide, or
request and complete the signature card separately. A one-time $5
checkwriting fee is charged to each account by the Transfer Agent for the
establishment of the privilege. There is no charge for the use of checks nor
for subsequent reorders. This privilege is subject to SSB's rules and
regulations governing checking accounts. Checks must be written for an amount
of at least $250. Checks written for less than $250 will be returned.
Checkwriting may not be used to close an account because the value of the
account changes daily as dividends are accrued.
When a check is presented to the Transfer Agent for payment, a
sufficient number of full and fractional shares in the investor's account will
be redeemed to cover the amount of the check. Checks will be returned if
there are insufficient shares to cover the amount of the check. Presently,
there is a $15 processing fee assessed against an account for any redemption
check not honored by a clearing or paying agent. A check paid during the
month will be returned to the shareholder by separate mail. Checkwriting fees
are subject to change at any time. The Trust, the Transfer Agent and SSB each
reserve the right to change or suspend the checkwriting privilege upon 30
days' written notice to participating shareholders. See the SAI for further
information.
You may request that the Transfer Agent stop payment on a check. The
Transfer Agent will use its best efforts to execute stop payment instructions,
but does not guarantee that such efforts will be effective. A $10 charge will
be made for each stop payment requested by a shareholder.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to nonpayment or if the Trust
does not receive good funds either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares purchased and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the USAA Family of Funds. A
$15 fee is charged for all returned items, including checks and electronic
funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified
and the shareholder must include the number of shares to be transferred, the
signatures of all registered owners, and all stock certificates, if any, which
are the subject of transfer. You also need to send written instructions
signed by all registered owners and supporting documents to change an account
registration due to events such as divorce, marriage, or death. If a new
account needs to be established, an application must be completed and returned
to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account with less than
$900, subject to certain limitations described in ADDITIONAL INFORMATION
REGARDING REDEMPTION OF SHARES in the SAI.
Beginning in September 1998, and occurring each September thereafter,
the Transfer Agent will assess a small balance account fee of $12 to each
shareholder account with a balance, at the time of assessment, of less than
$2,000. The fee will be used to reduce total transfer agency fees paid by the
Fund to the Transfer Agent. Accounts exempt from the fee include: (1) any
account regularly purchasing additional shares each month through an automatic
investment plan; (2) any account registered under the Uniform Gifts/Transfers
to Minors Act (UGMA or UTMA); (3) all (non IRA) money market fund accounts;
(4) any account whose registered owner has an aggregate balance of $50,000 or
more invested in USAA mutual funds; and (5) all IRA accounts (for the first
year the account is open).
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
Automatic Investment Plans - you may establish an automatic 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.
* InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The
investor selects the day(s) each month that money is transferred from a
checking or savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation for purchases or redemptions by check and
exchanges. If your account had activity other than reinvested dividends, such
as wire purchases or redemptions or purchases under the InveStart (registered
trademark), InvesTronic (registered trademark), Direct Purchase Service,
Automatic Purchase Plan or Directed Dividends investment plans, you
will receive a monthly statement that will reflect quarter-to-date account
activity.
At the end of each quarter you will receive a consolidated statement
for all of your mutual fund accounts, regardless of account activity. The
fourth quarter consolidated statement will reflect all account activity for
the prior tax year. There will be a $10 fee charged for copies of historical
statements for other than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of its investments and
performance at least semiannually.
In an effort to reduce expenses and respond to shareholders' requests to
reduce mail, the Trust intends to consolidate mailings of Annual and
Semiannual Reports to households having multiple accounts with the same
address of record. One copy of each report will be furnished to that address.
You may request additional reports by notifying the Trust.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms, a copy of the SAI,
the most recent Annual Report and/or Semiannual Report, or if you have any
questions concerning any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and redeemed by
shareholders is equal to the 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 NYSE, which is usually 4:00 p.m. Eastern time. You may
buy and sell Fund shares at the NAV per share without a sales charge.
HOW
The NAV per share is calculated by adding the value of all securities and
other assets in the Fund, deducting liabilities, and dividing by the number of
shares outstanding. Securities are stated at amortized cost which
approximates market value.
For additional information, see VALUATION OF SECURITIES in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income is accrued daily and is paid on the last business day of
each month. 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 shares purchased shall begin accruing dividends on the day following
the effective date of the purchase and shall receive dividends through the
effective date of redemption.
All income dividends and capital gain distributions are automatically
reinvested, unless the shareholder specifies otherwise. The share price will
be the net asset value of the Fund shares computed on the ex-dividend date.
Any dividend or distribution payment returned to the Manager as not
deliverable will be invested in the shareholder's Fund account at the
then-current 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.
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.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - The Fund will report annually to its shareholders the federal tax
status of dividends and distributions paid or declared by the Fund during the
preceding calendar year.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the supervision of the Board
of Trustees.
The Manager, USAA Investment Management Company (IMCO), was organized in
May 1970 and is an affiliate of United Services Automobile Association (USAA),
a large diversified financial services institution. As of the date of this
Prospectus, the Manager had approximately $____ 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 SEC
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 ANA, accrued
daily and paid monthly. The Fund's management fees are computed at one-eighth
of one percent (.125%) of ANA. For the fiscal year ended May 31, 1996, the
fees paid to the Manager, net of the reimbursement, were .097% of ANA.
OPERATING EXPENSES
For the fiscal year ended May 31, 1996, the Manager limited total operating
expenses to .375% of the Fund's ANA. The Manager reimbursed the Fund $21,001
for expenses in excess of the limitation. The Manager has voluntarily agreed
to continue to limit the Fund's annual expenses until October 1, 1997, to
.375% of its ANA and will reimburse the Fund for all expenses in excess of the
limitation.
PORTFOLIO MANAGER
The following individual is primarily responsible for managing the Fund.
Pamela K. Bledsoe, Executive Director of Money Market Funds since June 1995,
has mangaged the Fund since May 1996. Ms. Bledsoe has eight years investment
management experience and has worked for IMCO for five years where she has
held various positions in Fixed Income Investments. Ms. Bledsoe earned the
Chartered Financial Analyst designation in 1992 and is a member of the
Association for Investment Management and Research and the San Antonio
Financial Analysts Society, Inc. She holds an MBA from Texas Christian
University and a BS from Louisiana Tech University.
DESCRIPTION OF SHARES
MASTER TRUST AGREEMENT
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts pursuant to
the First Amended and Restated Master Trust Agreement (Master Trust Agreement)
dated June 2, 1995, as amended. The Trust is authorized to issue an unlimited
number of shares of beneficial interest of separate portfolios, without par
value. Eleven such portfolios have been established, one of which is
described in this Prospectus. The Fund is classified as a diversified
investment company. Under the Master Trust Agreement, the Trustees are
authorized to create new portfolios in addition to those already existing
without shareholder approval.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Trustees may fill vacancies on the Board
or appoint new Trustees provided that immediately after such action at least
two-thirds of the Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the shares. For
matters affecting an individual portfolio, a separate vote of the shareholders
of that portfolio is required. Shareholders holding an aggregate of at least
10% of the outstanding shares of the Trust may request a meeting of
shareholders at any time for the purpose of voting to remove one or more of
the Trustees, and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
Under Massachusetts law, shareholders of any portfolio could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Master Trust Agreement provides
for indemnification out of the Trust's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Trust.
Thus, the possibility of a shareholder incurring financial loss on account of
shareholder liability is remote.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar LLP
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
Income Strategy, Growth and Tax Strategy, Balanced Strategy,
Cornerstone Strategy, Growth Strategy, Emerging Markets,
Gold, International, and World Growth Funds,
GNMA Trust and Treasury Money Market Trust
is included herein
Eagle logo USAA STATEMENT OF
goes here INVESTMENT ADDITIONAL INFORMATION
TRUST October 1, 1996
- -------------------------------------------------------------------------------
USAA INVESTMENT TRUST
USAA INVESTMENT TRUST (the Trust) is a registered investment company offering
shares of eleven no-load mutual funds which are described in this Statement of
Additional Information (SAI): 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 (collectively, the
Funds). Each Fund is classified as a diversified investment company and has
its own investment objective designed to meet different investment goals.
You may obtain a free copy of a Prospectus for each Fund dated October 1,
1996, by writing to USAA Investment Trust, 9800 Fredericksburg Rd., San
Antonio, TX 78288, or by calling toll free 1-800-531-8181. The Prospectus
provides the basic information you should know before investing in the Funds.
This SAI is not a Prospectus and contains information in addition to and more
detailed than that set forth in each Fund's Prospectus. It is intended to
provide you with additional information regarding the activities and
operations of the Trust and the Funds, and should be read in conjunction with
each Fund's Prospectus.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
2 Valuation of Securities
3 Additional Information Regarding Redemption of Shares
4 Investment Plans
5 Investment Policies
8 Special Risk Considerations
8 Investment Restrictions
13 Portfolio Transactions
15 Further Description of Shares
16 Tax Considerations
17 Trustees and Officers of the Trust
20 The Trust's Manager
21 General Information
22 Calculation of Performance Data
23 Appendix A - Tax-Exempt Securities and Their Ratings
26 Appendix B - Comparison of Portfolio Performance
29 Appendix C - Dollar-Cost Averaging
VALUATION OF SECURITIES
Shares of each Fund are offered on a continuing best efforts basis through
USAA Investment Management Company (IMCO or the Manager). The offering price
for shares of each Fund is equal to the current net asset value (NAV) per
share. The 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 the Income Strategy, Growth and Tax Strategy,
Balanced Strategy, Cornerstone Strategy, Growth Strategy, Emerging Markets,
Gold, International, and World Growth Funds and the GNMA Trust is determined
by one or more of the following methods:
(1) Portfolio securities, except as otherwise noted, traded primarily on
a domestic securities exchange are valued at the last sales price on
that exchange. Portfolio securities traded primarily on foreign
securities exchanges are generally valued at the closing values of
such securities on the exchange where primarily traded. If no sale
is reported, the latest bid price is generally used depending upon
local custom or regulation.
(2) Over-the-counter securities are priced at the last sales price or,
if not available, at the average of the bid and asked prices at the
time trading closes on the NYSE.
(3) Debt securities purchased with maturities of 60 days or less are
stated at amortized cost which approximates market value.
Repurchase agreements are valued at cost.
(4) Other debt and government securities are valued each business day by
a pricing service (the Service) approved by the Board of Trustees.
The Service uses the mean between quoted bid and asked prices or the
last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative
of the securities' market values. For many securities, such prices
are not readily available. The Service generally prices those
securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity and
type, indications as to values from dealers in securities, and
general market conditions.
(5) Securities which cannot be valued by the methods set forth above,
and all other assets, are valued in good faith at fair value using
methods determined by the Manager under the general supervision of
the Board of Trustees.
Securities trading in foreign markets may not take place on all days on which
the NYSE is open. Further, trading takes place in various foreign markets on
days on which the NYSE is not open. The calculation of a Fund's 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.
The value of the Treasury Money Market Trust's securities is stated
at amortized cost which approximates market value. This involves valuing a
security at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates. While this method provides certainty in valuation, it may
result in periods during which the value of an instrument, as determined by
amortized cost, is higher or lower than the price the Trust would receive upon
the sale of the instrument.
The valuation of the Treasury Money Market Trust's portfolio
instruments based upon their amortized cost is subject to the Fund's adherence
to certain procedures and conditions. Consistent with regulatory
requirements, the Manager will only purchase securities with remaining
maturities of 397 days or less and will maintain a dollar-weighted average
portfolio maturity of no more than 90 days. The Manager will invest only in
securities that have been determined to present minimal credit risk and that
satisfy the quality and diversification requirements of applicable rules and
regulations of the Securities and Exchange Commission (SEC).
The Board of Trustees has established procedures designed to
stabilize the Treasury Money Market Trust's price per share, as computed for
the purpose of sales and redemptions, at $1.00. There can be no assurance,
however, that the Fund will at all times be able to maintain a constant $1.00
NAV per share. Such procedures include review of the Fund's holdings at such
intervals as is deemed appropriate to determine whether the Fund's NAV
calculated by using available market quotations deviates from $1.00 per share
and, if so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders. In the event that it is determined
that such a deviation exists, the Board of Trustees will take such corrective
action as it regards as necessary and appropriate. Such action may include
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends, or
establishing a NAV per share by using available market quotations.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of a shareholder's investment at the time of redemption may be more
or less than the cost at purchase, depending on the value of the securities
held in each Fund's portfolio. Requests for redemption which are subject to
any special conditions, or which specify an effective date other than as
provided herein, cannot be accepted. A gain or loss for tax purposes may be
realized on the sale of shares, depending upon the price when redeemed.
The Board of Trustees may cause the redemption of an account with a
balance of less than $900, provided that (1) the value of such account has
been reduced below the minimum initial investment required in such Fund at the
time of the establishment of the account to less than $900 entirely for
reasons other than market action, (2) the account has remained below the
minimum initial investment for six months, and (3) 60 days' prior written
notice of the proposed redemption has been sent to the shareholder. Shares
will be redeemed at the NAV on the date fixed for redemption by the Board of
Trustees. Prompt payment will be made by mail to the last known address of
the shareholder.
The Trust reserves the right to suspend the right of redemption or
postpone the date of payment (1) for any periods during which the NYSE is
closed, (2) when trading in the markets the Trust normally utilizes is
restricted, or an emergency exists as determined by the SEC so that disposal
of the Trust's investments or determination of its NAV is not reasonably
practicable, or (3) for such other periods as the SEC by order may permit for
protection of the Trust's shareholders.
For the mutual protection of the investor and the Funds, a guarantee
of signature may be required by the Trust. If required, each signature on the
account registration must be guaranteed. Signature guarantees are acceptable
from FDIC member banks, brokers, dealers, municipal securities dealers,
municipal securities brokers, government securities dealers, government
securities brokers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. A
signature guarantee for active duty military personnel stationed abroad may be
provided by an officer of the United States Embassy or Consulate, a staff
officer of the Judge Advocate General, or an individual's commanding officer.
Redemption By Check
Shareholders in the Treasury Money Market Trust may request that checks be
issued for their accounts. A one-time $5 checkwriting fee is charged to each
account by USAA Shareholder Account Services (Transfer Agent) for the use of
the privilege. Checks must be written in the amount of at least $250.
Checks issued to shareholders of the Treasury Money Market Trust
will be sent only to the person in whose name the account is registered and
only to the address of record. The checks must be manually signed by the
registered owner(s) exactly as the account is registered. For joint accounts
the signature of either or both joint owners will be required on the check,
according to the election made on the signature card. Dividends will continue
to be earned by the shareholder until the shares are redeemed by the
presentation of a check.
When a check is presented to the Transfer Agent for payment, a
sufficient number of full and fractional shares in the investor's account will
be redeemed to cover the amount of a check. If an investor's account is not
adequate to cover the amount of a check, the check will be returned unpaid.
Because the value of the account changes as dividends are accrued on a daily
basis, checks may not be used to close an account.
After clearance, checks paid during the month will be returned to
the shareholder by separate mail. The checkwriting privilege will be subject
to the customary rules and regulations of State Street Bank and Trust
Company (State Street Bank or the Custodian) governing checking accounts.
Other than the initial one-time fee, there is no charge to the shareholder for
the use of the checks or for subsequent reorders of checks.
The Trust reserves the right to assess a processing fee against a
shareholder's account for any redemption check not honored by a clearing or
paying agent. Currently, this fee is $15 and is subject to change at any
time. Some examples of such dishonor are improper endorsement, checks written
for an amount less than the minimum check amount, and insufficient or
uncollectible funds.
The Trust, the Transfer Agent, and State Street Bank each reserve
the right to change or suspend the checkwriting privilege upon 30 days'
written notice to participating shareholders.
INVESTMENT PLANS
The following investment plans are made available by the Trust to shareholders
of all the Funds. At the time you sign up for any of the following investment
plans that utilize the electronic funds transfer service, you will choose the
day of the month (the effective date) on which you would like to regularly
purchase shares. When this day falls on a weekend or holiday, the electronic
transfer will take place on the last business day before the effective date.
You may terminate your participation in a plan at any time. Please call the
Manager for details and necessary forms or applications.
Automatic Purchase of Shares
InveStart (registered trademark) - an optional purchase plan with a low
initial investment 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.
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. 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 an 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 in the money
market fund, with a monthly transaction minimum of $50.
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 automatic 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 NAV of $5,000 or
more, the shareholder may request that enough shares to produce a fixed amount
of money be liquidated from the account monthly or quarterly. The amount of
each withdrawal must be at least $50. Using the electronic funds transfer
service, shareholders may choose to have withdrawals electronically deposited
at their bank or other financial institution. They may also elect to have
checks mailed to a designated address.
Such a plan may be initiated by depositing shares worth at least
$5,000 with the Transfer Agent and by completing a Systematic Withdrawal Plan
application, which may be requested from the Manager. The shareholder may
terminate participation in the plan at any time. There is no charge to the
shareholder for withdrawals under the Systematic Withdrawal Plan. The Trust
will not bear any expenses in administering the plan beyond the regular
transfer agent and custodian costs of issuing and redeeming shares. Any
additional expenses of administering the plan will be borne by the Manager.
Withdrawals will be made by redeeming full and fractional shares on
the date selected by the shareholder at the time the plan is established.
Withdrawal payments made under this plan may exceed dividends and
distributions and, to this extent, will involve the use of principal and could
reduce the dollar value of a shareholder's investment and eventually exhaust
the account. Reinvesting dividends and distributions helps replenish the
account. Because share values and net investment income can fluctuate,
shareholders should not expect withdrawals to be offset by rising income or
share value gains.
Each redemption of shares may result in a gain or loss, which must
be reported on the shareholder's income tax return. Therefore, a shareholder
should keep an accurate record of any gain or loss on each withdrawal.
Tax-Deferred Retirement Plans (not available in the Growth and Tax Strategy
Fund)
Federal taxes on current income may be deferred if an investor qualifies for
certain types of retirement programs. For the convenience of the investor,
the following plans are made available by the Manager: IRA (including
SEP/IRA) and 403(b)(7) accounts. The minimum initial investment in each of
these plans is $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 portfolios
described in the Prospectus of each Fund of USAA Investment Trust and USAA
Mutual Fund, Inc.
Retirement plan applications for the IRA and 403(b)(7) programs
should be sent directly to USAA Shareholder Account Services, 9800
Fredericksburg Rd., San Antonio, TX 78288. State Street Bank serves as
Custodian of these tax-deferred retirement plans under the programs made
available by the Manager. Applications for these retirement plans received
by the Manager will be forwarded to the Custodian for acceptance.
An administrative fee of $20 is deducted from the proceeds of a
distribution closing an account. Exceptions to the fee are: partial
distributions, total transfer within USAA, and distributions due to disability
or death. This charge is subject to change as provided in the various
agreements. There may be additional charges, as mutually agreed upon between
the investor and the Custodian, for further services requested of the
Custodian.
Each employer or individual establishing a tax-deferred retirement
plan is advised to consult with a tax adviser before establishing the plan.
Detailed information about the plans may be obtained from the Manager.
INVESTMENT POLICIES
The section captioned INVESTMENT OBJECTIVE AND POLICIES in each Fund's
Prospectus describes the fundamental investment objective and the investment
policies applicable to each Fund and the following is provided as additional
information.
Section 4(2) Commercial Paper and Rule 144A Securities
The Income Strategy, Balanced Strategy and Growth Strategy Funds 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, except the GNMA Trust and the Treasury Money Market
Trust, 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.
Municipal Lease Obligations
The Income Strategy, Balanced Strategy, Growth Strategy and Growth and Tax
Strategy Funds may invest in municipal lease obligations, installment purchase
contract obligations, and certificates of participation in such obligations
(collectively, lease obligations). A lease obligation does not constitute a
general obligation of the municipality for which the municipality's taxing
power is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due under the lease
obligation.
Certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease obligation
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult.
Liquidity Determinations
The Board of Trustees has established guidelines pursuant to which Municipal
Lease Obligations, Section 4(2) Commercial Paper and Rule 144A Securities, and
certain restricted debt securities that are subject to unconditional put or
demand features exercisable within seven days (Restricted Put Bonds) may be
determined to be liquid for purposes of complying with the Funds' investment
restriction applicable to investments in illiquid securities. In determining
the liquidity of Municipal Lease Obligations, 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. Additional factors considered by the Manager in
determining the liquidity of a municipal lease obligation are: (1) whether
the lease obligation is of a size that will be attractive to institutional
investors, (2) whether the lease obligation contains a non-appropriation
clause and the likelihood that the obligor will fail to make an appropriation
therefor, and (3) such other factors as the Manager may determine to be
relevant to such determination. In determining the liquidity 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.
Calculation of Maturity for Fixed Income Securities
A fixed income security's maturity is typically determined on a stated final
maturity basis, although there are some exceptions to the rule.
If the issuer of the security has committed to take advantage of a
maturity shortening device, such as a call, refunding, or redemption
provision, the date on which the instrument will be called, refunded, or
redeemed will be considered to be its maturity date. Maturities of securities
subject to sinking fund arrangements are determined on a weighted average life
basis, which is the average time for principal to be repaid. The weighted
average lives of these securities will be shorter than their stated final
maturities. A security will be treated as having a maturity earlier than its
stated maturity date if the security has technical features, such as a put or
demand feature which, in the judgement of the Manager, will result in the
security being valued in the market as though it has the earlier maturity.
Lending of Securities
Each Fund may lend its securities. A lending policy may be authorized by the
Trust's Board of Trustees and implemented by the Manager, but securities may
be loaned only to qualified broker-dealers or institutional investors that
agree to maintain cash collateral with the Trust equal at all times to at
least 100% of the value of the loaned securities. The Trustees will establish
procedures and monitor the creditworthiness of any institution or
broker-dealer during such times as any loan is outstanding. The Trust will
continue to receive interest on the loaned securities and will invest the cash
collateral in short-term obligations of the U.S. Government or of its agencies
or instrumentalities or in repurchase agreements, thereby earning additional
interest.
No loan of securities will be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of a Fund's total assets. The
Trust may terminate such loans at any time.
Forward Currency Contracts
Each Fund, except the Growth and Tax Strategy, GNMA and Treasury Money Market
Trusts, 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 the Funds to purchase additional currency
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Funds are obligated to deliver, and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell some of the foreign currency received
on the sale of the portfolio security if its market value exceeds the amount
of currency the Funds are obligated to deliver. The Funds are not required to
enter into such transactions and will not do so unless deemed appropriate by
the Manager.
Although the Funds value their assets each business day in terms of
U.S. dollars, they do not intend to convert their foreign currencies into U.S.
dollars on a daily basis. They will do so from time to time, and shareholders
should be aware of currency conversion costs. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
When-Issued Securities
Each Fund may invest in new issues of debt securities offered on a when-issued
basis; that is, delivery of and payment for the securities take place after
the date of the commitment to purchase, normally within 45 days. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the buyer enters into the commitment. A Fund may sell
these securities before the settlement date if it is deemed advisable.
Debt securities purchased on a when-issued basis are subject to
changes in value in the same way that other debt securities held in the Funds'
portfolios are; that is, both 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)
Because the Income Strategy, Balanced Strategy, Cornerstone Strategy, Growth
Strategy, and World Growth Funds may invest a portion of their assets in
REITs, the Funds may also be subject to certain risks associated with direct
investments in REITs. REITs may be affected by changes in the value of their
underlying properties and by defaults by borrowers or tenants. Furthermore,
REITs are dependent upon specialized management skills of their managers and
may have limited geographic diversification, thereby, subjecting them to risks
inherent in financing a limited number of projects. REITs depend generally on
their ability to generate cash flow to make distributions to shareholders, and
certain REITs have self-liquidation provisions by which mortgages held may be
paid in full and distributions of capital returns may be made at any time.
Put and Call Options, Financial Futures Contracts, Options on Financial
Futures Contracts
Although the GNMA Trust, Income Strategy, Balanced Strategy, Growth Strategy,
and Emerging 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 each Fund's Prospectus.
SPECIAL RISK CONSIDERATIONS
Currency Exchange Rate Fluctuations
The Income Strategy, Balanced Strategy, Cornerstone Strategy, Growth Strategy,
Emerging Markets, Gold, International, and World Growth Funds' assets may be
invested in securities of foreign issuers. Any such investments will be made
in compliance with U.S. and foreign currency restrictions, tax laws, and laws
limiting the amount and types of foreign investments. Pursuit of the Funds'
investment objectives will involve currencies of the United States and of
foreign countries. Consequently, changes in exchange rates, currency
convertibility, and repatriation requirements may favorably or adversely
affect the Funds.
Unpredictable Political, Economic and Social Conditions
For the Income Strategy, Balanced Strategy, Cornerstone Strategy, Growth
Strategy, Emerging Markets, Gold, International, and World Growth Funds,
investing in securities of foreign issuers presents certain other risks not
present in domestic investments, including different accounting, reporting,
and disclosure requirements for foreign issuers, possible political or social
instability, including policies of foreign governments which may affect their
respective equity markets, and foreign taxation requirements including
withholding taxes.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust for and
are applicable to each Fund as stated. These restrictions may not be changed
for any given Fund without approval by the lesser of (1) 67% or more of the
voting securities present at a meeting of the Fund if more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy
or (2) more than 50% of that Fund's outstanding voting securities. The
investment restrictions of one Fund may thus be changed without affecting
those of any other Fund.
Under the restrictions, each of the Growth and Tax Strategy,
Cornerstone Strategy, Gold, International, and World Growth Funds may not:
(1) With respect to 75% of its total assets, purchase the securities of
any issuer (except U.S. Government Securities, as such term is
defined in the Investment Company Act of 1940, as amended (1940
Act)) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have
more than 5% of the value of its total assets invested in the
securities of such issuer.
(2) Borrow money, except for temporary or emergency purposes in an
amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings).
(3) Lend any securities or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, except that
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(4) Underwrite securities of other issuers, except to the extent that it
may be deemed to act as a statutory underwriter in the distribution
of any restricted securities or not readily marketable securities.
(5) Purchase securities on margin or sell securities short, except that
it may obtain such short-term credits as are necessary for the
clearance of securities transactions.
(6) Invest in put, call, straddle, or spread options or interests in
oil, gas or other mineral exploration or development programs,
except that it may purchase securities of issuers whose principal
business activities fall within such areas in accordance with its
investment objectives and policies.
(7) Invest more than 2% of the market value of its total assets in
marketable warrants to purchase common stock. Warrants initially
attached to securities and acquired by a Fund upon original issuance
thereof shall be deemed to be without value.
(8) Purchase or sell real estate or partnership interests therein,
except that the Cornerstone Strategy Fund may purchase securities
secured by real estate interests or interests therein, or issued by
companies or investment trusts which invest in real estate or
interests therein.
(9) Purchase or sell commodities or commodity contracts.
(10) Purchase securities of other open-end investment companies, except a
Fund may invest up to 10% of the market value of its total assets in
such securities through purchases in the open market involving only
customary broker's commissions or in connection with a merger,
consolidation, reorganization, or acquisition of assets approved by
the shareholders.
(11) Invest more than 5% of the market value of its total assets in any
closed-end investment company and will not hold more than 3% of the
outstanding voting stock of any closed-end investment company.
(12) Change the nature of its business so as to cease to be an investment
company.
(13) Issue senior securities as defined in the 1940 Act, except as
permitted by Section 18(f)(2) and rules thereunder.
For purposes of restriction 8 above, interests in publicly traded
Real Estate Investment Trusts (REITs) are not deemed to be real estate or
partnership interests therein.
Each of the GNMA and Treasury Money Market Trusts may not:
(1) With respect to 75% of its total assets, purchase the securities of
any issuer (except U.S. Government Securities, as such term is
defined in the 1940 Act) if, as a result, the Fund would own more
than 10% of the outstanding voting securities of such issuer or the
Fund would have more than 5% of the value of its total assets
invested in the securities of such issuer.
(2) Borrow money, except for temporary or emergency purposes in an
amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings).
(3) Lend any securities or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, except that
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(4) Underwrite securities of other issuers, except to the extent that it
may be deemed to act as a statutory underwriter in the distribution
of any restricted securities or not readily marketable securities.
(5) Change the nature of its business so as to cease to be an investment
company.
(6) Issue senior securities as defined in the 1940 Act, except as
permitted by Section 18(f)(2) and rules thereunder.
(7) Purchase or sell real estate, commodities or commodity contracts,
except that the GNMA Trust may invest in financial futures contracts
and options thereon.
(8) Purchase any security if immediately after the purchase 25% or more
of the value of its total assets will be invested in securities of
issuers principally engaged in a particular industry (except that
such limitation does not apply to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities).
The Emerging Markets Fund may not:
(1) With respect to 75% of its total assets, purchase the securities of
any issuer (except U.S. Government Securities, as such term is
defined in the 1940 Act) if, as a result, it would own more than 10%
of the outstanding voting securities of such issuer or it would have
more than 5% of the value of its total assets invested in the
securities of such issuer.
(2) Borrow money, except that it may borrow money for temporary or
emergency purposes in an amount not exceeding 33 1/3% of its total
assets (including the amount borrowed) less liabilities (other than
borrowings), nor will it purchase securities when its borrowings
exceed 5% of its total assets.
(3) Concentrate its investments in any one industry although it may
invest up to 25% of the value of its total assets in any one
industry; provided, this limitation does not apply to securities
issued or guaranteed by the U.S. Government or its corporate
instrumentalities.
(4) Issue senior securities, except as permitted under the 1940 Act.
(5) Underwrite securities of other issuers, except to the extent that it
may be deemed to act as a statutory underwriter in the distribution
of any restricted securities or not readily marketable securities.
(6) Lend any securities or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, except that
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
Each of the Income Strategy, Balanced Strategy, and Growth Strategy Funds may
not:
(1) With respect to 75% of its total assets, purchase the securities of
any issuer (except U.S. Government Securities, as such term is
defined in the 1940 Act) if, as a result, 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.
With respect to each Fund's concentration policies as described above and in
its Prospectus, the Manager uses industry classifications for industries based
on categories established by Standard & Poor's Corporation (S&P) for the
Standard & Poor's 500 Composite Index, with certain modifications. Because
the Manager has determined that certain categories within, or in addition to,
those set forth by S&P have unique investment characteristics, additional
industries are included as industry classifications, such as air freight,
biotechnology, coal, gaming companies, nursing care, real estate investment
trusts, and water utilities. The Manager classifies municipal obligations by
projects with similar characteristics, such as toll road revenue bonds,
housing bonds or higher education revenue bonds. In addition, the Cornerstone
Strategy Fund may not concentrate investments in any one industry, although it
may invest up to 25% of the value of its total assets in one industry; the
Basic Value Stocks, Foreign Stocks, and U.S. Government Securities investment
categories are not considered industries for this purpose.
Additional Restrictions
The following restrictions are not considered to be fundamental policies of
the Funds. Nevertheless, the Trust and each Fund will comply with them as
long as they are required by any state where the Funds' shares are offered for
sale. These additional restrictions may be changed by the Board of Trustees
of the Trust without notice to or approval by the shareholders.
Under the additional restrictions, each of the Growth and Tax
Strategy, Cornerstone Strategy, Gold, International, and World Growth Funds
may not:
(1) Invest more than 5% of the market value of its total assets in
securities of any issuer which, together with its predecessors, has
a record of less than three years' continuous operation.
(2) Purchase or retain the securities of any issuer if any officer of
the Manager or officer or Trustee of the Trust own individually more
than 1/2 of 1% of the outstanding securities of such issuer, and
together beneficially own more than 5% of such outstanding
securities.
(3) Pledge, mortgage, or hypothecate its assets to any extent greater
than 10% of the market value of its total assets.
(4) Invest more than 15% of the market value of its total assets in
securities which are illiquid or not readily marketable (including
repurchase agreements maturing in more than seven days).
(5) Invest in issuers for the purpose of exercising control or
management, except in connection with a merger, consolidation,
acquisition, or reorganization.
(6) Participate on a joint or joint and several basis in any trading
account in securities.
(7) Purchase any security while borrowings representing more than 5% of
the Fund's total assets are outstanding.
Each of the GNMA and Treasury Money Market Trusts may not:
(1) Purchase securities on margin or sell securities short, except that
it may obtain such short-term credits as are necessary for the
clearance of securities transactions.
(2) Invest in put, call, straddle, or spread options or interests in
oil, gas or other mineral exploration or development programs,
except that the GNMA Trust may write covered call and put options
and purchase call and put options.
(3) Invest more than 2% of the market value of its total assets in
marketable warrants to purchase common stock. Warrants initially
attached to securities and acquired by a Trust upon original
issuance thereof shall be deemed to be without value.
(4) Purchase securities of other open-end investment companies, except a
Trust may invest up to 10% of the market value of its total assets
in such securities through purchases in the open market involving
only customary broker's commissions or in connection with a merger,
consolidation, reorganization, or acquisition of assets approved by
the shareholders.
(5) Invest more than 5% of the market value of its total assets in any
closed-end investment company and will not hold more than 3% of the
outstanding voting stock of any closed-end investment company.
(6) Purchase or retain the securities of any issuer if any officer of
the Manager or officer or Trustee of the Trust own individually more
than 1/2 of 1% of the outstanding securities of such issuer, and
together beneficially own more than 5% of such outstanding
securities.
(7) Pledge, mortgage or hypothecate its assets to any extent greater
than 10% of the market value of its total assets. A security
covered by a call is not considered pledged.
(8) Invest more than 15% (10% with respect to the Treasury Money Market
Trust) of the market value of its net assets in securities which are
illiquid or not readily marketable (including repurchase agreements
maturing in more than seven days).
(9) Invest in issuers for the purpose of exercising control or
management, except in connection with a merger, consolidation,
acquisition, or reorganization.
(10) Purchase any security while borrowings representing more than 5% of
the Fund's total assets are outstanding.
The Emerging Markets Fund may not:
(1) Pledge, mortgage or hypothecate its assets to any extent greater
than 33 1/3% of the value of its total assets.
(2) Purchase or retain securities of any issuer if any officer or
Trustee of the Trust or its Manager owns individually more than
one-half of one percent (1/2%) of the securities of that issuer,
and collectively the officers and Trustees of the Trust and Manager
together own more than 5% of the securities of that issuer.
(3) Invest more than 15% of the value of its net assets in illiquid
securities (including repurchase agreements maturing in more than
seven days).
(4) Purchase securities on margin or sell securities short except that
it may obtain short-term credits necessary for the clearance of
securities transactions and make short sales against the box; for
purposes of the restriction the deposit or repayment of initial or
variation margin in connection with financial futures contracts or
related options will not be deemed to be a purchase of securities on
margin by a Fund.
(5) Purchase securities of other investment companies except to the
extent permitted by applicable law.
(6) Purchase or sell puts, calls, straddles or spreads or any
combination thereof, except to the extent permitted by applicable
law.
(7) Purchase interests in oil, gas, or other mineral exploration or
development programs, except that it may purchase securities of
issuers whose principal business activities fall within such areas.
(8) Purchase warrants if as a result warrants taken at the lower of cost
or market value would represent more than 5% of the value of the
Fund's net assets or more than 2% of its net assets in warrants that
are not listed on the New York or American Stock Exchanges (for this
purpose, warrants attached to securities will be deemed to have no
value).
(9) Invest more than 5% of the value of its assets in securities of
companies having a record of less than three years' continuous
operations except (a) securities guaranteed or backed by an
affiliate of the issuer with three years of continuous operations,
(b) securities issued or guaranteed as to principal or interest by
the U.S. Government, or its agencies or instrumentalities, or a
mixed-ownership Government corporation and (c) securities issued by
a holding company with at least 50% of its assets invested in
companies with three years of continuous operations including
predecessors.
(10) Purchase or sell commodities or commodity contracts, except that the
Fund may invest in financial futures contracts, options thereon and
similar instruments.
(11) Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent investments in securities secured by real estate or
interests therein).
(12) Invest more than 15% of its total assets in restricted securities of
all types (including not more than 5% of its total assets in
restricted securities which are not eligible for resale pursuant to
Rule 144A).
(13) Invest, at the time of acquisition, more than 10% of the value of
its assets in debt or fixed income securities in default of the
timely payment of interest or repayment of principal.
Each of the Balanced Strategy, Growth Strategy, and Income Strategy Funds 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).
(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 Income Strategy, Growth and Tax Strategy, Balanced Strategy,
Cornerstone Strategy, Growth Strategy, Emerging Markets, Gold, International,
and World Growth Funds, preference may be given to those broker-dealers who
provide research or other services to the Manager as long as there is no
sacrifice in obtaining the best overall terms available. Such research and
other services may include, for example: advice concerning the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or the purchasers or sellers of
securities; analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
and various functions incidental to effecting securities transactions, such as
clearance and settlement. 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
Manager continuously reviews the performance of the broker-dealers with whom
it places orders for transactions. The receipt of research from
broker-dealers that execute transactions on behalf of the Trust may be useful
to the Manager in rendering investment management services to other clients
(including affiliates of the Manager), and conversely, such research provided
by broker-dealers who have executed transaction orders on behalf of other
clients may be useful to the Manager in carrying out its obligations to the
Trust. While such research is available to and may be used by the Manager in
providing investment advice to all its clients (including affiliates of the
Manager), not all of such research may be used by the Manager for the benefit
of the Trust. Such research and services will be in addition to and not in
lieu of research and services provided by the Manager, and the expenses of the
Manager will not necessarily be reduced by the receipt of such supplemental
research. See THE TRUST'S MANAGER.
Securities of the same issuer may be purchased, held, or sold at the
same time by the Trust for any or all of its Funds, or other accounts or
companies for which the Manager acts as the investment adviser (including
affiliates of the Manager). On occasions when the Manager deems the purchase
or sale of a security to be in the best interest of the Trust, as well as the
Manager's other clients, the Manager, to the extent permitted by applicable
laws and regulations, may aggregate such securities to be sold or purchased
for the Trust with those to be sold or purchased for other customers in order
to obtain best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to all such customers, including the Trust. In some instances,
this procedure may impact the price and size of the position obtainable for
the Trust.
The Trust pays no brokerage commissions as such for debt securities.
The market for such securities is typically a "dealer" market in which
investment dealers buy and sell the securities for their own accounts, rather
than for customers, and the price may reflect a dealer's mark-up or mark-down.
In addition, some securities may be purchased directly from issuers.
Brokerage Commission
During the last three fiscal years, the Funds paid the following brokerage
fees:
FUND 1994* 1995 1996****
---- ----- ---- --------
Income Strategy** - - $ 3,434
Growth and Tax Strategy $ 39,132 $ 30,774 $ 58,596
Balanced Strategy** - - $ 16,908
Cornerstone Strategy $1,109,515 $1,278,398 $1,560,138
Growth Strategy** - - $ 104,911
Emerging Markets - $ 140,877*** $ 394,696
Gold $ 300,325 $ 299,874 $ 224,458
International $ 497,303 $1,422,707 $1,551,078
World Growth $ 301,922 $ 599,043 $ 709,486
- ---------------------
* For the eight-month period ended May 31, 1994.
** For the nine-month period ended May 31, 1996.
*** For the seven-month period ended May 31, 1995.
**** Brokerage fee amounts for the Income Strategy, Growth and Tax
Strategy, Balanced Strategy, Cornerstone Strategy, Growth
Strategy, and World Growth Funds include $216, $400, $632,
$4,000, $556 and $928, respectively, paid to USAA Brokerage
Services, a discount brokerage service of the Manager.
These amounts are 6.29%, .68%, 3.74%, .26%, .53% and .13% of
brokerage fees paid by the Funds, respectively.
The Manager directed a portion of the Funds' brokerage transactions
to certain broker-dealers that provided the Manager with research, statistical
and other information. Such transactions amounted to $1,726,750, $30,068,686,
$7,730,091, $35,264,431, $77,423, $1,743,610 and $24,352,126, and the related
brokerage commissions were $2,462, $33,696, $11,006, $51,316, $135, $3,430 and
$31,643 for the Income Strategy, Growth and Tax Strategy, Balanced Strategy,
Cornerstone Strategy, Emerging Markets, International and World Growth Funds,
respectively.
Portfolio Turnover Rates
The rate of portfolio turnover in any of the Funds (other than the Treasury
Money Market Trust) will not be a limiting factor when the Manager deems
changes in a Fund's portfolio appropriate in view of its investment objective.
Although no Fund (other than the Growth and Tax Strategy Fund) will purchase
or sell securities solely to achieve short-term trading profits, a Fund may
sell portfolio securities without regard to the length of time held if
consistent with the Fund's investment objective. The Growth and Tax Strategy
Fund may engage in riskless principal and similar transactions for the
purchase and sale of tax-exempt debt securities. A higher degree of equity
portfolio activity will increase brokerage costs to a Fund. The Growth and
Tax Strategy Fund may experience a portfolio turnover rate in excess of 100%.
It is not anticipated however, that the portfolio turnover rates of the Income
Strategy, Balanced Strategy, Cornerstone Strategy, Growth Strategy, Emerging
Markets, Gold, International, and World Growth Funds or the GNMA Trust will
exceed 100%.
The portfolio turnover rate is computed by dividing the dollar
amount of securities purchased or sold (whichever is smaller) by the average
value of securities owned during the year. Short-term investments such as
commercial paper and short-term U.S. Government securities are not considered
when computing the turnover rate.
For the last two fiscal years, the Funds' portfolio turnover rates were as
follows:
FUND 1995 1996
---- ---- ----
Income Strategy - 78.60**
Growth and Tax Strategy1 265.52% 202.55
Balanced Strategy - 26.53**
Cornerstone Strategy 33.17% 36.15
Growth Strategy - 40.21**
Emerging Markets 34.87%* 87.98
Gold 34.76% 16.48
International 64.30% 70.01
World Growth 58.88% 60.97
GNMA Trust 93.78% 127.77***
- --------------------
* For the seven-month period ended May 31, 1995.
** For the nine-month period ended May 31, 1996.
*** The turnover rate was higher because the assets in the portfolio
were repositioned in response to changing market conditions.
1 The Fund may simultaneously purchase and sell the same
securities. These transactions can be high in volume and
dissimilar to other trade activity within the Fund. If these
transactions were excluded from the calculation, the portfolio
turnover rate would be as follows:
YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1996
------------ ------------
Portfolio turnover(%) 131.28 61.98
Purchases and sales of this type
are as follows:
Purchases (000) $234,367 $192,239
Sales (000) $234,669 $192,490
FURTHER DESCRIPTION OF SHARES
The Trust is authorized to issue shares of beneficial interest in separate
portfolios. Eleven such portfolios have been established 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 portfolios in addition to those already
existing without the approval of the shareholders of the Trust. The
Cornerstone Strategy and Gold Funds were established May 9, 1984 by the Board
of Trustees and commenced public offering of their shares on August 15, 1984.
The International Fund, established on November 4, 1987, commenced public
offering of its shares on July 11, 1988. The Growth and Tax Strategy Fund was
established on November 3, 1988, and commenced public offering of its shares
on January 11, 1989. On November 7, 1990, the Board of Trustees established
the GNMA Trust and Treasury Money Market Trust and commenced public offering
of their shares on February 1, 1991. The World Growth Fund was established on
July 21, 1992, and commenced public offering of its shares on October 1, 1992.
The Emerging Markets Fund was established on September 7, 1994 and commenced
public offering of its shares on November 7, 1994. The Income Strategy,
Balanced Strategy, and Growth Strategy Funds were established on June 2, 1995
and commenced public offering of their shares on September 1, 1995.
The assets of each Fund, and all income, earnings, profits and
proceeds thereof, subject only to the rights of creditors, are specifically
allocated to each Fund. They constitute the underlying assets of each Fund,
are required to be segregated on the books of account, and are to be charged
with the expenses of such Fund. Any general expenses of the Trust not readily
identifiable as belonging to a particular Fund are allocated on the basis of
the Funds' relative net assets during the fiscal year or in such other manner
as the Trustees determine to be fair and equitable. Each share of each Fund
represents an equal proportionate interest in that Fund with every other share
and is entitled to such dividends and distributions out of the net income and
capital gains belonging to that Fund when declared by the Trustees. Upon
liquidation of that Fund, shareholders are entitled to share pro rata in the
net assets belonging to such Fund available for distribution.
Under the Trust's Master Trust Agreement, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meeting unless otherwise required by the 1940 Act. Under certain
circumstances, however, shareholders may apply to the Trustees for shareholder
information in order to obtain signatures to request a shareholder meeting.
Moreover, pursuant to the Master Trust Agreement, any Trustee may be removed
by the vote of two-thirds of the outstanding Trust shares and holders of 10%
or more of the outstanding shares of the Trust can require Trustees to call a
meeting of shareholders for the purpose of voting on the removal of one or more
Trustees. On any matter submitted to the shareholders, the holder of any share
is entitled to one vote per share (with proportionate voting for fractional
shares) regardless of the relative net asset values of the Funds' shares.
However, on matters affecting an individual Fund, a separate vote of the
shareholders of that Fund is required. For example, the Advisory Agreement
must be approved separately by each Fund and only becomes effective with
respect to a Fund when a majority of the outstanding voting securities of that
Fund approves it. Shareholders of a Fund are not entitled to vote
on any matter which does not affect that Fund but which requires a separate
vote of another Fund. For example, a proposed change in the investment
objectives of a particular Fund would require the affirmative vote of a
majority of the outstanding voting securities of only that Fund.
Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Board of
Trustees, and the holders of less than 50% of the shares voting for the
election of Trustees will not be able to elect any person as a Trustee.
When issued, each 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. In the case of the Growth and Tax
Strategy Fund, in order to be entitled to pay exempt-interest dividends to
shareholders, at the close of each quarter of its taxable year, at least 50%
of the value of the Fund's total assets must consist of obligations the
interest of which is exempt from federal income tax. The Growth and Tax
Strategy Fund intends to satisfy this requirement.
The Code imposes a nondeductible 4% excise tax on a regulated
investment company that fails to distribute during each calendar year an
amount at least equal to the sum of (1) 98% of its taxable net investment
income for the calendar year, (2) 98% of its capital gain net income for the
twelve month period ending on October 31, and (3) any prior amounts not
distributed. Each Fund intends to make such distributions as are necessary to
avoid imposition of excise tax.
The Income Strategy, Balanced Strategy, Cornerstone Strategy, Growth
Strategy, Emerging Markets, Gold, International, and World Growth Funds'
ability to make certain investments may be limited by provisions of the Code
that require inclusion of certain unrealized gains or losses in the Fund's
income for purposes of the 90% test, the 30% test, and the distribution
requirements of the Code, and by provisions of the Code that characterize
certain income or loss as ordinary income or loss rather than capital gain or
loss. Such recognition, characterization and timing rules generally apply to
investments in certain forward currency contracts, foreign currencies and debt
securities denominated in foreign currencies, as well as certain other
investments.
If the Income Strategy, Balanced Strategy, Cornerstone Strategy,
Growth Strategy, Emerging Markets, Gold, International, or World Growth Funds
invest in an entity that is classified as a "passive foreign investment
company" (PFIC) for federal income tax purposes, the application of certain
provisions of the Code applying to PFICs could result in the imposition of
certain federal income taxes on the Fund. It is anticipated that any taxes on
a Fund with respect to investments in PFICs would be insignificant.
Taxation of the Shareholders
Taxable distributions are generally included in a shareholder's gross income
for the taxable year in which they are received. Dividends declared in
October, November, or December and made payable to shareholders of record in
such a month will be deemed to have been received on December 31, if a Fund
pays the dividend during the following January. If a shareholder of a Fund
receives a distribution taxable as long-term capital gain with respect to
shares of a Fund and redeems or exchanges the shares before he has held them
for more than six months, any loss on the redemption or exchange that is less
than or equal to the amount of the distribution will be treated as long-term
capital loss, except as noted below.
In the case of the Growth and Tax Strategy Fund, if a shareholder
receives an exempt-interest dividend with respect to any share and such share
has been held for six months or less, any loss on the sale or exchange of such
share will be disallowed to the extent of such exempt-interest dividend.
Shareholders who are recipients of Social Security benefits should be aware
that exempt-interest dividends received from the Growth and Tax Strategy Fund
are includible in their "modified adjusted gross income" for purposes of
determining the amount of such Social Security benefits, if any, that are
required to be included in their gross income.
The Growth and Tax Strategy Fund may invest in private activity
bonds. Interest on certain private activity bonds issued after August 7,
1986, is an item of tax preference for purposes of the Federal Alternative
Minimum Tax (AMT), although the interest continues to be excludable from gross
income for other purposes. AMT is a supplemental tax designed to ensure that
taxpayers pay at least a minimum amount of tax on their income, even if they
make substantial use of certain tax deductions and exclusions (referred to as
tax preference items). Interest from private activity bonds is one of the tax
preference items that is added to income from other sources for the purposes
of determining whether a taxpayer is subject to AMT and the amount of any tax
to be paid.
Opinions relating to the validity of the tax-exempt securities
purchased for the Growth and Tax Strategy Fund and the exemption of interest
thereon from federal income tax are rendered by recognized bond counsel to the
issuers. Neither the Manager's nor the Fund's counsel makes any review of the
basis of such opinions.
The exemption of interest income for federal income tax purposes
does not necessarily result in exemption under the income or other tax laws of
any state or local taxing authority. Shareholders of a Fund may be exempt
from state and local taxes on distributions of tax-exempt interest income
derived from obligations of the state and/or municipalities of the state in
which they are a resident, but generally are subject to tax on income derived
from obligations of other jurisdictions. Shareholders should consult their
tax advisers about the status of distributions from a Fund in their own states
and localities.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust consists of 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: 64
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); and
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). 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: 55
Chief Executive Officer, IMCO (10/93-present); President, Director and Vice
Chairman of the Board of Directors, IMCO (1/90-present). 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: 78
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, 4, 5
2710 Hopeton
San Antonio, TX 78230
Trustee
Age: 61
Retired. Assistant General Manager for Finance, San Antonio City Public
Service Board (1976-1996). 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: 53
Vice President, Beldon Roofing and Remodeling (1985-present). Mr. Zucker
currently serves as a Trustee of USAA State Tax-Free Trust and as a Director
of USAA Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
Barbara B. Dreeben 3, 4, 5
200 Patterson #1008
San Antonio, TX 78209
Trustee
Age: 51
President, Postal Addvantage (7/92-present); Consultant, Nancy Harkins
Stationer (8/91-12/95). 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: 48
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: 51
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). 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: 37
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:
Mark H. Wright, President, Chief Executive Officer, Director and Vice
Chairman, USAA Federal Savings Bank; 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, 1996.
Name Aggregate Total Compensation
of Compensation from the USAA
Trustee from the Trust Family of Funds (c)
- -------- --------------- -------------------
C. Dale Briscoe* $3,470 $13,400
George E. Brown (a) 6,647 25,400
Barbara B. Dreeben 6,647 25,400
Howard L. Freeman, Jr. 6,647 25,400
M. Staser Holcomb* None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 6,647 25,400
- ----------------
* 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 $21,302. 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) M. Staser Holcomb, 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, 1996, the USAA Family of Funds consisted of 4 registered
investment companies offering 33 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 June 30, 1996, 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 June 30, 1996, USAA and its affiliates (including related
employee benefit plans) owned 502,387 shares (40.7%) of the Income Strategy
Fund, 500,000 shares (26.1%) of the Balanced Strategy Fund, 358,538 shares
(5.3%) of the Growth Strategy Fund, 5,949,998 shares (25.8%) of the
International Fund, 1,284,506 shares (7.6%) of the World Growth Fund, 368,700
shares (1.2%) of the GNMA Trust and no shares of the Growth and Tax Strategy
Fund, Cornerstone Strategy Fund, Emerging Markets Fund, Gold Fund, Treasury
Money Market Trust.
The Trust knows of no other persons who, as of June 30, 1996, held
of record or owned beneficially 5% or more of the voting stock of any Fund's
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 $___ billion, of
which approximately $___ 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 continue to limit
the annual expenses of the Treasury Money Market Trust to .375% and the Income
Strategy and Balanced Strategy Funds to 1.00% and 1.25%, respectively, of its
ANA until October 1, 1997, and will reimburse the Fund for all expenses in
excess of such limitation. After October 1, 1997, any such waiver or
reimbursement may be terminated by the Manager at any time without prior
notice to the shareholders.
For the last three fiscal years, management fees were as follows:
FUND 1994* 1995 1996
---- ----- ---- ----
Income Strategy - - $ 34,662***
Growth and Tax Strategy $ 422,542 $ 646,528 $ 728,915
Balanced Strategy - - $ 66,393***
Cornerstone Strategy $3,858,194 $6,268,976 $7,072,915
Growth Strategy - - $ 219,751***
Emerging Markets - $ 80,503** $ 308,963
Gold $ 863,578 $1,224,603 $1,170,207
International $ 723,783 $2,171,329 $2,730,374
World Growth $ 539,899 $1,310,951 $1,708,489
GNMA Trust $ 229,184 $ 318,921 $ 361,221
Treasury Money Market Trust $ 26,970 $ 59,980 $ 94,427
As a result of the Funds' actual expenses exceeding an expense limitation, the
Manager did not receive fees to which it would have been entitled as follows:
FUND 1994* 1995 1996
---- ----- ---- ----
Income Strategy - - $ 34,662***
Balanced Strategy - - $ 66,393***
Emerging Markets - $ 8,091** $ -
Treasury Money Market Trust $ 26,970 $ 54,428 $ 21,001
- -----------
* For the eight-month period ended May 31, 1994.
** For the seven-month period ended May 31, 1995.
*** For the nine-month period ended May 31, 1996.
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
The Transfer Agent 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, each Fund pays the Transfer Agent an annual fixed fee ranging from
$23.50 to $26.00 per account. 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 Income Strategy, Balanced Strategy,
Cornerstone Strategy, Growth Strategy, Emerging Markets, Gold, International,
and World Growth Funds may be held by certain foreign banks and foreign
securities depositories as agents of the Custodian in accordance with the
rules and regulations established by the SEC.
Counsel
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02109, will review
certain legal matters for the Trust in connection with the shares offered by
the Prospectus.
Independent Auditors
KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio, TX 78205, is
the Trust's independent auditor. In this capacity, the firm is responsible
for auditing the annual financial statements of the Funds and reporting
thereon.
Financial Statements
The financial statements for each of the Funds of USAA Investment Trust and
the Independent Auditors' Reports thereon for the fiscal year ended May 31,
1996, are included in the Annual Reports to Shareholders of that date and are
incorporated herein by reference. The Manager will deliver a copy of the
Fund's Annual Report free of charge with each SAI requested.
CALCULATION OF PERFORMANCE DATA
Information regarding the total return and yield of each Fund is provided
under PERFORMANCE INFORMATION in its Prospectus. See VALUATION OF SECURITIES
herein for a discussion of the manner in which each Fund's price per share is
calculated.
Yield - Treasury Money Market Trust
When the Treasury Money Market Trust quotes a "current annualized" yield, it
is based on a specified recent seven-calendar-day period. It is computed by
(1) determining the net change, exclusive of capital changes, in the value of
a hypothetical preexisting account having a balance of one share at the
beginning of the period, (2) dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
return, then (3) multiplying the base period by 52.14 (365divided by7). The
resulting yield figure is carried to the nearest hundredth of one percent.
The calculation includes (1) the value of additional shares
purchased with dividends on the original share, and dividends declared on both
the original share and any such additional shares, and (2) any fees charged to
all shareholder accounts, in proportion to the length of the base period and
the Trust's average account size.
The capital changes excluded from the calculation are realized
capital gains and losses from the sale of securities and unrealized
appreciation and depreciation. The Trust's effective (compounded) yield will
be computed by dividing the seven-day annualized yield as defined above by
365, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the result.
Current and effective yields fluctuate daily and will vary with
factors such as interest rates and the quality, length of maturities, and type
of investments in the portfolio.
Yield For 7-day Period ended 5/31/96 . . . . . 4.85%
Effective Yield For 7-day Period ended 5/31/96 . . . . . 4.97%
Yield - Income Strategy Fund, Growth and Tax Strategy Fund and GNMA Trust
These Funds may advertise performance in terms of 30-day yield quotation. The
30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2((((a - b) / (cd) + 1) ^6) - 1
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
The 30-day yields for the period ended May 31, 1996 for the Income Strategy
Fund, Growth and Tax Strategy Fund and GNMA Trust were 5.18%, 3.71% and 6.70%,
respectively.
Total Return
The Funds, other than the Treasury Money Market Trust, may each advertise
performance in terms of average annual total return for 1, 5 and 10 year
periods, or for such lesser periods as any of such Funds have been in
existence. Average annual total return is computed by finding the average
annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the year or period
The calculation assumes any charges are deducted from the initial $1,000
payment and assumes all dividends and distributions by such Fund are
reinvested at the price stated in the Prospectus on the reinvestment dates
during the period, and includes all recurring fees that are charged to all
shareholder accounts.
Average Annual Total Returns
For Periods Ended 5/31/96
1 5 10 From
Fund year years years Inception*
------ ---- ----- ----- ----------
Income Strategy - - - 3.23%
Growth and Tax Strategy 14.61% 9.68% - 9.78%
Balanced Strategy - - - 6.37%
Cornerstone Strategy 17.79% 11.83% 11.84% -
Growth Strategy - - - 27.76%
Emerging Markets 16.93% - - 8.73%
Gold 23.66% 11.93% 7.80% -
International 19.71% 13.13% - 10.58%
World Growth 22.43% - - 14.19%
GNMA Trust 3.65% 7.31% - 7.24%
* Data from inception is shown for Funds that are less than
five or ten years old. Income Strategy, Balanced
Stratgegy, and Growth Strategy Funds commenced operations
on September 1, 1995. Growth and Tax Strategy Fund
commenced operations on January 11, 1989. Emerging
Markets Fund commenced operations on November 7, 1994.
International Fund commenced operations on July 11, 1988.
World Growth Fund commenced operations on October 1, 1992.
GNMA Trust commenced operations on February 1, 1991.
APPENDIX A - TAX-EXEMPT SECURITIES AND THEIR RATINGS
Tax-Exempt Securities
Tax-exempt securities generally include debt obligations issued by states and
their political subdivisions, and duly constituted authorities and
corporations, to obtain funds to construct, repair, or improve various public
facilities such as airports, bridges, highways, hospitals, housing, schools,
streets, and water and sewer works. Tax-exempt securities may also be issued
to refinance outstanding obligations as well as to obtain funds for general
operating expenses and for loans to other public institutions and facilities.
The two principal classifications of tax-exempt securities are
"general obligations" and "revenue" or "special tax" bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue or
special tax bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other tax, but not from general tax revenues. The Funds may
also invest in tax-exempt private activity bonds, which in most cases are
revenue bonds and generally do not have the pledge of the credit of the
issuer. The payment of the principal and interest on such industrial revenue
bonds is dependent solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the pledge, if
any, of real and personal property so financed as security for such payment.
There are, of course, many variations in the terms of, and the security
underlying tax-exempt securities. Short-term obligations issued by states,
cities, municipalities or municipal agencies, include Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes,
and Short-Term Discount Notes.
The yields of tax-exempt securities depend on, among other things,
general money market conditions, conditions of the tax-exempt bond market, the
size of a particular offering, the maturity of the obligation, and the rating
of the issue. The ratings of Moody's Investors Service, Inc. (Moody's),
Standard & Poor's Ratings Group (S&P), Fitch Investors Service, Inc. (Fitch),
and Duff & Phelps Inc. represent their opinions of the quality of the
securities rated by them. It should be emphasized that such ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, coupon, and rating may have different yields, while
securities of the same maturity and coupon but with different ratings may have
the same yield. It will be the responsibility of the Manager to appraise
independently the fundamental quality of the tax-exempt securities included in
a Fund's portfolio.
Ratings
Excerpts from Moody's Bond (Tax-Exempt Securities) Ratings:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Note: Those bonds in the Aa, A, and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1, and
Baa1.
A description of ratings Ba and below assigned to debt obligations by Moody's
is included in Appendix A of the Emerging Markets Fund Prospectus.
Excerpts of Moody's Ratings of Short-Term Loans (State and Tax-Exempt Notes):
Moody's ratings for state and tax-exempt notes and other short-term
obligations are designated Moody's Investment Grade (MIG). Symbols used will
be as follows:
MIG-1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG-2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Excerpts of Moody's Rating of Commercial Paper:
Prime-1 Issuers have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers have a strong ability for repayment of senior short-term
debt obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.
Excerpts from S&P's Bond Ratings:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher rated categories.
Plus (+) or Minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
A description of ratings BB and below assigned to debt obligations by S&P is
included in Appendix A of the Emerging Markets Fund Prospectus.
Excerpts of S&P's Ratings of Tax-Exempt Notes:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the
term of the notes.
Excerpts of S&P's Rating of Commercial Paper:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated A-1.
Excerpts of Fitch's Ratings of Bonds:
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore, impair timely payment.
Plus (+) and Minus (-): Plus and Minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA category.
Excerpts of Fitch's Ratings to Commercial Paper, Certificates of Deposit, and
Tax-Exempt Notes:
F-1+ Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payments, but the margin
of safety is not as great as the F-1+ and F-1 ratings.
Excerpts from Duff & Phelps Long-Term Rating Scale:
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA but may vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors
A are variable and greater in periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
Excerpts from Duff & Phelps Commercial Paper Rating Scale:
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or ready access to
alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
APPENDIX B - COMPARISON OF PORTFOLIO PERFORMANCE
Occasionally, we may make comparisons in advertising and sales literature
between the Funds contained in this SAI and other Funds in the USAA Family of
Funds. These comparisons may include such topics as risk and reward,
investment objectives, investment strategies, and performance.
Fund performance may be compared to the performance of broad groups
of mutual funds with similar investment goals or unmanaged indexes of
comparable securities. Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund. The
Fund or its performance may also be compared to products and services not
constituting securities subject to registration under the Securities Act of
1933 such as, but not limited to, certificates of deposit and money market
accounts. Sources for performance information and articles about the Fund may
include the following:
AAII Journal, a monthly association magazine for members of the American
Association of Individual Investors.
Arizona Republic, a newspaper which may cover financial and investment news.
Austin American-Statesman, a newspaper which may cover financial news.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
Chicago Tribune, a newspaper which may cover financial news.
Consumer Reports, a monthly magazine which from time to time reports on
companies in the mutual fund industry.
Dallas Morning News, a newspaper which may cover financial news.
Denver Post, a newspaper which may quote financial news.
Financial Services Week, a weekly newspaper which covers financial news.
Financial Planning, a monthly magazine that periodically features companies in
the mutual fund industry.
Financial World, a monthly magazine which may periodically review mutual fund
companies.
Forbes, a national business publication that periodically reports the
performance of companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
Fund Action, a mutual fund news report.
Houston Chronicle, a newspaper which may cover financial news.
Houston Post, a newspaper which may cover financial news.
IBC/Donoghue's Moneyletter, a biweekly newsletter which covers financial news
and from time to time rates specific mutual funds.
Income and Safety, a monthly newsletter that rates mutual funds.
InvesTech, a bimonthly investment newsletter.
Investment Advisor, a monthly publication directed primarily to the advisor
community; includes ranking of mutual funds using a proprietary methodology.
Investment Company Institute, the national association of the American
investment company industry.
Investor's Business Daily, a newspaper which covers financial news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Lipper Analytical Services, Inc.'s Fixed Income Fund Performance Analysis, a
monthly publication of industry-wide mutual fund performance averages by type
of fund.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
and quarterly publication of industry-wide mutual fund performance averages by
type of fund.
Los Angeles Times, a newspaper which may cover financial news.
Louis Rukeyser's Wall Street, a publication for investors.
Medical Economics, a monthly magazine providing information to the medical
profession.
Money, a monthly magazine that features the performance of both specific funds
and the mutual fund industry as a whole.
Morningstar 5 Star Investor, a monthly newsletter 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 toward the novice investor.
In addition, the Cornerstone Strategy, Growth Strategy, Emerging
Markets, Gold, International, and World Growth Funds may be cited for
performance information and articles in International Reports, a publication
providing insights on world financial markets and economics.
The GNMA and Treasury Money Market Trusts may be cited in:
The Bond Buyer, a daily newspaper which covers bond market news.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., reporting on the performance of the nation's money market
funds, summarizing money market fund activity, and including certain averages
as performance benchmarks, specifically "Donoghue's Taxable 100% U.S. Treasury
Money Fund Average."
IBC's Money Market Insight, a monthly money market industry analysis prepared
by IBC USA, Inc.
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 Cornerstone Strategy
Fund will be compared to funds in Lipper's global flexible portfolio fund
category, the Gold Fund to funds in Lipper's gold oriented fund category, the
International Fund to Lipper's international fund category, the Growth and Tax
Strategy Fund and the Balanced Strategy Fund to 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,
the Income Strategy Fund to Lipper's general bond funds category and to
Morningstar's asset allocation fund category, the World Growth Fund to
Lipper's global fund category, the Treasury Money Market Trust to Lipper's
short-term U.S. Government funds category, the GNMA Trust to Lipper's GNMA
funds category, and the Emerging Markets Fund to Lipper's emerging markets
fund category. Footnotes in advertisements and other sales literature will
include the time period applicable for any rankings used.
For comparative purposes, unmanaged indexes of comparable securities
or economic data may be cited. Examples include the following:
- Bond Buyer Indices, indices of debt of varying maturities including
revenue bonds, general obligation bonds, and U.S. Treasury bonds which can be
found in The Bond Buyer.
- Consumer Price Index, a measure of U.S. inflation in prices on
consumer goods.
- Financial Times Gold Mines Index, an index that includes gold mining
companies if they: a) have sustainable, attributable gold production of at
least 300,000 ounces a year; b) draw at least 75% of revenue from mined gold
sales; and c) have at least 10% of their capital available to the investing
public.
- Ibbotson Associates, Inc., Stocks, Bonds, Bills, and Inflation
Yearbook.
- IFC Investable Index (IFCI) and IFC Global Index (IFCG), premier
benchmarks for international investors. Both index series cover 25 discrete
markets, regional indexes, and a composite index, providing the most accurate
representation of the emerging markets universe available.
- Lehman Brothers Inc. GNMA 30 Year Index.
- Lehman Brothers Municipal Bond Index, a total return performance
benchmark for the long-term investment grade tax-exempt bond market.
- London Gold, a traditional index that prices London gold.
- London Gold PM Fix Price, the evening gold prices as set by London
dealers.
- Morgan Stanley Capital Index (MSCI) - EAFE, an unmanaged index which
reflects the movements of stock markets in Europe, Australia, and the Far East
by representing a broad selection of domestically listed companies within each
market.
- Morgan Stanley Capital Index (MSCI) - World, an unmanaged index
which reflects the movements of world stock markets by representing a broad
selection of domestically listed companies within each market.
- NAREIT Equity Index (National Association of Real Estate Investment
Trusts, Inc.), a broad based listing of all tax-qualified REITs (only common
shares issued by the REIT) listed on the NYSE, American Stock Exchange and
NASDAQ.
- Philadelphia Gold/Silver Index (XAU), an index representing nine
holdings in the gold and silver sector.
- S&P 500 Index, a broadbased composite unmanaged index that
represents the average performance of a group of 500 widely held, publicly
traded stocks.
- Shearson Lehman Hutton Bond Indices - indices of fixed-rate debt
issues rated investment grade or higher which can be found in the Bond Market
Report.
Other sources for total return and other performance data which may
be used by a Fund or by those publications listed previously are Schabaker
Investment Management, and Investment Company Data, Inc. These are services
that collect and compile data on mutual fund companies.
APPENDIX C - DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method which can be used by
investors as a disciplined technique for investing. A fixed amount of money
is invested in a security (such as a stock or mutual fund) on a regular basis
over a period of time, regardless of whether securities markets are moving up
or down.
This practice reduces average share costs to the investor who
acquires more shares in periods of lower securities prices and fewer shares in
periods of higher prices.
While dollar-cost averaging does not assure a profit or protect
against loss in declining markets, this investment strategy is an effective
way to help calm the effect of fluctuations in the financial markets.
Systematic investing involves continuous investment in securities regardless
of fluctuating price levels of such securities. Investors should consider
their financial ability to continue purchases through periods of low and high
price levels.
As the following chart illustrates, dollar-cost averaging tends to
keep the overall cost of shares lower. This example is for illustration only,
and different trends would result in different average costs.
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
--------------------------------------------------------
Down Up Mixed
----------------- ----------------- -----------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
----------------- ----------------- -----------------
$100 10 10 6 16.67 10 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
--- -- ----- -- ----- -- ----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $7.97 *Avg. Cost: $7.54 *Avg.Cost: $9.14
----- ----- -----
**Avg. Price: $8.20 **Avg. Price: $7.80 **Avg.Price: $9.20
----- ----- -----
* Average Cost is the total amount invested divided by
shares purchased.
** Average Price is the sum of the prices paid divided by
number of purchases.
*** Cumulative total of share prices used to compute average
prices.
06088-1096
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 Income Strategy, Growth and Tax Strategy (formerly named
Balanced Portfolio), Balanced Strategy, Cornerstone Strategy (formerly named
Cornerstone), Growth Strategy, 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, 1996.
(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)
(l) Subcustodian Agreement dated March 24, 1994 (filed herewith)
(m) Amendment to Custodian Contract dated May 13, 1996 (filed
herewith)
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 (3)
(g) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 15, 1996 (filed herewith)
(h) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 16, 1996 (filed herewith)
10 (a) Opinion of Counsel with respect to the Balanced Strategy,
Growth Strategy and Income Strategy Funds (1)
(b) Opinion 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 (filed herewith)
11 Independent Auditors' Consent (filed herewith)
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)
Exhibit No. Description of Exhibits
- ---------- -----------------------
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.
(3) Previously filed with Post-Effective Amendment No. 22 of the
Registrant (No. 2-91069) filed with the Securities and Exchange
Commission on January 26, 1996.
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 June 30, 1996,
of each class of securities of the Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Growth and Tax Strategy Fund 8,893
Cornerstone Strategy Fund 99,221
Emerging Markets Fund 8,079
Gold Fund 21,091
International Fund 29,623
World Growth Fund 26,332
GNMA Trust 12,330
Treasury Money Market Trust 2,767
Balanced Strategy Fund 1,403
Growth Strategy Fund 8,931
Income Strategy Fund 501
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
Mark H. Wright Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
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 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 10th day of July, 1996.
USAA INVESTMENT TRUST
/s/ Michael J.C. Roth
------------------------------
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)
/s/ M. Staser Holcomb Chairman of the July 10, 1996
- ------------------------- Board of Trustees
M. Staser Holcomb
/s/ Michael J.C. Roth Vice Chairman of the Board July 10, 1996
- ------------------------- of Trustees and President
Michael J.C. Roth (Principal Executive Officer)
/s/ Sherron A. Kirk Treasurer (Principal July 10, 1996
- ------------------------- Financial and
Sherron A. Kirk Accounting Officer)
/s/ John W. Saunders, Jr. Trustee July 10, 1996
- -------------------------
John W. Saunders, Jr.
/s/ George E. Brown Trustee July 10, 1996
- -------------------------
George E. Brown
/s/Howard L. Freeman, Jr. Trustee July 10, 1996
- -------------------------
Howard L. Freeman, Jr.
/s/ Richard A. Zuker Trustee July 10, 1996
- -------------------------
Richard A. Zucker
/s/ Barbara B. Dreeben Trustee July 10, 1996
- -------------------------
Barbara B. Dreeben
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)
(l) Subcustodian Agreement dated March 24, 1994 (filed herewith) 334
(m) Amendment to Custodian Contract dated May 13, 1996 (filed
herewith) 347
Exhibit Index, cont.
Exhibit Item Page No. *
- ------- ---- ----------
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 (3)
(g) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 15, 1996 (filed herewith) 349
(h) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 16, 1996 (filed herewith) 373
10 (a) Opinion of Counsel with respect to the Balanced Strategy,
Growth Strategy and Income Strategy Funds (1)
(b) Opinion 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 (filed herewith) 401
11 Independent Auditors' Consent (filed herewith) 403
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) 405
(b) Gold Fund (filed herewith) 407
(c) International Fund (filed herewith) 409
(d) Growth and Tax Strategy Fund (formerly Balanced Portfolio
Fund) (filed herewith) 411
(e) GNMA Trust (filed herewith) 413
(f) Treasury Money Market Trust (filed herewith) 415
(g) World Growth Fund (filed herewith) 417
(h) Emerging Markets Fund (filed herewith) 419
(i) Income Strategy Fund (filed herewith) 421
(j) Balanced Strategy Fund (filed herewith) 423
(k) Growth Strategy Fund (filed herewith) 425
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.
(3) Previously filed with Post-Effective Amendment No. 22 of the
Registrant (No. 2-91069) filed with the Securities and Exchange
Commission on January 26, 1996.
* Refers to sequentially numbered pages
EXHIBIT 8(l)
USAA STATE TAX FREE FUND
SUBCUSTODIAN AGREEMENT
WITH
TEXAS COMMERCE BANK
The undersigned custodian (the "Custodian") for USAA State Tax Free Fund
(the "Company"), an open-end investment company registered under the
Investment Company Act of 1940 (the "1940 Act"), hereby appoints Texas
Commerce Bank as subcustodian (the "Subcustodian") for each of the respective
series of the Fund (the "Funds") and the Subcustodian hereby accepts such
appointment on the following terms and conditions as of the date set forth
below.
1. Qualification. The Custodian and the Subcustodian each represents
to the other and to the Company that it is qualified to act as a custodian for
a registered investment company under the 1940 Act, and the Custodian
represents to the Subcustodian that it is the duly appointed, qualified and
acting Custodian of the Funds, with all necessary power and authority to enter
into this Agreement.
2. Subcustody. The Subcustodian agrees to maintain one or more
custodial accounts ("Subscription Accounts") for the Funds in which checks
("Subscription Checks") issued in payment for purchases of Fund shares shall
be deposited by USAA Shareholder Account Services ("USAA SAS"), transfer agent
of the Funds (the "Transfer Agent"). The Subcustodian further agrees to debit
USAA IMCO account no. 06407080765 (the "Return Item Account") for the
aggregate amount of all Subscription Checks returned to the Subcustodian for
non-payment ("Return Items"), informing USAA SAS daily of any returned
Subscription Checks. In the event that the available funds in the Return Item
Account are insufficient to cover the amount of the Return Items, Subcustodian
will promptly notify Transfer Agent by telephone of the amount of such
insufficiency. Upon receipt of such telephone notice, Transfer Agent agrees
to remit to Subcustodian the full amount of any such insufficiency.
Each business day the Subcustodian agrees to, based upon
instructions by USAA SAS, remit to the Custodian by wire transfer amounts of
Subscription Checks deposited in the Subscription Account on the preceding
business day notwithstanding whether the Subcustodian has collected good funds
in respect of such checks. The Funds will compensate the Subcustodian for (i)
estimated earnings lost on amounts wired to the custodian in payment of
Subscription Checks during the period from the date wire payment is made
through the date good funds on such checks are received by the Subcustodian,
(ii) for service fees charged by the Subcustodian for processing Subscription
Checks as set forth in Schedule 1 to this Agreement (These amounts will be
paid monthly and computed based on an overall account relationship.), (iii)
other miscellaneous fees as described in Schedule 1, and (iv) Return Items not
paid by the Transfer Agent or the USAA Investment Management Company (USAA
IMCO) within five (5) business days following a request for payment by
Subcustodian pursuant to Paragraph 2 hereof.
3. Instructions: Other Communications. Any one officer or other
authorized representative of the Transfer Agent designated as hereinafter
provided as an officer or other authorized representative of the Transfer
Agent authorized to give instructions to the Subcustodian with respect to Fund
assets held in Subscription Accounts (an "Authorized Officer"), shall be
authorized to instruct the Subcustodian as to the deposit, withdrawal or any
other action with respect to Fund assets from time to time by telephone, or in
writing signed by such Authorized Officer and delivered by telecopy, tested
telex, tested computer printout or such other reasonable method as the
Transfer Agent and Subcustodian shall agree; provided, however, the
Subcustodian is authorized to accept and act upon instructions from the
Transfer Agent, whether orally, by telephone or otherwise, which the
Subcustodian reasonably believes to be given by an authorized person. The
Subcustodian may require that any instructions given orally or by
telecommunications be promptly confirmed in writing.
The Authorized Officers shall be as set forth on Schedule 2
attached hereto or as otherwise from time to time certified in writing by the
Transfer Agent to the Subcustodian signed by the President or any Vice
President and any Assistant Vice President, Assistant Secretary or Assistant
Treasurer of the Funds. In addition to a written list of authorized officers,
the Transfer Agent will provide Subcustodian with additional information and
signature cards as reasonably requested by Subcustodian relating to the
authorized officers. The Subcustodian shall furnish the Transfer Agent, with
a copy to the Funds, by first class mail, or other mutually agreed-upon means
of transmission, (i) prompt telephonic and written notice of Return Items,
(ii) a monthly report on activity in each of the Subscription Accounts within
five (5) days after the end of each calendar month, and (iii) a daily
statement of activity in each of the Subscription Accounts. The Subcustodian
shall also furnish the Custodian with a copy of item (ii) above.
4. Fees. The service fees charged by the Subcustodian under the
Agreement are set forth in Schedule 1 attached hereto. Schedule 1 may be
amended by the parties in writing provided written notice is furnished to the
Funds thirty (30) days in advance of any increase in fees.
5. Liabilities.
(i) The Subcustodian shall be held harmless by the Custodian and
Transfer Agent and shall not be liable for any action taken or omitted to be
taken in good faith, or for any mistake of law or fact, or for anything
Subcustodian may do or refrain from doing in connection with or as required by
this Agreement, except for failure to exercise ordinary care or act in good
faith. Except as otherwise set forth herein, the Subcustodian shall have no
responsibility with respect to Fund assets. The Subcustodian shall, for the
benefit of the Custodian and the Funds, use the same care with respect to
handling of Fund assets in depository accounts as it uses in respect of its
own assets similarly held. The Subcustodian shall have no responsibility with
respect to any monies or any wire transfer, checks or other instruments for
the payment of money unless and until actually received or secured by wire
transfer by the Subcustodian. IN NO EVENT WILL THE SUBCUSTODIAN BE LIABLE TO
CUSTODIAN, TRANSFER AGENT OR THE FUNDS FOR ANY INDIRECT DAMAGES, LOST PROFITS,
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION
WITH THE SERVICES CONTEMPLATED HEREIN.
(ii) The Subcustodian shall indemnify, defend and save harmless the
Custodian and each Fund from and against all loss, liability, claims and
demands incurred by the Custodian or the Fund arising out of or in connection
with the Subcustodian's willful malfeasance or bad faith in connection with
its obligations and duties under this Agreement.
(iii) The Custodian agrees to indemnify, defend and save harmless the
Subcustodian from and against all loss, liability, claims and demands incurred
by the Subcustodian in connection with the performance by the Subcustodian in
good faith of any activity under this Agreement, pursuant to instructions of
the Custodian
(iv) It is understood and expressly stipulated that neither the
shareholders of any Fund or the members of the Board of such Fund shall be
personally liable hereunder. The obligations of each Fund hereunder are not
personally binding upon, nor shall resort to the private property of, any of
the members of the Board of the Fund, nor of its shareholders, officers,
employees or agents, but only the Fund's property shall be bound.
6. Termination. Each party may terminate this Agreement at any time
by not less than thirty (30) days' prior written notice which shall specify
the date of such termination; and further, provided, however, that the
Custodian may immediately terminate this Agreement in the event of the
appointment of a conservator or receiver for the Subcustodian by the Federal
Deposit Insurance Corporation or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon termination, the Subcustodian shall make immediate
delivery of all Fund assets held in the Subscription Accounts to the Custodian
or to any third party specified by the Custodian in writing. If any
Subscription Checks are subsequently returned unpaid the Funds shall direct
the Transfer Agent to pay the Subcustodian the amount thereof on behalf of the
Funds promptly upon demand.
7. Communications. All notices to be delivered pursuant to the terms
of this Agreement shall be given in writing, and shall be deemed given (a)
upon delivery in person to the persons indicated below, or (b) three days
after deposit in the United States Postal Service, postage prepaid,
registered, or certified mail, return receipt requested, or (c) upon receipt
by facsimile (provided that such receipt of such facsimile is confirmed
telephonically by the addressee), or (d) by overnight delivery service (with
receipt of delivery), sent to the addresses shown below, or to such different
address(es) as such party shall be designated by written notice to the other
parties hereto at least ten (10) days in advance of the date upon which such
change of address shall be effective. All communications required or
permitted to be given under this Agreement, unless otherwise agreed by the
parties, shall be addressed as follows:
(i) to the Subcustodian:
Texas Commerce Bank
1020 N.E. Loop 410
San Antonio, Texas 78209
Attn: Jessica Jones
(ii) to the Custodian:
State Street Bank and Trust Company
One Heritage Drive
Palmer Building P.1-N
Quincy, Massachusetts 02171
Attn: Paul Kaminsky
(iii) to the Transfer Agent: USAA Shareholder Account Services
USAA Building, D-3-E
(As instructed by the Custodian) San Antonio, Texas 78288
Attn: Pat Bauer
8. Access to Records. The Subcustodian will not refuse any
reasonable request for inspection and audit of its books and records
concerning transactions and balances of the Subscription Accounts by an agent
of any Fund or the Custodian.
9. Cooperation. The Subcustodian shall cooperate with each Fund and
the Custodian and their respective independent public accountants in
connection with annual and other audits of the books and records of the
Custodian or the Fund.
10. Miscellaneous. This Agreement (i) shall be governed by and
construed in accordance with the laws of the State of Texas without regard to
conflicts of law rules, (ii) may be executed in counterparts each of which
shall be deemed an original but all of which shall constitute the same
instrument, and (iii) may only be amended by the parties hereto in writing.
11. Terms and Conditions of Deposit Accounts. The handling of the
Subscription Accounts and the Return Item Account and all other accounts
maintained with Subcustodian in connection with or relating to this Agreement
will be subject to the Subcustodian's Terms and Conditions of Deposit
Accounts, and any and all rules or regulations now or hereafter promulgated by
the Subcustodian which relate to such accounts and the Uniform Commercial
Code, as adopted by the State of Texas (except in the event any of the same
are contrary to the specific provisions hereof). In the event of any specific
conflict betweenthe provisions hereof and the provisions of any of the
agreements, rules andregulations referenced in this paragraph, the provisions
of this Agreement shall control.
12. Signature Authority. Each of the undersigned represents and
warrants that he/she has the requisite authority to execute this Agreement on
behalf of the party for whom the undersigned signs; that all necessary action
has been taken to authorize this Agreement; that this Agreement, upon
execution and delivery, shall be a binding obligation of such party.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth below.
Dated: March 24, 1994
STATE STREET BANK & TRUST COMPANY
As Custodian
By: /s/ Ronald E. Logue
------------------------------
Title: Executive Vice President
TEXAS COMMERCE BANK
As Subcustodian
By: /s/ Jessica Jones
------------------------------
Title: Vice President
USAA SHAREHOLDER ACCOUNT SERVICES
As Transfer Agent
By: /s/ A. Ray Otte
------------------------------
A. Ray Otte
Title: Sr. Vice President
Chief Financial Officer/Controller
By: /s/ Sherron A. Kirk
-------------------------------
Sherron A. Kirk
Title: Vice President-Controller
The Funds each hereby consent and agree to the terms of the foregoing
Subcustodian Agreement; provided, however, that the same shall not relieve the
Custodian of any of its responsibilities to the Funds as set forth in the
Custodian Agreements between the Funds and the Custodian.
USAA STATE TAX FREE FUND
By: /s/ John W. Saunders, Jr.
-------------------------------
John W. Saunders, Jr.
Title: Vice President
SCHEDULE 1
FEES
Item Processing Pricing
High Volume Corporate Accounts
Effective January 1994
SERVICE PRICE
Pre-encoded Deposit
On-Us $ .019/item
Tier I/Local City $ .019/item
Tier II/Local RCPC $ .029/item
Tier III/Texas Fed Cities $ .040/item
Tier IV/Other Texas $ .050/item
Tier V/Other Transit $ .059/item
Rejects $ .03/item
Account Maintenance $ 10.00/account
Debits Posted $ .12/item
Credits Posted $ .45/deposit
FDIC Assessment $ .16/$1,000 ledger bal./mo.
MicroLink Pricing
Effective January 1994
SERVICE PRICE
Cash Manager
Software Pricing *
Cash Manager Setup Fee $ 325.00
Maintenance *
Cash Manager $ 35.00/customer/month
Bank Account Reporting
TCB
(First 5 Accounts) $ 25.00/account/month
Current Day Reporting **
Transaction Reporting
Previous Day Items $ .15/item
Current Day Items $ .20/item
Automated Payments & Collections (APC)***
Software Pricing *
APC Setup Fee $ 225.00
Maintenance *
Automated Payments & Collections $ 25.00/customer/month
APC Transactions
First 1-500 Transactions $ .30/transaction
* Fees are for single micro-computer software. Additional micro-computer
software and maintenance charges are available at 50% off listed fees.
** The charge for Current Day Reporting is in addition to the account
charges.
*** Refer to ACH Price Sheet for additional APC and DTS charges.
TexStar Funds Transfer Pricing
Effective January 1994
SERVICE PRICE
TexStar Account Maintenance $ 0.00/account/month
Incoming Transfer
Autopost Domestic $ 4.50/transfer
Notifications
TexStar Direct Access $ No charge
TexStar Direct Access, TexStar EXPRESS,
Automatic Standing Transfer, BatchWire*
Internal $ 1.00/transfer
Outgoing
Repetitive $ 6.00/transfer
* BatchWire supports domestic internal and outgoing repetitive funds
transfers.
Automated Clearing House (ACH)
Origination
(Statewide)
Effective January 1994
SERVICE PRICE
MicroLink (APC Module)
Software Setup Fee $ 225.00
Maintenance $ 25.00/customer/month
Initiation
First 1-500 transactions $ .30/transaction
Monthly Maintenance * $ 50.00/customer Tax ID/
month
* One charge for all accounts
International Collection Services Pricing
Effective January 1994
SERVICE PRICE
International Collections*
$ 25.00-$ 4,000.00 $ 16.00
$ 4,000.01-$10,000.00 $ 26.00
$10,000.01+ $ 51.00 maximum (1/4 of 1%)
* Charge deducted from the face amount of the check. $8.50 processing fee
charged to analysis.
SCHEDULE 2
AUTHORIZED OFFICERS
Michael J.C. Roth
Joseph H.L. Jimenez
Sherron Kirk
Pat Bauer
Jim Sanchez
Lori Polhamus
Delia Flores
EXHIBIT 8(m)
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and USAA Investment Trust (the "Trust").
WHEREAS, the Custodian and the Trust are parties to a custodian contract
dated July 27, 1984 as amended November 3, 1988, May 1, 1986 and May 13, 1985
(the "Custodian Contract") governing the terms and conditions under which
the Custodian maintains custody of the securities and other assets of the
Trust; and
WHEREAS, the Custodian and the Trust desire to amend the terms and
conditions under which the Custodian maintains the Trust's securities and
other non-cash property in the custody of certain foreign sub-custodians in
conformity with the requirements of Rule 17f-5 under the Investment Company
Act of 1940, as amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Trust hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Trust, with a foreign sub
- -custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
property of the Trust which are maintained in such account shall identify by
book-entry those securities and other non-cash property belonging to the Trust
and (ii) the Custodian shall require that securities and other non-cash
property so held by the foreign sub-custodian be held separately from any
assets of the foreign sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this 13th day of May, 1996.
USAA INVESTMENT TRUST
By: /s/ John W. Saunders, Jr.
---------------------------------------
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Marguerite Summers
---------------------------------------
Title: Vice President
EXHIBIT 9(g)
January 15, 1996
USAA Mutual Fund, Inc.,
USAA Investment Trust,
USAA Tax Exempt Fund, Inc., and
USAA State Tax-Free Trust, on behalf of and for the
benefit of the series
of funds comprising each such Borrower
as set forth on Schedule A hereto
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Michael J.C. Roth, President
Gentlemen:
This Facility Agreement Letter (this "Agreement") sets forth the terms and
conditions for loans (each a "Loan" and collectively the "Loans") which USAA
Capital Corporation ("CAPCO") may from time to time make during the period
commencing January 15, 1996 and ending January 14, 1997 (the "Facility
Period") to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt
Fund, Inc., and USAA State Tax-Free Trust, and each investment company which
may become a party hereto pursuant to the terms of this Agreement (each a
"Borrower" and collectively the "Borrowers"), each of which is executing this
Agreement on behalf of and for the benefit of the series of funds comprising
each such Borrower as set forth on Schedule A hereto (as hereafter modified or
amended in accordance with the terms hereof) (each a "Fund" and collectively
the "Funds"), under a master revolving credit facility (the "Facility"). USAA
Investment Management Company is the Manager and Investment Advisor of each
Fund. CAPCO and the Borrowers hereby agree as follows:
1. Amount. The aggregate principal amount of the Loans which may
be advanced under this Facility shall not exceed, at any one time outstanding,
Seven Hundred Fifty Million Dollars ($750,000,000). The aggregate principal
amount of the Loans which may be borrowed by a Borrower for the benefit of a
particular Fund under this Facility shall not exceed the borrowing limit (the
"Borrowing Limit") on borrowings applicable to such Fund, as set forth on
Schedule A hereto.
2. Purpose and Limitations on Borrowings. Each Borrower will use
the proceeds of each Loan made to it solely for temporary or emergency
purposes of the Fund for whose benefit it is borrowing in accordance with such
Fund's Borrowing Limit (Schedule A) and prospectus in effect at the time of
such Loan. Portfolio securities may not be purchased by a Fund while there is
a Loan outstanding under the Facility or any other facility, if the aggregate
amount of such Loan and any other such loan exceeds 5% of the total assets of
such Fund.
3. Borrowing Rate and Maturity of Loans. CAPCO may make Loans to
a Borrower and the principal amount of the Loans outstanding from time to time
shall bear interest at a rate per annum equal to the rate at which CAPCO
obtains funding in the Capital Markets plus a standard mark-up to cover
CAPCO's operating costs (not to exceed 8 basis points). Interest on the Loans
shall be calculated on the basis of a year of 360 days and the actual days
elapsed but shall not exceed the highest lawful rate. Each loan will be for
an established number of days agreed upon by the applicable Borrower and
CAPCO. Notwithstanding the above, all Loans to a Borrower shall be made
available at a rate per annum equal to the rate at which CAPCO would make
loans to affiliates and subsidiaries. Further, if the CAPCO rate exceeds the
rate at which a Borrower could obtain funds pursuant to the NationsBank of
Texas, N.A. ("NationsBank") 364-day committed $100,000,000 Master Revolving
Credit Facility, the Borrower will in the absence of predominating
circumstances, borrow from NationsBank. Any past due principal and/or accrued
interest shall bear interest at a rate per annum equal to the aggregate of the
Federal Funds Rate plus 1 percent (100 basis points) and shall be payable on
demand.
4. Advances, Payments, Prepayments and Readvances. Upon each
Borrower's request, and subject to the terms and conditions contained herein,
CAPCO may make Loans to each Borrower on behalf of and for the benefit of its
respective Fund(s) during the Facility Period, and each Borrower may at
CAPCO's sole and absolute discretion, borrow, repay and reborrow funds
hereunder. The Loans shall be evidenced by duly executed and delivered Master
Grid Promissory Note in the form of Exhibit A. Each Loan shall be in an
aggregate amount not less than One Hundred Thousand United States Dollars
(U.S. $100,000) and increments of One Thousand United States Dollars (U.S.
$1,000) in excess thereof. Payment of principal and interest due with respect
to each Loan shall be payable at the maturity of such Loan and shall be made
in funds immediately available to CAPCO prior to 2 p.m. San Antonio time on
the day such payment is due, or as CAPCO shall otherwise direct from time to
time and, subject to the terms and conditions hereof, may be repaid with the
proceeds of a new borrowing hereunder. Notwithstanding any provision of this
Agreement to the contrary, all Loans, accrued but unpaid interest and other
amounts payable hereunder shall be due and payable upon termination of the
Facility (whether by acceleration or otherwise).
5. Facility Fee. As this Facility is uncommitted, no facility fee
shall be charged by CAPCO.
6. Optional Termination. The Borrowers shall have the right upon at
least three (3) business days prior written notice to CAPCO, to terminate the
Facility.
7. Mandatory Termination of the Facility. The Facility, unless
extended by written amendment, shall automatically terminate on the last day
of the Facility Period and any Loans then outstanding (together with accrued
interest thereon and any other amounts owing hereunder) shall be due and
payable on such date.
8. Uncommitted Facility. The Borrowers acknowledge that the
Facility is an uncommitted facility and that CAPCO shall have no obligation to
make any Loan requested during the Facility Period under this Agreement.
Further, CAPCO shall not make any Loan if this Facility has been terminated by
the Borrowers, or if at the time of a request for a Loan by a Borrower [on
behalf of the applicable Fund(s)] there exists any Event of Default or
condition which, with the passage of time or giving of notice, or both, would
constitute or become an Event of Default with respect to such Borrower [or
such applicable Fund(s)].
9. Loan Requests. Each request for a Loan (each a "Borrowing
Notice") shall be in writing by the applicable Borrower(s), except that such
Borrower(s) may make an oral request (each an "Oral Request") provided that
each Oral Request shall be followed by a written Borrowing Notice within one
business day. Each Borrowing Notice shall specify the following terms
("Terms") of the requested Loan: (i) the date on which such Loan is to be
disbursed, (ii) the principal amount of such Loan, (iii) the Borrower(s) which
are borrowing such Loan and the amount of such Loan to be borrowed by each
Borrower, (iv) the Funds for whose benefit the loan is being borrowed and the
amount of the Loan which is for the benefit of each such Fund and (v) the
requested maturity date of the Loan. Each Borrowing Notice shall also set
forth the total assets of each Fund for whose benefit a portion of the Loan is
being borrowed as of the close of business on the day immediately preceding
the date of such Borrowing Notice. Borrowing notices shall be delivered to
CAPCO by 9:00 a.m. San Antonio time on the day the Loan is requested to be
made.
Each Borrowing Notice shall constitute a representation to CAPCO by the
applicable Borrower(s) that all of the representations and warranties in
Section 12 hereof are true and correct as of such date and that no Event of
Default or other condition which with the passage of time or giving of notice,
or both, would result in an Event of Default, has occurred or is occurring.
10. Confirmations; Crediting of Funds; Reliance by CAPCO. Upon
receipt by CAPCO of a Borrowing Notice:
(a) CAPCO shall provide each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as soon as
reasonably practicable; provided, however, that the failure to do so shall not
affect the obligation of any such Borrower;
(b) CAPCO shall make such Loan in accordance with the Terms by
transfer of the Loan amount in immediately available funds, to the account of
the applicable Borrower(s) as specified in Exhibit B to this Agreement or as
such Borrower(s) shall otherwise specify to CAPCO in a writing signed by an
Authorized Individual (as defined in Section 11) of such Borrower(s); and
(c) CAPCO shall make appropriate entries on the Note or the
records of CAPCO to reflect the Terms of the Loan; provided, however, that the
failure to do so shall not affect the obligation of any Borrower.
CAPCO shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify CAPCO thereof.
11. Borrowing Resolutions and Officers' Certificates. Prior to the
making of any Loan pursuant to this Agreement, the Borrowers shall have
delivered to CAPCO the duly executed Note, Resolutions of each Borrower's
Trustees or Board of Directors authorizing such Borrower to execute, deliver
and perform this Agreement and the Note on behalf of the applicable Funds and
an Officer's Certificate in substantially the form set forth in Exhibit D to
this Agreement, authorizing certain individuals ("Authorized Individuals"), to
take on behalf of each Borrower (on behalf of the applicable Funds) action
contemplated by this Agreement and the Note.
12. Representations and Warranties. In order to induce CAPCO to
enter into this Agreement and to make the Loans provided for hereunder, each
Borrower hereby makes with respect to itself, and as may be relevant, the
series of Funds comprising such Borrower, the following representations and
warranties, which shall survive the execution and delivery hereof and of the
Note:
(a) Organization, Standing, etc. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under
applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and proposed
to be conducted, to enter into this Agreement and all other documents to be
executed by it in connection with the transactions contemplated hereby, to
issue and borrow under the Note and to carry out the terms hereof and thereof;
(b) Financial Information; Disclosure, etc. The Borrower has
furnished CAPCO with certain financial statements of such Borrower with
respect to itself and the applicable Funds, all of which such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the financial
position and results of operations of such Borrower and the applicable Funds
on the dates and for the periods indicated. Neither this Agreement nor any
financial statements, reports or other documents or certificates furnished to
CAPCO by such Borrower or the applicable Funds in connection with the
transactions contemplated hereby contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
contained herein or therein in light of the circumstances when made not
misleading;
(c) Authorization; Compliance with Other Instruments. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary corporate or
trust action of the Borrower and will not result in any violation of or be in
conflict with or constitute a default under any term of the charter, by-laws
or trust agreement of such Borrower or the applicable Funds, or of any
borrowing restrictions or prospectus or statement of additional information of
such Borrower or the applicable Funds, or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to such Borrower, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of such Borrower or the
applicable Funds pursuant to any such term. The Borrower and the applicable
Funds are not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which they
are a party, or to the best of such Borrower's knowledge, of any judgment,
decree, order, statute, rule or governmental regulation applicable to them;
(d) SEC Compliance. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state securities
or similar laws and regulations, including all material rules, regulations and
administrative orders of the Securities and Exchange Commission (the "SEC")
and applicable Blue Sky authorities. The Borrower and the applicable Funds
are in compliance in all material respects with all of the provisions of the
Investment Company Act of 1940, and such Borrower has filed all reports with
the SEC that are required of it or the applicable Funds;
(e) Litigation. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such Borrower
or the applicable Funds in any court or before any arbitrator or governmental
body which seeks to restrain any of the transactions contemplated by this
Agreement or which, if adversely determined, could have a material adverse
effect on the assets or business operations of such Borrower or the applicable
Funds or the ability of such Borrower and the applicable Funds to pay and
perform their obligations hereunder and under the Notes; and
(f) Borrowers' Relationship to Funds. The assets of each Fund
for whose benefit Loans are borrowed by the applicable Borrower are subject to
and liable for such Loans and are available (except as subordinated to
borrowings under the NationsBank committed facility) to the applicable
Borrower for the repayment of such Loans.
13. Affirmative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective
Funds) agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such Borrower and
the applicable Funds, Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each applicable Fund for
such fiscal year, as set forth in each applicable Fund's Annual Report to
shareholders together with a calculation of the maximum amount which each
applicable Fund could borrow under its Borrowing Limit as of the end of such
fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statement of Operations and Statements of Changes in Net Assets of each
applicable Fund as of the end of such semiannual period, as set forth in each
applicable Fund's Semiannual Report to shareholders, together with a
calculation of the maximum amount which each applicable Fund could borrow
under its Borrowing Limit at the end of such semiannual period;
(c) To deliver to CAPCO prompt notice of the occurrence of any
event or condition which constitutes, or is likely to result in, a change in
such Borrower or any applicable Fund which could reasonably be expected to
materially adversely affect the ability of any applicable Fund to promptly
repay outstanding Loans made for its benefit or the ability of such Borrower
to perform its obligations under this Agreement or the Note;
(d) To do, or cause to be done, all things necessary to preserve
and keep in full force and effect the corporate or trust existence of such
Borrower and all permits, rights and privileges necessary for the conduct of
its businesses and to comply in all material respects with all applicable
laws, regulations and orders, including without limitation, all rules and
regulations promulgated by the SEC;
(e) To promptly notify CAPCO of any litigation, threatened legal
proceeding or investigation by a governmental authority which could materially
affect the ability of such Borrower or the applicable Funds to promptly repay
the outstanding Loans or otherwise perform their obligations hereunder; and
(f) In the event a Loan for the benefit of a particular Fund is
not repaid in full within 10 days after the date it is borrowed , and until
such Loan is repaid in full, to deliver to CAPCO, within two business days
after each Friday occurring after such 10th day, a statement setting forth the
total assets of such Fund as of the close of business on each such Friday.
14. Negative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective
Funds) agrees:
(a) Not to incur any indebtedness for borrowed money (other than
pursuant to the One Hundred Million Dollar ($100,000,000) committed Master
Revolving Credit Facility with NationsBank and for overdrafts incurred at the
custodian of the Funds from time to time in the normal course of business)
except the Loans, without the prior written consent of CAPCO, which consent
will not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or substantially all
of its assets in a single transaction or series of related transactions (other
than assets consisting of margin stock), each without the prior written
consent of CAPCO, which consent will not be unreasonably withheld; provided
that a Borrower may without such consent merge, consolidate with, or purchase
substantially all of the assets of, or sell substantially all of its assets
to, an affiliated investment company or series thereof, as provided for in
Rule 17a-8 of the Investment Company Act of 1940.
15. Events of Default. If any of the following events (each an
"Event of Default") shall occur (it being understood that an Event of Default
with respect to one Fund or Borrower shall not constitute an Event of Default
with respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a period
of five (5) days after the same becomes due and payable, whether at maturity
or with respect to any Facility Fee at a date fixed for the payment thereof;
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default shall
not have been remedied within thirty (30) days after written notice thereof
shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall not
have been remedied within thirty (30) days after written notice thereof shall
have been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in any
material respect when made;
(f) USAA Investment Management Company or any successor manager
or investment adviser, provided that such successor in a wholly-owned
subsidiary of CAPCO, shall cease to be the Manager and Investment Advisor of
each Fund; or
(g) An event of default shall occur and be continuing under any
other facility;
then, in any event, and at any time thereafter, if any Event of Default shall
be continuing, CAPCO may by written notice to the applicable Borrower or Fund
(i) terminate the Facility with respect to such Borrower or Fund and (ii)
declare the principal and interest in respect of any outstanding Loans with
respect to such Borrower or Fund, and all other amounts due hereunder with
respect to such Borrower or Fund, to be immediately due and payable whereupon
the principal and interest in respect thereof and all other amounts due
hereunder shall become forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly waived by the
Borrowers.
16. New Borrowers; New Funds. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of CAPCO, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group of
investment companies" (as that term is defined in Rule 11a-3 under the
Investment Company Act of 1940) as the original Borrowers to this Agreement,
may, by submitting an amended Schedule A and Exhibit B to this Agreement to
CAPCO (which amended Schedule A and Exhibit B shall replace the corresponding
Schedule and Exhibit which are, then a part of this Agreement) and such other
documents as CAPCO may reasonably request, become a party to this Agreement
and may become a "Borrower" hereunder; and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to CAPCO (which amended Schedule A and Exhibit B
shall replace the corresponding Schedule and Exhibit which are then a part of
this Agreement), add additional Funds for whose benefit such Borrower may
borrow Loans. No such amendment of Schedule A to this Agreement shall amend
the Borrowing Limit applicable to any Fund without the prior approval of
CAPCO.
17. Limited Recourse. CAPCO agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets
of any fund shall be used to satisfy any claim, liability, or obligation
arising hereunder or under the Note with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Note (as determined in accordance
with the provisions hereof).
18. Remedies on Default. In case any one or more Events of Default
shall occur and be continuing, CAPCO may proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceedings,
against the applicable Borrower(s) and/or Fund(s), as the case may be. In the
case of a default in the payment of any principal or interest on any Loan or
in the payment of any fee due hereunder, the relevant Funds (to be allocated
among such Funds as the Borrowers deem appropriate) shall pay to CAPCO such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorney's fees and
expenses.
19. No Waiver of Remedies. No course of dealing or failure or delay
on the part of CAPCO in exercising any right or remedy hereunder or under the
Note shall constitute a waiver of any right or remedy hereunder or under the
Note, nor shall any partial exercise of any right or remedy hereunder or under
the Note preclude any further exercise thereof or the exercise of any other
right or remedy hereunder or under the Note. Such rights and remedies
expressly provided are cumulative and not exclusive of any rights or remedies
which CAPCO would otherwise have.
20. Expenses. The Funds (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses)
incurred by CAPCO in connection with the collection and any other enforcement
proceedings of or regarding this Agreement, any Loan or the Note.
21. Benefit of Agreement. This Agreement and the Note shall be
binding upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties.
22. Notices. All notices hereunder and all written, facsimile or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on Exhibit B and to CAPCO as indicated on Exhibit C.
23. Modifications. No provision of this Agreement or the Note may
be waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the state of Texas
without regard to the choice of law provisions thereof.
25. Trust Disclaimer. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound
by or liable for any indebtedness, liability or obligation hereunder or under
the Note nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /s/ Laurie B. Blank
-------------------------------
Laurie B. Blank
Assistant Vice President-Treasurer
AGREED AND ACCEPTED this 15th
Day of January, 1996.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
------------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J. C. Roth
------------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
------------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
-------------------------------
Michael J.C. Roth
President
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
Borrower Funds Borrowing Limit
- -------- ----- ---------------
USAA Mutual Fund, Inc. USAA Aggressive Growth 5% of Total Assets
USAA Growth & Income '
USAA Income Stock '
USAA Short-Term Bond '
USAA Money Market '
USAA Growth '
USAA Income '
USAA Investment Trust USAA Cornerstone Strategy '
USAA Gold '
USAA International '
USAA World Growth '
USAA GNMA Trust '
USAA Treasury Money Market Trust '
USAA Emerging Markets '
USAA Growth and Tax Strategy '
USAA Balanced Strategy '
USAA Growth Strategy '
USAA Income Strategy '
USAA Tax Exempt Fund, Inc. USAA Long-Term '
USAA Intermediate-Term '
USAA Short-Term '
USAA Tax Exempt Money Market '
USAA California Bond '
USAA California Money Market '
USAA New York Bond '
USAA New York Money Market '
USAA Virginia Bond '
USAA Virginia Money Market '
USAA State Tax-Free Trust USAA Florida Tax-Free Income '
USAA Florida Tax-Free Money Market'
USAA Texas Tax-Free Income '
USAA Texas Tax-Free Money Market '
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $750,000,000 Dated: January 15, 1996
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and
for the benefit of the series of funds comprising each such Borrower as listed
on Schedule A to the Agreement as defined below (each a "Fund" and
collectively the "Funds") promises to pay to the order of USAA Capital
Corporation ("CAPCO") at CAPCO's office located at 9800 Fredericksburg Road,
San Antonio, Texas 78288, in lawful money of the United States of America, in
immediately available funds, the principal amount of all Loans made by CAPCO
to such Borrower for the benefit of the applicable Funds under the Facility
Agreement Letter dated January 15, 1996 (as amended or modified, the
"Agreement"), among the Borrowers and CAPCO, together with interest thereon
at the rate or rates set forth in the Agreement. All payments of interest and
principal outstanding shall be made in accordance with the terms of the
Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
CAPCO is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of CAPCO to do so or to do so accurately
shall not affect the obligations of any Borrower (or the Fund for whose
benefit it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
CAPCO hereby agrees (i) that any claim, liability, or obligation arising
hereunder or under the Agreement whether on account of the principal of any
Loan, interest thereon, or any other amount due hereunder or thereunder shall
be satisfied only from the assets of the specific Fund for whose benefit a
Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of
any other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement) and (ii) that no assets of
any Fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Agreement with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other agents
of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
Loans under the Agreement and this Note are subordinated to loans made
under the $100,000,000 364-day Committed Mater Revolving Credit Facility
Agreement between the Borrowers and NationsBank of Texas, N.A. (NationsBank),
dated January 16, 1996, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and NationsBank, dated January 16, 1996.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
----------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
----------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
-----------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
-----------------------------
Michael J.C. Roth
President
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 15, 1996, executed by USAA MUTUAL FUND, INC., USAA INVESTMENT
TRUST, USAA TAX EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST on behalf of
and for the benefit of the series of funds comprising each such Borrower
payable to the order of USAA CAPITAL CORPORATION.
[Information listed in grid]
Date of Loan
Borrower and Fund
Amount of Loan
Type of Rate and Interest Rate on Date of Borrowing
Amount of Principal Repaid
Date of Repayment
Other Expenses
Notation made by
EXHIBIT B
USAA CAPITAL CORPORATION
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX EXEMPT
FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (For Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA: X FED FUNDS CHIPS
TO: (PLEASE PLACE BANK NAME, CORRESPONDENT NAME (IF APPLICABLE), CHIPS
AND/OR FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
- ----------------------
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA INVESTMENT TRUST
- ---------------------
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA TAX EXEMPT FUND, INC.
- --------------------------
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
- -------------------------
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
EXHIBIT C
ADDRESS FOR USAA CAPITAL CORPORATION
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Laurie B. Blank
Telephone No.: (210) 498-0825
Telecopy No.: (210) 498-6566
EXHIBIT D
OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the duly elected Secretary of USAA
Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA
State Tax-Free Trust and that he is authorized to execute this Certificate on
behalf of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund,
Inc. and USAA State Tax-Free Trust. The undersigned hereby further certifies
to the following:
The following individuals are duly authorized to act on behalf of USAA Mutual
Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA State
Tax-Free Trust, by transmitting telephonic, telex, or telecopy instructions
and other communications with regard to borrowing and payments pursuant to the
uncommitted Master Revolving Credit Agreement with USAA Capital Corporation.
The signature set opposite the name of each individual below is that
individual's genuine signature.
NAME OFFICE SIGNATURE
- ---- ------ ---------
Michael J.C. Roth President /s/ Michael J.C. Roth
----------------------------
John W. Saunders, Jr. Senior Vice President,
Fixed Income Investments /s/ John W. Saunders,Jr.
----------------------------
Harry W. Miller Senior Vice President,
Equity Investments /s/ Harry W. Miller
-----------------------------
Kenneth E. Willmann Vice President,
Fixed Income /s/ Kenneth W. Willmann
-----------------------------
David G. Peebles Vice President,
Equity Investments /s/ David G. Peebles
-----------------------------
Sherron A. Kirk Vice President,
Controller /s/ Sherron A. Kirk
-----------------------------
Dean R. Pantzar Executive Director,
Mutual Fund Accounting /s/ Dean R. Pantzar
-----------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 15th day of
January, 1996.
/s/ Michael D. Wagner
----------------------------------
MICHAEL D. WAGNER
Secretary
I, Michael J.C. Roth, President of USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. And USAA State Tax-Free Trust hereby
certify that Michael D. Wagner is, and has been at all times since a date
prior to the date of this Certificate, the duly elected, qualified, and acting
Secretary of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt
Fund, Inc. And USAA State Tax-Free Trust and that the signature set forth
above is his true and correct signature.
DATE: January 15, 1996 /s/ Michael J. C. Roth
-----------------------------------
MICHAEL J. C. ROTH
President
EXHIBIT 9(h)
January 16, 1996
USAA Mutual Fund, Inc.,
USAA Investment Trust,
USAA Tax Exempt Fund, Inc., and
USAA State Tax-Free Trust, on behalf of and for the
benefit of the series
of funds comprising each such Borrower
as set forth on Schedule A hereto
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Michael J.C. Roth, President
Gentlemen:
This Facility Agreement Letter (this "Agreement") sets forth the terms and
conditions for loans (each a "Loan" and collectively the "Loans") which
NationsBank of Texas, N.A. (the "Bank") agrees to make during the period
commencing January 16, 1996 and ending January 15, 1997 (the "Facility
Period") to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt
Fund, Inc., and USAA State Tax-Free Trust, and each investment company which
may become a party hereto pursuant to the terms of this Agreement (each a
"Borrower" and collectively the "Borrowers"), each of which is executing this
Agreement on behalf of and for the benefit of the series of funds comprising
each such Borrower as set forth on Schedule A hereto (as hereafter modified or
amended in accordance with the terms hereof) (each a "Fund" and collectively
the "Funds"), under a master revolving credit facility (the "Facility"). This
Agreement amends, restates and replaces in its entirety that certain Facility
Agreement Letter dated June 1, 1994, as heretofore amended or modified,
between the Borrowers and the Bank. The Bank and the Borrowers hereby agree
as follows:
1. Amount. The aggregate principal amount of the Loans to be
advanced under this Facility shall not exceed, at any one time outstanding,
One Hundred Million United States Dollars (U.S. $100,000,000) (the
"Commitment"). The aggregate principal amount of the Loans which may be
borrowed by a Borrower for the benefit of a particular Fund under the Facility
and the Other Facility (hereinafter defined) shall not exceed the percentage
(the "Borrowing Limit") of the total assets of such Fund as set forth on
Schedule A hereto.
2. Purpose and Limitations on Borrowings. Each Borrower will use the
proceeds of each Loan made to it solely for temporary or emergency purposes of
the Fund for whose benefit it is borrowing in accordance with such Fund's
Borrowing Limit and prospectus in effect at the time of such Loan. Portfolio
securities may not be purchased by a Fund while there is a Loan outstanding
under the Facility and/or a loan outstanding under the Other Facility for the
benefit of such Fund, if the aggregate amount of such Loan and such other loan
exceeds 5% of the total assets of such Fund. The Borrowers will not, and will
not permit any Fund to, directly or indirectly, use any proceeds of any Loan
for any purpose which would violate any provision of any applicable statute,
regulation, order or restriction, including, without limitation, Regulation U,
Regulation T, Regulation X or any other regulation of the Board of Governors
of the Federal Reserve System or the Securities Exchange Act of 1934, as
amended. If requested by the Bank, the Borrowers will promptly furnish the
Bank with a statement in conformity with the requirements of Federal Reserve
Form U-1 as referred to in Regulation U.
3. Borrowing Rate and Maturity of Loans. The principal amount of the
Loans outstanding from time to time shall bear interest at a rate per annum
equal to, at the option of the applicable Borrower(s), (i) the aggregate of
the Federal Funds Rate (as defined below) plus .125 of one percent (1%) (12.5
basis points) or (ii) the aggregate of the London Interbank Offered Rate (as
defined below) plus 12.5 basis points. The rate of interest payable on such
outstanding amounts shall change on each date that the Federal Funds Rate
shall change. Interest on the Loans shall be calculated on the basis of a
year of 360 days and the actual days elapsed but shall not exceed the highest
lawful rate. Each Loan will be for an established number of days to be agreed
upon by the applicable Borrower(s) and the Bank and, in the absence of such
agreement, will mature on the earlier of three months after the date of such
Loan or the last day of the Facility Period. The term "Federal Funds Rate,"
as used herein, shall mean the overnight rate for Federal funds transactions
between member banks of the Federal Reserve System, as published by the
Federal Reserve Bank of New York or, if not so published, as determined in
good faith by the Bank in accordance with its customary practices; and the
term "London Interbank Offered Rate," as used herein, shall mean the rate per
annum at which United States dollar deposits are offered by the Bank in the
London interbank market at approximately 11:00 a.m. London time two business
days prior to the first day of the interest period (of 7 or 14 days or one,
two or three months as selected by the Borrower(s)) for which the London
Interbank Offered Rate is to be in effect, as adjusted by the Bank in good
faith and in accordance with its customary practices for any reserve costs
imposed on the Bank under Federal Reserve Board Regulation D with respect to
"Euro-currency Liabilities". The London Interbank Offered Rate shall not be
available hereunder if it would be unlawful for the Bank to make or maintain
Loans based on such rate or if such rate does not, in the good faith judgment
of the Bank, fairly reflect the cost to the Bank of making or maintaining
Loans. The London Interbank Offered Rate shall not be available for any
interest period which, if such rate were available, would begin after the
occurrence and during the continuation of an Event of Default (as defined
below). Any past due principal and/or accrued interest shall bear interest at
a rate per annum equal to the aggregate of the Federal Funds Rate plus 1.125
percent (112.5 basis points) and shall be payable on demand. If the
applicable Borrowers do not affirmatively elect to have a Loan or Loans bear
interest based on the London Interbank Offered Rate at least two business days
prior to the first day of a possible interest period applicable thereto, such
Loan or Loans shall bear interest based on the Federal Funds Rate until such
election is affirmatively made.
4. Advances, Payments, Prepayments and Readvances. Upon each
Borrower's request, and subject to the terms and conditions contained herein,
the Bank shall make Loans to each Borrower on behalf of and for the benefit of
its respective Fund(s) during the Facility Period, and each Borrower may
borrow, repay and reborrow funds hereunder. The Loans shall be evidenced by
duly executed and delivered Master Grid Promissory Note in the form of Exhibit
A. Each Loan shall be in an aggregate amount not less than One Hundred
Thousand United States Dollars (U.S. $100,000) and increments of One Thousand
United States Dollars (U.S. $1,000) in excess thereof. Payment of principal
and interest due with respect to each Loan shall be payable at the maturity of
such Loan and shall be made in funds immediately available to the Bank prior
to 2 p.m. Dallas time on the day such payment is due, or as the Bank shall
otherwise direct from time to time and, subject to the terms and conditions
hereof, may be repaid with the proceeds of a new borrowing hereunder.
Notwithstanding any provision of this Agreement to the contrary, all Loans,
accrued but unpaid interest and other amounts payable hereunder shall be due
and payable upon termination of the Facility (whether by acceleration or
otherwise). If any Loan bearing interest based on the London Interbank
Offered Rate is repaid or prepaid other than on the last day of an interest
period applicable thereto, the Fund which is the beneficiary of such Loan
shall pay to the Bank promptly upon demand such amount as the Bank determines
in good faith is necessary to compensate the Bank for any reasonable cost or
expense incurred by the Bank as a result of such repayment or prepayment in
connection with the reemployment of funds in an amount equal to such repayment
or prepayment. Whenever the Bank seeks to assess for any such cost or expense
it will provide a certificate as the Borrower(s) shall reasonably request.
5. Facility Fee. Beginning with the date of this Agreement and until
such time as all Loans have been irrevocably repaid to the Bank in full, and
the Bank is no longer obligated to make Loans, the Funds (to be allocated
among the Funds as the Borrowers deem appropriate) shall pay to the Bank a
facility fee (the "Facility Fee") in the amount of .05 of one percent (5 basis
points) of the amount of the Commitment, as it may be reduced pursuant to
section 6. The Facility Fee shall be payable quarterly in arrears beginning
March 31, 1996, and upon termination of the Facility (whether by acceleration
or otherwise).
6. Optional Termination or Reduction of Commitment. The Borrowers
shall have the right upon at least three (3) business days prior written
notice to the Bank, to terminate or reduce the unused portion of the
Commitment. Any such reduction of the Commitment shall be in the amount of
Five Million United States Dollars (U.S. $5,000,000) or any larger integral
multiple of One Million United States Dollars (U.S. $1,000,000) (except that
any reduction may be in the aggregate amount of the unused Commitment).
Accrued fees with respect to the terminated Commitment shall be payable to the
Bank on the effective date of such termination.
7. Mandatory Termination of Commitment. The Commitment shall
automatically terminate on the last day of the Facility Period and any Loans
then outstanding (together with accrued interest thereon and any other amounts
owing hereunder) shall be due and payable on such date.
8. Committed Facility. The Bank acknowledges that the Facility is a
committed facility and that the Bank shall be obligated to make any Loan
requested during the Facility Period under this Agreement, subject to the
terms and conditions hereof; provided, however, that the Bank shall not be
obligated to make any Loan if this Facility has been terminated by the
Borrowers, or if at the time of a request for a Loan by a Borrower (on behalf
of the applicable Fund(s)) there exists any Event of Default or condition
which, with the passage of time or giving of notice, or both, would constitute
or become an Event of Default with respect to such Borrower (or such
applicable Fund(s)).
9. Loan Requests. Each request for a Loan (each a "Borrowing
Notice") shall be in writing by the applicable Borrower(s), except that such
Borrower(s) may make an oral request (each an "Oral Request") provided that
each Oral Request shall be followed by a written Borrowing Notice within one
business day. Each Borrowing Notice shall specify the following terms
("Terms") of the requested Loan: (i) the date on which such Loan is to be
disbursed, (ii) the principal amount of such Loan, (iii) the Borrower(s) which
are borrowing such Loan and the amount of such Loan to be borrowed by each
Borrower, (iv) the Funds for whose benefit the Loan is being borrowed and the
amount of the Loan which is for the benefit of each such Fund, (v) whether
such Loan shall bear interest at the Federal Funds Rate or the London
Interbank Offered Rate, and (vi) the requested maturity date of the Loan.
Each Borrowing Notice shall also set forth the total assets of each Fund for
whose benefit a portion of the Loan is being borrowed as of the close of
business on the day immediately preceding the date of such Borrowing Notice.
Borrowing Notices shall be delivered to the Bank by 1:00 p.m. Dallas time on
the day the Loan is requested to be made if such Loan is to bear interest
based on the Federal Funds Rate or by 10:00 a.m. Dallas time on the second
business day before the Loan is requested to be made if such Loan is to bear
interest based on the London Interbank Offered Rate.
Each Borrowing Notice shall constitute a representation to the Bank by the
applicable Borrower(s) that all of the representations and warranties in
Section 12 hereof are true and correct as of such date and that no Event of
Default or other condition which with the passage of time or giving of notice,
or both, would result in an Event of Default, has occurred or is occurring.
10. Confirmations; Crediting of Funds; Reliance by the Bank. Upon
receipt by the Bank of a Borrowing Notice:
(a) The Bank shall send each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as
soon as reasonably practicable; provided, however, that the failure to
do so shall not affect the obligation of any such Borrower;
(b) The Bank shall make such Loan in accordance with the Terms
by transfer of the Loan amount in immediately available funds, to the
account of the applicable Borrower(s) as specified in Exhibit B to this
Agreement or as such Borrower(s) shall otherwise specify to the Bank in
a writing signed by an Authorized Individual (as defined in Section 11)
of such Borrower(s) and sent to the Bank via facsimile or telecopy; and
(c) The Bank shall make appropriate entries on the Note or the
records of the Bank to reflect the Terms of the Loan; provided, however,
that the failure to do so shall not affect the obligation of any
Borrower.
The Bank shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify the Bank thereof.
11. Borrowing Resolutions and Officers' Certificates; Subordination
Agreement. Prior to the making of any Loan pursuant to this Agreement, the
Borrowers shall have delivered to the Bank (a) the duly executed Note, (b)
resolutions of each Borrower's Trustees or Board of Directors authorizing such
Borrower to execute, deliver and perform this Agreement and the Note on behalf
of the applicable Funds, (c) an Officer's Certificate in substantially the
form set forth in Exhibit D to this Agreement, authorizing certain individuals
("Authorized Individuals"), to take on behalf of each Borrower (on behalf of
the applicable Funds) actions contemplated by this Agreement and the Note, and
(d) a subordination agreement in substantially the form set forth in Exhibit E
to this Agreement.
12. Representations and Warranties. In order to induce the Bank to
enter into this Agreement and to make the Loans provided for hereunder, each
Borrower hereby makes with respect to itself, and as may be relevant, the
series of Funds comprising such Borrower the following representations and
warranties, which shall survive the execution and delivery hereof and of the
Note:
(a) Organization, Standing, etc. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under
applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and
proposed to be conducted, to enter into this Agreement and all other
documents to be executed by it in connection with the transactions
contemplated hereby, to issue and borrow under the Note and to carry out
the terms hereof and thereof;
(b) Financial Information; Disclosure, etc. The Borrower has
furnished the Bank with certain financial statements of such Borrower
with respect to itself and the applicable Funds, all of which such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly
present the financial position and results of operations of such
Borrower and the applicable Funds on the dates and for the periods
indicated. Neither this Agreement nor any financial statements, reports
or other documents or certificates furnished to the Bank by such
Borrower or the applicable Funds in connection with the transactions
contemplated hereby contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
contained herein or therein in light of the circumstances when made not
misleading;
(c) Authorization; Compliance with Other Instruments. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary
corporate or trust action of the Borrower and will not result in any
violation of or be in conflict with or constitute a default under any
term of the charter, by-laws or trust agreement of such Borrower or the
applicable Funds, or of any borrowing restrictions or prospectus or
statement of additional information of such Borrower or the applicable
Funds, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Borrower, or
result in the creation of any mortgage, lien, charge or encumbrance upon
any of the properties or assets of such Borrower or the applicable Funds
pursuant to any such term. The Borrower and the applicable Funds are
not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which
they are a party, or to the best of such Borrower's knowledge, of any
judgment, decree, order, statute, rule or governmental regulation
applicable to them;
(d) SEC Compliance. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state
securities or similar laws and regulations, including all material
rules, regulations and administrative orders of the Securities and
Exchange Commission (the "SEC") and applicable Blue Sky authorities.
The Borrower and the applicable Funds are in compliance in all material
respects with all of the provisions of the Investment Company Act of
1940, and such Borrower has filed all reports with the SEC that are
required of it or the applicable Funds;
(e) Litigation. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator
or governmental body which seeks to restrain any of the transactions
contemplated by this Agreement or which, if adversely determined, could
have a material adverse effect on the assets or business operations of
such Borrower or the applicable Funds or the ability of such Borrower
and the applicable Funds to pay and perform their obligations hereunder
and under the Notes; and
(f) Borrowers' Relationship to Funds. The assets of each Fund
for whose benefit Loans are borrowed by the applicable Borrower are
subject to and liable for such Loans and are available to the applicable
Borrower for the repayment of such Loans.
13. Affirmative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to
any Loan made to such Borrower is irrevocably paid in full, and until the Bank
is no longer obligated to make Loans to such Borrower, such Borrower (for
itself and on behalf of its respective Funds) agrees:
(a) To deliver to the Bank as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to the Bank as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of
such Borrower and the applicable Funds, Statements of Assets and
Liabilities, Statements of Operations and Statements of Changes in Net
Assets of each applicable Fund as of the end of such semiannual period,
as set forth in each applicable Fund's Semiannual Report to
shareholders, together with a calculation of the maximum amount which
each applicable Fund could borrow under its Borrowing Limit at the end
of such semiannual period;
(c) To deliver to the Bank prompt notice of the occurrence of
any event or condition which constitutes, or is likely to result in, a
change in such Borrower or any applicable Fund which could reasonably be
expected to materially adversely affect the ability of any applicable
Fund to promptly repay outstanding Loans made for its benefit or the
ability of such Borrower to perform its obligations under this Agreement
or the Note;
(d) To do, or cause to be done, all things necessary to preserve
and keep in full force and effect the corporate or trust existence of
such Borrower and all permits, rights and privileges necessary for the
conduct of its businesses and to comply in all material respects with
all applicable laws, regulations and orders, including without
limitation, all rules and regulations promulgated by the SEC;
(e) To promptly notify the Bank of any litigation, threatened
legal proceeding or investigation by a governmental authority which
could materially affect the ability of such Borrower or the applicable
Funds to promptly repay the outstanding Loans or otherwise perform their
obligations hereunder; and
(f) In the event a Loan for the benefit of a particular Fund is
not repaid in full within 10 days after the date it is borrowed, and
until such Loan is repaid in full, to deliver to the Bank, within two
business days after each Friday occurring after such 10th day, a
statement setting forth the total assets of such Fund as of the close of
business on each such Friday.
14. Negative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to
any Loan made to such Borrower is irrevocably paid in full, and until the Bank
is no longer obligated to make Loans to such Borrower, such Borrower (for
itself and on behalf of its respective Funds) agrees:
(a) Not to incur any indebtedness for borrowed money (other than
pursuant to a $750,000,000 uncommitted master revolving credit facility
with USAA Capital Corporation (the "Other Facility") and overdrafts
incurred at the custodian of the Funds from time to time in the ordinary
course of business) except the Loans, without the prior written consent
of the Bank, which consent will not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or
substantially all of its assets in a single transaction or series of
related transactions (other than assets consisting of margin stock),
each without the prior written consent of the Bank, which consent will
not be unreasonably withheld; provided that a Borrower may without such
consent merge, consolidate with, or purchase substantially all of the
assets of, or sell substantially all of its assets to, an affiliated
investment company or series thereof, as provided for in Rule 17a-8 of
the Investment Company Act of 1940.
15. Events of Default. If any of the following events (each an "Event
of Default") shall occur (it being understood that an Event of Default with
respect to one Fund or Borrower shall not constitute an Event of Default with
respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a
period of five (5) days after the same becomes due and payable, whether
at maturity or with respect to the Facility Fee at a date fixed for the
payment thereof; or
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written
notice thereof shall have been given such Borrower or Fund by the Bank;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall
not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by the Bank;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in
any material respect when made;
(f) USAA Investment Management Company or any successor manager
or investment adviser, provided that such successor is a wholly-owned
subsidiary of USAA Capital Corporation, shall cease to be the Manager
and investment advisor of each Fund; or
(g) An event of default shall occur and be continuing under the
Other Facility;
then, in any event, and at any time thereafter, if any Event of Default shall
be continuing, the Bank may by written notice to the applicable Borrower or
Fund (i) terminate its commitment to make any Loan hereunder, whereupon said
commitment shall forthwith terminate without any other notice of any kind with
respect to such Borrower or Fund and (ii) declare the principal and interest
in respect of any outstanding Loans with respect to such Borrower or Fund, and
all other amounts due hereunder with respect to such Borrower or Fund, to be
immediately due and payable whereupon the principal and interest in respect
thereof and all other amounts due hereunder shall become forthwith due and
payable without presentment, demand, protest or other notice of any kind, all
of which are expressly waived by the Borrowers.
16. New Borrowers; New Funds. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of the Bank, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under
the Investment Company Act of 1940) as the original Borrowers to this
Agreement, may, by submitting an amended Schedule A and Exhibit B to
this Agreement to the Bank (which amended Schedule A and Exhibit B shall
replace the Schedule A and Exhibit B which are then a part of this
Agreement) and such other documents as the Bank may reasonably request,
become a party to this Agreement and may become a "Borrower" hereunder;
and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to the Bank (which amended Schedule A and
Exhibit B shall replace the Schedule A and Exhibit B which are then a
part of this Agreement), add additional Funds for whose benefit such
Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior consent of the Bank.
17. Limited Recourse. The Bank agrees (i) that any claim, liability,
or obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets
of any Fund shall be used to satisfy any claim, liability, or obligation
arising hereunder or under the Note with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Note (as determined in accordance
with the provisions hereof).
18. Remedies on Default. In case any one or more Events of Default
shall occur and be continuing, the Bank may proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceedings,
against the applicable Borrower(s) and/or Fund(s), as the case may be. In the
case of a default in the payment of any principal or interest on any Loan or
in the payment of any fee due hereunder, the relevant Funds (to be allocated
among such Funds as the Borrowers deem appropriate) shall pay to the Bank such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorney's fees and
expenses.
19. No Waiver of Remedies. No course of dealing or failure or delay
on the part of the Bank in exercising any right or remedy hereunder or under
the Note shall constitute a waiver of any right or remedy hereunder or under
the Note, nor shall any partial exercise of any right or remedy hereunder or
under the Note preclude any further exercise thereof or the exercise of any
other right or remedy hereunder or under the Note. Such rights and remedies
expressly provided are cumulative and not exclusive of any rights or remedies
which the Bank would otherwise have.
20. Expenses. The Funds (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses)
incurred by the Bank in connection with the collection and any other
enforcement proceedings of or regarding this Agreement, any Loan or the Note.
21. Benefit of Agreement. This Agreement and the Note shall be
binding upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties. The Bank may not sell
participations and subparticipations in all or any part of the Loans made
hereunder without the prior consent of the Borrowers, which consent shall not
be unreasonably withheld.
22. Notices. All notices hereunder and all written, facsimiled or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on Exhibit B and to the Bank as indicated on Exhibit C.
Written communications shall be deemed to have been duly given and made as
follows: If sent by mail, seventy-two (72) hours after deposit in the mail
with first-class postage prepaid, addressed as provided in Exhibit B (the
Borrowers) and Exhibit C (the Bank); and in the case of facsimile or telecopy,
when the facsimile or telecopy is received if on a business day or otherwise
on the next business day.
23. Modifications. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. Increased Cost and Reduced Return. If at any time after the date
hereof, the Bank (which shall include, for purposes of this Section, any
corporation controlling the Bank) determines that the adoption or modification
of any applicable law regarding the Bank's required levels of reserves, other
than the reserve requirement taken into account when computing the London
Interbank Offered Rate as provided in Section 3, or capital (including any
allocation of capital requirements or conditions), or similar requirements, or
any interpretation or administration thereof by a governmental body or
compliance by the Bank with any of such requirements, has or would have the
effect of (a) increasing the Bank's costs relating to the Loans, or (b)
reducing the yield or rate of return of the Bank on the Loans, to a level
below that which the Bank could have achieved but for the adoption or
modification of any such requirements, the Funds (to be allocated among the
Funds as the Borrowers deem appropriate) shall, within fifteen (15) days of
any request by the Bank, pay to the Bank such additional amounts as (in the
Bank's sole judgment, after good faith and reasonable computation) will
compensate the Bank for such increase in costs or reduction in yield or rate
of return of the Bank. Whenever the Bank shall seek compensation for any
increase in costs or reduction in yield or rate of return, the Bank shall
provide a certificate as the Borrower(s) shall reasonably request. Failure by
the Bank to demand payment within 90 days of any additional amounts payable
hereunder shall constitute a waiver of the Bank's right to demand payment of
such amounts at any subsequent time. Nothing herein contained shall be
construed or so operate as to require the Borrowers or the Funds to pay any
interest, fees, costs or charges greater than is permitted by applicable law.
25. Governing Law and Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the state of Texas without
regard to the choice of law provisions thereof.
26. Trust Disclaimer. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound
by or liable for any indebtedness, liability or obligation hereunder or under
the Note nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and the Bank.
Sincerely,
NATIONSBANK OF TEXAS, N.A.
By: /s/ Greg Venker
-----------------------------
Title: Senior Vice President
AGREED AND ACCEPTED:
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
-------------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
---------------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
---------------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J. C. Roth
---------------------------------
Michael J.C. Roth
President
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
AND BORROWING LIMIT
Maximum Percent of the
Total Assets Which Can
Be Borrowed Under Facility
Borrower Funds Agreement and Other Facility
USAA Mutual Fund, Inc. USAA Aggressive Growth 25%
USAA Growth & Income 25
USAA Income Stock 25
USAA Short-Term Bond 25
USAA Money Market 25
USAA Growth 25
USAA Income 25
USAA Investment Trust USAA Cornerstone Strategy 25
USAA Gold 25
USAA International 25
USAA World Growth 25
USAA GNMA Trust 25
USAA Treasury Money Market Trust 25
USAA Emerging Markets 25
USAA Growth and Tax Strategy 25
USAA Growth Strategy 25
USAA Income Strategy 25
USAA Balanced Strategy 25
USAA Tax Exempt Fund, Inc. USAA Long-Term 15
USAA Intermediate-Term 15
USAA Short-Term Bond 15
USAA Tax-Exempt Money Market 15
USAA California Bond 15
USAA California Money Market 15
USAA New York Bond 15
USAA New York Money Market 15
USAA Virginia Bond 15
USAA Virginia Money Market 15
USAA State Tax-Free Trust USAA Florida Tax-Free Income 15
USAA Florida Tax-Free Money Market 15
USAA Texas Tax-Free Income 15
USAA Texas Tax-Free Money Market 15
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $100,000,000 Dated: January 16, 1996
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively
the "Funds") promises to pay to the order of NATIONSBANK OF TEXAS, N.A. (the
"Bank") at the Bank's office located at 901 Main Street, Dallas, Dallas
County, Texas 75202, in lawful money of the United States of America, in
immediately available funds, the principal amount of all Loans made by the
Bank to such Borrower for the benefit of the applicable Funds under the
Facility Agreement Letter dated January 16, 1996 (as amended or modified, the
"Agreement"), among the Borrowers and the Bank, together with interest thereon
at the rate or rates set forth in the Agreement. All payments of interest and
principal outstanding shall be made in accordance with the terms of the
Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
The Bank is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of the Bank to do so or to do so
accurately shall not affect the obligations of any Borrower (or the Fund for
whose benefit it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
The Bank hereby agrees (i) that any claim, liability, or obligation
arising hereunder or under the Agreement whether on account of the principal
of any Loan, interest thereon, or any other amount due hereunder or thereunder
shall be satisfied only from the assets of the specific Fund for whose benefit
a Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of
any other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement) and (ii) that no assets of
any Fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Agreement with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other agents
of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
-----------------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
-----------------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
----------------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
---------------------------------
Michael J.C. Roth
President
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 16, 1996, executed by USAA MUTUAL FUND, INC., USAA INVESTMENT
TRUST, USAA TAX EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST on behalf of
and for the benefit of the series of funds comprising each such Borrower
payable to the order of NATIONSBANK OF TEXAS, N.A.
[Information listed in grid]
Date of Loan
Borrower and Fund
Amount of Loan
Type of Rate and Interest Rate on Date of Borrowing
Amount of Principal Repaid
Date of Repayment
Other Expenses
Notation made by
EXHIBIT B
NATIONSBANK OF TEXAS, N.A.
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX-EXEMPT
FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (for Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288 (for Federal Express, 78240)
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA: X FED FUNDS CHIPS
TO: (PLEASE PLACE BANK NAME, CORESPONDENT NAME (IF APPLICABLE), CHIPS AND/OR
FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
- ----------------------
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA INVESTMENT TRUST
- ---------------------
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA TAX EXEMPT FUND, INC.
- --------------------------
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Bond Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
- -------------------------
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
EXHIBIT C
ADDRESS FOR THE BANK
NationsBank of Texas, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Attention: Greg Venker
Telephone No.: (214) 508-0584
Telecopy No.: (214) 508-0604
EXHIBIT D
OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the duly elected Secretary of USAA
Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA
State Tax-Free Trust and that he is authorized to execute this Certificate on
behalf of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund,
Inc. and USAA State Tax-Free Trust. The undersigned hereby further certifies
to the following:
The following individuals are duly authorized to act on behalf of USAA Mutual
Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA State
Tax-Free Trust, by transmitting telephonic, telex, or telecopy instructions
and other communications with regard to borrowings and payments pursuant to
the Master Revolving Credit Facility Agreement with NationsBank of Texas, N.A.
The signature set opposite the name of each individual below is that
individual's genuine signature.
NAME OFFICE SIGNATURE
Michael J. C. Roth President /s/ Michael J.C. Roth
------------------------
John W. Saunders, Jr. Senior Vice President
Fixed Income Investments /s/ John W. Saunders, Jr.
-------------------------
Harry W. Miller Senior Vice President
Equity Investments /s/ Harry W. Miller
-------------------------
Kenneth E. Willmann Vice President
Fixed Income /s/ Kenneth E. Willmann
--------------------------
David G. Peebles Vice President
Equity Investment /s/ David G. Peebles
--------------------------
Sherron A. Kirk Vice President
Controller /s/ Sherron A. Kirk
--------------------------
Dean R. Pantzar Executive Director
Mutual Fund Accounting /s/ Dean R. Pantzar
---------------------------
IN WITNESS WHEREOF, I have executed the Certificate as of this 16th day of
January, 1996.
/s/ Michael D. Wagner
--------------------------
MICHAEL D. WAGNER
Secretary
I, Michael J. C. Roth, President of USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. and USAA State Tax-Free Trust hereby certify
that Michael D. Wagner is, and has been at all times since a date prior to the
date of this Certificate, the duly elected, qualified, and acting Secretary of
USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and
USAA State Tax-Free Trust and that the signature set forth above is his true
and correct signature.
DATE: January 16, 1996
/s/ Michael J.C. Roth
---------------------------
MICHAEL J. C. ROTH
President
EXHIBIT E
Subordination
NationsBank of Texas, N.A. Agreement
This is an agreement among: Dated: January 16, 1996
Name and Address of Lender (Including County):
NationsBank of Texas, N.A.
901 Main Street
Dallas, Dallas County, Texas 75202
(Lender)
- --------------------------------------
Name and Address of Borrower:
USAA Mutual Fund, Inc.
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, Texas 78288
(Debtor)
- --------------------------------------
Name and Address of Creditor:
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
(Creditor)
- ----------------------------------------
1. Background. Debtor is or may be indebted to Lender pursuant to that
certain Facility Agreement Letter dated January 16, 1996 between Debtor
and Lender ("Senior Facility Agreement"). Debtor also is or may be
indebted to Creditor pursuant to that certain Facility Agreement Letter
dated January 15, 1996 between Debtor and Creditor ("Subordinated
Facility Agreement"). All debt (as hereinafter defined) under the
Senior Facility Agreement is hereinafter referred to as "senior debt"
and all debt (as hereinafter defined) under the Subordinated Facility
Agreement is hereinafter referred to as "subordinated debt".
2. Definition of Debt. The term "debt" as used in the terms "senior debt"
and "subordinated debt" means all debts, obligations and liabilities,
now or hereafter existing, direct or indirect, absolute or contingent,
joint or several, secured or unsecured, due or not due, contractual or
tortious, liquidated or unliquidated, arising by operation of law or
otherwise, irrespective of the person in whose favor such debt may
originally have been created and regardless of the manner in which such
debt has been or may hereafter be acquired by Lender or Creditor, as the
case may be, and includes all costs incurred to obtain, preserve,
perfect or enforce any security interest, lien or mortgage, or to
collect any debt or to maintain, preserve, collect and enforce any
collateral, and interest on such amounts.
3. Subordination of Debt. Until senior debt has been paid in full, Debtor
will not pay and Creditor will not accept any payment on subordinated
debt at any time that an Event of Default (as defined in the Senior
Facility Agreement) has occurred and is continuing in respect of senior
debt. Anything of value received by Creditor on account of subordinated
debt in violation of this agreement will be held by Creditor in trust
and immediately will be turned over to Lender in the form received to be
applied by Lender on senior debt.
4. Remedies of Creditor. Until all senior debt has been paid in full,
without Lender's permission, Creditor will not be a party to any action
or proceeding against any person to recover subordinated debt. Upon
written request of Lender, Creditor will file any claim or proof of
claim or take any other action to collect subordinated debt in any
bankruptcy, receivership, liquidation, reorganization or other
proceeding for relief of debtors or in connection with Debtor's
insolvency, or in liquidation or marshaling of Debtor's assets or
liabilities, or in any probate proceeding, and if any distribution shall
be made to Creditor, Creditor will hold the same in trust for Lender and
immediately pay to Lender, in the form received to be applied on senior
debt, all money or other assets received in any such proceedings on
account of subordinated debt until senior debt shall have been paid in
full. If Creditor shall fail to take an such action when requested by
Lender, Lender may enforce this agreement or as attorney in fact for
Creditor and Debtor may take any such action on Creditor's behalf.
Creditor hereby irrevocably appoints Lender Creditor's attorney in fact
to take any such action that Lender might request Creditor to take
hereunder, and to sue for, compromise, collect and receive all such
money and other assets and take any other action in Lender's own name or
in Creditor's name that Lender shall consider advisable for enforcement
and collection of subordinated debt, and to apply any amounts received
on senior debt.
5. Modifications. At any time and from time to time, without Creditor's
consent or notice to Creditor and without liability to Creditor and
without releasing or impairing any of Lender's rights against Creditor
or any of Creditor's obligations hereunder, Lender may take additional
or other security for senior debt; release, exchange, subordinated or
lose any security for senior debt; release any person obligated on
senior debt, modify, amend or waive compliance with any agreement
relating to senior debt; grant any adjustment, indulgence or forbearance
to, or compromise with, any person liable for senior debt; neglect,
delay, omit, fail or refuse to take or prosecute any action for
collection of any senior debt or to foreclose upon any collateral or
take or prosecute any action on any agreement securing any senior debt.
6. Subordination of Liens. Creditor subordinates and makes inferior to any
security interests, liens or mortgages now or hereafter securing senior
debt all security interests, liens, or mortgages now or hereafter
securing subordinated debt. Any foreclosure against any property
securing senior debt shall foreclose, extinguish and discharge all
security interests, liens and mortgages securing subordinated debt, and
any purchaser at any such foreclosure sale shall take title to the
property so sold free of all security interest, liens and mortgages
securing subordinated debt.
7. Statement of Subordination; Assignment by Creditor; Additional
Instruments. Debtor and Creditor will cause any instrument evidencing
or securing subordinated debt to bear upon its face a statement that
such instrument is subordinated to senior debt as set forth herein and
will take all actions and execute all documents appropriate to carry out
this agreement. Creditor will notify Lender not less than 10 days
before any assignment of any subordinated debt.
8. Assignment by Lender. Lender's rights under this agreement may be
assigned in connection with any assignment or transfer of any senior
debt.
9. Venue. Debtor and Creditor agree that this agreement is performable in
the county of Lender's address set out above.
10. Cumulative Rights; Waivers. This instrument is cumulative of all other
rights and securities of the Lender. No waiver by Lender of any right
hereunder, with respect to a particular payment, shall affect or impair
its rights in any matters thereafter occurring.
11. Successors and Assigns. This instrument is binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and
assigns of each of the parties hereto, but Creditor covenants that it
will not assign subordinated debt, or any part thereof, without making
the rights and interests of the assignee subject in all respects to the
terms of this instrument.
12. Termination. This agreement shall terminate upon the termination of the
Senior Facility Agreement and repayment in full of the senior debt.
(Lender) (Debtor) (Creditor)
NationsBank of Texas, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
By /s/ Greg Venker By /s/ Michael J.C. Roth By /s/ Laurie B. Blank
-------------------- --------------------- --------------------
Its Senior Vice President Its President Its Treasurer
EXHIBIT 10(c)
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
July 26, 1996
USAA Investment Trust
USAA Building
9800 Fredericksburg Road
San Antonio, TX 78288
Ladies and Gentlemen:
We hereby consent to the reference in Post-Effective Amendment No. 23
(the "Amendment") to Registration Statement No. 2-91069 on Form N-1A (the
"Registration Statement") of USAA Investment Trust (the "Trust") of
(i) our opinion with respect to the legality of the shares of the Trust
representing interests in the Income Strategy Fund, Balanced Strategy Fund and
Growth Strategy Fund series of the Trust, which opinion was filed with Post
- -Effective Amendment No. 20 to the Registration Statement, and (ii) our
opinion with respect to the legality of the shares of the Trust 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 Trust, which opinion was
filed with Post-Effective Amendment No. 21 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 Statements 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,
GOODWIN, PROCTER & HOAR LLP
EXHIBIT 11
The Shareholders and Board of Trustees
USAA Investment Trust
We consent to the use of our reports dated July 10, 1996 on the financial
statements of the Income Stragegy 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, separate Funds of the USAA Investment Trust
(the Trust), as of and for the year ended May 31, 1996 included in the Trust's
Annual Reports to Shareholders for the period ended May 31, 1996 incorporated
herein by reference and to the references to our firm under the headings
"Financial Highlights" and "Independent Auditors" as part of Post-Effective
Amendment No. 23 under the Securities Act of 1933, as amended, and Amendment
No. 25 under the Investment Company Act of 1940, as amended, to the Trust's
Registration Statement on Form N-1A.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
San Antonio, Texas
July 30, 1996
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