As filed with the Securities and Exchange Commission on August 2, 1999.
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. 27
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 28
USAA INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
9800 FREDERICKSBURG ROAD, 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 Road
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, 1999) 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.
Exhibit Index on Pages 108 - 110
Page 1 of 205
<PAGE>
USAA INVESTMENT TRUST
CROSS REFERENCE SHEET
PART A
------
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Front and Back Cover Pages............ Same
2. Risk/Return Summary: Investments,
Risks, and Performance................ What is the Fund's Investment
Objective and Main Strategy?
Main Risks of Investing in This Fund
Could the Value of Your Investment
In This Fund Fluctuate?
3. Risk/Return Summary: Fee Table ....... Fees and Expenses
4. Investment Objectives, Principal
Investment Strategies, and
Related Risks........................ What is the Fund's Investment
Objective and Main Strategy?
Fund Investments
5. Management's Discussion
of Fund Performance.................. Not Applicable
6. Management, Organization, and
Capital Structure.................... Fund Management
7. Shareholder Information .............. How to Invest
Important Information About
Purchases and Redemptions
Exchanges
Shareholder Information
8. Distribution Arrangements............. Not Applicable
9. Financial Highlights Information...... Financial Highlights
<PAGE>
USAA INVESTMENT TRUST
CROSS REFERENCE SHEET
PART B
------
FORM N-1A ITEM NO. SECTION IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page and Table of Contents...... Same
11. Fund History.......................... Description of Shares
12. Description of the Fund and Its
Investments and Risks................ Investment Policies
Special Risk Considerations
Investment Restrictions
Portfolio Transactions
13. Management of the Fund................ Trustees and Officers of the Trust
14. Control Persons and
Principal Holders
of Securities........................ Trustees and Officers of the Trust
15. Investment Advisory and
Other Services....................... Trustees and Officers of the Trust
The Trust's Manager
General Information
16. Brokerage Allocation and
Other Practices...................... Portfolio Transactions
17. Capital Stock and Other
Securities........................... Description of Shares
18. Purchase, Redemption, and
Pricing of Shares.................... Valuation of Securities
Conditions of Purchase and Redemption
Additional Information Regarding
Redemption of Shares
Investment Plans
19. Taxation of the Fund.................. Tax Considerations
20. Underwriters.......................... The Trust's Manager
21. Calculation of Performance Data....... Calculation of Performance Data
22. Financial Statements.................. Cover Page
<PAGE>
Part A
Prospectuses for the
Cornerstone Strategy and Growth Strategy Funds
are included herein
Not included in this Post-Effective Amendment are the Prospectuses for the
Income Strategy, Growth and Tax Strategy, Balanced Strategy,
Emerging Markets, Gold, International, and World Growth Funds,
GNMA Trust and Treasury Money Market Trust
<PAGE>
Part A
Prospectus for the
Cornerstone Strategy Fund
is included herein
<PAGE>
USAA CORNERSTONE
STRATEGY FUND
PROSPECTUS
OCTOBER 1, 1999
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved of this Fund's shares or determined whether this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
TABLE CONTENTS
What is the Fund's Investment Objective and Main Strategy?............... 2
Main Risks of Investing in This Fund..................................... 2
Is This Fund for You?.................................................... 3
Could the Value of Your Investment in This Fund Fluctuate?............... 3
Fees and Expenses........................................................ 5
Fund Investments......................................................... 6
Fund Management.......................................................... 12
Using Mutual Funds in an Asset Allocation Program........................ 14
How to Invest............................................................ 16
Important Information About Purchases and Redemptions.................... 19
Exchanges................................................................ 20
Shareholder Information.................................................. 21
Financial Highlights..................................................... 24
Appendix A .............................................................. 25
Appendix B .............................................................. 27
<PAGE>
USAA Investment Management Company manages this Fund. For easier reading, USAA
Investment Management Company will be referred to as "we" or "us" throughout
the Prospectus.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Fund's investment objective is to achieve a positive, inflation-adjusted
rate of return and a reasonably stable value of Fund shares, thereby preserving
purchasing power of shareholders' capital. Using pre-set target ranges, we will
invest the Fund's assets mostly in stocks (divided into the categories of U.S.,
international, real estate, and gold) and to a much lesser extent in U.S.
Government securities.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See FUND INVESTMENTS on
page 6 for more information.
MAIN RISKS OF INVESTING IN THIS FUND
The primary risks of investing in this Fund are market risk, interest rate
risk, and the unique risks of investing in foreign stocks, real estate
investment trusts (REITs), and gold mining companies.
* MARKET RISK involves the possibility that the Fund's investments in stocks
will decline in a down stock market, reducing the value of the company's
stock, regardless of the success or failure of the company's operations.
* INTEREST RATE RISK involves the possibility that the value of the Fund's
investments in U.S. Government securities will fluctuate because of changes
in interest rates.
IF INTEREST RATES INCREASE: the yield of the Fund may increase and the
market value of the Fund's securities will likely decline, adversely
affecting the net asset value and total return.
IF INTEREST RATES DECREASE: the yield of the Fund may decrease and the
market value of the Fund's securities may increase, which would likely
increase the Fund's net asset value and total return.
* FOREIGN INVESTING RISK involves the possibility that the Fund's investments
in foreign stock will decrease because of currency exchange rate
fluctuations, increased price volatility, uncertain political conditions,
and other factors.
2
<PAGE>
* REIT RISK involves the possibility that the Fund's investments in REITs
will decrease because of a decline in real estate values.
* GOLD MINING RISK involves the risk that the value of the Fund's investments
in gold mining securities will decrease because of a decrease in the value
of gold.
Another risk of the Fund described later in the Prospectus is rebalancing risk.
As with other mutual funds, losing money is also a risk of investing in this
Fund.
As you consider an investment in this Fund, you should also take into account
your tolerance for the daily fluctuations of the financial markets and whether
you can afford to leave your money in the investment for long periods of time
to ride out down periods.
An investment in this Fund is not a deposit of USAA Federal Savings Bank, or
any other bank, and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
[CAUTION LIGHT]
Look for this symbol throughout the Prospectus. We use it to mark more detailed
information about the main risks you will face as a Fund shareholder.
IS THIS FUND FOR YOU?
This Fund might be appropriate as part of your investment portfolio if . . .
* You are seeking a fund that will diversify your holdings among a wide
variety of investment categories.
* You are willing to accept moderate risk.
* You are willing to take some exposure to the stock market.
* You are seeking an appropriate investment for an IRA, through a 401(k)
plan or 403(b) plan, or other tax-sheltered account.
This Fund MAY NOT be appropriate as part of your investment portfolio if . . .
* You need steady income.
* You are unwilling to take greater risk for long-term goals.
* You need an investment that provides tax free income.
COULD THE VALUE OF YOUR INVESTMENT IN THIS FUND FLUCTUATE?
Yes, it could. In fact, the value of your investment in this Fund will
fluctuate with the changing market values of the investments in the Fund.
The bar chart shown on the next page illustrates the Fund's volatility and
performance from year to year for the past ten years.
3
<PAGE>
Total Return
All mutual funds must use the same formula to calculate total return.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1989 21.94
1990 -9.20
1991 16.23
1992 6.35
1993 23.73
1994 -1.05
1995 18.40
1996 17.87
1997 15.64
1998 2.01
THE FUND'S TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999, WAS
5.39%.
During the periods shown in the bar chart, the highest total return for a
quarter was 10.06% (quarter ending March 31, 1993) and the lowest total return
for a quarter was -10.72% (quarter ending September 30, 1998).
The table below shows how the Fund's average annual returns for the one-,
five-, and ten-year periods as well as the life of the Fund compared to those
of a broad-based securities market index. Remember, historical performance does
not necessarily indicate what will happen in the future.
===============================================================================
Average Annual Total Returns
(for the periods ending Past Past Past Life of
December 31, 1998) 1 year 5 Years 10 Years Fund
- -------------------------------------------------------------------------------
Cornerstone Strategy Fund 2.01% 10.25% 10.68% 12.18%
- -------------------------------------------------------------------------------
S&P 500 Index* 28.60% 24.05% 19.19% 18.80%
===============================================================================
*THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE UNMANAGED INDEX THAT
REPRESENTS THE WEIGHTED AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY HELD,
PUBLICLY TRADED STOCKS.
[SIDE BAR]
TOUCHLINE(R)
1-800-831-8777
PRESS
1
THEN
1
THEN
5, 1, #
Please consider performance information in light of the Fund's investment
objective and policies and market conditions during the reported time periods.
The value of your shares may go up or down. For the most current price and
return information for this Fund, you may call USAA TouchLine(R) at
1-800-531-8777. Press 1 for the Mutual Fund Menu, press 1 again for prices and
returns. Then, press 51# when asked for the Fund Code.
4
<PAGE>
You can also find the most current price of your shares in the business section
of your newspaper in the mutual fund section under the heading "USAA Group" and
the symbol "CrnstStr." If you prefer to obtain this information from an on-line
computer service, you can do so by using the ticker symbol "USCRX."
[SIDE BAR]
NEWSPAPER
SYMBOL
CrnsStr
TICKER
SYMBOL
USCRX
FEES AND EXPENSES
This summary shows what it will cost you, directly and indirectly, to invest in
this Fund.
Shareholder Transaction Expenses -- (Direct Costs)
There are no fees or sales loads charged to your account when you buy or sell
Fund shares. However, if you sell shares and request your money by wire
transfer, there is a $10 fee. (Your bank may also charge a fee for receiving
wires.)
Annual Fund Operating Expenses -- (Indirect Costs)
Fund expenses come out of the Fund's assets and are reflected in the Fund's
share price and dividends. "Other Expenses" include expenses such as custodian
and transfer agent fees. The figures below show actual expenses during the past
fiscal year ended May 31, 1999, and are calculated as a percentage of average
net assets.
[SIDE BAR]
12b-1 FEES-SOME MUTUAL FUNDS CHANGE THESE FEES TO PAY FOR ADVERTISING AND
OTHER COSTS OF SELLING FUND SHARES.
===============================================================================
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .30%
-----
Total Annual Fund Operating Expenses 1.05%
=====
===============================================================================
Example of Effect of the Fund's Operating Expenses
This example provides you a comparison of investing in this Fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment, assuming
(1) 5% annual return, (2) the Fund's operating expenses remain the same, and
(3) you redeem all of your shares at the end of the periods shown.
===============================================================================
1 year..............$ 107
3 years............. 334
5 years............. 579
10 years............. 1,283
===============================================================================
5
<PAGE>
FUND INVESTMENTS
Principal Investment Strategies and Risks
Q What is the Fund's principal investment strategy?
A The Fund's principal investment strategy is to provide a diversified
investment program within one mutual fund by allocating the Fund's assets
in each of the following investment categories according to the following
targeted ranges. Securities are classified by category at the time of
purchase.
[BAR CHART]
INVESTMENT CATEGORY PERCENTAGE TARGET RANGE OF NET ASSETS
U.S. STOCKS 25-55%
INTERNATIONAL STOCKS 25-35%
U.S. GOVERNMENT SECURITIES 15-30%
REAL ESTATE SECURITIES 5-20%
GOLD SECURITIES 0-10%
The ranges allow for a variance within each investment category. The Fund's
Board of Trustees may revise the target ranges upon 60 days' prior written
notice to shareholders. However, we may go outside the ranges on a temporary
defensive basis without shareholder notification whenever we believe it is in
the best interest of the Fund and its shareholders.
Q Why are stocks and bonds mixed 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 stocks and bonds, is expected in
the long run to entail less market risk (and potentially less return) than
a mutual fund investing exclusively in stocks.
Q How are the investment categories and target ranges selected?
A The investment categories and the target ranges were selected to provide
investors with a diversified investment in a single mutual fund. The U.S.
Stocks category was selected to provide appreciation.
6
<PAGE>
The International Stocks category was selected to provide the potential
for appreciation during periods of adverse economic and market conditions
in the United States. The U.S. Government Securities category was selected
to provide safety of principal in periods of deflation. The Real Estate
and Gold Securities categories were selected to provide a positive total
return during inflationary periods.
However, as a temporary defensive measure because of market, economic,
political, or other conditions, we may invest up to 100% of the Fund's
assets in investment-grade, short-term debt instruments. This may result
in the Fund not achieving its investment objective during the time it is
in this temporary defensive posture.
Q What actions are taken 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 45% in the U.S. Stocks
category, 25% in the International Stocks category, 15% in the U.S.
Government Securities category, 10% in the Real Estate Securities
category, and 5% in the Gold Securities category. During the quarter, a
strong stock market coupled with weak real estate and gold markets could
leave the portfolio with 57% in the U.S. Stocks category, 25% in the
International Stocks category, 15% in the U.S. Government Securities
category, 3% in the Real Estate Securities category, and 0% in the Gold
Securities category. In this case, we would sell U.S. Stocks and could
use the proceeds to buy more real estate securities in order to bring
the U.S. Stocks and the Real Estate Securities back to within their target
ranges.
[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. While we attempt to minimize any adverse impact to the
Fund or its shareholders, the Fund may have a higher proportion of capital
gains and a lower return than a fund that does not have a rebalancing policy.
7
<PAGE>
U.S. Stocks
Q What types of U.S. Stocks will be included in the Fund's portfolio?
A The Fund's portfolio will consist of a blend of growth and value stocks
of companies organized under the laws of a state or territory of the
United States.
[CAUTION LIGHT]
MARKET RISK. Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods,
regardless of the success or failure of a company's operations. Stock markets
tend to run in cycles, with periods when stock prices generally go up, known as
"bull" markets, and periods when stock prices generally go down, referred to as
"bear" markets. Stocks tend to go up and down more than bonds.
Q How are the decisions to buy and sell U.S. Stocks made?
A The factors we evaluate to select stocks include:
* company's competitive position,
* management's abilities,
* company's growth prospects,
* company's financial position,
* above factors relative to the stock's current price.
The process of selling a stock begins when one or more of these factors
changes for the worse.
International Stocks
Q What role do International Stocks play in the Fund's portfolio?
A From time to time, the U.S. and foreign stock markets may fluctuate
independently of each other. In other words, a decline in one market
may, in certain circumstances, be offset by a rise in the other market.
In addition, foreign equity markets may provide attractive returns not
otherwise available in the U.S. markets.
Q What is considered to be a "foreign company?"
A A foreign company is one organized under the laws of a foreign country,
and it must also have one of the following additional characteristics:
8
<PAGE>
* the principal trading market for the stock is in a foreign country;
* at least 50% of its revenues or profits are derived from operations
within foreign countries; or
* at least 50% of its assets are located within foreign countries.
[SIDE BAR]
ADR-FOREIGN SHARES HELD BY A U.S. BANK THAT ISSUES A RECEIPT EVIDENCING
OWNERSHIP. DIVIDENDS ARE PAID IN U.S. DOLLARS.
GDR-FOREIGN SHARES HELD BY A U.S. OR FOREIGN BANK THAT ISSUES A RECEIPT
EVIDENCING OWNERSHIP. DIVIDENDS ARE PAID IN U.S. DOLLARS.
[CAUTION LIGHT]
FOREIGN INVESTING RISK. Investing in foreign securities poses unique risks:
currency exchange rate fluctuations; foreign market illiquidity; increased
price volatility; exchange control regulations; foreign ownership limits;
different accounting, reporting, and disclosure requirements; and difficulties
in obtaining legal judgments. Two forms of foreign investing risk are emerging
markets risk and political risk.
* EMERGING MARKETS RISK. Investments in countries that are in the initial
stages of their industrial cycle involve exposure to economic structures
that are generally less diverse and mature than in the United States and
to political systems which may be less stable.
* POLITICAL RISK. Political risk includes a greater potential for coups
d'etat, revolts, and expropriation by governmental organizations.
Q How are the decisions to buy and sell International Stocks made?
A We review countries and regions for economic and political stability as
well as future prospects. Then we research individual companies looking
for favorable valuations, growth prospects, quality of management, and
industry outlook. Securities are sold if we believe they are overvalued or
if the economic or political outlook significantly deteriorates.
U.S. Government Securities
Q What role do U.S. Government Securities play in the Fund's portfolio?
A The U.S. Government Securities investment category is intended to
provide both liquidity and interest income with limited credit risk.
[CAUTION LIGHT]
INTEREST RATE RISK. As a mutual fund investing in bonds, the Fund is subject to
the risk that the market value of the bonds will decline because of rising
interest rates. Bond prices are linked to the prevailing market interest rates.
In general, when interest rates rise, bond prices fall and when interest rates
fall, bond prices 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 maturities generally offer higher yields than bonds with
shorter maturities.
9
<PAGE>
Q What types of U.S. Government Securities are included in the Fund's
portfolio?
A The U.S. Government Securities in the Fund's portfolio will consist of
securities, without specific maturity requirements or limits, issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, or instrumentalities. Examples of these securities are U.S.
Treasury bills, notes and bonds, and securities issued by the Federal Farm
Credit Banks, Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association, and Government National Mortgage Association.
Additionally, the Fund may invest the Fund's assets in repurchase
agreements collateralized by securities of the U.S. Government or by its
agencies or instrumentalities.
Q How are the decisions to buy and sell U.S. Government Securities made?
A We search for securities which represent value at the time given current
market conditions. Since credit quality is not an issue with Government
Securities, we determine value by weighing current return with risk of
principal due to potential changes in interest rates. Generally speaking,
the longer the maturity of a bond, the greater the value will change with
changes in interest rates, either up or down. We will sell securities as
needed to provide liquidity for the Fund or to change the potential return
characteristics of this investment category.
Real Estate Securities
Q What role do Real Estate Securities play in the Fund's portfolio?
A We believe that diversified investments linked to real estate are a good
hedge during an inflationary environment.
Q What types of real estate securities are included in the Fund's portfolio?
A Investments in this category will consist primarily of common stocks of
real estate investment trusts (REITs) and U.S. companies that operate as
real estate corporations or which have a significant portion of their
assets in real estate. We will evaluate the nature of a company's real
estate holdings to determine whether the Fund's investment in the
company's common stock will be included in
10
<PAGE>
this category. In addition, we may also invest in preferred stocks,
securities convertible into common stocks, and securities that carry the
right to buy common stocks of REITs and real estate companies. The Fund
will not acquire any direct ownership of real estate.
[CAUTION LIGHT]
REITS. Investing in REITs may subject the Fund to many of the same risks
associated with the direct ownership of real estate. Additionally, REITs are
dependent upon the capabilities of the REIT manager(s), have limited
diversification, and could be significantly impacted by changes in tax laws.
Q How are the decisions to buy and sell Real Estate Securities made?
A We look for well-managed and prudently financed companies that own high
quality properties, have the potential to grow per share cash flow at an
above average rate, and that sell at reasonable valuation levels. We will
sell these securities when they no longer meet these criteria.
Gold Securities
Q What role do Gold Securities play in the Fund's portfolio?
A Gold Securities have been selected for their perceived potential to
increase in value during inflationary periods.
Q What types of gold securities are included in the Fund's portfolio?
A We will invest at least 80% of the Fund's assets devoted to this category
in equity securities of companies principally engaged in gold exploration,
mining, or processing. The remaining investments in this category will
consist of equity securities of companies similarly engaged in other
precious metals and minerals. These securities may consist of common
stocks, preferred stocks, securities convertible into common stocks, and
securities that carry the right to buy common stocks.
[CAUTION LIGHT]
GOLD MINING RISK. Gold mining securities involve additional risk because of
gold's price volatility and the increased impact such volatility has on the
profitability of gold mining companies. However, since the market action of
such securities has tended to move independently of the broader financial
markets, the addition of gold mining securities to an investor's portfolio may
reduce overall fluctuations in portfolio value.
11
<PAGE>
Q How are the decisions to buy and sell Gold Securities made?
A We look for well-managed and prudently financed low-cost producers with
good production or reserve growth potential that sell at reasonable
valuations on a risk-adjusted basis. We will sell these securities when
they no longer meet these criteria.
For additional information about other securities in which we may invest the
Fund's assets, see APPENDIX A on page 25.
FUND MANAGEMENT
USAA Investment Management Company serves as the manager and distributor of
this Fund. 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 Road, San Antonio, TX
78288.
We provide management services to the Fund pursuant to an Advisory Agreement.
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 Fund's Board of Trustees. For our services, the Fund pays us
an annual fee. The fee is computed at three-fourths of one percent (.75%) of
average net assets for the fiscal year ended May 31, 1999. We also provide
services related to selling the Fund's shares and receive no compensation for
those services.
Although our officers and employees, as well as those of the Fund, may engage
in personal securities transactions, they are restricted by the procedures in a
Joint Code of Ethics adopted by the Fund 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 Fund's Board of
Trustees has adopted procedures to ensure that any commissions paid to USAA
Brokerage Services are reasonable and fair.
12
<PAGE>
Portfolio Managers
U.S. STOCKS
[PHOTOGRAPH]
R. DAVID ULLOM
R. David Ullom, Assistant Vice President of Equity Investments, is the Fund's
asset allocation manager and has managed the U.S. Stocks investment category
since August 1998. He has 24 years investment management experience and has
worked for us for 13 years. Mr. Ullom earned the Chartered Financial Analyst
(CFA) designation in 1980 and is a member of the Association for Investment
Management and Research (AIMR) and the San Antonio Financial Analysts Society,
Inc. (SAFAS). He holds an MBA from Washington University, Missouri, and a BS
from Oklahoma State University.
INTERNATIONAL STOCKS
[PHOTOGRAPH]
FROM L TO R: ALBERT C. SEBASTIAN, DAVID G. PEEBLES, AND W. TRAVIS SELMIER II
David G. Peebles, Senior Vice President of Equity Investments, has managed or
co-managed the International Stocks investment category since December 1994. He
has 33 years investment management experience and has worked for us for 15
years. Mr. Peebles earned the CFA designation in 1971 and is a member of AIMR,
SAFAS, and the International Society of Financial Analysts (ISFA). He holds an
MBA and BS from Texas Christian University.
Albert C. Sebastian, Assistant Vice President of Equity Investments, has
co-managed the International Stocks investment category since October 1996. He
has 15 years investment management experience and has worked for us for eight
years. Mr. Sebastian earned the CFA designation in 1989 and is a member of
AIMR, SAFAS, and ISFA. He holds an MBA from the University of Michigan and a BA
from Holy Cross College, Massachusetts.
13
<PAGE>
W. Travis Selmier, II, Assistant Vice President of Equity Investments, has
co-managed the International Stocks investment category since October 1996. He
has 12 years investment management experience and has worked for us for eight
years. Mr. Selmier earned the CFA designation in 1990 and is a member of AIMR,
SAFAS, and ISFA. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan, and a BA
from the University of California at Santa Barbara.
U.S. GOVERNMENT SECURITIES
[PHOTOGRAPH]
JOHN. W. SAUNDERS, JR.
John W. Saunders, Jr., Senior Vice President of Fixed Income Investments, has
managed the U.S. Government Securities investment category since October 1985.
He has 30 years investment management experience and has worked for us for 29
years. Mr. Saunders earned the CFA designation in 1976 and is a member of AIMR
and SAFAS. He holds a BS from Portland State University, Oregon.
GOLD AND REAL ESTATE SECURITIES
[PHOTOGRAPH]
MARK W. JOHNSON
Mark W. Johnson, Assistant Vice President of Equity Investments, has managed
the Gold Securities and Real Estate Securities investment categories since
January 1994. He has 25 years investment management experience and has worked
for us for 11 years. Mr. Johnson earned the CFA designation in 1978 and is a
member of AIMR and SAFAS. He holds an MBA and a BBA from the University of
Michigan.
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.
14
<PAGE>
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.
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
member service 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.
15
<PAGE>
===============================================================================
Fund Investment Objective Invests in
- -------------------------------------------------------------------------------
Income Seek high current return, with bonds and stocks
Strategy reduced risk over time, through
Fund an asset allocation strategy that
emphasizes income and gives
secondary emphasis to long-term
growth of capital
Growth and Seek a conservative balance tax-exempt bonds
Tax Strategy between income, the majority of and blue chips
Fund which is tax-exempt, and the stocks
potential for long-term growth of
capital to preserve purchasing
power
Balanced Seek high total return, with stocks and bonds
Strategy reduced risk over time, through an
Fund asset allocation strategy that seeks
a combination of long-term growth
a capital and current income
Cornerstone Achieve a positive inflation- U.S. stocks,
Strategy adjusted rate of return and a International
Fund reasonably stable value of Fund stocks, government
shares, thereby preserving securities, real
purchasing power of shareholders' estate securities,
capital and gold securities
Growth Seek high total return, with small and large cap
Strategy reduced risk over time, through stocks, bonds and
Fund an asset allocation strategy that international
emphasizes capital appreciation stocks
and gives secondary 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, in
person, bank wire, electronic funds transfer (EFT), or phone. A complete,
signed application is required to open your initial account. However,
16
<PAGE>
after you open your initial account with us, you will not need to fill out
another application to invest in another Fund unless the registration is
different.
TAX ID NUMBER
Each shareholder named on the account must provide a social security number or
tax identification number to avoid possible withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value (NAV)
per share next determined after we receive your request in proper form. The
Fund's NAV is determined at the close of the regular trading session (generally
4:00 p.m. Eastern Time) of the New York Stock Exchange (NYSE) each day the NYSE
is open. If we receive your request and payment prior to that time, your
purchase price will be the NAV per share determined for that day. If we receive
your request or payment 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 a Fund. This
will avoid a potential four- to six-week delay in the effective date of your
purchase. 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
[MONEY GRAPHIC]
* $3,000 [$500 Uniform Gifts/Transfers to Minors Act(UGMA/UTMA) accounts and
$250 for IRAs] or no initial investment if you elect to have monthly
electronic investments of at least $50 each. We may periodically offer
programs that reduce the minimum amounts for monthly electronic
investments. Employees of USAA and its affiliated companies may open an
account through payroll deduction for as little as $25 per pay period with
no initial investment.
ADDITIONAL PURCHASES
* $50
HOW TO PURCHASE
MAIL
[ENVELOPE GRAPHIC]
* To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, TX 78288
17
<PAGE>
* 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 Road
San Antonio, TX 78288
IN PERSON
[HANDSHAKE GRAPHIC]
* To open an account, bring your application and check to our San Antonio
Sales and Service Office at:
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
BANK WIRE
[WIRE GRAPHIC]
* To open or add to your account, instruct your bank (which may charge a fee
for the service) to wire the specified amount to the Fund as follows:
State Street Bank and Trust Company
Boston, MA 02101
ABA#011000028
Attn: USAA Cornerstone Strategy Fund
USAA Account Number: 69384998
Shareholder(s) Name(s) _________________________________________
Shareholder(s) Mutual Fund Account Number ______________________
ELECTRONIC FUNDS TRANSFER
[CALENDAR GRAPHIC]
* Additional purchases on a regular basis can be deducted from a bank
account, paycheck, income-producing investment, or 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 1-800-531-8448
[TELEPHONE GRAPHIC]
* If you have an existing USAA mutual fund account and would like to open a
new account or 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 are 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.
We will send you your money within seven days after the effective date of
redemption. Payment for redemption of shares purchased by EFT or check
18
<PAGE>
is sent after 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. For federal
income tax purposes, a redemption is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on your
cost basis in the shares and the price received upon redemption.
In addition, the Fund may elect to suspend the redemption of shares or postpone
the date of payment in limited circumstances.
HOW TO REDEEM
WRITTEN, FAX, TELEGRAM, OR TELEPHONE
[FAX MACHINE]
* Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
* Send a signed fax to 1-800-292-8177, or send a telegram to
USAA Shareholder Account Services.
* Call toll free 1-800-531-8448, in San Antonio, 456-7202.
Telephone redemption privileges are 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, the following information is obtained:
(1) USAA number and/or account number, (2) the name(s) on the account
registration, and (3) social security number/tax identification number or date
of birth of the registered account owner(s) for the account registration.
Additionally, all telephone communications with you are recorded and
confirmations of account transactions are sent to the address of record. If you
were issued stock certificates for your shares, redemption by telephone, fax,
or telegram is not available.
IMPORTANT INFORMATION ABOUT PURCHASES AND REDEMPTIONS
Investor's Guide to USAA Mutual Fund Services
[INVESTOR'S GUIDE GRAPHIC]
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 assist you in
your role as an investor. In the INVESTOR'S GUIDE, you will find additional
information on purchases, redemptions, and methods of payment. You will also
find in-depth information on automatic investment plans, shareholder statements
and reports, and other useful information.
19
<PAGE>
Account Balance
USAA Shareholder Account Services (SAS), the Fund's transfer agent, may assess
annually 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).
Fund Rights
The Fund reserves the right to:
* reject purchase or exchange orders when in the best interest of the Fund;
* limit or discontinue the offering of shares of the Fund without notice to
the shareholders;
* require a signature guarantee for transactions or changes in account
information in those instances where the appropriateness of a signature
authorization is in question. The Statement of Additional Information
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 the shares to be acquired are
offered in your state of residence. After we receive the exchange orders, the
Fund's transfer agent will simultaneously process exchange redemptions and
purchases at the share prices next determined. The investment minimums
applicable to share purchases also apply to exchanges. For federal income tax
purposes, an exchange between Funds is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on the
difference between your cost basis in the shares and the price received upon
exchange.
The Fund has undertaken certain procedures regarding telephone transactions as
described on page 19.
20
<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 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
[SIDE BAR]
NAV PER SHARE
EQUALS
TOTAL ASSETS
MINUS
LIABILITIES
DIVIDED BY
# OF SHARES
OUTSTANDING
The price at which you 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. You may buy and sell Fund shares at the NAV per share without a
sales charge. 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.
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.
Securities trading in various foreign markets may take place on days when the
NYSE is closed. Further, when the NYSE is open, the foreign markets may be
closed. Therefore, the calculation of the Fund's NAV may not take place at the
same time the prices of certain securities held by the Fund are determined. In
most cases, 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 the Fund's NAV is calculated will not be reflected in the
Fund's NAV. If, however, we determine that a particular event would materially
affect the Fund's NAV, then we, under the general supervision of the Board of
Trustees, will use all relevant, available information to determine a fair
value for the affected portfolio securities.
Over-the-counter securities are generally priced at the last sales price or, if
not available, at the average of the bid and asked prices.
Debt securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other debt securities are
valued each business day at their current market value as determined by a
pricing service approved by the Board of Trustees. Securities that cannot be
valued by these methods, and all other assets, are valued in good faith at fair
value using methods we have determined under the general supervision of the
Board of Trustees.
21
<PAGE>
For additional information on how securities are valued, see VALUATION OF
SECURITIES in the Fund's Statement of Additional Information.
Dividends and Distributions
The Fund pays net investment income dividends yearly. Any net capital gain
distribution usually occurs within 60 days of the May 31 fiscal year end, which
would be somewhere around the end of July. The Fund will make additional
payments to shareholders, if necessary, to avoid the imposition of any federal
income or excise tax.
We will automatically reinvest all income dividends and capital gain
distributions in the Fund unless you instruct us differently. The share price
will be the NAV of the Fund shares computed on the ex-dividend date. 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. You should consider
carefully the effects of purchasing shares of the Fund shortly before any
dividend or distribution. Although in effect this would be a return of capital,
some or all of 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. Note that the Taxpayer
Relief Act of 1997 and the technical provisions adopted by the IRS
Restructuring and Reform Act of 1998 may affect the status and treatment of
certain distributions shareholders receive from the Fund. Because each
investor's tax circumstances are unique and because the tax laws are subject to
change, we recommend that you consult your tax adviser about your investment.
SHAREHOLDER - Dividends from taxable net investment income and distributions of
net short-term capital gains are taxable to you 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 you have held 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.
22
<PAGE>
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, or
* fails to certify that he or she 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 you are not currently subject to backup
withholding.
REPORTING - The Fund will report information to you annually concerning the tax
status of dividends and distributions for federal income tax purposes.
Year 2000
Like other organizations around the world, the Fund could be adversely affected
if the computer systems used by the Fund, its service providers, or companies
in which the Fund invests do not properly process and calculate information
that relates to dates beginning on January 1, 2000, and beyond. This situation
may occur because for many years computer programmers used only two digits to
describe years, such as 98 for 1998. A program written in this manner may not
work when it encounters the year 00. To confront this situation, USAA companies
have spent much effort and money; and we are confident that our critical
systems are essentially prepared for the Year 2000. In addition, we are
actively assessing the Year 2000 readiness of our service providers, partners,
and companies in whose securities we invest. It is not possible for us to say
that you will experience no effect from this situation, but we can say that we
are making a large effort to avoid ill effects upon our shareholders.
We do believe you are entitled to know with certainty that we will stand behind
your share balance as of the close of business in 1999. When the market reopens
in 2000, should any computer problem cause a change in the number of shares in
your account, we will return your account to its proper share balance.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the Annual Report,
which is available upon request.
<TABLE>
<CAPTION>
Year Ended May 31,
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------
Net asset value at
beginning of period $ 29.89 $ 27.96 $ 25.47 $ 22.63 $ 23.24
Net investment income .88 .77 .74 .73 .68
Net realized and
unrealized gain (loss) (1.14) 3.78 3.37 3.18 .67
Distributions from net
investment income (.81) (.72) (.78) (.74) (.58)
Distributions of realized
capital gains (1.53) (1.90) (.84) (.33) (1.38)
-----------------------------------------------------------------
Net asset value at
end of period $ 27.29 $ 29.89 $ 27.96 $ 25.47 $ 22.63
=================================================================
Total return (%)* (.74) 17.15 16.94 17.79 6.43
Net assets at end of
period (000) $1,257,817 $1,500,258 $1,263,355 $1,035,844 $ 874,587
Ratio of expenses to
average net assets (%) 1.05 1.01 1.06 1.15 1.13
Ratio of net investment
income to average net
assets (%) 3.12 2.64 2.88 3.06 3.16
Portfolio turnover (%) 46.27 32.73 35.14 36.15 33.17
- ----------------------
* Assumes reinvestment of all dividend income and capital gain distributions
during the period.
</TABLE>
24
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH WE MAY
INVEST THE FUND'S ASSETS:
FORWARD CURRENCY CONTRACTS
The Fund may hold securities denominated in foreign currencies. As a result,
the value of the securities will be affected by changes in the exchange rate
between the dollar and foreign currencies. In managing currency exposure, the
Fund may enter into forward currency contracts. A forward currency contract
involves an agreement to purchase or sell a specified currency at a specified
future date or over a specified time period at a price set at the time of the
contract. The Fund may only enter into forward currency contracts. When the
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, it desires to "lock in" the U.S. dollar price of the
security until settlement.
REPURCHASE AGREEMENTS
We may invest the Fund's assets in repurchase agreements that are
collateralized by obligations issued or guaranteed as to both principal and
interest by the U.S. Government, its agencies, and instrumentalities. A
repurchase agreement is a transaction in which a security is purchased with a
simultaneous commitment to sell it back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on an agreed upon date.
This date is usually not more than seven days from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest, which is unrelated to the coupon rate or maturity of the purchased
security.
WHEN-ISSUED SECURITIES
We may invest the Fund's assets 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 the Fund's assets 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.
* Because the interest rates of variable rate securities are periodically
adjusted to reflect current market rates, their market value is less
affected by changes in prevailing interest rates than the market value of
securities with fixed interest rates.
* The market value of a variable rate security usually tends toward par (100%
of face value) at interest rate adjustment time.
25
<PAGE>
CONVERTIBLE SECURITIES
Within the Real Estate and Gold Securities categories, we may invest the Fund's
assets in convertible securities, which are bonds, preferred stocks, and other
securities that pay interest or dividends and offer the buyer the ability to
convert the security into common stock. The value of convertible securities
depends partially on interest rate changes and the credit quality of the
issuer. Because a convertible security affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
the underlying common stock, the value of convertible securities also depends
on the price of the underlying common stock.
ILLIQUID SECURITIES
We may invest up to 15% of the Fund's net assets in securities that are
illiquid. Illiquid securities are those securities which cannot be disposed of
in the ordinary course of business, seven days or less, at approximately the
same value at which the Fund has valued the securities.
26
<PAGE>
APPENDIX B
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 the mutual funds managed and
distributed by USAA Investment Management Company, including charges and
operating expenses, call us for a Prospectus. Read it carefully before you
invest. Mutual fund operating expenses apply and continue throughout the life
of the Fund.
- -----------------------------------------------
FUND TYPE/NAME VOLATILITY
- -----------------------------------------------
CAPITAL APPRECIATION
- -----------------------------------------------
Aggressive Growth Very high
Emerging Markets Very high
First Start Growth Moderate to high
Gold Very high
Growth Moderate to high
Growth & Income Moderate
International Moderate to high
S&P 500 Index Moderate
Science & Technology Very high
Small Cap Stock Very high
World Growth Moderate to high
- -----------------------------------------------
ASSET ALLOCATION
- -----------------------------------------------
Balanced Strategy Moderate
Cornerstone Strategy Moderate
Growth and Tax Strategy Moderate
Growth Strategy Moderate to high
Income Strategy Low to moderate
- -----------------------------------------------
INCOME- TAXABLE
- -----------------------------------------------
GNMA Low to moderate
High-Yield Opportunities High
Income Moderate
Income Stock Moderate
Intermediate-Term Bond Low to moderate
Short-Term Bond Low
- ------------------------------------------------
INCOME - TAX EXEMPT
- ------------------------------------------------
Long-Term Moderate
Intermediate-Term Low to moderate
Short-Term Low
State Bond/Income Moderate
- ------------------------------------------------
MONEY MARKET
- ------------------------------------------------
Money Market Very low
Tax Exempt Money Market Very low
Treasury Money Market Trust Very low
State Money Market Very low
- ------------------------------------------------
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS,
MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
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.
SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES.
CALIFORNIA, FLORIDA, NEW YORK, TEXAS, AND VIRGINIA FUNDS ARE OFFERED ONLY TO
RESIDENTS OF THOSE STATES.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE
OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
THE SCIENCE & TECHNOLOGY FUND MAY BE MORE VOLATILE THAN A FUND THAT DIVERSIFIES
ACROSS MANY INDUSTRIES.
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),
Annual or Semiannual Report, or to ask other questions about the Fund. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of the Prospectus. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
To view these documents, along with other related documents, you can visit the
SEC's Internet web site (http://www.sec.gov) or the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the public
reference room can be obtained by calling 1-800-SEC-0330. Additionally, copies
of this information can be obtained, for a duplicating fee, by writing the
Public Reference Section of the Commission, Washington, D.C. 20549-6009.
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
----------------------------------------------------------
Transfer Agent Custodian
USAA Shareholder Account Services State Street Bank and Trust Company
9800 Fredericksburg Road P.O. Box 1713
San Antonio, Texas 78288 Boston, Massachusetts 02105
----------------------------------------------------------
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 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
INVESTMENT COMPANY ACT FILE NO. 811-4019
28
<PAGE>
Part A
Prospectus for the
Growth Strategy Fund
is included herein
<PAGE>
USAA GROWTH
STRATEGY FUND
PROSPECTUS
OCTOBER 1, 1999
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved of this Fund's shares or determined whether this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
TABLE OF CONTENTS
What is the Fund's Investment Objective and Main Strategy?............... 2
Main Risks of Investing in This Fund..................................... 2
Is This Fund for You?.................................................... 3
Could the Value of Your Investment in This Fund Fluctuate?............... 3
Fees and Expenses........................................................ 5
Fund Investments......................................................... 6
Fund Management.......................................................... 13
Using Mutual Funds in an Asset Allocation Program........................ 16
How to Invest............................................................ 18
Important Information About Purchases and Redemptions.................... 21
Exchanges................................................................ 21
Shareholder Information.................................................. 22
Financial Highlights..................................................... 25
Appendix A .............................................................. 26
Appendix B .............................................................. 29
<PAGE>
USAA Investment Management Company manages this Fund. For easier reading, USAA
Investment Management Company will be referred to as "we" or "us" throughout
the Prospectus.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Fund's investment objective is to seek high total return, with reduced risk
over time, through an asset allocation strategy that emphasizes capital
appreciation and gives secondary emphasis to income. Using pre-set target
ranges, we will invest the Fund's assets mostly in stocks (divided into the
categories of large cap, small cap, and international) and to a lesser extent,
bonds and money market instruments.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See FUND INVESTMENTS on
page 6 for more information.
MAIN RISKS OF INVESTING IN THIS FUND
The primary risks of investing in this Fund are market risk, the unique risks
of investing in foreign stocks, interest rate risk, and credit risk.
* MARKET RISK involves the possibility that the Fund's investments in stocks
will decline in a down stock market, reducing the value of the company's
stock, regardless of the success or failure of the company's operations.
* FOREIGN INVESTING RISK involves the possibility that the Fund's investments
in foreign stock will decrease because of currency exchange rate
fluctuations, increased price volatility, uncertain political conditions,
and other factors.
* INTEREST RATE RISK involves the possibility that the value of the Fund's
investments will fluctuate because of changes in interest rates.
IF INTEREST RATES INCREASE: the yield of the Fund may increase and the
market value of the Fund's securities will likely decline, adversely
affecting the net asset value and total return.
IF INTEREST RATES DECREASE: the yield of the Fund may decrease and the
market value of the Fund's securities may increase, which would likely
increase the Fund's net asset value and total return.
* CREDIT RISK involves the possibility that a borrower cannot make timely
interest and principal payments on its securities.
2
<PAGE>
Other risks of the Fund described later in the Prospectus include rebalancing
risks and the risks of investing in REITs. As with other mutual funds, losing
money is also a risk of investing in this Fund.
As you consider an investment in this Fund, you should also take into account
your tolerance for the daily fluctuations of the financial markets and whether
you can afford to leave your money in the investment for long periods of time
to ride out down periods.
An investment in this Fund is not a deposit of USAA Federal Savings Bank, or
any other bank, and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
[CAUTION LIGHT]
Look for this symbol throughout the Prospectus. We use it to mark more detailed
information about the main risks you will face as a Fund shareholder.
IS THIS FUND FOR YOU?
This Fund might be appropriate as part of your investment portfolio if . . .
* You are seeking a fund that will diversify your holdings among a wide
variety of investment categories.
* You are willing to accept moderate to high risk.
* You are willing to take some exposure to the stock market.
* You are seeking an appropriate investment for an IRA, through a 401(k)
plan or 403(b) plan, or other tax-sheltered account.
This Fund MAY NOT be appropriate as part of your investment portfolio if . . .
* You are unwilling to take greater risk for long-term goals.
* You need an investment that provides tax-free income.
COULD THE VALUE OF YOUR INVESTMENT IN THIS FUND FLUCTUATE?
Yes, it could. In fact, the value of your investment in this Fund will
fluctuate with the changing market values of the investments in the Fund.
The bar chart shown on the next page illustrates the Fund's volatility and
performance from year to year over the life of the Fund.
3
<PAGE>
Total Return
All mutual funds must use the same formula to calculate total return.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1996* 22.13
1997 9.10
1998 14.98
THE FUND'S TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999, WAS 8.65%.
During the periods shown in the bar chart, the highest total return for a
quarter was 20.93% (quarter ending December 31, 1998) and the lowest total
return for a quarter was -14.07% (quarter ending September 30, 1998).
The table below shows how the Fund's average annual returns for the one-year
period as well as the life of the Fund compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future.
===============================================================================
Average Annual Total Returns Since Fund's
(for the periods ending Past Inception on
December 31, 1998) 1 Year September 1, 1995
- -------------------------------------------------------------------------------
Growth Strategy Fund 14.98% 15.82%
- -------------------------------------------------------------------------------
S&P 500 Index* 28.60% 28.88%
===============================================================================
* THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE UNMANAGED INDEX THAT
REPRESENTS THE WEIGHTED AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY HELD,
PUBLICLY TRADED STOCKS.
Please consider performance information in light of the Fund's investment
objective and policies and market conditions during the reported time periods.
For the most current price and return information for this Fund,
4
<PAGE>
you may call USAA TouchLine(R) at 1-800-531-8777. Press 1 for the Mutual Fund
Menu, press 1 again for prices and returns. Then, press 49# when asked for the
Fund Code.
[SIDE BAR]
TOUCHLINE(R)
1-800-531-8777
press
1
then
1
4, 9, #
You can also find the most current price of your shares in the business section
of your newspaper in the mutual fund section under the heading "USAA Group" and
the symbol "GrStr." If you prefer to obtain this information from an on-line
computer service, you can do so by using the ticker symbol "USGSX."
[SIDE BAR]
NEWSPAPER
SYMBOL
GrStr
Ticker
Symbol
USGSX
FEES AND EXPENSES
This summary shows what it will cost you, directly and indirectly, to invest in
this Fund.
Shareholder Transaction Expenses -- (Direct Costs)
There are no fees or sales loads charged to your account when you buy or sell
Fund shares. However, if you sell shares and request your money by wire
transfer, there is a $10 fee. (Your bank may also charge a fee for receiving
wires.)
Annual Fund Operating Expenses -- (Indirect Costs)
Fund expenses come out of the Fund's assets and are reflected in the Fund's
share price and dividends. "Other Expenses" include expenses such as custodian
and transfer agent fees. The figures below show actual expenses during the past
fiscal year ended May 31, 1999, and are calculated as a percentage of average
net assets.
[SIDE BAR]
12B-1 FEES- SOME MUTUAL FUNDS CHANGE THESE FEES TO PAY FOR ADVERTISING AND
OTHER COSTS OF SELLING FUND SHARES.
===============================================================================
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .53%
-----
Total Annual Fund Operating Expenses 1.28%
=====
===============================================================================
Example of Effect of the Fund's Operating Expenses
This example provides you a comparison of investing in this Fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment, assuming
(1) 5% annual return, (2) the Fund's operating expenses remain the same, and
(3) you redeem all of your shares at the end of the periods shown.
===============================================================================
1 year..............$ 130
3 years............. 406
5 years............. 702
10 years............. 1,545
===============================================================================
5
<PAGE>
FUND INVESTMENTS
Principal Investment Strategies and Risks
Q What is the Fund's principal investment strategy?
A The Fund's principal investment strategy is to provide a diversified
investment program within one mutual fund by allocating the Fund's
assets in each of the following investment categories according to the
following targeted ranges. Securities are classified by category at the
time of purchase.
[BAR CHART]
INVESTMENT CATEGORY PERCENTAGE TARGET RANGE OF NET ASSETS
LARGE CAP STOCKS 40-75%
SMALL CAP STOCKS 10-35%
INTERNATIONAL STOCKS 10-30%
BONDS 0-20%
MONEY MARKET INSTRUMENTS 0-20%
The ranges allow for a variance within each investment category. The Fund's
Board of Trustees may revise the target ranges upon 60 days' prior written
notice to shareholders. However, we may go outside the ranges on a temporary
defensive basis without shareholder notification whenever we believe it is in
the best interest of the Fund and its shareholders.
Q Why are stocks and bonds mixed 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 stocks and bonds, is
expected in the long run to entail less market risk (and potentially
less return) than a mutual fund investing exclusively in stocks.
Q How are the investment categories and target ranges selected?
A The investment categories and the target ranges were selected to
provide investors with a diversified investment in a single mutual
fund. Stocks provide the potential for long-term capital growth while
bonds provide a high current return. Money market
6
<PAGE>
instruments provide a means for temporary investment of cash balances
arising in the normal course of business.
However, as a temporary defensive measure because of market, economic,
political, or other conditions, we may invest up to 100% of the Fund's
assets in investment-grade, short-term debt instruments. This may result
in the Fund not achieving its investment objective during the time it is
in this temporary defensive posture.
Q What actions are taken 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 55% in large cap stocks, 15% in small cap stocks, 15% in
international stocks, 10% in bonds, and 5% in money market instruments.
During the quarter, due to market returns, the Fund's portfolio could
hold 45% in large cap stocks, 25% in small cap stocks, 20% in
international stocks, 5% in bonds, and 5% in money market instruments.
In this case, we would sell small cap stocks and could use the proceeds
to buy bonds to bring stocks and bonds back to within their target
ranges.
[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. While we will attempt to minimize any adverse impact
to the Fund or its shareholders, the Fund may have a higher proportion of
capital gains and a lower return than a fund that does not have a rebalancing
policy.
Large Cap Stocks
[SIDE BAR]
MARKET CAPITALIZATION IS THE TOTAL MARKET VALUE OF A COMPANY'S OUTSTANDING
SHARES OF COMMON STOCK.
Q What defines Large Cap Stocks?
A Large Cap Stocks are those of companies that have a market
capitalization larger than the largest market capitalization stock in
the S&P SmallCap 600 Index at the time of purchase. As of June 30,
7
<PAGE>
1999, the largest company in the S&P SmallCap 600 Index had a market
capitalization of $2.58 billion. Keep in mind that the market
capitalization of the companies listed in the index may change with
market conditions and the composition of the index. They may include
real estate investment trusts (REITs).
Q Will the Fund continue to hold such securities if their market
capitalization falls below the benchmark?
A The Fund may continue to hold or purchase more of a security of a
company whose market capitalization has declined below the largest
market capitalization stock of the S&P SmallCap 600 Index. Ordinarily,
we would continue to treat the security as a large cap stock; although
we may, in our discretion, reclassify the security as a small cap stock
or limit the Fund's holdings in such security if we determine it to be
in the best interest of the Fund.
Q How are the decisions to buy and sell Large Cap Stocks made?
A We will invest this category's assets in a diversified group of large
cap growth stocks. We consider a number of factors in that decision such
as:
- a company's strategic position in its industry,
- sales and earnings growth,
- cash flow,
- book value, and
- dividend yield.
Stocks are sold when we believe they are overvalued.
Small Cap Stocks
Q What defines Small Cap Stocks?
A Small Cap Stocks are those of companies that have a market
capitalization equal to or lower than that of the largest market
capitalization stock in the S&P SmallCap 600 Index at the time of
purchase. They may include real estate investment trusts (REITs).
Q Will the Fund continue to hold these securities if their market
capitalization increases above the benchmark?
A Similar to the Large Cap Stocks category, the Fund may continue to hold
or purchase more of a security of a company whose market capitalization
has increased above the largest market capitalization stock in the S&P
SmallCap 600 Index. Ordinarily, we would continue to treat the security
as a small cap stock; although we may, in our
8
<PAGE>
discretion, reclassify the security as a large cap stock or limit the
Fund's holdings in such security if we determine it to be in the best
interest of the Fund.
Q Is there a greater risk in investing in smaller companies?
A Yes. Investing in smaller companies, especially those that have a narrow
product line or are traded infrequently, often involves greater risk
than investing in established companies with proven track records. These
securities may be subject to more price volatility than securities of
larger companies.
Q How are the decisions to buy and sell Small Cap Stocks made?
A We tend to invest in small capitalization companies that have rapid
sales and earnings growth potential. We seek companies that are well
positioned to take advantage of emerging, long-term social and economic
trends and have ample financial resources to sustain their growth. We
may reduce or sell investments in companies if their market
capitalizations grow to the point that they are clearly no longer small
capitalization stocks or if their stock prices appreciate excessively in
relation to fundamental prospects. Companies will also be sold if they
fail to realize their growth potential or if there are more attractive
opportunities elsewhere.
International Stocks
Q What role do International Stocks play in the Fund's portfolio?
A From time to time, the U.S. and foreign stock markets may fluctuate
independently of each other. In other words, a decline in one market
may, in certain circumstances, be offset by a rise in the other market.
In addition, foreign equity markets may provide attractive returns not
otherwise available in the U.S. markets.
Q What is considered to be a "foreign company?"
A A foreign company is one organized under the laws of a foreign country,
and it must also have one of the following additional characteristics:
- the principal trading market for the stock is in a foreign country; or
- at least 50% of its revenues or profits are derived from operations
within foreign countries; or
- at least 50% of its assets are located within foreign countries.
9
<PAGE>
[SIDE BAR]
ADR- FOREIGN SHARES HELD BY A U.S. BANK THAT ISSUES A RECEIPT EVIDENCING
OWNERSHIP. DIVIDENDS ARE PAID IN U.S. DOLLARS.
GDR- FOREIGN SHARES HELD BY A U.S. OR FOREIGN BANK THAT ISSUES A RECEIPT
EVIDENCING OWNERSHIP. DIVIDENDS ARE PAID IN U.S. DOLLARS
[CAUTION LIGHT]
FOREIGN INVESTING RISK. Investing in foreign securities poses unique risks:
currency exchange rate fluctuations; foreign market illiquidity; increased
price volatility; exchange control regulations; foreign ownership limits;
different accounting, reporting, and disclosure requirements; and difficulties
in obtaining legal judgments. Two forms of foreign investing risk are emerging
markets risk and political risk.
* EMERGING MARKETS RISK. Investments in countries that are in the initial
stages of their industrial cycle involve exposure to economic structures
that are generally less diverse and mature than in the United States and to
political systems which may be less stable.
* POLITICAL RISK. Political risk includes a greater potential for coups
d'etat, revolts, and expropriation by governmental organizations.
Q How are the decisions to buy and sell International Stocks made?
A We review countries and regions for economic and political stability as
well as future prospects. Then we research individual companies looking
for favorable valuations, growth prospects, quality of management, and
industry outlook. Securities are sold if we believe they are overvalued
or if the economic or political outlook significantly deteriorates.
[CAUTION LIGHT]
MARKET RISK. Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods,
regardless of the success or failure of a company's operations. Stock markets
tend to run in cycles, with periods when stock prices generally go up, known as
"bull" markets, and periods when stock prices generally go down, referred to as
"bear" markets. Stocks tend to go up and down more than bonds.
Bonds and Money Market Instruments
Q What types of bonds are included in the Fund's portfolio?
A Bonds must be investment grade at the time of purchase and may include
any of the following:
- obligations of the U.S. Government, its agencies, and
instrumentalities;
- mortgage-backed securities;
- asset-backed securities;
- corporate debt securities, such as notes and bonds;
10
<PAGE>
- debt securities of real estate investment trusts;
- obligations of state and local governments and their agencies and
instrumentalities;
- Eurodollar obligations;
- Yankee obligations; and
- other debt securities.
Further description of these securities is found in APPENDIX A on
page 26.
[CAUTION LIGHT]
INTEREST RATE RISK. As a mutual fund investing in bonds, the Fund is subject to
the risk that the market value of the bonds will decline because of rising
interest rates. Bond prices are linked to the prevailing market interest rates.
In general, when interest rates rise, bond prices fall and when interest rates
fall, bond prices 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 maturities generally offer higher yields than bonds with
shorter maturities.
Q What are considered investment-grade securities?
A Investment-grade securities include securities issued or guaranteed by
the U.S. Government, its agencies, and instrumentalities, as well as
securities rated within the categories listed by the following rating
agencies:
===============================================================================
LONG-TERM SHORT-TERM
RATING AGENCY DEBT SECURITIES DEBT SECURITIES
- -------------------------------------------------------------------------------
Moody's Investors At least Prime-3 or
Services, Inc. At least Baa MIG 4/VMIG 4
- -------------------------------------------------------------------------------
Standard & Poor's
Ratings Group At least BBB At least A-3 or SP-2
- -------------------------------------------------------------------------------
Fitch IBCA, Inc. At least BBB At least F-3
- -------------------------------------------------------------------------------
Duff and Phelps At least BBB At least D-3
===============================================================================
or if unrated by these agencies, we must determine that these securities
are of equivalent investment quality.
You will find a complete description of the above debt ratings in
the Fund's Statement of Additional Information.
11
<PAGE>
[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 fixed income instrument such
as a bond or repurchase agreement will fail to make timely payments of interest
or principal. We attempt to minimize the Fund's credit risk by investing in
securities considered investment grade at the time of purchase. When evaluating
potential investments for the Fund, our analysts also assess credit risk and
its impact on the Fund's portfolio. Nevertheless, even investment-grade
securities are subject to some credit risk. Securities 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 securities than is
the case for higher-rated securities. In addition, the ratings of securities
are estimates by the rating agencies of the credit quality of the securities.
The ratings may not take into account every risk related to whether interest or
principal will be repaid on a timely basis.
Q What happens if the rating of a security is downgraded below investment
grade?
A 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 How are the decisions to buy and sell Bonds made?
A We buy bonds that represent value in current market conditions. Value is
a combination of yield, credit quality, structure (maturity, coupon,
redemption features), and liquidity. Recognizing value is the result of
simultaneously analyzing the interaction of these factors among the
securities available in the market. We will sell a security if we become
concerned about its credit risk, we are forced by market factors to
raise money, or an attractive replacement security is available.
Q What types of money market instruments are included in the Fund's
portfolio?
A The money market instruments included in the Fund's portfolio will
consist of investment-grade, U.S. dollar denominated debt securities
that have remaining maturities of one year or less. They
12
<PAGE>
may carry either fixed or variable interest rates and may include
any of the following:
- obligations of the U.S. Government, its agencies, and
instrumentalities;
- repurchase agreements collateralized by the same;
- commercial paper or other short-term corporate obligations;
- certificates of deposit;
- bankers' acceptances; and
- other suitable obligations.
For additional information about other securities in which we may invest the
Fund's assets, see APPENDIX A on page 26.
FUND MANAGEMENT
USAA Investment Management Company serves as the manager and distributor of
this Fund. 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 Road, San Antonio, TX
78288.
We provide management services to the Fund pursuant to an Advisory Agreement.
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 Fund's Board of Trustees. For our services, the Fund pays us
an annual fee. This fee was computed and paid at three-fourths of one percent
(.75%) of average net assets for the fiscal year ended May 31, 1999. We also
provide services related to selling the Fund's shares and receive no
compensation for those services.
Although our officers and employees, as well as those of the Fund, may engage
in personal securities transactions, they are restricted by the procedures in a
Joint Code of Ethics adopted by the Fund 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 Fund's Board of
Trustees has adopted procedures to ensure that any commissions paid to USAA
Brokerage Services are reasonable and fair.
13
<PAGE>
Portfolio Managers
[PHOTOGRAPH]
SEATED L TO R: DAVID G. PEEBLES, W. TRAVIS SELMIER, II, DAVID G. PARSONS,
STANDING L TO R: JOHN K CABELL, JR., PAUL H. LUNDMARK, PAMELA K. BLEDSOE, ERIC
M. EFRON, AND ALBERT C. SEBASTIAN.
LARGE CAP STOCKS
David G. Parsons, Assistant Vice President of Equity Investments, is the asset
allocation manager of the Fund and has managed the Large Cap Stocks investment
category since September 1995. He has 16 years investment management experience
working for us. Mr. Parsons earned the Chartered Financial Analyst (CFA)
designation in 1986 and is a member of the Association for Investment
Management and Research (AIMR) and the San Antonio Financial Analysts Society,
Inc. (SAFAS). He holds an MBA from the University of Texas, an MA from Southern
Illinois University, and a BA from Austin College, Texas.
SMALL CAP STOCKS
John K. Cabell, Jr. and Eric M. Efron, Assistant Vice Presidents of Equity
Investments, have managed the Small Cap Stocks investment category since
September 1995.
Mr. Cabell has 21 years investment management experience and has worked for us
for ten years. Mr. Cabell earned the CFA designation in 1982 and is a member of
AIMR and SAFAS. He holds an MA and a BS from the University of Alabama.
14
<PAGE>
Mr. Efron has 24 years investment management experience and has worked for us
for seven years. Mr. Efron earned the CFA designation in 1983 and is also a
member of AIMR and SAFAS. He holds an MBA from New York University, an MA from
the University of Michigan, and a BA from Oberlin College, Ohio.
INTERNATIONAL STOCKS
Albert C. Sebastian, Assistant Vice President of Equity Investments, has
managed and co-managed the International Stocks investment category since
September 1995. He has 15 years investment management experience and has worked
for us for eight years. Mr. Sebastian earned the CFA designation in 1989 and is
a member of AIMR, SAFAS, and the International Society of Financial Analysts
(ISFA). He holds an MBA from the University of Michigan and a BA from Holy
Cross College, Massachusetts.
David G. Peebles, Vice President of Equity Investments, has co-managed the
International Stocks investment category since October 1996. He has 33 years
investment management experience and has worked for us for 15 years. Mr.
Peebles earned the CFA designation in 1971 and is a member of AIMR, SAFAS, and
ISFA. He holds an MBA and a BS from Texas Christian University.
W. Travis Selmier, II, Assistant Vice President of Equity Investments, has
co-managed the International Stocks investment category since October 1996. He
has 12 years investment management experience and has worked for us for eight
years. Mr. Selmier earned the CFA designation in 1990 and is a member of AIMR,
SAFAS, and ISFA. He holds an MBA from Indiana University, a Certificate of
Proficiency from Sophia University Japanese Language Institute, Japan, and a BA
from the University of California at Santa Barbara.
BONDS
Paul H. Lundmark, Assistant Vice President of Fixed Income Investments, has
managed the Bonds investment category since September 1995. He has 13 years
investment management experience and has worked for us for seven years. Mr.
Lundmark earned the CFA designation in 1989 and is a member of AIMR and SAFAS.
He holds an MBA and BSB from the University of Minnesota.
MONEY MARKET INSTRUMENTS
Pamela K. Bledsoe, Assistant Vice President of Money Market Funds, has managed
the Money Market Instruments investment category since May 1996. She has 11
years investment management experience and has worked for us for eight years.
Ms. Bledsoe earned the CFA designation in 1992 and is a member of AIMR and
SAFAS. She holds an MBA from Texas Christian University and a BS from Louisiana
Tech University.
15
<PAGE>
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.
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
member service representatives are always available to assist you in
structuring and reviewing your investment portfolio.
16
<PAGE>
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 below, each of USAA's Asset Strategy Funds has its
own different mix of assets and objectives.
===============================================================================
Fund Investment Objective Invests in
- -------------------------------------------------------------------------------
Income Seek high current return, with bonds and stocks
Strategy reduced risk over time, through
Fund an asset allocation strategy that
emphasizes income and gives
secondary emphasis to long-term
growth of capital
Growth and Seek a conservative balance tax-exempt bonds
Tax Strategy between income, the majority of and blue chips
Fund which is tax-exempt, and the stocks
potential for long-term growth of
capital to preserve purchasing
power
Balanced Seek high total return, with stocks and bonds
Strategy reduced risk over time, through an
Fund asset allocation strategy that seeks
a combination of long-term growth
a capital and current income
Cornerstone Achieve a positive inflation- U.S. stocks,
Strategy adjusted rate of return and a International
Fund reasonably stable value of Fund stocks, government
shares, thereby preserving securities, real
purchasing power of shareholders' estate securities,
capital and gold securities
Growth Seek high total return, with small and large cap
Strategy reduced risk over time, through stocks, bonds and
Fund an asset allocation strategy that international
emphasizes capital appreciation stocks
and gives secondary 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.
17
<PAGE>
HOW TO INVEST
Purchase of Shares
OPENING AN ACCOUNT
You may open an account and make an investment as described below by mail, in
person, bank wire, electronic funds transfer (EFT), or phone. A complete,
signed application is required to open your initial account. However, after you
open your initial account with us, you will not need to fill out another
application to invest in another Fund unless the registration is different.
TAX ID NUMBER
Each shareholder named on the account must provide a social security number or
tax identification number to avoid possible withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value (NAV)
per share next determined after we receive your request in proper form. The
Fund's NAV is determined at the close of the regular trading session (generally
4:00 p.m. Eastern Time) of the New York Stock Exchange (NYSE) each day the NYSE
is open. If we receive your request and payment prior to that time, your
purchase price will be the NAV per share determined for that day. If we receive
your request or payment 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.
This will avoid a potential four- to six-week delay in the effective date of
your purchase. 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
[MONEY GRAPHIC]
* $3,000 [$500 Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) accounts and
$250 for IRAs] or no initial investment if you elect to have monthly
electronic investments of at least $50 each. We may periodically offer
programs that reduce the minimum amounts for monthly electronic
investments. Employees of USAA and its affiliated companies may open an
account through payroll deduction for as little as $25 per pay period with
no initial investment.
ADDITIONAL PURCHASES
* $50
18
<PAGE>
HOW TO PURCHASE
MAIL
[ENVELOPE GRAPHIC]
* To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Road
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 Road
San Antonio, TX 78288
IN PERSON
[HANDSHAKE GRAPHIC]
* To open an account, bring your application and check to our San Antonio
Sales and Service Office at:
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
BANK WIRE
[WIRE GRAPHIC]
* To open or add to your account, instruct your bank (which may charge a fee
for the service) to wire the specified amount to the Fund as follows:
State Street Bank and Trust Company
Boston, MA 02101
ABA#011000028
Attn: USAA Growth Strategy Fund
USAA Account Number: 69384998
Shareholder(s) Name(s) ___________________________________________
Shareholder(s) Mutual Fund Account Number ________________________
ELECTRONIC FUNDS TRANSFER
[CALENDAR GRAPHIC]
* Additional purchases on a regular basis can be deducted from a bank
account, paycheck, income-producing investment, or 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 1-800-531-8448
[TELEPHONE GRAPHIC]
* If you have an existing USAA mutual fund account and would like to open a
new account or 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.
19
<PAGE>
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 are 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.
We will send you your money within seven days after the effective date of
redemption. Payment for redemption of shares purchased by EFT or check is sent
after 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. For federal
income tax purposes, a redemption is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on your
cost basis in the shares and the price received upon redemption.
In addition, the Fund may elect to suspend the redemption of shares or postpone
the date of payment in limited circumstances.
HOW TO REDEEM
WRITTEN, FAX, TELEGRAM, OR TELEPHONE
[FAX GRAPHIC]
* Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
* Send a signed fax to 1-800-292-8177, or send a telegram to USAA Shareholder
Account Services.
* Call toll free 1-800-531-8448, in San Antonio, 456-7202.
Telephone redemption privileges are 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, the following information is obtained:
(1) USAA number and/or account number, (2) the name(s) on the account
registration, and (3) social security number/tax identification number or date
of birth of the registered account owner(s) for the account registration.
Additionally, all telephone communications with you are recorded and
confirmations of account transactions are sent to the address of record. If you
were issued stock certificates for your shares, redemption by telephone, fax,
or telegram is not available.
20
<PAGE>
IMPORTANT INFORMATION ABOUT PURCHASES AND REDEMPTIONS
Investor's Guide to USAA Mutual Fund Services
[INVESTOR'S GUIDE GRAPHIC]
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 assist you in
your role as an investor. In the INVESTOR'S GUIDE, you will find additional
information on purchases, redemptions, 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
USAA Shareholder Account Services (SAS), the Fund's transfer agent, may assess
annually 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).
Fund Rights
The Fund reserves the right to:
* reject purchase or exchange orders when in the best interest of the Fund;
* limit or discontinue the offering of shares of the Fund without notice to the
shareholders;
* require a signature guarantee for transactions or changes in account
information in those instances where the appropriateness of a signature
authorization is in question. The Statement of Additional Information
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 the shares to be acquired
21
<PAGE>
are offered in your state of residence. After we receive the exchange orders,
the Fund's transfer agent will simultaneously process exchange redemptions and
purchases at the share prices next determined. The investment minimums
applicable to share purchases also apply to exchanges. For federal income tax
purposes, an exchange between Funds is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on the
difference between your cost basis in the shares and the price received upon
exchange.
The Fund has undertaken certain procedures regarding telephone transactions as
described on page 20.
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 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
[SIDE BAR]
NAV PER SHARE
EQUALS
TOTAL ASSETS
MINUS
LIABILITIES
DIVIDED BY
# OF SHARES
OUTSTANDING
The price at which you 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. You may buy and sell Fund shares at the NAV per share without a
sales charge. 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.
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.
Securities trading in various foreign markets may take place on days when the
NYSE is closed. Further, when the NYSE is open, the foreign markets may be
closed. Therefore, the calculation of the Fund's NAV may not take place at the
same time the prices of certain securities held by the Fund are determined. In
most cases, 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 the Fund's NAV is calculated will not be reflected in the
Fund's NAV. If, however, we determine that a particular event would materially
affect the Fund's NAV, then we, under the general supervision of the Board of
22
<PAGE>
Trustees, will use all relevant, available information to determine a fair
value for the affected portfolio securities.
Over-the-counter securities are generally priced at the last sales price or, if
not available, at the average of the bid and asked prices.
Debt securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other debt securities are
valued each business day at their current market value as determined by a
pricing service approved by the Board of Trustees. Securities that cannot be
valued by these methods, and all other assets, are valued in good faith at fair
value using methods we have determined under the general supervision of the
Board of Trustees.
For additional information on how securities are valued, see VALUATION OF
SECURITIES in the Fund's Statement of Additional Information.
Dividends and Distributions
The Fund pays net investment income dividends yearly. Any net capital gain
distribution usually occurs within 60 days of the May 31 fiscal year end, which
would be somewhere around the end of July. The Fund will make additional
payments to shareholders, if necessary, to avoid the imposition of any federal
income or excise tax.
We will automatically reinvest all income dividends and capital gain
distributions in the Fund unless you instruct us differently. The share price
will be the NAV of the Fund shares computed on the ex-dividend date. 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. You should consider
carefully the effects of purchasing shares of the Fund shortly before any
dividend or distribution. Although in effect this would be a return of capital,
some or all of 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. Note that the Taxpayer
Relief Act of 1997 and the technical provisions adopted by the IRS
Restructuring and Reform Act of 1998 may affect the status and treatment of
certain distributions shareholders receive from the Fund. Because each
investor's tax circumstances are unique and because the tax laws are subject to
change, we recommend that you consult your tax adviser about your investment.
23
<PAGE>
SHAREHOLDER - Dividends from taxable net investment income and distributions of
net short-term capital gains are taxable to you 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 you have held 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.
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, or
* fails to certify that he or she 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 you are not currently subject to backup
withholding.
REPORTING - The Fund will report information to you annually concerning the tax
status of dividends and distributions for federal income tax purposes.
Year 2000
Like other organizations around the world, the Fund could be adversely affected
if the computer systems used by the Fund, its service providers, or companies
in which the Fund invests do not properly process and calculate information
that relates to dates beginning on January 1, 2000, and beyond. This situation
may occur because for many years computer programmers used only two digits to
describe years, such as 98 for 1998. A program written in this manner may not
work when it encounters the year 00. To confront this situation, USAA companies
have spent much effort and money; and we are confident that our critical
systems are essentially prepared for the Year 2000. In addition, we are
actively assessing the Year 2000 readiness of our service providers, partners,
and companies in whose securities we invest. It is not possible for us to say
that you will experience no effect from this situation, but we can say that we
are making a large effort to avoid ill effects upon our shareholders.
We do believe you are entitled to know with certainty that we will stand behind
your share balance as of the close of business in 1999. When the market reopens
in 2000, should any computer problem cause a change in the number of shares in
your account, we will return your account to its proper share balance.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by KPMG LLP, whose report, along with the Fund's financial
statements, are included in the Annual Report, which is available upon request.
Nine-Month
Period Ended
Year Ended May 31, May 31,
-------------------------------------------------
1999 1998 1997 1996*
-------------------------------------------------
Net asset value at
beginning of period $ 14.30 $ 13.10 $ 12.74 $ 10.00
Net investment income .12 .13 .15 .11b
Net realized and
unrealized gain 1.05 1.43 .77 2.66
Distributions from net
investment income (.08) (.13) (.12) (.03)
Distributions of realized
capital gains (.69) (.23) (.44) -
------------------------------------------------
Net asset value at
end of period $ 14.70 $ 14.30 $ 13.10 $ 12.74
================================================
Total return (%)** 8.46 12.12 7.73 27.76
Net assets at end of
period (000) $ 258,753 $ 249,412 $ 193,921 $ 87,188
Ratio of expenses to
average net assets (%) 1.28 1.25 1.31 1.66a
Ratio of net investment
income to average net
assets (%) .84 .97 1.46 1.34a
Portfolio turnover (%) 41.65 69.42 62.50 40.21
________________
* Fund commenced operations September 1, 1995.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
a Annualized. The ratio is not necessarily indicative of 12 months of
operations.
b Calculated using weighted average shares.
25
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH WE MAY
INVEST THE FUND'S ASSETS:
REPURCHASE AGREEMENTS
We may invest the Fund's assets in repurchase agreements that are
collateralized by obligations issued or guaranteed as to both principal and
interest by the U.S. Government, its agencies, and instrumentalities. A
repurchase agreement is a transaction in which a security is purchased with a
simultaneous commitment to sell it back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on an agreed upon date.
This date is usually not more than seven days from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest, which is unrelated to the coupon rate or maturity of the purchased
security.
WHEN-ISSUED SECURITIES
We may invest the Fund's assets 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 the Fund's assets 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.
* Because the interest rates of variable rate securities are periodically
adjusted to reflect current market rates, their market value is less
affected by changes in prevailing interest rates than the market value of
securities with fixed interest rates.
* The market value of a variable rate security usually tends toward par (100%
of face value) at interest rate adjustment time.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
We may invest the Fund's assets in mortgage-backed and asset-backed securities.
Mortgage-backed securities include, but are not limited to, securities issued
by the Government National Mortgage Association (Ginnie Mae), the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac). These securities represent ownership in a pool of
mortgage loans. They differ from conventional bonds in that principal is paid
back to the investor as payments are made on the underlying mortgages in the
pool. Accordingly, the Fund receives monthly scheduled payments of principal
and interest along with any unscheduled principal prepayments on the underlying
mortgages. Because these scheduled
26
<PAGE>
and unscheduled principal payments must be reinvested at prevailing interest
rates, mortgage-backed securities do not provide an effective means of locking
in long-term interest rates for the investor. Like other fixed income
securities, when interest rates rise, the value of a mortgage-backed security
generally will decline; however, when interest rates are declining, the value
of mortgage-backed securities with prepayment features may not increase as much
as other fixed income securities.
Mortgage-backed securities also include collateralized mortgage obligations
(CMOs). CMOs are obligations fully collateralized by a portfolio of mortgages
or mortgage-related securities. CMOs are divided into pieces (tranches) with
varying maturities. The cash flow from the underlying mortgages is used to pay
off each tranche separately. CMOs are designed to provide investors with more
predictable maturities than regular mortgage securities but such maturities can
be difficult to predict because of the effect of prepayments. Failure to
accurately predict prepayments can adversely affect the Fund's return on these
investments. CMOs may also be less marketable than other securities.
Asset-backed securities represent a participation in, or are secured by and
payable from, a stream of payments generated by particular assets, such as
credit card, motor vehicle, or trade receivables. They may be pass-through
certificates, which have characteristics very similar to mortgage-backed
securities, discussed above. They may also be in the form of asset-backed
commercial paper, which is issued by a special purpose entity, organized solely
to issue the commercial paper and to purchase interests in the assets. The
credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support and enhancement provided.
The weighted average life of such securities is likely to be substantially
shorter than their stated final maturity as a result of scheduled principal
payments and unscheduled principal prepayments.
MUNICIPAL LEASE OBLIGATIONS
We may invest the Fund's assets in a variety of instruments commonly referred
to as municipal lease obligations, including:
* Leases,
* Installment purchase contracts, and
* Certificates of participation in such leases and contracts.
MASTER DEMAND NOTES
We may invest the Fund's assets in master demand notes, which are obligations
that permit the investment of fluctuating amounts by the Fund, at varying rates
of interest using direct arrangements between the Fund, as lender, and the
borrower. These notes permit daily changes in the amounts borrowed. The Fund
has the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount, and the
borrower may repay up to the full amount of the note without penalty.
27
<PAGE>
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because master demand notes are direct
lending arrangements between the lender and borrower, these instruments
generally will not be traded, and there generally is no secondary market for
these notes, although they are redeemable (and immediately repayable by the
borrower) at face value, plus accrued interest, at any time. We will invest the
Fund's assets in master demand notes only if the Board of Trustees or its
delegate has determined that they are of credit quality comparable to the debt
securities in which the Fund generally may invest.
EURODOLLAR AND YANKEE OBLIGATIONS
We may invest a portion of the Fund's assets in dollar-denominated instruments
that have been issued outside the U.S. capital markets by foreign corporations
and financial institutions and by foreign branches of U.S. corporations and
financial institutions (Eurodollar obligations) as well as dollar-denominated
instruments that have been issued by foreign issuers in the U.S. capital
markets (Yankee obligations).
PUT BONDS
We may invest the Fund's assets in securities (including securities with
variable interest rates) that 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.
FORWARD CURRENCY CONTRACTS
The Fund may hold securities denominated in foreign currencies. As a result,
the value of the securities will be affected by changes in the exchange rate
between the dollar and foreign currencies. In managing currency exposure, the
Fund may enter into forward currency contracts. A forward currency contract
involves an agreement to purchase or sell a specified currency at a specified
future date or over a specified time period at a price set at the time of the
contract. The Fund may only enter into forward currency contracts. When the
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, it desires to "lock in" the U.S. dollar price of the
security until settlement.
ILLIQUID SECURITIES
We may invest up to 15% of the Fund's net assets in securities that are
illiquid. Illiquid securities are those securities which cannot be disposed of
in the ordinary course of business, seven days or less, at approximately the
same value at which the Fund has valued the securities.
28
<PAGE>
APPENDIX B
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 the mutual funds managed and
distributed by USAA Investment Management Company, including charges and
operating expenses, call us for a Prospectus. Read it carefully before you
invest. Mutual fund operating expenses apply and continue throughout the life
of the Fund.
- -----------------------------------------------
FUND TYPE/NAME VOLATILITY
- -----------------------------------------------
CAPITAL APPRECIATION
- -----------------------------------------------
Aggressive Growth Very high
Emerging Markets Very high
First Start Growth Moderate to high
Gold Very high
Growth Moderate to high
Growth & Income Moderate
International Moderate to high
S&P 500 Index Moderate
Science & Technology Very high
Small Cap Stock Very high
World Growth Moderate to high
- -----------------------------------------------
ASSET ALLOCATION
- -----------------------------------------------
Balanced Strategy Moderate
Cornerstone Strategy Moderate
Growth and Tax Strategy Moderate
Growth Strategy Moderate to high
Income Strategy Low to moderate
- -----------------------------------------------
INCOME- TAXABLE
- -----------------------------------------------
GNMA Low to moderate
High-Yield Opportunities High
Income Moderate
Income Stock Moderate
Intermediate-Term Bond Low to moderate
Short-Term Bond Low
- ------------------------------------------------
INCOME - TAX EXEMPT
- ------------------------------------------------
Long-Term Moderate
Intermediate-Term Low to moderate
Short-Term Low
State Bond/Income Moderate
- ------------------------------------------------
MONEY MARKET
- ------------------------------------------------
Money Market Very low
Tax Exempt Money Market Very low
Treasury Money Market Trust Very low
State Money Market Very low
- ------------------------------------------------
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS,
MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
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.
SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES.
CALIFORNIA, FLORIDA, NEW YORK, TEXAS, AND VIRGINIA FUNDS ARE OFFERED ONLY TO
RESIDENTS OF THOSE STATES.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE
OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
THE SCIENCE & TECHNOLOGY FUND MAY BE MORE VOLATILE THAN A FUND THAT DIVERSIFIES
ACROSS MANY INDUSTRIES.
29
<PAGE>
NOTES
<PAGE>
NOTES
<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),
Annual or Semiannual Report, or to ask other questions about the Fund. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of the Prospectus. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
To view these documents, along with other related documents, you can visit the
SEC's Internet web site (http://www.sec.gov) or the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the public
reference room can be obtained by calling 1-800-SEC-0330. Additionally, copies
of this information can be obtained, for a duplicating fee, by writing the
Public Reference Section of the Commission, Washington, D.C. 20549-6009.
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
----------------------------------------------------------
Transfer Agent Custodian
USAA Shareholder Account Services State Street Bank and Trust Company
9800 Fredericksburg Road P.O. Box 1713
San Antonio, Texas 78288 Boston, Massachusetts 02105
----------------------------------------------------------
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 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
INVESTMENT COMPANY ACT FILE NO. 811-4019
<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
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USAA USAA
EAGLE INVESTMENT STATEMENT OF
LOGO TRUST ADDITIONAL INFORMATION
October 1, 1999
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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.
You may obtain a free copy of a Prospectus dated October 1, 1999, for each Fund
by writing to USAA Investment Trust, 9800 Fredericksburg Road, 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.
The financial statements of the Funds and the Independent Auditors' Report
thereon for the fiscal year ended May 31, 1999, are included in the
accompanying Annual Report to Shareholders of that date and are incorporated
herein by reference.
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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
9 Special Risk Considerations
9 Investment Restrictions
12 Portfolio Transactions
15 Description of Shares
16 Tax Considerations
17 Trustees and Officers of the Trust
20 The Trust's Manager
21 General Information
22 Calculation of Performance Data
23 Appendix A - Long-Term and Short-Term Debt Ratings
26 Appendix B - Comparison of Portfolio Performance
29 Appendix C - Dollar-Cost Averaging
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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 each Fund (except Treasury Money Market 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 that 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.
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. There can be no assurance, however, that the Fund
will at all times be able to maintain a constant $1 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 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing
shareholders. In the event that it is determined that such a deviation exists,
the Board of Trustees will take such corrective action as it regards as
necessary and appropriate. Such action may include, among other options,
selling portfolio instruments prior to maturity to the Manager or another
party, withholding dividends, or establishing a NAV per share by using
available market quotations.
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CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is canceled due to nonpayment or if the Trust
does not receive good funds either by check or electronic funds transfer, USAA
Shareholder Account Services (Transfer Agent) will treat the cancellation 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, the
Transfer Agent can redeem shares from any of your accounts 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
You may transfer Fund shares to another person by sending written instructions
to the 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,
you must complete and return an application to the Transfer Agent.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of your 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 that 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 you. 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 your last known address.
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 amounts 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. You will continue to earn dividends until
the shares are redeemed by the presentation of a check.
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When a check is presented to the Transfer Agent for payment, a sufficient
number of full and fractional shares from your account will be redeemed to
cover the amount of a check. If the account balance 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 checkwriting privilege is 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 you for the use
of the checks or for subsequent reorders of checks.
The Trust reserves the right to assess a processing fee against your
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.
You may request that the Transfer Agent stop payment on a check. The
Transfer Agent will use its best efforts to execute stop payment instructions,
but does not guarantee that such efforts will be effective. The Transfer Agent
will charge you $10 for each stop payment you request.
INVESTMENT PLANS
The Trust makes available the following investment plans 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 no initial investment plan. With this plan the regular minimum
initial investment amount is waived if you make 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 a non-governmental employer, an income-producing
investment, or an account with a participating financial institution.
DIRECT DEPOSIT PROGRAM - The monthly transfer of certain federal benefits to
directly purchase shares of a USAA mutual fund. Eligible federal benefits
include: Social Security, Supplemental Security Income, Veterans Compensation
and Pension, Civil Service Retirement Annuity, and Civil Service Survivor
Annuity.
GOVERNMENT ALLOTMENT - The transfer of military pay by the U.S. Government
Finance Center for the purchase of USAA mutual fund shares.
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. You may
initiate a "buy" or "sell" whenever you choose.
DIRECTED DIVIDENDS - If you own shares in more than one of the Funds in the
USAA Family of Funds, you may direct that dividends and/or capital gain
distributions earned in one fund be used to purchase shares automatically in
another fund.
Participation in these systematic purchase plans allows you to engage in
dollar-cost averaging. For additional information concerning the benefits of
dollar-cost averaging, see APPENDIX C.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares having a NAV of $5,000 or more in a single investment account
(accounts in different Funds cannot be aggregated for this purpose) you 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
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must be at least $50. Using the electronic funds transfer service, you may
choose to have withdrawals electronically deposited at your bank or other
financial institution. You may also elect to have checks mailed to a designated
address.
This 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. You may terminate participation in the
plan at any time. You are not charged 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 you select 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 your
investment and eventually exhaust the account. Reinvesting dividends and
distributions helps replenish the account. Because share values and net
investment income can fluctuate, you 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 your income tax return. Therefore, you 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 you qualify for certain
types of retirement programs. For your convenience, the Manager offers
403(b)(7) accounts and various forms of IRAs. You may make investments 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 Road,
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 money sent to you after
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 you 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. You may
obtain detailed information about the plans from the Manager.
INVESTMENT POLICIES
The sections captioned WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN
STRATEGY? and FUND INVESTMENTS in each Fund's Prospectus describe the
fundamental investment objective(s) and the investment policies applicable to
each Fund. Each Fund's objective(s) cannot be changed without shareholder
approval. 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.
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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. In evaluating a potential investment in such a lease
obligation, the Manager will consider: (1) the credit quality of the obligor;
(2) whether the underlying property is essential to a governmental function;
and (3) whether the lease obligation contains covenants prohibiting the obligor
from substituting similar property if the obligor fails to make appropriations
for the lease obligation.
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 SEC limitations
applicable to each Fund's 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.
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. Also, the maturities of mortgage-backed
securities, some asset-backed securities, and securities subject to sinking
fund arrangements are determined on a weighted average life basis, which is the
average time for principal to be repaid. For mortgage-backed and some
asset-backed securities, this average time is calculated by assuming a constant
prepayment rate (CPR) for the life of the mortgages or assets backing the
security. The CPR for a security can vary depending upon the level and
volatility of interest rates. This, in turn, can affect the weighted average
life of the security. 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
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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 Fund, 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 until settlement. By entering into
such a contract, a Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar
and the foreign currency from the date the security is purchased or sold to the
date on which payment is made or received. Second, when management of a Fund
believes that the currency of a specific country may deteriorate relative to
the U.S. dollar, it may enter into a forward contract to sell that currency. A
Fund may not hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time of making any sale of
forward currency) of the securities held in its portfolio denominated or quoted
in, or bearing a substantial correlation to, such currency.
The use of forward contracts involves certain risks. The precise matching
of contract amounts and the value of securities involved generally will not be
possible since the future value of such securities in currencies more than
likely will change between the date the contract is entered into and the date
it matures. The projection of short-term currency market movements is extremely
difficult and successful execution of a short-term hedging strategy is
uncertain. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the longer term investment
strategies. The Manager believes it is important, however, to have the
flexibility to enter into such contracts when it determines it is in the best
interest of the Funds to do so. It is impossible to forecast what the market
value of portfolio securities will be at the expiration of a contract.
Accordingly, it may be necessary for the Funds to purchase additional currency
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Funds are obligated to deliver, and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell some of the foreign currency received
on the sale of the portfolio security if its market value exceeds the amount of
currency the Funds are obligated to deliver. The Funds are not required to
enter into such transactions and will not do so unless deemed appropriate by
the Manager.
Although the Funds value their assets each business day in terms of U.S.
dollars, they do not intend to convert their foreign currencies into U.S.
dollars on a daily basis. They will do so from time to time, and shareholders
should be aware of currency conversion costs. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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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 Markets 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.
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 Notes.
8
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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 IBCA, 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.
REPURCHASE AGREEMENTS
Each Fund, except the Growth and Tax Strategy Fund, may invest in repurchase
agreements which are collateralized by obligations issued or guaranteed as to
both principal and interest by the U.S. Government, its agencies, or
instrumentalities. A repurchase agreement is a transaction in which a security
is purchased with a simultaneous commitment to sell it back to the seller (a
commercial bank or recognized securities dealer) at an agreed upon price on an
agreed upon date. This date is usually not more than seven days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
market rate of interest, which is unrelated to the coupon rate or maturity of
the purchased security. The obligation of the seller to pay the agreed upon
price is in effect secured by the value of the underlying security. In these
transactions, the securities purchased by a Fund will have a total value equal
to or in excess of the amount of the repurchase obligation and will be held by
the Fund's custodian until repurchased. If the seller defaults and the value of
the underlying security declines, the Fund may incur a loss and may incur
expenses in selling the collateral. If the seller seeks relief under the
bankruptcy laws, the disposition of the collateral may be delayed or limited.
TEMPORARY DEFENSIVE POLICY
Each Fund, except the Treasury Money Market Trust, may on a temporary basis
because of market, economic, political, or other conditions, invest up to 100%
of its assets in investment-grade, short-term debt instruments. Such securities
may consist of obligations of the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by such instruments;
certificates of deposit of domestic banks having capital, surplus, and
undivided profits in excess of $100 million; banker's acceptances of similar
banks; commercial paper and other corporate debt obligations.
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 each
Fund. 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.
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Under the restrictions, each of the Growth and Tax Strategy, Cornerstone
Strategy, Gold, International, and World Growth Funds may not:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (except U.S. Government Securities, as such term is defined in the
Investment Company Act of 1940, as amended (1940 Act)) if, as a result,
the Fund would own more than 10% of the outstanding voting securities of
such issuer or the Fund would have more than 5% of the value of its total
assets invested in the securities of such issuer.
(2) Borrow money, except for temporary or emergency purposes in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings).
(3) Lend any securities or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, except that this
limitation does not apply to purchases of debt securities or to
repurchase agreements.
(4) Underwrite securities of other issuers, except to the extent that it may
be deemed to act as a statutory underwriter in the distribution of any
restricted securities or not readily marketable securities.
(5) Purchase securities on margin or sell securities short, except that it
may obtain such short-term credits as are necessary for the clearance of
securities transactions.
(6) Invest in put, call, straddle, or spread options or interests in oil, gas
or other mineral exploration or development programs, except that it may
purchase securities of issuers whose principal business activities fall
within such areas in accordance with its investment objectives and
policies.
(7) Invest more than 2% of the market value of its total assets in marketable
warrants to purchase common stock. Warrants initially attached to
securities and acquired by a Fund upon original issuance thereof shall be
deemed to be without value.
(8) Purchase or sell real estate or partnership interests therein, except
that the Cornerstone Strategy Fund may purchase securities secured by
real estate interests or interests therein, or issued by companies or
investment trusts which invest in real estate or interests therein.
(9) Purchase or sell commodities or commodity contracts.
(10) Purchase securities of other open-end investment companies, except a Fund
may invest up to 10% of the market value of its total assets in such
securities through purchases in the open market involving only customary
broker's commissions or in connection with a merger, consolidation,
reorganization, or acquisition of assets approved by the shareholders.
(11) Invest more than 5% of the market value of its total assets in any
closed-end investment company and will not hold more than 3% of the
outstanding voting stock of any closed-end investment company.
(12) Change the nature of its business so as to cease to be an investment
company.
(13) Issue senior securities as defined in the 1940 Act, except as permitted
by Section 18(f)(2) and rules thereunder.
(14) Invest more than 25% of its total assets in one industry.
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.
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(6) Issue senior securities as defined in the 1940 Act, except as permitted
by Section 18(f)(2) and rules thereunder.
(7) Purchase or sell real estate, commodities or commodity contracts, except
that the GNMA Trust may invest in financial futures contracts and options
thereon.
(8) Purchase any security if immediately after the purchase 25% or more of
the value of its total assets will be invested in securities of issuers
principally engaged in a particular industry (except that such limitation
does not apply to obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities).
The Emerging Markets Fund may not:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (except U.S. Government Securities, as such term is defined in the
1940 Act) if, as a result, it would own more than 10% of the outstanding
voting securities of such issuer or it would have more than 5% of the
value of its total assets invested in the securities of such issuer.
(2) Borrow money, except that it may borrow money for temporary or emergency
purposes in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than borrowings),
nor will it purchase securities when its borrowings exceed 5% of its
total assets.
(3) Concentrate its investments in any one industry although it may invest up
to 25% of the value of its total assets in any one industry; provided,
this limitation does not apply to securities issued or guaranteed by the
U.S. Government or its corporate instrumentalities.
(4) Issue senior securities, except as permitted under the 1940 Act.
(5) Underwrite securities of other issuers, except to the extent that it may
be deemed to act as a statutory underwriter in the distribution of any
restricted securities or not readily marketable securities.
(6) Lend any securities or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, except that this
limitation does not apply to purchases of debt securities or to
repurchase agreements.
(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.
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With respect to each Fund's concentration policies as described above, 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.
ADDITIONAL RESTRICTION
The following restriction is not considered to be a fundamental policy of the
Funds. The Board of Trustees may change this additional restriction without
notice to or approval by the shareholders.
Each Fund may not 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.
The Funds will have no obligation to deal with any particular broker or
group of brokers in the execution of portfolio transactions. The Funds
contemplate that, consistent with obtaining the best overall terms available,
brokerage transactions may be effected through USAA Brokerage Services, a
discount brokerage service of the Manager. The Trust's Board of Trustees has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act designed to
ensure that all brokerage commissions paid to USAA Brokerage Services are
reasonable and fair. The Trust's Board of Trustees has authorized the Manager,
as a member of the Chicago Stock Exchange, to effect portfolio transactions for
the Funds on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations.
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
statistical 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. These research services may also include access to
research on third party data bases, such as historical data on companies,
financial statements, earnings history and estimates, and corporate releases;
real-time quotes and financial news; research on specific fixed income
securities; research on international market news and securities; and rating
services on companies and industries. 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
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<PAGE>
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.
During the fiscal year ended May 31, 1999, the Fund purchased securities
of the following regular broker-dealers (the ten largest broker-dealers through
whom the Fund purchased securities) or the parents of regular broker-dealers.
REGULAR BROKER DEALER VALUE OF SECURITIES
- --------------------- AS OF MAY 31, 1999
-------------------
Morgan Stanley Dean Witter & Company
Growth & Tax Strategy $1,560,000
World Growth $3,078,000
Income Strategy $ 271,000
Balanced Strategy $1,081,000
Growth Strategy $ 618,000
Citigroup
Growth & Tax Strategy $3,495,000
Income Strategy $ 272,000
Balanced Strategy $1,060,000
Merrill Lynch
Income Strategy $ 94,000
Balanced Strategy $1,302,000
Growth Strategy $1,777,000
BROKERAGE COMMISSION
During the last three fiscal years, the Funds paid the following brokerage
fees:
FUND 1997 1998 1999
- --------------- ---- ---- ----
Income Strategy $ 2,820 $ 7,690 $ 21,501
Growth and Tax Strategy $ 81,456 $ 50,508 $ 97,792
Balanced Strategy $ 13,006 $ 29,977 $ 75,407
Cornerstone Strategy $ 1,428,772 $ 1,466,734 $ 1,233,228
Growth Strategy $ 230,440 $ 247,249 $ 160,115
Emerging Markets $ 484,792 $ 1,578,101 $ 1,309,471
Gold $ 225,284 $ 165,197 $ 262,813
International $ 1,362,389 $ 1,317,048 $ 970,956
World Growth $ 558,990 $ 586,870 $ 502,635
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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 1997 1998 1999*
---- ---- ---- -----
Income Strategy $ 454 $ 802 $ 4,816
Growth and Tax Strategy $ 15,356 $ 3,976 $ 29,728
Balanced Strategy $ 1,132 $ 2,168 $ 12,104
Cornerstone Strategy $ 11,878 $ 6,200 $ 27,720
Growth Strategy $ 10,580 $ 8,951 $ 11,419
Emerging Markets $ 240 - -
World Growth $ 2,380 $ 2,800 $ 18,428
- ---------------------
* These amounts are 22.4%, 30.4%, 16.1%, 2.2%, 7.1%, -%, and 3.7%,
respectively, of brokerage fees paid by each Fund.
For the year ended May 31, 1999, 25.9%, 26.3%, 19.4%, 4.9%, 11.7%, and 7.6%, 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, 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 $6,208,774, $58,950,062,
$22,575,215, $101,176,414, $20,736,073, and $39,783,928, and the related
brokerage commissions or underwriting commissions were $5,507, $63,060,
$20,025, $107,285, $23,362, and $45,127, for the Income Strategy, Growth and
Tax Strategy, Balanced Strategy, Cornerstone Strategy, Growth Strategy, and
World Growth Funds, respectively, for the year ended May 31, 1999.
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
computing the turnover rate.
For the last two fiscal years, the Funds' portfolio turnover rates were as
follows:
FUND 1998 1999
--- ---- ----
Income Strategy 7.15% 117.12%*
Growth and Tax Strategy1 65.58% 63.42%
Balanced Strategy 22.18% 63.39%
Cornerstone Strategy 32.73% 46.27%
Growth Strategy 69.42% 41.65%
Emerging Markets 41.23% 83.84%
Gold 19.62% 33.48%
International 42.97% 37.69%
World Growth 45.04% 51.19%
GNMA Trust 60.85% 64.93%
___________
* The turnover rate was significantly higher due to the restructuring of the
portfolio to make the Fund more tax efficient.
1 The Fund has simultaneously purchased and sold the same securities. These
transactions have at times been 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 have been as follows:
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YEAR ENDED MAY 31,
------------------
1998 1999
---- ----
Portfolio turnover 31.58% -
Purchases and sales of this type are as follows:
Purchases (000) $68,958 -
Sales (000) $69,044 -
DESCRIPTION OF SHARES
The Funds are series of the Trust and are diversified. The Trust is an open-end
management investment company established under the laws of the Commonwealth of
Massachusetts pursuant to the First Amended and Restated Master Trust Agreement
(Master Trust Agreement), dated June 2, 1995, as amended. The Trust is
authorized to issue shares of beneficial interest in separate portfolios.
Eleven such portfolios have been established which are described in this SAI.
Under the Master Trust Agreement, 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. The Trust 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. 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.
The Trust will assist in communicating to other shareholders about the meeting.
On any matter submitted to the shareholders, the holder of any share is
entitled to one vote per share (with proportionate voting for fractional
shares) regardless of the relative net asset values of the Funds' shares.
However, on matters affecting an individual Fund, a separate vote of the
shareholders of that Fund is required. For example, the Advisory Agreement must
be approved separately by each Fund and only becomes effective with respect to
a Fund when a majority of the outstanding voting securities of that Fund
approves it. Shareholders of a Fund are not entitled to vote on any matter
which does not affect that Fund but which requires a separate vote of another
Fund. For example, a proposed change in the investment objectives of a
particular Fund would require the affirmative vote of a majority of the
outstanding voting securities of only that Fund.
Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of
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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) and (2) 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, 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 or she has held them for more
than six months, any loss on the redemption or exchange that is less than or
equal to the amount of the distribution will be treated as long-term capital
loss, except as noted below.
In the case of the Growth and Tax Strategy Fund, if a shareholder receives
an exempt-interest dividend with respect to any share and such share has been
held for six months or less, any loss on the sale or exchange of such share
will be disallowed to the extent of such exempt-interest dividend. Shareholders
who are recipients of Social Security benefits should be aware that
exempt-interest dividends received from the Growth and Tax Strategy Fund are
includible in their "modified adjusted gross income" for purposes of
determining the amount of such Social Security benefits, if any, that are
required to be included in their gross income.
16
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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 who supervise the
business affairs of the Trust. 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 Road, San Antonio, TX 78288.
Robert G. Davis 1, 2
Trustee and Chairman of the Board of Trustees
Age: 52
President and Chief Operating Officer of United Services Automobile Association
(USAA) (6/99-present); Deputy Chief Executive Officer for Capital Management of
USAA (6/98-5/99); 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); President, Chief Executive
Officer, Director, and Chairman of the Board of Directors of USAA Financial
Planning Network, Inc. (1/97-present); Executive Vice President, Chief
Operating Officer, Director, and Vice Chairman of the Board of Directors of
USAA Financial Planning Network, Inc. (6/96-12/96); Special Assistant to
Chairman, 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 serves as a Trustee/Director and
Chairman of the Boards of Trustees/Directors of each of the remaining funds
within the USAA Family of Funds; Director and Chairman of the Boards of
Directors of USAA Investment Management Company (IMCO), 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: 58
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/Director, and Vice Chairman of the Boards of
Trustees/Directors of each of the remaining funds within the USAA Family of
Funds and USAA Shareholder Account Services; Director of USAA Life Insurance
Company; and Trustee and Vice Chairman of USAA Life Investment Trust.
John W. Saunders, Jr. 1, 2, 4
Trustee and Vice President
Age: 64
Senior Vice President, Fixed Income Investments, IMCO (10/85-present). Mr.
Saunders serves as a Trustee/Director of each of the remaining funds within the
USAA Family of Funds; Director of IMCO; Senior Vice President of USAA
Shareholder Account Services; and Vice President of USAA Life Investment Trust.
17
<PAGE>
Barbara B. Dreeben 3, 4, 5
200 Patterson #1008
San Antonio, TX 78209
Trustee
Age: 54
President, Postal Addvantage (7/92-present); Consultant, Nancy Harkins
Stationer (8/91-12/95). Mrs. Dreeben serves as a Trustee/Director of each of
the remaining funds within the USAA Family of Funds.
Howard L. Freeman, Jr. 2, 3, 4, 5
2710 Hopeton
San Antonio, TX 78230
Trustee
Age: 64
Retired. Assistant General Manager for Finance, San Antonio City Public Service
Board (1976-1996). Mr. Freeman serves as a Trustee/Director of each of the
remaining funds within the USAA Family of Funds.
Robert L. Mason, Ph.D. 3, 4, 5
12823 Queens Forest
San Antonio, TX 78230
Trustee
Age: 53
Staff Analyst, Southwest Research Institute (9/98-present); Manager,
Statistical Analysis Section, Southwest Research Institute (2/79-9/98). Dr.
Mason serves as a Trustee/Director of each of the remaining funds within the
USAA Family of Funds.
Richard A. Zucker 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Trustee
Age: 56
Vice President, Beldon Roofing and Remodeling (1985-present). Mr. Zucker serves
as a Trustee/Director of each of the remaining funds within the USAA Family of
Funds.
Michael D. Wagner 1
Secretary
Age: 51
Senior Vice President, CAPCO General Counsel (01/99-present); Vice President,
Corporate Counsel, USAA (1982-01/99). 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
of each of the remaining funds within the USAA Family of Funds; and Vice
President, Corporate Counsel, for various other USAA subsidiaries and
affiliates.
Alex M. Ciccone 1
Assistant Secretary
Age: 49
Vice President, Compliance, IMCO (12/94-present); Vice President and Chief
Operating Officer, Commonwealth Shareholder Services (6/94-11/94). Mr. Ciccone
serves as Assistant Secretary of each of the remaining funds within the USAA
Family of Funds.
Mark S. Howard 1
Assistant Secretary
Age: 35
Assistant Vice President, Securities Counsel, USAA (2/98-present); Executive
Director, Securities Counsel, USAA (9/96-2/98); Senior Associate Counsel,
Securities Counsel, USAA (5/95-8/96); Attorney, Kirkpatrick & Lockhart LLP
(9/90-4/95). Mr. Howard serves as Assistant Vice President and Assistant
Secretary, IMCO and USAA Shareholder Account Services; Assistant Secretary of
each of the remaining funds within the USAA Family of Funds; and Assistant Vice
President, Securities Counsel for various other USAA subsidiaries and
affiliates.
18
<PAGE>
Sherron A. Kirk 1
Treasurer
Age: 54
Vice President, Senior Financial Officer, IMCO (8/98-present); Vice President,
Controller, IMCO (10/92-8/98). Mrs. Kirk serves as Treasurer of each of the
remaining funds within the USAA Family of Funds; and Vice President, Senior
Financial Officer of USAA Shareholder Account Services.
Caryl Swann 1
Assistant Treasurer
Age: 51
Executive Director, Mutual Fund Analysis & Support, IMCO (10/98-present);
Director, Mutual Fund Portfolio Analysis & Support, IMCO (2/98-10/98); Manager,
Mutual Fund Accounting, IMCO (7/92-2/98). Ms. Swann serves as Assistant
Treasurer for each of the remaining funds within the USAA Family of Funds.
- ---------
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: Carl W.
Shirley, Senior Vice President, Insurance Company Portfolios; John J. Dallahan,
Senior Vice President, Investment Services; and David G. Peebles, Senior Vice
President, Equity Investments. 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, 1999.
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 $8,461 $30,500
Howard L. Freeman, Jr. $8,461 $30,500
Robert L. Mason $8,461 $30,500
Michael J.C. Roth None (a) None (a)
John W. Saunders, Jr. None (a) None (a)
Richard A. Zucker $8,461 $30,500
- --------------
(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, 1999, the USAA Family of Funds consisted of four registered
investment companies offering 35 individual funds. Each Trustee presently
serves as a Trustee or Director of each investment company in the USAA
Family of Funds. In addition, Michael J.C. Roth presently serves as a
Trustee
19
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of USAA Life Investment Trust, a registered investment company advised by
IMCO, consisting of seven funds available to the public only through the
purchase of certain variable annuity contracts and variable life insurance
policies offered by 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
within the USAA Family of Funds. 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 reimburses certain expenses of the Trustees who are not
affiliated with the investment adviser. As of June 30, 1999, 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, 1999, USAA and its affiliates owned 303,024 shares (5.2%)
of the Income Strategy Fund, 25,544,231 shares (79.3%) of the Emerging Markets
Fund, 2,456,823 shares (9.7%) of the International Fund, and no shares of the
Growth and Tax Strategy Fund, Balanced Strategy Fund, Cornerstone Strategy
Fund, Growth Strategy Fund, Gold Fund, World Growth Fund, GNMA Trust and
Treasury Money Market Trust.
The Trust knows of no other persons who, as of June 30, 1999, 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, a wholly owned indirect subsidiary of United Services
Automobile Association (USAA), a large, diversified financial services
institution, was 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 FUND MANAGEMENT in its Prospectus.
Management fees are computed and accrued daily and are payable monthly.
Except for the services and facilities provided by the Manager, the Funds
pay all other expenses incurred in their operations. Expenses for which the
Funds are responsible include taxes (if any); brokerage commissions on
portfolio transactions (if any); 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 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, 2000, 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).
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<PAGE>
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 Balanced Strategy Fund to 1.25% of the Fund's ANA, until
October 1, 2000, and will reimburse the Fund for all expenses in excess of such
limitation. After October 1, 2000, 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 1997 1998 1999
---- ---- ---- ----
Income Strategy $ 65,023 $ 118,050 $ 295,068
Growth and Tax Strategy $ 852,055 $ 1,048,344 $ 1,179,802
Balanced Strategy $ 190,093 $ 360,127 $ 588,256
Cornerstone Strategy $ 8,496,435 $ 10,594,219 $ 10,071,779
Growth Strategy $ 990,525 $ 1,754,693 $ 1,844,418
Emerging Markets $ 600,181 $ 2,598,294 $ 2,408,986
Gold $ 996,721 $ 744,517 $ 672,400
International $ 3,805,999 $ 4,650,798 $ 3,990,284
World Growth $ 1,994,809 $ 2,524,040 $ 2,421,173
GNMA Trust $ 381,390 $ 427,196 $ 554,601
Treasury Money Market Trust $ 105,420 $ 118,804 $ 160,368
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 1997 1998 1999
---- ---- ---- ----
Income Strategy $ 66,382 $ 51,777 -
Balanced Strategy $ 37,577 $ 34,811 $ 52,511
Treasury Money Market Trust $ 15,808 $ 17,721 -
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 of $26 to
$28.50 per account. The 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, each Fund pays 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.
21
<PAGE>
INDEPENDENT AUDITORS
KPMG 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.
CALCULATION OF PERFORMANCE DATA
Information regarding the total return and yield of each Fund is provided under
COULD THE VALUE OF YOUR INVESTMENT IN THE FUND FLUCTUATE? 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 and income other than
investment income, 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 May 31, 1999, was 4.42%.
Effective Yield For 7-day Period ended May 31, 1999, was 4.52%.
YIELD - INCOME STRATEGY FUND, GROWTH AND TAX STRATEGY FUND, AND GNMA TRUST
These Funds may advertise performance in terms of 30-day yield quotation. The
30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2[((a-b)/(cd)+ 1)^6 -1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
The 30-day yields for the period ended May 31, 1999, for the Income Strategy
Fund, Growth and Tax Strategy Fund, and GNMA Trust were 3.94%, 2.63% and 6.28%,
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, 1999, was
3.87%.
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 May 31, 1999
1 5 10 From
FUND YEAR YEARS YEARS INCEPTION*
- -------------------------------------------------------------------------------
Income Strategy 4.97% - - 10.14%
Growth and Tax Strategy 9.10% 12.76% 10.33% 10.66%
Balanced Strategy 7.63% 14.46% - 13.26%
Cornerstone Strategy (0.74%) 11.25% 10.32% 12.09%
Growth Strategy 8.46% - - 14.72%
Emerging Markets (4.63%) - - (1.43%)
Gold (9.20%) (9.57%) (3.30%) (3.14%)
International (6.63%) 8.66% 10.05% 9.67%
World Growth 2.06% 12.04% - 12.97%
GNMA Trust 3.15% 7.39% - 7.38%
- --------------
* 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 INVESTOR SERVICES, INC.
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
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<PAGE>
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 risk appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NOTE: MOODY'S APPLIES NUMERICAL MODIFIERS 1, 2, AND 3 IN EACH GENERIC RATING
CLASSIFICATION. THE MODIFIER 1 INDICATES THAT THE OBLIGATION RANKS IN THE
HIGHER END OF ITS GENERIC RATING CATEGORY, THE MODIFIER 2 INDICATES A MID-RANGE
RANKING, AND THE MODIFIER 3 INDICATES A RANKING IN THE LOWER END OF THAT
GENERIC RATING CATEGORY.
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.
STANDARD & POOR'S RATINGS GROUP
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest rated issues only in
small degree. The obligor's capacity to meet its financial commitment
on the obligation is VERY STRONG.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
STRONG.
BBB An obligation rated BBB exhibits adequate capacity to pay interest and
repay principal. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
PLUS (+) OR MINUS (-): THE RATINGS FROM AA TO BBB MAY BE MODIFIED BY THE
ADDITION OF A PLUS OR MINUS SIGN TO SHOW RELATIVE STANDING WITHIN THE MAJOR
RATING CATEGORIES.
FITCH IBCA, INC.
AAA Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. "AA" ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
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, INC.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
24
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A Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
2. SHORT-TERM DEBT RATINGS:
MOODY'S MUNICIPAL
MIG-1/VMIG1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to
the market for refinancing.
MIG-2/VMIG2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
MOODY'S CORPORATE AND GOVERNMENT
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
* Leading market positions in well-established industries.
* High rates of return on funds employed.
* Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
* Broad margins in earning coverage of fixed financial charges and
high internal cash generation.
* Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term promissory 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, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
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.
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.
FITCH
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit features.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-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.
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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 quality issues 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 also 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 but are not restricted to the following:
AAII JOURNAL, a monthly association magazine for members of the American
Association of Individual Investors.
ARIZONA REPUBLIC, a newspaper that may cover financial and investment news.
AUSTIN AMERICAN-STATESMAN, a newspaper that 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 that may cover financial news.
CONSUMER REPORTS, a monthly magazine that from time to time reports on
companies in the mutual fund industry.
DALLAS MORNING NEWS, a newspaper that may cover financial news.
DENVER POST, a newspaper that may quote financial news.
FINANCIAL PLANNING, a monthly magazine that periodically features companies in
the mutual fund industry.
FINANCIAL SERVICES WEEK, a weekly newspaper that covers financial news.
FINANCIAL WORLD, a monthly magazine that periodically features companies in the
mutual fund industry.
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 that may cover financial news.
HOUSTON POST, a newspaper that may cover financial news.
IBC'S MONEYLETTER, a biweekly newsletter that covers financial news and from
time to time rates specific mutual funds.
INCOME AND SAFETY, a monthly newsletter that rates mutual funds.
INVESTECH, a bimonthly investment newsletter.
INVESTMENT ADVISOR, a monthly publication directed primarily to the advisor
community; includes ranking of mutual funds using a proprietary methodology.
26
<PAGE>
INVESTMENT COMPANY INSTITUTE, the national association of the American
Investment Company industry.
INVESTOR'S BUSINESS DAILY, a newspaper that 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 EQUITY FUND PERFORMANCE ANALYSIS, a weekly
and monthly publication of industry-wide mutual fund performance averages by
type of fund.
LIPPER ANALYTICAL SERVICES, INC.'S FIXED INCOME FUND PERFORMANCE ANALYSIS, a
monthly publication of industry-wide mutual fund performance averages by type
of fund.
LOS ANGELES TIMES, a newspaper that 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 that 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 industry-wide mutual
fund averages 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.
that 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 that may cover financial news.
NO LOAD FUND INVESTOR, a newsletter covering companies in the mutual fund
industry.
ORLANDO SENTINEL, a newspaper that may cover financial news.
PERSONAL INVESTOR, a monthly magazine that 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 that may cover financial news.
SAN FRANCISCO CHRONICLE, a newspaper that may cover financial news.
SMART MONEY, a monthly magazine featuring news and articles on investing and
mutual funds.
USA TODAY, a newspaper that may cover financial news.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically
reports mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper that covers
financial news.
WASHINGTON POST, a newspaper that 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 that covers financial and investment subjects including
mutual funds.
YOUR MONEY, a monthly magazine directed towards the novice investor.
In addition, the Cornerstone Strategy, Growth Strategy, Emerging Markets,
Gold, International, and World Growth Funds may be cited for performance
information and articles in INTERNATIONAL REPORTS, a publication providing
insights on world financial markets and economics.
27
<PAGE>
The GNMA and Treasury Money Market Trusts may be cited in:
THE BOND BUYER, a daily newspaper that covers bond market news.
IBC'S MONEY FUND REPORT, a weekly publication of the IBC Financial Data, 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 Taxable Money Fund Averages: "100% U.S. Treasury."
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. 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.
- - FC Investable Index (IFCI) and IFC Global Index (IFCG), premie 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 broad-based composite unmanaged index that represents the
weighted average performance of a group of 500 widely held, publicly traded
stocks.
- - Shearson Lehman Hutton Bond Indices - indices of fixed-rate debt issues
rated investment grade or higher which can be found in the BOND MARKET REPORT.
Other sources for total return and other performance data which may be
used by a Fund or by those publications listed previously are Schabaker
Investment Management and Investment Company Data, Inc. These are services that
collect and compile data on mutual fund companies.
28
<PAGE>
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.
===============================================================================
29
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30
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31
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06088-1099
<PAGE>
USAA INVESTMENT TRUST
PART C. OTHER INFORMATION
Item 23. 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 February 11, 1999 (filed herewith)
3 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)
4 (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)
5 (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)
6 Not Applicable
7 (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)
C-1
<PAGE>
EXHIBIT NO.DESCRIPTION OF EXHIBITS
(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)
8 (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 January 1, 1999, 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, Emerging Markets
Fund, Income Strategy Fund, Balanced Strategy Fund, and Growth
Strategy Fund (filed herewith)
(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 12, 1999 ($500,000,000) (filed herewith)
(h) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 13, 1999 (filed herewith)
(i) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 12, 1999 ($250,000,000) (filed herewith)
9 (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 Fund, Gold
Fund, International Fund, World Growth Fund, GNMA Trust, and
Treasury Money Market Trust (2)
(c) Consent of Counsel with respect to the Cornerstone
Strategy Fund and Growth Strategy Fund (filed herewith)
10 Consent of Independent Accountants with respect to the
Cornerstone Strategy Fund and Growth Strategy Fund
(filed herewith)
11 Omitted financial statements - Not Applicable
12 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
13 12b-1 Plans - Not Applicable
14 Plan Adopting Multiple Classes of Shares - Not Applicable
15 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 (5)
(d) Power of Attorney for Robert L. Mason dated July 9, 1997 (5)
- ---------------
(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, 1996.
(5) Previously filed with Post-Effective Amendment No. 24 of the Registrant
(No. 2-91069) filed with the Securities and Exchange Commission on July
31, 1997.
C-3
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH FUND
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 25. INDEMNIFICATION
Protection for the liability of the adviser and underwriter and for
the officers and trustees of the Registrant is provided by two
methods:
(a) THE DIRECTOR AND OFFICER LIABILITY POLICY. This policy covers all
losses incurred by the Registrant, its adviser and its underwriter
from any claim made against those entities or persons during the
policy period by any shareholder or former shareholder of any Fund
by reason of any alleged negligent act, error or omission committed
in connection with the administration of the investments of said
Registrant or in connection with the sale or redemption of shares
issued by said Registrant. The Trust will not pay for such insurance
to the extent that payment therefor is in violation of the Investment
Company Act of 1940 or the Securities Act of 1933.
(b) INDEMNIFICATION PROVISIONS UNDER AGREEMENT AND DECLARATION OF TRUST.
Under Article VI of the Registrant's Agreement and Declaration of
Trust, each of its trustees and officers or any person serving at the
Registrant's request as a director, officer or trustee of another
entity in which the Registrant has any interest as a shareholder,
creditor or otherwise ("Covered Person") shall be indemnified against
all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties,
and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative body, in
which such person may be or may have been threatened, while in office
or thereafter, by reason of being or having been such an officer,
director or trustee, except with respect to any matter as to which it
has been determined that such Covered Person (i) did not act in good
faith in the reasonable belief that such Covered Person's action was
in or not opposed to the best interests of the Trust or (ii) had
acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct described in
(i) and (ii) being referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is entitled to indemnification
may be made by (i)a final decision on the merits by a court or other
body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a
Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts,
that the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of trustees who are neither
"interested persons" of the Registrant as defined in section 2(a)(19)
of the 1940 Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion.
C-4
<PAGE>
Expenses, including accountants and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from
time to time by the Fund of the Registrant in question in advance of
the final disposition of any such action, suit or proceeding,
provided that the covered person shall have undertaken to repay the
amounts so paid to the Fund of Registrant in question if it is
ultimately determined that indemnification of such expenses is not
authorized under Article VI of the Agreement and Declaration of Trust
and (i) the Covered Person shall have provided security for such
undertaking, (ii) the Registrant shall be insured against losses
arising by reason of any lawful advances, or (iii) a majority of a
quorum of the disinterested trustees who are not a party to the
proceeding, or an independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts
(as opposed to full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found entitled to
indemnification. As to any matter disposed of by a compromise payment
by any such Covered Person pursuant to a consent decree or otherwise,
no such indemnification either for said payment or for any other
expenses shall be provided unless such indemnification shall be
approved (a) by a majority of the disinterested trustees of the
Registrant who are not a party to the proceeding or (b) by an
independent legal counsel in a written opinion. Approval by the
trustees pursuant to clause (a) or by independent legal counsel
pursuant to clause (b) shall not prevent the recovery form any
Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such
Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best
interests of the Registrant or to have been liable to the Registrant
or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the Registrant's
Agreement and Declaration of the Trust or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, then the Registrant will, unless in the
opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question
of whether indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication
of such issue.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE 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."
C-5
<PAGE>
Item 27. 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 Road 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 Road 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 Road Fixed Income Investments, Trustee
San Antonio, TX 78288 and Director
David G. Peebles Senior Vice President None
9800 Fredericksburg Road Equity Investments,
San Antonio, TX 78288 and Director
John J. Dallahan Senior Vice President, None
9800 Fredericksburg Road Investment Services
San Antonio, TX 78288
Carl W. Shirley Senior Vice President, None
9800 Fredericksburg Road Insurance Company
San Antonio, TX 78288 Portfolios
Michael D. Wagner Vice President, Secretary Secretary
9800 Fredericksburg Road and Counsel
San Antonio, TX 78288
Sherron A. Kirk Vice President, Treasurer
9800 Fredericksburg Road Senior Financial Officer,
San Antonio, TX 78288 Controller, and Treasurer
C-6
<PAGE>
Alex M. Ciccone Vice President, Compliance Assistant
9800 Fredericksburg Road and Assistant Secretary Secretary
San Antonio, TX 78288
(c) Not Applicable.
Item 28. 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 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
None
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it has duly caused this amendment to
its registration statement to be signed on its behalf by the undersigned, duly
authorized, in the city of San Antonio and state of Texas on the 2nd day of
August, 1999.
USAA INVESTMENT TRUST
/s/ Michael J.C. Roth
----------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed below by the following persons in the
capacities and on the date(s) indicated.
(Signature) (Title) (Date)
*
______________________ Chairman of the August 2, 1999
Robert G. Davis Board of Trustees
*
______________________ Vice Chairman of the Board August 2, 1999
Michael J.C. Roth of Trustees and President
(Principal Executive Officer)
*
______________________ Treasurer (Principal August 2, 1999
Sherron A. Kirk Financial and
Accounting Officer)
*
______________________ Trustee August 2, 1999
John W. Saunders, Jr.
*
______________________ Trustee August 2, 1999
Robert L. Mason
*
______________________ Trustee August 2, 1999
Howard L. Freeman, Jr.
*
______________________ Trustee August 2, 1999
Richard A. Zucker
*
______________________ Trustee August 2, 1999
Barbara B. Dreeben
*BY:/S/ MICHAEL D. WAGNER
- -------------------------
Michael D. Wagner, Attorney-in-Fact, under Powers of Attorney dated January 21,
1994 incorporated by reference to Post-Effective Amendment No. 21, and filed
with the Securities and Exchange Commission on September 26, 1995,
incorporated by reference to Post-Effective Amendment No. 20, and filed with
the Securities and Exchange Commission on June 15, 1995; and July 9, 1997,
incorporated by reference Post-Effective Amendment No. 24, and filed with the
Securities and Exchange Commission on July 31, 1997.
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 February 11, 1999 (filed herewith) 111
3 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)
4 (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)
5 (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)
6 Not Applicable
7 (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)
C-9
<PAGE>
EXHIBIT INDEX, CONT.
EXHIBIT ITEM PAGE NO. *
(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)
8 (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 January 1, 1999 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,
Emerging Markets Fund, Income Strategy Fund, Balanced
Strategy Fund, and Growth Strategy Fund (filed herewith) 119
(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 12, 1999 ($500,000,000)
(filed herewith) 131
(h) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 13, 1999 (filed herewith) 154
(i) Master Revolving Credit Facility Agreement with USAA
Capital Corporation dated January 12, 1999 ($250,000,000)
(filed herewith) 179
9 (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 Fund, Gold
Fund, International Fund, World Growth Fund, GNMA Trust, and
Treasury Money Market Trust (2)
(c) Consent of Counsel with respect to the Cornerstone Strategy 202
Fund and Growth Strategy Fund (filed herewith)
10 Consent of Independent Accountants with respect to the 204
Cornerstone Strategy Fund and Growth Strategy
(filed herewith)
C-10
<PAGE>
EXHIBIT INDEX, CONT.
EXHIBIT ITEM PAGE NO. *
11 Omitted financial statements - Not Applicable
12 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)
13 12b-1 Plans - Not Applicable
14 Plan Adopting Multiple Classes of Shares - Not Applicable
15 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 (5)
(d) Power of Attorney for Robert L. Mason dated July 9, 1997 (5)
- ------------
(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, 1996.
(5) Previously filed with Post-Effective Amendment No. 24 of the Registrant
(No. 2-91069) filed with the Securities and Exchange Commission on July
31, 1997.
- ------------
* Refers to sequentially numbered pages
C-11
EXHIBIT 2
<PAGE>
BY-LAWS
OF
USAA INVESTMENT TRUST
AS AMENDED FEBRUARY 11, 1999
ARTICLE 1
AGREEMENT AND DECLARATION
OF TRUST AND PRINCIPAL OFFICE
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject to
the Agreement and Declaration of Trust (also referred to as the Master Trust
Agreement), as from time to time in effect (the "Declaration of Trust"), of the
USAA Investment Trust, the Massachusetts business trust established by the
Declaration of Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust
shall be located in San Antonio, Texas.
ARTICLE 2
MEETING OF TRUSTEES
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may
from time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting when called by the
Chairman of the Board, the Vice Chairman of the Board, the President or the
Treasurer or by two or more Trustees, sufficient notice thereof being given to
each Trustee by the Secretary or an Assistant Secretary or by the officer of
the Trustees calling the meeting.
2.3 NOTICE. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his
usual or last known business or residence address or to give notice to him in
person or by telephone at least twenty-four hours before the meeting. Notice of
a meeting need not be given to any Trustee if a written waiver of notice,
executed by him before or after the meeting, is filed with the records of the
1
<PAGE>
meeting, or to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question, whether or not
a quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 PARTICIPATION BY TELEPHONE. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Action to
approve an advisory agreement may not be taken by Trustees at a telephonic
meeting unless otherwise permitted under the Investment Company Act of 1940.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
OFFICERS
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a
Chairman of the Board, a Vice Chairman of the Board, a President, a Treasurer,
a Secretary and such other officers, including Vice Presidents, if any, as the
Trustees from time to time may in their discretion elect. The Trust may also
have such agents as the Trustees from time to time may in their discretion
appoint. The Chairman of the Board and Vice Chairman of the Board shall be
Trustees and may, but need not be, shareholders; and any other officer may, but
need not be, a Trustee or shareholder. Any two or more offices may be held by
the same person.
3.2 ELECTION. The Chairman of the Board, the Vice Chairman of the Board,
the President, the Treasurer and the Secretary shall be elected annually by the
Trustees at a meeting held within the first four months of the Trust's fiscal
year. The meeting at which the officers are elected shall be known as the
annual meeting of Trustees. Other officers, if any, may be elected or appointed
by the Trustees at said meeting or at any other time. Vacancies in any office
may be filled at any time.
3.3 TENURE. The Chairman of the Board, the Vice Chairman of the Board,
the President, the Treasurer and the Secretary shall hold office until the next
annual meeting of the Trustees and until their respective successors are chosen
and qualified, or in each case until he sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office and each agent shall
retain authority at the pleasure of the Trustees.
2
<PAGE>
3.4 POWERS. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5 CHAIRMAN; VICE CHAIRMAN; PRESIDENT. Unless the Trustees otherwise
provide, the Chairman of the Board, or, if there is no Chairman, or in the
absence of the Chairman, the Vice Chairman of the Board, or, if there is no
Vice Chairman, or in the absence of the Vice Chairman, the President, shall
preside at all meetings of the shareholders and of the Trustees. Unless the
Trustees otherwise provide, the Vice Chairman shall be the Chief Executive
Officer and the President shall be the Chief Operating Officer.
3.6 VICE PRESIDENT. The Vice President, or if there be more than one Vice
President, the Vice Presidents in the order determined by the Trustees (or if
there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of his inability or refusal to
act, perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall perform such other duties and have such other powers as
the Board of Trustees may from time to time prescribe.
3.7 TREASURER. The Treasurer shall be the chief financial and accounting
officer of the Trust, and shall, subject to the provisions of the Declaration
of Trust and to any arrangement made by the Trustees with a custodian,
investment adviser or manager, or transfer, shareholder servicing or similar
agent, be in charge of the valuable papers, books of account and accounting
records of the Trust, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
3.8 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
3.9 SECRETARY. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an Assistant
Secretary, or if there be none or if he is absent, a temporary secretary chosen
at such meeting shall record the proceedings thereof in the aforesaid books.
3.10 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of
3
<PAGE>
the Secretary and shall perform such other duties and have such other powers as
the Board of Trustees may from time to time prescribe.
3.11 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at any
time by written instrument signed by him and delivered to the Chairman of the
Board, the Vice Chairman of the Board, the President or the Secretary or to a
meeting of the Trustees. Such resignation shall be effective at some other
time. The Trustees may remove any officer elected by them with or without
cause. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee or officer resigning and no officer removed shall have any
right to any compensation for any period following his resignation or removal,
or any right to damages on account of such removal.
ARTICLE 4
COMMITTEES
4.1 GENERAL. The Trustees, by vote of a majority of the Trustees then in
office, may elect from their number an Executive Committee or other committees
and may delegate thereto some or all of their powers except those which by law,
by the Declaration of Trust, or by these By-Laws may not be delegated. Except
as the Trustees may otherwise determine, any such committee may make rules for
the conduct of its business, but unless otherwise provided by the Trustees or
in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its action to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
ARTICLE 5
REPORTS
5.1 GENERAL. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
4
<PAGE>
ARTICLE 6
FISCAL YEAR
6.1 GENERAL. The fiscal year of the Trust shall be fixed by resolution of
the Trustees.
ARTICLE 7
SEAL
7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die with
the word "Massachusetts," together with the name of the Trust and the year of
its organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 GENERAL. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
ISSUANCE OF SHARE CERTIFICATES
9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such certificates and
shall be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share certificates
either in limited cases or to all shareholders. In that event, a shareholder
may receive a certificate stating the number of shares owned by him, in such
form as shall be prescribed from time to time by the Trustees. Such certificate
shall be signed by the President or a Vice President and by the Treasurer or
Assistant Treasurer. Such signatures may be facsimiles if the certificate is
signed by a transfer agent, or by a registrar, other than a Trustee, officer or
employee of the Trust. In case any officer who has signed or whose facsimile
signature has
5
<PAGE>
been placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he were such officer at the time of its issue.
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if
the instrument of transfer substantially describes the debt or duty that is
intended to be secured thereby. Such new certificate shall express on its face
that it is held as collateral security, and the name of the pledgor shall be
stated thereon, who alone shall be liable as a shareholder, and entitled to
vote thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of shares certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the
ownership of shares in the Trust.
ARTICLE 10
DEALINGS WITH TRUSTEES AND OFFICERS
10.1 GENERAL. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he
were not a Trustee, officer or agent; and the Trustees may accept subscriptions
to shares or repurchase shares from any firm or company in which any Trustee,
officer or other agent of the Trust may have an interest.
ARTICLE 11
AMENDMENTS TO THE BY-LAWS
11.1 GENERAL. These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
6
<PAGE>
ARTICLE 12
SHAREHOLDER VOTING
12.1 SHAREHOLDER PROXIES. A shareholder may authorize another person to act
as proxy for the shareholder by authorizing a person or organization to execute
a proxy for the shareholder pursuant to telephonic or electronically
transmitted instructions.
contract\it\bylaws\bylaws.it
7
EXHIBIT 8(d)
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Gold Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Gold Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Gold Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Cornerstone Strategy Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Cornerstone Strategy Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Cornerstone Strategy Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
International Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
International Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
International Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Growth & Tax Strategy Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Growth & Tax Strategy Fund - charge per account $28.50
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Growth & Tax Strategy Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Treasury Money Market Trust
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Treasury Money Market Trust - charge per account $28.50
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Treasury Money Market Trust
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
GNMA Trust
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
GNMA Trust - charge per account $28.50
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
GNMA Trust
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
World Growth Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
World Growth Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
World Growth Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Emerging Markets Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Emerging Markets Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Emerging Markets Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Growth Strategy Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Growth Strategy Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Growth Strategy Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Income Strategy Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Income Strategy Fund - charge per account $28.50
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Income Strategy Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA INVESTMENT TRUST
Balanced Strategy Fund
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Balanced Strategy Fund - charge per account $26.00
USAA INVESTMENT TRUST USAA TRANSFER AGENCY COMPANY
Balanced Strategy Fund
By: /S/ MICHAEL J.C. ROTH By: /S/ JOSEPH H.L. JIMENEZ
--------------------- -----------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
EXHIBIT 8(g)
<PAGE>
January 12, 1999
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 12, 1999 and ending January 11, 2000 (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 13, 1998, 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,
Five Hundred Million Dollars ($500,000,000). The aggregate principal amount of
the Loans which may be borrowed by a Borrower for the benefit of a particular
Fund under this Facility shall not exceed the borrowing limit (the "Borrowing
Limit") on borrowings applicable to such Fund, as set forth on Schedule A
hereto.
2. PURPOSE AND LIMITATIONS ON BORROWINGS. Each Borrower will use the
proceeds of each Loan made to it solely for temporary or emergency purposes of
the Fund for whose benefit it is borrowing in accordance with such Fund's
Borrowing Limit (Schedule A) and prospectus in effect at the time of such Loan.
Portfolio securities may not be purchased by a Fund while there is a Loan
outstanding under the Facility or any other facility, if the aggregate amount
of such Loan and any other such loan exceeds 5% of the total assets of such
Fund.
<PAGE>
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. 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, 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.
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.
<PAGE>
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.
(d) 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 any material
fact necessary to make the statements contained herein or therein in
light of the circumstances when made not misleading;
<PAGE>
(c) AUTHORIZATION; COMPLIANCE WITH OTHER INSTRUMENTS. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary
corporate or trust action of the Borrower and will not result in any
violation of or be in conflict with or constitute a default under any
term of the charter, by-laws or trust agreement of such Borrower or the
applicable Funds, or of any borrowing restrictions or prospectus or
statement of additional information of such Borrower or the applicable
Funds, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Borrower, or
result in the creation of any mortgage, lien, charge or encumbrance upon
any of the properties or assets of such Borrower or the applicable Funds
pursuant to any such term. The Borrower and the applicable Funds are not
in violation of any term of their respective charter, by-laws or trust
agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which
they are a party, or to the best of such Borrower's knowledge, of any
judgment, decree, order, statute, rule or governmental regulation
applicable to them;
(d) SEC COMPLIANCE. The Borrower and the applicable Funds are in
compliance in all material respects with all federal and state
securities or similar laws and regulations, including all material
rules, regulations and administrative orders of the Securities and
Exchange Commission (the "SEC") and applicable Blue Sky authorities. The
Borrower and the applicable Funds are in compliance in all material
respects with all of the provisions of the Investment Company Act of
1940, and such Borrower has filed all reports with the SEC that are
required of it or the applicable Funds;
(e) LITIGATION. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator
or governmental body which seeks to restrain any of the transactions
contemplated by this Agreement or which, if adversely determined, could
have a material adverse effect on the assets or business operations of
such Borrower or the applicable Funds or the ability of such Borrower
and the applicable Funds to pay and perform their obligations hereunder
and under the Notes;
(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; and
(G) YEAR 2000 PREPAREDNESS. Each Borrower has (i) initiated a
review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the
risk that computer applications used by such Borrower may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii)
developed a plan and timeline for addressing the Year 2000 Problem on a
timely basis, and (iii) to date, implemented that
<PAGE>
plan in accordance with that timetable. Based on the foregoing, such
Borrower reasonably believes that all computer applications that are
material to its business and operations are reasonably expected on a
timely basis to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not
reasonably be expected to 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 Note.
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of
such Borrower and the applicable Funds, Statements of Assets and
Liabilities, Statement of Operations and Statements of Changes in Net
Assets of each applicable Fund as of the end of such semiannual period,
as set forth in each applicable Funds 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;
<PAGE>
(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;
(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; and
(g) Upon the request of CAPCO which may be made by CAPCO from
time to time in the event CAPCO in good faith believes that there has
been a material adverse change in the capital markets generally, to
deliver to CAPCO, within two business days after such request, a
statement setting forth the total assets of each Fund for whose benefit
a Loan is outstanding on the date of such request.
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, the Two Hundred Fifty
Million Dollar ($250,000,000) committed Master Revolving Credit Facility
with CAPCO 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
<PAGE>
becomes due and payable, whether at maturity or with respect to any
Facility Fee at a date fixed for the payment thereof;
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written
notice thereof shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall
not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in
any material respect when made;
(f) 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
<PAGE>
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to CAPCO (which amended Schedule A and
Exhibit B shall replace the corresponding Schedule and Exhibit which are
then a part of this Agreement), add additional Funds for whose benefit
such Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior approval of CAPCO.
17. LIMITED RECOURSE. CAPCO agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets of
any fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Note with respect to the outstanding principal amount of
any Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Note (as determined in accordance with the
provisions hereof).
18. REMEDIES ON DEFAULT. In case any one or more Events of Default shall
occur and be continuing, CAPCO may proceed to protect and enforce its rights by
an action at law, suit in equity or other appropriate proceedings, against the
applicable Borrower(s) and/or Fund(s), as the case may be. In the case of a
default in the payment of any principal or interest on any Loan or in the
payment of any fee due hereunder, the relevant 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.
<PAGE>
22. NOTICES. All notices hereunder and all written, facsimile or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on EXHIBIT B and to CAPCO as indicated on EXHIBIT C.
23. MODIFICATIONS. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the state of Texas without regard
to the choice of law provisions thereof.
25. TRUST DISCLAIMER. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /S/ LAURIE B. BLANK
------------------------
Laurie B. Blank
Vice President-Treasurer
<PAGE>
AGREED AND ACCEPTED this 12th
Day of January, 1999.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
<PAGE>
SCHEDULE A
----------
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
BORROWER FUNDS BORROWING LIMIT
-------- ----- ---------------
(Maximum percent of
total assets which
can be borrowed
under Facility and
the committed
facility with CAPCO)
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 Science & Technology "
USAA First Start Growth "
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. $500,000,000 Dated: January 12, 1999
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively
the "Funds") promises to pay to the order of USAA Capital Corporation ("CAPCO")
at CAPCO's office located at 9800 Fredericksburg Road, San Antonio, Texas
78288, in lawful money of the United States of America, in immediately
available funds, the principal amount of all Loans made by CAPCO to such
Borrower for the benefit of the applicable Funds under the Facility Agreement
Letter dated January 12, 1999 (as amended or modified, the "Agreement"), among
the Borrowers and CAPCO, together with interest thereon at the rate or rates
set forth in the Agreement. All payments of interest and principal outstanding
shall be made in accordance with the terms of the Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
CAPCO is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of CAPCO to do so or to do so accurately
shall not affect the obligations of any Borrower (or the Fund for whose benefit
it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
CAPCO hereby agrees (i) that any claim, liability, or obligation arising
hereunder or under the Agreement whether on account of the principal of any
Loan, interest thereon, or any other amount due hereunder or thereunder shall
be satisfied only from the assets of the specific Fund for whose benefit a Loan
is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of any
other amount due hereunder and under the Agreement (as determined in accordance
with the provisions of the Agreement) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Agreement with respect to the outstanding principal amount of any
Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Agreement (as determined in accordance with the
provisions of the Agreement).
<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.
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, N.A. (NationsBank), dated
January 13, 1999, in the manner and to the extent set forth in the Agreement
among the Borrowers, CAPCO and NationsBank, dated January 13, 1999.
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
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 12, 1999, 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.
[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
David G. Peebles
Senior Vice President,
Equity Investments
Telephone: (210) 498-7340
Telecopy: (210) 498-2954
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Caryl J. Swann
Telephone: (210) 498-7303
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 SCIENCE & TECHNOLOGY FUND ACCT.# 6938-515-1
- -------------------------------------------------------------
USAA FIRST START GROWTH FUND ACCT.# 6938-468-3
- -------------------------------------------------------------
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
- -------------------------------------------------------------
<PAGE>
USAA EMERGING MARKETS FUND ACCT.# 6938-501-1
- -------------------------------------------------------------
USAA GROWTH AND TAX STRATEGY FUND ACCT.# 6938-509-4
- -------------------------------------------------------------
USAA BALANCED STRATEGY FUND ACCT.# 6938-507-8
- -------------------------------------------------------------
USAA GROWTH STRATEGY FUND ACCT.# 6938-510-2
- -------------------------------------------------------------
USAA INCOME STRATEGY FUND ACCT.# 6938-508-6
- -------------------------------------------------------------
USAA TAX EXEMPT FUND, INC.
==========================
USAA LONG-TERM FUND ACCT.# 6938-492-3
- -------------------------------------------------------------
USAA INTERMEDIATE-TERM FUND ACCT.# 6938-496-4
- -------------------------------------------------------------
USAA SHORT-TERM FUND ACCT.# 6938-500-3
- -------------------------------------------------------------
USAA TAX EXEMPT MONEY MARKET FUND ACCT.# 6938-514-4
- -------------------------------------------------------------
USAA CALIFORNIA BOND FUND ACCT.# 6938-489-9
- -------------------------------------------------------------
USAA CALIFORNIA MONEY MARKET FUND ACCT.# 6938-491-5
- -------------------------------------------------------------
USAA NEW YORK BOND FUND ACCT.# 6938-503-7
- -------------------------------------------------------------
USAA NEW YORK MONEY MARKET FUND ACCT.# 6938-511-0
- -------------------------------------------------------------
USAA VIRGINIA BOND FUND ACCT.# 6938-512-8
- -------------------------------------------------------------
USAA VIRGINIA MONEY MARKET FUND ACCT.# 6938-513-6
- -------------------------------------------------------------
USAA STATE TAX-FREE TRUST
=========================
USAA FLORIDA TAX-FREE INCOME FUND ACCT.# 6938-473-3
- -------------------------------------------------------------
USAA FLORIDA TAX-FREE MONEY MARKET FUND ACCT.# 6938-467-5
- -------------------------------------------------------------
USAA TEXAS TAX-FREE INCOME FUND ACCT.# 6938-602-7
- -------------------------------------------------------------
USAA TEXAS TAX-FREE MONEY MARKET FUND ACCT.# 6938-601-9
- -------------------------------------------------------------
<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
<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.
-------------------------
David G. Peebles Senior Vice President,
Equity Investments /S/ DAVID G. PEEBLES
-------------------------
Kenneth E. Willmann Vice President,
Mutual Fund Portfolios /S/ KENNETH E. WILLMANN
-------------------------
Sherron A. Kirk Vice President,
Controller /S/ SHERRON A. KIRK
-------------------------
Caryl J. Swann Executive Director,
Mutual Fund Analysis
and Support /S/ CARYL J. SWANN
-------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 12th day of
January, 1999.
/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 12, 1999 /S/ MICHAEL J.C. ROTH
-------------------------
Michael J.C. Roth
President
<PAGE>
EXHIBIT 8(h)
<PAGE>
January 13, 1999
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, N.A., successor by merger to NationsBank of Texas, N.A. (the
"Bank"), agrees to make during the period commencing January 13, 1999 and
ending January 12, 2000 (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 14, 1998, as heretofore amended or
modified, between the Borrowers and the Bank. The Bank and the Borrowers hereby
agree as follows:
1. AMOUNT. The aggregate principal amount of the Loans to be advanced
under this Facility shall not exceed, at any one time outstanding, One Hundred
Million United States Dollars (U.S. $100,000,000) (the "Commitment"). The
aggregate principal amount of the Loans which may be borrowed by a Borrower for
the benefit of a particular Fund under the Facility and the Other Facilities
(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 Facilities for the
benefit of such Fund, if the aggregate amount of such Loan and such other loans
exceed 5% of the total assets of such
<PAGE>
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 .28 of one percent (1%) (28 basis
points) or (ii) the aggregate of the London Interbank Offered Rate (as defined
below) plus 28 basis points. The rate of interest payable on such outstanding
amounts shall change on each date that the Federal Funds Rate shall change.
Interest on the Loans shall be calculated on the basis of a year of 360 days
and the actual days elapsed but shall not exceed the highest lawful rate. Each
Loan will be for an established number of days to be agreed upon by the
applicable Borrower(s) and the Bank and, in the absence of such agreement, will
mature on the earlier of three months after the date of such Loan or the last
day of the Facility Period. The term "Federal Funds Rate," as used herein,
shall mean the overnight rate for Federal funds transactions between member
banks of the Federal Reserve System, as published by the Federal Reserve Bank
of New York or, if not so published, as determined in good faith by the Bank in
accordance with its customary practices; and the term "London Interbank Offered
Rate," as used herein, shall mean the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in Dollars 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
<PAGE>
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 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 .07 of one percent (7 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,
1999, and upon termination of the Facility (whether by acceleration or
otherwise).
6. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENT. The Borrowers shall
have the right upon at least three (3) business days prior written notice to
the Bank, to terminate or reduce the unused portion of the Commitment. Any such
reduction of the Commitment shall be in the amount of Five Million United
States Dollars (U.S. $5,000,000) or any larger integral multiple of One Million
United States Dollars (U.S. $1,000,000) (except that any reduction may be in
the aggregate amount of the unused Commitment). Accrued fees with respect to
the terminated Commitment shall be payable to the Bank on the effective date of
such termination.
7. MANDATORY TERMINATION OF COMMITMENT. The Commitment shall
automatically terminate on the last day of the Facility Period and any Loans
then outstanding (together with accrued interest thereon and any other amounts
owing hereunder) shall be due and payable on such date.
8. COMMITTED FACILITY. The Bank acknowledges that the Facility is a
committed facility and that the Bank shall be obligated to make any Loan
requested during the Facility Period under this Agreement, subject to the terms
and conditions hereof; provided, however, that the Bank shall not be obligated
to make any Loan if this Facility has been terminated by the Borrowers, or if
at the time of a request for a Loan by a Borrower (on behalf of the applicable
Fund(s)) there exists any Event of Default or condition which, with the passage
of time or giving of notice, or both, would
<PAGE>
constitute or become an Event of Default with respect to such Borrower (or such
applicable Fund(s)).
9. LOAN REQUESTS. Each request for a Loan (each a "Borrowing Notice")
shall be in writing by the applicable Borrower(s), except that such Borrower(s)
may make an oral request (each an "Oral Request") provided that each Oral
Request shall be followed by a written Borrowing Notice within one business
day. Each Borrowing Notice shall specify the following terms ("Terms") of the
requested Loan: (i) the date on which such Loan is to be disbursed, (ii) the
principal amount of such Loan, (iii) the Borrower(s) which are borrowing such
Loan and the amount of such Loan to be borrowed by each Borrower, (iv) the
Funds for whose benefit the Loan is being borrowed and the amount of the Loan
which is for the benefit of each such Fund, (v) whether such Loan shall bear
interest at the Federal Funds Rate or the London Interbank Offered Rate, and
(vi) the requested maturity date of the Loan. Each Borrowing Notice shall also
set forth the total assets of each Fund for whose benefit a portion of the Loan
is being borrowed as of the close of business on the day immediately preceding
the date of such Borrowing Notice. Borrowing Notices shall be delivered to the
Bank by 1:00 p.m. Dallas time on the day the Loan is requested to be made if
such Loan is to bear interest based on the Federal Funds Rate or by 10:00 a.m.
Dallas time on the second business day before the Loan is requested to be made
if such Loan is to bear interest based on the London Interbank Offered Rate.
Each Borrowing Notice shall constitute a representation to the Bank by the
applicable Borrower(s) that all of the representations and warranties in
Section 12 hereof are true and correct as of such date and that no Event of
Default or other condition which with the passage of time or giving of notice,
or both, would result in an Event of Default, has occurred or is occurring.
10. CONFIRMATIONS; CREDITING OF FUNDS; RELIANCE BY THE BANK. Upon
receipt by the Bank of a Borrowing Notice:
(a) The Bank shall send each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as
soon as reasonably practicable; provided, however, that the failure to
do so shall not affect the obligation of any such Borrower;
(b) The Bank shall make such Loan in accordance with the Terms
by transfer of the Loan amount in immediately available funds, to the
account of the applicable Borrower(s) as specified in EXHIBIT B to this
Agreement or as such Borrower(s) shall otherwise specify to the Bank in
a writing signed by an Authorized Individual (as defined in Section 11)
of such Borrower(s) and sent to the Bank via facsimile or telecopy; and
(c) The Bank shall make appropriate entries on the Note or the
records of the Bank to reflect the Terms of the Loan; provided, however,
that the failure to do so shall not affect the obligation of any
Borrower.
The Bank shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error
<PAGE>
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.
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
<PAGE>
or the applicable Funds, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to
such Borrower, or result in the creation of any mortgage, lien, charge
or encumbrance upon any of the properties or assets of such Borrower or
the applicable Funds pursuant to any such term. The Borrower and the
applicable Funds are not in violation of any term of their respective
charter, by-laws or trust agreement, and such Borrower and the
applicable Funds are not in violation of any material term of any
agreement or instrument to which they are a party, or to the best of
such Borrower's knowledge, of any judgment, decree, order, statute, rule
or governmental regulation applicable to them;
(d) SEC COMPLIANCE. The Borrower and the applicable Funds are in
compliance in all material respects with all federal and state
securities or similar laws and regulations, including all material
rules, regulations and administrative orders of the Securities and
Exchange Commission (the "SEC") and applicable Blue Sky authorities. The
Borrower and the applicable Funds are in compliance in all material
respects with all of the provisions of the Investment Company Act of
1940, and such Borrower has filed all reports with the SEC that are
required of it or the applicable Funds;
(e) LITIGATION. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator
or governmental body which seeks to restrain any of the transactions
contemplated by this Agreement or which, if adversely determined, could
have a material adverse effect on the assets or business operations of
such Borrower or the applicable Funds or the ability of such Borrower
and the applicable Funds to pay and perform their obligations hereunder
and under the Notes;
(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; and
(g) YEAR 2000 PREPAREDNESS. The Borrower has (i) initiated a
review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the
risk that computer applications used by such Borrower may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii)
developed a plan and timeline for addressing the Year 2000 Problem on a
timely basis, and (iii) to date, implemented that plan in accordance
with that timetable. Based on the foregoing, such Borrower reasonably
believes that all computer applications that are material to its
business and operations are reasonably expected on a timely basis to be
able to perform properly date-sensitive functions for all dates before
and after January 1, 2000 (that is, be "Year 2000 compliant"), except to
the extent that a failure to do so could not reasonably be expected to
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 Note.
<PAGE>
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Bank is
no longer obligated to make Loans to such Borrower, such Borrower (for itself
and on behalf of its respective Funds) agrees:
(a) To deliver to the Bank as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to the Bank as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of
such Borrower and the applicable Funds, Statements of Assets and
Liabilities, Statements of Operations and Statements of Changes in Net
Assets of each applicable Fund as of the end of such semiannual period,
as set forth in each applicable Fund's Semiannual Report to
shareholders, together with a calculation of the maximum amount which
each applicable Fund could borrow under its Borrowing Limit at the end
of such semiannual period;
(c) To deliver to the Bank prompt notice of the occurrence of
any event or condition which constitutes, or is likely to result in, a
change in such Borrower or any applicable Fund which could reasonably be
expected to materially adversely affect the ability of any applicable
Fund to promptly repay outstanding Loans made for its benefit or the
ability of such Borrower to perform its obligations under this Agreement
or the Note;
(d) To do, or cause to be done, all things necessary to preserve
and keep in full force and effect the corporate or trust existence of
such Borrower and all permits, rights and privileges necessary for the
conduct of its businesses and to comply in all material respects with
all applicable laws, regulations and orders, including without
limitation, all rules and regulations promulgated by the SEC;
(e) To promptly notify the Bank of any litigation, threatened
legal proceeding or investigation by a governmental authority which
could materially affect the ability of such Borrower or the applicable
Funds to promptly repay the outstanding Loans or otherwise perform their
obligations hereunder;
(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; and
(g) Upon the request of the Bank, which may be made by the Bank
from time to time in the event the Bank in good faith believes that
there has been a material adverse
<PAGE>
change in the capital markets generally, to deliver to the Bank, within
two business days after such request, a statement setting forth the
total assets of each Fund for whose benefit a Loan is outstanding on the
date of such request.
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 Five Hundred Million United States Dollar (U.S.
$500,000,000) uncommitted master revolving credit facility and a Two
Hundred Fifty Million United States Dollar (U.S. $250,000,000) Committed
Master Revolving Credit Facility with USAA Capital Corporation (the
"Other Facilities") and overdrafts incurred at the custodian of the
Funds from time to time in the ordinary course of business) except the
Loans, without the prior written consent of the Bank, which consent will
not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or
substantially all of its assets in a single transaction or series of
related transactions (other than assets consisting of margin stock),
each without the prior written consent of the Bank, which consent will
not be unreasonably withheld; provided that a Borrower may without such
consent merge, consolidate with, or purchase substantially all of the
assets of, or sell substantially all of its assets to, an affiliated
investment company or series thereof, as provided for in Rule 17a-8 of
the Investment Company Act of 1940.
15. EVENTS OF DEFAULT. If any of the following events (each an "Event of
Default") shall occur (it being understood that an Event of Default with
respect to one Fund or Borrower shall not constitute an Event of Default with
respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a
period of five (5) days after the same becomes due and payable, whether
at maturity or with respect to the Facility Fee at a date fixed for the
payment thereof;
(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;
<PAGE>
(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 Facilities; then, in any event, and at any time thereafter, if any
Event of Default shall be continuing, the Bank may by written notice to
the applicable Borrower or Fund (i) terminate its commitment to make any
Loan hereunder, whereupon said commitment shall forthwith terminate
without any other notice of any kind with respect to such Borrower or
Fund and (ii) declare the principal and interest in respect of any
outstanding Loans with respect to such Borrower or Fund, and all other
amounts due hereunder with respect to such Borrower or Fund, to be
immediately due and payable whereupon the principal and interest in
respect thereof and all other amounts due hereunder shall become
forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are expressly waived by the Borrowers.
16. NEW BORROWERS; NEW FUNDS. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of the Bank, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under
the Investment Company Act of 1940) as the original Borrowers to this
Agreement, may, by submitting an amended Schedule A and Exhibit B to
this Agreement to the Bank (which amended Schedule A and Exhibit B shall
replace the Schedule A and Exhibit B which are then a part of this
Agreement) and such other documents as the Bank may reasonably request,
become a party to this Agreement and may become a "Borrower" hereunder;
and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to the Bank (which amended Schedule A and
Exhibit B shall replace the Schedule A and Exhibit B which are then a
part of this Agreement), add additional Funds for whose benefit such
Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior consent of the Bank.
17. LIMITED RECOURSE. The Bank agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that
<PAGE>
no assets of any Fund shall be used to satisfy any claim, liability, or
obligation arising hereunder or under the Note with respect to the outstanding
principal amount of any Loan borrowed for the benefit of any other Fund or any
accrued and unpaid interest due and owing thereon or such other Fund's share of
any other amount due hereunder and under the Note (as determined in accordance
with the provisions hereof).
18. REMEDIES ON DEFAULT. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceedings, against
the applicable Borrower(s) and/or Fund(s), as the case may be. In the case of a
default in the payment of any principal or interest on any Loan or in the
payment of any fee due hereunder, the relevant 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.
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
<PAGE>
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS
BETWEEN THE PARTIES.
24. INCREASED COST AND REDUCED RETURN. If at any time after the date
hereof, the Bank (which shall include, for purposes of this Section, any
corporation controlling the Bank) determines that the adoption or modification
of any applicable law regarding the Bank's required levels of reserves, other
than the reserve requirement taken into account when computing the London
Interbank Offered Rate as provided in Section 3, or capital (including any
allocation of capital requirements or conditions), or similar requirements, or
any interpretation or administration thereof by a governmental body or
compliance by the Bank with any of such requirements, has or would have the
effect of (a) increasing the Bank's costs relating to the Loans, or (b)
reducing the yield or rate of return of the Bank on the Loans, to a level below
that which the Bank could have achieved but for the adoption or modification of
any such requirements, the Funds (to be allocated among the Funds as the
Borrowers deem appropriate) shall, within fifteen (15) days of any request by
the Bank, pay to the Bank such additional amounts as (in the Bank's sole
judgment, after good faith and reasonable computation) will compensate the Bank
for such increase in costs or reduction in yield or rate of return of the Bank.
Whenever the Bank shall seek compensation for any increase in costs or
reduction in yield or rate of return, the Bank shall provide a certificate as
the Borrower(s) shall reasonably request. Failure by the Bank to demand payment
within 90 days of any additional amounts payable hereunder shall constitute a
waiver of the Bank's right to demand payment of such amounts at any subsequent
time. Nothing herein contained shall be construed or so operate as to require
the Borrowers or the Funds to pay any interest, fees, costs or charges greater
than is permitted by applicable law.
25. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the state of Texas without regard
to the choice of law provisions thereof.
26. TRUST DISCLAIMER. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder. If this letter correctly reflects your
agreement with us, please execute both copies hereof and return one to us,
whereupon this Agreement shall be binding upon the Borrowers, the Funds and the
Bank.
Sincerely,
NATIONSBANK, N.A.
By: /S/ JOAN D'AMICO
------------------------
Joan D'Amico
Vice President
<PAGE>
AGREED AND ACCEPTED:
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
------------------------
Michael J.C. Roth
President
<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 FACILITIES
-------- ----- ------------------------------
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 Science & Technology 25
USAA First Start Growth 25
USAA INVESTMENT TRUST USAA Cornerstone Strategy 25
USAA Gold 25
USAA International 25
USAA World Growth 25
USAA GNMA Trust 25
USAA Treasury Money Market Trust 25
USAA Emerging Markets 25
USAA Growth and Tax Strategy 25
USAA Growth Strategy 25
USAA Income Strategy 25
USAA Balanced Strategy 25
USAA TAX EXEMPT FUND, INC. USAA Long-Term 15
USAA Intermediate-Term 15
USAA Short-Term 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 13, 1999
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, 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 13, 1999 (as amended or modified, the "Agreement"), among
the Borrowers and the Bank, together with interest thereon at the rate or rates
set forth in the Agreement. All payments of interest and principal outstanding
shall be made in accordance with the terms of the Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
The Bank is authorized to endorse the particulars of each Loan
evidenced hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of the Bank to do so or to do so
accurately shall not affect the obligations of any Borrower (or the Fund for
whose benefit it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
The Bank hereby agrees (i) that any claim, liability, or obligation
arising hereunder or under the Agreement whether on account of the principal of
any Loan, interest thereon, or any other amount due hereunder or thereunder
shall be satisfied only from the assets of the specific Fund for whose benefit
a Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of any
other amount due hereunder and under the Agreement (as determined in accordance
with the provisions of the Agreement) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Agreement with respect to the outstanding principal amount of any
Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Agreement (as determined in accordance with the
provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other
agents of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder
<PAGE>
or under the Note nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set
forth on Schedule A to the
Agreement
By: /S/ MICHAEL J.C. ROTH
----------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set
forth on Schedule A to the
Agreement
By: /S/ MICHAEL J.C. ROTH
----------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set
forth on Schedule A to the
Agreement
By: /S/ MICHAEL J.C. ROTH
----------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set
forth on Schedule A to the
Agreement
By: /S/ MICHAEL J.C. ROTH
----------------------
Michael J.C. Roth
President
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 13, 1999, 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, N.A.
[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, 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
David G. Peebles
Senior Vice President,
Equity Investments
Telephone: (210) 498-7340
Telecopy: (210) 498-2954
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288 (for Federal Express, 78240)
Attention: Caryl J. Swann
Telephone: (210) 498-7303
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
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ABA #011-00-0028
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USAA MUTUAL FUND, INC.
======================
USAA AGGRESSIVE GROWTH FUND ACCT.# 6938-502-9
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USAA GROWTH & INCOME FUND ACCT.# 6938-519-3
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USAA INCOME STOCK FUND ACCT.# 6938-495-6
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USAA SHORT-TERM BOND FUND ACCT.# 6938-517-7
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USAA MONEY MARKET FUND ACCT.# 6938-498-0
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USAA GROWTH FUND ACCT.# 6938-490-7
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USAA INCOME FUND ACCT.# 6938-494-9
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USAA S&P 500 INDEX FUND ACCT.# 6938-478-2
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USAA SCIENCE & TECHNOLOGY FUND ACCT.# 6938-515-1
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USAA FIRST START GROWTH FUND ACCT.# 6938-468-3
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USAA INVESTMENT TRUST
=====================
USAA CORNERSTONE STRATEGY FUND ACCT.# 6938-487-3
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USAA GOLD FUND ACCT.# 6938-488-1
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USAA INTERNATIONAL FUND ACCT.# 6938-497-2
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USAA WORLD GROWTH FUND ACCT.# 6938-504-5
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USAA GNMA TRUST ACCT.# 6938-486-5
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USAA TREASURY MONEY MARKET TRUST ACCT.# 6938-493-1
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<PAGE>
USAA EMERGING MARKETS FUND ACCT.# 6938-501-1
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USAA GROWTH AND TAX STRATEGY FUND ACCT.# 6938-509-4
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USAA GROWTH STRATEGY FUND ACCT.# 6938-510-2
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USAA INCOME STRATEGY FUND ACCT.# 6938-508-6
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USAA BALANCED STRATEGY FUND ACCT.# 6938-507-8
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USAA TAX EXEMPT FUND, INC.
==========================
USAA LONG-TERM FUND ACCT.# 6938-492-3
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USAA INTERMEDIATE-TERM FUND ACCT.# 6938-496-4
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USAA SHORT-TERM FUND ACCT.# 6938-500-3
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USAA TAX EXEMPT MONEY MARKET FUND ACCT.# 6938-514-4
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USAA CALIFORNIA BOND FUND ACCT.# 6938-489-9
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USAA CALIFORNIA MONEY MARKET FUND ACCT.# 6938-491-5
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USAA NEW YORK BOND FUND ACCT.# 6938-503-7
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USAA NEW YORK MONEY MARKET FUND ACCT.# 6938-511-0
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USAA VIRGINIA BOND FUND ACCT.# 6938-512-8
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USAA VIRGINIA MONEY MARKET FUND ACCT.# 6938-513-6
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USAA STATE TAX-FREE TRUST
=========================
USAA FLORIDA TAX-FREE INCOME FUND ACCT.# 6938-473-3
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USAA FLORIDA TAX-FREE MONEY MARKET FUND ACCT.# 6938-467-5
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USAA TEXAS TAX-FREE INCOME FUND ACCT.# 6938-602-7
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USAA TEXAS TAX-FREE MONEY MARKET FUND ACCT.# 6938-601-9
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<PAGE>
EXHIBIT C
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ADDRESS FOR THE BANK
NationsBank, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Attention: Joan D'Amico
Telephone No.: (214) 508-3307
Telecopy No.: (214) 508-0604
<PAGE>
EXHIBIT D
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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, N.A. The signature
set opposite the name of each individual below is that individual's genuine
signature.
NAME OFFICE SIGNATURE
---- ------ ---------
Michael J.C. Roth President /S/ MICHAEL J.C. ROTH
-------------------------
John W. Saunders, Jr. Senior Vice President,
Fixed Income Investments /S/ JOHN W. SAUNDERS, JR.
-------------------------
David G. Peebles Senior Vice President,
Equity Investments /S/ DAVID G. PEEBLES
-------------------------
Kenneth E. Willmann Vice President,
Mutual Fund Portfolios /S/ KENNETH E. WILLMANN
-------------------------
Sherron A. Kirk Vice President,
Controller /S/ SHERRON A. KIRK
-------------------------
Caryl J. Swann Executive Director,
Mutual Fund Analysis
and Support /S/ CARYL J. SWANN
-------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 12th day of
January, 1999.
/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 13, 1999 /S/ MICHAEL J.C. ROTH
----------------------------
Michael J.C. Roth
President
<PAGE>
NationsBank SUBORDINATION EXHIBIT E
NationsBank, N.A. AGREEMENT
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THIS IS AN AGREEMENT AMONG: DATED: January 13, 1999
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NAME AND ADDRESS OF LENDER NAME AND ADDRESS NAME AND ADDRESS
(INCLUDING COUNTY): OF BORROWER: OF CREDITOR:
NationsBank, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
901 Main Street USAA Investment Trust 9800 Fredericksburg Road
Dallas, Dallas County, USAA Tax Exempt Fund, Inc. San Antonio, Texas 78288
Texas 75202 USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, Texas 78288
(LENDER) (DEBTOR) (CREDITOR)
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1. BACKGROUND. Debtor is or may be indebted to Lender pursuant to that
certain Facility Agreement Letter dated January 13, 1999 between Debtor
and Lender ("Senior Facility Agreement"). Debtor also is or may be
indebted to Creditor pursuant to certain Facility Agreement Letters dated
January 12, 1999 between Debtor and Creditor ("Subordinated Facility
Agreements"). 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 Agreements 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.
<PAGE>
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, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
By /S/ JOAN D'AMICO By /S/ MICHAEL J.C. ROTH By /S/ LAURIE B. BLANK
-------------------- --------------------- --------------------
Its VICE PRESIDENT Its PRESIDENT Its TREASURER
<PAGE>
EXHIBIT 8(i)
<PAGE>
January 12, 1999
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 12, 1999 and ending January 11, 2000 (the "Facility Period")
to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc.,
and USAA State Tax-Free Trust, and each investment company which may become a
party hereto pursuant to the terms of this Agreement (each a "Borrower" and
collectively the "Borrowers"), each of which is executing this Agreement on
behalf of and for the benefit of the series of funds comprising each such
Borrower as set forth on Schedule A hereto (as hereafter modified or amended in
accordance with the terms hereof) (each a "Fund" and collectively the "Funds"),
under a master revolving credit facility (the "Facility"). USAA Investment
Management Company is the Manager and Investment Advisor of each Fund. CAPCO
and the Borrowers hereby agree as follows:
1. AMOUNT. The aggregate principal amount of the Loans which may be
advanced under this Facility shall not exceed, at any one time outstanding, Two
Hundred Fifty Million Dollars ($250,000,000). The aggregate principal amount of
the Loans which may be borrowed by a Borrower for the benefit of a particular
Fund under this Facility shall not exceed the borrowing limit (the "Borrowing
Limit") on borrowings applicable to such Fund, as set forth on Schedule A
hereto.
2. PURPOSE AND LIMITATIONS ON BORROWINGS. Each Borrower will use the
proceeds of each Loan made to it solely for temporary or emergency purposes of
the Fund for whose benefit it is borrowing in accordance with such Fund's
Borrowing Limit (Schedule A) and prospectus in effect at the time of such Loan.
Portfolio securities may not be purchased by a Fund while there is a Loan
outstanding under the Facility or any other facility, if the aggregate amount
of such Loan and any other such loan exceeds 5% of the total assets of such
Fund.
<PAGE>
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. 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, 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 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 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. Beginning with the date of this Agreement and until
such time as all Loans have been irrevocably repaid to CAPCO in full, and CAPCO
is no longer obligated to make Loans, the Funds (to be allocated among the
Funds as the Borrowers deem appropriate) may pay to CAPCO a facility fee (the
"Facility Fee") in the amount up to .04 of one percent (4 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, 1999,
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
CAPCO, 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
<PAGE>
be in the aggregate amount of the unused Commitment). Accrued fees with respect
to the terminated Commitment shall be payable to CAPCO on the effective date of
such termination.
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. COMMITTED FACILITY. CAPCO acknowledges that the Facility is a
committed facility and that CAPCO shall be obligated to make any Loan requested
during the Facility Period under this Agreement, subject to the terms and
conditions hereof; provided, however, that CAPCO 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, 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;
<PAGE>
(b) CAPCO shall make such Loan in accordance with the Terms by
transfer of the Loan amount in immediately available funds, to the
account of the applicable Borrower(s) as specified in EXHIBIT B to this
Agreement or as such Borrower(s) shall otherwise specify to CAPCO in a
writing signed by an Authorized Individual (as defined in Section 11) of
such Borrower(s); and
(c) CAPCO shall make appropriate entries on the Note or the
records of CAPCO to reflect the Terms of the Loan; provided, however,
that the failure to do so shall not affect the obligation of any
Borrower.
(d) 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
<PAGE>
and fairly present the financial position and results of operations of
such Borrower and the applicable Funds on the dates and for the periods
indicated. Neither this Agreement nor any financial statements, reports
or other documents or certificates furnished to CAPCO by such Borrower
or the applicable Funds in connection with the transactions contemplated
hereby contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements contained herein or
therein in light of the circumstances when made not misleading;
(c) AUTHORIZATION; COMPLIANCE WITH OTHER INSTRUMENTS. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary
corporate or trust action of the Borrower and will not result in any
violation of or be in conflict with or constitute a default under any
term of the charter, by-laws or trust agreement of such Borrower or the
applicable Funds, or of any borrowing restrictions or prospectus or
statement of additional information of such Borrower or the applicable
Funds, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Borrower, or
result in the creation of any mortgage, lien, charge or encumbrance upon
any of the properties or assets of such Borrower or the applicable Funds
pursuant to any such term. The Borrower and the applicable Funds are not
in violation of any term of their respective charter, by-laws or trust
agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which
they are a party, or to the best of such Borrower's knowledge, of any
judgment, decree, order, statute, rule or governmental regulation
applicable to them;
(d) SEC COMPLIANCE. The Borrower and the applicable Funds are in
compliance in all material respects with all federal and state
securities or similar laws and regulations, including all material
rules, regulations and administrative orders of the Securities and
Exchange Commission (the "SEC") and applicable Blue Sky authorities. The
Borrower and the applicable Funds are in compliance in all material
respects with all of the provisions of the Investment Company Act of
1940, and such Borrower has filed all reports with the SEC that are
required of it or the applicable Funds;
(e) LITIGATION. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator
or governmental body which seeks to restrain any of the transactions
contemplated by this Agreement or which, if adversely determined, could
have a material adverse effect on the assets or business operations of
such Borrower or the applicable Funds or the ability of such Borrower
and the applicable Funds to pay and perform their obligations hereunder
and under the Notes;
(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; and
<PAGE>
(G) YEAR 2000 PREPAREDNESS. Each Borrower has (i) initiated a
review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the
risk that computer applications used by such Borrower may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii)
developed a plan and timeline for addressing the Year 2000 Problem on a
timely basis, and (iii) to date, implemented that plan in accordance
with that timetable. Based on the foregoing, such Borrower reasonably
believes that all computer applications that are material to its
business and operations are reasonably expected on a timely basis to be
able to perform properly date-sensitive functions for all dates before
and after January 1, 2000 (that is, be "Year 2000 compliant"), except to
the extent that a failure to do so could not reasonably be expected to
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 Note.
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of
such Borrower and the applicable Funds, Statements of Assets and
Liabilities, Statement of Operations and Statements of Changes in Net
Assets of each applicable Fund as of the end of such semiannual period,
as set forth in each applicable Funds 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;
<PAGE>
(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;
(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; and
(g) Upon the request of CAPCO which may be made by CAPCO from
time to time in the event CAPCO in good faith believes that there has
been a material adverse change in the capital markets generally, to
deliver to CAPCO, within two business days after such request, a
statement setting forth the total assets of each Fund for whose benefit
a Loan is outstanding on the date of such request.
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, the Five Hundred
Million Dollar ($500,000,000) uncommitted Master Revolving Credit
Facility with CAPCO 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.
<PAGE>
15. EVENTS OF DEFAULT. If any of the following events (each an "Event of
Default") shall occur (it being understood that an Event of Default with
respect to one Fund or Borrower shall not constitute an Event of Default with
respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a
period of five (5) days after the same becomes due and payable, whether
at maturity or with respect to any Facility Fee at a date fixed for the
payment thereof;
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written
notice thereof shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall
not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in
any material respect when made;
(f) 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:
<PAGE>
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under
the Investment Company Act of 1940) as the original Borrowers to this
Agreement, may, by submitting an amended Schedule A and Exhibit B to
this Agreement to CAPCO (which amended Schedule A and Exhibit B shall
replace the corresponding Schedule and Exhibit which are, then a part of
this Agreement) and such other documents as CAPCO may reasonably
request, become a party to this Agreement and may become a "Borrower"
hereunder; and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to CAPCO (which amended Schedule A and
Exhibit B shall replace the corresponding Schedule and Exhibit which are
then a part of this Agreement), add additional Funds for whose benefit
such Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior approval of CAPCO.
17. LIMITED RECOURSE. CAPCO agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets of
any fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Note with respect to the outstanding principal amount of
any Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Note (as determined in accordance with the
provisions hereof).
18. REMEDIES ON DEFAULT. In case any one or more Events of Default shall
occur and be continuing, CAPCO may proceed to protect and enforce its rights by
an action at law, suit in equity or other appropriate proceedings, against the
applicable Borrower(s) and/or Fund(s), as the case may be. In the case of a
default in the payment of any principal or interest on any Loan or in the
payment of any fee due hereunder, the relevant 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.
<PAGE>
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 shall be sent to the
Borrowers as indicated on EXHIBIT B and to CAPCO as indicated on EXHIBIT C.
23. MODIFICATIONS. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the state of Texas without regard
to the choice of law provisions thereof.
25. TRUST DISCLAIMER. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /S/ LAURIE B. BLANK
-----------------------
Laurie B. Blank
Vice President-Treasurer
<PAGE>
AGREED AND ACCEPTED this 12th Day of January, 1999.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
-----------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
-----------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
-----------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
-----------------------
Michael J.C. Roth
President
<PAGE>
SCHEDULE A
----------
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
BORROWER FUNDS BORROWING LIMIT
- -------- ----- ---------------
(Maximum percent of total
assets which can be
borrowed under Facility
and the uncommitted
facility with CAPCO)
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 Science & Technology "
USAA First Start Growth "
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. $250,000,000 Dated: January 12, 1999
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively
the "Funds") promises to pay to the order of USAA Capital Corporation ("CAPCO")
at CAPCO's office located at 9800 Fredericksburg Road, San Antonio, Texas
78288, in lawful money of the United States of America, in immediately
available funds, the principal amount of all Loans made by CAPCO to such
Borrower for the benefit of the applicable Funds under the Facility Agreement
Letter dated January 12, 1999 (as amended or modified, the "Agreement"), among
the Borrowers and CAPCO, together with interest thereon at the rate or rates
set forth in the Agreement. All payments of interest and principal outstanding
shall be made in accordance with the terms of the Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
CAPCO is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of CAPCO to do so or to do so accurately
shall not affect the obligations of any Borrower (or the Fund for whose benefit
it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
CAPCO hereby agrees (i) that any claim, liability, or obligation arising
hereunder or under the Agreement whether on account of the principal of any
Loan, interest thereon, or any other amount due hereunder or thereunder shall
be satisfied only from the assets of the specific Fund for whose benefit a Loan
is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of any
other amount due hereunder and under the Agreement (as determined in accordance
with the provisions of the Agreement) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Agreement with respect to the outstanding principal amount of any
Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Agreement (as determined in accordance with the
provisions of the Agreement).
<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.
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, N.A. (NationsBank), dated
January 13, 1999, in the manner and to the extent set forth in the Agreement
among the Borrowers, CAPCO and NationsBank, dated January 13, 1999.
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
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 12, 1999, 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.
[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
David G. Peebles
Senior Vice President,
Equity Investments
Telephone: (210) 498-7340
Telecopy: (210) 498-2954
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Caryl J. Swann
Telephone: (210) 498-7303
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 SCIENCE & TECHNOLOGY FUND ACCT.# 6938-515-1
- -------------------------------------------------------------
USAA FIRST START GROWTH FUND ACCT.# 6938-468-3
- -------------------------------------------------------------
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
- -------------------------------------------------------------
<PAGE>
USAA GROWTH AND TAX STRATEGY FUND ACCT.# 6938-509-4
- -------------------------------------------------------------
USAA BALANCED STRATEGY FUND ACCT.# 6938-507-8
- -------------------------------------------------------------
USAA GROWTH STRATEGY FUND ACCT.# 6938-510-2
- -------------------------------------------------------------
USAA INCOME STRATEGY FUND ACCT.# 6938-508-6
- -------------------------------------------------------------
USAA TAX EXEMPT FUND, INC.
==========================
USAA LONG-TERM FUND ACCT.# 6938-492-3
- -------------------------------------------------------------
USAA INTERMEDIATE-TERM FUND ACCT.# 6938-496-4
- -------------------------------------------------------------
USAA SHORT-TERM FUND ACCT.# 6938-500-3
- -------------------------------------------------------------
USAA TAX EXEMPT MONEY MARKET FUND ACCT.# 6938-514-4
- -------------------------------------------------------------
USAA CALIFORNIA BOND FUND ACCT.# 6938-489-9
- -------------------------------------------------------------
USAA CALIFORNIA MONEY MARKET FUND ACCT.# 6938-491-5
- -------------------------------------------------------------
USAA NEW YORK BOND FUND ACCT.# 6938-503-7
- -------------------------------------------------------------
USAA NEW YORK MONEY MARKET FUND ACCT.# 6938-511-0
- -------------------------------------------------------------
USAA VIRGINIA BOND FUND ACCT.# 6938-512-8
- -------------------------------------------------------------
USAA VIRGINIA MONEY MARKET FUND ACCT.# 6938-513-6
- -------------------------------------------------------------
USAA STATE TAX-FREE TRUST
=========================
USAA FLORIDA TAX-FREE INCOME FUND ACCT.# 6938-473-3
- -------------------------------------------------------------
USAA FLORIDA TAX-FREE MONEY MARKET FUND ACCT.# 6938-467-5
- -------------------------------------------------------------
USAA TEXAS TAX-FREE INCOME FUND ACCT.# 6938-602-7
- -------------------------------------------------------------
USAA TEXAS TAX-FREE MONEY MARKET FUND ACCT.# 6938-601-9
- -------------------------------------------------------------
<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
<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
committed 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.
-------------------------
David G. Peebles Senior Vice President,
Equity Investments /S/ DAVID G. PEEBLES
-------------------------
Kenneth E. Willmann Vice President,
Mutual Fund Portfolios /S/ KENNETH E. WILLMANN
-------------------------
Sherron A. Kirk Vice President,
Controller /S/ SHERRON A. KIRK
-------------------------
Caryl J. Swann Executive Director,
Mutual Fund Analysis
and Support /S/ CARYL J. SWANN
-------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 12th day of
January, 1999.
/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 12, 1999 /S/ MICHAEL J.C. ROTH
-------------------------
Michael J.C. Roth
President
GOODWIN PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
July 28, 1999
USAA Investment Trust
USAA Building
9800 Fredericksburg Road
San Antonio, Texas 78288
Ladies and Gentlemen:
We hereby consent to the reference in Post-Effective Amendment No. 27
(the "Amendment") to the Registration Statement (No. 2-91069) on Form N-1A of
USAA Investment Trust (the "Registrant") to (i) our opinion with respect to the
legality of the shares of the Registrant representing interests in USAA Growth
Strategy Fund, which opinion was filed with Post-Effective Amendment No. 20 to
the Registration Statement and (ii) our opinion with respect to the legality of
the shares of the Registrant representing interests in USAA Cornerstone
Strategy Fund, which opinion was filed with Post-Effective Amendment No. 21 to
the Registration Statement.
We also hereby consent to the reference to this firm in the 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\780071.1
Exhibit 10
The Shareholders and Board of Trustees
USAA Investment Trust:
We consent to the use of our reports dated July 2, 1999, incorporated herein by
reference and to the references to our firm under the headings "Financial
Highlights" in the prospectuses of the USAA Cornerstone Strategy and USAA
Growth Strategy Funds and "Independent Auditors" in the statement of additional
information.
KPMG LLP
--------
KPMG LLP
San Antonio, Texas
July 30, 1999
