USAA LIFE INVESTMENT TRUST, 497, 1998-05-01

USAA LIFE INVESTMENT TRUST
497, 1998-05-01

Previous: SEPARATE ACCOUNT OF USAA LIFE INSURANCE CO, 497J, 1998-05-01

Next: AIM GROUP INC, 10-K/A, 1998-05-01

<PAGE>

PROSPECTUS

[LOGO OF USAA APPEARS HERE]

USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
MAY 1, 1998
<PAGE>

USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY

TABLE OF CONTENTS

SECTION
- -------

A. Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract Prospectus 3A - 36A

B. USAA Life Investment Trust Prospectus 37B - 58B

C. Scudder Variable Life Investment Fund Prospectus
(Capital Growth Portfolio) 59C - 76C

D. Alger American Fund Prospectus
(American Growth Portfolio) 77D - 86D

E. BT Insurance Funds Trust Prospectuses 87E - 129E
(Equity 500 Index Fund) 87E - 100E
(Small Cap Index Fund) 101E - 114E
(EAFE(R) Equity Index Fund) 115E - 129E

1
<PAGE>

This page left blank intentionally.

2
<PAGE>

THE TRUST
USAA LIFE INVESTMENT TRUST
9800 Fredericksburg Road
San Antonio, Texas 78288
Prospectus dated: May 1, 1998
- --------------------------------------------------------------------------------

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 MONEY MARKET FUND ("Money Market Fund"). The 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 INCOME FUND ("Income Fund"). The Income Fund's investment objective
is maximum current income without undue risk to principal.

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

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

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

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

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

The Trust currently offers its shares only to the Separate Account of USAA
Life Insurance Company (the "Separate Account") and The Life Insurance Separate
Account of USAA Life Insurance Company (the "Life Insurance Separate Account")
(collectively, the "Separate Accounts"). The Trust shares serve as the funding
medium for certain variable annuity contracts (the "Contracts") and variable
life insurance policies ("the Policies") that USAA Life Insurance Company ("USAA
Life") offers to individual members and families of members of the United
Services Automobile Association ("USAA"), as well as to the general public.
USAA, is the parent company of the USAA group of companies (a large diversified
financial services conglomerate), 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. SALE OF TRUST
SHARES TO THE LIFE INSURANCE SEPARATE ACCOUNT COMMENCED ON MAY 1, 1998 OR THE
DATE THEREAFTER ON WHICH USAA LIFE COMMENCED SALE OF THE POLICIES. 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 VALUE. BECAUSE THE WORLD GROWTH FUND AND THE
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" BELOW)

This Prospectus provides prospective purchasers of the Contracts and Policies
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, 1998, 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-
2923.
- -------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THE USAA LIFE 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 24955-0598

37B
<PAGE>

TABLE OF CONTENTS:
- ------------------
INTRODUCTION............................................... 39B

FINANCIAL HIGHLIGHTS....................................... 39B

THE FUNDS.................................................. 41B
USAA Life Money Market Fund.............................. 41B
USAA Life Income Fund.................................... 42B
USAA Life Growth and Income Fund......................... 43B
USAA Life World Growth Fund.............................. 43B
USAA Life Diversified Assets Fund........................ 44B
USAA Life Aggressive Growth Fund......................... 44B
USAA Life International Fund............................. 45B

CERTAIN INVESTMENT POLICIES, TECHNIQUES AND RESTRICTIONS... 45B
Convertible Securities................................... 45B
Municipal Lease Obligations.............................. 46B
Mortgage-Backed and Asset-Backed Securities.............. 46B
Yankee and Eurodollar Obligations........................ 47B
Depositary Receipts...................................... 47B
Forward Currency Contracts............................... 47B
Repurchase Agreements.................................... 48B
Master Demand Notes...................................... 48B
Variable Rate Securities................................. 48B
Put Bonds................................................ 48B
When-Issued Securities................................... 48B
Liquidity................................................ 49B
Portfolio Turnover....................................... 49B

SPECIAL RISK CONSIDERATIONS................................ 49B
REITS.................................................... 49B
Foreign Securities....................................... 49B
Forward Currency Contracts............................... 49B

INVESTMENT RESTRICTIONS.................................... 50B

MANAGEMENT................................................. 51B
Advisory Fees............................................ 51B
Expenses................................................. 51B
Portfolio Transactions................................... 51B
Portfolio Managers....................................... 52B

PURCHASE OF FUND SHARES.................................... 53B
Distributor.............................................. 53B

REDEMPTION OF FUND SHARES.................................. 53B

VALUATION OF FUND SHARES................................... 53B

DIVIDENDS AND DISTRIBUTIONS................................ 54B

TAX MATTERS................................................ 54B
Diversification.......................................... 55B

PERFORMANCE INFORMATION.................................... 55B

ADDITIONAL INFORMATION ABOUT THE TRUST..................... 56B
Organization and Capitalization.......................... 56B
Voting Privileges........................................ 56B

SERVICE PROVIDERS.......................................... 57B

38B

<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 and Policies issued by USAA
Life through the Separate Account and the Life Insurance Separate Account,
respectively. Each of the Separate Accounts, and not the individual Contract
and Policy Owners ("Contract Owners and Policy Owners, respectively"), are the
shareholders of the Trust. However, certain voting instruction privileges with
respect to Trust shares are extended to Contract Owners and Policy Owners. See
"Voting Privileges," below. A prospectus describing the Contracts and Policies
accompanies this Prospectus.

FINANCIAL HIGHLIGHTS
- --------------------

Set out below are the Financial Highlights for each Fund of the Trust
expressed in terms of one share outstanding for each of the periods shown. The
information contained in the Financial Highlights derived from the Funds'
financial statements have 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-
531-2923 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, 1997 THROUGH DECEMBER 31, 1997 IS AS FOLLOWS:
<TABLE>
<CAPTION>

USAA LIFE USAA LIFE INCOME USAA LIFE GROWTH USAA LIFE WORLD USAA LIFE
MONEY MARKET FUND FUND AND INCOME FUND GROWTH FUND DIVERSIFIED ASSETS
FUND

- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at $ 1.00 $ 10.51 $ 15.06 $ 12.77 $ 12.95
beginning of period
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .75 .28 .17 .50
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and - .46 3.68 1.62 2.14
unrealized gains
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net (.05) (.76) (.27) (.17) (.50)
investment income
- ------------------------------------------------------------------------------------------------------------------------------
Distributions of realized - - (.77) (1.05) (.61)
capital gains
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of $ 1.00 $ 10.96 $ 17.98 $ 13.34 $ 14.48
period
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.35(a) 11.60(a) 26.43(a) 14.08(a) 20.70(a)
- ------------------------------------------------------------------------------------------------------------------------------

Net assets at end of $15,131 $28,246 $85,750 $39,510 $48,212
period (000)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to .35 .35 .34 .59 .35
average net assets (%)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets, .70 .52 - - .42
excluding reimbursements
(%)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net 5.22 7.16 1.80 1.20 4.02
assets (%)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) - 30.77 20.26 48.89 19.19
- ------------------------------------------------------------------------------------------------------------------------------
Average commission rate - $ .0500 $ .0498 $ .0063 $ .0507
paid per share
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.

39B

<PAGE>

PER SHARE OPERATING PERFORMANCE FOR A SHARE OUTSTANDING FOR THE PERIOD FROM MAY
1, 1997 (THE DATE OF INCEPTION OF THE USAA LIFE AGGRESSIVE GROWTH AND
INTERNATIONAL FUNDS) THROUGH DECEMBER 31, 1997 IS AS FOLLOWS:
<TABLE>
<CAPTION>

USAA LIFE AGGRESSIVE FUND USAA LIFE INTERNATIONAL FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.00
- --------------------------------------------------------------------------------------------------
Net investment income (loss) (.01) .05
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gains 1.83 .15
- --------------------------------------------------------------------------------------------------
Distributions from net investment income - (.05)
- --------------------------------------------------------------------------------------------------
Distributions of realized capital gains (.12) (.10)
- --------------------------------------------------------------------------------------------------
Net asset value at end of period $ 11.70 $ 10.05
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 18.26 (a) 1.92 (a)
- --------------------------------------------------------------------------------------------------

Net assets at end of period (000) $42,545 $21,582
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .70 (b) 1.10 (b)
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets, excluding reimbursements (%) .85(b) 1.24(b)
- --------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (.15)(b) .70(b)
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.77 30.57
- --------------------------------------------------------------------------------------------------
Average commission rate paid per share $ .0489 $ .0082
- --------------------------------------------------------------------------------------------------
</TABLE>
(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) Annualized. This ratio is not necessarily indicative of 12 months of
operation.

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 MONEY USAA LIFE INCOME USAA LIFE GROWTH USAA LIFE WORLD USAA LIFE
MARKET FUND FUND AND INCOME FUND GROWTH FUND DIVERSIFIED ASSETS
FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at $ 1.00 $ 11.32 $ 12.60 $ 11.10 $ 11.96
beginning of period
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .92 .26 .18 .62
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and - (.84) 2.79 2.16 1.10
unrealized gain (loss)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net (.05) (.89) (.26) (.16) (.62)
investment income
- ------------------------------------------------------------------------------------------------------------------------------
Distributions of realized - - (.33) (.51) (.11)
capital gains
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of $ 1.00 $ 10.51 $ 15.06 $ 12.77 $ 12.95
period
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.25(a) 0.67(a) 24.13(a) 21.12(a) 14.30(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of $11,245 $24,049 $55,932 $37,535 $30,390
period (000)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to .35 .35 .35 .65 .35
average net assets (%)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets, excluding reimbursements (%) 1.24 .65 .53 .82 .61
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net 5.10 6.99 2.25 1.45 4.46
assets (%)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) - 97.74 14.55 57.66 43.75
Average commission rate - $ .0500 $ .0490 $ .0006 $ .0471
paid per share
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.

40B

<PAGE>

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
FOLLOWS:
<TABLE>
<CAPTION>

Net assets at end of $7,802 $25,823 $28,761 $24,706 $26,311
period (000)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to 0.35(c) 0.35(c) 0.35(c) 0.65(c) 0.35(c)
average net assets (%)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets, 2.29(c) 0.65(c) 0.66(c) 0.87(c) 0.64(c)
excluding reimbursements (%)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average 5.55(c) 7.07(c) 2.82(c) 1.55(c) 4.93(c)
net assets (%)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) - 55.08 17.73 78.86 58.87
- ------------------------------------------------------------------------------------------------------------------------------
Average commission rate - $0.0400 $0.0489 $0.0076 $0.0482
paid per share (%)
- ------------------------------------------------------------------------------------------------------------------------------
</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.

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 MONEY MARKET FUND

INVESTMENT OBJECTIVE. The 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 or Policy values are allocated from the Money Market Fund Account
to other Fund Accounts following the "Free Look" period described in the
accompanying Contract or Policy 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 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 instrumentalities; (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.

41B

<PAGE>

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 IBCA, Inc. ("Fitch IBCA"), Duff
& Phelps Inc. ("D&P"), and Thompson BankWatch, Inc. (See Appendix A to the SAI
for a further description of debt ratings provided by these NRSROs.)

The value of the 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 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 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 Money
Market Fund is expected to provide lower levels of income and risk than the
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 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 INCOME FUND

INVESTMENT OBJECTIVE. The 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)
debt securities of real estate investment trusts; (5) U.S. bank obligations,
including certificates of deposit and banker's acceptances; (6) obligations of
state and local governments and their agencies and instrumentalities; (7) asset-
backed securities; (8) master demand notes; (9) Eurodollar obligations; (10)
Yankee obligations; and (11) 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.

42B

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

USAA LIFE GROWTH AND INCOME FUND

INVESTMENT OBJECTIVE. The 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 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 WORLD GROWTH FUND

INVESTMENT OBJECTIVE. The 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.

43B

<PAGE>

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 involve an
agreement to purchase or sell a specified currency at a specified future date
or over a specified time period at a price set at the time of the contract.
(See "Certain Investment Policies, Techniques and Restrictions-Forward
Currency Contracts," below.)

WHO SHOULD INVEST. The 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 DIVERSIFIED ASSETS FUND

INVESTMENT OBJECTIVE. The 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 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 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
Growth and Income Fund and, unlike that Fund, will not invest in securities of
foreign issuers other than Yankee and Eurodollar obligations.

USAA LIFE AGGRESSIVE GROWTH FUND

INVESTMENT OBJECTIVE. The 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 infrequently 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.

44B

<PAGE>

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 Growth and Income Fund,
but also significantly greater volatility.

USAA LIFE INTERNATIONAL FUND

INVESTMENT OBJECTIVE. The 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.

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 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 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 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 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 feature, 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.

45B

<PAGE>

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 follow 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 Money Market Fund and 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
general obligation of the municipality for which the municipality's taxing power
is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due under the lease
obligation.

Certain lease obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease obligation payments in
future years unless money is appropriated for such purpose on a yearly basis.
Although "non-appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. In evaluating a potential investment in such a lease obligation, the
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 Aggressive Growth Fund, World Growth Fund and the
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.

46B

<PAGE>

YANKEE AND EURODOLLAR OBLIGATIONS

Each Fund, other than the Aggressive Growth Fund, the World Growth Fund and
the 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 political 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 World Growth Fund, the International Fund, the Growth and Income Fund and
the 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 Aggressive Growth Fund, the World Growth Fund and the 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 Aggressive Growth Fund, the World Growth Fund and the 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.")

47B

<PAGE>

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 Aggressive Growth Fund, the World Growth Fund and
the 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 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.

48B

<PAGE>

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 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 Money Market Fund and
the 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 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.

49B

<PAGE>

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 securities of such issuer. As a
non-fundamental operating policy, the 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 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.

50B

<PAGE>

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 Aggressive Growth Fund and International Fund, and as further
amended February 18, 1998, to encompass the sale of the Trust's shares to the
Life Insurance Separate Account to fund the Policies ("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 $36.8 billion in total assets under management,
$23 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, 1997, the Trust paid the Adviser a monthly
investment advisory fee for each Fund (other than the Aggressive Growth Fund and
the International Fund) equal to an annualized rate of 0.20% of the monthly
average net assets of each Fund. With respect to the Aggressive Growth Fund and
the International Fund, which commenced operations on May 1, 1997, the Trust
has paid 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.

EXPENSES

For the Trust's most recent fiscal year ended December 31, 1997, the total
expenses for each Fund were .35% except for the Growth & Income Fund (.34%),
World Growth (.59%), Aggressive Growth Fund (.70%), and International Fund
(1.10%). Actual total expenses for each Fund, other than the Growth and Income
Fund and World Growth Fund, exceeded the foregoing expense ratios, and the
excess was borne by USAA Life, out of its General Account, pursuant to an
Amended and Restated Underwriting and Administrative Services Agreement, dated
December 16, 1994, as amended February 7, 1997 and as amended and restated
February 26, 1998 ("Underwriting Agreement"). (See the notes to the Financial
Statements set out in the Trust's Annual Report for further information.) USAA
Life agreed, pursuant to the Underwriting Agreement, to limit the expenses of
each Fund to .35% of its monthly average net assets, with the exceptions of the
World Growth Fund, which is limited to .65% of its monthly average net assets,
the Aggressive Growth Fund, which is limited to .70% of its monthly average net
assets, and the International Fund, which is limited to 1.10% of its monthly
average net assets. The Underwriting Agreement is terminable by any party
thereto upon 120 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 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.

51B

<PAGE>

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.

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 nine years investment
management experience and has worked for USAA IMCO for six years, where she has
held various positions in Fixed Income Investments.

INCOME FUND. John W. Saunders, Jr., Senior Vice President of Fixed Income
Investments at USAA IMCO, is primarily responsible for managing the Income Fund
and has managed the Fund since its inception. Mr. Saunders has 29 years
investment management experience and has been affiliated with USAA IMCO for 28
years.

GROWTH AND INCOME FUND. R. David Ullom, Assistant Vice President of Equity
Investments at USAA IMCO, is primarily responsible for managing the Growth and
Income Fund and has managed the Fund since its inception. Mr. Ullom has 23
years investment management experience and has been affiliated with USAA IMCO
for 13 years.

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 32 years investment management experience and has worked for
IMCO for 14 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 14 and 11 years of investment management experience, respectively.
Each has worked for IMCO for over seven 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 23 years investment management experience and has worked for IMCO for
12 years.

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 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 41 years investment
management experience and has been affiliated with USAA IMCO for 24 years. Mr.
Lundmark has 12 years investment management experience and has been associated
with USAA IMCO for six years.

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 20 years investment management experience and has been
affiliated with USAA IMCO for eight 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 23
years investment management experience and has been affiliated with USAA IMCO
for six years.

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 coordinates the activities of the
Managers.

Mr. Peebles has 32 years investment management experience and has been
affiliated with USAA IMCO for 14 years. Mr. Sebastian has 14 years investment
management experience and has been affiliated with USAA IMCO for seven years.
Mr. Selmier has eleven years investment experience and has been affiliated with
USAA IMCO for seven years.

52B

<PAGE>

PURCHASE OF FUND SHARES
- -----------------------

The Trust currently sells shares of the Funds in a continuous offering only to
the Separate Account and the Life Insurance Separate Account to fund benefits,
respectively, under the Contracts and Policies issued by USAA Life. Each
Separate Account is divided into twelve Fund Accounts, seven of which invest
in a corresponding Fund of the Trust, as directed by the Contract and Policy
Owners. The 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 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 and Policies.

In the future, the Trust may offer its shares to other separate accounts of
USAA Life as well as unaffiliated life 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
("contracts") and variable life insurance policies ("policies") arising out of
these arrangements. Nevertheless, differences in treatment under tax and other
laws, as well as other considerations, could cause the interest of various
purchasers of contracts and policies to conflict. For example, violation of the
federal tax laws by one separate account investing in the Trust could cause the
contracts or policies funded through another separate account to lose their tax-
deferred status, unless remedial action were taken. If a material
irreconcilable conflict arises between separate accounts, a separate account may
be required to withdraw its participation in the Trust. If it becomes necessary
for any separate account to replace shares of the Trust with another investment,
the Trust may have to liquidate portfolio securities on a disadvantageous basis.
At the same time, the Trust and the Company are subject to conditions imposed by
the Securities and Exchange Commission designed to prevent or remedy any
conflict of interest. In this connection, the Board of Trustees has the
obligation to monitor events in order to identify any material, irreconcilable
conflicts that may possibly arise and to determine what action, if any, should
be taken to remedy or eliminate the conflict.

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 and the Life Insurance Separate Account.

REDEMPTION OF FUND SHARES
- -------------------------

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

53B

<PAGE>

VALUATION OF SECURITIES OF THE FUNDS (OTHER THAN THE 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 average of the bid and asked
prices 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 average of the bid and
asked prices 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 average of the
bid and the asked prices 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 MONEY MARKET FUND'S SECURITIES

The valuation of the 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 Money Market Fund, declares and pays to its
shareholders at least once each year: (1) all net investment income, which
includes dividends 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 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 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
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 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 World Growth Fund and the 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.

54B

<PAGE>

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 and
Policies invested in the Funds would not be treated as annuity contracts or life
insurance 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 Policies and distributions to Contract Owners and Policy
Owners, please refer to the accompanying Prospectus that describes the
Contracts or Policies.

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, Policy
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 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 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 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, Policy Owners or to prospective
investors to: (1) widely recognized indices (e.g., the Standard & Poors 500
Composite 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 Fund Account or charges and deductions
against the Contracts or Policies. The share price of the Income Fund, Growth
and Income Fund, World Growth Fund, Diversified Assets Fund, Aggressive Growth
Fund and International Fund will vary and, when redeemed, may be worth more or
less than the original purchase price. The yield of the Money Market Fund will
also vary. See the SAI for more information about the Funds' performance.

55B

<PAGE>

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.

As of February 24, 1998, USAA Life beneficially owned, either directly or
through the Separate Account, more than 25% of the shares of beneficial interest
in each Fund other than the Money Market Fund. As a result of such ownership,
USAA Life may be deemed to be in control of each Fund, other than the Money
Market Fund.

VOTING PRIVILEGES

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

56B

<PAGE>

SERVICE PROVIDERS
- -----------------

DISTRIBUTOR:
USAA Investment Management Company
9800 Fredericksburg Road
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 AUDITOR:
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, 1998

57B

<PAGE>

This page left blank intentionally.

58B

<PAGE>

[LOGO OF USAA APPEARS HERE]

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

STATEMENT OF ADDITIONAL INFORMATION

USAA LIFE INVESTMENT TRUST

MAY 1, 1998

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 1-800-531-2923.
This SAI and the Prospectus are dated May 1, 1998, and may be amended from time
to time.

1
<PAGE>

TABLE OF CONTENTS

PAGE
----

GENERAL INFORMATION AND HISTORY....................................... 3
DISTRIBUTOR........................................................... 3
INVESTMENT ADVISER.................................................... 3
CUSTODIAN............................................................. 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.............. 5
Liquidity Determinations............................................ 6
Lending of Securities............................................... 6
Forward Currency Contracts.......................................... 6
When-Issued Securities.............................................. 7
REITS............................................................... 7
INVESTMENT RESTRICTIONS............................................... 7
Additional Restrictions............................................. 8
PORTFOLIO TRANSACTIONS................................................ 8
Portfolio Turnover Rates............................................ 10
FURTHER DESCRIPTION OF TRUST SHARES................................... 10
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................. 11
TRUSTEES AND OFFICERS OF THE TRUST.................................... 11
Committees of the Board of Trustees................................. 13
THE TRUST'S ADVISER................................................... 14
The Advisory Agreement.............................................. 14
PRINCIPAL HOLDERS OF SECURITIES....................................... 15
CALCULATION OF PERFORMANCE DATA....................................... 16
Yield - Money Market Fund........................................... 16
Yield - Other Funds................................................. 17
Total Return........................................................ 17
FINANCIAL STATEMENTS.................................................. 18
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS.................... 19
APPENDIX B - COMPARISON OF FUND PERFORMANCE........................... 22

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 an 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 also serves as an
investment vehicle for premium payments received by the Company from the sale of
variable life insurance policies (the "Policies") funded through the Life
Insurance Separate Account of USAA Life Insurance Company (the "Life Insurance
Separate Account"). The Trust is currently made up of seven investment Funds:
USAA Life Money Market Fund (the "Money Market Fund"), USAA Life Income Fund
(the "Income Fund"), USAA Life Growth and Income Fund (the "Growth and Income
Fund"), USAA Life World Growth Fund (the "World Growth Fund"), USAA Life
Diversified Assets Fund (the "Diversified Assets Fund"), USAA Life Aggressive
Growth Fund (the "Aggressive Growth Fund"), and USAA Life International Fund
(the "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 and Policies 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
variable life insurance policies and registered with the National Association
of Securities Dealers, Inc. (the "NASD") as registered representatives and/or
principals. The Contracts and Policies 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 and the Life Insurance
Separate Account, serves as transfer agent for the Trust pursuant to a Transfer
Agent Agreement, as amended by a Letter Agreement, dated February 7, 1997, and
as further amended February 18, 1998. USAA Life may be reimbursed for its
expenses incurred in connection with providing services under the Transfer
Agent Agreement.

3
<PAGE>

INDEPENDENT AUDITOR

KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio, Texas 78205,
independent auditor, 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
and the Life Insurance 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, Martin Luther
King Jr. 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 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 average of the bid price and asked
prices 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
average of the bid price and asked prices 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 average of the bid price and asked prices is generally
used.

(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

4
<PAGE>

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 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 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
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.

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.

5
<PAGE>

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.

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 World Growth Fund, Aggressive Growth Fund and the 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 is 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

6
<PAGE>

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 Money Market Fund and International Fund)
may invest a portion of its assets in equity securities of REITs, each Fund may
also be subject to certain risks associated with direct investments in REITs.
In addition, the Income Fund, Growth and Income Fund, and Diversified Assets
Fund may invest their assets in the debt securities of REITs and therefore, may
be subject to certain other risks, such as credit risk, associated with
investment in the debt securities of 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.

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

7
<PAGE>

& 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;

(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 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.

The Trust has no obligation to deal with any particular broker or group of
brokers in the execution of portfolio transactions. The Trust contemplates
that, consistent with obtaining the best combination of price and execution
available, brokerage transactions may be effected through USAA Brokerage
Services, a discount brokerage service of the Adviser. The Board of Trustees
has adopted procedures in conformity with the requirements of Rule 17e-1 under
the 1940 Act that are designed to ensure that all brokerage commissions paid to
USAA Brokerage Services are reasonable and fair. The Board of Trustees has
authorized the Adviser, as a member of the Chicago Stock Exchange, to effect,
through USAA Brokerage Services, portfolio transactions for the Trust on such
exchange and to retain compensation in connection with such transactions. Any
such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations.

In the allocation of brokerage business used to purchase securities for the
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

8
<PAGE>

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.

For the period from January 5, 1995 (the Trust's date of inception) through
December 31, 1995, and for the Trust's two most recently completed fiscal years
ended December 31, 1996, and December 31, 1997, respectively, the Funds paid the
following amounts in brokerage commissions:
<TABLE>
<CAPTION>

<S> <C> <C> <C>
1/1 - 12/31/97* 1/1-12/31/96** 1/5-12/31/95***
---------------- --------------- ----------------
Money Market Fund N/A N/A N/A
Income Fund $ 3,515 $ 500 $ 5,212
Growth and Income Fund $ 46,551 $ 42,972 $ 42,257
World Growth Fund $ 67,645 $ 97,545 $ 103,114
Diversified Assets Fund $ 11,852 $ 14,825 $ 23,619
Aggressive Growth Fund $ 46,565 N/A N/A
International Fund $ 56,011 N/A N/A
</TABLE>
________________
* Includes $484, $524, and $1,456 paid by the Growth and Income Fund,
Diversified Assets Fund, and Aggressive Growth Fund, respectively, to USAA
Brokerage Services, a discount brokerage service of the Adviser. Those
amounts are 1.04%, 4.42%, and 3.13%, respectively, of the aggregate
brokerage fees paid by each Fund. For the year ended December 31, 1997,
1.49%, 7.76%, and 2.63% of the aggregate dollar amounts of transactions
involving the payment of commissions by the Growth and Income Fund,
Diversified Assets Fund, and Aggressive Growth Fund, respectively, were
effected through USAA Brokerage Services.

** Includes $2,044, $340, and $3,592 paid by the Growth and Income Fund, World
Growth Fund, and 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 Growth and Income Fund, World Growth Fund, and
Diversified Assets Fund, respectively, were effected through USAA Brokerage
Services.

*** Includes $5,212, $3,880, $1,700, and $4,240 paid by the Income Fund, Growth
and Income Fund, World Growth Fund, and Diversified Assets Fund,
respectively, to USAA Brokerage Services, a discount brokerage service of
the Adviser. For the year ended December 31, 1995, 100%, 11.61%, 5.10%, and
21.26% of the aggregate dollar

9
<PAGE>

amounts of transactions involving the payment of commissions by the Income
Fund, Growth and Income Fund, World Growth Fund, and Diversified Assets
Fund, respectively, were effected through USAA Brokerage Services.

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, 1997, the amount of such brokerage transactions
and related commissions paid by these Funds were as follows:

TRANSACTION
FUND COMMISSIONS AMOUNTS
- ---- ----------- -----------
Income Fund $ 550 $ 433,248
Growth and Income Fund 13,155 12,396,495
World Growth Fund 1,318 765,590
Diversified Assets Fund 4,120 4,280,057
Aggressive Growth Fund 4,025 2,701,630
International Fund 300 123,031

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 Money Market Fund and the 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.

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, as
amended February 7, 1997, and as further amended February 18, 1998 ("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.

10
<PAGE>

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) and; (2) satisfy certain investment 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 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 or Policy 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 Aggressive Growth Fund, World Growth Fund and the
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, 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 World Growth Fund or the 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

11
<PAGE>

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.

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 61 President USAA Life

Michael J.C. Roth* Vice Chairperson Chief Executive Officer and President,
Age 56 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 68 (Volunteer)

Neil H. Stone Trustee Attorney (Associate), Gendry & Sprague,
10100 Reunion Place, P.C. (known as Gendry, Sprague &
Suite 850 Wachsmuth until November 1994)
San Antonio, Texas
78216,
Age 55

Gary W. West Trustee President, Radiation Oncology of San
8038 Wurzbach, Antonio, Professional Association
Suite 870
San Antonio, Texas
78229,
Age 58

Kenneth McClure Vice President Senior Vice President, Life & Health
Age 50 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

John W. Saunders, Jr. Vice President Senior Vice President - Investments,
Age 63 USAA IMCO

Richard T. Halinski, Jr. Secretary Vice President, USAA, and Assistant
Age 46 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 48 Life, since April 1992

</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>

Dwain A. Akins Assistant Secretary Assistant Vice President, USAA,
Age 47 since November 1994; Assistant
Vice President & Assistant Secretary
since April, 1995, USAA Life, prior
thereto, Executive Director, USAA, since
February 1991

Caryl J. Swann Assistant Treasurer Director, Mutual Fund Portfolio
Age 50 Analysis and Support, USAA IMCO, since
February 1998; prior thereto, Manager,
Mutual Fund Accounting

Jeanine A. Merrill Assistant Treasurer Manager, Life Financial Analysis
Age 39 and Accounting, USAA Life, since January 1998;
prior thereto, Manager, Life Financial Statement Reporting,
USAA Life, since August 1997; prior thereto, Manager, Regulatory
Reporting, USAA Life, since July 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>
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.

13
<PAGE>

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, 1997:

AGGREGATE AGGREGATE COMPENSATION
COMPENSATION FROM THE USAA
TRUSTEE: FROM THE TRUST: FAMILY OF FUNDS(A):
- ---------------------- --------------- ----------------------
Edwin L. Rosane(b).... None None
Michael J.C. Roth(c)... None None
June R. Reedy......... $8,500.00 None
Neil H. Stone......... $9,000.00 None
Gary W. West.......... $9,000.00 None

(a) As of March 2, 1998, the USAA Family of Funds consisted of four registered
investment companies, not including the Trust, offering a total of 35
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.

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 $38 billion, of which
approximately $24 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 Aggressive Growth Fund
and the 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
three most recently completed fiscal years ended December 31, 1997, December 31,
1996, and December 31, 1995, respectively:

1997 1996 1995
-------- ------- -------
Money Market Fund $ 29,416 $22,871 $ 8,901
Income Fund $ 50,127 $55,992 $44,802
Growth and Income Fund $139,136 $81,317 $46,130
World Growth Fund $ 77,201 $62,425 $41,899
Diversified Assets Fund $ 79,446 $61,680 $45,323
Aggressive Growth Fund $130,483 N/A N/A
International Fund $92,044 N/A N/A

14
<PAGE>

The Advisory Agreement was most recently approved by the Board of Trustees on
November 20, 1997, for a term ending January 2, 1999. 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 the 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 and/or Policy
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 reports to
shareholders and any Separate Account and Life Insurance Separate Account
periodic report to Contract Owners and Policy 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 World Growth Fund, 0.70% of the monthly average net
assets of the Aggressive Growth Fund, 1.10% of the monthly average net assets of
the 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 and/or Policy 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, and/or Policy 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 120 day's
written notice to the other parties.

PRINCIPAL HOLDERS OF SECURITIES

As of February 24, 1998, 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. As a result of its beneficial ownership, USAA
Life may be presumed to control (with the exception of the 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 and Life Insurance Separate
Account in accordance with instructions received from Contract Owners (or
annuitants or beneficiaries, to the extent provided in the Contracts) and Policy
Owners, respectively. If USAA Life determines, however, that it is permitted to
vote any Fund shares that it

15
<PAGE>

owns in its own right, either directly or through the Separate Account or Life
Insurance Separate Account, 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.

Money Market Fund 0%
Income Fund 72.28%
Growth and Income Fund 25.87%
World Growth Fund 52.66%
Diversified Assets Fund 50.16%
Aggressive Growth Fund 93.30%
International Fund 92.64%

As of February 24, 1998, the Separate Account owned of record the percentages
of each Fund's outstanding shares attributable to the Contracts as shown below.
The Separate Account is located at 9800 Fredericksburg Road, San Antonio, Texas
78288.

Money Market Fund 100.00%
Income Fund 27.72%
Growth and Income Fund 74.13%
World Growth Fund 47.34%
Diversified Assets Fund 49.84%
Aggressive Growth Fund 6.70%
International Fund 7.36%

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 February 24, 1998,
Monty Dale Coffin, Beavercreek, Ohio, Ross D. Pierce, Ponte Verde Beach,
Florida and Howard M. Meyers, Dallas, Texas, may be deemed to beneficially own
8.03%, 7.64% and 7.37%, respectively, of the Money Market Fund and Harvey J.
Moore, Wilton, California may be deemed to beneficially own 11.62% of the
Aggressive Growth Fund.

As of February 24, 1998 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.

Charges imposed under the Contract and Policies will affect the actual return
to Contract and Policy Owners. Charges imposed under the Contracts and Policies
are not included in the calculation of Yield or Total Return for the Funds shown
below. See the prospectuses for the Contracts and Policies for further
information.

YIELD - MONEY MARKET FUND

When the 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, and any expenses and fees that
may be charged to the fund. 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.

16
<PAGE>

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, 1997, the current yield of the Money
Market Fund was 5.55%.

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:

6
YIELD = 2 [( ab +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:

P(1 + T)n = 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

17
<PAGE>

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

AVERAGE ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
SINCE INCEPTION** YEAR ENDED** SINCE INCEPTION** YEAR ENDED**
THROUGH THROUGH
FUND DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
- ------------------------ ---------------------------- ------------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Money Market Fund 5.43% 5.35% 17.18% 5.35%
Income Fund 11.65% 11.60% 39.19% 11.60%
Growth and Income Fund 27.39% 26.43% 106.71% 26.43%
World Growth Fund 18.22% 14.08% 65.21% 14.08%
Diversified Assets Fund 20.34% 20.70% 74.29% 20.70%
Aggressive Growth Fund 18.26% 18.26% 18.26% 18.26%
International Fund 1.92% 1.92% 1.92% 1.92%

</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.

** The date of inception for the Money Market Fund, Income Fund, Growth and
Income Fund, World Growth Fund and Diversified Assets Fund was January 5,
1995. The date of inception for the Aggressive Growth Fund and International
Fund was May 1, 1997. The return figures for the latter two funds have not
been annualized.

FINANCIAL STATEMENTS

The most recent audited financial statements for each Fund of the Trust and
the report of the Trust's independent auditor thereon, are incorporated into
this SAI by reference to the Trust's Annual Report dated December 31, 1997,
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
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements

18
<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 edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa Bonds 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 IBCA, Inc. ("FITCH IBCA")

AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely
to be adversely affected by foreseeable events.

AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.

BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

19
<PAGE>

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 rated Prime - 1 (or supporting institutions) have a superior
ability for repayment of senior short term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

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 rated Prime - 2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may 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 rated Prime - 3 (or supporting institutions) have an
acceptable ability for repayment of senior 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 may require relatively high
financial leverage. Adequate alternate liquidity is maintained.

MOODY'S MUNICIPAL

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

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

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

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

20
<PAGE>

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 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.

F-2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.

F-3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.

D&P

D1+ 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.

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

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

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

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

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 those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

21
<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 but are not restricted to
the following:

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

Arizona Republic, a newspaper 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.

22
<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.

23
<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.

Orlando Sentinel, a newspaper which may cover financial news.

Personal Investor, a monthly magazine that from time to time features mutual
fund companies and the mutual fund industry.

San Antonio Business Journal, a weekly newspaper that periodically covers mutual
fund companies as well as financial news.

San Antonio Express-News, a newspaper that may cover financial news.

San Francisco Chronicle, a newspaper that may cover financial news.

Smart Money, a monthly magazine featuring news and articles on investing and
mutual funds.

USA Today, a newspaper 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;

- -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;

24
<PAGE>

- -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.