USAA LIFE INVESTMENT TRUST, 485APOS, 1997-04-29

USAA LIFE INVESTMENT TRUST
485APOS, 1997-04-29

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<PAGE>

As filed with the Securities and Exchange Commission on April 29, 1997.

Registration Nos.: 33-82270
811-8672
______________________________________________________________________________

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. 4
-

and/or

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
-

Amendment No. 5
-

USAA LIFE INVESTMENT TRUST
(Exact Name of Registrant As Specified in Charter)

9800 Fredericksburg Road, San Antonio, Texas 78288
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: 210-498-8000

RICHARD T. HALINSKI, JR., ESQ.
DWAIN A. AKINS, ESQ.
Life & Health Insurance Counsel
USAA Life Insurance Company
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Address of Agents for Service)

Copies to:

GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036

<PAGE>

Approximate Date of Proposed Public Offering: Continuous.

It is proposed that this filing will become effective (check appropriate box):

Immediately upon filing pursuant to paragraph (b) of Rule 485
-------

On (date), pursuant to paragraph (b) of Rule 485
-------

X 60 days after filing pursuant to paragraph (a)(1) of Rule 485
-------

On (date) pursuant to paragraph (a)(1) of Rule 485
-------

75 days after filing pursuant to paragraph (a)(2) of Rule 485
-------

On (date) pursuant to paragraph (a)(2) of Rule 485.
-------

If appropriate, check the following:

This post-effective amendment designates a new effective date
------- for a previously filed post-effective amendment.

The Registrant has registered an indefinite number or amount of its securities
of each of its seven series under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Registrant filed a Rule
24f-2 Notice on February 27, 1997.

<PAGE>

Cross-reference Sheet Required by
Rule 495 under the Securities Act of 1933

PART A
Form N-1A Item No. Caption in Prospectus
- ------------------ ---------------------
<S> <C>
1. Cover Page Cover Page

2. Synopsis Not applicable

3. Condensed Financial Information Financial Highlights

4. General Description of Cover Page; Introduction;
Registrant The Funds; Certain Investment
Policies, Techniques and
Restrictions; Special Risk
Considerations; Investment
Restrictions; Performance
Information

5. Management of the Fund Management

5A. Management's Discussion of Fund Not applicable
Performance

6. Capital Stock and Other Securities Introduction; Dividends and
Distributions; Tax Matters;
Additional Information About
the Trust

7. Purchase of Securities Being Purchase of Fund Shares;
Offered Valuation of Fund Shares

8. Redemption or Repurchase Redemption of Fund Shares

9. Pending Legal Proceedings Not applicable

</TABLE>

<PAGE>

Part B Caption in
Form N-1A Item No. Statement of Additional Information
- ------------------ -----------------------------------
<S> <C>
10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History General Information and History

13. Investment Objectives and Investment Policies and Techniques;
Policies Investment Restrictions; Portfolio
Transactions--Portfolio Turnover
Rates

14. Management of the Fund The Trust's Adviser; Trustees and
Officers of the Trust

15. Control Persons and Principal Principal Holders of Securities
Holders of Securities

16. Investment Advisory and Other The Trust's Adviser; Custodian;
Services Transfer Agent; Independent Auditors

17. Brokerage Allocation and Other Portfolio Transactions
Practices

18. Capital Stock and Other Further Description of Trust Shares
Securities

19. Purchase, Redemption and Pricing Valuation of Securities; Additional
of Securities Being Offered Information Regarding Redemption of
Shares

20. Tax Status Certain Federal Income Tax
Considerations

21. Underwriters Distributor

22. Calculation of Performance Data Calculation of Performance Data

23. Financial Statements Financial Statements

Part C
- ------

Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.

</TABLE>

<PAGE>

THE TRUST

USAA LIFE INVESTMENT TRUST

9800 Fredericksburg Road
San Antonio, Texas 78288

Prospectus dated: May 1, 1997

USAA Life Investment Trust (the "Trust") is a Delaware business trust
organized on July 20, 1994. The Trust is a diversified open-end management
investment company (commonly referred to as a "mutual fund"), which consists
of the following seven separate series, each with its own investment
objectives and policies (individually, "Fund"; collectively "Funds"):

USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND ("VA Money Market Fund").
The VA Money Market Fund's investment objective is to obtain the highest
level of current income consistent with preservation of capital and
maintenance of liquidity.

USAA LIFE VARIABLE ANNUITY INCOME FUND ("VA Income Fund"). The VA Income
Fund's investment objective is maximum current income without undue risk
to principal.

USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND ("VA Growth and Income
Fund"). The VA Growth and Income Fund's investment objective is capital
growth and current income.

USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND ("VA World Growth Fund"). The
VA World Growth Fund's investment objective is long-term capital
appreciation.

USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND ("VA Diversified Assets
Fund"). The VA Diversified Assets Fund's investment objective is
long-term capital growth, consistent with preservation of capital and
balanced by current income.

USAA LIFE VARIABLE ANNUITY AGGRESSIVE GROWTH FUND ("VA Aggressive Growth
Fund"). The VA Aggressive Growth Fund's investment objective is
appreciation of capital.

USAA LIFE VARIABLE ANNUITY INTERNATIONAL FUND ("VA International Fund").
The VA International Fund's primary investment objective is capital
appreciation with current income as a secondary objective.

Shares of the Trust currently are offered only to the Separate Account
of USAA Life Insurance Company (the "Separate Account") to serve as the
funding medium for certain variable annuity contracts (the "Contracts") that
USAA Life Insurance Company ("USAA Life") is offering to individual members
and families of members of the United Services Automobile Association
("USAA"), as well as to the general public. USAA, a large diversified
financial services institution, is the parent company of the USAA Group of
Companies, which includes USAA Life and USAA Investment Management Company
("USAA IMCO"), the investment adviser ("Adviser") to the Trust. As Adviser to
the Trust, USAA IMCO will use its professional experience and expertise to
assist the Funds in trying to meet their objectives. However, there can be no
assurance that these objectives will be attained. SHARES OF THE TRUST ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS
BANK, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR
ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. BECAUSE THE VA WORLD GROWTH FUND
AND THE VA INTERNATIONAL FUND EACH MAY INVEST PRIMARILY IN FOREIGN SECURITIES,
THEY INVOLVE A HIGHER DEGREE OF RISK AND MAY NOT BE APPROPRIATE FOR SOME
INVESTORS. (SEE "SPECIAL RISK CONSIDERATIONS" AT PAGE 40B.)

This Prospectus provides prospective purchasers of the Contracts with
basic information regarding the Trust that they should know before allocating
premium payments to any Fund. Please read it carefully and retain it for
future reference. Additional information regarding the Trust is contained in
a Statement of Additional Information ("SAI") dated May 1, 1997, which has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated in this Prospectus by reference. If you have any questions about
this Prospectus or desire a copy of the SAI at no charge, please write to the
Trust at the address shown above or call: (210) 456-9035 or toll free
1-800-531-4440.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

31B
<PAGE>

TABLE OF CONTENTS:

INTRODUCTION............................................................... 32B

FINANCIAL HIGHLIGHTS....................................................... 32B

THE FUNDS.................................................................. 33B
USAA Life Variable Annuity Money Market Fund....................... 33B
USAA Life Variable Annuity Income Fund............................. 34B

USAA Life Variable Annuity Growth and Income Fund.................. 35B
USAA Life Variable Annuity World Growth Fund....................... 35B

USAA Life Variable Annuity Diversified Assets Fund................. 36B

USAA Life Variable Annuity Aggressive
Growth Fund.................................................... 36B
USAA Life Variable Annuity International Fund...................... 36B

CERTAIN INVESTMENT POLICIES, TECHNIQUES AND RESTRICTIONS................... 37B
Convertible Securities............................................. 37B
Municipal Lease Obligations........................................ 37B
Mortgage-Backed and Asset-Backed Securities........................ 39B

Yankee and Eurodollar Obligations.................................. 39B
Depositary Receipts ............................................... 39B
Forward Currency Contracts......................................... 39B
Repurchase Agreements.............................................. 39B
Master Demand Notes ............................................... 39B
Variable Rate Securities........................................... 40B
Put Bonds.......................................................... 40B
When-Issued Securities............................................. 40B
Liquidity.......................................................... 40B
Portfolio Turnover................................................. 40B

SPECIAL RISK CONSIDERATIONS................................................ 40B
REITS.............................................................. 40B
Foreign Securities................................................. 40B
Forward Currency Contracts......................................... 41B

INVESTMENT RESTRICTIONS.................................................... 41B

MANAGEMENT................................................................. 42B
Advisory Fees...................................................... 42B
Expenses........................................................... 42B
Portfolio Transactions............................................. 42B
Portfolio Managers................................................. 43B

PURCHASE OF FUND SHARES.................................................... 43B
Distributor........................................................ 44B

REDEMPTION OF FUND SHARES.................................................. 44B

VALUATION OF FUND SHARES................................................... 44B

DIVIDENDS AND DISTRIBUTIONS................................................ 44B

TAX MATTERS................................................................ 45B
Diversification.................................................... 45B

PERFORMANCE INFORMATION.................................................... 45B
New Funds.......................................................... 46B

ADDITIONAL INFORMATION ABOUT THE TRUST..................................... 46B
Organization and Capitalization.................................... 46B
Voting Privileges.................................................. 46B

SERVICE PROVIDERS.......................................................... 48B

32B
<PAGE>

Introduction
The Trust is registered with the SEC as a diversified, open-end management
investment company. The Trust currently consists of seven Funds, each of which
represents a separate series of shares of beneficial interest in the Trust. The
Trust serves as the funding vehicle for Contracts issued by USAA Life through
the Separate Account. The Separate Account, and not the individual Contract
Owners ("Contract Owners"), is the shareholder of the Trust. However, certain
voting instruction privileges with respect to Trust shares are extended to
Contract Owners. See "Voting Privileges," below. A prospectus describing the
Contracts accompanies this Prospectus.

Financial Highlights

Set out below are the Financial Highlights for each Fund (except the VA
Aggressive Growth Fund and the VA International Fund) of the Trust expressed
in terms of one share outstanding for each of the periods shown. The VA
Aggressive Growth Fund and the VA International Fund did not commence
operations until May 1, 1997. The information contained in the Financial
Highlights has been audited by KPMG Peat Marwick LLP, the Trust's independent
auditors, whose report thereon is contained in the Trust's Annual Report to
Shareholders ("Annual Report"). The Financial Highlights should be read in
conjunction with the Trust's audited financial statements and notes thereto
which are contained in the Annual Report. Additional information about the
performance of the Trust and the Funds has been included in the Annual
Report, which may be obtained upon request, without charge, by calling
1-800-531-4440 or writing the Trust at 9800 Fredericksburg Road, San Antonio,
Texas 78288.

USAA LIFE INVESTMENT TRUST FINANCIAL HIGHLIGHTS

Per share operating performance for a share outstanding for the period from
January 1, 1996 through December 31, 1996 is as follows:

<TABLE>
<CAPTION>
USAA LIFE USAA LIFE USAA LIFE USAA LIFE USAA LIFE
VA MONEY VA INCOME VA GROWTH AND VA WORLD VA DIVERSIFIED
MARKET FUND FUND INCOME FUND GROWTH FUND ASSETS FUND
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 1.00 11.32 12.60 11.10 11.96
Net investment income .05 .92 .26 .18 .62
Net realized and unrealized gain (loss) - (.84) 2.79 2.16 1.10
Distributions from net investment income (.05) (.89) (.26) (.16) (.62)
Distributions of realized capital gains - - (.33) (.51) (.11)
Net asset value at end of period 1.00 10.51 15.06 12.77 12.95
TOTAL RETURN (%) 5.25(a) 0.67(a) 24.13(a) 21.12(a) 14.30(a)
Net assets at end of period (000) $11,245 $24,049 $55,932 $37,535 $30,390
Ratio of expenses to average net assets (%) .35(b) .35(b) .35(b) .65(b) .35(b)
Ratio of net investment income to average
net assets (%) 5.10(b) 6.99(b) 2.25(b) 1.45(b) 4.46(b)
Portfolio turnover (%) - 97.74 14.55 57.66 43.75
Average commission rate paid per share - $.0500 $.0490 $.0006 $.0471

(a) The total return of a Fund refers to the percentage change in value of a hypothetical investment, including the deduction of
a proportional share of fund expenses, and assumes all income and capital gains distributions are reinvested. Total returns for
the period do not reflect expenses that apply at the Separate Account level including risk and expense charges. These expenses
would reduce the total return for the period shown.
(b) The information contained in this table is based on actual expenses for the period, after giving effect to reimbursements of
expenses by USAA Life. Absent such reimbursements, the funds' ratios would have been as shown in the following table:

</TABLE>

<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets (%) 1.24 .65 .53 .82 .61
Ratio of net investment income to average
net assets (%) 4.21 6.69 2.07 1.28 4.20
</TABLE>

33B
<PAGE>

USAA LIFE INVESTMENT TRUST FINANCIAL HIGHLIGHTS

Per share operating performance for a share outstanding for the period from
January 5, 1995 (the Trust's date of inception) through December 31, 1995 is as

<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.00 $10.00 $10.00 $10.00 $10.00
Net investment income 0.06(a) 0.78(a) 0.34(a) 0.17(a) 0.55(a)
Net realized and unrealized gain - 1.61 2.83 1.79 2.08
Distributions from net investment income (0.06) (0.76) (0.30) (0.16) (0.53)
Distributions of realized capital gains - (0.31) (0.27) (0.70) (0.14)
Net asset value at end of period $1.00 $11.32 $12.60 $11.10 $11.96
TOTAL RETURN (%) 5.69(b) 23.88(b) 31.72(b) 19.55(b) 26.33(b)
Net assets at end of period (000) $7,802 $25,823 $28,761 $24,706 $26,311
Ratio of expenses to average net assets (%) 0.35(c,d) 0.35(c,d) 0.35(c,d) 0.65(c,d) 0.35(c,d)
Ratio of net investment income to average
net assets (%) 5.55(c,d) 7.07(c,d) 2.82(c,d) 1.55(c,d) 4.93(c,d)
Portfolio turnover (%) - 55.08 17.73 78.86 58.87
Average commission rate paid per share (%) - $0.0400 $0.0489 $0.0076 $0.0482
</TABLE>
(a) Calculated using weighted average shares.
(b) The total return of a Fund refers to the percentage change in value of a
hypothetical investment, including the deduction of a proportional share of
fund expenses, and assumes all income and capital gains distributions are
reinvested. Total returns for the period do not reflect expenses that apply
at the Separate Account level including risk and expense charges. These
expenses would reduce the total return for the period shown.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.

(d) The information contained in this table is based on actual expenses for the
period, after giving effect to reimbursements of expenses by USAA Life.
Absent such reimbursements, the funds' ratios would have been as shown in
the following table:

<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets (%) 2.29(c) 0.65(c) 0.66(c) 0.87(c) 0.64(c)
Ratio of net investment income to average
net assets (%) 3.61(c) 6.77(c) 2.51(c) 1.33(c) 4.64(c)
</TABLE>

The Funds
Set out below is a description of the investment objectives, investment
program, policies, and restrictions of each Fund. The investment objective of
each Fund is a fundamental policy that may not be changed without the approval
of a majority of that Fund's outstanding shares (within the meaning of the
Investment Company Act of 1940 ["1940 Act"]). The investment program, policies,
and restrictions except as otherwise noted or as required by law, are not
fundamental, and may be changed by the Board of Trustees of the Trust ("Board of
Trustees") without shareholder approval. There are risks in the ownership of any
security, and no assurance can be given that any Fund will achieve its
investment objective.

USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND

INVESTMENT OBJECTIVE. The VA Money Market Fund's investment objective is to
obtain the highest level of current income consistent with preservation of
capital and maintenance of liquidity.

INVESTMENT PROGRAM. The Fund will pursue this objective by investing its
assets in a diversified portfolio of high quality U.S. dollar-denominated
debt instruments that present minimal credit risk with remaining maturities
of 397 days or less. Consistent with regulatory requirements, the Fund will
maintain an overall dollar-weighted average portfolio maturity of no more
than 90 days. The Fund currently invests in money market instruments with
relatively short maturities. This is done primarily to facilitate the
redemption of Fund shares when Contract values are allocated from the Money
Market Variable Annuity Fund Account to other Variable Annuity Fund Accounts
following the "Free Look" period described in the accompanying Variable
Annuity prospectus.

The Fund may invest in the following categories of money market
instruments: (1) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements collateralized by
such obligations; (2) corporate debt obligations such as notes, bonds, and

34B
<PAGE>

commercial paper; (3) U.S. bank or foreign bank obligations including
certificates of deposit, banker's acceptances, and time deposits; (4)
obligations of state and local governments and their agencies and instrumental
ities; (5) municipal lease obligations; (6) mortgage-backed securities; (7)
asset-backed securities; (8) dollar-denominated instruments issued outside the
U.S. capital markets by foreign corporations and financial institutions and by
foreign branches of U.S. corporations and financial institutions ("Eurodollar
obligations"); (9) dollar-denominated instruments issued by foreign issuers in
the U.S. capital markets ("Yankee obligations"); (10) master demand notes; and
(11) other short-term debt obligations. As a matter of operating policy, the
Fund will limit its investments in any one issuer (other than the U.S.
Government, its agencies or instrumentalities) to no more than 5% of its total
assets.

The Fund will purchase only high quality debt securities that qualify,
at the time of purchase, as "first-tier" securities as defined by Rule 2a-7
under the 1940 Act. In general, a first-tier security means a security that
is: (1) issued or guaranteed by the U.S. Government or any agency or
instrumentality thereof; (2) rated in the highest category for short-term
securities by at least two Nationally Recognized Statistical Rating
Organizations ("NRSROs"), or by one NRSRO if the security is rated by only
one NRSRO; (3) unrated but issued by an issuer that has other comparable
short-term debt obligations so rated; or (4) unrated but determined to be of
comparable quality by the Adviser. If a security is downgraded after
purchase, the Adviser will follow written procedures adopted by the Board of
Trustees to determine whether it is in the best interest of the Fund's
shareholders for the Fund to continue to hold the security. Current NRSROs
include: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch"), Duff & Phelps
Inc. ("D&P"), Thompson BankWatch, Inc., and IBCA Inc. (See Appendix A to the
SAI for a further description of debt ratings provided by these NRSROs.)

The value of the VA Money Market Fund'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 Fund would receive upon
the sale of the instrument. The market value of a money market instrument can
fluctuate due to changes in short-term interest rates or changes in the
actual or perceived creditworthiness of the issuer or guarantor.

WHO SHOULD INVEST. The VA Money Market Fund is designed for investors
seeking to benefit from money market yields consistent with safety of
principal. The Fund does not constitute a balanced investment program, but
rather, is a useful component of a long-term balanced investment program for
the conservative investor. The securities in which the VA Money Market Fund
may invest may not yield as high a level of income as securities with a
lesser degree of credit safety and liquidity or longer-term debt obligations.
Accordingly, the VA Money Market Fund is expected to provide lower levels of
income and risk than the VA Income Fund. The Fund will endeavor to maintain a
constant net asset value of $1.00 per share, although there is no assurance
that it will be able to do so. The VA Money Market Fund's shares are neither
insured nor guaranteed by the U.S. Government. Moreover, because the Fund
invests in securities backed by banks and other financial institutions,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.

USAA LIFE VARIABLE ANNUITY INCOME FUND

INVESTMENT OBJECTIVE. The VA Income Fund's investment objective is to obtain
maximum current income without undue risk to principal.

INVESTMENT PROGRAM. The Fund will pursue this objective by investing, under
normal market conditions, primarily (i.e., not less than 65% of its total
assets) in a diversified portfolio of U.S. dollar-denominated debt and income
producing equity securities selected for their high yields relative to the
risk involved. Consistent with this policy, in periods of rising interest
rates, the Fund may invest a greater portion of its assets in securities the
value of which is believed to be less sensitive to interest rate changes.

The debt securities in which the Fund can invest include: (1) obligations
of the U.S. Government, its agencies or instrumentalities, and repurchase
agreements collateralized by such obligations; (2) mortgage-backed securities;
(3) corporate debt securities such as notes, bonds, and commercial paper; (4)
U.S. bank obligations, including certificates of deposit and banker's
acceptances; (5) obligations of state and local governments and their agencies
and instrumentalities; (6) asset-backed securities; (7) master demand notes; (8)
Eurodollar obligations; (9) Yankee obligations; and (10) other debt securities.
In addition to investments in debt securities, the Fund can invest in dividend
paying common stocks, preferred stocks, and securities that are convertible into
common stocks or that carry the right to buy common stocks ("convertible
securities"). For convenience, this Prospectus refers to common stocks,
preferred stocks and convertible securities collectively as "Equity Securities".
The Fund also may invest in U.S. real estate investment trusts ("REITS"). For a
discussion of risks associated with investments in REITs, see "Special Risk
Considerations - REITS," below.

As a temporary defensive measure, the Adviser may invest up to 100% of
the Fund's assets in high quality, short-term debt instruments.

35B
<PAGE>

The debt securities must be investment grade at the time of purchase.
Investment grade securities are those issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, those rated in the top four
categories of any one NRSRO (e.g., those rated at least Baa by Moody's, BBB
by S&P, BBB by Fitch, or BBB by D&P), or those judged to be of equivalent
quality by the Adviser if not rated. Securities rated in the lowest level of
investment grade have speculative characteristics since adverse economic
conditions and changing circumstances are more likely to have an adverse
impact on such securities. If the rating of a security is downgraded below
investment grade, the Adviser will determine whether it is in the best
interest of the Fund's shareholders to continue to hold such security in the
Fund's portfolio. Unless otherwise directed by the Board of Trustees, if
downgrades result in more than 5% of the Fund's net assets being invested in
securities that are less than investment grade quality, the Fund's Adviser
will take immediate action to reduce the Fund's holdings in such securities
to 5% or less of the Fund's net assets. Investment grade debt securities
typically do not generate as high a level of income as lower-rated debt
securities. The Fund, therefore, can be expected to provide a lower level of
income than mutual funds that invest in securities of lesser quality. (See
Appendix A to the SAI for a more complete description of debt ratings.)

The Fund may invest in debt securities of any maturity, which will have
a bearing on the interest rate risk that the Fund assumes. Generally,
longer-term debt securities are more sensitive to interest rate changes than
are shorter-term debt securities.

WHO SHOULD INVEST. The VA Income Fund is designed primarily for investors
seeking to benefit from a level of income higher than that available from the
VA Money Market Fund, and who are willing to accept principal fluctuation.
Like the VA Money Market Fund, the VA Income Fund should not be relied upon
as a complete investment program.

USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND

INVESTMENT OBJECTIVE. The VA Growth and Income Fund seeks capital growth and
current income.

INVESTMENT PROGRAM. The Fund will pursue this objective by investing, under
normal market conditions, not less than 65% of its assets in a diversified
portfolio of dividend paying common stocks, convertible securities,
nonconvertible preferred stock and nonconvertible debt securities of
companies that offer the prospect for growth of earnings. These securities
may be listed on a national securities exchange or traded in an established
over-the-counter securities market ("OTC market"). The debt securities in
which the Fund may invest will be of the type in which the VA Income Fund may
invest.

The Fund also may invest in REITs. For a discussion of risks associated
with investments in REITs, see "Special Risk Considerations - REITS," below.
The Fund may invest up to 30% of its total assets in American Depositary
Receipts ("ADRs") or similar forms of ownership interests in securities of
foreign issuers deposited with a depositary, and securities of foreign
issuers that are traded on U.S. securities exchanges or in U.S. OTC markets.
(See "Special Risk Considerations - Foreign Securities," below.)

As a temporary defensive measure, the Adviser may invest up to 100% of
the Fund's assets in high quality, short-term debt instruments.

WHO SHOULD INVEST. The Fund is designed for investors seeking to benefit from
long-term growth of capital and income. Because of the Fund's emphasis on
investments in common stocks, its value will fluctuate based on market
conditions. Consequently, the Fund should not be relied on for short-term
financial needs or for short-term investment in the stock market.

USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND

INVESTMENT OBJECTIVE. The VA World Growth Fund seeks long-term capital
appreciation.

INVESTMENT PROGRAM. The Fund will pursue this objective by investing, under
normal market conditions, not less than 65% of its total assets in a
diversified portfolio of Equity Securities of both foreign and domestic
issuers representing at least three countries, one of which may include the
United States. The Fund may purchase ADRs, Global Depositary Receipts
("GDRs") or similar forms of ownership interest in securities of foreign
issuers deposited with a depositary. (For a discussion of the risks
pertaining to investments in foreign securities, see "Special Risk
Considerations - Foreign Securities," below.) The Fund also may invest in
REITs. For a discussion of risks associated with investments in REITs, see
"Special Risk Considerations - REITS," below.

The Fund may invest up to 35% of its total assets in marketable debt
securities having remaining maturities of less than one year that are issued
or guaranteed as to both principal and interest by the U.S. Government or by
its agencies or instrumentalities and in repurchase agreements collateralized
by such securities. As a temporary defensive measure, the Adviser may invest
up to 100% of the Fund's assets in such securities.

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 exposure
to currency risk, the Fund may enter into forward currency contracts, which
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

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contract. (See "Certain Investment Policies, Techniques and Restrictions -
Forward Currency Contracts," below.)

WHO SHOULD INVEST. The VA World Growth Fund is designed for investors seeking
to diversify by investing in securities of both foreign and domestic issuers,
and who are prepared to bear the risks of such investments. (For a discussion
of the risks pertaining to investments in foreign securities, see "Special
Risk Considerations - Foreign Securities," below.) Because of its emphasis
on equity securities and securities of foreign issuers, this Fund should not
be relied upon as a complete investment program.

USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND

INVESTMENT OBJECTIVE. The VA Diversified Assets Fund seeks long-term capital
growth, consistent with preservation of capital and balanced by current
income.

INVESTMENT PROGRAM. To achieve its objective, the Fund will invest, under
normal market conditions, approximately 60% of its assets in Equity
Securities, selected for total return potential, and approximately 40% of its
assets in debt securities of varying maturities.

The equity component of the Fund will consist primarily of "basic value
stocks," which consist of Equity Securities of U.S. companies that the
Adviser believes are undervalued in relation to such factors as the company's
assets and current or prospective earnings. In most cases, these securities
will be listed on the New York Stock Exchange, though securities listed on
other exchanges or traded in an OTC market may be utilized. The Fund also may
invest in REITs. For a discussion of risks associated with investments in
REITs, see "Special Risk Considerations - REITs," below.

The income component of the Fund will consist primarily of debt
securities of the type in which the VA Income Fund may invest. The Fund may
also invest in municipal lease obligations. Subject to the policies above,
the Fund may shift its emphasis between the equity and income portions of its
portfolio based on the Adviser's analysis of relevant market, financial and
economic conditions.

As a temporary defensive measure, the Adviser may invest up to 100% of
the Fund's assets in high quality, short-term debt instruments.

WHO SHOULD INVEST. The VA Diversified Assets Fund is designed for investors
seeking the benefits of both long-term capital appreciation and current
income. This Fund is expected generally to have less exposure to equity
securities than the VA Growth and Income Fund and, unlike that Fund, will not
invest in securities of foreign issuers other than Yankee and Eurodollar
obligations.

USAA LIFE VARIABLE ANNUITY AGGRESSIVE GROWTH FUND

INVESTMENT OBJECTIVE. The VA Aggressive Growth Fund seeks appreciation of
capital.

INVESTMENT PROGRAM. The Fund will pursue this objective by investing, under
normal market conditions, primarily (i.e., not less than 65% of its total
assets) in Equity Securities. The Fund will invest in companies that have the
prospect of rapidly growing earnings. These investments may tend to be made
in smaller, less recognized companies, but may also include large, widely
recognized companies. Investments may also include foreign securities. The
Fund also may invest in REITS. For a discussion of risks
associated with investments in REITs, see "Special Risk Considerations -
REITS," below.

While the portfolio will be broadly diversified, the Fund is expected
to be significantly more volatile than the average equity mutual fund.
Investing in smaller less well-known companies, especially those that have a
narrow product line or are thinly traded, often involves greater risk than
investing in established companies with proven track records.

Up to 30% of the Fund's total assets may be invested in foreign
securities, including ADRs, GDRs, or similar forms of ownership interest in
securities of foreign issuers deposited with a depositary. Foreign holdings
may include securities issued in emerging as well as established markets.
Foreign securities may present greater risks than domestic securities. For a
discussion of risks associated with investments in foreign issuers, see
"Special Risk Considerations - Foreign Securities," below.

As a temporary defensive measure, the Adviser may invest up to 100% of
the Fund's assets in high quality, short-term debt instruments.

WHO SHOULD INVEST. The Fund is designed for investors seeking to benefit from
long-term growth of capital. This Fund is expected generally to have greater
potential for long-term capital appreciation than the VA Growth and Income
Fund, but also significantly greater volatility.

USAA LIFE VARIABLE ANNUITY INTERNATIONAL FUND

INVESTMENT OBJECTIVE. The VA International Fund's primary investment
objective is capital appreciation with current income as a secondary
objective.

INVESTMENT PROGRAM. The Fund will pursue the objective by investing, under
normal market conditions, at least 80% of the Fund's assets in Equity
Securities of foreign companies. For purposes of the Fund's investment, a
company is deemed to be a foreign company if: (1) it is organized under the
laws of a foreign country; and either (2)(a) the principal trading market for
the stock is in a foreign country; or (b) at least 50% of its revenues or
profits are derived from operations within a foreign country; or (c) at least
50% of its assets are located within a foreign country.

These investments will be diversified in foreign companies organized in
at least four countries (not including the United States). There are no
restrictions as to the types of businesses or operations of companies in
which the Fund may invest.

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The remainder of the Fund's assets may be invested in Equity Securities
of companies that meet either of the two criteria set forth above and certain
short-term instruments. These short-term instruments may include marketable
securities having remaining maturities of less than one year issued or
guaranteed as to both principal and interest by the U.S. Government or by its
agencies or instrumentalities and repurchase agreements collateralized by
such securities. As a temporary defensive measure, the Adviser may invest up
to 100% of the Fund's assets in such short-term securities.

The Adviser believes that attractive investment opportunities exist in
several nations of the world, and that investing internationally can improve
overall results at moderate risk. The Fund combines the advantages of
investment in diversified international markets with the convenience and
liquidity of a mutual fund based in the United States. For a discussion of
risks associated with investments in foreign issuers, see "Special Risk
Considerations - Foreign Securities," below.

WHO SHOULD INVEST. The Fund is designed primarily for investors seeking to
benefit from greater exposure to foreign securities investments than is
generally available through the VA World Growth Fund. The Fund's equity
investments ordinarily will consist entirely of securities of foreign
issuers. Because of its greater emphasis on foreign securities investments,
the Fund can be expected to present a greater level of risk than the VA World
Growth Fund. (For a discussion of the risks pertaining to investments in
foreign securities, see "Special Risk Considerations - Foreign Securities,"
below.)

Certain Investment Policies, Techniques and Restrictions

CONVERTIBLE SECURITIES

Each Fund, other than the VA Money Market Fund, may invest in bonds,
notes, debentures, preferred stocks and other securities that are convertible
into or carry the right to buy, common stock. Investments in convertible
securities can provide an opportunity for capital appreciation and/or income
through interest and dividend payments by virtue of their conversion or
exchange features.

Convertible debt securities and convertible preferred stocks, until
converted, have general characteristics similar to both debt and equity
securities. Convertible securities are generally subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. However, because of the subordination fea
ture, convertible bonds and convertible preferred stock typically have lower
ratings than similar non-convertible securities. Convertible securities
generally offer lower yields than non-convertible securities of similar
quality because of their conversion or exchange features.

Although to a lesser extent than with debt securities generally, the
market value of convertible debt securities tends to decline as interest
rates increase and, conversely, tends to increase as interest rates decline.
In addition, because of the conversion or exchange feature, the market value
of convertible securities typically changes as the market value of the
underlying common stock changes, and, therefore, also tends to follow
movements in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis, and so may not experience market value declines to the same extent as
the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically
not as much as the underlying common stock. While no securities investments
are without risk, investments in convertible securities generally entail less
risk than investments in common stock of the same issuer.

The convertible debt securities in which these Funds may invest
include fixed income or zero coupon debt securities that may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares
of common stock. Fixed income convertible securities pay interest with yields
generally higher than common stocks. Of course, like all fixed income
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.

Zero coupon notes and bonds, including Liquid Yield Option Notes
("LYONs"), pay no interest and are sold at substantial discounts from their
face value. When held to maturity, their entire income comes from the
difference between the purchase price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
as increases (or decreases) in market value of such securities closely
follows the movements in the market value of the underlying common stock. Zero
coupon convertible securities are generally expected to be less volatile
than the underlying common stocks as they are usually issued with short to
medium length maturities (15 years or less) and are issued with options
and/or redemption features exercisable by the holder of the obligation
entitling the holder to redeem the obligation and receive a defined cash
payment.

MUNICIPAL LEASE OBLIGATIONS

The VA Money Market Fund and VA Diversified Assets Fund may invest in
municipal lease obligations and certificates of participation in such
obligations (collectively, "lease obligations"). A lease obligation does not
constitute a gener-

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al 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 Adviser 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.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

Each Fund, other than the VA Aggressive Growth Fund, VA World Growth
Fund and the VA International Fund, may invest in mortgage-backed and
asset-backed securities. Mortgage-backed securities include, but are not
limited to, securities issued or guaranteed 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 on the underlying mortgages.
Because these scheduled and unscheduled principal payments must be reinvested
at prevailing interest rates, mortgage-backed securities do not provide an
effective means of locking in long-term interest rates for the investor. Like
other fixed income securities, when interest rates rise, the value of a
mortgage-backed security generally will decline. However, when interest rates
are declining, the value of mortgage-backed securities with prepayment
features may not increase as much as other fixed income securities.

Mortgage-backed securities also include collateralized mortgage
obligations ("CMOs"). CMOs are obligations fully collateralized by a
portfolio of mortgages or mortgage-related securities. CMOs are divided into
pieces ("tranches") with varying maturities and the cash flows from the
underlying mortgages are 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 mortgage and asset-backed securities is
likely to be substantially shorter than their stated final maturity as a
result of scheduled principal payments and unscheduled principal prepayments.

YANKEE AND EURODOLLAR OBLIGATIONS

Each Fund, other than the VA Aggressive Growth Fund, the VA World
Growth Fund and the VA International Fund, may invest in Yankee and
Eurodollar obligations. Yankee obligations include money market instruments
and bonds of foreign issuers who customarily register such securities with
the SEC and borrow U.S. dollars by issuing such securities for delivery in
the United States. Although the principal trading market for Yankee
securities is the United States, foreign buyers can and do participate in the
Yankee securities market. Interest on such Yankee bonds is customarily paid
on a semi-annual basis. The marketability of these "foreign bonds" in the
United States is in many cases better than that for foreign bonds in foreign
markets, but is, of course dependent upon the quality of the issuer.

Eurodollar obligations include money market instruments and bonds
underwritten by an international syndicate and sold "at issue" to non-U.S.
investors. Such securities are not registered with the SEC or issued
domestically and generally may only be sold to U.S. investors after the
initial offering and cooling-off periods. The market for Eurodollar
securities is dominated by foreign-based investors and the primary trading
market for these securities is London. While investments in Eurodollar and
Yankee obligations are intended to reduce risk by providing further
diversification, such investments involve certain political and economic
risks in addition to credit and market risk.

In addition, each Fund may invest in Eurodollar and Yankee obligations
of investment-grade emerging market countries. An emerging market country can
be considered to be a country which is in the initial stages of its
industrial cycle. Investments in emerging market countries involve exposure to
economic structures that are generally less diverse and mature than in the
United States, and to politi-

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cal systems that may be less stable. In the past, markets of emerging market
countries have been more volatile than the markets of developed countries. (See
"Special Risk Considerations-Foreign Securities," below.)

DEPOSITARY RECEIPTS

The VA World Growth Fund, the VA International Fund, the VA Growth and
Income Fund and the VA Aggressive Growth Fund may purchase ADRs, which are
U.S. dollar-denominated certificates issued by a U.S. bank or trust company
and represent the right to receive securities of a foreign issuer deposited
in a domestic bank or foreign branch of a U.S. bank and traded on a U.S.
exchange or in an OTC market. Generally, ADRs are in registered form. There
are no fees imposed on the purchase or sale of ADRs when purchased from the
issuing bank or trust company in the initial underwriting, although the
issuing bank or trust company may impose charges for the collection of
dividends and the conversion of ADRs into the underlying securities.
Investment in ADRs has certain advantages over direct investment in the
underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable and for
which market quotations are readily available, and (ii) in some cases, the
issuers whose securities are represented by ADRs may be subject to the same
auditing, accounting, and financial reporting standards as domestic issuers.

The VA Aggressive Growth Fund, the VA World Growth Fund and the VA
International Fund may invest in GDRs. GDRs are typically issued by foreign
banks or trust companies, although they also may be issued by United States
banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a United States corporation. Generally, GDRs in
bearer form are designed for use in foreign securities markets.

FORWARD CURRENCY CONTRACTS

The VA Aggressive Growth Fund, the VA World Growth Fund and the VA
International Fund may enter into forward currency contracts under two
circumstances. First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may desire to
"lock in" the U.S. dollar price of the security. Second, when the Adviser of
the Fund believes that the currency of a specific country may deteriorate
relative to the U.S. dollar, it may enter into a forward contract to sell
that currency. The Funds may not enter a forward sale contract with respect
to a particular currency for an amount greater than the aggregate market
value (determined at the time of making the forward sale) of the securities
held in its portfolio denominated or quoted in, or bearing a substantial
correlation to, such currency. The Funds are not required to enter into such
transactions and will not do so unless deemed appropriate by the Adviser.
(See "Special Risk Considerations - Forward Currency Contracts.")

REPURCHASE AGREEMENTS

Each Fund may invest in repurchase agreements that are collateralized
by obligations issued or guaranteed by or backed by the full faith and credit
of 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 the security back to the seller (a commercial
bank or recognized securities dealer) at an agreed-upon price on an
agreed-upon date, usually not more than seven days from the date of purchase.
The resale price reflects the purchase price plus an agreed-upon market rate
of interest which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed-upon price, which obligation is in effect secured by
the value of the underlying security. In these transactions, the securities
purchased by the Fund will have a total value equal to or in excess of the
amount of the repurchase obligation and will be held by the Fund's custodian
or another third-party 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.

MASTER DEMAND NOTES

Each Fund, other than the VA Aggressive Growth Fund, the VA World
Growth Fund and the VA International Fund, may invest in variable rate master
demand notes ("master demand notes"). Master demand notes are obligations
that permit the investment of fluctuating amounts by a Fund, at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and
the borrower. These notes permit daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to decrease the amount,
and the borrower may repay up to the full amount of the note without penalty.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because master demand notes are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at face value,
plus accrued interest, at any time. Therefore, where master demand notes are
not secured by bank letters of credit or other credit support arrangements,
the Funds' right to redeem depends on the ability of the borrower to pay
principal and interest on demand. In connection with master demand note
arrangements, the Funds will continuously monitor the earning power, cash
flow, and other liquidity ratios of the issuer, and the borrower's ability to
pay principal and interest on demand. Master

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demand notes, as such, are not typically rated by credit rating agencies. The
Funds will invest in master demand notes only if the Board of Trustees or its
delegate has determined that they are of credit quality comparable to the debt
securities in which the Funds generally may invest.

VARIABLE RATE SECURITIES

Each Fund may invest in securities that bear interest at rates that are
adjusted periodically to market rates. These interest rate adjustments can
both raise and lower the income generated by such securities. These changes
will have the same effect on the income earned by a Fund, depending on the
proportion of such securities held. The market value of fixed coupon
securities fluctuates with changes in prevailing interest rates, increasing
in value when interest rates decline and decreasing in value when interest
rates rise. The value of variable rate securities, however, is less affected
by changes in prevailing interest rates because of the periodic adjustment of
their coupons to a market rate. The shorter the period between adjustments,
the smaller the impact of interest rate fluctuations on the value of these
securities. The market value of variable rate securities usually tends toward
par (100% of face value) at interest rate adjustment time.

PUT BONDS

Each Fund may invest 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 generally at face value prior to stated maturity.
Such securities will normally trade as if maturity is the earlier put date,
even though stated maturity is longer.

WHEN-ISSUED SECURITIES

Each Fund may invest in new issues of securities offered on a
when-issued basis; that is, delivery and payment take place after the date of
the commitment to purchase, normally within 45 days. Both price and interest
rate are fixed at the time of commitment. The market value at the time the
transaction is completed may be more or less than the fixed purchase price.
Although such commitments are made with the intention of actually acquiring
the securities, a Fund can sell a commitment before settlement date, though
as a matter of policy, the Funds will not do so. No interest accrues to the
purchaser of a when-issued security during the period prior to settlement.

Securities purchased on a when-issued basis are subject to changes in
value in the same way as securities held in a Fund's portfolio, that is, both
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.

LIQUIDITY

Each Fund may invest up to 15% of its net assets (10% in the case of
the VA Money Market Fund) in illiquid securities. Commercial paper that is
subject to restrictions on transfer, securities that may be resold pursuant
to Rule 144A under the Securities Act of 1933, put bonds with restrictions on
transfer, and lease obligations will not be counted towards the limitation on
illiquid securities, provided that the Adviser determines that such
securities have a readily available trading market, in accordance with
guidelines established by the Board of Trustees.

PORTFOLIO TURNOVER

Although no Fund purchases securities with a view to rapid turnover,
there are no limitations on the length of time that securities must be held
by any Fund. A Fund's annual portfolio turnover rate may vary significantly
from year to year. The portfolio turnover rates for each Fund, other than the
VA Money Market Fund and the VA Aggressive Growth Fund are not expected to
exceed 100%.

Because a high turnover rate increases transaction costs and may
increase net capital gains, the Adviser carefully weighs the anticipated
benefits of trading. See "Dividends and Distributions" and "Tax Matters,"
below.

Special Risk Considerations

REITS

Investments by a Fund in REITS may subject the Fund to many of the same
risks associated with the direct ownership of real estate. In addition, REITS
are dependent upon the capabilities of the REIT manager(s) and have limited
diversification. See "REITS" in the SAI for more information.

FOREIGN SECURITIES

Investments by a Fund in foreign securities, including Eurodollar,
Yankee, and other foreign obligations, and ADRs and GDRs, may entail one or
more of the following risks:

CURRENCY RISK. The value of the Fund's foreign investments may be affected by
changes in currency exchange rates. The U.S. dollar value of a foreign
security generally decreases when the value of the U.S. dollar rises against
the foreign currency in which the security is denominated, and tends to
increase when the value of the U.S. dollar falls against such currency. In
developing markets, it may be difficult or in some cases impossible to hedge
currency risk, due to the lack of available hedging instruments and illiquidity
in these markets.

POLITICAL AND ECONOMIC RISK. The economies of many of

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the countries in which the Fund may invest are not as developed as the U.S.
economy and may be subject to significantly different forces. Political or
social instability, expropriation or confiscatory taxation, and limitations on
the removal of funds or other assets could also adversely affect the value of
the Fund's investments. For example, the Fund may invest in Eastern Europe and
former states of the Soviet Union (also known as the Commonwealth of Independent
States or CIS). These countries were under communist systems that had
nationalized private industry. There is no guarantee that nationalization may
not occur again in this region or others in which the Fund invests, in which
case the Fund may lose all or part of its investment in that country's issuers.

REGULATORY RISK. Foreign companies are generally not subject to the
regulatory controls imposed on U.S. issuers and, as a consequence, there is
generally less publicly available information about foreign securities than
is available about domestic securities. Foreign companies are not subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies. Income
from foreign securities owned by the Fund may be reduced by a withholding tax
at the source, which tax would reduce dividend income payable by the Fund.
There is generally less government regulation and supervision of foreign
stock exchanges, brokers and issuers, which may make it difficult to enforce
contractual obligations, obtain judgments or effect collections thereon.

MARKET RISK. The securities markets in many of the countries in which the
Fund invests will have substantially less trading volume than the major U.S.
markets. As a result, the securities of some foreign companies and
governments may be less liquid and may experience more price volatility than
comparable domestic securities. Increased custodian costs as well as
administrative difficulties (such as the need to use foreign custodians) may
be associated with the maintenance of assets in foreign jurisdictions. In
addition, transaction costs in foreign securities markets are likely to be
higher, since brokerage commission rates in foreign countries are likely to
be higher than in the U.S.

FORWARD CURRENCY CONTRACTS

The use of forward currency contracts to protect the value of a Fund's
assets against a decline in the value of a currency does not eliminate
fluctuations in the value of the Fund's underlying security holdings. In
addition, although the use of forward currency contracts can minimize the
risk of loss due to a decline in value of the foreign currency, the use of
such contracts will tend to limit any potential gain resulting from an
increase in the relative value of the foreign currency to the U.S. dollar.
Under certain circumstances, a Fund that has entered into forward currency
contracts to hedge its currency risks may be in a less favorable position
than a Fund that had not entered into such contracts. The projection of
short-term currency market movements is extremely difficult and successful
execution of a short-term hedging strategy is uncertain.

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. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment strategies. The Adviser 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 Fund to do so. It is impossible to forecast what the
market value of a portfolio security will be at the expiration of a contract.
Accordingly, it may be necessary for the Fund to purchase additional currency
(and bear the expense of such purchase) if the market value of the security
is less than the amount of currency the Fund is 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 Fund is obligated to deliver.

Investment Restrictions

Except as otherwise indicated, the following restrictions are
fundamental and may not be changed without the approval of a majority of the
outstanding voting securities of any Fund of the Trust, which means the
approval of the lesser of: (i) the holders of 67% or more of the shares
represented in a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy or (ii) the holders of more than 50%
of the outstanding shares. (See "Additional Information About the Trust,"
below.)

A FUND MAY NOT:

A. Borrow money, except that a Fund 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).
A Fund will not purchase securities when its borrowings exceed 5% of its
total assets.

B. With respect to 75% of its total assets, purchase the securities of any
issuer (except 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

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securities of such issuer. As a non-fundamental operating policy, the VA
Money Market Fund, in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended, will not invest more than 5% of its total
assets in the securities (other than securities issued by the U.S.
Government or any of its agencies or instrumentalities) issued by a single
issuer.

C. Invest more than 25% of the value of its total assets (taken at current
value at the time of each investment) in securities of issuers whose
principal business activities are in the same industry. With respect to
the VA Money Market Fund, banks are not considered a single industry for
purposes of this policy. This limitation does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

Management

The Trust has a Board of Trustees which has the primary responsibility
for the overall management of the Trust and each of the Funds.

USAA IMCO serves as the Adviser to the Trust pursuant to an Investment
Advisory Agreement dated December 16, 1994, as amended February 7, 1997 to
include the VA Aggressive Growth Fund and VA International Fund ("Advisory
Agreement"). Under the Advisory Agreement, USAA IMCO is responsible for
furnishing a continuous investment program for each Fund; selecting the
investments of each Fund, including determining what investments each Fund
will purchase, hold, sell, or exchange, and what portion, if any, of the
assets of each Fund will remain uninvested; placing all orders for the
purchase and sale of investments for each Fund with brokers and dealers
selected by the Adviser; assisting the Trust in the preparation of various
regulatory reports; and providing office space facilities and personnel in
connection with the foregoing. USAA IMCO will render such services in
accordance with the investment objectives, investment programs, policies, and
restrictions of each Fund, under the supervision of the Board of Trustees.

USAA IMCO was organized in May 1970, and is registered as an investment
adviser with the SEC. USAA IMCO is an indirect wholly-owned subsidiary of
USAA and an affiliate of USAA Life and the Trust. As of the date of this
Prospectus, the Adviser had approximately $32 billion in total assets under
management, $19 billion of which are in publicly available mutual funds. The
Adviser's mailing address is 9800 Fredericksburg Road, San Antonio, Texas
78288 which is also the Home Office of USAA, USAA Life, and other
affiliates.

Officers and employees of the Trust and the Manager are permitted to
engage in personal securities transactions subject to restrictions and
procedures set forth in the Joint Code of Ethics adopted by the Trust and the
Manager. Such restrictions and procedures include substantially all of the
recommendations of the Advisory Group of the Investment Company Institute and
comply with SEC rules and regulations.

ADVISORY FEES

For its services under the Advisory Agreement, for the Trust's most
recent fiscal year ended December 31, 1996, the Trust paid the Adviser a
monthly investment advisory fee for each Fund (other than the VA Aggressive
Growth Fund and the VA International Fund) equal to an annualized rate of
0.20% of the monthly average net assets of each Fund. With respect to the VA
Aggressive Growth Fund and the VA International Fund, which commenced
operations on May 1, 1997, the Trust has agreed to pay the Adviser, pursuant
to the Advisory Agreement, a monthly investment advisory fee equal to an
annualized rate of 0.50% and 0.65%, respectively, of each Fund's monthly
average net assets. Pursuant to an Underwriting and Administrative Services
Agreement, dated December 16, 1994 as amended February 7, 1997, by and
between USAA Life, USAA IMCO, and the Trust ("Underwriting Agreement"), USAA
Life, out of its General Account, will reimburse USAA IMCO for the expenses
that it incurs in rendering services to the Trust under the Advisory
Agreement, but only to the extent these expenses exceed the amount of the
above advisory fees.

EXPENSES

For the Trust's most recent fiscal year ended December 31, 1996, the
total expenses for each Fund, other than the VA Aggressive Growth Fund and VA
International Fund, were limited to .35% of the monthly average net assets of
such Fund (other than the World Growth Fund, whose expenses were limited to
.65% of that Fund's monthly average net assets). Actual total expenses for
each Fund, other than the VA Aggressive Growth Fund and VA International
Fund, exceeded the foregoing expense ratios, and the excess was borne by USAA
Life, out of its General Account, pursuant to the Underwriting Agreement.
(See notes to "Financial Highlights" for further information.) USAA Life has
agreed, pursuant to the Underwriting Agreement, to limit the expenses of the
VA Agressive Growth Fund and the VA International Fund to 0.70% and 1.10% of
each Fund's respective monthly average net assets. The Underwriting Agreement
is terminable by any party thereto upon 60 days' notice to the other parties.

PORTFOLIO TRANSACTIONS

The Adviser directs the placement of orders for the purchase and sale
of the Funds' portfolio securities. In doing so, the Adviser seeks the best
combination of price and execution, which involves a number of judgmental
factors. When the Adviser believes that more than one broker or dealer is
capable of providing the best combination of price and execution in a
particular portfolio transaction, normally

43B
<PAGE>

a broker or dealer is selected that furnishes research services. The Adviser, a
registered broker-dealer, also may act as a broker for the Trust in conformity
with the securities laws and rules thereunder.

PORTFOLIO MANAGERS

Set out below are the names, titles, years of investment management
experience, and prior business experience (if they have been with the Adviser
for less than five years) of the individuals who are primarily responsible
for the day-to-day management of the Funds.

VA MONEY MARKET FUND. Pamela K. Bledsoe, Executive Director of Money Market
Funds at USAA IMCO, is primarily responsible for managing the Money Market
Fund and has managed the Fund since June 10, 1996. Ms. Bledsoe has eight
years investment management experience and has worked for USAA IMCO for five
years, where she has held various positions in Fixed Income Investments.

VA INCOME FUND. John W. Saunders, Jr., Senior Vice President of Fixed Income
Investments at USAA IMCO, is primarily responsible for managing the VA Income
Fund and has managed the Fund since its inception. Mr. Saunders has 28 years
investment management experience and has been affiliated with USAA IMCO for
27 years.

VA GROWTH AND INCOME FUND. R. David Ullom, Assistant Vice President of Equity
Investments at USAA IMCO, is primarily responsible for managing the VA Growth
and Income Fund and has managed the Fund since its inception. Mr Ullom has 22
years investment management experience and has been affiliated with USAA IMCO
for 12 years.

VA WORLD GROWTH FUND. David G. Peebles, Vice President of Equity Investments
at USAA IMCO, is the asset allocation manager for the Fund. He has been the
portfolio manager for the Fund's investments in foreign securities since its
inception. He has 31 years investment management experience and has worked
for IMCO for 13 years. Since October 1, 1996, Albert C. Sebastian and W.
Travis Selmier, II, have co-managed the Fund's investments in foreign
securities with Mr. Peebles, who coordinates the activities of the Managers.
Messrs. Sebastian and Selmier, each an Assistant Vice President of Equity
Investments at USAA IMCO, have 13 and ten years of investment management
experience, respectively. Each has worked for IMCO for over five years,
during which time each has held various positions in Equity Investments.

R. David Ullom, Assistant Vice President of Equity Investments at USAA
IMCO, has managed the Fund's investments in domestic stocks since February
1995. Mr. Ullom has 22 years investment management experience and has worked
for IMCO for 12 years.

VA DIVERSIFIED ASSETS FUND. Harry W. Miller, Senior Vice President of Equity
Investments at USAA IMCO, and Paul H. Lundmark, Assistant Vice President of
Fixed Income Investments, together are primarily responsible for managing the
fixed income and equity components, respectively, of the VA Diversified
Assets Fund and have managed the Fund since its inception. Mr. Miller also
acts as Asset Allocation Manager for the Fund. Mr. Miller has 40 years
investment management experience and has been affiliated with USAA IMCO for
23 years. Mr. Lundmark has 11 years investment management experience and has
been associated with USAA IMCO for five years.

VA AGGRESSIVE GROWTH FUND. John K. Cabell Jr., and Eric M. Efron, Assistant
Vice Presidents of Equity Investments at USAA IMCO, together are primarily
responsible for managing the Fund, which commenced operations on May 1, 1997.
Mr. Cabell has 19 years investment management experience and has been
affiliated with USAA IMCOfor seven years. His business experience during the
past five years also included the following position: Chief Economist for
Retirement Systems of Alabama from March 1991 to March 1994.

Mr. Efron has 22 years investment management experience and has been
affiliated with USAA IMCO for five years.

VA INTERNATIONAL FUND. David G. Peebles, Vice President of Equity
Investments, Albert C. Sebastian, Assistant Vice President of Equity
Investments and W. Travis Selmier, II, Assistant Vice President of Equity
Investments at USAA IMCO, together are primarily responsible for managing the
Fund, which commenced operations on May 1, 1997. Mr. Peebles will coordinate
the activities of the Managers.

Mr. Peebles has 31 years investment management experience and has been
affiliated with USAA IMCO for 13 years. Mr. Sebastian has 13 years investment
management experience and has been affiliated with USAA IMCO for five years.
Mr. Selmier has ten years investment experience and has been affiliated with
USAA IMCOfor five years.

Purchase of Fund Shares

Shares of the Funds are currently sold in a continuous offering only to
the Separate Account to fund benefits under the Contracts issued by USAA
Life. The Separate Account is divided into nine Variable Annuity Fund
Accounts, seven of which invest in a corresponding Fund of the Trust, as
directed by the Contract Owners. The Variable Annuity Fund Accounts that
purchase Trust shares do so at the net asset value per share ("NAV") of the
corresponding Funds, without a sales charge, next determined after the Company
receives a premium payment or request for a transfer into a Fund.

Investments in each Fund are credited to each corresponding Variable
Annuity Fund Account in the form of full and fractional shares of the
designated Fund. The Funds do not issue share certificates. Initial and
subsequent premium payments allocated to a specific Fund are subject to the
limits applied by the Contracts.

In the future, the Trust may offer its shares to other separate
accounts of USAA Life as well as unaffiliated life

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<PAGE>

insurance companies to fund benefits under variable annuity contracts and
variable life insurance policies. The Trust does not foresee any disadvantage to
purchasers of variable annuity contracts and variable life insurance policies
arising out of these arrangements. Nevertheless, the Board of Trustees intends
to monitor events in order to identify any material irreconcilable conflicts
which may possibly arise and to determine what action, if any, should be taken
in response thereto.

DISTRIBUTOR

USAA IMCO serves as the distributor of the Fund shares pursuant to the
Underwriting Agreement, and receives no separate compensation for its
services in this capacity. No commissions are paid in connection with the
sale of Fund shares to the Separate Account. Pursuant to the Underwriting
Agreement, USAA Life has agreed to reimburse USAA IMCO for expenses that it
incurs in rendering services to the Trust within the limits specified in the
agreement.

Redemption of Fund Shares

USAA Life redeems shares of the appropriate Fund to make withdrawals or
transfers under the terms of the Contracts. Redemptions are processed on each
day on which the New York Stock Exchange (the "Exchange") is open for
business. Redemptions due to Contract Owner withdrawals or transfers are
processed at the Fund's NAV next determined after USAA Life receives
instructions from the Contract Owner. Redemptions that are not based on
actions by Contract Owners will be effected at the Fund's NAV next determined
after the Fund receives the redemption request.

Payment for redeemed shares will be made promptly, but in no event
later than seven days after USAA Life receives the redemption order in proper
form. However, the Trust may suspend the right of redemption or postpone the
date of payment during any period that the Exchange is closed, or trading in
the markets the Trust normally utilizes is restricted, or during any period
that redemption is otherwise permitted to be suspended by the SEC. The amount
received upon the redemption of the shares of the Funds may be more or less
than the amount paid for the shares, depending upon the fluctuations in the
market value of the assets owned by a particular Fund.

Valuation of Fund Shares

The price at which shares of the Funds are purchased and redeemed by
the Separate Account is equal to the NAV per share determined on the
effective date of the purchase or redemption. The NAV is calculated by adding
the value of all securities and other assets in a Fund, deducting
liabilities, and dividing that sum by the number of outstanding shares of the
Fund. The NAV per share for each Fund is calculated at the close of the
regular trading session of the Exchange, which is usually 4:00 p.m. Eastern
time.

VALUATION OF SECURITIES OF THE FUNDS (OTHER THAN THE VA MONEY MARKET FUND)

Securities traded on a U.S. exchange are generally valued at the last
sales price on the exchange. If no sale is reported, the latest bid price is
generally used. Securities traded in a U.S. OTC market 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 carried at amortized cost, which generally 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 or
its delegate. Securities that cannot be valued by the methods set forth above
are valued in good faith at fair market value using methods determined by the
Adviser under the general supervision of the Board of Trustees.

Securities primarily traded on foreign securities exchanges are generally
valued at the preceding closing value of such security on the exchange where
they are primarily traded. If no sale is reported, the latest bid price is
generally used depending on local custom or regulation. Securities traded in a
foreign OTC market are valued at the last sales price, or, if not available, at
the average of the bid and asked prices. If there is not active trading in a
particular security for a given day, the latest bid price is generally used.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of net asset value does not take
place contemporaneously with the determination of the prices of the foreign
portfolio securities of a particular Fund. If an event were to occur after the
value of an instrument was established, but before the net asset value per share
was determined, which was likely to materially change the net asset value of a
particular Fund, then that instrument would be valued using fair value
considerations by the Board of Trustees or its delegate.

VALUATION OF THE VA MONEY MARKET FUND'S SECURITIES

The valuation of the VA Money Market Fund's securities is based upon
their amortized cost, which does not take into account unrealized capital
gain or loss. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. 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 Fund would receive upon
the sale of the instrument. (See "Valuation of Trust Shares" in the SAI.)

Dividends and Distributions

Each Fund, other than the VA Money Market Fund, declares and pays to
its shareholders at least once each year: (1) all net investment income,
which includes divi-

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<PAGE>

dends and interest paid on each Fund's investments less expenses incurred in the
Fund's operations; and (2) all net realized short-term and long-term capital
gains, if any, earned during the year.

The VA Money Market Fund declares a dividend each day the Fund's NAV is
calculated, equal to all of its daily net income, payable to its shareholders
as of the close of business the preceding business day. The amount of the
dividend of the VA Money Market Fund may fluctuate from day to day and may be
omitted on some days, depending on changes in the factors that comprise the
VA Money Market Fund's net income.

All distributions, whether from net capital gains or net investment
income, will be paid in the form of additional shares of that Fund at NAV.
Because the value of each Fund's shares, other than those of the VA Money
Market Fund, is based directly on the amount of its net assets, including any
undistributed net income, any distribution of income or capital gains will
result in a decrease in the value of that Fund's shares equal to the amount
of the distribution. The price of each Fund's shares is quoted ex-dividend on
the business day following the record date.

Tax Matters

Each Fund has elected to be treated as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended, and to take all other actions required so that no federal income tax
will be payable by the Funds. Each Fund will be treated as a separate entity
for federal income tax purposes. As a regulated investment company, each Fund
will not be subject to federal income tax provided it distributes all of its
investment company income and net capital gains for each taxable year in
accordance with the Code.

The VA World Growth Fund and the VA International Fund may make an
election to pass through to USAA Life any taxes withheld by foreign taxing
jurisdictions on foreign source income. Such an election will result in
additional taxable income and income tax to USAA Life. The amount of
additional income tax, however, may be more than offset by credits for the
foreign taxes withheld, which are also passed through. These credits may
provide a benefit to USAA Life.

DIVERSIFICATION

Each Fund is subject to asset diversification requirements described by
the U.S. Treasury Department under Section 1.817-5 of the Treasury
Regulations. The regulations generally provide that, as of the end of each
calendar quarter or within 30 days thereafter, no more than 55% of the total
assets of a Fund may be represented by any one investment, no more than 70%
by any two investments, no more than 80% by any three investments and no more
than 90% by any four investments. For this purpose, all securities of the same
issuer are considered a single investment. Furthermore, each U.S. Government
agency or instrumentality is treated as a separate issuer. There are also
alternative diversification requirements that may be satisfied by the Funds
under the regulations.

The Funds intend to comply with the diversification requirements. If
the Funds or a Fund should fail to comply with these diversification
requirements, or fails to meet the requirements of Subchapter M of the Code,
Contracts invested in the Funds would not be treated as annuity contracts for
income tax purposes under the Code. (See "Certain Federal Income Tax
Considerations" in the Trust's SAI for further information.)

For more detailed information regarding the federal income tax
treatment of the Contracts and distributions to Contract Owners, please refer
to the accompanying Prospectus that describes the Contracts.

Performance Information

The Funds may, from time to time, include quotations of their TOTAL
RETURN or YIELD in advertisements, sales literature or reports to Contract
Owners or to prospective investors.

The TOTAL RETURN of a Fund refers to the percentage change in value of
a hypothetical investment in the Fund, including the deduction of a
proportional share of Fund expenses, and assumes that all dividends and
capital gains distributions during the period are reinvested. CUMULATIVE
TOTAL RETURN reflects the total change in value of an investment in the Fund
over a specified period, including, but not limited to, periods of one, five
and ten years, or the period since the Fund's inception through a stated
ending date. AVERAGE ANNUAL TOTAL RETURN is the constant rate of return that
would produce the cumulative total return over the specified period, if
compounded annually. Average annual total return figures are calculated
according to a formula prescribed by the SEC.

The YIELD of a Fund refers to the income generated by an investment in
the Fund over a specific period (seven days in the case of the VA Money
Market Fund, 30 days in the case of all other Funds), excluding realized and
unrealized capital gains and losses in the Fund's investments. This income is
then "annualized" and shown as a percentage of the investments. The VA Money
Market Fund may also provide quotations of its EFFECTIVE YIELD, which is
calculated similarly but, when annualized, the income earned by an investment
in the Fund is assumed to be reinvested. The EFFECTIVE YIELD of the VA Money
Market Fund will be slightly higher than its yield because of the compounding
effect of this assumed reinvestment.

A Fund may also, from time to time, compare its performance in
advertisements, sales literature and reports to Contract Owners or to
prospective investors to: (1) widely recognized indices (e.g., the Standard
& Poors 500 Compos-

46B
<PAGE>

ite Stock Index, the Dow Jones Industrial Average, etc.); (2) other mutual funds
whose performance is reported by Lipper Analytical Services, Inc., ("Lipper"),
Variable Annuity Research & Data Service ("VARDS") and Morningstar, Inc.
("Morningstar") or reported by other services, companies, individuals or other
industry or financial publications of general interest, such as Forbes, Money,
The Wall Street Journal, Business Week, Barron's, Changing Times and Fortune,
which rank and/or rate mutual funds by overall performance or other criteria;
and (3) the Consumer Price Index. Lipper, VARDS and Morningstar are widely
quoted independent research firms that rank mutual funds by overall performance,
investment objectives, and assets. Unmanaged indices may assume the reinvestment
of dividends but usually do not reflect any "deduction" for the expense of
operating or managing a fund.

Total return and yield quotations reflect only the performance of a
hypothetical investment in the Fund during a specified period. These
quotations are based on historical data and do not in any way indicate or
project future performance. Quotations of a Fund's total return and yield do
not reflect charges or deductions against the Variable Fund Account or
charges and deductions against the Contracts. The share price of the VA
Income Fund, VA Growth and Income Fund, VA World Growth Fund, VA Diversified A
ssets Fund, VA Aggressive Growth Fund and VA International Fund will vary
and, when redeemed, may be worth more or less than the original purchase
price. The yield of the VA Money Market Fund will also vary. See the SAI for
more information about the Funds' performance.

NEW FUNDS

The VA Aggressive Growth and VA International Funds (the "new Funds")
commenced operations on May 1, 1997 and have no performance history.
Nevertheless, IMCO, the investment adviser to the new Funds, has experience
managing publicly available mutual funds (the "public funds") that have the
same investment objectives and substantially similar investment policies and
risks as the new Funds. To illustrate that experience, the tables below show
the historical performance of the public funds, which include the Aggressive
Growth Fund of the USAA Mutual Fund, Inc., and the International Fund of the
USAA Investment Trust. THE PERFORMANCE INFORMATION SHOWN IN THE TABLES BELOW
DOES NOT REPRESENT THE PAST PERFORMANCE OF THE NEW FUNDS OR THE ACTUAL
EXPERIENCE OF ANY PARTICULAR INVESTOR, AND IS NOT INDICATIVE OF THE FUTURE
PERFORMANCE OF THE NEW FUNDS. THE PERFORMANCE INFORMATION DOES NOT REFLECT
APPLICABLE CHARGES AND DEDUCTIONS UNDER THE CONTRACTS, WHICH WOULD LOWER THE
PERFORMANCE SHOWN. THE PERFORMANCE INFORMATION IS BASED ON THE ACTUAL
HISTORICAL FEES AND EXPENSES OF THE PUBLIC FUNDS, WHICH ARE HIGHER THAN THE
CURRENT FEES AND EXPENSES OF THE NEW FUNDS.

AVERAGE ANNUAL TOTAL RETURN (THROUGH DECEMBER 31, 1996)

10 YEARS 5 YEARS 1 YEAR
SINCE ENDED ENDED ENDED
INCEPTION* 12/31/96 12/31/96 12/31/96
NAME OF PUBLIC FUND
Aggressive Growth Fund 12.42% 13.12% 11.45% 16.47%
International Fund 10.60% - 13.09% 19.15%

CUMULATIVE TOTAL RETURN (THROUGH DECEMBER 31, 1996)

10 YEARS 5 YEARS 1 YEAR
SINCE ENDED ENDED ENDED
INCEPTION* 12/31/96 12/31/96 12/31/96
NAME OF PUBLIC FUND
Aggressive Growth Fund 497.04% 243.19% 71.92% 16.47%
International Fund 135.80% - 84.97% 19.15%
- --------------
*The inception dates of the public funds used for purposes of this illustration
were as follows:
USAA Mutual Fund, Inc. - Aggressive Growth Fund October 19, 1981
USAA Investment Trust - International Fund July 11, 1988

Additional Information About the Trust

ORGANIZATION AND CAPITALIZATION

The Trust was organized as a Delaware business trust on July 20, 1994.
The Trust is authorized to issue an unlimited number of full and fractional
shares of beneficial interest, having no par value, in one or more series.
The Board of Trustees currently has authorized the issuance of seven series
of shares representing interests in the respective Funds and may, in the
future, authorize the issuance of additional series of shares. Each share of
beneficial interest of each Fund represents an equal proportionate interest
in that Fund with each other share, and each share is entitled to such
dividends and distributions of income belonging to that Fund as may be
declared by the Board of Trustees.

USAA Life has agreed to provide the initial capitalization of the VA
Aggressive Growth Fund and VA International Fund and, as a result, initially
will own all of the shares of beneficial interest in these Funds. In
addition, USAA Life provided the initial capitalization of each of the five
other Funds and, as of April 1, 1997, beneficially owned, either directly or
through the Separate Account, more than 25% of the shares of beneficial
interest in each of these Funds, other than the VA Money Market Fund. As a
result of such ownership, USAA Life may be deemed to be in control of each
Fund, other than the VA Money Market Fund.

VOTING PRIVILEGES

The voting privileges of Contract Owners, and limitations on those
privileges, are explained in the accompanying prospectus relating to the
Contracts. USAA Life, as the owner of the assets in the Separate Account,
will vote Fund shares that are held in the Separate Account to fund benefits
under the Contracts in accordance with the instructions of

47B

<PAGE>

Contract Owners. This practice is commonly referred to as "pass-through" voting.
USAA Life also will vote for or against any proposition, or will abstain from
voting, any Fund shares attributable to a Contract for which no timely voting
instructions are received, and any Fund shares held by USAA Life for its own
account, in proportion to the voting instructions that it receives with respect
to all Contracts participating in that Fund. This practice is commonly referred
to as "mirror" or "echo" voting. If USAA Life determines, however, that it is
permitted to vote any Fund shares in its own right, it may elect to do so,
subject to the then current interpretation of the 1940 Act and the rules
thereunder.

Each Fund share is entitled to one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the Fund
shares. Accordingly, the number of votes obtained will generally vary
depending upon which Fund's shares are purchased. For example, a $100
investment in shares of the VA Money Market Fund purchased at its initial NAV
of $1 would result in 100 votes, whereas the same investment in shares of any
one of the other Funds purchased at its initial NAV of $10 would result in
only 10 votes.

On matters affecting an individual Fund differently from any other
Fund, a separate vote of the shares of that Fund is required. Shares of a
Fund are not entitled to vote on any matter not affecting that Fund. The
shares of all the Funds vote together on matters that do not affect one Fund
differently from another, such as the election of Trustees.

Under Delaware law, the Trust is not required to hold annual or special
meetings of shareholders and the Trust does not expect to hold any such
meeting unless required by the 1940 Act. Special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental
policies, or approving an investment advisory contract. Also, the holders of
an aggregate of at least 10% of the outstanding shares of the Trust may
request a meeting at any time for the purpose of voting to remove one or more
of the Trustees.

48B

<PAGE>

Service Providers

DISTRIBUTOR:
USAA Investment Management Company
9800 Fredericksburg Rd.
San Antonio, Texas 78288

CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

TRANSFER AGENT:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288

LEGAL COUNSEL:
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036

INDEPENDENT AUDITORS:
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, Texas 78205

No dealer, salesperson, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized. This Prospectus does not constitute an
offering of any securities other than the registered securities to which it
relates or an offer to any person in any jurisdiction where such offer would
be unlawful.

USAA LIFE INVESTMENT TRUST
MAY 1, 1997

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<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

USAA LIFE INVESTMENT TRUST

MAY 1, 1997

This Statement of Additional Information ("SAI") is not a Prospectus, but should
be read in conjunction with the Prospectus for the USAA Life Investment Trust.
The Prospectus sets forth information that a prospective investor ought to know
before investing. Capitalized terms used in this SAI that are not otherwise
defined herein have the same meaning given to them in the Prospectus. A copy of
the Prospectus may be obtained by writing USAA Life Insurance Company at 9800
Fredericksburg Road, San Antonio, Texas 78288, or by calling 1-800-531-4440.
This SAI and the Prospectus are dated May 1, 1997, and may be amended from time
to time.

1
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION AND HISTORY................................. 3
DISTRIBUTOR..................................................... 3
INVESTMENT ADVISER.............................................. 3
TRANSFER AGENT.................................................. 3
INDEPENDENT AUDITORS............................................ 4
LEGAL MATTERS................................................... 4
VALUATION OF SECURITIES......................................... 4
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES........... 5
INVESTMENT POLICIES AND TECHNIQUES.............................. 5
Section 4(2) Commercial Paper and Rule 144A Securities......... 6
Liquidity Determinations....................................... 6
Lending of Securities.......................................... 6
Forward Currency Contracts..................................... 7
When-Issued Securities......................................... 7
REITS.......................................................... 7
INVESTMENT RESTRICTIONS......................................... 8
Additional Restrictions........................................ 8
PORTFOLIO TRANSACTIONS.......................................... 9
Portfolio Turnover Rates....................................... 10
FURTHER DESCRIPTION OF TRUST SHARES............................. 11
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....................... 11
TRUSTEES AND OFFICERS OF THE TRUST.............................. 12
Committees of the Board of Trustees............................ 15
THE TRUST'S ADVISER............................................. 16
The Advisory Agreement......................................... 16
PRINCIPAL HOLDERS OF SECURITIES................................. 17
CALCULATION OF PERFORMANCE DATA................................. 18
Yield - VA Money Market Fund................................... 18
Yield - Other Funds............................................ 19
Total Return................................................... 19
FINANCIAL STATEMENTS............................................ 20
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS.............. 21
APPENDIX B - COMPARISON OF FUND PERFORMANCE..................... 25
</TABLE>

2
<PAGE>

GENERAL INFORMATION AND HISTORY

USAA Life Investment Trust (the "Trust") is a diversified open-end management
investment company formed as a business trust under laws of the State of
Delaware on July 20, 1994. The Trust was established by USAA Life Insurance
Company ("USAA Life" or the "Company") to serve as the investment vehicle for
premium payments received by the Company from the sale of variable annuity
contracts (the "Contracts") funded through the Separate Account of USAA Life
Insurance Company (the "Separate Account"). The Trust is currently made up of
seven investment Funds: USAA Life Variable Annuity Money Market Fund (the "VA
Money Market Fund"), USAA Life Variable Annuity Income Fund (the "VA Income
Fund"), USAA Life Variable Annuity Growth and Income Fund (the "VA Growth and
Income Fund"), USAA Life Variable Annuity World Growth Fund (the "VA World
Growth Fund"), USAA Life Variable Annuity Diversified Assets Fund (the "VA
Diversified Assets Fund"), USAA Life Variable Annuity Aggressive Growth Fund
(the "VA Aggressive Growth Fund"), and USAA Life Variable Annuity International
Fund (the "VA International Fund"), collectively referred to herein as the
"Funds." Each Fund represents a separate series of shares of beneficial interest
in the Trust. Each share of beneficial interest issued with respect to an
individual Fund represents a pro-rata interest in the assets of that Fund and
has no interest in the assets of any other Fund. Each Fund bears its own
liability and also its proportionate share of the general liabilities of the
Trust. The Trust is registered under the Investment Company Act of 1940 (the
"1940 Act") and its shares are registered under the Securities Act of 1933 (the
"1933 Act"). This registration does not imply any supervision by the Securities
and Exchange Commission (the "SEC" or the "Commission") over the Trust's
management or its investment policies or practices.

DISTRIBUTOR

The Contracts are primarily sold in a continuous offering by direct response
through salaried sales account representatives who are appropriately licensed
under state law to sell variable annuity contracts and registered with the
National Association of Securities Dealers, Inc. (the "NASD") as registered
representatives and/or principals. The Contracts are distributed through USAA
Investment Management Company ("USAA IMCO" or the "Adviser"), an affiliate of
USAA Life, which is registered as a broker-dealer with the SEC and is a member
of the NASD.

INVESTMENT ADVISER

USAA IMCO, registered as an investment adviser with the SEC under the
Investment Advisers Act of 1940, is the investment adviser to the Trust.

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street, Boston, MA, 02110,
is the Trust's custodian ("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, each Fund's investments in foreign securities
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.

TRANSFER AGENT

USAA Life, the depositor of the Separate Account, serves as transfer agent
for the Trust pursuant to a Transfer Agent Agreement. USAA Life may be
reimbursed for its expenses incurred in connection with providing services under
the Transfer Agent Agreement.

3
<PAGE>

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio, Texas 78205,
independent auditors, will perform an annual audit of USAA Life, the Separate
Account, the Trust and USAA IMCO.

LEGAL MATTERS

Freedman, Levy, Kroll and Simonds, Washington, D.C., has passed upon the legal
validity of the Funds' shares and has advised the Trust on certain federal
securities law matters.

VALUATION OF SECURITIES

Shares of each Fund are offered on a continuing basis to the Separate Account
through USAA IMCO. The offering price for shares of each Fund is equal to the
current net asset value (the "NAV") per share. The NAV per share of each Fund is
calculated by adding the value of each of the Fund's portfolio securities and
other assets, deducting its liabilities, and dividing the remainder by the
number of Fund shares outstanding.

A Fund's NAV per share is calculated each day, Monday through Friday, except
days on which the New York Stock Exchange (the "Exchange") is closed. The
Exchange is currently scheduled to be closed on New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, 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 the securities of each Fund, other than the VA Money Market Fund,
is determined by one or more of the following methods:

(1) Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange, are valued at the last sales price on
that exchange. If no sale is reported, the latest bid price is
generally used depending upon local custom or regulation.

(2) Securities traded in a U.S. over-the-counter ("OTC") market are priced
at the last sales price or, if not available, at the average of the bid
and asked prices at the time regular trading of listed securities
closes on the Exchange.

(3) Debt securities purchased with maturities of 60 days or less are stated
at amortized cost, which generally approximates market value.
Repurchase agreements are valued at cost.

(4) Other debt securities are valued each business day by a pricing service
(the "Service") approved by the Board of Trustees of the Trust (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, indicators as to values from dealing in securities, and general
market conditions.

(5) Securities primarily traded on foreign securities exchanges are
generally valued at the preceding closing value of such security on the
exchange where they are primarily traded. If no closing price is
available, the latest bid price is generally used, depending upon local
custom or regulation.

(6) All foreign securities traded in the OTC market are valued at the last
sales price, or, if not available, at the average of the bid and asked
prices. If there is not active trading in a particular security for a
given day, the latest bid price is generally used.

4
<PAGE>

(7) Securities which cannot be valued by the methods set forth above, and
all other assets, are valued in good faith at fair market value using
methods determined by the Adviser under the general supervision of the
Board of Trustees. For purposes of determining each Fund's net asset
value, all assets and liabilities initially expressed in foreign
currency values will be converted into U.S. dollar values at the spot
price of such currencies against U.S. dollars as last quoted by any
recognized broker-dealer.

Securities trading in foreign markets may not take place on all days on which
the Exchange is open. Further, trading takes place in various foreign markets
on days on which the Exchange is not open. The calculation of a Fund's net asset
value therefore may not take place contemporaneously with the determination of
the prices of securities held by a Fund. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of normal trading on the Exchange on a day a Fund's net asset value is
calculated will not be reflected in a Fund's net asset value, unless the Adviser
determines that the particular event would materially affect net asset value. In
such a case, the Fund's Adviser, under the supervision of the Board of Trustees,
will use all relevant available information to determine a fair value for the
affected portfolio securities.

The value of the VA Money Market Fund's securities is stated at amortized
cost, which generally 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 Fund would receive upon the sale of
the instrument.

The valuation of the VA Money Market Fund's portfolio instruments based upon
their amortized cost is subject to the Fund's adherence to certain procedures
and conditions. The Adviser will purchase U.S. dollar-denominated 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 Adviser will
invest only in securities that are judged to present minimal credit risk and
that satisfy the quality and diversification requirements of applicable rules
and regulations of the SEC.

The Board of Trustees has established procedures designed to stabilize the VA
Money Market Fund's price per share, as computed for the purpose of sales and
redemptions, at $1.00. There can be no assurance, however, that the Fund will at
all times be able to maintain a constant $1.00 NAV per share. Such procedures
include review of the Fund's holdings at such intervals as is deemed appropriate
to determine whether the Fund's NAV, calculated by using available market
quotations, deviates from $1.00 per share and, if so, whether such deviation may
result in material dilution, or is otherwise unfair to existing shareholders. In
the event that it is determined that such a deviation exists, the Board of
Trustees will take such corrective action as it regards as necessary and
appropriate. Such action may include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, or establishing an NAV per share by using
available market quotations.

ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES

The Trust reserves the right to suspend the redemption of Trust shares (1) for
any periods during which the Exchange 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.

INVESTMENT POLICIES AND TECHNIQUES

The Prospectus describes certain fundamental investment objectives and certain
investment policies applicable to each Fund. The following is provided as
additional information.

5
<PAGE>

SECTION 4(2) COMMERCIAL PAPER AND RULE 144A SECURITIES

The Funds may invest in commercial paper issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the 1933 Act
("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 ("1933 Act"). 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.

The Funds may also purchase restricted securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act ("Rule
144A Securities"). Rule 144A provides a non-exclusive safe harbor from the
registration requirements of the 1933 Act for resales of certain securities to
institutional investors.

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.

LIQUIDITY DETERMINATIONS

The Board of Trustees has established guidelines pursuant to which municipal
lease obligations, Section 4(2) Commercial Paper, Rule 144A Securities, and
certain restricted debt securities that are subject to unconditional put or
demand features exercisable within seven days ("Demand Feature Securities") may
be determined to be liquid for purposes of complying with a Fund's investment
restriction applicable to investments in illiquid securities. In determining the
liquidity of municipal lease obligations, Section 4(2) Commercial Paper and Rule
144A Securities, the Adviser will, among other things, consider the following
factors 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) the willingness
of dealers to undertake 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 Adviser 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 Adviser may determine to be relevant to such determination. In
determining the liquidity of Demand Feature Securities, the Adviser 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 Demand Feature Securities. In evaluating the credit quality of
the Put Provider, the Adviser will consider all factors that it deems indicative
of the capacity of the Put Provider to meet its obligations under the Demand
Feature Securities based upon a review of the Put Provider's outstanding debt
and financial statements and general economic conditions.

LENDING OF SECURITIES

Each Fund may lend its securities. A lending policy may be authorized by the
Board of Trustees and implemented by the Adviser, but securities may be loaned
only to qualified broker-dealers or institutional investors that agree to
maintain cash collateral with the Trust's custodian or another third party
custodian equal at all times to at least 100% of the value of the loaned
securities. The Board of 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.

6
<PAGE>

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, except that
this limitation does not apply to purchases of debt securities or to repurchase
agreements. The Trust may terminate such loans at any time.

FORWARD CURRENCY CONTRACTS

The VA World Growth Fund, VA Aggressive Growth Fund and the VA International
Fund may enter into forward currency contracts in order to protect against
uncertainty in the level of future foreign exchange rates.

A forward currency contract involves an agreement to purchase or sell a
specific currency at 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.

Although the Fund values its assets each business day in terms of U.S.
dollars, it does not intend to convert its foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and may incur 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 that currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.

WHEN-ISSUED SECURITIES

Each Fund may invest in new issues of debt securities offered on a when-issued
basis; that is, delivery of and payment for the securities take place after the
date of the commitment to purchase, normally within 45 days. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the buyer enters into the commitment. A Fund may sell
these securities before the settlement date if it is deemed advisable.

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 deposit 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 the sale of the when-
issued securities themselves (which may have a value greater or less than the
Fund's payment obligations).

REITS

Because each Fund (other than the VA Money Market Fund and VA International
Fund) may invest a portion of its assets in REITs, each Fund 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.

7
<PAGE>

INVESTMENT RESTRICTIONS

In addition to the restrictions described in the prospectus, the following
investment restrictions have been adopted by the Trust for and are applicable to
each Fund as stated. They are considered to be fundamental policies of the
Funds, and 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 the Fund's outstanding voting
securities. The investment restrictions of one Fund thus may be changed without
affecting those of any other Fund.

Under the restrictions, each Fund may not:

(1) Issue senior securities, except for borrowings described under
"Investment Restrictions" in the Trust's Prospectus and as permitted
under the 1940 Act;

(2) 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;

(3) Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent
investments in securities secured by real estate or interests therein);

(4) 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; or

(5) Purchase or sell commodities or commodities contracts.

With respect to the Funds' concentration policy as described in the
Prospectus, the Adviser 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 Adviser 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 Adviser classifies municipal obligations by
projects with similar characteristics, such as toll road revenue bonds, housing
revenue bonds or higher education revenue bonds.

ADDITIONAL RESTRICTIONS

The following restrictions are not considered to be fundamental policies of
the Funds. Nevertheless, the Trust and each Fund will comply with them if and so
long as they are required by any state where the Fund's shares are offered for
sale. These additional restrictions may be changed by the Board of Trustees
without notice to or approval by the shareholders.

Under the additional restrictions, each Fund may not:

(1) Pledge, mortgage or hypothecate its assets to any extent greater than
33 1/3% of the value of its total assets;

(2) Purchase or retain the securities of any issuer if any officer of the
Adviser or officer or Trustee of the Trust own individually more than
1/2% of the outstanding securities of such issuer, and together
beneficially own more than 5% of such securities;

(3) 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 and make short sales against the box; for
purposes of this restriction, the deposit or repayment of initial or
variation margin in connection with financial futures contracts or
related options will not be deemed to be a purchase of securities on
margin by a Fund;

8
<PAGE>

(4) Purchase securities of other investment companies, except to the extent
permitted by applicable law;

(5) Purchase or sell puts, calls, straddles or spreads or any combination
thereof, except to the extent permitted by applicable law; or

(6) Purchase interests in oil, gas, or other mineral exploration or
development programs, except that it may purchase securities of issuers
whose principal business activities fall within such areas.

PORTFOLIO TRANSACTIONS

The Adviser, pursuant to an Investment Advisory Agreement (the "Advisory
Agreement"), and subject to the general control of the 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 combination of price and execution available. The Adviser will 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-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 Adviser, better prices and execution are available elsewhere.

In the allocation of brokerage business used to purchase securities for the
Funds, preference may be given to those broker-dealers who provide research or
other services to the Adviser. Such research and other services may include, for
example: advice concerning the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities or the purchasers or sellers of securities; analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and various functions
incidental to effecting securities transactions, such as clearance and
settlement. In return for such services, a Fund may pay to those brokers a
higher commission than may be charged by other brokers, provided that the
Adviser determines in good faith that such commission is reasonable in terms of
either that particular transaction or of the overall responsibility of the
Adviser to the Funds and its other clients. The receipt of research from broker-
dealers that execute transactions on behalf of the Trust may be useful to the
Adviser in rendering investment management services to other clients (including
affiliates of the Adviser), and conversely, such research provided by broker-
dealers who have executed transaction orders on behalf of other clients may be
useful to the Adviser in carrying out its obligations to the Trust. While such
research is available to and may be used by the Adviser in providing investment
advice to all its clients (including affiliates of the Adviser), not all of such
research may be used by the Adviser 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 Adviser, and the expenses of the Adviser will not necessarily be
reduced by the receipt of such supplemental research. See "The Trust's Adviser."

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 Adviser provides investment advice (including affiliates of the
Adviser). On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Trust, as well as the Adviser's other clients,
the Adviser, 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 Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to all such customers, including the
Trust, and in accordance with procedures approved by the Board of Trustees. 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.

9
<PAGE>

For the period from January 5, 1995 (the Trust's date of inception) through
December 31, 1995, and for the Trust's most recently completed fiscal year ended
December 31, 1996, the Funds paid the following amounts in brokerage
commissions:

<TABLE>
<CAPTION>
1/1-12/31/96* 1/5-12/31/95**
------------- ---------------
<S> <C> <C>
VA Money Market Fund N/A N/A
VA Income Fund $ 500 $ 5,212
VA Growth and Income Fund $42,972 $ 42,257
VA World Growth Fund $97,545 $103,114
VA Diversified Assets Fund $14,825 $ 23,619
VA Aggressive Growth Fund N/A N/A
VA International Fund N/A N/A
</TABLE>
- --------------
*Includes $2,044, $340, and $3,592, paid by the VA Growth and Income Fund,
VA World Growth Fund, and VA Diversified Assets Fund, respectively, to USAA
Brokerage Services, a discount brokerage service of the Adviser. Those amounts
are 4.76%, 0.35%, and 24.23%, respectively, of the aggregate brokerage fees
paid by each Fund. For the year ended December 31, 1996, 6.40%, 1.33%, and
31.37% of the aggregate dollar amounts of transactions involving the payment
of commissions by the VA Growth and Income Fund, VA World Growth Fund, and VA
Diversified Assets Fund, respectively, were effected through USAA Brokerage
Services.

**Includes $5,212, $3,880, $1,700, and $4,240 paid by the VA Income Fund, VA
Growth and Income Fund, VA World Growth Fund, and VA Diversified Assets Fund,
respectively, to USAA Brokerage Services, a discount brokerage service of the
Adviser.

Certain Funds paid brokerage commissions in connection with brokerage
transactions that were directed to brokers because of brokerage and research
services provided by such brokers. For the Trust's most recently completed
fiscal year ended December 31, 1996, the amount of such brokerage transactions
and related commissions paid by these Funds were as follows:

<TABLE>
<CAPTION>
TRANSACTION
FUND COMMISSIONS AMOUNTS
- ---- ----------- -----------
<S> <C> <C>
VA Growth and Income Fund $14,964 $8,361,469
VA World Growth Fund $ 2,882 $2,116,167
VA Diversified Assets Fund $ 4,030 $3,386,943

</TABLE>

PORTFOLIO TURNOVER RATES

The rate of portfolio turnover in any of the Funds will not be a limiting
factor when the Adviser 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 rate of any Fund, other than the VA Money Market Fund and the VA
Aggressive Growth Fund, 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.

10
<PAGE>

FURTHER DESCRIPTION OF TRUST SHARES

The Trust is authorized to issue shares of beneficial interest in separate
Funds. Seven Funds have been established. Under the Master Trust Agreement
("Trust Agreement"), the Board of Trustees is authorized to create new Funds in
addition to those already existing without shareholder approval.

The assets of each Fund and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
each Fund. They constitute the underlying assets of each Fund, are required to
be segregated on the books of account, and are to be charged with the expenses
of such Fund. Any general expenses of the Trust not readily identifiable as
belonging to a particular Fund are allocated on the basis of the Funds' relative
net assets during the fiscal year or in such other manner as the Board of
Trustees determines to be fair and equitable. Each share of each Fund represents
an equal proportionate interest in that Fund with every other share of that Fund
and is entitled to dividends and distributions out of the net income and capital
gains belonging to that Fund when declared by the Board of Trustees. Upon
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets belonging to such Fund available for distribution.

Under the Bylaws of USAA Life Investment Trust (the "Trust Bylaws") no annual
or regular meeting of shareholders is required. Thus, there will ordinarily be
no shareholder meeting unless otherwise required by the 1940 Act.

Pursuant to the Trust Agreement, any Trustee may be removed by the vote of
two-thirds of the Trust shares then outstanding, cast in person or by proxy at
any meeting called for the purpose. Under the Trust Bylaws, the Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding not less then 10% of the shares then outstanding.

On any matter submitted to the shareholders, the holder of each Fund share is
entitled to one vote per share (with proportionate voting for fractional shares)
regardless of the relative NAV of the Fund's shares. However, on matters
affecting an individual Fund differently from the other Funds, a separate vote
of the shareholders of that Fund is required. Shareholders of a Fund are not
entitled to vote on any matter that does not affect that Fund but that requires
a separate vote of another Fund. Shares do not have cumulative voting rights,
which means the holders of more than 50% of the shares voting for the election
of Trustees can elect 100% of the Board of Trustees, and the holders of less
than 50% of the shares voting for the election of Trustees will not be able to
elect any person as a Trustee. Shareholders of a particular Fund might have the
power to elect all of the Trustees of the Trust because that Fund has a majority
of the total outstanding shares of the Trust.

When issued, each Fund's shares are fully paid and nonassessable, have no pre-
exemptive or subscription rights, and are fully transferable. There are no
conversion rights.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended.
Accordingly, no Fund will be liable for federal income taxes on its taxable net
investment income and net capital gains (capital gains in excess of capital
losses) that are distributed to shareholders, provided that each Fund
distributes at least 90% of its net investment income and net short-term capital
gain for the taxable year.

To qualify as a regulated investment company, a Fund must, among other things,
(1) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (the 90% test); (2) derive in each taxable year less than 30% of its
gross income from the sale or other disposition of stock or securities, and
certain options, futures contracts, forward contracts, and foreign currencies,
held less than three months (the 30% test); and (3) satisfy certain
diversification requirements at the close of each quarter of the Fund's taxable
year. Each of the Funds intends to satisfy these requirements. To deduct

11
<PAGE>

the dividends it pays, and therefore not be subject to federal income tax at the
Trust level, each Fund must pay dividends each taxable year equal to 90% of its
taxable income and 90% of its non-taxable income.

As discussed in the Prospectus, each Fund is also subject to asset
diversification requirements set forth in Section 817(h) of the Code and Section
1.817-5 of the Treasury Regulations. Each of the Funds intends to conduct its
investment operations in such a manner as to comply with these diversification
requirements.

In addition to these rules, the Treasury has indicated that it might in the
future issue a regulation or a revenue ruling on the issue of whether a variable
contract owner is exercising impermissible "control" over the investments
underlying a segregated asset account, thereby causing the income earned on a
Contract to be taxed currently.

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 12-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 the
excise tax.

The ability of the VA Aggressive Growth Fund, VA World Growth Fund and the VA
International Fund to make certain investments may be limited by provisions of
the Code that require inclusion of certain unrealized gains or losses in the
Fund's income for purposes of the 90% test, the 30% test, and the distribution
requirements of the Code, and by provisions of the Code that characterize
certain income or loss as ordinary income or loss rather than capital gain or
loss. Such recognition, characterization and timing rules generally apply to
investments in certain forward currency contracts, foreign currencies and debt
securities denominated in foreign currencies, as well as certain other
investments.

If the VA World Growth Fund or the VA International Fund invests 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 the Fund with respect to investments
in PFICs would be insignificant.

TRUSTEES AND OFFICERS OF THE TRUST

The Board of Trustees consists of five Trustees. Set forth below are the
Trustees and officers of the Trust, their ages 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.
Asterisks denote Trustees who are interested persons of the Trust within the
meaning of the 1940 Act.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE POSITION WITH TRUST THE PAST FIVE YEARS
- ----------------------- ------------------- -------------------------------------------
<S> <C> <C>
Edwin L. Rosane* Chairperson and Chief Executive Officer and President,
Age 60 President USAA Life, since 1993 and 1990,
respectively

Michael J.C. Roth* Vice Chairperson Chief Executive Officer and President,
Age 55 USAA IMCO, since October 1993 and
January 1990, respectively

June R. Reedy/1/ Trustee Chairman, Mayor's Task Force To
211 N. Presa Revitalize the Historic Civic Center of San
San Antonio, Texas Antonio; City Commissioner, Historic
78205, Design & Review, City of San Antonio
Age 67 (Volunteer)
</TABLE>
- --------------
/1/ Ms. Reedy retired as a Vice President of USAA Life Insurance Company on
December 31, 1985.

12
<PAGE>

PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE POSITION WITH TRUST THE PAST FIVE YEARS
- ----------------------- ------------------- -------------------------------------------
<S> <C> <C>
Neil H. Stone Trustee Attorney (Associate), Gendry & Sprague,
10100 Reunion Place, P.C. (known as Gendry, Sprague &
Suite 850 Wachsmuth until November 1994), since
San Antonio, Texas December 1992; prior thereto, Attorney
78216, (Associate, Shareholder, Vice President),
Age 54 Coatney, Sprague & Wachsmuth, P.C.

Gary W. West Trustee President, Radiation Oncology of San
8038 Wurzbach, Antonio, Professional Association
Suite 870
San Antonio, Texas
78229,
Age 57

Kenneth McClure Vice President Senior Vice President, Life & Health
Age 49 Marketing, USAA Life, since January
1997; prior thereto, Senior Vice President,
Life Operations, USAA Life, since January
1995; prior thereto, Senior Vice President,
Life & Health Marketing, USAA Life, since
August 1992; prior thereto, Vice
President, Life & Health Sales, USAA Life

John W. Douglas Vice President Senior Vice President, Life Operations,
Age 53 USAA Life, since January 1997; prior thereto,
Senior Vice President, Life & Health
Marketing, USAA Life, since January
1995; prior thereto, Senior Vice President,
Life Operations, USAA Life, since 1990

John W. Saunders, Jr. Vice President Senior Vice President - Investments,
Age 62 USAA IMCO

Richard T. Halinski, Jr. Secretary Vice President, USAA, and Assistant
Age 45 Secretary, USAA Life, since November
1994 and April 1991, respectively; prior
thereto, Assistant Vice President, USAA
Life and USAA, since April 1991 and
November 1990, respectively

James A. Robinson Treasurer Senior Vice President, Finance, USAA
Age 47 Life, since April 1992; prior thereto, Vice
President, Controller, USAA Life

Dwain A. Akins Assistant Assistant Vice President, USAA,
Age 46 Secretary since November 1994; Assistant Vice
President & Assistant Secretary since
April, 1995, USAA Life, prior thereto,
Executive Director, USAA, since February 1991
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE POSITION WITH TRUST THE PAST FIVE YEARS
- ----------------------- ------------------- -------------------------------------------
<S> <C> <C>
Terry E. McBride Assistant Treasurer Director, Financial Statement Reporting,
Age 39 USAA Life, since February 1997; prior
thereto, Manager of Accounts Payable &
Cost Allocation, USAA Life, since February
1996; prior thereto, Cost Analyst, Corporate
Finance, since April 1995; prior thereto,
Manager, Financial Statement Reporting,
USAA Life, since November 1994; prior
thereto, Staff Accountant, USAA Life, since
May 1993; prior thereto, Controller, Tower
Life Insurance Company, since May 1988.

Jeanine A. Merrill Assistant Treasurer Manager, Regulatory Reporting, USAA Life,
Age 38 since August 1995; prior thereto, Mutual
Fund Accountant, Statement and Mutual
Fund Accounting, USAA Life, since
September 1994; prior thereto, Mutual Fund
Accountant, USAA IMCO, since July 1990.
</TABLE>

14
<PAGE>

COMMITTEES OF THE BOARD OF TRUSTEES

The Trust has an Audit Committee, an Executive Committee and a Pricing and
Investment Committee. The duties of these three Committees and their present
membership are as follows:

AUDIT COMMITTEE: The members of the Audit Committee consult with the Trust's
independent public accountants from time to time regarding financial and
accounting matters pertaining to the Trust and meet with the Trust's independent
public accountants at least once annually to discuss the scope and results of
the annual audit of the Funds and such other matters as the Committee members
deem appropriate or desirable. Trustees Reedy, Stone and West are members of the
Audit Committee.

EXECUTIVE COMMITTEE: During intervals between meetings of the Board of
Trustees, the Executive Committee possesses and may exercise all of the powers
of the Board of Trustees in the management of the Trust except as to those
matters that specifically require action by the Board of Trustees. Trustees
Rosane, Roth and Reedy are members of the Executive Committee.

PRICING AND INVESTMENT COMMITTEE: During intervals between meetings of the
Board of Trustees, the Pricing and Investment Committee reviews each Fund's
investments and confers with USAA IMCO at such times and as to such matters as
the Committee members deem appropriate. Trustees Roth, Stone, and West are
members of the Pricing and Investment Committee.

No remuneration will be paid by the Trust to any Trustee or officer of the
Trust who is affiliated with USAA Life or the Adviser. Trustees' fees consisting
of an annual retainer of $5,000 for serving on the Board of Trustees, an annual
retainer of $500 for serving on one or more committees of the Board of Trustees,
and a $500 fee for each regular or special Board meeting will be paid to each
Trustee who is not an interested person of the Trust, presently Trustees Reedy,
Stone and West. The Trustees are also reimbursed for their expenses incurred in
attending any meeting of the Board of Trustees. The Board of Trustees generally
meets quarterly.

The following table sets forth the compensation of the current Trustees for
their services as Trustees for the Trust's most recently completed fiscal year
ended December 31, 1996:

AGGREGATE AGGREGATE COMPENSATION
COMPENSATION FROM THE USAA
TRUSTEE: FROM THE TRUST: FAMILY OF FUNDS(A):
- -------- --------------- ----------------------
<S> <C> <C>
Edwin L. Rosane(b).... None None
Michael J.C. Roth(c).. None None
June R. Reedy......... $6,500 None
Neil H. Stone......... $6,500 None
Gary W. West.......... $6,500 None
</TABLE>

(a) As of April 1, 1997, the USAA Family of Funds consisted of four registered
investment companies, not including the Trust, offering a total of 33
individual funds.

(b) Trustee Rosane is the President and CEO of USAA Life, which is affiliated
with the Trust's investment adviser, USAA IMCO, and, accordingly, receives
no remuneration from the Trust.

(c) Trustee Roth is affiliated with the Trust's investment adviser, USAA IMCO,
and, accordingly, receives no remuneration from the Trust or any other fund
within the USAA Family of Funds, although he presently serves on the board
of each registered investment company within the USAA Family of Funds.

15
<PAGE>

THE TRUST'S ADVISER

As described in the Prospectus, USAA IMCO is the Adviser to the Trust and
provides services under the Advisory Agreement. USAA IMCO was organized in May
1970 and has served as adviser and distributor for the USAA Life Investment
Trust from its inception. USAA IMCO is a wholly-owned indirect subsidiary of
United Services Automobile Association.

In addition to providing investment advice to the Trust, the Adviser advises
and manages the investments for USAA and its affiliated companies as well as
those of USAA Investment Trust, USAA Mutual Fund, Inc., USAA Tax Exempt Fund,
Inc., and USAA State Tax-Free Trust. As of the date of this SAI, total assets
under management by the Adviser were in excess of $32 billion, of which
approximately $19 billion of which are in publicly available mutual funds.

THE ADVISORY AGREEMENT

Under the Advisory Agreement, the Adviser provides an investment program,
carries out the investment policies and manages the portfolio assets for each
Fund. The Adviser is authorized, subject to the control of the Board of
Trustees, to determine the selection, amount and time to buy or sell securities
for each Fund. For these services under the Advisory Agreement, the Trust has
agreed to pay the Adviser a monthly fee equal to the annual rate of 0.20% of the
monthly average net assets of each Fund, other than the VA Aggressive Growth
Fund and the VA International Fund, for which the annual rates are 0.50% and
0.65%, respectively. See "Management" in the Prospectus for further
details.

USAA IMCO received the following investment advisory fees for the Trust's most
recently completed fiscal year ended December 31, 1996:

<TABLE>
<S> <C>
VA Money Market Fund $22,871
VA Income Fund $55,992
VA Growth and Income Fund $81,317
VA World Growth Fund $62,425
VA Diversified Assets Fund $61,680
</TABLE>

The Advisory Agreement was approved on December 14, 1994, by the Board of
Trustees and was subsequently approved by the initial shareholder of each Fund,
USAA Life on behalf of the Separate Account, following its investment of the
initial capitalization of each Fund. On December 5, 1996, the Board of Trustees
approved the continuation of the Advisory Agreement for another term ending
January 3, 1998. The Board of Trustees approved an amendment to the Advisory
Agreement on February 7, 1997 to include the VA Aggressive Growth and VA
International Funds, for an initial term beginning on May 1, 1997 and continuing
through January 3, 1998. The Advisory Agreement 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) and, in
either event, a majority of the Trustees who are not interested persons of the
Adviser or of the Trust (otherwise than as Trustees), at a meeting called for
the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, at any time by the Board of Trustees, the Adviser
or, with respect to any Fund, by vote of that Fund's shareholders, in each case
on 60 days' written notice. It will automatically terminate in the event of its
assignment (as defined in the 1940 Act).

Pursuant to an Underwriting and Administrative Services Agreement, dated
December 16, 1994 ("Underwriting Agreement"), USAA Life, out of its General
Account, assumes the expense of: (a) organizing the Trust; (b) compensation and
travel expenses of those Trustees of the Trust who are "interested persons" of
the Trust within the meaning of the 1940 Act; and (c) any activity that may be
attributable to the Trust as primarily intended to result in the sale of Trust
shares to other than current shareholders and/or Contract Owners, including the
preparation, setting in type, printing in quantity and distribution of such
materials as prospectuses, statements of additional information, supplements to
prospectuses and statements of additional information, sales literature
(including the Trust's periodic

16
<PAGE>

reports to shareholders and any Separate Account periodic report to Contract
Owners), advertising and other promotional material relating to either the Trust
or the Account and compensation paid to sales personnel.

In addition, pursuant to the Underwriting Agreement, USAA Life, out of its
General Account, has agreed to pay directly or reimburse the Trust for these
Trust expenses to the extent that such expenses, exceed 0.65% of the monthly
average net assets of the VA World Growth Fund, 0.70% of the monthly average net
assets of the VA Aggressive Growth Fund, 1.10% of the monthly average net assets
of the VA International Fund, and 0.35% of the monthly average net assets of
each other Fund. Subject to the expense limitation described in the preceding
paragraph, the Trust will bear the expense of: (a) all charges, commissions and
fees agreed to by it pursuant to the Advisory Agreement by and between the Trust
and USAA IMCO in its capacity as Adviser; (b) the charges and expenses of
independent auditors and outside counsel retained by the Trust; (c) brokerage
commissions for transactions in the portfolio investments of the Trust and
similar fees and charges for the acquisition, disposition, lending or borrowing
of such portfolio investments; (d) all taxes, including issuance and transfer
taxes, and corporate fees, payable by the Trust to Federal, state or other
governmental agencies; (e) interest payable on the Trust's borrowings; (f)
extraordinary or non-recurring expenses, such as legal claims and liabilities
and litigation costs and indemnification payments by the Trust in connection
therewith; (g) all expenses of Shareholders and Trustees' meetings (exclusive of
compensation and travel expenses of those Trustees of the Trust who are
"interested persons" of the Trust within the meaning of the 1940 Act), including
those in the following item; (h) compensation and travel expenses of those
Trustees who are not "interested persons" within the meaning of the 1940 Act;
(i) the charges and expenses of any registrar, stock transfer or dividend
disbursing agent, custodian, or depository appointed by the Trust for the
safekeeping of its cash, portfolio securities and other property; (j) the fees
and expenses involved in registering and maintaining registrations of the Trust
and its shares with the SEC and various states and other jurisdictions (other
than any such expenses referred to in the following paragraph); (k) membership
or association dues for the Investment Company Institute or similar
organization; (l) the cost of the fidelity bond required by 1940 Act Rule 17g-1
and any errors and omissions insurance or other liability insurance covering the
Trust and/or its officers, Trustees and employees; (m) the preparation, setting
in type, printing in quantity and distribution of materials distributed to then-
current shareholders and/or Contract Owners of such material as prospectuses,
statements of additional information, supplements to prospectuses and statements
of additional information, periodic reports to Shareholders and/or Contract
Owners, communications, and proxy materials (including proxy statements, proxy
cards and voting instruction forms) relating to either the Trust or the Separate
Account and the processing, including tabulation, of the results of voting
instruction and proxy solicitations; (n) furnishing, or causing to be furnished,
to each Shareholder statements of account, including the expense of mailing;
and (o) postage. The Underwriting Agreement may be terminated by any party
thereto upon 60 days written notice to the other parties.

PRINCIPAL HOLDERS OF SECURITIES

As of April 1, 1997, USAA Life, either directly or through the Separate
Account, owned of record and beneficially the percentages of each Fund's
outstanding shares as shown below. In addition, USAA Life has agreed to provide
the initial capitalization of the VA Aggressive Growth Fund and the VA
International Fund, and, therefore, initially will own beneficially all of the
shares of those Funds. As a result of its beneficial ownership, USAA Life may be
presumed to control (with the exception of the VA Money Market Fund) each Fund
of the Trust. Such control may dilute the effect of the votes of other
shareholders of each Fund presumed to be controlled. USAA Life will vote its
Fund shares owned through the Separate Account in accordance with instructions
received from variable annuity contract owners, annuitants and beneficiaries.
If USAA Life determines, however, that it is permitted to vote any such Fund
shares in its own right, it may elect to do so, subject to the then-current
interpretation of the 1940 Act and the rules thereunder. The address of USAA
Life is 9800 Fredericksburg Road, San Antonio, Texas 78288. USAA Life, a Texas
corporation, is wholly-owned by United Services Automobile Association.

VA Money Market Fund 0%
VA Income Fund 79.79%
VA Growth and Income Fund 43.14%
VA World Growth Fund 68.50%
VA Diversified Assets Fund 62.26%

17
<PAGE>

As of April 1, 1997, the Separate Account owned of record the percentages of
each Fund's outstanding shares attributable to the Contracts as shown below. The
VA Aggressive Growth Fund and the VA International Fund were not available as
investment options under the Contracts until May 1, 1997. The Separate Account
is located at 9800 Fredericksburg Road, San Antonio, Texas 78288.

VA Money Market Fund 100%
VA Income Fund 20.21%
VA Growth and Income Fund 56.86%
VA World Growth Fund 31.50%
VA Diversified Assets Fund 37.74%

Contract Owners may be deemed to beneficially own shares of one or more of the
Funds, to the extent that they are given the right to provide voting
instructions with regard to shares in those Funds. As of April 1, 1997, Howard
M. Meyers, Dallas, Texas and Ross D. Pierce, Ponte Vedra Beach, Florida, may be
deemed to beneficially own 7.35% and 7.62%, respectively, of the VA Money
Market Fund.

As of April 1, 1997, the Trustees and officers, as a group, owned less than 1%
of the Trust's outstanding voting securities through any Contract. There are no
family relationships among the Trustees, officers, and managerial level
employees of the Trust or its Adviser.

CALCULATION OF PERFORMANCE DATA

Information regarding the total return and yield of the Funds is provided
under "Performance Information" in the Prospectus. See "Valuation of Securities"
in this SAI for a discussion of the manner in which the Funds' price per share
is calculated.

YIELD - VA MONEY MARKET FUND

When the VA Money Market Fund quotes a current annualized yield, it is based
on a specified recent seven day calendar period. It is computed by (1)
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, (2) dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base return, then (3)
multiplying the base period by 52.14 (365/7). The resulting yield figure is
carried to the nearest hundredth of one percent.

The calculation includes the value of additional shares purchased with
dividends on the original share, and other dividends declared on both the
original share and any such additional shares. The calculation includes the
effect of all expense reimbursements to the Fund. The capital changes excluded
from the calculation are realized capital gains and losses from the sale of
securities and unrealized appreciation and depreciation.

The Fund's effective (compounded) yield will be computed by dividing the
seven-day annualized yield as defined above by 365, adding one to the quotient,
raising the sum to a power equal to 365 divided by seven, and subtracting one
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.

For the seven days ended December 31, 1996, the current yield of the VA Money
Market Fund was 5.23%.

18
<PAGE>

YIELD - OTHER FUNDS

The Funds may advertise performance in terms of a 30-day (or one month) 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:

[(a-b )/6/ ]
YIELD = 2 [(----+ 1) -1]
[(cd ) ]

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

TOTAL RETURN

The Funds may advertise performance in terms of average annual total return
for one, five and ten 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 prescribed by the SEC:

/n/
P(1 + T) = ERV

Where: P= a hypothetical initial investment of $1,000
n= number of years

ERV= ending redeemable value of a
hypothetical $1,000 investment made at
the beginning of the applicable period

The calculation 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 Fund expenses, net of reimbursements.

In addition, the Funds may each advertise performance in terms of cumulative
total return. Cumulative total return reflects the total change in value of an
investment in the Fund over a specified period, including, but not limited to,
periods of one, five and ten years, or the period since the Fund's inception
through a stated ending date. Cumulative total return is calculated in a manner
similar to standardized average annual total return, except that the results are
not annualized. The SEC has not prescribed a standard formula for calculating
cumulative total return. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical initial investment of $1,000 over
various periods, according to the following formula, and then expressing that as
a percentage:

C = (ERV/P)-1

Where: P= a hypothetical initial investment of $1,000
C= cumulative total return
ERV= ending redeemable value of a
hypothetical $1,000 investment made at
the beginning of the applicable period

19
<PAGE>

The average annual and cumulative total returns* for each Fund that had
operations were as follows:

FUND AVERAGE ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
- ----
SINCE INCEPTION
(JANUARY 5, 1995)
SINCE INCEPTION YEAR ENDED THROUGH YEAR ENDED
(JANUARY 5, 1995) DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
VA Money Market Fund 5.47% 5.25% 11.23% 5.25%
VA Income Fund 11.68% 0.67% 24.72% 0.67%
VA Growth and Income Fund 27.87% 24.13% 63.51% 24.13%
VA World Growth Fund 20.34% 21.12% 44.81% 21.12%
VA Diversified Assets Fund 20.17% 14.30% 44.40% 14.30%
</TABLE>

* These values reflect the deduction of a .20% annual management fee and
other Fund expenses, but do not reflect Fund expenses that are voluntarily
paid by USAA Life or reimbursed by USAA Life. Without the payment or
reimbursement of expenses by USAA Life, these total returns would have been
lower.

FINANCIAL STATEMENTS

The most recent audited financial statements for each Fund of the Trust (other
than the VA Aggressive Growth Fund and VA International Fund), and the report of
the Trust's independent auditors thereon, are incorporated into this SAI by
reference to the Trust's Annual Report, dated December 31, 1996, which
accompanies this SAI.

Only those sections of the Annual Report that are specifically identified
immediately below are incorporated by reference into this SAI:

Independent Auditors' Report
Portfolios of Investments in Securities
Notes to Portfolios of Investments in Securities
Statements of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements

20
<PAGE>

APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS

1. LONG-TERM DEBT RATINGS:

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
"high grade bonds." They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A Bonds that 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 that 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.

STANDARD & POOR'S RATINGS GROUP ("S&P")

AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

FITCH INVESTORS SERVICE, INC. ("FITCH")

AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.

21
<PAGE>

A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment.

DUFF & PHELPS, INC. ("D&P"):

AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A Protection factors are average but adequate. However, risk factors are
variable and greater in periods of economic stress.

BBB Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

2. SHORT-TERM DEBT RATINGS:

MOODY'S CORPORATE AND GOVERNMENT

Prime-1 Issuers have a superior ability for repayment of senior short term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:

Leading market positions in well-established industries.

High rates of return on funds employed.

Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

Well-established access to a range of financial markets and assured sources
of alternate liquidity.

Prime-2 Issuers have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Prime-3 Issuers (or supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.

22
<PAGE>

MOODY'S MUNICIPAL

MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.

MIG 2/VMIG 2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

S&P CORPORATE AND GOVERNMENT

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

A-3 Designation indicates a satisfactory capacity for timely payment. Issues
with this designation, however, are somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

S&P MUNICIPAL

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

FITCH

F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated F-
1+.

F-2 Good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 ratings.

F-3 Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change is likely to cause these securities to be rated below
investment grade.

23
<PAGE>

D&P

Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources of funds,
is clearly outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations.

Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.

Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

Duff 3 Satisfactory liquidity and other protection factors qualify issue as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

THOMPSON BANKWATCH, INC. ("TBW")

TBW-1 The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.

TBW-3 The lowest investment grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than obligations with higher ratings, the capacity to service
principal and interest in a timely fashion is considered adequate.

IBCA INC.

A1 Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+ is
assigned.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely repayment.

24
<PAGE>

APPENDIX B - COMPARISON OF FUND PERFORMANCE

The Trust may make comparisons in advertising and sales literature between the
Funds contained in this SAI and other comparable funds in the industry. 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 also
may 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 1933 Act such as, but not limited
to, certificates of deposit and money market accounts. Sources for performance
information and articles about the Fund may include the following:

AAII Journal, a monthly association magazine for members of the American
Association of Individual Investors.

Arizona Republic, a newspaper which may cover financial and investment news.

Austin American-Statesman, a newspaper that may cover financial news.

Bank Rate Monitor, a service that publishes rates on various bank products such
as certificates of deposit, money market deposit accounts and credit cards.

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 may periodically review mutual fund
companies.

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.

25
<PAGE>

IBC/Donoghue's Moneyletter, a biweekly newsletter that covers financial news and
from time to time rates specific mutual funds.

IBC's Money Market Insight, a monthly money market industry analysis prepared by
IBC USA, Inc.

Income and Safety, a monthly newsletter that rates mutual funds.

InvesTech, a bi-monthly investment newsletter.

Investment Advisor, a monthly publication directed primarily to the adviser
community; includes ranking of mutual funds using a proprietary methodology.

Investment Company Institute, the national association of the U.S. 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 Fixed Income Fund Performance Analysis, a
monthly publication of industry-wide mutual fund performance averages by type of
fund.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a monthly
publication of industry-wide mutual fund 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.

Money Fund Report, a weekly publication of the Donoghue Organization, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity, and including certain averages as performance
benchmarks, specifically "Donoghue's Taxable First Tier Fund Average."

Morningstar 5 Star Investor, a monthly newsletter which covers financial news
and rates mutual funds, produced by Morningstar, Inc. (a data service which
tracks open-end mutual funds).

Mutual Fund Forecaster, a monthly newsletter that ranks mutual funds.

Mutual Fund Investing, a newsletter covering mutual funds.

Mutual Fund Performance Report, a monthly publication of mutual fund performance
and rankings, produced by Morningstar, Inc.

Mutual Funds Magazine, a monthly publication reporting on mutual fund investing.

Mutual Fund Source Book, an annual publication produced by Morningstar, Inc.
that describes and rates mutual funds.

Mutual Fund Values, a biweekly guidebook to mutual funds produced by
Morningstar, Inc.

26
<PAGE>

Newsweek, a national news weekly that may cover business matters.

New York Times, a newspaper that may cover financial news.

No Load Fund Investor, a newsletter covering companies in the mutual fund
industry.

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 which may cover financial news.

U.S. News and World Report, a national business weekly that periodically reports
on mutual fund performance data.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper 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 toward the novice investor.

Among the organizations cited above, Lipper Analytical Services, Inc.'s
tracking results may be used. A Fund will be compared to Lipper's appropriate
fund category according to fund objective and portfolio holdings. The VA Growth
& Income Fund will be compared to Lipper's growth & income funds category, the
VA Income Fund to Lipper's corporate debt-A rated category, the VA World Growth
Fund to Lipper's global fund category, the VA Diversified Assets Fund to
Lipper's balanced funds category, the VA Aggressive Growth Fund to Lipper's
small company growth funds, the VA International Fund to Lipper's international
fund category and the VA Money Market Fund to Lipper's taxable money market
funds category. Footnotes in advertisements and other marketing literature will
include the time period applicable for any rankings used.

For comparative purposes, unmanaged indexes of comparable securities may be
cited. Examples include the following:

- -Ibbotson Associates, Inc., Stocks, Bonds, Bills, and Inflation Yearbook;

- -Lehman Brothers 1-3 year Government/Corporate Index, an unmanaged index of all
the government, agency, and corporate bonds longer than one year and less than
three years;

- -Lehman Brothers Aggregate Bond Index, an unmanaged index of the
Government/Corporate Index, the Mortgage Backed Securities Index, and the Asset-
Backed Securities Index;

27
<PAGE>

- -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;

- -NASDAQ Industrials, a composite index of approximately 3000 unmanaged
securities of industrial corporations traded over the counter;

- -S&P 500 Index, a broad based unmanaged composite index that represents the
average performance of a group of 500 securities widely held, publicly traded
stocks.

Other sources for total return and other performance data that may be used by
a Fund or by those publications listed previously are Morningstar, Inc.,
Schabaker Investment Management, and Investment Company Data, Inc. These are
services that collect and compile data on open-end mutual fund companies.

28
<PAGE>

REGISTRATION STATEMENT ON FORM N-1A
PART C - OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

(a) List of Financial Statements

1. Part A. The Financial Highlights of the USAA Life Investment Trust ("Trust")
for the period from January 5, 1995 (the Trust's date of inception) through
December 31, 1995, and for the Trust's most recently completed fiscal year ended
December 31, 1996, are included in Part A of this Registration Statement.

2. Part B. The most recent audited financial statements for each Fund of the
Trust, and the report of the Trust's independent auditor's thereon, are
incorporated into this Registration Statement by reference to the Trust's Annual
Report, dated December 31, 1996.
Only those sections of the Annual Report that are specifically identified
immediately below are incorporated by reference into this Registration
Statement:

(b) Exhibits:

EXHIBIT
NO. DESCRIPTION OF EXHIBITS
--- -----------------------

(1) (a) Certificate of Trust of USAA Life Investment Trust./1/

(b) (i) Master Trust Agreement of USAA Life Investment Trust./3/

(b) (ii) Amendment to Master Trust Agreement of USAA Life Investment
Trust./6/

(2) Bylaws of USAA Life Investment Trust./3/

(3) Not Applicable.

(4) Not Applicable.

(5) (a) Investment Advisory Agreement by and between USAA Life Investment
Trust and USAA Investment Management Company, dated December 16,
1994./3/

(b) Amendment to Investment Advisory Agreement by and between USAA Life
Investment Trust, with respect to its VA Aggressive Growth and VA
International Funds, and USAA Investment Management Company, dated
February 7, 1997./6/

(6) (a) Underwriting and Administrative Services Agreement by and between
USAA Life Insurance Company, USAA Life Investment Trust and USAA
Investment Management Company, dated December 16, 1994./3/

1
<PAGE>

(b) Amendment to Underwriting and Administrative Services Agreement by
and between USAA Life Insurance Company, USAA Life Investment Trust,
with respect to its VA Aggressive Growth and VA International Funds,
and USAA Investment Management Company, dated February 7,
1997./6/

(7) Not Applicable.

(8) (a) Custodian Agreement by and between USAA Life Investment
Trust and State Street Bank and Trust Company, dated December 16,
1994./3/

(b) Amendment to Custodian Agreement by and between USAA Life Investment
Trust and State Street Bank and Trust Company, dated December 16,
1994./3/

(c) First Amendment to the Amendment to the Custodian Agreement by and
between USAA Life Investment Trust and State Street Bank and Trust
Company, dated July 24, 1996./6/

(d) Second Amendment to Custodian Agreement by and between USAA Life
Investment Trust and State Street Bank and Trust Company, dated
April 24, 1997.

(9) (a) (i) Third Party Administrator Agreement by and between USAA Life
Insurance Company and Vantage Computer Systems, L.P. (now
known as Alliance-One Services, Inc.), dated July 5, 1994
(excluding exhibits)./2/

(ii) Amendment to Third Party Administrator Agreement by and
between USAA Life Insurance Company and Continuum
Administrative Services Corporation (formerly known as Vantage
Computer Systems, Inc.), dated December 14, 1995./7/

(iii) Amendment to Third Party Administrator Agreement by and
between USAA Life Insurance Company and Alliance-One Services,
L.P. (formerly known as Continuum Administrative Services
Corporation), dated July 5, 1994./7/

(b) Transfer Agent Agreement by and between USAA Life Investment Trust
and USAA Life Insurance Company, dated December 15, 1994./3/

(c) Letter Agreement by and between USAA Life Investment Trust and USAA
Life Insurance Company, dated February 7, 1997, appointing USAA Life
as the Transfer Agent and Dividend Disbursing Agent for the VA
Aggressive Growth and VA International Funds./6/

(10) (a) Opinion and Consent of Counsel concerning the VA Money Market, VA
Income, VA Growth and Income, VA World Growth and VA Diversified
Assets Funds./4/

(b) Opinion and Consent of Counsel concerning the VA Aggressive Growth
and VA International Funds./6/

(11) Consent of KPMG Peat Marwick LLP, Independent Auditors.

(12) Not Applicable.

(13) (a) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, with respect to its VA Money Market,
VA Income, VA Growth and Income, VA World Growth and VA Diversified
Assets Funds, dated December 16, 1994./3/

(b) Ratification of Subscription Agreement Modification, approved by
the Trust's Board of Trustees on November 30, 1995./5/

(c) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, with respect to its VA Aggressive
Growth and VA International Funds, dated February 7, 1997./6/

2
<PAGE>

(14) Not Applicable.

(15) Not Applicable.

(16) Schedule for Computations of Performance Quotations included in
response to Form N-1A, Item 22./5/

(17) The Financial Data Schedule required to be filed pursuant to Form N-1A,
Item 24(b)(17), is filed herewith as Exhibit 27, as dictated by the
Commission's Electronic Data Gathering, Analysis, and Retrieval System.

(18) Not Applicable.

(19) (a) Powers of Attorney for: Edwin L. Rosane and James A.Robinson./1/

(b) Powers of Attorney for: Michael J.C. Roth, June R. Reedy, Neil H.
Stone and Gary W. West./3/

(20) Persons Controlled by or Under Common Control with Registrant.

(27) Financial Data Schedule.

/1/ Previously filed with the initial filing, on August 1, 1994, of
Registrant's Form N-1A Registration Statement.

/2/ Incorporated by reference to Exhibit 8(a) of the initial filing, on
August 1, 1994, of the Form N-4 Registration Statement for the Separate
Account of USAA Life Insurance Company, File No. 33-82268 and No. 811-8670.

/3/ Previously filed on December 22, 1994, with Pre-Effective Amendment No. 1
to Registrant's Form N-1A Registration Statement.

/4/ Previously filed on July 3, 1995, with Post-Effective Amendment No. 1 to
the Registrant's Form N-1A Registration Statement.

/5/ Previously filed on April 29, 1996, with Post-Effective Amendment No. 2
to the Registrant's Form N-1A Registration Statement.

/6/ Previously filed on February 14, 1997, with Post-Effective Amendment No.
3 to the Registrant's Form N-1A Registration Statement.

/7/ Incorporated by reference to Exhibits 8(a)(ii) and 8(a)(iii), respectively,
of Post-Effective Amendment No. 3 to the Form N-4 Registration Statement of
the Separate Account of USAA Life Insurance Company, File No. 33-82268 and
No. 811-8670.

ITEM 25. Persons Controlled by or Under Common Control with Registrant

No person is controlled by Registrant. All of the outstanding shares of
beneficial interest of Registrant are owned of record by USAA Life Insurance
Company ("USAA Life"), which is a wholly-owned subsidiary of United Services
Automobile Association ("USAA"), and the Separate Account of USAA Life Insurance
Company (the "Separate Account"), a segregated asset account of USAA Life. USAA
Life beneficially owns, both directly and through the Separate Account, more
than 25% of the shares of each of Registrant's Funds (other than the VA Money
Market Fund), and as a result, may be deemed to control (with the exception of
the VA Money Market Fund) each Fund of the Registrant. Various companies
affiliated with Registrant may, therefore, be deemed to be under common control
with each Fund (other than the VA Money Market Fund) of the Registrant. The
names of these companies, their relationship to the Registrant and other
information about the companies is set forth in an organization chart that is
filed herewith in this Form N-1A Registration Statement as Exhibit 20 and
incorporated herein by reference.

3
<PAGE>

ITEM 26. Number of Holders of Securities

As of May 1, 1997, the Trust had the following number of shareholders on
record.

TITLE OF FUNDS NUMBER OF RECORD HOLDERS
- -------------- ------------------------
<S> <C>
VA Money Market 1
VA Income 2
VA Growth and Income 2
VA World Growth 2
VA Diversified Assets 2
VA Aggressive Growth Fund 1
VA International Fund 1
</TABLE>

ITEM 27. Indemnification

Indemnification against liability is provided to the Trustees and officers of
the Registrant, the underwriter of the Registrant and the following affiliated
persons of the Registrant, in the following ways:

(a) Directors' and Officers' Liability Policy: The Registrant and its
Trustees and officers are covered under a joint liability insurance policy
("policy") along with USAA IMCO, other mutual funds managed by USAA IMCO,
and USAA Shareholder Account Services. The policy insures against errors
and omissions as described therein.

(b) Indemnification Under the Master Trust Agreement: Under Article V of
the Registrant's Master Trust Agreement (incorporated herein by reference
to Exhibit (1) (b)(i) of this Registration Statement), the Registrant has
agreed to indemnify any Shareholder or former Shareholder, and each of its
Trustees and officers, including persons serving at the Registrant's
request as Directors, officers or trustees of another organization in
which the Registrant has any interest as a shareholder, creditor or
otherwise, against liability as specified therein.

(c) Indemnification Under the Underwriting and Administrative Services
Agreement: Under Section 9 of the Underwriting and Administrative Services
Agreement by and between the Registrant, USAA Life and USAA IMCO
(incorporated herein by reference to Exhibit (6) of this Registration
Statement), USAA Life and USAA IMCO have agreed to indemnify the
Registrant and one another, and each of the Trustees, Directors and
officers (or former Trustees, Directors and officers) of each party, and
any person who controls any party, against liability as specified therein.

(d) Indemnification under the Custodian Agreement, as Amended: Under Section
2.12(6) and Section 8 of the Custodian Agreement by and between the
Registrant and State Street Bank and Trust Company ("State Street")
(incorporated herein by reference to Exhibit (8)(a) of this Registration
Statement), State Street has agreed to be responsible to the Registrant
for negligence or misconduct, as specified therein. Under Section 9 of the
Amendment to the Custodian Agreement by and between the Registrant and
State Street (incorporated herein by reference to Exhibit (8)(b) of this
Registration Statement), any foreign banking institution employed by the
Custodian ("Sub-Custodian") shall indemnify State Street and the
Registrant, against liability as specified therein. Under Section 10 of
the Amendment to the Custodian Agreement, the Custodian has agreed to be
liable for the acts or omissions of a foreign banking institution as
specified therein.

(e) Indemnification under the Transfer Agent Agreement: Under Section 12
of the Transfer Agent Agreement between the Registrant and USAA Life
(incorporated herein by reference to Exhibit (8)(c) of this Registration
Statement), USAA Life has agreed to indemnify the Registrant against
liability as specified therein, and the Registrant shall indemnify USAA
Life against liability as specified therein.

4
<PAGE>

(f) Indemnification under the Distribution and Administration Agreement:
Under Section 14 of the Distribution and Administration Agreement by and
between USAA Life and USAA IMCO (incorporated herein by reference to
Exhibit 3 of Pre-Effective Amendment No. 1 to the Form N-4 Registration
Statement of the Separate Account, filed on December 22, 1994), USAA Life,
on its own behalf and on behalf of the Separate Account, has agreed to
indemnify USAA IMCO, its agents, employees and any person who controls
USAA IMCO, against liability as specified therein, and USAA IMCO has
agreed to indemnify USAA Life, its Directors and officers, the Separate
Account, and any person who controls USAA Life, against liability as
specified therein.

(g) Indemnification under the Bylaws of USAA Life: Under Article IX of
the Bylaws of USAA Life (incorporated herein by reference to Exhibit 6(b)
of the initial filing, on August 1, 1994, of the Form N-4 Registration
Statement of the Separate Account), USAA Life has agreed to indemnify any
Director, officer, former Director or former officer of USAA Life against
liability as specified therein.

(h) Indemnification under the Delaware Business Trust Act: Under Section
3803(b) of the Delaware Business Trust Act, except to the extent otherwise
provided in the governing instrument of a business trust, a Trustee, when
acting in such capacity, is not personally liable to any person other than
the business trust or a beneficial owner for any act, omission or
obligation of the business trust or any Trustee thereof.

Insofar as indemnification for liabilities arising under Securities Act of
1933 (the "1933 Act") may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions 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
1933 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, 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 1933 Act and
will be governed by the final adjudication of such issue.

ITEM 28. Business and Other Connections of Investment Adviser

Information in response to this item is incorporated by reference to Item 28
of Post-Effective Amendment No. 43 of the Registration Statement of USAA Mutual
Fund, Inc., filed October 1, 1996 (File No. 2-49560).

ITEM 29. Principal Underwriters

(a) USAA IMCO acts as principal underwriter of the Registrant's shares on a
best-efforts basis and receives no fee or commission for its underwriting
services. USAA IMCO, an affiliate of USAA, also serves as principal
underwriter for the Separate Account, USAA Investment Trust, USAA State
Tax-Free Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.

(b) Following is certain information concerning Directors and executive
officers of USAA IMCO.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITION AND OFFICES WITH POSITION AND OFFICES WITH
ADDRESS* UNDERWRITER REGISTRANT
- --------------------------- ------------------------------------------- ------------------------------------

<S> <C> <C>
Robert G. Davis Director and Chairman None

Michael J. C. Roth Director and Vice Trustee and
Chairman, Chief Executive Vice Chairman
Officer and President

Harry W. Miller Director and Senior Vice None
President,
Equity Investments
</TABLE>

5
<PAGE>

John W. Saunders, Jr. Director and Senior Vice Vice President
President,
Fixed Income Investments

John J. Dallahan Senior Vice President, None
Investment Services

Carl W. Shirley Senior Vice President, Insurance None
Company Portfolios

Alex M. Ciccone Vice President, Compliance
Compliance/Assistant Secretary Officer

Christopher W. Claus Vice President None

Joseph H. L. Jimenez Vice President None

Sherron A. Kirk Vice President and None
Controller

William R. Pederson Vice President None

David G. Peebles Vice President None

Michael D. Wagner Vice President, None
Secretary and Counsel

Kenneth E. Willmann Vice President None

John K. Cabell Assistant Vice President None

Patricia P. Cavazos Vice President None

Eric M. Efron Assistant Vice President None

R. Matthew Freund Assistant Vice President None

Clifford A. Gladson Assistant Vice President None

Jane L. Hill Vice President None

Mark W. Johnson Assistant Vice President None

Stephan J. Klaffe Assistant Vice President None

David G. Miller Vice President None

Paul H. Lundmark Assistant Vice President None

Robert R. Pariseau Assistant Vice President None

David G. Parsons Assistant Vice President None

Curt Rohrman Assistant Vice President None
</TABLE>

6
<PAGE>

<TABLE>
<S> <C> <C>
Thomas Ramos Vice President None

Albert C. Sebastian Assistant Vice President None

R. David Ullom Assistant Vice President None

W. Travis Selmier, II Assistant Vice President None
</TABLE>
* The principal business address for all of the above Directors and officers of
USAA IMCO is 9800 Fredericksburg Road, San Antonio, TX 78288

ITEM 30. Location of Accounts and Records

The following entities prepare, maintain and preserve the records required by
Section 31(a) of the 1940 Act for the Registrant. These services are provided
to the Registrant through written agreements between the parties to the effect
that such records will be maintained on behalf of the Registrant for the periods
prescribed by the rules and regulations of the Commission under the 1940 Act and
that such records are the property of the entity required to maintain and
preserve such records and will be surrendered promptly on request:

(1) USAA Life Insurance Company
9800 Fredericksburg Road,
San Antonio, Texas 78288

(2) USAA Investment Management Company
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288

(3) Alliance-One Services, L.P.
Variable Annuity Service Department
301 West 11th Street
Kansas City, Missouri 64105

(4) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

ITEM 31. Management Services

Not Applicable.

ITEM 32. Undertakings

(a) Not Applicable.

(b) Registrant hereby undertakes to file a Post-Effective Amendment, using
financial statements which need not be certified, for the VA Aggressive
Growth and VA International Funds, within four to six months from the
effective date of the Registration Statement, as amended to include these
Funds.

(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.

7
<PAGE>

(d) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees
when requested to do so by the holders of at least 10% of the Registrant's
outstanding shares of beneficial interest and in connection therewith to
comply with the provisions of Section 16(c) of the Investment Company Act
of 1940.

8
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant has duly caused this amended registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio and State of Texas on the 24th day of
April, 1997.

USAA LIFE INVESTMENT TRUST

BY: /s/ EDWIN L. ROSANE
---------------------
Edwin L. Rosane
President and Principal Executive Officer
USAA LIFE INVESTMENT TRUST

ATTEST:
/s/ Dwain Akins
- --------------------------
Dwain A. Akins
Assistant Secretary
USAA Life Investment Trust

9
<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person in
the capacity and on the date indicated.

(SIGNATURE) (TITLE) (DATE)

/s/ EDWIN L. ROSANE President and Chairman of the April 24, 1997
------------------- Board of Trustees
Edwin L. Rosane (Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person in
the capacity and on the date indicated.

(SIGNATURE) (TITLE) (DATE)

/s/ JAMES A. ROBINSON (Principal Financial and April 24, 1997
----------------------- Accounting Officer)
James A. Robinson

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person in
the capacity and on the date indicated.

(SIGNATURE) (TITLE) (DATE)

/s/ JUNE R. REEDY Trustee April 24, 1997
-----------------
June R. Reedy

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person in
the capacity and on the date indicated.

(SIGNATURE) (TITLE) (DATE)

/s/ MICHAEL J.C. ROTH Trustee April 24, 1997
---------------------
Michael J.C. Roth

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person in
the capacity and on the date indicated.

(SIGNATURE) (TITLE) (DATE)

/s/ NEIL H. STONE Trustee April 29, 1997
-----------------
Neil H. Stone

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person in
the capacity and on the date indicated.

(SIGNATURE) (TITLE) (DATE)

/s/ GARY W. WEST Trustee April 29, 1997
-----------------
Gary W. West

10
<PAGE>

EXHIBIT INDEX

EXHIBIT
- -------
<C> <S>
8(d) Second Amendment to Custodian Agreement by and between
USAA Life Investment Trust and State Street Bank and Trust Company,
dated April 24, 1997.

11 Consent of KPMG Peat Marwick LLP, Independent Auditors.

20 Persons Controlled By or Under Common Control with Registrant.

27 Financial Data Schedule.
</TABLE>

<PAGE>

EXHIBIT 8(d)

SECOND AMENDMENT TO THE
CUSTODIAN AGREEMENT BY AND BETWEEN
USAA LIFE INVESTMENT TRUST AND
STATE STREET BANK AND TRUST COMPANY

This Second Amendment, dated April 24, 1997, amends the Custodian Agreement,
dated December 15, 1994 ("Custodian Agreement"), made by and between State
Street Bank and Trust Company ("Custodian") and USAA Life Investment
Trust ("Trust").

RECITALS

WHEREAS, the Custodian Agreement has been amended by an Amendment, dated
December 16, 1994, and a First Amendment to the Amendment, dated July 24, 1996
(collectively, with the Custodian Agreement, the "Agreement"); and

WHEREAS, the Custodian, pursuant to the Agreement, currently serves as the
custodian for the five initial series of the Trust, namely the USAA Life
Variable Annuity Money Market Fund, USAA Life Variable Annuity Income Fund,
USAA Life Variable Annuity Growth and Income Fund, USAA Life Variable Annuity
World Growth Fund, and USAA Life Variable Annuity Diversified Assets Fund
(each, an "Initial Fund"); and

WHEREAS, the Trust desires to retain the services of the Custodian, under
the terms of the Agreement, for each of its two new series, namely the USAA
Life Variable Annuity Aggressive Growth Fund and USAA Life Variable Annuity
International Fund (each, a "New Fund"), and the Custodian desires to provide
such services in accordance with the Agreement; and

WHEREAS, the Trust and the Custodian desire to clarify certain aspects of
the Agreement with respect to payments to be received by the Custodian for
Trust shares.

NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Custodian and Trust hereby amend the Agreement as
follows:

1. Addition of New Funds

Pursuant to Section 12 of the Agreement, the Trust hereby notifies the
Custodian that it desires to retain the Custodian's services for each New
Fund, under the terms of the Agreement, and the Custodian hereby agrees to
provide such services for each New Fund in accordance with the Agreement.
Accordingly, all references to "Fund" or "Funds," as those terms are defined
in and used throughout the Agreement, shall include each New Fund in addition
to each Initial Fund.

2. Payments for Shares

The first sentence of Section 2.5 of the Agreement is hereby revised to
read as follows:

The Custodian shall receive from USAA Life, from its general account or from
the applicable separate account of USAA Life Insurance Company (the "Separate
Account"), and, on the date of receipt, deposit into the account of the
appropriate Fund such payments for shares of that Fund issued or sold from
time to time by the Trust.
<PAGE>

3. Applicability of Agreement

Except as otherwise provided herein, the terms of the Agreement, shall
apply or continue to apply, as the case may be, with full force and effect to
each Initial Fund and each New Fund.

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and on its behalf by its duly authorized representative
as of the date first set forth above.

ATTEST USAA LIFE INVESTMENT TRUST

BY: /s/ Richard Halinski BY: /s/ Edwin L. Rosane
-------------------- -------------------
R. T. Halinski, Jr. Edwin L. Rosane
Secretary President & CEO

ATTEST STATE STREET BANK AND TRUST COMPANY

BY: /s/ Paul Kaminsky BY: /s/ Marguerite Summers
--------------------- -------------------------
Paul Kaminsky Marguerite Summers

<PAGE>

Exhibit 11

The Shareholders and Board of Trustees
USAA Life Investment Trust:

We consent to the use of our report dated February 3, 1997 on the financial
statements of the USAA Life Variable Annuity (VA) Money Market Fund, USAA Life
VA Income Fund, USAA Life VA Growth and Income Fund, USAA Life VA World Growth
Fund, and USAA Life VA Diversified Assets Fund of USAA Life Investment Trust
(the Trust) as of and for the year ended December 31, 1996 included in the
Trust's Annual Report to Shareholders for the year ended December 31, 1996
incorporated herein by reference and to the references to our firm under the
headings "Financial Highlights" and "Independent Auditors" as part of
Post-Effective Amendment No. 4 under the Securities Act of 1933, as amended, and
Amendment No. 5 under the Investment Company Act of 1940, as amended, to the
Trust's Registration Statement on Form N-1A.

KPMG Peat Marwick LLP

San Antonio, Texas
April 28, 1997

<PAGE>

PERSONS CONTROLLED BY
OR UNDER COMMON CONTROL WITH
THE REGISTRANT

Below is a list of all persons directly or indirectly controlled by or under
common control with the Registrant and (i) the state of organization, (ii) the
basis of control, and (iii) the principal business for each entity (information
on each subsidiary is indented following information on the controlling owner):

1. UNITED SERVICES AUTOMOBILE ASSOCIATION ("USAA")
Texas reciprocal interinsurance exchange with approximately 2.5 million
members.

Organized to provide personal-line property and casualty insurance policies
to its members.

2. USAA GENERAL INDEMNITY COMPANY
Texas corporation, wholly owned by USAA.

Organized to provide (i) federal flood insurance to USAA members and former
dependents and (ii) automobile insurance to USAA members residing in
California.

3. USAA CASUALTY INSURANCE COMPANY
Florida corporation, wholly owned by USAA.

Organized to provide personal-line property and casualty insurance policies
to (i) non-dependent children of USAA members and (ii) residual market
policyholders under Automobile Insurance Plans of the various states.

4. USAA GENERAL AGENCY, INC.
Texas corporation, wholly owned by USAA.

Organized to act as a managing general insurance agency for property and
casualty insurance products offered by non-USAA companies. The services of
this company are available to the general public.

5. USAA PROPERTY AND CASUALTY AGENCY, INC.
Colorado corporation, wholly owned by USAA General Agency, Inc.

Organized to provide certain property and casualty personal-line coverages
not offered directly by USAA to USAA members, their dependents, and former
dependents.

6. USAA INSURANCE AGENCY, INC.
California corporation, wholly owned by USAA General Agency, Inc.

Organized to provide other property and casualty coverages not offered
directly by USAA to USAA members, their dependents, and former dependents.

5
<PAGE>

7. USAA LIMITED
United Kingdom corporation, wholly owned by USAA.

Organized to provide USAA members who live in the United Kingdom with
automobile liability and property damage insurance which meets the
requirements of the British Road Traffic Act.

8. USAA LIFE INSURANCE COMPANY
Texas corporation, wholly owned by USAA.

Organized to provide a complete line of life insurance services and products
to the general public.

9. USAA LIFE GENERAL AGENCY, INC.
Colorado corporation, wholly owned by USAA Life Insurance Company.

Organized to provide a complete line of life and health insurance products
to the general public on a brokerage basis.

10. SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
Investment account organized under the laws of the State of Texas.

USAA Life Insurance Company is the depositor.

11. USAA FUNDING COMPANY
Delaware corporation, wholly owned by USAA.

Organized to facilitate the acquisition of preferred stock issued by USAA
insurance companies.

12. USAA PROPERTY HOLDINGS, INC.
Delaware corporation, wholly owned by USAA.

Organized to invest in certain real estate limited partnerships, the assets
of which are comprised of housing units which qualify for significant
federal tax credits.

13. USAA CAPITAL CORPORATION
Unitary Diversified Savings & Loan Company organized as a Delaware
corporation, wholly owned by USAA.

Organized to act as a holding company for all USAA non-insurance companies
(except USAA Funding Company and USAA Property Holdings, Inc., noted above)
and as a general purpose financing company for USAA, its subsidiaries and
affiliates.

14. USAA REAL ESTATE COMPANY
Delaware corporation, wholly owned by USAA Capital Corporation.

Organized to engage in the acquisition, development, ownership, and sale of
real estate and other types of property and securities by purchase, lease
or otherwise. Currently makes a wide variety of real estate and financial
services available to its affiliates, subsidiaries, and the general public.

<PAGE>

15. USAA REAL ESTATE DEVELOPMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.

Organized to engage in the development of various real estate projects
including but not limited to, the Retirement Community Project.

16. USAA REAL ESTATE MANAGEMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.

Organized to provide management services for properties owned by USAA Real
Estate Development Company.

17. QUORUM REAL ESTATE SERVICE CORPORATION
d/b/a USAA REALTY COMPANY
Delaware corporation, wholly owned by USAA Real Estate Management Company.

Organized to manage USAA-owned real estate in Florida and the Southeast.

18. USAA PROPERTIES FUND, INC.
Texas corporation, wholly owned by USAA Real Estate Company.