As filed with the Securities and Exchange Commission on April 28, 2000.
1933 Act File No. 33-82270
1940 Act File No. 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. _8_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X_
Amendment No. _9_
USAA LIFE INVESTMENT TRUST
-------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
9800 Fredericksburg Road, San Antonio, TX 78288
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (210) 498-8000
--------------
MARK S. HOWARD, ESQ.
Assistant Secretary
USAA Life Investment Trust
9800 Fredericksburg Road, BK-B04-S
San Antonio, TX 78288
---------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 1, 2000, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Exhibit Index on Pages 62 - 64
Page 1 of 116
<PAGE>
USAA LIFE INVESTMENT TRUST
CROSS REFERENCE SHEET
PART A
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Front and Back Cover Pages............... Same
2. Risk/Return Summary: Investments,
Risks, and Performance.................. Fund Objectives, Strategies, and
Risks
3. Risk/Return Summary: Fee Table........... Not Applicable
4. Investment Objectives, Principal
Investment Strategies, and
Related Risks........................... Fund Objectives, Strategies, and
Risks
5. Management's Discussion
of Fund Performance..................... Not Applicable
6. Management, Organization, and
Capital Structure....................... Fund Objectives, Strategies, and
Risks Fund Management
7. Shareholder Information................. Purchase of Fund Shares
Redemption of Fund Shares
Valuation of Fund Shares
Dividends and Distributions
Taxes
8. Distribution Arrangements............... Not Applicable
9. Financial Highlights Information........ Financial Highlights
<PAGE>
USAA LIFE INVESTMENT TRUST
CROSS REFERENCE SHEET
PART B
FORM N-1A ITEM NO. SECTION IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page and Table of Contents........ Same
11. Fund History............................ General Information and History
12. Description of the Fund and
Its Investments and Risks............... Investment Policies and
Techniques
Investment Restrictions
Portfolio Transactions
13. Management of the Fund.................. Trustees and Officers of the
Trust
The Trust's Adviser
14. Control Persons and Principal
Holders of Securities.................. Principal Holders of Securities
15. Investment Advisory and
Other Services......................... Distributor
Investment Adviser
The Trust's Adviser
Custodian
Transfer Agent
Independent Auditors
16. Brokerage Allocation and
Other Practices........................ Portfolio Transactions
17. Capital Stock and
Other Securities....................... Description of Trust Shares
18. Purchase, Redemption, and
Pricing of Shares...................... Valuation of Securities
Additional Information Regarding
Redemption of Shares
19. Taxation of the Fund.................... Certain Federal Income Tax
Considerations
20. Underwriters............................ Distributor
The Trust's Adviser
21. Calculation of Performance Data......... Calculation of Performance Data
22. Financial Statements.................... Cover Page
Financial Statements
<PAGE>
Part A
Prospectus for the
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
is included herein
<PAGE>
USAA USAA LIFE INVESTMENT TRUST
EAGLE 9800 Fredericksburg Road
LOGO San Antonio, Texas 78288
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
USAA LIFE INTERNATIONAL FUND
PROSPECTUS
MAY 1, 2000
As with other mutual funds, the Securities and Exchange Commission
has not approved or disapproved of these Funds' shares or determined
whether this Prospectus is accurate or complete. Anyone who tells you
otherwise is committing a crime.
TABLE OF CONTENTS
Introduction ........................................................ 3B
Fund Objectives, Strategies, and Risks .............................. 4B
USAA Life Money Market Fund ........................................ 4B
USAA Life Income Fund .............................................. 6B
USAA Life Growth and Income Fund ................................... 8B
USAA Life World Growth Fund ........................................ 10B
USAA Life Diversified Assets Fund .................................. 12B
USAA Life Aggressive Growth Fund ................................... 14B
USAA Life International Fund ....................................... 16B
Fund Management ..................................................... 18B
Purchase of Fund Shares ............................................. 18B
Redemption of Fund Shares ........................................... 18B
Valuation of Fund Shares ........................................... 18B
Dividends and Distributions ......................................... 19B
Taxes ............................................................... 19B
Financial Highlights ................................................ 20B
Appendix A .......................................................... 24B
1B
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLLY]
2B
<PAGE>
INTRODUCTION
OFFERING OF FUNDS' SHARES
Shares of these Funds are available to the public only through the
purchase of certain variable annuity contracts and variable life
insurance policies offered by USAA Life Insurance Company.
GENERAL RISKS OF INVESTING IN MUTUAL FUNDS
As with other mutual funds, losing money is a risk of investing in
these Funds. Investments in any of these Funds are not deposits of
USAA Federal Savings Bank, or any other bank, and are not insured or
guaranteed by the FDIC or any other government agency.
FUND MANAGEMENT
USAA Investment Management Company manages these Funds. USAA
Investment Management Company is an affiliate of United Services
Automobile Association (USAA) and as of the date of this Prospectus
manages approximately $42 billion in total assets. For easier reading,
USAA Investment Management Company will be referred to as "we" or "us"
throughout this Prospectus.
3B
<PAGE>
FUND OBJECTIVES, STRATEGIES, AND RISKS
USAA LIFE MONEY MARKET FUND
Objective
The highest level of current income consistent with preservation of capital and
maintenance of liquidity.
Principal Investment Strategy
The Fund's principal strategy is the investment of its assets in high-quality,
U.S. dollar-denominated debt securities of domestic and foreign issuers that
have been determined to present minimal credit risk, which may include the
following:
o obligations of the U.S. government, o municipal lease obligations;
its agencies and instrumentalities, o mortgage-backed securities;
and repurchase agreements
collateralized by such obligations; o asset-backed securities;
o short-term corporate debt obligations o master demand notes;
such as notes, bonds, and o Eurodollar obligations;
commercial paper;
o U.S. bank or foreign bank obligations, o Yankee obligations; and
including certificates of deposit, o other short-term debt securities.
banker's acceptances, and time deposits;
o obligations of state and local governments
and their agencies and instrumentalities;
The Securities and Exchange Commission (SEC) has set certain diversification
requirements for money market funds. Generally, these requirements limit a
money market fund's investments in securities of any issuer to no more than 5%
of the fund's assets. Also, strict SEC guidelines do not permit us to invest,
with respect to 75% of the Fund's assets, greater than 10% of the Fund's assets
in securities issued by or subject to guarantees by the same institution.
Purchases of securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities are not counted toward these limitations.
The Fund's investments consist of high-quality securities that qualify as
"first-tier" securities under the SEC rules that apply to money market funds.
In general, a first-tier security is defined as a security that is:
o issued or guaranteed by the U.S. government or any agency or
instrumentality thereof;
o rated or subject to a guarantee that is 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;
o unrated but issued by an issuer or guaranteed by a guarantor that has
other comparable short-term obligations so rated; or
o unrated but determined by us to be of comparable quality.
In addition, we must consider whether a particular investment presents minimal
credit risk. Current NRSROs include:
o Moody's Investors Service; o Standard & Poor's Ratings Group; and
o Fitch IBCA; o Duff & Phelps Credit Rating Co.
o Thompson BankWatch;
If the rating of a security is downgraded after purchase, we will determine
whether it is in the best interest of the Fund's shareholders to continue to
hold the security in the Fund's portfolio.
We balance factors such as credit quality and maturity to purchase the best
relative value available in the market at any given time. While rare, sell
decisions are usually based on a change in our credit analysis or to take
advantage of an opportunity to reinvest at a higher yield.
Main Risks
While we will endeavor to maintain a constant Fund net asset value of $1 per
share, there is no assurance that we will be able to do so. Remember, the
shares are neither insured nor guaranteed by the U.S. government. As such, the
Fund carries some risk. The primary risks of investing in this Fund are
interest rate risk and credit risk.
INTEREST RATE RISK involves the possibility that the value of the Fund's
investments will fluctuate because of changes in interest rates. We attempt to
minimize this interest rate risk by limiting the maturity of each security to
397 days or less and maintaining a dollar-weighted average portfolio maturity
for the Fund of 90 days or less. In fact, we typically invest in money market
instruments with relatively short maturities primarily to facilitate the
redemption of Fund shares following the "Free Look" period described in the
accompanying variable annuity contract or variable life insurance policy
prospectus.
o IF INTEREST RATES INCREASE: the yield of the Fund may increase, which
would likely increase the Fund's total return.
o IF INTEREST RATES DECREASE: the yield of the Fund may decrease, which
may decrease the Fund's total return.
4B
<PAGE>
CREDIT RISK involves the possibility that a borrower cannot make timely
interest and principal payments on its securities. We attempt to minimize this
credit risk by investing only in securities rated in the highest category for
short-term securities, or, if not rated, of comparable quality, at the time of
purchase. Additionally, we will not purchase a security unless our analysts
have determined that the security presents minimal credit risk.
Money market funds are sometimes confused with savings accounts. A savings
account is a deposit with a bank. The bank is obligated to return the amount
deposited and to pay you interest for the use of your money. Up to a certain
dollar amount, the Federal Deposit Insurance Corporation (FDIC) will insure
that the bank meets its obligations.
The Fund is not a savings account but, rather, is a money market mutual fund
that issues and redeems its shares at the Fund's net asset value (NAV) per
share. The Fund always seeks to maintain a constant NAV of $1 per share. Just
as a savings account pays interest on the amount deposited, the Fund pays
dividends on Fund shares. The value of an account will grow over time when
these dividends are reinvested in the Fund.
Who Should Consider Investing in this Fund
This Fund is designed for the investor seeking to benefit from money market
yields consistent with safety of principal. The Fund does not constitute a
balanced investment program, but can be used in conjunction with other funds as
a component for the conservative investor for a long-term balanced investment
program. The securities in which the USAA Life 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
Fund is expected to provide a lower level of income and risk than other mutual
funds, such as the USAA Life Income Fund.
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows the Fund's average annual total returns for the one-year
period, as well as the life of the Fund. Remember, historical performance does
not necessarily indicate what will happen in the future. Also keep in mind, the
total return calculations do not include other costs associated with the
annuity or life insurance policy. If they did, the Fund's performance would be
lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1996* 5.25%
1997 5.35%
1998 5.29%
1999 4.93%
*FUND BEGAN OPERATIONS ON JANUARY 5, 1995.
The Fund's total return for the three-month period
ended March 31, 2000, was 1.39%.
During the periods shown in the bar chart, the highest
total return for a quarter was 1.35% (quarter ending
December 31, 1997) and the lowest total return for a
quarter was 1.14% (quarter ending March 31, 1999).
[SIDE BAR]
YIELD IS THE ANNUALIZED NET INCOME OF THE FUND DURING A SPECIFIED PERIOD
AS A PERCENTAGE OF THE FUND'S SHARE PRICE.
EFFECTIVE YIELD IS CALCULATED SIMILAR TO THE YIELD, HOWEVER, WHEN
ANNUALIZED, THE INCOME EARNED IS ASSUMED TO BE REINVESTED.
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR PAST SINCE FUND'S INCEPTION
THE PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON JANUARY 5, 1995
- -------------------------------------------------------------------------------
USAA Life Money Market Fund 4.93% 5.30%
===============================================================================
All mutual funds must use the same formulas to calculate yield and effective
yield. The Fund typically advertises performance in terms of a 7-day yield and
effective yield and may advertise total return. The 7-day yield quotation more
closely reflects current earnings of the Fund than the total return quotation.
The effective yield will be slightly higher than the yield because of the
compounding effect of the assumed reinvestment. Current yields 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.
The Fund's 7-day yield for the period ended December 31, 1999, was 5.81%.
Portfolio Manager
Pamela Bledsoe Noble, Vice President of Money Market Funds, has managed the
Fund since June 1996. Ms. Noble has 11 years investment management experience
and has worked for us for eight years.
5B
<PAGE>
USAA LIFE INCOME FUND
Objective
Maximum current income without undue risk to principal.
Principal Investment Strategy
The Fund's principal strategy is the investment of its assets primarily in U.S.
dollar-denominated debt and income producing securities that have been selected
for their high yields relative to the risk involved. Consistent with this
policy, when interest rates rise, we will invest a greater portion of the
Fund's portfolio in securities whose value we believe to be less sensitive to
interest rate changes. The Fund's portfolio may consist of any of the
following:
o obligations of the U.S. government, o U.S. bank obligations, including
its agencies and instrumentalities, certificates of deposit and
and repurchase agreements banker's acceptances;
collateralized by such obligations; o obligations of state and local
o mortgage-backed securities; governments and their
o asset-backed securities; agencies and instrumentalities;
o corporate debt securities such as o equity and debt securities
notes, bonds, and commercial paper; of real estate investment trusts;
o master demand notes;
o Eurodollar obligations;
o Yankee obligations;
o other debt securities;
o convertible securities;
o common stocks; and
o preferred stocks.
The debt securities must be investment grade at the time of purchase.
Investment-grade securities are those securities issued or guaranteed by the
U.S. government, its agencies and instrumentalities; those rated or subject to
a guarantee that is rated within the four highest long-term rating categories
by:
o Moody's Investors Service, o Standard & Poor's Ratings Group, or
o Fitch IBCA, o Duff and Phelps Credit Rating Co.
If unrated by these agencies, we must determine that the securities are of
equivalent investment quality. You will find a complete description of the
above debt ratings in the Statement of Additional Information.
If the rating of a security is downgraded below investment grade, we will
determine whether it is in the best interest of the Fund's shareholders to
continue to hold the security in the Fund's portfolio. If downgrades result in
more than 5% of the Fund's net assets being invested in securities that are
less than investment-grade quality, we will take immediate action to reduce the
Fund's holdings in such securities to 5% or less of the Fund's net assets,
unless otherwise directed by the Fund's Board of Trustees.
In deciding which securities to buy and sell, we search for securities that
represent value at the time given current market conditions. For fixed income
securities, value is a combination of yield, credit quality, structure
(maturity, coupon, redemption features), and liquidity. Recognizing value is
the result of simultaneously analyzing the interaction of these factors among
the securities available in the market. We will sell a security if we become
concerned about its credit risk, are forced by market factors to raise money,
or find that an attractive replacement security is available. For common
stocks, value involves selecting dividend-paying stocks, whose yields are
sensitive to interest rate levels when their dividend yields are close to bond
yields, which implies undervaluation. Such stocks are generally sold when their
yields return to a normal relationship versus bonds through price appreciation.
As a temporary defensive measure because of market, economic, political, or
other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the Fund not
achieving its investment objective during the time it is in this temporary
defensive posture.
Main Risks
The primary risks of investing in this Fund are interest rate risk, prepayment
risk, credit risk, and market risk.
INTEREST RATE RISK involves the possibility that the value of the Fund's
investments will fluctuate because of changes in interest rates.
o IF INTEREST RATES INCREASE: the yield of the Fund may increase and the
market value of the Fund's securities will likely decline, adversely
affecting the net asset value and total return.
o IF INTEREST RATES DECREASE: the yield of the Fund may decrease and the
market value of the Fund's securities may increase, which would likely
increase the Fund's net asset value and total return.
The price volatility of a bond also depends on its maturity. Generally, the
longer the maturity of a bond, the greater its sensitivity to interest rates.
To compensate investors for this higher risk, bonds with longer maturities
generally offer higher yields than bonds with shorter maturities.
PREPAYMENT RISK involves the possibility that prepayments of mortgages will
affect mortgage-backed securities held in the Fund's portfolio and will require
reinvestment at lower interest rates, resulting in less interest income to the
Fund.
CREDIT RISK involves the possibility that a borrower cannot make timely
interest and principal payments on its securities. We attempt to minimize the
Fund's credit risk by investing in securities considered investment grade at
the time of purchase. When evaluating
6B
<PAGE>
potential investments for the Fund, our analysts also assess credit risk and
its impact on the Fund's portfolio. Nevertheless, even investment-grade
securities are subject to some credit risk. Securities in the lowest-rated,
investment-grade category have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capability to make principal and interest payments on these securities than is
the case for higher-rated securities. In addition, the ratings of securities
are estimates by the rating agencies of the credit quality of the securities.
The ratings may not take into account every risk related to whether interest or
principal will be repaid on a timely basis.
MARKET RISK involves the possibility that the value of the Fund's investments
in equity securities will decline in a down stock market, reducing the value of
the company's stock, regardless of the success or failure of any one company's
operations. Stock markets tend to run in cycles, with periods when stock prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Equity securities tend to go
up and down more than bonds.
An additional risk of the Fund is the risk of investing in real estate
investment trusts (REITs).
REITS. Investing in REITs may subject the Fund to many of the same risks
associated with the direct ownership of real estate. Additionally, REITs are
dependent upon the capabilities of the REIT manager(s), have limited
diversification, and could be significantly impacted by changes in tax laws.
Who Should Consider Investing in this Fund
This Fund is designed primarily for the investor seeking to benefit from a
level of income higher than that available in the USAA Life Money Market Fund.
An investor in this Fund should also be willing to accept principal
fluctuation. Similar to the USAA Life Money Market Fund, the USAA Life Income
Fund should not be relied upon as a balanced investment program.
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows how the Fund's average annual total returns for the one-year
period, as well as the life of the Fund, compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future. Also keep in mind, the total return
calculations do not include other costs associated with the annuity or life
insurance policy. If they did, the Fund's performance would be lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1996* .67%
1997 11.60%
1998 9.17%
1999 -5.17%
*FUND BEGAN OPERATIONS ON JANUARY 5, 1995.
The Fund's total return for the three-month period
ended March 31, 2000, was 3.17%.
During the periods shown in the bar chart, the highest
total return for a quarter was 4.17% (quarter ending
September 30, 1997) and the lowest total return for a
quarter was -4.24% (quarter ending March 31, 1996).
[SIDE BAR]
YIELD IS THE ANNUALIZED NET INCOME OF THE FUND DURING A SPECIFIED PERIOD
AS A PERCENTAGE OF THE FUND'S SHARE PRICE.
All mutual funds must use the same formula to calculate
yield. The Fund may advertise performance in terms of a
30-day yield quotation. The Fund's 30-day yield for the
period ended December 31, 1999, was 7.94%.
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PAST SINCE FUND'S INCEPTION
PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON JANUARY 5, 1995
- -------------------------------------------------------------------------------
USAA Life Income Fund -5.17% 7.58%
- -------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index* -0.82% 7.68%
===============================================================================
* THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS AN UNMANAGED INDEX OF
THE GOVERNMENT/CORPORATE INDEX, THE MORTGAGE-BACKED SECURITIES
INDEX, AND THE ASSET-BACKED SECURITIES INDEX.
Portfolio Manager
Margaret Weinblatt, Vice President of Mutual Fund Portfolios, has managed the
Fund since February 2000. Ms. Weinblatt has 20 years investment management
experience and began working for us in January 2000. Prior to joining us she
worked for Countrywide Investments from June 1998 to November 1999; Copernicus
Asset Management, Ltd. from January 1996 to June 1998; and Neuberger & Berman
from 1986 to October 1995.
7B
<PAGE>
USAA LIFE GROWTH AND INCOME FUND
Objective
Capital growth and current income.
Principal Investment Strategy
The Fund's principal strategy is the investment of its assets primarily in
dividend-paying equity securities. We use the term "equity securities" to
include common stocks, securities convertible into common stocks, securities
that carry the right to buy common stocks, and real estate investment trusts
(REITs). We will limit the Fund's investment in convertible securities to 5% of
the value of the Fund's net assets at the time these securities are purchased.
We may also invest in nonconvertible debt securities and nonconvertible
preferred stock.
Additionally, we may invest up to 30% of the Fund's total assets in American
Depositary Receipts (ADRs) or similar forms of ownership interest 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.
over-the-counter markets.
In deciding which securities to buy and sell, we appraise a stock's price in
relation to the company's earnings, cash flow, book value, and yield. We also
consider various qualitative factors such as the number of shares the company's
management owns, the attitude of investors in general toward the company, and
the quality of management. We use the same criteria in deciding which
securities to sell. For example, when a company's shares sell well above their
relative historical levels of valuation, we may decide to sell the stock.
As a temporary defensive measure because of market, economic, political, or
other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the Fund not
achieving its investment objective during the time it is in this temporary
defensive posture.
Main Risks
The primary risk of investing in this Fund is market risk.
MARKET RISK involves the possibility that the value of the Fund's investments
in equity securities will decline in a down stock market, reducing the value of
the company's stock, regardless of the success or failure of any one company's
operations. Stock markets tend to run in cycles, with periods when stock prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Equity securities tend to go
up and down more than bonds.
Other risks of the Fund include the risks of foreign investing and investing in
real estate investment trusts (REITs).
FOREIGN INVESTING RISK. Investing in securities of foreign issuers poses unique
risks: currency exchange rate fluctuations; increased price volatility;
different accounting, reporting, and disclosure requirements; and political or
social instability. In the past, equity and debt instruments of foreign issuers
have been more volatile than equity and debt instruments of U.S. issuers.
REITS. Investing in REITs may subject the Fund to many of the same risks
associated with the direct ownership of real estate. Additionally, REITs are
dependent upon the capabilities of the REIT manager(s), have limited
diversification, and could be significantly impacted by changes in tax laws.
Who Should Consider Investing in this Fund
This Fund is designed for the investor seeking to benefit from long-term growth
of capital and income. Because the Fund emphasizes investments in common
stocks, its value will fluctuate based on market conditions. Consequently, the
USAA Life Growth and Income Fund should not be relied upon for short-term
financial needs or short-term investment in the stock market.
8B
<PAGE>
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows how the Fund's average annual total returns for the one-year
period, as well as the life of the Fund, compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future. Also keep in mind, the total return
calculations do not include other costs associated with the annuity or life
insurance policy. If they did, the Fund's performance would be lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1996* 24.13%
1997 26.43%
1998 6.93%
1999 14.67%
*FUND BEGAN OPERATIONS ON JANUARY 5, 1995.
The Fund's total return for the three-month period
ended March 31, 2000, was 1.39%.
During the periods shown in the bar chart, the highest
total return for a quarter was 17.33% (quarter ending
December 31, 1998) and the lowest total return for a
quarter was -17.02% (quarter ending September 30,
1998).
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PAST SINCE FUND'S INCEPTION
PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON JANUARY 5, 1995
- -------------------------------------------------------------------------------
USAA Life Growth and Income Fund 14.67% 20.44%
- -------------------------------------------------------------------------------
S&P 500 Index* 21.03% 28.50%
===============================================================================
* THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE UNMANAGED INDEX THAT
REPRESENTS THE WEIGHTED AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY
HELD, PUBLICLY TRADED STOCKS.
Portfolio Manager
R. David Ullom, Assistant Vice President of Equity Investments, has managed the
Fund since its inception in January 1995. Mr. Ullom has 25 years investment
management experience and has worked for us for 14 years.
9B
<PAGE>
USAA LIFE WORLD GROWTH FUND
Objective
Long-term capital appreciation.
Principal Investment Strategy
The Fund's principal strategy is the investment of its assets primarily in
equity securities of both foreign and domestic issuers. We use the term "equity
securities" to include common stocks, preferred stocks, securities convertible
into common stocks, and securities that carry the right to buy common stocks.
We may invest the remainder of the Fund's assets in investment-grade,
short-term debt instruments having the following characteristics:
o remaining maturities of less than one year that have been issued or
guaranteed as to both principal and interest by the U.S. government
or its agencies or instrumentalities, or
o repurchase agreements collateralized by such securities.
There are no restrictions as to the types of businesses or operations of
companies in which the Fund's assets may be invested, except that we may not
invest more than 25% of the Fund's total assets in one industry. Under normal
market conditions, the Fund's investments will be diversified in at least three
countries.
We believe that international diversification may have a balancing impact with
regard to domestic investments during periods of adverse economic and market
conditions in the United States. Therefore, the Fund combines the advantages of
investing in a diversified international market and domestic market, with the
convenience and liquidity of a mutual fund based in the United States.
In deciding which foreign securities to buy and sell, we review countries and
regions for economic and political stability as well as future prospects. Then
we research individual companies looking for favorable valuations, growth
prospects, quality of management, and industry outlook. Securities are sold if
we believe they are overvalued or if the economic or political outlook
significantly deteriorates.
In deciding which domestic securities to buy and sell, we generally invest in
companies that are, or have the prospect of becoming, dominant in their
industry. We expect the sales and earnings of these companies to grow faster
than those of their industry peers. We consider a number of factors such as a
company's strategic position in its industry, sales and earnings growth, cash
flow, book value, and dividend yield. We will sell a security when we perceive
that our original investment thesis no longer holds.
As a temporary defensive measure because of market, economic, political, or
other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the Fund not
achieving its investment objective during the time it is in this temporary
defensive posture.
Main Risks
The primary risks of investing in this Fund are market risk and the risks of
foreign investing.
MARKET RISK involves the possibility that the value of the Fund's investments
in equity securities will decline in a down stock market, reducing the value of
the company's stock, regardless of the success or failure of any one company's
operations. Stock markets tend to run in cycles, with periods when stock prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Equity securities tend to go
up and down more than bonds.
FOREIGN INVESTING RISK involves the possibility that the value of the Fund's
investments in foreign stock, including American Depositary Receipts (ADRs)
and Global Depositary Receipts (GDRs), will decrease because of the following
unique risks: currency exchange rate fluctuations; foreign market illiquidity;
exchange control regulations; foreign ownership limits; different accounting,
reporting, and disclosure requirements; difficulties in obtaining legal
judgments; and foreign withholding taxes. In the past, equity and debt
instruments of foreign markets have been more volatile than equity and debt
instruments of U.S. securities markets. Three forms of foreign investing risk
are emerging markets risk, political risk, and euro conversion risk.
o EMERGING MARKETS RISK. Investments in countries that are in the early
stages of their industrial development involve exposure to economic
structures that are generally less diverse and mature than in the United
States and to political systems which may be less stable.
o POLITICAL RISK. Political risk includes a greater potential for coups
d'etat, revolts, and expropriation by governmental organizations.
o EURO CONVERSION RISK. On January 1, 1999, countries participating in the
European Monetary Union began converting their currencies into a new
currency unit called the Euro. The conversion to the Euro, which will
continue in stages through 2002, is expected to reshape the financial
markets, banking systems, and monetary policies in Europe and other
parts of the world and could adversely affect the Fund's investments in
these markets. In addition, a failure of the clearing and settlement
systems in these markets to handle the Euro conversion could adversely
affect the Fund.
10B
<PAGE>
Who Should Consider Investing in this Fund
This Fund is designed for the investor seeking to diversify by investing in
securities of both domestic and foreign issuers and who is prepared to bear the
risks of such investments. Because of the Fund's emphasis on equity securities
and securities of foreign issuers, the USAA Life World Growth Fund should not
be relied upon as a balanced investment program.
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows how the Fund's average annual total returns for the one-year
period, as well as the life of the Fund, compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future. Also keep in mind, the total return
calculations do not include other costs associated with the annuity or life
insurance policy. If they did, the Fund's performance would be lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1996* 21.12%
1997 14.08%
1998 11.46%
1999 30.93%
*FUND BEGAN OPERATIONS ON JANUARY 5, 1995.
The Fund's total return for the three-month period
ended March 31, 2000, was 4.20%.
During the periods shown in the bar chart, the highest
total return for a quarter was 20.19% (quarter ending
December 31, 1998) and the lowest total return for a
quarter was -18.36% (quarter ending September 30,
1998).
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PAST SINCE FUND'S INCEPTION
PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON JANUARY 5, 1995
- -------------------------------------------------------------------------------
USAA Life World Growth Fund 30.93% 19.24%
- -------------------------------------------------------------------------------
Morgan Stanley Capital Index (MSCI) World* 24.93% 19.86%
===============================================================================
* MORGAN STANLEY CAPITAL INDEX - WORLD IS AN UNMANAGED INDEX THAT
REFLECTS THE MOVEMENTS OF WORLD STOCK MARKETS BY REPRESENTING A
BROAD SELECTION OF DOMESTICALLY LISTED COMPANIES WITHIN EACH MARKET.
Portfolio Managers
FOREIGN SECURITIES
Albert C. Sebastian, Vice President of International Mutual Funds, is the asset
allocation manager for the USAA Life World Growth Fund and coordinates the
activities of the managers. He has co-managed the Fund's investments in foreign
securities since October 1996. Mr. Sebastian has 16 years investment management
experience and has worked for us for nine years.
Kevin P. Moore, Assistant Vice President of Equity Investments, has co-managed
the Fund's investments in foreign securities since October 1999. Mr. Moore has
12 years investment management experience and has worked for us for five years.
DOMESTIC SECURITIES
Curt Rohrman, Assistant Vice President of Equity Investments, has managed the
Fund's investments in domestic securities since October 1998. Mr. Rohrman has
11 years investment management experience and has worked for us for five years.
11B
<PAGE>
USAA LIFE DIVERSIFIED ASSETS FUND
Objective
Long-term capital growth, consistent with preservation of capital and balanced
by current income.
Principal Investment Strategy
The Fund's principal strategy is the investment of its assets in a diversified
program within one mutual fund by allocating the Fund's assets, under normal
market conditions, in approximately 60% equity securities (selected for their
potential return) and approximately 40% in debt securities of varying
maturities. We use the term "equity securities" to include common stocks,
preferred stocks, securities convertible into common stocks, and securities
that carry the right to buy common stocks. The equity securities consist
primarily of "basic value stocks" of U.S. companies that we believe are
undervalued in relation to such factors as the company's assets and current or
prospective earnings. We may also invest the Fund's assets in shares of real
estate investment trusts (REITs).
The fixed income component of the Fund will be made up of the same types of
debt securities in which the USAA Life Income Fund may invest. The Fund may
also invest in municipal lease obligations.
From time to time the stock and bond markets may fluctuate independently of
each other. In other words, a decline in the stock market may, in certain
instances, be offset by a rise in the bond market, or vice versa. As a result,
the Fund, with its mix of stocks and bonds, may in the long run potentially
return less (and entail less market risk) than a mutual fund investing
exclusively in stocks.
In deciding which equity securities to buy and sell, we appraise a stock's
price in relation to the company's earnings, cash flow, book value, and yield.
We also consider various qualitative factors such as the number of shares the
company's management owns, the attitude of investors in general toward the
company, and the quality of management. We use the same criteria in deciding
which securities to sell. For example, when a company's shares sell well above
their relative historical levels of valuation, we may decide to sell the stock.
In deciding which debt securities to buy and sell, we search for securities
that represent value at the time given current market conditions. Value is a
combination of yield, credit quality, structure (maturity, coupon, redemption
features), and liquidity. Recognizing value is the result of simultaneously
analyzing the interaction of these factors among the securities available in
the market. We will sell a security if we become concerned about its credit
risk, are forced by market factors to raise money, or find that an attractive
replacement is available.
As a temporary defensive measure because of market, economic, political, or
other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the Fund not
achieving its investment objective during the time it is in this temporary
defensive posture.
Main Risks
The primary risks of investing in this Fund are market risk, credit risk, and
interest rate risk.
MARKET RISK involves the possibility that the value of the Fund's investments
in equity securities will decline in a down stock market, reducing the value of
the company's stock, regardless of the success or failure of any one company's
operations. Stock markets tend to run in cycles, with periods when stock prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Equity securities tend to go
up and down more than bonds.
CREDIT RISK involves the possibility that a borrower cannot make timely
interest and principal payments on its securities. We attempt to minimize the
Fund's credit risk by investing in securities considered investment grade at
the time of purchase. When evaluating potential investments for the Fund, our
analysts also assess credit risk and its impact on the Fund's portfolio.
Nevertheless, even investment-grade securities are subject to some credit risk.
Securities in the lowest-rated, investment-grade category have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capability to make principal and interest payments
on these securities than is the case for higher-rated securities. In addition,
the ratings of securities are estimates by the rating agencies of the credit
quality of the securities. The ratings may not take into account every risk
related to whether interest or principal will be repaid on a timely basis.
INTEREST RATE RISK involves the possibility that the value of the Fund's
investments will fluctuate because of changes in interest rates.
o IF INTEREST RATES INCREASE: the yield of the Fund may increase and the
market value of the Fund's securities will likely decline, adversely
affecting the net asset value and total return.
o IF INTEREST RATES DECREASE: the yield of the Fund may decrease and the
market value of the Fund's securities may increase, which would likely
increase the Fund's net asset value and total return.
The price volatility of a bond also depends on its maturity. Generally, the
longer the maturity of a bond, the greater its sensitivity to interest rates.
To compensate investors for this higher risk, bonds with longer maturities
generally offer higher yields than bonds with shorter maturities.
12B
<PAGE>
Other risks of the Fund include the risk of investing in real estate investment
trusts (REITs) and prepayment risk.
REITS. Investing in REITs may subject the Fund to many of the same risks
associated with the direct ownership of real estate. Additionally, REITs are
dependent upon the capabilities of the REIT manager(s), have limited
diversification, and could be significantly impacted by changes in tax laws.
PREPAYMENT RISK involves the possibility that prepayments of mortgages will
affect mortgage-backed securities held in the Fund's portfolio and will require
reinvestment at lower interest rates, resulting in less interest income to the
Fund.
Who Should Consider Investing in this Fund
This Fund is designed for the investor seeking the benefits of both long-term
capital appreciation and current income. Generally, this Fund is expected to
have less exposure to equity securities than the USAA Life Growth and Income
Fund.
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows how the Fund's average annual total returns for the one-year
period, as well as the life of the Fund, compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future. Also keep in mind, the total return
calculations do not include other costs associated with the annuity or life
insurance policy. If they did, the Fund's performance would be lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AN CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1996* 14.30%
1997 20.70%
1998 9.63%
1999 7.58%
*FUND BEGAN OPERATIONS ON JANUARY 5, 1995
The Fund's total return for the three-month period
ended March 31, 2000, was 1.77%.
During the periods shown in the bar chart, the highest
total return for a quarter was 10.14% (quarter ending
June 30, 1997) and the lowest total return for a
quarter was -7.07% (quarter ending September 30, 1998).
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PAST SINCE FUND'S INCEPTION
PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON JANUARY 5, 1995
- -------------------------------------------------------------------------------
USAA Life Diversified Assets Fund 7.58% 15.50%
- -------------------------------------------------------------------------------
S&P 500 Index* 21.03% 28.50%
===============================================================================
* THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE UNMANAGED INDEX THAT
REPRESENTS THE WEIGHTED AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY
HELD, PUBLICLY TRADED STOCKS.
Portfolio Managers
EQUITY SECURITIES
R. David Ullom, Assistant Vice President of Equity Investments, is the asset
allocation manager of the USAA Life Diversified Assets Fund. He has managed the
Fund's investments in equity securities since August 1998. Mr. Ullom has 25
years investment management experience and has worked for us for 14 years.
FIXED INCOME SECURITIES
Paul H. Lundmark, Assistant Vice President of Fixed Income Mutual Fund
Portfolios, has managed the Fund's investments in fixed income securities since
its inception in January 1995. Mr. Lundmark has 14 years investment management
experience and has worked for us for eight years.
13B
<PAGE>
USAA LIFE AGGRESSIVE GROWTH FUND
Objective
Appreciation of capital.
Principal Investment Strategy
The Fund's principal strategy is the investment of its assets primarily in
equity securities of companies with the prospect of rapidly growing earnings.
These investments will tend to be made in smaller, less-recognized companies,
but may include larger, more widely recognized companies as well. We use the
term "equity securities" to include common stocks, securities convertible into
common stocks, and securities that carry the right to buy common stocks.
While most of the Fund's assets will be invested in U.S. securities, we may
also invest up to 30% of the Fund's total assets in foreign securities
purchased in either foreign or U.S. markets. These foreign holdings may include
securities issued in emerging markets as well as securities issued in
established markets.
We generally will not trade the Fund's securities for short-term profits;
however, if circumstances warrant, we may need to actively and frequently trade
Fund securities to achieve the Fund's principal investment strategy. The Fund's
portfolio turnover rate will vary from year to year depending on market
conditions. A high turnover rate increases transaction costs and may increase
taxable capital gains; therefore, we will carefully weigh the anticipated
benefits of trading.
In deciding which securities to buy and sell, we invest in companies that have
rapid sales and earnings growth potential. These companies tend to be in the
small- and mid-capitalization categories, but we will also invest in
large-capitalization companies where appropriate. We seek companies that are
well positioned to take advantage of emerging, long-term social and economic
trends and have ample financial resources to sustain their growth. We
frequently invest through initial public offerings of companies meeting these
criteria. We may reduce or sell the Fund's investments in companies if their
stock prices appreciate excessively in relation to fundamental prospects.
Companies will also be sold if they fail to realize their growth potential or
if there are more attractive opportunities elsewhere.
As a temporary defensive measure because of market, economic, political, or
other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the Fund not
achieving its investment objective during the time it is in this temporary
defensive posture.
Main Risks
The primary risks of investing in this Fund are market risk and the risks of
investing in companies with small market capitalizations (small-cap companies).
[SIDE BAR]
MARKET CAPITALIZATION IS THE TOTAL MARKET VALUE OF A COMPANY'S OUTSTANDING
SHARES OF COMMON STOCK.
MARKET RISK involves the possibility that the value of the Fund's investments
in equity securities will decline in a down stock market, reducing the value of
the company's stock, regardless of the success or failure of any one company's
operations. Stock markets tend to run in cycles, with periods when stock prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Equity securities tend to go
up and down more than bonds.
SMALL-CAP COMPANY RISK involves the greater risk of investing in smaller, less
well-known companies that may be more vulnerable than larger companies to
adverse business or economic developments. Securities of such companies may be
less liquid and more volatile than securities of larger companies or the market
averages in general and, therefore, may involve greater risk than investing in
larger companies. In addition, small-cap companies may not be well known to the
investing public; may not have institutional ownership; and may have only
cyclical, static, or moderate growth prospects.
FOREIGN INVESTING RISK involves the possibility that the value of the Fund's
investments in foreign stock, including American Depositary Receipts (ADRs) and
Global Depositary Receipts (GDRs), will decrease because of the following
unique risks: currency exchange rate fluctuations; foreign market illiquidity;
exchange control regulations; foreign ownership limits; different accounting,
reporting, and disclosure requirements; difficulties in obtaining legal
judgments; and foreign withholding taxes. Two forms of foreign investing risk
are emerging markets risk and political risk.
O EMERGING MARKETS RISK. Investments in countries that are in the early
stages of their industrial development involve exposure to economic
structures that are generally less diverse and mature than in the United
States and to political systems which may be less stable.
O POLITICAL RISK. Political risk includes a greater potential for coups
d'etat, revolts, and expropriation by governmental organizations.
14B
<PAGE>
Who Should Consider Investing in this Fund
This Fund is designed for the investor seeking to benefit from long-term growth
of capital. Generally, this Fund is expected to have a greater potential for
long-term capital appreciation than the USAA Life Growth and Income Fund, but
is also significantly more volatile.
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows how the Fund's average annual total returns for the one-year
period, as well as the life of the Fund, compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future. Also keep in mind, the total return
calculations do not include other costs associated with the annuity or life
insurance policy. If they did, the Fund's performance would be lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1998* 20.14%
1999 94.34%
* FUND BEGAN OPERATIONS ON MAY 1, 1997.
The Fund's total return for the three-month period
ended March 31, 2000, was 11.99%.
During the periods shown in the bar chart, the highest
total return for a quarter was 51.38% (quarter ending
December 31, 1999) and the lowest total return for a
quarter was -21.27% (quarter ending September 30,
1998).
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PAST SINCE FUND'S INCEPTION
PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON MAY 1, 1997
- -------------------------------------------------------------------------------
USAA Life Aggressive Growth Fund 94.34% 46.35%
- -------------------------------------------------------------------------------
Russell 2000 Index* 21.26% 16.86%
- -------------------------------------------------------------------------------
S&P 500 Index* 21.03% 13.77%
===============================================================================
* THE RUSSELL 2000 INDEX IS AN INDEX THAT CONSISTS OF THE 2,000
SMALLEST COMPANIES IN THE RUSSELL 3000(R) INDEX, A WIDELY RECOGNIZED
SMALL CAP INDEX. THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE,
UNMANAGED INDEX THAT REPRESENTS THE WEIGHTED AVERAGE PERFORMANCE OF
A GROUP OF 500 WIDELY HELD, PUBLICLY TRADED STOCKS.
Portfolio Managers
John K. Cabell, Jr. and Eric M. Efron, Assistant Vice Presidents of Equity
Investments, have managed the Fund since its inception in May 1997. Mr. Cabell
has 22 years investment management experience and has worked for us for 11
years. Mr. Efron has 25 years investment management experience and has worked
for us for eight years.
15B
<PAGE>
USAA LIFE INTERNATIONAL FUND
Objective
Capital appreciation with a secondary objective of current income.
Principal Investment Strategy
The Fund's principal strategy is the investment of at least 80% of its assets
in equity securities of foreign companies. We use the term "equity securities"
to include common stocks, preferred stocks, securities convertible into common
stocks, and securities that carry the right to buy common stocks. A foreign
company is one organized under the laws of a foreign country, and it must also
have one of the following additional characteristics:
o the principal trading market for the stock is in a foreign country;
o at least 50% of its revenues or profits are derived from operations
within foreign countries; or
o at least 50% of its assets are located within foreign countries.
We may invest the remainder of the Fund's assets in equity securities of
companies that meet any of the criteria as described in the definition of a
foreign company and in investment-grade, short-term debt instruments having the
following characteristics:
o remaining maturities of less than one year that have been issued or
guaranteed as to both principal and interest by the U.S. government
or its agencies or instrumentalities, or
o repurchase agreements collateralized by such securities.
There are no restrictions as to the types of businesses or operations of
companies in which the Fund's assets may be invested, except that we may not
invest more than 25% of the Fund's total assets in one industry. The Fund's
investments will be diversified in at least four or more countries. We believe
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.
In deciding which securities to buy and sell, we review countries and regions
for economic and political stability as well as future prospects. Then we
research individual companies looking for favorable valuations, growth
prospects, quality of management, and industry outlook. Securities are sold if
we believe they are overvalued or if the economic or political outlook
significantly deteriorates.
As a temporary defensive measure because of market, economic, political, or
other conditions, we may invest up to 100% of the Fund's assets in
investment-grade, short-term debt instruments. This may result in the Fund not
achieving its investment objective during the time it is in this temporary
defensive posture.
Main Risks
The primary risks of investing in this Fund are market risk and the risk of
foreign investing.
MARKET RISK involves the possibility that the value of the Fund's investments
in equity securities will decline in a down stock market, reducing the value of
the company's stock, regardless of the success or failure of any one company's
operations. Stock markets tend to run in cycles, with periods when stock prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Equity securities tend to go
up and down more than bonds.
FOREIGN INVESTING RISK involves the possibility that the value of the Fund's
investments in foreign stock, including American Depositary Receipts (ADRs) and
Global Depositary Receipts (GDRs), will decrease because of the following
unique risks: currency exchange rate fluctuations; foreign market illiquidity;
exchange control regulations; foreign ownership limits; different accounting,
reporting, and disclosure requirements; difficulties in obtaining legal
judgments; and foreign withholding taxes. Three forms of foreign investing risk
are emerging markets risk, political risk, and euro conversion risk.
o EMERGING MARKETS RISK. Investments in countries that are in the early
stages of their industrial development involve exposure to economic
structures that are generally less diverse and mature than in the United
States and to political systems which may be less stable.
o POLITICAL RISK. Political risk includes a greater potential for coups
d'etat, revolts, and expropriation by governmental organizations.
o EURO CONVERSION RISK. On January 1, 1999, countries participating in the
European Monetary Union began converting their currencies into a new
currency unit called the Euro. The conversion to the Euro, which will
continue in stages through 2002, is expected to reshape the financial
markets, banking systems, and monetary policies in Europe and other
parts of the world and could adversely affect the Fund's investments in
these markets. In addition, a failure of the clearing and settlement
systems in these markets to handle the Euro conversion could adversely
affect the Fund.
16B
<PAGE>
Who Should Consider Investing in this Fund
This Fund is designed for the investor seeking to benefit from greater exposure
to investments in foreign securities that is generally available through the
USAA World Growth Fund. Because of the Fund's greater emphasis on foreign
securities, the USAA Life International Fund can be expected to present a
greater level of risk than the USAA Life World Growth Fund and should not be
relied upon as a balanced investment program.
Fund Performance
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception, while
the table shows how the Fund's average annual total returns for the one-year
period, as well as the life of the Fund, compared to those of a broad-based
securities market index. Remember, historical performance does not necessarily
indicate what will happen in the future. Also keep in mind, the total return
calculations do not include other costs associated with the annuity or life
insurance policy. If they did, the Fund's performance would be lower.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1998* 3.78%
1999 28.33%
*FUND BEGAN OPERATIONS ON MAY 1, 1997.
The Fund's total return for the three-month period
ended March 31, 2000, was 2.74%.
During the periods shown in the bar chart, the highest
total return for a quarter was 16.49% (quarter ending
December 31, 1998) and the lowest total return for a
quarter was -19.73% (quarter ending September 30,
1998).
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PAST SINCE FUND'S INCEPTION
PERIODS ENDING DECEMBER 31, 1999) 1 YEAR ON MAY 1, 1997
- -------------------------------------------------------------------------------
USAA Life International Fund 28.33% 12.14%
- -------------------------------------------------------------------------------
Morgan Stanley Capital Index (MSCI) EAFE* 26.96% 18.24%
===============================================================================
* MORGAN STANLEY CAPITAL INDEX (MSCI) EAFE IS AN UNMANAGED INDEX
THAT REFLECTS THE MOVEMENTS OF STOCK MARKETS IN EUROPE, AUSTRALIA,
AND THE FAR EAST BY REPRESENTING A BROAD SELECTION OF DOMESTICALLY
LISTED COMPANIES WITHIN EACH MARKET.
Portfolio Managers
Albert C. Sebastian, Vice President of International Mutual Funds, has
co-managed the Fund since its inception in May 1997. Mr. Sebastian has 16 years
investment experience and has worked for us for nine years.
Kevin P. Moore, Assistant Vice President of Equity Investments, has co-managed
the Fund since October 1999. Mr. Moore has 12 years investment management
experience and has worked for us for five years.
17B
<PAGE>
FUND MANAGEMENT
The Trust has retained us, USAA Investment Management Company, to serve as the
manager and distributor for the Trust. We are an affiliate of United Services
Automobile Association (USAA), a large, diversified financial services
institution. As of the date of this Prospectus, we had approximately $42
billion in total assets under management. Our mailing address is 9800
Fredericksburg Road, San Antonio, TX 78288.
Advisory Fees
We provide management services to the Funds pursuant to an Advisory Agreement.
We are responsible for managing the Funds' portfolios (including placement of
brokerage orders) and their business affairs, subject to the authority of and
supervision by the Funds' Board of Trustees. For our services, the Funds pay us
an annual fee. This fee, which is accrued daily and paid monthly, is computed
as a percentage of monthly average net assets (ANA). For the Trust's most
recent fiscal year ended December 31, 1999, the fee for each Fund (other than
the USAA Life Aggressive Growth Fund and the USAA Life International Fund) was
equal to an annualized rate of 0.20% of the monthly ANA. With respect to the
USAA Life Aggressive Growth Fund and the USAA Life International Fund, we
received fees equal to an annualized rate of 0.50% and 0.65%, respectively, of
each Fund's monthly ANA. We also provide services related to selling the Funds'
shares and receive no compensation for those services.
PURCHASE OF FUND SHARES
The Trust currently sells shares of the Funds in a continuous offering only to
separate accounts funding benefits to variable annuity contracts and variable
life insurance policies issued by USAA Life Insurance Company. Each separate
account is divided into fund accounts, seven of which invest in a corresponding
Fund of the Trust, as directed by 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 USAA Life
Insurance Company receives instructions to invest from you or other contract
and policy owners (such as making a premium payment) or after the operation of
a contract or policy (such as deduction of fees and charges).
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 minimum premium payments
allocated to one or more specific Funds are in the prospectuses of the variable
annuity contract and variable life insurance policies.
REDEMPTION OF FUND SHARES
The fund accounts redeem shares of the appropriate Fund based on instructions
by you or other contract and policy owners to receive back monies under a
contract (such as surrendering a contract), or the operation of a contract
(such as deduction of fees and charges). Fund accounts may redeem any of the
Fund's shares on any day the NAV per share is calculated. Redemptions are
effective on the day instructions are received. However, if instructions are
received after the NAV per share calculation (generally 4:00 p.m. Eastern
Time), your redemption will be effective on the next business day.
The Fund will make payment for redeemed shares within seven days after the
effective date of redemption. The amount received upon redemption 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.
In addition, the Trust may elect to suspend the redemption of shares or
postpone the date of payment in limited circumstances.
VALUATION OF FUND SHARES
[SIDE BAR]
NAV PER SHARE
EQUALS
TOTAL ASSETS
MINUS
LIABILITIES
DIVIDED BY
# OF SHARES
OUTSTANDING
The price at which Fund shares are purchased and redeemed by separate accounts
is equal to the net asset value (NAV) per share determined on the effective
date of the purchase or redemption. Separate accounts buy and sell Fund shares
at the NAV per share without a sales charge. Each Fund's NAV per share is
calculated at the close of the regular trading session of the New York Stock
Exchange (NYSE), which is usually 4:00 p.m. Eastern Time.
Valuation of Fund Securities for Each Fund (except the USAA Life Money Market
Fund)
Portfolio securities, except as otherwise noted, traded primarily on a
securities exchange are valued at the last sales price on that exchange.
Portfolio securities traded primarily on foreign securities exchanges are
valued at the last quoted sales price, or the most recently determined closing
price calculated according to local market convention, available at the time
the Fund's securities are valued. If no sale is reported, the average of the
bid and asked prices is generally used.
Securities trading in various foreign markets may take place on days when the
NYSE is closed. Further, when the NYSE is open, the foreign markets may be
closed. The calculation of the Fund's NAV may not take place at the same time
the prices of certain securities held by the Fund are determined. As such, the
NAV of the Fund's shares may change on days when the shareholders will not be
able to purchase or redeem shares. In most cases, events affecting the values
of portfolio securities that occur between the time their prices are determined
and the close of regular trading on the NYSE on a day the Fund's NAV is
calculated will not be reflected in the Fund's
18B
<PAGE>
NAV. If, however, we determine that a particular event would materially affect
the Fund's NAV, then we, under the general supervision of the Funds' Board of
Trustees, will use all relevant, available information to determine a fair
value for the affected portfolio securities.
Over-the-counter securities are generally priced at the last sales price or, if
not available, at the average of the bid and asked prices.
Debt securities purchased with maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other debt securities are
valued each business day at their current market value as determined by a
pricing service approved by the Funds' Board of Trustees. Securities that
cannot be valued by these methods, and all other assets, are valued in good
faith at fair value using methods we have determined under the general
supervision of the Funds' Board of Trustees.
Valuation of the USAA Life Money Market Fund Securities
Securities are valued at amortized cost, which approximates market value. For
additional information on how securities are valued, see VALUATION OF
SECURITIES in the Trust's Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
Each Fund (except the USAA Life Money Market Fund) pays net investment income
dividends to separate accounts as shareholders at least once each year. Any net
capital gains generally will be distributed at least annually. The Fund will
make additional payments, if necessary, to avoid the imposition of any federal
income or excise tax.
With respect to the USAA Life Money Market Fund, net investment income is
accrued daily and paid on the last business day of the month. Daily dividends
are declared at the time the NAV per share is calculated. Dividends shall begin
accruing on shares purchased the day following the effective date and shall
continue to accrue to the effective date of redemption.
All income dividends and capital gain distributions will be paid in the form of
additional shares of that Fund at the NAV per share. The share price will be
the NAV of the Fund's shares computed on the ex-dividend date. Any income
dividends or capital gain distributions paid by the Fund will reduce the NAV
per share by the amount of the dividend or distribution.
TAXES
As mutual funds, the Funds themselves will not be subject to federal income tax
provided they distribute all of their income and net capital gains for each
taxable year in accordance with the Internal Revenue Code. Because the Funds
sell shares only to separate accounts funding benefits to variable annuity
contracts and variable life insurance policies, Internal Revenue Code
provisions applicable to separate accounts of variable insurance products
apply. As such, you should refer to the accompanying prospectus that describes
the variable annuity contract or variable life insurance policy, as applicable,
for the federal income tax treatment of the contract or policy and
distributions to you as a contract or policy owner and for the consequences of
the Trust's failure to meet Internal Revenue Code requirements.
19B
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each Fund's
financial performance since inception. Certain information reflects financial
results from a single Fund share. The total return in the table represents the
rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by KPMG LLP, whose report, along with each Fund's financial
statements, are included in the Annual Report, which is available upon request.
USAA LIFE MONEY MARKET FUND
<TABLE>
<CAPTION>
==============================================================================================
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995*
- ---------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
Net investment income .05 .05 .05 .05 .06(b)
- ----------------------------------------------------------------------------------------------
Distributions from net investment income (.05) (.05) (.05) (.05) (.06)
- ----------------------------------------------------------------------------------------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (%)** 4.93 5.29 5.35 5.25 5.69
- ----------------------------------------------------------------------------------------------
Net assets at end of period (000) $31,495 $22,111 $15,131 $11,245 $7,802
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .35 .35 .35 .35 .35(a)
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .56 .80 .70 1.24 2.29(a)
- ----------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 4.85 5.17 5.22 5.10 5.55(a)
==============================================================================================
USAA LIFE INCOME FUND
==============================================================================================
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995*
- ----------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.89 $ 10.96 $ 10.51 $ 11.32 $ 10.00
- ----------------------------------------------------------------------------------------------
Net investment income .96 .66 .75 .92 .78(b)
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (1.52) .35 .46 (.84) 1.61
- ----------------------------------------------------------------------------------------------
Distributions from net investment income (.96) (.66) (.76) (.89) (.76)
- ----------------------------------------------------------------------------------------------
Distributions of realized capital gains (.23) (.42) _ _ (.31)
- ----------------------------------------------------------------------------------------------
Net asset value at end of period $ 9.14 $ 10.89 $ 10.96 $ 10.51 $ 11.32
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (%)** (5.17) 9.17 11.60 .67 23.88
- ----------------------------------------------------------------------------------------------
Net assets at end of period (000) $16,221 $41,249 $28,246 $24,049 $25,823
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .35 .35 .35 .35 .35(a)
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .68 .55 .52 .65 .65(a)
- ----------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 6.56 6.62 7.16 6.99 7.07(a)
- ----------------------------------------------------------------------------------------------
Portfolio Turnover (%) 41.36 61.79 30.77 97.74 55.08
==============================================================================================
(a) Annualized. The ratio is no necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
* Fund commenced operations on January 5, 1995.
** 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 gain distributions
are reinvested. Total returns from 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.
20B
<PAGE>
USAA LIFE GROWTH AND INCOME FUND
===============================================================================================
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995*
- -----------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 18.15 $ 17.98 $ 15.06 $ 12.60 $ 10.00
- -----------------------------------------------------------------------------------------------
Net investment income .27 .28 .28 .26 .34(a)
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.39 .97 3.68 2.79 2.83
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (.27) (.28) (.27) (.26) (.30)
- -----------------------------------------------------------------------------------------------
Distributions of realized capital gains (1.79) (.80) (.77) (.33) (.27)
- -----------------------------------------------------------------------------------------------
Net asset value at end of period $ 18.75 $ 18.15 $ 17.98 $ 15.06 $ 12.60
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B) 14.67 6.93 26.43 24.13 31.72
- -----------------------------------------------------------------------------------------------
Net assets at end of period (000) $84,112 $100,438 $85,750 $55,932 $28,761
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .35 .35 .34 .35 .35(c)
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .37 .37 _ .53 .66
- -----------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 1.31 1.55 1.80 2.25 2.82(c)
- -----------------------------------------------------------------------------------------------
Portfolio Turnover (%) 19.50 37.75 20.26 14.55 17.73(c)
===============================================================================================
USAA LIFE WORLD GROWTH FUND
===============================================================================================
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995*
- -----------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 14.37 $ 13.34 $ 12.77 $ 11.10 $ 10.00
- -----------------------------------------------------------------------------------------------
Net investment income .13 .16 .17 .18 .17(a)
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.30 1.37 1.62 2.16 1.79
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (.13) (.16) (.17) (.16) (.16)
- -----------------------------------------------------------------------------------------------
Distributions of realized capital gains (2.70) (.34) (1.05) (.51) (.70)
- -----------------------------------------------------------------------------------------------
Net asset value at end of period $ 15.97 $ 14.37 $ 13.34 $ 12.77 $ 11.10
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B) 30.93 11.46 14.08 21.12 19.55
- -----------------------------------------------------------------------------------------------
Net assets at end of period (000) $33,918 $42,080 $39,510 $37,535 $24,706
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .65 .65 .59 .65 .65(c)
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .75 .66 _ .82 .87(c)
- -----------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) .91 1.09 1.20 1.45 1.55(c)
- -----------------------------------------------------------------------------------------------
Portfolio Turnover (%) 29.62 55.47 48.89 57.66 78.86
===============================================================================================
(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 gain distributions
are reinvested. Total returns from 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.
* Fund commenced operations on January 5, 1995.
21B
<PAGE>
USAA LIFE DIVERSIFIED ASSETS FUND
=============================================================================================
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995*
- ---------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 15.07 $ 14.48 $ 12.95 $ 11.96 $ 10.00
- ---------------------------------------------------------------------------------------------
Net investment income .52 .55 .50 .62 .55(b)
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain .64 .85 2.14 1.10 2.08
- ---------------------------------------------------------------------------------------------
Distributions from net investment income (.52) (.55) (.50) (.62) (.53)
- ---------------------------------------------------------------------------------------------
Distributions of realized capital gains (3.30) (.26) (.61) (.11) (.14)
- ---------------------------------------------------------------------------------------------
Net asset value at end of period $ 12.41 $ 15.07 $ 14.48 $ 12.95 $ 11.96
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (%)** 7.58 9.63 20.70 14.30 26.33
- ---------------------------------------------------------------------------------------------
Net assets at end of period (000) $39,973 $60,570 $48,212 $30,390 $26,311
- ---------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .35 .35 .35 .35 .35(a)
- ---------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .50 .45 .42 .61 .64(a)
- ---------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 3.37 3.72 4.02 4.46 4.93(a)
- ---------------------------------------------------------------------------------------------
Portfolio Turnover (%) 38.75 29.67 19.19 43.75 58.87
=============================================================================================
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
* Fund commenced operations on January 5, 1995.
** 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 gain distributions
are reinvested. Total returns from 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.
</TABLE>
22B
<PAGE>
USAA LIFE AGGRESSIVE GROWTH FUND
===============================================================================
YEAR ENDED DECEMBER 31,
1999 1998 1997
- -------------------------------------------------------------------------------
Net asset value at beginning of period $ 13.87 $ 11.70 $ 10.00
- -------------------------------------------------------------------------------
Net investment income (loss) (.07)(b) (.05)(b) .01(b)
- -------------------------------------------------------------------------------
Net realized and unrealized gain 13.06 2.39 1.83
- -------------------------------------------------------------------------------
Distributions of realized capital gains (1.83) (.17) (.12)
- -------------------------------------------------------------------------------
Net asset value at end of period $ 25.03 $ 13.87 $ 11.70
- -------------------------------------------------------------------------------
TOTAL RETURN (%)** 94.34 20.14 18.26
- -------------------------------------------------------------------------------
Net assets at end of period (000) $58,751 $29,201 $42,545
- -------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .70 .70 .70(a)
- -------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) .94 .84 .85(a)
- -------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) (.43) (.41) (.15)(a)
- -------------------------------------------------------------------------------
Portfolio Turnover (%) 56.63 50.48 73.77
===============================================================================
USAA LIFE INTERNATIONAL FUND
===============================================================================
YEAR ENDED DECEMBER 31,
1999 1998 1997*
- -------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.32 $ 10.05 $ 10.00
- -------------------------------------------------------------------------------
Net investment income .11 .11 .05(b)
- -------------------------------------------------------------------------------
Net realized and unrealized gain 2.81 .27 .15
- -------------------------------------------------------------------------------
Distributions from net investment income (.10) (.11) (.05)
- -------------------------------------------------------------------------------
Distributions of realized capital gains _ _ (.10)
- -------------------------------------------------------------------------------
Net asset value at end of period $ 13.14 $ 10.32 $ 10.05
- -------------------------------------------------------------------------------
TOTAL RETURN (%)** 28.33 3.78 1.92
- -------------------------------------------------------------------------------
Net assets at end of period (000) $28,693 $22,226 $21,582
- -------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.10 1.10 1.10(a)
- -------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding reimbursements (%) 1.29 1.35 1.24(a)
- -------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 1.00 1.03 .70(a)
- -------------------------------------------------------------------------------
Portfolio Turnover (%) 41.55 42.30 30.57
===============================================================================
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
* Fund commenced operations on May 1, 1997.
** 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 gain distributions
are reinvested. Total returns from 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.
23b
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH WE MAY
INVEST ONE OR MORE FUND'S ASSETS:
AMERICAN DEPOSITARY RECEIPTS (ADRS)
We may invest the USAA Life World Growth, USAA Life International, USAA Life
Growth and Income, and USAA Life Aggressive Growth Funds' assets in ADRs, which
are foreign shares held by a U.S. bank that issues a receipt evidencing
ownership. Dividends are paid in U.S. dollars.
CONVERTIBLE SECURITIES
We may invest each Fund's assets, except the USAA Life Money Market Fund, in
convertible securities, which are bonds, preferred stocks, and other securities
that pay interest or dividends and offer the buyer the ability to convert the
security into common stock. The value of convertible securities depends
partially on interest rate changes and the credit quality of the issuer.
Because a convertible security affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the
underlying common stock, the value of convertible securities also depends on
the price of the underlying common stock.
EURODOLLAR AND YANKEE OBLIGATIONS
We may invest a portion of each Fund's assets (except the USAA Life World
Growth, USAA Life International, and USAA Life Aggressive Growth Funds) in
dollar-denominated instruments that have been issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions (Eurodollar
obligations) as well as dollar-denominated instruments that have been issued by
foreign issuers in the U.S. capital markets (Yankee obligations).
FORWARD CURRENCY CONTRACTS
The USAA Life World Growth, USAA Life International, and USAA Life Aggressive
Growth Funds may hold securities denominated in foreign currencies. As a
result, the value of the securities will be affected by changes in the exchange
rate between the dollar and foreign currencies. In managing currency exposure,
we may enter into forward currency contracts. A forward currency contract
involves an agreement to purchase or sell a specified currency at a specified
future date or over a specified time period at a price set at the time of the
contract. We only enter into forward currency contracts when the Fund enters
into a contract for the purchase or sale of a security denominated in foreign
currency and desires to "lock in" the U.S. dollar price of the security until
settlement.
GLOBAL DEPOSITARY RECEIPTS (GDRS)
We may invest the USAA Life World Growth, USAA Life International, and USAA
Life Aggressive Growth Funds' assets in GDRs, which are foreign shares held by
a U.S. or foreign bank that issues a receipt evidencing ownership. Dividends
are paid in U.S. dollars.
ILLIQUID SECURITIES
We may invest up to 15% of each Fund's net assets and up to 10% of the USAA
Life Money Market Fund's net assets in securities that are illiquid. Illiquid
securities are those securities which cannot be disposed of in the ordinary
course of business, seven days or less, at approximately the same value at
which the Fund has valued the securities.
MASTER DEMAND NOTES
We may invest each Fund's assets (except the USAA Life World Growth, USAA Life
International, and USAA Life Aggressive Growth Funds) in master demand notes,
which are obligations that permit the investment of fluctuating amounts by the
Fund, at varying rates of interest using direct arrangements between the Fund,
as lender, and the borrower. These notes permit daily changes in the amounts
borrowed. The Fund has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Frequently, such obligations are secured by letters of credit or other
credit support arrangements provided by banks. Because master demand notes are
direct lending arrangements between the lender and borrower, these instruments
generally will not be traded, and there generally is no secondary market for
these notes, although they are redeemable (and immediately repayable by the
borrower) at face value, plus accrued interest, at any time. We will invest the
Fund's assets in master demand notes only if the Fund's Board of Trustees or
its delegate has determined that they are of credit quality comparable to the
debt securities in which the Fund generally may invest.
MONEY MARKET INSTRUMENTS
We may hold a certain portion of each Fund's assets in investment-grade, U.S.
dollar-denominated debt securities that have remaining maturities of one year
or less. Such securities may include U.S. government obligations, commercial
paper and other short-term corporate obligations, repurchase agreements
collateralized with U.S. government securities, certificates of deposit,
banker's acceptances, and other financial institution obligations. These
securities may carry fixed or variable interest rates.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
We may invest each Fund's assets (except the USAA Life World Growth, USAA Life
International, and USAA Life Aggressive Growth Funds) in mortgage-backed and
asset-backed securities. Mortgage-backed securities include, but are not
limited to, securities issued by the Government National Mortgage Association
(Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the
Federal Home Loan Mortgage Corporation (Freddie Mac). These securities
represent ownership in a pool of mortgage loans. They differ from conventional
bonds in that principal is paid back to the investor as
24B
<PAGE>
payments are made on the underlying mortgages in the pool. Accordingly, the
Fund receives monthly scheduled payments of principal and interest along with
any unscheduled principal prepayments on the underlying mortgages. Because
these scheduled and unscheduled principal payments must be reinvested at
prevailing interest rates, mortgage-backed securities do not provide an
effective means of locking in long-term interest rates for the investor. Like
other fixed income securities, when interest rates rise, the value of a
mortgage-backed security generally will decline; however, when interest rates
are declining, the value of mortgage-backed securities with prepayment features
may not increase as much as other fixed income securities.
Mortgage-backed securities also include collateralized mortgage obligations
(CMOs). CMOs are obligations fully collateralized by a portfolio of mortgages
or mortgage-related securities. CMOs are divided into pieces (tranches) with
varying maturities. The cash flow from the underlying mortgages is used to pay
off each tranche separately. CMOs are designed to provide investors with more
predictable maturities than regular mortgage securities but such maturities can
be difficult to predict because of the effect of prepayments. Failure to
accurately predict prepayments can adversely affect the Fund's return on these
investments. CMOs may also be less marketable than other securities.
Asset-backed securities represent a participation in, or are secured by and
payable from, a stream of payments generated by particular assets, such as
credit card, motor vehicle, or trade receivables. They may be pass-through
certificates, which have characteristics very similar to mortgage-backed
securities, discussed above. They may also be in the form of asset-backed
commercial paper, which is issued by a special purpose entity, organized solely
to issue the commercial paper and to purchase interests in the assets. The
credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support and enhancement provided.
The weighted average life of such securities is likely to be substantially
shorter than their stated final maturity as a result of scheduled principal
payments and unscheduled principal prepayments.
MUNICIPAL LEASE OBLIGATIONS
We may invest the USAA Life Money Market and USAA Life Diversified Assets
Funds' assets in a variety of instruments referred to as municipal lease
obligations, including leases and certificates of participation in such leases
and contracts.
PUT BONDS
We may invest each Fund's assets in securities (including securities with
variable interest rates) that may be redeemed or sold back (put) to the issuer
of the security or a third party prior to stated maturity (put bonds). Such
securities will normally trade as if maturity is the earlier put date, even
though stated maturity is longer.
REPURCHASE AGREEMENTS
We may invest each Fund's assets in repurchase agreements that are
collateralized by obligations issued or guaranteed as to both principal and
interest by the U.S. government, its agencies and instrumentalities. A
repurchase agreement is a transaction in which a security is purchased with a
simultaneous commitment to sell it back to the seller (a commercial bank or
recognized securities dealer) at an agreed upon price on an agreed upon date.
This date is usually not more than seven days from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest, which is unrelated to the coupon rate or maturity of the purchased
security.
VARIABLE RATE SECURITIES
We may invest each Fund's assets in securities that bear interest at rates
which are adjusted periodically to market rates.
o These interest rate adjustments can both raise and lower the income
generated by such securities. These changes will have the same effect
on the income earned by the Fund depending on the proportion of such
securities held.
o Because the interest rates of variable rate securities are periodically
adjusted to reflect current market rates, their market value is less
affected by changes in prevailing interest rates than the market value of
securities with fixed interest rates.
o The market value of a variable rate security usually tends toward par
(100% of face value) at interest rate adjustment time.
WHEN-ISSUED SECURITIES
We may invest each Fund's assets in new issues of debt securities offered on a
when-issued basis.
o 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.
o The Fund does not earn interest on the securities until settlement,
and the market value of the securities may fluctuate between
purchase and settlement.
o Such securities can be sold before settlement date.
25B
<PAGE>
This Prospectus provides prospective purchasers of variable annuity contracts
and variable life insurance policies offered by USAA Life Insurance Company
with basic information regarding the Funds before allocating premium payments
to any Fund.
If you would like more information about these Funds, you may call
1-800-531-2923 to request a free copy of the Trust's Statement of Additional
Information (SAI), Annual or Semiannual Report, or to ask other questions about
the Funds. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is legally a part of this Prospectus. In the Trust's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Funds' performance during the last fiscal year.
To view these documents, along with other related documents, you can visit the
EDGAR database on the SEC's Internet web site (www.sec.gov) or the
Commission's Public Reference Room in Washington, D.C. Information on the
operation of the public reference room can be obtained by calling
1-202-942-8090. Additionally, copies of this information can be obtained, after
paying a duplicating fee, by electronic request at the following E-mail
address: [email protected] or, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
=========================================================
Investment Advisor, Underwriter, and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
-------------------------------------------------
Transfer Agent
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
-------------------------------------------------
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachuesetts 02105
==========================================================
Investment Company Act File No. 811-8672
26B
<PAGE>
Part B
Statement of Additional Information for the
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
is included herein
<PAGE>
USAA USAA LIFE STATEMENT OF
EAGLE INVESTMENT TRUST ADDITIONAL INFORMATION
LOGO
- -------------------------------------------------------------------------------
USAA LIFE INVESTMENT TRUST
MAY 1, 2000
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.
This SAI and the Prospectus are dated May 1, 2000, and may be amended from time
to time.
The financial statements of the Funds and the Independent Auditors' Report
thereon for the fiscal year ended December 31, 1999, are included in the
accompanying Annual Report of that date and are incorporated herein by
reference.
You may obtain a free copy of the Prospectus and an Annual or Semiannual
Report by writing USAA Life Insurance Company at 9800 Fredericksburg Road, San
Antonio, Texas 78288, or by calling 1-800-531-2923.
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TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY........................................... 2
DISTRIBUTOR............................................................... 2
INVESTMENT ADVISER........................................................ 2
CUSTODIAN................................................................. 2
TRANSFER AGENT............................................................ 3
INDEPENDENT AUDITORS...................................................... 3
LEGAL MATTERS............................................................. 3
VALUATION OF SECURITIES................................................... 3
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES..................... 4
INVESTMENT POLICIES AND TECHNIQUES........................................ 4
Section 4(2) Commercial Paper and Rule 144A Securities............... 4
Liquidity Determinations............................................. 5
Lending of Securities................................................ 5
Forward Currency Contracts........................................... 5
When-Issued Securities............................................... 5
Real Estate Investment Trusts (REITs)................................ 6
Repurchase Agreements................................................ 6
Temporary Defensive Policy........................................... 6
INVESTMENT RESTRICTIONS................................................... 6
PORTFOLIO TRANSACTIONS.................................................... 7
Brokerage Commissions................................................ 8
Portfolio Turnover Rates............................................. 9
DESCRIPTION OF TRUST SHARES............................................... 9
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 10
TRUSTEES AND OFFICERS OF THE TRUST........................................ 11
Committees of the Board of Trustees.................................. 13
THE TRUST'S ADVISER....................................................... 14
The Advisory Agreement............................................... 14
The Underwriting and Administrative Services Agreement .............. 14
PRINCIPAL HOLDERS OF SECURITIES........................................... 15
CALCULATION OF PERFORMANCE DATA........................................... 16
Yield ............................................................... 16
Money Market Fund.................................................... 16
Other Funds.......................................................... 17
Total Return......................................................... 17
FINANCIAL STATEMENTS...................................................... 18
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS........................ 18
APPENDIX B - COMPARISON OF FUND PERFORMANCE............................... 21
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.
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 (contracts) and variable life insurance
policies (policies). The Trust does not foresee any disadvantage to purchasers
of variable contracts and 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, USAA Investment Management Company and the Trust are subject to
conditions imposed by the SEC 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 Investment Management Company ("USAA IMCO" or the "Adviser"), 9800
Fredericksburg Road, San Antonio, Texas 78288, serves as principal underwriter
for the Trust in the distribution of shares, pursuant to an Underwriting and
Administrative Services Agreement, dated December 16, 1994, as amended and
restated as of February 18, 1998. USAA IMCO, an affiliate of USAA Life, is
registered as a broker-dealer with the SEC and a member of the National
Association of Securities Dealers, Inc. (the "NASD").
USAA IMCO also serves as distributor of the Contracts and Polices funded
by Trust shares. 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 NASD as registered
representatives and/or principals.
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
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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, 9800 Fredericksburg Road, San Antonio, Texas 78288, 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.
INDEPENDENT AUDITORS
KPMG LLP, 112 East Pecan, Suite 2400, San Antonio, Texas 78205,
independent auditors, will perform an annual audit of USAA Life Investment
Trust.
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 valued
at the last quoted sales price, or the most recently determined closing
price calculated according to local market convention, available at the
time a Fund's securities are valued. 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.
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(7) Securities that cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair market value using
methods determined by the Adviser under the general supervision of the
Board of Trustees. For purposes of determining each Fund's net asset
value, all assets and liabilities initially expressed in foreign
currency values will be converted into U.S. dollar values at the spot
price of such currencies against U.S. dollars as last quoted by any
recognized broker-dealer.
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. There can be no assurance, however, that the Fund will at
all times be able to maintain a constant $1 NAV per share. Such procedures
include review of the Fund's holdings at such intervals as is deemed
appropriate to determine whether the Fund's NAV, calculated by using available
market quotations, deviates from $1 per share and, if so, whether such
deviation may result in material dilution, or is otherwise unfair to existing
shareholders. In the event that it is determined that such a deviation exists,
the Board of Trustees will take such corrective action as it regards as
necessary and appropriate. Such action may include 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. Each Fund's objective(s) cannot be changed without
shareholder approval.
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.
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LIQUIDITY DETERMINATIONS
The Board of Trustees has established guidelines pursuant to which
municipal lease obligations, Section 4(2) Commercial Paper, Rule 144A
Securities, and certain restricted debt securities that are subject to
unconditional put or demand features exercisable within seven days ("Demand
Feature Securities") may be determined to be liquid for purposes of complying
with a Fund's investment restriction applicable to investments in illiquid
securities. In determining the liquidity of municipal lease obligations,
Section 4(2) Commercial Paper, and Rule 144A Securities, the Adviser will,
among other things, consider the following factors established by the Board of
Trustees: (1) the frequency of trades and quotes for the security, (2) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers, (3) the willingness of dealers to undertake to make
a market in the security, and (4) the nature of the security and the nature of
the marketplace trades, including the time needed to dispose of the security,
the method of soliciting offers, and the mechanics of transfer. Additional
factors considered by the Adviser in determining the liquidity of a municipal
lease obligation are: (1) whether the lease obligation is of a size that will
be attractive to institutional investors, (2) whether the lease obligation
contains a non-appropriation clause and the likelihood that the obligor will
fail to make an appropriation therefor, and (3) such other factors as the
Adviser may determine to be relevant to such determination. In determining the
liquidity of Demand Feature Securities, the Adviser will evaluate the credit
quality of the party (the "Put Provider") issuing (or unconditionally
guaranteeing performance on) the unconditional put or demand feature of the
Demand Feature Securities. In evaluating the credit quality of the Put
Provider, the Adviser will consider all factors that it deems indicative of the
capacity of the Put Provider to meet its obligations under the Demand Feature
Securities based upon a review of the Put Provider's outstanding debt and
financial statements and general economic conditions.
LENDING OF SECURITIES
Each Fund may lend its securities. A lending policy may be authorized by
the Board of Trustees and implemented by the Adviser, but securities may be
loaned only to qualified broker-dealers or institutional investors that agree
to maintain cash collateral with the Trust's custodian or another third party
custodian equal at all times to at least 100% of the value of the loaned
securities. The Board of Trustees will establish procedures and monitor the
creditworthiness of any institution or broker-dealer during such times as any
loan is outstanding. The Trust will continue to receive interest on the loaned
securities and will invest the cash collateral in short-term obligations of the
U.S. government or of its agencies or instrumentalities or in repurchase
agreements, thereby earning additional interest.
No loan of securities will be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of a Fund's total assets, except that
this limitation does not apply to purchases of debt securities or to repurchase
agreements. The Trust may terminate such loans at any time.
FORWARD CURRENCY CONTRACTS
The World Growth Fund, Aggressive Growth Fund, and the International Fund
may enter into forward currency contracts in order to protect against
uncertainty in the level of future foreign exchange rates.
A forward currency contract is an agreement to purchase or sell a specific
currency at a specified time period at a price set at the time of the contract.
These contracts are usually traded directly between currency traders (usually
large commercial banks) and their customers. A forward contract generally has
no deposit requirements, and no commissions are charged.
Although the Fund values its assets each business day in terms of U.S.
dollars, it does not intend to convert its foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and may incur currency
conversion costs. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (spread) between
the prices at which they are buying and selling various currencies. Thus, a
dealer may offer 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).
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REAL ESTATE INVESTMENT TRUSTS (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.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements that are collateralized by
obligations issued or guaranteed as to both principal and interest by the U.S.
government, its agencies or instrumentalities. A repurchase agreement is a
transaction in which a security is purchased with a simultaneous commitment to
sell it back to the seller (a commercial bank or recognized securities dealer)
at an agreed upon price on an agreed upon date. This date is usually not more
than seven days from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest, which is unrelated
to the coupon rate or maturity of the purchased security. The obligation of the
seller to pay the agreed upon price is in effect secured by the value of the
underlying security. In these transactions, the securities purchased by a Fund
will have a total value equal to or in excess of the amount of the repurchase
obligation and will be held by the Fund's custodian until repurchased. If the
seller defaults and the value of the underlying security declines, the Fund may
incur a loss and may incur expenses in selling the collateral. If the seller
seeks relief under the bankruptcy laws, the disposition of the collateral may
be delayed or limited.
TEMPORARY DEFENSIVE POLICY
Each Fund may on a temporary basis because of market, economic, political,
or other conditions, invest up to 100% of its assets in investment-grade,
short-term debt instruments. Such securities may consist of obligations of the
U.S. government, its agencies or instrumentalities, and repurchase agreements
secured by such instruments; certificates of deposit of domestic banks having
capital, surplus, and undivided profits in excess of $100 million; banker's
acceptances of similar banks; commercial paper and other corporate debt
obligations.
INVESTMENT RESTRICTIONS
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 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
restriction (6) 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.
(6) 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.
(7) With respect to 75% of its total assets, purchase the securities of any
issuer (except Government Securities, as such term is defined in the
1940 act) if, as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the securities of
such issuer. As a non-fundamental operating policy, the Money Market
Fund, in accordance with Rule 2a-7 under the
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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.
(8) 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 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.
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.
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. These research services may also include access to research on
third party data bases, such as historical data on companies, financial
statements, earnings history and estimates, and corporate releases; real-time
quotes and financial news; research on specific fixed income securities;
research on international market news and securities; and rating services on
companies and industries. In return for such services, a Fund may pay to 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
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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.
BROKERAGE COMMISSIONS
During the fiscal year ended December 31, 1999, the Growth and Income
Fund, the World Growth Fund and the Diversified Assets Fund purchased
securities of Morgan Stanley, Dean Witter, which are regular broker-dealers
(the ten largest broker-dealers through whom the Fund purchased securities) or
the parents of regular broker-dealers. These securities had values of
$2,427,000, $343,000, and $286,000 respectively, as of December 31, 1999.
The Trust pays no brokerage commissions as such for debt securities. The
market for such securities is typically a "dealer" market in which investment
dealers buy and sell the securities for their own accounts, rather than for
customers, and the price may reflect a dealer's mark-up or mark-down. In
addition, some securities may be purchased directly from issuers.
During the last three fiscal years, the Funds paid the following amounts
in brokerage commissions.
FUND 1999 1998 1997
---- ---- ---- ----
Money Market Fund N/A N/A N/A
Income Fund N/A N/A $ 3,515
Growth and Income Fund $ 56,595 $ 85,474 $ 46,551
World Growth Fund $ 47,196 $ 73,945 $ 67,645
Diversified Assets Fund $ 23,642 $ 19,194 $ 11,852
Aggressive Growth Fund $ 12,401 $ 29,385 $ 46,565
International Fund $ 39,292 $ 42,894 $ 56,011
During the last three fiscal years, the Funds paid the following brokerage
fees to USAA Brokerage Services, a discount brokerage service of the Adviser:
FUND 1999* 1998 1997
---- ----- ---- ----
Money Market Fund N/A N/A N/A
Income Fund N/A N/A N/A
Growth and Income Fund $ 5,352 $ 6,032 $ 484
World Growth Fund $ 547 $ 2,216 N/A
Diversified Assets Fund $ 3,687 $ 3,564 $ 524
Aggressive Growth Fund $ 188 $ 1,016 $ 1,456
International Fund N/A N/A N/A
* These amounts are 9.46%, 1.16%, 15.60% and 1.52%, respectively, of the
aggregate brokerage fees paid by the Growth and Income Fund, World Growth
Fund, Diversified Assets Fund, and Aggressive Growth Fund, respectively,
were for transactions effected through USAA Brokerage Services.
For the year ended December 31, 1999, 15.59%, 3.36%, 24.95% and 3.13% of
the aggregate dollar amounts of transactions involving the payment of
commissions by the Growth and Income Fund, World Growth Fund, Diversified
Assets Fund, and Aggressive Growth 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, 1999, the amount of such brokerage transactions
and related commissions paid by these Funds were as follows:
TRANSACTION
FUND COMMISSIONS AMOUNTS
---- ----------- -------
Money Market Fund N/A N/A
Income Fund N/A N/A
Growth and Income Fund $ 15,750 $ 14,769,880
World Growth Fund $ 654 $ 818,327
Diversified Assets Fund $ 9,820 $ 9,492,127
Aggressive Growth Fund $ 150 $ 221,468
International Fund N/A N/A
8
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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.
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.
Each Fund's assets and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to each
Fund. They constitute the underlying assets of each Fund, are required to be
segregated on the books of account, and are to be charged with the expenses of
such Fund. Any general expenses of the Trust not readily identifiable as
belonging to a particular Fund are allocated on the basis of the Funds'
relative net assets during the fiscal year or in such other manner as the 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 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
meetings 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.
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. The
Trust will assist in communicating to other shareholders about the meeting.
The voting privileges of Contract Owners and Policy Owners, and
limitations on those privileges, are explained in the prospectus relating to
the Contracts or Policies. USAA Life, as the owner of the assets in the
Separate Account and Life Insurance 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.
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.
9
<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 both of 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, excluding net capital gain, and 90% of its
non-taxable interest income.
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.
In addition, shares of each Fund may be owned only by (a) separate
accounts of USAA Life (or other life insurance companies), (b) a life insurance
company general account, (c) USAA IMCO or an affiliate, in starting or managing
a Fund (in the case of (b) and (c) of this paragraph, there must be no
intention to sell shares to the general public), or (d) the trustee of a
qualified pension or retirement plan.
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.
Each Fund intends 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. In that case, Contract
owners and Policy owners would be taxed on the increases in value of any
Contract or Policy that invested through the separate accounts of USAA Life in
a Fund that failed these tests for the period of failure and subsequently.
Also, if the insured under a Policy died during a period of failure, a portion
of the death benefit would be taxable to the recipient.
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 4% excise tax applies where a Fund sells to a separate account,
ONLY where a general account of a life company or an adviser invests more than
$250,000 in the Fund.
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.
The World Growth Fund and International Fund may be subject to foreign
withholding or other taxes. If more than 50% of the value of the Fund's total
assets at the close of any taxable year consists of securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service
(the Foreign Election) that would permit USAA Life Insurance Company to take a
credit (or a deduction) for foreign income taxes paid by the Fund. If the
Foreign Election is made, USAA Life Insurance Company would include in its
gross income both dividends received from the Fund and foreign income taxes
paid by the Fund. As a shareholder of the Fund(s), USAA Life Insurance Company
would be entitled to treat the foreign income taxes withheld as a credit
against its U.S. federal income taxes, subject to the limitations set forth in
the Code with respect to the foreign tax credit generally. Alternatively, USAA
Life Insurance Company could, if it were to its advantage,
10
<PAGE>
treat the foreign income taxes withheld as a deduction in computing taxable
income rather than as a tax credit. USAA Life Insurance Company will not be
entitled to a foreign tax credit for taxes paid to certain countries; however,
if the Funds otherwise qualify for the Foreign Election, a deduction for such
taxes will be available to it. It is anticipated that the Funds will make the
Foreign Election.
If the World Growth Fund or the International Fund invests in an entity
that is classified as a Passive Foreign Investment Company ("PFIC") for federal
income tax purposes, the application of certain provisions of the Code applying
to PFICs could result in the imposition of certain federal income taxes on the
Fund. It is anticipated that any taxes on the Fund with respect to investments
in PFICs would be insignificant.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees consists of five Trustees who supervise the business
affairs of the Trust. 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, Texas 78288. Asterisks denote
Trustees who are interested persons of the Trust within the meaning of the 1940
Act.
James M. Middleton*
Trustee, Chairman of the Board of Trustees, and President
Age: 55
Chief Executive Officer USAA Life (3/00-present); Senior Vice President
Operations Integration & Program Control (7/99-2/00); Vice President Systems
Integration & Program Control (9/97-7/99); Assistant Vice President Systems
Integration & Analysis (3/94-8/97).
Michael J. C. Roth*
Trustee and Vice Chairman of the Board of Trustees
Age: 58
Chief Executive Officer USAA IMCO (10/93-present); President, Director, and
Vice Chairman of the Board of Directors, IMCO (1/90-present). Mr. Roth serves
as President, Director/Trustee, and Vice Chairman of the Boards of
Directors/Trustees of each of the Funds within the USAA Family of Funds and
USAA Shareholder Account Services; Director of USAA Life Insurance Company; and
Trustee and Vice Chairman of USAA Life Investment Trust.
June R. Reedy
Trustee
211 N. Presa
San Antonio, TX 78205
Age: 70
Retired; Board Member, Intellisolve Group, Inc. (06/97-present); City
Commissioner, Historic Design & Review, City of San Antonio, volunteer
(06/95-06/97); Vice Chairman, Centro San Antonio, volunteer (06/99-present).
Neil H. Stone
Trustee
645 Lockhill Selma
San Antonio, TX 78216
Age: 57
Attorney (Associate), Gendry & Sprague, P.C. (known as Gendry, Sprague &
Wachsmuth until November 1994) (12/92-present).
Gary W. West
Trustee
8038 Wurzbach, Suite 870
San Antonio, TX 78229
Age: 60
President, Radiation Oncology of San Antonio, Professional Association
(12/94-present).
11
<PAGE>
Kenneth McClure
Vice President
Age: 52
Senior Vice President, Life & Health Marketing, USAA Life (1/97-present);
Senior Vice President, Life Operations, USAA Life (1/95-1/97).
David G. Peebles
Vice President
Age: 60
Senior Vice President, Equity Investments, IMCO (11/98-present); Vice
President, Equity Investments, IMCO (2/88-11/98). Mr. Peebles serves as
Trustee/Director and Vice President of each of the Funds within the USAA Family
of Funds; Director of IMCO; and Senior Vice President of USAA Shareholder
Account Services.
Kenneth E. Willmann
Vice President
Age: 53
Senior Vice President, Fixed Income Investments, IMCO (12/99-present); Vice
President, Mutual Fund Portfolios, IMCO (09/94-12/99). Mr. Willmann serves as
Vice President of each of the Funds within the USAA Family of Funds; Director
of IMCO; and Senior Vice President of USAA Shareholder Account Services.
Larkin W. Fields
Treasurer
Age: 45
Senior Vice President, Finance, USAA Life (5/99-present); Vice President,
Marketing, USAA Life (11/94-5/99).
Cynthia A. Toles
Secretary
Age: 49
Vice President, USAA Life & Health Insurance Counsel, USAA (2/00-present); Vice
President and Secretary, USAA Life (2/00-present); prior thereto, Senior Vice
President, General Counsel & Secretary, Variable Annuity Life Insurance Company
(VALIC) (4/81-2/00); Senior Vice President, General Counsel & Secretary,
American General Annuity Insurance Company (2/99-2/00).
Dwain A. Akins
Assistant Secretary
Age: 49
Assistant Vice President, USAA Life & Health Insurance Counsel, USAA
(11/94-present); Assistant Vice President and Assistant Secretary, USAA Life
(4/95-present).
Mark S. Howard
Assistant Secretary
Age: 36
Assistant Vice President, Securities Counsel, USAA (2/98-present); Executive
Director, Securities Counsel, USAA (9/96-2/98); Senior Associate Counsel,
Securities Counsel, USAA (5/95-8/96). Mr. Howard serves as Assistant Vice
President and Assistant Secretary, IMCO and USAA Shareholder Account Services;
Assistant Secretary of each of the funds within the USAA Family of Funds; and
Assistant Vice President, Securities Counsel for various other USAA
subsidiaries and affiliates.
Caryl Swann
Assistant Treasurer
Age: 52
Executive Director, Mutual Fund Analysis & Support, IMCO (10/98-present);
Director, Mutual Fund Portfolio Analysis & Support, IMCO (2/98-10/98); Manager,
Mutual Fund Accounting, IMCO (7/92-2/98). Ms. Swann serves as Assistant
Treasurer for each of the Funds in the USAA Family of Funds.
12
<PAGE>
Jeanine A. Merrill
Assistant Treasurer
Age: 41
Director, Life Policyholder Analysis, Tax & Accounting, USAA Life
(11/98-present); Manager, Life Financial Analysis and Accounting, USAA Life
(1/98-11/98); Manager, Life Financial Statement Reporting, USAA Life
(8/97-1/98); Manager, Regulatory Reporting, USAA Life (7/95-8/97); Mutual Fund
Accountant, Statement and Mutual Fund Accounting, USAA Life (9/94-7/95).
COMMITTEES OF THE BOARD OF TRUSTEES
The Trust has an Audit Committee, an Executive Committee, a Pricing and
Investment Committee, and a Corporate Governance Committee. The duties of these
four 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
Middleton, 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.
CORPORATE GOVERNANCE COMMITTEE: The members of the Corporate Governance
Committee maintains oversight of the organization, performance, and
effectiveness of the Board and independent Trustees. Trustees Reedy, Stone, and
West are members of the Corporate Governance Committee.
No remuneration will be paid by the Trust to any Trustee or officer of the
Trust who is affiliated with USAA Life or the Adviser. Trustees' fees
consisting of an annual retainer of $5,000 for serving on the Board of
Trustees, an annual retainer of $500 for serving on one or more committees of
the Board of Trustees, and a $500 fee for each regular or special Board meeting
will be paid to each Trustee who is not an interested person of the Trust,
presently Trustees Reedy, Stone, and West. The Trustees are also reimbursed for
their expenses incurred in attending any meeting of the Board of Trustees. The
Board of Trustees generally meets quarterly.
The following table sets forth the compensation of the current Trustees
for their services as Trustees for the Trust's most recently completed fiscal
year ended December 31, 1999:
AGGREGATE AGGREGATE COMPENSATION
COMPENSATION FROM THE TRUST AND THE
TRUSTEE FROM THE TRUST USAA FAMILY OF FUNDS (a)
- ------- -------------- ------------------------
Edwin L. Rosane (b) None None
Michael J.C. Roth (c) None None
June R. Reedy $7,500 $7,500
Neil H. Stone $8,000 $8,000
Gary W. West $8,000 $8,000
(a) As of December 31, 1999, the USAA Family of Funds consisted of four
registered investment companies, not including the Trust, offering a total
of 38 individual funds.
(b) Trustee Rosane retired on March 1, 2000, as 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.
13
<PAGE>
THE TRUST'S ADVISER
As described in the Prospectus, USAA IMCO is the Adviser to the Trust and
provides services under the Advisory Agreement. USAA IMCO, a wholly owned
indirect subsidiary of United Services Automobile Association, was organized in
May 1970 and has served as adviser and distributor for the USAA Life Investment
Trust from its inception.
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 approximately $42 billion, of which
approximately $29 billion are in mutual fund portfolios.
While the officers and employees of the Advisor, as well as those of the
Funds, may engage in personal securities transactions, they are restricted by
the procedures in a Joint Code of Ethics adopted by the Advisor and the Funds.
The Joint Code of Ethics was designed to ensure that the shareholders'
interests come before the individuals who manage their Funds. It also prohibits
the portfolio managers and other investment personnel from buying securities in
an initial public offering or from profiting from the purchase or sale of the
same security within 60 calendar days. Additionally, the Joint Code of Ethics
requires the portfolio manager and other employees with access information
about the purchase or sale of securities by the Funds to obtain approval before
executing permitted personal trades. A copy of the Joint Code of Ethics has
been filed with the Securities and Exchange Commission and is available for
public view.
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.
For the last three fiscal years, USAA IMCO received the following
investment advisory fees:
1999 1998 1997
---- ---- ----
Money Market Fund $ 58,222 $ 36,491 $ 29,416
Income Fund $ 45,880 $ 68,324 $ 50,127
Growth and Income Fund $ 165,380 $ 193,906 $ 139,136
World Growth Fund $ 58,523 $ 83,004 $ 77,201
Diversified Assets Fund $ 81,185 $ 111,400 $ 79,446
Aggressive Growth Fund $ 166,012 $ 215,266 $ 130,483
International Fund $ 155,779 $ 146,670 $ 92,044
The Advisory Agreement was most recently approved by the Board of Trustees
on November 18, 1999, for a term ending January 2, 2001. 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).
THE UNDERWRITING AND ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Underwriting and Administrative Services Agreement, as
amended and restated as of December 31, 1999 ("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
14
<PAGE>
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 Accounts 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 these expense limitations, the Trust will bear the
expense of providing all management, administrative, legal, clerical,
accounting, and recordkeeping services necessary or appropriate to conduct the
Trust's business and day-to-day operations, including: (a) all charges,
commissions and fees agreed to by it pursuant to the Advisory Agreement by and
between the Trust and USAA IMCO in its capacity as Adviser; (b) the charges and
expenses of independent auditors and outside counsel retained by the Trust; (c)
brokerage commissions for transactions in the portfolio investments of the
Trust and similar fees and charges for the acquisition, disposition, lending,
or borrowing of such portfolio investments; (d) all taxes, including issuance
and transfer taxes, and corporate fees, payable by the Trust to federal, state,
or other governmental agencies; (e) interest payable on the Trust's borrowings;
(f) extraordinary or non-recurring expenses, such as legal claims and
liabilities and litigation costs and indemnification payments by the Trust in
connection therewith; (g) all expenses of Shareholders and Trustees' meetings
(exclusive of compensation and travel expenses of those Trustees of the Trust
who are "interested persons" of the Trust within the meaning of the 1940 Act),
including those in the following item; (h) compensation and travel expenses of
those Trustees who are not "interested persons" within the meaning of the 1940
Act; (i) the charges and expenses of any registrar, stock transfer, or dividend
disbursing agent, custodian, or depository appointed by the Trust for the
safekeeping of its cash, portfolio securities, and other property; (j) the fees
and expenses involved in registering and maintaining registrations of the Trust
and its shares with the SEC and various states and other jurisdictions and in
preparing and or filing on behalf of the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns and reports to and
other filings with the SEC (including, without limitation, the Trust's annual
report to the SEC), and any other governmental agency, together with the
preparation of related financial statements (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; (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 Accounts 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, and/or financial and share ownership
information including, but not limited to, the number and value of shares owned
by each Shareholder; and (o) postage. The Underwriting Agreement may be
terminated by any party thereto upon 120 day's written notice to the other
parties.
For the fiscal years ended December 31, 1999, 1998, and 1997, the Trust
paid USAA Life net amounts of $224,436, $241,195 and $31,409 respectively after
reimbursement of expenses exceeding amounts set forth above. Of these amounts,
for the fiscal year ended December 31, 1999, USAA Life paid USAA IMCO $241,036
to compensate USAA IMCO for its costs in providing certain accounting services
relating to the Trust as delegated by USAA Life.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 2000, 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.
Money Market Fund -
Income Fund -
Growth and Income Fund -
World Growth Fund 29.96%
Diversified Assets Fund -
Aggressive Growth Fund 52.32%
International Fund 90.12%
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
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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.
As of March 31, 2000, the Separate Account owned of record the percentages
of each Fund's outstanding shares attributable to the Contracts and Policies as
shown below. The Separate Account is located at 9800 Fredericksburg Road, San
Antonio, Texas 78288.
Money Market Fund 100%
Income Fund 100%
Growth and Income Fund 100%
World Growth Fund 70.04%
Diversified Assets Fund 100%
Aggressive Growth Fund 47.68%
International Fund 9.88%
Contract Owners and Policy 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. The following
table identifies all persons who as of March 31, 2000, held of record or owned
beneficially 5% or more of the Funds:
Name and address
TITLE OF CLASS OF BENEFICIAL OWNER PERCENT OF CLASS
-------------- ------------------- ----------------
Growth and Income Fund Harvey J. Moore 5.64%
Wilton, Ca
As of March 31, 2000, 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 of the Funds is provided in the
"FUND PERFORMANCE" section for each Fund under "FUND OBJECTIVES, STRATEGIES,
AND RISKS" 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.
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.
Charges imposed under the Contract and Policies will affect the actual
return to Contract and Policy Owners. Charges imposed under the Contracts and
Policies are not included in the calculation of Yield or Total Return for the
Funds shown below. See the prospectuses for the Contracts and Policies for
further information.
YIELD
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.
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
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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.
Yield for 7-day Period ended December 31, 1999,was 5.81%.
Effective Yield for 7-day Period ended December 31, 1999, was 5.98%.
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:
Yield = 2[((a-b)/(cd)+1)^6 -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
TOTAL RETURN
The Funds may advertise performance in terms of average annual total
return for one-, five-, and ten-year periods, or for such lesser periods as any
of such Funds have been in existence. Average annual total return is computed
by finding the average annual compounded rates of return over the periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula prescribed by the SEC:
P(1 + T)n = ERV
Where: P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the applicable period
The calculation assumes all dividends and distributions by such Fund are
reinvested at the price stated in the Prospectus on the reinvestment dates
during the period, and includes all Fund expenses, net of reimbursements.
In addition, the Funds may each advertise performance in terms of
cumulative total return. Cumulative total return reflects the total change in
value of an investment in the Fund over a specified period, including, but not
limited to, periods of one, five and ten years, or the period since the Fund's
inception through a stated ending date. Cumulative total return is calculated
in a manner similar to standardized average annual total return, except that
the results are not annualized. The SEC has not prescribed a standard formula
for calculating cumulative total return. Cumulative total return is calculated
by finding the cumulative rates of return of a hypothetical initial investment
of $1,000 over various periods, according to the following formula, and then
expressing that as a percentage:
C = (ERV/P)-1
Where: P= a hypothetical initial investment of $1,000
C= cumulative total return
ERV= ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the applicable period
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<PAGE>
The average annual and cumulative total returns* for each Fund that had
operations were as follows:
FUND AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
FOR PERIODS ENDED FOR PERIODS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999
ONE YEAR SINCE INCEPTION** ONE YEAR SINCE INCEPTION**
Money Market Fund 4.94% 5.30% 4.94% 29.47%
Income Fund -5.16% 7.58% -5.16% 44.12%
Growth and Income Fund 14.67% 20.44% 14.67% 153.46%
World Growth Fund 30.93% 19.24% 30.93% 141.09%
Diversified Assets Fund 7.58% 15.50% 7.58% 105.55%
Aggressive Growth Fund 94.34% 46.35% 94.34% 176.10%
International Fund 28.33% 12.14% 28.33% 35.74%
- -------------------
* For the Money Market Fund, Income Fund, Growth and Income Fund, World
Growth Fund, and Diversified Assets Fund, 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. For the Aggressive Growth Fund and International
Fund, these values reflect the deduction of an annual management fee and
other Fund expenses, of .50% and .65%, respectively, 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.
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,
1999, which accompanies this SAI.
Only those sections of the Annual Report that are specifically identified
immediately below are incorporated by reference into the SAI:
Independent Auditors' Report
Portfolios of Investments
Notes to Portfolios of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS
1. LONG-TERM DEBT RATINGS:
MOODY'S INVESTORS SERVICE ("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 that make
the long-term risks appear somewhat larger than in Aaa securities.
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<PAGE>
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 that 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.
NOTE: MOODY'S APPLIES NUMERICAL MODIFIERS 1, 2, AND 3 IN EACH GENERIC RATING
CLASSIFICATION. THE MODIFIER 1 INDICATES THAT THE OBLIGATION RANKS IN THE
HIGHER END OF ITS GENERIC RATING CATEGORY, THE MODIFIER 2 INDICATES A MID-RANGE
RANKING, AND THE MODIFIER 3 INDICATES A RANKING IN THE LOWER END OF THAT
GENERIC RATING CATEGORY.
STANDARD & POOR'S RATINGS GROUP ("S&P")
AAA Debt rated AAA has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated "AA" differs from the highest rated issues only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated "BBB" exhibits adequate capacity to pay interest
and repay principal. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the
obligation.
PLUS (+) OR MINUS (-): THE RATINGS FROM "AA" TO "CCC" MAY BE MODIFIED BY THE
ADDITION OF A PLUS OR MINUS SIGN TO SHOW RELATIVE STANDING WITHIN THE MAJOR
RATING CATEGORIES.
FITCH IBCA ("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.
PLUS (+) MINUS(-) SIGNS ARE USED WITH A RATING SYMBOL TO INDICATE THE RELATIVE
POSITION OF A CREDIT WITHIN THE RATING CATEGORY. PLUS AND MINUS SIGNS, HOWEVER,
ARE NOT USED IN THE AAA CATEGORY.
DUFF & PHELPS CREDIT RATING CO. ("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.
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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:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
o Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, 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 obligations.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and
may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
MOODY'S MUNICIPAL
MIG1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support, or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG3/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.
MIG4/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 Issues carrying this designation have adequate capacity for timely
payment. They are, however, 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 IBCA
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.
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<PAGE>
F-2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F-3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
D&P
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
D-3 Satisfactory liquidity and other protection factors qualify issue as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
THOMPSON BANKWATCH ("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.
APPENDIX B - COMPARISON OF FUND PERFORMANCE
The Trust may make comparisons in advertising and sales literature between
the Funds 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 that 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.
CDA/WEISENBERGER MUTUAL FUNDS INVESTMENT REPORT, a monthly newsletter that
reports on both specific mutual fund companies and the mutual fund industry as
a whole.
CHICAGO TRIBUNE,a newspaper that may cover financial news.
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<PAGE>
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.
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, A REUTERS COMPANY EQUITY FUND PERFORMANCE ANALYSIS, a monthly
publication of industry-wide mutual fund averages by type of fund.
LIPPER, A REUTERS COMPANY FIXED INCOME FUND PERFORMANCE ANALYSIS, a monthly
publication of industry-wide mutual fund performance averages by type of fund.
LOS ANGELES TIMES, a newspaper that may cover financial news.
LOUIS RUKEYSER'S WALL STREET, a publication for investors.
MEDICAL ECONOMICS, a monthly magazine providing information to the medical
profession.
MONEY, a monthly magazine that features the performance of both specific funds
and the mutual fund industry as a whole.
MONEY FUND REPORT, a weekly publication of iMoneyNet, Inc. (formerly IBC
Financial Data, Inc.), reporting on the performance of the nation's money
market funds, summarizing money market fund activity, and including certain
averages as performance benchmarks, specifically "IBC's Taxable First Tier Fund
Average".
MONEY MARKET INSIGHT, a monthly money market industry analysis prepared by
iMoneyNet, Inc. (formerly IBC Financial Data, Inc.)
MONEYLETTER, a biweekly newsletter that covers financial news and from time to
time rates specific mutual funds.
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.
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 that may cover financial news.
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PERSONAL INVESTOR, a monthly magazine that from time to time features mutual
fund companies and the mutual fund industry.
SAN ANTONIO BUSINESS JOURNAL, a weekly newspaper that periodically covers
mutual fund companies as well as financial news.
SAN ANTONIO EXPRESS-NEWS, a newspaper that may cover financial news.
SAN FRANCISCO CHRONICLE, a newspaper that may cover financial news.
SMART MONEY, a monthly magazine featuring news and articles on investing and
mutual funds.
USA TODAY, a newspaper that may cover financial news.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically
reports 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.
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.
In addition to the sources above, performance of the Funds may also be
tracked by Lipper Analytical Services, Inc., ("Lipper"), Variable Annuity
Research & Data Service ("VARDS"), and Morningstar, Inc. ("Morningstar"). A
Fund will be compared to Lipper's, VARDS's, or Morningstar's appropriate fund
category according to its objective and portfolio holdings. Footnotes in
advertisements and other sales literature will include the time period
applicable for any rankings used.
For comparative purposes, unmanaged indexes of comparable securities may
be cited. Examples include the following:
- -Ibbotson Associates, Inc., Stocks, Bonds, Bills, and Inflation Yearbook;
- -Lehman Brothers 1-3 year Government/Corporate Index, an unmanaged index
of all the government, agency, and corporate bonds longer than one year and
less than three years;
- -Lehman Brothers Aggregate Bond Index, an unmanaged index of the
Government/Corporate Index, the Mortgage-Backed Securities Index, and the
Asset-Backed Securities Index;
- -Morgan Stanley Capital Index (MSCI)- World, an unmanaged index, that reflects
the movements of world stock markets by representing a broad selection of
domestically listed companies within each market;
- -Morgan Stanley Capital Index (MSCI)- EAFE, an unmanaged index, that reflects
the movements of stock markets in Europe, Australia, and the Far East by
representing a broad selection of domestically listed companies within each
market.
- -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
weighted average performance of a group of 500 widely held, publicly traded
stocks.
- -Rusell 2000 Index, is an index that consist of the 2,000 smallest companies in
the Russell 3000 Index, a widely recognized small cap index.
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.
23
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USAA LIFE INVESTMENT TRUST
PART C. OTHER INFORMATION
-----------------
ITEM 23. Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
------- -----------------------
(1) (a) Certificate of Trust of USAA Life Investment Trust. /1/
(b) (i) Master Trust Agreement of USAA Life Investment Trust. /7/
(c) (ii) Amendment to Master Trust Agreement of USAA Life Investment
Trust. /5/
(d) (iii) Second Amendment to Master Trust Agreement of USAA Life
Investment Trust. /7/
(2) Bylaws of USAA Life Investment Trust. /2/
(3) Not Applicable.
(4) (a) Investment Advisory Agreement by and between USAA Life Investment
Trust and USAA Investment Management Company, dated December 16,
1994. /7/
(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. /7/
(5) 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, and amended and restated as of November 18, 1998
and amended and restated as of December 31, 1999. (filed herewith)
(6) Not Applicable.
(7) (a) Custodian Agreement by and between USAA Life Investment Trust and
State Street Bank and Trust Company, dated December 16, 1994. /8/
(b) Amendment to Custodian Agreement by and between USAA Life
Investment Trust and State Street Bank and Trust Company, dated
December 16, 1994. /8/
(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. /7/
(8) (a) Transfer Agent Agreement by and between USAA Life Investment Trust
and USAA Life Insurance Company, dated December 15, 1994. /7/
<PAGE>
(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. /7/
(c) Amendment to Transfer Agent Agreement by and between USAA Life
Investment Trust and USAA Life Insurance Company, dated
February 18, 1998. /7/
(9) (a) Opinion of Counsel concerning the Money Market, Income, Growth and
Income, World Growth and Diversified Assets Funds. /3/
(b) Opinion of Counsel concerning the Aggressive Growth and
International Funds. /5/
(c) Consent of Counsel concerning the Money Market, Income, Growth
and Income, World Growth, Diversified Assets, Aggressive
Growth, and International Funds. (filed herewith)
(10) Consent of KPMG LLP, Independent Auditor. (filed herewith)
(11) Not Applicable.
(12) (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/
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Joint Code of Ethics of USAA Life Investment Trust and USAA Investment
Management Company. (filed herewith)
(17) Powers of Attorney for: James M. Middleton, Michael J. C. Roth,
Larkin W. Fields, June R. Reedy, Neil H. Stone and Gary W. West.
(filed herewith)
- --------------------------------
/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.
/5/ Previously filed on February 14, 1997, with Post-Effective Amendment No. 3
to the Registrant's Form N-1A Registration Statement.
<PAGE>
/6/ Previously filed April 29, 1997, with Post-Effective Amendment No. 4 to
Registrant's Form N-1A Registration Statement.
/7/ Previously filed on March 3, 1998, with Post-Effective Amendment No. 6 to
Registrant's Form N-1A Registration Statement
/8/ Previously filed on February 26, 1999, with Post-Effective Amendment No. 7
to Registrant's Form N-1A Registration Statement.
<PAGE>
ITEM 24. 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 and the Life
Insurance Separate Account of USAA Life Insurance Company (the "Separate
Accounts"), segregated asset accounts of USAA Life. Information pertaining to
persons controlled by or under common control with registrant is hereby
incorporated by reference to the section captioned "Principal Holders of
Securities" in the Statement of Additional Information.
ITEM 25. 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 Investment Management Company ("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.
(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 (5) 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 (7)(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 (7)(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 (8)(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 13 of the Distribution and Administration
Agreement by and between USAA Life and USAA IMCO (incorporated herein
by reference to Exhibit 3 of Post-Effective Amendment No. 4 to the
Form N-4 Registration Statement of the Separate Account, filed on
April 29, 1998), USAA Life, on its own behalf and on behalf of the
Separate Account, has agreed to indemnify USAA IMCO, its agents,
<PAGE>
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 Post Effective Amendment No. 4, filed on April 29, 1998, of the
Form N-4 Registration Statement of the Separate Account), USAA Life
has agreed to indemnify any Director, officer, former Director or
former officer of USAA Life against liability as specified therein.
(h) Indemnification under the Delaware Business Trust Act: Under Section
3803(b) of the Delaware Business Trust Act, except to the extent
otherwise provided in the governing instrument of a business trust, a
Trustee, when acting in such capacity, is not personally liable to any
person other than the business trust or a beneficial owner for any
act, omission or obligation of the business trust or any Trustee
thereof.
Insofar as indemnification for liabilities arising under Securities Act of
1933 (the "1933 Act") may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
ITEM 26. 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 27. 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 Accounts, USAA Investment
Trust, USAA State Tax-Free Trust, USAA Mutual Fund, Inc., and USAA Tax
Exempt Fund, Inc.
(b) Set forth below is information concerning each director and executive
officer of USAA IMCO.
NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITION AND OFFICES WITH
BUSINESS ADDRESS* UNDERWRITER REGISTRANT
- ----------------- ------------------------- -------------------------
Robert G. Davis Director and Chairman None
Michael J. C. Roth Director and Vice Trustee and
Chairman, Chief Executive Vice Chairman
Officer and President
<PAGE>
Kenneth E. Willmann Director and Senior Vice President, Vice President
Fixed Income Investments
David G. Peebles Director and Senior Vice President, Vice President
Equity Investments
Michael D. Wagner Vice President, None
Secretary and Counsel
Sherron A. Kirk Senior Vice President and
Senior Financial Officer None
* The principal business address for all of the above directors and officers
of USAA IMCO is 9800 Fredericksburg Road, San Antonio, Texas 78288.
(c) Not Applicable.
ITEM 28. Location of Accounts and Records
The following entities prepare, maintain and preserve the records required
by Section 31(a) of the 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 29. Management Services
Not Applicable.
ITEM 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, Registrant certifies that it meets all of the requirements for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this amended registration statement to be
signed on its behalf by the undersigned, duly authorized, in the city of San
Antonio and state of Texas on the 28th day of April, 2000.
USAA LIFE INVESTMENT TRUST
BY: /S/ JAMES M. MIDDLETON
----------------------
James M. Middleton
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act, this amended
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
(SIGNATURE) (TITLE) (DATE)
/S/ JAMES M. MIDDLETON President and Chairman of the April 28, 2000
- ------------------------ Board of Trustees
James M. Middleton (Principal Executive Officer)
/S/ MICHAEL J.C. ROTH Vice Chairman of the April 28, 2000
- ---------------------- Board of Trustees
Michael J.C. Roth
/S/ LARKIN W. FIELDS (Principal Financial and April 28, 2000
- ----------------------- Accounting Officer)
Larkin W. Fields
/S/ JUNE R. REEDY Trustee April 28, 2000
- -----------------------
June R. Reedy
/S/ NEIL H. STONE Trustee April 28, 2000
- -----------------------
Neil H. Stone
/S/ GARY W. WEST Trustee April 28, 2000
- -----------------------
Gary W. West
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS PAGE NO.
(1) (a) Certificate of Trust of USAA Life Investment Trust. /1/
(b) (i) Master Trust Agreement of USAA Life Investment Trust. /7/
(c) (ii) Amendment to Master Trust Agreement of USAA Life Investment
Trust. /5/
(d) (iii) Second Amendment to Master Trust Agreement of USAA Life
Investment Trust. /7/
(2) Bylaws of USAA Life Investment Trust. /2/
(3) Not Applicable.
(4) (a) Investment Advisory Agreement by and between USAA Life
Investment Trust and USAA Investment Management Company,
dated December 16, 1994. /7/
(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. /7/
(5) 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, and amended and restated as of November 18, 1998
and amended and restated as of December 31, 1999.
(filed herewith) 65
(6) Not Applicable.
(7) (a) Custodian Agreement by and between USAA Life Investment Trust and
State Street Bank and Trust Company, dated December 16, 1994. /8/
(b) Amendment to Custodian Agreement by and between USAA Life
Investment Trust and State Street Bank and Trust Company,
dated December 16, 1994. /8/
(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. /7/
(8) (a) Transfer Agent Agreement by and between USAA Life Investment
Trust and USAA Life Insurance Company, dated December 15,
1994. /7/
(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. /7/
<PAGE>
(c) Amendment to Transfer Agent Agreement by and between USAA Life
Investment Trust and USAA Life Insurance Company, dated
February 18, 1998. /7/
(9) (a) Opinion of Counsel concerning the Money Market, Income, Growth
and Income, World Growth and Diversified Assets Funds. /3/
(b) Opinion of Counsel concerning the Aggressive Growth and
International Funds. /5/
(c) Consent of Counsel concerning the Money Market, Income,
Growth and Income, World Growth, Diversified Assets,
Aggressive Growth, and International Funds.
(filed herewith) 94
(10) Consent of KPMG LLP, Independent Auditor. (filed herewith) 96
(11) Not Applicable.
(12) (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/
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Joint Code of Ethics of USAA Life Investment Trust and
USAA Investment Management Company. (filed herewith) 98
(17) Powers of Attorney for: James M. Middleton, Michael J. C. Roth,
Larkin W. Fields, June R. Reedy, Neil H. Stone and Gary W. West.
(filed herewith) 110
- ---------------------------
/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.
/5/ Previously filed on February 14, 1997, with Post-Effective Amendment No. 3
to the Registrant's Form N-1A Registration Statement.
<PAGE>
/6/ Previously filed April 29, 1997, with Post-Effective Amendment No. 4 to
Registrant's Form N-1A Registration Statement.
/7/ Previously filed on March 3, 1998, with Post-Effective Amendment No. 6
to Registrant's Form N-1A Registration Statement.
/8/ Previously filed on February 26, 1999, with Post-Effective Amendment
No. 7 to Registrant's Form N-1A Registration Statement.
EXHIBIT 5(a)
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICE AGREEMENT
<PAGE>
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, amended and restated as of the 26th day of
February, 1998, amended and restated as of the 18th day of November, 1998, and
amended and restated as of the 31st day of December, 1999, 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
<PAGE>
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 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
2
<PAGE>
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed
between the parties as follows:
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
3
<PAGE>
purchase 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.
3.3 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
4
<PAGE>
suspend redemption 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.
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
5
<PAGE>
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.
(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
6
<PAGE>
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 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
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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.
(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
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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 itself under the 1940 Act from time to time as required in order to
effect the continuous offering of its shares.
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(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
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.
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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.
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
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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 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.
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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.
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
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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, accounting, and
recordkeeping services necessary or appropriate to conduct the Trust's business
and day-to-day 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, as conceptualized by the SEC, Contractowners) and Trustees and
reports to and other filings with the SEC (including, without
limitation, the Trust's annual report to 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, together with the preparation of related
financial statements (the Underwriter and Trust agreeing to supply or
cause to be supplied to
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<PAGE>
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, together with the preparation of
related financial statements, (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;
(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 providing accounting services in connection with Section 7.2,
the Company may arrange with the Underwriter to delegate to the Underwriter the
performance of some or all of the accounting services.
7.4 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
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<PAGE>
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.
7.5 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.
7.6 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.
7.7 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;
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(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:
8.2 Subject to Section 8.4 below, the Trust agrees to bear, or arrange
for others to bear, the expense of providing all management, administrative,
legal, clerical, accounting, and recordkeeping services necessary or
appropriate to conduct the Trust's business and day-to-day operations,
including the expenses of the services of individuals under Section 7.2(vi),
These expenses shall include 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;
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(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;
(j) the fees and expenses (other than any such expenses referred to in
Section 8.3 below) involved in registering and maintaining registrations of the
Trust and its shares with the Securities and Exchange Commission and various
states and other jurisdictions, and in preparing and or filing on behalf of the
Trust (or assisting counsel and/or auditors in the preparation of) all required
tax returns and reports to and other filings with the SEC (including, without
limitation, the Trust's annual report to the SEC), and any other governmental
agency, together with the preparation of related financial statements (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);
(k) membership or association dues for the Investment Company Institute
or similar organization;
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(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),
together with the preparation of related financial statements, relating to the
Trust and the processing, including tabulation, of the results of voting
instructions and proxy solicitations;
(n) furnishing, or causing to be furnished, to each Shareholder (to
the extent not provided elsewhere in this Section 8.2) statements of account
and/or financial and share ownership information including, but not limited to,
the number and value of shares owned by each Shareholder;
(o) postage; and
(p) the expenses of the services provided by the Company under Section
7.4, above.
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;
(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,
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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.")
8.5 The Company, out of its general account, agrees to reimburse the
Underwriter for all reasonable expenses that the Underwriter incurs in
rendering services pursuant to this Agreement, the investment advisory
agreement between the Underwriter and the Trust, and any other agreement
between the Underwriter and the Trust or the Company, but only to the extent
these expenses, collectively, exceed, on an annual basis, 0.20% of the monthly
average net assets of the Money Market Fund, the Income Fund, the Growth and
Income Fund, the World Growth Fund, the Diversified Assets Fund, 0.50% of the
monthly average net assets of the Aggressive Growth Fund, and 0.65% of the
monthly average net assets of the International Fund. As a pre-condition for
such reimbursement, the Underwriter shall submit to the Company evidence of the
Underwriter's expenses in such form as the Company and the Underwriter shall
agree from time to time.
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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 (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.
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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 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
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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 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
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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 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):
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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 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 December 31, 1999 and
shall remain in force until January 1, 2001 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.
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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.
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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/ EDWIN L. ROSANE
-------------------
EDWIN L. ROSANE
ATTEST: President
/S/ DWAIN A. AKINS
- -----------------------
DWAIN A. AKINS
Assistant Vice President and
Assistant Secretary
USAA LIFE INVESTMENT TRUST
BY:EDWIN L. ROSANE
---------------
ATTEST: EDWIN L. ROSANE
President
/S/ DWAIN A. AKINS
- -------------------
DWAIN A. AKINS
Assistant Secretary
USAA INVESTMENT
MANAGEMENT COMPANY
BY:/S/ MICHAEL J. C. ROTH
----------------------
ATTEST: MICHAEL J. C. ROTH
President
/S/ MARK S. HOWARD
- -------------------
MARK S. HOWARD
Assistant Secretary
97398
27
EXHIBIT 9(C)
CONSENT OF COUNSEL
<PAGE>
LAW OFFICES
FREEDMAN, LEVY, KROLL & SIMONDS
WASHINGTON SQUARE BUILDING
1050 CONNECTICUT AVENUE, N.W., SUITE 825
WASHINGTON, D.C. 20036-5366
(202) 457-5100
April 25, 2000
USAA Life Investment Trust
USAA Building
9800 Fredericksburg Road
San Antonio, Texas 78288
Ladies and Gentlemen:
We hereby consent to the reference in Post-Effective Amendment No. 8
(the "Amendment") to the Registration Statement (No. 33-82270) on Form N-1A of
USAA Life Investment Trust (the "Registrant"), a business Trust formed under
the laws of the State of Delaware, to (i) our opinion, dated June 22, 1995,
with respect to the legality of the Registrant's authorized shares of
beneficial interest in the Money Market Fund, Income Fund, Growth and Income
Fund, World Growth Fund, and Diversified Assets Fund, which opinion was filed
with Post-Effective Amendment No. 1 to the Registration Statement, and (ii) our
opinion, dated February 13, 1997, with respect to the legality of the
Registrant's authorized shares of beneficial interest in the Aggressive Growth
Fund and International Fund, which opinion was filed with Post-Effective
Amendment No. 3 to the Registration Statement.
We also hereby consent to the reference to this firm in the Statement
of Additional information under the heading "Legal Matters" which forms a part
of the Amendment and to the filing of this consent as an exhibit to the
Amendment.
Very truly yours,
/s/ Freedman, Levy, Kroll & Simonds
------------------------------------
Freedman, Levy, Kroll & Simonds
EXHIBIT 10
CONSENT OF AUDITORS
<PAGE>
Exhibit 10
INDEPENDENT AUDITORS' CONSENT
The Shareholders and Board of Trustees
USAA Life Investment Trust:
We consent to the use of our report dated February 4, 2000, 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.
/s/ KPMG LLP
San Antonio, Texas
April 26, 2000
EXHIBIT 16
<PAGE>
Effective 9/9/98
JOINT CODE OF ETHICS
I. BACKGROUND
1. This Code of Ethics has been adopted by IMCO, SAS and each of the USAA
Funds in order to comply with the Investment Company Act of 1940 which
requires that every investment company and its investment adviser adopt
such a Code in order to regulate the personal investing activities of its
personnel.
2. The purpose of this Code is to avoid conflicts of interest so that the
confidence of investors in the USAA Funds and other clients of IMCO ("
OTHER IMCO-MANAGED ACCOUNTS") as well as USAA members and customers will
be preserved.
3. In adopting this Code, the Boards of Directors/Trustees (hereinafter
"Board of Directors") of IMCO, SAS and the USAA Funds emphasize that all
persons covered by this Code must agree:
(a) to place the interests of USAA Fund shareholders and other
IMCO-managed accounts above their own personal interests;
(b) to refrain, in the conduct of all of their personal affairs, from
taking any inappropriate advantage of their positions with IMCO, SAS
and the USAA Funds; and
(c) to conduct all "personal securities transactions" so as to fully
comply with the provisions of this Code in order to avoid any actual
or even apparent conflict or claim of a conflict of interest or abuse
of such person's position with IMCO, SAS and the USAA Funds.
4. This Code is intended to be administered together with the "Policy
Statement Concerning Insider Trading" (the "IMCO INSIDER TRADING POLICY")
as adopted and revised, from time to time, by IMCO, as well as the "USAA
Policy Statement and Procedures on Conflict of Interest and Business
Ethics" (the "USAA CONFLICTS POLICY") as adopted and revised, from time to
time, by the United Services Automobile Association ("USAA").
5. In adopting this Code, the Boards of Directors have considered:
(a) how the Code's restrictions and procedures as to compliance should
be framed in light of IMCO's and SAS's legal and ethical obligations
to the USAA Funds and all other IMCO-managed accounts;
(b) the overall nature of the USAA Funds' operations; and
(c) issues and concerns raised by transactions in different kinds of
securities, and by the personal securities transactions of different
categories of personnel (including portfolio managers, analysts,
traders, fund accountants, other investment personnel, and all
"access persons" in general).
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6. The Boards of Directors have also provided for the fair, just and
equitable treatment of all of the officers, directors and employees who
will be affected by this Code.
II. DEFINITIONS
For the definitions of important terms used throughout this Code, see
"Appendix A."
III. JOINT CODE OF ETHICS COMMITTEE
1. PURPOSE, AUTHORITY AND RESPONSIBILITIES. A Joint Code of Ethics Committee
("Committee") has been established by the Boards of Directors which has
authority and responsibility to interpret, adopt and implement procedures
designed to ensure compliance with this Code.
The Committee shall perform an annual review of the Code and the IMCO
Insider Trading Policy to discuss (1) what, if any, changes to the Code or
the IMCO Insider Trading Policy may be appropriate; and (2) compliance
with the Code or the IMCO Insider Trading Policy over the previous year.
Upon completion of the annual review, the Compliance Officer, on behalf of
the Committee, shall prepare an annual report to the Board of Directors
that at a minimum (1) summarizes existing procedures contained in the Code
and the IMCO Insider Trading Policy and any changes in the procedures made
during the past year; (2) identifies any violations requiring significant
remedial action during the past year; and (3) identifies any recommended
changes in existing restrictions or procedures based upon IMCO's
experience under the Code or IMCO Insider Trading Policy, evolving
industry practices, or developments in applicable laws or regulations. In
conjunction with its annual review of the Code, the Committee also shall
provide a report to IMCO's Corporate Governance Committee summarizing the
provisions of the Code as they apply to the disinterested
directors/trustees and proposing any changes to the Code as it applies to
disinterested directors/trustees.
The Committee Charter contains provisions which will be of interest to all
persons covered by this Code. Copies of the Charter will be furnished by
the Compliance Officer upon request and should be treated as the
confidential property of IMCO.
2. VIOLATIONS; INVESTIGATIONS; EMPLOYMENT-RELATED SANCTIONS; DISGORGEMENT.
The Committee Charter authorizes the Committee to investigate as well as
to conduct informal hearings (including the power to call individuals as
witnesses) to determine whether violations of this Code have been
committed by any persons subject thereto. In the event that a substantive
violation of this Code is determined to have occurred, the Charter grants
the Committee authority to impose certain employment-related sanctions
listed therein. Authority is also granted to the Committee to issue
directions, by way of disgorgement of
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and security or money, and to take whatever further enforcement action the
Committee deems prudent and necessary to see that violations are fully and
adequately rectified.
IV. AFFIRMATIVE OBLIGATIONS
1. IMCO. IMCO shall:
(a) compile list of all "access persons," to be updated as soon as
practicable, but no less frequently than on a monthly basis; and
(b) issue timely notice to all employees of their addition to, or removal
from, such list.
2. REPORTING PERSONS. Upon initial employment or association with IMCO, SAS
or other entity designated by the Compliance Officer ( see sub-paragraphs
(a) and (b) below), and no less frequently than annually thereafter ( see
sub-paragraphs (a) to (c) below), all reporting persons shall:
(a) affirm in writing their receipt of, familiarity with, understanding
of, and agreement to comply with:
(i) those provisions of this Code that pertain to them; and
(ii) all provisions of the IMCO Insider Trading Policy.
(b) agree in writing to cooperate with any investigations or inquiries
to determine whether substantive violations of this Code, or of the
above-referenced related policy statement, have occurred.
(c) certify in writing compliance with those provisions of this Code
(including, in particular, the transaction reporting requirements of
the Code), and the above-referenced related policy statement, at all
times since the effective date of such person's last such
certification.
3. INTERESTED ACCESS PERSONS. All interested access persons shall make prompt
oral or written disclosure to the Compliance Officer as well as the IMCO
Senior Vice President in his or her area of the firm of any actual or
apparent material conflict(s) of interest which the interested access
person may have with regard to any security in which he or she has a
beneficial ownership interest and which he or she knows, or has reason to
know, is the subject of a buy, sell or hold recommendation to or
concerning any USAA Fund or other IMCO-managed account.
V. RESTRICTIONS AS TO GIFTS, ETC. AND DIRECTORSHIPs
1. GIFTS, GRATUITIES, FAVORS, AWARDS OR OTHER BENEFITS. In addition to those
provisions of the USAA Conflicts Policy and NASD Rules of Fair Practice
relating to the receipt of gifts
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and other benefits, all reporting persons other than disinterested
directors/trustees are prohibited from receiving any gift, gratuity,
favor, award or other item or benefit having a market value in excess of
$100 per person, per year, from or on behalf of any person or entity that
does, or seeks to do, business with or on behalf of IMCO, SAS or any USAA
Fund. Business-related entertainment such as meals, tickets to the theater
or a sporting event which are infrequent and of a non-lavish nature are
excepted from this prohibition.
2. DIRECTORSHIPS.
(a) GENERAL RULE. Interested access personS are and shall hereby be
prohibited from serving on the board of directors of any publicly
traded company absent prior written approval by the Joint Code of
Ethics Committee.
(b) APPLICATIONS FOR APPROVAL. Applications for approval of service as a
director of a publicly traded company shall be directed, in writing,
to the office of the Compliance Officer for prompt forwarding to the
Joint Code of Ethics Committee. In passing upon such applications,
the Committee shall consider all factors which it deems to be
pertinent to the request. Approvals, once granted, may be revoked, in
the discretion of the Committee, at any time and upon no prescribed
advance notice.
(c) SUBSEQUENT INVESTMENT MANAGEMENT ACTIVITIES. Whenever any interested
access person is granted approval to serve as a director of a
publicly traded company he or she shall personally refrain from
participating in any deliberations, recommendations, or
considerations of whether or not to recommend that any securities of
that company be purchased, sold or retained in the investment
portfolio of any USAA Fund or other IMCO-Managed Account. All
appropriate portfolio managers are to be advised in writing by the
Compliance Officer that specific interested access person is to be
excluded from such decisions.
VI. SUBSTANTIVE RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
1. INITIAL PUBLIC OFFERINGS. No interested access person or IMCO-NASD
registered employee shall effect or be permitted to effect the purchase
of a security from the issuer, or any member of the underwriting syndicate
or selling group, in and during the course of any initial public offering
by or on behalf of the issuer of such security.
2. PRIVATE PLACEMENT TRANSACTIONS.
(a) GENERAL RULE. No interested access person may purchase a security
in a transaction exempt from registration under applicable state and
federal securities laws ("private placement transaction") without
obtaining the advance written approval of the Compliance Officer.
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(b) EXCEPTION. In determining whether or not to grant approval of a
private placement transaction, the Compliance Officer is directed
to consider, among any other pertinent factors:
(i) whether the investment opportunity is available to, and should
be reserved solely for, the USAA Funds; and
(ii) whether the opportunity is or seems to have been made available
to the access person due to or by virtue of the position which
he or she holds with IMCO and/or the USAA Funds.
(c) SUBSEQUENT INVESTMENT MANAGEMENT ACTIVITIES.
(i) Interested access persons who are granted advance written
approval to purchase a security in a private placement
transaction shall timely comply with the continuing disclosure
requirements of paragraph IV.3 above in connection with any
actual or apparent conflict(s) of interest that might otherwise
arise should IMCO, any USAA Fund or any other IMCO-managed
account consider for purchase, sale or retention of any security
whatsoever issued by the same issuer.
(ii) In adopting this Code, IMCO acknowledges its responsibility
to monitor activities of the firm and those of its interested
access persons to ensure that investment decisions on behalf
of the USAA Funds and/or any other IMCO-managed account relating
to any security whatsoever of an issuer with respect to which
an interested access person has obtained pre-acquisition approval
will be subject to independent review by senior IMCO investment
personnel having no personal interest in the issuer or any of
its securities.
3. PERSONAL SECURITIES TRANSACTION "BLACK-OUT" TRADING RESTRICTIONS
(a) PROHIBITED TRADING "BLACK-OUT" PERIODS. The following categories of
personnel are subject to the following self-operative restrictions
upon execution of personal securities transactions by or on their
behalf:
(i) "PENDING ORDER" RESTRICTION. Subject only to the exceptions
noted in sub-paragraph (b) below, no interested access person
may effect a personal securities transaction in a security with
respect to which an USAA Fund or other IMCO-managed account
has outstanding a purchase or sale order (the " PENDING ORDER")
regarding the same security or any equivalent security.
(ii) 14-DAY RESTRICTION. No portfolio manager may effect a personal
securities transaction within seven calendar days before, or
seven (7) calendar days after, the trade date of a purchase or
sale of the same security or any equivalent security by or on
behalf of any USAA Fund or other IMCO-managed account for
which he or she serves as portfolio manager.
5
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In the event that a personal securities transaction is effected in
contravention of either of the two foregoing restrictions, the interested
access person or portfolio manager involved shall, as soon as practicable
after becoming aware of the violative nature of his or her personal
transaction (IRRESPECTIVE OF ANY PRE-EXECUTION CLEARANCE WHICH MAY HAVE
BEEN PREVIOUSLY GRANTED FOR THE TRANSACTION), promptly (I) advise the
office of the Compliance Officer of the violation, and (II) comply with
whatever directions, by way of disgorgement, which the Compliance Officer
may issue in order for the violation to be fully and adequately rectified.
(b) EXCEPTIONS TO THE "PENDING ORDER" TRADING RESTRICTION. The
Compliance Officer may and is hereby authorized to grant, absent
circumstances inconsistent with the recitals to this Code, exception
and relief to interested access persons from the trading restriction
established by sub-paragraph (a)(i) above where the pending order:
(i) has been placed by or on behalf of a USAA Fund or other
IMCO-managed account, the investment objective of which is to
substantially replicate the performance of a broad-based,
publicly-traded market basket of common stocks (e.g., the
Standard & Poor's 500 Composite Stock Index); or
(ii) relates to the common stock of an issuer included within the
Standard & Poor's 500 Composite Stock Index, and the access
person's requested trade does not, when aggregated with any and
all such other like trades in the same security or any equivalent
security during the previous thirty (30) calendar days, exceed
a total of 500 shares.
4. SHORT-TERM MATCHED PROFIT TRANSACTIONS.
(a) PROHIBITED TRANSACTIONS. Subject to the exceptions noted immediately
below, no investment personnel shall engage in any "short-term
matched profit transaction" within the meaning of this Code.
N.B. Investment personnel should note that this prohibition is
intended to apply to all instances of short-term (i.e., 60
calendar days or less) security "short-selling," as well as
short-term investment activities (of a hedging, as well as a
speculative nature) in or involving options.
(b) EXCEPTIONS. The Compliance Officer may, and is hereby granted
authority to determine, in his or her discretion, to except a given
personal securities transaction from the prohibition established by
the foregoing sub-paragraph in cases where:
(i) the transaction, and any earlier personal securities transaction
with which it may be matched over the most recent 60 calendar
days, do not appear to evidence actual abuse of a conflict of
interest with any USAA Fund or other IMCO-managed account (as,
for example, where the security(ies) involved
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have not recently been held, traded or actively considered for
investment or trading by such accounts); or
(ii) the investment personnel demonstrate that a BONA FIDE and
sufficient personal or family economic hardship exists warranting
the granting of such an exception.
Exceptions should be granted only upon meritorious circumstances and,
if granted, are to be promptly reported, in writing, to the Joint
Code of Ethics Committee.
5. EXCESSIVE SHORT-TERM TRADING.
IMCO management encourages employees to invest. However, we believe there
is a distinction between investment and the attempt to generate profits by
trading securities. This latter activity is not compatible with the
performance of an individual's job. Frequent trading which diverts the
employee's attention form the job is unacceptable.
Employees will refrain from engaging in a pattern of securities
transactions:
(a) that involves such frequent trading as to potentially impact an
employee's ability to carry out his or her duties; or
(b) that implies that an employee might become preoccupied with tracking
personal investments or working on his or her trading strategies
during working hours; or
(c) that involves margin debit balances that exceed 1/2 of the employee's
annual base salary.
After consideration of the above criteria, the Code of Ethics Committee
may place restrictions on the personal trading activity of employees who
engage in short-term trading activity that the Committee, in its judgment,
deems to be excessive.
VII. PRE-EXECUTION CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
1. REQUIREMENT TO SEEK AND OBTAIN PRE-EXECUTION CLEARANCE.
(a) GENERAL RULE. Each interested access person shall, as a pre-condition
to the execution of any personal securities transaction, be required
to seek and obtain the express approval of such action by the
Compliance Officer (or such officer's delegate), which approval may
be in oral or written form, as the access person elects. Should oral
approval be sought, the interested access person shall be bound by
the written record made thereof by the Compliance Officer (or such
officer's delegate).
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(b) RULE APPLICABLE TO DISINTERESTED DIRECTOR/TRUSTEES. Disinterested
director/trustees shall be entitled to exemption on a
transaction-by-transaction basis from the pre-execution clearance
requirement of the foregoing sub-paragraph, provided that at the time
of execution of the given personal securities transaction, they have
no actual knowledge regarding whether or not the security at issue,
or any equivalent security has, at any time during the previous
fifteen calendar days, been either (I) purchased or sold, or (II)
actively considered for purchase or sale, by or on behalf of any USAA
Fund or other IMCO-managed account. Should a disinterested
director/trustee believe that he or she is, in fact, in possession
of such knowledge with respect to a contemplated personal securities
transaction, the transaction may not occur without pre-execution
clearance as prescribed by sub-paragraph (a) above.
2. PROCEDURES FOR PROCESSING SUCH REQUESTS.
(a) ACCESS PERSON PROCEDURES. In making requests for pre-execution
clearance, access persons will be required to furnish whatever
information is called for by the office of the Compliance Officer.
(b) COMPLIANCE OFFICER PROCEDURES.
(i) IMCO TRADER AND PORTFOLIO MANAGER CONSIDERATION. Before passing
upon a pre-execution clearance request, the Compliance Officer
or his or her delegate shall make such inquiries as are
reasonably necessary to determine whether the proposed
transaction would violate any express provision of this Code, or
would otherwise give rise to an actual or apparent material
conflict of interest, and shall take such action as may be
consistent with such determination.
3. EFFECT OF PRE-EXECUTION CLEARANCE. Approval of a request for
pre-execution clearance shall not operate as a waiver, satisfaction or
presumption of satisfaction of any other provision of this Code, but only
as evidence of an access person's good faith, which may be considered by
the Joint Code of Ethics Committee should a violation of any other
provision of this Code be determined to have occurred.
4. LIMITATIONS UPON EXECUTION OF APPROVED TRANSACTIONS. The Joint Code of
Ethics Committee shall be authorized to establish terms and conditions
upon which all approved personal securities transactions may be executed.
Such terms and conditions may be amended, from time to time, and, where
practicable, shall be stated on the pre-execution clearance request form.
At a minimum, such terms and conditions shall include requirements that
the access person acknowledge, by signing the request form:
(a) his or her responsibility, pursuant to paragraph VIII.1(a) of this
Code, to ensure that the executing broker-dealer (or its clearing
broker) simultaneously provide a duplicate confirmation of the
trade, when executed, directly to the office of the Compliance
Officer;
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(b) his or her understanding and agreement that if, for any reason
whatsoever, the approved request is not acted upon within the time
frame allowed by the Compliance Officer, the clearance shall be
deemed to have lapsed and terminated, necessitating a further
original request if the trade is still desired to be pursued by the
access person; and
(c) his or her agreement to notify the Compliance Officer if, having
received approval, the access person subsequently determines not to
pursue the approved trade.
5. DENIALS. Grounds for denials of requests for pre-execution clearance will
be provided by the Compliance Officer, in writing, upon the access
person's request form.
6. APPEALS.
(a) DISCRETIONARY. Access persons may appeal to the Joint Code of Ethics
Committee for a hearing as to reasons why a denial of pre-execution
clearance by the Compliance Officer should be overturned and reversed
by the Committee. Whether or not such a hearing will be granted is
totally within the discretion of the Committee.
(b) PROCEDURES REGARDING APPEALS. Requests for an appeal must be in
writing, stating all reasons therefor, and delivered to the office
of the Compliance Officer not later than seven (7) calendar days
following the date of final denial of the pre-execution clearance
request. Further procedures governing appeals are to be adopted by
the Joint Code of Ethics Committee and shall be furnished, upon
request, by the office of the Compliance Officer.
VIII.REPORTING AND DISCLOSURE REQUIREMENTS TO EFFECTUATE AND MONITOR COMPLIANCE
WITH THIS CODE, THE IMCO INSIDER TRADING POLICY AND RULE 204-2(A)(12)
UNDER THE INVESTMENT ADVISERS ACT OF 1940
1. BROKERAGE ACCOUNT CONFIRMATIONS AND STATEMENTS. All reporting persons are
required to ensure that the office of the Compliance Officer is furnished
duplicate copies of the following documents:
(a) confirmations issued by broker-dealers upon the execution of all
personal securities transactions in any security in which the
reporting person had, at the time of the transaction, or by reason of
the transaction acquired, any direct or indirect beneficial ownership
interest in the security or securities which were the subject of the
transaction; and
(b) any regular periodic or other statements reflecting personal
securities transaction activity within any account with a securities
broker-dealer in which the reporting person has any direct or
indirect beneficial ownership interest.
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Such copies shall be provided to the Compliance Officer contemporaneously
with the time that the reporting person receives his or her copies from
the broker-dealer.
2. QUARTERLY REPORTS BY INTERESTED ACCESS PERSONS. Every interested access
person shall submit to the Compliance Department, on a calendar quarterly
basis, a report (the "Quarterly Report") of all personal securities
transactions. To facilitate preparation of this report, at the end of each
calendar quarter the Compliance Department will provide each interested
access person a listing of transactions for which the Compliance
Department had received duplicate confirmations during that quarter. An
interested access person shall review and revise such listing as
appropriate to satisfy this quarterly report requirement. Such quarterly
report shall be submitted within ten (10) calendar days after the end of
each calendar quarter. The Quarterly Report need not include any
transactions in "excepted securities" as defined in Appendix A of this
Code of Ethics and shall be filed with the Compliance Department
regardless whether the interested access person had a beneficial
ownership interest in any securities transactions during the quarter.
The Quarterly Report shall contain the following information:
(a) the date of the transaction, the title and the number of shares, and
the principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected.
3. REPORTS BY ACCESS PERSONS OF TRANSACTIONS IN SHARES ISSUED PURSUANT TO
DIVIDEND REINVESTMENT PLANS.
(a) Notwithstanding that transactions in shares issued pursuant to
automatic dividend reinvestment plans are excluded from the term
"purchase or sale of a security" within the meaning of this Code, in
order to facilitate IMCO's compliance with the books and records
provisions of Rule 204-2(a)(12) under the Investment Advisers Act of
1940, all interested access persons shall be required to inform the
office of the Compliance Officer, in writing, of any transaction in
securities issued pursuant to dividend reinvestment plans in which
the interested access person has any direct or indirect beneficial
ownership interest, not later than ten (10) calendar days after the
end of the calendar quarter in which such transaction has occurred.
(b) Notwithstanding anything to the contrary in this Code, a disinterested
director/trustee shall not be required to report transactions in
securities issued
10
<PAGE>
pursuant to a dividend reinvestment plan (regardless of whether the
transaction is automatic), provided that at the time of execution of
the transaction, the disinterested director/trustee has no actual
knowledge regarding whether or not the security at issue, or any
equivalent security has, at any time during the previous fifteen
calendar days, been either (i) purchased or sold, or (ii) actively
considered for purchase or sale, by or on behalf of any USAA Fund or
other IMCO-managed account. Should a disinterested director/trustee
believe that he or she is in fact in possession of such knowledge
with respect to a contemplated personal securities transaction, the
transaction must be reported in the manner set forth in paragraph (a)
above with respect to interested access persons.
4. OTHER DISCLOSURE REQUIREMENTS. Each reporting person shall be required to
furnish upon his or her initial association with IMCO or SAS a disclosure
and identification of:
(a) all accounts with securities broker-dealers in which the reporting
person currently has any direct or indirect beneficial ownership
interest;
(b) any investment or other similar clubs or groups in which he or
she wishes to participate in (Participation in such clubs or
groups requires advance authorization and continuous compliance with
such terms and conditions as the Compliance Officer may impose); and
(c) any regular outside business interest and/or activities of the
reporting person (whether compensated or uncompensated), including
any directorships within the purview of paragraph V.2 above in which
he or she currently serves provided, however, that sub-paragraphs (a)
and (b) above shall not apply to disinterested directors/trustees.
Subsequent developments necessitating additions, deletions or other
changes in the above information shall be brought by reporting persons to
the attention of the office of Compliance Office PRIOR to the occurrence
of developments within the scope of sub-paragraph (a) and (b) above, and
PROMPTLY FOLLOWING occurrences within the scope of sub-paragraph (c)
above. The information on file will be provided to persons to whom this
Code applies on an annual basis by the office of the Compliance Officer.
Each reporting person shall also be required, upon his or her initially
becoming subject to this Code, and annually thereafter to disclose and
identify all individual securities in which the reporting person had, as
of the effective date of such disclosure, any direct or indirect
beneficial interest.
11
EXHIBIT 17
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Trustee of USAA
Life Investment Trust, a Delaware business trust ("Trust"), constitutes and
appoints Cynthia A. Toles, Dwain A. Akins and Mark S. Howard, and each of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof.
/S/ JAMES M. MIDDLETON MARCH 1, 2000
- ---------------------- -------------
James M. Middleton Date
President and Chairman of the Board of Trustees
On this 1st day of March, 2000, before me, James M. Middleton, the undersigned
Notary Public, personally appeared James M. Middleton, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal ========================
M.L.VERA CRUZ
Notary Public
State of Texas
My Comm. Exp 11-17-02
========================
My Commission Expires: /S/M. L. VERA CRUZ
November 17, 2002 ------------------
- ----------------- Notary Public
State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Trustee of USAA
Life Investment Trust, a Delaware business trust ("Trust"), constitutes and
appoints Cynthia A. Toles, Dwain A. Akins and Mark S. Howard, and each of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof.
/S/ MICHAEL J.C. ROTH February 24, 2000
- --------------------- -------------
Michael J.C. Roth Date
Trustee
On this 24th day of February, 2000, before me, LeAnn Pool, the undersigned
Notary Public, personally appeared Michael J.C. Roth, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal ======================
LEANN POOL
Notary Public
State of Texas
My Comm. Exp. 08-06-01
======================
My Commission Expires: /S/ LEANN POOL
August 6, 2001 ---------------
- --------------- Notary Public
State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Treasurer of the
USAA Life Investment Trust, a Delaware business trust ("Trust"), constitutes
and appoints Cynthia A. Toles, Dwain A. Akins and Mark S. Howard, and each of
them, as her true and lawful attorney-in-fact and agent, with full power of
substitution, for her and in her name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact and agent or her substitute, may lawfully do or cause to be
done by virtue hereof.
/S/ LARKIN W. FIELDS February 24, 2000
- ---------------------- -------------
Larkin W. Fields Date
Senior Vice President, Treasurer
(Principal Financial and Accounting Officer)
On this 24th day of February, 2000, before me, Dora Zapata, the undersigned
Notary Public, personally appeared Larkin W. Fields, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that she executed it.
WITNESS my hand and official seal ==========================
DORA ZAPATA
Notary Public
State of Texas
My Comm. Exp 09-06-2002
==========================
My Commission Expires: /S/ DORA ZAPATA
September 6, 2002 -------------------
- ----------------- Notary Public
State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Trustee of the
USAA Life Investment Trust, a Delaware business trust ("Trust"), constitutes
and appoints Cynthia A. Toles, Dwain A. Akins and Mark S. Howard, and each of
them, as her true and lawful attorney-in-fact and agent, with full power of
substitution, for her and in her name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact and agent or her substitute, may lawfully do or cause to be
done by virtue hereof.
/S/ JUNE R. REEDY February 24, 2000
- ----------------------------- -----------------
June R. Reedy Date
Trustee
On this 24th day of February, 2000, before me, LeAnn Pool, the undersigned
Notary Public, personally appeared June R. Reedy, known to me to be the person
whose name is subscribed to the above Power of Attorney, and acknowledged that
she executed it.
WITNESS my hand and official seal ========================
LEANN POOL
Notary Public
State of Texas
My Comm. Exp. 08-06-01
========================
My Commission Expires: /S/ LEANN POOL
August 6, 2001 ----------------
- -------------- Notary Public
State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Trustee of USAA
Life Investment Trust, a Delaware business trust ("Trust"), constitutes and
appoints Cynthia A. Toles, Dwain A. Akins and Mark S. Howard, and each of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof.
/S/ NEIL H. STONE February 24, 2000
- ----------------- -----------------
Neil H. Stone Date
Trustee
On this 24th day of February, 2000, before me, LeAnn Pool, the undersigned
Notary Public, personally appeared Neil H. Stone, known to me to be the person
whose name is subscribed to the above Power of Attorney, and acknowledged that
he executed it.
WITNESS my hand and official seal =======================
LEANN POOL
Notary Public
State of Texas
My Comm. Exp.08-06-2001
=======================
My Commission Expires: /S/ LEANN POOL
August 6, 2001 --------------
- -------------- Notary Public
State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Trustee of USAA
Life Investment Trust, a Delaware business trust ("Trust"), constitutes and
appoints Cynthia A. Toles, Dwain A. Akins and Mark S. Howard, and each of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof.
/S/ GARY W. WEST February 24, 2000
- ----------------- -----------------
Gary W. West Date
Trustee
On this 24th day of February, 2000, before me, LeAnn Pool, the undersigned
Notary Public, personally appeared Gary W. West, known to me to be the person
whose name is subscribed to the above Power of Attorney, and acknowledged that
he executed it.
WITNESS my hand and official seal ========================
LEANN POOL
Notary Public
State of Texas
My Comm. Exp 08-06-2001
========================
My Commission Expires: /S/ LEANN POOL
August 6, 2001 -----------------
- -------------- Notary Public
State of Texas
