As filed with the Securities and Exchange Commission on September 11, 1996.
1933 Act File No. 2-49560
1940 Act File No. 811-2429
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. 42
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 30
USAA MUTUAL FUND, INC.
-------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
9800 Fredericksburg Rd., San Antonio, TX 78288
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (210) 498-0600
Michael D. Wagner, Secretary
USAA MUTUAL FUND, INC.
9800 Fredericksburg Rd.
San Antonio, TX 78288-0227
---------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485
__ immediately upon filing pursuant to paragraph (b)
X_ on September 16, 1996 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.
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has heretofore registered an indefinite number of shares of the
Aggressive Growth Fund, Growth Fund, Growth & Income Fund, Income Stock Fund,
Income Fund, Short-Term Bond Fund, and Money Market Fund pursuant to Rule 24f-
2 under the Investment Company Act of 1940. With respect to these Funds, the
Registrant will file its Rule 24f-2 notice for the fiscal year ended July 31,
1996 on or about September 23, 1996. The Registrant has heretofore registered
an indefinite number of shares of the S&P 500 Index Fund pursuant to Rule 24f-
2(a)(1) under the Act. With respect to the S&P 500 Index Fund, the
Registrant will file its Rule 24f-2 notice for the fiscal year ended December
31,1996 on or about February 19, 1997. The S&P 500 Index Fund is a "feeder
fund" within a "master-feeder structure." This Post-Effective Amendment No. 42
includes a manually executed signature page for the master fund, Equity 500
Index Portfolio.
Exhibit Index on Pages 102-104
Page 1 of 284
USAA MUTUAL FUND, INC.
CROSS REFERENCE SHEET
Part A
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Cover Page . . . . . . . . . Same
2. Synopsis . . . . . . . . . . Fees and Expenses
3. Condensed Financial
Information . . . . . . . Financial Highlights
Performance Information
4. General Description
of Registrant . . . . . . Investment Objective and Policies
Description of Shares
Additional Information
5. Management of the Fund . . . Management of the Company and Portfolio
Service Providers
6. Capital Stock and Other
Securities. . . . . . . . Dividends, Distributions and Taxes
Description of Shares
7. Purchase of Securities
Being Offered . . . . . . Purchase of Shares
Conditions of Purchase and Redemption
Exchanges
Other Services
Share Price Calculation
8. Redemption or Repurchase . . Redemption of Shares
Conditions of Purchase and Redemption
Exchanges
Other Services
9. Legal Proceedings. . . . . . Not Applicable
USAA MUTUAL FUND, INC.
CROSS REFERENCE SHEET
Part B
FORM N-1A ITEM NO. SECTION IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page. . . . . . . . . Same
11. Table of Contents . . . . . Same
12. General Information and
History. . . . . . . . . Not Applicable
13. Investment Objectives
and Policies . . . . . . Investment Policies
Investment Restrictions
Portfolio Transactions and
Brokerage Commissions
14. Management of the
Registrant . . . . . . . Directors and Officers of the Company
Trustees and Officers of the Portfolio
15. Control Persons and
Principal Holders
of Securities. . . . . . Directors and Officers of the Company
Trustees and Officers of the Portfolio
16. Investment Advisory and
Other Services . . . . . Directors and Officers of the Company
Investment Adviser
Administrator
General Information
17. Brokerage Allocation and
Other Practices. . . . . Portfolio Transactions and
Brokerage Commissions
18. Capital Stock and Other
Securities . . . . . . . Further Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered. . . . . . Valuation of Securities
Additional Information Regarding
Redemption of Shares
Investment Plans
20. Tax Status. . . . . . . . . Tax Considerations
21. Underwriters. . . . . . . . General Information
22. Calculation of Performance
Data . . . . . . . . . . Calculation of Performance Data
23. Financial Statements. . . . General Information
Part A
Prospectus for the
S&P 500 Index Fund
is included herein
USAA S&P 500 INDEX FUND
September 16, 1996 PROSPECTUS
USAA S&P 500 INDEX FUND (the Fund) is one of eight no-load mutual funds
offered by USAA Mutual Fund, Inc. (the Company). The Fund is managed by USAA
Investment Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek to provide investment results that,
before expenses, correspond to the total return of common stocks publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite Stock Price Index (S&P 500 or Index). Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per
share without a sales charge. Make your initial investment directly with the
Manager by mail, in person, or in certain instances, by telephone. Page 13.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any
day that the net asset value is calculated. Page 15.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Company and the Fund that you should know
before investing.
SHARES OF THE USAA S&P 500 INDEX FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS BANK, ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THE USAA S&P 500 INDEX FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE EQUITY 500 INDEX PORTFOLIO (THE
PORTFOLIO), WHICH IS A SEPARATE MUTUAL FUND ADVISED BY BANKERS TRUST COMPANY
WITH AN IDENTICAL INVESTMENT OBJECTIVE. THE INVESTMENT PERFORMANCE OF THE
FUND WILL CORRESPOND DIRECTLY TO THE INVESTMENT PERFORMANCE OF THE PORTFOLIO.
PAGE 12.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report
and/or the Fund's Statement of Additional Information (SAI), dated
September 16, 1996. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated by reference into this Prospectus
(meaning it is legally a part of the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
SUMMARY DATA
Fees and Expenses . . . . . . . . . . . . . . . . 3
Financial Highlights. . . . . . . . . . . . . . . 4
Performance Information . . . . . . . . . . . . . 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds . . . . . . . 6
Using Mutual Funds in an Investment Program . . . 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies . . . . . . . . 8
Additional Information. . . . . . . . . . . . . . 25
SHAREHOLDER INFORMATION
Purchase of Shares. . . . . . . . . . . . . . . . 13
Redemption of Shares. . . . . . . . . . . . . . . 15
Conditions of Purchase and Redemption . . . . . . 17
Exchanges . . . . . . . . . . . . . . . . . . . . 18
Other Services. . . . . . . . . . . . . . . . . . 18
Share Price Calculation . . . . . . . . . . . . . 19
Dividends, Distributions and Taxes. . . . . . . . 20
Management of the Company and Portfolio . . . . . 21
Service Providers . . . . . . . . . . . . . . . . 24
Description of Shares . . . . . . . . . . . . . . 24
Telephone Assistance Numbers. . . . . . . . . . . 27
FEES AND EXPENSES
The following table provides a summary of expenses relating to purchases and
sales of shares of the Fund, and the aggregate annual operating expenses
of the Fund and the Equity 500 Index Portfolio (the Portfolio), as a
percentage of average net assets (ANA) of the Fund. These expenses have been
estimated for the Fund's first year of operations. The Company's Directors
believe that the aggregate per share expenses of the Fund and the Portfolio
will be less than or approximately equal to the expenses which the Fund would
incur if the investable assets (Assets) of the Fund were invested directly in
the types of securities being held by the Portfolio.
Shareholder Transaction Expenses
- -------------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Account Maintenance Fee** $10
Annual Fund Operating Expenses (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Investment Advisory Fees, net of reimbursements .07%
12b-1 Fees None
Other Expenses, net of reimbursements (estimated) .11%
----
Total Operating Expenses, net of reimbursements .18%
====
- ----------------
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See REDEMPTION OF SHARES -
BANK WIRE.
** USAA Shareholder Account Services assesses this annual fee to
allocate part of the fixed costs of maintaining shareholder
accounts equally to all accounts. This fee is deducted from the
dividends paid to each shareholder at a rate of $2.50 per quarter.
See DIVIDENDS, DISTRIBUTIONS AND TAXES.
The Manager has voluntarily agreed to limit the aggregate annual operating
expenses of the Fund and the Portfolio to .18% of the Fund's ANA for the Fund's
first year of operations and will reimburse the Fund for all expenses in
excess of the limitation. In addition, Bankers Trust Company (Bankers Trust),
which provides various services to the Portfolio, has voluntarily agreed to
limit its fees under its agreements with the Portfolio to .10% of the
Portfolio's ANA. The Investment Advisory Fees, Other Expenses, and Total
Operating Expenses reflect all such expense reimbursements by the Manager
and Bankers Trust. Absent such reimbursements, the amount of Investment
Advisory Fees, Other Expenses and Total Operating Expenses as a percentage of
the Fund's ANA would be .10%, .26% and .36%, respectively.
Example of Effect of Fund Expenses
- -------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown. The example includes the $10 account maintenance fee. For investments
larger than $1,000, your total expenses will be substantially lower in
percentage terms than this illustration implies.
1 year - $ 12 3 years - $ 36
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The expense table and the example above are provided to assist you in
understanding the expenses you will bear directly or indirectly as a
shareholder in the Fund. For more information with respect to the expenses of
the Fund and the Portfolio, see MANAGEMENT OF THE COMPANY AND PORTFOLIO on
page 21.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout the two-month period ended June 30, 1996, has been derived from
unaudited financial statements which appear in the SAI. This table should be
read in conjunction with the unaudited financial statements and related notes
that appear in the SAI.
TWO-MONTH
PERIOD ENDED
JUNE 30, 1996*
--------------
PER SHARE OPERATING PERFORMANCE
Net Asset Value at Beginning of Period $ 10.00
--------
Income from Investment Operations:
Net Investment Income .03
Net Realized and Unrealized Gain on Securities and Futures .43
--------
Total from Investment Operations .46
Distributions from Net Investment Income (.02)
--------
Net Asset Value at End of Period $ 10.44
========
Total return ** 4.60%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (000) $ 62,163
Ratio to Average Net Assets:
Net Investment Income 2.23%(a)
Expenses, including Expenses of the Equity 500 Index Portfolio .18%(a)
Decrease Reflected in Above Expense Ratio Due to Absorption of
Expenses by Bankers Trust and the Manager .53%(a)
- --------------
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
* Fund commenced operations May 1, 1996.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period; does not reflect $10 annual
account maintenance fee.
PERFORMANCE INFORMATION
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions during the time periods for which
it is reported. Historical performance should not be considered as
representative of the future performance of the Fund.
The Company may quote the Fund's total return in advertisements and
reports to shareholders or prospective investors. The Fund's performance may
also be compared to that of other mutual funds with a similar investment
objective and to stock or relevant indexes, such as the S&P 500, that are
referenced in APPENDIX A to the SAI. Standard total return results reported
by the Fund include the effect of the $10 account maintenance fee, but do not
take into account charges for optional services which only certain
shareholders elect and which involve nominal fees, such as the $10 fee for a
delivery of redemption proceeds by wire transfer.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specific period which, when
applied to a hypothetical $1,000 investment in the Fund at the beginning of
the period, would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions during
the period.
Further information concerning the Fund's total return is included in
the SAI.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a variety of Funds, each with
different objectives and policies. In combination, these Funds are designed
to provide investors with the opportunity to formulate their own investment
program. You may exchange any shares you hold in any one USAA Fund for shares
in any other USAA Fund. For more complete information about the Funds in the
USAA Family of Funds, including charges and expenses, call the Manager for a
Prospectus. Be sure to read it carefully before you invest or send money.
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
S&P 500 Index Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA INVESTMENT TRUST
Income Strategy Fund
Growth and Tax Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
Growth Strategy Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
* Available for sale only to residents of these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give small investors some
of the advantages enjoyed by wealthy investors. A relatively small investment
buys part of a widely diversified portfolio. That portfolio is managed by
investment professionals, relieving the shareholder of the need to make
individual stock or bond selections. The investor also enjoys conveniences,
such as daily pricing, liquidity, and in the case of the USAA Family of Funds,
no sales charge. The portfolio, because of its size, has lower transaction
costs on its trades than most individuals would have. As a result each
shareholder owns an investment that in earlier times would have been available
only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the shareholder is
foregoing some investment decisions, but must still make others. The
decisions foregone are those involved with choosing individual securities. An
investment adviser will perform that function. In addition, the Manager will
arrange for the safekeeping of securities, auditing the annual financial
statements, and daily valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of the responsibility
for an equally important decision. This decision includes determining a
portfolio of mutual funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this decision may involve
the use of more than one fund of the USAA Family of Funds.
For example, assume a shareholder wished to invest in a widely
diversified common stock portfolio. The shareholder could include the
Aggressive Growth Fund, Growth Fund, S&P 500 Index Fund, Growth & Income Fund,
and Income Stock Fund in such a portfolio. This portfolio would include
stocks of large and small companies, high-dividend stocks and growth stocks.
This is just one example of how an individual could combine funds to create a
portfolio tailored to his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its asset strategy funds,
the Income Strategy, Growth and Tax Strategy, Balanced Strategy, Cornerstone
Strategy, and Growth Strategy Funds. These unique mutual funds provide a
professionally managed diversified investment portfolio within a mutual fund.
These Funds are designed for the shareholder who prefers to delegate the asset
allocation process to an investment manager. The Funds are structured to
achieve diversification across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use an
asset strategy fund, the USAA Family of Funds provides a broad range of
choices covering just about any investor's investment objectives. Our sales
representatives stand ready to inform you of your choices and to help you
craft a portfolio which meets your needs.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks to provide investment results that, before expenses, correspond
to the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States, as represented by the S&P
500(1). The Fund offers investors a convenient means of diversifying their
holdings of common stocks while relieving those investors of the
administrative burdens typically associated with purchasing and holding these
instruments.
The Company seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio, which has the same
investment objective as the Fund. There can be no assurances that the
investment objective of either the Fund or the Portfolio will be achieved.
The investment objective of both the Fund and the Portfolio is not a
fundamental policy and may be changed upon notice to, but without the approval
of, the Fund's shareholders or the Portfolio's investors, respectively. See
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE on page 12.
EQUITY 500 INDEX PORTFOLIO
The Portfolio is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities
based upon economic, financial, and market analyses and investment judgment.
Instead, the Portfolio, utilizing a "passive" or "indexing" investment
approach, attempts to replicate, before expenses, the performance of the S&P
500.
- --------------
(1) "Standard & Poor's (registered trademark)," S&P (registered trademark),"
"Standard & Poor's 500," S&P 500 (registered trademark)," and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by Bankers Trust Company.
Under normal conditions when the Portfolio's assets are above $10
million, the Portfolio will invest at least 80% of its assets in common stocks
of companies which compose the S&P 500. In seeking to replicate the
performance of the S&P 500, Bankers Trust, the Portfolio's investment adviser,
will attempt over time to allocate the Portfolio's portfolio of investments
among common stocks in approximately the same weightings as the S&P 500,
beginning with the heaviest-weighted stocks that make up a larger portion of
the Index's value. Over the long term, Bankers Trust seeks a correlation
between the performance of the Portfolio, before expenses, and that of the
S&P 500 of 0.98 or better (0.95 or better if Portfolio asset levels are below
$10 million). A figure of 1.00 would indicate perfect correlation. In the
unlikely event that the correlation is not achieved, the Portfolio's Board of
Trustees will consider alternative structures.
Bankers Trust utilizes a two-stage sampling approach in seeking to
achieve its objective. Stage one, which encompasses large cap stocks,
maintains the stock holdings at or near their benchmark weights. Large
capitalization stocks are defined as those securities which represent 0.10% or
more of the Index. In stage two, smaller stocks are analyzed and selected
using risk characteristics and industry weights in order to match the sector
and risk characteristics of the smaller companies in the S&P 500. This
approach helps to maximize portfolio liquidity while minimizing costs.
Bankers Trust generally will seek to match the composition of the S&P
500 but usually will not invest the Portfolio's stock portfolio to mirror the
Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Portfolio may not always be invested in the less
heavily weighted S&P 500 stocks, and may at times have its portfolio weighted
differently from the S&P 500, particularly if the Portfolio has a low level of
assets. When the Portfolio's size is greater, Bankers Trust expects to
purchase more of the stocks in the S&P 500 and to match the relative weighting
of the S&P 500 more closely, and anticipates that the Portfolio will be able
to mirror, before expenses, the performance of the S&P 500 with little
variance at asset levels of $10 million or more. In addition, the Portfolio
may omit or remove any S&P 500 stock from the Portfolio if, following
objective criteria, Bankers Trust judges the stock to be insufficiently liquid
or believes the merit of the investment has been substantially impaired by
extraordinary events or financial conditions. Bankers Trust will not purchase
the stock of Bankers Trust New York Corporation, which is included in the
Index, and instead will overweight its holdings of companies engaged in
similar businesses.
Under normal conditions, Bankers Trust will attempt to invest as much of
the Portfolio's assets as is practical in common stocks included in the S&P
500. However, the Portfolio may maintain up to 20% of its assets in
short-term debt securities and money market instruments hedged with stock
index futures and options to meet redemption requests or to facilitate the
investment in common stocks. See ADDITIONAL INFORMATION for further
information.
When the Portfolio has cash from new investments in the Portfolio or
holds a portion of its assets in money market instruments, it may enter into
stock index futures or options to attempt to increase its exposure to the
stock market. Strategies the Portfolio could use to accomplish this include
purchasing futures contracts, writing put options, and purchasing call
options. When the Portfolio wishes to sell securities, because of shareholder
redemptions or otherwise, it may use stock index futures or options thereon to
hedge against market risk until the sale can be completed. These strategies
could include selling and buying futures contracts, writing call options, and
purchasing put options.
Bankers Trust will choose among futures and options strategies based on
its judgment of how best to meet the Portfolio's goals. In selecting these
derivative instruments, Bankers Trust will assess such factors as current and
anticipated stock prices, relative liquidity and price levels in the options
and futures markets compared to the securities markets, and the Portfolio's
cash flow and cash management needs. If Bankers Trust judges these factors
incorrectly, or if price changes in the Portfolio's futures and options
positions are not well correlated with those of its other investments, the
Portfolio could be hindered in the pursuit of its objective and could suffer
losses. The Portfolio could also be exposed to risk if it could not close out
its futures or options positions because of an illiquid secondary market. A
description of the futures and options that the Portfolio may use and some of
their associated risks is found under ADDITIONAL INFORMATION.
Short-Term Instruments - The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its objective
and long-term investment perspective. However, the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or
less to meet anticipated redemptions and expenses or for day-to-day operating
purposes. Short-term instruments consist of: (1) short-term obligations of the
U.S. Government, its agencies, instrumentalities, authorities or political
subdivisions; (2) other short-term debt securities rated Aa or higher by
Moody's Investors Service, Inc. (Moody's) or AA or higher by Standard & Poor's
Corporation (S&P) or, if unrated, of comparable quality in the opinion of
Bankers Trust; (3) commercial paper; (4) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances;
and (5) repurchase agreements. At the time the Portfolio invests in
commercial paper, bank obligations or repurchase agreements, the issuer or the
issuer's parent must have outstanding debt rated Aa or higher by Moody's or AA
or higher by S&P or outstanding commercial paper or bank obligations rated
Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers Trust.
ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than
25% of its assets in the securities of issuers in any one industry. In the
unlikely event that the S&P 500 should concentrate to an extent greater than
that amount, the Portfolio's ability to achieve its investment objective may
be impaired. These are fundamental investment policies of the Portfolio which
may not be changed without shareholder approval. No more than 15% of the
Portfolio's net assets may be invested in illiquid or not readily marketable
securities (including repurchase agreements and time deposits with remaining
maturities of more than seven calendar days.) Additional investment policies
of the Portfolio are contained in the SAI.
ABOUT THE S&P 500 INDEX
The S&P 500 is a well-known stock market index that includes common stocks of
500 companies from several industrial sectors representing a significant
portion of the market value of all common stocks publicly traded in the United
States, most of which are listed on the New York Stock Exchange Inc. (the
NYSE). Stocks in the S&P 500 are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the
stock's current price). Bankers Trust believes that the performance of the
S&P 500 is representative of the performance of publicly traded common stocks
in general. The composition of the S&P 500 is determined by S&P and is based
on such factors as the market capitalization and trading activity of each
stock and its adequacy as a representation of stocks in a particular industry
group, and may be changed from time to time.
The Fund and the Portfolio are not sponsored, endorsed, sold or promoted
by S&P. S&P makes no representation or warranty, express or implied, to the
owners of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 to track general stock
market performance. S&P's only relationship to the Fund or the Portfolio is
the licensing of certain trademarks and trade names of S&P and the S&P 500,
which is determined, composed and calculated by S&P without regard to the Fund
or the Portfolio. S&P does not guarantee the accuracy and/or the completeness
of the S&P 500 or any data included therein.
S&P makes no warranty, express or implied, as to the results to be
obtained by the Fund or the Portfolio, owners of the Fund or the Portfolio, or
any other person or entity from the use of the S&P 500 or any data included
therein. S&P makes no express or implied warranties and hereby expressly
disclaims all such warranties of merchantability or fitness for a particular
purpose or use with respect to the S&P 500 or any data included therein.
The following table shows the performance of the S&P 500 for the ten
years from 1986 through 1995. Stock prices fluctuated widely during the
period but were higher at the end than at the beginning in eight of the ten
years shown. The results shown should not be considered as a representation
of the income or capital gain or loss which may be generated by the S&P 500 in
the future. Nor should this be considered as a representation of the past or
future performance of the Fund.
- ----------------------------------------------------------------------
Standard & Poor's 500 Composite Stock Price Index*
- ----------------------------------------------------------------------
Year End Price Changes Dividend Total
Year Index Value in Index for Year Reinvestment Return
- ----------------------------------------------------------------------
1995 615.93 34.11% 3.43% 37.54%
1994 459.27 -1.54% 2.86% 1.32%
1993 466.45 7.06% 2.98% 10.04%
1992 435.71 4.46% 3.15% 7.61%
1991 417.09 26.31% 4.09% 30.40%
1990 330.22 -6.56% 3.46% -3.10%
1989 353.40 27.25% 4.37% 31.62%
1988 277.72 12.40% 4.16% 16.56%
1987 247.08 2.03% 3.22% 5.25%
1986 242.17 14.62% 4.05% 18.67%
- ----------------------------------------------------------------------
*Source: Bloomberg. Total returns for the S&P 500 include the change in price
of S&P 500 stocks and assume reinvestment of all dividends paid by S&P 500
stocks.
RISK FACTORS
By itself, the Fund does not constitute a balanced investment plan. The Fund
is designed as a relatively low-cost means for investors to diversify their
investment portfolios. As described above, the Portfolio invests in a
portfolio of securities that is representative of the stock market as a whole.
While the performance of the S&P 500 has fluctuated considerably, the
long-term performance of the S&P 500 has been greater than inflation. Thus,
the Fund may make sense for you if you can afford to ride out changes in the
stock market. The Fund's share price, yield and total return will fluctuate
and your investment may be worth more or less than your original cost when you
redeem your shares.
The ability of the Fund and the Portfolio to meet their investment
objective depends to some extent on the cash flow experienced by the Fund and
by the other investors in the Portfolio, since investments and redemptions by
shareholders of the Fund will generally require the Portfolio to purchase or
sell securities. Bankers Trust will make investment changes to accommodate
cash flow in an attempt to maintain the similarity of the Portfolio to the S&P
500. You should also be aware that the performance of the S&P 500 is a
hypothetical number which does not take into account brokerage commissions and
other costs of investing, unlike the Portfolio which must bear these costs.
Finally, since the Portfolio seeks to track the S&P 500, Bankers Trust
generally will not attempt to judge the merits of any particular stock as an
investment.
PORTFOLIO TURNOVER
The frequency of portfolio transactions the Portfolio's turnover rate will
vary from year to year depending on market conditions and the Portfolio's cash
flows. The Portfolio's annual turnover rate is not expected to exceed 100%.
The Portfolio's turnover rates for the years ended December 31, 1995 and 1994
were 6% and 21%, respectively. The decrease in the Portfolio's turnover rate
from the year ended 1994 to 1995 was due to the growth of assets in the
period.
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its Assets in the Portfolio, a separate registered investment
company with the same investment objective as the Fund. Therefore, an
investor's interest in the Portfolio's securities is indirect. In addition to
selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors
will invest in the Portfolio under the same terms and conditions and will pay
a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is
available from Bankers Trust at 1-800-368-4031.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a
large fund withdraws from the Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns (however,
this possibility exists as well for traditionally-structured funds which have
large institutional investors). Additionally, the Portfolio may become less
diverse, resulting in increased portfolio risk. Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio.
Except as permitted by the SEC, whenever the Fund is requested to vote
on matters pertaining to the Portfolio, the Fund will hold a meeting of its
shareholders and will cast all of its votes in the same proportion as the
votes of its shareholders. The percentage of the Company's votes representing
the Fund's shareholders not voting will be voted by the Directors or officers
of the Company in the same proportion as the Fund's shareholders who do, in
fact, vote.
Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund generally would incur brokerage, tax or
other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of the Fund.
The Fund may withdraw its investment from the Portfolio at any time, if
the Board of Directors of the Company determines that it is in the best
interest of the shareholders of the Fund to do so. Upon any such withdrawal,
the Manager would become responsible for directly managing the Assets of the
Fund. In addition, the Board of Directors of the Company may consider other
actions that might be taken, including the investment of all the Assets of the
Fund in another pooled investment entity having the same investment objective
as the Fund.
The Fund's investment objective is not a fundamental policy and may be
changed upon notice to, but without the approval of, the Fund's shareholders.
If there is a change in the Fund's investment objective, the Fund's
shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs. The investment objective of
the Portfolio is also not a fundamental policy. Shareholders of the Fund will
receive 30 days' prior written notice with respect to any change in the
investment objective of the Fund or the Portfolio. See INVESTMENT OBJECTIVE
AND POLICIES - ADDITIONAL INVESTMENT LIMITATIONS for a description of the
fundamental policies of the Portfolio that cannot be changed without approval
by the holders of "a majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940, as amended (1940 Act)) of the
Portfolio.
For descriptions of the investment objective, policies and restrictions
of the Portfolio, see INVESTMENT OBJECTIVES AND POLICIES herein. For
descriptions of the management of the Portfolio, see MANAGEMENT OF THE COMPANY
AND PORTFOLIO herein and INVESTMENT ADVISER and ADMINISTRATOR in the SAI. For
descriptions of the expenses of the Portfolio, see MANAGEMENT OF THE COMPANY
AND PORTFOLIO herein.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following
methods. A complete, signed application is required together with a check for
each new account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Company with
a social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value
(NAV) per share next determined after the Fund receives your request in proper
form. The NAV of the Fund is determined at the close of the regular trading
session of the NYSE each day on which the Exchange is open. If the Fund
receives your request prior to that time, your purchase price will be
the NAV per share determined for that day. If the Fund receives your request
after the time at which the NAV per share is calculated, the purchase will be
effective on the next business day. Because of the more lengthy clearing
process and the need to convert foreign currency, a check drawn on a foreign
bank will not be deemed received for the purchase of shares until such time as
the check has cleared and the Manager has received good funds, which may take
up to four to six weeks. Furthermore, a bank charge may be assessed in the
clearing process, which will be deducted from the amount of the purchase. To
avoid a delay in the effectiveness of your purchase, the Manager suggests that
you convert your foreign check to U.S. dollars prior to investment in the
Fund.
Purchase of Shares
Minimum Investments
- -------------------
Initial Purchase (non-IRA): $3,000
Additional Purchases: $50
Initial Purchase - IRA: $2,000
Additional Purchases: $50
How to Purchase:
- ---------------
MAIL * To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
* To add to your account, send your check and the "Invest by
Mail" stub that accompanies your fund's transaction
confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
* To exchange by mail, call 1-800-531-8448 for instructions.
IN PERSON * To open an account, bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway, San Antonio
AUTOMATICALLY * Additional purchases on a regular basis can be
VIA deducted from a bank account, paycheck, income-producing
ELECTRONIC investment or from a USAA money market account. Sign up
FUNDS for these services when opening an account or call
TRANSFER 1-800-531-8448 to add these services.
TRANSFER * Purchases through payroll deduction ($25 minimum each pay
(EFT) period with $3,000 initial investment) can be made by any
employee of USAA, its subsidiaries or affiliated companies.
BANK WIRE * To add to an account, instruct your bank (which may charge
a fee for the service) to wire the specified amount to the
Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA#011000028
Attn: USAA S&P 500 Index Fund
USAA AC-69384998
Shareholder(s) Name(s)-----------------
Shareholder(s) Account Number-------------------
PHONE * If you have an existing USAA account and would like to open
1-800-531-8448 a new account or if you would like to exchange to another
USAA fund, call for instructions. The new account
must have the same registration as your existing
account.
* To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call for instructions.
REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following methods on any day
the NAV per share is calculated. Redemptions will be effective on the day on
which instructions are received in accordance with the requirements set forth
below. However, if instructions are received after the NAV per share
calculation, redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days after the effective date
of redemption. Payment for redemption of shares purchased by check or
electronic
funds transfer will not be disbursed until the purchase check or electronic
funds transfer has cleared, which could take up to 15 days from the purchase
date. If you are considering redeeming shares soon after purchase, you should
purchase by bank wire or certified check to avoid delay.
In addition, the Company may elect to suspend the redemption of shares
or postpone the date of payment during any period that the NYSE is closed, or
trading in the markets the Company normally utilizes is restricted, or during
any period that redemption is otherwise permitted to be suspended by the SEC.
How to Redeem:
WRITTEN, * Send your written instructions to:
FAX, OR USAA Shareholder Account Services
TELEGRAPH 9800 Fredericksburg Rd., San Antonio, TX 78288
* Send a signed fax to 1-800-292-8177, or send a telegram to
USAA Shareholder Account Services.
Written redemption requests must include the following: (1) a letter of
instruction or stock assignment, and stock certificate (if issued), specifying
the Fund and the number of shares or dollar amount to be redeemed; (2)
signatures of all owners of the shares exactly as their names appear on the
account; (3) other supporting legal documents, if required, as in the case of
estates, trusts, guardianships, custodianships, partnerships, corporations,
and pension and profit-sharing plans; and (4) method of payment.
PHONE * Call toll free 1-800-531-8448, in San Antonio, 456-7202.
Telephone redemption is automatically established when you complete your
application. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; and if it does not, it may
be liable for any losses due to unauthorized or fraudulent instructions.
Information is obtained prior to any discussion regarding an account
including: (1) USAA number or account number, (2) the name(s) on the account
registration, and (3) social security number or tax identification number for
the account registration. In addition, all telephone communications with a
shareholder are recorded, and confirmations of all account transactions are
sent to the address of record.
Redemption by telephone, fax, or telegraph is not available for shares
represented by stock certificates.
Methods of Payment:
BANK WIRE * Allows redemptions to be sent directly to your bank account.
Establish this service when you apply for your account, or later upon
request. If your account is at a savings bank, savings and loan association,
or credit union, please obtain precise wiring instructions from your
institution. Specifically, include the name of the correspondent bank and
your institution's account number at that bank. USAA Shareholder Account
Services (Transfer Agent) deducts a wire fee from the account for the
redemption by wire. The fee as of the date of this Prospectus is $10 ($25 for
wires to a foreign bank) and is subject to change at any time. The fee is
paid to State Street Bank and Trust Company and the Transfer Agent for their
services in connection with the wire redemption. Your bank may also charge a
fee for receiving funds by wire.
AUTOMATICALLY * Systematic (regular) or intermittent (as-needed)
VIA EFT redemptions can be credited to your bank account.
Establish any of our electronic investing services when you apply for
your account, or later upon request.
CHECK * A check payable to the registered shareholder(s) will be
REDEMPTION mailed to the address of record.
This check redemption privilege is automatically established when your
application is completed and accepted. There is a 15-day waiting period
before a check redemption can be processed following a telephone address
change. Should you wish to redeem shares within the 15 days following a
telephone address change, you may do so by providing written instructions by
mail or facsimile.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to nonpayment or if the
Company does not receive good funds either by check or electronic funds
transfer, the cancellation will be treated as a redemption of shares
purchased; and you will be responsible for any resulting loss incurred by the
Fund or the Manager. If you are a shareholder, shares can be redeemed from
any of your account(s) as reimbursement for all losses. In addition, you may
be prohibited or restricted from making future purchases in any of the USAA
Family of Funds. A $15 fee is charged for all returned items, including
checks and electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified,
and you must include the number of shares to be transferred, the signatures of
all registered owners, and all stock certificates, if any, which are the
subject of transfer. You also need to send written instructions signed by all
registered owners and supporting documents to change an account registration
due to events such as divorce, marriage, or death. If a new account needs to
be established, an application must be completed and returned to the Transfer
Agent.
ACCOUNT BALANCE
The Board of Directors may cause the redemption of an account with a balance
of less than 10 shares of the Fund, subject to certain limitations described
in ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES in the SAI.
COMPANY RIGHTS
The Company reserves the right to:
(1) reject purchase or exchange orders when in the best interest of the
Company;
(2) limit or discontinue the offering of shares of any portfolio of the
Company without notice to the shareholders;
(3) impose a redemption charge of up to 1% of the net asset value of shares
redeemed if circumstances indicate a charge is necessary for the
protection of remaining investors (for example, if excessive market-timing
share activity unfairly burdens long-term investors); provided, however,
this 1% charge will not be imposed upon shareholders unless authorized by
the Board of Directors and the required notice has been given to
shareholders;
(4) require a signature guarantee for purchases, redemptions, or changes in
account information in those instances where the appropriateness of a
signature authorization is in question. The section Additional
Information Regarding Redemption of Shares in the SAI contains
information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when you complete your
application. You may exchange shares among Funds in the USAA Family of Funds,
provided you do not hold these shares in stock certificate form and that the
shares to be acquired are offered in your state of residence. Exchange
redemptions and purchases will be processed simultaneously at the share prices
next determined after the exchange order is received. For federal income tax
purposes, an exchange between Funds is a taxable event. Accordingly, a
capital gain or loss may be realized.
The Fund has undertaken certain procedures regarding telephone
transactions. See REDEMPTION OF SHARES - PHONE.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their shareholders from
unfair expense burdens, the Funds restrict excessive exchanges. Exchanges out
of any Fund in the USAA Family of Funds are limited for each account to six
per calendar year except that there is no limitation on exchanges out of the
Short-Term Bond Fund, Tax Exempt Short-Term Fund, or any of the money market
funds in the USAA Family of Funds. OTHER SERVICES
INVESTMENT PLANS
Automatic Investment Plans - you may establish an automatic investment plan
by completing the appropriate forms. At the time you sign up for any of the
following investment plans that utilize the electronic funds transfer service,
you will choose the day of the month (the effective date) on which you would
like to regularly purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the last business day
before the effective date. Call the Manager to obtain instructions. More
information about these preauthorized plans is contained in the SAI.
* InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The investor
selects the day(s) each month that money is transferred from a checking or
savings account.
* Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an employer, an income-producing investment, or an account
with a participating financial institution.
* Automatic Purchase Plan - the periodic transfer of funds from a USAA money
market fund to purchase shares in another non-money market USAA mutual fund.
* Buy/Sell Service - the intermittent purchase or redemption of shares through
electronic funds transfer to or from a checking or savings account.
* Systematic Withdrawal Plan - the periodic redemption of shares from one of
your accounts permitting you to receive a fixed amount of money monthly or
quarterly.
* Retirement Plans - plans are available for IRA (including SEP/IRA) and
403(b)(7) accounts. Federal taxes on current income may be deferred if an
investor qualifies.
* Directed Dividends - If you own shares in more than one of the Funds in the
USAA Family of Funds, you may direct that dividends and/or capital gain
distributions earned in one fund be used to automatically purchase shares in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a reinvested dividend;
(2) a payment you make under the InvesTronic (registered trademark), Direct
Purchase Service, Automatic Purchase Plan, or Directed Dividends
investment plans; or
(3) a redemption you make under the Systematic Withdrawal Plan.
At the end of each quarter, you will receive a consolidated statement
for all of your mutual fund accounts, regardless of account activity. The
fourth quarter consolidated statement will reflect all account activity for
the prior tax year. There will be a $10 fee charged for copies of historical
statements for other than the prior tax year for any one account. You will
receive the Fund's financial statements with a summary of its investments and
performance at least semiannually.
In an effort to reduce expenses and respond to shareholders' requests to
reduce mail, the Company intends to consolidate mailings of Annual and
Semiannual Reports to households having multiple accounts with the same
address of record. One copy of each report will be furnished to that address.
You may request additional reports by notifying the Company.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms, a copy of the SAI,
the most recent Annual Report and/or Semiannual Report, or if you have any
questions concerning any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and redeemed by
shareholders is equal to the NAV per share determined on the effective date of
the purchase or redemption.
WHEN
The NAV per share for the Fund is calculated at the close of the regular
trading session of the NYSE, which is usually 4:00 p.m. Eastern time. You may
buy and sell Fund shares at the NAV per share without a sales charge.
HOW
The NAV per share is calculated by adding the value of the Fund's assets
(i.e., the value of its investment in the Portfolio and other assets),
deducting liabilities, and dividing by the number of shares outstanding. The
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method
which the Portfolio's Board of Trustees believes accurately reflects fair
value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income will be distributed to shareholders quarterly. Net
capital gains, if any, generally will be distributed at least annually. The
Fund intends to make such additional distributions as may be necessary to
avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are automatically
reinvested, unless the shareholder specifies otherwise. The share price will
be the NAV of the Fund shares computed on the ex-dividend date. Any income
dividend or capital gain distributions paid by the Fund will reduce the NAV
per share by the amount of the dividend or distribution. An investor should
consider carefully the effects of purchasing shares of the Fund shortly before
any dividend or distribution. Although in effect a return of capital, these
distributions are subject to taxes.
The Transfer Agent automatically deducts a $10 annual account
maintenance fee from the dividend income paid to each shareholder account.
The $10 account maintenance fee is deducted at a rate of $2.50 per quarter
from the dividend. If the dividend to be paid to an account is less than the
fee to be deducted, sufficient shares may be redeemed from an account to make
up the difference. The annual account maintenance fee may be changed upon not
less than 30 days' notice to account holders.
Any dividend or distribution payment returned to the Manager as not
deliverable will be invested in the shareholder's Fund account at the
then-current NAV per share. If any check for the payment of dividends or
distributions is not cashed within six months from the date on the check, it
becomes void. The amount of the check will then be invested in the
shareholder's Fund account at the then-current NAV per share.
FEDERAL TAXES
The following discussion relates only to generally applicable federal income
tax provisions in effect as of the date of this Prospectus. Therefore,
shareholders are urged to consult their own tax advisers about the status of
distributions from the Fund in their own states and localities.
Fund - The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the Fund will not be
subject to federal income tax on its net investment income and net capital
gains (capital gains in excess of capital losses) distributed to shareholders.
In order to qualify as a regulated investment company under the Code,
the Fund must satisfy certain requirements relating to the sources of its
income, the distribution of its income, and the diversification of its assets.
In satisfying these requirements, the Fund will treat itself as owning its
proportionate share of the Portfolio's assets and is entitled to the income of
the Portfolio properly attributable to such share. As a partnership under the
Code, the Portfolio does not pay federal income or excise taxes.
Shareholder - Dividends from taxable net investment income and distributions
of net short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional shares. A
portion of these dividends may qualify for the 70% dividends received
deduction available to corporations.
Distributions of net long-term capital gains are taxable as long-term
capital gains whether received in cash or reinvested in additional shares, and
regardless of the length of time the investor has held the shares of the Fund.
Redemptions, including exchanges, are subject to income tax, based on
the difference between the cost of shares when purchased and the price
received upon redemption or exchange.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you are not currently
subject to backup withholding.
Reporting - Information concerning the status of dividends and distributions
for federal income tax purposes will be mailed to shareholders annually.
MANAGEMENT OF THE COMPANY AND PORTFOLIO
The business affairs of the Company are subject to the supervision of its
Board of Directors, while the business affairs of the Portfolio are subject to
the supervision of its Board of Trustees. No Director of the Company also
serves as a Trustee of the Portfolio. For more information with respect to
Directors of the Company and Trustees of the Portfolio, see DIRECTORS AND
OFFICERS OF THE COMPANY and TRUSTEES AND OFFICERS OF THE PORTFOLIO in the SAI.
INVESTMENT ADVISER
USAA Investment Management Company
The Manager serves as the manager and investment adviser of the Fund,
providing services under a Management Agreement. Under the Management
Agreement, the Manager is responsible for monitoring the services provided
to the Portfolio by Bankers Trust, subject to the authority of and supervision
by the Board of Directors. The Manager receives no fee for providing these
monitoring services. In the event the Fund's Board of Directors determines
it is in the best interests of the Fund's shareholders to withdraw its
investment in the Portfolio, the Manager would become responsible for directly
managing the assets of the Fund. In such event, the Fund would pay the
Manager an annual fee of .10% of the Fund's ANA, accrued daily and
paid monthly.
The Manager was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large diversified financial services
institution. As of the date of this Prospectus, the Manager had approximately
$30 billion in total assets under management. The Manager's mailing address
is 9800 Fredericksburg Rd., San Antonio, TX 78288.
Officers and employees of the Manager are permitted to engage in
personal securities transactions subject to restrictions and procedures set
forth in the Joint Code of Ethics adopted by the Company and the Manager.
Such restrictions and procedures include substantially all of the
recommendations of the Advisory Group of the Investment Company Institute and
comply with SEC rules and regulations.
Bankers Trust Company
At the present time, the Company seeks to achieve the investment objective of
the Fund by investing all the Assets of the Fund in the Portfolio. The
Portfolio has retained the services of Bankers Trust as investment adviser.
Mr. Frank Salerno, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Portfolio. Mr. Salerno has been employed at
Bankers Trust since prior to 1989 and has managed the Portfolio's assets since
the Portfolio commenced operations.
Bankers Trust, a New York banking corporation with principal offices at
280 Park Avenue, New York, New York 10017, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust is a worldwide merchant
bank that conducts a variety of general banking and trust activities and is a
major wholesale supplier of financial services to the international and
domestic institutional markets. Investment management is a core business of
Bankers Trust with approximately $200 billion in assets under management
globally. Of that total, approximately $82 billion are in U.S. equity index
assets. When bond and international funds are included, Bankers Trust manages
over $94 billion in total index assets. This makes Bankers Trust one of the
nation's leading managers of index funds.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the Company and
the Portfolio described in this Prospectus and the SAI without violation of
the Glass-Steagall Act or other applicable banking laws or regulations. State
laws on this issue may differ from the interpretations of relevant federal law
and banks and financial institutions may be required to register as dealers
pursuant to state securities laws.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objectives and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio, and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. Bankers Trust may utilize the expertise
of any of its worldwide subsidiaries and affiliates to assist in its role as
investment adviser. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust.
A Bankers Trust affiliate will be used in connection with a purchase or sale
of an investment for the Portfolio only if Bankers Trust believes that the
affiliate's charge for the transaction does not exceed usual and customary
levels. The Portfolio will not invest in obligations for which Bankers Trust
or any of its affiliates is the ultimate obligor or accepting bank. The
Portfolio may, however, invest in the obligations of correspondents and
customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee
from the Portfolio, computed daily and paid monthly, at the annual rate of
.10% (before waiver) of the average daily net assets of the Portfolio.
ADMINISTRATOR
Under its Administration Agreement with the Fund, the Manager calculates the
NAV of the Fund and generally assists the Board of Directors of the Company in
all aspects of the administration and operation of the Fund. The
Administration Agreement provides for the Fund to pay the Manager a fee,
computed daily and paid monthly, at the annual rate of .02% of the average
daily net assets of the Fund. Under the Administration Agreement with the
Fund, the Manager may delegate one or more of its responsibilities to others,
at the Manager's expense.
Under an Administration and Services Agreement with the Portfolio,
Bankers Trust calculates the value of the assets of the Portfolio and
generally assists the Board of Trustees of the Portfolio in all aspects of the
administration and operation of the Portfolio. The Administration and
Services Agreement provides for the Portfolio to pay Bankers Trust a fee,
computed daily and paid monthly, at the rate of .05% (before waiver) of the
average daily net assets of the Portfolio. Under the Administration and
Services Agreement, Bankers Trust may delegate one or more of its
responsibilities to others, at Bankers Trust's expense. For more information,
see ADMINISTRATOR in the SAI.
OPERATING EXPENSES
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by the Manager or Bankers Trust,
including administration and service fees, fees for necessary professional
services, and costs associated with regulatory compliance and maintaining
legal existence and shareholder relations. The Portfolio bears its own
expenses. Operating expenses for the Portfolio generally consist of all costs
not specifically borne by Bankers Trust, including investment advisory and
administration and services fees, fees for necessary professional services,
the costs associated with regulatory compliance and maintaining legal
existence and investor relations.
SERVICE PROVIDERS
Underwriter/Distributor
USAA Investment Management Company, 9800 Fredericksburg Rd., San Antonio,
Texas 78288, serves as the distributor of the Fund's shares.
Transfer Agent
USAA Shareholder Account Services, 9800 Fredericksburg Rd., San Antonio, Texas
78288, serves as transfer agent of the Fund's shares.
Custodian
Bankers Trust serves as custodian of the Fund's and the Portfolio's assets.
Legal Counsel
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109,
serves as counsel to the Fund. Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022-4669, serves as counsel to the
Portfolio.
Independent Accountants
Coopers & Lybrand LLP, 1100 Main Street, Suite 900, Kansas City, Missouri
64105, has been selected as the Independent Accountants for the Fund and the
Portfolio.
DESCRIPTION OF SHARES
The Company is an open-end management investment company incorporated under
the laws of the State of Maryland on October 14, 1980. The Company is
authorized to issue shares in separate series or Funds. Eight such Funds have
been established, one of which is described in this Prospectus. The Fund is
classified as a diversified investment company. Under the Company's charter,
the Board of Directors is authorized to create new Funds in addition to those
already existing without approval of the shareholders of the Company.
Under provisions of the Bylaws of the Company, no annual meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held
unless required by the 1940 Act. The Directors may fill vacancies on the
Board or appoint new Directors provided that immediately after such action at
least two-thirds of the Directors have been elected by shareholders.
Shareholders are entitled to one vote per share (with proportionate
voting for fractional shares) irrespective of the relative NAV of the shares.
For matters affecting an individual fund, a separate vote of the shareholders
of that fund is required. As of August 16,1996, USAA and its affiliates owned
approximately 39.2% of the Fund's shares.
The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in
the Portfolio (e.g., other investment companies, insurance company separate
accounts, and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of the Fund's incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance exists and the Portfolio itself was unable to
meet its obligations. Accordingly, the Company's Directors believe that
neither the Fund nor its shareholders will be adversely affected by reason of
the Fund's investing in the Portfolio.
ADDITIONAL INFORMATION
Repurchase Agreements - In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price. In the
event of the bankruptcy of the other party to either a repurchase agreement or
a securities loan, the Portfolio could experience delays in recovering either
its cash or the securities it lent. To the extent that, in the meantime, the
value of the securities repurchased had decreased or the value of securities
lent had increased, the Portfolio could experience a loss. In all cases,
Bankers Trust must find the creditworthiness of the other party to the
transaction satisfactory. A repurchase agreement is considered a
collateralized loan under the 1940 Act.
Securities Lending - The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its
securities, the Portfolio can increase its income by continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan inures to the
Portfolio and its investors. In lending securities to brokers, dealers and
other organizations, the Portfolio is subject to risk which, like those
associated with other extensions of credit, includes delays in recovery and
possible loss of rights in the collateral should the borrower fail
financially.
When-Issued and Delayed Delivery Securities - The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more after
the date of the purchase commitment. The value of these securities is subject
to market fluctuation during this period and no income accrues to the
Portfolio until settlement takes place. The Portfolio maintains with the
custodian a segregated account containing high-grade liquid securities in an
amount at least equal to these commitments. When entering into a when-issued
or delayed delivery transaction, the Portfolio will rely on the other party to
consummate the transaction; if the other party fails to do so, the Portfolio
may be disadvantaged.
Options on Stock Indices - The Portfolio may purchase and write put and call
options on stock indices listed on stock exchanges. A stock index fluctuates
with changes in the market values of the stocks included in the index.
Options on stock indices are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise settlement
amount" equal to (a) the amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this cash amount
will depend upon the closing level of the stock index upon which the option
is based being greater than, in the case of a call, or less than, in the case
of a put, the exercise price of the option. The amount of cash received will
be equal to such difference between the closing price of the index and the
exercise price of the option expressed in dollars times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in stock
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of options
on an index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or market
segment. Accordingly, successful use by the Portfolio of options on stock
indices will be subject to Bankers Trust's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks.
Futures Contracts on Stock Indices - The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon
changes in the value of an index of securities (Futures Contracts). This
investment technique is designed only to hedge against anticipated future
changes in general market prices which otherwise might either adversely affect
the value of securities held by the Portfolio or adversely affect the prices
of securities which are intended to be purchased at a later date for the
Portfolio. A Futures Contract may also be entered into to close out or
offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that of
the investment being hedged. If these hedging transactions are successful,
the futures positions taken for the Portfolio will rise in value by an amount
which approximately offsets the decline in value of the portion of the
Portfolio's investments that are being hedged. Should general market prices
move in an unexpected manner, the full anticipated benefits of Futures
Contracts may not be achieved or a loss may be realized.
Although Futures Contracts would be entered into for cash management
purposes only, such transactions do involve certain risks. These risks could
include a lack of correlation between the Futures Contracts and the equity
market being hedged, a potential lack of liquidity in the secondary market and
incorrect assessments of market trends which may result in poorer overall
performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be
posted and maintained as a good-faith deposit against performance of
obligations under Futures Contracts written for the Portfolio. The Portfolio
may not purchase or sell a Futures Contract or options thereon if immediately
thereafter its margin deposits on its outstanding Futures Contracts and its
premium paid on outstanding options thereon would exceed 5% of the market
value of the Portfolio's total assets.
Options on Futures Contracts - The Portfolio may invest in options on such
Futures Contracts for similar purposes.
Asset Coverage - The Portfolio will cover transactions in futures and related
options, as well as when-issued and delayed-delivery securities, as required
under applicable
interpretations of the SEC, either by owning the underlying securities or by
establishing a segregated account with the Portfolio's custodian containing
high-grade, liquid-debt securities in an amount at all times equal to or
exceeding the Portfolio's commitment with respect to these instruments or
contracts.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 498-8066
MUTUAL FUND TOUCHLINE (registered trademark)
(From Touchtone phones only)
For account balance, last transaction or
fund prices:
1-800-531-8777
In San Antonio 498-8777
Part B
Statement of Additional Information for the
S&P 500 Index Fund
is included herein
[Logo of USAA STATEMENT OF
USAA Eagle MUTUAL ADDITIONAL INFORMATION
appears here] FUND, INC. September 16, 1996
- ------------------------------------------------------------------------------
USAA MUTUAL FUND, INC.
S&P 500 Index Fund
USAA MUTUAL FUND, INC. (the Company) is a registered investment company
offering shares of eight no-load mutual funds, one of which is described in
this Statement of Additional Information (SAI): the S&P 500 Index Fund. The
Fund is classified as a diversified investment company and has its own
investment objective designed to meet its investment goals.
The Fund's investment objective is to seek to provide investment results
that, before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard & Poor's
500 Composite Stock Price Index (S&P 500 or Index). As described in the
Prospectus, the Company seeks to achieve the investment objective of the Fund
by investing all the investable assets of the Fund in an open-end management
investment company having the same investment objective as the Fund. The
investment company is the Equity 500 Index Portfolio (the Portfolio) advised
by Bankers Trust Company (Bankers Trust).
Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio in which the Fund invests all of its
investable assets, the following includes a discussion of the various
investments of and techniques employed by the Portfolio.
You may obtain a free copy of the Prospectus for the Fund dated
September 16, 1996, by writing to USAA Mutual Fund, Inc., 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling toll free 1-800-531-8181. The
Prospectus provides the basic information you should know before investing in
the Fund. This SAI is not a Prospectus and contains information in addition
to and more detailed than that set forth in the Fund's Prospectus. It is
intended to provide you with additional information regarding the activities
and operations of the Company and the Fund and should be read in conjunction
with the Fund's Prospectus.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
2 Valuation of Securities
2 Additional Information Regarding Redemption of Shares
3 Investment Plans
4 Investment Policies
8 Investment Restrictions
11 Portfolio Transactions and Brokerage Commissions
12 Further Description of Shares
13 Tax Considerations
14 Directors and Officers of the Company
17 Trustees and Officers of the Portfolio
18 Investment Adviser
19 Administrator
20 General Information
21 Calculation of Performance Data
21 Appendix A - Comparison of Fund Performance
23 Appendix B - Dollar-Cost Averaging
24 Unaudited Financial Statements for the S&P 500 Index Fund and the
Equity 500 Index Portfolio
46 Audited Financial Statements and Independent Accountants' Report to
the Equity 500 Index Portfolio
VALUATION OF SECURITIES
Shares of the Fund are offered on a continuing best efforts basis through USAA
Investment Management Company (IMCO or the Manager). The offering price for
shares of the Fund is equal to the current net asset value (NAV) per share.
The NAV per share of the Fund is calculated by adding the value of the Fund's
assets (i.e., the value of its investments in the Portfolio and other assets),
deducting liabilities, and dividing by the number of shares outstanding.
The Fund's NAV per share is calculated each day, Monday through Friday,
except days on which the New York Stock Exchange (NYSE) is closed. The NYSE
is currently scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and
Christmas, and on the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday, respectively.
The Portfolio values its equity and debt securities (other than
short-term debt obligations maturing in 60 days or less), including listed
securities and securities for which price quotations are available, on the
basis of market valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or less are valued
at amortized cost, which approximates market value. Other assets are valued
at fair value using methods determined in good faith by the Portfolio's Board
of Trustees.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day that the NYSE is open for business
and New York charter banks are not closed owing to customary or local
holidays. As of the close of the NYSE, currently 4:00 p.m. (New York time or
earlier if the NYSE closes earlier) on each such day, the value of each
investor's interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage representing that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions
or reductions which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (1) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of the NYSE on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day and (2) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 p.m. or the close of the
NYSE on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by
all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as
of 4:00 p.m. or the close of the NYSE on the following day the NYSE is open
for trading.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of a shareholder's investment at the time of redemption may be more
or less than the cost at purchase, depending on the value of the securities
held in the Portfolio. Requests for redemption which are subject to any
special conditions, or which specify an effective date other than as provided
herein, cannot be accepted. A gain or loss for tax purposes may be realized
on the sale of shares, depending upon the price when redeemed.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order
by making payment in whole or in part in readily marketable securities chosen
by the Portfolio and valued as they are for purposes of computing the
Portfolio's NAV (a redemption in kind). If payment is made to the Fund in
securities, the Fund may incur transaction expenses in converting these
securities into cash. The Portfolio has elected, however, to be governed by
Rule 18f-1 under the Investment Company Act of 1940, as amended (1940 Act) as
a result of which the Portfolio is obligated to redeem beneficial interests
with respect to any one investor during any 90-day period, solely in cash up
to the lesser of $250,000 or 1% of the NAV of the Portfolio at the beginning
of the period. For purposes of determining compliance with Rule 18f-1, each
shareholder of the Fund redeeming shares of the Fund on a particular day will
be treated as a direct holder in the interest in the Portfolio being redeemed
that day.
In the event the Company withdraws or redeems all of the Fund's interest
in the Portfolio, the Portfolio will effect such redemption in kind and in
such a manner that the securities delivered to the Fund will mirror, as
closely as practicable, the composition of the Portfolio immediately prior to
such redemption.
The Board of Directors may cause the redemption of an account with a
balance of less than 10 shares of the Fund provided (1) the value of the
account has been reduced, for reasons other than market action, below the
minimum initial investment in such Fund at the time of the establishment of
the account, (2) the account has remained below the minimum level for six
months, and (3) 60 days' prior written notice of the proposed redemption has
been sent to the shareholder. Shares will be redeemed at the NAV on the
date fixed for redemption by the Board of Directors. Prompt payment will be
made by mail to the last known address of the shareholder.
The Company reserves the right to suspend the right of redemption or
postpone the date of payment (1) for any periods during which the NYSE is
closed, (2) when trading in the markets the Company normally utilizes is
restricted, or an emergency exists as determined by the Securities and
Exchange Commission (SEC) so that disposal of the Company'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 Company's
shareholders.
For the mutual protection of the investor and the Fund, a guarantee of
signature may be required by the Company. If required, each signature on the
account registration must be guaranteed. Signature guarantees are acceptable
from FDIC member banks, brokers, dealers, municipal securities dealers,
municipal securities brokers, government securities dealers, government
securities brokers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. A
signature guarantee for active duty military personnel stationed abroad may be
provided by an officer of the United States Embassy or Consulate, a staff
officer of the Judge Advocate General, or an individual's commanding officer.
INVESTMENT PLANS
The following investment plans are made available by the Company to
shareholders of the Fund. At the time you sign up for any of the following
investment plans that utilize the electronic funds transfer service, you will
choose the day of the month (the effective date) on which you would like to
regularly purchase shares. When this day falls on a weekend or holiday, the
electronic transfer will take place on the last business day before the
effective date. You may terminate your participation in a plan at any time.
Please call the Manager for details and necessary forms or applications.
Automatic Purchase of Shares
InvesTronic (registered trademark) - an automatic investment program for the
purchase of additional shares through electronic funds transfer. The investor
selects the day(s) each month that money is transferred from a checking or
savings account. By completing an application, which may be obtained from the
Manager, you invest a specific amount each month ($50 minimum) in any of your
accounts.
Direct Purchase Service - the periodic purchase of shares through electronic
funds transfer from an employer, an income-producing investment, or an account
with a participating financial institution.
Automatic Purchase Plan - the periodic transfer of funds from a USAA money
market fund to purchase shares in another non-money market USAA mutual fund.
There is a minimum investment required for this program of $5,000 in the money
market fund, with a monthly transaction minimum of $50.
Buy/Sell Service - the intermittent purchase or redemption of shares through
electronic funds transfer to or from a checking or savings account.
Participation in these automatic purchase plans will permit a
shareholder to engage in dollar-cost averaging. For additional information
concerning the benefits of dollar-cost averaging, see APPENDIX B.
Systematic Withdrawal Plan
If a shareholder in a single investment account (accounts in different Funds
cannot be aggregated for this purpose) owns shares having a NAV of $5,000 or
more, the shareholder may request that enough shares to produce a fixed amount
of money be liquidated from the account monthly or quarterly. The amount of
each withdrawal must be at least $50. Using the electronic funds transfer
service, shareholders may choose to have withdrawals electronically deposited
at their bank or other financial institution. They may also elect to have
checks mailed to a designated address.
Such a plan may be initiated by depositing shares worth at least $5,000
with the Transfer Agent and by completing a Systematic Withdrawal Plan
application, which may be requested from the Manager. The shareholder may
terminate participation in the plan at any time. There is no charge to the
shareholder for withdrawals under the Systematic Withdrawal Plan. The Company
will not bear any expenses in administering the plan beyond the regular
transfer agent and custodian costs of issuing and redeeming shares. Any
additional expenses of administering the plan will be borne by the Manager.
Withdrawals will be made by redeeming full and fractional shares on the
date selected by the shareholder at the time the plan is established.
Withdrawal payments made under this plan may exceed dividends and
distributions and, to this extent, will involve the use of principal and could
reduce the dollar value of a shareholder's investment and eventually exhaust
the account. Reinvesting dividends and distributions helps replenish the
account. Because share values and net investment income can fluctuate,
shareholders should not expect withdrawals to be offset by rising income or
share value gains.
Each redemption of shares may result in a gain or loss, which must be
reported on the shareholder's income tax return. Therefore, a shareholder
should keep an accurate record of any gain or loss on each withdrawal.
Tax-Deferred Retirement Plans
Federal taxes on current income may be deferred if an investor qualifies for
certain types of retirement programs. For the convenience of the investor,
the following plans are made available by the Manager: IRA (including
SEP/IRA) and 403(b)(7) accounts. The minimum initial investment in each of
these plans is $2,000. Subsequent investments of $50 or more per account may
be made at any time. Investments may be made in one or any combination of the
Funds described in the Prospectus of each Fund of USAA Mutual Fund, Inc. and
USAA Investment Trust (not available in the Growth and Tax Strategy Fund).
Retirement plan applications for the IRA and 403(b)(7) programs should
be sent directly to USAA Shareholder Account Services, 9800 Fredericksburg
Rd., San Antonio, TX 78288. State Street Bank serves as Custodian for these
tax-deferred retirement plans under the programs made available by the
Manager. Applications for these retirement plans received by the Manager will
be forwarded to the Custodian for acceptance.
An administrative fee of $20 is deducted from the proceeds of a
distribution closing an account. Exceptions to the fee are: partial
distributions, total transfer within USAA, and distributions due to disability
or death. This charge is subject to change as provided in the various
agreements. There may be additional charges, as mutually agreed upon between
the investor and the Custodian, for further services requested of the
Custodian.
Each employer or individual establishing a tax-deferred retirement plan
is advised to consult with a tax adviser before establishing the plan.
Detailed information about the plans may be obtained from the Manager.
INVESTMENT POLICIES
The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its
investment objective.
The Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Company may withdraw the Fund's
investment from the Portfolio at any time if the Board of Directors of the
Company determines that it is in the best interest of the Fund to do so.
Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the
various investments of and techniques employed by the Portfolio.
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest
to the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be
as long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to
which the lender may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
1933 Act), securities which are otherwise not readily marketable and
repurchase agreements having a remaining maturity of longer than seven
calendar days. Securities which have not been registered under the 1933 Act
are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven calendar days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities, and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
Lending of Portfolio Securities. The Portfolio has the authority to
lend portfolio securities to brokers, dealers and other financial
organizations. The Portfolio will not lend securities to Bankers Trust,
Signature Financial Group (SFG), Sub-Administrator to the Portfolio, or their
affiliates. By lending its securities, a Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in
the form of interest paid by the borrower when U.S. Government obligations are
used as collateral. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. The Portfolio will adhere to the following conditions whenever
its securities are loaned: (1) the Portfolio must receive at least 100% cash
collateral or equivalent securities from the borrower; (2) the borrower must
increase this collateral whenever the market value of the securities including
accrued interest rises above the level of the collateral; (3) the Portfolio
must be able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Portfolio may pay only reasonable custodian fees in connection with the
loan; and (6) voting rights on the loaned securities may pass to the borrower;
provided, however, that if a material event adversely affecting the investment
occurs, the Portfolio's Board of Trustees must terminate the loan and regain
the right to vote the securities.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS AND SECURITIES
INDICES
Futures Contracts. The Portfolio may enter into contracts for the
purchase or sale for future delivery of the Index. U.S. futures contracts
have been designed by exchanges which have been designated "contracts markets"
by the Commodity Futures Trading Commission (CFTC), and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract on the Index is purchased or sold,
the Portfolio must allocate cash or securities as a deposit payment (initial
deposit). It is expected that the initial deposit would be approximately 1
1/2% to 5% of a contract's face value. Daily thereafter, the futures contract
is valued and the payment of "variation margin" may be required, since each
day the Portfolio would provide or receive cash that reflects any decline or
increase in the contract's value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants' entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Because of the
possibility of distortion, a correct forecast of securities price trends by
Bankers Trust may still not result in a successful transaction.
In addition, futures contracts entail risks. Although Bankers Trust
believes that use of such contracts will benefit the Portfolio, if Bankers
Trust's investment judgment about the general direction of the Index is
incorrect, the Portfolio's overall performance would be poorer than if it had
not entered into any such contract. For example, if the Portfolio has hedged
against the possibility of a decrease in the Index which would adversely
affect the value of securities held in its portfolio and securities prices
increase instead, the Portfolio will lose part or all of the benefit of the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Portfolio has insufficient cash, it may have to sell securities from
its portfolio to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may have to sell securities at a
time when it may be disadvantageous to do so.
Options on Index Futures Contracts. The Portfolio may purchase and
write options on futures contracts with respect to the Index. The purchase of
a call option on an index futures contract is similar in some respects to the
purchase of a call option on such an index. Depending on the pricing of the
option compared to either the price of the futures contract upon which it is
based or the price of the underlying securities, it may or may not be less
risky than ownership of the futures contract or underlying securities. As
with the purchase of futures contracts, when the Portfolio is not fully
invested it may purchase a call option on a futures contract to hedge against
a market advance.
The writing of a call option on a futures contract with respect to the
Index constitutes a partial hedge against declining prices of the underlying
securities which are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is below the exercise price, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Portfolio's
holdings. The writing of a put option on an index futures contract
constitutes a partial hedge against increasing prices of the underlying
securities which are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Portfolio intends to purchase. If a put or call option the Portfolio has
written is exercised, the Portfolio will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options
on futures may to some extent be reduced or increased by changes in the value
of portfolio securities.
The purchase of a put option on a futures contract with respect to the
Index is similar in some respects to the purchase of protective put options on
the Index. For example, the Portfolio may purchase a put option on an index
futures contract to hedge against the risk of lowering securities values.
The amount of risk the Portfolio assumes when it purchases an option on
a futures contract with respect to the Index is the premium paid for the
option plus related transaction costs. In addition to the correlation risks
discussed above, the purchase of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that
index futures contracts and options on index futures contracts be used only
for cash management purposes as a hedge and not for speculation. The
Portfolio will not enter into any futures contracts or options on futures
contracts if immediately thereafter the amount of margin deposits on all the
futures contracts of the Portfolio and premiums paid on outstanding options on
futures contracts owned by the Portfolio would exceed 5% of the market value
of the total assets of the Portfolio.
Options on Securities Indices. The Portfolio may write (sell) covered
call and put options to a limited extent on the Index (covered options) in an
attempt to increase income. Such options give the holder the right to receive
a cash settlement during the term of the option based upon the difference
between the exercise price and the value of the index. The Portfolio may
forego the benefits of appreciation on the Index or may pay more than the
market price of the Index pursuant to call and put options written by the
Portfolio.
By writing a covered call option, the Portfolio foregoes, in exchange
for the premium less the commission (net premium), the opportunity to profit
during the option period from an increase in the market value of the Index
above the exercise price. By writing a covered put option, the Portfolio, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and expiration
date as the option previously written.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to reflect
the current market value of the option written. The current market value of a
traded option is the last sale price or, in the absence of a sale, the mean
between the closing bid and asked price. If an option expires on its
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, the Portfolio will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the premium received when the option was
sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Portfolio will realize a gain or loss from the
sale of the underlying security and the proceeds of the sale will be increased
by the premium originally received. The writing of covered call options may
be deemed to involve the pledge of the securities against which the option is
being written. Securities against which call options are written will be
segregated on the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on the Index. The
Portfolio would normally purchase a call option in anticipation of an increase
in the market value of the Index. The purchase of a call option would entitle
the Portfolio, in exchange for the premium paid, to purchase the underlying
securities at a specified price during the option period. The Portfolio would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of the Index (protective puts). The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell the underlying securities at a specified price during the option period.
The purchase of protective puts is designed merely to offset or hedge against
a decline in the market value of the Index. The Portfolio would ordinarily
recognize a gain if the value of the Index decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of
the Index remained at or above the exercise price. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of the Index.
The Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio's
activities in index options may also be restricted by the requirements of the
Internal Revenue Code of 1986, as amended (the Code), for qualification as a
regulated investment company.
The hours of trading for options on the Index may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
Because options on securities indices require settlement in cash,
Bankers Trust may be forced to liquidate portfolio securities to meet
settlement obligations.
INVESTMENT RESTRICTIONS
Certain investment restrictions of the Fund and the Portfolio have been
adopted as fundamental policies of the Fund or Portfolio, as the case may be.
A fundamental policy may not be changed without the approval of a majority of
the outstanding voting securities of the Fund or Portfolio, as the case may
be. Majority of the outstanding voting securities under the 1940 Act, and as
used in this SAI and the Prospectus, means, the lesser of (1) 67% or more of
the outstanding voting securities of the Fund or Portfolio, as the case may
be, present at a meeting, if the holders of more than 50% of the outstanding
voting securities of the Fund or Portfolio, as the case may be, are present or
represented by proxy or (2) more than 50% of the outstanding voting securities
of the Fund or Portfolio, as the case may be. Whenever the Company is
requested to vote on a fundamental policy of the Portfolio, the Company will
hold a meeting of the Fund's shareholders and will cast its vote as instructed
by the Fund's shareholders. The percentage of the Company's votes
representing Fund shareholders not voting will be voted by the Directors of
the Company in the same proportion as the Fund shareholders who do, in fact,
vote.
As a matter of fundamental policy, the Fund may not (except that no
investment restriction of the Fund shall prevent the Fund from investing all
of its investable assets in an open-end investment company with substantially
the same investment objective):
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (except U.S. Government Securities, as such term is defined in
the 1940 Act) if, as a result, it would own more than 10% of the
outstanding voting securities of such issuer or it would have more than
5% of the value of its total assets invested in the securities of such
issuer.
(2) Borrow money, except for temporary or emergency purposes in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings).
(3) Concentrate its investments in any one industry although it may invest
up to 25% of the value of its total assets in any one industry;
provided, this limitation does not apply to securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities.
(4) Issue senior securities, except as permitted under the 1940 Act.
(5) Underwrite securities of other issuers, except to the extent that it may
be deemed to act as a statutory underwriter in the distribution of any
restricted securities or not readily marketable securities.
(6) Lend any securities or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, except that this
limitation does not apply to purchases of debt securities or to
repurchase agreements.
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio, except
that in an amount not to exceed 1/3 of the current value of the
Portfolio's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks
and only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation
of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by
the Investment Company Institute; for additional related restrictions,
see clause (1) under the caption "State and Federal Restrictions" below.
(As an operating policy, the Portfolio may not engage in dollar roll
transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's net assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt
securities of types distributed publicly or privately (under current
regulations, the Portfolio's fundamental policy with respect to 20% risk
weighing for financial institutions prevent the Portfolio from engaging
in securities lending);
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course
of business (except that the Portfolio may hold and sell, for the
Portfolio's portfolio, real estate acquired as a result of the
Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the
achievement of a Portfolio's investment objective, up to 25% of its
total assets may be invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state
and federal statutes and policies, the Fund and the Portfolio will not as a
matter of operating policy (except that no operating policy shall prevent the
Fund from investing all of its investable assets in an open-end investment
company with substantially the same investment objective):
(1) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Fund's (Portfolio's) total assets (taken
at cost), except that the Fund (Portfolio) may borrow for temporary or
emergency purposes up to 1/3 of its total assets;
(2) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund's (Portfolio's) total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
(3) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures;
(4) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration, equivalent
in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions;
(5) invest for the purpose of exercising control or management;
(6) purchase securities issued by any investment company except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission,
or except when such purchase, though not made in the open market, is
part of a plan of merger or consolidation; provided, however, that
securities of any investment company will not be purchased for the Fund
(Portfolio) if such purchase at the time thereof would cause: (a) more
than 10% of the Fund's (Portfolio's) total assets (taken at the greater
of cost or market value) to be invested in the securities of such
issuers; (b) more than 5% of the Fund's (Portfolio's) total assets
(taken at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Fund (Portfolio); and
provided further that, except in the case of merger or consolidation,
the Fund (Portfolio) shall not invest in any other open-end investment
company unless the Fund (Portfolio), (i) waives the investment advisory
fee with respect to assets invested in other open-end investment
companies and (ii) incurs no sales charge in connection with the
investment (as an operating policy, the Portfolio will not invest in
another open-end registered investment company);
(7) invest more than 15% of the Fund's (Portfolio's) net assets (taken at
the greater of cost or market value) in securities that are illiquid or
not readily marketable not including (a) Rule 144A securities that have
been determined to be liquid by the Board of Directors/Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations (NRSROs) and the
Fund's (Portfolio's) Board of Directors/Trustees have determined the
commercial paper to be liquid; or (iii) is rated in one of the two
highest categories by one NRSRO and the Fund's (Portfolio's) Board of
Directors/Trustees have determined that the commercial paper is
equivalent quality and is liquid;
(8) invest more than 10% of the Fund's (Portfolio's) total assets (taken at
the greater of cost or market value) in securities that are restricted
as to resale under the 1933 Act (other than Rule 144A securities deemed
liquid by the Fund's (Portfolio's) Board of Directors/Trustees);
(9) no more than 5% of the Fund's (Portfolio's) total assets are invested in
securities issued by issuers which (including predecessors) have been in
operation less than three years;
(10) with respect to 75% of the Fund's (Portfolio's) total assets, purchase
securities of any issuer if such purchase at the time thereof would
cause the Fund (Portfolio) to hold more than 10% of any class of
securities of such issuer, for which purposes all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class, except that futures or option
contracts shall not be subject to this restriction;
(11) if the Fund (Portfolio) is a diversified fund with respect to 75% of its
assets, invest more than 5% of its total assets in the securities
(excluding U.S. Government securities) of any one issuer;
(12) purchase or retain in the Fund's (Portfolio's) portfolio any securities
issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Director of the Company (or Trustee of
the Portfolio), or is an officer or partner of the Manager (or Bankers
Trust), if after the purchase of the securities of such issuer for the
Fund (Portfolio) one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both, all taken at market
value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such
shares or securities, or both, all taken at market value;
(13) invest more than 5% of the Fund's (Portfolio's) net assets in warrants
(valued at the lower of cost or market), (other than warrants acquired
by the Fund [Portfolio] as part of a unit or attached to securities at
the time of purchase), but not more than 2% of the Fund's (Portfolio's)
net assets may be invested in warrants not listed on the NYSE or the
American Stock Exchange;
(14) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
and equal in amount to, the securities sold short, and unless not more
than 10% of the Fund's (Portfolio's) net assets (taken at market value)
is represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Fund [Portfolio]
has no current intention to engage in short selling);
(15) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Fund (Portfolio) and the option is
issued by the Options Clearing Corporation, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold shall
not exceed 50% of the Fund's (Portfolio's) net assets; (c) the
securities subject to the exercise of the call written by the Fund
(Portfolio) must be owned by the Fund (Portfolio) at the time the call
is sold and must continue to be owned by the Fund (Portfolio) until the
call has been exercised, has lapsed, or the Fund (Portfolio) has
purchased a closing call, and such purchase has been confirmed, thereby
extinguishing the Fund's (Portfolio's) obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is written,
the Fund (Portfolio) establishes a segregated account with its custodian
consisting of cash or short-term U.S. Government securities equal in
value to the amount the Fund (Portfolio) will be obligated to pay upon
exercise of the put (this account must be maintained until the put is
exercised, has expired, or the Fund (Portfolio) has purchased a closing
put, which is a put of the same series as the one previously written);
and
(16) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons and:
(a) the options or futures are offered through the facilities of a
national securities association or are listed on a national securities
or commodities exchange, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate premiums paid on all such options which are
held at any time do not exceed 20% of the Fund's (Portfolio's) total net
assets; and (c) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the
Fund's (Portfolio's) total assets.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered. The Portfolio will comply with the
permitted investments and investment limitations in the securities laws and
regulations of all states in which the Fund, or any other registered
investment company investing in the Portfolio, is registered.
PORTFOLIO TRANSACTIONS and BROKERAGE COMMISSIONS
Bankers Trust is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the
purchase and sale of underlying securities upon the exercise of options.
Orders may be directed to any broker-dealer or futures commission merchant,
including to the extent and in the manner permitted by applicable law, Bankers
Trust or its subsidiaries or affiliates. Purchases and sales of certain
portfolio securities on behalf of the Portfolio are frequently placed by
Bankers Trust with the issuer or a primary or secondary market-maker for these
securities on a net basis, without any brokerage commission being paid by the
Portfolio. Trading does, however, involve transaction costs. Transactions
with dealers serving as market-makers reflect the spread between the bid and
asked prices. Transaction costs may also include fees paid to third parties
for information as to potential purchasers or sellers of securities. Purchases
of underwritten issues may be made which will include an underwriting fee paid
to the underwriter.
Bankers Trust seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for
the purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and
skill required of the executing broker-dealer through familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Portfolio to reported commissions paid by others.
Bankers Trust reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
Bankers Trust is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for the Portfolio with a broker to pay a brokerage commission (to
the extent applicable) in excess of that which another broker might have
charged for effecting the same transaction on account of the receipt of
research, market or statistical information. The term "research, market or
statistical information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies
as the Trustees of the Portfolio may determine, Bankers Trust may consider
sales of shares of any investment company that invests in the Portfolio as a
factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to
those charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research
information in managing the Portfolio's assets, as well as the assets of other
clients.
Except for implementing the policies stated above, there is no intention
to place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to Bankers Trust, it is
the opinion of the management of the Portfolio that such information is only
supplementary to Bankers Trust's own research effort, since the information
must still be analyzed, weighed and reviewed by Bankers Trust's staff. Such
information may be useful to Bankers Trust in providing services to clients
other than the Portfolio's, and not all such information is used by Bankers
Trust in connection with the Portfolio. Conversely, such information provided
to Bankers Trust by brokers and dealers through whom other clients of Bankers
Trust effect securities transactions may be useful to Bankers Trust in
providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of Bankers Trust's other clients.
Investment decisions for the Portfolio and for Bankers Trust's other clients
are made with a view to achieving their respective investment objectives. It
may develop that a particular security is bought or sold for only one client
even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed
to be equitable to each. It is recognized that in some cases this system could
have a detrimental effect on the price or volume of the security as far as the
Portfolio in concerned. However, it is believed that the ability of the
Portfolio to participate in volume transactions will produce better executions
for the Portfolio.
For the years ended December 31, 1995, 1994, and 1993, the Portfolio
paid brokerage commissions in the amount of $172,924, $97,069, and $63,408,
respectively.
FURTHER DESCRIPTION OF SHARES
The Company is authorized to issue shares in separate series or Funds. Eight
such Funds have been established, one of which is described in this SAI.
Under the Articles of Incorporation, the Board of Directors is authorized to
create new Funds in addition to those already existing without shareholder
approval.
The assets of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are specifically allocated
to such Fund. They constitute the underlying assets of the 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 Company 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 determines to be fair and equitable. Each share of each Fund
represents an equal proportionate interest in that Fund with every other share
and is entitled to such dividends and distributions out of the net income and
capital gains belonging to that Fund when declared by the Board of Directors.
Under the provisions of the Bylaws of the Company, no annual meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meeting unless required by the 1940 Act. Under certain circumstances,
however, shareholders may apply for shareholder information in order to obtain
signatures to request a special shareholder meeting. Moreover, pursuant to
the Bylaws of the Company, any Director may be removed by the affirmative vote
of a majority of the outstanding Company shares; and holders of 10% or more
of the outstanding shares of the Company can require Directors to call a
meeting of shareholders for the purpose of voting on the removal of one or
more Directors. 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 NAVs of the Funds' shares.
However, on matters affecting an individual Fund, a separate vote of the
shareholders of that Fund is required. Shareholders of the Fund are not
entitled to vote on any matter which does not affect that Fund but which
requires a separate vote of another Fund. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect 100% of the Company's Board of
Directors, and the holders of less than 50% of the shares voting for the
election of Directors will not be able to elect any person as a Director.
Shareholders of a particular Fund might have the power to elect all of
the Directors of the Company because that Fund has a majority of the total
outstanding shares of the Company. When issued, each Fund's shares are fully
paid and nonassessable, have no pre-emptive or subscription rights, and are
fully transferable. There are no conversion rights.
TAX CONSIDERATIONS
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Code. Accordingly, the Fund will not be liable for federal income
taxes on its taxable net investment income and net capital gains (capital
gains in excess of capital losses) that are distributed to shareholders,
provided that the 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, the Fund must, among other
things, (1) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies (the 90% test); (2) derive in each taxable year less
than 30% of its gross income from the sale or other disposition of stock or
securities held less than three months (the 30% test); and (3) satisfy certain
diversification requirements, at the close of each quarter of the Fund's
taxable year.
The Code imposes a nondeductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount at least
equal to the sum of (1) 98% of its taxable net investment income for the
calendar year, (2) 98% of its capital gain net income for the twelve-month
period ending on October 31, and (3) any prior amounts not distributed. The
Fund intends to make such distributions as are necessary to avoid imposition
of the excise tax.
Taxable distributions are generally included in a shareholder's gross
income for the taxable year in which they are received. Dividends declared in
October, November, or December and made payable to shareholders of record in
such a month will be deemed to have been received on December 31, if the Fund
pays the dividend during the following January. If a shareholder of the Fund
receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges the shares before he has held them
for more than six months, any loss on the redemption or exchanges that is less
than or equal to the amount of the distribution will be treated as long-term
capital loss.
The Portfolio is not subject to federal income taxation. Instead, the
Fund and other investors investing in the Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the
Portfolio.
Distributions received by the Fund from the Portfolio generally will not
result in the Fund's recognizing any gain or loss for federal income tax
purposes, except that: (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution; (2) income or gain may be realized if the distribution is
made in liquidation of the Fund's entire interest in the Portfolio and
includes a disproportionate share of any unrealized receivables held by the
Portfolio; and (3) loss may be recognized if the distribution is made in
liquidation of the Fund's entire interest in the Portfolio and consists solely
of cash and/or unrealized receivables. The Fund's basis in its interest in
the Portfolio generally will equal the amount of cash and the basis of any
property which the Fund invests in the Portfolio, increased by the Fund's
share of income from the Portfolio, and decreased by the amount of any cash
distributions and the basis of any property distributed from the Portfolio.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in
complete liquidation of the Fund, generally will be a capital gain or loss
which will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
(including shares acquired pursuant to a dividend reinvestment plan) within a
period of 61 days beginning 30 days before and ending 30 days after
disposition of the shares. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on a disposition of shares held by the shareholder for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
DIRECTORS AND OFFICERS OF THE COMPANY
The Board of Directors of the Company consists of seven Directors. Set forth
below are the Directors and officers of the Company, their respective offices
and principal occupations during the last five years. Unless otherwise
indicated, the business address of each is 9800 Fredericksburg Rd., San
Antonio, TX 78288.
M. Staser Holcomb 1, 2
Director and Chairman of the Board of Directors
Age: 64
President, Chief Executive Officer, Director and Vice Chairman of the Board of
Directors of USAA Capital Corporation and several of its subsidiaries and
affiliates (1/96-present); Executive Vice President, Chief Information
Officer, United Services Automobile Association (USAA) (2/94-12/95); and
Executive Vice President, Chief Financial Officer, USAA and President,
Director and Vice Chairman of the Board of Directors, USAA Capital Corporation
(9/91-1/94). Mr. Holcomb also will serve as a Trustee and Chairman of the
Board of Trustees of USAA Investment Trust and USAA State Tax-Free Trust and
as a Director and Chairman of the Boards of Directors of USAA Investment
Management Company (IMCO), USAA Tax Exempt Fund, Inc., USAA Shareholder
Account Services, USAA Federal Savings Bank and USAA Real Estate Company.
Michael J.C. Roth 1, 2
Director, President and Vice Chairman of the Board of Directors
Age: 55
Chief Executive Officer, IMCO (10/93-present); President, Director and Vice
Chairman of the Board of Directors, IMCO (1/90-present). Mr. Roth currently
serves as President, Trustee and Vice Chairman of the Boards of Trustees of
USAA Investment Trust and USAA State Tax-Free Trust, as President, Director
and Vice Chairman of the Boards of Directors of USAA Tax Exempt Fund, Inc. and
USAA Shareholder Account Services, as Director of USAA Life Insurance Company
and as Trustee and Vice Chairman of USAA Life Investment Trust.
John W. Saunders, Jr. 1, 2, 4
Director and Vice President
Age: 61
Senior Vice President, Investments, IMCO (10/85-present); Director, BHC
Financial, Inc. and BHC Securities, Inc. (1/87-present). Mr. Saunders
currently serves as Trustee and Vice President of USAA Investment Trust and
USAA State Tax-Free Trust, Director and Vice President of USAA Tax Exempt
Fund, Inc., Director of IMCO, as Senior Vice President of USAA Shareholder
Account Services, and as Vice President of USAA Life Investment Trust.
George E. Brown 3, 4, 5
5829 Northgap Drive
San Antonio, TX 78239
Director
Age: 78
Retired. Mr. Brown currently serves as a Trustee of USAA Investment Trust and
USAA State Tax-Free Trust and as a Director of USAA Tax Exempt Fund, Inc.
Howard L. Freeman, Jr. 2, 3, 4, 5
2710 Hopeton
San Antonio, TX 78230
Director
Age: 61
Retired. Assistant General Manager for Finance, San Antonio City Public
Service Board (1976-1996). Mr. Freeman currently serves as a Trustee of USAA
Investment Trust and USAA State Tax-Free Trust and as a Director of USAA Tax
Exempt Fund, Inc.
Richard A. Zucker 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Director
Age: 53
Vice President, Beldon Roofing and Remodeling (1985-present). Mr. Zucker
currently serves as a Trustee of USAA Investment Trust and USAA State Tax-Free
Trust and as a Director of USAA Tax Exempt Fund, Inc.
Barbara B. Dreeben 3, 4, 5
200 Patterson #1008
San Antonio, TX 78209
Director
Age: 51
President, Postal Addvantage (7/92-present); Consultant, Nancy Harkins
Stationer (8/91-12/95). Mrs. Dreeben currently serves as a Trustee of USAA
Investment Trust and USAA State Tax-Free Trust and as a Director of USAA Tax
Exempt Fund, Inc.
Michael D. Wagner 1
Secretary
Age: 48
Vice President, Corporate Counsel, USAA (1982-present). Mr. Wagner has held
various positions in the legal department of USAA since 1970 and currently
serves as Vice President, Secretary and Counsel, IMCO and USAA Shareholder
Account Services, Secretary, USAA Investment Trust, USAA State Tax-Free Trust,
and USAA Tax Exempt Fund, Inc. and as Vice President, Corporate Counsel for
various other USAA subsidiaries and affiliates.
Alex M. Ciccone 1
Assistant Secretary
Age: 46
Vice President, Compliance, IMCO (12/94-present); Vice President and Chief
Operating Officer, Commonwealth Shareholder Services (6/94-11/94); Vice
President, Compliance, IMCO (12/91-5/94); Vice President, Compliance, Fund
Management Co. (10/89-11/91); and Vice President, Compliance, AIM
Distributors, Inc. (4/82-11/91). Mr. Ciccone currently serves as Assistant
Secretary of USAA Investment Trust, USAA State Tax-Free Trust, and USAA Tax
Exempt Fund, Inc.
Sherron A. Kirk 1
Treasurer
Age: 51
Vice President, Controller, IMCO (10/92-present); Vice President, Corporate
Financial Analysis, USAA (9/92-10/92); Assistant Vice President, Financial
Plans and Support, USAA (8/91-9/92). Mrs. Kirk currently serves as Treasurer
of USAA Investment Trust, USAA State Tax-Free Trust, and USAA Tax Exempt Fund,
Inc., and as Vice President, Controller of USAA Shareholder Account Services.
Dean R. Pantzar 1
Assistant Treasurer
Age: 37
Executive Director, Mutual Fund Accounting, IMCO (10/95-present); Director,
Mutual Fund Accounting, IMCO (12/94-10/95); Senior Manager, KPMG Peat Marwick
LLP (7/88-12/94). Mr. Pantzar currently serves as Assistant Treasurer of USAA
Investment Trust, USAA State Tax-Free Trust, and USAA Tax Exempt Fund, Inc.
- -----------------
1 Indicates those Directors and officers who are employees of the Manager
or affiliated companies and are considered "interested persons" under
the 1940 Act.
2 Member of Executive Committee
3 Member of Audit Committee
4 Member of Pricing and Investment Committee
5 Member of Corporate Governance Committee
Between the meetings of the Board of Directors and while the Board is
not in session, the Executive Committee of the Board of Directors has all the
powers and may exercise all the duties of the Board of Directors in the
management of the business of the Company which may be delegated to it by the
Board. The Pricing and Investment Committee of the Board of Directors acts
upon various investment-related issues and other matters which have been
delegated to it by the Board. The Audit Committee of the Board of Directors
reviews the financial statements and the auditor's reports and undertakes
certain studies and analyses as directed by the Board. The Corporate
Governance Committee of the Board of Directors maintains oversight of the
organization, performance, and effectiveness of the Board and independent
Directors.
In addition to the previously listed Directors and/or officers of the
Company who also serve as Directors and/or officers of the Manager, the
following individuals are Directors and/or executive officers of the Manager:
Harry W. Miller, Senior Vice President, Investments (Equity) and John J.
Dallahan, Senior Vice President, Investment Services. There are no family
relationships among the Directors, officers, and managerial level employees of
the Company or its Manager.
The following table sets forth information describing the compensation
of the current Directors of the Company for their services as Directors for
the fiscal year ended July 31, 1996.
Name Aggregate Total Compensation
of Compensation from the USAA
Director from the Company Family of Funds (c)
- -------- ------------------- -------------------
C. Dale Briscoe* $ 2,389 $ 9,700
George E. Brown (a) 6,885 27,900
Barbara B. Dreeben 6,885 27,900
Howard L. Freeman, Jr. 6,885 27,900
M. Staser Holcomb* None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 6,885 27,900
- ----------------
* Effective January 1, 1996, M. Staser Holcomb replaced Hansford T.
Johnson as Director and Chairman of the Board of Directors and C.
Dale Briscoe retired from the Board of Directors.
(a) The USAA Family of Funds has accrued deferred compensation for Mr. Brown
in an amount (plus earnings thereon) of $21,525. The compensation was
deferred by Mr. Brown pursuant to a non-qualified Deferred Compensation
Plan, under which deferred amounts accumulate interest quarterly based
on the annualized U.S. Treasury Bill rate in effect on the last day of
the quarter. Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the USAA Family of Funds
until paid. The Deferred Compensation Plan was terminated in 1988 and
no compensation has been deferred by any Director/Trustee of the USAA
Family of Funds since the Plan was terminated.
(b) M. Staser Holcomb, Michael J.C. Roth, and John W. Saunders, Jr. are
affiliated with the Company's investment adviser, IMCO, and,
accordingly, receive no remuneration from the Company or any other Fund
of the USAA Family of Funds.
(c) At July 31, 1996, the USAA Family of Funds consisted of four registered
investment companies offering 33 individual funds. Each Director
presently serves as a Director or Trustee of each investment company in
the USAA Family of Funds. In addition, Michael J.C. Roth presently
serves as a Trustee of USAA Life Investment Trust, a registered
investment company advised by IMCO, consisting of five funds offered to
investors in a fixed and variable annuity contract with USAA Life
Insurance Company. Mr. Roth receives no compensation as Trustee of USAA
Life Investment Trust.
All of the above Directors are also Directors/Trustees of the other
funds for which IMCO serves as investment adviser. No compensation is paid by
any fund to any Director/Trustee who is a director, officer, or employee of
IMCO or its affiliates. No pension or retirement benefits are accrued as part
of fund expenses. The Company reimburses certain expenses of the Directors
who are not affiliated with the investment adviser. As of August 16, 1996,
the officers and Directors of the Company and their families as a group owned
beneficially or of record less than 1% of the outstanding shares of the
Company.
As of August 16, 1996, USAA and its affiliates owned 3,751,203 shares
(39.2%) of the USAA S&P 500 Index Fund.
The Company knows of no other persons who, as of August 16, 1996, held
of record or owned beneficially 5% or more of the voting stock of the Fund's
shares.
TRUSTEES AND OFFICERS OF THE PORTFOLIO
The Trustees and officers of the Portfolio and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Unless otherwise indicated, the address of each Trustee
and officer is 6 St. James Avenue, Boston, Massachusetts.
CHARLES P. BIGGAR (Age 65) - Trustee; Retired; Director of Chase/NBW
Bank Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.; formerly
Vice President of International Business Machines and President of the
National Services and the Field Engineering Divisions of IBM. His address is
12 Hitching Post Lane, Chappaqua, New York 10514.
PHILIP W. COOLIDGE (Age 44) - Trustee and President; Chairman, Chief
Executive Officer and President, Signature Financial Group (SFG) (since
December, 1988) and Signature (since April, 1989).
S. LELAND DILL (Age 65) - Trustee; Retired; Director, Coutts & Company
Group and Coutts & Co. (U.S.A.) International; Director, Zweig Series Trust;
formerly, Partner of KPMG Peat Marwick; Director, Vinters International
Company, Inc.; General Partner of Pemco (an investment company registered
under the 1940 Act). His address is 5070 North Ocean Drive, Singer Island,
Florida 33404.
PHILIP SAUNDERS, JR. (Age 60) - Trustee; Principal, Philip Saunders
Associates (Consulting); former Director of Financial Industry Consulting,
Wolf & Company; President, John Hancock Home Mortgage Corporation; and Senior
Vice President of Treasury and Financial Services, John Hancock Mutual Life
Insurance Company, Inc. His address is 445 Glen Road, Weston, Massachusetts
02193.
JOHN R. ELDER (Age 47) - Treasurer; Vice President, SFG (since April,
1995); Treasurer, Phoenix Family of Mutual Funds (prior to April, 1995).
DAVID G. DANIELSON (Age 30) - Assistant Treasurer; Assistant Manager,
SFG (since May, 1991); Graduate Student, Northeastern University (from April,
1990 to March, 1991); Tax Accountant & Systems Analyst, Putnam Companies
(prior to March, 1990).
BARBARA M. O'DETTE (Age 36) - Assistant Treasurer; Assistant Treasurer,
SFG (since December, 1988); Assistant Treasurer, Signature (since April,
1989).
DANIEL E. SHEA (Age 33) - Assistant Treasurer; Assistant Manager, SFG
(since November 1993); Supervisor and Senior Technical Advisor, Putnam
Investments (prior to November 1993).
THOMAS M. LENZ (Age 38) - Secretary; Senior Vice President and Associate
General Counsel, SFG (since November, 1989); Assistant Secretary, Signature
(since February, 1991).
LINDA T. GIBSON (Age 30) - Assistant Secretary; Vice President, Global
Product Management and Assistant Secretary, SFG (since May, 1992); Assistant
Secretary, Signature (since October, 1992); student, Boston University School
of Law (September, 1989 to May, 1992).
MOLLY S. MUGLER (Age 44) - Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since December, 1988); Assistant Secretary,
Signature (since April, 1989).
ANDRES E. SALDANA (Age 33) - Assistant Secretary; Legal Counsel, SFG
(since November, 1992); Assistant Secretary, Signature (since September,
1993); Attorney, Ropes & Gray (September, 1990 to November, 1992).
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Portfolio. No director, officer or employee of SFG or any
of its affiliates will receive any compensation from the Portfolio for serving
as an officer or Trustee of the Portfolio. The Portfolio and certain other
investment companies advised by Bankers Trust (the Fund Complex) collectively
pay each Trustee who is not a director, officer or employee of Bankers Trust,
SFG, or any of their affiliates an annual fee of $10,000, respectively, per
annum plus $1,250, respectively, per meeting attended and reimburses them for
travel and out-of-pocket expenses.
For the year ended December 31, 1995, the Portfolio incurred Trustees
fees equal to $1,868.
The following table reflects fees paid to the Trustees of the Portfolio
for the year ended December 31, 1995.
TRUSTEE COMPENSATION TABLE
Aggregate Total Compensation
Name of Person, Compensation from Fund Complex
Position from Portfolio Paid to Trustees
- -------- -------------- ----------------
Philip W. Coolidge none none
Trustee
Charles P. Biggar $706 $12,500
Trustee
S. Leland Dill $706 $12,500
Trustee
Philip Saunders, Jr. $706 $12,500
Trustee
Bankers Trust reimbursed the Portfolio for a portion of their Trustees
fees for the period above. See INVESTMENT ADVISER and ADMINISTRATOR below.
INVESTMENT ADVISER
As described in the Fund's Prospectus, USAA Investment Management Company is
the Manager and investment adviser, providing the services under the
Management Agreement. The Manager, organized in May 1970, has served as
investment adviser and underwriter for USAA Mutual Fund, Inc. from its
inception.
In addition to the services it provides under the Management Agreement,
the Manager advises and manages the investments for USAA and its affiliated
companies as well as those of USAA Investment Trust, USAA Tax Exempt Fund,
Inc., USAA State Tax-Free Trust, and USAA Life Investment Trust. As of the
date of this SAI, total assets under management by the Manager were
approximately $30 billion, of which approximately $17.3 billion were in
mutual fund portfolios.
Under the Management Agreement, the Manager presently monitors the
services provided by Bankers Trust to the Portfolio. The Manager receives no
fee for providing these monitoring services. In the event the Fund's Board of
Directors determines it is in the best interests of the Fund's shareholders to
withdraw its investment in the Portfolio, the Manager would become responsible
for directly managing the assets of the Fund. In such event, the Fund would
pay the Manager an annual fee of .10% of the Fund's ANA, accrued daily and
paid monthly.
The Management Agreement will remain in effect until April 30, 1998, for
the Fund and will continue in effect from year to year thereafter for the Fund
as long as it is approved at least annually by a vote of the outstanding
voting securities of the Fund (as defined by the 1940 Act) or by the Board of
Directors (on behalf of such Fund) including a majority of the Directors who
are not interested persons of the Manager or (otherwise than as Directors) of
the Company, at a meeting called for the purpose of voting on such approval.
The Management Agreement may be terminated at any time by either the Company
or the Manager on 60 days' written notice. It will automatically terminate in
the event of its assignment (as defined by the 1940 Act).
Under the terms of the Management Agreement, the Manager is required to
reimburse the Fund in the event that the total annual expenses, inclusive of
the management fees, but exclusive of the interest, taxes, brokerage fees and
extraordinary items, incurred by the Fund exceeds any applicable state expense
limitation. At the current time, the most restrictive expense limitation is
2.5% of the first $30,000,000 of average net assets (ANA), 2% of the next
$70,000,000 ANA, and 1.5% of the remaining ANA.
From time to time the Manager may, without prior notice to shareholders,
waive all or any portion of fees or agree to reimburse expenses incurred by
the Fund. The Manager has voluntarily agreed to limit the aggregate annual
operating expenses of the Fund and the Portfolio to .18% of the Fund's ANA
until May 1, 1997, and will reimburse the Fund for all expenses in excess of
such limitation. After May 1, 1997, any such waiver or reimbursement may be
terminated by the Manager at any time without prior notice to the shareholders.
Under the terms of the Portfolio's investment advisory agreement with
Bankers Trust (the Advisory Agreement), Bankers Trust manages the Portfolio
subject to the supervision and direction of the Board of Trustees of the
Portfolio. Bankers Trust will: (1) act in strict conformity with the
Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisers Act
of 1940, as the same may from time to time be amended; (2) manage the
Portfolio in accordance with the Portfolio's investment objective,
restrictions and policies; (3) make investment decisions for the Portfolio;
and (4) place purchase and sale orders for securities and other financial
instruments on behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Fund and the Portfolio each bear
certain other expenses incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Portfolio or
Directors of the Company who are not officers, directors or employees of
Bankers Trust, SFG, the Manager or any of their affiliates; SEC fees and state
Blue Sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses; costs of maintenance of corporate existence; costs attributable to
investor services, including, without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of
shareholders, officers and Trustees of the Portfolio or Directors of the
Company; and any extraordinary expenses.
For the years ended December 31, 1995, 1994 and 1993, Bankers Trust
earned $770,530, $428,346 and $74,893, respectively, as compensation for
investment advisory services provided to the Portfolio. During the same
periods, Bankers Trust reimbursed $418,814, $249,230 and $72,112,
respectively, to the Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations
and are among the leading dealers of various types of such obligations.
Bankers Trust has informed the Portfolio that, in making its investment
decisions, it does not obtain or use material inside information in its
possession or in the possession of any of its affiliates. In making
investment recommendations for the Portfolio, Bankers Trust will not inquire
or take into consideration whether an issuer of securities proposed for
purchase or sale by the Portfolio is a customer of Bankers Trust, its parent
or its subsidiaries or affiliates and, in dealing with its customers, Bankers
Trust, its parent, subsidiaries and affiliates will not inquire or take into
consideration whether securities of such customers are held by any fund
managed by Bankers Trust or and such affiliate.
The Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and services fees, including waivers thereof.
Bankers Trust may not recoup any of its waived investment advisory and
services fees. Such waivers by Bankers Trust shall stay in effect for at
least 12 months.
ADMINISTRATOR
Under the terms of the Fund's administration agreement with the Manager, the
Manager is obligated on a continuous basis to provide such administrative
services as the Board of Directors of the Company reasonably deems necessary
for the proper administration of the Fund. The Manager will generally assist
in all aspects of the Fund's operations; supply and maintain office
facilities, statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without
limitation the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders; prepare and file tax
returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Directors; provide monitoring
reports and assistance regarding compliance with its Articles of
Incorporation, by-laws, investment objectives and policies and with federal
and state securities laws; arrange for appropriate insurance coverage;
calculate net asset values, net income and realized capital gains or losses;
and negotiate arrangements with, and supervise and coordinate the activities
of, agents and others to supply services.
Pursuant to a sub-administration agreement between the Manager, Bankers
Trust and Investors Fiduciary Trust Company (IFTC) (the Sub-Administration
Agreement), IFTC performs such sub-administration duties for the Fund as from
time to time may be agreed upon by the Manager, Bankers Trust and IFTC. The
Sub-Administration Agreement provides that IFTC will receive such compensation
from Bankers Trust as from time to time may be agreed upon by the Manager,
Bankers Trust and IFTC.
Under the administration and services agreement between the Portfolio
and Bankers Trust, Bankers Trust is obligated on a continuous basis to provide
such administrative services as the Board of Trustees of the Portfolio
reasonably deems necessary for the proper administration of the Portfolio.
Bankers Trust will generally assist in all aspects of the Portfolio's
operations; supply and maintain office facilities (which may be in Bankers
Trust's own offices), statistical and research data, data processing services,
clerical, accounting, bookkeeping and recordkeeping services (including
without limitation the maintenance of such books and records as are required
under the 1940 Act and the rules thereunder, except as maintained by other
agents), internal auditing, executive and administrative services, and
stationery and office supplies; prepare reports to investors; prepare and file
tax returns; supply financial information and supporting data for reports to
and filings with the SEC and various state Blue Sky authorities; supply
supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with its Declaration of
Trust, by-laws, investment objectives and policies and with federal and state
securities laws; arrange for appropriate insurance coverage; calculate net
asset values, net income and realized capital gains or losses; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.
Pursuant to a sub-administration agreement between Bankers Trust and SFG
(the Sub-Administration Contract), SFG performs such sub-administration duties
for the Portfolio as from time to time may be agreed upon by Bankers Trust and
SFG. The Sub-Administration Contract provides that SFG will receive such
compensation as from time to time may be agreed upon by SFG and Bankers Trust.
All such compensation will be paid by Bankers Trust.
For the years ended December 31, 1995, 1994 and 1993, Bankers Trust
earned $385,265, $214,173 and $37,446, respectively, in compensation for
administrative and other services provided to the Portfolio.
The Manager has agreed that if in any year the aggregate expenses of the
Fund (including fees pursuant to the investment advisory agreement, but
excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation
of any state having jurisdiction over the Fund, the Manager will reimburse the
Fund for the excess expense to the extent required by state law. As of the
date of this SAI, the most restrictive annual expense limitation applicable to
the Fund is 2.5% of the Fund's first $30 million of average annual net assets,
2.0% of the next $70 million of average annual net assets and 1.5% of the
remaining average annual net assets.
GENERAL INFORMATION
Underwriter
The Company has an agreement with the Manager for exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. This
agreement provides that the Manager will receive no fee or other compensation
for such distribution services.
Transfer Agent
The Transfer Agent performs transfer agent services for the Company under a
Transfer Agency Agreement. Services include maintenance of shareholder
account records, handling of communications with shareholders, distribution of
Fund dividends, and production of reports with respect to account activity for
shareholders and the Company.
Custodian
The Custodian is responsible for, among other things, safeguarding and
controlling the Company's cash and securities, handling the receipt and
delivery of securities, and collecting interest on the Company's investment in
the Portfolio. Bankers Trust serves as custodian for both the Fund and the
Portfolio. As custodian, it holds both the Fund's and the Portfolio's assets.
Bankers Trust will comply with the self-custodian provisions of Rule 17f-2
under the 1940 Act.
Counsel
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02109, will review
certain legal matters for the Company in connection with the shares offered by
the Prospectus. Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022-4669, serves as counsel to the Portfolio.
Independent Accountant
Coopers & Lybrand LLP, 1100 Main Street, Suite 900, Kansas City, Missouri
64105, has been selected as the Independent Accountants for the Fund and the
Portfolio.
Financial Statements
Unaudited Financial Statements for the USAA S&P 500 Index Fund and the Equity
500 Index Portfolio, as of June 30, 1996, are set forth on pages 24 to 45 of
this SAI. Audited Financial Statements as of December 31, 1995, of the
Portfolio are included on pages 46 to 58 of the SAI.
CALCULATION OF PERFORMANCE DATA
Information regarding the total return of the Fund is provided under
PERFORMANCE INFORMATION in its Prospectus. See VALUATION OF SECURITIES herein
for a discussion of the manner in which the Fund's price per share is
calculated.
Total Return
The Fund may advertise performance in terms of average annual total return for
1-, 5- and 10-year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average
annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5- or 10-year
periods at the end of the year or period
The calculation assumes any charges are deducted from the initial $1,000
payment and assumes all dividends and distributions by such Fund are
reinvested at the price stated in the Prospectus on the reinvestment dates
during the period, and includes all recurring fees that are charged to all
shareholder accounts, such as the $10 annual account maintenance fee.
APPENDIX A - COMPARISON OF FUND PERFORMANCE
Occasionally, we may make comparisons in advertising and sales literature
between the Fund contained in this SAI and other Funds in the USAA Family of
Funds. These comparisons may include such topics as risk and reward,
investment objectives, investment strategies, and performance.
Fund performance also may be compared to the performance of broad groups
of mutual funds with similar investment goals or unmanaged indices of
comparable securities. Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund. The
Fund or its performance may also be compared to products and services not
constituting securities subject to registration under the 1933 Act such as,
but not limited to, certificates of deposit and money market accounts.
Sources for performance information and articles about the Fund may include
the following:
AAII Journal, a monthly association magazine for members of the American
Association of Individual Investors.
Arizona Republic, a newspaper which may cover financial and investment news.
Austin American-Statesman, a newspaper which may cover financial news.
Bank Rate Monitor, a service which publishes rates on various bank products
such as CDs, MMDAs and credit cards.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
Chicago Tribune, a newspaper which may cover financial news.
Consumer Reports, a monthly magazine which from time to time reports on
companies in the mutual fund industry.
Dallas Morning News, a newspaper which may cover financial news.
Denver Post, a newspaper which may quote financial news.
Financial Planning, a monthly magazine which may periodically review mutual
fund companies.
Financial Services Week, a weekly newspaper which 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 which may cover financial news.
Houston Post, a newspaper which may cover financial news.
IBC/Donoghue's Moneyletter, a biweekly newsletter which covers financial news
and from time to time rates specific mutual funds.
IBC's Money Market Insight, a monthly money market industry analysis prepared
by IBC USA, Inc.
Income and Safety, a monthly newsletter that rates mutual funds.
InvesTech, a bimonthly investment newsletter.
Investment Advisor, a monthly publication directed primarily to the advisor
community; includes ranking of mutual funds using a proprietary methodology.
Investment Company Institute, the national association of the American
investment company industry.
Investor's Business Daily, a newspaper which covers financial news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Lipper Analytical Services, Inc.'s Fixed Income Fund Performance Analysis, a
monthly publication of industry-wide mutual fund performance averages by type
of fund.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a monthly
publication of industry-wide mutual fund averages by type of fund.
Los Angeles Times, a newspaper which may cover financial news.
Louis Rukeyser's Wall Street, a publication for investors.
Medical Economics, a monthly magazine providing information to the medical
profession.
Money, a monthly magazine that features the performance of both specific funds
and the mutual fund industry as a whole.
Money Fund Report, a weekly publication of the Donoghue Organization, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity, and including certain averages as performance
benchmarks, specifically "Donoghue's Taxable First Tier Fund Average."
Morningstar 5 Star Investor, a monthly newsletter which covers financial news
and rates mutual funds produced by Morningstar, Inc. (a data service which
tracks open-end mutual funds).
Mutual Fund Forecaster, a monthly newsletter that ranks mutual funds.
Mutual Fund Investing, a newsletter covering mutual funds.
Mutual Fund Performance Report, a monthly publication of mutual fund
performance and rankings, produced by Morningstar, Inc.
Mutual Funds Magazine, a monthly publication reporting on mutual fund
investing.
Mutual Fund Source Book, an annual publication produced by Morningstar, Inc.
which describes and rates mutual funds.
Mutual Fund Values, a biweekly guidebook to mutual funds produced by
Morningstar, Inc.
Newsweek, a national business weekly.
New York Times, a newspaper which may cover financial news.
No Load Fund Investor, a newsletter covering companies in the mutual fund
industry.
Personal Investor, a monthly magazine which 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 which may cover financial news.
San Francisco Chronicle, a newspaper which may cover financial news.
Smart Money, a monthly magazine featuring news and articles on investing and
mutual funds.
USA Today, a newspaper which may cover financial news.
U.S. News and World Report, a national business weekly that periodically
reports mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which covers
financial news.
Washington Post, a newspaper which may cover financial news.
Weisenberger Mutual Funds Investment Report, a monthly newsletter that reports
on both specific mutual fund companies and the mutual fund industry as a
whole.
Worth, a magazine which 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 Fund may also be
tracked by Lipper Analytical Services, Inc. The Fund will be compared to
Lipper's appropriate fund category according to fund objective and portfolio
holdings. The S&P 500 Index Fund will be compared to funds in Lipper's S&P
500 Index Objective category. Footnotes in advertisements and other marketing
literature will include the time period applicable for any ranking used.
Other sources for total return and other performance data which may be
used by the 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 mutual fund companies.
APPENDIX B - DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method which can be used by
investors as a disciplined technique for investing. A fixed amount of money
is invested in a security (such as a stock or mutual fund) on a regular basis
over a period of time, regardless of whether securities markets are moving up
or down.
This practice reduces average share costs to the investor who acquires
more shares in periods of lower securities prices and fewer shares in periods
of higher prices.
While dollar-cost averaging does not assure a profit or protect against
loss in declining markets, this investment strategy is an effective way to
help calm the effect of fluctuations in the financial markets. Systematic
investing involves continuous investment in securities regardless of
fluctuating price levels of such securities. Investors should consider their
financial ability to continue purchases through periods of low and high price
levels.
As the following chart illustrates, dollar-cost averaging tends to keep
the overall cost of shares lower. This example is for illustration only, and
different trends would result in different average costs.
HOW DOLLAR-COST AVERAGING WORKS
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
--------------------------------------------------------
Down Up Mixed
----------------- ----------------- -----------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
----------------- ----------------- -----------------
$100 10 10 6 16.67 10 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
--- -- ----- -- ----- -- ----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $7.97 *Avg. Cost: $7.54 *Avg.Cost: $9.14
----- ----- -----
**Avg. Price: $8.20 **Avg. Price: $7.80 **Avg.Price: $9.20
----- ----- -----
* Average Cost is the total amount invested divided by
shares purchased.
** Average Price is the sum of the prices paid divided by
number of purchases.
*** Cumulative total of share prices used to compute average
prices.
USAA S&P 500 Index Fund
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
Assets
Investment in Equity 500 Index Portfolio, at Value $ 61,401,708
Receivable for Capital Shares Sold 767,589
-----------------
Total Assets 62,169,297
-----------------
Liabilities
Payable for Capital Shares Redeemed 500
Accounts Payable and Accrued Expenses 5,475
-----------------
Total Liabilities 5,975
-----------------
Net Assets Applicable to Capital Shares Outstanding $ 62,163,322
=================
Represented By:
Paid-in Capital $ 60,783,199
Accumulated Undistributed Net Investment Income 40,971
Accumulated Net Realized Gains from Securities
and Futures Transactions 23,141
Net Unrealized Appreciation of Securities
and Futures Contracts 1,316,011
-----------------
Net Assets Applicable to Capital Shares Outstanding $ 62,163,322
=================
Capital Shares Outstanding 5,954,478
=================
Net Asset Value, Redemption Price,
and Offering Price Per Share $ 10.44
=================
See Notes to Financial Statements on Page 28
USAA S&P 500 Index Fund
Statement of Operations
For the two months ended June 30, 1996*
(Unaudited)
Investment Income
Income Allocated from Equity 500 Index Portfolio, net $ 161,224
--------------
Expenses
Administrative Fees 1,373
Postage 850
Shareholder Reporting Fees 717
Directors' Fees 675
Registration Fees 30,973
Audit Fees 2,000
Legal Fees 1,125
Other 1,417
--------------
Total Expenses 39,130
Expenses Reimbursed (33,655)
--------------
Net Expenses after Reimbursement 5,475
--------------
Net Investment Income 155,749
--------------
Realized and Unrealized Gains
on Securities and Futures
Net Realized Gains from Securities Transactions 4,173
Net Realized Gains from Futures Transactions 18,968
Net Unrealized Appreciation of Securities and
Futures Contracts 1,316,011
---------------
Net Gains on Securities and Futures 1,339,152
---------------
Net Increase in Net Assets from Operations $ 1,494,901
===============
*Fund commenced operations May 1, 1996.
See Notes to Financial Statements on Page 28
USAA S&P 500 Index Fund
Statement of Changes in Net Assets
For the two months ended June 30, 1996*
(Unaudited)
From Operations
Net Investment Income $ 155,749
Net Realized Gains from Securities
and Futures Transactions 23,141
Change in Net Unrealized Appreciation
of Securities and Futures Contracts 1,316,011
-------------
Increase in Net Assets Resulting from Operations 1,494,901
-------------
Distributions to Shareholders
Net Investment Income (114,778)
From Capital Share Transactions
Proceeds from Shares Sold 61,393,364
Shares Issued for Dividends Reinvested 105,244
Cost of Shares Redeemed (715,409)
--------------
Increase in Net Assets from Capital Share Transactions 60,783,199
--------------
Net Increase in Net Assets 62,163,322
Net Assets
Beginning of Period -
--------------
End of Period $ 62,163,322
==============
Undistributed Net Investment Income
Included in Net Assets
Beginning of Period $ -
==============
End of Period $ 40,971
==============
Change in Shares Outstanding
Shares Sold 6,012,957
Shares Issued for Dividends Reinvested 10,178
Shares Redeemed (68,657)
--------------
Increase in Shares Outstanding 5,954,478
==============
Authorized Shares of $.01 par value 50,000,000
==============
* Fund commenced operations May 1, 1996.
See Notes to Financial Statements on Page 28
USAA S&P 500 Index Fund
Financial Highlights
June 30, 1996
(Unaudited)
Contained below are selected ratios and supplemental data for the period
indicated for the USAA S&P 500 Index Fund.
Two Month
Period Ended
June 30, 1996*
Per Share Operating Performance
Net Asset Value at Beginning of Period $ 10.00
--------------
Income from Investment Operations:
Net Investment Income 0.03
Net Realized and Unrealized Gain on
Securities and Futures 0.43
--------------
Total from Investment Operations 0.46
Distributions from Net Investment Income (0.02)
--------------
Net Asset Value at End of Period $ 10.44
==============
Total Return** 4.60%
Supplemental Data and Ratios
Net Assets at End of Period (000) $ 62,163
Ratio to Average Net Assets:
Net Investment Income 2.23%(a)
Expenses, including Expenses of the Equity 500 Index Portfolio 0.18%(a)
Decrease Reflected in Above Expense Ratio Due to
Absorption of Expenses by Bankers Trust and the Manager 0.53%(a)
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Fund commenced operations May 1, 1996.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period; does not reflect $10 annual account
maintenance fee.
See Notes to Financial Statements on Page 28
USAA S&P 500 Index Fund
Notes to Financial Statements
June 30, 1996
(Unaudited)
(1) Summary of Significant Accounting Policies
USAA MUTUAL FUND, INC. (the Company), registered under the Investment Company
Act of 1940 (the Act), as amended, is a diversified, open-end management
investment company incorporated under the laws of Maryland consisting of eight
separate funds. The information presented in this semiannual report pertains
only to the USAA S&P 500 Index Fund (the Fund), which commenced operations on
May 1, 1996. The Fund's investment objective is to provide investment results
that, before expenses, correspond to the total return of common stocks
represented by the S&P 500 Index. The Fund seeks to achieve its investment
objective by investing substantially all of its assets in the Equity 500 Index
Portfolio (the Portfolio), an open-end management investment company advised by
Bankers Trust Company which has the same investment objective as the Fund. The
value of the Fund's investment in the Portfolio reflects its proportionate
interest in the net assets of the Portfolio. At June 30, 1996, the Fund's
investment was approximately 4% of the Portfolio.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
A. Valuation of Investments - The Fund records its investment in the Portfolio
at value. Valuation of the securities held by the Portfolio is discussed in
the notes to the Portfolio's financial statements included elsewhere in this
report.
B. Investment Income and Expenses - The Fund records daily its pro rata share
of the Portfolio's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
C. Federal Taxes - The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required. The Fund may periodically
make reclassifications among certain of its capital accounts as a result of
timing and characterization of certain income and capital gains distributions
determined annually in accordance with federal tax regulations which may
differ from generally accepted accounting principles.
D. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) Lines of Credit
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million through January 14, 1997, one with USAA
Capital Corporation, an affiliate of the Manager ($750 million uncommitted),
and one with an unaffiliated bank ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of investments.
Subject to availability under these agreements, the Fund may borrow up to a
maximum of 25% of its total assets at the lending institution's borrowing rate
plus a markup. The Fund had no borrowings under either of these agreements
during the two months ended June 30, 1996.
(3) Distributions
Distributions to shareholders are recorded on the ex-dividend date.
Distributions of net investment income are made quarterly. Distributions of the
Fund's pro rata share of the Portfolio's realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal
year or as otherwise required to avoid the payment of federal taxes.
(4) Transactions with Manager
A. Administrative Fees - The administration and operation of the Fund are
carried out by USAA Investment Management Company (the Manager). The Fund's
administrative fees are computed at .02% of its annual average net assets.
The Manager has voluntarily agreed to limit the annual expenses of the Fund to
.18% of its annual average net assets, which includes expenses of the Portfolio
that presently are limited by Bankers Trust to .10% of the Portfolio's annual
average net assets.
B. Transfer Agent's Fees - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services, an affiliate of the Manager, provides transfer
agent services to the Fund. The Fund does not pay for these services. The
Transfer Agent assesses shareholders an annual account maintenance fee of $10
to cover costs of maintaining shareholder accounts.
C. Underwriting Agreement - The Company has an agreement with the Manager
for exclusive underwriting and distribution of the Fund's shares on a
continuing best efforts basis. This agreement provides that the Manager will
receive no fee or other remuneration for such services.
D. Management Agreement - The Manager serves as investment adviser to the
Fund. Under the Management Agreement, the Manager is responsible for
monitoring the services provided to the Portfolio by Bankers Trust. While the
Fund maintains its investment in the Portfolio, this agreement provides that
the Manager will receive no fee for this service.
(5) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by United
Services Automobile Association (the Association), a large, diversified
financial services institution. At June 30, 1996, the Association and its
affiliates owned 2,504,835 shares (42.58%) of the Fund.
Equity 500 Index Portfolio
Schedule of Portfolio Investments
June 30, 1996
(Unaudited)
Shares Security Value
Common Stock (96.75%)
Aerospace - 2.04%
100,442 Boeing Co. $ 8,751,009
16,222 General Dynamics 1,005,764
58,410 Lockheed Martin 4,906,440
65,376 McDonnell Douglas 3,170,736
13,979 Northrop Grumman 952,319
71,014 Raytheon Co. 3,666,098
64,524 Rockwell International 3,693,999
36,006 United Technologies 4,140,690
------------
30,287,055
------------
Airlines - 0.36%
27,302 AMR Corp.(a) 2,484,482
16,349 Delta Air Lines 1,356,967
46,200 Southwest Airlines 1,345,575
9,015 USAir Group(a) 162,270
------------
5,349,294
------------
Apparel, Textiles - 0.70%
1,493 Brown Group 25,941
18,003 Charming Shoppes(a) 127,146
69,714 Corning 2,675,275
10,300 Fruit of the Loom Cl.A(a) 262,650
24,403 Liz Claiborne 844,954
33,419 Melville Corp. 1,353,469
27,424 Nike, Cl. B 2,817,816
24,529 Reebok International 824,788
4,611 Russell Corp. 127,379
8,204 Spring Industries, Cl. A 414,302
6,749 Stride Rite 55,679
14,515 V.F. Corp. 865,457
------------
10,394,856
------------
Auto Related - 2.34%
108,851 Chrysler Corp. 6,748,762
13,734 Cummins Engine 554,510
23,374 Dana Corp. 724,594
23,082 Eaton Corp. 1,353,182
9,844 Echlin Inc. 372,841
319,164 Ford Motor 10,332,934
218,384 General Motors 11,437,862
27,584 Genuine Parts 1,261,968
12,690 PACCAR Inc. 621,810
21,943 Parker-Hannifin 929,835
11,448 Timken, Co. 443,610
------------
34,781,908
------------
Banks - 6.35%
38,434 Ahmanson (H.F.)
& Company 1,037,718
134,734 Banc One Corp. 4,580,956
36,167 Bank of Boston 1,790,266
59,600 Bank of New York 3,054,500
107,136 BankAmerica Corp. 8,115,552
24,197 Barnett Banks Inc. 1,476,017
45,554 Boatmen's Bancshares 1,827,854
127,352 Chase Manhattan Corp 8,994,235
141,266 Citicorp 11,672,103
30,700 Comerica Inc. 1,369,987
68,364 Corestates Financial 2,632,014
30,800 Fifth Third Bancorp 1,663,200
95,236 First Chicago NBD 3,726,109
84,750 First Union Corp. 5,159,156
10,817 Golden West Financial 605,752
31,984 Great Western Financial 763,618
58,200 KeyCorp 2,255,250
42,762 Mellon Bank Corp. 2,437,434
56,060 Morgan (J.P.) 4,744,078
57,600 National City Corp. 2,023,200
88,026 NationsBank Corp. 7,273,148
110,408 Norwest 3,850,479
12,900 Republic New York Corp. 803,025
57,160 Suntrust Banks 2,114,920
48,688 U.S. Bancorp 1,758,854
42,800 Wachovia Corp. 1,872,500
28,670 Wells Fargo 6,848,546
------------
94,450,471
------------
Beverages - 4.07%
74,240 Anheuser-Busch Cos 5,568,000
8,219 Brown Forman, Cl. B 328,760
715,522 Coca-Cola Co. 34,971,138
6,168 Coors (Adolph), Cl. B 110,253
451,694 PepsiCo Inc. 15,978,675
109,137 Seagram, Co. Ltd. 3,669,732
------------
60,626,558
------------
Building & Construction - 0.74%
8,483 Armstrong World Industries 488,833
7,090 Centex Corp. 220,676
3,311 Crane Co. 135,751
6,906 Fleetwood Enterprises 214,086
139,051 Home Depot 7,508,754
50,611 Masco Corp. 1,530,983
8,650 Owens Corning(a) 371,950
20,330 Stanley Works 604,817
------------
11,075,850
------------
Building-Forest Products - 0.52%
16,703 Boise Cascade 611,747
30,628 Champion International 1,278,719
28,201 Georgia-Pacific 2,002,271
8,977 Johnson Controls 623,901
2,045 Kaufman & Broad Home 29,652
19,858 Louisiana Pacific 439,358
4,901 Potlatch Corp. 191,752
59,694 Weyerhaeuser Co. 2,536,995
------------
7,714,395
------------
Chemicals & Toxic Waste - 3.07%
33,404 Air Products & Chemical 1,929,081
78,240 Amgen Inc.(a) 4,224,960
73,076 Dow Chemical 5,553,776
161,796 Du Pont (E.I.) de Nemours 12,802,108
24,981 Eastman Chemical 1,520,718
6,050 FMC Corp.(a) 394,762
29,849 Grace W.R. 2,115,548
16,796 Great Lakes Chemical 1,045,551
33,514 Hercules Inc. 1,851,648
16,502 Mallinckrodt Group 641,515
170,220 Monsanto Co. 5,532,150
45,706 Morton International 1,702,549
12,325 Nalco Chemical 388,238
57,042 PPG Industries 2,780,798
14,859 Rohm & Haas 932,402
12,800 Sigma-Aldrich 684,800
41,317 Union Carbide 1,642,351
------------
45,742,955
------------
Commercial Services - 0.14%
58,200 CUC International Inc.(a) 2,066,100
------------
Computers - 0.06%
40,042 Apple Computer 840,882
6,045 Data General Corp.(a) 78,585
------------
919,467
------------
Computer Services - 0.65%
50,700 3Com Corp(a) 2,319,525
86,512 Automatic Data Processing 3,341,526
22,700 Cabletron Systems(a) 1,557,787
70,800 EMC Corp.(a) 1,318,650
49,900 Silicon Graphics Inc.(a) 1,197,600
------------
9,735,088
------------
Computer Software - 2.85%
164,900 Cisco Systems(a) 9,337,462
71,167 Computer Associates
International 5,070,649
170,700 Microsoft Corp.(a) 20,505,338
191,004 Oracle Corp.(a) 7,532,720
------------
42,446,169
------------
Containers - 0.22%
11,015 Avery Dennison Corp. 604,448
3,054 Ball Corp. 87,802
38,250 Crown Cork & Seal 1,721,250
21,649 Stone Container 297,674
11,022 Temple-Inland 515,279
------------
3,226,453
------------
Cosmetics & Toiletries - 0.73%
1,599 Alberto-Culver, Cl. B 74,154
35,228 Avon Products 1,589,663
129,408 Gillette Co. 8,071,824
24,987 International Flavors
& Fragrance 1,190,006
------------
10,925,647
------------
Diversified - 1.36%
16,702 Ceridian Corp.(a) 843,451
41,700 First Bank System 2,418,600
35,400 Loews Corp. 2,792,175
121,478 Minnesota Mining
& Manufacturing 8,381,982
4,781 NACCO Industries, Cl. A 264,748
26,964 Pall Corp. 650,506
45,615 Praxair Inc. 1,927,234
13,420 Supervalu Inc. 422,730
15,257 Teledyne Inc. 551,159
25,603 Textron, Inc. 2,045,040
------------
20,297,625
------------
Drugs - 5.48%
183,066 American Home Products 11,006,843
145,189 Bristol Myers Squibb 13,067,010
159,370 Lilly (Eli) 10,359,050
352,597 Merck & Co. 22,786,581
183,804 Pfizer Inc. 13,119,010
107,558 Schering-Plough 6,749,265
79,986 Warner-Lambert 4,399,230
------------
81,486,989
------------
Electrical Equipment - 4.57%
476,222 General Electric Co. 41,193,203
40,900 General Instrument Corp.(a) 1,180,987
8,272 General Signal 313,302
10,765 Grainger (W.W.) 834,287
146,870 Hewlett-Packard 14,631,924
35,723 ITT Corp (NEW) (a) 2,366,649
36,223 ITT Hartford Group 1,928,875
36,423 ITT Industries 915,128
8,438 Raychem Corp. 606,481
39,432 Tyco International 1,606,854
126,810 Westinghouse Electric 2,377,688
------------
67,955,378
------------
Electronics - 3.81%
38,041 Advanced Micro Devices (a) 518,309
83,306 AlliedSignal Inc. 4,758,855
64,473 AMP Inc. 2,586,979
55,600 Applied Materials (a) 1,695,800
38,190 DSC Communications Corp. (a) 1,150,474
65,700 Emerson Electric 5,937,638
7,771 Harris Corp. 474,031
236,314 Intel Corp. 17,354,309
41,700 LSI Logic Corp. (a) 1,084,200
64,000 Micron Technology 1,656,000
171,142 Motorola, Inc. 10,760,553
40,126 National Semi-
conductor Corp. (a) 621,953
70,701 Northern Telecom Ltd. 3,844,367
14,025 Perkin-Elmer 676,706
11,938 Scientific-Atlanta 185,039
3,738 Tektronix Inc. 167,276
56,728 Texas Instruments 2,829,309
7,000 Thomas & Betts 262,500
6,027 Trinova Corp. 201,151
------------
56,765,449
------------
Environmental Control - 0.48%
65,335 Browning-Ferris Industries 1,894,715
41,100 Laidlaw Inc. Cl. B 416,137
7,326 Safety-Kleen 128,205
145,358 WMX Technologies 4,760,475
------------
7,199,532
------------
Financial Services - 3.69%
141,066 American Express 6,295,070
9,652 Beneficial Corp. 541,718
49,974 Dean Witter, Discover & Co. 2,861,011
52,756 Federal Home Loan Mortgage 4,510,638
316,364 Federal National Mortgage 10,598,194
65,500 First Data 5,215,438
79,744 Fleet Financial Group 3,468,864
40,300 Green Tree Financial 1,259,375
29,358 Household International 2,231,208
54,045 MBNA Corp. 1,540,283
51,138 Merrill Lynch 3,330,362
46,000 Morgan Stanley Group Inc 2,259,750
101,333 PNC Banc Corp 3,014,657
33,233 Salomon Inc. 1,462,252
138,809 Travelers Group 6,333,161
------------
54,921,981
------------
Food Service, Lodging - 0.72%
29,419 Darden Restaurants 316,254
6,851 Luby's Cafeterias 160,998
202,914 McDonald's Corp. 9,486,229
21,182 Ryan's Family Steak House
Inc. (a) 195,934
4,809 Shoney's Inc. (a) 52,298
29,262 Wendy's International 545,005
------------
10,756,718
------------
Foods - 3.02%
138,955 Archer-Daniels-Midland 2,657,514
68,069 Campbell Soup 4,798,864
72,616 ConAgra Inc. 3,294,951
43,630 CPC International 3,141,360
48,019 General Mills 2,617,035
109,775 Heinz, (H.J.) 3,334,416
16,897 Hershey Foods 1,239,817
62,907 Kellogg 4,607,938
22,700 Pioneer Hi-Bred International 1,200,262
34,384 Quaker Oats 1,173,354
32,305 Ralston Purina Goup 2,071,558
142,487 Sara Lee Corp. 4,613,017
47,310 Sysco Corp. 1,620,368
46,717 Unilever N.V., ADR 6,779,805
18,127 Whitman Corp. 437,314
27,392 Wrigley (WM) Jr. 1,383,296
------------
44,970,869
------------
Forest Products & Paper - 0.07%
17,500 Willamette Industries 1,041,250
------------
Healthcare - 1.13%
227,622 Abbott Laboratories 9,901,557
130,515 Columbia/HCA Healthcare 6,966,238
------------
16,867,795
------------
Hospital Supplies & Healthcare - 2.71%
9,501 Allergan, Inc. 372,914
24,434 Alza, Corp. (a) 668,881
9,477 Bard (C.R.) 322,218
11,023 Bausch & Lomb 468,477
81,263 Baxter International 3,839,677
17,366 Becton, Dickinson 1,393,621
22,582 Beverly Enterprises (a) 270,984
41,450 Biomet Inc. (a) 595,844
54,100 Boston Scientific Corp. (a) 2,434,500
6,417 Community Psychiatric
Centers (a) 60,961
41,600 Humana Inc. (a) 743,600
383,296 Johnson & Johnson 18,973,152
9,160 Manor Care 360,675
69,452 Medtronic Inc. 3,889,312
8,574 Shared Medical Systems 550,880
27,019 St. Jude Medical Inc. (a) 905,137
63,410 Tenet Healthcare Corp. (a) 1,355,389
54,800 United Healthcare 2,767,400
10,248 U.S. Surgical 317,688
------------
40,291,310
------------
Hotel/Motel - 0.24%
15,212 Hilton Hotels 1,711,350
33,490 Marriott International 1,800,088
------------
3,511,438
------------
Household Furnishings - 0.20%
17,512 Maytag Corp. 365,563
44,758 Newell Co. 1,370,714
23,939 Whirlpool Corp. 1,187,973
------------
2,924,250
------------
Household Products - 0.12%
35,502 Rubbermaid, Inc. 967,430
20,796 Tupperware Corp. (a) 878,631
------------
1,846,061
------------
Insurance - 3.14%
34,913 Aetna Life & Casualty 2,496,279
7,509 Alexander & Alexander
Services 148,303
130,250 Allstate Corp. 5,942,656
52,154 American General 1,897,102
136,567 American International Group 13,468,920
26,600 Aon Corp. 1,349,950
53,172 Chubb Corp. 2,651,953
23,133 Cigna Corp. 2,726,802
24,078 General Re Corp. 3,665,876
21,277 Jefferson-Pilot 1,098,425
27,610 Lincoln National Corp. 1,276,963
18,762 Marsh & McLennan 1,810,533
19,298 Providian Corp. 827,402
39,602 SAFECO Corp. 1,400,921
20,630 St. Paul Cos. 1,103,705
12,134 Torchmark Corp. 530,863
16,600 UNUM Corp. 1,033,350
13,917 USF & G Corp. 227,891
13,030 USLife Corp. 428,361
46,600 U.S. HealthCare 2,563,000
------------
46,649,255
------------
Leisure Related - 1.28%
24,914 American Greetings Cl. A 682,021
20,093 Bally Entertainment
Corp. (a) 552,557
21,442 Brunswick Corp. 428,840
195,857 Disney (Walt) Co. 12,314,509
13,239 Harcourt General 661,950
33,115 Harrah's Entertainment Inc. (a) 935,499
25,525 Hasbro Inc. 912,519
1,239 Jostens Inc. 24,470
84,165 Mattel Inc. 2,409,223
3,618 Outboard Marine 65,576
------------
18,987,164
------------
Machinery - 1.40%
16,271 Black & Decker Corp. 628,467
11,182 Briggs & Stratton 459,860
23,600 Case Corporation 1,132,800
57,582 Caterpillar Inc. 3,901,180
3,647 Cincinnati Milacron 87,528
34,048 Cooper Industries 1,412,992
78,523 Deere & Co. 3,140,920
29,404 Dover Corp. 1,356,259
57,082 Dresser Industries 1,683,919
20,230 Echo Bay Mines 217,473
16,847 Giddings & Lewis 273,764
5,522 Harnischfeger Industries 183,607
31,896 Illinois Tool Works 2,156,967
33,131 Ingersoll-Rand 1,449,481
6,992 Millipore Corp. 292,790
11,958 Navistar International (a) 118,085
7,196 Snap-On Inc. 340,911
19,086 TRW Inc. 1,715,354
7,262 Varity Corp. (a) 349,484
------------
20,901,841
------------
Metals - 1.44%
58,736 Alcan Aluminium Ltd. 1,791,448
52,600 Aluminium Company
of America 3,017,925
72,835 Armco Inc. (a) 364,175
8,049 Asarco Inc. 222,354
106,900 Barrick Gold 2,899,662
19,749 Bethlehem Steel Corp. (a) 234,519
20,994 Cyprus Amax MInerals 474,989
33,108 Engelhard Corp. 761,484
34,600 Freeport-McMoRan
Copper & Gold Cl. B 1,102,875
47,643 Homestake Mining 815,886
37,166 Inco Ltd. 1,198,604
6,103 Inland Steel Industries 119,771
31,134 Newmont Mining 1,537,241
27,894 Nucor Corp. 1,412,134
5,831 Ogden Corp. 105,687
21,108 Phelps Dodge 1,316,612
73,804 Placer Dome Inc. 1,762,071
20,549 Reynolds Metals 1,071,117
21,408 Santa Fe Pacific Gold 302,388
23,977 USX-U.S. Steel Group 680,347
13,179 Worthington Industries 275,112
------------
21,466,401
------------
Office Equipment & Computers - 2.71%
37,862 Alco Standard 1,713,255
37,057 Amdahl Corp (a) 398,363
16,114 Autodesk Inc. 481,406
79,513 Compaq Computer Corp. (a) 3,916,015
17,786 Computer Sciences Corp. (a) 1,329,503
1,115 Cray Research (a) 26,899
46,832 Digital Equipment (a) 2,107,440
38,919 Honeywell, Inc. 2,121,085
9,046 Intergraph Corp. (a) 109,683
156,641 International Business
Machines 15,507,459
13,879 Moore Corp. Ltd. 261,966
114,592 Novell Inc. (a) 1,589,964
38,098 Pitney Bowes 1,819,179
54,628 Sun Microsystems Inc. (a) 3,216,224
21,460 Tandem Computers Inc. (a) 265,568
64,999 Unisys Corp. (a) 463,118
94,035 Xerox Corp. 5,030,873
------------
40,358,000
------------
Oil Equipment & Services - 0.55%
45,244 Baker Hughes Inc. 1,487,397
71,181 Schlumberger Ltd. 5,996,999
11,659 Western Atlas Inc. (a) 679,137
------------
8,163,533
------------
Oil Service - Domestic - 0.38%
26,081 Fluor Corp. 1,705,045
4,738 Foster Wheeler 212,618
35,690 Halliburton Co. 1,980,795
88,764 USX-Marathon Group 1,786,376
------------
5,684,834
------------
Oil-Domestic - 1.11%
188,766 Chevron Corp. 11,137,194
16,728 Noram Energy 181,917
52,334 Tenneco Inc. 2,675,576
75,037 Unocal Corp. 2,532,499
------------
16,527,186
------------
Oil-International - 4.96%
356,157 Exxon Corp. 30,941,139
113,771 Mobil Corp. 12,756,573
153,901 Royal Dutch Petroleum 23,662,279
77,161 Texaco Inc. 6,471,879
------------
73,831,870
------------
Paper - 0.86%
5,731 Bemis Co. 200,585
88,844 International Paper 3,276,123
25,435 James River Corp. 670,848
82,165 Kimberly-Clark 6,347,246
15,351 Mead Corp. 796,333
17,703 Union Camp 863,021
23,560 Westvaco Corp. 703,855
------------
12,858,011
------------
Petroleum Related - 1.91%
28,193 Amerada Hess 1,511,850
143,702 Amoco Corp. 10,400,432
11,687 Ashland Inc. 463,097
47,125 Atlantic Richfield 5,584,312
39,800 Burlington Resources 1,711,400
2,808 Helmerich & Payne 102,843
12,632 Kerr-McGee 768,973
8,062 Louisiana Land & Exploration 464,573
9,187 McDermott International 191,779
96,814 Occidental Petroleum 2,396,146
16,579 Oryx Energy Co. (a) 269,409
7,654 Pennzoil Co. 353,998
78,306 Phillips Petroleum 3,279,064
16,500 Rowan Cos. (a) 243,375
8,269 Santa Fe Energy Resources (a) 98,194
18,745 Sun Co. 569,379
------------
28,408,824
------------
Pharmaceuticals - 0.44%
148,732 Pharmacia & Upjohn 6,599,983
------------
Photography & Optical - 0.55%
100,626 Eastman Kodak 7,823,672
9,282 Polaroid Corp. 423,491
------------
8,247,163
------------
Printing & Publishing - 1.29%
23,291 Deluxe Corp. 826,830
39,952 Donnelley (RR) & Sons 1,393,326
23,472 Dow Jones & Co. 979,956
50,779 Dun & Bradstreet 3,173,687
42,196 Gannett Co. 2,985,367
3,804 Harland (John H.) 93,673
13,863 Knight-Ridder Inc. 1,005,068
26,230 McGraw-Hill Companies 1,200,023
4,736 Meredith Corp. 197,728
17,684 New York Times, Cl. A 576,941
115,515 Time Warner Inc. 4,533,964
28,829 Times Mirror, Cl. A 1,254,062
12,898 Tribune Co. 936,717
------------
19,157,342
------------
Professional Services - 0.46%
32,535 Block (H&R) 1,061,454
27,536 Dial Corp. 788,218
7,800 Ecolab Inc. 257,400
8,825 EG&G Inc. 188,634
19,107 Interpublic Group Cos. 895,641
7,526 National Service Industries 294,455
35,896 Service Corp International 2,064,020
16,543 Transamerica Corp. 1,339,983
------------
6,889,805
------------
Railroads - 1.03%
45,162 Burlington Northern
Santa Fe 3,652,477
25,472 Conrail Inc. 1,690,704
61,232 CSX Corp. 2,954,444
32,851 Norfolk Southern 2,784,122
60,747 Union Pacific 4,244,697
------------
15,326,444
------------
Real Estate - 0.02%
11,666 Pulte Corp. 312,066
------------
Retail - 4.34%
71,602 Albertson's, Inc. 2,962,533
40,118 American Stores 1,654,867
31,946 Circuit City Stores 1,154,049
21,936 Dayton Hudson 2,262,150
34,897 Dillard Department Stores,
Cl. A 1,273,740
63,300 Federated Department
Stores (a) 2,160,112
6,279 Fleming Cos. 90,261
86,614 Gap Inc. 2,782,475
19,193 Giant Food Cl. A 688,549
5,125 Great Atlantic & Pacific 168,484
149,103 Kmart 1,845,150
39,160 Kroger Co. (a) 1,546,820
83,647 Limited Inc. 1,798,410
6,113 Longs Drug Stores 272,793
49,894 Lowe's Cos. 1,802,421
74,298 May Department Stores 3,250,537
5,830 Mercantile Stores 341,784
26,029 Nordstrom, Inc. 1,158,290
66,850 Penney (J.C.) 3,509,625
8,612 Pep-Boys-Manny
Moe & Jack 292,808
62,799 Price/Costco Inc. (a) 1,358,028
28,301 Rite Aid 841,955
114,709 Sears, Roebuck 5,577,725
20,837 Sherwin-Williams 968,921
18,683 Tandy Corp. 885,107
12,554 TJX Companies 423,698
83,018 Toys 'R' Us Inc. (a) 2,366,013
65,934 Walgreen Co. 2,208,789
660,148 Wal-Mart Stores 16,751,256
38,380 Winn-Dixie Stores 1,357,693
36,522 Woolworth Corp. (a) 821,745
------------
64,576,788
------------
Soaps & Toiletries - 1.53%
12,852 Clorox Co. 1,139,009
43,551 Colgate-Palmolive 3,690,947
197,370 Procter & Gamble Co. 17,886,656
------------
22,716,612
------------
Telecommunications - 3.72%
1 360 Communications Co. (a) 24
142,035 Airtouch Communications (a) 4,012,489
46,800 Alltel Corp. 1,439,100
161,152 Ameritech Corp. 9,568,400
19,484 Andrew Corp. (a) 1,047,265
59,000 Bay Networks Inc. (a) 1,519,250
63,162 Comcast, Cl. A 1,168,497
281,736 GTE Corp. 12,607,686
10,106 King World Productions
Inc. (a) 367,606
202,420 MCI Communications Corp. 5,187,012
127,700 NYNEX Corp. 6,065,750
174,516 Tele-Communications, Cl.
A (a) 3,163,102
27,600 Tellabs, Inc. (a) 1,845,750
105,749 Viacom Inc., Cl. B (a) 4,110,992
58,100 WorldCom Inc. (a) 3,217,288
------------
55,320,211
------------
Tire & Rubber - 0.20%
14,951 Cooper Tire & Rubber 332,660
7,852 Goodrich (B.F.) 293,468
47,136 Goodyear Tire & Rubber 2,274,312
------------
2,900,440
------------
Tobacco - 1.93%
45,674 American Brands 2,072,458
238,266 Philip Morris Inc. 24,779,664
55,607 UST Corp. 1,904,540
------------
28,756,662
------------
Trucking, Shipping - 0.17%
7,382 Caliber System Inc. 250,988
22,392 Consolidated Freightways 473,031
12,275 Federal Express Corp. (a) 1,006,550
25,217 Ryder System 709,228
6,040 Yellow Corp. (a) 80,030
------------
2,519,827
------------
Utilities - 0.06%
4,142 Eastern Enterprises 137,721
31,900 P P & L Resources 753,638
------------
891,359
------------
Utility-Electric - 3.12%
56,010 American Electric Power Co. 2,387,426
30,625 Baltimore Gas & Electric Co. 868,984
39,428 Carolina Power & Light Co. 1,498,264
62,430 Central & South West 1,810,470
33,122 CINergy Corp. 1,059,904
72,236 Consolidated Edison 2,112,903
49,106 Dominion Resources 1,964,240
43,176 DTE Energy Co. 1,333,059
61,387 Duke Power Co. 3,146,084
131,870 Edison International 2,324,209
70,507 Entergy Corp. 2,000,636
56,094 FPL Group Inc. 2,580,324
23,900 General Public Utilities 842,475
81,256 Houston Industries 2,000,929
43,142 Niagara Mohawk Power 334,351
13,644 Northern States Power 673,673
33,084 Ohio Edison Co. 723,713
125,105 Pacific Gas & Electric 2,908,691
72,089 PacifiCorp 1,603,980
67,284 PECO Energy 1,749,384
73,294 Public Service Enterprise 2,006,423
197,858 Southern Co. 4,872,253
68,065 Texas Utilities Co. 2,909,779
65,525 Unicom Corp. 1,826,509
21,220 Union Electric Co. 854,105
------------
46,392,768
------------
Utility-Natural Gas - 0.73%
24,866 Coastal Corp. 1,038,155
9,135 Columbia Gas System 476,162
21,505 Consolidated Natural Gas 1,123,636
75,266 Enron Corp. 3,076,498
11,424 ENSERCH Corp. 248,472
8,469 NICOR Inc. 240,308
13,591 ONEOK Inc. 339,775
12,268 Pacific Enterprises 363,440
36,958 PanEnergy Corp. 1,214,994
5,755 People's Energy 192,793
28,010 Sonat Inc. 1,260,450
26,112 Williams Cos. 1,292,544
------------
10,867,227
------------
Utility-Telephone - 4.98%
461,006 AT&T Corp. 28,582,372
127,339 Bell Atlantic Corp. 8,117,861
287,332 BellSouth Corp. 12,175,694
124,835 Pacific Telesis Group 4,213,181
176,862 SBC Communications Inc. 8,710,454
127,582 Sprint Corp. 5,358,444
139,728 U S West Communications Group 4,453,830
138,128 U S West Media Group (a) 2,520,836
------------
74,132,672
------------
Total Common Stocks
(Cost $1,127,122,749) 1,440,023,199
---------------
U.S. Treasury Bills - 3.09%
$ 1,631,000 4.880%, 7/25/96 $ 1,625,683
95,000 4.790%, 8/08/96 94,513
115,000 5.020%, 8/08/96 114,405
1,590,000 5.000%, 9/12/96 1,573,847
8,366,000 5.030%, 10/17/96 8,237,247
6,338,000 5.325%, 10/17/96 6,240,458
28,552,000 5.080%, 10/31/96 28,056,595
---------------
Total U.S. Treasury Bills
(Cost $45,947,869) 45,942,748
---------------
Total Investments
(Cost $1,173,070,618) 99.84% 1,485,965,947
Other Assets Less Liabilities 0.16% 2,320,072
---------------
Net Assets - 100.00% $1,488,286,019
===============
- --------------------------------------
(a) Non-Income Producing Securities
See Notes to Financial Statements on Page 43
Equity 500 Index Portfolio
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
Assets
Investments, at Value (Cost $1,173,070,618) $1,485,965,947
Cash 45,049
Dividends and Interest Receivable 2,137,082
Variation Margin Receivable 247,825
Prepaid Expenses and Other 4,647
---------------
Total Assets 1,488,400,550
---------------
Liabilities
Due to Bankers Trust 95,832
Accrued Expenses and Other 18,699
---------------
Total Liabilities 114,531
---------------
Net Assets $1,488,286,019
===============
Composition of Net Assets
Paid-in Capital $1,175,265,089
Net Unrealized Appreciation of Securities and
Future Contracts 313,020,930
---------------
Net Assets, June 30, 1996 $1,488,286,019
===============
See Notes to Financial Statements on Page 43
Equity 500 Index Portfolio
Statement of Operations
For the six months ended June 30, 1996
(Unaudited)
Investment Income
Dividends (net of foreign witholding taxes of $106,583) $ 13,948,267
Interest 880,565
-------------
Total Investment Income 14,828,832
-------------
Expenses
Advisory 641,951
Administration and Services 320,976
Professional 15,728
Trustees 1,368
Miscellaneous 5,181
-------------
Total Expenses 985,204
Less: Expenses Absorbed by Bankers Trust (343,252)
-------------
Net Expenses 641,952
-------------
Net Investment Income 14,186,880
-------------
Realized and Unrealized Gains
on Securities and Futures
Net Realized Gains from Securities Transactions 3,373,683
Net Realized Gains from Futures Transactions 1,605,342
Net Unrealized Appreciation of Securities
and Futures Contracts 101,188,528
-------------
Net Gains on Securities and Futures 106,167,553
-------------
Net Increase in Net Assets from Operations $120,354,433
=============
See Notes to Financial Statements on Page 43
Equity 500 Index Portfolio
Statement of Changes in Net Assets
<TABLE>
June 30, 1996
(Unaudited)
<CAPTION>
For the six For the
months ended year ended
June 30, 1996 December 31, 1995
--------------- ------------------
<S> <C> <C>
Increase in Net Assets
from Operations
Net Investment Income $ 14,186,880 $ 19,425,500
Net Realized Gains from Securities
and Futures Transactions 4,979,025 4,687,899
Net Unrealized Appreciation on
Securities and Futures Contracts 101,188,528 212,725,683
---------------- ----------------
Net Increase in Net Assets from Operations 120,354,433 236,839,082
---------------- ----------------
Capital Transactions
Proceeds from Capital Invested 376,195,627 474,637,337
Value of Capital Withdrawn (89,000,067) (190,511,921)
---------------- ----------------
Net Increase in Net Assets
from Capital Transactions 287,195,560 284,125,416
---------------- ----------------
Total Increase in Net Assets 407,549,993 520,964,498
Net Assets
Beginning of Period 1,080,736,026 559,771,528
----------------- ----------------
End of Period $ 1,488,286,019 $ 1,080,736,026
================= =================
</TABLE>
See Notes to Financial Statements on Page 43
Equity 500 Index Portfolio
Financial Highlights
June 30, 1996
(Unaudited)
<TABLE>
Contained below are selected ratios and supplemental data for
each of the periods indicated for the Equity 500 Index Portfolio.
Supplemental Data and Ratios:
<CAPTION>
For the six December 31, 1992
months ended For the year ended December 31, (Commencement
June 30, 1996 1995 1994 1993 of Operations)
-------------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Assets,
End of Period (000) $1,488,286 $1,080,736 $ 559,772 $151,805 $9,435
Ratios to Average Net Assets:
Net Investment Income 2.20%* 2.52% 2.84% 2.67% 0.00%
Expenses, including
Expenses of
the Portfolio 0.10%* 0.10% 0.10% 0.10% 0.00%
Decrease Reflected
in Above Expense
Ratio Due to
Absorption of
Expenses by
Bankers Trust 0.05%* 0.05% 0.06% 0.10% 0.00%
Portfolio Turnover Rate 1% 6% 21% 31%
Average Commission
Rate (in cents
per share) $0.02 **
- -------------
* Annualized
** For the year beginning on or after September 1, 1995, the Portfolio is
required to disclose its average commission rate per share for purchases and
sales of equity securities.
See Notes to Financial Statements on Page 25
</TABLE>
Equity 500 Index Portfolio
Notes to Financial Statements
June 30, 1996
(Unaudited)
(1) Organization and Significant
Accounting Policies
A. Organization
The Equity 500 Index Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 (the Act), as amended, as an open-end
management investment company. The Portfolio was organized on December 11,
1991 as an unincorporated trust under the laws of New York, and commenced
operations on December 31, 1992. The Declaration of Trust permits the Board of
Trustees (the Trustees) to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments are valued each business day by an independent
pricing service (the Service) approved by the Trustees. Securities traded on
national exchanges or traded in the NASDAQ National Market System are valued
at the last sales prices reported at the close of business each day.
Over-the-counter securities not included in the NASDAQ National Market System
and listed securities for which no sale was reported are valued at the mean
of the bid and asked prices. Short-term obligations with remaining maturities
of 60 days or less, are valued at amortized cost which with accrued interest
approximates value. Securities for which quotations are not available are
stated at fair value as determined by the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and includes amortization of premium and discount on investments.
Realized gains and losses from securities transactions are recorded on the
identified cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security transactions of the Portfolio are allocated pro rata among
the investors in the Portfolio at the time of such determination.
D. Futures Contracts
The Portfolio may enter into financial futures contracts which are contracts
to buy a standard quantity of securities at a specified price on a future
date. The Portfolio is required to deposit either in cash or securities an
amount equal to a certain percentage of the contract amount. Subsequent
payments are made or received by the portfolio each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded
for financial statement purposes as unrealized gains or losses by
the Portfolio. The Portfolio's investment in the financial futures contracts
is designed to closely replicate the benchmark index used by the Portfolio.
Should the Portfolio's prices move unexpectedly, the Portfolio may not achieve
the anticipated benefits of the financial futures contracts and may realize a
loss.
Futures contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
E. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
F. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that may affect the reported amounts in the financial statements.
(2) Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company (Bankers Trust). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of 0.05 of 1% of the Portfolio's average daily
net assets. For the six months ended June 30, 1996, this fee aggregated
$320,976.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, the Portfolio pays Bankers Trust an advisory fee
computed daily and paid monthly at an annual rate of 0.10 of 1% of the
Portfolio's average daily net assets. For the six months ended June 30, 1996,
this fee aggregated $641,951.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of
the Portfolio, to the extent necessary, to limit all expenses to 0.10 of 1% of
the average daily net assets of the Portfolio. For the six months ended June
30, 1996, expenses of the Portfolio have been reduced by $343,252.
Certain trustees and officers of the Portfolio are also directors, officers
and/or employees of Signature Broker-Dealer Services, Inc., the distributor of
the Bankers Trust Funds. None of the trustees so affiliated received
compensation for services as trustees of the Portfolio. Similarly, none of the
Portfolio's officers received compensation from the Portfolio.
(3) Purchase and Sale of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the six months ended June 30, 1996 were
$284,601,548 and $12,933,107, respectively. For Federal income tax purposes,
the tax basis of investments held at June 30, 1996 was $1,179,487,646. The
aggregate gross unrealized appreciation was $318,575,690 and the aggregate
gross unrealized depreciation for all investments was $12,097,388 as of
June 30, 1996.
(4) Futures Contracts
A summary of obligations under these financial instruments at June 30, 1996
is as follows:
Unrealized
Type of Future Expiration Contracts Position Appreciation
- --------------- ----------- ---------- --------- ------------
S&P 500 Futures Index September 1996 139 Long $125,601
At June 30, 1996, the Portfolio has segregated sufficient securities to cover
margin requirements on open futures contracts.
EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
Assets
Investments, at Value (Cost $882,615,151) $1,094,348,578
Cash 123,298
Dividends and Interest Receivable 1,956,933
Variation Margin Receivable 20,521
Prepaid Expenses and Other 6,237
--------------
Total Assets 1,096,455,567
--------------
Liabilities
Due to Bankers Trust 88,584
Payable for Securities Purchased 15,605,707
Accrued Expenses and Other 25,250
--------------
Total Liabilities 15,719,541
--------------
Net Assets $1,080,736,026
==============
Composition of Net Assets
Paid-in Capital $ 869,029,224
Net Unrealized Appreciation on Securities
and Futures Contracts 211,706,802
--------------
Net Assets, December 31, 1995 $1,080,736,026
==============
See Notes to Financial Statements on Page 56
EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
Investment Income
Dividends (net of foreign withholding
taxes of $126,152) $ 18,799,153
Interest 1,396,877
------------
Total Investment Income $ 20,196,030
------------
Expenses
Advisory 770,530
Administration and Services 385,265
Professional 26,713
Trustees 1,868
Miscellaneous 4,968
------------
Total Expenses 1,189,344
Less: Expenses Absorbed by Bankers Trust (418,814) 770,530
------------ ------------
Net Investment Income 19,425,500
------------
Net Realized and Unrealized Gain (Loss) on Securities and Futures
Net Realized Loss from Securities Transactions (275,120)
Net Realized Gain from Futures Transactions 4,963,019
Net Unrealized Appreciation on Securities 212,730,076
Net Unrealized Depreciation on Futures Contracts (4,393)
------------
Net Realized and Unrealized Gain on Securities and Futures 217,413,582
------------
Net Increase in Net Assets from Operations $236,839,082
============
See Notes to Financial Statements on Page 56
EQUITY 500 INDEX PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
For the years ended December 31
1995 1994
-------------- --------------
Increase (Decrease) in Net Assets From:
Operations
Net Investment Income $ 19,425,500 $ 12,177,697
Net Realized Gain (Loss) from Securities
and Futures Transactions 4,687,899 (483,667)
Net Unrealized Appreciation (Depreciation)
on Securities and Futures Contracts 212,725,683 (4,936,075)
-------------- --------------
Net Increase in Net Assets from Operations 236,839,082 6,757,955
-------------- --------------
Capital Transactions
Proceeds from Capital Invested 474,637,337 529,295,851
Value of Capital Withdrawn (190,511,921) (128,087,609)
-------------- --------------
Net Increase in Net Assets from
Capital Transactions 284,125,416 401,208,242
-------------- --------------
Total Increase in Net Assets 520,964,498 407,966,197
Net Assets
Beginning of Year 559,771,528 151,805,331
-------------- --------------
End of Year $1,080,736,026 $ 559,771,528
============== ==============
FINANCIAL HIGHLIGHTS
Contained below are selected ratios and supplemental data for
each of the periods presented for the Equity 500 Index Portfolio.
December 31, 1992
For the year ended December 31, (Commencement
1995 1994 1993 of Operations)
---- ---- ---- --------------
Ratios and Supplemental Data
Ratio of Net Investment Income
to Average Net Assets 2.52% 2.84% 2.67% --
Ratio of Expenses to Average
Net Assets 0.10% 0.10% 0.10% --
Decrease Reflected in Above Ratio
of Expenses to Average Net
Assets Due to Absorption of
Expenses by Bankers Trust 0.05% 0.06% 0.10% --
Portfolio Turnover Rate 6% 21% 31% --
Net Assets, End of Period
(000s omitted) $1,080,736 $559,772 $151,805 $9,435
See Notes to Financial Statements on Page 56
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments
December 31, 1995
Shares Description Value
- ------ ----------- -----
COMMON STOCKS - 98.43%
----------------------
Aerospace - 2.13%
81,042 Boeing $ 6,351,667
11,222 General Dynamics 663,501
47,610 Lockheed Martin 3,761,190
32,272 Loral 1,141,622
27,588 McDonnell Douglas 2,538,096
8,479 Northrop Grumman 542,656
54,914 Raytheon 2,594,686
49,424 Rockwell International 2,613,294
29,706 United Technologies 2,818,357
-----------
23,025,069
-----------
Airlines - 0.30%
19,202 AMR (a) 1,425,749
13,349 Delta Air Lines 986,157
31,900 Southwest Airlines 741,675
9,015 USAir Group (a) 119,449
-----------
3,273,030
-----------
Apparel, Textiles - 0.61%
1,493 Brown Group 21,275
18,003 Charming Shoppes 51,759
56,714 Coming 1,814,848
10,300 Fruit of the Loom (a) 251,063
17,603 Liz Clairborne 488,483
20,919 Melville 643,259
22,724 Nike, Cl. B 1,582,159
18,229 Reebok International Ltd. 514,969
4,611 Russell 127,955
8,204 Spring Industries, Cl. A 339,441
6,749 Stride Rite 50,617
14,515 V F 765,666
-----------
6,651,494
-----------
Auto Related - 2.45%
90,751 Chrysler 5,025,337
13,734 Cummins Engine 508,158
16,874 Dana 493,565
20,082 Eaton 1,076,897
9,844 Echlin 359,306
253,064 Ford Motor 7,338,856
176,084 General Motors 9,310,441
23,284 Genuine Parts 954,644
12,690 PACCAR 534,566
12,343 Parker-Hannifin 422,748
11,448 Timken 437,886
-----------
26,462,404
-----------
Banks - 5.89%
24,034 Ahmanson (H.F.) & Company 636,901
94,559 Banc One 3,569,602
26,567 Bank of Boston 1,228,724
49,900 Bank of New York 2,432,625
88,536 BankAmerica 5,732,706
19,397 Barnett Banks 1,144,423
30,754 Boatmen's Bancshares 1,257,070
44,294 Chase Manhattan 2,685,324
60,855 Chemical Banking 3,575,231
101,166 Citicorp 6,803,414
25,400 Comerica 1,019,175
27,064 Corestates Financial 1,025,049
76,036 First Chicago NBD 3,003,422
13,354 First Fidelity Bancorp 1,006,558
18,772 First Interstate Bancorp 2,562,378
30,923 First Union 1,720,092
10,817 Golden West Financial 597,639
31,984 Great Western Financial 815,592
58,200 KeyCorp 2,109,750
35,262 Mellon Bank 1,895,332
45,660 Morgan (J. P.) 3,664,215
31,200 National City 1,033,500
65,326 NationsBank 4,548,323
86,908 Norwest 2,867,964
25,080 Suntrust Banks 1,717,980
21,388 U.S. Bancorp 719,171
37,500 Wachovia 1,715,625
11,922 Wells Fargo 2,575,152
-----------
63,662,937
-----------
Beverages - 3.66%
60,640 Anheuser-Busch 4,055,300
8,219 Brown Forman, Cl. B 299,993
292,611 Coca-Cola 21,726,367
6,168 Coors (Adolph), Cl. B 136,467
184,847 PepsiCo 10,328,326
86,037 Seagram, ADR 2,979,031
-----------
39,525,484
-----------
Building & Construction - 0.76%
8,483 Armstrong World Industries 525,946
5,990 Centex 208,152
3,311 Crane 122,093
6,906 Fleetwood Enterprises 177,829
112,951 Home Depot 5,407,529
32,311 Masco 1,013,758
8,650 Owens-Corning Fiberglas (a) 388,169
6,565 Stanley Works 338,098
-----------
8,181,574
-----------
Building, Forest Products - 0.59%
8,203 Boise Cascade 284,029
25,028 Champion International 1,051,176
23,001 Georgia-Pacific 1,578,444
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments - continued
December 31, 1995
Shares Description Value
- ------ ----------- -----
8,977 Johnson Controls $ 617,169
2,045 Kaufman & Broad Home 30,419
19,858 Louisiana Pacific 481,556
4,901 Potlatch 196,040
49,294 Weyerhaeuser 2,131,966
-----------
6,370,799
-----------
Chemicals & Toxic Waste - 3.31%
24,304 Air Products & Chemical 1,282,036
63,540 Amgen (a) 3,772,687
62,276 Dow Chemical 4,382,673
130,396 Du Pont (E.I.) de Nemours 9,111,420
20,581 Eastman Chemical 1,288,885
6,050 FMC (a) 409,131
24,349 Grace (W. R.) 1,439,635
12,296 Great Lakes Chemical 885,312
26,314 Hercules 1,483,452
18,506 Mallinckrodt Group 600,260
27,844 Monsanto 3,410,890
32,006 Morton International 1,148,215
12,325 Nalco Chemical 371,291
49,442 PPG Industries 2,261,971
29,315 Praxair 985,717
8,438 Raychem 479,911
12,159 Rohm & Haas 782,736
7,500 Sigma-Aldrich 371,250
35,317 Union Carbide 1,324,388
-----------
35,791,860
-----------
Computer Services - 0.84%
40,100 3Com (a) 1,869,662
34,856 Automatic Data Processing 2,588,058
18,000 Cabletron Systems (a) 1,458,000
12,602 Ceridian (a) 519,832
45,600 CUC International (a) 1,556,100
41,300 Silicon Graphics (a) 1,135,750
-----------
9,127,402
-----------
Computer Software - 2.29%
64,900 Cisco Systems (a) 4,843,162
58,567 Computer Associates
International 3,330,998
138,700 Microsoft (a) 12,170,925
103,436 Oracle Systems (a) 4,383,101
-----------
24,728,186
-----------
Containers - 0.22%
11,015 Avery Dennison 552,127
3,054 Ball 83,985
23,850 Crown Cork & Seal (a) 995,738
21,649 Stone Container 311,204
11,022 Temple-Inland 486,346
-----------
2,429,400
-----------
Cosmetics & Toiletries - 0.73%
1,599 Alberto-Culver, Cl. B 54,965
17,314 Avon Products 1,305,043
105,008 Gillette 5,473,542
20,987 International Flavors
& Fragrance 1,007,376
-----------
7,840,926
-----------
Diversified - 1.06%
25,400 Loews 1,990,725
99,078 Minnesota Mining &
Manufacturing 6,563,917
4,781 NAACO Industries, Cl. A 265,345
19,064 Pall 512,345
13,420 Supervalu 422,730
8,857 Teledyne 226,961
22,003 Textron 1,485,203
-----------
11,467,226
-----------
Drugs - 6.79%
186,122 Abbott Laboratories 7,770,594
73,683 American Home Products 7,147,251
118,989 Bristol-Myers Squibb 10,218,180
129,970 Lilly (Eli) 7,310,813
287,497 Merck & Co. 18,902,928
149,404 Pfizer 9,412,452
119,632 Pharmacia & Upjohn 4,635,740
87,258 Schering-Plough 4,777,375
32,543 Warner-Lambert 3,160,739
-----------
73,336,072
-----------
Electrical Equipment - 4.22%
389,222 General Electric 28,023,984
8,272 General Signal 267,806
10,765 Grainger (W.W.) 713,181
120,070 Hewlett-Packard 10,055,863
29,123 ITT (a) 1,543,519
30,523 ITT Hartford Group (a) 1,476,550
27,823 ITT Industries 667,752
33,832 Tyco International 1,205,265
102,910 Westinghouse Electric 1,698,015
-----------
45,651,935
-----------
Electronics - 3.64%
29,841 Advanced Micro Devices 492,377
53,373 AMP 2,048,189
43,900 Applied Materials (a) 1,728,562
26,690 DSC Communications (a) 1,094,819
53,400 Emerson Electric 4,365,450
7,771 Harris 424,491
192,514 Intel 10,925,169
33,100 LSI Logic (a) 1,084,025
50,500 Micron Technology 2,001,062
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments - continued
December 31, 1995
Shares Description Value
- ------ ----------- -----
139,042 Motorola $ 7,925,394
33,226 National Semiconductor (a) 739,279
61,501 Northern Telecom 2,644,543
6,125 Perkin-Elmer 231,219
11,938 Scientific-Atlanta 179,070
3,738 Tektronix 183,629
45,828 Texas Instruments 2,371,599
3,500 Thomas & Betts 258,125
6,027 Trinova 172,523
8,459 Western Atlas (a) 427,180
-----------
39,296,705
-----------
Environmental Control - 0.52%
53,035 Browning-Ferris Industries 1,564,532
41,100 Laidlaw, Cl. B 421,275
7,326 Safety-Kleen 114,469
116,658 WMX Technologies 3,485,158
-----------
5,585,434
-----------
Financial Services - 3.84%
114,966 American Express 4,756,718
9,652 Beneficial 450,024
41,374 Dean Witter, Discover 1,944,578
43,256 Federal Home Loan Mortgage 3,611,876
64,141 Federal National Mortgage 7,961,502
31,900 First Bank System 1,583,037
53,400 First Data 3,571,125
63,544 Fleet Financial Group 2,589,447
24,558 Household International 1,451,992
36,030 MBNA 1,328,606
42,838 Merrill Lynch 2,184,738
19,400 Morgan Stanley Group 1,564,125
78,033 PNC Banc Corp 2,516,564
9,300 Republic New York 577,763
19,033 Salomon 675,672
75,073 Travelers Group 4,720,215
-----------
41,487,982
-----------
Food Service, Lodging - 0.94%
29,419 Darden Restaurants 349,351
11,912 Hilton Hotels 732,588
6,851 Luby's Cafeterias 152,435
26,590 Marriott International 1,017,068
163,914 McDonald's 7,396,619
21,182 Ryan's Family Steak
House (a) 148,274
4,809 Shoney's (a) 49,292
16,162 Wendy's International 343,442
-----------
10,189,069
-----------
Foods - 3.42%
129,055 Archer-Daniels-Midland 2,322,990
56,169 Campbell Soup 3,370,140
54,716 ConAgra 2,257,035
33,430 CPC International 2,294,134
38,719 General Mills 2,236,022
89,075 Heinz (H.J.) 2,950,609
14,197 Hershey Foods 922,805
49,707 Kellogg 3,839,866
21,800 Pioneer Hi-Bred
International 1,212,625
17,396 Premark International 880,672
34,384 Quaker Oats 1,186,248
23,005 Ralston Purina Group 1,434,937
115,687 Sara Lee 3,687,523
40,410 Sysco 1,313,325
37,917 Unilever N.V., ADR 5,336,818
18,127 Whitman 421,453
24,192 Wrigley (Wm) Jr. 1,270,080
-----------
36,937,282
-----------
Forest Products & Paper - 1.11%
5,731 Bemis 146,857
13,133 Federal Paper Board 681,275
61,928 International Paper 2,345,523
13,835 James River 333,769
65,965 Kimberly-Clark 5,458,640
13,751 Mead 718,490
17,703 Union Camp 843,106
23,560 Westvaco 653,790
13,700 Willamette Industries 770,625
-----------
11,952,075
-----------
Hospital Supplies & Healthcare - 3.30%
9,501 Allergan 308,783
14,634 Alza, Cl. A (a) 362,192
9,477 Bard (C.R.) 305,633
11,023 Bausch & Lomb 436,786
65,963 Baxter International 2,762,200
14,866 Becton, Dickinson 1,114,950
22,582 Beverly Enterprises (a) 239,934
17,050 Blomet (a) 304,769
34,900 Boston Scientific (a) 1,710,100
105,515 Columbia/HCA Healthcare 5,354,886
6,417 Community Psychiatric
Centers 78,608
41,600 Humana (a) 1,138,800
151,548 Johnson & Johnson 12,976,297
9,160 Manor Care 320,600
55,852 Medtronic 3,120,731
7,374 Shared Medical Systems 400,961
18,919 St. Jude Medical (a) 813,517
42,510 Tenet Healthcare (a) 882,083
42,200 United Healthcare 2,764,100
10,248 U.S. Surgical 219,051
-----------
35,614,981
-----------
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments - continued
December 31, 1995
Shares Description Value
- ------ ----------- -----
Household Furnishings - 0.18%
17,512 Maytag $ 354,618
28,958 Newell 749,288
16,439 Whirlpool 875,377
-----------
1,979,283
-----------
Household Products - 0.08%
35,502 Rubbermaid 905,301
-----------
Insurance - 3.25%
28,013 Aetna Life & Casualty 1,939,900
7,509 Alexander & Alexander
Services 142,671
107,250 Allstate 4,410,656
45,554 American General 1,588,696
111,167 American International
Group 10,282,947
21,336 Chubb 2,064,258
18,633 CIGNA 1,923,857
19,678 General Re 3,050,090
15,577 Jefferson-Pilot 724,354
22,110 Lincoln National 1,188,413
14,262 Marsh & McLennan 1,265,753
19,298 Providian 786,394
34,202 SAFECO 1,179,969
16,530 St. Paul 919,481
12,134 Torchmark 549,064
13,500 UNUM 742,500
13,917 USF & G 234,849
13,030 USLIFE 389,271
38,000 U.S. HealthCare 1,767,000
-----------
35,150,123
-----------
Leisure Related - 1.11%
20,114 American Greetings 555,649
4,093 Bally Entertainment (a) 57,302
21,442 Brunswick 514,608
123,173 Disney (Walt) 7,267,207
15,839 Handleman 91,074
13,239 Harcourt General 554,383
25,815 Harrah's Entertainment (a) 626,014
17,825 Hasbro 552,575
1,239 Jostens 30,046
55,052 Mattel 1,692,849
3,618 Outboard Marine 73,717
-----------
12,015,424
-----------
Machinery - 1.63%
67,906 AlliedSignal 3,225,535
16,271 Black & Decker 573,553
11,182 Briggs & Stratton 485,019
48,282 Caterpillar 2,836,568
3,647 Cincinnati Milacron 95,734
23,148 Cooper Industries 850,689
64,323 Deere 2,267,386
22,404 Dover 826,147
46,882 Dresser Industries 1,142,749
20,230 Echo Bay Mines Ltd. 209,886
16,847 Giddings & Lewis 277,975
5,522 Harnischfeger Industries 183,606
25,596 Illinois Tool Works 1,510,164
23,431 Ingersoll-Rand 823,014
6,992 Millipore 287,546
11,958 Navistar International (a) 125,559
7,196 Snap-On 325,619
17,586 TRW 1,362,915
7,262 Varity (a) 269,602
-----------
17,679,266
-----------
Metals - 1.58%
52,336 Alcan Aluminium 1,628,958
43,300 Aluminum Company
of America 2,289,488
15,835 Armco (a) 93,031
8,049 ASARCO 257,568
86,100 Barrick Gold 2,270,887
19,749 Bethlehem Steel (a) 276,486
20,994 Cyprus Amax Minerals 548,468
24,108 Engelhard 524,349
34,600 Freeport-McMoran
Copper & Gold 973,125
24,843 Homestake Mining 388,172
26,166 Inco Ltd. 870,019
6,103 Inland Steel Industries 153,338
22,334 Newmont Mining 1,010,613
22,194 Nucor 1,267,832
5,831 Ogden 124,638
17,808 Phelps Dodge 1,108,548
59,804 Placer Dome 1,442,772
12,749 Reynolds Metals 721,912
21,408 Santa Fe Pacific Gold 259,572
18,977 USX-U.S. Steel Group 583,543
13,179 Worthington Industries 274,288
-----------
17,067,607
-----------
Office Equipment & Computers - 2.94%
23,262 Alco Standard 1,061,329
37,057 Amdahl (a) 314,984
31,742 Apple Computer 1,011,776
14,114 Autodesk 483,404
63,913 Compaq Computer (a) 3,067,824
9,286 Computer Sciences (a) 652,341
5,068 Cray Research (a) 125,433
6,045 Data General (a) 83,119
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments - continued
December 31, 1995
Shares Description Value
- ------ ----------- -----
36,632 Digital Equipment (a) $ 2,349,027
25,019 Honeywell 1,216,549
9,046 Intergraph (a) 142,475
131,441 International Business
Machines 12,059,712
13,879 Moore 258,496
93,292 Novell (a) 1,329,411
32,898 Pitney Bowes 1,546,206
46,328 Sun Microsystems (a) 2,113,715
21,460 Tandem Computers (a) 228,013
30,099 Unisys (a) 169,307
25,745 Xerox 3,527,065
-----------
31,740,186
-----------
Oil Related - 9.33%
21,993 Amerada Hess 1,165,629
116,802 Amoco 8,395,144
11,687 Ashland 410,506
38,225 Atlantic Richfield 4,233,419
37,144 Baker Hughes 905,385
32,000 Burlington Resources 1,256,000
153,466 Chevron 8,056,965
19,466 Coastal 725,108
289,557 Exxon 23,200,755
19,081 Fluor 1,259,346
4,738 Foster Wheeler 201,365
28,890 Halliburton 1,462,556
2,808 Helmerich & Payne 83,538
9,532 Kerr-McGee 605,282
8,062 Louisiana Land & Exploration 345,658
9,187 McDermott International 202,114
92,771 Mobil 10,390,352
16,728 Noram Energy 148,461
78,914 Occidental Petroleum 1,686,787
16,579 Oryx Energy (a) 221,744
7,654 Pennzoil 323,381
63,906 Phillips Petroleum 2,180,792
16,500 Rowan (a) 162,938
125,201 Royal Dutch Petroleum 17,668,991
8,269 Santa Fe Energy
Resources (a) 79,589
57,681 Schlumberger 3,994,409
18,745 Sun 513,144
44,234 Tenneco 2,195,112
62,661 Texaco 4,918,889
61,137 Unocal 1,780,615
56,064 USX-Marathon Group 1,093,248
22,012 Williams 965,777
-----------
100,832,999
-----------
Photography & Optical - 0.54%
81,026 Eastman Kodak 5,428,742
9,282 Polaroid 439,735
-----------
5,868,477
-----------
Printing & Publishing - 1.41%
13,991 Deluxe 405,739
17,572 Dow Jones 700,684
41,179 Dun & Bradstreet 2,666,340
34,296 Gannett 2,104,917
3,804 Harland (John H.) 79,409
13,863 Knight-Ridder 866,438
13,115 McGraw-Hill 1,142,645
4,736 Meredith 198,320
17,684 New York Times, Cl. A 523,888
33,252 RR Donnelley & Sons 1,309,297
92,715 Time Warner 3,511,581
28,829 Times Mirror, Cl. A 976,582
12,898 Tribune 788,390
-----------
15,274,230
-----------
Professional Services - 0.47%
14,736 Dial 436,554
7,800 Ecolab 234,000
8,825 EG&G 214,007
26,835 H & R Block 1,086,818
14,707 Interpublic Group 637,916
7,526 National Service Industries 243,654
26,596 Service Corp International 1,170,224
13,743 Transamerica 1,001,521
-----------
5,024,694
-----------
Railroads - 1.08%
34,262 Burlington Northern 2,672,436
20,672 Conrail 1,447,040
44,432 CSX 2,027,210
28,051 Norfolk Southern 2,226,548
49,347 Union Pacific 3,256,902
-----------
11,630,136
-----------
Real Estate - 0.04%
11,666 Pulte 392,269
-----------
Retail - 4.03%
61,902 Albertson's 2,035,028
40,118 American Stores 1,073,156
23,646 Circuit City Stores 653,221
16,936 Dayton Hudson 1,270,200
26,597 Dillard Department
Stores, Cl. A 758,014
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments - continued
December 31, 1995
Shares Description Value
- ------ ----------- -----
51,000 Federated Department
Stores (a) $ 1,402,500
6,279 Fleming 129,504
35,907 Gap 1,508,094
19,193 Giant Food, Cl. A 604,579
5,125 Great Atlantic & Pacific 117,875
54,150 J.C. Penney 2,578,894
123,003 Kmart 891,772
22,260 Kroger (a) 834,750
89,712 Limited 1,558,746
6,113 Longs Drug Stores 292,660
37,994 Lowe's 1,272,799
57,198 May Department Stores 2,416,615
5,830 Mercantile Stores 269,637
18,729 Nordstrom 758,525
8,612 Pep Boys-Manny,
Moe & Jack 220,683
44,199 Price/Costco (a) 674,035
18,501 Rite Aid 633,659
93,209 Sears, Roebuck 3,635,151
16,037 Sherwin-Williams 653,508
11,483 Tandy 476,545
12,554 TJX 236,957
68,318 Toys 'R' Us (a) 1,485,917
53,734 Walgreen 1,605,303
537,648 Wal-Mart Stores 12,029,874
31,880 Winn-Dixie Stores 1,175,575
25,222 Woolworth 327,886
-----------
43,581,662
-----------
Soaps & Toiletries - 1.53%
9,952 Clorox 712,812
35,251 Colgate-Palmolive 2,476,383
160,570 Procter & Gamble 13,327,310
-----------
16,516,505
-----------
Telecommunications - 9.99%
118,835 Airtouch Communications (a) 3,357,089
40,500 Alltel 1,194,750
130,452 Ameritech 7,696,668
9,123 Andrew (a) 348,955
371,206 AT&T 24,035,588
103,139 Bell Atlantic 6,897,420
233,032 BellSouth 10,136,892
36,580 Capital Cities/ABC 4,513,057
50,362 Comcast, Cl. A 915,959
227,336 GTE 10,002,784
10,106 King World Productions (a) 392,871
161,420 MCI Communications 4,217,097
101,900 NYNEX 5,502,600
102,635 Pacific Telesis Group 3,451,102
143,262 SBC Communications 8,237,565
80,582 Sprint 3,213,207
138,116 Tele-Communications,
Cl. A (a) 2,745,055
23,400 Tellabs (a) 865,800
114,928 U S West 2,183,632
112,328 U S West Communications
Group 4,015,726
85,149 Viacom, Cl. B (a) 4,033,934
-----------
107,957,751
-----------
Tire & Rubber - 0.22%
3,926 B.F. Goodrich 267,459
14,951 Cooper Tire & Rubber 368,168
38,036 Goodyear Tire & Rubber 1,725,884
-----------
2,361,511
-----------
Tobacco - 1.95%
45,674 American Brands 2,038,203
194,966 Philip Morris 17,644,423
42,107 UST 1,405,321
-----------
21,087,947
-----------
Trucking, Shipping - 0.24%
14,392 Consolidated Freightways 381,388
12,275 Federal Express (a) 906,815
7,338 Pittston Services Group 230,230
7,382 Roadway Services 360,796
25,217 Ryder System 624,121
6,040 Yellow 74,745
-----------
2,578,095
-----------
Utilities - 4.21%
41,310 American Electric Power 1,673,055
30,625 Baltimore Gas & Electric 872,812
33,228 Carolina Power & Light 1,146,366
36,430 Central & South West 1,015,487
33,122 CINergy 1,014,361
9,135 Columbia Gas System (a) 400,798
51,536 Consolidated Edison 1,649,152
17,005 Consolidated Natural Gas 771,602
28,276 Detroit Edison 975,522
37,906 Dominion Resources 1,563,622
42,787 Duke Power 2,027,034
4,142 Eastern Enterprises 146,005
62,266 Enron 2,373,891
11,424 ENSERCH 185,640
56,607 Entergy 1,655,755
45,594 FPL Group 2,114,422
23,900 General Public Utilities 812,600
65,556 Houston Industries 1,589,733
43,142 Niagara Mohawk Power 415,242
8,469 NICOR 232,898
EQUITY 500 INDEX PORTFOLIO
Schedule of Portfolio Investments - continued
December 31, 1995
Shares Description Value
- ------ ----------- -----
13,644 Northern States Power $ 670,262
25,584 Ohio Edison 601,224
13,591 ONEOK 310,894
31,900 P P & L Resources 797,500
12,268 Pacific Enterprises 346,571
101,005 Pacific Gas & Electric 2,866,017
61,689 PacifiCorp 1,310,891
36,958 Panhandle Eastern 1,030,204
46,484 PECO Energy 1,400,330
5,755 People's Energy 182,721
60,394 Public Service
Enterprise Group 1,849,566
109,570 SCEcorp 1,944,867
19,710 Sonat 702,169
158,958 Southern 3,914,341
55,465 Texas Utilities 2,280,998
53,225 Unicom 1,743,119
21,220 Union Electric 885,935
-----------
45,473,606
-----------
Total Common Stocks
(Cost $852,011,555) $1,063,706,398
-------------
PREFERRED STOCK
NON-CONVERTIBLE - 0.00%
Diversified - 0.00%
88 Teledyne (Cost $1,320) $ 1,265
------------
Principal
Amount Description Value
- --------- ----------- -----
BOND - 0.00%
$ 33,000 Viacom International 8.00%,
7/7/06 (Cost $28,638) $ 33,722
-----------
U.S. TREASURY BILLS - 2.83%
$ 1,590,000 5.310%, 1/11/96 (b) $ 1,587,665
3,875,000 5.465%, 2/22/96 3,845,161
2,110,000 5.340%, 2/29/96 2,094,295
12,997,000 5.310%, 3/07/96 12,887,231
8,303,000 5.200%, 5/16/96 8,152,505
2,078,000 5.330%, 5/16/96 2,040,336
-----------
Total U.S. Treasury Bills
(Cost $30,573,638) $ 30,607,193
------------
Total Investments
(Cost $882,615,151) 101.26% $1,094,348,578
Liabilities in Excess of
Other Assets (1.26%) (13,612,552)
--------------
Net Assets 100.00% $1,080,736,026
==============
- ------------
(a) Non-income producing security
(b) Held as collateral for futures contracts
See Notes to Financial Statements on Page 56
EQUITY 500 INDEX PORTFOLIO
Notes To Financial Statements
- --------------------------------------------------------------------------
December 31, 1995
Note 1 - Organization and Significant Accounting Policies
A. Organization
The Equity 500 Index Portfolio (the Portfolio) is registered
under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Portfolio was
organized on December 11, 1991 as an unincorporated trust under
the laws of New York and commenced operations on December 31,
1992. The Declaration of Trust permits the Board of Trustees (the
Trustees) to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments are valued each business day by an
independent pricing service (the Service) approved by the
Trustees. Securities traded on national exchanges or traded in
the NASDAQ National Market System are valued at the last sales
prices reported at the close of business each day.
Over-the-counter securities not included in the NASDAQ National
Market System and listed securities for which no sale was
reported are valued at the mean of the bid and asked prices.
Short-term obligations with remaining maturities of 60 days or
less are valued at amortized cost which with accrued interest
approximates value. Securities for which quotations are not
available are stated at fair value as determined by the Trustees.
C. Security Transactions and Investment Income
Security transactions are accounted for on a trade date basis
(date the order to buy or sell is executed). Dividend income is
recorded on the ex-dividend date. Interest income is recorded on
the accrual basis and includes amortization of premium and
discount on investments. Realized gains and losses from
securities transactions are recorded on the identified cost
basis.
All of the net investment income and realized and unrealized
gains and losses from the security transactions of the Portfolio
are allocated pro rata among the investors in the Portfolio at
the time of such determination.
D. The portfolio may enter into financial futures contracts which
are contracts to buy a standard quantity of securities at a
specified price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made
or received by the portfolio each day, dependent on the daily
fluctuations in the value of the underlying security, and are
recorded for financial statement purposes as unrealized gains or
losses by the portfolio. The Portfolio's investment in the
financial futures contracts is designed to hedge against
anticipated future changes in general market prices which
otherwise might either adversely affect the value of securities
held by the Portfolio, the prices of securities which are
intended to be purchased at a later date for the Portfolio or to
closely replicate the benchmark index used by the portfolio.
Should the portfolio prices move unexpectedly, the portfolio may
not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
Futures contracts are valued at the settlement price established
each day by the board of trade or exchange on which they are
traded.
E. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of
the Internal Revenue Code. Therefore, no federal income tax
provision is required.
F. Other
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported
amounts in the financial statements.
Note 2 - Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services
Agreement with Bankers Trust Company (Bankers Trust). Under
this Administration and Services Agreement, Bankers Trust
provides administrative, custody, transfer agency and shareholder
services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of 0.05 of 1% of the Portfolio's
average daily net assets. For the year ended December 31, 1995,
this fee aggregated $385,265.
Equity 500 Index Portfolio
Notes To Financial Statements
- -------------------------------------------------------------------------
December 31, 1995
The Portfolio has entered into an Advisory Agreement with Bankers
Trust. Under this Advisory Agreement, the Portfolio pays Bankers
Trust an advisory fee computed daily and paid monthly at an
annual rate of 0.10 of 1% of the Portfolio's average daily net
assets. For the year ended December 31, 1995, this fee aggregated $770,530.
Bankers Trust has voluntarily undertaken to waive and reimburse
expenses of the Portfolio, to the extent necessary, to limit all
expenses to 0.10 of 1% of the average daily net assets of the
Portfolio. For the year ended December 31, 1995, expenses of the
Portfolio have been reduced by $418,814.
Certain trustees and officers of the Portfolio are also
directors, officers and/or employees of Signature. None of the
trustees so affiliated received compensation for services as
trustee of the Portfolio. Similarly, none of the Portfolio's
officers received compensation from the Portfolio.
Note 3 - Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of
investments, other than short-term obligations, for the year
ended December 31, 1995 were $361,509,575 and $46,402,840,
respectively. The cost of investments for federal income tax
purposes was $888,890,700. The aggregate gross unrealized
appreciation for all investments was $217,720,061 and the aggregate
gross unrealized depreciation for all investments was $12,262,183.
Note 4 - Futures Contracts
A summary of obligations under these financial instruments at
December 31, 1995 is as follows:
Type of Unrealized
Future Expiration Contracts Position Depreciation
- ------- ---------- --------- -------- ------------
S&P 500 March 1996 43 Long $(26,625)
Futures
Index
At December 31, 1995, the Portfolio has segregated sufficient
securities to cover margin requirements on open futures contracts.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Holders of Beneficial
Interest of the Equity 500 Index Portfolio
We have audited the accompanying statement of assets and
liabilities of the Equity 500 Index Portfolio, including the
schedule of portfolio investments, as of December 31, 1995, and
the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of
the three years in the period then ended and for the period
December 31, 1992 (commencement of operations). These financial
statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an
opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the Equity 500 Index Portfolio as of
December 31, 1995, the results of its operations, the changes in
its net assets, and the financial highlights for the periods
referred to above, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 13, 1996
28083-0996
USAA MUTUAL FUND, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Financial Statements included in Parts A and B (Prospectus and
Statement of Additional Information) of this Registration Statement:
Unaudited Financial Statements for the S&P 500 Index Fund of USAA MUTUAL
FUND, INC. and the Equity 500 Index Portfolio as of June 30, 1996, begin
on page 24 of the Statement of Additional Information.
Audited Financial Statements and Independent Accountants' Report to the
Equity 500 Index Portfolio for the fiscal year ended December 31, 1995,
begin on page 46 of the SAI.
(b) Exhibits:
Exhibit No. Description of Exhibits
- ----------- -----------------------
1 (a) Articles of Incorporation dated October 10, 1980 (1)
(b) Articles of Amendment dated January 14, 1981 (1)
(c) Articles Supplementary dated July 28, 1981 (1)
(d) Articles Supplementary dated November 3, 1982 (1)
(e) Articles of Amendment dated May 18, 1983 (1)
(f) Articles Supplementary dated August 8, 1983 (1)
(g) Articles Supplementary dated July 27, 1984 (1)
(h) Articles Supplementary dated November 5, 1985 (1)
(I) Articles Supplementary dated January 23, 1987 (1)
(j) Articles Supplementary dated May 13, 1987 (1)
(k) Articles Supplementary dated January 25, 1989 (1)
(l) Articles Supplementary dated May 2, 1991 (1)
(m) Articles Supplementary dated November 14, 1991 (1)
(n) Articles Supplementary dated April 14, 1992 (1)
(o) Articles Supplementary dated November 4, 1992 (1)
(p) Articles Supplementary dated March 23, 1993 (1)
(q) Articles Supplementary dated May 5, 1993 (1)
(r) Articles Supplementary dated November 8, 1993 (1)
(s) Articles Supplementary dated January 18, 1994 (1)
(t) Articles Supplementary dated November 9, 1994 (1)
(u) Articles Supplementary dated November 8, 1995 (2)
(v) Articles Supplementary dated February 6, 1996 (3)
(w) Articles Supplementary dated March 12, 1996 (4)
2 Bylaws, as amended March 12, 1996 (4)
3 Voting trust agreement - Not Applicable
4 Specimen certificates for shares of
(a) Growth Fund (1)
(b) Income Fund (1)
(c) Money Market Fund (1)
(d) Aggressive Growth Fund (1)
(e) Income Stock Fund (1)
(f) Growth & Income Fund (1)
(g) Short-Term Bond Fund (1)
(h) S&P 500 Index Fund (4)
Exhibit No. Description of Exhibits
- ----------- -----------------------
5 (a) Advisory Agreement dated September 21, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth & Income
Fund and Short-Term Bond Fund (1)
(c) Management Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (filed herewith)
(d) Administration Agreement dated May 1, 1996 with respect to
the S&P 500 Index Fund (filed herewith)
(e) Letter Agreement to the Management Agreement dated May 1,
1996 with respect to the S&P 500 Index Fund (filed
herewith)
6 (a) Underwriting Agreement dated July 25, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth & Income
Fund and Short-Term Bond Fund (1)
(c) Letter Agreement dated May 1, 1996 adding S&P 500 Index Fund
(filed herewith)
7 Not Applicable
8 (a) Custodian Agreement dated November 3, 1982 (1)
(b) Letter Agreement dated April 20, 1987 adding Income Stock
Fund (1)
(c) Amendment No. 1 to the Custodian Contract dated October 30,
1987 (1)
(d) Amendment to the Custodian Contract dated November 3, 1988 (1)
(e) Amendment to the Custodian Contract dated February 6, 1989 (1)
(f) Amendment to the Custodian Contract dated November 8, 1993 (1)
(g) Letter Agreement dated June 1, 1993 adding Growth & Income
Fund and Short-Term Bond Fund (1)
(h) Subcustodian Agreement dated March 24, 1994 (3)
(i) Custodian Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (filed herewith)
(j) Subcustodian Agreement with dated May 1, 1996 respect to the
S&P 500 Index Fund (filed herewith)
(k) Letter Agreement to the Custodian Agreement dated May 1, 1996
with respect to the S&P 500 Index Fund (filed herewith)
(l) Amendment to Custodian Contract dated May 13, 1996 (filed
herewith)
9 (a) Articles of Merger dated January 30, 1981 (1)
(b) Transfer Agency Agreement dated January 23, 1992 (1)
(c) Letter Agreement dated June 1, 1993 to Transfer Agency
Agreement adding Growth & Income Fund and Short-Term Bond
Fund (1)
(d) Amendments dated May 3, 1995 to the Transfer Agency Agreement
Fee Schedules for Growth Fund, Aggressive Growth Fund, Income
Fund, Growth & Income Fund, Income Stock Fund, Money Market
Fund, and Short-Term Bond Fund (1)
(e) Amendment No. 1 to Transfer Agency Agreement dated November
14, 1995 (2)
(f) Third Party Feeder Fund Agreement dated May 1, 1996 with respect
to the S&P 500 Index Fund (filed herewith)
(g) Letter Agreement to Transfer Agency Agreement dated May 1,
1996 adding S&P 500 Index Fund (filed herewith)
(h) Transfer Agency Agreement Fee Schedule dated May 1, 1996
for S&P 500 Index Fund (filed herewith)
(i) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 15, 1996 (filed herewith)
(j) Letter Agreement dated April 18, 1996 to the Master Revolving
Credit Facility Agreement with USAA Capital Corporation
(filed herewith)
(k) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 16, 1996 (filed herewith)
(l) Letter Agreement dated April 18, 1996 to the Master Revolving
Credit Facility Agreement with NationsBank of Texas
(filed herewith)
Exhibit No. Description of Exhibits
- ----------- -----------------------
10 (a) Opinion and Consent of Counsel with respect to the Growth Fund,
Aggressive Growth Fund, Income Fund, Money Market Fund, Income
Stock Fund, Growth & Income Fund, and Short-Term Bond Fund (2)
(b) Opinion of Counsel with respect to the S&P 500 Index Fund (3)
(c) Consent of Counsel with respect to the S&P 500 Index Fund
(filed herewith)
11 Independent Accountants' Consent (filed herewith)
12 Financial Statements omitted from prospectus - Not
Applicable
13 (a) Subscription and Investment Letter for Growth & Income Fund
and Short-Term Bond Fund (1)
(b) Subscription and Investment Letter for S&P 500 Index Fund
(filed herewith)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Handbook (1)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Handbook (1)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Handbook (1)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (1)
17 Financial Data Schedule
(a) Growth Fund (filed herewith)
(b) Aggressive Growth Fund (filed herewith)
(c) Income Fund (filed herewith)
(d) Money Market Fund (filed herewith)
(e) Income Stock Fund (filed herewith)
(f) Growth & Income Fund (filed herewith)
(g) Short-Term Bond Fund (filed herewith)
(h) S&P 500 Index Fund (filed herewith)
18 Plan Adopting Multiple Classes of Shares - Not Applicable
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron A. Kirk,
John W. Saunders, Jr., George E. Brown, Howard L. Freeman, Jr.,
and Richard A. Zucker dated November 8, 1993 (1)
(b) Power of Attorney for Barbara B. Dreeben dated September 12,
1995 (1)
(c) Power of Attorney for M. Staser Holcomb dated February 6,
1996 (3)
(d) With respect to the S&P 500 Index Fund, Powers of Attorney for
Philip W. Coolidge, John R. Elder, Charles P. Biggar, S. Leland
Dill, and Philip Saunders, Jr. dated February 9, 1996 (3)
- -------------------
(1) Previously filed with Post-Effective Amendment No. 38 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
September 29, 1995.
(2) Previously filed with Post-Effective Amendment No. 39 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
November 21, 1995.
(3) Previously filed with Post-Effective Amendment No. 40 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 15, 1996.
(4) Previously filed with Post-Effective Amendment No. 41 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on April
26, 1996.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Information pertaining to persons controlled by or under common control
with Registrant is hereby incorporated by reference to the section
captioned "Management of the Company" in the Prospectus and the section
captioned "Directors and Officers of the Company" in the Statement of
Additional Information.
Item 26. Number of Holders of Securities
-------------------------------
Set forth below are the number of record holders, as of July 31, 1996,
of each class of securities of the Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Aggressive Growth Fund 59,491
Growth Fund 92,404
Income Stock Fund 107,858
Income Fund 74,976
Money Market Fund 118,279
Growth & Income Fund 35,160
Short-Term Bond Fund 7,363
S&P 500 Index Fund 4,865
Item 27. Indemnification
---------------
Protection for the liability of the adviser and underwriter and for the
officers and directors of the Registrant is provided by two methods:
(a) The Director and Officer Liability Policy. This policy covers all
losses incurred by the Registrant, its adviser and its underwriter
from any claim made against those entities or persons during the
policy period by any shareholder or former shareholder of the Fund
by reason of any alleged negligent act, error or omission
committed in connection with the administration of the investments
of said Registrant or in connection with the sale or redemption of
shares issued by said Registrant.
(b) Statutory Indemnification Provisions. Under Section 2-418 of the
Maryland General Corporation Law, the Registrant is authorized to
indemnify any past or present director, officer, agent or employee
against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him in connection with any
proceeding in which he is a party by reason of having served as a
director, officer, agent or employee, if he acted in good faith
and reasonably believed that, (i) in the case of conduct in his
official capacity with the Registrant, that his conduct was in the
best interests of the Registrant, or (ii) in all other cases, that
his conduct was at least not opposed to the best interests of the
Registrant. In the case of any criminal proceeding, said
director, officer, agent or employee must in addition have had no
reasonable cause to believe that his conduct was unlawful. In the
case of a proceeding by or in the right of the Registrant,
indemnification may only be made against reasonable expenses and
may not be made in respect of any proceeding in which the
director, officer, agent or employee shall have been adjudged to
be liable to the Registrant. The termination of any proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent creates a rebuttable presumption that
the director, officer, agent or employee did not meet the
requisite standard of conduct for indemnification. No
indemnification may be made in respect of any proceeding charging
improper personal benefit to the director, officer, agent or
employee whether or not involving action in such person's official
capacity, if such person was adjudged to be liable on the basis
that improper personal benefit was received. If such director,
officer, agent or employee is successful, on the merits or
otherwise, in defense of any such proceeding against him, he
shall be indemnified against the reasonable expenses incurred by
him (unless such indemnification is limited by the Registrant's
charter, which it is not). Additionally, a court of appropriate
jurisdiction may order indemnification in certain circumstances
even if the appropriate standard of conduct set forth above was
not met.
Indemnification may not be made unless authorized in the specific case
after determination that the applicable standard of conduct has been met.
Such determination shall be made by either: (i) the board of directors by
either (x) a majority vote of a quorum consisting of directors not
parties to the proceeding or (y) if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors not at the time parties to such proceeding who were duly
designated to act in the matter by a majority vote of the full board in
which the designated directors who are parties may participate; (ii)
special legal counsel selected by the board of directors or a committee
of the board by vote as set forth in (i) above, or, if the requisite
quorum of the board cannot be obtained therefore and the committee cannot
be established, by a majority vote of the full board in which directors
who are parties may participate; or (iii) the stockholders.
Reasonable expenses may be reimbursed or paid by the Registrant in
advance of final disposition of a proceeding after a determination, made
in accordance with the procedures set forth in the preceding paragraph,
that the facts then known to those making the determination would not
preclude indemnification under the applicable standards provided the
Registrant receives (i) a written affirmation of the good faith belief of
the person seeking indemnification that the applicable standard of conduct
necessary for indemnification has been met, and (ii) a written undertaking
to repay the advanced sums if it is ultimately determined that the
applicable standard of conduct has not been met.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's Articles of
Incorporation or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, then the Registrant will, unless in the
opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Information pertaining to business and other connections of the
Registrant's investment adviser is hereby incorporated by reference to the
section of the Prospectus captioned "Management of the Company" and to the
section of the Statement of Additional Information captioned "Directors and
Officers of the Company."
Item 29. Principal Underwriters
----------------------
(a) USAA Investment Management Company (the "Adviser") acts as
principal underwriter and distributor of the Registrant's shares
on a best-efforts basis and receives no fee or commission for its
underwriting services. The Adviser, wholly-owned by United Services
Automobile Association, also serves as principal underwriter for
USAA Tax Exempt Fund, Inc., USAA Investment Trust, and USAA State
Tax-Free Trust.
(b) Set forth below is information concerning each director and
executive officer of USAA Investment Management Company.
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- --------------------
M. Staser Holcomb Director and Chairman Director and
9800 Fredericksburg Rd. of the Board of Chairman of the
San Antonio, TX 78288 Directors Board of Directors
Michael J.C. Roth Chief Executive Officer, President, Director
9800 Fredericksburg Rd. President, Director, and and Vice Chairman of
San Antonio, TX 78288 Vice Chairman of the the Board of Directors
Board of Directors
John W. Saunders, Jr. Senior Vice President, Vice President and
9800 Fredericksburg Rd. Fixed Income Investments, Director
San Antonio, TX 78288 and Director
Harry W. Miller Senior Vice President, None
9800 Fredericksburg Rd. Equity Investments,
San Antonio, TX 78288 and Director
John J. Dallahan Senior Vice President, None
9800 Fredericksburg Rd. Investment Services
San Antonio, TX 78288
Michael D. Wagner Vice President, Secretary Secretary
9800 Fredericksburg Rd. and Counsel
San Antonio, TX 78288
Sherron A. Kirk Vice President and Treasurer
9800 Fredericksburg Rd. Controller
San Antonio, TX 78288
Alex M. Ciccone Vice President, Assistant
9800 Fredericksburg Rd. Compliance Secretary
San Antonio, TX 78288
(c) Not Applicable
Item 30. Location of Accounts and Records
--------------------------------
The following entities prepare, maintain and preserve the records
required by Section 31(a) of the Investment Company Act of 1940 (the
"1940 Act") for the Registrant. These services are provided to the
Registrant through written agreements between the parties to the effect
that such services will be provided to the Registrant for such periods
prescribed by the Rules and Regulations of the Securities and Exchange
Commission under the 1940 Act and such records are the property of the
entity required to maintain and preserve such records and will be
surrendered promptly on request:
USAA Investment Management Company
9800 Fredericksburg Rd.
San Antonio, Texas 78288
USAA Shareholder Account Services
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Item 31. Management Services
-------------------
Not Applicable
Item 32. Undertakings
------------
The Registrant hereby undertakes to provide each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report(s) to shareholders upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Antonio and State
of Texas on the 6th day of September, 1996.
USAA MUTUAL FUND, INC.
/s/ Michael J.C. Roth
----------------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
(Signature) (Title) (Date)
/s/ M. Staser Holcomb Chairman of the September 6, 1996
- ------------------------ Board of Directors
M. Staser Holcomb
/s/ Michael J.C. Roth Vice Chairman of the Board September 6, 1996
- ------------------------- of Directors and President
Michael J.C. Roth (Principal Executive Officer)
/s/ Sherron A. Kirk Treasurer (Principal September 6, 1996
- -------------------------- Financial and
Sherron A. Kirk Accounting Officer)
/s/ John W. Saunders, Jr. Director September 6, 1996
- --------------------------
John W. Saunders, Jr.
/s/ George E. Brown Director September 6, 1996
- -------------------------
George E. Brown
/s/ Howard L. Freeman, Jr. Director September 6, 1996
- -------------------------
Howard L. Freeman, Jr.
/s/ Richard A. Zucker Director September 6, 1996
- -------------------------
Richard A. Zucker
/s/ Barbara B. Dreeben Director September 6, 1996
- -------------------------
Barbara B. Dreeben
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Equity 500 Index Portfolio certifies that
it believes the Registrant meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this amendment to the Registration Statement of
USAA Mutual Fund, Inc. to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 11th day of September, 1996.
EQUITY 500 INDEX PORTFOLIO
*
----------------------------------
PHILIP W. COOLIDGE
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
(Signature) (Title) (Date)
* Trustee and President September 11, 1996
- ------------------------ (Principal Executive Officer)
Philip W. Coolidge
* Treasurer and Secretary September 11, 1996
- ------------------------ (Principal Financial and
John R. Elder Accounting Officer)
* Trustee September 11, 1996
- -------------------------
Charles P. Biggar
* Trustee September 11, 1996
- -------------------------
S. Leland Dill
* Trustee September 11, 1996
- -------------------------
Philip Saunders, Jr.
* By: /s/ Thomas M. Lenz
_________________________
Thomas M. Lenz, Attorney-in-Fact, under Power of Attorney dated February 9,
1996, incorporated by reference to Post-Effective Amendment No. 40 filed
with the Securities and Exchange Commission on February 15, 1996.
Exhibit Index
Exhibit Item Page No. *
- ------- ---- ----------
1 (a) Articles of Incorporation dated October 10, 1980 (1)
(b) Articles of Amendment dated January 14, 1981 (1)
(c) Articles Supplementary dated July 28, 1981 (1)
(d) Articles Supplementary dated November 3, 1982 (1)
(e) Articles of Amendment dated May 18, 1983 (1)
(f) Articles Supplementary dated August 8, 1983 (1)
(g) Articles Supplementary dated July 27, 1984 (1)
(h) Articles Supplementary dated November 5, 1985 (1)
(i) Articles Supplementary dated January 23, 1987 (1)
(j) Articles Supplementary dated May 13, 1987 (1)
(k) Articles Supplementary dated January 25, 1989 (1)
(l) Articles Supplementary dated May 2, 1991 (1)
(m) Articles Supplementary dated November 14, 1991 (1)
(n) Articles Supplementary dated April 14, 1992 (1)
(o) Articles Supplementary dated November 4, 1992 (1)
(p) Articles Supplementary dated March 23, 1993 (1)
(q) Articles Supplementary dated May 5, 1993 (1)
(r) Articles Supplementary dated November 8, 1993 (1)
(s) Articles Supplementary dated January 18, 1994 (1)
(t) Articles Supplementary dated November 9, 1994 (1)
(u) Articles Supplementary dated November 8, 1995 (2)
(v) Articles Supplementary dated February 6, 1996 (3)
(w) Articles Supplementary dated March 12, 1996 (4)
2 Bylaws, as amended March 12, 1996 (4)
3 Voting trust agreement - Not Applicable
4 Specimen certificates for shares of
(a) Growth Fund (1)
(b) Income Fund (1)
(c) Money Market Fund (1)
(d) Aggressive Growth Fund (1)
(e) Income Stock Fund (1)
(f) Growth & Income Fund (1)
(g) Short-Term Bond Fund (1)
(h) S&P 500 Index Fund (4)
5 (a) Advisory Agreement dated September 21, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth & Income Fund
and Short-Term Bond Fund (1)
(c) Management Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (filed herewith) 105
(d) Administration Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (filed herewith) 111
(e) Letter Agreement to the Management Agreement dated May 1,
1996 with respect to the S&P 500 Index Fund (filed herewith) 116
6 (a) Underwriting Agreement dated July 25, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth & Income Fund
and Short-Term Bond Fund (1)
(c) Letter Agreement dated May 1, 1996 adding S&P 500 Index Fund
(filed herewith) 118
7 Not Applicable
8 (a) Custodian Agreement dated November 3, 1982 (1)
(b) Letter Agreement dated April 20, 1987 adding Income Stock Fund (1)
(c) Amendment No. 1 to the Custodian Contract dated October 30, 1987 (1)
(d) Amendment to the Custodian Contract dated November 3, 1988 (1)
(e) Amendment to the Custodian Contract dated February 6, 1989 (1)
(f) Amendment to the Custodian Contract dated November 8, 1993 (1)
(g) Letter Agreement dated June 1, 1993 adding Growth & Income Fund
and Short-Term Bond Fund (1)
(h) Subcustodian Agreement dated March 24, 1994 (3)
Exhibit Index, cont.
Exhibit Item Page No. *
- ------- ---- ----------
(i) Custodian Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (filed herewith) 120
(j) Subcustodian Agreement dated May 1, 1996 with respect to
the S&P 500 Index Fund (filed herewith) 146
(k) Letter Agreement to the Custodian Agreement dated May 1, 1996
with respect to the S&P 500 Index Fund (filed herewith) 159
(l) Amendment to Custodian Contract dated May 13, 1996 (filed
herewith) 161
9 (a) Articles of Merger dated January 30, 1981 (1)
(b) Transfer Agency Agreement dated January 23, 1992 (1)
(c) Letter Agreement dated June 1, 1993 to Transfer Agency Agreement
adding Growth & Income Fund and Short-Term Bond Fund (1)
(d) Amendments dated May 3, 1995 to the Transfer Agency Agreement Fee
Schedules for Growth Fund, Aggressive Growth Fund, Income Fund,
Growth & Income Fund, Income Stock Fund, Money Market Fund, and
Short-Term Bond Fund (1)
(e) Amendment No. 1 to Transfer Agency Agreement dated November 14,
1995 (2)
(f) Third Party Feeder Fund Agreement dated May 1, 1996 with respect
to the S&P 500 Index Fund (filed herewith) 163
(g) Letter Agreement to Transfer Agency Agreement dated May 1, 1996
adding S&P 500 Index Fund (filed herewith) 194
(h) Transfer Agency Agreement Fee Schedule dated May 1, 1996 for
S&P 500 Index Fund (filed herewith) 196
(i) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 15, 1996 (filed herewith) 198
(j) Letter Agreement dated April 18, 1996 to the Master Revolving
Credit Facility Agreement with USAA Capital Corporation
(filed herewith) 222
(k) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 16, 1996 (filed herewith) 228
(l) Letter Agreement dated April 18, 1996 to the Master Revolving
Credit Facility Agreement with NationsBank of Texas
(filed herewith) 256
10 (a) Opinion and Consent of Counsel with respect to the Growth Fund,
Aggressive Growth Fund, Income Fund, Money Market Fund, Income
Stock Fund, Growth & Income Fund, and Short-Term Bond Fund (2)
(b) Opinion of Counsel with respect to the S&P 500 Index Fund (3)
(c) Consent of Counsel with respect to the S&P 500 Index Fund
(filed herewith) 262
11 Independent Accountants' Consent (filed herewith) 264
12 Financial Statements omitted from prospectus - Not Applicable
13 (a) Subscription and Investment Letter for Growth & Income Fund
and Short-Term Bond Fund (1)
(b) Subscription and Investment Letter for S&P 500 Index Fund
(filed herewith) 266
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Handbook (1)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Handbook (1)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Handbook (1)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (1)
Exhibit Index, cont.
Exhibit Item Page No. *
- ------- ---- ----------
17 Financial Data Schedule
(a) Growth Fund (filed herewith) 269
(b) Aggressive Growth Fund (filed herewith) 271
(c) Income Fund (filed herewith) 273
(d) Money Market Fund (filed herewith) 275
(e) Income Stock Fund (filed herewith) 277
(f) Growth & Income Fund (filed herewith) 279
(g) Short-Term Bond Fund (filed herewith) 281
(h) S&P 500 Index Fund (filed herewith) 283
18 Plan Adopting Multiple Classes of Shares - Not Applicable
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron A. Kirk,
John W. Saunders, Jr., George E. Brown, Howard L. Freeman, Jr.,
and Richard A. Zucker dated November 8, 1993 (1)
(b) Power of Attorney for Barbara B. Dreeben dated September 12, 1995 (1)
(c) Power of Attorney for M. Staser Holcomb dated February 6, 1996 (3)
(d) With respect to the S&P 500 Index Fund, Powers of Attorney for
Philip W. Coolidge, John R. Elder, Charles P. Biggar, S. Leland
Dill, and Philip Saunders, Jr. dated February 9, 1996 (3)
- -------------------
(1) Previously filed with Post-Effective Amendment No. 38 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
September 29, 1995.
(2) Previously filed with Post-Effective Amendment No. 39 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
November 21, 1995.
(3) Previously filed with Post-Effective Amendment No. 40 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 15, 1996.
(4) Previously filed with Post-Effective Amendment No. 41 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on April
26, 1996.
* Refers to sequentially numbered pages
EXHIBIT 5(c)
MANAGEMENT AGREEMENT
AGREEMENT made as of the 1st day of May, 1996,
between USAA INVESTMENT MANAGEMENT COMPANY, a corporation
organized under the laws of the state of Delaware and having a
place of business in San Antonio, Texas (the "Manager"), and USAA
MUTUAL FUND, INC., a corporation organized under the laws of the
state of Maryland and having a place of business in San Antonio,
Texas (the "Company").
WHEREAS, the Company is engaged in business as an open-end
management investment company and is so registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business
of rendering investment management services and is registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Company is authorized to issue shares of capital
stock (the "Shares") in separate classes with each such class
representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Company has established a new series of Shares,
namely, the S&P 500 Index Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Manager to render
certain management and investment advisory services as described
hereunder and the Manager is willing to perform such services; and
WHEREAS, the Company initially desires to invest all of its
investable assets in another mutual fund with an identical
investment objective (the "Portfolio");
NOW, THEREFORE, WITNESSETH: That it is agreed between the
parties hereto as follows:
1. APPOINTMENT OF MANAGER.
The Company hereby appoints the Manager to act as manager and
investment adviser to the Fund for the period and on the terms
herein set forth. The Manager accepts such appointment and
agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following
services to the Fund:
(a) Monitoring. The Manager will monitor the services
provided to the Portfolio, subject always to the control of
the Company's Board of Directors. Such monitoring may
include among other things, review of Portfolio reports
showing tracking with the Standard & Poor's 500 Composite
Price Index, review of Portfolio reports showing the
composition of securities in the Portfolio on a periodic
basis and periodic review of investment practices of the
Portfolio. The Manager will report to the Company's Board of
Directors, at least annually, on the results of such
monitoring such that the Board may determine whether
continued investment exclusively in the Portfolio is in the
best interests of the Fund's shareholders.
(b) Investment Program. Should the Company's Board of
Directors determine it is in the best interests of the Fund's
shareholders to withdraw its investment in the Portfolio, the
Manager will directly manage the assets of the Fund. At such
time, the Manager will (i) furnish continuously an investment
program for the Fund, (ii) determine (subject to the overall
supervision and review of the Board of Directors of the
Company) what investments shall be purchased, held, sold or
exchanged by the Fund and what portion, if any, of the assets
of the Fund shall be held uninvested, and (iii) make changes
on behalf of the Company in the investments of the Fund.
3. ALLOCATION OF EXPENSES.
Except for the services to be provided by the Manager set
forth in paragraph 2 above and the services and facilities
provided by the Manager set forth in an Administration Agreement
between the Company and the Manager, the Fund assumes and shall
pay all expenses for all other Fund operations and activities and
shall reimburse the Manager for any such expenses incurred by the
Manager. The expenses to be borne by the Fund shall include,
without limitation:
(a) the charges and expenses of any registrar, share transfer
or dividend disbursing agent, custodian, or depository
appointed by the Company for the safekeeping of the Fund's
cash, portfolio securities and other property;
(b) the charges and expenses of auditors;
(c) brokerage commissions, if any, for transactions in the
portfolio securities of the Fund;
(d) all taxes, including issuance and transfer taxes, and fees
payable by the Fund to federal, state or other governmental
agencies;
(e) the cost of share certificates representing Shares of the
Fund;
(f) fees involved in registering and maintaining registrations
of the Company and of its Shares with the Securities and
Exchange Commission and various states and other
jurisdictions;
(g) all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing proxy statements,
quarterly reports, semiannual reports, annual reports and
other communications (including prospectuses) to existing
shareholders;
(h) compensation and travel expenses of Directors who are not
"interested persons" within the meaning of the 1940 Act;
(i) the expense of furnishing or causing to be furnished to
each shareholder a statement of his account, including the
expense of mailing;
(j) charges and expenses of legal counsel in connection with
matters relating to the Fund, including, without limitation,
legal services rendered in connection with the Fund's legal
and financial structure and relations with its shareholders,
issuance of Fund Shares, and registration and qualification
of securities under federal, state and other laws;
(k) membership or association dues for the Investment Company
Institute or similar organizations;
(l) interest payable on Fund borrowings; and
(m) postage.
4. MANAGEMENT FEE.
(a) For the services to be provided by the Manager as provided
in subparagraph (a) of paragraph 2 hereof, the Fund shall
pay to the Manager no fee for providing such services.
(b) For the services and facilities that may be provided by
the Manager as provided in subparagraph (b) of paragraph 2
hereof, the Fund shall pay to the Manager a monthly fee
computed as a percentage of aggregate average net assets of
the Fund, which on an annual basis is equal to one-tenth of
one percent (.10%) of the Monthly Average Net Assets (defined
below) of the Fund for such calendar month.
(c) The "Monthly Average Net Assets" of the Fund for any
calendar month shall be equal to the quotient produced by
dividing (i) the sum of the net assets of such Fund,
determined in accordance with procedures established from
time to time by or under the direction of the Board of
Directors of the Fund in accordance with the Articles of
Incorporation of the Company, as of the close of business on
each day during such month that Fund was open for business,
by (ii) the number of such days.
(d) The Manager may from time to time and for such periods as
it deems appropriate voluntarily waive fees or otherwise
reduce its compensation hereunder.
5. EXPENSE LIMITATION.
In the event that expenses of the Fund for any fiscal year
should exceed the expense limitation on investment company
expenses imposed by any statute or regulatory authority of any
jurisdiction in which shares of the Company are qualified for
offer and sale, the compensation due the Manager for such fiscal
year with respect to the Fund shall be reduced by the amount of
such excess by a reduction or refund thereof. In the event that
the expenses of the Fund exceed any expense limitation which the
Manager may, by written notice to the Fund, voluntarily declare
to be effective subject to such terms and conditions as the
Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall
assume expenses of the Fund, to the extent required by such
expense limitation.
In the event this Agreement is terminated as of a date other
than the last day of the fiscal year of the Company, the Manager
shall pay the Company a pro rata portion of the amount that the
Manager would have been required to pay, if any, had this
Agreement remained in effect for the full fiscal year.
6. FUND TRANSACTIONS.
Should the Manager provide services pursuant to subparagraph
(b) of paragraph 2 above, the Manager, acting by its own
officers, directors or employees or by a duly authorized
subcontractor, is authorized to select the brokers or dealers
that will execute purchase and sale transactions for the Fund and
is directed to use its best efforts to obtain the best available
price and most favorable execution with respect to all such
purchases and sales of portfolio securities for the Fund.
Subject to this primary requirement, and maintaining as its first
consideration the benefits to the Fund and its shareholders, the
Manager shall have the right, subject to the control of the Board
of Directors, to follow a policy of selecting brokers and dealers
who furnish statistical, research and other services to the Fund
or to the Manager.
The Manager agrees that neither it nor any of its officers or
directors will take any long or short position in the capital
stock of the Fund; provided, however, that such prohibition:
(a) shall not prevent the Manager from purchasing shares of
the capital stock of the Fund if orders to purchase such
shares are placed upon the receipt by the Manager of purchase
orders for such shares and are not in excess of such purchase
orders received by the Manager; and
(b) shall not prevent the purchase of shares of capital stock
of the Company by any of the persons above described for
their account and for investment at the price at which such
shares are available to the public at the time of purchase or
as part of the initial capital of the Fund.
7. RELATIONS WITH COMPANY.
Subject to and in accordance with the Articles of
Incorporation and Bylaws of the Company and of the Manager,
respectively, it is understood that Directors, officers, agents
and shareholders of the Company are or may be interested in the
Manager (or any successor thereof) as directors, officers, or
otherwise, that directors, officers, agents and shareholders of
the Manager are or may be interested in the Company as Directors,
officers, shareholders or otherwise, that the Manager (or any
such successor) is or may be interested in the Company as a
shareholder or otherwise and that the effect of any such
interests shall be governed by said Articles of Incorporation and Bylaws.
8. LIABILITY OF MANAGER.
No provision of this Agreement shall be deemed to protect the
Manager against any liability to the Fund or its shareholders to
which it might otherwise be subject by reason of any willful
misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and
duties under this Agreement. Nor shall any provision hereof be
deemed to protect any Director or officer of the Company against
any such liability to which he might otherwise be subject by
reason of any willful misfeasance, bad faith or gross negligence
in the performance of his duties or the reckless disregard of his
obligations and duties. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective on the
date upon which the Agreement shall have been approved by a
majority of the outstanding voting securities (as that term
is defined in the 1940 Act) of the Fund. Unless terminated
as herein provided, this Agreement shall remain in full force
and effect for two years after such date and shall continue
in full force and effect for periods of one year thereafter
so long as such continuance is approved at least annually (a)
by either the Directors of the Company or by vote of a
majority of the outstanding voting shares (as defined in the
1940 Act) of the Fund, and (b) in either event by the vote of
a majority of the Directors of the Company who are not
parties to this Agreement or "interested persons" (as defined
in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
(b) Termination. This Agreement may be terminated at any
time, without payment of any penalty, by vote of the
Directors of the Company or by vote of a majority of the
outstanding shares (as defined in the 1940 Act), or by the
Manager on sixty (60) days' written notice to the other party.
(c) Automatic Termination. This Agreement shall automatically
terminate in the event of its assignment.
10. NAME OF FUND.
It is understood that the name "USAA," and any logo
associated with that name, is the valuable property of the United
Services Automobile Association, and that the Fund has the right
to include "USAA" as a part of its name only so long as this
Agreement shall continue and the Manager is a wholly owned
subsidiary of the United Services Automobile Association. Upon
termination of this Agreement the Fund shall forthwith cease to
use the "USAA" name and logo and shall submit to its shareholders
an amendment to its Articles of Incorporation to change the
Fund's name.
11. PRIOR AGREEMENT SUPERSEDED.
This Agreement supersedes any prior agreement relating to the
subject matter hereof between the parties.
12. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Fund hereunder are not to
be deemed exclusive, and the Manager shall be free to render
similar services to others so long as its services hereunder are
not impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
USAA MUTUAL FUND, INC. USAA INVESTMENT MANAGEMENT COMPANY
By:/s/Michael J.C.Roth BY:/s/John W. Saunders, Jr.
- ---------------------- ---------------------------
President Senior Vice President
ATTEST:/s/Michael D. Wagner ATTEST:/s/Alex M. Ciccone
- --------------------------- -------------------------
Secretary Assistant Secretary
EXHIBIT 5(d)
ADMINISTRATION AGREEMENT
AGREEMENT made as of the 1st day of May, 1996,
between USAA INVESTMENT MANAGEMENT COMPANY, a corporation
organized under the laws of the state of Delaware and having a
place of business in San Antonio, Texas (the "Administrator"),
and USAA MUTUAL FUND, INC., a corporation organized under the
laws of the state of Maryland and having a place of business in
San Antonio, Texas (the "Company").
WHEREAS, the Company is engaged in business as an open-end
management investment company and is so registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator, among other things, provides
administrative services to registered investment companies; and
WHEREAS, the Company is authorized to issue shares of
capital stock (the "Shares") in separate classes with each such
class representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Company has established a new series of Shares,
namely the S&P 500 Index Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Administrator to
render certain administrative services as described hereunder and
the Administrator is willing to perform such services; and
WHEREAS, the Fund initially desires to invest all of its
investable assets in another mutual fund with an identical
investment objective (the "Portfolio");
NOW, THEREFORE, WITNESSETH: That it is agreed between the
parties hereto as follows:
1. APPOINTMENT OF ADMINISTRATOR.
The Company hereby appoints the Administrator to act as
administrator to the Fund for the period and on the terms herein
set forth. The Administrator accepts such appointment and agrees
to render the services herein set forth, for the compensation
herein provided.
2. DUTIES OF ADMINISTRATOR.
The Administrator shall supervise the Fund's business and
affairs and shall provide such services required for effective
administration of the Fund as are not provided by employees or
other agents engaged by the Fund; provided, that the
Administrator shall not have any obligation to provide under this
Agreement any direct or indirect services to Fund shareholders,
any services related to the distribution of Fund shares, or any
other services which are the subject of a separate agreement or
arrangement between the Fund and the Administrator. Subject to
the foregoing, in providing administrative services hereunder,
the Administrator shall:
(a) Office Space, Equipment and Facilities. Furnish
without cost to the Fund, or pay the cost of, such office
space, office equipment and office facilities as are
adequate for the Fund's needs.
(b) Personnel. Provide, without remuneration from or
other cost to the Fund, the services of individuals
competent to perform all of the Fund's executive,
administrative and clerical functions which are not
performed by employees or other agents engaged by the Fund
or by the Administrator acting in some other capacity
pursuant to a separate agreement or arrangement with the Fund.
(c) Agents. Assist the Fund in selecting and
coordinating the activities of the other agents engaged by
the Fund, including the Fund's transfer agent, custodian,
independent auditors and legal counsel.
(d) Directors and Officers. Authorize and permit the
Administrator's directors, officers and employees who may be
elected or appointed as directors or officers of the Fund to
serve in such capacities, without remuneration from or other
cost to the Fund.
(e) Books and Records. Assure that all financial,
accounting and other records required to be maintained and
preserved by the Fund are maintained and preserved by it or
on its behalf in accordance with applicable laws and regulations.
(f) Regulatory Reports and Filings. Assist in the
preparation of (but not pay for) all periodic reports by the
Fund and all reports and filings required to maintain the
registration and qualification of the Fund, or to meet other
regulatory or tax requirements applicable to the Fund under
federal and state securities and tax laws.
(g) Pricing and Portfolio Valuation. Compute the
Fund's net asset value per share, including the use of
equipment or services to price or value the Fund's
investment portfolio.
(h) Board Reports. Prepare and coordinate materials
to be presented to the Fund's board in preparation for its meetings.
(i) Fidelity Bond. Provide and maintain a bond issued
by a reputable insurance company authorized to do business
in the place where the bond is issued, against larceny and
embezzlement covering each officer and employee of the
Company who may singly or jointly with others have access to
funds or securities of the Company, with direct or indirect
authority to draw upon such funds or to direct generally the
disposition of such funds. The bond shall be in such
reasonable amount as a majority of the Board of Directors of
the Company who are not officers or employees of the Company
shall determine, with due consideration to the aggregate
assets of the Company to which any such officer or employee
may have access.
(j) Delegation. Delegate, at its expense, some or all
of its duties hereunder to other persons or entities
approved by the Administrator upon notice to the Fund.
3. ALLOCATION OF EXPENSES.
Except for the services and facilities to be provided by the
Administrator set forth in paragraph 2 above and the services
provided by the Administrator set forth in a Management Agreement
between the Company and the Administrator, the Fund assumes and
shall pay all expenses for all other Fund operations and
activities and shall reimburse the Administrator for any such
expenses incurred by the Administrator. The expenses to be borne
by the Fund shall include, without limitation:
(a) the charges and expenses of any registrar, share
transfer or dividend disbursing agent, custodian, or
depository appointed by the Company for the safekeeping of
the Fund's cash, portfolio securities and other property;
(b) the charges and expenses of auditors;
(c) brokerage commissions, if any, for transactions in
the portfolio securities of the Fund;
(d) all taxes, including issuance and transfer taxes,
and fees payable by the Fund to federal, state or other
governmental agencies;
(e) the cost of share certificates representing Shares
of the Fund;
(f) fees involved in registering and maintaining
registrations of the Company and of its Shares with the
Securities and Exchange Commission and various states and
other jurisdictions;
(g) all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing proxy
statements, quarterly reports, semiannual reports, annual
reports and other communications (including prospectuses) to
existing shareholders;
(h) compensation and travel expenses of Directors who
are not "interested persons" within the meaning of the 1940 Act;
(i) the expense of furnishing or causing to be
furnished to each shareholder a statement of his account,
including the expense of mailing;
(j) charges and expenses of legal counsel in
connection with matters relating to the Fund, including,
without limitation, legal services rendered in connection
with the Fund's legal and financial structure and relations
with its shareholders, issuance of Fund Shares, and
registration and qualification of securities under federal,
state and other laws;
(k) membership or association dues for the Investment
Company Institute or similar organizations;
(l) interest payable on Fund borrowings; and
(m) postage.
4. ADMINISTRATION FEE.
(a) For the services and facilities to be provided by
the Administrator as provided in paragraph 2 hereof, the
Fund shall pay to the Administrator a monthly fee computed
as a percentage of aggregate average net assets of the Fund,
which on an annual basis is equal to two hundredths of one
percent (.02%) of the Monthly Average Net Assets (defined
below) of the Fund for such calendar month.
(b) The "Monthly Average Net Assets" of the Fund for
any calendar month shall be equal to the quotient produced
by dividing (i) the sum of the net assets of the Fund,
determined in accordance with procedures established from
time to time by or under the direction of the Board of
Directors of the Company in accordance with the Articles of
Incorporation of the Company, as of the close of business on
each day during such month that the Fund was open for
business, by (ii) the number of such days.
(c) The Administrator may from time to time and for
such periods as it deems appropriate voluntarily waive fees
or otherwise reduce its compensation hereunder.
5. LIABILITY OF ADMINISTRATOR.
No provision of this Agreement shall be deemed to protect
the Administrator against any liability to the Fund or its
shareholders to which it might otherwise be subject by reason of
any willful misfeasance, bad faith or gross negligence in the
performance of its duties or the reckless disregard of its
obligations and duties under this Agreement. Nor shall any
provision hereof be deemed to protect any Director or officer of
the Company against any such liability to which he might
otherwise be subject by reason of any willful misfeasance, bad
faith or gross negligence in the performance of his duties or the
reckless disregard of his obligations and duties. If any
provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective
on the date of commencement of investment operation of the
Fund and unless terminated shall continue in force from year
to year thereafter, but only so long as such continuance is
specifically approved annually (a) by the Company's Board of
Directors or by a vote of a majority of the Fund's
outstanding voting securities (as that term is defined in
the 1940 Act) and (b) by a majority of the Directors who are
not parties to this Agreement or interested persons of any
such party.
(b) Termination. This Agreement may be terminated at
any time, without payment of any penalty, by vote of the
Directors of the Company or by vote of a majority of the
outstanding shares (as defined in the 1940 Act), or by the
Administrator on sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate
upon its assignment by the Administrator; provided, however,
that the Administrator may delegate its duties as provided
in subparagraph (j) of paragraph 2 hereof.
7. PRIOR AGREEMENT SUPERSEDED.
This Agreement supersedes any prior agreement relating to
the subject matter hereof between the parties.
8. SERVICES NOT EXCLUSIVE.
The services of the Administrator to the Fund hereunder are
not to be deemed exclusive, and the Administrator shall be free
to render similar services to others so long as its services
hereunder are not impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
USAA MUTUAL FUND, INC. USAA INVESTMENT MANAGEMENT COMPANY
By: /s/ Michael J.C. Roth BY: /s/John W. Saunders, Jr.
- --------------------------- ------------------------------
President Senior Vice President
ATTEST: /s/Michael D. Wagner ATTEST: /s/Alex M. Ciccone
- ---------------------------- -------------------------------
Secretary Assistant Secretary
EXHIBIT 5(e)
USAA Investment Management Company
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
Gentlemen:
Pursuant to the Management Agreement dated as of May 1, 1996 between
USAA Mutual Fund, Inc. (the "Company") and USAA Investment Management Company
(the "Manager"), please be advised that the Company has established a new
series of its shares, namely, the S&P 500 Index Fund (the "Fund"), and please
be further advised that the Company desires to retain the Manager to render
management services under the Management Agreement to the Fund at the fee
stated below:
Fee Schedule
------------
No Fee at Present Time
Please state below whether you are willing to render such services at
the fee stated above.
USAA MUTUAL FUND, INC.
Attest: /s/ Alex M. Ciccone By: /s/Michael J.C. Roth
- --------------------------- -------------------------
Assistant Secretary President
Dated: May 1, 1996
We as the sole shareholder of the above named Fund, do hereby approve
the Management Agreement and are willing to render management services to the
S&P 500 Index Fund at the fee stated above.
USAA INVESTMENT MANAGEMENT
COMPANY
Attest:/s/ Alex M. Ciccone By:/s/John W. Saunders, Jr.
- -------------------------- ---------------------------
Assistant Secretary Senior Vice President
Dated: May 1, 1996
EXHIBIT 6(c)
USAA Investment Management Company
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
Gentlemen:
Pursuant to paragraph 12 of the Underwriting Agreement dated
as of July 25, 1990 between USAA Mutual Fund, Inc. (the "Company")
and USAA Investment Management Company (the "Underwriter"), please
be advised that the Company has established a new series of its
shares, namely, the S&P 500 Index Fund (the "Fund"), and please be
further advised that the Company desires to retain the Underwriter
to sell and distribute shares of the Fund and to render other
services to the Fund as provided in the Underwriting Agreement.
Please state below whether you are willing to render such
services as provided in the Underwriting Agreement.
USAA MUTUAL FUND, INC.
Attest:/s/Michael D. Wagner By:/s/Michael J.C. Roth
- --------------------------- -----------------------
Secretary President
Dated: May 1, 1996
We are willing to render services to the S&P 500 Index Fund
as set forth in the Underwriting Agreement.
USAA INVESTMENT MANAGEMENT COMPANY
Attest:/s/Alex M. Ciccone By:/s/John W. Saunders, Jr.
- ------------------------- ----------------------------
Assistant Secretary Senior Vice President
Dated: May 1, 1996
EXHIBIT 8(i)
CUSTODIAN AGREEMENT
AGREEMENT dated as of May 1, 1996 between BANKERS TRUST COMPANY (the
"Custodian") and USAA MUTUAL FUND, INC. (the "Customer"), on behalf of USAA
S&P 500 INDEX FUND (the "Series").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereinafter
referred to individually as a "Portfolio" and collectively, as the
"Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian as
custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
pursuant to the terms and conditions set forth herein. Without limitation,
such assets shall include stocks and other equity interests of every type,
evidences of indebtedness, other instruments representing same or rights or
obligations to receive, purchase, deliver or sell same and other non-cash
investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash")
(Securities and Cash, collectively, "Property"). The Custodian shall not be
responsible for any property of a Portfolio held or received by the Customer
or others and not delivered to the Custodian or any Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian
to (a) settle securities transactions and maintain cash in the country or
other jurisdiction in which the principal trading market for such securities
is located, where such securities are to be presented for payment or where
such securities are acquired and (b) maintain cash and cash equivalents in
such countries in amounts reasonably necessary to effect the Customer's
transactions in such securities. Instructions to settle securities
transactions in any country shall be deemed to authorize the holding of such
Securities and Cash in that country.
3. Custody Account. The Custodian agrees to establish and maintain
one or more custody accounts on its books, each in the name of a Portfolio
(each, an "Account") for any and all Property from time to time received and
accepted by the Custodian or any Subcustodian for the account of such
Portfolio. Upon delivery by the Customer to the Custodian of any Property
belonging to a Portfolio, the Customer shall, by Instructions (as hereinafter
defined in Section 14), specifically indicate to which Portfolio such Property
belongs, or if such Property belongs to more than one Portfolio, shall
allocate such Property to the appropriate Portfolios. The Custodian shall
allocate such Property to each Account in accordance with the Instructions;
provided that the Custodian shall have the right, in its sole discretion, to
refuse to accept any Property that is not in proper form for deposit for any
reason. The Customer, on behalf of each Portfolio, acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the
same class in place of those deposited in an Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions
involving the Property, shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the appropriate Account;
(b) present for payment all Securities held in an Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Custodian or Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities for those
in definitive form and the exchange of warrants, or other documents of
entitlement to securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than ministerial exchanges
described in (i) above) is received for an Account, endeavor to receive
Instructions, provided that if such Instructions are not received in time for
the Custodian to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split is
received for an Account and such rights entitlement or fractional interest
bears an expiration date, if after endeavoring to obtain Instructions such
Instructions are not received in time for the Custodian to take timely action
or if actual notice of such actions was received too late to seek
Instructions, sell in the discretion of the Custodian (which sale the Customer
hereby authorizes the Custodian to make) such rights entitlement or fractional
interest and credit the appropriate Account with the net proceeds of such
sale;
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other certificates as may
be required to obtain the payment of income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the nature
of taxes imposed on interest, dividends or other similar income on the
Property in such Account by any governmental authority. In the event there is
insufficient Cash available in an Account to pay such taxes and levies, the
Custodian shall notify the Customer of the amount of the shortfall and the
Customer, at its option, may deposit additional Cash in such Account or take
steps to have sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the payment of any
such taxes to cooperate with the Custodian in furnishing information,
executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial transactions
involving the Securities described in (a) - (f), including, without
limitation, affiliates of the Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody
accounts which have been established by the Custodian with (a) one of its U.S.
branches or another U.S. bank or trust company or branch thereof located in
the U.S. which is itself qualified under the Investment Company Act of 1940,
as amended ("1940 Act"), to act as custodian (individually, a "U.S.
Subcustodian"), or a U.S. securities depository or clearing agency or system
in which the Custodian or a U.S. Subcustodian participates (individually, a
"U.S. Securities System") or (b) one of its non-U.S. branches or majority-
owned non-U.S. subsidiaries, a non-U.S. branch or majority-owned subsidiary
of a U.S. bank or a non-U.S. bank or trust company, acting as custodian
(individually, a "non-U.S. Subcustodian"; U.S. Subcustodians and non-U.S.
Subcustodians, collectively, "Subcustodians"), or a non-U.S. depository or
clearing agency or system in which the Custodian or any Subcustodian
participates (individually, a "non-U.S. Securities System"; "U.S. Securities
System" and "non-U.S. Securities System", collectively, "Securities System"),
provided that in each case in which a U.S. Subcustodian or U.S. Securities
System is employed, each such Subcustodian or Securities System shall have
been approved by Instructions; provided further that in each case in which a
non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities
and Exchange Commission ("SEC") exempting such agent or the subcustody
arrangements thereto from all or part of the provisions of Rule 17f-5 and (b)
the agreement between the Custodian and such non-U.S. Subcustodian has been
approved by Instructions; it being understood that the Custodian shall have no
liability or responsibility for determining whether the approval of any
Subcustodian or Securities System has been proper under the 1940 Act or any
rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian
and non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its
foreign custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested
by the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the
Customer information concerning such non-U.S. Subcustodians and non-U.S.
Securities Systems similar in kind and scope as that furnished to the Customer
in connection with the initial approval of this Agreement. The Custodian
agrees to promptly notify the Customer if, in the normal course of its
custodial activities, the Custodian has reason to believe that any non-U.S.
Subcustodian or non-U.S. Securities System has ceased to be a qualified U.S.
bank or an eligible foreign custodian each within the meaning of Rule 17f-5 or
has ceased to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which
is maintained by the Custodian in the custody of a Subcustodian employed
pursuant to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in an Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require that (i)
the Account will be adequately indemnified or its losses adequately insured;
(ii) the Securities are not subject to any right, charge, security interest,
lien or claim of any kind in favor of such Subcustodian or its creditors
except a claim for payment in accordance with such agreement for their safe
custody or administration and expenses related thereto, (iii) beneficial
ownership of such Securities be freely transferable without the payment of
money or value other than for safe custody or administration and expenses
related thereto, (iv) adequate records will be maintained identifying the
Property held pursuant to such Agreement as belonging to the Custodian, on
behalf of its customers and (v) to the extent permitted by applicable law,
officers of or auditors employed by, or other representatives of or designated
by, the Custodian, including the independent public accountants of or
designated by, the Customer be given access to the books and records of such
Subcustodian relating to its actions under its agreement pertaining to any
Property held by it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the
Account(s) which are maintained by the Custodian or any Subcustodian in the
custody of a Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such Property as being
held for the account of the Custodian or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the instructions of the
Custodian or such Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or Subcustodian,
as the case may be, unless precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained
by the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a Subcustodian or in a
Securities System as authorized herein, shall be clearly recorded on the
Custodian's books as belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian shall keep accurate and detailed
accounts of all investments, receipts, disbursements and other transactions
for each Account. All accounts, books and records of the Custodian relating
thereto shall be open to inspection and audit at all reasonable times during
normal business hours by any person designated by the Customer. All such
accounts shall be maintained and preserved in the form reasonably requested by
the Customer. The Custodian will supply to the Customer from time to time, as
mutually agreed upon, a statement in respect to any Property in an Account
held by the Custodian or by a Subcustodian. In the absence of the filing in
writing with the Custodian by the Customer of exceptions or objections to any
such statement within sixty (60) days of the mailing thereof, the Customer
shall be deemed to have approved such statement and in such case or upon
written approval of the Customer of any such statement, such statement shall
be presumed to be for all purposes correct with respect to all information set
forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and
with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian
under this Agreement, including, without limitation, the Custodian's
accounting system, internal accounting control and procedures for safeguarding
Cash and Securities, including Cash and Securities deposited and/or maintained
in a securities system or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Customer and as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic on
- -line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities
and/or Cash being held in any Account. To the extent that such service shall
include market values of Securities in an Account, the Customer hereby
acknowledges that the Custodian now obtains and may in the future obtain
information on such values from outside sources that the Custodian considers
to be reliable and the Customer agrees that the Custodian (i) does not verify
nor represent or warrant either the reliability of such service nor the
accuracy or completeness of any such information furnished or obtained by or
through such service and (ii) shall be without liability in selecting and
utilizing such service or furnishing any information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account
which are held by the Custodian or any Subcustodian may be held by such entity
in the name of the Customer, on behalf of the appropriate Portfolio, in the
Custodian's or Subcustodian's name, in the name of the Custodian's or
Subcustodian's nominee, or in bearer form. Securities that are held by a
Subcustodian or which are eligible for deposit in a Securities System as
provided above may be maintained with the Subcustodian or the Securities
System in an account for the Custodian's or Subcustodian's customers, unless
prohibited by law, rule, or regulation. The Custodian or Subcustodian, as the
case may be, may combine certificates representing Securities held in an
Account with certificates of the same issue held by it as fiduciary or as a
custodian. In the event that any Securities in the name of the Custodian or
its nominee or held by a Subcustodian and registered in the name of such
Subcustodian or its nominee are called for partial redemption by the issuer of
such Security, the Custodian may, subject to the rules or regulations
pertaining to allocation of any Securities System in which such Securities
have been deposited, allot, or cause to be allotted, the called portion of the
respective beneficial holders of such class of security in any manner the
Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto
as are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit
B attached hereto (as such service therein described may be in effect from
time to time) (the "Proxy Service") and (iii) as may otherwise be agreed upon
between the Custodian and the Customer. The liability and responsibility of
the Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of
the immediately preceding sentence shall be as set forth in the description of
the Proxy Service and as may be agreed upon by the Custodian and the Customer
in connection with the furnishing of any such additional service and shall not
be affected by any other term of this Agreement. Neither the Custodian nor
its nominees or agents shall vote upon or in respect of any of the Securities
in an Account, execute any form of proxy to vote thereon, or give any consent
or take any action (except as provided in Section 3) with respect thereto
except upon the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures.
(a) The proceeds from the sale or exchange of Securities will be
credited and the cost of such Securities purchased or acquired will be debited
to the Account in accordance with the schedule specified in the Custodian's
Standards Manual in effect from time to time. Upon the execution and delivery
of this Agreement, the Customer acknowledges receipt of the Custodian's
Standards Manual in effect on the date hereof. Notwithstanding the preceding
sentence, settlement and payment for Securities received for an Account and
delivery of Securities maintained for an Account may be effected in accordance
with the customary or established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering Securities to
the purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later payment
for such Securities from such purchaser or dealer. The Custodian shall not be
liable for any loss which results from effecting transactions in accordance
with the customary or established securities trading or securities processing
practices and procedures in the applicable jurisdiction or market.
(b) The Custodian shall not be required to comply with any
Instructions to settle the purchase of any securities for an Account, unless
there are sufficient immediately available funds in the Account, provided
that, if, after all expenses, debits and withdrawals ("Debits") applicable to
the Account have been made and if after all Conditional Credits, as defined
below, applicable to the Account have been made final entries as set forth in
(d) below, the amount of immediately available funds in such Account is at
least equal to the aggregate purchase price of all securities for which the
Custodian has received Instructions to settle on that date ("Settlement
Date"), the Custodian, upon settlement, shall credit the Securities to an
Account by making a final entry on its books and records.
(c) Notwithstanding the foregoing, if, after all Debits applicable to
the Account have been made, there remains outstanding any Conditional Credit
applicable to the Account or the amount of immediately available funds in such
Account is less than the aggregate purchase price of all securities for which
the Custodian has received Instructions to settle on the Settlement Date, the
Custodian, upon settlement, may credit the securities to the applicable
Account by making a conditional entry on its books and records ("Conditional
Credit"), pending receipt of sufficient immediately available funds in the
Account.
(d) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds at least equal to the aggregate purchase price of
all securities subject to a Conditional Credit on a Settlement Date are
deposited into the Account, the Custodian shall make the Conditional Credit a
final entry on its books and records. In such case, the Customer shall be
liable to the Custodian only for late charges at a rate mutually agreed upon
in writing by the Custodian and the Customer.
(e) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds at least equal to the aggregate purchase price of
all securities subject to a Conditional Credit on a Settlement Date are not
deposited into the Account, the Customer, authorizes the Custodian, as agent,
to sell the securities and credit the applicable Account with the proceeds of
such sale. In such case, the Customer shall be liable to the Custodian for
any deficiencies, out-of-pocket costs and expenses associated with the sale of
the securities, including but not limited to, shortfalls in the sales
proceeds.
(f) The Customer agrees that it will not use the Account to facilitate
the purchase of securities without sufficient funds in the Account (which
funds shall not include the proceeds of the sale of the purchased securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Custodian, a Subcustodian
or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, on behalf of a Portfolio, the Custodian and a broker-
dealer registered under the Securities Exchange Act of 1934 and a member of
the National Association of Securities Dealers, Inc., relating to compliance
with the rules of The Options Clearing Corporation, the Commodities Futures
Trading Commission and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited
from the broker. The Custodian will act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow and will have
no responsibility or liability for any such Securities which are not returned
promptly when due other than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular
class of Instructions in question and whose name and (if applicable) signature
and office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral
communication by one or more persons as the Customer shall have from time to
time authorized to give the particular class of Instructions in question and
whose name has been filed with the Custodian; or (iv) upon receipt of such
other form of instructions as the Customer may from time to time authorize in
writing and which the Custodian has agreed in writing to accept. Instructions
in the form of oral communications shall be confirmed by the Customer by
tested telex or writing in the manner set forth in clause (i) above, but the
lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific
transactions or to types or classes of transactions, and may be in the form of
standing instructions.
The Custodian shall have the right to assume in the absence of notice to
the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper
person or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not the contrary to the
provisions of this Agreement. The Custodian will use reasonable care with
respect to the safekeeping of Property in each Account and, except as
otherwise expressly provided herein, in carrying out its obligations under
this Agreement. So long as and to the extent that it has exercised reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any Property or other property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement and shall be held
harmless in acting upon, and may conclusively rely on, without liability for
any loss resulting therefrom, any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be signed or
furnished by the proper party or parties, including, without limitation,
Instructions, and shall be indemnified by the Customer for any losses,
damages, costs and expenses (including, without limitation, the fees and
expenses of counsel) incurred by the Custodian and arising out of action taken
or omitted with reasonable care by the Custodian hereunder or under any
Instructions. The Custodian shall be liable to the Customer for any act or
omission to act of any Subcustodian to the same extent as if the Custodian
committed such act itself, provided that if Customer by Instructions selects
any U.S. Subcustodian or a non-U.S. Subcustodian which, at the time of
selection is no part of the Custodian's existing global custody network, the
Custodian shall be only liable for its own negligence. With respect to a
Securities System, the Custodian shall only be responsible or liable for
losses arising from employment of such Securities System caused by the
Custodian's own failure to exercise reasonable care. In the event of any loss
to the Customer by reason of the failure of the Custodian or a Subcustodian to
utilize reasonable care, the Custodian shall be liable to the Customer to the
extent of the Customer's actual damages at the time such loss was discovered
without reference to any special conditions or circumstances. In no event
shall the Custodian be liable for any consequential or special damages. The
Custodian shall be entitled to rely, and may act, on advice of counsel (who
may be counsel for the Customer) on all matters and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be
fully responsible for the security of the Customer's connecting terminal,
access thereto and the proper and authorized use thereof and the initiation
and application of continuing effective safeguards with respect thereto and
agree to defend and indemnify the Custodian and hold the Custodian harmless
from and against any and all losses, damages, costs and expenses (including
the fees and expenses of counsel) incurred by the Custodian as a result of any
improper or unauthorized use of such terminal by the Customer or by any
others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution
of securities transactions or affect the value of Property; acts of war,
terrorism, insurrection or revolution; strikes or work stoppages; the
inability of a local clearing and settlement system to settle transactions for
reasons beyond the control of the Custodian; hurricane, cyclone, earthquake,
volcanic eruption, nuclear fusion, fission or radioactivity, or other acts of
God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense
arises from the performance of the Custodian's duties hereunder by reason of
the Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under
this Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the
Customer agrees to indemnify the Custodian and its nominees, for any loss,
damage or expense suffered or incurred by the Custodian or its nominees
arising out of any violation of any investment restriction or other
restriction or limitation applicable to the Customer or any Portfolio pursuant
to any contract or any law or regulation. The provisions of this Section
shall survive termination of this Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian
such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and the Custodian's
reasonable out-of-pocket or incidental expenses in connection with the
performance of this Agreement, including (but without limitation) legal fees
as described herein and/or deemed necessary in the judgment of the Custodian
to keep safe or protect the Property in an Account. The Customer hereby
agrees to hold the Custodian harmless from any liability or loss resulting
from any taxes or other governmental charges, and any expense related thereto,
which may be imposed, or assessed with respect to any Property in an Account
and also agrees to hold the Custodian, its Subcustodians, and their respective
nominees harmless from any liability as a record holder of Property in such
Account. The Custodian is authorized to charge the applicable Account for
such items and the Custodian shall have a lien on the Property in the
applicable Account for any amount payable to the Custodian under this
Agreement, including, but not limited to, amounts payable pursuant to
paragraph (e) of Section 12 and pursuant to indemnities granted by the
Customer under this Agreement. The provisions of this Section shall survive
the termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and
which may be deducted from any income received from any Property in an
Account, the Custodian shall perform such services with respect thereto as are
described in Exhibit C, attached hereto, and shall in connection therewith be
subject to the standard of care set forth in such Exhibit C. Such standard of
care shall not be affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties
hereto. No waiver of any provision hereto shall be deemed a continuing waiver
unless it is so designated. No failure or delay on the part of either party
in exercising any power or right under this Agreement operates as a waiver,
nor does any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
20. Termination.
(a) Termination of Entire Agreement. This Agreement may be terminated
by the Customer at any time by written notice or by the Custodian by the
giving of one hundred twenty (120) days written notice to the Customer;
provided that such written notice by the Customer shall specify the names of
the persons to whom the Custodian shall deliver the Securities in each Account
and to whom the Cash in each Account shall be paid. If notice of termination
is given by the Custodian, the Customer shall, within one hundred twenty (120)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in each Account shall be
paid. In either case, the Custodian will deliver such Securities and Cash to
the persons so specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it under Sections 12, 17, and 23. In
addition, the Custodian may in its discretion withhold from such delivery such
Cash and Securities as may be necessary to settle transactions pending at the
time of such delivery. The Customer grants to the Custodian a lien and right
of setoff against the Account and all Property held therein from time to time
in the full amount of the foregoing obligations. If within one hundred twenty
(120) days following the giving of a notice of termination by the Custodian,
the Custodian does not receive from the Customer a written notice specifying
the names of the persons to whom the Custodian shall deliver the Securities in
each Account and to whom the Cash in such Account shall be paid, the
Custodian, at its election, may deliver such Securities and pay such Cash to a
bank or trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions of this Agreement, or may continue to
hold such Securities and Cash until a written notice as aforesaid is delivered
to the Custodian, provided that the Custodian's obligations shall be limited
to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer as to one or more Portfolio(s) (but less than all
of the Portfolios) at any time by delivery of an amended Exhibit A deleting
such Portfolio(s). This Agreement may be terminated by the Custodian as to
one or more Portfolio(s) (but less than all of the Portfolios) by delivery of
an amended Exhibit A deleting such Portfolio(s), in which case termination as
to such deleted Portfolio(s) shall take effect one hundred twenty (120) days
after the date of such delivery, or such earlier time as mutually agreed. The
execution and delivery of an amended Exhibit A which deletes one or more
Portfolio(s) shall constitute a termination of this Agreement only with
respect to such deleted Portfolio(s), shall be governed by the preceding
provisions of Section 20 as to the identification of a successor custodian and
the delivery of Cash and Securities of the Portfolio(s) so deleted to such
successor custodian, and shall not affect the obligations of the Custodian and
the Customer hereunder with respect to the other Portfolio(s) set forth in
Exhibit A, as amended from time to time.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed:
if to the Customer, to:
Sherron A. Kirk
9800 Fredericksburg Road
San Antonio, Texas 78288
Phone: (210) 498-7804
Facsimile: (210) 498-0382
if to the Custodian, to:
Richard Fogarty
16 Wall Street
4th Floor
New York, NY 10005
Phone: (212) 618-3671
Facsimile: (212) 618-2415
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its
related Accounts arising out of this Agreement, the Custodian shall look for
payment or satisfaction of any obligation solely to the assets and Property of
the Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided
that, if there is more than one Account and the obligations secured pursuant
to this Section can be allocated to a specific Account or the Portfolio
related to such Account, such security interest and right of setoff will be
limited to Property held for that Account only and its related Portfolio.
Should the Customer fail to pay promptly any amounts owed hereunder, the
Custodian shall be entitled to use available Cash in the Account or applicable
Accounts, as the case may be, and to dispose of Securities in the Account or
such applicable Account as is necessary. In any such case and without
limiting the foregoing, the Custodian shall be entitled to take such other
action(s) or exercise such other options, powers and rights as the Custodian
now or hereafter has as a secured creditor under the New York Uniform
Commercial Code or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of fees,
expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the
Customer is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation
of law or otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer
and each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence of
such authorization as the Custodian may reasonably require, whether by
way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which the Custodian is bound, whether arising by contract, operation
of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the
Custodian in accordance with its terms;
(iii) the Custodian will deliver to the Customer such evidence of
such authorization as the Customer may reasonably require, whether by
way of a certified resolution or otherwise; and
(iv) the Custodian is qualified as a custodian under Section
26(a) of the 1940 Act and warrants that it will remain so qualified or
upon ceasing to be so qualified shall promptly notify the Customer in
writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Custodian.
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, (a) at least ten (10) days prior to filing or
first use, as the case may be, drafts of its registration statement on Form N
- -1A (including amendments) and prospectus supplements or amendments relating
to the Customer, or (b) at least two (2) business day prior to filing or first
use, as the case may be, as proposed advertising or sales literature relating
to the Custodian. The Customer will not make any other written or oral
representation about the Custodian without its prior written consent. The
provisions of this Section shall survive the termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding
arising out of this Agreement may be instituted in any State or Federal court
sitting in the City of New York, State of New York, United States of America,
and the Customer irrevocably submits to the non-exclusive jurisdiction of any
such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding brought in such a
court and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered
by each of the parties hereto.
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations.
All confidential information provided by a party hereto shall be used by any
other party hereto solely for the purpose of rendering services pursuant to
this Agreement and, except as may be required in carrying out this Agreement,
shall not be disclosed to any third party without the prior consent of such
providing party. The foregoing shall not be applicable to any information
that is publicly available when provided or thereafter becomes publicly
available other than through a breach of this Agreement, or that is required
or requested to be disclosed by any bank or other regulatory examiner of the
Custodian, Customer, or any Subcustodian, any auditor of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity
or enforceability of any other provision of this Agreement.
31. Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter herein and supersedes all
prior agreements and understandings relating to such subject matter.
Notwithstanding the foregoing, nothing in this Agreement shall affect any
other agreement between the parties related to other subject matters.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
USAA MUTUAL FUND, INC.
By: /s/ Michael J.C. Roth
------------------------------
Title: President
BANKERS TRUST COMPANY
By: /s/ John P. Zon
------------------------------
Title: Vice President
EXHIBIT A
To Custodian Agreement dated as of May 1, 1996 between Bankers
Trust Company and USAA Mutal Fund, Inc.
LIST OF PORTFOLIOS
The following is a list of Portfolio(s) referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms, unless otherwise defined, shall have the meanings ascribed to
them in the above-referred to Custodian Agreement.
USAA S&P 500 Index Fund
Dated as of: May 1, 1996 USAA MUTUAL FUND, INC.
By: /s/ Michael J.C. Roth
------------------------------
Title: President
BANKERS TRUST COMPANY
By: /s/ John P. Zon
------------------------------
Title: Vice President
EXHIBIT B
To Custodian Agreement dated as of May 1, 1996 between Bankers
Trust Company and USAA Mutual Fund, Inc.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein, unless
otherwise defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating
to Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, South Korea, Spain, Sri Lanka, Sweden, United Kingdom, United States,
and Venezuela. For the United States and Canada, the term "corporate
communications" means the proxy statements or meeting agenda, proxy cards,
annual reports and any other meeting materials received by the Custodian. For
countries other than the United States and Canada, the term "corporate
communications" means the meeting agenda only and does not include any meeting
circulars, proxy statements or any other corporate communications furnished by
the issuer in connection with such meeting. Non-meeting related corporate
communications are not included in the transmission service to be provided by
the Custodian except upon request as provided below.
The Custodian's process for transmitting and translating meeting agendas
will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official
language of the country in which the related Security is held, the
Custodian will as soon as practicable after receipt of the
original meeting agenda by a Subcustodian provide an English
translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor any
Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based
thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communications such as annual or
interim reports, proxy statements, meeting circulars, or local language
agendas, and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention
to any required procedures will be very important. Upon timely receipt of
voting instructions, the Custodian will promptly forward such instructions to
the applicable Subcustodian. If voting instructions are not timely received,
the Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or directions (e.g., by way of illustration only and not by way
of limitation, physical presence is required at a meeting and/or travel
expenses are incurred), such expenses will be reimbursed out of the Account
containing such Securities unless other arrangements have been made for such
reimbursement.
It is the intent of the Custodian to expand the Proxy Service to include
jurisdictions which are not currently included as set forth in the second
paragraph hereof. The Custodian will notify the Customer as to the inclusion
of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: May 1, 1996 USAA MUTUAL FUND, INC.
By: /s/ Michael J.C. Roth
------------------------------
Title: President
BANKERS TRUST COMPANY
By: /s/ John P. Zon
-----------------------------
Title: Vice President
EXHIBIT C
To Custodian Agreement dated as of May 1, 1996 between Bankers
Trust Company and USAA Mutual Fund, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement, the
Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall, unless otherwise defined, have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue, on a reasonable
efforts basis, the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer
and advise what documentation, if any, is required to obtain the exemption.
Upon receipt of such documentation from the Customer, the Custodian will file
for exemption on the Customer's behalf and notify the Customer when it has
been obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile
or other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and
treaty provisions. The Custodian may rely on any such information provided by
the Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the
jurisdictions in question. In addition, the Custodian may seek the advice of
counsel or other professional tax advisers in such jurisdictions. The
Custodian is entitled to rely, and may act, on information set forth in such
services and on advice received from a Subcustodian, counsel or other
professional tax advisers and shall be without liability to the Customer for
any action reasonably taken or omitted pursuant to information contained in
such services or such advice.
Dated as of: May 1, 1996 USAA MUTUAL FUND, INC.
By: /s/ Michael J.C. Roth
------------------------------
Title: President
BANKERS TRUST COMPANY
By: /s/ John P. Zon
------------------------------
Title: Vice President
EXHIBIT 8(j)
USAA MUTUAL FUND, INC.
SUBCUSTODIAN AGREEMENT
WITH
TEXAS COMMERCE BANK
The undersigned custodian (the "Custodian") for USAA Mutual Fund, Inc.
(the "Company"), an open-end investment company registered under the
Investment Company Act of 1940 (the "1940 Act"), hereby appoints Texas
Commerce Bank National Association as subcustodian (the "Subcustodian") for
one of the series of the Company, the USAA S&P 500 Index Fund (the "Fund") and
the Subcustodian hereby accepts such appointment on the following terms and
conditions as of the date set forth below.
1. Qualification. The Custodian and the Subcustodian each represents
to the other and to the Company that it is qualified to act as a custodian for
a registered investment company under the 1940 Act, and the Custodian
represents to the Subcustodian that it is the duly appointed, qualified and
acting Custodian of the Fund, with all necessary power and authority to enter
into this Agreement.
2. Subcustody. The Subcustodian agrees to maintain one or more
custodial accounts ("Subscription Accounts") for the Fund in which checks
("Subscription Checks") issued in payment for purchases of Fund shares shall
be deposited by USAA Transfer Agency Company d/b/a USAA Shareholder Account
Services ("Transfer Agent"), transfer agent of the Fund (the "Transfer
Agent"). The Subcustodian further agrees to debit IMCO account no.
06407080765 (the "Return Item Account") for the aggregate amount of all
Subscription Checks returned to the Subcustodian for non-payment ("Return
Items"), informing Transfer Agent daily of any returned Subscription Checks.
In the event that the available funds in the Return Item Account are
insufficient to cover the amount of the Return Items, Subcustodian will
promptly notify Transfer Agent by telephone of the amount of such
insufficiency. Upon receipt of such telephone notice, Transfer Agent agrees
to remit to Subcustodian the full amount of any such insufficiency.
Each business day the Subcustodian agrees to, based upon
instructions by Transfer Agent, remit to the Custodian by wire (in immediately
available funds) transfer amounts of Subscription Checks deposited in the
Subscription Account on the preceding business day notwithstanding whether the
Subcustodian has collected good funds in respect of such checks. The Fund
will compensate the Subcustodian for (i) estimated earnings lost on amounts
wired to the Custodian in payment of Subscription Checks during the period
from the date wire payment is made through the date good funds on such checks
are received by the Subcustodian, (ii) for service fees charged by the
Subcustodian for processing Subscription Checks as set forth in Schedule 1 to
this Agreement (these amounts will be paid monthly and computed based on an
overall account relationship), (iii) other miscellaneous fees as described in
Schedule 1, and (iv) Return Items not paid by the Transfer Agent or USAA
Investment Management Company ("IMCO") within five (5) business days following
a request for payment by Subcustodian pursuant to this paragraph.
3. Instructions: Other Communications. Any one officer or other
authorized representative of the Transfer Agent designated as hereinafter
provided as an officer or other authorized representative of the Transfer
Agent authorized to give instructions to the Subcustodian with respect to Fund
assets held in Subscription Accounts (an "Authorized Officer"), shall be
authorized to instruct the Subcustodian as to the deposit, withdrawal or any
other action with respect to Fund assets from time to time by telephone, or in
writing signed by such Authorized Officer and delivered by telecopy, tested
telex, tested computer printout or such other reasonable method as the
Transfer Agent and Subcustodian shall agree; provided, however, the
Subcustodian is authorized to accept and act upon instructions from the
Transfer Agent, whether orally, by telephone or otherwise, which the
Subcustodian reasonably believes to be given by an authorized person. The
Subcustodian may require that any instructions given orally or by
telecommunications be promptly confirmed in writing.
The Authorized Officers shall be as set forth on Schedule 2
attached hereto or as otherwise from time to time certified in writing by the
Transfer Agent to the Subcustodian signed by the President or any Vice
President and any Assistant Vice President, Assistant Secretary or Assistant
Treasurer of the Company. In addition to a written list of authorized
officers, the Transfer Agent will provide Subcustodian with additional
information and signature cards as reasonably requested by Subcustodian
relating to the authorized officers. The Subcustodian shall furnish the
Transfer Agent, with a copy to the Fund, by first class mail, or other
mutually agreed-upon means of transmission, (i) prompt telephonic and written
notice of Return Items, (ii) a monthly report on activity in each of the
Subscription Accounts within five (5) days after the end of each calendar
month, and (iii) a daily statement of activity in each of the Subscription
Accounts. The Subcustodian shall also furnish the Custodian with a copy of
item (ii) above.
4. Fees. The service fees charged by the Subcustodian under the
Agreement are set forth in Schedule 1 attached hereto. Schedule 1 may be
amended by the parties in writing provided written notice is furnished to the
Fund thirty (30) days in advance of any increase in fees.
5. Liabilities.
(i) The Subcustodian and Custodian shall be held harmless by the
Transfer Agent and shall not be liable for any action taken or omitted to be
taken under this Agreement, except for actions or omissions caused by the
Subcustodian's or Custodian's negligence, willful malfeasance, or bad faith in
connection with its obligations and duties under this Agreement. Except as
otherwise set forth herein, neither the Custodian nor the Subcustodian shall
have responsibility with respect to Fund assets. The Subcustodian and
Custodian shall, for the benefit of the Custodian or Subcustodian, as the case
may be, and the Fund, use the same care with respect to handling of Fund
assets in depository accounts as it uses in respect of its own assets
similarly held. Neither the Custodian nor the Subcustodian shall have
responsibility with respect to any monies or any wire transfer, checks or
other instruments for the payment of money unless and until actually received
or secured by wire transfer by the Custodian or Subcustodian, as the case may
be. IN NO EVENT WILL THE SUBCUSTODIAN OR CUSTODIAN BE LIABLE TO THE CUSTODIAN
OR SUBCUSTODIAN, AS THE CASE MAY BE, TRANSFER AGENT OR THE FUND FOR ANY
INDIRECT DAMAGES, LOST PROFITS, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES
WHICH ARISE OUT OF OR IN CONNECTION WITH THE SERVICES CONTEMPLATED HEREIN.
(ii) The Subcustodian shall indemnify, defend and save harmless the
Custodian and the Fund from and against all loss, liability, claims and
demands incurred by the Custodian or the Fund arising out of or in connection
with the Subcustodian's negligence, willful malfeasance or bad faith in
connection with its obligations and duties under this Agreement.
(iii) The Custodian shall indemnify, defend and save harmless the
Subcustodian and the Fund from and against all loss, liability, claims and
demands incurred by the Subcustodian or the Fund arising out of or in
connection with the Custodian's negligence, willful malfeasance or bad faith
in connection with its obligations and duties under this Agreement.
(iv) The Transfer Agent shall indemnify, defend and save harmless the
Subcustodian from and against all loss, liability, claims and demands incurred
by the Subcustodian arising out of or in connection with the Transfer Agent's
negligence, willful malfeasance or bad faith in connection with its
obligations and duties under this Agreement.
(v) The Subcustodian shall indemnify, defend and save harmless the
Transfer Agent from and against all loss, liability, claims and demands
incurred by the Transfer Agent arising out of or in connection with the
Subcustodian's negligence, willful malfeasance or bad faith in connection with
its obligations and duties under this Agreement.
(vi) It is understood and expressly stipulated that neither the
shareholders of the Fund nor the members of the Board of the Company shall be
personally liable hereunder. The obligations of the Fund hereunder are not
personally binding upon, nor shall resort to the private property of, any of
the members of the Board of the Company, nor of its shareholders, officers,
employees or agents, but only the Fund's property shall be bound.
6. Termination. The Transfer Agent may terminate this Agreement at
any time upon notice to the Subcustodian and Custodian. The Custodian and
Subcustodian each may terminate this Agreement at any time by not less than
thirty (30) days' prior written notice which shall specify the date of such
termination; and further, provided, however, that the Custodian may
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Subcustodian by the Federal Deposit Insurance
Corporation or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction. Upon
termination, the Subcustodian shall make immediate delivery of all Fund assets
held in the Subscription Accounts to the Custodian or to any third party
specified by the Custodian in writing. If any Subscription Checks are
subsequently returned unpaid the Fund shall direct the Transfer Agent to pay
the Subcustodian the amount thereof on behalf of the Fund promptly upon
demand.
7. Communications. All notices to be delivered pursuant to the terms
of this Agreement shall be given in writing, and shall be deemed given (a)
upon delivery in person to the persons indicated below, or (b) three days
after deposit in the United States Postal Service, postage prepaid,
registered, or certified mail, return receipt requested, or (c) upon receipt
by facsimile (provided that such receipt of such facsimile is confirmed
telephonically by the addressee), or (d) by overnight delivery service (with
receipt of delivery), sent to the addresses shown below, or to such different
address(es) as such party shall be designated by written notice to the other
parties hereto at least ten (10) days in advance of the date upon which such
change of address shall be effective. All communications required or
permitted to be given under this Agreement, unless otherwise agreed by the
parties, shall be addressed as follows:
(i) to the Subcustodian:
Texas Commerce Bank National Association
1020 N.E. Loop 410
San Antonio, Texas 78209
Attn: Jessica Jones
(ii) to the Custodian:
Bankers Trust Company
16 Wall Street, 4th Floor
New York, New York 10005
Attn: Richard Fogarty
(iii) to the Transfer Agent: USAA Shareholder Account Services
10750 McDermott Freeway, BK-B03-N
(As instructed by the Custodian) San Antonio, Texas 78288
Attn: Pat Bauer
8. Access to Records. The Subcustodian will not refuse any
reasonable request for inspection and audit of its books and records
concerning transactions and balances of the Subscription Accounts by an agent
of the Fund or the Custodian.
9. Cooperation. The Subcustodian shall cooperate with the Fund and
the Custodian and their respective independent public accountants in
connection with annual and other audits of the books and records of the
Custodian or the Fund.
10. Miscellaneous. This Agreement (i) shall be governed by and
construed in accordance with the laws of the state of Texas without regard to
conflicts or choice of law rules, except as it imposes duties involving
Custodian, in such case the laws of the state of New York apply, (ii) may be
executed in counterparts each of which shall be deemed an original but all of
which shall constitute the same instrument, and (iii) may only be amended by
the parties hereto in writing.
11. Terms and Conditions of Deposit Accounts. The handling of the
Subscription Accounts and the Return Item Account and all other accounts
maintained with Subcustodian in connection with or relating to this Agreement
will be subject to the Subcustodian's Terms and Conditions of Deposit
Accounts, and any and all rules or regulations now or hereafter promulgated by
the Subcustodian which relate to such accounts and the Uniform Commercial
Code, as adopted by the State of Texas (except in the event any of the same
are contrary to the specific provisions hereof). In the event of any specific
conflict between the provisions hereof and the provisions of any of the
agreements, rules and regulations referenced in this paragraph, the provisions
of this Agreement shall control.
12. Signature Authority. Each of the undersigned represents and
warrants that he/she has the requisite authority to execute this Agreement on
behalf of the party for whom the undersigned signs; that all necessary action
has been taken to authorize this Agreement; that this Agreement, upon
execution and delivery, shall be a binding obligation of such party.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth below.
Dated: May 1, 1996
BANKERS TRUST COMPANY
As Custodian
By: /s/ John P. Zon
-----------------------------
Title: Vice President
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
As Subcustodian
By: /s/ Brad Hardin
-----------------------------
Title: Vice President
USAA TRANSFER AGENCY COMPANY
As Transfer Agent
By: /s/ John J. Dallahan
-----------------------------
John J. Dallahan
Title: Senior Vice President
The Company, on behalf of the Fund, hereby consents and agrees to the
terms of the foregoing Subcustodian Agreement; provided, however, that the
same shall not relieve the Custodian of any of its responsibilities to the
Fund as set forth in the Custodian Agreement between the Company and the
Custodian.
USAA MUTUAL FUND, INC.
on behalf of itself and its series
USAA S&P 500 INDEX FUND
By: /s/ Michael J.C. Roth
-----------------------------
Michael J. C. Roth
Title: President
IMCO hereby consents and agrees to the terms of the foregoing
Subcustodian Agreement.
USAA INVESTMENT MANAGEMENT COMPANY
By: /s/ John W. Saunders. Jr.
----------------------------
John W. Saunders, Jr.
Title: Senior Vice President
SCHEDULE 1
FEES
Item Processing Pricing
High Volume Corporate Accounts
Effective January 1994
SERVICE PRICE
------- -----
Pre-encoded Deposit
On-Us $ .019/item
Tier I/Local City $ .019/item
Tier II/Local RCPC $ .029/item
Tier III/Texas Fed Cities $ .040/item
Tier IV/Other Texas $ .050/item
Tier V/Other Transit $ .059/item
Rejects $ .03/item
Account Maintenance $ 10.00/account
Debits Posted $ .12/item
Credits Posted $ .45/deposit
FDIC Assessment $ .16/$1,000 ledger bal./mo.
MicroLink Pricing
Effective January 1994
SERVICE PRICE
------- -----
Cash Manager
Software Pricing *
Cash Manager Setup Fee $ 325.00
Maintenance *
Cash Manager $ 35.00/customer/month
Bank Account Reporting
TCB
(First 5 Accounts) $ 25.00/account/month
Current Day Reporting **
Transaction Reporting
Previous Day Items $ .15/item
Current Day Items $ .20/item
Automated Payments & Collections (APC)***
Software Pricing *
APC Setup Fee $ 225.00
Maintenance *
Automated Payments & Collections $ 25.00/customer/month
APC Transactions
First 1-500 Transactions $ .30/transaction
* Fees are for single micro-computer software. Additional micro-computer
software and maintenance charges are available at 50% off listed fees.
** The charge for Current Day Reporting is in addition to the account
charges.
*** Refer to ACH Price Sheet for additional APC and DTS charges.
TexStar Funds Transfer Pricing
Effective January 1994
SERVICE PRICE
------- -----
TexStar Account Maintenance $ 0.00/account/month
Incoming Transfer
Autopost Domestic $ 4.50/transfer
Notifications
TexStar Direct Access $ No charge
TexStar Direct Access, TexStar EXPRESS,
Automatic Standing Transfer, BatchWire*
Internal $ 1.00/transfer
Outgoing
Repetitive $ 6.00/transfer
* BatchWire supports domestic internal and outgoing repetitive funds
transfers.
Automated Clearing House (ACH)
Origination
(Statewide)
Effective January 1994
SERVICE PRICE
------- -----
MicroLink (APC Module)
Software Setup Fee $ 225.00
Maintenance $ 25.00/customer/month
Initiation
First 1-500 transactions $ .30/transaction
Monthly Maintenance * $ 50.00/customer Tax ID/
month
* One charge for all accounts
International Collection Services Pricing
Effective January 1994
SERVICE PRICE
------- -----
International Collections*
$ 25.00-$ 4,000.00 $ 16.00
$ 4,000.01-$10,000.00 $ 26.00
$10,000.01+ $ 51.00 maximum (1/4 of 1%)
* Charge deducted from the face amount of the check. $8.50 processing fee
charged to analysis.
SCHEDULE 2
AUTHORIZED OFFICERS
Michael J.C. Roth
Joseph H.L. Jimenez
Sherron Kirk
Pat Bauer
Jim Sanchez
Lori Polhamus
Delia Flores
EXHIBIT 8(k)
Bankers Trust Company
One Bankers Trust Plaza, New York, New York 10006
Mailing Address:
P.O. Box 318, Church Street Station
New York, New York 10008
Mr. Mark Howard
Senior Associate Counsel - Securities Division
USAA Mutual Fund, Inc.
10750 McDermott Freeway - Mail Zone BK-B04-S
San Antonio, TX 78288
Re: Custodian Agreement
Dear Mr. Howard:
As discussed, this letter confirms that the compensation for custodial
services referred to in Section 17 of the Custodian Agreement dated as of May
1, 1996 between Bankers Trust Company and the USAA Mutual Fund, Inc. on behalf
of USAA S&P 500 Index Fund shall be $300.00 per account per month. Please
confirm your acceptance by signing below where indicated and returning a copy
of this letter. Thank you very much.
Very truly yours,
/s/Richard M Quintal
---------------------------
Richard M Quintal
Managing Director
Accepted and Agreed:
USAA MUTUAL FUND, INC.
on behalf of USAA S&P 500 INDEX FUND
By: /s/Sherron Kirk
--------------------------
Name: SHERRON KIRK
Title: TREASURER
Date: MAY 1, 1996
EXHIBIT 8(l)
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and USAA Mutual Fund, Inc. (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated November 3, 1982 as amended November 8, 1993, February 6, 1989, November
3, 1988 and October 30, 1987 (the "Custodian Contract") governing the terms
and conditions under which the Custodian maintains custody of the securities
and other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in
conformity with the requirements of Rule 17f-5 under the Investment Company
Act of 1940, as amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign sub
- -custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
property of the Fund which are maintained in such account shall identify by
book-entry those securities and other non-cash property belonging to the Fund
and (ii) the Custodian shall require that securities and other non-cash
property so held by the foreign sub-custodian be held separately from any
assets of the foreign sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this 13th day of May, 1996.
USAA MUTUAL FUND, INC.
By: /s/ John W. Saunders, Jr.
-----------------------------------
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Marguerite Summers
-----------------------------------
Title: Vice President
EXHIBIT 9(f)
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
USAA INVESTMENT MANAGEMENT COMPANY,
USAA MUTUAL FUND, INC.,
EQUITY 500 INDEX PORTFOLIO
AND
BANKERS TRUST COMPANY
dated as of
May 1, 1996
AGREEMENT
---------
THIS AGREEMENT is made and entered into as of the 1st day of May, 1996,
by and among USAA Investment Management Company ("USAA"), USAA Mutual Fund,
Inc. (the "Company"), a Maryland corporation, in respect of USAA S&P 500
Index Fund, a series thereof (the "Fund"), Equity 500 Index Portfolio, a
trust organized under the common law of the State of New York (the
"Portfolio"), and Bankers Trust Company, a New York banking corporation (the
"Adviser"), with respect to the proposed investment by the Fund in the
Portfolio.
WITNESSETH
----------
WHEREAS, the Company and the Portfolio are each open-end management
investment companies and the Fund and the Portfolio have the same investment
objectives and substantively the same investment policies;
WHEREAS, the Adviser currently serves as the investment adviser of the
Portfolio;
WHEREAS, USAA currently serves as the principal underwriter and
investment manager of the Fund;
WHEREAS, the Company desires to invest all of the Fund's investable
assets in the Portfolio in exchange for a beneficial interest in the Portfolio
(the "Investment") on the terms and conditions set forth in this Agreement;
WHEREAS, the Portfolio believes that accepting the Investment is in the
best interests of the Portfolio and that the interests of existing investors
in the Portfolio will not be diluted as a result of its accepting the
Investment; and
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
I
THE INVESTMENT
--------------
1.1 Agreement to Effect the Investment. The Company agrees to
assign, transfer and deliver all of the Fund's investable assets (the
"Assets") to the Portfolio at each Closing (as hereinafter defined). The
Portfolio agrees in exchange therefor to issue to the Fund a beneficial
interest (the "Interest") in the Portfolio equal in value to the net value
of the Assets of the Fund conveyed to the Portfolio on that date of Closing.
II
CLOSING AND CLOSING DATE
------------------------
2.1 Time of Closing. The conveyance of the Assets in exchange for the
Interest, as described in Article I, together with related acts necessary to
consummate such transactions, shall occur initially on the date the Company
commences its offering of shares of the Fund to the public and at each
subsequent date as the Company desires to make a further Investment in the
Portfolio (each, a "Closing"). All acts occurring at any Closing shall be
deemed to occur simultaneously as of the last daily determination of the
Portfolio's net asset value on the date of Closing.
2.2 Related Closing Matters. On each date of Closing, the Company, on
behalf of the Fund, shall authorize the Fund's custodian to deliver all of the
Assets held by such custodian to the Portfolio's custodian. The Fund's and
the Portfolio's custodians shall acknowledge, in a form acceptable to the
other party, their respective delivery and acceptance of the Assets. The
Portfolio shall deliver to the Company acceptable evidence of the Fund's
ownership of the Interest. In addition, each party shall deliver to each
other party such bills of sale, checks, assignments, securities instruments,
receipts or other documents as such other party or its counsel may reasonably
request. Each of the representations and warranties set forth in Article III
shall be deemed to have been made anew on each date of Closing.
III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 The Company and USAA. The Company and USAA each represents and
warrants to the Portfolio and the Adviser that:
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
the Fund is a duly and validly designated series of the Company, and the
Company and the Fund have the requisite power and authority to own their
property and conduct their business as now being conducted and as proposed to
be conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Company and no other action or proceeding is necessary for the
execution and delivery of this Agreement by the Company, the performance by
the Company of its obligations hereunder and the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company in respect of the Fund, enforceable against
them in accordance with its terms.
(c) Authorization of Investment. The Investment has been duly
authorized by all necessary action on the part of the Board of Directors of
the Company.
(d) No Bankruptcy Proceedings. Neither the Company nor the Fund
is under the jurisdiction of a court in a proceeding under Title 11 of the
United States Code (the "Bankruptcy Code") or similar case within the
meaning of Section 368(a) (3) (A) of the Bankruptcy Code.
(e) Fund Assets. The Fund's Assets will, at the initial
Closing, consist solely of cash.
(f) Fiscal Year. The fiscal year end for the Fund is December 31.
(g) Auditors. The Company has appointed Coopers & Lybrand LLP
as the Fund's independent public accountants to certify the Fund's financial
statements in accordance with Section 32 of the investment Company Act of
1940, an amended ("1940 Act").
(h) Registration Statement. The Company has reviewed the
Portfolio's registration statement on Form N-1A, as filed with the Securities
and Exchange Commission ("SEC"), and understands and agrees to the
Portfolio's policies and methods of operation as described therein.
(i) Errors and Omissions Insurance Policy. The Company has in
force an errors and omissions liability insurance policy insuring the Fund
against loss up to $5 million for negligence or wrongful acts.
(j) SEC Filings. The Company has duly filed all forms, reports,
proxy statements and other documents (collectively, the "SEC Filings")
required to be filed under the Securities Act Of 1933, as amended (the "1933
Act"), the Securities Exchange Act of 1934 (the "1934 Act") and the 1940
Act (collectively, the "Securities Laws") in connection with the
registration of its shares, any meetings of its shareholders and its
registration as an investment company. The SEC Filings were prepared in
accordance with the requirements of the Securities Laws, as applicable, and
the rules and regulations of the Securities and Exchange Commission (the
"SEC") thereunder, and do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) 1940 Act Registration. The Company is duly registered as an
open-end management investment company under the 1940 Act and the Fund and its
shares are registered or qualified in any states where such registration or
qualification is necessary and such registrations or qualifications are in
full force and affect.
3.2 The Portfolio and the Adviser. The Portfolio and the Adviser each
represents and warrants to the Company and USAA that:
(a) Organization. The Portfolio is a trust duly organized and
validly existing under the common law of the State of New York and has the
requisite power and authority to own its property and conduct its business as
now being conducted and as proposed to be conducted pursuant to this
Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by the Portfolio and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Portfolio by its Board of Trustees and no other action or
proceeding is necessary for the execution and delivery of this Agreement by
the Portfolio, the performance by the Portfolio of its obligations hereunder
and the consummation by the Portfolio of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Portfolio and
constitutes a legal, valid and binding obligation of the Portfolio,
enforceable against it in accordance with its terms.
(c) Authorization of Issuance of Interest. The issuance by the
Portfolio of the Interest in exchange for the Investment by the Fund of its
Assets has been duly authorized by all necessary action on the part of the
Board of Trustees of the Portfolio. When issued in accordance with the terms
of this Agreement, the Interest will be validly issued, fully paid and non
- -assessable by the Portfolio.
(d) No Bankruptcy Proceedings. The Portfolio is not under the
jurisdiction of a court in a proceeding under Title 11 of the Bankruptcy Code
or similar case within the meaning of Section 368(a)(3)(A) of the Bankruptcy
Code.
(e) Fiscal Year. The fiscal year end of the Portfolio is
December 31.
(f) Auditors. The Portfolio has appointed Coopers & Lybrand LLP
as the Portfolio's independent public accountants to certify the Portfolio's
financial statements in accordance with Section 32 of the 1940 Act.
(g) Registration Statement. The Portfolio has reviewed the
Company's registration statement on Form N-1A, as filed with the SEC, and
understands and agrees to the Fund's policies and methods of operation as
described therein.
(h) Errors and Omissions Insurance Policy. The Portfolio has in
force an errors and omissions liability insurance policy insuring the
Portfolio against loss up to $10 million for negligence or wrongful acts.
(i) SEC Filings. The Portfolio has duly filed all SEC Filings
required to be filed with the SEC pursuant to the 1934 Act and the 1940 Act in
connection with any meetings of its investors and its registration as an
investment company. Beneficial interests in the Portfolio are not required to
be registered under the 1933 Act because such interests are offered solely in
private placement transactions that do not involve any 'public offering'
within the meaning of Section 4(2) of the 1933 Act. The SEC Filings were
prepared in accordance with the requirements of the Securities Laws, as
applicable, and the rules and regulations of the SEC thereunder, and do not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(j) 1940 Act Registration. The Portfolio is duly registered as
an open-end management investment company under the 1940 Act and such
registration is in full force and effect.
(k) Tax Status. The Portfolio is taxable as a partnership under
the Internal Revenue Code of 1986, as amended (the "Code").
3.3 The Adviser. The Adviser represents and warrants to the Company
and USAA that:
(a) Organization. The Adviser is a New York banking corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has the requisite power and authority to conduct its
business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by the Adviser have been duly authorized by all necessary
action on the part of the Adviser and no other action or proceeding is
necessary for the execution and delivery of this Agreement by the Adviser.
This Agreement has been duly executed and delivered by the Adviser and
constitutes a legal, valid and binding obligation of the Adviser.
(c) Advisers Act. The Adviser is exempt from the definition of
an investment adviser under the Investment Advisers Act of 1940, as amended
(the "Advisers Act"), and is not required to register under that Act.
3.4 USAA. USAA represents and warrants to the Portfolio and the
Adviser that:
(a) Organization. USAA is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power and authority to conduct its business as now being
conducted.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by USAA have been duly authorized by all necessary action on
the part of USAA and no other action or proceeding is necessary for the
execution and delivery of this Agreement by USAA. This Agreement has been
duly executed and delivered by USAA and constitutes a legal, valid and binding
obligation of USAA.
(c) Principal Underwriter and Investment Manager. USAA serves
as the Fund's principal underwriter and investment manager and is duly
registered as a broker-dealer under the 1934 Act and investment adviser under
the Advisers Act.
IV
COVENANTS
---------
4.1 The Company. The Company covenants that:
(a) Advance Review of Certain Documents. The Company will
furnish the Portfolio and the Adviser, at least 10 business days prior to
filing or first use, as the case may be, with drafts of its registration
statement on Form N-lA (including amendments) and prospectus supplements or
amendments relating to the Fund. The Company will furnish the Portfolio and
the Adviser with any proposed advertising or sales literature relating to the
Fund at least 2 business days prior to filing or first use. The Company
agrees that it will include in all such Fund documents any disclosures that
may be required by law, particularly those relating to the Adviser's status as
a bank, and it will include in all such Fund documents any material comments
reasonably made by the Adviser or Portfolio. The Portfolio and Adviser will,
however, in no way be liable for any errors or omissions in such documents,
whether or not they make any objection thereto, except to the extent such
errors or omissions result from information provided by the Adviser or the
Portfolio. The Company will not make any other written or oral representation
about the Portfolio or the Adviser without their prior written consent.
(b) Tax Status. The Fund will qualify for treatment as a
regulated investment company under Subchapter M of the Code for all periods
during which this Agreement is in effect, except to the extent a failure to so
qualify may result from any action or omission of the Portfolio.
(c) Investment Securities. The Fund will own no investment
security other than its Interest in the Portfolio.
(d) Proxy Voting. If requested to vote on matters pertaining to
the Portfolio (other than a vote by the Company to continue the operation of
the Portfolio upon the withdrawal of another investor in the Portfolio), the
Company will (i) call a meeting of shareholders of the Fund for the purpose of
seeking instructions from shareholders regarding such matters, (ii) vote the
Fund's Interest proportionally as instructed by Fund shareholders, and (iii)
vote the Fund's Interest with respect to the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. The Company will hold each
such meeting of Fund shareholders in accordance with a timetable reasonably
established by the Portfolio.
(e) Insurance. The Company shall at all times maintain errors
and omissions liability insurance with respect to the Fund covering losses for
negligence and wrongful acts in an amount not less than $5 million.
(f) Auditors. In the event the Fund's independent public
accountants differ from those of the Portfolio, the Fund shall be responsible
for any costs and expenses associated with the need for the Portfolio's
independent public accountants to provide information to the Fund's
independent public accountants.
4.2 Indemnification by USAA.
(a) USAA will indemnify and hold harmless the Portfolio, the
Adviser and their respective trustees, directors, officers and employees and
each other person who controls the Portfolio or the Adviser, as the case may
be, within the meaning of Section 15 of the 1933 Act (each, a "Covered
Person" and collectively, "Covered Persons"), against any and all losses,
claims, demands, damages, liabilities and expenses (each, a "Liability" and
collectively, the "Liabilities") (including, unless USAA elects to assume
the defense pursuant to paragraph (b), the reasonable cost of investigating
and defending against any claims therefor and any counsel fees incurred in
connection therewith), joint or several, which
(i) arise out of or are based upon any of the Securities
Laws, any other statute or common law or are incurred in connection with or as
a result of any formal or informal administrative proceeding or investigation
by a regulatory agency, insofar as such Liabilities arise out of or are based
upon the ground or alleged ground that any direct or indirect omission or
commission by the Company or the Fund (either during the course of its daily
activities or in connection with the accuracy of its representations or its
warranties in this Agreement) caused or continues to cause the Portfolio to
violate any federal or state securities laws or regulations or any other
applicable domestic or foreign law or regulations or common law duties or
obligations, but only to the extent that such Liabilities do not arise out of
and are not based upon an omission or commission of the Portfolio or Adviser;
(ii) arise out of the Fund's having caused the Portfolio to
be an association taxable as a corporation rather than a partnership; or
(iii) arise out of any misstatement of a material fact or an
omission of a material fact in the Company's registration statement (including
amendments thereto) or included in Fund advertising or sales literature, other
than information provided by the Portfolio or the Adviser or included in Fund
advertising or sales literature at the request of the Portfolio or the
Adviser;
(iv) result from the failure of any representation or
warranty made by the Company or USAA to be accurate when made or the failure
of the Company or USAA to perform any covenant contained herein or to
otherwise comply with the terms of this Agreement;
(v) arise out of any unlawful or negligent act of the
Company, USAA or any director, officer, employee or agent of the Company or
USAA, whether such act was committed against the Company, the Portfolio,
Bankers Trust or any third party;
(vi) arise out of any claim that the use of the names
"Standard & Poor's," "S&P," "Standard & Poor's 500" or "500" by the
Company violates any license or infringes upon any trademark; or
(vii) result from any Liability of the Fund for which the
Portfolio is also liable;
provided, however, that in no case shall USAA be liable with respect to any
claim made against any Covered Person unless the Covered Person shall have
notified USAA in writing of the nature of the claim within a reasonable time
after the summons, other first legal process or formal or informal initiation
of a regulatory investigation or proceeding shall have been served upon or
provided to a Covered Person, or any federal, state or local tax deficiency
has come to the attention of the Adviser, the Portfolio or a Covered Person.
Failure to notify USAA of such claim shall not relieve it from any liability
that it may have to any Covered Person otherwise than on account of the
indemnification contained in this Section.
(b) USAA 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 USAA elects to assume the defense, such
defense shall be conducted by counsel chosen by USAA. In the event USAA
elects to assume the defense of any such suit and retain such counsel, each
Covered Person and any other defendant or defendants may retain additional
counsel, but shall bear the fees and expenses of such counsel unless (A) USAA
shall have specifically authorized the retaining of such counsel or (B) the
parties to such suit include any Covered Person and USAA, and any such Covered
Person has been advised by counsel that one or more legal defenses may be
available to it that may not be available to USAA, in which case USAA shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. USAA shall not be
liable to indemnify any Covered Person for any settlement of any claim
affected without USAA's written consent, which consent shall not be
unreasonably withheld or delayed. The indemnities set forth in paragraph (a)
will be in addition to any liability that the Company in respect of the Fund
might otherwise have to a Covered Person.
4.3 The Portfolio. The Portfolio covenants that:
(a) Advance Review of Certain Documents. The Portfolio will
furnish the Company and USAA, at least 10 business days prior to filing or
first use, as the case may be, with drafts of its registration statement on
Form N-1A (including amendments). The Portfolio will not make any written or
oral representation about the Company or USAA without their prior written
consent.
(b) Tax Status. The Portfolio will qualify to be taxable as a
partnership under the Code for all periods during which this Agreement is in
effect, except to the extent that the failure to so qualify a result from any
action or omission of the Fund.
(c) Insurance. The Portfolio shall at all times maintain errors
and omissions liability insurance covering losses for negligence and wrongful
acts in an amount not less than $5 million.
(d) Availability of Interests. Conditional upon the Company
complying with the terms of this Agreement, the Portfolio shall permit the
Fund to make additional Investments in the Portfolio on each business day on
which shares of the Fund are sold to the public; provided, however, that the
Portfolio may refuse to permit the Fund to make additional Investments in the
Portfolio on any day on which (i) the Portfolio has refused to permit all
other investors in the Portfolio to make additional Investments in the
Portfolio or (ii) the Trustees of the Portfolio have reasonably determined
that permitting additional Investments by the Fund in the Portfolio would
constitute a breach of their fiduciary duties to the Portfolio.
4.4 Indemnification by the Adviser.
(a) The Adviser will indemnify and hold harmless the Company,
USAA, their respective directors, officers and employees and each other person
who controls the Company, the Fund or USAA, as the case may be, within the
meaning of Section 15 of the 1933 Act (each, a "Covered Person" and
collectively, "Covered Persons"), against any and all losses, claims,
demands, damages, liabilities and expenses (each, a "Liability" and
collectively, the "Liabilities") (including, unless the Adviser elects to
assume the defense pursuant to paragraph (b), the reasonable costs of
investigating and defending against any claims therefor and any counsel fees
incurred in connection therewith), joint or several, whether incurred directly
by the Company or USAA or indirectly by the Company or USAA through the
Company's Investment in the Portfolio, which
(i) arise out of or are based upon any of the Securities
Laws, any other statute or common law or are incurred in connection with or as
a result of any formal or informal administrative proceeding or investigation
by a regulatory agency, insofar as such Liabilities arise out of or are based
upon the ground or alleged ground that any direct or indirect omission or
commission by the Portfolio (either during the course of its daily activities
or in connection with the accuracy of its representations or its warranties in
this Agreement) caused or continues to cause the Company to violate any
federal or state securities laws or regulations or any other applicable
domestic or foreign law or regulations or common law duties or obligations,
but only to the extent that such Liabilities do not arise out of and are not
based upon an omission or commission of the Company or USAA;
(ii) arise out of or are based upon an inaccurate
calculation of the Portfolio's net asset value (whether by the Portfolio, the
Adviser or any party retained for that purpose);
(iii) arise out of (A) any misstatement of a material fact
or an omission of a material fact in the Portfolio's registration statement
(including amendments thereto) or included at the Adviser's or Portfolio's
request in advertising or sales literature used by the Fund, or (B) any
misstatement of a material fact or an omission of a material fact in the
registration statement or advertising or sales literature of any investor in
the Portfolio, other than the Company;
(iv) arise out of the Portfolio's having caused the Fund to
fail to qualify as a regulated investment company under the Code;
(v) result from the failure of any representation or
warranty made by the Portfolio or Adviser to be accurate when made or the
failure of the Portfolio or Adviser to perform any covenant contained herein
or to otherwise comply with the terms of this Agreement;
(vi) arise out of any unlawful or negligent act by the
Portfolio, the Adviser or any director, trustee, officer, employee or agent of
the Portfolio or Adviser, whether such act was committed against the
Portfolio, the Company, USAA or any third party;
(vii) arise out of any claim that the systems,
methodologies, or technology used in connection with operating the Portfolio,
including the technologies associated with maintaining the master-feeder
structure of the Portfolio, violates any license or infringes upon any patent
or trademark;
(viii) arise out of any claim that the use of the names
"Standard & Poor's," "S&P," "Standard & Poor's 500," "S&P 500" or
"500" by the Portfolio violates any license or infringes upon any trademark;
or
(ix) result from any Liability of the Portfolio to any
investor in the Portfolio (or shareholder thereof), other than the Fund (and
its shareholders);
provided, however, that in no case shall the Adviser be liable with respect to
any claim made against any such Covered Person unless such Covered Person
shall have notified the Adviser in writing of the nature of the claim within a
reasonable time after the summons, other first legal process or formal or
informal initiation of a regulatory investigation or proceeding shall have
been served upon or provided to a Covered Person or any federal, state or
local tax deficiency has come to the attention of the Company, USAA or a
Covered Person. Failure to notify the Adviser of such claim shall not relieve
it from any liability that it may have to any Covered Person otherwise than on
account of the indemnification contained in this paragraph.
(b) The Adviser 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 Adviser elects to assume
the defense, such defense shall be conducted by counsel chosen by the Adviser.
In the event the Adviser elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant or defendants
in the suit may retain additional counsel but shall bear the fees and expenses
of such counsel unless (A) the Adviser shall have specifically authorized the
retaining of such counsel or (B) the parties to such suit include any Covered
Person and the Adviser, and any such Covered Person has been advised by
counsel that one or more legal defenses may be available to it that may not be
available to the Adviser, in which case the Adviser shall not be entitled to
assume the defense of such suit notwithstanding the obligation to bear the
fees and expenses of such counsel. The Adviser shall not be liable to
indemnify any Covered Person for any settlement of any such claim effected
without the Adviser's written consent, which content shall not be unreasonably
withheld or delayed. The indemnities set forth in paragraph (a) will be in
addition to any liability that the Portfolio might otherwise have to a Covered
Person.
4.5 In-Kind Redemption. In the event the Company desires to withdraw
or redeem all of the Fund's Interests in the Portfolio, unless otherwise
agreed to by the parties, the Portfolio will effect such redemption 'in
kind' and in such a manner that the securities delivered to the Fund's
custodian for the account of the Fund will mirror, as closely as practicable,
the composition of the Portfolio immediately prior to such redemption. No
other withdrawal or redemption of any Interest in the Portfolio will be
satisfied by means of an "in kind" redemption except in compliance with Rule
18f-1 under the 1940 Act, provided, however, that for purposes of determining
compliance with Rule 18f-1, each shareholder of the Fund redeeming shares of
the Fund on a particular day will be treated as a direct holder of an Interest
in the Portfolio being redeemed that day.
4.6 Reasonable Actions. Each party covenants that it will, subject to
the provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and
deliver or cause to be executed and delivered all such assignments and other
instruments, take or cause to be taken such actions, and do or cause to be
done all things reasonably necessary, proper or advisable in order to
consummate the transactions contemplated by this Agreement and to carry out
its intent and purpose.
V
CONDITIONS PRECEDENT
--------------------
The obligations of each party to consummate the transactions provided
for herein shall be subject to (a) performance by the other parties of all the
obligations to be performed by the other parties hereunder on or before each
Closing, (b) all representations and warranties of the other parties contained
in this Agreement being true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of each date of Closing, with the same
force and effect as if made on and as of the time of such Closing, and (c) the
following further conditions that shall be fulfilled on or before each
Closing:
5.1 Regulatory Status. All necessary filings shall have been made
with the SEC and state securities authorities, and no order or directive shall
have been received that any other or further action is required to permit the
parties to carry out the transactions contemplated hereby.
5.2 Approval of Auditors. Unless precluded by applicable fiduciary
duties or the failure of the Fund's shareholders to provide necessary
ratification, the directors of the Company that are not 'interested persons'
of the Company, as defined in the 1940 Act, shall have selected as the
independent certified public accountants for the Fund the independent
certified public accountants selected and ratified for the Portfolio.
5.3 Investment Objective/Restrictions. The Fund shall have the same
investment objective and substantively the same investment restrictions as the
Portfolio.
VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Notification of Certain Matters. Each party will give prompt
notice to the other parties of (a) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause
either (i) any representation or warranty contained in this Agreement to be
untrue or inaccurate, or (ii) any condition precedent set forth in Article V
hereof to be unsatisfied in any material respect at the time of any Closing
and (b) any material failure of a party or any trustee, director, officer,
employee or agent thereof to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.1 shall
not limit or otherwise affect the remedies available, hereunder or otherwise,
to the party receiving such notice.
6.2 Access to Information. The Portfolio and the Company shall afford
each other access at all reasonable times to such party's officers, employees,
agents and offices and to all its relevant books and records and shall furnish
each other party with all relevant financial and other data and information as
requested; provided, however, that nothing contained herein shall obligate the
Company to provide the Portfolio with access to the books and records of the
Company relating to any series of the Company other than the Fund, nor shall
anything contained herein obligate the Company to furnish the Portfolio with
the Fund's shareholder list, except as may be required to comply with
applicable law or any provision of this Agreement.
6.3 Confidentiality. Each party agrees that it shall hold in strict
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources) and shall ensure that its officers, employees
and authorized representatives do not disclose such information to others
without the prior written consent of the party from whom it was obtained,
except if disclosure is required by the SEC, any other regulatory body or the
Fund's or Portfolio's respective auditors, or in the opinion of counsel such
disclosure is required by law, and then only with as much prior written notice
to the other party as is practical under the circumstances.
6.4 Public Announcements. No party shall issue any press release or
otherwise make any public statements with respect to the matters covered by
this Agreement without the prior consent of the other parties hereto, which
consent shall not be unreasonably withheld; provided, however, that consent
shall not be required if, in the opinion of counsel, such disclosure is
required by law, provided further, however, that the party making such
disclosure shall provide the other parties hereto with as much prior written
notice of such disclosure as is practical under the circumstances.
6.5 Sub-Accounting Services. The Adviser agrees to bear the fees of
Investors Fiduciary Trust Company ("IFTC") under the Sub-Administration
Agreement between USAA and IFTC with respect to the Fund.
6.6 Waiver of Fees. The Adviser understands that the Company and USAA
have entered into this Agreement in reliance upon the Adviser's express
intention that, at all times during which the value of the Fund's Interest in
the Portfolio exceeds $150 million, the Adviser shall waive fees to the
Portfolio such that the aggregate of all fees paid to the Adviser by the
Portfolio shall not exceed .08 of 1% per annum of the Portfolio's average
daily net assets.
VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination.
(a) This Agreement may be terminated by the mutual agreement of
all parties.
(b) This Agreement may be terminated at any time by the Company
by withdrawing all of the Fund's Interest in the Portfolio.
(c) This Agreement may be terminated on not less than 120 days'
prior written notice by the Portfolio to the Company and USAA.
(d) This Agreement shall terminate automatically with respect to
USAA upon the effective date of termination by the Company and this Agreement
shall terminate automatically with respect to the Adviser upon the effective
date of termination by the Portfolio.
(e) This Agreement may be terminated at any time immediately
upon written notice to the other parties in the event that formal proceedings
are instituted against another party to this Agreement by the SEC or any
other regulatory body, provided that the terminating party has a reasonable
belief that the institution of the proceeding is not without foundation and
will have a material adverse impact on the terminating party.
(f) The indemnification obligations of USAA and the Adviser set
forth in Article IV, Sections 4.2 and 4.4, respectively, shall survive the
termination of this Agreement.
7.2 Amendment. This Agreement may be amended, modified or
supplemented at any time in such manner as may be mutually agreed upon in
writing by the parties.
7.3 Waiver. At any time prior to any Closing, any party may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto
and (c) waive compliance with any of the agreements or conditions contained
herein.
VIII
DAMAGES
-------
8.1 The parties agree that, in the event of a breach of this
Agreement, the remedy of money damages would not be adequate and agree that
injunctive relief would be the appropriate relief.
IX
GENERAL PROVISIONS
------------------
9.1 Notices. All notices and other communications given or made
pursuant hereto shall to in writing and shall be deemed to have been duly
given or made when actually received in person or by fax, or three days after
being sent by certified or registered United States mail, return receipt
requested, postage prepaid, addressed as follows:
If to USAA or the USAA Investment Management Company
Company: 10750 McDermott Freeway, BK-B04-S
San Antonio, Texas 78288
Attn: Mark S. Howard, Esq.
Fax: (210) 498-6561
If to the Adviser: Bankers Trust Company
4 Albany Street
2nd Floor
New York, New York 10006
Attn: Mr. Brian W. Wixted
Fax: (212) 250-6449
If to the Portfolio: Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Attn: Thomas M. Lenz, Esq.
Fax: (617) 542-5815
Any party to this Agreement may change the identity of the person to receive
notice by providing written notice thereof to all other parties to the
Agreement.
9.2 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
9.3 Headings. The headings and captions contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
9.5 Entire Agreement. This Agreement and the agreements and other
documents delivered pursuant hereto set forth the entire understanding between
the parties concerning the subject matter of this Agreement and incorporate or
supersede all prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of this Agreement other than those
set forth herein. No representation or warranty has been made by or on behalf
of any party to this Agreement (or any officer, director, trustee, employee or
agent thereof) to induce any other party to enter into this Agreement or to
abide by or consummate any transactions contemplated by any terms of this
Agreement, except representations and warranties expressly set forth herein.
9.6 Successors and Assignments. Each and all of the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and, except as otherwise specifically provided in this Agreement, their
respective successors and assigns. Notwithstanding the foregoing, no party
shall make any assignment of this Agreement or any rights or obligations
hereunder without the written consent of all other parties. As used herein,
the term "assignment" shall have the meaning ascribed thereto in the 1940
Act.
9.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the choice of law or conflicts of law provisions thereof.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing one or more
counterparts.
9.9 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
9.10 Interpretation. Any uncertainty or ambiguity existing herein
shall not presumptively be interpreted against any party, but shall be
interpreted according to the application of the rules of interpretation for
arm's length agreements.
9.11 Limitation of Liability. The parties hereby acknowledge that the
Company has entered into this Agreement solely on behalf of the Fund and that
no other series of the Company shall have any obligation hereunder with
respect to any liability of the Company arising hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to he
executed by their respective officers, thereunto duly authorized, as of the
date first written above.
USAA INVESTMENT MANAGEMENT COMPANY
By /s/ John W. Saunders, Jr.
------------------------------
Name: John W. Saunders, Jr.
Title: Senior Vice President
USAA MUTUAL FUND, INC.
on behalf of itself and the
USAA S&P 500 INDEX FUND,
a series thereof
By /s/ Michael J.C. Roth
------------------------
Name: Michael J. C. Roth
Title: President
EQUITY 500 INDEX PORTFOLIO
By /s/ Thomas M. Lenz
----------------------
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By /s/ Brian W. Wixted
-----------------------
Name: Brian Wixted
Title: Vice President
EXHIBIT 9(g)
USAA Transfer Agency Company
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
Gentlemen:
Pursuant to Section 27 of the Transfer Agency Agreement
dated as of January 23, 1992 between USAA Mutual Fund, Inc. (the
"Company") and USAA Transfer Agency Company, (the "Transfer
Agent") please be advised that the Company has established a new
series of its shares, namely, the S&P 500 Index Fund (the
"Fund"), and please be further advised that the Company desires
to retain the Transfer Agent to render transfer agency services
under the Transfer Agency Agreement to the Fund in accordance
with the fee schedule attached hereto as Exhibit A.
Please state below whether you are willing to render such
services in accordance with the fee schedule attached hereto as
Exhibit A.
USAA MUTUAL FUND, INC.
Attest:/s/Michael D. Wagner By:/s/ Michael J. C. Roth
- --------------------------- -------------------------
Secretary President
Dated: May 1, 1996
We are willing to render services to the S&P 500 Index Fund
in accordance with the fee schedule attached hereto as Exhibit A.
USAA TRANSFER AGENCY COMPANY
Attest:/s/Alex M. Ciccone By:/s/Joseph H. L. Jimenez
- ------------------------- --------------------------
Assistant Secretary Vice President
Dated: May 1, 1996
EXHIBIT 9(h)
EXHIBIT A
USAA TRANSFER AGENCY COMPANY
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA MUTUAL FUND, INC.
S&P 500 Index Fund
The Fund shall pay no fees for services rendered pursuant to this
Agreement. Nothing herein, however, shall preclude USAA Transfer
Agency Company from charging investors up to $10 per annum.
USAA MUTUAL FUND, INC. USAA TRANSFER AGENCY COMPANY
S&P 500 Index Fund
By:/s/Michael J. C. Roth By:/s/Joseph H. L. Jimenez
- ------------------------ --------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: May 1, 1996 Date: May 1, 1996
EXHIBIT 9(i)
January 15, 1996
USAA Mutual Fund, Inc.,
USAA Investment Trust,
USAA Tax Exempt Fund, Inc., and
USAA State Tax-Free Trust, on behalf of and for the
benefit of the series
of funds comprising each such Borrower
as set forth on Schedule A hereto
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Michael J.C. Roth, President
Gentlemen:
This Facility Agreement Letter (this "Agreement") sets forth the terms and
conditions for loans (each a "Loan" and collectively the "Loans") which
USAA Capital Corporation ( 'CAPCO' ) may from time to time make during the
period commencing January 15, 1996 and ending January 14, 1997 (the "Facility
Period") to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt
Fund, Inc., and USAA State Tax-Free Trust, and each investment company which
may become a party hereto pursuant to the terms of this Agreement (each a
"Borrower" and collectively the "Borrowers"), each of which is executing
this Agreement on behalf of and for the benefit of the series of funds
comprising each such Borrower as set forth on Schedule A hereto (as hereafter
modified or amended in accordance with the terms hereof) (each a "Fund" and
collectively the "Funds"), under a master revolving credit facility (the
"Facility"). USAA Investment Management Company is the Manager and
Investment Advisor of each Fund. CAPCO and the Borrowers hereby agree as
follows:
1. Amount. The aggregate principal amount of the Loans which may
be advanced under this Facility shall not exceed, at any one time outstanding,
Seven Hundred Fifty Million Dollars ($750,000,000). The aggregate principal
amount of the Loans which may be borrowed by a Borrower for the benefit of a
particular Fund under this Facility shall not exceed the borrowing limit (the
"Borrowing Limit") on borrowings applicable to such Fund, as set forth on
Schedule A hereto.
2. Purpose and Limitations on Borrowings. Each Borrower will use
the proceeds of each Loan made to it solely for temporary or emergency
purposes of the Fund for whose benefit it is borrowing in accordance with such
Fund's Borrowing Limit (Schedule A) and prospectus in effect at the time of
such Loan. Portfolio securities may not be purchased by a Fund while there is
a Loan outstanding under the Facility or any other facility, if the aggregate
amount of such Loan and any other such loan exceeds 5% of the total assets of
such Fund.
3. Borrowing Rate and Maturity of Loans. CAPCO may make Loans to
a Borrower and the principal amount of the Loans outstanding from time to time
shall bear interest at a rate per annum equal to the rate at which CAPCO
obtains funding in the Capital Markets plus a standard mark-up to cover
CAPCO's operating costs (not to exceed 8 basis points). Interest on the Loans
shall be calculated on the basis of a year of 360 days and the actual days
elapsed but shall not exceed the highest lawful rate. Each loan will be for
an established number of days agreed upon by the applicable Borrower and
CAPCO. Notwithstanding the above, all Loans to a Borrower shall be made
available at a rate per annum equal to the rate at which CAPCO would make
loans to affiliates and subsidiaries. Further, if the CAPCO rate exceeds the
rate at which a Borrower could obtain funds pursuant to the NationsBank of
Texas, N.A. ("NationsBank") 364-day committed $100,000,000 Master Revolving
Credit Facility, the Borrower will in the absence of predominating
circumstances, borrow from NationsBank. Any past due principal and/or accrued
interest shall bear interest at a rate per annum equal to the aggregate of the
Federal Funds Rate plus 1 percent (100 basis points) and shall be payable on
demand.
4. Advances, Payments, Prepayments and Readvances. Upon each
Borrower's request, and subject to the terms and conditions contained herein,
CAPCO may make Loans to each Borrower on behalf of and for the benefit of its
respective Fund(s) during the Facility Period, and each Borrower may at
CAPCO's sole and absolute discretion, borrow, repay and reborrow funds
hereunder. The Loans shall be evidenced by duly executed and delivered Master
Grid Promissory Note in the form of Exhibit A. Each Loan shall be in an
aggregate amount not less than One Hundred Thousand United States Dollars
(U.S. $100,000) and increments of One Thousand United States Dollars (U.S.
$1,000) in excess thereof. Payment of principal and interest due with respect
to each Loan shall be payable at the maturity of such Loan and shall be made
in funds immediately available to CAPCO prior to 2 p.m. San Antonio time on
the day such payment is due, or as CAPCO shall otherwise direct from time to
time and, subject to the terms and conditions hereof, may be repaid with the
proceeds of a new borrowing hereunder. Notwithstanding any provision of this
Agreement to the contrary, all Loans, accrued but unpaid interest and other
amounts payable hereunder shall be due and payable upon termination of the
Facility (whether by acceleration or otherwise).
5. Facility Fee. As this Facility is uncommitted, no facility fee
shall be charged by CAPCO.
6. Optional Termination. The Borrowers shall have the right upon at
least three (3) business days prior written notice to CAPCO, to terminate the
Facility.
7. Mandatory Termination of the Facility. The Facility, unless
extended by written amendment, shall automatically terminate on the last day
of the Facility Period and any Loans then outstanding (together with accrued
interest thereon and any other amounts owing hereunder) shall be due and
payable on such date.
8. Uncommitted Facility. The Borrowers acknowledge that the
Facility is an uncommitted facility and that CAPCO shall have no obligation to
make any Loan requested during the Facility Period under this Agreement.
Further, CAPCO shall not make any Loan if this Facility has been terminated by
the Borrowers, or if at the time of a request for a Loan by a Borrower [on
behalf of the applicable Fund(s)] there exists any Event of Default or
condition which, with the passage of time or giving of notice, or both, would
constitute or become an Event of Default with respect to such Borrower [or
such applicable Fund(s)].
9. Loan Requests. Each request for a Loan (each a "Borrowing
Notice") shall be in writing by the applicable Borrower(s), except that such
Borrower(s) may make an oral request (each an "Oral Request") provided that
each Oral Request shall be followed by a written Borrowing Notice within one
business day. Each Borrowing Notice shall specify the following terms
("Terms") of the requested Loan: (i) the date on which such Loan is to be
disbursed, (ii) the principal amount of such Loan, (iii) the Borrower(s) which
are borrowing such Loan and the amount of such Loan to be borrowed by each
Borrower, (iv) the Funds for whose benefit the loan is being borrowed and the
amount of the Loan which is for the benefit of each such Fund and (v) the
requested maturity date of the Loan. Each Borrowing Notice shall also set
forth the total assets of each Fund for whose benefit a portion of the Loan is
being borrowed as of the close of business on the day immediately preceding
the date of such Borrowing Notice. Borrowing notices shall be delivered to
CAPCO by 9:00 a.m. San Antonio time on the day the Loan is requested to be
made.
Each Borrowing Notice shall constitute a representation to CAPCO by the
applicable Borrower(s) that all of the representations and warranties in
Section 12 hereof are true and correct as of such date and that no Event of
Default or other condition which with the passage of time or giving of notice,
or both, would result in an Event of Default, has occurred or is occurring.
10. Confirmations; Crediting of Funds; Reliance by CAPCO. Upon
receipt by CAPCO of a Borrowing Notice:
(a) CAPCO shall provide each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as soon as
reasonably practicable; provided, however, that the failure to do so shall not
affect the obligation of any such Borrower;
(b) CAPCO shall make such Loan in accordance with the Terms by
transfer of the Loan amount in immediately available funds, to the account of
the applicable Borrower(s) as specified in Exhibit B to this Agreement or as
such Borrower(s) shall otherwise specify to CAPCO in a writing signed by an
Authorized Individual (as defined in Section 11) of such Borrower(s); and
(c) CAPCO shall make appropriate entries on the Note or the
records of CAPCO to reflect the Terms of the Loan; provided, however, that the
failure to do so shall not affect the obligation of any Borrower.
CAPCO shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify CAPCO thereof.
11. Borrowing Resolutions and Officers' Certificates. Prior to the
making of any Loan pursuant to this Agreement, the Borrowers shall have
delivered to CAPCO the duly executed Note, Resolutions of each Borrower's
Trustees or Board of Directors authorizing such Borrower to execute, deliver
and perform this Agreement and the Note on behalf of the applicable Funds and
an Officer's Certificate in substantially the form set forth in Exhibit D to
this Agreement, authorizing certain individuals ("Authorized Individuals"),
to take on behalf of each Borrower (on behalf of the applicable Funds) action
contemplated by this Agreement and the Note.
12. Representations and Warranties. In order to induce CAPCO to
enter into this Agreement and to make the Loans provided for hereunder, each
Borrower hereby makes with respect to itself, and as may be relevant, the
series of Funds comprising such Borrower, the following representations and
warranties, which shall survive the execution and delivery hereof and of the
Note:
(a) Organization, Standing, etc. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under
applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and proposed
to be conducted, to enter into this Agreement and all other documents to be
executed by it in connection with the transactions contemplated hereby, to
issue and borrow under the Note and to carry out the terms hereof and thereof;
(b) Financial Information; Disclosure, etc. The Borrower has
furnished CAPCO with certain financial statements of such Borrower with
respect to itself and the applicable Funds, all of which such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the financial
position and results of operations of such Borrower and the applicable Funds
on the dates and for the periods indicated. Neither this Agreement nor any
financial statements, reports or other documents or certificates furnished to
CAPCO by such Borrower or the applicable Funds in connection with the
transactions contemplated hereby contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
contained herein or therein in light of the circumstances when made not
misleading;
(c) Authorization; Compliance with Other Instruments. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary corporate or
trust action of the Borrower and will not result in any violation of or be in
conflict with or constitute a default under any term of the charter, by-laws
or trust agreement of such Borrower or the applicable Funds, or of any
borrowing restrictions or prospectus or statement of additional information of
such Borrower or the applicable Funds, or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to such Borrower, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of such Borrower or the
applicable Funds pursuant to any such term. The Borrower and the applicable
Funds are not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which they
are a party, or to the best of such Borrower's knowledge, of any judgment,
decree, order, statute, rule or governmental regulation applicable to them;
(d) SEC Compliance. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state securities
or similar laws and regulations, including all material rules, regulations and
administrative orders of the Securities and Exchange Commission (the "SEC")
and applicable Blue Sky authorities. The Borrower and the applicable Funds
are in compliance in all material respects with all of the provisions of the
Investment Company Act of 1940, and such Borrower has filed all reports with
the SEC that are required of it or the applicable Funds;
(e) Litigation. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such Borrower
or the applicable Funds in any court or before any arbitrator or governmental
body which seeks to restrain any of the transactions contemplated by this
Agreement or which, if adversely determined, could have a material adverse
effect on the assets or business operations of such Borrower or the applicable
Funds or the ability of such Borrower and the applicable Funds to pay and
perform their obligations hereunder and under the Notes; and
(f) Borrowers' Relationship to Funds. The assets of each Fund
for whose benefit Loans are borrowed by the applicable Borrower are subject to
and liable for such Loans and are available (except as subordinated to
borrowings under the NationsBank committed facility) to the applicable
Borrower for the repayment of such Loans.
13. Affirmative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective
Funds) agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such Borrower and
the applicable Funds, Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each applicable Fund for
such fiscal year, as set forth in each applicable Fund's Annual Report to
shareholders together with a calculation of the maximum amount which each
applicable Fund could borrow under its Borrowing Limit as of the end of such
fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statement of Operations and Statements of Changes in Net Assets of each
applicable Fund as of the end of such semiannual period, as set forth in each
applicable Fund's Semiannual Report to shareholders, together with a
calculation of the maximum amount which each applicable Fund could borrow
under its Borrowing Limit at the end of such semiannual period;
(c) To deliver to CAPCO prompt notice of the occurrence of any
event or condition which constitutes, or is likely to result in, a change in
such Borrower or any applicable Fund which could reasonably be expected to
materially adversely affect the ability of any applicable Fund to promptly
repay outstanding Loans made for its benefit or the ability of such Borrower
to perform its obligations under this Agreement or the Note;
(d) To do, or cause to be done, all things necessary to preserve
and keep in full force and effect the corporate or trust existence of such
Borrower and all permits, rights and privileges necessary for the conduct of
its businesses and to comply in all material respects with all applicable
laws, regulations and orders, including without limitation, all rules and
regulations promulgated by the SEC;
(e) To promptly notify CAPCO of any litigation, threatened legal
proceeding or investigation by a governmental authority which could materially
affect the ability of such Borrower or the applicable Funds to promptly repay
the outstanding Loans or otherwise perform their obligations hereunder; and
(f) In the event a Loan for the benefit of a particular Fund is
not repaid in full within 10 days after the date it is borrowed , and until
such Loan is repaid in full, to deliver to CAPCO, within two business days
after each Friday occurring after such 10th day, a statement setting forth the
total assets of such Fund as of the close of business on each such Friday.
14. Negative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective
Funds) agrees:
(a) Not to incur any indebtedness for borrowed money (other than
pursuant to the One Hundred Million Dollar ($100,000,000) committed Master
Revolving Credit Facility with NationsBank and for overdrafts incurred at the
custodian of the Funds from time to time in the normal course of business)
except the Loans, without the prior written consent of CAPCO, which consent
will not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or substantially all
of its assets in a single transaction or series of related transactions (other
than assets consisting of margin stock), each without the prior written
consent of CAPCO, which consent will not be unreasonably withheld; provided
that a Borrower may without such consent merge, consolidate with, or purchase
substantially all of the assets of, or sell substantially all of its assets
to, an affiliated investment company or series thereof, as provided for in
Rule 17a-8 of the Investment Company Act of 1940.
15. Events of Default. If any of the following events (each an
"Event of Default") shall occur (it being understood that an Event of
Default with respect to one Fund or Borrower shall not constitute an Event of
Default with respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a period
of five (5) days after the same becomes due and payable, whether at maturity
or with respect to any Facility Fee at a date fixed for the payment thereof;
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default shall
not have been remedied within thirty (30) days after written notice thereof
shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall not
have been remedied within thirty (30) days after written notice thereof shall
have been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in any
material respect when made;
(f) USAA Investment Management Company or any successor manager
or investment adviser, provided that such successor in a wholly-owned
subsidiary of CAPCO, shall cease to be the Manager and Investment Advisor of
each Fund; or
(g) An event of default shall occur and be continuing under any
other facility;
then, in any event, and at any time thereafter, if any Event of Default shall
be continuing, CAPCO may by written notice to the applicable Borrower or Fund
(i) terminate the Facility with respect to such Borrower or Fund and (ii)
declare the principal and interest in respect of any outstanding Loans with
respect to such Borrower or Fund, and all other amounts due hereunder with
respect to such Borrower or Fund, to be immediately due and payable whereupon
the principal and interest in respect thereof and all other amounts due
hereunder shall become forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly waived by the
Borrowers.
16. New Borrowers; New Funds. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of CAPCO, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under the
Investment Company Act of 1940) as the original Borrowers to this Agreement,
may, by submitting an amended Schedule A and Exhibit B to this Agreement to
CAPCO (which amended Schedule A and Exhibit B shall replace the corresponding
Schedule and Exhibit which are, then a part of this Agreement) and such other
documents as CAPCO may reasonably request, become a party to this Agreement
and may become a "Borrower" hereunder; and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to CAPCO (which amended Schedule A and Exhibit B
shall replace the corresponding Schedule and Exhibit which are then a part of
this Agreement), add additional Funds for whose benefit such Borrower may
borrow Loans. No such amendment of Schedule A to this Agreement shall amend
the Borrowing Limit applicable to any Fund without the prior approval of
CAPCO.
17. Limited Recourse. CAPCO agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets
of any fund shall be used to satisfy any claim, liability, or obligation
arising hereunder or under the Note with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Note (as determined in accordance
with the provisions hereof).
18. Remedies on Default. In case any one or more Events of Default
shall occur and be continuing, CAPCO may proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceedings,
against the applicable Borrower(s) and/or Fund(s), as the case may be. In the
case of a default in the payment of any principal or interest on any Loan or
in the payment of any fee due hereunder, the relevant Funds (to be allocated
among such Funds as the Borrowers deem appropriate) shall pay to CAPCO such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorney's fees and
expenses.
19. No Waiver of Remedies. No course of dealing or failure or delay
on the part of CAPCO in exercising any right or remedy hereunder or under the
Note shall constitute a waiver of any right or remedy hereunder or under the
Note, nor shall any partial exercise of any right or remedy hereunder or under
the Note preclude any further exercise thereof or the exercise of any other
right or remedy hereunder or under the Note. Such rights and remedies
expressly provided are cumulative and not exclusive of any rights or remedies
which CAPCO would otherwise have.
20. Expenses. The Funds (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses)
incurred by CAPCO in connection with the collection and any other enforcement
proceedings of or regarding this Agreement, any Loan or the Note.
21. Benefit of Agreement. This Agreement and the Note shall be
binding upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties.
22. Notices. All notices hereunder and all written, facsimile or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on Exhibit B and to CAPCO as indicated on Exhibit C.
23. Modifications. No provision of this Agreement or the Note may
be waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the state of Texas
without regard to the choice of law provisions thereof.
25. Trust Disclaimer. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound
by or liable for any indebtedness, liability or obligation hereunder or under
the Note nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /s/ Laurie B. Blank
- ------------------------
Laurie B. Blank
Assistant Vice President-Treasurer
AGREED AND ACCEPTED this 15th
Day of January, 1996.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
- --------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J. C. Roth
- ---------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
- --------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
- ------------------------------
Michael J.C. Roth
President
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
Borrower Funds Borrowing Limit
- -------- ----- ---------------
USAA Mutual Fund, Inc. USAA Aggressive Growth 5% of Total Assets
USAA Growth & Income '
USAA Income Stock '
USAA Short-Term Bond '
USAA Money Market '
USAA Growth '
USAA Income '
USAA Investment Trust USAA Cornerstone Strategy '
USAA Gold '
USAA International '
USAA World Growth '
USAA GNMA Trust '
USAA Treasury Money Market Trust '
USAA Emerging Markets '
USAA Growth and Tax Strategy '
USAA Balanced Strategy '
USAA Growth Strategy '
USAA Income Strategy '
USAA Tax Exempt Fund, Inc. USAA Long-Term '
USAA Intermediate-Term '
USAA Short-Term '
USAA Tax Exempt Money Market '
USAA California Bond '
USAA California Money Market '
USAA New York Bond '
USAA New York Money Market '
USAA Virginia Bond '
USAA Virginia Money Market '
USAA State Tax-Free Trust USAA Florida Tax-Free Income '
USAA Florida Tax-Free Money Market '
USAA Texas Tax-Free Income '
USAA Texas Tax-Free Money Market '
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $750,000,000 Dated: January 15, 1996
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and
for the benefit of the series of funds comprising each such Borrower as listed
on Schedule A to the Agreement as defined below (each a "Fund" and
collectively the "Funds") promises to pay to the order of USAA Capital
Corporation ("CAPCO") at CAPCO's office located at 9800 Fredericksburg Road,
San Antonio, Texas 78288, in lawful money of the United States of America, in
immediately available funds, the principal amount of all Loans made by CAPCO
to such Borrower for the benefit of the applicable Funds under the Facility
Agreement Letter dated January 15, 1996 (as amended or modified, the
"Agreement"), among the Borrowers and CAPCO, together with interest thereon
at the rate or rates set forth in the Agreement. All payments of interest and
principal outstanding shall be made in accordance with the terms of the
Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
CAPCO is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of CAPCO to do so or to do so accurately
shall not affect the obligations of any Borrower (or the Fund for whose
benefit it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
CAPCO hereby agrees (i) that any claim, liability, or obligation arising
hereunder or under the Agreement whether on account of the principal of any
Loan, interest thereon, or any other amount due hereunder or thereunder shall
be satisfied only from the assets of the specific Fund for whose benefit a
Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of
any other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement) and (ii) that no assets of
any Fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Agreement with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other agents
of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
Loans under the Agreement and this Note are subordinated to loans made
under the $100,000,000 364-day Committed Mater Revolving Credit Facility
Agreement between the Borrowers and NationsBank of Texas, N.A. (NationsBank),
dated January 16, 1996, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and NationsBank, dated January 16, 1996.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
---------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
---------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
---------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
----------------------------
Michael J.C. Roth
President
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 15, 1996, executed by USAA MUTUAL FUND, INC., USAA INVESTMENT
TRUST, USAA TAX EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST on behalf of
and for the benefit of the series of funds comprising each such Borrower
payable to the order of USAA CAPITAL CORPORATION.
[Information listed in grid]
Date of Loan
Borrower and Fund
Amount of Loan
Type of Rate and Interest Rate on Date of Borrowing
Amount of Principal Repaid
Date of Repayment
Other Expenses
Notation made by
EXHIBIT B
USAA CAPITAL CORPORATION
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX EXEMPT
FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (For Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA: __X__ FED FUNDS ____CHIPS
TO: (PLEASE PLACE BANK NAME, CORRESPONDENT NAME (IF APPLICABLE), CHIPS
AND/OR FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
- ----------------------
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA INVESTMENT TRUST
- ---------------------
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA TAX EXEMPT FUND, INC.
- --------------------------
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
- -------------------------
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
EXHIBIT C
ADDRESS FOR USAA CAPITAL CORPORATION
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Laurie B. Blank
Telephone No.: (210) 498-0825
Telecopy No.: (210) 498-6566
EXHIBIT D
OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the duly elected Secretary of USAA
Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA
State Tax-Free Trust and that he is authorized to execute this Certificate on
behalf of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund,
Inc. and USAA State Tax-Free Trust. The undersigned hereby further certifies
to the following:
The following individuals are duly authorized to act on behalf of USAA Mutual
Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA State
Tax-Free Trust, by transmitting telephonic, telex, or telecopy instructions
and other communications with regard to borrowing and payments pursuant to the
uncommitted Master Revolving Credit Agreement with USAA Capital Corporation.
The signature set opposite the name of each individual below is that
individual's genuine signature.
NAME OFFICE SIGNATURE
- ---- ------ ---------
Michael J.C. Roth President /s/ Michael J.C. Roth
-------------------------
John W. Saunders, Jr. Senior Vice President,
Fixed Income Investments /s/ John W. Saunders, Jr.
-------------------------
Harry W. Miller Senior Vice President,
Equity Investments /s/ Harry W. Miller
-------------------------
Kenneth E. Willmann Vice President,
Fixed Income /s/ Kenneth W. Willmann
-------------------------
David G. Peebles Vice President,
Equity Investments /s/ David G. Peebles
-------------------------
Sherron A. Kirk Vice President,
Controller /s/ Sherron A. Kirk
-------------------------
Dean R. Pantzar Executive Director,
Mutual Fund Accounting /s/ Dean R. Pantzar
-------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 15th day of
January, 1996.
/s/ Michael D. Wagner
---------------------
MICHAEL D. WAGNER
Secretary
I, Michael J.C. Roth, President of USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. And USAA State Tax-Free Trust hereby
certify that Michael D. Wagner is, and has been at all times since a date
prior to the date of this Certificate, the duly elected, qualified, and acting
Secretary of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt
Fund, Inc. And USAA State Tax-Free Trust and that the signature set forth
above is his true and correct signature.
DATE: January 15, 1996 /s/ Michael J. C. Roth
----------------------
MICHAEL J. C. ROTH
President
EXHIBIT 9(j)
April 18, 1996
Ms. Laurie Blank
Assistant Vice President - Treasurer
USAA Capital Corporation
9800 Fredericksburg Rd.
San Antonio, Texas 78288
RE: ADDITION OF FUND TO THE MASTER REVOLVING CREDIT FACILITY AGREEMENT WITH
USAA CAPITAL CORPORATION
Dear Ms. Blank:
Reference the January 15, 1996 $750,000,000 Uncommitted Master Revolving
Credit Facility executed between USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. and USAA State Tax-Free Trust on behalf of
and for the series of Funds comprising each borrower and NationsBank of Texas,
N.A. Pursuant to the terms of the Facility Agreement, find attached a new
Schedule A which adds USAA S&P 500 Index Fund to the series of Funds under
USAA Mutual Fund, Inc., effective May 1, 1996. The Board of Directors for
USAA Mutual Fund, Inc. have approved the addition of USAA S&P 500 Index Fund
to this Facility Agreement. In addition, a revised Exhibit B containing the
Fund's account number at State Street Bank is attached.
Please note USAA Capital Corporation's authorization to add the referenced
Fund, by signing below and returning same to Tim Weiss, in the USAA Capital
Corporation Treasurer's office.
Sincerely,
/s/ Michael J. C. Roth
Michael J.C. Roth AGREED AND ACCEPTED this 22nd day
President of April, 1996.
USAA Mutual Fund, Inc.,
on behalf of and for the benefit USAA CAPITAL CORPORATION
of its series of Funds as set
for on the new Schedule A
to the Agreement
By:/s/ Laurie B. Blank
Attachments: Schedule A Laurie B. Blank
Exhibit B Assistant Vice President-Treasurer
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
Borrower Funds Borrowing Limit
- -------- ----- ---------------
USAA Mutual Fund, Inc. USAA Aggressive Growth 5% of Total Assets
USAA Growth & Income '
USAA Income Stock '
USAA Short-Term Bond '
USAA Money Market '
USAA Growth '
USAA Income '
USAA S&P 500 Index '
USAA Investment Trust USAA Cornerstone Strategy '
USAA Gold '
USAA International '
USAA World Growth '
USAA GNMA Trust '
USAA Treasury Money Market Trust '
USAA Emerging Markets '
USAA Growth and Tax Strategy '
USAA Balanced Strategy '
USAA Growth Strategy '
USAA Income Strategy '
USAA Tax Exempt Fund, Inc. USAA Long-Term '
USAA Intermediate-Term '
USAA Short-Term '
USAA Tax Exempt Money Market '
USAA California Bond '
USAA California Money Market '
USAA New York Bond '
USAA New York Money Market '
USAA Virginia Bond '
USAA Virginia Money Market '
USAA State Tax-Free Trust USAA Florida Tax-Free Income '
USAA Florida Tax-Free Money Market '
USAA Texas Tax-Free Income '
USAA Texas Tax-Free Money Market '
EXHIBIT B
---------
USAA CAPITAL CORPORATION
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX EXEMPT
FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (For Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA:__X__ FED FUNDS _______CHIPS
TO: (PLEASE PLACE BANK NAME, CORRESPONDENT NAME (IF APPLICABLE), CHIPS
AND/OR FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
- ----------------------
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA S&P 500 Index Fund Acct.# 6938-478-2
USAA INVESTMENT TRUST
- ---------------------
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA TAX EXEMPT FUND, INC.
- --------------------------
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
- -------------------------
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
EXHIBIT 9(k)
January 16, 1996
USAA Mutual Fund, Inc.,
USAA Investment Trust,
USAA Tax Exempt Fund, Inc., and
USAA State Tax-Free Trust, on behalf of and for the
benefit of the series
of funds comprising each such Borrower
as set forth on Schedule A hereto
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Michael J.C. Roth, President
Gentlemen:
This Facility Agreement Letter (this "Agreement") sets forth the terms and
conditions for loans (each a "Loan" and collectively the "Loans") which
NationsBank of Texas, N.A. (the "Bank") agrees to make during the period
commencing January 16, 1996 and ending January 15, 1997 (the "Facility
Period") to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt
Fund, Inc., and USAA State Tax-Free Trust, and each investment company which
may become a party hereto pursuant to the terms of this Agreement (each a
"Borrower" and collectively the "Borrowers"), each of which is executing this
Agreement on behalf of and for the benefit of the series of funds comprising
each such Borrower as set forth on Schedule A hereto (as hereafter modified or
amended in accordance with the terms hereof) (each a "Fund" and collectively
the "Funds"), under a master revolving credit facility (the "Facility"). This
Agreement amends, restates and replaces in its entirety that certain Facility
Agreement Letter dated June 1, 1994, as heretofore amended or modified,
between the Borrowers and the Bank. The Bank and the Borrowers hereby agree
as follows:
1. Amount. The aggregate principal amount of the Loans to be
advanced under this Facility shall not exceed, at any one time outstanding,
One Hundred Million United States Dollars (U.S. $100,000,000) (the
"Commitment"). The aggregate principal amount of the Loans which may be
borrowed by a Borrower for the benefit of a particular Fund under the Facility
and the Other Facility (hereinafter defined) shall not exceed the percentage
(the "Borrowing Limit") of the total assets of such Fund as set forth on
Schedule A hereto.
2. Purpose and Limitations on Borrowings. Each Borrower will use the
proceeds of each Loan made to it solely for temporary or emergency purposes of
the Fund for whose benefit it is borrowing in accordance with such Fund's
Borrowing Limit and prospectus in effect at the time of such Loan. Portfolio
securities may not be purchased by a Fund while there is a Loan outstanding
under the Facility and/or a loan outstanding under the Other Facility for the
benefit of such Fund, if the aggregate amount of such Loan and such other loan
exceeds 5% of the total assets of such Fund. The Borrowers will not, and will
not permit any Fund to, directly or indirectly, use any proceeds of any Loan
for any purpose which would violate any provision of any applicable statute,
regulation, order or restriction, including, without limitation, Regulation U,
Regulation T, Regulation X or any other regulation of the Board of Governors
of the Federal Reserve System or the Securities Exchange Act of 1934, as
amended. If requested by the Bank, the Borrowers will promptly furnish the
Bank with a statement in conformity with the requirements of Federal Reserve
Form U-1 as referred to in Regulation U.
3. Borrowing Rate and Maturity of Loans. The principal amount of the
Loans outstanding from time to time shall bear interest at a rate per annum
equal to, at the option of the applicable Borrower(s), (i) the aggregate of
the Federal Funds Rate (as defined below) plus .125 of one percent (1%) (12.5
basis points) or (ii) the aggregate of the London Interbank Offered Rate (as
defined below) plus 12.5 basis points. The rate of interest payable on such
outstanding amounts shall change on each date that the Federal Funds Rate
shall change. Interest on the Loans shall be calculated on the basis of a
year of 360 days and the actual days elapsed but shall not exceed the highest
lawful rate. Each Loan will be for an established number of days to be agreed
upon by the applicable Borrower(s) and the Bank and, in the absence of such
agreement, will mature on the earlier of three months after the date of such
Loan or the last day of the Facility Period. The term "Federal Funds Rate,"
as used herein, shall mean the overnight rate for Federal funds transactions
between member banks of the Federal Reserve System, as published by the
Federal Reserve Bank of New York or, if not so published, as determined in
good faith by the Bank in accordance with its customary practices; and the
term "London Interbank Offered Rate," as used herein, shall mean the rate per
annum at which United States dollar deposits are offered by the Bank in the
London interbank market at approximately 11:00 a.m. London time two business
days prior to the first day of the interest period (of 7 or 14 days or one,
two or three months as selected by the Borrower(s)) for which the London
Interbank Offered Rate is to be in effect, as adjusted by the Bank in good
faith and in accordance with its customary practices for any reserve costs
imposed on the Bank under Federal Reserve Board Regulation D with respect to
"Euro-currency Liabilities". The London Interbank Offered Rate shall not be
available hereunder if it would be unlawful for the Bank to make or maintain
Loans based on such rate or if such rate does not, in the good faith judgment
of the Bank, fairly reflect the cost to the Bank of making or maintaining
Loans. The London Interbank Offered Rate shall not be available for any
interest period which, if such rate were available, would begin after the
occurrence and during the continuation of an Event of Default (as defined
below). Any past due principal and/or accrued interest shall bear interest at
a rate per annum equal to the aggregate of the Federal Funds Rate plus 1.125
percent (112.5 basis points) and shall be payable on demand. If the
applicable Borrowers do not affirmatively elect to have a Loan or Loans bear
interest based on the London Interbank Offered Rate at least two business days
prior to the first day of a possible interest period applicable thereto, such
Loan or Loans shall bear interest based on the Federal Funds Rate until such
election is affirmatively made.
4. Advances, Payments, Prepayments and Readvances. Upon each
Borrower's request, and subject to the terms and conditions contained herein,
the Bank shall make Loans to each Borrower on behalf of and for the benefit of
its respective Fund(s) during the Facility Period, and each Borrower may
borrow, repay and reborrow funds hereunder. The Loans shall be evidenced by
duly executed and delivered Master Grid Promissory Note in the form of Exhibit
A. Each Loan shall be in an aggregate amount not less than One Hundred
Thousand United States Dollars (U.S. $100,000) and increments of One Thousand
United States Dollars (U.S. $1,000) in excess thereof. Payment of principal
and interest due with respect to each Loan shall be payable at the maturity of
such Loan and shall be made in funds immediately available to the Bank prior
to 2 p.m. Dallas time on the day such payment is due, or as the Bank shall
otherwise direct from time to time and, subject to the terms and conditions
hereof, may be repaid with the proceeds of a new borrowing hereunder.
Notwithstanding any provision of this Agreement to the contrary, all Loans,
accrued but unpaid interest and other amounts payable hereunder shall be due
and payable upon termination of the Facility (whether by acceleration or
otherwise). If any Loan bearing interest based on the London Interbank
Offered Rate is repaid or prepaid other than on the last day of an interest
period applicable thereto, the Fund which is the beneficiary of such Loan
shall pay to the Bank promptly upon demand such amount as the Bank determines
in good faith is necessary to compensate the Bank for any reasonable cost or
expense incurred by the Bank as a result of such repayment or prepayment in
connection with the reemployment of funds in an amount equal to such repayment
or prepayment. Whenever the Bank seeks to assess for any such cost or expense
it will provide a certificate as the Borrower(s) shall reasonably request.
5. Facility Fee. Beginning with the date of this Agreement and until
such time as all Loans have been irrevocably repaid to the Bank in full, and
the Bank is no longer obligated to make Loans, the Funds (to be allocated
among the Funds as the Borrowers deem appropriate) shall pay to the Bank a
facility fee (the "Facility Fee") in the amount of .05 of one percent (5 basis
points) of the amount of the Commitment, as it may be reduced pursuant to
section 6. The Facility Fee shall be payable quarterly in arrears beginning
March 31, 1996, and upon termination of the Facility (whether by acceleration
or otherwise).
6. Optional Termination or Reduction of Commitment. The Borrowers
shall have the right upon at least three (3) business days prior written
notice to the Bank, to terminate or reduce the unused portion of the
Commitment. Any such reduction of the Commitment shall be in the amount of
Five Million United States Dollars (U.S. $5,000,000) or any larger integral
multiple of One Million United States Dollars (U.S. $1,000,000) (except that
any reduction may be in the aggregate amount of the unused Commitment).
Accrued fees with respect to the terminated Commitment shall be payable to the
Bank on the effective date of such termination.
7. Mandatory Termination of Commitment. The Commitment shall
automatically terminate on the last day of the Facility Period and any Loans
then outstanding (together with accrued interest thereon and any other amounts
owing hereunder) shall be due and payable on such date.
8. Committed Facility. The Bank acknowledges that the Facility is a
committed facility and that the Bank shall be obligated to make any Loan
requested during the Facility Period under this Agreement, subject to the
terms and conditions hereof; provided, however, that the Bank shall not be
obligated to make any Loan if this Facility has been terminated by the
Borrowers, or if at the time of a request for a Loan by a Borrower (on behalf
of the applicable Fund(s)) there exists any Event of Default or condition
which, with the passage of time or giving of notice, or both, would constitute
or become an Event of Default with respect to such Borrower (or such
applicable Fund(s)).
9. Loan Requests. Each request for a Loan (each a "Borrowing
Notice") shall be in writing by the applicable Borrower(s), except that such
Borrower(s) may make an oral request (each an "Oral Request") provided that
each Oral Request shall be followed by a written Borrowing Notice within one
business day. Each Borrowing Notice shall specify the following terms
("Terms") of the requested Loan: (i) the date on which such Loan is to be
disbursed, (ii) the principal amount of such Loan, (iii) the Borrower(s) which
are borrowing such Loan and the amount of such Loan to be borrowed by each
Borrower, (iv) the Funds for whose benefit the Loan is being borrowed and the
amount of the Loan which is for the benefit of each such Fund, (v) whether
such Loan shall bear interest at the Federal Funds Rate or the London
Interbank Offered Rate, and (vi) the requested maturity date of the Loan.
Each Borrowing Notice shall also set forth the total assets of each Fund for
whose benefit a portion of the Loan is being borrowed as of the close of
business on the day immediately preceding the date of such Borrowing Notice.
Borrowing Notices shall be delivered to the Bank by 1:00 p.m. Dallas time on
the day the Loan is requested to be made if such Loan is to bear interest
based on the Federal Funds Rate or by 10:00 a.m. Dallas time on the second
business day before the Loan is requested to be made if such Loan is to bear
interest based on the London Interbank Offered Rate.
Each Borrowing Notice shall constitute a representation to the Bank by the
applicable Borrower(s) that all of the representations and warranties in
Section 12 hereof are true and correct as of such date and that no Event of
Default or other condition which with the passage of time or giving of notice,
or both, would result in an Event of Default, has occurred or is occurring.
10. Confirmations; Crediting of Funds; Reliance by the Bank. Upon
receipt by the Bank of a Borrowing Notice:
(a) The Bank shall send each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as
soon as reasonably practicable; provided, however, that the failure
to do so shall not affect the obligation of any such Borrower;
(b) The Bank shall make such Loan in accordance with the Terms
by transfer of the Loan amount in immediately available funds, to the
account of the applicable Borrower(s) as specified in Exhibit B to this
Agreement or as such Borrower(s) shall otherwise specify to the Bank in
a writing signed by an Authorized Individual (as defined in Section 11)
of such Borrower(s) and sent to the Bank via facsimile or telecopy; and
(c) The Bank shall make appropriate entries on the Note or the
records of the Bank to reflect the Terms of the Loan; provided, however,
that the failure to do so shall not affect the obligation of any
Borrower.
The Bank shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify the Bank thereof.
11. Borrowing Resolutions and Officers' Certificates; Subordination
Agreement. Prior to the making of any Loan pursuant to this Agreement, the
Borrowers shall have delivered to the Bank (a) the duly executed Note, (b)
resolutions of each Borrower's Trustees or Board of Directors authorizing such
Borrower to execute, deliver and perform this Agreement and the Note on behalf
of the applicable Funds, (c) an Officer's Certificate in substantially the
form set forth in Exhibit D to this Agreement, authorizing certain individuals
("Authorized Individuals"), to take on behalf of each Borrower (on behalf of
the applicable Funds) actions contemplated by this Agreement and the Note, and
(d) a subordination agreement in substantially the form set forth in Exhibit E
to this Agreement.
12. Representations and Warranties. In order to induce the Bank to
enter into this Agreement and to make the Loans provided for hereunder, each
Borrower hereby makes with respect to itself, and as may be relevant, the
series of Funds comprising such Borrower the following representations and
warranties, which shall survive the execution and delivery hereof and of the
Note:
(a) Organization, Standing, etc. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under
applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and
proposed to be conducted, to enter into this Agreement and all other
documents to be executed by it in connection with the transactions
contemplated hereby, to issue and borrow under the Note and to carry out
the terms hereof and thereof;
(b) Financial Information; Disclosure, etc. The Borrower has
furnished the Bank with certain financial statements of such Borrower
with respect to itself and the applicable Funds, all of which such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly
present the financial position and results of operations of such
Borrower and the applicable Funds on the dates and for the periods
indicated. Neither this Agreement nor any financial statements, reports
or other documents or certificates furnished to the Bank by such
Borrower or the applicable Funds in connection with the transactions
contemplated hereby contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
contained herein or therein in light of the circumstances when made not
misleading;
(c) Authorization; Compliance with Other Instruments. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary
corporate or trust action of the Borrower and will not result in any
violation of or be in conflict with or constitute a default under any
term of the charter, by-laws or trust agreement of such Borrower or the
applicable Funds, or of any borrowing restrictions or prospectus or
statement of additional information of such Borrower or the applicable
Funds, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Borrower, or
result in the creation of any mortgage, lien, charge or encumbrance upon
any of the properties or assets of such Borrower or the applicable Funds
pursuant to any such term. The Borrower and the applicable Funds are
not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which
they are a party, or to the best of such Borrower's knowledge, of any
judgment, decree, order, statute, rule or governmental regulation
applicable to them;
(d) SEC Compliance. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state
securities or similar laws and regulations, including all material
rules, regulations and administrative orders of the Securities and
Exchange Commission (the "SEC") and applicable Blue Sky authorities.
The Borrower and the applicable Funds are in compliance in all material
respects with all of the provisions of the Investment Company Act of
1940, and such Borrower has filed all reports with the SEC that are
required of it or the applicable Funds;
(e) Litigation. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator
or governmental body which seeks to restrain any of the transactions
contemplated by this Agreement or which, if adversely determined, could
have a material adverse effect on the assets or business operations of
such Borrower or the applicable Funds or the ability of such Borrower
and the applicable Funds to pay and perform their obligations hereunder
and under the Notes; and
(f) Borrowers' Relationship to Funds. The assets of each Fund
for whose benefit Loans are borrowed by the applicable Borrower are
subject to and liable for such Loans and are available to the applicable
Borrower for the repayment of such Loans.
13. Affirmative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to
any Loan made to such Borrower is irrevocably paid in full, and until the Bank
is no longer obligated to make Loans to such Borrower, such Borrower (for
itself and on behalf of its respective Funds) agrees:
(a) To deliver to the Bank as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to the Bank as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of
such Borrower and the applicable Funds, Statements of Assets and
Liabilities, Statements of Operations and Statements of Changes in Net
Assets of each applicable Fund as of the end of such semiannual period,
as set forth in each applicable Fund's Semiannual Report to
shareholders, together with a calculation of the maximum amount which
each applicable Fund could borrow under its Borrowing Limit at the end
of such semiannual period;
(c) To deliver to the Bank prompt notice of the occurrence of
any event or condition which constitutes, or is likely to result in, a
change in such Borrower or any applicable Fund which could reasonably be
expected to materially adversely affect the ability of any applicable
Fund to promptly repay outstanding Loans made for its benefit or the
ability of such Borrower to perform its obligations under this Agreement
or the Note;
(d) To do, or cause to be done, all things necessary to preserve
and keep in full force and effect the corporate or trust existence of
such Borrower and all permits, rights and privileges necessary for the
conduct of its businesses and to comply in all material respects with
all applicable laws, regulations and orders, including without
limitation, all rules and regulations promulgated by the SEC;
(e) To promptly notify the Bank of any litigation, threatened
legal proceeding or investigation by a governmental authority which
could materially affect the ability of such Borrower or the applicable
Funds to promptly repay the outstanding Loans or otherwise perform their
obligations hereunder; and
(f) In the event a Loan for the benefit of a particular Fund is
not repaid in full within 10 days after the date it is borrowed, and
until such Loan is repaid in full, to deliver to the Bank, within two
business days after each Friday occurring after such 10th day, a
statement setting forth the total assets of such Fund as of the close of
business on each such Friday.
14. Negative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to
any Loan made to such Borrower is irrevocably paid in full, and until the Bank
is no longer obligated to make Loans to such Borrower, such Borrower (for
itself and on behalf of its respective Funds) agrees:
(a) Not to incur any indebtedness for borrowed money (other than
pursuant to a $750,000,000 uncommitted master revolving credit facility
with USAA Capital Corporation (the "Other Facility") and overdrafts
incurred at the custodian of the Funds from time to time in the ordinary
course of business) except the Loans, without the prior written consent
of the Bank, which consent will not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or
substantially all of its assets in a single transaction or series of
related transactions (other than assets consisting of margin stock),
each without the prior written consent of the Bank, which consent will
not be unreasonably withheld; provided that a Borrower may without such
consent merge, consolidate with, or purchase substantially all of the
assets of, or sell substantially all of its assets to, an affiliated
investment company or series thereof, as provided for in Rule 17a-8 of
the Investment Company Act of 1940.
15. Events of Default. If any of the following events (each an "Event
of Default") shall occur (it being understood that an Event of Default with
respect to one Fund or Borrower shall not constitute an Event of Default with
respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a
period of five (5) days after the same becomes due and payable, whether
at maturity or with respect to the Facility Fee at a date fixed for the
payment thereof; or
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written
notice thereof shall have been given such Borrower or Fund by the Bank;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall
not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by the Bank;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in
any material respect when made;
(f) USAA Investment Management Company or any successor manager
or investment adviser, provided that such successor is a wholly-owned
subsidiary of USAA Capital Corporation, shall cease to be the Manager
and investment advisor of each Fund; or
(g) An event of default shall occur and be continuing under the
Other Facility;
then, in any event, and at any time thereafter, if any Event of Default shall
be continuing, the Bank may by written notice to the applicable Borrower or
Fund (i) terminate its commitment to make any Loan hereunder, whereupon said
commitment shall forthwith terminate without any other notice of any kind with
respect to such Borrower or Fund and (ii) declare the principal and interest
in respect of any outstanding Loans with respect to such Borrower or Fund, and
all other amounts due hereunder with respect to such Borrower or Fund, to be
immediately due and payable whereupon the principal and interest in respect
thereof and all other amounts due hereunder shall become forthwith due and
payable without presentment, demand, protest or other notice of any kind, all
of which are expressly waived by the Borrowers.
16. New Borrowers; New Funds. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of the Bank, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under
the Investment Company Act of 1940) as the original Borrowers to this
Agreement, may, by submitting an amended Schedule A and Exhibit B to
this Agreement to the Bank (which amended Schedule A and Exhibit B shall
replace the Schedule A and Exhibit B which are then a part of this
Agreement) and such other documents as the Bank may reasonably request,
become a party to this Agreement and may become a "Borrower" hereunder;
and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to the Bank (which amended Schedule A and
Exhibit B shall replace the Schedule A and Exhibit B which are then a
part of this Agreement), add additional Funds for whose benefit such
Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior consent of the Bank.
17. Limited Recourse. The Bank agrees (i) that any claim, liability,
or obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets
of any Fund shall be used to satisfy any claim, liability, or obligation
arising hereunder or under the Note with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Note (as determined in accordance
with the provisions hereof).
18. Remedies on Default. In case any one or more Events of Default
shall occur and be continuing, the Bank may proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceedings,
against the applicable Borrower(s) and/or Fund(s), as the case may be. In the
case of a default in the payment of any principal or interest on any Loan or
in the payment of any fee due hereunder, the relevant Funds (to be allocated
among such Funds as the Borrowers deem appropriate) shall pay to the Bank such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorney's fees and
expenses.
19. No Waiver of Remedies. No course of dealing or failure or delay
on the part of the Bank in exercising any right or remedy hereunder or under
the Note shall constitute a waiver of any right or remedy hereunder or under
the Note, nor shall any partial exercise of any right or remedy hereunder or
under the Note preclude any further exercise thereof or the exercise of any
other right or remedy hereunder or under the Note. Such rights and remedies
expressly provided are cumulative and not exclusive of any rights or remedies
which the Bank would otherwise have.
20. Expenses. The Funds (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses)
incurred by the Bank in connection with the collection and any other
enforcement proceedings of or regarding this Agreement, any Loan or the Note.
21. Benefit of Agreement. This Agreement and the Note shall be
binding upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties. The Bank may not sell
participations and subparticipations in all or any part of the Loans made
hereunder without the prior consent of the Borrowers, which consent shall not
be unreasonably withheld.
22. Notices. All notices hereunder and all written, facsimiled or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on Exhibit B and to the Bank as indicated on Exhibit C.
Written communications shall be deemed to have been duly given and made as
follows: If sent by mail, seventy-two (72) hours after deposit in the mail
with first-class postage prepaid, addressed as provided in Exhibit B (the
Borrowers) and Exhibit C (the Bank); and in the case of facsimile or telecopy,
when the facsimile or telecopy is received if on a business day or otherwise
on the next business day.
23. Modifications. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. Increased Cost and Reduced Return. If at any time after the date
hereof, the Bank (which shall include, for purposes of this Section, any
corporation controlling the Bank) determines that the adoption or modification
of any applicable law regarding the Bank's required levels of reserves, other
than the reserve requirement taken into account when computing the London
Interbank Offered Rate as provided in Section 3, or capital (including any
allocation of capital requirements or conditions), or similar requirements, or
any interpretation or administration thereof by a governmental body or
compliance by the Bank with any of such requirements, has or would have the
effect of (a) increasing the Bank's costs relating to the Loans, or (b)
reducing the yield or rate of return of the Bank on the Loans, to a level
below that which the Bank could have achieved but for the adoption or
modification of any such requirements, the Funds (to be allocated among the
Funds as the Borrowers deem appropriate) shall, within fifteen (15) days of
any request by the Bank, pay to the Bank such additional amounts as (in the
Bank's sole judgment, after good faith and reasonable computation) will
compensate the Bank for such increase in costs or reduction in yield or rate
of return of the Bank. Whenever the Bank shall seek compensation for any
increase in costs or reduction in yield or rate of return, the Bank shall
provide a certificate as the Borrower(s) shall reasonably request. Failure by
the Bank to demand payment within 90 days of any additional amounts payable
hereunder shall constitute a waiver of the Bank's right to demand payment of
such amounts at any subsequent time. Nothing herein contained shall be
construed or so operate as to require the Borrowers or the Funds to pay any
interest, fees, costs or charges greater than is permitted by applicable law.
25. Governing Law and Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the state of Texas without
regard to the choice of law provisions thereof.
26. Trust Disclaimer. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound
by or liable for any indebtedness, liability or obligation hereunder or under
the Note nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and the Bank.
Sincerely,
NATIONSBANK OF TEXAS, N.A.
By: /s/ Greg Venker
- -----------------------------
Title: Senior Vice President
AGREED AND ACCEPTED:
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
- --------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
- --------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
- --------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /s/ Michael J. C. Roth
- ---------------------------
Michael J.C. Roth
President
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
AND BORROWING LIMIT
Maximum Percent of the
Total Assets Which Can
Be Borrowed Under Facility
Borrower Funds Agreement and Other Facility
- -------- ----- -----------------------------
USAA Mutual Fund, Inc. USAA Aggressive Growth 25%
USAA Growth & Income 25
USAA Income Stock 25
USAA Short-Term Bond 25
USAA Money Market 25
USAA Growth 25
USAA Income 25
USAA Investment Trust USAA Cornerstone Strategy 25
USAA Gold 25
USAA International 25
USAA World Growth 25
USAA GNMA Trust 25
USAA Treasury Money Market Trust 25
USAA Emerging Markets 25
USAA Growth and Tax Strategy 25
USAA Growth Strategy 25
USAA Income Strategy 25
USAA Balanced Strategy 25
USAA Tax -Exempt Fund, Inc. USAA Long-Term 15
USAA Intermediate-Term 15
USAA Short-Term Bond 15
USAA Tax -Exempt Money Market 15
USAA California Bond 15
USAA California Money Market 15
USAA New York Bond 15
USAA New York Money Market 15
USAA Virginia Bond 15
USAA Virginia Money Market 15
USAA State Tax-Free Trust USAA Florida Tax-Free Income 15
USAA Florida Tax-Free Money Market 15
USAA Texas Tax-Free Income 15
USAA Texas Tax-Free Money Market 15
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $100,000,000 Dated: January 16, 1996
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively
the "Funds") promises to pay to the order of NATIONSBANK OF TEXAS, N.A. (the
"Bank") at the Bank's office located at 901 Main Street, Dallas, Dallas
County, Texas 75202, in lawful money of the United States of America, in
immediately available funds, the principal amount of all Loans made by the
Bank to such Borrower for the benefit of the applicable Funds under the
Facility Agreement Letter dated January 16, 1996 (as amended or modified, the
"Agreement"), among the Borrowers and the Bank, together with interest thereon
at the rate or rates set forth in the Agreement. All payments of interest and
principal outstanding shall be made in accordance with the terms of the
Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
The Bank is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of the Bank to do so or to do so
accurately shall not affect the obligations of any Borrower (or the Fund for
whose benefit it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
The Bank hereby agrees (i) that any claim, liability, or obligation
arising hereunder or under the Agreement whether on account of the principal
of any Loan, interest thereon, or any other amount due hereunder or thereunder
shall be satisfied only from the assets of the specific Fund for whose benefit
a Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of
any other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement) and (ii) that no assets of
any Fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Agreement with respect to the outstanding principal
amount of any Loan borrowed for the benefit of any other Fund or any accrued
and unpaid interest due and owing thereon or such other Fund's share of any
other amount due hereunder and under the Agreement (as determined in
accordance with the provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other agents
of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
---------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
--------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
--------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J. C. Roth
---------------------------
Michael J.C. Roth
President
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 16, 1996, executed by USAA MUTUAL FUND, INC., USAA INVESTMENT
TRUST, USAA TAX EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST on behalf of
and for the benefit of the series of funds comprising each such Borrower
payable to the order of NATIONSBANK OF TEXAS, N.A.
[Information listed in grid]
Date of Loan
Borrower and Fund
Amount of Loan
Type of Rate and Interest Rate on Date of Borrowing
Amount of Principal Repaid
Date of Repayment
Other Expenses
Notation made by
EXHIBIT B
NATIONSBANK OF TEXAS, N.A.
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA
TAX-EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (for Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288 (for Federal Express, 78240)
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA: X FED FUNDS CHIPS
--------- ------------
TO: (PLEASE PLACE BANK NAME, CORESPONDENT NAME (IF APPLICABLE), CHIPS AND/OR
FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
- ------------------------
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA INVESTMENT TRUST
- ---------------------
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA TAX EXEMPT FUND, INC.
- ---------------------------
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Bond Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
- -------------------------
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
EXHIBIT C
ADDRESS FOR THE BANK
NationsBank of Texas, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Attention: Greg Venker
Telephone No.: (214) 508-0584
Telecopy No.: (214) 508-0604
EXHIBIT D
OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the duly elected Secretary of USAA
Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA
State Tax-Free Trust and that he is authorized to execute this Certificate on
behalf of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund,
Inc. and USAA State Tax-Free Trust. The undersigned hereby further certifies
to the following:
The following individuals are duly authorized to act on behalf of USAA Mutual
Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA State
Tax-Free Trust, by transmitting telephonic, telex, or telecopy instructions
and other communications with regard to borrowings and payments pursuant to
the Master Revolving Credit Facility Agreement with NationsBank of Texas, N.A.
The signature set opposite the name of each individual below is that
individual's genuine signature.
NAME OFFICE SIGNATURE
- ---- ------ ---------
Michael J. C. Roth President /s/ Michael J.C. Roth
-------------------------
John W. Saunders, Jr. Senior Vice President
Fixed Income Investments /s/ John W. Saunders, Jr.
-------------------------
Harry W. Miller Senior Vice President
Equity Investments /s/ Harry W. Miller
-------------------------
Kenneth E. Willmann Vice President
Fixed Income /s/ Kenneth E. Willmann
-------------------------
David G. Peebles Vice President
Equity Investment /s/ David G. Peebles
-------------------------
Sherron A. Kirk Vice President
Controller /s/ Sherron A. Kirk
-------------------------
Dean R. Pantzar Executive Director
Mutual Fund Accounting /s/ Dean R. Pantzar
-------------------------
IN WITNESS WHEREOF, I have executed the Certificate as of this 16th day of
January, 1996.
/s/ Michael D. Wagner
-------------------------
MICHAEL D. WAGNER
Secretary
I, Michael J. C. Roth, President of USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. and USAA State Tax-Free Trust hereby certify
that Michael D. Wagner is, and has been at all times since a date prior to the
date of this Certificate, the duly elected, qualified, and acting Secretary of
USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and
USAA State Tax-Free Trust and that the signature set forth above is his true
and correct signature.
DATE: January 16, 1996
/s/ Michael J.C. Roth
---------------------
MICHAEL J. C. ROTH
President
EXHIBIT E
Subordination
NationsBank of Texas, N.A. Agreement
This is an agreement among: Dated: January 16, 1996
- -----------------------------------------------------------------------------
Name and Address of Lender (Including County):
NationsBank of Texas, N.A.
901 Main Street
Dallas, Dallas County, Texas 75202
(Lender)
- ---------------------------------------------
Name and Address of Borrower:
USAA Mutual Fund, Inc.
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, Texas 78288
(Debtor)
- ---------------------------------------------
Name and Address of Creditor:
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
(Creditor)
- ---------------------------------------------
1. Background. Debtor is or may be indebted to Lender pursuant to that
certain Facility Agreement Letter dated January 16, 1996 between Debtor
and Lender ("Senior Facility Agreement"). Debtor also is or may be
indebted to Creditor pursuant to that certain Facility Agreement Letter
dated January 15, 1996 between Debtor and Creditor ("Subordinated
Facility Agreement"). All debt (as hereinafter defined) under the
Senior Facility Agreement is hereinafter referred to as "senior debt"
and all debt (as hereinafter defined) under the Subordinated Facility
Agreement is hereinafter referred to as "subordinated debt".
2. Definition of Debt. The term "debt" as used in the terms "senior debt"
and "subordinated debt" means all debts, obligations and liabilities,
now or hereafter existing, direct or indirect, absolute or contingent,
joint or several, secured or unsecured, due or not due, contractual or
tortious, liquidated or unliquidated, arising by operation of law or
otherwise, irrespective of the person in whose favor such debt may
originally have been created and regardless of the manner in which such
debt has been or may hereafter be acquired by Lender or Creditor, as the
case may be, and includes all costs incurred to obtain, preserve,
perfect or enforce any security interest, lien or mortgage, or to
collect any debt or to maintain, preserve, collect and enforce any
collateral, and interest on such amounts.
3. Subordination of Debt. Until senior debt has been paid in full, Debtor
will not pay and Creditor will not accept any payment on subordinated
debt at any time that an Event of Default (as defined in the Senior
Facility Agreement) has occurred and is continuing in respect of senior
debt. Anything of value received by Creditor on account of subordinated
debt in violation of this agreement will be held by Creditor in trust
and immediately will be turned over to Lender in the form received to be
applied by Lender on senior debt.
4. Remedies of Creditor. Until all senior debt has been paid in full,
without Lender's permission, Creditor will not be a party to any action
or proceeding against any person to recover subordinated debt. Upon
written request of Lender, Creditor will file any claim or proof of
claim or take any other action to collect subordinated debt in any
bankruptcy, receivership, liquidation, reorganization or other
proceeding for relief of debtors or in connection with Debtor's
insolvency, or in liquidation or marshaling of Debtor's assets or
liabilities, or in any probate proceeding, and if any distribution shall
be made to Creditor, Creditor will hold the same in trust for Lender and
immediately pay to Lender, in the form received to be applied on senior
debt, all money or other assets received in any such proceedings on
account of subordinated debt until senior debt shall have been paid in
full. If Creditor shall fail to take an such action when requested by
Lender, Lender may enforce this agreement or as attorney in fact for
Creditor and Debtor may take any such action on Creditor's behalf.
Creditor hereby irrevocably appoints Lender Creditor's attorney in fact
to take any such action that Lender might request Creditor to take
hereunder, and to sue for, compromise, collect and receive all such
money and other assets and take any other action in Lender's own name or
in Creditor's name that Lender shall consider advisable for enforcement
and collection of subordinated debt, and to apply any amounts received
on senior debt.
5. Modifications. At any time and from time to time, without Creditor's
consent or notice to Creditor and without liability to Creditor and
without releasing or impairing any of Lender's rights against Creditor
or any of Creditor's obligations hereunder, Lender may take additional
or other security for senior debt; release, exchange, subordinated or
lose any security for senior debt; release any person obligated on
senior debt, modify, amend or waive compliance with any agreement
relating to senior debt; grant any adjustment, indulgence or forbearance
to, or compromise with, any person liable for senior debt; neglect,
delay, omit, fail or refuse to take or prosecute any action for
collection of any senior debt or to foreclose upon any collateral or
take or prosecute any action on any agreement securing any senior debt.
6. Subordination of Liens. Creditor subordinates and makes inferior to any
security interests, liens or mortgages now or hereafter securing senior
debt all security interests, liens, or mortgages now or hereafter
securing subordinated debt. Any foreclosure against any property
securing senior debt shall foreclose, extinguish and discharge all
security interests, liens and mortgages securing subordinated debt, and
any purchaser at any such foreclosure sale shall take title to the
property so sold free of all security interest, liens and mortgages
securing subordinated debt.
7. Statement of Subordination; Assignment by Creditor; Additional
Instruments. Debtor and Creditor will cause any instrument evidencing
or securing subordinated debt to bear upon its face a statement that
such instrument is subordinated to senior debt as set forth herein and
will take all actions and execute all documents appropriate to carry out
this agreement. Creditor will notify Lender not less than 10 days
before any assignment of any subordinated debt.
8. Assignment by Lender. Lender's rights under this agreement may be
assigned in connection with any assignment or transfer of any senior
debt.
9. Venue. Debtor and Creditor agree that this agreement is performable in
the county of Lender's address set out above.
10. Cumulative Rights; Waivers. This instrument is cumulative of all other
rights and securities of the Lender. No waiver by Lender of any right
hereunder, with respect to a particular payment, shall affect or impair
its rights in any matters thereafter occurring.
11. Successors and Assigns. This instrument is binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and
assigns of each of the parties hereto, but Creditor covenants that it
will not assign subordinated debt, or any part thereof, without making
the rights and interests of the assignee subject in all respects to the
terms of this instrument.
12. Termination. This agreement shall terminate upon the termination of the
Senior Facility Agreement and repayment in full of the senior debt.
(Lender) (Debtor) (Creditor)
NationsBank of Texas, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
By /s/ Greg Venker By /s/ Michael J.C. Roth By /s/ Laurie B. Blank
- ------------------ ------------------------ ----------------------
Its Senior Vice President Its President Its Treasurer
EXHIBIT 9(l)
April 18, 1996
Mr. Greg Venker
Senior Vice President
NationsBank of Texas, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75202
RE: ADDITION OF FUND TO THE MASTER REVOLVING CREDIT FACILITY AGREEMENT WITH
NATIONSBANK OF TEXAS, N.A.
Dear Mr. Venker:
Reference the January 16, 1996 $100,000,000 Master Revolving Credit Facility
executed between USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax
Exempt Fund, Inc. and USAA State Tax-Free Trust on behalf of and for the
series of Funds comprising each borrower and NationsBank of Texas, N.A.
Pursuant to the terms of the Facility Agreement, find attached a new Schedule
A which adds USAA S&P 500 Index Fund to the series of Funds under USAA Mutual
Fund, Inc., effective May 1, 1996. The Board of Directors for USAA Mutual
Fund, Inc. have approved the addition of USAA S&P 500 Index Fund to this
Facility Agreement. In addition, a revised Exhibit B containing the Fund's
account number at State Street Bank is attached.
Please note NationsBank of Texas, N.A.'s authorization to add the referenced
Fund, by signing below and returning same to Tim Weiss, in the USAA Capital
Corporation Treasurer's office.
Sincerely,
/s/ Michael J.C. Roth
Michael J.C. Roth AGREED AND ACCEPTED this 24th day
President of April, 1996.
USAA Mutual Fund, Inc.,
on behalf of and for the benefit NATIONSBANK OF TEXAS, N.A.
of its series of Funds as set
for on the new Schedule A
to the Agreement
By:/s/ Greg Venker
---------------------
Attachments: Schedule A Greg Venker
Exhibit B Senior Vice President
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
Borrower Funds Borrowing Limit
- ------- ----- ---------------
USAA Mutual Fund, Inc. USAA Aggressive Growth 5% of Total Assets
USAA Growth & Income '
USAA Income Stock '
USAA Short-Term Bond '
USAA Money Market '
USAA Growth '
USAA Income '
USAA S&P 500 Index '
USAA Investment Trust USAA Cornerstone Strategy '
USAA Gold '
USAA International '
USAA World Growth '
USAA GNMA Trust '
USAA Treasury Money Market Trust '
USAA Emerging Markets '
USAA Growth and Tax Strategy '
USAA Balanced Strategy '
USAA Growth Strategy '
USAA Income Strategy '
USAA Tax Exempt Fund, Inc. USAA Long-Term '
USAA Intermediate-Term '
USAA Short-Term '
USAA Tax Exempt Money Market '
USAA California Bond '
USAA California Money Market '
USAA New York Bond '
USAA New York Money Market '
USAA Virginia Bond '
USAA Virginia Money Market '
USAA State Tax-Free Trust USAA Florida Tax-Free Income '
USAA Florida Tax-Free Money Market '
USAA Texas Tax-Free Income '
USAA Texas Tax-Free Money Market '
EXHIBIT B
---------
USAA CAPITAL CORPORATION
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX EXEMPT
FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (For Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA:__X__FED FUNDS ____CHIPS
TO: (PLEASE PLACE BANK NAME, CORRESPONDENT NAME (IF APPLICABLE), CHIPS
AND/OR FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
- ----------------------
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA S&P 500 Index Fund Acct.# 6938-478-2
USAA INVESTMENT TRUST
- ---------------------
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA TAX EXEMPT FUND, INC.
- --------------------------
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
- -------------------------
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
EXHIBIT 10(c)
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
September 10, 1996
USAA Mutual Fund, Inc.
USAA Building
9800 Fredericksburg Road
San Antonio, Texas 78288
Ladies and Gentlemen:
We hereby consent to the incorporation by reference in Post-Effective
Amendment No. 42 (the "Amendment") to the Registration Statement (No. 2-49560)
on Form N-1A (the "Registration Statement") of USAA Mutual Fund, Inc. (the
"Registrant"), a Maryland corporation, of our opinion with respect to the
legality of shares of the Registrant representing interests in the USAA S&P
500 Index Fund series of the Registrant, which opinion was filed with Post-
Effective Amendment No. 40 to the Registration Statement.
We also hereby consent to being named in the Prospectus and the
Statement of Additional Information contained in the Amendment and to a copy
of this consent being filed as an exhibit to the Amendment.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
-----------------------------------------
GOODWIN, PROCTER & HOAR LLP
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 42 to the
Registration Statement of USAA Mutual Fund, Inc. on Form N-1A of our report
dated February 13, 1996 on our audit of the financial statements and financial
highlights of Equity 500 Index Portfolio which report is included in this Post-
Effective Amendment to the Registration Statement. We also consent to the
references to our Firm in the Prospectus under the caption "Service Providers"
and in the Statement of Additional Information under the captions "General
Information" and "Independent Accountants".
/s/ COOPERS & LYBRAND L.L.P.
----------------------------------
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
September 11, 1996
EXHIBIT 13(b)
SUBSCRIPTION
April 25, 1996
TO: Board of Directors
USAA Mutual Fund, Inc.
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
Dear Sirs:
The undersigned hereby subscribes to 10 shares of the S&P
500 Index Fund series, on May 1, 1996, with one cent par value,
of USAA Mutual Fund, Inc. at a price of $10.00 per share and
agrees to pay therefore upon demand, cash in the amount of $100
to the named Fund.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
/s/Michael J. C. Roth
-----------------------
By: MICHAEL J. C. ROTH
President
April 25, 1996
USAA Mutual Fund, Inc.
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
Gentlemen:
In connection with your sale to us on May 1, 1996 of ten (10)
shares of capital stock representing interests in the S&P 500 Index
Fund, we understand that: (i) the Shares have not been
registered under the Securities Act of 1933, as amended (the
"1933 Act"); (ii) your sale of the Shares to us is made in
reliance on such sale being exempt under Section 4(2) of the 1933
Act as not involving any public offering; and (iii) in part, your
reliance on such exemption is predicated on our representation,
which we hereby confirm, that we are acquiring the Shares for
investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale
or distribution of the shares or of any interest therein. We
hereby agree that we will not sell, assign or transfer the Shares
or any interest therein, except upon repurchase or redemption by
the Company, unless and until the Shares have been registered
under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that said sale,
assignment or transfer will not violate the provisions of the
1933 Act or any rules or regulations promulgated thereunder.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
By:/s/Michael J. C. Roth
------------------------
MICHAEL J. C. ROTH
President
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 1
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 935,945,826
<INVESTMENTS-AT-VALUE> 1,107,247,802
<RECEIVABLES> 3,944,578
<ASSETS-OTHER> 359,368
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,111,551,748
<PAYABLE-FOR-SECURITIES> 2,370,545
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,479,582
<TOTAL-LIABILITIES> 3,850,127
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 908,830,252
<SHARES-COMMON-STOCK> 55,813,116
<SHARES-COMMON-PRIOR> 48,416,103
<ACCUMULATED-NII-CURRENT> 428,780
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,140,613
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 171,301,976
<NET-ASSETS> 1,107,701,621
<DIVIDEND-INCOME> 12,112,655
<INTEREST-INCOME> 1,368,300
<OTHER-INCOME> 0
<EXPENSES-NET> (5,146,494)
<NET-INVESTMENT-INCOME> 8,334,461
<REALIZED-GAINS-CURRENT> 40,226,191
<APPREC-INCREASE-CURRENT> 61,591,633
<NET-CHANGE-FROM-OPS> 110,152,285
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,338,793)
<DISTRIBUTIONS-OF-GAINS> (49,084,257)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 141,624,873
<NUMBER-OF-SHARES-REDEEMED> (65,529,746)
<SHARES-REINVESTED> 63,056,285
<NET-CHANGE-IN-ASSETS> 184,880,647
<ACCUMULATED-NII-PRIOR> 7,433,112
<ACCUMULATED-GAINS-PRIOR> 35,998,679
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,753,999
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,146,494
<AVERAGE-NET-ASSETS> 997,506,383
<PER-SHARE-NAV-BEGIN> 19.06
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (0.97)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.85
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 2
<NAME> AGGRESSIVE GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 316,018,436
<INVESTMENTS-AT-VALUE> 454,441,736
<RECEIVABLES> 1,114,435
<ASSETS-OTHER> 395,730
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 455,951,902
<PAYABLE-FOR-SECURITIES> 3,957,724
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 754,534
<TOTAL-LIABILITIES> 4,712,258
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 307,592,656
<SHARES-COMMON-STOCK> 17,444,725
<SHARES-COMMON-PRIOR> 14,840,028
<ACCUMULATED-NII-CURRENT> (809,824)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,033,512
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 138,423,300
<NET-ASSETS> 451,239,644
<DIVIDEND-INCOME> 153,119
<INTEREST-INCOME> 597,074
<OTHER-INCOME> 0
<EXPENSES-NET> (1,554,991)
<NET-INVESTMENT-INCOME> (804,798)
<REALIZED-GAINS-CURRENT> 18,407,350
<APPREC-INCREASE-CURRENT> 29,388,457
<NET-CHANGE-FROM-OPS> 46,991,009
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (25,025,135)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114,672,971
<NUMBER-OF-SHARES-REDEEMED> (71,794,152)
<SHARES-REINVESTED> 23,004,748
<NET-CHANGE-IN-ASSETS> 87,849,441
<ACCUMULATED-NII-PRIOR> (5,026)
<ACCUMULATED-GAINS-PRIOR> 12,651,297
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 872,139
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,554,991
<AVERAGE-NET-ASSETS> 407,139,032
<PER-SHARE-NAV-BEGIN> 24.49
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 3.04
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.61)
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 25.87
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 3
<NAME> INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 1,757,060,622
<INVESTMENTS-AT-VALUE> 1,874,654,808
<RECEIVABLES> 73,870,666
<ASSETS-OTHER> 282,895
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,948,808,368
<PAYABLE-FOR-SECURITIES> 45,018,775
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,516,816
<TOTAL-LIABILITIES> 46,535,591
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,780,529,057
<SHARES-COMMON-STOCK> 146,184,052
<SHARES-COMMON-PRIOR> 144,913,546
<ACCUMULATED-NII-CURRENT> 661,962
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,487,573
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 117,594,186
<NET-ASSETS> 1,902,272,777
<DIVIDEND-INCOME> 7,436,925
<INTEREST-INCOME> 55,537,816
<OTHER-INCOME> 0
<EXPENSES-NET> (3,741,978)
<NET-INVESTMENT-INCOME> 59,232,763
<REALIZED-GAINS-CURRENT> 3,643,250
<APPREC-INCREASE-CURRENT> 128,672,776
<NET-CHANGE-FROM-OPS> 191,548,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60,791,424)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,951,665
<NUMBER-OF-SHARES-REDEEMED> (122,077,351)
<SHARES-REINVESTED> 49,470,300
<NET-CHANGE-IN-ASSETS> 147,101,979
<ACCUMULATED-NII-PRIOR> 2,021,505
<ACCUMULATED-GAINS-PRIOR> 43,441
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,208,142
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,741,978
<AVERAGE-NET-ASSETS> 1,832,075,107
<PER-SHARE-NAV-BEGIN> 12.11
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.91
<PER-SHARE-DIVIDEND> (0.42)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.01
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 4
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 1,656,112,469
<INVESTMENTS-AT-VALUE> 1,656,112,470
<RECEIVABLES> 13,014,665
<ASSETS-OTHER> 6,524,638
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,675,651,773
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,703,680
<TOTAL-LIABILITIES> 10,703,680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,664,948,092
<SHARES-COMMON-STOCK> 1,664,948,093
<SHARES-COMMON-PRIOR> 1,540,055,420
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,664,948,092
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48,203,962
<OTHER-INCOME> 0
<EXPENSES-NET> (3,632,250)
<NET-INVESTMENT-INCOME> 44,571,712
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 44,571,712
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (44,571,712)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,109,677,288
<NUMBER-OF-SHARES-REDEEMED> (1,027,704,086)
<SHARES-REINVESTED> 42,919,471
<NET-CHANGE-IN-ASSETS> 124,892,673
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,937,880
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,152,997
<AVERAGE-NET-ASSETS> 1,606,273,832
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 6
<NAME> INCOME STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 1,410,289,549
<INVESTMENTS-AT-VALUE> 1,640,560,389
<RECEIVABLES> 8,220,994
<ASSETS-OTHER> 714,909
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,649,496,292
<PAYABLE-FOR-SECURITIES> 3,338,813
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,782,843
<TOTAL-LIABILITIES> 5,121,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,403,765,165
<SHARES-COMMON-STOCK> 102,837,645
<SHARES-COMMON-PRIOR> 94,113,543
<ACCUMULATED-NII-CURRENT> 3,964,848
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,373,783
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 230,270,840
<NET-ASSETS> 1,644,374,636
<DIVIDEND-INCOME> 42,322,170
<INTEREST-INCOME> 1,901,696
<OTHER-INCOME> 0
<EXPENSES-NET> (5,583,051)
<NET-INVESTMENT-INCOME> 38,640,815
<REALIZED-GAINS-CURRENT> 12,068,199
<APPREC-INCREASE-CURRENT> 114,985,018
<NET-CHANGE-FROM-OPS> 165,694,032
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37,464,901)
<DISTRIBUTIONS-OF-GAINS> (26,301,687)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 159,489,628
<NUMBER-OF-SHARES-REDEEMED> (84,163,452)
<SHARES-REINVESTED> 58,750,227
<NET-CHANGE-IN-ASSETS> 236,003,847
<ACCUMULATED-NII-PRIOR> 2,689,172
<ACCUMULATED-GAINS-PRIOR> 20,707,034
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,809,997
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,583,051
<AVERAGE-NET-ASSETS> 1,514,574,075
<PER-SHARE-NAV-BEGIN> 14.96
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.99
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 7
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 237,967,967
<INVESTMENTS-AT-VALUE> 290,561,436
<RECEIVABLES> 1,906,595
<ASSETS-OTHER> 218,847
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 292,686,877
<PAYABLE-FOR-SECURITIES> 3,220,413
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 320,316
<TOTAL-LIABILITIES> 3,540,729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 234,795,164
<SHARES-COMMON-STOCK> 21,737,159
<SHARES-COMMON-PRIOR> 17,270,509
<ACCUMULATED-NII-CURRENT> 264,460
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,493,056
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52,593,468
<NET-ASSETS> 289,146,148
<DIVIDEND-INCOME> 3,201,978
<INTEREST-INCOME> 347,798
<OTHER-INCOME> 0
<EXPENSES-NET> (1,163,755)
<NET-INVESTMENT-INCOME> 2,386,021
<REALIZED-GAINS-CURRENT> 2,350,208
<APPREC-INCREASE-CURRENT> 24,404,211
<NET-CHANGE-FROM-OPS> 29,140,440
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,357,738)
<DISTRIBUTIONS-OF-GAINS> (2,448,856)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69,506,888
<NUMBER-OF-SHARES-REDEEMED> (17,861,531)
<SHARES-REINVESTED> 4,676,775
<NET-CHANGE-IN-ASSETS> 80,655,978
<ACCUMULATED-NII-PRIOR> 236,176
<ACCUMULATED-GAINS-PRIOR> 1,591,704
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 731,763
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,163,755
<AVERAGE-NET-ASSETS> 243,813,312
<PER-SHARE-NAV-BEGIN> 12.07
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.36
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.30
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 8
<NAME> SHORT-TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 93,355,147
<INVESTMENTS-AT-VALUE> 93,782,543
<RECEIVABLES> 1,424,091
<ASSETS-OTHER> 171,797
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,378,430
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 367,156
<TOTAL-LIABILITIES> 367,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,024,819
<SHARES-COMMON-STOCK> 9,566,955
<SHARES-COMMON-PRIOR> 7,722,046
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (440,940)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 427,396
<NET-ASSETS> 95,011,274
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,977,006
<OTHER-INCOME> 0
<EXPENSES-NET> (215,038)
<NET-INVESTMENT-INCOME> 2,761,968
<REALIZED-GAINS-CURRENT> 116,143
<APPREC-INCREASE-CURRENT> 433,958
<NET-CHANGE-FROM-OPS> 3,312,069
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,761,968)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,708,701
<NUMBER-OF-SHARES-REDEEMED> (21,848,852)
<SHARES-REINVESTED> 2,411,751
<NET-CHANGE-IN-ASSETS> 18,821,701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (557,084)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 281,344
<AVERAGE-NET-ASSETS> 85,351,482
<PER-SHARE-NAV-BEGIN> 9.87
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.93
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 9
<NAME> S&P 500 INDEX FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 61,402
<RECEIVABLES> 767
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,169
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,783
<SHARES-COMMON-STOCK> 5,954
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 41
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,316
<NET-ASSETS> 62,163
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 161
<EXPENSES-NET> (5)
<NET-INVESTMENT-INCOME> 156
<REALIZED-GAINS-CURRENT> 23
<APPREC-INCREASE-CURRENT> 1,316
<NET-CHANGE-FROM-OPS> 1,495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (115)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 61,393
<NUMBER-OF-SHARES-REDEEMED> (715)
<SHARES-REINVESTED> 105
<NET-CHANGE-IN-ASSETS> 62,163
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39
<AVERAGE-NET-ASSETS> 50,779
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
