As filed with the Securities and Exchange Commission on July 31, 1997.
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. 24
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 26
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, 1997 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 25,
1997.
Exhibit Index on Pages 71 - 73
Page 1 of 134
<PAGE>
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 Policies and Risks
Description of Shares
Appendix A
5. Management of the Fund.............. Fund Management
Back Cover Page
6. Capital Stock and Other
Securities....................... Shareholder Information
Description of Shares
7. Purchase of Securities
Being Offered.................... How to Invest
Important Information About Purchases
and Redemptions
Exchanges
Shareholder Information
8. Redemption or Repurchase............ How to Invest
Important Information About Purchases
and Redemptions
Exchanges
9. Legal Proceedings................... Not Applicable
<PAGE>
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
Conditions of Purchase and Redemption
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
<PAGE>
Part A
Prospectus for the
Growth and Tax Strategy Fund
is included herein
Not included in this Post-Effective Amendment
are the Prospectuses for the Income Strategy, Balanced Strategy,
Cornerstone Strategy, Growth Strategy, Emerging Markets,
Gold, International, and World Growth Funds,
GNMA Trust and Treasury Money Market Trust
<PAGE>
Part A
Prospectus for the
Growth and Tax Strategy Fund
is included herein
<PAGE>
PROSPECTUS
OCTOBER 1, 1997
USAA EAGLE LOGO
USAA
GROWTH AND TAX
STRATEGY FUND
Shares of this 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, are subject to investment risks, and may lose value.
AS WITH OTHER MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR HAS THE SEC
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE FUND IS A NO-LOAD MUTUAL FUND OFFERED BY USAA INVESTMENT MANAGEMENT COMPANY.
USING A TAX-ADVANTAGED ASSET ALLOCATION STRATEGY, USAA INVESTS THE FUND'S ASSETS
IN BONDS THAT PRODUCE INCOME, THE MAJORITY OF WHICH IS EXEMPT FROM FEDERAL
INCOME TAX, AND STOCKS THAT PROVIDE THE POTENTIAL FOR LONG-TERM GROWTH OF
CAPITAL. USAA MANAGES THE FUND WITH THE GOAL OF MINIMIZING THE IMPACT OF FEDERAL
INCOME TAXES TO SHAREHOLDERS.
TABLE OF CONTENTS
Who Manages the Fund?............................................ 2
What is the Investment Objective?................................ 2
Will the Value of Your Investment Fluctuate?..................... 2
Is This Fund for You?............................................ 3
How Do You Buy?.................................................. 3
Fees and Expenses................................................ 4
Performance Information.......................................... 5
Financial Highlights............................................. 5
A Word About Risk................................................ 5
Investment Policies and Risks.................................... 6
Fund Management.................................................. 12
Using Mutual Funds in an Asset Allocation Program................ 13
How to Invest ................................................... 15
Important Information About Purchases and Redemptions............ 18
Exchanges........................................................ 18
Shareholder Information.......................................... 19
Description of Shares............................................ 21
Appendix A....................................................... 22
USAA Family of No-Load Mutual Funds.............................. 24
<PAGE>
This Prospectus provides you with information you should know before you invest
in the Fund. Please read it and keep it for future reference.
WHO MANAGES THE FUND?
USAA Investment Management Company manages the Fund. For easier reading,
USAA Investment Management Company will be referred to as "we" throughout
the Prospectus.
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. We will use an asset allocation strategy to achieve the
Fund's objective. See INVESTMENT POLICIES AND RISKS on page 6 for more
information.
WILL THE VALUE OF YOUR INVESTMENT FLUCTUATE?
Yes, it will. The value of your investment could increase or decrease. The
bar chart and table shown below illustrate the Growth and Tax Strategy
Fund's risks and performance by showing changes in the Fund's performance
from year to year over the life of the Fund and by showing how the Fund's
average annual returns for one and five years and the life of the Fund
compare to those of a broad-based securities market index. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
BAR GRAPH SHOWING TOTAL RETURN FOR CALENDAR YEARS 1989-1996
1989 16.18%
1990 1.36%
1991 14.68%
1992 4.93%
1993 13.73%
1994 -2.62%
1995 22.70%
1996 11.12%
o TOTAL RETURN
MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS OF CAPITAL GAINS.
2
<PAGE>
================================================================================
Average Annual Total Returns
(for the periods ending Since inception on
December 31, 1996) Past One Year Past 5 Years January 11, 1989
- --------------------------------------------------------------------------------
Growth and Tax Strategy Fund 11.12% 9.64% 9.97%
Lehman Brothers Municipal 4.43% 7.28% 8.12%
Bond Index
================================================================================
The Lehman Brothers Municipal Bond Index is an unmanaged benchmark of
total return performance for the long-term, investment-grade,
tax-exempt bond market.
IS THIS FUND FOR YOU?
This fund might be appropriate as part of your investment portfolio if . . .
X You are seeking a fund with both tax relief and inflation hedging
characteristics.
X You may need your money back within five to seven years or longer.
X You are willing to accept moderate risk.
This fund may NOT be appropriate as part of your investment portfolio if . .
X You need an investment that provides only tax free income.
X You are seeking an appropriate investment for an IRA, through a 401(k)
plan or 403(b) plan, or other tax-sheltered account.
X You may need your money back within a short period of time.
X You are unwilling to take some exposure to the stock market.
If you feel this fund is not the one for you, refer to page 24 for a
complete list of the USAA Family of No-Load Mutual Funds.
HOW DO YOU BUY?
You may make your initial investment directly by mail, in person or, in
certain instances, by telephone. The minimum initial investment is $3,000
and can be made by check or by wire. There is more information about how to
purchase Fund shares on page 15.
3
<PAGE>
FEES AND EXPENSES
This summary provides information to assist you in understanding the
expenses you will pay directly or indirectly to invest in the Fund.
Shareholder Transaction Expenses -- Fees You Pay Directly
There are no fees charged to your account when you buy, sell, or hold Fund
shares. However, if you sell shares and request your money by wire
transfer, you will pay a $10 fee. (Your bank may also charge a fee for
receiving wires.)
Annual Fund Operating Expenses -- Fees You Pay Indirectly
Unlike shareholder transaction charges, the Fund's expenses are not charged
directly to your account, but instead are paid out of the Fund's assets and
are reflected in the Fund's share price and dividends. The figures below
show actual expenses incurred during the past fiscal year ended May 31,
1997, and are calculated as a percentage of average net assets.
Management Fees .50%
12b-1 Fees None
Other Expenses .24%
---
Total Fund Operating Expenses .74%
===
o 12B-1 FEES SOME MUTUAL FUNDS CHARGE THESE FEES TO PAY FOR THE COSTS OF
SELLING FUND SHARES.
Example of Effect of Fund Operating 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............................................. 24
5 years............................................. 41
10 years............................................ 92
THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
PERFORMANCE INFORMATION
(Tel)
TouchLINE(R)
1-800-531-8777
PRESS
(1)
THEN
(1)
THEN
(5) (3) (#)
Please consider performance information in light of the Fund's investment
objective and policies and market conditions during the reported time periods.
Remember, historical performance may not be repeated in the future. The value of
your shares may go up or down. For the most current price, yield, and return
information for this Fund, you may call TouchLINE(R) at 1-800-531-8777. Press 1
for the Mutual Fund Menu, press 1 again for prices, yields, and returns. Then,
press 53 followed by the pound sign when asked for a Fund Code.
You may see the Fund's yield or total return quoted in advertisements and
reports. Yield is the annualized net income of the Fund during a specified
30-day period as a percentage of the Fund's share price. All mutual funds must
use the same formulas to calculate yield and total return. You may also see a
comparison of the Fund's performance to that of other mutual funds with similar
investment objectives.
For the following periods ended May 31, 1997, the Fund's average annual
total returns have been:
1 year.............................................. 14.21%
3 years............................................. 13.17%
5 years............................................. 10.89%
Since Inception (1/11/89)........................... 10.29%
Figures on page 3 are different because they are for periods which ended on
December 31, 1996.
FINANCIAL HIGHLIGHTS
Please read the Fund's Annual Report furnished with and incorporated by
reference into this Prospectus for financial information including the
Fund's financial statements audited by KPMG Peat Marwick LLP. The Annual
Report includes messages from the President and the Fund's portfolio
managers, a listing of the Fund's investments, and additional performance
information you may wish to review.
A WORD ABOUT RISK
Portions of this Prospectus describe the risks you will face as an investor
in the Fund. Keep in mind that generally investments with a higher
potential reward are accompanied by a higher risk of losing money. The
reverse is also generally true: the lower the potential reward, the lower
the risk. However, as you consider an investment in the Fund, you should
also take into account your tolerance for the daily fluctuations of the
stock and bond markets and whether you can afford to leave your money in
this investment for long periods of time to ride out down periods.
5
<PAGE>
[CAUTION LIGHT]
Look for this symbol throughout the Prospectus. We use it to mark detailed
information about the main risks that you will face as a shareholder of the
Fund.
INVESTMENT POLICIES AND RISKS
Asset Allocation Strategy
Q How do we pursue the Fund's investment objective?
A The Fund provides a professionally managed, diversified investment
program within one mutual fund. We pursue the Fund's objective by
allocating its assets in each of the following investment categories
according to the following targeted ranges. Securities are classified
by category at the time of purchase.
Investment Category
(medium color) Tax-Exempt Bonds
(dark color) Blue Chip Stocks
(light color) Tax-Exempt Money Market
Instruments (Maturities of one
year or less)
Percentage Target Range of Net Assets
[PIE CHART]
(medium color) 41-59%
(dark color) 41-49%
(light color) 0-10%
The ranges allow for a variance within each investment category. The Board
of Trustees may revise the target ranges upon 60 days' prior written notice
to shareholders. However, we reserve the right to revise the ranges on a
temporary defensive basis without shareholder notification whenever we
believe such changes to be in the best interest of the Fund and its
shareholders.
Q Why do we mix stocks and bonds in the same Fund?
A From time to time, the stock and bond markets may fluctuate
independently of each other. In other words, a decline in the stock
market may in certain instances be offset by a rise in the bond
market, or vice versa. As a result, the Fund, with its mix of equity
securities and bonds, is expected in the long run to entail less
market risk (and potentially less return) than a mutual fund
investing exclusively in equity securities.
6
<PAGE>
Q What actions do we take to keep the Fund's asset allocations within
the target ranges?
A If market action causes the actual assets of the Fund in one or more
investment categories to move outside the ranges, we will make
adjustments to rebalance the portfolio. In general, we will rebalance
the portfolio at least once during each quarter. In rebalancing the
Fund's portfolio, we will buy or sell securities to return the actual
allocation of the Fund's assets to within its target ranges. For
example, the Fund's portfolio could begin a quarter with its assets
allocated 50% in the Tax-Exempt Bonds category, 45% in the Blue Chip
Stocks category, and 5% in the Tax-Exempt Money Market Instruments
category. During the quarter, a strong stock market coupled with a
weak bond market could leave the portfolio with 40% in the Tax-Exempt
Bonds category, 55% in the Blue Chip Stocks category, and 5% in the
Tax-Exempt Money Market Instruments category. In this case we would
sell blue chip stocks and use the proceeds to buy tax-exempt
securities in order to bring the blue chip stocks back to within the
41-49% target range.
[CAUTION LIGHT]
REBALANCING RISKS. In purchasing and selling securities in order to
rebalance its portfolio, the Fund will pay more in brokerage commissions
than it would without a rebalancing policy. As a result of the need to
rebalance, the Fund also has less flexibility in the timing of purchases and
sales of securities than it would otherwise. Although we intend to manage
the Fund in a tax-advantaged manner, the Fund may have a higher proportion
of capital gains and a lower return than a fund that does not have a
rebalancing policy.
Q How did we select the investment categories and target ranges?
A We have specifically selected the investment categories and the target
ranges to provide investors with a diversified investment in a single
mutual fund. Tax-exempt bonds provide income exempt from federal
income tax. Tax-exempt money market instruments provide a means for
temporary investment of cash balances arising in the normal course of
business. Blue chip stocks provide the potential for 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.
TAX-EXEMPT BONDS AND TAX-EXEMPT MONEY MARKET INSTRUMENTS
Q What kind of municipal obligations are included in the portfolio?
A Typical issuers of municipal obligations may include cities and
counties, municipally-owned utilities, school districts, colleges
and universities, and hospitals.
7
<PAGE>
GENERAL OBLIGATION BONDS
Secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest.
REVENUE BONDS
Payable from the revenue derived from a particular facility or class
of facilities or, in some cases, from proceeds of a special excise
tax or other specific revenue source, but not from the general taxing
power.
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.
Q What tax-exempt bonds are included in the portfolio?
A The Tax-Exempt Bonds category includes municipal obligations which
will have a remaining maturity at the time of purchase in excess of
one year. Although the average portfolio maturity of the securities
in this category is not restricted, we expect it to exceed ten years.
In determining a security's maturity for purposes of calculating the
Fund's average maturity, we may use estimates of the expected time
for its principal to be paid. This can be substantially shorter than
its stated final maturity.
[CAUTION LIGHT]
INTEREST RATE RISK. As a mutual fund investing in bonds, the Fund is
subject to the risk (sometimes called "interest rate risk") that the
market value of the bonds will decline due to rising interest rates.
Bond prices are linked to the prevailing market interest rates. In
general, when interest rates rise, the prices of bonds fall and when
interest rates fall, bond prices generally rise. The price volatility
of a bond also depends on its maturity. Generally, the longer the
maturity of a bond, the greater its sensitivity to interest rates. To
compensate investors for this higher risk, bonds with longer maturity
generally offer higher yields than bonds with shorter maturity.
Q What tax-exempt money market instruments are included in the
portfolio?
A The tax-exempt money market instruments in the portfolio consist of
high-quality, tax-exempt debt securities of the type included in the
Tax-Exempt Bonds category. All tax-exempt money market instruments
have remaining stated maturities at the time of purchase of one year
or less or are subject to puts or similar demand features that result
in an effective maturity of one year or less.
8
<PAGE>
Q What are the credit ratings of these securities?
A At least 50% of the combined total market values of the tax-exempt
bonds and tax-exempt money market instruments will be rated within the
three highest long-term rating categories by:
* Moody's Investors Service, Inc. (Moody's),
* Standard & Poor's Ratings Group (S&P), or
* Fitch Investors Service, Inc. (Fitch)
or in the highest short-term rating category by:
* Moody's,
* S&P, or
* Fitch
or . . . if unrated by those three agencies, we must determine that
these securities are of equivalent investment quality.
However, we will only purchase tax-exempt securities that are
considered investment grade. For a security to be considered
investment grade, it must be:
* rated by one or more rating agencies at least in the fourth
highest rating category for long-term securities;
* rated by one or more rating agencies at least within the second
highest rating category for short-term securities;
* or, if not rated by those rating agencies, determined by us to be
of equivalent investment quality.
[CAUTION LIGHT]
CREDIT RISK. The bonds in the Fund's portfolio are subject to credit risk.
Credit risk is the possibility that an issuer of a bond will fail to make
timely payments of interest or principal. We believe that the credit risk of
the Fund is minimized by the fact that all of the tax-exempt securities in
the Fund's portfolio must be considered investment grade at the time of
purchase. In addition, our analysts evaluate the credit risks and its impact
on portfolio securities in which the Fund may invest. Nevertheless, even
investment-grade tax-exempt securities are subject to some credit risk.
Bonds in the lowest-rated investment grade category have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to a weakened capability to make principal and interest
payments on these bonds than is the case for higher-rated bonds. In
addition, the ratings of securities are estimates by the rating agencies of
the credit quality of the securities. The ratings do not take into account
certain other risks or guarantees that interest or principal will be repaid
on a timely basis.
9
<PAGE>
Q What happens if the rating of a security is downgraded?
A If the rating of a security is downgraded, we will determine whether
it is in the best interest of the Fund's shareholders to continue to
hold the security in the Fund's portfolio. If downgrades result in
more than 5% of the Fund's net assets being invested in securities
that are less than investment-grade quality, we will take immediate
action to reduce the Fund's holdings in such securities to 5% or less
of the Fund's net assets, unless otherwise directed by the Board of
Trustees.
Q May the Fund hold any taxable debt securities?
A We may, on a temporary basis due to market or other conditions, invest
the Fund's assets without limitation in money market instruments which
are subject to 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; banker's
acceptances; commercial paper; and other corporate debt obligations.
Q How do we intend to minimize the impact of federal income taxes on
the Fund's shareholders?
A We intend to use various techniques to minimize the impact of federal
income taxes on the Fund's shareholders while maximizing capital
appreciation, including:
* investing in bonds and similar instruments that provide income
which is exempt from federal income tax;
* investing in blue chip stocks with low dividend yields;
* selecting blue chip stocks that we expect to hold for relatively
long periods to minimize the cost of trading and the receipt of
capital gains;
* when selling blue chip stocks, considering the sale of stocks
with the highest tax cost basis to minimize the receipt of
capital gains; and
* offsetting capital gains with capital losses, if available and
appropriate.
[CAUTION LIGHT]
TAXABLE INCOME. Although the Fund seeks to minimize taxable income and the
realization of capital gains, the Fund may nevertheless receive taxable
income and capital gains from time to time. Additionally, shareholders may
owe taxes on capital gains realized, if any, upon redemption of Fund shares.
[CAUTION LIGHT]
CHANGES IN LAWS. Actual or anticipated changes in federal tax laws that
restrict or eliminate the tax-exempt status of securities of the type held
by the Fund could result in increased price volatility of these securities.
These changes in law could also reduce the tax-exempt securities available
for investment by the Fund. Changes in law affecting the taxing and spending
authority of a municipality that issued a tax-exempt
10
<PAGE>
security held by the Fund could affect the ability of the municipality to
make payments of principal and interest on the security.
BLUE CHIP STOCKS
We will invest 41-49% of the Fund's assets in equity securities (common or
preferred stocks) or securities convertible into equity securities for
long-term growth.
Q What are the characteristics of the equity securities in this
category?
A A blue chip stock is an equity security of a company that has a market
capitalization of:
* at least $500 million and is included in the list of companies
that make up the Standard & Poor's 500 Composite Stock Price
Index or the Dow Jones Industrial Average; or
* at least $1 billion.
We may invest up to 5% of the Fund's total assets in blue chip stocks of
foreign issuers or in American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), or similar forms of ownership interest in
securities of foreign issuers that are traded on U.S. securities exchanges
or in U.S. over-the-counter markets.
[CAUTION LIGHT]
MARKET RISK. Because this Fund invests in equity securities, it is subject
to market risk. Stock prices in general may decline over short or even
extended periods, regardless of the success or failure of individual
companies' operations. The stock market tends to run in cycles, with
periods when stock prices generally go up and periods when stock prices
generally go down. Equity securities tend to go up and down more than
bonds.
For additional information about other investments in which we may invest
the Fund's assets, see Appendix A on page 22.
Investment Restrictions
The following restrictions may only be changed with shareholder approval:
* The Fund may not invest more than 25% of its total assets in one
industry.
* The Fund may not invest more than 5% of its total assets in any one
issuer or own more than 10% of the outstanding voting securities of any
one issuer. This limitation does not apply to U.S. Government
securities, and only applies to 75% of the Fund's total assets.
* The Fund may borrow only for temporary or emergency purposes in an
amount not exceeding 33 1/3% of its total assets.
You will find a complete listing of the precise investment restrictions in
the Fund's Statement of Additional Information (SAI).
11
<PAGE>
FUND MANAGEMENT
The Board of Trustees of USAA Investment Trust (Trust) of which the Fund is
a series, supervises the business affairs of the Trust. The Trust has
retained us, USAA Investment Management Company, to serve as the manager
and distributor of the Trust.
We are an affiliate of United Services Automobile Association (USAA), a
large, diversified financial services institution. As of the date of this
Prospectus, we had approximately $___ billion in total assets under
management. Our mailing address is 9800 Fredericksburg Rd., San Antonio, TX
78288.
We provide management services to the Fund. We are responsible for managing
the Fund's portfolio (including placement of brokerage orders) and its
business affairs, subject to the authority of and supervision by the Board
of Trustees. For our services, the Fund pays us an annual fee. The fee,
one-half of one percent (.50%) of average net asets for the fiscal year
ended May 31, 1997, is accrued daily and paid monthly.
We also provide distribution services to the Fund and receive no
compensation for those services.
Although our officers and employees, as well as those of the Trust, may
engage in personal securities transactions, they are restricted by the
procedures in a Joint Code of Ethics adopted by the Trust and us.
Portfolio Transactions
USAA Brokerage Services, our discount brokerage service, may execute
purchases and sales of equity securities for the Fund's portfolio. 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 28 years investment management experience
and has worked for us for 27 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.
[PICTURE]
John W. Saunders, Jr.
Asset Allocation Manager
12
<PAGE>
[PICTURE]
Harry W. Miller
Blue Chip Stocks
Harry W. Miller, Senior Vice President of Equity Investments since October
1987, has been a co-manager of the Fund since February 1995 and currently
manages the Blue Chip Stocks category. Mr. Miller has 40 years of
experience in investment management and has worked for us for 23 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 University, New Jersey.
Kenneth E. Willmann, Vice President of Fixed Income Investments since
December 1986, has been a co-manager of the Fund since January 1989 and
currently manages the Tax-Exempt Bonds and Tax-Exempt Money Market
Instruments categories. He has 23 years investment management experience
and has worked for us for 20 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.
[PICTURE]
Kenneth E. Willmann
Tax-Exempt Bonds and Tax-
Exempt Money Market Instruments
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. From these observations
comes the idea of asset allocation.
13
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Asset allocation is a 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. Even though we do
not charge sales loads or commissions, our sales representatives are always
available to assist you in structuring and reviewing your investment
portfolio.
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 our investment
philosophy for investors, specifically "buy and hold for the long-term,"
and "don't try to time the market." As shown on the next page, each of
USAA's Asset Strategy Funds has its own different mix of assets and
objectives.
14
<PAGE>
================================================================================
Fund Investment Objective Invests In
- --------------------------------------------------------------------------------
Income Seek high current return, with reduced Bonds and stocks
Strategy Fund risk over time, through an asset
allocation strategy which emphasizes
income and gives secondary emphasis to
long-term growth of capital.
- --------------------------------------------------------------------------------
Growth and Tax Seek a conservative balance between Tax-exempt bonds,
Strategy Fund income, the majority of which is and blue chip
tax-exempt, and the potential for stocks
long-term growth of capital to preserve
purchasing power.
- --------------------------------------------------------------------------------
Balanced Seek high total return, with reduced Stocks and bonds
Strategy Fund risk over time, through an asset
allocation strategy that seeks a
combination of long-term growth of
capital and current income.
- --------------------------------------------------------------------------------
Cornerstone Achieve a positive inflation-adjusted Foreign & basic
Strategy Fund rate of return and a reasonably stable value stocks,
value of Fund shares. government
securities, real
estate stocks and
gold stocks
- --------------------------------------------------------------------------------
Growth Seek high total return, with reduced Small & large cap
Strategy Fund risk over time, through an asset stocks, bonds,
allocation strategy which emphasizes and international
capital appreciation and gives secondary stocks
emphasis to income.
================================================================================
For more complete information about the other USAA Asset Strategy Funds,
including charges and expenses, call us for a Prospectus. Read it carefully
before you invest or send money.
HOW TO INVEST
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment as described below by mail,
bank wire, electronic funds transfer (EFT), phone or in person. A complete,
signed application is required for each new account.
TAX ID NUMBER
Each shareholder named on the account must provide a social security number
or tax identification number to avoid possible withholding requirements.
15
<PAGE>
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 as described below. The Fund's NAV is determined at the close
of the regular trading session (generally 4:00 p.m. Eastern Time) of the
NYSE each day 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 NAV per share is
calculated, the purchase will be effective on the next business day. If you
plan to purchase Fund shares with a foreign check, we suggest you convert
your foreign check to U.S. dollars prior to investment in the Fund to avoid
a potential delay in the effectiveness of your purchase of up to four to
six weeks. Furthermore, a bank charge may be assessed in the clearing
process, which will be deducted from the amount of the purchase.
MINIMUM INVESTMENTS
INITIAL PURCHASE $3,000 or if you elect to have monthly
electronic investments of at least $50 each, only
$100 is required to open an account. Employees of
USAA, its affiliates, or subsidiaries may open an
account through payroll deduction for as little as
$25 per pay period with no initial investment.
ADDITIONAL PURCHASES $50
NOTE: This fund is not available for an IRA because the majority of its
income is tax-exempt.
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
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
BANK * Instruct your bank (which may charge a fee
WIRE 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________________
16
<PAGE>
ELECTRONIC * Additional purchases on a regular basis can be
FUNDS deducted from a bank account, paycheck, income-
TRANSFER producing investment or from a USAA money market
fund account. Sign up for these services when
opening an account or call 1-800-531-8448 to add
these services.
PHONE * If you have an existing USAA account and would like
1-800-531-8448 to open a new account or if you would like to
exchange to another USAA fund, call for
instructions. To open an account by phone, the new
account must have the same registration as your
existing account.
REDEMPTION OF SHARES
You may redeem Fund shares by any of the methods described below on any day
the NAV per share is calculated. Redemptions will be effective on the day
instructions are received in a manner as described below. However, if
instructions are received after the NAV per share calculation (generally
4:00 p.m. Eastern Time), redemption will be effective on the next business
day.
Within seven days after the effective date of redemption, we will send you
your money. Payment for redemption of shares purchased by EFT or check will
not be disbursed until the EFT or check 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 in limited circumstances.
HOW TO REDEEM
WRITTEN, FAX * Send your written instructions to:
TELEGRAPH, OR USAA Shareholder Account Services
TELEPHONE 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 1-800-292-8177, or send a
telegraph to USAA Shareholder Account Services.
* Call toll free 1-800-531-8448, in San Antonio,
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. Before any discussion regarding your account, we obtain the
following information: (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, we record
all telephone communications with you and send confirmations of account
transactions to the address of record. Redemption by telephone, fax, or
telegraph is not available for shares represented by stock certificates.
17
<PAGE>
IMPORTANT INFORMATION ABOUT PURCHASES AND REDEMPTIONS
Investor's Guide to USAA Mutual Fund Services
Upon your initial investment with us, you will receive the INVESTOR'S GUIDE
to help you get the most out of your USAA mutual fund account and to help
you in your role as an investor. In the INVESTOR'S GUIDE, you will find
additional purchase information as well as more information on redemption
of shares and methods of payment. You will also find in-depth information
on automatic investment plans, shareholder statements and reports, and
other useful information.
Account Balance
Beginning in September 1998, and occurring each September thereafter, USAA
Shareholder Account Services (SAS), the Fund's 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
reduce total transfer agency fees paid by the Fund to SAS. 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/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:
* reject purchase or exchange orders when in the best interest of the
Trust;
* limit or discontinue the offering of shares of any portfolio of the
Trust without notice to the shareholders;
* 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 SAI contains information on
acceptable guarantors;
* redeem an account with less than $900, with certain limitations.
EXCHANGES
Exchange Privilege
The exchange privilege is automatic 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. The Fund's transfer
agent will simultaneously process exchange redemptions and purchases 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,
and as such, you may realize a capital gain or loss.
The Fund has undertaken certain procedures regarding telephone
transactions as described on page 17.
18
<PAGE>
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. The limit
on exchanges out of any Fund in the USAA Family of Funds for each account
is 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).
SHAREHOLDER INFORMATION
Share Price Calculation
The price at which shareholders purchase and redeem fund shares is equal to
the net asset value (NAV) per share determined on the effective date of
the purchase or redemption.
When
The Fund's NAV per share 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.
Dividends and Distributions
The Fund pays net investment income dividends quarterly. Any net capital
gains distribution usually occurs within 45 days of the May 31 fiscal year
end which would be somewhere around the middle of July. The Fund will make
additional payments to shareholders, if necessary, to avoid the imposition
of any federal income or excise tax.
All income dividends and capital gain distributions are automatically
reinvested, unless we receive different instructions from you. The share
price will be the NAV of the Fund shares computed on the ex-dividend date
which is two business days before the quarter end. Any income dividends or
capital gain distributions paid by the Fund will reduce the NAV per share
by the amount of the dividend or distribution. These dividends and
distributions are subject to taxes.
We will invest any dividend or distribution payment returned to us in your
account at the then-current NAV per share. Dividend and distribution checks
become void six months from the date on the check. The amount of the voided
check will be invested in your account at the then-current NAV per share.
Federal Taxes
This tax information is quite general and refers to the federal income tax
provisions in effect as of the date of this Prospectus. We urge you to
consult your own tax adviser about the status of distributions from the
Fund in your own state and locality.
19
<PAGE>
FUND - The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, referred to
as the Code. In compliance with the Code, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to shareholders. Net capital gains are those gains in excess
of capital losses.
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.
Regardless of the length of time the investor has held the Fund shares,
distributions of net long-term capital gains are taxable as long-term
capital gains whether received in cash or reinvested in additional shares.
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.
IN CERTAIN INSTANCES TAX-EXEMPT INTEREST HAS TAX IMPLICATIONS.
Although otherwise exempt from federal tax, tax-exempt interest from
private activity bonds (for example, industrial development revenue bonds)
issued after August 7, 1986, 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 considered in computing the portion,
if any, of Social Security and railroad retirement benefits subject to
federal and, in some cases, state taxes.
WITHHOLDING - Federal law requires the Fund 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,
* underreports dividend or interest income,
* 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 Fund's transfer
agent, that your tax identification number is correct and that you are not
currently subject to backup withholding.
20
<PAGE>
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 including:
* the portion of the dividends constituting interest on private activity
bonds;
* the percentage and source, on a state-by-state basis, of interest income
earned on the tax-exempt securities, if any, held by the Fund during the
preceding year.
DESCRIPTION OF SHARES
The Fund is a series of USAA Investment Trust (Trust) and is diversified.
The Trust is an open-end management investment company established as a
business trust under the laws of the Commonwealth of Massachusetts. The
Trust is authorized to issue an unlimited number of shares of beneficial
interest of separate portfolios, each of which is commonly referred to as a
mutual fund. There are 11 mutual funds in the Trust, including the Growth
and Tax Strategy Fund.
The Trust does not hold annual or regular meetings of shareholders and
holds special meetings only as required by the Investment Company Act of
1940. The Trustees may fill vacancies on the Board or appoint new Trustees
if the result is that at least two-thirds of the Trustees have still been
elected by shareholders. Shareholders have one vote per share (with
proportionate voting for fractional shares) regardless of the relative net
asset value of the shares. If a matter affects an individual fund in the
Trust, there will be a separate vote of the shareholders of that specific
fund. Shareholders collectively holding at least 10% of the outstanding
shares of the Trust may request a shareholder meeting at any time for the
purpose of voting to remove one or more of the Trustees. The Trust will
assist communicating to other shareholders about the meeting.
21
<PAGE>
APPENDIX A
The following are descriptions of certain types of securities in which we may
invest the Fund's assets:
WHEN-ISSUED SECURITIES
We may invest in new issues of debt securities offered on a when-issued basis.
* 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.
VARIABLE RATE SECURITIES
We 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 value of variable rate securities is less affected than fixed-coupon
securities 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 a variable rate security usually tends toward par (100%
of face value) at interest rate adjustment time.
PUT BONDS
We 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
We 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.
22
<PAGE>
MUNICIPAL LEASE OBLIGATIONS
We may invest in a variety of instruments commonly referred to as municipal
lease obligations, including:
* Leases
* Installment purchase contracts
* Certificates of participation in such leases and contracts
ILLIQUID SECURITIES
We may not invest more than 15% of the market value of the Fund's net assets in
securities which are illiquid. Illiquid securities are those securities that
cannot be disposed of in the ordinary course of business in seven days or less
at approximately the value at which the Fund has valued the securities.
23
<PAGE>
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 you with the opportunity to formulate your 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
other Funds in the USAA Family of Funds, including charges and expenses,
call us for a Prospectus. Read it carefully before you invest or send
money.
FUND
TYPE/NAME VOLATILITY
===================================================================
CAPITAL APPRECIATION
Aggressive Growth Very high
Emerging Markets 5 Very high
First Start Growth Moderate to high
Gold 5 Very high
Growth Moderate to high
Growth & Income Moderate
International 5 Moderate to high
S&P 500 Index 1 Moderate
Science & Technology Very high
World Growth 5 Moderate to high
ASSET ALLOCTION
Balanced Strategy Moderate
Cornerstone Strategy 5 Moderate
Growth and Tax Strategy 2 Moderate
Growth Strategy 5 Moderate to high
Income Strategy Low to moderate
INCOME--TAXABLE
GNMA Low to moderate
Income Moderate
Income Stock Moderate
Short-Term Bond Low
INCOME--TAX EXEMPT
Long-Term 2 Moderate
Intermediate-Term 2 Low to moderate
Short-Term 2 Low
State Bond/Income 2, 3 Moderate
MONEY MARKET
Money Market 4 Very low
Tax Exempt Money Market 2, 4 Very low
Treasury Money Market Trust 4 Very low
State Money Market 2, 3, 4 Very low
===================================================================
1 S&P(R)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.
2 SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES.
3 CALIFORNIA, FLORIDA, NEW YORK, TEXAS, AND VIRGINIA FUNDS ARE OFFERED ONLY TO
RESIDENTS OF THOSE STATES.
4 AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
5 FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
24
NOTES
25
<PAGE>
NOTES
26
<PAGE>
NOTES
27
<PAGE>
If you would like more information about the Fund, you may call 1-800-531-8181
to request a free copy of the Fund's Statement of Additional Information (SAI),
dated October 1, 1997, or the Fund's Annual Report for the year ended May 31,
1997. The SAI and the financial statements contained with the Fund's Annual
Report have been filed with the Securities and Exchange Commission and are
incorporated by reference into this Prospectus (meaning it is legally a part of
the Prospectus).
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
-----------------------------
Transfer Agent
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
-----------------------------
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
--------------------------
Telephone Assistance
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
For Additional Information on Mutual Funds
1-800-531-8181, (in San Antonio) 456-7211
For account servicing, exchanges or redemptions
1-800-531-8448, (in San Antonio) 456-7202
Recorded Mutual Fund Price Quotes
24-Hour Service (from any phone)
1-800-531-8066, (in San Antonio) 498-8066
Mutual Fund TouchLINE(R)
(from Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777, (in San Antonio) 498-8777
[USAA EAGLE LOGO]
USAA INVESTMENT MANAGEMENT COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS
78288
(recycled)
30238-0897 (C) 1997, USAA. All rights reserved. RECYCLED PAPER
<PAGE>
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
<PAGE>
[USAA EAGLE LOGO]
USAA STATEMENT OF
INVESTMENT ADDITIONAL INFORMATION
TRUST October 1, 1997
- --------------------------------------------------------------------------------
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 diversified 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, 1997,
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 Conditions of Purchase and Redemption
3 Additional Information Regarding Redemption of Shares
4 Investment Plans
5 Investment Policies
8 Special Risk Considerations
8 Investment Restrictions
10 Portfolio Transactions
13 Further Description of Shares
14 Tax Considerations
15 Trustees and Officers of the Trust
18 The Trust's Manager
19 General Information
20 Calculation of Performance Data
21 Appendix A - Long-Term and Short-Term Debt Ratings
24 Appendix B - Comparison of Portfolio Performance
27 Appendix C - Dollar-Cost Averaging
<PAGE>
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, Martin Luther King Jr. 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 average
of the bid and asked prices 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,
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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.
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 USAA Shareholder Account Services (Transfer Agent). The account must be
clearly identified, and you 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.
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, the Trust may
require a signature guarantee. 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. 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.
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When a check is presented to USAA Shareholder Account Services (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.
The Transfer Agent will return to the shareholder checks paid during the
month 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. 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(R) - a low initial investment purchase plan. With this plan the
regular minimum initial investment amount is waived if you make an initial
investment as low as $100 with subsequent monthly additions of at least $50
through electronic funds transfer from a checking or savings account.
INVESTRONIC(R) - the regular purchase of additional shares through electronic
funds transfer from a checking or savings account. You may invest as little as
$50 per month.
DIRECT PURCHASE SERVICE - the periodic purchase of shares through electronic
funds transfer from an employer (including government allotments), 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. The Manager will bear
any additional expenses of administering the plan.
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
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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. USAA Federal Savings 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 (INVESTMENT POLICIES AND RISKS in the Growth and Tax Strategy Fund
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
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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
judgment 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
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(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.
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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, see APPENDIX A. 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.
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.
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(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
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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.
(7) Purchase or sell commodities, except that the Fund may invest in financial
futures contracts, options thereon, and similar instruments.
(8) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, except that the Fund may invest in
securities or other instruments backed by real estate or securities of
companies that deal in real estate or are engaged in the real estate
business.
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.
(7) Purchase or sell commodities, except that each Fund may invest in
financial futures contracts, options thereon, and similar instruments.
(8) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, except that each Fund may invest in
securities or other instruments backed by real estate or securities of
companies that deal in real estate or are engaged in the real estate
business.
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. The Manager classifies municipal obligations by
projects with similar characteristics, such as toll road revenue bonds, housing
revenue 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.
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ADDITIONAL RESTRICTION
The following restriction is not considered to be a fundamental policy of the
Funds. The Trust's Board of Trustees may change this additional restriction
without notice to or approval by the shareholders.
Under the additional restriction, each of the Funds may not:
(1) 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.
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BROKERAGE COMMISSION
During the last three fiscal years, the Funds paid the following brokerage fees:
FUND 1995 1996 1997
---- ------------ ------------ -----------
Income Strategy - $ 3,434* $ 2,820
Growth and Tax Strategy $ 30,774 $ 58,596 $ 81,456
Balanced Strategy - $ 16,908* $ 13,006
Cornerstone Strategy $1,278,398 $1,560,138 $1,428,772
Growth Strategy - $ 104,911* $ 230,440
Emerging Markets $ 140,877** $ 394,696 $ 484,792
Gold $ 299,874 $ 224,458 $ 225,284
International $1,422,707 $1,551,078 $ 647,327
World Growth $ 599,043 $ 709,486 $ 558,990
- ---------------------
* For the nine-month period ended May 31, 1996.
** For the seven-month period ended May 31, 1995.
During the last three fiscal years, the Funds paid the following brokerage fees
to USAA Brokerage Services, a discount brokerage service of the Manager:
FUND 1995 1996 1997**
---- ------------ ------------ -----------
Income Strategy - $ 216* $ 454
Growth and Tax Strategy $ 1,400 $ 400 $ 15,356
Balanced Strategy - $ 632* $ 1,132
Cornerstone Strategy $ 2,120 $ 4,000 $ 11,878
Growth Strategy - $ 556* $ 10,580
Emerging Markets - - $ 240
Gold - - $ -
International - - $ -
World Growth $ 7,576 $ 928 $ 2,380
- ---------------------
* For the nine-month period ended May 31, 1996.
** These amounts are 16.10%, 18.85%, 8.7%, .83%, 4.59%, .05%, and .43%,
respectively, of brokerage fees paid by each Fund.
For the year ended May 31, 1997, 16.07%, 11.57%, 7.79%, 2.36%, 7.59%, .22%, and
1.58%, of the aggregate dollar amounts of transactions involving the payment of
commissions by the Income Strategy, Growth and Tax Strategy, Balanced Strategy,
Cornerstone Strategy, Growth Strategy, Emerging Markets, and World Growth Funds,
respectively, were effected through USAA Brokerage Services.
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 $755,255, $33,359,021,
$3,768,476, $65,579,532, $25,198,552, $283,516, $2,154,238, and $12,833,895, and
the related brokerage commissions or underwriting commissions were $1,154,
$46,750, $5,267, $87,403, $46,990, $850, $2,850 and $13,902 for the Income
Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone Strategy,
Growth Strategy, Emerging Markets, International and World Growth Funds,
respectively, for the year ended May 31, 1997.
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 will purchase or sell securities solely to achieve short-term trading
profits, a Fund may sell portfolio securities without regard to the length of
time held if consistent with the Fund's investment objective. A higher degree of
equity portfolio activity will increase brokerage costs to a Fund. It is not
anticipated that the portfolio turnover rates of the Income Strategy, Growth and
Tax 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 computer
the turnover rate.
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For the last two fiscal years, the Funds' portfolio turnover rates were as
follows:
FUND 1996 1997
---- --------- -------
Income Strategy 78.60%* 64.71%
Growth and Tax Strategy1 202.55% 194.21%
Balanced Strategy 26.53%* 28.06%
Cornerstone Strategy 36.15% 35.14%
Growth Strategy 40.21%* 62.50%
Emerging Markets 87.98% 61.21%
Gold 16.48% 26.40%
International 70.01% 46.03%
World Growth 60.97% 50.02%
GNMA Trust 127.77%** 77.82%
- --------------------
* 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 MAY 31,
------------------
1996 1997
---- ----
Portfolio turnover(%) 61.98 52.97
Purchases and sales of this type
are as follows:
Purchases (000) $192,239 $220,402
Sales (000) $192,490 $220,683
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.
Each Fund's assets, 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
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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.
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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.
Robert G. Davis 1, 2
Trustee and Chairman of the Board of Trustees
Age: 50
President, Chief Executive Officer, Director and Vice Chairman of the Board of
Directors of USAA Capital Corporation and several of its subsidiaries and
affiliates (1/97-present); Director, Chairman, President, and Chief Executive
Officer, USAA Financial Planning Network, Inc. (1/97-present); Director, Vice
Chairman, Executive Vice President, and Chief Operating Officer, USAA Financial
Planning Network, Inc. (9/96-1/97); Special Assistant to Chairman, United
Services Automobile Association (USAA) (6/96-12/96); President and Chief
Executive Officer, Banc One Credit Corporation (12/95-6/96); and President and
Chief Executive Officer, Banc One Columbus, (8/91-12/95). Mr. Davis also serves
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: 56
Chief Executive Officer, IMCO (10/93-present); President, Director and Vice
Chairman of the Board of Directors, IMCO (1/90-present). Mr. Roth 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.
15
<PAGE>
John W. Saunders, Jr. 1, 2, 4
Trustee and Vice President
Age: 62
Senior Vice President, Fixed Income Investments, IMCO (10/85-present). Mr.
Saunders 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.
Barbara B. Dreeben 3, 4, 5
200 Patterson #1008
San Antonio, TX 78209
Trustee
Age: 52
President, Postal Addvantage (7/92-present); Consultant, Nancy Harkins Stationer
(8/91-12/95). Mrs. Dreeben 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: 62
Retired. Assistant General Manager for Finance, San Antonio City Public Service
Board (1976-1996). Mr. Freeman 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.
Robert L. Mason, Ph.D. 3, 4, 5
12823 Queens Forest
San Antonio, TX 78230
Trustee
Age: 51
Manager, Statistical Analysis Section, Southwest Research Institute
(8/75-present). Dr. Mason 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: 54
Vice President, Beldon Roofing and Remodeling (1985-present). Mr. Zucker 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: 49
Vice President, Corporate Counsel, USAA (1982-present). Mr. Wagner has held
various positions in the legal department of USAA since 1970 and 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: 47
Vice President, Compliance, IMCO (12/94-present); Vice President and Chief
Operating Officer, Commonwealth Shareholder Services (6/94-11/94); and Vice
President, Compliance, IMCO (12/91-5/94). Mr.
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Ciccone 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: 52
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 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: 38
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 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: Harry W.
Miller, Senior Vice President, Investments (Equity); Carl W. Shirley, Senior
Vice President, Insurance Company Portfolios; 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, 1997.
Name Aggregate Total Compensation
of Compensation from the USAA
Trustee from the Trust Family of Funds (b)
- -------- --------------- -------------------
Robert G. Davis* None (a) None (a)
Barbara B. Dreeben $10,275 $36,600
Howard L. Freeman, Jr. $10,275 $36,600
Robert L. Mason $ 4,791 $17,000
Michael J.C. Roth None (a) None (a)
John W. Saunders, Jr. None (a) None (a)
Richard A. Zucker $10,275 $36,600
- ----------------
* Effective December 1, 1996, Robert G. Davis replaced M. Staser Holcomb as
Trustee and Chairman of the Board of Trustees.
(a) Robert G. Davis, 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.
(b) At May 31, 1997, the USAA Family of Funds consisted of four registered
investment companies offering 33 individual funds. Each Trustee presently
serves as a Trustee or Director of each investment company
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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 seven 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, 1997, 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, 1997, USAA and its affiliates owned 502,387 shares (37.7%)
of the Income Strategy Fund, 419,450 shares (14.6%) of the Balanced Strategy
Fund, 5,153,800 shares (43.6%) of the Emerging Markets Fund, 6,111,511 shares
(20.9%) of the of the International Fund, 395,221 shares (1.3%) of the GNMA
Trust and no shares of the Growth and Tax Strategy Fund, Cornerstone Strategy
Fund, Growth Strategy Fund, Gold Fund, World Growth Fund, and Treasury Money
Market Trust.
The Trust knows of no other persons who, as of June 30, 1997, 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 (FUND
MANAGEMENT in the Growth and Tax Strategy Fund 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, 1998, 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).
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,
1998, and will reimburse the
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Funds for all expenses in excess of such limitation. After October 1, 1998, 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 1995 1996 1997
---- ----------- -------------- ------------
Income Strategy - $ 34,662** $ 65,023
Growth and Tax Strategy $ 646,528 $ 728,915 $ 852,055
Balanced Strategy - $ 66,393** $ 190,093
Cornerstone Strategy $ 6,268,976 $ 7,072,915 $ 8,496,435
Growth Strategy - $ 219,751** $ 990,525
Emerging Markets $ 80,503* $ 308,963 $ 600,181
Gold $ 1,224,603 $ 1,170,207 $ 996,721
International $ 2,171,329 $ 2,730,374 $ 3,805,999
World Growth $ 1,310,951 $ 1,708,489 $ 1,994,809
GNMA Trust $ 318,921 $ 361,221 $ 381,390
Treasury Money Market Trust $ 59,980 $ 94,427 $ 105,420
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 1995 1996 1997
---- ------------ ----------- --------
Income Strategy - $ 34,662** $ 66,382
Balanced Strategy - $ 66,393** $ 37,577
Emerging Markets $ 8,091* - -
Treasury Money Market Trust $ 54,428 $ 21,001 $ 15,808
- -------------
* 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.
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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, 1997,
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 return by 52.14 (365/7). The resulting yield figure
is carried to the nearest hundredth of one percent.
The calculation includes (1) the value of additional shares purchased with
dividends on the original share, and dividends declared on both the original
share and any such additional shares, and (2) any fees charged to all
shareholder accounts, in proportion to the length of the base period and the
Trust's average account size.
The capital changes excluded from the calculation are realized capital
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The Trust's effective (compounded) yield will be computed by
dividing the seven-day annualized yield as defined above by 365, adding 1 to the
quotient, raising the sum to the 365th power, and subtracting 1 from the result.
Current and effective yields fluctuate daily and will vary with factors
such as interest rates and the quality, length of maturities, and type of
investments in the portfolio.
Yield For 7-day Period ended 5/31/97 . . . . . 5.10%
Effective Yield For 7-day Period ended 5/31/97 . . . . . 5.23%
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 left [ left ({a-b} over cd + 1 right)^6 - 1 right]
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, 1997, for the Income Strategy
Fund, Growth and Tax Strategy Fund and GNMA Trust were 5.00%, 3.66% and 6.89%,
respectively.
TAX EQUIVALENT YIELD
A tax-exempt mutual fund may provide more "take-home" income than a fully
taxable mutual fund after paying taxes. Calculating a "tax equivalent yield"
means converting a tax-exempt yield to a pretax equivalent so that a meaningful
comparison can be made between a tax-exempt municipal fund and a fully taxable
fund. Because the Growth and Tax Strategy Fund invests a significant percentage
of its assets in tax-exempt securities, it may advertise performance in terms of
a 30-day tax equivalent yield.
To calculate a tax equivalent yield, an investor must know his federal
marginal income tax rate. The tax equivalent yield for the Growth and Tax
Strategy Fund is then computed by dividing that portion of the yield which is
tax-exempt by the complement of the federal marginal tax rate and adding the
product to that portion of the yield which is taxable. The complement, for
example, of a federal marginal tax rate of 36.0% is 64.0%, that is
(1.00-0.36=0.64).
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Tax Equivalent Yield = (% Tax Exempt
Income x 30-day Yield/ (1-Federal Marginal Tax Rate))
+ (% Taxable Income x 30-day Yield)
Based on a federal marginal tax rate of 36.0%, the tax equivalent yield
for the Growth and Tax Strategy Fund for the period ended May 31, 1997, was
5.06%.
TOTAL RETURN
The Funds may 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 5/31/97
1 5 10 From
Fund year years years Inception*
------ ----- ----- ----- ----------
Income Strategy 13.59% - - 9.47%
Growth and Tax Strategy 14.21% 10.89% - 10.29%
Balanced Strategy 19.26% - - 14.45%
Cornerstone Strategy 16.94% 13.38% 8.88% -
Growth Strategy 7.73% - - 19.82%
Emerging Markets 8.69% - - 8.72%
Gold (27.25%) 5.70% (4.95%) -
International 16.72% 13.94% - 11.25%
World Growth 16.52% - - 14.68%
GNMA Trust 9.23% 6.87% - 7.55%
* Data from inception is shown for Funds that are less than ten years old.
Income Strategy, Balanced Strategy, 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 - LONG-TERM AND SHORT TERM DEBT RATINGS
1. LONG-TERM DEBT RATINGS
MOODY'S:
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." 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.
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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.
S&P:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
PLUS (+) OR MINUS (-): THE RATINGS FROM AA TO BBB MAY BE MODIFIED BY THE
ADDITION OF A PLUS OR MINUS SIGN TO SHOW RELATIVE STANDING WITHIN THE MAJOR
RATING CATEGORIES.
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.
FITCH:
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
PLUS (+) AND MINUS (-): PLUS AND MINUS SIGNS ARE USED WITH A RATING SYMBOL TO
INDICATE THE RELATIVE POSITION OF A CREDIT WITHIN THE RATING CATEGORY. PLUS AND
MINUS SIGNS, HOWEVER, ARE NOT USED IN THE AAA CATEGORY.
DUFF & PHELPS:
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but
AA may vary slightly from time to time because of economic conditions.
AA-
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A+ Protection factors are average but adequate. However, risk factors are more
variable and greater in A periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for
prudent investment. Considerable BBB variability in risk during economic cycles.
BBB-
2. SHORT-TERM DEBT RATINGS
MOODY'S CORPORATE AND GOVERNMENT:
Prime-1 Issuers rated Prime-1 (or supporting institutions) 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:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) 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.
MOODY'S MUNICIPAL:
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity
support or demonstrated broadbased access to the market for
refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
S&P CORPORATE AND GOVERNMENT:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
S&P MUNICIPAL:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
FITCH:
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance 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 payment, but the margin of safety is not
as great as for issuers assigned F-1+ and F-1 ratings.
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F-3 Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be
rated below investment grade.
DUFF & PHELPS:
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-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.
D-3 Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
APPENDIX B - COMPARISON OF PORTFOLIO PERFORMANCE
Occasionally, we may make comparisons in advertising and sales literature
between the Funds contained in this SAI and other Funds in the USAA Family of
Funds. These comparisons may include such topics as risk and reward, investment
objectives, investment strategies, and performance.
Fund performance may be compared to the performance of broad groups of
mutual funds with similar investment goals or unmanaged indexes of comparable
securities. Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund. The Fund or its
performance may also be compared to products and services not constituting
securities subject to registration under the Securities Act of 1933 such as, but
not limited to, certificates of deposit and money market accounts. Sources for
performance information and articles about the Fund may include the following:
AAII JOURNAL, a monthly association magazine for members of the American
Association of Individual Investors.
ARIZONA REPUBLIC, a newspaper which may cover financial and investment news.
AUSTIN AMERICAN-STATESMAN, a newspaper which may cover financial news.
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CHICAGO TRIBUNE, a newspaper which may cover financial news.
CONSUMER REPORTS, a monthly magazine which from time to time reports on
companies in the mutual fund industry.
DALLAS MORNING NEWS, a newspaper which may cover financial news.
DENVER POST, a newspaper which may quote financial news.
FINANCIAL 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.
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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.
25
<PAGE>
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.
26
<PAGE>
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 number of 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.
27
<PAGE>
06088-1097
<PAGE>
USAA INVESTMENT TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Financial Statements included in Parts A and B (Prospectus and
Statement of Additional Information) of this Registration
Statement:
Financial Statements and Independent Auditors' Report are
incorporated by reference to the USAA Growth and Tax Strategy
Fund's Annual Report to Shareholders for the fiscal year ended
May 31, 1997.
(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
C-1
<PAGE>
Exhibit No. Description of Exhibits
- ---------- -----------------------
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 (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 (4)
(m) Amendment to Custodian Contract dated May 13, 1996 (4)
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,
International Fund, Growth and Tax Strategy 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 14, 1997 (filed herewith)
(h) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 15, 1997 (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)
C-2
<PAGE>
Exhibit No. Description of Exhibits
- ---------- -----------------------
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) Growth and Tax Strategy Fund Fund (filed herewith)
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)
(c) Power of Attorney for Robert G. Davis dated July 9, 1997,
(filed herewith)
(d) Power of Attorney for Robert L. Mason dated July 9, 1997,
(filed herewith)
- ---------------------
(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.
(4) Previously filed with Post-Effective Amendment No. 23 of the Registrant
(No. 2-91069) filed with the Securities and Exchange Commission on
August 1, 1997.
C-3
<PAGE>
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 "Fund Management" 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,
1997, of each class of securities of the Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Growth and Tax Strategy Fund 8,837
Cornerstone Strategy Fund 102,823
Emerging Markets Fund 10,734
Gold Fund 18,855
International Fund 37,570
World Growth Fund 29,126
GNMA Trust 12,032
Treasury Money Market Trust 3,217
Balanced Strategy Fund 2,707
Growth Strategy Fund 23,446
Income Strategy Fund 659
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
C-4
<PAGE>
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
C-5
<PAGE>
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 "Fund
Management" 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
- ----------------- ------------------- --------------------
Robert G. Davis Director and Chairman Trustee and
9800 Fredericksburg Rd. of the Board of Directors Chairman of the
San Antonio, TX 78288 Board of Trustees
Michael J.C. Roth Chief Executive Officer, President, Trustee
9800 Fredericksburg Rd. President, Director, and and Vice Chairman of
San Antonio, TX 78288 Vice Chairman of the the Board of Trustees
Board of Directors
John W. Saunders, Jr. Senior Vice President, Vice President and
9800 Fredericksburg Rd. Fixed Income Investments, Trustee
San Antonio, TX 78288 and Director
Harry W. Miller Senior Vice President None
9800 Fredericksburg Rd. Equity Investments,
San Antonio, TX 78288 and Director
John J. Dallahan Senior Vice President, None
9800 Fredericksburg Rd. Investment Services
San Antonio, TX 78288
C-6
<PAGE>
Carl W. Shirley Senior Vice President, None
9800 Fredericksburg Rd. Insurance Company Portfolios
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 Road
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, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares, to
call a meeting of shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees and to assist in
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
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.
C-7
<PAGE>
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 9th day of July, 1997.
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/ ROBERT G. DAVIS Chairman of the July 9, 1997
- -------------------------- Board of Trustees
Robert G. Davis
/S/ MICHAEL J.C. ROTH Vice Chairman of the Board July 9, 1997
- -------------------------- of Trustees and President
Michael J.C. Roth (Principal Executive Officer)
/S/ SHERRON A. KIRK Treasurer (Principal July 9, 1997
- -------------------------- Financial and
Sherron A. Kirk Accounting Officer)
/S/ JOHN W. SAUNDERS, JR. Trustee July 9, 1997
- --------------------------
John W. Saunders, Jr.
/S/ ROBERT L. MASON Trustee July 9, 1997
- --------------------------
Robert L. Mason
/S/ HOWARD L. FREEMAN, JR. Trustee July 9, 1997
- --------------------------
Howard L. Freeman, Jr.
/S/ RICHARD A. ZUCKER Trustee July 9, 1997
- --------------------------
Richard A. Zucker
/S/ BARBARA B. DREEBEN Trustee July 9, 1997
- --------------------------
Barbara B. Dreeben
C-8
<PAGE>
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 (2)
(h) Letter Agreement dated January 24, 1991 adding GNMA Trust and
Treasury Money Market Trust (2)
C-9
<PAGE>
EXHIBIT INDEX, CONT.
EXHIBIT ITEM PAGE NO. *
(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 (4)
(m) Amendment to Custodian Contract dated May 13, 1996 (4)
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, International Fund, Growth and Tax
Strategy 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 14, 1997 (filed herewith) 74
(h) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 15, 1997 (filed herewith) 97
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) 125
11 Independent Auditors' Consent (filed herewith) 127
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
C-10
<PAGE>
EXHIBIT INDEX, CONT.
EXHIBIT ITEM PAGE NO. *
16 Schedule for Computation of Performance Quotation (2)
17 Financial Data Schedules
(a) Growth and Tax Strategy Fund (filed herewith) 129
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)
(c) Power of Attorney for Robert G. Davis dated July 9, 1997
(filed herewith) 131
(d) Power of Attorney for Robert L. Mason dated July 9, 1997
(filed herewith) 133
- ---------------------
(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.
(4) Previously filed with Post-Effective Amendment No. 23 of the Registrant
(No. 2-91069) filed with the Securities and Exchange Commission on
August 1, 1997.
- --------------------------
* Refers to sequentially numbered pages
C-11
<PAGE>
EXHIBIT 9(g)
January 14, 1997
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 14, 1997 and ending January 13, 1998 (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. This
Agreement replaces in its entirety that certain Facility Agreement Letter dated
January 15, 1996, between the Borrowers and CAPCO. 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
<PAGE>
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 a 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.
<PAGE>
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
<PAGE>
(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 (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) the Opinion
of Counsel to USAA Investment Management Company, Manager and Advisor to the
Borrowers, with respect to such matters as CAPCO may reasonably request .
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
<PAGE>
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 ASEC") 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
<PAGE>
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.
<PAGE>
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;
<PAGE>
(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
<PAGE>
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 Fund(s) (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 Fund(s) (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 hall 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,
<PAGE>
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 14th Day of January, 1997.
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
<PAGE>
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
<PAGE>
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
AND BORROWING LIMIT
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 S&P 500 Index "
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 "
<PAGE>
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $750,000,000 Dated: January 14, 1997
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 ("APCO") 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 14,
1997 (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
<PAGE>
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 15, 1997, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and NationsBank, dated January 15, 1997.
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
<PAGE>
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
.16901
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note dated
January 14, 1997, 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.
[The following Information is 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
<PAGE>
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
<PAGE>
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 S&P 500 Index Fund Acct.#6938-478-2
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
<PAGE>
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
.16901
<PAGE>
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
.16901
<PAGE>
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,
Mutual Fund Portfolios /s/ Kenneth E. 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 14th day of
January, 1997.
/s/ Michael D. Wagner
-------------------------
MICHAEL D. WAGNER
Secretary
<PAGE>
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 14, 1997 /s/ Michael J.C. Roth
-------------------------
MICHAEL J. C. ROTH
President
<PAGE>
.16901
EXHIBIT 9(h)
January 15, 1997
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 15, 1997 and ending January 14, 1998 (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
replaces in its entirety that certain Facility Agreement Letter dated January
16, 1996, 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
<PAGE>
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
<PAGE>
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 a 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
<PAGE>
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, 1997, 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
<PAGE>
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:
<PAGE>
(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, (d) a
subordination agreement in substantially the form set forth in Exhibit E to this
Agreement, and (e) the opinion of counsel to USAA Investment Management Company,
manager and advisor to the Borrowers, with respect to such matters as the Bank
may reasonably request.
<PAGE>
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
<PAGE>
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:
<PAGE>
(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
<PAGE>
(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
<PAGE>
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;
(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
<PAGE>
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
<PAGE>
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 Fund(s) (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 Fund(s) (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.
<PAGE>
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
<PAGE>
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/ Kate Salletly
-------------------------------
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
<PAGE>
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
<PAGE>
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 S&P 500 Index 25
USAA Investment Trust USAA Cornerstone Strateg 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 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
<PAGE>
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $100,000,000 Dated: January 15, 1997
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 15, 1997 (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).
<PAGE>
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/ Michale 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
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note dated
January 15, 1997, 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.
[The following Information is 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
<PAGE>
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
<PAGE>
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 S&P 500 Index Fund Acct.# 6938-478-2
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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. Rot
-------------------------
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
Mutual Fund Portfolios /s/ Kenneth E. 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
-------------------------
<PAGE>
IN WITNESS WHEREOF, I have executed the Certificate as of this 15th day of
January, 1997.
/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, 1997
/s/ Michael J.C. Roth
-------------------------
MICHAEL J. C. ROTH
President
<PAGE>
EXHIBIT E
Subordination
NationsBank of Texas, N.A. Agreement
This is an agreement among:
Dated: January 15, 1997
- --------------------------------------------- ----------------------------------
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, TX 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 15, 1997 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 14, 1997
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 any 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/ Kate Salletly By /s/ Michael J.C. Roth By /s/ Laurie B. Blank
- --------------------- -------------------------- -----------------------
Its Senior Vice President Its President Its Treasurer
<PAGE>
GOOWDIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-21881
TELEPHONE (617) 570-100
TELECOPIER (617) 523-1231
July 30, 1997
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. 24 (the
"Amendment") to Registration Statement No. 2-91069 on Form N-1A (the
"Registration Statement") of USAA Investment Trust (the "Trust") of our opinion
with respect to the legality of the shares of the Trust representing interests
in the Growth and Tax Strategy Fund series of the Trust, which opinion was filed
with Post-Effective Amendment No. 21 of the Registration Statement.
We also hereby consent to the reference to this firm in the Statement of
Additional Information under the heading "General Information--Counsel" which
forms a part of the Amendment and to the filing of this consent as an exhibit to
the Amendment.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
---------------------------------------
GOODWIN, PROCTER & HOAR LLP
DOCSC\537630.1
The Shareholders and Board of Trustees
USAA Investment Trust:
We consent to the use of our report dated July 9, 1997 on the financial
statements of the Growth and Tax Strategy Fund, a separate fund of USAA
Investment Trust (the Trust), as of and for the year ended May 31, 1997 included
in the Fund's Annual Report to Shareholders for the year ended May 31, 1997
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. 24 under the Securities Act of 1933, as amended,
and Amendment No. 26 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
<PAGE>
EXHIBIT 19(c)
POWER OF ATTORNEY
Know all men by these presents that the undersigned Trustee of USAA
INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), constitutes and
appoints Michael J.C. Roth, John W. Saunders, Jr. and Michael D. Wagner, and
each of them, as his true and lawful attorney-in-fact and agent, with full power
or substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements in his capacity as a Trustee of the
Fund on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection with such filing and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/S/ ROBERT G. DAVIS 7/9/97
- --------------------------------- -----------------------------
Robert G. Davis, Trustee Date
<PAGE>
EXHIBIT 19(d)
POWER OF ATTORNEY
Know all men by these presents that the undersigned Trustee of USAA
INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), constitutes and
appoints Michael J.C. Roth, John W. Saunders, Jr. and Michael D. Wagner, and
each of them, as his true and lawful attorney-in-fact and agent, with full power
or substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements in his capacity as a Trustee of the
Fund on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection with such filing and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/S/ ROBERT L. MASON 7/9/97
- ---------------------------------- -----------------------------
Robert L. Mason, Trustee Date
<PAGE>
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<PERIOD-END> MAY-31-1997
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<NET-CHANGE-FROM-OPS> 22,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,142)
<DISTRIBUTIONS-OF-GAINS> (4,105)
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<NUMBER-OF-SHARES-SOLD> 1,771
<NUMBER-OF-SHARES-REDEEMED> (1,559)
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