<PAGE>
As filed with the Securities and Exchange Commission on March 2, 1998.
Registration Nos.: 33-82270
811-8672
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-
Pre-Effective Amendment No.
Post-Effective Amendment No. 6
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
USAA LIFE INVESTMENT TRUST
(Exact Name of Registrant As Specified in Charter)
9800 Fredericksburg Road, San Antonio, Texas 78288
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 210-498-8000
RICHARD T. HALINSKI, JR., ESQ.
DWAIN A. AKINS, ESQ.
Life & Health Insurance Counsel
USAA Life Insurance Company
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Address of Agents for Service)
Copies to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
i
<PAGE>
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate box):
- -------- Immediately upon filing pursuant to paragraph (b) of Rule 485
- -------- On (date), pursuant to paragraph (b) of Rule 485
X
- -------- 60 days after filing pursuant to paragraph (a)(1) of Rule 485
- -------- On (date) pursuant to paragraph (a)(1) of Rule 485
- -------- 75 days after filing pursuant to paragraph (a)(2) of Rule 485
- -------- On (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following:
- -------- This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
ii
<PAGE>
Cross-reference Sheet Required by
Rule 495 under the Securities Act of 1933
<TABLE>
<CAPTION>
PART A
Form N-1A Item No. Caption in Prospectus
- ------------------ ---------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Not applicable
3. Condensed Financial Information Financial Highlights
4. General Description of Cover Page; Introduction;
Registrant The Funds; Certain Investment
Policies, Techniques and
Restrictions; Special Risk
Considerations; Investment
Restrictions; Performance
Information
5. Management of the Fund Management
5A. Management's Discussion of Fund Not applicable
Performance
6. Capital Stock and Other Securities Introduction; Dividends and
Distributions; Tax Matters;
Additional Information About
the Trust
7. Purchase of Securities Being Purchase of Fund Shares;
Offered Valuation of Fund Shares
8. Redemption or Repurchase Redemption of Fund Shares
9. Legal Proceedings Not applicable
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Part B Caption in
Form N-1A Item No. Statement of Additional Information
- ------------------ -----------------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Investment Policies and Techniques;
Policies Investment Restrictions; Portfolio
Transactions--Portfolio Turnover
Rates
14. Management of the Fund The Trust's Adviser; Trustees and
Officers of the Trust
15. Control Persons and Principal Principal Holders of Securities
Holders of Securities
16. Investment Advisory The Trust's Adviser; Custodian;
Transfer Agent; Independent Auditors
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Further Description of Trust Shares
Securities
19. Purchase, Redemption and Pricing Valuation of Securities; Additional
of Securities Being Offered Information Regarding Redemption
20. Tax Status Certain Federal Income Tax
Considerations
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
21. Underwriters Distributor
22. Calculation of Performance Data Calculation of Performance Data
23. Financial Statements Financial Statements
Part C
- -------
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
</TABLE>
iii
45219
<PAGE>
[Logo Appears Here]
-------------------
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
MAY 1, 1998
<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. 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-
4440.
- --------------------------------------------------------------------------------
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.
41 B
<PAGE>
TABLE OF CONTENTS:
- ------------------
INTRODUCTION.............................................................. B
FINANCIAL HIGHLIGHTS...................................................... B
THE FUNDS 40B
USAA Life Money Market Fund.............................................. B
USAA Life Income Fund.................................................... B
USAA Life Growth and Income Fund......................................... B
USAA Life World Growth Fund.............................................. B
USAA Life Diversified Assets Fund........................................ B
USAA Life Aggressive Growth Fund......................................... B
USAA Life International Fund............................................. B
CERTAIN INVESTMENT POLICIES, TECHNIQUES AND RESTRICTIONS.................. B
Convertible Securities.................................................. B
Municipal Lease Obligations............................................. B
Mortgage-Backed and Asset-Backed Securities............................. B
Yankee and Eurodollar Obligations....................................... B
Depositary Receipts..................................................... B
Forward Currency Contracts.............................................. B
Repurchase Agreements................................................... B
Master Demand Notes..................................................... B
Variable Rate Securities................................................ B
Put Bonds............................................................... B
When-Issued Securities.................................................. B
Liquidity............................................................... B
Portfolio Turnover...................................................... B
SPECIAL RISK CONSIDERATIONS............................................... B
REITS................................................................... B
Foreign Securities...................................................... B
Forward Currency Contracts.............................................. B
INVESTMENT RESTRICTIONS................................................... B
MANAGEMENT................................................................ B
Advisory Fees........................................................... B
Expenses................................................................ B
Portfolio Transactions.................................................. B
Portfolio Managers...................................................... B
PURCHASE OF FUND SHARES................................................... B
Distributor............................................................. B
REDEMPTION OF FUND SHARES................................................. B
VALUATION OF FUND SHARES.................................................. B
DIVIDENDS AND DISTRIBUTIONS............................................... B
TAX MATTERS............................................................... B
Diversification......................................................... B
PERFORMANCE INFORMATION................................................... B
ADDITIONAL INFORMATION ABOUT THE TRUST.................................... B
Organization and Capitalization......................................... B
Voting Privileges....................................................... B
SERVICE PROVIDERS......................................................... B
42 B
<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 which 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
1-800-531-4440 or writing the Trust at 9800 Fredericksburg Road, San Antonio,
Texas 78288.
- --------------------------------------------------------------------------------
USAA LIFE INVESTMENT TRUST FINANCIAL HIGHLIGHTS
PER SHARE OPERATING PERFORMANCE FOR A SHARE OUTSTANDING FOR THE PERIOD FROM
JANUARY 1, 1997 THROUGH DECEMBER 31, 1997 IS AS FOLLOWS:
<TABLE>
<CAPTION>
USAA LIFE USAA LIFE USAA LIFE USAA LIFE USAA LIFE
- -------------------------------------------------------------------------------------------------------------------------
MONEY INCOME GROWTH AND WORLD DIVERSIFIED
- -------------------------------------------------------------------------------------------------------------------------
MARKET FUND FUND INCOME FUND GROWTH FUND ASSETS FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 10.51 $ 15.06 $ 12.77 $ 12.95
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .75 .28 .17 .50
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains - .46 3.68 1.62 2.14
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income (.05) (.76) (.27) (.17) (.50)
- -------------------------------------------------------------------------------------------------------------------------
Distributions of realized capital gains - - (.77) (1.05) (.61)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 1.00 $ 10.96 $ 17.98 $ 13.34 $ 14.48
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.35(a) 11.60(a) 26.43(a) 14.08(a) 20.70(a)
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) $15,131 $28,246 $85,750 $39,510 $48,212
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .35 .35 .34 .59 .35
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .70 .52 N/A N/A .42
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 5.22 7.16 1.80 1.20 4.02
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) - 30.77 20.26 48.89 19.19
- -------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share - $ .0500 $ .0498 $ .0063 $ .0507
</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.
PER SHARE OPERATING PERFORMANCE FOR A SHARE OUTSTANDING FOR THE PERIOD FROM MAY
1, 1997 THROUGH DECEMBER 31, 1997 IS AS FOLLOWS:
<TABLE>
<CAPTION>
USAA LIFE USAA LIFE
- ----------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH INTERNATIONAL
- ----------------------------------------------------------------------------------------------
FUND 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
</TABLE>
43 B
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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.
44 B
<PAGE>
PER SHARE OPERATING PERFORMANCE FOR A SHARE OUTSTANDING FOR THE PERIOD FROM
JANUARY 1, 1996 THROUGH DECEMBER 31, 1996 IS AS FOLLOWS:
<TABLE>
<CAPTION>
USAA LIFE USAA LIFE USAA LIFE USAA LIFE USAA LIFE
- ----------------------------------------------------------------------------------------------------------------------------
MONEY INCOME GROWTH AND WORLD DIVERSIFIED
- ----------------------------------------------------------------------------------------------------------------------------
MARKET FUND FUND INCOME FUND GROWTH FUND ASSETS FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 11.32 $ 12.60 $ 11.10 $ 11.96
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .92 .26 .18 .62
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) - (.84) 2.79 2.16 1.10
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income (.05) (.89) (.26) (.16) (.62)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions of realized capital gains - - (.33) (.51) (.11)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 1.00 $ 10.51 $ 15.06 $ 12.77 $ 12.95
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.25(a) 0.67(a) 24.13(a) 21.12(a) 14.30(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) $11,245 $24,049 $55,932 $37,535 $30,390
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .35 .35 .35 .65 .35
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) 1.24 .65 .53 .82 .61
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 5.10 6.99 2.25 1.45 4.46
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) - 97.74 14.55 57.66 43.75
- ----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share - $ .0500 $ .0490 $ .0006 $ .0471
</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.
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>
USAA LIFE USAA LIFE USAA LIFE USAA LIFE USAA LIFE
MONEY INCOME GROWTH AND WORLD DIVERSIFIED
MARKET FUND FUND INCOME FUND GROWTH FUND ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.06(a) 0.78(a) 0.34(a) 0.17(a) 0.55(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain - 1.61 2.83 1.79 2.08
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.06) (0.76) (0.30) (0.16) (0.53)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions of realized capital gains - (0.31) (0.27) (0.70) (0.14)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 1.00 $ 11.32 $ 12.60 $ 11.10 $ 11.96
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.69(b) 23.88(b) 31.72(b) 19.55(b) 26.33(b)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) $7,802 $25,823 $28,761 $24,706 $26,311
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.35(c) 0.35(c) 0.35(c) 0.65(c) 0.35(c)
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) 2.29(c) 0.65(c) 0.66(c) 0.87(c) 0.64(c)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
45 B
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 5.55(c) 7.07(c) 2.82(c) 1.55(c) 4.93(c)
- ----------------------------------------------------------------------------------------------
Portfolio turnover (%) - 55.08 17.73 78.86 58.87
- ----------------------------------------------------------------------------------------------
Average commission rate paid per share (%) - $0.0400 $0.0489 $0.0076 $0.0482
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated using weighted average shares.
(b) The total return of a Fund refers to the percentage change in value of a
hypothetical investment, including the deduction of a proportional share
of fund expenses, and assumes all income and capital gains distributions
are reinvested. Total returns for the period do not reflect expenses that
apply at the Separate Account level including risk and expense charges.
These expenses would reduce the total return for the period shown.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
46 B
<PAGE>
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.
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.
47 B
<PAGE>
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.
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.
48 B
<PAGE>
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.
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.
49 B
<PAGE>
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.
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.
50 B
<PAGE>
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.
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.
51 B
<PAGE>
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.
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.
52 B
<PAGE>
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.")
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.
53 B
<PAGE>
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.
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.
54 B
<PAGE>
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.
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.
55 B
<PAGE>
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 VA Money Market Fund, in accordance
with Rule 2a-7 under the Investment Company Act of 1940, as amended, will
not invest more than 5% of its total assets in the securities (other than
securities issued by the U.S. Government or any of its agencies or
instrumentalities) issued by a single issuer.
c. Invest more than 25% of the value of its total assets (taken at current value
at the time of each investment) in securities of issuers whose principal
business activities are in the same industry. With respect to the Money
Market Fund, banks are not considered a single industry for purposes of this
policy. This limitation does not apply to securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
MANAGEMENT
- ----------
The Trust has a Board of Trustees which has the primary responsibility for
the overall management of the Trust and each of the Funds.
USAA IMCO serves as the Adviser to the Trust pursuant to an Investment
Advisory Agreement dated December 16, 1994, as amended February 7, 1997 to
include the 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.
56 B
<PAGE>
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.
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.
57 B
<PAGE>
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.
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.
58 B
<PAGE>
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.
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.)
59 B
<PAGE>
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.
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.
60 B
<PAGE>
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.
61 B
<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.
62 B
<PAGE>
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.
63 B
<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
64 B
<PAGE>
This page left blank intentionally.
<PAGE>
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 1-800-531-4440.
This SAI and the Prospectus are dated May 1, 1998, and may be amended from time
to time.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION AND HISTORY........................... 3
DISTRIBUTOR............................................... 3
INVESTMENT ADVISER........................................ 3
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.. 6
Liquidity Determinations................................ 6
Lending of Securities................................... 6
Forward Currency Contracts.............................. 7
When-Issued Securities.................................. 7
REITS................................................... 7
INVESTMENT RESTRICTIONS................................... 8
Additional Restrictions................................. 8
PORTFOLIO TRANSACTIONS.................................... 9
Portfolio Turnover Rates................................ 11
FURTHER DESCRIPTION OF TRUST SHARES....................... 11
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................. 12
TRUSTEES AND OFFICERS OF THE TRUST........................ 13
Committees of the Board of Trustees..................... 15
THE TRUST'S ADVISER....................................... 16
The Advisory Agreement.................................. 16
PRINCIPAL HOLDERS OF SECURITIES........................... 19
CALCULATION OF PERFORMANCE DATA........................... 19
Yield - Money Market Fund............................... 20
Yield - Other Funds..................................... 20
Total Return............................................ 20
FINANCIAL STATEMENTS...................................... 22
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS........ 23
APPENDIX B - COMPARISON OF FUND PERFORMANCE............... 27
</TABLE>
2
<PAGE>
GENERAL INFORMATION AND HISTORY
USAA Life Investment Trust (the "Trust") is a diversified open-end management
investment company formed as a business trust under laws of the State of
Delaware on July 20, 1994. The Trust was established by USAA Life Insurance
Company ("USAA Life" or the "Company") to serve as 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.
5
<PAGE>
SECTION 4(2) COMMERCIAL PAPER AND RULE 144A SECURITIES
The Funds may invest in commercial paper issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the 1933 Act
("Section 4(2) Commercial Paper"). Section 4(2) Commercial Paper is restricted
as to disposition under the federal securities laws; therefore, any resale of
Section 4(2) Commercial Paper must be effected in a transaction exempt from
registration under the Securities Act of 1933 ("1933 Act"). Section 4(2)
Commercial Paper is normally resold to other investors through or with the
assistance of the issuer or investment dealers who make a market in Section 4(2)
Commercial Paper, thus providing liquidity.
The Funds may also purchase restricted securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act ("Rule
144A Securities"). Rule 144A provides a non-exclusive safe harbor from the
registration requirements of the 1933 Act for resales of certain securities to
institutional investors.
Certain foreign securities (including Eurodollar obligations) may be eligible
for resale pursuant to Rule 144A in the United States and may also trade without
restriction in one or more foreign markets. Such securities may be determined to
be liquid based upon these foreign markets without regard to their eligibility
for resale pursuant to Rule 144A. In such cases, these securities will not be
treated as Rule 144A Securities for purposes of the liquidity guidelines
established by the Board of Trustees.
LIQUIDITY DETERMINATIONS
The Board of Trustees has established guidelines pursuant to which municipal
lease obligations, Section 4(2) Commercial Paper, Rule 144A Securities, and
certain restricted debt securities that are subject to unconditional put or
demand features exercisable within seven days ("Demand Feature Securities") may
be determined to be liquid for purposes of complying with a Fund's investment
restriction applicable to investments in illiquid securities. In determining the
liquidity of municipal lease obligations, Section 4(2) Commercial Paper and Rule
144A Securities, the Adviser will, among other things, consider the following
factors established by the Board of Trustees: (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (3) the willingness
of dealers to undertake to make a market in the security, and (4) the nature of
the security and the nature of the marketplace trades, including the time needed
to dispose of the security, the method of soliciting offers, and the mechanics
of transfer. Additional factors considered by the Adviser in determining the
liquidity of a municipal lease obligation are: (1) whether the lease obligation
is of a size that will be attractive to institutional investors, (2) whether the
lease obligation contains a non-appropriation clause and the likelihood that the
obligor will fail to make an appropriation therefor, and (3) such other factors
as the Adviser may determine to be relevant to such determination. In
determining the liquidity of Demand Feature Securities, the Adviser will
evaluate the credit quality of the party (the "Put Provider") issuing (or
unconditionally guaranteeing performance on) the unconditional put or demand
feature of the Demand Feature Securities. In evaluating the credit quality of
the Put Provider, the Adviser will consider all factors that it deems indicative
of the capacity of the Put Provider to meet its obligations under the Demand
Feature Securities based upon a review of the Put Provider's outstanding debt
and financial statements and general economic conditions.
LENDING OF SECURITIES
Each Fund may lend its securities. A lending policy may be authorized by the
Board of Trustees and implemented by the Adviser, but securities may be loaned
only to qualified broker-dealers or institutional investors that agree to
maintain cash collateral with the Trust's custodian or another third party
custodian equal at all times to at least 100% of the value of the loaned
securities. The Board of Trustees will establish procedures and monitor the
creditworthiness of any institution or broker-dealer during such times as any
loan is outstanding. The Trust will continue to receive interest on the loaned
securities and will invest the cash collateral in short-term obligations of the
U.S. Government or of its agencies or instrumentalities or in repurchase
agreements, thereby earning additional interest.
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.
6
<PAGE>
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 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.
7
<PAGE>
INVESTMENT RESTRICTIONS
In addition to the restrictions described in the prospectus, the following
investment restrictions have been adopted by the Trust for and are applicable to
each Fund as stated. They are considered to be fundamental policies of the
Funds, and may not be changed for any given Fund without approval by the lesser
of (1) 67% or more of the voting securities present at a meeting of the Fund if
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy or (2) more than 50% of the Fund's outstanding voting
securities. The investment restrictions of one Fund thus may be changed without
affecting those of any other Fund.
Under the restrictions, each Fund may not:
(1) Issue senior securities, except for borrowings described under "Investment
Restrictions" in the Trust's Prospectus and as permitted under the 1940
Act;
(2) Underwrite securities of other issuers, except to the extent that it may
be deemed to act as a statutory underwriter in the distribution of any
restricted securities or not readily marketable securities;
(3) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent investments in
securities secured by real estate or interests therein);
(4) Lend any securities or make any loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, except that
this limitation does not apply to purchases of debt securities or to
repurchase agreements; or
(5) Purchase or sell commodities or commodities contracts.
With respect to the Funds' concentration policy as described in the
Prospectus, the Adviser uses industry classifications for industries based on
categories established by Standard & Poor's Corporation (S&P) for the Standard &
Poor's 500 Composite Index, with certain modifications. Because the Adviser has
determined that certain categories within, or in addition to, those set forth by
S&P have unique investment characteristics, additional industries are included
as industry classifications. The Adviser classifies municipal obligations by
projects with similar characteristics, such as toll road revenue bonds, housing
revenue bonds or higher education revenue bonds.
ADDITIONAL RESTRICTIONS
The following restrictions are not considered to be fundamental policies of
the Funds. Nevertheless, the Trust and each Fund will comply with them if and so
long as they are required by any state where the Fund's shares are offered for
sale. These additional restrictions may be changed by the Board of Trustees
without notice to or approval by the shareholders.
Under the additional restrictions, each Fund may not:
(1) Pledge, mortgage or hypothecate its assets to any extent greater than
33 1/3% of the value of its total assets;
(2) Purchase or retain the securities of any issuer if any officer of the
Adviser or officer or Trustee of the Trust own individually more than 1/2%
of the outstanding securities of such issuer, and together beneficially own
more than 5% of such securities;
(3) Purchase securities on margin or sell securities short, except that it may
obtain such short-term credits as are necessary for the clearance of
securities transactions and make short sales against the box; for purposes
of this restriction, the deposit or repayment of initial or variation
margin in connection with financial futures contracts or related options
will not be deemed to be a purchase of securities on margin by a Fund;
8
<PAGE>
(4) Purchase securities of other investment companies, except to the extent
permitted by applicable law;
(5) Purchase or sell puts, calls, straddles or spreads or any combination
thereof, except to the extent permitted by applicable law; or
(6) Purchase interests in oil, gas, or other mineral exploration or
development programs, except that it may purchase securities of issuers
whose principal business activities fall within such areas.
PORTFOLIO TRANSACTIONS
The Adviser, pursuant to 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 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
9
<PAGE>
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 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:
<TABLE>
<CAPTION>
TRANSACTION
FUND COMMISSIONS AMOUNTS
- ------------------------- ----------- -------------------
<S> <C> <C>
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
</TABLE>
10
<PAGE>
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.
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.
11
<PAGE>
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.
12
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees consists of five Trustees. Set forth below are the
Trustees and officers of the Trust, their ages and their respective offices and
principal occupations during the last five years. Unless otherwise indicated,
the business address of each is 9800 Fredericksburg Road, San Antonio, TX 78288.
Asterisks denote Trustees who are interested persons of the Trust within the
meaning of the 1940 Act.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE POSITION WITH TRUST THE PAST FIVE YEARS
- ----------------------- ------------------- --------------------------------------
<S> <C> <C>
Edwin L. Rosane* Chairperson and Chief Executive Officer and President,
Age 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
San Antonio, Texas of San Antonio; City Commissioner,
78205, Historic Design & Review,
Age 68 City of San Antonio
(Volunteer)
</TABLE>
- -----------
/1/ Ms. Reedy retired as a Vice President of USAA Life Insurance Company on
December 31, 1985.
13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE POSITION WITH TRUST THE PAST FIVE YEARS
- ----------------------- ------------------- ---------------------------------------
<S> <C> <C>
Neil H. Stone Trustee Attorney (Associate), Gendry & Sprague,
10100 Reunion Place, P.C. (known as Gendry, Sprague &
Suite 850 Wachsmuth until November 1994)
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
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
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE POSITION WITH TRUST THE PAST FIVE YEARS
- ----------------------- ------------------- ---------------------------------------
<S> <C> <C>
Caryl J. Swann Assistant Treasurer Director, Mutual Fund Portfolio Analysis and
Age 50 Support, USAA IMCO, since February 1998;
prior thereto, Manager, Mutual Fund Accounting
Jeanine A. Merrill Assistant Treasurer Manager, Life Financial Analysis and
Age 39 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.
15
<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:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE COMPENSATION
COMPENSATION FROM THE USAA
TRUSTEE: FROM THE TRUST: FAMILY OF FUNDS(A):
- ---------------------- ------------------- ----------------------
<S> <C> <C>
Edwin L. Rosane(b) None None
Michael J.C. Roth(c) None None
June R. Reedy......... $8,500.00 None
Neil H. Stone......... $9,000.00 None
Gary W. West.......... $9,000.00 None
</TABLE>
(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 $ billion, of which
approximately $ 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.
16
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
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
</TABLE>
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;
17
<PAGE>
(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.
18
<PAGE>
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 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.
19
<PAGE>
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.
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.
20
<PAGE>
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
21
<PAGE>
The average annual and cumulative total returns* for each Fund that had
operations were as follows:
<TABLE>
<CAPTION>
FUND AVERAGE ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
SINCE INCEPTION** SINCE INCEPTION** YEAR ENDED**
THROUGH YEAR ENDED** THROUGH DECEMBER 31,
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997 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
22
<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.
23
<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.
24
<PAGE>
MOODY'S MUNICIPAL
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
S&P CORPORATE AND GOVERNMENT
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 Designation indicates a satisfactory capacity for timely payment. Issues
with this designation, however, are somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
S&P MUNICIPAL
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
FITCH
F-1 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.
25
<PAGE>
D&P
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources of funds,
is clearly outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations.
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.
26
<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.
27
<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.
28
<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;
29
<PAGE>
- -Morgan Stanley Capital Index (MSCI) - World, an unmanaged index which reflects
the movements of world stock markets by representing a broad selection of
domestically listed companies within each market;
- -NASDAQ Industrials, a composite index of approximately 3000 unmanaged
securities of industrial corporations traded over the counter;
- -S&P 500 Index, a broad based unmanaged composite index that represents the
average performance of a group of 500 securities widely held, publicly traded
stocks.
Other sources for total return and other performance data that may be used by
a Fund or by those publications listed previously are Morningstar, Inc.,
Schabaker Investment Management, and Investment Company Data, Inc. These are
services that collect and compile data on open-end mutual fund companies.
30
<PAGE>
REGISTRATION STATEMENT ON FORM N-1A
PART C - OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) List of Financial Statements
1. Part A. The Financial Highlights of the USAA Life Investment Trust ("Trust")
for the years or periods in the 3 year period ended December 31, 1997, are
included in Part A of this Registration Statement.
2. Part B. The most recent audited financial statements for each Fund of the
Trust, and the report of the Trust's independent auditor thereon, are
incorporated into this Registration Statement by reference to the Trust's Annual
Report, dated December 31, 1997.
Only those sections of the Annual Report that are specifically identified
immediately below are incorporated by reference into this Registration
Statement:
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
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
--- -----------------------
<S> <C>
(1) (a) Certificate of Trust of USAA Life Investment Trust./1/
(b) (i) Master Trust Agreement of USAA Life Investment Trust.
(ii) Amendment to Master Trust Agreement of USAA Life Investment
Trust. /5/
(iii) Second Amendment to Master Trust Agreement of USAA Life
Investment Trust.
(2) Bylaws of USAA Life Investment Trust. /2/
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Investment Advisory Agreement by and between USAA Life Investment
Trust and USAA Investment Management Company, dated December 16, 1994.
(b) Amendment to Investment Advisory Agreement by and between USAA Life
Investment Trust, with respect to its Aggressive Growth and International
Funds, and USAA Investment Management Company, dated February 7,
1997. /5/
(c) Second Amendment to Investment Advisory Agreement by and between
USAA Life Investment Trust and USAA Investment Management Company, dated
February 18, 1998.
(6) Amended and Restated Underwriting and Administrative Services Agreement
by and between USAA Life Insurance Company, USAA Life Investment Trust
and USAA Investment Management
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Company, dated December 16, 1994, amended as of February 7, 1997, and amended
and restated as of February 26, 1998.
(7) Not Applicable.
(8) (a) Custodian Agreement by and between USAA Life Investment Trust and
State Street Bank and Trust Company, dated December 16, 1994. /2/
(b) Amendment to Custodian Agreement by and between USAA Life Investment
Trust and State Street Bank and Trust Company, dated December 16,
1994./2/
(c) First Amendment to the Amendment to the Custodian Agreement by and
between USAA Life Investment Trust and State Street Bank and Trust
Company, dated July 24, 1996. /5/
(d) Second Amendment to Custodian Agreement by and between USAA Life
Investment Trust and State Street Bank and Trust Company, dated April 24,
1997. /6/
(e) Third Amendment to Custodian Agreement by and between USAA Life
Investment Trust and State Street Bank and Trust Company, dated February
18, 1998.
(9) (a) Transfer Agent Agreement by and between USAA Life Investment Trust
and USAA Life Insurance Company, dated December 15, 1994.
(b) Letter Agreement by and between USAA Life Investment Trust and USAA
Life Insurance Company, dated February 7, 1997, appointing USAA Life as
the Transfer Agent and Dividend Disbursing Agent for the Aggressive
Growth and International Funds.
(c) Amendment to Transfer Agent Agreement by and between USAA Life
Investment Trust and USAA Life Insurance Company, dated February 18,
1998.
(10) (a) Opinion and Consent of Counsel concerning the Money Market,
Income, Growth and Income, World Growth and Diversified Assets
Funds./3/
(b) Opinion and Consent of Counsel concerning the Aggressive Growth and
International Funds. /5/
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(11) Consent of KPMG Peat Marwick LLP, Independent Auditor.
(12) Not Applicable.
(13) (a) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, with respect to its Money Market,
Income, Growth and Income, World Growth and Diversified Assets Funds,
dated December 16, 1994./2/
(b) Ratification of Subscription Agreement Modification, approved by the
Trust's Board of Trustees on November 30, 1995./4/
(c) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, with respect to its Aggressive Growth
and International Funds, dated February 7, 1997./5/
(14) Not Applicable.
(15) Not Applicable.
(16) (a) Schedule for Computations of Performance Quotations included in
response to Form N-1A, Item 22./4/
(b) Schedule for Computations of Performance Quotations with respect to
the Aggressive Growth Fund and International Fund included in response
to Form N-1A, Item 22./7/
(17) The Financial Data Schedule required to be filed pursuant to Form N-1A,
Item 24(b)(17), is filed herewith as Exhibit 27, as dictated by the
Commission's Electronic Data Gathering, Analysis, and Retrieval System.
(18) Not Applicable.
(19) (a) Powers of Attorney for: Edwin L. Rosane and James A.Robinson./1/
(b) Powers of Attorney for: Michael J.C. Roth, June R. Reedy, Neil H.
Stone and Gary W. West./2/
(20) Persons Controlled By or Under Common Control with Registrant.
(27) Financial Data Schedule.
</TABLE>
- --------
/1/ Previously filed with the initial filing, on August 1, 1994, of Registrant's
Form N-1A Registration Statement.
/2/ Previously filed on December 22, 1994, with Pre-Effective Amendment No. 1 to
Registrant's Form N-1A Registration Statement.
/3/ Previously filed on July 3, 1995, with Post-Effective Amendment No. 1 to the
Registrant's Form N-1A Registration Statement.
/4/ Previously filed on April 29, 1996, with Post-Effective Amendment No. 2 to
the Registrant's Form N-1A Registration Statement.
3
<PAGE>
/5/ Previously filed on February 14, 1997, with Post-Effective Amendment No. 3
to the Registrant's Form N-1A Registration Statement.
/6/ Previously filed April 29, 1997, with Post-Effective Admendment No. 4 to
Registrant's Form N1-A Registration Statement.
/7/ Previously filed on August 28, 1997, with Post-Effective Amendment No. 5 to
Registrant's Form N1-A Registration Statement.
ITEM 25. Persons Controlled by or Under Common Control with Registrant
No person is controlled by Registrant. All of the outstanding shares of
beneficial interest of Registrant are owned of record by USAA Life Insurance
Company ("USAA Life"), which is a wholly-owned subsidiary of United Services
Automobile Association ("USAA"), and the Separate Account of USAA Life Insurance
Company (the "Separate Account"), a segregated asset account of USAA Life. USAA
Life beneficially owns, both directly and through the Separate Account, more
than 25% of the shares of each of Registrant's Funds (other than the Money
Market Fund), and as a result, may be deemed to control (with the exception of
the Money Market Fund) each Fund of the Registrant. Various companies affiliated
with Registrant may, therefore, be deemed to be under common control with each
Fund (other than the Money Market Fund) of the Registrant. The names of these
companies, their relationship to the Registrant and other information about the
companies is set forth in an organization chart that is filed herewith in this
Form N-1A Registration Statement as Exhibit 20 and incorporated herein by
reference.
ITEM 26. Number of Holders of Securities
As of February 24, 1998, the Trust had the following number of shareholders on
record.
<TABLE>
<CAPTION>
TITLE OF FUNDS NUMBER OF RECORD HOLDERS
- -------------- ------------------------
<S> <C>
Money Market 1
Income 2
Growth and Income 2
World Growth 2
Diversified Assets 2
Aggressive Growth 2
International 2
</TABLE>
ITEM 27. Indemnification
Indemnification against liability is provided to the Trustees and officers of
the Registrant, the underwriter of the Registrant and the following affiliated
persons of the Registrant, in the following ways:
(a) Directors' and Officers' Liability Policy: The Registrant and its
Trustees and officers are covered under a joint liability insurance policy
("policy") along with USAA IMCO, other mutual funds managed by USAA IMCO,
and USAA Shareholder Account Services. The policy insures against errors
and omissions as described therein.
(b) Indemnification under the Master Trust Agreement, as amended: Under
Article V of the Registrant's Master Trust Agreement (incorporated herein
by reference to Exhibit (1) (b)(i) of this Registration Statement), the
Registrant has agreed to indemnify any Shareholder or former Shareholder,
and each of its Trustees and officers, including persons serving at the
Registrant's request as Directors, officers or trustees of another
organization in which the Registrant has any interest as a shareholder,
creditor or otherwise, against liability as specified therein.
4
<PAGE>
(c) Indemnification under the Amended and Restated Underwriting and
Administrative Services Agreement: Under Section 9 of the Amended and
Restated Underwriting and Administrative Services Agreement by and between
the Registrant, USAA Life and USAA IMCO (incorporated herein by reference
to Exhibit (6) of this Registration Statement), USAA Life and USAA IMCO
have agreed to indemnify the Registrant and one another, and each of the
Trustees, Directors and officers (or former Trustees, Directors and
officers) of each party, and any person who controls any party, against
liability as specified therein.
(d) Indemnification under the Custodian Agreement, as amended: Under Section
2.12(6) and Section 8 of the Custodian Agreement by and between the
Registrant and State Street Bank and Trust Company ("State Street")
(incorporated herein by reference to Exhibit (8)(a) of this Registration
Statement), State Street has agreed to be responsible to the Registrant for
negligence or misconduct, as specified therein. Under Section 9 of the
Amendment to the Custodian Agreement by and between the Registrant and
State Street (incorporated herein by reference to Exhibit (8)(b) of this
Registration Statement), any foreign banking institution employed by the
Custodian ("Sub-Custodian") shall indemnify State Street and the
Registrant, against liability as specified therein. Under Section 10 of
the Amendment to the Custodian Agreement, the Custodian has agreed to be
liable for the acts or omissions of a foreign banking institution as
specified therein.
(e) Indemnification under the Transfer Agent Agreement, as amended: Under
Section 12 of the Transfer Agent Agreement between the Registrant and USAA
Life (incorporated herein by reference to Exhibit (9)(a) of this
Registration Statement), USAA Life has agreed to indemnify the Registrant
against liability as specified therein, and the Registrant shall indemnify
USAA Life against liability as specified therein.
(f) Indemnification under the Distribution and Administration Agreement, as
amended: Under Section 14 of the Distribution and Administration Agreement
by and between USAA Life and USAA IMCO (incorporated herein by reference to
Exhibit 3 of Pre-Effective Amendment No. 1 to the Form N-4 Registration
Statement of the Separate Account, filed on December 22, 1994), USAA Life,
on its own behalf and on behalf of the Separate Account, has agreed to
indemnify USAA IMCO, its agents, employees and any person who controls USAA
IMCO, against liability as specified therein, and USAA IMCO has agreed to
indemnify USAA Life, its Directors and officers, the Separate Account, and
any person who controls USAA Life, against liability as specified
therein.
(g) Indemnification under the Bylaws of USAA Life: Under Article IX of the
Bylaws of USAA Life (incorporated herein by reference to Exhibit 6(b) of
the initial filing, on August 1, 1994, of the Form N-4 Registration
Statement of the Separate Account), USAA Life has agreed to indemnify any
Director, officer, former Director or former officer of USAA Life against
liability as specified therein.
(h) Indemnification under the Delaware Business Trust Act: Under Section
3803(b) of the Delaware Business Trust Act, except to the extent otherwise
provided in the governing instrument of a business trust, a Trustee, when
acting in such capacity, is not personally liable to any person other than
the business trust or a beneficial owner for any act, omission or
obligation of the business trust or any Trustee thereof.
Insofar as indemnification for liabilities arising under Securities Act of
1933 (the "1933 Act") may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
5
<PAGE>
ITEM 28. Business and Other Connections of Investment Adviser
Information in response to this item is incorporated by reference to Item 28
of Post-Effective Amendment No. 46 of the Registration Statement of USAA Mutual
Fund, Inc., filed September 30, 1997(File No. 2-49560).
ITEM 29. Principal Underwriters
(a) USAA IMCO acts as principal underwriter of the Registrant's shares on a
best-efforts basis and receives no fee or commission for its underwriting
services. USAA IMCO, an affiliate of USAA, also serves as principal
underwriter for the Separate Account, USAA Investment Trust, USAA State
Tax-Free Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
(b) Following is certain information concerning Directors and the president,
vice-president, secretary, treasurer, controller and any other officers who
perform policy-making functions for USAA IMCO.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITION AND OFFICES WITH POSITION AND OFFICES WITH
ADDRESS* UNDERWRITER REGISTRANT
- --------------------------- -------------------------------- --------------------------
<S> <C> <C>
Robert G. Davis Director and Chairman None
Michael J. C. Roth Director and Vice Trustee and
Chairman, Chief Executive Vice Chairman
Officer and President
Harry W. Miller Director and Senior Vice None
President,
Equity Investments
John W. Saunders, Jr. Director and Senior Vice Vice President
President,
Fixed Income Investments
John J. Dallahan Senior Vice President, None
Investment Services
Carl W. Shirley Senior Vice President, Insurance None
Company Portfolios
Alex M. Ciccone Vice President, Compliance
Compliance/Assistant Secretary Officer
Christopher W. Claus Vice President None
Sherron A. Kirk Vice President and
Controller None
William R. Pederson Vice President None
David G. Peebles Vice President None
Michael D. Wagner Vice President, None
Secretary and Counsel
Kenneth E. Willmann Vice President None
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITION AND OFFICES WITH POSITION AND OFFICES WITH
ADDRESS* UNDERWRITER REGISTRANT
- --------------------------- -------------------------------- --------------------------
<S> <C> <C>
Patricia P. Cavazos Vice President None
David G. Miller Vice President None
Thomas Ramos Vice President None
</TABLE>
- --------
* The principal business address for all of the above Directors and officers of
USAA IMCO is 9800 Fredericksburg Road, San Antonio, TX 78288.
(c) Not Applicable.
7
<PAGE>
ITEM 30. Location of Accounts and Records
The following entities prepare, maintain and preserve the records required by
Section 31(a) of the 1940 Act for the Registrant. These services are provided
to the Registrant through written agreements between the parties to the effect
that such records will be maintained on behalf of the Registrant for the periods
prescribed by the rules and regulations of the Commission under the 1940 Act and
that such records are the property of the entity required to maintain and
preserve such records and will be surrendered promptly on request:
(1) USAA Life Insurance Company
9800 Fredericksburg Road,
San Antonio, Texas 78288
(2) USAA Investment Management Company
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
(3) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
ITEM 31. Management Services
Not Applicable.
ITEM 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(d) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees
when requested to do so by the holders of at least 10% of the Registrant's
outstanding shares of beneficial interest and in connection therewith to
comply with the provisions of Section 16(c) of the Investment Company Act
of 1940.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant has duly caused this amended registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio and State of Texas on the 26th day of
February, 1998.
USAA LIFE INVESTMENT TRUST
BY: /s/ EDWIN L. ROSANE
--------------------
Edwin L. Rosane
President and Principal Executive
Officer
USAA LIFE INVESTMENT TRUST
ATTEST:
/s/ DWAIN AKINS
- ---------------------------
Dwain A. Akins
Assistant Secretary
USAA LIFE INVESTMENT TRUST
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following persons
in the capacity and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/s/ EDWIN L. ROSANE President and Chairman of the February 26, 1998
---------------------- Board of Trustees
Edwin L. Rosane (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following persons
in the capacity and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/s/ JAMES A. ROBINSON (Principal Financial and February 26, 1998
----------------------- Accounting Officer)
James A. Robinson
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person
ins the capacity and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/s/ JUNE R. REEDY Trustee February 26, 1998
-----------------
June R. Reedy
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following person
ins the capacity and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/s/ MICHAEL J.C. ROTH Trustee February 26, 1998
---------------------
Michael J.C. Roth
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following persons
in the capacity and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/s/ *NEIL H. STONE Trustee February 26, 1998
----------------------
Neil H. Stone
*Dwain A. Akins
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed for Registrant by the following persons
in the capacity and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/s/ GARY W. WEST Trustee February 26, 1998
-------------------
Gary W. West
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
(1)(b)(i) Master Trust Agreement of USAA Life Investment Trust.
(b)(iii) Second Amendment to Master Trust Agreement of USAA Life Investment
Trust.
(5)(a) Investment Advisory Agreement by and between USAA Life Investment Trust
and USAA Investment Management Company, dated December 16, 1994.
(c) Second Amendment to Investment Advisory Agreement by and between USAA
Life Investment Trust and USAA Investment Management Company, dated
February 18, 1998.
(6) Amended and Restated Underwriting and Administrative Services Agreement
by and between USAA Life Insurance Company, USAA Life Investment Trust
and USAA Investment Management Company, dated December 16, 1994, amended
as of, February 7, 1997, and amended and restated as of, February 26,
1998.
(8) (e) Third Amendment to Custodian Agreement by and between USAA Life
Investment Trust and State Street Bank and Trust Company, dated
February 18, 1998.
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(9) (a) Transfer Agent Agreement by and between USAA Life Insurance Trust
and USAA Life Insurance Company, dated December 15, 1994.
(b) Letter Agreement by and between USAA Life Investment Trust and USAA
Life Insurance Company, dated February 7, 1997, appointing USAA Life
as the Transfer Agent and Dividend Disbursing Agent for the
Aggressive Growth and International Funds.
(c) Amendment to Transfer Agent Agreement by and between USAA Life
Investment Trust and USAA Life Insurance Company, dated February 18,
1998.
11 Consent of KPMG Peat Marwick LLP, Independent Auditor.
20 Persons Controlled By by or Under Common Control with Registrant.
27 Financial Data Schedule.
</TABLE>
ii
<PAGE>
EXHIBIT (1)(b)(i)
USAA LIFE INVESTMENT TRUST
MASTER TRUST AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
Description Page
- ----------- ----
ARTICLE I. NAME AND DEFINITIONS.......................................... 1
Section 1.1 Name and Principal Office............................... 1
Section 1.2 Definitions............................................. 1
(a) "Bylaws".......................................... 1
(b) "class"........................................... 2
(c) "Commission"...................................... 2
(d) "Trust Agreement"................................. 2
(e) "1940 Act"........................................ 2
(f) "Shareholder"..................................... 2
(g) "Shares".......................................... 2
(h) "Sub-Trust"....................................... 2
(i) "Trust"........................................... 2
(j) "Trustees"........................................ 2
ARTICLE II. PURPOSE OF TRUST............................................. 2
ARTICLE III. THE TRUSTEES................................................ 2
Section 3.1 Number, Designation, Election, Term, etc................ 2
(a) Initial Trustees.................................. 2
(b) Number............................................ 3
(c) Election and Term................................. 3
(d) Resignation and Retirement........................ 3
(e) Removal........................................... 3
(f) Vacancies......................................... 3
(g) Effect of Death, Resignation, etc................. 4
(h) No Accounting..................................... 4
Section 3.2 Powers of Trustees...................................... 4
(a) Investments....................................... 5
(b) Disposition of Assets............................. 5
(c) Ownership Powers.................................. 5
(d) Subscription...................................... 5
(e) Form of Holding................................... 5
(f) Reorganization, etc............................... 6
(g) Voting Trusts, etc................................ 6
(h) Compromise........................................ 6
(i) Partnership, etc.................................. 6
(j) Borrowing and Security............................ 6
(k) Guarantees, etc................................... 6
(l) Insurance......................................... 6
(m) Pensions, etc..................................... 7
(n) Distribution Plans................................ 7
<PAGE>
Section 3.3 Certain Contracts 7
(a) Advisory......................................... 7
(b) Administration................................... 7
(c) Distribution..................................... 7
(d) Custodian and Depository......................... 8
(e) Transfer Agent and Dividend Disbursing
Agency........................................................... 8
(f) Shareholder Servicing............................ 8
(g) Accounting....................................... 8
Section 3.4 Payment of Trust Expenses and Compensation
of Trustees...................................................... 9
Section 3.5 Ownership of Assets of the Trust................. 9
Section 3.6 Action by Trustees............................... 9
ARTICLE IV. SHARES...................................................... 10
Section 4.1 Description of Shares................................... 10
Section 4.2 Establishment and Designation of Sub-Trusts
and Classes...................................................... 11
(a) Assets Belonging to Sub-Trusts................... 12
(b) Liabilities Belonging to Sub-Trusts.............. 12
(c) Dividends........................................ 13
(d) Liquidation...................................... 13
(e) Voting........................................... 13
(f) Redemption by Shareholder........................ 14
(g) Redemption by Trust.............................. 14
(h) Net Asset Value.................................. 14
(i) Transfer......................................... 15
(j) Equality......................................... 15
(k) Fractions........................................ 15
(l) Conversion Rights................................ 16
(m) Class Differences................................ 16
Section 4.3 Ownership of Shares.................................... 16
Section 4.4 Investments in the Trust............................... 16
Section 4.5 No Preemptive Rights................................... 16
Section 4.6 Status of Shares and Limitation of Personal
Liability............................................. 16
Section 4.7 No Appraisal Rights.................................... 17
<PAGE>
ARTICLE V. LIMITATION OF LIABILITY; INDEMNIFICATION..................... 17
Section 5.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice........................................ 17
Section 5.2 Trustee's Good Faith Action; Expert Advice;
No Bond or Surety..................................... 17
Section 5.3 Indemnification of Shareholders........................ 18
Section 5.4 Indemnification of Trustees, Officers, etc............. 18
Section 5.5 Compromise Payment..................................... 19
Section 5.6 Liability of Third Persons Dealing with
Trustees.............................................. 19
ARTICLE VI. MISCELLANEOUS............................................... 20
Section 6.1 Duration and Termination of Trust...................... 20
Section 6.2 Reorganization......................................... 20
Section 6.3 Amendments............................................. 21
Section 6.4 Filing of Copies; References; Headings................. 21
Section 6.5 Applicable Law......................................... 22
Section 6.6 Resident Agent......................................... 22
<PAGE>
USAA LIFE INVESTMENT TRUST
--------------------------
MASTER TRUST AGREEMENT
----------------------
MASTER TRUST AGREEMENT (the "Trust Agreement") made at San Antonio, Texas
this 14th day of December, 1994, by the Trustees hereunder, and by the holders
of shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
("Shares") in separate series, each separate series to be a Sub-Trust hereunder,
and to issue classes of Shares of any Sub-Trust or divide Shares of any Sub-
Trust into two or more classes, all in accordance with the provisions
hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Delaware business trust in accordance with the provisions
hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold IN TRUST
all cash, securities and other assets which the Trust may from time to time
acquire and manage and dispose of the same upon the following terms and
conditions for the benefit of the holders of Shares in this Trust and the Sub-
Trusts created hereunder as hereinafter set forth.
ARTICLE I
---------
NAME AND DEFINITIONS
--------------------
Section 1.1 Name and Principal Office. This Trust shall be known as USAA
Life Investment Trust, and the Trustees shall conduct the business of the Trust
under that name or any other name(s) or and in such location(s) as they may from
time to time determine.
Section 1.2 Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
<PAGE>
(a) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time and such Bylaws are hereby incorporated by reference into the Trust
Agreement pursuant to Section 3801(f)(2) Delaware Business Trust Act;
(b) "class" refers to any class of Shares of any Sub-Trust established and
designated under or in accordance with the provisions of Article IV;
(c) "Commission" shall have the meaning given it in the 1940 Act;
(d) "Trust Agreement" shall mean this Master Trust Agreement as amended or
restated from time to time;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(f) "Shareholder" means a record owner of Shares;
(g) "Shares" refers to the transferable units of interest into which the
beneficial interest in the Trust and each Sub-Trust of the Trust and/or any
class of any Sub-Trust (as the context may require) shall be divided from time
to time;
(h) "Sub-Trust" refers to a series ("Series") of Shares established and
designated under or in accordance with the provisions of Article IV hereof;
(i) "Trust" refers to the Delaware business trust established by this Trust
Agreement inclusive of each and every Sub-Trust established hereunder; and
(j) "Trustees" refers to the Trustees of the Trust and of each Sub-Trust
named herein or elected in accordance with Article III.
ARTICLE II
----------
PURPOSE OF TRUST
----------------
The purpose of the Trust is to operate as an investment company through one
or more Sub-Trusts investing primarily in securities, and to carry on such other
business as the Trustees may from time to time determine pursuant to their
authority under this Trust Agreement.
<PAGE>
ARTICLE III
-----------
THE TRUSTEES
------------
Section 3.1 Number, Designation, Election, Term, etc.
(a) Initial Trustees. The number of Trustees of the Trust and each Sub-
Trust hereunder shall initially be one, who shall be Edwin L. Rosane.
(b) Number. The Trustees serving as such, whether named above or hereafter
becoming Trustees, may increase or decrease the number of Trustees to a number
other than the number theretofore determined. No decrease in the number of
Trustees shall have the effect of removing any Trustee from office prior to the
expiration of his term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to subsection (e) of this
Section 3.1.
(c) Election and Term. Each Trustee, whether named above or hereafter
becoming a Trustee, shall serve as a Trustee of the Trust and of each Sub-Trust
hereunder during the lifetime of this Trust and until its termination as
hereinafter provided, except as such Trustee sooner dies, resigns, retires, is
declared bankrupt or incompetent by a court of appropriate jurisdiction, or is
removed. Subject to Section 16(a) of the 1940 Act, the Trustees may elect their
own successors and may, pursuant to Section 3.1(f) hereof, appoint Trustees to
fill vacancies.
(d) Resignation and Retirement. Any Trustee may resign or retire as a
Trustee, by written instrument signed by him and delivered to the other Trustees
or to any officer of the Trust, and such resignation or retirement shall take
effect upon such delivery or upon such later date as is specified in such
instrument and shall be effective as to the Trust and each Sub-Trust hereunder.
(e) Removal. Any Trustee may be removed with or without cause at any time;
(i) by written instrument, signed by at least two-thirds of the number of
Trustees in office immediately prior to such removal, specifying the date upon
which such removal shall become effective; or (ii) by vote of Shareholders
holding not less than two-thirds of the Shares then outstanding, cast in person
or by proxy at any meeting called for the purpose; or (iii) by a written
declaration signed by Shareholders holding not less than two-thirds of the
Shares then outstanding and filed with the Trust's custodian. Any such removal
shall be effective as to the Trust and each Sub-Trust hereunder.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of
<PAGE>
Trustees by the other Trustees, may be filled by a majority of the remaining
Trustees, subject to the provisions of Section 16(a) of the 1940 Act, through
the appointment in writing of such other person as such remaining Trustees in
their discretion shall determine. Such appointment shall be effective upon the
written acceptance of the person named therein to serve as a Trustee and
agreement by such person to be bound by the provisions of this Trust Agreement,
except that any such appointment in anticipation of a vacancy to occur by reason
of retirement, resignation or increase in number of Trustees, to be effective at
a later date, shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee so appointed shall have accepted such appointment and shall have agreed
in writing to be bound by this Trust Agreement and the appointment is effective,
the Trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance. Unless required by the 1940
Act, no vacancy need be filled so long as there are at least two remaining
trustees.
(g) Effect of Death, Resignation, etc. The death, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul or terminate the Trust or any Sub-Trust hereunder or to revoke or
terminate any existing agency or contract created or entered into pursuant to
the terms of this Trust Agreement.
(h) No Accounting. Except to the extent required by the 1940 Act or under
circumstances which would justify his removal for cause, no person ceasing to be
a Trustee as a result of his death, resignation, retirement, removal or
incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this Trust
Agreement, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
and the purpose of the Trust. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management and operation of the
Trust. Trustees shall have full authority and absolute power and control over
the assets of the Trust and the business of the Trust to the same extent as if
the Trustees were the sole owners of the assets of the Trust and the business in
their own right, including such authority, power and control to do all acts and
things as they, in their discretion, shall deem proper to accomplish the
purposes of this Trust. Without limiting the foregoing, the Trustees may adopt
Bylaws not inconsistent with this Trust Agreement providing for
<PAGE>
the conduct of the business and affairs of the Trust and may amend and repeal
them to the extent that such Bylaws do not reserve that right to the
Shareholders; they may from time to time in accordance with the provisions of
Section 4.1 hereof establish Sub-Trusts, each such Sub-Trust to operate as a
separate and distinct investment medium and with separately defined investment
objectives and policies and distinct investment purposes; they may from time to
time in accordance with the provisions of Section 4.1 hereof establish classes
of Shares of any Sub-Trust or divide the Shares of any Sub-Trust into classes;
they may as they consider appropriate hire and terminate employees and agents
who may be designated as officers with titles, including, but not limited to,
"president," "vice-president," "treasurer," "secretary," "assistant secretary,"
"assistant treasurer," "managing director," "chairman of the board," "vice
chairman of the board" and who in such capacity may act for and on behalf of the
Trust, as and to the extent authorized by the Trustees, and appoint and
terminate agents and consultants, any one or more of the foregoing of whom may
be a Trustee, and may provide for the compensation of all of the foregoing; they
may appoint from their own number, and terminate, any one or more committees
consisting of two or more Trustees, including without implied limitation an
executive committee, which may, when the Trustees are not in session and subject
to the 1940 Act, exercise some or all of the power and authority of the Trustees
as the Trustees may determine; in accordance with Section 3.3 they may employ
one or more advisers, administrators, depositories and custodians and may
authorize any depository or custodian to employ subcustodians or agents and to
deposit all or any part of such assets in a system or systems for the central
handling of securities and debt instruments, retain transfer, dividend
disbursing, accounting or Shareholder servicing agents or any of the foregoing,
provide for the distribution of Shares by the Trust through one or more
distributors, principal underwriters or otherwise, and set record dates or times
for the determination of Shareholders with respect to various matters; they may
compensate or provide for the compensation of the Trustees, officers, advisers,
administrators, custodians, other agents, consultants and employees of the Trust
or the Trustees on such terms as they deem appropriate; and in general they may
delegate to any officer of the Trust, to any committee of the Trustees and to
any employee, adviser, administrator, distributor, depository, custodian,
transfer and dividend disbursing agent, or any other agent or consultant of the
Trust such authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust, including
without implied limitation the power and authority to act in the name of the
Trust and any Sub-Trust and of the Trustees, to sign documents and to act as
attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the
1940 Act or other applicable law, the Trustees shall have power and authority
for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
<PAGE>
(a) Investments. To invest and reinvest cash and other property, and to
hold cash or other property uninvested in accordance with the investment
policies and restrictions of each Sub-Trust as set out from time to time in the
prospectus for the Sub-Trust;
(b) Disposition of Assets. To sell, exchange, lend, pledge, hypothecate,
write options on and lease any or all of the assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) Form of Holding. To hold any security, debt instrument or property in
a form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or of any Sub-
Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security or debt instrument of which is held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any security or debt
instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any securities or
debt instruments in acting through a committee, depository, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;
<PAGE>
(h) Compromise. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any Sub-Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds or other property in the name
of the Trust exclusively for Trust purposes, and in connection therewith, to
issue notes or other evidence of indebtedness, and to mortgage and pledge the
assets of the Trust or any part thereof to secure any or all of such
indebtedness;
(k) Guarantees, etc. To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property
such insurance as the Trustees may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, investment advisers, managers,
administrators, distributors, principal underwriters, or independent contractors
of the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
(m) Pensions, etc. To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trust and provisions, including the purchasing of
life insurance and annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers, employees and agents
of the Trust; and
(n) Distribution Plans. To adopt on behalf of the Trust or any Sub-Trust
with respect to any class thereof a plan of distribution and related agreements
thereto pursuant to the terms of Rule 12b-1 of the 1940 Act and to make payments
from the assets of the Trust or the relevant Sub-Trust or Sub-Trusts pursuant to
said Rule 12b-1 Plan.
<PAGE>
Section 3.3 Certain Contracts. Subject to compliance with the provisions
of the 1940 Act, the Trustees may, at any time and from time to time and without
limiting the generality of their powers and authority otherwise set forth
herein, enter into one or more contracts with any one or more corporations,
trusts, associations, partnerships, limited partnerships, other type of
organizations, or individuals (a "Contracting Party"), to provide for the
performance and assumption of some or all of the following services, duties and
responsibilities to, for or on behalf of the Trust and/or any Sub-Trust, and/or
the Trustees, and to provide for the performance and assumption of such other
services, duties and responsibilities in addition to those set forth below as
the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and in
accordance with the investment policies and restrictions of each Sub-Trust as
set out from time to time in the prospectus for the Sub-Trust, with respect to
the investments of the Trust or the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2 hereof), to
manage such investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) Administration. Subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust (including each class thereof), to
supervise all or any part of the operations of the Trust and each Sub-Trust, and
to provide all or any part of the administrative and clerical personnel, office
space and office equipment and services appropriate for the efficient
administration and operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust and each Sub-
Trust (including any classes thereof), to the principal underwriter of such
Shares, and/or to act as agent of the Trust and each Sub-Trust in the sale of
Shares and the acceptance or rejection of orders for the purchase of Shares;
(d) Custodian and Depository. To act as depository for and to maintain
custody of the property of the Trust and each Sub-Trust and accounting records
in connection therewith;
(e) Transfer and Dividend Disbursing Agent. To maintain records of the
ownership of outstanding Shares, the issuance and redemption and the transfer
thereof, and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
<PAGE>
(f) Shareholder Servicing. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust and/or the
Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relative to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
investment adviser, principal underwriter or distributor or agent of
or for any Contracting Party, or of or for any parent or affiliate of
any Contracting Party or that the Contracting Party or any parent or
affiliate thereof is a Shareholder or has an interest in the Trust or
any Sub-Trust, or that
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust or any Sub-
Trust and/or the Trustees or disqualify any Shareholder, Trustee or officer of
the Trust from voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust or its shareholders, provided that in
the case of any relationship or interest referred to in the preceding clause (i)
on the part of any Trustee or officer of the Trust either (x) the material facts
as to such relationship or interest and the contract involved is approved in
good faith by a majority of such Trustees not having any
<PAGE>
such relationship or interest (even though such unrelated or disinterested
Trustees are less than a quorum of all of the Trustees), (y) the material facts
as to such relationship or interest and as to the contract have been disclosed
to or are known by the Shareholders entitled to vote thereon and the contract
involved is specifically approved in good faith by vote of the Shareholders or,
(z) the specific contract involved is fair to the Trust as of the time it is
authorized, approved or ratified by the Trustees or by the Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of Trustees. The
Trustees are authorized to pay or to cause to be paid out of the principal or
income of the Trust or any Sub-Trust, or partly out of principal and partly out
of income, and to charge or allocate the same to, between or among such one or
more of the Sub-Trusts and/or one or more classes of Shares thereof that may be
established and designated pursuant to Article IV, as the Trustees deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, any Sub-Trust and/or any class of Shares thereof, or
in connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, distributor,
principal underwriter, auditors, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, Shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Without limiting the generality of any other provision hereof, the Trustees
shall be entitled to reasonable compensation from the Trust for their services
as Trustees and may fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the assets
of the Trust and each Sub-Trust shall at all times be considered as vested in
the Trust, except that the Trustees shall have power to cause legal title to any
Trust property to be held by or in name of one or more of the Trustees, or in
the name of the Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and interest of the
Trustees in the Trust property shall vest automatically in each Person who may
hereafter become a Trustee. Upon the resignation, removal or death of a
Trustee, he or she shall automatically cease to have any right, title or
interest in any of the Trust property, and the right, title and interest of such
Trustee in the Trust property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
Section 3.6 Action by Trustees. Except as otherwise provided by the 1940
Act or other applicable law, this Trust Agreement or the Bylaws, any action to
be taken by the Trustees on behalf of or with respect to the Trust or any Sub-
Trust or
<PAGE>
class thereof may be taken by the Trustees present at a meeting of Trustees (a
quorum, consisting of at least one-half of the Trustees then in office, being
present), within or without Delaware, including any meeting held by means of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting, or
by written consents of a majority of the Trustees then in office (or such large
or different number as may be required by the 1940 Act or other applicable law).
ARTICLE IV
----------
SHARES
------
Section 4.1 Description of Shares. The beneficial interest in the Trust
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to issue Shares in one or more series (each of
which series of Shares shall represent the beneficial interest in a separate and
distinct Sub-Trust of the Trust, including without limitation each Sub-Trust
specifically established and designated in Section 4.2), as they deem necessary
or desirable. For all purposes under this Trust Agreement or otherwise,
including, without implied limitation, (i) with respect to the rights of
creditors and (ii) for purposes of interpreting the relevant rights of each Sub-
Trust and the Shareholders of each Sub-Trust, each Sub-Trust established
hereunder shall be deemed to be a separate trust. The Trustees shall have
exclusive power without the requirement of Shareholder approval to establish and
designate such separate and distinct Sub-Trusts as to right of redemption and
the price, terms and manner of redemption, special and relative rights as to
dividends and other distributions and on liquidation, sinking or purchase fund
provisions, conversion rights, and conditions under which the several Sub-Trusts
shall have separate voting rights or no voting rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any Sub-Trust into classes, each class having such
different dividend, liquidation, voting and other rights as the Trustees may
determine in their sole discretion, and may establish and designate the specific
classes of Shares of each Sub-Trust. The fact that a Sub-Trust shall have
initially been established and designated without any specific establishment or
designation of classes (i.e., that all Shares of such Sub-Trust are initially of
a single class), or that a Sub-Trust shall have more than one established and
designated class, shall not limit the authority of the Trustees to establish and
designate separate classes, or one or more further classes, of said Sub-Trust
without approval of the holders of the initial class thereof,
<PAGE>
or previously established and designated class or classes thereof, provided that
the establishment and designation of such further separate classes would not
adversely affect the rights of the holders of the initial or previously
established and designated class or classes.
The number of authorized Shares and the number of Shares of each Sub-Trust
or class thereof that may be issued is unlimited, and the Trustees may issue
Shares of any Sub-Trust or class thereof for such consideration and on such
terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be full paid
and non-assessable (but may be subject to mandatory contribution back to the
Trust as provided in subsection (h) of Section 4.2). The Trustees may classify
or reclassify any unissued Shares or any Shares previously issued and reacquired
of any Sub-Trust or class thereof into one or more Sub-Trusts or classes thereof
that may be established and designated from time to time. The Trustees may hold
as treasury Shares, reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Shares of any
Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or establish
record dates and times for the purpose of determining the holders of Shares
entitled to be treated as such, in accordance with the provisions of the Trust's
Bylaws.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective (i) upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation of
the relative rights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer of the Trust
pursuant to the vote of a majority of the Trustees, or (iii) as otherwise
provided in either such instrument. At any time that there are no Shares
outstanding of any particular Sub-Trust or class previously established and
designated, the Trustees may by an instrument executed by a majority of their
number (or by an instrument executed by an officer of the Trust pursuant to the
vote of a majority of the Trustees) abolish that Sub-Trust or class and the
establishment and designation thereof. Each instrument establishing and
designating any Sub-Trust shall have the status of an amendment to this Trust
Agreement.
Any Trustee, officer or other agent of the Trust, and any organization in
which any such person is interested may acquire, own, hold and dispose of Shares
of any Sub-Trust (including any classes thereof) of the Trust to the same extent
as if
<PAGE>
such person were not a Trustee, officer or other agent of the Trust; and the
Trust may issue and sell or cause to be issued and sold and may purchase Shares
of any Sub-Trust (including any classes thereof) from any such person or any
such organization subject only to the general limitations, restrictions or other
provisions applicable to the sale or purchase of Shares of such Sub-Trust
(including any classes thereof) generally.
Section 4.2 Establishment and Designation of Sub-Trusts and Classes.
Without limiting the authority of the Trustees set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby establish
and designate the following five Sub-Trusts: USAA Life Money Market Fund, USAA
Life Income Fund, USAA Life Growth and Income Fund, USAA Life World Growth Fund
and USAA Life Diversified Assets Fund. The Shares of such Sub-Trusts and any
Shares of any further Sub-Trust that may from time to time be established and
designated by the Trustees shall (unless the Trustees otherwise with respect to
some further Sub-Trust at the time of establishing and designating the same)
have the following relative rights and preferences:
(a) Assets Belonging to Sub-Trusts. All consideration received by the
Trust for the issuance or sale of Shares of a particular Sub-Trust or any
classes thereof, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be held by
the Trustees in trust for the benefit of the holders of Shares of that Sub-Trust
or class thereof and shall irrevocably belong to the Sub-Trust (and be allocable
to any classes thereof) for all purposes, subject only to the rights of
creditors of such Sub-Trust or class, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income, earnings, profits,
and proceeds thereof, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the same may
be, together with any General Items (as hereinafter defined) allocated to that
Sub-Trust as provided in the following sentence, are herein referred to as
"assets belonging to" that Sub-Trust (and allocable to any classes thereof). In
the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Sub-Trust (collectively "General Items"), the Trustees shall
allocate such General Items to, between or among any one or more of the Sub-
Trusts established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable. Any General
Items so allocated to a particular Sub-Trust shall belong to that Sub-Trust (and
be allocable to any classes thereof). Each such allocation by the
<PAGE>
Trustees shall be conclusive and binding upon the holders of all Shares of all
Sub-Trusts (including any classes thereof) for all purposes.
(b) Liabilities Belonging to Sub-Trusts. The assets belonging to each
particular Sub-Trust shall be charged with the liabilities in respect of that
Sub-Trust and all expenses, costs, charges and reserves attributable to that
Sub-Trust. Any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular Sub-
Trust shall be allocated and charged by the Trustees to, between or among any
one or more of the Sub-Trusts established and designated from time to time in
such manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. In addition, the liabilities in respect of a particular Sub-
Trust which are not readily identifiable as belonging to any particular class of
Shares of that Sub-Trust shall be allocated and charged by the Trustees to and
among any one or more of the classes of Shares of that Sub-Trust established and
designated from time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges and reserves so allocated by the Trustees shall be conclusive and
binding upon the Shareholders, creditors and any other persons dealing with the
Trust or any Sub-Trust (including any classes thereof) for all purposes. Any
creditor of any Sub-Trust may look only to the assets of that Sub-Trust to
satisfy such creditor's debt.
(c) Dividends. Dividends and distributions on Shares of a particular Sub-
Trust or any class thereof may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust or class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Sub-Trust, or in the case of a class, belonging to that Sub-Trust and allocable
to that class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All dividends and
distributions on Shares of a particular Sub-Trust or class thereof shall be
distributed pro rata to the holders of Shares of that Sub-Trust or class in
proportion to the number of Shares of that Sub-Trust or class held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payments have not been received by the time or times established by
the Trustees under such program or procedure. Such dividends and distributions
may be made in cash or Shares of that Sub-Trust or class or a combination
thereof as determined by the Trustees or pursuant to any program that the
Trustees may have in effect at the time for the election by each Shareholder of
<PAGE>
the mode of the making of such dividend or distribution to that Shareholder.
Any such dividend or distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with subsection (h) of Section 4.2.
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d) Liquidation. In the event of the liquidation or dissolution of the
Trust, the holders of Shares of each Sub-Trust or any class thereof that has
been established and designated shall be entitled to receive, when and as
declared by the Trustees, the excess of the assets belonging to that Sub-Trust,
or in the case of a class, belonging to that Sub-Trust and allocable to that
class, over the liabilities belonging to that Sub-Trust or class. The assets so
distributable to the holders of Shares of any particular Sub-Trust or class
thereof shall be distributed among such holders in proportion to the number of
Shares of that Sub-Trust or class thereof held by them and recorded on the books
of the Trust. The liquidation of any particular Sub-Trust or class thereof may
be authorized at any time by vote of a majority of the Trustees then in office.
(e) Voting. On each matter submitted to a vote of the Shareholders, each
holder of a Share shall be entitled to one vote for each whole Share standing in
his name on the books of the Trust irrespective of the Sub-Trust or class
thereof and all Shares of all Sub-Trusts and classes thereof shall vote
together; provided, however, that as to any matter (i) with respect to which a
separate vote of one or more Sub-Trusts, or classes thereof is required by the
1940 Act or the provisions of the writing, establishing and designating the Sub-
Trust or class, such requirements as to a separate vote by such Sub-Trust or
class thereof shall apply in lieu of all Shares of all Sub-Trusts and classes
thereof voting together; and (ii) as to any matter which affects the interests
of one or more particular Sub-Trusts or classes thereof, only the holders of
Shares of the one or more affected Sub-Trusts or classes shall be entitled to
vote, and each such Sub-Trust or class shall vote as a separate class.
(f) Redemption by Shareholder. Each holder of Shares of a particular Sub-
Trust or any class thereof shall have the right at such times as may be
permitted by the Trust, consistent with the requirements of the 1940 Act, to
require the Trust to redeem all or any part of his Shares of that Sub-Trust or
class thereof on terms consistent with the 1940 Act and at a redemption price
equal to the net asset value per Share of that Sub-Trust or class thereof
determined in accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any contingent deferred
sales charge or redemption charge in effect at the time of redemption. Payment
of the redemption price shall be in cash;
<PAGE>
provided, however, that if the Trustees determine, which determination shall be
conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may, subject to the requirements of the 1940 Act, make
payment wholly or partly in securities or other assets belonging to the Sub-
Trust of which the Shares being redeemed are part at the value of such
securities or other assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any Sub-
Trust or class thereof to require the Trust to redeem Shares of that Sub-Trust
during any period or at any time when and to the extent permissible under the
1940 Act.
(g) Redemption by Trust. Each Share of each Sub-Trust or class thereof
that has been established and designated is subject to redemption by the Trust
at the redemption price which would be applicable if such Share was then being
redeemed by the Shareholder pursuant to subsection (f) of this Section 4.2: (i)
at any time, if the Trustees determine in their sole discretion and by majority
vote that failure to so redeem may have materially adverse consequences to the
Trust or any Sub-Trust or to the holders of the Shares of the Trust or any Sub-
Trust thereof or class thereof, or (ii) upon such other conditions as may from
time to time be determined by the Trustees and set forth in the then current
Prospectus of the Trust. Upon such redemption the holders of the Shares so
redeemed shall have no further right with respect thereto other than to receive
payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any Sub-Trust shall
be (i) in the case of a Sub-Trust the quotient obtained by dividing the value of
the net assets of that Sub-Trust (being the value of the assets belonging to
that Sub-Trust less the liabilities belonging to that Sub-Trust) by the total
number of Shares of that Sub-Trust outstanding, and (ii) in the case of a class
of Shares of a Sub-Trust whose Shares are divided into classes, the quotient
obtained by dividing the value of the net assets of that Sub-Trust allocable to
such class (being the value of the assets belonging to that Sub-Trust allocable
to such class less the liabilities belonging to such class) by the total number
of Shares of such class outstanding; all determined in accordance with the
methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Sub-Trust at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event
<PAGE>
of any loss each Shareholder shall be deemed to have contributed to the capital
of the Trust attributable to that Sub-Trust his pro rata portion of the total
number of Shares required to be canceled in order to permit the net asset value
per Share of that Sub-Trust to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each Shareholder of the Trust shall be deemed
to have agreed, by his investment in any Sub-Trust with respect to which the
Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or class thereof
shall be transferable, but transfers of Shares of a particular Sub-Trust or
class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
(j) Equality. Except as provided herein or in the instrument designating
and establishing any Sub-Trust or class thereof, all Shares of each particular
Sub-Trust or class thereof shall represent an equal proportionate interest in
the assets belonging to that Sub-Trust, or in the case of a class, belonging to
that Sub-Trust and allocable to that class, subject to the liabilities belonging
to that Sub-Trust or class, and each Share of any particular Sub-Trust or class
shall be equal to each other Share of that Sub-Trust or class; but the
provisions of this sentence shall not restrict any distinctions permissible
under subsection (c) of this Section 4.2 that may exist with respect to
dividends and distributions on Shares of the same Sub-Trust or class. The
Trustees may from time to time divide or combine the Shares of any particular
Sub-Trust or class into a greater or lesser number of Shares of that Sub-Trust
or class without thereby changing the proportionate beneficial interest in the
assets belonging to that Sub-Trust or class or in any way affecting the rights
of Shares of any Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust or class, if any
such fractional Share is outstanding, shall carry proportionately all the rights
and obligations of a whole Share of that Sub-Trust or class, including rights
and obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(l) Conversion Rights. Subject to compliance with the requirements of the
1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Sub-Trust or class thereof shall have the right to convert said
Shares into Shares of one or more other Sub-Trusts or classes thereof in
accordance with such requirements and procedures as may established by the
Trustees.
<PAGE>
(m) Class Differences. The relative rights and preferences of the classes
of any Sub-Trust may differ in such other respects as the Trustees may determine
to be appropriate in their sole discretion, provided that such differences are
set forth in the instrument establishing and designating such classes and
executed by a majority of the Trustees (or by an instrument executed by an
officer of the Trust pursuant to a vote of a majority of the Trustees).
Section 4.3 Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Sub-
Trust and each class thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
use of facsimile signatures, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Sub-Trust and class thereof held from time to time
by each such Shareholder.
Section 4.4 Investments in the Trust. The Trustees may accept investments
in the Trust and each Sub-Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
Section 4.5 No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust or any Sub-Trust.
Section 4.6 Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
Trust Agreement. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders to be partners.
Neither the Trust nor the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind personally any Shareholder, nor except as
specifically provided herein to call upon any
<PAGE>
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no right to
demand payment for their shares or to any other rights of dissenting
shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a shareholder of a corporation
organized under the General Corporation Law of the State of Delaware, or
otherwise.
ARTICLE V
---------
LIMITATION OF LIABILITY; INDEMNIFICATION
----------------------------------------
Section 5.1 Trustees, Shareholders, etc. Not Personally Liable; Notice.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Sub-Trust or class with which
such person dealt for payment under such credit, contract or claim. Neither the
Shareholders of any Sub-Trust or class, nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, nor any other
Sub-Trust or class shall be personally liable therefore. Every note, bond,
contract, instrument, certificate or undertaking and every other act or thing
whatsoever executed or done by or on behalf of the Trust, any Sub-Trust or the
Trustees or any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only by or for the Trust (or the Sub-Trust)
or the Trustees and not personally. Nothing in this Trust Agreement shall
protect any Trustee, officer, employee or agent against any liability to the
Trust or the Shareholders to which such Trustee or officer would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee or of
such officer.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any duly authorized officer shall give notice that
the same was executed or made by or on behalf of the Trust or by them as
Trustees or as officers and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, or the particular
Sub-Trust or class in question, as the case may be. The omission of any such
notice shall not operate to bind any Trustee or officer or Shareholder
individually or otherwise invalidate any such note, bond, contract, instrument,
certificate or undertaking.
<PAGE>
Section 5.2 Trustee's Good Faith Action; Expert Advice; No Bond Surety.
The exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. Subject
to the foregoing, (a) the Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, consultant,
investment adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, Shareholder servicing or accounting
agent of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee; (b) the Trustees may take advice of counsel or other
qualified persons with respect to the meaning and operation of this Trust
Agreement and their duties as Trustees, and shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice; and (c) in discharging their duties, the Trustees, when acting in good
faith, shall be entitled to rely upon the books of account of the Trust and upon
written reports made to the Trustees by any officer appointed by them, any
independent public accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of a Contracting
Party appointed by the Trustees pursuant to Section 3.3 The Trustees as such
shall not be required to give any bond or surety or any other security for the
performance of their duties.
Section 5.3 Indemnification of Shareholders. In case any Shareholder (or
former Shareholder) of any Sub-Trust of the Trust or class shall be charged or
held to be personally liable for any obligation or liability of the Trust solely
by reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, said Sub-Trust (upon
proper and timely request by the Shareholder) shall assume the defense against
such charge and satisfy any judgment thereon, and the Shareholder or former
Shareholder (or in the case of a corporation or other entity, its corporate or
other general successor) shall be entitled out of the assets of said Sub-Trust
to be held harmless from and indemnified against all loss and expense arising
from such liability.
Section 5.4 Indemnification of Trustees, Officers, etc. The Trust shall
indemnify (from the assets of the Sub-Trust or Sub-Trusts or class in question)
each of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise [hereinafter
referred to as a "Covered Person"]) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person
<PAGE>
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with such person may be or may have been threatened,
while in office or thereafter, by reason of being or having been such a Trustee
or officer, director or trustee, except with respect to any matter as to which
it has been determined that such Covered Person had acted with wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office (such conduct referred
to hereinafter as "Disabling Conduct"). A determination that the Covered Person
is entitled to indemnification may be made by (i) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of Disabling Conduct, (ii) dismissal
of a court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the Covered Person was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. Expenses, including accountants' and counsel
fees so incurred by any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or penalties), may be paid
from time to time by the Sub-Trust in question in advance of the final
disposition of any such action, suit or proceeding, provided that the Covered
Person shall have undertaken to repay the amounts so paid to the Sub-Trust in
question if it is ultimately determined that indemnification of such expenses is
not authorized under this Article V and (i) the Covered Person shall have
provided security for such undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of a quorum
of the disinterested Trustees who are not a party to the proceeding, or an
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 5.5 Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 5.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid such Covered Person in
accordance with any of such clauses as
<PAGE>
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office.
Section 5.6 Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
ARTICLE VI
----------
MISCELLANEOUS
-------------
Section 6.1 Duration and Termination of Trust.
(a) Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by vote of a
majority of the Shares of each Series entitled to vote, or by the Trustees by
written notice to the Shareholders. Any Series of Shares or class thereof may
be terminated at any time by vote of a majority of the Shares of such Series or
class entitled to vote or by the Trustees by written notice to the Shareholders
of such Series or class.
(b) Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series of Shares or any class thereof,
after paying or otherwise providing for all charges, taxes, expenses, and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or any class thereof as may be determined by the Trustees,
the Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets of the Trust or of the affected Series
or class to distributable form in cash or Shares (if any Series remain) or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the Series or classes involved, ratably according to the number
of Shares of such Series or class held by the several Shareholders of such
Series or class on the date of distribution. Thereupon, the Trust or any
affected Series or class shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties relating thereto or
arising therefrom, and the right, title, and interest of all parties with
respect to the Trust or such Series or class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's
<PAGE>
Certificate of Trust to be filed in accordance with Section 3810(c) of the
Delaware Business Trust Act (the "Act"), which certificate of cancellation may
be signed by any one Trustee.
Section 6.2 Reorganization.
(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more trusts (or
series thereof to the extent permitted by law), partnerships, associations,
corporations or other business entities (including trusts, partnerships,
associations, corporations or other business entities created by the Trustees to
accomplish such merger or consolidation) so long as the surviving or resulting
entity is an open-end management investment company under the 1940 Act, or is a
series thereof, that will succeed to or assume the Trust's registration under
the 1940 Act and that is formed, organized, or existing under the laws of the
United States or of a state, commonwealth, or possession of the United States,
(ii) cause any one or more Series of the Trust to merge or consolidate with or
into any one or more other Series of the Trust, one or more trusts (or series
thereof to the extent permitted by law), partnerships, associations,
corporations (iii) cause the Shares to be exchanged under or pursuant to any
state or federal statute to the extent permitted by law or (iv) cause the Trust
to incorporate under the laws of Delaware. Any agreement of merger or
consolidation or exchange or certificate or merger may be signed by a majority
of the Trustees and facsimile signatures conveyed by electronic or
telecommunication means shall be valid.
(b) Pursuant to and in accordance with the provisions of Section 3815(f)
of the Act, and notwithstanding anything to the contrary contained in this Trust
Agreement, an agreement of merger or consolidation approved by the Trustees in
accordance with this Section 6 may effect any amendment to the governing
instrument of the Trust or effect the adoption of a new trust instrument of the
Trust if the Trust is the surviving or resulting trust in the merger or
consolidation.
(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits, or losses of the Trust of any
Series or class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or class thereof into beneficial interests in
any such newly created trust or trusts or any series of classes thereof.
Section 6.3 Amendments. All rights granted to the Shareholders under this
Trust Agreement are granted subject to the reservation of the right to amend
this Trust Agreement as herein provided, except that no amendment shall repeal
the
<PAGE>
limitations on personal liability of any Shareholder or Trustee or repeal the
prohibition of assessment upon the Shareholders without the express consent of
each Shareholder or Trustee involved. Subject to the foregoing, the provisions
of this Trust Agreement (whether or not adversely affecting the rights of any
Shareholders) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the Trust pursuant to a vote
of a majority of such Trustees). Subject to the foregoing, any such amendment
shall be effective as provided in the instrument containing the terms of such
amendment or, if there is no provision therein with respect to effectiveness,
upon the execution of such instrument and of a certificate (which may be part of
such instrument) executed by a Trustee or officer of the Trust to the effect
that such amendment has been duly adopted.
Section 6.4 Filing of Copies; References; Headings. The original or a
copy of this instrument and of each restatement or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements or amendments have been made,
as to the identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument, and all expressions like "herein," "hereof" and "hereunder"
shall be deemed to refer to this instrument as a whole as the same may be
amended or affected by any such restatements or amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts, each of which
shall be deemed an original.
Section 6.5 Applicable Law. This Trust Agreement is created under and is
to be governed by and construed and administered according to the laws of the
State of Delaware. The Trust shall be of the type referred to in Section 3801
of the Delaware Business Trust Act and of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust.
Section 6.6 Resident Agent. Corporation Trust Company, 1209 Orange
Street, City of Wilmington, County of Newcastle, Delaware is hereby designated
as the initial resident agent of the Trust in Delaware.
<PAGE>
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into
this Master Trust Agreement as of the 14th day of December, 1994.
/s/____________________________
Edwin L. Rosane
/s/____________________________
Michael J.C. Roth
/s/____________________________
June R. Reedy
/s/____________________________
Gary W. West
/s/____________________________
Neil H. Stone
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS:
San Antonio, Texas
------------------
<PAGE>
EXHIBIT 1(b)(iii)
USAA LIFE INVESTMENT TRUST
SECOND AMENDMENT TO MASTER TRUST AGREEMENT
------------------------------------------
This Amendment, dated February 18, 1998 ("Second Amendment"), amends the
Master Trust Agreement, dated December 14, 1994 ("Initial Trust Agreement"), as
amended February 7, 1997 ("First Amendment") (the "Initial Trust Agreement," and
the "First Amendment," collectively referred to as the "Agreement") of USAA Life
Investment Trust ("Trust").
RECITALS
--------
WHEREAS, the Trust's Board of Trustees ("Board"), pursuant to the Initial
Trust Agreement, established and designated five initial series, namely the USAA
Life Variable Annuity Money Market Fund, USAA Life Variable Annuity Income Fund,
USAA Life Variable Annuity Growth and Income Fund, USAA Life Variable Annuity
World Growth Fund, and USAA Life Variable Annuity Diversified Assets Fund
(collectively, the "Initial Funds"), as separate sub-trusts of the Trust; and
WHEREAS, the Board, pursuant to the First Amendment, amended the Initial
Trust Agreement to (i) establish and designate two additional series, namely the
USAA Life Variable Annuity Aggressive Growth Fund and USAA Life Variable Annuity
International Fund (together with the "Initial Funds," the "Funds"), as separate
sub-trusts of the Trust, and (ii) reflect changes in the names of the Initial
Funds, which changes had been previously effected by resolutions that the Board
had adopted by written consent on or about December 20, 1994; and
WHEREAS, the Trust, at the request of USAA Life Insurance Company ("USAA
Life"), has resolved that the Trust offer and sell its shares to (1) the Life
Insurance Separate Account of USAA Life Insurance Company in connection with
USAA Life's variable universal life insurance policies, in addition to (2) the
<PAGE>
Separate Account of USAA Life Insurance Company in connection with USAA Life's
variable annuity contracts; and
WHEREAS, the Board desires to amend the Agreement to change the name of
each Fund of the Trust to exclude the term "Variable Annuity," which terms
reflects the offer of Trust shares only in connection with variable annuity
contracts and not variable universal life insurance policies; and
<PAGE>
WHEREAS, Section 6.3 of the Agreement provides that the Agreement may be
amended by an instrument in writing signed by a majority of the Trustees,
provided that the amendment does not repeal the limitations on personal
liability of any shareholder or Trustee or repeal the prohibition of assessment
upon the shareholders without the express consent of each shareholder or Trustee
involved, does not adversely affect the rights of any shareholder with respect
to which such amendment is or purports to be applicable, and does not contravene
applicable law; and
WHEREAS, the Board has determined that the changes in the Agreement to be
effected by this Second Amendment satisfy the conditions set forth in Section
6.3 of the Agreement; and
WHEREAS, the Board has approved this Second Amendment to the Agreement;
NOW THEREFORE, the Board hereby amends the Agreement, effective May 1, 1998
(or such other date as the SEC may declare a post-effective amendment to the
Trust's Form N-1A Registration Statement regarding the matter effective under
the Securities Act of 1933) as follows:
1. The first sentence of Section 4.2 is amended to read as follows:
Without limiting the authority of the Trustees set forth in
Section 4.1 to establish and designate any further Sub-Trusts,
the Trustees hereby establish and designate the following seven
Sub-Trusts: USAA Life Money Market Fund, USAA Life Income Fund,
USAA Life Growth and Income Fund, USAA Life World Growth Fund,
USAA Life Diversified Assets Fund, USAA Life Aggressive Growth
Fund and USAA Life International Fund.
2. In all other respects, the Agreement is hereby confirmed and remains
in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Trustees named below do hereby amend the Agreement
as of the date first set forth above.
/s/_____________________ /s/_____________________
Edwin L. Rosane Gary W. West
/s/_____________________ /s/_____________________
Michael J.C. Roth Neil H. Stone
/s/_____________________
June R. Reedy
<PAGE>
EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
BY AND BETWEEN
USAA LIFE INVESTMENT TRUST
AND
USAA INVESTMENT MANAGEMENT COMPANY
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 16th day of December, 1994 between USAA INVESTMENT
MANAGEMENT COMPANY, a corporation organized under the laws of the State of
Delaware and having a place of business in San Antonio, Texas (the "Adviser"),
and USAA LIFE INVESTMENT TRUST, a business trust organized under the laws of the
State of Delaware and having a place of business in San Antonio, Texas (the
"Trust").
WHEREAS, the Trust is organized and intends to engage in business as an
open-end management investment company and is so registered under the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Adviser is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust intends to initially offer shares in five series (the
"Initial Funds") to be designated as the USAA Life Variable Annuity Money Market
Fund, USAA Life Variable Annuity Income Fund, USAA Life Variable Annuity Growth
and Income Fund, USAA Life Variable Annuity World Growth Fund, and USAA Life
Variable Annuity Diversified Assets Fund (together with all other series
subsequently established by the Trust, the "Funds"), each of which pursues its
investment objectives through separate investment policies; and
<PAGE>
WHEREAS, the Trust intends to offer shares of the Funds to the Separate
Account of USAA Life Insurance Company ("Account") to fund benefits under
variable annuity contracts ("Contracts") issued by USAA Life Insurance Company
("USAA Life"); and
WHEREAS, the Trust, the Adviser and the Adviser's affiliate, USAA Life,
have entered into an Underwriting and Administrative Services Agreement
regarding the allocation of certain duties and expenses, including investment
advisory expenses, among the parties; and
WHEREAS, the Trust has entered into a Custodian Agreement with State Street
Bank and Trust Company (the "Custodian") pursuant to which the Custodian will
calculate the net asset value of the shares of each Fund; and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services hereunder, and the Adviser is willing to do so.
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF ADVISER.
(a) Initial Funds. The Trust hereby appoints the Adviser, and the Adviser
hereby accepts the appointment, to act as investment adviser to each of the
Initial Funds for the period and on the terms herein set forth, for the
compensation herein provided.
(b) Additional Funds. In the event that the Trust establishes one or more
series of shares other than the Initial Funds with respect to which it desires
to retain the Adviser to render investment advisory services hereunder, it shall
so notify the Adviser in writing. If the Adviser is
<PAGE>
willing to render such services it shall notify the Trust in writing whereupon
such series of shares shall become a Fund hereunder.
(c) Independent Contractor. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust in
any way or be deemed an employee of the Trust.
2. DUTIES OF ADVISER.
The Adviser, at its own expense or pursuant to arrangements with others to
bear the expenses, shall furnish the following services and facilities to the
Trust, subject to the overall supervision and review of the Board of Trustees of
the Trust and in accordance with, as in effect from time to time, the provisions
of the Master Trust Agreement, Bylaws, Prospectus, statement of additional
information, and the 1940 Act, the Internal Revenue Code (including Subchapter
M, Section 817(h), and the regulations thereunder), and all other applicable
laws and regulations (including any applicable investment restrictions imposed
by state insurance regulation):
(a) Investment Program. The Adviser shall, as agent for the Trust, (i)
furnish continuously an investment program for each Fund, (ii) determine what
investments shall be purchased, held, sold or exchanged by each Fund and what
portion, if any, of the assets of each Fund shall be held uninvested, and (iii)
make changes on behalf of the Trust in the investments of each Fund, placing all
orders for the purchase and sale of investments for each Fund with brokers and
dealers selected by the Adviser.
(b) Valuation of Securities. The Adviser shall assist the Custodian (i)
in valuing the securities of each Fund in such manner and on such basis as
described in the then-current prospectus and statement of additional information
of the Trust and (ii) in calculating the net asset value per
<PAGE>
share of each Fund, as described in the then-current prospectus and statement of
additional information of the Trust, at the close of the regular trading session
of the New York Stock Exchange (the "Exchange"), usually 4:00 p.m. Eastern time,
each Monday through Friday, except days on which the Exchange is closed. The
Trust shall provide, or arrange for others to provide, all necessary information
for the calculation of the net asset value per share of each Fund, including the
total number of Trust shares outstanding.
The Custodian shall provide the Adviser and Trust or its designee with the
net asset value per share of each Fund as soon as reasonably practical each day
after the net asset value per share has been calculated.
(c) Regulatory Reports. To the extent appropriate as a result of the
Adviser's responsibilities hereunder, the Adviser shall furnish to the Trust
necessary assistance, cooperation and information in the following matters,
although the Trust or its designee shall have primary responsibility for such
matters:
(i) The preparation of all reports as required by Federal or state law
or regulations.
(ii) The furnishing of any information or reports in connection with
the services provided hereunder as may be requested by any state insurance
commissioner, which request is made to ascertain whether the operations of
the Trust are being conducted in a manner consistent with applicable state
insurance law or regulations.
(iii) The preparation of prospectuses, statements of additional
information, registration statements, and amendments thereto that may be
required by Federal or other laws by the rules or regulations of any duly
authorized commission or administrative body.
(d) Office Space, Facilities, and Personnel. The Adviser shall furnish
qualified personnel as required for the performance of its responsibilities
hereunder, and, for their use, the Adviser shall
<PAGE>
furnish office space in the offices of the Adviser or in such other place or
places as may be agreed upon from time to time, and all necessary office
facilities, simple business equipment, supplies, utilities, telephone service
and, to the extent incidental to such responsibilities, secretarial, clerical,
administrative, legal, record keeping and accounting services (in addition to
those provided by the custodian and transfer agent and by independent
accountants and attorneys retained by the Trust).
(e) Information, Records, and Confidentiality. The Trust or its designees
shall provide timely information to the Adviser regarding such matters as
purchases and redemptions of shares in each Fund, the cash requirements, and
cash available for investment in each Fund, and all other information as may be
reasonably necessary or appropriate in order for the Adviser to perform its
responsibilities hereunder.
The Trust shall own and control all records maintained hereunder by the
Adviser on the Trust's behalf and, upon request of the Trust or in the event of
termination of this Agreement with respect to any Fund for any reason, all
records relating to that Fund shall promptly be returned to the Trust, free from
any claim or retention of rights by the Adviser and without charge by the
Adviser except for the Adviser's direct expense.
The Adviser shall not disclose or use any records or information obtained
pursuant hereto except as expressly authorized herein, and will keep
confidential any information obtained pursuant hereto, and disclose such
information only if the Trust has authorized such disclosure, or if such
disclosure is expressly required by applicable Federal or state regulatory
authorities.
The Adviser shall supply the Board of Trustees and officers of the Trust
with all statistical information regarding investments which is reasonably
required by them and reasonably available to the Adviser.
<PAGE>
(f) The Adviser and the Trust or its designee shall cooperate to adopt such
written compliance procedures as they deem necessary to assure compliance with
all federal and state securities law.
3. ALLOCATION OF EXPENSES.
The Trust assumes and shall pay, or shall provide for others to assume and
pay, all expenses for all Trust operations and activities and shall cause the
Adviser to be reimbursed, by the Trust or by others, for any such expense
incurred by the Adviser. The expenses to be so assumed shall include, without
limitation:
(a) 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;
(b) the charges and expenses of independent auditors and independent legal
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) the fees and expenses involved in the preparation of all reports as
required by Federal or state law or regulations;
(f) the expense of furnishing any information or reports in connection with
the services provided hereunder as may be requested by any state insurance
commissioner, which request is
<PAGE>
made to ascertain whether the operations of the Trust are being conducted in a
manner consistent with applicable state insurance law or regulations;
(g) fees and expenses involved in registering and maintaining registrations
of the Trust and of its shares with the Securities and Exchange Commission and
various states and other jurisdictions;
(h) any activity that may be attributable to the Trust as primarily
intended to result in the sale of Trust shares to other than then-current
shareholders ("Shareholders"), and, as conceptualized by the Securities and
Exchange Commission ("SEC"), the owners of Contracts ("Contractowners"),
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 Account periodic report to Contractowners), advertising and
other promotional material relating to either the Trust or the Account and
compensation paid to sales personnel;
(i) the preparation, setting in type, printing in quantity and distribution
of materials distributed to then-current Shareholders, and as conceptualized by
the SEC, Contractowners of such materials as prospectuses, statements of
additional information, supplements to prospectuses and statements of additional
information, periodic reports to Shareholders, and as conceptualized by the SEC,
Contractowners, communications, and proxy materials (including proxy statements,
proxy cards and voting instruction forms) relating to either the Trust or the
Account and the processing, including tabulation, of the results of voting
instruction and proxy solicitations;
(j) all expenses of Shareholders and Trustees' meetings (exclusive of
compensation and travel expenses of those Trustees and employees of the Trust
who are "interested persons" of the Trust within the meaning of the 1940 Act);
<PAGE>
(k) compensation and travel expenses of those Trustees of the Trust who are
not "interested persons" of the Trust within the meaning of the 1940 Act;
(l) the expense of furnishing, or causing to be furnished to each
Shareholder statements of account, including the expense of mailing;
(m) membership or association dues for the Investment Company Institute or
similar organizations;
(n) interest payable on the Trust's borrowings;
(o) postage;
(p) extraordinary or non-recurring expenses, such as legal claims and
liabilities and litigation costs and indemnification payments by the Trust in
connection therewith; and
(q) 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, directors and employees.
4. ADVISORY FEE.
For the services and facilities to be provided by the Adviser as provided in
Paragraph 2 hereof, the Trust shall pay to the Adviser a monthly fee with
respect to each Fund as soon as practical after the last day of each calendar
month at a rate equal to one-fifth of one percent (1/5%) on an annual basis of
the Monthly Average Net Assets (defined below) of each such Fund of the Trust
for such calendar month.
In the case of termination of this Agreement with respect to any Fund during
any calendar month, the fee with respect to such Fund for that month shall be
reduced proportionately based upon
<PAGE>
the number of calendar days during which it is in effect and the fee shall be
computed upon the average net assets of such Fund for the business days during
which it is so in effect.
The "Monthly Average Net Assets" of any Fund of the Trust for any calendar
month shall be equal to the quotient produced by dividing (i) the sum of the net
assets of such Fund determined in accordance with procedures established from
time to time by or under the direction of the Board of Trustees of the Trust in
accordance with the Master Trust Agreement of the Trust, for each calendar day
of such month, by (ii) the number of such calendar days.
5. TRUST TRANSACTIONS.
In connection with the management of the investment and reinvestment of the
assets of the Trust, the Adviser, acting by its own officers, directors or
employees, is authorized to select the brokers or dealers that will execute
purchase and sale transactions for the Trust and is directed to use its best
efforts to obtain the best available price and most favorable execution with
respect to all such purchases and sales of portfolio securities for the Trust.
Subject to this primary requirement, and maintaining as its first consideration
the benefits to the Trust and its shareholder, the Adviser shall have the right,
subject to the control of the Board of Trustees of the Trust ("Board of
Trustees") to follow a policy of selecting brokers and dealers who furnish
statistical, research and other services to the Trust or to the Adviser, at a
higher cost to the Trust than may result when allocating brokerage solely on the
basis of seeking the most favorable price and execution. The Adviser shall
determine in good faith that such higher cost was reasonable in relation to the
value of the brokerage and research services provided. Notwithstanding the
foregoing, the Adviser shall not itself execute purchase and sale transactions
for the Trust, except pursuant to such explicit authorization and procedures
that the Board of Trustees shall subsequently adopt.
<PAGE>
The fees payable to the Adviser by the Trust hereunder shall be reduced by
any tender solicitation fees or similar payments received by the Adviser, or any
affiliated person of the Adviser, in connection with the tender of investments
of any Fund (less any direct expenses incurred by the Adviser, or any affiliated
person of the Adviser, in connection with such fees or payments). The Adviser
shall use its best efforts to recapture all available tender offer solicitation
fees and similar payments in connection with tenders of the securities of any
Fund, provided, however, that neither the Adviser, nor any affiliate of the
Adviser shall be required to register as a broker-dealer for this purpose. The
Adviser shall advise the Board of Trustees of any fees or payments of whatever
type which it may be possible for the Adviser or an affiliate of the Adviser to
receive in connection with the purchase or sale of investment securities for any
Fund.
6. RELATIONS WITH TRUST.
Subject to and in accordance with the Master Trust Agreement and Bylaws of
the Trust or the Articles of Incorporation and Bylaws of the Adviser, it is
understood that (i) Trustees, officers and designees of the Trust are or may be
interested in the Adviser (or any successor thereof) as directors, officers or
otherwise, (ii) directors, officers, agents, and shareholders of the Adviser are
or may be interested in the Trust as Trustees, officers, shareholders or
otherwise, and (iii) the effect of any such interests shall be governed by the
Master Trust Agreement and Bylaws.
7. LIABILITY OF ADVISER.
No provision of this Agreement shall be deemed to protect the Adviser
against any liability to the Trust or its Shareholders or, as conceptualized by
the SEC, Contractowners to which it might
<PAGE>
otherwise be subject by reason of any willful misfeasance, bad faith or
negligence in the performance of its duties or the reckless disregard of its
obligations and duties under this Agreement. Nor shall any provision hereof be
deemed to protect any Trustee or officer of the Trust against any such liability
to which he might otherwise be subject by reason of any willful misfeasance, bad
faith or negligence in the performance of his duties or the reckless disregard
of his obligations and duties in the conduct of such person's office.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to each
Initial Fund on January 3, 1995 and, with respect to any additional Fund, on the
date of receipt by the Trust of notice from the Adviser in accordance with
Paragraph 1(b) hereof that the Adviser is willing to serve as Adviser with
respect to such Fund. Unless terminated as herein provided, this Agreement
shall remain in full force and effect until January 3, 1997 with respect to the
Initial Funds and, with respect to each additional Fund, until two years
following the date on which such Fund becomes a Fund hereunder, and shall
continue in full force and effect thereafter with respect to each Fund so long
as such continuance with respect to any such Fund is approved at least annually
(a) by either the Trustees of the Trust or by vote of a majority of the
outstanding voting shares (as defined in the 1940 Act and rules thereunder) of
such Fund, and (b) in either event by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act and rules thereunder) of any such party, cast in person
at a meeting called for the purpose of voting on such approval. Notwithstanding
the foregoing, the Board of Trustees may, from time to time, establish a new
effective date for the continuance of this Agreement with respect to any
<PAGE>
Initial Fund and/or additional Fund; provided, that such new effective date
precedes the then current termination date of the Agreement.
Any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act and rules thereunder) of any Fund
shall be effective to continue this Agreement with respect to that Fund
notwithstanding (A) that this Agreement has not been approved by the vote of a
majority of the outstanding voting shares of any other Fund affected thereby,
and (B) that this Agreement has not been approved by the vote of a majority of
the outstanding voting shares of the Trust, unless such approval shall be
required by any other applicable law or otherwise.
(b) Termination. This Agreement may be terminated with respect to any Fund
at any time, without payment of any penalty, by vote of the Trustees of the
Trust, by vote of a majority of the outstanding voting shares (as defined in the
1940 Act and rules thereunder) of such Fund, or by the Adviser on at least sixty
(60) days written notice to the other party.
(c) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment (as defined in the 1940 Act
and rules thereunder).
9. NAME OF COMPANY.
It is understood that the name "USAA," and any logo associated with that
name, is the valuable property of the United Services Automobile Association,
and that the Trust has the right to include "USAA" as a part of its name only so
long as this Agreement shall continue and the Adviser is a wholly owned indirect
subsidiary of the United Services Automobile Association. Upon termination of
this Agreement the Trust shall forthwith cease to use the USAA name and any logo
<PAGE>
associated with that name and shall submit to its Shareholders an amendment to
its Master Trust Agreement to change the Trust's name.
10. SERVICES NOT EXCLUSIVE.
The services of the Adviser to the Trust hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
11. SEVERABILITY.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
12. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the State
of Texas and the applicable provisions of the 1940 Act. To the extent the
applicable law of the State of Texas, or any of the provisions herein conflict
with the applicable provisions of the 1940 Act, the latter shall control.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
USAA LIFE INVESTMENT TRUST
BY: /s/________________________________
EDWIN L. ROSANE
ATTEST: President
/s/____________________________
R.T. HALINSKI, JR.
Assistant Secretary
USAA INVESTMENT MANAGEMENT COMPANY
BY: /s/________________________________
MICHAEL J.C. ROTH
ATTEST: President
/s/____________________________
MICHAEL D. WAGNER
Secretary
<PAGE>
EXHIBIT (5)(c)
SECOND AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
This amendment, dated February 18, 1998, amends the Investment Advisory
Agreement, dated December 16, 1994, as amended February 7, 1997 ("Agreement"),
by and between USAA Investment Management Company ("Adviser") and USAA Life
Investment Trust ("Trust") (collectively, "the Parties").
RECITALS
WHEREAS, the Adviser, pursuant to the Agreement, currently serves as the
investment adviser to the seven series of the Trust, namely the USAA Life
Variable Annuity Money Market Fund, USAA Life Variable Annuity Income Fund, USAA
Life Variable Annuity Growth and Income Fund, USAA Life Variable Annuity World
Growth Fund, USAA Life Variable Annuity Diversified Assets Fund, USAA Life
Variable Annuity Aggressive Growth Fund, and USAA Life Variable Annuity
International Fund (collectively, the "Funds"); and
WHEREAS, the Board of Trustees, including a majority of the Independent
Trustees, has approved this amendment ("Amendment");
NOW, THEREFORE, the Parties hereto agree as follows:
1. The name of each Fund of the Trust, as specifically set out, or
generally referred to, in the Agreement, is changed, effective May 1, 1998
(or such other date as the Securities and Exchange Commission may declare a
post-effective amendment to the Trust's Form N-1A Registration Statement
regarding the matter effective under the Securities Act of 1933), to
exclude the term "Variable Annuity," so that the names of the Funds are as
follows:
USAA Life Money Market Fund,
USAA Life Income Fund,
USAA Life Growth and Income Fund,
USAA Life World Growth Fund,
USAA Life Diversified Assets Fund,
USAA Life Aggressive Growth Fund, and
USAA Life International Fund.
2. Each reference to the Separate Account of USAA Life Insurance
Company to fund benefits under variable annuity contracts ("Contracts")
issued by USAA Life Insurance Company, as specifically set out, or
generally referred to, in the Agreement, is amended to add corresponding
reference to the Life Insurance Company Separate
<PAGE>
Account of USAA Life Insurance Company to fund benefits under variable
universal life insurance policies ("Policies").
3. Each reference, to "owners of Contracts" and to "Contracts," as
specifically set out, or generally referred to, in the Agreement, is
amended to add corresponding reference to "owners of Policies" and to
"Policies."
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed as of the date first set forth above.
USAA LIFE INVESTMENT TRUST
By: /s/___________________________
Edwin L. Rosane
President
ATTEST:
/s/________________________
DWAIN A. AKINS
Assistant Secretary
USAA INVESTMENT MANAGEMENT
COMPANY
By: /s/_____________________________
Michael J.C. Roth
President
ATTEST:
/s/__________________________
Michael D. Wagner
Secretary
2
<PAGE>
EXHIBIT (6)
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
BY AND BETWEEN
USAA LIFE INSURANCE COMPANY
AND
USAA LIFE INVESTMENT TRUST
AND
USAA INVESTMENT MANAGEMENT COMPANY
<PAGE>
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
AGREEMENT made as of this 16th day of December, 1994, amended as of the 7th
day of February, 1997, and amended and restated as of the 26th day of February,
1998, by and between USAA Life Insurance Company, a stock life insurance company
organized under the laws of Texas (the "Company"), on its own behalf and on
behalf of the Separate Account of USAA Life Insurance Company and the Life
Insurance Separate Account of USAA Life Insurance Company, each an investment
account organized under the laws of Texas ("Account"), USAA Life Investment
Trust, a Delaware business trust (the "Trust"), and USAA Investment Management
Company, a registered investment adviser and a registered broker-dealer
organized as a corporation under the laws of Delaware (the "Underwriter").
WHEREAS, the Company will be the issuer of certain variable annuity
contracts (the "Contracts") and certain variable life insurance policies (the
"Policies"), will fund the Contracts and Policies through the respective
Accounts, wishes to invest the assets of each Account in shares of the Trust for
the benefit of the owners of the Contracts and Policies (the "Contractowners"),
and wishes to provide, directly or through agents, certain administrative and
other services for the Trust; and
WHEREAS, the Company will serve as the depositor of each Account, which
will be a unit investment trust registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"), and the security interests
deemed to be issued by each Account under the respective Contracts and Policies
will be registered as securities under the Securities Act of 1933 (the "1933
Act"); and
WHEREAS, the Trust will be an open-end management investment company under
the 1940 Act, whose shares will be registered under the 1933 Act, and will make
its shares available
<PAGE>
for purchase exclusively by each Account and wishes to have the Underwriter
serve as its principal underwriter and the Company to provide, directly or
through agents, certain administrative and other services for the Trust; and
WHEREAS, the Contracts and Policies funded through the respective Accounts
will provide for the allocation of net amounts among certain subaccounts of each
Account (hereinafter referred to as the "Shareholders" of the Trust) for
investment in such shares of the corresponding underlying funds of the Trust
(the "Funds") as may be designated from time to time in the prospectus and
statement of additional information of each Account (collectively, the "Account
Prospectus") for the respective Contracts and Policies, the selection of the
particular subaccount or subaccounts is to be made by the Contractowners, and
such selection may be changed in accordance with the terms of the Contracts and
Policies; and
WHEREAS, the Underwriter, an affiliate of the Company's parent, has agreed
to serve as investment adviser for the Trust pursuant to an investment advisory
agreement with the Trust, wishes to serve as principal underwriter for the
Trust, and has agreed to serve as the distributor for the Contracts and Policies
pursuant to an Amended and Restated Distribution and Administration Agreement
with the Company; and
WHEREAS, the Company, the Trust, and the Underwriter wish to allocate
certain expenses among themselves regarding the Trust and certain services to be
provided to the Trust.
NOW, THEREFORE, WITNESSETH: That, in consideration for the Trust's making
its shares available for purchase by the Company for each of its Accounts, for
the Company's and the Underwriter's providing services to the Trust and assuming
expenses in connection with providing such services, and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, it is hereby agreed between the parties as follows:
<PAGE>
1. APPOINTMENT OF UNDERWRITER.
The Trust hereby appoints the Underwriter as the principal underwriter and
distributor of the Trust to sell its shares to each Account, and the Underwriter
hereby accepts such appointment.
2. EXCLUSIVE NATURE OF DUTIES.
The Underwriter shall be the exclusive representative of the Trust to act
as principal underwriter and distributor.
3. SALE AND REDEMPTION OF SHARES OF THE TRUST.
3.1 The Trust, during the term of this Agreement, shall sell shares of
each available Fund that the Company orders on behalf of each Account, based on
transactions under Contracts or Policies, at net asset value as set forth in the
Trust's Prospectus and Statement of Additional Information, as amended and in
effect from time to time (collectively, the "Prospectus"), and upon the terms
and conditions set forth below.
3.2 Any orders to purchase shares of an available Fund based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share as of the close of business on the Business Day the order
is received by the Company or its designee, as agent for the Trust, provided
that such order is received prior to the time the Fund calculates its net asset
value on that Business Day. If such order is received after that time, the
order will be effected at the Fund's net asset value as of the close of business
on the next Business Day. Business Day shall mean any day on which the Trust
calculates the net asset value of its Funds pursuant to rules of the SEC and as
described in the Trust's Prospectus. Any orders to purchase shares of an
<PAGE>
available Fund not based on transactions under Contracts or Policies will be
effected at the Fund's net asset value per share next computed after the order
is received by the Trust.
3.3 The Trust will redeem for cash from the Company those full or
fractional shares of each Fund that the Company requests from time to time. The
Trust will effect any orders to redeem shares of an available Fund based on
transactions under Contracts or Policies at the Fund's net asset value per share
computed as of the close of business on the Business Day the order is received
by the Company or its designee, as agent for the Trust, provided that such order
is received prior to the time the Fund calculates its net asset value on that
Business Day. If such order is received after that time, the order will be
effected at the Fund's net asset value as of the close of business on the next
Business Day. Any orders to redeem shares of an available Fund not based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share next computed after the order is received by the Trust.
3.4 The Trust reserves the right to pay any portion of a redemption in
kind of portfolio securities, if the Trust's board of trustees (the "Board of
Trustees") determines that it would be detrimental to the best interests of the
Shareholders to make a redemption wholly in cash.
3.5 No orders for the sale, redemption or repurchase of the Trust's shares
(nor payment for shares, in the case of a purchase) shall be transmitted to the
Underwriter. Sales, redemptions and repurchases shall be effected directly by
the Company or its designee as transfer agent of the Trust. Payment for shares
shall be transmitted by the Company or its designee directly to the Trust's
custodian. Redemption and repurchase proceeds shall be allocated by the Company
directly to the Trust's custodian.
3.6 The Trust shall have the right to suspend redemption of shares of any
Fund pursuant to the conditions set forth in the Prospectus. The Trust shall
also have the right to suspend the sale of shares of any or all of its Funds at
any time when it is authorized to suspend redemption
<PAGE>
of such shares, or at any other time when there shall have occurred an
extraordinary event or circumstance which, in the reasonable judgment of the
Trust, makes it impractical or inadvisable to continue to sell any such shares.
3.7 The Trust shall give the Underwriter prompt notice of any such
suspension and shall promptly furnish such other information in connection with
the sale and redemption of Trust shares as the Underwriter reasonably requests.
3.8 The Board of Trustees may refuse to sell shares of any Fund to the
Company, or suspend or terminate the offering of shares of any Fund, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees, acting in good faith and in light of
their fiduciary duties under Federal and any applicable state laws, necessary
in the best interests of the Shareholders of the Trust.
3.9 The Trust agrees that its shares shall be sold only to the Company.
No shares of any Fund may be sold to the general public or to any life insurance
company other than the Company.
3.10 Issuance and transfer of the Trust's shares shall be by book entry
only. Stock certificates shall not be issued to the Company. Shares ordered
from the Trust shall be recorded in an appropriate title for the Company.
3.11 The Trust shall furnish notice promptly to the Company of any income,
dividends or capital gain distributions payable on the shares of any Fund. The
Company hereby elects to receive all such income, dividends and capital gain
distributions as are payable on Fund shares in additional shares of that Fund.
The Company reserves the right to revoke this election and to receive all such
income, dividends and capital gain distributions in cash. The Trust shall
notify the Company of the number of shares so issued as payment of such income,
dividends and distributions.
<PAGE>
3.12 The Trust shall make the net asset value per share for each Fund
available to the Company or its designee each day Monday through Friday, except
days on which the New
York Stock Exchange is closed, as soon as reasonably practical after the net
asset value per share is calculated.
3.13 The Trust may establish additional Funds to provide additional
funding media for the Contracts or Policies, or delete, combine, or modify
existing Funds. The shares of any additional Fund may be made available to an
Account by the Trust, pursuant to the terms of this Agreement, and any
applicable reference to any Fund, the Trust or its shares herein shall include a
reference to any such additional Fund.
4. LEGAL COMPLIANCE.
4.1 TAX LAWS.
(a) The Trust represents that it shall make every effort to qualify and to
maintain qualification of each Fund as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Trust or the Underwriter shall notify the Company immediately
upon having a reasonable basis for believing that a Fund has ceased to so
qualify or that it might not so qualify in the future.
(b) The Company represents that it believes, in good faith, that the
Contracts and Policies will be treated, respectively, as annuity contracts and
life insurance policies under applicable provisions of the Code and that it will
make every effort to maintain such treatment. The Company shall notify the
Trust and the Underwriter immediately upon having a reasonable basis for
believing that any of the Contracts or Policies have ceased to be so treated or
that they might not be so treated in the future.
<PAGE>
(c) The Trust represents that it shall make every effort to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code, and the Trust or the Underwriter shall notify the Company immediately
upon having a reasonable basis for believing that a Fund has ceased to so comply
or that a Fund might not so comply in the future.
(d) The Company represents that it believes, in good faith, that each
Account is a "segregated asset account" and that interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817(h) of the Code and
the regulations thereunder. The Company shall make every effort to continue to
meet such definitional requirements, and it shall notify the Trust and the
Underwriter immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Trust represents that, under the terms of its investment advisory
agreement with the Underwriter, which also serves as the investment adviser to
the Trust, the Underwriter is and shall be responsible for managing the Trust in
compliance with the Trust's investment objectives, policies and restrictions as
set forth in the Prospectus. The Trust represents that these objectives,
policies and restrictions do and shall include operating as (i) a RIC in
compliance with Subchapter M and (ii) in compliance with Section 817(h) of the
Code and regulations thereunder. The Trust has adopted and shall maintain
procedures for ensuring that the Trust is managed in compliance with Subchapter
M and Section 817(h) of the Code and the regulations thereunder. On request,
the Trust shall also provide the Company with such materials, cooperation and
assistance as may be reasonably necessary for the Company or any person
designated by the Company to review from time to time the procedures and
practices of the Underwriter, or any
<PAGE>
other provider of services to the Trust for ensuring that the Trust is managed
in compliance with Subchapter M and Section 817(h) of the Code and the
regulations thereunder.
(f) The Trust shall furnish to the Company on a regular basis reports of
all of the investments of each Fund in a form sufficient to permit the Company
to determine whether each Fund is in compliance with the diversification
requirements of Section 817(h) of the
<PAGE>
Code and the regulations thereunder and shall take immediate action, on learning
through its own monitoring, or on advice from the Company, that any Fund is not
in compliance with such requirements, to return to compliance with such
requirements.
(g) If any Fund is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace period
allowed under the Code regulations, the Trust shall take all appropriate efforts
immediately to restore any such Fund to compliance and shall fully cooperate
with the Company in any effort to correct such diversification failure under
procedures now or hereafter established by the Internal Revenue Service,
including those set forth in Revenue Procedure 92-25.
(h) Any additional income tax that is payable by a Contractowner, with any
applicable interest and penalty thereon, as a result of the failure of any Fund
to comply with either Subchapter M or Section 817(h) of the Code and the
regulations thereunder, shall be borne by the Company.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) The Trust will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by the Company.
(b) The Company represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Texas and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the Texas Insurance Code, and (iii)
the Contracts or Policies comply in all material respects with all other
applicable Federal and state laws and regulations.
<PAGE>
(c) The Company and the Underwriter represent and warrant that the
Underwriter is a business corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware and has full corporate
power, authority and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement.
(d) The Underwriter and the Trust represent and warrant that the Trust is
a business trust duly organized, validly existing, and in good standing under
the laws of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 SECURITIES LAWS.
(a) The Company represents and warrants that (i) it has registered each
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for its variable annuity
contracts and variable life insurance policies, respectively, (ii) each Account
shall comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, (iii) each Account's 1933 Act registration statement
relating, respectively, to the Contracts and Policies, together with any
amendments thereto, shall at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, and (iv) each Account
Prospectus shall at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) The Trust and the Underwriter represent and warrant that (i) Trust
shares sold pursuant to this Agreement shall be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Delaware law, (ii) the Trust is and shall remain registered
under the 1940 Act to the extent required by the 1940 Act, and (iii) the Trust
shall amend the registration statement for its shares under the 1933 Act and
<PAGE>
itself under the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
(c) The Trust represents and warrants that (i) the Trust shall comply in
all material respects with the requirements of the 1940 Act and the rules
thereunder, (ii) its 1933 Act registration statement, together with any
amendments thereto, shall at all times comply in all material respects with the
requirements of the 1933 Act and rules thereunder, and (iii) the Prospectus
shall at all times comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(d) The Trust shall register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Trust or the Company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
The Underwriter or the Trust shall immediately notify the Company of (i)
the issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Trust's registration statement
under the 1933 Act or the Prospectus, (ii) any request by the Securities and
Exchange Commission (the "SEC") for any amendment to such registration statement
or Prospectus, (iii) the initiation of any proceedings for that purpose or for
any other purpose relating to the registration or offering of the Trust's
shares, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Trust shares in any state or jurisdiction, including, without
limitation, any circumstances in which (x) the Trust's shares are not registered
and, in all material respects, issued and sold in accordance with applicable
state and Federal law or (y) such law precludes the use of such shares as an
underlying investment medium of the Contracts or Policies issued or to be issued
by the Company. The Underwriter
<PAGE>
and the Trust shall make every reasonable effort to prevent the issuance of any
stop order, cease and desist order or similar order and, if any such order is
issued, to obtain the lifting thereof at the earliest possible time.
5. DUTIES OF THE TRUST.
5.1 The Trust shall furnish to and at the request of the Underwriter (paid
for by the Company as set forth in Section 8.3) copies of the Prospectus, and
all information, financial statements and other papers for use in connection
with the distribution of shares of the Trust directly to each Account and, as
conceptualized by the SEC, to the Contractowners.
5.2 The Trust shall furnish directly to Shareholders and, as
conceptualized by the SEC, to the Contractowners (paid for by the Company as set
forth in Section 8.3) copies of annual and interim reports of the Trust.
5.3 The Trust shall provide such documentation, including a copy of any
proxy material, reports to Shareholders, and other communications to
Shareholders and other assistance as is reasonably necessary in order for the
Company or its designee to timely distribute the proxy material, reports to
Shareholders, and other communications.
5.4 The Trust reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the Trust solely
upon the authorization of its Board of Trustees.
5.5 The Trust shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature, advertising, or other
promotional material of the Trust in which the Company and/or either of its
Accounts is named, at least fifteen (15) days prior to its intended use. No
such material shall be used if the Company or its designee objects to such
intended use within fifteen (15) days after receipt of such material.
<PAGE>
5.6 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, either of its
Accounts or its Contracts or Policies other than the information or
representations contained in a registration statement or an Account Prospectus,
as such registration statement and Account Prospectus may be amended or
supplemented from time to time, or in published reports for an Account that are
in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature, advertising, or other promotional material
approved by the Company or its designee, except with the permission of the
Company.
5.7 The Trust shall provide to the Company one complete copy of all
registration statements, Prospectuses, reports, proxy material, sales literature
and other promotional material, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the Trust
or its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
6. DUTIES OF THE UNDERWRITER.
6.1 The Underwriter shall be subject to the direction and control of the
Trust in the sale of its shares and shall not be obligated to sell any specific
number of shares in any Fund.
6.2 The Underwriter shall distribute the Prospectuses together with
Account Prospectuses, as required by the SEC.
6.3 In selling shares of the Trust, the Underwriter shall comply in all
respects with the requirements of all Federal and state laws and regulations and
the regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the sale of Trust shares. Neither the Underwriter nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Trust's registration
statement or
<PAGE>
related Prospectus, as such registration statement or Prospectus may be amended
from time to time, and any sales literature, advertising or other promotional
materials authorized by responsible officers of the Trust. The Underwriter shall
cause any sales literature, advertising, or other promotional materials to be
filed and, if necessary, approved by the NASD, the SEC, or any other required
securities regulatory body.
6.4 The Underwriter shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or be
deemed an employee.
6.5 The Underwriter shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees, and for injury to
such agents or employees or to others through its agents or employees. The
Underwriter shall assume full responsibility for its agents and employees under
applicable statutes and agrees to pay all employer taxes thereunder.
6.6 The Underwriter shall maintain, at its own expense, insurance against
public liability in such an amount as the Trust and the Underwriter may from
time to time agree.
6.7 The Underwriter agrees that it shall receive no compensation for the
performance of its duties hereunder, except as otherwise herein specifically
provided. No commission or other fee shall be charged or paid to any person or
entity in connection with the sale of Trust shares hereunder.
6.8 All services to be furnished by the Underwriter under this Agreement
may be furnished through the medium of any Directors, officers, employees or
agents of the Underwriter.
<PAGE>
7. DUTIES OF THE COMPANY.
7.1 The Company, on behalf of the Underwriter, shall keep records showing
the amount of any contribution to or withdrawal from any Account or subaccount
investing in the Trust, which does not reflect an automatic transaction under a
contract or policy (such as investments of net premium, death of insureds,
deductions of fees and charges, transfers, surrenders, loans, loan repayments,
deduction of loan interest, lapses, reinstatements, and similar automatic
transactions), which records shall also include the name of the Company officer
ordering the transaction and the date and time of day the transaction was
ordered. It is hereby agreed that any issuance, redemption or repurchase of
Trust shares relating to any such non-automatic transaction shall be at the
Trust's net asset value next computed after the date and time of said order, and
said order shall become irrevocable at the time as of which such value is next
determined. The Company shall also maintain, on behalf of the Underwriter,
records of the dates and times of day at which all transactions occur, with the
share and dollar amounts of such transactions, and all other records required by
the Securities Exchange Act of 1934 and rules thereunder with respect to the
issuance, redemption or repurchase of Trust shares. All records required by
this paragraph to be maintained by the Company shall (i) be maintained and
preserved in conformity with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, (ii) be and remain the property of the
Underwriter, and (iii) be at all times subject to inspection by the SEC in
accordance with Section 17(a) of such Act, and (iv) be surrendered promptly upon
request without charge except for reimbursement of reasonable expenses.
7.2 To the extent not required to be provided by the Underwriter pursuant
to its Investment Advisory Agreement with the Trust, the Company shall provide
all management, administrative, legal, clerical, and accounting and
recordkeeping services necessary or
<PAGE>
appropriate to conduct the Trust's business and operations (other than (A)
investment advisory, custodial and transfer agent services, which shall be
provided to the Trust pursuant to separate agreements and (B) services provided
by outside legal counsel and independent auditors retained by the Trust). These
services shall include:
(i) overseeing the Trust's insurance relationships;
(ii) preparing and or filing on behalf of the Trust (or assisting
counsel and/or auditors in the preparation of) all required tax returns,
proxy statements and reports to the Trust's Shareholders and Trustees and
reports to and other filings with the SEC, and any other governmental
agency, including any filings necessary to maintain registrations and
qualifications of the Trust and its shares under Federal and state law (the
Underwriter and Trust agreeing to supply or cause to be supplied to the
Company all necessary financial and other information in connection with
the foregoing);
(iii) preparing and or filing on behalf of the Trust such applications
and reports as may be necessary to register or maintain the Trust's
registration and/or the registration of the shares of the Trust under the
securities or "Blue Sky" laws of the various states selected by the Trust's
distributor (the Fund or Funds agreeing to pay all filing fees or other
similar fees in connection therewith);
(iv) overseeing all relationships between the Trust, and its service
providers, agents and/or designees, including any custodian, transfer
agent, and dividend disbursing agent, independent auditor and outside legal
counsel, including assistance in selection of such service providers agents
and/or designees, the negotiation of agreements and the supervision of the
performance of such agreements;
<PAGE>
(v) authorizing and directing any of the Company's Directors, officers
and employees who may be elected as Trustees or officers of the Trust to
serve in the capacities in which they are elected; and
(vi) providing the services of individuals competent to perform all of
the Trust's executive, administrative, compliance and clerical functions
that are not performed by or through employees or other persons, agents or
designees engaged by the Trust.
7.3 In connection with the services furnished in Section 7.2, the Company
shall furnish personnel, and for the use of such personnel shall furnish office
space and all necessary office facilities, business equipment, supplies,
utilities and telephone service. In providing such services, the Company shall
be at all times subject to the supervision and review of the Board of Trustees
and in compliance with all applicable provisions, as in effect from time to
time, of the Trust's Master Trust Agreement, Bylaws, Prospectus, the 1940 Act
and regulations thereunder, and any other applicable laws and regulations.
Trust records maintained by the Company hereunder shall be and remain the
property of the Trust and shall be promptly surrendered or made available to the
Trust or its designee, without charge, except for reimbursement of expenses for
surrender of such documents, upon request by the Trust or upon termination of
this Agreement.
7.4 The Company shall provide to the Trust one complete copy of all
registration statements, Account Prospectuses, reports, solicitations for voting
instructions, sales literature and other promotional material, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to either Account or its respective Contracts or Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
<PAGE>
7.5 The Company shall mail or otherwise distribute such proxy cards and
other material supplied to it by the Trust in connection with Shareholder
meetings of the Trust and shall receive, examine and tabulate returned proxies
and voting instructions and certify the vote of each Fund of the Trust.
7.6 If and to the extent required by law, and so long as and to the extent
that the SEC continues to interpret the 1940 Act to require pass-through voting
privileges, the Company shall, subject to Section 8 below:
(i) prepare, set in type, print in quantity and distribute proxy
materials (including proxy statements, proxy cards and voting instruction
forms) relating to either the Trust or either Account and the processing,
including tabulation, of the results of voting instruction and proxy
solicitations;
(ii) solicit voting instructions from Contractowners;
(iii) vote Fund shares in accordance with instructions received from
Contractowners;
(iv) vote Fund shares for which no instructions have been received,
as well as Fund shares attributable to the Company other than under
Contracts or Policies, in the same proportion as shares of such Fund for
which instructions have been received;
The Company reserves the right to vote Fund shares held in any segregated
asset account or in its general account in its own right, to the extent
permitted by law.
8. ALLOCATION OF EXPENSES.
8.1 Except as set forth below, each party to this Agreement shall bear, or
arrange for others to bear, the costs and expenses of performing its obligations
hereunder. Notwithstanding the foregoing:
<PAGE>
8.2 Subject to Section 8.4 below, the Trust agrees to bear, or arrange for
others to bear, the expense of :
(a) all charges, commissions and fees agreed to by it pursuant to the
Investment Advisory Agreement by and between the Trust and the Underwriter in
the Underwriter's capacity as investment adviser;
(b) the charges and expenses of independent auditors and outside legal
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 Section 8.2(h), below;
(h) compensation and travel expenses of those Trustees of the Trust who are
not "interested persons" of the Trust 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;
<PAGE>
(j) the fees and expenses involved in registering and maintaining
registrations of the Trust and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (other than any such
expenses referred to in Section 8.3 below);
(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, as conceptualized by
the SEC, Contractowners) of such materials as prospectuses, statements of
additional information, supplements to prospectuses and statements of additional
information, periodic reports to Shareholders (and, as conceptualized by the
SEC, Contractowners), communications, and proxy materials (including proxy
statements, proxy cards and voting instruction forms) relating to either the
Trust or either Account and the processing, including tabulation, of the results
of voting instructions and proxy solicitations;
(n) furnishing, or causing to be furnished, to each Shareholder statements
of account, including the expense of mailing; and
(o) postage.
8.3 To the extent not assumed by the Trust pursuant to Section 8.2 above,
the Company, out of its general account, agrees to assume the expense of:
(a) organizational expenses of 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;
<PAGE>
(c) any activity that may be attributable to the Trust as primarily
intended to result in the sale of Trust shares to other than then current
Shareholders (and, as conceptualized by the SEC, Contractowners), 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 Account periodic
report to Contractowners), advertising and other promotional material relating
to either the Trust or either Account and compensation paid to sales personnel;
8.4 The Company, out of its general account agrees to pay directly or
reimburse the Trust for the Trust's expenses set out in Section 8.2 above to the
extent that such expenses, on behalf of each of the following respective Funds,
exceed 0.65% of the monthly average net assets of USAA Life Variable Annuity
World Growth Fund, 0.70% of the monthly average net assets of USAA Life Variable
Annuity Aggressive Growth Fund, 1.10% of the monthly average net assets of the
USAA Life Variable Annuity International Fund, and 0.35% of the monthly average
net assets of each other Fund. (Effective May 1, 1998 (or such date as the
Securities and Exchange Commission may declare a post-effective amendment to the
Trust's registration statement regarding the matter effective under the 1933
Act), the names of the foregoing Funds, as set out in this Section 8.4, are
changed to exclude the term "Variable Annuity.")
9. INDEMNIFICATION.
---------------
9.1 The Underwriter shall indemnify and hold harmless the Trust and the
Company and each of their Trustees, directors and officers (or former Trustees,
directors and officers) and each person, if any, who controls the Trust or the
Company within the meaning of Section 15 of the 1933 Act (collectively,
"Indemnitees") against any loss, liability, claim, damage, or expense
<PAGE>
(including the reasonable cost of investigating and defending against the same
and any counsel fees reasonably incurred in connection therewith) incurred by
any Indemnitees under the 1933 Act or under common law or otherwise which arise
out of or are based upon (1) any untrue or alleged untrue statement of a
material fact contained in information furnished to the Trust by the Underwriter
for use in the Trust's registration statement, Prospectus, or annual or interim
reports to Shareholders, (2) any omission or alleged omission to state a
material fact in connection with such information furnished by the Underwriter
to the Trust which is required to be stated in any of such documents or
necessary to make such information not misleading, (3) any misrepresentation or
omission or alleged misrepresentation or omission to state a material fact on
the part of the Underwriter or any agent or employee of the Underwriter or any
other person for whose acts the Underwriter is responsible, unless such
misrepresentation or omission or alleged misrepresentation or omission was made
in reliance on information furnished by the Trust, or (4) the willful misconduct
or failure to exercise reasonable care and diligence on the part of the
Underwriter or any agent or employee of the Underwriter or any other person for
whose acts the Underwriter is responsible with respect to services rendered
under this Agreement. This indemnity provision, however, shall not operate to
protect any officer or Trustee of the Trust from any liability to the Trust or
any shareholder by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
In case any action shall be brought against any Indemnitee, the Underwriter
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after the Indemnitee shall
have received notice of such service on any designated agent), but failure to
notify the
<PAGE>
Underwriter of any such claim shall not relieve it from liability to the
Indemnitees against whom such action is brought otherwise than on account of
this Section 9.1. The Underwriter will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Indemnitees which are defendants in the suit. In the event
the Underwriter elects to assume the defense of any such suit and retain such
counsel, the Indemnitees which are defendants in the suit shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Underwriter does not elect to assume the defense of any such suit, the
Underwriter will reimburse the Indemnitees which are defendants in the suit for
the reasonable fees and expenses of any counsel retained by them. The
Underwriter shall promptly notify the Trust and the Company of the commencement
of any litigation or proceedings in connection with the issuance or sales of the
shares.
9.2 The Company shall indemnify and hold harmless the Trust and the
Underwriter and each of their Trustees, directors and officers (or former
Trustees, directors and officers) and each person, if any, who controls the
Trust or the Underwriter within the meaning of Section 15 of the 1933 Act
(collectively, "Indemnitees") against any loss, liability, claim, damage, or
expense (including the reasonable cost of investigating and defending against
the same and any counsel fees reasonably incurred in connection therewith)
incurred by any Indemnitees under the 1933 Act or under common law or otherwise
which arise out of or are based upon (1) any untrue or alleged untrue statement
of a material fact contained in information furnished to the Trust for use in
the Trust's registration statement, Prospectus, or annual or interim reports to
Shareholders, (2) any omission or alleged omission to state a material fact in
connection with such information furnished by the Company to the Trust or the
Underwriter, which is required to be stated in any
<PAGE>
of such documents or necessary to make such information not misleading, (3) any
misrepresentation or omission or alleged misrepresentation or omission to state
a material fact on the part of the Company or any agent or employee of the
Company or any other person for whose acts the Company is responsible, unless
such misrepresentation or omission or alleged misrepresentation or omission was
made in reliance on information furnished by the Trust or the Underwriter, or
(4) the willful misconduct or failure to exercise reasonable care and diligence
on the part of the Company or any agent or employee of the Company or any other
person for whose acts the Company is responsible with respect to services
rendered under this Agreement. This indemnity provision, however, shall not
operate to protect the Underwriter or any officer or Trustee of the Trust from
any liability to the Trust or any shareholder by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
Notwithstanding Section 9.1, the Company shall indemnify and hold the Trust
and the Underwriter and each of its Trustees, directors and officers, (or former
Trustees, directors and officers) and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, harmless from all loss,
cost, damage, and expense, including reasonable attorneys' fees, incurred by the
Trust as a result of the failure at any time of any Fund of the Trust (i) to
operate as a regulated investment company in compliance with Subchapter M of the
Code and the regulations thereunder or (ii) to comply with the investment
diversification rules of Section 817(h) of the Code and the regulations
thereunder; or (iii) any error or omission in any accounting data or calculation
the collection and maintenance of which data or the production of which
calculation is made the responsibility of the Company under this Agreement.
In case any action shall be brought against any Indemnitee, the Company
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Company in writing within
<PAGE>
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Indemnitee (or after the Indemnitee shall have received notice of such service
on any designated agent), but failure to notify the Company of any such claim
shall not relieve it from liability to the Indemnitees against whom such action
is brought otherwise than on account of this Section 9.2. The Company will be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Indemnitees which are defendants in
the suit. In the event the Underwriter elects to assume the defense of any such
suit and retain such counsel, the Indemnitees which are defendants in the suit
shall bear the fees and expenses of any additional counsel retained by them,
but, in case the Company does not elect to assume the defense of any such suit,
the Company will reimburse the Indemnitees that are defendants in the suit for
the reasonable fees and expenses of any counsel retained by them. The Company
shall promptly notify the Trust and the Underwriter of the commencement of any
litigation or proceedings in connection with the issuance or sales of the
shares.
10. REGULATORY REPORTS.
The Underwriter, the Company and the Trust agree to furnish to each other,
as appropriate, necessary cooperation, assistance and information in the
following matters (which shall nevertheless be primarily the responsibility of
the Company hereunder) :
10.1 The preparation of all reports as required by Federal or state law or
regulations;
10.2 The furnishing of any information or reports in connection with the
services provided hereunder as may be requested by any state insurance
commissioner, which request is
<PAGE>
made to ascertain whether the operations of any of the parties are being
conducted in a manner consistent with applicable state insurance laws or
regulations.
10.3 The preparation of prospectuses, statements of additional
information, registration statements, and amendments thereto that may be
required by Federal or other laws or by the rules or regulations of any duly
authorized commission or administrative body.
11. DURATION AND TERMINATION OF AGREEMENT.
11.1 This Agreement shall become effective as of February 18, 1998, except
for the deletion of former Section 8.5 above which shall be deemed to have
become effective on January 1, 1998, and shall remain in force until January 1,
2000 and thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Board of Trustees, or by the vote of a
majority of the outstanding voting securities of the Trust, cast in person or by
proxy, and (ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, the Board of Trustees may, from time to time, establish a new
effective date for the continuance of this Agreement with respect to any initial
Fund and/or additional Fund; provided, that such new effective date precedes the
then current termination date of the Agreement.
11.2 This Agreement may be terminated at any time without the payment of
any penalty, by the Board of Trustees, by vote of a majority of the outstanding
voting securities of the Trust, or by the Underwriter or the Company on 120 days
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment or in the event of termination of the Advisory
Agreement between the Underwriter and any Fund of the Trust.
<PAGE>
11.3 The terms "assignment," "vote of a majority of the outstanding voting
securities" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act.
12. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the State
of Texas and the applicable provisions of the 1940 Act. To the extent the
applicable law of the State of Texas, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
13. CONFIDENTIALITY.
Neither the Company nor the Underwriter shall disclose or use any records
or information obtained hereunder in any manner whatsoever except as expressly
authorized hereunder and, further, they shall keep confidential any information
obtained pursuant to their relationship with the Trust set forth herein, and
disclose such information only if the Trust has authorized such disclosure, or
if such disclosure is expressly required by applicable Federal or state
regulatory authorities.
14. COOPERATION UNDER THE AGREEMENT.
The Trust, Underwriter and Company represent and warrant that each will
fully coordinate and cooperate with each other in assuring compliance under this
Agreement with all federal and state laws and regulations.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first set forth above.
USAA LIFE INSURANCE COMPANY
BY: /s/_____________________________
ATTEST: EDWIN L. ROSANE
President
/s/_________________________
DWAIN A. AKINS
Assistant Vice President and
Assistant Secretary
USAA LIFE INVESTMENT TRUST
BY: /s/_____________________________
ATTEST: EDWIN L. ROSANE
President
/s/_________________________
DWAIN A. AKINS
Assistant Secretary
USAA INVESTMENT
MANAGEMENT COMPANY
BY: /s/_____________________________
ATTEST: MICHAEL J.C. ROTH
President
/s/_________________________
MICHAEL D. WAGNER
Secretary
<PAGE>
EXHIBIT (8)(e)
THIRD AMENDMENT TO THE
CUSTODIAN AGREEMENT BY AND BETWEEN
USAA LIFE INVESTMENT TRUST AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment, dated February 18, 1998, amends the Custodian
Agreement, dated December 16, 1994 ("Custodian Agreement"), by and between State
Street Bank and Trust Company ("Custodian") and USAA Life Investment Trust
("Trust") (collectively, the "Parties").
RECITALS
WHEREAS, the Custodian Agreement has been amended by an Amendment, dated
December 16, 1994, a First Amendment to the Amendment, dated July 24, 1996, and
a Second Amendment to the Custodian Agreement, dated April 24, 1997
(collectively, with the Custodian Agreement, the "Agreement"); and
WHEREAS, the Custodian, pursuant to the Agreement, currently serves as the
custodian for the seven series of the Trust, namely the USAA Life Variable
Annuity Money Market Fund, USAA Life Variable Annuity Income Fund, USAA Life
Variable Annuity Growth and Income Fund, USAA Life Variable Annuity World Growth
Fund, USAA Life Variable Annuity Diversified Assets Fund, USAA Life Variable
Annuity Aggressive Growth Fund and USAA Life Variable Annuity International Fund
(collectively, the "Funds"); and
WHEREAS, the Board of Trustees has approved this amendment ("Amendment");
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Custodian and the Trust hereby amend the Agreement as
follows:
1. NEW NAMES FOR FUNDS
The name of each Fund of the Trust, as specifically set out, or generally
referred to, in the Agreement, is changed, effective May 1, 1998 (or such other
date as the Securities and Exchange Commission may declare a post-effective
amendment to the Trust's Form N-1A Registration Statement regarding the matter
effective under the Securities Act of 1933), to exclude the term "Variable
Annuity," so that the names of the Funds are as follows:
<PAGE>
USAA Life Money Market Fund,
USAA Life Income Fund,
USAA Life Growth and Income Fund,
USAA Life World Growth Fund,
USAA Life Diversified Assets Fund,
USAA Life Aggressive Growth Fund, and
USAA Life International Fund.
2. DUTIES OF CUSTODIAN
The second sentence of Section 3 of the Agreement is hereby revised to read
as follows:
If so directed, the Custodian shall also calculate daily the net
income of the Funds as described in the Trust's currently effective
Prospectus related to such Funds and shall advise the Trust and the
Separate Account, or a third party administrator on its behalf, daily
of the total amounts of such net income and, if instructed in writing
by an Officer of the Trust to do so, shall advise the Separate
Account, or a third party administrator on its behalf, periodically
of the division of such net income among its various components.
Except as specifically superseded or modified herein, the terms and
provisions of the Agreement shall continue to apply with full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed as of the first date set forth above.
USAA LIFE INVESTMENT TRUST
By: /s/_____________________________________
EDWIN L. ROSANE
President
ATTEST:
By: /s/_______________________________
DWAIN A. AKINS
Assistant Secretary
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By:_______________________________________
Marguerite L. Summers
ATTEST:
By: ________________________________
Ann Marie Fullerman
<PAGE>
EXHIBIT (9)(a)
TRANSFER AGENT AGREEMENT
BY AND BETWEEN
USAA LIFE INVESTMENT TRUST
AND
USAA LIFE INSURANCE COMPANY
<PAGE>
TRANSFER AGENT AGREEMENT
AGREEMENT made as of this 16th day of December, 1994 by and between the
USAA Life Investment Trust (the "Trust"), a Delaware trust, and USAA Life
Insurance Company (the "Company"), a stock life insurance company organized
under the laws of the State of Texas.
WITNESSETH THAT:
WHEREAS, the Company will be the issuer of certain variable annuity
contracts (the "Contracts"), will fund the Contracts through the Separate
Account of USAA Life Insurance Company (the "Account"), wishes to invest the
assets of the Account in shares of beneficial interest (the "shares") of the
Trust for the benefit of the owners of the Contracts (the "Contractowners"), and
wishes to have the Company provide, directly or through agents, transfer agent
services to the Trust; and
WHEREAS, the Company will serve as the depositor of the Account, which is a
unit investment trust registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"), and the security interests deemed to be
issued by the Account under the Contracts will be registered as securities under
the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, the Trust will be an open-end management investment company
established to make its shares available for purchase exclusively by the Account
and intends to offer shares of the USAA Life Variable Annuity Money Market Fund,
the USAA Life Variable Annuity Income Fund,
<PAGE>
the USAA Life Variable Annuity Growth and Income Fund, the USAA Life Variable
Annuity World Growth Fund, and the USAA Life Variable Annuity Diversified Assets
Fund (such funds, together with all other funds subsequently established by the
Trust and made subject to this Agreement in accordance with section 16 hereof,
being hereinafter referred to as the "Funds") to corresponding subaccounts of
the Account funding the Contracts issued by the Company, another separate
account(s) that USAA Life may establish in the future to fund variable insurance
products issued by the Company, or directly to the Company (the "shareholders")
and wishes to have the Company provide, directly or through agents, transfer
agent services to the Trust; and
WHEREAS, the Trust wishes to have the Company provide, directly or through
agents, transfer agent services to the Trust, and the Company, pursuant to this
authority, has entered into a third party administration agreement with Vantage
Computer Systems, Inc. ("Vantage"), pursuant to which the Company has appointed
Vantage as recordkeeping service agent for the Contracts and the Trust; and
WHEREAS, the Trust will be an investment company registered as an
investment company under the 1940 Act and whose shares will be registered as
securities under the 1933 Act; and
WHEREAS, USAA IMCO, as an indirect subsidiary of the Company's parent, has
agreed to serve as investment adviser for the Trust pursuant to an investment
advisory agreement with the Trust that provides for USAA IMCO to provide certain
accounting services to the Trust, including the valuation of the assets of each
Fund and USAA; and
WHEREAS, the Company, the Trust and USAA IMCO have entered into an
underwriting and administrative services agreement, pursuant to which the Trust
has appointed USAA IMCO as
<PAGE>
the principal underwriter and distributor of the Trust to sell its shares to the
Separate Account; pursuant to which the Company or its agent, on behalf of USAA
IMCO, will keep for the Trust certain records regarding contributions, or
withdrawals, from the Separate Account investing in the Trust, as well as all
other records required by the Securities Exchange Act of 1934 and rules
thereunder with respect to the issuance, redemption or repurchase of the shares;
and pursuant to which the Company will provide certain management,
administrative, legal, clerical, accounting and recordkeeping services to the
Trust not provided through other agreements;
NOW THEREFORE, in consideration of the Trust's making its shares available
for purchase by the Company for its Account, for the Company's providing
transfer agent services to the Trust, for the Trust's reimbursing the Company
for all expenses it incurs in performing services hereunder, and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the Trust appoints the Company as Transfer Agent for the shares
and Dividend Disbursing Agent for the Trust, and the Company accepts said
appointment, subject to the following terms and conditions:
1. DOCUMENTS
(a) In connection with the appointment of the Company as Transfer Agent,
the Trust shall file with the Company the following documents:
(i) A certified copy of the Certificate of Trust of the Trust and any
amendments thereto;
(ii) A certified copy of the Master Trust Agreement of the Trust and
any amendments thereto;
<PAGE>
(iii) A certified copy of the By-Laws of the Trust as amended to
date;
(iv) A copy of the resolution of the Board of Trustees of the Trust
authorizing this Agreement; and
(v) An opinion of counsel for the Trust with respect to the validity
of the shares, the number of shares authorized, the number of shares
allocated to each Fund, the status of redeemed or repurchased shares and
the number of shares of each Fund with respect to which a registration
statement under the 1933 Act has been filed and is in effect.
(b) The Trust will also furnish to the Company from time to time the
following documents:
(i) Each resolution of the Board of Trustees of the Trust authorizing
the original issue of the shares or affecting the status of redeemed or
repurchased shares;
(ii) Each registration statement filed with the Securities and
Exchange Commission under the 1933 Act or under the 1940 Act and amendments
thereof, orders relating thereto and prospectuses and statements of
additional information (hereinafter collectively referred to as
"prospectus") in effect with respect to the sale of the shares;
(iii) A certified copy of each amendment to the Certificate of Trust,
the Master Trust Agreement or the By-Laws of the Trust;
(iv) Certified copies of each resolution of the Board of Trustees
authorizing officers to give instructions to the Transfer Agent; and
(v) Such other documents or opinions which the Company may, in its
discretion, reasonably deem necessary or appropriate in the proper
performance of its duties.
<PAGE>
2. AUTHORIZED SHARES
The Trust certifies to the Company that as of the close of business on the
date of this Agreement, it has authorized an unlimited number of shares and
certifies that by virtue of its Certificate of Trust, its Master Trust
Agreement, and the provisions of the laws of the state of its organization,
shares that are redeemed or repurchased by the Trust from the holder will be
restored to the status of authorized and unissued shares.
3. THE COMPANY TO ISSUE AND REGISTER SHARES
The Company shall issue and record the issuance of the shares. The Company
shall notify the Trust and its "Custodian" (which term, whenever used herein,
shall mean each Custodian for the one or more Funds affected by the transaction
referred to) of every issuance, which notice shall include the date, name of
Fund, number of shares, and dollar amount of the transaction.
The Company shall compute the number of shares issuable in the case of an
order for a dollar amount of shares (or the purchase price in the case of an
order for a specific number of shares) at the net asset value per share for the
Trust, as described in the then-current prospectus or statement of additional
information (collectively, the "prospectus") of the Trust, unless the Board of
Trustees of the Trust should otherwise direct.
4. NOTICE OF DISTRIBUTION
<PAGE>
The Trust shall promptly inform the Company of the declaration of any
dividend or distribution on account of the shares, including the amount per
share, record date, date payable and name of Fund.
5. DISTRIBUTIONS
The Company shall act as Dividend Disbursing Agent for the Trust, and, as
such, in accordance with the provisions of the Certificate of Trust, the Master
Trust Agreement and the then-current prospectus of the Trust, shall distribute
or credit income and capital gain payments to shareholders. The Trust will
notify the Company of and cause the Custodian to make available to the Company
out of the assets of the appropriate Fund, the amount of any such payment to be
paid out in cash. The Company shall process the reinvestment of distributions
in each Fund at the net asset value per share for that Fund next computed after
the payment, in accordance with the then-current prospectus of the Trust. The
Company shall notify the Trust and the Custodian as to the number, name of Fund,
dollar amount and date of issue of shares by reinvestment of each distribution.
6. REDEMPTIONS AND REPURCHASES
The Company shall process each redemption or repurchase of shares at the
net asset value per share of that Fund, as described in the then-current
prospectus of the Trust, unless the Board of Trustees of the Trust should
otherwise direct. Where redemption or repurchase of a dollar amount is
required, the Company shall calculate the number of shares to be redeemed or
repurchased so as to provide the shareholder with the dollar value required, and
where a stated number of shares is
<PAGE>
required, the Company shall compute the dollar amount of the proceeds. In either
case, the Company shall notify the Trust of the number and the name of the Fund
out of which the shares are to be redeemed or repurchased, and the dollar amount
and date of the redemption or repurchase and shall direct the Trust to make the
required amount of proceeds available to the shareholder out of the assets of
that Fund. The Trust shall cause the Custodian to make such proceeds available
not more than seven calendar days after receipt of the redemption or repurchase
request.
7. PROCESSING TRANSACTIONS
In calculating the number of shares to be issued on purchase or
reinvestment, or redeemed or repurchased, or the amount of the purchase payment
or redemption or repurchase proceeds owed, the Company shall use the net asset
value per share computed by the Custodian or such other person as may be
designated by the Board of Trustees of the Trust.
The authority of the Company to process purchases, reinvestments,
redemptions and repurchases shall be suspended upon receipt of notification by
it of the suspension of the determination of the net asset value of the Trust,
until such suspension has been lifted.
8. BOOK AND RECORDS
(a) With respect to each Fund, the Company shall maintain records showing
for each shareholder's account the following:
(i) Names, address and tax identifying numbers;
(ii) Number of shares of the Fund held;
<PAGE>
(iii) Historical information regarding transactions with respect to
the Fund, including purchases, redemptions, dividends and distributions,
transfers, and any other transactions, with date and price for all
transactions;
(iv) Any stop or restraining order placed against the account;
(v) Correspondence relating to the current maintenance of the
account;
(vi) Any information required in order for the Company to perform the
calculations contemplated or required by this Agreement; and
(vii) Such other records as the Trust may from time to time
reasonably request and any other document pertinent to the above.
Any such records required to be maintained by Rule 31a-1 of the General
Rules and Regulations under the 1940 Act shall be preserved by the Company for
the periods prescribed in Rule 31a-2 of said rules. Such record retention shall
be at the expense of the Company and records may be inspected by the Trust or
its designees at reasonable times, and, upon reasonable request of the Trust,
copies of records shall be provided at the Company's expense to the Trust or its
designee. The Company may, at its option at any time, and shall forthwith upon
the demand of the Trust, turn over to the Trust and cease to retain in the
Company's files, records and documents created and maintained by the Company
pursuant to this Agreement which are no longer needed by the Company in
performance of its services or for its protection. If not so turned over to the
Trust, such records and documents will be retained by the Company for six years
from the year of creation, during the first two of which such documents will be
in readily accessible form. At the end of the six year period, such records and
documents will either be turned over to the Trust, or destroyed in accordance
with the authorization of the Trust.
<PAGE>
Any such records required to be maintained by Delaware Business Trust Act
shall be maintained by the Company upon the terms thereunder.
Any such records maintained by the Company pursuant to this Agreement are
deemed to be the property of the Trust and will be promptly surrendered or made
available to the Trust or its designee, without charge, except for reimbursement
of expenses for surrender of such documents, upon request by the Trust or upon
termination of this Agreement.
(b) The Company and the Trust agree that all books, records, information
and data pertaining to the business of the other party that are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
9. INFORMATION TO BE FURNISHED
The Company shall furnish to the Trust such other information, including
statistical information, as needed to implement the provisions of this Agreement
and as may be agreed upon from time to time.
The Company shall report to the Trust regarding its performance under this
Agreement as may be reasonably requested by the Trust.
The Trust shall furnish to the Company such instructions and other
information as are needed to implement the provisions of this Agreement and as
may be agreed upon from time to time.
<PAGE>
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
As between the Trust and the Company in its capacity as Transfer Agent, the
Trust assumes full responsibility for the preparation, contents and distribution
of each prospectus of the Trust and for complying with all applicable
requirements of the 1933 Act, the 1940 Act, and any laws, rules and regulations
of governmental authorities having jurisdiction over the Trust, except as may be
specifically provided herein.
11. FORCE MAJEURE
The Company shall not be liable for loss of data occurring by reason of
circumstances beyond its control, including but not limited to acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots, or failure of transportation, communication or
power supply. The Company shall use its best efforts to minimize the likelihood
of such damage, loss of data, delays or errors resulting from uncontrollable
events, and if such damage, loss of data, delays or errors occur, the Company
shall use its best efforts to mitigate the effects of such occurrence.
12. STANDARD OF CARE AND INDEMNIFICATION
(a) The Company shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to ensure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors; provided, that the Company shall
indemnify and hold the Trust harmless from all loss, cost, damage, and expense,
<PAGE>
including reasonable attorneys' fees, incurred by the Trust as a result of the
Company's negligence, bad faith, or willful misfeasance in the performance of
its duties, or by reason of its reckless disregard of its obligations and duties
under this Agreement, or that of its officers, agents and employees, in the
performance of this Agreement.
(b) The Trust shall indemnify and hold the Company harmless from all loss,
cost, damage and expense, including reasonable attorneys' fees incurred by it
resulting from any claim, demand, action or suit in connection with the
performance of its duties hereunder, or the functions of Transfer and Dividend
Disbursing Agent or as a result of acting upon any instruction reasonably
believed by it to have been properly executed by a duly authorized officer of
the Trust, or upon any information, data, records or documents provided the
Company or its agents by computer tape, telex, CRT data entry or other similar
means authorized by the Trust; provided, that this indemnification shall not
apply to actions or omissions of the Company in cases of its own negligence, bad
faith or willful misfeasance in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement, or
that of its officers, agents and employees, in the performance of this
Agreement.
In order that the indemnification provision contained in this section 12(a)
or that in section 12(b) shall apply, however, it is understood that if in any
case the one party (the "Indemnitor") may be asked to indemnify or save the
other party (the "Indemnitee") harmless, the Indemnitor shall be fully and
promptly advised of all pertinent facts concerning the matters in question, and
it is further understood that the Indemnitee will use all reasonable care to
identify and notify the Indemnitor promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Indemnitor. The Indemnitor shall have the option to
<PAGE>
defend the Indemnitee against any claim which may be the subject of this
indemnification, and in the event that the Indemnitor so elects, it will so
notify the Indemnitee, and thereupon the Indemnitor shall take over complete
defense of the claim, and the Indemnitee shall in such situations incur no
further legal or other expenses for which it shall seek or be entitled to
indemnification under this section. The Indemnitee shall in no case confess any
claim or make any compromise in any case in which the Indemnitor will be asked
to indemnify the Indemnitee except with the Indemnitor's prior written consent.
(c) Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
13. FURTHER ACTIONS
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
14. ADDITIONAL PORTFOLIOS
In the event that the Trust establishes one or more Funds in addition to
the five initial Funds with respect to which it desires to have the Company
render services as Transfer Agent and Dividend Disbursing Agent under the terms
hereof, it shall so notify the Company in writing, and if the Company agrees in
writing to provide such services, such Fund shall become a Fund hereunder. The
Company shall not unreasonably withhold approval of such new Fund.
<PAGE>
15. ASSIGNMENT
(a) The Company may not assign this Agreement or delegate any of its
responsibilities hereunder without the express written consent of the Trust.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
16. DELAWARE LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Delaware.
17. AMENDMENT AND TERMINATION
This Agreement may be modified or amended from time to time by written
agreement between the parties hereto. This Agreement may be terminated at any
time by not less than one hundred twenty (120) days' written notice given by one
party to the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
USAA LIFE INVESTMENT TRUST
BY: /s/_____________________________
EDWIN L. ROSANE
President
<PAGE>
ATTEST:
/s/_________________________
R.T. HALINSKI, JR.
Assistant Secretary
USAA LIFE INSURANCE COMPANY
BY: /s/_____________________________
EDWIN L. ROSANE
President
ATTEST:
/s/_________________________
R.T. HALINSKI, JR.
Assistant Secretary
<PAGE>
EXHIBIT (9)(b)
[USAA Life Investment Trust Letterhead]
February 7, 1997
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
RE: APPOINTMENT AS TRANSFER AGENT AND DIVIDEND DISBURSING
AGENT FOR EACH NEW SERIES OF USAA LIFE INVESTMENT TRUST
-------------------------------------------------------
Executives:
Pursuant to Section 14 of the Transfer Agent Agreement, dated December 15,
1996, ("Agreement"), please be advised that the Trust desires to retain the
services of USAA Life Insurance Company ("Company") as Transfer Agent and
Dividend Disbursing Agent, under the terms of the Agreement, for two new series
of the Trust, namely the USAA Life Variable Annuity Aggressive Growth Fund and
USAA Life Variable Annuity International Fund (each, a "New Fund").
Kindly acknowledge the Company's agreement to render such services by
signing in the space indicated below.
USAA LIFE INVESTMENT TRUST
BY:/s/_____________________________
EDWIN L. ROSANE
President
ATTEST:
/s/____________________
R.T. HALINSKI, JR.
Secretary
<PAGE>
The undersigned hereby agrees to render services as Transfer Agent and
Dividend Disbursing Agent, under the terms of the Agreement, for each New Fund.
USAA LIFE INSURANCE COMPANY
BY:/s/____________________________
EDWIN L. ROSANE
President
ATTEST:
/s/____________________________
R.T. HALINSKI, JR.
Assistant Secretary
<PAGE>
EXHIBIT (9)(c)
AMENDMENT TO TRANSFER AGENT AGREEMENT
This amendment, dated February 18, 1998, amends the Transfer Agent
Agreement, dated December 15, 1994 ("Initial Agreement"), as amended by a Letter
Agreement, dated February 7, 1997 ("Letter Agreement") (collectively,
"Agreement"), by and between USAA Life Investment Trust ("Trust") and USAA Life
Insurance Company ("USAA Life") (collectively, the "Parties").
RECITALS
WHEREAS, USAA Life, pursuant to the Agreement, currently serves as Transfer
Agent and Dividend Disbursing Agent with respect to the seven Funds of the
Trust, namely the USAA Life Variable Annuity Money Market Fund, USAA Life
Variable Annuity Income Fund, USAA Life Variable Annuity Growth and Income Fund,
USAA Life Variable Annuity World Growth Fund, USAA Life Variable Annuity
Diversified Assets Fund, USAA Life Variable Annuity Aggressive Growth Fund, and
USAA Life Variable Annuity International Fund (collectively, "the Funds"); and
WHEREAS, the Board of Trustees has approved this amendment ("Amendment");
NOW, THEREFORE, the Parties hereto agree as follows:
1. The name of each Fund of the Trust, as specifically set out, or
generally referred to, in the Agreement, is changed, effective May 1, 1998
(or such other date as the Securities and Exchange Commission may declare a
post-effective amendment to the Trust's Form N-1A Registration Statement
regarding the matter effective under the Securities Act of 1933), to
exclude the term "Variable Annuity," so that the names of the Funds are as
follows:
USAA Life Money Market Fund,
USAA Life Income Fund,
USAA Life Growth and Income Fund,
USAA Life World Growth Fund,
USAA Life Diversified Assets Fund,
USAA Life Aggressive Growth Fund, and
USAA Life International Fund.
<PAGE>
2. Each reference to the Separate Account of USAA Life Insurance
Company to fund benefits under variable annuity contracts ("Contracts")
issued by USAA Life Insurance Company, as specifically set out, or
generally referred to, in the Agreement, is amended to add corresponding
reference to the Life Insurance Company Separate Account of USAA Life
Insurance Company to fund benefits under variable universal life insurance
policies ("Policies").
3. Each reference, to "Contractowners" and to "Contracts," as
specifically set out, or generally referred to, in the Agreement, is
amended to add corresponding reference to "Policyowners" and to "Policies."
4. The reference, in the fourth Whereas clause, to a third party
administration agreement of USAA Life with Vantage Computer System, Inc.,
is deleted.
5. The date of the Initial Agreement, as set out in the Letter
Agreement, is corrected to read December 15, 1994.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed as of the date first set forth above.
USAA LIFE INVESTMENT TRUST
By: /s/___________________________
EDWIN L. ROSANE
President
ATTEST:
/s/________________________
DWAIN A. AKINS
Assistant Secretary
<PAGE>
USAA LIFE INSURANCE COMPANY
By: /s/_____________________________
EDWIN L. ROSANE
President
ATTEST:
/s/__________________________
DWAIN A. AKINS
Assistant Vice President
45114
<PAGE>
Exhibit 11
The Shareholders and Board of Trustees
USAA Life Investment Trust:
We consent to the use of our report dated February 6, 1998 on the financial
statements of the USAA Life Variable Annuity (VA) Money Market Fund, USAA Life
VA Income Fund, USAA Life VA Growth and Income Fund, USAA Life VA World Growth
Fund, USAA Life VA Diversified Assets Fund, USAA Life VA Aggressive Growth
Fund, and USAA Life VA International Fund, all funds of the USAA Life Investment
Trust included in the Trust's Annual Report to Shareholders,incorporated herein
by reference, and to the references to our firm under the headings "Financial
Highlights" in the prospectus and "Independent Auditors" in the statement of
additional information.
KPMG Peat Marwick LLP
San Antonio, Texas
March 2, 1998
<PAGE>
EXHIBIT 20
PERSONS CONTROLLED BY
OR UNDER COMMON CONTROL WITH
THE REGISTRANT
Below is a list of all persons directly or indirectly controlled by or under
common control with the Registrant and (i) the state of organization, (ii) the
basis of control, and (iii) the principal business for each entity (information
on each subsidiary is indented following information on the controlling owner):
1. UNITED SERVICES AUTOMOBILE ASSOCIATION ("USAA")
Texas reciprocal interinsurance exchange with approximately 2.5 million
members.
Organized to provide personal-line property and casualty insurance policies
to its members.
2. USAA GENERAL INDEMNITY COMPANY
Texas corporation, wholly owned by USAA.
Organized to provide (i) federal flood insurance to USAA members and former
dependents and (ii) automobile insurance to USAA members residing in
California.
3. USAA CASUALTY INSURANCE COMPANY
Florida corporation, wholly owned by USAA.
Organized to provide personal-line property and casualty insurance policies
to (i) non-dependent children of USAA members and (ii) residual market
policyholders under Automobile Insurance Plans of the various states.
4. USAA GENERAL AGENCY, INC.
Texas corporation, wholly owned by USAA.
Organized to act as a managing general insurance agency for property and
casualty insurance products offered by non-USAA companies. The services of
this company are available to the general public.
5. USAA PROPERTY AND CASUALTY AGENCY, INC.
Colorado corporation, wholly owned by USAA General Agency, Inc.
Organized to provide certain property and casualty personal-line coverages
not offered directly by USAA to USAA members, their dependents, and former
dependents.
6. USAA INSURANCE AGENCY, INC.
California corporation, wholly owned by USAA General Agency, Inc.
<PAGE>
Organized to provide other property and casualty coverages not offered
directly by USAA to USAA members, their dependents, and former dependents.
7. USAA LIMITED
United Kingdom corporation, wholly owned by USAA.
Organized to provide USAA members who live in the United Kingdom with
automobile liability and property damage insurance which meets the
requirements of the British Road Traffic Act.
8. USAA LIFE INSURANCE COMPANY
Texas corporation, wholly owned by USAA.
Organized to provide a complete line of life insurance services and products
to the general public.
9. USAA LIFE GENERAL AGENCY, INC.
Colorado corporation, wholly owned by USAA Life Insurance Company.
Organized to provide a complete line of life and health insurance products
to the general public on a brokerage basis.
10. SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
Investment account organized under the laws of the State of Texas.
USAA Life Insurance Company is the depositor.
11. USAA FUNDING COMPANY
Delaware corporation, wholly owned by USAA.
Organized to facilitate the acquisition of preferred stock issued by USAA
insurance companies.
12. USAA PROPERTY HOLDINGS, INC.
Delaware corporation, wholly owned by USAA.
Organized to invest in certain real estate limited partnerships, the asset
of which are comprised of housing units which qualify for significant
federal tax credits.
13. USAA CAPITAL CORPORATION
Unitary Diversified Savings & Loan Company organized as a Delaware
corporation, wholly owned by USAA.
Organized to act as a holding company for all USAA non-insurance companies
(except USAA Funding Company and USAA Property Holdings, Inc., noted above)
and as a general purpose financing company for USAA, its subsidiaries and
affiliates.
<PAGE>
14. USAA REAL ESTATE COMPANY
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to engage in the acquisition, development, ownership, and sale of
real estate and other types of property and securities by purchase, lease or
otherwise. Currently makes a wide variety of real estate and financial
services available to its affiliates, subsidiaries, and the general public.
15. USAA REAL ESTATE DEVELOPMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to engage in the development of various real estate projects
including but not limited to, the Retirement Community Project.
16. USAA REAL ESTATE MANAGMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to provide management services for properties owned by USAA Real
Estate Development Company.
17. QUORUM REAL ESTATE SERVICE CORPORATION
d/b/a USAA REALTY COMPANY
Delaware corporation, wholly owned by USAA Real Estate Management Company.
Organized to manage USAA-owned real estate in Florida and the Southeast.
18. USAA PROPERTIES FUND, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as general partner of various real estate limited
partnerships involving USAA.
19. USAA INCOME PROPERTIES, LTD.
Texas limited partnership. USAA Properties Fund, Inc. is the general
partner.
Organized to invest in, acquire, conduct, develop, improve, hold, maintain,
manage, operate, lease, sell, and otherwise deal with real estate, real
estate improvements, and interests in real estate and real estate
improvements, and to engage in any and all activities related or incidental
thereto.
20. USAA PROPERTIES II, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as general partner of various real estate limited
partnerships involving USAA.
<PAGE>
21. USAA PROPERTIES III, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as general partner of various real estate limited
partnerships involving USAA.
22. USAA INCOME PROPERTIES III, LTD.
Texas limited partnership. USAA Properties III, Inc. is the general partner.
Organized to invest in, acquire, construct, develop, improve, hold,
maintain, manage, operate, lease, sell, and otherwise deal with real estate,
real estate improvements, and interests in real estate and real estate
improvements, and to engage in any and all activities related or incident
thereto.
23. USAA PROPERTIES IV, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as general partner of various real estate limited
partnerships involving USAA
24. USAA INCOME PROPERTIES IV, LTD.
Texas limited partnership. USAA Properties, IV, Inc. is the General Partner.
Organized to invest in, acquire, construct, develop, improve, hold,
maintain, manage, operate, lease, sell, and otherwise deal with real estate,
real estate improvements, and interests in real estate and real estate
improvements, and to engage in any and all activities related or incident
thereto.
25. USAA CHELMSFORD ASSOCIATES
Texas partnership. USAA Income Properties IV, LTD. owns a 55. 84% interest
with the remaining 44.l6% owned by USAA Real Estate Company.
Organized to invest in, acquire, construct, develop, improve, maintain, and
operate the property and in connection with or incidental to the
accomplishment of said purpose to enter into any kind of activity and to
perform and carry out contracts.
26. USAA INVESTORS I, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as general partner of various real estate limited
partnerships involving USAA.
27. USAA REAL ESTATE INCOME INVESTMENTS I, LTD.
Texas limited partnership. USAA Investors I, Inc. owns an 11.88% interest
and is the managing general partner.
<PAGE>
Organized (i) to buy, hold, manage, operate, maintain, dispose of and
otherwise invest in and deal with qualified real estate for long term
investment; (ii) to make, hold, collect and otherwise deal with first real
estate mortgage loans secured by qualified real estate for long term
investment; and (iii) to engage in other activities related or incidental
thereto.
28. USAA INVESTORS II, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as general partner of various real estate limited
partnerships involving USAA.
29. USAA REAL ESTATE INCOME INVESTMENTS II, LTD.
Texas limited partnership. USAA Investors II, Inc. owns a 32.03% interest
and is the managing general partner.
Organized to invest in, acquire, construct, develop, improve, hold,
maintain, manage, operate, lease, sell, and otherwise deal with real estate,
real estate improvements, and interests in real estate and real estate
improvements, and to engage in any and all activities related or incidental
thereto.
30. LA PAZ, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized for the purpose of owning and managing an office building complex.
31. WEST CHICAGO INDUSTRIAL, LTD.
Texas limited partnership. La Paz, Inc., owns a 99% interest with the
remaining l% owned by USAA Real Estate Midwest, Inc.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with a certain parcel of real
property located in Chicago, Du Page County, Illinois.
32. USAA HEALTH SERVICES, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to operate and manage the Park Lane West Health Center located in
San Antonio, Texas.
33. USAA REAL ESTATE EQUITIES, INC.
Delaware corporation. USAA Real Estate Company owns a 57% interest.
Organized as a real estate investment trust.
34. COMBINED CAPITAL RESOURCES J.V.
<PAGE>
Texas joint venture. USAA Real Estate Equities, Inc. owns a 92.725% interest
with the remaining 7 .275% owned by USAA Income Investments II, LTD.
Organized to acquire, develop, improve, maintain, operate, lease, loan money
and otherwise deal with certain property.
35. USAA EQUITY ADVISORS, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to provide advisory services to USAA Real Estate Equities, Inc.
36. ALHAMBRA GABLES ONE, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire certain property in Florida.
37. COLUMBUS CENTER ASSOCIATES, LTD.
formerly BPG/STRADLER ASSOCIATES, LTD. Florida limited partnership.
Alhambra Gables One, Inc. is the general partner.
Organized to invest in, hold, own, operate, maintain, improve, develop,
sell, exchange, lease, and otherwise use certain property or direct or
indirect interests therein, for profit and as an investment.
38. L.A. WILSHIRE ONE, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire certain property in California.
39. USAA REAL ESTATE MID-WEST, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to acquire, develop, own, manage, and dispose of real estate.
40. LAS COLINAS MANAGEMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire, develop, manage, and operate real estate.
41. LAS COLINAS -- USAA LIMITED PARTNERSHIP
Texas limited partnership. Las Colinas Management Company is the general
partner and owns a 9% interest. USAA owns a 91% interest.
Organized to manage a resort complex and to develop a large tract of land in
Irving, Texas.
42. USAA STRATUM EXECUTIVE CENTER J.V.
<PAGE>
Texas joint venture. USAA Real Estate Company owns a 70% interest with the
remaining 30% owned by USAA Real Estate Development Company.
Organized to develop land situated in Travis County, Texas.
43. USAA JOINT VENTURE
Connecticut joint venture. USAA Real Estate Company owns a 70% interest.
Organized to acquire, own, finance, lease, operate and otherwise deal with
Windsor IX (a certain parcel of real estate) and to acquire, own, finance,
lease, operate and otherwise deal with Windsor X (a certain parcel of real
estate) following the contribution of the Owners' equity interests in
Windsor X to the Joint Venture.
44. 5055 WILSHIRE LIMITED PARTNERSHIP
Texas limited partnership. The Partnership consists of the following
ownership percentages: USAA Real Estate Company 74%, BPG Wilshire, Inc. 25%,
and the remaining l% owned by L.A. Wilshire One, Inc.
Organized to develop, construct, own, hold, manage, operate, rent, maintain
and repair and otherwise deal with the improvements and project land and
own, hold, manage and operate, protect, preserve and enhance the value of
additional land.
45. LA CANTERA DEVELOPMENT COMPANY
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to develop and sell land in northwest San Antonio, Texas.
46. LA CANTERA GROUP, LTD.
Texas limited partnership. La Cantera Development Company owns a 51%
interest and is the general partner with the remaining 49% owned by Fiesta
Texas Showpark, Inc. as limited partner.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with certain real property
located in San Antonio, Bexar County, Texas.
47. FIESTA TEXAS THEMEPARK, LTD.
Texas limited partnership. La Cantera Group, Ltd. owns an 85.89% interest
and is the general partner with the remaining 14. 11% owned by Fiesta Texas
Showpark, Inc.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with a parcel of real property
located in San Antonio, Bexar County, Texas, and to operate the theme park
constructed on said parcel of property.
48. FIESTA TEXAS SHOWPARK, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
<PAGE>
Organized for the purpose of acquiring, developing, owning, managing, and/or
disposing of real estate.
49. LA CANTERA HOSPITALITY, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to develop and own a hotel, resort, and golf course.
50. HTO, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to own certain real property and mineral assets in the La Cantera
Development and other legally permissible corporate activities.
51. USAA FEDERAL SAVINGS BANK
Federally chartered savings association, wholly owned by USAA Capital
Corporation.
Organized to offer personal banking services to the general public.
52. USAA RELOCATION SERVICES, INC.
Texas corporation, wholly owned by USAA Federal Savings Bank.
Organized to provide nationwide counseling services for customers
contemplating moving and the sale or purchase of a home.
53. USAA FINANCIAL SERVICES CORPORATION
Utah corporation, wholly owned by USAA Capital Corporation.
Organized as a Utah Industrial Loan Company.
54. USAA BUYING SERVICES, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to engage in the business of wholesale and retail sales of goods
and to provide consumer-oriented and travel agency services to customers,
subscribers and the general public.
55. USAA ALLIANCE SERVICES, INC.
Delaware corporation, wholly owned by the USAA Buying Services, Inc.
Organized to act as a corporate general partner of USAA Buying Services,
L.P.
56. USAA BUYING SERVICES, L.P.
Delaware limited partnership. USAA Alliance Services, Inc. owns a l%
interest and is the general partner with the remaining 99% owned by USAA as
limited partner.
<PAGE>
Organized to provide travel and discount buying services to its subscribers.
57. USAA INVESTMENT CORPORATION
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to serve as a holding company for USAA Investment Management
Company and USAA Transfer Agency Company.
58. USAA INVESTMENT MANAGEMENT COMPANY
formerly USAA FUND MANAGEMENT COMPANY
Delaware corporation, wholly owned by USAA Investment Corporation.
Organized to serve as the financial manager and investment advisor of the
certain mutual funds and as the exclusive underwriter and distributor of
their shares. It carries out the investment policies of the mutual funds,
manages their portfolios, markets their shares and provides certain
administrative services. This company also provides investment management
and advisory services for the benefit of USAA and its affiliated companies.
This company serves as broker-dealer for investment instruments (common
stock, preferred stock and corporate bonds) of publicly traded corporations
offered on major stock exchanges and offers discount brokerage services.
59. USAA TRACO GmbH, Inc.
German corporation, 80% owned by USAA Investment Management Company, and 20%
owned by USAA Transfer Agency Company.
No current corporate operations.
60. USAA TRANSFER AGENCY COMPANY
d/b/a USAA SHAREHOLDER ACCOUNT SERVICES
Delaware corporation, wholly owned by USAA Investment Corporation.
Organized to engage in the business of facilitating the prompt and accurate
clearance and settlement of securities transactions, to safeguard funds and
securities in its custody or control or for which it is responsible in
compliance with the provisions of the Securities and Exchange Act of 1934,
Section 17A.
61. USAA INSTITUTIONAL REALTY INVESTORS, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to acquire a geographically diverse portfolio consisting primarily
of industrial properties located in major metropolitan markets in the United
States. The corporation will offer shares of the common stock in the company
primarily to tax-qualified "employee pension benefit plans" covered by Title
I of ERISA.
62. USAA CAPITAL DEVELOPMENT CORPORATION
<PAGE>
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to engage in real estate investment, management and other legally
permissible corporate activities.
63. HAUSMAN ROAD WATER SUPPLY COMPANY
Texas non-profit corporation, wholly owned by USAA Capital Corporation.
Organized to operate a surface water project.
64. CAPITAL MANAGEMENT COMPANY
Delaware corporation, wholly-owned indirect subsidiary of USAA.
Organized to serve as a unitary savings and loan holding company of USAA
Federal Savings Bank.
65. USAA COUNTY MUTUAL INSURANCE COMPANY
(formerly Ameristar County Mutual Insurance Company)
County Mutual Insurance Company (Texas) wholly-owned by USAA
Organized to provide auto insurance to USAA Group eligible drivers who
reside in Texas.
66. CORAL GABLES ASSOCIATES
Florida Partnership, Columbus Center Associates, Ltd. (managing partner)
owns 50% with the remaining 50% owned by International Business Machines
Corporation.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with that certain parcel of real
property located in Coral Cables, Dade County, Florida.
67. USAA FINANCIAL PLANNING NETWORK, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to provide financial planning services to its members.
68. USAA REAL ESTATE LIMITED PARTNERSHIP
Texas Limited Partnership, wholly owned by USAA Real Estate Company.
Organized to (i) acquire, own, hold, develop, rezone, manage, operate,
lease, finance, mortgage, sell and otherwise deal with certain real estate
property; (ii) sell all or any portion of certain real estate property to
buyers, including Affiliates or any Partner; and (iii) conduct such other
activities as may be necessary, advisable, convenient or appropriate to
promote or conduct the business of the Partnership.
69. USAA SAVINGS BANK
formerly USAA CREDIT CARD BANK
<PAGE>
Nevada State Chartered Bank, wholly owned by USAA Federal Savings Bank.
Organized to engage in credit card operations and acceptance of deposit
accounts exceeding $100,000.
70. USAA FINANCIAL ADMINISTRATION COMPANY
Delaware Corporation, USAA Federal Savings Bank owns 100% of the Class A
Common (voting) Stock and USAA owns 100% of the Class B (nonvoting) Stock.
Organized to act as General Partner of USAA Financial Partners Limited, L.P.
71. CAPITAL FINANCIAL RESOURCES COMPANY
Delaware Corporation, USAA Federal Savings Bank owns 100% of the Class A
Common (voting) Stock and USAA owns 100% of the Class B Common (nonvoting)
Stock.
Organized to act as Limited Partner of USAA Financial Partners Limited, L.P.
72. USAA FINANCIAL PARTNERS LIMITED, L.P.
Delaware Limited Partnership. USAA Financial Administration Company owns 1%
of the partnership as General Partner and Capital Financial Resources
Company owns 99% as Limited Partner.
Organized to enable USAA Federal Savings Bank to continue to maintain low
cost funding sources, diversify its funding sources, manage interest rate
risk and more efficiently manage tax and other liabilities associated with
its credit card business.
73. USAA FINANCIAL PLANNING NETWORK, INC.
(Wholly owned-subsidiary of USAA Capital Corporation)
Organized to engage in the business of providing personalized financial
planning services to the general public.
74. LA CANTERA RESORT, LTD.
Texas Limited Partnership. La Cantera Hospitality, Inc. owns 93% as a
Limited Partner with a non-affiliated entity owning the remaining 7% as
General Partner.
Organized to acquire, develop, own and operate a resort property located in
Bexar County, Texas.
75. LCWW PARTNERS JOINT VENTURE
Texas Joint Venture. La Cantera Resort, Ltd. owns 76.67% as a General
Partner with the remaining portion owned by a non-affiliated entity as
General Partner, both entities having an equal vote in the management of the
venture.
Organized to acquire, develop, own and operate a resort property in Bexar
County, Texas.
<PAGE>
76. LA CANTERA COMMUNITY ORGANIZATION, INC.
Texas Non-Profit Corporation, wholly owned by USAA Capital Corporation.
Organized to maintain the common areas of the La Cantera property on behalf
of the property owners and to provide a facility for assessments of the
different property owners.
77. USAA LIFE INVESTMENT TRUST (REGISTRANT)
Mutual fund underlying Separate Account of USAA Life funding variable
annuity insurance product, and organized as a Delaware business trust.
USAA Life Insurance Company, either directly or through the Separate Account
of USAA Life Insurance Company, currently owns a majority of certain series
of shares issued by the Registrant.
The Registrant's audited financial statements are incorporated by reference
into Part B of the Registrant's Form N-1A Registration Statement
("Registration Statement").
No financial statements of any other company listed above are filed with the
Registrant's Statement, as they are not required to be so filed.
78. USAA LIFE INSURANCE COMPANY OF NEW YORK
New York corporation, wholly owned by USAA Life Insurance Company.
Organized to transact life and annuity business in the state of New York.
79. USAA INFORMATION TECHNOLOGY COMPANY
Delaware corporation, wholly owned by USAA.
Organized to provide certain data processing and information technology-
related products, infrastructure and services.
80. USAA INFORMATION TECHNOLOGY, LTD.
Delaware limited partnership. USAA Information Technology Company is the
General Partner.
Organized to provide certain data processing and information technology-
related products, infrastructure and services.
81. USAA CORPORATE ATTORNEY IN FACT, INC.
Delaware non-insurance corporation, wholly owned by USAA.
Organized to be the corporate attorney in fact of Reciprocal Exchange,
acquired by USAA on December 31, 1997.
<PAGE>
82. RECIPROCAL EXCHANGE
Missouri Reciprocal Interinsurance Exchange.
Organized to provide insurance coverage (personal-line property and casualty
policies) for persons not eligible for current USAA property and casualty
coverage.
83. FIESTA TEXAS HOSPITALITY L.L.C.
Texas corporation.
Organized to provide concession services to the general public and other
such related services.
45175
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> USAA LIFE VA MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 14,914
<INVESTMENTS-AT-VALUE> 14,914
<RECEIVABLES> 281
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,196
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65
<TOTAL-LIABILITIES> 65
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,131
<SHARES-COMMON-STOCK> 15,131
<SHARES-COMMON-PRIOR> 11,245
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 15,131
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 820
<OTHER-INCOME> 0
<EXPENSES-NET> (52)
<NET-INVESTMENT-INCOME> 768
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (768)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 60,217
<NUMBER-OF-SHARES-REDEEMED> (57,099)
<SHARES-REINVESTED> 768
<NET-CHANGE-IN-ASSETS> 3,886
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 103
<AVERAGE-NET-ASSETS> 14,708
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> USAA LIFE VA INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 25,781
<INVESTMENTS-AT-VALUE> 27,869
<RECEIVABLES> 417
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,288
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42
<TOTAL-LIABILITIES> 42
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,144
<SHARES-COMMON-STOCK> 2,578
<SHARES-COMMON-PRIOR> 2,288
<ACCUMULATED-NII-CURRENT> 33
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,088
<NET-ASSETS> 28,246
<DIVIDEND-INCOME> 288
<INTEREST-INCOME> 1,594
<OTHER-INCOME> 0
<EXPENSES-NET> (88)
<NET-INVESTMENT-INCOME> 1,794
<REALIZED-GAINS-CURRENT> 462
<APPREC-INCREASE-CURRENT> 535
<NET-CHANGE-FROM-OPS> 2,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,835)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 362
<NUMBER-OF-SHARES-REDEEMED> (240)
<SHARES-REINVESTED> 168
<NET-CHANGE-IN-ASSETS> 4,197
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> (480)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 50
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 130
<AVERAGE-NET-ASSETS> 25,144
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> (0.76)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> USAA LIFE VA GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 64,218
<INVESTMENTS-AT-VALUE> 85,783
<RECEIVABLES> 175
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,966
<PAYABLE-FOR-SECURITIES> 150
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66
<TOTAL-LIABILITIES> 216
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,925
<SHARES-COMMON-STOCK> 4,769
<SHARES-COMMON-PRIOR> 3,713
<ACCUMULATED-NII-CURRENT> 30
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,230
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,565
<NET-ASSETS> 85,750
<DIVIDEND-INCOME> 1,375
<INTEREST-INCOME> 109
<OTHER-INCOME> 0
<EXPENSES-NET> (234)
<NET-INVESTMENT-INCOME> 1,250
<REALIZED-GAINS-CURRENT> 4,276
<APPREC-INCREASE-CURRENT> 9,783
<NET-CHANGE-FROM-OPS> 15,309
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,222)
<DISTRIBUTIONS-OF-GAINS> (3,404)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,986
<NUMBER-OF-SHARES-REDEEMED> (1,190)
<SHARES-REINVESTED> 260
<NET-CHANGE-IN-ASSETS> 29,818
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 358
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 139
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234
<AVERAGE-NET-ASSETS> 68,983
<PER-SHARE-NAV-BEGIN> 15.06
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 3.68
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> (0.77)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.98
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> USAA LIFE VA WORLD GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 31,549
<INVESTMENTS-AT-VALUE> 39,027
<RECEIVABLES> 194
<ASSETS-OTHER> 409
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,630
<PAYABLE-FOR-SECURITIES> 65
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55
<TOTAL-LIABILITIES> 120
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,911
<SHARES-COMMON-STOCK> 2,962
<SHARES-COMMON-PRIOR> 2,940
<ACCUMULATED-NII-CURRENT> 44
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 86
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,469
<NET-ASSETS> 39,510
<DIVIDEND-INCOME> 546
<INTEREST-INCOME> 148
<OTHER-INCOME> 0
<EXPENSES-NET> (229)
<NET-INVESTMENT-INCOME> 465
<REALIZED-GAINS-CURRENT> 2,623
<APPREC-INCREASE-CURRENT> 1,614
<NET-CHANGE-FROM-OPS> 4,702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (458)
<DISTRIBUTIONS-OF-GAINS> (2,843)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 644
<NUMBER-OF-SHARES-REDEEMED> (869)
<SHARES-REINVESTED> 247
<NET-CHANGE-IN-ASSETS> 1,975
<ACCUMULATED-NII-PRIOR> 48
<ACCUMULATED-GAINS-PRIOR> 295
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229
<AVERAGE-NET-ASSETS> 38,625
<PER-SHARE-NAV-BEGIN> 12.77
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.62
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.34
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> USAA LIFE VA DIVERSIFIED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 37,207
<INVESTMENTS-AT-VALUE> 47,885
<RECEIVABLES> 374
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,260
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48
<TOTAL-LIABILITIES> 48
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,482
<SHARES-COMMON-STOCK> 3,329
<SHARES-COMMON-PRIOR> 2,347
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,678
<NET-ASSETS> 48,212
<DIVIDEND-INCOME> 631
<INTEREST-INCOME> 1,104
<OTHER-INCOME> 0
<EXPENSES-NET> (139)
<NET-INVESTMENT-INCOME> 1,596
<REALIZED-GAINS-CURRENT> 834
<APPREC-INCREASE-CURRENT> 4,986
<NET-CHANGE-FROM-OPS> 7,416
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,565)
<DISTRIBUTIONS-OF-GAINS> (1,771)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 888
<NUMBER-OF-SHARES-REDEEMED> (142)
<SHARES-REINVESTED> 236
<NET-CHANGE-IN-ASSETS> 17,822
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> 955
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 79
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 165
<AVERAGE-NET-ASSETS> 39,521
<PER-SHARE-NAV-BEGIN> 12.95
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 2.14
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> (0.61)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.48
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> USAA LIFE VA AGGRESSIVE GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 37,544
<INVESTMENTS-AT-VALUE> 41,621
<RECEIVABLES> 1,176
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,802
<PAYABLE-FOR-SECURITIES> 198
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59
<TOTAL-LIABILITIES> 257
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,820
<SHARES-COMMON-STOCK> 3,639
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 648
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,077
<NET-ASSETS> 42,545
<DIVIDEND-INCOME> 63
<INTEREST-INCOME> 79
<OTHER-INCOME> 0
<EXPENSES-NET> (182)
<NET-INVESTMENT-INCOME> (40)
<REALIZED-GAINS-CURRENT> 1,134
<APPREC-INCREASE-CURRENT> 4,077
<NET-CHANGE-FROM-OPS> 5,171
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (446)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,655
<NUMBER-OF-SHARES-REDEEMED> (55)
<SHARES-REINVESTED> 39
<NET-CHANGE-IN-ASSETS> 42,545
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 221
<AVERAGE-NET-ASSETS> 36,230
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 1.83
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.70
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> USAA LIFE VA INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 21,627
<INVESTMENTS-AT-VALUE> 21,299
<RECEIVABLES> 28
<ASSETS-OTHER> 318
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,645
<PAYABLE-FOR-SECURITIES> 5
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58
<TOTAL-LIABILITIES> 63
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,927
<SHARES-COMMON-STOCK> 2,148
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (335)
<NET-ASSETS> 21,582
<DIVIDEND-INCOME> 181
<INTEREST-INCOME> 73
<OTHER-INCOME> 0
<EXPENSES-NET> (155)
<NET-INVESTMENT-INCOME> 99
<REALIZED-GAINS-CURRENT> 192
<APPREC-INCREASE-CURRENT> (335)
<NET-CHANGE-FROM-OPS> (44)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (97)
<DISTRIBUTIONS-OF-GAINS> (204)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,145
<NUMBER-OF-SHARES-REDEEMED> (27)
<SHARES-REINVESTED> 30
<NET-CHANGE-IN-ASSETS> 21,582
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 176
<AVERAGE-NET-ASSETS> 19,514
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
